<PAGE>
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 twelve weeks ended March 28, 1998
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)
<TABLE>
<S> <C>
DELAWARE 41-0431960
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
7600 France Ave. South, Edina, Minnesota 55435
(Address of principal executive offices) (Zip Code)
</TABLE>
(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 May 7, 1998:
11,339,663 shares
<PAGE>
PART I - FINANCIAL INFORMATION
This report is for the twelve week interim period beginning January 4,
1998, through March 28, 1998.
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 auditors 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.
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<PAGE>
NASH FINCH COMPANY AND SUBSIDIARIES
Condensed Consolidated Statements of Earnings (Loss)
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Twelve Weeks Ended
--------------------------------
March 28, March 22,
1998 1997
<S> ------------ -----------
Revenues: <C> <C>
Net sales $ 925,958 935,997
Other revenues 11,143 11,835
------------ -----------
Total revenues 937,101 947,832
Cost and expenses:
Cost of sales 820,360 825,189
Selling, general and administrative
and other operating expenses 94,310 99,158
Depreciation and amortization 11,078 10,905
Interest expense 6,860 7,321
------------ -----------
Total costs and expenses 932,608 942,573
Earnings before income taxes and extraordinary charge 4,493 5,259
Income taxes 1,865 2,203
------------ -----------
Earnings before extraordinary charge 2,628 3,056
Extraordinary charge from early extinguishment of debt,
net of income tax benefit of $3,951 (5,569) -
------------ -----------
Net earnings (loss) $ (2,941) 3,056
------------ -----------
------------ -----------
Basic and diluted earnings (loss) per share:
Earnings before extraordinary charge $ .23 .27
Extraordinary charge from early extinguishment of debt (.49) -
------------ -----------
Net earnings (loss) $ (.26) .27
------------ -----------
------------ -----------
Weighted average number of common and common equivalent
shares outstanding
Basic 11,301 11,193
Diluted 11,362 11,321
</TABLE>
- ------------------------------------------------------------
See accompanying notes to consolidated financial statements.
-3-
<PAGE>
NASH FINCH COMPANY AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(In thousands)
<TABLE>
<CAPTION>
March 28, January 3,
ASSETS 1998 1998
- ------ -------------- -------------
<S> <C> <C>
Current assets: (unaudited)
Cash $ 773 933
Accounts and notes receivable, net 176,634 173,962
Inventories 287,991 287,801
Prepaid expenses 23,742 22,582
Deferred tax assets 12,340 9,072
------------ -----------
Total current assets 501,480 494,350
Investments in affiliates 7,681 7,679
Notes receivable, noncurrent 23,600 23,092
Property, plant and equipment:
Land 30,548 31,229
Buildings and improvements 136,591 137,070
Furniture, fixtures and equipment 307,285 306,762
Leasehold improvements 61,003 60,578
Construction in progress 36,906 28,485
Assets under capitalized leases 24,878 25,048
------------ -----------
597,211 589,172
Less accumulated depreciation and amortization (319,203) (312,939)
------------ -----------
Net property, plant and equipment 278,008 276,233
Intangible assets, net 69,305 70,732
Investment in direct financing leases 18,901 19,094
Deferred tax asset - net 2,622 2,622
Other assets 10,826 11,081
------------ -----------
Total assets $ 912,423 904,883
------------ -----------
------------ -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Outstanding checks $ 22,110 36,271
Short-term debt payable to banks 16,155 11,300
Current maturities of long-term debt and
capitalized lease obligations 2,769 7,964
Accounts payable 203,246 177,548
Accrued expenses 71,086 60,599
Income taxes - 737
------------ -----------
Total current liabilities 315,366 294,419
Long-term debt 324,145 325,489
Capitalized lease obligations 38,116 38,517
Deferred compensation 6,682 6,768
Other 7,144 14,072
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 1998
and 1997 19,292 19,292
Additional paid-in capital 17,908 17,648
Restricted stock (384) (391)
Retained earnings 186,005 190,984
------------ -----------
222,821 227,533
Less cost of 237 shares and 252 shares of
common stock in treasury, respectively. (1,851) (1,915)
------------ -----------
Total stockholders' equity 220,970 225,618
------------ -----------
Total liabilities and stockholders' equity $ 912,423 904,883
------------ -----------
------------ -----------
</TABLE>
- --------------------------------------------------------------------------
See accompanying notes to condensed consolidated financial statements.
-4-
<PAGE>
NASH FINCH COMPANY AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows (Unaudited)
(In thousands)
<TABLE>
<CAPTION>
Twelve Weeks Ended
----------------------------------
March 28, 1998 March 22, 1997
-------------- --------------
<S> <C> <C>
Operating activities:
Net earnings (loss) $ (2,941) $ 3,056
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Provision for (use of) special charge (850) -
Depreciation and amortization 11,078 10,905
Provision for bad debts 160 1,293
Provision for (use of) losses on closed lease locations (680) (153)
Extraordinary charge - write off deferred financing costs 142 -
Deferred income taxes (3,268) (1,618)
Deferred compensation (86) (311)
Earnings (loss) of equity investments (220) (377)
Other 108 773
Changes in operating assets and liabilities:
Accounts and notes receivable 9,127 12,056
Inventories (190) 2,251
Prepaid expenses (1,160) (5,908)
Accounts payable and outstanding checks 11,537 (29,145)
Accrued expenses 5,037 8,849
Income taxes (737) 3,311
--------- --------
Net cash provided by operating activities 27,057 4,982
--------- --------
Investing activities:
Dividends received - 800
Disposals of property, plant and equipment, net 2,189 1,292
Additions to property, plant and equipment
excluding capital leases (13,474) (7,939)
Loans to customers (5,389) (4,632)
Payments from customers on loans 5,035 1,485
Sale (repurchase) of receivables (11,700) -
Other (30) 28
--------- --------
Net cash used in investing activities (23,369) (8,966)
--------- --------
Financing activities:
Proceeds from revolving debt 100,000 15,000
Dividends paid (2,038) (2,015)
Payments of short-term debt 4,855 (6,550)
Payments of from long-term debt (106,570) (2,264)
Payments of capitalized lease obligations (370) (275)
Other 275 53
--------- --------
Net cash (used in) provided by financing activities (3,848) 3,949
--------- --------
Net decrease in cash $ (160) (35)
--------- --------
--------- --------
</TABLE>
- ----------------------------------------------------------------
See accompanying notes to consolidated financial statements.
-5-
<PAGE>
NASH FINCH COMPANY AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
Fiscal period ended March 28, 1998,
January 3, 1998 and December 28, 1996
(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 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 (loss) - - - (1,228) -
Dividend declared of $.72 per share - - - (8,110) -
Treasury stock issued upon exercise of options - - 354 - -
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 January 3, 1998 11,575 19,292 17,648 190,984 -
Net earnings (loss) - - - (2,941) -
Dividend declared of $.18 per share - - - (2,038) -
Treasury stock issued upon exercise of options - - 33 - -
Amortized compensation under restricted stock plan - - - - -
Distribution of stock pursuant to performance awards - - 226 - -
Treasury stock purchased - - - - -
Foreign currency translation adjustment - - - - -
Other - - - - -
- - 1 -
------ ------ ------ ------- ----
Balance at March 28, 1998 (unaudited) 11,575 $ 19,292 17,908 186,005 -
------ ------ ------ ------- ----
------ ------ ------ ------- ----
NASH FINCH COMPANY AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
- -----------------------------------------------------------------------------------------------------------------
Fiscal period ended March 28, 1998,
January 3, 1998 and December 28, 1996
(In thousands, except per share amounts) Treasury Stock Total
Restricted -------------------- stockholders'
Stock Shares Amount equity
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
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 (loss) - - - (1,228)
Dividend declared of $.72 per share - - - (8,110)
Treasury stock issued upon exercise of options - 29 143 497
Amortized compensation under restricted stock plan 29 - - 29
Repayment of notes receivable from holder of
restricted stock 80 - - 80
Distribution of stock pursuant to performance awards - 30 148 608
Treasury stock purchased - (4) (89) (89)
Foreign currency translation adjustment - - - 950
Other - - - 20
---- ----- ----- -------
Balance at January 3, 1998 (391) (252) (1,915) 225,618
Net earnings (loss) - - - (2,941)
Dividend declared of $.18 per share - - - (2,038)
Treasury stock issued upon exercise of options - 3 15 48
Amortized compensation under restricted stock plan 7 - - 7
Distribution of stock pursuant to performance awards - 13 65 291
Treasury stock purchased - - - -
Foreign currency translation adjustment - - - -
Other - - - -
- (1) (16) (15)
------ ----- ----- -------
Balance at March 28, 1998 (unaudited) (384) (237) $ (1,851) 220,970
------ ----- ----- -------
------ ----- ----- -------
</TABLE>
- -------------------------------------------------------------
See accompanying notes to consolidated financial statements.
-6-
<PAGE>
NASH FINCH COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 28, 1998
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 March 28, 1998 and January 3,
1998, and the results of operations for the 12-weeks ending March 28, 1998 and
March 22, 1997, and the changes in cash flows for the 12-week periods ending
March 28, 1998 and March 22, 1997, 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.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
NOTE 2
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 $43.1 million higher at March 28, 1998 and at
January 3, 1998, respectively.
NOTE 3
In March 1998, the American Institute of Certified Public Accountants
issued Statement of Position ("SOP") 98-1, ACCOUNTING FOR THE COSTS OF COMPUTER
SOFTWARE DEVELOPED FOR OR OBTAINED FOR INTERNAL USE. Although the SOP is
effective beginning on January 1, 1999, the Company has chosen early adoption
as of January 4 1998. The SOP requires the capitalization of certain costs
incurred after the date of adoption in connection with developing or obtaining
software for internal use. Certain costs that are required to be capitalized
by the SOP were previously being expensed as incurred by the Company. As a
result of this change in accounting, during the quarter the Company capitalized
$1.5 million in payroll and payroll-related costs for employees who are
directly involved with and devote time to internal-use software development
projects.
NOTE 4
Pursuant to the provisions of Statement of Financial Accounting Standards
No. 128, EARNINGS PER SHARE, the weighted average shares used in computing
basic and diluted earnings per share (EPS) are as follows:
-7-
<PAGE>
<TABLE>
<CAPTION>
(in thousands of shares) Twelve Weeks Ended
------------------------
March 28, March 23,
1998 1997
-------- ---------
<S> <C> <C>
Shares for computation of
basic EPS 11,301 11,193
Effect of assumed option
exercises 35 45
Effect of contingent shares 26 83
------ ------
Shares for computation of
diluted EPS 11,362 11,321
------ ------
------ ------
</TABLE>
NOTE 5
On December 29, 1997, a Receivables Purchase Agreement (the "Agreement")
was executed by the Company, Nash Finch Funding Corporation ("NFFC"), a
wholly-owned subsidiary of the Company, and a certain third party purchaser
(the "Purchaser") pursuant to a securitization transaction. On this date the
Company sold $44.6 million of accounts receivable on a non-recourse basis to
NFFC. NFFC sold $37.0 million of its undivided interest in such receivables
to the Purchaser, subject to specified collateral requirements. NFFC
maintains a variable undivided interest in these receivables and is subject
to losses on its share of the receivables and, accordingly, maintains an
allowance for doubtful accounts. The Agreement is a five-year $50 million
revolving receivable purchase facility allowing the Company to sell
additional receivables to NFFC, and NFFC to sell, from time to time,
variable undivided interests in these receivables to the Purchaser. At March
28, 1998, the balance of receivables sold under the revolving agreement was
$25.3 million.
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 $8.4 million and $9.1 million at March 28, 1998 and
January 3, 1998, respectively.
NOTE 6
During the third quarter of 1997, the Company recorded special charges,
totaling $31.3 million relative to asset impairment and consolidation of
certain warehouses and retail stores. During the first quarter the Company
closed distribution facilities in Lexington, Kentucky and Lincoln, Nebraska and
closed or sold a total of four retail stores. Costs totaling $.9 million
dollars incurred as a result of the shut down of these units were charged to
accrued expenses. At March 28, 1998, accrued liabilities established for
purposes of the special charges total $15.2 million.
-8-
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
REVENUES
Total revenues for the first quarter 1998 were $937.1 million compared to
$947.8 million last year, a decrease of 1.1%. The decline related to both the
wholesale and retail segments of the Company.
Although wholesale revenues for the quarter were positively impacted by
sales resulting from the acquisition of the business and assets of
United-A.G. Cooperative, Inc. in June 1997, overall wholesale segment
revenues declined. Lower revenues were attributed to the planned
consolidation of a distribution center in Lexington, Kentucky, and soft
market conditions in certain areas of the Midwest. Also, the military
division reported lower revenues compared to last year when such revenues
were exceptionally high. This reflected reduced sales to European
commissaries as well as somewhat lower sales by military commissaries along
the East Coast.
Retail segment revenues were impacted by the closing or sale of twelve
under-performing stores since the first quarter of fiscal 1997. Same store
sales declined 1.2% as a result of continuing competitive market conditions in
several market areas in the upper Midwest.
GROSS MARGINS
Gross margins for the quarter were 12.5% compared to 12.9% last year. The
decline this year is partially attributed to the growing proportion of lower
margin wholesale business. During the quarter wholesale segment business
represented 81.3% of the Company's consolidated revenues compared to 79.9% for
the same period last year. Food price deflation during the period resulted in a
LIFO credit of $.5 million compared to $.25 million last year. Retail margins
were flat compared to last year. Gains in dry grocery were offset by greater
promotional activities in the perishables departments, primarily produce and
dairy products. Margins compared to last year were also negatively affected by
the timing of religious holidays which occurred later in the second quarter
this year.
OPERATING EXPENSE
Operating expense for the quarter as a percent of revenues was 10.1%
compared to 10.5% last year. Expense levels continue to be positively
affected by the increased wholesale business which operates at lower expense
levels than retail. The Company changed accounting procedures when it
adopted Statement of Position (SOP) 98-1 which resulted in $1.5 million of
internal development costs related to the HORIZONS project being
-9-
<PAGE>
capitalized during the quarter. Previously these costs had been expensed as
incurred.
During the quarter, the Company continued to execute its strategic plan to
consolidate selected warehouses by closing its distribution center in
Lexington, Kentucky, and transferring a substantial portion of that facility's
volume to the Company's Cincinnati, Ohio and Bluefield, Virginia distribution
centers. Although costs associated with the closing had been provided for
through the special charge recorded last year, certain expenses totaling
approximately $.7 million associated with transferring the business were
incurred during the quarter. Some unaccrued expenses may continue until
shutdown is complete, but these are not expected to have a material impact on
the second quarter.
DEPRECIATION EXPENSE
Depreciation and amortization expense increased 1.6% compared to last
year. The increase reflects capital additions placed in service since last
year, offset by the reduction in depreciable assets resulting from the sale
of retail stores, and lower depreciation resulting from the write down of
impaired assets recorded as part of the special charge last year.
Amortization of goodwill and other intangibles for the current and prior year
quarter was $1.5 million. Depreciation expense is expected to increase
during 1998 as implementation of HORIZONS continues, and greater portions of
the developed software are ready for use.
INTEREST EXPENSE
Interest expense decreased from $7.3 million in the prior year quarter, to
$6.9 million this year, a decline of 6.3%. The reduction is attributed to lower
debt levels brought about by the sale of receivables at the end of 1997 and
improved asset management. While the Company reduced its long-term borrowing
rates through refinancing, interest expense is expected to increase because a
greater portion of total debt is now based on a fixed interest rate which is
higher than the revolving debt rate it replaced.
INCOME TAXES
The effective tax rate for 1998 is estimated at 41.5%, compared to 41.9%
last year.
EARNINGS BEFORE EXTRAORDINARY CHARGE
Earnings before extraordinary charge were $2.6 million or $.23 per share
for the first quarter, compared to $3.1 million or $.27 per share last year.
The change in accounting for direct software development costs resulted in an
after tax benefit of $.8 million, or $.08 per share. Conversely, costs
associated with the transfer of business from Lexington, Kentucky to other
facilities adversely affected after tax earnings by $.4 million, or $.04 per
share.
-10-
<PAGE>
EXTRAORDINARY CHARGE
In conjunction with a planned senior subordinated debt offering, the
Company prepaid $106.3 million of senior notes, and paid prepayment premiums
and wrote off related deferred financing costs totaling $9.5 million, all with
drawings under the Company's revolving credit facility. This transaction
resulted in an extraordinary charge of $5.6 million or $.49 per share after
income tax benefits of $4.0 million.
YEAR 2000
The Company's resolution to the year 2000 issue is substantially
incorporated in the system design of the HORIZONS project. In addition, since
all segments of the Company will not be initially impacted by HORIZONS, the
Company has been actively engaged in a process designed to mitigate any
detrimental effects from the year 2000 to any of these segments.
The Company has also initiated communications with its significant
suppliers and large customers to determine the extent to which the Company's
interface systems and operations are vulnerable to those third parties' failure
to rectify their own year 2000 services. However, there can be no guarantee
that the failure of its system, or others' systems, to operate properly beyond
1999, would not have an adverse effect on the Company's results of operations
or financial condition. The Company expects to be completed with year 2000
compliance in mid-1999 and believes that, with the HORIZONS project and
modifications of its existing software and systems, year 2000 compliance will
not pose significant operating problems.
Costs associated with a substantial portion of year 2000 compliance
coincide with the new software and system design of the HORIZONS project. The
cost of year 2000 compliance for business operations not affected by HORIZONS
is not expected to have a material effect on results of operations.
LIQUIDITY AND CAPITAL RESOURCES
Historically, the Company has financed the capital needs through a
combination of internal and external sources. These sources include cash flow
from operations, short-term bank borrowings, various types of long-term debt,
leasing and equity financing.
Operating activities generated positive net cash flows of $27.1 million
during the quarter compared to $5.0 million a year ago. The increase is
primarily due to higher accounts payables and accrued expenses and lower
accounts receivable. Working capital was $186.1 million at the end of the
quarter, a reduction of $13.8 million during the quarter. The current ratio
decreased from 1.68 at the end of fiscal 1997 to 1.59 at the end of the first
quarter.
-11-
<PAGE>
At March 28, 1998, the Company had $16.2 million in short-term debt
compared to $11.3 million at the end of last year.
During the quarter and in conjunction with a planned senior subordinated
debt offering, the Company prepaid $106.3 million of senior notes and paid
prepayment premiums of $9.4 million, all of which were financed temporarily
through its existing revolving credit facility.
On April 24, 1998, the Company completed the sale of $165 million 8.5%
senior subordinated notes due May 1, 2008, using the net proceeds from the
offering after fees and expenses, to reduce certain amounts borrowed under its
revolving credit facility.
Other transactions affecting liquidity during the quarter include capital
expenditures of $13.4 million, of which approximately $4.0 million related to
HORIZONS, and payment of a cash dividend of $.18 per share on March 13, 1998 to
shareholders of record on February 27, 1998.
The Company believes that borrowing under the revolving credit facility,
sale of subordinated notes, other credit agreements, cash flows from operating
activities and lease financings will be adequate to meet the Company's working
capital needs, planned capital expenditures and debt service obligations for
the foreseeable future.
FORWARD-LOOKING STATEMENTS
The information contained in this Form 10-Q includes forward-looking
statements made under the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995. Such forward-looking statements can be
identified by the use of words like "believes," "expects," "may," "will,"
"should," "anticipates" or similar expressions, as well as discussions of
strategy. Although such statements represent management's current expectations
based on available data, they are subject to risks, uncertainties and other
factors which could cause actual results to differ materially from those
anticipated. Such risks, uncertainties and other factors may include, but are
not limited to, the ability to: meet debt service obligations and maintain
future financial flexibility; respond to continuing competitive pricing
pressures; retain existing independent wholesale customers and attract new
accounts; successfully implement the HORIZONS system in a timely manner and
without substantial unexpected cost; otherwise address year 2000 issues as
they affect the Company, its customers and vendors; and fully integrate
acquisitions and realize expected synergies.
-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:
10.1 Third Amendment to Credit Agreement
27.1 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: May 12, 1998 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 Twelve Weeks Ended March 28, 1998
<TABLE>
<CAPTION>
Item No. Item Method of Filing
- -------- ---- ----------------
<C> <C> <C>
10.1 Third Amendment to Credit
Agreement Filed herewith.
27.1 Financial Data Schedule Filed herewith.
</TABLE>
-15-
<PAGE>
NASH-FINCH COMPANY
THIRD AMENDMENT TO CREDIT AGREEMENT
Harris Trust and Savings Bank,
as Administrative Agent
Chicago, Illinois
Other Banks party to the
Credit Agreement
Ladies and Gentlemen:
We refer to the Credit Agreement dated as of October 8, 1996 (such Credit
Agreement, as heretofore amended and as may be amended from time to time, being
hereinafter referred to as the "CREDIT AGREEMENT") and currently in effect
between you and us. Capitalized terms used without definition below shall have
the same meanings herein as they have in the Credit Agreement.
The Borrower has requested that the Banks make certain modifications to the
borrowing arrangements provided for in the Credit Agreement and the Banks have
agreed to accommodate such request by the Borrower on the terms and conditions
herein set forth.
1. AMENDMENTS
Upon satisfaction of the conditions precedent to effectiveness set forth
below, the Credit Agreement shall be amended as follows:
SECTION 1.01. NEW DEFINITIONS. Section 6.1 of the Credit Agreement shall
be amended by inserting the following new definitions in the appropriate
alphabetical location:
`SENIOR FUNDED DEBT' means, as of any time the same is to be
determined, Total Funded Debt other than the Senior Subordinated Debt.
`SENIOR LEVERAGE RATIO' means, as of any time the same is to be
determined, the ratio of Senior Funded Debt at such time to EBITDA for
the then four most recently completed fiscal quarters of the Borrower.
`SENIOR SUBORDINATED DEBT' means any debt securities to be issued by
the Borrower substantially concurrent with the satisfaction of all of
the conditions precedent set forth in Section 3 of the Third Amendment
to this Agreement on the terms, or on substantially the same terms but
in no event more burdensome on the Borrower in
<PAGE>
any material respect than the terms, in each case contained in the
February 23, 1998, 5:41 p.m. draft of the Description of Notes to
be included in the Offering Memorandum for such debt securities
(the "SUBORDINATED NOTE DESCRIPTION") which has previously been
forwarded to the Banks; PROVIDED, HOWEVER, that (i) such debt
securities shall bear interest prior to maturity or default at a
rate per annum not exceeding 12% per annum; (ii) such debt
securities shall not be subject to any call or similar option to
require mandatory prepayment (other than (A) by reason of a "CHANGE
OF CONTROL" as such term is defined in the Subordinated Note
Description and (B) in the case of an "ASSET SALE" as such term is
defined in the Subordinated Note Description) at any time prior to
five calendar years following the issuance of such debt securities;
(iii) such debt securities shall not require (other than upon the
occurrence of any "EVENT OF DEFAULT" as such term is defined in the
Subordinated Note Description) any scheduled payment or prepayment
of principal thereon, or any scheduled acquisition or retirement
thereof by the issuer, in each case prior to ten calendar years
following the issuance of such debt securities; (iv) no covenant
relating to the financial performance or financial condition of the
Borrower or any Subsidiary shall govern the maturity or
amortization of such debt securities other than the financial
covenant described in the Subordinated Note Description that would
prohibit the Borrower and its Subsidiaries from incurring
additional Indebtedness (other than (A) the Obligations, (B)
Indebtedness outstanding as of the date of issuance of such debt
securities, and (C) the other Indebtedness which the Subordinated
Note Description states will be permitted whether or not the
Borrower is in compliance with such financial covenant) if the
Consolidated Fixed Charge Coverage Ratio (as such term is defined
in the Subordinated Note Description) were, after giving effect to
such incurrence, less than a level that is no higher than 2.25 to
1; and (v) the proceeds of such debt securities are used solely for
any one or more of the following: (A) the prepayment (including any
applicable prepayment premiums) of the Existing NF Term Debt and
the Existing Super Food Debt, (B) the payment of reasonable fees,
commissions and underwriting discounts directly incurred and
payable by the Borrower in connection with the issuance of the
Senior Subordinated Debt and (C) the prepayment of the Loans
hereunder.
SECTION 1.02. The definition of "EXISTING DEBT" appearing in Section 6.1
of the Credit Agreement shall be amended by inserting the following sentence
immediately at the end thereof:
-2-
<PAGE>
"Any reference in this Agreement to any Existing Debt shall be
deemed a reference to such Existing Debt as listed on the relevant
Exhibit attached hereto, as the same may from time to time be modified
or amended (but without any increase in the principal amount
thereof)."
SECTION 1.03. NEW LIMITS ON AGGREGATE INDEBTEDNESS. Section 9.12 of the
Credit Agreement shall be amended in its entirety and as so amended shall be
restated to read as follows:
"SECTION 9.12. LIMIT ON AGGREGATE INDEBTEDNESS. The Borrower
shall not permit any Subsidiary to issue, incur, assume, create or
have outstanding any Indebtedness (other than (i) intercompany
Indebtedness owed to the Borrower or any other Subsidiary, (ii)
liabilities of the Subsidiaries under the Subsidiary Guarantee
Agreements, (iii) liabilities of the Subsidiaries on their
Guarantees of the Senior Subordinated Debt and (iv) liabilities
incurred in connection with securitization transactions permitted
by Section 9.15 hereof) aggregating more than 5% of Total Assets."
SECTION 1.04. SUBSIDIARY GUARANTEES. Section 9.14 of the Credit Agreement
is hereby amended by adding thereto a new sentence immediately at the end
thereof which reads as follows:
"Notwithstanding anything contained herein to the contrary,
nothing contained in this Section 9.14 shall operate to prohibit
the execution by the Subsidiaries of Guarantees of the Senior
Subordinated Debt if and so long as any and all of the holders'
claims for payment on such Guarantees are subordinated in right of
payment to the prior payment of the Loans and other obligations
under the Loan Documents on the same or substantially the same
terms as the Senior Subordinated Debt."
SECTION 1.05. SPECIAL PURPOSE VEHICLE. Section 9.1 of the Credit
Agreement is hereby amended by adding thereto a new sentence immediately at the
end thereof which reads as follows:
"Notwithstanding anything contained herein to the contrary,
neither Nash-Finch Funding Corp. nor any other Subsidiary of the
Borrower shall be required to execute a Subsidiary Guarantee
Agreement if and so long as the sole purpose and function of such
Subsidiary is to act as a special purpose vehicle for a
securitization or other similar transaction permitted by Section
9.15 hereof involving accounts receivable of, or loans owed to, the
Borrower or any other Subsidiary."
SECTION 1.06. NEW LEVERAGE RATIO LEVELS. Section 9.9 of the Credit
Agreement shall be amended and as so amended shall be restated in its entirety
to read as follows:
-3-
<PAGE>
"SECTION 9.9. LEVERAGE RATIO. The Borrower shall not, as of
the close of any fiscal quarter of the Borrower set forth below,
permit the Leverage Ratio to be more than the amount set forth to
the right of such quarter:
As of Close of each Fiscal Quarter:
Leverage Ratio Shall
From and Including To and Including Not be More Than:
------------------ ---------------- -----------------
1st fiscal quarter of 3rd fiscal quarter of 4.75 to 1
fiscal year 1998 fiscal year 1998
4th fiscal quarter of 1st fiscal quarter of 4.50 to 1
fiscal year 1998 fiscal year 1999
2nd fiscal quarter of 1st fiscal quarter of 4.25 to 1
fiscal year 1999 fiscal year 2000
2nd fiscal quarter of each fiscal quarter 4.00 to 1
fiscal year 2000 thereafter
SECTION 1.07. NEW INTEREST COVERAGE RATIO LEVELS. Section 9.10 shall be
amended and as so amended shall be restated in its entirety to read as follows:
SECTION 9.10. INTEREST COVERAGE RATIO. The Borrower shall
not, as of the close of any fiscal quarter of the Borrower set
forth below, permit the Interest Coverage Ratio to be less than the
amount set forth to the right of such period:
As of Close of each Fiscal Quarter:
Interest Coverage Ratio
Shall
From and Including To and Including Not be Less Than:
------------------ ---------------- -----------------
1st fiscal quarter of 1st fiscal quarter of 2.50 to 1
fiscal year 1998 fiscal year 2000
2d fiscal quarter of each fiscal quarter 2.75 to 1
fiscal year 2000 thereafter
SECTION 1.08 SECURITIZATION OF LOANS RECEIVABLE. Section 9.15 of the
Credit Agreement shall be amended by inserting the following new sentence
immediately at the end thereof:
-4-
<PAGE>
"Notwithstanding the foregoing, this Section shall neither apply
to nor operate to prohibit the sale by the Borrower or any Subsidiary
of loans receivable owing the Borrower and its Subsidiaries in the
ordinary course of their business to Persons other than Affiliates
provided that (i) such sale is part of a securitization or similar
financing transaction and (ii) the aggregate face amount of loans
receivable sold and outstanding at any one time, when taken together
with the aggregate face amount of accounts receivable sold and
outstanding pursuant to securitization or similar financing
transactions permitted by Section 9.15 above, does not exceed
$75,000,000.
SECTION 1.09. RESTRICTED PAYMENT OF SUB DEBT. Section 9 of the Credit
Agreement shall be amended by adding thereto a new Section 9.21 which reads as
follows:
"SECTION 9.21. SUB DEBT PAYMENTS. The Company will not, and will
not permit any Subsidiary to, directly or indirectly make any payment
or other distribution on or in respect of any principal, interest or
premium, if any, of any of the Senior Subordinated Debt or otherwise
acquire, prepay or retire any of such indebtedness (such payments,
distributions, acquisitions, prepayments or retirements being
hereinafter referred to collectively as "SUB DEBT PAYMENTS") if:
(x) such Sub Debt Payment would be made prior to the
scheduled maturity thereof or prior to any other times required
for payment thereof as are in force and effect as of the date of
issuance of such Indebtedness; or
(y) such Sub Debt Payment would be prohibited under the
terms of any instrument subordinating such indebtedness to the
prior payment of the Loans or any of the other obligations under
the Loan Documents;
PROVIDED, HOWEVER, that the immediately preceding clause (x) of this
Section shall not prohibit (A) a Sub Debt Payment consisting of the
Company's exercise of the option described in the Offering Memorandum
for its redemption of the Senior Subordinated Debt out of the proceeds
of, and substantially concurrent with, the Borrower's issuance and
sale through an underwritten public offering of its capital stock
provided that (i) not more than 50% of the net proceeds of such
offering (net proceeds for such purposes to mean a gross proceeds of
such offering net of reasonable underwriting discounts and commissions
and other reasonable costs directly incurred and payable as a result
of such offering) are so used, (ii) not more than 35% of the Senior
Subordinated Debt then
-5-
<PAGE>
outstanding is so prepaid and (iii) at the time of such Sub Debt
Payment and immediately after giving effect thereto, no Default or
Event of Default shall occur or be continuing and (B) Sub Debt
Payments out of the proceeds of Asset Sales (as defined in the
Subordinated Note Description) as and to the extent described in
the Subordinated Note Description provided that at the time of each
such Sub Debt Payment and immediately after giving effect thereto, no
Default or Event of Default shall occur or be continuing."
SECTION 1.10. NEW SENIOR LEVERAGE RATIO. Section 9 of the Credit
Agreement shall be amended by adding thereto a new Section 9.22 which reads
as follows:
SECTION 9.22. SENIOR LEVERAGE RATIO. The Borrower shall not, as
of the close of any fiscal quarter of the Borrower set forth below,
permit the Senior Leverage Ratio to be more than the amount set forth
to the right of such period:
As of Close of each Fiscal Quarter:
Senior Leverage Ratio
Shall
From and Including To and Including Not be More Than:
------------------ ---------------- -----------------
1st fiscal quarter of 1st fiscal quarter of 3.50 to 1
fiscal year 1998 fiscal year 1999
2nd fiscal quarter of 1st fiscal quarter of 3.25 to 1
fiscal year 1999 fiscal year 2000
2nd fiscal quarter of each fiscal quarter 3.00 to 1
fiscal year 2000 thereafter
SECTION 1.11. NEW INTEREST COVERAGE RATIO DEFINITION. The definition
of "INTEREST COVERAGE RATIO" appearing in Section 6.1 of the Credit Agreement
shall be amended in its entirety and as so amended shall be restated to read
as follows:
"`INTEREST COVERAGE RATIO' means, for any period of four
consecutive fiscal quarters of the Borrower ending with the most
recently completed such fiscal quarter, the ratio of EBITDA to
Interest Expense for such period."
SECTION 1.12. ADDITIONAL CHANGE OF CONTROL. The definition of "CHANGE OF
CONTROL" appearing in Section 6.1 of the Credit Agreement shall be amended by
inserting the following new sentence immediately at the end thereof:
-6-
<PAGE>
"A "CHANGE OF CONTROL" shall also include each similar event
(including for such purposes, any event similarly defined) entitling
any holder of the Senior Subordinated Debt to accelerate its maturity
or require its purchase prior to scheduled maturity by the Borrower or
any Subsidiary."
SECTION 1.13. CONSOLIDATED NET INCOME. The definition of the term
"CONSOLIDATED NET INCOME" in Section 6.1 of the Credit Agreement shall be
amended by inserting the following immediately at the end thereof:
"The foregoing to the contrary notwithstanding, for purposes of
determining Consolidated Net Income for each period which includes the
third fiscal quarter of the Borrower for its 1997 fiscal year,
Consolidated Net Income shall not include a deduction for the Third
Quarter 1997 Charge."
2. REDUCTION OF COMMITMENTS.
By its execution hereof, each of the parties hereto acknowledges that the
Commitments have heretofore already been reduced to an aggregate amount equal to
$360,000,000 in accordance with the provisions of Section 3.6 of the Credit
Agreement, effective as of March 2, 1998.
3. CONDITIONS PRECEDENT.
The effectiveness of this Amendment is subject to the satisfaction of
all of the following conditions precedent:
(a) The Borrower and the Required Banks shall have executed this
Amendment.
(b) The Borrower shall have received gross proceeds from the issuance
of the Senior Subordinated Debt in an amount not less than $140,000,000 and
the Administrative Agent shall have received assurances reasonably
satisfactory to it of the foregoing.
(c) Legal matters incident to the Borrower's issuance of the Senior
Subordinated Debt shall be satisfactory to the Required Banks and their
counsel.
(d) Legal matters incident to the execution and delivery of this
Amendment shall be satisfactory to the Required Banks and their counsel.
Notwithstanding the foregoing, Sections 1.03 and 1.05 of this Amendment shall be
effective as of December 1, 1997 upon satisfaction of the conditions precedent
set forth in Sections 3(a) and 3(d) above.
-7-
<PAGE>
4. REPRESENTATIONS REAFFIRMED.
In order to induce the Banks to execute and deliver this Agreement, the
Borrower hereby represents to the Banks that as of the date hereof and as of the
time that this Amendment becomes effective, each of the representations and
warranties set forth in Section 7 of the Credit Agreement, after giving effect
to the amendments made hereby, are and shall be true and correct (except that
the representations contained in Section 7.4 shall be deemed to refer to the
most recent financial statements of the Borrower delivered to the Banks).
5. MISCELLANEOUS.
This Amendment may be executed in any number of counterparts and by
different parties hereto on separate counterparts, each of which when so
executed shall be an original but all of which shall constitute one and the same
instrument. Except as specifically amended and modified hereby, all of the
terms and conditions of the Credit Agreement shall stand and remain unchanged
and in full force and effect. No reference to this Amendment need be made in
any note, instrument or other document making reference to the Credit Agreement,
any reference to the Credit Agreement in any such note, instrument or other
document to be deemed to be a reference to the Credit Agreement as amended
hereby. The Borrower confirms its agreement to pay the reasonable fees and
disbursements of Messrs. Chapman and Cutler, counsel to the Administrative
Agent, in connection with the preparation, execution and delivery of this
Amendment and the transactions and documents contemplated hereby. This
instrument shall be construed and governed by and in accordance with the laws of
the State of Illinois (without regard to principles of conflicts of laws).
-8-
<PAGE>
Dated as of this 23rd day of March, 1998.
NASH-FINCH COMPANY
By
--------------------------------
Name:
---------------------------
Title:
--------------------------
Accepted and agreed to as of the date last above written.
HARRIS TRUST AND SAVINGS BANK, in
its individual capacity as a Bank
and as Administrative Agent
By /s/ [ILLEGIBLE]
--------------------------------
Its Vice President
PNC BANK, NATIONAL ASSOCIATION
By /s/ James A. Wisne
--------------------------------
Its Assistant Vice President
-----------------------------
ABN AMRO BANK N.V.
By
--------------------------------
Its
-----------------------------
By
--------------------------------
Its
-----------------------------
THE BANK OF TOKYO-MITSUBISHI, LTD.,
CHICAGO BRANCH
By /s/ [ILLEGIBLE]
--------------------------------
Its [ILLEGIBLE]
-----------------------------
-9-
<PAGE>
CIBC Inc.
By /s/ [ILLEGIBLE]
--------------------------------
Its [ILLEGIBLE]
-----------------------------
ISTITUTO BANCARIO SANPAOLO DI
TORINO SPA
By
--------------------------------
Its
-----------------------------
KEYBANK, N.A.
By /s/ [ILLEGIBLE]
--------------------------------
Its Vice President
-----------------------------
COMMERZBANK AKTIENGESELLSCHAFT
CHICAGO BRANCH
By /s/ [ILLEGIBLE]
--------------------------------
Its [ILLEGIBLE]
-----------------------------
By /s/ [ILLEGIBLE]
--------------------------------
Its [ILLEGIBLE]
-----------------------------
CREDIT LYONNAIS, CHICAGO BRANCH
By
--------------------------------
Its
-----------------------------
THE FUJI BANK, LIMITED
By /s/ [ILLEGIBLE]
--------------------------------
Its Joint General Manager
-----------------------------
-10-
<PAGE>
CAISSE NATIONALE DE CREDIT AGRICOLE
By
--------------------------------
Its
-----------------------------
FIRST BANK NATIONAL ASSOCIATION
By /s/ [ILLEGIBLE]
--------------------------------
Its Vice President
-----------------------------
MELLON BANK, N.A.
By /s/ Martin J. Randal
--------------------------------
Its Assistant Vice President
-----------------------------
THE SAKURA BANK, LIMITED
By
--------------------------------
Its
-----------------------------
SUNTRUST BANK, ATLANTA
By /s/ [ILLEGIBLE]
--------------------------------
Its Vice President
-----------------------------
THE MITSUBISHI TRUST AND BANKING
CORPORATION
By /s/ [ILLEGIBLE]
--------------------------------
Its Chief Manager
-----------------------------
NATIONAL CITY BANK OF COLUMBUS
By /s/ [ILLEGIBLE]
--------------------------------
Its Vice President
-----------------------------
-11-
<PAGE>
THE SANWA BANK, LIMITED
By /s/ Kenneth C. Eichwald
--------------------------------
Its First Vice President and
Assistant General Manager
-----------------------------
THE SUMITOMO BANK, LIMITED
By /s/ Ken Ichiko Kobayashi
--------------------------------
Its Joint General Manager
-----------------------------
BANKERS TRUST COMPANY
By /s/ James Reilly
--------------------------------
Its Vice President
-----------------------------
THE BANK OF NEW YORK
By /s/ [ILLEGIBLE]
--------------------------------
Its Vice President
-----------------------------
MITSUI TRUST AND BANKING COMPANY,
LIMITED
By /s/ Margaret Holloway
--------------------------------
Its Vice President & Manager
-----------------------------
-12-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-02-1999
<PERIOD-START> JAN-04-1998
<PERIOD-END> MAR-28-1998
<CASH> 773
<SECURITIES> 0
<RECEIVABLES> 157,168
<ALLOWANCES> 19,466
<INVENTORY> 287,991
<CURRENT-ASSETS> 501,480
<PP&E> 597,211
<DEPRECIATION> 319,203
<TOTAL-ASSETS> 912,423
<CURRENT-LIABILITIES> 315,366
<BONDS> 324,145
0
0
<COMMON> 19,292
<OTHER-SE> 203,529
<TOTAL-LIABILITY-AND-EQUITY> 912,423
<SALES> 925,958
<TOTAL-REVENUES> 937,101
<CGS> 820,360
<TOTAL-COSTS> 105,228
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 160
<INTEREST-EXPENSE> 6,860
<INCOME-PRETAX> 4,493
<INCOME-TAX> 1,865
<INCOME-CONTINUING> 2,628
<DISCONTINUED> 0
<EXTRAORDINARY> (5,569)<F1>
<CHANGES> 0
<NET-INCOME> (2,941)
<EPS-PRIMARY> (.26)
<EPS-DILUTED> (.26)
<FN>
<F1>Loss from early extinguishment of debt, net of income tax benefit of
$3,951.
</FN>
</TABLE>
