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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 22, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______________ to ______________.
Commission File Number: 33-41791
SPARTAN STORES, INC.
(Exact Name of Registrant as Specified in Its Charter)
MICHIGAN 38-0593940
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification No.)
850 76TH STREET, S.W.
P.O. BOX 8700
GRAND RAPIDS, MICHIGAN 49518
(Address of Principal Executive Offices) (Zip Code)
(616) 878-2000
(Registrant's Telephone Number, Including Area Code)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes _X_ No ___
As of July 20, 1996, the issuer had 1,219,725 outstanding shares of Class A
Common Stock, $20 par value.
_____________________
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
SPARTAN STORES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
<CAPTION>
FIRST QUARTER (12 WEEKS) ENDED
JUNE 22, JUNE 17,
1996 1995
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
NET SALES $568,025,497 $570,154,529
LESS VOLUME INCENTIVE REBATES 3,906,490
568,025,497 566,248,039
COSTS AND EXPENSES
Cost of sales 524,797,712 521,484,721
Operating and administrative 33,311,214 36,228,473
Depreciation and amortization 4,421,245 3,963,427
Interest (net) 1,340,065 1,193,880
563,870,236 562,870,501
EARNINGS BEFORE TAXES ON INCOME 4,155,261 3,377,538
TAXES ON INCOME 1,397,000 1,380,000
NET EARNINGS $ 2,758,261 $ 1,997,538
NET EARNINGS PER CLASS A SHARE $ 2.23 $ 1.59
WEIGHTED AVERAGE NUMBER OF CLASS A
SHARES OUTSTANDING 1,236,147 1,254,791
DIVIDENDS DECLARED PER CLASS A SHARE $ 0.125 $ 0.125
</TABLE>
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<TABLE>
SPARTAN STORES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
<CAPTION>
JUNE 22, MARCH 30,
1996 1996
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 26,439,900 $ 39,796,018
Marketable securities 16,062,504 16,051,608
Accounts receivable 74,191,190 68,444,576
Refundable taxes on income 6,076,006 10,173,305
Inventories 74,514,812 78,659,807
Prepaid expenses 4,442,840 4,072,104
Deferred taxes on income 7,607,000 7,579,000
TOTAL CURRENT ASSETS 209,334,252 224,776,418
INVESTMENTS AND OTHER ASSETS 9,861,030 9,959,071
PROPERTY AND EQUIPMENT 285,823,118 279,534,993
Less Accumulated Depreciation and Amortization 126,508,962 126,819,069
NET PROPERTY AND EQUIPMENT 159,314,156 152,715,924
TOTAL ASSETS $378,509,438 $387,451,413
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable $ 11,328,994 $ 15,000,000
Accounts payable 97,235,097 84,868,588
Insurance reserves 18,285,683 18,484,660
Current maturities of long-term debt 7,248,218 7,678,972
Current obligations under capital leases 581,558 582,135
Other current liabilities 21,245,547 28,878,016
TOTAL CURRENT LIABILITIES 155,925,097 155,492,371
DEFERRED GAIN ON SALE OF REAL PROPERTY 278,797 298,477
DEFERRED TAXES ON INCOME 627,000 600,000
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS 4,101,483 4,101,483
LONG-TERM DEBT 111,447,825 122,013,296
LONG-TERM OBLIGATIONS UNDER CAPITAL LEASES 2,222,211 2,359,075
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SHAREHOLDERS' EQUITY
Class A common stock, voting, par value
$20 per share 24,664,200 24,920,960
Additional paid-in capital 18,911,654 19,622,472
Retained earnings 60,331,171 58,043,279
TOTAL SHAREHOLDERS' EQUITY 103,907,025 102,586,711
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $378,509,438 $387,451,413
</TABLE>
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<TABLE>
SPARTAN STORES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
FIRST QUARTER (12 WEEKS) ENDED
JUNE 22, JUNE 17,
1996 1995
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings $ 2,758,261 $ 1,997,538
Adjustments to reconcile net earnings to net
cash provided by (used in) operating activities:
Depreciation and amortization 4,421,245 3,963,427
Rebates paid in common stock 994,821
Deferred taxes on income (1,000) 123,000
Gain on sale of property and equipment (1,175,071) (176,381)
Change in assets and liabilities:
Marketable securities (10,896) (2,540,981)
Accounts receivable (5,746,614) 11,138,528
Refundable taxes on income 4,097,299
Inventories 4,144,995 14,129,220
Prepaid expenses (370,736) 34,198
Accounts payable 12,366,509 (5,253,710)
Rebates due to customers 29,393 657,835
Accrued payroll and benefits (762,308) (734,009)
Insurance reserves (198,977) 851,946
Other accrued expenses (6,899,554) 6,601,296
NET CASH PROVIDED BY OPERATING ACTIVITIES 12,652,546 31,786,728
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment (14,244,828) (7,202,611)
Proceeds from the sale of property and equipment 4,482,437 355,794
Other (3,653) 593,498
NET CASH USED IN INVESTING ACTIVITIES (9,766,044) (6,253,319)
CASH FLOWS FROM FINANCING ACTIVITIES
Changes in notes payable (3,671,006) (1,121,420)
Proceeds from long-term borrowings 11,551,200 5,614,500
Repayment of long-term debt (22,547,426) (11,149,003)
Reduction of obligations under capital leases (137,441) (124,900)
Proceeds from sale of common stock 511,600 291,276
Common stock purchased (1,795,400) (180,606)
Dividends paid (154,147) (158,288)
NET CASH USED IN FINANCING ACTIVITIES (16,242,620) (6,828,441)
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NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (13,356,118) 18,704,968
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 39,796,018 25,161,193
CASH AND CASH EQUIVALENTS AT END OF FIRST QUARTER $26,439,900 $43,866,161
</TABLE>
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<TABLE>
SPARTAN STORES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<CAPTION>
CLASS A ADDITIONAL
COMMON PAID-IN RETAINED
STOCK CAPITAL EARNINGS
<S> <C> <C> <C>
BALANCE - MARCH 25, 1995 $25,088,980 $17,473,010 $83,238,742
CLASS A COMMON STOCK TRANSACTIONS
76,046 shares purchased (1,520,920) (3,165,335) (2,904,751)
67,645 shares issued 1,352,900 5,314,797
NET LOSS (21,667,595)
CASH DIVIDENDS - $.50 PER SHARE (623,117)
BALANCE - MARCH 30, 1996 24,920,960 19,622,472 58,043,279
CLASS A COMMON STOCK TRANSACTIONS
17,954 shares purchased (359,080) (1,120,098) (316,222)
5,116 shares issued 102,320 409,280
NET EARNINGS 2,758,261
CASH DIVIDENDS - $.125 PER SHARE (154,147)
BALANCE - JUNE 22, 1996 $24,664,200 $18,911,654 $60,331,171
</TABLE>
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ACCOUNTING POLICIES:
The 1996 annual report contains a summary of significant accounting
policies in the notes to consolidated financial statements. The Company
follows the same accounting policies in the preparation of interim
financial statements.
INVENTORIES:
Inventories are stated at the lower of cost or market using the LIFO (last-in,
first-out) method. If replacement cost had been used, inventories
would have been $43,700,000 and $43,500,000 higher at June 22, 1996 and
March 30, 1996, respectively.
ACCOUNTS PAYABLE:
Accounts payable include $18,740,000 and $19,130,000 at June 22, 1996 and
March 30, 1996, respectively, representing checks which have been issued
and have not cleared the Company's controlled disbursing bank accounts.
INTEREST (NET):
Interest (net) includes interest income of $1,084,000 and $1,012,000 for
the first quarter of fiscal 1997 and 1996, respectively.
TAXES ON INCOME:
The Company's effective tax rate differs from the statutory rate for the
first quarter of fiscal 1996 due primarily to goodwill amortization.
STATEMENT OF REGISTRANT:
The data presented herein is unaudited, but in the opinion of management,
includes all adjustments (which consist solely of normal recurring
accruals) necessary for a fair presentation of the consolidated financial
position of the Company and its subsidiaries at June 22, 1996 and the
results of their operations and the changes in cash flows for the periods
ended June 22, 1996 and June 17, 1995. These interim results are not
necessarily indicative of the results of the fiscal years as a whole.
-8-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
On February 4, 1996, the Company changed its pricing methodology from a
variable mark-up program with volume incentive rebates to a cost-plus
pricing program. As a result of adopting the cost-plus pricing strategy,
transportation costs and other services are no longer included in the
selling price and volume incentive rebates have been discontinued.
RESULTS OF OPERATIONS
Net sales, less any volume incentive rebates, increased $1.8 million or
.3% compared to the first quarter of fiscal 1996. The increase was
primarily attributable to additional sales from new stores which was
partially offset by lost sales due to warehouse consolidations and
competitive market conditions at the retail level.
Gross profit as a percentage of net sales, less any volume incentive rebates,
decreased to 7.6% for the first quarter of fiscal 1997 compared to 7.9% for
the same period last year. This decrease was primarily attributable to the
implementation of the cost-plus pricing program during February, 1996, in
which transportation and other service costs are no longer included in the
selling price.
Operating and administrative expenses as a percentage of net sales, less
any volume incentive rebates, improved to 5.9% for the first quarter of
fiscal 1997 compared to 6.4% for the same period last year. The Company
anticipates a reduction in operating and administrative expenses of $20
to $25 million in 1997 as a result of separately charging to customers
transportation and other service costs.
In the Distribution segment, the Company's earnings before interest and
taxes were $4.0 million for the first quarter of 1997, representing an
increase of $1.1 million over the first quarter of 1996. This increase is
due primarily to the closing of the Capistar distribution facility and its
subsequent sale and the continuing consolidation of the J.F. Walker
operations. Operating earnings in both the Insurance and Real Estate and
Finance segments for the first quarter of fiscal 1997 were comparable to
the same period last year.
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by operations, one of the Company's primary sources of
liquidity, was $12.7 and $31.8 million for the first quarter of fiscal 1997
and 1996, respectively. The most significant item which provided cash in
the first quarter of fiscal 1997 and 1996 was a reduction in inventory
levels. The decrease in inventory that occurred during the first quarter
of both fiscal years generated cash of approximately $18.3 million and was
due primarily to the Company's strategic decision to adopt a continuous
replenishment method for its inventory.
-9-
Net cash used in investing activities during the first quarter of fiscal
1997 reflects the Company's commitment to maintain and upgrade its
facilities and equipment. Cash used in investing activities, primarily
purchases of property and equipment, was $9.8 million for the first quarter
of fiscal 1997, compared to $6.3 million for the first quarter of fiscal
1996. Management expects that fiscal 1997 capital expenditures will be
approximately $39.0 million.
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) EXHIBITS. The following documents are filed as exhibits to
this report on Form 10-Q:
EXHIBIT
NUMBER DOCUMENT
27 Financial Data Schedule
(b) REPORTS ON FORM 8-K. No reports on Form 8-K have been filed
during the period for which this report is filed.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
Date: August 6, 1996 SPARTAN STORES, INC.
(Registrant)
By S/JAMES B. MEYER
James B. Meyer
Senior Vice President Corporate
Support Services and Chief
Financial Officer (Principal
Financial Officer and duly
authorized signatory for
Registrant)
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<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS OF SPARTAN
STORES, INC. AND SUBSIDIARIES FOR THE PERIOD ENDED JUNE 22, 1996
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> MAR-29-1997
<PERIOD-START> MAR-31-1996
<PERIOD-END> JUN-22-1996
<CASH> 26,440
<SECURITIES> 16,063
<RECEIVABLES> 82,931
<ALLOWANCES> 2,664
<INVENTORY> 74,515
<CURRENT-ASSETS> 209,334
<PP&E> 285,823
<DEPRECIATION> 126,509
<TOTAL-ASSETS> 378,509
<CURRENT-LIABILITIES> 155,925
<BONDS> 113,670
<COMMON> 24,664
0
0
<OTHER-SE> 79,243
<TOTAL-LIABILITY-AND-EQUITY> 378,509
<SALES> 568,025
<TOTAL-REVENUES> 568,025
<CGS> 524,798
<TOTAL-COSTS> 524,798
<OTHER-EXPENSES> 37,586
<LOSS-PROVISION> 146
<INTEREST-EXPENSE> 2,424
<INCOME-PRETAX> 4,155
<INCOME-TAX> 1,397
<INCOME-CONTINUING> 2,758
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,758
<EPS-PRIMARY> 2.23
<EPS-DILUTED> 0
</TABLE>
