<PAGE>
===========================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 21, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______________ to ______________.
Commission File Number: 33-41791
SPARTAN STORES, INC.
(Exact Name of Registrant as Specified in Its Charter)
MICHIGAN 38-0593940
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification No.)
850 76TH STREET, S.W.
P.O. BOX 8700
GRAND RAPIDS, MICHIGAN 49518
(Address of Principal Executive Offices) (Zip Code)
(616) 878-2000
(Registrant's Telephone Number, Including Area Code)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes __X__ No _____
As of July 19, 1997, the issuer had 11,934,310 outstanding shares of
Class A Common Stock, $2 par value.
_____________________
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<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
SPARTAN STORES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
<CAPTION>
FIRST QUARTER (12 WEEKS) ENDED
----------------------------------
JUNE 21, JUNE 22,
1997 1996
(UNAUDITED) (UNAUDITED)
------------ ------------
<S> <C> <C>
NET SALES $565,738,939 $573,946,598
COSTS AND EXPENSES
Cost of sales 509,132,523 518,315,281
Operating and administrative 51,695,060 51,311,062
Interest expense 2,306,499 2,264,839
Interest income (746,842) (924,774)
Gain on sale of property and equipment (941,690) (1,175,071)
------------ ------------
TOTAL COSTS AND EXPENSES 561,445,550 569,791,337
------------ ------------
EARNINGS BEFORE TAXES ON INCOME 4,293,389 4,155,261
TAXES ON INCOME 1,487,000 1,397,000
------------ ------------
NET EARNINGS $ 2,806,389 $ 2,758,261
============ ============
NET EARNINGS PER CLASS A SHARE $ .23 $ .22
WEIGHTED AVERAGE NUMBER OF CLASS A
SHARES OUTSTANDING 12,049,080 12,361,470
DIVIDENDS DECLARED PER CLASS A SHARE $ .0125 $ .0125
</TABLE>
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<PAGE>
<TABLE>
SPARTAN STORES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
<CAPTION>
JUNE 21,
1997 MARCH 29,
(UNAUDITED) 1997
------------ ------------
<S> <C> <C>
ASSETS
- ------
CURRENT ASSETS
Cash and cash equivalents $ 31,034,830 $ 34,198,752
Marketable securities 16,665,786 17,605,880
Accounts receivable 66,315,862 67,045,013
Refundable taxes on income 4,573,014 6,026,221
Inventories 76,179,759 85,209,192
Prepaid expenses 9,234,403 7,867,173
Deferred taxes on income 5,658,000 5,751,000
------------ ------------
TOTAL CURRENT ASSETS 209,661,654 223,703,231
OTHER ASSETS 7,305,792 6,918,350
PROPERTY AND EQUIPMENT 311,300,493 308,996,573
Less accumulated depreciation and amortization 138,292,807 135,988,572
------------ ------------
NET PROPERTY AND EQUIPMENT 173,007,686 173,008,001
------------ ------------
TOTAL ASSETS $389,975,132 $403,629,582
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
CURRENT LIABILITIES
Notes payable $ 25,000,000 $ 33,500,000
Accounts payable 89,885,998 78,130,484
Insurance reserves 17,489,168 17,172,342
Current maturities of long-term debt 5,844,652 6,598,927
Current obligations under capital leases 607,275 593,078
Other current liabilities 19,639,371 27,035,106
------------ ------------
TOTAL CURRENT LIABILITIES 158,466,464 163,029,937
-3-
<PAGE>
DEFERRED GAIN ON SALE OF PROPERTY AND EQUIPMENT 418,017 213,198
DEFERRED TAXES ON INCOME 2,807,000 2,807,000
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS 4,545,483 4,545,483
LONG-TERM DEBT 111,946,756 124,010,394
LONG-TERM OBLIGATIONS UNDER CAPITAL LEASES 1,614,935 1,765,996
SHAREHOLDERS' EQUITY
Class A common stock, voting, par value
$2 per share 24,115,840 24,065,700
Additional paid-in capital 18,767,927 18,406,969
Retained earnings 67,292,710 64,784,905
------------ ------------
TOTAL SHAREHOLDERS' EQUITY 110,176,477 107,257,574
------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $389,975,132 $403,629,582
============ ============
</TABLE>
-4-
<PAGE>
<TABLE>
SPARTAN STORES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
FIRST QUARTER (12 WEEKS) ENDED
---------------------------------------
JUNE 21, JUNE 22,
1997 1996
(UNAUDITED) (UNAUDITED)
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings $ 2,806,389 $ 2,758,261
Adjustments to reconcile net earnings to net
cash provided by (used in) operating activities:
Depreciation and amortization 4,814,904 4,421,245
Deferred taxes on income 93,000 (1,000)
Gain on sale of property and equipment (941,690) (1,175,071)
Change in assets and liabilities:
Marketable securities 940,094 (10,896)
Accounts receivable 729,151 (5,746,614)
Refundable taxes on income 1,453,207 4,097,299
Inventories 9,029,433 4,144,995
Prepaid expenses (1,367,230) (370,736)
Accounts payable 11,755,514 12,366,509
Rebates due to customers (2,234,280) 29,393
Accrued payroll and benefits (1,834,732) (762,308)
Insurance reserves 316,826 (198,977)
Other accrued expenses (3,326,723) (6,899,554)
------------ ------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 22,233,863 12,652,546
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment (7,169,534) (14,244,828)
Proceeds from the sale of property and equipment 3,377,589 4,482,437
Other (263,578) (3,653)
------------ ------------
NET CASH USED IN INVESTING ACTIVITIES (4,055,523) (9,766,044)
-5-
<PAGE>
CASH FLOWS FROM FINANCING ACTIVITIES
Changes in notes payable (8,500,000) (3,671,006)
Proceeds from long-term borrowings 3,625,000 11,551,200
Repayment of long-term debt (16,442,912) (22,547,426)
Reduction of obligations under capital leases (136,864) (137,441)
Proceeds from sale of common stock 721,665 511,600
Common stock purchased (458,430) (1,795,400)
Dividends paid (150,721) (154,147)
------------ ------------
NET CASH USED IN FINANCING ACTIVITIES (21,342,262) (16,242,620)
------------ ------------
NET DECREASE IN CASH AND CASH EQUIVALENTS (3,163,922) (13,356,118)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 34,198,752 39,796,018
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF FIRST QUARTER $ 31,034,830 $ 26,439,900
============ ============
</TABLE>
-6-
<PAGE>
<TABLE>
SPARTAN STORES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<CAPTION>
CLASS A ADDITIONAL
COMMON PAID-IN RETAINED
STOCK CAPITAL EARNINGS
----------- ----------- -----------
<S> <C> <C> <C>
BALANCE - MARCH 30, 1996 $24,920,960 $19,622,472 $58,043,279
CLASS A COMMON STOCK TRANSACTIONS
801,410 shares purchased (1,602,820) (4,367,053) (2,355,162)
373,780 shares issued 747,560 3,151,550
NET EARNINGS 9,702,725
CASH DIVIDENDS - $.05 PER SHARE (605,937)
----------- ----------- -----------
BALANCE - MARCH 29, 1997 24,065,700 18,406,969 64,784,905
CLASS A COMMON STOCK TRANSACTIONS
43,660 shares purchased (87,320) (223,247) (147,863)
68,730 shares issued 137,460 584,205
NET EARNINGS 2,806,389
CASH DIVIDENDS - $.0125 PER SHARE (150,721)
----------- ----------- -----------
BALANCE - JUNE 21, 1997 $24,115,840 $18,767,927 $67,292,710
=========== =========== ===========
</TABLE>
-7-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ACCOUNTING POLICIES
The 1997 annual report contains a summary of significant accounting
policies in the notes to consolidated financial statements. The Company
follows the same accounting policies in the preparation of interim
financial statements.
ACCOUNTS RECEIVABLE
Accounts receivable include the current portion of notes receivable and are
shown net of allowances for credit losses of $2,730,000 and $3,160,000 at
June 21, 1997 and March 29, 1997, respectively.
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 $45,200,000 and $45,000,000 higher at June 21, 1997 and
March 29, 1997, respectively.
ACCOUNTS PAYABLE
Accounts payable include $17,042,000 and $15,523,000 at June 21, 1997 and
March 29, 1997, respectively, representing checks which have been issued
and have not cleared the Company's controlled disbursing bank accounts.
SHAREHOLDERS' EQUITY
On May 28, 1997, the Board of Directors approved an amendment to the
Restated Articles of Incorporation to increase the authorized capital stock
to 20,000,000 shares of Class A common stock and 5,000,000 shares of
Class B common stock and authorized a ten-for-one stock split for
shareholders of record on May 31, 1997. The stock split was subject to
approval of the amendment by the Company's shareholders. The amendment was
approved by the shareholders and became effective on July 15, 1997.
Accordingly, share and per share amounts have been restated throughout the
consolidated financial statements.
RECLASSIFICATIONS
Certain reclassifications relating to service revenues and pass-through
billings have been made to the prior year's financial statements to conform
to the first quarter of fiscal 1998 presentation. Previously, service
revenues were netted against the related costs and pass-through billings
were recorded as sales and cost of sales. These reclassifications did not
affect net earnings as previously reported.
-8-
<PAGE>
STATEMENT OF REGISTRANT
The data presented herein is unaudited, but in the opinion of management
includes all adjustments (which consist solely of normal recurring
accruals) necessary for a fair presentation of the consolidated financial
position of the Company and its subsidiaries at June 21, 1997 and the
results of their operations and the changes in cash flows for the periods
ended June 21, 1997 and June 22, 1996. These interim results are not
necessarily indicative of the results of the fiscal years as a whole.
CONTINGENCIES
On August 21, 1996, the Attorney General for the State of Michigan filed
an action in Michigan circuit court against the leading cigarette
manufacturers operating in the United States, twelve wholesalers and
distributors of tobacco products in Michigan (including three Company
subsidiaries) and others seeking certain injunctive relief, the
reimbursement of $4 billion in Medicaid and other expenditures incurred or
to be incurred by the State of Michigan to treat diseases allegedly caused
by cigarette smoking and punitive damages of $10 billion. Subsequently to
the end of fiscal year 1997, two separate actions have been filed in the
state courts in Tennessee on behalf of the individual plaintiffs and as a
class action in one case and on behalf of the State of Tennessee and its
taxpayers in the other case, and ten separate actions have been filed by
individual plaintiffs in state courts in Pennsylvania, against the leading
cigarette manufacturers operating in the United States and certain
wholesalers and distributors, including a subsidiary of the Company. In
these separate cases, the plaintiffs are seeking compensatory, punitive and
other damages, reimbursement of medical and other expenditures and
equitable relief. The Company believes that its subsidiaries have valid
defenses to these legal actions. These actions will be vigorously
defended. One of the cigarette manufacturers named as a defendant in each
action has agreed to indemnify the Company's subsidiaries from damages
arising out of these actions. Management believes that the ultimate
outcome of these actions should not have a material adverse effect on the
consolidated financial position, results of operations or liquidity of the
Company.
Various other 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 believes that their outcome will not result in a material
adverse effect on the consolidated financial position, operating results or
liquidity of the Company.
-9-
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The following table sets forth items from the Company's Consolidated
Statements of Earnings as percentages of net sales:
<TABLE>
<CAPTION>
FIRST QUARTER (12 WEEKS) ENDED
------------------------------
JUNE 21, JUNE 22,
1997 1996
(UNAUDITED) (UNAUDITED)
------------- --------------
<S> <C> <C>
Net sales 100.0% 100.0%
Gross profit 10.0 9.7
Less:
Operating and administrative expenses 9.1 8.9
Interest expense .4 .4
Interest income (.1) (.1)
Gain on sale of property and equipment (.2) (.2)
----- -----
Total 9.2 9.0
----- -----
Earnings before income taxes .8 .7
Taxes on income .3 .2
----- -----
Net earnings .5% .5%
===== =====
</TABLE>
NET SALES
Net sales decreased $8.2 million or 1.4% for the first quarter of fiscal
1998 compared to the same period last year. The sales decrease occurred
primarily in the Distribution segment as a result of the loss of a major
customer of J.F. Walker Company, Inc. and continued competitive pressures,
principally relating to prices of cigarette products. Insurance segment
sales for the first quarter of fiscal 1998 were approximately the same as
the comparable quarter last year. Real Estate and Finance segment revenues
increased 17% to $3.0 million, due primarily to an increase in property
rentals.
-10-
<PAGE>
GROSS PROFIT
Gross profit as a percentage of net sales increased to 10.0% for the first
quarter of fiscal 1998 compared to 9.7% for the same period last year. The
improvement in gross profit during the first quarter of fiscal 1998 was due
primarily to an increase in service fee income for certain services
performed in the Company's Distribution segment.
OPERATING AND ADMINISTRATIVE EXPENSES
Operating and administrative expenses as a percentage of net sales were
9.1% in the first quarter of fiscal 1998 compared to 8.9% in the first
quarter of fiscal 1997. The increase in operating and administrative
expenses in the first quarter of fiscal 1998 was due primarily to costs
incurred by the Company to upgrade its software to be compliant with the
year 2000. The Company has budgeted approximately $6.0 million over the
next two fiscal years to upgrade its software to accommodate the years
beginning with 2000.
INTEREST EXPENSE AND INCOME
Interest expense for both the first quarter of fiscal 1998 and 1997 was
$2.3 million. Interest income decreased approximately $.2 million during
the first quarter of fiscal 1998 compared to the same period last year.
The reduction in interest income was due primarily to a $2.0 million
decrease in notes receivable. In addition, accounts receivable decreased
approximately $7.9 million due to a more aggressive enforcement of the
Company's credit policy, which resulted in a decrease in finance fees
earned on past due accounts.
GAIN ON SALE OF PROPERTY AND EQUIPMENT
The gain on sale of property and equipment of $.9 million in the first
quarter of fiscal 1998 was due primarily to the sale of a retail property.
The gain of $1.2 million reported for the first quarter of fiscal 1997 was
due primarily to the sale of the distribution facility of Capistar, Inc.
("Capistar"), a former subsidiary of the Company.
NET EARNINGS
Net earnings increased 1.7% over the comparable quarter last year. Net
earnings in the Distribution segment were $1.5 million for the first
quarter of fiscal 1998 compared to $1.9 million for the same period last
year. The decrease in net earnings in the Distribution segment for the
first quarter of fiscal 1998 was due primarily to the gain realized on the
sale of the Capistar facility in the first quarter of fiscal 1997. Net
earnings in the Insurance segment for the first quarter of fiscal 1998 were
$.4 million, which were approximately the same as last fiscal year. Net
-11-
<PAGE>
earnings in the Real Estate and Finance segment were $.9 million for the
first quarter of fiscal 1998 compared to $.4 million for the same period
last year. The improvement in net earnings in the Real Estate and Finance
segment for the first quarter of fiscal 1998 was due primarily to the gain
on the sale of a retail facility.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities, one of the Company's primary
sources of liquidity, was $22.2 and $12.7 million for the first quarter of
fiscal 1998 and 1997, respectively. The improvement in net cash provided
by operating activities for the first quarter of fiscal 1998 compared to
the same period last year was due primarily to a reduction of accounts
receivable and inventories. Cash provided by operating activities during
the first quarter of fiscal 1998 was used primarily to repay long-term debt
in the amount of $16.4 million.
Net cash used in investing activities, primarily purchases of property and
equipment, was $4.1 million for the first quarter of fiscal 1998 compared
to $9.8 million for the comparable quarter last year. The reduction of
cash used in investing activities during the first quarter of fiscal 1998
compared to the same period last year was due primarily to lower levels of
capital expenditures of BASE (Business Automation Support Environment)
projects. Management expects that fiscal 1998 capital expenditures will be
approximately $25 million.
CAUTIONARY STATEMENTS FOR PURPOSES OF THE SAFE HARBOR PROVISIONS OF THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
Except for the historical information contained in the report, the matters
discussed in this report include forward looking statements which involve
risk and uncertainties including but not limited 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 Securities and Exchange Commission.
-12-
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
For a discussion of certain litigation, reference is made to
"Contingencies" in the Notes to Consolidated Financial Statements
included in Part I, Item 1, of this report, which is incorporated
herein by reference.
ITEM 2. CHANGES IN SECURITIES
For a discussion of an amendment to the Company's Restated
Articles of Incorporation, reference is made to Part II, Item 5,
of this report, which is incorporated herein by reference.
ITEM 5. OTHER INFORMATION
On May 28, 1997, the Board of Directors declared a ten-for-one
stock split pursuant to a share dividend payable to shareholders
of record on May 31, 1997, subject to the shareholders approving
a proposed increase in the authorized shares of common stock of
the Company at the Annual Meeting of Shareholders on July 15,
1997.
At the Annual Meeting, the shareholders approved an amendment to
the Company's Restated Articles of Incorporation to increase the
number of authorized shares of Class A common stock from
2,000,000 shares to 20,000,000 shares and the number of
authorized shares of Class B common stock from 500,000 shares to
5,000,000 shares. The amendment also decreased the par value per
share of Class A common stock from $20 per share to $2 per share.
The amendment was approved by 905,901 shares voting for, 1,916
shares voting against, and 8,499 shares abstaining from vote on
the proposed amendment. The amendment became effective on
July 15, 1997.
At the Annual Meeting, the shareholders also elected Glen A.
Catt, Parker T. Feldpausch, Dorothy A. Johnson and James B. Meyer
as directors of the Company, for terms expiring in 2000. The
votes for and withheld with respect to each director were as
follows:
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<PAGE>
<TABLE>
<CAPTION>
VOTES FOR VOTES WITHHELD
--------- --------------
<S> <C> <C> <C>
Glen A. Catt 915,833 483
Parker T. Feldpausch 915,833 483
Dorothy A. Johnson 915,833 483
James B. Meyer 915,833 483
</TABLE>
The directors whose terms continued after the meeting are as
follows: Roger L. Boyd, James G. Buick, John S. Carton, Ronald A.
DeYoung, Martin P. Hill, Donald J. Koop, Dan R. Prevo, and
Russell H. VanGilder, Jr.
The Company consummated the ten-for-one stock split pursuant to a
share dividend paid on July 15, 1997, to shareholders of record
on May 31, 1997.
Mr. Patrick M. Quinn retired from the Company on July 15, 1997.
Mr. Quinn served as a director and as Chief Executive Officer of
the Company from 1985 until his retirement and as President of
the Company from 1985 to 1996. Effective July 15, 1997, the
Board of Directors appointed James B. Meyer, formerly President
and Chief Operating Officer, as the Company's President and Chief
Executive Officer.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS. The following documents are filed as exhibits to
this report on Form 10-Q:
EXHIBIT NUMBER DOCUMENT
-------------- --------
27 Financial Data Schedule
(b) REPORTS ON FORM 8-K. No reports on Form 8-K have been filed
during the period for which this report is filed.
-14-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
Date: August 5, 1997 SPARTAN STORES, INC.
(Registrant)
By /S/CHARLES B. FOSNAUGH
Charles B. Fosnaugh
Senior Vice President Business
Development and Finance
(Principal Financial Officer
and duly authorized signatory for
Registrant)
-15-
<PAGE>
EXHIBIT INDEX
EXHIBIT NUMBER DOCUMENT
- -------------- --------
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS OF SPARTAN
STORES, INC. AND SUBSIDIARIES FOR THE PERIOD ENDED JUNE 21,
1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> OTHER<F1>
<FISCAL-YEAR-END> MAR-28-1998
<PERIOD-START> MAR-30-1997
<PERIOD-END> JUN-21-1997
<CASH> 31,035
<SECURITIES> 16,666
<RECEIVABLES> 73,619
<ALLOWANCES> (2,730)
<INVENTORY> 76,180
<CURRENT-ASSETS> 209,662
<PP&E> 311,300
<DEPRECIATION> (138,293)
<TOTAL-ASSETS> 389,975
<CURRENT-LIABILITIES> 158,466
<BONDS> 113,562
<COMMON> 24,116
0
0
<OTHER-SE> 86,061
<TOTAL-LIABILITY-AND-EQUITY> 389,975
<SALES> 565,739
<TOTAL-REVENUES> 565,739
<CGS> 509,133
<TOTAL-COSTS> 509,133
<OTHER-EXPENSES> 49,617
<LOSS-PROVISION> 390
<INTEREST-EXPENSE> 2,306
<INCOME-PRETAX> 4,293
<INCOME-TAX> 1,487
<INCOME-CONTINUING> 2,806
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,806
<EPS-PRIMARY> .23
<EPS-DILUTED> .23
<FN>
<F1>12-Week Period
</FN>
</TABLE>
