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 28, 2019.
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 operating a premier fresh produce distribution network. The Company operates three reportable business segments: Food Distribution, Retail and Military. 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 independent grocers, the Company’s corporate owned retail stores, national retailers, food service distributors, and other customers. The Food Distribution segment primarily conducts business in the Midwest and Southeast regions of the United States.
18
As of the end of the second quarter, the Company’s Retail segment operated 155 corporate owned retail stores in the Midwest region primarily under the banners of Family Fare, Martin’s Super Markets, VG’s Grocery, D&W Fresh Market and Dan’s Supermarket. The Company also offered pharmacy services in 97 of its corporate owned retail stores and operated 37 fuel centers. The retail stores have a “neighborhood market” focus to distinguish them from supercenters and limited assortment stores. The Company’s Customer First strategy is focused on meeting changing customer needs and preferences through a data-based decision-making process, while also increasing customer satisfaction through quality service and convenience.
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 distributes grocery products to 160 military commissaries and over 400 exchanges and, together with its third-party partner, Coastal Pacific Food Distributors, represents the only delivery solution to service the Defense Commissary Agency (“DeCA”) worldwide. 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.
All fiscal quarters are 12 weeks, except for the Company’s first quarter, which is 16 weeks and will generally include the Easter holiday. Fiscal 2020 will contain 53 weeks; therefore, the fourth quarter of fiscal 2020 will contain 13 weeks. 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. Travel restrictions and other effects of the COVID-19 pandemic may also impact the performance of these stores.
2020 Second Quarter Highlights
The Company’s top priority continues to be the well-being and safety of its family of associates, customers and communities during the COVID-19 pandemic. SpartanNash is incredibly proud of its family of associates for their dedication to serve local customers and communities during this unprecedented time of need and respond to the dramatic increase in demand for food, pharmacy, household and personal care products. Collaboration across the organization and the strength and resiliency of its people drove execution in a dynamic operating environment as SpartanNash supported the surge in consumer demand related to the COVID-19 pandemic, also resulting in improved profitability in the second quarter.
Key financial and operational highlights for the quarter and fiscal year-to-date include the following:
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•
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Net sales growth of 9.4% to $2.18 billion from $2.00 billion in the prior year quarter, representing the seventeenth consecutive quarter of growth.
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•
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Retail comparable store sales of 17.1% in the second quarter were positive for the fourth consecutive quarter, representing a continuation of trends driven by impacts associated with the COVID-19 pandemic. During the quarter, the Company experienced growth in eCommerce of greater than 300% and realized growth of over 24% in private label sales, trends that continued from the first quarter, subsequent to the onset of the COVID-19 pandemic.
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•
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Food Distribution segment sales growth was 16.5% for the quarter due to increased demand associated with the impact of COVID-19 as well as sales growth with existing customers.
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•
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Operating earnings were $34.0 million in the second quarter, compared to $7.4 million in the prior year quarter, reflecting the significant increase in demand associated with the COVID-19 pandemic.
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•
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The Company generated cash from operating activities of $198.2 million for the year-to-date period, leading to a reduction in net long-term debt of $141.3 million. These reductions, combined with increased profitability, resulted in an improvement in net long-term debt to adjusted EBITDA from 3.7x at the end of 2019 to 2.5x at the end of the second quarter of 2020, calculated on a trailing thirteen period basis.
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•
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The Company recently made the decision to exit the Caito Fresh Cut operations. Wind down of the operations began in March 2020 and was complete as of the end of the first quarter. The Company incurred $10.6 million in asset impairment charges, severance costs and operating losses during the wind down period.
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•
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During the first quarter the Company executed cost saving initiatives, which included a voluntary early retirement program, as well as a reduction-in-force. These actions are expected to result in longer-term cost savings, however resulted in $5.2 million in incremental expense in the year-to-date period.
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19
For the 53-week fiscal year ending January 2, 2021, the Company continues to expect to benefit from higher consumer food-at-home consumption related to the effects of COVID-19, however, the duration and magnitude of the impact remain uncertain. Given this uncertainty, the Company is unable to fully estimate the impact COVID-19 will have on sales for the remainder of 2020, although it believes sales will materially exceed its initial 2020 guidance. The Company is updating its annual outlook, from what was previously provided on May 27, 2020, to reflect actual year-to-date financial results, as well as expectations for the remainder of the fiscal year related to earnings trends. Specifically, these updates include incremental adjusted earnings per share from continuing operations for the COVID-19 impact experienced to-date, as well as an estimate for the remainder of fiscal 2020.
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:
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Percentage of Net Sales
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Percentage Change
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12 Weeks Ended
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28 Weeks Ended
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|
12 Weeks Ended
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|
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28 Weeks Ended
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|
|
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July 11, 2020
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July 13, 2019
|
|
|
July 11, 2020
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|
|
July 13, 2019
|
|
|
July 11, 2020
|
|
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July 11, 2020
|
|
|
Net sales
|
|
100.0
|
|
|
|
100.0
|
|
|
|
100.0
|
|
|
|
100.0
|
|
|
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9.4
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|
|
|
11.1
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|
Gross profit
|
|
15.5
|
|
|
|
14.5
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|
|
|
15.1
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|
|
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14.7
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17.1
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14.3
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Selling, general and administrative
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13.8
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13.4
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13.7
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13.8
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12.9
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10.4
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Restructuring charges and asset impairment
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0.2
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0.7
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0.3
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0.2
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(74.8
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)
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56.0
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Operating earnings
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1.6
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0.4
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1.1
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0.7
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360.9
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89.3
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Other expenses and income
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0.2
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|
0.9
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0.2
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0.6
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(79.0
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)
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(65.1
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)
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Earnings (loss) before income taxes and discontinued operations
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1.4
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(0.5
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)
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0.9
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|
|
|
0.0
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413.0
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|
**
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Income tax expense (benefit)
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0.1
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|
(0.1
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)
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0.0
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|
(0.0
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)
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(165.2
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)
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**
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Earnings (loss) from continuing operations
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1.3
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(0.3
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)
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0.9
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|
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0.0
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520.7
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**
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Loss from discontinued operations, net of taxes
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—
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(0.0
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)
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—
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(0.0
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)
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100.0
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**
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Net earnings (loss)
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1.3
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(0.3
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)
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0.9
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0.0
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517.8
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**
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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:
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12 Weeks Ended
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28 Weeks Ended
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(In thousands)
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July 11, 2020
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July 13, 2019
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Variance
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July 11, 2020
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July 13, 2019
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Variance
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Food Distribution
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$
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1,089,861
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$
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935,383
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$
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154,478
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$
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2,459,357
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$
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2,104,621
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$
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354,736
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Retail
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631,257
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569,975
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61,282
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1,413,824
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1,271,742
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|
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142,082
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Military
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462,983
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490,571
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(27,588
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)
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1,167,376
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1,161,941
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5,435
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Total net sales
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$
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2,184,101
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$
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1,995,929
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$
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188,172
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$
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5,040,557
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$
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4,538,304
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$
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502,253
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Net sales for the quarter ended July 11, 2020 (the “second quarter”) increased $188.2 million, or 9.4%, to $2.18 billion from $2.00 billion in the quarter ended July 13, 2019 (the “prior year quarter”). Net sales for the year-to-date period ended July 11, 2020 (the “year-to-date period”) increased $502.3 million, or 11.1%, to $5.04 billion from $4.54 billion in the year-to-date period ended July 13, 2019 (the “prior year-to-date period”). The increases were driven primarily by incremental sales related to consumer behavior associated with the COVID-19 pandemic, beginning in the first quarter, as well as growth with existing customers in the Food Distribution segment.
Food Distribution net sales increased $154.5 million, or 16.5%, to $1.09 billion in the second quarter from $0.94 billion in the prior year quarter. Net sales for the year-to-date period increased $354.7 million, or 16.9%, to $2.46 billion in the year-to-date period from $2.10 billion in the prior year-to-date period. The increases were due to incremental volume associated with increased consumer demand related to COVID-19, as well as sales growth with existing customers.
20
Retail net sales increased $61.3 million, or 10.8%, to $631.3 million in the second quarter from $570.0 million in the prior year quarter. Net sales for the year-to-date period increased $142.1 million, or 11.2%, from $1.27 billion in the prior year-to-date period to $1.41 billion. The increases in net sales were primarily due to incremental sales volume associated with increased consumer demand related to COVID-19, as discussed above. Comparable store sales were 17.1% for the quarter and 16.3% for the year-to-date period and were partially offset by the impact of lower fuel prices and gallons sold, as well as store closures. 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. Acquired stores are included in the comparable sales calculation 13 periods after the acquisition date. Fuel is excluded from the comparable sales calculation due to volatility in price. Comparable store sales is a widely used metric among retailers, which is useful to management and investors to assess performance. The Company’s definition of comparable store sales may differ from similarly titled measures at other companies.
Military net sales decreased $27.6 million, or 5.6%, to $463.0 million in the second quarter from $490.6 million in the prior year quarter. Net sales for the year-to-date period increased $5.4 million, or 0.5%, from $1.16 billion in the prior year-to-date period to $1.17 billion. For the quarter, growth in export sales was more than offset by the impact of domestic base access and commissary shopping restrictions related to COVID-19 precautions. The increase for the year-to-date period was due to increased volume resulting from the impact of the COVID-19 pandemic primarily during the first quarter, partially offset by the impact of commissary and base closures during the second quarter and lower comparable sales at Defense Commissary Agency (“DeCA”) operated locations prior to the onset of the pandemic.
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 $49.4 million, or 17.1%, to $338.4 million in the second quarter from $289.0 million in the prior year quarter. As a percent of net sales, gross profit was 15.5% compared to 14.5% in the prior year quarter. Gross profit for the year-to-date period increased $95.2 million, or 14.3%, from $666.7 million in the prior year-to-date period to $761.9 million in the current year. As a percent of net sales, gross profit for the year-to-date period was 15.1% compared to 14.7% in the prior year-to-date period. The second quarter change in gross profit rate was driven by the increase in Retail segment sales in proportion to total Company sales, which traditionally generate higher margin rates, as well as a reduced rate of inventory shrink in the Retail segment. The year-to-date improvement was driven by the increase in the proportion of Retail segment sales, as well as improved margin rates in the Retail and Military segments.
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 for the second quarter increased $34.2 million, or 12.9%, to $300.7 million in the second quarter from $266.5 million in the prior year quarter, representing 13.8% of net sales in the second quarter compared to 13.4% in the prior year quarter. SG&A expenses for the year-to-date period increased $65.1 million, or 10.4%, from $626.9 million in the prior year-to-date period to $692.0 million, and decreased from 13.8% as a percentage of net sales in the prior year-to-date period to 13.7% in the current year-to-date period. The increase in expenses as a rate of sales compared to the prior year quarter was primarily due to increases in incentive compensation due to improved overall Company performance as well as increases in supply chain expenses as a rate to sales, partially offset by increased leverage of expenses from higher sales volume, particularly store labor and certain fixed costs. The decrease in expenses as a rate of sales for the year-to-date period was primarily due to improved operating leverage related to store labor and other operating expenses, as well as lower healthcare costs, partially offset by incremental incentive compensation expense, including incremental pay for frontline associates, and severance costs associated with cost-saving initiatives.
Merger/Acquisition and Integration – Prior year quarter results included $0.6 million of merger/acquisition and integration expenses. The prior year-to-date period included $1.4 million of merger/acquisition and integration expenses. These expenses are mainly associated with the acquisition and integration of Martin’s Supermarkets.
21
Restructuring Charges and Asset Impairment – Second quarter and prior year quarter results included charges of $3.7 million and $14.6 million, respectively, of restructuring and asset impairment activity. The year-to-date period and the prior year-to-date period included charges of $13.9 million and $8.9 million, respectively, of restructuring and asset impairment activity. The current year activity consists primarily of asset impairment charges and severance costs related to the restructuring of the Company’s Fresh Production business, as well as store closing charges. The prior year quarter and prior year-to-date amounts consist primarily of asset impairment charges associated with the decision to exit the Fresh Kitchen operations. The prior year-to-date charges are partially offset by gains on the sale of a previously closed distribution center.
Operating Earnings – The following table presents operating earnings (loss) by segment and variances in operating earnings (loss):
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|
12 Weeks Ended
|
|
|
28 Weeks Ended
|
|
|
(In thousands)
|
July 11, 2020
|
|
|
July 13, 2019
|
|
|
Variance
|
|
|
July 11, 2020
|
|
|
July 13, 2019
|
|
|
Variance
|
|
|
Food Distribution
|
$
|
|
14,409
|
|
|
$
|
|
272
|
|
|
$
|
|
14,137
|
|
|
$
|
|
25,799
|
|
|
$
|
|
24,864
|
|
|
$
|
|
935
|
|
|
Retail
|
|
|
24,453
|
|
|
|
|
8,701
|
|
|
|
|
15,752
|
|
|
|
|
37,098
|
|
|
|
|
7,875
|
|
|
|
|
29,223
|
|
|
Military
|
|
|
(4,890
|
)
|
|
|
|
(1,603
|
)
|
|
|
|
(3,287
|
)
|
|
|
|
(6,895
|
)
|
|
|
|
(3,160
|
)
|
|
|
|
(3,735
|
)
|
|
Total operating earnings
|
$
|
|
33,972
|
|
|
$
|
|
7,370
|
|
|
$
|
|
26,602
|
|
|
$
|
|
56,002
|
|
|
$
|
|
29,579
|
|
|
$
|
|
26,423
|
|
Operating earnings increased $26.6 million, or 360.9% to $34.0 million in the second quarter from $7.4 million in the prior year quarter. Operating earnings for the year-to-date period increased $26.4 million, or 89.3%, to $56.0 million from $29.6 million in the prior year-to-date period. The second quarter increase was primarily a result of increased sales volume, as well as improved margin rates and lower restructuring charges, partially offset by incentive compensation and a higher supply chain expenses as a rate to sales. The year-to-date period increase was primarily due to increased sales volume partially offset by higher incentive compensation and restructuring charges.
Food Distribution operating earnings increased $14.1 million, or 5,197.4%, to $14.4 million in the second quarter from $0.3 million in the prior year quarter. Operating earnings for the year-to-date period increased $0.9 million, or 3.8%, to $25.8 million from $24.9 million in the prior year-to-date period. The second quarter increase was due to asset impairment charges associated with changes to the Fresh Production business in the prior year quarter, a current year quarter increase in sales volume associated with the impacts of COVID-19, as well as cycling prior year operational losses in the Fresh Production business, partially offset by higher incentive compensation expense and higher supply chain expenses as a rate to sales. For the year-to-date period the increase in sales volume and cycling of prior year operational losses in the Fresh Production business was offset by higher incentive compensation and asset impairment expenses.
Retail operating earnings increased $15.8 million, or 181.0% to $24.5 million in the second quarter from $8.7 million in the prior year quarter. Operating earnings for the year-to-date period increased $29.2 million, or 371.1%, to $37.1 million from $7.9 million in the prior year-to-date period. The increases in operating earnings were primarily attributable to the increase in sales volume, improvements in labor and margin rates, including inventory shrink, and lower healthcare costs, partially offset by higher incentive compensation expense and compensation for frontline workers.
Military operating loss increased $3.3 million, or 205.1% to $4.9 million in the second quarter from $1.6 million in the prior year quarter. Operating loss for the year-to-date period increased $3.7 million, or 118.2%, to $6.9 million from $3.2 million in the prior year-to-date period. The increases were primarily attributable to increases in the rate of supply chain expenses, including additional compensation for frontline workers and additional sanitation measures, partially offset by improved margin rates.
Interest Expense – Interest expense decreased $5.1 million, or 58.0%, to $3.7 million in the second quarter from $8.7 million in the prior year quarter. Interest expense for the year-to-date period decreased $9.3 million, or 45.1% from $20.6 million in the prior year-to-date period to $11.3 million. The decreases in interest expense were due to rate decreases executed by the Federal Reserve during 2019 as well as during the first quarter of fiscal 2020 and decreases in the average debt balance.
Income Taxes – The effective income tax rates were 6.3% and 30.3% for the second quarter and prior year quarter, respectively. For the year-to-date period and prior year-to-date period, the effective income tax rates were 4.3% and -72.5%, respectively. The difference from the federal statutory rate in the current year primarily resulted from the Coronavirus Aid, Relief and Economic Security (“CARES”) Act, and related tax planning, as well as federal tax credits, partially offset by state taxes and stock-based compensation. In the prior year, the difference from the federal statutory rate was primarily due to significant discrete book losses and impairments with corresponding tax effects which occurred during the quarter and changed the year-to-date tax rate.
On March 27, 2020, the U.S. government enacted tax legislation to provide economic stimulus and support businesses and individuals during the COVID-19 pandemic, referred to as the CARES Act. In connection with initial analysis of the impact of the CARES Act, the Company recorded a net discrete income tax benefit of $4.3 million during the first quarter of 2020, associated with the additional deductibility of certain expenses combined with provisions which enable companies to carry back tax losses to years prior to the enactment of the Tax Cuts and Jobs Act (“Tax Reform”), when the federal statutory income tax rate was 35%. Further analysis of the timing of the deduction of certain expenses, which may also be carried back to years prior to Tax Reform, resulted in recording an additional discrete income tax benefit of $5.2 million in the second quarter of 2020.
22
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 Cut operating losses” subsequent to the decision to exit these operations during the first quarter, severance associated with cost reduction initiatives , 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 income related to a refund from the annuity provider associated with the final reconciliation of participant data is excluded from adjusted earnings from continuing operations. 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 costs associated with organizational realignment, which include significant changes to the Company’s management team. Also excluded are the 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.
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.
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.
23
Following is a reconciliation of operating earnings (loss) to adjusted operating earnings (loss) for the 12 and 28 weeks ended July 11, 2020 and July 13, 2019.
|
|
12 Weeks Ended
|
|
|
28 Weeks Ended
|
|
|
(In thousands)
|
July 11, 2020
|
|
|
July 13, 2019
|
|
|
July 11, 2020
|
|
|
July 13, 2019
|
|
|
Operating earnings
|
$
|
|
33,972
|
|
|
$
|
|
7,370
|
|
|
$
|
|
56,002
|
|
|
$
|
|
29,579
|
|
|
Adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Merger/acquisition and integration
|
|
|
—
|
|
|
|
|
582
|
|
|
|
|
—
|
|
|
|
|
1,364
|
|
|
Restructuring, asset impairment and other
|
|
|
3,675
|
|
|
|
|
14,581
|
|
|
|
|
13,912
|
|
|
|
|
8,919
|
|
|
Fresh Cut operating losses
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
2,262
|
|
|
|
|
—
|
|
|
Costs associated with Project One Team
|
|
|
—
|
|
|
|
|
810
|
|
|
|
|
493
|
|
|
|
|
5,428
|
|
|
Organizational realignment costs
|
|
|
—
|
|
|
|
|
19
|
|
|
|
|
—
|
|
|
|
|
877
|
|
|
Expenses associated with tax planning
|
|
|
97
|
|
|
|
|
—
|
|
|
|
|
97
|
|
|
|
|
—
|
|
|
Pension termination
|
|
|
—
|
|
|
|
|
20
|
|
|
|
|
—
|
|
|
|
|
20
|
|
|
Severance associated with cost reduction initiatives
|
|
|
(75
|
)
|
|
|
|
80
|
|
|
|
|
5,081
|
|
|
|
|
442
|
|
|
Adjusted operating earnings
|
$
|
|
37,669
|
|
|
$
|
|
23,462
|
|
|
$
|
|
77,847
|
|
|
$
|
|
46,629
|
|
|
Reconciliation of operating earnings (loss) to adjusted operating earnings (loss) by segment:
|
|
|
Food Distribution:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating earnings
|
$
|
|
14,409
|
|
|
$
|
|
272
|
|
|
$
|
|
25,799
|
|
|
$
|
|
24,864
|
|
|
Adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Merger/acquisition and integration
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
(130
|
)
|
|
Restructuring, asset impairment and other
|
|
|
3,462
|
|
|
|
|
16,024
|
|
|
|
|
12,684
|
|
|
|
|
9,681
|
|
|
Fresh Cut operating losses
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
2,262
|
|
|
|
|
—
|
|
|
Costs associated with Project One Team
|
|
|
—
|
|
|
|
|
429
|
|
|
|
|
265
|
|
|
|
|
2,877
|
|
|
Organizational realignment costs
|
|
|
—
|
|
|
|
|
10
|
|
|
|
|
—
|
|
|
|
|
465
|
|
|
Expenses associated with tax planning
|
|
|
52
|
|
|
|
|
—
|
|
|
|
|
52
|
|
|
|
|
—
|
|
|
Pension termination
|
|
|
—
|
|
|
|
|
11
|
|
|
|
|
—
|
|
|
|
|
11
|
|
|
Severance associated with cost reduction initiatives
|
|
|
(37
|
)
|
|
|
|
37
|
|
|
|
|
3,143
|
|
|
|
|
361
|
|
|
Adjusted operating earnings
|
$
|
|
17,886
|
|
|
$
|
|
16,783
|
|
|
$
|
|
44,205
|
|
|
$
|
|
38,129
|
|
|
Retail:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating earnings
|
$
|
|
24,453
|
|
|
$
|
|
8,701
|
|
|
$
|
|
37,098
|
|
|
$
|
|
7,875
|
|
|
Adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Merger/acquisition and integration
|
|
|
—
|
|
|
|
|
582
|
|
|
|
|
—
|
|
|
|
|
1,494
|
|
|
Restructuring charges (gains) and asset impairment
|
|
|
213
|
|
|
|
|
(1,443
|
)
|
|
|
|
1,228
|
|
|
|
|
(762
|
)
|
|
Costs associated with Project One Team
|
|
|
—
|
|
|
|
|
275
|
|
|
|
|
164
|
|
|
|
|
1,845
|
|
|
Organizational realignment costs
|
|
|
—
|
|
|
|
|
6
|
|
|
|
|
—
|
|
|
|
|
298
|
|
|
Expenses associated with tax planning
|
|
|
32
|
|
|
|
|
—
|
|
|
|
|
32
|
|
|
|
|
—
|
|
|
Pension termination
|
|
|
—
|
|
|
|
|
7
|
|
|
|
|
—
|
|
|
|
|
7
|
|
|
Severance associated with cost reduction initiatives
|
|
|
(19
|
)
|
|
|
|
43
|
|
|
|
|
1,432
|
|
|
|
|
72
|
|
|
Adjusted operating earnings
|
$
|
|
24,679
|
|
|
$
|
|
8,171
|
|
|
$
|
|
39,954
|
|
|
$
|
|
10,829
|
|
|
Military:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
$
|
|
(4,890
|
)
|
|
$
|
|
(1,603
|
)
|
|
$
|
|
(6,895
|
)
|
|
$
|
|
(3,160
|
)
|
|
Adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs associated with Project One Team
|
|
|
—
|
|
|
|
|
106
|
|
|
|
|
64
|
|
|
|
|
706
|
|
|
Organizational realignment costs
|
|
|
—
|
|
|
|
|
3
|
|
|
|
|
—
|
|
|
|
|
114
|
|
|
Expenses associated with tax planning
|
|
|
13
|
|
|
|
|
—
|
|
|
|
|
13
|
|
|
|
|
—
|
|
|
Pension termination
|
|
|
—
|
|
|
|
|
2
|
|
|
|
|
—
|
|
|
|
|
2
|
|
|
Severance associated with cost reduction initiatives
|
|
|
(19
|
)
|
|
|
|
—
|
|
|
|
|
506
|
|
|
|
|
9
|
|
|
Adjusted operating loss
|
$
|
|
(4,896
|
)
|
|
$
|
|
(1,492
|
)
|
|
$
|
|
(6,312
|
)
|
|
$
|
|
(2,329
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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.
24
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.
Following is a reconciliation of earnings (loss) from continuing operations to adjusted earnings from continuing operations for the 12 and 28 weeks ended July 11, 2020 and July 13, 2019.
|
|
12 Weeks Ended
|
|
|
|
|
July 11, 2020
|
|
|
July 13, 2019
|
|
|
|
|
|
|
|
per diluted
|
|
|
|
|
|
per diluted
|
|
|
|
(In thousands, except per share amounts)
|
Earnings
|
|
|
share
|
|
|
Earnings
|
|
|
share
|
|
|
|
Earnings (loss) from continuing operations
|
$
|
|
28,467
|
|
|
$
|
|
0.80
|
|
|
$
|
|
(6,767
|
)
|
|
$
|
|
(0.19
|
)
|
|
|
Adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Merger/acquisition and integration
|
|
|
—
|
|
|
|
|
|
|
|
|
|
582
|
|
|
|
|
|
|
|
|
Restructuring, asset impairment and other
|
|
|
3,675
|
|
|
|
|
|
|
|
|
|
14,581
|
|
|
|
|
|
|
|
|
Costs associated with Project One Team
|
|
|
—
|
|
|
|
|
|
|
|
|
|
810
|
|
|
|
|
|
|
|
|
Organizational realignment costs
|
|
|
—
|
|
|
|
|
|
|
|
|
|
19
|
|
|
|
|
|
|
|
|
Severance associated with cost reduction initiatives
|
|
|
(75
|
)
|
|
|
|
|
|
|
|
|
80
|
|
|
|
|
|
|
|
|
Expenses associated with tax planning
|
|
|
97
|
|
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
|
|
|
Pension termination
|
|
|
—
|
|
|
|
|
|
|
|
|
|
8,998
|
|
|
|
|
|
|
|
|
Total adjustments
|
|
|
3,697
|
|
|
|
|
|
|
|
|
|
25,070
|
|
|
|
|
|
|
|
|
Income tax effect on adjustments (a)
|
|
|
(903
|
)
|
|
|
|
|
|
|
|
|
(6,112
|
)
|
|
|
|
|
|
|
|
Impact of CARES Act (b)
|
|
|
(5,165
|
)
|
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
|
|
|
Total adjustments, net of taxes
|
|
|
(2,371
|
)
|
|
|
|
(0.07
|
)
|
|
|
|
18,958
|
|
|
|
|
0.53
|
|
*
|
|
Adjusted earnings from continuing operations
|
$
|
|
26,096
|
|
|
$
|
|
0.73
|
|
|
$
|
|
12,191
|
|
|
$
|
|
0.34
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28 Weeks Ended
|
|
|
|
|
July 11, 2020
|
|
|
July 13, 2019
|
|
|
|
|
|
|
|
per diluted
|
|
|
|
|
|
per diluted
|
|
|
|
(In thousands, except per share amounts)
|
Earnings
|
|
|
share
|
|
|
Earnings
|
|
|
share
|
|
|
|
Earnings from continuing operations
|
$
|
|
43,869
|
|
|
$
|
|
1.22
|
|
|
$
|
|
754
|
|
|
$
|
|
0.02
|
|
|
|
Adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Merger/acquisition and integration
|
|
|
—
|
|
|
|
|
|
|
|
|
|
1,364
|
|
|
|
|
|
|
|
|
Restructuring, asset impairment and other
|
|
|
13,912
|
|
|
|
|
|
|
|
|
|
8,919
|
|
|
|
|
|
|
|
|
Fresh Cut operating losses
|
|
|
2,262
|
|
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
|
|
|
Costs associated with Project One Team
|
|
|
493
|
|
|
|
|
|
|
|
|
|
5,428
|
|
|
|
|
|
|
|
|
Organizational realignment costs
|
|
|
—
|
|
|
|
|
|
|
|
|
|
877
|
|
|
|
|
|
|
|
|
Severance associated with cost reduction initiatives
|
|
|
5,081
|
|
|
|
|
|
|
|
|
|
442
|
|
|
|
|
|
|
|
|
Expenses associated with tax planning
|
|
|
97
|
|
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
|
|
|
Pension termination
|
|
|
(1,004
|
)
|
|
|
|
|
|
|
|
|
9,351
|
|
|
|
|
|
|
|
|
Total adjustments
|
|
|
20,841
|
|
|
|
|
|
|
|
|
|
26,381
|
|
|
|
|
|
|
|
|
Income tax effect on adjustments (a)
|
|
|
(4,997
|
)
|
|
|
|
|
|
|
|
|
(6,416
|
)
|
|
|
|
|
|
|
|
Impact of CARES Act (b)
|
|
|
(9,510
|
)
|
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
|
|
|
Total adjustments, net of taxes
|
|
|
6,334
|
|
|
|
|
0.18
|
|
|
|
|
19,965
|
|
|
|
|
0.55
|
|
|
|
Adjusted earnings from continuing operations
|
$
|
|
50,203
|
|
|
$
|
|
1.40
|
|
|
$
|
|
20,719
|
|
|
$
|
|
0.57
|
|
|
|
* Includes rounding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25
|
|
(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)
|
Represents tax impacts attributable to the Coronavirus Aid, Relief and Economic Security (“CARES”) Act, and related tax planning, primarily related to additional deductions and the utilization of net operating loss carryback.
|
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 earnings (loss) to adjusted EBITDA for the 12 and 28 weeks ended July 11, 2020 and July 13, 2019.
|
|
12 Weeks Ended
|
|
|
28 Weeks Ended
|
|
|
(In thousands)
|
July 11, 2020
|
|
|
July 13, 2019
|
|
|
July 11, 2020
|
|
|
July 13, 2019
|
|
|
Net earnings (loss)
|
$
|
|
28,467
|
|
|
$
|
|
(6,814
|
)
|
|
$
|
|
43,869
|
|
|
$
|
|
655
|
|
|
Loss from discontinued operations, net of tax
|
|
|
—
|
|
|
|
|
47
|
|
|
|
|
—
|
|
|
|
|
99
|
|
|
Income tax expense (benefit)
|
|
|
1,918
|
|
|
|
|
(2,941
|
)
|
|
|
|
1,949
|
|
|
|
|
(317
|
)
|
|
Other expenses, net
|
|
|
3,587
|
|
|
|
|
17,078
|
|
|
|
|
10,184
|
|
|
|
|
29,142
|
|
|
Operating earnings
|
|
|
33,972
|
|
|
|
|
7,370
|
|
|
|
|
56,002
|
|
|
|
|
29,579
|
|
|
Adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIFO expense
|
|
|
1,187
|
|
|
|
|
1,068
|
|
|
|
|
2,771
|
|
|
|
|
2,493
|
|
|
Depreciation and amortization
|
|
|
20,097
|
|
|
|
|
20,529
|
|
|
|
|
47,753
|
|
|
|
|
47,161
|
|
|
Merger/acquisition and integration
|
|
|
—
|
|
|
|
|
582
|
|
|
|
|
—
|
|
|
|
|
1,364
|
|
|
Restructuring, asset impairment and other charges
|
|
|
3,675
|
|
|
|
|
14,581
|
|
|
|
|
13,912
|
|
|
|
|
8,919
|
|
|
Fresh Cut operating losses
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
2,262
|
|
|
|
|
—
|
|
|
Stock-based compensation
|
|
|
1,905
|
|
|
|
|
715
|
|
|
|
|
4,148
|
|
|
|
|
6,098
|
|
|
Non-cash rent
|
|
|
(1,199
|
)
|
|
|
|
(1,516
|
)
|
|
|
|
(2,793
|
)
|
|
|
|
(3,434
|
)
|
|
Costs associated with Project One Team
|
|
|
—
|
|
|
|
|
810
|
|
|
|
|
493
|
|
|
|
|
5,428
|
|
|
Organizational realignment costs
|
|
|
—
|
|
|
|
|
19
|
|
|
|
|
—
|
|
|
|
|
877
|
|
|
Severance associated with cost reduction initiatives
|
|
|
(75
|
)
|
|
|
|
80
|
|
|
|
|
5,081
|
|
|
|
|
442
|
|
|
(Gain) loss on disposal of assets
|
|
|
(484
|
)
|
|
|
|
63
|
|
|
|
|
3,427
|
|
|
|
|
61
|
|
|
Other non-cash charges (gains)
|
|
|
99
|
|
|
|
|
11
|
|
|
|
|
99
|
|
|
|
|
(7
|
)
|
|
Adjusted EBITDA
|
$
|
|
59,177
|
|
|
$
|
|
44,312
|
|
|
$
|
|
133,155
|
|
|
$
|
|
98,981
|
|
26
Following is a reconciliation of operating earnings (loss) to adjusted EBITDA by segment for the 12 and 28 weeks ended July 11, 2020 and July 13, 2019.
|
|
12 Weeks Ended
|
|
|
28 Weeks Ended
|
|
|
(In thousands)
|
July 11, 2020
|
|
|
July 13, 2019
|
|
|
July 11, 2020
|
|
|
July 13, 2019
|
|
|
Food Distribution:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating earnings
|
$
|
|
14,409
|
|
|
$
|
|
272
|
|
|
$
|
|
25,799
|
|
|
$
|
|
24,864
|
|
|
Adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIFO expense
|
|
|
595
|
|
|
|
|
527
|
|
|
|
|
1,389
|
|
|
|
|
1,230
|
|
|
Depreciation and amortization
|
|
|
6,965
|
|
|
|
|
7,744
|
|
|
|
|
17,148
|
|
|
|
|
17,977
|
|
|
Merger/acquisition and integration
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
(130
|
)
|
|
Restructuring, asset impairment and other charges
|
|
|
3,462
|
|
|
|
|
16,024
|
|
|
|
|
12,684
|
|
|
|
|
9,681
|
|
|
Fresh Cut operating losses
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
2,262
|
|
|
|
|
—
|
|
|
Stock-based compensation
|
|
|
997
|
|
|
|
|
341
|
|
|
|
|
2,002
|
|
|
|
|
3,017
|
|
|
Non-cash rent
|
|
|
36
|
|
|
|
|
149
|
|
|
|
|
94
|
|
|
|
|
206
|
|
|
Costs associated with Project One Team
|
|
|
—
|
|
|
|
|
429
|
|
|
|
|
265
|
|
|
|
|
2,877
|
|
|
Organizational realignment costs
|
|
|
—
|
|
|
|
|
10
|
|
|
|
|
—
|
|
|
|
|
465
|
|
|
Severance associated with cost reduction initiatives
|
|
|
(37
|
)
|
|
|
|
37
|
|
|
|
|
3,143
|
|
|
|
|
361
|
|
|
(Gain) loss on disposal of assets
|
|
|
(521
|
)
|
|
|
|
11
|
|
|
|
|
1,619
|
|
|
|
|
6
|
|
|
Other non-cash charges
|
|
|
52
|
|
|
|
|
11
|
|
|
|
|
51
|
|
|
|
|
11
|
|
|
Adjusted EBITDA
|
$
|
|
25,958
|
|
|
$
|
|
25,555
|
|
|
$
|
|
66,456
|
|
|
$
|
|
60,565
|
|
|
Retail:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating earnings
|
$
|
|
24,453
|
|
|
$
|
|
8,701
|
|
|
$
|
|
37,098
|
|
|
$
|
|
7,875
|
|
|
Adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIFO expense
|
|
|
258
|
|
|
|
|
257
|
|
|
|
|
601
|
|
|
|
|
601
|
|
|
Depreciation and amortization
|
|
|
10,325
|
|
|
|
|
10,049
|
|
|
|
|
24,081
|
|
|
|
|
22,851
|
|
|
Merger/acquisition and integration
|
|
|
—
|
|
|
|
|
582
|
|
|
|
|
—
|
|
|
|
|
1,494
|
|
|
Restructuring charges (gains) and asset impairment
|
|
|
213
|
|
|
|
|
(1,443
|
)
|
|
|
|
1,228
|
|
|
|
|
(762
|
)
|
|
Stock-based compensation
|
|
|
642
|
|
|
|
|
250
|
|
|
|
|
1,392
|
|
|
|
|
2,103
|
|
|
Non-cash rent
|
|
|
(1,150
|
)
|
|
|
|
(1,573
|
)
|
|
|
|
(2,684
|
)
|
|
|
|
(3,426
|
)
|
|
Costs associated with Project One Team
|
|
|
—
|
|
|
|
|
275
|
|
|
|
|
164
|
|
|
|
|
1,845
|
|
|
Organizational realignment costs
|
|
|
—
|
|
|
|
|
6
|
|
|
|
|
—
|
|
|
|
|
298
|
|
|
Severance associated with cost reduction initiatives
|
|
|
(19
|
)
|
|
|
|
43
|
|
|
|
|
1,432
|
|
|
|
|
72
|
|
|
Loss on disposal of assets
|
|
|
66
|
|
|
|
|
51
|
|
|
|
|
1,871
|
|
|
|
|
88
|
|
|
Other non-cash charges (gains)
|
|
|
34
|
|
|
|
|
(8
|
)
|
|
|
|
34
|
|
|
|
|
(31
|
)
|
|
Adjusted EBITDA
|
$
|
|
34,822
|
|
|
$
|
|
17,190
|
|
|
$
|
|
65,217
|
|
|
$
|
|
33,008
|
|
|
Military:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
$
|
|
(4,890
|
)
|
|
$
|
|
(1,603
|
)
|
|
$
|
|
(6,895
|
)
|
|
$
|
|
(3,160
|
)
|
|
Adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIFO expense
|
|
|
335
|
|
|
|
|
284
|
|
|
|
|
781
|
|
|
|
|
662
|
|
|
Depreciation and amortization
|
|
|
2,807
|
|
|
|
|
2,736
|
|
|
|
|
6,524
|
|
|
|
|
6,333
|
|
|
Stock-based compensation
|
|
|
266
|
|
|
|
|
124
|
|
|
|
|
754
|
|
|
|
|
978
|
|
|
Non-cash rent
|
|
|
(85
|
)
|
|
|
|
(92
|
)
|
|
|
|
(203
|
)
|
|
|
|
(214
|
)
|
|
Costs associated with Project One Team
|
|
|
—
|
|
|
|
|
106
|
|
|
|
|
64
|
|
|
|
|
706
|
|
|
Organizational realignment costs
|
|
|
—
|
|
|
|
|
3
|
|
|
|
|
—
|
|
|
|
|
114
|
|
|
Severance associated with cost reduction initiatives
|
|
|
(19
|
)
|
|
|
|
—
|
|
|
|
|
506
|
|
|
|
|
9
|
|
|
(Gain) loss on disposal of assets
|
|
|
(29
|
)
|
|
|
|
1
|
|
|
|
|
(63
|
)
|
|
|
|
(33
|
)
|
|
Other non-cash charges
|
|
|
12
|
|
|
|
|
8
|
|
|
|
|
14
|
|
|
|
|
13
|
|
|
Adjusted EBITDA
|
$
|
|
(1,603
|
)
|
|
$
|
|
1,567
|
|
|
$
|
|
1,482
|
|
|
$
|
|
5,408
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27
Liquidity and Capital Resources
Cash Flow Information
The following table summarizes the Company’s consolidated statements of cash flows:
|
|
|
|
|
28 Weeks Ended
|
|
|
(In thousands)
|
|
|
|
July 11, 2020
|
|
|
July 13, 2019
|
|
|
Cash flow activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
|
$
|
|
198,248
|
|
|
$
|
|
103,836
|
|
|
Net cash used in investing activities
|
|
|
|
|
|
(21,844
|
)
|
|
|
|
(102,609
|
)
|
|
Net cash (used in) provided by financing activities
|
|
|
|
|
|
(165,931
|
)
|
|
|
|
267
|
|
|
Net cash used in discontinued operations
|
|
|
|
|
|
—
|
|
|
|
|
(130
|
)
|
|
Net increase in cash and cash equivalents
|
|
|
|
|
|
10,473
|
|
|
|
|
1,364
|
|
|
Cash and cash equivalents at beginning of the period
|
|
|
|
|
|
24,172
|
|
|
|
|
18,585
|
|
|
Cash and cash equivalents at end of the period
|
|
|
|
$
|
|
34,645
|
|
|
$
|
|
19,949
|
|
Net cash provided by operating activities. Net cash provided by operating activities increased during the current year-to-date period from the prior year-to-date period by approximately $94.4 million primarily due to reductions in working capital and improved profitability.
Net cash used in investing activities. Net cash used in investing activities decreased $80.8 million in the current year compared to the prior year primarily due to the acquisition of Martin’s in the prior year.
Capital expenditures were $30.6 million in the current year and cloud computing application development spend, which is included in operating activities, was $5.0 million, compared to capital expenditures of $31.8 million in the prior year. The Company expects full fiscal year 2020 capital expenditures and cloud computing application development spend to range from $80.0 million to $90.0 million. The Food Distribution, Retail and Military segments utilized 37.2%, 49.6% and 13.2% of capital expenditures, respectively, in the current year.
Net cash used in financing activities. Net cash used in financing activities increased $166.2 million in the current year compared to the prior year primarily due to payment of debt balances in the current year, which were funded from cash provided by operating activities, as well as borrowings to fund the Martin’s acquisition in the prior year.
Debt Management
Total debt, including finance lease liabilities, was $557.7 million and $688.6 million as of July 11, 2020 and December 28, 2019, respectively. The decrease in total debt was due to increased payments from cash provided by operating activities.
Liquidity
The Company’s principal sources of liquidity are cash flows generated from operations and its senior secured credit facility. As of July 11, 2020, the senior secured credit facility had outstanding borrowings of $513.1 million. Additional available borrowings under the Company’s 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 $333.0 million at July 11, 2020. 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 $14.2 million were outstanding as of July 11, 2020. The 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.
The Company’s current ratio (current assets to current liabilities) was 1.56-to-1 at July 11, 2020 compared to 1.76-to-1 at December 28, 2019, and its investment in working capital was $381.3 million at July 11, 2020 compared to $431.5 million at December 28, 2019. Net debt to total capital ratio was 0.42-to-1 at July 11, 2020 compared to 0.49-to-1 at December 28, 2019.
28
Net long-term 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 Net long-term debt as of July 11, 2020 and December 28, 2019.
|
|
July 11,
|
|
|
December 28,
|
|
|
(In thousands)
|
2020
|
|
|
2019
|
|
|
Current portion of long-term debt and finance lease liabilities
|
$
|
|
5,489
|
|
|
$
|
|
6,349
|
|
|
Long-term debt and finance lease liabilities
|
|
|
552,206
|
|
|
|
|
682,204
|
|
|
Total debt
|
|
|
557,695
|
|
|
|
|
688,553
|
|
|
Cash and cash equivalents
|
|
|
(34,645
|
)
|
|
|
|
(24,172
|
)
|
|
Net long-term debt
|
$
|
|
523,050
|
|
|
$
|
|
664,381
|
|
For information on contractual obligations, see the Company’s Annual Report on Form 10-K for the fiscal year ended December 28, 2019. At July 11, 2020, 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 July 11, 2020, the Company declared $6.9 million in dividends and declared $13.9 million for the year-to-date period. A 1.3% increase in the quarterly dividend rate from $0.19 per share to $0.1925 per share was approved by the Board of Directors and announced on February 27, 2020. 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 July 11, 2020. These commitments consist primarily of purchase commitments (as disclosed in the Company’s Annual Report on Form 10-K for the year ended December 28, 2019), standby letters of credit of $11.7 million as of July 11, 2020, 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. 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 7 to the consolidated financial statements in the Company’s Annual Report on Form 10-K for the fiscal year ended December 28, 2019 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 28, 2019.
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Recently Issued Accounting Standards
Refer to Note 2 in the notes to the condensed consolidated financial statements for further information.