ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
This Management’s Discussion and Analysis of financial condition and results of operations should be read in conjunction with the unaudited condensed consolidated financial statements contained in this Quarterly Report on Form 10-Q, the information contained under the caption “Forward-Looking Statements,” which appears at the beginning of this report, and the information in the Company’s Annual Report on Form 10-K for the fiscal year ended December 29, 2018.
Overview
SpartanNash, headquartered in Grand Rapids, Michigan, is a leading multi-regional grocery distributor and grocery retailer whose core businesses include distributing grocery products to a diverse group of independent and chain retailers, its corporate owned retail stores, military commissaries and exchanges in the United States, as well as premier fresh produce distribution and fresh food processing. The Company operates three reportable business segments: Food Distribution, Military and Retail. The Company serves customers in all 50 states.
The Company’s Food Distribution segment provides a wide variety of nationally branded and private brand grocery products and perishable food products to approximately 2,100 independent retail locations, the Company’s corporate owned retail stores, food service distributors and other customers. The Food Distribution segment primarily conducts business in the Midwest and Southeast regions of the United States. The Company processes fresh-cut fruits and vegetables and other value-added meal solutions and supplies these products to grocery retailers and food service distributors.
The Company’s Military segment contracts with manufacturers to distribute a wide variety of grocery products primarily to military commissaries and exchanges located in the United States, the District of Columbia, Europe, Cuba, Puerto Rico, Honduras, Bahrain, Djibouti and Egypt. The Company has over 40 years of experience acting as a distributor to U.S. military commissaries and exchanges. The Company is the exclusive worldwide supplier of private brand products to U.S. military commissaries and is continuing to partner with DeCA in the rollout of private brand products to military commissaries which began during the second quarter of fiscal 2017.
At the end of the second quarter, the Company’s Retail segment operated 160 corporate owned retail stores in the Midwest region primarily under the banners of
Family Fare, Martin’s Super Markets, VG’s Food and Pharmacy, D&W Fresh Markets, Sun Mart
and
Family Fresh Market.
The Company also offers pharmacy services in 98 of its corporate owned retail stores and operates 37 fuel centers. The retail stores have a “neighborhood market” focus to distinguish them from supercenters and limited assortment stores.
All fiscal quarters are 12 weeks, except for the Company’s first quarter, which is 16 weeks and will generally include the Easter holiday. The fourth quarter includes the Thanksgiving and Christmas holidays, and depending on the fiscal year end, may include the New Year’s holiday.
In certain geographic areas, the Company’s sales and operating performance may vary with seasonality. Many stores are dependent on tourism and therefore, are most affected by seasons and weather patterns, including, but not limited to, the amount and timing of snowfall during the winter months and the range of temperature during the summer months.
2019 Second Quarter Highlights
During the quarter ended July 13, 2019, the Company made significant progress on its strategic objectives and better positioned itself for long-term growth and profitability. In addition to realizing sales growth, the Company remains focused on its other top objectives for the current year, including strengthening its management team, systems and supply chain operations, generating improvements through its Project One Team initiative, and reducing its debt, working capital and financial leverage ratios, which will all contribute to improved growth in adjusted operating earnings and adjusted EBITDA.
Second quarter 2019 operational highlights include:
|
•
|
The Company realized sales growth of over 5% from the same quarter in the prior year. This growth was driven by contributions from the newly acquired Martin’s business in the Retail segment and growth in the Military Distribution segment. Before the intercompany elimination of Martin’s sales, the Food Distribution segment also realized growth of 3.0%.
|
|
•
|
In connection with Project One Team, the Company has completed the implementation of a number of the initiatives and remains on track to achieve a run rate of over $20 million in annual cost savings within the next 24 months. Initiatives currently in the process of being implemented include improving the systems and policies for inventory procurement and management, supply chain efficiency and automation of routine administrative tasks.
|
18
|
•
|
During the second quarter, the Company appointed Walt Lentz as the President of Food Distribution. Mr. Lentz has an extensive background in logistics, supply chain and food manufacturing, including roles as Acting Chief Executive Officer and Chief Supply Chain Officer of Peapod LLC, the grocery eCommerce business division of Ahold Delhaize. He oversees the Food Distribution segment and has assumed responsibility for the Company’s supply chain. He has joined the other leaders of SpartanNash in developing teams to position the Company for long-term sustainable growth.
|
|
•
|
Since the second quarter of 2018, the Company has paid down over $90.0 million in debt, resulting in an $8 million reduction in the debt balance despite using approximately $87.0 million to fund the acquisition of Martin’s at the beginning of fiscal 2019. The Company also reduced its working capital by over $15.0 million from the second quarter of fiscal 2018, while continuing to grow sales. The Company will continue to focus on working capital improvements and debt reduction and is targeting total working capital improvements of $30.0 million for the full fiscal year.
|
|
•
|
The Company recently made the decision to reposition its Fresh Production operations.
As a result of this change, the Company’s Fresh Production operations will continue to produce
the high-quality cut fruits, vegetables and core deli offerings such as salads, sandwiches and wraps that have been a hallmark of these operations for over a decade. However, the Company will exit the Fresh Kitchen operations, an area of the business which has been unable to deliver on management’s expectations
, resulting in lower volume production runs which were neither efficient nor profitable, significantly contributing to unfavorable performance within the Food Distribution segment.
The annual net sales impact of exiting the Fresh Kitchen operations will be approximately $20 million.
|
For the remainder of 2019, the Company expects Food Distribution to achieve low- to mid-single digit sales growth driven by existing customers and new business. This expectation excludes the impact of the elimination of intercompany sales related to the acquisition of the Martin’s business. In the Military segment, the Company expects that new business within the segment, including continued private brand growth, will largely offset the negative DeCA comparable sales trend. Within the Retail segment, the Company expects total sales will increase due to the acquisition of Martin’s and the significant current year implementation of the Company’s brand positioning, partly offset by the impact of store rationalization plans.
Results of Operations
The following table sets forth items from the condensed consolidated statements of operations as a percentage of net sales and the year-to-year percentage change in the dollar amounts:
|
Percentage of Net Sales
|
|
|
Percentage Change
|
|
|
12 Weeks Ended
|
|
|
28 Weeks Ended
|
|
|
12 Weeks Ended
|
|
|
28 Weeks Ended
|
|
|
July 13, 2019
|
|
|
July 14, 2018
|
|
|
July 13, 2019
|
|
|
July 14, 2018
|
|
|
July 13, 2019
|
|
|
July 13, 2019
|
|
Net sales
|
|
100.0
|
|
|
|
100.0
|
|
|
|
100.0
|
|
|
|
100.0
|
|
|
|
5.3
|
|
|
|
6.0
|
|
Gross profit
|
|
14.5
|
|
|
|
14.0
|
|
|
|
14.7
|
|
|
|
14.2
|
|
|
|
8.8
|
|
|
|
9.5
|
|
Selling, general and administrative expenses
|
|
13.4
|
|
|
|
12.5
|
|
|
|
13.8
|
|
|
|
12.7
|
|
|
|
12.8
|
|
|
|
15.0
|
|
Merger/acquisition and integration
|
|
0.0
|
|
|
|
0.0
|
|
|
|
0.0
|
|
|
|
0.1
|
|
|
|
(27.6
|
)
|
|
|
(54.7
|
)
|
Restructuring charges (gains) and asset impairment
|
|
0.7
|
|
|
|
(0.1
|
)
|
|
|
0.2
|
|
|
|
0.1
|
|
|
**
|
|
|
|
77.1
|
|
Operating earnings
|
|
0.4
|
|
|
|
1.6
|
|
|
|
0.7
|
|
|
|
1.3
|
|
|
|
(75.3
|
)
|
|
|
(46.8
|
)
|
Other income and expenses
|
|
0.9
|
|
|
|
0.4
|
|
|
|
0.6
|
|
|
|
0.4
|
|
|
|
153.6
|
|
|
|
90.6
|
|
(Loss) earnings before income taxes and discontinued operations
|
|
(0.5
|
)
|
|
|
1.2
|
|
|
|
0.0
|
|
|
|
0.9
|
|
|
|
(142.1
|
)
|
|
|
(98.9
|
)
|
Income tax (benefit) expense
|
|
(0.1
|
)
|
|
|
0.3
|
|
|
|
(0.0
|
)
|
|
|
0.2
|
|
|
|
(156.1
|
)
|
|
|
(103.2
|
)
|
(Loss) earnings from continuing operations
|
|
(0.3
|
)
|
|
|
0.9
|
|
|
|
0.0
|
|
|
|
0.7
|
|
|
|
(137.9
|
)
|
|
|
(97.5
|
)
|
Loss from discontinued operations, net of taxes
|
|
(0.0
|
)
|
|
|
(0.0
|
)
|
|
|
(0.0
|
)
|
|
|
(0.0
|
)
|
|
**
|
|
|
**
|
|
Net (loss) earnings
|
|
(0.3
|
)
|
|
|
0.9
|
|
|
|
0.0
|
|
|
|
0.7
|
|
|
|
(138.3
|
)
|
|
|
(97.8
|
)
|
Note: Certain totals do not sum due to rounding.
** Not meaningful
19
Net Sales
–
The following table presents net sales by segment and variances in net sales:
|
12 Weeks Ended
|
|
|
28 Weeks Ended
|
|
(In thousands)
|
July 13, 2019
|
|
|
July 14, 2018
|
|
|
Variance
|
|
|
July 13, 2019
|
|
|
July 14, 2018
|
|
|
Variance
|
|
Food Distribution
|
$
|
|
935,383
|
|
|
$
|
|
941,702
|
|
|
$
|
|
(6,319
|
)
|
|
$
|
|
2,104,621
|
|
|
$
|
|
2,096,913
|
|
|
$
|
|
7,708
|
|
Military
|
|
|
490,571
|
|
|
|
|
489,654
|
|
|
|
|
917
|
|
|
|
|
1,161,941
|
|
|
|
|
1,153,274
|
|
|
|
|
8,667
|
|
Retail
|
|
|
569,975
|
|
|
|
|
464,597
|
|
|
|
|
105,378
|
|
|
|
|
1,271,742
|
|
|
|
|
1,030,839
|
|
|
|
|
240,903
|
|
Total net sales
|
$
|
|
1,995,929
|
|
|
$
|
|
1,895,953
|
|
|
$
|
|
99,976
|
|
|
$
|
|
4,538,304
|
|
|
$
|
|
4,281,026
|
|
|
$
|
|
257,278
|
|
Net sales for the quarter ended July 13, 2019 (“second quarter”) increased $100.0 million, or 5.3%, to $2.00 billion from $1.90 billion in the quarter ended July 14, 2018 (“prior year quarter”). Net sales for the year-to-date period ended July 13, 2019 (“year-to-date period”) increased $257.3 million, or 6.0%, to $4.54 billion from $4.28 billion in the year-to-date period ended July 14, 2018 (“prior year-to-date period”). The increases were driven primarily by incremental sales from the Martin’s acquisition.
Food Distribution net sales decreased $6.3 million, or 0.7%, to $935.4 million in the second quarter from $941.7 million in the prior year quarter. Net sales for the year-to-date period increased $7.7 million, or 0.4%, from $2.10 billion in the prior year-to-date period. Before the impact of the elimination of sales to Martin’s, following the acquisition at the beginning of 2019, sales grew 3.0% and 4.2% in the second quarter and year-to-date period, respectively. The second quarter and year-to-date increases excluding the impact of the Martin’s elimination were due to sales growth from existing customers. The Company’s rate of sales growth within this segment decelerated from recent quarters, largely due to unseasonably cool and wet weather during the months of May and June. These trends improved during the month of July as the weather improved and the rate of growth returned to that observed in recent quarters.
Military net sales increased $0.9 million, or 0.2%, to $490.6 million in the second quarter from $489.7 million in the prior year quarter. Net sales for the year-to-date period increased $8.7 million, or 0.8%, from $1.15 billion in the prior year-to-date period to $1.16 billion. The increases were primarily due to incremental volume from new business with an existing customer that commenced late in the fourth quarter of 2018 and growth in DeCA’s private brand program, partially offset by lower comparable sales at DeCA operated locations.
Retail net sales increased $105.4 million, or 22.7%, to $570.0 million in the second quarter from $464.6 million in the prior year quarter.
Net sales for the year-to-date period increased $240.9 million, or 23.4%, from $1.03 billion in the prior year-to-date period to $1.27 billion.
The increase in net sales was primarily attributable to incremental sales from the Martin’s acquisition. Excluding the impact of Martin’s, sales decreased 3.3% and 3.1% in the second quarter and year-to-date period, respectively, as a result of store closures and negative comparable store sales. Comparable store sales, excluding fuel, decreased 2.0% for the quarter
and decreased 1.1% percent for the year-to-date period
. Comparable store sales for the quarter were negatively impacted by the shift of the post-Easter week into the second quarter by 0.5%. The Company defines a retail store as comparable when it is in operation for 14 accounting periods (a period equals four weeks), regardless of remodels, expansions or relocated stores. The Company’s definition of comparable store sales may differ from similarly titled measures at other companies.
Gross Profit
– Gross profit represents net sales less cost of sales, which for all non-production operations includes purchase costs, in-bound freight, physical inventory adjustments, markdowns and promotional allowances and excludes warehousing costs, depreciation and other administrative expenses. For the Company’s food processing operations, cost of sales includes direct product and production costs, inbound freight, purchasing and receiving costs, utilities, depreciation, and other indirect production costs and excludes out-bound freight and other administrative expenses. The Company’s gross profit definition may not be identical to similarly titled measures reported by other companies. Vendor allowances that relate to the buying and merchandising activities consist primarily of promotional allowances, which are generally allowances on purchased quantities and, to a lesser extent, slotting allowances, which are billed to vendors for the Company’s merchandising costs, such as setting up warehouse infrastructure. Vendor allowances are recognized as a reduction in cost of sales when the product is sold. Lump sum payments received for multi-year contracts are amortized over the life of the contracts based on contractual terms. The distribution segments include shipping and handling costs in the Selling, general and administrative section of operating expenses in the consolidated statements of earnings.
Gross profit increased $23.3 million, or 8.8%, to $289.0 million in the second quarter from $265.7 million in the prior year quarter. As a percent of net sales, gross profit was 14.5% compared to 14.0% in the prior year quarter. Gross profit for the year-to-date period increased $57.9 million, or 9.5%, from $608.9 million in the prior year-to-date period to $666.7 million in the current year. As a percent of net sales, gross profit for the year-to-date period was 14.7% compared to 14.2% in the prior year-to-date period. As a percent of net sales, the second quarter and year-to-date period change in gross margin was primarily due to the acquisition of Martin’s, partially offset by lower margins in other business segments.
Selling, General and Administrative Expenses
– Selling, general and administrative (“SG&A”) expenses consist primarily of salaries and wages, employee benefits, warehousing costs, store occupancy costs, shipping and handling, utilities, equipment rental, depreciation (to the extent not included in Cost of sales), out-bound freight and other administrative expenses.
20
SG&A expenses
increased to
$266.5
million in the
second
quarter
from
$236.2
million in the prior year quarter, representing
13.4%
of net sales in the
second
quarter compared to
12.5%
in the prior year quarter.
SG&A expenses for the year-to-date period
in
creased
$81.6
million, or
15.0%
,
from
$545.3
million in the prior year-to-date period to
$626.9
million, and
in
creased
from
12.7%
as a percentage of net sales in the prior year-to-date period compared to
13.8%
.
The increase in expenses as a rate of sales compared to the prior year quarter
and year-to-date period
was primarily due to
an increase in the mix of Retail segment operations with
the acquisition of Martin’s
as well as higher supply chain costs in both Military and Food Distribution segments.
These increases were offset by favorable variances related to incentive compensation expense across all segments.
Merger/Acquisition and Integration
– Second quarter and prior year quarter results included $0.6 million and $0.8 million of merger/acquisition and integration expenses, respectively. The year-to-date period and the prior year-to-date period results included $1.4 million and $3.0 million of merger/acquisition and integration expenses, respectively. The expenses are mainly associated with the acquisition and integration of Martin’s in the current year and the
integration of Spartan Stores, Inc. and Nash-Finch Company
in the prior year.
Restructuring Charges (Gains) and Asset Impairment –
Second quarter and prior year quarter results included charges of $14.6 million and gains of $1.2 million, respectively, of restructuring and asset impairment activity. The year-to-date period and the prior year-to-date period results included charges of $8.9 million and $5.0 million, respectively, of restructuring and asset impairment activity. The second quarter and year-to-date amounts consist primarily of asset impairment charges associated with the changes the Company announced related to the Caito Fresh Production business, including the decision to exit the Fresh Kitchen operations and the year-to-date charges are partially offset by gains on the sale of a previously closed distribution center. The prior year-to-date amount includes charges associated with the Company’s retail store and warehouse rationalization plans, partially offset by gains on sales of real estate in the prior year quarter.
Goodwill
The Company performs goodwill impairment tests on an annual basis, or whenever events or circumstances indicate that it would be more likely than not that the fair value of a reporting unit is below its carrying amount. During the second quarter of 2019, the Company assessed whether there were any indicators that the carrying value of the Food Distribution reporting unit was in excess of its fair value. One of the considerations performed by the Company is whether the carrying value of the enterprise as a whole is greater than the market capitalization, considering a reasonable control premium. At the end of the first quarter and into the second quarter of 2019 the decline in the Company’s stock price substantially decreased market capitalization, and the decline became sustained during the second quarter. As a result of this indicator of impairment, the Company performed an interim goodwill impairment test for the Food Distribution reporting unit, the only reporting unit which carries a goodwill balance.
The Company estimates the fair value of the Food Distribution reporting unit primarily based on the income approach using a discounted cash flow model and also incorporates the market approach using observable comparable company information. As a result of the second quarter impairment test, the Company concluded that the fair value of the Food Distribution reporting unit was substantially in excess of its carrying value.
Key assumptions used by the Company in preparing the fair value estimate under the discounted cash flow method include:
|
•
|
Weighted average cost of capital (“WACC”): The determination of the weighted average cost of capital incorporates current interest rates, equity risk premiums, and other market-based expectations regarding expected investment returns. The development of the WACC requires estimates of an equity rate of return and a debt rate of return, which are specific to the industry in which the Food Distribution reporting unit operates.
|
|
•
|
Revenue growth rates: The Company develops its forecasts based on recent sales data for existing operations and other factors, including management’s future expectations.
|
|
•
|
Operating profits: The Company uses historical operating margins as a basis for our projections within the discounted cash flow model. Margins within the forecast may vary due to future expectations related to both product and administrative costs.
|
The Company compared the results of the discounted cash flow model to observable comparable company market multiples to support the appropriateness of the fair value estimates. The Company concluded that the implied multiple was reasonable with respect to the comparable company range, and that the assumptions used in the fair value estimate were supportable.
Additionally, the Company reconciled the fair value estimate for the Food Distribution reporting unit to the current market capitalization of the enterprise as a whole. While the Retail and Military reporting units do not carry goodwill balances, their fair values are combined with the fair value estimate of the Food Distribution reporting unit in determining the enterprise value of the total Company. During the second quarter goodwill impairment test, the reconciliation between the enterprise value of the Company and market capitalization, implying a reasonable control premium, was within the Company’s expectations based on recent market transactions.
21
Operating Earnings
(Loss)
–
The following table presents operating earnings
(loss)
by segment and variances in operating earnings
(loss)
:
|
12 Weeks Ended
|
|
|
28 Weeks Ended
|
|
(In thousands)
|
July 13, 2019
|
|
|
July 14, 2018
|
|
|
Variance
|
|
|
July 13, 2019
|
|
|
July 14, 2018
|
|
|
Variance
|
|
Food Distribution
|
$
|
|
272
|
|
|
$
|
|
18,724
|
|
|
$
|
|
(18,452
|
)
|
|
$
|
|
24,864
|
|
|
$
|
|
43,245
|
|
|
$
|
|
(18,381
|
)
|
Military
|
|
|
(1,603
|
)
|
|
|
|
3,099
|
|
|
|
|
(4,702
|
)
|
|
|
|
(3,160
|
)
|
|
|
|
4,612
|
|
|
|
|
(7,772
|
)
|
Retail
|
|
|
8,701
|
|
|
|
|
7,995
|
|
|
|
|
706
|
|
|
|
|
7,875
|
|
|
|
|
7,709
|
|
|
|
|
166
|
|
Total operating earnings
|
$
|
|
7,370
|
|
|
$
|
|
29,818
|
|
|
$
|
|
(22,448
|
)
|
|
$
|
|
29,579
|
|
|
$
|
|
55,566
|
|
|
$
|
|
(25,987
|
)
|
Operating earnings decreased $22.4 million, or 75.3% to $7.4 million in the second quarter from $29.8 million in the prior year quarter. Operating earnings for the year-to-date period decreased $26.0 million, or 46.8%, to $29.6 million from $55.6 million in the prior year-to-date period. The decreases were primarily attributable to the asset impairment charges, lower margin rates on comparable sales, higher supply chain costs and
incremental losses from the Fresh Kitchen operations, partially offset by favorable incentive compensation, incremental earnings from the newly acquired Martin’s business, and lower recall charges than in the prior year. The year-to-date decrease was also attributable to one-time expenses associated with the Project One Team initiative.
Food Distribution operating earnings decreased $18.5 million, or 98.5%, to $0.3 million in the second quarter from $18.7 million in the prior year quarter. Operating earnings for the year-to-date period decreased $18.4 million, or 42.5%, to $24.9 million from $43.2 million in the prior year-to-date period. The decrease in operating earnings was due to asset impairment charges, losses associated with the Fresh Kitchen operations and higher supply chain expenses, partially offset by lower recall charges than in the prior year and favorable adjustments to incentive compensation.
Military operating earnings decreased $4.7 million, or 151.7%, to a $1.6 million operating loss in the second quarter from $3.1 million in operating earnings in the prior year quarter. Operating earnings for the year-to-date period decreased $7.8 million, or 168.5%, to a $3.2 million operating loss from $4.6 million in operating earnings in the prior year-to-date period. The second quarter and year-to-date decreases were primarily attributable to lower margin rates, partly due to a shift in the mix of business, and higher supply chain costs, as well as the cycling of gains related to the sale of a closed facility in the prior year quarter, partially offset by favorable adjustments to incentive compensation. The year-to-date period decrease was also attributable to operational issues at one distribution center as well as one-time costs associated with Project One Team and organizational realignment costs.
Retail operating earnings increased $0.7 million, or 8.8% to $8.7 million in the second quarter from $8.0 million in the prior year quarter. Operating earnings for the year-to-date period increased $0.2 million, or 2.2%, to $7.9 million from $7.7 million in the prior year-to-date period. The increases in reported operating earnings was primarily attributable to lower incentive compensation, the contribution of the acquired Martin’s stores, the favorable impact of closing underperforming stores, and favorable adjustments to incentive compensation, partially offset by higher fees paid to pharmacy benefit managers. The year-to-date increase in operating earnings was offset by the allocation of one-time costs associated with Project One Team.
Interest Expense
– Interest expense increased $1.7 million, or 24.8%, to $8.7 million in the second quarter from $7.0 million in the prior year quarter.
Interest expense for the year-to-date period increased $4.9 million, or 30.7% from $15.7 million in the prior year-to-date period to $20.6 million. The increases in interest expense were primarily due to an increase in interest rates compared to the prior year and incremental borrowings to fund the Martin’s acquisition.
Income Taxes
– The effective income tax rate was 30.3% and 22.7% for the second quarter and prior year quarter, respectively. For the year-to-date period and prior year-to-date period, the effective income tax rates were -72.5% and 24.8%, respectively. The difference from the federal statutory rate in the current year was primarily due to state taxes and stock compensation, partially offset by federal tax credits. In the prior year, the difference from the federal statutory rate was primarily due to state taxes, federal tax credits and stock-based compensation. The tax impacts of stock-based compensation are primarily realized in the first quarter due to the timing of awards and vesting schedules.
22
Non-GAAP Financial Measures
In addition to reporting financial results in accordance with GAAP, the Company also provides information regarding adjusted operating earnings, adjusted earnings from continuing operations, and Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization (“adjusted EBITDA”). These are non-GAAP financial measures, as defined below, and are used by management to allocate resources, assess performance against its peers and evaluate overall performance. The Company believes these measures provide useful information for both management and its investors. The Company believes these non-GAAP measures are useful to investors because they provide additional understanding of the trends and special circumstances that affect its business. These measures provide useful supplemental information that helps investors to establish a basis for expected performance and the ability to evaluate actual results against that expectation. The measures, when considered in connection with GAAP results, can be used to assess the overall performance of the Company as well as assess the Company’s performance against its peers. These measures are also used as a basis for certain compensation programs sponsored by the Company. In addition, securities analysts, fund managers and other shareholders and stakeholders that communicate with the Company request its financial results in these adjusted formats.
Current year adjusted operating earnings, adjusted earnings from continuing operations, and adjusted EBITDA exclude costs associated with organizational realignment, which include significant changes to the Company’s management team. Also excluded are the fees paid to a third-party advisory firm associated with Project One Team, the Company’s initiative to drive growth while increasing efficiency and reducing costs. Pension termination costs, primarily related to non-operating settlement expense associated with the distribution of pension assets, are excluded from adjusted earnings from continuing operations, and to a lesser extent adjusted operating earnings. These items are considered “non-operational” or “non-core” in nature. Prior year adjusted operating earnings, adjusted earnings from continuing operations, and adjusted EBITDA exclude start-up costs associated with the Fresh Kitchen operation, which concluded during the first quarter of 2018. The Fresh Kitchen represented a new line of business for the Company, and provides the Company with the ability to process, cook, and package fresh protein-based foods and complete meal solutions.
Adjusted Operating Earnings
Adjusted operating earnings is a non-GAAP operating financial measure that the Company defines as operating earnings plus or minus adjustments for items that do not reflect the ongoing operating activities of the Company and costs associated with the closing of operational locations.
The Company believes that adjusted operating earnings provide a meaningful representation of its operating performance for the Company as a whole and for its operating segments. The Company considers adjusted operating earnings as an additional way to measure operating performance on an ongoing basis. Adjusted operating earnings is meant to reflect the ongoing operating performance of all of its distribution and retail operations; consequently, it excludes the impact of items that could be considered “non-operating” or “non-core” in nature and also excludes the contributions of activities classified as discontinued operations. Because adjusted operating earnings and adjusted operating earnings by segment are performance measures that management uses to allocate resources, assess performance against its peers and evaluate overall performance, the Company believes it provides useful information for both management and its investors. In addition, securities analysts, fund managers and other shareholders and stakeholders that communicate with the Company request its operating financial results in adjusted operating earnings format.
Adjusted operating earnings is not a measure of performance under accounting principles generally accepted in the United States of America (“GAAP”) and should not be considered as a substitute for operating earnings, cash flows from operating activities and other income or cash flow statement data. The Company’s definition of adjusted operating earnings may not be identical to similarly titled measures reported by other companies.
23
Following is a reconciliation of operating earnings
(loss)
to adjusted operating earnings for the 1
2 and 28
weeks ended
July 13
, 201
9
and
July 14
, 201
8
.
|
12 Weeks Ended
|
|
|
28 Weeks Ended
|
|
(In thousands)
|
July 13, 2019
|
|
|
July 14, 2018
|
|
|
July 13, 2019
|
|
|
July 14, 2018
|
|
Operating earnings
|
$
|
|
7,370
|
|
|
$
|
|
29,818
|
|
|
$
|
|
29,579
|
|
|
$
|
|
55,566
|
|
Adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Merger/acquisition and integration
|
|
|
582
|
|
|
|
|
804
|
|
|
|
|
1,364
|
|
|
|
|
3,010
|
|
Restructuring charges (gains) and asset impairment
|
|
|
14,581
|
|
|
|
|
(1,164
|
)
|
|
|
|
8,919
|
|
|
|
|
5,037
|
|
Fresh Kitchen start-up costs
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
1,366
|
|
Costs associated with Project One Team
|
|
|
810
|
|
|
|
|
—
|
|
|
|
|
5,428
|
|
|
|
|
—
|
|
Organizational realignment costs
|
|
|
19
|
|
|
|
|
—
|
|
|
|
|
877
|
|
|
|
|
—
|
|
Pension termination
|
|
|
20
|
|
|
|
|
—
|
|
|
|
|
20
|
|
|
|
|
—
|
|
Severance associated with cost reduction initiatives
|
|
|
80
|
|
|
|
|
344
|
|
|
|
|
442
|
|
|
|
|
618
|
|
Adjusted operating earnings
|
$
|
|
23,462
|
|
|
$
|
|
29,802
|
|
|
$
|
|
46,629
|
|
|
$
|
|
65,597
|
|
Reconciliation of operating earnings (loss) to adjusted operating earnings (loss) by segment:
|
|
Food Distribution:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating earnings
|
$
|
|
272
|
|
|
$
|
|
18,724
|
|
|
$
|
|
24,864
|
|
|
$
|
|
43,245
|
|
Adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Merger/acquisition and integration
|
|
|
—
|
|
|
|
|
745
|
|
|
|
|
(130
|
)
|
|
|
|
2,940
|
|
Restructuring charges and asset impairment
|
|
|
16,024
|
|
|
|
|
100
|
|
|
|
|
9,681
|
|
|
|
|
1,360
|
|
Fresh Kitchen start-up costs
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
1,366
|
|
Costs associated with Project One Team
|
|
|
429
|
|
|
|
|
—
|
|
|
|
|
2,877
|
|
|
|
|
—
|
|
Organizational realignment costs
|
|
|
10
|
|
|
|
|
—
|
|
|
|
|
465
|
|
|
|
|
—
|
|
Pension termination
|
|
|
11
|
|
|
|
|
—
|
|
|
|
|
11
|
|
|
|
|
—
|
|
Severance associated with cost reduction initiatives
|
|
|
37
|
|
|
|
|
258
|
|
|
|
|
361
|
|
|
|
|
451
|
|
Adjusted operating earnings
|
$
|
|
16,783
|
|
|
$
|
|
19,827
|
|
|
$
|
|
38,129
|
|
|
$
|
|
49,362
|
|
Military:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating (loss) earnings
|
$
|
|
(1,603
|
)
|
|
$
|
|
3,099
|
|
|
$
|
|
(3,160
|
)
|
|
$
|
|
4,612
|
|
Adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Merger/acquisition and integration
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
4
|
|
Restructuring gains
|
|
|
—
|
|
|
|
|
(830
|
)
|
|
|
|
—
|
|
|
|
|
(830
|
)
|
Costs associated with Project One Team
|
|
|
106
|
|
|
|
|
—
|
|
|
|
|
706
|
|
|
|
|
—
|
|
Organizational realignment costs
|
|
|
3
|
|
|
|
|
—
|
|
|
|
|
114
|
|
|
|
|
—
|
|
Pension termination
|
|
|
2
|
|
|
|
|
—
|
|
|
|
|
2
|
|
|
|
|
—
|
|
Severance associated with cost reduction initiatives
|
|
|
—
|
|
|
|
|
18
|
|
|
|
|
9
|
|
|
|
|
70
|
|
Adjusted operating (loss) earnings
|
$
|
|
(1,492
|
)
|
|
$
|
|
2,287
|
|
|
$
|
|
(2,329
|
)
|
|
$
|
|
3,856
|
|
Retail:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating earnings
|
$
|
|
8,701
|
|
|
$
|
|
7,995
|
|
|
$
|
|
7,875
|
|
|
$
|
|
7,709
|
|
Adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Merger/acquisition and integration
|
|
|
582
|
|
|
|
|
59
|
|
|
|
|
1,494
|
|
|
|
|
66
|
|
Restructuring (gains) charges and asset impairment
|
|
|
(1,443
|
)
|
|
|
|
(434
|
)
|
|
|
|
(762
|
)
|
|
|
|
4,507
|
|
Costs associated with Project One Team
|
|
|
275
|
|
|
|
|
—
|
|
|
|
|
1,845
|
|
|
|
|
—
|
|
Organizational realignment costs
|
|
|
6
|
|
|
|
|
—
|
|
|
|
|
298
|
|
|
|
|
—
|
|
Pension termination
|
|
|
7
|
|
|
|
|
—
|
|
|
|
|
7
|
|
|
|
|
—
|
|
Severance associated with cost reduction initiatives
|
|
|
43
|
|
|
|
|
68
|
|
|
|
|
72
|
|
|
|
|
97
|
|
Adjusted operating earnings
|
$
|
|
8,171
|
|
|
$
|
|
7,688
|
|
|
$
|
|
10,829
|
|
|
$
|
|
12,379
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted Earnings from Continuing Operations
Adjusted earnings from continuing operations is a non-GAAP operating financial measure that the Company defines as earnings from continuing operations plus or minus adjustments for items that do not reflect the ongoing operating activities of the Company and costs associated with the closing of operational locations.
24
The Company believes that adjusted earnings from continuing operations provide a meaningful representation of its operating performance for the Company. The Company considers adjusted earnings from continuing operations as an additional way to measure operating performance on an ongoing basis. Adjusted earnings from continuing operations is meant to reflect the ongoing operating performance of all of its distribution and retail operations; consequently, it excludes the impact of items that could be considered “non-operating” or “non-core” in nature,
and
excludes the contributions of activities classified as discontinued operations. Because adjusted earnings from continuing operations is a performance measure that management uses to allocate resources, assess performance against its peers and evaluate overall performance, the Company believes it provides useful information for both management and its investors. In addition, securities analysts, fund managers and other shareholders and stakeholders that communicate with the Company request its operating financial results in adjusted earnings from continuing operations format.
Adjusted earnings from continuing operations is not a measure of performance under accounting principles generally accepted in the United States of America and should not be considered as a substitute for net earnings, cash flows from operating activities and other income or cash flow statement data. The Company’s definition of adjusted earnings from continuing operations may not be identical to similarly titled measures reported by other companies.
Following is a reconciliation of earnings from continuing operations to adjusted earnings from continuing operations for the 12 and 28 weeks ended July 13, 2019 and July 14, 2018.
|
12 Weeks Ended
|
|
|
|
July 13, 2019
|
|
|
July 14, 2018
|
|
|
|
|
|
|
per diluted
|
|
|
|
|
|
per diluted
|
|
|
(In thousands, except per share amounts)
|
Earnings
|
|
|
share
|
|
|
Earnings
|
|
|
share
|
|
|
(Loss) earnings from continuing operations
|
$
|
|
(6,767
|
)
|
|
$
|
|
(0.19
|
)
|
|
$
|
|
17,838
|
|
|
$
|
|
0.50
|
|
|
Adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Merger/acquisition and integration
|
|
|
582
|
|
|
|
|
|
|
|
|
|
804
|
|
|
|
|
|
|
|
Restructuring charges (gains) and asset impairment
|
|
|
14,581
|
|
|
|
|
|
|
|
|
|
(1,164
|
)
|
|
|
|
|
|
|
Costs associated with Project One Team
|
|
|
810
|
|
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
|
|
Organizational realignment costs
|
|
|
19
|
|
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
|
|
Severance associated with cost reduction initiatives
|
|
|
80
|
|
|
|
|
|
|
|
|
|
344
|
|
|
|
|
|
|
|
Pension termination
|
|
|
8,998
|
|
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
|
|
Total adjustments
|
|
|
25,070
|
|
|
|
|
|
|
|
|
|
(16
|
)
|
|
|
|
|
|
|
Income tax effect on adjustments (a)
|
|
|
(6,112
|
)
|
|
|
|
|
|
|
|
|
48
|
|
|
|
|
|
|
|
Total adjustments, net of taxes
|
|
|
18,958
|
|
|
|
|
0.53
|
|
|
|
|
32
|
|
|
|
|
—
|
|
|
Adjusted earnings from continuing operations
|
$
|
|
12,191
|
|
|
$
|
|
0.34
|
|
|
$
|
|
17,870
|
|
|
$
|
|
0.50
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28 Weeks Ended
|
|
|
|
July 13, 2019
|
|
|
July 14, 2018
|
|
|
|
|
|
|
per diluted
|
|
|
|
|
|
per diluted
|
|
|
(In thousands, except per share amounts)
|
Earnings
|
|
|
share
|
|
|
Earnings
|
|
|
share
|
|
|
Earnings from continuing operations
|
$
|
|
754
|
|
|
$
|
|
0.02
|
|
|
$
|
|
30,273
|
|
|
$
|
|
0.84
|
|
|
Adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Merger/acquisition and integration
|
|
|
1,364
|
|
|
|
|
|
|
|
|
|
3,010
|
|
|
|
|
|
|
|
Restructuring charges (gains) and asset impairment
|
|
|
8,919
|
|
|
|
|
|
|
|
|
|
5,037
|
|
|
|
|
|
|
|
Fresh Kitchen start-up costs
|
|
|
—
|
|
|
|
|
|
|
|
|
|
1,366
|
|
|
|
|
|
|
|
Costs associated with Project One Team
|
|
|
5,428
|
|
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
|
|
Organizational realignment costs
|
|
|
877
|
|
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
|
|
Severance associated with cost reduction initiatives
|
|
|
442
|
|
|
|
|
|
|
|
|
|
618
|
|
|
|
|
|
|
|
Pension termination
|
|
|
9,351
|
|
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
|
|
Total adjustments
|
|
|
26,381
|
|
|
|
|
|
|
|
|
|
10,031
|
|
|
|
|
|
|
|
Income tax effect on adjustments (a)
|
|
|
(6,416
|
)
|
|
|
|
|
|
|
|
|
(2,388
|
)
|
|
|
|
|
|
|
Total adjustments, net of taxes
|
|
|
19,965
|
|
|
|
|
0.55
|
|
|
|
|
7,643
|
|
|
|
|
0.21
|
|
|
Adjusted earnings from continuing operations
|
$
|
|
20,719
|
|
|
$
|
|
0.57
|
|
|
$
|
|
37,916
|
|
|
$
|
|
1.05
|
|
|
(a) The income tax effect on adjustments is computed by applying the effective tax rate, before discrete tax items, to the total adjustments for the period.
25
Adjusted EBITDA
Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization (“adjusted EBITDA”) is a non-GAAP operating financial measure that the Company defines as net earnings plus interest, discontinued operations, depreciation and amortization, and other non-cash items including deferred (stock) compensation, the LIFO provision, as well as adjustments for items that do not reflect the ongoing operating activities of the Company and costs associated with the closing of operational locations.
The Company believes that adjusted EBITDA provides a meaningful representation of its operating performance for the Company and for its operating segments. The Company considers adjusted EBITDA as an additional way to measure operating performance on an ongoing basis. Adjusted EBITDA is meant to reflect the ongoing operating performance of all of its distribution and retail operations; consequently, it excludes the impact of items that could be considered “non-operating” or “non-core” in nature, and also excludes the contributions of activities classified as discontinued operations. Because adjusted EBITDA and adjusted EBITDA by segment are performance measures that management uses to allocate resources, assess performance against its peers and evaluate overall performance, the Company believes it provides useful information for both management and its investors. In addition, securities analysts, fund managers and other shareholders and stakeholders that communicate with the Company request its operating financial results in adjusted EBITDA format.
Adjusted EBITDA and adjusted EBITDA by segment are not measures of performance under accounting principles generally accepted in the United States of America and should not be considered as a substitute for net earnings, cash flows from operating activities and other income or cash flow statement data. The Company’s definitions of adjusted EBITDA and adjusted EBITDA by segment may not be identical to similarly titled measures reported by other companies.
Following is a reconciliation of net (loss) earnings to adjusted EBITDA for the 12 and 28 weeks ended July 13, 2019 and July 14, 2018.
|
12 Weeks Ended
|
|
|
28 Weeks Ended
|
|
(In thousands)
|
July 13, 2019
|
|
|
July 14, 2018
|
|
|
July 13, 2019
|
|
|
July 14, 2018
|
|
Net (loss) earnings
|
$
|
|
(6,814
|
)
|
|
$
|
|
17,772
|
|
|
$
|
|
655
|
|
|
$
|
|
30,115
|
|
Loss from discontinued operations, net of tax
|
|
|
47
|
|
|
|
|
66
|
|
|
|
|
99
|
|
|
|
|
158
|
|
Income tax (benefit) expense
|
|
|
(2,941
|
)
|
|
|
|
5,247
|
|
|
|
|
(317
|
)
|
|
|
|
10,007
|
|
Other expenses, net
|
|
|
17,078
|
|
|
|
|
6,733
|
|
|
|
|
29,142
|
|
|
|
|
15,286
|
|
Operating earnings
|
|
|
7,370
|
|
|
|
|
29,818
|
|
|
|
|
29,579
|
|
|
|
|
55,566
|
|
Adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIFO expense
|
|
|
1,068
|
|
|
|
|
155
|
|
|
|
|
2,493
|
|
|
|
|
1,695
|
|
Depreciation and amortization
|
|
|
20,529
|
|
|
|
|
19,007
|
|
|
|
|
47,161
|
|
|
|
|
44,025
|
|
Merger/acquisition and integration
|
|
|
582
|
|
|
|
|
804
|
|
|
|
|
1,364
|
|
|
|
|
3,010
|
|
Restructuring charges (gains) and asset impairment
|
|
|
14,581
|
|
|
|
|
(1,164
|
)
|
|
|
|
8,919
|
|
|
|
|
5,037
|
|
Fresh Kitchen start-up costs
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
1,366
|
|
Stock-based compensation
|
|
|
715
|
|
|
|
|
976
|
|
|
|
|
6,098
|
|
|
|
|
6,267
|
|
Non-cash rent
|
|
|
(1,516
|
)
|
|
|
|
(41
|
)
|
|
|
|
(3,434
|
)
|
|
|
|
(117
|
)
|
Costs associated with Project One Team
|
|
|
810
|
|
|
|
|
—
|
|
|
|
|
5,428
|
|
|
|
|
—
|
|
Organizational realignment costs
|
|
|
19
|
|
|
|
|
—
|
|
|
|
|
877
|
|
|
|
|
—
|
|
Other non-cash charges
|
|
|
154
|
|
|
|
|
135
|
|
|
|
|
496
|
|
|
|
|
12
|
|
Adjusted EBITDA
|
$
|
|
44,312
|
|
|
$
|
|
49,690
|
|
|
$
|
|
98,981
|
|
|
$
|
|
116,861
|
|
26
Following is a reconciliation of operating earnings (loss) to adjusted EBITDA by segment for the 1
2 and 28
weeks ended
July 13
, 2019 and
July 14
, 2018.
|
12 Weeks Ended
|
|
|
28 Weeks Ended
|
|
(In thousands)
|
July 13, 2019
|
|
|
July 14, 2018
|
|
|
July 13, 2019
|
|
|
July 14, 2018
|
|
Food Distribution:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating earnings
|
$
|
|
272
|
|
|
$
|
|
18,724
|
|
|
$
|
|
24,864
|
|
|
$
|
|
43,245
|
|
Adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIFO expense (benefit)
|
|
|
527
|
|
|
|
|
(82
|
)
|
|
|
|
1,230
|
|
|
|
|
683
|
|
Depreciation and amortization
|
|
|
7,744
|
|
|
|
|
7,318
|
|
|
|
|
17,977
|
|
|
|
|
16,639
|
|
Merger/acquisition and integration
|
|
|
—
|
|
|
|
|
745
|
|
|
|
|
(130
|
)
|
|
|
|
2,940
|
|
Restructuring charges and asset impairment
|
|
|
16,024
|
|
|
|
|
100
|
|
|
|
|
9,681
|
|
|
|
|
1,360
|
|
Fresh Kitchen start-up costs
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
1,366
|
|
Stock-based compensation
|
|
|
341
|
|
|
|
|
441
|
|
|
|
|
3,017
|
|
|
|
|
2,968
|
|
Non-cash rent
|
|
|
149
|
|
|
|
|
1
|
|
|
|
|
206
|
|
|
|
|
(21
|
)
|
Costs associated with Project One Team
|
|
|
429
|
|
|
|
|
—
|
|
|
|
|
2,877
|
|
|
|
|
—
|
|
Organizational realignment costs
|
|
|
10
|
|
|
|
|
—
|
|
|
|
|
465
|
|
|
|
|
—
|
|
Other non-cash charges
|
|
|
59
|
|
|
|
|
204
|
|
|
|
|
378
|
|
|
|
|
441
|
|
Adjusted EBITDA
|
$
|
|
25,555
|
|
|
$
|
|
27,451
|
|
|
$
|
|
60,565
|
|
|
$
|
|
69,621
|
|
Military:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating (loss) earnings
|
$
|
|
(1,603
|
)
|
|
$
|
|
3,099
|
|
|
$
|
|
(3,160
|
)
|
|
$
|
|
4,612
|
|
Adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIFO expense (benefit)
|
|
|
284
|
|
|
|
|
(26
|
)
|
|
|
|
662
|
|
|
|
|
399
|
|
Depreciation and amortization
|
|
|
2,736
|
|
|
|
|
2,763
|
|
|
|
|
6,333
|
|
|
|
|
6,441
|
|
Merger/acquisition and integration
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
4
|
|
Restructuring gains
|
|
|
—
|
|
|
|
|
(830
|
)
|
|
|
|
—
|
|
|
|
|
(830
|
)
|
Stock-based compensation
|
|
|
124
|
|
|
|
|
220
|
|
|
|
|
978
|
|
|
|
|
1,025
|
|
Non-cash rent
|
|
|
(92
|
)
|
|
|
|
(1
|
)
|
|
|
|
(214
|
)
|
|
|
|
(1
|
)
|
Costs associated with Project One Team
|
|
|
106
|
|
|
|
|
—
|
|
|
|
|
706
|
|
|
|
|
—
|
|
Organizational realignment costs
|
|
|
3
|
|
|
|
|
—
|
|
|
|
|
114
|
|
|
|
|
—
|
|
Other non-cash charges (gains)
|
|
|
9
|
|
|
|
|
(76
|
)
|
|
|
|
(11
|
)
|
|
|
|
(148
|
)
|
Adjusted EBITDA
|
$
|
|
1,567
|
|
|
$
|
|
5,149
|
|
|
$
|
|
5,408
|
|
|
$
|
|
11,502
|
|
Retail:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating earnings
|
$
|
|
8,701
|
|
|
$
|
|
7,995
|
|
|
$
|
|
7,875
|
|
|
$
|
|
7,709
|
|
Adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIFO expense
|
|
|
257
|
|
|
|
|
263
|
|
|
|
|
601
|
|
|
|
|
613
|
|
Depreciation and amortization
|
|
|
10,049
|
|
|
|
|
8,926
|
|
|
|
|
22,851
|
|
|
|
|
20,945
|
|
Merger/acquisition and integration
|
|
|
582
|
|
|
|
|
59
|
|
|
|
|
1,494
|
|
|
|
|
66
|
|
Restructuring (gains) charges and asset impairment
|
|
|
(1,443
|
)
|
|
|
|
(434
|
)
|
|
|
|
(762
|
)
|
|
|
|
4,507
|
|
Stock-based compensation
|
|
|
250
|
|
|
|
|
315
|
|
|
|
|
2,103
|
|
|
|
|
2,274
|
|
Non-cash rent
|
|
|
(1,573
|
)
|
|
|
|
(41
|
)
|
|
|
|
(3,426
|
)
|
|
|
|
(95
|
)
|
Costs associated with Project One Team
|
|
|
275
|
|
|
|
|
—
|
|
|
|
|
1,845
|
|
|
|
|
—
|
|
Organizational realignment costs
|
|
|
6
|
|
|
|
|
—
|
|
|
|
|
298
|
|
|
|
|
—
|
|
Other non-cash charges (gains)
|
|
|
86
|
|
|
|
|
7
|
|
|
|
|
129
|
|
|
|
|
(281
|
)
|
Adjusted EBITDA
|
$
|
|
17,190
|
|
|
$
|
|
17,090
|
|
|
$
|
|
33,008
|
|
|
$
|
|
35,738
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27
Liquidity and Capital Resources
Cash Flow Information
The following table summarizes the Company’s consolidated statements of cash flows:
|
|
|
|
28 Weeks Ended
|
|
(In thousands)
|
|
|
|
July 13, 2019
|
|
|
July 14, 2018
|
|
Cash flow activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
|
$
|
|
103,836
|
|
|
$
|
|
104,300
|
|
Net cash used in investing activities
|
|
|
|
|
|
(102,609
|
)
|
|
|
|
(28,141
|
)
|
Net cash provided by (used in) financing activities
|
|
|
|
|
|
267
|
|
|
|
|
(75,771
|
)
|
Net cash used in discontinued operations
|
|
|
|
|
|
(130
|
)
|
|
|
|
(142
|
)
|
Net increase in cash and cash equivalents
|
|
|
|
|
|
1,364
|
|
|
|
|
246
|
|
Cash and cash equivalents at beginning of the period
|
|
|
|
|
|
18,585
|
|
|
|
|
15,667
|
|
Cash and cash equivalents at end of the period
|
|
|
|
$
|
|
19,949
|
|
|
$
|
|
15,913
|
|
Net cash provided by operating activities.
Net cash provided by operating activities decreased during the current year-to-date period from the prior year-to-date period by approximately $0.5 million and was primarily due to lower cash generated from earnings, mostly offset by improvements in working capital.
Net cash used in investing activities.
Net cash used in investing activities increased $74.5 million in the current year compared to the prior year primarily due to the Martin’s acquisition made in the current year quarter, partially offset by proceeds from the sale of real property for a previously closed site.
The Food Distribution, Military and Retail segments utilized 23.4%, 7.6% and 69.0% of capital expenditures, respectively, in the current year.
Net cash provided by (used in) financing activities.
Net cash provided by financing activities increased $76.0 million in the current year compared to the prior year use of cash primarily due to borrowings on the revolving credit facility to fund the Martin’s acquisition.
Net cash used in discontinued operations.
Net cash used in discontinued operations contains the net cash flows of the Company’s Retail and Food Distribution discontinued operations and is primarily composed of facility maintenance expenditures.
Debt Management
Total debt, including finance lease liabilities, was $702.2 million and $698.1 million as of July 13, 2019 and December 29, 2018, respectively. The increase in total debt was driven by the current year acquisition of Martin’s, partially offset by payments.
Liquidity
The Company’s principal sources of liquidity are cash flows generated from operations and its senior secured credit facility which has maximum available credit of $1.1 billion. As of July 13, 2019, the senior secured credit facility had outstanding borrowings of $660.9 million. Additional available borrowings under the Company’s $1.1 billion credit facility are based on stipulated advance rates on eligible assets, as defined in the Credit Agreement. The Credit Agreement requires that the Company maintain excess availability of 10% of the borrowing base, as such term is defined in the Credit Agreement. The Company had excess availability after the 10% covenant of $249.0 million at July 13, 2019. Payment of dividends and repurchases of outstanding shares are permitted, provided that certain levels of excess availability are maintained. The credit facility provides for the issuance of letters of credit, of which $10.8 million were outstanding as of July 13, 2019. The revolving credit facility matures December 18, 2023 and is secured by substantially all of the Company’s assets.
The Company believes that cash generated from operating activities and available borrowings under the credit facility will be sufficient to meet anticipated requirements for working capital, capital expenditures, dividend payments, and debt service obligations for the foreseeable future. However, there can be no assurance that the business will continue to generate cash flow at or above current levels or that the Company will maintain its ability to borrow under the Credit Agreement. Subsequent to the end of the second quarter, the Company executed an early payment of its term loan (Tranche A-2) in the amount of $55.0 million with available borrowings from its revolving credit facility. The Company expects to generate interest savings of nearly $2 million annually as a result of utilizing lower rate financing.
28
The Company’s current ratio (current assets to current liabilities) was
1.76
-to-
1 at
July 13
, 201
9
compared to
2.10
-to-
1 at December
29
, 201
8
,
and its investment in working capital was
$430.7
million at
July 13
, 201
9
compared to
$524.6
million at December
29
, 201
8
. Net debt to total capital ratio was
0.50
-to-
1 at
July 13
, 201
9
compared to
0.49
-to-
1 at December
29
, 201
8
.
The current year ratios include the i
mpact of
the
adoption of
the
new lease standard (ASU 2016-02)
and therefore lack comparability to the prior year ratios.
Total net debt is a non-GAAP financial measure that is defined as long-term debt and finance lease liabilities, plus current maturities of long-term debt and finance lease liabilities, less cash and cash equivalents. The ratio of net debt to capital is a non-GAAP financial measure that is calculated by dividing net debt, as defined previously, by total capital (net debt plus total shareholders’ equity). The Company believes both management and its investors find the information useful because it reflects the amount of long-term debt obligations that are not covered by available cash and temporary investments. Total net debt is not a substitute for GAAP financial measures and may differ from similarly titled measures of other companies.
Following is a reconciliation of long-term debt and finance lease liabilities to total net long-term debt and finance lease liabilities as of July 13, 2019 and December 29, 2018.
|
July 13,
|
|
|
December 29,
|
|
(In thousands)
|
2019
|
|
|
2018
|
|
Current portion of long-term debt and finance lease liabilities
|
$
|
|
17,709
|
|
|
$
|
|
18,263
|
|
Long-term debt and finance lease liabilities
|
|
|
684,527
|
|
|
|
|
679,797
|
|
Total debt
|
|
|
702,236
|
|
|
|
|
698,060
|
|
Cash and cash equivalents
|
|
|
(19,949
|
)
|
|
|
|
(18,585
|
)
|
Total net long-term debt
|
$
|
|
682,287
|
|
|
$
|
|
679,475
|
|
For information on contractual obligations, see the Company’s Annual Report on Form 10-K for the fiscal year ended December 29, 2018. At July 13, 2019, there have been no material changes to the Company’s significant contractual obligations outside the ordinary course of business.
Cash Dividends
During the quarter ended July 13, 2019, the Company returned $6.9 million to shareholders from dividend payments. A 5.6% increase in the quarterly dividend rate from $0.18 per share to $0.19 per share was approved by the Board of Directors and announced on February 28, 2019. Although the Company expects to continue to pay a quarterly cash dividend, adoption of a dividend policy does not commit the Board of Directors to declare future dividends. Each future dividend will be considered and declared by the Board of Directors at its discretion. Whether the Board of Directors continues to declare dividends depends on a number of factors, including the Company’s future financial condition, anticipated profitability and cash flows and compliance with the terms of its credit facilities.
Under the senior revolving credit facility, the Company is generally permitted to pay dividends in any fiscal year up to an amount such that all cash dividends, together with any cash distributions and share repurchases, do not exceed $35.0 million. Additionally, the Company is generally permitted to pay cash dividends and repurchase shares in excess of $35.0 million in any fiscal year so long as its Excess Availability, as defined in the senior revolving credit facility, is in excess of 10% of the Total Borrowing Base, as defined in the senior revolving credit facility, before and after giving effect to the repurchases and dividends.
Off-Balance Sheet Arrangements
The Company has also made certain commercial commitments that extend beyond July 13, 2019. These commitments consist primarily of purchase commitments (as disclosed in the Company’s Annual Report on Form 10-K for the year ended December 29, 2018), standby letters of credit of $10.8 million as of July 13, 2019, and interest on long-term debt and finance lease liabilities.
29
Critical Accounting Policies
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, and the related disclosure of contingent assets and liabilities. On an ongoing basis, the Company evaluates its estimates, including those related to bad debts, inventories, intangible assets, assets held for sale, long-lived assets, income taxes, self-insurance reserves, restructuring costs, retirement benefits, stock-based compensation, contingencies and litigation. Management bases its estimates on historical experience and various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that may not be readily apparent from other sources. Based on the Company’s ongoing review, the Company makes adjustments it considers appropriate under the facts and circumstances. This discussion and analysis of the Company’s financial condition and results of operations is based upon the Company’s consolidated financial statements. The Company believes these accounting policies and others set forth in Item 8, Note 1 to the consolidated financial statements in the Company’s Annual Report on Form 10-K for the fiscal year ended December 29, 2018 should be reviewed as they are integral to the understanding the Company’s financial condition and results of operations. The Company has discussed the development, selection and disclosure of these accounting policies with the Audit Committee of the Board of Directors. The accompanying financial statements are prepared using the same critical accounting policies discussed in the Company’s Annual Report on Form 10-K for the fiscal year ended December 29, 2018.
Recently Issued Accounting Standards
Refer to Note 2 in the notes to the condensed consolidated financial statements for further information.