2018 Annual Report
2018 SpartanNash Annual Report
Financial Highlights
December 28, 20131
Net Sales (in billions)
December 28, 20132
$2.60
$3.19
January 3, 20151
January 2, 2016
December 31, 2016
December 30, 2017
December 29, 2018
December 28, 20131
Adjusted EBITDA (in millions)
December 28, 20132
$97
$127
January 3, 20151
January 2, 2016
December 31, 2016
December 30, 2017
December 29, 2018
Operating Cash Flows (in millions)
January 3, 20151
January 2, 2016
December 31, 2016
December 30, 2017
December 29, 2018
$53
$139
$157
$172
$7.67
$7.53
$7.56
$7.96
$8.06
53rd week impact
$7.67
$7.81
$7.53
$7.56
$7.96
$8.06
$233
$237
$229
$231
$236
$209
$219
The adjusted financial information presented reflects non GAAP financial measures. Please see pages 26-30 and page 36 of the enclosed Form 10-K for the
respective reconciliations of these measures. (Dollars in millions, except per share data and percentage data)
Year Ended
53 Weeks1
1/3/2015
52 Weeks
1/2/2016
52 Weeks
52 Weeks
12/31/2016 12/30/2017
Net sales
Gross profit margin
Operating earnings
Adjusted operating earnings
Earnings (loss) from continuing operations
Adjusted earnings from continuing operations
Earnings (loss) from continuing operations per diluted share
Adjusted earnings from continuing operations per diluted share
Adjusted EBITDA
Cash provided from operating activities
Total debt
Total net long term debt
$ 7,806
14.8%
$ 7,528
14.8%
117
139
59
70
1.57
1.85
237
139
561
555
123
141
63
75
1.67
1.98
229
219
487
464
$ 7,561
$ 7,964
14.7%
109
149
57
82
1.52
2.19
231
157
431
407
14.4%
(107)
143
(53)
79
(1.41)
2.10
236
53
750
734
52 Weeks
12/29/2018
$8,065
13.8%
71
116
34
67
0.94
1.87
209
172
698
679
1 Fiscal year ended January 3, 2015 include a 53rd week of operations due to the Company’s fiscal calendar. For the year ended January 3, 2015, the 53rd week contributed sales of $133.3 million,
operating earnings of $3.7 million, earnings from continuing operations of $2.0 million or $0.05 per diluted share, and adjusted EBITDA of $3.7 million.
Letter to our Shareholders
Fiscal 2018 was a year of great opportunity and challenge. While we did
not achieve the financial results we expected, our associates worked as
one team to position SpartanNash to succeed across our Food Distribution,
Military and Retail business segments in a dynamic operating environment.
We expanded our business with new and existing customers in Food
Distribution, grew our private brand and traditional offerings in Military and
continued to execute our brand positioning initiatives in Retail.
Our Company has recently executed several strategic actions that will
position us to deliver on our long-term objectives and provide value to
shareholders. First, we amended our current credit facility, allowing for
additional capacity and enabling growth through acquisition. Second,
we acquired Martin’s Super Markets (“Martin’s”), a highly respected food
retailer with complementary brand positioning and store footprint to our
current corporate owned retail stores. Third, we made strategic additions to the senior management team through the
hiring of a new Chief Merchandising and Marketing Officer, Lori Raya, and Chief Information Officer, Arif Dar. Both of these
individuals bring extensive experience in their fields and will play key roles in carrying forward the initiatives of the Company.
Lastly, we launched Project One Team, an intensive company-wide initiative to increase efficiency and reduce costs, while
facilitating growth. Project One Team is still early in its implementation, however the Company is focused on identifying and
executing opportunities and sustaining the process in all aspects of its business, including those which improve supply chain
efficiency, leverage technology and improve the products and services offered to customers.
David M. Staples
President and Chief
Executive Officer
Dennis Eidson
Chairman of the
Board of Directors
For fiscal 2018, consolidated net sales increased $100.8 million to $8.06 billion from $7.96 billion in the prior fiscal year.
The increase in net sales was driven by growth in the Food Distribution and Military segments. We continue to be pleased
with our ability to generate strong cash flow and return value to shareholders. In 2018, we generated consolidated operating
cash flows of $171.7 million, an increase of $118.9 million compared to 2017 due to lower working capital requirements,
particularly inventory and accounts receivable. We returned $45.9 million to shareholders, including $25.9 million in the form
of cash dividends and the repurchase of approximately 952,000 shares of our common stock for $20.0 million.
BUSINESS SEGMENTS
The fourth quarter of 2018 represented our 11th consecutive quarter of sales growth in the Food Distribution segment.
This growth has come from our ability to attract new accounts and to continue to provide a strong partnership to existing
accounts through offering expanded services and geographical reach. We continue to develop strategies to grow the
perimeter and center store, as well as sponsor programs to partner with independent retailers to help them succeed in this
intensely competitive marketplace. We continue to see opportunities for new business wins and are leveraging strategic
partnerships and our network to position us to realize these opportunities.
Our strategies will continue to focus on improving our supply chain efficiency and processes to better serve our customers,
address industry-wide cost pressures and realize our growth opportunities. On the food processing front, we are focused
on efforts which will improve yield, rationalize our product mix and adjust pricing to reflect the significant cost increases
experienced to-date. We have already begun to see some of the positive effects of these efforts during the first quarter of
2019.
Our Military segment onboarded a significant new fresh protein program with an existing customer during 2018. We also
expanded our partnership with the Defense Commissary Agency (“DeCA”) and realized an increase in private brand net
sales and product offerings. We are pleased to see the continued growth of DeCA’s private brand, finishing fiscal 2018 as
the sole supplier of DeCA’s more than 700 private brand products. We will continue to collaborate with DeCA on the release
of additional items in fiscal 2019. The contribution of these two programs are expected to significantly offset the negative
comparable sales experienced in the commissaries. We remain focused on growing our sales pipeline as we build on our
relationships with the DeCA and the exchanges to remain the supplier of choice for their operations.
Our brand positioning initiative within the Retail segment was implemented in additional stores during fiscal 2018, with a
more significant implementation planned in the first half of 2019. We are encouraged with the consumer response thus far
and believe these efforts will increasingly position us to win in the current retail environment. We are also excited to have
closed on the acquisition of Martin’s early in 2019. Martin’s brand positioning complements the positive elements we are
implementing in our stores under the Family Fare® banner and will be a great fit with our store base.
Letter to our Shareholders - continued from previous page
OUTLOOK
In fiscal 2019, we expect the operating environment to remain challenging. At the same time, we look forward to the
opportunities it will present for us to grow and move our company forward in line with our strategic objectives. We
believe that the next one to two years will be conducive to our acquisition strategy, which is a key component of our
growth objectives. Our top priorities for fiscal 2019 will include achieving mid-single digit sales growth, driving adjusted
operating earnings and adjusted EBITDA growth over the prior year, realizing $15 million of savings over the next 24
months from Project One Team, strengthening our management team, systems and supply chain operations to further
position the Company for future growth and reducing our debt levels and financial leverage ratios to facilitate these
objectives.
We are very excited about the additions to our senior management team and have already begun to see the enthusiasm
they are able to ignite as we continue to build technology resources and infrastructure to improve our efficiency and
provide a better experience to our customers in each of our business segments.
We have commenced the implementation of the opportunities identified as part of Project One Team as we work to
continue our growth and seek opportunities to capitalize on new business made available by disruption in the industry,
while improving profitability. We look forward to successfully integrating Martin’s into our retail operations and further
contributing to their legacy of delivering a quality shopping experience and a high level of customer service.
We are committed to cultivating local relationships and products, advancing diversity and inclusion, investing in our
communities, minimizing waste and reducing energy consumption – all components of our company’s corporate
responsibility dashboard. This is accomplished, in part, through the efforts of our associates, who volunteered more
than 57,000 hours with local nonprofits, representing an economic impact of nearly $1.4 million. We also sponsored
another successful Helping Hands Day, providing an opportunity for our associates to spend a full day volunteering at
local charitable organizations. In addition, we donated more than 5.4 million pounds of food to local food banks and
pantries, contributed $1.4 million in corporate philanthropic investments with more than 3,000 community partners and
made grants of $1.5 million through the SpartanNash Foundation to relieve hunger, provide shelter and support military
families. We also reduced our carbon footprint with company-wide recycling initiatives and investments in energy and
waste saving practices. We are honored to have been recognized by the National Association for Business Resources
as one of the Best and Brightest Companies to Work For in the Nation®, as well as a Military Friendly® Employer.
We are committed to executing our priorities of generating returns for our shareholders, providing outstanding products
and services that exceed customer expectations, and fostering a great environment for our associates to enhance
their careers, grow and thrive. In a high turnover industry, we are proud to say that more than one third of our more
than 15,000 associates have worked for SpartanNash for more than 10 years, which is a testament to the high
degree to which we value our associates and their contributions. Our strategies and investments serve to strengthen
our competitive positioning while realizing our vision: to be a best-in-class business that feels local, where
relationships matter.
In 2019, we will continue to execute on our operational and long-term strategies as we evolve into a growth company,
focused on developing a national, highly efficient distribution platform, that services a diverse customer base. We will
also continue to invest in our associates and the communities where we live and serve. We would like to thank our
customers and suppliers for their partnership, our shareholders for their support, and most importantly our associates
for their daily efforts to execute our strategic plan. Our team looks forward to 2019 and another year of generating value
for all of our stakeholders.
Dennis Eidson
Chairman of the Board of Directors
David M. Staples
President and Chief Executive Officer
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
⌧ Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the fiscal year ended December 29, 2018.
OR
(cid:4) 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
(State or Other Jurisdiction) of
Incorporation or Organization)
850 76th Street, S.W.
P.O. Box 8700
Grand Rapids, Michigan
(Address of Principal Executive Offices)
38-0593940
(I.R.S. Employer
Identification No.)
49518-8700
(Zip Code)
Registrant’s telephone number, including area code: (616) 878-2000
Securities registered pursuant to Section 12(b) of the Securities Exchange Act:
Title of Class
Common Stock, no par value
Name of Exchange on which Registered
NASDAQ Global Select Market
Securities registered pursuant to Section 12(g) of the Securities Exchange Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ⌧ No (cid:4)
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes (cid:4) No ⌧
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90
days. Yes ⌧ No (cid:4)
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T
(§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ⌧ No (cid:4)
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. (cid:4)
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or emerging growth
company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the
Exchange Act.
Large accelerated filer
Emerging
company
growth
⌧
(cid:4)
Accelerated filer
(cid:4)
Non-accelerated filer
(cid:4)
Smaller reporting company
(cid:4)
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised
financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. (cid:4)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes (cid:4) No ⌧
The aggregate market value of the registrant’s voting and non-voting common equity held by non-affiliates based on the last sales price of such stock on the NASDAQ
Global Select Market on July 13, 2018 (which was the last trading day of the registrant’s second quarter in the fiscal year ended December 29, 2018) was $910,826,011.
The number of shares outstanding of the registrant’s Common Stock, no par value, as of February 25, 2019 was 35,952,014, all of one class.
Part III, Items 10, 11, 12, 13 and 14
Proxy Statement for Annual Meeting to be held May 22, 2019
DOCUMENTS INCORPORATED BY REFERENCE
Forward-Looking Statements
The matters discussed in this Annual Report on Form 10-K, in the Company’s press releases and in the Company’s website-accessible
conference calls with analysts and investor presentations include “forward-looking statements” about the plans, strategies, objectives,
goals or expectations of SpartanNash Company and subsidiaries (“SpartanNash” or the “Company”). These forward-looking
statements are identifiable by words or phrases indicating that SpartanNash or management “expects,” “anticipates,” “plans,”
“believes,” or “estimates,” or that a particular occurrence or event “will,” “may,” “could,” “should,” or “will likely” result, occur or be
pursued or “continue” in the future, that the “outlook” or “trend” is toward a particular result or occurrence, that a development is an
“opportunity,” “priority,” “strategy,” “focus,” that the Company is “positioned” for a particular result, or similarly stated expectations.
Accounting estimates, such as those described under the heading “Critical Accounting Policies” in Item 7 of this Annual Report on
Form 10-K, are inherently forward-looking. The Company’s asset impairment and restructuring cost provisions are estimates and
actual costs may be more or less than these estimates and differences may be material. Undue reliance should not be placed on these
forward-looking statements, which speak only as of the date of the Annual 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 Annual
Report on Form 10-K and other periodic reports filed with the Securities and Exchange Commission (“SEC”), there are many
important factors that could cause actual results to differ materially. These risks and uncertainties include general business conditions,
changes in overall economic conditions that impact consumer spending, the Company’s ability to integrate acquired assets, the impact
of competition and other factors which are often beyond the control of the Company, and other risks listed in Part I, “Item 1A. Risk
Factors,” of this report and risks and uncertainties not presently known to the Company or that the Company currently deems
immaterial.
This section and the discussions contained in Item 1A. “Risk Factors,” and in Item 7, subheading “Critical Accounting Policies” in
this report, both of which are incorporated here by reference, are 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 of the economic, competitive, governmental, technological and other factors that could adversely affect the Company’s expected
consolidated financial position, results of operations or liquidity. Additional risks and uncertainties not currently known to
SpartanNash or that SpartanNash currently believes are immaterial also may impair its business, operations, liquidity, financial
condition and prospects. The Company undertakes no obligation to update or revise its forward-looking statements to reflect
developments that occur or information obtained after the date of this Annual Report.
-2-
PART I
Item 1. Business
Overview
SpartanNash Company (together with its subsidiaries, “SpartanNash” or the “Company”) is a Fortune 400 company whose core
businesses include distributing grocery products to a diverse group of independent and chain retailers, its corporate owned retail
stores, and military commissaries and exchanges. SpartanNash serves customer locations in all 50 United States (“U.S.”), the District
of Columbia, Europe, Cuba, Puerto Rico, Honduras, Bahrain, Djibouti and Egypt. Through its Military segment, the Company is the
exclusive worldwide supplier of private brand products to U.S. military commissaries. The Company’s Retail segment operates
supermarkets that have a “neighborhood market” focus to distinguish them from supercenters and limited assortment stores. The
Company operates three reportable business segments: Food Distribution, Military and Retail.
The Company’s fiscal year end is the Saturday closest to December 31. The following discussion is as of and for the fiscal years
ending or ended December 28, 2019 ("2019"), December 29, 2018 (“2018” or “current year”), December 30, 2017 (“2017” or “prior
year”) and December 31, 2016 (“2016”), all of which include 52 weeks. All fiscal quarters are 12 weeks, except for the Company’s
first quarter, which is 16 weeks and will generally include the Easter holiday. The fourth quarter includes the Thanksgiving and
Christmas holidays, and depending on the fiscal year end, may include the New Year’s holiday.
Established in 1917 as a cooperative grocery distributor, Spartan Stores Inc. merged with Nash-Finch Company (“Nash-Finch”) and
the combined company was named SpartanNash Company. Unless the context otherwise requires, the use of the terms “SpartanNash,”
and the “Company” in this Annual Report on Form 10-K refers to the surviving corporation SpartanNash Company and, as applicable,
its consolidated subsidiaries.
The Company’s differentiated business model of Food Distribution, Military and Retail operations utilizes the complementary nature
of each segment and enhances the ability of the Company’s independent retailers to compete in the grocery industry long-term. The
model produces operational efficiencies, helps stimulate distribution product demand, and provides sharper visibility and broader
business growth options. In addition, the diversification of the Food Distribution, Military and Retail segments provides added
flexibility to pursue the best long-term growth opportunities in each segment.
SpartanNash’s mission is to leverage our expertise in food distribution and retail to develop, activate and provide impactful solutions
that exceed expectations for associates, customers and business partners. In addition, the Company strives to create value for the
Company's shareholders, retailers, and customers. To support these objectives, the Company has the following priorities and strategies
within its Food Distribution, Military, and Retail segments:
Food Distribution Segment:
(cid:3) Maximize growth opportunities by leveraging the Company’s unique combination of supply chain capabilities and retail
competency to exceed the expectations of current and prospective customers.
(cid:3) Optimize and grow the supply chain network to create a highly efficient national distribution platform that provides innovative
(cid:3)
(cid:3)
and impactful supply chain solutions for a variety of different sales channels.
Proactively pursue financially and strategically attractive acquisition opportunities.
Transform the SpartanNash fresh, fresh-prepared produce and prepared meal solutions to differentiate our offerings and
increase market share.
(cid:3) Continue to elevate private brands to a best-in-class offering that matches customer needs and preferences through a selection
of private brands focused on quality, value, variety, taste and convenience.
(cid:3) Capitalize on opportunities for growth and diversification in the non-traditional space by growing with the Company’s national
customers and developing flexible solutions.
Military Segment:
(cid:3) Continue to support the partnership with the Defense Commissary Agency (“DeCA”) through continued expansion of its
private brand initiative and overall goal of increasing business at the commissaries by offering one-stop shopping and value for
military customers.
(cid:3) Grow the business through additional product offerings to DeCA and by developing a produce solution for the territories the
Company serves.
(cid:3)
Leverage the size and scale of the Company’s Food Distribution and Retail segments to attract additional customers to the
Company’s Military platform, while leveraging the Company’s strong supply chain network.
-3-
Retail Segment:
(cid:3) Continue the expansion of the Company’s refreshed brand positioning and execute a more significant implementation in 2019,
which will enhance the customer’s store experience.
(cid:3)
(cid:3)
(cid:3)
Provide customers with high quality fresh offerings, value beyond price, affordable wellness, focus on local, indulgence and
discovery in the shopping experience and social consciousness and responsibility all with a best-in-class customer experience.
Increase customer satisfaction and loyalty by providing quicker, more convenient shopping experiences through the continued
expansion of Fast Lane, the Company’s e-commerce solution, which offers online ordering, curbside pick-up and delivery
services. Invest in additional technologies that improve the customer experience.
Successfully integrate Martin’s Super Markets (“Martin’s”), a retailer acquired in early 2019, to leverage Martin’s existing
strong brand and execution in the northern Indiana and southwest Michigan markets, while balancing the support, scale and
execution strategies of the Company.
Supply Chain Network:
(cid:3)
(cid:3)
Execute innovative solutions to both meet the demands of the Company’s growing Food Distribution segment customers as
well as to combat current transportation industry headwinds.
Leverage the Company’s competitive position, scale and financial flexibility to further grow its distribution channels through
existing and new solutions.
(cid:3) Gain efficiency and productivity by leveraging one supply chain network across segments to further realize benefits from
continued investments in the optimization of the supply chain network.
(cid:3) Achieve best-in-class fill rates through stronger collaboration processes with vendors and warehouse operations partners.
Realize benefits through instituting a vendor and carrier compliance program and leveraging current technologies in both
replenishment and inventory management.
Food Distribution Segment
The Company’s Food Distribution segment uses a multi-channel sales approach to distribute grocery products to independent retailers,
national retailers, food service distributors, e-commerce providers, and the Company’s corporate owned retail stores. Total net sales
from the Company’s Food Distribution segment, including sales to corporate owned retail stores that are eliminated in the
consolidated financial statements, totaled approximately $4.8 billion for 2018. As of the end of 2018, the Company believes it is the
fifth largest wholesale distributor, in terms of annual revenue, to supermarkets in the United States.
Customers. The Company’s Food Distribution segment supplies grocery products to a diverse group of approximately 2,100
independent retail locations with operations ranging from a single store to regional supermarket chains, food service distributors and
the Company’s corporate owned retail stores. As of December 29, 2018, the Company operates in all 50 states by leveraging a
platform of 19 distribution centers, as well as third party shipping partners, servicing the Food Distribution and Military segments,
with the greatest sales concentration in the Midwest and South regions. This extensive geographic reach drives economies of scale and
provides opportunities for independent retailers to purchase products at competitive prices in order to effectively compete in the
grocery industry long-term.
Through its Food Distribution segment, the Company also services national retailers, including Dollar General. Sales to Dollar
General are made to approximately 15,500 of its retail locations, with sales representing 16.4%, 14.0%, and 11.2% of consolidated net
sales for 2018, 2017 and 2016, respectively. The Company’s Food Distribution customer base is diverse, and no other single customer
exceeded 3% of consolidated net sales in any of the years presented.
The Company’s ten largest Food Distribution customers (excluding corporate owned retail stores) accounted for approximately 58%
of total Food Distribution net sales for 2018. Approximately 85% of Food Distribution net sales for 2018 are covered under supply
agreements with retailer customers.
Products. The Company’s Food Distribution segment provides a selection of approximately 60,000 stock-keeping units (SKUs) of
nationally branded and private brand grocery products (see “Marketing and Merchandising – Private Brands”) and perishable food
products, including dry groceries, produce, dairy products, meat, delicatessen items, bakery goods, frozen food, seafood, floral
products, general merchandise, beverages, tobacco products, health and beauty care products and pharmacy. The product offering also
includes fresh protein-based foods, prepared meals, and value-added products such as fresh-cut fruits and vegetables and prepared
salads, which the Company manufactures. These product offerings, along with best in class services, allow independent retailers the
opportunity to support the majority of their operations with a single supplier.
-4-
Valued-Added Services. The Company provides a comprehensive menu of valued-added services designed to assist independent
retailers in becoming more profitable, efficient, competitive, and informed. The Company’s service departments are strategic partners
who provide solutions when time and resources are limited for the independent customers. From real estate and site surveys to a full
spectrum of merchandising and marketing solutions, independent retailers can find the support they need to effectively operate their
businesses. The Company provides over 100 distinct value-added services, including the following:
(cid:3) Retail Development and Consulting
(cid:3) Website design
(cid:3) Merchandising
(cid:3) Marketing and Advertising Solutions
(cid:3) Shelf Management and Planograms
(cid:3) Accounting, Payroll and Tax Preparation
(cid:3) Food Safety and Environmental Health
(cid:3) Asset Protection
(cid:3) Supply Solutions
(cid:3) E- Commerce
Military Segment
(cid:3) Consumer Research
(cid:3) Site development and store design
(cid:3) Product Reclamation
(cid:3) Inventory Support
(cid:3) Category Management
(cid:3) Customer Service and Order Entry
(cid:3) Pharmacy Retail and Procurement Services
(cid:3) Retail Pricing
(cid:3) Associate Training
(cid:3) Information Services and Technology Solutions
The Company’s Military segment contracts with manufacturers and brokers to distribute a wide variety of grocery products, including
dry groceries, beverages, meat, and frozen foods, primarily to U.S. military commissaries and exchanges. The Company’s Military
segment, together with its partner, Coastal Pacific Food Distributors (“CPFD”), represents the only delivery solution to service DeCA
worldwide.
DeCA operates a chain of 237 commissaries on U.S. military installations across the world that sells approximately $4.6 billion of
grocery products annually. The Company distributes grocery products to 160 military commissaries and over 450 exchanges located in
39 states across the United States and the District of Columbia, Europe, Cuba, Puerto Rico, Honduras, Bahrain, Djibouti and Egypt.
The Company’s distribution centers are strategically located among the largest concentration of military bases in the areas the
Company serves and near Atlantic ports used to ship grocery products to overseas commissaries and exchanges.
The Company is also the DeCA exclusive worldwide supplier of private brand grocery and related products to all U.S. military
commissaries and exchanges. In accordance with its contract with DeCA, the Company procures the grocery and related products
from various manufacturers and upon receiving customer orders from DeCA either delivers the products to the U.S. military
commissaries itself or engages CPFD to deliver the products on its behalf. There are over 700 SKUs of private brand products
currently in the DeCA system as of December 29, 2018, and the Company anticipates up to 1,000 SKUs will be active within the
program by the end of 2019.
DeCA contracts with manufacturers to obtain grocery products for the commissary system. Manufacturers either deliver the products
to the commissaries themselves or, more commonly, contract with distributors such as SpartanNash to deliver the products.
Manufacturers must authorize the distributors as their official representatives to DeCA, and the distributors must adhere to DeCA’s
frequent delivery system (“FDS”) procedures governing matters such as product identification, ordering and processing, information
exchange and resolution of discrepancies. The Company obtains distribution contracts with manufacturers through competitive
bidding processes and direct negotiations.
As of December 29, 2018, the Company has approximately 250 distribution contracts representing approximately 600 manufacturers
that supply products to the DeCA commissary system and various exchange systems. Generally, larger contracts or those subject to a
request-for-proposal process have definitive durations, whereas smaller contracts generally have indefinite terms; and all contract
types allow for termination by either party without cause upon 30 days prior written notice to the other party. The contracts typically
specify which commissaries and exchanges to supply on behalf of the manufacturer, the manufacturer’s products to be supplied,
service and delivery requirements, and pricing and payment terms. The Company’s ten largest manufacturer customers represented
approximately 44.9% of the Company’s Military segment sales for 2018.
-5-
As commissaries need to be restocked, DeCA identifies the manufacturer with which an order is to be placed, determines which
distributor is the manufacturer’s official representative for a particular commissary or exchange location, and then places a product
order with that distributor under the auspices of DeCA’s master contract with the applicable manufacturer. The distributor selects that
product from its existing inventory, delivers it to the commissary or commissaries designated by DeCA, and bills the manufacturer for
the product shipped. The manufacturer then bills DeCA under the terms of its master contract. Overseas commissaries are serviced in
a similar fashion, except that a distributor’s responsibility is to deliver products as and when needed to the port designated by DeCA,
which in turn bears the responsibility for shipping the product to the applicable commissary or overseas warehouse. Due to the unique
terms of this arrangement, working capital requirements are significant.
After the Company ships a particular manufacturer’s products to commissaries in response to an order from DeCA, the Company
invoices the manufacturer for the product price plus a drayage fee that is typically based on a percentage of the purchase price. In
some instances, invoices may be based on a dollar amount per case or per pound of product sold. The Company’s order handling and
invoicing activities are facilitated by its procurement and billing systems developed specifically for the Military business, which
address the unique aspects of its business, and provide the Company’s manufacturer customers with a web-based, interactive means of
accessing critical order, inventory and delivery information.
Retail Segment
As of December 29, 2018, the Company operates 139 corporate owned retail stores in eight states, predominantly in the Midwest,
primarily under the banners of Family Fare Supermarkets, D&W Fresh Market, VG’s Grocery, Dan’s Supermarket and Family Fresh
Market. With the acquisition of Martin’s on December 31, 2018, the Company now operates an additional 21 corporate owned retail
stores in northern Indiana and southwestern Michigan. Retail banners and numbers of stores are more fully detailed in Item 2,
“Properties,” of this report. The Company’s corporate owned retail stores range in size from approximately 14,000 to 90,000 total
square feet, or on average, approximately 41,000 total square feet per store.
The Company’s neighborhood market strategy distinguishes its corporate owned retail stores from supercenters and limited assortment
stores by focusing on value beyond price, affordable wellness, commitment to local products, indulgence and discovery in the
shopping experience and caring for the community and environment. The Company’s strategy is also focused on increasing customer
satisfaction through quality service and convenience. Through the Company’s e-commerce solution, Fast Lane, as well as other third
party providers, the Company offers online grocery shopping and curbside pickup or delivery at 83 of its corporate owned retail
locations.
The Company’s corporate owned retail stores offer nationally branded and private brand grocery products (see “Marketing and
Merchandising – Private Brands”), as well as perishable food products including dry groceries, produce, dairy products, meat,
delicatessen items, bakery goods, frozen food, seafood, floral products, general merchandise, beverages, tobacco products and health
and beauty care products. Private brand grocery products typically generate higher retail margins while also improving customer
loyalty by offering quality products at affordable prices.
As of December 29, 2018, the Company offers pharmacy services in 82 of its corporate owned retail stores (of which 72 of the
pharmacies are owned) and operates one free-standing pharmacy location. The Company believes the pharmacy service offering in its
corporate owned retail stores is an important part of the consumer experience. In its Michigan pharmacies and a number of its
pharmacies in Minnesota and Nebraska, the Company offers free medications (antibiotics, diabetic medications and prenatal vitamins)
along with low cost generic drugs, and meal planning solutions for preventative health and education for its customers.
As of December 29, 2018, the Company operates 29 fuel centers primarily at its corporate owned retail stores operating predominantly
under the banners Family Fare Quick Stop and D&W Quick Stop. These fuel centers offer refueling facilities and in the adjacent
convenience store, a limited variety of popular consumable products. The Company’s prototypical Quick Stop stores are
approximately 1,100 square feet in size.
The following chart details the changes in the number of corporate owned retail stores over the last five fiscal years:
Number of stores at beginning of year .........................
Stores acquired or constructed during year ..................
Stores closed or sold during year..................................
Number of stores at end of year....................................
172
1
11
162
162
7
6
163
163
—
6
157
157
—
12
145
145
—
6
139
2014
2015
2016
2017
2018
During 2018, the Company completed five remodels. The Company expects to continue making targeted capital investments during
2019 in connection with its retail brand positioning initiative. Where opportunities arise, the Company may open new retail and fuel
center locations or enter into partnerships with existing fuel center operations. The Company will continue to evaluate its store base
and may close or sell stores in 2019 in line with its store rationalization initiatives.
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In the first quarter of 2019 the Company acquired Martin’s, a leading family-owned and operated Midwest independent supermarket
chain. This acquisition expanded the Company’s corporate retail footprint into the adjacent regions of northern Indiana and
southwestern Michigan. Martin’s was previously a Food Distribution segment customer of the Company, and SpartanNash’s and
Martin’s merchandising, marketing, and operations teams have a history of working collaboratively on many business improvement
projects.
Supply Chain Network
The Company continues to integrate its supply chain organization to optimize the network, increase asset utilization and leverage
programs that will drive more value for its retailers, customers, and shareholders. The Company continually reviews the optimization
of its network and, through doing so, has expanded Food Distribution operations in select facilities which were previously dedicated
solely to the Military segment.
The Company’s distribution network is composed of 19 distribution centers, which are utilized to service the Food Distribution and
Military segments. The distribution centers provide for approximately 8.6 million total square feet of warehouse space. The Company
has new and ongoing initiatives to improve the efficiency of its supply chain through innovation, investments in technology and
automation.
The Company operates a fleet with over 500 over-the-road tractors, 450 dry vans, and 1,000 refrigerated trailers and has begun adding
a fleet of multi-temperature straight trucks to improve its delivery performance to its growing number of smaller format store
customers. Through routing optimization systems, the Company carefully manages the more than 64 million miles driven by its fleet
and third-party carriers annually servicing military commissaries, exchanges, independent retailers, national retailers and corporate
owned retail stores.
Reporting Segment Financial Data and Products
Refer to the segment information in the notes to consolidated financial statements for additional information about the Company’s
sales by type of similar products and services. All of the Company’s sales and assets are in the United States of America. Consolidated
net sales include the net sales of its Food Distribution segment, which exclude sales to corporate owned retail stores, the net sales of
its Military segment, and the net sales of its corporate owned retail stores and fuel centers in its Retail segment.
Discontinued Operations
Certain of the Company’s Food Distribution and Retail segment operations have been recorded as discontinued operations.
Discontinued operations consist of certain locations that have been closed or sold.
Marketing and Merchandising
General. The Company continues to align its marketing and merchandising strategies with current consumer behaviors by delivering
initiatives centered on personalization, value beyond price, affordable wellness, local focus, indulgence and discovery and social
responsibility – all designed to enhance the shopping experience. During 2018, the Company continued to refresh its brand positioning
for Family Fare, its primary retail banner, to incorporate these areas of focus and respond to evolving customer needs. These
strategies seek to use consumer data and insights to deliver products, promotions, content and experiences to satisfy the consumer’s
needs.
The Company believes that data from its “yes”™ loyalty program gives it competitive insight into consumer shopping behavior. This
gives the Company the flexibility to adapt to rapidly changing conditions by making tactical and more effective adjustments to its
marketing and merchandising programs. As investments are made to remodel and/or rebanner various stores, the Company continues
to roll out the “yes”™ program to expand its knowledge of its customers and to provide its loyalty rewards in additional markets.
During fiscal 2019, the Company will also begin using artificial intelligence to develop and optimize its weekly circular.
The Company has been building tools and capabilities to enable relevant, personalized content across its marketing channels and
focusing on expanding its digital, social and mobile capabilities. Mobile apps specific to each retail banner, provide consumers with
the ability to view store ads, create shopping lists, shop via Fast Lane, clip coupons, and join virtual shopping clubs from their mobile
device. The Company also piloted a mobile self-checkout application, and expanded its e-commerce platform. These enhancements
will help the Company build longer-term customer loyalty through convenience and value, maintain efficient marketing spend and
increase return on investment, improve its sales growth opportunities, and further strengthen its business position. As the Company
continues to build these capabilities, along with its other strategies, the Company will continue to share its marketing and
merchandising learnings and best practices across its independent customer base within the Food Distribution segment.
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In addition to sharing the expertise gained in its Retail operations, the Company differentiates itself from its competitors by offering a
full set of value-added support services to its Food Distribution customers. These services, which are further described above, help the
independent retailers to operate and compete effectively, and many of them are not offered by the Company’s competition.
As the Company works to better differentiate its Retail stores and implement its refreshed brand positioning, the Company is
selectively adding products and services to better meet customers’ changing needs. For instance, the Company is adding full service
meat and seafood departments which include many items handmade in store, and has added produce preparation services,
smokehouses, expanded beer and wine selections, and other offerings to enhance the customers’ experience. The Company has been
refreshing its in-store messaging and décor. Signage and displays are being updated in departments such as pet products, laundry, and
snacks in order to improve foot traffic in these aisles and drive sales. The Company continues to add fuel centers and Starbucks or
Caribou Coffee shops in certain corporate owned retail stores, and also provides consumers with fuel purchase discounts at fuel
centers through its corporate owned retail stores or by partnering with third party fuel centers.
As consumers increasingly emphasize affordable wellness, the Company believes that it can be a provider and resource for products
and services that will support their needs. In 2018, the Company expanded its offerings and partnerships and undertook the following
key initiatives. First, the Company continued to expand its “Living Well” product offerings through in-line merchandising concepts.
Second, the Company established partnerships with health systems and providers to provide wellness specialist-led store tours to help
educate consumers to make healthier food choices. Third, the Company increased its retail product offering and assortment for
organic, gluten-free, meat-free, non-GMO products and other healthier food options. Finally, the Company offers a best in class
pharmacy program, including low cost generics and free diabetic and prenatal prescriptions.
In support of its commitment to local products and caring for the community and environment, the Company is proud to work with
local farmers and vendors to provide locally grown produce and products in many of its stores. The Company offers a significant
selection of local products in many of its stores, well in excess of most of its competitors’ offerings. In some of its stores, the
Company collects items from customers for recycling, and the Company has been recognized as a best-in-class recycler of its own
waste. Also, in an effort to reduce costs and reduce its environmental footprint, the Company has many initiatives to reduce energy
usage, including the installation of energy efficient lighting and refrigeration in its stores.
Private Brands. SpartanNash provides a best-in-class private brand program, offering a full line of proprietary and licensed private
brands in its corporate owned retail stores and its independent retailer customers, as well as partnering with DeCA in the design and
launch of its private brand program. SpartanNash believes that its private brand offerings are some of its most valuable strategic
assets, demonstrated through customer loyalty and profitability. The Company continues to invest in improvements to its private
brands by offering quality, value, and assortment, and believes the success of its private brands to be of vital importance. The
Company’s products have been frequently recognized for excellence in packaging design and product development.
The Company continues to enhance its private brand programs for both independent customers and corporate owned retail stores, and
in 2018, completed the launch of its Our Family® private brand into its Michigan stores. The transition from the Spartan™ brand to
Our Family® provides the Company with a company-wide, national brand equivalent or better quality program, while allowing the
Company to streamline its supply chain to deliver a larger variety of product offerings at a lower cost to consumers. Additionally,
Eternal Oceans™ was launched as the Company’s sustainability initiative for seafood within the Open Acres™ brand. SpartanNash
also launched a product declaration “free from” initiative, with a goal of assigning brand specific bullets alerting consumers of certain
undesirable ingredients that have been eliminated from products, creating a “cleaner” product offering. The Company expects this
program to continue and become core to the Company’s product development principles in all future development. The Company
plans to introduce approximately 350 additional new items in 2019 throughout its private brand portfolio.
SpartanNash currently markets and distributes private brand items primarily under the following brands: Our Family® (national brand
equivalent or better grocery products); Open Acres™ (fresh products); Top Care (health and beauty care); Tippy Toes (baby); Full
Circle™ (organic and wellness); Culinary Tours™ (premium quality foods); PAWS Premium (pet supplies); Valu Time (value) Simply
Done (non-food products); and Pure Harmony (premium pet food). SpartanNash is also the exclusive worldwide distributor of
DeCA’s private brands, Freedom’s Choice® and Home Base®.
Competition
The Company’s Food Distribution, Military and Retail segments operate in a highly competitive industry, which typically results in
low profit margins for the industry as a whole. The Company competes with, among others, regional and national grocery distributors,
large chain stores that have integrated wholesale and retail operations, mass merchandisers, e-commerce providers, deep discount
retailers, limited assortment stores and wholesale membership clubs, many of whom have greater resources than the Company. The
Company also faces competition from rapidly growing alternative retail channels, such as dollar stores, discount supermarket chains,
Internet-based retailers and meal-delivery services.
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The Food Distribution segment competes directly with a number of traditional and specialty grocery wholesalers and retailers that
maintain or develop self-distribution systems for the business of independent grocery retailers. In addition, the Company’s
independent customers face intense competition from supercenters, deep discounters, mass merchandisers, limited assortment stores,
and e-commerce providers. The Company partners with its customers to help them compete effectively. The primary competitive
factors in the Food Distribution business include price, service level, product quality, variety and other value-added services.
The Company is one of fewer than five distributors in the United States with annual sales to the DeCA commissary system in excess
of $100 million that distributes products via the frequent delivery system. The remaining distributors that supply DeCA tend to be
smaller regional and local providers. In addition, manufacturers contract with others to deliver certain products, such as baking
supplies, produce, delicatessen items, soft drinks and snack items, directly to DeCA commissaries and service exchanges. Because of
the low margins in this industry, it is of critical importance for distributors to achieve economies of scale, which is typically a function
of the density or concentration of military bases within the geographic area(s) a distributor serves. As a result, no single distributor in
this industry, by itself, has a nationwide presence. Rather, distributors generally concentrate on specific regions, or areas within
specific regions, where they can achieve critical mass and utilize warehouse and distribution facilities efficiently. In addition,
distributors that operate larger non-military specific distribution businesses tend to compete for DeCA commissary business in areas
where such business would enable them to more efficiently utilize the capacity of their existing distribution centers. The Company
believes the principal competitive factors among distributors within this industry are customer service, price, operating efficiencies,
reputation with DeCA and location of distribution centers. The Company believes its competitive position is strong with respect to all
of these factors within the geographic areas where it competes. Despite the ongoing commissary sales challenges, the Company has
been working diligently to realize opportunities and has expanded vendor relationships to new military bases and continues to roll out
DeCA’s private brand product offerings. The Company believes that the private brand offering, when fully executed, will help drive
more traffic and business into the commissaries as a whole. By providing a combination of national and private brand products, the
commissaries are offering one-stop shopping for military consumers, which should benefit all of the constituents of the DeCA system.
The principal competitive factors in the Retail business include the location and image of the store; the price, quality and variety of the
fresh offering; and the quality, convenience and consistency of service. In addition to competing with traditional grocery stores, the
Company competes with supercenters, deep discounters, mass merchandisers, limited assortment stores, and e-commerce providers.
The Company believes it has developed and implemented strategies and processes that allow it to be competitive in its Retail segment
by providing convenience, customer experience, and the assortment consumers demand. The Company monitors planned competitive
store openings and uses established proactive strategies to respond to new competition both before and after competitive store
openings. Strategies to react to competition vary based on many factors, such as the competitor’s format, strengths, weaknesses,
pricing and sales focus. During the past three fiscal years, seven competitor supercenters opened in geographic areas in which the
Company currently operates corporate owned retail stores and one additional opening is expected to occur during 2019. As a result of
these openings, the Company believes the majority of its supermarkets compete with one or more supercenters. The Company has
continued to respond to growing competition from online and non-traditional retailers by adding options and services such as online
ordering, curbside pick-up, and home delivery.
Seasonality
In certain geographic areas, the Company’s sales and operating performance for each reportable segment varies with seasonality.
Many stores are dependent on tourism, and therefore, are most affected by seasons and weather patterns, including, but not limited to,
the amount and timing of snowfall during the winter months and the range of temperature during the summer months. All fiscal
quarters are 12 weeks, except for the Company’s first quarter, which is 16 weeks and will generally include the Easter holiday. The
fourth quarter includes the Thanksgiving and Christmas holidays, and depending on the fiscal year end, may include the New Year’s
holiday.
Suppliers
The Company purchases products from a large number of national, regional and local suppliers of name brand and private brand
merchandise. The Company has not encountered any material difficulty in procuring or maintaining an adequate level of products to
serve its customers. No single supplier accounts for more than 5% of the Company’s purchases. The Company continues to develop
strategic relationships with key suppliers and believes this will prove valuable in the development of enhanced promotional programs
and consumer value perceptions.
Intellectual Property
The Company owns valuable intellectual property, including trademarks, tradenames, and other proprietary information, some of
which are of material importance to its business.
-9-
Technology
In 2018, the Company focused on the continued standardization of its supply chain systems, enhancing the manufacturing systems in
its food processing operations and enhancement of the consumer digital presence in its corporate retail stores and technology solutions
to support its growth with large customers. Additionally, there have been many projects to expand and update technologies in support
of various business and operational needs, as detailed in the sections below.
Supply Chain. During 2018, the Company commenced an initiative to standardize the order management system for the Food
Distribution business, which included the areas of inventory management, distribution pricing and invoicing system. The Company
also began the installation of a new forecasting system for the Food Distribution business. The company also completed the
implementation of the first phase of converting the Company’s independent customers to a new Business-to-Business technology.
Retail Systems. The Company expanded e-commerce solutions through the continued growth of Fast Lane, a curbside pick-up and
delivery service available in its corporate owned retail stores. All locations feature curbside pickup and delivery is available in several
markets. The Company released major upgrades to its consumer web and mobile applications in 2018 and continued to enhance these
systems throughout the year. The Company completed the installation of a new computer-assisted ordering system for all stores in the
Michigan region. This technology will be installed in all of the Company’s remaining retail locations in 2019. The Company also
began a pilot program for a scan and bag application, which will enable customers to check out from their smart phone while they
shop. Finally, the Company upgraded hardware to support Chip-and-PIN functionality in all retail fuel locations.
Manufacturing Systems. During 2018 the Company installed a manufacturing system in one of its food processing areas. The system
installation in the remaining food processing area will be completed in 2019. The Company installed a quality control tracking system
for use in its food processing and private brand operations which will supplement the Company’s food safety efforts.
Administrative Systems and Infrastructure. The company began the process of upgrading its financial systems and enhancing its
human resource systems in 2018. The Company installed additional upgrades to its infrastructure in its primary and back up data
centers to improve storage capacity, performance and flexibility for disaster recovery and non-stop processing.
Associates
As of December 29, 2018, the Company employs approximately 14,000 associates, 8,800 on a full-time basis and 5,200 on a part-time
basis. Approximately 1,300 associates, or 9% of the total workforce, were represented by unions under collective bargaining
agreements. The collective bargaining agreements covering these associates will expire between April 2019 and January 2022 or have
been extended on their own terms and have a contemplated expiration date in February 2022. The Company successfully completed
negotiations with union members of the collective bargaining agreement in the Lima distribution center in early 2019. The Company
considers its relations with its union and non-union associates to be good and has not had any material work stoppages in over twenty
years.
Regulation
The Company is subject to federal, state and local laws and regulations concerning the conduct of its business, including those
pertaining to the workforce and the purchase, handling, sale and transportation of its products. Many of the Company’s products are
subject to federal Food and Drug Administration (“FDA”) and United States Department of Agriculture (“USDA) regulation. The
Company believes that it is in compliance, in all material respects, with the FDA, USDA and other federal, state and local laws and
regulations governing its businesses.
Forward-Looking Statements
The matters discussed in this Item 1 include forward-looking statements. See “Forward-Looking Statements” at the beginning of this
Annual Report on Form 10-K.
-10-
Available Information
SpartanNash’s web address is www.spartannash.com. The inclusion of the Company’s web address in this Form 10-K does not
include or incorporate by reference the information on or accessible through the Company’s website, and the information contained on
or accessible through those websites should not be considered as part of this Form 10-K. The Company makes its Annual Reports on
Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and other reports (and amendments to those reports) filed
or furnished pursuant to Section 13(a) of the Securities Exchange Act of 1934 available on the Company’s website as soon as
reasonably practicable after the Company electronically files or furnishes such materials with the SEC. Interested persons can view
such materials without charge by clicking on “For Investors” and then “SEC Filings” on the Company’s website. SpartanNash is a
“large accelerated filer” within the meaning of Rule 12b-2 under the Securities Exchange Act.
Item 1A. Risk Factors
The Company faces many risks. If any of the events or circumstances described in the following risk factors occur, the Company’s
financial condition or results of operations may suffer, and the trading price of the Company’s common stock could decline. This
discussion of risk factors should be read in conjunction with the other information in this Annual Report on Form 10-K. All of these
forward-looking statements are affected by the risk factors discussed in this item and this discussion of risk factors should be read in
conjunction with the discussion of forward-looking statements, which appears at the beginning of this report.
Business and Operational Risks
The Company operates in an extremely competitive industry. Many of the Company’s competitors are much larger and may be able
to compete more effectively.
The Company’s Food Distribution and Retail segments have many competitors, including regional and national grocery distributors,
large chain stores that have integrated wholesale and retail operations, mass merchandisers, e-commerce providers, deep discount
retailers, limited assortment stores and wholesale membership clubs. The Company’s Military segment faces competition from large
national and regional food distributors and smaller distributors. Many of the Company’s competitors have greater resources than the
Company.
Industry consolidation, alternative store formats, nontraditional competitors and e-commerce have contributed to market share losses
for traditional grocery stores. The Company’s Food Distribution, Military and Retail segments are primarily focused on traditional
retail grocery trade, which faces competition from faster growing alternative retail channels, such as dollar stores, discount
supermarket chains, Internet-based retailers and meal-delivery services. The Company expects these trends to continue. If the
Company is not successful in competing with these alternative channels, or growing sales into such channels, its business or financial
results may be adversely impacted.
The Company may not be able to realize profitability from its Fresh Kitchen operations and may incur significant costs to support
and onboard new business.
As part of the 2017 Caito Foods Service, Inc. (“Caito”) and Blue Ribbon Transport, Inc. (“BRT”) acquisition, the Company acquired a
fresh cut and a new Fresh Kitchen facility that, at the time of acquisition, was in the process of being constructed. The Fresh Kitchen
had no history of operations, and the Company has experienced delays in achieving efficient levels of production volume and realizing
the sales pipeline. The Company expects that the Fresh Kitchen will not be profitable in the short-term, and there is no guarantee it
will be profitable in the long-term. The Company continues to make investments of resources to support these businesses, which may
result in significant ongoing operating expenses and may divert resources and management attention from other areas of the
organization. If the Company fails to successfully integrate this business and develop new sales opportunities, it may not realize the
benefits expected from the transaction and it may not perform to expectations.
-11-
The private brand program for U.S. military commissaries may not achieve the desired results.
In December 2016, the Defense Commissary Agency (“DeCA” or “the Agency”), which operates U.S. military commissaries
worldwide, competitively awarded the Company the contract to support and supply products for the Agency’s private brand product
program. Private brand products had not previously been offered in the Agency’s commissaries. Throughout the implementation and
first two years of the program, the Company has invested and will continue to invest significant resources as it partners with DeCA to
continue to expand the program, however there is no guarantee of its success. The Company expects that DeCA will face significant
competition in each product category from national brands that are familiar to consumers. If the Agency is unable to drive traffic and
business at the commissaries by offering one-stop shopping for military customers through a combination of both national and private
brand offerings, then both DeCA and the Company may be unable to achieve expected returns from this program, which could have a
material adverse effect on the Company’s business. The success of the program will depend in part on factors beyond the Company’s
control, including the actions of the Agency.
The Company may not be able to implement its strategy of growth through acquisitions or successfully integrate acquired
businesses.
Part of the Company’s growth strategy involves selected acquisitions of additional distribution operations, and to a lesser extent, retail
grocery stores. Given the recent consolidation activity and limited number of potential acquisition targets within the food industry, the
Company may not be able to identify suitable targets for acquisition and may make acquisitions which do not achieve the desired level
of profitability or sales. Additionally, because the Company operates in the Food Distribution business, future acquisitions of retail
grocery stores could result in the Company competing with its independent retailers and could adversely affect existing business
relationships with those customers. As a result, the Company may not be able to identify suitable acquisition candidates in the future,
complete acquisitions or obtain the necessary financing and this may adversely affect the Company’s ability to grow profitably. If the
Company fails to successfully integrate business acquisitions and realize planned synergies, the business may not perform to
expectations.
Substantial operating losses may occur if the customers to whom the Company extends credit or for whom the Company
guarantees loans or lease obligations fail to repay the Company.
From time to time, the Company may advance funds, extend credit and lend money to certain independent retailers and guarantee loan
or lease obligations of certain customers. The Company seeks to obtain security interest and other credit support in connection with
these arrangements, but the collateral may not be sufficient to cover the Company’s exposure. Greater than expected losses from
existing or future credit extensions, loans, guarantee commitments or sublease arrangements could negatively and materially impact
the Company’s operating results and financial condition.
Changes in relationships with the Company’s vendor base may adversely affect its business, margins, and profitability.
The Company sources the products it sells from a wide variety of vendors. The Company generally does not have long-term written
contracts with its major suppliers that would require them to continue supplying merchandise. The Company depends on its vendors
for appropriate allocation of merchandise, assortments of products, operation of vendor-focused shopping experiences within its
stores, and funding for various forms of promotional allowances. There has been significant consolidation in the food industry, and
this consolidation may continue to the Company’s commercial disadvantage. Such changes could have a material adverse impact on
the Company’s revenues and profitability.
Disruptions to the Company’s information technology systems, including security breaches and cyber-attacks, could negatively
affect the Company’s business.
The Company has complex information technology (“IT”) systems that are important to its business operations. It also employs
mobile devices, social networking and other online activities to connect with customers, associates, suppliers, and business partners.
The Company receives, transmits, and stores many types of sensitive information, including consumers’ personal information,
information belonging to vendors, business partners, and other third parties, and the Company’s proprietary, confidential, or sensitive
information. As a result, the Company faces risks of security breaches, system disruption, theft, espionage, inadvertent release of
information, and other technology-related disruptions. The Company could incur significant losses due to any such event.
Although the Company has implemented security programs and disaster recovery facilities and procedures, cyber threats evolve
rapidly and are becoming more sophisticated. Despite the Company’s efforts to secure its information and systems, cyber attackers
may defeat the security measures and compromise the personal information of consumers, vendors, business partners, associates and
other sensitive information. Associate error, faulty password management or other problems may compromise the security measures
and result in a breach of the Company’s information systems, systems disruptions, data theft or other criminal activity. This could
result in a loss of sales or profits or cause the Company to incur significant costs to restore its systems or to reimburse third parties for
damages.
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Threats to security or the occurrence of severe weather conditions, natural disasters or other unforeseen events could harm the
Company’s business.
The Company’s business could be severely impacted by severe weather conditions, natural disasters, or other events that could affect
the warehouse and transportation infrastructure used by the Company and its vendors to supply the Company’s corporate owned retail
stores, and Food Distribution and Military customers. While the Company believes it has adopted commercially reasonable
precautions, insurance programs, and contingency plans; the damage or destruction of Company facilities could compromise its ability
to distribute products and generate sales. Unseasonable weather conditions that impact growing conditions and the availability of food
could also adversely affect sales, profits and asset values.
Impairment charges for goodwill or other long-lived assets could adversely affect the Company’s financial condition and results of
operations.
The Company is required to perform an annual impairment test for goodwill and other long-lived tangible and intangible assets in the
fourth quarter of each year, or more frequently if indicators are present or changes in circumstances suggest that impairment may exist.
Testing goodwill and other assets for impairment requires management to make significant estimates about the Company’s future
performance, cash flows, and other assumptions that can be affected by potential changes in economic, industry or market conditions,
business operations, competition, or – for goodwill – the Company’s stock price and market capitalization. Changes in these factors,
or changes in actual performance compared with estimates of the Company’s future performance, may affect the fair value of goodwill
or other assets. This could result in the Company recording a non-cash impairment charge for goodwill or other intangible assets in the
period the determination of impairment is made. The Company cannot accurately predict the amount and timing of any impairment of
assets. Should the value of goodwill or other assets become impaired, the Company’s financial condition and results of operations may
be adversely affected.
It may be difficult for the Company to attract and retain well-qualified associates, which would adversely affect the Company’s
profitability and growth.
Recent low levels of unemployment have made it increasingly difficult to attract and retain qualified associates and have caused
upward pressure on wages. If the Company is unable to attract and retain quality associates to meet its needs, the Company could be
required to increase its compensation offering, reduce staffing below optimal levels, or rely more on higher-cost third-party providers,
which could adversely affect the Company’s profitability and growth. The Company’s success depends to a significant degree upon
the continued contributions of senior management. The loss of any key member of the Company’s management team may prevent it
from implementing its business plans in a timely manner. The Company cannot assure that successors of comparable ability will be
identified and appointed and that the Company’s business will not be adversely affected.
Legal, Regulatory and Legislative Risks
The Company’s Military segment is dependent upon domestic and international military operations. A change in the military
commissary system, including its supply chain, or a change in the level of governmental funding, could negatively impact the
Company’s results of operations and financial condition.
Because the Company’s Military segment sells and distributes grocery products to military commissaries and exchanges in the United
States and overseas, any material changes in the commissary system, the level of governmental funding to DeCA, military staffing
levels, or locations of bases, or DeCA’s supply chain may have a corresponding impact on the sales and operating performance of this
segment. These changes could include privatization of some or all of the military commissary system, relocation or consolidation of
commissaries and exchanges, base closings, troop redeployments or consolidations in the geographic areas containing commissaries
and exchanges served by the Company, or a reduction in the number of persons having access to the commissaries and exchanges.
Mandated reductions in the government expenditures, including those imposed as a result of a sequestration, may impact the level of
funding to DeCA and could have a material impact on the Company’s operations. If DeCA were to make material changes to its
supply chain model, for example by limiting distribution authorization, then the Company’s Military segment could be affected.
-13-
Product recalls or other safety concerns regarding the Company’s products could harm the Company’s business.
The Company faces risks related to the safety of the food products that it manufactures, distributes, and sells. It may need to recall
such products for actual or alleged contamination, adulteration, mislabeling, or other safety concerns. The Company’s acquisition of
Caito has expanded its food production capabilities and ability to offer fresh fruits and vegetables, fresh protein-based foods and
complete meals. These products, and other food products that the Company sells, are at risk of contamination by disease-causing
organisms such as Salmonella, E. coli, and others. These pathogens are generally found in nature, and as a result, there is a risk that
they could be present in the products manufactured, distributed or sold by the Company. The Company typically has little control over
proper food handling before the Company’s receipt of the product or once the product has been delivered to customers. Contamination
risks may be controlled, although not eliminated, by good manufacturing practices and food safety programs. Recall costs can be
material. A widespread product recall could result in significant losses due to the administrative costs of a recall, the destruction of
inventory, and lost sales. Recalls and other food safety concerns can also result in product liability claims, adverse publicity, damage
to the Company’s reputation, and a loss of confidence in the safety and quality of its products. Customers may avoid purchasing
certain products from the Company, or to seek alternative sources of supply for some or all of their food needs, even if the basis for
concern is outside of the Company’s control. Any loss of confidence on the part of the Company’s customers would be difficult and
costly to overcome. Any real or perceived issue regarding the safety of any food or drug items sold by the Company, regardless of the
cause, could have a substantial and adverse effect on the Company’s business.
A number of the Company’s associates are covered by collective bargaining agreements, and unions may attempt to organize
additional associates.
Approximately 36% and 14% of the Company’s associates in its Food Distribution and Military business segments, respectively, are
covered by collective bargaining agreements (“CBAs”) which expire between April 2019 and January 2022 or which the Company is
in the process of negotiating and have a contemplated expiration date of February 2022. The Company expects that rising healthcare,
pension and other employee benefit costs, among other issues, will continue to be important topics of negotiation with the labor
unions. Upon the expiration of the Company’s CBAs, work stoppages by the affected workers could occur if the Company is unable to
negotiate an acceptable contract with the labor unions. This could significantly disrupt the Company’s operations. Further, if the
Company is unable to control healthcare and pension costs provided for in the CBAs, the Company may experience increased
operating costs and an adverse impact on future results of operations.
While the Company believes that relations with its associates are good, the Company may continue to see additional union organizing
campaigns. The potential for unionization could increase as any new related legislation or regulations are passed. The Company
respects its associates’ right to unionize or not to unionize. However, the unionization of a significant portion of the Company’s
workforce could increase the Company’s overall costs at the affected locations and adversely affect its flexibility to run its business in
the most efficient manner to remain competitive or acquire new business and could adversely affect its results of operations by
increasing its labor costs or otherwise restricting its ability to maximize the efficiency of its operations.
Costs related to multi-employer pension plans and other postretirement plans could increase.
The Company contributes to the Central States Southeast and Southwest Pension Fund (the “Central States Plan” or the “Plan”), a
multi-employer pension plan, based on obligations arising from its CBAs with Teamsters locals 406 and 908. SpartanNash does not
administer or control this Plan, and the Company has relatively little control over the level of contributions the Company is required to
make. Currently, the Central States Plan is underfunded and in critical and declining status, and as a result, contributions are scheduled
to increase. The Company expects that contributions to this Plan will be subject to further increases. Benefit levels and related issues
will continue to create collective bargaining challenges. The amount of any increase or decrease in its required contributions to this
Plan will depend upon the outcome of collective bargaining, the actions taken by the trustees who manage the Plan, governmental
regulations, actual return on investment of Plan assets, the continued viability and contributions of other contributing employers, and
the potential payment of withdrawal liability should the Company choose to exit a geographic area, among other factors.
The Company also maintains defined benefit retirement plans for certain of its associates that do not participate in multi-employer
pension plans. These plans are frozen. Expenses associated with the defined benefit plans may significantly increase due to changes to
actuarial assumptions or investment returns on plan assets that are less favorable than projected. In addition, changes in the
Company’s funding status could adversely affect the Company’s financial position.
Item 1B. Unresolved Staff Comments
None.
-14-
Item 2. Properties
The following table lists the locations and approximate square footage of the Company’s distribution centers used by its Food
Distribution and Military segments as of December 29, 2018. The lease expiration dates for the distribution centers primarily servicing
the Food Distribution segment range from November 2019 to February 2021, and for the Military segment range from October 2023
to November 2029. The Company believes that these facilities are generally well maintained and in good operating condition, have
sufficient capacity, and are suitable and adequate to carry on its business for each of these segments.
Distribution Centers
Location
Grand Rapids, Michigan (a) .......................................................................................
Norfolk, Virginia (b) ..................................................................................................
Omaha, Nebraska (a)..................................................................................................
Bellefontaine, Ohio (a) ...............................................................................................
Oklahoma City, Oklahoma (b) ...................................................................................
Columbus, Georgia (c) ...............................................................................................
Lima, Ohio (a) ............................................................................................................
Bloomington, Indiana (b) ...........................................................................................
San Antonio, Texas (c)...............................................................................................
St. Cloud, Minnesota (a) ............................................................................................
Lumberton, North Carolina (a)...................................................................................
Landover, Maryland (b) .............................................................................................
Pensacola, Florida (b).................................................................................................
Indianapolis, Indiana (a) (d) .......................................................................................
Fargo, North Dakota (a) .............................................................................................
Sioux Falls, South Dakota (a) ....................................................................................
Bluefield, Virginia (a) ................................................................................................
Minot, North Dakota (a).............................................................................................
Lakeland, Florida (a) ..................................................................................................
Total Square Footage...............................................................................................
Leased
77,000
188,093
4,384
—
—
478,702
—
—
—
40,319
386,129
368,088
—
—
—
79,300
—
—
—
1,622,015
Square Footage
Owned
1,179,582
545,073
686,783
666,045
608,543
—
517,552
471,277
461,544
329,046
—
—
355,900
273,078
288,824
196,114
187,531
185,250
42,125
6,994,267
Total
1,256,582
733,166
691,167
666,045
608,543
478,702
517,552
471,277
461,544
369,365
386,129
368,088
355,900
273,078
288,824
275,414
187,531
185,250
42,125
8,616,282
(a) Distribution center services the Food Distribution segment.
(b) Distribution center services the Military segment.
(c) Distribution center services both the Food Distribution and Military segments. Based on utilization estimates at December 29,
2018, the Food Distribution segment utilizes 36,000 square feet and 33,365 square feet at the San Antonio and Columbus
distribution centers, respectively. Also, the Columbus location requires periodic lease payments to the holder of the outstanding
industrial revenue bond, which is held by the Company. Upon expiration of the lease terms, the Company will take title to the
property upon redemption of the bond.
(d) Distribution center includes vertically-integrated food processing operations at this location, including the Company’s Fresh
Kitchen.
-15-
The following table lists the Company’s retail stores, including the adjacent fuel centers of the related stores, by retail banner, number
of stores, location and approximate square footage under each banner as of December 29, 2018.
Retail Segment
Leased
Owned
Total
Number
of Stores
Square
Feet
Number
of Stores
Square
Feet
Number
of Stores
Square
Feet
Grocery Store Retail Banner
Family Fare Supermarkets
Location(s)
Michigan, Minnesota,
Nebraska, North Dakota, South
Dakota, Iowa
Michigan
Michigan
D&W Fresh Market
VG’s Grocery
Family Fresh Market
Minnesota, Nebraska,
Wisconsin
North Dakota
Dan's Supermarket
Minnesota, Wisconsin
Econofoods
Minnesota, Nebraska
Sun Mart Foods
Valu Land
Michigan
Supermercado Nuestra Familia Nebraska
No Frills Supermarkets
Forest Hills Foods
Pick ‘n Save
Dillonvale IGA
Fresh City Market
Iowa, Nebraska
Michigan
Ohio
Ohio
Wisconsin
76
9
8
3,256,655
440,178
363,117
32,650
10
2
1
5
511,424
84,458
37,223
247,223
264,077 —
23,500
31,733
1
4
112,908 —
2
22,540
61,060 —
50,791 —
45,608 —
25,627 —
21,470 —
—
16,563
93,824
—
83,279
—
—
—
—
—
1,073,994
1
5
1
1
5
1
3
1
1
1
1
86
11
9
6
3,768,079
524,636
400,340
279,873
5
2
5
5
3
3
1
1
1
1
264,077
40,063
125,557
112,908
105,819
61,060
50,791
45,608
25,627
21,470
139 5,825,908
Total
114 4,751,914
25
The Company also owns one fuel center that is not reflected in the retail square footage above: a Family Fare Quick Stop in Michigan
that is not included with a corporate owned retail store but is adjacent to the Company’s corporate headquarters. Also not reflected in
the retail square footage above is one stand-alone pharmacy located in Clear Lake, Iowa. On December 31, 2018, the Company
acquired Martin’s, which is a chain of 21 stores located in Indiana and Michigan totaling 1.3 million square feet, of which 0.8 million
is leased.
The Company’s service centers are located in Grand Rapids, Michigan; Minneapolis, Minnesota; Norfolk, Virginia; and Indianapolis,
Indiana; consisting of office space of approximately 275,851 square feet in Company-owned buildings and 33,000 square feet in
leased facilities. The Company also leases two additional off-site storage facilities consisting of approximately 50,300 square feet. The
Company owns and leases to independent retailers seven stores totaling approximately 370,000 square feet and owns and leases to
third parties one warehouse of approximately 400,000 square feet and office space totaling 89,000 square feet.
Item 3. Legal Proceedings
From time-to-time, the Company is engaged in routine legal proceedings incidental to its business. The Company does not believe that
these routine legal proceedings, taken as a whole, will have a material impact on its business or financial condition. Additionally,
various lawsuits and claims, arising in the ordinary course of business, are pending or have been asserted against the Company. While
the ultimate effect of such actions, lawsuits and claims cannot be predicted with certainty, management believes that their outcome
will not result in a material adverse effect on the Company’s consolidated financial position, operating results or liquidity. Legal
proceedings, various lawsuits, claims, and other matters are more fully described in Note 9, Commitments and Contingencies, in the
notes to consolidated financial statements, which is herein incorporated by reference.
Item 4. Mine Safety Disclosure
Not Applicable.
-16-
PART II
Item 5. Market for Registrant’s Common Equity and Related Stockholder Matters
SpartanNash common stock is traded on the NASDAQ Global Select Market under the trading symbol “SPTN.”
Stock sale prices are based on transactions reported on the NASDAQ Global Select Market. Information on quarterly high and low
sales prices for SpartanNash common stock for each of the last two fiscal years is as follows:
Common stock price – High...................................... $
Common stock price – Low ......................................
27.37 $
16.32
21.82 $
16.32
26.18 $
18.91
26.85 $
17.05
27.37
16.55
Full Year
52 Weeks
4th Quarter
(12 Weeks)
3rd Quarter
(12 Weeks)
2nd Quarter
(12 Weeks)
1st Quarter
(16 Weeks)
2018
Full Year
(52 Weeks)
4th Quarter
(12 Weeks)
3rd Quarter
(12 Weeks)
2nd Quarter
(12 Weeks)
1st Quarter
(16 Weeks)
2017
Common stock price – High...................................... $
Common stock price – Low ......................................
40.33 $
19.85
26.99 $
19.85
27.74 $
23.26
37.80 $
25.08
40.33
31.54
At February 25, 2019, there were approximately 1,300 shareholders of record of SpartanNash common stock. The Company has paid
a quarterly cash dividend every quarter since the fourth quarter of fiscal 2006.
The table below outlines quarterly dividends paid on SpartanNash common stock in each of the last three years:
Effective Quarter
1st through 4th quarters of 2016 ..................................................................................................................................... $
1st through 4th quarters of 2017 .....................................................................................................................................
1st through 4th quarters of 2018 .....................................................................................................................................
Dividend per
common share
0.150
0.165
0.180
Under its senior revolving credit facility, the Company is generally permitted to pay dividends in any fiscal year up to an amount such
that all cash dividends, together with any cash distributions and share repurchases, do not exceed $35.0 million. Additionally, the
Company is generally permitted to pay cash dividends and repurchase shares in excess of $35.0 million in any fiscal year so long as its
Excess Availability, as defined in the senior revolving credit facility, is in excess of 10% of the Total Borrowing Base, as defined in
the senior revolving credit facility, before and after giving effect to the repurchases and dividends.
Although the Company expects to continue to pay a quarterly cash dividend, adoption of a dividend policy does not commit the Board
of Directors (the “Board”) to declare future dividends. Each future dividend will be considered and declared by the Board at its
discretion. Whether the Board continues to declare dividends and repurchase shares depends on a number of factors, including the
Company’s future financial condition, anticipated profitability and cash flows, and compliance with the terms of its credit facilities.
During the first quarter of 2016, the Board authorized a five-year share repurchase program for $50 million of SpartanNash’s common
stock. During the fourth quarter of 2017, the Board authorized an incremental $50 million share repurchase program expiring in 2022.
As of December 29, 2018, $45.0 million remains available to be repurchased.
During 2018, 2017 and 2016, the Company repurchased 952,108, 1,367,432, and 396,030 shares of common stock for approximately
$20.0 million, $35.0 million, and $9.0 million, respectively. The Company did not repurchase any shares during the fourth quarter of
2018.
The equity compensation plans table in Part III, Item 12 of this report is herein incorporated by reference.
-17-
Performance Graph
Set forth below is a graph comparing the cumulative total shareholder return on SpartanNash common stock to that of the Russell
2000 Total Return Index and the NASDAQ Retail Trade Index, over a period beginning December 28, 2013 and ending on December
29, 2018.
Cumulative total return is measured by the sum of (1) the cumulative amount of dividends for the measurement period, assuming
dividend reinvestment, and (2) the difference between the share price at the end and the beginning of the measurement period, divided
by the share price at the beginning of the measurement period.
Comparison of 5 Year Cumulative Total Return
Assumes Initial Investment of $100
December 2018
SpartanNash
Russell 2000 Total Return Index
NASDAQ Retail Trade
250.00
200.00
150.00
100.00
50.00
0.00
12/28/2013
1/3/2015
1/2/2016
12/31/2016
12/30/2017
12/29/2018
The dollar values for total shareholder return plotted above are shown in the table below:
December 28,
2013
January 3,
2015
January 2,
2016
December 31, December 30, December 29,
2016
2017
2018
SpartanNash....................................... $
Russell 2000 Total Return Index .......
NASDAQ Retail Trade......................
100.00 $
100.00
100.00
111.14 $
104.62
111.11
95.12 $
100.49
116.16
177.20 $
121.91
117.49
122.50 $
139.76
124.98
80.38
123.38
124.47
The information set forth under the Heading “Performance Graph” shall not be deemed to be “soliciting material” or to be “filed” with
the Commission or subject to Regulation 14A or 14C, or to the liabilities of Section 18 of the Exchange Act, except to the extent that
the registrant specifically requests that such information be treated as soliciting material or specifically incorporates it by reference
into a filing under the Securities Act or the Exchange Act.
-18-
Item 6. Selected Financial Data
The following table provides selected historical consolidated financial information of SpartanNash for each of the five years ended
January 3, 2015 through December 29, 2018, all of which were 52-week years with the exception of 2014 which was a 53-week year.
(In thousands, except per share data)
Statements of Operations Data:
2018
2017
Year Ended
2016
2015
2014
997,411
4,937
Net sales (a) ............................................. $ 8,064,552
Gross profit ..............................................
1,110,406
Selling, general and administrative
expenses (b) .............................................
Merger/acquisition and integration ..........
Restructuring, goodwill/asset
impairment and other charges (c) ............
Operating earnings (loss) .........................
Earnings (loss) before income taxes
and discontinued operations.....................
Income tax expense (benefit) (d) .............
Earnings (loss) from continuing
operations.................................................
Net earnings (loss) ................................... $
Diluted earnings (loss) from
continuing operations per share ...............
Diluted earnings (loss) per share .............
Cash dividends declared per share...........
0.94
0.93
0.72
37,546
70,512
40,698
6,907
33,791
33,572
$ 7,963,799
1,144,909
$ 7,561,084
1,111,494
$ 7,527,695
1,115,682
$ 7,805,931
1,156,074
975,833
8,433
1,020,000
12,675
1,015,024
8,101
228,459
(106,675)
(131,644)
(79,027)
963,235
6,959
32,116
109,184
89,963
32,907
8,802
122,614
100,259
37,093
(52,617)
(52,845)
$
57,056
56,828
$
63,166
62,710
$
$
(1.41)
(1.41)
0.66
1.52
1.51
0.60
1.67
1.66
0.54
6,166
117,233
90,449
31,329
59,120
58,596
1.57
1.55
0.48
Balance Sheet Data:
Total assets (e) ......................................... $ 1,971,912
579,060
Property and equipment, net ....................
Working capital (f)...................................
524,645
Long-term debt and capital lease
obligations (e) (f) .....................................
Shareholders’ equity ................................
679,797
715,947
$ 2,055,797
600,240
509,705
$ 1,930,336
559,722
387,507
$ 1,917,263
583,698
396,263
$ 1,923,455
597,150
455,694
740,755
721,950
413,675
825,407
467,793
790,779
541,683
747,253
(a) Due to the adoption of ASU 2014-09, “Revenue from Contracts with Customers – Topic 606” in January 2018, the Company
determined that certain contracts in the Food Distribution segment that were historically reported on a gross basis are now
required to be reported on a net basis. The adoption of the guidance using the full retrospective method resulted in decreases to
net sales and cost of sales previously reported of $164,283, $173,516, $124,278, and $110,131 for 2017, 2016, 2015, and 2014,
respectively.
(b) Due to the adoption of ASU 2017-07, “Compensation – Retirement Benefits” in January 2018, benefit costs other than service
cost, are reflected in Other, net, whereas they previously were recognized in Selling, general and administrative expenses.
Retrospective application resulted in an increase to Other, net and a decrease in Selling, general and administrative expenses in
2014 of $2,387 from amounts previously reported. The reclassifications were not material in any of the other periods presented.
(c) In 2018, the Company recorded $37.5 million of net restructuring, asset impairment and other charges associated with a $32.0
million non-cash charge related to the expected insolvency of a food distribution customer and other charges related to the
Company’s retail store rationalization plan. In 2017, the Company recorded a $189.0 million goodwill impairment charge related
to its Retail segment and $33.7 million of asset impairment charges primarily associated with long-lived assets in the Retail
segment. In 2016, the Company recorded $32.1 million of restructuring and asset impairment charges primarily related to the
closure of four retail stores and two distribution centers, as well as asset impairment charges associated with certain
underperforming retail stores.
(d) In 2017, income taxes were impacted by the revaluation of deferred tax liabilities related to the corporate tax rate reduction
enacted in the Tax Cuts and Jobs Act, which also impacted the Company’s tax rate in 2018.
(e) Due to the adoption of ASU 2015-03, “Interest – Imputation of Interest: Simplifying the Presentation of Debt Issuance Costs” in
2016, debt issuance costs were reclassified from Other assets, net to Long-term liabilities for all periods presented. This resulted
in a decrease in Total assets and Long-term debt and capital lease obligations of $8,185 and $8,827 at January 2, 2016 and
January 3, 2015, respectively.
(f) Due to the adoption of ASU 2015-17, “Balance Sheet Classification of Deferred Taxes” in 2015, deferred income taxes were
reclassified from Current liabilities to Long-term liabilities for all periods presented. Adoption of this standard resulted in an
increase in Working capital of $22,494 at January 3, 2015.
-19-
Historical data is not necessarily indicative of the Company’s future results of operations or financial condition. See discussion of
“Risk Factors” in Part I, Item 1A of this report; “Management’s Discussion and Analysis of Financial Condition and Results of
Operations” in Part II, Item 7 of this report; and the consolidated financial statements and notes thereto in Part II, Item 8 of this
Annual Report on Form 10-K.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
About SpartanNash
SpartanNash, headquartered in Grand Rapids, Michigan, is a leading multi-regional grocery distributor and grocery retailer whose
core businesses include distributing grocery products to a diverse group of independent and chain retailers, its corporate owned retail
stores, and military commissaries and exchanges in the United States. The Company operates three reportable business segments:
Food Distribution, Military and Retail.
The Company’s Food Distribution segment provides a wide variety of nationally branded and private brand grocery products and
perishable food products to approximately 2,100 independent retailers, the Company’s corporate owned retail stores, food service
distributors and various other customers. Through its Food Distribution segment, the Company also services national retailers,
including Dollar General. Sales to Dollar General are made to more than 15,500 of its retail locations. Combined with the Military
segment, the Company currently services customers in all 50 states. The Company processes fresh-cut fruits and vegetables and other
value-added meal solutions and supplies these products to grocery retailers and food service distributors. Through the Fresh Kitchen
facility, the Company processes, cooks and packages fresh protein-based foods and complete meal solutions for a number of different
customers.
The Company’s Military segment contracts with manufacturers to distribute a wide variety of grocery products, including dry
groceries, beverages, meat, and frozen foods, primarily to military commissaries and exchanges located in the United States, the
District of Columbia, Europe, Cuba, Puerto Rico, Honduras, Bahrain, Djibouti and Egypt. The Company is also the DeCA exclusive
worldwide supplier of private brand grocery and related products to U.S. military commissaries. The Company has over 40 years of
experience acting as a distributor to U.S. military commissaries and exchanges.
The Company’s Retail segment operated 139 corporate owned retail stores in the Midwest region primarily under the banners of
Family Fare Supermarkets, D&W Fresh Markets, VG’s Grocery, Dan’s Supermarket and Family Fresh Market as of December 29,
2018. The Company also offered pharmacy services in 82 of its corporate owned stores (of which 72 pharmacies are owned) and
operated 29 fuel centers. The retail stores have a “neighborhood market” strategy that focuses on value beyond price, affordable
wellness, and commitment to local products.
The Company’s fiscal year end is the Saturday closest to December 31. The following discussion is as of and for the fiscal years
ending or ended December 28, 2019 (“2019”), December 29, 2018 ("2018" or “current year”), December 30, 2017 (“2017” or “prior
year”) and December 31, 2016 (“2016”), all of which include 52 weeks. All fiscal quarters are 12 weeks, except for the Company’s
first quarter, which is 16 weeks and will generally include the Easter holiday. The fourth quarter includes the Thanksgiving and
Christmas holidays, and depending on the fiscal year end, may include the New Year’s holiday.
In certain geographic areas, the Company’s sales and operating performance may vary with seasonality. Many stores are dependent on
tourism, and therefore, are most affected by seasons and weather patterns, including, but not limited to, the amount and timing of
snowfall during the winter months and the range of temperature during the summer months.
Overview of 2018
In 2018, the Company executed against its long-term strategic objective of becoming a growth company that is focused on developing
a national, highly efficient distribution platform known for solving unique and complex logistical issues and evolving its primary retail
brand to deliver innovative solutions, both of which service a diverse customer base. The Company also began a company-wide
initiative late in the fourth quarter to drive sustainable profit improvements.
-20-
The Company’s 2018 accomplishments and developments include:
Food Distribution
(cid:3) During 2018, the Company expanded its supply chain capabilities to provide better solutions to its customers more efficiently
and in more markets. The Company enhanced its ability to make deliveries to the east coast and added a centralized produce
distribution solution to its western region. The addition of the produce distribution solution will result in higher quality products
while incurring fewer costs related to transportation and waste. The Company eliminated redundancy in its network, while
shifting certain operations closer to its customers in an effort to reduce freight miles and provide faster fulfillment. The
Company also invested in its labor force, including drivers and warehousemen, fleet, and IT systems in order to provide for
further efficiency and execution within the supply chain going forward.
(cid:3)
(cid:3)
The Company was recognized in the current year for its innovation in marketing and merchandising. These efforts have led to
the launch of various product and marketing campaigns which have supported the sales trends in the traditional distribution
business. At the same time, the Company remains committed to collaboration with independent retailers and launched programs
to strengthen these partnerships and to support their success in the retail market. These programs included solutions ranging
from e-commerce to customer loyalty and retention programs.
The Company realized sales growth in its Food Distribution segment, due to incremental distribution volume from both
existing and new customer programs, of 4.3% over the prior year. Sales growth in the fourth quarter of 2018 marked the 12th
consecutive quarter of organic sales growth for the segment. The Company remains focused on partnering with independent
retailers to support their operations and enhance the consumer experience.
(cid:3) Within the food processing operations, the Company has seen year-over-year progress related to its efforts to improve
efficiency and an expansion of its fresh offerings as a result of interest from new types of customers. The Company expects
further progress in its profitability as it becomes more experienced at seamlessly onboarding new business opportunities and is
able to continue to develop an experienced workforce. The Company also consolidated the produce planning and replenishment
processes between food processing and other Food Distribution operations and continues to look for opportunities to drive
leverage and synergies through process consolidation and technology.
Military
(cid:3)
(cid:3)
(cid:3)
Retail
(cid:3)
(cid:3)
The Military segment continued to support DeCA in the expansion of its private brand program, which has contributed to
overall sales growth in 2018. In connection with the overall arrangement, the Company leveraged its private brand capabilities
and expertise to help design and develop both DeCA’s proprietary and commissary-specific private brands. As of December 29,
2018, the Company had launched over 700 SKUs of private brand products in the DeCA system. The Company looks forward
to continuing its partnership with DeCA and anticipates 1,000 total SKUs will be active within the program by the end of 2019.
The Company was dedicated to their support of military commissaries which were significantly impacted by Hurricane
Florence during the third quarter of 2018. The Company responded to urgent requests of DeCA and made additional deliveries
of water to these commissaries.
In the third quarter of 2018, the Company secured a significant contract for incremental business with an existing customer
through the continued demonstration of superior customer service and execution capabilities. Incremental sales with this
customer commenced in the fourth quarter of 2018 which, combined with continued increases in volume from the private brand
program, offset the challenges of operating in a commissary environment which continues to experience negative sales trends.
The Company continued to make strategic Retail segment investments through the execution of five store remodels during
2018. These investments have supported the Company’s objectives related to brand repositioning and it expects that they will
help improve customer satisfaction and contribute to the achievement of sequential growth in fiscal 2019 comparable store
sales. The Company also continued its store rationalization program, and in connection with overall business strategies, closed
six retail stores in connection with lease expirations and store rationalization plans during the year.
The Company expanded Fast Lane, its e-commerce solution, which offers online ordering and curbside pick-up service at
approximately 65 retail stores, and same day delivery in several geographies as of December 29, 2018. The Company believes
Fast Lane is essential to increasing customer satisfaction through quality service and convenience. Additional enhancements
were made to Fast Lane in the current year which integrate “yes”™ digital coupons into the shopping experience and provide
customers with additional savings and rewards. In the second quarter of 2018, the Company also began partnerships with
Instacart in several regions to offer customers additional online shopping options. Lastly, in the fourth quarter of 2018, the
Company developed and piloted a new mobile application which allows customers to scan and bag their groceries as they shop
helping them to save time and money.
-21-
Other
(cid:3) During 2018, the Company returned $45.9 million to shareholders from share repurchases and dividend payments. The
Company also improved working capital compared to the prior year. Net cash provided by operating activities was $171.7
million in 2018 compared to $52.8 million in 2017. Net cash used by investing activities was $64.2 million in 2018 compared
to $315.4 million in 2017. Net long-term debt decreased $54.8 million compared to the prior year as the Company continues to
work towards paying down debt.
(cid:3)
In the fourth quarter of 2018, the Company partnered with a third-party advisory firm to commence a company-wide initiative,
Project One Team, designed to transform its culture and empower associates at all levels to drive substantial ongoing,
sustainable improvements to business processes and results. Project One Team is designed to align with the Company’s
strategic objectives and is intended to position the Company to identify opportunities for growth and efficiency with benefits in
the next one to two years.
(cid:3) During 2018, the Company remained committed to undertaking business development initiatives within both core and adjacent
spaces to further its strategic objectives. In line with this strategy, the Company acquired Martin’s Super Markets (“Martin’s”)
in early 2019. Martin’s is a leading Midwest independent supermarket chain which operates 21 stores in the northern Indiana
and southwestern Michigan markets.
The accomplishments above helped position the Company for future earnings growth, but the competitive landscape and industry
trends also present challenges to the Company and potential changes in trends that could impact 2019. For fiscal 2019, the Company
anticipates year-over-year sales growth to continue in the Food Distribution segment driven primarily by incremental sales to existing
customers and new food processing customers. Incremental business with an existing customer and contributions from the ongoing
expansion of the DeCA private brand program should continue to drive sales growth in the Military segment. The Company expects
sequential improvement in its Retail stores’ comparable sales trend, benefiting from current year and future store remodels and the
Company’s brand repositioning. The Company plans to mitigate these challenges by sustaining sales growth in the Food Distribution
segment, aggressively pursuing new business made available by disruption in the industry and driving adjusted operating earnings
and adjusted EBITDA growth over the prior year. Additionally, the Company plans to strengthen its management team and improve
supply chain capabilities, from identifying and capitalizing on freight efficiencies, to managing through tight labor markets in certain
geographies, while increasing the acceptance of private brand products. The Company also plans to deliver value through the
execution on Project One Team. The Company will reduce its debt levels and financial leverage ratios to facilitate achieving our
strategic objectives. The Company continues to take actions that it believes will enhance the convenience and value that it provides its
customers and continues to see positive results from these investments.
Results of Operations
Certain prior year amounts have been adjusted to reflect recently adopted accounting standards.
The following table sets forth items from the Company’s consolidated statements of operations as a percentage of net sales and the
percentage change from the preceding year:
Net sales .................................................................................
Gross profit ............................................................................
Selling, general and administrative expenses ........................
Merger/acquisition and integration ........................................
Restructuring, goodwill/asset impairment and
other charges ..........................................................................
Operating earnings (loss) ....................................................
Other income and expenses ...................................................
Earnings (loss) before income taxes and
discontinued operations.......................................................
Income tax expense (benefit) .................................................
Earnings (loss) from continuing operations ........................
Loss from discontinued operations, net of taxes....................
Net earnings (loss) ...............................................................
Note: Certain totals do not sum due to rounding.
Percentage of Net Sales
2017
2018
Percentage Change
2016
2018
2017
100.0
13.8
12.4
0.1
100.0
14.4
12.7
0.1
100.0
14.7
12.7
0.1
0.5
0.9
0.4
0.5
0.1
0.4
—
0.4
2.9
(1.3)
0.3
(1.7)
(1.0)
(0.7)
—
(0.7)
0.4
1.4
0.3
1.2
0.4
0.8
—
0.8
1.3
(3.0)
(1.7)
(39.1)
(83.6)
166.1
19.4
130.9
108.7
164.2
—
163.5
5.3
3.0
5.4
16.4
611.4
(197.7)
29.9
(246.3)
(340.2)
(192.2)
—
(193.0)
-22-
Results of Continuing Operations for 2018 Compared to 2017
Net Sales
(In thousands)
2018
Food Distribution............................ $ 3,991,450
Military ...........................................
Retail ...............................................
2,166,843
1,906,259
Total net sales............................... $ 8,064,552
Percentage of
Total
Net Sales
2017
Percentage of
Total
Net Sales
Variance
Percentage
Change
49.5 % $ 3,827,909
26.9
23.6
100.0 % $ 7,963,799
2,144,022
1,991,868
48.1 % $ 163,541
22,821
26.9
25.0
(85,609)
100.0 % $ 100,753
4.3
1.1
(4.3)
1.3
Net sales increased $100.8 million, or 1.3%, to $8.06 billion in 2018 from $7.96 billion in 2017. The increase in net sales was
primarily attributable to organic growth in the Food Distribution segment and new business in the Military segment, which more than
offset lower sales in the Retail segment and lower comparable sales at DeCA operated locations in the Military segment.
Food Distribution net sales, after intercompany eliminations, increased $163.5 million, or 4.3%, to $3.99 billion in 2018 from $3.83
billion in the prior year. The increase was primarily due to sales growth from new and ongoing programs with existing customers.
Military net sales increased $22.8 million, or 1.1%, to $2.17 billion in 2018 from $2.14 billion in the prior year. The increase was
primarily due to new commissary business in the Southwest, incremental volume from the private brand program and a new program
with an existing customer, partially offset by lower comparable sales at the DeCA operated locations.
Retail net sales decreased $85.6 million, or 4.3%, to $1.91 billion in 2018 from $1.99 billion in the prior year. The decrease in net
sales was primarily attributable to lower sales resulting from the closures and sales of retail stores and fuel centers of $64.0 million, as
well as negative comparable store sales, partly offset by an increase in fuel prices. Comparable store sales, excluding fuel, were
negative 2.0% in the current year and reflect continued strong competition within the industry. The Company defines a retail store as
comparable when it is in operation for 14 accounting periods (a period equals four weeks), regardless of remodels, expansions, or
relocated stores. The Company’s definition of comparable store sales may differ from similarly titled measures at other companies.
Gross Profit – Gross profit represents net sales less cost of sales, which is described in further detail within Note 1, Summary of
Significant Accounting Policies and Basis of Presentation, in the notes to the consolidated financial statements. Gross profit decreased
$34.5 million, or 3.0%, to $1.11 billion in 2018 compared to $1.14 billion in the prior year. As a percent of net sales, gross profit
decreased from 14.4% to 13.8% due to several factors, most notably the increased mix of Food Distribution and Military segment
sales as a percentage of total sales combined with a change in customer mix within the Food Distribution segment and higher fees paid
to pharmacy benefit managers in the Retail segment. The rate was also impacted by operational issues at one of the Company’s
distribution centers, serving both the military and food distribution segments, the voluntary product recall on certain fresh cut products
and an increase in LIFO expense due to higher inflation.
Selling, General and Administrative Expenses – Selling, general and administrative (“SG&A”) expenses consist primarily of salaries
and wages, employee benefits, warehousing costs, store occupancy costs, shipping and handling, utilities, equipment rental,
depreciation (to the extent not included in Cost of Sales), out-bound freight and other administrative expenses. SG&A expenses
decreased $17.6 million, or 1.7%, to $997.4 million in 2018 from $1,015.0 million in the prior year. As a percent of net sales, SG&A
expenses decreased from 12.7% to 12.4% due to the mix of business operations and decreased administrative costs, partially offset by
the impact of increased transportation costs within the Military and Food Distribution segments.
Merger/Acquisition and Integration Expenses – In 2018, $4.9 million of merger/acquisition and integration expenses were incurred
mainly associated with ongoing merger activities from prior years as well as costs associated with the Martin’s acquisition. Prior year
results included $8.1 million of merger/acquisition and integration expenses primarily associated with the Caito and BRT acquisition,
and to a lesser extent, other acquisition-related and ongoing merger activities related to the Nash-Finch merger.
Restructuring, Asset Impairment and Other Charges, Including Goodwill Impairment – In 2018, $37.5 million of net restructuring,
asset impairment and other charges were incurred, predominantly associated with a non-cash charge related to the collectability of a
customer advance to an independent retailer of $32.0 million as well as charges incurred as part of the Company’s retail store
rationalization plans, partially offset by changes in estimates of closed store liabilities and gains on sales of real estate. Prior year
results included $228.5 million of restructuring, asset impairment and other charges that consisted primarily of non-cash goodwill
impairment charge of $189.0 million related to the Retail segment and $39.4 million of restructuring and asset impairment charges
primarily associated with the underlying performance of Company’s retail store base and the execution of its store rationalization
program.
-23-
Operating Earnings (Loss)
(In thousands)
Food Distribution............................ $
Military ...........................................
Retail ...............................................
Operating earnings (loss) ............. $
2018
48,752
5,647
16,113
70,512
Percentage of
Net Sales
2017
Percentage of
Net Sales
Change in
Percentage of
Variance
Net Sales
83,115
1.2 % $
6,969
0.3
0.8
(196,759)
0.9 % $ (106,675)
(34,363)
(1,322)
2.2 % $
0.3
(9.9)
(1.3) % $ 177,187
212,872
(1.0)
—
10.7
2.2
The Company reported operating earnings of $70.5 million in 2018 compared to an operating loss of $106.7 million in the prior year.
The increase of $177.2 million was primarily attributable to prior year non-cash goodwill and asset impairment charges,
predominantly related to the Retail segment. The increase was also attributable to higher sales volumes and lower administrative costs,
partially offset by the charge associated with the customer advance, a decrease in gross profit rates, and increases in warehousing and
transportation costs.
Food Distribution operating earnings decreased $34.4 million, or 41.3%, to $48.8 million in 2018 from $83.1 million in the prior year.
The decrease was primarily attributable to the charge on the customer advance, the voluntary product recall, higher transportation
costs associated with the roll-out of a significant new customer program and higher LIFO expense, partially offset by higher sales
volume and lower healthcare and administrative costs.
Military operating earnings decreased $1.3 million, or 18.9%, to $5.6 million in 2018 from $7.0 million in the prior year. The decrease
was attributable to higher transportation costs, operational issues at one distribution center and higher LIFO expense, partially offset
by lower administrative costs, lower integration costs, higher sales volume and the gain on the sale of real estate.
Retail operating earnings increased $212.9 million to $16.1 million in 2018 compared to an operating loss of $196.8 million in the
prior year. The increase was primarily due to goodwill and asset impairment charges in the prior year. Other significant factors include
lower health care and other benefits and the closure of underperforming stores, partially offset by lower comparable store sales, higher
fees paid to pharmacy benefit managers, as well as acquisition and integration expenses related to the Martin’s acquisition.
Interest Expense – Interest expense increased $5.1 million, or 20.3%, to $30.5 million in 2018 from $25.3 million in the prior year
primarily due to an increase in interest rates compared to the prior year.
Income Taxes – The Company’s effective income tax rates were 17.0% and 60.0% for 2018 and 2017, respectively. Differences from
the federal statutory rate in the current year are primarily due to the lapse of the statute of limitations for an uncertain tax position and
tax credits, partially offset by tax expense related to stock-based compensation and state income taxes. Differences from the federal
statutory rate in the prior year were primarily due to the re-measurement of deferred taxes, state taxes, tax benefits related to stock-
based compensation and charitable product donations. In the fourth quarter of 2017, the Company re-measured its deferred tax assets
and liabilities to reflect a change in the federal statutory rate from 35% to 21%, effective January 1, 2018, resulting from the Tax Cuts
and Jobs Act (the “Tax Act”), enacted on December 22, 2017. As a result, the Company realized an income tax benefit of $26.0
million related to 2017. Refer to Note 13, Income Tax, within the notes to the consolidated financial statements for additional
information regarding the Tax Act.
Results of Continuing Operations for 2017 Compared to 2016
Net Sales
(In thousands)
2017
Food Distribution............................ $ 3,827,909
Military ...........................................
Retail ...............................................
2,144,022
1,991,868
Total net sales............................... $ 7,963,799
Percentage of
Total
Net Sales
2016
Percentage of
Total
Net Sales
Variance
Percentage
Change
48.1 % $ 3,281,025
26.9
25.0
100.0 % $ 7,561,084
2,197,014
2,083,045
43.4 % $ 546,884
(52,992)
29.1
27.5
(91,177)
100.0 % $ 402,715
16.7
(2.4)
(4.4)
5.3
Net sales increased $402.7 million, or 5.3%, to $7.96 billion in 2017 from $7.56 billion in 2016. The increase in net sales was
primarily attributable to contributions from the Caito acquisition, organic growth of 4.1% in the Food Distribution segment, new
military commissary business in the Southwest in the second half of the year and increased contributions from the DeCA private brand
program, partly offset by lower comparable sales at DeCA operated locations and lower sales in the Retail segment resulting from the
closure and sale of retail stores and a decrease in comparable store sales.
-24-
Food Distribution net sales, after intercompany eliminations, increased $546.9 million, or 16.7%, to $3.83 billion in 2017 from $3.28
billion in 2016. The increase was primarily due to contributions from the Caito acquisition and organic growth of 3.7% related to
incremental sales volume to existing customers.
Military net sales decreased $53.0 million, or 2.4%, to $2.14 billion in 2017 from $2.20 billion in 2016. The decrease was primarily
due to lower sales at the DeCA operated locations, partially offset by new business in the Southwest and contributions from the DeCA
private brand program.
Retail net sales decreased $91.2 million, or 4.4%, to $1.99 billion in 2017 from $2.08 billion in 2016. The decrease in net sales was
primarily attributable to $60.8 million of lower sales resulting from the closures and sales of retail stores as well as negative
comparable store sales, partially offset by the impact of higher fuel prices. Comparable store sales for the year, excluding fuel, were
negative 2.4%.
Gross Profit – Gross profit increased $33.4 million, or 3.0%, to $1.14 billion in 2017 compared to $1.11 billion in 2016. As a percent
of net sales, gross profit decreased from 14.7% to 14.4% due to several factors, most notably the increased mix of Food Distribution
sales as a percentage of total sales. The rate was also impacted by margin investments at both Retail and Food Distribution, the cycling
of a significant 2016 LIFO benefit and lower fuel margins, partially offset by higher margin rates in the Military segment.
Selling, General and Administrative Expenses – SG&A expenses increased $51.8 million, or 5.4%, to $1,015.0 million in 2017 from
$963.2 million in 2016, representing 12.7% of net sales in both years. The increase in SG&A expense was primarily attributable to
higher operational expenses related to the Caito acquisition, increased healthcare costs and higher transportation and occupancy costs,
partially offset by lower incentive compensation and other cost savings.
Merger/Acquisition and Integration Expenses – In 2017, $8.1 million of merger/acquisition and integration expenses were incurred
mainly associated with the Caito and BRT acquisition, and to a lesser extent, other acquisition-related and ongoing merger activities.
The Company’s 2016 results included $7.0 million of merger/acquisition and integration expenses primarily associated with the Nash-
Finch merger, particularly system upgrades and implementations, as well as costs incurred in connection with 2016 and 2015
acquisitions.
Restructuring, Asset Impairment and Other Charges, Including Goodwill Impairment – In 2017, $228.5 million of net restructuring,
asset impairment and other charges were incurred, predominantly associated with goodwill and asset impairment charges. The
Company recorded a non-cash goodwill impairment charge of $189.0 million related to the Retail segment. The impairment was
driven by significantly lower than expected Retail operating results due to an increasingly competitive retail environment and the
related pricing pressures that are anticipated to negatively impact gross margin, operating profit, and future cash flows. The Company
also recorded $39.4 million of restructuring and asset impairment and restructuring charges primarily associated with the underlying
performance of Company’s retail store base and the execution of its store rationalization program. The Company’s 2016 results
included $32.1 million of restructuring and asset impairment charges that consisted primarily of impairment charges related to four
underperforming retail stores and restructuring charges primarily related to three retail stores and two food distribution centers. The
facilities were closed as part of the Company’s retail store and warehouse rationalization plan.
Operating (Loss) Earnings
(In thousands)
2017
Percentage of
Net Sales
2016
Percentage of
Net Sales
Change in
Percentage of
Variance
Net Sales
Food Distribution............................ $
Military ...........................................
Retail ...............................................
83,115
6,969
(196,759)
Operating (loss) earnings ............. $ (106,675)
85,296
2.2 % $
12,216
0.3
(9.9)
11,672
(1.3) % $ 109,184
(2,181)
2.6 % $
(5,247)
0.6
0.6
(208,431)
1.4 % $ (215,859)
(0.4)
(0.3)
(10.5)
(2.7)
The Company reported an operating loss of $106.7 million in 2017 compared to operating earnings of $109.2 million in 2016. The
decrease of $215.9 million was primarily attributable to 2017 non-cash goodwill and restructuring and asset impairment charges of
$228.5 million, predominantly related to the Retail segment, higher costs associated with Caito operations and Fresh Kitchen start-up
activities, as well as increased LIFO and health care expenses, partly offset by lower incentive compensation expense and various cost
savings initiatives.
Food Distribution operating earnings decreased $2.2 million, or 2.6%, to $83.1 million in 2017 from $85.3 million in 2016. The
decrease was primarily attributable to Caito operations and Fresh Kitchen start-up activities and higher LIFO expense, partially offset
by net sales growth from new and existing customers, lower incentive compensation and lower operating expenses associated with
various cost savings initiatives.
-25-
Military operating earnings decreased $5.3 million, or 43.0%, to $7.0 million in 2017 from $12.2 million in 2016. The decrease was
primarily due to lower sales at the DeCA-operated commissaries, higher supply chain costs associated with industry-wide
transportation cost challenges, onboarding and ramping up new and high-growth lines of business and increased healthcare and LIFO
expense, partially offset by growth from the new military commissary business in the Southwest and the DeCA private brand program,
as well as lower incentive compensation and margin improvements.
Retail reported an operating loss of ($196.8) million in 2017 compared to operating earnings of $11.7 million in 2016. The decrease
was primarily due to goodwill and higher asset impairment charges, lower comparable store sales, investments in margin and store
labor, and higher occupancy and healthcare costs, partly offset by lower costs related to incentive compensation, depreciation,
merger/acquisition and integration and closed stores.
Interest Expense – Interest expense increased $6.2 million, or 32.8%, to $25.3 million in 2017 from $19.1 million in 2016 primarily
due to increased borrowings related to the Caito and BRT acquisition and the timing of working capital requirements.
Debt Extinguishment – A loss on debt extinguishment of $0.4 million was incurred in 2017 in connection with the pay down of the
term loan component of the senior secured credit facility. A loss on debt extinguishment of $0.2 million was incurred in 2016 in
connection with the amendment of the senior secured credit facility.
Income Taxes – The Company’s effective income tax rates were 60.0% and 36.6% for 2017 and 2016, respectively. Differences from
the federal statutory rate are primarily due to the re-measurement of deferred taxes mentioned previously, state taxes, tax benefits
related to stock-based compensation and charitable product donations in the current year and state taxes in 2016.
Non-GAAP Financial Measures
In addition to reporting financial results in accordance with GAAP, the Company also provides information regarding adjusted
operating earnings, adjusted earnings from continuing operations, and adjusted earnings before interest, taxes, depreciation and
amortization (“adjusted EBITDA”). These are non-GAAP financial measures, as defined below, and are used by management to
allocate resources, assess performance against its peers and evaluate overall performance. The Company believes these measures
provide useful information for both management and its investors. The Company believes these non-GAAP measures are useful to
investors because they provide additional understanding of the trends and special circumstances that affect its business. These
measures provide useful supplemental information that helps investors to establish a basis for expected performance and the ability to
evaluate actual results against that expectation. The measures, when considered in connection with GAAP results, can be used to
assess the overall performance of the Company as well as assess the Company’s performance against its peers. These measures are
also used as a basis for certain compensation programs sponsored by the Company. In addition, securities analysts, fund managers and
other shareholders and stakeholders that communicate with the Company request its financial results in these adjusted formats.
Current year adjusted operating earnings, adjusted earnings from continuing operations, and adjusted EBITDA exclude start-up costs
associated with the new Fresh Kitchen operation through the start-up period, which concluded during the first quarter. The Fresh
Kitchen is a newly constructed facility that provides the Company with the ability to process, cook, and package fresh protein-based
foods and complete meal solutions. Given the Fresh Kitchen represents a new line of business for the Company, the start-up activities
associated with testing, training, and preparing the Fresh Kitchen for production, as well as incorporating the related operations into
the business, are considered “non-operational” or “non-core” in nature. The 2017 retirement stock compensation award represents
incremental compensation expense in connection with an executive retirement that is also considered “non-operational” or “non-core”
in nature.
Adjusted Operating Earnings
Adjusted operating earnings is a non-GAAP operating financial measure that the Company defines as operating earnings plus or minus
adjustments for items that do not reflect the ongoing operating activities of the Company and costs associated with the closing of
operational locations.
-26-
The Company believes that adjusted operating earnings provide a meaningful representation of its operating performance for the
Company as a whole and for its operating segments. The Company considers adjusted operating earnings as an additional way to
measure operating performance on an ongoing basis. Adjusted operating earnings is meant to reflect the ongoing operating
performance of all of its distribution and retail operations; consequently, it excludes the impact of items that could be considered
“non-operating” or “non-core” in nature, and also excludes the contributions of activities classified as discontinued
operations. Because adjusted operating earnings and adjusted operating earnings by segment are performance measures that
management uses to allocate resources, assess performance against its peers and evaluate overall performance, the Company believes
it provides useful information for both management and its investors. In addition, securities analysts, fund managers and other
shareholders and stakeholders that communicate with the Company request its operating financial results in an adjusted operating
earnings format.
Adjusted operating earnings and adjusted operating earnings by segment are not measures of performance under accounting principles
generally accepted in the United States of America (“GAAP”) and should not be considered as a substitute for operating earnings,
cash flows from operating activities and other income or cash flow statement data. The Company’s definitions of adjusted operating
earnings and adjusted operating earnings by segment may not be identical to similarly titled measures reported by other companies.
Following is a reconciliation of operating earnings (loss) to adjusted operating earnings for 2018, 2017 and 2016.
(In thousands)
Operating earnings (loss).......................................................................................... $
Adjustments:
Merger/acquisition and integration ........................................................................
Restructuring, goodwill/asset impairment and other charges ................................
Fresh Kitchen start-up costs...................................................................................
Stock compensation associated with executive retirement....................................
Expenses associated with tax planning strategies..................................................
Severance associated with cost reduction initiatives .............................................
Adjusted operating earnings ..................................................................................... $
Reconciliation of operating earnings (loss) to adjusted operating earnings by segment:
2018
70,512
$
2017
(106,675)
2016
109,184
$
4,937
37,546
1,366
—
225
1,023
115,609
8,101
228,459
8,082
1,172
3,798
368
143,305
$
$
6,959
32,116
—
—
—
859
149,118
Food Distribution:
Operating earnings.................................................................................................... $
Adjustments:
Merger/acquisition and integration ........................................................................
Restructuring, asset impairment and other charges ...............................................
Fresh Kitchen start-up costs...................................................................................
Stock compensation associated with executive retirement....................................
Expenses associated with tax planning strategies..................................................
Severance associated with cost reduction initiatives .............................................
Adjusted operating earnings ..................................................................................... $
Military:
Operating earnings.................................................................................................... $
Adjustments:
Merger/acquisition and integration ........................................................................
Restructuring (gains) charges ................................................................................
Stock compensation associated with executive retirement....................................
Expenses associated with tax planning strategies..................................................
Severance associated with cost reduction initiatives .............................................
Adjusted operating earnings ..................................................................................... $
Retail:
Operating earnings (loss).......................................................................................... $
Adjustments:
Merger/acquisition and integration ........................................................................
Restructuring charges and goodwill/asset impairment ..........................................
Stock compensation associated with executive retirement....................................
Expenses associated with tax planning strategies..................................................
Severance associated with cost reduction initiatives .............................................
Adjusted operating earnings ..................................................................................... $
48,752
$
83,115
$
85,296
3,581
33,056
1,366
—
116
763
87,634
6,244
1,317
8,082
591
1,744
342
101,435
$
$
3,703
5,068
—
—
—
229
94,296
5,647
$
6,969
$
12,216
4
(801)
—
28
107
4,985
$
1,522
500
147
593
7
9,738
$
1
(473)
—
—
245
11,989
16,113
$
(196,759)
$
11,672
1,352
5,291
—
81
153
22,990
335
226,642
434
1,461
19
32,132
$
$
3,255
27,521
—
—
385
42,833
-27-
Adjusted Earnings from Continuing Operations
Adjusted earnings from continuing operations is a non-GAAP operating financial measure that the Company defines as earnings from
continuing operations plus or minus adjustments for items that do not reflect the ongoing operating activities of the Company and
costs associated with the closing of operational locations.
The Company believes that adjusted earnings from continuing operations provide a meaningful representation of its operating
performance for the Company. The Company considers adjusted earnings from continuing operations as an additional way to measure
operating performance on an ongoing basis. Adjusted earnings from continuing operations is meant to reflect the ongoing operating
performance of all of its distribution and retail operations; consequently, it excludes the impact of items that could be considered
“non-operating” or “non-core” in nature, and also excludes the contributions of activities classified as discontinued operations.
Because adjusted earnings from continuing operations is a performance measure that management uses to allocate resources, assess
performance against its peers and evaluate overall performance, the Company believes it provides useful information for both
management and its investors. In addition, securities analysts, fund managers and other shareholders and stakeholders that
communicate with the Company request its operating financial results in adjusted earnings from continuing operations format.
Adjusted earnings from continuing operations is not a measure of performance under accounting principles generally accepted in the
United States of America and should not be considered as a substitute for net earnings, cash flows from operating activities and other
income or cash flow statement data. The Company’s definition of adjusted earnings from continuing operations may not be identical
to similarly titled measures reported by other companies.
Following is a reconciliation of earnings (loss) from continuing operations to adjusted earnings from continuing operations for 2018,
2017 and 2016.
(In thousands, except per share data)
Earnings
2018
2017
2016
per diluted
share
Earnings
per diluted
share
Earnings
per diluted
share
Earnings (loss) from continuing
operations.................................................. $
Adjustments:
Merger/acquisition and integration ........
Restructuring, goodwill/asset
impairment and other charges ................
Fresh Kitchen start-up costs ...................
Expenses associated with tax
planning strategies..................................
Severance associated with cost reduction
initiatives ................................................
Stock compensation associated with
executive retirement ...............................
Loss on debt extinguishment..................
Total adjustments ................................
Income tax effect on
adjustments (a) .......................................
Impact of Tax Cuts
and Jobs Act (b) .....................................
Total adjustments, net of taxes ............
Adjusted earnings from continuing
operations.................................................. $
33,791
$
0.94 $
(52,617)
$
(1.41)
$
57,056
$
1.52
4,937
37,546
1,366
225
1,023
—
—
45,097
(11,139)
(494)
33,464
0.93
8,101
228,459
8,082
3,798
368
1,172
—
249,980
(92,767)
(25,992)
131,221
6,959
32,116
—
—
859
—
247
40,181
(15,071)
3.51
—
25,110
0.68
67,255
$
1.87 $
78,604
$
2.10
$
82,166
$
2.19
(a) The income tax effect on adjustments is computed by applying the applicable tax rate to the adjustments.
(b) Includes a $1.1 million and $4.8 million tax benefit attributable to tax planning strategies related to the Tax Act for 2018 and
2017, respectively.
-28-
Adjusted EBITDA
Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization (“adjusted EBITDA”) is a non-GAAP operating financial
measure that the Company defines as net earnings plus interest, discontinued operations, depreciation and amortization, and other non-
cash items including deferred (stock) compensation, the LIFO provision, as well as adjustments for items that do not reflect the
ongoing operating activities of the Company and costs associated with the closing of operational locations.
The Company believes that adjusted EBITDA provides a meaningful representation of its operating performance for the Company as a
whole and for its operating segments. The Company considers adjusted EBITDA as an additional way to measure operating
performance on an ongoing basis. Adjusted EBITDA is meant to reflect the ongoing operating performance of all of its distribution
and retail operations; consequently, it excludes the impact of items that could be considered “non-operating” or “non-core” in nature,
and also excludes the contributions of activities classified as discontinued operations. Because adjusted EBITDA and adjusted
EBITDA by segment are performance measures that management uses to allocate resources, assess performance against its peers and
evaluate overall performance, the Company believes it provides useful information for both management and its investors. In addition,
securities analysts, fund managers and other shareholders and stakeholders that communicate with the Company request its operating
financial results in an adjusted EBITDA format.
Adjusted EBITDA and adjusted EBITDA by segment are not measures of performance under accounting principles generally accepted
in the United States of America and should not be considered as a substitute for net earnings, cash flows from operating activities and
other income or cash flow statement data. The Company’s definitions of adjusted EBITDA and adjusted EBITDA by segment may not
be identical to similarly titled measures reported by other companies.
-29-
Following is a reconciliation of net earnings (loss) to adjusted EBITDA for 2018, 2017 and 2016.
(In thousands)
Net earnings (loss) ................................................................................................
Loss from discontinued operations, net of tax ...................................................
Income tax expense (benefit) .............................................................................
Other expenses, net ............................................................................................
Operating earnings (loss) ......................................................................................
Adjustments:
LIFO expense (benefit) ......................................................................................
Depreciation and amortization ...........................................................................
Merger/acquisition and integration ....................................................................
Restructuring, goodwill/asset impairment and other charges ............................
Expenses associated with tax planning strategies ..............................................
Fresh Kitchen start-up costs ...............................................................................
Stock-based compensation .................................................................................
Other non-cash gains ..........................................................................................
Adjusted EBITDA.................................................................................................
Reconciliation of operating earnings (loss) to adjusted EBITDA by segment:
Food Distribution:
Operating earnings ................................................................................................
Adjustments:
LIFO expense (benefit) ......................................................................................
Depreciation and amortization ...........................................................................
Merger/acquisition and integration ....................................................................
Restructuring, asset impairment and other charges............................................
Expenses associated with tax planning strategies ..............................................
Fresh Kitchen start-up costs ...............................................................................
Stock-based compensation .................................................................................
Other non-cash charges ......................................................................................
Adjusted EBITDA.................................................................................................
Military:
Operating earnings ................................................................................................
Adjustments:
LIFO expense (benefit) ......................................................................................
Depreciation and amortization ...........................................................................
Merger/acquisition and integration ....................................................................
Restructuring (gains) charges and asset impairment..........................................
Expenses associated with tax planning strategies ..............................................
Stock-based compensation .................................................................................
Other non-cash (gains) charges ..........................................................................
Adjusted EBITDA.................................................................................................
Retail:
Operating earnings (loss) ......................................................................................
Adjustments:
LIFO expense (benefit) ......................................................................................
Depreciation and amortization ...........................................................................
Merger/acquisition and integration ....................................................................
Restructuring charges and goodwill/asset impairment.......................................
Expenses associated with tax planning strategies ..............................................
Stock-based compensation .................................................................................
Other non-cash gains ..........................................................................................
Adjusted EBITDA.................................................................................................
$
$
$
$
$
$
$
$
2018
33,572 $
219
6,907
29,814
70,512
4,601
82,634
4,937
37,546
225
1,366
7,646
(46)
209,421 $
2017
(52,845) $
228
(79,027)
24,969
(106,675)
2,898
82,243
8,101
228,459
3,798
8,082
9,611
(515)
236,002 $
2016
56,828
228
32,907
19,221
109,184
(1,919)
77,246
6,959
32,116
—
—
7,936
(148)
231,374
48,752 $
83,115 $
85,296
2,270
31,854
3,581
33,056
116
1,366
3,626
724
125,345 $
2,036
29,258
6,244
1,317
1,744
8,082
4,457
310
136,563 $
(1,128)
21,397
3,703
5,068
—
—
3,491
152
117,979
5,647 $
6,969 $
12,216
1,230
11,968
4
(801)
28
1,244
(273)
19,047 $
394
11,626
1,522
500
593
1,491
(20)
23,075 $
(331)
11,484
1
(473)
—
1,347
261
24,505
16,113 $
(196,759) $
11,672
1,101
38,812
1,352
5,291
81
2,776
(497)
65,029 $
468
41,359
335
226,642
1,461
3,663
(805)
76,364 $
(460)
44,365
3,255
27,521
—
3,098
(561)
88,890
-30-
Critical Accounting Policies and Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect
the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. On an
ongoing basis, the Company evaluates its estimates, including those related to bad debts, inventories, intangible assets, assets held for
sale, long-lived assets, income taxes, self-insurance reserves, restructuring costs, retirement benefits, stock-based compensation,
contingencies and litigation. Management bases its estimates on historical experience and various other assumptions that are believed
to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets
and liabilities that may not be readily apparent from other sources. Based on the Company’s ongoing review, the Company makes
adjustments it considers appropriate under the facts and circumstances. This discussion and analysis of the Company’s financial
condition and results of operations is based upon the Company’s consolidated financial statements. The Company believes these
accounting policies and others set forth in Note 1, Summary of Significant Accounting Policies and Basis of Presentation, in the notes
to the consolidated financial statements should be reviewed as they are integral to understanding the Company’s financial condition
and results of operations. The Company has discussed the development, selection and disclosure of these accounting policies with the
Audit Committee of the Board of Directors.
An accounting policy is considered critical if: a) it requires an accounting estimate to be made based on assumptions about matters
that are highly uncertain at the time the estimate is made, and b) different estimates that reasonably could have been used, or changes
in the accounting estimates that are reasonably likely to occur periodically, could materially impact the Company’s consolidated
financial statements. The Company considers the following accounting policies to represent the more critical estimates and
assumptions used in the preparation of its consolidated financial statements:
Inventories
Inventories are valued at the lower of cost or market, with approximately 88.9% of the Company’s inventories valued using the last-in,
first-out (“LIFO”) method. The remaining inventories are valued on the first-in, first-out (“FIFO”) method. The Company accounts for
its Food Distribution and Military inventory using a perpetual system and utilizes the retail inventory method (“RIM”) to value
inventory for center store products in the Retail segment. Under the RIM, inventory is stated at cost with cost of sales and gross
margin calculated by applying a cost ratio to the retail value of inventories. RIM is an averaging method that has been widely used in
the retail industry. Inherent in the RIM calculations are certain significant management judgments and estimates, including inventory
shortages and cost-to-retail ratios, which impact the ending inventory valuation at cost, as well as the resulting gross profit.
Management consistently applies its RIM valuations by product category and believes that the Company’s RIM provides an inventory
valuation that reasonably approximates cost.
Fresh, pharmacy and fuel products are accounted for at cost in the Retail segment. The Company evaluates inventory shortages
throughout the year based on actual physical counts in its facilities. The Company records allowances for inventory shortages based on
the results of recent physical counts to provide for estimated shortages from the last physical count to the financial statement date. The
estimates and assumptions used in valuing inventories, including those used in past calculations, are reviewed and applied
consistently, and as a result, the Company believes the estimates and assumptions are both reasonable and accurate. The Company
does not anticipate future changes to the estimates or assumptions used in valuing inventories, but it does anticipate that inflation
and/or deflation will continue to have a significant impact on the Company’s LIFO reserve as price changes represent a significant
driver of the calculation.
Vendor Funds, Allowances and Credits
The Company receives funds from many of its vendors when purchasing products to sell to its corporate owned retail stores and
independent retailers. Given the highly promotional nature of the retail supermarket industry, vendor allowances are generally
intended to help defray the costs of promotion, advertising and selling the vendor’s products. Vendor allowances that relate to the
Company’s buying and merchandising activities consist primarily of promotional allowances, which are generally allowances on
purchased quantities and, to a lesser extent, slotting allowances, which are billed to vendors for the Company’s merchandising costs
such as setting up warehouse infrastructure. The proper recognition and timing of accounting for these items are significant to the
reporting of the results of the Company’s operations. Vendor allowances are recognized as a reduction in cost of sales when the
related product is sold. Lump sum payments received for multi-year contracts are amortized over the life of the contracts based on
contractual terms. The amount and timing of recognition of vendor funds as well as the amount of vendor funds to be recognized as a
reduction to ending inventory requires management judgment and estimates. Management determines these amounts based on
estimates of current year purchase volume using forecast and historical data and review of average inventory turnover data. These
judgments and estimates impact the Company’s reported gross profit, operating earnings (loss) and inventory amounts. The Company
believes its historical estimates and use of this methodology have been reliable in the past and will continue to be reliable in the future.
-31-
Customer Exposure and Credit Risk
Allowance for Doubtful Accounts. The Company evaluates the collectability of its accounts and notes receivable based on a
combination of factors. In most circumstances when the Company becomes aware of factors that may indicate a deterioration in a
specific customer’s ability to meet its financial obligations (e.g., reductions of product purchases, deteriorating store conditions,
changes in payment patterns), the Company records a specific reserve to reduce the receivable to an amount the Company reasonably
believes will be collected. In determining the adequacy of the reserves, the Company analyzes factors such as the value of any
collateral, customer financial statements, historical collection experience, aging of receivables and other economic and industry
factors. It is possible that the accuracy of the estimation process could be materially affected by different judgments as to the
collectability based on information considered and further deterioration of accounts. If circumstances change (e.g., further evidence of
material adverse creditworthiness, additional accounts become credit risks, store closures), the Company’s estimates of the
recoverability of amounts due could be reduced by a material amount, including to zero.
Funds Advanced to Independent Retailers. From time to time, the Company may advance funds to independent retailers which are
earned by the retailers primarily through achieving specified purchase volume requirements, as outlined in their supply agreements
with the Company, or in limited instances, for remaining a SpartanNash customer for a specified time period. These advances must be
repaid if the purchase volume requirements are not met or if the retailer does not remain a customer for the specified time period. In
the event these retailers are unable to repay these advances or otherwise experience an event of default, the Company may be unable
to recover the unearned portion of the funds advanced to these independent retailers. The Company evaluates the recoverability of
these advances based on a number of factors, including anticipated and historical purchase volume, the value of any collateral,
customer financial statements and other economic and industry factors, and establishes a reserve for the advances as necessary. As of
December 29, 2018, the Company has unearned advanced funds of approximately $85.3 million, and has established a reserve of
$35.1 million for these advances.
Guarantees of Debt and Lease Obligations of Others. The Company may guarantee debt and lease obligations of independent
retailers. In the event these retailers are unable to meet their debt service payments or otherwise experience an event of default, the
Company would be unconditionally liable for the outstanding balance of their debt and lease obligations, which would be due in
accordance with the underlying agreements.
The Company has guaranteed the outstanding lease obligations of certain independent retailers. These guarantees, which are secured
by certain business assets and personal guarantees of the respective independent retailers, represent the maximum undiscounted
payments the Company would be required to make in the event of default. The Company believes these independent retailers will be
able to perform under the lease agreements and that no payments will be required, and no loss will be incurred under the guarantees. A
liability representing the fair value of the obligations assumed under the guarantees is included in the accompanying consolidated
financial statements.
The Company also subleases and assigns various leases to third parties. In circumstances when the Company becomes aware of
factors that indicate deterioration in a third party’s ability to meet its financial obligations guaranteed or assigned by SpartanNash, the
Company records a specific reserve in the amount the Company reasonably believes it will be obligated to pay on the third party’s
behalf, net of any anticipated recoveries from the third party. In determining the adequacy of these reserves, the Company analyzes
factors such as those described above in “Allowance for Doubtful Accounts – Methodology” and “Lease Commitments.” It is possible
that the accuracy of the estimation process could be materially affected by different judgments as to the obligations based on
information considered and further deterioration of accounts, with the potential for a corresponding adverse effect on operating results
and cash flows. Triggering these guarantees or obligations under assigned leases would not, however, result in cross default of the
Company’s debt, but could restrict resources available for general business initiatives. Refer to Note 15, Concentration of Credit Risk,
in the notes to the consolidated financial statements for additional information regarding customer exposure and credit risk.
Business Combinations
The Company accounts for acquired businesses using the purchase method of accounting, which requires that the assets acquired and
liabilities assumed be recorded at their estimated fair values as of the acquisition date, with any excess purchase price over the
estimated fair values of the net assets acquired being recorded as goodwill.
-32-
Significant judgment is required in estimating the fair value of intangible assets and in assigning their respective useful lives. The fair
value estimates are based on available historical information and on future expectations and assumptions deemed reasonable by the
Company but are inherently uncertain. Also, determining the estimated useful life of an intangible asset requires judgment based on
the Company’s expected use of the asset, as different types of intangible assets will have different useful lives and certain assets may
even be considered to have indefinite useful lives. The Company typically utilizes the income method to estimate the fair value of
intangible assets, which discounts the projected future cash flows attributable to the respective assets. Significant estimates and
assumptions inherent in the valuation reflect a consideration of other marketplace competition and include the amount and timing of
future cash flows (including expected growth rates and profitability) and the discount rate applied to the cash flows. Unanticipated
market or macroeconomic events and circumstances may occur that could affect the accuracy or validity of the estimates and
assumptions.
Goodwill
Goodwill is tested for impairment on an annual basis (during the last quarter of the year), or whenever events occur or circumstances
change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. The Company has three
reporting units, which are the same as the Company’s reportable segments; however, there is no goodwill recorded within the Retail or
Military segments. Fair values are determined based on the discounted cash flows and comparable market values of each reporting
segment. If a reporting unit’s fair value is less than its carrying value, an impairment charge is recognized for the amount by which the
carrying value exceeds the reporting unit’s fair value, not to exceed the total amount of goodwill allocated to the reporting unit. The
Company’s goodwill impairment analysis also includes a comparison of the aggregate estimated fair value of each reporting unit to
the Company’s total market capitalization. Therefore, a significant and sustained decline in the Company’s stock price could result in
goodwill impairment charges. During times of financial market volatility, significant judgment is given to determine the underlying
cause of the decline and whether stock price declines are short-term in nature or indicative of an event or change in circumstances.
Determining market values using a discounted cash flow method requires that the Company make significant estimates and
assumptions, including long-term projections of cash flows, market conditions and appropriate discount rates. The Company’s
judgments are based on the perspective of a market participant, historical experience, current market trends and other information. In
estimating future cash flows, the Company utilizes internally generated three-year forecasts for sales and operating profits, including
capital expenditures, and a long-term assumed growth rate of cash flows for periods after the three-year forecast. The future estimated
cash flows are discounted based upon the reporting unit’s weighted average cost of capital, which was 11.9% for the Food Distribution
reporting unit. The determination of the weighted average cost of capital incorporates current interest rates, equity risk premiums, and
other market-based expectations regarding expected investment returns. The Company generally develops its forecasts based on recent
sales data for existing operations and other factors. While the Company believes that the estimates and assumptions underlying the
valuation methodology are reasonable, different assumptions could result in different outcomes.
As of the date of the most recent goodwill impairment test, which utilized data and assumptions as of October 6, 2018, the Food
Distribution reporting unit had a fair value that was in excess of its carrying value. The Company has sufficient available information,
both current and historical, to support its assumptions, judgments and estimates used in the goodwill impairment test; however, if
actual results for the Food Distribution segment are not consistent with the Company’s estimates, it could result in the Company
recording a non-cash impairment charge.
Impairment of Long-Lived Assets Other Than Goodwill
Long-lived assets to be held and used are evaluated for impairment when events or circumstances indicate that the carrying amount of
an asset may not be recoverable. When the undiscounted future cash flows are not sufficient to recover an asset’s carrying amount, the
fair value is compared to the carrying value to determine the impairment loss to be recorded. Long-lived assets are evaluated at the
asset-group level, which is the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets
and liabilities. Impairments of long-lived assets were $2.6 million, $33.7 million and $15.6 million for 2018, 2017 and 2016,
respectively.
Estimates of future cash flows and expected sales prices are judgments based upon the Company’s experience and knowledge of
operations. These estimates project cash flows several years into the future and are affected by changes in the economy, the
competitive environment, real estate market conditions and inflation.
Long-lived assets to be disposed of are reported at the lower of carrying amount or fair value, less cost to sell. Management
determines fair values using independent appraisals, quotes or expected sales prices developed by internal real estate professionals.
Estimates of expected sales prices are judgments based upon the Company’s experience, knowledge of market conditions and current
offers received. Changes in market conditions, the economic environment and other factors, including the Company’s ability to
effectively compete and react to competitor openings, can significantly impact these estimates. While the Company believes that the
estimates and assumptions underlying the valuation methodology are reasonable, different assumptions could result in a different
outcome.
-33-
Reserves for Closed Properties
The Company records reserves for closed properties that are subject to long-term lease commitments based upon the future minimum
lease payments and related ancillary costs from the date of closure to the end of the remaining lease term, net of estimated sublease
rentals that could be reasonably expected to be obtained for the property. Future cash flows are based on contractual lease terms and
knowledge of the geographic area in which the closed site is located. These estimates are subject to multiple factors, including
inflation, ability to sublease the property and other economic conditions. Internally developed estimates of sublease rentals are based
upon the geographic areas in which the properties are located, the results of previous efforts to sublease similar properties, and the
current economic environment. Reserves may be adjusted in the future based upon the actual resolution of each of these factors At
December 29, 2018, reserves for closed properties for distribution center and store lease and ancillary costs total $16.4 million. Based
upon the current economic environment, the Company does not believe that it is likely to obtain any sublease rentals. A 5%
increase/decrease in future estimated ancillary costs would result in a $0.4 million increase/decrease in the restructuring charge
liability.
Insurance Reserves
SpartanNash is self-insured through self-insurance retentions or high deductible programs for workers’ compensation, general
liability, and automobile liability, and is also self-insured for healthcare costs. Self-insurance liabilities are recorded based on claims
filed and an estimate of claims incurred but not yet reported. Workers’ compensation, general liability and automobile liabilities are
actuarially estimated based on available historical information on an undiscounted basis. The Company has purchased stop-loss
coverage to limit its exposure on a per claim basis for its self-insurance retentions and high deductible programs. On a per claim basis,
the Company’s exposure is up to $0.5 million for workers’ compensation and general liability, $1.0 million for automobile liability,
and $0.5 million for healthcare per covered life per year. Refer to Note 1, Summary of Significant Accounting Policies and Basis of
Presentation, in the notes to the consolidated financial statements for additional information related to self-insurance reserves.
Any projection of losses concerning insurance reserves is subject to a degree of variability. Among the causes of variability are
unpredictable external factors affecting future inflation rates, discount rates, litigation trends, changing regulations, legal
interpretations, benefit level changes and claim settlement patterns. Although the Company’s estimates of liabilities incurred do not
anticipate significant changes in historical trends for these variables, such changes could have a material impact on future claim costs
and currently recorded liabilities. The impact of many of these variables may be difficult to estimate.
Defined Benefit Plans
Accounting for defined benefit plans involves estimating the cost of benefits to be provided in the future, based on vested years of
service, and attributing those costs over the time period each associate works. The significant factors affecting the Company’s pension
costs are the fair values of plan assets and the selections of management’s key assumptions, including the expected return on plan
assets and the discount rate used by the Company’s actuary to calculate its liability. The Company considers current market
conditions, including changes in interest rates and investment returns, in selecting these assumptions. The discount rate is based on
current investment yields on high quality fixed-income investments and projected cash flow obligations. Expected return on plan
assets is based on projected returns by asset class on broad, publicly traded equity and fixed-income indices, as well as the Company’s
target asset allocation, which is designed to meet the Company’s long-term pension requirements. While the Company believes the
assumptions selected are reasonable, significant differences in its actual experience, plan amendments or significant changes in the fair
value of its plan assets may materially affect its pension obligations and its future expense.
Sensitivities to changes in the major assumptions for the SpartanNash Company Pension Plan and the SpartanNash Company Retiree
Medical Plan as of December 29, 2018, are as follows:
(In millions, except percentages)
Expected return on plan assets - SpartanNash Company Pension Plan........
Discount rate - SpartanNash Company Pension Plan ...................................
Discount rate - SpartanNash Company Retiree Medical Plan ......................
Percentage
Point
Change
+/- 0.75
+/- 0.75
+/- 0.75
Projected
Benefit Obligation
Decrease / (Increase)
N/A
$3.2 / $(3.6)
$0.7 / $(0.9)
2019
Expense
Decrease / (Increase)
$0.3 / $(0.3)
N/A
N/A
Refer to Note 11, Associate Retirement Plans, in the notes to the consolidated financial statements for additional information related to
the assumptions used to estimate the cost of benefits and for details related to changes in the funded status of the defined benefit
pension plans.
-34-
Income Taxes
SpartanNash is subject to periodic audits by the Internal Revenue Service and other state and local taxing authorities. These audits
may challenge certain of the Company’s tax positions, such as the timing and amount of income credits and deductions and the
allocation of taxable income to various tax jurisdictions. The Company evaluates its tax positions and establishes liabilities in
accordance with the applicable accounting guidance on uncertainty in income taxes. These tax uncertainties are reviewed as facts and
circumstances change and are adjusted accordingly. This requires significant management judgment in estimating final outcomes.
Actual results could materially differ from these estimates and could significantly affect the Company’s effective income tax rate and
cash flows in future years. The Company recognizes deferred tax assets and liabilities for the expected tax consequences of temporary
differences between the tax bases of assets and liabilities and their reported amounts using enacted tax rates in effect for the year in
which it expects the differences to reverse. Refer to Note 13, Income Tax, in the notes to consolidated financial statements for
additional information on income taxes.
Liquidity and Capital Resources
Cash Flow Information
The following table summarizes the Company’s consolidated statements of cash flows for 2018, 2017 and 2016:
(In thousands)
Cash flow activities
2018
2017
2016
Net cash provided by operating activities....................................................... $
Net cash used in investing activities...............................................................
Net cash (used in) provided by financing activities........................................
Net cash used in discontinued operations.......................................................
Net increase (decrease) in cash and cash equivalents...................................
Cash and cash equivalents at beginning of year ...........................................
Cash and cash equivalents at end of year...................................................... $
171,658 $
(64,156)
(104,300)
(284)
2,918
15,667
18,585 $
52,843 $
(315,393)
254,003
(137)
(8,684)
24,351
15,667 $
157,191
(68,227)
(86,594)
(738)
1,632
22,719
24,351
Net cash provided by operating activities. Net cash provided by operating activities increased for 2018 compared to 2017 by
approximately $118.8 million primarily due to lower working capital requirements, particularly inventory and accounts receivable,
compared to the prior year.
Net cash provided by operating activities decreased for 2017 versus 2016 by approximately $104.3 million. The change was primarily
due to the timing of working capital requirements, particularly higher accounts receivable and inventory balances associated with new
distribution business and incremental sales to certain high-growth distribution customers. The timing of year-end payments impacting
accounts payable balances also contributed to the change in cash flows, which was partly offset by lower customer advances compared
to the 2016.
During 2018, 2017 and 2016, the Company made $0.1 million, $10.7 million and $35.8 million, respectively, in net income tax
payments.
Net cash used in investing activities. Net cash used in investing activities decreased $251.2 million in 2018 compared to 2017
primarily due to the Caito and BRT acquisition made in the prior year.
Net cash used in investing activities increased $247.2 million in 2017 compared to 2016 primarily due to the Caito and BRT
acquisition made in 2017
The Food Distribution, Military and Retail segments utilized 46.6%, 4.9% and 48.5% of capital expenditures, respectively, for 2018.
Expenditures for 2018 primarily related to retail store remodels and upgrades, which include five store remodels, various equipment
purchases, and IT system upgrades and implementations to better streamline processes and meet the operational and supply chain
needs of the Company. The Company expects capital expenditures to range from $85.0 million to $93.0 million for 2019.
Net cash (used in) provided by financing activities. Net cash used in financing activities increased $358.3 million during 2018 over
2017 primarily due to borrowings on the revolving credit facility in the prior year to fund the acquisition and working capital, as well
as increases in cash provided by operating activities which were used to pay down debt in the current year.
Net cash provided by financing activities increased $340.6 million during 2017 over 2016 primarily due to borrowings on the
revolving credit facility to fund the Caito and BRT acquisition and timing of working capital requirements, partially offset by a $26.0
million increase in cash used for the repurchase of common stock.
-35-
Net cash used in discontinued operations. Net cash used in discontinued operations contains the net cash flows of the Company’s
Food Distribution and Retail discontinued operations and is primarily composed of facility maintenance expenditures.
Debt Management
Total debt, including capital lease obligations and current maturities, decreased $51.9 million to $698.1 million as of December 29,
2018 from $750.0 million at December 30, 2017. The decrease in total debt was driven by principal payments in the current year due
to an increase in cash provided by operations.
In December 2018, 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”). The principal changes of the amendment
included an extension of the maturity date of the loans from December 20, 2021 to December 18, 2023, the ability to increase the size
of the Tranche A revolving loan to $975 million from $900 million, an amendment to the interest rate grid such that rates for the
Tranche A-1 revolving loans are now LIBOR plus 2.25% to LIBOR plus 2.50%, a reload of the $60 million Tranche A-2 term loan
and a reset of certain advance rates for the borrowing base. The Credit Agreement provides for borrowings of $1.1 billion, consisting
of three tranches: a $975 million secured revolving credit facility (Tranche A), a $40 million secured revolving credit facility (Tranche
A-1), and a $60 million term loan (Tranche A-2). The Company has the ability to increase the size of the Credit Agreement by an
additional $325 million, subject to certain conditions in the Credit Agreement. The Company’s obligations under the related Credit
Agreement are secured by substantially all of the Company’s personal and real property. The Company may repay all loans in whole
or in part at any time without penalty.
Liquidity
The Company’s principal sources of liquidity are cash flows generated from operations and its senior secured credit facility. As of
December 29, 2018, the senior secured credit facility had outstanding borrowings of $660.9 million. Additional available borrowings
under the Company’s $1.1 billion Credit Agreement are based on stipulated advance rates on eligible assets, as defined in the Credit
Agreement. The Credit Agreement requires that the Company maintains Excess Availability of 10% of the borrowing base, as defined
in the Credit Agreement. The Company had excess availability after the 10% requirement of $262.0 million at December 29, 2018.
Payment of dividends and repurchases of outstanding shares are permitted, provided that certain levels of excess availability are
maintained. The credit facility provides for the issuance of letters of credit, of which $11.7 million were outstanding as of December
29, 2018. The revolving credit facility matures December 18, 2023 and is secured by substantially all of the Company’s assets. The
Company believes that cash generated from operating activities and available borrowings under the Credit Agreement will be
sufficient to meet anticipated requirements for working capital, capital expenditures, dividend payments, and debt service obligations
for the foreseeable future. However, there can be no assurance that the business will continue to generate cash flow at or above current
levels or that the Company will maintain its ability to borrow under the Credit Agreement.
The Company’s current ratio (current assets to current liabilities) was 2.10:1 at December 29, 2018 compared to 2.03:1 at December
30, 2017, and its investment in working capital was $524.6 million at December 29, 2018 compared to $509.7 million at December
30, 2017. Net debt to total capital ratio decreased to 0.49:1 at December 29, 2018 from 0.50:1 at December 30, 2017. Total net debt is
a non-GAAP financial measure that is defined as long-term debt and capital lease obligations, plus current maturities of long-term
debt and capital lease obligations, less cash and cash equivalents. The Company believes both management and its investors find the
information useful because it reflects the amount of long-term debt obligations that are not covered by available cash and temporary
investments. Total net debt is not a substitute for GAAP financial measures and may differ from similarly titled measures of other
companies.
Following is a reconciliation of long-term debt and capital lease obligations to total net long-term debt and capital lease obligations as
of December 29, 2018 and December 30, 2017.
(In thousands)
Current maturities of long-term debt and capital lease obligations ................................................... $
Long-term debt and capital lease obligations ....................................................................................
Total debt ........................................................................................................................................
Cash and cash equivalents .................................................................................................................
Total net long-term debt.................................................................................................................. $
-36-
December 30,
December 29,
2018
18,263 $
679,797
698,060
(18,585)
679,475 $
2017
9,196
740,755
749,951
(15,667)
734,284
Contractual Obligations
The table below presents the Company’s significant contractual obligations as of December 29, 2018 (a):
(In thousands)
Amount Committed By Period
Total
Amount
Committed
Less
than 1
year
1-3 years
3-5 years
More
than 5
years
Long-term debt (b) ................................................. $
Estimated interest on long-term debt .....................
Capital leases (c) ....................................................
Interest on capital leases.........................................
Operating leases (c)................................................
Lease and ancillary costs of closed sites,
undiscounted...........................................................
Purchase obligations (merchandise) (d) .................
Self-insurance liability ...........................................
665,299 $
56,515
39,558
15,708
278,063
11,423 $
12,542
6,840
2,251
55,137
22,059 $ 631,675 $
23,255
8,421
4,005
88,610
20,717
5,225
3,372
58,543
142
1
19,072
6,080
75,773
4,719
1,784
671
Total..................................................................... $ 1,168,626 $ 143,431 $ 187,614 $ 729,339 $ 108,242
5,565
31,895
3,804
18,740
80,452
14,291
4,056
42,574
8,608
4,400
4,199
1,208
(a) Excludes funding of pension and other postretirement benefit obligations. The Company expects to make contributions to its
defined benefit pension plans in 2019, as necessary, to fund the distributions in connection with the termination of the Plan
described within Note 11, Associate Retirement Plans. Also excludes contributions under various multi-employer pension and
health and welfare plans, which totals $13.3 million and $13.8 million, respectively, for the year ended December 29, 2018. For
additional information, refer to Note 11, Associate Retirement Plans, in the notes to the consolidated financial statements. Also
excludes unrecognized tax liabilities, as the Company cannot reasonably estimate the timing of potential cash settlement. For
additional information, refer to Note 13, Income Tax, in the notes to the consolidated financial statements.
(b) Refer to Note 7, Long-Term Debt, in the notes to the consolidated financial statements for additional information.
(c) Operating and capital lease obligations do not include common area maintenance, insurance or tax payments for which the
Company is also obligated. These costs totaled approximately $15.4 million in 2018.
(d) The amount of purchase obligations shown in this table represents the amount of product the Company is contractually obligated
to purchase in order to earn $11.8 million in advanced contract monies that are receivable under the contracts. At December 29,
2018, $3.0 million in advanced contract monies has been received under these contracts where recognition has been deferred on
the consolidated balance sheet. If the Company does not fulfill these purchase obligations, it would only be obligated to repay the
unearned upfront contract monies. The amount shown here does not include the following: a) purchase obligations made in the
normal course of business as those obligations involve purchase orders based on current Company needs that are typically
cancelable and/or fulfilled by vendors within a very short period of time; b) agreements that are cancelable by the Company
without significant penalty, including contracts for routine outsourced services; and c) contracts that do not contain minimum
annual purchase commitments but include other standard contractual considerations that must be fulfilled in order to earn
advanced contract monies that have been received.
The Company has also made certain commercial commitments that extend beyond December 29, 2018. These commitments include
standby letters of credit and guarantees of certain Food Distribution customer lease obligations. Refer to Note 1, Summary of
Significant Accounting Policies and Basis of Presentation, and Note 15, Concentration of Credit Risk, in the notes to the consolidated
financial statements for additional information regarding lease guarantees and assigned leases. The following summarizes these
commitments as of December 29, 2018:
(In thousands)
Amount Committed By Period
Total
Amount
Committed
Less
than 1
year
1-3 years
3-5 years
More
than 5
years
Standby Letters of Credit (a).................................. $
11,703 $
11,703 $
— $
— $
—
(a) Letters of credit primarily support the Company’s self-insurance obligations.
-37-
Cash Dividends
The Company paid a quarterly cash dividend of $0.18, $0.165 and $0.15 per common share in each quarter of 2018, 2017, and 2016,
respectively. Under the Credit Agreement, the Company is generally permitted to pay dividends in any year up to an amount such that
all cash dividends, together with any cash distributions and share repurchases, do not exceed $35.0 million. Additionally, the
Company is generally permitted to pay cash dividends in excess of $35.0 million in any year so long as its Excess Availability, as
defined in the Credit Agreement, is in excess of 10% of the Total Borrowing Base, as defined in the Credit Agreement, before and
after giving effect to the repurchases and dividends. Although the Company currently expects to continue to pay a quarterly cash
dividend, adoption of a dividend policy does not commit the Board of Directors (the “Board”) to declare future dividends. Each future
dividend will be considered and declared by the Board at its discretion. Whether the Board continues to declare dividends depends on
a number of factors, including the Company’s future financial condition, anticipated profitability and cash flows and compliance with
the terms of its credit facilities.
Recently Adopted Accounting Standards
Refer to Note 1, Summary of Significant Accounting Policies and Basis of Presentation, in the notes to the consolidated financial
statements for additional information related to recently adopted accounting standards, as well as the anticipated effect of any
impending accounting standards.
Item 7A. Quantitative and Qualitative Disclosure About Market Risk
The Company is exposed to industry related price changes on several commodities, such as dairy, meat and produce that it buys and
sells in all of its segments. These products are purchased for and sold from inventory in the ordinary course of business. The Company
is also exposed to other general commodity price changes such as utilities, insurance and fuel costs.
The Company had $660.9 million of variable rate debt as of December 29, 2018. The weighted average interest rate on debt
outstanding for the year ended December 29, 2018 was 4.08%.
At December 29, 2018 and December 30, 2017, the estimated fair value of the Company’s long-term debt, including current
maturities, was higher than book value by approximately $1.0 million and $1.6 million, respectively. The estimated fair values were
based on market quotes for instruments with similar terms and remaining maturities.
The following table sets forth the future principal payments of the Company’s outstanding debt and related weighted average interest
rates for the outstanding instruments as of December 29, 2018:
(In thousands, except rates)
Fixed rate debt
December 29, 2018
Total
Fair Value
2019
2020
2021
2022
2023
Thereafter
Aggregate Payments by Year
$ 6,569
$ 3,911
$
3,341
$
2,707
$ 19,214
Principal payable .... $ 45,023 $ 44,005 $ 8,263
Average interest
rate ..........................
Variable rate debt
Principal payable .... $ 660,852 $ 660,852 $ 10,000
Average interest
rate ..........................
6.91%
7.30%
7.60%
7.77%
7.90%
8.41%
$ 10,000
$ 10,000
$ 10,000
$ 620,852
$ —
4.27%
4.22%
4.17%
4.11%
4.02%
N/A
-38-
Item 8. Financial Statements and Supplementary Data
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of
SpartanNash Company and Subsidiaries
Grand Rapids, Michigan
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of SpartanNash Company and subsidiaries (the "Company") as of
December 29, 2018 and December 30, 2017, the related consolidated statements of operations, comprehensive income (loss),
shareholders' equity, and cash flows, for the fiscal years ended December 29, 2018, December 30, 2017 and December 31, 2016, and
the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all
material respects, the financial position of the Company as of December 29, 2018 and December 30, 2017, and the results of its
operations and its cash flows for each of the fiscal years ended December 29, 2018, December 30, 2017 and December 31, 2016 in
conformity with accounting principles generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the Company's internal control over financial reporting as of December 29, 2018, based on criteria established in Internal
Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our
report dated February 27, 2019, expressed an unqualified opinion on the Company's internal control over financial reporting.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the
Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to
be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and
regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to
error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence
regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used
and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe
that our audits provide a reasonable basis for our opinion.
/s/ DELOITTE & TOUCHE LLP
Grand Rapids, Michigan
February 27, 2019
We have served as the Company’s auditor since at least 1970; however, an earlier year could not be reliably determined.
-39-
CONSOLIDATED BALANCE SHEETS
SpartanNash Company and Subsidiaries
2018
2017
(In thousands)
Assets
Current assets
Cash and cash equivalents.............................................................................................................. $
Accounts and notes receivable, net ................................................................................................
Inventories, net ...............................................................................................................................
Prepaid expenses and other current assets .....................................................................................
Property and equipment held for sale.............................................................................................
Total current assets ......................................................................................................................
18,585
346,260
553,799
73,798
8,654
1,001,096
$
15,667
344,057
597,162
47,400
—
1,004,286
Property and equipment, net .........................................................................................................
Goodwill ...........................................................................................................................................
Intangible assets, net.......................................................................................................................
Other assets, net ..............................................................................................................................
579,060
178,648
128,926
84,182
600,240
178,648
134,430
138,193
Total assets....................................................................................................................................... $ 1,971,912
$ 2,055,797
Liabilities and Shareholders’ Equity
Current liabilities
Accounts payable ........................................................................................................................... $
Accrued payroll and benefits .........................................................................................................
Other accrued expenses..................................................................................................................
Current maturities of long-term debt and capital lease obligations ...............................................
Total current liabilities ................................................................................................................
357,802
57,180
43,206
18,263
476,451
$
Long-term liabilities
Deferred income taxes....................................................................................................................
Postretirement benefits...................................................................................................................
Other long-term liabilities ..............................................................................................................
Long-term debt and capital lease obligations.................................................................................
Total long-term liabilities
49,254
15,016
35,447
679,797
779,514
376,977
65,156
43,252
9,196
494,581
42,050
15,687
40,774
740,755
839,266
Commitments and contingencies (Note 9)
Shareholders’ equity
Common stock, voting, no par value; 100,000 shares
authorized; 35,952 and 36,466 shares outstanding ...................................................................
Preferred stock, no par value, 10,000 shares authorized; no shares outstanding ...........................
Accumulated other comprehensive loss.........................................................................................
Retained earnings ...........................................................................................................................
Total shareholders’ equity...........................................................................................................
484,064
—
(15,759)
247,642
715,947
497,093
—
(15,136)
239,993
721,950
Total liabilities and shareholders’ equity ..................................................................................... $ 1,971,912
$ 2,055,797
See notes to consolidated financial statements.
-40-
CONSOLIDATED STATEMENTS OF OPERATIONS
SpartanNash Company and Subsidiaries
(In thousands, except per share amounts)
2018
2017
2016
Net sales................................................................................................................ $ 8,064,552 $ 7,963,799 $ 7,561,084
6,449,590
Cost of sales..........................................................................................................
1,111,494
Gross profit..........................................................................................................
6,818,890
1,144,909
6,954,146
1,110,406
Operating expenses
Selling, general and administrative ....................................................................
Merger/acquisition and integration ....................................................................
Goodwill impairment .........................................................................................
Restructuring, asset impairment and other charges............................................
Total operating expenses ....................................................................................
997,411
4,937
—
37,546
1,039,894
1,015,024
8,101
189,027
39,432
1,251,584
963,235
6,959
—
32,116
1,002,310
Operating earnings (loss)....................................................................................
70,512
(106,675)
109,184
Other (income) and expenses
Interest expense ..................................................................................................
Loss on debt extinguishment..............................................................................
Other, net ............................................................................................................
Total other expenses, net ....................................................................................
Earnings (loss) before income taxes and discontinued operations .................
Income tax expense (benefit) .............................................................................
Earnings (loss) from continuing operations......................................................
30,483
—
(669)
29,814
40,698
6,907
33,791
25,343
413
(787)
24,969
(131,644)
(79,027)
(52,617)
19,082
247
(108)
19,221
89,963
32,907
57,056
Loss from discontinued operations, net of taxes ..............................................
Net earnings (loss) ............................................................................................... $
(219)
33,572 $
(228)
(52,845) $
(228)
56,828
Basic earnings (loss) per share:
Earnings (loss) from continuing operations ....................................................... $
Loss from discontinued operations ....................................................................
Net earnings (loss).............................................................................................. $
0.94 $
(0.01)
0.93 $
(1.41) $
— *
(1.41) $
1.52
— *
1.52
Diluted earnings (loss) per share:
Earnings (loss) from continuing operations ....................................................... $
Loss from discontinued operations ....................................................................
Net earnings (loss).............................................................................................. $
0.94 $
(0.01)
0.93 $
(1.41) $
— *
(1.41) $
1.52
(0.01)
1.51
*Includes rounding.
See notes to consolidated financial statements.
-41-
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
SpartanNash Company and Subsidiaries
(In thousands)
2018
Net earnings (loss)................................................................................................... $
33,572 $
2017
(52,845) $
2016
56,828
Other comprehensive (loss) income, before tax
Pension and postretirement liability adjustment ....................................................
(822)
(1,649)
Income tax benefit (expense) related to items of other
comprehensive income ...........................................................................................
199
632
14
(4)
Total other comprehensive (loss) income, after tax.............................................
Comprehensive income (loss).............................................................................. $
(623)
32,949 $
(1,017)
(53,862) $
10
56,838
See notes to consolidated financial statements.
-42-
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
SpartanNash Company and Subsidiaries
(In thousands)
Balance at January 2, 2016
Net earnings.........................................................
Other comprehensive income ..............................
Dividends - $0.60 per share.................................
Share repurchase..................................................
Stock-based employee compensation..................
Issuance of common stock and related tax
benefit on stock option exercises, stock
bonus plan and associate stock purchase
plan ...................................................................
Issuance of restricted stock..................................
Cancellations of stock-based awards...................
Balance at December 31, 2016
Net loss ................................................................
Other comprehensive loss....................................
Reclassification of stranded tax effects
in AOCI ............................................................
Dividends - $0.66 per share.................................
Share repurchase..................................................
Stock-based employee compensation..................
Issuance of common stock on stock option
exercises, stock bonus plan and associate
stock purchase plan...........................................
Issuance of restricted stock..................................
Cancellations of stock-based awards...................
Balance at December 30, 2017
Net earnings.........................................................
Other comprehensive income ..............................
Dividends - $0.72 per share.................................
Share repurchase..................................................
Stock-based employee compensation..................
Issuance of common stock on stock option
exercises, stock bonus plan and associate
stock purchase plan...........................................
Issuance of restricted stock..................................
Cancellations of stock-based awards...................
Shares
Outstanding
37,600
—
—
—
(396)
—
Common
Stock
$ 521,698
—
—
—
(9,000)
7,936
Accumulated
Other
Comprehensive
Income (Loss)
$
Retained
Earnings
(11,447) $ 280,528
56,828
—
—
10
—
(22,496)
Total
$ 790,779
56,828
10
(22,496)
(9,000)
7,936
144
315
(124)
3,697
(118)
(2,229)
37,539
—
—
521,984
—
—
—
—
(1,367)
—
—
—
(34,995)
9,611
(2,682)
—
—
—
172
296
(174)
3,697
—
(3,204)
36,466
—
—
—
(952)
—
497,093
—
—
—
(20,000)
7,646
54
483
(99)
956
—
(1,631)
—
—
—
—
—
—
(11,437)
—
(1,017)
314,860
(52,845)
—
2,682
(24,704)
—
—
—
—
—
—
—
—
(15,136)
239,993
—
(623)
—
—
—
33,572
—
(25,923)
—
—
3,697
(118)
(2,229)
825,407
(52,845)
(1,017)
—
(24,704)
(34,995)
9,611
3,697
—
(3,204)
721,950
33,572
(623)
(25,923)
(20,000)
7,646
—
—
—
956
—
(1,631)
(15,759) $ 247,642 $ 715,947
—
—
—
Balance at December 29, 2018
35,952
$ 484,064
$
See notes to consolidated financial statements.
-43-
CONSOLIDATED STATEMENTS OF CASH FLOWS
SpartanNash Company and Subsidiaries
(In thousands)
Cash flows from operating activities
Net earnings (loss)..................................................................................... $
Loss from discontinued operations, net of tax ..........................................
Earnings (loss) from continuing operations ..............................................
Adjustments to reconcile net earnings (loss) to net cash
provided by operating activities:
Non-cash goodwill/asset impairment, restructuring, and
other charges...........................................................................................
Loss on debt extinguishment ..................................................................
Depreciation and amortization................................................................
LIFO expense (income) ..........................................................................
Postretirement benefits expense .............................................................
Deferred taxes on income .......................................................................
Stock-based compensation expense........................................................
Postretirement benefit plan contributions...............................................
Other, net ................................................................................................
Changes in operating assets and liabilities:
Accounts receivable .............................................................................
Inventories ...........................................................................................
Prepaid expenses and other assets .......................................................
Accounts payable .................................................................................
Accrued payroll and benefits ...............................................................
Other accrued expenses and other liabilities........................................
Net cash provided by operating activities ................................................
Cash flows from investing activities
Purchases of property and equipment .......................................................
Net proceeds from the sale of assets .........................................................
Acquisitions, net of cash acquired.............................................................
Loans to customers....................................................................................
Payments from customers on loans ...........................................................
Other..........................................................................................................
Net cash used in investing activities..........................................................
Cash flows from financing activities
Proceeds from senior secured revolving credit facility .............................
Payments on senior secured revolving credit facility................................
Proceeds from other long-term debt..........................................................
Repayment of other long-term debt ..........................................................
Financing fees paid....................................................................................
Share repurchase .......................................................................................
Net payments related to stock-based award activities...............................
Proceeds from exercise of stock options ...................................................
Dividends paid...........................................................................................
Net cash (used in) provided by financing activities.................................
Cash flows from discontinued operations
Net cash used in operating activities .........................................................
Net cash used in discontinued operations ................................................
Net increase (decrease) in cash and cash equivalents .............................
Cash and cash equivalents at beginning of year......................................
Cash and cash equivalents at end of year ................................................ $
See notes to consolidated financial statements.
-44-
2018
2017
2016
33,572 $
219
33,791
(52,845) $
228
(52,617)
56,828
228
57,056
37,793
—
84,190
4,601
63
7,407
7,646
(1,889)
(106)
(1,177)
38,213
(6,467)
(18,358)
(8,295)
(5,754)
171,658
(71,495)
6,901
—
(1,123)
2,111
(550)
(64,156)
1,016,918
(1,123,557)
60,000
(8,175)
(2,217)
(20,000)
(1,630)
284
(25,923)
(104,300)
(284)
(284)
2,918
15,667
18,585 $
227,847
413
84,390
2,898
1,347
(79,921)
9,611
(501)
(160)
(25,276)
(48,478)
(8,418)
(24,477)
(17,253)
(16,562)
52,843
(70,906)
4,024
(226,939)
(10,328)
3,948
(15,192)
(315,393)
1,461,902
(1,140,491)
—
(7,456)
(256)
(34,995)
(3,204)
3,207
(24,704)
254,003
(137)
(137)
(8,684)
24,351
15,667 $
32,191
247
79,183
(1,919)
1,780
6,761
7,936
(413)
(254)
30,537
(18,456)
(45,506)
21,946
1,193
(15,091)
157,191
(73,429)
5,989
—
(1,962)
2,183
(1,008)
(68,227)
1,341,215
(1,384,958)
—
(9,146)
(2,498)
(9,000)
(2,229)
2,518
(22,496)
(86,594)
(738)
(738)
1,632
22,719
24,351
SPARTANNASH COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 – Summary of Significant Accounting Policies and Basis of Presentation
Principles of Consolidation: The consolidated financial statements are prepared in conformity with accounting principles generally
accepted in the United States of America (“GAAP”) and include the accounts of SpartanNash Company and its subsidiaries
(“SpartanNash” or “the Company”). Intercompany accounts and transactions have been eliminated.
Fiscal Year: The Company’s fiscal year end is the Saturday nearest to December 31. The following discussion is as of and for the
fiscal years ending or ended December 28, 2019 (“2019”), December 29, 2018 ("2018" or “current year”), December 30, 2017
(“2017” or “prior year”) and December 31, 2016 (“2016”), all of which include 52 weeks. All fiscal quarters are 12 weeks, except for
the Company’s first quarter, which is 16 weeks.
Use of Estimates: The preparation of financial statements in conformity with GAAP requires management to make estimates and
assumptions that affect amounts reported therein. Due to the inherent uncertainty involved in making estimates, actual results reported
in future periods might differ from those estimates.
Revenue Recognition: The Company recognizes revenue when it satisfies a performance obligation by transferring control of the
promised goods and services to a customer, in an amount that reflects the consideration that it expects to receive in exchange for those
goods or services. This is achieved through applying the following five-step model:
(cid:3)
(cid:3)
Identification of the contract, or contracts, with a customer
Identification of the performance obligations in the contract
(cid:3) Determination of the transaction price
(cid:3) Allocation of the transaction price to the performance obligations in the contract
(cid:3) Recognition of revenue when, or as, the Company satisfies a performance obligation
The Company generates substantially all of its revenue from contracts with customers, whether formal or implied. Sales taxes
collected from customers are remitted to the appropriate taxing jurisdictions and are excluded from sales revenue as the Company
considers itself a pass-through conduit for collecting and remitting sales taxes, with the exception of taxes assessed during the
procurement process of select inventories. Greater than 99% of the Company’s revenues are recognized at a point in time. Revenues
from product sales are recognized when control of the goods is transferred to the customer, which occurs at a point in time, typically
upon delivery or shipment to the customer, depending on shipping terms, or upon customer check-out in a corporate owned retail
store. Freight revenues are also recognized upon delivery, at a point in time. Other revenues, including revenues from value-added
services, are recognized as earned, over a period of time. All of the Company’s revenues are domestic, as the Company has no
performance obligations on international shipments subsequent to delivery to the domestic port.
The Company evaluates whether it is the principal (i.e., report revenues on a gross basis) or agent (i.e., report revenues on a net basis)
with respect to each contract with customers.
Based upon the nature of the products the Company sells, its customers have limited rights of return which are immaterial. Discounts
provided by the Company to customers at the time of sale are recognized as a reduction in sales as the products are sold. Certain
contracts include rebates and other forms of variable consideration, including up-front rebates, rebates in arrears, rebatable incentives,
flex funds, and product incentives, which may have tiered structures based on purchase volumes and which are accounted for as
variable consideration. To the extent the transaction price includes variable consideration, the Company estimates the amount of
variable consideration that should be included in the transaction price utilizing either the expected value method or the most likely
amount method depending on the nature of the variable consideration. Variable consideration is included in the transaction price if, in
the Company’s judgment, it is probable that a significant future reversal of cumulative revenue under the contract will not occur.
-45-
Cost of Sales: Cost of sales represents the cost of inventory sold during the period, which for all non-production operations includes
purchase costs, in-bound freight, physical inventory adjustments, markdowns and promotional allowances and excludes warehousing
costs, depreciation and other administrative expenses. For the Company’s food processing operations, cost of sales includes direct
product and production costs, inbound freight, purchasing and receiving costs, utilities, depreciation, and other indirect production
costs and excludes out-bound freight and other administrative expenses. As a result, the Company’s cost of sales and gross profit may
not be identical to similarly titled measures reported by other companies. Vendor allowances and credits that relate to the Company’s
buying and merchandising activities consist primarily of promotional allowances, which are generally allowances on purchased
quantities and, to a lesser extent, slotting allowances, which are billed to vendors for the Company’s merchandising costs such as
setting up warehouse infrastructure. Vendor allowances are recognized as a reduction in cost of sales when the related product is sold.
Lump sum payments received for multi-year contracts are amortized over the life of the contracts based on contractual terms. The
distribution segments include shipping and handling costs in the selling, general and administrative section of operating expenses on
the consolidated statement of operations.
Cash and Cash Equivalents: Cash and cash equivalents consist of cash and highly liquid investments with an original maturity of three
months or less at the date of purchase.
Accounts and Notes Receivable: Accounts and notes receivable are shown net of allowances for credit losses of $4.3 million and $2.0
million as of December 29, 2018 and December 30, 2017, respectively. The Company evaluates the adequacy of its allowances by
analyzing the aging of receivables, customer financial condition, historical collection experience, the value of collateral and other
economic and industry factors. Actual collections may differ from historical experience, and if economic, business or customer
conditions deteriorate significantly, adjustments to these reserves may be required. When the Company becomes aware of factors that
indicate a change in a specific customer’s ability to meet its financial obligations, the Company records a specific reserve for credit
losses. Operating results include bad debt expense of $3.4 million, $1.5 million and $1.4 million for 2018, 2017 and 2016,
respectively.
Inventory Valuation: Inventories are valued at the lower of cost or market. Approximately 88.9% and 86.9% of the Company’s
inventories were valued on the last-in, first-out (LIFO) method at December 29, 2018 and December 30, 2017, respectively. If
replacement cost had been used, inventories would have been $55.1 million and $50.4 million higher at December 29, 2018 and
December 30, 2017, respectively. The replacement cost method utilizes the most current unit purchase cost to calculate the value of
inventories. During 2018, 2017 and 2016, certain inventory quantities were reduced. The reductions resulted in liquidation of LIFO
inventory carried at lower costs prevailing in prior years, the effect of which decreased the LIFO provision in 2018 by $1.1 million,
and in 2017 and 2016 by $0.2 million. The Company accounts for its Food Distribution and Military inventory using a perpetual
system and utilizes the retail inventory method (“RIM”) to value inventory for center store products in the Retail segment. Under
RIM, inventory is stated at cost with cost of sales and gross margin calculated by applying a cost ratio to the retail value of
inventories. Fresh, pharmacy and fuel products are accounted for at cost in the Retail segment. The Company evaluates inventory
shortages throughout the year based on actual physical counts in its facilities. The Company records allowances for inventory
shortages based on the results of recent physical counts to provide for estimated shortages from the last physical count to the financial
statement date.
Goodwill and Intangible Assets: Goodwill represents the excess purchase price over the fair value of tangible net assets acquired in
business combinations after amounts have been allocated to intangible assets. Goodwill is not amortized, but is reviewed for
impairment during the last quarter of each year, or whenever events occur or circumstances change that would more likely than not
reduce the fair value of a reporting unit below its carrying amount, using a discounted cash flow model and comparable market values
of each reporting segment. Measuring the fair value of reporting units is a Level 3 measurement under the fair value hierarchy. See
Note 8, Fair Value Measurements, for a discussion of levels.
Intangible assets primarily consist of trade names, customer relationships, favorable lease agreements, pharmacy prescription lists,
non-compete agreements, liquor licenses and franchise fees. The following assets are amortized on a straight-line basis over the period
of time in which their expected benefits will be realized: favorable leases (related lease terms), prescription lists and customer
relationships (period of expected benefit reflecting the pattern in which the economic benefits are consumed), non-compete
agreements and franchise fees (length of agreements), and trade names with definite lives (expected life of the assets). Indefinite-lived
trade names are not amortized but are tested at least annually for impairment, and liquor licenses are also not amortized as they have
indefinite lives. Intangible assets are included in “Other Assets, net” in the consolidated balance sheets.
-46-
Property and Equipment: Property and equipment are recorded at cost. Expenditures which improve or extend the life of the
respective assets are capitalized, whereas expenditures for normal repairs and maintenance are charged to operations as incurred.
Depreciation expense on land improvements, buildings and improvements, and equipment is computed using the straight-line method
as follows:
Land improvements ......................................................................................................................................................... 15 years
Buildings and improvements ........................................................................................................................................... 15 to 40 years
Equipment........................................................................................................................................................................ 3 to 15 years
Property under capital leases and leasehold improvements are amortized on a straight-line basis over the shorter of the remaining
terms of the leases or the estimated useful lives of the assets. Internal use software is included in property and equipment and
amounted to $33.5 million and $30.7 million as of December 29, 2018 and December 30, 2017, respectively.
Impairment of Long-Lived Assets: The Company reviews and evaluates long-lived assets for impairment when events or
circumstances indicate that the carrying amount of an asset may not be recoverable. When the undiscounted expected future cash
flows are not sufficient to recover an asset’s carrying amount, the fair value is compared to the carrying value to determine the
impairment loss to be recorded. Long-lived assets to be disposed of are reported at the lower of carrying amount or fair value, less the
cost to sell. Fair values are determined by independent appraisals or expected sales prices based upon market participant data
developed by third party professionals or by internal licensed real estate professionals. Estimates of future cash flows and expected
sales prices are judgments based upon the Company’s experience and knowledge of operations. These estimates project cash flows
several years into the future and are affected by changes in the economy, real estate market conditions and inflation.
Reserves for Closed Properties: The Company records reserves for closed properties that are subject to long-term lease commitments
based upon the future minimum lease payments and related ancillary costs from the date of closure to the end of the remaining lease
term, net of estimated sublease rentals that could be reasonably expected to be obtained for the property. Future cash flows are based
on contractual lease terms and knowledge of the geographic area in which the closed site is located. These estimates are subject to
multiple factors, including inflation, ability to sublease the property and other economic conditions. Internally developed estimates of
sublease rentals are based upon the geographic areas in which the properties are located, the results of previous efforts to sublease
similar properties, and the current economic environment. The reserved expenses are paid over the remaining lease terms, which range
from one to 10 years. Adjustments to closed property reserves primarily relate to changes in subtenant income or actual exit costs
differing from original estimates. Adjustments are made for changes in estimates in the period in which the changes become known.
The current portion of the future lease obligations of stores is included in “Other accrued expenses,” and the long-term portion is
included in “Other long-term liabilities” in the consolidated balance sheets.
Debt Issuance Costs: Debt issuance costs are amortized over the term of the related financing agreement and are included as a direct
deduction from the carrying amount of the related debt liability in “Long-term debt and capital lease obligations” in the consolidated
balance sheets.
Insurance Reserves: SpartanNash is self-insured through self-insurance retentions or high deductible programs for workers’
compensation, general liability, and automobile liability, and is also self-insured for healthcare costs. Self-insurance liabilities are
recorded based on claims filed and an estimate of claims incurred but not yet reported. Workers’ compensation, general liability and
automobile liabilities are actuarially estimated based on available historical information on an undiscounted basis. The Company has
purchased stop-loss coverage to limit its exposure to any significant exposure on a per claim basis for its self-insurance retentions and
high deductible programs. On a per claim basis, the Company’s exposure is up to $0.5 million for workers’ compensation and general
liability, $1.0 million for automobile liability and $0.5 million for healthcare per covered life per year.
A summary of changes in the Company’s self-insurance liability is as follows:
(In thousands)
Balance at beginning of year .................................................................................... $
Expenses ...................................................................................................................
Claim payments, net of employee contributions ......................................................
Balance at end of year............................................................................................ $
2018
2017
2016
15,155 $
49,532
(50,396)
14,291 $
14,730 $
54,748
(54,323)
15,155 $
14,466
49,560
(49,296)
14,730
The current portion of the self-insurance liability was $8.6 million and $8.7 million as of December 29, 2018 and December 30, 2017,
respectively, and is included in “Other accrued expenses” in the consolidated balance sheets. The long-term portion was $5.7 million
and $6.5 million as of December 29, 2018 and December 30, 2017, respectively, and is included in “Other long-term liabilities” in the
consolidated balance sheets.
-47-
Income Taxes: Deferred income tax assets and liabilities are computed for differences between the financial statement and tax bases of
assets and liabilities that will result in taxable or deductible amounts in the future. Such deferred income tax asset and liability
computations are based on enacted tax laws and rates applicable to periods in which the differences are expected to affect taxable
income. Valuation allowances are established when necessary to reduce deferred tax assets to the amounts expected to be realized.
Income tax expense is the tax payable or refundable for the period plus or minus the change during the period in deferred and other tax
assets and liabilities.
Earnings per share: Earnings per share (“EPS”) is computed using the two-class method. The two-class method determines EPS for
each class of common stock and participating securities according to dividends and their respective participation rights in
undistributed earnings. Participating securities include non-vested shares of restricted stock in which the participants have non-
forfeitable rights to dividends during the performance period. Diluted EPS includes the effects of stock options.
The following table sets forth the computation of basic and diluted EPS for continuing operations:
(In thousands, except per share amounts)
Numerator:
2018
2017
2016
Earnings (loss) from continuing operations........................................................... $
Adjustment for (earnings) loss attributable to participating securities ..................
Earnings (loss) from continuing operations used in calculating
earnings per share .................................................................................................. $
33,791 $
(746)
(52,617) $
908
57,056
(1,011)
33,045
$
(51,709)
$
56,045
Denominator:
Weighted average shares outstanding, including participating securities .............
Adjustment for participating securities..................................................................
Shares used in calculating basic earnings per share...............................................
Effect of dilutive stock options ..............................................................................
Shares used in calculating diluted earnings per share............................................
Basic earnings (loss) per share from continuing operations .................................. $
Diluted earnings (loss) per share from continuing operations ............................... $
36,012
(795)
35,217
10
35,227
37,419
(646)
36,773
—
36,773
0.94 $
0.94 $
(1.41) $
(1.41) $
37,483
(664)
36,819
73
36,892
1.52
1.52
Weighted average shares issuable upon the exercise of stock options that were not included in the EPS calculations because they were
anti-dilutive were 75,159 for 2017. There were no anti-dilutive stock options in 2018 or 2016.
Stock-Based Compensation: All share-based payments to associates are recognized in the consolidated financial statements as
compensation cost based on the fair value on the date of grant. The grant date closing price per share of SpartanNash stock is used to
estimate the fair value of restricted stock awards and restricted stock units. The value of the portion of awards expected to vest is
recognized as expense over the requisite service period.
Shareholders’ Equity: The Company’s restated articles of incorporation provide that the Board of Directors may at any time, and from
time to time, provide for the issuance of up to 10 million shares of preferred stock in one or more series, each with such designations
as determined by the Board of Directors. At December 29, 2018 and December 30, 2017, there were no shares of preferred stock
outstanding.
Advertising Costs: The Company’s advertising costs are expensed as incurred and are included in Selling, general and administrative
expenses. Advertising expenses were $40.9 million, $43.4 million and $46.6 million in 2018, 2017 and 2016, respectively.
Accumulated Other Comprehensive Income (Loss)(“AOCI”): The Company reports comprehensive income (loss) that includes net
income (loss) and other comprehensive income (loss). Other comprehensive income (loss) refers to expenses, gains and losses that are
not included in net earnings, such as pension and other postretirement liability adjustments, but rather are recorded directly to
shareholders’ equity. These amounts are also presented in the consolidated statements of comprehensive income. As of December 29,
2018 and December 30, 2017, AOCI relates to the pension and postretirement plans.
Discontinued operations: Certain of the Company’s Food Distribution and Retail operations have been recorded as discontinued
operations. Results of discontinued operations are excluded from the accompanying notes to the consolidated financial statements for
all periods presented, unless otherwise noted. Results of discontinued operations reported on the consolidated statements of operations
are reported net of tax.
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Adoption of New Accounting Standards and Recently Issued Accounting Standards
In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09, “Revenue
from Contracts with Customers – Topic 606” (“ASC 606”). The new guidance 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. As of the beginning of 2018, the Company adopted ASC 606 and all subsequent
ASUs that modified ASC 606. Refer to Note 3, Revenue Recognition, for additional information about adoption of this guidance and
additional disclosures required under the standard.
From a principal versus agent perspective, the Company determined that certain contracts in the Food Distribution segment that were
historically reported on a gross basis are now required to be reported on a net basis, resulting in a corresponding decrease to both net
sales and cost of sales of $177.1 million in 2018 from what would have been recognized under previous guidance. The implementation
of the guidance had no impact on gross profit, net earnings, the balance sheet, cash flows, equity, or the timing of revenue recognition
in current or prior periods. The adoption of the guidance using the full retrospective method resulted in decreases to fiscal 2017 and
2016 net sales and cost of sales previously reported as shown in the following table:
(In thousands)
Full Year
(52 Weeks)
4th Quarter
(12 Weeks)
3rd Quarter
(12 Weeks)
2nd Quarter
(12 Weeks)
1st Quarter
(16 Weeks)
2017 .................................................. $
2016 .................................................. $
164,283 $
173,516 $
38,725 $
43,168 $
38,246 $
42,382 $
38,510 $
38,594 $
48,802
49,372
In March 2017, the FASB issued ASU 2017-07, “Compensation – Retirement Benefits.” ASU 2017-07 requires that the service cost
component of pension and postretirement benefit costs be presented in the same line item as other current employee compensation
costs and other components of those benefit costs be presented separately from the service cost component and outside a subtotal of
income from operations, if presented. The ASU also requires that only the service cost component of pension and postretirement
benefit costs is eligible for capitalization. The Company adopted this guidance as of the beginning of 2018. Accordingly, benefit costs
other than service cost, are reflected in the condensed consolidated statements of earnings in Other, net, whereas they previously were
recognized in Selling, general and administrative expenses. Retrospective application resulted in a decrease to Other, net and an
increase in Selling, general and administrative expenses. The costs associated with the reclassifications were not material in any of the
periods presented.
In August 2018, the FASB issued ASU 2018-15, “Intangibles – Goodwill and Other – Internal-Use Software: Customer’s Accounting
for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract” in order to provide additional
guidance on the accounting for costs of implementation activities performed in a cloud computing arrangement that is a service
contract. This is an amendment to ASU 2015-05, “Intangibles—Goodwill and Other—Internal-Use Software: Customer’s Accounting
for Fees Paid in a Cloud Computing Arrangement.” ASU 2018-15 aligns the requirements for capitalizing implementation costs
incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to
develop or obtain internal-use software. ASU 2018-15 is effective for fiscal years beginning after December 15, 2019, and interim
periods within those fiscal years. The Company early adopted this guidance retrospectively as of the beginning of fiscal 2018, as
permitted by the amendment. The adoption of this guidance did not have a significant effect on the Company’s financial statements.
In August 2018, the FASB issued ASU 2018-14, “Compensation—Retirement Benefits—Defined Benefit Plans—General: Disclosure
Framework—Changes to the Disclosure Requirements for Defined Benefit Plans.” The amendments in this ASU remove disclosures
that are no longer considered to be cost beneficial, clarify the specific requirements of disclosures, and add disclosure requirements
identified as relevant. The amendments in ASU 2018-14 are effective for fiscal years ending after December 15, 2020 and will be
applied on a retrospective basis to all periods presented. The adoption of this guidance is not expected to have a significant effect on
the Company’s financial statements.
In January 2017, the FASB issued ASU 2017-01, “Business Combinations – Clarifying the Definition of a Business.” ASU 2017-01
narrows the definition of a business and provides a screen to determine when a set of the three elements of a business – inputs,
processes, and outputs – are not a business. The screen requires that when substantially all of the fair value of the gross assets acquired
(or disposed of) is concentrated in a single identifiable asset or a group of similar identifiable assets, the set is not a business. If the
screen is not met, the amendments (1) require that to be considered a business, a set must include, at a minimum, an input and a
substantive process that together significantly contribute to the ability to create output and (2) remove the evaluation of whether a
market participant could replace missing elements. The amendments provide a framework to assist entities in evaluating whether both
an input and a substantive process are present. The guidance was effective for the Company as of the beginning of 2018. As no
business combinations have occurred in 2018, there has been no impact on the consolidated financial statements for the current year.
The adoption has no impact on the Company’s historical financial statements.
-49-
In February 2016, the FASB issued ASU 2016-02, “Leases.” The FASB subsequently issued ASU’s 2018-01, 2018-10, and 2018-11,
which include clarifications and provide various practical expedients and transition options related to ASU 2016-02. ASU 2016-02
provides guidance for lease accounting and stipulates that lessees will need to recognize a right-of-use asset and a lease liability for
substantially all leases (other than leases that meet the definition of a short-term lease). The liability will be equal to the present value
of lease rent payments. Treatment in the consolidated statements of operations will be similar to the current treatment of operating and
capital leases.
The Company adopted the standard as of December 30, 2018, the beginning of fiscal 2019. The Company has elected the package of
practical expedients permitted under the transition guidance within the new standard, which among other things, allows for the
carryforward of the historical lease classification. In addition, the Company has elected the hindsight practical expedient to reassess
the reasonably certain lease term for existing leases. The election of the hindsight practical expedient will result in the extension or
reduction of lease terms for certain existing leases, and adjustments to the useful lives of corresponding leasehold improvements. The
Company will make an accounting policy election not to record lease liabilities or right of use assets for short-term leases, those with
an initial minimum term of less than one year.
The adoption of the standard will result in a recognition of additional lease assets and lease liabilities of approximately $240 million
and $290 million, respectively, as of December 30, 2018, and a transition adjustment recorded to beginning of the year retained
earnings of approximately $27 million (net of deferred tax impact of $9 million). The transition adjustment relates to impairment of
right of use assets in transition and the impact of hindsight on the evaluation of lease term. Remaining differences between lease assets
and liabilities relate to the derecognition of existing lease-related liabilities and assets recorded under ASC 840, which were included
in beginning lease liabilities under ASC 842.
The Company does not believe the new standard will have an impact on liquidity or on debt-covenant compliance under the current
agreements.
Note 2 – Acquisitions
On January 6, 2017, the Company acquired certain assets and assumed certain liabilities of Caito Foods Service (“Caito”) and Blue
Ribbon Transport (“BRT”) for $214.6 million in cash, net of $2.5 million of cash acquired. Acquired assets consist primarily of
property and equipment of $76.7 million, intangible assets of $72.9 million, and working capital. Intangible assets are primarily
composed of customer relationships, which are amortized over fifteen years, and indefinite lived trade names. In connection with the
purchase, the Company provided certain earn-out opportunities that have the potential to pay the sellers an additional $27.4 million,
collectively, if the business achieves certain performance targets during the first three years after acquisition. As certain performance
targets were not met in the first year after acquisition, the Company will be reimbursed a portion of the initial purchase price at an
amount not to exceed the sum of: a) $15.0 million, representing the funds paid into escrow, and b) any earn-out opportunities earned
by the sellers. The reduction in purchase price will first be applied to funds paid into escrow and then as an offset against and a
reduction to any payments owed on the various earn-out opportunities, with reimbursement made once the parties agree on the
measurement of performance against the targets. The excess of the purchase price over the fair value of net assets acquired of $46.3
million was recorded as goodwill in the consolidated balance sheet and allocated to the Food Distribution segment and is deductible
for tax purposes.
Caito is a leading supplier of fresh fruits and vegetables as well as value-added meal solutions to grocery retailers and food service
distributors across 21 states in the Southeast, Midwest and Eastern United States. BRT offers temperature-controlled distribution and
logistics services throughout North America. The Company acquired Caito and BRT to strengthen its fresh product offerings to its
existing customer base and to expand into fast-growing, value-added services, such as freshly-prepared centerplate and side dish
categories.
-50-
Note 3 – Revenue
Sources of Revenue
The Company’s main sources of revenue include the following:
Customer Supply Agreements (CSAs) – The Company enters into CSAs (also known as Retail Sales and Service Agreements) with
many of its retailer customers. These contracts obligate the Company to supply grocery and related products upon receipt of a
purchase order from its customers. The contracts often specify minimum purchases a customer is required to make - in dollars or as a
percentage of their total purchases - in order to earn certain rebates or incentives. In some cases, customers are required to repay
certain advanced or loaned funds if they fail to meet purchase minimums or otherwise exit the supply agreement. Many of these
contracts include various performance obligations other than providing grocery products, such as providing store resets, shelf tags,
signage, or merchandising services. The Company has determined that these obligations are not material in the overall context of the
contracts, and as such has not allocated transaction price to these obligations. Revenue is recognized under these contracts when
control of the product passes to the customer, which may happen before or after delivery depending upon specified shipping terms.
Contracts with Manufacturers and Brokers to supply the Defense Commissary Agency (“DeCA”) and Other Government Agencies –
DeCA operates a chain of 237 commissaries on U.S. military installations. DeCA contracts with manufacturers to obtain grocery
products for the commissary system. Manufacturers either deliver the products to the commissaries themselves or, more commonly,
contract with distributors such as SpartanNash to provide products to the commissaries. Manufacturers must authorize the distributors
as their official representatives to DeCA, and the distributors must adhere to DeCA’s frequent delivery system (“FDS”) procedures
governing matters such as product identification, ordering and processing, information exchange and resolution of discrepancies. The
Company obtains distribution contracts with manufacturers through competitive bidding processes and direct negotiations. As
commissaries need to be restocked, DeCA identifies the manufacturer with which an order is to be placed, determines which
distributor is the manufacturer’s official representative for a particular commissary or exchange location, and then places a product
order with that distributor under the auspices of DeCA’s master contract with the applicable manufacturer. The distributor selects that
product from its existing inventory, delivers it to the commissary or port (in the case of overseas shipments) designated by DeCA, and
bills the manufacturer for the product price plus a drayage fee that is typically based on a percentage of the purchase price, but may in
some cases be based on a dollar amount per case or pound of product sold. The manufacturer then bills DeCA under the terms of its
master contract. As control of the product passes to the customer upon delivery, revenue is recognized by SpartanNash at this point in
time.
Revenue is recognized for the full amount paid by the vendor (for product and drayage) as the Company is a principal in the
transaction and therefore should recognize revenue on a gross basis for these contracts. The FASB’s definition of a principal in the
transaction is centered on controlling goods before they are transferred to the customer. Key considerations supporting that
SpartanNash controls the goods for these contracts prior to transfer to the customer include the following: the Company has the ability
to obtain substantially all of the remaining benefits from the assets by selling the goods and/or by pledging the related assets as
collateral for borrowings, the Company is required to bear the risk of inventory loss prior to transfer to the customer, has shared
responsibilities in the fulfillment and acceptability of the goods, and to a lesser extent, has some discretion in establishing the price for
the goods sold to DeCA. Based on a thorough evaluation of all of the facts and circumstances, including a detailed assessment and
interpretation of the revenue standard, the Company concluded that it is a principal in the transaction and should recognize revenue on
a gross basis for these contracts.
Retail Sales – The corporate owned retail stores recognize revenue at the time the customer takes possession of the goods. While there
are no formal contracts related to these sales, they are within the scope of ASC 606. Customer returns are not material. The Company
does not recognize a sale when it awards customer loyalty points or sells gift cards and gift certificates; rather, a sale is recognized
when the customer loyalty points, gift card or gift certificate are redeemed to purchase product. There were no significant changes to
revenue recognition in the Retail segment under ASC 606 related to the accounting for gift card breakage and loyalty rewards, which
are immaterial to the consolidated financial statements.
-51-
Disaggregation of Revenue
The following table provides information about disaggregated revenue by type of products and customers for each of the Company’s
reportable segments:
(In thousands)
Type of products:
Food Distribution
52 Weeks Ended December 29, 2018
Military
Retail
Total
Center store (a) .............................................
Fresh (b) .......................................................
Non-food (c) .................................................
Fuel...............................................................
Other.............................................................
Total.............................................................
Type of customers:
Individuals ....................................................
Manufacturers, brokers and distributors.......
Retailers........................................................
Other.............................................................
Total.............................................................
$
$
$
$
1,249,374
1,478,142
1,185,390
—
78,544
3,991,450
—
197,128
3,733,254
61,068
3,991,450
(In thousands)
Type of products:
Food Distribution
Center store (a) .............................................
Fresh (b) .......................................................
Non-food (c) .................................................
Fuel...............................................................
Other.............................................................
Total.............................................................
Type of customers:
Individuals ....................................................
Manufacturers, brokers and distributors.......
Retailers........................................................
Other.............................................................
Total.............................................................
$
$
$
$
1,206,832
1,456,632
1,085,282
—
79,163
3,827,909
—
210,004
3,556,591
61,314
3,827,909
(In thousands)
Type of products:
Food Distribution
Center store (a) .............................................
Fresh (b) .......................................................
Non-food (c) .................................................
Fuel...............................................................
Other.............................................................
Total.............................................................
Type of customers:
Individuals ....................................................
Manufacturers, brokers and distributors.......
Retailers........................................................
Other.............................................................
Total.............................................................
$
$
$
$
1,235,314
1,097,793
907,351
—
40,567
3,281,025
—
—
3,246,872
34,153
3,281,025
$
$
$
$
$
$
$
$
$
$
$
$
1,052,462
602,023
506,177
—
6,181
2,166,843
—
2,089,765
70,897
6,181
2,166,843
$
$
$
$
747,708
688,661
330,342
138,617
931
1,906,259
1,905,328
—
—
931
1,906,259
52 Weeks Ended December 30, 2017
Military
Retail
1,054,590
577,084
507,394
—
4,954
2,144,022
—
2,119,601
19,467
4,954
2,144,022
$
$
$
$
792,925
734,564
336,630
126,673
1,076
1,991,868
1,990,792
—
—
1,076
1,991,868
52 Weeks Ended December 31, 2016
Military
Retail
1,105,992
559,449
525,915
—
5,658
2,197,014
—
2,191,356
—
5,658
2,197,014
$
$
$
$
841,161
785,566
344,531
110,619
1,168
2,083,045
2,081,877
—
—
1,168
2,083,045
$
$
$
$
$
$
$
$
$
$
$
$
3,049,544
2,768,826
2,021,909
138,617
85,656
8,064,552
1,905,328
2,286,893
3,804,151
68,180
8,064,552
Total
3,054,347
2,768,280
1,929,306
126,673
85,193
7,963,799
1,990,792
2,329,605
3,576,058
67,344
7,963,799
Total
3,182,467
2,442,808
1,777,797
110,619
47,393
7,561,084
2,081,877
2,191,356
3,246,872
40,979
7,561,084
(a) Center store includes dry grocery, frozen and beverages.
(b) Fresh includes produce, meat, dairy, deli, bakery, prepared proteins, seafood and floral.
(c) Non-food includes general merchandise, health and beauty care, tobacco products and pharmacy.
-52-
Contract Assets and Liabilities
Under its contracts with customers, the Company stands ready to deliver product upon receipt of a purchase order. Accordingly, the
Company has no performance obligations under its contracts until its customers submit a purchase order. The Company does not
receive pre-payment from its customers, or enter into commitments to provide goods or services that have terms greater than one year.
As the performance obligation is part of a contract that has an original expected duration of less than one year, the Company has
applied the practical expedient under ASC 606 to omit disclosures regarding remaining performance obligations.
Revenue recognized from performance obligations related to prior periods (for example, due to changes in estimated rebates and
incentives impacting the transaction price) was not material in any period presented.
In the ordinary course of business, the Company may advance funds to certain independent retailers which are earned by the retailers
primarily through achieving specified purchase volume requirements, as outlined in their supply agreements with the Company, or in
limited instances, for remaining a SpartanNash customer for a specified time period. These advances must be repaid if the purchase
volume requirements are not met or if the retailer no longer remains a customer for the specified time period. For volume-based
arrangements, the Company estimates the amount of the advanced funds earned by the retailers based on the expected volume of
purchases by the retailer, and amortizes the advances as a reduction of the transaction price and revenue earned. These advances are
not considered contract assets under ASC 606 as they are not generated through the transfer of goods or services to the retailers. These
advances are included in Other assets, net on the Company’s balance sheets.
When the Company transfers goods or services to a customer, payment is due - subject to normal terms - and is not conditional on
anything other than the passage of time. Typical payment terms range from due upon receipt to 30 days, depending on the type of
customer and relationship. At contract inception, the Company expects that the period of time between the transfer of goods to the
customer and when the customer pays for those goods will be less than one year, which is consistent with the Company’s standard
payment terms. Accordingly, the Company has elected the practical expedient under ASC 606 to not adjust for the effects of a
significant financing component. As such, these amounts are recorded as receivables and not contract assets. The Company had no
contract assets for any period presented.
Accounts and notes receivable are comprised of the following:
(In thousands)
December 29,
2018
December 30,
2017
Customer notes receivable................................................................................................................... $
Customer accounts receivable .............................................................................................................
Other receivables .................................................................................................................................
Allowance for doubtful accounts.........................................................................................................
Net current accounts and notes receivable........................................................................................ $
Long-term notes receivable .................................................................................................................
Allowance for doubtful accounts.........................................................................................................
Net long-term notes receivable ......................................................................................................... $
3,130 $
314,791
32,516
(4,177)
346,260 $
16,021
(120)
15,901 $
2,555
312,214
31,169
(1,881)
344,057
18,322
(120)
18,202
The Company does not typically incur incremental costs of obtaining a contract that are contingent upon successful contract execution
and would therefore be capitalized. The Company expenses incremental costs of obtaining a contract as and when incurred if the
expected amortization period of the asset that the Company would have recognized is one year or less.
Note 4 – Property and Equipment
Property and equipment consists of the following:
(In thousands)
December 29,
2018
December 30,
2017
Land and improvements ...................................................................................................................... $
Buildings and improvements ...............................................................................................................
Equipment............................................................................................................................................
Total property and equipment...........................................................................................................
Less accumulated depreciation and amortization ................................................................................
Property and equipment, net ............................................................................................................. $
76,364 $
534,620
605,515
1,216,499
637,439
579,060 $
80,891
534,835
567,123
1,182,849
582,609
600,240
-53-
Note 5 – Goodwill and Other Intangible Assets
The Company has three reportable segments; however, no goodwill has existed within the Military segment. Changes in the carrying
amount of goodwill were as follows:
Food
(In thousands)
Balance at December 31, 2016
Distribution
$ 132,367 $ 190,319 (a) $ 322,686 (a)
Retail
Total
Acquisitions (Note 2) ............................................................................................
Disposals ...............................................................................................................
Impairment ............................................................................................................
Balance at December 30, 2017 and December 29, 2018
46,281
—
—
$ 178,648
—
(1,292)
(189,027)
46,281
(1,292)
(189,027)
$
— (b) $ 178,648 (b)
(a) Net of accumulated impairment charges of $86.6 million.
(b) Net of accumulated impairment charges of $275.6 million.
The Company reviews goodwill and other intangible assets for impairment annually, during the fourth quarter of each year, and more
frequently if circumstances indicate the possibility of impairment. Testing goodwill and other intangible assets for impairment
requires management to make significant estimates about the Company’s future performance, cash flows, and other assumptions that
can be affected by potential changes in economic, industry or market conditions, business operations, competition, or the Company’s
stock price and market capitalization.
In 2017, the Company experienced significantly lower than expected Retail operating results and it was determined that the carrying
value of the Retail segment exceeded its fair value. Consequently, the Company recorded a goodwill impairment charge of $189.0
million in the third quarter of 2017. The Company completed its current year impairment analysis in the fourth quarter, which did not
result in the identification of any goodwill impairment.
The following table reflects the components of amortized intangible assets, included in “Intangible assets, net” on the consolidated
balance sheets:
December 29, 2018
December 30, 2017
(In thousands)
Gross
Carrying
Amount
Non-compete agreements.............................................................
Favorable leases ...........................................................................
Pharmacy customer prescription lists ..........................................
Customer relationships.................................................................
Trade names .................................................................................
Franchise fees and other...............................................................
Total ..........................................................................................
$
3,358
7,738
6,354
57,937
1,068
1,064
$ 77,519
Accumulated
Amortization
886
$
4,282
4,377
7,835
536
422
$ 18,338
Gross
Carrying
Amount
$
3,408
8,251
6,810
57,937
1,068
1,047
$ 78,521
The weighted average amortization periods for amortizable intangible assets as of December 29, 2018 are as follows:
Non-compete agreements .......................................................................................................................................
Favorable leases .....................................................................................................................................................
Pharmacy customer prescription lists.....................................................................................................................
Customer relationships ...........................................................................................................................................
Trade names ...........................................................................................................................................................
Franchise fees and other
Accumulated
Amortization
397
$
4,332
4,210
4,173
386
381
$ 13,879
6.3 years
15.2 years
8.1 year
16.1 years
7.0 years
9.6 years
Amortization expense for intangible assets was $5.8 million, $5.5 million and $3.0 million for 2018, 2017 and 2016, respectively.
Estimated amortization expense for each of the five succeeding fiscal years is as follows:
(In thousands)
2019
2020
2021
2022
2023
Amortization expense............................................. $
5,654
$
5,300
$
4,672 $
4,403 $
4,314
-54-
Indefinite-lived intangible assets that are not amortized, consisting primarily of trade names and licenses for the sale of alcoholic
beverages, totaled $69.7 million and $69.8 million as of December 29, 2018 and December 30, 2017, respectively.
Note 6 – Restructuring, Asset Impairment and Other Charges
The following table provides the activity of reserves for closed properties for 2018, 2017 and 2016. Reserves for closed properties
recorded in the 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.
(In thousands)
Balance at January 2, 2016
$
Provision for closing charges ................................................................................
Provision for severance .........................................................................................
Changes in estimates .............................................................................................
Lease termination adjustments ..............................................................................
Accretion expense..................................................................................................
Payments................................................................................................................
Balance at December 31, 2016
Provision for closing charges ................................................................................
Provision for severance .........................................................................................
Changes in estimates .............................................................................................
Lease termination adjustments ..............................................................................
Accretion expense..................................................................................................
Payments................................................................................................................
Balance at December 30, 2017
Provision for closing charges ................................................................................
Provision for severance .........................................................................................
Changes in estimates .............................................................................................
Other ......................................................................................................................
Accretion expense..................................................................................................
Payments................................................................................................................
Balance at December 29, 2018
$
Lease and
Ancillary Costs
14,448 $
13,925
—
689
(2,437)
675
(5,368)
21,932
3,852
—
1,191
(2,600)
526
(7,012)
17,889
4,499
—
(1,181)
554
579
(5,954)
16,386 $
Severance
Total
— $
—
919
(40)
—
—
(879)
—
—
624
(163)
—
—
(458)
3
—
153
—
—
—
(156)
— $
14,448
13,925
919
649
(2,437)
675
(6,247)
21,932
3,852
624
1,028
(2,600)
526
(7,470)
17,892
4,499
153
(1,181)
554
579
(6,110)
16,386
Included in the liability are lease obligations recorded at the present value of future minimum lease payments and related ancillary
costs from the date of closure to the end of the remaining lease term, net of estimated sublease income, calculated using a risk-free
interest rate.
Restructuring, asset impairment and other charges included in the consolidated statements of operations consisted of the following:
(In thousands)
2018
2017
2016
Asset impairment charges................................................................................ $
Charge on customer advance ...........................................................................
Provision for closing charges ..........................................................................
(Gain) loss on sales of assets related to closed facilities .................................
Provision for severance ...................................................................................
Other costs associated with distribution center and store closings..................
Changes in estimates .......................................................................................
Lease termination adjustments ........................................................................
$
2,630 $
32,000
4,499
(1,352)
153
797
(1,181)
—
37,546 $
33,679 $
—
3,852
998
624
1,851
1,028
(2,600)
39,432 $
15,586
—
13,925
(134)
919
3,692
865
(2,737)
32,116
-55-
The charge on the customer advance relates to an independent retailer customer which is not expected to be fully recoverable and was
therefore written down to its estimated realizable value, resulting in a charge of $32.0 million. See Note 15 – Concentration of Credit
Risk for further information. Asset impairment charges in all years were incurred on long-lived assets primarily in the Retail segment
due to the economic and competitive environment of certain stores and in conjunction with the Company’s retail store rationalization
plan. The changes in estimates primarily relate to revised estimates performed in the current year related to lease turnover, ancillary
costs and sublease income associated with previously closed locations, which were lower than the previous expectations at certain
properties in the current year and reflected the deterioration of the condition of certain properties in 2017 and 2016. Lease termination
adjustments represent the benefits recognized in connection with lease buyouts negotiated related to previously closed stores.
Long-lived assets are analyzed for impairment whenever circumstances arise that could indicate the carrying value of long-lived assets
may not be recoverable. If such circumstances exist, the Company estimates future cash flows expected from the use of the assets and
any proceeds from their eventual disposition. If the sum of the expected cash flows (undiscounted and without interest charges) is less
than the carrying amount of the asset, an impairment loss is recognized in the consolidated statements of operations. Measurement of
the impairment loss is equal to the excess of the carrying amount of the assets over the discounted future cash flows. When analyzing
the assets for impairment, assets are grouped at the lowest level of identifiable cash flows that are largely independent of the cash
flows of other groups of assets.
Long-lived assets are measured at fair value on a nonrecurring basis using Level 3 inputs under the fair value hierarchy, as further
described in Note 8, Fair Value Measurements. Assets consisting of property and equipment with a book value of $3.7 million were
measured at a fair value of $1.1 million, resulting in impairment charges of $2.6 million in 2018. Assets consisting primarily of
property and equipment with a book value of $48.6 million were measured at a fair value of $14.9 million, resulting in an impairment
charge of $33.7 million in 2017. 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. The Company estimates future cash flows based on historical results of
operations, external factors expected to impact future performance, experience and knowledge of the geographic area in which the
assets are located, and when necessary, uses real estate brokers.
Note 7 – Long-Term Debt
Long-term debt consists of the following:
(In thousands)
December 29, December 30,
2018
2017
Senior secured revolving credit facility, due December 2023 .................................................................. $ 600,852 $ 707,492
Senior secured term loan, due December 2023.........................................................................................
—
42,904
Capital lease obligations (Note 10)...........................................................................................................
5,972
Other, 2.61% - 8.75%, due 2019 - 2024 ...................................................................................................
756,368
Total debt – Principal .............................................................................................................................
(6,417)
Unamortized debt issuance costs ..............................................................................................................
749,951
Total debt................................................................................................................................................
9,196
Less current portion ..................................................................................................................................
Total long-term debt............................................................................................................................... $ 679,797 $ 740,755
60,000
39,558
4,447
704,857
(6,797)
698,060
18,263
On December 18, 2018, 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”). The principal changes of the amendment
included an extension of the maturity date of the loans from December 20, 2021 to December 18, 2023, the ability to increase the size
of the Tranche A revolving loan to $975 million from $900 million, an amendment to the interest rate grid such that rates for the
Tranche A-1 revolving loans ($40 million capacity) are now LIBOR plus 2.25% to LIBOR plus 2.50%, a reload of the Tranche A-2
term loan ($60 million capacity) and a reset of certain advance rates for the borrowing base. The Company has the ability to increase
the size of the Credit Agreement by an additional $325 million, subject to certain conditions in the Credit Agreement. The Company’s
obligations under the related Credit Agreement are secured by substantially all of the Company’s personal and real property. The
Company may repay all loans in whole or in part at any time without penalty.
Availability under the Credit Agreement is based upon advance rates on certain asset categories owned by the Company, including,
but not limited to the following: inventory, accounts receivable, real estate, prescription lists, cigarette tax stamps, and rolling stock.
The Credit Agreement imposes certain requirements, including: limitations on dividends and investments, limitations on the
Company’s ability to incur debt, make loans, acquire other companies, change the nature of the Company’s business, enter a merger or
consolidation, or sell assets. These requirements can be more restrictive depending upon the Company’s Excess Availability, as
defined under the Credit Agreement.
-56-
Borrowings under the three tranches of the credit facility bear interest at the Company’s option as either Eurodollar loans or Base Rate
loans, subject to a grid based upon Excess Availability. The interest rate terms for each of the aforementioned tranches are as follows:
Credit
Facility
Tranche
Outstanding as of
December 29, 2018
(In thousands)
Eurodollar Rate
Base Rate
Tranche A $
569,601 LIBOR plus 1.25% to 1.50%
Greater of: (i) the Federal Funds Rate plus 0.75% to 1.00%
(ii) the Eurodollar Rate plus 2.25% to 2.50%
(iii) the prime rate plus 0.25% to 0.50%
Tranche A-1 $
31,251 LIBOR plus 2.25% to 2.50%
Greater of: (i) the Federal Funds Rate plus 1.75% to 2.00%
(ii) the Eurodollar Rate plus 2.25% to 2.50%
(iii) the prime rate plus 1.25% to 1.50%
Tranche A-2 $
60,000 LIBOR plus 5.25%
Greater of: (i) the Federal Funds Rate plus 4.75%
(ii) the Eurodollar Rate plus 5.25%
(iii) the prime rate plus 4.25%
The Company also incurs an unused line of credit fee on the unused portion of the loan commitments at a rate of 0.25%.
The Credit Agreement requires that the Company maintain Excess Availability of 10% of the borrowing base, as defined in the Credit
Agreement. The Company is in compliance with all financial covenants as of December 29, 2018 and had Excess Availability after the
10% requirement of $262.0 million and $132.7 million at December 29, 2018 and December 30, 2017, respectively. The Credit
Agreement provides for the issuance of letters of credit, of which $11.7 million and $9.2 million were outstanding as of December 29,
2018 and December 30, 2017, respectively.
The weighted average interest rate for all borrowings, including loan fee amortization, was 4.08% for 2018.
At December 29, 2018, aggregate annual maturities and scheduled payments of long-term debt are as follows:
(In thousands)
2019
2020
2021
2022
2023
Thereafter
Total
Total borrowings ..... $
18,263 $
16,569 $
13,911 $
13,341 $ 623,559 $
19,214 $ 704,857
Note 8 – Fair Value Measurements
ASC 820 prioritizes the inputs to valuation techniques used to measure fair value into the following hierarchy:
Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2: Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or
indirectly.
Level 3: Unobservable inputs for the asset or liability, reflecting the reporting entity’s own assumptions about the assumptions that
market participants would use in pricing.
Financial instruments include cash and cash equivalents, accounts and notes receivable, accounts payable and long-term debt. The
carrying amounts of cash and cash equivalents, accounts and notes receivable, and accounts payable approximate fair value because of
the short-term maturities of these financial instruments. For discussion of the fair value measurements related to goodwill and long-
lived asset impairment charges, refer to Note 5, Goodwill and Other Intangible Assets, and Note 6, Restructuring, Asset Impairment
and Other Charges. At December 29, 2018 and December 30, 2017, the book value and estimated fair value of the Company’s debt
instruments, excluding debt financing costs, were as follows:
(In thousands)
Book value of debt instruments, excluding debt financing costs:
December 29,
2018
December 30,
2017
Current maturities of long-term debt and capital lease obligations .................................................. $
Long-term debt and capital lease obligations ...................................................................................
Total book value of debt instruments.............................................................................................
Fair value of debt instruments, excluding debt financing costs...........................................................
18,263 $
686,594
704,857
705,875
Excess of fair value over book value ................................................................................................ $
1,018 $
9,196
747,172
756,368
757,966
1,598
-57-
The estimated fair value of debt is based on market quotes for instruments with similar terms and remaining maturities (Level 2 inputs
and valuation techniques).
Certain of the Company’s business combinations involve the potential for the receipt or payment of future contingent consideration
upon the shortfall or achievement of various operating thresholds, respectively. The additional consideration is generally contingent on
the acquired company reaching certain performance milestones, including attaining specified EBITDA levels. An asset or liability is
recorded for the estimated fair value of the contingent consideration at the acquisition date and is re-measured each reporting period,
with changes in fair value recognized as income or expense within operating expenses in the consolidated statements of operations.
The Company measures the asset and liability on a recurring basis using Level 3 inputs.
The fair value of contingent consideration is measured using a discounted cash flow model incorporating projected payment dates,
discount rates, probabilities of payment, and projected EBITDA. Projected EBITDA amounts are based on initial deal model forecasts
at the time of acquisition as well as the Company’s most recent internal operational budget and include a probability weighted range
of outcomes. Changes in projected EBITDA, probabilities of payment, discount rates, or projected payment dates may result in higher
or lower fair value measurements. The recurring Level 3 fair value measurements of contingent consideration include the following
significant unobservable inputs as of December 29, 2018:
Unobservable Input
Discount rate....................................................................................................................................................................
Probability of payments...................................................................................................................................................
Projected year(s) of payments .........................................................................................................................................
Range
11.80%
0% - 100%
2019
As of December 29, 2018, the fair value of contingent consideration receivable and payable associated with the Caito and BRT
acquisition was $18.4 million and $3.4 million, respectively. The net receivable of $15 million is recorded in other current assets, net
in the consolidated balance sheets as there is a right of offset for the payable and receivable. Upon payment, the portion of the
contingent consideration related to the acquisition date fair value is reported as a financing activity in the consolidated statements of
cash flows. Amounts received or paid in excess of the acquisition date fair value are reported as an operating activity in the
consolidated statements of cash flows.
Note 9 – Commitments and Contingencies
The Company subleases property at certain locations and for 2018, 2017 and 2016, received rental income of $3.6 million, $3.4
million and $4.8 million, respectively. In the event of customer default, the Company would be responsible for fulfilling these lease
obligations. Future payment obligations under these leases are disclosed in Note 10, Leases. Contingencies related to credit risk and
collectability are disclosed in Note 15, Concentration of Credit Risk.
Unions represent approximately 9% of SpartanNash’s associates. These associates are covered by collective bargaining agreements
(“CBAs”). The facilities covered by CBAs, the unions representing the covered associates and the expiration dates for each existing
CBA are provided in the following table:
Distribution Center Locations
Norfolk, Virginia........................................................................................................................
Columbus, Georgia ....................................................................................................................
Grand Rapids, Michigan ............................................................................................................
Landover, Maryland...................................................................................................................
Lima, Ohio .................................................................................................................................
Bellefontaine, Ohio GTL Truck Lines, Inc. (a) .........................................................................
Bellefontaine, Ohio General Merchandise Service Division (a) ...............................................
Union Locals
IBT 822
IBT 528
IBT 406
IBT 639
IBT 908
IBT 908
IBT 908
Expiration Dates
April 2019
September 2019
October 2019
February 2021
January 2022
February 2022
February 2022
(a) The Company is in the process of negotiating contract extensions at these locations, which have been updated with the
contemplated expiration dates.
The Company is engaged from time-to-time in routine legal proceedings incidental to its business. The Company does not believe that
these routine legal proceedings, taken as a whole, will have a material impact on its business or financial condition. While the ultimate
effect of such actions cannot be predicted with certainty, management believes that their outcome will not result in an adverse effect
on the Company’s consolidated financial position, operating results or liquidity.
-58-
The Company contributes to the Central States Southeast and Southwest Pension Fund (“Central States Plan” or “the Plan”), a multi-
employer pension plan, in accordance with provisions in place in collective bargaining agreements covering its supply chain
operations in Bellefontaine, Lima, and Grand Rapids. 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 of the Plan. 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 held in trust and the overall
administration of the plan. The Company currently contributes to the Plan under the terms outlined in the “Primary Schedule” of
Central States’ Rehabilitation Plan or those outlined in the “Default Schedule.” Both the Primary and Default schedules require
varying increases in employer contributions over the previous year’s contribution. Increases are negotiated within each collective
bargaining agreement and vary by location. The Plan continues to be in red zone status, and according to the Pension Protection Act
(“PPA”), is considered to be in “critical and declining” zone status. Among other factors, plans in the “critical and declining” zone are
generally less than 65% funded and are projected to become insolvent within the next 15 years (or 20 years depending on the ratio of
active-to-inactive participants).
Based on the most recent information available to the Company, management believes that the present value of actuarial accrued
liabilities in this multi-employer plan significantly exceeds the value of the assets held in trust to pay benefits. Because SpartanNash is
one of a number of employers contributing to this plan, it is difficult to ascertain what the exact amount of the underfunding would be.
Management is not aware of any significant change in funding levels since December 29, 2018. 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 10 – Leases
A portion of the Company’s retail stores and warehouses are operated in leased facilities. The Company also leases small ancillary
warehouse facilities, the majority of the tractors and trailers within its fleet, and certain other equipment. Most of the property leases
contain renewal options of varying terms. Terms of certain leases contain provisions requiring payment of percentage rent based on
sales and payment of executory costs such as property taxes, utilities, insurance, maintenance and other occupancy costs applicable to
the leased premises. Terms of certain leases of transportation equipment contain provisions requiring payment of percentage rent
based upon miles driven. Certain properties or portions thereof are subleased to others. Operating leases often contain renewal options.
In those locations in which it makes economic sense to continue to operate, management expects that, in the normal course of
business, leases that expire will be renewed or replaced by other leases.
Rental expense, net of sublease income, under operating leases consisted of the following:
(In thousands)
Minimum rentals ............................................................................................................ $
Contingent rent (reductions) increases...........................................................................
Sublease rental income...................................................................................................
Total ............................................................................................................................ $
2018
2017
2016
61,774 $
(219)
(3,554)
58,001 $
55,159 $
(237)
(3,407)
51,515 $
57,478
314
(4,830)
52,962
The Company’s total future lease commitments under operating and capital leases in effect at December 29, 2018 are as follows:
Operating Leases
(In thousands)
2019 ....................................................................................................................
2020 ....................................................................................................................
2021 ....................................................................................................................
2022 ....................................................................................................................
2023 ....................................................................................................................
Thereafter............................................................................................................
Total .................................................................................................................
Subleased
to Others
Used in
Operations
$ 54,098 $
47,212
39,887
32,299
25,419
75,626
$ 274,541 $
Total
817
694
468
357
147
1,039 $ 55,137
48,029
40,581
32,767
25,776
75,773
3,522 $ 278,063
Interest
Present value of minimum lease obligations
Current maturities
Long-term capital lease obligations
-59-
Capital
Leases
$ 9,091
7,049
5,377
4,685
3,912
25,152
55,266
(15,708)
39,558
6,840
$ 32,718
Assets held under capital leases consisted of the following:
(In thousands)
December 29, December 30,
2018
2017
Building and improvements ....................................................................................................................
Equipment................................................................................................................................................
Assets under capital leases....................................................................................................................
Less accumulated amortization and depreciation....................................................................................
Net assets under capital leases ..............................................................................................................
$
$
57,326 $
6,889
64,215
30,774
33,441 $
60,398
3,727
64,125
29,518
34,607
Amortization expense for property under capital leases was $4.3 million, $4.4 million and $5.2 million in 2018, 2017 and 2016,
respectively.
Certain retail store facilities, either owned or obtained through leasing arrangements, are leased to others. A majority of the leases
provide for minimum and contingent rentals based upon stipulated sales volumes and contain renewal options. Certain of the leases
contain escalation clauses.
Owned assets, included in property and equipment, which are leased to others are as follows:
(In thousands)
December 29,
2018
December 30,
2017
Land and improvements ..........................................................................................................................
Buildings .................................................................................................................................................
Owned assets leased to others ..............................................................................................................
Less accumulated amortization and depreciation....................................................................................
Net owned assets leased to others ........................................................................................................
$
$
7,389 $
28,932
36,321
10,044
26,277 $
6,515
24,236
30,751
8,123
22,628
Future minimum rentals to be received under lease obligations in effect at December 29, 2018 are as follows:
(In thousands)
2019
2020
2021
2022
2023
Thereafter
Total
Owned property .......
Leased property .......
Total......................
$
$
4,876
2,993
7,869
$
$
4,540
2,594
7,134
$
$
4,243
1,888
6,131
$
$
3,773
1,597
5,370
$
$
2,754 $
1,274
4,028 $
20,002 $ 40,188
3,316
13,662
23,318 $ 53,850
Note 11 – Associate Retirement Plans
The Company’s retirement programs include pension plans providing non-contributory benefits and salary deferral defined
contribution plans. Substantially all of the Company’s associates not covered by CBAs are covered by a frozen non-contributory
pension plan, a defined contribution plan, or both. Associates covered by CBAs at the Company’s Columbus, Georgia; Norfolk,
Virginia; and Landover, Maryland facilities all participate in the Company’s defined contribution plan; the remaining associates
covered under CBAs participate in a multi-employer pension plan.
Defined Contribution Plans
Expense for employer matching and profit-sharing contributions made to defined contribution plans totaled $7.0 million, $7.9 million
and $11.9 million in 2018, 2017 and 2016, respectively.
Executive Compensation Plans
The Company has a deferred compensation plan for a select group of management personnel or highly compensated associates. The
plan is unfunded and permits participants to defer receipt of a portion of their base salary, annual bonus, or long-term incentive
compensation which would otherwise be paid to them. The deferred amounts, plus earnings, are distributed following the associate’s
termination of employment. Earnings are based on the performance of hypothetical investments elected by the participant from a
portfolio of investment options.
The Company holds variable universal life insurance policies on certain key associates intended to fund distributions under the
deferred compensation plan referenced above. The net cash surrender value of approximately $4.3 million at both December 29, 2018
and December 30, 2017, respectively, is recorded in “Other assets, net” in the consolidated balance sheets. These policies have an
aggregate amount of life insurance coverage of approximately $15.0 million.
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Defined Benefit Plans
The Company sponsors the SpartanNash Company Pension Plan (the “Pension Plan”), a frozen defined benefit pension plan. On
February 28, 2018, the Company’s Board of Directors granted approval to proceed with terminating the frozen Pension Plan and the
Plan was terminated on July 31, 2018. The Company will offer participants the option to receive an annuity or lump sum distribution
which may be rolled over into another qualified plan. The distribution of assets to plan participants is expected to be completed in the
third quarter of 2019. The Company will incur a one-time, pre-tax settlement charge estimated to be approximately $20 million to $21
million to recognize the deferred losses in AOCI upon distribution of the Plan assets and related recognition of the settlement as well
as other termination expenses. The Company expects the Plan termination will reduce administrative fees and premium funding costs
in future periods.
The pension benefits are primarily based on years of service and compensation, with some differences resulting from the nature of
how benefits were calculated under the Company’s legacy defined benefit plans, as described below. On December 31, 2014, the
Retirement Plan for Employees of Super Food Services, Inc. (“Super Foods Plan”) was merged into the Spartan Stores, Inc. Cash
Balance Pension Plan (“Cash Balance Pension Plan”) and renamed the SpartanNash Company Pension Plan. The merging of the plans
resulted in lower administrative fees and reduced cash funding. Annual payments to the pension trust fund are determined in
compliance with the Employee Retirement Income Security Act of 1976 (“ERISA”). As of December 29, 2018, plan assets consist
principally of U.S. government and corporate obligations.
The Cash Balance Pension Plan, a non-contributory cash balance pension plan, was frozen effective January 1, 2011. As a result of the
freeze, no additional associates were eligible to participate in the plan after January 1, 2011, and additional service credits were no
longer added to each participant’s account; however, interest credits continue to accrue. Prior to the plan freeze, the plan benefit
formula utilized a cash balance approach whereby credits were added annually to a participant’s account based on compensation and
years of vested service, with interest credits also added to the participant’s account at the Company’s discretion.
The Super Foods Plan, a qualified non-contributory pension plan offered by one of the Company’s subsidiaries, provides retirement
income for certain eligible full-time associates who are not covered by a union retirement plan. Pension benefits under the plan are
based on length of service and compensation, and contributions meet the minimum funding requirements. This plan was frozen
effective January 1, 1998.
If lump sum distributions are made in an amount exceeding annual interest cost, settlement accounting is triggered, and the resulting
settlement expense is recorded as a component of total pension expense (income). Lump sum distributions of $3.3 million, $2.6
million and $2.8 million were made and resulting pension settlement charges of $0.8 million, $0.5 million and $0.7 million were
incurred in 2018, 2017 and 2016, respectively.
Postretirement Medical Plans
SpartanNash Company and certain subsidiaries provide healthcare benefits to retired associates under the SpartanNash Company
Retiree Medical Plan (the “Retiree Medical Plan”). Former Spartan Stores, Inc. associates hired prior to January 1, 2002 who were not
covered by CBAs during their employment and who have at least 10 years of service and have attained age 55 upon retirement qualify
as “covered associates.” Covered associates who retired prior to March 31, 1992 receive major medical insurance with deductible and
coinsurance provisions until age 65 and Medicare supplemental benefits thereafter. Covered associates retiring after April 1, 1992 are
eligible for monthly postretirement healthcare benefits of $5 multiplied by the associate’s years of service. This benefit is in the form
of a credit against the monthly insurance premium. The retiree pays the balance of the premium.
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The following tables set forth the actuarial present value of benefit obligations, funded status, changes in benefit obligations and plan
assets, weighted average assumptions used in actuarial calculations and components of net periodic benefit costs for the Company’s
significant pension and postretirement benefit plans, excluding multi-employer plans. The prepaid, current accrued, and noncurrent
accrued benefit costs associated with pension and postretirement benefits are reported in “Prepaid expenses and other current assets,”
“Other assets, net,” “Accrued payroll and benefits,” and “Postretirement benefits,” respectively, in the consolidated balance sheets.
(In thousands, except percentages)
Funded Status
Projected/Accumulated benefit obligation:
Balance at beginning of year ..............................................................
Service cost ........................................................................................
Interest cost .........................................................................................
Actuarial (gain) loss............................................................................
Benefits paid .......................................................................................
Balance at end of year......................................................................
Fair value of plan assets:
Balance at beginning of year ..............................................................
Actual (loss) return on plan assets ......................................................
Company contributions.......................................................................
Benefits paid ......................................................................................
Balance at end of year......................................................................
Funded (unfunded) status ..................................................................
Pension Plan
December 29, December 30,
Retiree Medical Plan
December 29, December 30,
2018
2017
2018
2017
$
$
$
$
$
$
80,153
—
2,283
(1,578)
(7,583)
73,275 $
81,255 $
(931)
1,500
(7,583)
74,241 $
966 $
$
80,350
—
2,345
4,662
(7,204)
80,153
$
$
81,982
6,477
—
(7,204)
81,255
1,102
$
$
$
10,199
195
339
(961)
(329)
9,443 $
9,663
184
345
303
(296)
10,199
— $
—
329
(329)
— $
(9,443) $
—
—
296
(296)
—
(10,199)
Components of net amount recognized in consolidated balance sheets:
Current assets......................................................................................
Noncurrent assets................................................................................
Current liabilities ................................................................................
Noncurrent liabilities ..........................................................................
Net asset (liability) ..........................................................................
$
$
$
966
—
—
—
966 $
—
1,102
—
—
1,102
$
$
$
—
—
(437)
(9,006)
(9,443) $
—
—
(417)
(9,782)
(10,199)
Amounts recognized in AOCI:
Net actuarial loss
Prior service credit ..............................................................................
$
Accumulated other comprehensive loss........................................... $
$
19,885
—
19,885 $
18,205
—
18,205
$
$
$
629
(92)
537 $
1,678
(250)
1,428
Weighted average assumptions at measurement date:
Discount rate ......................................................................................
Ultimate health care cost trend rate ...................................................
3.48%
N/A
3.45%
N/A
4.41%
5.00%
3.72%
5.00%
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(In thousands, except percentages)
Components of net periodic benefit cost (income):
2018
Pension Plan
2017
2016
2018
Retiree Medical Plan
2017
2016
Service cost ...................................
Interest cost ...................................
Amortization of prior service
cost ................................................
Expected return on plan assets ......
Recognized actuarial net loss........
Net periodic benefit
(income) cost ..............................
Settlement expense........................
Total net periodic benefit
(income) cost ..............................
$
— $
— $
— $
2,283
2,345
2,977
195 $
339
184 $
345
—
(3,631)
417
—
(3,836)
221
—
(4,269)
706
(158)
—
88
(158)
—
59
$
$
$
(931)
785
(1,270)
548
$
$
(586)
692
$
(146)
$
(722)
$
106
$
464
—
$
464
$
430
—
$
430
187
345
(158)
—
42
416
—
416
Weighted average assumptions used to determine net periodic benefit cost (income):
Discount rate .................................
Expected return on plan assets ......
3.45%
4.84%
3.82%
4.83%
4.04%
5.05%
3.72%
N/A
4.26%
N/A
4.55%
N/A
The net actuarial loss and prior service cost included in AOCI and expected to be recognized in net periodic benefit cost in 2019 are as
follows:
(In thousands)
Prior service credit.....................................................................................................................................
Net actuarial loss ......................................................................................................................................
Pension Plan Medical Plan
(92)
N/A $
—
207
$
Retiree
Prior service costs (credits) are amortized on a straight-line basis over the average remaining service period of active participants.
Actuarial gains and losses for the Pension Plan are amortized over the average remaining life of all participants when the accumulation
of such gains and losses exceeds 10% of the greater of the projected benefit obligation and the market-related value of plan assets.
Assumed healthcare cost trend rates have a significant effect on the amounts reported for the Retiree Medical Plan. Assumed current
healthcare cost trend rates used to determine net periodic benefit cost (income) were as follows:
Pre-65 .............................................................................................................................
Post-65 ............................................................................................................................
N/A
8.00%
N/A
8.40%
7.50%
8.40%
2018
2017
2016
The effect of a one-percentage point increase or decrease in assumed healthcare cost trend rates on the total service and interest
components and the post-retirement benefit obligations would be less than $0.1 million.
Expected Return on Assets and Investment Strategy
The Company has assumed an average long-term expected return on the Pension Plan assets of 2.80% as of December 29, 2018. The
expected return assumption was modeled by third-party investment portfolio managers, based on asset allocations and the expected
return and risk components of the various asset classes in the portfolio. Determining projected stock and bond returns and then
applying these returns to the target asset allocations of the plan assets developed the expected return. Equity returns were based
primarily on historical returns of the S&P 500 Index. Fixed-income projected returns were based primarily on historical returns for the
broad U.S. bond market. This overall return assumption is believed to be reasonable over a longer-term period that is consistent with
the liabilities.
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The Company has historically followed an investment policy for the Pension Plan with a long-term asset allocation mix designed to
meet the long-term retirement obligations by investing in equity, fixed income and other securities to cover cash flow requirements of
the plan and minimize long-term costs. In the current year, in the context of the Pension Plan termination and the expected distribution
of the related assets, the Company has revised the asset mix to include a higher allocation of fixed income securities, which reduce the
Pension Plan’s exposure to market volatility. Certain of the fixed income investments have a duration of 90 days or less, and as such
are classified as cash equivalents. The following table summarizes both the targeted allocation of the Pension Plan’s asset allocation
by asset category and actual allocations as of December 29, 2018 and December 30, 2017:
Asset Category
Target
December 29,
2018
December 29,
2018
Actual
December 30,
Equity securities .......................................................................................................
Fixed income ............................................................................................................
Total .......................................................................................................................
— %
100.0
100.0 %
— %
100.0
100.0 %
2017
19.3 %
80.7
100.0 %
The investment policy emphasizes the following key objectives: (1) provide benefit security to participants by maximizing the return
on plan assets at an acceptable risk level, (2) maintain adequate liquidity for current benefit payments, (3) avoid unexpected increases
in pension expense, and (4) within the scope of the above objectives, minimize long term funding to the plan.
The fair values of the Pension Plan assets at December 29, 2018 and December 30, 2017, by asset category, are as follows:
(In thousands)
Total
Fair Value of Assets as of December 29, 2018
Level 3
Level 2
Level 1
Mutual funds ............................................................
Pooled funds ............................................................
Money market fund ..................................................
Guaranteed annuity contracts ...................................
Total fair value.......................................................
$
$
$
20,124
29,576
11,992
12,549
74,241 $
—
—
—
—
—
$
$
—
—
11,992
—
$
11,992
$
—
—
—
12,549
12,549
(In thousands)
Total
Fair Value of Assets as of December 30, 2017
Level 3
Level 2
Level 1
Mutual funds.............................................................
Pooled funds .............................................................
Money market fund ..................................................
Guaranteed annuity contracts ..................................
Total fair value.......................................................
$
$
18,194
48,133
$
1,037
13,891
81,255 $
—
—
—
—
—
$
$
—
—
1,037
—
$
1,037
$
—
—
—
13,891
13,891
NAV (a)
20,124
29,576
—
—
49,700
NAV (a)
18,194
48,133
—
—
66,327
$
$
$
$
(a) Assets are measured at net asset value (“NAV”) (or its equivalent) on a non-active market, and therefore, have not been
classified in the fair value hierarchy.
Level 3 assets consist of guaranteed annuity contracts. A reconciliation of the beginning and ending balances for Level 3 assets is as
follows:
(In thousands)
December 29,
2018
December 30,
2017
Balance at beginning of year................................................................................................................... $
Purchases, sales, issuances and settlements, net .....................................................................................
Interest income ........................................................................................................................................
Unrealized gains......................................................................................................................................
Balance at end of year .......................................................................................................................... $
13,891 $
(1,712)
588
(218)
12,549 $
15,426
(2,222)
552
135
13,891
See Note 8 for a discussion of the levels of the fair value hierarchy. The fair value measurement level used is based on the lowest level
of any input that is significant to the fair value measurement.
The following is a description of the valuation methods used for the Pension Plan’s assets measured at fair value in the above tables:
Money market fund: The carrying value approximates fair value. Money market funds are valued on a daily basis at NAV using the
amortized cost of the securities held in the fund. Since amortized cost does not meet the criteria for an active market, money market
funds are classified within Level 2 of the fair value hierarchy of ASC 820.
-64-
Mutual Funds: These investments are valued using NAV as a practical expedient to estimate fair value and are not classified in the fair
value hierarchy. NAV is determined once a day after the closing of the exchange based upon the underlying assets in the fund, less the
fund’s liabilities, expressed on a per-share basis. Mutual funds held by the Pension Plan are open end mutual funds that are registered
with the Securities and Exchange Commission (“SEC”). These funds are required to publish their daily NAV and to transact at that
price. The mutual funds held by the Pension Plan are therefore deemed to be actively traded.
Pooled Funds: The plan holds units of various Aon Hewitt Group Trust Funds offered through a private placement. The units are
valued daily using NAV as a practical expedient to estimate fair value. NAVs are based on the fair value of each fund’s underlying
investments and are not classified in the fair value hierarchy. The practical expedient is not used when it is determined to be probable
that the investment will be sold for an amount different than the reported NAV.
Guaranteed Annuity Contracts: The guaranteed annuity contracts are immediate participation contracts held with insurance companies
that act as custodian of the Pension Plan’s assets. The guaranteed annuity contracts are stated at contract values, which are determined
by the custodians and approximate fair values. The Company evaluates the general financial condition of the custodians as a
component of validating whether the calculated contract value is an accurate approximation of fair value. The review of the general
financial condition of the custodians is considered obtainable/observable through the review of readily available financial information
the custodians are required to file with the SEC. The group annuity contracts are classified within Level 3 of the valuation hierarchy of
ASC 820.
The methods described above may produce a fair value calculation that may not be indicative of net realizable value or reflective of
future fair values. Furthermore, while the Company believes its valuations methods are appropriate and consistent with other market
participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result
in a different fair value measurement.
The Company expects to make contributions in 2019 of $0.4 million to the Retiree Medical Plan. The Company expects to make
contributions in 2019 of between $0 and $0.5 million to the Pension Plan depending on actual termination costs and the value of
Pension Plan assets upon final distribution.
The following estimated benefit payments are expected to be paid in the following fiscal years:
(In thousands)
2019
2020
2021
2022
2023
Pension benefits .............................. $
Post-retirement medical benefits ....
74,570
437
$
$
—
480
$
—
520
$
—
557
— $
590
2024 to 2028
—
3,283
Future benefit payments of pension benefits in 2019 include routine benefit payments as well as lump sum distributions and
annuitization in connection with the Plan termination.
Multi-Employer Health and Welfare Plans
In addition to the plans described above, the Company participates in the Michigan Conference of Teamsters and Ohio Conference of
Teamsters Health and Welfare plans. The Company contributes to these multi-employer plans under the terms contained in existing
CBAs and in the amounts set forth within these agreements. The health and welfare plans provide medical, dental, pharmacy, vision,
and other ancillary benefits to active associates and retirees, as determined by the trustees of the plan. The Company’s contributions
largely benefit active associates, and as such, may not constitute contributions to a postretirement benefit plan. However, the Company
is unable to separate contribution amounts for postretirement benefits from contribution amounts paid for active participants in the
plan. These plans have a significant surplus of funds held in reserve in excess of claims incurred, and there is no potential withdrawal
liability related to the Company’s participation in the plans. With respect to the Company’s participation in these plans, expense is
recognized as contributions are funded. The Company contributed $13.8 million, $14.1 million and $14.3 million to these plans in
2018, 2017 and 2016, respectively.
-65-
Multi-Employer Pension Plan
The Company also contributes to the Central States Plan, a multi-employer plan defined previously, under the terms of CBAs that
cover its union-represented associates and in the amounts set forth within these agreements. The Company is party to four CBAs that
require contributions to the Plan with expiration dates ranging from April 2019 to January 2022 or which the Company is in the
process of negotiating and have a contemplated expiration date of February 2022. These CBAs cover warehouse personnel and drivers
in Grand Rapids, Michigan and Bellefontaine and Lima, Ohio. With respect to the Company’s participation in the Central States Plan
(EIN 36-60442343 / Pension Plan Number 001), expense is recognized as contributions are funded. The Company contributed $13.3
million, $13.4 million and $13.4 million to this plan in 2018, 2017 and 2016, respectively. The contributions made by the Company
represent less than five percent of the Plan’s total contributions in 2018.
The risk of participating in a multi-employer pension plan is different from the risk associated with single-employer plans in the
following respects:
a. Assets contributed to the multi-employer plan by one employer may be used to provide benefits to employees of other
participating employers.
b.
c.
If a participating employer stops contributing to the plan, the unfunded obligations of the plan may be borne by the remaining
participating employers.
If a company chooses to stop participating in a multi-employer plan, makes market exits such as closing a distribution center
without opening another one in the same locale, or otherwise has participation in the plan drop below certain levels, the
company may be required to pay those plans an amount based on the underfunded status of the plan, referred to as a
withdrawal liability.
The PPA zone status of the Plan, which is based on information the Company received from the Plan and is certified by the Plan’s
actuary, is “critical and declining” for the Plan’s two most recent fiscal years ending December 31, 2018 and 2017. Among other
factors, plans in the “critical and declining” zone are generally less than 65% funded and projected to become insolvent within the
next 15 years (or 20 years depending on the ratio of active-to-inactive participants). A rehabilitation plan has been implemented by the
trustees of the Plan, and the CBAs that cover warehouse personnel and drivers in the Bellefontaine and Lima, Ohio distribution centers
have permanent surcharges imposed due to the failure to adopt the trustee recommended rehabilitation plan. Refer to Note 9,
Commitments and Contingencies, for further information regarding the Company’s participation in the Central States Plan. As of the
date the consolidated financial statements were issued, Form 5500 was not available for the plan year ended December 31, 2018.
Note 12 – Accumulated Other Comprehensive Income or Loss
AOCI represents the cumulative balance of other comprehensive income (loss), net of tax, as of the end of the reporting period and
relates to pension and other postretirement benefit obligation adjustments.
Changes in AOCI are as follows:
(In thousands)
Balance at beginning of the year, net of tax ............................................................. $
Other comprehensive loss before reclassifications...................................................
Income tax benefit ....................................................................................................
Other comprehensive loss, net of tax, before reclassifications..............................
Amortization of amounts included in net periodic benefit cost (a) ..........................
Income tax expense (b).............................................................................................
Amounts reclassified out of AOCI, net of tax .......................................................
Other comprehensive (loss) income, net of tax...................................................
Reclassification of stranded tax effects (c) .........................................................
Balance at end of the year, net of tax........................................................................ $
$
2018
(15,136)
(2,026)
458
(1,568)
1,204
(259)
945
(623)
—
(15,759) $
$
2017
(11,437)
(2,448)
934
(1,514)
799
(302)
497
(1,017)
(2,682)
(15,136) $
2016
(11,447)
(643)
236
(407)
657
(240)
417
10
—
(11,437)
(a) Reclassified from AOCI into Other, net, or Selling, general and administrative expense. Amortization of amounts included in net
periodic benefit cost includes amortization of prior service cost and amortization of net actuarial loss.
(b) Reclassified from AOCI into Income taxes expense.
(c) Reclassification reflects the impact of ASU 2018-02, which allowed stranded tax effects from the Tax Cuts and Jobs Act to be
reclassified from AOCI to retained earnings.
-66-
Note 13 – Income Tax
The income tax provision for continuing operations is made up of the following components:
(In thousands)
Current income tax (benefit) expense:
2018
2017
2016
Federal.................................................................................................................... $
State........................................................................................................................
Total current income tax (benefit) expense.........................................................
(1,607) $
1,107
(500)
366 $
528
894
Deferred income tax expense (benefit):
Federal....................................................................................................................
State........................................................................................................................
Total deferred income tax expense (benefit).......................................................
Total income tax expense (benefit)........................................................................... $
8,370
(963)
7,407
6,907 $
(72,842)
(7,079)
(79,921)
(79,027) $
22,936
3,210
26,146
6,509
252
6,761
32,907
A reconciliation of the statutory federal rate to the effective rate is as follows:
Federal statutory income tax rate ................................................................................
State taxes, net of federal income tax benefit ...........................................................
Stock compensation ..................................................................................................
Non-deductible expenses ..........................................................................................
Domestic production activities deduction ................................................................
Charitable product donations....................................................................................
Other, net ..................................................................................................................
Federal rate change effect on deferred taxes ............................................................
Tax credits ................................................................................................................
Change in tax contingencies .....................................................................................
Effective income tax rate.............................................................................................
2018
2017
2016
21.0 %
1.7
0.7
0.6
—
(0.6)
(0.9)
(1.2)
(1.8)
(2.5)
17.0 %
35.0 %
3.1
1.0
(0.3)
0.1
0.4
0.8
19.7
0.2
—
60.0 %
35.0 %
2.5
—
0.5
(0.3)
(0.5)
(0.6)
—
—
—
36.6 %
On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs
Act (the “Tax Act”). The Tax Act makes broad and complex changes to the U.S. tax code, including, but not limited to reducing the
U.S. federal corporate tax rate from 35 percent to 21 percent, effective January 1, 2018. Shortly after the Tax Act was enacted, the
SEC issued accounting guidance, which provides a one-year measurement period during which a company may complete its
accounting for the impacts of the Tax Act.
In connection with initial analysis of the impact of the Tax Act, the Company recorded a provisional discrete income tax benefit of
$26.0 million in the period ended December 30, 2017 associated with the re-measurement of deferred tax assets and liabilities as a
result of the reduction in the U.S. federal corporate tax rate. In the third quarter of 2018, the Company completed its accounting for the
income tax effects of certain elements of the Tax Act, resulting in an income tax benefit of $0.5 million.
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Deferred tax assets and liabilities resulting from temporary differences as of December 29, 2018 and December 30, 2017 are as
follows:
(In thousands)
Deferred tax assets:
December 29, December 30,
2018
2017
Employee benefits ..................................................................................................................................
Accrued workers' compensation.............................................................................................................
Allowance for doubtful accounts ...........................................................................................................
Intangible assets .....................................................................................................................................
Restructuring ..........................................................................................................................................
Deferred revenue ....................................................................................................................................
Accrued rent ...........................................................................................................................................
Accrued insurance ..................................................................................................................................
State net operating loss carryforwards (a)..............................................................................................
All other..................................................................................................................................................
Total deferred tax assets .............................................................................................................................
$
Deferred tax liabilities:
Property and equipment .........................................................................................................................
Inventory ................................................................................................................................................
Goodwill.................................................................................................................................................
Intangible assets .....................................................................................................................................
All other..................................................................................................................................................
Total deferred tax liabilities ......................................................................................................................
Net deferred tax liability ...........................................................................................................................
$
17,330 $
1,402
10,171
—
1,806
1,269
3,196
1,150
2,656
3,917
42,897
41,315
32,401
15,763
1,011
1,661
92,151
49,254 $
19,311
1,620
1,974
56
2,322
1,552
3,853
921
37
2,688
34,334
34,199
31,454
10,083
—
648
76,384
42,050
(a) At December 29, 2018, the Company had gross state net operating losses in various taxing jurisdictions totaling $3.4 million,
which expire in tax years 2021 through 2038 if not utilized.
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
(In thousands)
December 29, December 30,
2018
2017
Balance at beginning of year .................................................................................................................. $
Gross increases - tax positions taken in prior years ............................................................................
Gross decreases - tax positions taken in prior years ............................................................................
Gross increases - tax positions taken in current year ..........................................................................
Lapse of statute of limitations..............................................................................................................
Balance at end of year............................................................................................................................. $
2,408 $
163
(171)
894
(1,817)
1,477 $
2,369
213
(123)
872
(923)
2,408
Unrecognized tax benefits of $0.9 million are set to expire prior to December 28, 2019. The Company recognizes interest and
penalties accrued related to unrecognized tax benefits in income tax expense. The amount recognized due to a lapse in the statute of
limitations that reduced the Company’s effective income tax rate in 2018 was $1.0 million. The amount of unrecognized tax benefits,
including interest and penalties, that would reduce the Company’s effective income tax rate if recognized in future periods was $0.3
million as of December 29, 2018.
SpartanNash or its subsidiaries file income tax returns with federal, state and local tax authorities within the United States. With few
exceptions, SpartanNash is no longer subject to U.S. federal, state or local examinations by tax authorities for fiscal years before the
year ended January 3, 2015. Income tax returns related to the former Nash-Finch Company are no longer subject to U.S. federal, state
or local examinations by tax authorities.
-68-
Note 14 – Stock-Based Compensation
The Company sponsors a shareholder-approved 10-year stock incentive plan covering 2,500,000 shares of SpartanNash’s common
stock. The SpartanNash Company Stock Incentive Plan of 2015 (the “2015 Plan”) provides for the granting of stock options, stock
appreciation rights, restricted stock, restricted stock units, stock awards, and other stock-based and stock-related awards to directors,
officers and other key associates. Shares issued, as a result of stock option exercises, will be funded with the issuance of new shares.
Holders of restricted stock and stock awards are entitled to participate in cash dividends and dividend equivalents. As of December 29,
2018, a total of 1,475,633 shares remained unissued under the 2015 Plan.
All outstanding unvested stock options and unvested shares of restricted stock vest immediately upon a “Change in Control,” as
defined by the Plan. The Company has not issued any stock options since 2009 and all outstanding options are vested.
The following table summarizes stock option activity for 2018, 2017 and 2016:
Weighted
Average
Exercise
Price
Weighted
Average
Remaining
Contractual
Life Years
Options outstanding and exercisable at January 2, 2016
Exercised ...........................................................................................
Cancelled/Expired .............................................................................
Options outstanding and exercisable at December 31, 2016
Exercised ...........................................................................................
Cancelled/Expired .............................................................................
Options outstanding and exercisable at December 30, 2017
Exercised ...........................................................................................
Cancelled/Expired .............................................................................
Options outstanding and exercisable at December 29, 2018
Shares
Under Options
308,793
(107,338)
(938)
200,517
(152,589)
—
47,928
(20,476)
(14,400)
13,052
$
$
21.15
23.46
14.36
19.94
21.02
—
16.52
13.87
22.69
13.87
Aggregate
Intrinsic Value
(in thousands)
773
$
1,043
3,929
1,832
487
2.46
1.65
1.07
0.37
$
39
Cash received from option exercises was $0.3 million, $3.2 million and $2.5 million in 2018, 2017 and 2016, respectively.
Restricted shares awarded to associates vest ratably over a four-year service period and over one year for grants to the Board of
Directors. Awards are subject to forfeiture and certain transfer restrictions prior to vesting. Compensation expense, representing the
fair value of the stock at the measurement date of the award, is recognized over the required service period.
The following table summarizes restricted stock activity for 2018, 2017 and 2016:
Weighted
Average
Grant-Date
Fair Value
Shares
Outstanding and nonvested at January 2, 2016
637,555 $
Outstanding and nonvested at December 31, 2016
Granted...................................................................................................................................................... 314,944
Vested ....................................................................................................................................................... (255,156)
(37,200)
Forfeited....................................................................................................................................................
660,143
Granted...................................................................................................................................................... 296,297
Vested ....................................................................................................................................................... (258,183)
(84,513)
Forfeited....................................................................................................................................................
613,744
Granted...................................................................................................................................................... 482,572
Vested ....................................................................................................................................................... (260,644)
(12,853)
Forfeited....................................................................................................................................................
822,819 $
Outstanding and nonvested at December 30, 2017
Outstanding and nonvested at December 29, 2018
24.75
28.34
24.56
25.80
26.48
34.68
25.90
29.11
30.32
17.00
28.89
23.52
23.07
The total fair value of shares vested was $4.8 million, $9.3 million and $6.6 million in 2018, 2017 and 2016, respectively.
-69-
Stock-based compensation expense recognized and included in “Selling, general and administrative expenses” in the consolidated
statements of operations, and related tax benefits were as follows:
(In thousands)
Restricted stock.......................................................................................................... $
Tax benefits ...............................................................................................................
Stock-based compensation expense, net of tax....................................................... $
2018
2017
2016
7,646 $
(2,242)
5,404 $
9,611 $
(3,440)
6,171 $
7,936
(2,976)
4,960
As of December 29, 2018, total unrecognized compensation cost related to non-vested share-based awards granted under the stock
incentive plans was $4.2 million for restricted stock. The remaining compensation costs not yet recognized are expected to be
recognized over a weighted average period of 2.4 years for restricted stock. All compensation costs related to stock options have been
recognized.
The Company recognized tax deductions of $5.6 million, $11.6 million and $8.0 million related to the exercise of stock options and
the vesting of restricted stock in 2018, 2017 and 2016, respectively.
The Company sponsors a stock bonus plan covering 300,000 shares of SpartanNash common stock. Under the provisions of this plan,
certain officers and key associates may elect to receive a portion of their annual bonus in common stock rather than cash and will be
granted additional shares of common stock worth 20% of the portion of the bonus they elect to receive in stock. After the shares are
issued, the holder is not able to sell or otherwise transfer the shares until the end of the holding period, which is currently 24 months.
Compensation expense is recorded based upon the market price of the stock as of the measurement date. During the year, the
Company authorized the issuance of an additional 45,000 shares to be granted by the stock bonus plan. A total of 45,000 shares
remained unissued under the stock bonus plan at December 29, 2018.
The Company also sponsors an associate stock purchase plan covering 200,000 shares of SpartanNash common stock. The plan
provides that associates of the Company may purchase shares at 95% of the fair market value. As of December 29, 2018, a total of
100,412 shares had been issued under the plan.
Note 15 – Concentration of Credit Risk
The Company may provide financial assistance in the form of loans to certain independent retailers for inventories, store fixtures and
equipment and store improvements. Loans are generally secured by liens on real estate, inventory and/or equipment, personal
guarantees and other types of collateral, and are generally repayable over a period of five to ten years. The Company establishes
allowances for doubtful accounts based upon periodic assessments of the credit risk of specific customers, collateral value, historical
trends and other information. The Company believes that adequate provisions have been recorded for any doubtful accounts. In
addition, the Company may guarantee debt and lease obligations of independent retailers. In the event these retailers are unable to
meet their debt service payments or otherwise experience an event of default, the Company would be unconditionally liable for the
outstanding balance of their debt and lease obligations, which would be due in accordance with the underlying agreements.
In the ordinary course of business, the Company may advance funds to certain independent retailers which are earned by the retailers
primarily through achieving specified purchase volume requirements, as outlined in their supply agreements with the Company, or in
limited instances, for remaining a SpartanNash customer for a specified time period. These advances must be repaid if the purchase
volume requirements are not met or if the retailer no longer remains a customer for the specified time period. As of December 29,
2018, the Company has an unearned advanced amount to one independent retailer for an amount representing approximately two
percent of the Company’s total assets. The Company’s collateral related to the advanced funds is a security interest in select business
assets of the independent retailer’s stores including select real property assets, and other collateral, including a personal guarantee,
from the shareholder. Despite the collateral, the Company may be unable to realize the entire unearned portion of the funds advanced
to this independent retailer, and accordingly, has evaluated the net estimated realizability of the advance. During the fourth quarter of
2017, and in the context of a state law receivership proceeding, the customer rationalized its retail store base and entered into a new
supply agreement with the Company and assumed the obligation of the original agreement. In the fourth quarter of 2018, the customer
defaulted on the terms of the supply agreement. As a result, the Company exercised its rights and filed a petition to place the customer
in receivership. The Company performed an analysis of the net realizability of the underlying collateral which resulted in a $32.0
million charge in 2018.
In the ordinary course of business, the Company also subleases and assigns various leases to third parties. As of December 29, 2018,
the Company estimates the present value of its maximum potential obligations for subleases and assigned leases to be approximately
$5.9 million and $14.1 million, respectively.
-70-
Note 16 – Supplemental Cash Flow Information
Supplemental cash flow information is as follows:
(In thousands)
Non-cash financing activities:
2018
2017
2016
Issuance of note payable as consideration for acquisition ..................................... $
Recognition of investment in direct financing lease..............................................
Recognition of capital lease obligations ................................................................
Derecognition of capital lease obligations.............................................................
Deferred gain on derecognition of capital lease obligations..................................
— $
—
3,304
—
—
2,460 $
2,295
588
—
—
Non-cash investing activities:
Capital expenditures included in accounts payable ...............................................
Derecognition of fixed assets under direct financing lease ...................................
Capital lease asset additions ..................................................................................
Capital lease asset disposals ..................................................................................
Acquisition financed through issuance of note payable ........................................
4,564
—
3,304
—
—
5,418
2,295
588
—
2,460
Other supplemental cash flow information:
—
—
3,536
(6,068)
3,052
5,465
—
3,536
(3,016)
—
Cash paid for interest .............................................................................................
Net cash paid for taxes...........................................................................................
28,138
139
22,818
10,657
16,184
35,836
Note 17 – Reporting Segment Information
SpartanNash sells and distributes products that are typically found in supermarkets and discount stores. The operating segments reflect
the manner in which the business is managed and how the Company allocates resources and assesses performance internally. The
Company’s chief operating decision maker is the Chief Executive Officer, who determines the allocation of resources and, through a
regular review of financial information, assesses the performance of the operating segments. The business is classified by management
into three reportable segments: Food Distribution, Military and Retail. These reportable segments are three distinct businesses, each
with a different customer base, management structure, and basis for determining budgets, forecasts, and executive compensation. The
Company reviews its reportable segments on an annual basis, or more frequently if events or circumstances indicate a change in
reportable segments has occurred.
The Company’s Food Distribution segment, consisting of 14 distribution centers as well as facilities to process fresh produce,
proteins, and meal kits, supplies grocery products, including dry groceries, produce, dairy products, meat, delicatessen items, bakery
goods, frozen food, seafood, floral products, general merchandise, beverages, tobacco products, health and beauty care products and
pharmacy primarily to a diverse group of independent and chain retailers, food service distributors and the Company’s corporate
owned retail stores. The Company also offers certain value-added services (e.g., accounting, payroll, marketing, etc.) to its
independent retail customers. These services are not material to the Company’s financial statements. Sales to independent retailers and
inter-segment sales are recorded based upon both a “cost plus” model and a “variable mark-up” model, which vary by commodity and
servicing distribution center. To supply its wholesale customers, the Company operates a fleet of tractors, conventional trailers and
refrigerated trailers and also provides managed freight solutions.
The Military segment contracts with manufacturers and brokers to distribute a wide variety of grocery products, including dry
groceries, beverages, meat, and frozen foods, primarily to U.S. military commissaries and exchanges from its 7 distribution centers,
two of which are shared with the Food Distribution segment. The contracts typically specify the commissaries and exchanges to
supply on behalf of the manufacturer, the manufacturer’s products to be supplied, service and delivery requirements and pricing and
payment terms. The Company is also the DeCA exclusive worldwide supplier of private brand grocery and related products to U.S.
military commissaries. The Company procures the grocery and related products from various manufacturers, and upon receiving
customer orders from DeCA, either delivers the products to the U.S. military commissaries itself or partners with Coastal Pacific Food
Distributors to deliver the products on its behalf.
The Retail segment operated 139 corporate owned retail stores and 29 fuel centers, predominantly in the Midwest region, as of
December 29, 2018. The Company’s retail stores typically offer dry groceries, produce, dairy products, meat, delicatessen items,
bakery goods, frozen food, seafood, floral products, general merchandise, beverages, tobacco products and health and beauty care
products. The Company also offered pharmacy services in 83 of its corporate owned retail stores as of December 29, 2018.
Identifiable assets represent total assets directly associated with the reporting segments. Eliminations in assets identified to segments
include intercompany receivables, payables and investments.
-71-
The following tables set forth information about the Company by reporting segment:
(In thousands)
2018
Food
Distribution
Military
Retail
Total
Net sales to external customers .................................................... $ 3,991,450 $ 2,166,843 $ 1,906,259 $ 8,064,552
842,934
Inter-segment sales .......................................................................
Merger/acquisition and integration...............................................
4,937
Restructuring charges (gains), asset impairment and other
charges ..........................................................................................
Depreciation and amortization......................................................
Operating earnings........................................................................
Capital expenditures .....................................................................
5,291
38,812
16,113
34,694
(801)
11,968
5,647
3,530
33,056
32,073
48,752
33,271
37,546
82,853
70,512
71,495
842,934
3,581
—
1,352
—
4
2017
Net sales to external customers .................................................... $ 3,827,909
885,872
Inter-segment sales .......................................................................
6,244
Merger/acquisition and integration...............................................
—
Goodwill impairment....................................................................
1,317
Restructuring charges and asset impairment ................................
30,255
Depreciation and amortization......................................................
83,115
Operating earnings (loss)..............................................................
25,990
Capital expenditures .....................................................................
2016
Net sales to external customers .................................................... $ 3,281,025
918,095
Inter-segment sales .......................................................................
3,703
Merger/acquisition and integration...............................................
5,068
Restructuring charges (gains) and asset impairment ....................
21,397
Depreciation and amortization......................................................
85,296
Operating earnings........................................................................
19,075
Capital expenditures .....................................................................
$ 2,144,022 $ 1,991,868 $ 7,963,799
885,872
8,101
189,027
39,432
83,240
(106,675)
70,906
—
335
189,027
37,615
41,359
(196,759)
38,434
—
1,522
—
500
11,626
6,969
6,482
$ 2,197,014 $ 2,083,045 $ 7,561,084
918,095
6,959
32,116
77,246
109,184
73,429
—
3,255
27,521
44,365
11,672
47,907
—
1
(473)
11,484
12,216
6,447
(In thousands)
Total Assets
December 29,
December 30,
2018
2017
Food Distribution ............................................................................................................................ $ 1,074,125 $ 1,085,621
Military ...........................................................................................................................................
432,818
533,912
Retail ...............................................................................................................................................
3,446
Discontinued operations ..................................................................................................................
Total .............................................................................................................................................. $ 1,971,912 $ 2,055,797
405,587
489,049
3,151
-72-
Note 18 – Quarterly Financial Information (Unaudited)
Earnings per share amounts for each quarter are required to be computed independently and may not sum to the amount computed for
the total year.
2018
Full Year
52 Weeks
4th Quarter
(12 Weeks)
3rd Quarter
(12 Weeks)
2nd Quarter
(12 Weeks)
1st Quarter
(16 Weeks)
245,390
1,406
1,110,406
4,937
(In thousands, except per share amounts)
Net sales .................................................................... $ 8,064,552 $ 1,896,796 $ 1,886,730 $ 1,895,953 $ 2,385,073
343,214
Gross profit ...............................................................
Merger/acquisition and integration ...........................
2,206
Restructuring charges (gains), asset
impairment and other charges ...................................
Earnings (loss) before income taxes and
discontinued operations ............................................
Earnings (loss) from continuing operations ..............
(Loss) earnings from discontinued operations,
net of taxes ................................................................
Net earnings .............................................................. $
Earnings (loss) from continuing operations
per share:
19
(14,008) $
(80)
17,465 $
(66)
17,772 $
256,142
521
265,660
804
(19,501)
(14,027)
19,919
17,545
23,085
17,838
40,698
33,791
17,195
12,435
(92)
12,343
33,572 $
32,277
37,546
(1,164)
6,202
(219)
232
Basic ....................................................................... $
Diluted....................................................................
0.94 $
0.94
(0.39) $
(0.39)
0.49 $
0.49
0.50 $
0.50
Net earnings (loss) per share:
Basic ....................................................................... $
Diluted....................................................................
Dividends .................................................................. $
0.93 $
0.93
25,923 $
(0.39) $
(0.39)
6,471 $
0.49 $
0.49
0.49 $
0.49
6,469 $
6,457 $
0.34
0.34
0.34
0.34
6,526
2017
Full Year
(52 Weeks)
4th Quarter
(12 Weeks)
3rd Quarter
(12 Weeks)
2nd Quarter
(12 Weeks)
1st Quarter
(16 Weeks)
254,815
1,070
—
1,144,909
8,101
189,027
(In thousands, except per share amounts)
Net sales .................................................................... $ 7,963,799 $ 1,885,500 $ 1,868,398 $ 1,856,199 $ 2,353,702
357,376
Gross profit ...............................................................
4,017
Merger/acquisition and integration ...........................
—
Goodwill impairment ................................................
Restructuring charges (gains) and asset
impairment ................................................................
(Loss) earnings before income taxes and
discontinued operations ............................................
(Loss) earnings from continuing operations .............
Loss from discontinued operations,
net of taxes ................................................................
Net (loss) earnings .................................................... $
(Loss) earnings from continuing
operations per share:
271,026
622
—
261,692
2,392
189,027
(54)
(123,506) $
(228)
(52,845) $
(131,644)
(52,617)
(31)
21,029 $
(199,897)
(123,452)
12,492
34,710
33,327
21,060
22,434
15,065
(40)
15,025
34,607 $
39,432
35,626
2,799
1,021
(103)
(14)
Basic ....................................................................... $
Diluted....................................................................
(1.41) $
(1.41)
0.94 $
0.94
(3.31) $
(3.31)
0.56 $
0.56
Net (loss) earnings per share:
Basic ....................................................................... $
Diluted....................................................................
Dividends .................................................................. $
(1.41) $
(1.41)
24,704 $
0.94 $
0.94
6,055 $
(3.32) $
(3.32)
6,149 $
0.56 $
0.56
6,245 $
0.40
0.40
0.40
0.40
6,255
-73-
Note 19 – Subsequent Events
On December 31, 2018, the Company acquired all of the equity of Martin’s Super Markets (“Martin’s”) for $84.3 million, net of cash
acquired. The purchase price is subject to customary working capital adjustments, as necessary. Founded in 1947 and headquartered in
South Bend, Indiana, Martin’s currently operates 21 stores in Northern Indiana and Southwest Michigan with approximately 3,500
employees. For their fiscal year ended July 29, 2018, Martin’s had more than $450 million in net sales. Martin’s was an independent
retailer and customer of the Company’s Food Distribution segment as of December 29, 2018, and sales from the Food Distribution
segment to Martin’s will be eliminated going forward. The acquisition will expand the footprint of the Company’s Retail segment into
northern Indiana and southwestern Michigan. The acquisition was funded with proceeds from the Company’s Credit Agreement (Note
7).
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
Not applicable.
Item 9A. Controls and Procedures
Disclosure Controls and Procedures
An evaluation of the effectiveness of the design and operation of SpartanNash Company’s disclosure controls and procedures (as
currently defined in Rule 13a-15(e) under the Securities Exchange Act of 1934) was performed as of December 29, 2018 (the
“Evaluation Date”). This evaluation was performed under the supervision and with the participation of SpartanNash Company’s
management, including its Chief Executive Officer (“CEO”), Chief Financial Officer (“CFO”) and Chief Accounting Officer
(“CAO”). As of the Evaluation Date, SpartanNash Company’s management, including the CEO, CFO and CAO, concluded that
SpartanNash’s disclosure controls and procedures were effective as of the Evaluation Date to ensure that material information required
to be disclosed in the reports that the Company files or submits under the Exchange Act is recorded, processed, summarized and
reported within the time periods specified by the Securities and Exchange Commission’s rules and forms. Disclosure controls and
procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in the
reports that the Company files or submits under the Securities Exchange Act of 1934 is accumulated and communicated to
management, including its principal executive and principal financial officers as appropriate to allow for timely decisions regarding
required disclosure.
Management’s Report on Internal Control Over Financial Reporting
The management of SpartanNash Company, including its Chief Executive Officer, Chief Financial Officer and Chief Accounting
Officer, is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rules 13a-
15(f) and 15d-15(f) under the Securities Exchange Act of 1934. SpartanNash Company’s internal controls were designed by, or under
the supervision of, the Chief Executive Officer, Chief Financial Officer and Chief Accounting Officer, and effected by the Company’s
Board of Directors, management and other personnel, to provide reasonable assurance regarding the reliability of its financial
reporting and the preparation and presentation of the consolidated financial statements for external purposes in accordance with
accounting principles generally accepted in the United States and includes those policies and procedures that (1) pertain to the
maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of
SpartanNash Company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting principles, and that receipts and expenditures of SpartanNash Company
are being made only in accordance with authorizations of management and directors of SpartanNash Company; and (3) provide
reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of SpartanNash
Company’s assets that could have a material effect on the financial statements.
Management of SpartanNash Company conducted an evaluation of the effectiveness of its internal controls over financial reporting
based on the framework in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of
the Treadway Commission. This evaluation included review of the documentation of controls, evaluation of the design effectiveness
of controls, testing of the operating effectiveness of controls and a conclusion on this evaluation. Through this evaluation,
management did not identify any material weakness in the Company’s internal control. There are inherent limitations in the
effectiveness of any system of internal control over financial reporting. Based on the evaluation, management has concluded that
SpartanNash Company’s internal control over financial reporting was effective as of December 29, 2018.
The independent registered public accounting firm that audited the consolidated financial statements included in this Form 10-K
Annual Report has issued an attestation report on the effectiveness of the Company’s internal control over financial reporting as of
December 29, 2018 as stated in their report on the following page.
-74-
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of
SpartanNash Company and Subsidiaries
Grand Rapids, Michigan
Opinion on Internal Control over Financial Reporting
We have audited the internal control over financial reporting of SpartanNash Company and subsidiaries (the “Company”) as of
December 29, 2018, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects,
effective internal control over financial reporting as of December 29, 2018, based on criteria established in Internal Control —
Integrated Framework (2013) issued by COSO.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB),
the consolidated financial statements as of and for the year ended December 29, 2018, of the Company and our report dated February
27, 2019, expressed an unqualified opinion on those financial statements.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of
the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control
over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based
on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the
Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange
Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness
exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such
other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our
opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting
principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the
maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in
accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect
on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections
of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in
conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ DELOITTE & TOUCHE LLP
Grand Rapids, Michigan
February 27, 2019
-75-
Changes in Internal Controls Over Financial Reporting
During the last fiscal quarter, there was no change in SpartanNash’s internal control over financial reporting that has materially
affected, or is reasonably likely to materially affect, SpartanNash’s internal control over financial reporting.
-76-
PART III
Item 10. Directors, Executive Officers and Corporate Governance
The information required by this item is here incorporated by reference from the sections titled “The Board of Directors,”
“SpartanNash’s Executive Officers,” “Section 16(a) Beneficial Ownership Reporting Compliance,” “Corporate Governance
Principles,” and “Transactions with Related Persons” in SpartanNash’s definitive proxy statement relating to its annual meeting of
shareholders to be held in 2019.
Item 11. Executive Compensation
The information required by this item is here incorporated by reference from the sections entitled “Executive Compensation,”
“Potential Payments Upon Termination or Change in Control,” “Compensation of Directors,” “Compensation Committee Interlocks
and Insider Participation” and “Compensation Committee Report” in SpartanNash’s definitive proxy statement relating to its annual
meeting of shareholders to be held in 2019.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information required by this item is here incorporated by reference from the section titled “Ownership of SpartanNash Stock” in
SpartanNash’s definitive proxy statement relating to its annual meeting of shareholders to be held in 2019.
The following table provides information about SpartanNash’s equity compensation plans regarding the number of securities to be
issued under these plans, the weighted-average exercise prices of options outstanding under these plans and the number of securities
available for future issuance as of the end of fiscal 2018.
EQUITY COMPENSATION PLANS
Number of securities to
be issued upon exercise
of outstanding options,
warrants and rights
(1)
Weighted-average exercise
price of outstanding options,
warrants and rights
(2)
Number of securities
remaining
available for future issuance
under equity compensation
plans (excluding securities
reflected in column (1)
(3)
13,052
—
13,052
13.87
Not applicable
13.87
1,475,633
—
1,475,633
Plan Category
Equity compensation Plans approved
by security holders (a) ...............................
Equity compensation plans not
approved by security holders .....................
Total ........................................................
(a) Consists of the Stock Incentive Plan of 2015. The numbers of shares reflected in column (3) in the table above with respect to the
Stock Incentive Plan of 2015 represent shares that may be issued other than upon the exercise of an option, warrant or right. The
plan contains customary anti-dilution provisions that are applicable in the event of a stock split or certain other changes in
SpartanNash’s capitalization.
Item 13. Certain Relationships and Related Transactions, and Director Independence
The information required by this item is here incorporated by reference from the section titled “Transactions with Related Persons”
and the table captioned “Board of Directors Committee Membership” in SpartanNash’s definitive proxy statement relating to its
annual meeting of shareholders to be held in 2019.
Item 14. Principal Accountant Fees and Services
The information required by this item is here incorporated by reference from the section titled “Independent Auditors” in
SpartanNash’s definitive proxy statement relating to its annual meeting of shareholders to be held in 2019.
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PART IV
Item 15. Exhibits and Financial Statement Schedules
(a)
The following documents are filed as part of this Report:
1.
Financial Statements.
A. In Item 8.
Reports of Independent Registered Public Accounting Firm of Deloitte & Touche LLP dated February 27, 2019
Consolidated Balance Sheets at December 29, 2018 and December 30, 2017
Consolidated Statements of Operations for the years ended December 29, 2018, December 30, 2017 and December
31, 2016
Consolidated Statements of Comprehensive (Loss) Income for the years ended December 29, 2018, December 30,
2017 and December 31, 2016
Consolidated Statements of Shareholders’ Equity for the years ended December 29, 2018, December 30, 2017 and
December 31, 2016
Consolidated Statements of Cash Flows for the years ended December 29, 2018, December 30, 2017 and December
31, 2016
Notes to Consolidated Financial Statements
2.
Financial Statement Schedules.
Schedules are omitted because the required information is either inapplicable or presented in the consolidated financial
statements or related notes.
3.
Exhibits.
The information required by this Section (a)(3) of Item 15 is set forth on the exhibit index that follows the Signatures page
of this Form 10-K and is incorporated herein by reference.
-78-
Exhibit
Number
2.1
2.2
3.1
3.2
10.1
10.2
10.3
10.4
10.5
10.6*
10.7*
10.8*
10.9*
10.10*
10.11*
10.12*
10.13*
EXHIBIT INDEX
Document
Asset Purchase Agreement dated as of November 3, 2016 by and among SpartanNash Company, Caito Foods Service,
Inc., Blue Ribbon Transport, Inc., and Matthew Caito as Seller’s Representative. Previously filed as an exhibit to the
Company’s Current Report on Form 8-K filed on January 9, 2017. Incorporated herein by reference.
Amendment to Asset Purchase Agreement dated as of January 6, 2017 by and among SpartanNash Company, Caito
Foods Service, Inc., Blue Ribbon Transport, Inc., and Matthew Caito as Seller’s Representative. Previously filed as an
exhibit to the Company’s Current Report on Form 8-K filed on January 9, 2017. Incorporated herein by reference.
Restated Articles of Incorporation of SpartanNash Company, as amended. Previously filed as an exhibit to the
Company’s Quarterly Report on Form 10-Q for the quarter ended July 15, 2017. Incorporated herein by reference.
Bylaws of SpartanNash Company, as amended. Previously filed as an exhibit to the Company’s Annual Report on
Form 10-K for the year ended December 31, 2016. Incorporated herein by reference.
Amended and Restated Loan and Security Agreement, among Spartan Stores, Inc. and certain of its subsidiaries, as
borrowers, and Wells Fargo Capital Finance, LLC, as administrative agent, and certain lenders from time to time party
thereto, dated November 19, 2013. Previously filed as an exhibit to the Company’s Current Report on Form 8-K filed
on November 19, 2013. Incorporated herein by reference.
Amendment No. 1 to Amended and Restated Loan and Security Agreement, dated January 9, 2015, among
SpartanNash Company and certain of its subsidiaries, as borrowers, and Wells Fargo Capital Finance, LLC, as
administrative agent, and certain lenders from time to time party thereto. Previously filed as an exhibit to the
Company's Current Report on Form 8-K filed on January 12, 2015. Incorporated herein by reference.
Amendment No. 2 to Amended and Restated Loan and Security Agreement, dated December 20, 2016, among
SpartanNash Company and certain of its subsidiaries, as borrowers, and Wells Fargo Capital Finance, LLC, as
administrative agent, and certain lenders from time to time party thereto. Previously filed as an exhibit to the
Company's Current Report on Form 8-K filed on December 21, 2016. Incorporated herein by reference.
Amendment No. 3 to Amended and Restated Loan and Security Agreement, dated November 21, 2017, among
SpartanNash Company and certain of its subsidiaries, as borrowers, and Wells Fargo Capital Finance, LLC, as
administrative agent, and certain lenders from time to time party thereto. Previously filed as an exhibit to the
Company's Annual Report on Form 10-K for the year ended December 30, 2017. Incorporated herein by reference.
Amendment No. 4 to Amended and Restated Loan and Security Agreement, dated December 18, 2018, among
SpartanNash Company and certain of its subsidiaries, as borrowers, and Wells Fargo Capital Finance, LLC, as
administrative agent, and certain lenders from time to time party thereto. Previously filed as an exhibit to the
Company's Current Report on Form 8-K filed on December 19, 2018. Incorporated herein by reference.
Amended and Restated SpartanNash Company Executive Cash Incentive Plan of 2015. Previously filed as an exhibit to
the Company’s Current Report on Form 8-K filed on June 3, 2015. Incorporated herein by reference.
Summary of 2018 Long-Term Cash Incentive Award. Previously filed as an exhibit to the Company’s Quarterly Report
on Form 10-Q for the quarter ended April 21, 2018. Incorporated herein by reference.
Summary of 2018 Annual Cash Incentive Award. Previously filed as an exhibit to the Company’s Quarterly Report on
Form 10-Q for the quarter ended April 21, 2018. Incorporated herein by reference.
Summary of 2017 Long-Term Cash Incentive Award. Previously filed as an exhibit to the Company’s Quarterly Report
on Form 10-Q for the quarter ended April 22, 2017. Incorporated herein by reference.
Summary of 2017 Annual Cash Incentive Award. Previously filed as an exhibit to the Company’s Quarterly Report on
Form 10-Q for the quarter ended April 22, 2017. Incorporated herein by reference.
Form of 2016 Long-Term Executive Incentive Plan Award. Previously filed as an exhibit to the Company’s Quarterly
Report on Form 10-Q for the quarter ended April 23, 2016. Incorporated herein by reference.
SpartanNash Company Stock Incentive Plan of 2015. Previously filed as an exhibit to the Company’s Form S-8 filed
on June 4, 2015. Incorporated herein by reference.
SpartanNash Company Supplemental Executive Retirement Plan, as amended. Previously filed as an exhibit to the
Company’s Annual Report on Form 10-K for the year ended March 27, 2010. Incorporated herein by reference.
-79-
Exhibit
Number
10.14*
10.15*
10.16*
10.17*
10.18*
10.19*
10.20*
10.21*
Document
SpartanNash Company Supplemental Executive Savings Plan. Previously filed as an exhibit to the Company’s Form S-
8 Registration Statement filed on December 21, 2001. Incorporated herein by reference.
SpartanNash Company 2001 Stock Bonus Plan. Previously filed as an exhibit to the Company’s Transition Report on
Form 10-K for the year ended December 28, 2013. Incorporated herein by reference.
Form of Restricted Stock Award to Executive Officers. Previously filed as an exhibit to SpartanNash Company’s
Quarterly Report on Form 10-Q for the quarter ending April 21, 2018. Incorporated herein by reference.
Form of Restricted Stock Award to Non-Employee Directors. Previously filed as an exhibit to the Company’s
Quarterly Report on Form 10-Q for the quarter ending April 21, 2018. Incorporated herein by reference.
Form of Executive Employment Agreement between SpartanNash Company and certain executive officers, as
amended. Previously filed as an exhibit to the Company’s Annual Report on Form 10-K for the year ended December
30, 2017. Incorporated herein by reference.
Form of Executive Employment Agreement between SpartanNash Company and certain executive officers. Previously
filed as an exhibit to the Company’s Annual Report on Form 10-K for the year ended December 30, 2017. Incorporated
herein by reference.
Form of Executive Severance Agreement between SpartanNash Company and certain executive officers, as amended.
Previously filed as an exhibit to the Company’s Annual Report on Form 10-K for the year ended December 30, 2017.
Incorporated herein by reference.
Form of Executive Severance Agreement between SpartanNash Company and certain executive officers. Previously
filed as an exhibit to the Company’s Annual Report on Form 10-K for the year ended December 30, 2017. Incorporated
herein by reference.
10.22*
Form of Indemnification Agreement. Previously filed as an exhibit to the Company’s Annual Report on Form 10-K for
the year ended January 2, 2016. Incorporated herein by reference.
21
23
24
31.1
31.2
31.3
32.1
Subsidiaries of SpartanNash Company.
Consent of Independent Registered Public Accounting Firm.
Powers of Attorney.
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Certification of Chief Accounting Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Certification pursuant to 18 U.S.C. § 1350. This exhibit is furnished, not filed, in accordance with SEC Release
Number 33-8212.
101.INS
XBRL Instance Document
101.SCH
XBRL Taxonomy Extension Schema Document
101.CAL
XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF
XBRL Taxonomy Extension Definition Linkbase Document
101.LAB
XBRL Taxonomy Extension Label Linkbase Document
101.PRE
*
These documents are management contracts or compensation plans or arrangements required to be filed as exhibits to this Form
10-K.
-80-
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, SpartanNash Company (the Registrant)
has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
SPARTANNASH COMPANY
(Registrant)
Date: February 27, 2019
By /s/ David M. Staples
David M. Staples
Chief Executive Officer
(Principal Executive Officer)
-81-
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of
SpartanNash Company and in the capacities and on the dates indicated.
February 27, 2019
February 27, 2019
February 27, 2019
February 27, 2019
February 27, 2019
February 27, 2019
February 27, 2019
February 27, 2019
February 27, 2019
February 27, 2019
By *
M. Shân Atkins
Director
By *
Dennis Eidson
Chairman and Director
By *
Dr. Frank M. Gambino
Director
By *
Douglas A. Hacker
Director
By *
Yvonne R. Jackson
Director
By *
Matthew Mannelly
Director
By *
Elizabeth A. Nickels
Director
By *
Hawthorne Proctor
Director
By /s/ David M. Staples
David M. Staples
Chief Executive Officer and Director
(Principal Executive Officer)
By *
William R. Voss
Director
February 27, 2019
By /s/ Mark E. Shamber
Mark E. Shamber
Executive Vice President and Chief Financial Officer
(Principal Financial Officer)
February 27, 2019
By /s/ Tammy R. Hurley
Tammy R. Hurley
Vice President, Finance and Chief Accounting Officer
(Principal Accounting Officer)
February 27, 2019
*By /s/ David M. Staples
David M. Staples
Attorney-in-Fact
-82-
Exhibit 31.1
I, David M. Staples, certify that:
1. I have reviewed this Annual Report on Form 10-K of SpartanNash Company;
CERTIFICATION
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with
respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all
material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in
this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in
Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed
under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made
known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based
on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the
registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected,
or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant’s auditors and the audit committee of registrant’s Board of Directors (or persons performing the
equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial
information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant’s internal control over financial reporting.
Date: February 27, 2019
/s/ David M. Staples
David M. Staples
President and Chief Executive Officer
(Principal Executive Officer)
Exhibit 31.2
I, Mark E. Shamber, certify that:
1. I have reviewed this Annual Report on Form 10-K of SpartanNash Company;
CERTIFICATION
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with
respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all
material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in
this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in
Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed
under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made
known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based
on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the
registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected,
or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant’s auditors and the audit committee of registrant’s Board of Directors (or persons performing the
equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial
information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant’s internal control over financial reporting.
Date: February 27, 2019
/s/ Mark E. Shamber
Mark E. Shamber
Executive Vice President and Chief Financial Officer
(Principal Financial Officer)
Exhibit 31.3
I, Tammy R. Hurley, certify that:
1. I have reviewed this Annual Report on Form 10-K of SpartanNash Company;
CERTIFICATION
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with
respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all
material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in
this report;
4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in
Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed
under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made
known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based
on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the
registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected,
or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant’s auditors and the audit committee of registrant’s Board of Directors (or persons performing the
equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial
information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant’s internal control over financial reporting.
Date: February 27, 2019
/s/ Tammy R. Hurley
Tammy R. Hurley
Vice President, Finance and Chief Accounting Officer
(Principal Accounting Officer)
CERTIFICATION
Exhibit 32.1
Pursuant to 18 U.S.C. § 1350, each of the undersigned hereby certifies in his capacity as an officer of SpartanNash Company
(the “Company”) that the Annual Report of the Company on Form 10-K for the accounting period ended December 29, 2018 fully
complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in
such report fairly presents, in all material respects, the financial condition of the Company at the end of such period and the results of
operations of the Company for such period.
This Certificate is given pursuant to 18 U.S.C. § 1350 and for no other purpose.
Dated: February 27, 2019
Dated: February 27, 2019
Dated: February 27, 2019
/s/ David M. Staples
David M. Staples
President and Chief Executive Officer
(Principal Executive Officer)
/s/ Mark E. Shamber
Mark E. Shamber
Executive Vice President and Chief Financial Officer
(Principal Financial Officer)
/s/ Tammy R. Hurley
Tammy R. Hurley
Vice President, Finance and Chief Accounting Officer
(Principal Accounting Officer)
A signed original of this written statement has been provided to SpartanNash Company and will be retained by SpartanNash Company
and furnished to the Securities and Exchange Commission or its staff upon request.
2018 SpartanNash Annual Report
Corporate Leadership
David M. Staples*
President and Chief Executive Officer
Board of Directors
Dennis Eidson
Chairman
Arif Dar*
Senior Vice President, Information Technology and Chief Information Officer
M. Shân Atkins1, 2
Independent Business Executive, former partner Bain & Company
Tammy R. Hurley*
Vice President, Finance and Chief Accounting Officer
Robert Kirch
Executive Vice President and President, Caito Foods, LLC
Kathleen M. Mahoney*
President, MDV, Chief Legal Officer and Corporate Secretary
Larry Pierce*
Executive Vice President, Merchandising and Marketing
Lori Raya*
Executive Vice President and Chief Merchandising and Marketing Officer
Mark Shamber*
Executive Vice President and Chief Financial Officer
Thomas Swanson*
Senior Vice President and General Manager, Corporate Retail
Yvonne Trupiano*
Executive Vice President, Chief Human Resources and
Corporate Affairs and Communications Officer
Pat Weslow*
Senior Vice President and General Manager, Distribution
* Executive Officer
Corporate Information
Transfer Agent
Computershare
P.O. Box 43078
Providence, Rhode Island 02940
800.622.6757 (US, Canada & Puerto Rico)
781.575.4735 (non-US)
Independent Registered Public Accounting Firm
Deloitte & Touche LLP
Suite 600
38 Commerce Avenue SW
Grand Rapids, Michigan 49503
616.336.7900
Investor Information
On February 26, 2019 there were approximately 1,300 shareholders of
record of SpartanNash common stock.
SpartanNash common stock is listed on NASDAQ under the trading
symbol “SPTN.”
A copy of SpartanNash’s Annual Report to the Securities and Exchange
Commission on Form 10-K for the year ended December 29, 2018, may
be obtained by any shareholder without charge by writing to:
SpartanNash Company
c/o Investor Relations
850 76th Street SW
Mailcode: GR761214
P.O. Box 8700
Grand Rapids, Michigan 49518-8700
616.878.8793
spartannash.com
Dr. Frank M. Gambino2
Professor of Marketing and Director of Food & Consumer Packaged
Goods Marketing Program in the Haworth College of Business at
Western Michigan University
Douglas A. Hacker1, 3
Independent Business Executive, former Executive Vice President,
Strategy for UAL Corporation
Yvonne R. Jackson1, 3
President, Principal and Co-Founder of Beecher Jackson, former
Senior Vice President, Corporate Human Resources of Pfizer, Inc.
Matthew Mannelly2
Retired President and Chief Executive Officer of Prestige Brands
Elizabeth A. Nickels1, 2
Independent Business Executive, former Chief Financial Officer of
Herman Miller and President of Herman Miller Healthcare
Major General (Ret.) Hawthorne L. Proctor2
Managing Partner of Proctor & Boone Consulting LLC;
Senior Logistics Consultant of Intelligent Decisions, Inc.
David M. Staples
President and Chief Executive Officer of SpartanNash
William R. Voss1, 3
Managing Director of Lake Pacific Partners, LLC
1 Nominating and Corporate Governance Committee
2 Audit Committee
3 Compensation Committee
SpartanNash received the following
honors and awards in 2018:
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
Winning Company – 2020 Women on Boards
Top 3PL & Cold Storage Provider – Food Logistics
Top Green Provider – Food Logistics
Retail Patriot Award – Frozen & Refrigerated Buyer
Best and Brightest Companies to Work For Top 101 in the Nation®
– The National Association for Business Resources
Golden Penguin Award, Silver winner – National Frozen and
Refrigerated Foods Association
Corporate Social Responsibility Awards, Winner, Fundraising and
Philanthropic Initiative – PR Daily
Corporate Social Responsibility Awards, Honorable mention,
Green and Environmental Stewardship – PR Daily
Corporate Social Responsibility Awards, Honorable mention,
Employee Volunteer Program – PR Daily
Retail Role Model – Produce for Better Health Foundation
Top Women in Grocery (15 honorees) – Progressive Grocer
SmartWay partner – U.S. Environmental Protection Agency
Most Influential Corporate Board Directors – WomenInc.
Corporate Sponsor of the Year – Habitat for Humanity of Michigan
Veteran-Friendly Employer, Silver level – Michigan Veterans
Affairs Agency
Michigan’s Best and Brightest in Wellness® – The National
Association for Business Resources
West Michigan’s 101 Best and Brightest Companies to Work For®
– The National Association for Business Resources
Outstanding State Organization Award – Special Olympics
North Dakota
At SpartanNash, we understand that our business decisions, products and
services and our operations have a direct impact on the environment and
our communities, customers and associates. Our social responsibility and
environmental sustainability programs together make up our broader
SpartanNash Corporate Responsibility commitment.
Learn more at spartannash.com/corp-responsibility.
850 76th Street SW | PO Box 8700 | Grand Rapids, MI 49518-8700 | spartannash.com