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EX-32.1 - EX-32.1 - SpartanNash Cosptn-ex321_7.htm
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EX-31.1 - EX-31.1 - SpartanNash Cosptn-ex311_8.htm

 

 

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

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

For the quarterly period ended October 8, 2016.

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: 000-31127

 

SPARTANNASH COMPANY

(Exact Name of Registrant as Specified in Its Charter)

 

 

Michigan

 

38-0593940

(State or Other Jurisdiction of

Incorporation or Organization)

 

(I.R.S. Employer

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      No  

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes      No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

  

Accelerated filer

 

 

 

 

 

Non-accelerated filer

 

  

Smaller Reporting Company

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Securities Exchange Act)    Yes      No  

As of November 8, 2016, the registrant had 37,481,223 outstanding shares of common stock, no par value.

 

 

 

 


FORWARD-LOOKING STATEMENTS

The matters discussed in this Quarterly Report on Form 10-Q, in the Company’s press releases and in the Company’s website-accessible conference calls with analysts and investor presentations include “forward-looking statements” about the plans, strategies, objectives, goals or expectations of SpartanNash Company and subsidiaries (“SpartanNash” or “the Company”). These forward-looking statements are identifiable by words or phrases indicating that SpartanNash or management “expects,” “anticipates,” “plans,” “believes,” or “estimates,” or that a particular occurrence or event “will,” “may,” “could,” or “should” result or occur or “continue” in the future, that the “outlook” or “trend” is toward a particular result or occurrence, that a development is an “opportunity,” “strategy,” or “focus,” or similarly stated expectations. Accounting estimates, such as those described under the heading “Critical Accounting Policies” in Part I, Item 2 of this Quarterly Report on Form 10-Q, are inherently forward-looking. The Company’s asset impairment and restructuring cost provisions are estimates and actual costs may be more or less than these estimates and differences may be material. Investors should not place undue reliance on these forward-looking statements, which speak only as of the date of the Quarterly Report, other report, release, presentation, or statement.

In addition to other risks and uncertainties described in connection with the forward-looking statements contained in this Quarterly Report on Form 10-Q, SpartanNash’s Annual Report on Form 10-K for the fiscal year ended January 2, 2016 (in particular, refer to the discussion of “Risk Factors” in Item 1A of the Company’s Annual Report on Form 10-K) and other periodic reports filed with the Securities and Exchange Commission (“SEC”), there are many important factors that could cause actual results to differ materially.

The Company’s ability to achieve sales and earnings expectations; improve operating results; continue to realize benefits of the merger with Nash-Finch Company (including realization of synergies); maintain or strengthen retail-store performance; assimilate acquired distribution centers and stores; maintain or grow sales; respond successfully to competitors including remodels and new openings; maintain or improve gross margin; effectively address food cost or price inflation or deflation; maintain and improve customer and supplier relationships; realize expected synergies from merger and acquisition activity; realize expected benefits of restructuring; realize growth opportunities; maintain or expand its customer base; reduce operating costs; sell on favorable terms assets held for sale; generate cash; continue to meet the terms of the Company’s debt covenants; continue to pay dividends; and successfully implement and realize the expected benefits of the other programs, described in this Quarterly Report, the Company’s other reports, press releases and public comments will be affected by changes in economic conditions generally or in the geographic areas that the Company serves, adverse effects of the changing food and distribution industries, adverse changes in government funded consumer assistance programs, possible changes in the military commissary system, including those stemming from the redeployment of forces, congressional action, changes in funding levels, or the effects of mandated reductions in or sequestration of government expenditures, and other factors including, but not limited to, those discussed in the “Risk Factors” discussion in Item 1A of the Company’s Annual Report on Form 10-K for the fiscal year ended January 2, 2016.

This section is intended to provide meaningful cautionary statements for purposes of the safe harbor provision of the Private Securities Litigation Reform Act of 1995. This should not be construed as a complete list of all of the economic, competitive, governmental, technological and other factors that could adversely affect the Company’s expected consolidated financial position, results of operations or liquidity. Additional risks and uncertainties not currently known to SpartanNash or that SpartanNash currently believes are immaterial also may impair its business, operations, liquidity, financial condition and prospects. The Company undertakes no obligation to update or revise its forward-looking statements to reflect developments that occur or information obtained after the date of this Quarterly Report.

 

 

 

2


PART I

FINANCIAL INFORMATION

 

ITEM 1. Financial Statements

SPARTANNASH COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands)

(Unaudited)

 

 

October 8, 2016

 

 

January 2, 2016

 

Assets

 

 

 

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

 

 

 

     Cash and cash equivalents

$

 

26,398

 

 

$

 

22,719

 

     Accounts and notes receivable, net

 

 

321,989

 

 

 

 

317,183

 

     Inventories, net

 

 

561,772

 

 

 

 

521,164

 

     Prepaid expenses and other current assets

 

 

29,589

 

 

 

 

22,521

 

     Total current assets

 

 

939,748

 

 

 

 

883,587

 

 

 

 

 

 

 

 

 

 

 

Property and equipment, net

 

 

570,709

 

 

 

 

583,698

 

Goodwill

 

 

322,686

 

 

 

 

322,902

 

Other assets, net

 

 

160,736

 

 

 

 

127,076

 

 

 

 

 

 

 

 

 

 

 

Total assets

$

 

1,993,879

 

 

$

 

1,917,263

 

 

 

 

 

 

 

 

 

 

 

Liabilities and Shareholders’ Equity

 

 

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

 

 

     Accounts payable

$

 

398,945

 

 

$

 

353,688

 

     Accrued payroll and benefits

 

 

66,980

 

 

 

 

71,973

 

     Other accrued expenses

 

 

40,149

 

 

 

 

42,660

 

     Current maturities of long-term debt and capital lease obligations

 

 

18,998

 

 

 

 

19,003

 

     Total current liabilities

 

 

525,072

 

 

 

 

487,324

 

 

 

 

 

 

 

 

 

 

 

Long-term liabilities

 

 

 

 

 

 

 

 

 

     Deferred income taxes

 

 

116,277

 

 

 

 

116,600

 

     Postretirement benefits

 

 

16,282

 

 

 

 

16,008

 

     Other long-term liabilities

 

 

45,300

 

 

 

 

38,759

 

     Long-term debt and capital lease obligations

 

 

475,365

 

 

 

 

467,793

 

     Total long-term liabilities

 

 

653,224

 

 

 

 

639,160

 

 

 

 

 

 

 

 

 

 

 

Commitments and contingencies (Note 8)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shareholders’ equity

 

 

 

 

 

 

 

 

 

     Common stock, voting, no par value; 100,000 shares

        authorized; 37,488 and 37,600 shares outstanding

 

 

519,390

 

 

 

 

521,698

 

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

 

 

 

 

 

 

 

     Accumulated other comprehensive loss

 

 

(11,444

)

 

 

 

(11,447

)

     Retained earnings

 

 

307,637

 

 

 

 

280,528

 

     Total shareholders’ equity

 

 

815,583

 

 

 

 

790,779

 

 

 

 

 

 

 

 

 

 

 

Total liabilities and shareholders’ equity

$

 

1,993,879

 

 

$

 

1,917,263

 

See accompanying notes to condensed consolidated financial statements.

 

 

 

3


SPARTANNASH COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS

(In thousands, except per share amounts)

(Unaudited)

 

 

12 Weeks Ended

 

 

40 Weeks Ended

 

 

 

October 8,

 

 

October 10,

 

 

October 8,

 

 

October 10,

 

 

 

2016

 

 

2015

 

 

2016

 

 

2015

 

 

Net sales

$

 

1,800,085

 

 

$

 

1,775,401

 

 

$

 

5,906,416

 

 

$

 

5,883,948

 

 

Cost of sales

 

 

1,544,790

 

 

 

 

1,516,352

 

 

 

 

5,054,180

 

 

 

 

5,026,611

 

 

Gross profit

 

 

255,295

 

 

 

 

259,049

 

 

 

 

852,236

 

 

 

 

857,337

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

   Selling, general and administrative

 

 

220,339

 

 

 

 

224,648

 

 

 

 

740,138

 

 

 

 

752,452

 

 

   Merger integration and acquisition

 

 

2,427

 

 

 

 

4,417

 

 

 

 

4,237

 

 

 

 

7,252

 

 

   Restructuring charges and asset impairment

 

 

2,662

 

 

 

 

760

 

 

 

 

23,714

 

 

 

 

7,762

 

 

Total operating expenses

 

 

225,428

 

 

 

 

229,825

 

 

 

 

768,089

 

 

 

 

767,466

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating earnings

 

 

29,867

 

 

 

 

29,224

 

 

 

 

84,147

 

 

 

 

89,871

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other (income) and expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

   Interest expense

 

 

4,419

 

 

 

 

4,983

 

 

 

 

14,678

 

 

 

 

16,627

 

 

   Other, net

 

 

(146

)

 

 

 

(148

)

 

 

 

(416

)

 

 

 

(202

)

 

Total other expenses, net

 

 

4,273

 

 

 

 

4,835

 

 

 

 

14,262

 

 

 

 

16,425

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings before income taxes and discontinued operations

 

 

25,594

 

 

 

 

24,389

 

 

 

 

69,885

 

 

 

 

73,446

 

 

   Income taxes

 

 

8,864

 

 

 

 

9,141

 

 

 

 

25,635

 

 

 

 

27,444

 

 

Earnings from continuing operations

 

 

16,730

 

 

 

 

15,248

 

 

 

 

44,250

 

 

 

 

46,002

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Loss) earnings from discontinued operations, net of taxes

 

 

(82

)

 

 

 

145

 

 

 

 

(268

)

 

 

 

(21

)

 

Net earnings

$

 

16,648

 

 

$

 

15,393

 

 

$

 

43,982

 

 

$

 

45,981

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic earnings per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

   Earnings from continuing operations

$

 

0.45

 

 

$

 

0.41

 

 

$

 

1.18

 

 

$

 

1.22

 

 

   (Loss) earnings from discontinued operations

 

 

(0.01

)

*

 

 

 

 

 

 

(0.01

)

 

 

 

 

 

   Net earnings

$

 

0.44

 

 

$

 

0.41

 

 

$

 

1.17

 

 

$

 

1.22

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted earnings per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

   Earnings from continuing operations

$

 

0.45

 

 

$

 

0.40

 

 

$

 

1.18

 

 

$

 

1.22

 

 

   (Loss) earnings from discontinued operations

 

 

(0.01

)

*

 

 

0.01

 

*

 

 

(0.01

)

 

 

 

 

 

   Net earnings

$

 

0.44

 

 

$

 

0.41

 

 

$

 

1.17

 

 

$

 

1.22

 

 

See accompanying notes to condensed consolidated financial statements.

*

Includes rounding

 

 

 

4


SPARTANNASH COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands)

(Unaudited)

 

 

12 Weeks Ended

 

 

40 Weeks Ended

 

 

October 8,

 

 

October 10,

 

 

October 8,

 

 

October 10,

 

 

2016

 

 

2015

 

 

2016

 

 

2015

 

Net earnings

$

 

16,648

 

 

$

 

15,393

 

 

$

 

43,982

 

 

$

 

45,981

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income, before tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pension and postretirement liability adjustment

 

 

1

 

 

 

 

204

 

 

 

 

4

 

 

 

 

681

 

Total other comprehensive income, before tax

 

 

1

 

 

 

 

204

 

 

 

 

4

 

 

 

 

681

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income tax expense related to items of other comprehensive income

 

 

 

 

 

 

(78

)

 

 

 

(1

)

 

 

 

(259

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total other comprehensive income, after tax

 

 

1

 

 

 

 

126

 

 

 

 

3

 

 

 

 

422

 

Comprehensive income

$

 

16,649

 

 

$

 

15,519

 

 

$

 

43,985

 

 

$

 

46,403

 

See accompanying notes to condensed consolidated financial statements.

 

 

 

5


SPARTANNASH COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY

(In thousands)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other

 

 

 

 

 

 

 

 

 

 

 

 

Shares

 

 

Common

 

 

Comprehensive

 

 

Retained

 

 

 

 

 

 

 

Outstanding

 

 

Stock

 

 

Income (Loss)

 

 

Earnings

 

 

Total

 

Balance at January 2, 2016

 

37,600

 

 

$

 

521,698

 

 

$

 

(11,447

)

 

$

 

280,528

 

 

$

 

790,779

 

Net earnings

 

 

 

 

 

 

 

 

 

 

 

 

 

43,982

 

 

 

 

43,982

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

3

 

 

 

 

 

 

 

 

3

 

Dividends - $0.45 per share

 

 

 

 

 

 

 

 

 

 

 

 

 

(16,873

)

 

 

 

(16,873

)

Share repurchase

 

(396

)

 

 

 

(9,000

)

 

 

 

 

 

 

 

 

 

 

 

(9,000

)

Stock-based employee compensation

 

 

 

 

 

7,010

 

 

 

 

 

 

 

 

 

 

 

 

7,010

 

Issuances of common stock and related tax benefit

   on stock option exercises and stock bonus plan

 

85

 

 

 

 

2,067

 

 

 

 

 

 

 

 

 

 

 

 

2,067

 

Issuances of restricted stock and related income

   tax benefits

 

315

 

 

 

 

(157

)

 

 

 

 

 

 

 

 

 

 

 

(157

)

Cancellations of stock-based awards

 

(116

)

 

 

 

(2,228

)

 

 

 

 

 

 

 

 

 

 

 

(2,228

)

Balance at October 8, 2016

 

37,488

 

 

$

 

519,390

 

 

$

 

(11,444

)

 

$

 

307,637

 

 

$

 

815,583

 

See accompanying notes to condensed consolidated financial statements.

 

 

 

6


SPARTANNASH COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)  

 

 

40 Weeks Ended

 

 

October 8,

 

 

October 10,

 

 

2016

 

 

2015

 

Cash flows from operating activities

 

 

 

 

 

 

 

 

 

Net earnings

$

 

43,982

 

 

$

 

45,981

 

Loss from discontinued operations, net of tax

 

 

268

 

 

 

 

21

 

Earnings from continuing operations

 

 

44,250

 

 

 

 

46,002

 

Adjustments to reconcile net earnings to net cash provided by operating activities:

 

 

 

 

 

 

 

 

 

Non-cash restructuring, asset impairment and other charges

 

 

22,938

 

 

 

 

8,457

 

Depreciation and amortization

 

 

60,436

 

 

 

 

65,952

 

LIFO expense

 

 

2,130

 

 

 

 

3,195

 

Postretirement benefits expense

 

 

157

 

 

 

 

454

 

Deferred taxes on income

 

 

(715

)

 

 

 

4,615

 

Stock-based compensation expense

 

 

7,010

 

 

 

 

6,470

 

Excess tax benefit on stock compensation

 

 

(332

)

 

 

 

(1,232

)

Other, net

 

 

(234

)

 

 

 

70

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(5,628

)

 

 

 

(38,214

)

Inventories

 

 

(44,115

)

 

 

 

4,175

 

Prepaid expenses and other assets

 

 

(42,287

)

 

 

 

4,019

 

Accounts payable

 

 

52,496

 

 

 

 

45,796

 

Accrued payroll and benefits

 

 

(8,882

)

 

 

 

(10,572

)

Postretirement benefit payments

 

 

(256

)

 

 

 

(729

)

Other accrued expenses and other liabilities

 

 

(8,395

)

 

 

 

(8,589

)

   Net cash provided by operating activities

 

 

78,573

 

 

 

 

129,869

 

Cash flows from investing activities

 

 

 

 

 

 

 

 

 

Purchases of property and equipment

 

 

(57,215

)

 

 

 

(56,862

)

Net proceeds from the sale of assets

 

 

5,650

 

 

 

 

20,342

 

Acquisitions, net of cash acquired

 

 

 

 

 

 

(32,229

)

Loans to customers

 

 

(1,962

)

 

 

 

(3,563

)

Payments from customers on loans

 

 

1,697

 

 

 

 

1,415

 

Other

 

 

(706

)

 

 

 

(600

)

   Net cash used in investing activities

 

 

(52,536

)

 

 

 

(71,497

)

Cash flows from financing activities

 

 

 

 

 

 

 

 

 

   Proceeds from revolving credit facility

 

 

1,013,812

 

 

 

 

777,075

 

   Payments on revolving credit facility

 

 

(1,004,077

)

 

 

 

(796,799

)

   Share repurchase

 

 

(9,000

)

 

 

 

(9,000

)

   Repayment of other long-term debt

 

 

(7,071

)

 

 

 

(6,515

)

   Financing fees paid

 

 

(99

)

 

 

 

(1,906

)

   Excess tax benefit on stock compensation

 

 

332

 

 

 

 

1,232

 

   Proceeds from exercise of stock options

 

 

1,032

 

 

 

 

3,650

 

   Dividends paid

 

 

(16,873

)

 

 

 

(15,223

)

   Net cash used in financing activities

 

 

(21,944

)

 

 

 

(47,486

)

Cash flows from discontinued operations

 

 

 

 

 

 

 

 

 

   Net cash (used in) provided by operating activities

 

 

(414

)

 

 

 

640

 

   Net cash used in investing activities

 

 

 

 

 

 

(9,459

)

   Net cash used in discontinued operations

 

 

(414

)

 

 

 

(8,819

)

Net increase in cash and cash equivalents

 

 

3,679

 

 

 

 

2,067

 

Cash and cash equivalents at beginning of period

 

 

22,719

 

 

 

 

6,443

 

Cash and cash equivalents at end of period

$

 

26,398

 

 

$

 

8,510

 

See accompanying notes to condensed consolidated financial statements.

 

 

 

7


SPARTANNASH COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

Note 1 – Summary of Significant Accounting Policies and Basis of Presentation

The accompanying unaudited condensed consolidated financial statements (the “financial statements”) are prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”) and include the accounts of SpartanNash Company and its subsidiaries (“SpartanNash” or “the Company”). All significant intercompany accounts and transactions have been eliminated. For further information, refer to the consolidated financial statements and footnotes included in the Company’s Annual Report on Form 10-K for the year ended January 2, 2016.

 

In the opinion of management, the accompanying consolidated financial statements, taken as a whole, contain all adjustments, including normal recurring items, necessary to present fairly the financial position of SpartanNash as of October 8, 2016, 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.

 

Note 2 – Recently Issued Accounting Standards

In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-13, “Financial Instruments – Credit Losses: Measurement of Credit Losses on Financial Instruments.” ASU 2016-13 changes the impairment model for most financial assets and certain other instruments. For trade and other receivables, loans, net investments in leases, and off-balance-sheet credit exposures (e.g., loan commitments, standby letters of credit), entities will be required to use a new forward-looking “expected loss” model that will replace today’s “incurred loss” model, generally resulting in earlier recognition of allowances for credit losses. The new guidance is effective for the Company in the first quarter of its fiscal year ending January 2, 2021. The Company is currently in the process of evaluating the impact of adoption of this standard on its consolidated financial statements.

 

In March 2016, the FASB issued ASU 2016-09, “Compensation – Stock Compensation Improvements to Employee Share-Based Payment Accounting.” ASU 2016-09 provides for simplification of several aspects of the accounting for share-based payment transactions, including income tax consequences, classification of awards as either equity or liabilities and classification on the statement of cash flows. The new guidance is effective for the Company in the first quarter of its fiscal year ending December 30, 2017. Early adoption is permitted for any entity in any interim or annual period. The Company does not expect the adoption of this standard to have a material impact on its consolidated financial statements.

 

In March 2016, the FASB issued ASU 2016-04, “Liabilities – Extinguishment of Liabilities: Recognition of Breakage for Certain Prepaid Stored-Value Products.” ASU 2016-04 amends the guidance on extinguishing financial liabilities for certain prepaid stored-value products. The new guidance requires entities that sell prepaid stored-value products redeemable for goods, services or cash at third-party merchants to recognize breakage for those liabilities consistent with the breakage guidance outlined in ASU 2014-09, “Revenue from Contracts with Customers.” The new guidance is effective for the Company in the first quarter of its fiscal year ending December 29, 2018. The Company is currently in the process of evaluating the impact of adoption of this standard on its consolidated financial statements.

 

In February 2016, the FASB issued ASU 2016-02, “Leases.” ASU 2016-02 provides guidance for lease accounting, and stipulates that lessees will need to recognize a right-of-use asset and a lease liability for substantially all leases (other than leases that meet the definition of a short-term lease). The liability will be equal to the present value of lease payments. Treatment in the consolidated statements of earnings will be similar to the current treatment of operating and capital leases. The new guidance is effective on a modified retrospective basis for the Company in the first quarter of its fiscal year ending December 28, 2019. The Company is currently in the process of evaluating the impact of adoption of this standard on its consolidated financial statements.

 

In April 2015, the FASB issued ASU 2015-03, Interest – Imputation of Interest: Simplifying the Presentation of Debt Issuance Costs.” In August 2015, the FASB issued ASU 2015-15, “Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements.” The standards require that debt issuance costs related to a recognized debt liability, including a line of credit, be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts, and amortized ratably over the term of the debt liability. The Company adopted the new standards in the first quarter of fiscal 2016 on a retrospective basis for all periods presented. Adoption of the standards resulted in an $8.2 million reduction of Other assets and Long-term debt related to unamortized debt issuance costs on the consolidated balance sheet as of January 2, 2016.

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In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers.” ASU 2014-09 provides guidance for revenue recognition. The new guidance affects any reporting organization that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of nonfinancial assets unless those contracts are within the scope of other standards. The standard’s core principle is that a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. In August 2015, the FASB issued ASU 2015-14, “Deferral of the Effective Date,” which results in the guidance being effective for the Company in the first quarter of its fiscal year ending December 29, 2018. The adoption will include updates as provided under ASU 2016-08, “Principal versus Agent Considerations (Reporting Revenue Gross versus Net);” ASU 2016-10, “Identifying Performance Obligations and Licensing;” and ASU 2016-12, “Narrow-Scope Improvements and Practical Expedients.” Adoption is allowed by either the full retrospective or modified retrospective approach. The Company is currently in the process of evaluating the impact of adoption of this standard on its consolidated financial statements.

 

Note 3 Acquisitions

On June 16, 2015, SpartanNash acquired certain assets and assumed certain liabilities of Dan’s Super Market, Inc. (“Dan’s”) for a total purchase price of $32.6 million. Dan’s was a six-store chain serving Bismarck and Mandan, North Dakota, and was not a customer of the SpartanNash Food Distribution segment prior to the acquisition. SpartanNash acquired the Dan’s stores to strengthen its offering in this region from both a retail and distribution perspective. During the measurement period, which ended June 15, 2016, there were no material adjustments made to the initial fair values of the assets acquired and liabilities assumed as part of the Dan’s acquisition.

 

Note 4 – Goodwill

Changes in the carrying amount of goodwill were as follows:

 

(In thousands)

Retail

 

 

Food Distribution

 

 

Total

 

Balance at January 2, 2016:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Goodwill

$

 

277,135

 

 

$

 

132,367

 

 

$

 

409,502

 

Accumulated impairment charges

 

 

(86,600

)

 

 

 

 

 

 

 

(86,600

)

Goodwill, net

 

 

190,535

 

 

 

 

132,367

 

 

 

 

322,902

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other (Note 5)

 

 

(216

)

 

 

 

 

 

 

 

(216

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at October 8, 2016:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Goodwill

 

 

276,919

 

 

 

 

132,367

 

 

 

 

409,286

 

Accumulated impairment charges

 

 

(86,600

)

 

 

 

 

 

 

 

(86,600

)

Goodwill, net

$

 

190,319

 

 

$

 

132,367

 

 

$

 

322,686

 

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The Company reviews goodwill and other intangible assets for impairment annually, during the fourth quarter of each fiscal year, and more frequently if circumstances indicate the possibility of impairment. Subsequent to the third quarter and consistent with previous years, the Company has begun its annual goodwill impairment test to determine whether the carrying value of goodwill exceeds its estimated fair value. As of the date of the most recently completed goodwill impairment test, which utilized data and assumptions as of October 10, 2015, the Food Distribution reporting unit had a fair value that was substantially in excess of its carrying value, and the fair value of the Retail reporting unit, which had $190.5 million of recorded goodwill as of the assessment date, exceeded its carrying value by 6.8%. The fair value calculations contain significant judgments and estimates related to the Retail reporting unit’s projected weighted average cost of capital, future revenues and cash flows, and overall profitability. These judgments and estimates are impacted by a number of different factors, both internal and external, that could result in changes in the estimates and their related outcomes. Specifically, certain changes in economic, industry or market conditions, business operations, competition, or the Company’s performance could affect the estimates used in the fair value calculations.

 

The Company continues to assess whether indicators are present or if there are changes in circumstances that would suggest impairment may exist, including an evaluation of the significant judgments and estimates related to the Retail reporting unit’s projected weighted average cost of capital, future revenues and cash flows, and overall profitability. Since the most recent goodwill impairment test, the Company has continued to monitor the trends of the Retail reporting unit’s performance and has since performed a detailed internal analysis to assess the impact of those trends on the reporting unit’s estimated fair value. Based on recent performance, the Company is not aware of any events or significant changes in its estimates that would indicate that impairment exists, and the Company has sufficient available information, both current and historical, to support its assumptions, judgments and estimates. From a sensitivity perspective, no goodwill impairment charge would be required for the Retail reporting unit if the estimate of future discounted cash flow was 5% lower or if the discount rate increased by 30 basis points. However, if the Company’s stock price experiences a significant and sustained decline or other events or changes in circumstances occur, such as interest rate increases, changes in macroeconomic conditions, or operating results of the Retail reporting unit not meeting the Company’s estimates, it could result in the Company recording a significant non-cash impairment charge.

 

Note 5 – Restructuring Charges and Asset Impairment

The following table provides the activity of reserves for closed properties for the 40 weeks ended October 8, 2016. Reserves for closed properties recorded in the condensed consolidated balance sheets are included in “Other accrued expenses” in Current liabilities and “Other long-term liabilities” in Long-term liabilities based on when the obligations are expected to be paid.

 

 

Lease and

 

 

 

 

 

 

 

(In thousands)

Ancillary Costs

 

 

Severance

 

 

Total

 

Balance at January 2, 2016

$

 

14,448

 

 

$

 

 

 

$

 

14,448

 

Provision for closing charges (a)

 

 

13,546

 

 

 

 

 

 

 

 

13,546

 

Provision for severance (b)

 

 

 

 

 

 

895

 

 

 

 

895

 

Changes in estimates (c)

 

 

218

 

 

 

 

(40

)

 

 

 

178

 

Accretio