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UNITED STATES 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 20, 2009. 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. Michigan 38-0593940 850 76th Street, S.W. (616) 878-2000 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 o 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 o No o 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 Exchange Act). Yes o No x As of July 27, 2009 the registrant had 22,429,293 outstanding shares of common stock, no par value.
FORWARD-LOOKING STATEMENTS The matters discussed in this Quarterly Report on Form 10-Q, in our press releases and in our publicly accessible conference calls 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," "plans," "believes," "estimates," "intends," is "optimistic" or "confident" that a particular occurrence or event "will," "may," "could," "should" or "will likely" 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," a "priority" or "strategy" 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. Our asset impairment and exit cost provisions are estimates and actual costs may be more or less than these estimates and differences may be material. You should not place undue reliance on these forward-looking statements, which speak only as of the date of the Quarterly Report, release 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, Spartan Stores' Annual Report on Form 10-K for the year ended March 28, 2009 (in particular, you should refer to the discussion of "Risk Factors" in Item 1A of our Annual Report on Form 10-K) 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 maintain and strengthen our retail-store performance; assimilate acquired stores; maintain or grow sales; respond successfully to competitors; maintain or increase gross margin; anticipate and successfully respond to openings of competitors; maintain and improve customer and supplier relationships; realize expected benefits of new relationships; realize growth opportunities; expand our customer base; reduce operating costs; generate cash; continue to meet
the terms of our debt covenants; continue to pay dividends; and implement the other programs, plans, priorities, strategies, objectives, goals or expectations described in this Quarterly Report, our other reports, our press releases and our public comments 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 other factors including, but not limited to, those discussed below. Anticipated future sales are subject to competitive pressures from many sources. Our Distribution and Retail businesses compete with many distributors, supercenters, warehouse discount stores, supermarkets, pharmacies and product manufacturers. Future sales will be dependent on the number of retail stores that we own and operate, our ability to retain and add to the retail stores to whom we distribute, competitive pressures in the retail industry generally and our geographic markets specifically, our ability to implement effective new marketing and merchandising programs and unseasonable weather conditions. 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, and as a result, our net earnings and cash flows, may be adversely affected by changes in 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 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 future costs for pension and postretirement benefit costs may be adversely affected by changes in actuarial assumptions and methods, investment return and the composition of the group of employees and retirees covered, changes in our business that result in a withdrawal liability under multi-employer plans, and the actions and contributions
of other employers who participate in multi-employer plans to which we contribute. Our future income tax expense, and as a result, our net earnings and cash flows, could be adversely affected by changes in tax laws. Our accounting estimates could change and the actual effects of changes in accounting principles could deviate from our estimates due to changes in facts, assumptions, or acceptable methods, and actual results may vary materially from our estimates. Our operating and administrative expenses, net earnings and cash flow 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 anticipated. Acts of terrorism, war, natural disaster, fire, accident, general economic conditions, particularly in Michigan, unemployment rates, or other circumstances beyond our control could have adverse effects on the availability of and our ability to
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; changes in accounting pronouncements; and changes in the amount of fees received or paid. The availability of our secured loan agreement depends on compliance with the terms of the loan agreement and financial stability of the banking community. Our 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 in its discretion. The ability of the Board of Directors to continue to declare dividends will depend on a number of factors, including our future financial condition and profitability and compliance with the terms of our credit facilities. This section is intended to provide meaningful cautionary statements. 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. Additional risks and uncertainties not currently known to Spartan Stores or that Spartan Stores currently believes are immaterial also may impair its business, operations, liquidity, financial condition and prospects. 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.
PART I ITEM 1. Financial Statements SPARTAN STORES, INC. AND SUBSIDIARIES June 20, March 28, Current assets Cash and cash equivalents $ 7,802 $ 6,519 Accounts receivable, net 53,413 51,470 Inventories, net 132,836 113,790 Prepaid expenses and other current assets 8,775 9,579 Deferred taxes on income 5,257 5,201 Total current assets 208,083 186,559 Other assets Goodwill 249,328 249,303 Other, net 52,321 52,643 Total other assets 301,649 301,946 Property and equipment, net 235,422 234,806 Total assets $ 745,154 $ 723,311 Liabilities and Shareholders' Equity Current liabilities Accounts payable $ 116,503 $ 97,248 Accrued payroll and benefits 27,355 35,456 Other accrued expenses 21,143 19,195 Current portion of exit costs 9,859 9,759 Current maturities of long-term debt and capital lease obligations 3,883 3,932 Total current liabilities 178,743 165,590 Long-term liabilities Deferred income taxes 39,704 35,338 Postretirement benefits 26,362 25,401 Other long-term liabilities 19,894 20,876 Exit costs 33,967 34,786 Long-term debt and capital lease obligations 191,930 194,115 Total long-term liabilities 311,857 310,516 Commitments and contingencies (Note 6) Shareholders' equity Common stock, voting, no par value; 50,000 shares Preferred stock, no par value, 10,000 Accumulated other comprehensive loss (13,524 ) (14,151 ) Retained earnings 113,316 107,578 Total shareholders' equity 254,554 247,205 Total liabilities and shareholders' equity $ 745,154 $ 723,311 See accompanying notes to condensed consolidated financial statements.
SPARTAN STORES, INC. AND SUBSIDIARIES 12 Weeks Ended June 20, June 21, Net sales $ 596,027 $ 586,705 Cost of sales 465,013 471,175 Gross margin 131,014 115,530 Operating expenses Selling, general and administrative 115,322 100,520 Provision for asset impairments and exit costs 601 - Total operating expenses 115,923 100,520 Operating earnings 15,091 15,010 Other income and expenses Interest expense 3,663 3,152 Other, net (23 ) (69 ) Total other income and expenses 3,640 3,083 Earnings before income taxes and discontinued operations 11,451 11,927 Income taxes 4,607 4,779 Earnings from continuing operations 6,844 7,148 Earnings from discontinued operations, net of taxes 15 2,342 Net earnings $ 6,859 $ 9,490 Basic earnings per share: Earnings from continuing operations $ 0.31 $ 0.32 Earnings from discontinued operations - 0.11 Net earnings $ 0.31 $ 0.43 Diluted earnings per share: Earnings from continuing operations $ 0.31 $ 0.32 Earnings from discontinued operations - 0.11 Net earnings $ 0.31 $ 0.43 Weighted average shares outstanding: Basic 22,296 21,991 Diluted 22,375 22,170 See accompanying notes to condensed consolidated financial statements.
SPARTAN STORES, INC. AND SUBSIDIARIES Balance - March 29, 2009 22,213 $ 153,778 $ (14,151 ) $ 107,578 $ 247,205 Comprehensive income, net of tax: Net earnings - - - 6,859 6,859 Change in fair value of interest rate swap, net of taxes of $397 - - 627 - 627 Total comprehensive income - - - - 7,486 Dividends - $.05 per share - - - (1,121 ) (1,121 ) Stock-based employee compensation - 1,359 - - 1,359 Issuances of common stock and related tax benefits on stock option exercises 5 19 - - 19 Issuances of restricted stock and related income tax benefits 286 522 - - 522 Cancellations of restricted stock (75 ) (916 ) - - (916 ) Balance - June 20, 2009 22,429 $ 154,762 $ (13,524 ) $ 113,316 $ 254,554 See accompanying notes to condensed consolidated financial statements.
SPARTAN STORES, INC. AND SUBSIDIARIES 12 Weeks Ended June 20, June 21, Cash flows from operating activities Net earnings $ 6,859 $ 9,490 Earnings from discontinued operations (15 ) (2,342 ) Earnings from continuing operations 6,844 7,148 Adjustments to reconcile net earnings to net cash provided by operating activities: Provision for asset impairments and exit costs 601 - Non-cash convertible debt interest 790 728 Depreciation and amortization 8,086 5,938 Postretirement benefits expense 800 414 Deferred taxes on income 3,587 3,744 Stock-based compensation expense 1,354 1,092 Excess tax benefit on stock compensation (282 ) (1,572 ) Other 124 (19 ) Change in operating assets and liabilities: Accounts receivable (1,935 ) (2,520 ) Inventories (19,046 ) (18,912 ) Prepaid expenses and other assets 837 (2,958 ) Accounts payable 22,361 29,390 Accrued payroll and benefits (8,310 ) (9,831 ) Postretirement benefits payments (12 ) (13 ) Other accrued expenses and other liabilities 692 1,039 Net cash provided by operating activities 16,491 13,668 Cash flows from investing activities Purchases of property and equipment (10,582 ) (14,294 ) Net proceeds from the sale of assets 48 389 Other 27 (71 ) Net cash used in investing activities (10,507 ) (13,976 ) Cash flows from financing activities Net payments on revolving credit facility (2,088 ) - Repayment of long-term borrowings (936 ) (3,878 ) Excess tax benefit on stock compensation 282 1,572 Proceeds from sale of common stock - 283 Dividends paid (1,121 ) (1,105 ) Net cash used in financing activities (3,863 ) (3,128 ) Cash flows from discontinued operations Net cash (used in) provided by operating activities (838 ) 1,183 Net cash provided by investing activities - 13,002 Net cash (used in) provided by discontinued operations (838 ) 14,185 Net increase in cash and cash equivalents 1,283 10,749 Cash and cash equivalents at beginning of period 6,519 19,867 Cash and cash equivalents at end of period $ 7,802 $ 30,616 See accompanying notes to condensed consolidated financial statements.
SPARTAN STORES, INC. AND SUBSIDIARIES Note 1 The accompanying unaudited Condensed 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 condensed 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 20, 2009 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 FASB Staff Position No. APB 14-1 Effective March 29, 2009, Spartan Stores adopted the provisions of FASB Staff Position (FSP) No. APB 14-1, "Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement)" (FSP APB 14-1), which changed the accounting treatment for convertible debt instruments that allow for either mandatory or optional cash settlements. FSP APB 14-1 requires Spartan Stores to recognize non-cash interest expense on its $110 million convertible senior notes based on the market rate for similar debt instruments without the conversion feature. Under FSP APB 14-1, convertible debt instruments are separated into their debt and equity components. The value assigned to the debt component is the estimated fair value, as of the issuance date, of a similar debt instrument without the conversion feature, and the difference between the proceeds from the issuance and the amount reflected as a debt liability is assigned to equity. As a result, the debt is effectively recorded
at a discount reflecting its below market coupon interest rate. The debt is subsequently accreted to its par value over its expected life, with the rate of interest that reflects the market rate at issuance being reflected in the consolidated statements of earnings. Additionally, FSP APB 14-1 states that transaction costs incurred with third parties shall be allocated to and accounted for as debt issuance costs and equity issuance costs in proportion to the allocation of proceeds between the liability and equity component, respectively. FSP APB 14-1 requires retrospective application to all periods presented. The following table sets forth the retrospective accounting impacts of the adoption of FSP APB 14-1 on the Consolidated Statement of Earnings for the quarter ended June 21, 2008 and the Consolidated Balance Sheet as of March 28, 2009. (In thousands, except per share amounts) 12 Weeks Ended June 21, 2008 As Reported Adjustment As Adjusted Consolidated Statement of Earnings: Interest expense $ 2,452 $ 700 $ 3,152 Income taxes 5,050 (271 ) 4,779 Earnings from continuing operations 7,577 (429 ) 7,148 Net earnings 9,919 (429 ) 9,490 Basic and diluted earnings per share: Earnings from continuing operations 0.34 (1) (0.02 ) 0.32 Net earnings 0.45 (1) (0.02 ) 0.43 (1) Amounts are after giving effect to the adoption of FASB Staff Position No. 03-6-1 (see below)
(In thousands) March 28, 2009 As Reported Adjustment As Adjusted Consolidated Balance Sheet Other, net $ 53,264 $ (621 ) $ 52,643 Deferred income taxes 27,224 8,114 35,338 Long-term debt 215,686 (21,571 ) 194,115 Common stock 137,358 16,420 153,778 Retained earnings 111,162 (3,584 ) 107,578 Total shareholders' equity 234,369 12,836 247,205 The amount of interest expense recognized and the effective interest rate for Spartan Stores' convertible senior notes were as follows: (In thousands) 12 Weeks Ended June 20, June 21, Contractual coupon interest $ 866 $ 866 Amortization of discount on convertible senior notes 790 728 Interest expense $ 1,656 $ 1,594 Effective interest rate 8.125% 8.125% The debt and equity components recognized for Spartan Stores' convertible senior notes were as follows: (In thousands) June 20, March 28, Principal amount of convertible senior notes $ 110,000 $ 110,000 Unamortized discount 20,781 (1) 21,571 Net carrying amount 89,219 88,429 Common stock 16,420 16,420 (1) Will be recognized over a remaining period of 4.9 years.
FASB Staff Position No. EITF 03-6-1 Effective March 29, 2009, Spartan Stores adopted the provisions of FSP No. EITF 03-6-1, "Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities" (FSP EITF 03-6-1). FSP EITF 03-6-1 clarifies that unvested share-based payment awards that contain nonforfeitable rights to dividends or dividend equivalents are participating securities and must be included in the computation of basic earnings per share pursuant to the two-class method described in FASB Statement No. 128, "Earnings Per Share." FSP EITF 03-6-1 must be applied on a retrospective basis. Historically, Spartan Stores' unvested restricted shares have been included in the calculation of diluted earnings per share under the treasury stock method. In accordance with FSP EITF 03-6-1, these shares are now included in the computation of basic earnings per share. The retrospective application resulted in a reduction in both basic and diluted earnings per share for the quarter ended June 21, 2008. The following table sets forth the computation of basic and diluted earnings per share ("EPS") for continuing operations and net earnings: (In thousands, except per share amounts) 12 Weeks Ended 2009 As Reported Adjustment As Adjusted Numerator: Earnings from continuing Denominator: Weighted average shares Effect of dilutive options and Weighted average shares Basic and diluted earnings per share from Basic and diluted net earnings per share $ 0.31 $ 0.46 $ (0.03 ) $ 0.43 1 Retrospective application of FSP APB 14-1 resulted in the recognition of additional non-cash interest expense for the quarter ended June 21, 2008. See above. Weighted average shares issuable upon the exercise of stock options that were not included in the earnings per share calculations because they were antidilutive were 520,135 in fiscal 2010 and 214,720 in fiscal 2009. The senior subordinated convertible notes due 2027 will be convertible at the option of the holder, only upon the occurrence of certain events, at an initial conversion rate of 28.0310 shares of Spartan Stores common stock per $1,000 principal amount at maturity of the notes (equal to an initial conversion price of approximately $35.67 per share). Upon conversion, Spartan Stores will pay the holder the conversion value in cash up to the accreted principal amount of the note and the excess conversion value, if any, in shares of Spartan Stores common stock - unless Spartan Stores elects to satisfy its obligation under such conversion by delivering only shares of common stock. Therefore, the notes are not currently dilutive to earnings per share as they are only dilutive above the accreted value. Restricted stock units granted in the first quarter of 2010 are only issuable if certain performance criteria are met, making these shares contingently issuable under SFAS No. 128, "Earnings per Share." Therefore, the restricted stock units are included in diluted earnings per share at the payout percentage based on performance criteria results as of
Note 3 The following table provides the activity of exit costs for our Retail segment for the 12 weeks ended June 20, 2009. Exit costs recorded in the Consolidated Balance Sheets are included in "Current portion of exit costs" in Current liabilities and "Exit costs" in Long-term liabilities based on when the obligations are expected to be paid. Balance at March 29, 2009 $ 44,545 Exit costs related to store closing 550 Payments, net of interest accretion (1,269 ) Balance at June 20, 2009 $ 43,826 Exit costs of $0.6 million were recorded related to the closing of one store for store lease obligations and severance. The store lease obligations include the present value of future minimum lease payments, calculated using a risk-free interest rate, and related ancillary costs from the date of closure to the end of the remaining lease term, net of estimated sublease income. Note 4 Financial instruments include cash and cash equivalents, accounts and notes receivable, accounts payable and long-term debt. The carrying amounts of cash and cash equivalents, accounts and notes receivable, and accounts payable approximate fair value because of the short-term nature of these financial instruments. At June 20, 2009 and March 28, 2009 the estimated fair value and the book value of our debt instruments were as follows: (In thousands) June 20, March 28, Book value of debt instruments: Current maturities of long-term debt and capital lease obligations $ 3,883 $ 3,932 Long-term debt and capital lease obligations 191,930 194,115 Equity component of convertible debt 20,781 21,571 Total book value of debt instruments 216,594 219,618 Fair value of debt instruments 175,046 184,110 Excess of book value over fair value $ 41,548 $ 35,508 The estimated fair value of debt is based on market quotes for instruments with similar terms and remaining maturities. In September 2006, the Financial Accounting Standards Board (FASB) issued SFAS No. 157, "Fair Value Measurements" (SFAS 157). SFAS 157 defines fair value, establishes a framework for measuring fair value under generally accepted accounting principles, and expands disclosures about fair value measurements. This statement does not require any new fair value measurements, but applies under other accounting pronouncements that require or permit fair value measurements. In February 2007, the FASB issued FASB Staff Position (FSP) No. FAS 157-2 which delayed the effective date of SFAS 157 to fiscal years beginning after November 15, 2008 for nonfinancial assets and nonfinancial liabilities. Spartan Stores adopted FSP No. FAS 157-2 on March 29, 2009. Adoption of FSP FAS No. 157-2 had no impact on the consolidated financial statements.
SFAS 157 prioritizes the inputs to valuation techniques used to measure fair value into the following hierarchy: Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2: Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. Level 3: Unobservable inputs for the asset or liability, reflecting the reporting entity's own assumptions about the assumptions that market participants would use in pricing. At June 20, 2009, the fair value of the interest rate swap asset was approximately $0.6 million and is included in long-term other assets in the accompanying consolidated balance sheet. At March 28, 2009 the fair value of the interest rate swap liability was approximately $0.5 million and is included in other long-term liabilities in the accompanying consolidated balance sheet. The fair value measurements are classified within Level 2 of the hierarchy as significant observable market inputs are readily available as the basis of the fair value measurements. Note 5 Effective March 29, 2009, Spartan Stores adopted the provisions of SFAS No. 161, "Disclosures about Derivative Instruments and Hedging Activities" (SFAS 161). SFAS 161 amends and expands the disclosure requirements of SFAS No. 133 for derivative instruments and hedging activities. Spartan Stores has limited involvement with derivative financial instruments and uses them only to manage well-defined interest rate risk exposure when appropriate, based on market conditions. Spartan Stores' objective in managing exposure to changes in interest rates is to reduce fluctuations in earnings and cash flows, and consequently, from time to time Spartan Stores uses interest rate swap agreements to manage this risk. Spartan Stores does not use financial instruments or derivatives for any trading or other speculative purposes. On January 2, 2009, Spartan Stores entered into an interest rate swap agreement. The interest rate swap has been designated as a cash flow hedge of interest payments on $45.0 million of borrowings under Spartan Stores' senior secured revolving credit facility by effectively converting a portion of the variable rate debt to a fixed rate basis. Under the terms of the agreement, Spartan Stores has agreed to pay the counterparty a fixed interest rate of 3.33 percent and the counterparty has agreed to pay Spartan Stores a floating interest rate based upon the 1-month LIBOR plus 1.25 percent (1.56 percent at June 20, 2009) on a notional amount of $45 million. The interest rate swap agreement expires concurrently with the senior secured revolving credit facility on December 24, 2012. For derivative instruments that are designated and qualify as cash flow hedges, the effective portion of the gain or loss on the derivative is reported as a component of other comprehensive income and reclassified into earnings in the same period during which the hedged transaction affects earnings. Gains and losses on the derivative representing hedge ineffectiveness are recognized in current earnings. The following table provides a summary of the fair value and balance sheet classification of the derivative financial instrument designated as an interest rate cash flow hedge: Balance Sheet Classification June 20, 2009 March 28, 2009 Other assets $ 562 Other long-term liabilities $ 462 The following table provides a summary of the pre-tax financial statement effect of the derivative financial instrument designated as an interest rate cash flow hedge for the first quarter of fiscal 2010:
Location in Consolidated Financial Statements Gain recognized in other Loss reclassified from accumulated Note 6 Various lawsuits and claims, arising in the ordinary course of business, are pending or have been asserted against Spartan Stores. While the ultimate effect of such actions cannot be predicted with certainty, management believes that their outcome will not result in a material adverse effect on the consolidated financial position, operating results or liquidity of Spartan Stores. Note 7 The following table provides the components of net periodic pension and postretirement benefit costs for the first quarters of fiscal 2010 and 2009: Pension Benefits SERP Benefits Postretirement Benefits June 20, June 21, June 20, June 21, June 20, June 21, Service cost $ 680 $ 665 $ 19 $ 13 $ 31 $ 42 Interest cost 832 797 13 11 101 92 Expected return on plan assets (939 ) (1,082 ) - - Amortization of prior service cost (147 ) (173 ) - (12 ) (13 ) Recognized actuarial net loss 152 87 10 9 4 - Net periodic benefit cost $ 578 $ 294 $ 42 $ 33 $ 124 $ 121 No payments are required to be made in fiscal 2010 to meet the minimum pension funding requirements. As of June 20, 2009, no contributions have been made. Spartan Stores will assess the prudence of making an additional voluntary contribution to the plan during the third quarter of fiscal 2010. Note 8 There were no material changes to the amount of unrecognized tax benefits during the first quarter of fiscal 2010. Spartan Stores expects that an immaterial amount of the unrecognized tax benefits will be settled prior to June 19, 2010. The effective income tax rate differs from the statutory Federal income tax rate primarily due to state income taxes. Note 9 Spartan Stores has two shareholder-approved stock incentive plans that provide for the granting of incentive stock options, non-qualified stock options, stock appreciation rights, restricted stock, restricted stock units, stock awards, and other stock-based awards to directors, officers and other key associates.
Spartan Stores accounts for stock-based compensation awards in accordance with the provisions of SFAS No. 123(R), "Share-Based Payment", which requires that share-based payment transactions be accounted for using a fair value method and the related compensation cost recognized in the consolidated financial statements over the period that an employee is required to provide services in exchange for the award. Spartan Stores recognized stock-based compensation expense (net of tax) of $0.8 million ($0.04 per diluted share) and $0.7 million ($0.03 per diluted share) in the first quarter of fiscal 2010 and 2009, respectively, as a component of Selling, general and administrative expenses in the Consolidated Statements of Earnings. Historically, awards have been granted in the form of stock options and restricted stock. In the first quarter of fiscal 2010, Spartan Stores also granted restricted stock units ("RSU's") to certain executive employees of the Company. The RSU's have a service condition and a performance condition that must be met in order for the awards to vest. Depending on whether the Company achieves specified threshold, target, or maximum levels of earnings per share as defined in the award documents, an employee could receive a number of shares of Spartan Stores common stock ranging from zero to 200 percent of the number of RSU's granted. Any shares received upon conversion are subject to a cliff vesting period ending on the third anniversary of the grant date as designated in the award documents. Compensation expense is recognized over the service vesting period if and when the Company concludes it is probable that the performance vesting condition will be satisfied. If the performance condition is n
ot satisfied, then no compensation cost is recorded and any compensation cost previously recognized will be reversed. The following table summarizes activity in our share-based compensation plans for the first quarter ended June 20, 2009: Weighted Outstanding at March 29, 2009 706,367 $ 17.99 590,693 $ 19.12 Granted 174,632 13.87 324,002 13.87 Exercised/Vested (4,688 ) 3.67 (197,758 ) 15.75 Cancelled/Forfeited (14,563 ) 21.60 (14,944 ) 20.16 Outstanding at June 20, 2009 861,748 $ 17.17 701,993 $ 17.62 Vested and expected to vest in the Exercisable at June 20, 2009 389,601 $ 14.76 The weighted average grant-date fair value of stock options granted during the first quarter ended June 20, 2009 and June 21, 2008 was $5.23 and $8.80, respectively. The fair value of each stock option grant is estimated on the date of grant using the Black-Scholes option-pricing model. The following weighted average assumptions were used to estimate the fair value of stock options at the date of grant using the Black-Scholes option-pricing model: 12 Weeks Ended June 20, 2009 June 21, 2008 Dividend yield 1.43% 0.88% Expected volatility 41.50% 37.55% Risk-free interest rate 2.28% 3.28% Expected life of option 6.25 years 6.25 years Due to certain events that are considered unusual and/or infrequent in nature, and that resulted in significant business changes during the limited historical exercise period, management does not believe that Spartan Stores' historical
As of June 20, 2009, total unrecognized compensation cost related to nonvested share-based awards granted under the stock incentive plans was $2.3 million for stock options and $11.2 million for restricted stock/units. The remaining compensation costs not yet recognized are expected to be recognized over a weighted average period of 2.8 years for stock options and 3.5 years for restricted stock/units. Note 10 In the first quarter of fiscal 2009, Spartan Stores completed the closure and disposition of the prescription files of 13 of the 14 remaining The Pharm stores, allowing Spartan Stores to concentrate efforts and resources on business opportunities with the best long-term growth potential and focus more on core distribution and conventional supermarket operations. Net cash proceeds of $13.0 million were received. Asset impairment charges and exit costs of $5.4 million were also recognized. The results of operations of these stores have been classified as discontinued operations in the consolidated financial statements for all periods presented. Results of the discontinued operations are excluded from the accompanying notes to the consolidated financial statements for all periods presented, unless otherwise noted. The following table details the results of discontinued operations reported on the Consolidated Statements of Earnings: (In thousands) 12 Weeks Ended June 20, June 21, Earnings (loss) from discontinued operations (net of taxes of $10 and ($3,582)) $ 15 $ (5,176 ) Gain on disposal of discontinued operations (net of taxes of $5,203) - 7,518 Total earnings from discontinued operations $ 15 $ 2,342 There were no sales in discontinued operations for the quarter ended June 20, 2009. Sales in discontinued operations for the quarter June 21, 2008 were $20.8 million. Significant assets and liabilities of discontinued operations are as follows: (In thousands) June 20, March 28, Current assets $ 190 $ 169 Property, net 5,621 5,627 Other long-term assets 36 36 Current liabilities 3,774 4,256 Long-term liabilities 1,704 2,342 Note 11 Non-cash financing activities include the issuance of restricted stock/units to employees and directors of $4.5 million and $4.6 million for the first quarter ended June 20, 2009 and June 21, 2008, respectively. Non-cash investing activities include capital expenditures included in other accrued expenses of $1.6 million and $1.3 million for the first quarter ended June 20, 2009 and June 21, 2008, respectively.
Note 12 The following tables set forth information about Spartan Stores by operating segment: (In thousands) 12 Weeks Ended June 20, 2009 Net sales to external customers $ 253,367 $ 342,660 $ 596,027 Inter-segment sales 161,570 161,570 Depreciation and amortization 2,154 5,858 8,012 Operating earnings 7,765 7,326 15,091 Capital expenditures 2,861 7,721 10,582 12 Weeks Ended June 21, 2008 Net sales to external customers $ 298,144 $ 288,561 $ 586,705 Inter-segment sales 133,253 133,253 Depreciation and amortization 1,766 3,976 5,742 Operating earnings 7,486 7,524 15,010 Capital expenditures 1,340 12,954 14,294 June 20, March 28, Total assets Distribution $ 249,421 $ 233,450 Retail 489,886 484,029 Discontinued operations 5,847 5,832 Total $ 745,154 $ 723,311 The following table presents sales by type of similar product and services: 12 Weeks Ended (Dollars in thousands) June 20, 2009 June 21, 2008 Non-perishables(1) $ 317,672 53 % $ 304,544 52 % Perishables(2) 215,660 36 204,686 35 Pharmacy 44,166 8 50,860 9 Fuel 18,529 3 26,615 4 Consolidated net sales $ 596,027 100 % $ 586,705 100 % (1) Consists primarily of general merchandise, grocery, beverages, snacks and frozen foods. Note 13 Events or transactions occurring after the balance sheet date have been evaluated through July 29, 2009, the date the financial statements were issued. The financial statements do not reflect events or transactions after this date.
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Executive Overview Spartan Stores is a leading regional grocery distributor and grocery retailer, operating principally in Michigan and Indiana. We currently operate two reportable business segments: Distribution and Retail. Our Distribution segment provides a full line of grocery, general merchandise, health and beauty care, frozen and perishable items to approximately 350 independently owned grocery stores and our 99 corporate owned stores. Our Retail segment operates 99 retail supermarkets in Michigan under the banners Glen's Markets, Family Fare Supermarkets, D&W Fresh Markets, Felpausch Food Centers and VG's Food and Pharmacy and 21 fuel centers/convenience stores, included at our supermarket locations, under the banners Glen's Quick Stop, Family Fare Quick Stop, D&W Fresh Markets Quick Stop and Felpausch Quick Stop. Our retail supermarkets have a "neighborhood market" focus to distinguish them from supercenters and limited assortment stores. Our sales and operating performance vary with seasonality. Our first and fourth quarters are typically our lowest sales quarters and therefore operating results are generally lower during these two quarters. Additionally, these two quarters can be affected by the timing of the Easter holiday, which results in a strong sales week. Many northern Michigan stores are dependent on tourism, which is affected by the economic environment and seasonal 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. All quarters are 12 weeks, except for our third quarter, which is 16 weeks and includes the Thanksgiving and Christmas holidays. In the first quarter, we continued with the integration of the VG's retail store acquisition. We are using the additional insight gained during the integration process to further refine our product offerings and services in these markets to address the current economic environment. We also continued execution of our capital investment program by completing four major store remodels, two of which were substantially complete during the prior year fourth quarter. In addition, we began major remodel activities on one additional store that we expect to complete in the current year third quarter along with one store relocation project which opened in July 2009. We also began the implementation of our new customer loyalty program late in the first quarter. When complete, we believe that the new customer loyalty program will provide better and more sophisticated understanding of our customers' purchasing behavior, which we will use to improve the effectiveness of our promotions, marketing and merchandising programs. We also expect the program will help solidify our long-term customer loyalty, improve our sales growth opportunities and further strengthen our market position. While we expect the economic environment in our markets to weaken further and continue to be a challenge for our customer base for the next 12 to 18 months, we believe that refinements to our marketing, merchandising and pricing tactics, as well as our mix of quality products and services, capital investment program and integration of the VG's retail stores, will bring additional value to our customers, while providing additional sales growth opportunities when we eventually emerge from the current environment. In addition, we believe our continued focus on cost reduction and efficiency improvement efforts will create incremental operating leverage when sales improve.
Results of Operations The following table sets forth items from our Consolidated Statements of Earnings as a percentage of net sales and the year-to-year percentage change in dollar amounts: (Unaudited) Percentage of Net Sales Percentage Change June 20, June 21, Fiscal 2010 / Gross margin 22.0 19.7 13.4 Selling, general and administrative expenses 19.4 17.1 14.7 Provision for asset impairments and exit costs 0.1 - * Operating earnings 2.5 2.6 0.5 Other income and expenses 0.6 0.6 18.1 Earnings before income taxes and discontinued operations 1.9 2.0 (4.0 ) Income taxes 0.8 0.8 (3.6 ) Earnings from continuing operations 1.1 1.2 (4.3 ) Earnings from discontinued operations, net of taxes 0.0 0.4 * Net earnings 1.2 1.6 (27.7 )
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Exact Name of Registrant as Specified in Its Charter)
(State or Other Jurisdiction
of Incorporation or Organization)
(I.R.S. Employer
Identification No.)
P.O. Box 8700
Grand Rapids, Michigan
(Address of Principal Executive Offices)
49518
(Zip Code)
(Registrant's Telephone Number, Including Area Code)
o
x
o
o
operate our warehouses and other facilities, consumer buying behavior, fuel costs, shipping and transportation, product imports, product cost inflation and its impact on LIFO expense and other factors affecting our company and the grocery industry generally. Our asset impairment and exit cost provisions are estimates and actual amounts may be more or less than these estimates.
FINANCIAL INFORMATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
Assets
2009
2009
authorized; 22,429 and 22,213 shares outstanding
154,762
153,778
shares authorized; no shares outstanding
- -
- -
CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands, except per share data)
(Unaudited)
2009
2008
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(In thousands)
(Unaudited)
Shares
Outstanding
Common
Stock
Accumulated
Other
Comprehensive
Loss
Retained
Earnings
Total
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
2009
2008
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Basis of Presentation and Significant Accounting Policies
Changes in Accounting Principles
2009
2008
2009
2009
June 20,
June 21, 2008
operations 1
$
6,844
$
7,577
$
(429
)
$
7,148
outstanding - basic
22,296
21,411
580
21,991
restricted shares outstanding
79
318
(139
)
179
outstanding - diluted
22,375
21,729
441
22,170
continuing operations
$
0.31
$
0.35
$
(0.03
)
$
0.32
the end of the respective reporting period. Accordingly, the impact of 80,500 restricted stock units for the period ended June 20, 2009 were excluded from the computation of diluted shares.
Exit Costs
Fair Value Measurements
2009
2009
Derivative Instruments
comprehensive income
Other comprehensive income
$
1,024
other comprehensive income
Interest expense
(190
)
Commitments and Contingencies
Associate Retirement Plans
2009
2008
2009
2008
2009
2008
Taxes on Income
Stock-Based Compensation
Shares
Under
Options
Weighted
Average
Exercise Price
Restricted
Stock
Awards/Units
Average
Grant-Date
Fair Value
future at June 20, 2009
839,413
$
17.13
exercise data will provide a reasonable basis upon which to estimate the expected term of stock options. Therefore, the expected term of stock options granted is determined using the "simplified" method as described in SEC Staff Accounting Bulletins that uses the following formula: ((vesting term + original contract term)/2).
Discontinued Operations
2009
2008
2009
2009
Supplemental Cash Flow Information
Operating Segment Information
Distribution
Retail
Total
2009
2009
(2) Consists primarily of produce, dairy, meat, bakery, deli, floral and seafood.
Subsequent Events
2009
2008
Fiscal 2009
Net sales
100.0
100.0
1.6
* Percentage change is not meaningful
Net Sales - Net sales for the quarter ended June 20, 2009 ("first quarter") increased $9.3 million, or 1.6 percent, from $586.7 million in the quarter ended June 21, 2008 ("prior year first quarter") to $596.0 million.
Net sales for the first quarter in our Distribution segment decreased $44.8 million, or 15.0 percent, from $298.1 million in the prior year first quarter to $253.4 million. The decrease was primarily due to the elimination of sales to VG's stores of $34.3 million (due to the acquisition) and lower sales in our marginally profitable pharmacy distribution program of $7.7 million, partially offset by approximately $2.0 million of Easter holiday sales in the first quarter. The Easter holiday did not fall in the prior year first quarter. Distribution sales, excluding the effect of the VG's sales reclassification, for fiscal 2010 are expected to decline slightly from last year as a result of the current economic conditions in Michigan and product deflation in certain key commodity categories.
Net sales for the first quarter in our Retail segment increased $54.1 million, or 18.7 percent, from $288.6 million in the prior year first quarter to $342.7 million. The increase was primarily due to incremental sales from the recently acquired VG's retail stores of $68.6 million and Easter holiday sales of approximately $2.2 million, partially offset by lower fuel center sales of $7.5 million due to significantly lower retail prices, a loss of sales of $4.8 million relating to the closures or sale of three retail stores and the temporary closing of one store that is undergoing a major remodel and a 1.8 percent decline in comparable store sales (excluding the effect of fuel sales and the Easter holiday in the current year).
Excluding sales from fuel centers and Easter holiday sales, comparable store sales decreased 1.8 percent due to economic uncertainty, which is causing changes in consumer purchasing behavior, such as a shift to lower priced private label products, price deflation in certain high volume product categories and competitive openings. There was no Easter holiday during fiscal 2009. We define a retail store as comparable when it is in operation for 14 accounting periods (a period equals four weeks), and we include remodeled, expanded and relocated stores in comparable stores.
We expect retail comparable sales to be in the negative low single digit range during the remainder of fiscal 2010 due to the prolonged economic weakness and its effect on Michigan industry, unseasonably cool summer weather and lower state tourism business and competitive openings in fiscal 2010.
Gross Margin - Gross margin represents net sales less cost of sales, which include purchase costs and vendor allowances. Vendor allowances that relate to our 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 our merchandising costs, such as setting up warehouse infrastructure. Vendor allowances associated with product cost 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.
Gross margin for the first quarter increased $15.5 million, or 13.4 percent, from $115.5 million in the prior year first quarter to $131.0 million. As a percent of net sales, gross margin for the first quarter increased to 22.0 percent from 19.7 percent. The gross margin rate improvement was due principally to an increase in the mix of higher margin retail sales as a percentage of consolidated sales resulting from the acquisition of VG's.
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, utilities, equipment rental, depreciation and other administrative costs.
SG&A expenses for the first quarter increased $14.8 million, or 14.7 percent, from $100.5 million in the prior year first quarter to $115.3 million. As a percent of net sales, SG&A expenses were 19.4 percent for the first quarter compared to 17.1 percent in the prior year first quarter. The net increase in SG&A is primarily due to added operating costs associated with the acquired VG's retail stores of $16.5 million, increased depreciation and amortization expense of $1.3 million and costs related to the introduction of a new customer loyalty program of $0.4 million, partially offset by decreases in transportation fuel costs of $0.9 million and operating costs associated with four closed/sold stores of $0.5 million.
Asset Impairment and Exit Costs - Asset impairment and exit costs of $0.6 million were incurred in the first quarter related to the closing of one underperforming retail store.
Interest Expense - Interest expense increased $0.5 million from $3.2 million in the prior year first quarter to $3.7 million. The increase was due to higher average outstanding borrowings due to the acquisition of VG's.
On January 2, 2009, we entered into an interest rate swap agreement. The interest rate swap is considered to be a cash flow hedge of interest payments on $45.0 million of borrowings under our senior secured revolving credit facility by effectively converting a portion of the variable rate debt to a fixed rate basis. Under the terms of the agreement, we have agreed to pay the counterparty a fixed interest rate of 3.33 percent and the counterparty has agreed to pay Spartan Stores a floating interest rate based upon the 1-month LIBOR plus 1.25 percent (1.56 percent at June 20, 2009) on a notional amount of $45 million. The interest rate swap agreement expires concurrently with the senior secured revolving credit facility on December 24, 2012.
Effective March 29, 2009 we adopted FSP No. APB 14-1, "Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement)" (FSP No. APB 14-1). In short, this requires that we recognize non-cash interest expense on our $110.0 million convertible senior notes. FSP No. APB 14-1 must be applied on a retrospective basis; therefore, upon adoption we retroactively recorded additional non-cash interest expense of approximately $0.7 million, pre-tax, in the prior year first quarter.
Income Taxes - The effective tax rate is 40.2 percent and 40.1 percent for the first quarter and prior year first quarter, respectively. The difference from the statutory rate is primarily due to State of Michigan income taxes.
Discontinued Operations
Certain of our retail and grocery distribution operations have been recorded as discontinued operations. Results of the discontinued operations are excluded from the accompanying notes to the condensed consolidated financial statements for all periods presented, unless otherwise noted.
In the first quarter of fiscal 2009, we completed the closure and disposition of the prescription files of 13 of the 14 The Pharm stores, allowing us to concentrate efforts and resources on business opportunities with the best long-term growth potential and focus more on core distribution and conventional supermarket operations. Cash proceeds of $13.0 million were received. Asset impairment charges and exit costs of $5.4 million were recognized.
Liquidity and Capital Resources
The following table summarizes our consolidated statements of cash flows for the first quarter and prior year first quarter:
(In thousands)
|
June 20, |
|
|
June 21, |
|
|
||
Net cash provided by operating activities |
$ |
16,491 |
|
|
$ |
13,668 |
|
|
Net cash used in investing activities |
|
(10,507 |
) |
|
|
(13,976 |
) |
|
Net cash used in financing activities |
|
(3,863 |
) |
|
|
(3,128 |
) |
|
Net cash (used in) provided by discontinued operations |
|
(838 |
) |
|
|
14,185 |
|
|
Net increase in cash and cash equivalents |
|
1,283 |
|
|
|
10,749 |
|
|
Cash and cash equivalents at beginning of period |
|
6,519 |
|
|
|
19,867 |
|
|
Cash and cash equivalents at end of period |
$ |
7,802 |
|
|
$ |
30,616 |
|
|
Net cash provided by operating activities during the first quarter was greater than the prior year primarily due to increased net earnings before depreciation and amortization and other non-cash charges, partially offset by the timing of accounts payable.
Net cash used in investing activities decreased during the first quarter primarily due to a decrease in capital expenditures of $3.7 million to $10.6 million, of which our Retail and Distribution segments utilized 73 percent and 27 percent, respectively. Expenditures were used for store remodels and refurbishments, new fuel centers and new equipment and software. Under the terms of our senior secured revolving credit facility, should our available borrowings fall below certain levels, our capital expenditures would be restricted each fiscal year. Our current available borrowings are over $96 million above these limits as of June 20, 2009 and we do not expect to fall below these levels. We expect capital expenditures to range from $48 million to $52 million for fiscal 2010.
Net cash used in financing activities includes cash paid and received related to our long-term borrowings, dividends paid, tax benefits of stock compensation and proceeds from the issuance of common stock. Cash dividends of $1.1 million were paid in each quarter. Although we currently expect 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 in its discretion. Whether the board of directors continues to declare dividends depends on a number of factors, including our future financial condition and profitability and compliance with the terms of our credit facilities. Our current maturities of long-term debt and capital lease obligations at June 20, 2009 are $3.9 million. Our ability to borrow additional funds is governed by the terms of our credit facilities.
On January 2, 2009, Spartan Stores entered into an interest rate swap agreement. The interest rate swap is considered to be a cash flow hedge of interest payments on $45.0 million of borrowings under Spartan Stores' senior secured revolving credit facility by effectively converting a portion of the variable rate debt to a fixed rate basis. Under the terms of the agreement, Spartan Stores has agreed to pay the counterparty a fixed interest rate of 3.33 percent and the counterparty has agreed to pay Spartan Stores a floating interest rate based upon the 1-month LIBOR plus 1.25 percent (1.56 percent at June 20, 2009) on a notional amount of $45 million. The interest rate swap agreement expires concurrently with the senior secured revolving credit facility on December 24, 2012.
Net cash (used in) provided by discontinued operations contains the net cash flows of our discontinued operations and consists primarily of proceeds from the sale of assets and the payment of store exit cost reserves, insurance run-off claims and other liabilities. Included in prior year first quarter cash flows from discontinued operations are net proceeds on the disposal of assets of $13.0 million. We expect the cash used by our discontinued operations will be approximately $4.5 million to $5.5 million in fiscal 2010.
Our principal sources of liquidity are cash flows generated from operations and our senior secured revolving credit facility. Interest on our convertible senior notes is payable on May 15 and November 15 of each year. The revolving credit facility matures December 2012, and is secured by substantially all of our assets. As of June 20, 2009, our revolving credit facility had outstanding borrowings of $62.9 million, available borrowings of $116.3 million and maximum availability of $126.3 million, which exceeds the minimum excess availability levels, as defined in the credit agreement. We believe 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 our business will continue to generate cash flow at or above current leve ls or that we will maintain our ability to borrow under our credit facility.
Our current ratio increased to 1.16:1.00 at June 20, 2009 from 1.13:1.00 at March 28, 2009 and our investment in working capital was $29.3 million at June 20, 2009 versus $21.0 million at March 28, 2009. Our debt to total capital ratio at June 20, 2009 was 0.43:1.00 versus 0.44:1.00 at March 28, 2009. The change in these ratios was primarily due to seasonality of the business.
For information on contractual obligations, see our Annual Report on Form 10-K for the fiscal year ended March 28, 2009. At June 20, 2009, there have been no material changes to our significant contractual obligations outside the ordinary course of business.
Indebtedness and Liabilities of Subsidiaries
On May 30, 2007, the Company sold $110 million aggregate principal amount of 3.375 percent Convertible Senior Notes due 2027 (the "Notes"). The Notes are general unsecured obligations and rank equally in right of payment with all of the Company's other existing and future obligations that are unsecured and unsubordinated. Because the Notes are unsecured, they are structurally subordinated to our subsidiaries' existing and future indebtedness and other liabilities and any preferred equity issued by our subsidiaries. We rely in part on distributions and advances from our subsidiaries in order to meet our payment obligations under the notes and our other obligations. The Notes are not guaranteed by our subsidiaries. Many of our subsidiaries serve as guarantors with respect to our existing credit facility. Creditors of each of our subsidiaries, including trade creditors, and preferred equity holders, generally have priority with respect to the assets and earnin gs of the subsidiary over the claims of our creditors, including holders of the Notes. The Notes, therefore, are effectively subordinated to the claims of creditors, including trade creditors, judgment creditors and preferred equity holders of our subsidiaries. In addition, our rights and the rights of our creditors, including the holders of the notes, to participate in the assets of a subsidiary during its liquidation or reorganization are effectively subordinated to all existing and future liabilities and preferred equity of that subsidiary. The Notes are effectively subordinated to our existing and future secured indebtedness to the extent of the assets securing such indebtedness and to existing and future indebtedness and other liabilities of our subsidiaries (including subsidiary guarantees of our senior credit facility).
The following table shows the indebtedness and other liabilities of our subsidiaries as of June 20, 2009:
Spartan Stores Subsidiaries Only
(In thousands)
|
|
|
|
|
|
Current Liabilities |
|
|
|
|
Accounts payable |
$ |
116,339 |
|
|
Accrued payroll and benefits |
|
26,842 |
|
|
Other accrued expenses |
|
21,961 |
|
|
Current portion of exit costs |
|
9,859 |
|
|
Current maturities of long-term debt and capital lease obligations |
|
3,883 |
|
|
Total current liabilities |
|
178,884 |
|
|
|
|
|
|
|
Long-term Liabilities |
|
|
|
|
Postretirement benefits |
|
25,615 |
|
|
Other long-term liabilities |
|
19,688 |
|
|
Exit costs |
|
33,967 |
|
|
Long-term debt and capital lease obligations |
|
39,859 |
|
|
Total long-term liabilities |
|
119,129 |
|
|
|
|
|
|
|
Total Subsidiary Liabilities |
|
298,013 |
|
|
Operating Leases |
|
159,733 |
|
|
Total Subsidiary Liabilities and Operating Leases |
$ |
457,746 |
|
Ratio of Earnings to Fixed Charges
Our ratio of earnings to fixed charges was 2.77:1.00 and 3.14:1.00 for the first quarter and prior year first quarter, respectively. For purposes of calculating the ratio of earnings to fixed charges, earnings consist of pretax earnings from continuing operations plus fixed charges (excluding capitalized interest). Fixed charges consist of interest costs, whether expensed or capitalized, the interest component of rental expense and amortization of debt issue costs, whether expensed or capitalized.
Off-Balance Sheet Arrangements
We had letters of credit of $4.1 million outstanding and unused at June 20, 2009. The letters of credit are maintained primarily to support payment or deposit obligations. We pay a commission of approximately 2 percent on the face amount of the letters of credit.
Recently Adopted Accounting Standards
In September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements" (SFAS 157). SFAS 157 defines fair value, establishes a framework for measuring fair value under generally accepted accounting principles, and expands disclosures about fair value measurements. This statement does not require any new fair value measurements, but applies under other accounting pronouncements that require or permit fair value measurements. In February 2007, the FASB issued FASB Staff Position (FSP) No. FAS 157-2 which delayed the effective date of SFAS 157 to fiscal years beginning after November 15, 2008 for nonfinancial assets and nonfinancial liabilities. We adopted FSP No. FAS 157-2 on March 29, 2009. Adoption of FSP FAS No. 157-2 had no impact on the consolidated financial statements.
In December 2007, the FASB issued SFAS No. 141 (Revised 2007), "Business Combinations" (SFAS 141R), which revises SFAS No. 141. SFAS 141R establishes principles and requirements for the reporting entity in
a business combination, including recognition and measurement in the financial statements of the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree. The statement also establishes disclosure requirements to enable financial statement users to evaluate the nature and financial effects of the business combination. SFAS 141R was effective for Spartan Stores on March 29, 2009 and must be applied prospectively to business combinations for which the acquisition date is on or after the beginning of fiscal year 2010. Adoption of SFAS 141R has not impacted the consolidated financial statements as we have not entered into any business combinations in fiscal 2010.
In March 2008, the FASB issued SFAS No. 161, "Disclosures about Derivative Instruments and Hedging Activities" (SFAS 161). SFAS 161 amends and expands the disclosure requirements of SFAS No. 133 for derivative instruments and hedging activities. SFAS 161 was adopted on March 29, 2009. Adoption of SFAS 161 did not have a material impact on the consolidated financial statements.
In May 2008, the FASB issued FSP No. APB 14-1, "Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement)" (FSP APB 14-1), that changes the accounting treatment for convertible debt instruments that allow for either mandatory or optional cash settlements. FSP APB 14-1 requires us to recognize non-cash interest expense on our $110 million convertible senior notes based on the market rate for similar debt instruments without the conversion feature as of the date of debt issuance. FSP APB 14-1 was adopted on March 29, 2009 and was applied on a retrospective basis. As required, upon adoption on March 29, 2009, we retroactively recorded additional non-cash interest expense of approximately $0.7 million for the first quarter of fiscal 2009. We also retroactively recorded an increase in shareholders' equity of $16.4 million, net of deferred taxes, and a decrease in long-term debt of $27.6 million.
In June 2008, the FASB issued FSP No. EITF 03-6-1, "Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities" (FSP EITF 03-6-1). FSP EITF 03-6-1 clarifies that unvested share-based payment awards that contain nonforfeitable rights to dividends or dividend equivalents are participating securities and must be included in the computation of earnings per share pursuant to the two-class method described in FASB Statement No. 128, "Earnings Per Share." FSP EITF 03-6-1 was adopted on March 29, 2009 and applied on a retrospective basis as required.
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, stock-based compensation 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. We have discussed the development, selection and disclosure of these estimates with the Audit Committee. The accompanying condensed consolidated financial statements are prepar ed using the same critical accounting policies discussed in our Annual Report on Form 10-K for the fiscal year ended March 28, 2009.
ITEM 3. |
Quantitative and Qualitative Disclosure About Market Risk |
There have been no material changes in market risk of Spartan Stores from the information provided under Part II, Item 7A, "Quantitative and Qualitative Disclosure About Market Risk", of the Company's Annual Report on Form 10-K for the fiscal year ended March 28, 2009.
ITEM 4. |
Controls and Procedures |
An evaluation of the effectiveness of the design and operation of Spartan Stores' disclosure controls and procedures (as currently defined in Rule 13a-15(e) under the Securities Exchange Act of 1934) was performed as of June 20, 2009 (the "Evaluation Date"). This evaluation was performed under the supervision and with the participation of Spartan Stores' management, including its Chief Executive Officer ("CEO") and Chief Financial Officer ("CFO"). As of the Evaluation Date, Spartan Stores' management, including the CEO and CFO, concluded that Spartan Stores' disclosure controls and procedures were effective as of the Evaluation Date to ensure that material information required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified by the Securities and Exchange Commission's rules and forms. Disclosure controls and procedures include, witho ut limitation, controls and procedures designed to ensure that information required to be disclosed in the reports that we file or submit under the Securities and Exchange Act of 1934 is accumulated and communicated to management, including our principal executive and principal financial officers as appropriate to allow for timely decisions regarding required disclosure. During the last fiscal quarter there was no change in Spartan Stores' internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, Spartan Stores' internal control over financial reporting.
PART II
OTHER INFORMATION
ITEM 2. |
Unregistered Sales of Equity Securities and Use of Proceeds |
The following table provides information regarding the Company's purchases of its own common stock during the first quarter. The Company has no public stock repurchase plans or programs. All transactions reported are with associates under stock compensation plans. These include: (1) shares of Spartan Stores, Inc. stock delivered in satisfaction of the exercise price and/or tax withholding obligations by holders of employee stock options who exercised options, and (2) shares withheld to satisfy tax withholding obligations that occur upon the vesting of the restricted shares.
Spartan Stores, Inc. Purchases of Equity Securities
|
|
|
Total |
|
|
||
|
Period 1 (March 29 - April 25, 2009) |
|
|
|
|
|
|
|
|
|
|
|
|
||
|
Employee Transactions |
|
312 |
$ |
16.36 |
|
|
|
|
|
|
|
|
||
|
Period 2 (April 26 - May 23, 2009) |
|
|
|
|
|
|
|
|
|
|
|
|
||
|
Employee Transactions |
|
59,580 |
$ |
15.28 |
|
|
|
|
|
|
|
|
||
|
Period 3 (May 24 - June 20, 2009) |
|
|
|
|
|
|
|
|
|
|
|
|
||
|
Employee Transactions |
|
- |
$ |
- |
|
|
|
|
|
|
|
|
||
|
Total for First Quarter ended June 20, 2009 |
|
59,892 |
$ |
15.29 |
|
Item 6. |
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 March 19, 2007, by and among G&R Felpausch Company, Felpausch Food Centers, LLC, Hastings Catalog Sales, Inc., and Felpausch Kalamazoo, LLC as Seller, and Family Fare, LLC, Prevo's Family Markets, Inc., MSFC, LLC, and Spartan Stores Fuel, LLC as Purchaser, previously filed as an exhibit to Spartan Stores' Current Report on Form 8-K, filed March 23, 2007. Here incorporated by reference. Exhibits and schedules to this agreement are listed and identified in the agreement. Omitted exhibits and schedules will be furnished supplementally to the Commission upon request. |
|
2.2 |
Third Amendment to the Asset Purchase Agreement, dated June 15, 2007, by and among G&R Felpausch Company, Felpausch Food Centers, LLC, Hastings Catalog Sales, Inc., Felpausch Kalamazoo, LLC, and Felpausch-Kelly, L.L.C. as Seller, and Family Fare, LLC, Prevo's Family Markets, Inc., MSFC, LLC, and Spartan Stores Fuel, LLC as Purchaser, previously filed as an exhibit to Spartan Stores' Current Report on Form 8-K, filed June 21, 2007. Here incorporated by reference. Exhibits and schedules to this agreement are listed and identified in the agreement. Omitted exhibits and schedules will be furnished supplementally to the Commission upon request. |
|
2.3 |
Asset Purchase Agreement dated March 31, 2008 between Rite Aid of Ohio, Inc. and Seaway Food Town, Inc., with amendments. Previously filed as an exhibit to Spartan Stores' Annual Report on Form 10-K, for the fiscal year ended March 29, 2008. Here incorporated by reference. Exhibits and schedules to this agreement are listed and identified in the agreement. Omitted exhibits and schedules will be furnished supplementally to the Commission upon request. |
|
2.4 |
Asset Purchase Agreement dated October 13, 2008 by and among V.G.'s Food Center, Inc. and VG's Pharmacy, Inc. as Seller and Family Fare, LLC as Purchaser. Previously filed as an exhibit to Spartan Stores' Current Report on Form 8-K filed October 15, 2008. Here incorporated by reference. Exhibits and schedules to this agreement are listed and identified in the agreement. Omitted exhibits and schedules will be furnished supplementally to the Commission upon request. |
|
3.1 |
Amended and Restated Articles of Incorporation of Spartan Stores, Inc. Previously filed as an exhibit to Spartan Stores' Quarterly Report on Form 10-Q for the quarter ended September 10, 2005. Here incorporated by reference. |
|
3.2 |
Bylaws of Spartan Stores, Inc., as amended. Previously filed as an exhibit to Spartan Stores' Current Report on Form 8-K on August 20, 2007. Here incorporated by reference. |
|
10.1 |
Form of Restricted Stock Award to executive officers. |
|
10.2 |
Form of Stock Option Award to executive officers. |
|
10.3 |
Form of Restricted Stock Unit Award to executive officers. |
|
10.4 |
Form of Restricted Stock Award to non-employee directors. |
|
10.5 |
Form of Stock Option Award to non-employee directors. |
|
10.6 |
Amendment No. 7 to Loan and Security Agreement dated May 20, 2009 between Spartan Stores, Inc. and its subsidiaries and Wachovia Capital Finance Corporation (Central), Key Bank National Association, Bank of America N.A., National City Business Credit, Inc., General Electric Capital Corporation, and Fifth Third Bank. Previously filed as an exhibit to Spartan Stores' Current Report on Form 8-K filed May 22, 2009. Here incorporated by reference. |
|
10.7 |
Swap Transaction Confirmation. Previously filed as an exhibit to Spartan Stores' Current Report on Form 8-K on January 8, 2009. Here incorporated by reference. |
|
31.1 |
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
|
31.2 |
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
|
32.1 |
Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
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. |
||
Date: July 29, 2009 |
By |
/s/ David M. Staples |
David M. Staples |
EXHIBIT INDEX
Exhibit Number |
Document |
|
2.1 |
Asset Purchase Agreement, dated March 19, 2007, by and among G&R Felpausch Company, Felpausch Food Centers, LLC, Hastings Catalog Sales, Inc., and Felpausch Kalamazoo, LLC as Seller, and Family Fare, LLC, Prevo's Family Markets, Inc., MSFC, LLC, and Spartan Stores Fuel, LLC as Purchaser, previously filed as an exhibit to Spartan Stores' Current Report on Form 8-K, filed March 23, 2007. Here incorporated by reference. Exhibits and schedules to this agreement are listed and identified in the agreement. Omitted exhibits and schedules will be furnished supplementally to the Commission upon request. |
|
2.2 |
Third Amendment to the Asset Purchase Agreement, dated June 15, 2007, by and among G&R Felpausch Company, Felpausch Food Centers, LLC, Hastings Catalog Sales, Inc., Felpausch Kalamazoo, LLC, and Felpausch-Kelly, L.L.C. as Seller, and Family Fare, LLC, Prevo's Family Markets, Inc., MSFC, LLC, and Spartan Stores Fuel, LLC as Purchaser, previously filed as an exhibit to Spartan Stores' Current Report on Form 8-K, filed June 21, 2007. Here incorporated by reference. Exhibits and schedules to this agreement are listed and identified in the agreement. Omitted exhibits and schedules will be furnished supplementally to the Commission upon request. |
|
2.3 |
Asset Purchase Agreement dated March 31, 2008 between Rite Aid of Ohio, Inc. and Seaway Food Town, Inc., with amendments. Previously filed as an exhibit to Spartan Stores' Annual Report on Form 10-K, for the fiscal year ended March 29, 2008. Here incorporated by reference. Exhibits and schedules to this agreement are listed and identified in the agreement. Omitted exhibits and schedules will be furnished supplementally to the Commission upon request. |
|
2.4 |
Asset Purchase Agreement dated October 13, 2008 by and among V.G.'s Food Center, Inc. and VG's Pharmacy, Inc. as Seller and Family Fare, LLC as Purchaser. Previously filed as an exhibit to Spartan Stores' Current Report on Form 8-K filed October 15, 2008. Here incorporated by reference. Exhibits and schedules to this agreement are listed and identified in the agreement. Omitted exhibits and schedules will be furnished supplementally to the Commission upon request. |
|
3.1 |
Amended and Restated Articles of Incorporation of Spartan Stores, Inc. Previously filed as an exhibit to Spartan Stores' Quarterly Report on Form 10-Q for the quarter ended September 10, 2005. Here incorporated by reference. |
|
3.2 |
Bylaws of Spartan Stores, Inc., as amended. Previously filed as an exhibit to Spartan Stores' Current Report on Form 8-K on August 20, 2007. Here incorporated by reference. |
|
10.1 |
Form of Restricted Stock Award to executive officers. |
|
10.2 |
Form of Stock Option Award to executive officers. |
|
10.3 |
Form of Restricted Stock Unit Award to executive officers. |
|
10.4 |
Form of Restricted Stock Award to non-employee directors. |
|
10.5 |
Form of Stock Option Award to non-employee directors. |
10.6 |
Amendment No. 7 to Loan and Security Agreement dated May 20, 2009 between Spartan Stores, Inc. and its subsidiaries and Wachovia Capital Finance Corporation (Central), Key Bank National Association, Bank of America N.A., National City Business Credit, Inc., General Electric Capital Corporation, and Fifth Third Bank. Previously filed as an exhibit to Spartan Stores' Current Report on Form 8-K filed May 22, 2009. Here incorporated by reference. |
|
10.7 |
Swap Transaction Confirmation. Previously filed as an exhibit to Spartan Stores' Current Report on Form 8-K on January 8, 2009. Here incorporated by reference. |
|
31.1 |
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
|
31.2 |
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
|
32.1 |
Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
EXHIBIT 10.1
SCHEDULE TO NOTES IN FORM OF RESTRICTED STOCK AGREEMENT
|
|
Dennis Eidson |
39,600 |
Craig C. Sturken |
14,800 |
David M. Staples |
14,600 |
Theodore Adornato |
9,300 |
Alex J. DeYonker |
9,300 |
Grantee: [Note 1] |
Grant Date: May 15, 2009 |
|
|
Number of Shares: [Note 2] |
Vesting Day: May 1 |
Dear:
|
Re: |
Restricted Stock Award - Fiscal Year 2010 |
I am pleased to inform you that Spartan Stores, Inc., a Michigan corporation, ("Spartan") has granted to you the number of restricted shares of Spartan's Common Stock described above under the Spartan Stores, Inc. Stock Incentive Plan of 2005 (the "Plan"). By accepting this grant, you agree that the restricted stock is subject to the terms and conditions of this letter and the Plan (which are incorporated into this letter by reference). If there is any conflict between the terms of the Plan and this letter, the terms of the Plan will control.
Restricted Stock Grant. Spartan grants to you [Note 2] shares of Spartan Stores, Inc. Common Stock, no par value, all of which are subject to restrictions imposed under this letter and the Plan (the "Restricted Stock"). This grant of Restricted Stock shall not confer any right to you to be granted Restricted Stock or other awards in the future under the Plan.
Restrictions. The Restricted Stock is subject to the following transfer and forfeiture conditions ("Restrictions"), which will lapse, if at all, as described in the "Lapse of Restrictions" section below. The period during which Restricted Stock is subject to the Restrictions imposed by the Plan and under this letter is referred to in this letter as the "Restricted Period."
(1) Until the Restrictions lapse as set forth in paragraphs (1), (2), (3) or (4) under Lapse of Restrictions below, the Restricted Stock generally is not transferable by you except by will or according to the laws of descent and distribution. All rights with respect to the Restricted Stock are exercisable during your lifetime only by you, your guardian, or your legal representative.
(2) Any shares of Restricted Stock for which the Restrictions have not lapsed will automatically be forfeited without consideration upon the termination of your employment with Spartan for any reason other than death, Disability or Retirement. Upon the termination of your employment with Spartan for your death, Disability or Retirement, the Restrictions applicable to any shares of Restricted Stock will lapse in accordance with the applicable provisions set forth in paragraphs (2) or (3) under Lapse of Restrictions below. Notwithstanding the foregoing, the Committee (as defined in the Plan) reserves the right, in its sole discretion, to waive the Restrictions remaining on any or all such shares of Restricted Stock at the time of termination of employment.
Lapse of Restrictions.
(1) Except as otherwise provided in this letter, and so long as you remain continuously employed by Spartan, 20% of the shares of Restricted Stock will vest and the Restrictions will lapse with respect to such shares of Restricted Stock on the Vesting Day set forth above in each of the next five years.
(2) Notwithstanding anything to the contrary in this letter, upon termination of your employment with Spartan due to your death or Disability (as defined in the Plan) during the Restricted Period, the Restrictions applicable to any shares of Restricted Stock will lapse automatically and the Restricted Stock will vest and no longer be subject to forfeiture.
(3) Notwithstanding anything to the contrary in this letter, in the event of your Retirement (as defined in the Plan) during the Restricted Period, the Restrictions applicable to any remaining shares of Restricted Stock will terminate automatically with respect to that number of shares (rounded to the nearest whole number) equal to: (a) the total number of shares of Restricted Stock granted to you under this letter agreement, multiplied by the number of full months that have elapsed since the Grant Date, divided by sixty (60), less (b) the number of shares of Restricted Stock vested as of the date of Retirement. All remaining shares will be forfeited and returned to the Company.
(4) Notwithstanding anything to the contrary in this letter, if a Change in Control (as defined in the Plan) occurs at any time during the Restricted Period and prior to your termination of employment, the Restrictions with respect to all of the remaining shares of
Restricted Stock that have been issued to you will lapse automatically and such Restricted Stock will vest and no longer be subject to forfeiture.
Shareholder Rights. During the Restricted Period(s), you shall have all voting, dividend, liquidation, and other rights with respect to the Restricted Stock held of record by you as if you held unrestricted Common Stock; provided, however, that the unvested portion of any Restricted Stock award shall be subject to any restrictions on transferability or risks of forfeiture imposed pursuant to this letter or the Plan. Any non-cash dividends or distributions paid with respect to unvested Restricted Stock shall be subject to the same restrictions as those relating to the Restricted Stock granted to you under this letter agreement. After the Restrictions applicable to the Restricted Stock lapse, you shall have all shareholder rights, including the right to transfer the shares, subject to such conditions as Spartan may reasonably specify to ensure compliance with federal and state securities laws.
Beneficiary Designation. You may, from time to time, name any beneficiary or beneficiaries (who may be named contingently or successively) to whom any benefit under this letter is to be paid in case of your death prior to receipt of any or all of such benefit. Each such designation shall revoke all prior designations made by you, shall be in a form prescribed by the Committee, and will be effective only when filed by you in writing with the Vice President Human Resources of Spartan or his or her successor during your lifetime. In the absence of any such designation, benefits remaining unpaid at your death shall be paid to your estate.
Uncertificated Shares. Your «Restricted_Stock» shares of Restricted Stock are being issued without a paper certificate. The Restricted Stock will be registered in your name in Spartan's books and records and reflected on the account statements issued to you by Smith Barney (or other financial intermediary). Spartan Stores, Inc. is formed under the laws of the State of Michigan. Spartan Stores, Inc. will furnish to you upon request and without charge a full statement of the designation, relative rights, preferences, and limitations of the shares of each class authorized to be issued, the designation, relative rights, preferences, and limitations of each series so far as the same have been prescribed, and the authority of the Spartan's Board of Directors to designate and prescribe the relative rights, preferences, and limitations of other series. If you have any questions, please contact the Company's Director of Benefits .
Certifications. You represent and warrant that you are acquiring the Restricted Stock for your own account and investment and without any intent to resell or distribute the Restricted Stock. You shall not resell or distribute the Restricted Stock after any Restricted Period except in compliance with such conditions as Spartan may reasonably specify to ensure compliance with federal and state securities laws.
Withholding. Spartan is entitled to: (1) withhold and deduct from your future wages (or from other amounts that may be due and owing to you from Spartan), or make other arrangements for the collection of, all legally required amounts necessary to satisfy any and all federal, state, local and foreign withholding and employment-related tax requirements attributable to the award of Restricted Stock, or (2) require you promptly to remit the amount of such withholding to Spartan before taking any action with respect to the Restricted Stock. Upon your written authorization, withholding may be satisfied by withholding Common Stock to be
released upon vesting of and lapse of restrictions with respect to shares of the Restricted Stock or by delivery to Spartan of previously owned Common Stock.
Binding Effect; Amendment. This letter and the Plan shall be binding upon, and shall inure to the benefit of, the parties hereto and their respective heirs, successors and permitted assigns. This letter agreement shall not be modified except in a writing executed by you and Spartan.
Miscellaneous.
(1) This letter and your rights hereunder are subject to all the terms and conditions of the Plan, as the same may be amended from time to time, as well as to such rules and regulations as the Committee may adopt for administration of the Plan. The Committee shall have the right to impose such restrictions on any shares acquired pursuant to this letter, as it may deem advisable, including, without limitation, restrictions under applicable federal securities laws, under the requirements of any stock exchange or market upon which such shares are then listed and/or traded, and under any blue sky or state securities laws applicable to such shares. It is expressly understood that the Committee is authorized to administer, construe, and make all determinations necessary or appropriate to the administration of the Plan and this letter, all of which shall be binding upon you.
(2) The Board may terminate, amend, or modify the Plan in accordance with the terms of the Plan.
(3) You agree to take all steps necessary to comply with all applicable provisions of federal and state securities laws in exercising your rights under this letter. This letter shall be subject to all applicable laws, rules, and regulations, Nasdaq Marketplace Rules and to such approvals by any governmental agencies, The Nasdaq Stock Market or any other national securities exchanges as may be required.
(4) To the extent not preempted by federal law, this letter shall be governed by, and construed in accordance with, the laws of the state of Michigan.
|
Very truly yours, |
|
|
|
|
|
|
|
Dennis Eidson |
|
President & Chief Executive Officer |
EXHIBIT 10.2
SCHEDULE TO NOTES IN FORM OF STOCK OPTION AWARD
|
|
Dennis Eidson |
37,400 |
Craig C. Sturken |
14,000 |
David M. Staples |
13,800 |
Theodore Adornato |
8,800 |
Alex J. DeYonker |
8,800 |
Grantee: |
[Note 1] |
|
|
|
|
Grant Date: |
May 15, 2009 |
Date First Exercisable: May 1, 2010 |
|
|
|
Expiration Date: May 15, 2019 |
Number of Shares: [Note 2] |
|
|
|
|
Exercise Price Per Share: $13.87 |
|
Dear:
|
Re: |
Stock Option Grant - Fiscal Year 2010 |
I am pleased to inform you that Spartan Stores, Inc., a Michigan corporation, ("Spartan") has granted to you under the Spartan Stores, Inc. Stock Incentive Plan of 2005 (the "Plan") the option to purchase the shares of Spartan's Common Stock described above (the "Option"). By accepting this grant, you agree that the Option and shares to be issued upon exercise of the Option are subject to the terms and conditions of this letter and the Plan (which are incorporated into this letter by reference). If there is any conflict between the terms of the Plan and this letter, the terms of the Plan will control.
Grant of Nonqualified Option. Spartan grants to you an option to purchase the number of shares of Spartan Common Stock set forth above. This Option is a non-qualified option and is not intended to be an incentive stock option as defined in Section 422(b) of the Internal Revenue Code of 1986, as amended. This grant of an Option shall not confer any right to you to be granted an Option or other awards in the future under the Plan.
Term and Vesting. Your right to exercise the Option according to its terms shall commence on the "Date First Exercisable" shown above and shall terminate on the "Expiration Date" shown above, unless earlier terminated under this letter or the Plan. Your right to exercise the Option shall vest over a four-year period as follows: twenty-five percent (25%) of the shares covered by this Option shall vest on the "Date First Exercisable", and twenty-five percent (25%) of such shares shall vest on each of the first, second and third anniversaries of the "Date First Exercisable," in each case rounded to the nearest whole number of shares.
Purchase Price; Payment. The price per share of the shares of Common Stock to be purchased upon exercise of the Option shall be the "Exercise Price Per Share" set forth above, subject to adjustment as provided in the Plan. In exercising the Option, you shall pay the exercise price (1) in cash, (2) by check payable to the order of Spartan Stores, Inc., (3) in the form of tendering for surrender previously acquired shares of Spartan Common Stock (such shares to be valued at their Market Value (as determined under the Plan) at the time of delivery to Spartan) that have an aggregate Market Value at the time of exercise equal to the total exercise price of the shares purchased or (4) any combination of the foregoing. For the avoidance of doubt, in the event you choose to pay the purchase price by tendering for surrender previously owned shares, the number of shares issued to you upon the exercise of the Option shal l be the net of the shares surrendered.
Exercise of Option. You may exercise the vested and exercisable portion of this Option, in whole or in part, by an executed notice of exercise, which shall be effective upon receipt by Spartan's Benefits Manager or his or her designee or successor at Spartan's main office, accompanied by full payment (as set forth above) of the option price; provided, however, that no exercise may occur subsequent to the close of business on the "Expiration Date" set forth above. The notice shall be signed by you or your legal representative and shall set forth the number of shares to be purchased. Upon payment of the purchase price and any required withholding amount, the purchased shares (net of any shares surrendered) will be issued to you; provided, however, that issuance may be postponed for such period as may be required for Spartan with reasonable diligence to comply with any registration requirements und
er any securities laws or any other laws or regulations applicable to the issuance, listing or transfer of such shares, or any agreements or Nasdaq Marketplace Rules. If you fail to accept and pay for all or any of the shares, your right to exercise the Option with respect to such shares will terminate; however, your remaining Options not yet exercised or terminated shall continue in force. Spartan's Board of Directors has authorized the issuance of shares without share certificates. Any shares issued to you without a paper certificate will be registered in your name in Spartan's books and records and reflected on the account statements issued to you by Smith Barney (or other financial intermediary). Spartan Stores, Inc. is formed under the laws of the State of Michigan. Spartan Stores, Inc. will furnish to you upon request and without charge a
full statement of the designation, relative rights, preferences, and limitations of the shares of each class authorized to be issued, the designation, relative rights, preferences, and limitations of each series so far as the same have been prescribed, and the authority of the Spartan's Board of Directors to designate and prescribe the relative rights, preferences, and limitations of other series.
Termination of Employment. If your employment with Spartan terminates, you may exercise the Option as set forth below; provided, however, that in no event may you exercise the Option beyond the Expiration Date set forth above:
(1) Death or Disability. In the event of termination of your employment due to your death or Disability (as defined in the Plan), for a period of twelve months following the termination of employment, you (or the representative of your estate, in the case of death) may exercise any or all of the then-unexercised portion of the Option to the extent vested at the time of the termination. The unvested portion of the Option will be forfeited.
(2) Retirement. In the event of your Retirement (as defined in the Plan), you may exercise any or all of the then unexercised portion of the Option to the extent vested at the time of the Retirement in accordance with the terms of this letter, and the unvested portion of the Option shall continue to vest and be exercisable in accordance with the terms of this letter.
(3) Termination by Spartan. In the event of termination of your employment by Spartan for any reason, effective as of the date of the termination of employment: (a) you will have no further right to exercise the vested portion of the Option and (b) the unvested portion of the Option will be forfeited.
(4) Termination by You. In the event of termination of your employment by you for any reason: (a) for a period of three months following the termination of employment, you may exercise any or all of the then unexercised portion of the Option to the extent vested at the time of the termination and (b) the unvested portion of the Option will be forfeited.
(5) Change in Control. In the event of a Change in Control (as defined in the Plan), the Option shall vest and be exercisable in accordance with the terms of the Plan.
Non-transferability of Option. This Option or any rights therein shall not be sold, exchanged, assigned, or otherwise transferred or pledged or otherwise encumbered in whole or in part, except by will or the laws of descent or distribution, and is exercisable during your lifetime only by you or your guardian or legal representative. If any sale, exchange, assignment, transfer, pledge or encumbrance of this Option or any rights therein shall be made or attempted, or if any attachment, execution, garnishment or lien shall be issued against or placed upon this Option, this Option shall be void and of no further effect.
Certifications. You represent and warrant that (1) you are acquiring this Option for your own account and investment and without any intent to distribute any shares upon exercise of the Option and (2) you have been furnished and have read the most recent Annual
Report to Shareholders of Spartan and the Plan Description relating to the Plan. You shall not resell or distribute the shares received upon exercise of the Option except in compliance with such conditions as Spartan may reasonably specify to ensure compliance with federal and state securities laws.
Beneficiary Designation. You may, from time to time, name any beneficiary or beneficiaries (who may be named contingently or successively) to whom any benefit under this letter is to be paid in the case of your death prior to receipt of any or all of such benefit. Each such designation shall revoke all prior designations made by you, shall be in a form prescribed by the Committee, and will be effective only when filed by you in writing with the Vice President Human Resources of Spartan or his or her successor during your lifetime. In the absence of any such designation, benefits remaining unpaid at your death shall be paid to your estate.
Withholding. Spartan is entitled to: (1) withhold and deduct from your future wages (or from other amounts that may be due and owing to you from Spartan), or make other arrangements for the collection of, all legally required amounts necessary to satisfy any and all federal, state, local and foreign withholding and employment-related tax requirements attributable to the Options, or (2) require you promptly to remit the amount of such withholding to Spartan before taking any action with respect to the Options. Upon your written authorization, withholding may be satisfied by withholding Common Stock to be issued upon vesting and exercise of the Options or by delivery to Spartan of previously owned Common Stock.
Rights as a Shareholder. You shall have no rights as a shareholder of Spartan with respect to the shares subject to this letter until such time as the purchase price has been paid and the shares have been issued to you.
Binding Effect; Amendment. This letter agreement and the Plan shall be binding upon, and shall inure to the benefit of, the parties hereto and their respective heirs, successors and permitted assigns. This letter agreement shall not be modified except in a writing executed by you and Spartan.
Miscellaneous.
(1) This letter and your rights hereunder are subject to all the terms and conditions of the Plan, as the same may be amended from time to time, as well as to such rules and regulations as the Committee may adopt for administration of the Plan. The Committee shall have the right to impose such restrictions on any shares acquired pursuant to this letter, as it may deem advisable, including, without limitation, restrictions under applicable federal securities laws, under the requirements of any stock exchange or market upon which such shares are then listed and/or traded, and under any blue sky or state securities laws applicable to such shares. It is expressly understood that the Committee is authorized to administer, construe, and make all determinations necessary or appropriate to the administration of the Plan and this letter, all of which shall be binding upon you.
(2) The Board may terminate, amend, or modify the Plan in accordance with the terms of the Plan.
(3) You agree to take all steps necessary to comply with all applicable provisions of federal and state securities laws in exercising your rights under this letter. This letter shall be subject to all applicable laws, rules, and regulations, Nasdaq Marketplace Rules, and to such approvals by any governmental agencies, The Nasdaq Stock Market or any other national securities exchanges as may be required.
(4) To the extent not preempted by federal law, this letter shall be governed by, and construed in accordance with, the laws of the state of Michigan.
|
Very truly yours, |
|
|
|
|
|
|
|
Dennis Eidson |
|
President & Chief Executive Officer |
EXHIBIT 10.3
SCHEDULE TO NOTES IN FORM OF RESTRICTED STOCK UNIT AWARD
|
|
|
|
Dennis Eidson |
10,200 |
20,400 |
40,800 |
Craig C. Sturken |
3,850 |
7,700 |
15,400 |
David M. Staples |
3,750 |
7,500 |
15,000 |
Theodore Adornato |
2,400 |
4,800 |
9,600 |
Alex J. DeYonker |
2,400 |
4,800 |
9,600 |
Grantee: [Note 1] |
Grant Date: |
May 15, 2009 |
||
|
|
|||
Number of Restricted Stock Units: |
|
|||
|
Threshold: |
[Note 2] |
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|
|
Target: |
[Note 3] |
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|
|
Maximum: |
[Note 4] |
|
Dear «First_Name»:
|
Re: |
Restricted Stock Unit Award - Fiscal Year 2010 |
I am pleased to inform you that Spartan Stores, Inc., a Michigan corporation, ("Spartan") has granted to you up to [Note 4] Restricted Stock Units ("RSUs") under the Spartan Stores, Inc. Stock Incentive Plan of 2005 (the "Plan"). All or a portion of the RSUs will be converted to shares of Spartan common stock on a one-for-one basis if Spartan achieves specified threshold, target, or maximum levels of earnings per share for the fiscal year ending March 27, 2010 (the "Performance Period"). Any shares you receive upon conversion of the
RSUs will be subject to a vesting period that will end on May 1, 2012. By accepting this grant, you agree that the RSUs and any shares issued under the RSUs are subject to the terms and conditions of this letter and the Plan (which is incorporated into this letter by reference). If there is any conflict between the terms of the Plan and this letter, the terms of the Plan will control.
1. Grant of Restricted Stock Unit. Spartan grants to you up to [Note 4] RSUs (the "Maximum RSUs"), of which [Note 3] represent your "Target RSUs", and [Note 2] represent your "Threshold RSUs." All or a portion of the RSUs will be converted to shares of Spartan common stock in accordance with Section 2 below if Spartan achieves specified threshold, target, or maximum levels of Earnings Per Share for the Performance Period. No shares will be issued if Spartan does not achieve the threshold level of performance. The shares issued under the RSUs, if any, are referred to in this Agreement as the "Earned Shares." The Earned Shares are subject to the restrictions set forth in Sections 3 and 4 of this letter until May 1, 2012, unless earlier terminated in accordance with this letter and the Plan.
2. Conversion and Settlement of RSUs.
(A) So long as you remain continuously employed by Spartan, an amount up to the Maximum RSUs under this letter will automatically be converted into Earned Shares on a one-for-one basis if, and to the extent that, Spartan achieves specified levels of Earnings Per Share (as defined below) for the Performance Period in accordance with the table set forth on Exhibit A to this Agreement. The threshold, target, and maximum levels of Earnings Per Share for the Performance Period have been established by the Compensation Committee (the "Committee") and will be communicated to you separately. The Committee will determine whether and to the extent that the RSUs will be converted as soon as practicable following the final approval of Spartan's audited financial statements for the Performance Period by the auditing firm engaged by Spartan to review such statements. The date on which the Compensation Committe e makes such determination is referred to in this letter as the "RSU Conversion Date." For the purposes of this letter, "Earnings Per Share" means the net earnings per share of Spartan Stores, Inc., on a fully diluted basis as reported in Spartan's audited financial statements for the Performance Period. The Committee has determined that any evaluation of the Earnings Per Share corporate performance will exclude the events or their related effects that occur during the Performance Period for any of the items listed in items (a) through (h) of Section 10.2 of the Plan.
(B) Subject to Section 4 below, promptly after the RSU Conversion Date (but in no event later than the 15th day of the third month after the RSU Conversion Date occurs), Spartan shall issue to you a number of Earned Shares in accordance with the Committee's determination in Section 2(A). Any number of RSUs that are not converted in accordance with this letter, effective as of the RSU Conversion Date, shall be forfeited without consideration or settlement.
3. Restrictions on RSUs and Earned Shares.
(A) The RSUs and Earned Shares issued in settlement of RSUs pursuant to Section 2, if any, are subject to the following transfer and forfeiture conditions ("Restrictions"),
which will lapse on May 1, 2012, unless such restrictions lapse earlier in accordance with this agreement. Until the Restrictions lapse, the RSUs and Earned Shares generally are not transferable by you except by will or according to the laws of descent and distribution. All rights with respect to the RSUs and Earned Shares are exercisable during your lifetime only by you, your guardian, or your legal representative.
(B) Except as otherwise set forth in this letter, any RSUs or Earned Shares for which the Restrictions have not lapsed will automatically be forfeited without consideration upon the termination of your employment with Spartan. Regardless of the foregoing, the Committee may, in its sole discretion, waive the Restrictions remaining on any or all such RSUs or Earned Shares at the time of termination of employment.
4. Effect of Termination of Employment.
(A) Notwithstanding anything to the contrary in this letter, if your employment with Spartan is terminated due to your death, Disability or Retirement (each as defined in the Plan) before May 1, 2012, and absent any Change in Control (as defined in the Plan), then any outstanding RSUs or Earned Shares under this letter will be treated in accordance with the following table:
Reason for |
Timing of Termination |
|
Before the RSU Conversion Date |
After the RSU Conversion Date |
|
Death or Disability. |
You will be entitled to receive a |
The Restrictions applicable to |
Retirement. |
You will be entitled to receive a |
The Restrictions applicable to |
(B) If a Change in Control occurs at any time during the Performance Period: (i) while you are employed with Spartan, or (ii) following termination of your employment during the Performance Period due to death, Disability, or Retirement, then you will be entitled to receive a distribution of a number of Earned Shares equal to the Target RSUs as of the date of the Change in Control. All unconverted RSUs will be forfeited.
(C) If a Change in Control occurs after the Performance Period while you are employed with Spartan, then any outstanding RSUs and Earned Shares will be treated as follows: (i) if the RSUs have not been converted to Earned Shares, then you will be entitled to receive a distribution of Earned Shares in accordance with the table set forth on Exhibit A, and such Earned Shares will not be subject to any Restrictions and will not be subject to forfeiture, and any unconverted RSUs will be forfeited; and (ii) if the RSUs have been converted to Earned Shares, then the Restrictions applicable to such Earned Shares will lapse automatically and the Earned Shares will vest and no longer be subject to forfeiture.
5. Rights of Holders.
(A) RSUs. You will have no cash dividend, liquidation, voting or other rights with respect to the shares of common stock underlying the RSUs until the RSUs are converted
into Earned Shares. RSUs are generally not transferable except by will or according to the laws of descent and distribution. This grant of RSUs shall not confer any right to you to be granted other awards in the future under the Plan.
(B) Earned Shares. You shall have all voting, dividend, liquidation, and other rights with respect to the Earned Shares held of record by you as if you held unrestricted Common Stock; provided, however, that the unvested portion of any Earned Shares shall be subject to any restrictions on transferability or risks of forfeiture imposed pursuant to this letter or the Plan. Any non-cash dividends or distributions paid with respect to unvested Earned Shares shall be subject to the same restrictions as those relating to the Earned Shares granted to you under this letter agreement. After the Restrictions applicable to the Earned Shares lapse, you shall have all shareholder rights, including the right to transfer the shares, subject to such conditions as Spartan may reasonably specify to ensure compliance with federal and state securities laws.
6. Uncertificated Shares. Spartan's Board of Directors has authorized the issuance of shares without share certificates. Any Earned Shares issued to you without a paper certificate will be registered in your name in Spartan's books and records and reflected on the account statements issued to you by Smith Barney (or other financial intermediary). Spartan Stores, Inc. is formed under the laws of the State of Michigan. Spartan Stores, Inc. will furnish to you upon request and without charge a full statement of the designation, relative rights, preferences, and limitations of the shares of each class authorized to be issued, the designation, relative rights, preferences, and limitations of each series so far as the same have been prescribed, and the authority of the Spartan's Board of Directors to designate and prescribe the relative rights, preferences, and limitations of other series.
7. Certifications. You represent and warrant that you are acquiring the RSUs and Earned Shares for your own account and investment and without any intent to resell or distribute. You shall not resell or distribute the Earned Shares following the lapse of the Restrictions except in compliance with such conditions as Spartan may reasonably specify to ensure compliance with federal and state securities laws.
8. Beneficiary Designation. You may, from time to time, name any beneficiary or beneficiaries (who may be named contingently or successively) to whom any benefit under this letter is to be paid in case of your death prior to receipt of any or all of such benefit. Each such designation shall revoke all prior designations made by you, shall be in a form prescribed by the Committee, and will be effective only when filed by you in writing with the Vice President Human Resources of Spartan or his or her successor during your lifetime. In the absence of any such designation, benefits remaining unpaid at your death shall be paid to your estate.
9. Withholding. Spartan is entitled to: (1) withhold and deduct from your future wages (or from other amounts that may be due and owing to you from Spartan), or make other arrangements for the collection of, all legally required amounts necessary to satisfy any and all federal, state, local and foreign withholding and employment-related tax requirements attributable to the award of RSUs and Earned Shares, or (2) require you promptly to remit the amount of such withholding to Spartan before taking any action with respect to such RSUs and
Earned Shares. Upon your written authorization, withholding may be satisfied by withholding Common Stock to be released upon vesting of and lapse of restrictions with respect to shares of the Earned Shares or by delivery to Spartan of previously owned Common Stock.
10. Binding Effect; Amendment. This letter and the Plan shall be binding upon, and shall inure to the benefit of, the parties hereto and their respective heirs, successors and permitted assigns. This letter agreement shall not be modified except in a writing executed by you and Spartan.
11. Miscellaneous.
(A) This letter and your rights hereunder are subject to all the terms and conditions of the Plan, as the same may be amended from time to time, as well as to such rules and regulations as the Committee may adopt for administration of the Plan. The Committee shall have the right to impose such restrictions on any shares acquired pursuant to this letter, as it may deem advisable, including, without limitation, restrictions under applicable federal securities laws, under the requirements of any stock exchange or market upon which such shares are then listed and/or traded, and under any blue sky or state securities laws applicable to such shares. It is expressly understood that the Committee is authorized to administer, construe, and make all determinations necessary or appropriate to the administration of the Plan and this letter, all of which shall be binding upon you.
(B) The Board may terminate, amend, or modify the Plan in accordance with the terms of the Plan.
(C) You agree to take all steps necessary to comply with all applicable provisions of federal and state securities laws in exercising your rights under this letter. This letter shall be subject to all applicable laws, rules, and regulations, Nasdaq Marketplace Rules, and to such approvals by any governmental agencies, The Nasdaq Stock Market or any other national securities exchanges as may be required.
(D) To the extent not preempted by federal law, this letter shall be governed by, and construed in accordance with, the laws of the state of Michigan.
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Very truly yours, |
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Dennis Eidson |
|
President and Chief Executive Officer |
Exhibit A
Performance/Conversion of RSUs
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|
Level |
|
Percentage of Target |
|
Percentage of |
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
<90 |
% |
|
0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Threshold |
|
90 |
% |
|
50 |
% |
|
|
|
|
|
95 |
% |
|
75 |
% |
|
|
|
Target |
|
100 |
% |
|
100 |
% |
|
|
|
|
|
105 |
% |
|
117 |
% |
|
|
|
|
|
110 |
% |
|
133 |
% |
|
|
|
|
|
115 |
% |
|
150 |
% |
|
|
|
|
|
120 |
% |
|
167 |
% |
|
|
|
Maximum |
|
>125 |
% |
|
200 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
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|||||||
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EXHIBIT 10.4
Grantee: [All non-employee Directors] |
Grant Date: May 15, 2009 |
|
|
Number of Shares: 2,406 |
Vesting Day: May 1 |
Dear :
|
Re: |
Restricted Stock Award - Fiscal Year 2010 |
I am pleased to inform you that Spartan Stores, Inc., a Michigan corporation, ("Spartan") has granted to you the number of restricted shares of Spartan's Common Stock described above under the Spartan Stores, Inc. Stock Incentive Plan of 2005 (the "Plan"). By accepting this grant, you agree that the restricted stock is subject to the terms and conditions of this letter and the Plan (which are incorporated into this letter by reference). If there is any conflict between the terms of the Plan and this letter, the terms of the Plan will control.
Restricted Stock Grant. Spartan grants to you 2,406 shares of Spartan Stores, Inc. Common Stock, no par value, all of which are subject to restrictions imposed under this letter and the Plan (the "Restricted Stock"). This grant of Restricted Stock shall not confer any right to you to be granted Restricted Stock or other awards in the future under the Plan.
Restrictions. The Restricted Stock is subject to the following transfer and forfeiture conditions ("Restrictions"), which will lapse, if at all, as described in the "Lapse of Restrictions" section below. The period during which Restricted Stock is subject to the Restrictions imposed by the Plan and under this letter is referred to in this letter as the "Restricted Period."
(1) Until the Restrictions lapse as set forth in paragraphs (1), (2), (3) or (4) under Lapse of Restrictions below, the Restricted Stock generally is not transferable by you except by will or according to the laws of descent and distribution. All rights with respect to the Restricted Stock are exercisable during your lifetime only by you, your guardian, or your legal representative.
(2) Any shares of Restricted Stock for which the Restrictions have not lapsed will automatically be forfeited without consideration upon the termination of your service as a director of Spartan for any reason, except as otherwise provided in this letter.
(3) If you enter into Competition (as defined in the Plan) with Spartan, all shares of Restricted Stock still subject to Restrictions will automatically be forfeited without
consideration. The Committee (as defined in the Plan) or officers designated by the Committee have absolute discretion to determine whether you have entered into Competition with Spartan.
Lapse of Restrictions.
(1) Except as otherwise provided in this letter, and so long as you continue as a director of Spartan, the Restrictions imposed on the Restricted Stock shall lapse as follows: (i) 33-1/3% (rounded to the nearest whole share) of the shares of Restricted Stock will vest and the Restrictions will lapse with respect to such shares of Restricted Stock on May 1, 2010; (ii) an additional 33-1/3% (rounded to the nearest whole share) of the shares of Restricted Stock will vest and the Restrictions will lapse with respect to such shares of Restricted Stock on May 1, 2011; and (iii) the remaining shares of Restricted Stock will vest and the Restrictions will lapse with respect to such shares of Restricted Stock on May 1, 2012.
(2) Notwithstanding anything to the contrary in this letter, upon termination of your service as a director of Spartan due to your death or disability, the Restrictions applicable to any shares of Restricted Stock will lapse automatically and the Restricted Stock will vest and no longer be subject to forfeiture. For purposes of this letter you would be deemed to be "disabled" if, by reason of accident, physical illness or mental illness, you are unable to fulfill your normal responsibilities as a director of Spartan for a continuous period of 180 days.
(3) Notwithstanding anything to the contrary in this letter, the Restrictions imposed on the Restricted Stock will lapse, and the Restricted Stock will vest and no longer be subject to forfeiture, if during the Restricted Period you shall have completed the term of the directorship for which you shall have been most recently elected, you have been a director for at least ten years, and you no longer continue as a director with Spartan.
(4) Notwithstanding anything to the contrary in this letter, in the event of a Change in Control (as defined in the Plan), the Restrictions imposed on the Restricted Stock will lapse, and the Restricted Stock will vest and no longer be subject to forfeiture in accordance with the terms of the Plan.
Shareholder Rights. During the Restricted Period(s), you shall have all voting, dividend, liquidation, and other rights with respect to the Restricted Stock held of record by you as if you held unrestricted Common Stock; provided, however, that the unvested portion of any Restricted Stock award shall be subject to any restrictions on transferability or risks of forfeiture imposed pursuant to this letter or the Plan. Any non-cash dividends or distributions paid with respect to unvested Restricted Stock shall be subject to the same restrictions as those relating to the Restricted Stock granted to you under this letter agreement. After the Restrictions applicable to the Restricted Stock lapse, you shall have all shareholder rights, including the right to transfer the shares, subject to such conditions as Spartan may reasonably specify to ensure compliance with federal and state securities laws.
Beneficiary Designation. You may, from time to time, name any beneficiary or beneficiaries (who may be named contingently or successively) to whom any benefit under this letter is to be paid in case of your death prior to receipt of any or all of such benefit. Each such
designation shall revoke all prior designations made by you, shall be in a form prescribed by the Committee, and will be effective only when filed by you in writing with the Vice President Human Resources of Spartan or his or her successor during your lifetime. In the absence of any such designation, benefits remaining unpaid at your death shall be paid to your estate.
Uncertificated Shares. Your «Restricted_Stock» shares of Restricted Stock are being issued without a paper certificate. The Restricted Stock will be registered in your name in Spartan's books and records and reflected on the account statements issued to you by Smith Barney (or other financial intermediary). Spartan Stores, Inc. is formed under the laws of the State of Michigan. Spartan Stores, Inc. will furnish to you upon request and without charge a full statement of the designation, relative rights, preferences, and limitations of the shares of each class authorized to be issued, the designation, relative rights, preferences, and limitations of each series so far as the same have been prescribed, and the authority of the Spartan's Board of Directors to designate and prescribe the relative rights, preferences, and limitations of other series. If you have any questions, please contact the Company's Director of Benefits .
Certifications. You represent and warrant that you are acquiring the Restricted Stock for your own account and investment and without any intent to resell or distribute the Restricted Stock. You shall not resell or distribute the Restricted Stock after any Restricted Period except in compliance with such conditions as Spartan may reasonably specify to ensure compliance with federal and state securities laws.
Withholding. Because you are a non-employee director, Spartan will not make any provision for the withholding of federal, state, or local taxes in connection with the grant or vesting of the Restricted Stock. Spartan will provide you with a completed IRS Form 1099 reporting non-employee compensation and certain other payments made to you by Spartan for your service as a director, including payments in connection with the Restricted Stock. You are responsible for your tax obligations in connection with the grant and vesting of the Restricted Stock, and Spartan recommends that you consult with your tax advisor.
Binding Effect; Amendment. This letter and the Plan shall be binding upon, and shall inure to the benefit of, the parties hereto and their respective heirs, successors and permitted assigns. This letter agreement shall not be modified except in a writing executed by you and Spartan.
Miscellaneous.
(1) This letter and your rights hereunder are subject to all the terms and conditions of the Plan, as the same may be amended from time to time, as well as to such rules and regulations as the Committee may adopt for administration of the Plan. The Committee shall have the right to impose such restrictions on any shares acquired pursuant to this letter, as it may deem advisable, including, without limitation, restrictions under applicable federal securities laws, under the requirements of any stock exchange or market upon which such shares are then listed and/or traded, and under any blue sky or state securities laws applicable to such shares. It is expressly understood that the Committee is authorized to administer, construe, and make all determinations necessary or appropriate to the administration of the Plan and this letter, all of which shall be binding upon you.
(2) The Board may terminate, amend, or modify the Plan in accordance with the terms of the Plan.
(3) You agree to take all steps necessary to comply with all applicable provisions of federal and state securities laws in exercising your rights under this letter. This letter shall be subject to all applicable laws, rules, and regulations, Nasdaq Marketplace Rules, and to such approvals by any governmental agencies, The Nasdaq Stock Market or any other national securities exchanges as may be required.
(4) To the extent not preempted by federal law, this letter shall be governed by, and construed in accordance with, the laws of the state of Michigan.
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Very truly yours, |
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|
|
|
|
|
|
Dennis Eidson |
|
President & Chief Executive Officer |
EXHIBIT 10.5
Grantee: |
[All Non-Employee Directors] |
|
|
|
|
Grant Date: |
May 15, 2009 |
Date First Exercisable: May 1, 2010 |
|
|
|
Expiration Date: May 15, 2019 |
Number of Shares: 4,676 |
|
|
|
|
Exercise Price Per Share: $13.87 |
|
Dear :
|
Re: |
Stock Option Grant - Fiscal Year 2010 |
I am pleased to inform you that Spartan Stores, Inc., a Michigan corporation, ("Spartan") has granted to you under the Spartan Stores, Inc. Stock Incentive Plan of 2005 (the "Plan") the option to purchase the shares of Spartan's Common Stock described above (the "Option"). By accepting this grant, you agree that the Option and shares to be issued upon exercise of the Option are subject to the terms and conditions of this letter and the Plan (which are incorporated into this letter by reference). If there is any conflict between the terms of the Plan and this letter, the terms of the Plan will control.
Grant of Nonqualified Option. Spartan grants to you an option to purchase the number of shares of Spartan Common Stock set forth above. This Option is a non-qualified option and is not intended to be an incentive stock option as defined in Section 422(b) of the Internal Revenue Code of 1986, as amended. This grant of an Option shall not confer any right to you to be granted an Option or other awards in the future under the Plan.
Term and Vesting. Your right to exercise the Option according to its terms shall commence on the "Date First Exercisable" shown above and shall terminate on the "Expiration Date" shown above, unless earlier terminated under this letter or the Plan. Your right to exercise the Option shall vest over a three-year period as follows: 33-1/3% of the shares covered by this Option will vest on the "Date First Exercisable," and an additional 33-1/3% of such shares shall vest on each of the first and second anniversaries of the "Date First Exercisable," in each case rounded to the nearest whole number of shares.
Purchase Price; Payment. The price per share of the shares of Common Stock to be purchased upon exercise of the Option shall be the "Exercise Price Per Share" set forth above, subject to adjustment as provided in the Plan. In exercising the Option, you shall pay the exercise price (1) in cash, (2) by check payable to the order of Spartan Stores, Inc., (3) in the form of tendering for surrender previously acquired shares of Spartan Common Stock (such shares to be valued at their Market Value (as determined under the Plan) at the time of delivery to Spartan) that have an aggregate Market Value at the time of exercise equal to the total exercise price of the shares purchased or (4) any combination of the foregoing. For the avoidance of doubt, in the event you choose to pay the purchase price by tendering for surrender previously owned shares, the number of shares issued to you upon the exercise of the Opti on shall be the net of the shares surrendered.
Exercise of Option. You may exercise the vested and exercisable portion of this Option, in whole or in part, by an executed notice of exercise, which shall be effective upon receipt by Spartan's Benefits Manager or his or her designee or successor at Spartan's main office, accompanied by full payment (as set forth above) of the option price; provided, however, that no exercise may occur subsequent to the close of business on the "Expiration Date" set forth above. The notice shall be signed by you or your legal representative and shall set forth the number of shares to be purchased. Upon payment of the purchase price and any required withholding amount, the purchased shares (net of any shares surrendered) will be issued to you; provided, however, that issuance may be postponed for such period as may be required for Spartan with reasonable diligence to comply with any registration requirements und er any securities laws or any other laws or regulations applicable to the issuance, listing or transfer of such shares, or any agreements or Nasdaq Marketplace Rules. If you fail to accept and pay for all or any of the shares, your right to exercise the Option with respect to such shares will terminate; however, your remaining Options not yet exercised or terminated shall continue in force. Spartan's Board of Directors has authorized the issuance of shares without share certificates. Any shares issued to you without a paper certificate will be registered in your name in Spartan's books and records and reflected on the account statements issued to you by Smith Barney (or other financial intermediary). Spartan Stores, Inc. is formed under the laws of the State of Michigan. Spartan Stores, Inc. will furnish to you upon request and without charge a full statement of the designation, relative rights, preferences, and limitations of the shares of each class authorized to be issued, the designation, relative rights , preferences, and limitations of each series so far as the same have been prescribed, and the authority of the Spartan's Board of Directors to designate and prescribe the relative rights, preferences, and limitations of other series.
Termination of Director Status. If you cease to be a Director with Spartan, you may exercise the Option as set forth below; provided, however, that in no event may you exercise the Option beyond the Expiration Date set forth above:
(1) Death or Disability. In the event you cease to be a Director of Spartan due to your death or Disability (as defined in the Plan), for a period of twelve
months following the termination of your service as a Director of Spartan, you (or the representative of your estate, in the case of death) may exercise any or all of the then-unexercised portion of the Option to the extent vested at the time of the termination. The unvested portion of the Option will be forfeited.
(2) Removal by Spartan For Cause. In the event you are removed as a Director by Spartan for Cause, effective as of the date of you are removed: (a) you will have no further right to exercise the vested portion of the Option and (b) the unvested portion of the Option will be forfeited.
(3) Cessation of Directors Status. In the event you cease to be a Director with Spartan after you have completed the term of the directorship for which you shall have been most recently elected, you have been a Director for at least ten years, and you no longer continue as a director with Spartan, your right to exercise the Option shall become 100% vested and for a period of three months following the date you cease to be a Director, you may exercise any or all of the then unexercised portion of the Option. If you cease to be a Director with Spartan and you have not completed the term of directorship for which you have been most recently elected, then for a period of three months following the termination of your directorship status, you may exercise any or all of the then unexercised portion of the Option to the extent vested at the time you cease to be a director, and the unvested portion of th e Option will be forfeited.
(4) Change in Control. In the event of a Change in Control (as defined in the Plan), the Option shall vest and be exercisable in accordance with the terms of the Plan.
Non-transferability of Option. This Option or any rights therein shall not be sold, exchanged, assigned, or otherwise transferred or pledged or otherwise encumbered in whole or in part, except by will or the laws of descent or distribution, and is exercisable during your lifetime only by you or your guardian or legal representative. If any sale, exchange, assignment, transfer, pledge or encumbrance of this Option or any rights therein shall be made or attempted, or if any attachment, execution, garnishment or lien shall be issued against or placed upon this Option, this Option shall be void and of no further effect.
Certifications. You represent and warrant that (1) you are acquiring this Option for your own account and investment and without any intent to distribute any shares upon exercise of the Option and (2) you have been furnished and have read the most recent Annual Report to Shareholders of Spartan and the Plan Description relating to the Plan. You shall not resell or distribute the shares received upon exercise of the Option except in compliance with such conditions as Spartan may reasonably specify to ensure compliance with federal and state securities laws.
Beneficiary Designation. You may, from time to time, name any beneficiary or beneficiaries (who may be named contingently or successively) to whom any benefit under this letter is to be paid in the case of your death prior to receipt of any
or all of such benefit. Each such designation shall revoke all prior designations made by you, shall be in a form prescribed by the Committee, and will be effective only when filed by you in writing with the Vice President Human Resources of Spartan or his or her successor during your lifetime. In the absence of any such designation, benefits remaining unpaid at your death shall be paid to your estate.
Withholding. Because you are a non-employee director, Spartan will not make any provision for the withholding of federal, state, or local taxes in connection with the grant, vesting or exercise of the Option. Spartan will provide you with a completed IRS Form 1099 reporting non-employee compensation and certain other payments made to you by Spartan for your service as a director, including payments in connection with the Option. You are responsible for your tax obligations in connection with the grant, vesting or exercise of the Option, and Spartan recommends that you consult with your tax advisor.
Rights as a Shareholder. You shall have no rights as a shareholder of Spartan with respect to the shares subject to this letter until such time as the purchase price has been paid and the shares have been issued to you.
Binding Effect; Amendment. This letter agreement and the Plan shall be binding upon, and shall inure to the benefit of, the parties hereto and their respective heirs, successors and permitted assigns. This letter agreement shall not be modified except in a writing executed by you and Spartan.
Miscellaneous.
(1) This letter and your rights hereunder are subject to all the terms and conditions of the Plan, as the same may be amended from time to time, as well as to such rules and regulations as the Committee may adopt for administration of the Plan. The Committee shall have the right to impose such restrictions on any shares acquired pursuant to this letter, as it may deem advisable, including, without limitation, restrictions under applicable federal securities laws, under the requirements of any stock exchange or market upon which such shares are then listed and/or traded, and under any blue sky or state securities laws applicable to such shares. It is expressly understood that the Committee is authorized to administer, construe, and make all determinations necessary or appropriate to the administration of the Plan and this letter, all of which shall be binding upon you.
(2) The Board may terminate, amend, or modify the Plan in accordance with the terms of the Plan.
(3) You agree to take all steps necessary to comply with all applicable provisions of federal and state securities laws in exercising your rights under this letter. This letter shall be subject to all applicable laws, rules, and regulations, Nasdaq Marketplace Rules and to such approvals by any governmental agencies, The Nasdaq Stock Market or any other national securities exchanges as may be required.
(4) To the extent not preempted by federal law, this letter shall be governed by, and construed in accordance with, the laws of the state of Michigan.
|
Very truly yours, |
|
|
|
|
|
|
|
Dennis Eidson |
|
President & Chief Executive Officer |
EXHIBIT 31.1
CERTIFICATION
I, Dennis Eidson, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Spartan Stores, Inc.;
2. Based on my knowledge, this 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 report;
3. Based on my knowledge, the financial statements, and other financial information included in this 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 report;
4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, 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 report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date: July 29, 2009 |
/s/ Dennis Eidson |
|
Dennis Eidson |
EXHIBIT 31.2
CERTIFICATION
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 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 report;
3. Based on my knowledge, the financial statements, and other financial information included in this 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 report;
4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, 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 report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date: July 29, 2009 |
/s/ David M. Staples |
|
David M. Staples |
EXHIBIT 32.1
CERTIFICATION
Pursuant to 18 U.S.C. § 1350, each of the undersigned hereby certifies in his capacity as an officer of Spartan Stores, Inc. (the "Company") that the Quarterly Report of the Company on Form 10-Q for the accounting period ended June 20, 2009 fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934 and that information contained in such report fairly presents, in all material respects, the financial condition of the Company at the end of such period and the results of operations of the Company for such period.
This Certificate is given pursuant to 18 U.S.C. § 1350 and for no other purpose.
Dated: July 29, 2009 |
/s/ Dennis Eidson |
Dennis Eidson |
|
Dated: July 29, 2009 |
/s/ David M. Staples |
David M. Staples |
A signed original of this written statement has been provided to Spartan Stores, Inc. and will be retained by Spartan Stores, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.