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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
/ x / OF THE SECURITIES EXCHANGE ACT OF 1934
For the forty weeks ended October 4, 1997
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
/ / OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File No. 0-785
NASH-FINCH COMPANY
(Exact Name of Registrant as Specified in its Charter)
DELAWARE 410431960
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
7600 France Ave. South, P.O. Box 355, Minneapolis, Minnesota 55440-0355
(Address of principal executive offices) (Zip Code)
(612) 832-0534
(Registrant's telephone number including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
----- -----
Number of shares of common stock outstanding at November 14,1997:
11,322,898 shares
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PART I - FINANCIAL INFORMATION
This report is for the forty week interim period beginning December 29,
1996, through October 4, 1997.
The accompanying financial information has been prepared in conformity with
generally accepted accounting principles and practices, and methods of applying
accounting principles and practices, (including consolidation practices) as
reflected in the financial information included in the Company's Annual Report
on Form 10-K, filed with the Securities and Exchange Commission for the
preceding fiscal year. The financial statements included in this quarterly
report include all adjustments which are, in the opinion of management,
necessary to a fair presentation of the Company's financial position and results
of operations for the interim period.
The information contained herein has not been audited by independent
certified public accountants and is subject to any adjustments which may develop
in connection with the annual audit of its accounts by Ernst & Young LLP, the
Company's independent auditors.
2
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NASH FINCH COMPANY AND SUBSIDIARIES
Condensed Consolidated Statements of Operations (Unaudited)
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Sixteen Weeks Ended Forty Weeks Ended
--------------------------- --------------------------
October 4, October 5, October 4, October 5,
1997 1996 1997 1996
----------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues:
Net sales $ 1,329,114 984,799 3,225,711 2,384,089
Other revenues 25,316 19,068 52,001 39,514
----------- ----------- ----------- -----------
Total revenues 1,354,430 1,003,867 3,277,712 2,423,603
Cost and Expenses:
Cost of sales 1,179,698 869,669 2,850,337 2,098,129
Selling, general and administrative
and other operating expenses 142,922 108,738 342,566 264,259
Special charges 31,272 - 31,272 -
Depreciation and amortization 14,660 10,070 36,453 24,870
Interest expense 9,770 3,969 24,591 9,972
----------- ----------- ----------- -----------
Total costs and expenses 1,378,322 992,446 3,285,219 2,397,230
Earnings (loss) before income taxes (23,892) 11,421 (7,507) 26,373
Income taxes (benefit) (7,435) 4,625 (570) 10,681
----------- ----------- ----------- -----------
Net earnings (loss) $ (16,457) 6,796 (6,937) 15,692
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Weighted average number of
common shares outstanding 11,308 11,121 11,297 10,992
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Earnings (loss) per share $ (1.45) 0.61 (0.61) 1.43
----------- ----------- ----------- -----------
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</TABLE>
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See accompanying notes to condensed consolidated financial statements.
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NASH FINCH COMPANY AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(In thousands)
October 4, December 28,
ASSETS 1997 1996
------------- --------------
Current assets: (unaudited)
Cash and cash equivalents $ 891 921
Accounts and notes receivable, net 209,202 206,062
Inventories 323,329 293,458
Prepaid expenses 19,901 20,492
Deferred tax assets 7,533 4,663
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Total current assets 560,856 525,596
Investments in affiliates 10,713 10,300
Notes receivable, noncurrent 23,139 21,652
Property, plant and equipment:
Land 30,684 33,753
Buildings and improvements 142,622 148,227
Furniture, fixtures and equipment 306,717 295,147
Leasehold improvements 58,865 54,925
Construction in progress 22,240 7,543
Assets under capitalized leases 25,659 26,105
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586,787 565,700
Less accumulated depreciation and amortization (323,061) (293,845)
------------- --------------
Net property, plant and equipment 263,726 271,855
Intangible assets, net 72,062 80,312
Investment in direct financing leases 19,261 22,011
Deferred tax asset - net 10,628 4,076
Other assets 11,411 9,675
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Total assets $ 971,796 945,477
------------- --------------
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Outstanding checks $ 14,715 32,492
Short-term debt payable to banks 12,077 16,171
Current maturities of long-term debt and
capitalized lease obligations 7,946 7,795
Accounts payable 206,193 183,501
Accrued expenses 75,179 54,130
Income taxes 1,953 2,999
------------- --------------
Total current liabilities 318,063 297,088
Long-term debt 376,058 361,819
Capitalized lease obligations 38,887 41,832
Deferred compensation 6,938 7,476
Other 9,944 4,401
Stockholders' equity:
Preferred stock - no par value
Authorized 500 shares; none issued - -
Common stock of $1.66 2/3 par value
Authorized 25,000 shares, issued 11,575
shares issued in 1997
and 11,574 shares in 1996 19,292 19,290
Additional paid-in capital 17,599 16,816
Foreign currency translation adjustment - net
of a $633 deferred tax benefit - (950)
Restricted stock (397) (500)
Retained earnings 187,308 200,322
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223,802 234,978
Less cost of 255 shares and 307 shares of
common stock in treasury, respectively. (1,896) (2,117)
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Total stockholders' equity 221,906 232,861
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Total liabilities and stockholders' equity $ 971,796 945,477
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See accompanying notes to condensed consolidated financial statements.
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NASH FINCH COMPANY AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows (Unaudited)
(In thousands)
<TABLE>
<CAPTION>
Forty Weeks Ended
-------------------------------
October 4, October 5,
1997 1996
------------ -------------
<S> <C> <C>
Operating activities:
Net earnings $ (6,938) 15,692
Adjustments to reconcile net income to net cash
provided by operating activities:
Special Charges 28,749 -
Depreciation and amortization 36,453 24,870
Provision for bad debts 2,771 1,092
Provision for losses on closed lease locations (601) (284)
Deferred income taxes (9,420) (1,126)
Deferred compensation (538) (305)
Earnings of equity investments (2,565) (735)
Other 1,892 306
Changes in operating assets and liabilities:
Accounts and notes receivable (18) (15,680)
Inventories (15,454) (13,181)
Prepaid expenses 1,480 (1,959)
Accounts payable and outstanding checks 3,915 2,593
Accrued expenses 13,789 4,591
Income taxes (1,045) (364)
------------ -------------
Net cash provided by operating activities 52,470 15,510
------------ -------------
Investing activities:
Dividends received 1,599 -
Disposal of property, plant and equipment 11,534 6,853
Additions to property, plant and equipment
excluding capital leases (44,231) (35,004)
Business acquired, net of cash acquired (17,748) (88,562)
Loans sold, including current portion - 3,402
Loans to customers (15,589) (2,844)
Payments from customers on loans 10,959 5,016
Other (749) (295)
------------ -------------
Net cash used for investing activities (54,225) (111,434)
------------ -------------
Financing activities:
Proceeds from long-term debt - 30,000
Proceeds from revolving debt 20,000 60,811
Dividends paid (6,077) (5,938)
Payments of short-term debt (4,094) -
Payments of long-term debt (5,466) (13,653)
Payments of capitalized lease obligations (3,089) (406)
Other 451 91
------------ -------------
Net cash provided by financing activities 1,725 70,905
------------ -------------
Net (decrease) in cash $ (30) (25,019)
------------ -------------
------------ -------------
</TABLE>
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See accompanying notes to condensed consolidated financial statements.
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NASH FINCH COMPANY AND SUBSIDIARIES
Condensed Consolidated Statements of Stockholders' Equity
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Fiscal period ended October 4, 1997,
December 28, 1996 and December 30, 1995
(In thousands, except per share amounts) Foreign
Common Stock Additional currency
----------------------- paid-in Retained translation
Shares Amount capital earnings adjustment
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1994 11,224 $ 18,706 11,977 179,212 (572)
Net earnings - - - 17,414
Dividend declared of $.74 per share - - - (8,048)
Treasury stock issued upon exercise of options - - 36 - -
Foreign currency translation adjustment
- net of a $252 deferred tax benefit - - - - (378)
--------- ---------- ----------- ---------- -----------
Balance at December 30, 1995 11,224 18,706 12,013 188,578 (950)
Net earnings - - - 20,032 -
Dividend declared of $.75 per share - - - (8,288) -
Shares issued in connection with acquisition of a
business 350 584 5,064 - -
Treasury stock issued upon exercise of options - - 47 - -
Issuance of restricted stock - - (308) - -
Amortized compensation under restricted stock plan - - - - -
Treasury stock purchased - - - - -
--------- ---------- ----------- ---------- ----------
Balance at December 28, 1996 11,574 19,290 16,816 200,322 (950)
Net earnings - - - (6,937) -
Dividend declared of $.54 per share - - - (6,077) -
Treasury stock issued upon exercise of options - - 305 - -
Amortized compensation under restricted stock plan - - - - -
Repayment of notes receivable from holder of
restricted stock - - - - -
Distribution of stock pursuant to performance awards - - 460 - -
Treasury stock purchased - - - - -
Foreign Currency Translation Adjustment - - - - 950
Other 1 2 18 - -
--------- ---------- ----------- ---------- ----------
Balance at October 4, 1997 (unaudited) 11,575 $ 19,292 17,599 187,308 -
--------- ---------- ----------- ---------- ----------
--------- ---------- ----------- ---------- ----------
Treasury stock Total
Restricted -------------------- stockholders'
Stock Shares Amount equity
- ---------------------------------------------------------------------------------------------------------------
Balance at December 31, 1994 - (349) $ (3,054) 206,269
Net earnings - - - 17,414
Dividend declared of $.74 per share - - - (8,048)
Treasury stock issued upon exercise of options - 3 20 56
Foreign currency translation adjustment
- net of a $252 deferred tax benefit - - - (378)
------------- ----------- ---------- -----------
Balance at December 30, 1995 - (346) (3,034) 215,313
Net earnings - - - 20,032
Dividend declared of $.75 per share - - - (8,288)
Shares issued in connection with acquisition of a
business - - - 5,648
Treasury stock issued upon exercise of options 6 42 89
Issuance of restricted stock (524) 40 995 163
Amortized compensation under restricted stock plan 24 - - 24
Treasury stock purchased - (7) (120) (120)
------------- ----------- ---------- -----------
Balance at December 28, 1996 (500) (307) (2,117) 232,861
Net earnings - - - (6,937)
Dividend declared of $.54 per share - - - (6,077)
Treasury stock issued upon exercise of options - 25 123 428
Amortized compensation under restricted stock plan 23 - - 23
Repayment of notes receivable from holder of
restricted stock 80 - - 80
Distribution of stock pursuant to performance awards - 30 148 608
Treasury stock purchased - (3) (50) (50)
Foreign Currency Translation Adjustment - - - 950
Other - - - 20
------------- ----------- ---------- -----------
Balance at October 4, 1997 (unaudited) (397) (255) $ (1,896) 221,906
------------- ----------- ---------- -----------
------------- ----------- ---------- -----------
</TABLE>
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See accompanying notes to condensed consolidated financial statements.
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NASH FINCH COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 4, 1997
NOTE 1
The accompanying financial statements include all adjustments which are, in
the opinion of management, necessary to present fairly the financial position of
the Company and its subsidiaries at October 4, 1997 and December 28, 1996, and
the results of operations for the 40-weeks ending October 4, 1997 and October 5,
1996, and the changes in cash flows for the 40-week periods ending October 4,
1997 and October 5, 1996, respectively. All material intercompany accounts and
transactions have been eliminated in the consolidated financial statements.
Results of operations for the interim periods presented are not necessarily
indicative of the results to be expected for the full year.
NOTE 2
The third quarter results include special charges totaling $31.3 million
consisting of $15.9 million in asset writedowns and $4.8 million and $8.1
million classified as accrued expenses and other non-current liabilities,
respectively.
The aggregate charges include $14.5 million for the consolidation of
selected warehouses. This charge contains provisions for non-cancelable lease
obligations, expected losses on disposals of tangible assets, and other
continuing occupancy costs. Also included are employee severance costs
consistent with existing practices and the unamortized portion of goodwill for
one of the locations.
Also, related to wholesale operations, the special charge includes $2.5
million of integration costs, incurred in the third quarter, associated with the
acquisition of the business and certain assets from United-A.G. Cooperative,
Inc. ("United-A.G.") early in the third quarter.
In retail operations, the special charge relates to the closing or
consolidation of fourteen primarily leased stores. The special charges
include a $5.2 million provision for the continuing non-cancelable lease
obligations, anticipated losses on disposals of tangible assets, abandonment
of certain leaseholds and the write-off of intangibles. The time frame for
individual store closings will vary but should be completed by the first
quarter of fiscal 1999. The retail units covered by the provision had
aggregate sales and pretax losses of $24.0 million and $1.1 million,
respectively, for the third quarter compared with $27.1 million and $.6
million for the corresponding period last year. On a year to date basis,
the retail units included in the provision, had aggregate sales and pretax
losses of $63.1 million and $2.0 million respectively, compared with $67.0
million and $1.4 million for the corresponding period last year.
3
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The aggregate special charges contain a provision of $5.4 million for asset
impairment of seven retail stores. Declining market share due to increasing
competition, deterioration of operating performance in the third quarter, and
forecasted future results that were less than previously planned were the
factors leading to the impairment determination. The impaired assets covered by
the charge primarily include real estate, leasehold improvements and to a
lesser extent, goodwill related to two of the stores.
An asset impairment charge of $1.0 million relating to agricultural assets
was also recorded against several farming operations of Nash DeCamp, the
Company's produce marketing subsidiary. The impairment determination was based
on recent downturns in the market for certain varieties of fruit. The impairment
resulted from anticipated future operating losses and inadequate projected cash
flows from agricultural production of these products.
Other special charges aggregating $2.8 million consist primarily of $.9
million related to the abandonment of current system software which is being
replaced by the Company's Horizons project, and a loss of $.6 million realized
on the sale of the Company's 22.4% equity investment in Alfa Trading Company, a
Hungarian wholesale operation. The remaining special charges relate to the
write down of idle real estate to current market values.
An impairment loss is recognized whenever events or changes in
circumstances indicate that the carrying amount of an asset is not
recoverable. In applying Statement of Financial Accounting Standards No. 121,
assets are grouped and evaluated at the lowest level for which there are
identifiable cash flows that are largely independent of the cash flows of
other groups of assets. The Company has generally identified this lowest
level to be individual stores; however there are limited circumstances where
for evaluation purposes stores are considered with the distribution center
they support. The Company considers historical performance and future
estimated results in its evaluation of potential impairment. If the carrying
amount of the asset exceeds estimated expected undiscounted future cash
flows, the Company measures the amount of the impairment by comparing the
carrying amount of the asset to its fair value, generally measured by
discounting expected future cash flows at the rate the Company utilizes to
evaluate potential investments.
The carrying value of goodwill not grouped with other amounts being
reviewed for impairment is assessed annually and/or when factors indicating
impairment are present using an undiscounted cash flow assumption.
4
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NOTE 3
The Company uses the LIFO method for valuation of a substantial portion of
inventories. If the FIFO method had been used, inventories would have been
approximately $42.6 million and $41.6 million higher at October 4, 1997 and at
December 28, 1996, respectively.
NOTE 4
Companies will be required to present earnings per share data, in
accordance with Statement of Financial Accounting Standards (SFAS) NO. 128,
EARNINGS PER SHARE, commencing with fiscal 1997. Currently earnings per share
calculations are performed pursuant to Accounting Principles Board Opinion No.
15. The computation of earnings per share for both the quarter and year to date
of fiscal 1997 and 1996 would substantially be the same under either method.
NOTE 5
On September 8, 1995, the Company entered into an agreement with a
financial institution which allowed the Company to sell on a revolving basis
customer notes receivable. Although the agreement lapsed on December 28, 1996,
the notes, which have maturities through the year 2002, were sold at face value
with recourse. As a result, the Company is contingently liable should these
notes become uncollectible.
The remaining balances of such sold notes receivable totaled $10.2 million
and $14.0 million at October 4, 1997 and December 28, 1996, respectively.
NOTE 6
Since the first quarter of fiscal 1996, the Company completed two
acquisitions which were accounted for under the purchase method of accounting.
On November 7, 1996 the Company completed a tender offer to purchase the
outstanding shares of common stock of Super Food Services, Inc. ("Super Food"),
a wholesale grocery distributor based in Dayton, Ohio, for $15.50 per share in
cash. The purchase price exceeded the fair value of the assets acquired
resulting in goodwill of approximately $29.8 million which is being amortized on
a straight line basis over 25 years.
On August 5, 1996, the Company acquired all of the outstanding stock of T.
J. Morris Company ("T. J. Morris"), a full line food wholesaler located in
Statesboro, Georgia. The excess of purchase price over fair value of the assets
acquired resulted in goodwill of approximately $3.1 million which is being
amortized on a straight line basis over a 15-year period.
The following summary, prepared on a pro forma basis, combines the
consolidated results of operations as if Super Food
5
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and T. J. Morris had been acquired as of the beginning of 1996, after including
the impact of certain adjustments such as amortization of intangibles, increased
interest expense on acquisition debt and related income tax effects:
Forty weeks Ended
-----------------
PRO FORMA INFORMATION (Unaudited) October 5, 1996
-----------------
Net revenues $3,398,851
Earnings before income taxes 28,725
Net income 17,032
Earnings per share $1.51
The pro forma information is provided for informational purposes only. It
is based on historical information and does not necessarily reflect results that
would have occurred had the acquisitions been made as of those dates or results
which may occur in the future.
NOTE 7
On June 9, 1997, the Company acquired the business and certain assets of
United-A.G., a cooperative wholesale grocery distributor located in Omaha for
approximately $17.7 million in cash. Real estate which was not included in
the purchase price, is being leased under a five-year agreement from a third
party. This operating lease contains an option to purchase the property at
fair market value, or a renewal option for an additional five years at the
end of the initial lease term. In addition, the Company has guaranteed a
residual value for the leased real estate. United-A.G., with pre-acquisition
annual revenues of approximately $200 million, served stores in Nebraska,
Kansas, Iowa, Colorado and South Dakota.
NOTE 8
On July 21, 1997, the Company entered into three swap agreements, in
addition to one swap entered into in the second quarter, with separate
financial institutions as a means of managing its interest rate exposure.
The agreements which are based on a notional amount of $30.0 million each,
call for an exchange of interest payments with the Company receiving payments
based on a Libor floating rate and making payments based on a fixed rate
range of 6.21% to 6.54% without an exchange of the notional amount upon which
the payments are based. The differential to be paid or received from
counter-parties as interest rates change is included in other liabilities or
assets, with the corresponding amount accrued and recognized as an adjustment
of interest expense related to the debt.
The fair values of the swap agreements are not recognized in the financial
statements. Gains and losses on terminations of interest-rate swap agreements
are deferred as an adjustment to the carrying amount of the outstanding debt and
amortized as an
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adjustment to the interest expense related to the debt over the remaining term
of the original contract life of the terminated swap agreement. In the event of
the early extinguishment of a designated debt obligation, any realized or
unrealized gain or loss from the swap would be recognized in income coincident
with the extinguishment. Any swap agreements that are not designated with
outstanding debt are recorded as an asset or liability at fair value, with
changes in fair value recorded in other income or expense.
7
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
REVENUES
Total revenues for the 16-week third quarter and the 40 weeks to date of
fiscal 1997 increased 34.9% and 35.2%, respectively, over comparable periods
last year. The revenue increases were primarily in the wholesale segment and
resulted from the acquisitions of Super Food and T. J. Morris which occurred in
the second half of fiscal 1996. In addition, revenues were favorably impacted
by continued growth of the Company's military distribution business.
Retail revenues declined during the quarter and year to date by 3.6% and
4.8%, respectively, reflecting a net reduction of seven stores since the prior
year quarter, two of which were sold and one closed during the quarter.
Competitive market conditions and little or no food price inflation resulted in
a decline in same store sales of 1.7% for the quarter and .9% for the year to
date compared to last year.
GROSS MARGINS
Gross margins for the quarter were 12.9% compared to 13.4% last year. On a
year to date basis, margins were 13.0% in fiscal 1997 compared to 13.4% for the
same period last year. The decline in both the quarter and year to date margins
reflects the growing proportion of lower margin wholesale business which
currently represents 79.5% of total Company revenues compared to 71.5% last
year. Wholesale margins were consistent with last year for the quarter but
slightly ahead of last year for the year to date. However, last year's margin
does not reflect a full impact of efficiencies resulting from the centralization
of procurement activities.
Retail margins for the quarter showed a decline compared to last year, but
remained slightly ahead on a year to date basis. The quarter was affected by
competitive pricing pressures which continue to intensify in certain market
areas. Partially offsetting the quarterly decline, retail stores continued a
trend toward sales of higher margin, prepared foods and specialty products.
OPERATING EXPENSES
Operating expenses as a percent of total revenues were 10.6% and 10.5% for
the quarter and year to date respectively, compared to 10.8% and 10.9% for the
comparable periods last year. Expense levels compare favorably to last year
because of the greater percentage of the wholesale business which operates at
lower expense levels compared to retail. However, operating expenses for the
quarter and year to date included additional expenses related to a project,
involving new business information systems technology, which the Company has
named Horizons. Incremental
8
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expenses associated with Horizons, excluding depreciation, were $1.2 million for
the quarter and $3.3 million on a year to date basis. The project represents a
major strategic investment for the Company's future, and will change entire
business processes thereby improving efficiency and effectiveness. Design and
development will continue to impact operating expenses until implementation
has been substantially completed in fiscal 1999.
Bad debt expense for the year to date was $2.8 million compared to $1.1
million last year. The increase is attributed to maintaining adequate reserve
levels consistent with the growth in customer receivables since the prior year
quarter.
SPECIAL CHARGES
On October 8, 1997 the Company announced its intention to accelerate its
strategic plan relative to strengthening its competitive position for the
future. Coincident with the implementation of the plan, the Company recorded
special charges totaling $31.3 million related to all three operating segments
of its business.
The aggregate charges include $14.5 million for the consolidation of
selected warehouses. This charge contains provisions for non-cancelable lease
obligations, expected losses on disposals of tangible assets, and other
continuing occupancy costs. Also included are employee severance costs
consistent with existing practices and the unamortized portion of goodwill for
one of the locations.
Also, related to wholesale operations, the special charge includes $2.5
million of integration costs, incurred in the third quarter, associated with the
acquisition of the business and certain assets from United-A.G. early in the
third quarter. These expenses resulted from incremental labor costs due to a
substantial turnover in workforce, training and other start-up activities.
Certain costs related to the stablization of the workforce may continue into
the fourth quarter, however, these costs have not been accrued.
In retail operations, the strategic plan involves the closing or
consolidation of fourteen primarily leased stores. The special charges include
a $5.2 million provision for the continuing non-cancelable lease obligations,
anticipated losses on disposals of tangible assets, abandonment of certain
leaseholds and the write-off of intangibles. The time frame for individual
store closings will vary but should be completed by the first quarter of
fiscal 1999. In some instances, the volume of closed stores is expected to be
consolidated with another retail location in the same relative market area,
thereby minimizing the loss of wholesale volume.
Continuing operating losses through the dates of closing are unpredictable
and are not included in the special charge. The retail units covered by the
provision had aggregate sales and
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pretax losses of $24.0 million and $1.1 million, respectively, for the third
quarter compared with $27.1 million and $.6 million for the corresponding period
last year. On a year to date basis, the retail units included in the provision,
had aggregate sales and pretax losses of $63.1 million and $2.0 million
respectively, compared with $67.0 million and $1.4 million for the corresponding
period last year.
The aggregate special charges contain a provision of $5.4 million for asset
impairment of seven retail stores. Declining market share due to increasing
competition, deterioration of operating performance in the third quarter, and
forecasted future results that were less than previously planned were the
factors leading to the impairment determination. The impaired assets covered
by the charge primarily include real estate, leasehold improvements and to a
lesser extent, goodwill related to two of the stores.
An asset impairment charge of $1.0 million relating to agricultural assets
was also recorded against several farming operations of Nash DeCamp, the
Company's produce marketing subsidiary. The impairment determination was based
on recent downturns in the market for certain varieties of fruit. The impairment
resulted from anticipated future operating losses and inadequate projected cash
flows from agricultural production of these products.
Other special charges aggregating $2.8 million consist primarily of $.9
million related to the abandonment of current system software which is being
replaced by the Company's Horizons project, and a loss of $.6 million realized
on the sale of the Company's 22.4% equity investment in Alfa Trading Company,
a Hungarian wholesale operation. Negotiations for the sale were substantially
completed during the third quarter, and the transaction was completed in the
fourth quarter. The remaining special charges relate principally to the write
down of idle real estate to current market values.
The consolidations of the wholesale and retail operations as well as the
impairment adjustment to the assets identified, will favorably impact
earnings in the future due to reduced depreciation and amortization expenses.
However, such amounts are expected to be substantially offset by continuing
costs related to Horizons.
DEPRECIATION
Depreciation and amortization expense increased significantly for the
quarter and year to date compared to last year, primarily due to acquisitions.
In addition, capital expenditures related to the Horizons project resulted in
increased depreciation expense of $.6 million for the quarter and $1.6 million
year to date compared to last year. Amortization of goodwill and other
intangibles for the quarter and year to date were $2.1 million and $5.2 million,
respectively, compared to $1.5 million and $3.7 million, respectively, last
year.
10
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INTEREST EXPENSE
Interest expense increased $5.8 million and $14.6 million for the quarter
and year to date, respectively, over the same periods last year, primarily due
to the debt incurred to finance the acquisition of Super Food. Average short-
term borrowings used to fund working capital needs were higher during the
quarter compared to last year. However, outstanding short-term borrowings
were $4.1 million lower than year end levels.
PRETAX RESULTS OF OPERATIONS
The Company's pretax results were negatively impacted by the special
charges. However, earnings from operations before special charges and interest
were $17.2 million compared to $15.4 million last year, an increase of 11.7%.
This was largely due to the acquisitions which were not fully reflected in the
prior year quarter. Excluding acquisitions and the continued earnings
contribution of the military division, earnings for all three segments were
below expectations. Retail and wholesale operations were hampered by weak sales
while the produce marketing operation was affected by poor market prices and
a surplus of available product.
INCOME TAXES
The effective tax rate before special charges was 41.9%, an incremental
increase of 1.4% compared to last year. The increase was due to non-
deductibility of goodwill relating to the acquisition of Super Food and T. J.
Morris.
11
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Working capital requirements and certain capital expenditures continue to
be funded principally from internally generated funds. However, the Company
uses short and long-term debt to supplement the financing of major capital
projects and acquisitions.
Cash provided from operations for the 40-week period was $52.5 million
compared to $15.5 million last year. The increase, which was not significantly
affected by the special charges, is attributed to changes in the composition of
working capital and non-cash adjustments to income. Working capital at the end
of the quarter was $242.8 million, an increase of $14.3 million since year-end
but a reduction of $10.9 million during the third quarter. The current ratio
was 1.76 compared to 1.77 at the end of last year.
During the quarter the company funded the $17.7 million for the acquisition
of United-A.G. through its existing revolving credit agreement.
The Company manages its interest rate risk through four swap agreements for
notional amounts of $30.0 million each. Three such agreements took effect
during the quarter with separate financial institutions.
Of the $31.3 million pre-tax charges, approximately $13.6 million involve
cash outflows, while the balance are non-cash. On an after tax basis, the cash
impact is estimated to be $8.5 million, to be funded primarily from internally
generated funds.
The Company continues to review its financial strategy in light of the
strategic initiatives currently underway. This is being done in order to
continue to insure that it has adequate access to short-term and long-term
credit necessary to meet its needs for growth and expansion in the foreseeable
future.
12
<PAGE>
PART II - OTHER INFORMATION
Items 1, 2, 3, 4, and 5 are not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits: Financial Data Schedule.
(b) REPORTS ON FORM 8-K.
Not applicable.
13
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NASH-FINCH COMPANY
Registrant
Date: November 18, 1997 By /s/ Alfred N. Flaten
-------------------------
Alfred N. Flaten
President and Chief Executive Officer
By /s/ John R. Scherer
-------------------------
John R. Scherer
Chief Financial Officer
14
<PAGE>
NASH FINCH COMPANY
EXHIBIT INDEX TO QUARTERLY REPORT
ON FORM 10-Q
For the Forty Weeks Ended October 4, 1997
Item No. Item Method of Filing
- -------- ---- ----------------
27.1 Financial Data Schedule Filed herewith.
16
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<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-03-1998
<PERIOD-START> DEC-29-1996
<PERIOD-END> OCT-04-1997
<CASH> 891
<SECURITIES> 0
<RECEIVABLES> 228,268
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0
0
<COMMON> 19,292
<OTHER-SE> 202,614
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<INCOME-PRETAX> (7,507)
<INCOME-TAX> (570)
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