ITEM 1. Financial Statements
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1 – Summary of Significant Accounting Policies and Basis of Presentation
The accompanying unaudited condensed consolidated financial statements (the “financial statements”) 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”). All significant intercompany accounts and transactions have been eliminated. For further information, refer to the consolidated financial statements and footnotes included in the Company’s Annual Report on Form 10-K for the year ended January 2, 2016.
In the opinion of management, the accompanying consolidated financial statements, taken as a whole, contain all adjustments, including normal recurring items, necessary to present fairly the financial position of SpartanNash as of October 8, 2016, and the results of its operations and cash flows for the interim periods presented. Interim results are not necessarily indicative of results for a full year.
Note 2 – Recently Issued Accounting Standards
In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-13, “Financial Instruments – Credit Losses: Measurement of Credit Losses on Financial Instruments.” ASU 2016-13 changes the impairment model for most financial assets and certain other instruments. For trade and other receivables, loans, net investments in leases, and off-balance-sheet credit exposures (e.g., loan commitments, standby letters of credit),
entities will be required to use a new forward-looking “expected loss” model that will replace today’s “incurred loss” model, generally resulting in earlier recognition of allowances for credit losses. The new guidance is effective for the Company in the first quarter of its fiscal year ending January 2, 2021. The Company is currently in the process of evaluating the impact of adoption of this standard on its consolidated financial statements.
In March 2016, the FASB issued ASU 2016-09, “Compensation – Stock Compensation Improvements to Employee Share-Based Payment Accounting.” ASU 2016-09 provides for simplification of several aspects of the accounting for share-based payment transactions, including income tax consequences, classification of awards as either equity or liabilities and classification on the statement of cash flows. The new guidance is effective for the Company in the first quarter of its fiscal year ending December 30, 2017. Early adoption is permitted for any entity in any interim or annual period. The Company does not expect the adoption of this standard to have a material impact on its consolidated financial statements.
In March 2016, the FASB issued ASU 2016-04, “Liabilities – Extinguishment of Liabilities: Recognition of Breakage for Certain Prepaid Stored-Value Products.” ASU 2016-04 amends the guidance on extinguishing financial liabilities for certain prepaid stored-value products. The new guidance requires entities that sell prepaid stored-value products redeemable for goods, services or cash at third-party merchants to recognize breakage for those liabilities consistent with the breakage guidance outlined in ASU 2014-09, “Revenue from Contracts with Customers.” The new guidance is effective for the Company in the first quarter of its fiscal year ending December 29, 2018. The Company is currently in the process of evaluating the impact of adoption of this standard on its consolidated financial statements.
In February 2016, the FASB issued ASU 2016-02, “Leases.” 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 payments. Treatment in the consolidated statements of earnings will be similar to the current treatment of operating and capital leases. The new guidance is effective on a modified retrospective basis for the Company in the first quarter of its fiscal year ending December 28, 2019. The Company is currently in the process of evaluating the impact of adoption of this standard on its consolidated financial statements.
In April 2015, the FASB issued ASU 2015-03,
“
Interest – Imputation of Interest: Simplifying the Presentation of Debt Issuance Costs
.
” In August 2015, the FASB issued ASU 2015-15, “Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements.” The standards require that debt issuance costs related to a recognized debt liability, including a line of credit, be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts, and amortized ratably over the term of the debt liability. The Company adopted the new standards in the first quarter of fiscal 2016 on a retrospective basis for all periods presented. Adoption of the standards resulted in an $8.2 million reduction of Other assets and Long-term debt related to unamortized debt issuance costs on the consolidated balance sheet as of January 2, 2016.
8
In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers.” ASU 2014-09 provides guidance for revenue recognition. 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. In August 2015, the FASB issued ASU 2015-14, “Deferral of the Effective Date,” which results in the guidance being effective for the Company in the first quarter of its fiscal year ending December 29, 2018. The adoption will include updates as provided under ASU 2016-08, “Principal versus Agent Considerations (Reporting Revenue Gross versus Net);” ASU 2016-10, “Identifying Performance Obligations and Licensing;” and ASU 2016-12, “Narrow-Scope Improvements and Practical Expedients.” Adoption is allowed by either the full retrospective or modified retrospective approach. The Company is currently in the process of evaluating the impact of adoption of this standard on its consolidated financial statements.
Note 3
–
Acquisitions
On June 16, 2015, SpartanNash acquired certain assets and assumed certain liabilities of Dan’s Super Market, Inc. (“Dan’s”) for a total purchase price of $32.6 million. Dan’s was a six-store chain serving Bismarck and Mandan, North Dakota, and was not a customer of the SpartanNash Food Distribution segment prior to the acquisition. SpartanNash acquired the Dan’s stores to strengthen its offering in this region from both a retail and distribution perspective. During the measurement period, which ended June 15, 2016, there were no material adjustments made to the initial fair values of the assets acquired and liabilities assumed as part of the Dan’s acquisition.
Note 4 – Goodwill
Changes in the carrying amount of goodwill were as follows:
(In thousands)
|
Retail
|
|
|
Food Distribution
|
|
|
Total
|
|
Balance at January 2, 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
$
|
|
277,135
|
|
|
$
|
|
132,367
|
|
|
$
|
|
409,502
|
|
Accumulated impairment charges
|
|
|
(86,600
|
)
|
|
|
|
—
|
|
|
|
|
(86,600
|
)
|
Goodwill, net
|
|
|
190,535
|
|
|
|
|
132,367
|
|
|
|
|
322,902
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other (Note 5)
|
|
|
(216
|
)
|
|
|
|
—
|
|
|
|
|
(216
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at October 8, 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
276,919
|
|
|
|
|
132,367
|
|
|
|
|
409,286
|
|
Accumulated impairment charges
|
|
|
(86,600
|
)
|
|
|
|
—
|
|
|
|
|
(86,600
|
)
|
Goodwill, net
|
$
|
|
190,319
|
|
|
$
|
|
132,367
|
|
|
$
|
|
322,686
|
|
9
The Company reviews goodwill and other intangible assets for impairment annually, during the fourth quarter of each fiscal year, and more frequently if circumstances indicate the possibility of impairment. Subsequent to the third quarter and consistent with previous years, the Company has begun its annual goodwill impairment test to determine whether the carrying value of goodwill exceeds its estimated fair value. As of the date of the most recently completed goodwill impairment test, which utilized data and assumptions as of October 10, 2015, the Food Distribution reporting unit had a fair value that was substantially in excess of its carrying value, and the fair value of the Retail reporting unit, which had $190.5 million of recorded goodwill as of the assessment date, exceeded its carrying value by 6.8%. The fair value calculations contain significant judgments and estimates related to the Retail reporting unit’s projected weighted average cost of capital, future revenues and cash flows, and overall profitability. These judgments and estimates are impacted by a number of different factors, both internal and external, that could result in changes in the estimates and their related outcomes. Specifically, certain changes in economic, industry or market conditions, business operations, competition, or the Company’s performance could affect the estimates used in the fair value calculations.
The Company continues to assess whether indicators are present or if there are changes in circumstances that would suggest impairment may exist, including an evaluation of the significant judgments and estimates related to the Retail reporting unit’s projected weighted average cost of capital, future revenues and cash flows, and overall profitability. Since the most recent goodwill impairment test, the Company has continued to monitor the trends of the Retail reporting unit’s performance and has since performed a detailed internal analysis to assess the impact of those trends on the reporting unit’s estimated fair value. Based on recent performance, the Company is not aware of any events or significant changes in its estimates that would indicate that impairment exists, and the Company has sufficient available information, both current and historical, to support its assumptions, judgments and estimates. From a sensitivity perspective, no goodwill impairment charge would be required for the Retail reporting unit if the estimate of future discounted cash flow was 5% lower or if the discount rate increased by 30 basis points. However, if the Company’s stock price experiences a significant and sustained decline or other events or changes in circumstances occur, such as interest rate increases, changes in macroeconomic conditions, or operating results of the Retail reporting unit not meeting the Company’s estimates, it could result in the Company recording a significant non-cash impairment charge.
Note 5 – Restructuring Charges and Asset Impairment
The following table provides the activity of reserves for closed properties for the 40 weeks ended October 8, 2016. Reserves for closed properties recorded in the condensed consolidated balance sheets are included in “Other accrued expenses” in Current liabilities and “Other long-term liabilities” in Long-term liabilities based on when the obligations are expected to be paid.
|
Lease and
|
|
|
|
|
|
|
|
(In thousands)
|
Ancillary Costs
|
|
|
Severance
|
|
|
Total
|
|
Balance at January 2, 2016
|
$
|
|
14,448
|
|
|
$
|
|
—
|
|
|
$
|
|
14,448
|
|
Provision for closing charges (a)
|
|
|
13,546
|
|
|
|
|
—
|
|
|
|
|
13,546
|
|
Provision for severance (b)
|
|
|
—
|
|
|
|
|
895
|
|
|
|
|
895
|
|
Changes in estimates (c)
|
|
|
218
|
|
|
|
|
(40
|
)
|
|
|
|
178
|
|
Accretion expense
|
|
|
525
|
|
|
|
|
—
|
|
|
|
|
525
|
|
Payments
|
|
|
(3,535
|
)
|
|
|
|
(855
|
)
|
|
|
|
(4,390
|
)
|
Balance at October 8, 2016
|
$
|
|
25,202
|
|
|
$
|
|
—
|
|
|
$
|
|
25,202
|
|
(a)
|
The provision for closing charges represents initial costs estimated to be incurred for lease and related ancillary costs, net of sublease income, related to store closings in the Retail segment and a distribution center closing in the Food Distribution segment.
|
(b)
|
The provision for severance relates to distribution center closings in the Food Distribution segment.
|
(c)
|
As a result of changes in estimates, goodwill was reduced by $0.2 million as the initial charges for certain stores related to previous acquisitions were adjusted. The remaining change in estimates relates to revised estimates of lease costs, sublease income, and severance associated with previously closed properties.
|
Included in the liability are lease obligations recorded at the present value of future minimum lease payments, calculated using a risk-free interest rate, and related ancillary costs from the date of closure to the end of the remaining lease term, net of estimated sublease income.
10
Restructuring and asset impairment charges included in the condensed consolidated statements of earnings consisted of the following:
|
12 Weeks Ended
|
|
|
40 Weeks Ended
|
|
|
October 8,
|
|
|
October 10,
|
|
|
October 8,
|
|
|
October 10,
|
|
(In thousands)
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
Asset impairment charges (a)
|
$
|
|
2,059
|
|
|
$
|
|
1,867
|
|
|
$
|
|
5,542
|
|
|
$
|
|
4,220
|
|
Provision for closing charges (b)
|
|
|
375
|
|
|
|
|
—
|
|
|
|
|
13,546
|
|
|
|
|
6,760
|
|
(Gain) loss on sales of assets related to closed facilities (c)
|
|
|
—
|
|
|
|
|
(1,150
|
)
|
|
|
|
266
|
|
|
|
|
(3,026
|
)
|
Provision for severance (d)
|
|
|
—
|
|
|
|
|
40
|
|
|
|
|
895
|
|
|
|
|
344
|
|
Other costs associated with distribution center and store closings (e)
|
|
|
268
|
|
|
|
|
83
|
|
|
|
|
3,371
|
|
|
|
|
1,576
|
|
Changes in estimates (f)
|
|
|
(40
|
)
|
|
|
|
(80
|
)
|
|
|
|
394
|
|
|
|
|
(367
|
)
|
Lease termination adjustment (g)
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
(300
|
)
|
|
|
|
(1,745
|
)
|
|
$
|
|
2,662
|
|
|
$
|
|
760
|
|
|
$
|
|
23,714
|
|
|
$
|
|
7,762
|
|
(a)
|
Asset impairment charges were incurred in the Retail segment in conjunction with the Company’s retail store rationalization plan and due to the economic and competitive environment of certain stores. An asset impairment charge of $0.9 million was recorded in the 12 weeks ended October 10, 2015 related to a closed distribution center in the Military segment.
|
(b)
|
The provision for closing charges represents initial costs estimated to be incurred for lease and related ancillary costs, net of sublease income, related to store closings in the Retail segment in the current and prior year periods and a distribution center closing in the Food Distribution segment in the current year-to-date period.
|
(c)
|
The net (gain) loss on sales of assets resulted from the sales of previously closed retail stores, a food distribution center and vacant parcel of land in the current year-to-date period, and from the sale of a closed food distribution center and sales of closed stores in the prior year.
|
(d)
|
The provision for severance relates to distribution center closings in the Food Distribution segment.
|
(e)
|
Other closing costs associated with distribution center and store closings represent additional costs, predominantly labor and inventory transfer costs, incurred in connection with winding down certain operations in the Food Distribution and Retail segments.
|
(f)
|
The changes in estimates relate to revised estimates of lease, ancillary and severance costs associated with previously closed facilities. The Food Distribution segment realized $0.4 million in the current year. The Retail segment realized $(0.4) million in the prior year.
|
(g)
|
The lease termination adjustments represent the benefits recognized in connection with lease buyouts on previously closed stores.
|
Note 6 – Long-Term Debt
Long-term debt consists of the following:
(In thousands)
|
October 8, 2016
|
|
|
January 2, 2016
|
|
Senior secured revolving credit facility, due January 2020
|
$
|
|
412,587
|
|
|
$
|
|
394,982
|
|
Senior secured term loan, due January 2020
|
|
|
26,972
|
|
|
|
|
34,842
|
|
Capital lease obligations
|
|
|
56,101
|
|
|
|
|
58,599
|
|
Other, 2.61% - 9.25%, due 2018 - 2020
|
|
|
5,314
|
|
|
|
|
6,558
|
|
Total debt - Principal
|
|
|
500,974
|
|
|
|
|
494,981
|
|
Unamortized debt issuance costs
|
|
|
(6,611
|
)
|
|
|
|
(8,185
|
)
|
Total debt
|
|
|
494,363
|
|
|
|
|
486,796
|
|
Less current portion
|
|
|
18,998
|
|
|
|
|
19,003
|
|
Total long-term debt
|
$
|
|
475,365
|
|
|
$
|
|
467,793
|
|
11
Note 7 – Fair Value Measurements
Financial instruments include cash and cash equivalents, accounts and notes receivable, accounts payable and long-term debt. The carrying amounts of cash and cash equivalents, accounts and notes receivable, and accounts payable approximate fair value because of the short-term maturities of these financial instruments. At October 8, 2016 and January 2, 2016, the book value and estimated fair value of the Company’s debt instruments, excluding debt financing costs, were as follows:
(In thousands)
|
October 8, 2016
|
|
|
January 2, 2016
|
|
Book value of debt instruments, excluding debt financing costs:
|
|
|
|
|
|
|
|
|
|
Current maturities of long-term debt and capital lease obligations
|
$
|
|
18,998
|
|
|
$
|
|
19,003
|
|
Long-term debt and capital lease obligations
|
|
|
481,976
|
|
|
|
|
475,978
|
|
Total book value of debt instruments
|
|
|
500,974
|
|
|
|
|
494,981
|
|
Fair value of debt instruments, excluding debt financing costs
|
|
|
503,328
|
|
|
|
|
497,116
|
|
Excess of fair value over book value
|
$
|
|
2,354
|
|
|
$
|
|
2,135
|
|
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).
ASC 820 prioritizes the inputs to valuation techniques used to measure fair value into the following hierarchy:
Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2: Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.
Level 3: Unobservable inputs for the asset or liability, reflecting the reporting entity’s own assumptions about the assumptions that market participants would use in pricing.
Long-lived assets are measured at fair value on a nonrecurring basis using Level 3 inputs as defined in the fair value hierarchy. Assets with a book value of $7.6 million and $11.9 million were measured at a fair value of $2.1 million and $7.7 million, resulting in an impairment charge of $5.5 million and $4.2 million, in the 40-week periods ended October 8, 2016 and October 10, 2015, respectively. The Company’s accounting and finance team management, which report to the Chief Financial Officer (“CFO”), determines the Company’s valuation policies and procedures. The development and determination of the unobservable inputs for Level 3 fair value measurements and fair value calculations are the responsibility of the Company’s accounting and finance team management and are approved by the CFO. 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. See Note 5 for discussion of long-lived asset impairment charges.
Note 8 – Commitments and Contingencies
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.
The Company contributes to the Central States Southeast and Southwest Pension Fund (“Central States Plan” or “the Plan”), a multi-employer pension plan based on obligations arising from its collective bargaining agreements in Bellefontaine, Ohio; Lima, Ohio; and Grand Rapids, Michigan covering its supply chain union associates at those locations. This plan provides retirement benefits to participants based on their service to contributing employers. The benefits are paid from assets held in trust for that purpose. Trustees are appointed by contributing employers and unions; however, SpartanNash is not a trustee. The trustees typically are responsible for determining the level of benefits to be provided to participants, as well as for such matters as the investment of the assets and the administration of the Plan. The Company currently contributes to the Central States Plan under the terms outlined in the “Primary Schedule” of Central States’ Rehabilitation Plan. This schedule requires varying increases in employer contributions over the previous year’s contribution. Increases are set within the collective bargaining agreement and vary by location.
On December 13, 2014, Congress passed the Multi-employer Pension Reform Act of 2014 (“MPRA”). The MPRA is intended to address funding shortfalls in both multi-employer pension plans and the Pension Benefit Guaranty Corporation. As the Plan’s application to suspend payment of pension benefits under the provisions of the MPRA was denied, the MPRA is unlikely to significantly impact the Plan.
12
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, although management anticipates that the Company’s contributions to this plan will increase each year. Management is not aware of any significant change in funding levels as of October 8, 2016. 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.
The Company and the unions representing Company drivers at the Norfolk, Virginia and Columbus, Georgia distribution centers have successfully negotiated new three year labor agreements covering the associates at these facilities. The labor agreement covering associates at the Westville, Indiana distribution center was terminated in April 2016 in connection with the closing of operations at that facility.
Note 9 – Associate Retirement Plans
The following table provides the components of net periodic pension and postretirement benefit costs for the Company’s significant pension and postretirement benefit plans:
|
SpartanNash Company Pension Plan
|
|
|
SpartanNash Medical Plan
|
|
|
October 8,
|
|
|
October 10,
|
|
|
October 8,
|
|
|
October 10,
|
|
(In thousands)
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
12 Weeks Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost
|
$
|
|
—
|
|
|
$
|
|
—
|
|
|
$
|
|
43
|
|
|
$
|
|
54
|
|
Interest cost
|
|
|
565
|
|
|
|
|
767
|
|
|
|
|
80
|
|
|
|
|
93
|
|
Amortization of prior service cost
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
(36
|
)
|
|
|
|
(36
|
)
|
Expected return on plan assets
|
|
|
(993
|
)
|
|
|
|
(1,136
|
)
|
|
|
|
—
|
|
|
|
|
—
|
|
Recognized actuarial net loss
|
|
|
26
|
|
|
|
|
191
|
|
|
|
|
9
|
|
|
|
|
40
|
|
Net periodic benefit (income) expense
|
|
|
(402
|
)
|
|
|
|
(178
|
)
|
|
|
|
96
|
|
|
|
|
151
|
|
Settlement expense
|
|
|
160
|
|
|
|
|
131
|
|
|
|
|
—
|
|
|
|
|
—
|
|
Total (income) expense
|
$
|
|
(242
|
)
|
|
$
|
|
(47
|
)
|
|
$
|
|
96
|
|
|
$
|
|
151
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SpartanNash Company Pension Plan
|
|
|
SpartanNash Medical Plan
|
|
|
October 8,
|
|
|
October 10,
|
|
|
October 8,
|
|
|
October 10,
|
|
(In thousands)
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
40 Weeks Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost
|
$
|
|
—
|
|
|
$
|
|
—
|
|
|
$
|
|
144
|
|
|
$
|
|
178
|
|
Interest cost
|
|
|
1,883
|
|
|
|
|
2,558
|
|
|
|
|
266
|
|
|
|
|
311
|
|
Amortization of prior service cost
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
(122
|
)
|
|
|
|
(121
|
)
|
Expected return on plan assets
|
|
|
(3,310
|
)
|
|
|
|
(3,787
|
)
|
|
|
|
—
|
|
|
|
|
—
|
|
Recognized actuarial net loss
|
|
|
85
|
|
|
|
|
636
|
|
|
|
|
32
|
|
|
|
|
133
|
|
Net periodic benefit (income) expense
|
|
|
(1,342
|
)
|
|
|
|
(593
|
)
|
|
|
|
320
|
|
|
|
|
501
|
|
Settlement expense
|
|
|
532
|
|
|
|
|
437
|
|
|
|
|
—
|
|
|
|
|
—
|
|
Total (income) expense
|
$
|
|
(810
|
)
|
|
$
|
|
(156
|
)
|
|
$
|
|
320
|
|
|
$
|
|
501
|
|
The Company did not make any contributions to the SpartanNash Company Pension Plan during the 40 weeks ended October 8, 2016, and because there are no required payments, the Company does not expect to make any contributions for the remainder of the fiscal year ending December 31, 2016.
The Company’s retirement programs also include defined contribution plans providing contributory benefits, as well as executive compensation plans for a select group of management personnel or highly compensated associates.
Multi-Employer Plans
In addition to the plans listed above, the Company participates in the Central States Southeast and Southwest Pension Fund (EIN 7456500), the Michigan Conference of Teamsters and Ohio Conference of Teamsters Health and Welfare plans (collectively referred to as “multi-employer plans”), and other company-sponsored defined contribution plans for most associates covered by collective bargaining agreements.
13
With respect to the Company’s participation in the Central States Plan, expense is recognized as contributions are funded. The Company’s contributions for the 40 weeks ended October 8, 2016 and October 10, 2015 were $10.1 million and $9.9 million, respectively. See Note 8 for further information regarding the Company’s participation in the Central States Plan.
Note 10 – Accumulated Other Comprehensive Income or Loss
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 benefits obligation adjustments.
Changes in AOCI are as follows:
|
12 Weeks Ended
|
|
|
40 Weeks Ended
|
|
|
October 8,
|
|
|
October 10,
|
|
|
October 8,
|
|
|
October 10,
|
|
(In thousands)
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
Balance at beginning of the period, net of tax
|
$
|
|
(11,445
|
)
|
|
$
|
|
(11,359
|
)
|
|
$
|
|
(11,447
|
)
|
|
$
|
|
(11,655
|
)
|
Amortization of amounts included in net periodic benefit cost (a)
|
|
|
1
|
|
|
|
|
204
|
|
|
|
|
4
|
|
|
|
|
681
|
|
Income tax expense (b)
|
|
|
—
|
|
|
|
|
(78
|
)
|
|
|
|
(1
|
)
|
|
|
|
(259
|
)
|
Amounts reclassified out of AOCI, net of tax
|
|
|
1
|
|
|
|
|
126
|
|
|
|
|
3
|
|
|
|
|
422
|
|
Other comprehensive income, net of tax
|
|
|
1
|
|
|
|
|
126
|
|
|
|
|
3
|
|
|
|
|
422
|
|
Balance at end of the period, net of tax
|
$
|
|
(11,444
|
)
|
|
$
|
|
(11,233
|
)
|
|
$
|
|
(11,444
|
)
|
|
$
|
|
(11,233
|
)
|
(a)
|
Reclassified from AOCI into 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 tax expense.
|
Note 11 – Income Taxes
The effective income tax rate was 34.6% and 37.5% for the 12 weeks ended October 8, 2016 and October 10, 2015, respectively. For the 40 weeks ended October 8, 2016 and October 10, 2015, the effective income tax rate was 36.7% and 37.4%, respectively. The differences from the federal statutory rate are primarily due to state taxes and federal tax credits in the current year periods and state taxes in the prior year periods.
Note 12 – Stock-Based Compensation
The Company has a shareholder-approved stock incentive plan that 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.
Stock-based compensation expense included in the condensed consolidated statements of earnings consisted of the following:
|
12 Weeks Ended
|
|
|
40 Weeks Ended
|
|
|
October 8,
|
|
|
October 10,
|
|
|
October 8,
|
|
|
October 10,
|
|
(In thousands, except per share amounts)
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
Stock-based compensation expense (a)
|
$
|
|
944
|
|
|
$
|
|
808
|
|
|
$
|
|
7,010
|
|
|
$
|
|
6,470
|
|
Income tax benefit
|
|
|
(352
|
)
|
|
|
|
(301
|
)
|
|
|
|
(2,646
|
)
|
|
|
|
(2,477
|
)
|
Stock-based compensation expense, net of tax
|
$
|
|
592
|
|
|
$
|
|
507
|
|
|
$
|
|
4,364
|
|
|
$
|
|
3,993
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation expense (net of tax) per diluted share
|
$
|
|
0.02
|
|
|
$
|
|
0.01
|
|
|
$
|
|
0.12
|
|
|
$
|
|
0.11
|
|
(a)
|
Included in “Selling, general and administrative” expenses.
|
14
The following table summarizes activity in the stock-based compensation plans for the
40 weeks ended October 8, 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Shares
|
|
|
Weighted
|
|
|
Restricted
|
|
|
Average
|
|
|
Under
|
|
|
Average
|
|
|
Stock
|
|
|
Grant-Date
|
|
|
Options
|
|
|
Exercise Price
|
|
|
Awards
|
|
|
Fair Value
|
|
Outstanding at January 2, 2016
|
|
308,793
|
|
|
$
|
|
21.15
|
|
|
|
637,555
|
|
|
$
|
|
24.75
|
|
Granted
|
|
—
|
|
|
|
|
—
|
|
|
|
314,592
|
|
|
|
|
28.33
|
|
Exercised/Vested
|
|
(48,438
|
)
|
|
|
|
21.31
|
|
|
|
(255,156
|
)
|
|
|
|
24.56
|
|
Cancelled/Forfeited
|
|
(938
|
)
|
|
|
|
14.36
|
|
|
|
(28,993
|
)
|
|
|
|
25.74
|
|
Outstanding at October 8, 2016
|
|
259,417
|
|
|
$
|
|
21.15
|
|
|
|
667,998
|
|
|
$
|
|
26.47
|
|
The Company has not issued any stock options since 2009 and all outstanding options are vested and exercisable at October 8, 2016.
As of October 8, 2016, total unrecognized compensation costs related to non-vested stock-based awards granted under the Company’s stock incentive plans were $6.9 million for restricted stock, and are expected to be recognized over a weighted average period of 2.4 years. All compensation costs related to stock options have been recognized.
Note 13 – Earnings Per Share
The following table sets forth the computation of basic and diluted earnings per share from continuing operations:
|
12 Weeks Ended
|
|
|
40 Weeks Ended
|
|
|
October 8,
|
|
|
October 10,
|
|
|
October 8,
|
|
|
October 10,
|
|
(In thousands, except per share amounts)
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings from continuing operations
|
$
|
|
16,730
|
|
|
$
|
|
15,248
|
|
|
$
|
|
44,250
|
|
|
$
|
|
46,002
|
|
Adjustment for earnings attributable to participating securities
|
|
|
(292
|
)
|
|
|
|
(259
|
)
|
|
|
|
(785
|
)
|
|
|
|
(806
|
)
|
Earnings from continuing operations used in calculating earnings per share
|
$
|
|
16,438
|
|
|
$
|
|
14,989
|
|
|
$
|
|
43,465
|
|
|
$
|
|
45,196
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding, including participating securities
|
|
|
37,470
|
|
|
|
|
37,553
|
|
|
|
|
37,479
|
|
|
|
|
37,617
|
|
Adjustment for participating securities
|
|
|
(654
|
)
|
|
|
|
(639
|
)
|
|
|
|
(665
|
)
|
|
|
|
(659
|
)
|
Shares used in calculating basic earnings per share
|
|
|
36,816
|
|
|
|
|
36,914
|
|
|
|
|
36,814
|
|
|
|
|
36,958
|
|
Effect of dilutive stock options
|
|
|
76
|
|
|
|
|
100
|
|
|
|
|
60
|
|
|
|
|
118
|
|
Shares used in calculating diluted earnings per share
|
|
|
36,892
|
|
|
|
|
37,014
|
|
|
|
|
36,874
|
|
|
|
|
37,076
|
|
Basic earnings per share from continuing operations
|
$
|
|
0.45
|
|
|
$
|
|
0.41
|
|
|
$
|
|
1.18
|
|
|
$
|
|
1.22
|
|
Diluted earnings per share from continuing operations
|
$
|
|
0.45
|
|
|
$
|
|
0.40
|
|
|
$
|
|
1.18
|
|
|
$
|
|
1.22
|
|
Note 14 – Supplemental Cash Flow Information
Supplemental cash flow information is as follows:
|
40 Weeks Ended
|
|
|
October 8,
|
|
|
October 10,
|
|
(In thousands)
|
2016
|
|
|
2015
|
|
Non-cash financing activities:
|
|
|
|
|
|
|
|
|
|
Issuance of restricted stock to associates and directors
|
$
|
|
8,913
|
|
|
$
|
|
8,364
|
|
Capital lease obligations
|
|
|
3,490
|
|
|
|
|
1,853
|
|
Non-cash investing activities:
|
|
|
|
|
|
|
|
|
|
Capital expenditures included in accounts payable
|
|
|
1,429
|
|
|
|
|
2,648
|
|
Capital lease asset additions
|
|
|
3,490
|
|
|
|
|
1,853
|
|
Other supplemental cash flow information:
|
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
|
12,830
|
|
|
|
|
14,001
|
|
15
Note 15 – Reporting Segment Information
The following tables set forth information about the Company by reporting segment:
(In thousands)
|
Military
|
|
|
Food Distribution
|
|
|
Retail
|
|
|
Total
|
|
12 Weeks Ended October 8, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales to external customers
|
$
|
|
506,626
|
|
|
$
|
|
804,500
|
|
|
$
|
|
488,959
|
|
|
$
|
|
1,800,085
|
|
Inter-segment sales
|
|
|
—
|
|
|
|
|
219,516
|
|
|
|
|
—
|
|
|
|
|
219,516
|
|
Merger integration and acquisition expenses
|
|
|
—
|
|
|
|
|
639
|
|
|
|
|
1,788
|
|
|
|
|
2,427
|
|
Depreciation and amortization
|
|
|
2,693
|
|
|
|
|
4,842
|
|
|
|
|
10,392
|
|
|
|
|
17,927
|
|
Operating earnings
|
|
|
2,862
|
|
|
|
|
18,957
|
|
|
|
|
8,048
|
|
|
|
|
29,867
|
|
Capital expenditures
|
|
|
1,151
|
|
|
|
|
3,386
|
|
|
|
|
11,342
|
|
|
|
|
15,879
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12 Weeks Ended October 10, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales to external customers
|
$
|
|
505,971
|
|
|
$
|
|
762,250
|
|
|
$
|
|
507,180
|
|
|
$
|
|
1,775,401
|
|
Inter-segment sales
|
|
|
—
|
|
|
|
|
232,169
|
|
|
|
|
—
|
|
|
|
|
232,169
|
|
Merger integration and acquisition expenses
|
|
|
—
|
|
|
|
|
323
|
|
|
|
|
4,094
|
|
|
|
|
4,417
|
|
Depreciation and amortization
|
|
|
2,838
|
|
|
|
|
6,131
|
|
|
|
|
10,753
|
|
|
|
|
19,722
|
|
Operating earnings
|
|
|
3,438
|
|
|
|
|
16,540
|
|
|
|
|
9,246
|
|
|
|
|
29,224
|
|
Capital expenditures
|
|
|
359
|
|
|
|
|
4,690
|
|
|
|
|
14,627
|
|
|
|
|
19,676
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
40 Weeks Ended October 8, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales to external customers
|
$
|
|
1,686,567
|
|
|
$
|
|
2,615,964
|
|
|
$
|
|
1,603,885
|
|
|
$
|
|
5,906,416
|
|
Inter-segment sales
|
|
|
—
|
|
|
|
|
716,665
|
|
|
|
|
—
|
|
|
|
|
716,665
|
|
Merger integration and acquisition expenses
|
|
|
1
|
|
|
|
|
1,201
|
|
|
|
|
3,035
|
|
|
|
|
4,237
|
|
Depreciation and amortization
|
|
|
8,850
|
|
|
|
|
16,139
|
|
|
|
|
33,942
|
|
|
|
|
58,931
|
|
Operating earnings
|
|
|
8,792
|
|
|
|
|
64,040
|
|
|
|
|
11,315
|
|
|
|
|
84,147
|
|
Capital expenditures
|
|
|
4,198
|
|
|
|
|
13,581
|
|
|
|
|
39,436
|
|
|
|
|
57,215
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
40 Weeks Ended October 10, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales to external customers
|
$
|
|
1,702,412
|
|
|
$
|
|
2,531,428
|
|
|
$
|
|
1,650,108
|
|
|
$
|
|
5,883,948
|
|
Inter-segment sales
|
|
|
—
|
|
|
|
|
742,531
|
|
|
|
|
—
|
|
|
|
|
742,531
|
|
Merger integration and acquisition expenses
|
|
|
—
|
|
|
|
|
1,359
|
|
|
|
|
5,893
|
|
|
|
|
7,252
|
|
Depreciation and amortization
|
|
|
9,381
|
|
|
|
|
20,836
|
|
|
|
|
34,743
|
|
|
|
|
64,960
|
|
Operating earnings
|
|
|
13,491
|
|
|
|
|
56,195
|
|
|
|
|
20,185
|
|
|
|
|
89,871
|
|
Capital expenditures
|
|
|
2,738
|
|
|
|
|
13,785
|
|
|
|
|
40,339
|
|
|
|
|
56,862
|
|
(In thousands)
|
October 8, 2016
|
|
|
January 2, 2016
|
|
Total Assets
|
|
|
|
|
|
|
|
|
|
Military
|
$
|
|
430,365
|
|
|
$
|
|
415,140
|
|
Food Distribution
|
|
|
797,161
|
|
|
|
|
750,277
|
|
Retail
|
|
|
763,151
|
|
|
|
|
747,359
|
|
Discontinued operations
|
|
|
3,202
|
|
|
|
|
4,487
|
|
Total
|
$
|
|
1,993,879
|
|
|
$
|
|
1,917,263
|
|
16
The Company
offers a wide variety of grocery products, general merchandise and health and beauty care, pharmacy, fuel, and other items and services. The following table presents sales by type of similar product
s
and services:
|
12 Weeks Ended
|
|
40 Weeks Ended
|
|
October 8,
|
|
October 10,
|
|
October 8,
|
|
October 10,
|
(In thousands, except percentages)
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Non-perishables (a)
|
$
|
|
1,143,964
|
|
|
|
63.6
|
|
%
|
|
$
|
|
1,123,748
|
|
|
|
63.3
|
|
%
|
|
$
|
|
3,731,362
|
|
|
|
63.2
|
|
%
|
|
$
|
|
3,719,370
|
|
|
|
63.2
|
|
%
|
Perishables (b)
|
|
|
544,200
|
|
|
|
30.2
|
|
|
|
|
|
550,682
|
|
|
|
31.0
|
|
|
|
|
|
1,821,347
|
|
|
|
30.8
|
|
|
|
|
|
1,834,636
|
|
|
|
31.2
|
|
|
Pharmacy
|
|
|
84,039
|
|
|
|
4.7
|
|
|
|
|
|
70,772
|
|
|
|
4.0
|
|
|
|
|
|
269,524
|
|
|
|
4.6
|
|
|
|
|
|
231,929
|
|
|
|
3.9
|
|
|
Fuel
|
|
|
27,882
|
|
|
|
1.5
|
|
|
|
|
|
30,199
|
|
|
|
1.7
|
|
|
|
|
|
84,183
|
|
|
|
1.4
|
|
|
|
|
|
98,013
|
|
|
|
1.7
|
|
|
Consolidated net sales
|
$
|
|
1,800,085
|
|
|
|
100.0
|
|
%
|
|
$
|
|
1,775,401
|
|
|
|
100.0
|
|
%
|
|
$
|
|
5,906,416
|
|
|
|
100.0
|
|
%
|
|
$
|
|
5,883,948
|
|
|
|
100.0
|
|
%
|
(a
)
|
Consists primarily of general merchandise, grocery, beverages, snacks, tobacco products and frozen foods.
|
(b
)
|
Consists primarily of produce, dairy, meat, bakery, deli, floral and seafood.
|
Note 16 – Subsequent Events
On November 3, 2016, the Company entered into a definitive agreement to acquire certain assets of Caito Foods Service (“Caito”) and Blue Ribbon Transport (“BRT”) for $217.5 million in cash, in addition to reimbursing Caito for certain transaction costs and providing two earn-out opportunities that have the potential to pay the sellers an additional $12.4 million collectively if the business achieves certain performance targets. The purchase price will be funded with proceeds from the Company’s asset-based lending facility.
Founded in Indianapolis in 1965, Caito Foods Service is a leading supplier of fresh fruit and vegetables to grocery retailers and food service distributors across 22 states in the Southeast, Midwest and Eastern United States. Caito and BRT, which generate combined annual revenues in excess of $600 million, currently service customers from facilities in Indiana, Ohio and Florida. Caito also has a central fresh cut fruit and vegetable facility in Indianapolis and is completing construction on its new 118,000 square foot Fresh Kitchen facility, also in Indianapolis. The $32 million Fresh Kitchen will process, cook, and package fresh protein-based foods and complete meals; it is expected to be fully operational in the first quarter of 2017. The company offers temperature-controlled distribution and logistics services throughout North America through its affiliate Blue Ribbon Transport.
The acquisition will strengthen the Company’s product offerings to its existing customer base by expanding into the fast-growing freshly-prepared centerplate and side dish categories. The Company expects to close the acquisition by early January 2017, subject to regulatory approval and customary closing conditions.
17