SPARTAN STORES INC - 10-Q Quarterly Report

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 January 4, 2003.

[ ]	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

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

Michigan (State or Other Jurisdiction of Incorporation or Organization)	38-0593940 (I.R.S. Employer Identification No.)

850 76^th Street, S.W. P.O. Box 8700 Grand Rapids, Michigan (Address of Principal Executive Offices)	49518 (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

As of February 1, 2003, the registrant had 20,000,838 outstanding shares of common stock, no par value.

PART I
FINANCIAL INFORMATION

ITEM 1.

Financial Statements

SPARTAN STORES, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(In thousands)
(Unaudited)

ASSETS		January 4, 2003		March 30, 2002

Current assets:
Cash and cash equivalents	$	19,041	$	13,903
Marketable securities		1,906		10,370
Accounts receivable, net		74,905		84,533
Inventories		166,052		179,319
Prepaid expenses		9,921		8,427
Deferred income taxes		2,286		692
Property and equipment held for sale		4,036		-
Total current assets		278,147		297,244

Other assets:
Goodwill, net		68,643		155,243
Deferred income taxes		21,536		-
Other, net		22,324		25,738
Total other assets		112,503		180,981

Property and equipment, net		176,634		268,315

Total assets	$	567,284	$	746,540

LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
Accounts payable	$	116,925	$	90,327
Accrued payroll and benefits		27,623		26,624
Insurance reserves		17,833		17,263
Accrued taxes		15,826		14,451
Other accrued expenses		7,767		8,892
Current maturities of long-term debt		28,419		25,948
Total current liabilities		214,393		183,505

Deferred income taxes		-		14,490
Postretirement benefits		12,937		12,133
Other long-term liabilities		19,723		9,707
Long-term debt		188,114		295,213

Shareholders' equity:
Common stock, voting, no par value; 50,000 shares
authorized; 20,001 and 19,766 shares outstanding		116,394		115,722
Preferred stock, no par value;
10,000 shares authorized; no shares outstanding		-		-
Accumulated other comprehensive loss		(1,255	)	(2,622	)
Retained earnings		16,978		118,392
Total shareholders' equity		132,117		231,492

Total liabilities and shareholders' equity	$	567,284	$	746,540

SPARTAN STORES, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(In thousands, except per share data)
(Unaudited)

		Third Quarter (16 Weeks) Ended
		January 4, 2003			January 5, 2002

Net sales	$	995,353		$	1,061,563
Cost of goods sold		842,032			885,892
Gross margin		153,321			175,671

Operating expenses
Selling, general and administrative		163,895			169,967
Provision for asset impairments and exit costs		85,195			-
Total operating expenses		249,090			169,967

Operating (loss) earnings		(95,769	)		5,704

Other income and expenses
Interest expense		8,213			7,708
Interest income		(175	)		(577	)
Other gains, net		(787	)		(411	)
Total other income and expenses		7,251			6,720

Loss before income taxes and discontinued operations		(103,020	)		(1,016	)

Income taxes		(35,972	)		(361	)

Loss from continuing operations		(67,048	)		(655	)

Discontinued real estate operations:
Earnings from discontinued real estate operations (net of taxes)		394			420
Gain on disposal of real estate operations (net of taxes)		10,749			255
Earnings from discontinued real estate operations		11,143			675

(Loss) earnings from discontinued insurance segment (net of taxes)		(1,170	)		34

Net (loss) earnings	$	(57,075	)	$	54

Basic and diluted (loss) earnings per share:
Loss from continuing operations	$	(3.37	)	$	(0.03	)
Earnings from discontinued real estate operations		0.56			0.03
(Loss) earnings from discontinued insurance segment		(0.06	)		0.00
Net (loss) earnings	$	(2.87	)	$	0.00

Weighted average shares outstanding:
Basic		19,916			19,758
Diluted		19,916			20,009

SPARTAN STORES, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(In thousands, except per share data)
(Unaudited)

		Year-to-Date (40 Weeks) Ended
		January 4, 2003			January 5, 2002

Net sales	$	2,555,461		$	2,732,775
Cost of goods sold		2,146,279			2,265,021
Gross margin		409,182			467,754

Operating expenses
Selling, general and administrative		413,527			430,874
Provision for asset impairments and exit costs		98,195			-
Total operating expenses		511,722			430,874

Operating (loss) earnings		(102,540	)		36,880

Other income and expenses
Interest expense		19,388			19,766
Interest income		(531	)		(1,369	)
Other gains, net		(1,211	)		(2,405	)
Total other income and expenses		17,646			15,992

(Loss) earnings before income taxes, discontinued operations and cumulative effect of a change in accounting principle		(120,186	)		20,888

Income taxes		(41,850	)		6,983

(Loss) earnings from continuing operations		(78,336	)		13,905

Discontinued real estate operations:
Earnings from discontinued real estate operations (net of taxes)		1,456			1,242
Gain (loss) on disposal of real estate operations (net of taxes)		12,078			(48	)
Earnings from discontinued real estate operations		13,534			1,194

Loss from discontinued insurance segment (net of taxes)		(1,235	)		(226	)

Net (loss) earnings before cumulative effect of a change in accounting principle		(66,037	)		14,873

Cumulative effect of a change in accounting principle (net of taxes)		(35,377	)		- -

Net (loss) earnings	$	(101,414	)	$	14,873

(Continued)

SPARTAN STORES, INC. AND SUBSIDIARIES
Consolidated Statements of Operations (Continued)
(In thousands, except per share data)
(Unaudited)

		Year-to-Date (40 Weeks) Ended
		January 4, 2003			January 5, 2002

Basic (loss) earnings per share:
(Loss) earnings from continuing operations	$	(3.94	)	$	0.71
Earnings from discontinued real estate operations		0.68			0.06
Loss from discontinued insurance segment		(0.06	)		(0.01	)
Cumulative effect of a change in accounting principle		(1.78	)		-
Net (loss) earnings	$	(5.10	)	$	0.76

Diluted (loss) earnings per share:
(Loss) earnings from continuing operations	$	(3.94	)	$	0.70
Earnings from discontinued real estate operations		0.68			0.06
Loss from discontinued insurance segment		(0.06	)		(0.01	)
Cumulative effect of a change in accounting principle		(1.78	)		-
Net (loss) earnings	$	(5.10	)	$	0.75

Weighted average shares outstanding:
Basic		19,865			19,483
Diluted		19,865			19,748

SPARTAN STORES, INC. AND SUBSIDIARIES
Consolidated Statements of Shareholders' Equity
(In thousands)
(Unaudited)

	Shares Outstanding			Common Stock			Accumulated Other Comprehensive Loss			Retained Earnings			Total

Balance - April 1, 2001	19,262		$	109,868		$	-		$	108,545		$	218,413

Comprehensive income:
Net earnings	-			-			-			9,847			9,847
Other comprehensive loss, net of tax:
Cumulative effect of a change in accounting principle	- -			- -			(1,588	)		- -			(1,588	)
Unrealized loss on securities	-			-			(36	)		-			(36	)
Minimum pension liability adjustment	- -			- -			(137	)		- -			(137	)
Net loss on interest rate swap agreements	- -			- -			(861	)		- -			(861	)
Total other comprehensive loss	-			-			(2,622	)		-			(2,622	)
Total comprehensive income													7,225

Common stock transactions:
Purchases	(4	)		(33	)		-			-			(33	)
Issuances	508			5,887			-			-			5,887

Balance - March 30, 2002	19,766			115,722			(2,622	)		118,392			231,492

Comprehensive loss:
Net loss	-			-			-			(101,414	)		(101,414	)
Other comprehensive income, net of tax:
Unrealized gain on securities	-			-			133			-			133
Net gain on interest rate swap agreements	- -			- -			1,234			- -			1,234
Total other comprehensive income	-			-			1,367			-			1,367
Total comprehensive loss													(100,047	)

Common stock transactions:
Issuances	235			672			-			-			672

Balance - January 4, 2003	20,001		$	116,394		$	(1,255	)	$	16,978		$	132,117

SPARTAN STORES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)

		Year-to-Date (40 Weeks) Ended
		January 4, 2003			January 5, 2002
Cash flows from operating activities:
Net (loss) earnings	$	(101,414	)	$	14,873
Adjustments to reconcile net (loss) earnings to
net cash provided by operating activities:
Cumulative effect of a change in accounting principle		35,377			-
Provision for asset impairments and exit costs		98,195			-
Depreciation and amortization		34,236			36,663
Postretirement benefits		804			(1,589	)
Deferred taxes on income		(32,133	)		839
Other gains, net		(19,078	)		(2,365	)
Changes in operating assets and liabilities:
Marketable securities		8,669			11,567
Accounts receivable		9,628			(6,777	)
Inventories		13,268			(29,358	)
Prepaid expenses and other assets		(4,852	)		(131	)
Accounts payable		26,298			(8,352	)
Accrued payroll and benefits		999			(7,812	)
Insurance reserves		570			(1,884	)
Accrued taxes		1,375			8,174
Other accrued expenses and other liabilities		(535	)		(3,447	)
Net cash provided by operating activities		71,407			10,401

Cash flows from investing activities:
Purchases of property and equipment		(13,608	)		(26,547	)
Net proceeds from the sale of assets		55,137			14,262
Acquisition costs		-			(2,106	)
Other		1,198			(1,514	)
Net cash provided by (used in) investing activities		42,727			(15,905	)

Cash flows from financing activities:
Net (payments) proceeds on Revolving Credit Facility		(7,600	)		27,300
Proceeds from long-term borrowings		-			3,988
Repayment of long-term debt		(98,013	)		(33,414	)
Debt issuance costs		(4,055	)		(276	)
Proceeds from sale of common stock		672			784
Common stock purchased		-			(33	)
Net cash used in financing activities		(108,996	)		(1,651	)

Net increase (decrease) in cash and cash equivalents		5,138			(7,155	)
Cash and cash equivalents at beginning of period		13,903			21,577
Cash and cash equivalents at end of period	$	19,041		$	14,422

SPARTAN STORES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

Note 1
Accounting Policies

The Consolidated Financial Statements include the accounts of Spartan Stores, Inc. and its subsidiaries ("Spartan Stores"). All significant intercompany accounts and transactions have been eliminated.

In the opinion of management, the accompanying unaudited consolidated financial statements, taken as a whole, contain all adjustments which are of a normal recurring nature necessary to present fairly the financial position of Spartan Stores as of January 4, 2003, and the results of its operations and cash flows for the interim periods presented. Interim results are not necessarily indicative of results for a full year.

The accounting policies followed in the presentation of interim financial results are the same as those followed on an annual basis, except as disclosed below and in Note 2. These policies are presented in Note 1 to the Consolidated Financial Statements included in Spartan Stores' Annual Report on Form 10-K for the fiscal year ended March 30, 2002, filed with the Securities and Exchange Commission on June 28, 2002.

Property and equipment held for sale consists of land, buildings and equipment that Spartan Stores expects to sell within twelve months. The assets are included in the following segments (in thousands):


Retail Grocery	$	1,412
Grocery Distribution		914
Real Estate		1,710
Total	$	4,036

Certain reclassifications have been made to the fiscal 2002 consolidated financial statements to conform to the fiscal 2003 presentation.

Note 2
Cumulative Effect of a Change in Accounting Principle and New Accounting Standards

In June 2001, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 141, "Business Combinations," and SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS No. 141 requires the purchase method of accounting to be applied to all business combinatio