=========================================================================== SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 22, 1996 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ______________ to ______________. Commission File Number: 33-41791 SPARTAN STORES, INC. (Exact Name of Registrant as Specified in Its Charter) MICHIGAN 38-0593940 (State or Other Jurisdiction (I.R.S. Employer of Incorporation or Organization) Identification No.) 850 76TH STREET, S.W. P.O. BOX 8700 GRAND RAPIDS, MICHIGAN 49518 (Address of Principal Executive Offices) (Zip Code) (616) 878-2000 (Registrant's Telephone Number, Including Area Code) Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes _X_ No ___ As of July 20, 1996, the issuer had 1,219,725 outstanding shares of Class A Common Stock, $20 par value. _____________________ =========================================================================== PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS <TABLE> SPARTAN STORES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS <CAPTION> FIRST QUARTER (12 WEEKS) ENDED JUNE 22, JUNE 17, 1996 1995 (UNAUDITED) (UNAUDITED) <S> <C> <C> NET SALES $568,025,497 $570,154,529 LESS VOLUME INCENTIVE REBATES 3,906,490 568,025,497 566,248,039 COSTS AND EXPENSES Cost of sales 524,797,712 521,484,721 Operating and administrative 33,311,214 36,228,473 Depreciation and amortization 4,421,245 3,963,427 Interest (net) 1,340,065 1,193,880 563,870,236 562,870,501 EARNINGS BEFORE TAXES ON INCOME 4,155,261 3,377,538 TAXES ON INCOME 1,397,000 1,380,000 NET EARNINGS $ 2,758,261 $ 1,997,538 NET EARNINGS PER CLASS A SHARE $ 2.23 $ 1.59 WEIGHTED AVERAGE NUMBER OF CLASS A SHARES OUTSTANDING 1,236,147 1,254,791 DIVIDENDS DECLARED PER CLASS A SHARE $ 0.125 $ 0.125 </TABLE> -2- <TABLE> SPARTAN STORES, INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED BALANCE SHEETS <CAPTION> JUNE 22, MARCH 30, 1996 1996 (UNAUDITED) <S> <C> <C> ASSETS CURRENT ASSETS Cash and cash equivalents $ 26,439,900 $ 39,796,018 Marketable securities 16,062,504 16,051,608 Accounts receivable 74,191,190 68,444,576 Refundable taxes on income 6,076,006 10,173,305 Inventories 74,514,812 78,659,807 Prepaid expenses 4,442,840 4,072,104 Deferred taxes on income 7,607,000 7,579,000 TOTAL CURRENT ASSETS 209,334,252 224,776,418 INVESTMENTS AND OTHER ASSETS 9,861,030 9,959,071 PROPERTY AND EQUIPMENT 285,823,118 279,534,993 Less Accumulated Depreciation and Amortization 126,508,962 126,819,069 NET PROPERTY AND EQUIPMENT 159,314,156 152,715,924 TOTAL ASSETS $378,509,438 $387,451,413 LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Notes payable $ 11,328,994 $ 15,000,000 Accounts payable 97,235,097 84,868,588 Insurance reserves 18,285,683 18,484,660 Current maturities of long-term debt 7,248,218 7,678,972 Current obligations under capital leases 581,558 582,135 Other current liabilities 21,245,547 28,878,016 TOTAL CURRENT LIABILITIES 155,925,097 155,492,371 DEFERRED GAIN ON SALE OF REAL PROPERTY 278,797 298,477 DEFERRED TAXES ON INCOME 627,000 600,000 POSTRETIREMENT BENEFITS OTHER THAN PENSIONS 4,101,483 4,101,483 LONG-TERM DEBT 111,447,825 122,013,296 LONG-TERM OBLIGATIONS UNDER CAPITAL LEASES 2,222,211 2,359,075 -3- SHAREHOLDERS' EQUITY Class A common stock, voting, par value $20 per share 24,664,200 24,920,960 Additional paid-in capital 18,911,654 19,622,472 Retained earnings 60,331,171 58,043,279 TOTAL SHAREHOLDERS' EQUITY 103,907,025 102,586,711 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $378,509,438 $387,451,413 </TABLE> -4- <TABLE> SPARTAN STORES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS <CAPTION> FIRST QUARTER (12 WEEKS) ENDED JUNE 22, JUNE 17, 1996 1995 (UNAUDITED) (UNAUDITED) <S> <C> <C> CASH FLOWS FROM OPERATING ACTIVITIES Net earnings $ 2,758,261 $ 1,997,538 Adjustments to reconcile net earnings to net cash provided by (used in) operating activities: Depreciation and amortization 4,421,245 3,963,427 Rebates paid in common stock 994,821 Deferred taxes on income (1,000) 123,000 Gain on sale of property and equipment (1,175,071) (176,381) Change in assets and liabilities: Marketable securities (10,896) (2,540,981) Accounts receivable (5,746,614) 11,138,528 Refundable taxes on income 4,097,299 Inventories 4,144,995 14,129,220 Prepaid expenses (370,736) 34,198 Accounts payable 12,366,509 (5,253,710) Rebates due to customers 29,393 657,835 Accrued payroll and benefits (762,308) (734,009) Insurance reserves (198,977) 851,946 Other accrued expenses (6,899,554) 6,601,296 NET CASH PROVIDED BY OPERATING ACTIVITIES 12,652,546 31,786,728 CASH FLOWS FROM INVESTING ACTIVITIES Purchases of property and equipment (14,244,828) (7,202,611) Proceeds from the sale of property and equipment 4,482,437 355,794 Other (3,653) 593,498 NET CASH USED IN INVESTING ACTIVITIES (9,766,044) (6,253,319) CASH FLOWS FROM FINANCING ACTIVITIES Changes in notes payable (3,671,006) (1,121,420) Proceeds from long-term borrowings 11,551,200 5,614,500 Repayment of long-term debt (22,547,426) (11,149,003) Reduction of obligations under capital leases (137,441) (124,900) Proceeds from sale of common stock 511,600 291,276 Common stock purchased (1,795,400) (180,606) Dividends paid (154,147) (158,288) NET CASH USED IN FINANCING ACTIVITIES (16,242,620) (6,828,441) -5- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (13,356,118) 18,704,968 CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 39,796,018 25,161,193 CASH AND CASH EQUIVALENTS AT END OF FIRST QUARTER $26,439,900 $43,866,161 </TABLE> -6- <TABLE> SPARTAN STORES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY <CAPTION> CLASS A ADDITIONAL COMMON PAID-IN RETAINED STOCK CAPITAL EARNINGS <S> <C> <C> <C> BALANCE - MARCH 25, 1995 $25,088,980 $17,473,010 $83,238,742 CLASS A COMMON STOCK TRANSACTIONS 76,046 shares purchased (1,520,920) (3,165,335) (2,904,751) 67,645 shares issued 1,352,900 5,314,797 NET LOSS (21,667,595) CASH DIVIDENDS - $.50 PER SHARE (623,117) BALANCE - MARCH 30, 1996 24,920,960 19,622,472 58,043,279 CLASS A COMMON STOCK TRANSACTIONS 17,954 shares purchased (359,080) (1,120,098) (316,222) 5,116 shares issued 102,320 409,280 NET EARNINGS 2,758,261 CASH DIVIDENDS - $.125 PER SHARE (154,147) BALANCE - JUNE 22, 1996 $24,664,200 $18,911,654 $60,331,171 </TABLE> -7- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ACCOUNTING POLICIES: The 1996 annual report contains a summary of significant accounting policies in the notes to consolidated financial statements. The Company follows the same accounting policies in the preparation of interim financial statements. INVENTORIES: Inventories are stated at the lower of cost or market using the LIFO (last-in, first-out) method. If replacement cost had been used, inventories would have been $43,700,000 and $43,500,000 higher at June 22, 1996 and March 30, 1996, respectively. ACCOUNTS PAYABLE: Accounts payable include $18,740,000 and $19,130,000 at June 22, 1996 and March 30, 1996, respectively, representing checks which have been issued and have not cleared the Company's controlled disbursing bank accounts. INTEREST (NET): Interest (net) includes interest income of $1,084,000 and $1,012,000 for the first quarter of fiscal 1997 and 1996, respectively. TAXES ON INCOME: The Company's effective tax rate differs from the statutory rate for the first quarter of fiscal 1996 due primarily to goodwill amortization. STATEMENT OF REGISTRANT: The data presented herein is unaudited, but in the opinion of management, includes all adjustments (which consist solely of normal recurring accruals) necessary for a fair presentation of the consolidated financial position of the Company and its subsidiaries at June 22, 1996 and the results of their operations and the changes in cash flows for the periods ended June 22, 1996 and June 17, 1995. These interim results are not necessarily indicative of the results of the fiscal years as a whole. -8- ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS On February 4, 1996, the Company changed its pricing methodology from a variable mark-up program with volume incentive rebates to a cost-plus pricing program. As a result of adopting the cost-plus pricing strategy, transportation costs and other services are no longer included in the selling price and volume incentive rebates have been discontinued. RESULTS OF OPERATIONS Net sales, less any volume incentive rebates, increased $1.8 million or .3% compared to the first quarter of fiscal 1996. The increase was primarily attributable to additional sales from new stores which was partially offset by lost sales due to warehouse consolidations and competitive market conditions at the retail level. Gross profit as a percentage of net sales, less any volume incentive rebates, decreased to 7.6% for the first quarter of fiscal 1997 compared to 7.9% for the same period last year. This decrease was primarily attributable to the implementation of the cost-plus pricing program during February, 1996, in which transportation and other service costs are no longer included in the selling price. Operating and administrative expenses as a percentage of net sales, less any volume incentive rebates, improved to 5.9% for the first quarter of fiscal 1997 compared to 6.4% for the same period last year. The Company anticipates a reduction in operating and administrative expenses of $20 to $25 million in 1997 as a result of separately charging to customers transportation and other service costs. In the Distribution segment, the Company's earnings before interest and taxes were $4.0 million for the first quarter of 1997, representing an increase of $1.1 million over the first quarter of 1996. This increase is due primarily to the closing of the Capistar distribution facility and its subsequent sale and the continuing consolidation of the J.F. Walker operations. Operating earnings in both the Insurance and Real Estate and Finance segments for the first quarter of fiscal 1997 were comparable to the same period last year. LIQUIDITY AND CAPITAL RESOURCES Cash provided by operations, one of the Company's primary sources of liquidity, was $12.7 and $31.8 million for the first quarter of fiscal 1997 and 1996, respectively. The most significant item which provided cash in the first quarter of fiscal 1997 and 1996 was a reduction in inventory levels. The decrease in inventory that occurred during the first quarter of both fiscal years generated cash of approximately $18.3 million and was due primarily to the Company's strategic decision to adopt a continuous replenishment method for its inventory. -9- Net cash used in investing activities during the first quarter of fiscal 1997 reflects the Company's commitment to maintain and upgrade its facilities and equipment. Cash used in investing activities, primarily purchases of property and equipment, was $9.8 million for the first quarter of fiscal 1997, compared to $6.3 million for the first quarter of fiscal 1996. Management expects that fiscal 1997 capital expenditures will be approximately $39.0 million. PART II. OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. (a) EXHIBITS. The following documents are filed as exhibits to this report on Form 10-Q: EXHIBIT NUMBER DOCUMENT 27 Financial Data Schedule (b) REPORTS ON FORM 8-K. No reports on Form 8-K have been filed during the period for which this report is filed. -10- SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Date: August 6, 1996 SPARTAN STORES, INC. (Registrant) By S/JAMES B. MEYER James B. Meyer Senior Vice President Corporate Support Services and Chief Financial Officer (Principal Financial Officer and duly authorized signatory for Registrant) -11-