Filed pursuant to Rule 424(b)(1)
Registration No. 33-94496
PROSPECTUS
350,000 CLASS A SHARES
SPARTAN STORES, INC.
CLASS A COMMON STOCK
$20 PAR VALUE
Spartan Stores, Inc. ("Spartan"), hereby offers for sale 350,000
shares of Class A Common Stock, $20 par value (the "Class A Shares"). At
May 25, 1996, 282,629 Class A Shares remain unsold and are available for
sale pursuant to this Prospectus. Spartan hereby offers the Class A Shares
to its retail customers who are required to purchase and maintain a minimum
investment in the Class A Shares ("Shareholder-Customers"), to persons who
apply to become retail customers of Spartan, to employees of Spartan
("Associates"), to persons designated from time to time by the Board of
Directors of Spartan ("Approved Holders"), and to certain other qualified
holders. Spartan offers the Class A Shares at a price the Board
establishes from time to time. For information regarding the factors
considered in determining the price of the Class A Shares, see "THE
COMPANY."
Spartan has not established any minimum number of Class A Shares that
it must sell in this offering. Therefore, there can be no assurance that
Spartan will receive all of the proceeds described in this offering. In
addition, Spartan will not place any offering proceeds received in any
escrow, trust, or other arrangement pending the receipt of a minimum amount
of proceeds. See "PLAN OF DISTRIBUTION."
Prior to this offering, there has been no public market for the Class
A Shares. As a result of the restrictions on the transferability of the
Class A Shares, a public market will not likely develop after the sale of
all or any of the Class A Shares.
SEE "RISK FACTORS" FOR A SUMMARY OF CERTAIN FACTORS THAT PROSPECTIVE
INVESTORS SHOULD CONSIDER.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION NOR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
PRICE TO UNDERWRITING DISCOUNTS PROCEEDS TO
PUBLIC<F1> AND COMMISSIONS<F2> SPARTAN<F3>
<S> <C> <C> <C>
Per Share . . . . $105 0 $105
Total . . . . . . $29,676,045 0 $29,676,045
<FN>
<F1> Spartan offers the Class A Shares at the price established from time
to time by the Board of Directors. As of the date of this Prospectus,
the price was $105 per Share. The Board of Directors from time to
time, and at least annually, considers whether to change the price.
The total price to public and proceeds to Spartan are based on the
number of Class A Shares remaining unsold in this offering as of May
25, 1996.
<F2> Spartan offers the Class A Shares on a best-efforts basis directly for
its own account without paying any selling commission.
<F3> Before deducting expenses payable by Spartan estimated at $67,069.
</FN>
</TABLE>
THE DATE OF THIS PROSPECTUS IS JULY 28, 1996
Spartan offers the Class A Shares when, as and if issued, and subject
to prior sale, withdrawal, cancellation or modification of this offering
without notice. The Board of Directors may reject any subscription for any
Class A Shares in whole or in part. Spartan expects to deliver stock
certificates within 30 days after payment by a subscriber.
Spartan will sell the Class A Shares directly. Spartan has not
engaged any broker or selling agent to offer and sell the Class A Shares.
No person has been authorized to give information or make any
representation in connection with this offering other than those contained
in this Prospectus. Spartan will not pay any commission to any person for
soliciting or otherwise obtaining investors. This is a best-efforts,
continuous offering to Shareholder-Customers, persons who apply to become
retail customers of Spartan, Associates of Spartan, Approved Holders and
certain other persons qualified to hold the Class A Shares.
AVAILABLE INFORMATION
Spartan has filed with the Securities and Exchange Commission ("SEC")
a registration statement under the Securities Act of 1933, as amended (the
"1933 Act"), with respect to the securities offered hereby. This
Prospectus does not contain all of the information set forth in the
registration statement and the exhibits and schedules thereto as permitted
by the rules and regulations of the SEC. For further information on
Spartan and the securities offered hereby, reference is made to the
registration statement and to the exhibits and schedules filed therewith.
Statements contained in this Prospectus as to the contents of any contract
or other document referred to are not necessarily complete, and in each
instance reference is made to the copy of such contract or other document
filed as an exhibit to the registration statement, each such statement
being qualified in all respects by such reference. Spartan is also subject
to the informational requirements of the Securities Exchange Act of 1934
and, in accordance therewith, files reports and other information with the
SEC. The registration statement, reports, and other information filed by
Spartan (including the exhibits and schedules filed therewith) may be
inspected without charge at the SEC's office at 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at its regional offices located at 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661-2511; and 7 World Trade
Center, Suite 1300, New York, New York 10048. Copies of this material can
also be obtained from the Public Reference Section of the SEC at 450 Fifth
Street, N.W., Washington, D.C. 20549, at prescribed rates.
Spartan intends to furnish to its shareholders, after the close of
each year, an annual report relating to the operations of Spartan
containing financial statements audited and reported on by independent
public accountants, including an opinion expressed by such independent
public accountants. In addition, Spartan may furnish to its shareholders
such other reports as the Board of Directors may authorize from time to
time.
-2-
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE
DETAILED INFORMATION AND FINANCIAL STATEMENTS APPEARING ELSEWHERE IN THIS
PROSPECTUS.
THE COMPANY
Spartan Stores, Inc. and its subsidiaries distribute grocery and
related products to retail stores located in Michigan, Illinois, Indiana,
Kentucky, Ohio, Pennsylvania, Tennessee, and West Virginia. As used in
this Prospectus, the term "Spartan" refers to Spartan Stores, Inc. without
its subsidiaries, and the term "Company" refers to Spartan and its
subsidiaries. The principal executive offices of Spartan are located at
850 76th Street, S.W., P.O. Box 8700, Grand Rapids, Michigan 49518.
Spartan's telephone number is (616) 878-2000.
The Company's business is concentrated in Michigan. The Company is
the seventh largest wholesaler of grocery and related products in the
United States.
Initially, Spartan was formed as a cooperative. In 1973, Spartan
converted to a Michigan business corporation. As of May 25, 1996,
approximately 90% of Spartan's outstanding shares of common stock were
owned by persons actively engaged in the retail grocery business.
Spartan's customers are required by a customer agreement to purchase and
maintain an investment in Class A Shares and are referred to in this
Prospectus as "Shareholder-Customers."
In addition to a wide variety of grocery and related products, the
Company also offers its customers an array of services, including new store
site selection; market analysis; store planning and development; financing
programs for store development and remodeling; marketing, promotion and
advertising assistance; insurance; data processing; accounting and tax
preparation; human resources; coupon redemption; and product reclamation.
THE OFFERING
Common Stock Offered. . . . . . . . . 350,000 Shares of Class A Common
Stock, $20 par value per share.
Offering Price. . . . . . . . . . . . The offering price in effect at
the time of purchase. At the date
of this Prospectus, the offering
price is $105 per share. The Board
of Directors may from time to time
change the offering price.
-3-
Eligible Subscribers. . . . . . . . . Shareholder-Customers, persons
who apply to become retail
customers of Spartan, Associates of
Spartan, Approved Holders, or
certain qualified holders.
Investment Considerations . . . . . . Each prospective investor should
carefully consider the summary of
certain factors set forth in "RISK
FACTORS."
Use of Net Proceeds . . . . . . . . . To increase working capital and for
other general corporate purposes.
-4-
<TABLE>
SUMMARY OF SELECTED CONSOLIDATED FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The summary information below presents a summary of selected consolidated
financial information of the Company and has been derived from and should
be read in conjunction with the consolidated financial statements and
related notes audited by Deloitte & Touche LLP, independent auditors,
appearing elsewhere in this Prospectus. The following data also should be
read in conjunction with "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITIONS AND RESULTS OF OPERATIONS."
<CAPTION>
INCOME STATEMENT DATA: FOR THE YEAR ENDED
MARCH 30, MARCH 25, MARCH 26, MARCH 27, MARCH 28,
1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
Net Sales $2,536,637 $2,512,432 $2,189,495 $2,058,654 $2,041,278
Volume Incentive Rebates $ 15,577 $ 17,584 $ 17,626 $ 17,710 $ 17,571
Costs and Expenses $2,553,227 $2,480,750 $2,160,679 $2,031,901 $2,016,264
Earnings (Loss) Before Taxes
on Income and
Cumulative Effect of
Change in Accounting $ (32,168) $ 14,098 $ 11,190 $ 9,043 $ 7,443
Net Earnings (Loss)<F1> $ (21,668) $ 9,030 $ 7,105 $ 3,241 $ 5,214
Net Earnings (Loss)
Per Share<F1><F2> $ (17.42) $ 7.40 $ 6.09 $ 2.75 $ 4.46
</TABLE>
<TABLE>
<CAPTION>
BALANCE SHEET DATA: AS OF
MARCH 30, MARCH 25, MARCH 26, MARCH 27, MARCH 28,
1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
Working Capital $ 69,284 $ 64,381 $ 50,439 $ 77,077 $ 63,462
Total Assets $ 387,451 $ 386,141 $ 373,286 $ 332,394 $ 329,285
-5-
Long-Term Debt
and Capital
Lease Obligations $ 124,372 $ 106,794 $ 69,468 $ 86,817 $ 76,683
Shareholders' Equity $ 102,587 $ 125,801 $ 113,176 $ 107,838 $ 104,461
Book Value Per
Class A Share<F2> $ 82.33 $ 100.28 $ 93.59 $ 88.16 $ 86.01
Cash Dividends $ 623 $ 613 $ 591 $ 596 $ 590
Dividends Paid Per Share<F2> $ .50 $ .50 $ .50 $ .50 $ .50
Weighted Average
Shares Outstanding<F2> 1,244 1,221 1,167 1,179 1,169
__________________________
<FN>
<F1> The Company adopted SFAS No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions" effective March 29, 1992.
Adopting SFAS 106 resulted in a decrease in net earnings of $2,393,416
or $2.03 per share for the year ending March 27, 1993.
<F2> 1992 shares outstanding and per share amounts have been restated
to reflect a two-for-one stock split paid on June 22, 1992.
</FN>
</TABLE>
-6-
THE COMPANY
The Company distributes grocery and related products to retail stores
located in Michigan, Illinois, Indiana, Kentucky, Ohio, Pennsylvania,
Tennessee, and West Virginia (the owners or operators of these stores are
referred to herein as "Customers"). Grocery store Customers served by the
Company range from single stores to supermarket chains with as many as 25
stores. In addition, Spartan's subsidiaries distribute candy, tobacco and
other grocery products to approximately 8,600 convenience stores and other
retail locations. The Company conducts a predominant portion of its
business with retail stores located in Michigan. According to industry
sources, the Company is the seventh largest wholesaler of grocery and
related products in the United States.
In addition to its principal business segment of grocery product
distribution, the Company operates in two other reportable business
segments: insurance sales and underwriting; and real estate and finance.
In 1917, a group of independent food retailers incorporated the Grand
Rapids Wholesale Grocery Company. The retailers sought to gain lower food
prices and other economies of scale by purchasing together on a cooperative
basis. In 1957, the name was changed to Spartan Stores, Inc., to take
advantage of the "Spartan" name, which is widely recognized in Michigan.
Spartan was incorporated as a cooperative, and in 1973 converted to a
Michigan business corporation.
On May 25, 1996, Spartan had 431 shareholders, of whom 282 were
Customers (the "Shareholder-Customers"). In the aggregate, Shareholder-
Customers owned 1,125,389 Class A Shares or approximately 90% of the total
outstanding. The remaining shareholders of Spartan are former retail
grocery customers, persons who were issued shares of common stock in
certain business acquisitions, the Spartan Stores, Inc. Pension Plan, and
Associates of the Company.
Spartan is authorized to sell its shares of common stock to Customers
of Spartan, Associates, and Approved Holders. In addition, pursuant to the
Bylaws, Spartan may issue Class A Shares in connection with the acquisition
of businesses, assets or capital stock of other corporations (the persons
to whom such shares are issued are referred to as "Qualified Holders"). In
November, 1991, the Board of Directors of Spartan designated as Approved
Holders persons who were retail customers of Capistar, Inc. ("Capistar").
However, the Capistar operations have been closed and the Company has sold
the facilities. Thus, Spartan will not obtain any new shareholders from
the Capistar customers.
Certain subsidiaries of Spartan distribute grocery products to
convenience stores or independent grocers or operate cash and carry
outlets. These subsidiaries do not require their respective customers to
maintain an investment in the capital stock of Spartan or the respective
subsidiary. See "BUSINESS-General."
-7-
On November 8, 1993, Spartan purchased all of the issued and
outstanding capital stock of J.F. Walker Company, Inc. ("J.F. Walker").
J.F. Walker is the nation's eighth largest convenience store wholesaler.
J.F. Walker is operated as a wholly owned subsidiary of Spartan.
The Board of Directors of Spartan has adopted a policy which requires
Shareholder-Customers to purchase and hold a minimum investment (the
"Required Investment") in the Class A Shares. From time to time, the Board
may change the minimum investment and other terms of the Required
Investment policy.
To become a Shareholder-Customer, a retail grocer must agree to make
the Required Investment. To satisfy the Required Investment policy in
effect as of the date of this Prospectus, each Shareholder-Customer must
purchase 100 Class A Shares at the current Trading Value (see discussion
below) for each corporation, partnership or other entity which is
affiliated with the retail grocer and which owns one or more Approved
Stores (defined below).
In addition, to satisfy the Required Investment, on or before the date
five years from the date that Spartan accepts a store as an approved
location for the sale of Spartan products (an "Approved Store"), each
Shareholder-Customer also must own Class A Shares (including the 100 Class
A Shares described above) with an aggregate Trading Value equal to $10,000
plus one-and-one-half times the Shareholder-Customer's average weekly
purchases from Spartan during Spartan's prior fiscal year attributable to
each Approved Store, up to a maximum Required Investment for each Approved
Store of $125,000.
The price at which Shareholder-Customers must acquire Class A Shares
from Spartan is the "Trading Value." The Board of Directors from time to
time, usually on an annual basis, establishes the Trading Value for the
Class A Shares. The Board determines the Trading Value, in its sole and
absolute discretion, based on the Company's financial condition, results of
operations, operating trends, market conditions, the state of the economy,
and such other factors as the Board deems appropriate. During the fiscal
year ending March 30, 1996, the Trading Value was $100 per share, an amount
less than book value per share. The issuance of Class A Shares at a
Trading Value lower than book value would dilute the book value per share
for the Class A Shares. However, effective June 23, 1996, the Trading
Value has been established at $105 per share, which exceeds Spartan's book
value as of March 30, 1996. The redemption of any Class A Shares at the
current Trading Value would dilute the book value per share for all
remaining Shareholders.
Until February 1996, Spartan had a policy of paying rebates to its
Shareholder-Customers based on the Shareholder-Customer's purchases from
Spartan ("Volume Incentive Rebates"). Once each year, a Shareholder-
Customer would receive Class A Shares in exchange for a portion of a
-8-
Shareholder-Customer's Volume Incentive Rebates. In February 1996, Spartan
introduced a cost-plus pricing program for the distribution of its products
and services to its Customers. See "BUSINESS -- Distribution." In
connection with the implementation of the cost-plus pricing program, the
Board adopted a policy for Spartan to pay in fiscal year 1997 to its
Customers a concentration rebate based upon the Customer's purchases from
the Company as a percentage of the Customer's total retail sales
("Concentration Rebates"). Any Customers receiving a Concentration Rebate
may elect to receive the amount of the rebate in Class A Shares. As of
February 1996, Spartan no longer pays any Volume Incentive Rebates. See
"BUSINESS--Volume Incentive Rebates."
If a Shareholder-Customer no longer purchases grocery and related
products from Spartan, it is Spartan's policy (but not a contractual
obligation) to redeem, at the Shareholder-Customer's request, that number
of Class A Shares then held by the Shareholder-Customer with an aggregate
Trading Value which equals the Shareholder-Customer's Required Investment
as of the date the Shareholder-Customer ceased purchasing from Spartan.
Payment for such redeemed Class A Shares is made in six equal installments
over a five-year period.
A Shareholder-Customer may elect to accumulate stock in excess of the
Required Investment. As of March 30, 1996, Shareholder-Customers owned in
the aggregate 840,000 Class A Shares in excess of their aggregate Required
Investments. It is Spartan's policy (but not a contractual obligation)
also to redeem for cash at the current Trading Value any Class A Shares
owned by a Shareholder-Customer with an aggregate Trading Value in excess
of the Shareholder-Customer's Required Investment, or, if the Shareholder-
Customer no longer purchases grocery and related products from Spartan, in
excess of the Shareholder-Customer's Required Investment as of the date the
Shareholder-Customer ceased purchasing products from Spartan. See "RISK
FACTORS--Redemption Policy" and "DESCRIPTION OF CAPITAL STOCK--Redemption
Policy."
In addition to Class A Shares sold to satisfy the applicable Required
Investment and Class A Shares issued in connection with Concentration
Rebates, Spartan offers all Shareholder-Customers the opportunity to
purchase Class A Shares at any time and from time to time. Spartan sells
the Class A Shares at the Trading Value in effect at the time of the
purchase.
The Company operates on a 52-53 week fiscal year, with the fiscal year
ending on the last Saturday in March. The principal executive offices of
Spartan are located at 850 76th Street, S.W., P.O. Box 8700, Grand Rapids,
Michigan 49518. Spartan's telephone number is (616) 878-2000.
-9-
RISK FACTORS
In addition to general risks of investments and economic conditions,
prospective investors should carefully consider the following factors
before purchasing any Class A Shares offered hereby.
This Prospectus contains forward-looking statements within the meaning
of the "safe harbor" provisions of the Private Securities Litigation Reform
Act of 1995. Reference is made in particular to the description of the
Company's plans and objectives for future operations, assumptions
underlying such plans and objectives and other forward-looking statements
included in "PROSPECTUS SUMMARY," "USE OF PROCEEDS," "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS"
and "BUSINESS" in this Prospectus. Such statements are based on
management's current expectations and are subject to a number of factors
and uncertainties which could cause actual results to differ materially
from those described in the forward-looking statements. Factors which
could cause such results to differ materially from those described in the
forward-looking statements include those set forth in the risk factors
below, in addition to economic, competitive, governmental and technological
factors affecting the Company's operations, markets, products, services and
prices, and other factors discussed in the Company's filings with the SEC.
COMPETITION
The grocery and convenience store industries are characterized by
intense competition and low profit margins. The Company competes with a
number of grocery and convenience store wholesalers and with a number of
other businesses that market their products directly to food retailers,
including companies having greater assets and larger sales volume than the
Company. Customers compete with other retailers and with several large
chain stores which have integrated wholesale and retail operations.
Customers also compete with mass merchandisers, wholesale membership clubs,
convenience stores, shop-at-home services, restaurants and fast food
businesses. In addition, the Company considers competitors of its
Customers to be competitors of the Company, since the Company's long term
success depends upon the success of its Customers. There can be no
assurance that the Company or its Customers will be able to compete
successfully in the future. See "BUSINESS--Competition."
The Company operates an insurance agency and insurance company. The
insurance industry is highly competitive. Many competitors may have far
greater financial and other resources than those of the Company. There can
be no assurance that the Company will be able to compete effectively in the
insurance industry.
-10-
MICHIGAN ECONOMIC CONDITIONS
The Company's business operations are dependent upon the sale of
groceries and related products to its Customers. Most of these Customers
are located in Michigan, Illinois, Indiana, Kentucky, Ohio, Pennsylvania,
Tennessee, and West Virginia. In the last decade, these states,
particularly Michigan, have experienced adverse economic conditions and
declining populations. A continued reduction in the populations or loss of
purchasing power by residents in these states could correspondingly reduce
the amount of groceries purchased in these states, which could adversely
affect the Company's net sales and profitability.
ENERGY MATTERS
The Company's trucking operations are extensive. A shortage or
substantial increase in the cost of diesel fuel could materially and
adversely affect deliveries of grocery and related products and, thus,
materially and adversely affect the Company's net sales and profitability.
PROFITS AND SHAREHOLDERS' EQUITY
Although the Company has consistently earned profits and increased its
shareholders' equity, there can be no assurance that this pattern will
continue. The value of the Class A Shares may be adversely affected by
poor operating results due, in part, to circumstances beyond the Company's
control, the loss of Customers and other problems associated with the
Company's business operations.
DIVIDENDS
For at least 20 years, the Board of Directors has declared, and
Spartan has paid, a regular quarterly dividend. There can be no assurance
that Spartan's profitability or general business conditions will enable the
Board to continue to declare, and Spartan to continue to pay, dividends on
such a regular basis or at historical levels.
REDEMPTION POLICY
The Board of Directors has adopted a policy to redeem, if possible,
upon a Shareholder-Customer's request the shares of Class A Common Stock
held by a Shareholder-Customer that are in excess of the Shareholder-
Customer's Required Investment, and to redeem shares held by a former
Shareholder-Customer, upon certain terms and conditions. See "DESCRIPTION
OF CAPITAL STOCK--Redemption Policy." The policy does not create or
evidence any obligation on Spartan's behalf. The Board of Directors may at
any time, without notice, revise or terminate the policy based on Spartan's
financial condition, general market conditions, any requirement of or
limitation imposed by law or any agreement by which Spartan is bound, or
for any other reason deemed sufficient by the Board.
-11-
Spartan may at any time, in its sole discretion, call for redemption
any Class A Shares which are beneficially owned by any person who is not at
the time of the redemption either: (i) a Shareholder-Customer who
continues to purchase from Spartan grocery and grocery related products,
(ii) an Associate who continues to be employed by the Company, (iii) an
Approved Holder, or (iv) a Qualified Holder.
VALUE OF CLASS A SHARES
The Board of Directors from time to time, usually on an annual basis,
establishes the Trading Value for the Class A Shares. The Board determines
the Trading Value, in its sole and absolute discretion, based on the
Company's financial condition, results of operations, operating trends,
market conditions, the state of the economy, and such other factors as the
Board deems appropriate. During the fiscal year ending March 30, 1996, the
Trading Value was $100 per share, an amount less than book value per share.
The issuance of Class A Shares at a Trading Value lower than book value
would dilute the book value per share for the Class A Shares. However,
effective June 23, 1996, the Trading Value has been established at $105 per
share, which exceeds Spartan's book value as of March 30, 1996. The
redemption of any Class A Shares at the current Trading Value would dilute
the book value per share for all remaining Shareholders.
The price for each Class A Share is the Trading Value in effect on the
date of the purchase. In addition, the Trading Value is the price at which
Spartan will acquire Class A Shares from a Shareholder-Customer pursuant to
Spartan's options to purchase or redeem or its redemption policy. See
"DESCRIPTION OF CAPITAL STOCK." Although the Board has annually increased
the Trading Value in recent years, there can be no assurance that such
increases will continue or that the Trading Value will not decrease.
RESTRICTIONS ON TRANSFER
A holder may transfer Class A Shares only to (i) a Shareholder-
Customer who continues to purchase from Spartan grocery and related
products, (ii) an Associate, (iii) an Approved Holder, or (iv) a Qualified
Holder. As of the date of this Prospectus, the Board has designated only
Capistar Customers as Approved Holders. However, the Capistar operations
have been closed and the Company has sold the Capistar facilities. Thus,
Spartan will not obtain any new shareholders from the Capistar Customers.
In addition, upon any proposed transfer of Class A Shares, Spartan has an
option to purchase the Class A Shares that are subject to the proposed
transfer. See "DESCRIPTION OF CAPITAL STOCK."
NO MINIMUM OFFERING
Spartan offers the Class A Shares on a "best efforts," continuous
basis. Spartan has not established a minimum number of Class A Shares that
-12-
must be subscribed before effecting any sales. There is no assurance that
Spartan will sell any or all of the Class A Shares that are the subject of
this offering.
ABSENCE OF A PUBLIC TRADING MARKET
Prior to this Offering, there has been no public market for Spartan's
securities, including the Class A Shares. Spartan does not expect an
active market for the Class A Shares to develop. In addition, although
Spartan has a policy to redeem Class A Shares under certain circumstances,
Spartan is not obligated to do so. Furthermore, only limited classes of
persons are eligible to hold Class A Shares. Thus, any purchaser of Class
A Shares who desires to sell the shares may not be able to do so.
CONFLICTS OF INTEREST
Except for Messrs. Buick, Carton and Quinn, the members of the Board
of Directors of Spartan have ownership interests in businesses which are
Shareholder-Customers. The various relationships between Spartan and its
shareholders and Customers create conflicts of interest for such members of
the Board. Each such member owes fiduciary obligations to Spartan and all
its shareholders in his capacity as a director. The interests of Spartan
may differ from the interests of Shareholder-Customers or Capistar
Customers. Affiliates of directors purchase products and services at
prices and on terms, including certain discounts and rebates, offered to
other Shareholder-Customers. See "CERTAIN TRANSACTIONS."
CLASS B SHARES ELIGIBLE FOR FUTURE SALE
Spartan is authorized to issue 500,000 shares of Class B Common Stock
("Class B Shares") with such preferences, limitations, and voting,
distribution, dividend, liquidation, conversion, participation, redemption
and other rights as the Board may determine before issuance of the shares.
The Board of Directors may authorize and issue one or more series of
Class B Shares with preferences and rights superior to the rights of the
holders of the Class A Shares. As of the date of this Prospectus, no Class
B Shares are outstanding. However, the Board of Directors without
shareholders' approval could issue Class B Shares with voting or conversion
rights that could adversely affect the voting power of the holders of Class
A Common Stock.
USE OF PROCEEDS
Spartan expects to use the proceeds from the sale of Class A Shares
for general working capital purposes and from time to time to redeem from
shareholders their shares of Class A Common Stock.
-13-
DIVIDEND POLICY
For at least 20 years, the Board of Directors has declared, and
Spartan has paid, a regular quarterly dividend. The amount of such
quarterly dividends for each of the three fiscal years in the period ended
March 30, 1996, was $0.125 per share. While the Board of Directors expects
to continue to declare dividends quarterly, future dividends will depend on
earnings, capital requirements, financial conditions and other relevant
factors. Certain loan agreements to which Spartan is a party contain
covenants which restrict the payment of dividends or other distributions to
shareholders in the event of a default of the agreement or in excess of
permitted amounts. As of March 30, 1996, under the most restrictive of
these agreements, Spartan had approximately $7,500,000 available for the
payment of dividends.
SELECTED CONSOLIDATED FINANCIAL INFORMATION
The selected consolidated financial information presented below as of
and for the years ended March 30, 1996, March, 25, 1995, March 26, 1994,
March 27, 1993 and March 28, 1992, has been derived from consolidated
financial statements, and should be read in conjunction with the
consolidated financial statements and related notes as of March 30, 1996
and March 25, 1995, and for each of the three years in the period ended
March 30, 1996, audited by Deloitte & Touche LLP, independent auditors,
appearing elsewhere in this Prospectus. The following data should also
be read in conjunction with "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS."
[The balance of this page intentionally left blank]
-14-
<TABLE>
SELECTED CONSOLIDATED FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<CAPTION>
INCOME STATEMENT DATA: FOR THE YEAR ENDED
MARCH 30, MARCH 25, MARCH 26, MARCH 27, MARCH 28,
1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
Net Sales $2,536,637 $2,512,432 $2,189,495 $2,058,654 $2,041,278
Less Volume Incentive
Rebates 15,577 17,584 17,626 17,710 17,571
2,521,060 2,494,848 2,171,869 2,040,944 2,023,707
Costs and Expenses
Cost of sales 2,321,645 2,290,134 1,993,300 1,877,512 1,864,106
Operating and
administrative 160,429 167,434 146,653 135,090 132,879
Depreciation and
amortization 19,224 17,834 16,029 14,441 13,840
Restructuring,
reorganization and
other charges 46,440 -- -- -- --
Interest (net) 5,489 5,347 4,697 4,858 5,439
2,553,227 2,480,750 2,160,679 2,031,901 2,016,264
Earnings (Loss) Before Taxes
on Income and
Cumulative Effect of
Change in Accounting (32,168) 14,098 11,190 9,043 7,443
Taxes (Benefit) on Income (10,500) 5,068 4,085 3,408 2,229
Earnings (Loss) Before
Cumulative Effect of
Change in Accounting (21,668) 9,030 7,105 5,635 5,214
Cumulative Effect of Change
in Accounting for Post-
retirement Benefits Other
than Pensions -- -- -- 2,394 --
Net Earnings (Loss)<F1> $ (21,668) $ 9,030 $ 7,105 $ 3,241 $ 5,214
Net Earnings (Loss) Per
Share<F1><F2>
-15-
Before Cumulative Effect
of Accounting Change $ (17.42) $ 7.40 $ 6.09 $ 4.78 $ 4.46
Cumulative Effect of
Accounting Change $ -- $ -- $ -- $ 2.03 $ --
Net Earnings (Loss) $ (17.42) $ 7.40 $ 6.09 $ 2.75 $ 4.46
</TABLE>
<TABLE>
<CAPTION>
BALANCE SHEET DATA: AS OF
MARCH 30, MARCH 25, MARCH 26, MARCH 27, MARCH 28,
1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
Working Capital $ 69,284 $ 64,381 $ 50,439 $ 77,077 $ 63,462
Current Assets $ 224,776 $ 213,550 $ 236,734 $ 210,532 $ 210,964
Total Assets $ 387,451 $ 386,141 $ 373,286 $ 332,394 $ 329,285
Current Liabilities $ 155,492 $ 149,169 $ 186,295 $ 133,455 $ 147,502
Long-Term Debt and Capital
Lease Obligations $ 124,372 $ 106,794 $ 69,468 $ 86,817 $ 76,683
Shareholders' Equity $ 102,587 $ 125,801 $ 113,176 $ 107,838 $ 104,461
Book Value Per Share<F2> $ 82.33 $ 100.28 $ 93.59 $ 88.16 $ 86.01
Cash Dividends $ 623 $ 613 $ 591 $ 596 $ 590
Cash Dividends Per Share<F2> $ .50 $ .50 $ .50 $ .50 $ .50
Weighted Average
Shares Outstanding<F2> 1,244 1,221 1,167 1,179 1,169
__________________________
<FN>
<F1> The Company adopted SFAS No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions" effective March 29, 1992.
Adopting SFAS 106 resulted in a decrease in net earnings of $2,393,416
or $2.03 per share for the year ending March 27, 1993.
<F2> 1992 shares outstanding and per share numbers are restated to reflect
the two-for-one stock split paid on June 22, 1992.
</FN>
</TABLE>
-16-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion provides additional information regarding the
financial condition and the results of operations of the Company for each
of the three years in the period ending March 30, 1996. This discussion
should be read in conjunction with the Consolidated Financial Statements
and the related Notes to Consolidated Financial Statements appearing
elsewhere in this Prospectus.
Since its inception in 1917, the Company's pricing strategy has been
predicated upon a variable mark-up with rebates offered as an inducement to
concentrate orders and to reward efficient customer behavior. During
fiscal 1996, Spartan dramatically altered its pricing methodology to its
customers by adopting a cost-plus pricing strategy which unbundled the
costs of services, including transportation, previously included in the
sale price to its customers, and discontinuing volume incentive rebates.
The Company anticipates that these changes will positively impact future
operating results.
The Company also took steps during the fiscal year to enhance
operating efficiencies, consolidate distribution operations, and reduce
overhead. L & L/Jiroch moved its operations to a new 180,000 square foot
distribution facility in November 1995. The state-of-the-art facility
enables L&L/Jiroch to more efficiently supply customers and provides space
for growth. At approximately the same time, the Company announced plans to
close its Capistar distribution facility and supply Capistar customers from
other distribution centers. In addition, Walker continued to consolidate
its operations by closing one facility and determining to close two others
in the next fiscal year.
The Company's corporate strategies include several initiatives which
address the manner in which the Company partners with and relates to its
customers. The Company will continue to emphasize perishables marketing
and operations, category management, refining overall corporate structure
and maximizing market potential as several key objectives. The Company
believes that these actions will improve customer service, lower the cost
of operations, improve the Company's financial strength and enable the
Company to achieve a better return on assets.
-17-
RESULTS OF OPERATIONS
NET SALES
Net sales increased approximately 1.0% in fiscal 1996 due primarily to
an additional week (53 weeks). The increase, however, was partially offset
by sales lost as certain customers elected to be supplied by other
wholesalers when the Capistar facility was closed. The increase in net
sales for 1995 of approximately 14.7% over 1994 was due primarily to the
inclusion of Walker (acquired November 1993) for the entire year. Net
sales for 1995 would have increased approximately 5% excluding the sales
impact of the Walker acquisition.
Net sales in the Distribution segment increased $24.5 million in 1996
to $2.5 billion, a 1.0% increase. This increase was due primarily to the
factors noted above. Net sales in the Distribution segment for 1995
increased $319.7 million or 14.8% over the prior fiscal year due primarily
to the Walker acquisition. The Company operates in a highly competitive
industry which experienced negligible inflation in 1996, 1995 and 1994.
Net sales in the Insurance segment increased by $.9 million in both 1996
and 1995 over comparable prior periods primarily as a result of increased
volume. Revenues in the Real Estate and Finance segment increased by $2.4
million in 1995 over 1994 due to gains on the sale of real estate and
increases in property rentals. Revenues in the Real Estate and Finance
segment for 1996 declined because there were no significant real estate
transactions.
GROSS PROFIT
Gross profit as a percentage of net sales, less Volume Incentive
Rebates, was 7.9% in 1996, compared to 8.2% in 1995 and 1994. The decrease
is due primarily to a nonrecurring cigarette inventory holding gain
realized in 1995 amounting to $3.7 million before taxes. In addition,
gross profit was negatively impacted during 1996 by an increase in costs
associated with the closing of Capistar, higher LIFO expense and the
implementation of the cost-plus pricing program during February, 1996.
OPERATING AND ADMINISTRATIVE EXPENSES
Operating and administrative expenses as a percentage of net sales,
less volume incentive rebates, were 6.4% in 1996, compared to 6.7% in 1995
and 6.8% in 1994. The decrease in 1996 was due primarily to the
implementation of the cost-plus pricing program. The Company anticipates
an offset to operating and administrative expenses of $20 to $25 million in
1997 resulting from the implementation of the Company's cost-plus pricing
methodology.
-18-
RESTRUCTURING, REORGANIZATION AND OTHER CHARGES
During the fiscal year ended March 30, 1996, the Company incurred
restructuring, reorganization and other charges amounting to approximately
$46.4 million all of which related to the Distribution segment.
In fiscal 1993, the Company commenced a reengineering project,
described by the acronym BASE (Business Automation Support Environment).
In fiscal 1996, the Company conducted an in-depth review of the BASE
project and determined that the project was not meeting all anticipated
objectives. Accordingly, in February 1996, the Company and the BASE
project manager agreed to terminate the project management and related
contracts. Company personnel assumed project management responsibilities.
The Company segmented the BASE project into individual projects and
evaluated them separately. Certain projects with no expected return were
terminated and the associated costs written off. Certain other costs
associated with the continuing projects were also written off if they were
deemed to be of no value to the continuing project. The restructuring
charges include $35.4 million of such costs.
As previously noted, during fiscal 1996 the Company closed and
combined certain of its distribution facilities. Restructuring,
reorganization and other charges include a provision of $1.8 million for
property and lease discontinuance at closed facilities, $4.1 million for
costs related to transferring the Capistar business and closing its
facilities and $1.6 million for severance and termination of employment
agreements.
The Company also provided $3.5 million for the impairment of long-
lived assets, inasmuch as the projected future undiscounted cash flows were
not sufficient to recover their carrying value.
OPERATING EARNINGS (LOSS)
In the Distribution segment, the Company's earnings before taxes,
interest and restructuring, reorganization and other charges were $15.0
million for 1996 representing an increase of $2.3 million over 1995. The
Company's earnings before taxes and interest in this segment in 1995 had
increased $.6 million over 1994. Although interest expense is excluded
from operating earnings in the Distribution segment, it is included in the
Insurance and Real Estate and Finance segments. Operating earnings in the
Insurance segment decreased $.5 million in 1996 after increasing $1.5
million in 1995. The changes in operating earnings in this segment for the
years reported are due primarily to incurred losses. Operating earnings in
the Real Estate and Finance segment increased $1.2 million in 1995 compared
to 1994 due to gains arising from the sale of real property. There were no
such gains in 1996.
-19-
INTEREST EXPENSE AND INCOME
Interest expense increased to $10.1 million in 1996 compared to $9.1
million in 1995 primarily due to increased borrowings. In 1995, interest
expense increased due primarily to additional debt incurred related to the
Walker acquisition in November 1993. Interest income in 1996 increased
$.8 million over 1995 due primarily to higher interest rates and an
increase in notes receivable. Interest income in 1995 increased $.4
million over 1994 primarily due to higher interest rates.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal sources of liquidity are cash flows from
operating activities and borrowings under bank line of credit agreements.
The Company has additional capacity under these lines of credit of $22.2
million at March 30, 1996. Cash provided by operations was $42.9 million
in 1996, compared to $58.3 and $36.1 million in 1995 and 1994,
respectively. A reduction in inventory levels during the last three years
generated cash of approximately $36.0 million. The decrease in inventory
levels was due primarily to the Company's strategic move to a continuous
replenishment method for inventories, the consolidation of certain Walker
distribution centers and the closing of Capistar during 1996. The $6.4
million reduction in accounts receivable and the $6.1 million reduction in
accounts payable were due primarily to the closing of Capistar. In
addition, the Capistar facility was sold during fiscal 1997 for
approximately $4.2 million. Management believes that cash flows from
operating activities and the Company's ability to borrow under bank line of
credit agreements will be adequate in the next fiscal year for the
Company's operating, investing and financing activities.
Net cash used in investing activities during the last three years
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 $49.5 million in 1996, compared to $51.6 and
$34.5 million in 1995 and 1994, respectively. Management expects that
fiscal 1997 capital expenditures will be approximately $39.0 million.
Net cash provided by financing activities amounted to $21.3 million in
1996 resulting primarily from an increase in the Company's short and long-
term borrowing position. Long-term debt, including capitalized leases,
increased to $124.4 million at the end of fiscal 1996 compared to
$106.8 million at the end of fiscal 1995. The additional borrowings were
used to fund capital acquisitions.
As a result of the Company's implementation of its cost-plus pricing
strategy, the practice of paying Volume Incentive Rebates in Class A common
stock was terminated.
-20-
CAPITAL STRUCTURE
The following table summarizes the capital structure for the last two
years:
<TABLE>
<CAPTION>
YEAR ENDED
MARCH 30, 1996 MARCH 25, 1995
PERCENT PERCENT
AMOUNT OF TOTAL AMOUNT OF TOTAL
<S> <C> <C> <C> <C>
Average short-term
borrowing during the year $ 10,632,537 4.0% $ 21,922,288 7.8%
Long-term debt at year-end 129,692,268 48.6 112,408,174 39.9
Present value at year-end:
Capital leases 2,941,210 1.1 3,482,445 1.2
Operating leases:
Used in operations 6,395,172 2.4 10,270,565 3.6
Subleased to others 14,497,931 5.4 7,586,045 2.7
Total debt capital 164,158,938 61.5 155,669,517 55.2
Shareholders' equity 102,586,711 38.5 125,800,732 44.8
Total Capitalization $266,745,649 100.0% $281,470,249 100.0%
</TABLE>
The trading value is established annually by the Board of Directors
during the first quarter of the fiscal year. Any change adopted by the
Board becomes effective upon acceptance of the trading value by the
Michigan Corporation and Securities Bureau (the "Bureau"). The trading
value of the Company's common stock was $100 per share at March 30, 1996.
On May 18, 1996, the Company received notice from the Bureau that $105 had
been accepted as the new Trading Value effective June 23, 1996. On the
basis of the Company's improved operating earnings (excluding
restructuring, reorganization, and other charges), cash flows and other
financial, business and market conditions, the Board determined that the
new Trading Value is appropriate under the circumstances.
The Company paid quarterly dividends of $.125 cents per share for each
of the past three fiscal years. Dividends were $623,000 for the fiscal
year ended March 30, 1996. Certain loan agreements to which Spartan is a
party contain covenants that, pursuant to financial ratios or formulas,
restrict the incurrence of additional indebtedness, the payment of
dividends or other distributions to shareholders, the payment of rebates or
the redemption of shares of common stock in the event of a default of the
agreement or in excess of permitted amounts.
-21-
BUSINESS
GENERAL
Spartan Stores, Inc., and its subsidiaries, distribute grocery and
related products to retail locations in Michigan, Illinois, Indiana,
Kentucky, Ohio, Pennsylvania, Tennessee, and West Virginia.
Grocery store Customers served by the Company range from single stores
to supermarket chains with as many as 25 stores. In addition, Spartan's
subsidiaries distribute candy, tobacco and other grocery products to
approximately 8,600 convenience stores and other retail locations. The
Company conducts a predominant portion of its business with retail stores
located in Michigan. According to industry sources, the Company is the
seventh largest wholesaler of grocery and related products in the United
States.
In 1917, a group of independent food retailers incorporated the Grand
Rapids Wholesale Grocery Company, seeking to gain lower food prices and
other economies of scale by purchasing together on a cooperative basis. In
1957, the name was changed to Spartan Stores, Inc., to take advantage of
the "Spartan" name, which is widely recognized in Michigan. Although
Spartan was incorporated as a cooperative, in 1973 Spartan was converted to
a Michigan business corporation.
Spartan is authorized to sell its shares of common stock to Customers
of Spartan, Associates, Approved Holders, and Qualified Holders. In
November 1991, the board of directors of Spartan designated as Approved
Holders persons who were retail customers of Capistar to permit the retail
customers to purchase Class A Shares. However, the Capistar operations
have been closed and the Company sold the Capistar facilities. Thus,
Spartan will not obtain any new shareholders from the Capistar customers.
The Company operates on a 52-53 week fiscal year, with the fiscal year
ending on the last Saturday in March. The principal executive offices of
Spartan are located at 850 76th Street, S.W., P.O. Box 8700, Grand Rapids,
Michigan 49518. Spartan's telephone number is (616) 878-2000.
The Company operates in three reportable business segments:
distribution; insurance sales and underwriting; and real estate and
finance. The Company's largest business segment, distribution, includes
the distribution of grocery and related products. Distribution operations
include product sales to independently owned and operated food stores and
convenience stores as well as services directly related to the operation of
those stores. Insurance sales and underwriting includes commission and
premium income generated by sales to Customers and others. Real estate and
finance represents revenues from financing and real estate activities with
Customers and other businesses. Spartan owns seven subsidiaries which
distribute products or provide support, insurance and services to Customers
and fulfill other functions for the Company.
-22-
Financial information on the business segments is set forth in the
notes to the Consolidated Financial Statements of the Company included
elsewhere in this Prospectus.
BUSINESS STRATEGY
In the highly competitive food wholesaling industry, the Company's
current business strategy is to remain exclusively a full-service
wholesaler of grocery and related products. The Company recognizes that
many food wholesalers, including several companies that are direct
competitors of the Company, have developed and own "corporate stores." The
Company's present plans do not anticipate any significant presence in
retailing, but instead the Company plans to concentrate on wholesaling to
avoid competing with its Customers. The Company may, however, from time to
time determine to purchase a retail store location.
The Company's business strategy emphasizes a philosophy of service to
Customers. Management of the Company believes that by providing grocery
retailers with a broad array of products and services, these retailers
should be better able to grow and compete at the retail level. This growth
and success of its Customers at the retail level should, in turn, enable
the Company to grow and prosper as well.
In addition, Spartan believes that Shareholder-Customers gain an
important competitive advantage by access to the "Spartan" name and image.
The "Spartan" name and logo are widely recognized by consumers in Michigan
and other parts of the Midwest who have come to associate the "Spartan"
name with service, selection, and quality in their grocery shopping.
Substantially all stores supplied by Spartan display the "Spartan" name and
logo on their doors, and some stores use the "Spartan" name prominently in
store signs and advertising.
DISTRIBUTION
Spartan is a full-service distributor of grocery and related products,
and provides its Customers with a selection of over 46,000 items, including
dry grocery, produce, dairy products, meat, frozen food, tobacco products,
health and beauty care items, and fresh fish and seafood. Spartan supplies
its Customers with both nationally advertised products and over 1,300
"Spartan" private label items. Spartan ships the products from Spartan's
main warehouse and distribution center in Grand Rapids, Michigan, and from
a warehouse in Plymouth, Michigan.
Several subsidiaries of the Company operate and are included in the
distribution business segment. L & L/Jiroch Distributing Company
("L & L/Jiroch") and J.F. Walker are wholesale distributors of candy,
tobacco, and other grocery products to approximately 8,600 convenience
stores and other retail locations in Michigan, Illinois, Indiana, Kentucky,
Ohio, Pennsylvania, Tennessee, and West Virginia. United Wholesale Grocery
Company ("United Wholesale") operates thirteen cash and carry outlets in
-23-
Michigan and Ohio. Capistar was a wholesale distributor of grocery and
other products, but Capistar closed its wholesale operations in February
1996. In May 1996, Capistar sold its warehouse located in Lansing,
Michigan. Approximately 55% of the volume of Capistar's business is now
supplied by Spartan or L&L/Jiroch.
In February 1996, Spartan introduced a cost-plus pricing program for
the distribution of its products and services to its Customers. The cost-
plus pricing program marks a substantial departure from the variable markup
pricing with rebate program that Spartan used previously. Through the
cost-plus pricing program, Spartan addresses products, services and
transportation as separate elements. Spartan intends the program to
reflect accurately the different costs in warehousing and distributing
various commodities to assist Spartan and its Customers to work together to
reduce costs.
Cost-plus pricing consists of two parts. The first part is the
"cost," which is generally the cost that the manufacturer charges Spartan,
subject to definitions and exceptions in the program. The second part is
the "plus," which is a charge generally consisting of: (i) a fixed amount
per case times the number of cases on the invoice; (ii) a percentage of the
total invoice product billing; (iii) a transportation charge based on a
transportation pricing schedule that reflects Spartan's general
transportation expenses; and (iv) a charge for assets used. Similarly,
services are priced generally at the break-even cost of the service plus a
charge for any asset used in providing the service.
Spartan, itself and through its subsidiaries, provides Customers with
a broad spectrum of services that the Company believes, when viewed as a
whole, make it possible for the retailers to compete with large
competitors, such as supermarket chains. Customers decide individually
which services to use and are charged a fee for the services used.
SITE IDENTIFICATION AND MARKET ANALYSIS. The Company
assists Customers in identifying potential new store locations.
Once the Company or a Customer has identified a potential site,
the Company will undertake or commission an independent site
feasibility analysis of the location, which includes a study of
the demographics of the general area, the supermarket competitors
located in the primary and secondary trading areas, and the
volume a new store should expect to achieve at the location.
STORE PLANNING AND DEVELOPMENT. The Company assists
Customers in new store development, from site planning through
construction, including financing and lease negotiations, store
layout, space management, product display, and promotion. In
addition, services available from the Company include engineering
support, contracting assistance, layout strategy, front-end
design and setup, and assistance in leasing space to other
commercial tenants. Similar services are available to Customers
-24-
who desire to remodel existing stores. Other services include
consulting services on management operations and business
valuations.
MARKETING, PROMOTION, AND ADVERTISING ASSISTANCE. The
Company offers its Customers the services of its in-house
advertising department, which include developing marketing
strategies, designing and producing signs and flyers, and
coordinating print and media advertising campaigns. Customers
may use the Company's print shop to print signs, flyers, and
other items. In addition, the Company offers Customers the
opportunity to participate in printed, radio, and television
advertising programs conducted in most major media markets.
INFORMATION SERVICES. The Company provides information
services and customized software programs to Customers using a
direct computer link to many of its Customers' stores. The
Company can provide Customers with a product and price file for
products. In addition, Customers may order inventory directly
from the Company using their store-to-warehouse computer link-up
and order entry system.
ACCOUNTING AND TAX PREPARATION SERVICES. The Company
provides a wide array of accounting services to Customers ranging
from preparing monthly and annual financial reports to preparing
tax returns.
HUMAN RESOURCE SERVICES. The Company offers an extensive
variety of human resource services to its Customers. These
services include: recruiting; interviewing and staffing
assistance; benefit program planning; handbook preparation,
design, and printing; labor relations assistance; personnel
recordkeeping; training; and development. The services listed
above, as well as many others, are provided on an individual
basis and are tailored to meet the needs of each Customer.
COUPON REDEMPTION AND PRODUCT RECLAMATION. The Company
provides coupon redemption services, making it possible for
retailers to send all consumer value coupons directly to the
Company for processing of refunds from manufacturers. In
addition, the Company operates a 20,300 square-foot product
reclamation center to handle all damaged products that Customers
may return. Damaged products are returned to manufacturers,
where appropriate, and credits received from manufacturers are
then passed along to the Customers.
-25-
INSURANCE SERVICES
Through its subsidiaries, the Company offers insurance for Customers
and their employees, and employees of the Company. Customers are offered
coverage for fire and other casualties, liability, automobile, fidelity,
theft, bonds, workers' compensation, business interruption and group health
plans. In addition, individuals are offered automobile and homeowners
coverage. Shield Insurance Services, Inc. ("Shield"), and Shield Benefit
Administrators, Inc., a wholly owned subsidiary of Shield, provide
insurance brokerage services and third-party claims administration and
services. Spartan Insurance Company Ltd. ("Spartan Insurance") provides
insurance underwriting for Customers. Spartan Insurance, which is
incorporated and licensed in Bermuda, issues policies of another carrier
through a fronting agreement. Under this agreement, Spartan Insurance
insures some of the coverage limits and reinsures with reinsurance
companies the balance of the coverage limit. Shield services the insurance
programs offered by Spartan Insurance.
REAL ESTATE AND FINANCE
The Company may loan funds to Shareholder-Customers to be used to
develop new stores or expand or remodel existing stores. For qualified
Shareholder-Customers, the management of Spartan may approve loans of up to
$100,000. Loans in excess of $100,000 are recommended by management and
approved by the Board of Directors of Spartan.
As of March 30, 1996, the Company had 62 loans outstanding to
Shareholder-Customers. Loans are collateralized by the inventory,
facilities or equipment financed, and some loans may be collateralized by
Class A Shares or other additional assets or personal assets or guaranties
of equity owners of the Customer.
Loans currently are made only on a floating rate basis, based on the
prime rate. Most loans to retailers from the Company carry interest rates
from prime plus 1/2% to prime plus 2%. Maturity dates on the loans range
from 1996 to 2003. As of the fiscal years ending March 1996, 1995 and
1994, the Company had outstanding loans to Customers totaling $12,030,958,
$9,728,580 and $8,512,195, respectively. Over the last 15 years, the
Company has not experienced significant aggregate losses on loans to
Customers. Impaired loans totaled approximately $3,500,000, at March 30,
1996, including the current portion, with related allowances of $1,000,000.
The estimated fair market value of the loans approximates the net carrying
value at March 30, 1996.
Market Development Corporation ("Market Development"), a subsidiary of
Spartan, owns 26 retail grocery facilities or sites that are leased to
Customers and others and leases 20 other sites for sublease to Customers.
-26-
The Company finances its direct investment in shopping centers or new
retail food stores through internally generated capital and borrowed funds.
COMPETITION
The grocery and convenience store industries are characterized by
intense competition and low profit margins. The principal methods of
competition in the grocery industry are price, product quality and service.
The principal methods of competition in the convenience store industry are
price and product quality, and to a lesser extent, service. The Company
competes with a number of grocery and convenience store wholesalers and
with a number of other businesses that market their products directly to
food retailers, including companies having greater assets and larger sales
volume than the Company. Customers compete with other retailers and with
several large chain stores which have integrated wholesale and retail
operations. Customers also compete with mass merchandisers, wholesale
membership clubs, convenience stores, shop-at-home services, restaurants
and fast food businesses. The Company's success is in large part dependent
upon the ability of its Customers to compete with the larger grocery store
and convenience store chains. Competition in Michigan and the other
Midwestern states served by the Company has been, and continues to be,
aggressive.
In its eight-state market area of Michigan, Illinois, Indiana,
Kentucky, Ohio, Pennsylvania, Tennessee, and West Virginia, the Company
competes at the wholesale level with a number of larger and smaller food
wholesalers, including Super Valu Stores, Inc.; Roundy's, Inc.; Super Food
Services, Inc.; Foodland Distributors (a joint venture between Wetterau,
Inc. and the Kroger Company), and S. Abrahams and Sons, Inc.
Customers compete with supermarket chains, other independent
retailers, restaurants, fast food businesses, and convenience stores at the
retail level. Among the largest supermarket chains that compete with
Customers are Meijer, Inc.; The Great Atlantic and Pacific Tea Company
(A&P); Borman's, Inc. (a wholly owned subsidiary of A&P); and the Kroger
Company. Customers also compete with members-only shopping and discount
clubs. Among the largest such clubs that compete with Customers is Sam's
Club (a unit of Wal-Mart Stores, Inc.).
According to industry sources, Shareholder-Customers hold an
approximately 22% market share of groceries sold in Michigan. Shareholder-
Customers hold an approximately 55% market share of groceries sold in
Western Michigan, a 32 county market area, and an approximately 18% market
share (the second largest) of groceries sold in Eastern and Southern
Michigan, a 35 county market area.
The insurance industry also is highly competitive. Many competitors
may have far greater financial and other resources than those of the
Company.
-27-
SUPPLIERS
The Company purchases its products from a large number of national,
regional, and local suppliers of name brand and private label merchandise.
The Company is dependent upon these suppliers for brand name products.
However, the Company has not encountered difficulty in procuring or
maintaining an adequate level of products to service its Customers.
REGULATION
The Company is subject to federal, state, and local laws and
regulations covering the purchase, handling, sale and transportation of its
products, and is subject to the jurisdiction of the federal Food and Drug
Administration ("FDA") and Interstate Commerce Commission ("ICC").
Management believes that the Company is in material compliance with all
FDA, ICC, and other federal and state laws and regulations governing its
businesses.
SHAREHOLDER-CUSTOMERS
At March 30, 1996, Spartan was the primary supplier to 465 retail food
stores operated by 259 shareholders of the Company. As of such date, the
average annualized purchases per store was $3,767,745. The following table
reflects the number of shareholders who were Shareholder-Customers
("active" Shareholder-Customers), the number of stores owned by the active
Shareholder-Customers, and the average purchases per store served during
the past five years:
<TABLE>
<CAPTION>
END OF NUMBER OF NUMBER OF SHAREHOLDER- AVERAGE PURCHASES
FISCAL ACTIVE SHAREHOLDER- CUSTOMER STORES PER SHAREHOLDER-
YEAR CUSTOMERS AT YEAR END SERVED AT YEAR END CUSTOMER STORE
<S> <C> <C> <C> <C>
1996 259 465 $3,767,745
1995 273 450 3,363,538
1994 277 465 3,271,400
1993 277 469 3,224,935
1992 274 471 3,114,132
</TABLE>
As the above illustrates, the number of active Shareholder-Customers
and the number of stores supplied by Spartan over the last five years has
remained relatively stable. However, a large number of Shareholder-
Customers have expanded or remodeled existing stores or built new stores.
Management believes that during this same period the average size of the
stores operated by its Shareholder-Customers has increased significantly.
-28-
According to industry sources, the trend by Shareholder-Customers to
expand the size of stores, or to build larger stores to replace smaller
stores, follows a national trend in food retailing toward larger store
sizes. While the number of stores supplied by Spartan has not changed
significantly during the past five years, the average weekly purchases by
Shareholder-Customers has increased. In addition, Spartan's largest
Shareholder-Customers grew substantially. The five largest Shareholder-
Customers operated a total of 71 stores in 1989, and a total of 93 stores
as of March 30, 1996.
Spartan supplies a diverse group of independent store operators,
ranging from single stores to supermarket chains with as many as 25 stores.
Management believes that the diverse nature of the Customers it now
supplies helps to insulate Spartan from any potential adverse effects of
losing a single large Shareholder-Customer or from potential adverse
economic conditions. Spartan does not believe that its success is
dependent upon maintaining the supply business of any one Shareholder-
Customer. Spartan's ten largest Shareholder-Customers accounted for
approximately 45% of its total net sales for fiscal year 1996, but no
single Shareholder-Customer accounted for more than 8% of Spartan's total
net sales. In the last five years, no Shareholder-Customer who was among
the ten largest Shareholder-Customers has terminated all of its business
with Spartan to associate with another distributor.
The following table reflects the diversity in the Shareholder-Customer
base of Spartan as of March 30, 1996:
<TABLE>
<CAPTION>
NUMBER OF SHAREHOLDER-
NUMBER OF CUSTOMERS OPERATING
STORES OPERATED THE NUMBER OF STORES
<S> <C> <C>
1 208
2 22
3 4
4 2
5 or more 19
</TABLE>
CUSTOMER AGREEMENTS
To become a Shareholder-Customer, a retail store must submit to
Spartan, among other documents, a completed Stock Subscription Agreement,
together with the initial payment for Class A Shares to satisfy the
Required Investment, and a Customer Agreement. The following summarizes
only the Stock Subscription Agreement and Customer Agreement. The summary
is qualified in its entirety by reference to the Stock Subscription
Agreement and the Customer Agreement, copies of which are available from
-29-
Spartan. Spartan encourages each applicant to review the Stock
Subscription and Customer Agreements carefully before applying, and to
obtain the advice of counsel.
In the Stock Subscription Agreement, the Shareholder-Customer agrees
to acquire from time to time and hold an investment in Class A Shares
sufficient to comply with the Required Investment. In addition, the
Shareholder-Customer agrees to be bound by the transfer restrictions and
the options to purchase the Class A Shares granted to Spartan as set forth
in Spartan's Bylaws. The terms of the Stock Subscription Agreement apply
to all Class A Shares held by the Shareholder-Customer, whenever acquired.
In the Customer Agreement, Spartan agrees to use its best efforts to
supply the Shareholder-Customer with the Shareholder-Customer's
requirements for resale at Approved Stores. A Shareholder-Customer may
sell grocery and related products supplied by Spartan only at Approved
Stores. A Shareholder-Customer may add a new retail store location as an
Approved Store only upon Spartan's approval.
The Shareholder-Customer agrees to comply with the rules, regulations
and policies applicable to Spartan's Customers as may be established from
time to time by Spartan (the "Policy Manual"). Among other matters, the
Policy Manual contains Spartan's policies on the Required Investment,
Trading Value, Volume Incentive Rebates, and stock redemptions. In its
discretion, Spartan may revise or terminate any portion of the Policy
Manual at any time, provided that Spartan must give the Shareholder-
Customer reasonable notice of any revision which imposes any new or changed
obligation on the Shareholder-Customer.
The Shareholder-Customer agrees that its purchases of the grocery and
related products and services will be in accordance with Spartan's Standard
Terms and Conditions of Sale, which Spartan may amend from time to time.
Among other matters, the Standard Terms and Conditions of Sale set forth
the terms of payment, order procedures, procedures for price and rebate
changes, delivery terms, inspection and acceptance practices and warranties
and limitations on warranties.
The Customer Agreement grants to the Shareholder-Customer the
nonexclusive, nontransferable right to use all Spartan trademarks, trade
names, designs, logos, slogans, trade dress, product configurations,
container configurations and other identifications (the "Trademarks"). The
Shareholder-Customer may use the Trademarks to advertise and promote the
sale of products at Approved Stores.
Either Spartan or the Shareholder-Customer may terminate the Customer
Agreement at any time with or without cause by giving the other party not
less than 30 days prior written notice. Upon a default by a Shareholder-
Customer, as described below, Spartan may terminate the Customer Agreement
upon written notice to the Shareholder-Customer. In addition, the Customer
-30-
Agreement will automatically terminate, without notice, if: (i) the
Shareholder-Customer for a continuous 30-day period fails to order any
merchandise from Spartan, unless the failure to order for the period
results from a cause beyond the Shareholder-Customer's control; (ii) the
Shareholder-Customer is adjudicated bankrupt, or a petition is filed by or
against the Shareholder-Customer under any federal or state bankruptcy laws
relating to the relief of debtors for reorganization, arrangement or other
similar relief permitted thereby, or the Shareholder-Customer makes a
general assignment for the benefit of creditors; (iii) a receiver, trustee,
or similar officer is appointed with respect to any of the Shareholder-
Customer's properties or businesses, or the Shareholder-Customer's interest
in the Customer Agreement is attached, executed or levied upon, seized,
garnished, or appropriated by a legal process, unless the appointment of
the officer is vacated or discharged, or the effect of the legal process is
otherwise released, within 10 days; or (iv) any act or event of the type
described in the above subsection occurs which relates to, involves, or
affects the interest of one or more persons having a 50% or greater
ownership interest in a Shareholder-Customer which is a corporation,
partnership or other legal entity.
The Shareholder-Customer will be in default under the Customer
Agreement if the Shareholder-Customer fails to pay when due any amount owed
Spartan or to perform any obligation, default of which cannot be cured,
under the Customer Agreement, Spartan's Bylaws, the Policy Manual, or the
Stock Subscription Agreement. The Shareholder-Customer will also be in
default if it fails to perform any other obligation under the Customer
Agreement or under Spartan's Bylaws, the Policy Manual, or the Stock
Subscription Agreement, and the failure continues for 10 days following
receipt of notice from Spartan specifying the failure.
In October 1990, Spartan adopted the use of the Stock Subscription and
Customer Agreements summarized above. Spartan uses these agreements for
all new Shareholder-Customers. All Shareholder-Customers that are
beneficially owned by members of the Board of Directors have signed the new
Stock Subscription and Customer Agreements. Beginning in February 1991,
Spartan requested all of its current Shareholder-Customers to sign and
return the Stock Subscription and Customer Agreements. As of May 25, 1996,
only approximately 2% of Spartan's Shareholder-Customers have not signed
the Stock Subscription and Customer Agreements. These Shareholder-
Customers accounted for less than 2% of the Company's net sales in fiscal
year 1996. Shareholder-Customers who have not signed the new agreements
conduct business with Spartan pursuant to various agreements entered into
prior to 1990. In the opinion of management, the continued operations
under the older agreements with those Shareholder-Customers who have not
signed the new agreements will not adversely affect the Company's business.
-31-
VOLUME INCENTIVE REBATES
Until February 1996, Spartan's policy was to pay Volume Incentive
Rebates to its Shareholder-Customers. Under the policy, Volume Incentive
Rebates were paid to each Shareholder-Customer based upon each store's
order size from Spartan. The rebate served as an incentive to encourage
Shareholder-Customers to place large orders with Spartan, which enabled
Spartan to move inventory faster and more profitably.
Prior to June 14, 1995, Volume Incentive Rebates were paid
approximately 50% in cash on a quarterly basis. At Spartan's fiscal year
end, the Shareholder-Customers would receive Class A Shares at the Trading
Value then in effect in exchange for the remaining approximately 50% of the
Volume Incentive Rebate. On June 14, 1995, the Board of Directors changed
the rebate policy to pay Volume Incentive Rebates on a quarterly basis
approximately 75% in cash and, at each succeeding fiscal year end, the
Shareholder-Customer would receive Class A Shares at the Trading Value then
in effect in exchange for the remaining 25% of the rebate. In fiscal year
1996, Spartan paid to Shareholder-Customers Volume Incentive Rebates in the
aggregate amount of $15,576,939, of which $11,576,818 was paid in cash and
$4,000,121 was paid in 10,697 Class A Shares at the Trading Value of $93
per share and in 30,053 Class A Shares at the Trading Value of $100 per
share. As of February 1996, Spartan no longer pays any Volume Incentive
Rebates. See also "THE COMPANY."
CONCENTRATION REBATES
In January 1996, the Board adopted a policy for Spartan to pay in
fiscal year 1997 to its Customers a Concentration Rebate (the
"Concentration Rebate Policy"). The Concentration Rebate is based upon the
Customer's purchases from the Company as a percentage of the Customer's
total retail sales. The total Concentration Rebate to be paid in fiscal
year 1997 will be $4.2 million. The concentration brackets that earn a
Concentration Rebate begin at 40 percent and are capped at the level of 60
percent or greater. Concentration Rebate amounts are weighted toward the
higher concentration brackets. The Board reserves the right to review and
amend the Concentration Rebate Policy from time to time or terminate the
policy at any time.
TERMS OF SALE AND BAD DEBT EXPERIENCE
The Company furnishes to its Customers in the distribution segment
weekly statements of accounts. Statements include deliveries through and
including the date of the statement. Payment is due within 7 days from
date of the statement, and those not paid within 7 days are considered
delinquent. Customers have 7 days in which to mail payment. Additional
deliveries occur during this time which are billed on a subsequent
statement. The timing of payments varies among Customers, but the Company
-32-
generally may have receivables outstanding at any given time which average
up to two week's sales. Bad debt expenses have not been material to the
Company's operations.
PROPERTIES
Spartan owns approximately 1,300,000 square feet of warehouse,
distribution, and office space located on 211 acres in Grand Rapids,
Michigan. Spartan supplies primarily its West Michigan Customers from this
main warehouse and distribution center. The center is located within one
mile of U.S. 131, a main artery that links Grand Rapids with Kalamazoo on
the south and connects with Interstate 96, one of the major east-west
arteries serving Western Michigan and leading east into the Detroit area.
Approximately 72 acres of the 211-acre complex in Grand Rapids is presently
vacant land.
The main warehouse and distribution center in Grand Rapids includes a
general merchandise warehouse of approximately 233,000 square feet;
refrigerated space of approximately 327,000 square feet; dry grocery space
of approximately 585,000 square feet; general office space, including a
print shop, of approximately 107,000 square feet, and transportation and
salvage buildings of approximately 55,000 square feet. Spartan leases a
403,000 square-foot warehouse, garage, and office complex in Plymouth,
Michigan, a western suburb of Detroit. This warehouse is used to supply
its Customers located in the greater Detroit area and in Eastern Michigan.
Shareholder-Customers are supplied by a fleet of approximately 143
tractors, 261 conventional trailers, and 135 refrigerated trailers.
Deliveries by Spartan can occur as often as daily for large stores, or as
infrequently as weekly for smaller stores.
Spartan also owns a Reclamation Center/Support Services complex in
Charlotte, Michigan consisting of an approximately 11 acre site containing
two warehouses totaling 80,000 square feet. In addition, Spartan leases
for various purposes 80,000 square feet of warehouse space in Grand Rapids,
Michigan and a trailer relay station in Kalkaska, Michigan which consists
of four trailer parking stations in a secured area.
Until May 1996, Capistar owned approximately 290,000 square feet of
warehouse distribution and office space in Lansing, Michigan. In May 1996,
Capistar sold this facility. L & L/ Jiroch owns approximately 180,000
square feet of warehouse and office space located in Wyoming, Michigan, to
service its Customers. L&L\Jiroch moved its current space in November
1995. L&L/Jiroch leases approximately 107,000 square feet of space also
located in Wyoming, Michigan, which it formerly used as warehouse and
office space and which it currently plans to sublet.
Market Development owns approximately 1,313,000 square feet of space
that it leases to Customers and other retailers, consisting of
approximately 1,070,000 square feet of grocery retail space and
-33-
approximately 243,000 square feet of other retail space. In addition, five
developments are in the planning stages for retail Customer and shopping
center leasing.
The square footage of lease space includes nine shopping centers,
located in Brighton, Michigan (78,000 square feet of retail space); Cascade
Township, Michigan (90,000 square feet of retail space); Fremont, Michigan
(41,000 square feet of retail space); Huntington, Indiana (54,000 square
feet of retail space); Kentwood, Michigan (78,000 square feet of retail
space); Ludington, Michigan (43,000 square feet of retail space);
Stevensville, Indiana (61,000 square feet of retail space); Ortonville,
Michigan (51,000 square feet of retail space); and Three Rivers, Michigan
(67,000 square feet of retail space) (the "Shopping Centers"). In
addition, Market Development owns 10 acres in Canton Township, Michigan,
and five acres in Plymouth, Indiana, to be developed as shopping centers.
All Shopping Centers are substantially full, and each Shopping Center is
anchored by a lease with a Shareholder-Customer. Market Development had a
lease for approximately 28,000 square feet with Valuland, Inc. for a
grocery store location in Logansport, Indiana. However, this lease
terminated on April 1, 1995 and there is no store operating at the
location. In January, 1996, Market Development transferred the lease for
the Logansport location in exchange for a lease for a grocery store
location in Goshen, Indiana. Market Development continues to seek grocery
store or other tenants for the Goshen space. The remaining approximately
5,800 square feet at the Logansport center is substantially full under
leases with various retail stores.
Market Development owns 26 retail grocery store facilities or sites
(including those leased in the Shopping Centers) that are leased to
Customers, with terms expiring from 1996 to 2016. Aggregate lease rental
income received for the grocery stores was $6,599,000, $5,760,000 and
$4,620,000 in fiscal years 1996, 1995 and 1994, respectively.
In addition, Market Development leases 20 sites for sublease to
Customers. Under this program, Market Development has leased real estate
with lease terms expiring from 1997 to 2016. Aggregate lease rental income
received pursuant to the subleases was $1,765,000, $1,490,000 and
$1,560,000 in fiscal years 1996, 1995 and 1994, respectively. Site lease
rental expenses were $1,644,000, $1,380,000 and $1,460,000 for fiscal years
1996, 1995 and 1994, respectively. All stores are owned and leased to
Customers and all stores leased and subleased to Customers are in all
material respects operating according to required lease terms.
J.F. Walker leases 13 locations totaling approximately 152,000 square
feet of warehouse and distribution space at its locations in Michigan,
Indiana, Kentucky, Ohio, Pennsylvania, and Tennessee to service its
customers. J.F. Walker also owns five locations totaling approximately
142,000 square feet of warehouse and distribution space. In fiscal year
1996, Walker closed one distribution facility in Indiana and determined
to close one distribution facility in Ohio.
-34-
United Wholesale owns thirteen "cash and carry" wholesale grocery
facilities, twelve of which are located in Michigan, and one of which is
located in Ohio. These retail outlets have a total of approximately
180,000 square feet. United Wholesale also operates one leased "cash and
carry" wholesale grocery facility located in Muskegon, Michigan.
ASSOCIATES
As of March 30, 1996, the Company employed approximately 3,000
Associates, of which approximately 1,100 were represented by several
unions. Certain warehouse and transportation employees are represented by
different Teamsters Union locals, with contracts expiring in 1997 through
2000. The Company considers its relations with all Associates to be
satisfactory, and has not had any work stoppages in the last five years.
LEGAL PROCEEDINGS
Spartan and its subsidiaries are parties, as plaintiff or defendant,
to various legal proceedings incidental to their businesses. In the
opinion of management, such matters are not, individually or in the
aggregate, material to the Company's financial condition or results of
operations. All such legal proceedings arose in the ordinary course of the
Company's operations.
MANAGEMENT
The names, ages and principal occupations of directors and executive
officers of Spartan as of June 14, 1996, are set forth below.
<TABLE>
<CAPTION>
POSITION AND PRINCIPAL
NAME AND AGE OCCUPATION FOR LAST 5 YEARS
<S><C> <C>
Donald J. Koop (59) Chairman of the Board since 1989
and director since 1985;
Chairman of the Board, Family
Fare, Inc. (retail grocery
chain)
Russell H. VanGilder, Jr. (62) Vice Chairman of the Board since
1992 and director since 1970;
Chairman of the Board, V.G.'s
Food Center, Inc. (retail
grocery chain)
-35-
POSITION AND PRINCIPAL
NAME AND AGE OCCUPATION FOR LAST 5 YEARS
Roger L. Boyd (49) Secretary of the Board since 1993
and director since 1992;
President and General Manager,
Bob's Market House, Inc.
(retail grocery store); Vice
President and General Manager,
Hillsdale Market House, Inc.
(retail grocery store)
Glen A. Catt (48) Director since 1988; President and
Chief Executive Officer, Glen's
Markets, Inc. (retail grocery
chain)
Daniel L. Deering (61) Director since 1967; President,
Tom's Food Markets, Inc.
(retail grocery chain)
Ronald A. DeYoung (62) Director since 1974; President,
Great Day, Inc. (retail grocery
chain)
Parker T. Feldpausch (64) Director since 1990; President and
Treasurer, G & R Felpausch Co.
(retail grocery chain)
Bryan G. Hettinghouse (55) Director since 1992; General
Manager, Harding's Markets-West,
Inc. (retail grocery chain)
James G. Buick (63) Director since 1995; Retired;
Former President and Chief
Executive Officer, The
Zondervan Corporation (1984 to
1993) (producer and distributor
of Christian books and gifts)
John S. Carton (55) Director since 1995; Chairman of
the Board, Pine View Golf Club,
Inc. and Turfside, Inc. (golf
course and restaurant)
Patrick M. Quinn (62) President and Chief Executive
Officer of the Company and
director since 1985
-36-
POSITION AND PRINCIPAL
NAME AND AGE OCCUPATION FOR LAST 5 YEARS
James B. Meyer (50) Senior Vice President Corporate
Support Services since June
1994; Chief Financial Officer
since October 1990; Senior Vice
President from 1981 to 1994;
Assistant Secretary and
Treasurer
Charles B. Fosnaugh (46) Senior Vice President Business
Development since 1994; Vice
President, Business Development
from 1990 to 1994; President,
Market Development Corporation
since 1990; President, Valuland
Inc. since 1990
Robert C. Morse (58) Vice President Human Resources
Joseph Smoliga, Jr. (44) Vice President Distribution since
1995; Vice President Plymouth
Operations from 1990 to 1995
Dennis J. Otto (46) Vice President Retail Marketing
and Operations since 1994;
Director of Customer Support
Services from April 1993 to
June 1994; Manager Retail
Sales/Marketing from February
1991 to April 1993
Alex J. DeYonker (46) General Counsel and Assistant
Secretary since May 1995;
partner of Warner Norcross &
Judd LLP since 1988 (law firm)
David deS. Couch (45) Vice President Information
Technology since June 1996;
Director of Management
Information Services since
1991.
</TABLE>
Directors are elected at annual meetings of shareholders and hold
office for a term of three years and until their successors are elected and
qualified. Annual elections of directors are held to elect one-third of
the members of the Board. Mr. Stanley S. Levandowski, II, a director since
-37-
1993, resigned from the Board effective June 12, 1996. His term would have
expired in 1996. The terms of Messrs. Buick, Hettinghouse, and VanGilder
expire in 1996; Messrs. Catt, Deering, Feldpausch and Quinn expire in 1997;
and Messrs. Boyd, Carton, DeYoung and Koop expire in 1998. The election of
directors will be held at the Annual Meeting of Shareholders to be held on
July 16, 1996. Nominees for election to the Board of Directors are Messrs.
Buick and VanGilder; Mr. Martin P. Hill, President of Harding & Hill, Inc.;
and Mr. Dan R. Prevo, President of Prevo's Family Market, Inc. Executive
officers are appointed by the Board of Directors at its organizational
meeting following each annual meeting of shareholders and serve until their
successors are appointed.
Because the Company's capital stock is not registered pursuant to
Section 12 of the Securities Exchange Act of 1934, the directors, officers
and persons owning greater than 10% of any class of the Company's equity
securities are not subject to Section 16 of such act.
EXECUTIVE COMPENSATION
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
The following table sets forth the cash and non-cash compensation
earned during the fiscal years ended March 30, 1996 (53 weeks), March 25,
1995 (52 weeks), and March 26 1994 (52 weeks), by the persons who were the
President and Chief Executive Officer and the four most highly compensated
executive officers (other than the President and Chief Executive Officer)
of Spartan for the fiscal year ended March 30, 1996.
-38-
<TABLE>
SUMMARY COMPENSATION TABLE
<CAPTION>
LONG-
TERM
COMPEN-
SATION
AWARDS
NUMBER OF
SECURITIES ALL OTHER
NAME AND UNDERLYING COMPEN-
PRINCIPAL FISCAL ANNUAL COMPENSATION OPTIONS SATION
POSITION YEAR SALARY BONUS<F1> <F2> <F3>
<S> <C> <C> <C> <C> <C>
Patrick M. Quinn 1996 $353,658 $75,000 400 $107,317
(President and Chief 1995 341,949 61,250 400 106,393
Executive Officer) 1994 331,000 61,250 400 105,573
James B. Meyer 1996 $231,995 $37,375 200 $4,832
(Senior Vice President 1995 213,060 32,200 200 3,908
Corporate Support Services 1994 193,522 32,200 200 4,114
& Chief Financial Officer,
Treasurer and Assistant
Secretary)
Charles B. Fosnaugh 1996 $182,940 $37,375 200 $4,405
(Senior Vice President 1995 159,860 30,100 100 3,481
Business Development) 1994 138,371 25,300 100 3,573
William E. May, Jr.<F4> 1996 $182,940 $34,938 200 $4,549
(Senior Vice President 1995 159,860 30,100 100 3,625
Procurement, Distribution & 1994 138,371 23,650 100 3,835
Management Information
Services)
Robert C. Morse 1996 $147,720 $18,325 100 $5,790
(Vice President 1995 140,340 26,950 100 4,866
Human Resources) 1994 135,071 25,300 100 5,518
__________________
<FN>
<F1> Includes bonus amounts elected under the 1991 Stock Bonus Plan,
as amended (the "1991 Stock Option Plan"), plus an amount equal
to 30 percent of such bonus amounts to be received in Class A
Shares.
<F2> All reported awards were under the 1991 Stock Option Plan, as
amended (the "1991 Stock Option Plan"). These awards have vested
and are exercisable at the date of grant.
-39-
<F3> The compensation listed in this column for fiscal year 1996
consists of: (a) amounts paid by Spartan for split dollar and
term life insurance; (b) Spartan's matching contributions under
its Savings Plus Plan; and (c) for Mr. Quinn only, amounts
deferred under the Spartan Stores, Inc. Supplemental Retirement
Plan for Mr. Quinn. The amounts included for each such factor
for fiscal year 1996 are:
(A) (B) (C)
Mr. Quinn $2,612 $3,234 $101,471
Mr. Meyer 1,598 3,234
Mr. Fosnaugh 1,171 3,234
Mr. May 1,315 3,234
Mr. Morse 2,556 3,234
<F4> Mr. May's employment with the Company terminated on June 7, 1996.
</FN>
</TABLE>
STOCK OPTIONS
Under the 1991 Stock Option Plan, options to purchase Class A Shares
may be granted to officers of Spartan. The following tables set forth
information concerning stock options granted under the 1991 Stock Option
Plan during the fiscal year ended March 30, 1996, to the named executive
officers and the unexercised options held by them as of the end of the
fiscal year. None of the named executive officers exercised any stock
options during fiscal year 1996.
<TABLE>
OPTION GRANTS IN LAST FISCAL YEAR <F1>
<CAPTION>
INDIVIDUAL GRANTS
PERCENT POTENTIAL
NUMBER OF TOTAL REALIZABLE VALUE AT
OF OPTIONS ASSUMED ANNUAL
SECURITIES GRANTED TO RATES OF STOCK PRICE
UNDERLYING EMPLOYEES EXERCISE EXPIRA- APPRECIATION
OPTIONS IN FISCAL PRICE PER TION FOR OPTION TERM
NAME GRANTED YEAR SHARE DATE 5% 10%
<S> <C> <C> <C> <C> <C> <C>
Patrick M. Quinn 400 31 $100 5/2005 $25,156 $63,750
James B. Meyer 200 15 $100 5/2005 12,578 31,875
Charles B. Fosnaugh 200 15 $100 5/2005 12,578 31,875
William E. May, Jr.<F2> 200 15 $100 5/2005 12,578 31,875
Robert C. Morse 100 8 $100 5/2005 6,289 15,938
__________________
-40-
<FN>
<F1> The per share exercise price of each option equals the Trading Value
of the Class A Shares effective as of June 19, 1995. All options were
granted for a term of 10 years. Options terminate, subject to limited
exercise provisions, in the event of death, retirement, or other
termination of employment. All options are currently exercisable.
The exercise price of the options may be paid in cash, by delivering
Class A Shares which are already owned by the option holder, or any
combination thereof.
</FN>
</TABLE>
<TABLE>
FISCAL YEAR-END OPTION VALUES
<CAPTION>
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
FISCAL YEAR-END FISCAL YEAR-END <F1>
EXERCISABLE/ EXERCISABLE/
NAME UNEXERCISABLE UNEXERCISABLE
<S> <C> <C> <C>
Patrick M. Quinn 1,600/0 $14,000/0
James B. Meyer 800/0 7,000/0
Charles B. Fosnaugh 500/0 3,500/0
William E. May, Jr. 500/0 3,500/0
Robert C. Morse 400/0 3,500/0
<FN>
________________
<F1> Represents the difference between the exercise price of the options
for the Class A Shares and the Trading Value of $100 per share at
fiscal year-end.
<F2> Mr. May's employment with the Company terminated on June 7, 1996.
</FN>
</TABLE>
EMPLOYMENT AGREEMENTS
The officers of Spartan are appointed annually by and serve at the
pleasure of the Board of Directors or the President. Except for Mr. Quinn,
Spartan has not entered into any employment agreement with any officer. On
June 1, 1987, Mr. Quinn entered into an Employment Agreement with Spartan.
Under the Employment Agreement, Mr. Quinn's annual base salary is to be
-41-
and has been revised upon mutual agreement of Spartan and Mr. Quinn on a
year-to-year basis. Under the Employment Agreement, Spartan provides
Mr. Quinn with an automobile and certain other fringe benefits. The
Employment Agreement may be terminated upon mutual agreement, upon
Mr. Quinn's death or disability, by either party at their option upon
90 days' written notice to the other, or upon certain other events. Upon
termination by Spartan, Mr. Quinn will receive an amount equal to his
current salary, payable in the same manner as if he remained employed with
Spartan, for one year after the date of severance or until he is employed
elsewhere, whichever occurs first.
PENSION PLAN
The following table illustrates estimated annual benefits payable
under the noncontributory, defined benefit plans of Spartan (the "Pension
Plan") to Associates upon retirement, assuming retirement at age 65,
including the amounts attributable to the Supplemental Executive Retirement
Plan of Spartan which provides benefits that would otherwise be denied
participants by reason of certain limitations on qualified benefit plans in
the Internal Revenue Code of 1986, as amended.
<TABLE>
PENSION PLAN TABLE
<CAPTION>
AVERAGE
REMUNERATION YEARS OF BENEFIT SERVICE
5 10 15 20 25
<S> <C> <C> <C> <C> <C> <C>
$ 50,000 $ 4,030 $ 8,060 $ 12,090 $ 16,120 $ 20,150
100,000 8,655 17,310 25,965 34,620 43,275
200,000 17,905 35,810 53,715 71,620 89,525
300,000 27,155 54,310 81,465 108,620 135,775
400,000 36,405 72,810 109,215 145,620 182,025
500,000 45,655 91,310 136,965 182,620 228,275
</TABLE>
The compensation shown under the heading "Annual Compensation" in the
Summary Compensation Table above is representative of the most recent
calendar year compensation used in calculating average remuneration for the
Pension Plan. Credited years of service of the named executive officers
under the Pension Plan as of March 30, 1996, are:
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<TABLE>
<CAPTION>
CREDITED YEARS OF SERVICE
<S> <C> <C>
Patrick M. Quinn 11
James B. Meyer 23
Charles B. Fosnaugh 6
William E. May, Jr. 8
Robert C. Morse 11
</TABLE>
Benefits under the Pension Plan become vested after five years of
service. Upon reaching the normal retirement age of 65, a covered employee
is entitled to retirement benefits computed using the average annual
compensation (including salary, hourly wages, overtime, incentive pay,
bonuses, and commissions) from the plan employers during the
five consecutive calendar years in the last 10 calendar years during which
the participant's compensation was greatest.
The basic pension benefit is an annual benefit, paid in equal monthly
installments, and is equal to the sum of (i) 1.2 percent of the
participant's annual compensation plus 0.65 percent of the participant's
average compensation in excess of the amount which would be used to compute
Social Security benefits, multiplied by the participant's years of benefit
service (up to 25 years of benefit service), plus (ii) 0.5 percent of the
participant's average compensation, multiplied by the participant's years
of benefit service in excess of 25 years of benefit service. For persons
who were participants prior to April 1, 1989, the Pension Plan provides
that their retirement benefit will not be less than the benefit accrued as
of March 31, 1989. (In general, the Pension Plan provisions in effect
prior to April 1, 1989, provided higher retirement benefits for highly
compensated employees, and lower benefits for less highly compensated
employees than the current provisions of the Pension Plan.)
COMPENSATION OF DIRECTORS
The Chairman of the Board and any director who is not affiliated with
any corporation or other person which owns or operates a retail store each
receive a base compensation of $10,000 per year. The remaining directors
each receive a base compensation of $5,000 per year. The Chairman of the
Board and any director who is not affiliated with a retail store each
receive $1,000 per day, and all other directors each receive $500 per day,
for attendance at any meetings of the Board or a committee. Directors also
are reimbursed for travel expenses for meetings attended.
-43-
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Prior to May 17, 1995, the Finance Committee of Spartan's Board of
Directors performed the functions of a compensation committee for Spartan.
Mr. Quinn determined the annual compensation of all executive officers
(other than his own) under the supervision of the Finance Committee. The
Finance Committee determined Mr. Quinn's annual compensation. The members
of the Finance Committee were Messrs. Catt, DeYoung, Koop and VanGilder.
On May 17, 1995, Spartan's Board of Directors created four new standing
committees, including a Compensation Committee which continues the
functions of the Finance Committee relating to executive compensation. The
Board no longer has a Finance Committee.
The members of the Compensation Committee are Messrs. Buick, Catt,
Deering and Hettinghouse. Each previous member of the Finance Committee
and each current member of the Compensation Committee, except Mr. Buick,
has an ownership interest in a business which is a Shareholder-Customer of
the Company and purchases groceries, perishables, general merchandise, and
other products and services from the Company on an ongoing basis. For a
discussion of transactions with entities related to directors and the
Board's policy with respect to transactions in which a director has an
interest, see "CERTAIN TRANSACTIONS."
LIABILITY OF DIRECTORS AND OFFICERS; INDEMNIFICATION
Spartan's Restated Articles of Incorporation (the "Articles") provide
that a director of Spartan will not be personally liable to the Company for
monetary damages for a breach of fiduciary duty as a director, with the
exception of: liability for a breach of a director's duty of loyalty to
the Company or its shareholders; liability for acts or omissions not in
good faith or that involved intentional misconduct or knowing violation of
law; liability for certain unlawful dividends, distributions or loans;
liability in connection with a transaction from which the director derived
an improper personal benefit; and liability in connection with an action or
omission occurring prior to the date the limitation of liability provision
became effective.
Michigan law permits, and Spartan's Articles require, indemnification
of Spartan's directors and executive officers in a variety of
circumstances, which may include liabilities under the Federal Securities
Act of 1933, as amended. The Articles require Spartan to indemnify any
director or executive officer who is a party or is threatened to be made a
party to any threatened, pending or completed action, suit or proceeding by
reason of the fact that he or she is or was a director or executive
officer, or is or was serving at the request of Spartan in another
capacity, to the fullest extent permitted by law. Spartan may further
indemnify any director or executive officer, and may indemnify any person
who is not a director or an executive officer, as authorized by any Bylaw,
resolution of the Board, or contractual agreement authorized by the Board.
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Pursuant to this authority, Spartan's Bylaws provide that Spartan will
indemnify directors, executive officers, and other officers of Spartan to
the extent that an indemnified person is successful on the merits or
otherwise in the defense of the action. Spartan will indemnify the
indemnified party against actual and reasonable expenses (including
attorneys' fees) incurred in connection with the action. Prior to a final
determination of a proceeding, Spartan may reimburse an indemnified party
for reasonable expenses incurred by the indemnified party, if certain
procedures are followed. In addition, upon request, a court may order
Spartan to indemnify a director, officer, employee or agent if it
determines that the person is fairly and reasonably entitled to
indemnification in view of all the relevant circumstances, whether or not
the applicable standard of conduct set forth in the Bylaws has been met.
In addition, the Bylaws permit Spartan to grant other rights to a
person seeking indemnification or advancement of expenses. Further,
Spartan may purchase and maintain insurance for a director, officer,
employee or agent of Spartan against any liability asserted against the
individual.
CERTAIN TRANSACTIONS
Spartan's directors (except for Messrs. Buick, Carton and Quinn) have
ownership interests in businesses which are Shareholder-Customers and
purchase groceries, perishables, general merchandise, and other products
and services from the Company on an ongoing basis. To the extent that the
Company engages in transactions and offers services which benefit its
Customers, the businesses in which such directors have ownership interests
may benefit. Consequently, a director may have a conflict of interest
between the best interests of the Company and the business in which the
director has an ownership interest.
For any transaction involving a sale in the ordinary course of
business of groceries, perishables, general merchandise, insurance or other
products or services of the Company to a Customer of the Company in which
the director owns an equity interest or is an officer, director or employee
or otherwise has an interest (a "Related Entity"), it is the Company's
policy that the sale is deemed fair to the Company, and Board approval is
not specifically required, if the sale is made at prices and on terms,
including discounts and rebates, no less favorable than those offered
generally to Customers who are not affiliated with any director.
For any other transaction in which a director has an interest
(including, without limitation, the Company's leasing, purchasing or
selling any property involving any loan or guarantee of an obligation by
the Company in a transaction involving a Related Entity), it is the
-45-
Company's policy and practice that the director shall proceed with the
transaction only if the material facts of the transaction and the
director's interest in the transaction have been disclosed to the Board,
the Board determines that it is fair to the Company, and the transaction is
approved by the affirmative vote of a majority of the Board of Directors
who have no interest in the transaction. Each such transaction is made on
terms no less favorable to the Company than those offered generally to
customers who are not affiliated with any director.
During the fiscal year ended March 30, 1996, in the aggregate, Related
Entities paid to the Company approximately $544,314,000 for grocery and
related products (21.6% of the Company's total net sales for fiscal year
1996). No single Related Entity accounted for more than 4.8% of the
Company's total net sales in fiscal year 1996. In connection with the
purchases of such products, the Company paid to the Related Entities volume
incentive rebates, discounts and allowances on purchases at the same rates
and on the same terms as applicable to all Customers. For the name of the
entity related to each director, see "MANAGEMENT."
In addition, in the aggregate, Related Entities:
(i) in the fiscal year ended March 30, 1996, paid to the
Company insurance premiums and commissions equal to approximately
$1,845,400, or 10.6% of all premiums and commissions paid (no
single Related Entity accounted for more than 5.0% of the total
insurance premiums and commissions paid); and
(ii) in the fiscal year ended March 30, 1996, made lease
payments to the Company in the amount of approximately
$1,936,600, or 23% of all lease payments made (no single Related
Entity accounted for more than 12% of lease payments made).
As of the end of the 1996 fiscal year, no director, executive officer,
or Related Entity was indebted to the Company. In the fiscal year ended
March 30, 1996, the Company did not incur any construction costs on
projects to construct retail stores to be leased to Related Entities.
Management believes all such leases have been made in the ordinary
course, based upon fair and reasonable terms and on an arm's-length basis.
All such leases are current on all required payments, and none of these
leases are delinquent or in default as of March 30, 1996.
[The balance of this page intentionally left blank]
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PRINCIPAL SHAREHOLDERS
The following table sets forth information regarding the beneficial
ownership of the Class A Shares as of May 25, 1996, of (i) each of the
directors and nominees for director of Spartan, (ii) each of the named
executive officers of Spartan, and (iii) all directors and executive
officers of Spartan as a group. As of May 25, 1996, no person is known to
Spartan to be the beneficial owner of more than five percent of the Class A
Shares.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF
NAME OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP <F1> PERCENT OF CLASS
<S> <C> <C>
Parker T. Feldpausch 60,365 4.90%
Donald J. Koop 59,472 4.83
Russell H. VanGilder, Jr. 50,741 4.12
Glen A. Catt 37,047 3.01
Stanley S. Levandowski, II<F2> 30,954 2.51
Daniel L. Deering 25,019 2.03
Dan R. Prevo 23,342 1.89
Ronald A. DeYoung 22,413 1.82
Martin P. Hill 22,224 1.80
Roger L. Boyd 16,931 1.37
Bryan G. Hettinghouse 10,785 <F*>
Patrick M. Quinn <F3> 4,144 <F*>
James B. Meyer <F3> 1,776 <F*>
Charles B. Fosnaugh <F3> 1,193 <F*>
Robert C. Morse <F3> 1,183 <F*>
William E. May, Jr. <F3><F4> 948 <F*>
All Directors and Executive <F*>
Officers as a group <F3> 368,537 29.91%
_____________________________
<FN>
<F*> Less than one percent.
<F1> Except for Mr. Quinn and other executive officers, the Class A Shares
reported as beneficially owned by each director are directly owned by
a corporation which is a Spartan retail customer that conducts
business with the Company and with whom the director is affiliated.
Thus, each such director indirectly owns the Class A Shares through
the corporation which he controls either individually or with others.
The Class A Shares owned by each such corporation are included in the
amount reported for the appropriate director. For the name of each
such entity related to each director, see "Management" above.
Mr. Quinn and the named executive officers directly own the Class A
Shares reported to be owned by each and hold the sole voting and
dispositive power with respect to the shares.
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<F2> Effective June 12, 1996, Mr. Levandowski resigned from the Board.
<F3> The amount of shares beneficially owned by each executive officer
includes shares which may be acquired through the exercise of stock
options which are exercisable within 60 days. The number of shares
subject to such stock options for each person is shown below. The
reported shares include the shares subject to options granted on
May 8, 1996.
Mr. Quinn 2,000
Mr. Meyer 1,000
Mr. Fosnaugh 700
Mr. May 700
Mr. Morse 500
All executive officers as a group 5,600
<F4> Mr. May's employment with the Company terminated on June 7, 1996.
</FN>
</TABLE>
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of Spartan consists of 2,000,000 shares
of Class A Common Stock with a par value of $20 per share (each a "Class A
Share") and 500,000 shares of Class B Common Stock (each a "Class B
Share"). The following description of Spartan's capital stock is qualified
by reference to Spartan's Articles and Bylaws, copies of which are included
as exhibits to the Registration Statement of which this Prospectus is a
part.
As of May 25, 1996, Spartan had outstanding 1,232,074 Class A Shares
held by approximately 431 record holders of the Company's Class A Shares.
As of the date of this Prospectus, Spartan has not issued any Class B
Shares. The Board of Directors may at any time, and from time to time,
provide for the issuance of Class B Shares in one or more series, each with
such a designation and, relative to the Class A Shares and to other series
of the Class B Shares, such voting, distribution, dividend liquidation,
conversion, participation, redemption and other rights, preferences,
limitations and restrictions, if any, as will be stated in the resolution
or resolutions providing for the issuance of the Class B Shares. Except as
provided in the resolution or resolutions providing for the issuance of
shares, all Class B Shares and any series thereof will be identical. Class
A Shares, or Class B Shares or any series thereof, may be issued as a share
dividend in respect of shares of another class or series as the Board of
Directors may determine from time to time, or as otherwise permitted by
statute.
-48-
VOTING
Each outstanding Class A Share entitles its holder to one vote.
Except as otherwise required by law, or pursuant to the resolution or
resolutions providing for the issuance of Class B Shares, Class A Shares
and Class B Shares vote together as a single class and, except for the
election of directors and certain extraordinary matters, the vote required
to approve any corporate action is a majority of the votes cast at a
meeting at which a quorum is present. Directors will be elected by a
plurality of the votes cast at a meeting at which a quorum is present.
Extraordinary matters, such as amendments to the Articles, mergers, share
exchanges, sales of assets, and dissolution, must be approved by the
holders of a majority of the Class A Shares and all other voting groups
entitled to vote thereon.
The Articles divide the Board of Directors into three classes, each
class serving a three-year term, so that each year the terms of
approximately one-third of the directors expire and approximately one-third
of the directors are elected for a new three-year term.
Under Michigan law, Class A Shares and Class B Shares will vote as
separate voting groups on any amendment to the Articles or any merger or
share exchange to which Spartan is a party if the resolution or resolutions
providing for the issuance of the Class B Shares provides for such a vote
or if the amendment, merger or share exchange (i) would change the
aggregate number of authorized shares of the class, (ii) would alter or
change the powers, preferences, or special rights of the shares of the
class or other classes so as to affect the class adversely, or (iii) in the
case of a share exchange, if the class or series thereof is included in the
exchange.
There are no preemptive rights to subscribe to shares of Spartan's
capital stock.
DIVIDENDS AND OTHER DISTRIBUTIONS
The holders of Class A Shares will be entitled to receive, to the
extent permitted by law, such dividends and distributions as may be
declared from time to time by the Board of Directors, but subject to any
preferential, participation and other rights of holders of Class B Shares
provided in the resolution or resolutions providing for the issuance of
such Class B Shares. Certain loan agreements that Spartan has signed
contain covenants which restrict the payment of dividends or other
distributions to shareholders in the event of a default of the agreement or
in excess of permitted amounts.
In the event of the voluntary or involuntary liquidation, dissolution
or winding up of Spartan, the holders of the Class A Shares will be
entitled to receive all of the remaining assets of Spartan ratably in
-49-
proportion to the number of Class A Shares held by them, but subject to any
preferential, participation or other rights of holders of Class B Shares
provided in the resolution or resolutions providing for the issuance of
Class B Shares.
RESTRICTIONS ON ORIGINAL ISSUE AND TRANSFER; OPTIONS TO PURCHASE
Prior to June 1990, Spartan's Bylaws permitted Spartan to issue shares
of Common Stock only to retail food dealers and to the owner or owners of
any type of business in payment of all or part of the purchase price in
connection with the acquisition of the business. In June 1990, the
shareholders approved an amendment to the Bylaws to authorize Spartan to
issue its shares of capital stock only to: (i) Shareholder-Customers;
(ii) Associates; (iii) Qualified Holders; or (iv) Approved Holders. The
Board may not revoke the authorization as an Approved Holder of any person
who owns any shares of capital stock of Spartan at the time of the
attempted revocation. In November 1991, Spartan's Board of Directors
designated retail customers of Capistar as Approved Holders. However, the
Capistar operations have been closed and the Company has sold the Capistar
facilities. Thus, Spartan will not obtain any new shareholders from the
Capistar Customers.
No sale, gift or other transfer by a shareholder of any Class A Shares
of Spartan's capital stock, or any transfer of any such Class A Shares by
operation of law, will be permitted by, or be effective with respect to,
Spartan if the transferee would be at the time of transfer any person other
than (i) a Shareholder-Customer who continues to purchase from Spartan
grocery and other related products, (ii) an Associate, (iii) an Approved
Holder, or (iii) a Qualified Holder.
Spartan has the option to purchase any Class A Shares which a
shareholder proposes to sell, give or otherwise transfer or which are to be
transferred by operation of law. Any shareholder proposing to effect a
transfer is required to notify Spartan of the proposed transfer, the
proposed terms and conditions thereof and the identity of the person to
receive an interest in the Class A Shares. The option is exercisable for
60 days following Spartan's receipt of notice of the transfer. If Spartan
does not exercise its option to purchase any of the Class A Shares which
are the subject of a proposed transfer, then for a period of 90 days
following the expiration of Spartan's option, the transferring shareholder
may transfer the Class A Shares to the person or persons identified in the
written notice required to be given to Spartan, if: (i) after the
transfer, the selling shareholder complies with any applicable Required
Investment, (ii) the transferee agrees in a writing acceptable to Spartan
to be bound by the Bylaws, and (iii) the transferee is a Shareholder-
Customer who continues to purchase from Spartan grocery and other related
products or is an Approved Holder.
-50-
In its discretion, Spartan will have the option at any time to redeem
any Class A Shares of its capital stock which are beneficially owned by any
person who is not at the time of the redemption: (i) a Shareholder-
Customer who continues to purchase from Spartan grocery and related
products, (ii) a Qualified Holder, (iii) an Associate who continues to be
employed by the Company, or (iv) an Approved Holder.
REDEMPTION POLICY
Spartan's policy is to redeem, if possible, upon a shareholder's
request, any Class A Shares held by the shareholder on the terms described
below. Spartan's policy does not create or evidence any obligation on
behalf of Spartan. Moreover, Spartan's Board of Directors, at its sole
discretion, may at any time and from time to time revise or terminate the
policy based on Spartan's financial condition, general market conditions,
any requirement of or limitation imposed by law or any agreement by which
Spartan is bound, or for any other reason deemed appropriate by the Board.
PURCHASE PRICE AND TERMS
The following describes the price and terms that will apply to
Spartan's purchase of any Class A Shares pursuant to its options to
purchase and redeem the Shares and its redemption policy (subject to
revision or termination of the policy) described above:
(i) If at the time of the purchase the shareholder is a
Shareholder-Customer, Spartan will purchase for cash at the
Trading Value in effect on the date of the purchase, no later
than 60 days following the date Spartan elects to purchase the
Class A Shares or the date the shareholder requests Spartan to
redeem the stock, any Class A Shares beneficially owned by the
shareholder in excess of the Required Investment which is
applicable to the Shareholder-Customer or, if the Shareholder-
Customer no longer purchases grocery and related products from
Spartan, the Required Investment which was applicable to the
Shareholder-Customer at the time the Shareholder-Customer ceased
purchasing the products from Spartan;
(ii) If at the time of the purchase the shareholder is a
Shareholder-Customer, Spartan will purchase the Class A Shares
which constitute the Required Investment which is applicable to
the Shareholder-Customer, or if the Shareholder-Customer no
longer purchases grocery and related products from Spartan, the
Required Investment which was applicable to the Shareholder-
Customer at the time the Shareholder-Customer ceased purchasing
the products from Spartan in the six equal installments described
in paragraph (iv) below ("Installments);
-51-
(iii) For any shareholder who at the time of the purchase is
not and has not been subject to any Required Investment, the
Company will purchase the shareholder's Class A Shares in
Installments, unless the shareholder and Spartan agree to other
terms;
(iv) The closing on the first Installment will occur at the
date and time as to which Spartan and the selling shareholder
mutually agree, but no later than 60 days following the date
Spartan exercises its option to purchase the stock from the
shareholder or the date the shareholder requests Spartan to
redeem the stock. The closing on the second Installment will
occur on the anniversary date following the closing of the first
Installment. The closing on each subsequent Installment will
occur on each corresponding anniversary date thereafter. The
price for each Share to be acquired in each Installment will be
the Trading Value in effect at the date of the closing on the
Installment; and
(v) For the redemption of a Shareholder-Customer's Required
Investment, no later than 30 days after the Shareholder-
Customer's request to redeem, the Shareholder-Customer may elect
to require Spartan to redeem at the Trading Value in effect at
the date of redemption all of the Class A Shares with an
aggregate Trading Value which equals the Shareholder-Customer's
Required Investment on the following terms. Spartan will pay in
cash to the Shareholder-Customer an amount equal to one-sixth of
the purchase price for the Class A Shares. In addition, Spartan
will execute and deliver to the Shareholder-Customer an unsecured
promissory note for the balance of the redemption price. The
note will be payable in no more than five equal annual
Installments of principal, commencing one year from the date of
the note. Interest will accrue thereon at the rate of interest
1% below the prime rate from time to time in effect until
maturity as announced by Michigan National Bank, or such other
lending institution as Spartan may select from time to time, and
will be payable quarterly. Spartan may prepay the note at any
time, in whole or in part, without penalty.
CERTAIN PROVISIONS OF THE MICHIGAN BUSINESS CORPORATION ACT
Chapter 7A of the Michigan Business Corporation Act (the "Fair Price
Act") establishes supermajority and fair price provisions for certain
"business combinations." The provisions of the Fair Price Act apply to any
Michigan corporation that: (i) has one hundred or more beneficial owners
of its common stock; and (ii) did not have any beneficial owner of 10% or
more of a class of common stock at the time the Fair Price Act became
effective. Spartan satisfies these requirements. Thus, the Fair Price Act
applies to Spartan.
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The Fair Price Act provides that a supermajority vote of 90% of the
shareholders and no less than two-thirds of the votes of noninterested
shareholders must approve a "business combination." The Fair Price Act
defines a "business combination" to encompass any merger, consolidation,
share exchange, sale of assets, stock issue, liquidation or
reclassification of securities involving an "interested shareholder" or
certain "affiliates." An "interested shareholder" is generally any person
who beneficially owns 10% or more of the outstanding voting shares of the
corporation. An "affiliate" is a person who directly or indirectly
controls, is controlled by, or is under common control with a specified
person.
The supermajority vote required by the Fair Price Act does not apply
to "business combinations" that satisfy certain conditions. These
conditions include, among others, that: (i) the purchase price to be paid
for the shares of the corporation is at least equal to the highest of
either (a) the market value of the shares or (b) the highest per share
price paid by the interested shareholder within the preceding two-year
period or in the transaction in which the shareholder became an interested
shareholder, whichever is higher; (ii) once becoming an interested
shareholder, the person does not become the beneficial owner of any
additional shares of the corporation except as part of the transaction
which resulted in the interested shareholder becoming an interested
shareholder or by virtue of proportionate stock splits or stock dividends;
(iii) once becoming an interested shareholder, the person does not receive
the benefit, directly or indirectly, except proportionately as a
shareholder, of any loans, advances, guarantees, pledges or other financial
assistance provided by the corporation or any of its subsidiaries; and
(iv) there has been at least five years between the date the person became
an "interested shareholder" and the date the business combination is
consummated.
The requirements of the Fair Price Act do not apply to "business
combinations" with an interested shareholder that the board of directors
has approved or exempted, specifically, generally or generally by types,
from the requirements of the Fair Price Act by resolution prior to the time
that the interested shareholder first became an interested shareholder.
The Fair Price Act would cease to apply to Spartan if its Articles
were amended to elect not to be covered by Chapter 7A. Such an amendment
would require the same votes for approval as the Fair Price Act requires
for approval of a business combination with an interested shareholder.
Chapter 7B of the Michigan Business Corporation Act regulates the
acquisition of "control shares" of Michigan corporations (the "Control
Share Act"). The Control Share Act applies to Michigan corporations having
one hundred or more shareholders of record, more than 10% of whom are
residents of Michigan. Spartan also satisfies these requirements. Thus,
the Control Share Act applies to Spartan.
-53-
The Control Share Act establishes procedures governing "control share
acquisitions." A control share acquisition is defined as an acquisition of
shares by a person or entity which, when combined with other shares held by
that person or entity, would give the acquiror voting power at or above any
of the following thresholds: 20%, 33 1/3%, or a majority. Under the
Control Share Act, an acquiror may not vote shares acquired in a "control
share acquisition" unless a majority of both the corporation's shareholders
and the corporation's disinterested shareholders vote to confer voting
rights on the "control shares." The acquiring person, officers of the
target corporation, and directors of the target corporation who are also
employees of the corporation are precluded from voting on whether the
control shares shall be accorded voting rights. The Control Share Act does
not affect the voting rights of shares owned by an acquiring person prior
to the control share acquisition. In some cases, if control shares are
accorded full voting rights as prescribed in Chapter 7B, the Control Share
Act confers dissenters' rights upon all of a corporation's shareholders
except the acquiring person.
By an amendment to its Articles of Incorporation or Bylaws electing
not to be covered, either Spartan's Board of Directors or its shareholders
could "opt out" of Chapter 7B and cause the Control Share Act to be
inapplicable to "control share acquisitions" occurring thereafter, for as
long as the amendment continued in effect. The Board currently has no
plans to effect such an amendment, nor is it aware of any other plans or
proposals to do so.
The foregoing discussion concerning the provisions of the Michigan
Business Corporation Act is qualified in its entirety by reference to such
Michigan Business Corporation Act provisions.
OTHER MATTERS
The Articles authorize Spartan's Board to determine the preferences,
limitations, and voting, dividend, distribution, liquidation, conversion,
participation, redemption and other rights of any series of Class B Shares
before issuance of the shares. The potential to issue shares pursuant to
the authorization, together with the restrictions on transfer of the
Class A Shares, may discourage or preclude certain transactions, whether or
not beneficial to shareholders, and could discourage certain types of
tactics that involve an actual or threatened acquisition or change in
control of Spartan.
Spartan has no present intention to issue any of its authorized shares
of Class B Common Stock. However, any issuance of shares of Class B Common
Stock in the future could adversely affect the rights of the holders of
Class A Shares.
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PLAN OF DISTRIBUTION
Spartan offers the Class A Shares through its own efforts using
salaried employees without payment of any commission. The offering price
of the Class A Shares is the Trading Value established from time to time by
the Board of Directors. At the date of this Prospectus, the Trading Value
was $105 per Class A Share. Each new Shareholder-Customer must purchase at
least 100 Class A Shares. See "RISK FACTORS--Value of Class A Shares."
There is no minimum number of Class A Shares that must be sold to
complete this offering. Spartan offers the Class A Shares on a "best
efforts," continuous basis to Shareholder-Customers, persons who apply to
become Customers of Spartan, Associates of Spartan, Approved Holders, and
Qualified Holders. Thus, Spartan will not place any offering proceeds
received in any escrow, trust or other arrangement pending the receipt of a
minimum amount of proceeds. There is no assurance that all Class A Shares
will be sold.
LEGAL MATTERS
The validity of the Class A Shares offered hereby is being passed upon
for Spartan by Warner Norcross & Judd LLP, 900 Old Kent Building, 111 Lyon
Street, N.W., Grand Rapids, Michigan 49503-2489. Alex J. DeYonker, General
Counsel and Assistant Secretary of the Company, is a partner of Warner
Norcross & Judd LLP.
EXPERTS
The Consolidated Financial Statements of the Company as of March 30,
1996 and March 25, 1995, and for each of the three years in the period
ended March 30, 1996, included in this Prospectus and the related financial
statement schedules included elsewhere in the Registration Statement have
been audited by Deloitte & Touche LLP, independent auditors, as stated in
their reports appearing herein and elsewhere in the Registration Statement,
and are included in reliance upon the reports of such firm given upon their
authority as experts in accounting and auditing.
-55-
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
FINANCIAL STATEMENTS OF SPARTAN
Independent Auditors' Report. . . . . . . . . . . . . . . . . . F-1
Consolidated Balance Sheets as of March 30, 1996 and March 25,
1995 . . . . . . . . . . . . . . . . . . . . . . . . . . F-2
Consolidated Statements of Operations for each of the three
years in the period ended March 30, 1996. . . . . . . . . . F-4
Consolidated Statements of Shareholders' Equity for each of
the three years in the period ended March 30, 1996. . . . . F-5
Consolidated Statements of Cash Flows for each of the three
years in the period ended March 30, 1996. . . . . . . . . . F-6
Notes to Consolidated Financial Statements. . . . . . . . . . . F-7
-56-
[DELOITTE &
TOUCHE LLP LOGO]
700 Bridgewater Place Telephone: (616) 336-7900
333 Bridge Street, N.W. Facsimile: (616) 336-7950
Grand Rapids, Michigan 49504-5359
INDEPENDENT AUDITORS' REPORT
Board of Directors and Shareholders
Spartan Stores, Inc.
Grand Rapids, Michigan
We have audited the accompanying consolidated balance sheets of Spartan
Stores, Inc. and subsidiaries as of March 30, 1996 and March 25, 1996, and
the related consolidated statement of operations, shareholders' equity and
cash flows for each of the three years in the period ended March 30, 1996.
These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Spartan Stores, Inc. and
subsidiaries as of March 30, 1996, and March 25, 1995, and the results of
their operations and their cash flows for each of the three years in the
period ended March 30, 1996, in conformity with generally accepted
accounting principles.
/s/ Deloitte & Touche LLP
June 21, 1996
DELOITTE TOUCHE
TOHMATSU
INTERNATIONAL
F-1
<TABLE>
CONSOLIDATED BALANCE SHEETS
Spartan Stores, Inc. and Subsidiaries
<CAPTION>
ASSETS MARCH 30, MARCH 25,
1996 1995
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 39,796,018 $ 25,161,193
Marketable securities 16,051,608 13,244,718
Accounts receivable 68,444,576 74,802,647
Refundable taxes on income 10,173,305
Inventories 78,659,807 88,990,729
Prepaid expenses 4,072,104 4,171,514
Deferred taxes on income 7,579,000 7,179,000
TOTAL CURRENT ASSETS 224,776,418 213,549,801
OTHER ASSETS
Notes receivable 8,073,203 6,481,386
Deferred taxes on income 994,000
Goodwill 1,140,936 5,262,739
Other 744,932 1,298,410
TOTAL OTHER ASSETS 9,959,071 14,036,535
PROPERTY AND EQUIPMENT
Land and improvements 31,644,867 26,544,070
Buildings 124,817,021 112,324,955
Equipment 123,073,105 102,493,497
279,534,993 241,362,522
Less accumulated depreciation
and amortization 126,819,069 116,202,309
152,715,924 125,160,213
F-2
Software engineering in progress 33,394,944
NET PROPERTY AND EQUIPMENT 152,715,924 158,555,157
TOTAL ASSETS $387,451,413 $386,141,493
</TABLE>
See notes to consolidated financial statements.
F-3
<TABLE>
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY MARCH 30, MARCH 25,
1996 1995
<S> <C> <C>
CURRENT LIABILITIES
Notes payable $ 15,000,000 $ 4,943,420
Accounts payable 84,868,588 91,015,251
Rebates due to customers 1,365,774 1,936,641
Accrued payroll and benefits 10,677,621 10,494,437
Insurance reserves 18,484,660 19,119,703
Other accrued expenses 16,834,621 12,562,757
Current maturities of long-term debt 7,678,972 8,555,397
Current obligations under capital leases 582,135 541,234
TOTAL CURRENT LIABILITIES 155,492,371 149,168,840
DEFERRED GAIN ON SALE OF REAL PROPERTY 298,477 383,756
DEFERRED TAXES ON INCOME 600,000
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS 4,101,483 3,994,177
LONG-TERM DEBT 122,013,296 103,852,777
LONG-TERM OBLIGATIONS UNDER CAPITAL LEASES 2,359,075 2,941,211
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Class A common stock, voting, par value $20
a share; authorized 2,000,000 shares; outstand-
ing 1,246,048 and 1,254,449 24,920,960 25,088,980
Additional paid-in capital 19,622,472 17,473,010
F-4
Retained earnings 58,043,279 83,238,742
TOTAL SHAREHOLDERS' EQUITY 102,586,711 125,800,732
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $387,451,413 $386,141,493
</TABLE>
F-5
<TABLE>
CONSOLIDATED STATEMENTS OF OPERATIONS
Spartan Stores, Inc. and Subsidiaries
<CAPTION>
YEAR ENDED
MARCH 30, MARCH 25, MARCH 26,
1996 1995 1994
<S> <C> <C> <C>
NET SALES $2,536,636,639 $2,512,432,275 $2,189,494,805
LESS VOLUME INCENTIVE REBATES 15,576,939 17,583,927 17,625,803
2,521,059,700 2,494,848,348 2,171,869,002
COSTS AND EXPENSES
Cost of sales 2,321,645,214 2,290,134,178 1,993,300,351
Operating and administrative 160,428,760 167,434,432 146,653,170
Depreciation and amortization 19,224,433 17,834,432 16,028,516
Restructuring, reorganization
and other charges 46,439,743
Interest (net) 5,489,145 5,347,405 4,696,784
2,553,227,295 2,480,750,447 2,160,678,821
EARNINGS (LOSS) BEFORE TAXES
ON INCOME (32,167,595) 14,097,901 11,190,181
TAXES (BENEFIT) ON INCOME (10,500,000) 5,068,000 4,085,000
NET EARNINGS (LOSS) $ (21,667,595) $ 9,029,901 $ 7,105,181
NET EARNINGS (LOSS) PER
CLASS A SHARE $ (17.42) $ 7.40 $ 6.09
</TABLE>
See notes to consolidated financial statements.
F-6
<TABLE>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Spartan Stores, Inc. and Subsidiaries
<CAPTION>
CLASS A ADDITIONAL RETAINED
COMMON STOCK PAID-IN CAPITAL EARNINGS
<S> <C> <C> <C> <C>
BALANCE March 28, 1993 $24,463,180 $ 8,179,533 $75,195,448
CLASS A COMMON
STOCK TRANSACTIONS 128,374 shares purchased (2,567,480) (3,625,193) (5,049,203)
114,505 shares issued 2,290,100 7,775,132
NET EARNINGS 7,105,181
CASH DIVIDENDS $.50 PER SHARE (590,526)
BALANCE March 26, 1994 24,185,800 12,329,472 76,660,900
CLASS A COMMON
STOCK TRANSACTIONS 58,703 shares purchased (1,174,060) (2,414,428) (1,839,471)
103,862 shares issued 2,077,240 7,557,966
NET EARNINGS 9,029,901
CASH DIVIDENDS $.50 PER SHARE (612,588)
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)
F-7
CASH DIVIDENDS $.50 PER SHARE (623,117)
BALANCE March 30, 1996 $24,920,960 $19,622,472 $58,043,279
</TABLE>
See notes to consolidated financial statements.
F-8
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
Spartan Stores, Inc. and Subsidiaries
<CAPTION>
YEAR ENDED
MARCH 30, MARCH 25, MARCH 26,
1996 1995 1994
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings (loss) $(21,667,595) $ 9,029,901 $ 7,105,181
Adjustments to reconcile net earnings (loss) to
net cash provided by (used in) operating activities:
Depreciation and amortization 19,224,433 17,834,432 16,028,516
Rebates paid in common stock 4,000,121 8,082,258 7,844,672
Restructuring, reorganization and other charges 41,344,222
Postretirement benefits other than pensions 107,306 116,399 148,382
Deferred taxes on income 1,194,000 (2,386,000) 946,000
Loss (gain) on sale of property and equipment 402,855 (1,442,688) (84,009)
Change in assets and liabilities:
Marketable securities (2,806,890) (45,673) (46,354)
Accounts receivable 6,358,071 (8,577,068) (4,591,721)
Refundable taxes on income (10,173,305)
Inventories 10,330,922 25,518,707 225,850
Prepaid expenses 99,410 2,018,224 (1,428,955)
Accounts payable (6,146,663) 660,355 10,727,278
Rebates due to customers (570,867) (163,320) 220,287
Accrued payroll and benefits 183,184 641,975 50,869
Insurance reserves (635,043) 2,029,250 1,324,978
Other accrued expenses 1,633,999 4,989,285 (2,369,572)
NET CASH PROVIDED BY OPERATING ACTIVITIES 42,878,160 58,306,037 36,101,402
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment (42,261,541) (31,225,239) (15,600,610)
Additions to software engineering in progress (5,707,083) (24,061,316) (8,384,909)
Proceeds from the sale of property and equipment 2,083,122 2,566,750 333,133
Acquisition of subsidiary, net of cash acquired (13,258,120)
Other (3,610,725) 1,100,335 2,432,178
NET CASH USED IN INVESTING ACTIVITIES (49,496,227) (51,619,470) (34,478,328)
CASH FLOWS FROM FINANCING ACTIVITIES
Changes in notes payable 10,056,580 (47,988,222) 22,335,680
Proceeds from long-term borrowings 34,871,387 56,058,357 4,105,665
Repayment of long-term debt (17,587,293) (15,537,981) (22,259,972)
Reduction of obligations under capital leases (541,235) (489,950) (443,529)
Proceeds from sale of common stock 2,667,576 1,552,948 1,220,616
Common stock purchased (7,591,006) (5,427,959) (11,241,876)
Dividends paid (623,117) (612,588) (590,526)
F-9
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 21,252,892 (12,445,395) (6,873,942)
Net increase (decrease) in cash and cash equivalents 14,634,825 (5,758,828) (5,250,868)
Cash and cash equivalents at beginning of year 25,161,193 30,920,021 36,170,889
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 39,796,018 $ 25,161,193 $ 30,920,021
</TABLE>
See notes to consolidated financial statements.
F-10
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SPARTAN STORES, INC. AND SUBSIDIARIES
___________________________________________________________________________
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
COMPANY OWNERSHIP
The Company's common stock is substantially owned by its customers and a
majority of the company's sales are to its shareholder-customers. A
description of the Company's transactions with its customers is included in
the Business Segment Information note to the consolidated financial
statements.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its subsidiaries. All significant intercompany profits, transactions
and balances have been eliminated.
USE OF ESTIMATES IN PREPARATION OF THE FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect amounts reported therein. Due to the inherent
uncertainty involved in making estimates, actual results reported in future
periods may be based upon amounts which differ from those estimates.
FISCAL YEAR
The fiscal year of the Company ends on the last Saturday of March. The
fiscal year ended March 30, 1996 was comprised of fifty-three weeks. The
fiscal years ended March 25, 1995 and March 26, 1994 were comprised of
fifty-two weeks.
FAIR VALUE DISCLOSURES OF FINANCIAL INSTRUMENTS
In accordance with Statement of Financial Accounting Standards
(SFAS) No. 107, "Disclosures about Fair Value of Financial Instruments,"
the estimated fair values of financial instruments have been determined by
the Company and are disclosed in the marketable securities, notes
receivable and long-term debt notes.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of cash and highly-liquid investments
purchased with an original maturity of three months or less at the date of
purchase.
F-11
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SPARTAN STORES, INC. AND SUBSIDIARIES
___________________________________________________________________________
MARKETABLE SECURITIES
Marketable securities primarily represent debt securities held by the
Company's insurance subsidiary and are classified as available for sale and
recorded at estimated fair value. At March 30, 1996 and March 25, 1995,
the estimated fair value of marketable securities, based on quoted market
prices or dealer quotes, approximated cost.
ACCOUNTS RECEIVABLE
Accounts receivable include the current portion of notes receivable of
$3,957,755 in 1996 and $3,247,194 in 1995 and are shown net of allowances
for credit losses of $2,300,000 in 1996 and $1,000,000 in 1995.
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 $43,500,000 and $42,800,000 higher at March 30, 1996 and
March 25, 1995, respectively. During 1996 and 1995, inventory quantities
were reduced. These reductions resulted in liquidations of LIFO inventory
quantities carried at lower costs prevailing in prior years as compared
with the costs of purchases in these years, the effect of which decreased
the loss before taxes on income in 1996 by $480,000 and increased earnings
before taxes on income in 1995 by $1,932,000.
RECOGNITION OF LOAN IMPAIRMENT
Effective with the year ended March 30, 1996, the Company adopted SFAS No.
114, "Accounting by Creditors for Impairment of a Loan," as amended by
SFAS No. 118, "Accounting by Creditors for Impairment of a Loan - Income
Recognition and Disclosures." The adoption of these statements did not
materially impact 1996 results of operations.
The Company records allowances for loan impairment when it is determined
that the Company will be unable to collect all amounts due according to the
terms of the underlying agreement. Interest income on impaired loans is
recognized only when interest payments are received.
INTANGIBLE ASSETS
Goodwill consists of amounts paid in excess of the fair value of acquired
net assets and is being amortized over ten years on a straight-line basis.
F-12
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SPARTAN STORES, INC. AND SUBSIDIARIES
___________________________________________________________________________
Amortization of goodwill amounted to $960,827, $1,175,977 and $744,936 in
1996, 1995 and 1994, respectively. The recoverability of goodwill is
assessed by determining whether the goodwill balance can be recovered
through projected cash flows and operating results over its remaining life.
Any impairment of the asset would be recognized when it is probable that
such future undiscounted cash flows will be less than the carrying value of
the asset. In 1996, the Company recognized an impairment of approximately
$3,160,000 as part of the restructuring, reorganization and other charges.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost and depreciated over the
shorter of the estimated useful lives or lease periods of the assets.
Expenditures for normal repairs and maintenance are charged to operations
as incurred. Depreciation is computed using the straight-line and
declining balance methods as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
Land improvements 15 to 40 years
Buildings and improvements 15 to 40 years
Machinery and equipment 5 to 20 years
Furniture and fixtures 3 to 10 years
</TABLE>
Capital leases are initially stated at the present value of future lease
payments and are amortized using the straight-line and declining balance
methods over the related lease terms.
Software engineering costs are capitalized and amortization over a five
year period will commence as each system is implemented.
ACCOUNTS PAYABLE
Accounts payable include $19,130,454 and $18,961,718 at March 30, 1996 and
March 25, 1995 of checks which have been issued and have not cleared the
Company's controlled disbursing bank accounts.
INSURANCE RESERVES
Insurance reserves represent a provision for reported losses and incurred
but not reported losses. Losses are recorded when reported and consist of
individual case basis estimates. Incurred but not reported losses are
estimated based on available historical information.
F-13
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SPARTAN STORES, INC. AND SUBSIDIARIES
___________________________________________________________________________
DEFERRED GAIN
Gain on sale and leaseback of certain real property has been deferred and
is being amortized as a reduction of rent expense over the life of the
lease.
INTEREST (NET)
Interest (net) includes interest income of $4,600,000, $3,800,000, and
$3,400,000 in 1996, 1995 and 1994, respectively.
TAXES ON INCOME
Deferred income tax assets and liabilities are computed for differences
between the financial statement and tax bases of assets and liabilities
that will result in taxable or deductible amounts in the future. Such
deferred income tax asset and liability computations are based on enacted
tax laws and rates applicable to periods in which the differences are
expected to affect taxable income. Valuation allowances are established
when necessary to reduce deferred tax assets to the amounts expected to be
realized. Income tax expense is the tax payable or refundable for the
period plus or minus the change during the period in deferred tax assets
and liabilities.
EARNINGS PER SHARE
Net earnings per Class A share are computed by dividing net earnings by the
weighted average number of common shares outstanding. The weighted average
shares used in the computations were 1,243,866, 1,220,847 and 1,166,965 for
1996, 1995 and 1994, respectively.
STOCK-BASED COMPENSATION
The Company's stock option plan provides that options are granted at prices
equal to the trading value. Accordingly, the Company does not recognize
compensation expense for such options. SFAS No. 123, "Accounting for
Stock-Based Compensation," establishes a fair value method and disclosure
standards for stock-based employee compensation agreements. SFAS No. 123
becomes effective for the Company for options issued in its year ending
March 29, 1997. The Company intends to continue its current accounting for
stock-based compensation and will disclose the pro forma effects of
applying SFAS No. 123.
F-14
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SPARTAN STORES, INC. AND SUBSIDIARIES
___________________________________________________________________________
ACQUISITION
On November 8, 1993, the Company purchased all of the issued and
outstanding capital stock of J.F. Walker Company, Inc., a convenience store
wholesaler, for $17,300,056 in cash and 11,363 shares of the Company's
Class A common stock. The acquisition has been accounted for as a purchase
and accordingly, the purchased company's assets and liabilities are
included in the accompanying consolidated balance sheets at values
representing an allocation of the purchase price.
The excess of the purchase price over the valuation of the tangible assets
and liabilities amounted to $4,167,000. This excess was assigned to
goodwill.
The consolidated statements of earnings include the operations of J.F.
Walker Company, Inc. from November 8, 1993. The following unaudited pro
forma summary presents the Consolidated Statement of Operation of the
Company as if the acquisition had occurred at the beginning of the period
presented. These pro forma results are based upon assumptions considered
appropriate by management and include adjustments as considered necessary
in the circumstances. Such adjustments include the amortization of
goodwill, increased interest expense from debt assumed to have been issued
to fund the acquisition, and related income tax effects of the acquisition.
These pro forma results have been prepared for comparative purposes only
and do not purport to be indicative of results which would have actually
been reported had the acquisition taken place on the dates indicated or
which may be reported in the future.
<TABLE>
<CAPTION>
PRO FORMA 1994
<S> <C> <C>
Net sales $2,382,951,435
Net earnings $ 7,523,519
Net earnings per class A share $ 6.38
</TABLE>
RESTRUCTURING, REORGANIZATION AND OTHER CHARGES
During the fiscal year ended March 30, 1996, the Company incurred
restructuring, reorganization and other charges amounting to approximately
$46,400,000 relating to the Distribution segment. The aggregate charge
includes $35,400,000 which represents certain costs which were incurred as
F-15
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SPARTAN STORES, INC. AND SUBSIDIARIES
___________________________________________________________________________
part of the Company's program to design and implement its business
automation and support environment (BASE). During February 1996, the
Company and the BASE project manager terminated the project management and
related contracts and Company personnel assumed project management
responsibilities. Accordingly, the Company segmented BASE into individual
projects and evaluated each separately. As a result, the Company decided
to terminate certain projects and wrote off costs incurred as there was no
estimated future benefit. In addition, certain other costs associated with
the continuing projects were also written off if they were deemed to be of
no value to the continuing project.
To improve the effectiveness and efficiency of its distribution systems,
L&L/Jiroch Distributing Company ("L&L"), moved its operations to a newly
constructed, 180,000 square foot, state-of-the-art distribution facility in
November, 1995. At approximately the same time, the Company announced a
plan to close its Capistar distribution facility and supply Capistar
customers from other facilities. In addition, during fiscal 1996, J.F.
Walker Company continued to consolidate its operations by closing one of
its facilities and deciding to close two other facilities which will be
closed in fiscal 1997. Restructuring, reorganization and other charges
include a provision of $1,800,000 for property and lease discontinuance at
the aforementioned closed facilities, $4,100,000 for costs related to
transferring the Capistar business and closing its facilities and
$1,600,000 for severance and termination of employment agreements. Other
accrued expenses include $2,600,000 related to the aforementioned items at
March 30, 1996. The Company also provided $3,500,000 for the impairment of
long-lived assets, inasmuch as the projected future undiscounted cash flows
were not sufficient to recover their carrying value.
MARKETABLE SECURITIES
The amortized cost and estimated fair values of marketable securities
available-for-sale as of March 30, 1996 and March 25, 1995 are shown below.
Unrealized gains and losses as of March 30, 1996 and March 25, 1995 were
not material.
F-16
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SPARTAN STORES, INC. AND SUBSIDIARIES
___________________________________________________________________________
<TABLE>
<CAPTION>
1996
ESTIMATED
AMORTIZED FAIR
COST VALUE
<S> <C> <C>
Securities available-for-sale:
U.S. Treasury securities and
obligations of U.S. government
corporations and agencies $ 5,644,368 $ 5,530,289
Debt securities issued by
foreign governments 2,739,869 2,753,933
Corporate debt securities 7,745,748 7,767,386
$16,129,985 $16,051,608
</TABLE>
<TABLE>
<CAPTION>
1995
ESTIMATED
AMORTIZED FAIR
COST VALUE
<S> <C> <C>
Securities available-for-sale:
U.S. Treasury securities and
obligations of U.S. government
corporations and agencies $ 2,043,741 $ 1,993,776
Debt securities issued by
foreign governments 2,867,295 2,858,971
Corporate debt securities 8,401,066 8,391,971
$13,312,102 $13,244,718
</TABLE>
The amortized cost and estimated fair values of investments, as of
March 30, 1996, by contractual maturity, are shown below:
F-17
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SPARTAN STORES, INC. AND SUBSIDIARIES
___________________________________________________________________________
<TABLE>
<CAPTION>
ESTIMATED
AMORTIZED FAIR
COST VALUE
<S> <C> <C> <C>
Due in one year or less $ 5,006,050 $ 5,008,532
Due after one year
through five years 6,190,785 6,179,087
Due after five years
through ten years 3,829,015 3,849,306
Due after ten years 1,104,135 1,014,683
$16,129,985 $16,051,608
</TABLE>
NOTES RECEIVABLE
Notes receivable relate to loans to shareholder-customers used to develop
new stores or expand or remodel existing stores. Loans are collateralized
by the inventory, facilities or equipment financed and in some instances by
the Company's Class A Shares held by the shareholder-customer. Loans are
made on a floating rate basis, based on the prime rate. Most loans carry
interest rates from prime plus one-half percent to prime plus two percent.
Maturity dates range to 2003 at March 30, 1996. Impaired notes total
approximately $3,500,000, including the current portion. The allowance for
credit losses on accounts receivable at March 30, 1996 includes $1,300,000
relating to impaired notes. The estimated fair market value of the notes
receivable approximates the net carrying value at March 30, 1996.
NOTES PAYABLE AND LONG-TERM DEBT
Notes payable included in current liabilities represent bank borrowings
under a short-term line of credit agreement. The line of credit agreements
require the payment of interest at a negotiated rate at the date of the
borrowing. The average rates for 1996, 1995 and 1994 were 6.48%, 5.12% and
4.43%, respectively. The unused portion of the available lines of credit
aggregates $22,183,637 at March 30, 1996.
Long-term debt consists of the following:
F-18
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SPARTAN STORES, INC. AND SUBSIDIARIES
___________________________________________________________________________
<TABLE>
<CAPTION>
MARCH 30, MARCH 25,
1996 1995
<S> <C> <C>
9.3% Senior notes, unsecured, due
December, 2004, annual principal
payments of $2,000,000 due
December 1 $ 18,000,000 $ 20,000,000
9.11% Senior notes, unsecured, due
December, 1999, annual principal
payments of $1,500,000 due
December 1 6,000,000 8,000,000
7.27% Senior notes, unsecured, due
February, 2003, annual principal
payments of $2,000,000 due
February 1 14,000,000 16,000,000
Line of credit, unsecured, interest rate
negotiated daily, 6.75% at March 30,
1996, due April 30, 1997 31,150,000 31,784,000
Line of credit, unsecured, interest rate
negotiated monthly, 6.36% at March 30,
1996, due May 25, 1997 42,330,000 17,568,580
Variable Rate Promissory Notes, unsecured,
due March 31, 1997, interest payable
quarterly at 1% below the prime rate 11,314,554 13,990,817
Mortgage, secured by real estate:
7.92%, due in monthly installments,
including interest, of $21,460 until
August, 2005 2,533,319
Other 4,364,395 5,064,777
129,692,268 112,408,174
Less current portion 7,678,972 8,555,397
Total long-term debt $122,013,296 $103,852,777
</TABLE>
F-19
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SPARTAN STORES, INC. AND SUBSIDIARIES
___________________________________________________________________________
At March 30, 1996, long-term debt is due as follows:
<TABLE>
<CAPTION>
YEAR ENDING MARCH, AMOUNT
<S> <C> <C>
1997 $ 7,678,972
1998 81,765,452
1999 9,331,364
2000 7,549,659
2001 6,051,089
Later 17,315,732
$129,692,268
</TABLE>
Certain loan agreements contain covenants which include restrictions on
additional indebtedness, payment of cash dividends (restricted to an
additional $9,336,363 at March 30, 1996) and payment of cash rebates.
The Variable Rate Promissory Notes are issued under a note offering which
permits the Company to sell notes with a total principal amount of
$100,000,000. The notes are offered in minimum denominations of $1,000
and may be issued by the Company at any time. Issues will be redeemed
on March 31 of every other calendar year after March 31, 1993. As of
March 30, 1996, the Company may still issue $62,183,856 of the notes.
At March 30, 1996, the estimated fair value of the Company's long-term
debt, including current maturities, was $131,582,841 which exceeded the
carrying value by $1,890,573. The estimated fair value was based on
anticipated rates available to the Company for debt with similar terms and
maturities. The estimated fair value of notes payable included in current
liabilities approximated the carrying value.
COMMITMENTS AND CONTINGENCIES
The Company has guaranteed payment of letters of credit issued by and
indebtedness to a financial institution aggregating $12.6 million at
March 30, 1996 on behalf of a customer.
Various lawsuits and claims, arising in the ordinary course of business,
are pending or have been asserted against the Company. While the ultimate
effect of such actions cannot be predicted with certainty, management
F-20
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SPARTAN STORES, INC. AND SUBSIDIARIES
___________________________________________________________________________
believes that their outcome will not result in a material adverse effect on
the consolidated financial position, operating results or liquidity of the
Company.
SUPPLEMENTAL CASH FLOW INFORMATION
Payments for interest and income taxes were as follows:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C> <C>
Interest $10,085,527 $8,812,658 $7,948,223
Income taxes 4,755,049 6,108,123 6,469,481
</TABLE>
The Company's non-cash investing and financing activities relating to an
acquisition in 1994 were as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
Fair value of assets acquired $40,493,386
Cash paid 17,300,056
Common stock issued 999,944
Liabilities assumed $22,193,386
</TABLE>
LEASES
The Company and certain subsidiaries lease equipment and warehouse and
store facilities. Many of these leases include renewal options. The
following represents property which is leased under capital leases and
included in property and equipment:
<TABLE>
<CAPTION>
MARCH 30, MARCH 25,
1996 1995
<S> <C> <C> <C>
Buildings $7,300,000 $7,300,000
Less accumulated amortization 5,974,220 5,679,602
Net buildings $1,325,780 $1,620,398
</TABLE>
F-21
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SPARTAN STORES, INC. AND SUBSIDIARIES
___________________________________________________________________________
Amortization of property under capital leases amounted to $294,618, in
1996, 1995 and 1994.
As of March 30, 1996, future minimum lease obligations under capital leases
are as follows:
<TABLE>
<CAPTION>
YEAR ENDING USED IN SUBLEASED
MARCH, TOTAL OPERATIONS TO OTHERS
<S> <C> <C> <C> <C>
1997 $ 840,703 $ 793,872 $46,831
1998 793,872 793,872
1999 793,872 793,872
2000 793,872 793,872
2001 396,936 396,936
Total future minimum
obligations 3,619,255 3,572,424 46,831
Less interest 678,045 676,008 2,037
Present value of net
future minimum
obligations 2,941,210 2,896,416 44,794
Less current portion 582,135 537,341 44,794
Long-term obligations $2,359,075 $2,359,075 $ 0
</TABLE>
As of March 30, 1996, future minimum lease obligations under operating
leases are as follows:
<TABLE>
<CAPTION>
YEAR ENDING USED IN SUBLEASED
MARCH, TOTAL OPERATIONS TO OTHERS
<S> <C> <C> <C> <C>
1997 $ 4,857,115 $2,684,988 $ 2,172,127
1998 3,961,183 1,928,570 2,032,613
1999 3,372,447 1,454,765 1,917,682
2000 2,581,898 681,716 1,900,182
2001 2,161,011 347,009 1,814,002
Later 14,699,027 234,082 14,464,945
Total future minimum
obligations $31,632,681 $7,331,130 $24,301,551
</TABLE>
F-22
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SPARTAN STORES, INC. AND SUBSIDIARIES
___________________________________________________________________________
Rental expense under those leases which are classified as operating leases
amounted to $11,030,000, $12,500,000 and $11,600,000 in 1996, 1995 and
1994, respectively.
One of the Company's subsidiaries leases retail store facilities to others.
Of the stores leased, several are owned and others were obtained through
leasing arrangements. Although some of those leased are accounted for as
direct financing leases, most are operating leases. Substantially all of
the leases provide for minimum and contingent rentals.
Owned assets, included in property and equipment, which are leased to
others are as follows:
<TABLE>
<CAPTION>
MARCH 30, MARCH 25,
1996 1995
<S> <C> <C> <C>
Land and improvements $10,839,355 $10,632,296
Buildings 44,965,508 41,142,984
55,804,863 52,775,280
Less accumulated depreciation 14,599,605 12,973,511
Net land and buildings $41,205,258 $39,801,769
</TABLE>
Minimum future rentals to be received under operating leases in effect at
March 30, 1996 are as follows:
<TABLE>
<CAPTION>
OPERATING LEASES
YEAR ENDING
MARCH, TOTAL OWNED LEASED
<S> <C> <C> <C> <C>
1997 $ 8,476,693 $ 6,242,590 $ 2,234,103
1998 8,259,447 6,151,081 2,108,366
1999 7,865,393 5,858,709 2,006,684
2000 7,484,216 5,495,032 1,989,184
2001 6,926,901 5,028,868 1,898,033
Later 56,275,945 41,074,893 15,201,052
$95,288,595 $69,851,173 $25,437,422
</TABLE>
F-23
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SPARTAN STORES, INC. AND SUBSIDIARIES
___________________________________________________________________________
ASSOCIATE RETIREMENT PLANS
The Company's retirement programs include pension plans providing non-
contributory benefits and contributory benefits. Substantially all of the
Company's associates not covered by collective bargaining agreements are
covered by either a non-contributory defined benefit pension plan (Company
Plan) or a defined contribution plan. Associates covered by collective
bargaining agreements are included in multi-employer pension plans.
The benefits in the Company Plan are based on years of service and the
associate's compensation. The Company's funding policy is to contribute
annually at least the minimum amount required under ERISA regulations,
except that prior year's contributions in excess of the minimum are being
amortized over the period ending March 31, 2016. Plan assets consist
principally of common stocks and U.S. Government and corporate obligations.
The following information sets forth the Company's significant actuarial
assumptions, funded status and expense for its defined benefit pension
plans:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C> <C>
Significant actuarial
assumptions:
Weighted average
discount rate 7.00% 8.25% 7.25%
Rate of increase in future
compensation levels 4.75% 4.75% 5.0%
Long-term rate of
return on assets 8.75% 8.75% 8.5%
</TABLE>
F-24
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SPARTAN STORES, INC. AND SUBSIDIARIES
___________________________________________________________________________
<TABLE>
<CAPTION>
MARCH 30, MARCH 25,
1996 1995
<S> <C> <C> <C>
Date of actuarial MARCH 31, MARCH 31,
valuation 1995 1994
Actuarial present value of
accumulated benefit
obligations:
Vested $ 29,499,199 $ 21,769,483
Total $ 30,584,584 $ 22,680,126
Projected benefit obli-
gation for service
rendered to date $(44,705,246) $(32,170,935)
Plan assets at fair value 34,523,724 28,146,314
Projected benefit obligation
in excess of plan assets (10,181,522) (4,024,621)
Unrecognized net loss 6,109,105 1,420,283
Unrecognized prior
service cost 2,082,064 419,584
Initial net credit at April 1, 1987
being amortized over 19 years 52,967 58,264
Pension liability $ (1,937,386) $ (2,126,490)
</TABLE>
Net pension expense includes the following components:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Service cost-benefits earned during
the year $ 1,644,379 $ 1,691,521 $ 1,760,122
Interest cost on projected benefit
obligation 2,747,457 2,315,919 2,274,437
Actual return on plan assets (5,583,071) (1,371,039) (392,786)
Net amortization and deferral 3,132,667 (944,343) (1,723,386)
Net pension expense $ 1,941,432 $ 1,692,058 $ 1,918,387
</TABLE>
F-25
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SPARTAN STORES, INC. AND SUBSIDIARIES
___________________________________________________________________________
The associates of a subsidiary are participants in a defined contribution
plan. Contributions to this plan amounted to $330,000 in 1996, $365,000 in
1995 and $300,000 in 1994.
Matching contributions made by the Company to salary reduction defined
contribution pension plans aggregated $858,000, $634,000 and $613,000 in
1996, 1995 and 1994, respectively.
In addition to the plans described above, the Company participates in
several multi-employer and other defined contribution plans for
substantially all associates covered by collective bargaining agreements.
The expense for these plans aggregated approximately $5,025,000 in 1996,
$4,960,000 in 1995 and $4,740,000 in 1994.
The Multi-Employer Pension Plan Amendments Act of 1980 amended ERISA to
establish funding requirements and obligations for employers participating
in multi-employer plans, principally related to employer withdrawal from or
termination of such plans. Separate actuarial calculations of the
Company's position are not available with respect to the multi-employer
plans.
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
Spartan Stores, Inc. and certain subsidiaries provide health care benefits
to retired associates who have at least ten years of service and have
attained age fifty-five, and who are not covered by collective bargaining
arrangements during their employment (covered associates). Qualified
covered associates retiring prior to April 1, 1992, receive major medical
insurance with deductible and coinsurance provisions until age sixty-five
and medicare supplemental benefits thereafter. Covered associates retiring
after April 1, 1992, are eligible for monthly postretirement health care
benefits of five dollars multiplied by the associate's years of service.
The Company is required to accrue the estimated cost of retiree benefit
payments, other than pensions, during the employee's active service period.
At March 30, 1996 and March 25, 1995, the accumulated postretirement
benefit obligation is as follows:
F-26
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SPARTAN STORES, INC. AND SUBSIDIARIES
___________________________________________________________________________
<TABLE>
<CAPTION>
MARCH 30, MARCH 25,
1996 1995
<S> <C> <C> <C>
Retired participants $ 2,040,223 $2,165,425
Other fully eligible participants 957,108 446,891
Other active participants 2,551,608 1,208,805
Accumulated postretirement
benefit obligation 5,548,939 3,821,121
Unrecognized gain (loss) (1,447,456) 173,056
Postretirement benefit liability $ 4,101,483 $3,994,177
</TABLE>
Postretirement health care expense consisted of the following components:
<TABLE>
<CAPTION>
MARCH 30, MARCH 25,
1996 1995
<S> <C> <C> <C>
Service cost-benefits earned
during the period $200,740 $132,945
Interest cost on the accumulated
postretirement benefit obligation 369,760 261,179
Periodic postretirement benefit cost $570,500 $394,124
</TABLE>
The Company continues to fund the cost of these benefits as incurred. The
cost of these benefits was $463,194, $277,725 and $250,431 in 1996, 1995
and 1994, respectively.
The assumed health care cost trend rate used in measuring the accumulated
postretirement benefit obligation was 6% for the fiscal year ended
March 30, 1996 and declines to 5% in 1997 and remains at that level
thereafter. A one-percentage-point increase in the assumed health care
cost trend rate for each year would increase the accumulated postretirement
benefit obligation and periodic postretirement benefit cost by 5.1% and
5.9%, respectively.
The assumed discount rate used in determining the postretirement benefit
obligation was 7.00% and 8.25% in 1996 and 1995, respectively.
F-27
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SPARTAN STORES, INC. AND SUBSIDIARIES
___________________________________________________________________________
TAXES ON INCOME
Deferred tax assets and liabilities resulting from temporary differences
and carry forwards are as follows at March 30, 1996:
<TABLE>
<CAPTION>
DEFERRED TAX DEFERRED TAX
ASSETS LIABILITIES
<S> <C> <C> <C>
Employee benefits $ 5,288,359 $ 520
Depreciation 1,751,715 4,130,109
Inventory 1,065,745 206,959
Lease transactions 754,538 599
Insurance reserves 576,853
Research & development credit 642,567
All other 2,979,689 1,473,236
Subtotal 13,059,466 5,811,423
Valuation allowance (269,043)
Total deferred taxes $12,790,423 $5,811,423
</TABLE>
Deferred tax assets and liabilities resulting from temporary differences
and carry forwards are as follows at March 25, 1995:
F-28
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SPARTAN STORES, INC. AND SUBSIDIARIES
___________________________________________________________________________
<TABLE>
<CAPTION>
DEFERRED TAX DEFERRED TAX
ASSETS LIABILITIES
<S> <C> <C> <C>
Employee benefits $ 5,322,000 $ 13,000
Depreciation 1,679,000 3,476,000
Inventory 1,311,781 219,000
Lease transactions 846,000 1,599
Insurance reserves 680,904
All other 2,704,650 322,000
Subtotal 12,544,335 4,031,599
Valuation allowance (339,736)
Total deferred taxes $12,204,599 $4,031,599
</TABLE>
The income tax provision (benefit) is summarized as follows:
<TABLE>
<CAPTION>
MARCH 30, MARCH 25, MARCH 26,
1996 1995 1994
<S> <C> <C> <C> <C>
Currently payable
(refundable) $(11,694,000) $ 7,454,000 $3,139,000
Net deferred 1,194,000 (2,386,000) 946,000
$(10,500,000) $ 5,068,000 $4,085,000
</TABLE>
The effective income tax rates are different from the statutory federal
income tax rates for the following reasons:
F-29
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SPARTAN STORES, INC. AND SUBSIDIARIES
___________________________________________________________________________
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C> <C>
Statutory income tax rate (34.0%) 34.0% 34.0%
Amortization of goodwill 4.5 2.8 2.3
Research and development
credit (2.5)
Other (.6) (.9) .2
Effective income tax rate (32.6%) 35.9% 36.5%
</TABLE>
SHAREHOLDERS' EQUITY
The Company's Articles of Incorporation provide that the Board of Directors
may at anytime, and from time to time, provide for the issuance of up to
500,000 shares of Class B Common Stock in one or more series, each with
such designations, and, relative to the Class A Common Stock and to other
series of Class B Common Stock, such voting, distribution, dividend and
other rights and restrictions as shall be stated in the resolution(s)
providing for the issuance thereof. At March 30, 1996, there were no Class
B shares outstanding.
Under the Company's Bylaws the Board of Directors establishes the price at
which the Company issues and purchases its class A common stock (the
"Trading Value").
The Company's shareholder-customers are required to own Class A stock of
the Company in an amount relative to their purchases up to a maximum of
$125,000 of common stock per store. Spartan Stores, Inc. sells its common
stock to new customers and also issues common stock in partial payment of
volume incentive rebates. As of February 4, 1996, the Company discontinued
payment of volume incentive rebates. The current Company policy is to
redeem, at the request of the shareholder, stock held in excess of the
required investment. This policy does not create or evidence any
obligation on the Company's behalf and the Board of Directors may revise or
terminate the policy at any time. At March 30, 1996, there were 840,000
shares outstanding in excess of the maximum requirement.
On June 22, 1992, the shareholders approved a non-qualified stock option
plan covering 50,000 shares of the Company's Class A Common Stock. The
plan was subsequently amended, with shareholder approval, to authorize the
F-30
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SPARTAN STORES, INC. AND SUBSIDIARIES
___________________________________________________________________________
Company to grant incentive stock options as well as nonqualified stock
options. Options under the plan are granted to corporate officers at
prices equal to the Trading Value.
Options must be exercised within ten years of the date of the grant. The
authorization to grant options under the plan terminates on October 31,
2001. At March 30, 1996, options covering 4,300 shares were outstanding
and had been granted at $84.00 to $100.00 per share.
On June 22, 1992, the shareholders also approved a stock bonus plan
covering 50,000 shares of the Company's Class A Common Stock. Under the
provisions of this plan, officers and certain key employees of the Company
may elect to receive a portion of their annual bonus in Class A Shares
rather than cash and will be granted additional shares of stock worth
thirty percent of the portion of the bonus they elect to receive in stock.
The value of shares issued under the plan is the Trading Value.
An associate stock purchase plan was also approved by the shareholders on
June 22, 1992 covering 50,000 shares of the Company's Class A Common Stock.
The plan provides that associates of the Company and its subsidiaries may
purchase shares at the Trading Value.
BUSINESS SEGMENT INFORMATION
The Company's distribution operations include product sales to
independently owned and operated food stores and convenience stores as well
as services directly related to the operation of these stores. Revenue is
recognized when the product is shipped.
The insurance segment includes operations as a general line insurance
agency, third party claims administration (TPA) and insurance underwriting.
Commissions are recognized as of the policy billing dates, which
approximate effective dates of the applicable policies. TPA revenues are
recognized as services are performed and underwriting revenues are
recognized over the life of the policies.
Real estate and finance represents revenues from financing and real estate
activities with retail food stores and non-food related businesses. Revenue
is recognized according to the terms of the lease or loan.
Business segment operating earnings were computed as net sales less related
operating expenses. In the distribution segment interest is excluded from
operating expenses whereas it is included in the other segments.
F-31
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SPARTAN STORES, INC. AND SUBSIDIARIES
___________________________________________________________________________
Identifiable assets represent total assets directly associated with the
various business segments. Eliminations in assets identified to segments
include intercompany receivables, payables and investments.
The following table sets forth, for each of the last three fiscal years,
information required by Financial Accounting Standards Board, Statement No.
14, "Financial Reporting for Segments of a Business Enterprise.":
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
NET SALES
Distribution $2,512,059,994 $2,487,557,813 $2,167,900,863
99.03% 99.01% 99.01%
Insurance 16,135,365 15,261,527 14,382,638
.64% .61% .66%
Real estate and finance 8,441,280 9,612,935 7,211,304
.33% .38% .33%
Total $2,536,636,639 $2,512,432,275 $2,189,494,805
100.0% 100.0% 100.0%
OPERATING EARNINGS (LOSS)
Distribution $ (31,464,572) $ 12,727,947 $ 12,094,176
(97.82%) 90.28% 108.08%
Insurance 2,890,739 3,341,250 1,821,861
8.99% 23.70% 16.28%
Real estate and finance 984,581 2,550,111 1,386,953
3.06% 18.09% 12.39%
Interest (net) (4,578,343) (4,521,407) (4,112,809)
(14.23%) (32.07%) (36.75%)
Earnings (loss) before taxes on income $ (32,167,595) $ 14,097,901 11,190,181
(100.0%) 100.0% 100.0%
ASSETS IDENTIFIED TO SEGMENTS
Distribution $ 345,649,449 $ 367,955,546 $ 366,791,267
Insurance 26,405,013 24,387,064 22,720,019
Real estate and finance 55,128,402 48,365,298 40,415,549
F-32
Less eliminations (39,731,451) (54,566,415) (56,640,771)
Total $ 387,451,413 $ 386,141,493 $ 373,286,064
DEPRECIATION AND AMORTIZATION
Distribution $ 17,182,016 $ 16,029,108 $ 14,458,854
Insurance 258,686 208,793 155,806
Real estate and finance 1,783,731 1,596,531 1,413,856
Total $ 19,224,433 $ 17,834,432 $ 16,028,516
CAPITAL EXPENDITURES
Distribution $ 38,858,158 $ 44,628,983 $ 21,386,095
Insurance 201,677 269,291 198,603
Real estate and finance 8,908,789 10,388,281 2,400,821
Total $ 47,968,624 $ 55,286,555 $ 23,985,519
</TABLE>
F-33
===========================================================================
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OR PROJECTIONS OF FUTURE PERFORMANCE OTHER THAN THOSE
CONTAINED IN THIS PROSPECTUS, AND ANY SUCH OTHER INFORMATION, PROJECTIONS,
OR REPRESENTATIONS IF GIVEN OR MADE MUST NOT BE RELIED UPON AS HAVING BEEN
SO AUTHORIZED.
THE DELIVERY OF THIS PROSPECTUS OR ANY SALE HEREUNDER AT ANY TIME DOES
NOT IMPLY THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT
TO ITS DATE. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF ANY OFFER TO BUY ANY OF THE SECURITIES OFFERED IN ANY
JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR
SOLICITATION.
_______________________________
TABLE OF CONTENTS
PAGE
THE COMPANY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
RISK FACTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
USE OF PROCEEDS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
DIVIDEND POLICY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
SELECTED CONSOLIDATED FINANCIAL INFORMATION. . . . . . . . . . . . . . . 11
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS. . . . . . . . . . . . . . . . . . . . . . . . 13
BUSINESS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
MANAGEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
EXECUTIVE COMPENSATION . . . . . . . . . . . . . . . . . . . . . . . . 30
CERTAIN TRANSACTIONS . . . . . . . . . . . . . . . . . . . . . . . . . 35
PRINCIPAL SHAREHOLDERS . . . . . . . . . . . . . . . . . . . . . . . . 37
DESCRIPTION OF CAPITAL STOCK . . . . . . . . . . . . . . . . . . . . . 38
PLAN OF DISTRIBUTION . . . . . . . . . . . . . . . . . . . . . . . . . 43
LEGAL MATTERS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
EXPERTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS . . . . . . . . . . . . . . 44
===========================================================================
===========================================================================
350,000 Shares
Class A Common Stock
_______
PROSPECTUS
_______
SPARTAN STORES, INC.
July 28, 1996
===========================================================================
