UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☒ |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended April 18, 2020.
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 |
|
☐ |
|
|
|
|
|
|
|
|
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|
|
|
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of May 26, 2020, the registrant had 35,680,866 outstanding shares of common stock, no par value.
FORWARD-LOOKING STATEMENTS
The matters discussed in this Quarterly Report on Form 10-Q, in the Company’s press releases and in the Company’s website-accessible conference calls with analysts and investor presentations include “forward-looking statements” about the plans, strategies, objectives, goals or expectations of SpartanNash Company and subsidiaries (“SpartanNash” or “the Company”). These forward-looking statements are identifiable by words or phrases indicating that SpartanNash or management “expects,” “anticipates,” “plans,” “believes,” or “estimates,” or that a particular occurrence or event “will,” “may,” “could,” “should” or “will likely” result, occur or be pursued or “continue” in the future, that the “outlook” or “trend” is toward a particular result or occurrence, that a development is an “opportunity,” “priority,” “strategy,” “focus,” that the Company is “positioned” for a particular result, or similarly stated expectations. Accounting estimates, such as those described under the heading “Critical Accounting Policies” in Part I, Item 2 of this Quarterly Report on Form 10-Q, are inherently forward-looking. The Company’s asset impairment and restructuring cost provisions are estimates and actual costs may be more or less than these estimates and differences may be material. Undue reliance should not be placed on these forward-looking statements, which speak only as of the date of the Quarterly Report, other report, release, presentation, or statement.
In addition to other risks and uncertainties described in connection with the forward-looking statements contained in this Quarterly Report on Form 10-Q, SpartanNash’s Annual Report on Form 10-K for the fiscal year ended December 28, 2019 and other periodic reports filed with the Securities and Exchange Commission (“SEC”), there are many important factors that could cause actual results to differ materially. These risks and uncertainties include disruptions associated with the COVID-19 pandemic, general business conditions, changes in overall economic conditions that impact consumer spending, the Company’s ability to integrate acquired assets, the impact of competition and other factors which are often beyond the control of the Company, and other risks listed in the “Risk Factors” discussions in Items 1A of the Company’s Annual Report on Form 10-K for the fiscal year ended December 28, 2019 and this Quarterly Report on Form 10-Q, and risks and uncertainties not presently known to the Company or that the Company currently deems immaterial.
This section and the discussions contained in Item 1A “Risk Factors” of the Company’s Annual Report on Form 10-K for the fiscal year ended December 28, 2019 and in Item 1A “Risk Factors” and Part I, Item 2 “Critical Accounting Policies” of this Quarterly Report on Form 10-Q, are intended to provide meaningful cautionary statements for purposes of the safe harbor provision of the Private Securities Litigation Reform Act of 1995. This should not be construed as a complete list of all the economic, competitive, governmental, technological and other factors that could adversely affect the Company’s expected consolidated financial position, results of operations or liquidity. Additional risks and uncertainties not currently known to SpartanNash or that SpartanNash currently believes are immaterial also may impair its business, operations, liquidity, financial condition and prospects. The Company undertakes no obligation to update or revise its forward-looking statements to reflect developments that occur, or information obtained after the date of this Quarterly Report.
2
TABLE OF CONTENTS
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Page |
PART I. |
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Item 1. |
4 |
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4 |
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5 |
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6 |
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7 |
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8 |
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9 |
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Item 1A. |
17 |
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Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
17 |
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Item 3. |
29 |
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Item 4. |
29 |
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PART II. |
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Item 2. |
30 |
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Item 6. |
31 |
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32 |
3
PART I
FINANCIAL INFORMATION
ITEM 1. Financial Statements
SPARTANNASH COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, Unaudited)
|
April 18, |
|
|
December 28, |
|
|||||
|
2020 |
|
|
2019 |
|
|||||
Assets |
|
|
|
|
|
|
|
|
|
|
Current assets |
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
$ |
|
21,255 |
|
|
$ |
|
24,172 |
|
|
Accounts and notes receivable, net |
|
|
417,684 |
|
|
|
|
345,320 |
|
|
Inventories, net |
|
|
516,517 |
|
|
|
|
537,212 |
|
|
Prepaid expenses and other current assets |
|
|
68,094 |
|
|
|
|
58,775 |
|
|
Property and equipment held for sale |
|
|
24,706 |
|
|
|
|
31,203 |
|
|
Total current assets |
|
|
1,048,256 |
|
|
|
|
996,682 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net |
|
|
585,185 |
|
|
|
|
615,816 |
|
|
Goodwill |
|
|
181,035 |
|
|
|
|
181,035 |
|
|
Intangible assets, net |
|
|
128,654 |
|
|
|
|
130,434 |
|
|
Operating lease assets |
|
|
268,370 |
|
|
|
|
268,982 |
|
|
Other assets, net |
|
|
102,715 |
|
|
|
|
82,660 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
$ |
|
2,314,215 |
|
|
$ |
|
2,275,609 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Shareholders’ Equity |
|
|
|
|
|
|
|
|
|
|
Current liabilities |
|
|
|
|
|
|
|
|
|
|
Accounts payable |
$ |
|
509,164 |
|
|
$ |
|
405,370 |
|
|
Accrued payroll and benefits |
|
|
71,655 |
|
|
|
|
59,680 |
|
|
Other accrued expenses |
|
|
49,574 |
|
|
|
|
51,295 |
|
|
Current portion of operating lease liabilities |
|
|
42,832 |
|
|
|
|
42,440 |
|
|
Current portion of long-term debt and finance lease liabilities |
|
|
6,157 |
|
|
|
|
6,349 |
|
|
Total current liabilities |
|
|
679,382 |
|
|
|
|
565,134 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term liabilities |
|
|
|
|
|
|
|
|
|
|
Deferred income taxes |
|
|
62,849 |
|
|
|
|
43,111 |
|
|
Operating lease liabilities |
|
|
264,738 |
|
|
|
|
267,350 |
|
|
Other long-term liabilities |
|
|
30,457 |
|
|
|
|
30,272 |
|
|
Long-term debt and finance lease liabilities |
|
|
591,097 |
|
|
|
|
682,204 |
|
|
Total long-term liabilities |
|
|
949,141 |
|
|
|
|
1,022,937 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies (Note 8) |
|
|
|
|
|
|
|
|
|
|
|
|
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|
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|
|
|
|
|
|
Shareholders’ equity |
|
|
|
|
|
|
|
|
|
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Common stock, voting, no par value; 100,000 shares authorized; 35,682 and 36,351 shares outstanding |
|
|
481,514 |
|
|
|
|
490,233 |
|
|
Preferred stock, no par value, 10,000 shares authorized; no shares outstanding |
|
|
— |
|
|
|
|
— |
|
|
Accumulated other comprehensive loss |
|
|
(1,520 |
) |
|
|
|
(1,600 |
) |
|
Retained earnings |
|
|
205,698 |
|
|
|
|
198,905 |
|
|
Total shareholders’ equity |
|
|
685,692 |
|
|
|
|
687,538 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders’ equity |
$ |
|
2,314,215 |
|
|
$ |
|
2,275,609 |
|
See accompanying notes to condensed consolidated financial statements.
4
SPARTANNASH COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands, except per share amounts)
(Unaudited)
|
16 Weeks Ended |
|
|
|||||||
|
April 18, 2020 |
|
|
April 20, 2019 |
|
|
||||
Net sales |
$ |
|
2,856,456 |
|
|
$ |
|
2,542,375 |
|
|
Cost of sales |
|
|
2,432,889 |
|
|
|
|
2,164,646 |
|
|
Gross profit |
|
|
423,567 |
|
|
|
|
377,729 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses |
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative |
|
|
391,300 |
|
|
|
|
360,400 |
|
|
Merger/acquisition and integration |
|
|
— |
|
|
|
|
782 |
|
|
Restructuring charges (gains) and asset impairment |
|
|
10,237 |
|
|
|
|
(5,662 |
) |
|
Total operating expenses |
|
|
401,537 |
|
|
|
|
355,520 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating earnings |
|
|
22,030 |
|
|
|
|
22,209 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Other expenses and (income) |
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
7,638 |
|
|
|
|
11,881 |
|
|
Postretirement benefit (income) expense |
|
|
(799 |
) |
|
|
|
635 |
|
|
Other, net |
|
|
(242 |
) |
|
|
|
(452 |
) |
|
Total other expenses, net |
|
|
6,597 |
|
|
|
|
12,064 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings before income taxes and discontinued operations |
|
|
15,433 |
|
|
|
|
10,145 |
|
|
Income tax expense |
|
|
31 |
|
|
|
|
2,624 |
|
|
Earnings from continuing operations |
|
|
15,402 |
|
|
|
|
7,521 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from discontinued operations, net of taxes |
|
|
— |
|
|
|
|
(52 |
) |
|
Net earnings |
$ |
|
15,402 |
|
|
$ |
|
7,469 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted earnings per share: |
|
|
|
|
|
|
|
|
|
|
Earnings from continuing operations |
$ |
|
0.43 |
|
|
$ |
|
0.21 |
|
|
Loss from discontinued operations |
|
|
— |
|
|
|
|
— |
|
|
Net earnings |
$ |
|
0.43 |
|
|
$ |
|
0.21 |
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to condensed consolidated financial statements.
5
SPARTANNASH COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands, Unaudited)
|
16 Weeks Ended |
|
|||||||
|
April 18, 2020 |
|
|
April 20, 2019 |
|
||||
Net earnings |
$ |
|
15,402 |
|
|
$ |
|
7,469 |
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income, before tax |
|
|
|
|
|
|
|
|
|
Pension and postretirement liability adjustment |
|
|
106 |
|
|
|
|
79 |
|
|
|
|
|
|
|
|
|
|
|
Income tax expense related to items of other comprehensive income |
|
|
(26 |
) |
|
|
|
(19 |
) |
|
|
|
|
|
|
|
|
|
|
Total other comprehensive income, after tax |
|
|
80 |
|
|
|
|
60 |
|
Comprehensive income |
$ |
|
15,482 |
|
|
$ |
|
7,529 |
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to condensed consolidated financial statements.
6
SPARTANNASH COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(In thousands, Unaudited)
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
|
|
||
|
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
|
|
||
|
Shares |
|
|
Common |
|
|
Comprehensive |
|
|
Retained |
|
|
|
|
|
|
|||||||
|
Outstanding |
|
|
Stock |
|
|
Income (Loss) |
|
|
Earnings |
|
|
Total |
|
|||||||||
Balance at December 28, 2019 |
|
36,351 |
|
|
$ |
|
490,233 |
|
|
$ |
|
(1,600 |
) |
|
$ |
|
198,905 |
|
|
$ |
|
687,538 |
|
Impact of adoption of new credit loss standard (ASU 2016-13) |
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
(1,612 |
) |
|
|
|
(1,612 |
) |
Net earnings |
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
15,402 |
|
|
|
|
15,402 |
|
Other comprehensive income |
|
— |
|
|
|
|
— |
|
|
|
|
80 |
|
|
|
|
— |
|
|
|
|
80 |
|
Dividends - $0.1925 per share |
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
(6,997 |
) |
|
|
|
(6,997 |
) |
Share repurchase |
|
(861 |
) |
|
|
|
(10,000 |
) |
|
|
|
— |
|
|
|
|
— |
|
|
|
|
(10,000 |
) |
Stock-based employee compensation |
|
— |
|
|
|
|
2,342 |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
2,342 |
|
Issuances of common stock for stock bonus plan and associate stock purchase plan |
|
21 |
|
|
|
|
291 |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
291 |
|
Issuances of restricted stock |
|
293 |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
Cancellations of stock-based awards |
|
(122 |
) |
|
|
|
(1,352 |
) |
|
|
|
— |
|
|
|
|
— |
|
|
|
|
(1,352 |
) |
Balance at April 18, 2020 |
|
35,682 |
|
|
$ |
|
481,514 |
|
|
$ |
|
(1,520 |
) |
|
$ |
|
205,698 |
|
|
$ |
|
685,692 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
|
|
||
|
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
|
|
||
|
Shares |
|
|
Common |
|
|
Comprehensive |
|
|
Retained |
|
|
|
|
|
|
|||||||
|
Outstanding |
|
|
Stock |
|
|
Income (Loss) |
|
|
Earnings |
|
|
Total |
|
|||||||||
Balance at December 29, 2018 |
|
35,952 |
|
|
$ |
|
484,064 |
|
|
$ |
|
(15,759 |
) |
|
$ |
|
247,642 |
|
|
$ |
|
715,947 |
|
Impact of adoption of new lease standard (ASU 2016-02) |
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
(26,863 |
) |
|
|
|
(26,863 |
) |
Net earnings |
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
7,469 |
|
|
|
|
7,469 |
|
Other comprehensive income |
|
— |
|
|
|
|
— |
|
|
|
|
60 |
|
|
|
|
— |
|
|
|
|
60 |
|
Dividends - $0.19 per share |
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
(6,902 |
) |
|
|
|
(6,902 |
) |
Stock-based employee compensation |
|
— |
|
|
|
|
5,383 |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
5,383 |
|
Issuances of common stock on stock option exercises and for stock bonus plan and associate stock purchase plan |
|
30 |
|
|
|
|
452 |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
452 |
|
Issuances of restricted stock |
|
444 |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
Cancellations of stock-based awards |
|
(107 |
) |
|
|
|
(1,744 |
) |
|
|
|
— |
|
|
|
|
— |
|
|
|
|
(1,744 |
) |
Balance at April 20, 2019 |
|
36,319 |
|
|
$ |
|
488,155 |
|
|
$ |
|
(15,699 |
) |
|
$ |
|
221,346 |
|
|
$ |
|
693,802 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to condensed consolidated financial statements.
7
SPARTANNASH COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands, Unaudited)
|
16 Weeks Ended |
|
|||||||
|
April 18, 2020 |
|
|
April 20, 2019 |
|
||||
Cash flows from operating activities |
|
|
|
|
|
|
|
|
|
Net earnings |
$ |
|
15,402 |
|
|
$ |
|
7,469 |
|
Loss from discontinued operations, net of tax |
|
|
— |
|
|
|
|
52 |
|
Earnings from continuing operations |
|
|
15,402 |
|
|
|
|
7,521 |
|
Adjustments to reconcile net earnings to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
|
Non-cash restructuring, asset impairment, and other charges |
|
|
9,425 |
|
|
|
|
893 |
|
Depreciation and amortization |
|
|
28,029 |
|
|
|
|
26,632 |
|
Non-cash rent |
|
|
(1,823 |
) |
|
|
|
(2,555 |
) |
LIFO expense |
|
|
1,583 |
|
|
|
|
1,425 |
|
Postretirement benefits (income) expense |
|
|
(224 |
) |
|
|
|
948 |
|
Deferred taxes on income |
|
|
3,068 |
|
|
|
|
4,396 |
|
Stock-based compensation expense |
|
|
2,342 |
|
|
|
|
5,383 |
|
Postretirement benefit plan contributions |
|
|
(255 |
) |
|
|
|
(130 |
) |
Loss (gain) on disposals of assets |
|
|
3,911 |
|
|
|
|
(6,925 |
) |
Amortization of financing fees and other |
|
|
631 |
|
|
|
|
769 |
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
|
Accounts receivable |
|
|
(73,854 |
) |
|
|
|
(27,069 |
) |
Inventories |
|
|
18,957 |
|
|
|
|
(10,786 |
) |
Prepaid expenses and other assets |
|
|
(5,725 |
) |
|
|
|
1,388 |
|
Accounts payable |
|
|
122,168 |
|
|
|
|
20,077 |
|
Accrued payroll and benefits |
|
|
11,569 |
|
|
|
|
(5,191 |
) |
Other accrued expenses and other liabilities |
|
|
(5,908 |
) |
|
|
|
(3,257 |
) |
Net cash provided by operating activities |
|
|
129,296 |
|
|
|
|
13,519 |
|
Cash flows from investing activities |
|
|
|
|
|
|
|
|
|
Purchases of property and equipment |
|
|
(17,893 |
) |
|
|
|
(16,006 |
) |
Net proceeds from the sale of assets |
|
|
3,609 |
|
|
|
|
15,872 |
|
Acquisitions, net of cash acquired |
|
|
— |
|
|
|
|
(86,659 |
) |
Loans to customers |
|
|
(612 |
) |
|
|
|
(1,233 |
) |
Payments from customers on loans |
|
|
946 |
|
|
|
|
833 |
|
Other |
|
|
(1 |
) |
|
|
|
(32 |
) |
Net cash used in investing activities |
|
|
(13,951 |
) |
|
|
|
(87,225 |
) |
Cash flows from financing activities |
|
|
|
|
|
|
|
|
|
Proceeds from senior secured revolving credit facility |
|
|
332,155 |
|
|
|
|
435,769 |
|
Payments on senior secured revolving credit facility |
|
|
(423,142 |
) |
|
|
|
(366,407 |
) |
Proceeds from other long-term debt |
|
|
— |
|
|
|
|
5,800 |
|
Repayment of other long-term debt and finance lease liabilities |
|
|
(1,957 |
) |
|
|
|
(4,778 |
) |
Financing fees paid |
|
|
(62 |
) |
|
|
|
(352 |
) |
Proceeds from resolution of acquisition contingencies |
|
|
— |
|
|
|
|
15,000 |
|
Share repurchase |
|
|
(10,000 |
) |
|
|
|
— |
|
Net payments related to stock-based award activities |
|
|
(1,352 |
) |
|
|
|
(1,744 |
) |
Proceeds from exercise of stock options |
|
|
— |
|
|
|
|
181 |
|
Dividends paid |
|
|
(13,904 |
) |
|
|
|
(6,902 |
) |
Net cash (used in) provided by financing activities |
|
|
(118,262 |
) |
|
|
|
76,567 |
|
Cash flows from discontinued operations |
|
|
|
|
|
|
|
|
|
Net cash used in operating activities |
|
|
— |
|
|
|
|
(86 |
) |
Net cash used in discontinued operations |
|
|
— |
|
|
|
|
(86 |
) |
Net (decrease) increase in cash and cash equivalents |
|
|
(2,917 |
) |
|
|
|
2,775 |
|
Cash and cash equivalents at beginning of period |
|
|
24,172 |
|
|
|
|
18,585 |
|
Cash and cash equivalents at end of period |
$ |
|
21,255 |
|
|
$ |
|
21,360 |
|
See accompanying notes to condensed consolidated financial statements.
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 28, 2019.
In the opinion of management, the accompanying condensed consolidated financial statements, taken as a whole, contain all adjustments, including normal recurring items, necessary to present fairly the financial position of SpartanNash as of April 18, 2020, and the results of its operations and cash flows for the interim periods presented. The preparation of the condensed consolidated financial statements and related notes to the financial statements requires management to make estimates. Estimates are based on historical experience, where applicable, and expectations of future outcomes which management believes are reasonable under the circumstances, including but not limited to the potential impacts arising from the COVID-19 pandemic. Due to the uncertainty of the magnitude and duration of the impacts of the COVID-19 pandemic, these estimates are inherently subject to judgment and actual results could differ from those estimates. Interim results are not necessarily indicative of results for a full year.
The unaudited information in the condensed consolidated financial statements for the first quarter of 2020 and 2019 include the results of operations of the Company for the 16-week periods ended April 18, 2020 and April 20, 2019, respectively.
Note 2 – Adoption of New Accounting Standards and Recently Issued Accounting Standards
In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-13, “Financial Instruments – Credit Losses”. The ASU changed the impairment model for most financial assets and certain other instruments. The standard requires entities to use a forward-looking “expected loss” model that replaces the previous “incurred loss” model, which generally results in the earlier recognition of credit losses.
In the first quarter of 2020, the Company adopted this standard through the modified retrospective approach, with a cumulative-effect adjustment at the beginning of the fiscal year. As a result of the adoption, the Company has established revised processes and controls to estimate expected losses for trade and other receivables in accordance with the new standard. The Company’s process for estimating losses for trade and other receivables includes an evaluation of both historical collection experience and expectations for current credit risks based on several customer and environmental factors.
The adoption of the standard resulted in a transition adjustment to beginning of the year retained earnings of $2.2 million (gross of the deferred tax impact of $0.6 million). The transition adjustment relates to incremental trade and notes receivable allowances due to the earlier recognition of expected losses under the new standard of $1.9 million and $0.3 million, respectively. Changes in the balance of the allowance for doubtful accounts were as follows:
|
|
|
|
Allowance for Doubtful Accounts |
|
||||||||||||
(In thousands) |
|
|
|
Current Accounts and Notes Receivable |
|
|
Long-term Notes Receivable |
|
|
Total |
|
||||||
Balance at December 28, 2019 |
|
|
|
$ |
|
2,739 |
|
|
$ |
|
233 |
|
|
$ |
|
2,972 |
|
Impact of adoption of new credit loss standard (ASU 2016-13) |
|
|
|
|
|
1,911 |
|
|
|
|
259 |
|
|
|
|
2,170 |
|
Provision for expected credit losses |
|
|
|
|
|
365 |
|
|
|
|
— |
|
|
|
|
365 |
|
Write-offs charged against the allowance |
|
|
|
|
|
(249 |
) |
|
|
|
— |
|
|
|
|
(249 |
) |
Balance at April 18, 2020 |
|
|
|
$ |
|
4,766 |
|
|
$ |
|
492 |
|
|
$ |
|
5,258 |
|
The Company evaluated the effects of the COVID-19 pandemic in performing its quarterly evaluation of the adequacy of its allowance for doubtful accounts. While the duration and impact of these affects is uncertain, the Company did not deem it necessary to record incremental allowances for doubtful accounts as no additional credit exposure was identified.
In August 2018, the FASB issued ASU 2018-14, “Compensation—Retirement Benefits—Defined Benefit Plans—General: Disclosure Framework—Changes to the Disclosure Requirements for Defined Benefit Plans.” The amendments in this ASU remove disclosures that are no longer considered to be cost beneficial, clarify the specific requirements of disclosures, and add disclosure requirements identified as relevant. The amendments in ASU 2018-14 are effective for fiscal years ending after December 15, 2020 and will be applied on a retrospective basis to all periods presented. The adoption of this guidance is not expected to have a significant effect on the Company’s financial statements.
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:
|
16 Weeks Ended April 18, 2020 |
|
|||||||||||||||||
(In thousands) |
Food Distribution |
|
|
Retail |
|
|
Military |
|
|
Total |
|
||||||||
Type of products: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Center store (a) |
$ |
|
451,321 |
|
|
$ |
|
328,326 |
|
|
$ |
|
340,296 |
|
|
$ |
|
1,119,943 |
|
Fresh (b) |
|
|
467,663 |
|
|
|
|
295,003 |
|
|
|
|
195,667 |
|
|
|
|
958,333 |
|
Non-food (c) |
|
|
424,312 |
|
|
|
|
125,845 |
|
|
|
|
166,321 |
|
|
|
|
716,478 |
|
Fuel |
|
|
— |
|
|
|
|
33,000 |
|
|
|
|
— |
|
|
|
|
33,000 |
|
Other |
|
|
26,199 |
|
|
|
|
394 |
|
|
|
|
2,109 |
|
|
|
|
28,702 |
|
Total |
$ |
|
1,369,495 |
|
|
$ |
|
782,568 |
|
|
$ |
|
704,393 |
|
|
$ |
|
2,856,456 |
|
Type of customers: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individuals |
$ |
|
— |
|
|
$ |
|
782,333 |
|
|
$ |
|
— |
|
|
$ |
|
782,333 |
|
Manufacturers, brokers and distributors |
|
|
38,522 |
|
|
|
|
— |
|
|
|
|
658,940 |
|
|
|
|
697,462 |
|
Retailers |
|
|
1,309,422 |
|
|
|
|
— |
|
|
|
|
43,344 |
|
|
|
|
1,352,766 |
|
Other |
|
|
21,551 |
|
|
|
|
235 |
|
|
|
|
2,109 |
|
|
|
|
23,895 |
|
Total |
$ |
|
1,369,495 |
|
|
$ |
|
782,568 |
|
|
$ |
|
704,393 |
|
|
$ |
|
2,856,456 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16 Weeks Ended April 20, 2019 |
|
|||||||||||||||||
(In thousands) |
Food Distribution |
|
|
Retail |
|
|
Military |
|
|
Total |
|
||||||||
Type of products: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Center store (a) |
$ |
|
355,471 |
|
|
$ |
|
270,773 |
|
|
$ |
|
310,410 |
|
|
$ |
|
936,654 |
|
Fresh (b) |
|
|
428,768 |
|
|
|
|
262,947 |
|
|
|
|
197,022 |
|
|
|
|
888,737 |
|
Non-food (c) |
|
|
362,994 |
|
|
|
|
126,395 |
|
|
|
|
162,056 |
|
|
|
|
651,445 |
|
Fuel |
|
|
— |
|
|
|
|
41,249 |
|
|
|
|
— |
|
|
|
|
41,249 |
|
Other |
|
|
22,005 |
|
|
|
|
403 |
|
|
|
|
1,882 |
|
|
|
|
24,290 |
|
Total |
$ |
|
1,169,238 |
|
|
$ |
|
701,767 |
|
|
$ |
|
671,370 |
|
|
$ |
|
2,542,375 |
|
Type of customers: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individuals |
$ |
|
— |
|
|
$ |
|
701,482 |
|
|
$ |
|
— |
|
|
$ |
|
701,482 |
|
Manufacturers, brokers and distributors |
|
|
60,711 |
|
|
|
|
— |
|
|
|
|
642,636 |
|
|
|
|
703,347 |
|
Retailers |
|
|
1,105,326 |
|
|
|
|
— |
|
|
|
|
26,852 |
|
|
|
|
1,132,178 |
|
Other |
|
|
3,201 |
|
|
|
|
285 |
|
|
|
|
1,882 |
|
|
|
|
5,368 |
|
Total |
$ |
|
1,169,238 |
|
|
$ |
|
701,767 |
|
|
$ |
|
671,370 |
|
|
$ |
|
2,542,375 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) Center store includes dry grocery, frozen and beverages. |
|
||||||||||||||||||
(b) Fresh includes produce, meat, dairy, deli, bakery, prepared proteins, seafood and floral. |
|
|
|
|
|
|
|||||||||||||
(c) Non-food includes general merchandise, health and beauty care, tobacco products and pharmacy. |
|
|
|
|
|
|
Contract Assets and Liabilities
In the ordinary course of business, the Company may advance funds to certain independent retailers which are earned by the retailers primarily through achieving specified purchase volume requirements, as outlined in their supply agreements with the Company, or in limited instances, for remaining a SpartanNash customer for a specified time period. These advances must be repaid if the purchase volume requirements are not met or if the retailer no longer remains a customer for the specified time period. For volume-based arrangements, the Company estimates the amount of the advanced funds earned by the retailers based on the expected volume of purchases by the retailer and amortizes the advances as a reduction of the transaction price and revenue earned. Realizability of the advances, or collectability in event of default, is not assured and is dependent on the financial condition of the customer, economic and industry factors and the quality of the underlying collateral. No reserves related to the realizability or collectability of customer advances were necessary as of April 18, 2020. These advances are not considered contract assets under ASC 606 as they are not generated through the transfer of goods or services to the retailers. These advances are included in “Prepaid expenses and other current assets” or “Other assets, net” on the Company’s balance sheets.
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 $23.9 million, and working capital. Intangible assets are primarily composed of an indefinite-lived trade name of $20.6 million and pharmacy customer prescription lists of $3.1 million which are amortized over seven years. The acquired assets and assumed liabilities were recorded at their estimated fair values as of the acquisition date based on preliminary estimates, which were subsequently finalized during the fourth quarter of 2019. No goodwill was recorded related to the acquisition. The Company incurred $0.9 million of merger/acquisition and integration costs related to the acquisition in the prior year quarter. The acquisition was funded with proceeds from the Company’s Credit Agreement.
Martin’s operates supermarkets in Northern Indiana and Southwest Michigan. Martin’s was an independent retailer and customer of the Company’s Food Distribution segment prior to the acquisition.
Note 5 – Goodwill and Other Intangible Assets
The Company has three reporting units; however, no goodwill exists within the Military or Retail reporting units. The carrying amount of goodwill recorded within the Food Distribution reporting unit was $181.0 million as of April 18, 2020 and December 28, 2019.
The Company reviews goodwill and other indefinite-lived intangible assets for impairment annually, during the fourth quarter of each year, and more frequently if circumstances indicate a risk of impairment. Testing goodwill and other indefinite-lived intangible assets for impairment requires management to make significant estimates about the Company’s future performance, cash flows, and other assumptions that can be affected by potential changes in economic, industry or market conditions, business operations, competition, or the Company’s stock price and market capitalization.
The Company has indefinite-lived intangible assets that are not amortized, consisting primarily of indefinite-lived trade names and licenses for the sale of alcoholic beverages. The carrying amount of indefinite-lived intangible assets was $76.3 million as of April 18, 2020 and December 28, 2019.
Note 6 – Restructuring Charges and Asset Impairment
The following table provides the activity of reserves for closed properties for the 16-week period ended April 18, 2020. Included in the liability are lease-related ancillary costs from the date of closure to the end of the remaining lease term. Reserves for closed properties recorded in the condensed consolidated balance sheets are included in “Other accrued expenses” in Current liabilities and “Other long-term liabilities” in Long-term liabilities based on the timing of when the obligations are expected to be paid. Reserves for severance are recorded in “Accrued payroll and benefits”.
|
|
|
|
Lease |
|
|
|
|
|
|
|
||||||
|
|
|
|
Ancillary |
|
|
|
|
|
|
|
||||||
(In thousands) |
|
|
|
Costs |
|
|
Severance |
|
|
Total |
|
||||||
Balance at December 28, 2019 |
|
|
|
$ |
|
4,971 |
|
|
$ |
|
17 |
|
|
$ |
|
4,988 |
|
Provision for closing charges |
|
|
|
|
|
325 |
|
|
|
|
— |
|
|
|
|
325 |
|
Provision for severance |
|
|
|
|
|
— |
|
|
|
|
2,198 |
|
|
|
|
2,198 |
|
Changes in estimates |
|
|
|
|
|
68 |
|
|
|
|
— |
|
|
|
|
68 |
|
Accretion expense |
|
|
|
|
|
32 |
|
|
|
|
— |
|
|
|
|
32 |
|
Payments |
|
|
|
|
|
(814 |
) |
|
|
|
(17 |
) |
|
|
|
(831 |
) |
Balance at April 18, 2020 |
|
|
|
$ |
|
4,582 |
|
|
$ |
|
2,198 |
|
|
$ |
|
6,780 |
|
11
Restructuring and asset impairment activity included in the condensed consolidated statements of earnings consisted of the following:
|
16 Weeks Ended |
|
|||||||
|
April 18, |
|
|
April 20, |
|
||||
(In thousands) |
2020 |
|
|
2019 |
|
||||
Asset impairment charges (a) |
$ |
|
6,733 |
|
|
$ |
|
100 |
|
Provision for closing charges |
|
|
325 |
|
|
|
|
366 |
|
Gain on sales of assets related to closed facilities (b) |
|
|
(90 |
) |
|
|
|
(6,923 |
) |
Provision for severance (c) |
|
|
2,198 |
|
|
|
|
149 |
|
Other costs associated with site closures (d) |
|
|
1,003 |
|
|
|
|
611 |
|
Changes in estimates (e) |
|
|
68 |
|
|
|
|
35 |
|
|
$ |
|
10,237 |
|
|
$ |
|
(5,662 |
) |
(a) Asset impairment charges in the current year were incurred primarily in the Food Distribution segment and primarily relate to the exit of the Fresh Cut business.
(b) Gain on sales of assets in the prior year primarily relate to the sale of a previously closed distribution center in the Food Distribution segment.
(c) Severance in the current year was related to the exit of the Fresh Cut business.
(d) Other costs primarily relate to the Fresh Cut and store closings in the current year, and a Food Distribution warehouse and store closings in the prior year.
(e) Changes in estimates primarily relate to revised estimates for turnover and other lease ancillary costs associated with previously closed locations, due to deterioration of the condition of certain properties.
Long-lived assets are measured at fair value on a nonrecurring basis using Level 3 inputs. In connection primarily with the Company’s plan to exit the Fresh Cut operations, long-lived assets and definite-lived intangible assets were tested for recoverability. Long-lived assets with a book value of $29.1 million were measured at a fair value of $22.4 million, resulting in impairment charges of $6.7 million in 2020. Assets with a book value of $0.3 million were measured at a fair value of $0.2 million, resulting in an impairment charge of $0.1 million in 2019. Fair value of long-lived assets is determined by estimating the amount and timing of net future cash flows, including the expected proceeds from the sale of assets, discounted using a risk-adjusted rate of interest. The Company estimates future cash flows based on historical results of operations, external factors expected to impact future performance, experience and knowledge of the geographic area in which the assets are located, and when necessary, uses real estate brokers. The Company has evaluated assets held for sale as of April 18, 2020 and concluded that the Fresh Kitchen facility meets the requirements for held for sale classification. Assets classified as held for sale in the consolidated balance sheet are valued at the expected net proceeds.
Note 7 – Fair Value Measurements
ASC 820 prioritizes the inputs to valuation techniques used to measure fair value into the following hierarchy:
Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2: Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.
Level 3: Unobservable inputs for the asset or liability, reflecting the reporting entity’s own assumptions about the assumptions that market participants would use in pricing.
Financial instruments include cash and cash equivalents, accounts and notes receivable, accounts payable and long-term debt. The carrying amounts of cash and cash equivalents, accounts and notes receivable, and accounts payable approximate fair value because of the short-term maturities of these financial instruments. See Note 6 for discussion of the fair value measurements related to long-lived asset impairment charges. At April 18, 2020 and December 28, 2019 the book value and estimated fair value of the Company’s debt instruments, excluding debt financing costs, were as follows:
|
April 18, |
|
|
December 28, |
|
||||
(In thousands) |
2020 |
|
|
2019 |
|
||||
Book value of debt instruments, excluding debt financing costs: |
|
|
|
|
|
|
|
|
|
Current maturities of long-term debt and finance lease liabilities |
$ |
|
6,157 |
|
|
$ |
|
6,349 |
|
Long-term debt and finance lease liabilities |
|
|
596,100 |
|
|
|
|
687,659 |
|
Total book value of debt instruments |
|
|
602,257 |
|
|
|
|
694,008 |
|
Fair value of debt instruments, excluding debt financing costs |
|
|
606,561 |
|
|
|
|
700,631 |
|
Excess of fair value over book value |
$ |
|
4,304 |
|
|
$ |
|
6,623 |
|
12
The estimated fair value of debt is based on market quotes for instruments with similar terms and remaining maturities (Level 2 inputs and valuation techniques).
Note 8 – Commitments and Contingencies
The Company is engaged from time-to-time in routine legal proceedings incidental to its business. The Company does not believe that these routine legal proceedings, taken as a whole, will have a material impact on its business or financial condition. While the ultimate effect of such actions cannot be predicted with certainty, management believes that their outcome will not result in an adverse effect on the Company’s consolidated financial position, operating results or liquidity.
The Company contributes to the Central States Southeast and Southwest Pension Fund (“Central States Plan” or “the Plan”), a multi-employer pension plan, based on obligations arising from its collective bargaining agreements (“CBAs”) in Bellefontaine, Ohio, Lima, Ohio, and Grand Rapids, Michigan covering its supply chain associates at those locations. This Plan provides retirement benefits to participants based on their service to contributing employers. The benefits are paid from assets held in trust for that purpose. Trustees are appointed by contributing employers and unions; however, SpartanNash is not a trustee. The trustees typically are responsible for determining the level of benefits to be provided to participants, as well as for such matters as the investment of the assets and the administration of the plan. The Company currently contributes to the Central States Plan under the terms outlined in the “Primary Schedule” of Central States’ Rehabilitation Plan or those outlined in the “Default Schedule.” Both the Primary and Default schedules require varying increases in employer contributions over the previous year’s contribution. Increases are set within the CBAs and vary by location. The Plan continues to be in red zone status, and according to the Pension Protection Act (“PPA”), is considered to be in “critical and declining” zone status. Among other factors, plans in the “critical and declining” zone are generally less than 65% funded and are projected to become insolvent within the next 15 years (or 20 years depending on the ratio of active-to-inactive participants). Based on the most recent information available to the Company, management believes that the present value of actuarial accrued liabilities in this multi-employer plan significantly exceeds the value of the assets held in trust to pay benefits. Because SpartanNash is one of a number of employers contributing to this plan, it is difficult to ascertain what the exact amount of the underfunding would be. Management is not aware of any significant change in funding levels since December 28, 2019. To reduce this underfunding, management expects increases in expense as a result of required incremental multi-employer pension plan contributions in future years. Any adjustment for withdrawal liability will be recorded when it is probable that a liability exists and can be reasonably determined.
Note 9 – Associate Retirement Plans
During the 16-week period ended April 18, 2020, the Company recognized net periodic postretirement benefit costs of $0.2 million related to the SpartanNash Retiree Medical Plan (“Retiree Medical Plan”). The Company also realized a gain of $1.0 million related to a refund from the annuity provider associated with the final reconciliation of participant data of the terminated SpartanNash Company Pension Plan (“Pension Plan”). In addition to the remaining assets in the pension trust, these funds will be used to satisfy obligations associated with other qualified retirement programs. During the 16-week period ended April 20, 2019, the Company recognized net periodic pension expense of $0.4 million and net periodic postretirement benefit costs of $0.1 million for the Pension Plan and Medical Plan, respectively. Substantially all of these amounts are included in Postretirement benefit expense (income) in the condensed consolidated statements of earnings.
The Company expects to make total contributions of $0.5 million in 2020 to the Retiree Medical Plan and has made $0.1 million in the first quarter. The Company’s retirement programs also include defined contribution plans providing contributory benefits, as well as executive compensation plans for a select group of management personnel and/or highly compensated associates.
Multi-Employer Plans
In addition to the plans listed above, the Company participates in the Central States Southeast and Southwest Pension Fund, the Michigan Conference of Teamsters and Ohio Conference of Teamsters Health and Welfare plans (collectively referred to as “multi-employer plans”), and other company-sponsored defined contribution plans for most associates covered by collective bargaining agreements.
With respect to the Company’s participation in the Central States Plan, expense is recognized as contributions are funded. The Company’s contributions during the 16-week periods ended April 18, 2020 and April 20, 2019 were $4.6 million and $4.8 million, respectively. See Note 8 for further information regarding contingencies related to the Company’s participation in the Central States Plan.
13
Note 10 – Income Taxes
The effective income tax rate was 0.2% and 25.9% for the 16 weeks ended April 18, 2020 and April 20, 2019, respectively. The difference from the federal statutory rate in the current year was primarily as a result of the Coronavirus Aid, Relief and Economic Security (“CARES”) Act and federal tax credits, partially offset by state taxes and stock-based compensation. In the prior year, the difference from the federal statutory rate was primarily due to state taxes and stock-based compensation, partially offset by federal tax credits.
On March 27, 2020, the U.S. government enacted tax legislation to provide economic stimulus and support businesses and individuals during the COVID-19 pandemic, referred to as the CARES Act. In connection with initial analysis of the impact of the CARES Act, the Company recorded a net discrete income tax benefit of $4.3 million during the first quarter, associated with the additional deductibility of certain expenses combined with provisions which enable companies to carry back tax losses to years prior to the enactment of the Tax Cuts and Jobs Act, where the federal statutory income tax rate was 35%.
Note 11 – Stock-Based Compensation
The Company has a shareholder-approved stock incentive plan (the “2015 Plan”) that provides for the granting of stock options, stock appreciation rights, restricted stock, restricted stock units, stock awards, and other stock-based and stock-related awards to directors, officers and other key associates.
Stock-based compensation expense recognized and included in “Selling, general and administrative expenses” in the condensed consolidated statements of earnings, and related tax impacts were as follows:
|
16 Weeks Ended |
|
|||||||
(In thousands) |
April 18, 2020 |
|
|
April 20, 2019 |
|
||||
Restricted stock |
$ |
|
2,342 |
|
|
$ |
|
5,383 |
|
Income tax expense (benefit) |
|
|
224 |
|
|
|
|
(866 |
) |
Stock-based compensation expense, net of tax |
$ |
|
2,566 |
|
|
$ |
|
4,517 |
|
The following table summarizes activity in the 2015 Plan for the 16 weeks ended April 18, 2020:
|
|
|
|
|
|
Weighted |
|
||
|
|
Restricted |
|
|
Average |
|
|||
|
|
Stock |
|
|
Grant-Date |
|
|||
|
|
Awards |
|
|
Fair Value |
|
|||
Outstanding at December 28, 2019 |
$ |
|
928,733 |
|
|
$ |
|
20.28 |
|
Granted |
|
|
292,884 |
|
|
|
|
12.43 |
|
Exercised/Vested |
|
|
(361,446 |
) |
|
|
|
21.71 |
|
Cancelled/Forfeited |
|
|
(15,757 |
) |
|
|
|
19.10 |
|
Outstanding at April 18, 2020 |
$ |
|
844,414 |
|
|
$ |
|
16.97 |
|
As of April 18, 2020, total unrecognized compensation cost related to non-vested restricted stock awards granted under the Company’s stock incentive plan is $5.9 million and is expected to be recognized over a weighted average period of 2.7 years.
On May 20, 2020 the Company’s shareholders approved a new stock incentive plan (“the 2020 Plan”). The 2020 Plan provides for the granting of stock options, stock appreciation rights, restricted stock, restricted stock units, performance shares, performance share units, dividend equivalent rights, and other stock-based and stock-related awards to directors, employees, or contractors of the Company, as determined by the Compensation Committee of the Board of Directors. The number of shares of the Company’s common stock that may be issued under the 2020 Stock Plan consists of 1,635,000 newly reserved shares plus the 734,341 remaining shares available for grant under the 2015 Stock Plan.
14
Note 12 – Earnings Per Share
The following table sets forth the computation of basic and diluted earnings per share from continuing operations:
|
16 Weeks Ended |
|
|||||||
(In thousands, except per share amounts) |
April 18, 2020 |
|
|
April 20, 2019 |
|
||||
Numerator: |
|
|
|
|
|
|
|
|
|
Earnings from continuing operations |
$ |
|
15,402 |
|
|
$ |
|
7,521 |
|
Adjustment for earnings attributable to participating securities |
|
|
(385 |
) |
|
|
|
(183 |
) |
Earnings from continuing operations used in calculating earnings per share |
$ |
|
15,017 |
|
|
$ |
|
7,338 |
|
Denominator: |
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding, including participating securities |
|
|
36,172 |
|
|
|
|
36,121 |
|
Adjustment for participating securities |
|
|
(904 |
) |
|
|
|
(878 |
) |
Shares used in calculating basic and diluted earnings per share |
|
|
35,268 |
|
|
|
|
35,243 |
|
Basic and diluted earnings per share from continuing operations |
$ |
|
0.43 |
|
|
$ |
|
0.21 |
|
Note 13 – Supplemental Cash Flow Information
Supplemental cash flow information is as follows:
|
16 Weeks Ended |
|
|||||||
(In thousands) |
April 18, 2020 |
|
|
April 20, 2019 |
|
||||
Non-cash financing activities: |
|
|
|
|
|
|
|
|
|
Recognition of operating lease liabilities |
$ |
|
12,749 |
|
|
$ |
4,609 |
|
|
Recognition of finance lease liabilities |
|
|
1,192 |
|
|
|
|
— |
|
Non-cash investing activities: |
|
|
|
|
|
|
|
|
|
Capital expenditures included in accounts payable |
|
|
4,643 |
|
|
|
|
3,466 |
|
Operating lease asset additions |
|
|
12,749 |
|
|
|
|
4,609 |
|
Finance lease asset additions |
|
|
1,192 |
|
|
|
|
— |
|
Other supplemental cash flow information: |
|
|
|
|
|
|
|
|
|
Cash paid for interest |
|
|
8,187 |
|
|
|
|
11,718 |
|
Note 14 – Reporting Segment Information
The following tables set forth information about the Company by reporting segment:
(In thousands) |
Food Distribution |
|
|
Retail |
|
|
Military |
|
|
Total |
|
||||||||
16 Weeks Ended April 18, 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales to external customers |
$ |
|
1,369,495 |
|
|
$ |
|
782,568 |
|
|
$ |
|
704,393 |
|
|
$ |
|
2,856,456 |
|
Inter-segment sales |
|
|
324,127 |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
324,127 |
|
Restructuring charges and asset impairment |
|
|
9,222 |
|
|
|
|
1,015 |
|
|
|
|
— |
|
|
|
|
10,237 |
|
Depreciation and amortization |
|
|
10,556 |
|
|
|
|
13,756 |
|
|
|
|
3,717 |
|
|
|
|
28,029 |
|
Operating earnings (loss) |
|
|
11,390 |
|
|
|
|
12,645 |
|
|
|
|
(2,005 |
) |
|
|
|
22,030 |
|
Capital expenditures |
|
|
7,019 |
|
|
|
|
9,594 |
|
|
|
|
1,280 |
|
|
|
|
17,893 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16 Weeks Ended April 20, 2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales to external customers |
$ |
|
1,169,238 |
|
|
$ |
|
701,767 |
|
|
$ |
|
671,370 |
|
|
$ |
|
2,542,375 |
|
Inter-segment sales |
|
|
288,408 |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
288,408 |
|
Merger/acquisition and integration |
|
|
(130 |
) |
|
|
|
912 |
|
|
|
|
— |
|
|
|
|
782 |
|
Restructuring (gains) charges and asset impairment |
|
|
(6,343 |
) |
|
|
|
681 |
|
|
|
|
— |
|
|
|
|
(5,662 |
) |
Depreciation and amortization |
|
|
10,233 |
|
|
|
|
12,802 |
|
|
|
|
3,597 |
|
|
|
|
26,632 |
|
Operating earnings (loss) |
|
|
24,592 |
|
|
|
|
(826 |
) |
|
|
|
(1,557 |
) |
|
|
|
22,209 |
|
Capital expenditures |
|
|
4,249 |
|
|
|
|
10,615 |
|
|
|
|
1,142 |
|
|
|
|
16,006 |
|
15
|
|
|
|
|
|
|
April 18, |
|
|
December 28, |
|
||||
(In thousands) |
|
|
|
|
|
|
2020 |
|
|
2019 |
|
||||
Total Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Food Distribution |
|
|
|
|
|
|
$ |
|
1,143,165 |
|
|
$ |
|
1,087,307 |
|
Retail |
|
|
|
|
|
|
|
|
755,305 |
|
|
|
|
794,413 |
|
Military |
|
|
|
|
|
|
|
|
415,745 |
|
|
|
|
390,799 |
|
Discontinued operations |
|
|
|
|
|
|
|
|
— |
|
|
|
|
3,090 |
|
Total |
|
|
|
|
|
|
$ |
|
2,314,215 |
|
|
$ |
|
2,275,609 |
|
16
ITEM 1A. Risk Factors
There have been no material changes in the Company's risk factors from those set forth in the Company's Annual Report on Form 10-K for the year ended December 28, 2019, except for the following risk factor which should be considered in conjunction with those previously disclosed:
Disease outbreaks, such as the COVID-19 pandemic, could have an adverse impact on the Company's operations and financial results.
On March 11, 2020, the World Health Organization characterized coronavirus (COVID-19) as a pandemic, and on March 13, 2020 the President of the United States declared a national emergency relating to the disease. In addition to the President’s declaration, state and local authorities have recommended social distancing and have imposed quarantine and isolation measures on large portions of the population, including mandatory business closures. These measures are designed to protect the overall public health, they are expected to have material adverse impacts on domestic and foreign economies and may result in the United States entering a period of recession.
While the Company is an essential business and has seen significant increases in sales volume during the pandemic, its business may be negatively impacted by the several factors associated with the disease outbreak and the related effects on the retail grocery and wholesale distribution industries. These impacts may include:
|
• |
Increased costs due to significant increases in customer traffic and demand for grocery products, and the corresponding inability to meet demand with the existing workforce or other assets; |
|
• |
Failure of third parties on which the Company relies, including its customers, suppliers, contractors, commercial banks and other business partners to meet their obligations to the Company, which may be caused by their own financial or operational challenges; |
|
• |
Supply chain risks due to significantly increased demand, including the availability of warehouse and transportation personnel and service providers or the inability to procure adequate quantities of certain goods; |
|
• |
Reduced workforce or temporary store and distribution center closures associated with the presence of COVID-19 infections among the Company’s associates; or |
|
• |
Inability to accurately forecast financial results due to the uncertainty associated with the short- and long-term effects on the U.S. economy, consumer behavior and the unknown duration of social distancing, quarantine or isolation measures or the lasting effects that may result after such mandates have been removed. |
|
• |
Increased and accelerated competition from alternative channels, including e-commerce retailers, due to a change in consumer behavior and continued social distancing. |
Any of the foregoing factors, or other effects of the pandemic that are not currently foreseeable, may materially increase costs, negatively impact sales and damage the Company’s financial condition, results of operations, cash flows and its liquidity position. The significance and duration of any such impacts are not possible to predict due to the overall uncertainty associated with the COVID-19 pandemic.
ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
This Management’s Discussion and Analysis of financial condition and results of operations should be read in conjunction with the unaudited condensed consolidated financial statements contained in this Quarterly Report on Form 10-Q, the information contained under the caption “Forward-Looking Statements,” which appears at the beginning of this report, and the information in the Company’s Annual Report on Form 10-K for the fiscal year ended December 28, 2019.
Overview
SpartanNash, headquartered in Grand Rapids, Michigan, is a leading multi-regional grocery distributor and grocery retailer whose core businesses include distributing grocery products to a diverse group of independent and chain retailers, its corporate owned retail stores, military commissaries and exchanges in the United States, as well as operating a premier fresh produce distribution network. The Company operates three reportable business segments: Food Distribution, Retail and Military. The Company serves customers in all 50 states.
The Company’s Food Distribution segment provides a wide variety of nationally branded and private brand grocery products and perishable food products to independent grocers, the Company’s corporate owned retail stores, national retailers, food service distributors, and other customers. The Food Distribution segment primarily conducts business in the Midwest and Southeast regions of the United States.
17
At the end of the first quarter, the Company’s Retail segment operated 155 corporate owned retail stores in the Midwest region primarily under the banners of Family Fare, Martin’s Super Markets, VG’s Grocery, D&W Fresh Market and Dan’s Supermarket. The Company also offers pharmacy services in 97 of its corporate owned retail stores and operates 37 fuel centers. The retail stores have a “neighborhood market” focus to distinguish them from supercenters and limited assortment stores. The Company’s Customer First strategy is focused on meeting changing customer needs and preferences through a data-based decision-making process, while also increasing customer satisfaction through quality service and convenience.
The Company’s Military segment contracts with manufacturers to distribute a wide variety of grocery products primarily to military commissaries and exchanges located in the United States, the District of Columbia, Europe, Cuba, Puerto Rico, Honduras, Bahrain, Djibouti and Egypt. The Company distributes grocery products to 160 military commissaries and over 400 exchanges and, together with its third-party partner, Coastal Pacific Food Distributors, represents the only delivery solution to service the Defense Commissary Agency (“DeCA”) worldwide. The Company is the exclusive worldwide supplier of private brand products to U.S. military commissaries and is continuing to partner with DeCA in the rollout of private brand products to military commissaries, which began during the second quarter of fiscal 2017.
All fiscal quarters are 12 weeks, except for the Company’s first quarter, which is 16 weeks and will generally include the Easter holiday. Fiscal 2020 will contain 53 weeks; therefore, the fourth quarter of fiscal 2020 will contain 13 weeks. The fourth quarter includes the Thanksgiving and Christmas holidays, and depending on the fiscal year end, may include the New Year’s holiday.
In certain geographic areas, the Company’s sales and operating performance may vary with seasonality. Many stores are dependent on tourism and therefore, are most affected by seasons and weather patterns, including, but not limited to, the amount and timing of snowfall during the winter months and the range of temperature during the summer months. Travel restrictions and other effects of the COVID-19 pandemic may also impact the performance of these stores.
2020 First Quarter Highlights
The Company’s top priority for the first quarter of 2020 was the well-being and safety of its family of associates, customers and communities during the COVID-19 pandemic. SpartanNash is incredibly proud of its family of associates for their dedication to serve local customers and communities during this unprecedented time of need and respond to the dramatic increase in demand for food, pharmacy, household and personal care products.
The Company undertook numerous initiatives to protect and serve its associates and customers in response to the pandemic, including the following:
|
• |
Installed sneeze guards at key points of customer interaction within retail stores as well as within distribution center receiving areas. |
|
• |
Purchased facemasks and gloves for all frontline associates working in retail stores and distribution centers. |
|
• |
Promoted social distancing through signs and floor markings throughout retail stores to remind guests and associates to remain six feet apart. |
|
• |
Reserved shopping times twice per week for store guests most at risk of contracting coronavirus, including seniors, pregnant women and immunocompromised individuals. |
|
• |
Dedicated additional Fast Lane resources to accommodate the significant increase in the number of customers shopping online as well as offered free, same-day home delivery of prescription medications, where available. |
|
• |
Instructed associates to take their temperature at home before coming onsite to a SpartanNash location, as well as onsite health status screenings for all associates upon arrival. |
|
• |
Suspended certain services within retail stores, including self-serve areas, bottle returns, and product returns in accordance with CDC recommendations. |
|
• |
Increased procedures for sanitizing high-touch surfaces within retail stores, such as shopping carts and baskets, food service counters, checkout lanes, conveyor belts, fuel pump handles, pin pads and touch screens at least every 30 minutes as well as installed sanitation stations. In distribution centers, increased fogging as well as sanitizing high-touch areas including time clocks, headsets and equipment controls at least every 30 minutes. |
|
• |
Provided more than 16,000 part- and full-time hourly frontline associates with weekly appreciation bonuses, as well as an additional $2 per hour for hours worked during times of significantly increased demand. |
|
• |
Increased the associate discount in its company-owned retail stores to 20 percent off for a set period of time. |
|
• |
Extended emergency leave benefits to ensure associates who are sick or are displaying symptoms of COVID-19 are able to remain off work until they have fully recovered. SpartanNash's expanded emergency leave time now provides up to an additional 80 hours of paid leave. |
18
|
• |
The Company continues to provide telemedicine visits, employee assistance programs for mental and physical wellbeing as well as childcare assistance, and prescription drug coverage. Telemedicine visits and COVID-19 testing fees have been waived since the onset of the pandemic. |
|
• |
Recruited and onboarded more than 3,000 new hires since the beginning of the pandemic to support current associates and provide career opportunities to displaced workers. |
Key financial highlights related to the impact of COVID-19 and other actions undertaken by the Company include the following:
|
• |
The Food Distribution segment generated sales growth of 9.5% prior to the impact of the COVID-19 pandemic through growth with existing customers. Sales growth during the pandemic, the last 6 weeks of the quarter, was 29.7% and ended the quarter ahead of the prior year by 17.1%. |
|
• |
Retail comparable store sales, which exclude fuel, were on track to achieve the Company’s guidance of approximately flat and accelerated to an increase of 42.0% during the pandemic, ending the quarter at 15.6%. |
|
• |
The Military segment sales declined 3.2% prior to the impact of the COVID-19 pandemic. Sales growth during the pandemic was 18.1% and ended the quarter ahead of the prior year by 4.9%. |
|
• |
The Company continued to pay down debt and improve its leverage ratios through improved profitability and working capital reductions. |
|
• |
As a result of the loss of a significant customer, the Company made the decision to exit the Caito Fresh Cut operations. Wind down of the operations began in March 2020 and was complete as of the end of the first quarter. The Company incurred $10.6 million in asset impairment charges, severance costs and operating losses during the wind down period. The Company is working to sell the related facility and equipment. |
|
• |
During the first half of the quarter, the Company executed cost saving initiatives, which included a voluntary early retirement program, as well as a reduction-in-force. These actions are expected to result in longer-term cost savings, however resulted in $5.2 million in incremental expense in the quarter. |
The Company has updated its outlook for the 53-week fiscal year ending January 2, 2021. The Company expects to continue to benefit from higher consumer food at home consumption related to COVID-19, however, the duration and magnitude of the impact are uncertain. As a result, although the Company believes that its sales for fiscal 2020 will materially exceed its initial 2020 guidance, the Company is unable to fully estimate the impact COVID-19 will have on the remainder of 2020. The Company has updated its annual outlook, originally provided on February 19, 2020, to reflect actual financial results experienced to-date, as well as expectations for the remainder of the fiscal year related to earnings trends. Specifically, these updates include incremental adjusted earnings per share from continuing operations for the COVID-19 impact experienced to-date, other first quarter earnings in excess of management’s initial guidance expectations, as well as the benefits associated with cost reduction initiatives and increased sales and earnings trends the Company was experiencing prior to the onset of the pandemic. The Company’s updated outlook for the second half of the year does not include any adjustment for future impacts from the COVID-19 pandemic. However, the Company currently anticipates any incremental costs related to COVID-19 will be more than offset by the improved food at home sales trend.
19
Results of Operations
The following table sets forth items from the condensed consolidated statements of earnings as a percentage of net sales and the year-to-year percentage change in the dollar amounts:
|
Percentage of Net Sales |
|
|
Percentage Change |
|
||||||
|
16 Weeks Ended |
|
|
16 Weeks Ended |
|
||||||
|
April 18, 2020 |
|
|
April 20, 2019 |
|
|
April 18, 2020 |
|
|||
Net sales |
|
100.0 |
|
|
|
100.0 |
|
|
|
12.4 |
|
Gross profit |
|
14.8 |
|
|
|
14.9 |
|
|
|
12.1 |
|
Selling, general and administrative |
|
13.7 |
|
|
|
14.2 |
|
|
|
8.6 |
|
Merger/acquisition and integration |
|
— |
|
|
|
0.0 |
|
|
|
(100.0 |
) |
Restructuring charges (gains) and asset impairment |
|
0.4 |
|
|
|
(0.2 |
) |
|
|
280.8 |
|
Operating earnings |
|
0.8 |
|
|
|
0.9 |
|
|
|
(0.8 |
) |
Other expenses and income |
|
0.2 |
|
|
|
0.5 |
|
|
|
(45.3 |
) |
Earnings before income taxes and discontinued operations |
|
0.5 |
|
|
|
0.4 |
|
|
|
52.1 |
|
Income tax expense |
|
0.0 |
|
|
|
0.1 |
|
|
|
(98.8 |
) |
Earnings from continuing operations |
|
0.5 |
|
|
|
0.3 |
|
|
|
104.8 |
|
Loss from discontinued operations, net of taxes |
|
— |
|
|
|
(0.0 |
) |
|
|
100.0 |
|
Net earnings |
|
0.5 |
|
|
|
0.3 |
|
|
|
106.2 |
|
Note: Certain totals do not sum due to rounding.
Net Sales – The following table presents net sales by segment and variances in net sales:
|
16 Weeks Ended |
|
||||||||||||
(In thousands) |
April 18, 2020 |
|
|
April 20, 2019 |
|
|
Variance |
|
||||||
Food Distribution |
$ |
|
1,369,495 |
|
|
$ |
|
1,169,238 |
|
|
$ |
|
200,257 |
|
Retail |
|
|
782,568 |
|
|
|
|
701,767 |
|
|
|
|
80,801 |
|
Military |
|
|
704,393 |
|
|
|
|
671,370 |
|
|
|
|
33,023 |
|
Total net sales |
$ |
|
2,856,456 |
|
|
$ |
|
2,542,375 |
|
|
$ |
|
314,081 |
|
Net sales for the quarter ended April 18, 2020 (“first quarter”) increased $314.1 million, or 12.4%, to $2.86 billion from $2.54 billion in the quarter ended April 20, 2019 (“prior year quarter”). The increase was driven primarily by incremental sales related to a shift in consumer behavior associated with the COVID-19 pandemic, particularly for the last 6 weeks of the fiscal quarter, as well as growth with existing customers in the Food Distribution segment.
Food Distribution net sales increased $200.3 million, or 17.1%, to $1.37 billion in the first quarter from $1.17 billion in the prior year quarter due to incremental volume associated with the impact of COVID-19 as well as sales growth with existing customers.
Retail net sales increased $80.8 million, or 11.5%, to $782.6 million in the first quarter from $701.8 million in the prior year quarter. The increase in net sales was primarily due to incremental volume associated with the impact of COVID-19, as discussed above. Comparable store sales increased 15.6% for the quarter and were partially offset by the impact of lower fuel prices and store closures. The Company defines a retail store as comparable when it is in operation for 14 accounting periods (a period equals four weeks), regardless of remodels, expansions, or relocated stores. Acquired stores are included in the comparable sales calculation 13 periods after the acquisition date. Fuel is excluded from the comparable sales calculation due to volatility in price. Comparable store sales is a widely used metric among retailers, which is useful to management and investors to assess performance. The Company’s definition of comparable store sales may differ from similarly titled measures at other companies.
Military net sales increased $33.0 million, or 4.9%, to $704.4 million in the first quarter from $671.4 million in the prior year quarter. The increase from the prior year quarter was due to the increased volume resulting from the impact of the COVID-19 pandemic, partially offset by lower comparable sales at Defense Commissary Agency (“DeCA”) operated locations prior to the onset of the pandemic.
20
Gross Profit – Gross profit represents net sales less cost of sales, which for all non-production operations includes purchase costs, in-bound freight, physical inventory adjustments, markdowns and promotional allowances and excludes warehousing costs, depreciation and other administrative expenses. For the Company’s food processing operations, cost of sales includes direct product and production costs, inbound freight, purchasing and receiving costs, utilities, depreciation, and other indirect production costs and excludes out-bound freight and other administrative expenses. The Company’s gross profit definition may not be identical to similarly titled measures reported by other companies. Vendor allowances that relate to the buying and merchandising activities consist primarily of promotional allowances, which are generally allowances on purchased quantities and, to a lesser extent, slotting allowances, which are billed to vendors for the Company’s merchandising costs, such as setting up warehouse infrastructure. Vendor allowances are recognized as a reduction in cost of sales when the product is sold. Lump sum payments received for multi-year contracts are amortized over the life of the contracts based on contractual terms. The distribution segments include shipping and handling costs in the Selling, general and administrative section of operating expenses in the consolidated statements of earnings.
Gross profit increased $45.8 million, or 12.1%, to $423.6 million in the first quarter from $377.7 million in the prior year quarter. As a percent of net sales, gross profit was 14.8% compared to 14.9% in the prior year quarter. The first quarter change in gross margin was primarily driven by the increased sales volume.
Selling, General and Administrative Expenses – Selling, general and administrative (“SG&A”) expenses consist primarily of salaries and wages, employee benefits, facility costs, shipping and handling, equipment rental, depreciation (to the extent not included in cost of sales), out-bound freight and other administrative expenses.
SG&A expenses increased to $391.3 million in the first quarter from $360.4 million in the prior year quarter, representing 13.7% of net sales in the first quarter compared to 14.2% in the prior year quarter. The decrease in expenses as a rate of sales compared to the prior year quarter was primarily due to improved operating leverage related to store labor and other operating expenses, as well as lower healthcare costs and stock compensation expense due to executive turnover and a shift in the timing of a portion of the 2020 stock award into the second quarter, partially offset by incremental incentive compensation expense related to improved overall company performance, incremental pay and bonuses for frontline associates, and severance costs associated with a voluntary early retirement program and a reduction-in-force.
Merger/Acquisition and Integration – Prior year quarter results included $0.8 million associated with the acquisition and integration of Martin’s Supermarkets in the prior year.
Restructuring Charges and Asset Impairment – First quarter results include net charges of $10.2 million and prior year quarter results included net gains of $5.7 million related to restructuring and asset impairment activity. The first quarter activity consists primarily of asset impairment charges and severance costs related to the Company’s Fresh Cut facility, as well as store closing charges. The prior year quarter includes gains on the sale of a previously closed distribution center, partially offset by store and distribution center closing charges.
Operating Earnings (Loss) – The following table presents operating earnings (loss) by segment and variances in operating earnings (loss):
|
16 Weeks Ended |
|
||||||||||||
(In thousands) |
April 18, 2020 |
|
|
April 20, 2019 |
|
|
Variance |
|
||||||
Food Distribution |
$ |
|
11,390 |
|
|
$ |
|
24,592 |
|
|
$ |
|
(13,202 |
) |
Retail |
|
|
12,645 |
|
|
|
|
(826 |
) |
|
|
|
13,471 |
|
Military |
|
|
(2,005 |
) |
|
|
|
(1,557 |
) |
|
|
|
(448 |
) |
Total operating earnings |
$ |
|
22,030 |
|
|
$ |
|
22,209 |
|
|
$ |
|
(179 |
) |
Operating earnings decreased $0.2 million, or 0.8% to $22.0 million in the first quarter from $22.2 million in the prior year quarter. The first quarter decrease was primarily attributable to higher restructuring and asset impairment charges, mostly offset by the impact of increased volume, as well as the compensation related items mentioned above.
Food Distribution operating earnings decreased $13.2 million, or 53.7%, to $11.4 million in the first quarter from $24.6 million in the prior year quarter. The exit of the Caito Fresh Cut business resulted in $11.1 million in asset impairment charges, severance costs, operating losses and other costs during the wind down period. Profitability within the Food Distribution segment benefited from the increase in sales volume and was impacted by the compensation related items mentioned above.
Retail operating earnings increased $13.5 million to $12.6 million in the first quarter from a $0.8 million loss in the prior year quarter. The increase in operating earnings was primarily attributable to the increase in sales volume, improvements in labor rates as a rate of sales and lower healthcare costs, partially offset by the compensation related items mentioned above.
Military operating loss increased $0.4 million to $2.0 million in the first quarter from $1.6 million in the prior year quarter. The first quarter increase was primarily attributable to higher incentive compensation costs, partially offset by the impact of the increase in sales volume.
21
Interest Expense – Interest expense decreased $4.2 million, or 35.7%, to $7.6 million in the first quarter from $11.9 million in the prior year quarter. The decrease in interest expense for the quarter was due to rate decreases executed by the federal reserve during 2019 as well as during the first quarter of fiscal 2020 and, to a lesser extent, a decrease in the average debt balance.
Income Taxes – The effective income tax rates were 0.2% and 25.9% for the first quarter and prior year quarter, respectively. The difference from the federal statutory rate in the current year was primarily as a result of the Coronavirus Aid, Relief and Economic Security (“CARES”) Act and federal tax credits, partially offset by state taxes and stock-based compensation. In the prior year, the difference from the federal statutory rate was primarily due to state taxes and stock-based compensation, partially offset by federal tax credits.
On March 27, 2020, the U.S. government enacted tax legislation to provide economic stimulus and support businesses and individuals during the COVID-19 pandemic, referred to as the CARES Act. In connection with initial analysis of the impact of the CARES Act, the Company recorded a net discrete income tax benefit of $4.3 million during the first quarter, associated with the additional deductibility of certain expenses combined with provisions which enable companies to carry back tax losses to years prior to the enactment of the Tax Cuts and Jobs Act, where the federal statutory income tax rate was 35%.
Non-GAAP Financial Measures
In addition to reporting financial results in accordance with GAAP, the Company also provides information regarding adjusted operating earnings, adjusted earnings from continuing operations, and Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization (“adjusted EBITDA”). These are non-GAAP financial measures, as defined below, and are used by management to allocate resources, assess performance against its peers and evaluate overall performance. The Company believes these measures provide useful information for both management and its investors. The Company believes these non-GAAP measures are useful to investors because they provide additional understanding of the trends and special circumstances that affect its business. These measures provide useful supplemental information that helps investors to establish a basis for expected performance and the ability to evaluate actual results against that expectation. The measures, when considered in connection with GAAP results, can be used to assess the overall performance of the Company as well as assess the Company’s performance against its peers. These measures are also used as a basis for certain compensation programs sponsored by the Company. In addition, securities analysts, fund managers and other shareholders and stakeholders that communicate with the Company request its financial results in these adjusted formats.
Current year adjusted operating earnings, adjusted earnings from continuing operations, and adjusted EBITDA exclude “Fresh Cut operating losses” subsequent to the decision to exit these operations during the first quarter, severance associated with cost reduction initiatives , and fees paid to a third-party advisory firm associated with Project One Team, the Company’s initiative to drive growth while increasing efficiency and reducing costs. Pension termination related to a refund from the annuity provider associated with the final reconciliation of participant data is excluded from adjusted earnings from continuing operations. These items are considered “non-operational” or “non-core” in nature. Prior year adjusted operating earnings, adjusted earnings from continuing operations, and adjusted EBITDA exclude costs associated with the organizational realignment, which include significant changes to the Company’s management team. Also excluded are the fees paid to a third-party advisory firm associated with Project One Team, the Company’s initiative to drive growth while increasing efficiency and reducing costs. Pension termination costs, primarily related to non-operating settlement expense associated with the distribution of pension assets, are excluded from adjusted earnings from continuing operations, and to a lesser extent adjusted operating earnings.
Adjusted Operating Earnings
Adjusted operating earnings is a non-GAAP operating financial measure that the Company defines as operating earnings plus or minus adjustments for items that do not reflect the ongoing operating activities of the Company and costs associated with the closing of operational locations.
The Company believes that adjusted operating earnings provide a meaningful representation of its operating performance for the Company as a whole and for its operating segments. The Company considers adjusted operating earnings as an additional way to measure operating performance on an ongoing basis. Adjusted operating earnings is meant to reflect the ongoing operating performance of all of its distribution and retail operations; consequently, it excludes the impact of items that could be considered “non-operating” or “non-core” in nature and also excludes the contributions of activities classified as discontinued operations. Because adjusted operating earnings and adjusted operating earnings by segment are performance measures that management uses to allocate resources, assess performance against its peers and evaluate overall performance, the Company believes it provides useful information for both management and its investors. In addition, securities analysts, fund managers and other shareholders and stakeholders that communicate with the Company request its operating financial results in adjusted operating earnings format.
Adjusted operating earnings is not a measure of performance under accounting principles generally accepted in the United States of America (“GAAP”) and should not be considered as a substitute for operating earnings, cash flows from operating activities and other income or cash flow statement data. The Company’s definition of adjusted operating earnings may not be identical to similarly titled measures reported by other companies.
22
Following is a reconciliation of operating earnings (loss) to adjusted operating earnings (loss) for the 16 weeks ended April 18, 2020 and April 20, 2019.
|
16 Weeks Ended |
|
|||||||
(In thousands) |
April 18, 2020 |
|
|
April 20, 2019 |
|
||||
Operating earnings |
$ |
|
22,030 |
|
|
$ |
|
22,209 |
|
Adjustments: |
|
|
|
|
|
|
|
|
|
Merger/acquisition and integration |
|
|
— |
|
|
|
|
782 |
|
Restructuring, asset impairment and other charges (gains) |
|
|
10,237 |
|
|
|
|
(5,662 |
) |
Fresh Cut operating losses |
|
|
2,262 |
|
|
|
|
— |
|
Costs associated with Project One Team |
|
|
493 |
|
|
|
|
4,618 |
|
Organizational realignment costs |
|
|
— |
|
|
|
|
858 |
|
Severance associated with cost reduction initiatives |
|
|
5,156 |
|
|
|
|
362 |
|
Adjusted operating earnings |
$ |
|
40,178 |
|
|
$ |
|
23,167 |
|
Reconciliation of operating earnings (loss) to adjusted operating earnings (loss) by segment: |
|
||||||||
Food Distribution: |
|
|
|
|
|
|
|
|
|
Operating earnings |
$ |
|
11,390 |
|
|
$ |
|
24,592 |
|
Adjustments: |
|
|
|
|
|
|
|
|
|
Merger/acquisition and integration |
|
|
— |
|
|
|
|
(130 |
) |
Restructuring, asset impairment and other charges (gains) |
|
|
9,222 |
|
|
|
|
(6,343 |
) |
Fresh Cut operating losses |
|
|
2,262 |
|
|
|
|
— |
|
Costs associated with Project One Team |
|
|
265 |
|
|
|
|
2,448 |
|
Organizational realignment costs |
|
|
— |
|
|
|
|
455 |
|
Severance associated with cost reduction initiatives |
|
|
3,180 |
|
|
|
|
324 |
|
Adjusted operating earnings |
$ |
|
26,319 |
|
|
$ |
|
21,346 |
|
Retail: |
|
|
|
|
|
|
|
|
|
Operating earnings (loss) |
$ |
|
12,645 |
|
|
$ |
|
(826 |
) |
Adjustments: |
|
|
|
|
|
|
|
|
|
Merger/acquisition and integration |
|
|
— |
|
|
|
|
912 |
|
Restructuring charges and asset impairment |
|
|
1,015 |
|
|
|
|
681 |
|
Costs associated with Project One Team |
|
|
164 |
|
|
|
|
1,570 |
|
Organizational realignment costs |
|
|
— |
|
|
|
|
292 |
|
Severance associated with cost reduction initiatives |
|
|
1,451 |
|
|
|
|
29 |
|
Adjusted operating earnings |
$ |
|
15,275 |
|
|
$ |
|
2,658 |
|
Military: |
|
|
|
|
|
|
|
|
|
Operating loss |
$ |
|
(2,005 |
) |
|
$ |
|
(1,557 |
) |
Adjustments: |
|
|
|
|
|
|
|
|
|
Costs associated with Project One Team |
|
|
64 |
|
|
|
|
600 |
|
Organizational realignment costs |
|
|
— |
|
|
|
|
111 |
|
Severance associated with cost reduction initiatives |
|
|
525 |
|
|
|
|
9 |
|
Adjusted operating loss |
$ |
|
(1,416 |
) |
|
$ |
|
(837 |
) |
|
|
|
|
|
|
|
|
|
|
Adjusted Earnings from Continuing Operations
Adjusted earnings from continuing operations is a non-GAAP operating financial measure that the Company defines as earnings from continuing operations plus or minus adjustments for items that do not reflect the ongoing operating activities of the Company and costs associated with the closing of operational locations.
The Company believes that adjusted earnings from continuing operations provide a meaningful representation of its operating performance for the Company. The Company considers adjusted earnings from continuing operations as an additional way to measure operating performance on an ongoing basis. Adjusted earnings from continuing operations is meant to reflect the ongoing operating performance of all of its distribution and retail operations; consequently, it excludes the impact of items that could be considered “non-operating” or “non-core” in nature, and excludes the contributions of activities classified as discontinued operations. Because adjusted earnings from continuing operations is a performance measure that management uses to allocate resources, assess performance against its peers and evaluate overall performance, the Company believes it provides useful information for both management and its investors. In addition, securities analysts, fund managers and other shareholders and stakeholders that communicate with the Company request its operating financial results in adjusted earnings from continuing operations format.
23
Adjusted earnings from continuing operations is not a measure of performance under accounting principles generally accepted in the United States of America and should not be considered as a substitute for net earnings, cash flows from operating activities and other income or cash flow statement data. The Company’s definition of adjusted earnings from continuing operations may not be identical to similarly titled measures reported by other companies.
Following is a reconciliation of earnings from continuing operations to adjusted earnings from continuing operations for the 16 weeks ended April 18, 2020 and April 20, 2019.
|
16 Weeks Ended |
|
|
|||||||||||||||||
|
April 18, 2020 |
|
|
April 20, 2019 |
|
|
||||||||||||||
|
|
|
|
per diluted |
|
|
|
|
|
per diluted |
|
|
||||||||
(In thousands, except per share amounts) |
Earnings |
|
|
share |
|
|
Earnings |
|
|
share |
|
|
||||||||
Earnings from continuing operations |
$ |
|
15,402 |
|
|
$ |
|
0.43 |
|
|
$ |
|
7,521 |
|
|
$ |
|
0.21 |
|
|
Adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Merger/acquisition and integration |
|
|
— |
|
|
|
|
|
|
|
|
|
782 |
|
|
|
|
|
|
|
Restructuring, asset impairment and other charges (gains) |
|
|
10,237 |
|
|
|
|
|
|
|
|
|
(5,662 |
) |
|
|
|
|
|
|
Fresh Cut operating losses |
|
|
2,262 |
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
Costs associated with Project One Team |
|
|
493 |
|
|
|
|
|
|
|
|
|
4,618 |
|
|
|
|
|
|
|
Organizational realignment costs |
|
|
— |
|
|
|
|
|
|
|
|
|
858 |
|
|
|
|
|
|
|
Severance associated with cost reduction initiatives |
|
|
5,156 |
|
|
|
|
|
|
|
|
|
362 |
|
|
|
|
|
|
|
Pension termination |
|
|
(1,004 |
) |
|
|
|
|
|
|
|
|
353 |
|
|
|
|
|
|
|
Total adjustments |
|
|
17,144 |
|
|
|
|
|
|
|
|
|
1,311 |
|
|
|
|
|
|
|
Income tax effect on adjustments (a) |
|
|
(4,095 |
) |
|
|
|
|
|
|
|
|
(304 |
) |
|
|
|
|
|
|
Impact of CARES Act (b) |
|
|
(4,345 |
) |
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
Total adjustments, net of taxes |
|
|
8,704 |
|
|
|
|
0.24 |
|
|
|
|
1,007 |
|
|
|
|
0.03 |
|
|
Adjusted earnings from continuing operations |
$ |
|
24,106 |
|
|
$ |
|
0.67 |
|
|
$ |
|
8,528 |
|
|
$ |
|
0.24 |
|
|
|
(a) |
The income tax effect on adjustments is computed by applying the effective tax rate, before discrete tax items, to the total adjustments for the period. |
|
(b) |
Represents tax impacts attributable to the Coronavirus Aid, Relief and Economic Security (“CARES”) Act, primarily related to additional deductions and the utilization of net operating loss carryback. |
24
Adjusted EBITDA
Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization (“adjusted EBITDA”) is a non-GAAP operating financial measure that the Company defines as net earnings plus interest, discontinued operations, depreciation and amortization, and other non-cash items including deferred (stock) compensation, the LIFO provision, as well as adjustments for items that do not reflect the ongoing operating activities of the Company and costs associated with the closing of operational locations.
The Company believes that adjusted EBITDA provides a meaningful representation of its operating performance for the Company and for its operating segments. The Company considers adjusted EBITDA as an additional way to measure operating performance on an ongoing basis. Adjusted EBITDA is meant to reflect the ongoing operating performance of all of its distribution and retail operations; consequently, it excludes the impact of items that could be considered “non-operating” or “non-core” in nature, and also excludes the contributions of activities classified as discontinued operations. Because adjusted EBITDA and adjusted EBITDA by segment are performance measures that management uses to allocate resources, assess performance against its peers and evaluate overall performance, the Company believes it provides useful information for both management and its investors. In addition, securities analysts, fund managers and other shareholders and stakeholders that communicate with the Company request its operating financial results in adjusted EBITDA format.
Adjusted EBITDA and adjusted EBITDA by segment are not measures of performance under accounting principles generally accepted in the United States of America and should not be considered as a substitute for net earnings, cash flows from operating activities and other income or cash flow statement data. The Company’s definitions of adjusted EBITDA and adjusted EBITDA by segment may not be identical to similarly titled measures reported by other companies.
Following is a reconciliation of net earnings to adjusted EBITDA for the 16 weeks ended April 18, 2020 and April 20, 2019.
|
16 Weeks Ended |
|
|||||||
(In thousands) |
April 18, 2020 |
|
|
April 20, 2019 |
|
||||
Net earnings |
$ |
|
15,402 |
|
|
$ |
|
7,469 |
|
Loss from discontinued operations, net of tax |
|
|
— |
|
|
|
|
52 |
|
Income tax expense |
|
|
31 |
|
|
|
|
2,624 |
|
Other expenses, net |
|
|
6,597 |
|
|
|
|
12,064 |
|
Operating earnings |
|
|
22,030 |
|
|
|
|
22,209 |
|
Adjustments: |
|
|
|
|
|
|
|
|
|
LIFO expense |
|
|
1,583 |
|
|
|
|
1,425 |
|
Depreciation and amortization |
|
|
27,656 |
|
|
|
|
26,632 |
|
Merger/acquisition and integration |
|
|
— |
|
|
|
|
782 |
|
Restructuring, asset impairment and other charges (gains) |
|
|
10,237 |
|
|
|
|
(5,662 |
) |
Fresh Cut operating losses |
|
|
2,262 |
|
|
|
|
— |
|
Stock-based compensation |
|
|
2,243 |
|
|
|
|
5,383 |
|
Non-cash rent |
|
|
(1,594 |
) |
|
|
|
(1,918 |
) |
Costs associated with Project One Team |
|
|
493 |
|
|
|
|
4,618 |
|
Organizational realignment costs |
|
|
— |
|
|
|
|
858 |
|
Severance associated with cost reduction initiatives |
|
|
5,156 |
|
|
|
|
362 |
|
Loss (gain) on disposal of assets |
|
|
3,911 |
|
|
|
|
(3 |
) |
Other non-cash charges (gains) |
|
|
1 |
|
|
|
|
(17 |
) |
Adjusted EBITDA |
$ |
|
73,978 |
|
|
$ |
|
54,669 |
|
25
Following is a reconciliation of operating earnings (loss) to adjusted EBITDA by segment for the 16 weeks ended April 18, 2020 and April 20, 2019.
|
16 Weeks Ended |
|
|||||||
(In thousands) |
April 18, 2020 |
|
|
April 20, 2019 |
|
||||
Food Distribution: |
|
|
|
|
|
|
|
|
|
Operating earnings |
$ |
|
11,390 |
|
|
$ |
|
24,592 |
|
Adjustments: |
|
|
|
|
|
|
|
|
|
LIFO expense |
|
|
794 |
|
|
|
|
703 |
|
Depreciation and amortization |
|
|
10,183 |
|
|
|
|
10,233 |
|
Merger/acquisition and integration |
|
|
— |
|
|
|
|
(130 |
) |
Restructuring, asset impairment and other charges (gains) |
|
|
9,222 |
|
|
|
|
(6,343 |
) |
Fresh Cut operating losses |
|
|
2,262 |
|
|
|
|
— |
|
Stock-based compensation |
|
|
1,005 |
|
|
|
|
2,676 |
|
Non-cash rent |
|
|
58 |
|
|
|
|
57 |
|
Costs associated with Project One Team |
|
|
265 |
|
|
|
|
2,448 |
|
Organizational realignment costs |
|
|
— |
|
|
|
|
455 |
|
Severance associated with cost reduction initiatives |
|
|
3,180 |
|
|
|
|
324 |
|
Loss (gain) on disposal of assets |
|
|
2,140 |
|
|
|
|
(5 |
) |
Other non-cash gains |
|
|
(1 |
) |
|
|
|
— |
|
Adjusted EBITDA |
$ |
|
40,498 |
|
|
$ |
|
35,010 |
|
Retail: |
|
|
|
|
|
|
|
|
|
Operating earnings (loss) |
$ |
|
12,645 |
|
|
$ |
|
(826 |
) |
Adjustments: |
|
|
|
|
|
|
|
|
|
LIFO expense |
|
|
343 |
|
|
|
|
344 |
|
Depreciation and amortization |
|
|
13,756 |
|
|
|
|
12,802 |
|
Merger/acquisition and integration |
|
|
— |
|
|
|
|
912 |
|
Restructuring charges and asset impairment |
|
|
1,015 |
|
|
|
|
681 |
|
Stock-based compensation |
|
|
750 |
|
|
|
|
1,853 |
|
Non-cash rent |
|
|
(1,534 |
) |
|
|
|
(1,853 |
) |
Costs associated with Project One Team |
|
|
164 |
|
|
|
|
1,570 |
|
Organizational realignment costs |
|
|
— |
|
|
|
|
292 |
|
Severance associated with cost reduction initiatives |
|
|
1,451 |
|
|
|
|
29 |
|
Loss on disposal of assets |
|
|
1,805 |
|
|
|
|
36 |
|
Other non-cash gains |
|
|
— |
|
|
|
|
(22 |
) |
Adjusted EBITDA |
$ |
|
30,395 |
|
|
$ |
|
15,818 |
|
Military: |
|
|
|
|
|
|
|
|
|
Operating loss |
$ |
|
(2,005 |
) |
|
$ |
|
(1,557 |
) |
Adjustments: |
|
|
|
|
|
|
|
|
|
LIFO expense |
|
|
446 |
|
|
|
|
378 |
|
Depreciation and amortization |
|
|
3,717 |
|
|
|
|
3,597 |
|
Stock-based compensation |
|
|
488 |
|
|
|
|
854 |
|
Non-cash rent |
|
|
(118 |
) |
|
|
|
(122 |
) |
Costs associated with Project One Team |
|
|
64 |
|
|
|
|
600 |
|
Organizational realignment costs |
|
|
— |
|
|
|
|
111 |
|
Severance associated with cost reduction initiatives |
|
|
525 |
|
|
|
|
9 |
|
Gain on disposal of assets |
|
|
(34 |
) |
|
|
|
(34 |
) |
Other non-cash charges |
|
|
2 |
|
|
|
|
5 |
|
Adjusted EBITDA |
$ |
|
3,085 |
|
|
$ |
|
3,841 |
|
|
|
|
|
|
|
|
|
|
|
26
Liquidity and Capital Resources
Cash Flow Information
The following table summarizes the Company’s consolidated statements of cash flows:
|
|
|
|
16 Weeks Ended |
|
|||||||
(In thousands) |
|
|
|
April 18, 2020 |
|
|
April 20, 2019 |
|
||||
Cash flow activities |
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
|
$ |
|
129,296 |
|
|
$ |
|
13,519 |
|
Net cash used in investing activities |
|
|
|
|
|
(13,951 |
) |
|
|
|
(87,225 |
) |
Net cash (used in) provided by financing activities |
|
|
|
|
|
(118,262 |
) |
|
|
|
76,567 |
|
Net cash used in discontinued operations |
|
|
|
|
|
— |
|
|
|
|
(86 |
) |
Net (decrease) increase in cash and cash equivalents |
|
|
|
|
|
(2,917 |
) |
|
|
|
2,775 |
|
Cash and cash equivalents at beginning of the period |
|
|
|
|
|
24,172 |
|
|
|
|
18,585 |
|
Cash and cash equivalents at end of the period |
|
|
|
$ |
|
21,255 |
|
|
$ |
|
21,360 |
|
Net cash provided by operating activities. Net cash provided by operating activities increased during the current year-to-date period from the prior year-to-date period by approximately $115.8 million and was primarily due to an increase in cash generated from earnings and changes in working capital largely associated with the COVID-19 pandemic.
Net cash used in investing activities. Net cash used in investing activities decreased $73.3 million in the current year compared to the prior year primarily due to the acquisition of Martin’s in the prior year.
Capital expenditures were $17.9 in the current year compared to $16.0 million in the prior year. The Company expects full fiscal year 2020 capital expenditures to range from $80.0 million to $90.0 million. The Food Distribution, Retail and Military segments utilized 39.2%, 53.6% and 7.2% of capital expenditures, respectively, in the current year.
Net cash used in financing activities. Net cash used in financing activities increased $194.8 million in the current year compared to the prior year primarily due to payment of debt balances in the current year, which were funded from cash provided by operating activities, and borrowings to fund the Martin’s acquisition in the prior year.
Debt Management
Total debt, including finance lease liabilities, was $597.3 million and $688.6 million as of April 18, 2020 and December 28, 2019, respectively. The decrease in total debt was due to increased payments from cash provided by operating activities.
Liquidity
The Company’s principal sources of liquidity are cash flows generated from operations and its senior secured credit facility. As of April 18, 2020, the senior secured credit facility had outstanding borrowings of $549.4 million. Additional available borrowings under the Company’s credit facility are based on stipulated advance rates on eligible assets, as defined in the Credit Agreement. The Credit Agreement requires that the Company maintain excess availability of 10% of the borrowing base, as such term is defined in the Credit Agreement. The Company had excess availability after the 10% covenant of $317.2 million at April 18, 2020. Payment of dividends and repurchases of outstanding shares are permitted, provided that certain levels of excess availability are maintained. The credit facility provides for the issuance of letters of credit, of which $11.7 million were outstanding as of April 18, 2020. The credit facility matures December 18, 2023 and is secured by substantially all of the Company’s assets.
The Company believes that cash generated from operating activities and available borrowings under the credit facility will be sufficient to meet anticipated requirements for working capital, capital expenditures, dividend payments, and debt service obligations for the foreseeable future. However, there can be no assurance that the business will continue to generate cash flow at or above current levels or that the Company will maintain its ability to borrow under the Credit Agreement.
The Company’s current ratio (current assets to current liabilities) was 1.54-to-1 at April 18, 2020 compared to 1.76-to-1 at December 28, 2019, and its investment in working capital was $368.9 million at April 18, 2020 compared to $431.5 million at December 28, 2019. Net debt to total capital ratio was 0.46-to-1 at April 18, 2020 compared to 0.49-to-1 at December 28, 2019.
27
Net long-term debt is a non-GAAP financial measure that is defined as long-term debt and finance lease liabilities, plus current maturities of long-term debt and finance lease liabilities, less cash and cash equivalents. The ratio of net debt to capital is a non-GAAP financial measure that is calculated by dividing net debt, as defined previously, by total capital (net debt plus total shareholders’ equity). The Company believes both management and its investors find the information useful because it reflects the amount of long-term debt obligations that are not covered by available cash and temporary investments. Total net debt is not a substitute for GAAP financial measures and may differ from similarly titled measures of other companies.
Following is a reconciliation of “Long-term debt and finance lease liabilities” to Net long-term debt as of April 18, 2020 and December 28, 2019.
|
April 18, |
|
|
December 28, |
|
||||
(In thousands) |
2020 |
|
|
2019 |
|
||||
Current portion of long-term debt and finance lease liabilities |
$ |
|
6,157 |
|
|
$ |
|
6,349 |
|
Long-term debt and finance lease liabilities |
|
|
591,097 |
|
|
|
|
682,204 |
|
Total debt |
|
|
597,254 |
|
|
|
|
688,553 |
|
Cash and cash equivalents |
|
|
(21,255 |
) |
|
|
|
(24,172 |
) |
Net long-term debt |
$ |
|
575,999 |
|
|
$ |
|
664,381 |
|
For information on contractual obligations, see the Company’s Annual Report on Form 10-K for the fiscal year ended December 28, 2019. At April 18, 2020, there have been no material changes to the Company’s significant contractual obligations outside the ordinary course of business.
Cash Dividends
During the quarter ended April 18, 2020, the Company declared $7.0 million quarterly dividends and returned $10.0 million to shareholders in the form of share repurchases. A 1.3% increase in the quarterly dividend rate from $0.19 per share to $0.1925 per share was approved by the Board of Directors and announced on February 27, 2020. Although the Company expects to continue to pay a quarterly cash dividend, adoption of a dividend policy does not commit the Board of Directors to declare future dividends. Each future dividend will be considered and declared by the Board of Directors at its discretion. Whether the Board of Directors continues to declare dividends depends on a number of factors, including the Company’s future financial condition, anticipated profitability and cash flows and compliance with the terms of its credit facilities.
Under the senior revolving credit facility, the Company is generally permitted to pay dividends in any fiscal year up to an amount such that all cash dividends, together with any cash distributions and share repurchases, do not exceed $35.0 million. Additionally, the Company is generally permitted to pay cash dividends and repurchase shares in excess of $35.0 million in any fiscal year so long as its Excess Availability, as defined in the senior revolving credit facility, is in excess of 10% of the Total Borrowing Base, as defined in the senior revolving credit facility, before and after giving effect to the repurchases and dividends.
Off-Balance Sheet Arrangements
The Company has also made certain commercial commitments that extend beyond April 18, 2020. These commitments consist primarily of purchase commitments (as disclosed in the Company’s Annual Report on Form 10-K for the year ended December 28, 2019), standby letters of credit of $11.7 million as of April 18, 2020, and interest on long-term debt and finance lease liabilities.
Critical Accounting Policies
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, and the related disclosure of contingent assets and liabilities. Management bases its estimates on historical experience and various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that may not be readily apparent from other sources. Based on the Company’s ongoing review, the Company makes adjustments it considers appropriate under the facts and circumstances. This discussion and analysis of the Company’s financial condition and results of operations is based upon the Company’s consolidated financial statements. The Company believes these accounting policies and others set forth in Item 7 to the consolidated financial statements in the Company’s Annual Report on Form 10-K for the fiscal year ended December 28, 2019 should be reviewed as they are integral to the understanding the Company’s financial condition and results of operations. The Company has discussed the development, selection and disclosure of these accounting policies with the Audit Committee of the Board of Directors. The accompanying financial statements are prepared using the same critical accounting policies discussed in the Company’s Annual Report on Form 10-K for the fiscal year ended December 28, 2019.
28
Recently Issued Accounting Standards
Refer to Note 2 in the notes to the condensed consolidated financial statements for further information.
ITEM 3. Quantitative and Qualitative Disclosure about Market Risk
There have been no material changes in market risk of SpartanNash from the information provided in Part II, Item 7A, “Quantitative and Qualitative Disclosure About Market Risk,” of the Company’s Annual Report on Form 10-K for the fiscal year ended December 28, 2019.
ITEM 4. Controls and Procedures
An evaluation of the effectiveness of the design and operation of SpartanNash Company’s disclosure controls and procedures (as currently defined in Rule 13a-15(e) under the Securities Exchange Act of 1934) was performed as of April 18, 2020 (the “Evaluation Date”). This evaluation was performed under the supervision and with the participation of SpartanNash Company’s management, including its Interim Chief Executive Officer (“CEO”), Chief Financial Officer (“CFO”) and Chief Accounting Officer (“CAO”). As of the Evaluation Date, SpartanNash Company’s management, including the CEO, CFO and CAO, concluded that SpartanNash’s disclosure controls and procedures were effective as of the Evaluation Date to ensure that material information required to be disclosed in the reports that the Company files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified by the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in the reports that the Company files or submits under the Securities and Exchange Act of 1934 is accumulated and communicated to management, including its principal executive and principal financial officers as appropriate to allow for timely decisions regarding required disclosure. During the fourth quarter of 2019 and the first quarter of 2020 there were no changes in SpartanNash’s internal control over financial reporting that materially affected, or were reasonably likely to materially affect, SpartanNash’s internal control over financial reporting. In response to the COVID-19 pandemic, many of the Company’s associates began working from home during the first quarter of 2020. Management has taken measures to ensure that our internal controls over financial reporting remained effective and were not materially affected during this period.
29
PART II
OTHER INFORMATION
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds
The following table provides information regarding SpartanNash’s purchases of its own common stock during the 16-week period ended April 18, 2020. These may include: (1) shares of SpartanNash common stock delivered in satisfaction of the exercise price and/or tax withholding obligations by holders of employee stock options who exercised options, and (2) shares submitted for cancellation to satisfy tax withholding obligations that occur upon the vesting of the restricted shares. The value of the shares delivered or withheld is determined by the applicable stock compensation plan. For the first quarter of 2020, all employee transactions related to shares submitted for cancellation to satisfy tax withholding obligations that occur upon the vesting of the restricted shares.
During the fourth quarter of 2017, the Board authorized a publicly announced $50 million share repurchase program, expiring in 2022. There were $10.0 million of share repurchases made under this program during the first quarter of 2020. At April 18, 2020, $35.0 million remains available under the program.
|
|
|
|
|
Average |
|
||
|
Total Number |
|
|
Price Paid |
|
|||
Fiscal Period |
of Shares Purchased |
|
|
per Share |
|
|||
December 30, 2019 - January 25, 2020 |
|
|
|
|
|
|
|
|
Employee Transactions |
|
— |
|
|
$ |
|
— |
|
Repurchase Program |
|
— |
|
|
$ |
|
— |
|
January 26 - February 22, 2020 |
|
|
|
|
|
|
|
|
Employee Transactions |
|
— |
|
|
$ |
|
— |
|
Repurchase Program |
|
— |
|
|
$ |
|
— |
|
February 23 - March 21, 2020 |
|
|
|
|
|
|
|
|
Employee Transactions |
|
87,897 |
|
|
$ |
|
12.43 |
|
Repurchase Program |
|
704,723 |
|
|
$ |
|
11.30 |
|
March 21 - April 18, 2020 |
|
|
|
|
|
|
|
|
Employee Transactions |
|
18,768 |
|
|
$ |
|
13.85 |
|
Repurchase Program |
|
156,029 |
|
|
$ |
|
13.04 |
|
Total for quarter ended April 18, 2020 |
|
|
|
|
|
|
|
|
Employee Transactions |
|
106,665 |
|
|
$ |
|
12.68 |
|
Repurchase Program |
|
860,752 |
|
|
$ |
|
11.62 |
|
30
ITEM 6. Exhibits
The following documents are filed as exhibits to this Quarterly Report on Form 10-Q:
Exhibit
|
|
Document |
|
|
|
3.1 |
|
|
|
|
|
3.2 |
|
|
|
|
|
10.1 |
|
|
|
|
|
10.2 |
|
|
|
|
|
10.3 |
|
|
|
|
|
10.4 |
|
|
|
|
|
31.1 |
|
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
|
|
|
31.2 |
|
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
|
|
|
31.3 |
|
Certification of Chief Accounting Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
|
|
|
32.1 |
|
Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
|
|
|
101.INS |
|
Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. |
|
|
|
101.SCH |
|
Inline XBRL Taxonomy Extension Schema Document |
|
|
|
101.CAL |
|
Inline XBRL Taxonomy Extension Calculation Linkbase Document |
|
|
|
101.LAB |
|
Inline XBRL Taxonomy Extension Label Linkbase Document |
|
|
|
101.PRE |
|
Inline XBRL Taxonomy Extension Presentation Linkbase Document |
|
|
|
101.DEF |
|
Inline XBRL Taxonomy Extension Definition Linkbase Document |
|
|
|
104 |
|
The cover page from the Company’s Quarterly Report on Form 10-Q for the quarter ended April 18, 2020, has been formatted in Inline XBRL. |
|
|
|
31
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
|
SPARTANNASH COMPANY (Registrant)
|
||
Date: May 28, 2020 |
|
By |
|
/s/ Mark E. Shamber |
|
|
|
|
Mark E. Shamber Executive Vice President and Chief Financial Officer
|
32
EXHIBIT 10.1
Restricted Stock Award - Fiscal Year Ending January 2, 2021
I am pleased to inform you that SpartanNash Company, a Michigan corporation, (“SpartanNash” or the “Company”) has granted to you the number of restricted shares of SpartanNash Common Stock described above under the Company’s Stock Incentive Plan of 2015 (the “Plan”). By accepting this grant, you agree that the restricted stock is subject to the terms and conditions of this letter and the Plan (which are incorporated into this letter by reference). If there is any conflict between the terms of the Plan and this letter, the terms of the Plan will control.
1. Restricted Stock Grant. SpartanNash grants to you shares of the Company’s Common Stock, no par value, all of which are subject to restrictions imposed under this letter and the Plan (the “Restricted Stock”). This grant of Restricted Stock shall not confer any right to you to be granted Restricted Stock or other awards in the future under the Plan.
2. Restrictions. The Restricted Stock is subject to the following transfer and forfeiture conditions (“Restrictions”), which will lapse, if at all, as described in the “Lapse of Restrictions” section below. The period during which Restricted Stock is subject to the Restrictions imposed by the Plan and under this letter is referred to in this letter as the “Restricted Period.”
(a) Until the Restrictions lapse as set forth in paragraphs (a), (b), (c) or (d) under Lapse of Restrictions below, the Restricted Stock generally is not transferable by you except by will or according to the laws of descent and distribution. All rights with respect to the Restricted Stock are exercisable during your lifetime only by you, your guardian, or your legal representative.
(b) Any shares of Restricted Stock for which the Restrictions have not lapsed will automatically be forfeited without consideration upon the termination of your service as a director of SpartanNash for any reason, except as otherwise provided in this letter.
(c) If you enter into Competition (as defined in the Plan) with SpartanNash, all shares of Restricted Stock still subject to Restrictions will automatically be forfeited without consideration. The Committee (as defined in the Plan) or officers designated by the Committee have absolute discretion to determine whether you have entered into Competition with SpartanNash.
3.Lapse of Restrictions.
(a) Except as otherwise provided in this letter, and so long as you continue as a director of SpartanNash, the Restrictions imposed on the Restricted Stock shall lapse on March 1,
2021.
(b) Notwithstanding anything to the contrary in this letter, upon termination of your service as a director of SpartanNash due to your death or disability, the Restrictions applicable to any shares of Restricted Stock will lapse automatically and the Restricted Stock will vest and no longer be subject to forfeiture. For purposes of this letter you would be deemed to be “disabled” if, by reason of accident, physical illness or mental illness, you are unable to fulfill your normal responsibilities as a director of SpartanNash for a continuous period of 180 days.
(c) Notwithstanding anything to the contrary in this letter, the Restrictions imposed on the Restricted Stock will lapse, and the Restricted Stock will vest and no longer be subject to forfeiture, if during the Restricted Period, you have been a director for at least ten years, and you no longer continue as a director with SpartanNash for any reason except removal for Cause.
(d) Notwithstanding anything to the contrary in this letter or the Plan, if you cease to be a director of SpartanNash for any reason other than removal for Cause following a Change in Control (as defined in the Plan), then the Restrictions imposed on the Restricted Stock will lapse, and the Restricted Stock will vest and no longer be subject to forfeiture in accordance with the terms of the Plan.
4. Shareholder Rights. During the Restricted Period, you shall have all voting, dividend, liquidation, and other rights with respect to the Restricted Stock held of record by you as if you held unrestricted Common Stock; provided, however, that the unvested portion of any Restricted Stock award shall be subject to any restrictions on transferability or risks of forfeiture imposed pursuant to this letter or the Plan. Any non-cash dividends or distributions paid with respect to unvested Restricted Stock shall be subject to the same restrictions as those relating to the Restricted Stock granted to you under this letter agreement. After the Restrictions applicable to the Restricted Stock lapse, you shall have all shareholder rights, including the right to transfer the shares, subject to such conditions as SpartanNash may reasonably specify to ensure compliance with federal and state securities laws.
5. Uncertificated Shares. Your shares of Restricted Stock are being issued without a paper certificate. The Restricted Stock will be registered in your name in SpartanNash’s books and records and reflected on the account statements issued to you by Morgan Stanley (or other financial intermediary). The Company is formed under the laws of the State of Michigan. The Company will furnish to you upon request and without charge a full statement of the designation, relative rights, preferences, and limitations of the shares of each class authorized to be issued, the designation, relative rights, preferences, and limitations of each series so far as the same have been prescribed, and the authority of the SpartanNash’s Board of Directors to designate and prescribe the relative rights, preferences, and limitations of other series. If you have any questions, please contact the Company’s Director of Benefits.
6. Certifications. You represent and warrant that you are acquiring the Restricted Stock for your own account and investment and without any intent to resell or distribute the Restricted Stock. You shall not resell or distribute the Restricted Stock after any Restricted Period except in compliance with such conditions as SpartanNash may reasonably specify to ensure compliance with federal and state securities laws.
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7. Withholding. Because you are a non-employee director, SpartanNash will not make any provision for the withholding of federal, state, or local taxes in connection with the grant or vesting of the Restricted Stock. SpartanNash will provide you with a completed IRS Form 1099 reporting non-employee compensation and certain other payments made to you by SpartanNash for your service as a director, including payments in connection with the Restricted Stock. You are responsible for your tax obligations in connection with the grant and vesting of the Restricted Stock, and SpartanNash recommends that you consult with your tax advisor.
8. Binding Effect; Amendment. This letter and the Plan shall be binding upon, and shall inure to the benefit of, the parties hereto and their respective heirs, successors and permitted assigns. This letter agreement shall not be modified except in a writing executed by you and SpartanNash.
9. Prohibition on Hedging or Pledging. This award is subject to the Company’s policy prohibiting pledging of the Company’s stock and transactions that are designed to hedge or offset declines in the market value of the Company’s stock.
10.Miscellaneous.
(a) This letter and your rights hereunder are subject to all the terms and conditions of the Plan, as the same may be amended from time to time, as well as to such rules and regulations as the Committee may adopt for administration of the Plan. The Committee shall have the right to impose such restrictions on any shares acquired pursuant to this letter, as it may deem advisable, including, without limitation, restrictions under applicable federal securities laws, under the requirements of any stock exchange or market upon which such shares are then listed and/or traded, and under any blue sky or state securities laws applicable to such shares. It is expressly understood that the Committee is authorized to administer, construe, and make all determinations necessary or appropriate to the administration of the Plan and this letter, all of which shall be binding upon you.
(b) The Board may terminate, amend, or modify the Plan in accordance with the terms of the Plan.
(c) You agree to take all steps necessary to comply with all applicable provisions of federal and state securities laws in exercising your rights under this letter. This letter shall be subject to all applicable laws, rules, and regulations, Nasdaq Marketplace Rules, and to such approvals by any governmental agencies, The Nasdaq Stock Market or any other national securities exchanges as may be required.
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(d)To the extent not preempted by federal law, this letter shall be governed by, and construed in accordance with, the laws of the state of Michigan.
Very truly yours,
/S/ Dennis Eidson
Dennis Eidson
Interim President & Chief Executive Officer
4
EXHIBIT 10.2
Restricted Stock Award - Fiscal Year Ending January 2, 2021
I am pleased to inform you that SpartanNash Company, a Michigan corporation, (“SpartanNash” or the “Company”) has granted to you the number of restricted shares of SpartanNash’s Common Stock described above under the Company’s Stock Incentive Plan of
2015 (the “Plan”). By accepting this grant, you agree that the restricted stock is subject to the terms and conditions of this letter and the Plan (which are incorporated into this letter by reference). If there is any conflict between the terms of the Plan and this letter, the terms of the Plan will control.
1. Restricted Stock Grant. SpartanNash grants to you shares of Company Common Stock, no par value, all of which are subject to restrictions imposed under this letter and the Plan (the “Restricted Stock”). This grant of Restricted Stock shall not confer any right to you to be granted Restricted Stock or other awards in the future under the Plan.
2. Restrictions. The Restricted Stock is subject to the following transfer and forfeiture conditions (“Restrictions”), which will lapse, if at all, as described in the “Lapse of Restrictions” section below. The period during which Restricted Stock is subject to the Restrictions imposed by the Plan and under this letter is referred to in this letter as the “Restricted Period.”
a. Until the Restrictions lapse as set forth in paragraphs (a), (b), (c) or (d) under Lapse of Restrictions below, the Restricted Stock generally is not transferable by you except by will or according to the laws of descent and distribution. All rights with respect to the Restricted Stock are exercisable during your lifetime only by you, your guardian, or your legal representative.
b. Any shares of Restricted Stock for which the Restrictions have not lapsed will automatically be forfeited without consideration upon the termination of your employment with SpartanNash for any reason other than death, Disability or Retirement. Upon the termination of your employment with SpartanNash due to your death, Disability or Retirement, the Restrictions applicable to any shares of Restricted Stock will lapse in accordance with the applicable provisions set forth in paragraphs (2) or (3) under Lapse of Restrictions below. Notwithstanding the foregoing, the Committee (as defined in the Plan) reserves the right, in its sole discretion, to waive the Restrictions remaining on any or all such shares of Restricted Stock at the time of termination of employment.
c. If you enter into Competition (as defined in the Plan) with SpartanNash, all shares of Restricted Stock still subject to Restrictions will automatically be forfeited without consideration. The Committee (as defined in the Plan) or officers designated by the Committee have absolute discretion to determine whether you have entered into Competition with SpartanNash.
3.Lapse of Restrictions.
a. Except as otherwise provided in this letter, and so long as you remain continuously employed by SpartanNash, 25% of the shares of Restricted Stock will vest and the Restrictions will lapse with respect to such shares of Restricted Stock on the Vesting Day set forth above in each of the next four years.
b. Notwithstanding anything to the contrary in this letter, upon termination of your employment with SpartanNash due to your death or Disability (as defined in the Plan) during the Restricted Period, the Restrictions applicable to any shares of Restricted Stock will lapse automatically and the Restricted Stock will vest and no longer be subject to forfeiture.
c. Notwithstanding anything to the contrary in this letter, upon termination of your employment with SpartanNash due to your Retirement (as defined in the Plan) during the Restricted Period, if you continue to comply with your non-competition obligations under paragraph 2(c) above, the Restrictions applicable to any shares of Restricted Stock will lapse and the shares will continue to vest in accordance with the terms of the Plan and this letter.
d. Notwithstanding anything to the contrary in this letter or any agreement between you and the Company, if a Change in Control (as defined in the Plan) occurs at any time during the Restricted Period and prior to your termination of employment, the Restrictions will be treated in accordance with Section 9 of the Plan.
4. Shareholder Rights. During the Restricted Period, you will have all voting, dividend, liquidation, and other rights with respect to the Restricted Stock held of record by you as if you held unrestricted Common Stock. Any non-cash dividends or distributions paid with respect to unvested Restricted Stock shall be subject to the same restrictions as those relating to the Restricted Stock granted to you under this letter agreement. After the Restrictions applicable to the Restricted Stock lapse, you will have all shareholder rights, including the right to transfer the shares, subject to such conditions as SpartanNash may reasonably specify to ensure compliance with federal and state securities laws.
5. Uncertificated Shares. Your shares of Restricted Stock are being issued without a paper certificate. The Restricted Stock will be registered in your name in SpartanNash’s books and records and reflected on the account statements issued to you by Morgan Stanley (or other financial intermediary). The Company is formed under the laws of the State of Michigan. The Company will furnish to you upon request and without charge a full statement of the designation, relative rights, preferences, and limitations of the shares of each class authorized to be issued, the designation, relative rights, preferences, and limitations of each series so far as the same have been prescribed, and the authority of the SpartanNash’s Board of Directors to designate and prescribe the relative rights, preferences, and limitations of other series. If you have any questions, please contact the Company’s Director of Benefits.
6.Certifications. You represent and warrant that you are acquiring the Restricted
Stock for your own account and investment and without any intent to resell or distribute the
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Restricted Stock. You will not resell or distribute the Restricted Stock after any Restricted Period except in compliance with such conditions as SpartanNash may reasonably specify to ensure compliance with federal and state securities laws.
7. Withholding. SpartanNash is entitled to: (1) withhold and deduct from your future wages (or from other amounts that may be due and owing to you from SpartanNash), or make other arrangements for the collection of, all legally required amounts necessary to satisfy any and all federal, state, local and foreign withholding and employment-related tax requirements attributable to the award of Restricted Stock, or (2) require you promptly to remit the amount of such withholding to SpartanNash before taking any action with respect to the Restricted Stock. Upon your written authorization, withholding may be satisfied by withholding Common Stock to be released upon vesting of and lapse of restrictions with respect to shares of the Restricted Stock or by delivery to SpartanNash of previously owned Common Stock.
8. Binding Effect; Amendment. This letter and the Plan shall be binding upon, and shall inure to the benefit of, the parties hereto and their respective heirs, successors and permitted assigns. This letter agreement shall not be modified except in a writing executed by you and SpartanNash.
9. Clawback. This award is subject to the Company’s “clawback” policy providing for the recovery of incentive compensation that the Company, or as may be required under applicable law, rule or regulation.
10. Prohibition on Hedging or Pledging. This award is subject to the Company’s policy prohibiting pledging of the Company’s stock and transactions that are designed to hedge or offset declines in the market value of the Company’s stock.
11.Miscellaneous.
a. Your award is subject to all the terms and conditions of the Plan, as the same may be amended from time to time, as well as to such rules and regulations as the Committee may adopt for administration of the Plan. The Committee shall have the right to impose such restrictions on any shares acquired pursuant to this letter, as it may deem advisable. The Committee is authorized to administer, interpret, and make all determinations necessary or appropriate to the administration of the Plan and this letter, all of which shall be binding upon you. The Board may terminate, amend, or modify the Plan in accordance with the terms of the Plan. To the extent not preempted by federal law, this letter shall be governed by, and construed in accordance with, the laws of the state of Michigan.
b. Morgan Stanley is the third party stock option administrator for the SpartanNash plan. If you are a new participant, a user ID, password and trading PIN will be sent to your home address via regular mail directly from Morgan Stanley. You will be able to access information regarding your grants, including vesting status, online trading and more.
c. If you have any questions about your award, or need a copy of the Plan, please send an email request to Ryan De Boer (ryan.deboer@spartannash.com).
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12. Acceptance; Agreement. By accepting this award, you agree to be bound by all of the terms and conditions of the Company’s Long Term Incentive Plan (“LTIP”), including the Post-Employment Competition Agreement set forth on Exhibit A to the LTIP. A copy of the LTIP, including a copy of the Post-Employment Competition Agreement, has been made available to you through HR Self-Service.
Very truly yours,
/s/ Dennis Eidson
Dennis Eidson
Interim President & Chief Executive Officer
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Exhibit 10.3
2020 Long-Term Incentive Plan
This document sets forth the SpartanNash Company Long-Term Incentive Plan for awards made during the fiscal year ending January 2, 2021 and covering the three fiscal year period ending December 31, 2022 (“2020 LTIP”).
1.Authority and Administration. This 2020 LTIP is authorized and administered by the Compensation Committee of the Board of Directors of SpartanNash Company (the “Committee”). For Participants in positions at the Vice President level and above, the target 2020 LTIP award value will be split equally between two award components: equity, in the form of SpartanNash common stock, and cash. For Participants at the director level, the 2020 LTIP will have only an equity component. The Committee retains the discretion to deliver a 2020 LTIP award comprised of all stock or cash in lieu of an award comprised of stock and cash. Awards will be subject to plan documents as follows:
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a) |
Equity component. The equity component of the 2020 LTIP will be granted under and subject to the Company’s Stock Incentive Plan of 2020. The terms and conditions of vesting of all equity awards, including upon termination in the event of death, retirement, disability, or change in control, are set forth in the Stock Incentive Plan and the individual award letters. |
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b) |
Cash Component. The cash component of the 2020 LTIP will be governed by this document. |
2.Equity Component. The equity component of the 2020 LTIP will consist of restricted stock that vests in four equal annual installments. Specifically, 25% of the shares will vest on each anniversary of the grant date, with the final installment vesting in 2024. The terms and conditions, including treatment upon termination of employment, of the grant are set forth in an award agreement that will be issued to each recipient.
3.Cash Component. This section explains the cash component of the 2020 LTIP.
a)Target Award Amount. Each Participant’s threshold, target and maximum 2020 LTIP award opportunity will be communicated to him or her separately in writing. Each 2020 LTIP award will be paid to the extent SpartanNash achieves at least the threshold level of performance for the applicable performance measurement, and the Participant otherwise satisfies the requirements of the LTIP and the applicable Plan.
b)Performance Period and Measurements.
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i. |
Performance Measurement. The “Performance Period” for the 2020 LTIP will begin on December 30, 2019 and end on December 31, 2022. |
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ii. |
Metrics. The three-year performance payout under the 2020 LTIP will be determined by SpartanNash’s performance with respect to the metrics below, each of which will be weighted by the corresponding percentage: |
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|
|
Performance Measurement |
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Percentage of Long-Term Cash
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|
|
EPS1 |
|
|
40 |
% |
Consolidated Adjusted EBITDA 2 |
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|
40 |
% |
Plan-based ROIC3 |
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|
20 |
% |
1 |
EPS means Diluted Earnings per Share on a Consolidated Net Earnings (adjusted for items not representative of ongoing operations) basis. |
2 |
Consolidated Adjusted EBITDA is a non-GAAP operating financial measure that is defined as net earnings from continuing operations plus depreciation and amortization, and other non-cash items including imputed interest, deferred (stock) compensation, the LIFO provision, as well as adjustments for unusual items that do not reflect the ongoing operating activities of SpartanNash and costs associated with the closing of operational locations, interest expense and the provision for income taxes to the extent deducted in the computation of net earnings. |
3 |
Plan-based ROIC is calculated by dividing the tax affected operating profit adjusted for income and expenses consistently with the annual incentive plan for the last year of the measurement period and LIFO expense by a 5 quarter average of total invested capital (total assets plus LIFO reserve less cash and non-interest bearing current liabilities), calculated using the last 5 quarters of the measurement period. |
c)Performance Goals and Payouts. 2020 LTIP award payouts will be determined based on the greater of the following two payout schedules. The first schedule is based on final-year performance during the three-year performance period and allows for a maximum payout equal to 200% of the total target cash opportunity. The second schedule is based on annual growth targets for each year of the three-year performance period and allows for a maximum payout equal to 75% of the total target cash opportunity. EPS, Consolidated Adjusted EBITDA, and Plan-based ROIC performance targets for both schedules will be communicated to Participants separately.
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Schedule A (Final-Year Performance)
2022 EPS (40% weighting) |
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Performance |
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Payout |
Level |
% of EPS Goal |
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% of Target |
— |
<80.0% |
|
0% |
Threshold |
80% |
|
10% |
— |
85% |
|
32.5% |
— |
90% |
|
55% |
— |
95% |
|
77.5% |
Target |
100% |
|
100% |
— |
104% |
|
124.5% |
— |
108% |
|
149.1% |
— |
112% |
|
173.6% |
Maximum |
≥116.3% |
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200% |
Schedule B (Annual Growth)
EPS Growth (40% weighting) |
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|
Performance |
|
Payout |
Level |
% of EPS Goal |
|
% of Target |
— |
<90.0% |
|
0% |
Threshold |
90% |
|
10% |
— |
92.5% |
|
32.5% |
— |
95% |
|
55% |
— |
97.5% |
|
77.5% |
Target |
100% |
|
100% |
Adjusted EBITDA Growth (40% weighting) |
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Performance |
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Payout |
Level |
% of EBITDA Goal |
|
% of Target |
— |
<95.0% |
|
0% |
Threshold |
95% |
|
50% |
— |
97.5% |
|
75% |
Target |
100% |
|
100% |
ROIC Growth (20% weighting) |
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|
Performance |
|
Payout |
Level |
% of ROIC Goal |
|
% of Target |
— |
<92.0% |
|
0% |
Threshold |
92% |
|
10% |
— |
94% |
|
32.5% |
— |
96% |
|
55% |
— |
98% |
|
77.5% |
Target |
100% |
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100% |
If SpartanNash’s actual performance achieved for EPS, Consolidated Adjusted EBITDA, or Plan-based ROIC exceeds the threshold level and falls between specified levels, then the percentage of the Target Award that will be paid will be determined by interpolation.
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i. |
The annual growth targets for each year of the three-year performance period will be set at the time of grant and based on improvement over prior fiscal year results. |
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ii. |
There is a maximum accrual of 25% of target payout each year based on the annual growth targets (i.e., up to 75% for three-year performance period). |
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iii. |
If the annual growth rate for any metric in a year is not positive, no annual payout will be earned for that metric. |
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iv. |
If absolute growth is not achieved for any metric over the three-year performance period, no payout will be earned for that metric at the end of the performance period. |
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v. |
The annual growth objectives will allow the achievement of a maximum payout of up to 100% in each year. Performance over 100% on an annual basis may not be accrued or “banked.” |
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vi. |
The achievement of any annual growth objective does not mean that any portion of the award is earned or is payable at the time of such achievement; no awards are earned or payable until the completion of the Performance Period except as specifically set forth in paragraphs (e) and (f) below. |
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d) |
Exclusions. The evaluation of these metrics will exclude (a) asset write downs, (b) litigation or claim judgments or settlements, (c) changes in tax laws, accounting principles, or other laws or provisions affecting reported results, (d) any reorganization and restructuring programs, (e) extraordinary non-recurring items as described in ASC 225-20 Presentation-Income Statement – Extraordinary and Unusual Items and/or in management’s discussion and analysis of financial condition and results of operations appearing in the Company’s annual report to shareholders for the applicable fiscal year(s), (f) acquisitions, divestitures or accounting changes, (g) foreign exchange gains and losses, and (h) other special charges or extraordinary items. |
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e) |
Effect of Termination of Employment without a Change in Control. Except as set forth in paragraph (f) below: (a) if a Participant’s employment with SpartanNash terminates for any reason other than Retirement, Death, or Total Disability before the end of a Performance Period, any unearned portion of the 2020 LTIP award will be forfeited; and (b) if a Participant’s employment terminates for Retirement, Death or Total Disability, eligibility for payout of an 2020 LTIP award will be determined as follows: |
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ii. |
Retirement. In the event of termination due to Retirement, the LTIP award, if any, will be the amount the Participant would have earned had he or she remained employed with SpartanNash until the end of the Performance Period based on actual performance results, paid on a pro-rated basis for the number of full weeks of employment during the Performance Period. The Incentive Award will be paid no later than the 15th day of the third month following the date of the end of the Performance Period. |
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iii. |
After the Performance Period. For termination due to death, Total Disability, or Retirement occurring after the Performance Period but before the payout date, the earned LTIP award (if any) will be paid in full no later than the 15th day of the third month following the date of such termination. For any other separation of employment occurring after the performance period but before the payout date, the 2020 LTIP award will be forfeited. |
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f) |
Change in Control. |
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i. |
Before the end of the Performance Period. Upon a Change in Control of SpartanNash (as defined in the Plan) before the end of the Performance Period, a Participant that is employed by SpartanNash on the effective date of the Change in Control will earn a 2020 LTIP award equal to the greater of the Target Award or the projected 2020 LTIP award (with the projected 2020 LTIP award to be calculated by estimating the Company’s expected performance for the Performance Period based on the Company’s performance in the then-current fiscal year as of the date of the Change in Control projected out through the end of the Performance Period), to be paid on a pro-rata basis for the number of full weeks completed in the Performance Period prior to the Change in Control. The Incentive Award will be paid no later than the 15th day of the third month following the Change in Control. |
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|
g) |
Executive Severance Agreement. The 2020 LTIP award opportunity described in this 2020 LTIP is not subject to the provisions of any Executive Severance Agreement with the Company. In the event of a Change in Control, a Participant’s right to receive any portion of the LTIP award described in this 2020 LTIP will be governed exclusively by the terms and conditions of the LTIP. |
4.Clawback. All 2020 LTIP awards will be subject to the Company’s “clawback” policy providing for the recovery of incentive compensation, as amended by from time to time.
5.Delegation of Authority. The Compensation Committee of the Board of Directors has delegated to the Chief Human Resources Officer and her designees the authority to administer and interpret the 2020 LTIP, provided that such administration and interpretation is not contrary to the Stock Incentive Plan of 2020, this 2020 LTIP, or any determination of the Compensation Committee.
6.Post-Employment Agreements. As a condition of and in consideration for participation in the 2020 LTIP, an associate must agree to the post-employment covenants regarding non-competition, non-solicitation and other matters set forth on Exhibit A to this document. Any associate participating in the 2020 LTIP must provide a signed acknowledgement of agreement.
7.Other Rules of Participation.
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a) |
The cash component of the 2020 LTIP is subject to the General Terms and Conditions set forth on Exhibit B to this Agreement. |
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b) |
Associates who are selected to receive a 2020 LTIP award under this plan will receive a notification of their designation as a 2020 LTIP Participant (“Participant”). Only associates who are in eligible roles on December 29, 2019, or who are hired or promoted into a full-time eligible role on or before October 1, 2020 may be considered for a 2020 LTIP award. |
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c) |
If a Participant is on a non-FMLA leave during the Performance Period, then the 2020 LTIP award payout, if any, will be prorated based on the number of weeks worked during the Performance Period. |
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d) |
Associates who are on leave at the beginning of the Performance Period and terminate employment prior to returning to work are not eligible to receive an LTIP award. |
6
SpartanNash Company
Post-Employment Competition Agreement
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1. |
Introduction |
SpartanNash faces intense competition in all of its lines of business. Your employment with SpartanNash has required, and will continue to require, that you work with SpartanNash’s non-public, proprietary, confidential or trade secret information (all such information, “Confidential Information”), which is vitally important to SpartanNash’s success. You have also participated in and developed relationships with SpartanNash customers in the course of your employment.
It is important that SpartanNash take steps to protect its Confidential Information and business relationships, even after your employment with SpartanNash concludes for any reason. Your disclosure of Confidential Information or interference with SpartanNash’s relationships could do serious damage to the business, finances, or reputation of SpartanNash. For these reasons, SpartanNash requires that you agree to the restrictions set forth below as consideration for, and as a condition of receipt of, your 2019 Long Term Incentive Award opportunity (“LTI Award”).
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2. |
Important Definitions |
As used in this document:
“Agreement” means this post-employment competition agreement.
“Business” means the Military Segment (defined below), the Food Distribution Segment (defined below) and the Retail Segment (defined below):
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• |
The “Military Segment” means: the manufacturing, procurement, sale or distribution of Products (defined below) within the military resale system, including, but not limited to, the 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 SpartanNash conducted business or was preparing to conduct business in the Military Segment at any time during the 24-month period preceding the termination of your employment for any reason; |
|
• |
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, SpartanNash-owned grocery stores, “meal kit” provider, reseller, national account, or any other retailer of Products (whether brick-and-mortar or e-commerce) with whom SpartanNash conducted business or was preparing to conduct business at any time during the 24-month period preceding the termination of your employment for any reason; and |
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“Covered Customer” means any Person to whom SpartanNash provided good or services at any time during the 24-month period preceding the termination of your employment for any reason, with which or with whom you first had contact directly or indirectly as part of your job responsibilities (including oversight responsibility) with SpartanNash or about which or whom you learned Confidential Information.
“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.
“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 SpartanNash.
“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 SpartanNash 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 your 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 SpartanNash engages 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 your 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 SpartanNash engages 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 your employment for any reason.
“SpartanNash” means SpartanNash Company and any of its subsidiaries.
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3. |
Your Agreements |
By accepting the LTI Award, you agree that, while you are employed with SpartanNash and for twelve (12) months following the termination of your employment for any reason, you will not, directly or indirectly:
|
a. |
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 |
8
|
to, lend money to or otherwise finance, hold a security interest in, render services for, or provide assistance to, any Person that engages or is preparing to engage, anywhere within the Restricted Area, in any Business with respect to which you had responsibility at any time within the 24-month period preceding the termination of your employment for any reason, or with respect to which you possess any Confidential Information; provided, however, that you 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; |
|
b. |
(i) solicit or conduct business with any Covered Customer or any current, former or prospective supplier; or (ii) otherwise induce any current, former or prospective customer, supplier, contractor, or other third party to stop doing business with SpartanNash, adversely change the terms or amount of its business with SpartanNash, refuse to do business with SpartanNash; or (iii) otherwise interfere with any SpartanNash business relationships; or |
|
c. |
hire, engage, or solicit for employment or engagement any individual who was employed or engaged by SpartanNash at any time within the 24-month period preceding the termination of your employment for any reason, or encourage or persuade any such individual to end his or her relationship with SpartanNash. |
You agree that the restrictions above are necessary to ensure the protection and continuity of the business and goodwill of SpartanNash, and that the restrictions are reasonable as to geography, duration and scope.
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4. |
Other Terms and Conditions |
|
a. |
Coordination with Other Agreements. This document, together with the SpartanNash Stock Incentive Plan of 2020 and any award letter issued thereunder, sets forth the entire agreement between you and SpartanNash with respect to its subject matter, and merges and supersedes all prior discussions, negotiations, representations, proposals, agreements and understandings of every kind and nature between you and SpartanNash with respect to its subject matter; except that, this Agreement does not impair, diminish, restrict or waive any other restrictive covenant, nondisclosure obligation or confidentiality obligation you have to SpartanNash under any other agreement, policy, plan or program of SpartanNash, all of which remain in effect and constitute separate, enforceable obligations. You and SpartanNash represent that, in executing this Agreement, you and SpartanNash have not relied upon any representations or statements made, other than those set forth in this document, with regard to the subject matter, basis or effect of this Agreement. |
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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. |
|
c. |
Waiver. SpartanNash’s failure to enforce any term, provision or covenant of this Agreement will not be construed as a waiver. Waiver by SpartanNash of any breach or default by you or any other person will not operate as a waiver of any other breach or default. |
|
d. |
Successors and Assigns. This Agreement shall inure to the benefit of and be binding upon SpartanNash, any successor organization which shall succeed to SpartanNash by acquisition, merger, consolidation or operation of law, or by acquisition of assets of SpartanNash and any assigns of SpartanNash. You may not assign your obligations under this Agreement. |
|
e. |
Modification; Amendment. This Agreement may not be changed orally, but may be changed only in a writing signed by you and an officer of SpartanNash holding the title of Senior Vice President or any more senior position. |
|
f. |
Governing Law. This Agreement shall be construed under and governed by the internal laws of the State of Michigan without regard to the application of any choice-of-law rules that would result in the application of another state’s laws. In any action brought by SpartanNash under or relating to this Agreement, you consent to exclusive jurisdiction and venue in the federal and state courts in, at the election of SpartanNash, (i) the State of Michigan and (ii) any state and county in which SpartanNash contends that you have breached this Agreement. In any action brought by you under or relating to this Agreement, SpartanNash consents to the exclusive jurisdiction and venue in the federal and state courts of the State of Michigan, County of Kent. |
|
g. |
Relief. In addition, you agree that SpartanNash would suffer irreparable harm if you were to breach, or threaten to breach, your agreements in Section 3 above and that SpartanNash would by reason of such breach, or threatened breach, be entitled to injunctive relief in an appropriate court, without the need to post any bond, and you consent to the entry of injunctive relief prohibiting you from breaching your agreements in Section 3 above. You also agree that SpartanNash may claim and recover money damages in addition to injunctive relief. Furthermore, in the event you were to breach, or threaten to breach, any of your agreements in Section 3 above, any unvested or unpaid portion of the LTI Award will be forfeited. |
10
General Terms and Conditions Applicable to the Cash Component
|
1. |
Definitions. The following terms shall have the definitions stated, unless the context requires a different meaning. Other defined terms shall have the meanings ascribed to them herein. |
|
a. |
“Beneficiary” means the individual, trust or other entity designated by the Participant to receive any Incentive Award payable with respect to the Participant under the LTIP after the Participant’s death. A Participant may designate or change a Beneficiary by filing a signed designation with the Committee in a form approved by the Company. A Participant’s will or other estate planning document is not effective for this purpose. If a designation has not been completed properly and filed with the Committee or is ineffective for any other reason, the Beneficiary shall be the Participant’s Surviving Spouse. If there is no effective designation and the Participant does not have a Surviving Spouse, the remaining Incentive Award under this LTIP, if any, shall be paid to the Participant’s estate. |
|
b. |
“Board” means the Board of Directors of the Company. |
|
c. |
“Change in Control” has the meaning given to it in the SpartanNash Company Stock Incentive Plan of 2020. |
|
d. |
“Code” means the Internal Revenue Code of 1986, as amended. |
|
e. |
“Company” means SpartanNash Company, a Michigan corporation, and its Subsidiaries. |
|
f. |
“Incentive Award” means a bonus awarded and paid in cash to a Participant for services to the Company or a Business Unit that is based upon achievement of specified goals. |
|
g. |
“Participant” means any person participating in the cash portion of the LTIP. |
|
h. |
“Retirement” means termination of employment as a result of retirement on or after the earlier of the date the Participant reaches (a) age 65; or (b) age 55, but only if such Participant has completed at least ten Years of Vested Service (as defined below) since the later of the Participant’s most recent date of hire or, if the Participant became an associate of the Company in connection with a merger or acquisition, the date of the Participant’s hire by the entity that is the subject of such merger or acquisition. |
|
i. |
“Surviving Spouse” means the husband or wife of the Participant at the time of the Participant’s death who survives the Participant. If the Participant and the spouse die under circumstances that make the order of their deaths uncertain, it shall be presumed for purposes of this LTIP that the Participant survived the spouse. |
|
j. |
“Total Disability” means the condition of a Participant who is and remains eligible for total and permanent disability benefits under § 223 of the Social Security Act, as amended. |
11
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2. |
Determination of Achievement. The Committee will determine achievement with respect to corporate performance goals by reference to such information as the Committee determines in its discretion. |
|
3. |
Adjustments to Awards. Adjustments to Incentive Awards may be made when deemed appropriate by the Committee. The Committee may establish any specific conditions under which an Incentive Award may be reduced, forfeited, or amended. The Committee delegates to the Chief Executive Officer the authority to determine that a Participant’s award will be reduced or withheld if the Chief Executive Officer determines that the reduction or withholding is warranted by the Participant’s performance. All decisions of the Committee shall be final and binding on all Participants and their respective heirs, representatives and Beneficiaries. |
|
4. |
Payment of Incentive Award; Form of Payment. The dollar amount of the Incentive Award for a Performance Period shall be paid to the Participant as soon as feasible following the completion of the Incentive Award calculations for the Performance Period; provided, however, such Incentive Award shall be paid no later than the 15th day of the third month following the later of the end of the Performance Period in which the goals for the Incentive Award have been met and the date the Participant vests in the Incentive Award. In the event of the Participant’s death, Total Disability, or a Change in Control, payment shall be made no later than the 15th day of the third month following the date on which the Participant’s rights in the Incentive Award vest or, if already vested, the 15th day of the third month following the date of death, Total Disability, or Change in Control. |
|
5. |
No Continuing Participation. An Associate’s designation as a participant for a Performance Period will not continue in effect for any subsequent Performance Period unless and until the Committee designates the Associate as a Participant in the subsequent Performance Period. The Committee may terminate participation by any Participant at any time with or without cause. |
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award or benefit of the same type and the determination of the Committee to grant a waiver or modification of any award or benefit and the terms and conditions thereof need not be the same with respect to each Participant. |
|
7. |
No Right to Participate. Nothing in this LTIP shall be deemed or interpreted to provide a Participant or any non-participating Associate with any contractual right to participate in or receive benefits under the LTIP. No designation of a person as a Participant for all or any part of the Performance Period shall create a right to any Incentive Award, compensation or other benefits of the LTIP for any other Performance Period. |
|
8. |
No Employment Right. Participation in this LTIP shall not be construed as constituting a commitment, guarantee, agreement, or understanding of any kind that the Company or any subsidiary will continue to employ any individual and this LTIP shall not be construed or applied as any type of employment contract or obligation. Nothing herein shall abridge or diminish the rights of the Company or any subsidiary to determine the terms and conditions of employment of any Participant or other person or to terminate the employment of any Participant or other person with or without cause at any time. |
|
9. |
Not an ERISA Plan. The LTIP is an incentive compensation program for participants. Because the LTIP does not provide welfare benefits and does not provide for the deferral of compensation until termination of employment, it is established with the intent and understanding that it is not an employee benefit plan within the meaning of the federal Employee Retirement Income Security Act of 1974, as amended. |
|
10. |
No Assignment or Transfer. Neither a Participant nor any Beneficiary or other representative of a Participant shall have any right to assign, transfer, attach, or pledge any bonus amount or credit, potential payment, or right to future payments of any bonus amount or credit, or any other benefit provided under this LTIP. Payment of any amount due or to become due under this LTIP shall not be subject to the claims of creditors of the Participant or to execution by attachment or garnishment or any other legal or equitable proceeding or process, unless otherwise specifically ordered by any court of competent jurisdiction. |
|
11. |
Withholding and Payroll Taxes. The Company shall deduct from any payment made under this LTIP all amounts required by federal, state and local tax laws to be withheld and shall subject any payments made under the LTIP to all applicable payroll taxes and assessments. |
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the time or times otherwise payable hereunder, in total discharge of the LTIP’s obligations to the Participant or Beneficiary. |
|
13. |
Governing Law. The validity, construction and effect of the LTIP and any rules and regulations relating to the LTIP shall be determined in accordance with the laws of the State of Michigan and applicable federal law. |
|
14. |
Construction. The singular includes the plural and the plural includes the singular. Capitalized terms, except those at the beginning of a sentence or part of a heading, have the meaning defined in the LTIP. The LTIP is intended to be exempt from Section 409A of the Code by providing for short-term deferrals as described in Treasury Regulations § 1.409A-1(b)(4) and shall be interpreted and administered to achieve that purpose. |
|
15. |
Severability. In the event any provision of the LTIP shall be held illegal or invalid for any reason, the illegality or invalidity shall not affect the remaining provisions of the LTIP and the LTIP shall be construed and enforced as if the illegal or invalid provision had not been included. |
|
16. |
No Limit on Other Compensation Arrangements. Nothing contained in the LTIP shall prevent the Company or any subsidiary from adopting or continuing in effect other or additional compensation arrangements, including the grant of stock options and other stock-based awards, and such arrangements may be either generally applicable or applicable only in specific cases. |
14
Exhibit 10.4
000100_2018_AIP_Plan
2020 Annual Incentive Plan
This document sets forth the SpartanNash Company Annual Incentive Plan “AIP” for awards made during the fiscal year ending January 2, 2021 (“Fiscal Year”).
1.Authority and Administration. This AIP is authorized and administered by the Compensation Committee of the Board of Directors of SpartanNash Company (the “Committee”).
2.Target Award Amount. Each Participant’s threshold, target and maximum AIP award opportunity will be communicated to him or her separately in writing. AIP award opportunities will be expressed as a percentage of base compensation. For the purposes of this AIP, “base compensation” means (a) an associate’s annual base salary actually earned during the Fiscal Year for salaried (exempt) associates, and (b) all earnings (including regular time, overtime and vacation) for the Fiscal Year for hourly (non-exempt) associates.
3.Performance Metrics. No portion of an AIP award will be earned unless SpartanNash achieves the threshold level of performance of Adjusted Consolidated Net Earnings (“CNE”)1. If the threshold level of adjusted CNE is achieved, each AIP award will be paid to the extent SpartanNash achieves at least the threshold level of performance for the applicable performance measurement, the Participant’s business unit achieves financial goals (as applicable), and the Participant achieves strategic goals (if any). In addition, the Participant must otherwise satisfy the requirements of this AIP and the applicable Plan. Each Participant will be notified in writing of the Performance Metrics s/he must achieve against.
4. Payout Scale for Corporate Metrics. For corporate performance metrics, AIP awards payouts will be earned according to the payout scales below. SpartanNash must achieve the threshold level of performance for CNE for any payout of any portion of an AIP award.
Performance level |
|
Adj. Consolidated Net Earnings % of Budget |
|
Payout % of Target |
- |
|
<80.0% |
|
0.0% |
Threshold |
|
80.0% |
|
10.0% |
- |
|
85.0% |
|
32.5% |
- |
|
90.0% |
|
55.0% |
- |
|
95.0% |
|
77.5% |
Target |
|
100.0% |
|
100.0% |
- |
|
104.0% |
|
124.5% |
- |
|
108.0% |
|
149.1% |
- |
|
112.0% |
|
173.6% |
Performance level |
|
Net Sales % of Budget |
|
Payout % of Target |
- |
|
<95.00% |
|
0.0% |
Threshold |
|
95.00% |
|
20.0% |
- |
|
96.25% |
|
40.0% |
- |
|
97.50% |
|
60.0% |
- |
|
98.75% |
|
80.0% |
Target |
|
100.00% |
|
100.0% |
- |
|
101.25% |
|
125.0% |
- |
|
102.50% |
|
150.0% |
- |
|
103.75% |
|
175.0% |
Maximum |
|
>=105.00% |
|
200.0% |
5.Business Unit and Strategic Goals. Each Participant may have a combination of Corporate Metrics, business unit financial goals, and a strategic goal. For business unit and strategic goals, the Board of Directors will establish goals for the CEO; the CEO will establish goals for SVPs and EVPs, and SVPs/EVPs will establish goals for VP level associates and below. Target payouts and scales will vary by business unit and individual.
|
a) |
No business unit financial goals or strategic goals may be paid unless SpartanNash achieves the threshold level of performance CNE. |
|
b) |
Any business unit or strategic goal will be capped at 200% maximum payout. |
6. Clawback. All payouts under the AIP are subject to the Company’s “clawback” policy for the recovery of incentive compensation, as such policy may be amended from time to time.
7.Termination. Except as provided in any Employment Agreement or Executive Severance Agreement:
|
a) |
If a Participant terminates employment during the Fiscal Year due to Retirement, Total Disability or death, then any earned portion of an AIP award will be prorated based on base compensation earned during the time the Participant was employed during the Fiscal Year. |
|
b) |
A Participant whose employment is terminated as part of an involuntary reduction in force (“RIF”), or whose position is eliminated, is eligible to receive a prorated payout based on the base compensation earned during the plan year prior to the termination date. |
|
c) |
Any associate who participates in the Voluntary Early Retirement Program of 2019 is not eligible to be a Participant or otherwise receive any portion of a 2020 AIP award. |
2
|
d) |
Upon a Change in Control before the end of the Fiscal Year, associates will earn an incentive payout equal to the greater of the target award or the projected award, with the projected award to be determined by estimating the actual performance as of the end of the Fiscal Year based on actual performance in the Fiscal Year as of the date of the Change in Control and payment will be made no later than the 15th day of the third month following the Change in Control. The amount of incentive payout will be prorated based on the number of completed weeks in the Fiscal Year prior to the Change in Control. If a Change in Control occurs after the end of the Fiscal Year but prior to payout, any earned incentive award would be paid no later than the 15th day of the third month following the Change in Control. |
|
8. |
Plan Eligibility. |
|
a) |
An associate must be hired or promoted into an eligible role on or before October 1 of the Fiscal Year to be a Participant. |
|
b) |
A Participant must be actively employed on the last day of the Fiscal Year and on the payout date to be eligible for an AIP award payout unless employment has terminated subject to paragraph 7 above. |
|
c) |
AIP awards will be prorated for Participants who are promoted into an AIP eligible position after the beginning of the Fiscal Year and have a minimum of three months of plan participation. Proration is based on the compensation earned in the Fiscal Year the associate worked in an AIP eligible position. Working any day in a week will count towards proration for AIP purposes. |
|
d) |
A Participant who moves from one AIP eligible position to another with a greater AIP target opportunity (or vice versa), or from an AIP eligible position to an ineligible position, will receive a prorated payout (if one is earned) that multiplies the target(s) by the compensation earned during the time the Participant worked in the position eligible for that target opportunity. |
|
e) |
A Participant on a non-FMLA leave will receive a prorated portion of any earned AIP award based on actual weeks worked during the Fiscal Year. Associates who are on any type of leave at the beginning of the Fiscal Year and who terminate employment prior to returning to work will not be eligible for an award. |
|
9. |
General Terms and Conditions. |
|
a) |
Definitions. The following terms shall have the definitions stated. Other defined terms shall have the meanings ascribed to them above. |
3
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a signed designation with the Committee in a form approved by the Company. A Participant’s will or other estate planning document is not effective for this purpose. If a designation has not been completed properly and filed with the Committee or is ineffective for any other reason, the Beneficiary shall be the Participant’s Surviving Spouse. If there is no effective designation and the Participant does not have a Surviving Spouse, the remaining Incentive Award under this AIP, if any, shall be paid to the Participant’s estate. |
|
ii. |
“Board” means the Board of Directors of the Company. |
|
iii. |
“Business Unit” means any subsidiary, department, division, profit center or other operational unit of the Company or any subsidiary as to which the Committee shall establish a Goal under the AIP applicable in a Fiscal Year. |
|
iv. |
“Change in Control” has the meaning given to it in the SpartanNash Company Supplemental Executive Retirement Plan. |
|
v. |
“Code” means the Internal Revenue Code of 1986, as amended. |
|
vi. |
“Company” means SpartanNash Company, a Michigan corporation, and its Subsidiaries. |
|
vii. |
“Incentive Award” means a bonus awarded and paid in cash to a Participant for services to the Company or a Business Unit that is based upon achievement of specified goals. |
|
viii. |
“Participant” means any person participating in the AIP. |
|
ix. |
“Retirement” means termination of employment as a result of retirement on or after the earlier of the date the Participant reaches (a) age 65; or (b) age 55, but only if such Participant has completed at least ten Years of Vested Service (as defined below) since the later of the Participant’s most recent date of hire or, if the Participant became an associate of the Company in connection with a merger or acquisition, the date of the Participant’s hire by the entity that is the subject of such merger or acquisition. |
|
x. |
“Surviving Spouse” means the husband or wife of the Participant at the time of the Participant’s death who survives the Participant. If the Participant and the spouse die under circumstances that make the order of their deaths uncertain, it shall be presumed for purposes of this AIP that the Participant survived the spouse. |
|
xi. |
“Total Disability” means the condition of a Participant who is and remains eligible for total and permanent disability benefits under § 223 of the Social Security Act, as amended. |
|
xii. |
“Year of Vested Service” means a calendar year in which a Participant is credited with at least 1,000 hours of employment with the Company or its Subsidiaries. For the purposes of this definition, “hours of employment” include actual hours of paid work, paid leave or other time off, and hours of work missed due to military service provided that the Participant returns to work while his or her rehire rights are protected by law. |
4
|
b) |
Determination of Achievement. The Committee will determine achievement with respect to corporate performance goals by reference to such information as the Committee determines in its discretion. |
|
c) |
Adjustments to Awards. Adjustments to Incentive Awards may be made when deemed appropriate by the Committee. The Committee may establish any specific conditions under which an Incentive Award may be reduced, forfeited, or amended. The Committee delegates to the Chief Executive Officer the authority to determine that a Participant’s award will be reduced or withheld if the Chief Executive Officer determines that the reduction or withholding is warranted by the Participant’s performance. All decisions of the Committee shall be final and binding on all Participants and their respective heirs, representatives and Beneficiaries. |
|
d) |
Payment of Incentive Award; Form of Payment. The dollar amount of the Incentive Award for a Fiscal Year shall be paid to the Participant as soon as feasible following the completion of the Incentive Award calculations for the Fiscal Year; provided, however, such Incentive Award shall be paid no later than the 15th day of the third month following the later of the end of the Fiscal Year in which the goals for the Incentive Award have been met and the date the Participant vests in the Incentive Award. In the event of the Participant’s death, Total Disability, or a Change in Control, payment shall be made no later than the 15th day of the third month following the date on which the Participant’s rights in the Incentive Award vest or, if already vested, the 15th day of the third month following the date of death, Total Disability, or Change in Control. |
|
e) |
Stock in Lieu of Cash. To the extent authorized by the Committee and the Chief Human Resources Officer, a Participant may elect to receive a portion of his or her Incentive Award to be paid in cash under this AIP in the form of Common Stock under a plan or program established for that purpose, provided that the Participant is an eligible participant under such plan. |
|
f) |
No Continuing Participation. An Associate’s designation as a participant for a Fiscal Year will not continue in effect for any subsequent Fiscal Year unless and until the Committee designates the Associate as a Participant in the subsequent Fiscal Year. The Committee may terminate participation by any Participant at any time with or without cause. |
5
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award or benefit and the terms and conditions thereof need not be the same with respect to each Participant. |
|
h) |
No Right to Participate. Nothing in this AIP shall be deemed or interpreted to provide a Participant or any non-participating Associate with any contractual right to participate in or receive benefits under the AIP. No designation of a person as a Participant for all or any part of the Fiscal Year shall create a right to any Incentive Award, compensation or other benefits of the AIP for any other Fiscal Year. |
|
i) |
No Employment Right. Participation in this AIP shall not be construed as constituting a commitment, guarantee, agreement, or understanding of any kind that the Company or any subsidiary will continue to employ any individual and this AIP shall not be construed or applied as any type of employment contract or obligation. Nothing herein shall abridge or diminish the rights of the Company or any subsidiary to determine the terms and conditions of employment of any Participant or other person or to terminate the employment of any Participant or other person with or without cause at any time. |
|
j) |
Not an ERISA Plan. The AIP is an incentive compensation program for participants. Because the AIP does not provide welfare benefits and does not provide for the deferral of compensation until termination of employment, it is established with the intent and understanding that it is not an employee benefit plan within the meaning of the federal Employee Retirement Income Security Act of 1974, as amended. |
|
k) |
No Assignment or Transfer. Neither a Participant nor any Beneficiary or other representative of a Participant shall have any right to assign, transfer, attach, or pledge any bonus amount or credit, potential payment, or right to future payments of any bonus amount or credit, or any other benefit provided under this AIP. Payment of any amount due or to become due under this AIP shall not be subject to the claims of creditors of the Participant or to execution by attachment or garnishment or any other legal or equitable proceeding or process, unless otherwise specifically ordered by any court of competent jurisdiction. |
|
l) |
Withholding and Payroll Taxes. The Company shall deduct from any payment made under this AIP all amounts required by federal, state and local tax laws to be withheld and shall subject any payments made under the AIP to all applicable payroll taxes and assessments. |
|
m) |
Incapacitated Payee. If the Committee determines that a person entitled to a payment hereunder is incapacitated, it may cause benefits to be paid to another person for the use or benefit of the Participant or the Participant’s Beneficiary at the time or times otherwise payable hereunder, in total discharge of the AIP’s obligations to the Participant or Beneficiary. |
6
|
o) |
Construction. The singular includes the plural and the plural includes the singular. Capitalized terms, except those at the beginning of a sentence or part of a heading, have the meaning defined in the AIP. The AIP is intended to be exempt from Section 409A of the Code by providing for short-term deferrals as described in Treasury Regulations § 1.409A-1(b)(4) and shall be interpreted and administered to achieve that purpose. |
|
p) |
Severability. In the event any provision of the AIP shall be held illegal or invalid for any reason, the illegality or invalidity shall not affect the remaining provisions of the AIP and the AIP shall be construed and enforced as if the illegal or invalid provision had not been included. |
|
q) |
No Limit on Other Compensation Arrangements. Nothing contained in the AIP shall prevent the Company or any subsidiary from adopting or continuing in effect other or additional compensation arrangements, including the grant of stock options and other stock-based awards, and such arrangements may be either generally applicable or applicable only in specific cases. |
|
1 |
Consolidated Net Earnings are adjusted for (a) asset write downs. (b) litigation or claim judgments or settlements, (c) changes in tax laws, accounting principles, or other laws or provisions affecting reported results, (d) any reorganization and restructuring programs, (e) extraordinary non-recurring items as described in ASC 225-20 Presentation-Income Statement – Extraordinary and Unusual Items and/or in management’s discussion and analysis of financial condition and results of operations appearing in the Company’s annual report to shareholders for the applicable fiscal year(s), (f) acquisitions, divestitures or accounting changes, (g) foreign exchange gains and losses, and (h) other special charges or extraordinary items. |
7
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 officers 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 officers 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: May 28, 2020 |
|
/s/ Dennis Eidson |
|
|
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 officers 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 officers 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: May 28, 2020 |
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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 officers 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 officers 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: May 28, 2020 |
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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 April 18, 2020 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: May 28, 2020 |
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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: May 28, 2020 |
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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: May 28, 2020 |
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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.