<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 twenty-four weeks ended June 19, 1999
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 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)
(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 July 26, 1999:
11,342,897 shares
<PAGE>
PART I - FINANCIAL INFORMATION
This report is for the twenty-four week interim period beginning January
3, 1999, through June 19, 1999.
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
auditors and is subject to any adjustments which may develop in connection with
the annual audit of its accounts by the Company's independent auditors.
<PAGE>
NASH FINCH COMPANY AND SUBSIDIARIES
Condensed Consolidated Statements of Operations (unaudited)
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Twelve Weeks Ended Twenty-four Weeks Ended
--------------------------- ---------------------------
June 19, June 20, June 19, June 20,
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Total sales and revenues $ 935,951 973,069 1,870,747 1,906,035
Cost and expenses:
Cost of sales 841,694 881,212 1,686,771 1,725,688
Selling, general and administrative 74,001 69,205 144,943 134,046
Special charges - (1,262) - (1,262)
Depreciation and amortization 9,429 11,030 19,155 21,836
Interest expense 6,882 6,762 13,865 13,622
------------ ------------ ------------ ------------
Total costs and expenses 932,006 966,947 1,864,734 1,893,930
Earnings from continuing operations before income
taxes and extraordinary charge 3,945 6,122 6,013 12,105
Income taxes 1,673 2,542 2,549 4,807
------------ ------------ ------------ ------------
Earnings from continuing operations before
extraordinary charge 2,272 3,580 3,464 7,298
Discontinued operations:
Earnings (loss) from discontinued operations, net of
income tax - 36 - (1,055)
------------ ------------ ------------ ------------
Earnings before extraordinary charge 2,272 3,616 3,464 6,243
Extraordinary charge from early extinguishment
of debt, net of income tax benefit of $3,951 - - - 5,569
------------ ------------ ------------ ------------
Net earnings $ 2,272 3,616 3,464 674
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Basic and diluted earnings per share:
Earnings from continuing operations $ 0.20 0.32 0.31 0.65
Earnings (loss) from discontinued operations - - - (0.09)
------------ ------------ ------------ ------------
Earnings before extraordinary charge 0.20 0.32 0.31 0.55
Extraordinary charge from early extinguishment of debt,
net of income tax benefit - - - (0.49)
------------ ------------ ------------ ------------
Net earnings per share $ 0.20 0.32 0.31 0.06
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Weighted average number of common shares outstanding and common
equivalent shares outstanding:
Basic 11,333 11,314 11,332 11,307
Diluted 11,342 11,364 11,342 11,363
</TABLE>
- -------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
<PAGE>
NASH FINCH COMPANY AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
June 19, January 2,
1999 1999
-------------- ------------
(unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 4,355 848
Accounts and notes receivable, net 168,451 169,748
Inventories 238,035 267,040
Prepaid expenses 21,424 13,154
Deferred tax assets 17,468 16,318
-------------- ------------
Total current assets 449,733 467,108
Investments in affiliates 6,566 4,805
Notes receivable, noncurrent 24,250 12,936
Property, plant and equipment:
Land 31,151 25,386
Buildings and improvements 149,093 130,988
Furniture, fixtures and equipment 296,905 302,450
Leasehold improvements 60,624 61,983
Construction in progress 10,833 10,107
Assets under capitalized leases 27,842 24,878
-------------- ------------
576,448 555,792
Less accumulated depreciation and amortization (330,875) (333,414)
-------------- ------------
Net property, plant and equipment 245,573 222,378
Intangible assets, net 110,471 69,141
Investment in direct financing leases 15,808 16,155
Deferred tax asset - net 25,925 31,908
Other assets 8,195 8,664
-------------- ------------
Total assets $ 886,521 833,095
-------------- ------------
-------------- ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Outstanding checks $ 23,382 33,329
Short-term debt payable to banks 5,700 5,525
Current maturities of long-term debt and
capitalized lease obligations 1,840 2,563
Accounts payable 206,824 189,382
Accrued expenses 100,426 97,683
Income taxes 2,040 2,991
-------------- ------------
Total current liabilities 340,212 331,473
Long-term debt 338,229 293,280
Capitalized lease obligations 34,507 34,667
Deferred compensation 6,572 6,450
Other 9,077 10,752
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 in 1999
and 1998 19,292 19,292
Additional paid-in capital 17,949 17,944
Restricted stock (92) (113)
Retained earnings 122,607 121,185
-------------- ------------
159,756 158,308
Less cost of 233 shares and 234 shares of
common stock in treasury, respectively. (1,832) (1,835)
-------------- ------------
Total stockholders' equity 157,924 156,473
-------------- ------------
Total liabilities and stockholders' equity $ 886,521 833,095
-------------- ------------
-------------- ------------
</TABLE>
- -------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
<PAGE>
NASH FINCH COMPANY AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows (Unaudited)
(In thousands)
<TABLE>
<CAPTION>
Twenty-four Weeks Ended
----------------------------
June 19, June 20,
1999 1998
------------ ------------
<S> <C> <C>
Operating activities:
Net earnings $ 3,464 674
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 19,155 22,378
Provision for bad debts 1,487 976
Provision for losses (recovery from) closed lease locatio (506) 443
Extraordinary charges - extinguishment of debt - 142
Deferred income taxes 4,166 -
Deferred compensation (696) (218)
(Earnings) loss of equity investments (485) (231)
Other (839) 209
Changes in operating assets and liabilities:
Accounts and notes receivable 5,427 2,055
Inventories 44,273 13,841
Prepaid expenses (4,305) 2,485
Accounts payable 4,475 22,536
Accrued expenses (1,926) 5,619
Accrued expenses - special charge (3,338) (2,764)
Income taxes (1,209) 4,379
------------ ------------
Net cash provided by operating activities 69,143 72,524
------------ ------------
Investing activities:
Dividends received - 800
Disposal of property, plant and equipment 4,349 2,864
Additions to property, plant and equipment
excluding capital leases (20,558) (25,151)
Business acquired, net of cash acquired (57,261) (1,846)
Loans to customers (20,541) (7,788)
Payments from customers on loans 13,007 7,650
Sale (repurchase) of receivables 327 (3,001)
Other (579) (3,684)
------------ ------------
Net cash used for investing activities (81,256) (30,156)
------------ ------------
Financing activities:
Proceeds from long-term debt 449 165,000
Proceeds (Payments) from revolving debt 30,000 (74,000)
Dividends paid (2,042) (4,079)
Proceeds (payments) from short-term debt 175 (10,489)
Payments of long-term debt (2,947) (107,983)
Payments of capitalized lease obligations (765) (743)
Increase in outstanding checks (9,948) (10,471)
Other 697 296
------------ ------------
Net cash (used in) provided by financing activities 15,619 (42,469)
------------ ------------
Net increase (decrease) in cash $ 3,506 (101)
------------ ------------
------------ ------------
</TABLE>
- -------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
<PAGE>
NASH FINCH COMPANY AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
Fiscal period ended June 19, 1999
January 2, 1999 and January 3, 1998 Foreign
(In thousands, except per share amounts) Common Stock Additional currency
--------------------- paid-in Retained translation
Shares Amount capital earnings adjustment
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
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) - - - (61,637) -
Dividend declared of $.72 per share - - - (8,162) -
Treasury stock issued upon exercise of options - - 47 - -
Amortized compensation under restricted stock plan - - - - -
Repayment of notes receivable from holders of
restricted stock - - - - -
Distribution of stock pursuant to performance awards - - 246 - -
Treasury stock purchased - - - - -
Other 3 - -
--------- ----------- ---------- ------------ ------------
Balance at January 2, 1999 11,575 19,292 17,944 121,185 -
Net earnings - - - 3,464 -
Dividend declared of $.18 per share - - - (2,042) -
Amortized compensation under restricted stock plan - - - - -
Repayment of notes receivable from holders of
restricted stock - - - - -
Distribution of stock pursuant to performance awards - - 5 - -
--------- ----------- ---------- ------------ ------------
Balance at June 19, 1999 (unaudited) 11,575 19,292 17,949 122,607 -
--------- ----------- ---------- ------------ ------------
--------- ----------- ---------- ------------ ------------
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
Fiscal period ended June 19, 1999
January 2, 1999 and January 3, 1998
(In thousands, except per share amounts) Treasury Stock Total
Restricted -------------------- stockholders'
Stock Shares Amount equity
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
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) - - - (61,637)
Dividend declared of $.72 per share - - - (8,162)
Treasury stock issued upon exercise of options - 4 21 68
Amortized compensation under restricted stock plan 72 - - 72
Repayment of notes receivable from holders of
restricted stock 206 - - 206
Distribution of stock pursuant to performance awards - 15 75 321
Treasury stock purchased - (1) (16) (16)
Other - - - 3
--------- -------- ---------- -----------
Balance at January 2, 1999 (113) (234) (1,835) 156,473
Net earnings - - - 3,464
Dividend declared of $.18 per share - - - (2,042)
Amortized compensation under restricted stock plan 4 - - 4
Repayment of notes receivable from holders of
restricted stock 17 - - 17
Distribution of stock pursuant to performance awards - 1 3 8
--------- -------- ---------- -----------
Balance at June 19, 1999 (unaudited) (92) (233) $ (1,832) 157,924
--------- -------- ---------- -----------
--------- -------- ---------- -----------
</TABLE>
- ------------------------------------------------------------
See accompanying notes to consolidated financial statements.
<PAGE>
NASH FINCH COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 19, 1999
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 June 19, 1999, and January 2,
1999, and the result of operations for the 12-weeks ended June 19, 1999 and
June 20, 1998, and the changes in cash flows for the 24-week periods ended
June 19, 1999 and June 20, 1998, 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 $47.4 million and $47.1 million higher at June 19, 1999 and
January 2, 1999, respectively.
NOTE 3
The following table sets forth the computation of basic and diluted
earnings per share.
<TABLE>
<CAPTION>
Twelve Weeks Ended Twenty-four Weeks Ended
------------------------------ ------------------------------
June 19, June 20, June 19, June 20,
1999 1998 1999 1998
------------ ------------- ------------- -------------
<S> <C> <C> <C> <C>
Numerator:
Earnings from continuing operations $ 2,272 3,580 3,464 7,298
------------ ------------- ------------- -------------
Denominator:
Denominator of basic earnings per share;
weighted-average shares 11,333 11,314 11,332 11,307
Effect of dilutive securities:
Employee stock options 24 30
Contingent 9 26 10 26
------------ ------------- ------------- -------------
Dilutive common shares 9 50 10 56
Denominator for diluted earnings
per share; adjusted weighted
average shares 11,342 11,364 11,342 11,363
------------ ------------- ------------- -------------
------------ ------------- ------------- -------------
Basic earnings per share $ .20 .32 0.31 0.65
------------ ------------- ------------- -------------
------------ ------------- ------------- -------------
Diluted earnings per share $ .20 .32 0.31 0.65
------------ ------------- ------------- -------------
------------ ------------- ------------- -------------
</TABLE>
<PAGE>
NOTE 4
On June 10, 1999 the Company acquired Erickson's Diversified Corporation
(Erickson's) through a cash purchase of all of Erickson's outstanding capital
stock. Erickson's operates 18 supermarkets in Minnesota and Wisconsin with
annual sales of approximately $200 million. In addition to the stores, the
acquisition includes a number of real estate holdings in the two state market
area. The acquisition was accounted for as a purchase, with the cash purchase
price totaling $59.0 million (subject to purchase price adjustment),
initially allocated based on estimated fair values at date of acquisition,
pending final determination of certain acquired asset and liability
valuations. This preliminary allocation has resulted in acquired goodwill of
approximately $43.4 million, which is being amortized on a straight line
basis over 40 years.
The following unaudited pro forma information presents a summary of
consolidated earnings from continuing operations before extraordinary charge
as if the acquisition had taken place at the beginning of 1998.
<TABLE>
<CAPTION>
Twenty-Four Weeks Ended
--------------------------------------
June 19, 1999 June 20, 1998
------------- -------------
<S> <C> <C>
Revenues $1,966,986 $1,997,224
Earnings from continuing operations
before extraordinary charge 3,141 7,062
Basic and Diluted earnings per share .28 .62
</TABLE>
These unaudited pro forma results have been prepared for comparative
purpose only and include certain adjustments such as additional amortization
expense on acquired goodwill and increased interest expense on acquisition
debt. They do not purport to be indicative of the results of operations that
actually would have resulted had the acquisition occurred on the date
indicated, or may result in the future.
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. 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. 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
of doubtful accounts. As of January 2, 1999 and June 19, 1999 the Company had
sold $45.7 million and $47.4 million, respectively, of accounts receivable on a
non-recourse basis to NFFC. NFFC sold $36.8 million and $37.1
<PAGE>
million, respectively, of its undivided interest in such receivables to the
Purchaser, subject to specified collateral requirements.
NOTE 6
1998 SPECIAL CHARGES
During the fourth quarter of 1998, the Company recorded special charges,
totaling $68.5 million relative to abandonment and impairment of assets, and
consolidation of certain warehouse and retail stores. During the first half
of 1999, the Company closed distribution centers in Appleton, Wisconsin,
Grand Island, Nebraska and Liberal, Kansas, and closed three retail stores.
Costs totaling $2.4 million incurred largely as a result of the closure of
these units were charged to accrued expenses. During the second quarter of
1999, accruals in the amount of $1.2 million were reversed. These reversals
were primarily for properties originally scheduled for closure that were
sold. At June 19, 1999, remaining accrued liabilities established as a result
of the 1998 special charges totaled $25.1 million.
1997 SPECIAL CHARGES
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 half of 1999, costs
totaling $1.8 million incurred as a result of the closing of certain
warehouses and retail stores were charged to accrued expenses. During the
second quarter additional accruals in the amount of $1.5 million were
recorded primarily for additional losses for write-downs of tangible assets
on locations that have been closed and additional lease costs for one retail
store and one warehouse location closed in the second quarter of 1999. During
the second quarter accruals in the amount of $0.3 million were reversed.
These reversals resulted primarily from the final lease settlement and exit
from the Lexington, Kentucky warehouse which was closed in 1998. At June 19,
1999, remaining accrued liabilities established for purposes of the 1997
special charges totaled $6.9 million.
<PAGE>
NOTE 7
A summary of the Major Segments of the Business is as follows:
TWELVE WEEKS ENDED JUNE 19, 1999
<TABLE>
<CAPTION>
All
(In thousands) Wholesale Retail Military Other Totals
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues from external
customers $ 537,363 175,333 219,050 891 932,637
Intra segment revenues 105,668 - - 1,025 106,693
Segment pretax profit
(loss) 11,128 2,982 5,808 (140) 19,778
</TABLE>
TWELVE WEEKS ENDED JUNE 20, 1998
<TABLE>
<CAPTION>
All
(In thousands) Wholesale Retail Military Other Totals
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues from external
customers $ 581,280 176,744 212,316 616 970,956
Intra segment revenues 106,217 - - 651 106,868
Segment pretax profit
(loss) 11,827 2,277 5,623 12 19,739
</TABLE>
TWENTY-FOUR WEEKS ENDED JUNE 19, 1999
<TABLE>
<CAPTION>
All
(In thousands) Wholesale Retail Military Other Totals
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues from external
customers $1,080,618 337,854 443,225 1,459 1,863,156
Intra segment revenues 205,441 - - 2,202 207,643
Segment pretax profit
(loss) 19,941 3,540 11,962 (321) 35,122
</TABLE>
TWENTY-FOUR WEEKS ENDED JUNE 20, 1998
<TABLE>
<CAPTION>
All
(In thousands) Wholesale Retail Military Other Totals
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues from external
customers $1,134,939 347,792 418,457 1,168 1,902,356
Intra segment revenues 209,570 - - 1,301 210,871
Segment pretax profit
(loss) 20,530 2,526 10,891 (1) 33,946
</TABLE>
<PAGE>
Reconciliation to statements of operations
(In thousands)
12 WEEKS ENDED JUNE 19, 1999 AND JUNE 20, 1998
<TABLE>
<CAPTION>
1999 1998
-------------------- --------------------
<S> <C> <C>
PROFIT OR LOSS
Total profit for segments $ 19,778 19,739
Unallocated amounts
Adjustment of inventory to LIFO - (750)
Unallocated corporate overhead (15,833) (12,867)
-------------------- --------------------
Income from continuing operations
before income taxes $ 3,945 6,122
-------------------- --------------------
-------------------- --------------------
</TABLE>
24 WEEKS ENDED JUNE 19, 1999 AND JUNE 20, 1998
<TABLE>
<CAPTION>
1999 1998
-------------------- --------------------
<S> <C> <C>
PROFIT OR LOSS
Total profit for segments $ 35,122 33,946
Unallocated amounts
Adjustment of inventory to LIFO (300) (250)
Unallocated corporate overhead (28,809) (22,853)
Special charges - 1,262
-------------------- --------------------
Income from continuing operations
before income taxes $ 6,013 12,105
-------------------- --------------------
-------------------- --------------------
</TABLE>
NOTE 8
As of June 30, 1999 the Company sold its majority interest in Gillette
Dairy of the Black Hills, Inc. and Nebraska Dairies, Inc. to Marigold Foods,
Inc. ("Marigold"). Marigold purchased all of the outstanding shares of each
company for cash. The transaction is subject to finalization of a closing
balance sheet which should be completed in the third quarter. The Company
expects to realize approximately $15 million in cash from the sale.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
REVENUES
Total revenues for the second quarter were $936.0 million a decline of 3.8%
compared to the prior year quarter. For the twenty-four weeks, total revenues
were $1.871 billion compared to $1.906 billion last year, a decline of 1.8%.
The revenue declines are principally related to the wholesale segment which
has experienced both the loss of independent retail business in Nebraska and
business from a national chain in Colorado, since last year. Wholesale
revenues during the quarter were $537.4 million compared to $581.3 million, a
decrease of 7.6%. On a year to date basis, wholesale revenues were $1.1
billion, a decrease of 4.8% compared to last year. Revenues for the quarter
and year to date have also been negatively impacted by competitive pressures
in the Company's Michigan market area. However, on July 20, 1999 , the
Company announced that it had reached an agreement in principle to purchase
certain assets of Midwest Wholesale Food, Inc., a wholesale supplier to
grocery stores in the Detroit metro area. In addition, agreements have been
reached with owners of more than 40 stores serviced by Midwest, to have the
Company become their supplier. These stores will be serviced by the Company's
Bridgeport, Michigan distribution center in the third quarter.
Retail segment revenues for the quarter were $175.3 million compared to
$176.7 million last year, a decline of .8%. Same store sales declined .43%
after posting three consecutive quarters of growth. Intense competition in
the Iowa market offset same store sales gains realized in other market
regions. During the quarter the Company announced the acquisition of 18
Erickson's stores and two Smith's Food and Drug Stores in Cheyenne, Wyoming.
The effect of these acquisitions on revenues was minimal since they occurred
near the end of the quarter.
Military segment revenues increased 3.2% for the quarter over last year and
5.9% on a year to date basis. The increase is attributed to the introduction
of new product lines and stronger overseas business.
GROSS MARGIN
Gross margin for the quarter was 10.1% compared to 9.4% last year. The
improvement is attributed to a number of factors: better overall margins for
the retail segment as a result of a greater proportion of revenues derived
from higher margin departments within the stores, improvements at wholesale
due to efficiencies in warehousing and transportation which lower the cost of
sales, no impact of LIFO during the quarter compared to a LIFO charge of $.8
million last year and lastly, during the quarter retail revenues,
<PAGE>
which achieve higher margins, represented a greater portion of total Company
revenues compared to last year. On a year to date basis, margins for the
twenty-four weeks of 1999 were 9.8% compared to 9.5% for the same period last
year.
SELLING, GENERAL AND ADMINISTRATIVE
Selling , general and administrative expenses as a percent of total revenues
were 7.9% compared 7.1% a year ago. The current year quarter includes $4.3
million of costs related to the Company's Year 2000 remediation program and
$.3 million in costs associated with the closing of certain facilities which
could not be provided for as part of the 1998 restructuring charge. For the
year to date, selling, general and administrative expenses were 7.8% in 1999
compared to 7.0% in 1998. Again the primary factors for the increased expense
relate to Year 2000 remediation costs and non-recurring closed facilities
costs, which were $7.6 million and $1.6 million, respectively, for the
twenty-four week period.
DEPRECIATION EXPENSE
Depreciation and amortization expense decreased 14.5% compared to last year.
The decrease reflects a reduction in depreciable assets since last year due
to the closing of three distribution centers, closing or sale of thirteen
retail stores and the write down of impaired assets as part of the
restructuring charge recorded at the end of 1998. On a year to date basis,
depreciation and amortization expense decreased 12.3%. Amortization of
goodwill and other intangibles for the current and prior year quarters was
$1.6 million and $1.8 million, respectively. For the twenty-four weeks,
amortization expense was $3.1 million for 1999 and $3.3 million 1998.
INTEREST EXPENSE
Interest expense for the quarter was $6.9 million, an increase of 1.8% over
last year. The higher interest costs are attributed to higher average
borrowing rates partially offset by lower borrowing levels during the
quarter, due to inventory reductions compared to a year ago. Year to date
interest expense was $13.9 million compared to $13.6 million last year, an
increase of 1.8%.
EARNINGS FROM CONTINUING OPERATIONS BEFORE INCOME TAXES AND EXTRAORDINARY CHARGE
Earnings from continuing operations before income taxes and
extraordinary charge for the quarter and year to date were $3.9 million and
$6.0 million, respectively, compared to $6.1 million and $12.1 million,
respectively, last year. The reductions this year are primarily attributed to
Year 2000 remediation costs and non-recurring costs associated with the
closing of certain facilities which could not be provided for as part of the
1998 restructuring charge.
<PAGE>
INCOME TAXES
The effective income tax rate for 1999 is estimated at 42.4% compared to
a tax rate benefit of 32.2% for 1998. The 1998 annual rate was significantly
affected by losses related to the restructuring charges.
EXTRAORDINARY CHARGE
During the first quarter of 1998, the Company prepaid $106.3 million of
senior notes, and paid prepayment premiums and wrote-off related deferred
financing costs totaling $9.5 million. This transaction resulted in an
extraordinary charge of $5.6 million, or $.49 per share, after income tax
benefits of $3.9 million.
DISCONTINUED OPERATIONS
In October 1998, the Company adopted a plan to sell its produce growing
and marketing subsidiary, Nash-De Camp Company. On June 14, 1999 the Company
announced it had entered into a definitive agreement to sell Nash-De Camp to
Agriholding, Inc., a private company. The transaction is structured as a sale
of all outstanding stock of Nash-De Camp for a cash amount to be finalized at
closing but expected to be approximately of $17 million.
At January 2, 1999 the Company recorded an estimated pretax loss
resulting from the expected sale of Nash-De Camp Company of $27.5 million,
which includes a provision for anticipated operating losses until disposal of
$1.8 million. The sale of Nash-De Camp is expected to be completed in the
third quarter and should result in a gain to be recorded in the third quarter
of 1999.
<PAGE>
YEAR 2000
The Company is executing its remediation plan toward resolving Year 2000
issues. The plan addresses the modification and/or replacement of existing
business critical software and the identification of the non-information
technology systems that may be affected by Year 2000. In addition, the plan
assesses the readiness of third parties and the related risks to the Company
of their non-compliance. To expedite this Year 2000 solution, the Company has
reallocated internal resources and has contracted outside resources to assist
in the remediation effort. The Company's plan to assess and update systems
for Year 2000 compliance consists of three major phases: 1) Conducting a
complete INVENTORY and assessment of potentially affected business areas, 2)
REMEDIATION of affected systems and 3) TESTING remediated components. The
chart below shows the percent complete of each phase as of the end of the
second quarter of 1999:
<TABLE>
<CAPTION>
Inventory Remediation Testing
--------- ----------- -------
<S> <C> <C> <C>
I/T Systems 100% 65% 60%
Non-I/T Systems 100% 75% 50%
</TABLE>
The Company expects to complete all mission-critical areas of the project in
the third quarter of 1999 and is currently ahead of schedule.
The total cost for Year 2000 remediation is estimated at approximately $18.5
million, which includes $4.0 million for the purchase of new equipment that
will be capitalized and $14.5 million will be expensed. Project expenses
totaling $3.3 million and $4.3 million were incurred in the first and second
quarters of 1999, respectively, primarily for internal and external costs
associated with the modification of existing software and testing. Capital
expenditures to date have been $1.2 million. The total remaining expense
associated with the Year 2000 project is estimated to be approximately $3.9
million.
The costs or consequences of incomplete or untimely resolution of the Year
2000 issue may have a material effect on the Company's business, results of
operations and financial condition. However, at this time, the Company is
unable to measure the monetary impact of any such failure to comply or
failure of other parties on which it is dependent.
The Company has established contingency plans to provide viable alternatives
for the Company's core business processes. The plans describe the
communications, operations and activities necessary in the event of a Year
2000 systems related failure. Contingency planning is 100% complete with
plans in place.
LIQUIDITY AND CAPITAL RESOURCE
Historically, the Company has financed its 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
and lease financing.
<PAGE>
Cash flow provided from operations totaled $69.1 million for the quarter
compared to $72.5 million last year. The decline in operating cash flow
resulted primarily from changes in working capital partially offset by higher
net income for the current twenty-four week period. Working capital was
$109.5 million at the end of the quarter compared to $135.6 million at year
end. The current ratio decreased from 1.41 at the end of 1998 to 1.32 at the
end of the second quarter.
During the quarter the Company announced the acquisition of Erickson's
Diversified Corporation through the purchase of stock. The cash purchase
price of $59.0 million (subject to purchase price adjustment) was financed
through borrowings under the Company's revolving credit agreement. The
Company also announced the sales of its produce growing and marketing
subsidiary and its equity interest in two dairy operations. The combination
of these transactions should result in cash proceeds totaling approximately
$33.0 million, which will be used to pay down the revolving credit facility.
Both transactions are scheduled for completion in the third quarter.
Other transactions affecting liquidity during the twenty-four week
period include capital expenditures of $20.6 million, cash dividends of $2.0
million and the acquisition of two Wyoming retail stores for approximately
$1.3 million in cash.
The Company believes that borrowing under the revolving credit facility,
proceeds from its sale of subordinated notes in 1998, other credit
agreements, cash flows from operating activities and lease financing 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 Report includes
forward-looking statements made under the safe harbor provisions of the
Private Securities Litigation by the use of words like "believes," "expects,"
"may," "will," "should," "anticipates," or similar expressions, 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; address Year 2000 issues as
they affect the Company, its customers and vendors; and fully integrate
acquisitions and realize expected synergies.
<PAGE>
PART II - OTHER INFORMATION
Items 1, 2, 3 and 5 are not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
(a) The annual meeting of stockholders was held on May 11, 1999.
(b) Not required.(Proxies were solicited pursuant to Regulation 14A under
the Securities Exchange Act of 1934, there was no solicitation in
opposition to management's nominees as listed in the proxy statement,
and all of such nominees were elected.)
(c) At the annual meeting, the following proposals were presented to the
shareholders and voted upon: (1) election of directors, (2) adoption of
the 1999 Employee Stock Purchase Plan; (3) elimination of the
classified structure of the Board of Directors, and (4) prompt sale of
the Company to the highest bidder.
(1) ELECTION OF DIRECTORS.
Four director nominees were elected to serve for three-year
terms expiring in 2002, all of whom were incumbent directors.
The terms of the other seven directors do not expire until
2000 and 2001.
The director nominees and voting results are as follows:
<TABLE>
<CAPTION>
Votes Broker
Nominee Votes For Withheld Non-Votes
------- --------- -------- ---------
<S> <C> <C> <C>
Carole F. Bitter 8,951,038 333,246 - 0 -
Richard A. Fisher 8,859,559 424,725 - 0 -
John H. Grunewald 8,949,907 334,377 - 0 -
William R. Voss 8,945,177 339,106 - 0 -
</TABLE>
(2) ADOPTION OF THE 1999 EMPLOYEE STOCK PURCHASE PLAN.
The 1999 Employee Stock Purchase Plan was adopted by the
shareholders. The voting results are as follows:
<PAGE>
<TABLE>
<CAPTION>
Votes Broker
Votes For Votes Against Withheld Non-Votes
--------- ------------- -------- ---------
<S> <C> <C> <C>
8,878,000 344,550 61,733 0
</TABLE>
(3) ELIMINATION OF THE CLASSIFIED STRUCTURE OF THE BOARD OF DIRECTORS.
A stockholder proposal was introduced to request the Board of
Directors to take the necessary steps, in accordance with
state law, to declassify the Board of Directors so that all
directors are elected annually. This stockholder proposal
provided that such declassification was to be effected in a
manner that did not affect the unexpired terms of directors
previously elected.
The voting results are as follows:
<TABLE>
<CAPTION>
Broker
Votes For Votes Against Abstentions Non-Votes
--------- ------------- ----------- ---------
<S> <C> <C> <C>
2,884,167 4,370,622 116,584 1,912,911
</TABLE>
(4) PROMPT SALE OF NASH FINCH COMPANY TO THE HIGHEST BIDDER.
A stockholder proposal was introduced to urge the Board of
Directors to arrange for the prompt sale of Nash Finch Company
to the highest bidder.
The voting results are as follows:
<TABLE>
<CAPTION>
Broker
Votes For Votes Against Abstentions Non-Votes
--------- ------------- ----------- ---------
<S> <C> <C> <C>
619,935 6,605,817 145,620 1,912,911
</TABLE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) EXHIBITS.
27.1 Financial Data Schedule
(b) REPORTS ON FORM 8-K.
Not applicable.
<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: August 3, 1999 By /s/ John A. Haedicke
-------------------------
John A. Haedicke
Executive Vice President and Chief
Financial and Administrative Officer
By /s/ Lawrence A. Wojtasiak
-----------------------------
Lawrence A. Wojtasiak
Controller
<PAGE>
NASH FINCH COMPANY
EXHIBIT INDEX TO QUARTERLY REPORT
ON FORM 10-Q
For the Twenty-Four Weeks Ended June 19, 1999
<TABLE>
<CAPTION>
Item No. Item Method of Filing
- -------- ---- ----------------
<C> <S> <C>
27.1 Financial Data Schedule Filed herewith
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-01-2000
<PERIOD-START> JAN-03-1999
<PERIOD-END> JUN-19-1999
<CASH> 4,355
<SECURITIES> 0
<RECEIVABLES> 194,043
<ALLOWANCES> 25,592
<INVENTORY> 238,035
<CURRENT-ASSETS> 449,733
<PP&E> 576,448
<DEPRECIATION> 330,875
<TOTAL-ASSETS> 886,521
<CURRENT-LIABILITIES> 340,212
<BONDS> 338,229
0
0
<COMMON> 19,292
<OTHER-SE> 138,632
<TOTAL-LIABILITY-AND-EQUITY> 886,521
<SALES> 1,870,747
<TOTAL-REVENUES> 1,870,747
<CGS> 1,686,771
<TOTAL-COSTS> 129,591
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 1,487
<INTEREST-EXPENSE> 13,865
<INCOME-PRETAX> 6,013
<INCOME-TAX> 2,549
<INCOME-CONTINUING> 3,464
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,464
<EPS-BASIC> .31
<EPS-DILUTED> .31
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-01-2000
<PERIOD-START> JAN-03-1999
<PERIOD-END> MAR-27-1999
<CASH> 11,415
<SECURITIES> 0
<RECEIVABLES> 189,423
<ALLOWANCES> 25,161
<INVENTORY> 256,150
<CURRENT-ASSETS> 469,302
<PP&E> 557,462
<DEPRECIATION> 336,316
<TOTAL-ASSETS> 831,690
<CURRENT-LIABILITIES> 325,437
<BONDS> 298,606
0
0
<COMMON> 19,292
<OTHER-SE> 137,367
<TOTAL-LIABILITY-AND-EQUITY> 831,690
<SALES> 934,797
<TOTAL-REVENUES> 934,797
<CGS> 845,076
<TOTAL-COSTS> 79,783
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 885
<INTEREST-EXPENSE> 6,983
<INCOME-PRETAX> 2,070
<INCOME-TAX> 878
<INCOME-CONTINUING> 1,192
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,192
<EPS-BASIC> .11
<EPS-DILUTED> .11
</TABLE>
