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UNITED STATES
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, 2003.

OR

o

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

 

 

For the transition period from ______________ to ______________.

Commission File Number:  000-31127

SPARTAN STORES, INC.
(Exact Name of Registrant as Specified in Its Charter)

Michigan
(State or Other Jurisdiction
of Incorporation or Organization)

38-0593940
(I.R.S. Employer
Identification No.)

 

 

850 76th Street, S.W.
P.O. Box 8700
Grand Rapids, Michigan

(Address of Principal Executive Offices)



49518
(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        

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Securities Exchange Act).

 

Yes        

 

No   X    


As of July 25, 2003 the registrant had 19,943,257 outstanding shares of common stock, no par value.







FORWARD-LOOKING STATEMENTS

          The matters discussed in this Quarterly Report on Form 10-Q include "forward-looking statements" about the plans, strategies, objectives, goals or expectations of Spartan Stores, Inc. (together with its subsidiaries, "Spartan Stores"). These forward-looking statements are identifiable by words or phrases indicating that Spartan Stores or management "expects," "anticipates," "projects," "plans," "believes," "estimates," "intends," is "optimistic" or "confident" that a particular occurrence "will," "may," "could," "should" or "will likely" result or that a particular event "will," "may," "could," "should" or "will likely" occur in the future, that the "trend" is toward a particular result or occurrence, or similarly stated expectations. Accounting estimates, such as those described under the heading "Critical Accounting Policies" in Item 2 of this Form 10-Q, are inherently forward-looking. You should not place undue reliance on these forward-looking statements, which speak only as of the date of this Quarterly Report.

          In addition to other risks and uncertainties described in connection with the forward-looking statements contained in this Quarterly Report on Form 10-Q, Spartan Stores' Annual Report on Form 10-K for the year ended March 29, 2003 and other periodic reports filed with the Securities and Exchange Commission, there are many important factors that could cause actual results to differ materially. Our ability to strengthen our retail-store performance; improve sales growth; increase gross margin; reduce operating costs; sell on favorable terms assets classified as held for sale; continue to meet the terms of our debt covenants; renegotiate or refinance our credit facility; and implement the other programs, plans, strategies, objectives, goals or expectations described in this Quarterly Report will be affected by changes in economic conditions generally or in the markets and geographic areas that we serve, adverse effects of the changing food and distribution industries and ot her factors including, but not limited to, those discussed below.

          Anticipated future sales are subject to competitive pressures from many sources. Our Retail and Grocery Distribution businesses compete with many warehouse discount stores, supermarkets, pharmacies and product manufacturers. Future sales will be dependent on the number of retail stores that we own and operate, competitive pressures in the retail industry generally and our geographic markets specifically and our ability to implement effective new marketing and merchandising programs. Competitive pressures in these and other business segments may result in unexpected reductions in sales volumes, product prices or service fees.

          Our operating and administrative expenses may be adversely affected by unexpected costs associated with, among other factors: difficulties in the operation of our business segments; future business acquisitions; adverse effects on business relationships with independent retail grocery store customers; difficulties in the retention or hiring of employees; labor shortages, stoppages or disputes; business and asset divestitures; increased transportation or fuel costs; current or future lawsuits and administrative proceedings; and losses of, or financial difficulties of, customers or suppliers. Our operating and administrative expenses could also be adversely affected by changes in our sales mix. Our ongoing cost reduction initiatives and changes in our marketing and merchandising programs may not be as successful as we anticipate. Acts of terrorism or war have in the past and may in the future result in considerable economic and political uncertainties that could have adver se effects on consumer buying behavior, fuel costs, shipping and transportation, product imports and other factors affecting our company and the grocery industry generally.

          Our future interest expense and income also may differ from current expectations, depending upon, among other factors: the amount of additional borrowings; changes in our borrowing agreements; changes in the interest rate environment; and changes in the amount of fees received or paid. The availability of our senior secured credit facility depends on compliance with the terms of the credit facility.



2


          As discussed in this Form 10-Q, we have recently completed sales of or contracted to sell material assets, including substantially all of the assets of L&L/Jiroch Distributing Company and J.F. Walker Company, Inc. and several Food Town stores, and we are in the process of selling or closing additional Food Town stores. We believe that these sales and closings will allow us to better focus our efforts and capital on key strategic markets where we have the strongest growth and value creation opportunities. However, we cannot assure you that these transactions will be beneficial to our company. The agreements relating to many of these transactions require us to indemnify these asset buyers for breaches of our representations and warranties contained in the agreements and certain other matters.

          This section is intended to provide meaningful cautionary statements for purposes of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. This should not be construed as a complete list of all economic, competitive, governmental, technological and other factors that could adversely affect our expected consolidated financial position, results of operations or liquidity. We undertake no obligation to update or revise our forward-looking statements to reflect developments that occur or information obtained after the date of this Quarterly Report.






















3


PART I
FINANCIAL INFORMATION

ITEM 1.

Financial Statements

CONDENSED CONSOLIDATED BALANCE SHEETS
Spartan Stores, Inc. and Subsidiaries

(In thousands)
(Unaudited)


Assets

June 21,
2003


 

March 29,
2003


 

 

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

     Cash and cash equivalents

$

18,492

 

$

23,306

 

     Marketable securities

 

1,765

 

 

1,705

 

     Accounts receivable, net

 

55,335

 

 

70,747

 

     Inventories

 

111,042

 

 

138,095

 

     Prepaid expenses and other current assets

 

10,707

 

 

13,141

 

     Refundable income taxes

 

-

 

 

9,349

 

     Deferred taxes on income

 

4,092

 

 

4,113

 

     Property and equipment held for sale

 


38,012


 

 


54,684


 

     Total current assets

 

239,445

 

 

315,140

 

 

 

 

 

 

 

 

Other assets

 

 

 

 

 

 

     Goodwill, net

 

68,700

 

 

68,743

 

     Deferred taxes on income

 

25,567

 

 

25,566

 

     Other, net

 


26,487


 

 


26,785


 

     Total other assets

 

120,754

 

 

121,094

 

 

 

 

 

 

 

 

Property and equipment, net

 


117,228


 

 


120,072


 

 

 

 

 

 

 

 

Total assets

$


477,427


 

$


556,306


 

 

 

 

 

 

 

 

Liabilities and Shareholders' Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

     Accounts payable

$

95,015

 

$

112,181

 

     Accrued payroll and benefits

 

26,140

 

 

28,533

 

     Insurance reserves

 

14,805

 

 

14,783

 

     Accrued taxes

 

22,033

 

 

16,735

 

     Other accrued expenses

 

14,117

 

 

19,150

 

     Current maturities of long-term debt

 


24,538


 

 


36,594


 

     Total current liabilities

 

196,648

 

 

227,976

 

 

 

 

 

 

 

 

Other long-term liabilities

 

18,678

 

 

18,859

 

Postretirement benefits

 

15,362

 

 

16,022

 

Long-term debt

 

143,016

 

 

183,817

 

 

 

 

 

 

 

 

Shareholders' equity

 

 

 

 

 

 

     Common stock, voting, no par value; 50,000 shares
       authorized; 19,943 and 19,999 shares outstanding

 


116,224

 

 


116,388

 

     Preferred stock, no par value, 10,000
       shares authorized; no shares outstanding

 


- -

 

 


- -

 

     Accumulated other comprehensive loss

 

(2,444

)

 

(2,816

)

     Accumulated deficit

 


(10,057


)

 


(3,940


)

     Total shareholders' equity

 


103,723


 

 


109,632


 

 

 

 

 

 

 

 

Total liabilities and shareholders' equity

$


477,427


 

$


556,306


 

See notes to consolidated financial statements.



4


CONSOLIDATED STATEMENTS OF OPERATIONS

Spartan Stores, Inc. and Subsidiaries
(In thousands, except per share data)
(Unaudited)

 

First Quarter (12 Weeks) Ended


 

 

June 21,
2003


 

June 22,
2002


 

 

 

 

 

 

 

 

Net sales

$

502,039

 

$

490,835

 

Cost of goods sold

 


414,712


 

 


401,680


 

Gross margin

 

87,327

 

 

89,155

 

 

 

 

 

 

 

 

Selling, general and administrative expenses

 


87,675


 

 


81,171


 

 

 

 

 

 

 

 

Operating (loss) earnings

 

(348

)

 

7,984

 

 

 

 

 

 

 

 

Other income and expenses

 

 

 

 

 

 

   Interest expense

 

4,202

 

 

3,693

 

   Interest income

 

(203

)

 

(199

)

   Other losses (gains), net

 


45


 

 


(3


)

Total other income and expenses

 

4,044

 

 

3,491

 

 

 

 

 

 

 

 

(Loss) earnings before income taxes,
    discontinued operations and cumulative
    effect of a change in accounting principle

 



(4,392



)

 



4,493

 

    Income taxes

 


(1,538


)

 


1,598


 

(Loss) earnings from continuing operations

 

(2,854

)

 

2,895

 

 

 

 

 

 

 

 

Loss from discontinued operations, net of taxes

 

(3,263

)

 

(11,271

)

Cumulative effect of a change in accounting principle,
    net of taxes


 



- -


 


 



(35,377



)

Net loss

$


(6,117


)

$


(43,753


)

 

 

 

 

 

 

 

Basic and diluted earnings per share:

 

 

 

 

 

 

(Loss) earnings from continuing operations

$

(0.14

)

$

0.14

 

Loss from discontinued operations

 

(0.17

)

 

(0.57

)

Cumulative effect of a change in accounting principle

 


-


 

 


(1.78


)

Net loss

$


(0.31


)

$


(2.21


)

 

 

 

 

 

 

 

Weighted average shares:

 

 

 

 

 

 

      Basic

 


19,977


 

 


19,795


 

      Diluted

 


19,977


 

 


19,796


 

See notes to consolidated financial statements.



5


CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

Spartan Stores, Inc. and Subsidiaries
(In thousands, except per share data)
(Unaudited)

 

 




Shares Outstanding


 

 




Common
Stock


 

 


Accumulated
Other
Comprehensive
Loss


 

 




Retained
Earnings


 

 





Total


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance - March 31, 2002

 

19,766

 

$

115,722

 

$

(2,622

)

$

118,392

 

$

231,492

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Comprehensive loss:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

   Net loss

 

-

 

 

-

 

 

-

 

 

(122,332

)

 

(122,332

)

   Other comprehensive (income)
     loss, net of tax:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

      Unrealized gain on interest rate
         swap agreement

 


- -

 

 


- -

 

 


2,077

 

 


- -

 

 


2,077

 

      Minimum pension liability
         adjustment

 


- -

 

 


- -

 

 


(2,428


)

 


- -

 

 


(2,428


)

      Unrealized gain on securities

 

-


 

 

-


 

 

157


 

 

 


 

 

157


 

   Total other comprehensive loss

 

-


 

 

-


 

 

(194


)

 

-


 

 

(194


)

Total comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

(122,526

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock transactions:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

     Issuances

 

233


 

 

666


 

 

-


 

 

-


 

 

666


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance - March 29, 2003

 

19,999

 

 

116,388

 

 

(2,816

)

 

(3,940

)

 

109,632

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Comprehensive (income) loss:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

   Net loss

 

-

 

 

-

 

 

-

 

 

(6,117

)

 

(6,117

)

   Other comprehensive income,
     net of tax:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

      Unrealized gain on interest rate
         swap agreement

 


- -

 

 


- -

 

 


333

 

 


- -

 

 


333

 

      Unrealized gain on securities

 

-


 

 

-


 

 

39


 

 

-


 

 

39


 

   Total other comprehensive income

 

-


 

 

-


 

 

372


 

 

-


 

 

372


 

Total comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

(5,745

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock transactions:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

     Purchases

 

(56


)

 

(164


)

 

-


 

 

-


 

 

(164


)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance - June 21, 2003

 

19,943


 

$

116,224


 

$

(2,444


)

$

(10,057


)

$

103,723


 






6


CONSOLIDATED STATEMENTS OF CASH FLOWS

Spartan Stores, Inc. and Subsidiaries
(In thousands)
(Unaudited)

 

First Quarter (12 Weeks) Ended


 

 

June 21, 2003


 

June 22, 2002


 

Cash flows from operating activities

 

 

 

 

 

 

  Net loss

$

(6,117

)

$

(43,753

)

    Loss from discontinued operations

 

3,263

 

 

11,271

 

    Cumulative effect of a change in accounting principle

 


-


 

 


35,377


 

    (Loss) earnings from continuing operations

 

(2,854

)

 

2,895

 

    Adjustments to reconcile net loss to net cash

 

 

 

 

 

 

     provided by operating activities:

 

 

 

 

 

 

      Depreciation and amortization

 

6,754

 

 

6,686

 

      Postretirement benefits

 

(660

)

 

507

 

      Deferred taxes on income

 

(1

)

 

(6,182

)

      Other, net

 

45

 

 

(3

)

      Change in operating assets and liabilities:

 

 

 

 

 

 

        Accounts receivable

 

(2,968

)

 

(736

)

        Inventories

 

5,943

 

 

(11,455

)

        Prepaid expenses and other assets

 

2,797

 

 

(1,766

)

        Refundable income taxes

 

9,349

 

 

-

 

        Accounts payable

 

(10,424

)

 

16,124

 

        Accrued payroll and benefits

 

(514

)

 

3,472

 

        Insurance reserves

 

212

 

 

387

 

        Accrued taxes

 

(2,761

)

 

(141

)

        Other accrued expenses and other liabilities

 


(3,815


)

 


13,866


 

    Net cash provided by operating activities

 

1,103

 

 

23,654

 

 

 

 

 

 

 

 

Cash flows from investing activities

 

 

 

 

 

 

    Purchases of property and equipment

 

(1,786

)

 

(944

)

    Net proceeds from the sale of assets

 

16

 

 

14

 

    Other

 


125


 

 


210


 

    Net cash used in investing activities

 

(1,645

)

 

(720

)

 

 

 

 

 

 

 

Cash flows from financing activities

 

 

 

 

 

 

    Net proceeds (payments) from revolver

 

3,000

 

 

(13,000

)

    Repayment of long-term debt

 

(14,316

)

 

(1,326

)

    Financing fees paid

 

(1,782

)

 

(976

)

    Proceeds from sale of common stock

 


-


 

 


266


 

    Net cash used in financing activities

 

(13,098

)

 

(15,036

)

 

 

 

 

 

 

 

Discontinued operations:

 

 

 

 

 

 

    Net cash provided by (used in) discontinued operations

 


8,826


 

 


(4,245


)

 

 

 

 

 

 

 

Net (decrease) increase in cash and cash equivalents

 

(4,814

)

 

3,653

 

Cash and cash equivalents at beginning of period

 


23,306


 

 


27,954


 

Cash and cash equivalents at end of period

$


18,492


 

$


31,607


 





7


SPARTAN STORES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

Note 1
Basis of Presentation and Significant Accounting Policies

The Consolidated Financial Statements include the accounts of Spartan Stores, Inc. and its subsidiaries ("Spartan Stores"). All significant intercompany accounts and transactions have been eliminated.

In the opinion of management, the accompanying consolidated financial statements, taken as a whole, contain all adjustments which are of a normal recurring nature necessary to present fairly the financial position of Spartan Stores as of June 21, 2003 and the results of its operations and cash flows for the interim periods presented. Interim results are not necessarily indicative of results for a full year.

Stock-Based Compensation
Spartan Stores has a stock incentive plan, which is more fully described in Note 13 of the Annual Report on Form 10-K. Spartan Stores accounts for the plan under the recognition and measurement principles of Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees," and related Interpretations. No stock-based compensation cost is reflected in net loss, as all options granted under the plan had an exercise price equal to the market value of the underlying common stock on the date of grant. The following table illustrates the effect on net loss and loss per share as if Spartan Stores had applied the fair value recognition principles of Statement of Financial Accounting Standards ("SFAS") Statement No. 123, "Accounting for Stock-Based Compensation," to stock-based employee compensation:

(In thousands, except per share data)

 

June 21, 2003


 

June 22, 2002


 

 

 

 

 

 

 

 

Net loss, as reported

$

(6,117

)

$

(43,753

)

Deduct: Total stock-based employee compensation expense
   determined under fair value based method for all awards, net of
   related tax effects



 




(153




)



 




(299




)

 

 

 

 

 

 

 

Pro forma net loss

$


(6,270


)

$


(44,052


)

 

 

 

 

 

 

 

Basic and diluted loss per share - as reported

$

(0.31

)

$

(2.21

)

Basic and diluted loss per share - pro forma

$

(0.31

)

$

(2.23

)

Reclassifications
Certain reclassifications have been made to the fiscal 2003 consolidated financial statements to conform to the fiscal 2004 presentation.

Note 2
New Accounting Standards

In April 2002 the Financial Accounting Standards Board ("FASB") issued SFAS No. 145, "Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections." Among other provisions, SFAS No.145 rescinds SFAS No. 4, "Reporting Gains and Losses from Extinguishment of Debt." As a result, gains and losses from the extinguishment of debt should be reported as extraordinary items only if they meet the criteria of APB Opinion No. 30, "Reporting the Results of


8


Operations - Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions." Gains and losses from extinguishment of debt that do not meet the criteria of APB No. 30 should be reclassified to income from continuing operations for all periods presented. Spartan Stores adopted the provisions of SFAS No. 145 on March 30, 2003. The adoption of this statement will impact the classification on the Statement of Operations of any costs associated with debt extinguishment occurring in the future.

EITF Issue No. 02-16, "Accounting by a Reseller for Cash Consideration Received from a Vendor," provides that cash consideration received from a vendor is presumed to be a reduction of the prices of the vendor's products or services and should, therefore, be characterized as a reduction in cost of goods sold. If such payment is for assets or services delivered to the vendor, the cash consideration should be characterized as revenue, or if such payment is a reimbursement of costs incurred to sell the vendor's products, the cash consideration should be characterized as a reduction of that cost. EITF Issue No. 02-16 was adopted by Spartan Stores on March 30, 2003 and did not have a material impact on its net loss.

Note 3
Discontinued Operations

The following table details the results of discontinued operations reported on the Consolidated Statements of Operations by operating segment:

(In thousands)

First Quarter (12 Weeks) Ended


 

 

June 21,
2003


 

June 22,
2002


 

Discontinued retail operations

 

 

 

 

 

 

Loss from discontinued operations (less taxes of ($2,089) and ($6,491))

$

(3,880

)

$

(12,408

)

 

 

 

 

 

 

 

Discontinued convenience distribution operations

 

 

 

 

 

 

(Loss) earnings from discontinued operations (less taxes of $345 and $382)

 

(283

)

 

672

 

Gain on disposal of discontinued operations (less taxes of $618 and $32)

 


1,147


 

 


59


 

Earnings from discontinued convenience distribution operations

 

864

 

 

731

 

 

 

 

 

 

 

 

Discontinued grocery distribution, real estate and insurance operations

 

 

 

 

 

 

(Loss) earnings from discontinued operations (less taxes of ($134) and $225)

 


(247


)

 


406


 

 

 

 

 

 

 

 

Total discontinued operations

 

 

 

 

 

 

Loss from discontinued operations (less taxes of ($1,878) and ($5,884))

 

(4,410

)

 

(11,330

)

Gain on disposal of discontinued operations (less taxes of $618 and $32)

 


1,147


 

 


59


 

Total loss from discontinued operations

$


(3,263


)

$


(11,271


)

Results of the discontinued operations are excluded from the accompanying notes to the consolidated financial statements for all years presented, unless otherwise noted.

In accordance with EITF Issue No. 87-24, "Allocation of Interest to Discontinued Operations," interest was allocated to discontinued operations based on the interest on debt that will be required or was required to be repaid as a result of disposal transactions. Interest expense of $1.1 million and $1.8 million was allocated to, and is included in, loss on discontinued operations in the Consolidated Statements of Operations for the quarters ended June 21, 2003 and June 22, 2002, respectively. Allocated interest expense from discontinued operations decreased primarily as a result of lower average borrowings.




9


 

Retail Operations

In the first quarter of fiscal 2004, Spartan Stores completed the sale of five of the Food Town stores that had been designated for sale or closure. No significant gains or losses were recognized on the transactions. To date during the second quarter of fiscal 2004, an additional 16 stores have been sold. Proceeds received on the sale of these stores are approximately $40.4 million and have been used to reduce outstanding borrowings and pay related transaction expenses. Additional store sales are currently pending and any Food Town stores not sold are expected to be closed. Future gains or losses may be recorded depending on the outcome of these potential sales transactions.

Convenience Distribution Operations

On June 9, 2003 Spartan Stores completed the sale of substantially all the assets of L&L/Jiroch Distributing Company ("L&L/Jiroch") and J.F. Walker Company, Inc. ("J.F. Walker") to The H.T. Hackney Co. for approximately $40.8 million in cash and the assumption of certain liabilities.

Sales for the quarters ended June 21, 2003 and June 22, 2002 and significant assets and liabilities of discontinued operations at the end of those quarters are included below:

 


Retail



 


Convenience
Distribution



 



Other



 



Total


 

(In thousands, except per share data)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sales

 

 

 

 

 

 

 

 

 

 

 

 

June 21, 2003

$

54,537

 

$

122,248

 

$

-

 

$

176,785

 

June 22, 2002

 

105,031

 

 

168,631

 

 

1,124

 

 

274,786

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Loss) Earnings Per Share

 

 

 

 

 

 

 

 

 

 

 

 

June 21, 2003

$

(0.20

)

$

0.04

 

$

(0.01

)

$

(0.17

)

June 22, 2002

 

(0.63

)

 

0.04

 

 

0.02

 

 

(0.57

)














10


 


Retail



 


Convenience
Distribution



 



Other



 



Total


 

(In thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 21, 2003

 

 

 

 

 

 

 

 

 

 

 

 

Current assets *

$

44,719

 

$

3,502

 

$

8,565

 

$

56,786

 

Property, net

 

7,202

 

 

-

 

 

-

 

 

7,202

 

Other long-term assets

 

681

 

 

-

 

 

8

 

 

83

 

Current liabilities

 

11,458

 

 

13,320

 

 

10,629

 

 

35,407

 

Long-term liabilities

 

10,764

 

 

-

 

 

-

 

 

10,764

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 29, 2003

 

 

 

 

 

 

 

 

 

 

 

 

Current assets *

$

62,108

 

$

41,949

 

$

9,859

 

$

113,916

 

Property, net

 

5,599

 

 

-

 

 

-

 

 

5,599

 

Other long-term assets

 

716

 

 

43

 

 

7

 

 

766

 

Current liabilities

 

11,274

 

 

11,813

 

 

11,401

 

 

34,488

 

Long-term liabilities

 

10,182

 

 

-

 

 

-

 

 

10,182

 

* Includes property and equipment held for sale

Note 4
Asset Impairments and Exit Costs

The discontinued retail operations recognized charges of $3.6 million during the first quarter of fiscal 2004 for asset impairments and exit costs related to transaction costs and severance.

The following table provides the activity of exit costs for fiscal year 2003 and the first twelve weeks of fiscal 2004. Exit costs recorded in the Consolidated Balance Sheets are included in Other accrued expenses in current liabilities and Other long-term liabilities based on when the costs are expected to be paid.

(In thousands)

Lease and
Ancillary Costs


 

 


Severance


 

 

 

 

 

 

 

 

 

Balance at March 31, 2002

$

5,006

 

 

$

-

 

Provision for lease and related ancillary costs, net of estimated
   sublease recoveries

 


17,936


 (a)

 

 


- -

 

Provision for severance

 

-

 

 

 

4,021

 (b)

Payments, net of interest accretion

 


(3,969


)

 

 

(155


)

Balance at March 29, 2003

$

18,973

 

 

$

3,866

 

Provision for severance

 

-

 

 

 

2,808

 (c)

Payments, net of interest accretion

 


(675


)

 

 


(2,681


)

Balance at June 21, 2003

$


18,298


 

 

$


3,993


 

(a) Includes $14.9 million of charges recorded in discontinued Retail operations and $0.1 million recorded in discontinued Grocery Distribution operations.
(b) Includes $3.1 million of charges recorded in discontinued Retail operations and $0.9 million recorded in discontinued Grocery Distribution operations.
(c) Recorded in discontinued Retail operations.




11


Note 5
Goodwill

The following table summarizes the changes in the carrying amount of goodwill during fiscal 2003 and the first twelve weeks of fiscal 2004, by reportable operating segment:

(in thousands)


Retail


 

Grocery
Distribution


 


Other


 


Total


 

Balance at March 30, 2002, net of
   accumulated amortization


$


155,200

 


$


- -

 

$

43

 


$


155,243

 

Allocation of goodwill upon adoption of SFAS No. 142

 

(30,300

)

 

30,300

 

 

 

 

 

-

 

Impairment of goodwill recognized as a cumulative
   effect of a change in accounting principle

 


(41,600


)

 


- -

 

 

 

 

 


(41,600


)

Impairment of goodwill recognized in operating
   loss

 


(43,154


)

 


- -

 

 

 

 

 


(43,154


)

Impairment of goodwill recognized in discontinued
   operations

 


(1,846


)

 


- -

 

 

 

 

 


(1,846


)

Other

 


100


 

 


-


 

 


 


 

 


100


 

Balance at March 29, 2003

 

38,400

 

 

30,300

 

 

43

 

 

68,743

 

Other

 


 


 

 


-


 

 


(43


)

 


(43


)

Balance at June 21, 2003

$


38,400


 

$


30,300


 

$


0


 

$


68,700


 

Note 6
Long-Term Debt

Spartan Stores has a $390.0 million senior secured credit facility pursuant to an Amended and Restated Credit Agreement dated July 29, 2002, consisting of (1) a revolving credit facility in the amount of $60.0 million terminating in 2005, (2) a term loan A in the amount of $100.0 million terminating in 2005, (3) an acquisition facility in the amount of $75.0 million terminating in 2006 and (4) a term loan B in the amount of $150.0 million terminating in 2007. At June 21, 2003, $148.8 million was outstanding under the credit facility. Available borrowings under the credit facility are based on stipulated levels of earnings before interest, income taxes, depreciation and amortization, as defined in the credit facility. The credit facility contains covenants that include the maintenance of certain financial ratios. Spartan Stores' creditors have waived compliance with certain financial covenants through September 12, 2003 as they work with Spartan Stores on alternatives to amend the existing credit facility. Should Spartan Stores not be able to obtain an amended credit facility, it may not be able to comply with the credit facility covenants during the remainder of fiscal 2004. However, management believes that it has the opportunity to amend the existing financing arrangements with its creditors and, if necessary, secure alternative sources of available financing.

Effective March 31, 2003, Spartan Stores suspended the promissory note program and all notes amounting to approximately $8.3 million were paid as of that date.









12


Note 7
Operating Segment Information

The following tables set forth information about Spartan Stores by operating segment:

(In thousands)


Retail


 

Grocery
Distribution


 


Total


 

First Quarter (12 Weeks) Ended June 21, 2003

 

 

 

 

 

 

 

 

 

   Net sales

$

212,273

 

$

289,766

 

$

502,039

 

   Depreciation and amortization

 

3,919

 

 

2,209

 

 

6,128

 

   Operating (loss) earnings

 

(2,987

)

 

2,639

 

 

(348

)

   Capital expenditures

 

779

 

 

1,007

 

 

1,786

 

First Quarter (12 Weeks) Ended June 22, 2002

 

 

 

 

 

 

 

 

 

   Net sales

$

203,846

 

$

286,989

 

$

490,835

 

   Depreciation and amortization

 

3,564

 

 

2,661

 

 

6,225

 

   Operating earnings

 

3,320

 

 

4,664

 

 

7,984

 

   Capital expenditures

 

257

 

 

687

 

 

944

 



 

June 21,
2003


 

March 29,
2003


 

Total assets

 

 

 

 

 

 

   Retail

$

331,033

 

$

313,774

 

   Grocery Distribution

 

862,592

 

 

883,553

 

   Discontinued operations - Retail

 

51,996

 

 

68,423

 

   Discontinued operations - Convenience Distribution

 

3,502

 

 

41,992

 

   Discontinued operations - Grocery Distribution

 

817

 

 

1,368

 

   Discontinued operations - Real Estate

 

1,563

 

 

1,577

 

   Discontinued operations - Insurance

 

6,194

 

 

6,921

 

   Eliminations

 


(780,270


)

 


(761,302


)

   Total

$


477,427


 

$


556,306


 













13


ITEM 2.

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

Results of Operations

The following table sets forth our Consolidated Statements of Operations as percentages of net sales:

 

First Quarter (12 Weeks) Ended


 

 

June 21, 2003
(Unaudited)


 

June 22, 2002
(Unaudited)


 

 

 

 

 

 

Net sales

100.0

%

100.0

%

Gross margin

17.4

 

18.2

 

Selling, general and administrative

17.5


 

16.5


 

Operating (loss) earnings

(0.1

)

1.7

 

Other (income) and expenses

0.8


 

0.8


 

(Loss) earnings before income taxes, discontinued operations and
   cumulative effect of a change in accounting principle


(0.9


)


0.9

 

Income taxes

(0.3


)

0.3


 

(Loss) earnings from continuing operations

(0.6

)

0.6

 

Loss from discontinued operations

(0.6

)

(2.3

)

Cumulative effect of a change in accounting principle

-


 

(7.2


)

 

 

 

 

 

Net loss

(1.2


)%

(8.9


)%

          Net Sales. Consolidated net sales for the quarter ended June 21, 2003 increased $11.2 million, or 2.3%, from $490.8 million in the prior year quarter to $502.0 million primarily due to the opening of three new retail stores in the second half of fiscal 2003 and the benefit resulting from the fact that the Easter holiday occurred in the first quarter of fiscal 2004 and did not occur in fiscal 2003.

          Net sales for the quarter ended June 21, 2003 in our Retail segment increased $8.4 million, or 4.1%, from $203.8 million in the prior year quarter, to $212.3 million. Same-store sales increased 0.7% during the first quarter, however, excluding the effect of the shift in the Easter holiday, same-store sales decreased 1.0%.

          Net sales for the quarter ended June 21, 2003 in our Grocery Distribution segment increased $2.8 million, or 1.0%, from $287.0 million in the prior year quarter, to $289.8 million. The increase was due primarily to the shift in the Easter holiday.

          Gross Margin. Gross margin for the quarter ended June 21, 2003 decreased $1.9 million, or 2.1%, from $89.2 million in the prior year quarter, to $87.3 million. As a percentage of net sales, gross margin for the quarter ended June 21, 2003 decreased to 17.4% from 18.2% for the prior year quarter, but was comparable to the rates achieved in the third and fourth quarters of fiscal 2003.

          Selling, General and Administrative Expenses. Selling, general and administrative ("SG&A") expenses for the quarter ended June 21, 2003 increased $6.5 million, or 8.0%, from $81.2 million in the prior year quarter to $87.7 million. The majority of the increase was due to the additional operating costs of three new stores opened in the third quarter of fiscal 2003 of approximately $2.0 million, expenses of $1.4 million related to a distribution to the former Chief Executive Officer from the Supplemental Executive Retirement Plan, higher advertising costs of $.7 million, accrued incentive bonuses of $.7 million and severance costs of $0.6 million associated with corporate staff reductions. As a percentage of


14


sales, SG&A expenses for the quarter ended June 21, 2003 were 17.5% compared to 16.5% for the prior year quarter. The increase in percentage was primarily due to the cost increases described above. We expect SG&A costs to show improvements during fiscal 2004 and we expect the SG&A expense ratio to improve from better fixed costs leverage as expected sales growth continues.

          Interest Expense. Interest expense from continuing operations increased $0.5 million, or 13.5%, from $3.7 million to $4.2 million, and was 0.8% of net sales for the quarters ended June 21, 2003 and June 22, 2002. The increase in interest expense from continuing operations is due to bank waiver fees recorded in the first quarter of fiscal 2004 of $1.7 million, partially offset by a reduction in expense due to lower average borrowings. Total average borrowings decreased to $206.3 million from $309.4 million for the prior year quarter as a result of the debt repayments resulting from proceeds from the sales of real estate, L&L/Jiroch Distributing Company ("L&L/Jiroch"), J.F. Walker Company, Inc. ("J.F. Walker") and Food Town stores.

          In accordance with EITF Issue No. 87-24, "Allocation of Interest to Discontinued Operations," interest was allocated to discontinued operations based on the interest on debt that will be required or was required to be repaid as a result of disposal transactions. Interest expense of $1.1 million and $1.8 million was allocated to, and is included in, loss on discontinued operations in the Consolidated Statements of Operations for the quarters ended June 21, 2003 and June 22, 2002, respectively. Allocated interest expense from discontinued operations decreased primarily as a result of lower average borrowings.

Discontinued Operations

          In the first quarter of fiscal 2004, we completed the sale of five of the Food Town stores that had been designated for sale or closure. To date during the second quarter of fiscal 2004, an additional 16 stores have been sold. Proceeds received on the sale of these stores are approximately $40.4 million and have been used to reduce outstanding borrowings and pay related transaction expenses. Additional store sales are currently pending and any Food Town stores not sold are expected to be closed. Future gains or losses may be recorded depending on the outcome of these potential sales transactions.

          On June 9, 2003 we completed the sale of substantially all the assets of L&L/Jiroch and J.F. Walker to The H.T. Hackney Co. for approximately $40.8 million in cash and the assumption of certain liabilities. A gain of approximately $1.1 million was recognized on the sale.

Liquidity and Capital Resources

          Net cash provided by operating activities of continuing operations was $1.1 million and $23.7 million during the quarters ended June 21, 2003 and June 22, 2002, respectively. The decrease in net cash provided by operating activities of continuing operations during the first quarter of fiscal 2004 is primarily the result of changes in working capital due to the Easter shift and seasonal inventory composition and the net loss from continuing operations, partially offset by the receipt of an income tax refund of $9.3 million.

          Net cash used in investing activities of continuing operations was $1.6 million and $0.7 million during the quarters ended June 21, 2003 and June 22, 2002, respectively. Cash used in investing activities of continuing operations increased during the first quarter of fiscal 2004 primarily due to increased capital expenditures.



15


          Net cash used in financing activities of continuing operations was $13.1 million and $15.0 million during the quarters ended June 21, 2003 and June 22, 2002, respectively, primarily due to the repayment of long-term debt.

          Our principal sources of liquidity are cash generated from operations and borrowings under a $390.0 million senior secured credit facility pursuant to an Amended and Restated Credit Agreement dated July 29, 2002, consisting of (1) a revolving credit facility in the amount of $60.0 million terminating in 2005, (2) a term loan A in the amount of $100.0 million terminating in 2005, (3) an acquisition facility in the amount of $75.0 million terminating in 2006 and (4) a term loan B in the amount of $150.0 million terminating in 2007. At June 21, 2003, $148.8 million was outstanding under the credit facility. Available borrowings under the credit facility are based on stipulated levels of earnings before interest, income taxes, depreciation and amortization, as defined in the credit facility. The credit facility contains covenants that include the maintenance of certain financial ratios. Our creditors have waived compliance with certain financial covenants through September 1 2, 2003 as they work with us on alternatives to amend our existing credit facility. Should we not be able to obtain revised covenants in an amended credit facility, we may not be able to comply with the credit facility covenants during the remainder of fiscal 2004. However, management believes that it has the opportunity to amend the existing financing arrangements with its creditors and, if necessary, secure alternative sources of available financing.

          Management has recently taken many actions designed to improve operating results and cash flows. In March 2003, the executive management team was strengthened with the appointment of a new President and Chief Executive Officer with over forty years of retail experience. Shortly thereafter, an Executive Vice President with extensive retail and wholesale expertise was hired to lead the Merchandising and Marketing function. Various initiatives involving category management and improved product and promotional programs have already been implemented under the direction of these executives and we believe have resulted in our recently improved sequential sales trends. Cost controls and efficiency have also been priorities of management. Late in the first quarter of fiscal 2004, we eliminated approximately 11% of our corporate staff, resulting in estimated annualized savings of approximately $8.0 million. Improved efficiencies in warehouse operations have also been realized in t he first quarter of fiscal 2004 relative to the fourth quarter of fiscal 2003. On June 9, 2003, we completed the sale of the assets of our Convenience Distribution segment. Proceeds received from this transaction of $40.8 million were used to further reduce outstanding borrowings and operating liabilities. Total outstanding borrowings have been reduced by $52.9 million since the end of fiscal 2003. Additionally, as discussed in Note 3, we have sold 16 stores. Additional store sales are currently pending and any Food Town stores not sold are expected to be closed. The elimination of these operations is expected to have a positive impact on our continuing operating cash flows. Net proceeds received to date of $40.4 million have been used to further reduce outstanding borrowings and operating liabilities and pay transaction costs. Management believes that the early results and the long-term expectations of these initiatives and sales transactions will improve ongoing operating results and cash flows.

          The credit agreement which governs our senior secured credit facility does not allow us to make "restricted payments." "Restricted payments" include cash dividends, as well as redemption of shares and a variety of other types of payments as defined in the bank credit agreement, which was filed as an exhibit to our Annual Report on Form 10-K. The covenants in the bank credit agreement could allow for the payment of dividends in the future. However, we intend to use any net earnings generated from our operations to repay debt in the short term and to improve our distribution and retail operations in the longer term. We do not anticipate paying any cash dividends for the foreseeable future, regardless of whether they are permitted by the credit agreement.



16


          We have in the past offered non-subordinated variable rate promissory notes to the public. The notes were issued in minimum denominations of $1,000. The non-subordinated variable rate promissory notes were issued under a "shelf" registration statement filed with the Securities and Exchange Commission, effective February 26, 2001, which provides for the issuance of up to $100 million of debt securities. Effective March 31, 2003, Spartan Stores suspended the promissory note program and all notes were repaid as of that date.

          Our current ratio decreased to 1.22:1.00 at June 21, 2003 from 1.38:1.00 at March 29, 2003 and working capital decreased to $42.8 million at June 21, 2003 from $87.2 million at March 29, 2003. These declines are primarily the result of more efficient management of inventory and the sales of L&L/Jiroch and J.F. Walker which carried a much higher working capital level.

          Our long-term debt to equity ratio at June 21, 2003 improved to 1.38:1.00 from 1.68:1.00 at March 29, 2003. This decrease was primarily due to reducing long-term debt by $52.9 million, including $30.9 million in debt payments ahead of scheduled maturities, partially offset by first quarter net losses. Management from time to time evaluates longer-term acquisition opportunities, which could result in additional borrowings and additional leases being entered into if consummated, in turn increasing our leverage position.

          Our total capital structure includes borrowings under the senior secured credit facility, various other debt instruments, leases and shareholders' equity.

          The table below presents our significant contractual obligations as of June 21, 2003:


Fiscal Year


 


Long-term Debt


 


Operating Leases


 

Total Contractual
Obligations


 

 

 

 

 

 

 

 

 

 

2004

 

$

18,781

 

$

18,708

 

$

37,489

2005

 

 

33,165

 

 

23,131

 

 

56,296

2006

 

 

19,895

 

 

20,940

 

 

40,835

2007

 

 

88,156

 

 

18,386

 

 

106,542

2008

 

 

4,111

 

 

16,162

 

 

20,273

Thereafter

 

 


3,446


 

 


69,125


 

 


72,571


Total

 

$


167,554


 

$


166,452


 

$


334,006



New Accounting Standards

          In April 2002 the Financial Accounting Standards Board ("FASB") issued SFAS No. 145, "Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections." Among other provisions, SFAS No.145 rescinds SFAS No. 4, "Reporting Gains and Losses from Extinguishment of Debt." As a result, gains and losses from the extinguishment of debt should be reported as extraordinary items only if they meet the criteria of APB Opinion No. 30, "Reporting the Results of Operations - Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions." Gains and losses from extinguishment of debt that do not meet the criteria of APB No. 30 should be reclassified to income from continuing operations for all periods presented. We adopted the provisions of SFAS No. 145 on March 30, 2003. The adoption of this statement will impact the classification on the Statement of Operations of any costs associated with debt extinguishment occurring in the future.



17


          EITF Issue No. 02-16, "Accounting by a Reseller for Cash Consideration Received from a Vendor," provides that cash consideration received from a vendor is presumed to be a reduction of the prices of the vendor's products or services and should, therefore, be characterized as a reduction in cost of goods sold. If such payment is for assets or services delivered to the vendor, the cash consideration should be characterized as revenue, or if such payment is a reimbursement of costs incurred to sell the vendor's products, the cash consideration should be characterized as a reduction of that cost. EITF Issue No. 02-16 was adopted on March 30, 2003 and did not have a material impact on net loss.

Critical Accounting Policies

          This discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts. On an ongoing basis, we evaluate our estimates, including those related to bad debts, inventories, intangible assets, assets held for sale, long-lived assets, income taxes, self-insurance reserves, exit costs, retirement benefits and contingencies and litigation. We base our estimates on historical experience and on various other assumptions and factors that we believe to be reasonable under the circumstances. Based on our ongoing review, we make adjustments we consider appropriate under the facts and circumstances. The accompanying condensed consolidated financial statements are prepared using the same critical accounting policies discussed in our 2003 Annual Report on Form 10-K.



















18


ITEM 3.

Quantitative and Qualitative Disclosure About Market Risk

          There were no material changes in market risk of Spartan Stores in the period covered by this Quarterly Report on Form 10-Q.

ITEM 4.

Controls and Procedures

          Spartan Stores' Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness of Spartan Stores' disclosure controls and procedures (as defined in Rule 13a-4(c) under the Securities Exchange Act of 1934) as of a date within 90 days of the filing date of this Quarterly Report on Form 10-Q (the "Evaluation Date"). They have concluded that, as of the Evaluation Date, Spartan Stores' disclosure controls and procedures were adequate and effective. There were no significant changes in Spartan Stores' internal controls or in other factors that could significantly affect Spartan Stores' disclosure controls and procedures subsequent to the Evaluation Date.




























19


PART II
OTHER INFORMATION


ITEM 6.

Exhibits and Reports on Form 8-K


 

(a)

Exhibits: The following documents are filed as exhibits to this Quarterly Report on Form 10-Q:


Exhibit Number

 

Document

 

 

 

2.1

 

Asset Purchase Agreement dated May 7, 2003, by and among The H.T. Hackney Co., Spartan Stores, Inc., L&L/Jiroch Distributing Company and J.F. Walker Company, Inc. Previously filed as an exhibit to Spartan Stores' Current Report on Form 8-K, filed June 24, 2003. Here incorporated by reference.

 

 

 

2.2

 

Contract of Sale dated as of May 23, 2003, between Seaway Food Town, Inc., Gruber's Food Town, Inc., Buckeye Real Estate Management Co., Gruber's Real Estate, LLC and The Kroger Co. Previously filed as an exhibit to Spartan Stores' Annual Report on Form 10-K for the year ended March 29, 2003. Here incorporated by reference.

 

 

 

3.1

 

Amended and Restated Articles of Incorporation of Spartan Stores, Inc. Previously filed as Annex B to the prospectus and joint proxy statement contained in Spartan Stores' Pre-Effective Amendment No. 1 to Registration Statement on Form S-4, filed on June 5, 2000. Here incorporated by reference.

 

 

 

3.2

 

Amended and Restated Bylaws of Spartan Stores, Inc. Previously filed as Annex B to the prospectus and joint proxy statement contained in Spartan Stores' Pre-Effective Amendment No. 1 to Registration Statement of Form S-4, filed on June 5, 2000. Here incorporated by reference.

 

 

 

99.1

 

Certification pursuant to 18 U.S.C. § 1350. This exhibit is furnished, not filed, in accordance with SEC Release Number 33-8212.



 

(b)

Reports on Form 8-K: Spartan Stores did not file any Current Reports on Form 8-K during the quarter ended June 21, 2003.
















20


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.


 

SPARTAN STORES, INC.
(Registrant)

 

 

 

 

 

 

Date:   August 5, 2003

By /s/ David M. Staples


 

    David M. Staples
    Executive Vice President and Chief Financial
        Officer
    (Principal Financial Officer and duly authorized
        signatory for Registrant)


























21


CERTIFICATIONS

I, Craig C. Sturken, certify that:

1.

I have reviewed this quarterly report on Form 10-Q of Spartan Stores, Inc.;

 

 

2.

Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

 

 

3.

Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

 

 

4.

The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:


 

a)

designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

 

 

 

 

b)

evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and

 

 

 

 

c)

presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;


5.

The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function):


 

a)

all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and

 

 

 

 

b)

any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and


6.

The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.



Date:  August 5, 2003

/s/ Craig C. Sturken


 

Craig C. Sturken
President and Chief Executive Officer





I, David M. Staples, certify that:

1.

I have reviewed this quarterly report on Form 10-Q of Spartan Stores, Inc.;

 

 

2.

Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

 

 

3.

Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

 

 

4.

The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:


 

a)

designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

 

 

 

 

b)

evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and

 

 

 

 

c)

presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;


5.

The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function):


 

a)

all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and

 

 

 

 

b)

any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and


6.

The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.



Date:  August 5, 2003

/s/ David M. Staples


 

David M. Staples
Executive Vice President and Chief
Financial Officer






EXHIBIT INDEX


Exhibit Number

 

Document

 

 

 

2.1

 

Asset Purchase Agreement dated May 7, 2003, by and among The H.T. Hackney Co., Spartan Stores, Inc., L&L/Jiroch Distributing Company and J.F. Walker Company, Inc. Previously filed as an exhibit to Spartan Stores' Current Report on Form 8-K, filed June 24, 2003. Here incorporated by reference.

 

 

 

2.2

 

Contract of Sale dated as of May 23, 2003, between Seaway Food Town, Inc., Gruber's Food Town, Inc., Buckeye Real Estate Management Co., Gruber's Real Estate, LLC and The Kroger Co. Previously filed as an exhibit to Spartan Stores' Annual Report on Form 10-K for the year ended March 29, 2003. Here incorporated by reference.

 

 

 

3.1

 

Amended and Restated Articles of Incorporation of Spartan Stores, Inc. Previously filed as Annex B to the prospectus and joint proxy statement contained in Spartan Stores' Pre-Effective Amendment No. 1 to Registration Statement on Form S-4, filed on June 5, 2000. Here incorporated by reference.

 

 

 

3.2

 

Amended and Restated Bylaws of Spartan Stores, Inc. Previously filed as Annex B to the prospectus and joint proxy statement contained in Spartan Stores' Pre-Effective Amendment No. 1 to Registration Statement of Form S-4, filed on June 5, 2000. Here incorporated by reference.

 

 

 

99.1

 

Certification pursuant to 18 U.S.C. § 1350. This exhibit is furnished, not filed, in accordance with SEC Release Number 33-8212.