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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K

Commission File Number: 000-31127

SPARTAN STORES, INC.
(Exact Name of Registrant as Specified in Its Charter)

Registrant's telephone number, including area code: (616) 878-2000

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.

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ___

DOCUMENTS INCORPORATED BY REFERENCE

PART I

Item 1.                    Business

General Development

Spartan Stores, Inc. is a premier regional food retailer and distributor based in Grand Rapids, Michigan. As a result of six acquisitions since January 1999, Spartan Stores operates 102 retail grocery stores and 25 deep discount food\drug combination stores in Michigan and Ohio, including Ashcraft's Markets, Family Fare Supermarkets, Food Town, Glen's Markets, Great Day Food Centers, Prevo's and The Pharm stores. Spartan Stores also operates three grocery distribution centers in Michigan and Ohio from which it supplies a comprehensive selection of national brand and private label grocery and related products to more than 350 retail grocery store customers and its own retail stores. In addition to its retail food and grocery distribution businesses, Spartan Stores distributes assorted products to approximately 6,600 convenience stores and other retail locations in eight states and provides real estate services in connection with both its retail and wholesale business operations.

Spartan Stores' business strategy includes growing its retail operations primarily through acquisitions while increasing efficiencies in its distribution operations. Spartan Stores looks to expand its retail operations in the midwestern United States. Continued expansion of the retail grocery business will allow Spartan Stores to more fully realize operational efficiencies throughout its supply chain, expand its geographic coverage and enhance its marketing and merchandising programs. These operational efficiencies will benefit Spartan Stores' own retail grocery stores, as well as the independent food retailers that Spartan Stores supplies.

Spartan Stores operates its company-owned retail grocery stores primarily through two wholly owned subsidiaries, Family Fare, Inc. and Seaway Food Town, Inc., and conducts its grocery distribution business directly through Spartan Stores, Inc. Spartan Stores conducts its other business operations through a number of wholly owned subsidiaries. L&L/Jiroch Company, J.F. Walker Company, Inc. and United Wholesale Grocery Company conduct Spartan Stores' convenience store distribution business. Market Development Corporation operates Spartan Stores' real estate business. Spartan Stores conducts its insurance business through two wholly owned subsidiaries, Spartan Insurance Company, Ltd. and SI Insurance Agency, Inc.

Spartan Stores was originally formed in 1917 under the name Grand Rapids Wholesale Grocery Company. It changed its name to Spartan Stores, Inc. in 1957 and in 1973 converted from a cooperative to a for-profit business corporation. Effective August 2, 2000, Spartan Stores common stock was listed on the National Market System of the Nasdaq Stock Market under the trading symbol "SPTN." Spartan Stores operates on a 52-53 week fiscal year, with the fiscal year ending on the last Saturday in March. The principal executive offices of Spartan Stores are located at 850 76th Street, SW, P.O. Box 8700, Grand Rapids, Michigan 49518. Spartan Stores' telephone number is (616) 878-2000.

Financial information concerning the operating segments of Spartan Stores and its subsidiaries is set forth in Item 8 of this Annual Report on Form 10-K under the heading "Note 13--Operating Segment Information" and is incorporated herein by reference.

Description of Business

Retail Grocery

Spartan Stores operates retail grocery stores throughout western, central, northern and southeastern Michigan and northwestern and central Ohio. Spartan Stores operates 102 retail grocery stores and 25 deep discount food\drug combination stores as a result of six acquisitions beginning in 1999. Spartan Stores continues to operate its grocery stores under their acquired names of Ashcraft's Markets, Family Fare Supermarkets, Food Town, Glen's Markets, Great Day Food Centers and Prevo's. It operates its food\drug combination stores under the name The Pharm. The stores range in size from 17,000 to 65,000 square feet and are located in the geographic areas set forth in the chart below. Many of the stores are located in small metropolitan or rural areas in Michigan and Ohio with a high proportion of locally owned independent grocery stores. While chain grocery stores and mass retailers continue to penetrate these areas, company-owned retail grocery stores benefit from favorable name recognition and geographic niche.

The following table lists the retail banner, geographic region, approximate size and ownership of the retail grocery stores operated by Spartan Stores.

In addition, Spartan Stores owns a 65 percent interest in a joint venture that operates a grocery store of approximately 45,700 square feet located in southeastern Michigan.

These company-owned stores typically offer dry grocery, produce, dairy products, meat, floral, seafood, health and beauty care, cosmetics, delicatessen and bakery goods. Spartan Stores' larger stores also typically offer pharmacy and banking facilities. In addition to nationally advertised products, the stores carry "Spartan" brand private label items, "Home Harvest," which is Spartan Stores' "value" brand label, and "Bayberry Farms," which is Spartan Stores' premium private label brand.

Grocery Distribution

Spartan Stores' grocery distribution business provides its wholesale customers and company-owned stores with a selection of over 40,000 items, including dry grocery, produce, dairy products, meat, frozen food, seafood, floral, general merchandise, tobacco, pharmacy and health and beauty care items. Spartan Stores supplies its customers with both nationally advertised products and over 2,000 highly recognized "Spartan" brand private label items. Spartan Stores also supplies its customers with "Home Harvest," Spartan Stores' "value" brand and "Bayberry Farms," which is Spartan Stores' premium private label brand. To supply its wholesale customers, Spartan Stores operates a fleet of approximately 112 tractors, 201 conventional trailers and 176 refrigerated trailers, substantially all of which are leased by Spartan Stores.

Spartan Stores also provides its wholesale customers with a broad spectrum of additional services, including:

Spartan Stores' grocery distribution business uses approximately 2,541,000 square feet of warehouse, distribution and office space. Spartan Stores supplies its company-owned stores and its wholesale customers from its warehouses located in Grand Rapids and Plymouth, Michigan and Maumee, Ohio. The following table lists the location, approximate size and ownership of the facilities used in Spartan Stores' grocery distribution segment.

Convenience Store Distribution

Spartan Stores' convenience store distribution business provides a selection of confections, tobacco products, specialty foods and other grocery products to approximately 3,800 convenience stores and other retail locations in Michigan, Georgia, Indiana, Kentucky, Ohio, Pennsylvania, Tennessee and West Virginia. Spartan Stores also operates 12 cash and carry outlets in Michigan and Ohio serving approximately 2,800 convenience stores. The following table lists the location, approximate size and ownership of the facilities in Spartan Stores' convenience store distribution business:

Real Estate

Spartan Stores owns eight shopping centers with approximately 580,000 square feet and eight freestanding store locations with approximately 350,000 square feet. Spartan Stores leases these properties to grocery store customers supplied by Spartan Stores and to other retailers. This leased space consists of approximately 719,000 square feet of grocery retail space and approximately 211,000 square feet of other retail space. Each shopping center is substantially full and is anchored by a lease with a retail grocery store, all but one of which are supplied by Spartan Stores. Two of the freestanding stores are vacant and for sale. Spartan Stores also leases a 52,000 square foot distribution center in Hudsonville, Michigan. In addition, Spartan Stores leases 11 sites for sublease to grocery store customers that it supplies. Spartan Stores also owns several parcels of vacant land that it plans to sell or develop.

Insurance Services

On March 3, 2000, Spartan Stores sold Shield Benefit Administrators, Inc., a wholly owned subsidiary that offered third-party insurance claims administration and related services primarily to Spartan Stores' customers. In January 2001, Spartan Stores' board of directors approved management's plan to discontinue the operations of the insurance segment. On January 12, 2001, Spartan Stores sold its insurance agency business, Shield Insurance Services, Inc., effective December 31, 2000. Spartan Stores still retains the underwriting, safety and claims component of Shield Insurance Services, which now operates under the name SI Insurance Agency, Inc.

Spartan Stores is continuing to evaluate alternatives for Spartan Insurance Company, Ltd., which is incorporated and licensed as an insurance company in Bermuda. It issues policies of another insurance carrier through a fronting agreement under which Spartan Insurance Company insures some of the coverage limits and reinsures the balance of the coverage limit with reinsurance companies.

Competition

Spartan Stores' retail grocery and distribution businesses are characterized by intense competition and low profit margins. The principal competitive factors in the retail industry that face the company-owned stores and the independent retail stores supplied by Spartan Stores include the location and image of the store; the price, quality and variety of products; and the quality and consistency of service. The principal competitive factors facing Spartan Stores in the distribution industry are price, product quality and variety and service. Spartan Stores believes that both it and the customers it supplies are generally competitive in their markets.

Spartan Stores' company-owned stores and the independent retail grocery stores supplied by Spartan Stores all compete with other retail grocery stores and with several large chain stores that have integrated wholesale and retail operations, including Farmer Jack and Kroger stores. These stores also compete with mass merchandisers such as Meijer, Inc., Wal-Mart Stores, Inc. and Kmart Corporation, limited assortment stores, wholesale membership clubs such as Sam's Club (a unit of Wal-Mart Stores, Inc.) and Costco Companies, Inc., convenience stores, shop-at-home services, restaurants and fast food businesses. Spartan Stores' success is in large part dependent upon the ability of its company-owned stores and the other grocery stores it supplies to compete with these grocery store and convenience store chains. Some of these companies have greater assets and larger sales volume than Spartan Stores and its wholesale customers.

Spartan Stores' grocery distribution business competes with a number of grocery wholesalers, including SUPERVALU, Inc., Fleming Companies, Inc., Roundy's, Inc. and Nash Finch Company. Spartan Stores' convenience store distribution business competes with a number of convenience store wholesalers, including EBY Brown Company, McLane Company, Inc. and S. Abraham and Sons, Inc. The distribution business also competes with a number of other businesses that market their products directly to food retailers. Some of these companies have greater assets and larger sales volume than Spartan Stores.

According to industry sources, company-owned stores and the independent grocery stores supplied by Spartan Stores together account for approximately 19 percent of all grocery sales in Michigan and 2.2 percent of all grocery sales in Ohio. These stores account for approximately 35.4 percent of all grocery sales in western Michigan (a 20 county market area), 13 percent of sales in eastern and southern Michigan (a 27 county market area), 38.3 percent of sales in northern Michigan (a 36 county market area), and 12.1 percent of sales in northwestern Ohio (a 31 county market area).

Grocery Distribution Customers

Spartan Stores' grocery store distribution segment supplies the company-owned stores and a diverse group of independent grocery store operators that range from single stores to supermarket chains with as many as 21 stores. Each grocery distribution customer has entered into a customer agreement with Spartan Stores. In addition, Spartan Stores from time to time enters into loan agreements, leases, guarantees and other agreements under which some of its grocery distribution customers agree to purchase a minimum percentage of products from Spartan Stores for the term of the agreement. At March 31, 2001, Spartan Stores had such agreements with 30 customers covering 66 retail grocery stores with terms ranging from one to 16 years. The minimum purchase requirements under these agreements varied from 30 percent to 55 percent of the total retail sales for the grocery stores covered by the agreements. For the twelve-month period ending March 31, 2001, these stores had total retail sales of

approximately $618 million and total wholesale purchases from Spartan Stores of approximately $318 million.

Spartan Stores does not believe that its success is dependent upon maintaining the grocery distribution business of any one customer. Spartan Stores' ten largest grocery distribution customers (excluding company-owned stores) account for approximately 19.5 percent of Spartan Stores' total net sales, but no single customer accounts for more than 4.1 percent of total net sales. The company-owned grocery stores represented approximately 33 percent of Spartan Stores' total net sales for the fiscal year ended March 31, 2001.

Effective November 1, 2000, one of Spartan Stores' grocery distribution customers, D&W Food Centers, Inc., terminated its supply relationship for all but five of its 26 stores. Spartan Stores' annual sales to D&W have averaged less than four percent of Spartan Stores' total net sales in recent fiscal years. D&W continues to lease five of its store locations from Spartan Stores. Conditions of the leases include certain minimum purchase requirements. Other than D&W, no grocery distribution customer that was among Spartan Stores' ten largest customers has terminated its business with Spartan Stores to associate with another distributor in the last ten years.

Suppliers

Spartan Stores purchases products from a large number of national, regional and local suppliers of name brand and private label merchandise. However, Spartan Stores has not encountered difficulty in procuring or maintaining an adequate level of products to serve its customers.

Regulation

Spartan Stores is subject to federal, state and local laws and regulations covering the purchase, handling, sale and transportation of its products and is subject to the jurisdiction of the federal Food and Drug Administration. Management believes that Spartan Stores is in substantial compliance with all Food and Drug Administration and other federal, state and local laws and regulations governing its businesses.

Associates

Spartan Stores currently employs approximately 13,000 associates, of which approximately 5,100 are represented by several unions. Warehouse and transportation associates are represented by different Teamsters Union locals, with contracts expiring in 2001 in Grand Rapids, in 2003 in Toledo and in 2005 in Plymouth. A majority of United Wholesale Grocery's associates are represented by various unions, with contract expirations varying by location. Food Town associates are represented by UFCW with contracts expiring by location. Associates of L & L/Jiroch, J.F. Walker Company and Family Fare are not represented by a union. Spartan Stores considers its relations with its union and non-union associates to be satisfactory and has not had any work stoppages in the last five years.

Merger with Seaway Food Town, Inc.

On August 1, 2000, Spartan Stores completed its acquisition of Seaway Food Town, Inc. Food Town is a leading regional supermarket chain operating predominantly in northwestern and central Ohio and southeastern Michigan. Food Town operates 47 supermarkets and 25 deep discount food\drug combination stores under the name The Pharm. Food Town generates approximately $680 million in annual sales.

In connection with the merger, each outstanding share of Spartan Stores Class A common stock, $2.00 par value, was converted into one share of Spartan Stores common stock, no par value. Spartan Stores also declared a stock split through a dividend of 0.336 shares of Spartan Stores common stock for each share of Spartan Stores common stock outstanding immediately before the merger. In the merger, Spartan Stores issued one share of Spartan Stores common stock and $5.00 in cash to the shareholders of Food Town in exchange for each share of Food Town common stock outstanding immediately before the merger. Food Town became a wholly owned subsidiary of Spartan Stores. Spartan Stores now has approximately 20 million shares of common stock outstanding which are listed for trading on the National Market System of the Nasdaq Stock Market.

Acquisition of Prevo's Family Markets

On March 3, 2001, Spartan Stores completed the acquisition of Prevo's Family Markets, Inc. Prevo's operates 10 supermarkets in western and northern Michigan, from Traverse City to Grand Rapids. Prevo's supermarkets generate approximately $100 million in annual sales. Because Prevo's is an existing wholesale customer of Spartan Stores, the acquisition will add approximately $50 million in annual sales.

Item 2.                    Properties

Information concerning the properties of Spartan Stores and its subsidiaries is set forth in Item 1 of this Annual Report on Form 10-K under the headings "Retail Grocery," "Grocery Distribution," "Convenience Store Distribution" and "Real Estate" and is here incorporated by reference.

Item 3.                    Legal Proceedings

On June 20, 2000, an amended complaint was refiled in a Tennessee state court by individual plaintiffs on behalf of the state of Tennessee and its taxpayers against the leading cigarette manufacturers operating in the United States and certain wholesalers and distributors, including J.F. Walker Company, Inc., a subsidiary of Spartan Stores. This case was initially filed in May 1997, and was later removed to the United States District Court for the Eastern District of Tennessee. On June 16, 1998, J.F. Walker was voluntarily dismissed as a defendant. The federal district court then dismissed the case for lack of standing. The United States Court of Appeals for the Sixth Circuit affirmed the district court decision with instructions to remand the case back to state court. The plaintiffs then filed an amended complaint including J.F. Walker as a defendant. In this case, the plaintiffs are seeking compensatory, punitive and other damages, reimbursement of medical and other expenditures and equitable relief. Spartan Stores believes that J.F. Walker has valid defenses to this legal action, which is being vigorously defended. One of the cigarette manufacturers named as a defendant in this action has agreed to indemnify J.F. Walker from damages arising out of this action. Management believes that the ultimate outcome of this action should not have a material adverse effect on the consolidated financial position, results of operations or liquidity of Spartan Stores.

Various other lawsuits and claims, arising in the ordinary course of business, are pending or have been asserted against Spartan Stores. While the ultimate effect of such actions cannot be predicted with certainty, management believes that their outcome will not result in a material adverse effect on the consolidated financial position, operating results or liquidity of Spartan Stores.

Item 4.                    Submission of Matters to a Vote of Security Holders

No matters were submitted to a vote of Spartan Stores' shareholders during the fourth quarter of fiscal year 2001 through the solicitation of proxies or otherwise.

PART II

Item 5.                    Market for Registrant's Common Equity and Related Stockholder Matters

Until August 2, 2000, there was no established public trading market for Spartan Stores' securities. However, on August 2, 2000, Spartan Stores common stock began trading on the National Market System of the Nasdaq Stock Market under the trading symbol "SPTN."

The following table sets forth the high and low sale prices for Spartan Stores common stock for the periods indicated, all as reported by Nasdaq:

*The second quarter of Spartan Stores' 2001 fiscal year ran from June 18, 2000 to September 9, 2000. However, as noted above, Spartan Stores common stock did not begin trading on Nasdaq until August 2, 2000.

At June 11, 2001, there were approximately 795 record holders of Spartan Stores common stock. There were no holders of Spartan Stores preferred stock as of that date.

The amount of quarterly dividends for the fiscal year ended March 25, 2000 was $0.0125 per share of Spartan Stores Class A common stock. During the fiscal year ended March 31, 2001, Spartan Stores paid quarterly dividends of $0.0125 per share of Class A common stock for the first quarter, which ended on June 17, 2000, but did not pay any dividends for the other three quarters of that fiscal year.

Spartan Stores' bank credit agreement prohibits Spartan Stores or its subsidiaries from making any "Restricted Payments" in excess of (1) $5,000,000 plus (2) "Excess Cash Flow" that is not required to be paid to the lenders under the credit agreement as a mandatory prepayment. Generally, Restricted Payments include (1) any non-stock dividend or other distribution on account of stock ownership, (2) redemptions or purchases of Spartan Stores stock, (3) retirement of any indebtedness other than the obligations owing under the credit agreement, (4) payment of any claim relating to (a) indebtedness other than the obligations owing under the credit agreement or (b) Spartan Stores stock and (5) any payment of management fees to any holder of Spartan Stores stock or any member of Spartan Stores' management. Spartan Stores is required to make an annual mandatory prepayment of Excess Cash Flow equal to 75% of such Excess Cash Flow for Spartan Stores' immediately preceding fiscal year, unless Spartan Stores' leverage ratio is less than or equal to 2.5 to 1.0, in which event Spartan Stores' mandatory prepayment is equal to 50% of Excess Cash Flow. Generally, Excess Cash Flow is defined in the credit agreement as EBITDA (earnings before interest, taxes, depreciation, and amortization), less (1) income taxes, (2) interest expenses, (3) principal payments of indebtedness, (4) capital expenditures and (5) permitted Restricted Payments, all calculated in accordance with generally accepted accounting principles .

Item 6.                    Selected Financial Data

The following table provides selected historical consolidated financial information of Spartan Stores. The historical information of Spartan Stores was derived from its audited consolidated financial statements for and as of each of the five fiscal years ended March 29, 1997 through March 31, 2001.

(In thousands, except per share data)

Results of Operations

The following table sets forth items from Spartan Stores' consolidated statements of earnings as percentages of net sales:

Net Sales

Fiscal 2001

Net sales for the fiscal year ended March 31, 2001 increased 15.7 percent to $3,505.9 million compared to $3,030.9 million for the fiscal year ended March 25, 2000. Fiscal year 2001 consisted of 53 weeks compared with 52 weeks in the prior year. Additionally, all financial information has been adjusted for the discontinuance of the insurance segment. Refer to the "Discontinued Operations" section below for more details.

Net sales for the fiscal year ended March 31, 2001 in the retail grocery segment increased 114.9 percent or $620.5 million. The increase reflects additional sales from the acquisition of retail stores during the first and third quarters of fiscal 2000, the merger with Seaway Food Town, Inc. ("Food Town") in the second quarter of fiscal 2001, the acquisition of Prevo's Family Markets, Inc. ("Prevo's") in the fourth quarter of fiscal 2001 and a 6.5 percent increase in year-to-date same store sales. Same store sales increases are the result of improved marketing programs, better in-stock positions in acquired stores, expanded hours of operations at some sites and an aggressive advertising campaign in the third quarter of fiscal year 2001. Management continues to evaluate other acquisition opportunities in the retail grocery industry and expects acquisitions to contribute to future sales growth.

Net sales for the fiscal year ended March 31, 2001 in the grocery store distribution segment, after intercompany eliminations, declined 9.2 percent or $143.3 million compared to last year. The decrease

Net sales for the fiscal year ended March 31, 2001 in the convenience store distribution segment increased 0.1 percent or $0.5 million over the fiscal year ended March 25, 2000. The increase is the result of cigarette price inflation and a 53^rd week of sales. Excluding the extra week of sales, the convenience store distribution segment's sales declined as a result of increased competition in its markets and the acquisition of distribution segment customers (requiring the elimination of sales to these customers).

Fiscal 2000

Net sales for the fiscal year ended March 25, 2000 increased 14.1 percent or $375.1 million compared to the fiscal year ended March 27, 1999.

Net sales in the retail grocery segment for this period increased $540.1 million. The increase was primarily the result of the acquisition of 47 retail grocery stores since the third quarter of fiscal 1999. While price inflation in Spartan Stores' retail grocery segment was negligible, comparable store sales increased approximately 2.3 percent primarily due to Spartan Stores' promotional programs and emphasis on product line expansion.

Net sales in the grocery store distribution segment for the fiscal year ended March 25, 2000 declined 13.2 percent or $237.7 million. The decrease primarily resulted from Spartan Stores' acquisition of four grocery store distribution segment customers since January 1999, requiring the elimination of intercompany sales to these customers. The segment also experienced declines in sales of grocery products due to continued competitive market conditions. Partially offsetting these declines were increases in sales of perishable commodities as well as increases in direct sales of pharmacy and delicatessen products. Spartan Stores' success in increasing sales of perishable commodities was primarily attributable to aggressive promotions and the move from its cost-plus pricing methodology to a traditional variable markup pricing method for frozen and dairy products, meat, and produce to better respond to changing market conditions.

Net sales in the convenience store distribution segment for the fiscal year ended March 25, 2000 increased 8.7 percent or $73.0 million. The increase was primarily the result of an increase in the average sales price for cigarettes, which totaled approximately $3.10 per carton or roughly 22 percent from fiscal year ended March 27, 1999. However, the increase in sales price was partially offset by reductions in total average carton sales. Sales of products unrelated to cigarettes rose from the prior year which was primarily attributable to Spartan Stores' continued focus on its competitive pricing structure, promotional programs and customer service.

Gross Profit

Fiscal 2001

Gross profit, as a percentage of net sales for the fiscal year ended March 31, 2001, increased to 15.6 percent compared to 12.8 percent last year. The increase reflects the increased percentage of retail sales in the business mix and improvements in the gross margin of existing retail and grocery store distribution segments. This increase was partially offset by a lower convenience store distribution gross profit

percentage primarily due to increased cigarette costs passed along to customers and increased competitive pricing.

As stated above, management continues to evaluate other acquisition opportunities in the retail grocery segment and expects these anticipated acquisitions to contribute to future increased gross profit margins.

Fiscal 2000

Gross profit as a percentage of net sales for the fiscal year ended March 25, 2000 was 12.8 percent, compared to 9.7 percent for the fiscal year ended March 27, 1999. The increase is primarily attributable to Spartan Stores' entrance into the retail grocery business, for which gross margins as a percentage of sales are typically higher than in wholesale operations. Gross profit in Spartan Stores' grocery store distribution segment increased due to lower product costs resulting from promotional activities with vendors. These increases were partially offset by gross profits returning to a more historical level in the convenience store distribution segment. During fiscal year 1999, the convenience store distribution segment experienced gross profits substantially above historical levels due to the sale of cigarettes purchased prior to price increases.

Selling, General and Administrative Expenses

Fiscal 2001

Selling, general and administrative expenses for the fiscal year ended March 31, 2001 were 13.8 percent of net sales compared to 11.4 percent last year. The increase was primarily due to the growth of Spartan Stores' retail grocery segment, which generates a higher selling, general and administrative expense percentage than the distribution segments and additional spending for promotional programs in certain markets. The higher costs in the retail grocery segment were partially offset by improvements in the wholesale grocery operations. Management expects selling, general and administrative expenses to continue to increase as a result of the retail stores acquired during fiscal year 2001 which will be included for a full year in fiscal year 2002.

Fiscal 2000

Selling, general and administrative expenses for the fiscal year ended March 25, 2000 were 11.4 percent of net sales, compared to 8.5 percent for the fiscal year ended March 27, 1999. The increase in selling, general and administrative expenses as a percentage of net sales was primarily attributable to Spartan Stores' expansion of its retail grocery operations.

Restructuring Charge

On November 27, 2000, the convenience store distribution segment announced the closure of its Sandusky, Ohio distribution center. A restructuring charge of $1.0 million was recorded for the write-down of certain assets as well as severance pay, benefit continuation and outplacement assistance for affected associates. As of March 31, 2001, a remaining accrual of $0.2 million exists for costs expected to be incurred.

On October 14, 1998, Spartan Stores' board of directors approved an initiative to replace Spartan Stores' Plymouth, Michigan distribution center with a new multi-commodity distribution center. Accordingly, $6.5 million had been accrued for contractual amounts to be paid under a collective bargaining agreement, severance pay, and amounts due in connection with the withdrawal from the union pension

plan. During fiscal year 2000, Spartan Stores acquired land for approximately $1.3 million in the Toledo, Ohio area for the construction of the new distribution facility.

Subsequent to the above developments, management and Spartan Stores' collective bargaining work force entered into discussions on how efficiency at the current location could be improved. On November 2, 1999, management of Spartan Stores and the collective bargaining work force reached an agreement to begin to design innovative work teams with the goal to improve warehouse productivity. Due to Spartan Stores' significant commitment to its retail grocery business and the potential for improved productivity at its Plymouth facility, Spartan Stores reconsidered its decision to close this facility and entered into a five-year lease agreement on the Plymouth distribution center. Therefore, Spartan Stores reduced the restructuring accrual by $5.6 million to reflect costs that no longer were expected to be incurred. As of March 31, 2001, no remaining accrual exists for the Plymouth distribution center.

Interest Expense and Income

Fiscal 2001

Interest expense was .9 percent of net sales for the fiscal years ended March 31, 2001 and March 25, 2000. Total average borrowings increased to $317.5 million for fiscal year ended March 31, 2001 from $283.5 million for the prior year as a result of the acquisitions of Food Town's 71 stores and 10 stores from Prevo's. The effective borrowing rate increased to 9.84 percent at March 31, 2001 from 9.63 percent last year. Interest expense as a percentage of sales was constant due to an increase in average borrowings and effective interest rate offset by increased sales volumes resulting from the acquisitions during fiscal year 2001.

Interest on Spartan Stores' bank credit facility is payable quarterly based on the applicable LIBOR rate (currently the 90-day LIBOR) or the applicable Base Rate (higher of the prime rate or the federal funds rate plus 0.5 percent per annum) plus stipulated margins. While Spartan Stores is subject to variable interest rates, an interest rate swap agreement is used to manage interest rate risk on 49 percent of the $304.0 million currently outstanding. Refer to the "Liquidity and Capital Resources" section below for more information regarding this credit facility.

Interest income decreased slightly from fiscal year 2000 due to cash used for the retail acquisitions. Management expects interest income to continue to decline during the next fiscal year due to cash used for acquisitions.

Fiscal 2000

Interest expense for the fiscal year ended March 25, 2000 was 0.9 percent of net sales, compared to 0.3 percent for the fiscal year ended March 27, 1999.

Total average borrowings increased to $283.5 million for the fiscal year ended March 25, 2000, up from $195.7 million for the fiscal year ended March 27, 1999. A majority of the increase occurred in the retail grocery segment due to Spartan Stores' acquisition of 47 retail grocery stores during fiscal 1999 and fiscal 2000. In addition, Spartan Stores' effective borrowing rate increased to 9.63 percent per annum for the fiscal year ended March 25, 2000, up from 5.52 percent per annum for the fiscal year ended March 27, 1999. The increase was attributable to a new bank credit facility that was entered into during the fourth quarter of fiscal 1999.

Interest income increased for the fiscal year ended March 25, 2000 primarily due to the short-term investment of cash borrowed under the credit facility in anticipation of Spartan Stores' acquisitions.

Other Gains

The net gain of $2.5 million for fiscal year ended March 31, 2001 was primarily due to a $3.3 million gain on the sale of three properties in the real estate segment as well as a gain of $0.2 million from the sale of stock in a supplier. Partially offsetting these gains was an impairment loss of $1.1 million on technology related equipment in the grocery store distribution segment.

The net gain of $1.5 million for fiscal year ended March 25, 2000, was predominately the result of recognized gains of approximately $2.8 million on the sale of stock as well as approximately $0.7 million on the sale of land. Offsetting these gains was an impairment loss of $1.3 million attributable to the discontinuance of a software implementation project and an impairment loss of approximately $1.1 million on a property vacated by a lessee.

The net gain of $1.2 million for the fiscal year ended March 27, 1999 was due primarily to approximately $1.9 million in gains on the sales of three retail properties, offset by losses of approximately $0.7 million on the write-down of certain assets. These assets included certain technology related equipment in connection with the implementation of a logistics software package and assets associated with the closing of administrative offices in conjunction with Spartan Stores' continuing efforts to centralize existing processes.

Discontinued Operations

In January 2001, Spartan Stores' board of directors approved management's plan to discontinue the operations of the insurance segment. Accordingly, Spartan Stores reported the results of operations of the insurance segment and the estimated net loss on disposal as discontinued operations.

During the fourth quarter of fiscal year 2001, Spartan Stores sold the insurance agency component of its insurance segment and expects to dispose of the remaining insurance segment during fiscal year 2002. Spartan Stores has recognized an estimated net loss of $0.4 million on the discontinuance of the insurance segment.

During fiscal year 2000, Spartan Stores sold all of the issued and outstanding shares of capital stock of Shield Benefit Administrators, Inc., a wholly owned subsidiary in Spartan Stores' insurance segment. The gain of $0.2 million was recognized in the year ended March 25, 2000.

Extraordinary Item

During the fourth quarter of fiscal year 1999, Spartan Stores incurred a pre-payment penalty of approximately $1.6 million in connection with the repayment of senior notes outstanding. This extraordinary item was recorded in the grocery store distribution segment. The payment of the senior notes was required as a result of Spartan Stores' new bank credit facility discussed in the "Liquidity and Capital Resources" section below.

Net Earnings

Net earnings for the fiscal year ended March 31, 2001 increased to $23.4 million compared to $17.2 million for the fiscal year ended March 25, 2000. The increase in net earnings is primarily the result of

the acquisition of Food Town, increased profitability in the other retail locations and the sale of three properties in the real estate segment. The increase was partially offset by the recognition of the estimated net loss on the sale of the insurance segment. Management expects operations to continue to improve in the retail grocery segment due to anticipated operational synergies resulting from the acquisitions.

Net earnings for the fiscal year ended March 25, 2000 were $17.2 million, compared to $14.8 million for the fiscal year ended March 27, 1999. The increase in net earnings was primarily due to improved gross profits and the reversal of the restructuring charge in the grocery store distribution segment. This increase was partially offset by declines in the convenience store distribution segment resulting from a return in gross profits to historical amounts and a loss in the retail grocery segment's first year of operations.

Liquidity and Capital Resources

Net cash from operating activities was $58.3 million in fiscal year 2001, $52.6 million in fiscal 2000 and $53.9 million in fiscal 1999. Net cash from operating activities increased in fiscal 2001 due to increased net income and changes in working capital. Net cash from operating activities in fiscal year 2000 decreased primarily as a result of changes in working capital.

Net cash used by investing activities was $115.6 million, $36.4 million and $71.3 million for the years ended March 31, 2001, March 25, 2000 and March 27, 1999, respectively. Cash used by investing activities increased in fiscal year 2001 primarily due to increased capital expenditures and cash used for the acquisitions of Food Town and Prevo's. The decrease in cash used by investing activities in 2000 is the result of cash used to acquire 47 retail grocery stores offset by the decrease in restricted cash.

Net cash provided by financing activities was $48.5 million for fiscal year 2001 due primarily to cash borrowed to finance the acquisitions of Food Town and Prevo's, partially offset by debt repayments. Cash used in financing activities was $8.5 million for fiscal year 2000 due to the repayment of debt and purchase of common stock.

Spartan Stores' principal sources of liquidity are cash generated from operations and borrowings under a senior secured credit facility. The credit facility dated March 18, 1999 consists of (i) a Revolving Credit Facility in the amount of $100 million with a term of six years, (ii) a Term Loan A in the amount of $100 million with a term of six years, (iii) an Acquisition Facility in the amount of $75 million with a term of seven years and (iv) a Term Loan B in the amount of $150 million with a term of eight years. At March 31, 2001, $304 million was outstanding under this credit facility. Management believes that cash generated from operations and available borrowings under the credit facility will be sufficient to support operations in the foreseeable future. Available borrowings under the credit facility are based on stipulated levels of earnings before interest, taxes, depreciation and amortization as defined in the agreement.

Spartan Stores is also permitted to sell variable rate promissory notes under a "shelf" registration statement filed with the Securities and Exchange Commission, effective February 26, 2001, which provides for the issuance of up to $100 million of debt securities. The notes are offered in minimum denominations of $1,000 and may be issued by Spartan Stores at any time, although Spartan Stores' credit facility restricts the total amount outstanding under the offering to approximately $15.3  million. At March 31, 2001, approximately $13.7 million in notes were outstanding.

Spartan Stores' current ratio decreased from 1.53 to 1.00 at March 25, 2000 to 1.27 to 1.00 at March 31, 2001 and working capital decreased from $88.5 million to $69.1 million. The declines are primarily the result of installments under Spartan Stores' credit facility becoming current and cash expended for the Seaway and Prevo's acquisitions.

Spartan Stores' debt to equity ratio decreased from 2.11 to 1.00 at March 25, 2000 to 1.40 to 1.00 at March 31, 2001. The decrease was due primarily to the issuance of 6.2 million shares of common stock in connection with the Food Town merger, the lower leverage position associated with these operations, scheduled principal payments on outstanding debt and net income generated during the period. Management continues to evaluate other acquisition opportunities, which if consummated could increase Spartan Stores' leverage position.

Spartan Stores' total capital structure includes borrowings under the senior secured credit facility, variable rate promissory notes, various other debt instruments, leases, and shareholders' equity. Management continues to evaluate other acquisition opportunities, which could result in additional borrowings and additional leases being entered into if consummated.

Recent Accounting Pronouncements

During the third quarter of fiscal year 2001, Spartan Stores adopted Staff Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in Financial Statements." SAB No. 101 provides guidance on recognition, presentation, and disclosure of revenue in financial statements. The adoption of SAB No. 101 did not have a material impact on Spartan Stores' financial position and results of operations.

Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative Instruments and Hedging Activities," is effective for all fiscal years beginning after June 18, 2000. SFAS 133, as amended and interpreted, establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. All derivatives, whether designated in hedging relationships or not, will be required to be recorded on the balance sheet at fair value. If the derivative is designated in a cash-flow hedge, changes in fair value of the derivative will be recorded in other comprehensive income (OCI) and will be recognized in the statement of earnings when the hedged item affects earnings. SFAS 133 defines new requirements for designation and documentation of hedging relationships as well as ongoing effectiveness assessments in order to use hedge accounting. For a derivative that does not qualify as a hedge, changes in fair value will be recognized in earnings.

Spartan Stores expects at April 1, 2001, it will record $2.4 million in OCI as a cumulative transition adjustment for derivatives designated in cash flow-type hedges prior to adopting SFAS 133.

Cautionary Statements for Purposes of the Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1995

The matters discussed in this Annual Report on Form 10-K include "forward-looking statements" about Spartan Stores' plans, strategies, objectives, goals, expectations or projections. These forward-looking statements are identifiable by words or phrases indicating that Spartan Stores or management "expects," "anticipates," "projects," "plans" or "believes" that a particular occurrence "may result" or "will likely result" or that a particular event "may occur" or "will likely occur" in the future, or similarly stated expectations. You should not place undue reliance on these forward-looking statements, which speak only as of the date of this Annual Report. In addition to other risks and uncertainties described in connection with the forward-looking statements contained in this Annual Report on Form 10-K, there are many important factors that could cause actual results to be materially different from Spartan Stores' current expectations.

Anticipated future sales are subject to competitive pressures from many sources. Spartan Stores' grocery store and convenience store retail and distribution businesses compete with many warehouse discount

stores, supermarkets, pharmacies and product manufacturers. Additionally, future sales will be dependent on the number of retail stores owned and operated by Spartan Stores and competitive pressures in the retail industry. Sales volumes in Spartan Stores' convenience store distribution segment may continue to be negatively impacted by increased cigarette and gasoline prices. Competitive pressures in this and other business segments may result in unexpected reductions in sales volumes, product prices or service fees.

Spartan Stores' selling, general and administrative expenses may be adversely affected by unexpected costs associated with, among other factors: the acquisitions of Food Town and Prevo's; the integration of the business operations of the retail stores and other businesses acquired by Spartan Stores; future business acquisitions, including additional retail stores; unanticipated difficulties in the operation of the retail grocery segment; difficulties in assimilation of acquired personnel, operations, systems or procedures; inability to realize synergies in the amounts or within the time frame expected by management; adverse effects on existing business relationships with independent retail grocery store customers; unexpected difficulties in the retention or hiring of employees for the acquired businesses; unanticipated labor shortages, stoppages or disputes; business divestitures; increased transportation or fuel costs; and current or future lawsuits and administrative proceedings. Spartan Stores' future interest expense and income also may differ from current expectations, depending upon the following, among other factors: the amount of additional borrowings necessary for retail store acquisitions; interest rate changes; cigarette inventory levels; retail property sales; the volume of notes receivable; and the amount of fees received on delinquent accounts.

This section is intended to provide meaningful cautionary statements for purposes of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. This should not be construed as a complete list of all economic, competitive, governmental, technological and other factors that could adversely affect Spartan Stores' expected consolidated financial position, results of operations or liquidity. Spartan Stores disclaims any obligation to update its forward-looking statements to reflect events or circumstances that occur after the date of this Report.

Item 7A.          Quantitative and Qualitative Disclosure About Market Risk

Spartan Stores is exposed to interest rate risk related to its debt outstanding and notes receivable from customers. The interest rate paid on a majority of Spartan Stores' debt outstanding is vulnerable to changes in either the prime rate, the federal funds rate or the eurodollar rate. Interest received on notes receivable from customers is vulnerable to changes in the prime rate. Spartan Stores does not use financial instruments or derivatives for trading or speculative purposes.

Spartan Stores manages interest rate risk on a portion of its debt through the use of an interest rate swap agreement that is effective from June 30, 1999 to June 30, 2003. Under the terms of the agreement, Spartan Stores is protected against increases in interest rates from and after the date of the contract in the initial aggregate notional amount of $162.5 million which amount decreases in proportion to principal payments made on Term Loan A and Term Loan B under Spartan Stores' credit facility. The aggregate notional amount will be $123.7 million at the end of the contract's four-year term.

The following table sets forth the maturities of Spartan Stores' debt outstanding as of March 31, 2001: