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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
Annual Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the fiscal year ended: Commission file number:
January 2, 1999 0-785
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NASH-FINCH COMPANY
(Exact name of Registrant as specified in its charter)
Delaware 41-0431960
(State of Incorporation) (I.R.S. Employer
Identification No.)
7600 France Avenue South
P.O. Box 355
Minneapolis, Minnesota
(Address of principal 55440-0355
executive offices) (Zip Code)
Registrant's telephone number, including area code: (612) 832-0534
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Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $1.66-2/3 per share
Common Stock Purchase Rights
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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, and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
As of March 22, 1999, 11,341,887 shares of Common Stock of the
Registrant were outstanding, and the aggregate market value of the Common Stock
of the Registrant as of that date (based upon the last reported sale price of
the Common Stock at that date by the Nasdaq National Market), excluding
outstanding shares deemed beneficially owned by directors and officers, was
approximately $96,406,040.
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Parts I, II and IV of this Annual Report on Form 10-K incorporate by
reference information (to the extent specific pages are referred to herein) from
the Registrant's Annual Report to Stockholders for the Year Ended January 2,
1999 (the "1998 Annual Report"). Parts II and III of this Annual Report on Form
10-K incorporate by reference information (to the extent specific sections are
referred to herein) from the Registrant's Proxy Statement for its Annual Meeting
to be held on May 11, 1999 (the "1999 Proxy Statement").
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PART I
ITEM 1. BUSINESS.
A. GENERAL DEVELOPMENT OF BUSINESS.
Nash Finch Company, a Delaware corporation, was organized in 1921 as
the successor to a business established in 1885. Its principal executive
offices are located at 7600 France Avenue South, Edina, Minnesota 55435
(Telephone: 612-832-0534). Unless the context indicates otherwise, the term
"Company," as used in this Report, means Nash Finch Company and its consolidated
subsidiaries.
The Company is one of the largest food wholesalers in the United
States. Its business consists of three primary operating segments: (i) the
wholesale distribution segment, which supplies food and non-food items to
independently owned retail grocery stores, corporately owned retail grocery
stores and institutional customers; (ii) the retail segment, which is made up of
corporately owned retail grocery stores with a variety of store formats; and
(iii) the military distribution segment, which supplies food and related
products to military commissaries. Currently, the Company conducts its wholesale
and retail operations primarily in the Midwestern and Southeastern regions of
the United States and its military distribution operations primarily in the
Mid-Atlantic region of the United States.
Early in 1999, the Company announced a five-year strategic
revitalization plan to streamline its wholesale operations and build its retail
business. The new strategic plan resulted from an intensive diagnostic
assessment, conducted in 1998, of the entire Company's operations. During this
assessment, the performance of the Company was benchmarked against its
competitors in order to evaluate opportunities to improve profitability and
enhance shareholder value. The following strategic objectives were set:
- Focusing energies on wholesale and retail distribution of
supermarket products, primarily in Midwest and Southeast markets;
- Making wholesale operations sales driven and focused on premier
customer service and low cost;
- Enabling corporate retail to dominate its primary trade areas
through convenience, consistently excellent execution and superior
customer service;
- Utilizing business process changes aggressively to reduce costs
through productivity gains and to create a responsive management
structure; and
- Equipping employees with the required training and tools,
measuring success through contribution and performance.
The five-year strategic plan is expected to be implemented in three phases: (i)
Phase I - the stabilization of the Company's existing business; (ii) Phase II -
rebuilding the Company's foundation; and (iii) Phase III-growing the Company's
business. Within each phase, various initiatives will be established and
implemented. The timing and importance of each initiative will be determined in
accordance with how well it (i) leverages the Company's scale by centralizing
operations, (ii) attains operational efficiency, (iii) develops the Company's
retail competency, and (iv) enables the Company to pursue growth strategies.
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The Company has been taking steps during 1998 to begin the
implementation of Phase I and will continue to implement Phase I throughout
1999. The following list represents the five top initiatives within Phase I:
- REVAMPING THE ORGANIZATIONAL STRUCTURE AND MANAGEMENT PROCESS.
The Company's organizational structure has been realigned to
establish clear lines of accountability. Key performance
metrics have been established to measure success. A new
performance-based compensation program has been approved for
management that clearly aligns management's interests with
those of the Company's shareholders.
- DEVELOPING FUNCTIONAL INFORMATION SYSTEMS. The Company has decided
to halt the software development related to the Company's HORIZONS
project. This decision was driven by the need to shift resources
to a Year 2000 remediation plan, as well as a concern over the
functionality of the software platform. Year 2000 remediation is
now the Company's highest business priority.
- EVALUATING AND EXECUTING STRATEGIES FOR NON-CORE ASSETS,
UNDERPERFORMING DISTRIBUTION CENTERS, STORES AND PRODUCTS. All
business units and non-core assets will be, or have been,
reviewed. Assets that do not provide an acceptable rate of return
will be identified and the Company will evaluate its strategic
alternatives, including consolidation, sale or closure. Resources
will be focused on the Company's core wholesale distribution,
retail distribution and military operations.
- ENHANCING WORKING CAPITAL LEVERAGE. Steps were taken in 1998 to
strengthen the balance sheet and position the Company for future
growth.
- REDUCING COST STRUCTURE. The Company will more efficiently manage
labor in its corporate stores and distribution centers, and
improve transportation and warehousing costs. It is intended that
inventory levels will be brought in line with industry averages,
and product procurement and merchandising efforts will be
leveraged.
Related to the revitalization plan and the diagnostic assessment, the
Company recorded special pretax charges in the fourth quarter of 1998 totaling
$105.6 million, including charges associated with the reporting of the Company's
produce growing and marketing subsidiary as a discontinued operation.
In support of its focus on increasing efficiencies at its
distribution centers and decreasing operating costs, the Company closed its
warehouses in Lexington, Kentucky, and Grand Island, Nebraska during 1998.
The operations in Lexington were consolidated into the operations in
Cincinnati, Ohio and Bluefield, Virginia, whereas the Grand Island operations
were consolidated into the operations in Omaha, Nebraska and Denver,
Colorado. During the initial months of 1999, the Company has closed its
warehouses in Liberal, Kansas and Appleton, Wisconsin. The Liberal operations
have been consolidated into the operations in Denver, Colorado, whereas the
Appleton operations have been consolidated into the operations in Cedar
Rapids, Iowa, and St. Cloud, Minnesota. The Company also has plans to
consolidate the operations of Rocky Mount, North Carolina into the Lumberton
warehouse.
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Additional information relating to the Company's business, the new
strategic plan and related special charges are contained in the "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
section of the Company's 1998 Annual Report (Exhibit 13.1), pages 18-22, which
information is incorporated herein by reference.
B. FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS.
Financial information about the Company's business segments for the
most recent three fiscal years is contained on pages 35-36 of the 1998 Annual
Report (Note (15) to the Consolidated Financial Statements). For segment
financial reporting purposes, a portion of the operational profits of wholesale
distribution centers are allocated to retail operations to the extent that
merchandise is purchased by these distribution centers and transferred to retail
stores directly operated by the Company. For fiscal 1998, seventeen percent
(17%) of such warehouse operational profits were allocated to retail operations.
C. NARRATIVE DESCRIPTION OF THE BUSINESS.
1. WHOLESALE OPERATIONS.
a. PRODUCTS AND SERVICES.
The Company's wholesale operations are essentially divided into two
segments. The first segment sells and distributes a wide variety of food and
non-food products to independently owned and corporately owned retail grocery
stores (the "wholesale segment"). The second sells and distributes food and
non-food products to military commissaries (the "military segment"). In 1998,
the wholesale segment accounted for 60.0% of the Company's total revenues; the
military segment 22.1%.
The Company provides to its customers a full line of food products,
including dry groceries, fresh fruits and vegetables, frozen foods, fresh and
processed meat products and dairy products, and a variety of non-food
products, including health and beauty care, tobacco, paper products, cleaning
supplies and small household items. The Company primarily distributes and
sells nationally advertised branded products and a number of unbranded
products (principally meats and produce) purchased directly from various
manufacturers, processors and suppliers or through manufacturers'
representatives and brokers. The Company also distributes and sells private
label products that are branded primarily under the OUR FAMILY-Registered
Trademark- trademark, a long-standing private label of the Company, and the
FAME-Registered Trademark- trademark, which the Company obtained in the
acquisition of Super Food Services, Inc. ("Super Food"). Under its private
label line of products, the Company offers a wide variety of grocery, dairy,
packaged meat, frozen foods, health and beauty care products, paper and
household products, beverages, and other packaged products that have been
manufactured or processed by other companies on behalf of the Company.
The Company also offers to independent retailers a broad range of
services, including the following: (i) promotional, advertising and
merchandising programs; (ii) the installation of computerized ordering,
receiving and scanning systems; (iii) the establishment and supervision of
computerized retail accounting, budgeting and payroll systems; (iv) personnel
management assistance and employee training; (v) consumer and market research;
(vi) remodeling and store development services; and (vii) insurance programs.
The Company believes that its support services help the independent retailers
compete more effectively in their markets and build customer loyalty.
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The Company's retail counselors and other Company personnel advise and
counsel independent retailers, and directly provide many of the above services.
Separate charges may be made for some of these services. The Company also
provides retailers with marketing and store upgrade services, many of which have
been developed in connection with Company owned stores. For example, the Company
assists retailers in installing and operating delicatessens and other specialty
food sections. Rather than offering a single program for the services it
provides, the Company has developed multiple, flexible programs to serve the
needs of most independent retailers, whether rural or urban, large or small.
The Company's assistance to independent retailers in store development
provides a means of continued growth for the Company through the development of
new retail store locations and the enlargement or remodeling of existing retail
stores. Services provided include site selection, marketing studies, building
design, store layout and equipment planning and procurement. The Company assists
wholesale customers in securing existing supermarkets that are for sale from
time to time in market areas served by the Company and, occasionally, acquires
existing stores for resale to wholesale customers.
The Company also provides financial assistance to its independent
retailers generally in connection with new store development and the upgrading
or expansion of existing stores. For example, the Company makes secured loans to
some of its independent retailers, generally repayable over a period of five or
seven years, for inventories, store fixtures and equipment, working capital and
store improvements. Loans are secured by liens on inventory or equipment or
both, by personal guarantees and by other types of security. As of January 2,
1999, the Company had approximately $33.3 million outstanding of such secured
loans to 156 independent retailers. In addition, the Company may provide such
assistance to independent retailers by guarantying loans from financial
institutions and leases entered into directly with lessors. The Company also
uses its credit strength to lease supermarket locations for sublease to
independent retailers, at rates that are at least as high as the rent paid by
the Company.
b. CUSTOMERS.
The Company offers its products and services to approximately 2,000
independent retail grocery stores, U.S. military commissaries and other
customers in nearly thirty (30) states. As of the end of the fiscal year, no
customer accounted for a significant portion of the Company's sales.
The Company's wholesale segment customers are primarily self-service
retail grocery stores that carry a wide variety of grocery products, health
and beauty care products and general merchandise. Many of these stores also
have one or more specialty departments such as a delicatessen, an in-store
bakery, a restaurant, a pharmacy and a flower shop. The size of the
customers' stores ranges from 5,000 to 75,000 square feet.
The Company's military segment currently delivers products to
approximately eighty (80) U.S. military commissaries in the United States.
Due to the amount of revenue generated with the U.S. military commissaries
and the number of U.S. military commissaries that the Company does business
with, the Company believes that it is the largest distributor of groceries
and related products to such facilities in the United States.
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c. DISTRIBUTION.
The Company currently distributes products from eighteen (18)
distribution centers located in Colorado, Georgia, Iowa, Maryland, Michigan,
Minnesota, Nebraska, North Carolina (2), North Dakota (2), Ohio (3), South
Dakota (2), and Virginia (2). The Company's distribution centers are located at
strategic points to efficiently serve Company owned stores, independent
customers and military commissaries. The distribution centers are equipped with
modern materials handling equipment for receiving, storing and shipping goods
and merchandise and are designed for high-volume operations at low unit costs.
Distribution centers serve as central sources of supply for Company
owned and independent stores, military commissaries and other institutional
customers within their operating areas. Generally, the distribution centers
maintain complete inventories containing most national brand grocery products
sold in supermarkets and a wide variety of high-volume private label items. In
addition, distribution centers provide full lines of perishables, including
fresh meats and poultry, fresh fruits and vegetables (except Super Food
distribution centers), dairy and delicatessen products and frozen foods. Health
and beauty care products, general merchandise and specialty grocery products are
distributed from a dedicated area of a distribution center located in
Bellefontaine, Ohio, and from the distribution center located in Sioux Falls,
South Dakota. Retailers order their inventory requirements at regular intervals
through direct linkage with the Company's computers. Deliveries of product are
made primarily by the Company's transportation fleet. The frequency of
deliveries varies, depending upon customer needs. The Company currently has a
modern fleet of over 500 tractors and nearly 1050 semi-trailers, most of which
are owned by the Company. In addition, many types of meats, dairy products,
bakery and other products are sold by the Company but are delivered by the
suppliers directly to retail food stores.
Virtually all of the Company's wholesale sales to independent retailers
are made on a market price-plus-fee and freight basis, with the fee based on the
type of commodity and quantity purchased. Selling prices are changed promptly,
based on the latest market information.
The Company distributes groceries and related products directly to
military commissaries in the U.S., and distribution centers also provide
products for distribution to U.S. military commissaries in Europe and to ships
afloat. These distribution services are provided primarily under contractual
arrangements with the manufacturers of those products. The Company provides
storage, handling and transportation services for the manufacturers and, as
products ordered from the Company by the commissaries are delivered to the
commissaries, the Company invoices the manufacturers for the cost of the
merchandise delivered plus negotiated fees.
2. RETAIL OPERATIONS
As of January 2, 1999, the Company operated ninety-three (93) retail
stores primarily in the Midwestern and Southeastern states. These stores,
nineteen (19) of which the Company owns (the remainder are leased), range in
size up to approximately one hundred six thousand (106,000) square feet.
These stores offer a wide variety of high quality groceries, fresh fruits and
vegetables, dairy products, frozen foods, fresh fish, fresh and processed
meat and health and beauty care products. Many have specialty departments
such as delicatessens, bakeries, pharmacies, banks and floral and video
departments. In 1998, the retail segment accounted for 17.8% of the
Company's total revenues.
During 1999, the Company will reduce the number of regional store
names under which it operates from 17 to four: ECONOFOODS-Registered
Trademark-, SUN MART -Registered Trademark-, FAMILY THRIFT CENTER -TM- and
IGA (a registered trademark of IGA, Inc.). This will be done to build brand
equity and eliminate inefficiencies.
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As part of its revitalization plan, the Company has announced that it
is focused on strengthening its corporate retail presence, and plans to expand
this segment over five years so that it represents as much as 50 percent of
total Company sales.
3. PRODUCE GROWING AND MARKETING OPERATIONS
Through a wholly owned subsidiary, Nash-DeCamp Company
("Nash-DeCamp"), the Company grows, packs, ships and markets fresh fruits and
vegetables from locations in California and the countries of Chile and Mexico
to customers in the United States, Canada and overseas. For regulatory
reasons, the amount of business between Nash-DeCamp and the Company is
limited. The Company owns and operates three modern packing, shipping and/or
cold storage facilities that ship fresh grapes, plums, peaches, nectarines,
apricots, pears, persimmons, kiwi fruit and other products. The Company also
acts as marketing agent for other packers of fresh produce in California and
in the countries of Chile and Mexico. For the above services, the Company
receives, in addition to a selling commission, a fee for packing, handling
and shipping produce. The Company also owns vineyards and orchards for the
production of table grapes, tree fruit, kiwi and citrus. The Company has
announced that it is seeking to sell Nash-DeCamp during 1999, and for
financial reporting purposes is reporting this as a discontinued operation.
4. COMPETITION.
All segments of the Company's business are highly competitive. The
Company competes directly at the wholesale level with a number of cooperative
wholesalers and voluntary wholesalers that supply food and non-food products to
independent retailers. "Cooperative" wholesalers are wholesalers that are owned
by their retail customers. On the other hand, "voluntary" wholesalers are
wholesalers who, like the Company, are not owned by their retail customers but
sponsor a program under which single-unit or multi-unit independent retailers
may affiliate under a common name. Certain of these competing wholesalers may
also engage in distribution to military commissaries.
The Company also competes indirectly with the warehouse and
distribution operations of the large integrated grocery store chains. Such
retail grocery store chains own their wholesale operations and self-distribute
their food and non-food products.
At the wholesale level, the principal methods of competition are price,
quality, breadth and availability of products offered, strength of private label
brands offered, schedules and reliability of deliveries and the range and
quality of services offered, such as store financing and use of store names, and
the services offered to manufacturers of products sold to military commissaries.
The success of the Company's wholesale business also depends upon the ability of
its retail store customers to compete successfully with other retail food
stores.
The Company also competes on the retail level in a fragmented market
with many organizations of various sizes, ranging from national and regional
retail chains to local chains and privately owned unaffiliated stores. Depending
on the product and location involved, the principal methods of competition at
the retail level are price, quality and assortment, store location and format,
sales promotions, advertising, availability of parking, hours of operation and
store appeal.
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The Company competes directly in its produce marketing operations with
a large number of other firms that pack, ship and market produce. The Company
also competes indirectly with larger, integrated firms that grow, pack, ship and
market produce. The principal methods of competition in this segment are service
provided to growers and the ability to sell produce at the most favorable
prices.
5. EMPLOYEES.
As of January 2, 1999, the Company employed 11,750 persons (5,263 of
which were employed on a part-time basis). All employees are non-union,
except 704 employees who are unionized under various bargaining agreements.
The Company considers its employee relations to be good.
6. FORWARD LOOKING STATEMENTS.
The information contained in this report and in the documents
incorporated herein by reference include 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 upon available
data, they are subject to risks, uncertainties and other factors that 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: (i) meet debt service obligations and maintain future financial
flexibility; (ii) respond to continuing competitive pricing pressures; (iii)
retain existing independent wholesale customers and attract new accounts;
(iv) address Year 2000 issues as they affect the Company, its customers and
vendors; and (v) fully integrate acquisitions and realize expected synergies.
A more detailed description of some of the risk factors is set forth in
Exhibit 99.1.
ITEM 2. PROPERTIES.
The principal executive offices of the Company are located in Edina,
Minnesota, and consist of approximately 68,000 square feet of office space in a
building owned by the Company. The executive office for the Super Food
subsidiary is located in Dayton, Ohio and consists of 8,580 square feet of
leased office space. In addition to these executive offices, the Company leases
an additional 26,250 square feet of office space in Edina, Minnesota and St.
Louis Park, Minnesota as well as 14,580 square feet in Cincinnati, Ohio.
A. WHOLESALE DISTRIBUTION.
The locations and sizes of the Company's distribution centers used
primarily in its wholesale distribution operations are listed below (all of
which are owned, except as indicated). The distribution center facilities
that are leased have varying terms, all with remaining terms of less than 20
years.
<TABLE>
<CAPTION>
Approx. Size
Location (Square Feet)
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<S> <C>
Midwest/West:
Denver, Colorado (a) 335,800
Cedar Rapids, Iowa (b) 399,900
St. Cloud, Minnesota 329,000
Omaha, Nebraska (a) 626,900
Fargo, North Dakota (c) 303,800
Minot, North Dakota 185,200
Rapid City, South Dakota (d) 189,500
Sioux Falls, South Dakota (e) 271,100
Southeast:
Statesboro, Georgia (a) (f) 287,800
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<CAPTION>
Approx. Size
Location (Square Feet)
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<S> <C>
Lumberton, North Carolina (a) (g) 256,600
Rocky Mount, North Carolina (a) 191,800
Bluefield, Virginia 187,500
Super Food Services, Inc.
Bellefontaine, Ohio (h) 868,200
Cincinnati, Ohio 445,600
Bridgeport, Michigan (a) 604,500
Total Square Footage 5,483,200
</TABLE>
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(a) Leased facility.
(b) Includes 48,000 square feet that are leased by the Company.
(c) Includes 15,000 square feet that are leased by the Company.
(d) Includes 2,400 square feet that are leased by the Company.
(e) Includes 75,000 square feet that are leased by the Company.
(f) Includes 46,400 square feet that are owned by the Company.
(g) Includes 16,100 square feet of produce warehouse space located in
Wilmington, North Carolina that are leased by the Company. The warehouse
is currently being expanded to include an additional 95,900 square feet
of warehouse space.
(h) Includes 197,000 square feet that are leased by the Company. This
facility is considered by the Company to constitute two distribution
centers: (1) Super Food distribution center - distribution of dry
groceries, frozen foods, fresh and processed meat products, and a
variety of non-food products; and (2) General Merchandise Services
distribution center - distribution of health and beauty care products,
general merchandise and specialty grocery products. General Merchandise
Services, an operating unit of Super Food, utilizes approximately 254,000
square feet of the total space (owned and leased).
Various of these distribution centers also distribute products to military
commissaries located in their geographic area.
B. MILITARY DISTRIBUTION.
The locations and sizes of the Company's distribution centers used
primarily in its military distribution operations are listed below (each of
which is leased, except as indicated). The distribution center facilities
that are leased have varying terms, each with a remaining term of less than
20 years.
<TABLE>
<CAPTION>
Approx. Size
Location (Square Feet)
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<S> <C>
Baltimore, Maryland (a) 350,500
Norfolk, Virginia (a) (b) 568,600
Total Square Footage 919,100
</TABLE>
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(a) Leased facility.
(b) Includes 59,250 square feet that are owned by the Company.
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C. RETAIL OPERATIONS.
As of January 2, 1999, the aggregate square footage of the Company's
ninety-three (93) retail grocery stores totaled 2,649,650 square feet.
D. OTHER OPERATIONS.
Nash-DeCamp has executive offices comprising approximately 11,600
square feet of leased space in an office building located in Visalia,
California. It owns and operates three packing, shipping and/or cold storage
facilities in California in connection with its produce marketing operations,
with total space of approximately 174,000 square feet. In addition to such
storage facilities, Nash-DeCamp also owns approximately 879 acres for the
production of table grapes, 1,110 acres for the production of peaches, plums,
apricots, persimmons and nectarines, 42 acres for the production of citrus, and
252 acres of open ground for future development, all in San Joaquin Valley of
California. Nash-DeCamp also leases 185 acres for the production of tree fruit
located in the San Joaquin Valley and, through a 99%-owned Chilean subsidiary,
approximately 740 acres in Chile for the production of table grapes.
ITEM 3. LEGAL PROCEEDINGS.
The Company is subject to ordinary routine legal proceedings incidental
to its business. There are no pending matters, however, which are expected to
have a material impact on the business or financial condition of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matter was submitted to a vote of security holders during the fourth
quarter of the fiscal year covered by this Report.
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ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT.
The executive officers of the Company, their ages, the year first
elected or appointed as an executive officer and the offices held as of March
31, 1999 are as follows:
<TABLE>
<CAPTION>
Year First Elected or
Appointed as an
Name Age Executive Officer Title
- ---- --- ----------------- -----
<S> <C> <C> <C>
Ron Marshall 45 1998 President and Chief Executive Officer
John A. Haedicke 46 1999 Exec. Vice President, Chief Financial and
Administrative Officer
Bruce A. Cross 47 1998 Sr. Vice President and Chief Information Officer
John M. McCurry 50 1996 Sr. Vice President - Wholesale Operations
William A. Merrigan 54 1998 Sr. Vice President - Distribution & Logistics
Norman R. Soland 58 1986 Sr. Vice President, Secretary and General Counsel
Mark Ahlstrom 43 1999 Vice President - Category Management
Arthur L. Keeney 46 1998 Vice President - Corporate Retail Stores
Gerald D. Maurice 65 1993 Vice President - Store Development
Charles F. Ramsbacher 56 1991 Vice President - Marketing
John R. Scherer 48 1994 Vice President and Chief Financial Officer
Suzanne S. Allen 34 1996 Treasurer
Lawrence A. Wojtasiak 53 1990 Controller
</TABLE>
There are no family relationships between or among any of the executive
officers or directors of the Company. Executive officers of the Company are
elected by the Board of Directors for one-year terms, commencing with their
election at the first meeting of the Board of Directors immediately following
the annual meeting of stockholders and continuing until the next such meeting of
the Board of Directors.
Mr. Marshall was elected as President and Chief Executive Officer as of
June 1, 1998. Mr. Marshall previously served as Executive Vice President and
Chief Financial Officer of Pathmark Stores, Inc. (a retail grocery store chain)
from September 1994 to May 1998 and as Senior Vice President and Chief Financial
Officer of Dart Group Corporation (a retailer of groceries, auto parts and
books) from November 1991 to September 1994.
Mr. Haedicke was elected as Executive Vice President, Chief Financial
and Administrative Officer as of March 1, 1999. Mr. Haedicke previously served
as Executive Vice President and Chief Operating Officer of OneSource, a
third-party warehousing and consolidation service division of C&S Wholesale
Grocers, Inc. (a food wholesaler) from March 1997 to February 1999, Vice
President of Finance (ECR Division) of Kraft Foods, Inc. from September 1994 to
March 1997, and as Director, Activity Based Costing, of Coca-Cola Company from
December 1990 to September 1994.
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Mr. Cross was elected as Senior Vice President, Chief Information
Officer as of September 29, 1998. Mr. Cross previously served as Senior Project
Executive for IBM Global Services from January 1995 to September 1998 and as
Director of Information Services for Safeway, Inc. (a retail grocery store
chain) from May 1988 to May 1994.
Mr. McCurry was elected as Senior Vice President - Wholesale Operations
as of January 3, 1999. He previously served as Vice President, Independent Store
Operations from May 1996 to January 1999 and as Director of Independent Store
Operations from August 1993 to May 1996.
Mr. Merrigan was elected as Senior Vice President - Distribution and
Logistics as of November 30, 1998. He previously served as Vice President -
Logistics for Wakefern Food Corp. (a cooperative wholesale food distributor)
from August 1986 to November 1998.
Mr. Soland was elected as Senior Vice President on July 14, 1998, and
has served as Secretary and General Counsel since January 1986. He served as
Vice President, Secretary and General Counsel from May 1988 to July 1998.
Mr. Ahlstrom was elected as Vice President - Category Management on
February 17, 1999. He previously served as National Product Manager for American
Stores Company (a retail grocery store chain) from May 1996 to February 1999,
and as Director of Grocery for Ralphs Grocery Company (a retail grocery store
chain) from January 1994 to May 1996.
Mr. Keeney was elected as Vice President - Corporate Retail Stores on
July 14, 1998. He previously served as Director of Sales and Advertising for the
Super K Division of Kmart Corporation, from July 1995 to June 1998, as well as
its Director of Grocery Operations from December 1993 to July 1995.
Mr. Maurice was elected Vice President, Store Development in May 1993.
He previously served as an operating Vice President and division manager for
more than five years.
Mr. Ramsbacher has served as Vice President, Marketing since May 1991.
Mr. Scherer was appointed as Chief Financial Officer in November 1995
and elected as Vice President effective as of December 1994. He previously
served as Vice President, Planning and Financial Services from December 1994 to
November 1995, and as Director of Strategic Planning and Financial Services from
April 1994 to December 1994.
Ms. Allen was elected as Treasurer effective as of January 1996. She
previously served as Assistant Treasurer from May 1995 to January 1996, and
Treasury Manager from January 1993 to May 1995.
Mr. Wojtasiak has served as Controller since May 1990.
12
<PAGE>
PART II
ITEM 5. MARKET FOR COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The information under the caption "Price Range of Common Stock and
Dividends" on page 22 of the Company's 1998 Annual Report is incorporated herein
by reference.
ITEM 6. SELECTED FINANCIAL DATA
The financial information under the caption "Consolidated Summary of
Operations" on pages 38 and 39 of the Company's 1998 Annual Report is
incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The information under the caption "Management's Discussion and Analysis
of Financial Condition and Results of Operations" on pages 18-22 of the
Company's 1998 Annual Report is incorporated herein by reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The information under the caption "Liquidity and Capital Resources"
on pages 21-22 of the Company's 1998 Annual Report is incorporated herein by
reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Company's Consolidated Financial Statements and the report of its
independent auditors on pages 22-36 of the Company's 1998 Annual Report are
incorporated herein by reference, as is the unaudited information set forth
under the caption "Quarterly Financial Information" on page 37.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
A. DIRECTORS OF THE REGISTRANT.
The information under the captions "Election of Directors--Information
About Directors and Nominees" and "Election of Directors--Other Information
About Directors and Nominees" in the Company's 1999 Proxy Statement is
incorporated herein by reference.
13
<PAGE>
B. EXECUTIVE OFFICERS OF THE REGISTRANT.
Information concerning executive officers of the Company is included in
this Report under Item 4A, "Executive Officers of the Registrant".
C. COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT OF 1934.
Information under the caption "Section 16(a) Beneficial Ownership
Reporting Compliance" in the Company's 1999 Proxy Statement is incorporated
herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information under the captions "Election of Directors--Compensation
of Directors" and "Executive Compensation and Other Benefits" in the Company's
1999 Proxy Statement is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information under the captions "Security Ownership of Certain
Beneficial Owners" and "Security Ownership of Management" in the Company's 1999
Proxy Statement is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information under the captions "Election of Directors--Other
Information About Directors and Nominees" and "Executive Compensation and Other
Benefits--Indebtedness of Management" in the Company's 1999 Proxy Statement is
incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K
A. FINANCIAL STATEMENTS.
The following Financial Statements are incorporated herein by reference
from the pages indicated in the Company's 1998 Annual Report:
- Independent Auditors' Report -- page 22
- Consolidated Statements of Operations for the fiscal years
ended January 2, 1999, January 3, 1998, and December 28, 1996
-- page 23
- Consolidated Balance Sheets as of January 2, 1999 and January 3,
1998 -- page 24
- Consolidated Statements of Cash Flows for the fiscal years
ended January 2, 1999, January 3, 1998, and December 28, 1996 --
page 25.
- Consolidated Statements of Stockholders' Equity for the fiscal
years ended January 2, 1999, January 3, 1998, and December 28,
1996 -- page 26
14
<PAGE>
- Notes to Consolidated Financial Statements -- pages 27-36
B. FINANCIAL STATEMENT SCHEDULE.
The following financial statement schedules are included herein and
should be read in conjunction with the consolidated financial statements
referred to above (page numbers refer to pages in this Report):
- Valuation and Qualifying Accounts - page 18
- Other Schedules. Other schedules are omitted because the
required information is either inapplicable or presented in the
consolidated financial statements or related notes.
C. EXHIBITS.
The exhibits to this Report are listed in the Exhibit Index on pages
E-1 to E-9 herein.
A copy of any of these exhibits will be furnished at a reasonable cost
to any person who was a stockholder of the Company as of March 22, 1999, upon
receipt from any such person of a written request for any such exhibit. Such
request should be sent to Nash Finch Company, 7600 France Avenue South, P.O. Box
355, Minneapolis, Minnesota, 55440-0355, Attention: Secretary.
The following is a list of each management contract or compensatory
plan or arrangement required to be filed as an exhibit to this Annual Report on
Form 10-K pursuant to Item 14(c):
1. Nash Finch Profit Sharing Plan - 1994 Revision and Nash
Finch Profit Sharing Trust Agreement (as restated effective
January 1, 1994) (incorporated by reference to Exhibit 10.6 to
the Company's Annual Report on Form 10-K for the fiscal year
ended January 1, 1994 (File No. 0-785)).
2. Nash Finch Profit Sharing Plan - 1994 Revision - First
Declaration of Amendment (incorporated by reference to Exhibit
10.7 to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1994 (File No. 0-785)).
3. Nash Finch Profit Sharing Plan - 1994 Revision - Second
Declaration of Amendment (incorporated by reference to Exhibit
10.10 to the Company's Annual Report on Form 10-K for the
fiscal year ended December 30, 1995 (File No. 0-785)).
4. Nash Finch Profit Sharing Plan - 1994 Revision - Third
Declaration of Amendment (incorporated by reference to Exhibit
10.22 to the Company's Annual Report on Form 10-K for the
fiscal year ended January 3, 1998 (File No. 0-785)).
5. Nash Finch Profit Sharing Plan - 1994 Revision - Fourth
Declaration of Amendment (incorporated by reference to Exhibit
10.23 to the Company's Annual Report on Form 10-K for the
fiscal year ended January 3, 1998 (File No. 0-785)).
15
<PAGE>
6. Nash Finch Profit Sharing Plan - 1994 Revision - Fifth
Declaration of Amendment (incorporated by reference to Exhibit
10.24 to the Company's Annual Report on Form 10-K for the
fiscal year ended January 3, 1998 (File No. 0-785)).
7. Nash Finch Executive Incentive Bonus and Deferred
Compensation Plan (as amended and restated effective December
31, 1993) (incorporated by reference to Exhibit 10.7 to the
Company's Annual Report on Form 10-K for the fiscal year ended
January 1, 1994 (File No. 0-785)).
8. Excerpts from minutes of the November 11, 1986 meeting of
the Board of Directors regarding Nash Finch Pension Plan, as
amended (incorporated by reference to Exhibit 10.9 to the
Company's Annual Report on Form 10-K for the fiscal year ended
January 3, 1987 (File No. 0-785)).
9. Excerpts from minutes of the November 21, 1995 meeting of
the Board of Directors regarding Nash Finch Pension Plan, as
amended (incorporated by reference to Exhibit 10.13 to the
Company's Annual Report on Form 10-K for the fiscal year ended
December 30, 1995 (File No. 0-785)).
10. Excerpts from minutes of the April 9, 1996 meeting of the
Board of Directors regarding director compensation
(incorporated by reference to Exhibit 10.22 to the Company's
Annual Report on Form 10-K for the fiscal year ended December
28, 1996 (File No. 0-785)).
11. Excerpts from minutes of the November 19, 1996 meeting of
the Board of Directors regarding director compensation
(incorporated by reference to Exhibit 10.23 to the Company's
Annual Report on Form 10-K for the fiscal year ended December
28, 1996 (File No. 0-785)).
12. Form of letter agreement specifying benefits in the event
of termination of employment following a change in control of
Nash Finch (incorporated by reference to Exhibit 10.20 to the
Company's Annual Report on Form 10-K for the fiscal year ended
December 29, 1990 (File No. 0-785)).
13. Nash Finch Income Deferral Plan (incorporated by reference
to Exhibit 10.17 to the Company's Annual Report on Form 10-K
for the fiscal year ended January 1, 1994 (File No. 0-785)).
14. Nash Finch 1994 Stock Incentive Plan, as amended
(incorporated by reference to Exhibit 10.2 to the Company's
Quarterly Report on Form 10-Q for the period ended June 14,
1997 (File No. 0-785)).
15. Nash Finch 1995 Director Stock Option Plan (incorporated
by reference to Exhibit 10.2 to the Company's Quarterly Report
on Form 10-Q for the period ended June 17, 1995 (File No.
0-785)).
16. Nash Finch 1997 Non-Employee Director Stock Compensation
Plan (incorporated by reference to Exhibit 10.1 to the
Company's Quarterly Report on Form 10-Q for the period ended
June 14, 1997 (File No. 0-785)).
17. Excerpts from minutes of the November 17, 1998 meeting of
the Board of Directors regarding director compensation (filed
herewith as Exhibit 10.35)
16
<PAGE>
18. Retirement Agreement dated as of May 12, 1998 between
Alfred N. Flaten and the Company (incorporated by reference to
Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q
for the period ended October 10, 1998 (File No. 0-785)).
19. Offer of Employment to Ron Marshall dated May 7, 1998 from
Donald R. Miller, Board Chair (filed herewith).
D. REPORTS ON FORM 8-K:
No reports on Form 8-K were filed during the fourth quarter of the
fiscal year ended January 2, 1999.
17
<PAGE>
NASH FINCH COMPANY AND SUBSIDIARIES SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
FISCAL YEARS ENDED JANUARY 2, 1999 JANUARY 3, 1998 AND DECEMBER 28, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
Additions
-----------------------------------
Balance at Charged to
beginning costs and Due to
Description of year expenses acquisitions
- --------------------------------- ------------ ------------- ---------------
<S> <C> <C> <C>
52 weeks ended December 28, 1996:
Allowance for doubtful receivables (c) $4,880 1,893 23,314
Provision for losses relating to
leases on closed locations 2,758 195 2,599
------------ ------------- ---------------
$7,638 2,088 25,913
------------ ------------- ---------------
------------ ------------- ---------------
53 weeks ended January 3, 1998:
Allowance for doubtful receivables (c) $ 28,093 5,055 --
Provision for losses relating to
leases on closed locations 4,878 393 --
------------ ------------- ---------------
$32,971 5,448 --
------------ ------------- ---------------
------------ ------------- ---------------
52 weeks ended January 2, 1999:
Allowance for doubtful receivables (c) $26,668 10,637 --
Provision for losses relating to
leases on closed locations 4,317 4,205 --
------------ ------------- ---------------
$30,985 14,842 --
------------ ------------- ---------------
------------ ------------- ---------------
<CAPTION>
Charged
(credited) Balance
to other at end
Description accounts Deductions of year
- --------------------------------- ------------ ------------- ----------
<S> <C> <C> <C>
52 weeks ended December 28, 1996:
Allowance for doubtful receivables (c) 126 (a) 2,120 (b) 28,093
Provision for losses relating to
leases on closed locations -- 674 (d) 4,878
------------ ------------- ----------
126 2,794 32,971
------------ ------------- ----------
------------ ------------- ----------
53 weeks ended January 3, 1998:
Allowance for doubtful receivables (c) 67 (a) 6,547 (d) 26,668
Provision for losses relating to
leases on closed locations -- 954 (d) 4,317
------------ ------------- ----------
67 7,501 30,985
------------ ------------- ----------
------------ ------------- ----------
52 weeks ended January 2, 1999:
Allowance for doubtful receivables (c) 7 (a) 2,895 (b) 34,417
Provision for losses relating to
leases on closed locations -- 2,286 (d) 6,236
------------ ------------- ----------
7 5,181 40,653
------------ ------------- ----------
------------ ------------- ----------
</TABLE>
(a) Recoveries on accounts previously charged off.
(b) Accounts charged off.
(c) Includes current and non-current receivables.
(d) Payments of lease obligations.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Dated: April 2, 1999 NASH-FINCH COMPANY
By /s/ Ron Marshall
-------------------------------
Ron Marshall
President, Chief Executive
Officer, and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below on April 2, 1999 by the following persons on behalf
of the Registrant and in the capacities indicated.
<TABLE>
<S> <C>
/s/ Ron Marshall /s/ Lawrence A. Wojtasiak
- ---------------------------------------------------- --------------------------------------------
Ron Marshall, President, Lawrence A. Wojtasiak, Controller (Principal
Chief Executive Officer (Principal Executive Accounting Officer)
Officer) and Director
/s/ John A. Haedicke /s/ Carole F. Bitter
- ---------------------------------------------------- --------------------------------------------
John A. Haedicke, Chief Financial and Carole F. Bitter, Director
Administrative Officer (Principal Financial Officer)
/s/ Richard A. Fisher /s/ Jerry L. Ford
- ---------------------------------------------------- --------------------------------------------
Richard A. Fisher, Director Jerry L. Ford, Director
/s/ Allister P. Graham /s/ John H. Grunewald
- ---------------------------------------------------- --------------------------------------------
Allister P. Graham, Director John H. Grunewald, Director
/s/ Richard G. Lareau /s/ Donald R. Miller
- ---------------------------------------------------- --------------------------------------------
Richard G. Lareau, Director Donald R. Miller, Director
/s/ Robert F. Nash /s/ Jerome O. Rodysill
- ---------------------------------------------------- --------------------------------------------
Robert F. Nash, Director Jerome O. Rodysill, Director
- ----------------------------------------------------
William R. Voss, Director
</TABLE>
<PAGE>
NASH FINCH COMPANY
EXHIBIT INDEX TO ANNUAL REPORT
ON FORM 10-K
For Fiscal Year Ended January 2, 1999
<TABLE>
<CAPTION>
Item
No. Item Method of Filing
- ---- ---- ----------------
<S> <C> <C>
2.1 Agreement and Plan of
Merger dated as of October 8,
1996 among the Company, NFC
Acquisition Corporation,
and Super Food Services, Inc. Incorporated by reference
to Exhibit 2.1 to the
Company's Current Report on
Form 8-K dated November 22,
1996 (File No. 0-785).
3.1 Restated Certificate of
Incorporation of the
Company Incorporated by reference
to Exhibit 3.1 to the
Company's Annual Report on
Form 10-K for the fiscal
year ended December 28,
1985 (File No. 0-785).
3.2 Amendment to Restated
Certificate of Incorporation
of the Company, effective
May 29, 1986 Incorporated by reference
to Exhibit 19.1 to the
Company's Quarterly Report
on Form 10-Q for the
quarter ended October 4,
1986 (File No. 0-785).
3.3 Amendment to Restated
Certificate of Incorporation
of the Company, effective
May 15, 1987 Incorporated by reference
to Exhibit 4.5 to the
Company's Registration
Statement on Form S-3
(File No. 33-14871).
3.4 Bylaws of the Company
as amended, effective
November 21, 1995 Incorporated by reference
to Exhibit 3.4 to the
Company's Annual Report on
Form 10-K for the fiscal
year ended December 30,
1995 (File No. 0-785).
E-1
<PAGE>
<CAPTION>
Item
No. Item Method of Filing
- ---- ---- ----------------
<S> <C> <C>
4.1 Stockholder Rights
Agreement, dated
February 13, 1996, between
the Company and Norwest
Bank Minnesota,
National Association Incorporated by reference
to Exhibit 4 to the
Company's Current Report
on Form 8-K dated
February 13, 1996 (File
No. 0-785).
4.2 Indenture dated as of April 24,
1998 between the Company, the
Guarantors, and U.S. Bank Trust
National Association Incorporated by
reference to Exhibit 4.2
to the Company's
Registration Statement
on Form S-4 filed May
22, 1998 (File No.
333-53363).
4.3 Form of Company's 8.5% Senior
Subordinated Notes due 2008
Series A Incorporated by
reference to Exhibit 4.2
to the Company's
Quarterly Report on Form
10-Q for the quarter
ended June 20, 1998
(File No. 0-785).
4.4 Form of Company's 8.5% Senior
Subordinated Notes due 2008
Series B Incorporated by reference
to Exhibit 4.3 to the
Company's Quarterly
Report on Form 10-Q for
the quarter ended June
20, 1998 (File No.
0-785).
10.1 Note Agreements, dated
September 15, 1987, between
the Company and IDS Life
Insurance Company, and
between the Company and IDS
Life Insurance Company of New
York ("1987 Note Agreements") Incorporated by reference
to Exhibit 19.1 to the
Company's Quarterly Report
on Form 10-Q for the
quarter ended October 10,
1987 (File No. 0-785).
10.2 Note Agreements, dated
September 29, 1989,
between the Company
and Nationwide Life Insurance
Company, and between the
Company and West Coast Life
Insurance Company
("1989 Note Agreements") Incorporated by reference
to Exhibit 19.1 to the
Company's Quarterly Report
on Form 10-Q for the
quarter ended October 7,
1989 (File No. 0-785).
E-2
<PAGE>
<CAPTION>
Item
No. Item Method of Filing
- ---- ---- ----------------
<S> <C> <C>
10.3 Note Agreements dated
March 22, 1991, between the
Company and The Minnesota
Mutual Life Insurance
Company, and between the
Company and The Minnesota
Mutual Life Insurance Company
- Separate Account F
("1991 Note Agreements") Incorporated by reference
to Exhibit 19.1 to the
Company's Quarterly Report
on Form 10-Q for the
quarter ended March 23,
1991 (File No. 0-785).
10.4 Note Agreements, dated as of
February 15, 1993, between
the Company and Principal
Mutual Life Insurance Company,
and between the Company and
Aid Association for Lutherans
("1993 Note Agreements") Incorporated by reference
to Exhibit 19.1 to the
Company's Quarterly Report
on Form 10-Q for the
quarter ended March 27,
1993 (File No. 0-785).
10.5 Note Agreements, dated March 22,
1996, between the Company and
The Variable Annuity Life Insurance
Company, Independent Life and
Accident Insurance Company,
Northern Life Insurance Company,
and Northwestern National Life
Insurance Company
("1996 Note Agreements") Incorporated by reference
to Exhibit 10.6 to the
Company's Annual Report on
Form 10-K for the fiscal
year ended December 30,
1995 (File No. 0-785).
10.6 First Amendment to the
1987 Note Agreements, 1989
Note Agreements, 1991 Note
Agreements, 1993 Note
Agreements, and 1996 Note
Agreements dated
as of November 15, 1996 Incorporated by reference
to Exhibit 10.6 to the
Company's Annual Report on
Form 10-K for the fiscal
year ended December 28,
1996 (File No. 0-785).
E-3
<PAGE>
<CAPTION>
Item
No. Item Method of Filing
- ---- ---- ----------------
<S> <C> <C>
10.7 Second Amendment to the
1987 Note Agreements, 1989
Note Agreements, 1991 Note
Agreements, 1993 Note
Agreements, and 1996 Note
Agreements dated
as of November 15, 1996 Incorporated by reference
to Exhibit 10.7 to the
Company's Annual Report on
Form 10-K for the fiscal
year ended December 28,
1996 (File No. 0-785).
10.8 Third Amendment to the
1987 Note Agreements dated
as of January 15, 1997 Incorporated by reference
to Exhibit 10.8 to the
Company's Annual Report on
Form 10-K for the fiscal
year ended December 28,
1996 (File No. 0-785).
10.9 Third Amendment to the
1989 Note Agreements dated
as of January 15, 1997 Incorporated by reference
to Exhibit 10.9 to the
Company's Annual Report on
Form 10-K for the fiscal
year ended December 28,
1996 (File No. 0-785).
10.10 Third Amendment to the
1991 Note Agreements dated
as of January 15, 1997 Incorporated by reference
to Exhibit 10.10 to the
Company's Annual Report on
Form 10-K for the fiscal
year ended December 28,
1996 (File No. 0-785).
10.11 Third Amendment to the
1993 Note Agreements dated
as of January 15, 1997 Incorporated by reference
to Exhibit 10.11 to the
Company's Annual Report on
Form 10-K for the fiscal
year ended December 28,
1996 (File No. 0-785).
10.12 Third Amendment to the
1996 Note Agreements dated
as of January 15, 1997 Incorporated by reference
to Exhibit 10.12 to the
Company's Annual Report on
Form 10-K for the fiscal
year ended December 28,
1996 (File No. 0-785).
E-4
<PAGE>
<CAPTION>
Item
No. Item Method of Filing
- ---- ---- ----------------
<S> <C> <C>
10.13 Note Agreements dated
November 1, 1989, between
Super Food Services, Inc. and
Nationwide Life Insurance Co.,
. Employers Life Insurance
Company of Wausau, and
West Coast Life Insurance
Company ("SFS 1989 Note
Agreements") Incorporated by reference
to Exhibit 10.13 to the
Company's Annual Report on
Form 10-K for the fiscal
year ended December 28,
1996 (File No. 0-785).
10.14 Credit Agreement dated as of
October 8, 1996 among the
Company, NFC Acquisition
Corp., Harris Trust and Savings
Bank, as Administrative Agent,
and Bank of Montreal and PNC
Bank, N.A., as Co-Syndication
Agents ("Credit Agreement") Incorporated by reference
to Exhibit 10.2 to the
Company's Quarterly Report
on Form 10-Q for the
quarter ended October 5,
1996 (File No. 0-785).
10.15 First Amendment to Credit
Agreement dated as of
December 18, 1996 Incorporated by reference
to Exhibit 10.15 to the
Company's Annual Report on
Form 10-K for the fiscal
year ended December 28,
1996 (File No. 0-785).
10.16 Second Amendment to Credit
Agreement dated as of
November 10, 1997 Incorporated by reference
to Exhibit 10.16 to the
Company's Annual Report on
Form 10-K for the fiscal
year ended January 3, 1998
(File No. 0-785).
10.17 Fourth Amendment to the
1996 Note Agreements dated
as of December 1, 1997 Incorporated by reference
to Exhibit 10.17 to the
Company's Annual Report on
Form 10-K for the fiscal
year ended January 3, 1998
(File No. 0-785).
E-5
<PAGE>
<CAPTION>
Item
No. Item Method of Filing
- ---- ---- ----------------
<S> <C> <C>
10.18 Assumption Agreement and
Amended and Restated Note
Agreement dated as of
January 31, 1997, between the
Company, Nationwide Life
Insurance Company, Employers
Life Insurance Company of
Wausau, and West Coast Life
Insurance Company (amending
and restating the SFS 1989
Note Agreements) Incorporated by reference
to Exhibit 10.18 to the
Company's Annual Report on
Form 10-K for the fiscal
year ended January 3, 1998
(File No. 0-785).
10.19 Nash Finch Profit Sharing
Plan--1994 Revision and
Nash Finch Profit Sharing
Trust Agreement (as restated
effective January 1, 1994) Incorporated by reference
to Exhibit 10.6 to the
Company's Annual Report on
Form 10-K for the fiscal
year ended January 1, 1994
(File No. 0-785).
10.20 Nash Finch Profit Sharing
Plan -- 1994 Revision --
First Declaration of
Amendment Incorporated by reference
to Exhibit 10.7 to the
Company's Annual Report on
Form 10-K for the fiscal
year ended December 31,
1994 (File No. 0-785).
10.21 Nash Finch Profit Sharing
Plan -- 1994 Revision --
Second Declaration of
Amendment Incorporated by reference
to Exhibit 10.10 to the
Company's Annual Report on
Form 10-K for the fiscal
year ended December 30,
1995 (File No. 0-785).
10.22 Nash Finch Profit Sharing
Plan -- 1994 Revision --
Third Declaration of
Amendment Incorporated by reference
to Exhibit 10.22 to the
Company's Annual Report on
Form 10-K for the fiscal
year ended January 3, 1998
(File No. 0-785).
E-6
<PAGE>
<CAPTION>
Item
No. Item Method of Filing
- ---- ---- ----------------
<S> <C> <C>
10.23 Nash Finch Profit Sharing
Plan -- 1994 Revision --
Fourth Declaration of
Amendment Incorporated by reference
to Exhibit 10.23 to the
Company's Annual Report on
Form 10-K for the fiscal
year ended January 3, 1998
(File No. 0-785).
10.24 Nash Finch Profit Sharing
Plan -- 1994 Revision --
Fifth Declaration of
Amendment Incorporated by reference
to Exhibit 10.24 to the
Company's Annual Report on
Form 10-K for the fiscal
year ended January 3, 1998
(File No. 0-785).
10.25 Nash Finch Executive
Incentive Bonus and
Deferred Compensation Plan
(as amended and restated
effective December 31, 1993) Incorporated by reference
to Exhibit 10.7 to the
Company's Annual Report on
Form 10-K for the fiscal
year ended January 1, 1994
(File No. 0-785).
10.26 Excerpts from minutes of the
November 11, 1986 meeting of
the Board of Directors
regarding Nash Finch
Pension Plan, as amended
effective January 2, 1966 Incorporated by reference
to Exhibit 10.9 to the
Company's Annual Report on
Form 10-K for the fiscal
year ended January 3, 1987
( File No. 0-785).
10.27 Excerpts from minutes of the
November 21, 1995 meeting of
the Board of Directors
regarding Nash Finch Pension
Plan, as amended Incorporated by reference
to Exhibit 10.13 to the
Company's Annual Report on
Form 10-K for the fiscal
year ended December 30,
1995 (File No. 0-785).
10.28 Excerpts from minutes of the
April 9, 1996 meeting of
the Board of Directors
regarding director compensation Incorporated by reference
to Exhibit 10.22 to the
Company's Annual Report on
Form 10-K for the fiscal
year ended December 28,
1996 (File No. 0-785).
10.29 Excerpts from minutes of the
November 19, 1996 meeting of
the Board of Directors
regarding director compensation Incorporated by reference
to Exhibit 10.23 to the
Company's Annual Report on
Form 10-K for the fiscal
year ended December 28,
1996 (File No. 0-785).
E-7
<PAGE>
<CAPTION>
Item
No. Item Method of Filing
- ---- ---- ----------------
<S> <C> <C>
10.30 Form of Letter Agreement
Specifying Benefits in the
Event of Termination of
Employment Following a
Change in Control of Company Incorporated by reference
to Exhibit 10.20 to the
Company's Annual Report on
Form 10-K for the fiscal
year ended December 29,
1990 (File No. 0-785).
10.31 Nash Finch Income
Deferral Plan Incorporated by reference
to Exhibit 10.17 to the
Company's Annual Report on
Form 10-K for the fiscal
year ended January 1, 1994
(File No. 0-785).
10.32 Nash Finch 1994
Stock Incentive Plan, as amended Incorporated by reference
to Exhibit 10.2 to the
Company's Quarterly Report
on Form 10-Q for the
period ended June 14, 1997
(File No. 0-785).
10.33 Nash Finch 1995 Director
Stock Option Plan Incorporated by reference
to Exhibit 10.2 to the
Company's Quarterly Report
on Form 10-Q for the
period ended June 17, 1995
(File No. 0-785).
10.34 Nash Finch 1997 Non-Employee
Director Stock Compensation Plan Incorporated by reference
to Exhibit 10.1 to the
Company's Quarterly Report
on Form 10-Q for the
period ended June 14, 1997
(File No. 0-785).
10.35 Excerpts from minutes of the
November 17, 1998 meeting of
the Board of Directors
regarding director compensation Filed herewith.
10.36 Third Amendment to the Credit
Agreement Incorporated by reference
to Exhibit 10.1 to the
Company's Quarterly Report
on Form 10-Q for the
period ended March 28,
1998 (File No. 0-785).
10.37 Fourth Amendment to the Credit
Agreement Filed herewith.
10.38 Retirement Agreement dated as of
May 12, 1998 between Alfred N.
Flaten and the Company Incorporated by reference
to Exhibit 10.1 to the
Company's Quarterly Report
on Form 10-Q for the
period ended October 10,
1998 (File No. 0-785).
E-8
<PAGE>
<CAPTION>
Item
No. Item Method of Filing
- ---- ---- ----------------
<S> <C> <C>
10.39 Offer of Employment to Ron
Marshall dated May 7, 1998 from
Donald R. Miller, Board Chair Filed herewith.
13.1 1998 Annual Report to
Stockholders (selected portions
of pages 18-39) Filed herewith.
21.1 Subsidiaries of the Company Filed herewith.
23.1 Consent of Ernst & Young LLP Filed herewith.
27.1 Financial Data Schedule Filed herewith.
99.1 Risk Factors Filed herewith.
</TABLE>
E-9
<PAGE>
EXCERPTS OF MINUTES OF MEETING
OF THE BOARD OF DIRECTORS OF
NASH FINCH COMPANY
November 17, 1998
RESOLVED, that the resolutions adopted by this Board of Directors on
November 19, 1996, relating to compensation of outside directors generally, be
and hereby are amended and modified to provide that the per month retainer for
serving as a director be increased from $1,250 per month ($15,000 per year) to
$1,500 per month ($18,000 per year) effective January 1, 1999.
RESOLVED FURTHER, that except to the extent amended and modified by the
foregoing resolution, the said resolutions adopted November 19, 1996 remain in
full force and effect.
<PAGE>
NASH-FINCH COMPANY
FOURTH 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
set forth herein.
1. AMENDMENTS.
Upon satisfaction of the conditions precedent to effectiveness set forth
below, the Credit Agreement shall be amended (effective as of January 1, 1999)
as follows:
SECTION 1.01. NEW APPLICABLE MARGIN. (a) Section 1.3(c) of the Credit
Agreement shall be amended by deleting the text appearing before the proviso
therein and inserting the following in lieu therefor:
"(c) APPLICABLE MARGIN. With respect to Committed Loans and the
facility fee payable under Section 4.1 hereof, the "Applicable Margin"
shall mean the rate specified for such Obligation below, subject to
adjustment as hereinafter provided:
<PAGE>
<TABLE>
<CAPTION>
When Following Applicable Applicable Applicable
Status Exists Margin Margin Margin
For Base Rate For Eurodollar Loans Is: For Facility Fee Is:
Loans Is:
<S> <C> <C> <C>
Level I Status 0.00% .625% 0.125%
Level II Status 0.00% 1.000% 0.250%
Level III Status 0.00% 1.125% 0.375%
Level IV Status 0.250% 1.25% 0.500%
Level V Status 0.50% 1.50% 0.500%"
</TABLE>
(b) Section 1.3(c) of the Credit Agreement shall be further amended by
striking each of subsections (ii) and (iii) appearing after the proviso therein
and substituting therefor the phrase "[intentionally omitted]."
SECTION 1.02. NEW DEFINITIONS. Section 6.1 of the Credit Agreement shall
be amended by inserting the following new definition in the appropriate
alphabetical location:
"FISCAL 1998 CHARGES" means the following non-recurring cash and
non-cash charges recorded by the Borrower in accordance with GAAP
during the fourth fiscal quarter of the Borrower's 1998 fiscal
year against the Borrower's earnings for its 1998 fiscal year in
an aggregate amount not to exceed $108,500,000: (i) a special
charge of not more than $72,500,000 of which not less than
$50,000,000 consists of non-cash charges, relating to the
consolidation and closure of distribution centers and retail
stores, the abandonment of assets (such as the SAP software) and
the impairment of assets (such as the writedown of asset values);
(ii) up to $1,000,000 of miscellaneous financing and other
expenses relating to the above special charge; (iii) up to
$27,500,000 of charges relating to the discontinuance of Nash
DeCamp and other operations; and (iv) up to $7,500,000 of charges
related to running operating expenses through the balance sheet
(such as the writedown of the accounts and notes receivable).
"YEAR 2000 PROBLEM" means any significant risk that computer
hardware, software, or equipment containing embedded microchips
essential to the business or operations of the Borrower or any of
the Subsidiaries will not in the case of dates or time periods
occurring after December 31, 1999, function at least as
reasonably adequately as in the case of times or time periods
occurring before January 1, 2000, including the making of
accurate leap year calculations.
-2-
<PAGE>
SECTION 1.03. REVISED DEFINITIONS. The definitions of "LEVEL I STATUS",
"LEVEL II STATUS", "LEVEL III STATUS ", "LEVEL IV STATUS ", "LEVEL V STATUS "
and "TANGIBLE NET WORTH " appearing in Section 6.1 of the Credit Agreement shall
be amended and restated in their entirety to read as follows:
"LEVEL I STATUS" means the S&P Rating is at least BBB- or higher AND the
Moody's Rating is at least Baa3 or higher.
"LEVEL II STATUS" means Level I Status does not exist, but the S&P Rating
is at least BB+ or higher AND the Moody's Rating is at least Bal or higher.
"LEVEL III STATUS" means neither Level I Status nor Level II Status exists,
but the S&P Rating is at least BB or higher AND the Moody's Rating is at least
Ba2 or higher.
"LEVEL IV STATUS" means none of Level I Status, Level II Status, and Level
III Status exist, but the S&P Rating is at least BB- AND the Moody's Rating is
at least Ba3 or higher.
"LEVEL V STATUS" means none of Level I Status, Level II Status, Level III
Status or Level IV Status exist.
"NET WORTH" means as of any time the same is to be determined, the excess
of total assets of the Borrower and its Subsidiaries over total liabilities of
the Borrower and its Subsidiaries, total assets and total liabilities each to be
determined on a consolidated basis in accordance with GAAP.
SECTION 1.04. LEVERAGE RATIO. The definition of "LEVERAGE RATIO"
appearing in Section 6.1 of the Credit Agreement shall be amended by inserting
the following sentence immediately at the end thereof
"The foregoing to the contrary notwithstanding, for purposes of
determining the Leverage Ratio, EBITDA for any period which
includes the fourth fiscal quarter of the Borrower's 1998 fiscal
year shall be computed so as not to give effect to the Fiscal
1998 Charges."
SECTION 1.05. SENIOR LEVERAGE RATIO. The definition of "SENIOR LEVERAGE
RATIO" appearing in Section 6.1 of the Credit Agreement shall be amended by
inserting the following sentence immediately at the end thereof:
"The foregoing to the contrary notwithstanding, for purposes of
determining the Senior Leverage Ratio, EBITDA for any period
which includes the fourth fiscal quarter of the Borrower's 1998
fiscal year shall be computed so as not to give effect to the
Fiscal 1998 Charges."
SECTION 1.06. INTEREST COVERAGE RATIO. The definition of "INTEREST
COVERAGE RATIO" appearing in Section 6.1 of the Credit Agreement shall be
amended by inserting the following immediately at the end thereof:
-3-
<PAGE>
"The foregoing to the contrary notwithstanding, for purposes of
determining the Interest Coverage Ratio, EBITDA for any period
which includes the fourth fiscal quarter of the Borrower's 1998
fiscal year shall be computed so as not to give effect to the
Fiscal 1998 Charges."
SECTION 1.07. NEW NET WORTH COVENANT. Section 9.8 of the Credit Agreement
shall be amended and as so amended shall be restated in its entirety to read as
follows:
"SECTION 9.8. NET WORTH. The Borrower shall not at any
time permit Net Worth to be less than the Minimum Required
Amount. For purposes hereof, the term "MINIMUM REQUIRED AMOUNT"
shall mean (a) $150,000,000 through January 2, 1999 and (b) shall
increase (but never decrease) on a cumulative basis as of March
27, 1999 and as of the last day of each fiscal quarter of the
Borrower thereafter, by an amount equal to 50% of Consolidated
Net Income for the fiscal quarter of the Borrower then ended (if
positive for such quarter)."
SECTION 1.08. ACQUISITION LIMIT. Subsection (h) of Section 9.14 of the
Credit Agreement shall be amended by inserting the following immediately at the
end thereof:
"and (v) either (1) the aggregate amount of cash and cash
equivalents expended by the Borrower and its Subsidiaries as
consideration for such acquisition, when taken together with the
aggregate amount of cash and cash equivalents expended by the
Borrower and its Subsidiaries as consideration for all other
acquisitions on or at any time after January 1, 1999 on a
cumulative basis (the aggregate of the consideration for the
acquisition in question and all such other acquisitions being
hereinafter referred to the "AGGREGATE CUMULATIVE ACQUISITION
CONSIDERATION"), does not exceed $50,000,000 or (2) if the
Aggregate Cumulative Acquisition Consideration exceeds
$50,000,000, both (A) the aggregate amount of cash and cash
equivalents expended as consideration for the acquisition in
question is less than $5,000,000 and (B) the aggregate purchase
price due from the Borrower and its Subsidiaries as consideration
for such acquisition (including the assumption of indebtedness
but excluding any such consideration in the form of capital stock
of the Borrower) does not exceed the product of 4.5 and EBITDA
reasonably attributable to the Person (in the case of an
acquisition of such Person's Voting Stock) or the Property so
acquired (in the case of an acquisition of such Person's
Property), in each case for such Person's twelve most recently
completed monthly accounting periods ("EBITDA" for such purposes
to mean EBITDA as such term is defined herein, but with such
Person and its subsidiaries substituted in such definition and
all ancillary definitions in the place and stead of the Borrower
and its Subsidiaries)."
-4-
<PAGE>
SECTION 1.09. YEAR 2000. Section 7 of the Credit Agreement shall be
amended by adding a new Section 7.17 at the end thereof which shall be stated to
read as follows:
"SECTION 7.17. YEAR 2000 COMPLIANCE. The Borrower and its
Subsidiaries are conducting a comprehensive review and assessment
of their computer applications, and are making such inquiry of
their respective material suppliers, service vendors (including
data processors) and customers as the Borrower or relevant
Subsidiary (as the case may be) deem appropriate, with respect to
any material defect in computer software, data bases, hardware,
controls and peripherals related to the occurrence of the year
2000 or the use of any date after December 31, 1999, in
connection therewith. The Company is not aware of any Year 2000
Problem which would reasonably be expected to have a material
adverse effect on the business, operations, Properties, condition
(financial or otherwise) or prospects of the Borrower and its
Subsidiaries taken as a whole."
SECTION 1.10. YEAR 2000 COMPLIANCE. Section 9 of the Credit Agreement
shall be amended by adding a new Section 9.23 which shall be stated to read as
follows:
"SECTION 9.23. YEAR 2000 COMPLIANCE. At the reasonable
request of the Administrative Agent or any Bank, the Borrower
will provide the Administrative Agent (which shall promptly
furnish each Bank) with reasonable evidence (including, but not
limited to, the results of internal or external audit reports
prepared in the ordinary course of business) of the capability of
the Borrower and its Subsidiaries to conduct its and their
businesses and operations before, on and after January l, 2000,
without experiencing a Year 2000 Problem."
2. 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) Each Guarantor shall have accepted this Amendment in the space
provided for that purpose below.
(c) Legal matters incident to the execution and delivery of this
Amendment shall be satisfactory to the Required Banks and their counsel.
Upon the satisfaction of such conditions precedent, this Amendment shall take
effect as of January 1, 1999.
3. REPRESENTATIONS REAFFIRMED.
-5-
<PAGE>
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).
4. 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).
-6-
<PAGE>
Dated as of this ___ day of February, 1999, but effective as of January 1,
1999.
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
---------------------------------
Its Vice President
PNC BANK, NATIONAL ASSOCIATION
By ----------------------------
Its
----------------------------
ABN AMRO BANK N.V.
By
---------------------------------
Its
---------------------------
By
---------------------------------
Its
-----------------------------
-7-
<PAGE>
THE BANK OF TOKYO-MITSUBISHI, LTD.,
CHICAGO BRANCH
By
---------------------------------
Its
---------------------------
CIBC-WOOD GUNDY
By
---------------------------------
Its
----------------------------
ISTITUTO BANCARIO SANPAOLO Dl
TORINO SPA
By
---------------------------------
Its
---------------------------
KEYBANK, N.A.
By
--------------------------------
Its
----------------------------
COMMERZBANK AKTIENGESELLSCHAFT
CHICAGO BRANCH
By
--------------------------------
Its
--------------------------------
By
---------------------------------
Its
-----------------------------
-8-
<PAGE>
THE FUJI BANK, LIMITED
By
---------------------------------
Its
----------------------------
CREDIT AGRICOLE INDOSUEZ
By
---------------------------------
Its
----------------------------
FIRST BANK NATIONAL ASSOCIATION
By
---------------------------------
Its
---------------------------
MELLON BANK, N.A.
By
---------------------------------
Its
-----------------------------
SUNTRUST BANK, ATLANTA
By
---------------------------------
Its
---------------------------
THE MITSUBISHI TRUST AND BANKING
CORPORATION
By
---------------------------------
Its
----------------------------
-9-
<PAGE>
NATIONAL CITY BANK OF COLUMBUS
By
---------------------------------
Its
----------------------------
THE SANWA BANK, LIMITED
By
--------------------------------
Its
---------------------------
THE SUMITOMO BANK, LIMITED
By
--------------------------------
Its
---------------------------
BANKERS TRUST COMPANY
By
---------------------------------
Its
----------------------------
THE BANK OF NEW YORK
By
---------------------------------
Its
----------------------------
MITSUI TRUST AND BANKING COMPANY,
LIMITED
By
---------------------------------
Its
--------------------------
CRESTAR BANK
By
---------------------------------
Its
-----------------------------
-10-
<PAGE>
[LETTERHEAD]
May 7, 1998
Ron Marshall
24 High Point Road
Holmdel, NJ 07733
Dear Ron:
I am pleased to offer you the positions of Chief Executive Officer and President
of Nash Finch Company (the "Company") and membership on the Company's Board of
Directors (the "Board"), subject to approval by the Board at its May 12, 1998
meeting.
The terms of the offer (assuming that you begin work on or before July 1, 1998)
are as follows:
1. Base salary at the annual rate of $500,000. Your base salary is subject to
review by the Compensation Committee of the Board and may be adjusted from
time to time by the Compensation Committee.
2. Fiscal 1998 bonus (payable within 2-1/2 months after the end of fiscal
1998) of at least $200,000. The bonus could be increased to 60 percent of
your annual base salary rate at target performance levels and 75 percent of
your annual base salary rate at maximum performance levels (in each case as
established by the Compensation Committee of the Board). At your option,
the bonus could be paid in whole or in part in shares of the Company's
common stock, $1.66-2/3 par value per share (the "Common Stock"). Your
bonus for future fiscal years will be determined by the Compensation
Committee of the Board on the basis of performance against agreed upon
goals.
3. A "nonqualified" option to purchase 200,000 shares of the Company's common
stock, $1.66-2/3 par value per share (the "Common Stock") at an exercise
price equal to the fair market value of the Common Stock on the date on
which the option is granted. The option will become exercisable in 25
percent increments at the end of each of the four years following the date
of the grant. If, however, the market price for Common Stock reaches and
remains at or over $30 per share for 30 consecutive trading days, the
option will become immediately exercisable with respect to 100,000 shares
and if the market price for Common Stock reaches and remains at or over $40
per share for 30 consecutive trading days, the option will become
immediately exercisable with respect to the remaining 100,000 shares. The
terms of the option will otherwise be in accordance with the Company's
stock option plans.
<PAGE>
4. A performance unit grant under the Company's Performance Equity Plan for
the 1998 fiscal year consisting of a right to receive a number of shares of
Common Stock equal to 120% of salary divided by the average market price
during the fourth quarter of 1997 according to the terms and subject to the
restrictions and conditions established by the Compensation Committee of
the Board.
5. By the third anniversary of your date of hire, you will be required to own
Common Stock with a value of at least two and one-half times your annual
base salary at the time. By the fifth anniversary of your date of hire and
thereafter, you will be required to own Common Stock with a value of at
least five times your annual base salary at the time. To facilitate
attaining this level of ownership, the Compensation Committee of the Board
may cause your bonus to be paid in whole or in part in the form of Common
Stock.
6. You will be eligible to participate in the Company's Executive Incentive
Bonus and Deferred Compensation Plan commencing with fiscal year 1998.
7. You will be eligible to participate in the Company's Income Deferral Plan
immediately.
8. Relocation expenses for you and your family (consisting of moving costs,
realtor's fees, home closing costs and fees for legal and tax advice
relating to the sale of your residence in New Jersey and the purchase of
your residence in Minnesota) up to $25,000. If you anticipate that your
expenses will exceed $25,000, please let us know in advance so that we can
discuss reimbursement of the excess expenses before they are incurred. You
agree to make every reasonable effort to move your family to Minnesota
within three months of commencement of employment with the company.
However, the Company will reimburse you for airfare to and from your home
in New Jersey every week for six months or, if earlier, until you have
moved your family to Minnesota. The Company will also pay you $2,500 per
month for reasonable temporary living expenses for six months or, if
earlier, until you have moved your family to Minnesota. All reimbursements
are subject to presentation of receipts or other documentation acceptable
to the Company. The Company agrees to gross up the amounts set forth above
to cover the net income tax effect to you of the reimbursement of the
expenses described above.
9. You will be provided a standard form of change in control agreement
pursuant to which, if your employment is terminated within 24 months after
a change in control (or in limited circumstances prior to a change in
control) other than by reason of death, disability, retirement or cause, or
you terminate your employment for good reason, the Company will pay or
cause to be paid to you a lump sum equal to your monthly compensation
multiplied by 36 months and will maintain or cause to be maintained benefit
plans for you and your dependents for 36 months, all in accordance with the
Company's standard form of change in control agreement. In addition, in
the event that your employment is terminated by the Company, other than for
cause, within the first 12 months, the Company will provide you with 12
months severance compensation.
<PAGE>
10. You will be eligible to participate in other benefit plans, practices and
policies of the Company in accordance with their terms.
11. During your first two years of employment, you will not sit on any other
corporate boards. Thereafter, corporate board membership will be at the
discretion of the Board.
12. Your employment with the Company is at will and may be terminated by you or
the Company at any time without liability other than for base salary earned
through termination and other compensation and benefits due under the terms
of any applicable benefit plan, practice or policy of the Company.
I very much look forward to a long and prosperous relationship.
Best Regards,
/s/ Donald R. Miller
- ------------------------------
Donald R. Miller
Board Chair
I have read the foregoing letter and hereby agree to all of the terms and
conditions thereof.
/s/ Ron Marshall
--------------------------
Ron Marshall
<PAGE>
NASH FINCH COMPANY AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
- -------------------------------------------------------------------------------
This discussion of the Company's results of operations and financial
condition should be read in conjunction with the Consolidated Financial
Statements and accompanying notes.
RESULTS OF OPERATIONS
REVENUES
Total revenues decreased 4.2 percent for the 52 weeks of 1998 to $4.160
billion, compared to $4.341 billion for the 53 weeks of 1997. Excluding the
additional week, revenues for 1998 would have declined by 2.3 percent. Each
of the Company's three major segments were affected by a decline in revenues.
Wholesale revenues, after eliminating the additional week in 1997,
deceased .9 percent from $2.515 billion to $2.492 billion. Revenue gains were
reported by certain Midwest and Southeast distribution centers as a result of
new wholesale accounts added during the year and the full year effect of the
United-A.G. Cooperative Inc. ("United-A.G.") acquisition which occurred in
June 1997. However, these gains were more than offset by the declining sales
base caused by persistent competitive pressures throughout the year in the
Company's Michigan market area. Wholesale revenues in 1997 increased
dramatically over 1996 primarily due to acquisitions and the additional week
of business.
Retail segment revenues were $738.0 million for the year, compared to $808.4
million for a 52-week adjusted 1997, a decline of 8.7 percent. The declines are
largely due to the closing or sale of 14 stores during the year, partially
offset by the opening or acquisition of ten stores during the same period.
Included in the stores acquired were two locations in Rapid City and a third
location in Sturgis, South Dakota, acquired from Sooper Dooper Markets, Inc. The
acquisition expands the Company's already strong presence in the area and makes
it the leading retailer in this market. Same store sales for the year increased
1.1 percent over 1997. Fourth quarter same store sales increased 2.3 percent
over last year, following several quarterly declines. Revenues in 1997 declined
from 1996 levels due to a net reduction of nine corporate owned stores during
the year.
Revenues of the Military Division, the third major segment of the Company,
declined .6 percent compared to 1997, after adjustment for the additional
week of business in 1997. Revenues were flat throughout the year due to
little growth in the number and size of the military commissaries serviced.
Export or overseas sales during the year were also not as robust by
comparison to 1997, when the Company realized significant gains in this area.
Management of the Military Division continues to work with existing and
prospective vendors to expand product lines and provide a greater
distribution of items to the commissaries it services. Military revenues in
1997 increased over 1996 due to expansion of certain vendor product lines and
sales to overseas commissaries.
GROSS MARGINS
During 1998, the Company reclassified warehousing and transportation expenses
from selling, general and administrative expenses to cost of sales. Although
this reclassification had no impact on operating income and net income, this
presentation conforms the Company's reporting practices to those of other large
wholesale food distributors.
Gross margins were 9.1 percent in 1998, compared to 9.3 percent in 1997
and 9.9 percent in 1996. The decline over the three year period is a result
of the growth of wholesale and military revenues which return lower gross
margins than retail. Wholesale revenues, including the military, as a percent
of total reported revenues were 81.9 percent in 1998, compared to 80.7
percent and 74.2 percent in 1997 and 1996, respectively. A decline in retail
margins, resulting from continuing competitive pressures in some markets,
also contributed to lower margins.
In 1998, the Company recorded a LIFO charge of $4.0 million compared to
charges of $1.5 million and $1.6 million in 1997 and 1996, respectively.
Although the Company's internally measured food price index indicated a slight
level of inflation, continued price increases throughout the year for tobacco
and tobacco related products was the primary factor causing the higher LIFO
charge in 1998.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE
Selling, general and administrative expenses as a percent of total
revenues were 7.0 percent in 1998 compared to 6.8 percent in 1997 and 7.5
percent in 1996. The declines in 1998 and 1997 from 1996, are due again to
the increasing proportion of wholesale business, which typically operates at
lower expense levels than retail. During the fourth quarter of 1998, the
Company recorded an additional provision for bad debts of $7.5 million,
principally related to sales and credit deterioration in its Michigan and
Ohio market areas. Bad debt expense for 1998 was $10.6 million compared to
$5.1 million in 1997 and $1.9 million in 1996. Partially offsetting these
additional 1998 costs, the Company changed accounting policies when it
adopted new rules requiring capitalization of internal software development
costs, which had previously been expensed as incurred. As a result, $5.1
million in payroll and payroll related costs for employees who were directly
involved in software development projects were capitalized. Such amounts were
subsequently written-off as an element of the 1998 special charges. Operating
expenses during 1998 were also adversely affected by increased information
systems costs related to the HORIZONS project, through the third quarter, of
$2.4 million; and Year 2000 remediation costs of approximately $3.0 million
in the fourth quarter.
SPECIAL CHARGES
During the fourth quarter of 1998, the Company announced a five-year
revitalization plan to streamline wholesale operations and build retail
operations. The new strategic plan's objectives are to: leverage Nash Finch's
scale by centralizing operations; improve operational efficiency; and develop
a strong retail competency. The Company will also redirect technology
efforts, and close, sell or reassess underperforming businesses and
investments.
18
<PAGE>
NASH FINCH COMPANY AND SUBSIDIARIES
The 1998 special charges of $68.5 million reflect the results of an
intensive diagnostic assessment of the entire Company's operations. As a
result of this assessment in 1998, the Company's new management reevaluated
all actions to be taken under the 1997 strategic plan. Substantially all
actions to be taken under the 1997 strategic plan were reaffirmed and are in
the process of being implemented; however, some actions included in the 1997
plan were changed in 1998 which reduced the charge by $2.9 million. The
Company expects the 1998 plan and any remaining initiatives under the 1997
plan to be substantially complete by October 1999.
1998 CHARGES
The charges include $34.4 million principally for the abandonment of
software modules, not currently implemented, related to the Company's
HORIZONS information system project. Although the Company is using portions
of the developed software, the abandoned assets relate to purchased software
and related development costs associated with modules which, without
significant investment in continuing development, lack sufficient inherent
functionality to meet the Company's business and Year 2000 needs. Total costs
associated with the write-off include development costs, both external and
internal, totaling $31.0 million, purchased software costs of $1.9 million
and $.2 million in abandoned hardware. As a result of the Company's decision
to abandon further development, resources have been shifted from HORIZONS to
a Year 2000 remediation plan.
Also included in abandoned assets is $1.3 million in unamortized purchased
packaging design costs, relating to a private label product line that will be
redesigned. The variety of products marketed under this label will be
substantially reduced, resulting in approximately 200 fast moving items with
a redesigned merchandising strategy and packaging.
The special charges include $17.1 million to streamline the Company's
wholesale operations by closing of three warehouses by the end of the third
quarter of 1999. The sales volume of these facilities will be consolidated
with other locations, resulting in improved warehouse capacity utilization,
further aligning the Company's distribution capacity with its current and
anticipated wholesale operations. The Company believes its strategy of
closing underutilized warehouses, including the closure of its Appleton,
Wisconsin distribution center announced in January 1999, and concentrating
sales volume into existing facilities, will improve operational efficiency
and lower distribution costs. The components of the special charges resulting
in cash outlays include $2.6 million of post-employment benefit costs
consistent with existing practices, $2.7 million of penalties upon withdrawal
from multi-employer pension plans and $3.6 million to cover other exit costs
related to closing these facilities. With the exception of the multi-employer
pension plan withdrawal penalties, the majority of these costs will be
incurred during the first nine months of fiscal 1999, and will be funded from
operations. The special charges also provide $3.2 million to write-down to
fair value real estate to be disposed of, since each of the locations is
an owned facility, and $5.0 million to record at fair value warehouse
equipment and other tangible assets to be disposed of. At January 2, 1999,
these costs have been included in accrued expenses on the balance sheet.
The Company will close twelve underperforming corporate retail stores, and
one store jointly developed with a wholesale customer, at an approximate cost
of $9.6 million. The stores are primarily located in geographic areas where
the Company cannot attain a strong market presence. The Company's focus is to
develop corporate stores that can dominate their primary trade areas. The
aforementioned provision includes $3.4 million for non-cancelable lease
obligations associated with ten stores and $.8 million for other
miscellaneous closing costs, both of which will result in cash outlays, and
$3.5 million of asset write-downs related to the disposal of real estate,
store equipment and the write-off of leasehold improvements, and $1.9 million
for abandonment of assets. Substantially all stores have either been closed
by March 1999 or are involved in transactions currently being negotiated. For
1998, corporate owned retail units included in the provision had aggregate
sales and pretax losses of $42.9 million and $1.9 million, respectively,
compared with $42.7 million and $.1 million for 1997. The provision relating
to closed stores is included in accrued expenses on the balance sheet at
January 2, 1999.
The remaining aggregate special charge is a $10.3 million provision for
asset impairment of which $8.2 million relates to ten owned retail stores.
Increased competition resulting in declining market share, deterioration of
operating performance and inadequate projected cash flows were the factors
indicating impairment. The impaired assets, which include leasehold
improvements and store equipment, were measured based on a comparison of the
assets' net book value to the present value of the stores' estimated future
cash flows. In addition, the Company recorded a $2.1 million asset impairment
charge writing off its equity investment in a joint venture with an
independent retailer it continues to service. Operating losses and projected
cash flow reductions were the primary factors in determining that a permanent
decline in the value of the investment had occurred.
1997 CHARGES
In 1997 the Company accelerated its strategic plan to strengthen its
competitive position. Coincident with the implementation of the plan, the
Company recorded special charges totaling $31.3 million impacting the
Company's wholesale and retail segments, as well as the produce growing and
marketing segment discontinued during 1998.
19
<PAGE>
NASH FINCH COMPANY AND SUBSIDIARIES
The aggregate special charges included $14.5 million for the consolidation or
downsizing of seven underutilized warehouses. The charges, as further detailed
in the table below, provided for non-cancelable lease obligations, write-down to
fair value of tangible assets to be disposed of, and other costs to exit the
facilities. Also included are post-employment benefit costs consistent with
existing practice and the unamortized portion of goodwill for one of the
locations.
<TABLE>
<CAPTION>
Write- Write-
Post down of down of
Lease Employment Intangible Tangible Exit
Commitments Benefits Assets Assets(1) Costs Total
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Initial accrual ...... $ 5,198 1,815 3,225 2,442 1,835 14,515
Used in 1997 ......... (3,225) (2,442) (5,667)
--------------------------------------------------------------------------------------
Balance 1/3/98 ....... 5,198 1,815 -- -- 1,835 8,848
Reversals in 1998 .... (1,591) (352) -- -- (358) (2,301)
Additional accruals
in 1998 ............ 271 194 -- 669 845 1,979
Used in 1998 ......... (1,328) (625) -- (669) (269) (2,891)
--------------------------------------------------------------------------------------
Balance 1/2/99 ....... $ 2,550 1,032 -- -- 2,053 5,635
--------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------
</TABLE>
(1) The Company reversed $1.1 million of the write-down of tangible assets
recorded in 1997, as discussed below.
During the second quarter of 1998, a change in leadership of the Company
occurred and new management began its own diagnostic assessment of the
Company. Following months of review, new management determined the following:
one distribution center identified for closure under the 1997 plan would
remain open, another distribution center identified for downsizing in 1997
was scheduled for closure in 1998, and an additional write-down of assets was
necessary since not all of the assets of closed warehouses could be used in
other locations. The reversal and additional accruals recorded in 1998
reflect these revisions to the plan (see Note (3) of Notes to Consolidated
Financial Statements). Closure of five of the remaining distribution centers
included in the 1997 plan have been announced, three of which were closed as
of year end.
Also, related to wholesale operations, the special charges included $2.5
million of integration costs, incurred in the third quarter of 1997,
associated with the acquisition of the business and certain assets from
United-A.G.
In retail operations, the special charges relate to the closing of
fourteen, principally leased, stores. The $5.2 million charge, as detailed in
the table below, covers provisions for continuing non-cancelable lease
obligations, anticipated losses on disposals of tangible assets, including
abandonment of leasehold improvements, and the write-off of intangible assets.
<TABLE>
<CAPTION>
Write- Write-
down of down of
Lease Intangible Tangible Exit
Commitments Assets Assets(1) Costs Total
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Initial accrual ...... $ 2,780 396 1,603 393 5,172
Used in 1997 ......... (10) (396) (1,603) (63) (2,072)
----------------------------------------------------------------------
Balance 1/3/98 ....... 2,770 -- -- 330 3,100
Used in 1998 ......... (416) -- -- (28) (444)
Reversals in 1998 .... (1,448) -- -- (131) (1,579)
Additional accruals
in 1998 ............ 486 -- -- 198 684
----------------------------------------------------------------------
Balance 1/2/99 ....... $ 1,392 -- -- 369 1,761
----------------------------------------------------------------------
----------------------------------------------------------------------
</TABLE>
(1) The Company reversed $608,000 of the write-down of tangible assets recorded
in 1997, as discussed below.
The amount reversed in 1998 is principally the planned closure of a retail
store which was subleased during the third quarter of 1998. Ten of the
identified retail stores were closed during 1998 with the remaining four
stores scheduled to be closed by November 1999. For 1998, the ten retail
stores closed during 1998 and the four stores to be closed in 1999 had
aggregate sales of $8.4 million and $38.6 million, and pretax losses of $1.0
million and pretax profits of $1.0 million, respectively.
The aggregate special charges contain a provision of $5.4 million for
impairment of assets of seven retail stores. Declining market share due to
increasing competition, deterioration of operating performance in the third
quarter of 1997, and forecasted future results that were less than previously
planned were the factors leading to the impairment determination. The
impaired assets covered by the charge primarily included real estate,
leasehold improvements and, to a lesser extent, goodwill related to two of
the stores. Store fixed asset write-downs were measured based on a comparison
of the assets' net book value to the net present value of the stores'
estimated future net cash flows.
An asset impairment charge of $1.0 million was recorded against several
farming operations of Nash DeCamp, the Company's produce growing and marketing
subsidiary. The impairment determination was based on recent downturns in the
market for certain varieties of fruit. The impairment resulted from anticipated
future operating losses and inadequate projected cash flows from production of
these products.
Other special charges aggregating $2.8 million consisted primarily of $.9
million related to the abandonment of system software which was replaced and
a loss of $.6 million realized on the sale of the Company's equity investment
in Alfa Trading Company, a Hungarian food wholesaler, which was completed in
the fourth quarter of 1997. The remaining special charges relate principally
to writing-down idle real estate held for resale to current market values,
all of which were sold in 1998.
The consolidation of wholesale and retail operations, as well as the
impairment adjustment to the assets identified, will favorably impact
earnings in the future due to reduced depreciation and amortization expenses
and the elimination of losses from certain affected operations. However, such
costs are expected to be substantially offset in 1999 by Year 2000
remediation costs.
DEPRECIATION EXPENSE
Depreciation and amortization expense for the year was $46.1 million
compared to $46.4 million in 1997, a decline of .6 percent. The decrease
primarily reflects a reduction in depreciable assets resulting from the sale
or closing of warehouses and retail stores and lower depreciation resulting
from the write-down of impaired assets recorded in the 1997 special charges.
Partially offsetting this decline was depreciation associated with new assets
placed into service in 1998. Depreciation and amortization expense in 1997
increased 39.1 percent over 1996 primarily due to a full year of amortization
of goodwill and depreciation of property, plant and equipment related to the
acquisition of Super Food which occurred in 1996. The 1999 impact of
suspending depreciation on wholesale assets held for disposal is projected to
be $1.6 million.
INTEREST EXPENSE
Interest expense decreased from $32.8 million in 1997 to $29.0 million in
1998, a decline of 11.4 percent. The reduction is attributed to lower
borrowings under the revolving credit facility, brought about by the sale of
accounts receivable at the
20
<PAGE>
NASH FINCH COMPANY AND SUBSIDIARIES
end of 1997 and improved asset management in the second half of 1998. Also,
the Company reduced its long-term borrowing rates through the sale of $165.0
million of senior subordinated notes which was completed during the second
quarter of 1998. Interest expense as a percent of revenues was .70 percent,
.75 percent and .40 percent for 1998, 1997 and 1996, respectively.
The increase in interest expense in 1997 compared to 1996 was primarily
due to the full year impact of financing the acquisition of Super Food.
EXTRAORDINARY CHARGE
During 1998, in conjunction with the 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 borrowings 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 $3.9 million.
EARNINGS (LOSS) FROM CONTINUING OPERATIONS BEFORE
INCOME TAXES AND EXTRAORDINARY CHARGE
Earnings (loss) from continuing operations before income taxes and
extraordinary charge were a loss of $58.4 million in 1998, and earnings of
$1.2 million in 1997 and $32.5 million in 1996. Excluding the special
charges, earnings from continuing operations before taxes and extraordinary
charge would have been $10.0 million, $31.3 million and $32.5 million in
1998, 1997 and 1996, respectively. The earnings reduction in 1998 is
principally attributed to the additional provision for bad debts, closing
costs of $1.3 million which could not be accrued in the 1997 special charge,
costs associated with the HORIZONS project for a portion of the year and
costs incurred related to Year 2000 remediation efforts.
INCOME TAXES
No valuation allowance has been established against the net deferred tax
asset because management believes that all of the deferred tax assets will be
realized upon the Company generating sufficient future taxable income to
offset the reversal of deductible temporary differences. The Company will
need to generate approximately $104 million of future taxable income over 20
years to realize these assets. Excluding the impact of special charges, the
Company's earnings for financial reporting purposes would be sufficient for
realization of the deferred tax assets. The realization of assets could be
reduced if estimates of future taxable income are reduced.
YEAR 2000
The Company's Year 2000 resolution was initially incorporated in the
system design of the HORIZONS project. However, as a result of the
abandonment of further development of the project, the Company has developed
a remediation plan which accelerates existing efforts toward resolving Year
2000 issues. The plan will result in an aggressive timetable to address 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 knowledgeable outside resources to assist in the
remediation effort. The Company has developed a plan to assess and update
systems for Year 2000 compliance which 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 estimated percent complete of each
phase as of the end of the first quarter 1999:
<TABLE>
<CAPTION>
Inventory Remediation Testing
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
I/T Systems .................. 100% 33% 20%
Non I/T Systems .............. 100% 10% 0%
</TABLE>
The Company expects to complete all mission-critical areas of the project in
the third quarter of 1999.
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, which will be expensed as incurred,
primarily for internal and external costs associated with the modification of
existing software. Project expenses for 1998 were $3.0 million. The total
remaining expenditures associated with the Year 2000 project are estimated to
be $15.5 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 is currently in the process of establishing and implementing
contingency plans to provide viable alternatives for the Company's core
business processes. The plans will describe the communications, operations
and activities necessary in the event of a Year 2000 systems related failure.
Contingency planning is 40 percent complete at the end of the first quarter
of 1999. Comprehensive contingency plans will be in place by the end of the
second quarter of 1999.
LIQUIDITY AND CAPITAL RESOURCES
Operating activities generated positive net cash flows of $102.5 million
during 1998 compared to $84.0 million in 1997 and $35.3 million in 1996. The
improvement is primarily due to improved asset management, particularly
inventory, and increases in accounts payable and accrued expenses. Working
capital was $135.6 million at the end of 1998, a reduction of $64.3 million,
or 32.2 percent, from the end of 1997. The current ratio decreased from 1.68
at the end of fiscal 1997 to 1.41 at the end of 1998, due primarily to the
effect of the special charges. While the cash impact of the special charges
is $26.0 million, the sale of real estate assets and Nash DeCamp may generate
$37.0 million resulting in net cash proceeds of $11.0 million. Nash DeCamp,
in the normal course of business, makes cash advances to produce growers
during various product growing seasons to fund production costs. The Company
will continue to fund these advances through the expected sale date in
mid-1999.
On January 2,1999, and January 3, 1998, the Company had $5.5 million and
$11.3 million, respectively, in short-term debt from available lines of
credit totaling $10 million.
On April 24, 1998, the Company completed the sale of $165 million of 8.5
percent 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.
21
<PAGE>
NASH FINCH COMPANY AND SUBSIDIARIES
The following table provides information about the Company's derivative
financial instruments and other financial instruments that are sensitive to
changes in interest rates. For debt obligations, the table presents principal
cash flows and related weighted-average interest rates by expected maturity
dates. For interest rate swaps, the table presents notional amounts and
weighted-average interest rates by contractual maturity dates. Notional
amounts are used to calculate the contractual cash flows to be exchanged
under the contract.
<TABLE>
<CAPTION>
Fixed Rate Variable
- -------------------------------------------------------------------------------
(IN THOUSANDS) Amount Rate Amount Rate
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1999..................... $ 835 8.6% $ 5,675 6.4%
2000..................... 621 8.6% 110 6.5%
2001..................... 1,946 8.6% 120,110 6.5%
2002..................... 473 8.6% 1,210 3.6%
2003..................... 3,034 8.5% 110 3.6%
thereafter............... 165,216 8.5% 450 3.6%
-------- --------
$172,125 $127,665
-------- --------
</TABLE>
Swap agreements with notional amounts of $60 million and $30 million
expire in 1999 and 2000, respectively.
<TABLE>
<S> <C> <C>
Pay variable/receive fixed ............. $ 60,000 $ 30,000
Average receive rate ................... 5.5% 5.5%
Average pay rate ....................... 6.4% 6.5%
</TABLE>
Other transactions affecting liquidity during the year include capital
expenditures for the year of $52.7 million, and payment of a cash dividend of
$8.2 million, or $.72 per share. The Company has announced it will reduce
future cash dividends by fifty percent, allowing it to reinvest approximately
$4.0 million back into the business.
On June 22, 1998 the Company sold three stores to Miracle Mart, Inc., a
new wholesale customer in Mandan, North Dakota, for approximately $4.7
million in cash. Also, on September 21, 1998, the Company purchased three
stores in South Dakota from Sooper Dooper Markets, Inc. for cash and other
consideration totaling $2.3 million.
The Company believes that borrowing under the revolving credit facility,
sale of subordinated notes, 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 Annual Report 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; address Year 2000 issues as
they affect the Company, its customers and vendors; and fully integrate
acquisitions and realize expected synergies.
PRICE RANGE OF COMMON STOCK AND DIVIDENDS
- -------------------------------------------------------------------------------
Nash Finch Company common stock is traded in the national over-the-counter
market under the symbol NAFC. The following table sets forth, for each of the
calendar periods indicated, the range of high and low closing sales prices for
the common stock as reported by the NASDAQ National Market System, and the cash
dividends paid per share of common stock. Prices do not include adjustments for
retail mark-ups, mark-downs or commissions. At January 2, 1999 there were 2,214
stockholders of record.
<TABLE>
<CAPTION>
Dividends
1998 1997 Per Share
High Low High Low 1998 1997
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
First Quarter ...... 20 18 3/4 22 18 .18 .18
Second Quarter ..... 19 7/8 14 1/2 22 1/4 17 1/2 .18 .18
Third Quarter ...... 15 5/8 13 7/8 24 7/8 19 3/4 .18 .18
Fourth Quarter ..... 15 5/16 13 1/8 24 1/2 17 1/2 .18 .18
- -------------------------------------------------------------------------------------
</TABLE>
REPORT OF INDEPENDENT AUDITORS
- -------------------------------------------------------------------------------
The Board of Directors and Stockholders
Nash Finch Company:
[LOGO]
We have audited the accompanying consolidated balance sheets of Nash Finch
Company and subsidiaries as of January 2, 1999 and January 3, 1998, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for each of the three years in the period ended January 2, 1999. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Nash Finch
Company and subsidiaries at January 2, 1999 and January 3, 1998, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended January 2, 1999, in conformity with generally
accepted accounting principles.
/s/ Ernst & Young LLP
Minneapolis, Minnesota
February 24, 1999
22
<PAGE>
NASH FINCH COMPANY AND SUBSIDIARIES
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF OPERATIONS
- ------------------------------------------------------------------------------------------------------------
Fiscal years ended January 2, 1999,
January 3, 1998 and December 28, 1996. 1998 1997 1996
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 52 weeks 53 weeks 52 weeks
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INCOME:
Net sales ..................................................... $ 4,115,589 4,293,555 3,300,935
Other revenues ................................................ 44,422 47,540 23,035
----------- --------- ---------
Total revenues .............................................. 4,160,011 4,341,095 3,323,970
COST AND EXPENSES:
Cost of sales ................................................. 3,783,661 3,936,813 2,996,596
Selling, general and administrative ........................... 291,199 293,876 248,141
Special charges ............................................... 68,471 30,034 --
Depreciation and amortization ................................. 46,064 46,353 33,314
Interest expense .............................................. 29,034 32,773 13,408
----------- --------- ---------
Total costs and expenses .................................... 4,218,429 4,339,849 3,291,459
Earnings (loss) from continuing operations before
income taxes and extraordinary charge .................... (58,418) 1,246 32,511
Income taxes (benefit) ........................................ (18,837) 2,320 13,174
----------- --------- ---------
Earnings (loss) from continuing operations before
extraordinary charge ..................................... (39,581) (1,074) 19,337
DISCONTINUED OPERATIONS:
Earnings (loss) from discontinued operations,
net of income taxes (benefit) ............................ 426 (154) 695
Loss on disposal of discontinued operations,
including provision of $1,800, for future
operating losses during phase out period,
net of income tax benefit of $10,587 ..................... (16,913) -- --
----------- --------- ---------
Earnings (loss) before extraordinary charge .............. (56,068) (1,228) 20,032
Extraordinary charge from early extinguishment of debt,
net of income tax benefit of $3,951 ...................... 5,569 -- --
----------- --------- ---------
Net earnings (loss) ........................................... $ (61,637) (1,228) 20,032
----------- --------- ---------
BASIC EARNINGS (LOSS) PER SHARE:
Earnings (loss) from continuing operations .................... $ (3.50) (0.10) 1.77
Earnings (loss) from discontinued operations .................. (1.46) (0.01) 0.06
----------- --------- ---------
Earnings (loss) before extraordinary charge ................. (4.96) (0.11) 1.83
Extraordinary charge from early extinguishment of debt,
net of income tax benefit ................................ (0.49) -- --
----------- --------- ---------
Net earnings (loss) per share ................................. $ (5.45) (0.11) 1.83
----------- --------- ---------
DILUTED EARNINGS (LOSS) PER SHARE:
Earnings (loss) from continuing operations .................... $ (3.50) (0.10) 1.75
Earnings (loss) from discontinued operations .................. (1.46) (0.01) 0.06
----------- --------- ---------
Earnings (loss) before extraordinary charge ................. (4.96) (0.11) 1.81
Extraordinary charge from early extinguishment of debt,
net of income tax benefit ................................ (0.49) -- --
----------- --------- ---------
Net earnings (loss) per share ................................. $ (5.45) (0.11) 1.81
----------- --------- ---------
Weighted average number of common shares outstanding and common
equivalent shares outstanding:
Basic ......................................................... 11,318 11,270 10,947
Diluted ....................................................... 11,318 11,270 11,093
- -------------------------------------------------------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
23
<PAGE>
NASH FINCH COMPANY AND SUBSIDIARIES
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS
- ----------------------------------------------------------------------------------------------------------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) January 2, January 3,
ASSETS 1999 1998
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CURRENT ASSETS:
Cash ....................................................................... $ 848 933
Accounts and notes receivable, net ......................................... 169,748 173,962
Inventories ................................................................ 267,040 287,801
Prepaid expenses ........................................................... 13,154 22,582
Deferred tax assets ........................................................ 16,318 9,072
--------- --------
Total current assets .................................................. 467,108 494,350
Investments in affiliates ..................................................... 4,805 7,679
Notes receivable, noncurrent .................................................. 12,936 23,092
PROPERTY, PLANT AND EQUIPMENT:
Land ....................................................................... 25,386 31,229
Buildings and improvements ................................................. 130,988 137,070
Furniture, fixtures and equipment .......................................... 302,450 306,762
Leasehold improvements ..................................................... 61,983 60,578
Construction in progress ................................................... 10,107 28,485
Assets under capitalized leases ............................................ 24,878 25,048
--------- --------
555,792 589,172
Less accumulated depreciation and amortization ............................. (333,414) (312,939)
--------- --------
Net property, plant and equipment ..................................... 222,378 276,233
Intangible assets, net ........................................................ 69,141 70,732
Investment in direct financing leases ......................................... 16,155 19,094
Deferred tax asset, net ....................................................... 31,908 2,622
Other assets .................................................................. 8,664 11,081
--------- --------
Total assets .......................................................... $ 833,095 904,883
--------- --------
--------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
- -----------------------------------------------------------------------------------------------------------------
CURRENT LIABILITIES:
Outstanding checks ......................................................... $ 33,329 36,271
Short-term debt payable to banks ........................................... 5,525 11,300
Current maturities of long-term debt and capitalized lease obligations ..... 2,563 7,964
Accounts payable ........................................................... 189,382 177,548
Accrued expenses ........................................................... 97,683 60,599
Income taxes ............................................................... 2,991 737
--------- --------
Total current liabilities ............................................. 331,473 294,419
Long-term debt ................................................................ 293,280 325,489
Capitalized lease obligations ................................................. 34,667 38,517
Deferred compensation ......................................................... 6,450 6,768
Other ......................................................................... 10,752 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
in 1998 and 1997 ......................................................... 19,292 19,292
Additional paid-in capital ................................................. 17,944 17,648
Restricted stock ........................................................... (113) (391)
Retained earnings .......................................................... 121,185 190,984
--------- --------
158,308 227,533
Less cost of 234 shares and 252 shares of common stock in treasury,
respectively ............................................................. (1,835) (1,915)
--------- --------
Total stockholders' equity ............................................ 156,473 225,618
--------- --------
Total liabilities and stockholders' equity ............................ $ 833,095 904,883
--------- --------
--------- --------
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
24
<PAGE>
NASH FINCH COMPANY AND SUBSIDIARIES
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------------------------------------------
(IN THOUSANDS) 1998 1997 1996
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net earnings ................................................... $ (61,637) (1,228) 20,032
Adjustments to reconcile net income to net cash
provided by operating activities:
Special charges - non-cash portion ........................... 65,181 28,749 --
Discontinued operations ...................................... 27,500 -- --
Depreciation and amortization ................................ 47,196 47,697 34,759
Provision for bad debts ...................................... 10,637 5,055 1,893
Provision for (recovery from) losses on closed lease locations 1,099 1,722 (458)
Extraordinary charge - extinguishment of debt ................ 9,520 -- --
Deferred income taxes ........................................ (36,532) (2,955) (2,278)
Deferred compensation ........................................ (318) (708) (149)
(Earnings) loss of equity investments ........................ (262) 469 616
Other ........................................................ (2,017) 2,003 326
Changes in operating assets and liabilities:
Accounts and notes receivable ................................ (3,604) (3,744) (12,544)
Inventories .................................................. 23,400 19,821 14,021
Prepaid expenses ............................................. 6,722 (1,201) (349)
Accounts payable ............................................. 11,072 (6,953) (21,850)
Accrued expenses ............................................. 2,276 (2,512) 2,219
Income taxes ................................................. 2,254 (2,262) (967)
-------- ------- --------
Net cash provided by operating activities ................. 102,487 83,953 35,271
-------- ------- --------
INVESTING ACTIVITIES:
Dividends received ............................................. 799 1,600 --
Disposal of property, plant and equipment ...................... 21,274 16,721 9,169
Additions to property, plant and equipment
excluding capital leases ..................................... (52,730) (67,725) (51,333)
Business acquired, net of cash acquired ........................ (2,908) (17,863) (257,868)
Investment in an affiliate ..................................... -- -- (2,500)
Loans to customers ............................................. (15,290) (18,816) (4,997)
Payments from customers on loans ............................... 15,554 14,080 4,713
Sale (repurchase) of receivables ............................... (250) 37,000 3,402
Other .......................................................... (4,174) (739) (2,896)
-------- ------- --------
Net cash used for investing activities .................... (37,725) (35,742) (302,310)
-------- ------- --------
FINANCING ACTIVITIES:
Proceeds from long-term debt ................................... 165,000 -- 30,000
(Payments) proceeds from revolving debt ........................ (94,000) (30,000) 244,000
Dividends paid ................................................. (8,162) (8,110) (8,288)
(Payments) proceeds from short-term debt ....................... (5,775) (4,871) 1,171
Payments of long-term debt ..................................... (108,608) (6,009) (21,946)
Payments of capitalized lease obligations ...................... (1,504) (3,467) (717)
Extinguishment of debt ......................................... (9,378) -- --
Increase (decrease) in outstanding checks ...................... (2,942) 3,779 (2,395)
Other .......................................................... 522 479 111
-------- ------- --------
Net cash (used in) provided by financing activities ....... (64,847) (48,199) 241,936
-------- ------- --------
Net (decrease) increase in cash ........................... $ (85) 12 (25,103)
-------- ------- --------
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
25
<PAGE>
NASH FINCH COMPANY AND SUBSIDIARIES
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
- -------------------------------------------------------------------------------------------------------------------
Fiscal years ended January 2, 1999,
January 3, 1998 and December 28, 1996
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Foreign
Common stock Additional currency
----------------- paid-in Retained translation Restricted
Shares Amount capital earnings adjustment stock
- -------------------------------------------------------------------------------------------------------------
<S> <C> <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) -- -- (524)
Amortized compensation under
restricted stock plan............. -- -- -- -- -- 24
Treasury stock purchased............. -- -- -- -- -- --
------- ------- ------- -------- ----- -----
BALANCE AT DECEMBER 28, 1996......... 11,574 19,290 16,816 200,322 (950) (500)
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............. -- -- -- -- -- 29
Repayment of notes receivable
from holders of restricted stock.. -- -- -- -- -- 80
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 -- (391)
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............. -- -- -- -- -- 72
Repayment of notes receivable from
holders of restricted stock....... -- -- -- -- -- 206
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 -- (113)
------- ------- ------- -------- ----- -----
------- ------- ------- -------- ----- -----
<CAPTION>
Treasury stock Total
----------------------- stockholders'
Shares Amount equity
--------------------------------------
<S> <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......... 40 995 163
Amortized compensation under
restricted stock plan............. -- -- 24
Treasury stock purchased............. (7) (120) (120)
----- ------- -------
BALANCE AT DECEMBER 28, 1996......... (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
Repayment of notes receivable
from holders of restricted stock.. -- -- 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........... (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
Repayment of notes receivable from
holders of restricted stock....... -- -- 206
Distribution of stock pursuant to
performance awards................ 15 75 321
Treasury stock purchased ............ (1) (16) (16)
Other................................ -- -- 3
----- ------- -------
BALANCE AT JANUARY 2, 1999........... (234) $(1,835) 156,473
----- ------- -------
----- ------- -------
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
26
<PAGE>
NASH FINCH COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(1) ACCOUNTING POLICIES
FISCAL YEAR
Nash Finch Company's fiscal year ends on the Saturday nearest to December
31. Fiscal year 1998 consisted of 52 weeks, while 1997 and 1996 consisted of
53 weeks and 52 weeks, respectively.
PRINCIPLES OF CONSOLIDATION
The accompanying financial statements include the accounts of Nash Finch
Company (the Company), its majority-owned subsidiaries and the Company's
share of net earnings or losses of 50 percent or less owned companies. All
material intercompany accounts and transactions have been eliminated in the
consolidated financial statements.
Certain reclassifications were made to prior year amounts to conform with
1998 presentation. During 1998, warehousing and transportation expenses,
historically classified as selling, general and administrative expenses and
other operating expenses, are reclassified as cost of sales. For 1998, 1997
and 1996, $121.9 million, $135.7 million and $87.6 million, respectively,
were reclassified. These reclassifications have no impact on operating income
and net income but conform the Company's financial reporting with the
reporting practices of other large wholesale food distributors.
CASH AND CASH EQUIVALENTS
In the accompanying financial statements, and for purposes of the
statements of cash flows, cash and cash equivalents include cash on hand and
short-term investments with original maturities of three months or less.
INVENTORIES
Inventories are stated at the lower of cost or market. At January 2, 1999
and January 3, 1998, approximately 87 percent and 85 percent, respectively,
of the Company's inventories are valued on the last-in, first-out (LIFO)
method. During fiscal 1998 the Company recorded a LIFO charge of $4.0 million
compared to $1.5 million in 1997. The remaining inventories are valued on the
first-in, first-out (FIFO) method. If the FIFO method of accounting for
inventories had been used, inventories would have been $47.1 million and
$43.1 million higher at January 2, 1999 and January 3, 1998, respectively.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost. Assets under capitalized
leases are recorded at the present value of future lease payments or fair
market value, whichever is lower. Expenditures which improve or extend the
life of the respective assets are capitalized while maintenance and repairs
are expensed as incurred.
IMPAIRMENT OF LONG-LIVED ASSETS
An impairment loss is recognized whenever events or changes in
circumstances indicate that the carrying amount of an asset is not
recoverable. In applying Statement of Financial Accounting Standards (SFAS)
No. 121, ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR
LONG-LIVED ASSETS TO BE DISPOSED OF, assets are grouped and evaluated at the
lowest level for which there are identifiable cash flows that are largely
independent of the cash flows of other groups of assets. The Company has
generally identified this lowest level to be individual stores; however,
there are limited circumstances where, for evaluation purposes, stores could
be considered with the distribution center they support. The Company
considers historical performance and future estimated results in its
evaluation of potential impairment. If the carrying amount of the asset
exceeds estimated expected undiscounted future cash flows, the Company
measures the amount of the impairment by comparing the carrying amount of the
asset to its fair value, generally measured by discounting expected future
cash flows at the rate the Company utilizes to evaluate potential investments.
INTANGIBLE ASSETS
Intangible assets consist primarily of covenants not to compete and
goodwill, and are carried at cost less accumulated amortization. Costs are
amortized over the estimated useful lives of the related assets ranging from
2-25 years. Amortization expense charged to operations for fiscal years ended
January 2, 1999, January 3, 1998, and December 28, 1996 was $5.8 million,
$5.9 million and $5.2 million, respectively. The accumulated amortization of
intangible assets was $18.5 million and $13.5 million at January 2, 1999 and
January 3, 1998, respectively. The carrying value of intangible assets is
reviewed for impairment annually and/or when factors indicating impairment is
present using an undiscounted cash flow assumption.
DEPRECIATION AND AMORTIZATION
Property, plant and equipment are depreciated on a straight-line basis
over the estimated useful lives of the assets which generally range from
10-40 years for buildings and improvements and 3-10 years for furniture,
fixtures and equipment. Leasehold improvements and capitalized leases are
amortized to expense on a straight-line basis over the term of the lease.
Effective January 4, 1998, the Company early adopted the American
Institute of Certified Public Accountants Statement of Position ("SOP") 98-1,
ACCOUNTING FOR THE COST OF COMPUTER SOFTWARE DEVELOPED OR OBTAINED FOR
INTERNAL USE. The SOP requires the capitalization of certain costs incurred
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 1998, the Company capitalized $5.1 million in payroll and
payroll-related costs for employees who are directly involved with and devote
time to internal-use software development projects. Such amounts were
subsequently written-off during 1998 (see Note (3) of Notes to Consolidated
Financial Statements).
27
<PAGE>
NASH FINCH COMPANY AND SUBSIDIARIES
INCOME TAXES
Deferred income taxes are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts
of existing assets and liabilities and their respective tax basis. Deferred
tax assets and liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary differences are
expected to be recovered or settled.
STOCK OPTION PLANS
As permitted by the provisions of SFAS No. 123, ACCOUNTING FOR STOCK-BASED
COMPENSATION, the Company has chosen to continue to apply Accounting
Principles Board Opinion No. 25 (APB 25), ACCOUNTING FOR STOCK ISSUED TO
EMPLOYEES and related interpretations in accounting for its stock option
plans. As a result, the Company does not recognize compensation costs if the
option price equals or exceeds market price at date of grant. Note (8) of
Notes to Consolidated Financial Statements contains a summary of the pro
forma effects to reported net income and earnings per share had the Company
elected to recognize compensation costs as encouraged by SFAS No. 123.
USE OF ESTIMATES
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.
NEW ACCOUNTING STANDARDS
The Financial Accounting Standards Board ("FASB") issued SFAS No. 133,
ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES, which
standardizes the accounting for derivative instruments, and requires the
Company to recognize all derivatives on the balance sheet at fair value. This
Statement is effective for the Company's fiscal year 2000. Management has not
assessed the impact on earnings or financial position.
(2) ACQUISITIONS
On November 7, 1996 the Company completed a tender offer to purchase the
outstanding shares of common stock of Super Food Services, Inc. ("Super
Food") for $15.50 per share in cash, with 10.6 million shares tendered,
representing approximately 96 percent of the outstanding common stock of
Super Food. Super Food is a wholesale grocery distributor based in Dayton,
Ohio, with annual revenues of approximately $1.2 billion. The fair value of
the assets acquired, including goodwill, was $321.9 million, and liabilities
assumed totaled $150.0 million. Goodwill of $29.8 million and other
intangibles of $5.8 million are being amortized over 25 years on a
straight-line basis.
The acquisition was accounted for by the purchase method of accounting
and, accordingly, the operating results of the newly acquired businesses have
been included in the consolidated operating results of the Company since the
date of acquisition.
Pro forma, unaudited results of operations as if the above operation had
been acquired as of the beginning of 1996, after including the impact of
certain adjustments such as amortization of intangibles, increased interest
expense on acquisition debt and related income tax effects, would have
resulted in 1996 net revenues of $4.7 billion, earnings before income tax of
$23.7 million, net income of $14.1 million and basic earnings per share of
$1.28.
(3) SPECIAL CHARGES
1998 CHARGES
During the fourth quarter of 1998, the Company recorded charges totaling
$71.4 million (offset by $2.9 million of 1997 charge adjustments) as a result
of the Company's planned actions designed to redirect its technology efforts,
optimize warehouse capacity through consolidation, and to close, sell or
reassess underperforming businesses and investments.
The special charges include $34.4 million for the abandonment of assets
principally related to the Company's HORIZONS information system project.
Although the Company is using certain modules of the developed software, the
abandoned assets relate to purchased software and related development costs
associated with abandoned in-process modules and software modules which,
without significant investment in continuing development, lack sufficient
inherent functionality to meet the Company's business and Year 2000 needs. As
a result, the Company has terminated further HORIZONS development, abandoned
in-process modules, and shifted its resources to a Year 2000 remediation
plan. Also included in abandoned assets is $1.3 million in unamortized
packaging design costs relating to a private label product line that will be
redesigned.
The special charges include $17.1 million and $9.6 million for
restructuring wholesale and retail operations, respectively. Three warehouses
will be closed by the end of the third quarter of 1999. Their volume will be
consolidated with other locations, thereby further aligning the Company's
distribution capacity with current and anticipated wholesale operations.
The $17.1 million is comprised of $2.6 million of post-employment benefit
costs consistent with existing practices, $2.7 million of penalties upon
withdrawal from multi-employer pension plans, $8.2 million to write-down to
fair value assets to be abandoned or disposed of (based on management's
estimates and appraisals where available), and $3.6 million of employee
salary and benefits and other costs to be incurred to close facilities after
operations have ceased. Assets held for disposal were $24.6 million at
January 2, 1999.
Twelve underperforming corporately owned retail stores, and one store
jointly developed with a wholesale customer, will also be closed.
Substantially all stores have either been closed by March 1999 or are
involved in transactions currently being negotiated. The $9.6 million
consists of $3.4 million of non-cancelable lease obligations and related
costs required under lease agreements, $3.5 million to write-down to fair
value assets held for disposal, $.8 million of post-closing facility exit
costs and $1.9 million for asset abandonment. At January 2, 1999, these costs
have been included in accrued expenses on the balance sheet. For 1998, the
corporately owned retail units to be closed had aggregate sales and pretax
losses of $42.9 million and $1.9 million, respectively, compared with $42.7
million and $.1 million in 1997. The impact of suspending depreciation on
assets to be disposed of is not material. Assets held for disposal at January
2, 1999 were $3.5 million.
28
<PAGE>
NASH FINCH COMPANY AND SUBSIDIARIES
The remainder of the aggregate special charges is a $10.3 million
provision for asset impairment of which $8.2 million relates to ten owned
retail stores. Increased competition resulting in declining market share,
deterioration of operating performance and inadequate projected cash flows
were the factors indicating impairment. The impaired assets, which include
leasehold improvements and store equipment, were measured based on a
comparison of the assets' net book value to the present value of the stores'
estimated cash flows. In addition, the Company recorded a $2.1 million asset
impairment charge writing off its equity investment in a joint venture with
an independent retailer it continues to service. Current and projected
operating losses and projected negative cash flow were the primary factors in
determining that a permanent decline in the value of the investment had
occurred.
1997 CHARGES
In 1997 the Company accelerated its plan to strengthen its competitive
position. Coincident with the implementation of the plan, the Company
recorded special charges totaling $31.3 million impacting the Company's
wholesale and retail segments, as well as the produce growing and marketing
segment discontinued during 1998.
The aggregate special charges included $14.5 million for the consolidation
or downsizing of seven underutilized warehouses. The charges, as further
detailed in the table below, provided for non-cancelable lease obligations,
the write-down to fair value of tangible assets held for resale, and other
costs to exit facilities. Also included are post-employment benefits
consistent with existing practice and the unamortized portion of goodwill for
one of the locations.
<TABLE>
<CAPTION>
Write- Write-
Post down of down of
Lease Employment Intangible Tangible Exit
Commitments Benefits Assets Assets(1) Costs Total
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Initial accrual ... $ 5,198 1,815 3,225 2,442 1,835 14,515
Used in 1997 ...... (3,225) (2,442) (5,667)
--------------------------------------------------------------------------------------
Balance 1/3/98 .... 5,198 1,815 -- -- 1,835 8,848
Reversals in 1998 . (1,591) (352) -- -- (358) (2,301)
Additional accruals
in 1998 ......... 271 194 -- 669 845 1,979
Used in 1998 ...... (1,328) (625) -- (669) (269) (2,891)
--------------------------------------------------------------------------------------
Balance 1/2/99 .... $ 2,550 1,032 -- -- 2,053 5,635
--------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------
</TABLE>
(1) The Company reversed $1.1 million of the write-down of tangible assets
recorded in 1997, as discussed below.
As a result of management changes during 1998, all actions to be taken
under the 1997 plan were reevaluated by the Company's new management team.
Substantially all actions contemplated by the 1997 plan were reaffirmed in
1998 and are in process of being implemented; however, some actions included
in the 1997 plan were changed in 1998. The accruals reversed in 1998 relate
to new management's determination that one distribution center identified for
closure in the 1997 plan would remain open. The additional accruals are
principally for one distribution center identified for downsizing in 1997,
which will now be closed, and the additional write-down of assets management
has determined in 1998 will not be used in operations upon the closure of
distribution centers. Closure of five distribution centers included in the
1997 plan have been announced, three of which were closed as of year-end.
Also, related to wholesale operations, the special charges included $2.5
million of integration costs, incurred in the third quarter of 1997,
associated with the acquisition of the business and certain assets from
United-A.G. Cooperative, Inc. ("United-A.G.").
In retail operations, the special charges relate to the closing of
fourteen, principally leased, stores. The $5.2 million charge, as detailed in
the table below, covers provisions for continuing non-cancelable lease
obligations, anticipated losses on disposals of tangible assets, including
abandonment of leasehold improvements, and the write-off of intangible assets.
<TABLE>
<CAPTION>
Write- Write-
down of down of
Lease Intangible Tangible Exit
Commitments Assets Assets(1) Costs Total
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Initial accrual ... $ 2,780 396 1,603 393 5,172
Used in 1997 ...... (10) (396) (1,603) (63) (2,072)
-----------------------------------------------------------------------
Balance 1/3/98 .... 2,770 -- -- 330 3,100
Used in 1998 ...... (416) -- -- (28) (444)
Reversals in 1998 . (1,448) -- -- (131) (1,579)
Additional accruals
in 1998 ......... 486 -- -- 198 684
-----------------------------------------------------------------------
Balance 1/2/99 .... $ 1,392 -- -- 369 1,761
-----------------------------------------------------------------------
-----------------------------------------------------------------------
</TABLE>
(1) The Company reversed $608,000 of the write-down of tangible assets recorded
in 1997, as discussed below.
The amount reversed in 1998 is principally the planned closure of a leased
retail store which was subleased during the third quarter of 1998. Ten of the
identified retail stores were closed during 1998 with the remaining four
stores scheduled to be closed by November 1999. For 1998, the ten retail
units closed during 1998 and the four units to be closed in 1999 had
aggregate sales of $8.4 million and $38.6 million, and pretax losses of $1.0
million and pretax profits of $1.0 million, respectively. The impact of
suspending depreciation on assets to be disposed of was not material.
The aggregate special charges contain a provision of $5.4 million for
impaired assets of seven retail stores. Declining market share due to
increasing competition, deterioration of operating performance in the third
quarter of 1997, and forecasted future results that were less than previously
planned were the factors leading to the impairment determination. The
impaired assets covered by the charge primarily include real estate,
leasehold improvements and, to a lesser extent, goodwill related to two of
the stores. Store fixed asset write-downs were measured based on a comparison
of the assets' net book value to the net present value of the stores'
estimated future net cash flows.
An asset impairment charge of $1.0 million relating to agricultural assets
was also recorded against several farming operations of Nash DeCamp, the
Company's produce growing and marketing subsidiary. The impairment
determination was based on downturns in the market for certain varieties of
fruit. The impairment resulted from anticipated future operating losses and
insufficient projected cash flows from agricultural production of these
products.
Other special charges aggregating $2.8 million consist primarily of $.9
million related to the abandonment of system software which was replaced, and
a loss of $.6 million realized on the sale of the Company's 22.4 percent
equity investment in Alfa Trading Company, a Hungarian wholesale operation.
The remaining special charges relate principally to the write-down of idle
real estate to current market values.
29
<PAGE>
NASH FINCH COMPANY AND SUBSIDIARIES
(4) DISCONTINUED OPERATIONS
In October 1998, the Company adopted a plan to sell its produce growing
and marketing subsidiary, Nash DeCamp Company. Pursuant to APB Opinion No.
30, REPORTING THE RESULTS OF OPERATIONS -- REPORTING THE EFFECTS OF DISPOSAL
OF A SEGMENT OF A BUSINESS AND EXTRAORDINARY, UNUSUAL AND INFREQUENTLY
OCCURRING EVENTS AND TRANSACTIONS, Nash DeCamp is reported as a discontinued
operation for all periods presented. The Company is actively marketing this
operation with expected sale before mid-year 1999.
The estimated pretax loss resulting from the expected sale of Nash DeCamp
is $27.5 million, which includes an investment write-down, based upon
estimated proceeds, of $17 million and a provision for anticipated operating
losses until disposal of $1.8 million. The reported loss is net of an income
tax benefit of $10.6 million. Summary operating results of the discontinued
operation (in thousands) are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues ............................... $47,802 50,507 51,515
Cost and expenses ...................... 47,196 51,987 50,359
------------------------------------
Income (loss) before taxes ............. 606 (1,480) 1,156
Income taxes (benefit) ................. 180 (1,326) 461
------------------------------------
Net income (loss) ...................... $ 426 (154) 695
------------------------------------
------------------------------------
</TABLE>
Net assets of the discontinued operation at January 2, 1999 included in the
consolidated balance sheets (in thousands) are as follows:
<TABLE>
<CAPTION>
1998
- -----------------------------------------------------------------
<S> <C>
Current assets(1)
Cash ............................................ $ 2
Accounts and notes receivable, net .............. 14,174
Inventories ..................................... 1,215
Other current assets ............................ 131
--------
Less current liabilities
Accounts payable ................................ 9,388
Other current liabilities ....................... 11,095
--------
Net current assets ................................. $ (4,961)
--------
Long-term assets(1)
Notes receivable, non-current ................... $ 58
Net property, plant and equipment ............... 14,285
Other assets .................................... 371
--------
Less long-term liabilities
Deferred compensation ........................... 2,140
Other liabilities ............................... 650
--------
Net long-term assets ............................... $ 11,924
--------
--------
</TABLE>
(1) The investment write-down of $25.0 million is reflected in the asset
values above.
In the normal course of business, Nash DeCamp makes cash advances to
produce growers during various product growing seasons, to fund production
costs. Such advances are repayable at the end of the respective growing
seasons. Unpaid advances are generally secured by liens on real estate and in
certain instances, on crops yet to be harvested. At January 2, 1999, $12.1
million in notes and grower advances were outstanding.
(5) ACCOUNTS AND NOTES RECEIVABLE
Accounts and notes receivable at the end of fiscal years 1998 and 1997 are
comprised of the following components (in thousands):
<TABLE>
<CAPTION>
1998 1997
- --------------------------------------------------------------------------------------
<S> <C> <C>
Customer notes receivable - current portion ............. $ 10,950 9,256
Customer accounts receivable ............................ 158,610 157,737
Other receivables ....................................... 25,199 26,970
Allowance for doubtful accounts ......................... (25,011) (20,001)
--------------------------
Net current accounts and notes receivable ............... $ 169,748 173,962
--------------------------
Noncurrent customer notes receivable .................... 22,342 29,759
Allowance for doubtful accounts ......................... (9,406) (6,667)
--------------------------
Net noncurrent notes receivable ......................... $ 12,936 23,092
--------------------------
--------------------------
</TABLE>
Operating results include bad debt expense totaling $10.6 million, $5.1
million and $1.9 million during fiscal years 1998, 1997 and 1996,
respectively.
On January 1, 1997, the Company adopted the requirements of SFAS No. 125,
ACCOUNTING FOR TRANSFERS AND SERVICING OF FINANCIAL ASSETS AND EXTINGUISHMENT
OF LIABILITIES. SFAS No. 125 establishes accounting and reporting standards
for transfers and servicing of financial assets and extinguishments of
liabilities based on the application of a financial components approach which
focuses on control of the assets and liabilities that exist after the
transfer. The implementation of SFAS No. 125 did not have a material effect
on the Company's 1997 consolidated financial statements.
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. In applying the
provisions of SFAS No. 125, no gain or loss resulted on the 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 interest 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 for doubtful accounts. As of January 2,
1999, the Company had sold $45.7 million of accounts receivable on a
non-recourse basis to NFFC. NFFC sold $36.8 million of its undivided interest
in such receivables to the Purchaser, subject to specified collateral
requirements.
In 1995, the Company had entered into an agreement with a financial
institution which allowed the Company to sell on a revolving basis customer
notes receivable with recourse. The remaining balances of such sold notes
receivable totaled $5.2 million and $9.1 million at January 2, 1999 and
January 3, 1998, respectively. The Company is contingently liable should
these notes become uncollectible.
Substantially all notes receivable are based on floating interest rates
which adjust to changes in market rates. As a result, the carrying value of
notes receivable approximates market value.
30
<PAGE>
NASH FINCH COMPANY AND SUBSIDIARIES
(6) LONG-TERM DEBT AND CREDIT FACILITIES
Long-term debt at the end of the fiscal years 1998 and 1997 is summarized
as follows (in thousands):
<TABLE>
<CAPTION>
1998 1997
- -----------------------------------------------------------------------------------------
<S> <C> <C>
Variable rate - revolving credit agreement ................. $120,000 214,000
Senior subordinated debt, 8.5% due in 2008 ................. 163,781 --
Industrial development bonds, 5.4% to 7.8%
due in various installments through 2009 ................ 3,840 4,370
Term loan, 9.55% due in 2001 ............................... 1,250 107,528
Notes payable and mortgage notes, 3% to 11.5%
due in various installments through 2003 ................ 5,394 5,975
-----------------------------
294,265 331,873
Less current maturities .................................... 985 6,384
-----------------------------
$293,280 325,489
-----------------------------
</TABLE>
On April 24, 1998, the Company completed the sale of $165 million of 8.5
percent 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.
In the first quarter of 1998, in conjunction with the 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. This transaction resulted in an extraordinary charge of $5.6
million, or $.49 per share, net of income tax benefits of $3.9 million.
During 1997, the Company entered into four swap agreements, with separate
financial institutions. At the end of fiscal year 1998 there were three swap
agreements remaining. The agreements, which are based on a notional amount of
$30.0 million each, call for an exchange of interest payments with the
Company receiving payments based on a London Interbank Offered Rate (LIBOR)
floating rate and making payments based on a fixed rate, ranging from 6.21
percent to 6.54 percent, without an exchange of the notional amount upon
which the payments are based. The differential to be paid or received from
counter-parties as interest rates change is included in other liabilities or
assets, with the corresponding amount accrued and recognized as an adjustment
of interest expense related to the debt.
The fair values of the swap agreements, totalling $.9 million, are not
recognized in the financial statements. Gains and losses on terminations of
interest-rate swap agreements are deferred as an adjustment to the carrying
amount of the outstanding debt and amortized as an adjustment to the interest
expense related to the debt over the remaining term of the original contract
life of the terminated swap agreement. In the event of the early
extinguishment of a designated debt obligation, any realized or unrealized
gain or loss from the swap would be recognized in income coincident with the
extinguishment.
Any swap agreements that are not designated with outstanding debt are
recorded as an asset or liability at fair value, with changes in fair value
recorded in other income or expense.
The Company has a revolving credit facility (the "Credit Facility") with
two lead banks that was reduced to $350 million in available borrowings
during 1998. The Credit Facility matures in October 2001. Borrowings under
this agreement will bear interest at variable rates equal to LIBOR plus 1.125
percent. In addition, the Company pays commitment fees of .375 percent on the
entire facility both used and unused. The average borrowing rate during the
period was 6.5 percent.
The Credit Facility and subordinated debt agreements contain covenants
which among other matters, limit the Company's ability to incur indebtedness,
buy and sell assets, impose dividend payment limitations and require
compliance to predetermined ratios related to net worth, debt to equity and
interest coverage.
At January 2, 1999, land, buildings and other assets pledged to secure
outstanding mortgage notes and obligations under issues of industrial
development bonds have a depreciated cost of approximately $4.6 million and
$4.2 million, respectively.
Aggregate annual maturities of long-term debt for the five fiscal years
after January 2, 1999 are as follows (in thousands):
<TABLE>
- -------------------------------------------------------------
<S> <C>
1999 ......................................... $ 985
2000 ......................................... 731
2001 ......................................... 122,056
2002 ......................................... 1,683
2003 ......................................... 3,144
2004 and thereafter .......................... $165,666
- -------------------------------------------------------------
</TABLE>
Interest paid was $32.0 million, $31.6 million and $14.3 million, for
fiscal years 1998, 1997 and 1996, respectively.
In addition, the Company maintains informal lines of credit at various
banks. At January 2, 1999 unused informal lines of credit amounted to $4.5
million.
Based on borrowing rates currently available to the Company for long-term
financing with similar terms and average maturities, the fair value of
long-term debt, including current maturities, utilizing discounted cash flows
is $277.3 million.
(7) INCOME TAXES
Income tax expense related to continuing operations is made up of the
following components (in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
- ------------------------------------------------------------
<S> <C> <C> <C>
Current:
Federal .............. $ 6,048 3,029 11,781
State ................ 1,060 667 2,262
Deferred:
Federal .............. (23,717) (1,079) (678)
State ................ (2,228) (297) (191)
---------------------------------
Total .............. $(18,837) 2,320 13,174
---------------------------------
---------------------------------
</TABLE>
31
<PAGE>
NASH FINCH COMPANY AND SUBSIDIARIES
Total income tax expense (benefit) relating to continuing operations
represents effective tax rates of (32.2) percent, 186.2 percent and 40.5
percent for the fiscal years 1998, 1997 and 1996, respectively. The reasons
for differences compared with the US federal statutory tax rate (expressed as
a percentage of pretax income) are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
- -----------------------------------------------------------------------------------
<S> <C> <C> <C>
Federal statutory tax rate ................... (35.0)% 35.0% 35.0%
State taxes, net of federal income tax benefit (2.0) 18.0 4.2
Foreign equity earnings ...................... -- (5.2) --
Dividends received deduction on domestic stock
of under 80% owned companies .............. (.4) (36.0) --
Non-deductible goodwill ...................... .9 131.4 .2
Non-deductible meals and entertainment ....... .3 17.8 .7
Adjustment to other income tax accruals ...... 3.9 27.7 .4
Other net .................................... .1 (2.5) --
-------------------------------
Effective tax rate ........................ (32.2)% 186.2% 40.5%
-------------------------------
-------------------------------
</TABLE>
Income taxes paid (refunded) were $(4.4) million, $8.9 million and $12.4
million during fiscal years 1998, 1997 and 1996, respectively.
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at January
2, 1999, January 3, 1998, and December 28, 1996, are presented below (in
thousands):
<TABLE>
<CAPTION>
1998 1997 1996
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Deferred tax assets:
Accounts and notes receivable, principally
due to allowance for doubtful accounts .......... $12,102 5,891 7,625
Inventories, principally due to additional costs
inventoried for tax purposes .................... 2,963 3,405 2,956
Health care claims ................................. 3,116 2,668 2,991
Deferred compensation .............................. 4,624 2,546 2,376
Compensated absences ............................... 3,192 3,086 2,286
Compensation and casualty loss ..................... 2,191 1,780 1,959
Discontinued operations ............................ 10,587 -- --
Closed locations ................................... 18,168 10,612 3,126
Other .............................................. 1,782 731 2,236
---------------------------------------
Total deferred tax assets .......................... 58,725 30,719 25,555
---------------------------------------
Deferred tax liabilities:
Purchased intangibles .............................. -- 231 1,055
Plant and equipment, principally due to
differences in depreciation ..................... 457 9,704 6,511
Inventories, principally due to differences
in LIFO basis ................................... 7,686 7,686 7,230
Other .............................................. 2,356 1,404 2,020
---------------------------------------
Total deferred tax liabilities ..................... 10,499 19,025 16,816
---------------------------------------
Net deferred tax asset .......................... $48,226 11,694 8,739
---------------------------------------
</TABLE>
The Company has determined that a valuation allowance for the net deferred
tax assets is not required since it is more likely than not that the deferred
tax asset will be realized through carryback to taxable income in prior
years, future reversals of existing taxable temporary timing differences,
future taxable income and tax planning strategies. The Company's conclusion
that it is "more likely than not" that the deferred tax asset will be
realized is based upon federal taxable income in the carryback period and its
lengthy and consistent history of profitable operations.
(8) STOCK RIGHTS AND OPTIONS
Under the Company's 1996 Stockholder Rights Plan, one right is attached to
each outstanding share of common stock. Each right entitles the holder to
purchase, under certain conditions, one-half share of common stock at a price of
$30.00 ($60.00 per full share). The rights are not yet exercisable and no
separate rights certificates have been distributed. All rights expire on March
31, 2006.
The rights become exercisable 20 days after a "flip-in event" has occurred
or 10 business days (subject to extension) after a person or group makes a
tender offer for 15 percent or more of the Company's outstanding common
stock. A flip-in event would occur if a person or group acquires (1) 15
percent of the Company's outstanding common stock, or (2) an ownership level
set by the Board of Directors at less than 15 percent if the person or group
is deemed by the Board of Directors to have interests adverse to those of the
Company and its stockholders. The rights may be redeemed by the Company at
any time prior to the occurrence of a flip-in event at $.01 per right. The
power to redeem may be reinstated within 20 days after a flip-in event occurs
if the cause of the occurrence is removed.
Upon the rights becoming exercisable, subject to certain adjustments or
alternatives, each right would entitle the holder (other than the acquiring
person or group, whose rights become void) to purchase a number of shares of
the Company's common stock having a market value of twice the exercise price
of the right. If the Company is involved in a merger or other business
combination, or certain other events occur, each right would entitle the
holder to purchase common shares of the acquiring company having a market
value of twice the exercise price of the right. Within 30 days after the
rights become exercisable following a flip-in event, the Board of Directors
may exchange shares of Company common stock or cash or other property for
exercisable rights.
The Company follows APB 25 and related interpretations in accounting for
its employee stock options. Under APB 25, when the exercise price of employee
stock options equals the market price of the underlying stock on the date of
the grant, no compensation expense is recognized.
Under the Company's 1994 Stock Incentive Plan, as amended (the "1994
Plan"), a total of 845,296 shares were reserved for the granting of stock
options, restricted stock awards and performance unit awards. Stock options
are granted at not less than 100 percent of fair market value at date of
grant and are exercisable over a term which may not exceed 10 years from date
of grant. Restricted stock awards are subject to restrictions on
transferability and such conditions for vesting, including continuous
employment for specified periods of time, as may be determined at the date of
grant. Performance unit awards are grants of rights to receive shares of
stock if certain performance goals or criteria, determined at the time of
grant, are achieved in accordance with the terms of the grants.
Under the 1995 Director Stock Option Plan (the "Director Plan"), for which
a total of 40,000 shares were reserved, annual grants of options to purchase
500 shares are made automatically to each eligible non-employee director
following each annual meeting of stockholders. The stock options are granted
at 100 percent of fair market value at date of grant, become exercisable six
months following the date of grant and may be exercised over a term of five
years from the date of grant.
32
<PAGE>
NASH FINCH COMPANY AND SUBSIDIARIES
At January 2, 1999, under the 1994 Plan, options to purchase 294,770
shares of common stock of the Company at an average price of $16.89 per share
and exercisable over terms of five to seven years from the dates of grant,
have been granted and are outstanding. Effective June 1, 1998, options
totaling 200,000 shares were granted to a key senior executive. These
options, which were not granted under the 1994 Plan, become exercisable in
50,000 share increments over a four year period, beginning one year after the
date of grant, at a price of $16.84 per share (100 percent of fair market
value at the date of grant). In February 1996, certain members of management
exercised rights to purchase restricted stock from the Company at a 25
percent discount to fair market value pursuant to grants awarded in January
1996 under the terms of the 1994 Plan. The purchase required a minimum of 10
percent payment in cash with the remaining balance evidenced by a 5-year
promissory note to the Company. Unearned compensation equivalent to the
excess of market value of the shares purchased over the price paid by the
recipient at the date of grant, and the unpaid balance of the promissory note
have been charged to stockholders' equity; amortization of compensation
expense was not material. At January 2, 1999, 9,645 shares of restricted
stock have been issued and are outstanding. Performance unit awards having a
maximum potential payout of 215,518 shares have also been granted and are
outstanding.
Reserved for the granting of future stock options, restricted stock awards
and performance unit awards are 213,693 shares.
At January 2, 1999 under the Director Plan, options to purchase 15,500
shares of common stock of the Company, at an average price of $17.79 per
share and exercisable over a term of five years from the date of grant, have
been granted and are outstanding. Reserved for the granting of future stock
options are 22,500 shares.
Changes in outstanding options during the three fiscal years ended January
2, 1999 are summarized as follows (in thousands):
<TABLE>
<CAPTION>
Weighted Average
Option Price
Shares Per Share
- ------------------------------------------------------------------------------------
<S> <C> <C>
Options outstanding December 30, 1995 ............ 256 $ 16.85
Exercised ..................................... (4) 16.77
Forfeited ..................................... (45) 17.05
Granted ....................................... 142 17.72
- ------------------------------------------------------------------------------------
Options outstanding December 28, 1996 ............ 349 17.18
Exercised ..................................... (29) 16.82
Forfeited ..................................... (33) 17.08
Granted ....................................... 5 18.38
- ------------------------------------------------------------------------------------
Options outstanding January 3, 1998 .............. 292 17.24
Exercised ..................................... (4) 16.58
Forfeited ..................................... (33) 16.83
Granted ....................................... 255 16.48
- ------------------------------------------------------------------------------------
Options outstanding January 2, 1999 .............. 510(a) 16.89
- ------------------------------------------------------------------------------------
</TABLE>
(a) Remaining average contractual life of options outstanding at January 2,
1999 was 2.5 years, with an exercise price range of $14.72 to $22.31.
<TABLE>
<S> <C> <C>
Options exercisable at
January 2, 1999 ............................... 239 $ 17.12
January 3, 1998 ............................... 164 17.09
</TABLE>
The weighted average fair value of options granted during 1998, 1997 and
1996 are $2.49, $2.62 and $2.40, respectively. The fair value of each option
grant is estimated as of the date of grant using the Black-Scholes single
option-pricing model assuming a weighted average risk-free interest rate of
4.6 percent, an expected dividend yield of 2.0 percent, expected lives of two
and one-half years and volatility of 22.8 percent. Had compensation expense
for stock options been determined based on the fair value method (instead of
intrinsic value method) at the grant dates for awards, the Company's 1998 and
1997 net loss and loss per share would have increased by less than 1 percent.
The effects of applying the fair value method of measuring compensation
expense for 1998 is likely not representative of the effects for future years
in part because the fair value method was applied only to stock options
granted after December 31, 1994.
(9) EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted
earnings per share for continuing operations:
<TABLE>
<CAPTION>
1998 1997 1996
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Numerator:
Earnings (loss) for continuing operations .......... $(39,581) (1,074) 19,337
-----------------------------------------
Denominator:
Denominator for basic earnings per share;
weighted-average shares ............................ 11,318 11,270 10,947
Effect of dilutive securities:
Employee stock options ............................. -- -- 8
Contingent shares .................................. -- -- 138
-----------------------------------------
Dilutive common shares ................................ -- -- 146
Denominator for diluted earnings per share;
adjusted weighted average shares ................... 11,318 11,270 11,093
-----------------------------------------
Basic earnings (loss) per share ....................... $ (3.50) (0.10) 1.77
-----------------------------------------
Diluted earnings (loss) per share ..................... $ (3.50) (0.10) 1.75
-----------------------------------------
</TABLE>
(10) LEASE AND OTHER COMMITMENTS
A substantial portion of the store and warehouse properties of the Company
are leased. The following table summarizes assets under capitalized leases
(in thousands):
<TABLE>
<CAPTION>
1998 1997
- ------------------------------------------------------------------------------------
<S> <C> <C>
Buildings and improvements ............................. $ 24,878 25,048
Less accumulated amortization .......................... (11,213) (10,243)
--------------------------
Net assets under capitalized leases ................. $ 13,665 14,805
--------------------------
--------------------------
</TABLE>
At January 2, 1999, future minimum rental payments under non-cancelable
leases and subleases are as follows (in thousands):
<TABLE>
<CAPTION>
Operating Capital
Leases Leases
- -------------------------------------------------------------------
<S> <C> <C>
1999 $ 31,918 5,613
2000 27,320 5,447
2001 24,475 5,384
2002 30,120 5,395
2003 and thereafter 119,289 48,345
-------------------------
Total minimum lease payments (a) $233,122 70,184
Less imputed interest
(rates ranging from 7.8% to 16.0%) (33,939)
----------
Present value of net minimum lease payments 36,245
Less current maturities (1,578)
----------
Capitalized lease obligations $34,667
----------
----------
</TABLE>
(a) Future minimum payments for operating and capital leases have not been
reduced by minimum sublease rentals receivable under non-cancelable subleases.
Total future minimum sublease rentals related to operating and capital lease
obligations as of January 2, 1999 are $121.2 million and $36.2 million,
respectively.
33
<PAGE>
NASH FINCH COMPANY AND SUBSIDIARIES
Total rental expense under operating leases for fiscal years 1998, 1997 and
1996 is as follows (in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
Total rentals ................................. $ 44,320 42,584 33,316
Less real estate taxes, insurance and other
occupancy costs ............................ (2,357) (2,731) (2,070)
--------------------------------------
Minimum rentals ............................... 41,963 39,853 31,246
Contingent rentals ............................ (154) 244 183
Sublease rentals .............................. (16,358) (13,744) (9,449)
--------------------------------------
$ 25,451 26,353 21,980
--------------------------------------
--------------------------------------
</TABLE>
Most of the Company's leases provide that the Company pay real estate taxes,
insurance and other occupancy costs applicable to the leased premises.
Contingent rentals are determined on the basis of a percentage of sales in
excess of stipulated minimums for certain store facilities. Operating leases
often contain renewal options. Management expects that, in the normal course of
business, leases that expire will be renewed or replaced by other leases.
(11) CONCENTRATION OF CREDIT RISK
The Company provides financial assistance in the form of secured loans to
some of its independent retailers for inventories, store fixtures and equipment
and store improvements. Loans are secured by liens on inventory or equipment or
both, by personal guarantees and by other types of collateral. In addition, the
Company may guarantee lease and promissory note obligations of customers.
As of January 2, 1999, the Company has guaranteed outstanding promissory note
obligations of three customers in the amount of $17.5 million, $7.1 million and
$6.5 million, respectively. The Company has guaranteed certain lease and
promissory note obligations of customers aggregating approximately $37.1
million.
The Company establishes allowances for doubtful accounts based upon the
credit risk of specific customers, historical trends and other information.
Management believes that adequate provisions have been made for any doubtful
accounts.
(12) PROFIT SHARING PLAN
The Company has a profit sharing plan covering substantially all employees
meeting specified requirements. Contributions, determined by the Board of
Directors, are made to a noncontributory profit sharing trust based on profit
performances. Profit sharing expense for 1998, 1997 and 1996 was $3.9 million,
$2.5 million and $4.1 million, respectively.
Certain officers and key employees are participants in a deferred
compensation plan providing fixed benefits payable in equal monthly installments
upon retirement. Annual contributions to the deferred compensation plan, which
are based on Company performance, are expensed. No annual contribution was made
in 1998 or 1997.
(13) PENSION AND OTHER POSTRETIREMENT BENEFITS
Super Food has a qualified non-contributory retirement plan to provide
retirement income for eligible full-time employees who are not covered by union
retirement plans. Pension benefits under the plans are based on length of
service and compensation. The Company contributes amounts necessary to meet
minimum funding requirements. During 1997 the Company formalized a curtailment
plan affecting all participants under the age of 55. All employees impacted by
the curtailment were transferred into the Company's existing defined
contribution plan effective January 1, 1998.
The Company provides certain health care benefits for retired employees not
subject to collective bargaining agreements. Employees become eligible for those
benefits when they reach normal retirement age and meet minimum age and service
requirements. Health care benefits for retirees are provided under a
self-insured program administered by an insurance company.
The estimated future cost of providing postretirement health costs is accrued
over the active service life of the employees. The following table sets forth
the benefit obligations of postretirement benefits and the funded status of the
curtailed Super Food pension plan.
The actuarial present value of benefit obligations, and funded plan status at
January 2, 1999 and January 3, 1998 were (in thousands):
<TABLE>
<CAPTION>
PENSION BENEFITS OTHER BENEFITS
- --------------------------------------------------------------------------------------------
1998 1997 1998 1997
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CHANGE IN BENEFIT OBLIGATION
Benefit obligation at
beginning of year ............. $(37,646) (32,560) (8,604) (7,978)
Service cost ..................... (199) (660) (376) (354)
Interest cost .................... (2,630) (2,663) (560) (576)
Plan amendments .................. 148 3,784 -- --
Actuarial (loss) gain ............ (1,462) (7,524) 23 (294)
Benefits paid .................... 2,203 1,977 624 598
-----------------------------------------------------
Benefit obligation at end of year. $(39,586) (37,646) (8,893) (8,604)
CHANGE IN PLAN ASSETS
Fair value of plan assets at
beginning of year ............. $ 36,261 34,274 -- --
Actual return on plan assets ..... 3,622 3,587 -- --
Employer contribution ............ 1,540 377 624 598
Plan participants' contributions . -- -- -- --
Benefits paid ................. (2,203) (1,977) (624) (598)
-----------------------------------------------------
Fair value of plan assets at
end of year ................... $ 39,220 36,261 -- --
-----------------------------------------------------
Funded status .................... $ (366) (1,385) (8,893) (8,604)
Unrecognized actuarial loss
(gain).......................... 2,806 2,098 (403) (380)
Unrecognized transition
obligation...................... -- -- 3,467 3,714
Unrecognized prior service cost .. (136) -- -- --
-----------------------------------------------------
Prepaid (accrued) benefit cost ... $ 2,304 713 (5,829) (5,270)
-----------------------------------------------------
-----------------------------------------------------
</TABLE>
WEIGHTED-AVERAGE ASSUMPTIONS AS OF JANUARY 2, 1999
<TABLE>
<S> <C> <C> <C> <C>
Discount rate............................ 7.00% 7.25% 7.00% 6.75%
Expected return on plan assets........... 8.00% 8.00% -- --
Rate of compensation increase............ 5.00% 5.00% -- --
</TABLE>
34
<PAGE>
NASH FINCH COMPANY AND SUBSIDIARIES
The aggregate costs for the Company's retirement benefits included the
following components (in thousands):
COMPONENTS OF NET PERIODIC BENEFIT COST (INCOME)
<TABLE>
<CAPTION>
PENSION BENEFITS OTHER BENEFITS
- -------------------------------------------------------------------------------------------------------------------
1998 1997 1996 1998 1997 1996
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Service cost ........... $ 199 660 237 376 354 260
Interest cost .......... 2,630 2,663 882 560 576 403
Expected return on
plan assets .......... (2,867) (2,857) (1,855) -- -- --
Amortization of prior
service costs ........ (12) -- 931 -- -- --
Amortization of
unrecognized
transition obligation. -- -- -- 248 235 248
---------------------------------------------------------------------------------------
Net periodic benefit
cost (income) ........ $ (50) 466 195 1,184 1,165 911
---------------------------------------------------------------------------------------
</TABLE>
Assumed health care cost trend rates have a significant effect on the 1998
amounts reported for the health care plans. The assumed annual rate of future
increases in per capita cost of health care benefits was 9.0 percent in fiscal
1998, declining at a rate of .5 percent per year to 5.5 percent in 2005 and
thereafter. A one-percentage point change in assumed health care cost trend
rates would have the following effects:
<TABLE>
<CAPTION>
1% Increase 1% Decrease
- ----------------------------------------------------------------------------------------
<S> <C> <C>
Effect on total of service and interest cost components .... $ 71 (60)
Effect on postretirement benefit obligation ................ 461 (406)
</TABLE>
Approximately 6 percent of the Company's employees are covered by
collectively-bargained, multi-employer pension plans. Contributions are
determined in accordance with the provisions of negotiated union contracts
and generally are based on the number of hours worked. The Company does not
have the information available to determine its share of the accumulated plan
benefits or net assets available for benefits under the multi-employer plans.
Amounts contributed to those plans during 1998 and 1997 were $2.9 million and
$2.2 million, respectively.
The Company has a practice of providing post-employment benefits when closing
distribution center facilities.
(14) SUBSIDIARY GUARANTEES
The following tables presents summarized combined financial information for
certain wholly owned subsidiaries which guarantee on a full, unconditional and
joint and several basis, $165.0 million of senior subordinated notes due May 1,
2008, which were offered and sold on April 24, 1998 by the Company:
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
(IN THOUSANDS) 1998 1997 1996
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating revenues ...................... $1,060,331 1,068,857 269,090
Operating expenses ...................... 1,056,390 1,058,695 266,386
Operating income (loss) ................. 3,941 10,162 2,703
Other income ............................ 4,732 4,168 1,108
Income (loss) before income tax ......... 8,673 14,330 3,812
Income tax expense (benefit) ............ 7,203 5,621 1,524
Net income (loss) ....................... $ 1,470 8,709 2,288
</TABLE>
CONDENSED CONSOLIDATED BALANCE SHEET DATA
<TABLE>
<CAPTION>
1998 1997
- -------------------------------------------------------------------
<S> <C> <C>
Current assets ............................ $148,906 160,125
Non-current assets ........................ 105,456 117,698
Current liabilities ....................... 64,921 57,862
Long-term debt and obligations ............ 23,907 27,152
Deferred credits and other liabilities .... 3,990 14,452
</TABLE>
The following tables sets forth summarized combined financial information
relating to non-wholly owned subsidiaries which have on a full, unconditional
and joint and several basis, guaranteed the aforementioned debt of the
Company.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
(IN THOUSANDS) 1998 1997 1996
- ---------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating revenues ....................... $31,713 34,929 36,695
Operating expenses ....................... 30,795 33,075 35,370
Operating income ......................... 918 1,854 1,325
Other income ............................. 425 276 240
Income before income tax ................. 1,343 2,130 1,565
Income tax expense ....................... 492 773 564
Net income ............................... $ 851 1,357 1,001
</TABLE>
CONDENSED CONSOLIDATED BALANCE SHEET DATA
<TABLE>
<CAPTION>
1998 1997
- -----------------------------------------------------------------
<S> <C> <C>
Current assets ........................... $3,068 3,129
Non-current assets ....................... 2,921 3,289
Current liabilities ...................... 2,127 2,524
Long-term debt and obligations ........... $ 211 447
</TABLE>
Non-guarantor subsidiaries, all of which are wholly owned, are
inconsequential.
(15) SEGMENT INFORMATION
The Company and its subsidiaries sell and distribute food and non-food
products that are typically found in supermarkets. The Company has three
reportable operating segments. The Company's wholesale distribution segment is
made up of 17 distribution centers that sell food and food related products to
independently owned retail food stores, corporately owned retail food stores and
institutional customers. The retail segment is made up of 93 corporately owned
stores that sell food and food related products directly to the consumer. The
military distribution segment sells food and food related products to military
commissaries.
In 1998, the Company discontinued the operations of Nash DeCamp (see Note (4)
of Notes to Consolidated Financial Statements). Information presented below
relates only to results of continuing segments. The Company evaluates
performance and allocates resources based on profit or loss before income taxes,
not including general corporate expenses and earnings from equity investments.
The accounting policies of the reportable segments are the same as those
described in the summary of accounting policies except that the Company accounts
for inventory on a FIFO basis at the segment level compared to a LIFO basis at
the consolidated level.
Intra-segment sales and transfers are recorded on a cost plus markup basis.
Wholesale segment profits on sales to Company owned stores have been allocated
back to the retail operating segment.
35
<PAGE>
NASH FINCH COMPANY AND SUBSIDIARIES
<TABLE>
<CAPTION>
SCHEDULES
YEAR-END JANUARY 2, 1999
(IN THOUSANDS) Wholesale Retail Military All Other Totals
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues from external customers ...................... $ 2,491,736 738,018 916,819 3,004(1) 4,149,577
Intra-segment revenues ................................ 443,061 -- -- 2,628 445,689
Interest revenue ...................................... (3,431) (37) -- -- (3,468)
Interest expense (includes capital lease interest) .... 2,910 15 -- -- 2,925
Depreciation expense .................................. 17,916 9,794 2,250 119 30,079
Segment profit (loss) ................................. 41,571 5,923 23,540 (205) 70,829
Assets ................................................ 460,996 96,765 139,388 2,553 699,702
Expenditures for long-lived assets .................... 7,987 9,327 1,550 4 18,868
<CAPTION>
YEAR-END JANUARY 3, 1998
(IN THOUSANDS) Wholesale Retail Military All Other Totals
- ----------------------------------------------------------------------------------------------------------------------------------
Revenues from external customers ...................... $ 2,563,795 823,922 940,365 2,355(1) 4,330,437
Intra-segment revenues ................................ 501,062 -- -- 2,497 503,559
Interest revenue ...................................... (4,001) (12) -- -- (4,013)
Interest expense (includes capital lease interest) .... 3,340 20 -- -- 3,360
Depreciation expense .................................. 18,318 10,496 2,011 116 30,941
Segment profit (loss) ................................. 51,351 5,450 24,667 123 81,591
Assets ................................................ 461,642 98,180 143,437 587 703,846
Expenditures for long-lived assets .................... 16,129 17,510 2,786 392 36,817
<CAPTION>
YEAR-END DECEMBER 28, 1996
(IN THOUSANDS) Wholesale Retail Military All Other Totals
- ----------------------------------------------------------------------------------------------------------------------------------
Revenues from external customers ...................... $ 1,606,611 850,729 858,906 2,143(1) 3,318,389
Intra-segment revenues ................................ 529,184 -- -- 1,396 530,580
Interest revenue ...................................... (79) (1) -- -- (80)
Interest expense (includes capital lease interest) .... 402 24 612 -- 1,038
Depreciation expense .................................. 9,335 10,250 1,736 46 21,367
Segment profit (loss) ................................. 32,285 7,234 19,013 54 58,586
Assets ................................................ 478,808 105,296 140,121 597 724,822
Expenditures for long-lived assets .................... 13,431 14,536 3,193 59 31,219
</TABLE>
(1) Revenue from the segments in All Other is attributable to a trucking
transport business.
RECONCILIATION
<TABLE>
<CAPTION>
(IN THOUSANDS) 1998 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUES
Total external revenues
for segments .................. $ 4,149,577 4,330,437 3,318,389
Intra-segment revenues from
reportable segments ........... 445,689 503,559 530,580
Unallocated amounts .............. 10,434 10,658 5,581
Elimination of intra-segment
revenues ...................... (445,689) (503,559) (530,580)
-------------------------------------------
Total consolidated revenues ... $ 4,160,011 4,341,095 3,323,970
-------------------------------------------
-------------------------------------------
PROFIT OR LOSS
Total profit for segments ........ $ 70,829 81,591 58,586
Unallocated amounts
Adjustment of inventory
to LIFO ..................... (3,975) (1,500) (1,560)
Unallocated corporate
overhead .................... (56,801) (48,811) (24,515)
Special charges ............... (68,471) (30,034) --
-------------------------------------------
Income from continuing operations
before income taxes ........... $ (58,418) 1,246 $ 32,511
-------------------------------------------
-------------------------------------------
ASSETS
Total assets for segments ........ $ 699,702 703,846 724,822
Assets of a discontinued operation 30,236 47,051 42,221
Unallocated corporate assets ..... 180,273 228,514 268,934
Adjustment for LIFO inventory .... (47,043) (43,068) (41,569)
Elimination of intercompany
receivables ................... (30,106) (31,460) (48,931)
Other eliminations ............... 33 -- --
-------------------------------------------
Total consolidated assets ..... $ 833,095 904,883 945,477
-------------------------------------------
-------------------------------------------
</TABLE>
OTHER SIGNIFICANT ITEMS
(IN THOUSANDS)
<TABLE>
<CAPTION>
Segment Consolidated
1998 Totals Adjustments Totals
- ---------------------------------------------------------------------------------
<S> <C> <C> <C>
Depreciation ........................... $30,079 15,985 46,064
Interest revenue ....................... 3,468 1,358 4,826
Interest expense ....................... 2,925 26,109 29,034
Expenditures for long-lived assets ..... 18,868 33,862 52,730
1997
- ---------------------------------------------------------------------------------
Depreciation ........................... $30,941 15,412 46,353
Interest revenue ....................... 4,013 2,367 6,380
Interest expense ....................... 3,360 29,413 32,773
Expenditures for long-lived assets ..... 36,817 30,908 67,725
1996
- ---------------------------------------------------------------------------------
Depreciation ........................... $21,367 11,947 33,314
Interest revenue ....................... 80 1,533 1,613
Interest expense ....................... 1,038 12,370 13,408
Expenditures for long-lived assets ..... 31,219 20,114 51,333
</TABLE>
The reconciling items to adjust expenditures for depreciation, interest
revenue, interest expense and expenditures for long-lived assets are for
unallocated general corporate activities. All revenues are attributed to and all
assets are held in the United States. The Company's market areas are in the
Midwest, West, Mid-Atlantic and Southeast United States.
36
<PAGE>
NASH FINCH COMPANY AND SUBSIDIARIES
QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
A summary of quarterly financial First Quarter Second Quarter Third Quarter Fourth Quarter
information is presented. 12 Weeks 12 Weeks 16 Weeks 12 Weeks 13 Weeks
--------------- ------------- --------------- ---------------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 1998 1997 1998 1997 1998 1997 1998 1997
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales and other revenue ............. $ 932,966 943,662 973,069 964,743 1,282,533 1,328,866 971,443 1,103,824
Cost of sales ........................... 825,321 830,770 889,458 872,590 1,186,229 1,227,394 882,653 1,006,059
Earnings (loss) from continuing
operations before income taxes
and extraordinary charge ............. 5,984 6,387 6,122 11,234 4,503 (23,647) (75,026) 7,272
Income taxes (benefit) .................. 2,265 2,433 2,542 4,674 1,984 (7,358) (25,628) 2,572
Net earnings (loss) from
continuing operations before
extraordinary charge ................. 3,719 3,954 3,580 6,560 2,519 (16,289) (49,398) 4,700
Earnings (loss) from discontinued
operations, net of income tax
(benefit) ............................ (1,091) (898) 36 (96) 879 (168) 602 1,008
Earnings (loss) from disposal of
discontinued operations, net
of income tax (benefit) .............. -- -- -- -- -- -- (16,913) --
Earnings (loss) before
extraordinary charge ................. 2,628 3,056 3,616 6,464 3,398 (16,457) (65,709) 5,708
Extraordinary charge from early
extinguishment of debt, net of
income tax (benefit) ................. 5,569 -- -- -- -- -- -- --
Net earnings (loss) ..................... (2,941) 3,056 3,616 6,464 3,398 (16,457) (65,709) 5,708
Percent to sales and revenues ........... (0.32) 0.32 0.37 0.66 0.26 (1.24) (6.76) 0.52
BASIC EARNINGS (LOSS) PER SHARE
Earnings (loss) from continuing
operations before
extraordinary charge ................. $ .33 .35 .32 .58 .22 (1.45) (4.36) .42
Earnings (loss) before
extraordinary charge ................. $ .23 .27 .32 .57 .30 (1.46) (5.80) .51
Net earnings (loss) ..................... $ (.26) .27 .32 .57 .30 (1.46) (5.80) .51
DILUTED EARNINGS (LOSS) PER SHARE
Earnings (loss) from continuing
operations before
extraordinary charge ................. $ .33 .35 .32 .58 .22 (1.45) (4.36) .41
Earnings (loss) before
extraordinary charge ................. $ .23 .27 .32 .57 .30 (1.46) (5.80) .50
Net earnings (loss) ..................... $ (.26) .27 .32 .57 .30 (1.46) (5.80) .50
</TABLE>
37
<PAGE>
NASH FINCH COMPANY AND SUBSIDIARIES
CONSOLIDATED SUMMARY OF OPERATIONS
- ------------------------------------------------------------------------------
Eleven years ended January 2, 1999
(not covered by Independent Auditors' Report)
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994 1993
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) (52 weeks) (53 weeks) (52 weeks) (52 weeks) (52 weeks) (52 weeks)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Sales and revenues .................................. $ 4,147,582 4,326,051 3,319,027 2,828,873 2,780,033 2,677,629
Other income ........................................ 12,429 15,044 4,943 10,655 8,625 6,880
----------- --------- --------- --------- --------- ---------
Total sales, revenues and other income .............. 4,160,011 4,341,095 3,323,970 2,839,528 2,788,658 2,684,509
Cost of sales including warehousing and
transportation expenses .......................... 3,783,661 3,936,813 2,996,596 2,528,241 2,468,856 2,382,283
Selling, general, administrative and
other operating expenses ......................... 287,622 291,357 244,137 243,358 250,639 237,373
Special charges ..................................... 68,471 30,034 -- -- -- --
Interest expense .................................... 29,034 32,773 13,408 9,007 9,950 9,021
Depreciation and amortization ....................... 46,064 46,353 33,314 27,864 30,369 27,815
Profit sharing contribution ......................... 3,577 2,519 4,004 3,673 3,417 3,553
Provision for income taxes .......................... (18,837) 2,320 13,174 10,748 10,148 10,047
----------- --------- --------- --------- --------- ---------
Net earnings (loss) from
continuing operations ............................ $ (39,581) (1,074) 19,337 16,637 15,279 14,417
Earnings (loss) from discontinued
operations, net of income tax .................... 426 (154) 695 777 201 1,457
Earnings (loss) on disposal of discontinued
operations, net of income tax .................... (16,913) -- -- -- -- --
Extraordinary charge from early
extinguishment of debt, net of income tax ........ (5,569)
----------- --------- --------- --------- --------- ---------
Net earnings (loss) ................................. $ (61,637) (1,228) 20,032 17,414 15,480 15,874
----------- --------- --------- --------- --------- ---------
Basic earnings (loss) per share:
Earnings (loss) from
continuing operations ......................... $ (3.50) (0.10) 1.77 1.53 1.40 1.33
Earnings (loss) from
discontinued operations ....................... (1.46) (0.01) 0.06 0.07 0.02 0.13
Extraordinary charge from early
extinguishment of debt ........................ (0.49)
----------- --------- --------- --------- --------- ---------
Basic earnings (loss) per share ..................... $ (5.45) (0.11) 1.83 1.60 1.42 1.46
----------- --------- --------- --------- --------- ---------
Diluted earnings (loss) per share:
Earnings (loss) from
continuing operations ......................... $ (3.50) (0.10) 1.75 1.53 1.40 1.33
Earnings (loss) from
discontinued operations ....................... (1.46) (0.01) 0.06 0.07 0.02 0.13
Extraordinary charge from early
extinguishment of debt ........................ (0.49)
----------- --------- --------- --------- --------- ---------
Diluted earnings (loss) per share ................... $ (5.45) (0.11) 1.81 1.60 1.42 1.46
----------- --------- --------- --------- --------- ---------
Cash dividends declared per common share ............ $ 0.72 .72 .75 .74 .73 .72
Pretax earnings as a percent of
sales and revenues ............................... % -- -- 1.00 .99 .91 .98
Net earnings (loss) as a percent of
sales and revenues ............................... % (1.48) (0.03) .59 .60 .55 .58
Effective income tax rate ........................... % (32.2) 425.4 40.5 39.1 40.0 40.5
Current assets ...................................... $ 467,108 494,350 525,596 311,690 309,522 294,925
Current liabilities ................................. $ 331,473 294,419 297,088 207,688 220,065 215,021
Net working capital ................................. $ 135,635 199,931 228,508 104,002 89,457 79,904
Ratio of current assets to current liabilities ...... 1.41 1.68 1.77 1.50 1.41 1.37
Total assets ........................................ $ 833,095 904,883 945,477 514,260 531,604 521,654
Capital expenditures ................................ $ 52,730 67,725 51,333 33,264 34,965 36,382
Long-term obligations (long-term debt
and capitalized lease obligations) ............... $ 327,947 364,006 403,651 81,188 95,960 97,887
Stockholders' equity ................................ $ 156,473 225,618 232,861 215,313 206,269 199,264
Stockholders' equity per share(1) ................... $ 13.80 19.96 21.06 19.80 18.97 18.33
Return on average stockholders' equity .............. % (32.26) (0.53) 8.94 8.26 7.63 8.13
Number of common stockholders of
record at year-end ............................... 2,214 2,226 2,230 1,940 2,074 2,074
Common stock high price(2) .......................... $ 20 24 7/8 21 3/4 20 1/2 18 1/4 23 1/4
Common stock low price(2) ........................... $ 13 1/8 17 1/2 15 1/2 15 3/4 15 3/8 17
- -------------------------------------------------------------------------------
(1) Based on outstanding shares at year-end. (2) High and low closing sale price.
38
<PAGE>
<CAPTION>
1992 1991 1990 1989 1988
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) (53 weeks) (52 weeks) (52 weeks) (52 weeks) (52 weeks)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Sales and revenues .................................. 2,475,729 2,303,236 2,335,532 2,190,901 2,066,988
Other income ........................................ 4,979 4,764 4,878 3,931 5,705
--------- --------- --------- --------- ---------
Total sales, revenues and other income .............. 2,480,708 2,308,000 2,340,410 2,194,832 2,072,693
Cost of sales including warehousing and
transportation expenses .......................... 2,200,058 2,040,612 2,078,424 1,947,102 1,845,801
Selling, general, administrative and
other operating expenses ......................... 210,947 201,662 198,418 194,039 168,777
Special charges ..................................... -- -- -- --
Interest expense .................................... 8,329 7,996 7,962 7,748 7,797
Depreciation and amortization ....................... 25,867 25,067 24,774 22,381 19,391
Profit sharing contribution ......................... 3,874 3,699 3,519 3,021 2,752
Provision for income taxes .......................... 12,137 11,109 10,694 7,717 10,635
--------- --------- --------- --------- ---------
Net earnings (loss) from
continuing operations ............................ 19,496 17,855 16,619 12,824 17,540
Earnings (loss) from discontinued
operations, net of income tax .................... 572 1,200 1,211 328 635
Earnings (loss) on disposal of discontinued
operations, net of income tax .................... -- -- -- -- --
Extraordinary charge from early
extinguishment of debt, net of income tax ........
--------- --------- --------- --------- ---------
Net earnings (loss) ................................. 20,068 19,055 17,830 13,152 18,175
--------- --------- --------- --------- ---------
Basic earnings (loss) per share:
Earnings (loss) from
continuing operations ......................... 1.80 1.64 1.53 1.18 1.61
Earnings (loss) from
discontinued operations ....................... 0.05 0.11 0.11 0.03 0.06
Extraordinary charge from early
extinguishment of debt ........................
--------- --------- --------- --------- ---------
Basic earnings (loss) per share ..................... 1.85 1.75 1.64 1.21 1.67
--------- --------- --------- --------- ---------
Diluted earnings (loss) per share:
Earnings (loss) from
continuing operations ......................... 1.80 1.64 1.53 1.18 1.61
Earnings (loss) from
discontinued operations ....................... 0.05 0.11 0.11 0.03 0.06
Extraordinary charge from early
extinguishment of debt ........................
--------- --------- --------- --------- ---------
Diluted earnings (loss) per share ................... 1.85 1.75 1.64 1.21 1.67
--------- --------- --------- --------- ---------
Cash dividends declared per common share ............ .71 .70 .69 .67 .65
Pretax earnings as a percent of
sales and revenues ............................... 1.30 1.31 1.22 .95 1.38
Net earnings (loss) as a percent of
sales and revenues ............................... .80 .81 .75 .59 .87
Effective income tax rate ........................... 38.4 38.1 38.4 37.9 37.4
Current assets ...................................... 310,170 239,850 234,121 212,264 219,956
Current liabilities ................................. 213,691 154,993 159,439 128,159 153,068
Net working capital ................................. 96,479 84,857 74,682 84,105 66,888
Ratio of current assets to current liabilities ...... 1.45 1.55 1.47 1.66 1.44
Total assets ........................................ 513,615 429,648 416,233 380,771 388,269
Capital expenditures ................................ 42,991 36,836 36,129 34,635 52,019
Long-term obligations (long-term debt
and capitalized lease obligations) ............... 94,145 82,532 74,333 77,950 66,216
Stockholders' equity ................................ 191,204 178,846 167,388 157,024 151,043
Stockholders' equity per share(1) ................... 17.59 16.45 15.40 14.45 13.90
Return on average stockholders' equity .............. 10.85 11.01 10.99 8.54 12.45
Number of common stockholders of
record at year-end ............................... 2,087 2,122 2,138 2,146 2,227
Common stock high price(2) .......................... 19 3/4 20 1/4 25 1/4 25 3/4 27 1/2
Common stock low price(2) ........................... 16 1/4 16 1/2 16 1/4 21 1/4 18
</TABLE>
- -------------------------------------------------------------------------------
(1) Based on outstanding shares at year-end. (2) High and low closing
sale price.
[GRAPH] [GRAPH]
[GRAPH]
39
<PAGE>
EXHIBIT 21.1
SUBSIDIARIES OF NASH FINCH COMPANY
A. Direct subsidiaries of Nash Finch Company (the voting stock of which is
owned, with respect to each subsidiary, 100 percent by Nash Finch Company):
<TABLE>
<CAPTION>
Subsidiary State of
Corporation Incorporation
----------- -------------
<S> <C>
GTL Truck Lines, Inc. Nebraska
Norfolk, Nebraska
Nash De-Camp Company California
Visalia, California
Nash Finch Funding Corp. Delaware
Edina, Minnesota
Piggly Wiggly Northland Corporation Minnesota
Edina, Minnesota
Super Food Services, Inc. Delaware
Dayton, Ohio
T.J. Morris Company Georgia
Statesboro, Georgia
</TABLE>
B. Direct subsidiaries of Nash Finch Company (the voting stock of which is
owned, with respect to each subisidiary, 66.6 percent by Nash Finch Company):
<TABLE>
<CAPTION>
Subsidiary State of
Corporation Incorporation
----------- -------------
<S> <C>
Gillette Dairy of the Black Hills, Inc. South Dakota
Rapid City, South Dakota
Nebraska Dairies, Inc. Nebraska
Norfolk, Nebraska
</TABLE>
<PAGE>
C. Subsidiaries of Nash-DeCamp Company (the voting stock of which is owned,
with respect to each subsidiary other than Agricola Nadco Limitada, 100
percent by Nash-DeCamp Company):
<TABLE>
<CAPTION>
Subsidiary State of
Corporation Incorporation
----------- -------------
<S> <C>
Forrest Transportation Service, Inc. California
Visalia, California
Agricola Nadco Limitada (*) Chile
* Ninety-nine percent (99%) is owned by
Nash-DeCamp Company.
</TABLE>
<PAGE>
Exhibit 23.1
Consent of Independent Auditors
We consent to the incorporation by reference in this Annual Report (Form 10-K)
of Nash Finch Company of our report dated February 24, 1999, included in the
1998 Annual Report to Shareholders of Nash Finch Company.
Our audits also included the financial statement schedule of Nash Finch Company
listed in Item 14(a). This schedule is the responsibility of the Company's
management. Our responsibility is to express an opinion based on our audits. In
our opinion, the financial statement schedule referred to above, when considered
in relation to the basic financial statements taken as a whole, presents fairly
in all material respects the information set forth therein insofar as such
information relates to the periods covered by our report.
We also consent to the incorporation by reference in the Registration Statement
No. 33-54487 pertaining to the 1994 Stock Incentive Plan of Nash Finch Company,
Registration Statement No. 33-64313 pertaining to the 1995 Director Stock Option
Plan of Nash Finch Company, and Registration Statement No. 333-27563 pertaining
to the 1997 Non-Employee Director Stock Compensation Plan all on Form S-8 of our
report dated February 24, 1999 with respect to the consolidated financial
statements incorporated herein by reference, and our report included in the
preceding paragraph with respect to the financial statement schedule included in
this Annual Report (Form 10-K) of Nash Finch Company for the year ended January
2, 1999.
/s/ Ernst & Young LLP
- ----------------------------------
Minneapolis, Minnesota
March 31, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-02-1999
<PERIOD-START> JAN-04-1998
<PERIOD-END> JAN-02-1999
<CASH> 848
<SECURITIES> 0
<RECEIVABLES> 194,759
<ALLOWANCES> 25,011
<INVENTORY> 267,040
<CURRENT-ASSETS> 467,108
<PP&E> 555,792
<DEPRECIATION> 333,414
<TOTAL-ASSETS> 833,095
<CURRENT-LIABILITIES> 331,473
<BONDS> 293,280
0
0
<COMMON> 19,292
<OTHER-SE> 139,016
<TOTAL-LIABILITY-AND-EQUITY> 833,095
<SALES> 4,115,589
<TOTAL-REVENUES> 4,160,011
<CGS> 3,783,661
<TOTAL-COSTS> 395,097
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 10,637
<INTEREST-EXPENSE> 29,034
<INCOME-PRETAX> (58,418)<F1>
<INCOME-TAX> (18,837)
<INCOME-CONTINUING> (39,581)
<DISCONTINUED> (16,487)<F2>
<EXTRAORDINARY> (5,569)<F3>
<CHANGES> 0
<NET-INCOME> (61,637)
<EPS-PRIMARY> (5.45)
<EPS-DILUTED> (5.45)
<FN>
<F1>INCLUDES FOURTH QUARTER PROVISION FOR SPECIAL CHARGES TOTALING $69.7 MILLION.
<F2>IN OCTOBER 1998 THE COMPANY ADOPTED A PLAN TO SELL NASH DECAMP, ITS PRODUCE
GROWING AND MARKETING SUBSIDIARY.
<F3>LOSS ON EXTINGUISHMENT OF DEBT NET OF TAX BENEFIT OF $3,951.
</FN>
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<S> <C> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS 9-MOS
<FISCAL-YEAR-END> JAN-02-1999 JAN-02-1999 JAN-02-1999
<PERIOD-START> JAN-04-1998 JAN-04-1999 JAN-04-1999
<PERIOD-END> MAR-28-1998 JUN-20-1998 OCT-10-1998
<CASH> 773 831 979
<SECURITIES> 0 0 0
<RECEIVABLES> 157,168 154,396 205,977
<ALLOWANCES> 19,466 19,828 20,012
<INVENTORY> 287,991 275,446 300,655
<CURRENT-ASSETS> 501,480 479,709 514,265
<PP&E> 597,211 605,916 605,152
<DEPRECIATION> 319,203 326,252 332,004
<TOTAL-ASSETS> 912,423 891,367 917,873
<CURRENT-LIABILITIES> 315,366 305,552 336,062
<BONDS> 324,145 313,747 308,531
0 0 0
0 0 0
<COMMON> 19,292 19,292 19,292
<OTHER-SE> 203,529 203,280 204,722
<TOTAL-LIABILITY-AND-EQUITY> 912,423 891,367 917,873
<SALES> 919,431 1,878,684 3,134,409
<TOTAL-REVENUES> 932,966 1,906,035 3,188,568
<CGS> 825,321 1,714,779 2,901,008
<TOTAL-COSTS> 94,641 164,551 246,682
<OTHER-EXPENSES> 0 0 0
<LOSS-PROVISION> 160 976 1,952
<INTEREST-EXPENSE> 6,860 13,624 22,318
<INCOME-PRETAX> 5,984 12,105 16,608
<INCOME-TAX> 2,265 4,807 6,791
<INCOME-CONTINUING> 3,719 7,298 9,817
<DISCONTINUED> (1,091)<F1> (1,055)<F1> (176)<F1>
<EXTRAORDINARY> (5,569)<F2> (5,569)<F2> (5,569)<F2>
<CHANGES> 0 0 0
<NET-INCOME> (2,941) 674 4,072
<EPS-PRIMARY> (0.26) .06 .36
<EPS-DILUTED> (0.26) .06 .36
<FN>
<F1>IN OCTOBER 1998, THE COMPANY ADOPTED A PLAN TO SELL NASH DECAMP COMPANY, ITS
PRODUCE GROWING AND MARKETING SUBSIDIARY
<F2>LOSS FROM EARLY EXTINGUISHMENT OF DEBT, NET OF INCOME TAX BENEFIT OF $3,951.
</FN>
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C> <C> <C>
<C>
<PERIOD-TYPE> YEAR YEAR 3-MOS 6-MOS
9-MOS
<FISCAL-YEAR-END> DEC-28-1996 JAN-03-1998 JAN-03-1998 JAN-03-1998
JAN-03-1998
<PERIOD-START> DEC-31-1995 DEC-29-1996 DEC-29-1996 DEC-29-1996
DEC-29-1996
<PERIOD-END> DEC-28-1998 JAN-03-1998 MAR-22-1997 JUN-14-1997
OCT-04-1997
<CASH> 921 933 886 909
891
<SECURITIES> 0 0 0 0
0
<RECEIVABLES> 226,584 193,963 216,610 241,653
228,268
<ALLOWANCES> 20,522 20,001 19,655 22,522
19,066
<INVENTORY> 293,458 287,801 291,207 297,904
323,329
<CURRENT-ASSETS> 525,596 494,350 522,678 546,920
560,856
<PP&E> 565,700 589,172 569,680 577,274
586,787
<DEPRECIATION> 293,845 312,939 300,515 306,340
323,061
<TOTAL-ASSETS> 945,477 904,883 935,806 964,903
971,796
<CURRENT-LIABILITIES> 297,088 294,419 275,284 292,728
318,063
<BONDS> 361,819 325,489 374,793 377,171
376,058
0 0 0 0
0
0 0 0 0
0
<COMMON> 19,290 19,292 19,290 19,292
19,292
<OTHER-SE> 215,688 208,241 215,276 219,860
202,614
<TOTAL-LIABILITY-AND-EQUITY> 945,477 904,883 935,806 964,903
971,796
<SALES> 3,300,935 4,293,555 931,827 1,881,720
3,185,270
<TOTAL-REVENUES> 3,323,970 4,341,095 943,662 1,908,405
3,237,271
<CGS> 2,996,596 3,936,813 830,770 1,703,360
2,930,754
<TOTAL-COSTS> 279,562 368,947 97,891 170,465
285,181
<OTHER-EXPENSES> 0 0 0 0
0
<LOSS-PROVISION> 1,893 5,055 1,293 2,139
2,771
<INTEREST-EXPENSE> 13,408 29,034 7,321 14,820
24,591
<INCOME-PRETAX> 32,511 1,246 6,387 17,621
(6,026)
<INCOME-TAX> 13,174 2,320 2,433 7,107
(251)
<INCOME-CONTINUING> 19,337 (1,074) 3,954 10,514
(5,775)
<DISCONTINUED> 695<F1> (154)<F1> (898)<F1> (994)<F1>
(1,162)<F1>
<EXTRAORDINARY> 0 0 0 0
0
<CHANGES> 0 0 0 0
0
<NET-INCOME> 20,032 (1,228) 3,056 9,520
(6,937)
<EPS-PRIMARY> 1.83 (.11) .27 .84
(.61)
<EPS-DILUTED> 1.81 (.11) .27 .84
(.61)
<FN>
<F1>IN OCTOBER 1998, THE COMPANY ADOPTED A PLAN TO SELL NASH DECAMP COMPANY, ITS
PRODUCE GROWING AND MARKETING SUBSIDIARY.
</FN>
</TABLE>
<PAGE>
Exhibit 99.1
RISK FACTORS
A. SUBSTANTIAL LEVERAGE.
The Company has substantial indebtedness and, as a result,
significant debt service obligations. As of January 2, 1999, the Company had
approximately $293.3 million of long-term indebtedness which would have
represented approximately 35% of total capitalization. The ability of the
Company to satisfy its debt obligations will be dependent on the future
operating performance of the Company, which could be affected by changes in
economic conditions and financial, competitive, legislative, regulatory and
other factors, including factors beyond the control of the Company.
A failure to comply with the covenants and other provisions of any debt
instruments could result in events of default under such instruments, which
could permit acceleration of the debt under such instruments and in some cases
acceleration of debts under other instruments that contain cross-default or
cross-acceleration provisions. The Company believes, based on current
circumstances, that the Company's cash flow, together with available borrowings
under the bank credit facilities, will be sufficient to permit the Company to
meet its operating expenses, to pay dividends on its common stock and to service
its debt requirements as they become due for the foreseeable future. Significant
assumptions underlie this belief, including, among other things, that the
Company will succeed in implementing its business strategy and that there will
be no material adverse developments in the business, liquidity or capital
requirements of the Company. There can be no assurance that the Company will be
able to generate sufficient cash flow to service its interest payment
obligations under its indebtedness or that cash flows, future borrowings or
equity financing will be available for the payment or refinancing of the
Company's indebtedness.
If the Company is unable to service its indebtedness, it will be
required to adopt alternative strategies, which may include actions such as
reducing or delaying capital expenditures, selling assets, restructuring or
refinancing its indebtedness or seeking additional equity capital. There can be
no assurance that any of these strategies could be effected on satisfactory
terms, if at all.
The degree to which the Company is leveraged could have important
consequences, including: (i) the Company's ability to obtain additional
financing in the future for working capital, capital expenditures,
acquisitions or general corporate purposes may be impaired; (ii) a
substantial portion of the Company's cash flows from operations may be
dedicated to the payment of principal and interest on its indebtedness,
thereby reducing the funds available to the Company for its future
operations; (iii) certain of the Company's indebtedness contains financial
and other restrictive covenants, including those restricting the incurrence
of additional indebtedness, the creation of liens, the payment of dividends,
sales of assets and minimum net worth requirements; (iv) certain of the
Company's borrowings are and will continue to be at variable rates of
interest which exposes the Company to the risk of greater interest rates; and
(v) the Company's substantial leverage may make it more vulnerable to
changing economic conditions, limit its ability to withstand competitive
pressures and reduce its flexibility in responding to changing business and
economic conditions. As a result of the Company's current level of
indebtedness, its financial capacity to respond to market conditions, capital
needs and other factors may be limited.
<PAGE>
B. DEPENDENCE UPON THE OPERATIONS OF SUBSIDIARIES.
As of the end of fiscal year 1998, a substantial portion of the
consolidated assets of the Company were held by the subsidiaries of the Company
and a substantial portion of the Company's cash flow and net income was
generated by the such subsidiaries. Therefore, the Company's ability to be
profitable is dependent, in part, upon the profitability of its subsidiaries.
C. LOW MARGIN BUSINESS; INCREASING COMPETITION AND MARGIN PRESSURE.
The wholesale food distribution and retail grocery industries in which
the Company operates are characterized by low profit margins. As a result, the
Company's results of operations are sensitive to, and may be materially
adversely impacted by, among other things, competitive pricing pressures, vendor
selling programs, increasing interest rates and food price deflation. There can
be no assurance that one or more of such factors will not have a material
adverse affect the Company's business, financial condition or results of
operations.
The wholesale food distribution industry is undergoing change as
producers, manufacturers, distributors and retailers seek to lower costs and
increase services in an increasingly competitive environment of relatively
static over-all demand, resulting in increasing pressure on the industry's
already low profit margins. Alternative format food stores (such as warehouse
stores and supercenters) have gained market share at the expense of traditional
supermarket operators, including independent operators, many of whom are
customers of the Company. Vendors, seeking to ensure that more of their
promotional dollars are used by retailers to increase sales volume, increasingly
direct promotional dollars to large self-distributing chains. The Company
believes that these changes have led to reduced margins and lower profitability
among many of its customers and at the Company itself. In response to these
changes, the Company is pursuing a multi-faceted strategy that includes various
cost savings and value added initiatives, and growth through strategic
acquisitions and alliances. The Company believes that its ultimate success will
depend on its ability to pursue and execute these strategic initiatives, and on
the effectiveness of these strategic initiatives in reducing costs of operations
and enhancing operating margins. Any significant delay or failure in the
implementation of these strategic initiatives could result in diminished sales
and operating margins. No assurance can be given that the Company's strategic
initiatives, if implemented, will result in increased sales or enhanced profit
margins.
D. ACQUISITION STRATEGY.
Partly in response to changes in the wholesale food distribution
industry discussed above, the Company has for several years pursued a strategy
of aggressive growth through acquisitions in the wholesale food distribution
market, including both general and military distribution operations, and in
retail store operations. The Company intends to continue to pursue strategic
acquisition opportunities in these business segments, both in existing and new
geographic markets. In pursuing this acquisition strategy, the Company faces
risks commonly encountered with growth through acquisitions, including completed
acquisitions. These risks include, but are not limited to, incurring
significantly higher than anticipated capital expenditures and operating
expenses, failing to assimilate the operations and personnel of acquired
businesses, failing to install and integrate all necessary systems and controls,
losing customers, entering markets in which the Company has no or limited
experience, disrupting the Company's ongoing business and dissipating the
Company's management resources. Realization of the anticipated benefits of a
<PAGE>
strategic acquisition may take several years or may not occur at all. The
Company's acquisition strategy has placed, and will continue to place, a
significant strain on the Company's management, operational, financial and other
resources. The success of the Company's acquisition strategy will depend on many
factors, including the ability of the Company to (i) identify suitable
acquisition opportunities, (ii) successfully close acquisition opportunities at
valuations that will provide superior returns on invested capital, (iii)
successfully integrate acquired operations quickly and effectively in order to
realize operating synergies, and (iv) obtain necessary financing on satisfactory
terms. There can be no assurance that the Company will be able to successfully
execute and manage its acquisition strategy, and any failure to do so could have
a material adverse effect on the Company's business, financial condition and
results of operations.
E. YEAR 2000 COMPLIANCE.
The Company has halted its investment of financial and other resources into the
development and implementation of HORIZONS. Instead, the Company has channeled
its resources into establishing a remediation plan to resolve potential Year
2000 issues. The Company could encounter significant business risks from the
failure of any of its vendors or customers, or the failure of governmental
agencies, to adequately address Year 2000 issues. Any material failure of
information systems on the part of such vendors, customers or governmental
agencies, or the Company's Year 2000 compliance plan, could have a material
adverse effect on the Company's business, financial condition and results of
operations. No assurance can be given that the Company will be able to
successfully develop and implement its Year 2000 compliance plan or that its
vendors, customers or governmental agencies will successfully develop and
implement its Year 2000 compliance plans.
F. POTENTIAL CREDIT LOSSES FROM LOANS TO RETAILERS.
From time to time, the Company extends secured loans to independent
retailers, often in conjunction with the establishment or expansion of supply
arrangements with such retailers. Such loans are generally extended to small
businesses which are unrated, and such loans are highly illiquid. The Company
also from time to time provides financial assistance to independent retailers by
guaranteeing loans from financial institutions and leases entered into directly
with lessors. The Company intends to continue, and possibly increase, the amount
of loans and guarantees to independent retailers, and there can be no assurance
that credit losses from existing or future loans or commitments will not have a
material adverse effect on the Company's business, financial condition and
results of operations.
G. MILITARY COMMISSARY SALES.
A significant portion of the Company's sales in fiscal 1998 resulted
from distribution of products to U.S. military commissaries. No assurance can be
given that the U.S. military commissary system will not undergo significant
changes in the foreseeable future, such as further base closings, privatization
of the military commissary system or a reduction in the number of persons having
access to such commissaries. Such changes could result in disruptions to
existing supply arrangements or reductions in volumes of purchases and could
have a material adverse effect on the Company's business, financial condition
and results of operations.
<PAGE>
H. COMPETITION.
The food marketing and distribution industry is highly competitive. The
Company faces competition from national, regional and local food distributors on
the basis of price, quality, breadth and availability of products offered,
strength of private label brands offered, schedules and reliability of
deliveries and the range and quality of services provided. In addition, food
wholesalers compete based on willingness to invest capital in their customers.
Such investments present substantial risks as described above under the caption
"Potential Credit Losses from Loans to Retailers." The Company also competes
with retail supermarket chains that provide their own distribution function,
purchasing directly from producers and distributing products to their
supermarkets for sale to consumers.
In its retail operations, the Company competes with other food outlets
on the basis of price, quality and assortment, store location and format, sales
promotions, advertising, availability of parking, hours of operation and store
appeal. Traditional mass merchandisers have gained a growing market share with
alternative store formats, such as warehouse stores and supercenters, which
depend on concentrated buying power and low-cost distribution technology. Market
share of stores with alternative formats is expected to continue to grow in the
future. To meet the challenges of a rapidly changing and highly competitive
retail environment, the Company must maintain operational flexibility and
develop effective strategies across many market segments. The inability to adapt
to changing environments could have a material adverse effect on the Company's
business, financial condition and results of operations.
Some of the Company's competitors have greater financial and other
resources than the Company. In addition, consolidation in the industry,
heightened competition among the Company's suppliers, new entrants and trends
toward vertical integration could create additional competitive pressures that
reduce margins and adversely affect the Company's business, financial condition
and results of operations. There can be no assurance that the Company will be
able to continue to compete effectively in its industry.
I. COMPETITIVE LABOR MARKET; INCREASING LABOR COSTS
The Company's continued success depends on its ability to attract
and retain qualified personnel in all areas of its business. The Company
competes with other businesses in its markets with respect to attracting and
retaining qualified employees. The labor market is currently very tight and
the Company expects the tight labor market to continue. A shortage of
qualified employees may require the Company to continue to enhance its wage
and benefits package in order to compete effectively in the hiring and
retention of qualified employees or to hire more expensive temporary
employees. No assurance can be given that the Company's labor costs will not
continue to increase, or that such increases can be recovered through
increased prices charged to customers. Any significant failure of the Company
to attract and retain qualified employees, to control its labor costs, or to
recover any increased labor costs through increased prices charged to
customers could have a material adverse effect on the Company's business,
financial condition and results of operations.
<PAGE>
J. DEPENDENCE ON MANAGEMENT.
The Company depends on the services of its executive officers for the
management of the Company. The loss or interruption of the continued full-time
services of certain of these executives could have a material adverse effect on
the Company and there can be no assurance that the Company will be able to find
replacements with equivalent skills or experience at acceptable salaries.
Generally, the Company does not have employment contracts with its executive
officers, other than agreements providing certain benefits upon certain changes
in control of the Company.
