10-K 1 sptn-10k_20150103.htm 10-K

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-K

 

x

Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the fiscal year ended January 3, 2015.

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

 

49518-8700

(Address of Principal Executive Offices)

 

(Zip Code)

Registrant’s telephone number, including area code: (616) 878-2000

Securities registered pursuant to Section 12(b) of the Securities Exchange Act:

 

Title of Class

 

Name of Exchange on which Registered

Common Stock, no par value

 

NASDAQ Global Select Market

Securities registered pursuant to Section 12(g) of the Securities Exchange Act: None

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  ¨    No  x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    Yes  ¨    No  x

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  ¨

Indicate by a check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File requirement to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 229.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  x

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company (as defined in Rule 12b-2 of the Securities Exchange Act).

 

Large accelerated filer

 

x

  

Accelerated filer

 

¨

 

 

 

 

Non-accelerated filer

 

¨

  

Smaller reporting company

 

¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

The aggregate market value of the registrant’s voting and non-voting common equity held by non-affiliates based on the last sales price of such stock on the NASDAQ Global Select Market on July 11, 2014 (which was the last trading day of the registrant’s second quarter in the fiscal year ended January 3, 2015) was $808,845,136.

The number of shares outstanding of the registrant’s Common Stock, no par value, as of February 27, 2015 was 37,818,417, all of one class.

DOCUMENTS INCORPORATED BY REFERENCE

 

Part III, Items 10, 11, 12, 13 and 14

  

Proxy Statement for Annual Meeting to be held June 3, 2015

 

 

 

 

 


 

Forward-Looking Statements

The matters discussed in this Annual Report on Form 10-K include “forward-looking statements” about the plans, strategies, objectives, goals or expectations of SpartanNash Company. These forward-looking statements are identifiable by words or phrases indicating that SpartanNash or management “expects,” “anticipates,” “plans,” “believes,” “estimates,” “intends,” or is “optimistic” or “confident” that a particular occurrence or event “will,” “may,” “could,” “should” 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. Accounting estimates, such as those described under the heading “Critical Accounting Policies” in Item 7 of this Annual Report on Form 10-K, are inherently forward-looking. Our asset impairment and exit cost provisions are estimates and actual costs may be more or less than these estimates and differences may be material. You should not place undue reliance on these forward-looking statements, which speak only as of the date of this Annual Report.

In addition to other risks and uncertainties described in connection with the forward-looking statements contained in this Annual Report on Form 10-K and other periodic reports filed with the Securities and Exchange Commission, there are many important factors that could cause actual results to differ materially. Our ability to achieve sales and earnings expectations; improve operating results; maintain and strengthen our retail-store performance; assimilate acquired distribution centers and stores; maintain or grow sales; respond successfully to competitors including new openings; maintain gross margin; effectively address food cost or price inflation or deflation; maintain and improve customer and supplier relationships; realize expected synergies from merger and acquisition activity; realize expected benefits of restructuring; realize growth opportunities; maintain or expand our customer base; reduce operating costs; sell on favorable terms assets held for sale; generate cash; continue to meet the terms of our debt covenants; continue to pay dividends, and successfully implement and realize the expected benefits of the other programs, initiatives, systems, plans, priorities, strategies, objectives, goals or expectations described in this Annual Report, our other reports, our press releases and our public comments will be affected by changes in economic conditions generally or in the markets and geographic areas that we serve, adverse effects of the changing food and distribution industries, possible changes in the military commissary system, including those stemming from the redeployment of forces, congressional action, changes in funding levels, or the effects of mandated reductions in or sequestration of government expenditures, and other factors including, but not limited to, those discussed in the “Risk Factors” discussion in Item 1A of this Annual Report.

This section and the discussions contained in Item 1A, “Risk Factors,” and in Item 7, subheading “Critical Accounting Policies” in this report, both of which are incorporated here by reference, are intended to provide meaningful cautionary statements for purposes of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. This should not be construed as a complete list of all of the economic, competitive, governmental, technological and other factors that could adversely affect our 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 our business, operations, liquidity, financial condition and prospects. We undertake no obligation to update or revise our forward-looking statements to reflect developments that occur or information obtained after the date of this Annual Report.

 

 

 

 


 

PART I

 

Item  1.

Business

Overview

SpartanNash Company (together with its subsidiaries, “SpartanNash” or “the Company”) is a leading multi-regional grocery distributor and grocery retailer, operating principally in the Midwest, and the largest distributor, by revenue, of grocery products to military commissaries and exchanges in the United States. The Company’s core businesses include distributing food to military commissaries and exchanges and independent and corporate-owned retail stores located in 42 states and the District of Columbia, Europe, Cuba, Puerto Rico, Bahrain, Egypt, Honduras, Afghanistan and Bosnia. We operate three reportable business segments: Military, Food Distribution and Retail. For the 53 week year ended January 3, 2015 we generated net sales of approximately $7.9 billion.

Established in 1917 as a cooperative grocery distributor, Spartan Stores Inc. (“Spartan Stores”) converted to a for-profit business corporation in 1973. In January 1999, Spartan Stores began to acquire retail supermarkets in our focused geographic regions. In August 2000, Spartan Stores common stock became listed on the NASDAQ Stock Market under the symbol “SPTN.” On November 19, 2013, Spartan Stores merged with Nash-Finch Company (“Nash-Finch”). Nash-Finch Company’s core businesses include distributing food to military commissaries and independent grocery retailers and distributing to and operating corporate-owned retail stores. Each outstanding share of the common stock of Nash-Finch was converted into 1.20 shares of the combined company’s common stock.  Spartan Stores began doing business under the assumed name of “SpartanNash Company” upon completion of the merger.  The formal name change to SpartanNash Company was approved and became effective after the annual shareholders meeting on May 28, 2014. Unless the context otherwise requires, the use of the terms “SpartanNash,” “we,” “us,” “our” and “the Company” in this Annual Report on Form 10-K refers to the surviving corporation SpartanNash Company and, as applicable, its consolidated subsidiaries.

The larger geographic reach resulting from the merger with Nash-Finch allows for increased scale as we leverage the organization to enhance the ability of our independent retailers to compete long term in the grocery industry. SpartanNash’s hybrid business model supports the close functioning of its Military, Food Distribution, and Retail operations, optimizing the natural complements of each business segment. The model produces operational efficiencies, helps stimulate distribution product demand, and provides sharper market visibility and broader business growth options. In addition, the Military, Food Distribution, and Retail diversification provides added flexibility to pursue the best long-term growth opportunities in each segment.

SpartanNash has established key management priorities that focus on the longer-term strategy of the Company, including establishing a well-differentiated market offering for our Military, Food Distribution, and Retail segments, and additional strategies designed to create value for our shareholders, retailers and customers. These priorities are:

Military:

Leverage the size and scale of the existing distribution and retail segments to attract additional customers.

Continue to partner with Coastal Pacific Food Distributors to leverage the advantage of a worldwide distribution network.

Food Distribution:

Leverage new competitive position, scale and financial flexibility to further consolidate the distribution channel.

Leverage retail competency and the capabilities of the combined distribution platform to increase business within the existing account base and potentially add new distribution categories and take advantage of current competitive market dynamics to supply new customers.

Continue to focus on increasing private brand penetration and overall purchase concentration.

Gain efficiencies in all aspects of the supply chain through optimization of the distribution center network.

Retail:

Evaluate banners to maintain a portfolio of customer-relevant offerings for the entire market continuum.

Continue to drive a lean and efficient operating cost structure to remain competitive.

Rationalize store base to maximize capital efficiency and enhance profitability.

Strategically deploy capital to modernize the store base.

-2-


 

Pursue opportunistic roll-ups of existing distribution customers and/or other retailers.

Drive value by expanding consumer relationships with pharmacy, fuel and other promotional offerings.

Military Segment

Our Military segment contracts with manufacturers to distribute a wide variety of grocery products primarily to U.S. military commissaries and exchanges. We are the largest distributor, by revenue, in this market.

The products we distribute are delivered to 169 military commissaries and over 442 exchanges located in 37 states across the United States and the District of Columbia, Europe, Puerto Rico, Cuba, Egypt, Bahrain Honduras. Our distribution centers are strategically located among the largest concentration of military bases in the areas we serve and near Atlantic ports used to ship grocery products to overseas commissaries and exchanges. Our Military segment has an outstanding reputation as a distributor focused on U.S. military commissaries and exchanges, based in large measure on our excellent service metrics, which include fill rate, on-time delivery and shipping accuracy.

The Defense Commissary Agency (“DeCA”) operates a chain of commissaries on U.S. military installations throughout the world. DeCA contracts with manufacturers to obtain grocery and related products for the commissary system. Manufacturers either deliver the products to the commissaries themselves or, more commonly, contract with distributors such as us to deliver the products. Manufacturers must authorize the distributors as their official representatives to DeCA, and the distributors must adhere to DeCA’s frequent delivery system procedures governing matters such as product identification, ordering and processing, information exchange and resolution of discrepancies. We obtain distribution contracts with manufacturers through competitive bidding processes and direct negotiations.

We have approximately 600 distribution contracts with manufacturers that supply products to the DeCA commissary system and various exchange systems. The larger contracts have definitive durations whereas the smaller contracts generally have an indefinite term, but may be terminated by either party without cause upon 30 days prior written notice to the other party. The contracts typically specify the commissaries and exchanges we are to supply on behalf of the manufacturer, the manufacturer’s products to be supplied, service and delivery requirements and pricing and payment terms. Our ten largest manufacturer customers represented approximately 40% of the Military segment’s sales for the 53 week year ended January 3, 2015.

As commissaries need to be restocked, DeCA identifies each manufacturer with which an order is to be placed for additional products, determines which distributor is the manufacturer’s official representative for a particular commissary or exchange location, and places a product order with that distributor under the auspices of DeCA’s master contract with the applicable manufacturer. The distributor selects that product from its existing inventory, delivers it to the commissary or commissaries designated by DeCA, and bills the manufacturer for the product shipped. The manufacturer then bills DeCA under the terms of its master contract. Overseas commissaries are serviced in a similar fashion, except that a distributor’s responsibility is to deliver products as and when needed to the port designated by DeCA, which in turn bears the responsibility for shipping the product to the applicable commissary or overseas warehouse.

After we ship a particular manufacturer’s products to commissaries in response to an order from DeCA, we invoice the manufacturer for the product price plus a service and/or drayage fee that is typically based on a percentage of the purchase price, but may in some cases be based on a dollar amount per case or pound of product sold. Our order handling and invoicing activities are facilitated by procurement and billing systems developed specifically for the military business, which addresses the unique aspects of its business, and provides our manufacturer customers with a web-based, interactive means of accessing critical order, inventory and delivery information.

Food Distribution Segment

SpartanNash’s Food Distribution segment uses a multi-platform sales approach to distribute groceries to independent and corporate owned grocery retailers. Total net sales from our Food Distribution segment, including shipments to our corporate-owned stores, which are eliminated in the consolidated financial statements, were approximately $4.4 billion for the fiscal year ended January 3, 2015. We believe that we are the fifth largest wholesale distributor to supermarkets, based on revenues, in the United States.

Customers. Our Food Distribution segment supplies a diverse group of independent grocery store operators that range from a single store to supermarket chains with as many as 37 stores, as well as our corporate-owned stores. The Company operates in 42 states with 12 distribution centers supporting approximately 2,100 independently owned supermarkets and also supplies our corporate retail base of 162 stores. This larger geographic reach allows for increased scale as we leverage the organization to enhance the ability of our independent retailers to compete long term in the grocery industry.

-3-


 

On a national account basis, SpartanNash also services a large retailer, with certain product classes, outside of the traditional grocery supermarket industry. Food Distribution sales are made to more than 11,500 retail locations for this customer, representing more than 5% of total SpartanNash company revenue. Shipments to these locations are made both from SpartanNash food and military distribution centers. Other than this customer, our Food Distribution customer base is very diverse, with no single customer, excluding corporate-owned stores, exceeding 5% of consolidated net sales.

Our five largest Food Distribution customers (excluding corporate-owned stores) accounted for approximately 35% of our Food Distribution net sales for the 53 week year ended January 3, 2014. In addition, approximately 83% of Food Distribution net sales, including corporate-owned stores, are covered under supply agreements with our Food Distribution customers or are directly controlled by SpartanNash.

Products. Our Food Distribution segment provides a selection of approximately 55,000 stock-keeping units (SKU’s), including dry groceries, produce, dairy products, meat, deli, bakery, frozen food, seafood, floral products, general merchandise, pharmacy and health and beauty care.

Our product line includes multi-tiered families of private brands under the platforms of Spartan, Our Family and IGA. A complete variety of national brands is available in commodities including grocery, dairy, frozen, meat, seafood, produce, floral, bakery, deli, general merchandise and health and beauty care. These market leading products, along with best in class services, allow the retailer the opportunity to support the entire operation with a single supplier. Meeting consumers’ needs will continue to be our mission as we execute our hybrid model of wholesale, retail and military supply.

Food Distribution Functions. Our Food Distribution network is comprised of 12 distribution centers with approximately 5.5 million square feet of warehouse space.

We believe our distribution facilities are strategically located to efficiently serve our current customers and have the available capacity to support future growth. We are continually evaluating our inventory movement and assigning SKU’s to appropriate areas within our distribution facilities to reduce the time required to stock and pick products in order to achieve additional efficiencies.

We have several projects planned for the fiscal year ending January 2, 2016. These projects are designed to further integrate our supply chain capabilities across distribution centers and thereby increase the efficiency of both our inbound and outbound distribution operations.

Across our distribution network we operate a fleet of 340 over-the-road tractors, 335 dry vans, and 767 refrigerated trailers. Through routing optimization systems, we carefully manage the 33.4 million miles our fleet drives annually. We remain committed to the ongoing investment required to maintain a best in class fleet while focusing on low cost, environmentally friendly solutions.

Within our fleet we have 92 fifty-three foot refrigerated trailers equipped with a Carrier Vector refrigeration unit. The new Vector units have the capability to run on electric standby, offering an economical and environmentally friendly alternative to diesel fuel.

Additional Services. We also offer and provide many of our independent Distribution customers with value-added services, including:

 

●   Site identification and market analysis

  

●   Coupon redemption

●   Store planning and development

  

●   Product reclamation

●   Marketing, promotion and advertising

  

●   Graphic services

●   Technology and information services

  

●   Category management

●   Accounting, payroll and tax preparation

  

●   Real estate services

●   Human resource services

  

●   Construction management services

●   Fuel technology

  

●   Pharmacy retail and procurement services

●   Account management field sales support

  

●   Retail pricing

●   InSite Business to Business communications

  

●  Security consulting and investigation services

Retail Segment

Our neighborhood market strategy distinguishes our stores from supercenters and limited assortment stores by emphasizing convenient locations, demographically targeted merchandise selections, high-quality fresh offerings, customer service, value pricing and community involvement.

-4-


 

Our Retail segment operates 162 retail supermarkets in the Midwest which operate under banners including Family Fare Supermarkets, No Frills, Bag ‘N Save, Family Fresh Markets, D&W Fresh Markets, Sun Mart and Econo Foods.

Our retail supermarkets typically offer dry groceries, produce, dairy products, meat, frozen food, seafood, floral products, general merchandise, beverages, tobacco products, health and beauty care products, delicatessen items and bakery goods. In 79 of our supermarkets, we also offer pharmacy services. In addition to nationally advertised products, the stores carry private brand items, including flagship Spartan, including Spartan Fresh Selections, and Our Family brands; Top Care, a health and beauty care brand and Tippy Toes by Top Care, a baby brand; Full Circle and Nash Brothers Trading Company, both natural and organic brands; World Classics, a premium, unique and worldly brand; Paws, a pet supplies brand; B-leve, a premium bath and beauty brand; and Valu Time and me too!, value brands. These private brand items provide enhanced retail margins and we believe they help generate increased customer loyalty. See “Merchandising and Marketing – Corporate Brands.” Our retail supermarkets range in size from approximately 10,400 to 92,381 total square feet and average approximately 41,400 total square feet per store.

We operate 29 fuel centers primarily at our supermarket locations operating under the banners Family Fare Quick Stop, D&W Quick Stop, VG’s Quick Stop, Forest Hills Quick Stop, FTC Express Fuel and Sunmart Express Fuel. These fuel centers offer refueling facilities and in the adjacent convenience store, a limited variety of popular consumable products. Our prototypical Quick Stop stores are approximately 1,100 square feet in size and are generally located adjacent to our supermarkets. We have experienced increases in supermarket sales upon opening fuel centers and initiating cross-merchandising activities. We are planning to continue to open additional fuel centers at certain of our supermarket locations over the next few years.

Our stores are primarily the result of acquisitions from January 1999 to December 2013, including the merger with Nash-Finch. The following chart details the changes in the number of our stores over the last five fiscal years:

 

 

 

Number of Stores

 

 

Stores Acquired

 

 

Stores Closed or

 

 

Number of

 

 

 

at Beginning of

 

 

or Added During

 

 

Sold During

 

 

Stores at End

 

Fiscal Year

 

Fiscal Year

 

 

Fiscal Year

 

 

Fiscal Year

 

 

of Fiscal Year

 

March 26, 2011

 

 

96

 

 

 

1

 

 

 

-

 

 

 

97

 

March 31, 2012

 

 

97

 

 

 

-

 

 

 

1

 

 

 

96

 

March 30, 2013

 

 

96

 

 

 

5

 

 

 

-

 

 

 

101

 

December 28, 2013

 

 

101

 

 

 

78

 

 

 

7

 

 

 

172

 

January 3, 2015

 

 

172

 

 

 

1

 

 

 

11

 

 

 

162

 

During the fiscal year ended January 3, 2015, we opened one new store, completed ten major remodels and completed many limited remodels.  We also substantially completed construction on a new store and fuel center which opened in fiscal 2015.  We also converted 15 stores to the Family Fare banner.

 

We expect to continue making progress with our capital investment program during fiscal 2015 by opening one new store and fuel center in North Dakota, opening additional fuel centers or entering partnerships with existing fuel operations and completing nine major remodels primarily outside of our Michigan market.  We will continue to evaluate our store base and may close up to ten stores over the course of 2015.  We evaluate proposed projects based on demographics and competition within each market, and prioritize projects based on their expected returns on investment.  Approval of proposed capital projects requires a projected internal rate of return that meets or exceeds our policy; however, we may undertake projects that do not meet this standard to the extent they represent required maintenance or necessary infrastructure improvements.  In addition, we perform a post completion review of financial results versus our expectation on all major projects.  We believe that focusing on such measures provides us with an appropriate level of discipline in our capital expenditures process.

Products

We offer a wide variety of grocery products, general merchandise and health and beauty care, pharmacy, fuel and other items and services. Our consolidated net sales include the net sales of our Military segment, corporate-owned stores and fuel centers in our Retail segment and the net sales of our Food Distribution business, which excludes sales to affiliated stores.

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The following table presents sales by type of similar product and services:

 

 

January 3, 2015

 

 

December 28, 2013

 

 

March 30, 2013

 

(Dollars in thousands)

(53 weeks)

 

 

(39 weeks)

 

 

(52 weeks)

 

Non-perishables (1)

$

4,998,895

 

 

 

63.1

%

 

$

1,393,157

 

 

 

53.6

%

 

$

1,289,461

 

 

 

49.4

%

Perishables (2)

 

2,449,562

 

 

 

31.0

 

 

 

894,783

 

 

 

34.5

 

 

 

930,659

 

 

 

35.7

 

Fuel

 

178,111

 

 

 

2.2

 

 

 

145,631

 

 

 

5.6

 

 

 

179,012

 

 

 

6.9

 

Pharmacy

 

289,494

 

 

 

3.7

 

 

 

163,659

 

 

 

6.3

 

 

 

209,028

 

 

 

8.0

 

Consolidated net sales

$

7,916,062

 

 

 

100

%

 

$

2,597,230

 

 

 

100

%

 

$

2,608,160

 

 

 

100

%

(1)

Consists primarily of general merchandise, grocery, beverages, snacks and frozen foods.

(2)

Consists primarily of produce, dairy, meat, bakery, deli, floral and seafood.

Reporting Segment Financial Data

More detailed information about our reporting segments may be found in Note 17 to the consolidated financial statements included in Item 8, which is herein incorporated by reference. All of our sales and all of our assets are in the United States of America.

Discontinued Operations

Certain of our retail and food distribution operations have been recorded as discontinued operations. Discontinued retail operations consist of certain stores that have been closed or sold. Discontinued food distribution operations consist of our Maumee, Ohio and Toledo, Ohio distribution centers that previously serviced retail stores which have been closed or sold. Additional information may be found in Note 16 to the consolidated financial statements included in Item 8, which is herein incorporated by reference.

Marketing and Merchandising

General. We continue to align our marketing and merchandising strategies with current consumer behaviors by delivering initiatives centered on personalization, digital, value, and health and wellness. These strategies focus on delivering consumer centric programs to effectively leverage the use of loyalty card program data and category management principles to satisfy the consumer’s needs.

We believe that our over-arching focus on the consumer gives us competitive insight into purchasing and consumption behavior. This enables us the flexibility to adapt to rapidly changing market conditions by making tactical adjustments to our marketing and merchandising programs that deliver more tangible value to our customers. To further strengthen our knowledge of the consumer we have several strategic partnerships across data warehousing, analytics, and customer relationship management that will enable us to further our knowledge and understanding of the customer and provide a shopping experience that better meets the changing needs of the consumer.  

Through our numerous strategic partnerships we are able to leverage and further develop SpartanNash’s enterprise approach to customer centricity; benefiting both our Retail and Food Distribution businesses. By harnessing our proprietary data we are able to provide a set of tools and capabilities for the organization that enables us to provide our customers with a more relevant and personalized shopping experience. This effort also enables us to continue to learn more about our best customers; develop strategies to enable long-term customer and supplier loyalty; deploy a more effective and efficient marketing spend; and ultimately make better business decisions.

As we continue to build this capability, along with our other strategies to develop and leverage insights, we will continue to share our marketing and merchandising learnings and best practices across our broad wholesale customer base.  

Our “yes Rewards” program continues to play a key role in providing us with sophisticated data to understand our customers’ purchasing behavior. This information is integral to improving the effectiveness of our promotions, marketing and merchandising programs. We have continued to center our engagement with the consumer on our key value propositions: fuel promotions, in-store savings, pharmacy and digital promotions. We have seen positive increases in sales, engagement and long-term loyalty across our key customer segments. Our focus in 2014 has been on providing relevant, personalized 1:1 content across all of our marketing channels and focusing on expanding our digital, social and mobile capabilities. This will help us to further build longer-term customer loyalty, maintain efficient marketing spend and increase return on investment, improve our sales growth opportunities and further strengthen our market position.

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As we expand our service offerings, we believe that we differentiate ourselves from our competitors by offering a full set of services, from value added services in our Food Distribution segment to the inclusion of fuel centers and Starbucks Coffee or Caribou Coffee shops in some of our retail stores.

To engender loyalty with our retail customers, we provide them with discounts on fuel purchases at our fuel centers. Fuel centers have proven to be effective traffic-builders for fuel-participating customers who wish to take advantage of cross-promotions between the stores and the Quick Stop fuel centers or one of our third party fuel suppliers. Consumers are focusing on value in today’s economy and offerings such as the fuel rewards program are helping us to meet that need.

We offer pharmacy services in 79 of our supermarkets and we also operate three free-standing pharmacy locations. We believe the pharmacy service offering in our supermarkets is an important part of the consumer experience. We continue to evolve our pharmacy program by connecting with the consumer and focusing on health and wellness. In our Michigan pharmacies, we offer free medications (antibiotics, diabetic medications and pre-natal vitamins) along with generic drugs for $4 and $10 as well as food solutions for preventative health and education for our customers. We are considering the possible expansion of these programs to our pharmacies outside of Michigan.

As consumers increasingly continue to focus on their health and wellness we believe that we have the ability to be a provider and resource for products and services that will support their needs. We achieve this through several key ways. First, our Nutrition Guide tag program which provides nutrition information on shelf tags for thousands of items throughout the store. Second, we have incorporated the Food Marketing Institute’s “Facts Up Front” nutrition labeling on our Spartan and Spartan Fresh Selections private brand packages and intend to incorporate this on the Our Family brand as a 2015 initiative. Third, we provide in-store dieticians and nutritionists in our Family Fresh banner. They serve as an invaluable resource for nutrition counseling, health and wellness programs, cooking classes and an educational resource both in and out of the store. Fourth, we have substantially increased our product offering and assortment for organics and other health and wellness offerings across the store such as gluten-free, meat-free, and non-GMO. We are also proud to work with an extensive network of local farmers and vendors to provide locally grown produce and products in each of our retail markets.  

At SpartanNash, we are committed to being a consumer driven retailer. In fiscal 2009, we implemented a customer satisfaction program that gives consumers a channel for communicating their store experiences. Retail customers are randomly selected via point-of-sale receipts and invited to give us feedback by completing an online survey. Results of these surveys help us assess overall customer satisfaction and identify several opportunities to focus on to drive consumer satisfaction and loyalty. From this program, we have developed a fresh selection initiative to drive our competitive advantage. We value the opinions of our consumers and believe the best way to deliver a high quality shopping experience is to let customers tell us what they want and need. We believe this survey dialogue will better enable us to identify opportunities for continuous improvements for consistency and excellence in the overall consumer experience.

Private Brands. SpartanNash currently markets and distributes over 7,400 total private brand items and over 4,500 unique private brand items including Spartan, Spartan Fresh Selections, Our Family, IGA and Piggly Wiggly brands; Top Care, a health and beauty care brand; Tippy Toe, a baby brand; Full Circle and Nash Brothers Trading Company, both natural and organic brands; World Classics, a premium, unique and worldly brand; Paws, a pet supplies brand; B-leve, a premium bath and beauty brand; and Valu Time and me too!, both value brands. We believe that our private brand offerings are part of our most valuable strategic assets, demonstrated through customer loyalty and profitability.

We have worked diligently to develop a best in class private brand program that contains multiple labels and go-to-market strategies. We have added more than 400 total and 250 unique corporate brand products to our consumer offerings in the past year and plan to introduce approximately 500 new total items and approximately 300 new unique items in fiscal 2015. Our products have been frequently recognized for excellence in packaging design and product development. These awards underscore our continued commitment to providing the consumer with quality products at exceptional value. Our focus is and will continue to be the pursuit of new opportunities and expansion of private brand offerings to our consumers.

Competition

Our Military, Food Distribution and Retail segments operate in highly competitive markets, which typically result in low profit margins for the industry as a whole. We compete with, among others, regional and national grocery distributors, independently owned retail grocery stores, large chain stores that have integrated wholesale and retail operations, mass merchandisers, limited assortment stores and wholesale membership clubs, many of whom have greater resources than we do.

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We are one of five distributors in the United States with annual sales to the DeCA commissary system in excess of $100 million that distributes products via the frequent delivery system. The remaining distributors that supply DeCA tend to be smaller, regional and local providers. In addition, manufacturers contract with others to deliver certain products, such as baking supplies, produce, deli items, soft drinks and snack items, directly to DeCA commissaries and service exchanges. Because of the narrow margins in this industry, it is of critical importance for distributors to achieve economies of scale, which is typically a function of the density or concentration of military bases within the geographic market(s) a distributor serves, and the distributor’s share of each market. As a result, no single distributor in this industry, by itself, has a nationwide presence. Rather, distributors tend to concentrate on specific regions, or areas within specific regions, where they can achieve critical mass and utilize warehouse and distribution facilities efficiently. In addition, distributors that operate larger non-military specific distribution businesses tend to compete for DeCA commissary business in areas where such business would enable them to more efficiently utilize the capacity of their existing distribution centers. We believe the principal competitive factors among distributors within this industry are customer service, price, operating efficiencies, reputation with DeCA and location of distribution centers. We believe our competitive position is very strong with respect to all these factors within the geographic areas where we compete.

The primary competitive factors in the food distribution business include price, product quality, variety and service. We believe our overall service level, defined as actual units shipped divided by actual units ordered is among industry leading performance in our distribution segments.

The principal competitive factors in the retail grocery business include the location and image of the store; the price, quality and variety of the perishable products; and the quality and consistency of service. We believe we have developed and implemented strategies and processes that allow us to remain competitive in our Retail segment. We monitor planned store openings by our competitors and have established proactive strategies to respond to new competition both before and after the competitive store opening. Strategies to combat competition vary based on many factors, such as the competitor’s format, strengths, weaknesses, pricing and sales focus. During the past three fiscal years, fifteen competitor supercenters opened in markets in which we currently operate corporate-owned stores. Five additional openings are expected to occur during fiscal 2015 against our corporate-owned stores. As a result of these openings we believe the majority of our supermarkets compete with one, if not multiple, supercenters.

Seasonality

Many northern Michigan 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. Our first quarter consists of 16 weeks and will usually include the Easter holiday while all other quarters consist of 12 weeks each with the fourth quarter including the Thanksgiving and Christmas holidays. Fiscal year ended January 3, 2015 contained 53 weeks; therefore, the fourth quarter of fiscal 2014 consisted of 13 weeks rather than 12 weeks. The transition fiscal year ended December 28, 2013 consisted of 39 weeks; therefore, the third and final quarter of the short year consisted of 15 weeks rather than 16 weeks.

Suppliers

We purchase products from a large number of national, regional and local suppliers of name brand and private brand merchandise. We have not encountered any material difficulty in procuring or maintaining an adequate level of products to serve our customers. No single supplier accounts for more than 5.0% of our purchases. We continue to develop strategic relationships with key suppliers and we believe this will prove valuable in the development of enhanced promotional programs and consumer value perceptions.

Intellectual Property

We own valuable intellectual property, including trademarks and other proprietary information, some of which are of material importance to our business.

Technology

Over the last year the SpartanNash information technology organization has been focused on the integration of systems from the two original legacy companies, Spartan Stores and Nash Finch.  The integration strategy is based on choosing from the existing portfolio of systems from each legacy company.  This strategy allows SpartanNash to achieve operational efficiencies and  to operate as one company as efficiently as possible.  In a few cases there is a desire to replace an older system chosen; however, these will be deferred until after the corresponding function has been standardized on to a single system.  This has created a set of over 60 projects to achieve this conversion and consolidation.  These projects have been laid out in a three to four year schedule that allows SpartanNash to achieve the planned synergies and provide the best experience for our customers from the resulting systems.  During the last year there were additional projects completed which were unrelated to the integration of the two companies.

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Supply Chain. During fiscal 2014, we began the process of combining our Master Data Management systems to standardize customer, vendor and item information.  This effort is large and complex and therefore will continue into fiscal 2015. We began the process of combining the functions of our procurement systems which will continue through 2015. A number of the logistics systems were consolidated and standardized including inbound optimization, inbound scheduling and outbound routing.  We also standardized the transportation maintenance management system.  In the non-integration area, we continue to test and refine our use of Automated Guided Vehicles in our Grand Rapids Distribution center.

Retail Systems. During fiscal 2014, we upgraded and standardized the retail communication infrastructure in the legacy Nash Finch stores.  We began to standardize mechanized data and the supporting item, price and promotion systems. This work is in preparation for the roll out of standardized point-of-sale (“POS”) and in-store systems in 2015.  We also began a multi-year development effort for the major upgrade of our POS software.  In non-integration projects we began the installation of a new Electronic Payment system.  We completed the implementation of a new consumer data management system and we completed the first phase of the installation of a major new loyalty analytic system to support analysis of our customer loyalty data.

Administrative Systems. During fiscal 2014, we completed the consolidation on to a common general ledger system and fixed asset system. We completed the consolidation onto a single human resource, payroll, benefits administration system and communication system.  We made significant progress to consolidate onto a common EDI system.  

Information Technology Infrastructure. The integration plan includes consolidating from four data centers to two data centers.   Several processing, storage, and backup storage systems were upgraded in preparation for the consolidation of the processing environments.  To support the transition we added a very high capacity communication link between the two original primary data centers.

Associates

As of January 3, 2015, we employed approximately 16,100 associates, 8,500 of which are on a full-time basis and 7,600 of which are part-time. Approximately 1,300 associates, or 8%, were represented by unions under collective bargaining agreements that will expire between October 2015 through February 2017 years and consisted primarily of warehouse personnel and drivers at our Michigan, Ohio and Indiana distribution centers. We consider our relations with our union and non-union associates to be good and have not had any material work stoppages in over twenty years.

Regulation

We are subject to federal, state and local laws and regulations concerning the conduct of our business, including those pertaining to the workforce and the purchase, handling, sale and transportation of our products. Several of our products are subject to federal Food and Drug Administration regulation. We believe that we are in substantial compliance in all material respects with the Food and Drug Administration and other federal, state and local laws and regulations governing our businesses.

Forward-Looking Statements

The matters discussed in this Item 1 include forward-looking statements. See “Forward-Looking Statements” at the beginning of this Annual Report on Form 10-K.

Available Information

The address of our web site is www.spartannash.com. The inclusion of our website address in this Form 10-K does not include or incorporate by reference the information on or accessible through our website, and you should not consider information contained on or accessible through those websites as part of this Form 10-K. We make our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and other reports (and amendments to those reports) filed or furnished pursuant to Section 13(a) of the Securities Exchange Act available on our web site as soon as reasonably practicable after we electronically file or furnish such materials with the Securities and Exchange Commission. Interested persons can view such materials without charge by clicking on “For Investors” and then “SEC Filings” on our web site. SpartanNash is a “large accelerated filer” within the meaning of Rule 12b-2 under the Securities Exchange Act.

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Item  1A.

Risk Factors

Our business faces many risks. If any of the events or circumstances described in the following risk factors occurs, our financial condition or results of operations may suffer, and the trading price of our common stock could decline. This discussion of risk factors should be read in conjunction with the other information in this Annual Report on Form 10-K. All of our forward-looking statements are affected by the risk factors discussed in this item and this discussion of risk factors should be read in conjunction with the discussion of forward-looking statements which appears at the beginning of this report.

We operate in an extremely competitive industry. Many of our competitors are much larger than we are and may be able to compete more effectively.

The Military segment faces competition from large national and regional food distributors as well as smaller distributors. Due to the narrow margins in the military food distribution industry, it is of critical importance for distributors to achieve economies of scale, which are typically a function of the density or concentration of military bases in the geographic markets a distributor serves and a distributor’s share of that geographic market. As a result, no single distributor in this industry, by itself, has a nationwide presence.

Our Food Distribution and Retail segments compete with, among others, regional and national grocery distributors, independently owned retail grocery stores, large chain stores that have integrated wholesale and retail operations, mass merchandisers, limited assortment stores and wholesale membership clubs, many of whom have greater resources than we do. Some of our distribution and retail competitors are substantially larger and have greater financial resources and geographic scope, lower merchandise acquisition costs and lower operating expenses than we do, intensifying competition at the wholesale and retail levels.

The effects of industry consolidation and the expansion of alternative store formats have resulted in, and continue to result in, market share losses for traditional grocery stores. These trends have produced even stronger competition for our retail business and for the independent customers of our food distribution business. To the extent our independent customers are acquired by our competitors or are not successful in competing with other retail chains and non-traditional competitors, sales by our food distribution business will be affected. If we fail to implement strategies to respond effectively to these competitive pressures, our operating results could be adversely affected by price reductions, decreased sales or margins, or loss of market share.

This competition may result in reduced profit margins and other harmful effects on us and the Food Distribution customers that we supply. Ongoing industry consolidation could result in our loss of customers that we currently supply and could confront our retail operations with competition from larger and better-capitalized chains in existing or new markets. We may not be able to compete successfully in this environment.

Our businesses could be negatively affected if we fail to retain existing customers or attract significant numbers of new customers.

Growing and increasing the profitability of our distribution businesses is dependent in large measure upon our ability to retain existing customers and capture additional distribution customers through our existing network of distribution centers, enabling us to more effectively utilize the fixed assets in those businesses. Our ability to achieve these goals is dependent, in part, upon our ability to continue to provide a high level of customer service, offer competitive products at low prices, maintain high levels of productivity and efficiency, particularly in the process of integrating new customers into our distribution system, and offer marketing, merchandising and ancillary services that provide value to our independent customers. If we are unable to execute these tasks effectively, we may not be able to attract significant numbers of new customers, and attrition among our existing customer base could increase, either or both of which could have an adverse impact on our revenue and profitability.

Growing and increasing the profitability of our retail business is dependent upon increasing our market share in the communities where our retail stores are located. We plan to invest in redesigning some of our retail stores into other formats in order to attract new customers and increase our market share. Our results of operations may be adversely impacted if we are unable to attract significant numbers of new retail customers.

Government regulation could harm our business.

Our business is subject to extensive governmental laws and regulations including, but not limited to, employment and wage laws and regulations, regulations governing the sale of pharmaceuticals, alcohol and tobacco, minimum wage requirements, working condition requirements, public accessibility requirements, citizenship requirements, environmental regulation, and other laws and regulations. A violation or change of these laws could have a material effect on our business, financial condition and results of operations.

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Like other companies that sell food and drugs, our stores are subject to various federal, state, local, and foreign laws, regulations, and administrative practices affecting our business. We must comply with numerous provisions regulating health and sanitation standards, facilities inspection, food labeling, and licensing for the sale of food, drugs, tobacco and alcoholic beverages.

We cannot predict the nature of future laws, regulations, interpretations, or applications, or determine what effect either additional government regulations or administrative orders, when and if promulgated, or disparate federal, state, local, and foreign regulatory requirements will have on our future business. They could, however, require that we recall or discontinue sale of certain products, make substantial changes to our facilities or operations, or otherwise result in substantial increases in operating expense. Any or all of such requirements could have an adverse effect on our results of operations and financial condition.

Our Military segment operations are dependent upon domestic and international military distribution.  A change in the military commissary system, or level of governmental funding, could negatively impact our results of operations and financial condition.

Because our Military segment sells and distributes grocery products to military commissaries and exchanges in the United States and overseas, any material changes in the commissary system, the level of governmental funding to DeCA, military staffing levels, or the locations of bases may have a corresponding impact on the sales and operating performance of this segment. These changes could include privatization of some or all of the military commissary system, relocation or consolidation of commissaries and exchanges, base closings, troop redeployments or consolidations in the geographic areas containing commissaries and exchanges served by us, or a reduction in the number of persons having access to the commissaries and exchanges. Mandated reductions in the government expenditures, including those imposed as a result of sequestration, may impact the level of funding to DeCA and could have a material impact on our operations.

We are subject to state and federal environmental regulations.

Under various federal, state and local laws, ordinances and regulations, we may, as the owner or operator of our locations, be liable for the costs of removal or remediation of contamination at these current or our former locations, whether or not we knew of, or were responsible for, the presences of such contamination. The failure to properly remediate such contamination may subject us to liability to third parties and may adversely affect our ability to sell or lease such property or to borrow money using such property as collateral.

Compliance with existing and future environmental laws regulating underground storage tanks may require significant capital expenditures and increased operating and maintenance costs.

The remediation costs and other costs required to clean up or treat contaminated sites could be substantial. In the future, we may incur substantial expenditures for remediation of contamination that has not been discovered at existing or acquired locations. We cannot assure you that we have identified all environmental liabilities at all of our current and former locations; that material environmental conditions not known to us do not exist; that future laws, ordinances or regulations will not impose material environmental liability on us; or that a material environmental condition does not otherwise exist as to any one or more of our locations. In addition, failure to comply with any environmental laws, ordinances or regulations or an increase in regulations could adversely affect our operating results and financial condition.

Changes in accounting standards could materially impact our results.

Generally Accepted Accounting Principles (“GAAP”) and related accounting pronouncements, implementation guidelines, and interpretations for many aspects of our business, such as accounting for insurance and self-insurance, inventories, goodwill and intangible assets, store closures, leases, income taxes and share-based payments, are highly complex and involve subjective judgments. Changes in these rules or their interpretation could significantly change or add significant volatility to our reported earnings without a comparable underlying change in cash flow from operations.

Safety concerns regarding our products could harm our business.

It is sometimes necessary for us to recall unsafe, contaminated or defective products. Recall costs can be material and we might not be able to recover costs from our suppliers. Concerns regarding the safety of food products sold by us could cause customers to avoid purchasing certain products from us, or to seek alternative sources of supply for some or all of their food needs, even if the basis for concern is outside of our control. Any loss of confidence on the part of our customers would be difficult and costly to overcome. Any real or perceived issue regarding the safety of any food or drug items sold by us, regardless of the cause, could have a substantial and adverse effect on our business.

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We may not be able to implement our strategy of growth through acquisitions.

Part of our growth strategy involves selected acquisitions of additional retail grocery stores, grocery store chains or distribution facilities. We may not be able to implement this part of our growth strategy or ultimately be successful. We may not be able to identify suitable acquisition candidates in the future, complete acquisitions or obtain the necessary financing.

Because we operate in the Food Distribution business, future acquisitions of retail grocery stores could result in us competing with our independent grocery store customers and could adversely affect existing business relationships with our Food Distribution customers.

The success of our acquisitions will depend, in part, on whether we achieve the business synergies and related cost savings that we anticipated in connection with these transactions and any future acquisitions. Accordingly, we may not achieve expected results and long-term business goals.

Our business is subject to risks from regional economic conditions, fuel prices, and other factors in our markets.

Our business is sensitive to changes in general economic conditions. In recent years, the United States has experienced volatility in the economy and financial markets due to uncertainties related to energy prices, availability of credit, difficulties in the banking and financial services sector, the decline in the housing market, diminished market liquidity, falling consumer confidence and high unemployment rates. These adverse economic conditions in our markets, potential reduction in the populations in our markets and the loss of purchasing power by residents in our markets could reduce the amount and mix of groceries purchased, could cause consumers to trade down to less expensive mix of products or to trade down to discounters, all of which may affect our revenues and profitability.

Gasoline prices may affect consumer behavior and retail grocery prices. If petroleum prices rise in the future it may prompt consumers to make different choices in how and where they shop due to the high price of gasoline. Additionally, the impact of higher fuel costs is passed through by manufacturers and distributors in the prices of goods and services provided, again potentially affecting consumer buying decisions. This could have adverse impacts on retail store traffic, basket size and overall spending at both our corporate and independent retail stores.

In addition, many of our retail grocery stores, as well as stores operated by our Food Distribution customers, are located in areas that are heavily dependent upon tourism. Unseasonable weather conditions and the economic conditions discussed above may decrease tourism activity and could result in decreased sales by our retail grocery stores and decreased sales to our Food Distribution customers, adversely affecting our business.

Economic downturns and uncertainty have adversely affected overall demand and intensified price competition, and have caused consumers to “trade down” by purchasing lower margin items and to make fewer purchases in traditional supermarket channels. Continued negative economic conditions affecting disposable consumer income such as employment levels, business conditions, changes in housing market conditions, increases in the cost of health care coverage, the availability of credit, interest rates, volatility in fuel and energy costs, food price inflation or deflation, employment trends in our markets and labor costs, the impact of natural disasters or acts of terrorism, and other matters affecting consumer spending could cause consumers to continue shifting even more of their spending to lower-priced products and competitors. The continued general reductions in the level of discretionary spending or shifts in consumer discretionary spending to our competitors could adversely affect our growth and profitability.

Disruptions to worldwide financial and credit markets could potentially reduce the availability of liquidity and credit generally necessary to fund a continuation and expansion of global economic activity. A shortage of liquidity and credit in certain markets has the potential to lead to worldwide economic difficulties that could be prolonged. A general slowdown in the economic activity caused by an extended period of economic uncertainty could adversely affect our businesses. Difficult financial and economic conditions could also adversely affect our customers’ ability to meet the terms of sale or our suppliers’ ability to fully perform their commitments to us.

Macroeconomic and geopolitical events may adversely affect our customers, access to products, or lead to general cost increases which could negatively impact our results of operations and financial condition.

The impact of events in foreign countries which could result in increased political instability and social unrest and the economic ramifications of significant budget deficits in the United States and changes in policy attributable to them at both the federal and state levels could adversely affect our businesses and customers. Adverse economic or geopolitical events could potentially reduce our access to or increase prices associated with products sourced abroad. Such adverse events could lead to significant increases in the price of the products we procure, fuel and other supplies used in our business, utilities, or taxes that cannot be fully recovered through price increases. In addition, disposable consumer income could be affected by these events, which could have a negative impact on our results of operations and financial condition.

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Inflation and deflation may adversely affect our operating results.

It is difficult to forecast whether fiscal 2015 will be a period of inflation or deflation. Food deflation could reduce sales growth and earnings, while food inflation, combined with reduced consumer spending, could reduce gross profit margins. If we experience significant inflation or deflation, especially in the context of continued lower consumer spending, then our financial condition and results of operations may be adversely affected.

Substantial operating losses may occur if the customers to whom we extend credit or for whom we guarantee loan or lease obligations fail to repay us.

In the ordinary course of business, we extend credit, including loans, to our Food Distribution customers, and provide financial assistance to some customers by guaranteeing their loan or lease obligations. We also lease store sites for sublease to independent retailers. Generally, our loans and other financial accommodations are extended to small businesses that are unrelated and may have limited access to conventional financing. As of January 3, 2015, we had loans, net of reserves, of $27.5 million outstanding to 61 of our Food Distribution customers and had guaranteed outstanding lease obligations of Food Distribution customers totaling $0.5 million. In the normal course of business, we also sublease retail properties and assign retail property leases to third parties. As of January 3, 2015, the present value of our maximum contingent liability exposure, with respect to subleases and assigned leases was $16.2 million and $5.5 million, respectively.  We have also guaranteed the bank debt of a Food Distribution customer in the amount of $2.0 million. While we seek to obtain security interest and other credit support in connection with the financial accommodations we extend, such collateral may not be sufficient to cover our exposure. Greater than expected losses from existing or future credit extensions, loans, guarantee commitments or sublease arrangements could negatively and potentially materially impact our operating results and financial condition.

We may be unable to retain our key management personnel.

Our success depends to a significant degree upon the continued contributions of senior management. The loss of any key member of our management team may prevent us from implementing our business plans in a timely manner. We cannot assure you that successors of comparable ability will be identified and appointed and that our business will not be adversely affected.

A number of our Food Distribution and Military segment associates are covered by collective bargaining agreements.

Approximately 57% and 19% of our associates in our Food Distribution and Military business segments, respectively, are covered by collective bargaining agreements which expire between October 2015 and February 2017. We expect that rising health care, pension and other employee benefit costs, among other issues, will continue to be important topics of negotiation with the labor unions. Upon the expiration of our collective bargaining agreements, work stoppages by the affected workers could occur if we are unable to negotiate an acceptable contract with the labor unions. This could significantly disrupt our operations. Further, if we are unable to control health care and pension costs provided for in the collective bargaining agreements, we may experience increased operating costs and an adverse impact on future results of operations.

Unions may attempt to organize additional employees.

While we believe that relations with our employees are good, we may continue to see additional union organizing campaigns. The potential for unionization could increase as any new related legislation or regulations are passed. We respect our employees’ right to unionize or not to unionize. However, the unionization of a significant portion of our workforce could increase our overall costs at the affected locations and adversely affect our flexibility to run our business in the most efficient manner to remain competitive or acquire new business and could adversely affect our results of operations by increasing our labor costs or otherwise restricting our ability to maximize the efficiency of our operations.

Costs related to multi-employer pension plans and other postretirement plans could increase.

We contribute to the Central States Southeast and Southwest Pension Fund (“Plan”), a multiemployer pension plan. Our participation in this Plan results from obligations contained in collective bargaining agreements with Teamsters locals 406 and 908. We do not administer nor control this Plan, and we have relatively little control over the level of contributions we are required to make. Currently, this Plan is underfunded; and as a result, contributions are scheduled to increase. Additionally, we expect that contributions to this Plan will be subject to further increases. Benefit levels and related issues will continue to create collective bargaining challenges. The amount of any increase or decrease in our required contributions to this Plan will depend upon the outcome of collective bargaining, the actions taken by the trustees who manage the Plan, governmental regulations, actual return on investment of Plan assets, the continued viability and contributions of other contributing employers, and the potential payment of withdrawal liability should we choose to exit a market, among other factors.

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Under current law, an employer that withdraws or partially withdraws from a multi-employer pension plan may incur a withdrawal liability to the plan if it is underfunded. The assessed withdrawal liability represents the portion of the plan’s underfunding that is allocable to the withdrawing employer under very complex actuarial and allocation rules. Withdrawal liability may be incurred under a variety of circumstances, including selling, closing or substantially reducing employment at a facility. Withdrawal liability could be material, and potential exposure to withdrawal liability may influence business decisions and could cause the Company to forgo business opportunities. We are currently unable to reasonably estimate such liability. On December 13, 2014, Congress passed the Multiemployer Pension Reform Act of 2014 (“MPRA”).  The MPRA is intended to address funding shortfalls in both multiemployer pension plans and the Pension Benefit Guaranty Corporation.  Because the MPRA is a complex piece of legislation, its effects on the Plan and potential implications for the Company are not known at this time.  Any adjustment for withdrawal liability will be recorded when it is probable that a liability exists and can be reasonably estimated.

We maintain defined benefit retirement plans for certain of our employees that do not participate in multi-employer pension plans. These plans are frozen. Expenses associated with the defined benefit plans may significantly increase due to changes to actuarial assumptions or investment returns on plan assets that are less favorable than projected. In addition, changes in our funding status could adversely affect our financial position.

Risks associated with insurance plan claims could increase future expenses.

We use a combination of insurance and self-insurance to provide for potential liabilities for workers’ compensation, automobile and general liability, property insurance, director and officers’ liability insurance, and employee health care benefits. The liabilities that have been recorded for these claims represent our best estimate, using generally accepted actuarial reserving methods, of the ultimate obligations for reported claims plus those incurred but not reported for all claims incurred through January 3, 2015. Any actuarial projection of losses is subject to a high degree of variability. Changes in legal trends and interpretations, variability in inflation rates, changes in the nature and method of claims settlement, benefit level changes due to changes in applicable laws, and changes in discount rates could all affect the level of reserves required and could cause future expense to maintain reserves at appropriate levels.

Costs related to associate healthcare benefits are expected to continue to increase.

We provide health benefits for a large number of associates. Our costs to provide such benefits continue to increase annually and recent legislative initiatives regarding healthcare reform have had a direct financial impact.  However, we have carefully analyzed the costs of compliance with these initiatives and believe we have mitigated much of the impact through plan design and vendor negotiations.  We will continue to stay abreast of these legislative changes and monitor their impact.  Future legislative changes could negatively impact our financial condition and results of operations.. In addition, we participate in various multi-employer health plans for our union associates, and we are required to make contributions to these plans in amounts established under collective bargaining agreements. The cost of providing benefits through such plans has escalated rapidly in recent years. The amount of any increase or decrease in our required contributions to these multi-employer plans will depend upon many factors, many of which are beyond our control. If we are unable to control the costs of providing healthcare to associates, we may experience increased operating costs, which may adversely affect our financial condition and results of operations.

Changes in vendor promotions or allowances, including the way vendors target their promotional spending, and our ability to effectively manage these programs could significantly impact our margins and profitability.

We cooperatively engage in a variety of promotional programs with our vendors. As the parties assess the results of specific promotions and plan for future promotions, the nature of these programs and the allocation of dollars among them changes over time. We manage these programs to maintain or improve margins while at the same time increasing sales for us and for the vendors. A reduction in overall promotional spending or a shift in promotional spending away from certain types of promotions that we and our distribution customers have historically utilized could have a significant impact on profitability.

We depend upon vendors to supply us with quality merchandise at the right time and at the right price.

We depend heavily on our ability to purchase merchandise in sufficient quantities at competitive prices. We have no assurances of continued supply, pricing, or access to new products and any vendor could at any time change the terms upon which it sells to us or discontinue selling to us. Sales demands may lead to insufficient in-stock positions of our merchandise.

Significant changes in our ability to obtain adequate product supplies due to weather, food contamination, regulatory actions, labor supply, strikes, labor unrest or product vendor defaults or disputes that limit our ability to procure products for sale to customers could have an adverse effect on our operating results.

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Threats to security or the occurrence of a health pandemic could harm our business.

Our business could be severely impacted by wartime activities, threats or acts of terrorism or a widespread health pandemic. Any of these events could adversely impact our business by disrupting delivery of products to our corporate stores or our independent retail customers, by affecting our ability to appropriately staff our stores and by causing customers to avoid public places.

Disruptions to our information technology systems, including security breaches and cyber-attacks, could negatively affect our business.

We have large, complex information technology systems that are important to our business operations.  We could incur significant losses due to disruptions in our systems and business if we were to experience difficulties accessing data stored in our information technology systems.

We gather and store sensitive information, including personal information about our customers and employees as well as proprietary information of our customers and vendors.  Although we have implemented security programs and disaster recovery facilities and procedures, security could be compromised and systems disruptions, data theft or other criminal activity could occur. This could result in a loss of sales or profits or cause us to incur significant costs to restore our systems or to reimburse third parties for damages.

As a merchant that accepts debit and credit cards for payment, we are subject to the Payment Card Industry Data Security Standard (“PCI DSS”), issued by the PCI Council.   PCI DSS contains compliance guidelines and standards with regard to our security involving the physical and electronic storage, processing and transmission of individual cardholder data.  By accepting debit cards for payment, we are also subject to compliance with American National Standards Institute data encryption standards, and payment network security operating guidelines.  Despite our compliance with these standards and other information security measures, we cannot be certain that all of our IT systems are able to prevent, contain or detect any cyber-attacks or security breaches from known malware or malware that may be developed in the future. To the extent that any disruption results in the loss, damage or misappropriation of information, we may be adversely affected by claims from customers, financial institutions, regulatory authorities, payment card associations and others. In addition, the cost of complying with stricter privacy and information security laws and standards could be significant to us.  

Severe weather and natural disasters could harm our business.

Severe weather conditions and natural disasters, whether a result of climate change or otherwise, could affect the suppliers from whom we purchase products or the transportation infrastructure used to supply our warehouses or used by us to supply our customers and could cause disruptions in our operations. Unseasonably adverse climatic conditions that impact growing conditions and the crops of food producers may adversely affect the availability or cost of certain products.

Damage to our facilities could harm our business.

A majority of the product we supply to our retail stores, Military and Food Distribution customers flows through our distribution centers. While we believe we have adopted commercially reasonable precautions, insurance programs, and contingency plans, the destruction of, or substantial damage to, our distribution centers due to natural disaster, severe weather conditions, accident, terrorism, or other causes could substantially compromise our ability to distribute products to our retail stores and Military and Food Distribution customers. This could result in a loss of sales, profits and asset value.

Impairment charges for goodwill or other intangible assets could adversely affect our financial condition and results of operations.

We are required to test annually goodwill and intangible assets with indefinite useful lives to determine if impairment has occurred. Additionally, interim reviews must be performed whenever events or changes in circumstances indicate that impairment may have occurred. If the testing performed indicates that impairment has occurred, we are required to record a non-cash impairment charge for the difference between the carrying value of the goodwill or other intangible assets and the implied fair value of the goodwill or other intangible assets in the period the determination is made.

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The testing of goodwill and other intangible assets for impairment requires management to make significant estimates about our future performance and cash flows, as well as other assumptions. These estimates can be affected by numerous factors, including potential changes in economic, industry or market conditions, changes in business operations, changes in competition or changes in our stock price and market capitalization. Changes in these factors, or changes in actual performance compared with estimates of our future performance, may affect the fair value of goodwill or other intangible assets, which may result in an impairment charge. We cannot accurately predict the amount and timing of any impairment of assets. Should the value of goodwill or other intangible assets become impaired, our financial condition and results of operations may be adversely affected.

The Company may be unable to successfully integrate the businesses of Spartan Stores and Nash-Finch and realize the anticipated benefits of the merger.

The merger involved the combination of two companies that formerly operated as independent public companies. The combined Company is required to devote significant management attention and resources to integrating the business practices and operations of Spartan Stores and Nash-Finch. Potential difficulties the combined company may encounter as part of the integration process include the following:

the inability to successfully combine the businesses of Spartan Stores and Nash-Finch in a manner that permits the combined company to achieve the full synergies anticipated to result from the merger;

complexities associated with managing the businesses of the combined company, including the challenge of integrating complex systems, technology, distribution channels, networks and other assets of each of the companies in a seamless manner that minimizes any adverse impact on customers, suppliers, employees and other constituencies;

integrating the workforces of the two companies while maintaining focus on providing consistent, high quality customer service; and

potential unknown liabilities and unforeseen increased expenses or delays associated with the merger, including capital expenditures and one-time costs to integrate the two companies that may exceed current estimates.

The future results of the combined company will suffer if the combined company does not effectively manage its expanded operations following the completion of the merger.

Following the completion of the merger, the size of the business of the combined company increased significantly beyond the former size of either Spartan Stores’ or Nash-Finch’s business. The combined company’s future success depends, in part, upon its ability to manage this expanded business, which will pose substantial challenges for management, including challenges related to the management and monitoring of the combined operations and associated increased costs and complexity. There can be no assurances that the combined company will be successful or that it will realize the expected operating efficiencies, cost savings and other benefits currently anticipated from the merger.

The combined company is expected to incur substantial expenses related to the continued  integration of Spartan Stores and Nash-Finch.

The combined company will continue to incur substantial expenses in connection with the  integration of Spartan Stores and Nash-Finch. There are a large number of processes, policies, procedures, operations, technologies and systems that must be integrated, including purchasing, accounting and finance, sales, payroll, pricing, revenue management, marketing and human resources/benefits. In addition, the businesses of Spartan Stores and Nash-Finch will continue to maintain an administrative presence in Grand Rapids, Michigan, Minneapolis, Minnesota and Norfolk, Virginia. While we have assumed that a certain level of expenses would be incurred, there are many factors beyond our control that could affect the total amount or the timing of the integration expenses. Moreover, many of the expenses that will be incurred are, by their nature, difficult to estimate accurately. These expenses could, particularly in the near term, exceed the savings that the combined company expects to achieve from the elimination of duplicative expenses and the realization of economies of scale and cost savings. These integration expenses likely will result in the combined company taking significant charges against earnings and the amount and exact timing of such charges are somewhat uncertain.

-16-


 

Restrictive covenants imposed by our credit facility and other factors could adversely affect our ability to borrow.

Our ability to borrow additional funds is governed by the terms of our credit facilities. The credit facilities contain financial and other covenants that, among other things, limit the Company’s ability to draw down the full amount of the facility, incur additional debt outside of the credit facility, create new liens on property, make acquisitions, or pay dividends. These covenants may affect our operating flexibility and may require us to seek the consent of the lenders to certain transactions that we may wish to effect. We are not currently restricted by these covenants. Disruptions in the financial markets have in the past resulted in bank failures. One or more of the participants in our credit facility could become unable to fund our future borrowings when needed. We believe that cash generated from operating activities and available borrowings under our credit facility will be sufficient to meet anticipated requirements for working capital, capital expenditures, and debt service obligations for the foreseeable future. However, there can be no assurance that our business will continue to generate cash flow at or above current levels or that we will maintain our ability to borrow under our credit facility. The Company may not be able to refinance its existing debt at similar terms.

The financing arrangements that the combined company entered into in connection with the merger contain restrictions and limitations that could significantly impact SpartanNash’s ability to operate its business.

SpartanNash incurred significant new indebtedness in connection with the merger. The agreements governing the indebtedness of the combined company incurred in connection with the merger contain covenants that, among other things, may, under certain circumstances, place limitations on the dollar amounts paid or other actions relating to:

payments in respect of, or redemptions or acquisitions of, debt or equity issued by the combined company or its subsidiaries, including the payment of dividends on SpartanNash common stock;

incurring additional indebtedness;

incurring guarantee obligations;

paying dividends;

creating liens on assets;

entering into sale and leaseback transactions;

making investments, loans or advances;

entering into hedging transactions;

engaging in mergers, consolidations or sales of all or substantially all of their respective assets; and

engaging in certain transactions with affiliates.

Maintaining our reputation and corporate image is essential to our business success.

Our success depends on the value and strength of our corporate name and reputation. Our name, reputation and image are integral to our business as well as to the implementation of our strategies for expanding our business. Our business prospects, financial condition and results of operations could be adversely affected if our public image or reputation were to be tarnished by negative publicity including dissemination via print, broadcast or social media, or other forms of Internet-based communications. Adverse publicity about regulatory or legal action against us could damage our reputation and image, undermine our customers’ confidence and reduce long-term demand for our products and services, even if the regulatory or legal action is unfounded or not material to our operations. Any of these events could have a negative impact on our results of operations and financial condition.

 

 

Item 1B.

Unresolved Staff Comments

None.

 

 

Item 2.

Properties

We have corporate offices that are located in Grand Rapids, Michigan, Minneapolis, Minnesota and Norfolk, Virginia consisting of approximately 304,100 square feet of office space in buildings we own, and 26,300 square feet which we lease. We also lease four additional off-site storage facilities consisting of approximately 57,800 square feet.

-17-


 

Military Segment

The table below lists the locations and sizes of our facilities used in our Military segment. Unless otherwise indicated, we own each of these distribution centers. The lease expiration dates range from August 2015 to November 2029.

 

 

 

Approx. Size

 

Location

 

(Square Feet)

 

Norfolk, Virginia (1)

 

 

759,434

 

Landover, Maryland (2)

 

 

368,088

 

Columbus, Georgia (3)

 

 

531,900

 

Pensacola, Florida

 

 

355,900

 

Bloomington, Indiana (4)

 

 

501,277

 

Junction City, Kansas

 

 

132,000

 

Oklahoma City, Oklahoma

 

 

608,543

 

San Antonio, Texas

 

 

486,820

 

Total Square Footage

 

 

3,743,962

 

(1)

Includes 188,093 square feet that we lease.

(2)

Leased facility.

(3)

Leased location requiring periodic lease payments to the holder of the outstanding industrial revenue bond. As of January 3, 2015, the outstanding industrial revenue bond associated with this location was held by SpartanNash, and upon expiration of the lease terms, SpartanNash will take title to the property upon redemption of the outstanding bond.

(4)

Includes 30,000 square feet that we lease.

We believe that our distribution facilities are generally well maintained, are generally in good operating condition, have sufficient capacity and are suitable and adequate to carry on our military business.

Food Distribution Segment Real Estate

The following table lists the approximate locations and sizes of our distribution centers primarily used in our Food Distribution operations. Unless otherwise indicated, we own each of these distribution centers. The lease expirations range from May 2015 to November 2017.  Most of the leases have additional renewal option periods available.

 

 

 

Approx. Size

 

Location

 

(Square Feet)

 

St. Cloud, Minnesota

 

 

329,046

 

Fargo, North Dakota

 

 

288,824

 

Minot, North Dakota

 

 

185,250

 

Omaha, Nebraska

 

 

686,783

 

Sioux Falls, South Dakota (1)

 

 

275,414

 

Lumberton, North Carolina (2)

 

 

336,502

 

Statesboro, Georgia (2)

 

 

230,520

 

Bluefield, Virginia

 

 

187,531

 

Bellefontaine, Ohio

 

 

666,045

 

Lima, Ohio (3)

 

 

523,052

 

Westville, Indiana

 

 

631,944

 

Grand Rapids, Michigan

 

 

1,179,582

 

Total Square Footage

 

 

5,520,493

 

 

(1)

Includes 79,300 square feet that we lease.

(2)

Includes 6,400 square feet that we lease.

(3)

Leased facility.

(4)

Includes 5,500 square feet that we lease.

We believe that our distribution facilities are generally well maintained, are generally in good operating condition, have sufficient capacity and are suitable and adequate to carry on our distribution business.

-18-


 

Retail Segment Real Estate

The following table contains the retail banner, number of stores, geographic region and approximate square footage under the banner. We own the facilities of 28 of these stores and lease the facilities of 134 of these stores.

 

Grocery Store

 

Number

 

 

 

 

 

Total

 

Retail Banner

 

of Stores

 

Geographic Region

 

 

 

Square Feet

 

Family Fare Supermarkets

 

66

 

Michigan, Minnesota and North Dakota

 

Leased

 

 

2,654,457

 

Family Fare Supermarkets

 

2

 

North Dakota

 

Owned

 

 

100,303

 

No Frills

 

17

 

Iowa and Nebraska

 

Leased

 

 

885,674

 

VG’s Food and Pharmacy

 

10

 

Michigan

 

Leased

 

 

461,698

 

VG’s Food and Pharmacy

 

1

 

Michigan

 

Owned

 

 

37,223

 

D&W Fresh Markets

 

9

 

Michigan

 

Leased

 

 

435,153

 

D&W Fresh Markets

 

2

 

Michigan

 

Owned

 

 

84,458

 

Sun Mart

 

8

 

Colorado, Minnesota and Nebraska

 

Owned

 

 

238,100

 

Sun Mart

 

3

 

Nebraska

 

Leased

 

 

81,043

 

Bag ‘N Save

 

6

 

Nebraska

 

Leased

 

 

351,182

 

Bag ‘N Save

 

3

 

Nebraska

 

Owned

 

 

188,595

 

Econofoods

 

4

 

Minnesota

 

Leased

 

 

137,533

 

Econofoods

 

4

 

Minnesota and Wisconsin

 

Owned

 

 

94,749

 

Valu Land

 

6

 

Michigan

 

Leased

 

 

135,920

 

Family Fresh Market

 

5

 

Minnesota, Nebraska and Wisconsin

 

Owned

 

 

249,904

 

Family Fresh Market

 

1

 

Minnesota

 

Leased

 

 

32,650

 

Family Thrift Center

 

3

 

South Dakota

 

Leased

 

 

127,107

 

Family Thrift Center

 

1

 

South Dakota

 

Owned

 

 

60,200

 

Supermercado Nuestra Familia

 

2

 

Nebraska

 

Owned

 

 

83,279

 

Supermercado Nuestra Familia

 

1

 

Nebraska

 

Leased

 

 

23,211

 

Forest Hills Foods

 

1

 

Michigan

 

Leased

 

 

50,791

 

Pick ‘n Save

 

1

 

Ohio

 

Leased

 

 

45,608

 

Germantown Fresh Market

 

1

 

Ohio

 

Leased

 

 

31,764

 

Prairie Market

 

1

 

South Dakota

 

Leased

 

 

32,528

 

Dillonvale IGA

 

1

 

Ohio

 

Leased

 

 

25,627

 

Madison Fresh Market

 

1

 

Wisconsin

 

Leased

 

 

21,470

 

Purdue Fresh Market

 

1

 

Indiana

 

Leased

 

 

21,622

 

Wholesale Food Outlet

 

1

 

Iowa

 

Leased

 

 

19,620

 

Total

 

162

 

 

 

 

 

 

6,711,469

 

 

We also own three additional fuel centers that are not reflected in the square footage above: a Family Fare Quick Stop in Michigan that is not included at a supermarket location but is adjacent to our corporate headquarters, FTC Express Gas in Scottsbluff, Nebraska and SunMart Express Gas in Fergus Falls, Minnesota. Also not accounted for in the tables above are stand-alone pharmacies in Cannon Falls, Minnesota, Clear Lake, Iowa and Barron, Wisconsin.

 

 

Item 3.

Legal Proceedings

We are engaged from time-to-time in routine legal proceedings incidental to our business. We do not believe that these routine legal proceedings, taken as a whole, will have a material impact on our 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 a material adverse effect on the consolidated financial position, operating results or liquidity of SpartanNash.

SpartanNash contributes to the Central States multi-employer pension plan based on obligations arising from its collective bargaining agreements in Bellefontaine, Ohio, Lima, Ohio, and Grand Rapids, Michigan covering its distribution center union associates. This plan provides retirement benefits to participants based on their service to contributing employers. The benefits are paid from assets held in trust for that purpose. Trustees are appointed by contributing employers and unions; however, SpartanNash is not a trustee. The trustees typically are responsible for determining the level of benefits to be provided to participants, as well as for such matters as the investment of the assets and the administration of the plan. SpartanNash currently contributes to the Central States, Southeast and Southwest Areas Pension Fund under the terms outlined in the “Primary Schedule” of Central States’ Rehabilitation Plan. This schedule requires varying increases in employer contributions over the previous year’s contribution. Increases are set within the collective bargaining agreement and vary by location.

-19-


 

Based on the most recent information available to SpartanNash, management believes that the present value of actuarial accrued liabilities in this multi-employer plan significantly exceeds the value of the assets held in trust to pay benefits. Because SpartanNash is one of a number of employers contributing to this plan, it is difficult to ascertain what the exact amount of the underfunding would be, although management anticipates that SpartanNash’s contributions to this plan will increase each year. Management is not aware of any significant change in funding levels since December 28, 2013. To reduce this underfunding, management expects meaningful increases in expense as a result of required incremental multi-employer pension plan contributions in future years. Any adjustment for withdrawal liability will be recorded when it is probable that a liability exists and can be reasonably determined.

Various lawsuits and claims, arising in the ordinary course of business, are pending or have been asserted against SpartanNash. While the ultimate effect of such lawsuits and claims cannot be predicted with certainty, management believes that their outcome will not result in an adverse effect on the consolidated financial position, operating results or liquidity of SpartanNash.

 

 

Item  4.

Mine Safety Disclosure

Not Applicable

 

 

 

-20-


 

 

PART II

 

Item  5.

Market for Registrant’s Common Equity and Related Stockholder Matters

SpartanNash common stock is traded on the NASDAQ Global Select Market under the trading symbol “SPTN.”

Stock sale prices are based on transactions reported on the NASDAQ Global Select Market. Information on quarterly high and low sales prices for SpartanNash common stock appears in Note 18 to the consolidated financial statements and is incorporated here by reference. At February 27, 2015, there were approximately 1,410 shareholders of record of SpartanNash common stock. SpartanNash has paid a quarterly cash dividend every quarter since the fourth quarter of fiscal 2006.

The table below outlines quarterly dividends paid on Spartan Stores and SpartanNash common stock in each of the last four fiscal years and the Board of Directors’ currently anticipated increase in the quarterly dividend:

 

 

 

Dividend per

 

Effective Quarter

 

common share

 

4th quarter Fiscal March 30, 2012

 

$

0.05

 

1st through 4th quarters Fiscal March 31, 2012

 

0.065

 

1st through 4th quarters Fiscal March 30, 2013

 

0.08

 

1st through 4th quarters Fiscal December 28, 2013

 

0.09

 

1st through 4th quarters Fiscal January 3, 2015

 

0.12

 

1st quarter Fiscal January 2, 2016

 

0.135

 

 

Under its senior revolving credit facility, SpartanNash is generally permitted to pay dividends in any fiscal year up to an amount such that all cash dividends, together with any cash distributions, prepayments of its Senior Notes and share repurchases, do not exceed $25.0 million. Additionally, SpartanNash 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 15% of the Total Borrowing Base before and after giving effect to the prepayments, repurchases and dividends. Although we expect 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. The ability of the Board of Directors to continue to declare dividends will depend on a number of factors, including our future financial condition and profitability and compliance with the terms of our credit facilities. In May 2011, the Board of Directors authorized a five-year share repurchase program for up to $50 million of SpartanNash’s common stock.

During fiscal years ended January 3, 2015 and March 30, 2013, the Company repurchased 245,956 and 634,408 shares of common stock for approximately $5.0 million and $11.4 million, respectively. SpartanNash did not repurchase any shares under this program during the 39 week period ended December 28, 2013. The approximate dollar value of shares that may yet be purchased under the repurchase plan was $21.3 million as of January 3, 2015.

The equity compensation plans table in Item 12 is here incorporated by reference.

The following table provides information regarding SpartanNash’s purchases of its own common stock during the last quarter of the fiscal year ended January 3, 2015. All employee transactions are under associate stock compensation plans. These 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.

-21-


 

 

SpartanNash Company Purchases of Equity Securities

 

 

 

Total

 

 

 

 

 

 

 

Number

 

 

Average

 

 

 

of Shares

 

 

Price Paid

 

Period

 

Purchased

 

 

per Share

 

October 5 – November 1, 2014

 

 

 

 

 

 

 

 

Employee Transactions

 

 

 

 

$

 

Repurchase Program

 

 

124,956

 

 

$

19.97

 

November 2 – November 29, 2014

 

 

 

 

 

 

 

 

Employee Transactions

 

 

 

 

$

 

Repurchase Program

 

 

 

 

$

 

November 30, 2014 – January 3, 2015

 

 

 

 

 

 

 

 

Employee Transactions

 

 

 

 

$

 

Repurchase Program

 

 

 

 

$

 

Total for Quarter ended January 3, 2015

 

 

 

 

 

 

 

 

Employee Transactions

 

 

 

 

$

 

Repurchase Program

 

 

124,956

 

 

$

19.97

 

Performance Graph

Set forth below is a graph comparing the cumulative total shareholder return on SpartanNash common stock to that of the Russell 2000 Total Return Index and the NASDAQ Retail Trade Index, over a period beginning March 26, 2010 and ending on January 3, 2015.

Cumulative total return is measured by the sum of (1) the cumulative amount of dividends for the measurement period, assuming dividend reinvestment and (2) the difference between the share price at the end and the beginning of the measurement period, divided by the share price at the beginning of the measurement period.

-22-


 

 

The dollar values for total shareholder return plotted above are shown in the table below:

 

 

 

March 26,

 

 

March 26,

 

 

March 31,

 

 

March 30,

 

 

December 28,

 

 

January 3,

 

 

 

2010

 

 

2011

 

 

2012

 

 

2013

 

 

2013

 

 

2015

 

SpartanNash

 

$

100.00

 

 

$

105.38

 

 

$

128.74

 

 

$

127.20

 

 

$

174.21

 

 

$

175.09

 

Russell 2000 Total Return Index

 

 

100.00

 

 

 

122.81

 

 

 

125.56

 

 

 

146.04

 

 

 

179.97

 

 

 

188.28

 

NASDAQ Retail Trade

 

 

100.00

 

 

 

115.40

 

 

 

150.59

 

 

 

163.64

 

 

 

194.89

 

 

 

217.82

 

 

The information set forth under the Heading “Performance Graph” shall not be deemed to be “soliciting material” or to be “filed” with the Commission or subject to Regulation 14A or 14C, or to the liabilities of Section 18 of the Exchange Act, except to the extent that the registrant specifically requests that such information be treated as soliciting material or specifically incorporates it by reference into a filing under the Securities Act or the Exchange Act.

 

 

Item 6.

Selected Financial Data

The following table provides selected historical consolidated financial information of SpartanNash. The historical information was derived from our audited consolidated financial statements as of and for each of the five fiscal years ended March 26, 2011 through January 3, 2015. Fiscal years ended January 3, 2015 and March 31, 2012 consisted of 53 weeks; the transition fiscal year ended December 28, 2013 consisted of 39 weeks and all other years presented consisted of 52 weeks. The unaudited 51 week period ended December 28, 2013 is included in the table below for comparison purposes to the 53 week fiscal year ended January 3, 2015.

 

(In thousands, except per share data)

Fiscal Year Ended

 

 

Period Ended

 

 

Fiscal Year Ended

 

 

 

 

 

 

December 28,

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

January 3,

 

 

2013

 

 

December 28,

 

 

March 30,

 

 

March 31,

 

 

March 26,

 

Statements of Earnings Data:

2015

 

 

(unaudited)

 

 

2013 (A)

 

 

2013

 

 

2012

 

 

2011

 

 

53 weeks

 

 

51 weeks

 

 

39 weeks

 

 

52 weeks

 

 

53 weeks

 

 

52 weeks

 

Net sales

$

7,916,062

 

 

$

3,190,039

 

 

$

2,597,230

 

 

$

2,608,160

 

 

$

2,634,226

 

 

$

2,533,064

 

Cost of sales

 

6,759,988

 

 

 

2,570,516

 

 

 

2,110,350

 

 

 

2,062,616

 

 

 

2,078,116

 

 

 

1,976,549

 

Gross profit

 

1,156,074

 

 

 

619,523

 

 

 

486,880

 

 

 

545,544

 

 

 

556,110

 

 

 

556,515

 

Other selling, general and administrative expenses

 

1,022,387

 

 

 

546,100

 

 

 

433,450

 

 

 

482,987

 

 

 

489,650

 

 

 

488,017

 

Merger transaction and integration expenses

 

12,675

 

 

 

20,993

 

 

 

20,993

 

 

 

 

 

 

 

 

 

 

Restructuring, asset impairment and other (B)

 

6,166

 

 

 

16,877

 

 

 

15,644

 

 

 

1,589

 

 

 

(23

)

 

 

532

 

Operating earnings

 

114,846

 

 

 

35,553

 

 

 

16,793

 

 

 

60,968

 

 

 

66,483

 

 

 

67,966

 

Interest expense

 

24,414

 

 

 

12,209

 

 

 

9,219

 

 

 

13,410

 

 

 

15,037

 

 

 

15,104

 

Debt extinguishment

 

 

 

 

8,289

 

 

 

5,527

 

 

 

5,047

 

 

 

 

 

 

 

Other, net

 

(17

)

 

 

(27

)

 

 

(23

)

 

 

(756

)

 

 

(110

)

 

 

(97

)

Earnings before income taxes and discontinued

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

   operations

 

90,449

 

 

 

15,082

 

 

 

2,070

 

 

 

43,267

 

 

 

51,556

 

 

 

52,959

 

Income taxes

 

31,329

 

 

 

5,914

 

 

 

841

 

 

 

15,425

 

 

 

19,686

 

 

 

20,420

 

Earnings from continuing operations

 

59,120

 

 

 

9,168

 

 

 

1,229

 

 

 

27,842

 

 

 

31,870

 

 

 

32,539

 

Loss from discontinued operations, net of taxes (C)

 

(524

)

 

 

(725

)

 

 

(488

)

 

 

(432

)

 

 

(112

)

 

 

(232

)

Net earnings

$

58,596

 

 

$

8,443

 

 

$

741

 

 

$

27,410

 

 

$

31,758

 

 

$

32,307

 

Basic earnings from continuing operations per share

$

1.57

 

 

$

0.39

 

 

$

0.05

 

 

$

1.28

 

 

$

1.40

 

 

$

1.44

 

Diluted earnings from continuing operations per share

1.57

 

 

0.39

 

 

0.05

 

 

1.27

 

 

1.39

 

 

1.43

 

Basic earnings per share

1.56

 

 

0.36

 

 

0.03

 

 

1.26

 

 

1.39

 

 

1.43

 

Diluted earnings per share

1.55

 

 

0.36

 

 

0.03

 

 

1.25

 

 

1.39

 

 

1.42

 

Cash dividends declared per share

0.48

 

 

0.35

 

 

0.27

 

 

0.32

 

 

0.26

 

 

 

0.20

 

Balance Sheet Data:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total assets

$

1,932,282

 

 

$

1,983,651

 

 

$

1,983,651

 

 

$

789,667

 

 

$

763,473

 

 

$

751,396

 

Property and equipment, net

 

597,150

 

 

 

628,482

 

 

 

628,482

 

 

 

272,126

 

 

 

256,776

 

 

 

241,448

 

Working capital

 

433,200

 

 

 

398,167

 

 

 

398,167

 

 

 

13,179

 

 

 

24,684

 

 

 

47,300

 

Long-term debt and capital lease obligations

 

550,510

 

 

 

598,319

 

 

 

598,319

 

 

 

145,876

 

 

 

133,565

 

 

 

170,711

 

Shareholders’ equity

 

747,253

 

 

 

706,873

 

 

 

706,873

 

 

 

335,655

 

 

 

323,608

 

 

 

305,505

 

(A)

See Note 2 to Consolidated Financial Statements regarding the merger with Nash-Finch Company.

-23-


 

 

(B)

See Note 4 to Consolidated Financial Statements.

(C)

See Note 16 to Consolidated Financial Statements.

Historical data is not necessarily indicative of SpartanNash’s future results of operations or financial condition. See discussion of “Risk Factors” in Part I, Item 1A of this report, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of this report, and the Consolidated Financial Statements and notes thereto in Part II, Item 8 of this Annual Report on Form 10-K.

 

 

Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Executive Overview

SpartanNash is headquartered in Grand Rapids, Michigan. Our business consists of three primary operating segments: Military, Food Distribution and Retail. We are a leading multi-regional grocery distributor and grocery retailer and the largest distributor, by revenue, of grocery products to military commissaries and exchanges in the United States.

On November 19, 2013, Spartan Stores, Inc. merged with Nash-Finch Company. Under the terms of the merger agreement, each share of Nash-Finch common stock was converted into 1.2 shares of Spartan Stores common stock. The results of operations of Nash-Finch are included in the accompanying consolidated financial statements from the date of merger. Following the merger, Nash-Finch Company became a wholly-owned subsidiary of SpartanNash.

Our Military segment contracts with manufacturers to distribute a wide variety of grocery products to military commissaries and exchanges located in the United States and the District of Columbia, Europe, Puerto Rico, Cuba, Egypt, Bahrain and Honduras. We have over 40 years of experience acting as a distributor to U.S. military commissaries and exchanges.

Our Food Distribution segment provides a wide variety of nationally branded and private label grocery products and perishable food products including dry groceries, produce, dairy products, meat, deli, bakery, frozen food, seafood, floral products, general merchandise, pharmacy and health and beauty care. The Food Distribution segment operates in 42 states, primarily in the Midwest, Great Lakes, and Southeast regions of the United States, with 12 distribution centers supporting approximately 2,100 independently  owned supermarkets and also supplies our corporate retail base of 162 stores.

Our Retail segment operates 162 supermarkets in the Midwest which operate primarily under the banners of Family Fare Supermarkets, No Frills, Bag ‘N Save, Family Fresh Markets, D&W Fresh Markets, Sun Mart and Econofoods. Our retail supermarkets typically offer dry groceries, produce, dairy products, meat, frozen food, seafood, floral products, general merchandise, beverages, tobacco products, health and beauty care products, delicatessen items and bakery goods. We offer pharmacy services in 79 of our supermarkets and we operate 29 fuel centers. Our retail supermarkets have a “neighborhood market” focus to distinguish them from supercenters and limited assortment stores.

Historically, our fiscal year end was the last Saturday in March. Our fiscal year end was changed to the Saturday closest to the end of December beginning with the transition year ended December 28, 2013. Fiscal years ended January 3, 2015 and March 31, 2012 consisted of 53 weeks; therefore, the fourth quarters of these fiscal years consisted of 13 weeks rather than 12 weeks. The transition fiscal year ended December, 28 2013 consisted of 39 weeks. Typically, under our December fiscal year format, all quarters are 12 weeks, except for our first quarter, which is 16 weeks and will generally include the Easter holiday. Our fourth quarter includes the Thanksgiving and Christmas holidays. Under the March fiscal year format, all quarters consisted of 12 weeks except for the third quarter which consisted of 16 weeks and included the Thanksgiving and Christmas holidays.

In certain markets, our sales and operating performance 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. In our Michigan market, under our new fiscal year format, our first and second quarters are typically our lowest sales quarters. Therefore, operating results are generally lower during these two quarters.

SpartanNash has established key management priorities that focus on the longer-term strategy of the Company, including establishing a well-differentiated market offering for our Food Distribution, Military and Retail segments, and additional strategies designed to create value for our shareholders, retailers and customers. These priorities are:

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Military:

Leverage the size and scale of the existing distribution and retail segments to attract additional customers.

Continue to partner with Coastal Pacific Food Distributors to leverage the advantage of a worldwide distribution network.

Food Distribution:

Leverage new competitive position, scale and financial flexibility to further consolidate the distribution channel.

Leverage retail competency and the capabilities of the combined distribution platform to increase business within the existing account base and potentially add new distribution categories and take advantage of current competitive market dynamics to supply new customers.

Continue to focus on increasing private brand penetration and overall purchase concentration.

Gain efficiencies in all aspects of the supply chain through optimization of the distribution center network.

Retail:

Evaluate banners to maintain a portfolio of customer-relevant offerings for the entire market continuum.

Continue to drive a lean and efficient operating cost structure to remain competitive.

Rationalize store base to maximize capital efficiency and enhance profitability.

Strategically deploy capital to modernize the store base.

Pursue opportunistic roll-ups of existing distribution customers and/or other retailers.

·

Drive value by expanding consumer relationships with pharmacy, fuel and other promotional offerings.  

We are making progress in our work to integrate our retail, food distribution and military distribution businesses. We continue to expect synergies of approximately $35 million and $52 million in fiscal years 2015 and 2016, respectively, and integration costs of approximately $5 million and $2 million in fiscal years 2015 and 2016, respectively.

In fiscal 2015, we expect to continue to grow our business while significantly upgrading our retail systems and facilities. We will continue to leverage our strong business model and have a number of initiatives designed to drive sales and earnings across business segments. However, we expect that folding in the stores acquired in the merger with Nash Finch will create negative headwinds on our comparable stores sales and that lower center store inflation along with the very favorable winter weather in the first quarter of fiscal 2014 will result in our first quarter operational results approximating the first quarter of last year for adjusted earnings from continuing operations.   We anticipate our financial performance will improve sequentially as we cycle the favorable winter weather experienced in the first quarter last year, benefit from the remodels completed in fiscal 2014 and first half of fiscal 2015 and rollout of our merchandising, pricing and promotional programs to all stores. We plan to complete a total of nine major remodels and store re-banners in fiscal 2015, with six scheduled for the first half of the year, and anticipate these will lead to improved sales in the second half of the year. We also remain focused on improving the efficiency of our operations and intend to close up to ten stores in fiscal 2015 as part of the optimization of our overall store base. Additionally, we will consolidate one of our warehouse facilities in the first quarter.

The matters discussed in this Item 7 include forward-looking statements. See “Forward-Looking Statements” at the beginning and “Risk Factors” in Item 1A of this Annual Report on Form 10-K.

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Results of Operations

The following table sets forth items from our Consolidated Statements of Earnings as a percentage of net sales and the year-to-year percentage change in dollar amounts:

 

 

Percentage of Net Sales

 

 

Percentage Change

 

 

January 3,

 

 

December 28,

 

 

December 28,

 

 

January 5,

 

 

1/3/2015 to

 

 

12/28/2013

 

 

2015

 

 

2013

 

 

2013

 

 

2013

 

 

12/28/2013

 

 

to 1/5/2013

 

(Unaudited)

(53 Weeks)

 

 

(51 Weeks)

 

 

(39 weeks)

 

 

(40 weeks)

 

 

53 vs. 51

 

 

39 vs. 40

 

Net sales

 

100.0

 

 

 

100.0

 

 

 

100.0

 

 

 

100.0

 

 

 

148.1

 

 

 

28.9

 

Gross profit

 

14.6

 

 

 

19.4

 

 

 

18.7

 

 

 

20.5

 

 

 

86.6

 

 

 

17.9

 

Merger transaction and integration expenses

 

0.1

 

*

 

0.7

 

 

 

0.8

 

 

 

-

 

 

 

(39.6

)

 

**

 

Selling, general and administrative expenses

 

12.9

 

 

 

17.1

 

 

 

16.7

 

 

 

18.4

 

 

 

87.2

 

 

 

17.0

 

Restructuring, asset impairment and other

 

0.1

 

 

 

0.5

 

 

 

0.6

 

 

 

-

 

 

 

(63.5

)

 

**

 

Operating earnings

 

1.5

 

 

 

1.1

 

 

 

0.6

 

 

 

2.1

 

 

 

223.0

 

 

 

(60.2

)

Other income and expenses

 

0.4

 

*

 

0.6

 

 

 

0.5

 

*

 

0.6

 

 

 

19.2

 

 

 

23.2

 

Earnings before income taxes and discontinued operations

 

1.1

 

 

 

0.5

 

 

 

0.1

 

 

 

1.5

 

 

 

499.7

 

 

 

(93.2

)

Income taxes

 

0.4

 

 

 

0.2

 

 

 

0.1

 

*

 

0.5

 

 

 

429.7

 

 

 

(91.9

)

Earnings from continuing operations

 

0.7

 

 

 

0.3

 

 

 

-

 

 

 

1.0

 

 

 

544.9

 

 

 

(93.8

)

Loss from discontinued operations, net of taxes

 

(0.0

)

 

 

(0.0

)

 

 

-

 

 

 

-

 

 

 

(27.7

)

 

**

 

Net earnings

 

0.7

 

 

 

0.3

 

 

 

-

 

 

 

1.0

 

 

 

594.0

 

 

 

(96.2

)