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 31, 2016.
SpartanNash, headquartered in Grand Rapids, Michigan, is a leading multi-regional grocery distributor and grocery retailer whose core businesses include distributing grocery products to independent grocery retailers (“independent retailers”), select national retailers, its corporate owned retail stores, and military commissaries and exchanges in the United States. The Company operates three reportable business segments: Food Distribution, Military and Retail.
The Company’s Food Distribution segment provides a wide variety of nationally branded and private brand grocery products and perishable food products to over 2,000 independent retailers, food distributors and the Company’s corporate owned retail stores. The Food Distribution segment currently conducts business in 47 states, primarily in the Midwest, Great Lakes, and Southeast regions of the United States. Through its Food Distribution segment, the Company also services select national retailers, including Dollar General. Sales to Dollar General are made to over 14,100 of its retail locations. Through its recent acquisition of Caito Foods Service (“Caito”) and Blue Ribbon Transport (“BRT”) (“the recent acquisition”) on January 7, 2017, the Company processes fresh-cut fruits and vegetables and other value-added meal solutions and supplies these products to grocery retailers and food service distributors through its Indiana and Florida facilities. With the new Caito Fresh Kitchen facility, the Company is developing the ability to process, cook and package fresh protein-based foods and complete meal solutions for a number of different customers. With the acquisition of BRT, the Company offers temperature-controlled logistics services throughout North America.
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, Bahrain and Egypt. The Company has over 40 years of experience acting as a distributor to U.S. military commissaries and exchanges. As of December 8, 2016, the Company is the exclusive worldwide supplier of private brand products to U.S. military commissaries and began shipping private brand products to military commissaries during the second quarter of fiscal 2017.
At the end of the third quarter, the Company’s Retail segment operated 147 corporate owned retail stores in the Midwest and Great Lakes regions primarily under the banners of
Family Fare Supermarkets, VG’s Food and Pharmacy, D&W Fresh Markets, Sun Mart
and
Family Fresh Market.
The Company also offers pharmacy services in 88 of its corporate owned retail stores and operates 31 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.
The Company’s sales growth trends accelerated in the third quarter of fiscal 2017 due to contributions from the recent acquisition, continued growth in the Food Distribution segment from both new and existing customers, and the significant improvement in the Military segment’s sales trends, despite challenging retail market conditions. The Company continues to execute against key elements of its long-term strategic plan as is demonstrated by the continued sales growth in its distribution operations, and is committed to delivering increased value and convenience to its customers.
As the Company enters the fourth quarter of fiscal 2017, it remains committed to delivering long-term value to its shareholders and focusing on top-line and earnings growth. At the beginning of the third quarter, the Company entered into an agreement to obtain incremental distribution business from a DeCA provider exiting these operations in the Southwest United States. This new business, together with increasing contributions from the DeCA private brand program, are expected to grow Military’s sales in the fourth quarter of fiscal 2017. Retail sales trends - while improving - are anticipated to remain negative for the remainder of the year. The Company also expects continued organic sales growth in the Food Distribution segment.
The Company expects a slight easing of deflationary pressures with modest food inflation anticipated in the fourth quarter, and therefore does not anticipate any of the LIFO benefit realized in the prior year fourth quarter to recur. The Company also anticipates that projected fourth quarter sales growth at Food Distribution and the continuation of improved sales trends at Military will be more than offset by the cycling of the prior year LIFO benefit, and that headwinds associated with hurricane impacts and the onboarding of new business will negatively affect fill rates and cause inbound freight disruptions in the fourth quarter. Retail earnings are anticipated to remain challenged for the remainder of the year as the competitive landscape and inflationary environment are expected to persist. Based on the factors noted above, the Company anticipates fourth quarter earnings will be significantly below the prior year.
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
|
|
|
12 Weeks Ended
|
|
|
40 Weeks Ended
|
|
|
Ended
|
|
|
October 7,
|
|
|
October 8,
|
|
|
October 7,
|
|
|
October 8,
|
|
|
October 7,
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
Net sales
|
|
100.0
|
|
%
|
|
100.0
|
|
%
|
|
100.0
|
|
%
|
|
100.0
|
|
%
|
|
5.9
|
|
Gross profit
|
|
13.7
|
|
|
|
14.2
|
|
|
|
14.3
|
|
|
|
14.4
|
|
|
|
2.5
|
|
Selling, general and administrative expenses
|
|
12.0
|
|
|
|
12.3
|
|
*
|
|
12.6
|
|
|
|
12.5
|
|
|
|
3.7
|
|
Merger/acquisition and integration
|
|
0.1
|
|
|
|
0.1
|
|
|
|
0.1
|
|
|
|
0.1
|
|
|
|
(1.4
|
)
|
Restructuring charges and goodwill/asset impairment
|
|
11.8
|
|
|
|
0.1
|
|
|
|
3.6
|
|
|
|
0.4
|
|
|
|
8,339.3
|
|
Operating (loss) earnings
|
|
(10.2
|
)
|
|
|
1.7
|
|
|
|
(2.0
|
)
|
|
|
1.4
|
|
|
|
(749.0
|
)
|
Other income and expenses
|
|
0.3
|
|
|
|
0.3
|
|
*
|
|
0.3
|
|
|
|
0.2
|
|
|
|
41.7
|
|
(Loss) earnings before income taxes and discontinued operations
|
|
(10.5
|
)
|
|
|
1.4
|
|
|
|
(2.3
|
)
|
|
|
1.2
|
|
|
|
(881.0
|
)
|
Income taxes
|
|
(4.0
|
)
|
*
|
|
0.5
|
|
|
|
(0.9
|
)
|
|
|
0.5
|
|
*
|
|
(962.4
|
)
|
(Loss) earnings from continuing operations
|
|
(6.5
|
)
|
|
|
0.9
|
|
|
|
(1.4
|
)
|
|
|
0.7
|
|
|
|
(837.9
|
)
|
Loss from discontinued operations, net of taxes
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(34.1
|
)
|
Net (loss) earnings
|
|
(6.5
|
)
|
%
|
|
0.9
|
|
%
|
|
(1.4
|
)
|
%
|
|
0.7
|
|
%
|
|
(841.9
|
)
|
*
|
Difference due to rounding
|
Net Sales
–
The following table presents net sales by segment and variances in net sales:
|
12 Weeks Ended
|
|
|
40 Weeks Ended
|
|
|
October 7,
|
|
|
October 8,
|
|
|
|
|
|
October 7,
|
|
|
October 8,
|
|
|
|
|
(In thousands)
|
2017
|
|
|
2016
|
|
|
Variance
|
|
|
2017
|
|
|
2016
|
|
|
Variance
|
|
Food Distribution
|
$
|
|
937,397
|
|
|
$
|
|
804,500
|
|
|
$
|
|
132,897
|
|
|
$
|
|
3,041,983
|
|
|
$
|
|
2,615,964
|
|
|
$
|
|
426,019
|
|
Military
|
|
|
505,631
|
|
|
|
|
506,626
|
|
|
|
|
(995
|
)
|
|
|
|
1,620,021
|
|
|
|
|
1,686,567
|
|
|
|
|
(66,546
|
)
|
Retail
|
|
|
463,616
|
|
|
|
|
488,959
|
|
|
|
|
(25,343
|
)
|
|
|
|
1,541,853
|
|
|
|
|
1,603,885
|
|
|
|
|
(62,032
|
)
|
Total net sales
|
$
|
|
1,906,644
|
|
|
$
|
|
1,800,085
|
|
|
$
|
|
106,559
|
|
|
$
|
|
6,203,857
|
|
|
$
|
|
5,906,416
|
|
|
$
|
|
297,441
|
|
Net sales for the quarter ended October 7, 2017 (“third quarter”) increased $106.6 million, or 5.9%, to $1.91 billion from $1.80 billion in the quarter ended October 8, 2016 (“prior year quarter”). Net sales for the year-to-date period ended October 7, 2017 (“year-to-date period”) increased $297.4 million, or 5.0%, to $6.20 billion from $5.91 billion in the year-to-date period ended October 8, 2016 (“prior year-to-date period”). The increase was driven primarily by contributions from the Caito acquisition and organic growth from existing customers in the Food Distribution segment, which more than offset lower sales in the Retail segment. Third quarter net sales trends increased sequentially from the second quarter due to significantly improved sales comparisons in the Military commissary business.
Food Distribution net sales, after intercompany eliminations, increased $132.9 million, or 16.5%, to $937.4 million in the third quarter from $804.5 million in the prior year quarter. Net sales for the year-to-date period increased $426.0 million, or 16.3%, from $2.62 billion in the prior year-to-date period to $3.04 billion. The third quarter and year-to-date increases were due to contributions from the Caito acquisition and organic volume growth from existing customers.
21
Military net sales decreased
$1.0
million, or
0.2%
, to
$505.6
million in the
third
quarter from
$506.6
million in the prior year quarter
, representing a significant improvement from the 6.8% decline in the second
quarter
.
Net sales for the year-to-date period decreased
$66.5
million, or
3.9%
, from
$1.69
b
illion in the prior year-to-date period to
$1.62
b
illion.
The
third
quarter and year-to-date
decrease
s
were
primarily due to lower sales at the DeCA operated commi
ssaries
,
which for the third quarter were
mostly offset by new business
.
Retail net sales decreased $25.4 million, or 5.2%, to $463.6 million in the third quarter from $489.0 million in the prior year quarter. Net sales for the year-to-date period decreased $62.0 million, or 3.9%, from $1.60 billion in the prior year-to-date period to $1.54 billion. The decrease in net sales was primarily attributable to lower sales resulting from the closures and sales of retail stores ($16.7 million for the quarter and $42.8 million year-to-date) and negative comparable store sales. Comparable store sales, excluding fuel, were down 2.5% for the quarter and 2.2% for the year-to-date period, and reflect continued strong competition within the industry. The Company defines a retail store as comparable when it is in operation for 14 accounting periods (a period equals four weeks), regardless of remodels, expansions or relocated stores. Please note that 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 product 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 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 associated with product cost 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.
Gross profit increased to
$261.7 million in the third quarter from $255.3 million in the prior year quarter. As a percent of net sales, gross profit was 13.7% compared to 14.2% in the prior year quarter. Gross profit for the year-to-date period increased $37.9 million, or 4.4%, from $852.2 million in the prior year-to-date period to $890.1 million. As a percent of net sales, gross profit for the year-to-date period was 14.3% compared to 14.4% in the prior year-to-date period. As a percent of net sales, the third quarter and year-to-date changes in gross margin were primarily due to the increased mix of Food Distribution sales as a percentage of total sales combined with margin investments in the Retail segment.
Selling, General and Administrative Expenses
– Selling, general and administrative (“SG&A”) expenses consist primarily of salaries and wages, employee benefits, warehousing costs, store occupancy costs, shipping and handling, utilities, equipment rental, depreciation (to the extent not included in Cost of sales), out-bound freight and other administrative expenses.
SG&A expenses increased $8.2 million, or 3.7%, to $228.5 million in the third quarter from $220.3 million in the prior year quarter, representing 12.0% of net sales in the third quarter compared to 12.3% in the prior year quarter. SG&A expenses for the year-to-date period increased $42.6 million, or 5.7%, from $740.1 million in the prior year-to-date period to $782.7 million, and increased to 12.6% as a percentage of net sales compared to 12.5% in the prior year-to-date period. The
third quarter and year-to-date increases in expense were primarily due to the addition of the Caito acquisition, partly offset by lower incentive compensation expenses. The rate to sales decrease in the third quarter was primarily due to the mix of business operations and lower incentive compensation expenses.
Merger/Acquisition and Integration
– Third quarter and year-to-date period results included $2.4 million and $7.0 million, respectively, of merger/acquisition and integration expenses mainly associated with recent acquisitions. Prior year quarter and year-to-date results included $2.4 million and $4.2 million, respectively, of merger/acquisition and integration primarily associated with the merger of Spartan Stores, Inc. and Nash-Finch Company.
22
Restructuring Charges and
Goodwill and
Asset Impairment
–
Third q
uarter and
y
ear-to
-date
results
included
$
224.7
million and
$
225.7
million
, respectively,
of net restructuring and asset impairment charges
predominantly associated with third quarter
goodwill and
asset impairment
charges. In the third quarter, the Company recorded
a
non-cash goodwill impairment charge
of
$189.0 million
related to the R
etail segment
.
A
s
a result of
significantly lower than expected Retail operating results due to an increasingly competitive retail environment and the related pricing pressures that are anticipated to negatively impact gross margin, operati
ng profit, and future cash flows,
the Company
revised its future projections for the Retail reporting unit.
T
he Company performed Step 1 of the goodwill impairment test by calculating the fair value of the Retail reporting unit based on its discounted esti
mated future cash flows. It was determined that the carrying value of the Retail segment exceeded its fair value
, and c
onsequently, the Company recorded an estimated goodwill impairment charge of $189.0 million
.
The Company also recorded $35.6 million of a
sset impairment and restructuring charges in the third quarter primarily associated with the underlying performance of Company’s retail store base and the execution of its store rationalization program
. Prior year quarter
and
year-to-date
results
included
$
2
.7
million
and $
23.7
million, respectively,
of restructuring and asset impairment charges
.
Prior
year
quarter restructuring charges and asset impairment consisted primarily of impairment charges related to three underperforming retail stores and addition
al costs, incurred in connection with winding down operations at certain closed facilities in the Food Distribution and Retail segments.
Prior
year-to-date
period
restructuring charges and asset impairment consisted primarily of charges related to the clos
ure of three retail stores and two food distribution centers which were part of the Company’s retail store and warehouse rationalization plan, as well as impairment charges related to three underperforming retail stores.
Operating Earnings
–
The following table presents operating (loss) earnings by segment and variances in operating earnings:
|
12 Weeks Ended
|
|
|
40 Weeks Ended
|
|
|
October 7,
|
|
|
October 8,
|
|
|
|
|
|
October 7,
|
|
|
October 8,
|
|
|
|
|
(In thousands)
|
2017
|
|
|
2016
|
|
|
Variance
|
|
|
2017
|
|
|
2016
|
|
|
Variance
|
|
Food Distribution
|
$
|
|
20,350
|
|
|
$
|
|
18,957
|
|
|
$
|
|
1,393
|
|
|
$
|
|
68,868
|
|
|
$
|
|
64,040
|
|
|
$
|
|
4,828
|
|
Military
|
|
|
1,118
|
|
|
|
|
2,862
|
|
|
|
|
(1,744
|
)
|
|
|
|
4,517
|
|
|
|
|
8,792
|
|
|
|
|
(4,275
|
)
|
Retail
|
|
|
(215,310
|
)
|
|
|
|
8,048
|
|
|
|
|
(223,358
|
)
|
|
|
|
(198,641
|
)
|
|
|
|
11,315
|
|
|
|
|
(209,956
|
)
|
Total operating (loss) earnings
|
$
|
|
(193,842
|
)
|
|
$
|
|
29,867
|
|
|
$
|
|
(223,709
|
)
|
|
$
|
|
(125,256
|
)
|
|
$
|
|
84,147
|
|
|
$
|
|
(209,403
|
)
|
Operating earnings decreased $223.7 million to a loss of $193.8 million in the third quarter from earnings of $29.9 million in the prior year quarter. Operating earnings for the year-to-date period decreased $209.4 million to a loss of $125.3 million from earnings of $84.1 million in the prior year-to-date period. The third quarter decrease was primarily due to the goodwill impairment, higher asset impairment charges, start-up costs associated with the new Fresh Kitchen operation and the negative impact of lower sales in the Retail segment, which more than offset lower incentive compensation costs and organic sales growth in Food Distribution. The year-to-date decrease was primarily due to the goodwill impairment, higher asset impairment and restructuring charges predominantly related to the Retail segment as well as higher merger/acquisition and integration expenses and start-up costs associated with the recent acquisition, which more than offset the positive impacts of lower incentive compensation and organic sales growth in Food Distribution.
Food Distribution operating earnings increased $1.4 million, or 7.3%, to $20.3 million in the third quarter from $19.0 million in the prior year quarter. Operating earnings for the year-to-date period increased $4.8 million, or 7.5%, to $68.9 million from $64.0 million in the prior year-to-date period. The increase for the quarter was driven by organic sales growth and lower incentive compensation, partially offset by Fresh Kitchen start-up costs. The increase for the year-to-date period was driven by organic sales growth and lower incentive compensation, and lower restructuring charges related to the Company’s warehouse optimization plan, partially offset by charges related to Fresh Kitchen start-up costs and merger/acquisition and integration expenses.
Military operating earnings decreased $1.7 million, or 60.9%, to $1.1 million from $2.9 million in the prior year quarter. Operating earnings for the year-to-date period decreased $4.3 million, or 48.6%, to $4.5 million from $8.8 million in the prior year-to-date period. The third quarter decrease was due to higher merger/acquisition and integration and impairment expenses partly offset by margin rate improvements and lower incentive compensation expenses. The year-to-date decrease in operating earnings was primarily due to higher merger/acquisition and integration expenses, the negative impact of the shift of New Year’s Day into the first quarter, and higher costs for health care and a large insurance claim.
Retail operating earnings decreased $223.4 million to a loss of $215.3 million in the third quarter from earnings of $8.0 million in the prior year quarter. Operating earnings for the year-to-date period decreased $210.0 million to a loss of $198.6 million from earnings of $11.3 million in the prior year-to-date period. The third quarter decrease was primarily due to the goodwill impairment, higher asset impairment charges, lower sales, and investments in margin, partly offset by lower merger/acquisition and integration expenses. The year-to-date decrease was primarily due to higher asset impairment charges, higher health care costs, lower comparable store sales and the shift of New Year’s Day, partially offset by lower merger/acquisition and integration expenses and the closure of unprofitable stores.
23
Interest Expense
– Interest expense increased
$1.7
million, or
38.7%
, to
$6.1
million in the
third
quarter from
$4.4
million in the prior year quarter.
Intere
st expense for the year
-to-date period in
creased
$4.4
million, or
30.3%
, from
$14.7
million in the prior year-to-date period to
$19.1
million
.
The increase in interest expense was primarily due to increased borrowings related to the
Caito and BRT
acquisiti
on.
Income Taxes
– The effective income tax rates were 38.2% and 34.6% 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 39.4% and 36.7%, respectively. The differences from the federal statutory rate are primarily due to state taxes, tax benefits related to stock-based compensation and federal tax credits in the current year and state taxes and federal tax credits in the prior year. The Company’s effective tax rate was impacted by the stock-based compensation benefits recognized resulting from the adoption of ASU 2016-09. The tax impacts of stock-based compensation are primarily generated in the first quarter due to the timing of awards and vesting schedules.
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. In addition, securities analysts, fund managers and other shareholders and stakeholders that communicate with the Company request its financial results in these adjusted formats.
Current year adjusted operating earnings, adjusted earnings from continuing operations, and adjusted EBITDA exclude start-up costs associated with the new Fresh Kitchen operation as well as an executive retirement stock compensation award. The Fresh Kitchen is a newly constructed facility that provides the Company with the ability to process, cook, and package fresh protein-based foods and complete meal solutions. Given the Fresh Kitchen represents a new line of business for the Company, the start-up activities associated with testing, training, and preparing the Fresh Kitchen for production, as well as incorporating the related operations into the business, are considered “non-operational” or “non-core” in nature. The retirement stock compensation award represents incremental compensation expense in connection with an executive retirement that is also considered “non-operational” or “non-core” in nature.
Adjusted Operating Earnings
Adjusted operating earnings is a non-GAAP operating financial measure that the Company defines as operating earnings plus or minus adjustments for items that do not reflect the ongoing operating activities of the Company and costs associated with the closing of operational locations.
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.
24
Following is a reconciliation of operating
(loss)
earnings
to adjusted operating earnings for the 1
2
weeks
and
40
weeks
ended
October 7
, 2017 and
October 8
, 2016.
|
12 Weeks Ended
|
|
|
40 Weeks Ended
|
|
|
October 7,
|
|
|
October 8,
|
|
|
October 7,
|
|
|
October 8,
|
|
(In thousands)
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
Operating (loss) earnings
|
$
|
|
(193,842
|
)
|
|
$
|
|
29,867
|
|
|
$
|
|
(125,256
|
)
|
|
$
|
|
84,147
|
|
Adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Merger/acquisition and integration
|
|
|
2,392
|
|
|
|
|
2,427
|
|
|
|
|
7,031
|
|
|
|
|
4,237
|
|
Restructuring charges and asset impairment
|
|
|
224,653
|
|
|
|
|
2,662
|
|
|
|
|
225,660
|
|
|
|
|
23,714
|
|
Fresh Kitchen start-up costs
|
|
|
2,086
|
|
|
|
|
—
|
|
|
|
|
6,688
|
|
|
|
|
—
|
|
Stock compensation associated with executive retirement
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
1,172
|
|
|
|
|
|
|
Severance associated with cost reduction initiatives
|
|
|
4
|
|
|
|
|
149
|
|
|
|
|
27
|
|
|
|
|
839
|
|
Adjusted operating earnings
|
$
|
|
35,293
|
|
|
$
|
|
35,105
|
|
|
$
|
|
115,322
|
|
|
$
|
|
112,937
|
|
Reconciliation of operating earnings (loss) to adjusted operating earnings by segment:
|
|
Food Distribution:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating earnings
|
$
|
|
20,350
|
|
|
$
|
|
18,957
|
|
|
$
|
|
68,868
|
|
|
$
|
|
64,040
|
|
Adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Merger/acquisition and integration
|
|
|
939
|
|
|
|
|
639
|
|
|
|
|
5,254
|
|
|
|
|
1,201
|
|
Restructuring charges and asset impairment
|
|
|
379
|
|
|
|
|
207
|
|
|
|
|
1,280
|
|
|
|
|
4,749
|
|
Fresh Kitchen start-up costs
|
|
|
2,086
|
|
|
|
|
—
|
|
|
|
|
6,688
|
|
|
|
|
—
|
|
Stock compensation associated with executive retirement
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
591
|
|
|
|
|
—
|
|
Severance associated with cost reduction initiatives
|
|
|
4
|
|
|
|
|
12
|
|
|
|
|
25
|
|
|
|
|
218
|
|
Adjusted operating earnings
|
$
|
|
23,758
|
|
|
$
|
|
19,815
|
|
|
$
|
|
82,706
|
|
|
$
|
|
70,208
|
|
Military:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating earnings
|
$
|
|
1,118
|
|
|
$
|
|
2,862
|
|
|
$
|
|
4,517
|
|
|
$
|
|
8,792
|
|
Adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Merger/acquisition and integration
|
|
|
1,453
|
|
|
|
|
—
|
|
|
|
|
1,453
|
|
|
|
|
1
|
|
Restructuring charges (gains)
|
|
|
500
|
|
|
|
|
18
|
|
|
|
|
500
|
|
|
|
|
(241
|
)
|
Stock compensation associated with executive retirement
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
147
|
|
|
|
|
—
|
|
Severance associated with cost reduction initiatives
|
|
|
—
|
|
|
|
|
20
|
|
|
|
|
1
|
|
|
|
|
242
|
|
Adjusted operating earnings
|
$
|
|
3,071
|
|
|
$
|
|
2,900
|
|
|
$
|
|
6,618
|
|
|
$
|
|
8,794
|
|
Retail:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating (loss) earnings
|
$
|
|
(215,310
|
)
|
|
$
|
|
8,048
|
|
|
$
|
|
(198,641
|
)
|
|
$
|
|
11,315
|
|
Adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Merger/acquisition and integration
|
|
|
—
|
|
|
|
|
1,788
|
|
|
|
|
324
|
|
|
|
|
3,035
|
|
Restructuring charges and asset impairment
|
|
|
223,774
|
|
|
|
|
2,437
|
|
|
|
|
223,880
|
|
|
|
|
19,206
|
|
Stock compensation associated with executive retirement
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
434
|
|
|
|
|
—
|
|
Severance associated with cost reduction initiatives
|
|
|
—
|
|
|
|
|
117
|
|
|
|
|
1
|
|
|
|
|
379
|
|
Adjusted operating earnings
|
$
|
|
8,464
|
|
|
$
|
|
12,390
|
|
|
$
|
|
25,998
|
|
|
$
|
|
33,935
|
|
Adjusted Earnings from Continuing Operations
Adjusted earnings from continuing operations is a non-GAAP operating financial measure that the Company defines as earnings from continuing operations plus or minus adjustments for items that do not reflect the ongoing operating activities of the Company and costs associated with the closing of operational locations.
The Company believes that adjusted earnings from continuing operations provide a meaningful representation of its operating performance for the Company. The Company considers adjusted earnings from continuing operations as an additional way to measure operating performance on an ongoing basis. Adjusted earnings from continuing operations is meant to reflect the ongoing operating performance of all of its distribution and retail operations; consequently, it excludes the impact of items that could be considered “non-operating” or “non-core” in nature, and also excludes the contributions of activities classified as discontinued operations. Because adjusted earnings from continuing operations is a performance measure that management uses to allocate resources, assess performance against its peers and evaluate overall performance, the Company believes it provides useful information for both management and its investors. In addition, securities analysts, fund managers and other shareholders and stakeholders that communicate with the Company request its operating financial results in adjusted earnings from continuing operations format.
25
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 (loss) earnings from continuing operations to adjusted earnings from continuing operations for the 12 weeks and 40 weeks ended October 7, 2017 and October 8, 2016.
|
12 Weeks Ended
|
|
|
|
October 7, 2017
|
|
|
October 8, 2016
|
|
|
|
|
|
|
per diluted
|
|
|
|
|
|
per diluted
|
|
|
(In thousands, except per share amounts)
|
Earnings
|
|
|
share
|
|
|
Earnings
|
|
|
share
|
|
|
(Loss) earnings from continuing operations
|
$
|
|
(123,452
|
)
|
|
$
|
|
(3.31
|
)
|
|
$
|
|
16,730
|
|
|
$
|
|
0.45
|
|
|
Adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Merger/acquisition and integration
|
|
|
2,392
|
|
|
|
|
|
|
|
|
|
2,427
|
|
|
|
|
|
|
|
Restructuring charges and asset impairment
|
|
|
224,653
|
|
|
|
|
|
|
|
|
|
2,662
|
|
|
|
|
|
|
|
Fresh Kitchen start-up costs
|
|
|
2,086
|
|
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
|
|
Severance associated with cost reduction initiatives
|
|
|
4
|
|
|
|
|
|
|
|
|
|
149
|
|
|
|
|
|
|
|
Total adjustments
|
|
|
229,135
|
|
|
|
|
|
|
|
|
|
5,238
|
|
|
|
|
|
|
|
Income tax effect on adjustments (a)
|
|
|
(85,546
|
)
|
|
|
|
|
|
|
|
|
(1,918
|
)
|
|
|
|
|
|
|
Total adjustments, net of taxes
|
|
|
143,589
|
|
|
|
|
3.85
|
|
|
|
|
3,320
|
|
|
|
|
0.08
|
|
|
Adjusted earnings from continuing operations
|
$
|
|
20,137
|
|
|
$
|
|
0.54
|
|
|
$
|
|
20,050
|
|
|
$
|
|
0.53
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
40 Weeks Ended
|
|
|
|
October 7, 2017
|
|
|
October 8, 2016
|
|
|
|
|
|
|
per diluted
|
|
|
|
|
|
per diluted
|
|
|
(In thousands, except per share amounts)
|
Earnings
|
|
|
share
|
|
|
Earnings
|
|
|
share
|
|
|
(Loss) earnings from continuing operations
|
$
|
|
(87,327
|
)
|
|
$
|
|
(2.32
|
)
|
|
$
|
|
44,250
|
|
|
$
|
|
1.18
|
|
|
Adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Merger integration and acquisition expenses
|
|
|
7,031
|
|
|
|
|
|
|
|
|
|
4,237
|
|
|
|
|
|
|
|
Restructuring charges and asset impairment
|
|
|
225,660
|
|
|
|
|
|
|
|
|
|
23,714
|
|
|
|
|
|
|
|
Fresh Kitchen start-up costs
|
|
|
6,688
|
|
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
|
|
Severance associated with cost reduction initiatives
|
|
|
27
|
|
|
|
|
|
|
|
|
|
839
|
|
|
|
|
|
|
|
Stock compensation associated with executive retirement
|
|
|
1,172
|
|
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
|
|
Total adjustments
|
|
|
240,578
|
|
|
|
|
|
|
|
|
|
28,790
|
|
|
|
|
|
|
|
Income tax effect on adjustments (a)
|
|
|
(89,840
|
)
|
|
|
|
|
|
|
|
|
(10,871
|
)
|
|
|
|
|
|
|
Total adjustments, net of taxes
|
|
|
150,738
|
|
|
|
|
4.01
|
|
|
|
|
17,919
|
|
|
|
|
0.48
|
|
|
Adjusted earnings from continuing operations
|
$
|
|
63,411
|
|
|
$
|
|
1.69
|
|
|
$
|
|
62,169
|
|
|
$
|
|
1.66
|
|
|
* Includes rounding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
The income tax effect on adjustments is computed by applying the tax rate, before discrete tax items, to the total adjustments for the period.
|
26
Adjusted EBITDA
Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization (“adjusted EBITDA”) is a non-GAAP operating financial measure that the Company defines as net earnings plus interest, discontinued operations, depreciation and amortization, and other non-cash items including deferred (stock) compensation, the LIFO provision, as well as adjustments for items that do not reflect the ongoing operating activities of the Company and costs associated with the closing of operational locations.
The Company believes that adjusted EBITDA provides a meaningful representation of its operating performance for the Company as a whole and for its operating segments. The Company considers adjusted EBITDA as an additional way to measure operating performance on an ongoing basis. Adjusted EBITDA is meant to reflect the ongoing operating performance of all of its distribution and retail operations; consequently, it excludes the impact of items that could be considered “non-operating” or “non-core” in nature, and also excludes the contributions of activities classified as discontinued operations. Because adjusted EBITDA and adjusted EBITDA by segment are performance measures that management uses to allocate resources, assess performance against its peers and evaluate overall performance, the Company believes it provides useful information for both management and its investors. In addition, securities analysts, fund managers and other shareholders and stakeholders that communicate with the Company request its operating financial results in 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.
27
Following is a reconciliation of net earnings to adjusted EBITDA for the 1
2
weeks
and
40 weeks ended October 7
, 2017 and
October 8
, 2016.
|
12 Weeks Ended
|
|
|
40 Weeks Ended
|
|
|
October 7,
|
|
|
October 8,
|
|
|
October 7,
|
|
|
October 8,
|
|
(In thousands)
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
Net (loss) earnings
|
$
|
|
(123,506
|
)
|
|
$
|
|
16,648
|
|
|
$
|
|
(87,452
|
)
|
|
$
|
|
43,982
|
|
Loss from discontinued operations, net of tax
|
|
|
54
|
|
|
|
|
82
|
|
|
|
|
125
|
|
|
|
|
268
|
|
Income taxes
|
|
|
(76,445
|
)
|
|
|
|
8,864
|
|
|
|
|
(56,809
|
)
|
|
|
|
25,635
|
|
Other expenses, net
|
|
|
6,055
|
|
|
|
|
4,273
|
|
|
|
|
18,880
|
|
|
|
|
14,262
|
|
Operating (loss) earnings
|
|
|
(193,842
|
)
|
|
|
|
29,867
|
|
|
|
|
(125,256
|
)
|
|
|
|
84,147
|
|
Adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIFO expense (benefit)
|
|
|
192
|
|
|
|
|
(341
|
)
|
|
|
|
2,474
|
|
|
|
|
2,130
|
|
Depreciation and amortization
|
|
|
19,455
|
|
|
|
|
17,927
|
|
|
|
|
63,553
|
|
|
|
|
58,931
|
|
Merger/acquisition and integration
|
|
|
2,392
|
|
|
|
|
2,427
|
|
|
|
|
7,031
|
|
|
|
|
4,237
|
|
Restructuring charges and asset impairment
|
|
|
224,653
|
|
|
|
|
2,662
|
|
|
|
|
225,660
|
|
|
|
|
23,714
|
|
Fresh Kitchen start-up costs
|
|
|
2,086
|
|
|
|
|
—
|
|
|
|
|
6,688
|
|
|
|
|
—
|
|
Stock-based compensation
|
|
|
1,102
|
|
|
|
|
943
|
|
|
|
|
8,593
|
|
|
|
|
7,010
|
|
Other non-cash (gains) charges
|
|
|
(138
|
)
|
|
|
|
(71
|
)
|
|
|
|
(661
|
)
|
|
|
|
3
|
|
Adjusted EBITDA
|
$
|
|
55,900
|
|
|
$
|
|
53,414
|
|
|
$
|
|
188,082
|
|
|
$
|
|
180,172
|
|
Reconciliation of operating earnings (loss) to adjusted EBITDA by segment:
|
|
Food Distribution:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating earnings
|
$
|
|
20,350
|
|
|
$
|
|
18,957
|
|
|
$
|
|
68,868
|
|
|
$
|
|
64,040
|
|
Adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIFO expense (benefit)
|
|
|
98
|
|
|
|
|
(348
|
)
|
|
|
|
1,361
|
|
|
|
|
941
|
|
Depreciation and amortization
|
|
|
6,862
|
|
|
|
|
4,842
|
|
|
|
|
22,291
|
|
|
|
|
16,139
|
|
Merger/acquisition and integration
|
|
|
939
|
|
|
|
|
639
|
|
|
|
|
5,254
|
|
|
|
|
1,201
|
|
Restructuring charges and asset impairment
|
|
|
379
|
|
|
|
|
207
|
|
|
|
|
1,280
|
|
|
|
|
4,749
|
|
Fresh Kitchen start-up costs
|
|
|
2,086
|
|
|
|
|
—
|
|
|
|
|
6,688
|
|
|
|
|
—
|
|
Stock-based compensation
|
|
|
488
|
|
|
|
|
409
|
|
|
|
|
3,999
|
|
|
|
|
3,090
|
|
Other non-cash (gains) charges
|
|
|
(57
|
)
|
|
|
|
(61
|
)
|
|
|
|
(11
|
)
|
|
|
|
137
|
|
Adjusted EBITDA
|
$
|
|
31,145
|
|
|
$
|
|
24,645
|
|
|
$
|
|
109,730
|
|
|
$
|
|
90,297
|
|
Military:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating earnings
|
$
|
|
1,118
|
|
|
$
|
|
2,862
|
|
|
$
|
|
4,517
|
|
|
$
|
|
8,792
|
|
Adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIFO (benefit) expense
|
|
|
(63
|
)
|
|
|
|
134
|
|
|
|
|
329
|
|
|
|
|
678
|
|
Depreciation and amortization
|
|
|
2,786
|
|
|
|
|
2,693
|
|
|
|
|
8,832
|
|
|
|
|
8,850
|
|
Merger/acquisition and integration
|
|
|
1,453
|
|
|
|
|
—
|
|
|
|
|
1,453
|
|
|
|
|
1
|
|
Restructuring charges (gains)
|
|
|
500
|
|
|
|
|
18
|
|
|
|
|
500
|
|
|
|
|
(241
|
)
|
Stock-based compensation
|
|
|
186
|
|
|
|
|
171
|
|
|
|
|
1,313
|
|
|
|
|
1,178
|
|
Other non-cash charges (gains)
|
|
|
1
|
|
|
|
|
58
|
|
|
|
|
(15
|
)
|
|
|
|
262
|
|
Adjusted EBITDA
|
$
|
|
5,981
|
|
|
$
|
|
5,936
|
|
|
$
|
|
16,929
|
|
|
$
|
|
19,520
|
|
Retail:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating (loss) earnings
|
$
|
|
(215,310
|
)
|
|
$
|
|
8,048
|
|
|
$
|
|
(198,641
|
)
|
|
$
|
|
11,315
|
|
Adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIFO expense (benefit)
|
|
|
157
|
|
|
|
|
(127
|
)
|
|
|
|
784
|
|
|
|
|
511
|
|
Depreciation and amortization
|
|
|
9,807
|
|
|
|
|
10,392
|
|
|
|
|
32,430
|
|
|
|
|
33,942
|
|
Merger/acquisition and integration
|
|
|
—
|
|
|
|
|
1,788
|
|
|
|
|
324
|
|
|
|
|
3,035
|
|
Restructuring charges and asset impairment
|
|
|
223,774
|
|
|
|
|
2,437
|
|
|
|
|
223,880
|
|
|
|
|
19,206
|
|
Stock-based compensation
|
|
|
428
|
|
|
|
|
363
|
|
|
|
|
3,281
|
|
|
|
|
2,742
|
|
Other non-cash gains
|
|
|
(82
|
)
|
|
|
|
(68
|
)
|
|
|
|
(635
|
)
|
|
|
|
(396
|
)
|
Adjusted EBITDA
|
$
|
|
18,774
|
|
|
$
|
|
22,833
|
|
|
$
|
|
61,423
|
|
|
$
|
|
70,355
|
|
28
Liquidity and Capital Resources
Cash Flow Information
The following table summarizes the Company’s consolidated statements of cash flows:
|
|
|
|
40 Weeks Ended
|
|
|
|
|
|
October 7,
|
|
|
October 8,
|
|
(In thousands)
|
|
|
|
2017
|
|
|
2016
|
|
Cash flow activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities (a)
|
|
|
|
$
|
|
71,563
|
|
|
$
|
|
81,134
|
|
Net cash used in investing activities
|
|
|
|
|
|
(277,156
|
)
|
|
|
|
(52,536
|
)
|
Net cash provided by (used in) financing activities (a)
|
|
|
|
|
|
194,444
|
|
|
|
|
(24,505
|
)
|
Net cash used in discontinued operations
|
|
|
|
|
|
(48
|
)
|
|
|
|
(414
|
)
|
Net (decrease) increase in cash and cash equivalents
|
|
|
|
|
|
(11,197
|
)
|
|
|
|
3,679
|
|
Cash and cash equivalents at beginning of fiscal year
|
|
|
|
|
|
24,351
|
|
|
|
|
22,719
|
|
Cash and cash equivalents at end of fiscal year
|
|
|
|
$
|
|
13,154
|
|
|
$
|
|
26,398
|
|
(a)
Prior period amounts have been adjusted for the impact of the adoption of ASU 2016-09. Refer to Note 2 of the notes to condensed consolidated financial statements included in Item 1 of this Quarterly Report on Form 10-Q for further information.
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 $9.6 million mainly due to the timing of working capital requirements, particularly higher accounts receivable balances associated with sales to new and existing distribution customers, largely offset by lower customer advances to support sales growth compared to the prior year period.
Net cash used in investing activities.
Net cash used in investing activities increased $224.6 million in the current year compared to the prior year primarily due to the recent acquisition (see Note 3 to the condensed consolidated financial statements).
The Food Distribution, Military and Retail segments utilized 25.1%, 11.1% and 63.8% of capital expenditures, respectively, in the current year.
Net cash provided by (used in) financing activities.
Net cash provided by financing activities increased $218.9 million in the current year compared to the prior year primarily due to borrowings on the revolving credit facility to fund the recent acquisition.
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 capital lease obligations and current maturities, was $670.9 million and $431.1 million as of October 7, 2017 and December 31, 2016, respectively. The increase in total debt was driven by drawdowns on the credit facility to finance the recent acquisition.
Subsequent to the end of the third quarter of fiscal 2017, the Company paid the outstanding balance on the Senior secured term loan of $52.2 million with proceeds from its Senior secured revolving credit facility. As a result of this transaction, annual interest expense is expected to be reduced through a reduction of the average interest rates paid.
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 $1.0 billion. As of October 7, 2017, the senior secured revolving credit facility and senior secured term loan collectively had outstanding borrowings of $627.7 million. Additional available borrowings under the Company’s $1.0 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 $348.2 million at October 7, 2017. 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 $9.2 million were outstanding as of October 7, 2017. The revolving credit facility matures December 2021, and is secured by substantially all of the Company’s assets.
29
The Company believes that cash generated from o
perating 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 facility.
The Company’s current ratio (current assets to current liabilities) was 1.81-to-1 at October 7, 2017 compared to 1.77-to-1 at December 31, 2016, and its investment in working capital was $455.6 million at October 7, 2017 compared to $387.5 million at December 31, 2016. Net debt to total capital ratio was 0.48-to-1 at October 7, 2017 compared to 0.33-to-1 at December 31, 2016.
Total net debt is a non-GAAP financial measure that is defined as long-term debt and capital lease obligations, plus current maturities of long-term debt and capital lease obligations, less cash and cash equivalents. The 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 capital lease obligations to total net long-term debt and capital lease obligations as of October 7, 2017 and December 31, 2016.
|
October 7,
|
|
|
December 31,
|
|
|
2017
|
|
|
2016
|
|
Current maturities of long-term debt and capital lease obligations
|
$
|
|
19,407
|
|
|
$
|
|
17,424
|
|
Long-term debt and capital lease obligations
|
|
|
651,537
|
|
|
|
|
413,675
|
|
Total debt
|
|
|
670,944
|
|
|
|
|
431,099
|
|
Cash and cash equivalents
|
|
|
(13,154
|
)
|
|
|
|
(24,351
|
)
|
Total net long-term debt
|
$
|
|
657,790
|
|
|
$
|
|
406,748
|
|
For information on contractual obligations, see the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2016. At October 7, 2017, there have been no material changes to the Company’s significant contractual obligations outside the ordinary course of business.
Cash Dividends
During the year-to-date period ended October 7, 2017, the Company returned $41.1 million to shareholders from dividend payments and share repurchases. A 10.0% increase in the quarterly dividend rate from $0.15 per share to $0.165 per share was approved by the Board of Directors and announced on March 6, 2017. 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 $25.0 million. Additionally, the Company is generally permitted to pay cash dividends in excess of $25.0 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 7, 2017. These commitments consist primarily of operating leases and purchase commitments (as disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016), standby letters of credit of $9.2 million as of October 7, 2017, and interest on long-term debt and capital lease obligations.
30
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 31, 2016 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 31, 2016.
Recently Issued Accounting Standards
Refer to Note 2 in the notes to the condensed consolidated financial statements for further information.
31