SPARTAN STORES INC
8-K/A, EX-99, 2000-09-27
GROCERIES, GENERAL LINE
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Exhibit 99.2

PART I. FINANCIAL INFORMATION (CONTINUED)

Consolidated Statements of Income

(Thousands of Dollars — Except
Average Share and Per-Share Data)

                                           
Thirteen Weeks Ended Thirty-Nine Weeks Ended
May 27, May 29, May 27, May 29,
2000 1999 2000 1999
Net Sales $ 171,887 $ 167,306 $ 520,254 $ 494,318
Cost of merchandise sold 125,772 124,558 385,512 369,006
Gross profit 46,115 42,748 134,742 125,312
Selling, general and administrative expenses 39,576 38,945 118,626 113,830
Operating profit 6,539 3,803 16,116 11,482
Interest expense (772 ) (1,001 ) (2,659 ) (3,000 )
Other income (expense)–net (70 ) 91 122 246
Income before income taxes 5,697 2,893 13,579 8,728
Provision for income taxes 2,186 1,030 5,024 3,120
Net income $ 3,511 $ 1,863 $ 8,555 $ 5,608
Per common share:
Net income — basic and diluted $ .53 $ .28 $ 1.28 $ .84
Dividends paid $ .045 $ .045 $ .135 $ .135
Average number of shares outstanding — basic and diluted 6,712,810 6,673,643 6,694,865 6,662,417

See notes to consolidated financial statements

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PART I. FINANCIAL INFORMATION (Continued)
Consolidated Balance Sheets
(Thousands of Dollars)

                     
May 27, August 28,
2000 1999
ASSETS
Current assets:
Cash and cash equivalents $ 12,811 $ 9,757
Notes and accounts receivable, less allowance for doubtful accounts of $600 ($500 at August 28, 1999) 11,209 9,717
Merchandise inventories 57,292 56,343
Prepaid expenses 1,022 1,353
Deferred income taxes 2,205 2,205
84,539 79,375
Other assets less accumulated amortization of $2,901, ($4,845 at August 28, 1999) 6,044 6,167
Property and equipment:
Land 7,900 7,900
Buildings and improvements 79,025 79,115
Leasehold improvements 32,839 32,771
Equipment 115,961 113,406
235,725 233,192
Less accumulated depreciation and amortization (146,687 ) (137,920 )
Net property and equipment 89,038 95,272
$ 179,621 $ 180,814
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable 48,036 $ 46,658
Income taxes 933 684
Accrued liabilities 15,636 14,304
Long-term debt due within one year 876 1,043
Total current liabilities 65,481 62,689
 
Long-term debt 36,976 49,249
Deferred income taxes 1,343 1,343
Deferred other 3,499 3,499
Shareholders’ equity:
Common stock 13,425 13,347
Capital in excess of stated value 917 358
Retained earnings 57,980 50,329
Total shareholders’ equity 72,322 64,034
$ 179,621 $ 180,814

See notes to consolidated financial statements

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PART I. FINANCIAL INFORMATION (Continued)
Condensed Consolidated Statements of Cash Flows
(Thousands of Dollars)

                     
Thirty-Nine Weeks Ended
May 27, May 29,
2000 1999
OPERATING ACTIVITIES-net cash provided $ 21,532 $ 16,358
 
INVESTING ACTIVITIES
Expenditures for property and equipment (5,428 ) (11,281 )
Proceeds from sale of property and other assets 151 177
Cash paid to acquire businesses — (4,869 )
Other 142 149
Net cash used in investing activities (5,135 ) (15,824 )
 
FINANCING ACTIVITIES
Proceeds from issuance of long-term debt 2,400 10,900
Payments of long-term debt (14,840 ) (8,816 )
Dividends paid (904 ) (899 )
Issuance of common stock 1 —
Net cash provided by (used in) financing activities (13,343 ) 1,185
 
Increase in cash and cash equivalents 3,054 1,719
 
Cash and cash equivalents at beginning of period 9,757 8,968
Cash and cash equivalents at end of period $ 12,811 $ 10,687
Supplemental Disclosures of Cash Flow Information:
Cash paid during the period for:
 
Interest $ 3,257 $ 3,153
Income Taxes $ 4,527 $ 2,411

See notes to consolidated financial statements

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PART I. FINANCIAL INFORMATION (Continued)
Notes to Consolidated Financial Statements

     
Note A. Basis of Presentation
 
The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the thirteen and thirty-nine week periods ended May 27, 2000 are not necessarily indicative of the results that may be expected for the year ended August 26, 2000.
 
The balance sheet at August 28, 1999 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements.
 
For further information, refer to the consolidated financial statements and footnotes thereto included in the Company’s annual report on Form 10-K for the year ended August 28, 1999.
 
Note B. Inventories
 
Meat, produce, bakery, and deli inventories are valued at the lower of cost using the first-in, first-out (FIFO) method, or market. All other merchandise inventories (including store inventories which are determined by the retail inventory method) are valued at the lower of cost, using the last-in, first-out (LIFO) method, or market. Inventories have been reduced by $17,919,000 and $18,122,000 at May 27,2000 and August 28, 1999, respectively, from amounts which would have been reported under the FIFO method (which approximates current cost).
 
Note C. Earnings Per Share
 
Net income per common share is based on the weighted average number of shares outstanding during the periods. The Company has no potentially dilutive securities.

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PART I. FINANCIAL INFORMATION (Continued)
Notes to Consolidated Financial Statements (Unaudited)

     
Note D. Agreement and Plan of Merger
 
On April 6, 2000, the Company’s Board of Directors approved an Agreement and Plan of Merger (Merger Agreement) among the Company, Spartan Stores, Inc., and Spartan Acquisition Corp. Based on the Merger Agreement, each of the Company’s shareholders will receive a cash payment of $5.00 and one share of Spartan new common stock for each share of Company stock held. Immediately prior to consummation of the merger, Spartan shareholders will exchange their existing shares of Spartan Stores Class A common stock for approximately 13.2 million shares of Spartan new common stock. The merger is subject to shareholder approval of both companies.
 
The Company and Spartan have agreed to reimburse the other up to $1.5 million for their respective costs and expenses related to the transaction if the Merger Agreement is terminated under certain conditions. Also, the Company has agreed to pay to Spartan (a) an initial termination fee in the amount of $2.167 million if the Merger Agreement is terminated in connection (i) with the withdrawal of, or certain modifications to, the Board’s recommendation (ii) the Company’s decision to accept an acquisition proposal from another party, or (iii)in connection with the failure of the Company’s shareholders to approve the merger subsequent to the making of a competing acquisition proposal, and (b) an additional termination fee of $4.333 million if the Merger Agreement is terminated under circumstances in which the initial termination fee is payable and the Company engages in an acquisition transaction within eighteen (18) months of such termination.
 
During this past quarter, selling, general and administrative expenses totaling $735,000 were recorded relating to the merger. On a year-to-date basis, these expenses amount to $1,094,000. If the merger is approved, additional costs of approximately $1 million will be incurred.

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