Commission File Number: 000-31127

Registrant's telephone number, including area code: (616) 878-2000

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

Securities registered pursuant to Section 12(g) of the Act: Common Stock, no par value

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.

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Securities Exchange Act).

The aggregate market value of the registrant's voting stock held by non-affiliates of the registrant based on the last sales price of such stock on The NASDAQ Stock Market on September 12, 2003 (which was the last trading day of the registrant's second quarter in the fiscal year ended March 27, 2004) was $55,394,462.

Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of the latest practicable date. Common Stock, no par value, outstanding as of May 21, 2004: 20,353,422 shares.

Forward-Looking Statements

          The matters discussed in this Annual Report on Form 10-K include "forward-looking statements" about the plans, strategies, objectives, goals or expectations of Spartan Stores, Inc. (together with its subsidiaries, "Spartan Stores"). These forward-looking statements are identifiable by words or phrases indicating that Spartan Stores or its management "expects," "anticipates," "projects," "plans," "believes," "estimates," "intends," is "forecasting," "optimistic" or "confident" or has "goals," "objectives" or "strategies" that a particular occurrence "will," "may," "could," "should" or "will likely" result or that a particular event "will," "may," "could," "should" or "will likely" occur in the future, that the "trend" is toward a particular result or occurrence, or similarly stated expectations. Accounting estimates, such as those described under the heading "Critical Accounting Policies" in Item 7 of this Annual Report on Form 10-K, are inherently forward-looking. You sh ould not place undue reliance on these forward-looking statements, which speak only as of the date of this Annual Report.

          In addition to other risks and uncertainties described in connection with the forward-looking statements contained in this Annual Report and our 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; improve sales growth; increase gross margin; reduce operating costs; sell assets classified as held for sale on favorable terms; continue to meet the terms of our debt covenants; and implement the other programs, plans, strategies, objectives, goals or expectations described in this Annual Report will be affected by changes in economic conditions generally or in the markets and geographic areas that we serve, adverse effects of the changing food and distribution industries and other factors including, among others, those discussed below.

          Anticipated future sales are subject to competitive pressures from many sources. Our Retail and Grocery Distribution businesses compete with many warehouse discount stores, supermarkets, pharmacies and product manufacturers. 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 implement effective new marketing and merchandising programs. Competitive pressures in these and other business segments may result in unexpected reductions in sales volumes, product prices or service fees. We recently consolidated our retail supermarket banners, which resulted in changing the names of our six Ashcraft's Markets stores, our three Great Day Food Centers, our eight Prevo's Family Markets and our one Madison Family Market to either Family Fare Supermarkets or Glen's Markets. We can make no assuran ces that these changes will be received favorably by our customers or that they will not negatively impact future sales.

          Our operating and administrative expenses may be adversely affected by unexpected costs associated with, among other factors: difficulties in the operation of our current business segments; future business acquisitions; adverse effects on existing business relationships with independent retail grocery store customers; difficulties in the retention or hiring of employees; labor shortages, stoppages or disputes; business and asset divestitures; increased transportation or fuel costs; current or future lawsuits and administrative proceedings; and losses of, or financial difficulties of, customers or suppliers. Our operating and administrative expenses could also be adversely affected by changes in our sales mix. Our ongoing cost reduction initiatives and changes in our marketing and merchandising programs may not be as successful as we anticipate. Acts of terrorism or war have in the past and may in the future result in considerable economic and political uncertainties that 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.

          Our future interest expense and income also may differ from current expectations, depending upon, among other factors: the amount of additional borrowings; changes in our borrowing arrangements and agreements; changes in the interest rate environment; and the amount of fees received on delinquent accounts. The availability of our senior secured revolving credit facility depends on compliance with the terms of the credit facility.

          As discussed in this Form 10-K, during fiscal 2004, we have sold substantially all of the assets of L&L/Jiroch Distributing Company ("L&L/Jiroch"), J.F. Walker Company, Inc. ("J.F. Walker"), United Wholesale Grocery Company ("United") and have sold or closed our remaining Food Town stores. These sales and closings have allowed us to better focus our efforts and capital on key strategic markets where we have the strongest growth and value creation opportunities. However, we cannot assure you that these transactions will be beneficial to our company or that actual exit costs will not exceed our allowances. The agreements relating to many of these transactions require us to indemnify these asset buyers for breaches of our representations and warranties contained in the agreements and certain other matters.

          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 of the 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 that we obtain after the date of this Annual Report.

PART I

Overview

          Spartan Stores is a leading regional grocery distributor and grocery retailer, operating principally in Michigan and Ohio. We operate two primary business segments: Grocery Distribution and Retail. We are the eighth largest wholesale distributor to grocery stores in the United States and the largest wholesale distributor to grocery stores in Michigan. Our distribution and retail operations hold a combined #1 or #2 market share in many of the key Michigan markets we serve. For the fiscal year ended March 27, 2004 ("fiscal 2004"), we generated net sales from continuing operations of $2.1 billion as compared to net sales of $2.0 billion for the fiscal year ended March 29, 2003.

          Established in 1917 as a cooperative grocery distributor, Spartan Stores converted to a for-profit business corporation in 1973. In January 1999, we began to acquire retail supermarkets in our focused geographic regions. In August 2000, our common stock became listed on the NASDAQ Stock Market under the symbol "SPTN."

          We appointed Craig C. Sturken as President and Chief Executive Officer ("CEO") effective March 3, 2003. Mr. Sturken was appointed as Chairman of the Board of Directors in August 2003. Mr. Sturken has more than forty years of retail experience, including ten years as Chief Executive Officer of the Great Atlantic & Pacific Tea Company's Atlantic and Midwest regions. In addition, we hired Dennis Eidson as Executive Vice President Marketing and Merchandising in March 2003 and Ted Adornato as Executive Vice President Retail Operations in December 2003. Both Mr. Eidson and Mr. Adornato have over 20 years of experience in the food industry.

          We have also improved the leadership and retail experience of our Board of Directors with the appointments of Ms. M. Shân Atkins, Dr. Frank Gambino and Mr. Timothy O'Donovan in August 2003. Ms. Atkins formerly served as Executive Vice President, Strategic Initiatives for Sears Roebuck & Co. Dr. Frank Gambino is Associate Professor of Marketing and Director of the Food Marketing Program at Western Michigan University. Mr. O'Donovan is President and CEO of Wolverine World Wide, Inc., a publicly-traded company.

          We believe that our experience and expertise as a grocery distributor and the addition of key executive team members for our retail operations provides us with the tools for successful operation of our integrated business. Under Mr. Sturken's leadership, Spartan Stores has refocused its fundamental business strategies in both its distribution and retail operations and we are beginning to see the positive effects of these changes.

Grocery Distribution Segment

          Spartan Stores is the eighth largest wholesale distributor to grocery stores in the United States and the largest wholesale distributor to grocery stores in Michigan. Our Grocery Distribution segment provides approximately 400 stores with a selection of approximately 40,000 products, including dry groceries, produce, dairy products, meat, frozen food, seafood, floral products, general merchandise, pharmacy, and health and beauty care items. In addition, we offer our grocery distribution customers approximately 1,800 private label grocery and general merchandise items. Total distribution revenues from continuing operations of our Grocery Distribution segment, including shipments to our corporate owned stores, were $1.6 billion for fiscal 2004.

          Customers. Our Grocery Distribution segment supplies our corporate owned stores and a diverse group of independent grocery store operators that range from single stores to supermarket chains with as many as 21 stores. Pricing to our customers is generally based upon a "cost plus" model for grocery, frozen, dairy, pharmacy and health and beauty care items and a "variable mark-up" model for meat, deli, bakery, produce, seafood, floral and general merchandise products.

          Our Grocery Distribution customer base is very diverse, with no single customer exceeding 7% of consolidated net sales. Our five largest Grocery Distribution customers (excluding corporate owned stores) accounted for approximately 18.7% of our fiscal 2004 consolidated net sales.

          Distribution Functions. Our Grocery Distribution business utilizes approximately 2.0 million square feet of warehouse, distribution and office space. We supply our corporate owned stores and our independent grocery distribution customers from our distribution centers located in Grand Rapids and Plymouth, Michigan. We believe that our distribution facilities are strategically located to efficiently serve our customers. We are continually evaluating our inventory movement and assigning stock-keeping units (SKUs) to appropriate facilities within our distribution centers to reduce the time required to pick products. During fiscal 2003 and fiscal 2004, we implemented engineered labor standards across all direct labor functions within our distribution centers to improve productivity. Through-put (defined as cases shipped per hour) increased in comparison to fiscal 2003 by 2.7% in our grocery warehouses and 0.5% in our perishables warehouse. This is the second con secutive year of improved productivity. As we make continuous progress towards our expected productivity levels, we would expect these increases to moderate in future years.

          To supply our Grocery Distribution customers, we operate a fleet of approximately 100 tractors, 200 conventional trailers and 175 refrigerated trailers, substantially all of which are leased. In fiscal 2004, we upgraded the on-board transportation management systems on our Grand Rapids fleet of tractors, or approximately 64 of our tractors. These computers have allowed us to reduce idle time by 20% and have helped us control costs. We expect to upgrade the on-board computers on the remainder of the fleet during fiscal 2005. This should allow us to further reduce costs and vehicle idle time.

          Additional Services. We also offer and provide many of our independent grocery distribution customers with value-added services, including:

Retail Segment

          Our Retail segment operates 54 retail supermarkets and 21 deep-discount food and drug stores predominantly in midsize metropolitan, tourist and rural areas of Michigan and Ohio. Beginning in fiscal 2004 we consolidated the number of banner names for our retail supermarkets from six to two. Currently, our retail supermarkets are operated under the banners Family Fare Supermarkets and Glen's Markets. We believe that the consolidation of our banner names will provide a stronger, more unified retail store brand identity, enhanced customer loyalty, a streamlined operating structure and the ability to deliver more concise, cohesive and effective advertising, which will improve our financial performance. Our 21 deep-discount food and drug stores operate under the banner The Pharm.

          We believe our retail supermarkets maintain a #1 or #2 market share position in many of the Michigan markets they serve. We believe that our strong market share positions result from our distinct "neighborhood market" focus and the favorable name recognition of our banners. Our neighborhood market strategy distinguishes our stores from supercenters and limited assortment stores by emphasizing convenient locations, demographically targeted merchandise selections, strong perishables offerings, customer service, value pricing and community involvement.

          Our 54 retail supermarkets typically offer dry groceries, produce, dairy products, meat, frozen food, seafood, floral products, general merchandise, beverages, tobacco products, health and beauty care products, delicatessen items and bakery goods. Twenty-five of our grocery stores also offer pharmacy facilities. In addition to nationally advertised products, the stores carry our private label items: the "Spartan" and "Pharm" brands, and our value brand label, "HomeHarvest." These private label items provide above-average retail margins and we believe they help generate increased customer loyalty. See "Merchandising and Marketing-Corporate Brands." Our retail supermarkets range in size from approximately 20,000 to 64,000 total square feet and average approximately 38,000 total square feet per store.

          Our 21 deep-discount food and drug stores, which operate under the banner The Pharm, offer a unique combination of a full-service pharmacy, general merchandise products and basic food offerings. These stores operate under a deep discount format that emphasizes everyday low prices that are typically at or below supercenter offerings and are less than those of a traditional supermarket or drug store. The Pharm stores range in size from approximately 17,000 to 44,000 total square feet and average approximately 29,000 total square feet per store.

          We have acquired our stores as a result of six acquisitions from January 1999 to March 2001. Since the acquisitions, we have added 3 stores, closed 34 stores and sold 24 Food Town stores as a result of our continual evaluation of store performance. The following chart details the changes in the number of our retail stores over the last five years:

          During fiscal 2004, we reset and/or performed limited remodels on 37 of our stores, including all 21 Pharm stores. During fiscal 2005, we expect to reset and/or remodel an additional 13 stores. Capital expenditures, including remodeling, are expected to approximate $10.0 to $15.0 million per year as we continually maintain and update our store base. We will evaluate proposed retail projects based on demographics and competition within each market, and prioritize projects based on their expected returns on investment. We require projects to meet a targeted internal rate of return to be approved; however, we may undertake projects that do not meet this standard to the extent they represent required maintenance or necessary infrastructure improvements. We believe that focusing on such measures provides us with an appropriate level of discipline in our capital expenditures process.

Operating Segment Financial Data

          More detailed information about our operating segments may be found in Note 11 to the consolidated financial statements included in Item 8, which is herein incorporated by reference. All of our sales and virtually all of our assets are in the United States of America.

Discontinued Operations

          Our former convenience distribution operations, insurance operations, certain of our retail, grocery distribution and real estate operations have been recorded as discontinued operations in accordance with Statement of Financial Accounting Standards ("SFAS") No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." Accordingly, for all years presented all information in this Annual Report on Form 10-K have been adjusted and the discontinued operations information is excluded, unless otherwise noted.

          Discontinued Retail Operations. In March 2003, we announced our decision to close 13 Food Town stores and our plans to either sell or close our remaining 26 Food Town stores. During fiscal 2004, we completed the sale of 24 Food Town stores for net proceeds of $42.1 million. Stores not sold have been closed. Additionally, we had closed six Food Town, two Family Fare Supermarkets, one Glen's Markets and four The Pharm stores earlier in fiscal 2003. The operations of these stores are included in discontinued operations.

          Discontinued Convenience Distribution Operations. On June 9, 2003 we consumated the sale of substantially all the assets of L&L/Jiroch and J.F. Walker to The H.T. Hackney Co. for approximately $40.8 million in cash and the assumption of certain liabilities.

          During the fourth quarter of fiscal 2004, Spartan Stores completed the sale of the operating assets of United Wholesale Grocery Company ("United") for net proceeds of $16.9 million. The asset sale includes a continuing supply agreement between Spartan Stores and the new owner; however, this supply agreement does not constitute a significant continuing involvement and the operations and discontinued cash flows of United have been eliminated from the ongoing operations of Spartan Stores, as defined by Statement of Financial Accounting Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets."

          Discontinued Grocery Distribution Operations. We consolidated our Toledo, Ohio distribution operations into our Michigan facilities during the fourth quarter of fiscal 2003. As a result of the decision to exit the Food Town stores, the operating results related to these facilities have been classified as discontinued operations in the consolidated financial statements because the operations and cash flows of these facilities have been substantially eliminated from ongoing operations.

          Discontinued Real Estate Operations. Discontinued real estate operations include properties either held for sale or sold during fiscal 2004, fiscal 2003 and fiscal 2002.

          Discontinued Insurance Operations. Discontinued operations also include our discontinued insurance operations, which were sold in fiscal 2002 and 2001. Insurance reserves of $4.1 million for open claim liabilities related to policies that we will remain obligated under until all claims are closed are included in the Consolidated Balance Sheet at March 27, 2004.

Marketing and Merchandising

          General. In fiscal 2004, we combined the marketing and merchandising departments of our Grocery Distribution and Retail segments to more effectively leverage the use of category management principles. We believe that this combination will produce greater focus, efficiencies and value while improving relationships with vendors and improving the offerings to our customers and consumers. Our Grocery Distribution segment has implemented marketing practices to more aggressively pursue incremental sales gains to existing and prospective customers. Our Retail segment's marketing and merchandising strategies have changed from supplier to consumer driven programs in keeping with the implementation of improved category management practices.

          We believe these changes have been fundamental to improving the financial performance of our retail operations, enhancing our competitive market position, driving incremental sales growth and capturing more of the natural synergies that exist between our retail stores, independent customer stores and distribution operations.

          With the efficiencies created from consolidation of these functions and by partnering with our vendors to develop more robust category management, we have been able to more effectively develop and roll-out our merchandising programs, which has aided our ability to increase our sales and earnings. We have and will look to expand these offerings and partner with our independent customers over time to continue to realize incremental benefits.

          Corporate Brands. We currently market and distribute approximately 1,800 highly recognized private label brand items under three exclusive store brands: the "Spartan" and "Pharm" brands, and our value brand, "HomeHarvest."

          During fiscal 2004, we began the process of reenergizing our "Spartan" brand and redesigned the label. The redesigned label is currently being used on approximately 50% of our private label products, with continued conversion expected during fiscal 2005. The new label has been well received by consumers and for the last two quarters of the current fiscal year, sales of private label products increased by approximately 8% in units and 18% in dollars at our corporate owned stores. We believe positive sales trends will continue as the new label continues to be implemented.

          We entered into new strategic relationships with private label brand partners that will provide us with greater category management expertise, product variety and improved costs. We believe these changes will further enhance the value of this already widely accepted and recognized private label brand.

Competition

          Our Retail and Grocery Distribution segments operate in highly competitive markets, which typically result in low profit margins for the industry as a whole. Our Retail and Grocery Distribution segments compete with, among others, regional and national grocery distributors, independently owned retail grocery stores, large chain stores that have integrated wholesale and retail operations, mass merchandisers, limited assortment stores and wholesale membership clubs, some of whom have greater resources than we do. The principal competitive factors in the retail grocery business include the location and image of the store; the price, quality and variety of the products; and the quality and consistency of service.

          We believe we have developed and implemented strategies and processes that allow us to be competitive in our Retail segment. We monitor planned store openings by our competitors and have established proactive strategies to respond to new competition. We have developed comprehensive plans to address competitor openings. Strategies to combat competition vary based on many factors, such as the competitor's format, strengths, weaknesses, pricing and sales focus. During fiscal 2003, eight competitor supercenters opened in significant markets that either we operate corporate owned stores, or in which our independent customers operate stores. During fiscal 2004, six additional competitor supercenters opened in similar markets and additional supercenter openings are expected to occur during fiscal 2005.

          The primary competitive factors in the distribution business include price, product quality, variety and service. We believe we have developed an internal set of matrices that allow us to measure our performance against these factors, compare our performance against our competitors and make improvements, as appropriate. We believe our overall service level, defined as actual units shipped divided by actual units ordered, is among industry leading performance.

Seasonality

          Throughout the fiscal year our Retail and Grocery Distribution segment's sales and operating performance vary with seasonality. Our first and fourth quarters are typically our slowest sales quarters and therefore operating results are generally lower during these two quarters. Additionally, these two quarters can be affected based on the timing of the Easter holiday, which is a strong sales week. All quarters are 12 weeks, except for our third quarter, which is 16 weeks and includes the Thanksgiving and Christmas holidays. Most of our northern Michigan stores are dependent on tourism and therefore, most affected by seasons and weather patterns, including, but not limited to, the amount and timing of snowfall during the winter months and the range of temperature during the summer months.

Suppliers

          We purchase products from a large number of national, regional and local suppliers of name brand and private label merchandise. We have not encountered any material difficulty in procuring or maintaining an adequate level of products to serve our customers. No single supplier accounts for more than 9% of our purchases. We have developed strategic relationships with key suppliers that did not exist in prior years. We believe this will prove valuable in the development of enhanced promotional programs and consumer value perceptions.

Intellectual Property

          We own valuable intellectual property, including trademarks and other proprietary information, some of which, including "Spartan," "Family Fare," "Glen's," "The Pharm," "HomeHarvest" and other related marks, are of material importance to our business.

Technology

          We invest in technology as a means of maximizing the efficiency of our operations and improving service to our customers. Our focus during the last year has been to refine and maximize the utilization of our existing systems and to deploy and update systems in support of the business. During the last year we have done this with a focus on business process and data integrity in the use of all our systems.

          Supply Chain. During fiscal 2004, we completed the upgrade of our warehouse management systems. In addition, we completed the upgrade of our on-board transportation management system for our Grand Rapids fleet of tractors, as discussed in "Grocery Distribution Segment - Distribution Functions." We also made significant improvements in our systems for tracking detail item and costing information for complex items flowing through our supply chain systems.

          Retail Systems. During fiscal 2004, we installed "self-checkout" systems in eight of our retail supermarkets, with four additional installations planned for fiscal 2005. We will continue to expand our deployment of "self-checkout" systems in our larger stores. In addition, we completed the following during the current fiscal year:

          Financial Systems. We streamlined processes and enhanced controls for many aspects of our financial systems.

          Human Resource Systems. We upgraded our human resource and payroll systems software.

          Information Technology. We significantly improved our business continuity capabilities and continued to refine the security of our internal network and systems. In addition, we have begun to install and service our independent retail store customers with "self-checkout" systems.

Subsidiaries

          Our Grocery Distribution segment consists primarily of our wholly owned subsidiary, Spartan Stores Distribution, LLC. We operate our Retail segment primarily through two wholly owned subsidiaries, Family Fare, LLC and Seaway Food Town, Inc. and their respective subsidiaries. United Wholesale Grocery Company, L&L/Jiroch and J.F. Walker comprised our discontinued Convenience Distribution segment and substantially all assets of these three companies were sold during fiscal 2004.

Associates

          We currently employ approximately 6,900 associates, approximately 4,000 of which are full-time and 2,900 of which are part-time.

          Unions represent approximately 22% of our associates, with contracts for approximately 840 distribution center and transportation associates expiring between April 2005 and October 2006 and contracts for approximately 630 retail associates expiring between June 2004 and March 2005. Approximately 12% of our associates and approximately 56% of our union associates are represented by contracts that expire by April 2005.

          We consider our relations with our union and non-union associates to be good and have not had any material work stoppages in the last five years.

Regulation

          We are subject to federal, state and local laws and regulations covering the purchase, handling, sale and transportation of our products. Several of our products are subject to federal Food and Drug Administration regulation. We believe that we are in compliance with all Food and Drug Administration and other federal, state and local laws and regulations governing our businesses.

Forward-Looking Statements

          The matters discussed in this Item 1 include forward-looking statements. See "Forward-Looking Statements" at the beginning of this Annual Report on Form 10-K.

Available Information

          The address of our web site is www.spartanstores.com. We make our 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 available on our web site as soon as reasonably practicable after we electronically file or furnish such materials with the Securities and Exchange Commission. Interested persons can view such materials without charge by clicking on "Investor Information" and then "SEC Filings" on our web site. Spartan Stores is not an "accelerated filer" within the meaning of Rule 12b-2 under the Securities Exchange Act.

Grocery Distribution Segment Real Estate

          The following table lists the location, approximate size and ownership of the facilities used in our Grocery Distribution segment.

Retail Segment Real Estate

          The following table lists the retail banner, number of stores, geographic region, approximate total square footage under the banner, average store size (in square feet) and ownership of our retail supermarkets:

          In addition to the stores listed above, we own a 65% interest in a joint venture that operates a grocery store of approximately 45,700 square feet located in southeastern Michigan.

          The following table lists the retail banner, number of stores, geographic region, approximate total square footage under the banner, average store size (in square feet) and ownership of our deep-discount food and drug stores:

          Various lawsuits and claims, arising in the ordinary course of business, are pending or have been asserted against Spartan Stores and its subsidiaries. While the ultimate effect of such lawsuits and claims cannot be predicted with certainty, management believes that their outcome will not result in a material adverse effect on the consolidated financial position, operating results or liquidity of Spartan Stores.

          No matters were submitted to a vote of Spartan Stores' shareholders during the fourth quarter of fiscal 2004 through the solicitation of proxies or otherwise.

PART II

          Spartan Stores common stock is traded on the National Market System of the NASDAQ Stock Market under the trading symbol "SPTN."

          Stock sale prices are based on transactions reported on the NASDAQ Stock Market. Information on quarterly high and low sales prices for Spartan Stores' common stock appears in Note 12 to the consolidated financial statements and is incorporated herein by reference. At May 21, 2004 there were approximately 765 shareholders of record of Spartan Stores common stock.

          During fiscal 2003 and 2004, we did not pay any dividends. The payment of future dividends will be determined by our board of directors. We anticipate that we will use any net earnings from our operations to repay debt and to acquire additional retail operations, and that we will not pay any dividends for the foreseeable future.

          Our credit facilities contain restrictions that do not allow us to pay future dividends or make a variety of other restricted payments. See the "Liquidity and Capital Resources" section of Management's Discussion and Analysis of Financial Condition and Results of Operations contained in Item 7 below for a more detailed discussion of these restrictions, as well as Note 5 to the consolidated financial statements.

          The information required by Item 201(d) of Securities and Exchange Commission Regulation S-K is incorporated herein by reference from the section entitled "Equity Compensation Plans" in Spartan Stores' definitive proxy statement relating to its annual meeting of shareholders to be held August 11, 2004.

          The following table provides selected historical consolidated financial information of Spartan Stores. The historical information was derived from our audited consolidated financial statements as of and for each of the five fiscal years ended March 25, 2000 through March 27, 2004. Fiscal 2001 was a 53-week year. Certain reclassifications have been made to the fiscal 2000 through fiscal 2003 selected financial data to conform to the fiscal 2004 presentation. As noted elsewhere in this Form 10-K, for all years presented, all information in this Form 10-K has been adjusted and the discontinued operations information is excluded, unless otherwise noted. See Note 3 for additional information on discontinued operations occuring in the periods presented below.

(In thousands, except per share data)

Executive Overview

          Spartan Stores is a leading regional grocery distributor and grocery retailer, operating principally in Michigan and Ohio.

          We currently operate two reportable business segments: Retail and Grocery Distribution. Our Retail segment operates 54 retail supermarkets in Michigan under the banners Family Fare Supermarkets and Glen's Markets and 21 deep-discount food and drug stores in Ohio and Michigan under the banner The Pharm. Beginning in fiscal 2004 we consolidated the number of banner names that we operate our retail supermarkets under from six to two. We believe that the consolidation of our banner names will provide a stronger, more unified retail store brand identity, enhanced customer loyalty, a streamlined operating structure and the ability to deliver more concise, cohesive and effective advertising, which will improve our financial performance. Our retail supermarkets have a "neighborhood market" focus to distinguish them from supercenters and limited assortment stores. Our deep-discount food and drug stores offer a unique combination of full-service pharmacy, gene ral merchandise products and basic food offerings. Our Grocery Distribution segment provides a full line of grocery, general merchandise, frozen and perishable items to approximately 400 stores, including 330 independently owned grocery stores and 75 corporate owned stores.

          For fiscal 2004, we established four key management priorities we believed were central to our ability to refocus our organization on profitable growth. We have made significant progress towards achieving these short-term goals, which has provided stability to our business and allowed us to focus on future profitable growth. A summary of our goals and results follows:

          In addition to these accomplishments, we also completed the refinancing of our bank facilities during the third quarter. Completion of this refinancing has been a major focus of the management team and its completion provides us with improved financial flexibility.

          Our strategic focus during fiscal 2005 will be on the customer. The customer will be at the forefront of all of our decisions. In conjunction with this focus, we have developed five "Phase I" priorities of our long-term strategic plan to attain our goals, they are:

          While we expect to return to net profitability during fiscal 2005, we will be faced with competitive store openings in several of the key markets we serve. While we believe that we have developed strategies to combat these competitors, the effectiveness of our strategies will affect our actual financial performance.

          The matters discussed in this Item 7 include forward-looking statements. See "Forward-Looking Statements" at the beginning of this Annual Report on Form 10-K.

Results of Operations

          The following table sets forth items from our Consolidated Statements of Operations as a percentage of net sales and the year-to-year percentage change in dollar amounts:

* Percentage change is not meaningful

          Results of Continuing Operations for the Fiscal Year Ended March 27, 2004 Compared to the Fiscal Year Ended March 29, 2003

          Net Sales. Net sales increased $79.3 million, or 4.0%, from $1,975.7 million in fiscal 2003 to $2,055.0 million in fiscal 2004.

          Net sales in our Grocery Distribution segment, after intercompany eliminations, increased $37.2 million, or 3.4%, from $1,095.2 million to $1,132.4 million. The increase resulted primarily from new customer sales of $38.9 million.

          Net sales in our Retail segment increased $42.1 million, or 4.8%, from $880.5 million to $922.6 million. Comparable-store sales increased by 3.2%. The sales increases were driven by improved merchandising and promotional programs driven by our focused category management efforts coupled with better operational excellence, sales from three stores open the entire fiscal year of $16.7 million, a shift in the Easter holiday from the fourth quarter of fiscal 2002 to the first quarter of fiscal 2004, the closure of our Food Town stores which transferred some business to select The Pharm locations and the closure of competing stores in three of our northern Michigan markets in the third quarter of fiscal 2004.

          We appointed Craig C. Sturken as President and Chief Executive Officer effective March 3, 2003. Mr. Sturken was appointed Chairman of the Board of Directors in August 2003. Mr. Sturken has more than forty years of retail experience, including ten years as Chief Executive Officer of the Great Atlantic & Pacific Tea Company's Atlantic and Midwest regions. In addition, we hired Dennis Eidson as Executive Vice President Marketing and Merchandising in March 2003 and Ted Adornato as Executive Vice President Retail Operations in December 2003. Both Mr. Eidson and Mr. Adornato have over 20 years of experience in the food industry. The new management brings strong leadership and experience in merchandising, marketing and retail store operations that we believe has improved our category management efforts, sales trends and operating results.

          We reported increased year-over-year sales in both of our segments for all four quarters during fiscal 2004. This growth is despite increasing competition from supercenters and other retailers. During the past year, approximately four supercenters have opened in our markets and we expect the opening of two additional supercenters during the second half of fiscal 2005. We believe that our improved marketing and merchandising practices and the continued weakening of conventional food competitors will allow us to sustain our growth, but at rates closer to industry averages. We are forecasting fiscal 2005 consolidated net sales to improve between 1.0% and 3.0%, with comparable-store sales of 0.0% to 1.5%.

          Gross Margin. Gross margin represents sales less cost of goods sold, which include purchase costs and promotional allowances. Vendor allowances that relate to our buying and merchandising activities consist primarily of promotional allowances, which are generally allowances on purchased quantities and, to a lesser extent, slotting allowances, which are billed to vendors for our merchandising costs such as setting up warehouse infrastructure. Vendor allowances are recognized as a reduction in cost of goods sold when the product is sold. Lump sum payments received for multi-year contracts are amortized over the life of the contracts based on contractual terms.

          Gross margin increased by $11.8 million, or 3.2%, from $366.8 million to $378.6 million. As a percent of net sales, gross margin decreased from 18.6% to 18.4%. Gross margin was negatively impacted by a $3.7 million (0.2% of net sales) inventory adjustment due to the implementation of a stock ledger inventory and margin management system that significantly enhances our ability to calculate and track gross margin and inventory balances on a weekly basis. The stock ledger automatically captures purchase costs, retail prices and markdowns at the transaction level, making our inventory valuation estimates more precise and improving accountability for results of our merchants and store operators.

          Selling, General and Administrative Expenses. Selling, general and administrative ("SG&A") expenses consist primarily of salaries and wages, employee benefits, warehousing costs, store occupancy costs, utilities, equipment rental, depreciation and other administrative costs.

          SG&A expenses increased $8.7 million, or 2.4%, from $357.4 million to $366.1 million, and were 17.8% of net sales compared to 18.1% last year. The increase in SG&A is due to the following:

          The accrual of service and transition credits have been reinstated for fiscal 2005, however, effective January 1, 2004, an amendment was made to our defined benefit plan, reducing service credits for certain participants. We expect pension expense to be approximately $2.6 million in fiscal 2005.

          Interest Expense. Interest expense from continuing operations decreased $3.9 million, or 22.5%, from $17.3 million to $13.4 million, and was 0.7% of net sales compared to 0.9% last year. Total average borrowings decreased to $174.6 from $270.8 million as a result of debt repayments primarily generated from the divestiture of non-core business activities.

          In accordance with Emerging Issues Task Force ("EITF") Issue No. 87-24, "Allocation of Interest to Discontinued Operations," interest was allocated to discontinued operations based on the interest on debt that will be required or was required to be repaid as a result of disposal transactions. Interest expense of $1.9 million and $8.6 million was allocated to, and is included in, loss on discontinued operations in the Consolidated Statements of Operations for fiscal 2004 and fiscal 2003, respectively. Interest expense allocated to discontinued operations decreased in fiscal 2004 due to the effect of debt paydowns as a result of the disposal of certain discontinued operations during the fiscal year.

          The decrease in interest expense from continuing operations was primarily due to the refinancing of our bank agreement during the third quarter and reductions in covenant waiver and compliance fees. Interest expense was $2.8 million lower during the fourth quarter of fiscal 2004 as compared to fiscal 2003. Fiscal 2003 also included a $0.7 million charge made in accordance with Statement of Financial Accounting Standards ("SFAS") No. 133 "Accounting for Derivative Instruments and Hedging Activities," which required us to recognize a portion of our interest rate swap exposure as interest expense. This expense had previously been included in accumulated other comprehensive income (loss) ("AOCI") in the shareholders' equity section of the consolidated balance sheets.

          The weighted average interest rate decreased to 8.77% for fiscal 2004 from 9.59% for fiscal 2003.

          Debt Extinguishment. We recorded a non-cash pre-tax charge of $8.8 million during the third quarter of fiscal 2004 for unamortized bank fees associated with previous financing activities.

          Results of Continuing Operations for the Fiscal Year Ended March 29, 2003 Compared to the Fiscal Year Ended March 30, 2002

          Net Sales. Net sales decreased $136.9 million, or 6.5%, from $2,112.6 million in fiscal 2002 to $1,975.7 million in fiscal 2003.

          We estimate that fiscal 2002 sales were higher than fiscal 2003 sales by approximately $7.4 million due to the two Easter holidays in fiscal 2002. Fiscal 2003 did not include an Easter holiday. Excluding the estimated effect of the early Easter holiday during fiscal 2002, net sales decreased 6.3%, from $2,072.1 million to $1,942.6 million.

          Net sales in our Grocery Distribution segment, after intercompany eliminations, declined $85.4 million, or 7.2%, from $1,180.6 million to $1,095.2 million. The decrease resulted from the weak Michigan economy, the ineffectiveness of our previous promotional program canceled in October 2002, increased competitive conditions affecting our distribution customers and the loss of a customer in the second quarter of fiscal 2002 which generated sales of $25.7 million in fiscal 2002. The shift in the Easter holiday, noted above, also accounted for a 0.1% decline.

          Net sales in our Retail segment decreased $51.5 million, or 5.5%, from $932.0 million to $880.5 million. Comparable-store sales decreased by 7.0%. The sales decreases were driven by increased competitive conditions, a shift in the Easter holiday from the fourth quarter of fiscal 2002 to the first quarter of fiscal 2004, representing a 0.3% decline, and the weak economic environment in Michigan.

          Gross Margin. Gross margin decreased by $30.2 million, or 7.6%, from $397.0 million to $366.8 million. As a percent of net sales, gross margin decreased from 18.8% to 18.6%. The decreases were primarily the result of more aggressive promotional activities and procurement activites in both segments to respond to the increasingly competitive market conditions and to protect market share.

          Selling, General and Administrative Expenses. SG&A expenses decreased $7.3 million, or 2.0%, from $364.7 million to $357.4 million, and were 18.1% of net sales in fiscal 2003 compared to 17.3% in fiscal 2002. SG&A expenses decreased primarily as a result of improved labor productivity in both segments. Also contributing to the decrease in SG&A expenses was the elimination of goodwill amortization expense in the Retail segment. In fiscal 2002, goodwill amortization expense was $3.3 million. Offsetting these decreases were SG&A expenses of $6.2 million related to the addition of three new retail supermarkets in fiscal 2003 and severance of $0.9 million associated with staffing reductions made in fiscal 2003.

          Asset Impairments and Exit Costs. In fiscal 2003, asset impairments and exit costs consist of goodwill impairment of $43.2 million, other long-lived asset impairments of $1.6 million and exit costs of $2.9 million. Based on unfavorable operating results through the third quarter of fiscal 2003, the earnings forecast was revised and a valuation of the Retail segment was conducted. Fair value was determined based on the discounted cash flows and comparable market values for the segment. As a result of the impairment analysis, a loss was recorded to reduce the carrying value of goodwill at the Retail segment to its implied fair value. The other long-lived asset impairments and exit costs relate to the closure of an administrative office for our Retail segment. In fiscal 2002, asset impairments and exit costs consisted primarily of exit costs related to the closure of underperforming stores.

          Interest Expense. Interest expense from continuing operations increased $0.1 million, or 0.4%, from $17.2 million to $17.3 million, and was 0.9% of net sales compared to 0.8% last year. Total average borrowings decreased to $270.8 million from $333.6 million as a result of debt repayments.

          Interest expense of $8.6 million and $9.3 million was allocated to, and is included in, loss on discontinued operations in the Consolidated Statements of Operations for fiscal 2003 and fiscal 2002, respectively. Allocated interest expense decreased in fiscal 2003 due to the effect of debt paydowns as a result of the disposal of certain discontinued operations, partially offset by an increase in the interest rate.

          The increase in interest expense from continuing operations was primarily due to a $1.2 million fee incurred for a covenant compliance waiver and a $0.7 million charge made in accordance with Statement of Financial Accounting Standards ("SFAS") No. 133 "Accounting for Derivative Instruments and Hedging Activities," which required us to recognize a portion of our interest rate swap exposure as interest expense. This expense had previously been included in AOCI in the shareholders' equity section of the consolidated balance sheets. These increases were almost entirely offset by lower average borrowings.

          The weighted average interest rate (including the effect of interest rate swap agreements) increased to 9.59% for fiscal 2003 from 8.02% for fiscal 2002 partially due to bank waiver and compliance fees.

          Interest Income. Interest income decreased $0.9 million, or 56.0%, from $1.6 million in fiscal 2002 to $0.7 million in fiscal 2003. The fiscal 2002 balance includes $0.4 million in interest related to federal income tax refunds for prior years' filings. Interest income was adversely impacted by lower interest rates in fiscal 2003.

          Other, Net. Other, net decreased by $1.4 million, or 97.6%, from $1.4 million in fiscal 2002 to $0.0 million in fiscal 2003. During fiscal 2002, Other, net consisted primarily of a $1.4 million gain on sales of stock held in a supplier and a service provider.

          Income Taxes. Our effective tax rate increased from 32.3% for fiscal 2002 to 34.9% for fiscal 2003. During the second quarter of fiscal 2002, we reached a settlement with the Internal Revenue Service regarding certain deductions taken in prior years. The resulting refund reduced income tax expense by $0.7 million, resulting in a lower effective tax rate in fiscal 2002.

Discontinued Operations

          Retail Operations. In March 2003, we announced our decision to close 13 Food Town stores and our plans to either sell or close our remaining 26 Food Town stores. During fiscal 2004, we completed the sale of 24 Food Town stores for net proceeds of $42.1 million that were used to reduce outstanding borrowings and pay related transaction expenses. Stores not sold have been closed. Additionally, we had closed six Food Town, two Family Fare Supermakets, one Glen's Markets and four The Pharm stores earlier in fiscal 2003. As a result of these actions, the results of operations of the Food Town stores and other stores closed during fiscal 2003 have been classified as discontinued operations in the consolidated financial statements. Discontinued retail operations include asset impairments and exit costs of $5.8 million and $53.5 million in fiscal 2004 and fiscal 2003, respectively. See Note 4 to the consolidat ed financial statements.

          Convenience Distribution Operations. During the fourth quarter of fiscal 2004, we completed the sale of the operating assets of United. Proceeds received on the sale of these assets of $16.9 million were used to reduce outstanding borrowings and operating liabilities and pay related transaction expenses in the fourth quarter. The asset sale included a continuing supply agreement between Spartan Stores and the new owner; however, this supply agreement does not constitute a significant continuing involvement, as defined by SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." As such, the operations and discontinued cash flows of United have been eliminated from the ongoing operations of Spartan Stores.

          During the first quarter of fiscal 2004 we completed the sale of substantially all the assets of L&L/Jiroch and J.F. Walker to The H.T. Hackney Co. for approximately $40.8 million in cash and the assumption of certain liabilities. The net proceeds were used to reduce outstanding borrowings.

          Grocery Distribution Operations. We consolidated our Toledo, Ohio distribution operations into our Michigan facilities during the fourth quarter of fiscal 2003. As a result of the decision to exit the Food Town stores, the operations related to these facilities have been classified as discontinued operations in the consolidated financial statements because the operations and cash flows of these facilities have been substantially eliminated from ongoing operations. We will continue to distribute to our The Pharm stores in Ohio from our distribution facilities in Michigan. Discontinued grocery distribution operations include asset impairments and exit costs of $0.7 million and $9.7 million in fiscal 2004 and fiscal 2003, respectively.

          Real Estate Operations. In fiscal 2004 and 2003, we sold properties representing substantially all of the remaining assets and operations of our former Real Estate segment; accordingly, we have reported the results of operations of the discontinued components of the Real Estate segment and the net gain (loss) on disposal as discontinued operations. The following table summarizes the sales activity for the discontinued real estate operations for preceding three fiscal years:

          Insurance Operations. At March 27, 2004, we had approximately $4.1 million remaining in insurance reserves for open claim liabilities related to policies that were not ceded (transferred) to an unrelated third party. We will remain obligated under these policies until all claims are closed and have retained an independent third party administrator to manage these claims. We have not issued policies since December 31, 2001 and retained liability only for those policies issued prior to September 1, 2000. In fiscal 2003, we recorded a charge of $1.5 million for additional amounts required to be paid to an unrelated third party for claim liabilities previously ceded based upon updated actuarial studies reflecting a larger than originally anticipated obligation. Net loss from insurance operations from the measurement date, January 2001, to March 27, 2004 totaled $2.8 million.

          Discontinued operations generated sales of $320.0 million, $1,279.8 million and $1,397.7 million in fiscal 2004, fiscal 2003 and fiscal 2002, respectively. Total assets of discontinued operations were $8.6 million at March 27, 2004 and $127.1 million at March 29, 2003.

          For all years presented, the Consolidated Statements of Operations, Consolidated Statements of Cash Flows and all related financial and nonfinancial disclosures in the notes to the consolidated financial statements in this Annual Report on Form 10-K have been adjusted and the discontinued operations information is excluded, unless otherwise noted.

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, which are based 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 will make adjustments as we consider appropriate under the current facts and circumstances.

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

          Goodwill. In accordance with SFAS No. 142, "Goodwill and Other Intangible Assets," we are no longer recording amortization expense related to goodwill, and instead goodwill is reviewed for impairment on an annual basis. We adopted the provisions of SFAS No. 142 on March 31, 2002. A non-cash goodwill impairment charge of $35.4 million, net of provision for tax benefit of $6.2 million, was recorded in the Retail segment as a cumulative effect of a change in accounting principle in the first quarter of fiscal 2003. In the third quarter of fiscal 2003, we recorded an impairment charge of $45.0 million (including $1.8 million in discontinued operations), prior to tax benefit of $15.7 million, in the Retail segment.

          Fair value was determined based on the discounted cash flows and comparable market values of the segment. Determining market values using a discounted cash flow method requires that we make significant estimates and assumptions, including long-term projections of cash flows, market conditions and appropriate discount rates. Our judgments are based on historical experience, current market trends and other information. While we believe that the estimates and assumptions underlying the valuation methodology are reasonable, different assumptions could result in different outcomes. In estimating future cash flows, we rely on internally generated five-year forecasts for sales and operating profits, including capital expenditures and a 3% long-term assumed growth rate of cash flows for periods after the five-year forecast. We generally develop these forecasts based on recent sales data for existing operations and other factors. Based on our annual review during fiscal 2004, no goodwill impairment charge was required to be recorded. No goodwill impairment charge would be required even if the current estimate of future discounted cash flows was 10% lower.

          Impairment of Long-Lived Assets Other Than Goodwill. Long-lived assets to be held and used are evaluated 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, the fair value is compared to the carrying value to determine the impairment loss to be recorded. No material impairments for long-lived assets to be held and used were determined to exist for fiscal 2004 or fiscal 2003.

          Long-lived assets to be disposed of are reported at the lower of carrying amount or fair value, less costs to sell. During fiscal 2004, asset impairment charges of $0.9 million were recorded in discontinued operations, prior to provision for tax benefit of $0.3 million. During fiscal 2003, asset impairment charges of $43.9 million (including $42.3 million in discontinued operations), prior to provision for tax benefit of $15.8 million, were recorded on assets at retail stores, office and warehouse facilities. The related assets are recorded in the Consolidated Balance Sheets as Property and equipment held for sale. Fair values are determined by independent appraisals, quotes or expected sales prices developed by internal real estate professionals. Estimates of expected sales prices are judgments based upon our experience, knowledge of market conditions and current offers received. Changes in market conditions, the economic environment and other factors can significantly impact these estimates. While we believe that the estimates and assumptions underlying the valuation methodology are reasonable, different assumptions could result in a different outcome.

          Exit Costs. We record exit costs for closed stores that are subject to long-term lease commitments based upon the future minimum lease payments and related ancillary costs from the date of closure to the end of the remaining lease term, net of estimated sublease rentals that could be reasonably obtained for the property. Future cash flows are based on contractual lease terms and knowledge of the market in which the closed store is located. These estimates are subject to multiple factors, including inflation, ability to sublease the property and other economic conditions. Internally developed estimates of sublease rentals are based upon the market in which the property is located, the results of previous efforts to sublease similar property and the current economic environment. Reserves may be adjusted in the future based upon the actual resolution of each of these factors. At March 27, 2004 exit costs of $18.3 million (including $15.0 million in discontinue d operations), which is net of approximately $5.6 million of estimated sublease rentals.

          Pension. Accounting for defined-benefit pension plans involves estimating the cost of benefits to be provided in the future, based on vested years of service, and attributing those costs over the time period each employee works. The most significant factor affecting our pension costs is the fair value of plan assets and the selection of key assumptions, including the discount rate, expected return on plan assets, and rate of compensation increases used by our actuary to calculate our liability. We consider current market conditions, including changes in interest rates and investment returns, in selecting these assumptions. In fiscal 2004, we reduced our discount rate to 6.25% from 6.75%. We also lowered our expected return on plan assets to 8.50% from 8.75% based on the assumption that future returns will approximate the historical long-term rates of return for each asset class and our rate of increases in compensation decreased to 4.00% from 4.25% to refle ct our long-term anticipated compensation trends. While we believe the assumptions selected are reasonable, significant differences in our actual experience, plan amendments or significant changes in the fair value of our plan assets may materially affect our pension obligations and our future expense.

          The unfunded portion of our defined benefit plans was $3.2 million and $19.0 million for fiscal 2004 and fiscal 2003, respectively. The improvement in the unfunded balance during fiscal 2004 is a result of a decrease in the projected benefit obligation based on lower service costs, due to the freezing of the cash balance pension plan during fiscal 2004, the effect of plan amendments, company contributions and return on plan assets in excess of benefits paid during the year. The plan assets increased by 10.7% primarily due to market gains on assets and company contributions of $4.9 million partially offset by benefit payments during the year of $8.2 million.

          Fiscal 2004 pension expense of $1.5 million includes $2.2 million of settlement expense related to the retirement of our former Chief Executive officer, staff reductions and the sale of discontinued operations. The settlement expense was partially offset by expected return on plan assets in excess of service and interest costs, amortization and deferrals and curtailment income of $0.2 million.

Liquidity and Capital Resources

          The following table summarizes our consolidated statements of cash flows for fiscal 2004, fiscal 2003 and fiscal 2002 (in thousands):

          Net cash provided by operating activities increased during fiscal 2004 primarily due to the receipt of a tax refund associated with net operating loss carrybacks of $9.3 million in the first quarter of fiscal 2004 and lower losses from continuing operations. These improvements were offset by reductions in accounts payable due to changes in the timing of interest payments associated with our new bank financing and vendor payments. The decrease in net cash provided by operating activities of continuing operations in fiscal 2003 is primarily the result of decreased earnings from continuing operations and changes in working capital related to the payment of supply fees to certain customers, the recording of the $9.3 million tax refund and an increase in inventory.

          Net cash used in investing activities decreased in fiscal 2004 and fiscal 2003 due to reduced capital expenditure activity. Our Retail segment uses a majority, or 65.6%, 68.9% and 56.1% during fiscal 2004, fiscal 2003 and fiscal 2002, respectively, of our capital expenditure dollars. These capital expenditures are primarily spent on store refurbishments and new equipment. Under the terms of our senior secured revolving credit facility and our supplemental secured credit facility ("credit facilities"), should our available borrowings fall below certain levels, our capital expenditures are restricted to $22.0 million in fiscal 2005, increasing to $30.3 million per year by fiscal 2008. We expect capital expenditures to approximate $22.0 million in fiscal 2005. We are not currently governed by these restrictions, as discussed below.

          Net cash used in financing activities includes cash paid and received from our long-term borrowings and the payment of financing fees associated with our new credit facilities. Our current maturities of long-term debt at March 27, 2004 are $4.2 million. Our ability to borrow additional funds is governed by the terms of our credit facilities, discussed below.

          Net cash provided by (used in) discontinued operations contains the net cash flows of our discontinued operations and consists primarily of net proceeds received on the sale of assets, net of identifiable debt repayments, the payment of store exit cost reserves, partial year operating results and the payment of severance and related benefit accruals of employees that previously worked for discontinued operations. We expect the cash usage of our discontinued operations will be approximately $7.0 million in fiscal 2005 for the payment of store exit costs and other liabilities and will gradually decrease from that level over the next five years.

          Our principal sources of liquidity are cash flows generated from operations and effective December 23, 2003, a $170.0 million senior secured revolving credit facility and a $15.0 million supplemental secured credit facility. These two credit facilities terminate on December 23, 2007, and are secured by substantially all of our assets. We recorded a charge of $8.8 million for unamortized bank fees associated with previous financing activities during the third quarter of fiscal 2004. Available borrowings under the credit facilities are based on stipulated advance rates on eligible assets, as defined in the credit agreements. The credit facilities contain covenants that include the maintenance of minimum EBITDA and maximum capital expenditures, as defined in the credit agreements. These covenants will not be effective as long as we maintain a minimum excess availability level, as defined in the credit agreements. We have available borrowings of $38.9 million at March 27, 20 04 and maximum availability of $48.9 million, which exceeds the minimum excess availability levels. The credit facilities provide for the issuance of letters of credit of which $12.3 million were outstanding and unused as of March 27, 2004. The senior secured revolving credit facility bears interest at the Eurodollar rate plus 3.0% or the prime rate plus 0.75%

          Prior to refinancing our outstanding bank debt, we had a $385.0 million senior secured credit facility pursuant to an Amended and Restated Credit Agreement dated July 29, 2002, as amended, consisting of (1) a revolving credit facility in the amount of $60.0 million, (2) a term loan A in the amount of $100.0 million, (3) an acquisition facility in the amount of $75.0 million and (4) a term loan B in the amount of $150.0 million.

          The credit agreements which govern our credit facilities do not allow us to make "restricted payments." "Restricted payments" include cash dividends, as well as redemption of shares and a variety of other types of payments as defined in the bank credit agreements, which are filed as an exhibit to this Form 10-K. The covenants in the bank credit agreements could allow for the payment of dividends in the future. However, we intend to use any net earnings generated from our operations, to repay debt and to acquire additional retail operations. We do not anticipate paying any cash dividends for the foreseeable future.

          We have in the past offered non-subordinated variable rate promissory notes to the public. Effective March 31, 2003, we suspended the promissory note program and all notes were repaid as of that date.

          Our current ratio decreased from 1.38:1.00 at March 29, 2003 to 1.25:1.00 at March 27, 2004 and our investment in working capital improved to $34.2 million at March 27, 2004 from $87.2 million at March 28, 2003. The reduced investment is the result of store closings, divestiture activity and more effective working capital management.

          Our long-term debt to equity ratio at March 27, 2004 improved to 1.18:1.00 from 1.68:1.00 at March 29, 2003. The improvement was primarily due to the reduction of long-term debt by $91.6, including current maturities, during fiscal 2004, partially offset by the current year net loss.

          Our total capital structure includes borrowings under our credit facilities, various other debt instruments, leases and shareholders' equity. Management believes that cash generated from operating activities and available borrowings under the credit facility will likely be sufficient to support operations under current circumstances.

          The table below presents our significant contractual obligations as of March 27, 2004:

(1) The majority of our purchase obligations involve supply contracts to purchase products for resale in the ordinary course of business. These contracts are typically cancellable and therefore no amounts have been included in the table above. The purchase obligations shown in this table represents the amount of product we are contractually obligated to purchase to earn $4.4 million in upfront contract monies received. If we do not fulfill these purchase obligations, we would only be obligated to repay the unearned upfront contract monies.

          In addition to the above, we expect to contribute $0.8 million to our defined benefit plans in fiscal 2005 to meet the minimum funding requirements.

New Accounting Standards

          In April 2002, the Financial Accounting Standards Board ("FASB") issued SFAS No. 145, "Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections." Among other provisions, SFAS No.145 rescinds SFAS No. 4, "Reporting Gains and Losses from Extinguishment of Debt." As a result, gains and losses from the extinguishment of debt should be reported as extraordinary items only if they meet the criteria of Accounting Principles Board ("APB") Opinion No. 30, "Reporting the Results of Operations - Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions." Gains and losses from extinguishment of debt that do not meet the criteria of APB No. 30 should be reclassified to income from continuing operations for all periods presented. We adopted the provisions of SFAS No. 145 on March 30, 2003. The $8.8 million debt extinguishment charge was recorded in th e loss from continuing operations as a result of adopting this statement.

          Emerging Issues Task Force ("EITF") Issue No. 02-16, "Accounting by a Customer (Including a Reseller) for Cash Consideration Received from a Vendor," provides that cash consideration received from a vendor is presumed to be a reduction of the prices of the vendor's products or services and should, therefore, be characterized as a reduction of cost of goods sold. If such payment is for assets or services delivered to the vendor, the cash consideration should be characterized as revenue, or if such payment is a reimbursement of costs incurred to sell the vendor's products, the cash consideration should be characterized as a reduction of that cost. EITF Issue No. 03-10, "Application of EITF Issue No. 02-16 by Resellers to Sales Incentives Offered to Consumers by Manufacturers," provides additional guidance for adopting EITF Issue No. 02-16 relating to cash consideration received by a reseller in the form of reimbursement by the vendor for honoring the vendor's sale incentiv es offered directly to consumers (for example, coupons). When the four criteria specified in EITF Issue No. 03-10 are met, coupons offered directly to consumers should not be reported as a reduction of the cost of the reseller's purchases from the vendor. EITF Issue No. 02-16 was adopted on March 30, 2003 and EITF Issue No. 03-10 was adopted during the third quarter of fiscal 2004. The adoption of these Issues did not have a material impact on our financial statements.

          In December 2003, the FASB issued a revision of Interpretation No. 46, "Consolidation of Variable Interest Entities," ("Revised Interpretation") which defers the effective date of provisions for certain variable interest entities ("VIE"), provides additional scope exceptions for certain other variable interests, clarifies the impact of troubled debt restructurings on whether an entity is a VIE or which party is the primary beneficiary of a VIE and provides additional guidance on what constitutes a variable interest. We adopted the provisions of the Revised Interpretation relating to special-purpose entities in the third quarter of fiscal 2004 and adopted the provision for all other types of VIE's during the fourth quarter of fiscal 2004. The adoption of the Revised Interpretation did not have a material impact on our financial statements.

          In December 2003, the FASB issued a revision of SFAS No. 132, "Employers' Disclosures about Pensions and Other Postretirement Benefits," ("Revised SFAS 132") to improve financial statement disclosures for defined benefit plans. The Revised SFAS 132 requires that companies provide more details about their plan assets, benefit obligations, cash flows, benefit costs and other relevant information. We are now required to provide additional disclosures, including, but not limited to, a breakdown of plan assets by category, a description of investment policies and strategies and target allocation percentages for these asset categories. We adopted the disclosure provisions of the Revised SFAS 132 in fiscal 2004.

          In January 2004, the FASB issued FASB Staff Position ("FSP") FAS 106-1, "Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003." This statement permits a sponsor of a postretirement health care plan that provides a prescription drug benefit to make a one-time election to defer accounting for the effects of the Medicare Prescription Drug, Improvement and Modernization Act of 2003 ("the Act"). The Act, signed into law in December 2003, introduces a prescription drug benefit under Medicare ("Medicare Part D") and a federal subsidy to sponsors of retiree health care benefit plans that provide a benefit that is at least actuarially equivalent to Medicare Part D. FSP FAS 106-1 does not provide specific guidance as to whether a sponsor should recognize the effects of the Act on its accumulated postretirement benefit obligation ("APBO") and net postretirement benefit costs, and if so, when and how to account f or those effects. The Act introduces two new features to Medicare that a sponsor needs to consider when measuring its APBO and net periodic postretirement benefit costs: a subsidy to a plan sponsor that is based on 28% of an individual beneficiary's annual prescription drug costs between $250 and $5,000 and the opportunity for a retiree to obtain a prescription drug benefit under Medicare.

          As permitted, we elected to defer the adoption of FSP FAS 106-1. Therefore, the APBO and net postretirement benefit costs disclosed in the financial statements do not reflect the impacts of the Act on the plan. The deferral will continue to apply until the specific authoritative accounting guidance for the federal subsidy is issued. Authoritative guidance on the accounting for the federal subsidy is pending, and when issued, could require information previously reported in the financial statements to change. The Act is not expected to have a significant impact on our APBO or net postretirement benefit costs.

          We are exposed to industry related price changes on several commodities that we buy and sell in both our Grocery Distribution and Retail segments.

          We are also exposed to interest rate risk on a portion of outstanding debt. The senior secured revolving credit facility bears interest at the Eurodollar rate plus 3.0% or the prime rate plus 0.75% (weighted average interest rate of 4.21% at March 27, 2004). An additional $3.1 million of our long-term debt is subject to fluctuations in the prime rate. The weighted average interest rates for fiscal 2004, fiscal 2003 and fiscal 2002 were 8.77%, 9.59%, and 8.02%, respectively.

          We previously managed interest rate risk on a majority of our debt through the use of interest rate swap agreements that expired on June 30, 2003. We did not enter into new interest rate swap agreements at the expiration of the prior agreements.

          The estimated carrying value of long-term debt approximates its fair value at March 27, 2004 and March 29, 2003 due to variable interest rates that cover a majority of the long-term debt and a comparison of fixed rate debt to estimated rates that would currently be available for debt with similar terms and maturities. The following table sets forth the maturities of our debt outstanding as of March 27, 2004:

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Shareholders
Spartan Stores, Inc.
Grand Rapids, Michigan

We have audited the accompanying consolidated balance sheets of Spartan Stores, Inc. and subsidiaries as of March 27, 2004 and March 29, 2003 and the related consolidated statements of operations, shareholders' equity and cash flows for each of the three years in the period ended March 27, 2004. These financial statements are the responsibility of Spartan Stores, Inc. management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Spartan Stores, Inc. and subsidiaries as of March 27, 2004 and March 29, 2003 and the results of their operations and their cash flows for each of the three years in the period ended March 27, 2004, in conformity with accounting principles generally accepted in the United States of America.

As discussed in the notes to the consolidated financial statements, during the year ended March 29, 2003, Spartan Stores, Inc. and subsidiaries changed its method of accounting for goodwill (Note 2) and discontinued operations (Note 3) to conform to Statement of Financial Accounting Standards Nos. 142 and 144.

/s/Deloitte & Touche LLP
Grand Rapids, Michigan
April 30, 2004

CONSOLIDATED BALANCE SHEETS

Spartan Stores, Inc. and Subsidiaries
(In thousands)

See notes to consolidated financial statements.

CONSOLIDATED BALANCE SHEETS (continued)

Spartan Stores, Inc. and Subsidiaries
(In thousands)

See notes to consolidated financial statements.

CONSOLIDATED STATEMENTS OF OPERATIONS

Spartan Stores, Inc. and Subsidiaries
(In thousands, except per share data)

See notes to consolidated financial statements.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

Spartan Stores, Inc. and Subsidiaries
(In thousands)