ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
This Management’s Discussion and Analysis of financial condition and results of operations should be read in conjunction with the unaudited condensed consolidated financial statements contained in this Quarterly Report on Form 10-Q, the information contained under the caption “Forward-Looking Statements,” which appears at the beginning of this report, and the information in the Company’s Annual Report on Form 10-K for the fiscal year ended December 29, 2018.
Overview
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, military commissaries and exchanges in the United States, as well as premier fresh produce distribution and fresh food processing. The Company operates three reportable business segments: Food Distribution, Military and Retail. The Company serves customers in all 50 states.
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 grocer retail locations, the Company’s corporate owned retail stores, food service distributors, national retailers, and other customers. The Food Distribution segment primarily conducts business in the Midwest and Southeast regions of the United 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. The Company recently announced a plan to reposition its Fresh Production operations, which included the sale of the Fresh Kitchen facility and related equipment. The Company is in the process of transitioning certain operations to other facilities and expects to cease production in the Fresh Kitchen during the fourth quarter of 2019. While the Company is actively marketing the sale of these assets, not all of the required criteria have been met to present the assets as held-for-sale on the consolidated balance sheet as of October 5, 2019.
The Company’s Military segment contracts with manufacturers to distribute a wide variety of grocery products 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 has over 40 years of experience acting as a distributor to U.S. military commissaries and exchanges. The Company is the exclusive worldwide supplier of private brand products to U.S. military commissaries and is continuing to partner with DeCA in the rollout of private brand products to military commissaries which began during the second quarter of fiscal 2017.
At the end of the third quarter, the Company’s Retail segment operated 158 corporate owned retail stores in the Midwest region primarily under the banners of Family Fare, Martin’s Super Markets, VG’s Food and Pharmacy, D&W Fresh Markets, Sun Mart and Family Fresh Market. The Company also offers pharmacy services in 98 of its corporate owned retail stores and operates 37 fuel centers. The retail stores have a “neighborhood market” focus to distinguish them from supercenters and limited assortment stores.
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.
2019 Third Quarter Highlights
During the quarter ended October 5, 2019, the Company made progress on its strategic objectives and better positioned itself for long-term growth and profitability. In addition to realizing sales growth, the Company remains focused on its other top objectives for the current year, including strengthening its management team, systems and supply chain operations, generating improvements through its Project One Team initiative, and reducing its debt, working capital and financial leverage ratios, which will all contribute to improved growth in operating earnings.
Third quarter 2019 operational highlights include:
|
•
|
The Company realized sales growth of 6.0% from the same quarter in the prior year. This growth was driven by contributions from the newly acquired Martin’s business in the Retail segment. Before the intercompany elimination of Martin’s sales, the Food Distribution segment also realized growth of 3.6%.
|
|
•
|
In connection with Project One Team, the Company remains on track to achieve a run rate of over $20 million in annual cost savings within the next 24 months. Initiatives currently in the process of being implemented include improving the systems and policies for inventory procurement and management, supply chain efficiency and execution as well as the automation of routine administrative tasks.
|
19
|
•
|
Since the third quarter of 2018, the Company has paid down over $95.0 million in debt, resulting in a $10 million reduction in the debt balance despite using approximately $87.0 million to fund the acquisition of Martin’s at the beginning of fiscal 2019. The Company also significantly reduced its working capital from the third quarter of fiscal 2018, while continuing to grow sales. The Company will continue to focus on working capital improvements and debt reduction and is targeting total working capital improvements of $30.0 million for the full fiscal year.
|
For the remainder of 2019, the Company expects Food Distribution to sustain low- to mid-single digit sales growth driven by existing customers and new business. This expectation excludes the impact of the elimination of intercompany sales related to the acquisition of the Martin’s business. In the Military segment, the Company expects that new business within the segment, including continued private brand growth, will largely offset the negative DeCA comparable sales trend. Within the Retail segment, the Company expects total sales will increase due to the acquisition of Martin’s and the significant current year implementation of the Company’s brand positioning, partly offset by the impact of store rationalization plans.
Results of Operations
The following table sets forth items from the condensed consolidated statements of operations as a percentage of net sales and the year-to-year percentage change in the dollar amounts:
|
Percentage of Net Sales
|
|
|
Percentage Change
|
|
|
12 Weeks Ended
|
|
|
40 Weeks Ended
|
|
|
12 Weeks Ended
|
|
|
40 Weeks Ended
|
|
|
October 5, 2019
|
|
|
October 6, 2018
|
|
|
October 5, 2019
|
|
|
October 6, 2018
|
|
|
October 5, 2019
|
|
|
October 5, 2019
|
|
Net sales
|
|
100.0
|
|
|
|
100.0
|
|
|
|
100.0
|
|
|
|
100.0
|
|
|
|
6.0
|
|
|
|
6.0
|
|
Gross profit
|
|
14.5
|
|
|
|
13.6
|
|
|
|
14.6
|
|
|
|
14.0
|
|
|
|
13.4
|
|
|
|
10.6
|
|
Selling, general and administrative
|
|
13.7
|
|
|
|
12.1
|
|
|
|
13.8
|
|
|
|
12.5
|
|
|
|
19.6
|
|
|
|
16.3
|
|
Merger/acquisition and integration
|
|
—
|
|
|
|
0.0
|
|
|
|
0.0
|
|
|
|
0.1
|
|
|
|
(100.0
|
)
|
|
|
(61.4
|
)
|
Restructuring charges and asset impairment
|
|
0.1
|
|
|
|
0.0
|
|
|
|
0.2
|
|
|
|
0.1
|
|
|
**
|
|
|
|
93.9
|
|
Operating earnings
|
|
0.8
|
|
|
|
1.4
|
|
|
|
0.7
|
|
|
|
1.3
|
|
|
|
(41.1
|
)
|
|
|
(44.9
|
)
|
Other expenses and income
|
|
0.9
|
|
|
|
0.4
|
|
|
|
0.7
|
|
|
|
0.4
|
|
|
|
157.7
|
|
|
|
111.5
|
|
(Loss) earnings before income taxes and discontinued operations
|
|
(0.1
|
)
|
|
|
1.1
|
|
|
|
(0.0
|
)
|
|
|
1.0
|
|
|
|
(109.9
|
)
|
|
|
(102.5
|
)
|
Income tax (benefit) expense
|
|
(0.1
|
)
|
|
|
0.1
|
|
|
|
(0.0
|
)
|
|
|
0.2
|
|
|
|
(169.8
|
)
|
|
|
(115.9
|
)
|
(Loss) earnings from continuing operations
|
|
(0.0
|
)
|
|
|
0.9
|
|
|
|
0.0
|
|
|
|
0.8
|
|
|
|
(101.8
|
)
|
|
|
(99.1
|
)
|
Loss from discontinued operations, net of taxes
|
|
(0.0
|
)
|
|
|
(0.0
|
)
|
|
|
(0.0
|
)
|
|
|
(0.0
|
)
|
|
**
|
|
|
**
|
|
Net (loss) earnings
|
|
(0.0
|
)
|
|
|
0.9
|
|
|
|
0.0
|
|
|
|
0.8
|
|
|
|
(101.9
|
)
|
|
|
(99.3
|
)
|
Note: Certain totals do not sum due to rounding.
** Not meaningful
Net Sales – The following table presents net sales by segment and variances in net sales:
|
12 Weeks Ended
|
|
|
40 Weeks Ended
|
|
(In thousands)
|
October 5, 2019
|
|
|
October 6, 2018
|
|
|
Variance
|
|
|
October 5, 2019
|
|
|
October 6, 2018
|
|
|
Variance
|
|
Food Distribution
|
$
|
|
939,047
|
|
|
$
|
|
940,183
|
|
|
$
|
|
(1,136
|
)
|
|
$
|
|
3,043,668
|
|
|
$
|
|
3,037,096
|
|
|
$
|
|
6,572
|
|
Military
|
|
|
499,156
|
|
|
|
|
500,222
|
|
|
|
|
(1,066
|
)
|
|
|
|
1,661,097
|
|
|
|
|
1,653,496
|
|
|
|
|
7,601
|
|
Retail
|
|
|
561,605
|
|
|
|
|
446,325
|
|
|
|
|
115,280
|
|
|
|
|
1,833,347
|
|
|
|
|
1,477,164
|
|
|
|
|
356,183
|
|
Total net sales
|
$
|
|
1,999,808
|
|
|
$
|
|
1,886,730
|
|
|
$
|
|
113,078
|
|
|
$
|
|
6,538,112
|
|
|
$
|
|
6,167,756
|
|
|
$
|
|
370,356
|
|
Net sales for the quarter ended October 5, 2019 (“third quarter”) increased $113.1 million, or 6.0%, to $2.00 billion from $1.89 billion in the quarter ended October 6, 2018 (“prior year quarter”). Net sales for the year-to-date period ended October 5, 2019 (“year-to-date period”) increased $370.4 million, or 6.0%, to $6.54 billion from $6.17 billion in the year-to-date period ended October 6, 2018 (“prior year-to-date period”). The increases were driven primarily by incremental sales from the Martin’s acquisition.
20
Food Distribution net sales decreased $1.1 million, or 0.1%, to $939.0 million in the third quarter from $940.2 million in the prior year quarter. Net sales for the year-to-date period increased $6.6 million, or 0.2%, and amount to $3.04 billion in both the current and prior year-to-date periods. Before the impact of the elimination of sales to Martin’s, following the acquisition at the beginning of 2019, sales grew 3.6% and 4.0% in the third quarter and year-to-date period, respectively, primarily due to sales growth with existing customers.
Military net sales decreased $1.1 million, or 0.2%, to $499.2 million in the third quarter from $500.2 million in the prior year quarter. Net sales for the year-to-date period increased $7.6 million, or 0.5%, from $1.65 billion in the prior year-to-date period to $1.66 billion. The decrease from the prior year quarter was due to lower comparable sales at DeCA operated locations, mostly offset by new business. The increase from the prior year-to-date period was primarily due to incremental volume from new business with an existing customer that commenced late in the fourth quarter of 2018 and growth in DeCA’s private brand program, partially offset by lower comparable sales at DeCA operated locations.
Retail net sales increased $115.3 million, or 25.8%, to $561.6 million in the third quarter from $446.3 million in the prior year quarter. Net sales for the year-to-date period increased $356.2 million, or 24.1%, from $1.48 billion in the prior year-to-date period to $1.83 billion. The increase in net sales was primarily attributable to incremental sales from the Martin’s acquisition. Comparable store sales increased 0.1% for the quarter and decreased 0.7% percent for the year-to-date period. 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 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. The Company’s gross profit definition may not be identical to similarly titled measures reported by other companies. Vendor allowances that relate to the 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 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 in the consolidated statements of operations.
Gross profit increased $34.2 million, or 13.4%, to $290.4 million in the third quarter from $256.1 million in the prior year quarter. As a percent of net sales, gross profit was 14.5% compared to 13.6% in the prior year quarter. Gross profit for the year-to-date period increased $92.1 million, or 10.6%, from $865.0 million in the prior year-to-date period to $957.1 million in the current year. As a percent of net sales, gross profit for the year-to-date period was 14.6% compared to 14.0% in the prior year-to-date period. As a percent of net sales, the third quarter and year-to-date period change in gross margin was primarily due to the acquisition of Martin’s and the resulting higher mix of Retail sales.
Selling, General and Administrative Expenses – Selling, general and administrative (“SG&A”) expenses consist primarily of salaries and wages, employee benefits, facility costs, shipping and handling, equipment rental, depreciation (to the extent not included in Cost of sales), out-bound freight and other administrative expenses.
SG&A expenses increased to $273.3 million in the third quarter from $228.6 million in the prior year quarter, representing 13.7% of net sales in the third quarter compared to 12.1% in the prior year quarter. SG&A expenses for the year-to-date period increased $126.3 million, or 16.3%, from $773.8 million in the prior year-to-date period to $900.2 million, and increased from 12.5% as a percentage of net sales in the prior year-to-date period compared to 13.8%. The increase in expenses as a rate of sales compared to the prior year quarter and year-to-date period was primarily due to an increase in the mix of Retail segment operations with the acquisition of Martin’s, higher corporate administrative expenses, including expenses associated with the CEO transition and a non-recurring, supplemental, transition incentive program for eligible associates (“Transition Costs”), and higher supply chain costs in both the Military and Food Distribution segments.
Merger/Acquisition and Integration – Third quarter results did not include any merger/acquisition and integration expenses, while prior year quarter results included $0.5 million. The year-to-date period and the prior year-to-date period results included $1.4 million and $3.5 million of merger/acquisition and integration expenses, respectively. The expenses are mainly associated with the acquisition and integration of Martin’s in the current year and the integration of Spartan Stores, Inc. and the Nash-Finch Company in the prior year.
21
Restructuring Charges and Asset Impairment – Third quarter and prior year quarter results included net charges of $1.3 million and $0.2 million, respectively, of restructuring and asset impairment activity. The year-to-date period and the prior year-to-date period results included net charges of $10.2 million and $5.3 million, respectively, of restructuring and asset impairment activity. The current year third quarter activity consists primarily of asset impairment charges to adjust non-operating real estate to its fair value, which is classified as held-for-sale. The year-to-date period includes asset impairment charges associated with the decision to reposition Fresh Production operations, which are partially offset by gains on the sale of a previously closed distribution center. The prior year-to-date amount includes charges associated with the Company’s retail store rationalization plans, partially offset by gains on sales of real estate.
Goodwill
The Company performs goodwill impairment tests on an annual basis, or whenever events or circumstances indicate that it would be more likely than not that the fair value of a reporting unit is below its carrying amount. On a quarterly basis, the Company assesses whether there are any indicators that the carrying value of the Food Distribution reporting unit, the only reporting unit which carries a goodwill balance, is in excess of its fair value. One of the considerations performed by the Company is whether the carrying value of the enterprise as a whole is greater than the market capitalization, considering a reasonable control premium. At the end of the first quarter and into the second quarter of 2019 the decline in the Company’s stock price substantially decreased market capitalization, and the decline became sustained during the second quarter. As a result of this indicator of impairment, the Company performed an interim goodwill impairment test for the Food Distribution reporting unit during the second quarter.
The Company estimates the fair value of the Food Distribution reporting unit primarily based on the income approach using a discounted cash flow model and also incorporates the market approach using observable comparable company information. In addition, the Company reconciles the fair value estimate for the Food Distribution reporting unit to the current market capitalization of the enterprise as a whole. While the Retail and Military reporting units do not carry goodwill balances, their fair values are combined with the fair value estimate of the Food Distribution reporting unit in determining the enterprise value of the total Company.
As a result of the second quarter impairment test, the Company concluded that the fair value of the Food Distribution reporting unit was substantially in excess of its carrying value and that the reconciliation between the enterprise value of the Company and market capitalization, was within the Company’s expectations based on recent market transactions. The Company will perform its annual assessment of goodwill during the fourth quarter of 2019.
Operating Earnings (Loss) – The following table presents operating earnings (loss) by segment and variances in operating earnings (loss):
|
12 Weeks Ended
|
|
|
40 Weeks Ended
|
|
(In thousands)
|
October 5, 2019
|
|
|
October 6, 2018
|
|
|
Variance
|
|
|
October 5, 2019
|
|
|
October 6, 2018
|
|
|
Variance
|
|
Food Distribution
|
$
|
|
11,699
|
|
|
$
|
|
19,815
|
|
|
$
|
|
(8,116
|
)
|
|
$
|
|
36,564
|
|
|
$
|
|
63,060
|
|
|
$
|
|
(26,496
|
)
|
Military
|
|
|
(2,646
|
)
|
|
|
|
1,508
|
|
|
|
|
(4,154
|
)
|
|
|
|
(5,806
|
)
|
|
|
|
6,120
|
|
|
|
|
(11,926
|
)
|
Retail
|
|
|
6,726
|
|
|
|
|
5,483
|
|
|
|
|
1,243
|
|
|
|
|
14,600
|
|
|
|
|
13,192
|
|
|
|
|
1,408
|
|
Total operating earnings
|
$
|
|
15,779
|
|
|
$
|
|
26,806
|
|
|
$
|
|
(11,027
|
)
|
|
$
|
|
45,358
|
|
|
$
|
|
82,372
|
|
|
$
|
|
(37,014
|
)
|
Operating earnings decreased $11.0 million, or 41.1% to $15.8 million in the third quarter from $26.8 million in the prior year quarter. Operating earnings for the year-to-date period decreased $37.0 million, or 44.9%, to $45.4 million from $82.4 million in the prior year-to-date period. The third quarter decrease was primarily attributable to higher corporate administrative expenses, including Transition Costs, and higher supply chain costs. These items were partially offset by incremental earnings from the newly acquired Martin’s business and growth in the Food Distribution segment. The year-to-date decrease was due to the same items as well as second quarter asset impairment charges and one-time expenses associated with the Project One Team initiative.
Food Distribution operating earnings decreased $8.1 million, or 41.0%, to $11.7 million in the third quarter from $19.8 million in the prior year quarter. Operating earnings for the year-to-date period decreased $26.5 million, or 42.0%, to $36.6 million from $63.1 million in the prior year-to-date period. The decrease in operating earnings in the third quarter was due to due to higher corporate administrative expenses, including Transition Costs, as well as supply chain costs, partially offset by contributions from sales growth. The year-to-date period was also impacted by the second quarter asset impairment charges.
Military operating earnings decreased $4.2 million to a $2.6 million operating loss in the third quarter from $1.5 million in operating earnings in the prior year quarter. Operating earnings for the year-to-date period decreased $11.9 million to a $5.8 million operating loss from $6.1 million in operating earnings in the prior year-to-date period. The third quarter and year-to-date decreases were primarily attributable to higher supply chain costs and corporate administrative expenses. The year-to-date period decrease was also attributable to one-time costs associated with Project One Team, organizational realignment costs, as well as the cycling of gains related to the sale of a closed facility in the second quarter of the prior year.
22
Retail operating earnings increased $1.2 million, or 22.7% to $6.7 million in the third quarter from $5.5 million in the prior year quarter. Operating earnings for the year-to-date period increased $1.4 million, or 10.7%, to $14.6 million from $13.2 million in the prior year-to-date period. The increases in operating earnings was primarily attributable to the contribution of the acquired Martin’s stores, improvement in margin rates and the favorable impact of closing underperforming stores, partially offset by higher corporate administrative expenses, including Transition Costs. The year-to-date increase in operating earnings was also offset by the allocation of one-time costs associated with Project One Team.
Interest Expense – Interest expense increased $0.3 million, or 4.2%, to $7.4 million in the third quarter from $7.1 million in the prior year quarter. Interest expense for the year-to-date period increased $5.1 million, or 22.4% from $22.8 million in the prior year-to-date period to $28.0 million. The increase in interest expense for the year-to-date period was primarily due to an increase in interest rates compared to the prior year and incremental borrowings to fund the Martin’s acquisition. Interest rates have become more comparable to the prior year in the third quarter as a result of an early paydown of the term loan (Tranche A-2) with available borrowings from the revolving credit facility. The Company has also paid down the incremental borrowings associated with the Martin’s acquisition.
Income Taxes – The effective income tax rate was 84.2% and 11.9% for the third quarter and prior year quarter, respectively. For the year-to-date period and prior year-to-date period, the effective income tax rates were 129.0% and 20.6%, respectively. The difference from the federal statutory rate in the current year was primarily due to state tax benefits resulting from losses in certain tax jurisdictions as well as tax credits. In the prior year, the difference from the federal statutory rate was primarily due to the lapse of the statute of limitations for an uncertain tax position, the Federal rate change effect on the finalization of deferred taxes for 2017 and tax credits, partially offset by state income taxes.
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 “Fresh Kitchen operating losses” subsequent to the decision to exit these operations at the beginning of the third quarter, costs associated with organizational realignment, which include significant changes to the Company’s management team, and fees paid to a third-party advisory firm associated with Project One Team, the Company’s initiative to drive growth while increasing efficiency and reducing costs. Pension termination costs, primarily related to non-operating settlement expense associated with the distribution of pension assets, are excluded from adjusted earnings from continuing operations, and to a lesser extent adjusted operating earnings. These items are considered “non-operational” or “non-core” in nature. Prior year adjusted operating earnings, adjusted earnings from continuing operations, and adjusted EBITDA exclude start-up costs associated with the Fresh Kitchen operation, which concluded during the first quarter of 2018. The Fresh Kitchen represented a new line of business for the Company.
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.
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 adjusted operating earnings format.
23
Adjusted operating earnings is not a measure 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 definition of adjusted operating earnings may not be identical to similarly titled measures reported by other companies.
24
Following is a reconciliation of operating earnings (loss) to adjusted operating earnings for the 12 and 40 weeks ended October 5, 2019 and October 6, 2018.
|
12 Weeks Ended
|
|
|
40 Weeks Ended
|
|
(In thousands)
|
October 5, 2019
|
|
|
October 6, 2018
|
|
|
October 5, 2019
|
|
|
October 6, 2018
|
|
Operating earnings
|
$
|
|
15,779
|
|
|
$
|
|
26,806
|
|
|
$
|
|
45,358
|
|
|
$
|
|
82,372
|
|
Adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Merger/acquisition and integration
|
|
|
—
|
|
|
|
|
521
|
|
|
|
|
1,364
|
|
|
|
|
3,531
|
|
Restructuring charges and asset impairment
|
|
|
1,296
|
|
|
|
|
232
|
|
|
|
|
10,215
|
|
|
|
|
5,269
|
|
Fresh Kitchen start-up costs
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
1,366
|
|
Fresh Kitchen operating losses
|
|
|
2,204
|
|
|
|
|
—
|
|
|
|
|
2,204
|
|
|
|
|
—
|
|
Expenses associated with tax planning strategies
|
|
|
—
|
|
|
|
|
225
|
|
|
|
|
—
|
|
|
|
|
225
|
|
Costs associated with Project One Team
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
5,428
|
|
|
|
|
—
|
|
Organizational realignment costs
|
|
|
935
|
|
|
|
|
—
|
|
|
|
|
1,812
|
|
|
|
|
—
|
|
Pension termination
|
|
|
28
|
|
|
|
|
—
|
|
|
|
|
48
|
|
|
|
|
—
|
|
Severance associated with cost reduction initiatives
|
|
|
43
|
|
|
|
|
50
|
|
|
|
|
484
|
|
|
|
|
668
|
|
Adjusted operating earnings
|
$
|
|
20,285
|
|
|
$
|
|
27,834
|
|
|
$
|
|
66,913
|
|
|
$
|
|
93,431
|
|
Reconciliation of operating earnings (loss) to adjusted operating earnings (loss) by segment:
|
|
Food Distribution:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating earnings
|
$
|
|
11,699
|
|
|
$
|
|
19,815
|
|
|
$
|
|
36,564
|
|
|
$
|
|
63,060
|
|
Adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Merger/acquisition and integration
|
|
|
—
|
|
|
|
|
479
|
|
|
|
|
(130
|
)
|
|
|
|
3,419
|
|
Restructuring charges (gains) and asset impairment
|
|
|
1,043
|
|
|
|
|
(68
|
)
|
|
|
|
10,724
|
|
|
|
|
1,292
|
|
Fresh Kitchen start-up costs
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
1,366
|
|
Fresh Kitchen operating losses
|
|
|
2,204
|
|
|
|
|
—
|
|
|
|
|
2,204
|
|
|
|
|
—
|
|
Expenses associated with tax planning strategies
|
|
|
—
|
|
|
|
|
116
|
|
|
|
|
—
|
|
|
|
|
116
|
|
Costs associated with Project One Team
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
2,877
|
|
|
|
|
—
|
|
Organizational realignment costs
|
|
|
495
|
|
|
|
|
—
|
|
|
|
|
960
|
|
|
|
|
—
|
|
Pension termination
|
|
|
15
|
|
|
|
|
—
|
|
|
|
|
26
|
|
|
|
|
—
|
|
Severance associated with cost reduction initiatives
|
|
|
31
|
|
|
|
|
66
|
|
|
|
|
392
|
|
|
|
|
517
|
|
Adjusted operating earnings
|
$
|
|
15,487
|
|
|
$
|
|
20,408
|
|
|
$
|
|
53,617
|
|
|
$
|
|
69,770
|
|
Military:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating (loss) earnings
|
$
|
|
(2,646
|
)
|
|
$
|
|
1,508
|
|
|
$
|
|
(5,806
|
)
|
|
$
|
|
6,120
|
|
Adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Merger/acquisition and integration
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
4
|
|
Restructuring charges (gains)
|
|
|
—
|
|
|
|
|
29
|
|
|
|
|
—
|
|
|
|
|
(801
|
)
|
Expenses associated with tax planning strategies
|
|
|
—
|
|
|
|
|
28
|
|
|
|
|
—
|
|
|
|
|
28
|
|
Costs associated with Project One Team
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
706
|
|
|
|
|
—
|
|
Organizational realignment costs
|
|
|
122
|
|
|
|
|
—
|
|
|
|
|
236
|
|
|
|
|
—
|
|
Pension termination
|
|
|
3
|
|
|
|
|
—
|
|
|
|
|
5
|
|
|
|
|
—
|
|
Severance associated with cost reduction initiatives
|
|
|
—
|
|
|
|
|
(1
|
)
|
|
|
|
9
|
|
|
|
|
69
|
|
Adjusted operating (loss) earnings
|
$
|
|
(2,521
|
)
|
|
$
|
|
1,564
|
|
|
$
|
|
(4,850
|
)
|
|
$
|
|
5,420
|
|
Retail:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating earnings
|
$
|
|
6,726
|
|
|
$
|
|
5,483
|
|
|
$
|
|
14,600
|
|
|
$
|
|
13,192
|
|
Adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Merger/acquisition and integration
|
|
|
—
|
|
|
|
|
42
|
|
|
|
|
1,494
|
|
|
|
|
108
|
|
Restructuring charges (gains) and asset impairment
|
|
|
253
|
|
|
|
|
271
|
|
|
|
|
(509
|
)
|
|
|
|
4,778
|
|
Expenses associated with tax planning strategies
|
|
|
—
|
|
|
|
|
81
|
|
|
|
|
—
|
|
|
|
|
81
|
|
Costs associated with Project One Team
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
1,845
|
|
|
|
|
—
|
|
Organizational realignment costs
|
|
|
318
|
|
|
|
|
—
|
|
|
|
|
616
|
|
|
|
|
—
|
|
Pension termination
|
|
|
10
|
|
|
|
|
—
|
|
|
|
|
17
|
|
|
|
|
—
|
|
Severance associated with cost reduction initiatives
|
|
|
12
|
|
|
|
|
(15
|
)
|
|
|
|
83
|
|
|
|
|
82
|
|
Adjusted operating earnings
|
$
|
|
7,319
|
|
|
$
|
|
5,862
|
|
|
$
|
|
18,146
|
|
|
$
|
|
18,241
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25
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 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.
26
Following is a reconciliation of earnings from continuing operations to adjusted earnings from continuing operations for the 12 and 40 weeks ended October 5, 2019 and October 6, 2018.
|
12 Weeks Ended
|
|
|
|
October 5, 2019
|
|
|
October 6, 2018
|
|
|
|
|
|
|
per diluted
|
|
|
|
|
|
per diluted
|
|
|
(In thousands, except per share amounts)
|
Earnings
|
|
|
share
|
|
|
Earnings
|
|
|
share
|
|
|
(Loss) earnings from continuing operations
|
$
|
|
(310
|
)
|
|
$
|
|
(0.01
|
)
|
|
$
|
|
17,545
|
|
|
$
|
|
0.49
|
|
|
Adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Merger/acquisition and integration
|
|
|
—
|
|
|
|
|
|
|
|
|
|
521
|
|
|
|
|
|
|
|
Restructuring charges and asset impairment
|
|
|
1,296
|
|
|
|
|
|
|
|
|
|
232
|
|
|
|
|
|
|
|
Fresh Kitchen operating losses
|
|
|
2,204
|
|
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
|
|
Expenses associated with tax planning strategies
|
|
|
—
|
|
|
|
|
|
|
|
|
|
225
|
|
|
|
|
|
|
|
Organizational realignment costs
|
|
|
935
|
|
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
|
|
Loss on debt extinguishment
|
|
|
329
|
|
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
|
|
Severance associated with cost reduction initiatives
|
|
|
43
|
|
|
|
|
|
|
|
|
|
50
|
|
|
|
|
|
|
|
Pension termination
|
|
|
10,159
|
|
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
|
|
Total adjustments
|
|
|
14,966
|
|
|
|
|
|
|
|
|
|
1,028
|
|
|
|
|
|
|
|
Income tax effect on adjustments (a)
|
|
|
(3,751
|
)
|
|
|
|
|
|
|
|
|
(176
|
)
|
|
|
|
|
|
|
Impact of Tax Cuts and Jobs Act (b)
|
|
|
—
|
|
|
|
|
|
|
|
|
|
(494
|
)
|
|
|
|
|
|
|
Total adjustments, net of taxes
|
|
|
11,215
|
|
|
|
|
0.31
|
|
|
|
|
358
|
|
|
|
|
0.01
|
|
|
Adjusted earnings from continuing operations
|
$
|
|
10,905
|
|
|
$
|
|
0.30
|
|
|
$
|
|
17,903
|
|
|
$
|
|
0.50
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
40 Weeks Ended
|
|
|
|
October 5, 2019
|
|
|
October 6, 2018
|
|
|
|
|
|
|
per diluted
|
|
|
|
|
|
per diluted
|
|
|
(In thousands, except per share amounts)
|
Earnings
|
|
|
share
|
|
|
Earnings
|
|
|
share
|
|
|
Earnings from continuing operations
|
$
|
|
444
|
|
|
$
|
|
0.01
|
|
|
$
|
|
47,818
|
|
|
$
|
|
1.33
|
|
|
Adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Merger/acquisition and integration
|
|
|
1,364
|
|
|
|
|
|
|
|
|
|
3,531
|
|
|
|
|
|
|
|
Restructuring charges and asset impairment
|
|
|
10,215
|
|
|
|
|
|
|
|
|
|
5,269
|
|
|
|
|
|
|
|
Fresh Kitchen start-up costs
|
|
|
—
|
|
|
|
|
|
|
|
|
|
1,366
|
|
|
|
|
|
|
|
Fresh Kitchen operating losses
|
|
|
2,204
|
|
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
|
|
Expenses associated with tax planning strategies
|
|
|
—
|
|
|
|
|
|
|
|
|
|
225
|
|
|
|
|
|
|
|
Costs associated with Project One Team
|
|
|
5,428
|
|
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
|
|
Organizational realignment costs
|
|
|
1,812
|
|
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
|
|
Loss on debt extinguishment
|
|
|
329
|
|
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
|
|
Severance associated with cost reduction initiatives
|
|
|
484
|
|
|
|
|
|
|
|
|
|
668
|
|
|
|
|
|
|
|
Pension termination
|
|
|
19,510
|
|
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
|
|
Total adjustments
|
|
|
41,346
|
|
|
|
|
|
|
|
|
|
11,059
|
|
|
|
|
|
|
|
Income tax effect on adjustments (a)
|
|
|
(10,166
|
)
|
|
|
|
|
|
|
|
|
(2,564
|
)
|
|
|
|
|
|
|
Impact of Tax Cuts and Jobs Act (b)
|
|
|
—
|
|
|
|
|
|
|
|
|
|
(494
|
)
|
|
|
|
|
|
|
Total adjustments, net of taxes
|
|
|
31,180
|
|
|
|
|
0.86
|
|
|
|
|
8,001
|
|
|
|
|
0.22
|
|
|
Adjusted earnings from continuing operations
|
$
|
|
31,624
|
|
|
$
|
|
0.87
|
|
|
$
|
|
55,819
|
|
|
$
|
|
1.55
|
|
|
|
(a)
|
The income tax effect on adjustments is computed by applying the effective tax rate, before discrete tax items, to the total adjustments for the period.
|
|
(b)
|
Includes a $1.1 million tax benefit attributable to tax planning strategies related to the Tax Cuts and Jobs Act.
|
27
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 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 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.
Following is a reconciliation of net (loss) earnings to adjusted EBITDA for the 12 and 40 weeks ended October 5, 2019 and October 6, 2018.
|
12 Weeks Ended
|
|
|
40 Weeks Ended
|
|
(In thousands)
|
October 5, 2019
|
|
|
October 6, 2018
|
|
|
October 5, 2019
|
|
|
October 6, 2018
|
|
Net (loss) earnings
|
$
|
|
(337
|
)
|
|
$
|
|
17,465
|
|
|
$
|
|
318
|
|
|
$
|
|
47,580
|
|
Loss from discontinued operations, net of tax
|
|
|
27
|
|
|
|
|
80
|
|
|
|
|
126
|
|
|
|
|
238
|
|
Income tax (benefit) expense
|
|
|
(1,656
|
)
|
|
|
|
2,374
|
|
|
|
|
(1,973
|
)
|
|
|
|
12,381
|
|
Other expenses, net
|
|
|
17,745
|
|
|
|
|
6,887
|
|
|
|
|
46,887
|
|
|
|
|
22,173
|
|
Operating earnings
|
|
|
15,779
|
|
|
|
|
26,806
|
|
|
|
|
45,358
|
|
|
|
|
82,372
|
|
Adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIFO expense
|
|
|
1,268
|
|
|
|
|
654
|
|
|
|
|
3,761
|
|
|
|
|
2,349
|
|
Depreciation and amortization
|
|
|
20,351
|
|
|
|
|
19,247
|
|
|
|
|
67,513
|
|
|
|
|
63,272
|
|
Merger/acquisition and integration
|
|
|
—
|
|
|
|
|
521
|
|
|
|
|
1,364
|
|
|
|
|
3,531
|
|
Restructuring charges and asset impairment
|
|
|
1,296
|
|
|
|
|
232
|
|
|
|
|
10,215
|
|
|
|
|
5,269
|
|
Fresh Kitchen start-up costs
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
1,366
|
|
Fresh Kitchen operating losses
|
|
|
2,204
|
|
|
|
|
—
|
|
|
|
|
2,204
|
|
|
|
|
—
|
|
Stock-based compensation
|
|
|
638
|
|
|
|
|
773
|
|
|
|
|
6,735
|
|
|
|
|
7,040
|
|
Non-cash rent
|
|
|
(1,082
|
)
|
|
|
|
(187
|
)
|
|
|
|
(4,542
|
)
|
|
|
|
(818
|
)
|
Costs associated with Project One Team
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
5,428
|
|
|
|
|
—
|
|
Organizational realignment costs
|
|
|
935
|
|
|
|
|
—
|
|
|
|
|
1,812
|
|
|
|
|
—
|
|
Other non-cash charges
|
|
|
187
|
|
|
|
|
258
|
|
|
|
|
710
|
|
|
|
|
785
|
|
Adjusted EBITDA
|
$
|
|
41,576
|
|
|
$
|
|
48,304
|
|
|
$
|
|
140,558
|
|
|
$
|
|
165,166
|
|
28
Following is a reconciliation of operating earnings (loss) to adjusted EBITDA by segment for the 12 and 40 weeks ended October 5, 2019 and October 6, 2018.
|
12 Weeks Ended
|
|
|
40 Weeks Ended
|
|
(In thousands)
|
October 5, 2019
|
|
|
October 6, 2018
|
|
|
October 5, 2019
|
|
|
October 6, 2018
|
|
Food Distribution:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating earnings
|
$
|
|
11,699
|
|
|
$
|
|
19,815
|
|
|
$
|
|
36,564
|
|
|
$
|
|
63,060
|
|
Adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIFO expense
|
|
|
639
|
|
|
|
|
245
|
|
|
|
|
1,869
|
|
|
|
|
929
|
|
Depreciation and amortization
|
|
|
7,390
|
|
|
|
|
7,540
|
|
|
|
|
25,368
|
|
|
|
|
24,179
|
|
Merger/acquisition and integration
|
|
|
—
|
|
|
|
|
479
|
|
|
|
|
(130
|
)
|
|
|
|
3,419
|
|
Restructuring charges (gains) and asset impairment
|
|
|
1,043
|
|
|
|
|
(68
|
)
|
|
|
|
10,724
|
|
|
|
|
1,292
|
|
Fresh Kitchen start-up costs
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
1,366
|
|
Fresh Kitchen operating losses
|
|
|
2,204
|
|
|
|
|
—
|
|
|
|
|
2,204
|
|
|
|
|
—
|
|
Stock-based compensation
|
|
|
302
|
|
|
|
|
351
|
|
|
|
|
3,319
|
|
|
|
|
3,318
|
|
Non-cash rent
|
|
|
147
|
|
|
|
|
41
|
|
|
|
|
353
|
|
|
|
|
115
|
|
Costs associated with Project One Team
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
2,877
|
|
|
|
|
—
|
|
Organizational realignment costs
|
|
|
495
|
|
|
|
|
—
|
|
|
|
|
960
|
|
|
|
|
—
|
|
Other non-cash charges
|
|
|
14
|
|
|
|
|
119
|
|
|
|
|
391
|
|
|
|
|
466
|
|
Adjusted EBITDA
|
$
|
|
23,933
|
|
|
$
|
|
28,522
|
|
|
$
|
|
84,499
|
|
|
$
|
|
98,144
|
|
Military:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating (loss) earnings
|
$
|
|
(2,646
|
)
|
|
$
|
|
1,508
|
|
|
$
|
|
(5,806
|
)
|
|
$
|
|
6,120
|
|
Adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIFO expense
|
|
|
372
|
|
|
|
|
146
|
|
|
|
|
1,034
|
|
|
|
|
544
|
|
Depreciation and amortization
|
|
|
2,764
|
|
|
|
|
2,816
|
|
|
|
|
9,097
|
|
|
|
|
9,257
|
|
Merger/acquisition and integration
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
4
|
|
Restructuring charges (gains)
|
|
|
—
|
|
|
|
|
29
|
|
|
|
|
—
|
|
|
|
|
(801
|
)
|
Stock-based compensation
|
|
|
114
|
|
|
|
|
155
|
|
|
|
|
1,091
|
|
|
|
|
1,181
|
|
Non-cash rent
|
|
|
(80
|
)
|
|
|
|
(74
|
)
|
|
|
|
(283
|
)
|
|
|
|
(249
|
)
|
Costs associated with Project One Team
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
706
|
|
|
|
|
—
|
|
Organizational realignment costs
|
|
|
122
|
|
|
|
|
—
|
|
|
|
|
236
|
|
|
|
|
—
|
|
Other non-cash (gains) charges
|
|
|
(70
|
)
|
|
|
|
31
|
|
|
|
|
(91
|
)
|
|
|
|
57
|
|
Adjusted EBITDA
|
$
|
|
576
|
|
|
$
|
|
4,611
|
|
|
$
|
|
5,984
|
|
|
$
|
|
16,113
|
|
Retail:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating earnings
|
$
|
|
6,726
|
|
|
$
|
|
5,483
|
|
|
$
|
|
14,600
|
|
|
$
|
|
13,192
|
|
Adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIFO expense
|
|
|
257
|
|
|
|
|
263
|
|
|
|
|
858
|
|
|
|
|
876
|
|
Depreciation and amortization
|
|
|
10,197
|
|
|
|
|
8,891
|
|
|
|
|
33,048
|
|
|
|
|
29,836
|
|
Merger/acquisition and integration
|
|
|
—
|
|
|
|
|
42
|
|
|
|
|
1,494
|
|
|
|
|
108
|
|
Restructuring charges (gains) and asset impairment
|
|
|
253
|
|
|
|
|
271
|
|
|
|
|
(509
|
)
|
|
|
|
4,778
|
|
Stock-based compensation
|
|
|
222
|
|
|
|
|
267
|
|
|
|
|
2,325
|
|
|
|
|
2,541
|
|
Non-cash rent
|
|
|
(1,149
|
)
|
|
|
|
(154
|
)
|
|
|
|
(4,612
|
)
|
|
|
|
(684
|
)
|
Costs associated with Project One Team
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
1,845
|
|
|
|
|
—
|
|
Organizational realignment costs
|
|
|
318
|
|
|
|
|
—
|
|
|
|
|
616
|
|
|
|
|
—
|
|
Other non-cash charges
|
|
|
243
|
|
|
|
|
108
|
|
|
|
|
410
|
|
|
|
|
262
|
|
Adjusted EBITDA
|
$
|
|
17,067
|
|
|
$
|
|
15,171
|
|
|
$
|
|
50,075
|
|
|
$
|
|
50,909
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
29
Liquidity and Capital Resources
Cash Flow Information
The following table summarizes the Company’s consolidated statements of cash flows:
|
|
|
|
40 Weeks Ended
|
|
(In thousands)
|
|
|
|
October 5, 2019
|
|
|
October 6, 2018
|
|
Cash flow activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
|
$
|
|
140,034
|
|
|
$
|
|
142,546
|
|
Net cash used in investing activities
|
|
|
|
|
|
(117,645
|
)
|
|
|
|
(45,533
|
)
|
Net cash used in financing activities
|
|
|
|
|
|
(17,385
|
)
|
|
|
|
(91,773
|
)
|
Net cash used in discontinued operations
|
|
|
|
|
|
(153
|
)
|
|
|
|
(234
|
)
|
Net increase in cash and cash equivalents
|
|
|
|
|
|
4,851
|
|
|
|
|
5,006
|
|
Cash and cash equivalents at beginning of the period
|
|
|
|
|
|
18,585
|
|
|
|
|
15,667
|
|
Cash and cash equivalents at end of the period
|
|
|
|
$
|
|
23,436
|
|
|
$
|
|
20,673
|
|
Net cash provided by operating activities. Net cash provided by operating activities decreased during the current year-to-date period from the prior year-to-date period by approximately $2.5 million and was primarily due to lower cash generated from earnings, mostly offset by improvements in working capital including management of accounts payable.
Net cash used in investing activities. Net cash used in investing activities increased $72.1 million in the current year compared to the prior year primarily due to the Martin’s acquisition made in the current year quarter, partially offset by proceeds from the sale of real property for a previously closed site.
Capital expenditures were $46.9 in the current year compared to $52.6 million in the prior year. The Food Distribution, Military and Retail segments utilized 34.2%, 8.6% and 57.2% of capital expenditures, respectively, in the current year.
Net cash used in financing activities. Net cash used in financing activities decreased $74.4 million in the current year compared to the prior year primarily due to the Martin’s acquisition which reduced the funds available for the paydown of debt.
Net cash used in discontinued operations. Net cash used in discontinued operations contains the net cash flows of the Company’s Retail and Food Distribution discontinued operations and is primarily composed of facility maintenance expenditures.
Debt Management
Total debt, including finance lease liabilities, was $693.1 million and $698.1 million as of October 5, 2019 and December 29, 2018, respectively. The decrease in total debt was driven by payments, mostly offset by the current year acquisition of Martin’s.
Liquidity
The Company’s principal sources of liquidity are cash flows generated from operations and its senior secured credit facility which has maximum available credit of $1.04 billion. As of October 5, 2019, the senior secured credit facility had outstanding borrowings of $652.5 million. Additional available borrowings under the Company’s $1.04 billion credit facility are based on stipulated advance rates on eligible assets, as defined in the Credit Agreement. The Credit Agreement requires that the Company maintain excess availability of 10% of the borrowing base, as such term is defined in the Credit Agreement. The Company had excess availability after the 10% covenant of $226.1 million at October 5, 2019. 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 $10.8 million were outstanding as of October 5, 2019. 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 facility 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. In the third quarter, the Company executed an early payment of its term loan (Tranche A-2) in the amount of $55.0 million with available borrowings from its revolving credit facility. The Company expects to generate interest savings of nearly $2 million annually as a result of utilizing lower rate financing.
The Company’s current ratio (current assets to current liabilities) was 1.72-to-1 at October 5, 2019 compared to 2.10-to-1 at December 29, 2018, and its investment in working capital was $437.6 million at October 5, 2019 compared to $524.6 million at December 29, 2018. Net debt to total capital ratio was 0.49-to-1 at October 5, 2019 compared to 0.49-to-1 at December 29, 2018. The current year ratios include the impact of the adoption of the new lease standard (ASU 2016-02) and therefore lack comparability to the prior year ratios.
30
Total net debt is a non-GAAP financial measure that is defined as long-term debt and finance lease liabilities, plus current maturities of long-term debt and finance lease liabilities, less cash and cash equivalents. The ratio of net debt to capital is a non-GAAP financial measure that is calculated by dividing net debt, as defined previously, by total capital (net debt plus total shareholders’ equity). 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 finance lease liabilities to total net long-term debt and finance lease liabilities as of October 5, 2019 and December 29, 2018.
|
October 5,
|
|
|
December 29,
|
|
(In thousands)
|
2019
|
|
|
2018
|
|
Current portion of long-term debt and finance lease liabilities
|
$
|
|
7,044
|
|
|
$
|
|
18,263
|
|
Long-term debt and finance lease liabilities
|
|
|
686,055
|
|
|
|
|
679,797
|
|
Total debt
|
|
|
693,099
|
|
|
|
|
698,060
|
|
Cash and cash equivalents
|
|
|
(23,436
|
)
|
|
|
|
(18,585
|
)
|
Total net long-term debt
|
$
|
|
669,663
|
|
|
$
|
|
679,475
|
|
For information on contractual obligations, see the Company’s Annual Report on Form 10-K for the fiscal year ended December 29, 2018. At October 5, 2019, there have been no material changes to the Company’s significant contractual obligations outside the ordinary course of business.
Cash Dividends
During the quarter ended October 5, 2019, the Company returned $6.9 million to shareholders from dividend payments. A 5.6% increase in the quarterly dividend rate from $0.18 per share to $0.19 per share was approved by the Board of Directors and announced on February 28, 2019. Although the Company expects to continue to pay a quarterly cash dividend, adoption of a dividend policy does not commit the Board of Directors to declare future dividends. Each future dividend will be considered and declared by the Board of Directors at its discretion. Whether the Board of Directors 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.
Under the 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.
Off-Balance Sheet Arrangements
The Company has also made certain commercial commitments that extend beyond October 5, 2019. These commitments consist primarily of purchase commitments (as disclosed in the Company’s Annual Report on Form 10-K for the year ended December 29, 2018), standby letters of credit of $10.8 million as of October 5, 2019, and interest on long-term debt and finance lease liabilities.
Critical Accounting Policies
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 the 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 Item 8, Note 1 to the consolidated financial statements in the Company’s Annual Report on Form 10-K for the fiscal year ended December 29, 2018 should be reviewed as they are integral to the 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. The accompanying financial statements are prepared using the same critical accounting policies discussed in the Company’s Annual Report on Form 10-K for the fiscal year ended December 29, 2018.
31
Recently Issued Accounting Standards
Refer to Note 2 in the notes to the condensed consolidated financial statements for further information.