UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☒
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended April 23, 2022.
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: 000-31127
SPARTANNASH COMPANY
(Exact Name of Registrant as Specified in Its Charter)
Michigan
38-0593940
(State or Other Jurisdiction of
Incorporation or Organization)
(I.R.S. Employer
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)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading
Symbol(s)
Name of each exchange on which registered
Common Stock, no par value
SPTN
NASDAQ Global Select Market
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 ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Accelerated filer
Non-accelerated filer
Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of May 31, 2022, the registrant had 36,126,354 outstanding shares of common stock, no par value.
FORWARD-LOOKING STATEMENTS
The matters discussed in this Quarterly Report on Form 10-Q, in the Company’s press releases and in the Company’s website-accessible conference calls with analysts and investor presentations include “forward-looking statements” about the plans, strategies, objectives, goals or expectations of SpartanNash Company and subsidiaries (“SpartanNash” or “the Company”). These forward-looking statements are identifiable by words or phrases indicating that SpartanNash or management “expects,” “anticipates,” “plans,” “believes,” or “estimates,” or that a particular occurrence or event “may,” “could,” “should,” “will” or “will likely” result, occur or be pursued or “continue” in the future, that the “outlook” or “trend” is toward a particular result or occurrence, that a development is an “opportunity,” “priority,” “strategy,” “focus,” that the Company is “positioned” for a particular result, or similarly stated expectations.
In addition to other risks and uncertainties described in connection with the forward-looking statements contained in this Quarterly Report on Form 10-Q, SpartanNash’s Annual Report on Form 10-K for the fiscal year ended January 1, 2022 and other periodic reports filed with the Securities and Exchange Commission (“SEC”), there are many important factors that could cause actual results to differ materially. These risks and uncertainties include disruptions associated with the COVID-19 pandemic, general business conditions, changes in overall economic conditions that impact consumer spending, the Company’s ability to integrate acquired assets, the impact of competition and other factors which are often beyond the control of the Company, and other risks listed in the “Risk Factors” discussions in Items 1A of the Company’s Annual Report on Form 10-K for the fiscal year ended January 1, 2022, and risks and uncertainties not presently known to the Company, or that the Company currently deems immaterial.
This section and the discussions contained in Item 1A “Risk Factors” of the Company’s Annual Report on Form 10-K for the fiscal year ended January 1, 2022 and in Part I, Item 2 “Critical Accounting Policies” of this Quarterly Report on Form 10-Q, are intended to provide meaningful cautionary statements for purposes of the safe harbor provision of the Private Securities Litigation Reform Act of 1995. This should not be construed as a complete list of all the economic, competitive, governmental, technological and other factors that could adversely affect the Company’s expected consolidated financial position, results of operations or liquidity. Additional risks and uncertainties not currently known to SpartanNash or that SpartanNash currently believes are immaterial also may impair its business, operations, liquidity, financial condition and prospects. The Company undertakes no obligation to update or revise its forward-looking statements to reflect developments that occur, or information obtained after the date of this Quarterly Report.
2
TABLE OF CONTENTS
Page
PART I.
FINANCIAL INFORMATION
4
Item 1.
Financial Statements
Condensed Consolidated Balance Sheets
Condensed Consolidated Statements of Earnings
5
Condensed Consolidated Statements of Comprehensive Income
6
Condensed Consolidated Statements of Shareholders’ Equity
7
Condensed Consolidated Statements of Cash Flows
8
Notes to Condensed Consolidated Financial Statements
9
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
17
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
27
Item 4.
Controls and Procedures
PART II.
OTHER INFORMATION
28
Unregistered Sales of Equity Securities and Use of Proceeds
Item 6.
Exhibits
29
Signatures
30
3
PART I
ITEM 1. Financial Statements
SPARTANNASH COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, Unaudited)
April 23,
January 1,
2022
Assets
Current assets
Cash and cash equivalents
$
16,330
10,666
Accounts and notes receivable, net
395,467
361,686
Inventories, net
556,322
522,324
Prepaid expenses and other current assets
63,772
62,517
Total current assets
1,031,891
957,193
Property and equipment, net
575,666
577,359
Goodwill
181,035
Intangible assets, net
109,400
110,960
Operating lease assets
269,278
283,040
Other assets, net
96,963
97,195
Total assets
2,264,233
2,206,782
Liabilities and Shareholders’ Equity
Current liabilities
Accounts payable
478,964
447,451
Accrued payroll and benefits
66,316
86,315
Other accrued expenses
63,164
67,893
Current portion of operating lease liabilities
47,375
47,845
Current portion of long-term debt and finance lease liabilities
5,806
6,334
Total current liabilities
661,625
655,838
Long-term liabilities
Deferred income taxes
74,396
63,692
Operating lease liabilities
252,126
266,701
Other long-term liabilities
36,483
38,292
Long-term debt and finance lease liabilities
444,299
399,390
Total long-term liabilities
807,304
768,075
Commitments and contingencies (Note 7)
Shareholders’ equity
Common stock, voting, no par value; 100,000 shares
authorized; 36,140 and 35,948 shares outstanding
494,571
493,783
Preferred stock, no par value, 10,000 shares authorized; no shares outstanding
—
Accumulated other comprehensive loss
(1,432
)
(1,455
Retained earnings
302,165
290,541
Total shareholders’ equity
795,304
782,869
Total liabilities and shareholders’ equity
See accompanying notes to condensed consolidated financial statements.
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands, except per share amounts)
(Unaudited)
16 Weeks Ended
April 23, 2022
April 24, 2021
Net sales
2,763,658
2,657,799
Cost of sales
2,313,075
2,239,769
Gross profit
450,583
418,030
Operating expenses
Selling, general and administrative
422,182
387,937
Acquisition and integration
239
59
Restructuring and asset impairment, net
13
(161
Total operating expenses
422,434
387,835
Operating earnings
28,149
30,195
Other expenses and (income)
Interest expense
4,185
4,589
Other, net
(216
(266
Total other expenses, net
3,969
4,323
Earnings before income taxes
24,180
25,872
Income tax expense
4,891
6,356
Net earnings
19,289
19,516
Basic net earnings per share:
0.54
0.55
Diluted net earnings per share:
0.53
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Other comprehensive income, before tax
Postretirement liability adjustment
76
Income tax expense related to items of other comprehensive income
(7
(19
Total other comprehensive income, after tax
23
57
Comprehensive income
19,312
19,573
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
Accumulated
Other
Shares
Common
Comprehensive
Retained
Outstanding
Stock
Loss
Earnings
Total
Balance at January 1, 2022
35,948
Other comprehensive income
Dividends - $0.21 per share
(7,665
Stock-based employee compensation
4,295
Stock warrant
673
Issuances of common stock for associate stock purchase plan
108
Issuances of restricted stock
369
Cancellations of stock-based awards
(180
(4,288
Balance at April 23, 2022
36,140
Balance at January 2, 2021
35,851
491,819
(2,276
245,506
735,049
Dividends - $0.20 per share
(7,238
645
Issuances of common stock for stock bonus plan
and associate stock purchase plan
21
385
Issuance of restricted stock
523
(129
(2,079
Balance at April 24, 2021
36,266
494,955
(2,219
257,784
750,520
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Cash flows from operating activities
Adjustments to reconcile net earnings to net cash provided by operating activities:
Non-cash restructuring, asset impairment, and other charges
(13
(345
Depreciation and amortization
28,473
28,091
Non-cash rent
(1,283
(944
LIFO expense
10,187
1,655
Postretirement benefits (income) expense
(109
960
10,704
10,967
Stock-based compensation expense
Gain on disposals of assets
(77
(182
Other operating activities
576
468
Changes in operating assets and liabilities:
Accounts receivable
(33,680
11,077
Inventories
(44,186
(62,435
Prepaid expenses and other assets
4,984
(3,972
43,032
(15,539
(21,582
(34,130
Current income taxes
(6,553
7,251
Other accrued expenses and other liabilities
(4,760
954
Net cash provided by (used in) operating activities
9,970
(31,778
Cash flows from investing activities
Purchases of property and equipment
(29,938
(22,124
Net proceeds from the sale of assets
2,581
25,826
Loans to customers
(130
Payments from customers on loans
421
693
Other investing activities
(9
(8
Net cash (used in) provided by investing activities
(26,945
4,257
Cash flows from financing activities
Proceeds from senior secured credit facility
420,582
484,142
Payments on senior secured credit facility
(383,913
(442,559
Repayment of other long-term debt and finance lease liabilities
(2,017
(1,514
Net payments related to stock-based award activities
Dividends paid
(7,714
(7,119
Other financing activities
(11
39
Net cash provided by financing activities
22,639
30,910
Net increase in cash and cash equivalents
5,664
3,389
Cash and cash equivalents at beginning of period
19,903
Cash and cash equivalents at end of period
23,292
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1 – Summary of Significant Accounting Policies and Basis of Presentation
The accompanying unaudited condensed consolidated financial statements are prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”) and include the accounts of SpartanNash Company and its subsidiaries (“SpartanNash” or “the Company”). Intercompany accounts and transactions have been eliminated. For further information, refer to the consolidated financial statements and footnotes included in the Company’s Annual Report on Form 10-K for the year ended January 1, 2022.
In the opinion of management, the accompanying condensed consolidated financial statements, taken as a whole, contain all adjustments, including normal recurring items, necessary to present fairly the financial position of SpartanNash as of April 23, 2022, and the results of its operations and cash flows for the interim periods presented. The preparation of the condensed consolidated financial statements and related notes to the financial statements requires management to make estimates. Estimates are based on historical experience, where applicable, and expectations of future outcomes which management believes are reasonable under the circumstances. Interim results are not necessarily indicative of results for a full year.
The unaudited information in the condensed consolidated financial statements for the first quarters of 2022 and 2021 include the results of operations of the Company for the 16-week periods ended April 23, 2022 and April 24, 2021, respectively.
Note 2 – Adoption of New Accounting Standards and Recently Issued Accounting Standards
As of April 23, 2022 and for the period then ended, there were no recently adopted accounting standards that had a material impact on the Company’s condensed consolidated financial statements. There were no recently issued accounting standards not yet adopted which would have a material effect on the Company’s condensed consolidated financial statements.
Note 3 – Revenue
Disaggregation of Revenue
The following table provides information about disaggregated revenue by type of products and customers for each of the Company’s reportable segments:
16 Weeks Ended April 23, 2022
(In thousands)
Food Distribution
Retail
Military
Type of products:
Center store (a)
473,364
295,056
294,289
1,062,709
Fresh (b)
446,953
299,879
181,101
927,933
Non-food (c)
420,735
131,431
132,404
684,570
Fuel
54,591
29,805
322
3,728
33,855
1,370,857
781,279
611,522
Type of customers:
Individuals
780,959
Manufacturers, brokers and distributors
20,425
564,731
585,156
Retailers
1,338,852
43,063
1,381,915
11,580
320
15,628
16 Weeks Ended April 24, 2021
451,777
288,718
282,062
1,022,557
447,208
283,035
169,692
899,935
402,695
128,136
129,057
659,888
39,181
32,402
374
3,462
36,238
1,334,082
739,444
584,273
739,293
18,212
544,384
562,596
1,300,960
36,427
1,337,387
14,910
151
18,523
(a) Center store includes dry grocery, frozen and beverages.
(b) Fresh includes produce, meat, dairy, deli, bakery, prepared proteins, seafood and floral.
(c) Non-food includes general merchandise, health and beauty care, tobacco products and pharmacy.
Contract Assets and Liabilities
Under its contracts with customers, the Company stands ready to deliver product upon receipt of a purchase order. Accordingly, the Company has no performance obligations under its contracts until its customers submit a purchase order. The Company does not receive pre-payment from its customers or enter into commitments to provide goods or services that have terms greater than one year. As the performance obligation is part of a contract that has an original expected duration of less than one year, the Company has applied the practical expedient under ASC 606, Revenue from Contracts with Customers, to omit disclosures regarding remaining performance obligations.
Revenue recognized from performance obligations related to prior periods (for example, due to changes in estimated rebates and incentives impacting the transaction price) was not material in any period presented.
For volume-based arrangements, the Company estimates the amount of the advanced funds earned by the retailers based on the expected volume of purchases by the retailer and amortizes the advances as a reduction of the transaction price and revenue earned. These advances are not considered contract assets under ASC 606 as they are not generated through the transfer of goods or services to the retailers. These advances are included in Other assets, net within the condensed consolidated balance sheets.
10
When the Company transfers goods or services to a customer, payment is due subject to normal terms and is not conditional on anything other than the passage of time. Typical payment terms range from due upon receipt to 30 days, depending on the customer. At contract inception, the Company expects that the period of time between the transfer of goods to the customer and when the customer pays for those goods will be less than one year, which is consistent with the Company’s standard payment terms. Accordingly, the Company has elected the practical expedient to not adjust for the effects of a significant financing component. As a result, these amounts are recorded as receivables and not contract assets. The Company had no contract assets for any period presented.
The Company does not typically incur incremental costs of obtaining a contract that are contingent upon successful contract execution and would therefore be capitalized.
Allowance for Credit Losses
Changes to the balance of the allowance for credit losses were as follows:
Current Accounts
Long-term
and Notes Receivable
Notes Receivable
4,414
731
5,145
Changes in credit loss estimates
330
Write-offs charged against the allowance
(91
4,653
5,384
6,232
371
6,603
(78
(281
5,873
6,244
Note 4 – Goodwill and Other Intangible Assets
The Company has three reporting units; however, no goodwill exists within the Retail or Military reporting units. The carrying amount of goodwill recorded within the Food Distribution reporting unit was $181.0 million as of April 23, 2022 and January 1, 2022.
The Company has indefinite-lived intangible assets that are not amortized, consisting primarily of indefinite-lived trade names and liquor licenses. The carrying amount of indefinite-lived intangible assets was $67.6 million as of April 23, 2022 and January 1, 2022.
The Company reviews goodwill and other indefinite-lived intangible assets for impairment annually, during the fourth quarter of each year, and more frequently if circumstances indicate impairment is probable. Such circumstances have not arisen in the current fiscal year. Testing goodwill and other indefinite-lived intangible assets for impairment requires management to make significant estimates about the Company’s future performance, cash flows, and other assumptions that can be affected by potential changes in economic, industry or market conditions, business operations, competition, or the Company’s stock price and market capitalization.
11
Note 5 – Restructuring and Asset Impairment
The following table provides the activity of reserves for closed properties for the 16-week period ended April 23, 2022. Included in the liability are lease-related ancillary costs from the date of closure to the end of the remaining lease term, as well as related severance. Reserves for closed properties recorded in the condensed consolidated balance sheets are included in “Other accrued expenses” in Current liabilities and “Other long-term liabilities” in Long-term liabilities based on the timing of when the obligations are expected to be paid. Reserves for severance are recorded in “Accrued payroll and benefits”.
Reserves for Closed Properties
Lease
Ancillary
Costs
Severance
3,124
Provision for severance
Changes in estimates
(27
Accretion expense
22
Payments
(373
(382
2,746
Restructuring and asset impairment, net in the condensed consolidated statements of earnings consisted of the following:
April 24,
2021
Asset impairment charges (a)
756
Provision for closing charges
583
Gain on sales of assets related to closed facilities (b)
(1,860
84
Other costs associated with site closures (c)
31
335
(59
(a) Asset impairment charges in the prior year were incurred primarily in the Retail segment and relate to previously closed locations.
(b) Gain on sales of assets in the prior year primarily relates to the sales of pharmacy customer lists related to store closings in the Retail segment.
(c) Other costs in the current year and prior year primarily relate to Retail store closings.
Long-lived assets which are not recoverable are measured at fair value on a nonrecurring basis using Level 3 inputs under the fair value hierarchy, as further described in Note 6. There were no asset impairment charges in the current year. In the prior year, long-lived assets with a book value of $2.6 million were measured at a fair value of $1.8 million, resulting in impairment charges of $0.8 million. The fair value of long-lived assets is determined by estimating the amount and timing of net future cash flows, including the expected proceeds from the sale of assets, discounted using a risk-adjusted rate of interest. The Company estimates future cash flows based on historical results of operations, external factors expected to impact future performance, experience and knowledge of the geographic area in which the assets are located, and when necessary, uses real estate brokers.
Note 6 – Fair Value Measurements
ASC 820, Fair Value Measurement, prioritizes the inputs to valuation techniques used to measure fair value into the following hierarchy:
Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2: Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.
Level 3: Unobservable inputs for the asset or liability, reflecting the reporting entity’s own assumptions about the assumptions that market participants would use in pricing.
12
Financial instruments include cash and cash equivalents, accounts and notes receivable, accounts payable and long-term debt. The carrying amounts of cash and cash equivalents, accounts and notes receivable, and accounts payable approximate fair value because of the short-term maturities of these financial instruments. For discussion of the fair value measurements related to goodwill, and long- or indefinite-lived asset impairment charges, refer to Notes 4 and 5. At April 23, 2022 and January 1, 2022, the book value and estimated fair value of the Company’s debt instruments, excluding debt financing costs, were as follows:
Book value of debt instruments, excluding debt financing costs:
Current maturities of long-term debt and finance lease liabilities
446,497
402,065
Total book value of debt instruments
452,303
408,399
Fair value of debt instruments, excluding debt financing costs
453,689
414,667
Excess of fair value over book value
1,386
6,268
The estimated fair value of debt is based on market quotes for instruments with similar terms and remaining maturities (Level 2 inputs and valuation techniques).
Note 7 – Commitments and Contingencies
The Company is engaged from time-to-time in routine legal proceedings incidental to its business. The Company does not believe that these routine legal proceedings, taken as a whole, will have a material impact on its business or financial condition. While the ultimate effect of such actions cannot be predicted with certainty, management believes that their outcome will not result in an adverse effect on the Company’s consolidated financial position, operating results or liquidity.
The Company has contributed and is required to continue making contributions to the Central States Southeast and Southwest Pension Fund (the “Central States Plan” or the “Plan”), a multi-employer pension plan, based on obligations arising from certain of its collective bargaining agreements. If the Company were to cease making such contributions and triggered a withdrawal from the Plan, it is possible that the Company would be obligated to pay withdrawal liability to the Plan if the Plan is underfunded at the time of such withdrawal. Based on the most recent information available to the Company, management believes that the Plan’s present value of actuarial accrued liabilities significantly exceeds the value of the assets held in the Plan’s trust to pay benefits. Management is not aware of any facts that could give rise to any assessment of withdrawal liability against the Company or any significant change in funding levels in the Plan since January 1, 2022. Due to uncertainty regarding future factors that could trigger withdrawal liability, as well as the absence of specific information regarding matters such as the Plan’s current financial situation, we are unable to determine with certainty the current amount of the Plan’s underfunding and/or the Company’s current potential withdrawal liability exposure in the event of a future withdrawal from the Plan. Any adjustment for withdrawal liability would be recorded when it is probable that a liability exists and can be reasonably determined.
On March 10, 2021, the United States Congress passed the American Rescue Plan Act of 2021 (the “Act”), which provides financial relief to certain failing multiemployer pension plans. In accordance with the interim guidance issued by the Pension Benefit Guaranty Corporation on July 9, 2021, the Act is designed to prevent such plans from becoming insolvent for the next 30 years. As the Central States Plan is in a critical and declining status, it has applied and is expected to qualify for relief under the Act. The legislation and the available relief are designed to alleviate the risk of insolvency of the Plan for the next 30 years.
Note 8 – Associate Retirement Plans
During each of the 16- week periods ended April 23, 2022 and April 24, 2021, the Company recognized net periodic postretirement benefit costs of $0.2 million related to the SpartanNash Retiree Medical Plan (“Retiree Medical Plan”). In the first quarter of the current year, the Company realized a gain of $0.2 million related to a refund from the annuity provider associated with an ineligible participant previously included in the terminated SpartanNash Company Pension Plan. These amounts are included in “Other, net” in the condensed consolidated statements of earnings.
The Company expects to make total contributions of approximately $0.5 million in 2022 to the Retiree Medical Plan and has made $0.1 million in the year-to-date period. The Company’s retirement programs also include defined contribution plans providing contributory benefits, as well as executive compensation plans for a select group of management personnel and/or highly compensated associates.
Multi-Employer Plans
In addition to the plans listed above, the Company participates in the Central States Southeast and Southwest Pension Fund, the Michigan Conference of Teamsters and Ohio Conference of Teamsters Health and Welfare plans (collectively referred to as “multi-employer plans”), and other company-sponsored defined contribution plans for most associates covered by collective bargaining agreements.
With respect to the Company’s participation in the Central States Plan, expense is recognized as contributions are payable. The Company’s contributions during the 16-week periods ended April 23, 2022 and April 24, 2021 were $3.8 million and $4.6 million, respectively. See Note 7 for further information regarding contingencies related to the Company’s participation in the Central States Plan.
Note 9 – Income Taxes
The effective income tax rate was 20.2% and 24.6% for the 16 weeks ended April 23, 2022 and April 24, 2021, respectively. The difference from the federal statutory rate in the current year quarter was primarily due to tax benefits associated with stock compensation and federal tax credits, partially offset by state taxes. In the prior year, the difference from the federal statutory rate was primarily due to state taxes, partially offset by federal tax credits.
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 the CARES Act, the Company recorded net discrete income tax benefits of $9.3 million in 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%. In the first quarter of 2021, the Company received tax refunds totaling $25.7 million related to the amended prior year returns.
Note 10 – Share-Based Payments
Share-Based Employee Awards
The Company sponsors shareholder-approved stock incentive plans that provide for the granting of stock options, stock appreciation rights, restricted stock, restricted stock units, performance shares, performance share units, dividend equivalent rights, and other stock-based and stock-related awards to directors, officers and other key associates.
Share-based compensation expense recognized and included in “Selling, general and administrative expenses” in the condensed consolidated statements of earnings, and related tax impacts were as follows:
Restricted stock expense
Income tax benefit
(2,590
(979
Restricted stock expense, net of tax
1,705
3,206
The following table summarizes activity in the stock incentive plans for the 16 weeks ended April 23, 2022:
Weighted
Restricted
Average
Grant-Date
Awards
Fair Value
Outstanding at January 1, 2022
1,031,837
17.56
Granted
369,098
28.40
Vested
(452,444
17.58
Cancelled/Forfeited
(36,344
17.93
Outstanding at April 23, 2022
912,147
21.92
As of April 23, 2022, total unrecognized compensation cost related to non-vested restricted stock awards granted under the Company’s stock incentive plans is $12.4 million and is expected to be recognized over a weighted average period of 2.3 years.
Stock Warrant
On October 7, 2020, in connection with its entry into a commercial agreement with Amazon.com, Inc. (“Amazon”), the Company issued Amazon.com NV Investment Holdings LLC, a subsidiary of Amazon, a warrant to acquire up to an aggregate of 5,437,272 shares of the Company’s common stock (the “Warrant”), subject to certain vesting conditions. Warrant shares equivalent to 2.5% of the Company’s outstanding and issuable shares, or 1,087,455 shares, vested upon the signing of the commercial agreement, and had a grant date fair value of $5.51 per share. Warrant shares equivalent to up to 10.0% of the Company’s outstanding and issuable shares, or 4,349,817 shares, may vest in connection with conditions defined by the terms of the Warrant, as Amazon makes payments to the Company in connection with the commercial supply agreement, in increments of $200 million, and had a grant date fair value of $5.33 per share. Upon vesting, shares may be acquired at an exercise price of $17.7257. The right to purchase shares in connection with the Warrant expires on October 7, 2027.
14
Share-based payment expense recognized as a reduction of “Net sales” in the condensed consolidated statements of earnings, and related tax benefits were as follows:
Warrant expense
(50
(57
Warrant expense, net of tax
623
588
The following table summarizes stock warrant activity for the 16 weeks ended April 23, 2022:
Warrant
Outstanding and nonvested at January 1, 2022
3,914,833
(108,746
Outstanding and nonvested at April 23, 2022
3,806,087
As of April 23, 2022, total unrecognized cost related to non-vested warrant shares was $20.0 million, which may be expensed as vesting conditions are satisfied over the remaining term of the agreement, or 5.5 years. Warrants representing 1,631,185 shares are vested and exercisable. As of April 23, 2022, nonvested warrant shares had an intrinsic value of $61.7 million, and vested warrant shares had an intrinsic value of $26.4 million.
Note 11 – Earnings Per Share
Outstanding nonvested restricted stock awards under the 2015 Stock Incentive Plan contain nonforfeitable rights to dividends or dividend equivalents, which participate in undistributed earnings with common stock. These awards are classified as participating securities and are included in the calculation of basic earnings per share. Awards under the 2020 Stock Incentive Plan do not contain nonforfeitable rights to dividends or dividend equivalents and are therefore not classified as participating securities. The dilutive impact of both the restricted stock awards and warrants are presented below, as applicable. The following table sets forth the computation of basic and diluted net earnings per share:
Numerator:
Adjustment for earnings attributable to participating securities
(273
(426
Net earnings used in calculating earnings per share
19,016
19,090
Denominator:
Weighted average shares outstanding, including participating securities
35,566
35,765
Adjustment for participating securities
(504
(781
Shares used in calculating basic earnings per share
35,062
34,984
Effect of dilutive stock warrant
648
86
Effect of dilutive restricted stock awards
168
25
Shares used in calculating diluted earnings per share
35,878
35,095
Basic earnings per share
Diluted earnings per share
Note 12 – Supplemental Cash Flow Information
Supplemental cash flow information is as follows:
Non-cash investing activities:
Capital expenditures included in accounts payable
3,756
8,392
Operating lease asset additions
1,117
424
Finance lease asset additions
10,006
62
Non-cash financing activities:
Dividends declared but unpaid
131
Recognition of operating lease liabilities
Recognition of finance lease liabilities
Other supplemental cash flow information:
Cash paid for interest
3,059
3,560
15
Note 13 – Reporting Segment Information
The following tables set forth information about the Company by reporting segment:
Net sales to external customers
Inter-segment sales
339,786
161
339,947
10,092
14,189
4,192
26,684
1,438
Capital expenditures
13,100
12,673
4,165
29,938
310,631
173
310,804
(18
(143
9,790
14,241
4,060
Operating earnings (loss)
21,146
14,192
(5,143
9,956
9,135
3,033
22,124
Total Assets
1,115,265
1,092,851
743,122
747,342
405,846
366,589
16
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 January 1, 2022.
Overview
SpartanNash, headquartered in Grand Rapids, Michigan, is a food solutions company that delivers the ingredients for a better life. As a distributor, wholesaler and retailer with a global supply chain network, SpartanNash customers span a diverse group of national accounts, independent and chain grocers, e-commerce retailers, U.S. military commissaries and exchanges, and the Company’s own brick-and-mortar grocery stores, pharmacies and fuel centers. SpartanNash distributes grocery and household goods, including fresh produce and its Our Family® portfolio of products to locations in all 50 states. The Company operates three reportable business segments: Food Distribution, Retail and Military.
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.
As of the end of the first quarter, the Company’s Retail segment operated 145 corporate owned retail stores in the Midwest region primarily under the banners of Family Fare, Martin’s Super Markets, D&W Fresh Market, VG’s Grocery, and Dan’s Supermarket. The Company also offered pharmacy services in 91 of its corporate owned retail stores and operated 36 fuel centers. The Company’s neighborhood market strategy distinguishes its corporate owned retail stores from supercenters and limited assortment stores.
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, in addition to the District of Columbia, Europe, Cuba, Puerto Rico, Honduras, Iraq, Kuwait, Bahrain, Qatar, Djibouti, Korea and Japan. 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, a partnership with DeCA which began in 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. The fourth quarter includes the Thanksgiving and Christmas holidays, and depending on the fiscal year end, may include the New Year’s holiday.
The majority of the Company’s revenues are not seasonal in nature. However, in certain geographic areas, corporate retail stores and independent retail customers are dependent on tourism, and therefore, are affected by seasons and weather patterns.
2022 First Quarter Highlights
Key financial and operational highlights for the first quarter include the following:
•
Net sales increased 4.0% to $2.76 billion from $2.66 billion in the prior year quarter. Food Distribution segment net sales increased 2.8% compared to the prior year quarter. Retail comparable store sales were 7.2% in the first quarter. Net sales for the Military segment increased 4.7% compared to the prior year quarter.
Net earnings of $19.3 million, compared to $19.5 million in the prior year quarter.
Record first quarter adjusted EBITDA of $76.6 million, an increase of 18.2% from $64.8 million in the prior year quarter.
EPS of $0.53, compared to $0.54 in the prior year quarter. Adjusted EPS of $0.83, a 41% increase compared to $0.59 in the prior year quarter.
Military segment operating margin of 0.24% and adjusted EBITDA margin of 1.58%, surpassing the Company’s original turnaround target of 1%.
The Company made significant progress on its supply chain transformation, securing more than $15 million in run-rate cost savings and meeting its initial full-year commitment of $15 million to $30 million of annualized savings, while delivering an approximate 7% improvement in throughput rate year-over-year.
The Company increased the fiscal 2022 guidance, including net sales, adjusted EBITDA and adjusted EPS ranges. Adjusted EBITDA is now expected to range from $224 to $239 million and adjusted EPS is now expected to range from $2.17 per diluted share to $2.32 per diluted share. The Company also now expects net sales to range from $9.0 billion to $9.3 billion, with Military Distribution sales now expected to range from negative 4.0% to 0.0%. Food Distribution sales are now expected to increase 3.0% to 5.0%, while Retail comparable sales are now expected to range from 1.0% to 3.0% for 2022.
Results of Operations
The following table sets forth items from the condensed consolidated statements of earnings as a percentage of net sales and the year-to-year percentage change in the dollar amounts:
Percentage of Net Sales
Percentage Change
100.0
4.0
16.3
15.7
7.8
15.3
14.6
8.8
0.0
**
Restructuring charges and asset impairment, net
(0.0
1.0
1.1
(6.8
Other expenses
0.1
0.2
(8.2
0.9
(6.5
(23.0
0.7
(1.2
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:
Variance
36,775
41,835
27,249
Total net sales
105,859
Net sales for the quarter ended April 23, 2022 (the “first quarter”) increased $105.9 million, or 4.0%, to $2.76 billion from $2.66 billion in the quarter ended April 24, 2021 (the “prior year quarter”). The first quarter increase was attributable to increases in net sales in all three segments that were favorably impacted by the current inflationary environment.
Food Distribution net sales increased $36.8 million, or 2.8%, to $1.37 billion in the first quarter from $1.33 billion in the prior year quarter. The first quarter increase was due primarily to the inflationary impact on pricing.
Retail net sales increased $41.8 million, or 5.7%, to $781.3 million in the first quarter from $739.4 million in the prior year quarter. The first quarter increase was primarily due to inflationary pricing. Comparable store sales increased 7.2% for the quarter. 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. Sales are compared to the same store’s operations from the prior year period for purposes of calculation of comparable store sales. 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 increased $27.2 million, or 4.7%, to $611.5 million in the first quarter from $584.3 million in the prior year quarter. The first quarter increase was primarily due the effects of inflation, partially offset by reduced case volumes. Although Military’s case volumes declined in the current quarter, the rate of the case volume decline slowed compared to the trend experienced over the previous year.
18
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. 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 earnings.
Gross profit increased $32.6 million, or 7.8%, to $450.6 million in the first quarter from $418.0 million in the prior year quarter. As a percent of net sales, gross profit was 16.3% compared to 15.7% in the prior year quarter. Gross profit rate growth was driven by improvements in margin rates in the Food Distribution and Military segments, partially offset by an increase in LIFO expense of $8.5 million.
Selling, General and Administrative Expenses – Selling, general and administrative (“SG&A”) expenses consist primarily of operating costs related to retail and supply chain operations, including salaries and wages, employee benefits, facility costs, shipping and handling, equipment rental, depreciation, and out-bound freight, in addition to corporate administrative expenses.
SG&A expenses for the first quarter increased $34.2 million, or 8.8%, to $422.2 million from $387.9 million in the prior year quarter, representing 15.3% of net sales in the first quarter compared to 14.6% in the prior year quarter. The increase in expenses as a rate of sales was due to higher incentive compensation, the increased cost of retail store and supply chain labor, costs related to shareholder activism and increased fuel prices. Within the Food Distribution and Military segments, the increased supply chain labor costs were partially offset by supply chain efficiencies realized from the supply chain transformation initiative.
Acquisition and Integration – Acquisition and integration expenses for the first quarters ended April 23, 2022 and April 24, 2021 were $0.2 million and $0.1 million, respectively. Current year and prior year expense is related to activity within the Retail segment.
Restructuring and Asset Impairment, net – There was not significant restructuring and asset impairment activity in the first quarter. The prior year quarter results included net gains of $0.2 million. The prior year quarter activity consisted primarily of gains on the sale of pharmacy customer lists, mostly offset by retail store closing and asset impairment charges.
Operating Earnings – The following table presents operating earnings (loss) by segment and variances in operating earnings (loss).
5,538
(14,165
6,581
Total operating earnings
(2,046
Operating earnings decreased $2.0 million, or 6.8% to $28.1 million in the first quarter from $30.2 million in the prior year quarter. The decrease in operating earnings compared to the prior year quarter was due to the changes in net sales, gross profit and operating expenses discussed above.
Food Distribution operating earnings increased $5.5 million, or 26.2%, to $26.7 million in the first quarter from $21.1 million in the prior year quarter. The increase in the operating earnings for Food Distribution was due to a higher gross margin rate, partially offset by an increase in incentive compensation and supply chain wages.
Retail operating earnings decreased $14.17 million, or 99.8% to $0.03 million in the first quarter from $14.19 million in the prior year quarter. The decrease in operating earnings was due to increases in wages and the impacts of market-competitive pricing on Retail’s gross margin rate, along with increased corporate administrative, utilities and supply costs.
Military operating earnings increased $6.6 million to $1.4 million in the first quarter from a loss of $5.1 million in the prior year quarter. The increase in operating earnings was due a higher gross margin rate, partially offset by an increase in incentive compensation and higher supply chain wages.
Interest Expense – Interest expense decreased $0.4 million, or 8.8%, to $4.2 million in the first quarter from $4.6 million in the prior year quarter. The decrease in interest expense was due to significant decreases in the average debt balance.
Income Taxes – The effective income tax rates were 20.2% and 24.6% for the first quarter and prior year quarter, respectively. The differences from the federal statutory rate in the current year were primarily due to discrete tax benefits associated with stock compensation and federal tax credits, partially offset by state taxes. In the prior year, the difference from the federal statutory rate was primarily due to state taxes, partially offset by federal tax credits.
19
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 the CARES Act, the Company recorded a net discrete income tax benefit of $9.3 million in 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, when the federal statutory income tax rate was 35%. In the first quarter of 2021, the Company received tax refunds totaling $25.7 million related to the amended prior year returns.
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.
At the beginning of 2022, the Company made a change to the adjusted operating earnings and adjusted earnings from continuing operations measures to exclude the impact of LIFO expense or benefit. The Company believes the change reduces volatility associated with temporary fluctuations in inflation, enabling investors to best establish a basis for expected performance and the ability to evaluate actual results against that expectation and the industry in which the Company operates. Prior year adjusted operating earnings and adjusted earnings from continuing operations figures have been restated to align with this change in presentation. Current year adjusted operating earnings, adjusted earnings from continuing operations, and adjusted EBITDA exclude LIFO expense, costs related to shareholder activism, organizational realignment and severance associated with cost reduction initiatives. Costs related to shareholder activism include consulting, legal, and other expenses incurred in relation to shareholder activism activities. Organizational realignment includes benefits for associates terminated as part of leadership transition plans, which do not meet the definition of a reduction-in-force. Prior year adjusted operating earnings, adjusted earnings from continuing operations, and adjusted EBITDA exclude LIFO expense, organizational realignment and severance associated with cost reduction initiatives.
Each of these items are 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 an adjusted operating earnings format.
Adjusted operating earnings is not a measure of performance under GAAP and should not be considered as a substitute for operating earnings, and other income statement data. The Company’s definition of adjusted operating earnings may not be identical to similarly titled measures reported by other companies.
20
Following is a reconciliation of operating earnings to adjusted operating earnings for the 16 weeks ended April 23, 2022 and April 24, 2021.
Adjustments:
Organizational realignment, net
1,019
641
Severance associated with cost reduction initiatives
246
125
Costs related to shareholder activism
3,471
Adjusted operating earnings
43,324
32,514
Following is a reconciliation of operating earnings (loss) by segment for the 16 weeks ended April 23, 2022 and April 24, 2021.
Food Distribution:
5,728
794
483
313
91
99
1,642
34,639
22,334
Retail:
1,912
415
382
234
122
1,305
3,989
14,786
Military:
2,547
446
154
94
33
(3
524
Adjusted operating earnings (loss)
4,696
(4,606
Adjusted Earnings from Continuing Operations
Adjusted earnings from continuing operations is a non-GAAP operating financial measure that the Company defines as net 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 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 net earnings to adjusted earnings from continuing operations for the 16 weeks ended April 23, 2022 and April 24, 2021.
per diluted
share
Pension refund from annuity provider
(200
Total adjustments
14,975
2,319
Income tax effect on adjustments (a)
(3,933
(565
Total adjustments, net of taxes
11,042
0.30
1,754
0.05
Adjusted earnings from continuing operations
30,331
0.83
21,270
0.59
(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.
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 share-based payments (equity awards measured in accordance with ASC 718, Stock Compensation, which include both stock-based compensation to employees and stock warrants issued to non-employees) and 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 GAAP 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 to adjusted EBITDA for the 16 weeks ended April 23, 2022 and April 24, 2021.
Other expenses, net
Cloud computing amortization
900
480
Stock-based compensation
4,441
4,190
(1,088
(895
Gain on disposal of assets
76,646
64,843
Following is a reconciliation of operating earnings (loss) to adjusted EBITDA by segment for the 16 weeks ended April 23, 2022 and April 24, 2021.
550
2,123
1,929
774
(37
48,024
35,669
251
175
1,495
1,480
(985
(1,552
Loss (gain) on disposal of assets
(123
18,948
29,007
71
823
781
(128
(117
(22
9,674
167
24
Liquidity and Capital Resources
Cash Flow Information
The following table summarizes the Company’s consolidated statements of cash flows:
Cash flow activities
Cash and cash equivalents at beginning of the period
Cash and cash equivalents at end of the period
Net cash provided by operating activities. Net cash provided by operating activities increased $41.7 million in the current year-to-date period compared to the prior year-to-date period, primarily due to changes in operating assets and liabilities in the current year.
Net cash used in investing activities. Net cash used in investing activities increased $31.2 million in the current year compared to the prior year primarily due to significant proceeds from the sale of fixed assets in the prior year.
Capital expenditures were $29.9 million in the current year and cloud computing application development spend, which is included in operating activities, was $0.4 million, compared to capital expenditures of $22.1 million and cloud computing application development spend of $1.9 million in the prior year. The Company expects fiscal year 2022 capital expenditures and cloud computing application development spend to range from $100.0 million to $110.0 million. The Food Distribution, Retail and Military segments utilized 43.8%, 42.3% and 13.9% of capital expenditures, respectively, in the current year.
Net cash provided by financing activities. Net cash provided by financing activities decreased $8.3 million in the current year compared to the prior year, primarily due to lower net borrowings on the senior credit facility in the current year.
Debt Management
Total debt, including finance lease liabilities, was $450.1 million and $405.7 million as of April 23, 2022 and January 1, 2022, respectively. The increase in total debt was due to additional net borrowings on the senior credit facility to fund strategic inventory purchases.
Liquidity
The Company’s principal sources of liquidity are cash flows generated from operations and its senior secured credit facility. As of April 23, 2022, the senior secured credit facility had outstanding borrowings of $396.3 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 $462.5 million at April 23, 2022. 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 $16.1 million were outstanding as of April 23, 2022. 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 April 23, 2022 compared to 1.46-to-1 at January 1, 2022, and its investment in working capital was $370.3 million at April 23, 2022 compared to $301.4 million at January 1, 2022. The net long-term debt to total capital ratio was 0.35-to-1 at April 23, 2022 compared to 0.34-to-1 at January 1, 2022.
Net long-term debt is a non-GAAP financial measure that is defined as long-term debt and finance lease liabilities, plus current portion 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 long-term debt, as defined previously, by total capital (net long-term 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 long-term 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 April 23, 2022 and January 1, 2022.
January 1
Total debt
450,105
405,724
(16,330
(10,666
Net long-term debt
433,775
395,058
For information on contractual obligations, see the Company’s Annual Report on Form 10-K for the fiscal year ended January 1, 2022. At April 23, 2022, 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 April 23, 2022, the Company declared $7.7 million in dividends. A 5.0% increase in the quarterly dividend rate from $0.20 per share to $0.21 per share was approved by the Board of Directors and announced on March 2, 2022. 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 April 23, 2022. These commitments consist primarily of purchase commitments, standby letters of credit of $16.1 million as of April 23, 2022, 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 January 1, 2022 should be reviewed as they are integral to 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 January 1, 2022.
26
Recently Issued Accounting Standards
Refer to Note 2 in the notes to the condensed consolidated financial statements for further information.
ITEM 3. Quantitative and Qualitative Disclosure about Market Risk
There have been no material changes in market risk of SpartanNash from the information provided in Part II, Item 7A, “Quantitative and Qualitative Disclosure About Market Risk,” of the Company’s Annual Report on Form 10-K for the fiscal year ended January 1, 2022.
ITEM 4. Controls and Procedures
An evaluation of the effectiveness of the design and operation of SpartanNash Company’s disclosure controls and procedures (as currently defined in Rule 13a-15(e) under the Securities Exchange Act of 1934) was performed as of April 23, 2022 (the “Evaluation Date”). This evaluation was performed under the supervision and with the participation of SpartanNash Company’s management, including its Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”). As of the Evaluation Date, SpartanNash Company’s management, including the CEO and CFO, concluded that SpartanNash’s disclosure controls and procedures were effective as of the Evaluation Date to ensure that material information required to be disclosed in the reports that the Company files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified by the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in the reports that the Company files or submits under the Securities and Exchange Act of 1934 is accumulated and communicated to management, including its principal executive and principal financial officer, as appropriate, to allow for timely decisions regarding required disclosure. During the first quarter of 2022 there were no changes in SpartanNash’s internal control over financial reporting that materially affected, or were reasonably likely to materially affect, SpartanNash’s internal control over financial reporting.
PART II
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds
During the fourth quarter of 2017, the Board authorized a publicly announced $50 million share repurchase program, expiring in 2022. There were not any common stock share repurchases made under this program during the first quarter of 2022. At April 23, 2022, $29.7 million remains available under the program. Repurchases of common stock may include: (1) shares of SpartanNash common stock delivered in satisfaction of the exercise price and/or tax withholding obligations by holders of employee stock options who exercised options, and (2) shares submitted for cancellation to satisfy tax withholding obligations that occur upon the vesting of the restricted shares. The value of the shares delivered or withheld is determined by the applicable stock compensation plan.
On February 22, 2022, the Board of Directors authorized the repurchase of common shares in connection with a new $50 million program, increasing the total availability for share repurchases to approximately $80 million. The Company plans to return value to shareholders through share repurchases under this program as well as continuing regular dividends.
Total Number
Price Paid
Fiscal Period
of Shares Purchased
per Share
January 2 - January 29, 2022
Employee Transactions
Repurchase Program
January 30 - February 26, 2022
February 27 - March 26, 2022
143,254
29.46
March 27 - April 23, 2022
Total for quarter ended April 23, 2022
ITEM 6. Exhibits
The following documents are filed as exhibits to this Quarterly Report on Form 10-Q:
ExhibitNumber
Document
3.1
Restated Articles of Incorporation of SpartanNash Company, as amended. Previously filed as an exhibit to the Company’s Quarterly Report on Form 10-Q for the quarter ended July 15, 2017. Incorporated herein by reference.
3.2
Bylaws of SpartanNash Company, as amended. Previously filed as an exhibit to the Company’s Annual Report on Form 10-K for the year ended December 31, 2016. Incorporated herein by reference.
10.1
Form of SPTN Restricted Stock Award Plan Document (Non-Employee Directors).
10.2
Form of SPTN Restricted Stock Award Plan Document (Associates).
10.3
Form of SPTN Long-Term Incentive Plan Document.
10.4
Form of SPTN Annual Cash Incentive Plan Document.
10.5
Executive Separation Agreement between SpartanNash Company and Yvonne Trupiano.
31.1
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1
Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS
Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCH
Inline XBRL Taxonomy Extension Schema Document
101.CAL
Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB
Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE
Inline XBRL Taxonomy Extension Presentation Linkbase Document
101.DEF
Inline XBRL Taxonomy Extension Definition Linkbase Document
104
The cover page from the Company’s Quarterly Report on Form 10-Q for the quarter ended April 23, 2022, has been formatted in Inline XBRL.
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.
(Registrant)
Date: June 2, 2022
By
/s/ Jason Monaco
Jason Monaco
Executive Vice President and Chief Financial Officer