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 |
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For the quarterly period ended September 13, 2003. |
OR
|
o |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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For the transition period from ______________ to ______________. |
Commission File Number: 000-31127
SPARTAN STORES, INC.
(Exact Name of Registrant as Specified in Its Charter)
|
Michigan |
38-0593940 |
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850 76th Street, S.W. |
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(616) 878-2000 |
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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.
|
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Yes X |
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No |
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Securities Exchange Act).
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Yes |
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No X |
As of October 11, 2003 the registrant had 20,053,257 outstanding shares of common stock, no par value.
FORWARD-LOOKING STATEMENTS
The matters discussed in this Quarterly Report on Form 10-Q include "forward-looking statements" about the plans, strategies, objectives, goals or expectations of Spartan Stores, Inc. (together with its subsidiaries, "Spartan Stores"). These forward-looking statements are identifiable by words or phrases indicating that Spartan Stores or management "expects," "anticipates," "projects," "plans," "believes," "estimates," "intends," is "optimistic" or "confident" that a particular occurrence "will," "may," "could," "should" or "will likely" result or that a particular event "will," "may," "could," "should" or "will likely" occur in the future, that the "trend" is toward a particular result or occurrence, or similarly stated expectations. Accounting estimates, such as those described under the heading "Critical Accounting Policies" in Item 2 of this Form 10-Q, are inherently forward-looking. You should not place undue reliance on these forward-lookin g statements, which speak only as of the date of this Quarterly Report.
In addition to other risks and uncertainties described in connection with the forward-looking statements contained in this Quarterly Report on Form 10-Q, Spartan Stores' Annual Report on Form 10-K for the year ended March 29, 2003 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 strengthen our retail-store performance; improve sales growth; increase gross margin; reduce operating costs; sell on favorable terms assets classified as held for sale; continue to meet the terms of our debt covenants; renegotiate or refinance our credit facility; and implement the other programs, plans, strategies, objectives, goals or expectations described in this Quarterly Report 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 distr ibution industries and other factors including, but not limited to, those discussed below.
Anticipated future sales are subject to competitive pressures from many sources. Our Retail and Grocery Distribution businesses compete with many warehouse discount stores, supermarkets, pharmacies and product manufacturers. Future sales will be dependent on the number of retail stores that we own and operate, competitive pressures in the retail industry generally and our geographic markets specifically and our ability to implement effective new marketing and merchandising programs. Competitive pressures in these and other business segments may result in unexpected reductions in sales volumes, product prices or service fees.
Our operating and administrative expenses may be adversely affected by unexpected costs associated with, among other factors: difficulties in the operation of our business segments; future business acquisitions; adverse effects on business relationships with independent retail grocery store customers; difficulties in the retention or hiring of employees; labor shortages, stoppages or disputes; business and asset divestitures; increased transportation or fuel costs; current or future lawsuits and administrative proceedings; and losses of, or financial difficulties of, customers or suppliers. Our operating and administrative expenses could also be adversely affected by changes in our sales mix. Our ongoing cost reduction initiatives and changes in our marketing and merchandising programs may not be as successful as we anticipate. Acts of terrorism or war have in the past and may in the future result in considerable economic and political uncertaint ies that could have adverse effects on consumer buying behavior, fuel costs, shipping and transportation, product imports and other factors affecting our company and the grocery industry generally.
Our future interest expense and income also may differ from current expectations, depending upon, among other factors: the amount of additional borrowings; changes in our borrowing agreements; changes in the interest rate environment; and changes in the amount of fees received or paid. The availability of our senior secured credit facility depends on compliance with the terms of the credit facility and related waiver agreements.
As discussed in this Form 10-Q, we have recently completed sales of substantially all of the assets of L&L/Jiroch Distributing Company and J.F. Walker Company, Inc., most Food Town stores and have closed all Food Town stores not sold. We believe that these sales and closings will allow us to better focus our efforts and capital on key strategic markets where we have the strongest growth and value creation opportunities. However, we cannot assure you that these transactions will be beneficial to our company. The agreements relating to some of these transactions require us to indemnify these asset buyers for breaches of our representations and warranties contained in the agreements and certain other matters.
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 our expected consolidated financial position, results of operations or liquidity. 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.
PART I
FINANCIAL INFORMATION
|
ITEM 1. |
Financial Statements |
SPARTAN STORES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
|
|
September 13, |
|
March 29, |
|
||
|
|
|
|
|
|
|
|
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Current assets |
|
|
|
|
|
|
|
Cash and cash equivalents |
$ |
15,121 |
|
$ |
23,306 |
|
|
Marketable securities |
|
1,622 |
|
|
1,705 |
|
|
Accounts receivable, net |
|
52,283 |
|
|
70,747 |
|
|
Inventories |
|
103,857 |
|
|
138,095 |
|
|
Prepaid expenses and other current assets |
|
10,587 |
|
|
13,141 |
|
|
Refundable income taxes |
|
- |
|
|
9,349 |
|
|
Deferred taxes on income |
|
7,748 |
|
|
4,113 |
|
|
Property and equipment held for sale |
|
7,521 |
|
|
54,684 |
|
|
Total current assets |
|
198,739 |
|
|
315,140 |
|
|
|
|
|
|
|
|
|
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Other assets |
|
|
|
|
|
|
|
Goodwill, net |
|
68,700 |
|
|
68,743 |
|
|
Deferred taxes on income |
|
22,881 |
|
|
25,566 |
|
|
Other, net |
|
25,068 |
|
|
26,785 |
|
|
Total other assets |
|
116,649 |
|
|
121,094 |
|
|
|
|
|
|
|
|
|
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Property and equipment, net |
|
111,779 |
|
|
120,072 |
|
|
|
|
|
|
|
|
|
|
Total assets |
$ |
427,167 |
|
$ |
556,306 |
|
|
|
|
|
|
|
|
|
|
Liabilities and Shareholders' Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities |
|
|
|
|
|
|
|
Accounts payable |
$ |
87,959 |
|
$ |
112,181 |
|
|
Accrued payroll and benefits |
|
19,540 |
|
|
28,533 |
|
|
Insurance reserves |
|
15,667 |
|
|
14,783 |
|
|
Accrued taxes |
|
11,762 |
|
|
16,735 |
|
|
Other accrued expenses |
|
10,105 |
|
|
19,150 |
|
|
Current maturities of long-term debt |
|
18,385 |
|
|
36,594 |
|
|
Total current liabilities |
|
163,418 |
|
|
227,976 |
|
|
|
|
|
|
|
|
|
|
Other long-term liabilities |
|
19,932 |
|
|
18,859 |
|
|
Postretirement benefits |
|
15,155 |
|
|
16,022 |
|
|
Long-term debt |
|
123,008 |
|
|
183,817 |
|
|
|
|
|
|
|
|
|
|
Shareholders' equity |
|
|
|
|
|
|
|
Common stock, voting, no par value; 50,000 shares |
|
|
|
|
|
|
|
Preferred stock, no par value, 10,000 |
|
|
|
|
|
|
|
Accumulated other comprehensive loss |
|
(2,537 |
) |
|
(2,816 |
) |
|
Accumulated deficit |
|
(8,285 |
) |
|
(3,940 |
) |
|
Total shareholders' equity |
|
105,654 |
|
|
109,632 |
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders' equity |
$ |
427,167 |
|
$ |
556,306 |
|
See accompanying notes to consolidated financial statements.
SPARTAN STORES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
|
|
12 Weeks Ended |
|
24 Weeks Ended |
||||||||||
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|
September 13, |
|
September 14, |
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September 13, |
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September 14, |
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||||
|
|
|
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|
|
|
|
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Net sales |
$ |
491,371 |
|
$ |
473,313 |
|
|
$ |
953,940 |
|
$ |
924,788 |
|
|
Cost of goods sold |
|
397,991 |
|
|
382,681 |
|
|
|
774,989 |
|
|
747,144 |
|
|
Gross margin |
|
93,380 |
|
|
90,632 |
|
|
|
178,951 |
|
|
177,644 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses |
|
86,108 |
|
|
81,354 |
|
|
|
172,571 |
|
|
161,359 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating earnings |
|
7,272 |
|
|
9,278 |
|
|
|
6,380 |
|
|
16,285 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income and expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
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Interest expense |
|
3,203 |
|
|
3,518 |
|
|
|
7,241 |
|
|
7,047 |
|
|
Interest income |
|
(144 |
) |
|
(156 |
) |
|
|
(347 |
) |
|
(355 |
) |
|
Other (gains) losses, net |
|
(6 |
) |
|
(426 |
) |
|
|
39 |
|
|
(429 |
) |
|
Total other income and expenses |
|
3,053 |
|
|
2,936 |
|
|
|
6,933 |
|
|
6,263 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) before income taxes, discontinued |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes |
|
1,489 |
|
|
2,309 |
|
|
|
(193 |
) |
|
3,606 |
|
|
Earnings (loss) from continuing operations |
|
2,730 |
|
|
4,033 |
|
|
|
(360 |
) |
|
6,416 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from discontinued operations, net of taxes |
|
(958 |
) |
|
(4,619 |
) |
|
|
(3,985 |
) |
|
(15,378 |
) |
Cumulative effect of a change in accounting |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss) |
$ |
1,772 |
|
$ |
(586 |
) |
|
$ |
(4,345 |
) |
$ |
(44,339 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted earnings (loss) per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) from continuing operations |
$ |
0.14 |
|
$ |
0.20 |
|
|
$ |
(0.02 |
) |
$ |
0.32 |
|
|
Loss from discontinued operations |
|
(0.05 |
) |
|
(0.23 |
) |
|
|
(0.20 |
) |
|
(0.78 |
) |
|
Cumulative effect of a change in accounting principle |
|
- |
|
|
- |
|
|
|
- |
|
|
(1.78 |
) |
|
Net earnings (loss) |
$ |
0.09 |
|
$ |
(0.03 |
) |
|
$ |
(0.22 |
) |
$ |
(2.24 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
19,947 |
|
|
19,857 |
|
|
|
19,962 |
|
|
19,832 |
|
|
Diluted |
|
20,077 |
|
|
19,857 |
|
|
|
19,962 |
|
|
19,832 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
SPARTAN STORES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(In thousands, except per share data)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance -- March 31, 2002 |
|
19,766 |
|
$ |
115,722 |
|
$ |
(2,622 |
) |
$ |
118,392 |
|
$ |
231,492 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
- |
|
|
- |
|
|
- |
|
|
(122,332 |
) |
|
(122,332 |
) |
|
Other comprehensive (loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gain on interest rate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minimum pension liability |
|
|
|
|
- |
|
|
|
|
|
- |
|
|
|
|
|
Unrealized gain on securities |
|
- |
|
|
- |
|
|
157 |
|
|
|
|
|
157 |
|
|
Total other comprehensive loss |
|
- |
|
|
- |
|
|
(194 |
) |
|
- |
|
|
(194 |
) |
|
Total comprehensive loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
(122,526 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock transactions: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuances |
|
233 |
|
|
666 |
|
|
- |
|
|
- |
|
|
666 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance -- March 29, 2003 |
|
19,999 |
|
|
116,388 |
|
|
(2,816 |
) |
|
(3,940 |
) |
|
109,632 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
- |
|
|
- |
|
|
- |
|
|
(4,345 |
) |
(4,345 |
) |
|
|
Other comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gain on interest rate |
|
- |
|
|
- |
|
|
372 |
|
|
- |
|
|
372 |
|
|
Unrealized loss on securities |
|
- |
|
|
- |
|
|
(93 |
) |
|
- |
|
|
(93 |
) |
|
Total other comprehensive income |
|
- |
|
|
- |
|
|
279 |
|
|
- |
|
|
279 |
|
|
Total comprehensive loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,066 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock transactions: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases |
|
(56 |
) |
|
(164 |
) |
|
|
|
|
|
|
|
(164 |
) |
|
Issuances |
|
110 |
|
|
252 |
|
|
- |
|
|
- |
|
|
252 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance -- September 13, 2003 |
|
20,053 |
|
$ |
116,476 |
|
$ |
(2,537 |
) |
$ |
(8,285 |
) |
$ |
105,654 |
|
See accompanying notes to consolidated financial statements.
SPARTAN STORES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
|
24 Weeks Ended |
||||||
|
September 13, |
September 14, |
|||||
|
Cash flows from operating activities |
||||||
|
Net loss |
$ |
(4,345 |
) |
$ |
(44,339 |
) |
|
Loss from discontinued operations |
3,985 |
15,378 |
||||
|
Cumulative effect of a change in accounting principle |
|
- |
|
35,377 |
||
|
(Loss) earnings from continuing operations |
(360 |
) |
6,416 |
|||
|
Adjustments to reconcile net loss to net cash |
||||||
|
provided by operating activities: |
||||||
|
Depreciation and amortization |
13,408 |
13,668 |
||||
|
Restricted stock compensation |
252 |
- |
||||
|
Postretirement benefits |
(867 |
) |
213 |
|||
|
Deferred taxes on income |
(960 |
) |
(3,256 |
) |
||
|
Other gains, net |
(31 |
) |
(49 |
) |
||
|
Change in operating assets and liabilities: |
||||||
|
Accounts receivable |
(1,161 |
) |
254 |
|||
|
Inventories |
5,440 |
(9,019 |
) |
|||
|
Prepaid expenses and other assets |
3,374 |
(1,452 |
) |
|||
|
Refundable income taxes |
9,349 |
- |
||||
|
Accounts payable |
(13,357 |
) |
11,446 |
|||
|
Accrued payroll and benefits |
(1,367 |
) |
(1,544 |
) |
||
|
Insurance reserves |
1,118 |
(412 |
) |
|||
|
Accrued taxes |
(4,359 |
) |
2,059 |
|||
|
Other accrued expenses and other liabilities |
|
(4,639 |
) |
|
5,946 |
|
|
Net cash provided by operating activities |
5,840 |
24,270 |
||||
|
Cash flows from investing activities |
||||||
|
Purchases of property and equipment |
(4,173 |
) |
(2,952 |
) |
||
|
Net proceeds from the sale of assets |
52 |
72 |
||||
|
Other |
|
360 |
|
403 |
||
|
Net cash used in investing activities |
(3,761 |
) |
(2,477 |
) |
||
|
Cash flows from financing activities |
||||||
|
Net proceeds (payments) from revolver |
19,700 |
(13,000 |
) |
|||
|
Repayment of long-term debt |
(25,974 |
) |
(9,880 |
) |
||
|
Financing fees paid |
(2,535 |
) |
(2,864 |
) |
||
|
Proceeds from sale of common stock |
|
- |
|
434 |
||
|
Net cash used in financing activities |
(8,809 |
) |
(25,310 |
) |
||
|
Discontinued operations: |
||||||
|
Net cash (used in) provided by discontinued operations |
|
(1,455 |
) |
|
6,826 |
|
|
Net (decrease) increase in cash and cash equivalents |
(8,185 |
) |
3,309 |
|||
|
Cash and cash equivalents at beginning of period |
|
23,306 |
|
27,954 |
||
|
Cash and cash equivalents at end of period |
$ |
15,121 |
$ |
31,263 |
||
See accompanying notes to consolidated financial statements.
SPARTAN STORES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1
Basis of Presentation and Significant 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 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 September 13, 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.
Stock-Based Compensation
Spartan Stores has a stock incentive plan, which is more fully described in Note 13 of the Annual Report on Form 10-K. Spartan Stores accounts for the plan under the recognition and measurement principles of Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees," and related Interpretations. No stock-based compensation cost is reflected in the Statements of Operations, as all options granted under the plan had an exercise price equal to the market value of the underlying common stock on the date of grant. The following table illustrates the effect on net earnings (loss) and earnings (loss) per share as if Spartan Stores had applied the fair value recognition principles of Statement of Financial Accounting Standards ("SFAS") Statement No. 123, "Accounting for Stock-Based Compensation," to stock-based employee compensation:
(In thousands, except per share data)
|
12 Weeks Ended |
||||||
|
September 13, |
September 14, |
|||||
|
Net earnings (loss), as reported |
$ |
1,772 |
$ |
(586 |
) |
|
|
Deduct: Total stock-based employee compensation expense |
|
|
|
|
|
|
|
Pro forma net earnings (loss) |
$ |
1,627 |
$ |
(885 |
) |
|
|
Basic and diluted earnings (loss) per share -- as reported |
$ |
0.09 |
$ |
(0.03 |
) |
|
|
Basic and diluted earnings (loss) per share -- pro forma |
$ |
0.08 |
$ |
(0.04 |
) |
|
|
24 Weeks Ended |
||||||
|
September 13, |
September 14, |
|||||
|
Net loss, as reported |
$ |
(4,345 |
) |
$ |
(44,339 |
) |
|
Deduct: Total stock-based employee compensation expense |
|
|
|
|
|
|
|
Pro forma net loss |
$ |
(4,643 |
) |
$ |
(44,937 |
) |
|
Basic and diluted loss per share -- as reported |
$ |
(0.22 |
) |
$ |
(2.24 |
) |
|
Basic and diluted loss per share -- pro forma |
$ |
(0.23 |
) |
$ |
(2.27 |
) |
Reclassifications
Certain reclassifications have been made to the fiscal 2003 consolidated financial statements to conform to the fiscal 2004 presentation.
Note 2
New Accounting Standards
In April 2002 the Financial Accounting Standards Board ("FASB") issued SFAS No. 145, "Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections." Among other provisions, SFAS No.145 rescinds SFAS No. 4, "Reporting Gains and Losses from Extinguishment of Debt." As a result, gains and losses from the extinguishment of debt should be reported as extraordinary items only if they meet the criteria of APB Opinion No. 30, "Reporting the Results of Operations - Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions." Gains and losses from extinguishment of debt that do not meet the criteria of APB No. 30 should be reclassified to income from continuing operations for all periods presented. Spartan Stores adopted the provisions of SFAS No. 145 on March 30, 2003. The adoption of this statement will impact the classification on the Statement of Operations of any costs associated w ith debt extinguishment occurring in the future.
Emerging Issues Task Force ("EITF") Issue No. 02-16, "Accounting by a Reseller for Cash Consideration Received from a Vendor," provides that cash consideration received from a vendor is presumed to be a reduction of the prices of the vendor's products or services and should, therefore, be characterized as a reduction of cost of goods sold. If such payment is for assets or services delivered to the vendor, the cash consideration should be characterized as revenue, or if such payment is a reimbursement of costs incurred to sell the vendor's products, the cash consideration should be characterized as a reduction of that cost. EITF Issue No. 02-16 was adopted by Spartan Stores on March 30, 2003 and did not have a material impact on its financial statements.
Note 3
Discontinued Operations
The following table details the results of discontinued operations reported on the Consolidated Statements of Operations by operating segment:
|
(In thousands) |
12 Weeks Ended |
|||||
|
September 13, |
September 14, |
|||||
|
Discontinued retail operations | ||||||