UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☒ |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended October 5, 2019.
OR
☐ |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to .
Commission File Number: 000-31127
SPARTANNASH COMPANY
(Exact Name of Registrant as Specified in Its Charter)
Michigan |
|
38-0593940 |
(State or Other Jurisdiction of Incorporation or Organization) |
|
(I.R.S. Employer Identification No.) |
|
|
|
850 76th Street, S.W. P.O. Box 8700 Grand Rapids, Michigan |
|
49518 |
(Address of Principal Executive Offices) |
|
(Zip Code) |
(616) 878-2000
(Registrant’s Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
|
Trading Symbol(s) |
|
Name of each exchange on which registered |
Common Stock, no par value |
|
SPTN |
|
NASDAQ Global Select Market |
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer |
|
☒ |
|
Accelerated filer |
|
☐ |
|
Non-accelerated filer |
|
☐ |
|
Smaller reporting company |
|
☐ |
Emerging growth company |
|
☐ |
|
|
|
|
|
|
|
|
|
|
|
|
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of November 6, 2019, the registrant had 36,347,337 outstanding shares of common stock, no par value.
FORWARD-LOOKING STATEMENTS
The matters discussed in this Quarterly Report on Form 10-Q, in the Company’s press releases and in the Company’s website-accessible conference calls with analysts and investor presentations include “forward-looking statements” about the plans, strategies, objectives, goals or expectations of SpartanNash Company and subsidiaries (“SpartanNash” or “the Company”). These forward-looking statements are identifiable by words or phrases indicating that SpartanNash or management “expects,” “anticipates,” “plans,” “believes,” or “estimates,” or that a particular occurrence or event “will,” “may,” “could,” “should” or “will likely” result, occur or be pursued or “continue” in the future, that the “outlook” or “trend” is toward a particular result or occurrence, that a development is an “opportunity,” “priority,” “strategy,” “focus,” that the Company is “positioned” for a particular result, or similarly stated expectations. Accounting estimates, such as those described under the heading “Critical Accounting Policies” in Part I, Item 2 of this Quarterly Report on Form 10-Q, are inherently forward-looking. The Company’s asset impairment and restructuring cost provisions are estimates and actual costs may be more or less than these estimates and differences may be material. Undue reliance should not be placed on these forward-looking statements, which speak only as of the date of the Quarterly Report, other report, release, presentation, or statement.
In addition to other risks and uncertainties described in connection with the forward-looking statements contained in this Quarterly Report on Form 10-Q, SpartanNash’s Annual Report on Form 10-K for the fiscal year ended December 29, 2018 and other periodic reports filed with the Securities and Exchange Commission (“SEC”), there are many important factors that could cause actual results to differ materially. These risks and uncertainties include general business conditions, changes in overall economic conditions that impact consumer spending, the Company’s ability to integrate acquired assets, the impact of competition and other factors which are often beyond the control of the Company, and other risks listed in the “Risk Factors” discussion in Item 1A of the Company’s Annual Report on Form 10-K for the fiscal year ended December 29, 2018 and risks and uncertainties not presently known to the Company or that the Company currently deems immaterial.
This section and the discussions contained in Item 1A “Risk Factors” of the Company’s Annual Report on Form 10-K for the fiscal year ended December 29, 2018 and in Part I, Item 2 “Critical Accounting Policies” of the Quarterly Report on Form 10-Q, are intended to provide meaningful cautionary statements for purposes of the safe harbor provision of the Private Securities Litigation Reform Act of 1995. This should not be construed as a complete list of all the economic, competitive, governmental, technological and other factors that could adversely affect the Company’s expected consolidated financial position, results of operations or liquidity. Additional risks and uncertainties not currently known to SpartanNash or that SpartanNash currently believes are immaterial also may impair its business, operations, liquidity, financial condition and prospects. The Company undertakes no obligation to update or revise its forward-looking statements to reflect developments that occur, or information obtained after the date of this Quarterly Report.
2
PART I
FINANCIAL INFORMATION
ITEM 1. Financial Statements
SPARTANNASH COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, Unaudited)
|
October 5, |
|
|
December 29, |
|
|||||
|
2019 |
|
|
2018 |
|
|||||
Assets |
|
|
|
|
|
|
|
|
|
|
Current assets |
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
$ |
|
23,436 |
|
|
$ |
|
18,585 |
|
|
Accounts and notes receivable, net |
|
|
374,287 |
|
|
|
|
346,260 |
|
|
Inventories, net |
|
|
594,676 |
|
|
|
|
553,799 |
|
|
Prepaid expenses and other current assets |
|
|
52,176 |
|
|
|
|
73,798 |
|
|
Property and equipment held for sale |
|
|
3,968 |
|
|
|
|
8,654 |
|
|
Total current assets |
|
|
1,048,543 |
|
|
|
|
1,001,096 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net |
|
|
618,126 |
|
|
|
|
579,060 |
|
|
Goodwill |
|
|
181,035 |
|
|
|
|
178,648 |
|
|
Intangible assets, net |
|
|
128,351 |
|
|
|
|
128,926 |
|
|
Operating lease assets |
|
|
272,591 |
|
|
|
|
— |
|
|
Other assets, net |
|
|
85,900 |
|
|
|
|
84,182 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
$ |
|
2,334,546 |
|
|
$ |
|
1,971,912 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Shareholders’ Equity |
|
|
|
|
|
|
|
|
|
|
Current liabilities |
|
|
|
|
|
|
|
|
|
|
Accounts payable |
$ |
|
456,991 |
|
|
$ |
|
357,802 |
|
|
Accrued payroll and benefits |
|
|
59,472 |
|
|
|
|
57,180 |
|
|
Other accrued expenses |
|
|
45,667 |
|
|
|
|
43,206 |
|
|
Current portion of operating lease liabilities |
|
|
41,795 |
|
|
|
|
— |
|
|
Current portion of long-term debt and finance lease liabilities |
|
|
7,044 |
|
|
|
|
18,263 |
|
|
Total current liabilities |
|
|
610,969 |
|
|
|
|
476,451 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term liabilities |
|
|
|
|
|
|
|
|
|
|
Deferred income taxes |
|
|
43,734 |
|
|
|
|
49,254 |
|
|
Operating lease liabilities |
|
|
273,631 |
|
|
|
|
— |
|
|
Other long-term liabilities |
|
|
30,861 |
|
|
|
|
50,463 |
|
|
Long-term debt and finance lease liabilities |
|
|
686,055 |
|
|
|
|
679,797 |
|
|
Total long-term liabilities |
|
|
1,034,281 |
|
|
|
|
779,514 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies (Note 8) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders’ equity |
|
|
|
|
|
|
|
|
|
|
Common stock, voting, no par value; 100,000 shares authorized; 36,350 and 35,952 shares outstanding |
|
|
489,656 |
|
|
|
|
484,064 |
|
|
Preferred stock, no par value, 10,000 shares authorized; no shares outstanding |
|
|
— |
|
|
|
|
— |
|
|
Accumulated other comprehensive loss |
|
|
(748 |
) |
|
|
|
(15,759 |
) |
|
Retained earnings |
|
|
200,388 |
|
|
|
|
247,642 |
|
|
Total shareholders’ equity |
|
|
689,296 |
|
|
|
|
715,947 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders’ equity |
$ |
|
2,334,546 |
|
|
$ |
|
1,971,912 |
|
See accompanying notes to condensed consolidated financial statements.
3
SPARTANNASH COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
|
12 Weeks Ended |
|
|
40 Weeks Ended |
|
|
||||||||||||||
|
October 5, 2019 |
|
|
October 6, 2018 |
|
|
October 5, 2019 |
|
|
October 6, 2018 |
|
|
||||||||
Net sales |
$ |
|
1,999,808 |
|
|
$ |
|
1,886,730 |
|
|
$ |
|
6,538,112 |
|
|
$ |
|
6,167,756 |
|
|
Cost of sales |
|
|
1,709,447 |
|
|
|
|
1,630,588 |
|
|
|
|
5,581,015 |
|
|
|
|
5,302,740 |
|
|
Gross profit |
|
|
290,361 |
|
|
|
|
256,142 |
|
|
|
|
957,097 |
|
|
|
|
865,016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative |
|
|
273,286 |
|
|
|
|
228,583 |
|
|
|
|
900,160 |
|
|
|
|
773,844 |
|
|
Merger/acquisition and integration |
|
|
— |
|
|
|
|
521 |
|
|
|
|
1,364 |
|
|
|
|
3,531 |
|
|
Restructuring charges and asset impairment |
|
|
1,296 |
|
|
|
|
232 |
|
|
|
|
10,215 |
|
|
|
|
5,269 |
|
|
Total operating expenses |
|
|
274,582 |
|
|
|
|
229,336 |
|
|
|
|
911,739 |
|
|
|
|
782,644 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating earnings |
|
|
15,779 |
|
|
|
|
26,806 |
|
|
|
|
45,358 |
|
|
|
|
82,372 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other expenses and (income) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
7,375 |
|
|
|
|
7,082 |
|
|
|
|
27,952 |
|
|
|
|
22,828 |
|
|
Loss on debt extinguishment |
|
|
329 |
|
|
|
|
— |
|
|
|
|
329 |
|
|
|
|
— |
|
|
Postretirement benefit expense (income) |
|
|
10,221 |
|
|
|
|
(6 |
) |
|
|
|
19,677 |
|
|
|
|
(20 |
) |
|
Other, net |
|
|
(180 |
) |
|
|
|
(189 |
) |
|
|
|
(1,071 |
) |
|
|
|
(635 |
) |
|
Total other expenses, net |
|
|
17,745 |
|
|
|
|
6,887 |
|
|
|
|
46,887 |
|
|
|
|
22,173 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) earnings before income taxes and discontinued operations |
|
|
(1,966 |
) |
|
|
|
19,919 |
|
|
|
|
(1,529 |
) |
|
|
|
60,199 |
|
|
Income tax (benefit) expense |
|
|
(1,656 |
) |
|
|
|
2,374 |
|
|
|
|
(1,973 |
) |
|
|
|
12,381 |
|
|
(Loss) earnings from continuing operations |
|
|
(310 |
) |
|
|
|
17,545 |
|
|
|
|
444 |
|
|
|
|
47,818 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from discontinued operations, net of taxes |
|
|
(27 |
) |
|
|
|
(80 |
) |
|
|
|
(126 |
) |
|
|
|
(238 |
) |
|
Net (loss) earnings |
$ |
|
(337 |
) |
|
$ |
|
17,465 |
|
|
$ |
|
318 |
|
|
$ |
|
47,580 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic (loss) earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) earnings from continuing operations |
$ |
|
(0.01 |
) |
|
$ |
|
0.49 |
|
|
$ |
|
0.01 |
|
|
$ |
|
1.33 |
|
|
Loss from discontinued operations |
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
(0.01 |
) |
|
Net (loss) earnings |
$ |
|
(0.01 |
) |
|
$ |
|
0.49 |
|
|
$ |
|
0.01 |
|
|
$ |
|
1.32 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted (loss) earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) earnings from continuing operations |
$ |
|
(0.01 |
) |
|
$ |
|
0.49 |
|
|
$ |
|
0.01 |
|
|
$ |
|
1.33 |
|
|
Loss from discontinued operations |
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
(0.01 |
) |
|
Net (loss) earnings |
$ |
|
(0.01 |
) |
|
$ |
|
0.49 |
|
|
$ |
|
0.01 |
|
|
$ |
|
1.32 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to condensed consolidated financial statements.
4
SPARTANNASH COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands, Unaudited)
|
12 Weeks Ended |
|
|
40 Weeks Ended |
|
||||||||||||||
|
October 5, 2019 |
|
|
October 6, 2018 |
|
|
October 5, 2019 |
|
|
October 6, 2018 |
|
||||||||
Net (loss) earnings |
$ |
|
(337 |
) |
|
$ |
|
17,465 |
|
|
$ |
|
318 |
|
|
$ |
|
47,580 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income, before tax |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension and postretirement liability adjustment |
|
|
10,808 |
|
|
|
|
83 |
|
|
|
|
19,824 |
|
|
|
|
278 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense related to items of other comprehensive income |
|
|
(2,624 |
) |
|
|
|
(20 |
) |
|
|
|
(4,813 |
) |
|
|
|
(68 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other comprehensive income, after tax |
|
|
8,184 |
|
|
|
|
63 |
|
|
|
|
15,011 |
|
|
|
|
210 |
|
Comprehensive income |
$ |
|
7,847 |
|
|
$ |
|
17,528 |
|
|
$ |
|
15,329 |
|
|
$ |
|
47,790 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to condensed consolidated financial statements.
5
SPARTANNASH COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(In thousands, Unaudited)
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
|
|
||
|
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
|
|
||
|
Shares |
|
|
Common |
|
|
Comprehensive |
|
|
Retained |
|
|
|
|
|
|
|||||||
|
Outstanding |
|
|
Stock |
|
|
Income (Loss) |
|
|
Earnings |
|
|
Total |
|
|||||||||
Balance at December 29, 2018 |
|
35,952 |
|
|
$ |
|
484,064 |
|
|
$ |
|
(15,759 |
) |
|
$ |
|
247,642 |
|
|
$ |
|
715,947 |
|
Impact of adoption of new lease standard (ASU 2016-02) |
|
|
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
(26,863 |
) |
|
|
|
(26,863 |
) |
Net earnings |
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
7,469 |
|
|
|
|
7,469 |
|
Other comprehensive income |
|
— |
|
|
|
|
— |
|
|
|
|
60 |
|
|
|
|
— |
|
|
|
|
60 |
|
Dividends - $0.19 per share |
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
(6,902 |
) |
|
|
|
(6,902 |
) |
Stock-based employee compensation |
|
— |
|
|
|
|
5,383 |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
5,383 |
|
Issuances of common stock on stock option exercises and for stock bonus plan and associate stock purchase plan |
|
30 |
|
|
|
|
452 |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
452 |
|
Issuances of restricted stock |
|
444 |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
Cancellations of stock-based awards |
|
(107 |
) |
|
|
|
(1,744 |
) |
|
|
|
— |
|
|
|
|
— |
|
|
|
|
(1,744 |
) |
Balance at April 20, 2019 |
|
36,319 |
|
|
$ |
|
488,155 |
|
|
$ |
|
(15,699 |
) |
|
$ |
|
221,346 |
|
|
$ |
|
693,802 |
|
Net loss |
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
(6,814 |
) |
|
|
|
(6,814 |
) |
Other comprehensive income |
|
— |
|
|
|
|
— |
|
|
|
|
6,767 |
|
|
|
|
— |
|
|
|
|
6,767 |
|
Dividends - $0.19 per share |
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
(6,902 |
) |
|
|
|
(6,902 |
) |
Stock-based employee compensation |
|
— |
|
|
|
|
715 |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
715 |
|
Issuances of common stock for associate stock purchase plan |
|
8 |
|
|
|
|
99 |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
99 |
|
Issuances of restricted stock |
|
22 |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
Cancellations of stock-based awards |
|
(15 |
) |
|
|
|
(22 |
) |
|
|
|
— |
|
|
|
|
— |
|
|
|
|
(22 |
) |
Balance at July 13, 2019 |
|
36,334 |
|
|
$ |
|
488,947 |
|
|
$ |
|
(8,932 |
) |
|
$ |
|
207,630 |
|
|
$ |
|
687,645 |
|
Net loss |
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
(337 |
) |
|
|
|
(337 |
) |
Other comprehensive income |
|
— |
|
|
|
|
— |
|
|
|
|
8,184 |
|
|
|
|
— |
|
|
|
|
8,184 |
|
Dividends - $0.19 per share |
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
(6,905 |
) |
|
|
|
(6,905 |
) |
Stock-based employee compensation |
|
— |
|
|
|
|
637 |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
637 |
|
Issuances of common stock for associate stock purchase plan |
|
8 |
|
|
|
|
88 |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
88 |
|
Issuances of restricted stock |
|
16 |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
Cancellations of stock-based awards |
|
(8 |
) |
|
|
|
(16 |
) |
|
|
|
— |
|
|
|
|
— |
|
|
|
|
(16 |
) |
Balance at October 5, 2019 |
|
36,350 |
|
|
$ |
|
489,656 |
|
|
$ |
|
(748 |
) |
|
$ |
|
200,388 |
|
|
$ |
|
689,296 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to condensed consolidated financial statements.
6
SPARTANNASH COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY, CONTINUED
(In thousands, Unaudited)
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
|
|
||
|
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
|
|
||
|
Shares |
|
|
Common |
|
|
Comprehensive |
|
|
Retained |
|
|
|
|
|
|
|||||||
|
Outstanding |
|
|
Stock |
|
|
Income (Loss) |
|
|
Earnings |
|
|
Total |
|
|||||||||
Balance at December 30, 2017 |
|
36,466 |
|
|
$ |
|
497,093 |
|
|
$ |
|
(15,136 |
) |
|
$ |
|
239,993 |
|
|
$ |
|
721,950 |
|
Net earnings |
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
12,343 |
|
|
|
|
12,343 |
|
Other comprehensive income |
|
— |
|
|
|
|
— |
|
|
|
|
84 |
|
|
|
|
— |
|
|
|
|
84 |
|
Dividends - $0.18 per share |
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
(6,526 |
) |
|
|
|
(6,526 |
) |
Share repurchase |
|
(952 |
) |
|
|
|
(20,000 |
) |
|
|
|
— |
|
|
|
|
— |
|
|
|
|
(20,000 |
) |
Stock-based employee compensation |
|
— |
|
|
|
|
5,290 |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
5,290 |
|
Issuances of common stock for stock bonus plan and associate stock purchase plan |
|
24 |
|
|
|
|
470 |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
470 |
|
Issuances of restricted stock |
|
472 |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
Cancellations of stock-based awards |
|
(87 |
) |
|
|
|
(1,567 |
) |
|
|
|
— |
|
|
|
|
— |
|
|
|
|
(1,567 |
) |
Balance at April 21, 2018 |
|
35,923 |
|
|
$ |
|
481,286 |
|
|
$ |
|
(15,052 |
) |
|
$ |
|
245,810 |
|
|
$ |
|
712,044 |
|
Net earnings |
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
17,772 |
|
|
|
|
17,772 |
|
Other comprehensive income |
|
— |
|
|
|
|
— |
|
|
|
|
63 |
|
|
|
|
— |
|
|
|
|
63 |
|
Dividends - $0.18 per share |
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
(6,457 |
) |
|
|
|
(6,457 |
) |
Stock-based employee compensation |
|
— |
|
|
|
|
977 |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
977 |
|
Issuances of common stock for associate stock purchase plan |
|
4 |
|
|
|
|
104 |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
104 |
|
Issuances of restricted stock |
|
9 |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
Cancellations of stock-based awards |
|
(2 |
) |
|
|
|
(37 |
) |
|
|
|
— |
|
|
|
|
— |
|
|
|
|
(37 |
) |
Balance at July 14, 2018 |
|
35,934 |
|
|
$ |
|
482,330 |
|
|
$ |
|
(14,989 |
) |
|
$ |
|
257,125 |
|
|
$ |
|
724,466 |
|
Net earnings |
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
17,465 |
|
|
|
|
17,465 |
|
Other comprehensive income |
|
— |
|
|
|
|
— |
|
|
|
|
63 |
|
|
|
|
— |
|
|
|
|
63 |
|
Dividends - $0.18 per share |
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
(6,469 |
) |
|
|
|
(6,469 |
) |
Share repurchase |
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
Stock-based employee compensation |
|
— |
|
|
|
|
773 |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
773 |
|
Issuances of common stock for associate stock purchase plan |
|
6 |
|
|
|
|
98 |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
98 |
|
Issuances of restricted stock |
|
1 |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
Cancellations of stock-based awards |
|
(3 |
) |
|
|
|
(26 |
) |
|
|
|
— |
|
|
|
|
— |
|
|
|
|
(26 |
) |
Balance at October 6, 2018 |
|
35,938 |
|
|
$ |
|
483,175 |
|
|
$ |
|
(14,926 |
) |
|
$ |
|
268,121 |
|
|
$ |
|
736,370 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to condensed consolidated financial statements.
7
SPARTANNASH COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands, Unaudited)
|
40 Weeks Ended |
|
|||||||
|
October 5, 2019 |
|
|
October 6, 2018 |
|
||||
Cash flows from operating activities |
|
|
|
|
|
|
|
|
|
Net earnings |
$ |
|
318 |
|
|
$ |
|
47,580 |
|
Loss from discontinued operations, net of tax |
|
|
126 |
|
|
|
|
238 |
|
Earnings from continuing operations |
|
|
444 |
|
|
|
|
47,818 |
|
Adjustments to reconcile net earnings to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
|
Non-cash restructuring, asset impairment, and other charges |
|
|
16,108 |
|
|
|
|
5,496 |
|
Loss on debt extinguishment |
|
|
329 |
|
|
|
|
— |
|
Depreciation and amortization |
|
|
69,588 |
|
|
|
|
64,457 |
|
Non-cash rent |
|
|
(5,685 |
) |
|
|
|
(818 |
) |
LIFO expense |
|
|
3,762 |
|
|
|
|
2,349 |
|
Pension settlement expense |
|
|
18,244 |
|
|
|
|
— |
|
Postretirement benefits expense |
|
|
2,837 |
|
|
|
|
852 |
|
Deferred taxes on income |
|
|
(1,735 |
) |
|
|
|
9,584 |
|
Stock-based compensation expense |
|
|
6,735 |
|
|
|
|
7,040 |
|
Postretirement benefit plan contributions |
|
|
(514 |
) |
|
|
|
(1,771 |
) |
Gain on disposals of assets |
|
|
(6,648 |
) |
|
|
|
(108 |
) |
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
|
Accounts receivable |
|
|
(26,697 |
) |
|
|
|
(17,852 |
) |
Inventories |
|
|
(10,813 |
) |
|
|
|
2,098 |
|
Prepaid expenses and other assets |
|
|
(10,911 |
) |
|
|
|
155 |
|
Accounts payable |
|
|
84,817 |
|
|
|
|
35,490 |
|
Accrued payroll and benefits |
|
|
(3,624 |
) |
|
|
|
(5,917 |
) |
Other accrued expenses and other liabilities |
|
|
3,797 |
|
|
|
|
(6,327 |
) |
Net cash provided by operating activities |
|
|
140,034 |
|
|
|
|
142,546 |
|
Cash flows from investing activities |
|
|
|
|
|
|
|
|
|
Purchases of property and equipment |
|
|
(46,905 |
) |
|
|
|
(52,600 |
) |
Net proceeds from the sale of assets |
|
|
16,456 |
|
|
|
|
6,568 |
|
Acquisitions, net of cash acquired |
|
|
(86,659 |
) |
|
|
|
— |
|
Loans to customers |
|
|
(3,384 |
) |
|
|
|
(948 |
) |
Payments from customers on loans |
|
|
3,327 |
|
|
|
|
1,456 |
|
Other |
|
|
(480 |
) |
|
|
|
(9 |
) |
Net cash used in investing activities |
|
|
(117,645 |
) |
|
|
|
(45,533 |
) |
Cash flows from financing activities |
|
|
|
|
|
|
|
|
|
Proceeds from senior secured revolving credit facility |
|
|
922,679 |
|
|
|
|
764,934 |
|
Payments on senior secured revolving credit facility |
|
|
(871,033 |
) |
|
|
|
(809,058 |
) |
Proceeds from other long-term debt |
|
|
5,800 |
|
|
|
|
— |
|
Repayment of other long-term debt and finance lease liabilities |
|
|
(66,813 |
) |
|
|
|
(6,461 |
) |
Financing fees paid |
|
|
(708 |
) |
|
|
|
(106 |
) |
Proceeds from resolution of acquisition contingencies |
|
|
15,000 |
|
|
|
|
— |
|
Share repurchase |
|
|
— |
|
|
|
|
(20,000 |
) |
Net payments related to stock-based award activities |
|
|
(1,782 |
) |
|
|
|
(1,630 |
) |
Proceeds from exercise of stock options |
|
|
181 |
|
|
|
|
— |
|
Dividends paid |
|
|
(20,709 |
) |
|
|
|
(19,452 |
) |
Net cash used in financing activities |
|
|
(17,385 |
) |
|
|
|
(91,773 |
) |
Cash flows from discontinued operations |
|
|
|
|
|
|
|
|
|
Net cash used in operating activities |
|
|
(153 |
) |
|
|
|
(234 |
) |
Net cash used in discontinued operations |
|
|
(153 |
) |
|
|
|
(234 |
) |
Net increase in cash and cash equivalents |
|
|
4,851 |
|
|
|
|
5,006 |
|
Cash and cash equivalents at beginning of period |
|
|
18,585 |
|
|
|
|
15,667 |
|
Cash and cash equivalents at end of period |
$ |
|
23,436 |
|
|
$ |
|
20,673 |
|
See accompanying notes to condensed consolidated financial statements.
8
SPARTANNASH COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1 – Summary of Significant Accounting Policies and Basis of Presentation
The accompanying unaudited condensed consolidated financial statements are prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”) and include the accounts of SpartanNash Company and its subsidiaries (“SpartanNash” or “the Company”). Intercompany accounts and transactions have been eliminated. For further information, refer to the consolidated financial statements and footnotes included in the Company’s Annual Report on Form 10-K for the year ended December 29, 2018.
In the opinion of management, the accompanying condensed consolidated financial statements, taken as a whole, contain all adjustments, including normal recurring items, necessary to present fairly the financial position of SpartanNash as of October 5, 2019, and the results of its operations and cash flows for the interim periods presented. Interim results are not necessarily indicative of results for a full year.
The unaudited information in the condensed consolidated financial statements for the third quarter and year to date periods of 2019 and 2018 include the results of operations of the Company for the 12- and 40-week periods ended October 5, 2019 and October 6, 2018, respectively.
Note 2 – Adoption of New Accounting Standards and Recently Issued Accounting Standards
In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-02, “Leases.” The FASB subsequently issued ASUs 2018-01, 2018-10, 2018-11, and 2019-01, which include clarifications and provide various practical expedients and transition options related to ASU 2016-02. ASU 2016-02 provides guidance for lease accounting and stipulates that lessees 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 is equal to the present value of future rent payments. Treatment in the consolidated statements of operations is similar to the previous treatment of operating and capital leases.
In the first quarter of 2019, the Company adopted this standard retrospectively through a cumulative-effect adjustment recorded at the beginning of 2019. The Company has elected the practical expedient available under the guidance to not adjust comparative periods presented. In addition, the Company elected the package of practical expedients permitted under the transition guidance within the new standard, which among other things, allow for a carry forward of the historical lease classification. The Company elected the hindsight practical expedient to reevaluate the lease term for existing leases. The election of the hindsight practical expedient resulted in the extension or reduction of lease terms for certain existing leases and adjustments to the useful lives of corresponding leasehold improvements. In the application of hindsight, the Company estimated the expected lease term based on management’s plans, including the performance of the leased properties and the associated market dynamics in relation to the overall operational, real estate and capital planning strategies of the Company.
The adoption of the new standard resulted in the recognition of operating lease assets and liabilities of $241.8 million and $292.3 million, respectively, as of the beginning of 2019. The adoption of the standard also resulted in a transition adjustment to beginning of the year retained earnings of $26.9 million (net of deferred tax impact of $8.5 million). The transition adjustment relates to impairment of right of use assets included in previously impaired asset groups and the impact of hindsight on the evaluation of lease term. Remaining differences between lease assets and liabilities relate to the derecognition of lease-related liabilities and assets recorded under ASC 840, which were included in beginning lease liabilities or assets under ASC 842.
In June 2016, the FASB issued ASU 2016-13, “Measurement of Credit Losses on Financial Instruments”. ASU 2016-13 changes the impairment model for most financial assets and certain other instruments. Entities will be required to use a forward-looking “expected loss” model that will replace the current “incurred loss” model, which will generally result in the earlier recognition of credit losses. The Company is required to adopt this update in the first quarter of fiscal 2020. The Company is currently reviewing the provisions of the new standard and establishing revised processes and controls to estimate expected losses for trade and other receivables. The standard is not expected to have a significant impact on the Company’s consolidated financial statements.
9
Note 3 – Revenue
Disaggregation of Revenue
The following table provides information about disaggregated revenue by type of products and customers for each of the Company’s reportable segments:
|
12 Weeks Ended October 5, 2019 |
|
|
40 Weeks Ended October 5, 2019 |
|
||||||||||||||||||||||||||||||||||
(In thousands) |
Food Distribution |
|
|
Military |
|
|
Retail |
|
|
Total |
|
|
Food Distribution |
|
|
Military |
|
|
Retail |
|
|
Total |
|
||||||||||||||||
Type of products: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Center store (a) |
$ |
|
280,762 |
|
|
$ |
|
240,531 |
|
|
$ |
|
220,879 |
|
|
$ |
|
742,172 |
|
|
$ |
|
904,532 |
|
|
$ |
|
776,972 |
|
|
$ |
|
711,405 |
|
|
$ |
|
2,392,909 |
|
Fresh (b) |
|
|
339,932 |
|
|
|
|
143,339 |
|
|
|
|
212,923 |
|
|
|
|
696,194 |
|
|
|
|
1,112,553 |
|
|
|
|
486,562 |
|
|
|
|
694,812 |
|
|
|
|
2,293,927 |
|
Non-food (c) |
|
|
299,480 |
|
|
|
|
113,666 |
|
|
|
|
91,116 |
|
|
|
|
504,262 |
|
|
|
|
965,517 |
|
|
|
|
392,296 |
|
|
|
|
310,129 |
|
|
|
|
1,667,942 |
|
Fuel |
|
|
— |
|
|
|
|
— |
|
|
|
|
36,362 |
|
|
|
|
36,362 |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
115,947 |
|
|
|
|
115,947 |
|
Other |
|
|
18,873 |
|
|
|
|
1,620 |
|
|
|
|
325 |
|
|
|
|
20,818 |
|
|
|
|
61,066 |
|
|
|
|
5,267 |
|
|
|
|
1,054 |
|
|
|
|
67,387 |
|
Total |
$ |
|
939,047 |
|
|
$ |
|
499,156 |
|
|
$ |
|
561,605 |
|
|
$ |
|
1,999,808 |
|
|
$ |
|
3,043,668 |
|
|
$ |
|
1,661,097 |
|
|
$ |
|
1,833,347 |
|
|
$ |
|
6,538,112 |
|
Type of customers: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individuals |
$ |
|
— |
|
|
$ |
|
— |
|
|
$ |
|
561,430 |
|
|
$ |
|
561,430 |
|
|
$ |
|
— |
|
|
$ |
|
— |
|
|
$ |
|
1,832,704 |
|
|
$ |
|
1,832,704 |
|
Manufacturers, brokers and distributors |
|
|
40,878 |
|
|
|
|
473,388 |
|
|
|
|
— |
|
|
|
|
514,266 |
|
|
|
|
142,785 |
|
|
|
|
1,584,266 |
|
|
|
|
— |
|
|
|
|
1,727,051 |
|
Retailers |
|
|
882,904 |
|
|
|
|
24,148 |
|
|
|
|
— |
|
|
|
|
907,052 |
|
|
|
|
2,852,064 |
|
|
|
|
71,564 |
|
|
|
|
— |
|
|
|
|
2,923,628 |
|
Other |
|
|
15,265 |
|
|
|
|
1,620 |
|
|
|
|
175 |
|
|
|
|
17,060 |
|
|
|
|
48,819 |
|
|
|
|
5,267 |
|
|
|
|
643 |
|
|
|
|
54,729 |
|
Total |
$ |
|
939,047 |
|
|
$ |
|
499,156 |
|
|
$ |
|
561,605 |
|
|
$ |
|
1,999,808 |
|
|
$ |
|
3,043,668 |
|
|
$ |
|
1,661,097 |
|
|
$ |
|
1,833,347 |
|
|
$ |
|
6,538,112 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||
|
12 Weeks Ended October 6, 2018 |
|
|
40 Weeks Ended October 6, 2018 |
|
||||||||||||||||||||||||||||||||||
(In thousands) |
Food Distribution |
|
|
Military |
|
|
Retail |
|
|
Total |
|
|
Food Distribution |
|
|
Military |
|
|
Retail |
|
|
Total |
|
||||||||||||||||
Type of products: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Center store (a) |
$ |
|
291,830 |
|
|
$ |
|
247,804 |
|
|
$ |
|
175,773 |
|
|
$ |
|
715,407 |
|
|
$ |
|
938,460 |
|
|
$ |
|
804,939 |
|
|
$ |
|
576,629 |
|
|
$ |
|
2,320,028 |
|
Fresh (b) |
|
|
341,846 |
|
|
|
|
134,612 |
|
|
|
|
159,444 |
|
|
|
|
635,902 |
|
|
|
|
1,132,676 |
|
|
|
|
448,794 |
|
|
|
|
535,619 |
|
|
|
|
2,117,089 |
|
Non-food (c) |
|
|
288,759 |
|
|
|
|
116,271 |
|
|
|
|
76,317 |
|
|
|
|
481,347 |
|
|
|
|
905,868 |
|
|
|
|
394,807 |
|
|
|
|
254,180 |
|
|
|
|
1,554,855 |
|
Fuel |
|
|
— |
|
|
|
|
— |
|
|
|
|
34,576 |
|
|
|
|
34,576 |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
110,018 |
|
|
|
|
110,018 |
|
Other |
|
|
17,748 |
|
|
|
|
1,535 |
|
|
|
|
215 |
|
|
|
|
19,498 |
|
|
|
|
60,092 |
|
|
|
|
4,956 |
|
|
|
|
718 |
|
|
|
|
65,766 |
|
Total |
$ |
|
940,183 |
|
|
$ |
|
500,222 |
|
|
$ |
|
446,325 |
|
|
$ |
|
1,886,730 |
|
|
$ |
|
3,037,096 |
|
|
$ |
|
1,653,496 |
|
|
$ |
|
1,477,164 |
|
|
$ |
|
6,167,756 |
|
Type of customers: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individuals |
$ |
|
— |
|
|
$ |
|
— |
|
|
$ |
|
446,110 |
|
|
$ |
|
446,110 |
|
|
$ |
|
— |
|
|
$ |
|
— |
|
|
$ |
|
1,476,446 |
|
|
$ |
|
1,476,446 |
|
Manufacturers, brokers and distributors |
|
|
44,805 |
|
|
|
|
479,523 |
|
|
|
|
— |
|
|
|
|
524,328 |
|
|
|
|
153,673 |
|
|
|
|
1,598,191 |
|
|
|
|
— |
|
|
|
|
1,751,864 |
|
Retailers |
|
|
881,776 |
|
|
|
|
19,164 |
|
|
|
|
— |
|
|
|
|
900,940 |
|
|
|
|
2,837,036 |
|
|
|
|
50,349 |
|
|
|
|
— |
|
|
|
|
2,887,385 |
|
Other |
|
|
13,602 |
|
|
|
|
1,535 |
|
|
|
|
215 |
|
|
|
|
15,352 |
|
|
|
|
46,387 |
|
|
|
|
4,956 |
|
|
|
|
718 |
|
|
|
|
52,061 |
|
Total |
$ |
|
940,183 |
|
|
$ |
|
500,222 |
|
|
$ |
|
446,325 |
|
|
$ |
|
1,886,730 |
|
|
$ |
|
3,037,096 |
|
|
$ |
|
1,653,496 |
|
|
$ |
|
1,477,164 |
|
|
$ |
|
6,167,756 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) Center store includes dry grocery, frozen and beverages. |
|
||||||||||||||||||||||||||||||||||||||
(b) Fresh includes produce, meat, dairy, deli, bakery, prepared proteins, seafood and floral. |
|
|
|
|
|
|
|||||||||||||||||||||||||||||||||
(c) Non-food includes general merchandise, health and beauty care, tobacco products and pharmacy. |
|
|
|
|
|
|
Contract Assets and Liabilities
In the ordinary course of business, the Company may advance funds to certain independent retailers which are earned by the retailers primarily through achieving specified purchase volume requirements, as outlined in their supply agreements with the Company, or in limited instances, for remaining a SpartanNash customer for a specified time period. These advances must be repaid if the purchase volume requirements are not met or if the retailer no longer remains a customer for the specified time period. For volume-based arrangements, the Company estimates the amount of the advanced funds earned by the retailers based on the expected volume of purchases by the retailer and amortizes the advances as a reduction of the transaction price and revenue earned. These advances are not considered contract assets under ASC 606 as they are not generated through the transfer of goods or services to the retailers. These advances are included in Prepaid expenses and other current assets or Other assets, net on the Company’s balance sheets.
10
When the Company transfers goods or services to a customer, payment is due - subject to normal terms - and is not conditional on anything other than the passage of time. Typical payment terms range from due upon receipt to 30 days, depending on the type of customer and relationship. At contract inception, the Company expects that the period of time between the transfer of goods to the customer and when the customer pays for those goods will be less than one year, which is consistent with the Company’s standard payment terms. Accordingly, the Company has elected the practical expedient under ASC 606 to not adjust for the effects of a significant financing component. As such, these amounts are recorded as receivables and not contract assets. The Company had no contract assets for any period presented.
The Company does not typically incur incremental costs of obtaining a contract that are contingent upon successful contract execution and would therefore be capitalized.
Note 4 – Acquisitions
On December 31, 2018, the Company acquired all of the outstanding shares of Martin’s Super Markets, Inc. (“Martin’s”) for $86.7 million, net of $7.8 million of cash acquired. Acquired assets consist primarily of property and equipment of $55.0 million, intangible assets of $20.9 million, and working capital. Intangible assets are primarily composed of an indefinite-lived trade name of $17.6 million and customer lists of $3.1 million which are amortized over seven years. The acquired assets and assumed liabilities were recorded at their estimated fair values as of the acquisition date based on preliminary estimates. These estimates are subject to revision upon the finalization of the valuations of the acquired real estate, inventory and intangible assets. Any adjustments will be made prior to December 31, 2019. No goodwill was recorded related to the acquisition. As of October 5, 2019, the Company has incurred $2.4 million of merger/acquisition and integration costs related to the acquisition, of which $1.2 million was incurred in 2019. The acquisition was funded with proceeds from the Company’s Credit Agreement.
Martin’s currently operates 21 stores in Northern Indiana and Southwest Michigan with approximately 3,500 employees. Martin’s was an independent retailer and customer of the Company’s Food Distribution segment prior to the acquisition. Subsequent to the acquisition sales from the Food Distribution segment to Martin’s stores are eliminated. The acquisition expanded the footprint of the Company’s Retail segment into adjacent geographies in northern Indiana and southwestern Michigan.
Refer to Note 8 for further information related to current year acquisitions.
Note 5 – Goodwill and Other Intangible Assets
The Company has three reporting units; however, no goodwill exists within the Military or Retail reporting units. Changes in the carrying amount of goodwill within the Food Distribution reporting unit were as follows:
(In thousands) |
Goodwill |
|
||
Balance at December 29, 2018 |
$ |
|
178,648 |
|
Acquisitions (Note 8) |
|
|
2,387 |
|
Balance at October 5, 2019 |
$ |
|
181,035 |
|
The Company reviews goodwill and other indefinite-lived intangible assets for impairment annually, during the fourth quarter of each year, and more frequently if circumstances indicate a risk of impairment. Testing goodwill and other indefinite-lived intangible assets for impairment requires management to make significant estimates about the Company’s future performance, cash flows, and other assumptions that can be affected by potential changes in economic, industry or market conditions, business operations, competition, or the Company’s stock price and market capitalization.
The Company has indefinite-lived intangible assets that are not amortized, consisting primarily of indefinite-lived trade names and licenses for the sale of alcoholic beverages. Changes in the carrying amount of indefinite-lived intangible assets were as follows:
(In thousands) |
Indefinite-lived Intangible Assets |
|
||
Balance at December 29, 2018 |
$ |
|
69,746 |
|
Acquisitions (Note 4) |
|
|
17,632 |
|
Disposals |
|
|
(50 |
) |
Impairment (Note 6) |
|
|
(13,966 |
) |
Balance at October 5, 2019 |
$ |
|
73,362 |
|
11
Note 6 – Restructuring Charges and Asset Impairment
The following table provides the activity of reserves for closed properties for the 40-week period ended October 5, 2019. Reserves for closed properties recorded in the condensed consolidated balance sheets are included in “Other accrued expenses” in Current liabilities and “Other long-term liabilities” in Long-term liabilities based on the timing of when the obligations are expected to be paid.
|
|
|
|
Lease and |
|
|
|
|
|
|
|
|
|
|
|
||
(In thousands) |
|
|
|
Ancillary Costs |
|
|
Severance |
|
|
Total |
|
||||||
Balance at December 29, 2018 |
|
|
|
$ |
|
16,386 |
|
|
|
|
— |
|
|
$ |
|
16,386 |
|
Reclassification of lease liabilities |
|
|
|
|
|
(8,177 |
) |
|
|
|
— |
|
|
|
|
(8,177 |
) |
Lease termination adjustments |
|
|
|
|
|
(62 |
) |
|
|
|
— |
|
|
|
|
(62 |
) |
Provision for closing charges |
|
|
|
|
|
629 |
|
|
|
|
— |
|
|
|
|
629 |
|
Provision for severance |
|
|
|
|
|
— |
|
|
|
|
347 |
|
|
|
|
347 |
|
Changes in estimates |
|
|
|
|
|
(750 |
) |
|
|
|
— |
|
|
|
|
(750 |
) |
Accretion expense |
|
|
|
|
|
235 |
|
|
|
|
— |
|
|
|
|
235 |
|
Payments |
|
|
|
|
|
(3,191 |
) |
|
|
|
(149 |
) |
|
|
|
(3,340 |
) |
Balance at October 5, 2019 |
|
|
|
$ |
|
5,070 |
|
|
$ |
|
198 |
|
|
$ |
|
5,268 |
|
Included in the liability are lease-related ancillary costs from the date of closure to the end of the remaining lease term. Prior to the adoption of ASU 2016-02 (Note 2), the liability included lease obligations recorded at the present value of future minimum lease payments, calculated using a risk-free interest rate, net of estimated sublease income. Upon the adoption of ASU 2016-02, these liabilities were reclassified as a reduction of the initial measurement of operating lease assets within the consolidated balance sheets.
Restructuring and asset impairment activity included in the condensed consolidated statements of operations consisted of the following:
|
12 Weeks Ended |
|
|
40 Weeks Ended |
|
||||||||||||||
|
October 5, |
|
|
October 6, |
|
|
October 5, |
|
|
October 6, |
|
||||||||
(In thousands) |
2019 |
|
|
2018 |
|
|
2019 |
|
|
2018 |
|
||||||||
Asset impairment charges |
$ |
|
1,447 |
|
|
$ |
|
570 |
|
|
$ |
|
15,512 |
|
|
$ |
|
2,040 |
|
Charge on customer advance |
|
|
— |
|
|
|
|
— |
|
|
|
|
1,941 |
|
|
|
|
— |
|
Provision for closing charges |
|
|
86 |
|
|
|
|
596 |
|
|
|
|
629 |
|
|
|
|
4,499 |
|
Loss (gain) on sales of assets related to closed facilities |
|
|
72 |
|
|
|
|
(171 |
) |
|
|
|
(6,831 |
) |
|
|
|
(1,578 |
) |
Provision for severance |
|
|
198 |
|
|
|
|
3 |
|
|
|
|
347 |
|
|
|
|
142 |
|
Other costs associated with distribution center and store closings |
|
|
330 |
|
|
|
|
203 |
|
|
|
|
1,307 |
|
|
|
|
799 |
|
Changes in estimates |
|
|
(539 |
) |
|
|
|
(969 |
) |
|
|
|
(750 |
) |
|
|
|
(633 |
) |
Lease termination adjustments |
|
|
(298 |
) |
|
|
|
— |
|
|
|
|
(1,940 |
) |
|
|
|
— |
|
|
$ |
|
1,296 |
|
|
$ |
|
232 |
|
|
$ |
|
10,215 |
|
|
$ |
|
5,269 |
|
In the 12- and 40-week periods ended October 5, 2019 and October 6, 2018, restructuring and asset impairment charges were incurred in the Food Distribution and Retail segments due to the changes in the estimates in the fair value of assets within certain of the Company’s operations and the economic and competitive environment of certain stores and in conjunction with the Company’s retail store and supply chain rationalization plans. The charge on the customer advance relates to an advance to an independent retailer customer which was not fully recoverable. The changes in estimates relate to revised estimates of lease ancillary costs associated with previously closed locations, due to favorable dispute resolutions with landlords and decreases in the amount of certain ancillary costs. Gains on sales of assets relate primarily to previously closed distribution centers in the Food Distribution and Military segments in the current 40-week period and prior year 40-week period, respectively.
In the second quarter of 2019 the Company announced a plan to reposition the Caito Fresh Production operations and to focus on traditional produce distribution and production of fresh cut produce and deli items. As a result of this plan, the Company evaluated the related indefinite-lived trade name and long-lived assets for potential impairment. The indefinite-lived trade name with a book value of $35.5 million was measured at a fair value of $21.5 million, resulting in an impairment charge of $14.0 million. The Company concluded the long-lived assets were not impaired. Indefinite lived intangible assets are tested for impairment at least annually, and as needed if an indicator of potential impairment exists. Indefinite lived intangible assets are measured at fair value using Level 3 inputs under the fair value hierarchy, as further described in Note 7 – Fair Value Measurements. Fair value of indefinite-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 and, in the case of indefinite-lived trade name assets, estimated royalty rates.
12
Long-lived assets are measured at fair value on a nonrecurring basis using Level 3 inputs. Assets with a book value of $5.9 million were measured at a fair value of $4.4 million, resulting in impairment charges of $1.5 million in 2019. Assets with a book value of $1.8 million were measured at a fair value of $0.3 million, resulting in an impairment charge of $1.5 million in 2018. 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, uses real estate brokers. Assets classified as held for sale in the consolidated balance sheet are valued at the expected net proceeds.
Note 7 – Fair Value Measurements
ASC 820 prioritizes the inputs to valuation techniques used to measure fair value into the following hierarchy:
Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2: Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.
Level 3: Unobservable inputs for the asset or liability, reflecting the reporting entity’s own assumptions about the assumptions that market participants would use in pricing.
Financial instruments include cash and cash equivalents, accounts and notes receivable, accounts payable and long-term debt. The carrying amounts of cash and cash equivalents, accounts and notes receivable, and accounts payable approximate fair value because of the short-term maturities of these financial instruments. See Note 6 for discussion of the fair value measurements related to long-lived asset impairment charges. At October 5, 2019 the book value and estimated fair value of the Company’s debt instruments, excluding debt financing costs, were as follows:
|
October 5, |
|
||
(In thousands) |
2019 |
|
||
Book value of debt instruments, excluding debt financing costs: |
|
|
|
|
Current maturities of long-term debt and finance lease liabilities |
$ |
|
7,044 |
|
Long-term debt and finance lease liabilities |
|
|
691,794 |
|
Total book value of debt instruments |
|
|
698,838 |
|
Fair value of debt instruments, excluding debt financing costs |
|
|
704,917 |
|
Excess of fair value over book value |
$ |
|
6,079 |
|
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).
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. An asset or liability is recorded for the estimated fair value of the contingent consideration on the acquisition date and is remeasured at each reporting period, using Level 3 inputs, with the change in fair value recognized as income or expense within operating expenses in the condensed consolidated statements of operations. As of October 5, 2019, the probability of future payment related to existing contingent consideration provisions, which extend through the end of fiscal 2019, is remote and there is no further opportunity for additional receipt of contingent consideration, therefore no assets or liabilities are recorded in the condensed consolidated balance sheet. During 2019, the Company received $15.0 million related to the resolution of certain acquisition contingencies associated with the Caito Foods Service, Inc. and Blue Ribbon Transport, LLC acquisition. Upon receipt of the proceeds, the portion of the contingent consideration related to the acquisition date fair value was reported as a financing activity in the condensed consolidated statements of cash flows. Amounts received in excess of the acquisition date fair value were reported as an operating activity in the condensed consolidated statements of cash flows.
Note 8 – Commitments and Contingencies
The Company is engaged from time-to-time in routine legal proceedings incidental to its business. The Company does not believe that these routine legal proceedings, taken as a whole, will have a material impact on its business or financial condition. While the ultimate effect of such actions cannot be predicted with certainty, management believes that their outcome will not result in an adverse effect on the Company’s consolidated financial position, operating results or liquidity.
13
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 no longer remains a customer for the specified time period. The Company had previously advanced funds to one independent retailer who subsequently defaulted on the terms of the supply agreement and went into receivership. To realize its collateral, the Company obtained the rights to acquire five stores, of which the rights related to three of the stores were assigned to an independent retailer in exchange for certain consideration as part of a long-term supply agreement and the Company acquired the two remaining stores. Both the execution of the long-term supply agreement and the acquisition of two stores occurred during the second quarter of 2019. The excess of the purchase price over the fair value of net assets acquired of $2.4 million was recorded as goodwill in the consolidated balance sheet and allocated to the Food Distribution segment based on the relative value of the assets acquired and the expected cash flows between the Retail and Food Distribution segments.
The Company contributes to the Central States Southeast and Southwest Pension Fund (“Central States Plan” or “the Plan”), a multi-employer pension plan, based on obligations arising from its collective bargaining agreements (“CBAs”) in Bellefontaine, Ohio, Lima, Ohio, and Grand Rapids, Michigan covering its supply chain associates at those locations. This Plan provides retirement benefits to participants based on their service to contributing employers. The benefits are paid from assets held in trust for that purpose. Trustees are appointed by contributing employers and unions; however, SpartanNash is not a trustee. The trustees typically are responsible for determining the level of benefits to be provided to participants, as well as for such matters as the investment of the assets and the administration of the plan. The Company currently contributes to the Central States Plan under the terms outlined in the “Primary Schedule” of Central States’ Rehabilitation Plan or those outlined in the “Default Schedule.” Both the Primary and Default schedules require varying increases in employer contributions over the previous year’s contribution. Increases are set within the CBAs and vary by location. The Plan continues to be in red zone status, and according to the Pension Protection Act (“PPA”), is considered to be in “critical and declining” zone status. Among other factors, plans in the “critical and declining” zone are generally less than 65% funded and are projected to become insolvent within the next 15 years (or 20 years depending on the ratio of active-to-inactive participants). Based on the most recent information available to the Company, management believes that the present value of actuarial accrued liabilities in this multi-employer plan significantly exceeds the value of the assets held in trust to pay benefits. Because SpartanNash is one of a number of employers contributing to this plan, it is difficult to ascertain what the exact amount of the underfunding would be. Management is not aware of any significant change in funding levels since December 29, 2018. To reduce this underfunding, management expects increases in expense as a result of required incremental multi-employer pension plan contributions in future years. Any adjustment for withdrawal liability will be recorded when it is probable that a liability exists and can be reasonably determined.
Note 9 – Leases
A portion of the Company’s retail stores and warehouses operate in leased facilities. The Company also leases the majority of the tractors and trailers within its fleet and certain other assets. Most of the real property leases contain multiple renewal options, which generally range from one to ten years. In those locations in which it is economically feasible to continue to operate, management expects that lease options will be exercised. The terms of certain leases contain provisions requiring payment of percentage rent based on sales and payment of executory costs such as property taxes, utilities, insurance, maintenance and other occupancy costs applicable to the leased premises or, in the case of transportation equipment, provisions requiring payment of variable rent based upon miles driven. Certain properties or portions thereof are subleased to others. As most of the Company’s leases do not provide 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.
The components of lease expense were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12 Weeks Ended |
|
|
40 Weeks Ended |
|
||||
(In thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October 5, 2019 |
|
|
October 5, 2019 |
|
||||
Operating lease cost |
$ |
|
12,626 |
|
|
$ |
|
42,272 |
|
|||||||||||||||
Short-term lease cost |
|
|
1,726 |
|
|
|
|
5,265 |
|
|||||||||||||||
Finance lease cost: |
|
|
|
|
|
|
|
|
|
|||||||||||||||
Amortization of assets |
|
|
824 |
|
|
|
|
2,807 |
|
|||||||||||||||
Interest on lease liabilities |
|
|
683 |
|
|
|
|
2,378 |
|
|||||||||||||||
Sublease income |
|
|
(902 |
) |
|
|
|
(3,169 |
) |
|||||||||||||||
Total net lease cost |
$ |
|
14,957 |
|
|
$ |
|
49,553 |
|
14
Supplemental balance sheet information related to leases was as follows:
(In thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October 5, 2019 |
|
||
Operating leases: |
|
|
|
|
|||||||||||||||
Operating lease assets |
$ |
|
272,591 |
|
|||||||||||||||
|
|
|
|
|
|||||||||||||||
Current portion of operating lease liabilities |
$ |
|
41,795 |
|
|||||||||||||||
Noncurrent operating lease liabilities |
|
|
273,631 |
|
|||||||||||||||
Total operating lease liabilities |
$ |
|
315,426 |
|
|||||||||||||||
Finance leases: |
|
|
|
|
|||||||||||||||
Property and equipment, at cost |
$ |
|
63,000 |
|
|||||||||||||||
Accumulated amortization |
|
|
(30,262 |
) |
|||||||||||||||
Property and equipment, net |
$ |
|
32,738 |
|
|||||||||||||||
|
|
|
|
|
|||||||||||||||
Current portion of finance lease liabilities |
$ |
|
5,135 |
|
|||||||||||||||
Noncurrent finance lease liabilities |
|
|
32,422 |
|
|||||||||||||||
Total finance lease liabilities |
$ |
|
37,557 |
|
|||||||||||||||
|
|
|
|
|
|||||||||||||||
Weighted average remaining lease term: |
|
|
|
|
|||||||||||||||
Operating leases |
|
9.0 years |
|
||||||||||||||||
Finance leases |
|
10.2 years |
|
||||||||||||||||
|
|
|
|
|
|||||||||||||||
Weighted average discount rate: |
|
|
|
|
|||||||||||||||
Operating leases |
|
|
5.7 |
% |
|||||||||||||||
Finance leases |
|
|
8.2 |
% |
Supplemental cash flow and other information related to leases was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12 Weeks Ended |
|
|
40 Weeks Ended |
|
||||
(In thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October 5, 2019 |
|
|
October 5, 2019 |
|
||||
Cash paid for amounts included in the measurement of lease liabilities: |
|
|
|
|
|
|
|
|
|
|||||||||||||||
Operating cash flows used for operating leases |
$ |
|
14,229 |
|
|
$ |
|
47,155 |
|
|||||||||||||||
Operating cash flows used for finance leases |
|
|
664 |
|
|
|
|
2,347 |
|
|||||||||||||||
Financing cash flows used for finance leases |
|
|
1,404 |
|
|
|
|
4,864 |
|
|||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Leased assets obtained in exchange for lease liabilities: |
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total operating lease liabilities |
|
|
2,891 |
|
|
|
|
22,191 |
|
|||||||||||||||
Total finance lease liabilities |
|
|
900 |
|
|
|
|
900 |
|
The Company’s maturities of lease liabilities under operating and finance leases as of October 5, 2019 are as follows:
|
|
|
|
|
|
|
|
|
|
Operating |
|
|
Finance |
|
|
|
|
||||||
(In thousands) |
|
|
|
|
|
|
|
|
|
Leases |
|
|
Leases |
|
|
Total |
|
||||||
2019 |
$ |
|
14,342 |
|
|
|
|
2,062 |
|
|
|
|
16,404 |
|
|||||||||
2020 |
|
|
56,260 |
|
|
|
|
7,284 |
|
|
|
|
63,544 |
|
|||||||||
2021 |
|
|
51,325 |
|
|
|
|
5,479 |
|
|
|
|
56,805 |
|
|||||||||
2022 |
|
|
45,123 |
|
|
|
|
4,891 |
|
|
|
|
50,014 |
|
|||||||||
2023 |
|
|
40,345 |
|
|
|
|
4,510 |
|
|
|
|
44,855 |
|
|||||||||
Thereafter |
|
|
197,210 |
|
|
|
|
32,195 |
|
|
|
|
229,405 |
|
|||||||||
Total |
|
|
404,605 |
|
|
|
|
56,421 |
|
|
|
|
461,027 |
|
|||||||||
Less interest |
|
|
89,179 |
|
|
|
|
18,864 |
|
|
|
|
108,043 |
|
|||||||||
Present value of lease liabilities |
|
|
315,426 |
|
|
|
|
37,557 |
|
|
|
|
352,984 |
|
|||||||||
Less current portion |
|
|
41,795 |
|
|
|
|
5,135 |
|
|
|
|
46,930 |
|
|||||||||
Long-term lease liabilities |
$ |
|
273,631 |
|
|
$ |
|
32,422 |
|
$ |
|
|
306,054 |
|
15
Note 10 – Associate Retirement Plans
During the 12- and 40- week periods ended October 5, 2019, the Company recognized net periodic postretirement benefit costs of $10.1 million and $19.3 million, respectively, related to the SpartanNash Company Pension Plan (“Pension Plan”) and $0.1 million and $0.3 million, respectively, related to the SpartanNash Retiree Medical Plan. During the 12- and 40- week periods ended October 6, 2018, the Company recognized net periodic pension income of $0.1 million and $0.3 million, respectively, and net periodic postretirement benefit costs of $0.1 million and $0.4 million, respectively for the aforementioned plans. Substantially all of these amounts are included in Postretirement benefit expense (income) in the condensed consolidated statements of operations.
On February 28, 2018, the Company’s Board of Directors granted approval to proceed with terminating the frozen Pension Plan. The Plan was terminated on July 31, 2018. The Company offered participants the option to receive an annuity or lump sum distribution which may be rolled over into another qualified plan. The distribution of assets to plan participants commenced in the second quarter and was completed in the third quarter of 2019. The Company has incurred pre-tax settlement charges in the amount of $18.2 million to recognize the deferred losses in AOCI upon distribution of the Plan assets, of which $9.4 million was recognized in the 12 weeks ended October 5, 2019. The Company also recognized other termination expenses of $1.3 million in 2019. The Company expects the Plan termination will reduce administrative fees and premium funding costs in future periods.
The Company did not make any contributions to the Pension Plan during the 40-week period ended October 5, 2019. The remaining overfunded Plan assets will be utilized by the Company to fund obligations associated with other qualified retirement programs. The Company expects to make total contributions of $0.4 million in 2019 to the Retiree Medical Plan and has made $0.3 million in the year-to-date period.
The Company’s retirement programs also include defined contribution plans providing contributory benefits, as well as executive compensation plans for a select group of management personnel and/or highly compensated associates.
Multi-Employer Plans
In addition to the plans listed above, the Company participates in the Central States Southeast and Southwest Pension Fund, the Michigan Conference of Teamsters and Ohio Conference of Teamsters Health and Welfare plans (collectively referred to as “multi-employer plans”), and other company-sponsored defined contribution plans for most associates covered by collective bargaining agreements.
With respect to the Company’s participation in the Central States Plan, expense is recognized as contributions are funded. The Company’s contributions during the 12-week periods ended October 5, 2019 and October 6, 2018 were $2.4 million and $2.1 million, respectively. The Company’s contributions during the 40-week periods ended October 5, 2019 and October 6, 2018 were $10.6 million and $10.0 million, respectively. See Note 8 for further information regarding contingencies related to the Company’s participation in the Central States Plan.
Note 11 – Income Taxes
The effective income tax rate was 84.2% and 11.9% for the 12 weeks ended October 5, 2019 and October 6, 2018, respectively. For the 40 weeks ended October 5, 2019 and October 6, 2018, the effective income tax rate was 129.0% and 20.6%, respectively. The difference from the federal statutory rate in the current year was primarily due to state tax benefits resulting from losses in certain tax jurisdictions as well as tax credits. In the prior year, the difference from the federal statutory rate was primarily due to the lapse of the statute of limitations for an uncertain tax position, the Federal rate change effect on the finalization of deferred taxes for 2017 related to tax reform and tax credits, partially offset by state income taxes.
Note 12 – Stock-Based Compensation
The Company has a shareholder-approved stock incentive plan that provides for the granting of stock options, stock appreciation rights, restricted stock, restricted stock units, stock awards, and other stock-based and stock-related awards to directors, officers and other key associates.
Stock-based compensation expense recognized and included in “Selling, general and administrative expenses” in the condensed consolidated statements of operations, and related tax benefits were as follows:
|
12 Weeks Ended |
|
|
40 Weeks Ended |
|
||||||||||||||
(In thousands) |
October 5, 2019 |
|
|
October 6, 2018 |
|
|
October 5, 2019 |
|
|
October 6, 2018 |
|
||||||||
Restricted stock |
$ |
|
637 |
|
|
$ |
|
773 |
|
|
$ |
|
6,735 |
|
|
$ |
|
7,040 |
|
Tax benefits |
|
|
(163 |
) |
|
|
|
(166 |
) |
|
|
|
(1,148 |
) |
|
|
|
(1,095 |
) |
Stock-based compensation expense, net of tax |
$ |
|
474 |
|
|
$ |
|
607 |
|
|
$ |
|
5,587 |
|
|
$ |
|
5,945 |
|
16
The following table summarizes activity in the stock-based compensation plans for the 40 weeks ended October 5, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
||
|
Shares |
|
|
Weighted |
|
|
Restricted |
|
|
Average |
|
||||||
|
Under |
|
|
Average |
|
|
Stock |
|
|
Grant-Date |
|
||||||
|
Options |
|
|
Exercise Price |
|
|
Awards |
|
|
Fair Value |
|
||||||
Outstanding at December 29, 2018 |
|
13,052 |
|
|
$ |
|
13.87 |
|
|
|
822,819 |
|
|
$ |
|
23.07 |
|
Granted |
|
— |
|
|
|
|
— |
|
|
|
482,059 |
|
|
|
|
17.91 |
|
Exercised/Vested |
|
(13,052 |
) |
|
|
|
13.87 |
|
|
|
(346,721 |
) |
|
|
|
23.47 |
|
Cancelled/Forfeited |
|
— |
|
|
|
|
— |
|
|
|
(30,105 |
) |
|
|
|
20.19 |
|
Outstanding at October 5, 2019 |
|
— |
|
|
$ |
|
— |
|
|
|
928,052 |
|
|
$ |
|
20.33 |
|
As of October 5, 2019, total unrecognized compensation cost related to non-vested restricted stock awards granted under the Company’s stock incentive plans is $5.5 million and is expected to be recognized over a weighted average period of 2.6 years.
Note 13 – Earnings Per Share
The following table sets forth the computation of basic and diluted earnings per share from continuing operations:
|
12 Weeks Ended |
|
|
40 Weeks Ended |
|
||||||||||||||
(In thousands, except per share amounts) |
October 5, 2019 |
|
|
October 6, 2018 |
|
|
October 5, 2019 |
|
|
October 6, 2018 |
|
||||||||
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) earnings from continuing operations |
$ |
|
(310 |
) |
|
$ |
|
17,545 |
|
|
$ |
|
444 |
|
|
$ |
|
47,818 |
|
Adjustment for loss (earnings) attributable to participating securities |
|
|
8 |
|
|
|
|
(407 |
) |
|
|
|
(11 |
) |
|
|
|
(1,044 |
) |
(Loss) earnings from continuing operations used in calculating earnings per share |
$ |
|
(302 |
) |
|
$ |
|
17,138 |
|
|
$ |
|
433 |
|
|
$ |
|
46,774 |
|
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding, including participating securities |
|
|
36,340 |
|
|
|
|
35,934 |
|
|
|
|
36,248 |
|
|
|
|
36,033 |
|
Adjustment for participating securities |
|
|
(929 |
) |
|
|
|
(833 |
) |
|
|
|
(906 |
) |
|
|
|
(787 |
) |
Shares used in calculating basic (loss) earnings per share |
|
|
35,411 |
|
|
|
|
35,101 |
|
|
|
|
35,342 |
|
|
|
|
35,246 |
|
Effect of dilutive stock options |
|
|
— |
|
|
|
|
12 |
|
|
|
|
— |
|
|
|
|
12 |
|
Shares used in calculating diluted (loss) earnings per share |
|
|
35,411 |
|
|
|
|
35,113 |
|
|
|
|
35,342 |
|
|
|
|
35,258 |
|
Basic (loss) earnings per share from continuing operations |
$ |
|
(0.01 |
) |
|
$ |
|
0.49 |
|
|
$ |
|
0.01 |
|
|
$ |
|
1.33 |
|
Diluted (loss) earnings per share from continuing operations |
$ |
|
(0.01 |
) |
|
$ |
|
0.49 |
|
|
$ |
|
0.01 |
|
|
$ |
|
1.33 |
|
Note 14 – Supplemental Cash Flow Information
Supplemental cash flow information is as follows:
|
40 Weeks Ended |
|
|||||||
(In thousands) |
October 5, 2019 |
|
|
October 6, 2018 |
|
||||
Non-cash financing activities: |
|
|
|
|
|
|
|
|
|
Recognition of finance lease liabilities |
$ |
|
900 |
|
|
$ |
|
2,410 |
|
Non-cash investing activities: |
|
|
|
|
|
|
|
|
|
Capital expenditures included in accounts payable |
|
|
4,746 |
|
|
|
|
4,350 |
|
Finance lease asset additions |
|
|
900 |
|
|
|
|
2,410 |
|
Other supplemental cash flow information: |
|
|
|
|
|
|
|
|
|
Cash paid for interest |
|
|
28,401 |
|
|
|
|
22,768 |
|
17
Note 15 – Reporting Segment Information
The following tables set forth information about the Company by reporting segment:
(In thousands) |
Food Distribution |
|
|
Military |
|
|
Retail |
|
|
Total |
|
||||||||
12 Weeks Ended October 5, 2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales to external customers |
$ |
|
939,047 |
|
|
$ |
|
499,156 |
|
|
$ |
|
561,605 |
|
|
$ |
|
1,999,808 |
|
Inter-segment sales |
|
|
227,633 |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
227,633 |
|
Restructuring charges and asset impairment |
|
|
1,043 |
|
|
|
|
— |
|
|
|
|
253 |
|
|
|
|
1,296 |
|
Depreciation and amortization |
|
|
7,793 |
|
|
|
|
2,764 |
|
|
|
|
10,197 |
|
|
|
|
20,754 |
|
Operating earnings (loss) |
|
|
11,699 |
|
|
|
|
(2,646 |
) |
|
|
|
6,726 |
|
|
|
|
15,779 |
|
Capital expenditures |
|
|
8,623 |
|
|
|
|
1,639 |
|
|
|
|
4,872 |
|
|
|
|
15,134 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12 Weeks Ended October 6, 2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales to external customers |
$ |
|
940,183 |
|
|
$ |
|
500,222 |
|
|
$ |
|
446,325 |
|
|
$ |
|
1,886,730 |
|
Inter-segment sales |
|
|
195,451 |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
195,451 |
|
Merger/acquisition and integration |
|
|
479 |
|
|
|
|
— |
|
|
|
|
42 |
|
|
|
|
521 |
|
Restructuring (gains) charges and asset impairment |
|
|
(68 |
) |
|
|
|
29 |
|
|
|
|
271 |
|
|
|
|
232 |
|
Depreciation and amortization |
|
|
7,540 |
|
|
|
|
2,816 |
|
|
|
|
8,891 |
|
|
|
|
19,247 |
|
Operating earnings |
|
|
19,815 |
|
|
|
|
1,508 |
|
|
|
|
5,483 |
|
|
|
|
26,806 |
|
Capital expenditures |
|
|
7,840 |
|
|
|
|
950 |
|
|
|
|
9,214 |
|
|
|
|
18,004 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
40 Weeks Ended October 5, 2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales to external customers |
$ |
|
3,043,668 |
|
|
$ |
|
1,661,097 |
|
|
$ |
|
1,833,347 |
|
|
$ |
|
6,538,112 |
|
Inter-segment sales |
|
|
742,677 |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
742,677 |
|
Merger/acquisition and integration |
|
|
(130 |
) |
|
|
|
— |
|
|
|
|
1,494 |
|
|
|
|
1,364 |
|
Restructuring charges (gains) and asset impairment |
|
|
10,724 |
|
|
|
|
— |
|
|
|
|
(509 |
) |
|
|
|
10,215 |
|
Depreciation and amortization |
|
|
25,770 |
|
|
|
|
9,097 |
|
|
|
|
33,048 |
|
|
|
|
67,915 |
|
Operating earnings (loss) |
|
|
36,564 |
|
|
|
|
(5,806 |
) |
|
|
|
14,600 |
|
|
|
|
45,358 |
|
Capital expenditures |
|
|
16,061 |
|
|
|
|
4,052 |
|
|
|
|
26,792 |
|
|
|
|
46,905 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
40 Weeks Ended October 6, 2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales to external customers |
$ |
|
3,037,096 |
|
|
$ |
|
1,653,496 |
|
|
$ |
|
1,477,164 |
|
|
$ |
|
6,167,756 |
|
Inter-segment sales |
|
|
647,163 |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
647,163 |
|
Merger/acquisition and integration |
|
|
3,419 |
|
|
|
|
4 |
|
|
|
|
108 |
|
|
|
|
3,531 |
|
Restructuring charges (gains) and asset impairment |
|
|
1,292 |
|
|
|
|
(801 |
) |
|
|
|
4,778 |
|
|
|
|
5,269 |
|
Depreciation and amortization |
|
|
24,398 |
|
|
|
|
9,257 |
|
|
|
|
29,836 |
|
|
|
|
63,491 |
|
Operating earnings |
|
|
63,060 |
|
|
|
|
6,120 |
|
|
|
|
13,192 |
|
|
|
|
82,372 |
|
Capital expenditures |
|
|
26,250 |
|
|
|
|
2,479 |
|
|
|
|
23,871 |
|
|
|
|
52,600 |
|
|
|
|
|
|
|
|
October 5, |
|
|
December 29, |
|
||||
(In thousands) |
|
|
|
|
|
|
2019 |
|
|
2018 |
|
||||
Total Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Food Distribution |
|
|
|
|
|
|
$ |
|
1,137,162 |
|
|
$ |
|
1,074,125 |
|
Military |
|
|
|
|
|
|
|
|
424,983 |
|
|
|
|
405,587 |
|
Retail |
|
|
|
|
|
|
|
|
769,311 |
|
|
|
|
489,049 |
|
Discontinued operations |
|
|
|
|
|
|
|
|
3,090 |
|
|
|
|
3,151 |
|
Total |
|
|
|
|
|
|
$ |
|
2,334,546 |
|
|
$ |
|
1,971,912 |
|
18
ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
This Management’s Discussion and Analysis of financial condition and results of operations should be read in conjunction with the unaudited condensed consolidated financial statements contained in this Quarterly Report on Form 10-Q, the information contained under the caption “Forward-Looking Statements,” which appears at the beginning of this report, and the information in the Company’s Annual Report on Form 10-K for the fiscal year ended December 29, 2018.
Overview
SpartanNash, headquartered in Grand Rapids, Michigan, is a leading multi-regional grocery distributor and grocery retailer whose core businesses include distributing grocery products to a diverse group of independent and chain retailers, its corporate owned retail stores, military commissaries and exchanges in the United States, as well as premier fresh produce distribution and fresh food processing. The Company operates three reportable business segments: Food Distribution, Military and Retail. The Company serves customers in all 50 states.
The Company’s Food Distribution segment provides a wide variety of nationally branded and private brand grocery products and perishable food products to approximately 2,100 independent grocer retail locations, the Company’s corporate owned retail stores, food service distributors, national retailers, and other customers. The Food Distribution segment primarily conducts business in the Midwest and Southeast regions of the United States. The Company processes fresh-cut fruits and vegetables and other value-added meal solutions and supplies these products to grocery retailers and food service distributors. The Company recently announced a plan to reposition its Fresh Production operations, which included the sale of the Fresh Kitchen facility and related equipment. The Company is in the process of transitioning certain operations to other facilities and expects to cease production in the Fresh Kitchen during the fourth quarter of 2019. While the Company is actively marketing the sale of these assets, not all of the required criteria have been met to present the assets as held-for-sale on the consolidated balance sheet as of October 5, 2019.
The Company’s Military segment contracts with manufacturers to distribute a wide variety of grocery products primarily to military commissaries and exchanges located in the United States, the District of Columbia, Europe, Cuba, Puerto Rico, Honduras, Bahrain, Djibouti and Egypt. The Company has over 40 years of experience acting as a distributor to U.S. military commissaries and exchanges. The Company is the exclusive worldwide supplier of private brand products to U.S. military commissaries and is continuing to partner with DeCA in the rollout of private brand products to military commissaries which began during the second quarter of fiscal 2017.
At the end of the third quarter, the Company’s Retail segment operated 158 corporate owned retail stores in the Midwest region primarily under the banners of Family Fare, Martin’s Super Markets, VG’s Food and Pharmacy, D&W Fresh Markets, Sun Mart and Family Fresh Market. The Company also offers pharmacy services in 98 of its corporate owned retail stores and operates 37 fuel centers. The retail stores have a “neighborhood market” focus to distinguish them from supercenters and limited assortment stores.
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.
2019 Third Quarter Highlights
During the quarter ended October 5, 2019, the Company made progress on its strategic objectives and better positioned itself for long-term growth and profitability. In addition to realizing sales growth, the Company remains focused on its other top objectives for the current year, including strengthening its management team, systems and supply chain operations, generating improvements through its Project One Team initiative, and reducing its debt, working capital and financial leverage ratios, which will all contribute to improved growth in operating earnings.
Third quarter 2019 operational highlights include:
|
• |
The Company realized sales growth of 6.0% from the same quarter in the prior year. This growth was driven by contributions from the newly acquired Martin’s business in the Retail segment. Before the intercompany elimination of Martin’s sales, the Food Distribution segment also realized growth of 3.6%. |
|
• |
In connection with Project One Team, the Company remains on track to achieve a run rate of over $20 million in annual cost savings within the next 24 months. Initiatives currently in the process of being implemented include improving the systems and policies for inventory procurement and management, supply chain efficiency and execution as well as the automation of routine administrative tasks. |
19
|
• |
Since the third quarter of 2018, the Company has paid down over $95.0 million in debt, resulting in a $10 million reduction in the debt balance despite using approximately $87.0 million to fund the acquisition of Martin’s at the beginning of fiscal 2019. The Company also significantly reduced its working capital from the third quarter of fiscal 2018, while continuing to grow sales. The Company will continue to focus on working capital improvements and debt reduction and is targeting total working capital improvements of $30.0 million for the full fiscal year. |
For the remainder of 2019, the Company expects Food Distribution to sustain low- to mid-single digit sales growth driven by existing customers and new business. This expectation excludes the impact of the elimination of intercompany sales related to the acquisition of the Martin’s business. In the Military segment, the Company expects that new business within the segment, including continued private brand growth, will largely offset the negative DeCA comparable sales trend. Within the Retail segment, the Company expects total sales will increase due to the acquisition of Martin’s and the significant current year implementation of the Company’s brand positioning, partly offset by the impact of store rationalization plans.
Results of Operations
The following table sets forth items from the condensed consolidated statements of operations as a percentage of net sales and the year-to-year percentage change in the dollar amounts:
|
Percentage of Net Sales |
|
|
Percentage Change |
|
||||||||||||||||||
|
12 Weeks Ended |
|
|
40 Weeks Ended |
|
|
12 Weeks Ended |
|
|
40 Weeks Ended |
|
||||||||||||
|
October 5, 2019 |
|
|
October 6, 2018 |
|
|
October 5, 2019 |
|
|
October 6, 2018 |
|
|
October 5, 2019 |
|
|
October 5, 2019 |
|
||||||
Net sales |
|
100.0 |
|
|
|
100.0 |
|
|
|
100.0 |
|
|
|
100.0 |
|
|
|
6.0 |
|
|
|
6.0 |
|
Gross profit |
|
14.5 |
|
|
|
13.6 |
|
|
|
14.6 |
|
|
|
14.0 |
|
|
|
13.4 |
|
|
|
10.6 |
|
Selling, general and administrative |
|
13.7 |
|
|
|
12.1 |
|
|
|
13.8 |
|
|
|
12.5 |
|
|
|
19.6 |
|
|
|
16.3 |
|
Merger/acquisition and integration |
|
— |
|
|
|
0.0 |
|
|
|
0.0 |
|
|
|
0.1 |
|
|
|
(100.0 |
) |
|
|
(61.4 |
) |
Restructuring charges and asset impairment |
|
0.1 |
|
|
|
0.0 |
|
|
|
0.2 |
|
|
|
0.1 |
|
|
** |
|
|
|
93.9 |
|
Operating earnings |
|
0.8 |
|
|
|
1.4 |
|
|
|
0.7 |
|
|
|
1.3 |
|
|
|
(41.1 |
) |
|
|
(44.9 |
) |
Other expenses and income |
|
0.9 |
|
|
|
0.4 |
|
|
|
0.7 |
|
|
|
0.4 |
|
|
|
157.7 |
|
|
|
111.5 |
|
(Loss) earnings before income taxes and discontinued operations |
|
(0.1 |
) |
|
|
1.1 |
|
|
|
(0.0 |
) |
|
|
1.0 |
|
|
|
(109.9 |
) |
|
|
(102.5 |
) |
Income tax (benefit) expense |
|
(0.1 |
) |
|
|
0.1 |
|
|
|
(0.0 |
) |
|
|
0.2 |
|
|
|
(169.8 |
) |
|
|
(115.9 |
) |
(Loss) earnings from continuing operations |
|
(0.0 |
) |
|
|
0.9 |
|
|
|
0.0 |
|
|
|
0.8 |
|
|
|
(101.8 |
) |
|
|
(99.1 |
) |
Loss from discontinued operations, net of taxes |
|
(0.0 |
) |
|
|
(0.0 |
) |
|
|
(0.0 |
) |
|
|
(0.0 |
) |
|
** |
|
|
** |
|
||
Net (loss) earnings |
|
(0.0 |
) |
|
|
0.9 |
|
|
|
0.0 |
|
|
|
0.8 |
|
|
|
(101.9 |
) |
|
|
(99.3 |
) |
Note: Certain totals do not sum due to rounding.
** Not meaningful
Net Sales – The following table presents net sales by segment and variances in net sales:
|
12 Weeks Ended |
|
|
40 Weeks Ended |
|
||||||||||||||||||||||||
(In thousands) |
October 5, 2019 |
|
|
October 6, 2018 |
|
|
Variance |
|
|
October 5, 2019 |
|
|
October 6, 2018 |
|
|
Variance |
|
||||||||||||
Food Distribution |
$ |
|
939,047 |
|
|
$ |
|
940,183 |
|
|
$ |
|
(1,136 |
) |
|
$ |
|
3,043,668 |
|
|
$ |
|
3,037,096 |
|
|
$ |
|
6,572 |
|
Military |
|
|
499,156 |
|
|
|
|
500,222 |
|
|
|
|
(1,066 |
) |
|
|
|
1,661,097 |
|
|
|
|
1,653,496 |
|
|
|
|
7,601 |
|
Retail |
|
|
561,605 |
|
|
|
|
446,325 |
|
|
|
|
115,280 |
|
|
|
|
1,833,347 |
|
|
|
|
1,477,164 |
|
|
|
|
356,183 |
|
Total net sales |
$ |
|
1,999,808 |
|
|
$ |
|
1,886,730 |
|
|
$ |
|
113,078 |
|
|
$ |
|
6,538,112 |
|
|
$ |
|
6,167,756 |
|
|
$ |
|
370,356 |
|
Net sales for the quarter ended October 5, 2019 (“third quarter”) increased $113.1 million, or 6.0%, to $2.00 billion from $1.89 billion in the quarter ended October 6, 2018 (“prior year quarter”). Net sales for the year-to-date period ended October 5, 2019 (“year-to-date period”) increased $370.4 million, or 6.0%, to $6.54 billion from $6.17 billion in the year-to-date period ended October 6, 2018 (“prior year-to-date period”). The increases were driven primarily by incremental sales from the Martin’s acquisition.
20
Food Distribution net sales decreased $1.1 million, or 0.1%, to $939.0 million in the third quarter from $940.2 million in the prior year quarter. Net sales for the year-to-date period increased $6.6 million, or 0.2%, and amount to $3.04 billion in both the current and prior year-to-date periods. Before the impact of the elimination of sales to Martin’s, following the acquisition at the beginning of 2019, sales grew 3.6% and 4.0% in the third quarter and year-to-date period, respectively, primarily due to sales growth with existing customers.
Military net sales decreased $1.1 million, or 0.2%, to $499.2 million in the third quarter from $500.2 million in the prior year quarter. Net sales for the year-to-date period increased $7.6 million, or 0.5%, from $1.65 billion in the prior year-to-date period to $1.66 billion. The decrease from the prior year quarter was due to lower comparable sales at DeCA operated locations, mostly offset by new business. The increase from the prior year-to-date period was primarily due to incremental volume from new business with an existing customer that commenced late in the fourth quarter of 2018 and growth in DeCA’s private brand program, partially offset by lower comparable sales at DeCA operated locations.
Retail net sales increased $115.3 million, or 25.8%, to $561.6 million in the third quarter from $446.3 million in the prior year quarter. Net sales for the year-to-date period increased $356.2 million, or 24.1%, from $1.48 billion in the prior year-to-date period to $1.83 billion. The increase in net sales was primarily attributable to incremental sales from the Martin’s acquisition. Comparable store sales increased 0.1% for the quarter and decreased 0.7% percent for the year-to-date period. 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 for all non-production operations includes purchase costs, in-bound freight, physical inventory adjustments, markdowns and promotional allowances and excludes warehousing costs, depreciation and other administrative expenses. For the Company’s food processing operations, cost of sales includes direct product and production costs, inbound freight, purchasing and receiving costs, utilities, depreciation, and other indirect production costs and excludes out-bound freight and other administrative expenses. The Company’s gross profit definition may not be identical to similarly titled measures reported by other companies. Vendor allowances that relate to the buying and merchandising activities consist primarily of promotional allowances, which are generally allowances on purchased quantities and, to a lesser extent, slotting allowances, which are billed to vendors for the Company’s merchandising costs, such as setting up warehouse infrastructure. Vendor allowances are recognized as a reduction in cost of sales when the product is sold. Lump sum payments received for multi-year contracts are amortized over the life of the contracts based on contractual terms. The distribution segments include shipping and handling costs in the Selling, general and administrative section of operating expenses in the consolidated statements of operations.
Gross profit increased $34.2 million, or 13.4%, to $290.4 million in the third quarter from $256.1 million in the prior year quarter. As a percent of net sales, gross profit was 14.5% compared to 13.6% in the prior year quarter. Gross profit for the year-to-date period increased $92.1 million, or 10.6%, from $865.0 million in the prior year-to-date period to $957.1 million in the current year. As a percent of net sales, gross profit for the year-to-date period was 14.6% compared to 14.0% in the prior year-to-date period. As a percent of net sales, the third quarter and year-to-date period change in gross margin was primarily due to the acquisition of Martin’s and the resulting higher mix of Retail sales.
Selling, General and Administrative Expenses – Selling, general and administrative (“SG&A”) expenses consist primarily of salaries and wages, employee benefits, facility costs, shipping and handling, equipment rental, depreciation (to the extent not included in Cost of sales), out-bound freight and other administrative expenses.
SG&A expenses increased to $273.3 million in the third quarter from $228.6 million in the prior year quarter, representing 13.7% of net sales in the third quarter compared to 12.1% in the prior year quarter. SG&A expenses for the year-to-date period increased $126.3 million, or 16.3%, from $773.8 million in the prior year-to-date period to $900.2 million, and increased from 12.5% as a percentage of net sales in the prior year-to-date period compared to 13.8%. The increase in expenses as a rate of sales compared to the prior year quarter and year-to-date period was primarily due to an increase in the mix of Retail segment operations with the acquisition of Martin’s, higher corporate administrative expenses, including expenses associated with the CEO transition and a non-recurring, supplemental, transition incentive program for eligible associates (“Transition Costs”), and higher supply chain costs in both the Military and Food Distribution segments.
Merger/Acquisition and Integration – Third quarter results did not include any merger/acquisition and integration expenses, while prior year quarter results included $0.5 million. The year-to-date period and the prior year-to-date period results included $1.4 million and $3.5 million of merger/acquisition and integration expenses, respectively. The expenses are mainly associated with the acquisition and integration of Martin’s in the current year and the integration of Spartan Stores, Inc. and the Nash-Finch Company in the prior year.
21
Restructuring Charges and Asset Impairment – Third quarter and prior year quarter results included net charges of $1.3 million and $0.2 million, respectively, of restructuring and asset impairment activity. The year-to-date period and the prior year-to-date period results included net charges of $10.2 million and $5.3 million, respectively, of restructuring and asset impairment activity. The current year third quarter activity consists primarily of asset impairment charges to adjust non-operating real estate to its fair value, which is classified as held-for-sale. The year-to-date period includes asset impairment charges associated with the decision to reposition Fresh Production operations, which are partially offset by gains on the sale of a previously closed distribution center. The prior year-to-date amount includes charges associated with the Company’s retail store rationalization plans, partially offset by gains on sales of real estate.
Goodwill
The Company performs goodwill impairment tests on an annual basis, or whenever events or circumstances indicate that it would be more likely than not that the fair value of a reporting unit is below its carrying amount. On a quarterly basis, the Company assesses whether there are any indicators that the carrying value of the Food Distribution reporting unit, the only reporting unit which carries a goodwill balance, is in excess of its fair value. One of the considerations performed by the Company is whether the carrying value of the enterprise as a whole is greater than the market capitalization, considering a reasonable control premium. At the end of the first quarter and into the second quarter of 2019 the decline in the Company’s stock price substantially decreased market capitalization, and the decline became sustained during the second quarter. As a result of this indicator of impairment, the Company performed an interim goodwill impairment test for the Food Distribution reporting unit during the second quarter.
The Company estimates the fair value of the Food Distribution reporting unit primarily based on the income approach using a discounted cash flow model and also incorporates the market approach using observable comparable company information. In addition, the Company reconciles the fair value estimate for the Food Distribution reporting unit to the current market capitalization of the enterprise as a whole. While the Retail and Military reporting units do not carry goodwill balances, their fair values are combined with the fair value estimate of the Food Distribution reporting unit in determining the enterprise value of the total Company.
As a result of the second quarter impairment test, the Company concluded that the fair value of the Food Distribution reporting unit was substantially in excess of its carrying value and that the reconciliation between the enterprise value of the Company and market capitalization, was within the Company’s expectations based on recent market transactions. The Company will perform its annual assessment of goodwill during the fourth quarter of 2019.
Operating Earnings (Loss) – The following table presents operating earnings (loss) by segment and variances in operating earnings (loss):
|
12 Weeks Ended |
|
|
40 Weeks Ended |
|
||||||||||||||||||||||||
(In thousands) |
October 5, 2019 |
|
|
October 6, 2018 |
|
|
Variance |
|
|
October 5, 2019 |
|
|
October 6, 2018 |
|
|
Variance |
|
||||||||||||
Food Distribution |
$ |
|
11,699 |
|
|
$ |
|
19,815 |
|
|
$ |
|
(8,116 |
) |
|
$ |
|
36,564 |
|
|
$ |
|
63,060 |
|
|
$ |
|
(26,496 |
) |
Military |
|
|
(2,646 |
) |
|
|
|
1,508 |
|
|
|
|
(4,154 |
) |
|
|
|
(5,806 |
) |
|
|
|
6,120 |
|
|
|
|
(11,926 |
) |
Retail |
|
|
6,726 |
|
|
|
|
5,483 |
|
|
|
|
1,243 |
|
|
|
|
14,600 |
|
|
|
|
13,192 |
|
|
|
|
1,408 |
|
Total operating earnings |
$ |
|
15,779 |
|
|
$ |
|
26,806 |
|
|
$ |
|
(11,027 |
) |
|
$ |
|
45,358 |
|
|
$ |
|
82,372 |
|
|
$ |
|
(37,014 |
) |
Operating earnings decreased $11.0 million, or 41.1% to $15.8 million in the third quarter from $26.8 million in the prior year quarter. Operating earnings for the year-to-date period decreased $37.0 million, or 44.9%, to $45.4 million from $82.4 million in the prior year-to-date period. The third quarter decrease was primarily attributable to higher corporate administrative expenses, including Transition Costs, and higher supply chain costs. These items were partially offset by incremental earnings from the newly acquired Martin’s business and growth in the Food Distribution segment. The year-to-date decrease was due to the same items as well as second quarter asset impairment charges and one-time expenses associated with the Project One Team initiative.
Food Distribution operating earnings decreased $8.1 million, or 41.0%, to $11.7 million in the third quarter from $19.8 million in the prior year quarter. Operating earnings for the year-to-date period decreased $26.5 million, or 42.0%, to $36.6 million from $63.1 million in the prior year-to-date period. The decrease in operating earnings in the third quarter was due to due to higher corporate administrative expenses, including Transition Costs, as well as supply chain costs, partially offset by contributions from sales growth. The year-to-date period was also impacted by the second quarter asset impairment charges.
Military operating earnings decreased $4.2 million to a $2.6 million operating loss in the third quarter from $1.5 million in operating earnings in the prior year quarter. Operating earnings for the year-to-date period decreased $11.9 million to a $5.8 million operating loss from $6.1 million in operating earnings in the prior year-to-date period. The third quarter and year-to-date decreases were primarily attributable to higher supply chain costs and corporate administrative expenses. The year-to-date period decrease was also attributable to one-time costs associated with Project One Team, organizational realignment costs, as well as the cycling of gains related to the sale of a closed facility in the second quarter of the prior year.
22
Retail operating earnings increased $1.2 million, or 22.7% to $6.7 million in the third quarter from $5.5 million in the prior year quarter. Operating earnings for the year-to-date period increased $1.4 million, or 10.7%, to $14.6 million from $13.2 million in the prior year-to-date period. The increases in operating earnings was primarily attributable to the contribution of the acquired Martin’s stores, improvement in margin rates and the favorable impact of closing underperforming stores, partially offset by higher corporate administrative expenses, including Transition Costs. The year-to-date increase in operating earnings was also offset by the allocation of one-time costs associated with Project One Team.
Interest Expense – Interest expense increased $0.3 million, or 4.2%, to $7.4 million in the third quarter from $7.1 million in the prior year quarter. Interest expense for the year-to-date period increased $5.1 million, or 22.4% from $22.8 million in the prior year-to-date period to $28.0 million. The increase in interest expense for the year-to-date period was primarily due to an increase in interest rates compared to the prior year and incremental borrowings to fund the Martin’s acquisition. Interest rates have become more comparable to the prior year in the third quarter as a result of an early paydown of the term loan (Tranche A-2) with available borrowings from the revolving credit facility. The Company has also paid down the incremental borrowings associated with the Martin’s acquisition.
Income Taxes – The effective income tax rate was 84.2% and 11.9% for the third quarter and prior year quarter, respectively. For the year-to-date period and prior year-to-date period, the effective income tax rates were 129.0% and 20.6%, respectively. The difference from the federal statutory rate in the current year was primarily due to state tax benefits resulting from losses in certain tax jurisdictions as well as tax credits. In the prior year, the difference from the federal statutory rate was primarily due to the lapse of the statute of limitations for an uncertain tax position, the Federal rate change effect on the finalization of deferred taxes for 2017 and tax credits, partially offset by state income taxes.
Non-GAAP Financial Measures
In addition to reporting financial results in accordance with GAAP, the Company also provides information regarding adjusted operating earnings, adjusted earnings from continuing operations, and Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization (“adjusted EBITDA”). These are non-GAAP financial measures, as defined below, and are used by management to allocate resources, assess performance against its peers and evaluate overall performance. The Company believes these measures provide useful information for both management and its investors. The Company believes these non-GAAP measures are useful to investors because they provide additional understanding of the trends and special circumstances that affect its business. These measures provide useful supplemental information that helps investors to establish a basis for expected performance and the ability to evaluate actual results against that expectation. The measures, when considered in connection with GAAP results, can be used to assess the overall performance of the Company as well as assess the Company’s performance against its peers. These measures are also used as a basis for certain compensation programs sponsored by the Company. In addition, securities analysts, fund managers and other shareholders and stakeholders that communicate with the Company request its financial results in these adjusted formats.
Current year adjusted operating earnings, adjusted earnings from continuing operations, and adjusted EBITDA exclude “Fresh Kitchen operating losses” subsequent to the decision to exit these operations at the beginning of the third quarter, costs associated with organizational realignment, which include significant changes to the Company’s management team, and fees paid to a third-party advisory firm associated with Project One Team, the Company’s initiative to drive growth while increasing efficiency and reducing costs. Pension termination costs, primarily related to non-operating settlement expense associated with the distribution of pension assets, are excluded from adjusted earnings from continuing operations, and to a lesser extent adjusted operating earnings. These items are considered “non-operational” or “non-core” in nature. Prior year adjusted operating earnings, adjusted earnings from continuing operations, and adjusted EBITDA exclude start-up costs associated with the Fresh Kitchen operation, which concluded during the first quarter of 2018. The Fresh Kitchen represented a new line of business for the Company.
Adjusted Operating Earnings
Adjusted operating earnings is a non-GAAP operating financial measure that the Company defines as operating earnings plus or minus adjustments for items that do not reflect the ongoing operating activities of the Company and costs associated with the closing of operational locations.
The Company believes that adjusted operating earnings provide a meaningful representation of its operating performance for the Company as a whole and for its operating segments. The Company considers adjusted operating earnings as an additional way to measure operating performance on an ongoing basis. Adjusted operating earnings is meant to reflect the ongoing operating performance of all of its distribution and retail operations; consequently, it excludes the impact of items that could be considered “non-operating” or “non-core” in nature and also excludes the contributions of activities classified as discontinued operations. Because adjusted operating earnings and adjusted operating earnings by segment are performance measures that management uses to allocate resources, assess performance against its peers and evaluate overall performance, the Company believes it provides useful information for both management and its investors. In addition, securities analysts, fund managers and other shareholders and stakeholders that communicate with the Company request its operating financial results in adjusted operating earnings format.
23
Adjusted operating earnings is not a measure of performance under accounting principles generally accepted in the United States of America (“GAAP”) and should not be considered as a substitute for operating earnings, cash flows from operating activities and other income or cash flow statement data. The Company’s definition of adjusted operating earnings may not be identical to similarly titled measures reported by other companies.
24
Following is a reconciliation of operating earnings (loss) to adjusted operating earnings for the 12 and 40 weeks ended October 5, 2019 and October 6, 2018.
|
12 Weeks Ended |
|
|
40 Weeks Ended |
|
||||||||||||||
(In thousands) |
October 5, 2019 |
|
|
October 6, 2018 |
|
|
October 5, 2019 |
|
|
October 6, 2018 |
|
||||||||
Operating earnings |
$ |
|
15,779 |
|
|
$ |
|
26,806 |
|
|
$ |
|
45,358 |
|
|
$ |
|
82,372 |
|
Adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Merger/acquisition and integration |
|
|
— |
|
|
|
|
521 |
|
|
|
|
1,364 |
|
|
|
|
3,531 |
|
Restructuring charges and asset impairment |
|
|
1,296 |
|
|
|
|
232 |
|
|
|
|
10,215 |
|
|
|
|
5,269 |
|
Fresh Kitchen start-up costs |
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
1,366 |
|
Fresh Kitchen operating losses |
|
|
2,204 |
|
|
|
|
— |
|
|
|
|
2,204 |
|
|
|
|
— |
|
Expenses associated with tax planning strategies |
|
|
— |
|
|
|
|
225 |
|
|
|
|
— |
|
|
|
|
225 |
|
Costs associated with Project One Team |
|
|
— |
|
|
|
|
— |
|
|
|
|
5,428 |
|
|
|
|
— |
|
Organizational realignment costs |
|
|
935 |
|
|
|
|
— |
|
|
|
|
1,812 |
|
|
|
|
— |
|
Pension termination |
|
|
28 |
|
|
|
|
— |
|
|
|
|
48 |
|
|
|
|
— |
|
Severance associated with cost reduction initiatives |
|
|
43 |
|
|
|
|
50 |
|
|
|
|
484 |
|
|
|
|
668 |
|
Adjusted operating earnings |
$ |
|
20,285 |
|
|
$ |
|
27,834 |
|
|
$ |
|
66,913 |
|
|
$ |
|
93,431 |
|
Reconciliation of operating earnings (loss) to adjusted operating earnings (loss) by segment: |
|
||||||||||||||||||
Food Distribution: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating earnings |
$ |
|
11,699 |
|
|
$ |
|
19,815 |
|
|
$ |
|
36,564 |
|
|
$ |
|
63,060 |
|
Adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Merger/acquisition and integration |
|
|
— |
|
|
|
|
479 |
|
|
|
|
(130 |
) |
|
|
|
3,419 |
|
Restructuring charges (gains) and asset impairment |
|
|
1,043 |
|
|
|
|
(68 |
) |
|
|
|
10,724 |
|
|
|
|
1,292 |
|
Fresh Kitchen start-up costs |
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
1,366 |
|
Fresh Kitchen operating losses |
|
|
2,204 |
|
|
|
|
— |
|
|
|
|
2,204 |
|
|
|
|
— |
|
Expenses associated with tax planning strategies |
|
|
— |
|
|
|
|
116 |
|
|
|
|
— |
|
|
|
|
116 |
|
Costs associated with Project One Team |
|
|
— |
|
|
|
|
— |
|
|
|
|
2,877 |
|
|
|
|
— |
|
Organizational realignment costs |
|
|
495 |
|
|
|
|
— |
|
|
|
|
960 |
|
|
|
|
— |
|
Pension termination |
|
|
15 |
|
|
|
|
— |
|
|
|
|
26 |
|
|
|
|
— |
|
Severance associated with cost reduction initiatives |
|
|
31 |
|
|
|
|
66 |
|
|
|
|
392 |
|
|
|
|
517 |
|
Adjusted operating earnings |
$ |
|
15,487 |
|
|
$ |
|
20,408 |
|
|
$ |
|
53,617 |
|
|
$ |
|
69,770 |
|
Military: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating (loss) earnings |
$ |
|
(2,646 |
) |
|
$ |
|
1,508 |
|
|
$ |
|
(5,806 |
) |
|
$ |
|
6,120 |
|
Adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Merger/acquisition and integration |
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
4 |
|
Restructuring charges (gains) |
|
|
— |
|
|
|
|
29 |
|
|
|
|
— |
|
|
|
|
(801 |
) |
Expenses associated with tax planning strategies |
|
|
— |
|
|
|
|
28 |
|
|
|
|
— |
|
|
|
|
28 |
|
Costs associated with Project One Team |
|
|
— |
|
|
|
|
— |
|
|
|
|
706 |
|
|
|
|
— |
|
Organizational realignment costs |
|
|
122 |
|
|
|
|
— |
|
|
|
|
236 |
|
|
|
|
— |
|
Pension termination |
|
|
3 |
|
|
|
|
— |
|
|
|
|
5 |
|
|
|
|
— |
|
Severance associated with cost reduction initiatives |
|
|
— |
|
|
|
|
(1 |
) |
|
|
|
9 |
|
|
|
|
69 |
|
Adjusted operating (loss) earnings |
$ |
|
(2,521 |
) |
|
$ |
|
1,564 |
|
|
$ |
|
(4,850 |
) |
|
$ |
|
5,420 |
|
Retail: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating earnings |
$ |
|
6,726 |
|
|
$ |
|
5,483 |
|
|
$ |
|
14,600 |
|
|
$ |
|
13,192 |
|
Adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Merger/acquisition and integration |
|
|
— |
|
|
|
|
42 |
|
|
|
|
1,494 |
|
|
|
|
108 |
|
Restructuring charges (gains) and asset impairment |
|
|
253 |
|
|
|
|
271 |
|
|
|
|
(509 |
) |
|
|
|
4,778 |
|
Expenses associated with tax planning strategies |
|
|
— |
|
|
|
|
81 |
|
|
|
|
— |
|
|
|
|
81 |
|
Costs associated with Project One Team |
|
|
— |
|
|
|
|
— |
|
|
|
|
1,845 |
|
|
|
|
— |
|
Organizational realignment costs |
|
|
318 |
|
|
|
|
— |
|
|
|
|
616 |
|
|
|
|
— |
|
Pension termination |
|
|
10 |
|
|
|
|
— |
|
|
|
|
17 |
|
|
|
|
— |
|
Severance associated with cost reduction initiatives |
|
|
12 |
|
|
|
|
(15 |
) |
|
|
|
83 |
|
|
|
|
82 |
|
Adjusted operating earnings |
$ |
|
7,319 |
|
|
$ |
|
5,862 |
|
|
$ |
|
18,146 |
|
|
$ |
|
18,241 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25
Adjusted Earnings from Continuing Operations
Adjusted earnings from continuing operations is a non-GAAP operating financial measure that the Company defines as earnings from continuing operations plus or minus adjustments for items that do not reflect the ongoing operating activities of the Company and costs associated with the closing of operational locations.
The Company believes that adjusted earnings from continuing operations provide a meaningful representation of its operating performance for the Company. The Company considers adjusted earnings from continuing operations as an additional way to measure operating performance on an ongoing basis. Adjusted earnings from continuing operations is meant to reflect the ongoing operating performance of all of its distribution and retail operations; consequently, it excludes the impact of items that could be considered “non-operating” or “non-core” in nature, and excludes the contributions of activities classified as discontinued operations. Because adjusted earnings from continuing operations is a performance measure that management uses to allocate resources, assess performance against its peers and evaluate overall performance, the Company believes it provides useful information for both management and its investors. In addition, securities analysts, fund managers and other shareholders and stakeholders that communicate with the Company request its operating financial results in adjusted earnings from continuing operations format.
Adjusted earnings from continuing operations is not a measure of performance under accounting principles generally accepted in the United States of America and should not be considered as a substitute for net earnings, cash flows from operating activities and other income or cash flow statement data. The Company’s definition of adjusted earnings from continuing operations may not be identical to similarly titled measures reported by other companies.
26
Following is a reconciliation of earnings from continuing operations to adjusted earnings from continuing operations for the 12 and 40 weeks ended October 5, 2019 and October 6, 2018.
|
12 Weeks Ended |
|
|
|||||||||||||||||
|
October 5, 2019 |
|
|
October 6, 2018 |
|
|
||||||||||||||
|
|
|
|
per diluted |
|
|
|
|
|
per diluted |
|
|
||||||||
(In thousands, except per share amounts) |
Earnings |
|
|
share |
|
|
Earnings |
|
|
share |
|
|
||||||||
(Loss) earnings from continuing operations |
$ |
|
(310 |
) |
|
$ |
|
(0.01 |
) |
|
$ |
|
17,545 |
|
|
$ |
|
0.49 |
|
|
Adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Merger/acquisition and integration |
|
|
— |
|
|
|
|
|
|
|
|
|
521 |
|
|
|
|
|
|
|
Restructuring charges and asset impairment |
|
|
1,296 |
|
|
|
|
|
|
|
|
|
232 |
|
|
|
|
|
|
|
Fresh Kitchen operating losses |
|
|
2,204 |
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
Expenses associated with tax planning strategies |
|
|
— |
|
|
|
|
|
|
|
|
|
225 |
|
|
|
|
|
|
|
Organizational realignment costs |
|
|
935 |
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
Loss on debt extinguishment |
|
|
329 |
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
Severance associated with cost reduction initiatives |
|
|
43 |
|
|
|
|
|
|
|
|
|
50 |
|
|
|
|
|
|
|
Pension termination |
|
|
10,159 |
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
Total adjustments |
|
|
14,966 |
|
|
|
|
|
|
|
|
|
1,028 |
|
|
|
|
|
|
|
Income tax effect on adjustments (a) |
|
|
(3,751 |
) |
|
|
|
|
|
|
|
|
(176 |
) |
|
|
|
|
|
|
Impact of Tax Cuts and Jobs Act (b) |
|
|
— |
|
|
|
|
|
|
|
|
|
(494 |
) |
|
|
|
|
|
|
Total adjustments, net of taxes |
|
|
11,215 |
|
|
|
|
0.31 |
|
|
|
|
358 |
|
|
|
|
0.01 |
|
|
Adjusted earnings from continuing operations |
$ |
|
10,905 |
|
|
$ |
|
0.30 |
|
|
$ |
|
17,903 |
|
|
$ |
|
0.50 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
40 Weeks Ended |
|
|
|||||||||||||||||
|
October 5, 2019 |
|
|
October 6, 2018 |
|
|
||||||||||||||
|
|
|
|
per diluted |
|
|
|
|
|
per diluted |
|
|
||||||||
(In thousands, except per share amounts) |
Earnings |
|
|
share |
|
|
Earnings |
|
|
share |
|
|
||||||||
Earnings from continuing operations |
$ |
|
444 |
|
|
$ |
|
0.01 |
|
|
$ |
|
47,818 |
|
|
$ |
|
1.33 |
|
|
Adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Merger/acquisition and integration |
|
|
1,364 |
|
|
|
|
|
|
|
|
|
3,531 |
|
|
|
|
|
|
|
Restructuring charges and asset impairment |
|
|
10,215 |
|
|
|
|
|
|
|
|
|
5,269 |
|
|
|
|
|
|
|
Fresh Kitchen start-up costs |
|
|
— |
|
|
|
|
|
|
|
|
|
1,366 |
|
|
|
|
|
|
|
Fresh Kitchen operating losses |
|
|
2,204 |
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
Expenses associated with tax planning strategies |
|
|
— |
|
|
|
|
|
|
|
|
|
225 |
|
|
|
|
|
|
|
Costs associated with Project One Team |
|
|
5,428 |
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
Organizational realignment costs |
|
|
1,812 |
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
Loss on debt extinguishment |
|
|
329 |
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
Severance associated with cost reduction initiatives |
|
|
484 |
|
|
|
|
|
|
|
|
|
668 |
|
|
|
|
|
|
|
Pension termination |
|
|
19,510 |
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
Total adjustments |
|
|
41,346 |
|
|
|
|
|
|
|
|
|
11,059 |
|
|
|
|
|
|
|
Income tax effect on adjustments (a) |
|
|
(10,166 |
) |
|
|
|
|
|
|
|
|
(2,564 |
) |
|
|
|
|
|
|
Impact of Tax Cuts and Jobs Act (b) |
|
|
— |
|
|
|
|
|
|
|
|
|
(494 |
) |
|
|
|
|
|
|
Total adjustments, net of taxes |
|
|
31,180 |
|
|
|
|
0.86 |
|
|
|
|
8,001 |
|
|
|
|
0.22 |
|
|
Adjusted earnings from continuing operations |
$ |
|
31,624 |
|
|
$ |
|
0.87 |
|
|
$ |
|
55,819 |
|
|
$ |
|
1.55 |
|
|
|
(a) |
The income tax effect on adjustments is computed by applying the effective tax rate, before discrete tax items, to the total adjustments for the period. |
|
(b) |
Includes a $1.1 million tax benefit attributable to tax planning strategies related to the Tax Cuts and Jobs Act. |
27
Adjusted EBITDA
Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization (“adjusted EBITDA”) is a non-GAAP operating financial measure that the Company defines as net earnings plus interest, discontinued operations, depreciation and amortization, and other non-cash items including deferred (stock) compensation, the LIFO provision, as well as adjustments for items that do not reflect the ongoing operating activities of the Company and costs associated with the closing of operational locations.
The Company believes that adjusted EBITDA provides a meaningful representation of its operating performance for the Company and for its operating segments. The Company considers adjusted EBITDA as an additional way to measure operating performance on an ongoing basis. Adjusted EBITDA is meant to reflect the ongoing operating performance of all of its distribution and retail operations; consequently, it excludes the impact of items that could be considered “non-operating” or “non-core” in nature, and also excludes the contributions of activities classified as discontinued operations. Because adjusted EBITDA and adjusted EBITDA by segment are performance measures that management uses to allocate resources, assess performance against its peers and evaluate overall performance, the Company believes it provides useful information for both management and its investors. In addition, securities analysts, fund managers and other shareholders and stakeholders that communicate with the Company request its operating financial results in adjusted EBITDA format.
Adjusted EBITDA and adjusted EBITDA by segment are not measures of performance under accounting principles generally accepted in the United States of America and should not be considered as a substitute for net earnings, cash flows from operating activities and other income or cash flow statement data. The Company’s definitions of adjusted EBITDA and adjusted EBITDA by segment may not be identical to similarly titled measures reported by other companies.
Following is a reconciliation of net (loss) earnings to adjusted EBITDA for the 12 and 40 weeks ended October 5, 2019 and October 6, 2018.
|
12 Weeks Ended |
|
|
40 Weeks Ended |
|
||||||||||||||
(In thousands) |
October 5, 2019 |
|
|
October 6, 2018 |
|
|
October 5, 2019 |
|
|
October 6, 2018 |
|
||||||||
Net (loss) earnings |
$ |
|
(337 |
) |
|
$ |
|
17,465 |
|
|
$ |
|
318 |
|
|
$ |
|
47,580 |
|
Loss from discontinued operations, net of tax |
|
|
27 |
|
|
|
|
80 |
|
|
|
|
126 |
|
|
|
|
238 |
|
Income tax (benefit) expense |
|
|
(1,656 |
) |
|
|
|
2,374 |
|
|
|
|
(1,973 |
) |
|
|
|
12,381 |
|
Other expenses, net |
|
|
17,745 |
|
|
|
|
6,887 |
|
|
|
|
46,887 |
|
|
|
|
22,173 |
|
Operating earnings |
|
|
15,779 |
|
|
|
|
26,806 |
|
|
|
|
45,358 |
|
|
|
|
82,372 |
|
Adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIFO expense |
|
|
1,268 |
|
|
|
|
654 |
|
|
|
|
3,761 |
|
|
|
|
2,349 |
|
Depreciation and amortization |
|
|
20,351 |
|
|
|
|
19,247 |
|
|
|
|
67,513 |
|
|
|
|
63,272 |
|
Merger/acquisition and integration |
|
|
— |
|
|
|
|
521 |
|
|
|
|
1,364 |
|
|
|
|
3,531 |
|
Restructuring charges and asset impairment |
|
|
1,296 |
|
|
|
|
232 |
|
|
|
|
10,215 |
|
|
|
|
5,269 |
|
Fresh Kitchen start-up costs |
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
1,366 |
|
Fresh Kitchen operating losses |
|
|
2,204 |
|
|
|
|
— |
|
|
|
|
2,204 |
|
|
|
|
— |
|
Stock-based compensation |
|
|
638 |
|
|
|
|
773 |
|
|
|
|
6,735 |
|
|
|
|
7,040 |
|
Non-cash rent |
|
|
(1,082 |
) |
|
|
|
(187 |
) |
|
|
|
(4,542 |
) |
|
|
|
(818 |
) |
Costs associated with Project One Team |
|
|
— |
|
|
|
|
— |
|
|
|
|
5,428 |
|
|
|
|
— |
|
Organizational realignment costs |
|
|
935 |
|
|
|
|
— |
|
|
|
|
1,812 |
|
|
|
|
— |
|
Other non-cash charges |
|
|
187 |
|
|
|
|
258 |
|
|
|
|
710 |
|
|
|
|
785 |
|
Adjusted EBITDA |
$ |
|
41,576 |
|
|
$ |
|
48,304 |
|
|
$ |
|
140,558 |
|
|
$ |
|
165,166 |
|
28
Following is a reconciliation of operating earnings (loss) to adjusted EBITDA by segment for the 12 and 40 weeks ended October 5, 2019 and October 6, 2018.
|
12 Weeks Ended |
|
|
40 Weeks Ended |
|
||||||||||||||
(In thousands) |
October 5, 2019 |
|
|
October 6, 2018 |
|
|
October 5, 2019 |
|
|
October 6, 2018 |
|
||||||||
Food Distribution: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating earnings |
$ |
|
11,699 |
|
|
$ |
|
19,815 |
|
|
$ |
|
36,564 |
|
|
$ |
|
63,060 |
|
Adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIFO expense |
|
|
639 |
|
|
|
|
245 |
|
|
|
|
1,869 |
|
|
|
|
929 |
|
Depreciation and amortization |
|
|
7,390 |
|
|
|
|
7,540 |
|
|
|
|
25,368 |
|
|
|
|
24,179 |
|
Merger/acquisition and integration |
|
|
— |
|
|
|
|
479 |
|
|
|
|
(130 |
) |
|
|
|
3,419 |
|
Restructuring charges (gains) and asset impairment |
|
|
1,043 |
|
|
|
|
(68 |
) |
|
|
|
10,724 |
|
|
|
|
1,292 |
|
Fresh Kitchen start-up costs |
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
1,366 |
|
Fresh Kitchen operating losses |
|
|
2,204 |
|
|
|
|
— |
|
|
|
|
2,204 |
|
|
|
|
— |
|
Stock-based compensation |
|
|
302 |
|
|
|
|
351 |
|
|
|
|
3,319 |
|
|
|
|
3,318 |
|
Non-cash rent |
|
|
147 |
|
|
|
|
41 |
|
|
|
|
353 |
|
|
|
|
115 |
|
Costs associated with Project One Team |
|
|
— |
|
|
|
|
— |
|
|
|
|
2,877 |
|
|
|
|
— |
|
Organizational realignment costs |
|
|
495 |
|
|
|
|
— |
|
|
|
|
960 |
|
|
|
|
— |
|
Other non-cash charges |
|
|
14 |
|
|
|
|
119 |
|
|
|
|
391 |
|
|
|
|
466 |
|
Adjusted EBITDA |
$ |
|
23,933 |
|
|
$ |
|
28,522 |
|
|
$ |
|
84,499 |
|
|
$ |
|
98,144 |
|
Military: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating (loss) earnings |
$ |
|
(2,646 |
) |
|
$ |
|
1,508 |
|
|
$ |
|
(5,806 |
) |
|
$ |
|
6,120 |
|
Adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIFO expense |
|
|
372 |
|
|
|
|
146 |
|
|
|
|
1,034 |
|
|
|
|
544 |
|
Depreciation and amortization |
|
|
2,764 |
|
|
|
|
2,816 |
|
|
|
|
9,097 |
|
|
|
|
9,257 |
|
Merger/acquisition and integration |
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
4 |
|
Restructuring charges (gains) |
|
|
— |
|
|
|
|
29 |
|
|
|
|
— |
|
|
|
|
(801 |
) |
Stock-based compensation |
|
|
114 |
|
|
|
|
155 |
|
|
|
|
1,091 |
|
|
|
|
1,181 |
|
Non-cash rent |
|
|
(80 |
) |
|
|
|
(74 |
) |
|
|
|
(283 |
) |
|
|
|
(249 |
) |
Costs associated with Project One Team |
|
|
— |
|
|
|
|
— |
|
|
|
|
706 |
|
|
|
|
— |
|
Organizational realignment costs |
|
|
122 |
|
|
|
|
— |
|
|
|
|
236 |
|
|
|
|
— |
|
Other non-cash (gains) charges |
|
|
(70 |
) |
|
|
|
31 |
|
|
|
|
(91 |
) |
|
|
|
57 |
|
Adjusted EBITDA |
$ |
|
576 |
|
|
$ |
|
4,611 |
|
|
$ |
|
5,984 |
|
|
$ |
|
16,113 |
|
Retail: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating earnings |
$ |
|
6,726 |
|
|
$ |
|
5,483 |
|
|
$ |
|
14,600 |
|
|
$ |
|
13,192 |
|
Adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIFO expense |
|
|
257 |
|
|
|
|
263 |
|
|
|
|
858 |
|
|
|
|
876 |
|
Depreciation and amortization |
|
|
10,197 |
|
|
|
|
8,891 |
|
|
|
|
33,048 |
|
|
|
|
29,836 |
|
Merger/acquisition and integration |
|
|
— |
|
|
|
|
42 |
|
|
|
|
1,494 |
|
|
|
|
108 |
|
Restructuring charges (gains) and asset impairment |
|
|
253 |
|
|
|
|
271 |
|
|
|
|
(509 |
) |
|
|
|
4,778 |
|
Stock-based compensation |
|
|
222 |
|
|
|
|
267 |
|
|
|
|
2,325 |
|
|
|
|
2,541 |
|
Non-cash rent |
|
|
(1,149 |
) |
|
|
|
(154 |
) |
|
|
|
(4,612 |
) |
|
|
|
(684 |
) |
Costs associated with Project One Team |
|
|
— |
|
|
|
|
— |
|
|
|
|
1,845 |
|
|
|
|
— |
|
Organizational realignment costs |
|
|
318 |
|
|
|
|
— |
|
|
|
|
616 |
|
|
|
|
— |
|
Other non-cash charges |
|
|
243 |
|
|
|
|
108 |
|
|
|
|
410 |
|
|
|
|
262 |
|
Adjusted EBITDA |
$ |
|
17,067 |
|
|
$ |
|
15,171 |
|
|
$ |
|
50,075 |
|
|
$ |
|
50,909 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
29
Liquidity and Capital Resources
Cash Flow Information
The following table summarizes the Company’s consolidated statements of cash flows:
|
|
|
|
40 Weeks Ended |
|
|||||||
(In thousands) |
|
|
|
October 5, 2019 |
|
|
October 6, 2018 |
|
||||
Cash flow activities |
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
|
$ |
|
140,034 |
|
|
$ |
|
142,546 |
|
Net cash used in investing activities |
|
|
|
|
|
(117,645 |
) |
|
|
|
(45,533 |
) |
Net cash used in financing activities |
|
|
|
|
|
(17,385 |
) |
|
|
|
(91,773 |
) |
Net cash used in discontinued operations |
|
|
|
|
|
(153 |
) |
|
|
|
(234 |
) |
Net increase in cash and cash equivalents |
|
|
|
|
|
4,851 |
|
|
|
|
5,006 |
|
Cash and cash equivalents at beginning of the period |
|
|
|
|
|
18,585 |
|
|
|
|
15,667 |
|
Cash and cash equivalents at end of the period |
|
|
|
$ |
|
23,436 |
|
|
$ |
|
20,673 |
|
Net cash provided by operating activities. Net cash provided by operating activities decreased during the current year-to-date period from the prior year-to-date period by approximately $2.5 million and was primarily due to lower cash generated from earnings, mostly offset by improvements in working capital including management of accounts payable.
Net cash used in investing activities. Net cash used in investing activities increased $72.1 million in the current year compared to the prior year primarily due to the Martin’s acquisition made in the current year quarter, partially offset by proceeds from the sale of real property for a previously closed site.
Capital expenditures were $46.9 in the current year compared to $52.6 million in the prior year. The Food Distribution, Military and Retail segments utilized 34.2%, 8.6% and 57.2% of capital expenditures, respectively, in the current year.
Net cash used in financing activities. Net cash used in financing activities decreased $74.4 million in the current year compared to the prior year primarily due to the Martin’s acquisition which reduced the funds available for the paydown of debt.
Net cash used in discontinued operations. Net cash used in discontinued operations contains the net cash flows of the Company’s Retail and Food Distribution discontinued operations and is primarily composed of facility maintenance expenditures.
Debt Management
Total debt, including finance lease liabilities, was $693.1 million and $698.1 million as of October 5, 2019 and December 29, 2018, respectively. The decrease in total debt was driven by payments, mostly offset by the current year acquisition of Martin’s.
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 $1.04 billion. As of October 5, 2019, the senior secured credit facility had outstanding borrowings of $652.5 million. Additional available borrowings under the Company’s $1.04 billion credit facility are based on stipulated advance rates on eligible assets, as defined in the Credit Agreement. The Credit Agreement requires that the Company maintain excess availability of 10% of the borrowing base, as such term is defined in the Credit Agreement. The Company had excess availability after the 10% covenant of $226.1 million at October 5, 2019. Payment of dividends and repurchases of outstanding shares are permitted, provided that certain levels of excess availability are maintained. The credit facility provides for the issuance of letters of credit, of which $10.8 million were outstanding as of October 5, 2019. The revolving credit facility matures December 18, 2023 and is secured by substantially all of the Company’s assets.
The Company believes that cash generated from operating activities and available borrowings under the credit facility will be sufficient to meet anticipated requirements for working capital, capital expenditures, dividend payments, and debt service obligations for the foreseeable future. However, there can be no assurance that the business will continue to generate cash flow at or above current levels or that the Company will maintain its ability to borrow under the Credit Agreement. In the third quarter, the Company executed an early payment of its term loan (Tranche A-2) in the amount of $55.0 million with available borrowings from its revolving credit facility. The Company expects to generate interest savings of nearly $2 million annually as a result of utilizing lower rate financing.
The Company’s current ratio (current assets to current liabilities) was 1.72-to-1 at October 5, 2019 compared to 2.10-to-1 at December 29, 2018, and its investment in working capital was $437.6 million at October 5, 2019 compared to $524.6 million at December 29, 2018. Net debt to total capital ratio was 0.49-to-1 at October 5, 2019 compared to 0.49-to-1 at December 29, 2018. The current year ratios include the impact of the adoption of the new lease standard (ASU 2016-02) and therefore lack comparability to the prior year ratios.
30
Total net debt is a non-GAAP financial measure that is defined as long-term debt and finance lease liabilities, plus current maturities of long-term debt and finance lease liabilities, less cash and cash equivalents. The ratio of net debt to capital is a non-GAAP financial measure that is calculated by dividing net debt, as defined previously, by total capital (net debt plus total shareholders’ equity). The Company believes both management and its investors find the information useful because it reflects the amount of long-term debt obligations that are not covered by available cash and temporary investments. Total net debt is not a substitute for GAAP financial measures and may differ from similarly titled measures of other companies.
Following is a reconciliation of long-term debt and finance lease liabilities to total net long-term debt and finance lease liabilities as of October 5, 2019 and December 29, 2018.
|
October 5, |
|
|
December 29, |
|
||||
(In thousands) |
2019 |
|
|
2018 |
|
||||
Current portion of long-term debt and finance lease liabilities |
$ |
|
7,044 |
|
|
$ |
|
18,263 |
|
Long-term debt and finance lease liabilities |
|
|
686,055 |
|
|
|
|
679,797 |
|
Total debt |
|
|
693,099 |
|
|
|
|
698,060 |
|
Cash and cash equivalents |
|
|
(23,436 |
) |
|
|
|
(18,585 |
) |
Total net long-term debt |
$ |
|
669,663 |
|
|
$ |
|
679,475 |
|
For information on contractual obligations, see the Company’s Annual Report on Form 10-K for the fiscal year ended December 29, 2018. At October 5, 2019, there have been no material changes to the Company’s significant contractual obligations outside the ordinary course of business.
Cash Dividends
During the quarter ended October 5, 2019, the Company returned $6.9 million to shareholders from dividend payments. A 5.6% increase in the quarterly dividend rate from $0.18 per share to $0.19 per share was approved by the Board of Directors and announced on February 28, 2019. Although the Company expects to continue to pay a quarterly cash dividend, adoption of a dividend policy does not commit the Board of Directors to declare future dividends. Each future dividend will be considered and declared by the Board of Directors at its discretion. Whether the Board of Directors continues to declare dividends depends on a number of factors, including the Company’s future financial condition, anticipated profitability and cash flows and compliance with the terms of its credit facilities.
Under the senior revolving credit facility, the Company is generally permitted to pay dividends in any fiscal year up to an amount such that all cash dividends, together with any cash distributions and share repurchases, do not exceed $35.0 million. Additionally, the Company is generally permitted to pay cash dividends and repurchase shares in excess of $35.0 million in any fiscal year so long as its Excess Availability, as defined in the senior revolving credit facility, is in excess of 10% of the Total Borrowing Base, as defined in the senior revolving credit facility, before and after giving effect to the repurchases and dividends.
Off-Balance Sheet Arrangements
The Company has also made certain commercial commitments that extend beyond October 5, 2019. These commitments consist primarily of purchase commitments (as disclosed in the Company’s Annual Report on Form 10-K for the year ended December 29, 2018), standby letters of credit of $10.8 million as of October 5, 2019, and interest on long-term debt and finance lease liabilities.
Critical Accounting Policies
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, and the related disclosure of contingent assets and liabilities. 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 Item 8, Note 1 to the consolidated financial statements in the Company’s Annual Report on Form 10-K for the fiscal year ended December 29, 2018 should be reviewed as they are integral to the understanding the Company’s financial condition and results of operations. The Company has discussed the development, selection and disclosure of these accounting policies with the Audit Committee of the Board of Directors. The accompanying financial statements are prepared using the same critical accounting policies discussed in the Company’s Annual Report on Form 10-K for the fiscal year ended December 29, 2018.
31
Recently Issued Accounting Standards
Refer to Note 2 in the notes to the condensed consolidated financial statements for further information.
ITEM 3. Quantitative and Qualitative Disclosure about Market Risk
There have been no material changes in market risk of SpartanNash from the information provided in Part II, Item 7A, “Quantitative and Qualitative Disclosure About Market Risk,” of the Company’s Annual Report on Form 10-K for the fiscal year ended December 29, 2018.
ITEM 4. Controls and Procedures
An evaluation of the effectiveness of the design and operation of SpartanNash Company’s disclosure controls and procedures (as currently defined in Rule 13a-15(e) under the Securities Exchange Act of 1934) was performed as of October 5, 2019 (the “Evaluation Date”). This evaluation was performed under the supervision and with the participation of SpartanNash Company’s management, including its Interim Chief Executive Officer (“CEO”), Chief Financial Officer (“CFO”) and Chief Accounting Officer (“CAO”). As of the Evaluation Date, SpartanNash Company’s management, including the CEO, CFO and CAO, concluded that SpartanNash’s disclosure controls and procedures were effective as of the Evaluation Date to ensure that material information required to be disclosed in the reports that the Company files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified by the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in the reports that the Company files or submits under the Securities and Exchange Act of 1934 is accumulated and communicated to management, including its principal executive and principal financial officers as appropriate to allow for timely decisions regarding required disclosure. During the third 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.
32
PART II
OTHER INFORMATION
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds
The following table provides information regarding SpartanNash’s purchases of its own common stock during the 12 week period ended October 5, 2019. These may include: (1) shares of SpartanNash common stock delivered in satisfaction of the exercise price and/or tax withholding obligations by holders of employee stock options who exercised options, and (2) shares submitted for cancellation to satisfy tax withholding obligations that occur upon the vesting of the restricted shares. The value of the shares delivered or withheld is determined by the applicable stock compensation plan. For the first quarter of 2019, all shares purchased by SpartanNash related to shares submitted for cancellation to satisfy tax withholding obligations that occur upon the vesting of the restricted shares.
During the fourth quarter of 2017, the Board authorized a publicly announced $50 million share repurchase program, expiring in 2022. No repurchases were made under this program during the third quarter of 2019. At October 5, 2019 $45.0 million remains available under the program.
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|
|
|
|
Average |
|
||
|
Total Number |
|
|
Price Paid |
|
|||
Fiscal Period |
of Shares Purchased |
|
|
per Share |
|
|||
July 14 - August 10, 2019 |
|
|
|
|
|
|
|
|
Employee Transactions |
|
— |
|
|
$ |
|
— |
|
Repurchase Program |
|
— |
|
|
$ |
|
— |
|
August 11 - September 7, 2019 |
|
|
|
|
|
|
|
|
Employee Transactions |
|
— |
|
|
$ |
|
— |
|
Repurchase Program |
|
— |
|
|
$ |
|
— |
|
September 8 - October 5, 2019 |
|
|
|
|
|
|
|
|
Employee Transactions |
|
1,402 |
|
|
$ |
|
11.33 |
|
Repurchase Program |
|
— |
|
|
$ |
|
— |
|
Total for quarter ended October 5, 2019 |
|
|
|
|
|
|
|
|
Employee Transactions |
|
1,402 |
|
|
$ |
|
11.33 |
|
Repurchase Program |
|
— |
|
|
$ |
|
— |
|
33
ITEM 6. Exhibits
The following documents are filed as exhibits to this Quarterly Report on Form 10-Q:
Exhibit
|
|
Document |
|
|
|
3.1 |
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|
|
3.2 |
|
|
|
|
|
10.1 |
|
Executive Employment Agreement between SpartanNash Company and Dennis Eidson. |
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|
|
10.2 |
|
Phantom Stock Award Agreement between SpartanNash Company and Dennis Eidson. |
|
|
|
31.1 |
|
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
|
|
|
31.2 |
|
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
|
|
|
31.3 |
|
Certification of Chief Accounting Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
|
|
|
32.1 |
|
Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
|
|
|
101.INS |
|
Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. |
|
|
|
101.SCH |
|
Inline XBRL Taxonomy Extension Schema Document |
|
|
|
101.CAL |
|
Inline XBRL Taxonomy Extension Calculation Linkbase Document |
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|
|
101.LAB |
|
Inline XBRL Taxonomy Extension Label Linkbase Document |
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|
|
101.PRE |
|
Inline XBRL Taxonomy Extension Presentation Linkbase Document |
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|
101.DEF |
|
Inline XBRL Taxonomy Extension Definition Linkbase Document |
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|
|
104 |
|
The cover page from the Company’s Quarterly Report on Form 10-Q for the quarter ended October 5, 2019, has been formatted in Inline XBRL. |
|
|
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34
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
|
SPARTANNASH COMPANY (Registrant)
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||
Date: November 7, 2019 |
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By |
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/s/ Mark E. Shamber |
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|
|
Mark E. Shamber Executive Vice President and Chief Financial Officer
|
35
Exhibit 10.1
INTERIM PRESIDENT AND CEO EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the “Agreement”) is made by SpartanNash Company, a Michigan corporation (the “Company”), and Dennis Eidson (“Executive”). The parties agree as follows:
1.Effective Date and Term. This Agreement will take effect as of August 9, 2019 (“Effective Date”), and will remain in effect during Executive’s employment with the Company and thereafter as to those provisions that expressly state that they will remain in effect after termination of Executive’s employment. The term of Executive’s employment will continue until terminated pursuant to this Agreement. If not earlier terminated, Executive’s employment will terminate on the earlier of (a) August 8, 2020 and (b) the date that is 30 days following the date that a new Chief Executive Officer of the Company commences employment with the Company (“Termination Date”).
2.Employment. Executive will serve as Interim President and Chief Executive Officer of the Company and its Affiliates, reporting to the Board of Directors of the Company (the “Board”). Executive will perform the duties assigned from time to time to Executive’s position. Executive’s employment will be full time and Executive’s entire business time and efforts will be devoted to his duties and responsibilities hereunder, except as otherwise provided by written Company policy and except as necessary to for Executive to perform his duties as Chairman of the Board. Executive agrees to comply with generally applicable employment-related Company policies, including but not limited to any applicable Company policy requiring Executive to own shares of common stock in the Company. As used in this Agreement, the term “Affiliate” includes any organization controlling, controlled by or under common control with the Company.
3.Compensation. Executive will be compensated during his employment as follows:
(a)Salary. Executive’s salary as of the Effective Date is $1,400,000 per year (or a pro-rated weekly amount for any partial year), subject to normal payroll deductions and payable in accordance with the Company’s normal payroll practices.
(b)Sign-On Bonus. As an inducement for Executive to join the Company in the role of Interim President and Chief Executive Officer of the Company and its Affiliates, the Company shall pay Executive a sign-on bonus in the amount of $600,000 (the “Sign-On Bonus”). The Sign-On Bonus will be paid within 30 days following the Effective Date. The Sign-On bonus is not subject to off-set or claw-back.
(c)Incentive Compensation.
(i)Performance-Based Incentives. Executive is eligible to receive quarterly cash incentive awards, up to an aggregate amount of $800,000. With respect to each Incentive Quarter (defined below), Executive will have the opportunity to
1
Exhibit 10.1
receive a cash incentive award of up to $200,000, based on achievement against objective metrics to be agreed upon between Executive and the Board, each acting reasonably and in good faith. For the first two Incentive Quarters, the metrics will be based on attainment of a working capital reduction target for the Company and its Affiliates and be measured as of December 28, 2019, with payment, if any, to be made in 2020 on or before February 9, 2020. With respect to the next two subsequent Incentive Quarters, payment will be made promptly after achievement against the applicable objective metric has been determined after the end of each subsequent Incentive Quarter, but in no event later than 30 days thereafter. In the event that prior to the end of an Incentive Quarter Executive’s employment is terminated (A) by the Company without Cause (as defined below), (B) by Executive for Good Reason (as defined below), (C) by the Company on account of Executive’s Disability (as defined below), (D) on account of Executive’s death (each of (A), (B), (C) and (D) shall be referred to herein as a “Qualifying Termination”), or Executive’s employment terminates 30 days after the date that a new Chief Executive Officer commences employment, Executive will receive a pro-rata payment of the cash incentive award for such Incentive Quarter, based on achievement against the applicable objective metrics and the number of days Executive was employed during the applicable Incentive Quarter as a proportion of the total number of days in the Incentive Quarter. For purposes of this Agreement, “Incentive Quarter” means each of the following periods: (I) August 9, 2019 up to and including November 7, 2019; (II) November 8, 2019 up to and including February 6, 2020; (III) February 7, 2020 up to and including May 7, 2020; and (IV) May 8, 2020 up to and including August 6, 2020.
(ii)Equity-Based Incentives. Executive will receive an initial phantom stock award for a number of hypothetical shares equivalent to 101,010.10 shares of the Company’s common stock (“Initial Award”). For each Incentive Quarter (or portion thereof) that Executive remains employed under this Agreement, Executive will also receive follow-on phantom stock awards for a number of hypothetical shares of Company common stock with a value of $430,000, based on the Company’s closing stock price on the trading day preceding the date of grant, subject to pro-ration if during any Incentive Quarter Executive incurs a Qualifying Termination or his employment terminates 30 days after the date that a new Chief Executive Officer commences employment (“Follow-On Awards,” together with the Initial Award, the “Phantom Stock Awards”). The Phantom Stock Awards shall be subject in all respects to the terms and conditions set forth in the Phantom Stock Award Agreement, in the form attached hereto as Exhibit A. For purposes of the Phantom Stock Awards, “Retirement” means attainment of age 55 and continuous employment until the Scheduled Vesting Date (as defined in the Phantom Stock Award Agreement).
(d)Benefits. Executive will be eligible to participate in fringe benefit programs covering the Company’s salaried employees as a group, and in any programs applicable under Company policy to senior executive officers, which currently include the SpartanNash Savings Plan, health benefits, time-off benefits, executive physical, supplemental savings plan benefits, and financial and tax services as described in
2
Exhibit 10.1
Executive’s offer letter, dated August 15, 2019, effective as of August 9, 2019 (the “Offer Letter”). The terms of applicable insurance policies and benefit plans in effect from time to time will govern with regard to specific issues of coverage and benefit eligibility. All benefit programs are subject to change from time to time in the Company’s discretion.
(e)Expenses.
(i)Business Expenses. The Company will reimburse Executive for reasonable, ordinary and necessary business expenses that are specifically authorized or authorized by Company policy, subject to Executive’s prompt submission of proper documentation for tax and accounting purposes. Such expenses shall be reimbursed within 30 days after Executive requests reimbursement, but in no event later than two and one-half months after the end of the year in which the expense is incurred.
(ii)Travel Expenses. Executive’s principal place of employment will be the Company’s headquarters in Grand Rapids, MI; provided that Executive will not be required to relocate. The Company will pay or reimburse Executive for all travel expenses associated with Executive’s employment as Interim President and Chief Executive Officer, including temporary housing and the use of an automobile in Grand Rapids, MI; as well as travel between Executive’s home and Grand Rapids, MI, and for other Company business, subject to Executive’s prompt submission of proper documentation for tax and accounting purposes (collectively, the “Travel Expenses”). The Company will ensure that Executive has no liability for any out-of-pocket expenses, costs, payments or other expenditures attendant to any Travel Expenses.
4.Termination of Employment.
(a)Except as set forth in Section 3(c), Executive shall not be entitled to any further compensation from the Company or any Affiliate after termination of his employment for any reason, except (x) unpaid salary installments through the date on which Executive’s employment terminates, and (y) any vested benefits accrued before the termination of Executive’s employment under the terms of any written Company policy or benefit program.
(i)Death. Executive’s employment will terminate automatically upon Executive’s death.
(ii)Disability. If Executive is unable to perform, with or without any reasonable accommodation required by applicable law, Executive’s duties under this Agreement due to physical or mental disability for a continuous period of 180 days or longer and Executive is eligible for benefits under the Company’s long-term disability insurance policy (“Disability”), the Company may terminate Executive’s employment on account of Disability.
3
Exhibit 10.1
(iii)Termination by Company for Cause. The Company may terminate Executive’s employment for “Cause,” defined as Executive’s: (A) breach of any provision of Sections 5, 6, and 7 of this Agreement; (B) willful continued failure to perform or willful poor performance of duties (other than due to Disability) after warning and reasonable opportunity to meet reasonable required performance standards; (C) gross negligence causing or placing the Company at risk of significant damage or harm; (D) misappropriation of or intentional damage to Company property; (E) conviction of a felony (other than negligent vehicular homicide); or (F) intentional act or omission for which Executive is responsible that Executive knows or should know is significantly detrimental to the interests of the Company.
(iv)Termination by Executive for Good Reason. Executive may terminate his employment for “Good Reason” if and only if, without Executive’s consent, the Company materially breaches the Company’s obligations to Executive under this Agreement, materially reduces Executive’s salary, or materially reduces Executive’s duties. Executive may not resign for Good Reason unless (A) Executive notifies the Company’s Secretary in writing, within 30 days after the act or omission in question, asserting that the act or omission in question constitutes Good Reason and explaining why; (B) the Company fails, within 30 days after the notification, to take all reasonable steps to cure the breach; and (C) Executive resigns by written notice within 30 days after expiration of the Company’s 30-day period. Executive’s failure to object to a material breach as provided above will not waive Executive’s right to resign with Good Reason after following the above procedure with regard to any subsequent material breach.
(v)Discretionary Termination by Company. The Company may terminate Executive’s employment at will other than for Cause with at least 30 days’ advance written notice or on account of Executive’s death or Disability. If the Company gives such 30 days’ notice of termination, the Company may (but need not) relieve Executive of some or all of Executive’s responsibilities for part or all of such notice period, provided that Executive’s pay and benefits are continued for the 30-day notice period.
(vi)Discretionary Termination by Executive. Executive may terminate his employment at will, with at least 30 days’ advance written notice. If Executive gives such notice of termination, the Company may (but need not) relieve Executive of some or all of Executive’s responsibilities for part or all of such notice period, provided that Executive’s pay and benefits are continued for the 30-day notice period.
5.Loyalty and Confidentiality; Certain Property and Information.
(a)Loyalty and Confidentiality. Executive will be loyal to the Company during his employment and will forever hold in strictest confidence, and not use
4
Exhibit 10.1
or disclose, any non-public information regarding techniques, processes, developmental or experimental work, trade secrets, customer or prospect names or information, or proprietary or confidential information relating to the current or planned products, services, sales, pricing, costs, employees or business of the Company or any Affiliate (“Confidential Information”), except as disclosure or use may be required in connection with Executive’s work for the Company or any Affiliate or as may be compelled pursuant to applicable law, court order or subpoena. Executive’s commitment not to use or disclose Confidential Information does not apply to information that becomes publicly available without any breach of this Agreement by Executive.
(b)Certain Property and Information. Upon termination of Executive’s employment, except as required in connection with Executive’s continued service as a member of the Board, Executive will deliver to the Company any and all property owned or leased by the Company or any Affiliate and any and all materials and information (in whatever form) relating to the business of the Company or any Affiliate, including without limitation all customer lists and information, financial information, business notes, business plans, documents, keys, credit cards and other Company-provided equipment. All Company property will be returned promptly and in good condition except for normal wear.
(c)Permitted Conduct. Nothing in this Agreement shall prohibit or restrict Executive from initiating communications directly with, or responding to any inquiry from, or providing testimony before, the Equal Employment Opportunity Commission, the Department of Justice, the Securities and Exchange Commission, or any other federal, state or local regulatory authority. To the extent permitted by law, upon receipt of any subpoena, court order, or other legal process compelling the disclosure of any confidential information and trade secrets of the Company, Executive agrees to give prompt written notice to the Company so as to permit the Company to protect its interests in confidentiality to the fullest extent possible. Please take notice that federal law provides criminal and civil immunity to federal and state claims for trade secret misappropriation to individuals who disclose a trade secret to their attorney, a court, or a government official in certain, confidential circumstances that are set forth at 18 U.S.C. §§ 1833(b)(1) and 1833(b)(2), related to the reporting or investigation of a suspected violation of the law, enforcing rights under this Agreement, or in connection with a lawsuit for retaliation for reporting a suspected violation of the law.
(d)Continuing Obligations. Executive’s commitments in this Section 5 will continue in effect after termination of Executive’s employment. The parties agree that any breach of Executive’s covenants in this Section 5 would cause the Company irreparable harm, and that injunctive relief would be appropriate.
6.Ideas, Concepts, Inventions and Other Intellectual Property.
(a)Company Ownership. All business ideas and concepts and all inventions, improvements, developments and other intellectual property made or
5
Exhibit 10.1
conceived by Executive, either solely or in collaboration with others, during Executive’s employment whether or not during working hours, and relating to the business or any aspect of the business of the Company or any Affiliate conducted by the Company or any Affiliate during the term of Executive’s employment or to any business or product the Company or any Affiliate is actively planning to enter or develop shall become and remain the exclusive property of the Company, and the Company’s successors and assigns. Executive shall disclose promptly in writing to the Company all such inventions, improvements, developments and other intellectual property, and will cooperate in confirming, protecting, and obtaining legal protection of the Company’s ownership rights.
(b)Executive Representations. Executive represents and warrants that there are no ideas, concepts, inventions, improvements, developments or other intellectual property that Executive invented or conceived before becoming employed by the Company to which Executive, or any assignee of Executive, now claims title, and that would be covered by this Section 6 if made or conceived by Executive during Executive’s employment.
(c)Continuing Obligations. Executive’s commitments in this Section 6 will continue in effect after termination of Executive’s employment as to ideas, concepts, inventions, improvements and developments and other intellectual property relating to the business or any aspect of the business conducted by the Company or its Affiliates during the term of Executive’s employment made or conceived in whole or in part before the date Executive’s employment terminates. The parties agree that any breach of Executive’s covenants in this Section 6 would cause the Company irreparable harm, and that injunctive relief would be appropriate.
7.Covenant Not to Compete.
(a)The Company and its Affiliates face intense competition in all of their lines of business. Executive’s employment with the Company and its Affiliates has required, and will continue to require, that Executive work with the Company and its Affiliate’s Confidential Information, which is vitally important to the success of the Company and its Affiliates. Executive has also participated in and developed, and will continue to participate in and develop, relationships with customers of the Company and its Affiliates in the course of his service to the Company and its Affiliates.
It is important that the Company and its Affiliates take steps to protect their Confidential Information and business relationships, even after Executive’s employment with the Company and its Affiliates concludes for any reason. Executive’s disclosure of Confidential Information or interference with the relationships of the Company and its Affiliates could do serious damage to the business, finances, or reputation of the Company and its Affiliates. For these reasons, the Company requires that Executive agree to the restrictions set forth in this Section 7 as consideration for, and as a condition of the compensation and benefits set forth herein.
6
Exhibit 10.1
(b)Definitions. As used in this Section 7:
(i)“Business” means the Military Segment (defined below), the Food Distribution Segment (defined below) and the Retail Segment (defined below):
A.The “Military Segment” means: the manufacturing, procurement, sale or distribution of Products (defined below) within the military resale system, including United States military commissaries and exchanges, the Defense Commissary Agency, AAFES, NEXCOM, CGX, MCX, and any third-party distributors, brokers, partners or manufacturers with which the Company or any Affiliate conducted business or was preparing to conduct business in the Military Segment at any time during the 24-month period preceding the termination of Executive’s employment for any reason;
B.The “Food Distribution Segment” means: the manufacture, sale, or distribution of Products (defined below), or provision of any value-added services, to any independent grocery store, grocery stores owned by the Company or any Affiliate, “meal kit” provider, reseller, national account, or any other retailer of Products (whether brick-and-mortar or e-commerce) with whom the Company or any Affiliate conducted business or was preparing to conduct business at any time during the 24-month period preceding the termination of Executive’s employment for any reason; and
C.The “Retail Segment” means: the operation of any retail grocery store or other business that obtains, or plans to obtain, 20% or more of its gross revenue from retail sales of Products (as defined below).
(ii)“Covered Customer” means any Person to whom the Company or any Affiliate provided goods or services at any time during the 24-month period preceding the termination of Executive’s employment for any reason, with which or with whom Executive first had contact directly or indirectly as part of his job responsibilities (including oversight responsibility) with the Company or any Affiliate or about which or whom Executive learned Confidential Information.
(iii)“Person” means any natural person, corporation, general partnership, limited partnership, limited liability company or partnership, joint venture, proprietorship, other business organization, business trust, union, association or governmental or regulatory entities, department, agency or authority.
(iv)“Products” means grocery and related products including, nationally branded and private label grocery products and perishable food products (including dry groceries, produce, dairy products, meat, delicatessen items, bakery goods, frozen food, seafood, floral products, beverages, tobacco products, fresh protein-based foods, prepared meals, and value-added products such as fresh-cut fruits and vegetables and prepared salads), general merchandise, health and beauty care products, pharmacy products (prescription and non-prescription drugs), fuel and other items offered by the Company or any Affiliate.
7
Exhibit 10.1
(v)“Restricted Area” means (i) with respect to the Military Segment, the United States, Europe, Cuba, Puerto Rico, Bahrain, Egypt and any other country in the world where the Company or any Affiliate engages in the Military Segment or was preparing to engage in the Military Segment, in each case, at any time during the 24-month period preceding the termination of Executive’s employment for any reason; (ii) with respect to the Food Distribution Segment, any U.S. state or territory and any other country in the world where the Company or any Affiliate engage in the Food Distribution Segment or was preparing to engage in the Food Distribution Segment, in each case, at any time during the 24-month period preceding the termination of Executive’s employment for any reason; or (iii) with respect to the Retail Segment, in Iowa, Michigan, Minnesota, Nebraska, North Dakota, Ohio, South Dakota, and Wisconsin, as well as any other state in the United States where the Company or any Affiliate engage in the Retail Segment or was preparing to engage in the Retail Segment, in each case, at any time during the 24-month period preceding the termination of Executive’s employment for any reason.
(c)Executive’s Commitments. By entering into this Agreement and accepting employment with the Company, Executive agrees that, while Executive is employed and for 12 months following the termination of Executive’s employment for any reason, Executive will not, directly or indirectly:
(i)be employed or engaged by, own any interest in, manage, control, participate in, serve on the board of directors of, consult with, provide advice to, contribute to, lend money to or otherwise finance, hold a security interest in, render services for, or provide assistance to, any Person (as defined above) that engages or is preparing to engage, anywhere within the Restricted Area (as defined above) in any Business (as defined above) with respect to which Executive had responsibility at any time within the 24-month period preceding the termination of Executive’s employment for any reason, or with respect to which Executive possesses any Confidential Information; provided, however, that Executive may make passive investments of not more than one percent (1%) of the capital stock or other ownership or equity interest, or voting power, in a public company, registered under the Securities Exchange Act of 1934, as amended;
(ii)(A) solicit or conduct business with any Covered Customer (as defined below) or any current, former or prospective supplier; (B) otherwise induce any current, former or prospective customer, supplier, contractor, or other third party to stop doing business with the Company or an Affiliate, adversely change the terms or amount of its business with the Company or an Affiliate, or refuse to do business with the Company or an Affiliate; or (C) otherwise interfere with any business relationships of the Company or an Affiliate; or
(iii)hire, engage, or solicit for employment or engagement any individual who was employed or engaged by the Company or an Affiliate at any time within the 24-month period preceding the termination of Executive’s employment for any
8
Exhibit 10.1
reason, or encourage or persuade any such individual to end his or her relationship with the Company or an Affiliate.
(d)Continuing Obligations. Executive’s commitments in this Section 7 will continue in effect after termination of Executive’s employment for the periods specified. Executive agrees that the restrictions above in this Section 7 are necessary to ensure the protection and continuity of the business and goodwill of the Company and its Affiliates, and that the restrictions are reasonable as to geography, duration and scope. The parties agree that any breach of Executive’s covenants in this Section 7 would cause the Company irreparable harm, and that injunctive relief would be appropriate.
8.Legal Expenses. The Company agrees that it will promptly pay or reimburse Executive for his documented, reasonable legal expenses incurred in connection with the review and negotiation of documentation related to Executive’s employment with the Company.
9.Amendment and Waiver. No provisions of this Agreement may be amended, modified, waived or discharged unless the waiver, modification, or discharge is authorized by the Board, or a committee of the Board, and is agreed to in a writing signed by Executive and a representative of the Board (other than Executive). No waiver by either party at any time of any breach or non-performance of this Agreement by the other party shall be deemed a waiver of any prior or subsequent breach or non-performance.
10.Severability. If any one or more of the provisions contained in this Agreement shall be held to be excessively broad as to duration, activity or subject, then any such provision will be construed by limiting and reducing it so as to be enforceable to the maximum extent allowed by applicable law and then so enforced. If any one or more of the provisions of this Agreement shall be held to be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions will not in any way be affected or impaired. A determination in any jurisdiction that this Agreement, in whole or in part, is invalid, illegal or unenforceable will not in any way affect or impair the validity, legality or enforceability of this Agreement in any other jurisdiction.
11.Entire Agreement. No agreements or representations, oral or otherwise, express or implied, with respect to Executive’s employment with the Company or any of the subjects covered by this Agreement have been made by either party that are not set forth expressly in this Agreement between Executive and the Company, and this Agreement supersedes any pre-existing employment agreements, including the Offer Letter.
12.Non-Contravention. Executive represents and warrants that:
(a)No Restrictive Agreement. Executive is not a party to or bound by any agreement that purports to prevent or restrict Executive from: (i) engaging in the employment that Executive has been offered by the Company; (ii) inducing any person to
9
Exhibit 10.1
become an employee of the Company; (iii) using any information and expertise that Executive possesses (other than information constituting a trade secret of another person under applicable law) for the benefit of the Company; or (iv) performing any obligation under this Agreement.
(b)No Abuse of Confidential Information or Trade Secrets. Executive will not improperly use in the course of Executive’s employment with the Company, or improperly disclose to the Company or its personnel, any information belonging to any other person that is subject to any confidentiality agreement with or constitutes a trade secret of another person.
13.Dispute Resolution.
(a)Arbitration. The Company and Executive agree that except as provided in Section 13(b) the sole and exclusive method for resolving any dispute between them arising out of or relating to this Agreement shall be arbitration under the procedures set forth in this Section 13(a), except that nothing in this Section 13(a) prohibits a party from seeking preliminary or permanent judicial injunctive relief, or from seeking judicial enforcement of the arbitration award. The arbitrator shall be selected pursuant to the Rules for Employment Arbitration of the American Arbitration Association (“Rules”). The arbitrator shall hold a hearing at which both parties may appear, with or without counsel, and present evidence and argument. Pre-hearing discovery shall be allowed to the extent provided for under the Rules, and the arbitrator shall have subpoena power. The procedural rules for an arbitration hearing under this Section 13 (a) shall be the rules of the American Arbitration Association for Employment Arbitration hearings and any rules as the arbitrator may determine. The hearing shall be completed within 90 days after the arbitrator has been selected and the arbitrator shall issue a written decision within 60 days after the close of the hearing. The hearing shall be held in Grand Rapids, Michigan. The award of the arbitrator shall be final and binding and may be enforced by and certified as a judgment of the Circuit Court for Kent County, Michigan or any other court of competent jurisdiction. One-half of the fees and expenses of the arbitrator shall be paid by the Company and one-half by Executive. The attorney fees and expenses incurred by the parties shall be paid by each party. Notwithstanding the foregoing, however, the Company will reimburse Executive for Executive’s portion of the arbitrator’s fees and expenses, and Executive’s reasonable attorney fees and expenses incurred in connection with the arbitration proceeding, if Executive substantially prevails in the arbitration proceeding or, if Executive prevails in part, then the Company will reimburse a proportionate part of such fees and expenses, with such proportion to represent the approximate portion of such fees and expenses relating to the issues on which Executive prevailed. The decision as to whether Executive has substantially prevailed, or prevailed in part, and on the amount to be reimbursed to Executive under the standards in this Section 13(a), will be made by the arbitrator. Reimbursement of attorney fees and expenses called for by this Section 13(a) must be made within 60 days after receipt by the Company of the arbitrator’s award, but in
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Exhibit 10.1
no event after the last day of the year following that in which the expense being reimbursed was incurred.
(b)Section 13(a) shall be inapplicable to a dispute arising out of or relating to Sections 5, 6 or 7 of this Agreement and the following in this Section 13(b) shall apply to any dispute arising out of Sections 5, 6 or 7 of this Agreement. Executive agrees that the Company would suffer irreparable harm if Executive were to breach, or threaten to breach, his agreements in Sections 5, 6 or 7 above and that the Company would by reason of such breach, or threatened breach, be entitled to seek injunctive relief in an appropriate court. Executive also agrees that the Company may claim and recover money damages in addition to injunctive relief. Furthermore, in the event Executive were to breach, or threaten to breach, any of his agreements in Sections 5, 6 or 7 above, any unvested or unpaid portion of any amounts set forth in Section 3(b) above will be forfeited.
14.Assignability. This Agreement contemplates personal services by Executive, and Executive may not transfer or assign Executive’s rights or obligations under this Agreement, except that Executive may designate beneficiaries for incentive compensation in the event of Executive’s death, and may designate beneficiaries for benefits as allowed by the Company’s benefit programs. This Agreement may be assigned by the Company to any subsidiary or parent corporation of the Company or a division of that corporation, but no such assignment shall relieve the Company of its obligations hereunder. The Company is not required to assign this Agreement but if the Agreement is assigned as provided above, Executive will be given notice and this Agreement will continue in effect.
15.Notices. Notices to a party under this Agreement must be in writing and be personally delivered or sent by certified mail (return receipt requested), postage prepaid, and will be deemed given upon post office delivery or attempted delivery to the recipient’s last known address. Notices to the Company must be sent to the attention of the Company’s Secretary.
16.Governing Law. The validity, interpretation, and construction of this Agreement are to be governed by Michigan laws, without regard to choice of law rules. The parties agree that any judicial action involving a dispute arising under this Agreement will be filed, heard and decided exclusively in either Kent County Circuit Court or the U.S. District Court for the Western District of Michigan. The parties agree that they will subject themselves exclusively to the personal jurisdiction and venue of either court, regardless of where Executive or the Company may be located at the time any action may be commenced. The parties agree that Kent County is a mutually convenient forum and that each of the parties conducts business in Kent County.
17.Withholding. All payments and taxable benefits under this Agreement shall be made subject to applicable tax withholding, and the Company shall withhold from any payments under this Agreement all federal, state and local taxes as the Company is required to withhold pursuant to any law or governmental rule or regulation. Executive
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Exhibit 10.1
shall bear all expense of, and be solely responsible for all of his federal, state and local taxes due with respect to any payment received under this Agreement.
18.Company Policies. This Agreement and the incentive compensation payable hereunder shall be subject to any applicable clawback or recoupment policies, and other policies that may be implemented by the Board from time to time with respect to officers of the Company.
19.Counterparts. This Agreement may be executed in any number of counterparts (including facsimile or as a “pdf” or similar attachment to an email), each of which shall be an original, but all of which together shall constitute one instrument.
20.Section 409A. This Agreement is intended to comply with Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”), and its corresponding regulations, or an exemption thereto, and payments may only be made under this Agreement upon an event and in a manner permitted by Section 409A of the Code, to the extent applicable. This Agreement is intended to be exempt from Section 409A of the Code as a short-term deferral as that term is understood under Treasury Regulations Section 1.409A-1(b)(4) and shall be interpreted and operated consistently with that intention. Notwithstanding anything in this Agreement to the contrary, if required by Section 409A of the Code, if Executive is considered a “specified employee” for purposes of Section 409A of the Code and if payment of any amounts under this Agreement is required to be delayed for a period of six months after separation from service pursuant to Section 409A of the Code, payment of such amounts shall be delayed as required by Section 409A of the Code, and the accumulated amounts shall be paid in a lump-sum payment within 10 days after the end of the six-month period. If Executive dies during the postponement period prior to the payment of benefits, the amounts withheld on account of Section 409A of the Code shall be paid to the personal representative of Executive’s estate within 60 days after the date of Executive’s death. For purposes of Section 409A of the Code, each payment hereunder shall be treated as a separate payment, and the right to a series of installment payments under this Agreement shall be treated as a right to a series of separate payments. In no event may Executive, directly or indirectly, designate the fiscal year of a payment.
[Remainder of page intentionally left blank – signature page follows]
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Exhibit 10.1
The parties have signed this Employment Agreement as of the Effective Date in Section 1.
SPARTANNASH COMPANY |
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By: |
/s/ Yvonne Jackson |
By: |
/s/ Dennis Eidson |
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Yvonne Jackson |
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Dennis Eidson |
Its: |
Chair, Compensation Committee |
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“Executive” |
“Company” |
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Exhibit 10.1
Phantom Stock Award Agreement
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Exhibit 10.2
SPARTANNASH COMPANY
PHANTOM STOCK AWARD AGREEMENT
1.Purpose.
The purpose of this SpartanNash Company Phantom Stock Award Agreement (the “Agreement”) is to provide Dennis Eidson (the “Participant”), Interim President and Chief Executive Officer of SpartanNash Company (the “Company”), with Phantom Stock Awards, as described herein, with respect to common stock of the Company (“Common Stock”). The Phantom Shares (as defined below) are being provided to Participant in lieu of Common Stock, and the intent of the Company is to provide to the Participant the same economic and after-tax benefits that Participant would have received if Participant had received an award of Common Stock (including dividends on such Common Stock). The purpose of this Agreement is to encourage the Participant to contribute materially to the growth of the Company, thereby benefiting the Company’s shareholders, and to align the economic interests of the Participant with those of the Company’s shareholders. The Company and the Participant are parties to an Employment Agreement, effective August 9, 2019, that entitles the Participant to grants of phantom stock awards in connection with his employment with the Company (the “Employment Agreement”) and the Company and the Participant agree that this Agreement fully satisfies the Company’s obligations with respect to such phantom stock awards.
2.Phantom Stock Awards.
(a)Grants.
(i) |
Subject to the terms and conditions set forth herein, effective as of October 4, 2019, the Company hereby grants to the Participant an initial award of 101,010.10 hypothetical shares of Common Stock (“Initial Award”). |
(ii) |
Provided that the Participant continues to be employed as of November 7, 2019, February 6, 2020, May 7, 2020 and August 6, 2020, respectively (each such date, an “Incentive Quarter End Date”), the Participant shall be granted a follow-on award on each Incentive Quarter End Date for a number of hypothetical shares of Common Stock determined by dividing $430,000 by the closing sales price of a share of Common Stock on the trading date immediately preceding such Incentive Quarter End Date (“Follow-On Awards,” and together with the Initial Award, the “Phantom Stock Awards”). |
a termination of employment on account of the Participant’s death (each of (A), (B), (C) and (D) is referred to herein as a “Qualifying Termination”), or Executive’s employment terminates 30 days after the date that a new Chief Executive Officer commences employment, then on the Qualifying Termination date or the termination date that is 30 days after the date that a new Chief Executive Officer commences employment with the Company, the Participant will be granted a pro-rata Follow-On Award for the Incentive Quarter (as defined in the Employment Agreement) in which the termination occurs. The number of hypothetical shares of Common Stock subject to the pro-rata Follow-On Award will be determined by multiplying $430,000 by a fraction, the numerator of which is the number of days the Participant was employed during the Incentive Quarter and the denominator of which is the number of days in the Incentive Quarter, and dividing the product by the closing sales price of a share of Common Stock on the trading date immediately preceding the applicable termination date. |
(iv) |
For purposes of this Agreement, each hypothetical share of Common Stock subject to a Phantom Stock Award shall be referred to herein as a “Phantom Share.” Each Phantom Share represents the right of the Participant to receive a cash amount equal to the value of a share of Common Stock, subject to the terms of this Agreement. If the requirements of this Agreement are met, the Participant shall be entitled to receive cash payments in accordance with Section 3(e) below. The Company shall establish and maintain a non-interest bearing bookkeeping account for the Participant and shall record in such account the number of Phantom Shares granted to the Participant. No shares of Common Stock shall be issued to the Participant under this Agreement, and the Participant shall not be, nor have any of the rights or privileges of, a shareholder of the Company with respect to the Phantom Stock Awards. |
(b)Vesting.
(i) |
The Phantom Shares shall vest in full on the earlier to occur of (A) August 8, 2020 and (B) the date that is 30 days following the employment commencement date of a new Chief Executive Officer of the Company (such earlier date, the “Scheduled Vesting Date”), provided that the Participant continues to be employed by the Company through the Scheduled Vesting Date. For purposes of this Agreement, “Retirement” means attainment of age 55 and the Participant’s continuous employment with the Company until the Scheduled Vesting Date. |
(ii) |
Notwithstanding the provisions of Section 2(b)(i) above, if the Participant’s termination of employment with the Company occurs before the Scheduled Vesting Date on account of a Qualifying Termination, then the Phantom Shares that have been granted to the Participant, including any Phantom Shares granted pursuant to Section 2(a)(iii), shall vest in full as of such Qualifying Termination date. |
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(i) |
If on any date before the Phantom Shares are fully vested in accordance with Section 2(b) above or forfeited in accordance with Section 2(d) below, while the Participant is employed by the Company, there occurs a record date for a cash dividend with respect to the Common Stock, then the Participant shall receive a cash payment equal to the product of (x) the number of Phantom Shares granted on or prior to such record date and (y) the per share cash amount of such dividend (“Dividend Amount”). |
(ii) |
In addition, except in the event of a termination of employment by the Company for Cause or a termination of employment by the Participant without Good Reason, the Participant shall receive a cash payment equal to the product of (x) the per share cash amount of the next cash dividend declared after the Participant’s termination of employment and (y) the number of Phantom Shares granted on or prior to the declaration date for such dividend (“Additional Dividend Amount”). |
(iii) |
Dividends and distributions other than cash dividends, if any, may result in an adjustment pursuant to Section 2(f), rather than under this Section 2(c). |
(d)Forfeiture. If the Participant’s employment with the Company is terminated by the Company for Cause or by the Participant without Good Reason prior to the Scheduled Vesting Date, the Participant shall forfeit all unvested Phantom Shares.
(e)Payment. The vested Phantom Shares shall be paid in cash within 14 days following the earlier of a Qualifying Termination or the Scheduled Vesting Date. The cash amount will be determined by multiplying the closing sales price of a share of Common Stock on the date of the Scheduled Vesting Date or Qualifying Termination, as applicable, by the number of vested Phantom Shares. Any Dividend Amount payable pursuant to Section 2(c)(i) above will be paid in cash at the same time and subject to the same terms as the cash dividend paid on Common Stock to which it relates, and in any event within 14 days after the dividend record date to which it relates. The Additional Dividend Amount will be paid within 14 days after the dividend declaration date to which it relates and in no event later than March 15 of the calendar year following the calendar year in which the Participant’s termination of employment occurred.
(f)Adjustments.
(i) |
Stock Dividends and Distributions. If the number of shares of Common Stock outstanding changes by reason of a stock dividend, stock split, recapitalization or other general distribution of Common Stock or other securities to holders of Common Stock, the number and kind of securities subject to Phantom Stock Awards shall be adjusted by the Committee (as defined in Section 3(a) below) in such manner and at such time as shall be equitable under the circumstances. |
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3.Administration by Committee. This Agreement shall be administered and interpreted by the Compensation Committee (the “Committee”) of the Board consistent with the terms of this Agreement. The Committee may delegate authority to one or more subcommittees or individuals, as it deems appropriate, including the Company’s Chief Human Resources Officer. The Board may take all actions of the Committee under this Agreement. To the extent that the Board, Committee, subcommittee or individual administers the Agreement, references in the Agreement to the “Committee” shall be deemed to refer to the Board, Committee, subcommittee or other individual.
4.Withholding of Taxes. The Phantom Stock Awards shall be subject to applicable federal (including FICA), state and local tax withholding requirements. The Company shall have the right to deduct from amounts paid with respect to the Phantom Stock Awards, or from other wages paid to the Participant, any federal, state or local taxes required by law to be withheld with respect to the Phantom Stock Awards.
5.Transferability. The Participant may not transfer any rights, benefits or interests under this Agreement to any other individual, person, trust, or entity except, in the event of the death of the Participant, by will or by the laws of descent and distribution, and any attempt to do so in violation of this Agreement shall not be given effect. The Participant may not pledge, assign, or hypothecate the Phantom Stock Awards or use the Phantom Stock Awards as collateral.
6.Amendment and Waiver. No provisions of this Agreement may be amended, modified, waived or discharged unless the amendment, waiver, modification,
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or discharge is authorized by the Committee and is agreed to in writing by the Participant and a representative of the Committee (other than the Participant).
7.Governing Document. The Agreement is intended by the parties as a final expression of their agreement and intended to be a complete and exclusive statement of the agreement and understanding of the parties hereto in respect of the subject matter contained herein, and no other statements, representations, explanatory materials or examples, oral or written, may amend the Agreement in any manner. The Agreement supersedes all prior agreements and understandings between the parties with respect to such subject matter hereof, but will be interpreted in a manner consistent with the Employment Agreement describing the Phantom Stock Awards. This Agreement shall be binding upon and enforceable against the Company and its successors and assigns.
8.Unfunded Agreement. This Agreement shall be unfunded, and the Participant’s rights under the Agreement are those of a general creditor of the Company. The Company shall not be required to establish any special or separate fund or to make any other segregation of assets to assure the payment of the Phantom Stock Awards under this Agreement.
9.Limitation on Participant and Company Rights. Neither this Agreement nor any action taken hereunder shall be construed as giving the Participant any rights to continued employment with the Company or any other employment rights. Neither this Agreement nor any action taken hereunder shall be construed as giving the Participant any individual rights as a shareholder of the Company or any of its affiliates. Neither this Agreement nor any action taken hereunder shall be construed as limiting the Board’s authority to take all such actions as it deems appropriate with respect to the operations and management of the Company and transactions involving the Company. The award of Phantom Shares to the Participant pursuant to this Agreement shall not impact the prior award or vesting of Common Stock or other incentive compensation previously awarded to Participant associated with his prior employment with, or current Board service to, the Company.
10.Miscellaneous.
(a)Compliance with Law. The Agreement and the obligations of the Company under the Agreement shall be subject to all applicable laws and to approvals by any governmental or regulatory agency as may be required. The Board may modify the Agreement and the Phantom Stock Awards to bring them into compliance with any valid and mandatory government regulation.
(b)Section 409A Compliance. This Agreement is intended to comply with the requirements of section 409A of the Internal Revenue Code of 1986, as amended, or an exemption (specifically, the short term deferral exemption of section 409A), and shall in all respects be administered in accordance with section 409A. Distributions may only be made under the Agreement upon an event and in a manner permitted by section 409A
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or an exemption. Notwithstanding anything in this Agreement to the contrary, if required by section 409A, if Executive is considered a “specified employee” for purposes of section 409A and if payment of any amount under this Agreement is required to be delayed for a period of six months after separation from service pursuant to section 409A, payment of such amount shall be delayed as required by section 409A, and the amount shall be paid in a lump-sum payment within ten days after the end of the six-month period or within 30 days following the date of the Participant’s death, if earlier. In no event may Executive, directly or indirectly, designate the calendar year of a payment. For purposes of section 409A, each payment hereunder shall be treated as a separate payment. The Participant shall be solely responsible for the tax consequences of the Phantom Stock Awards, and in no event shall the Company have any responsibility or liability with respect to taxation under section 409A. Although the Company intends to administer the Plan to prevent taxation under section 409A, the Company does not represent or warrant the Phantom Stock Awards hereunder comply with any provision of federal, state, local or other tax law.
(c)Company Policies. This Agreement and the compensation payable hereunder shall be subject to any applicable clawback or recoupment policies, share trading policies, and other policies that may be implemented by the Board from time to time with respect to officers of the Company.
(d)Not Compensation for Benefit Plans. The Phantom Stock Awards are not to be considered compensation for purposes of calculating pensions or other benefits unless the terms of a pension or other benefit plan, program or agreement specifically provides that the Phantom Stock Awards will be considered in the calculation of such benefits.
(e)Governing Law. The validity, construction, interpretation and effect of the Agreement shall be governed and construed by and determined in accordance with the laws of the State of Michigan, without giving effect to the conflict of laws provisions thereof.
(f)Counterparts. This Agreement may be executed in any number of counterparts (including facsimile or as a “pdf” or similar attachment to an email), each of which shall be an original, but all of which together shall constitute one instrument.
[Signature Page Follows]
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and year first above written.
SPARTANNASH COMPANY
By: /s/ Yvonne Jackson
Name: Yvonne Jackson
Title: Chair, Compensation Committee
Date: October 4, 2019
The Participant hereby agrees to be bound by the terms of this Agreement.
PARTICIPANT:
/s/ Dennis Eidson
Dennis Eidson
Date: October 4 2019
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Exhibit 31.1
CERTIFICATION
I, Dennis Eidson, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of SpartanNash Company;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s Board of Directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: November 7, 2019 |
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/s/ Dennis Eidson |
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Dennis Eidson Interim President and Chief Executive Officer (Principal Executive Officer) |
Exhibit 31.2
CERTIFICATION
I, Mark E. Shamber, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of SpartanNash Company;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s Board of Directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: November 7, 2019 |
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/s/ Mark E. Shamber |
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Mark E. Shamber Executive Vice President and Chief Financial Officer (Principal Financial Officer) |
Exhibit 31.3
CERTIFICATION
I, Tammy R. Hurley, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of SpartanNash Company;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s Board of Directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: November 7, 2019 |
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/s/ Tammy R. Hurley |
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Tammy R. Hurley Vice President, Finance and Chief Accounting Officer (Principal Accounting Officer) |
Exhibit 32.1
CERTIFICATION
Pursuant to 18 U.S.C. § 1350, each of the undersigned hereby certifies in his capacity as an officer of SpartanNash Company (the “Company”) that the Quarterly Report of the Company on Form 10-Q for the accounting period ended October 5, 2019 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in such report fairly presents, in all material respects, the financial condition of the Company at the end of such period and the results of operations of the Company for such period.
This Certificate is given pursuant to 18 U.S.C. § 1350 and for no other purpose.
Dated: November 7, 2019 |
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/s/ Dennis Eidson |
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Dennis Eidson Interim President and Chief Executive Officer (Principal Executive Officer)
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Dated: November 7, 2019 |
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/s/ Mark E. Shamber |
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Mark E. Shamber Executive Vice President and Chief Financial Officer (Principal Financial Officer)
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Dated: November 7, 2019 |
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/s/ Tammy R. Hurley |
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Tammy R. Hurley Vice President, Finance and Chief Accounting Officer (Principal Accounting Officer)
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A signed original of this written statement has been provided to SpartanNash Company and will be retained by SpartanNash Company and furnished to the Securities and Exchange Commission or its staff upon request.