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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-K

 

Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the fiscal year ended January 1, 2022.

OR

Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from              to             .

Commission File Number: 000-31127

 

SPARTANNASH COMPANY

(Exact Name of Registrant as Specified in Its Charter)

 

 

Michigan

 

38-0593940

(State or Other Jurisdiction) of

Incorporation or Organization)

 

(I.R.S. Employer

Identification No.)

 

 

850 76th Street, S.W.

P.O. Box 8700

Grand Rapids, Michigan

 

49518-8700

(Address of Principal Executive Offices)

 

(Zip Code)

Registrant’s telephone number, including area code: (616878-2000

Securities registered pursuant to Section 12(b) of the Securities Exchange Act:

Title of each class

 

Trading

Symbol(s)

 

Name of each exchange on which registered

Common Stock, no par value

 

SPTN

 

Nasdaq Global Select Market

Securities registered pursuant to Section 12(g) of the Securities Exchange Act: None

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes      No  

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    Yes      No  

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files).    Yes      No  

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

Large accelerated filer

 

 

Accelerated filer

 

 

Non-accelerated filer

 

 

Smaller reporting company

 

Emerging growth company

 

 

 

 

 

 

 

 

 

 

 

 

 

 If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.   Yes     No  

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

The aggregate market value of the registrant’s voting and non-voting common equity held by non-affiliates based on the last sales price of such stock on the Nasdaq Global Select Market on July 16, 2021 (which was the last trading day of the registrant’s second quarter in the fiscal year ended January 1, 2022) was $659,681,465.

The number of shares outstanding of the registrant’s Common Stock, no par value, as of February 28, 2022 was 35,921,684, all of one class.

DOCUMENTS INCORPORATED BY REFERENCE

 

Part III, Items 10, 11, 12, 13 and 14

  

Definitive Proxy Statement for the 2022 Annual Meeting

 

 

 


-1-


 

 

Forward-Looking Statements

The matters discussed in this Annual Report on Form 10-K, in the Company’s press releases and in the Company’s website-accessible conference calls with analysts and investor presentations include “forward-looking statements” about the plans, strategies, objectives, goals or expectations of SpartanNash Company and subsidiaries (“SpartanNash” or the “Company”). These forward-looking statements are identifiable by words or phrases indicating that SpartanNash or management “expects,” “anticipates,” “plans,” “believes,” or “estimates,” or that a particular occurrence or event “may,” “could,” “should,” “will” or “will likely” result, occur or be pursued or “continue” in the future, that the “outlook” or “trend” is toward a particular result or occurrence, that a development is an “opportunity,” “priority,” “strategy,” “focus,” that the Company is “positioned” for a particular result, or similarly stated expectations. Accounting estimates, such as those described under the heading “Critical Accounting Policies and Estimates” in Item 7 of this Annual Report on Form 10-K, are inherently forward-looking. The Company’s asset impairment and restructuring cost provisions are estimates and actual costs may be more or less than these estimates and differences may be material. Undue reliance should not be placed on these forward-looking statements, which speak only as of the date of the Annual Report, other report, release, presentation, or statement.

There are many important factors that could cause actual results to differ materially. These risks and uncertainties include those listed in Part I, Item 1A. “Risk Factors” and Part II, Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of this report and risks and uncertainties not presently known to the Company or that the Company currently deems immaterial. Additional risks and uncertainties not currently known to SpartanNash or that SpartanNash currently believes are immaterial also may impair its business, operations, liquidity, financial condition and prospects. The Company undertakes no obligation to update or revise its forward-looking statements to reflect developments that occur or information obtained after the date of this Annual Report.


-2-


 

 

TABLE OF CONTENTS

 

 

 

Page

PART I.

 

 

 

 

 

Item 1.

Business

4

 

 

 

Item 1A.

Risk Factors

10

 

 

 

Item 1B.

Unresolved Staff Comments

15

 

 

 

Item 2.

Properties

15

 

 

 

Item 3.

Legal Proceedings

16

 

 

 

Item 4.

Mine Safety Disclosures

16

 

 

 

PART II.

 

 

 

 

 

Item 5.

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

17

 

 

 

Item 6.

Reserved

18

 

 

 

Item 7.

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

19

 

 

 

Item 7A.

Quantitative and Qualitative Disclosures about Market Risk

32

 

 

 

Item 8.

Financial Statements and Supplementary Data

34

 

 

 

Item 9.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

67

 

 

 

Item 9A.

Controls and Procedures

67

 

 

 

Item 9B.

Other Information

69

 

 

 

Item 9C.

Disclosure Regarding Foreign Jurisdictions that Prevent Inspections

69

 

 

 

PART III.

 

 

 

 

 

Item 10.

Directors, Executive Officers and Corporate Governance

69

 

 

 

Item 11.

Executive Compensation

69

 

 

 

Item 12.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

69

 

 

 

Item 13.

Certain Relationships and Related Transactions, and Director Independence

69

 

 

 

Item 14.

Principal Accountant Fees and Services

69

 

 

 

PART IV.

 

 

 

Item 15.

Exhibits and Financial Statement Schedules

70

 

 

 

Item 16.

Form 10-K Summary

72

 

 

 

 

Signatures

73

 


-3-


 

 

PART I

 

Item 1.  Business

Overview

SpartanNash Company (together with its subsidiaries, “SpartanNash” or the “Company”) is a food solutions company that delivers the ingredients for a better life through customer-focused innovation. Its core businesses include distributing grocery products to a diverse group of independent and chain retailers, its corporate-owned retail stores, and U.S. military commissaries and exchanges; as well as operating a premier fresh produce distribution network and the Our Family® private label brand. SpartanNash serves customer locations in all 50 states and the District of Columbia, Europe, Cuba, Puerto Rico, Honduras, Iraq, Kuwait, Bahrain, Qatar and Djibouti. The Company owns 145 supermarkets and shares its operational insights to drive solutions for its food retail customers. The Company operates three reportable segments: Food Distribution, Retail and Military. While the Company supports overseas commissaries and exchanges, all of the Company’s sales and assets are in the United States of America.

The Company’s fiscal year end is the Saturday closest to December 31. In this report we discuss information as of and for the fiscal years ending or ended December 31, 2022 ("2022"), January 1, 2022 (“2021” or “current year”), January 2, 2021 (“2020” or “prior year”) and December 28, 2019 (“2019”), all of which include 52 weeks, with the exception of 2020, which includes 53 weeks. All fiscal quarters are 12 weeks, except for the Company’s first quarter, which is 16 weeks and usually includes the Easter holiday. Fiscal 2020 contains 53 weeks; therefore, the fourth quarter of fiscal 2020 contains 13 weeks. The fourth quarter includes the Thanksgiving and Christmas holidays, and depending on the fiscal year end, may include the New Year’s holiday.

The Company’s differentiated business model of Food Distribution, Retail and Military operations leverages the complementary nature of each segment and supports the ability of the Company’s independent retailers to compete in the grocery industry in the long-term. The model produces operational efficiencies, greater visibility and broader business growth options throughout each of the segments.

SpartanNash has redefined its strategic identity around a Winning Recipe that looks to activate its mission to deliver the ingredients for a better life through a renewed focus on core capabilities, behaviors and strategic priorities. SpartanNash has a keen focus on its core capabilities which include: people, operational excellence and insights that drive solutions. The Company’s vision is seeing a day when its customers say, “I can’t live without them.”

Food Distribution Segment

The Company’s Food Distribution segment uses a multi-channel sales approach to distribute grocery products to independent retailers, national retailers, food service distributors, e-commerce providers, and the Company’s corporate owned retail stores. Total net sales from the Company’s Food Distribution segment, including sales to corporate owned retail stores that are eliminated in the consolidated financial statements, totaled $5.6 billion for 2021. As of the end of 2021, the Company is among the top five largest wholesale distributors in the nation in terms of annual revenue. The Company is focused on growth in its Food Distribution segment, through expanded partnerships with existing customers as well as new business.

The Company’s Food Distribution segment supplies grocery products to a diverse group of independent retailers with operations ranging from a single store to regional supermarket chains, food service distributors and the Company’s corporate owned retail stores. As of January 1, 2022, the Company operated in all 50 states by leveraging a platform of 18 distribution centers, as well as internal transportation fleets and third-party shipping partners, servicing the Food Distribution and Military segments. The Company’s extensive geographic reach drives economies of scale and provides opportunities for independent retailers to purchase products at competitive prices in order to effectively compete in the grocery industry in the long-term.

The Company also services national retailers through a variety of platforms and has diversified its customer base through growth with these customers. These national retailers partner with the Company to centralize their supply of grocery products or product categories, and to leverage the Company’s broad geographic reach. Sales to one of the Company’s customers in the Food Distribution segment accounted for 17% of consolidated net sales for 2021, 2020 and 2019. No other individual customer exceeded 10% of consolidated net sales in any of the years presented.

The Company’s ten largest Food Distribution customers (excluding corporate owned retail stores) accounted for approximately 64% of total Food Distribution net sales for 2021. Approximately 90% of Food Distribution net sales for 2021 are covered under supply agreements with customers.

The Company’s Food Distribution segment provides a selection of approximately 65,000 stock-keeping units (SKUs) of nationally branded and private brand grocery products and perishable food products, including dry groceries, produce, dairy products, meat, delicatessen items, bakery goods, frozen food, seafood, floral products, general merchandise, beverages, tobacco products, health and beauty care products and pharmacy. These product offerings, along with best-in-class services, allow independent retailers the opportunity to support the majority of their operations with a single supplier. The Company also provides a comprehensive menu of support services designed to assist independent retailers in becoming more profitable, efficient, competitive, and informed, ranging from real estate and site surveys to a full suite of accounting, information technology and merchandising and marketing solutions.

-4-


 

The Food Distribution segment competes directly with a number of traditional and specialty grocery wholesalers and retailers that maintain or develop self-distribution systems. In addition, the Company’s independent customers face intense competition from supercenters, deep discounters, mass merchandisers, limited assortment stores, and e-commerce providers. The Company partners with these customers to help them compete effectively. The primary competitive factors in the Food Distribution business include price, service level, product quality, variety and other value-added services.

Retail Segment

As of January 1, 2022, the Company operates 145 corporate owned retail stores and 36 fuel centers in nine states in the Midwest, primarily under the banners of Family Fare, Martin’s Super Markets, D&W Fresh Market, VG’s Grocery and Dan’s Supermarket. Retail banners and store counts are fully detailed in Item 2, “Properties”. The Company’s corporate owned retail stores range in size from approximately 14,000 to 90,000 square feet, or on average, approximately 45,000 square feet per store.

The Company’s convenience and community-focused strategy distinguishes its corporate owned retail stores from supercenters and limited assortment stores. This is complemented by an e-commerce platform, including Fast Lane and Groceries to GO, which provide online grocery shopping and curbside pickup or delivery at 121 corporate owned retail locations as of January 1, 2022. This channel is highly valued by customers during the COVID-19 pandemic, and continuing to enhance and grow this platform is a key component of the Company’s strategy. The Company makes investments to support its online ordering systems, the speed and convenience of curbside pickup, and the efficiency and completeness of order fulfillment.

The Company’s corporate owned retail stores offer nationally branded and private brand grocery products, as well as perishable food products including dry groceries, produce, dairy products, meat, delicatessen items, including store prepared “grab and go” meal options, bakery goods, frozen food, seafood, floral products, general merchandise, beverages, health and beauty care products and fuel. Sixty-five of the Company’s stores contain franchised Starbucks or Caribou Coffee shops, which enhance the customer experience and help to drive traffic. Private brand grocery products typically generate higher retail margins while also improving customer loyalty by offering quality products at affordable prices.

As of January 1, 2022, the Company offers pharmacy services in 91 of its corporate owned retail stores (81 of the pharmacies are owned) and operates three free-standing pharmacy locations. The Company believes the pharmacy service offering in its corporate owned retail stores is an important part of the consumer experience. Most of the Company’s pharmacies offer certain free medications, along with low-cost generic drugs, and counseling for preventative health and education for its customers. Influenza and COVID-19 vaccinations are available in the pharmacies.

The following chart details the changes in the number of corporate owned retail stores over the last five fiscal years:

 

2017

 

 

2018

 

 

2019

 

 

2020

 

 

2021

 

Number of stores at beginning of year

 

157

 

 

 

145

 

 

 

139

 

 

 

156

 

 

 

156

 

Stores acquired or constructed during year

 

 

 

 

 

 

 

24

 

 

 

1

 

 

 

 

Stores closed or sold during year

 

12

 

 

 

6

 

 

 

7

 

 

 

1

 

 

 

11

 

Number of stores at end of year

 

145

 

 

 

139

 

 

 

156

 

 

 

156

 

 

 

145

 

Store closures in 2021 were part of the Company’s retail store rationalization initiatives.

The principal competitive factors in the Retail business include the location and image of the store; the price, quality and variety of the fresh offering; and the quality, convenience and consistency of service. In addition to competing with traditional grocery stores, the Company competes with supercenters, deep discounters, mass merchandisers, limited assortment stores, and e-commerce providers. The Company monitors planned competitive store openings and uses established proactive strategies to respond to new competition both before and after competitive store openings. Strategies to react to competition vary based on many factors, such as the competitor’s format, strengths, weaknesses, pricing and sales focus.

Military Segment

The Company’s Military segment contracts with manufacturers and brokers to distribute a wide variety of grocery products, including dry groceries, beverages, meat, and frozen foods, primarily to U.S. military commissaries and exchanges. The Company’s Military segment, together with its third-party partner, Coastal Pacific Food Distributors (“CPFD”), represents the only delivery solution to service the Defense Commissary Agency (“DeCA” or “the Agency”) worldwide.

DeCA operates a chain of 236 commissaries on U.S. military installations across the world that sells approximately $4.0 billion of grocery products annually. The Company distributes grocery products to 160 military commissaries and over 400 exchanges located in 39 states across the United States and the District of Columbia, Europe, Cuba, Puerto Rico, Honduras, Iraq, Kuwait, Bahrain, Qatar and Djibouti. The Company’s distribution centers are strategically located among the largest concentration of military bases in the areas the Company serves and near Atlantic ports used to ship grocery products to overseas commissaries and exchanges.

-5-


 

The Company is also the DeCA exclusive worldwide supplier of private brand grocery and related products to all U.S. military commissaries. In accordance with its contract with DeCA, the Company procures the grocery and related products from various manufacturers and upon receiving customer orders from DeCA either delivers the products to the U.S. military commissaries itself or engages CPFD to deliver the products on its behalf. There are nearly 1,000 SKUs of private brand products in the DeCA system as of January 1, 2022.

DeCA contracts with manufacturers to obtain nationally branded products for the commissary system. Manufacturers either deliver the products to the commissaries themselves or, more commonly, contract with distributors such as SpartanNash to deliver the products. The Company obtains distribution contracts with manufacturers through competitive bidding processes and direct negotiations. As of January 1, 2022, the Company has approximately 250 distribution contracts representing approximately 600 manufacturers that supply products to the DeCA commissary system and various exchange systems. Generally, larger contracts or those subject to a request-for-proposal process have definitive durations, whereas smaller contracts generally have indefinite terms; and all contract types allow for termination by either party without cause upon 30 days prior written notice to the other party. The contracts typically specify which commissaries and exchanges to supply on behalf of the manufacturer, the manufacturer’s products to be supplied, service and delivery requirements, and pricing and payment terms. The Company’s ten largest manufacturer customers represented approximately 52% of the Company’s Military segment sales for 2021.

The Company’s strategies within the Military segment are focused on improving the profitability of its operations through partnering with DeCA and its manufacturer customers to identify growth opportunities and improve gross margins. The current contract to provide DeCA with private branded products expires in April 2022. The Company is currently negotiating a contract extension.

The Company is one of fewer than four distributors in the United States with annual sales to the DeCA commissary system in excess of $100 million that distributes products via the frequent delivery system. The remaining distributors that supply DeCA tend to be smaller regional and local providers. In addition, manufacturers contract with others to deliver certain products, such as baking supplies, produce, delicatessen items, soft drinks and snack items, directly to DeCA commissaries and service exchanges. Because of the low margins in this industry, it is of critical importance for distributors to achieve economies of scale, which is typically a function of the density or concentration of military bases within the geographic area(s) a distributor serves. As a result, no single distributor in this industry, by itself, has a nationwide presence. Rather, distributors generally concentrate on specific regions, or areas within specific regions, where they can achieve critical mass and utilize warehouse and distribution facilities efficiently. In addition, distributors that operate larger non-military specific distribution businesses tend to compete for DeCA commissary business in areas where such business would enable them to more efficiently utilize the capacity of their existing distribution centers. The Company believes the principal competitive factors among distributors within this industry are customer service, price, operating efficiencies, reputation with DeCA and location of distribution centers.

Supply Chain Network

The Company’s distribution network is comprised of 18 distribution centers, which are utilized to service the Food Distribution and Military segments. The Company warehouses product through approximately 8.6 million square feet of distribution center space. The Company operates a fleet with 553 over-the-road tractors, 25 refrigerated straight trucks, 272 dry vans and 1,090 refrigerated trailers. The Company carefully manages the approximate 73 million miles driven by its fleet and third-party carriers annually servicing military commissaries, exchanges, independent retailers, national retailers and corporate owned retail stores.

In 2021, the Company launched and began execution of a comprehensive supply chain improvement initiative. The initiative is focused on executing improvements to supply chain operations across the Company’s network, which are expected to result in sustained efficiencies and cost reductions. The supply chain initiative is focused on making investments in people, process, and technology to support long-term growth and maximize operational efficiencies. The Company is investing in its workforce through an expansion of its onboarding, training and career development programs, and has identified several initiatives aimed at improving associate engagement, customer experience and overall supply chain performance.

The Company is currently improving a robust sales and operations planning process and also continues to optimize its network to enable more effective and efficient operations across the supply chain. The Company will continue to refine its inventory management and control policies and procedures, including item assortment decisions, while also developing dynamic slotting capabilities, in order to improve order selection efficiency and maximize space utilization. Process improvements are also underway in other areas of warehouse operations, including enhancing labor planning tools, refining engineered labor standards, and installing new performance management capabilities to improve productivity.

System enhancements in the areas of forecasting and replenishment will support the strategic optimization of inventory, allowing for improved service levels and warehouse capacities, while also reducing excess inventory and shrink. The Company’s plan to consolidate transportation management information systems will also streamline operations and reduce miles traveled.

-6-


 

Marketing and Merchandizing

During 2021, the Company leveraged data and insights to develop and implement strategies to respond to changes in consumer behavior in relation to the ongoing COVID-19 pandemic with products, meal solutions and marketing tactics in support of each of the Company’s segments. The Company is starting to see many customer behavior changes resulting from the pandemic become more permanent, requiring even deeper use of data and insights to stay abreast and drive performance.

The Company’s Customer Growth strategy is focused on meeting changing customer needs and preferences through a data-based decision-making process, while also increasing customer satisfaction through quality service and convenience. The Company is using insights gained through its collaboration with dunnhumby to improve its positioning and assortment to better appeal to its customers. Key focus areas include improvement in customers’ perception of Company pricing, product assortment and the penetration of the Company’s private brands. As the Company works to better differentiate its Retail stores and implement its Customer Growth strategy, the Company has launched a new pricing strategy designed to highlight value and increase customer loyalty. The Company has developed processes to measure the activation of these strategies as well as their impacts. These measures are reviewed continuously to refine and evolve the strategies. The Company will continue to share its best practices across its independent customer base within the Food Distribution segment as it gains further insights.

While the Company is selectively adding products and services to better meet customers’ changing needs and enhance their experience, the Company is also observing a migration to an overall smaller SKU count as part of a broader industry shift. At the same time CPG companies are beginning to focus on an efficient, more limited assortment. This makes the ongoing review and refinement of the private brand offering and go-to-market strategy even more critical. These changes support the Company’s ongoing review and refinement of the private brand offering and go-to-market strategy and efforts to simplify the brand portfolio and build on the strength of the Company’s flagship brand, Our Family.

The Company has also been building tools and capabilities to enable relevant, personalized content across its digital, social media and mobile channels, including the use of chatbots with artificial intelligence, which provide immediate responses to customers’ frequently asked questions online. Additionally, the Company continues to focus on the growth of its e-commerce platforms and development of the ecosystem, which enable a highly personalized digital shopping experience, while driving operational efficiencies. These enhancements will contribute to the Company’s ability to build longer-term customer loyalty through convenience and value, maintain efficient marketing spend, improve its growth opportunities, and further strengthen its competitive position.

Seasonality

The majority of the Company’s revenues are not seasonal in nature. However, in some geographies, corporate retail stores and independent retail customers are dependent on tourism, and therefore, are affected by seasons and weather patterns.

Suppliers

The Company purchases products from a large number of national, regional and local suppliers of name brand and OwnBrands merchandise. No single supplier accounts for more than 5% of the Company’s purchases. The Company continues to develop strategic relationships with key suppliers and believes this will prove valuable in the development of enhanced promotional programs and consumer value perceptions.

Intellectual Property

The Company owns valuable intellectual property, including trademarks, trade names, and other proprietary information, some of which are of material importance to its business.

Technology

In 2021, the Company focused on foundational IT hardware and digitization efforts across all business segments, including the continued transition to Software as a Service (“SaaS”) technology, where production environments are hosted in the cloud.

Supply Chain. The Company continued its transformational effort to replace its existing transportation systems, including standardization of processes and rationalization of several disparate systems into a single integrated application stack. Additionally, the Company completed the implementation of its automated timekeeping, scheduling, and payroll management processes across its distribution network. These automation initiatives, combined with the workforce investments noted previously, are expected to contribute to improved hiring, retention and productivity. The Company also completed the implementation of an AI forecasting system, which will enhance the Company’s inventory management and shrink reduction processes.

Retail. During 2021, the Company completed the financial integration of its recently acquired Martin’s Super Markets (“Martin’s”) business. The Company is taking additional steps to modernize its retail applications footprint, which began in 2021 with a comprehensive effort to upgrade and digitize its point-of-sale (“POS”) environment. The upgraded POS application includes an integrated feature set which enhances the retail experience both for SpartanNash and its independent customers.

Marketing and Merchandizing. In 2021, the Company continued its implementation of a cloud-based pricing and promotion automation solution. The new technology will provide a vendor portal and workflow management for promotional activities, as well as manage associated vendor billings for all of its customers.

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Administrative Systems, Infrastructure and Security. The Company has begun the development and implementation of tools to improve both the efficiency and effectiveness of internal reporting and administrative functions. A centralized cloud-based data analytics solution was implemented to consolidate the Company’s analysis and reporting platforms, which brings advanced data analytics capabilities to provide better business insights in real-time. Robotic process automation initiatives have been implemented in certain areas and additional areas are being evaluated for further automation, which will result in improved efficiency in repetitive, manual processes. During 2021, the Company also took significant steps to improve its information security. Lastly, the Company made several enhancements to its foundational hardware infrastructure including upgrades to the production storage environment and network servers.

Human Capital

The Company values its associates and remains committed to them through transparent communications to ensure that they feel heard, respected and valued. The Company also supports associates through total rewards benefits. As of January 1, 2022, the Company employed approximately 16,500 associates, 10,100 on a full-time basis and 6,400 on a part-time basis.

Retention. Attracting and retaining talent is imperative to accomplish the key initiatives of the Company. The Company’s primary initiatives in this area include ensuring a safe and desirable work environment, maintaining a competitive and compelling total rewards offer and investing in leadership and associate development.

While the rate of turnover remains high, specifically in the retail and distribution environments, the Company remains committed to reducing turnover, with an established target reduction in the coming year.

Diversity, Equity, and Inclusion. The Company celebrates diversity and believes employing a diverse workforce is key to success. SpartanNash is committed to providing equal employment opportunities to all individuals regardless of personal characteristics, including but not limited to: race, gender, religion, disability, age, protected veteran status, or any legally recognized status entitled to protection under applicable federal, state or local laws. The Company has a policy that they conduct themselves with dignity and respect each other, and the Company does not tolerate discrimination or harassment. SpartanNash takes action to address and correct disrespectful, inappropriate behavior, unfair treatment, or retaliation of any kind in the workplace or in any work-related circumstance outside the workplace. SpartanNash is focused on ensuring that the rights of women and minority groups are protected and expects all SpartanNash associates to reinforce our People First culture to build a diverse and inclusive workplace. As a commitment to this, all associates are required to complete training on Dignity and Respect, Anti-Harassment and Anti-Discrimination.

SpartanNash also provides interactive workshops and ongoing training for people leaders, including Bridging the Diversity Gap and Your Role in Workplace Diversity training. To provide associates support and connection within the organization, SpartanNash has associate resource groups available for young professionals, multicultural associates, veterans and women.

SpartanNash believes that diversity, equity and inclusion drive value for its associates, shareholders and customers. The Company leads with inclusion and strives to create an environment where associates are valued and empowered to support our business objectives, customers and the communities they serve.

The Company also believes that it is best served by leaders that have diverse perspectives, education, experience, skills, gender, race, and ethnicity as demonstrated by the current executive leadership team and Board of Directors. The Company will continue to seek out such candidates when searching for new leaders and directors.

Safe, Healthy and Secure Workplace. The Company’s policies and programs provide a safe and healthy workplace in accordance with all local laws and regulations, in partnership with training to support SpartanNash’s health and safety strategy. Everyone working at SpartanNash is a role model and works together to achieve excellence in everything they do without harm to people, the environment or its communities. Throughout 2021, the Company implemented a new safety program called, “Do Your Part – Be Safety Smart.” The program includes targeted safety goals; the appointment of a safety specialist at all company locations; instituting a safety focus in all team meetings; weekly safety calls with the CEO; development of safety leadership, emergency response, ammonia safety, and safety improvement teams; along with monthly safety reviews by SpartanNash leadership to develop solutions to safety issues and to achieve safety goals.

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Associate Engagement and Training. The Company believes that associate engagement and education are key to the full implementation of its Human Rights policy across its footprint. The Company provides role-specific training on human rights and how to recognize, mitigate and act on violations that reinforce their collective commitment to the Human Rights policy.

Compensation and Benefits. The Company’s total rewards programs are designed to provide compensation and benefits packages that will attract, retain, reward, and inspire its associates to achieve a high level of performance, to challenge convention and turn problems into possibilities. Overall compensation and benefits are periodically reviewed to ensure that they remain competitive with respect to industry benchmarks. Significant wage investments were made in 2021 across the retail and warehouse operations to attract and retain associates. Areas of focus for wages were entry level roles across our front-line operations, distribution hourly associates to incent productivity and to address competitive truck driver pay. In line with the Company’s People First initiative, the Company implemented a new paid time off (“PTO”) policy in the fourth quarter of 2021. The new PTO policy provides associates with the same amount of PTO hours in a given year, but with enhanced benefits, which include: greater flexibility on how and when PTO can be taken, immediate new hire eligibility for PTO benefits, ability to elect annual payouts for hourly associates, and an overall simplified policy with one PTO bucket. The Company’s incentive programs are designed to align the associate’s financial interests with that of shareholders and other stakeholders. Eligibility for the annual incentive program was changed in 2021 to include over 1,000 newly eligible associates to allow more associates to share in the success of the Company.

Environmental Matters

The Company may be responsible for remediation of environmental conditions and may be subject to associated liabilities relating to its stores, warehouses, and other buildings and the land on which they are situated (including responsibility and liability related to its operation of its fuel centers and truck garages and the storage of petroleum products in underground storage tanks). The Company believes that it currently conducts its operations, and in the past has conducted its operations, in substantial compliance with applicable environmental laws. Also, the Company typically conducts an environmental review prior to acquiring or leasing buildings or raw land. However, the Company cannot always control or predict what environmental conditions may be found to exist at its facilities, and future changes in regulations may result in liabilities to the Company or increases in the cost of doing business.

Regulation

The Company is subject to federal, state and local laws and regulations concerning the conduct of its business, including those pertaining to the workforce and the purchase, handling, sale and transportation of its products. Many of the Company’s products are subject to federal Food and Drug Administration (“FDA”) and United States Department of Agriculture (“USDA”) regulation. The Company believes that it is in compliance, in all material respects, with the FDA, USDA and other federal, state and local laws and regulations governing its businesses.

Available Information

SpartanNash’s web address is www.spartannash.com. The inclusion of the Company’s web address in this Form 10-K does not include or incorporate by reference the information on or accessible through the Company’s website, and the information contained on or accessible through those websites should not be considered as part of this Form 10-K. The Company makes its Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and other reports (and amendments to those reports) filed or furnished pursuant to Section 13(a) of the Securities Exchange Act of 1934 available on the Company’s website as soon as reasonably practicable after the Company electronically files or furnishes such materials with the SEC. Interested persons can view such materials without charge by clicking on “Investor Relations” and then “SEC Filings” on the Company’s website.


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Item 1A.  Risk Factors

The Company faces many risks. If any of the events or circumstances described in the following risk factors occur, the Company’s financial condition or results of operations may suffer, and the trading price of the Company’s common stock could decline. This discussion of risk factors should be read in conjunction with the other information in this Annual Report on Form 10-K. All of these forward-looking statements are affected by the risk factors discussed in this item and this discussion of risk factors should be read in conjunction with the discussion of forward-looking statements, which appears at the beginning of this report.

Business and Operational Risks

The Company operates in an extremely competitive industry. Many of the Company’s competitors are much larger and may be able to compete more effectively.

The Company’s Food Distribution and Retail segments have many competitors, including regional and national grocery distributors, large chain stores that have integrated wholesale and retail operations, mass merchandisers, e-commerce providers, deep discount retailers, limited assortment stores and wholesale membership clubs. The Company’s Military segment faces competition from large national and regional food distributors and smaller distributors. Many of the Company’s competitors have greater resources than the Company.

Industry consolidation, alternative store formats, nontraditional competitors and e-commerce have contributed to market share losses for traditional grocery stores. The Company’s Food Distribution, Military and Retail segments are primarily focused on traditional retail grocery trade, which faces competition from faster growing alternative retail channels, such as dollar stores, discount supermarket chains, Internet-based retailers and meal-delivery services. The Company expects these trends to continue. If the Company is not successful in competing with these alternative channels, or growing sales into such channels, its business or financial results may be adversely impacted.

The Company faces competitive pressures from e-commerce activity, as consumers continue to adopt this format and do more of their shopping online. While the Company offers e-commerce services at many of its stores, some of its stores and many of its independent retailer customers do not. Other e-commerce providers may offer lower prices, superior online ordering or delivery service, or greater convenience than the Company. If the Company fails to compete successfully, it could face lower sales and may decide or be compelled to offer greater discounts to its customers, which could result in decreased profitability.

Disease outbreaks, such as the COVID-19 pandemic, could have an adverse impact on the Company's operations and financial results.

In response to the COVID-19 pandemic, national, state, and local authorities recommended social distancing and imposed quarantine and isolation measures on large portions of the population, including mandatory business closures. While these measures were designed to protect the overall public health, they continue to have material adverse impacts on domestic and foreign economies.

While the Company is an essential business and has seen significant increases in sales volume during the pandemic, its business may be negatively impacted by several factors associated with the pandemic and any future disease outbreak and the related effects on the retail grocery and wholesale distribution industries. The effects of the COVID-19 pandemic experienced by the Company have included, and may continue to include the following impacts, which may also be characteristic of future potential disease outbreaks:

 

Increased costs due to significant increases in customer traffic and demand for grocery products, and the corresponding inability to meet demand with the existing workforce or other assets;

 

Failure of third parties on which the Company relies, including its customers, suppliers, contractors, commercial banks and other business partners to meet their obligations to the Company, which may be caused by their own financial or operational challenges;

 

Supply chain risks due to significantly increased demand, including the availability of warehouse and transportation personnel and service providers or the inability to procure adequate quantities of certain goods;

 

Reduced workforce or temporary store and distribution center closures associated with the presence of COVID-19 infections among the Company’s associates;

 

Increased costs relating to compliance with public health and safety requirements for the Company’s associates and customers, including the purchase of personal protective equipment, cleaning and sanitization of retail and distribution facilities and construction and remodeling costs related to maintaining effective social distancing barriers;

 

Inability to accurately forecast financial results due to the uncertainty associated with the short- and long-term effects on the U.S. economy, consumer behavior and the unknown duration of social distancing, quarantine or isolation measures or the lasting effects that may result after such mandates have been removed;

 

Increased and accelerated competition from alternative channels, including e-commerce retailers, due to a change in consumer behavior and continued social distancing; or

 

Closure or access restrictions at retail stores or military commissaries, which limit the consumer’s access to the products the Company sells and distributes, which negatively impact sales volumes.

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Any of the foregoing factors, or other effects of the pandemic that are not currently foreseeable, may materially increase costs, negatively impact sales and damage the Company’s financial condition, results of operations, cash flows and its liquidity position. The significance and duration of any such impacts are not possible to predict due to the overall uncertainty associated with COVID-19 and any future pandemic.

The private brand program for U.S. military commissaries may not achieve the desired results.

In December 2016, DeCA, which operates U.S. military commissaries worldwide, competitively awarded to the Company the contract to support and supply products for the Agency’s private brand product program. Private brand products had not previously been offered in the Agency’s commissaries. The Company has invested and will continue to invest significant resources as it partners with DeCA to continue to expand the program, however there is no guarantee of its success, that the program will continue or that DeCA will continue to partner with SpartanNash. The Company expects that DeCA will face significant competition in each product category from national brands that are familiar to consumers. If the Agency is unable to drive traffic and business at the commissaries by offering one-stop shopping for military customers through a combination of both national and private brand offerings, then both DeCA and the Company may be unable to achieve expected returns from this program, which could have a material adverse effect on the Company’s business. The success of the program will depend, in part, on factors beyond the Company’s control, including the actions of the Agency. The current contract to provide DeCA with private branded products expires in April 2022. While the Company is currently negotiating a contract extension, there cannot be a guarantee of renewal.

The Company may not be able to achieve growth through acquisitions or successfully integrate acquired businesses.

Part of the Company’s growth through acquisitions involves additional distribution operations, and retail grocery stores. Given the recent consolidation activity and limited number of potential acquisition targets within the food industry, the Company may not be able to identify suitable targets for acquisition and may make acquisitions which do not achieve the desired level of profitability or sales. Additionally, future acquisitions of retail grocery stores could result in the Company competing with its independent retailer customers and could adversely affect existing business relationships with those customers. As a result, the Company may not be able to identify suitable acquisition candidates in the future, complete acquisitions or obtain the necessary financing and this may adversely affect the Company’s ability to grow profitably. If the Company fails to successfully integrate business acquisitions and realize planned synergies, the business may not perform to expectations.

Substantial operating losses may occur if the customers to whom the Company extends credit or for whom the Company guarantees loans or lease obligations fail to repay the Company.

From time to time, the Company may advance funds, extend credit and lend money to certain independent retailers and guarantee loan or lease obligations of certain customers. The Company seeks to obtain security interest and other credit support in connection with these arrangements, but the collateral may not be sufficient to cover the Company’s exposure. Greater than expected losses from existing or future credit extensions, loans, guarantee commitments or sublease arrangements could negatively and materially impact the Company’s operating results and financial condition.

A significant portion of the Company’s sales are with major customers and the Company’s success may be dependent on retaining this business and its customers’ ability to grow their business.

The Company’s customer base includes certain large and growing customers. To the extent that major customers decide to utilize alternative sources of products, whether through other distributors or self-distribution, the Company’s financial condition or results of operations may be materially and adversely affected. Similarly, if major customers are not able to grow their business, the Company may be materially and adversely affected.

Sales to one of the Company’s customers accounted for 17% of the Company’s net sales in 2021, 2020 and 2019. The Company’s ability to maintain a close, mutually beneficial relationship with major customers is an important determinant of the Company’s continued growth.

Changes in relationships with the Company’s vendor base and supply chain disruptions may adversely affect its business, margins, and profitability.

The Company sources the products it sells from a wide variety of vendors. The Company generally does not have long-term written contracts with its major suppliers that would require them to continue supplying merchandise. The Company depends on its vendors for appropriate allocation of merchandise, assortments of products, operation of vendor-focused shopping experiences within its stores, and funding for various forms of promotional allowances. Recent supply chain disruptions within the industry, including labor availability, raw material shortages, and rising costs, have placed constraints on the Company’s vendors resulting in reduced inbound fill rates and decreased product availability. Such issues could negatively impact the Company’s outbound fill rate, resulting in reduced sales and lower profitability.

There has been significant consolidation in the food industry, and this consolidation may continue to the Company’s commercial disadvantage. Such changes could have a material adverse impact on the Company’s revenues and profitability.

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Disruptions to the Company’s information technology systems, including security breaches and cyber-attacks, could negatively affect the Company’s business.

The Company has complex information technology (“IT”) systems that are important to its business operations. It also employs mobile devices, social networking and other online activities to connect with customers, associates, suppliers, and business partners. The Company receives, transmits, and stores many types of sensitive information, including consumers’ personal information, information belonging to vendors, business partners, and other third parties, and the Company’s proprietary, confidential, or sensitive information. As a result, the Company faces risks of security breaches, system disruption, theft, espionage, inadvertent release of information, and other technology-related disruptions. The Company could incur significant losses due to any such event.

Although the Company has implemented security programs and disaster recovery facilities and procedures, cyber threats evolve rapidly and are becoming more sophisticated. Despite the Company’s efforts to secure its information and systems, cyber attackers may defeat the security measures and compromise the personal information of consumers, vendors, business partners, associates and other sensitive information. Associate error, faulty password management or other problems may compromise the security measures and result in a breach of the Company’s information systems, systems disruptions, data theft or other criminal activity. This could result in a loss of sales or profits or cause the Company to incur significant costs to restore its systems or to reimburse third parties for damages.

Threats to security or the occurrence of severe weather conditions, natural disasters or other unforeseen events could harm the Company’s business.

The Company’s business could be severely impacted by severe weather conditions, natural disasters, or other events that could affect the warehouse and transportation infrastructure used by the Company and its vendors to supply the Company’s corporate owned retail stores, and Food Distribution and Military customers. While the Company believes it has adopted commercially reasonable precautions, insurance programs, and contingency plans; the damage or destruction of Company facilities could compromise its ability to distribute products and generate sales. Unseasonable weather conditions that impact growing conditions and the availability of food could also adversely affect sales, profits and asset values.

Climate change, as well as an increasing focus by stakeholders on environmental sustainability and corporate responsibility matters, could adversely affect the business, results of operations, brand or reputation.

The Company is susceptible to risks associated with climate change, which may cause more frequent and extreme weather events. Risks associated with climate change include disruptions to the operations and supply chain, increased operating costs, as well as increased costs and use of operational resources associated with complying with any new climate-related legal or regulatory requirements, all of which could adversely affect the business and results of operations.

Additionally, there is increased focus by stakeholders, including governmental and nongovernmental organizations, investors and customers, on environmental sustainability and corporate responsibility matters, including climate change response, packaging and waste reduction, energy consumption, and diversity, equity and inclusion. The Company’s disclosure on these matters and the failure, or perceived failure, to meet their commitments or otherwise effectively address these environmental sustainability and corporate responsibility matters, could adversely affect the business, brand or reputation. In particular, business incidents or practices, whether actual or perceived, that erode customer trust or confidence, particularly if they receive considerable publicity or result in litigation, could have a negative impact on the business.

Impairment charges for goodwill or other long-lived assets could adversely affect the Company’s financial condition and results of operations.

The Company is required to perform an annual impairment test for goodwill and other long-lived tangible and intangible assets in the fourth quarter of each year, or more frequently if indicators are present or changes in circumstances suggest that impairment may exist. Testing goodwill and other assets for impairment requires management to make significant estimates about the Company’s future performance, cash flows, and other assumptions that can be affected by potential changes in economic, industry or market conditions, business operations, competition, or – for goodwill – the Company’s stock price and market capitalization. Changes in these factors, or changes in actual performance compared with estimates of the Company’s future performance, may affect the fair value of goodwill or other assets. This could result in the Company recording a non-cash impairment charge for goodwill or other long-lived assets in the period the determination of impairment is made. The Company cannot accurately predict the amount or timing of potential impairments of assets. Should the value of goodwill or other assets become impaired, the Company’s financial condition and results of operations may be adversely affected.

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The Company may not successfully manage transitions associated with the executive leadership team.

The Company’s success depends upon the continued services of executive officers and other key personnel, as well as its ability to effectively transition to their successors. The Company has recently appointed several new executive leaders. These transitions may be disruptive to the Company, and if it is unable to execute an orderly transition and successfully integrate them into the leadership team, revenue, operating results and financial condition may be adversely affected. Any future changes to the executive leadership team, including hires or departures, could cause further disruption to the business and have a negative impact on operating performance, while these operational areas are in transition. The Company can provide no assurance that it will find suitable successors to key roles as transitions occur or that any identified successor will be successfully integrated into its leadership team. The Company’s inability to retain other key employees or effectively transition to their successors, or any delay in filling any such positions, could harm its business and results of operations.

It may be difficult for the Company to attract and retain well-qualified associates, which would adversely affect the Company’s profitability and growth.

Recent labor environment challenges, including labor availability, have caused upward pressure on wages. If the Company is unable to attract and retain quality associates to meet its needs, the Company could be required to increase its compensation offering, reduce staffing below optimal levels, or rely more on higher-cost third-party providers, which could adversely affect the Company’s profitability and growth.

Risks Related to the Company’s Indebtedness

The Company’s level of indebtedness could adversely affect its financial condition and its ability to raise additional capital or obtain financing in the future, respond to business opportunities, react to changes in its business, and make required payments on its debt.

As of January 1, 2022, the Company had outstanding indebtedness of $405.7 million (net of unamortized debt issuance costs), primarily related to its asset-based lending facility (the "Revolving Credit Facility"). Refer to Note 6 in the accompanying notes to the consolidated financial statements for further information. If the Company is not able to generate cash flow from operations sufficient to service its debt, it may need to refinance its debt, dispose of assets or issue equity to obtain necessary funds. The Company may not be able to take any of such actions on a timely basis, on satisfactory terms or at all.

Indebtedness could have important consequences, including the following:

 

reduced ability to execute the Company’s growth strategy, including merger and acquisition opportunities;

 

reduced ability to invest in the Company, which may place it at a competitive disadvantage;

 

increased vulnerability to adverse economic and industry conditions;

 

exposure to interest rate increases;

 

reduced cash flow available for other purposes;

 

limited ability to borrow additional funds for working capital, capital expenditures and other investments;

Covenants in its debt agreements restrict the Company’s operational flexibility.

The agreements governing the Revolving Credit Facility contain usual and customary restrictive covenants relating to the management and operation of the Company, including restrictions on its ability to borrow, pay dividends, or consummate certain transactions. Failure to comply with the covenants in the Company’s debt agreements could result in all of its indebtedness becoming immediately due and payable.

The Company is exposed to interest rate risk due to the variable rates on its indebtedness. Debt service obligations may increase if interest rates rise.

The Company’s borrowings under the Revolving Credit Facility bear interest at variable rates and expose it to interest rate risk. The Company may not be able to accurately predict changes in interest rates or mitigate their impact. If interest rates increase, debt service obligations on the variable rate indebtedness would increase even though the amount borrowed remains the same and the Company’s profitability would decrease. A hypothetical 0.50% increase in rates applicable to borrowings under the Revolving Credit Facility as of January 1, 2022 would increase interest expense related to such debt by approximately $1.8 million per year.

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Legal, Regulatory and Legislative Risks

The Company’s Military segment is dependent upon domestic and international military operations. A change in the military commissary system, including its supply chain, or a change in the level of governmental funding, could negatively impact the Company’s results of operations and financial condition.

Because the Company’s Military segment sells and distributes grocery products to military commissaries and exchanges in the United States and overseas, any material changes in the commissary system, the level of governmental funding to DeCA, military staffing levels, or locations of bases, or DeCA’s supply chain may have a corresponding impact on the sales and operating performance of this segment. These changes could include privatization of some or all of the military commissary system, relocation or consolidation of commissaries and exchanges, base closings, troop redeployments or consolidations in the geographic areas containing commissaries and exchanges served by the Company, a change by DeCA to a self-distribution model, or a reduction in the number of persons having access to the commissaries and exchanges. Mandated reductions in the government expenditures, including those imposed as a result of a sequestration, may impact the level of funding to DeCA and could have a material impact on the Company’s operations. If DeCA were to make material changes to its supply chain model, for example by limiting distribution authorization, then the Company’s Military segment could be affected.

Product recalls or other safety concerns regarding the Company’s products could harm the Company’s business.

The Company faces risks related to the safety of the food products that it distributes or sells. It may need to recall such products for actual or alleged contamination, adulteration, mislabeling, or other safety concerns. The Company distributes fresh fruits and vegetables, as well as other fresh prepared foods. These products, and other food products that the Company sells, are at risk of contamination by disease-causing organisms such as Salmonella, E. coli, and others. These pathogens are generally found in nature, and as a result, there is a risk that they could be present in the products distributed or sold by the Company. The Company typically has little control over proper food handling before the Company’s receipt of the product or once the product has been delivered to customers. Recall costs can be material. A widespread product recall could result in significant losses due to the administrative costs of a recall, the destruction of inventory, and lost sales. Recalls and other food safety concerns can also result in adverse publicity, damage to the Company’s reputation, and a loss of confidence in the safety and quality of its products. Customers may avoid purchasing certain products from the Company, or to seek alternative sources of supply for some or all of their food needs, even if the basis for concern is outside of the Company’s control. Any loss of confidence on the part of the Company’s customers would be difficult and costly to overcome. Any real or perceived issue regarding the safety of any food or drug items sold by the Company, regardless of the cause, could have a substantial and adverse effect on the Company’s business.

A number of the Company’s associates are covered by collective bargaining agreements, and unions may attempt to organize additional associates.

Approximately 7% of the Company’s associates are covered by collective bargaining agreements (“CBAs”) which expire between April 2022 and February 2025. The Company expects that rising healthcare, pension and other employee benefit costs, among other issues, will continue to be important topics of negotiation with the labor unions. Upon the expiration of the Company’s CBAs, work stoppages by the affected workers could occur if the Company is unable to negotiate an acceptable contract with the labor unions. This could significantly disrupt the Company’s operations.

Further, if the Company is unable to control healthcare and pension costs provided for in the CBAs, the Company may experience increased operating costs and an adverse impact on future results of operations.

While the Company believes that relations with its associates are good, the Company may continue to see additional union organizing campaigns. The potential for unionization could increase as any new related legislation or regulations are passed. The Company respects its associates’ right to unionize or not to unionize. However, the unionization of a significant portion of the Company’s workforce could increase the Company’s overall costs at the affected locations and adversely affect its flexibility to run its business in the most efficient manner to remain competitive or acquire new businesses and could adversely affect its results of operations by increasing its labor costs or otherwise restricting its ability to maximize the efficiency of its operations.

Costs related to multi-employer pension plans and other postretirement plans could increase.

The Company contributes to the Central States Southeast and Southwest Pension Fund (the “Central States Plan” or the “Plan”), a multi-employer pension plan, based on obligations arising from its CBAs with Teamsters locals 406 and 908. SpartanNash does not administer or control this Plan, and the Company has relatively little control over the level of contributions the Company is required to make. Currently, the Central States Plan is underfunded and in critical and declining status, and as a result, contributions are scheduled to increase. The Company expects that contributions to this Plan will be subject to further increases. Benefit levels and related issues will continue to create collective bargaining challenges. The amount of any increase or decrease in its required contributions to this Plan will depend upon the outcome of collective bargaining, the actions taken by the trustees who manage the Plan, governmental regulations, actual return on investment of Plan assets, the continued viability and contributions of other contributing employers, and the potential payment of withdrawal liability should the Company choose to exit a geographic area, among other factors.

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The Company’s risk may be mitigated by the American Rescue Plan Act of 2021, which provides financial relief to certain failing multiemployer pension plans. Refer to Note 8 in the accompanying notes to the consolidated financial statements for further information.

Changes in government regulations may have a material adverse effect on financial results.

Changes in government regulation, including changes in the minimum wages or federal tax laws could have material adverse effects on the Company’s financial results. The presidential administration may propose regulations that will have a negative impact on the profitability of the Company, including new tax legislation and minimum wage requirements. The Company employs a significant number of hourly associates who are compensated at an hourly rate lower than $15.00. If minimum wage rates increase, the Company will have to increase the wages of employees who fall below the new minimum and may need to increase the wages of employees in close proximity above the new minimum to address wage compression. In addition, changes in federal tax regulations may result in significant increases in the Company’s current and deferred tax liabilities, and may include changes in federal tax rates and the deductibility of certain costs.

Item 1B. Unresolved Staff Comments

None.

Item 2.  Properties

The following table lists the locations and approximate square footage of the Company’s distribution centers used by its Food Distribution and Military segments as of January 1, 2022. The lease expiration dates for the distribution centers primarily servicing the Food Distribution segment range from February 2023 to July 2035, and for the Military segment range from July 2023 to November 2029. The majority of these leases contain renewal options beyond these dates, if exercised. The Company believes that these facilities are generally well maintained and in good operating condition, have sufficient capacity, and are suitable and adequate to carry on its business for both of these segments.

 

Distribution Centers

 

 

 

Square Footage

 

Location

 

Leased

 

 

Owned

 

 

Total

 

Grand Rapids, Michigan (a)

 

 

 

 

 

1,179,582

 

 

 

1,179,582

 

Norfolk, Virginia (b)

 

 

188,093

 

 

 

545,073

 

 

 

733,166

 

Omaha, Nebraska (a)

 

 

4,384

 

 

 

686,783

 

 

 

691,167

 

Bellefontaine, Ohio (a)

 

 

 

 

 

666,045

 

 

 

666,045

 

Oklahoma City, Oklahoma (b)

 

 

 

 

 

608,543

 

 

 

608,543

 

Lima, Ohio (a)

 

 

 

 

 

517,552

 

 

 

517,552

 

Columbus, Georgia (c)

 

 

478,702

 

 

 

 

 

 

478,702

 

Bloomington, Indiana (b)

 

 

 

 

 

471,277

 

 

 

471,277

 

San Antonio, Texas (c)

 

 

 

 

 

461,544

 

 

 

461,544

 

Lumberton, North Carolina (a)

 

 

386,129

 

 

 

 

 

 

386,129

 

St. Cloud, Minnesota (a)

 

 

40,319

 

 

 

329,046

 

 

 

369,365

 

Landover, Maryland (b)

 

 

368,088

 

 

 

 

 

 

368,088

 

Severn, Maryland (a)

 

 

363,872

 

 

 

 

 

 

363,872

 

Fargo, North Dakota (a)

 

 

74,000

 

 

 

288,824

 

 

 

362,824

 

Pensacola, Florida (b)

 

 

 

 

 

355,900

 

 

 

355,900

 

Sioux Falls, South Dakota (a)

 

 

79,300

 

 

 

196,114

 

 

 

275,414

 

Bluefield, Virginia (a)

 

 

 

 

 

187,531

 

 

 

187,531

 

Indianapolis, Indiana (a)

 

 

 

 

 

124,820

 

 

 

124,820

 

Total Square Footage

 

 

1,982,887

 

 

 

6,618,634

 

 

 

8,601,521

 

(a)

Distribution center services the Food Distribution segment.

(b)

Distribution center services the Military segment.

(c)

Distribution center services both the Food Distribution and Military segments. Based on utilization estimates at January 1, 2022, the Food Distribution segment utilizes 36,000 square feet and 118,000 square feet at the San Antonio and Columbus distribution centers, respectively. The Columbus location requires periodic lease payments to the holder of the outstanding industrial revenue bond, which is held by the Company. Upon expiration of the lease terms, the Company will take title to the property upon redemption of the bond.

-15-


 

 

The following table lists the Company’s retail stores, including the adjacent fuel centers of the related stores, by retail banner, number of stores, location and approximate square footage under each banner as of January 1, 2022.

Retail Segment

 

 

 

 

 

Leased

 

 

Owned

 

 

Total

 

 

 

 

 

Number

 

 

Square

 

 

Number

 

 

Square

 

 

Number

 

Square

 

Grocery Store Retail Banner

 

Location

 

of Stores

 

 

Feet

 

 

of Stores

 

 

Feet

 

 

of Stores

 

Feet

 

Family Fare

 

Michigan, Minnesota, Nebraska, North Dakota, South Dakota, Iowa, Wisconsin

 

74

 

 

 

3,170,320

 

 

9

 

 

 

449,279

 

 

83

 

 

3,619,599

 

Martin's Super Markets

 

Indiana, Michigan

 

11

 

 

 

660,228

 

 

9

 

 

 

461,727

 

 

20

 

 

1,121,955

 

D&W Fresh Market

 

Michigan

 

8

 

 

 

393,429

 

 

2

 

 

 

84,458

 

 

10

 

 

477,887

 

VG’s Grocery

 

Michigan

 

8

 

 

 

363,117

 

 

1

 

 

 

38,012

 

 

9

 

 

400,340

 

Dan's Supermarket

 

North Dakota

 

5

 

 

 

264,077

 

 

 

 

 

 

 

 

5

 

 

264,077

 

Family Fresh Market

 

Minnesota, Nebraska, Wisconsin

 

 

 

 

 

 

 

3

 

 

 

173,740

 

 

3

 

 

173,740

 

Sun Mart Foods

 

Nebraska

 

1

 

 

 

31,733

 

 

4

 

 

 

93,824

 

 

5

 

 

125,557

 

Supermercado Nuestra Familia

 

Nebraska

 

1

 

 

 

22,540

 

 

2

 

 

 

83,279

 

 

3

 

 

105,819

 

Forest Hills Foods

 

Michigan

 

2

 

 

 

65,209

 

 

 

 

 

 

 

 

2

 

 

65,209

 

No Frills Supermarkets

 

Iowa, Nebraska

 

3

 

 

 

61,060

 

 

 

 

 

 

 

 

3

 

 

61,060

 

Dillonvale IGA

 

Ohio

 

1

 

 

 

25,627

 

 

 

 

 

 

 

 

1

 

 

25,627

 

Fresh City Market

 

Wisconsin

 

1

 

 

 

21,470

 

 

 

 

 

 

 

 

1

 

 

21,470

 

Total

 

 

 

115

 

 

 

5,078,810

 

 

30

 

 

 

1,384,319

 

 

145

 

 

6,462,340

 

The Company also owns one fuel center that is not reflected in the retail square footage above, a Family Fare Quick Stop in Michigan that is not included with a corporate owned retail store but is adjacent to the Company’s corporate headquarters. Also not reflected in the retail square footage above is three stand-alone pharmacies located in Iowa, Michigan, and Wisconsin as well as certain properties used to facilitate the stock and transfer of goods between retail stores.

The Company’s headquarters is located in Grand Rapids, Michigan. The Company maintains offices in multiple states consisting of approximately 317,000 square feet in Company-owned buildings and 23,000 square feet in leased facilities. The Company also leases two additional off-site storage facilities consisting of approximately 50,000 square feet. The Company owns and leases to independent retailers eleven stores totaling approximately 474,000 square feet and owns and leases to third parties two warehouses of approximately 536,000 square feet and office space totaling 109,000 square feet.

Item 3.  Legal Proceedings

From time-to-time, the Company is engaged in routine legal proceedings incidental to its business. The Company does not believe that these routine legal proceedings, taken as a whole, will have a material impact on its business or financial condition. Additionally, various lawsuits and claims, arising in the ordinary course of business, are pending or have been asserted against the Company. While the ultimate effect of such actions, lawsuits and claims cannot be predicted with certainty, management believes that their outcome will not result in a material adverse effect on the Company’s consolidated financial position, operating results or liquidity. Legal proceedings, various lawsuits, claims, and other matters are more fully described in Note 8, in the notes to consolidated financial statements, which is herein incorporated by reference.

Item 4.  Mine Safety Disclosures

Not Applicable.


-16-


 

 

PART II

Item 5.  Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

SpartanNash common stock is traded on the Nasdaq Global Select Market under the trading symbol “SPTN.”

At February 28, 2022, there were approximately 1,300 shareholders of record of SpartanNash common stock.

During the fourth quarter of 2017, the Board authorized a $50.0 million share repurchase program expiring in 2022. There were not any common stock purchases made under this program during the fourth quarter of 2021. At January 1, 2022, $29.7 million remains available under the program.

In 2021 and 2020, the Company repurchased 265,000 and 860,752 shares of common stock for approximately $5.3 million and $10.0 million, respectively. The Company did not repurchase common stock in 2019.

Repurchases of common stock may include: (1) shares of SpartanNash common 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 submitted for cancellation to satisfy tax withholding obligations that occur upon the vesting of the restricted shares. The value of the shares delivered or withheld is determined by the applicable stock compensation plan.

On February 22, 2021, the Board of Directors authorized the repurchase of common shares in connection with a new $50 million program, increasing the total availability for share repurchases to approximately $80 million. The Company plans to return value to shareholders through share repurchases under this program as well as continuing regular dividends.

Performance Graph

Set forth below is a graph comparing the cumulative total shareholder return on SpartanNash common stock to that of the S&P SmallCap 600 Food Distributors Index and the S&P SmallCap 600 Index, over a period beginning December 31, 2016 and ending on January 1, 2022. The S&P SmallCap 600 Food Distributors Index replaces the CRSP NASDAQ Retail Trade Index in this analysis and going forward, as the CRSP NASDAQ Retail Trade Index data is no longer accessible. The CRSP index has been included with data through 2020. The Company has elected to replace the Russell 2000 Index with the S&P SmallCap 600 Index as the market capitalization profile of the S&P SmallCap 600 Index is more comparable to that of the Company. In this transition year, the stock performance graph includes both the Russell 2000 Index and the S&P SmallCap 600 Index.

Cumulative total return is measured by the sum of (1) the cumulative amount of dividends for the measurement period, assuming dividend reinvestment, and (2) the difference between the share price at the end and the beginning of the measurement period, divided by the share price at the beginning of the measurement period.

-17-


 

The dollar values for total shareholder return plotted above are shown in the table below:

 

December 31,

 

 

December 30,

 

 

December 29,

 

 

December 28,

 

 

January 2,

 

 

January 1,

 

 

2016

 

 

2017

 

 

2018

 

 

2019

 

 

2021

 

 

2022

 

SpartanNash

$

 

100.00

 

 

$

 

69.13

 

 

$

 

45.36

 

 

$

 

40.15

 

 

$

 

51.97

 

 

$

 

79.80

 

Russell 2000 Total Return Index

 

 

100.00

 

 

 

 

114.65

 

 

 

 

101.21

 

 

 

 

128.03

 

 

 

 

153.62

 

 

 

 

176.39

 

NASDAQ Retail Trade

 

 

100.00

 

 

 

 

106.38

 

 

 

 

105.94

 

 

 

 

128.40

 

 

 

 

152.43

 

 

 

 

 

 

S&P SmallCap 600

 

 

100.00

 

 

 

 

113.23

 

 

 

 

103.04

 

 

 

 

126.87

 

 

 

 

141.60

 

 

 

 

179.58

 

S&P SmallCap 600 Food Distributors

 

 

100.00

 

 

 

 

69.89

 

 

 

 

45.34

 

 

 

 

43.20

 

 

 

 

48.16

 

 

 

 

93.10

 

The information set forth under the Heading “Performance Graph” shall not be deemed to be “soliciting material” or to be “filed” with the Commission or subject to Regulation 14A or 14C, or to the liabilities of Section 18 of the Exchange Act, except to the extent that the registrant specifically requests that such information be treated as soliciting material or specifically incorporates it by reference into a filing under the Securities Act or the Exchange Act.

Item 6. Reserved

 


-18-


 

 

Item 7.  Management’s Discussion and Analysis of Financial Condition and Results of Operations

About SpartanNash

SpartanNash, headquartered in Grand Rapids, Michigan, is a leading multi-regional grocery distributor and grocery retailer whose core businesses include distributing grocery products to a diverse group of independent and chain retailers, its corporate owned retail stores, and military commissaries and exchanges in the United States. The Company operates three reportable segments: Food Distribution, Military and Retail. These reportable segments are three distinct businesses, each with a different customer base, management structure, and basis for determining budgets, forecasts, and compensation.

Overview of 2021

The Company’s top priority continues to be the well-being and safety of its family of associates, customers and communities during the COVID-19 pandemic. SpartanNash recognizes its family of associates for their resilience and dedication to serve customers and support local communities while navigating industry-wide labor, inflation and supply chain challenges. Collaboration across the organization and the strength and resiliency of its people drives execution in a dynamic operating environment as SpartanNash supports consumer demand during this unprecedented time. The Company’s 2021 highlights include:

Food Distribution

 

Food Distribution segment net sales decreased $120.4 million compared to the prior year, due primarily to the incremental net sales of $76.4 million from the 53rd week impact of the prior year and cycling the prior year increased demand related to the COVID-19 pandemic, partially offset by inflation and continued growth among certain existing Food Distribution customers.

 

The Food Distribution segment realized gross margin rate improvement of 50 basis points. The change in gross profit was driven primarily by the impact of inflation, partially offset by incremental LIFO expense.

 

The Company launched and began execution of a comprehensive supply chain improvement initiative. The initiative is focused on executing improvements to supply chain operations across the Company’s network, which are expected to result in sustained efficiencies and cost reductions.

Retail

 

Retail comparable store sales increased 7.3% for the fourth quarter and declined 0.5% for the fiscal year, significantly ahead of the Company’s initial expectations. Comparable store sales increased by 16.9% on a two-year basis, representing sequential improvement on a quarterly basis, and increased 12.7% for the fiscal year.

Military

 

Military segment net sales decreased $240.4 million compared to the prior year due to incremental net sales of $33.4 million from the 53rd week impact of the prior year, the continuation of lower volumes at domestic bases, and a reduction in export sales as a result of supply chain challenges at shipping ports in the current year. These decreases were partially offset by inflation in the current year. The Military segment realized gross margin rate improvement of 70 basis points despite declining sales.

Other Highlights

 

During 2021, the Company declared $28.7 million in cash dividends, or $0.80 per common share, to shareholders and returned an additional value to shareholders in the form of share repurchases of $5.3 million. In addition, the Company generated net cash from operating activities of $161.2 million in 2021.

 

Net long-term debt decreased $71.5 million compared to the prior year as the Company continued to pay down debt. These reductions, partially offset with decreased profitability, resulted in an improvement in net long-term debt to adjusted EBITDA from 2.0x at the end of 2020 to 1.8x at the end of 2021.

 

The Company made significant investments in associates during the year, specifically those who serve on the frontlines. Throughout the course of the year, the Company executed significant increases in wages for both the retail and supply chain associates, coupled with enhanced benefits, and programs to improve hiring, retention and safety.

 

The Company made important additions to the executive leadership team during the year. These strategic appointments resulted in the following key additions:

 

o

Executive Vice President and Chief Financial Officer, Jason Monaco;

 

o

Senior Vice President and Chief Supply Chain Officer, Dave Petko;

 

o

Executive Vice President and Chief Strategy Officer, Masiar Tayebi;

 

o

Vice President of Communications, Adrienne Chance; and

 

o

Senior Vice President, Chief Legal Officer and Secretary, Ileana McAlary.

-19-


 

 

For fiscal 2022, the Company expects the Food Distribution segment to achieve 2.0% to 4.0% sales growth driven by growth within certain areas of the customer portfolio. In the Military segment, the Company expects a continued decline in the DeCA comparable sales trend, resulting in a 3.0% to 7.0% sales decline. Retail comparable sales are expected to range from flat to 2.0% due to levelling of pandemic trends. The Company anticipates savings generated through the supply chain transformation initiative and certain other initiatives will improve the Company’s overall profitability in 2022, partially offset by investments the Company is making in its people.

Results of Operations

The current year results of operations are presented in comparison to the prior year within the section below. For a discussion of the results of fiscal 2020 operations in comparison to fiscal 2019, refer to the Management’s Discussion and Analysis of Financial Condition and Results of Operations within the prior year Annual Report on Form 10-K. Certain prior year amounts have been adjusted to reflect recently adopted accounting standards, which are described within Note 1, in the notes to the consolidated financial statements.

The following table sets forth items from the Company’s consolidated statements of earnings as a percentage of net sales and the percentage change from the preceding year:

 

 

 

Percentage of Net Sales

 

 

Percentage Change

 

 

 

 

2021

 

 

2020

 

 

2019

 

 

 

 

 

 

 

 

(52 Weeks)

 

 

(53 Weeks)

 

 

(52 Weeks)

 

 

2021 vs 2020

 

Net sales

 

 

100.0

 

 

 

100.0

 

 

 

100.0

 

 

 

(4.5

)

Gross profit

 

 

15.7

 

 

 

15.2

 

 

 

14.6

 

 

 

(1.5

)

Selling, general and administrative

 

 

14.7

 

 

 

13.9

 

 

 

13.7

 

 

 

0.9

 

Paid time off transition adjustment

 

 

(0.2

)

 

 

 

 

 

 

 

**

 

Acquisition and integration

 

 

0.0

 

 

 

0.0

 

 

 

0.0

 

 

 

68.2

 

Restructuring and asset impairment, net

 

 

0.0

 

 

 

0.3

 

 

 

0.2

 

 

 

(88.2

)

Operating earnings

 

 

1.3

 

 

 

1.1

 

 

 

0.7

 

 

 

9.6

 

Other expenses, net

 

 

0.2

 

 

 

0.2

 

 

 

0.6

 

 

 

(20.5

)

Earnings before income taxes and discontinued operations

 

 

1.1

 

 

 

0.9

 

 

 

0.0

 

 

 

15.6

 

Income tax expense (benefit)

 

 

0.3

 

 

 

0.1

 

 

 

(0.0

)

 

 

163.6

 

Earnings from continuing operations

 

 

0.8

 

 

 

0.8

 

 

 

0.1

 

 

 

(2.8

)

Note: Certain totals do not sum due to rounding.

** Not meaningful

Net Sales – The following table presents net sales by segment and variances in net sales:

 

 

 

 

Percentage of

 

 

 

 

Percentage of

 

 

 

 

 

 

 

 

 

 

 

2021

 

 

Total

 

2020

 

 

Total

 

 

 

 

 

 

Percentage

(In thousands)

(52 Weeks)

 

 

Net Sales

 

(53 Weeks)

 

 

Net Sales

 

Variance

 

 

Change

Food Distribution

$

 

4,456,800

 

 

 

49.9

 

%

 

$

 

4,577,178

 

 

 

49.0

 

%

 

$

 

(120,378

)

 

 

(2.6

)

%

Retail

 

 

2,581,286

 

 

 

28.9

 

 

 

 

 

2,637,917

 

 

 

28.2

 

 

 

 

 

(56,631

)

 

 

(2.1

)

 

Military

 

 

1,892,953

 

 

 

21.2

 

 

 

 

 

2,133,390

 

 

 

22.8

 

 

 

 

 

(240,437

)

 

 

(11.3

)

 

Net sales

$

 

8,931,039

 

 

 

100.0

 

%

 

$

 

9,348,485

 

 

 

100.0

 

%

 

$

 

(417,446

)

 

 

(4.5

)

%

Net sales were $8.93 billion in 2021 compared to $9.35 billion in 2020. After consideration of the impact of the 53rd week of net sales in 2020 of $158.9 million, net sales decreased $258.5 million, or 2.8%, from the prior fiscal year. Contributing to the net sales decrease were lower comparable sales for the Military segment as foot traffic at commissaries within the Military segment has yet to return to pre-pandemic levels. The remaining decrease in net sales was due to favorable prior year sales, attributable to increased consumer demand related to the COVID-19 pandemic in the Retail and Food Distribution segments. The sales decrease was partially offset by inflation and continued growth among certain existing Food Distribution customers.

Food Distribution net sales were $4.46 billion in 2021 compared to $4.58 billion in the prior year. After consideration of the impact of the 53rd week net sales of $76.4 million, net sales decreased $44.0 million, or 1.0%. The decrease was due to favorable prior year net sales attributable to increased consumer demand related to COVID-19, as well as impacts from the Company’s decision to exit its fresh production business, which accounted for a $21.7 million decline in segment revenues from the prior year. These decreases were partially offset by continued growth with certain existing Food Distribution customers, the favorable impact of inflation and the non-cash warrant expense impact of $5.9 million associated with the issuance of warrant shares to Amazon in the fourth quarter of 2020.

-20-


 

Retail net sales were $2.58 billion in 2021 compared to $2.64 billion in the prior year. After consideration of the impact of the 53rd week net sales of $49.1 million, net sales decreased $7.5 million, or 0.3%. The decrease in net sales was primarily due to cycling favorable prior year sales attributable to increased consumer demand related to COVID-19 and store closures, partially offset by an increase of $51.0 million in fuel sales. Comparable store sales declined 0.5% in the current year and increased 12.7% on a two-year comparable basis. The Company defines a retail store as comparable when it is in operation for 14 accounting periods (a period equals four weeks), regardless of remodels, expansions, or relocated stores. Acquired stores are included in the comparable sales calculation 13 periods after the acquisition date. Fuel is excluded from the comparable sales calculation due to volatility in price. Comparable store sales is a widely used metric among retailers, which is useful to management and investors to assess performance. The Company’s definition of comparable store sales may differ from similarly titled measures at other companies.

Military net sales were $1.89 billion in 2021 compared to $2.13 billion in the prior year. After consideration of the impact of the 53rd week net sales of $33.4 million, net sales decreased $207.0 million, or 9.9%. The decrease was primarily due to the continuation of lower sales volumes at domestic commissaries following base access and shopping restrictions in the prior year and a reduction in export sales as a result of the prior year’s increased consumer demand related to the COVID-19 pandemic coupled with supply chain challenges at shipping ports in the current year.

Gross Profit Gross profit represents net sales less cost of sales, which is described in further detail within Note 1, in the notes to the consolidated financial statements. Gross profit decreased $21.1 million, or 1.5%, to $1.40 billion in the current year compared to $1.42 billion in the prior year. As a percent of net sales, gross profit increased from 15.2% to 15.7% primarily due to improvements in margin rates at Food Distribution and Military, as well as increases in the proportion of Retail and Food Distribution segment sales, which generate higher margin rates at, compared to the Military segment, partially offset by an increase in LIFO expense of $16.5 million due to the inflationary environment.

Selling, General and Administrative Expenses Selling, general and administrative (“SG&A”) expenses consist primarily of salaries and wages, employee benefits, warehousing costs, store occupancy costs, shipping and handling, utilities, equipment rental, depreciation (to the extent not included in Cost of sales), out-bound freight and other administrative expenses. SG&A expenses increased $11.7 million, or 0.9%, to $1.31 billion in the current year from $1.30 billion in the prior year. As a percent of net sales, SG&A expenses increased from 13.9% to 14.7% primarily due to a higher rate of supply chain labor and transportation expense within the Food Distribution and Military segments and increased corporate administrative and health insurance costs, partially offset by decreased incentive compensation.

Paid time off transition adjustment Paid time off transition adjustment represents the transition impact of a new paid time off (“PTO”) plan of $21.4 million. During the fourth quarter, the Company elected to transition from a grant-based policy to an accrual-based policy, which resulted in a lower required accrual balance at the end of the fiscal year. The former PTO plan granted employees their full PTO once annually based on an employee’s service in the previous year. As the employee’s compensation for future absences related to the employee’s service in the previous year, the Company was required to accrue for the full PTO grant. Under the new PTO plan, employees earn rights ratably throughout the year based on hours worked. Upon transition at the end of 2021, the Company allowed employees to begin the new plan with the unused portion of the previous annual PTO grant. The transition impact represents the difference between the former plan’s full PTO grant and the starting balance under the new plan.

Acquisition and Integration Expenses Acquisition and integration expenses were $0.7 million in the current year compared to $0.4 million in the prior year. The expenses in both years are associated with the integration of Martin’s.

Restructuring and Asset Impairment, net In the current year, $2.9 million of net restructuring and asset impairment charges were incurred. The charges were largely co