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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

OR

Commission File Number:  000-31127

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

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.

As of October 24, 2002, the registrant had 19,923,886 outstanding shares of common stock, no par value.

PART I
FINANCIAL INFORMATION

SPARTAN STORES, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(In thousands)
(Unaudited)

SPARTAN STORES, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(In thousands, except per share data)
(Unaudited)

SPARTAN STORES, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(In thousands, except per share data)
(Unaudited)

(Continued)

SPARTAN STORES, INC. AND SUBSIDIARIES
Consolidated Statements of Operations (Continued)
(In thousands, except per share data)
(Unaudited)

SPARTAN STORES, INC. AND SUBSIDIARIES
Consolidated Statements of Shareholders' Equity
(In thousands)

SPARTAN STORES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)

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

Note 1
Accounting Policies

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

The interim information contained in the Consolidated Financial Statements is unaudited. The statements reflect all adjustments which, in the opinion of management, are necessary for the fair presentation of the results of the interim periods presented. All such adjustments are of a normal, recurring nature.

The accounting policies followed in the presentation of interim financial results are the same as those followed on an annual basis, except as disclosed in Note 2. These policies are presented in Note 1 to the Consolidated Financial Statements included in Spartan Stores' Annual Report on Form 10-K for the fiscal year ended March 30, 2002, filed with the Securities and Exchange Commission on June 28, 2002.

Certain reclassifications have been made to the fiscal 2002 financial statements to conform to the fiscal 2003 presentation.

Note 2
Cumulative Effect of a Change in Accounting Principle and New Accounting Standards

In June 2001, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 141, "Business Combinations," and SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS No. 141 requires the purchase method of accounting to be applied to all business combinations after June 30, 2001, and addresses the initial recognition and measurement of goodwill and other intangible assets in a business combination. SFAS No. 141 was adopted on March 31, 2002. There was no material impact as a result of the adoption. SFAS No. 142 provides that intangible assets with finite useful lives be amortized and that goodwill and intangible assets with indefinite lives not be amortized, but tested at least annually for impairment. Under the provisions of SFAS No. 142, any impairment loss identified upon adoption of this standard is recognized as a cumulative effect of a change in accounting principle. Any impairment loss incurred subsequent to initial adoption of SFAS No. 142 wil l be recorded as a charge to current period earnings. SFAS No. 142 also requires that goodwill be assigned to reporting units based upon the expected benefits to be derived from synergies resulting from the business combination.

SFAS No. 142 was adopted on March 31, 2002. In accordance with the provisions of SFAS No. 142, goodwill of approximately $30.3 million previously included in the retail segment was assigned to the grocery distribution segment based upon the expected benefits to be realized by each segment. Under the transitional provisions of SFAS No. 142, goodwill was tested for impairment as of March 31, 2002. Each reporting unit was tested for impairment by comparing the fair value of each reporting unit with its carrying value. Fair value was determined based on a valuation study which primarily considered the discounted cash flow method and comparable market values. As a result of the impairment testing, an impairment loss was recorded to reduce the carrying value of goodwill at the retail grocery segment by $41.6 million (prior to provision for tax benefit of $6.2 million) to its implied fair value. Impairment was due to a number of factors including operating performance and the impact of new competition. In accord ance with SFAS No. 142, the impairment charge was reflected as a cumulative effect of a change in accounting principle in the Consolidated Statements of Operations for the first quarter of fiscal 2003.

The FASB recently issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities." SFAS No. 146 addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies Emerging Issues Task Force ("EITF") Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (Including Certain Costs Incurred in a Restructuring)." SFAS No. 146 requires recognition of a liability for the costs associated with an exit or disposal activity when the liability is incurred, as opposed to when the entity commits to an exit plan as required under EITF Issue No. 94-3. Spartan Stores is required to adopt SFAS No. 146 for exit or disposal activities that are initiated after December 31, 2002. SFAS No. 146 will primarily impact the timing of the recognition of costs associated with any future exit or disposal activities.

Note 3
Goodwill and Other Intangible Assets

Spartan Stores' adoption of SFAS No. 142 eliminated the amortization of goodwill beginning in the first quarter of fiscal 2003.

The following table adjusts net (loss) earnings and (loss) earnings per share for the adoption of SFAS No. 142:

Changes in the carrying amount of goodwill were as follows:

The following table reflects the components of amortized intangible assets, included in other, net on the Condensed Consolidated Balance Sheets:

These intangible assets are amortized over the terms of the agreements (3 to 15 years) or the length of the leases (3 to 20 years). There are no expected residual values related to these intangible assets.

Amortization expense, excluding goodwill, was $0.2 million for the quarters ended September 14, 2002 and September 15, 2001. Estimated amortization expense for each of the five succeeding fiscal years is as follows:

Note 4
Store Closing and Asset Impairment Charges

During the quarter ended June 22, 2002, the retail grocery segment recognized a charge of $7.7 million on store lease exit costs, which include the present value of future minimum lease payments, calculated using a risk-free interest rate, and related ancillary costs from the date of closure to the end of the remaining lease term, net of estimated sublease recoveries. Ten of the twelve stores designated for closure closed near the end of the second quarter and the remaining two stores have closed during the third quarter of fiscal 2003. Additionally, during the quarter ended June 22, 2002, an impairment loss of $5.3 million was recognized on long-lived assets at the twelve stores designated for closure. The carrying amount of the assets at these stores was approximately $8.0 million prior to the recognition of the impairment loss. These assets include land, buildings and equipment and are being actively marketed. The real estate segment is also actively marketing land and buildings that are expected to be sold within one year. The carrying amount of these assets is $14.8 million as of September 14, 2002. No payments were applied or adjustments made to the closed store reserves and no adjustments were made to the asset impairment reserves during the quarter ended September 14, 2002.

Note 5
Notes Payable and Long-Term Debt

On July 29, 2002, an amendment to the senior secured credit facility was approved by Spartan Stores' bank group. The credit facility dated March 18, 1999, as amended and restated July 29, 2002, consists of (1) a revolving credit facility in the amount of $75 million with a maximum term of six years from the date of the original credit facility, (2) a term loan A in the amount of $100 million with a maximum term of six years from the date of the original credit facility, (3) an acquisition facility in the amount of $75 million with a maximum term of seven years from the date of the original credit facility and (4) a term loan B in the amount of $150 million with a maximum term of eight years from the date of the original credit facility. Interest rates payable on amounts borrowed under the credit facility are based on the prime rate, the federal funds rate or the Eurodollar rate, plus a stipulated margin. Under the amended and restated credit agreement, the interest rates for the revolving credit facility increased by .50% for the revolving credit facility and term loan A and .75% for the acquisition facility and term loan B. Under the amended and restated agreement, Spartan Stores' ability to borrow on the revolving credit facility may be limited based upon compliance with certain covenants. As of September 14, 2002, Spartan Stores had $62.4 million available for borrowing on the revolving credit facility. At September 14, 2002, Spartan Stores was in compliance with the credit facility covenants. Spartan Stores continues to make significant progress on its debt reduction objectives. However, it is concerned that if its operating trends continue through the third quarter, it may not be able to meet the terms of its increasingly restrictive debt covenants. Spartan Stores is reviewing financing options, as well as moving forward with other debt reduction and operating income improvement initiatives that it expects will help temper these trends. Spartan Stores believes, however, that if needed, it will be able t o work out other options with its lenders to mitigate this issue.

Note 6
Operating Segment Information

The following tables set forth segment information in thousands.

*Includes a $13 million charge for store closings and asset impairment for the year-to-date period ended September 14, 2002.

Results of Operations

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

          Net Sales. Net sales for the quarter ended September 14, 2002 decreased $44.4 million, or 5.3 percent, from $841.1 million in the prior year quarter, to $796.7 million. Net sales for the year-to-date period ended September 14, 2002 decreased $111.2 million, or 6.6 percent, from $1,673.6 million in the prior year-to-date period, to $1,562.4 million. The overall sales declines were due to economic and competitive pressures in our operating markets, underperformance of our existing marketing program, and ten store closings that took place during the second quarter. The sales declines in our retail and grocery distribution segments were partially offset by a 2.2 percent increase in convenience distribution segment sales during the quarter ended September 14, 2002.

          Net sales for the quarter ended September 14, 2002 in our retail grocery segment decreased $24.5 million, or 7.1 percent, from $346.0 million in the prior year quarter, to $321.5 million. Net sales for the year-to-date period ended September 14, 2002 in our retail grocery segment decreased $51.9 million, or

7.6 percent, from $682.3 million in the prior year-to-date period, to $630.4 million. Excluding the effect of the closed stores, same-store sales declined 5.2 percent in the second quarter, compared to the same period last year. For the year-to-date period, same-store sales declined 6.6 percent. The same-store sales declines were driven by increased competitive conditions and economic weakness in all of our operating markets. We have recently modified our pricing strategies and have made changes that we believe will make our stores more competitive on the products consumers desire most. We have also made changes to our organizational structure by segregating key functions in our retail and grocery distribution operations. Our retail and grocery distribution segments now have separate merchandising and marketing responsibilities and more focused performance accountability. We believe this is a critical change that should provide improved results for our neighborhood market retail business strategy by dedic ating resources to better understand and bring the right combination of products and pricing to each unique market, with a consistent and high level of customer service.

          Net sales for the quarter ended September 14, 2002 in the grocery distribution segment decreased $24.6 million, or 8.9 percent, from $275.8 million in the prior year quarter, to $251.2 million. Net sales for the year-to-date period ended September 14, 2002 in the grocery distribution segment decreased $62.6 million, or 11.2 percent, from $560.9 million in the prior year-to-date period, to $498.3 million. The decreases resulted from the loss of a customer late in the second quarter of fiscal 2002 totaling $22.8 million in sales for the comparable year-to-date period, underperformance of our distribution marketing program which we believe restrained sales growth in both distribution and retail segments, current economic conditions and continued competitive market conditions. We have eliminated the costly advertising component of our marketing program which will provide our independent customers flexibility in designing market-specific promotional and merchandising program s. This change provides us with an opportunity to pass along larger product discounts to our owned stores and independent customers. We believe this step will provide improved opportunities to expand sales with our existing customers.

          Net sales for the quarter ended September 14, 2002 in the convenience distribution segment increased $4.9 million, or 2.2 percent from $217.7 million in the prior year quarter, to $222.6 million. Net sales for the year-to-date period ended September 14, 2002 in the convenience distribution segment increased $3.5 million, or 0.8 percent, from $427.0 million in the prior year-to-date period, to $430.5 million. The increases are primarily the result of the net effect of cigarette price inflation of $15.1 million and $23.6 million for the quarter and year-to-date period ended September 14, 2002, respectively, and new business gained of $0.4 million and $4.9 million for the quarter and year-to-date period ended September 14, 2002, respectively, partially offset by decreases in sales volume due to the loss of K-Mart of $11.8 million and $23.2 million for the quarter and year-to-date period ended September 14, 2002, respectively.

          Gross Margin. Gross margin for the quarter ended September 14, 2002 decreased $20.9 million, or 13.9 percent, from $150.6 million in the prior year quarter, to $129.7 million. Gross margin for the year-to-date period ended September 14, 2002 decreased $36.4 million, or 12.4 percent, from $294.5 million in the prior year-to-date period, to $258.1 million. As a percent of net sales, gross margin for the quarter and year-to-date period ended September 14, 2002 decreased to 16.3 and 16.5 percent, respectively, from 17.9 and 17.6 percent for the prior year quarter and year-to-date period. These declines are primarily due to the competitive environment in the southern retail division, which began to significantly affect retail gross margins in the third quarter of last year, and a higher percentage of consolidated sales coming from the lower margin convenience distribution segment. Additionally, we believe poor economic conditions, layoff announcements and unce rtain employment conditions caused many grocery customers to purchase sale items and other lower margin food products.

          Selling, General and Administrative Expenses. SG&A expenses for the quarter ended September 14, 2002 decreased $5.4 million, or 4.1 percent, from $133.0 million in the prior year quarter,

to $127.6 million. SG&A expenses for the year-to-date period ended September 14, 2002 decreased $11.5 million, or 4.4 percent, from $261.9 million in the prior year, to $250.4 million. The reductions in costs are due to ongoing cost cutting initiatives, efficiency gains in our distribution segments and the elimination of goodwill amortization expense. Goodwill amortization expense was $0.7 million and $1.4 million for the quarter and year-to-date period ended September 14, 2002. As a percentage of sales, SG&A expenses for the quarter and year-to-date period ended September 14, 2002 were 16.0 percent, compared to 15.8 and 15.6 percent for the prior year quarter and year-to-date period, respectively. The increases in percentage were primarily due to lower sales volumes, reducing leverage against fixed costs. Additionally, we incurred a $0.5 million charge related to the termination of the proposed debt offering during the first quarter of fiscal 2003. During the second quarter of fiscal 2003, we in creased our reserve relating to K-Mart receivables by $0.4 million and we incurred severance costs of $1.0 million related to store closings and other staff reductions.

          Provision for Store Closings and Asset Impairments. During the first quarter of fiscal 2003, management made the decision to close twelve underperforming stores, ten in the Ohio market and two in the Michigan market. These stores are located in outlying geographic areas and do not meet our market share goals or present economical opportunities that will allow us to better serve our customers from other locations. As a result of this decision, asset impairments of $5.3 million and a store closing reserve of $7.7 million were recorded. Ten of the stores were closed late in the second quarter; the remaining stores were closed during the third quarter of fiscal 2003. Asset liquidations will provide additional cash flow contributing to our ability to reduce long-term debt and strengthening our financial position.

          Interest Expense. Interest expense for the quarter ended September 14, 2002 decreased $0.2 million, or 3.3 percent, from $5.9 million in the prior year quarter, to $5.7 million. Interest expense for the year-to-date period ended September 14, 2002 decreased $1.3 million, or 10.3 percent, from $12.6 million in the prior year, to $11.3 million. Total average borrowings for the year-to-date period decreased to $297.7 million from $338.7 million in the corresponding year-to-date period last year as a result of debt repayments. The debt reduction and lower interest rates led to the decrease in interest expense.

          Other gains, net. In the second quarter of fiscal 2003, other gains, net, resulted primarily from sales of property in the real estate segment. In the second quarter of fiscal 2002, the grocery distribution segment recognized a gain of $0.8 million on the sale of stock in a service provider. Additionally, in fiscal 2002 the retail grocery segment recognized gains of $1.1 million on the sale of three properties and the real estate segment recognized a net loss of $0.4 million on the sale of two properties.

Cumulative Effect of a Change in Accounting Principle and New Accounting Standards

          In June 2001, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 141, "Business Combinations," and SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS No. 141 requires the purchase method of accounting to be applied to all business combinations after June 30, 2001, and addresses the initial recognition and measurement of goodwill and other intangible assets in a business combination. We adopted SFAS No. 141 on March 31, 2002. There was no material impact as a result of the adoption. SFAS No. 142 provides that intangible assets with finite useful lives be amortized and that goodwill and intangible assets with indefinite lives will not be amortized, but will be tested at least annually for impairment. Under the provisions of SFAS No. 142, any impairment loss identified upon adoption of this standard is recognized as a cumulative effect of a change in accounting principle. Any impairment loss incurred sub sequent to initial adoption of SFAS No. 142 will be recorded as a charge to current period earnings. As a result of adopting these statements, we recorded a cumulative effect of a change in accounting principle to recognize an impairment of goodwill in the retail segment of $35.4 million, net of provision for tax benefit of $6.2 million.

          The FASB recently issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities." SFAS No. 146 addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies Emerging Issues Task Force ("EITF") Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (Including Certain Costs Incurred in a Restructuring)." SFAS No. 146 requires recognition of a liability for the costs associated with an exit or disposal activity when the liability is incurred, as opposed to when the entity commits to an exit plan as required under EITF Issue No. 94-3. We are required to adopt SFAS No. 146 for exit or disposal activities that are initiated after December 31, 2002. SFAS No. 146 will primarily impact the timing of the recognition of costs associated with any future exit or disposal activities.

Critical Accounting Policies

          This discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts. On an ongoing basis, we evaluate our estimates, including those related to bad debts, inventories, intangible assets, assets held for sale, long-lived assets, income taxes, self-insurance reserves, closed store reserves, retirement benefits and contingencies and litigation. We base our estimates on historical experience and on various other assumptions and factors that we believe to be reasonable under the circumstances. Based on our ongoing review, we make adjustments we consider appropriate under the facts and circumstances.

          We believe that the following represent the more critical estimates and assumptions used in the preparation of our consolidated financial statements.

          Allowance for Losses on Receivables. In determining the adequacy of the allowances for receivables, as applicable we analyze the value of collateral, customer financial statements, historical collection experience, aging of receivables and other economic and industry factors. If the financial condition of our customers or the fair value of the collateral were to deteriorate, additional allowances may be required.

          Insurance Reserves. We are primarily self-insured for workers' compensation and health care costs. Additionally, the discontinued insurance segment has provided commercial insurance coverage for fire and other casualties, liability, automobile, fidelity, theft, bonds, workers' compensation, business interruption and group health plans. We record substantially all of our insurance liabilities based upon actuarial computations using actual claims data and estimates of claims incurred but not yet reported. If a greater amount of claims is incurred compared to estimates or health care costs increase more than anticipated, recorded reserves may be insufficient and additional costs could be recorded in the consolidated financial statements.

          Asset Impairment. We review and evaluate long-lived assets for impairment when events or circumstances indicate that the carrying amount of an asset may not be recoverable. When the undiscounted future cash flows are not sufficient to recover an asset's carrying amount, a discounted cash flow model is utilized to determine the impairment loss to be recorded. Long-lived assets to be disposed of are reported at the lower of carrying amount or fair value, less the cost to sell. Fair values are determined by independent appraisals or expected sales prices developed by certified valuation specialists. Estimates of future cash flows and expected sales prices are judgments based upon our experience and knowledge of operations. These estimates project cash flows several years into the future and are affected by changes in the economy, real estate market conditions and inflation.

          Store Closings. For stores to be closed that are subject to long-term lease commitments, reserves are recorded based upon the present value of remaining lease payments, calculated using a risk-free interest rate, net of estimated sublease recovery. If real estate and leasing markets change in the future, additional reserves could be required.

Liquidity and Capital Resources

          Net cash provided by operating activities was $53.3 million for the year-to-date period ended September 14, 2002 and $36.3 million for the same period in the prior year. The increase in net cash provided by operating activities in fiscal 2003 is primarily the result of a reduction in working capital invested in operations.

          Net cash provided by (used in) investing activities was $0.7 million and $(9.7) million for the year-to-date periods ended September 14, 2002 and September 15, 2001, respectively. Cash provided by investing activities increased in fiscal 2003 primarily due to decreased capital expenditures.

          Net cash used in financing activities was $50.3 million for the year-to-date period ended September 14, 2002 due primarily to debt repayments and financing fees, partially offset by proceeds from the sale of common stock. Cash from operations, including working capital reductions, and real estate sales provided funding to make debt repayments of $24.7 million in excess of scheduled amortization for the year-to-date period ended September 14, 2002. Cash used in financing activities was $14.3 million for the year-to-date period ended September 15, 2001 due primarily to debt repayments, offset by proceeds from long-term borrowings and proceeds from the sale of common stock.

          Our principal sources of liquidity are cash generated from operations and borrowings under a senior secured credit facility dated March 18, 1999, as amended and restated July 29, 2002. The credit facility consists of (1) a revolving credit facility in the amount of $75 million with a maximum term of six years from the date of the original credit facility, (2) a term loan A in the amount of $100 million with a maximum term of six years from the date of the original credit facility, (3) an acquisition facility in the amount of $75 million with a maximum term of seven years from the date of the original credit facility and (4) a term loan B in the amount of $150 million with a maximum term of eight years from the date of the original credit facility. At September 14, 2002, $241.5 million was outstanding under the credit facility. Under the amended and restated agreement, our ability to borrow on the revolving credit facility may be limited based upon compliance with certain covenants. As of September 14, 2002, we had $62.4 million available for borrowing on the revolving credit facility. Interest rates payable on amounts borrowed under the credit facility are based on the prime rate, the federal funds rate or the Eurodollar rate, plus a stipulated margin. Under the amended and restated credit agreement, the interest rates for the revolving credit facility increased by .50% for the revolving credit facility and term loan A and .75% for the acquisition facility and term loan B.

          The credit agreement which governs our senior secured credit facility also limits our ability to make "restricted payments." Payment of cash dividends and other restricted payments are permitted only under conditions specified and are limited to amounts determined under specific and detailed formulas and allowances provided in the credit agreement. "Restricted payments" include cash dividends, as well as redemption of shares and a variety of other types of payments. As of the date of filing of this Quarterly Report on Form 10-Q, payment of cash dividends in limited amounts would be permitted under the bank credit facility. The credit facility contains covenants that include the maintenance of certain financial ratios. The covenants in the bank credit agreement could prohibit or limit the amount of dividends in the future. At September 14, 2002, we were in compliance with the credit facility covenants. We continue to make significant progress on our debt reduction objecti ves. However, we are concerned that if our

operating trends continue through the third quarter, we may not be able to meet the terms of our increasingly restrictive debt covenants. We are reviewing financing options, as well as moving forward with other debt reduction and operating income improvement initiatives, that we expect will help temper these trends. We believe, however, that if needed, we will be able to work out other options with our lenders to mitigate this issue. We intend to use any cash flows from operations to repay debt, to make restricted payments other than cash dividends, and on a long-term basis to acquire additional retail operations. We do not anticipate paying any cash dividends for the foreseeable future, regardless of whether they are or are not permitted by the credit agreement.

          We have offered non-subordinated variable rate promissory notes to the public. The notes are offered in minimum denominations of $1,000 and may be issued by us at any time, although our credit facility restricts the total amount outstanding under the offering to approximately $15.0 million. The non-subordinated variable rate promissory notes are issued under a "shelf" registration statement filed with the Securities and Exchange Commission, effective February 26, 2001, which provides for the issuance of up to $100 million of debt securities. At September 14, 2002, approximately $11.6 million of these notes were outstanding.

          We also intend to continue selling non-core real estate. The carrying value of assets currently held for sale approximated $14.8 million as of September 14, 2002. For the remainder of fiscal 2003, we anticipate cash proceeds of approximately $6.0 million from the sale of real estate.

          Our current ratio decreased to 1.35 to 1.00 at September 14, 2002 from 1.62 to 1.00 at March 30, 2002 and working capital decreased to $77.8 million at September 14, 2002 from $113.7 million at March 30, 2002. These declines are the result of our efforts to better manage the key components of working capital.

          Our long-term debt to equity ratio at September 14, 2002 increased to 1.30 to 1.00 from 1.28 to 1.00 at March 30, 2002. The increase was primarily due to the net loss generated as a result of the goodwill impairment charge and provision for store closings and asset impairments recorded in the first quarter, partially offset by additional principal payments. Management from time to time evaluates longer-term acquisition opportunities, which could result in additional borrowings and additional leases being entered into if consummated, in turn increasing our leverage position.

          Our total capital structure includes borrowings under the senior secured credit facility, non-subordinated variable rate promissory notes, various other debt instruments, leases and shareholders' equity.

Forward-Looking Statements

          The matters discussed in this Quarterly Report on Form 10-Q include "forward-looking statements" about our plans, strategies, objectives, goals or expectations. These forward-looking statements are identifiable by words or phrases indicating that Spartan Stores or management "expects," "anticipates," "projects," "plans," "believes," "estimates," "intends," is "optimistic" or "confident" that a particular occurrence "will," "may," "could" or "will likely" result or that a particular event "will," "may," "could," "should" or "will likely" occur in the future or similarly stated expectations. Accounting estimates, such as those used to determine insurance reserves, are inherently forward-looking. You should not place undue reliance on these forward-looking statements, which speak only as of the date of this Quarterly Report. In addition to other risks and uncertainties described in connection with the forward-looking statements contained in this Quarterly Report on Form 10- Q, Spartan Stores' Annual Report on Form 10-K for the year ended March 30, 2002 and other periodic reports filed with the Securities and Exchange Commission, there are many important factors that could cause actual results to differ materially. Our ability to strengthen our retail-store performance, particularly in our southern retail division; improve sales growth; increase profit margin; reduce operating cost structures; and implement the other plans, strategies, objectives, goals or expectations described in this Quarterly Report will be affected by, among other factors, those discussed below, as well as changes in economic conditions generally or in the markets and geographic areas that we serve and adverse effects of the changing food and distribution industries.

          Anticipated future sales are subject to competitive pressures from many sources. Our retail grocery and grocery and convenience distribution businesses compete with many warehouse discount stores, supermarkets, pharmacies and product manufacturers. Additionally, future sales will be dependent on the number of retail stores that we own and operate, competitive pressures in the retail industry generally and our geographic markets specifically and our ability to successfully implement effective new marketing and merchandising programs. Sales volumes in our convenience distribution segment may continue to be negatively impacted by increased cigarette prices. Competitive pressures in these and other business segments may result in unexpected reductions in sales volumes, product prices or service fees.

          Our operating and administrative expenses may be adversely affected by unexpected costs associated with, among other factors: the integration of the business operations of our retail acquisitions and retail and distribution operations; future business acquisitions, including additional retail stores; difficulties in the operation of the current business segments; difficulties in the assimilation of acquired personnel, operations, systems or procedures; inability to realize synergies in the amounts or within the time frame expected by management; adverse effects on existing business relationships with independent retail grocery store customers; difficulties in the retention or hiring of employees for the acquired businesses; labor shortages, stoppages or disputes; business divestitures; increased transportation or fuel costs; current or future lawsuits and administrative proceedings; and losses of, or financial difficulties of, customers or suppliers. Our operating and ad ministrative expenses could also be adversely affected by changes in our sales mix. Furthermore, our ongoing cost cutting initiatives may not be as successful as we anticipate.

          Our future interest expense and income also may differ from current expectations, depending upon, among other factors: the amount of additional borrowings necessary for retail store acquisitions and operations; changes in the interest rate environment; cigarette inventory levels; retail property sales; and the amount of fees received on delinquent accounts. The availability of our senior secured credit facility depends on continued compliance with the credit facility.

          Furthermore, acts of violence or war create considerable economic and political uncertainties which could have adverse effects on consumer buying behavior, fuel costs, shipping and transportation, product imports and other factors affecting our company and the grocery industry generally.

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

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

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

PART II
OTHER INFORMATION