UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

x

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

For the quarterly period ended April 25, 2015.

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)

 

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).    Yes  x    No  ¨

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

 

Large accelerated filer

 

x

  

Accelerated filer

 

¨

 

 

 

 

Non-accelerated filer

 

¨

  

Smaller Reporting Company

 

¨

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

As of May 26, 2015, the registrant had 37,610,923 outstanding shares of common stock, no par value.

 

 

 

 

 


FORWARD-LOOKING STATEMENTS

The matters discussed in this Quarterly Report on Form 10-Q, in our press releases and in our 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”). 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 Form 10-Q, are inherently forward-looking. Our asset impairment, restructuring cost provisions and fair value measurements are estimates and actual costs may be more or less than these estimates and differences may be material. You should not place undue reliance 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 January 3, 2015 (in particular, you should refer to the discussion of “Risk Factors” in Item 1A of our Annual Report on Form 10-K) and other periodic reports filed with the Securities and Exchange Commission, there are many important factors that could cause actual results to differ materially.

Our ability to achieve sales and earnings expectations; improve operating results; realize benefits of the merger with Nash-Finch Company (including realization of synergies); maintain or strengthen our retail-store performance; assimilate acquired distribution centers and stores; maintain or grow sales; respond successfully to competitors including remodels and new openings; maintain or improve gross margin; effectively address food cost or price inflation or deflation; maintain or improve customer and supplier relationships; realize expected synergies from other acquisition activity; realize expected benefits of restructuring; realize growth opportunities; maintain or expand our customer base; reduce operating costs; sell on favorable terms assets held for sale; generate cash; continue to meet the terms of our debt covenants; continue to pay dividends, and successfully implement and realize the expected benefits of the other programs, initiatives, systems, plans, priorities, strategies, objectives, goals or expectations described in this Quarterly Report, our other reports, our press releases and our public comments will be affected by changes in economic conditions generally or in the markets and geographic areas that we serve, adverse effects of the changing food and distribution industries, adverse changes in government funded consumer assistance programs, possible changes in the military commissary system, including those stemming from the redeployment of forces, congressional action, changes in funding levels, or the effects of mandated reductions in or sequestration of government expenditures, and other factors.

This section is intended to provide meaningful cautionary statements. This should not be construed as a complete list of all economic, competitive, governmental, technological and other factors that could adversely affect our 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. We undertake no obligation to update or revise our forward-looking statements to reflect developments that occur or information obtained after the date of this Quarterly Report.

 

 

 

2


PART I

FINANCIAL INFORMATION

 

ITEM 1. Financial Statements

SPARTANNASH COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands)

(Unaudited)

 

 

April 25, 2015

 

 

January 3, 2015

 

Assets

 

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

 

     Cash and cash equivalents

$

8,475

 

 

$

6,443

 

     Accounts and notes receivable, net

 

312,521

 

 

 

282,697

 

     Inventories, net

 

562,979

 

 

 

577,197

 

     Prepaid expenses and other current assets

 

26,397

 

 

 

31,882

 

     Property and equipment held for sale

 

8,947

 

 

 

15,180

 

     Total current assets

 

919,319

 

 

 

913,399

 

 

 

 

 

 

 

 

 

Property and equipment, net

 

579,825

 

 

 

597,150

 

Goodwill

 

297,280

 

 

 

297,280

 

Other assets, net

 

119,371

 

 

 

124,453

 

 

 

 

 

 

 

 

 

Total assets

$

1,915,795

 

 

$

1,932,282

 

 

 

 

 

 

 

 

 

Liabilities and Shareholders’ Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

     Accounts payable

$

349,893

 

 

$

320,037

 

     Accrued payroll and benefits

 

58,800

 

 

 

73,220

 

     Other accrued expenses

 

39,045

 

 

 

44,690

 

     Deferred income taxes

 

28,086

 

 

 

22,494

 

     Current maturities of long-term debt and capital lease obligations

 

19,019

 

 

 

19,758

 

     Total current liabilities

 

494,843

 

 

 

480,199

 

 

 

 

 

 

 

 

 

Long-term liabilities

 

 

 

 

 

 

 

     Deferred income taxes

 

89,766

 

 

 

91,232

 

     Postretirement benefits

 

16,734

 

 

 

23,701

 

     Other long-term liabilities

 

41,608

 

 

 

39,387

 

     Long-term debt and capital lease obligations

 

516,237

 

 

 

550,510

 

     Total long-term liabilities

 

664,345

 

 

 

704,830

 

 

 

 

 

 

 

 

 

Commitments and contingencies (Note 6)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shareholders’ equity

 

 

 

 

 

 

 

     Common stock, voting, no par value; 100,000 shares

        authorized; 37,761 and 37,524 shares outstanding

 

524,741

 

 

 

520,791

 

     Preferred stock, no par value, 10,000 shares authorized; no shares outstanding

 

 

 

 

 

     Accumulated other comprehensive loss

 

(11,486

)

 

 

(11,655

)

     Retained earnings

 

243,352

 

 

 

238,117

 

     Total shareholders’ equity

 

756,607

 

 

 

747,253

 

 

 

 

 

 

 

 

 

Total liabilities and shareholders’ equity

$

1,915,795

 

 

$

1,932,282

 

See accompanying notes to condensed consolidated financial statements.

 

 

 

3


SPARTANNASH COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS

(In thousands, except per share data)

(Unaudited)

 

 

16 Weeks Ended

 

 

 

April 25,

 

 

April 19,

 

 

 

2015

 

 

2014

 

 

Net sales

$

2,312,683

 

 

$

2,333,727

 

 

Cost of sales

 

1,976,437

 

 

 

1,986,389

 

 

Gross profit

 

336,246

 

 

 

347,338

 

 

 

 

 

 

 

 

 

 

 

Operating expenses

 

 

 

 

 

 

 

 

   Selling, general and administrative

 

302,371

 

 

 

315,465

 

 

   Merger integration and acquisition

 

2,684

 

 

 

4,168

 

 

   Restructuring and asset impairment

 

7,338

 

 

 

127

 

 

Total operating expenses

 

312,393

 

 

 

319,760

 

 

 

 

 

 

 

 

 

 

 

Operating earnings

 

23,853

 

 

 

27,578

 

 

 

 

 

 

 

 

 

 

 

Other income and expenses

 

 

 

 

 

 

 

 

   Interest expense

 

6,750

 

 

 

7,474

 

 

   Other, net

 

(28

)

 

 

5

 

 

Total other income and expenses

 

6,722

 

 

 

7,479

 

 

 

 

 

 

 

 

 

 

 

Earnings before income taxes and discontinued operations

 

17,131

 

 

 

20,099

 

 

   Income taxes

 

6,684

 

 

 

7,580

 

 

Earnings from continuing operations

 

10,447

 

 

 

12,519

 

 

 

 

 

 

 

 

 

 

 

Loss from discontinued operations, net of taxes

 

(120

)

 

 

(209

)

 

Net earnings

$

10,327

 

 

$

12,310

 

 

 

 

 

 

 

 

 

 

 

Basic earnings per share:

 

 

 

 

 

 

 

 

   Earnings from continuing operations

$

0.28

 

 

$

0.33

 

 

   Loss from discontinued operations

 

(0.01

)

*

 

 

*

   Net earnings

$

0.27

 

 

$

0.33

 

 

 

 

 

 

 

 

 

 

 

Diluted earnings per share:

 

 

 

 

 

 

 

 

   Earnings from continuing operations

$

0.28

 

 

$

0.33

 

 

   Loss from discontinued operations

 

(0.01

)

*

 

 

*

   Net earnings

$

0.27

 

 

$

0.33

 

 

See accompanying notes to condensed consolidated financial statements.

*

Includes rounding

 

 

 

4


SPARTANNASH COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands)

(Unaudited)

 

 

16 Weeks Ended

 

 

April 25,

 

 

April 19,

 

 

2015

 

 

2014

 

 

 

 

 

 

 

 

 

Net earnings

$

10,327

 

 

$

12,310

 

 

 

 

 

 

 

 

 

Other comprehensive income, before tax

 

 

 

 

 

 

 

Pension and postretirement liability adjustment

 

272

 

 

 

271

 

Total other comprehensive income, before tax

 

272

 

 

 

271

 

 

 

 

 

 

 

 

 

Income tax expense related to items of other comprehensive income

 

(103

)

 

 

(103

)

 

 

 

 

 

 

 

 

Total other comprehensive income, after tax

 

169

 

 

 

168

 

Comprehensive income

$

10,496

 

 

$

12,478

 

See accompanying notes to condensed consolidated financial statements.

 

 

 

5


SPARTANNASH COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY

(In thousands)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other

 

 

 

 

 

 

 

 

 

 

Shares

 

 

Common

 

 

Comprehensive

 

 

Retained

 

 

 

 

 

 

Outstanding

 

 

Stock

 

 

Income (Loss)

 

 

Earnings

 

 

Total

 

Balance - January 3, 2015

 

37,524

 

 

$

520,791

 

 

$

(11,655

)

 

$

238,117

 

 

$

747,253

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net earnings

 

 

 

 

 

 

 

 

 

 

10,327

 

 

 

10,327

 

Other comprehensive income

 

 

 

 

 

 

 

169

 

 

 

 

 

 

169

 

Dividends - $0.135 per share

 

 

 

 

 

 

 

 

 

 

(5,092

)

 

 

(5,092

)

Share repurchase

 

(79

)

 

 

(2,526

)

 

 

 

 

 

 

 

 

(2,526

)

Stock-based employee compensation

 

 

 

 

4,753

 

 

 

 

 

 

 

 

 

4,753

 

Issuances of common stock and related

   tax benefit on stock option exercises

   and stock bonus plan and from

   deferred compensation plan

 

115

 

 

 

2,336

 

 

 

 

 

 

 

 

 

2,336

 

Issuances of restricted stock and related

   income tax benefits

 

312

 

 

 

175

 

 

 

 

 

 

 

 

 

175

 

Cancellations of restricted stock

 

(111

)

 

 

(788

)

 

 

 

 

 

 

 

 

(788

)

Balance - April 25, 2015

 

37,761

 

 

$

524,741

 

 

$

(11,486

)

 

$

243,352

 

 

$

756,607

 

See accompanying notes to condensed consolidated financial statements.

 

 

 

6


SPARTANNASH COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)  

 

 

16 Weeks Ended

 

 

April 25,

 

 

April 19,

 

 

2015

 

 

2014

 

Cash flows from operating activities

 

 

 

 

 

 

 

Net earnings

$

10,327

 

 

$

12,310

 

Loss from discontinued operations, net of tax

 

120

 

 

 

209

 

Earnings from continuing operations

 

10,447

 

 

 

12,519

 

Adjustments to reconcile net earnings to net cash provided by operating activities:

 

 

 

 

 

 

 

Non-cash restructuring and asset impairment charges

 

5,864

 

 

 

127

 

Depreciation and amortization

 

26,168

 

 

 

27,976

 

LIFO expense

 

1,723

 

 

 

1,972

 

Postretirement benefits expense

 

476

 

 

 

1,378

 

Deferred taxes on income

 

4,023

 

 

 

2,766

 

Stock-based compensation expense

 

4,753

 

 

 

3,929

 

Excess tax benefit on stock compensation

 

(174

)

 

 

(131

)

Other, net

 

123

 

 

 

(106

)

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

Accounts receivable

 

(30,205

)

 

 

(24,229

)

Inventories

 

12,495

 

 

 

29,511

 

Prepaid expenses and other assets

 

5,195

 

 

 

6,626

 

Accounts payable

 

31,346

 

 

 

(1,042

)

Accrued payroll and benefits

 

(13,812

)

 

 

(13,105

)

Postretirement benefit payments

 

(650

)

 

 

(3,623

)

Other accrued expenses and other liabilities

 

(8,831

)

 

 

(11,973

)

   Net cash provided by operating activities

 

48,941

 

 

 

32,595

 

Cash flows from investing activities

 

 

 

 

 

 

 

Purchases of property and equipment

 

(12,724

)

 

 

(22,839

)

Net proceeds from the sale of assets

 

9,670

 

 

 

1,804

 

Loans to customers

 

(1,435

)

 

 

(2,050

)

Payments from customers on loans

 

500

 

 

 

1,041

 

Other

 

(534

)

 

 

(19

)

   Net cash used in investing activities

 

(4,523

)

 

 

(22,063

)

Cash flows from financing activities

 

 

 

 

 

 

 

   Proceeds from revolving credit facility

 

269,916

 

 

 

320,864

 

   Payments on revolving credit facility

 

(301,949

)

 

 

(319,051

)

   Share repurchase

 

(2,526

)

 

 

 

   Repayment of other long-term debt

 

(2,979

)

 

 

(2,395

)

   Financing fees paid

 

(1,845

)

 

 

(123

)

   Excess tax benefit on stock compensation

 

174

 

 

 

131

 

   Proceeds from sale of common stock

 

2,010

 

 

 

657

 

   Dividends paid

 

(5,092

)

 

 

(4,533

)

   Net cash used in financing activities

 

(42,291

)

 

 

(4,450

)

Cash flows from discontinued operations

 

 

 

 

 

 

 

   Net cash used in operating activities

 

(95

)

 

 

(234

)

   Net cash used in discontinued operations

 

(95

)

 

 

(234

)

Net increase in cash and cash equivalents

 

2,032

 

 

 

5,848

 

Cash and cash equivalents at beginning of period

 

6,443

 

 

 

9,216

 

Cash and cash equivalents at end of period

$

8,475

 

 

$

15,064

 

See accompanying notes to condensed consolidated financial statements.

 

 

 

7


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 (the “financial statements”) include the accounts of SpartanNash Company and its subsidiaries (“SpartanNash”). All significant intercompany accounts and transactions have been eliminated.

In the opinion of management, the accompanying financial statements, taken as a whole, contain all adjustments, which are of a normal recurring nature, necessary to present fairly the financial position of SpartanNash as of April 25, 2015, and the results of its operations and cash flows for the interim periods presented. Interim results are not necessarily indicative of results for a full year.

 

Note 2 Recently Issued Accounting Standards

 

On April 7, 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2015-03 Interest - Imputation of Interest: Simplifying the Presentation of Debt Issuance Costs.” ASU 2015-03 requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The new guidance is effective on a retrospective basis for fiscal years beginning after December 15, 2015, and interim periods within those years. Adoption of this standard in fiscal 2016 will retroactively decrease Other long-term assets and Long-term debt as of April 25, 2015 by approximately $9.9 million.

 

On April 10, 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-08 “Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity.” ASU 2014-08 changed the criteria for reporting discontinued operations and modified related disclosure requirements. The Company adopted ASU 2014-08 in the first quarter of fiscal 2015.  Adoption of ASU 2014-08 did not have a material impact on the Consolidated Financial Statements.

 

On May 28, 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers,” which provides guidance for revenue recognition. The new guidance contained in the ASU affects any reporting organization that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of nonfinancial assets unless those contracts are within the scope of other standards.  The standard’s core principle is that a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. On April 29, 2015, the FASB issued a one-year deferral of the effective date of this new guidance, which would result in the guidance being effective for the Company in the first quarter of its fiscal year ending December 29, 2018. Adoption is allowed by either the full retrospective or modified retrospective approach. The Company is currently in the process of evaluating the impact of adoption of this ASC on our Consolidated Financial Statements.

 

Note 3 Restructuring and Asset Impairment

The following table provides the activity of restructuring costs for the 16 weeks ended April 25, 2015. Accrued restructuring costs 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 when the obligations are expected to be paid.

 

 

Lease and

 

 

 

 

 

 

 

 

(In thousands)

Ancillary Costs

 

 

Severance

 

 

Total

 

 

Balance - January 3, 2015

$

 

13,988

 

 

$

 

80

 

 

$

 

14,068

 

 

Provision for lease and related ancillary costs, net of sublease

   income

 

 

6,760

 

 

 

 

 

 

 

6,760

 

(a)

Provision for severance

 

 

 

 

 

304

 

 

 

 

304

 

(b)

Changes in estimates

 

 

(287

)

 

 

 

 

 

 

(287

)

(c)

Lease termination adjustment

 

 

(1,745

)

 

 

 

 

 

 

(1,745

)

(d)

Accretion expense

 

 

175

 

 

 

 

 

 

 

175

 

 

Payments

 

 

(2,522

)

 

 

 

(284

)

 

 

 

(2,806

)

 

Balance - April 25, 2015

$

 

16,369

 

 

$

 

100

 

 

$

 

16,469

 

 

(a)

The provision for lease and related ancillary costs represents the initial charges estimated to be incurred for store closings in the Retail segment.

(b)

The provision for severance relates to a distribution center closing in the Food Distribution segment.

8


(c)

The changes in estimates relate to revised estimates of lease and ancillary costs and sublease income associated with previously closed stores.

(d)

The lease termination adjustment represents the benefit recognized in connection with lease buyouts on two previously closed stores. The lease liabilities were formerly included in our restructuring cost liability based on initial estimates.

Included in the liability are lease obligations recorded at the present value of future minimum lease payments, calculated using a risk-free interest rate, and related ancillary costs from the date of closure to the end of the remaining lease term, net of estimated sublease income.

Restructuring and asset impairment charges included in the Condensed Consolidated Statements of Earnings consisted of the following:

 

 

16 Weeks Ended

 

 

 

April 25,

 

 

April 19,

 

 

(In thousands)

2015

 

 

2014

 

 

Asset impairment charges

$

 

2,353

 

 

$

 

906

 

(a)

Provision for leases and related ancillary costs, net of

   sublease income, related to store closings

 

 

6,760

 

 

 

 

18

 

(b)

Gains on sales of assets related to closed facilities

 

 

(1,540

)

 

 

 

(1,318

)

(c)

Provision for severance

 

 

304

 

 

 

 

196

 

(d)

Other costs associated with distribution center and store closings

 

 

1,493

 

 

 

 

724

 

 

Changes in estimates

 

 

(287

)

 

 

 

(399

)

(e)

Lease termination adjustment

 

 

(1,745

)

 

 

 

(f)

 

$

 

7,338

 

 

$

 

127

 

 

(a)

The asset impairment charges were incurred in the Retail segment due to the economic and competitive environment of certain stores.

(b)

The provision for lease and related ancillary costs, net of sublease income, represents the initial charges estimated to be incurred for store closings in the Retail segment.

(c)

The gains on sales of assets resulted from the sale of a closed food distribution center in the 16 weeks ended April 25, 2015 and the sales of customer lists related to closed stores in the 16 weeks ended April 19, 2014.

(d)

The provision for severance related to distribution center closings in the Food Distribution segment.

(e)

The changes in estimates relates to revised estimates of lease ancillary costs associated with previously closed facilities in the Retail and Food Distribution segments. The Retail segment realized $(287) and $(379) in the 16 weeks ended April 25, 2015 and April 19, 2014, respectively.

(f)

The lease termination adjustment represents the benefit recognized in connection with lease buyouts on two previously closed stores.  

 

 

 

Note 4 Long-Term Debt

On January 9, 2015, SpartanNash Company and certain of its subsidiaries entered into an amendment (the “Amendment”) to the Company’s Amended and Restated Loan and Security Agreement (the “Credit Agreement”) with Wells Fargo Capital Finance, LLC, as administrative agent, and certain lenders to the Credit Agreement.  The Amendment reduced the interest rates by 0.25% and extended the maturity date of the Loan Agreement from November 19, 2018 to January 9, 2020.

 

 

9


Note 5 Fair Value Measurements

Financial instruments include cash and cash equivalents, accounts and notes receivable, accounts payable and long-term debt. The carrying amounts of cash and cash equivalents, accounts and notes receivable, and accounts payable approximate fair value because of the short-term maturities of these financial instruments.  At April 25, 2015 and January 3, 2015 the estimated fair value and the book value of our debt instruments were as follows:

 

(In thousands)

April 25, 2015

 

 

January 3, 2015

 

Book value of debt instruments:

 

 

 

 

 

 

 

 

 

Current maturities of long-term debt and capital lease

   obligations

$

 

19,019

 

 

$

 

19,758

 

Long-term debt and capital lease obligations

 

 

516,237

 

 

 

 

550,510

 

Total book value of debt instruments

 

 

535,256

 

 

 

 

570,268

 

Fair value of debt instruments

 

 

540,421

 

 

 

 

574,008

 

Excess of fair value over book value

$

 

5,165

 

 

$

 

3,740

 

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

ASC 820 prioritizes the inputs to valuation techniques used to measure fair value into the following hierarchy:

Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities.

Level 2: Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.

Level 3: Unobservable inputs for the asset or liability, reflecting the reporting entity’s own assumptions about the assumptions that market participants would use in pricing.

Long-lived assets with a book value of $5.6 million and $0.9 million as of April 25, 2015 and April 19, 2014, respectively, were measured at a fair value of $3.2 million and $0.0 million, respectively, on a nonrecurring basis using Level 3 inputs as defined in the fair value hierarchy. Our accounting and finance team management, which report to the chief financial officer, determine our valuation policies and procedures. The development and determination of the unobservable inputs for level 3 fair value measurements and fair value calculations are the responsibility of our accounting and finance team management and are approved by the chief financial officer. Fair value of long-lived assets is determined by estimating the amount and timing of net future cash flows, discounted using a risk-adjusted rate of interest. SpartanNash estimates future cash flows based on experience and knowledge of the market in which the assets are located, and when necessary, uses real estate brokers. See Note 3 for discussion of long-lived asset impairment charges.

 

Note 6 Commitments and Contingencies

We are engaged from time-to-time in routine legal proceedings incidental to our business. We do not believe that these routine legal proceedings, taken as a whole, will have a material impact on our 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 consolidated financial position, operating results or liquidity of SpartanNash.

SpartanNash contributes to the Central States multi-employer pension plan based on obligations arising from its collective bargaining agreements in Bellefontaine, Ohio, Lima, Ohio, and Grand Rapids, Michigan covering its distribution center union associates. 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. SpartanNash currently contributes to the Central States, Southeast and Southwest Areas Pension Fund under the terms outlined in the “Primary Schedule” of Central States’ Rehabilitation Plan. This schedule requires varying increases in employer contributions over the previous year’s contribution. Increases are set within the collective bargaining agreement and vary by location.

10


Based on the most recent information available to SpartanNash, management believes that the present value of actuarial accrued liabilities in this multi-employer plan significantly exceeds the value of the assets held in trust to pay benefits. Because SpartanNash is one of a number of employers contributing to this plan, it is difficult to ascertain what the exact amount of the underfunding would be, although management anticipates that SpartanNash’s contributions to this plan will increase each year. Management is not aware of any significant change in funding levels since January 3, 2015. To reduce this underfunding, management expects meaningful increases in expense as a result of required incremental multi-employer pension plan contributions in future years. Any adjustment for withdrawal liability will be recorded when it is probable that a liability exists and can be reasonably determined.

 

Note 7 Associate Retirement Plans

The following table provides the components of net periodic pension and postretirement benefit costs for the 16 weeks ended April 25, 2015 and April 19, 2014:

 

(In thousands)

April 25,

 

 

April 19,

 

16 Weeks Ended

2015

 

 

2014

 

 

SpartanNash

 

 

Combined SpartanNash

 

*

Cash Balance

 

 

Super Foods

 

 

Pension Plan

 

 

Pension Plan

 

 

Pension Plan

 

 

Pension Plan

 

Interest cost

$

 

1,023

 

 

$

 

1,355

 

 

$

 

741

 

 

$

 

614

 

Expected return on plan assets

 

 

(1,515

)

 

 

 

(1,865

)

 

 

 

(1,156

)

 

 

 

(709

)

Recognized actuarial net loss

 

 

255

 

 

 

 

305

 

 

 

 

305

 

 

 

 

 

Net periodic benefit

$

 

(237

)

 

$

 

(205

)

 

$

 

(110

)

 

$

 

(95

)

Settlement expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total expense (income)

$

 

(237

)

 

$

 

(205

)

 

$

 

(110

)

 

$

 

(95

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(In thousands)

SERP

 

 

Spartan Stores Medical Plan

 

16 Weeks Ended

April 25,

 

 

April 19,

 

 

April 25,

 

 

April 19,

 

 

2015

 

 

2014

 

 

2015

 

 

2014

 

Service cost

$

 

 

 

$

 

 

 

$

 

71

 

 

$

 

57

 

Interest cost

 

 

10

 

 

 

 

11

 

 

 

 

125

 

 

 

 

121

 

Amortization of prior service cost

 

 

 

 

 

 

 

 

 

 

(49

)

 

 

 

(48

)

Recognized actuarial net loss

 

 

13

 

 

 

 

9

 

 

 

 

53

 

 

 

 

6

 

Net periodic benefit

$

 

23

 

 

$

 

20

 

 

$

 

200

 

 

$

 

136

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

*The amounts above reflect the combined values of the Cash Balance and Super Foods Pension Plans as of April 19, 2014.

 

 

On January 1, 2015, the Super Foods Plan was merged into the Cash Balance Pension Plan which was renamed the SpartanNash Company Pension Plan. The Company made contributions of $0.4 million to the SpartanNash Company Pension Plan during the 16 weeks ended April 25, 2015. This quarterly amount was determined based on 2014 plan year funding valuation results of the legacy Super Foods Plan. The 2015 valuation results for the merged SpartanNash Company Pension Plan may reduce or even eliminate the need for required quarterly contributions for 2015; therefore the Company does not expect to make any additional contributions for the fiscal year ending January 2, 2016.

As previously stated in Note 6, SpartanNash contributes to the Central States Southeast and Southwest Areas Pension Fund (“Fund”) (EIN 7456500) under the terms of the existing collective bargaining agreements and in the amounts set forth in the related collective bargaining agreements. SpartanNash employer contributions during the fiscal year ended January 3, 2015 totaled $12.9 million, which Fund administrators represent is less than 5% of total employer contributions to the Fund. SpartanNash’s employer contributions for the 16 weeks ended April 25, 2015 and April 19, 2014 were $4.2 million and $4.1 million, respectively.  Based on the most recent information available to SpartanNash, management believes that the present value of actuarial accrued liabilities in this multi-employer plan significantly exceeds the value of the assets held in trust to pay benefits.  Because SpartanNash is one of a number of employers contributing to this plan, it is difficult to ascertain what the exact amount of the underfunding would be, although management anticipates that SpartanNash’s contributions to this plan will increase each year.  On December 13, 2014, Congress passed the Multiemployer Pension Reform Act of 2014 (“MPRA”).  The MPRA is intended to address funding shortfalls in both multiemployer pension plans and the Pension Benefit Guaranty Corporation.  Because the MPRA is a complex piece of legislation, its effects on the Plan and potential implications for the Company are not known at this time.  Any adjustment for withdrawal liability will be recorded when it is probable that a liability exists and can be reasonably determined.

 

11


Note 8 Other Comprehensive Income or Loss

SpartanNash reports comprehensive income or loss in accordance with ASU 2012-13, “Comprehensive Income,” in the financial statements. Total comprehensive income is defined as all changes in shareholders’ equity during a period, other than those resulting from investments by and distributions to shareholders. Generally, for SpartanNash, total comprehensive income equals net earnings plus or minus adjustments for pension and other postretirement benefits.

While total comprehensive income is the activity in a period and is largely driven by net earnings in that period, accumulated other comprehensive income or loss (“AOCI”) represents the cumulative balance of other comprehensive income, net of tax, as of the balance sheet date. For SpartanNash, AOCI is the cumulative balance related to pension and other postretirement benefits.

During the 16 week periods ended April 25, 2015 and April 19, 2014, $0.2 million and $0.2 million, respectively, was reclassified from AOCI to the Condensed Consolidated Statement of Earnings, of which $0.3 million and $0.3 million, respectively, increased selling, general and administrative expenses and $0.1 million and $0.1 million, respectively, reduced income taxes in each period.

 

Note 9 Income Taxes

The effective income tax rate was 39.0% and 37.7% for the 16 weeks ended April 25, 2015 and April 19, 2014, respectively. The differences from the Federal statutory rate in the current and prior year periods are primarily due to state income taxes.

 

Note 10 Share Based Compensation

SpartanNash has two shareholder-approved stock incentive plans that provide for the granting of incentive stock options, non-qualified stock options, stock appreciation rights, restricted stock, restricted stock units, stock awards, and other stock-based awards to directors, officers and other key associates.

SpartanNash accounts for share-based compensation awards in accordance with the provisions of ASC Topic 718 which requires that share-based payment transactions be accounted for using a fair value method and the related compensation cost recognized in the financial statements over the period that an employee is required to provide services in exchange for the award. SpartanNash recognized share-based compensation expense (net of tax) of $2.9 million ($0.08 per diluted share) and $2.4 million ($0.06 per diluted share) for the 16 weeks ended April 25, 2015 and April 19, 2014, respectively, as a component of Operating expenses and Income taxes in the Condensed Consolidated Statements of Earnings.

The following table summarizes activity in the share-based compensation plans for the 16 weeks ended April 25, 2015:

 

 

Shares

 

 

Weighted

 

 

Restricted

 

 

Weighted Average

 

 

Under

 

 

Average

 

 

Stock

 

 

Grant-Date

 

 

Options

 

 

Exercise Price

 

 

Awards

 

 

Fair Value

 

Outstanding at January 3, 2015

 

494,483

 

 

$

 

20.61

 

 

 

600,653

 

 

 

23.08

 

Granted

 

 

 

 

 

 

 

 

311,622

 

 

 

26.55

 

Exercised/Vested

 

(91,875

)

 

 

 

21.99

 

 

 

(112,360

)

 

 

22.68

 

Cancelled/Forfeited

 

 

 

 

 

 

 

 

(6,943

)

 

 

21.40

 

Outstanding at April 25, 2015

 

402,608

 

 

$

 

20.30

 

 

 

792,972

 

 

 

24.50

 

Vested and expected to vest in the future at

   April 25, 2015

 

402,608

 

 

$

 

20.30

 

 

 

 

 

 

 

 

 

Exercisable at April 25, 2015

 

402,608

 

 

$

 

20.30

 

 

 

 

 

 

 

 

 

There were no stock options granted during the 16 weeks ended April 25, 2015 and April 19, 2014.

As of April 25, 2015, total unrecognized compensation cost related to non-vested share-based awards granted under our stock incentive plans was $8.0 million for restricted stock. The remaining compensation costs not yet recognized are expected to be recognized over a weighted average period of 2.8 years for restricted stock. All compensation costs related to stock options have been recognized.

 

Note 11 Discontinued Operations

Results of the discontinued operations are excluded from the accompanying notes to the consolidated financial statements for all periods presented, unless otherwise noted.  There were no additional operations that were reclassified to discontinued operations during the 16 weeks ended April 25, 2015.

12


 

Note 12 Earnings Per Share

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

 

 

16 Weeks Ended

 

 

April 25,

 

 

April 19,

 

(In thousands, except per share amounts)

2015

 

 

2014

 

Numerator:

 

 

 

 

 

 

 

 

 

Earnings from continuing operations

$

 

10,447

 

 

$

 

12,519

 

Adjustment for earnings attributable to participating securities

 

 

(189

)

 

 

 

(232

)

Earnings from continuing operations used in calculating earnings

   per share

$

 

10,258

 

 

$

 

12,287

 

Denominator:

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding, including participating

   securities

 

 

37,689

 

 

 

 

37,600

 

Adjustment for participating securities

 

 

(682

)

 

 

 

(697

)

Shares used in calculating basic earnings per share

 

 

37,007

 

 

 

 

36,903

 

Effect of dilutive stock options

 

 

113

 

 

 

 

118

 

Shares used in calculating diluted earnings per share

 

 

37,120

 

 

 

 

37,021

 

Basic earnings per share from continuing operations

$

 

0.28

 

 

$

 

0.33

 

Diluted earnings per share from continuing operations

$

 

0.28

 

 

$

 

0.33

 

 

 

Note 13 Supplemental Cash Flow Information

Non-cash financing activities include the issuance of restricted stock to employees and directors of $8.3 million and $6.9 million for the 16 weeks ended April 25, 2015 and April 19, 2014, respectively. Non-cash investing activities include capital expenditures included in accounts payable of $2.0 million and $1.8 million for the 16 weeks ended April 25, 2015 and April 19, 2014, respectively.

 

Note 14 Operating Segment Information

The following tables set forth information about SpartanNash by operating segment:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(In thousands)

Military

 

 

Food Distribution

 

 

Retail

 

 

Total

 

16 Week Period Ended April 25, 2015

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net sales to external customers

$

699,394

 

 

$

986,435

 

 

$

626,854

 

 

$

2,312,683

 

Inter-segment sales

 

 

 

 

281,275

 

 

 

 

 

 

281,275

 

Merger integration and acquisition expenses

 

 

 

 

2,187

 

 

 

497

 

 

 

2,684

 

Depreciation and amortization

 

3,733

 

 

 

8,536