<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
/ x / OF THE SECURITIES EXCHANGE ACT OF 1934
For the twelve weeks ended March 25, 2000
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
/ / OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File No. 0-785
NASH-FINCH COMPANY
(Exact Name of Registrant as Specified in its Charter)
DELAWARE 41-0431960
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
7600 France Ave. South, Edina, Minnesota 55435
(Address of principal executive offices) (Zip Code)
(952) 832-0534
(Registrant's telephone number including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
------- -------
As of April 25, 2000, 11,413,527 shares of Common Stock of the Registrant were
outstanding.
<PAGE>
PART I - FINANCIAL INFORMATION
This report is for the twelve week interim period beginning January 2,
2000, through March 25, 2000.
The accompanying financial information has been prepared in conformity
with generally accepted accounting principles and practices, and methods of
applying accounting principles and practices, (including consolidation
practices) as reflected in the financial information included in the Company's
Annual Report on Form 10-K, filed with the Securities and Exchange Commission
for the preceding fiscal year. The financial statements included in this
quarterly report include all adjustments which are, in the opinion of
management, necessary to a fair presentation of the Company's financial position
and results of operations for the interim period.
The information contained herein has not been audited by independent
auditors and is subject to any adjustments which may develop in connection with
the annual audit of its accounts by the Company's independent auditors.
<PAGE>
NASH FINCH COMPANY AND SUBSIDIARIES
Condensed Consolidated Statements of Operations (unaudited)
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Twelve Weeks Ended
----------------------------
March 25, March 27,
2000 1999
------------ -------------
<S> <C> <C>
Total sales and revenues $ 892,673 934,797
Cost and expenses:
Cost of sales 789,972 845,076
Selling, general and administrative 81,059 70,942
Depreciation and amortization 10,159 9,726
Interest expense 7,573 6,983
------------ -------------
Total costs and expenses 888,763 932,727
Earnings before income taxes 3,910 2,070
Income taxes 1,658 878
------------ -------------
Net earnings $ 2,252 1,192
============ =============
Basic earnings per share: $ 0.20 0.11
Diluted earnings per share: $ 0.20 0.11
Weighted average number of common shares
outstanding and common equivalent
shares outstanding:
Basic 11,406 11,332
Diluted 11,411 11,332
- ----------------------------------------------------------------------------------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
NASH FINCH COMPANY AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
March 25, January 1,
ASSETS 2000 2000
-------------- ------------
Current assets: (unaudited)
<S> <C> <C>
Cash $ 13,259 16,389
Accounts and notes receivable, net 126,406 154,066
Inventories 262,547 264,232
Prepaid expenses 14,380 11,137
Deferred tax assets 19,334 19,739
-------------- ------------
Total current assets 435,926 465,563
Investments in affiliates 639 508
Notes receivable, net 17,878 20,712
Property, plant and equipment:
Land 25,148 23,898
Buildings and improvements 135,861 136,119
Furniture, fixtures and equipment 297,730 288,156
Leasehold improvements 73,596 70,071
Construction in progress 11,736 11,073
Assets under capitalized leases 25,233 25,233
-------------- ------------
569,304 554,550
Less accumulated depreciation and amortization (329,336) (318,924)
-------------- ------------
Net property, plant and equipment 239,968 235,626
Goodwill, net 114,777 101,751
Other intangible assets, net 20,096 13,652
Investment in direct financing leases 15,254 15,444
Deferred tax asset, net 8,430 9,187
-------------- ------------
Total assets $ 852,968 862,443
============== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Outstanding checks $ 47,757 54,974
Current maturities of long-term debt and
capitalized lease obligations 3,162 3,117
Accounts payable 175,104 191,749
Accrued expenses 75,054 72,681
Income taxes 5,740 4,806
-------------- ------------
Total current liabilities 306,817 327,327
Long-term debt 321,921 314,091
Capitalized lease obligations 33,309 33,718
Deferred compensation 4,466 4,545
Other 10,145 10,088
Minority interest in subsidiary 2,395 -
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 11,641 shares
in 2000 and 1999 19,402 19,402
Additional paid-in capital 18,247 18,247
Restricted stock (47) (57)
Retained earnings 138,129 136,905
-------------- ------------
175,731 174,497
Less cost of 230 and 231 shares of common
stock in treasury, respectively (1,816) (1,823)
-------------- ------------
Total stockholders' equity 173,915 172,674
-------------- ------------
Total liabilities and stockholders' equity $ 852,968 862,443
============== ============
- ---------------------------------------------------------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
NASH FINCH COMPANY AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows (Unaudited)
(In thousands)
<TABLE>
<CAPTION>
Twelve Weeks Ended
----------------------------
March 25, March 27,
2000 1999
------------ ------------
<S> <C> <C>
Operating activities:
Net earnings $ 2,252 1,192
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 10,159 9,726
Provision for bad debts 2,744 885
Provision for losses (recovery from) closed lease locations 291 (715)
Deferred income tax expense 1,162 780
Deferred compensation (79) (551)
Earnings of equity investments - (60)
Other 28 (1,305)
Changes in operating assets and liabilities:
Accounts and notes receivable 31,480 3,745
Inventories 6,827 12,171
Prepaid expenses (3,065) (6,823)
Accounts payable (19,490) 7,423
Accrued expenses (1,469) 6,850
Accrued expenses - special charges (1,075) (4,410)
Income taxes 933 754
-------- --------
Net cash provided by operating activities 30,698 29,662
-------- --------
Investing activities:
Disposal of property, plant and equipment 1,917 2,666
Additions to property, plant and equipment
excluding capital leases (8,183) (7,549)
Businesses acquired, net of cash (19,483) (3,406)
Loans to customers (3,253) (5,938)
Payments from customers on loans 3,426 6,143
Sale (repurchase) of receivables (6,700) 300
Other (778) 414
-------- --------
Net cash used for investing activities (33,054) (7,370)
-------- --------
Financing activities:
Proceeds from long-term debt - 449
Proceeds from revolving debt 8,000 5,000
Dividends paid (1,028) (1,021)
Payments of short-term debt - (5,525)
Payments of long-term debt (167) (272)
Payments of capitalized lease obligations (371) (384)
Decrease in outstanding checks (7,218) (10,661)
Other 10 688
-------- --------
Net cash used for financing activities (774) (11,726)
-------- --------
Net increase (decrease) in cash $ (3,130) 10,566
======== ========
- ---------------------------------------------------------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
NASH FINCH COMPANY AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Fiscal period ended March 25, 2000
January 1, 2000 and January 2, 1999
(In thousands, except per share amounts)
Common stock Additional Treasury stock Total
-------------- paid-in Retained Restricted -------------- stockholders'
Shares Amount capital earnings stock Shares Amount equity
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at January 3, 1998 11,575 $ 19,292 17,648 190,984 (391) (252) $ (1,915) 225,618
Net earnings (loss) - - - (61,637) - - - (61,637)
Dividend declared of $.72 per share - - - (8,162) - - - (8,162)
Treasury stock issued upon exercise of options - - 47 - - 4 21 68
Amortized compensation under restricted stock plan - - - - 72 - - 72
Repayment of notes receivable from holders of
restricted stock - - - - 206 - - 206
Distribution of stock pursuant to performance awards - - 246 - - 15 75 321
Treasury stock purchased - - - - - (1) (16) (16)
Other 3 - - - - 3
-------- -------- -------- -------- -------- -------- -------- --------
Balance at January 2, 1999 11,575 19,292 17,944 121,185 (113) (234) (1,835) 156,473
Net earnings (loss) - - - 19,803 - - - 19,803
Dividend declared of $.36 per share - - - (4,083) - - - (4,083)
Common stock issued for employee stock purchase plan 66 110 294 - - - - 404
Amortized compensation under restricted stock plan - - - - 13 - - 13
Repayment of notes receivable from holders of
restricted stock - - - - 43 - - 43
Distribution of stock pursuant to performance awards - - 9 - - 3 12 21
-------- -------- -------- -------- -------- -------- -------- --------
Balance at January 1, 2000 11,641 19,402 18,247 136,905 (57) (231) (1,823) 172,674
Net earnings (loss) - - - 2,252 - - - 2,252
Dividend declared of $.09 per share - - - (1,028) - - - (1,028)
Common stock issued for employee stock purchase plan - - - - - - - -
Amortized compensation under restricted stock plan - - - - 1 - - 1
Repayment of notes receivable from holders of
restricted stock - - - - 9 - - 9
Distribution of stock pursuant to performance awards - - - - - 1 7 7
-------- -------- -------- -------- -------- -------- -------- --------
Balance at March 25, 2000 11,641 $ 19,402 18,247 138,129 (47) (230) $ (1,816) 173,915
======== ======== ======== ======== ======== ======== ======== ========
- ---------------------------------------------------------------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
NASH FINCH COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 25, 2000
NOTE 1
The accompanying financial statements include all adjustments which
are, in the opinion of management, necessary to present fairly the financial
position of the Company and its subsidiaries at March 25, 2000, and January 1,
2000, and the results of operations and changes in cash flows for the 12-weeks
ended March 25, 2000 and March 27, 1999, respectively. All material intercompany
accounts and transactions have been eliminated in the consolidated financial
statements. Results of operations for the interim periods presented are not
necessarily indicative of the results to be expected for the full year.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
NOTE 2
The Company uses the LIFO method for valuation of a substantial portion
of inventories. If the FIFO method had been used, inventories would have been
approximately $45.7 million and $46.2 million higher at March 25, 2000 and
January 1, 2000, respectively.
NOTE 3
The following table sets forth the computation of basic and diluted
earnings per share.
<TABLE>
<CAPTION>
Twelve Weeks Ended
------------------
March 25, March 27,
2000 1999
--------------- ----------------
<S> <C> <C>
Numerator:
Net income $ 2,252 1,192
--------------- ----------------
Denominator:
Denominator of basic earnings per share (weighted-average shares) 11,406 11,332
Effect of dilutive contingent shares 5 --
--------------- ----------------
Denominator for diluted earnings per share (adjusted weighted average shares) 11,411 11,332
=============== ================
Basic earnings per share $ .20 .11
=============== ================
Diluted earnings per share $ .20 .11
=============== ================
</TABLE>
<PAGE>
NOTE 4
On January 30, 2000 the Company acquired Hinky Dinky Supermarkets, Inc.
("HDSI") through a cash purchase of all of HDSI's outstanding capital stock.
HDSI is the majority owner of twelve supermarkets located in Nebraska with
annual sales of approximately $90 million. The acquisition was accounted for as
a purchase, for a cash amount subject to purchase price adjustments, and pending
final determination of certain acquired asset and liability valuations.
NOTE 5
On December 29, 1997, a Receivables Purchase Agreement (the
"Agreement") was executed by the Company, Nash Finch Funding Corporation (NFFC),
a wholly owned subsidiary of the Company, and a certain third party purchaser
(the "Purchaser") pursuant to a securitization transaction. The Agreement is a
five-year, $50 million revolving receivable purchase facility allowing the
Company to sell additional receivables to NFFC, and NFFC to sell, from time to
time, variable undivided interests in these receivables to the Purchaser. NFFC
maintains a variable undivided interest in these receivables and is subject to
losses on its share of the receivables and, accordingly, maintains an allowance
for doubtful accounts. As of March 25, 2000 and January 1, 2000 the Company had
sold $44.2 million and $50.5 million, respectively, of accounts receivable on a
non-recourse basis to NFFC. NFFC sold $35.1 million and $41.8 million,
respectively, of its undivided interest in such receivables to the Purchaser,
subject to specified collateral requirements.
NOTE 6
1998 SPECIAL CHARGES
During the fourth quarter of 1998, the Company recorded special charges
totaling $71.4 million (offset by $2.9 million of 1997 special charge
adjustments) as a result of the Company's revitalization plan designed to
redirect its technology efforts, optimize warehouse capacity through
consolidation, and to close, sell or reassess underperforming businesses and
investments.
In connection with the implementation of the Company's 1998
revitalization plan, the 1998 special charges included $17.0 million to
streamline the Company's food distribution operations. The charges provided for
post-employment and pension benefit costs, write-down to fair value of tangible
assets to be disposed of, and other costs to exit three warehouse facilities.
The Company believed the strategy of closing underutilized warehouses and
concentrating sales volume into existing warehouses would improve operational
efficiency and lower distribution costs.
In accordance with the 1998 revitalization plan, the Company completed
the closure of its Appleton, Wisconsin distribution center during 1999. During
the fourth quarter of 1999, after considering both internal and external
factors, the Company decided to indefinitely defer the closure of the remaining
two distribution centers scheduled for closing in the 1998 plan.
The following table details the activity during the first quarter,
associated with the 1998 special charges relative to the food distribution
component of the charge (in thousands):
<PAGE>
<TABLE>
<CAPTION>
1998 Food Distribution Rollforward
----------------------------------
Post
Employment
Benefits Exit Costs Total
---------------- -------------- ----------------
<S> <C> <C> <C>
Balance 1/1/00 $ 1,743 670 2,413
Used in 2000 (2) (8) (10)
---------------- -------------- ----------------
Balance 3/25/00 $ 1,741 662 2,403
================ ============== ================
</TABLE>
Under the 1998 special charge, twelve under-performing corporately
operated retail stores and one store jointly developed with a food distribution
customer were designated for closure and a $9.5 million charge was recorded.
During the first quarter of 2000, one of four remaining stores was closed, while
the Company continues to market three other locations. In the fourth quarter of
1999, the Company recorded charges of $4.7 million, including $1.0 million to
write down assets to fair value, related to four additional corporately operated
stores which have been identified for closure. During the first quarter of 2000,
the Company closed one store, a second location will be closed in the second
quarter, with the remaining two locations closing before the end of the third
quarter. Accordingly, the Company recorded charges of $.3 million, in costs
related to the closures, to accrued expenses.
The following table details 1998 special charge activity during the
first quarter, relative to the retail component of the charge (in thousands):
<TABLE>
<CAPTION>
1998 Retail Rollforward
-----------------------
Lease
Commitment Exit Costs Total
---------------- -------------- ----------------
<S> <C> <C> <C>
Balance 1/1/00 $ 5,807 1,323 7,130
Used in 2000 (241) (79) (320)
---------------- -------------- ----------------
Balance 3/25/00 $ 5,566 1,244 6,810
================ ============== ================
</TABLE>
The aggregate 1998 special charges included $44.7 million for the
abandonment of assets primarily related to an information systems project which
was terminated, asset impairments related to ten owned retail stores and the
write-off of an equity investment in a joint venture with an independent
retailer it continues to service. No additional charges are anticipated in the
future periods related to these matters.
The impact of suspending depreciation on assets to be disposed of is
not material. At March 25, 2000, special charge costs have been included in
accrued expenses on the balance sheet.
1997 SPECIAL 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 food distribution
and retail segments, as well as the produce growing and marketing segment
discontinued during 1998.
<PAGE>
The aggregate special charges included $14.5 million for the
consolidation or downsizing of seven underutilized warehouses. The following
table details 1997 special charge activity during the first quarter, relative to
the food distribution component of the charge (in thousands):
<TABLE>
<CAPTION>
1997 Food Distribution Rollforward
----------------------------------
Post
Lease Employment
Commitments Benefits Exit Costs Total
------------------ ------------------ --------------- ---------------
<S> <C> <C> <C> <C>
Balance 1/1/00 $ 1,590 274 1,106 2,970
Used in 2000 (260) (177) (260) (697)
------------------ ------------------ --------------- ---------------
Balance 3/25/00 $ 1,330 97 846 2,273
================== ================== =============== ===============
</TABLE>
The Company has completely executed its 1997 food distribution
consolidation plan. During the first quarter of 2000, continuing costs totaling
$.7 million related to the closures, were charged to accrued expenses. The
Company continues to incur costs for those distribution centers that have not
been sold or subleased. Certain of these costs are charged to accrued
expenses.
In retail operations, the special charge of $5.2 million related to the
closing of fourteen, principally leased, stores. The following table details
special charge activity during the first quarter, relative to the retail
component of the charge (in thousands):
<TABLE>
<CAPTION>
1997 Retail Rollforward
-----------------------
Lease
Commitments Exit Costs Total
------------------ -------------- ---------------
<S> <C> <C> <C>
Balance 1/1/00 $ 800 267 1,067
Used in 2000 (35) (10) (45)
------------------ -------------- ---------------
Balance 3/25/00 $ 765 257 1,022
================== ============== ===============
</TABLE>
Ten of the identified retail stores were closed during 1998 and 1999, and
two stores are scheduled to be closed in 2000. One of the remaining stores
identified for closure was subleased in 1999, to another party, while
management decided in 1999 to keep another location open.
The aggregate 1997 special charges included $9.2 million for impairment
of seven retail stores, impairment of agriculture assets of Nash-De Camp Company
(the Company's former produce growing and marketing subsidiary which was
divested during 1999), and other charges related to abandonment of system
software, loss on the sale of an equity investment in a foreign operation, and
the write-down of idle real estate to fair value. The 1997 special charges also
included $2.5 million of integration costs associated with a business
acquisition. No additional charges are anticipated in future periods relative to
these matters.
The impact of suspending depreciation on assets to be disposed of is not
material. At March 25, 2000, special charge costs have been included in accrued
expenses on the balance sheet.
<PAGE>
NOTE 7
A summary of the major segments of the business is as follows:
<TABLE>
<CAPTION>
TWELVE WEEKS ENDED MARCH 25, 2000
Food All
(In thousands) Distribution Retail Military Other Totals
- -------------------------------------- -- ---------------- -- ------------- -- -------------- -- ------------ -- -----------------
<S> <C> <C> <C> <C> <C>
Revenue from external customers $ 444,610 225,013 215,920 1,475 887,018
Intra segment revenue 128,714 - - 1,011 129,725
Segment profit and loss 9,589 4,586 4,525 (4) 18,696
</TABLE>
<TABLE>
<CAPTION>
TWELVE WEEKS ENDED MARCH 27, 1999
Food All
(In thousands) Distribution Retail Military Other Totals
- --------------------------------------- -- ---------------- -- ------------ -- --------------- -- ----------- -- ----------------
<S> <C> <C> <C> <C> <C>
Revenue from external customers $ 543,414 162,589 224,175 568 930,746
Intra segment revenue 99,773 - - 1,177 100,950
Segment profit and loss 10,170 1,140 5,054 (181) 16,183
</TABLE>
Reconciliation to statements of operations:
(In thousands)
<TABLE>
<CAPTION>
TWELVE WEEKS ENDED
March 25, March 27,
2000 1999
-------------- ----------------
<S> <C> <C>
PROFIT AND LOSS
Total profit for segments $ 18,696 16,183
Unallocated amounts:
Adjustment of inventory to LIFO 500 (300)
Unallocated corporate overhead (15,286) (13,813)
-------------- ----------------
Income from continuing operations before income taxes $ 3,910 2,070
============== ================
</TABLE>
Prior year segment information has been restated to reflect a change in method
of allocation of marketing revenues.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
REVENUES
Total revenues for the twelve week first quarter were $892.7 million compared to
$934.8 million, a decrease of 4.5%. Revenue declines were the result of several
factors which included the consolidation of a number of distribution centers
since last year, an industry wide downturn in retail grocery sales following
Year 2000 stockpiling and the timing of the Easter holiday.
Food distribution revenues during the quarter were $444.6 million compared to
$543.4 million, a decrease of 18.2%. The negative impact is largely attributed
to the transfer of business to the retail segment resulting from the
acquisitions of two former customers, the 18-store chain Erickson stores in June
1999 and the 12-store chain controlled by Hinky Dinky Supermarkets, Inc., during
the quarter. In addition, further execution of the Company's 1998 revitalization
plan to streamline food distribution operations through consolidation, resulted
in the closure of two distribution centers since last year, which also had an
adverse affect on year over year food distribution comparisons.
Retail segment revenues for the quarter were $225.0 million compared to $162.6
million last year, an increase of 38.4%. The improvement is primarily due to the
acquisitions of the 18 Erickson stores in Minnesota and Wisconsin, the 12 Hinky
Dinky stores in Nebraska and six stores in other market areas since last year.
In addition, during the quarter, the Company completed construction and opened a
second store in Rochester, Minnesota. Same store sales declined 1.4 % consistent
with industry-wide reports of soft revenues during the first quarter. Also,
the timing of the Easter holiday contributed to lower revenues in 2000. With
the Company's continued emphasis on retail expansion, retail segment revenues
now represent 25.4 % of total Company revenues compared to 17.6 % last year.
Military segment revenues decreased 3.7% for the quarter compared to last year.
The decrease reflects a general decline in revenues and is not specifically
attributed to any loss of commissaries serviced or product lines carried. The
Company expects improvement during the remainder of the year.
GROSS MARGIN
Gross margin for the quarter was 11.5% compared to 9.6% last year. The increase
largely reflects the growing proportion of higher margin retail revenues to
total revenues. In addition, efficiencies in warehousing and transportation
resulting from facility consolidations have lowered cost of sales. Retail
segment margins continue to increase as a greater proportion of revenues are
derived from higher margin departments within the stores. Margin comparisons
were also favorably affected by a LIFO credit of $.5 million compared to a
charge last year of $.3 million.
<PAGE>
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE
Selling, general and administrative expenses for the first quarter, as a percent
of total revenues, were 9.1% compared to 7.6% a year ago. The increase primarily
results from the greater proportion of retail business which typically operates
at higher operating expense levels than food distribution. During the quarter
the Company recorded additional provisions for bad debts of $2.7 million
compared to $.9 million a year ago. The increase is based on the Company's
ongoing assessment of customer credit relationships, and relates primarily to
accounts in the Michigan market area.
DEPRECIATION AND AMORTIZATION EXPENSE
Depreciation and amortization expense for the quarter increased 4.5% compared to
last year. The increase primarily reflects acquisitions of Erickson's, Hinky
Dinky and six other retail stores. In addition, the expansion of the Lumberton,
North Carolina distribution center, the completed construction of the store in
Rochester, Minnesota and several other store improvement projects, since last
year, contributed to the increased depreciation expense. Amortization of
goodwill and other intangibles for the current and prior year quarters was $1.8
million and $1.5 million, respectively.
INTEREST EXPENSE
Interest expense for the quarter was $7.6 million, an increase of 8.5% over last
year. The higher interest costs are attributed to higher net debt levels due to
the acquisitions, which occurred since the prior year quarter, partially offset
by proceeds from the sale of Nash-De Camp and two dairy subsidiaries and
improved working capital management. Higher average borrowing rates compared to
a year ago also factored into the increased expense level.
EARNINGS BEFORE INCOME TAXES
Earnings before income taxes for the quarter were $3.9 million compared
to $2.1 million last year. The increase for the quarter reflects significant
improvement in retail segment profitability, from $1.1 million last year to $4.6
million this year. Food distribution and military segments were even compared to
last year, however, improvements are expected as productivity gains further
impact profitability.
INCOME TAXES
The effective income tax rate for 2000 is estimated at 42.4%, unchanged
from 1999. Income tax expense increased due to higher pretax earnings.
<PAGE>
SPECIAL CHARGES
1998 SPECIAL CHARGES
During the fourth quarter of 1998, the Company announced a five-year
revitalization plan to streamline food distribution operations and build retail
operations resulting in the Company recording special charges totaling $71.4
million (offset by $2.9 million of 1997 special charge adjustments). The new
strategic plan's objectives were to: leverage Nash Finch's scale by centralizing
operations; improve operational efficiency; and develop a strong retail
competency. The Company also redirected technology efforts and set out to close,
sell or reassess underperforming businesses and investments.
In connection with the implementation of the Company's 1998 revitalization plan,
the 1998 special charges included $17.0 million to streamline the Company's food
distribution operations by closing three warehouses. The charges provided for
post-employment and pension benefit costs, write-down to fair value of tangible
assets to be disposed of, and other costs to exit the facilities. The Company
believed the strategy of closing underutilized warehouses and concentrating
sales volume into existing warehouses would improve operational efficiency and
lower distribution costs.
In accordance with the 1998 revitalization plan, the Company completed the
closure of its Appleton, Wisconsin distribution center during 1999. During the
fourth quarter of 1999, after considering both internal and external factors,
the Company decided to indefinitely defer the closure of the remaining two
distribution centers scheduled for closing under the 1998 plan.
Under the 1998 revitalization plan 12 under-performing corporately operated
retail stores and one store jointly developed with a food distribution customer
were designated for closure and a $9.5 million charge was recorded. The stores
were primarily located in geographic areas where the Company could not attain a
strong market presence. The Company's focus is to develop corporate stores that
can dominate their primary trade areas. At March 25, 2000, ten stores have been
closed and the Company continues to market three other locations.
In the fourth quarter of 1999, the Company recorded an additional accrual of
$4.7 million related to four corporately operated stores which have been
identified for closure. Three stores are located in the highly competitive Iowa
market and the fourth is in North Carolina. The accrual consists of $3.3 million
of non-cancelable lease obligations and related costs required under lease
agreements, $1.0 million to write-down to fair value assets held for disposal,
and $.4 million of post-closing facility exit costs. During the quarter, one
store was closed with three remaining locations to be closed by the end of the
third quarter.
The aggregate 1998 special charges included $34.4 million for the abandonment of
assets primarily related to the Company's HORIZONS information system project.
The abandoned assets related to purchased software and internal and external
in-process software development
The remainder of the 1998 special charges consisted of a $10.3 million provision
for asset impairment primarily related 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
<PAGE>
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.
The tables included in Note 6 of Notes to Condensed Consolidated Financial
Statements contain a rollforward of 1998 special charges activity for the
quarter relative to food distribution and retail operations through March 25,
2000.
1997 SPECIAL 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 food distribution
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 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.
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
implemented. However, some actions included in the 1997 plan were modified. In
1999, the Company completed closure of the remaining distribution centers
included in the original 1997 special charges, as modified in 1998. These
included Grand Island, Nebraska; Liberal, Kansas; Denver, Colorado and Rocky
Mount, North Carolina. The Company continues to incur costs for those
distribution centers that have not been sold or subleased. Certain of these
costs are charged to accrued expenses.
In retail operations, the special charge of $5.2 million related to the closing
of fourteen, principally leased, stores. The charge 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.
The aggregate 1997 special charges contained a provision of $5.4 million for
impaired assets of seven retail stores. Declining market share due to increasing
competition, deterioration of operating performance and forecasted future
results that were less than previously planned were the factors leading the
impairment determination.
The remaining 1997 special charges included $2.5 million of integration costs,
associated with the acquisition of the business and certain assets from
United-A.G. Cooperative, Inc., an asset impairment charge of $1.0 relating to
agricultural assets of Nash-De Camp, the Company's produce growing and marketing
subsidiary, and $2.8 million in other asset write-downs.
The tables included in Note 6 of Notes to Condensed Consolidated Financial
Statements contain a rollforward of 1997 special charges activity for the
quarter relative to food distribution and retail operations through March 25,
2000.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Historically, the Company has financed its capital needs through a
combination of internal and external sources. These sources include cash flow
from operations, short-term bank borrowings, various types of long-term debt and
lease financing.
Cash flow provided from operations totaled $30.7 million for the
quarter compared to $29.7 million last year. The increase in operating cash flow
resulted primarily from improvements in asset management, in particular accounts
receivable, partially offset by decreases in accounts payable. Working capital
was $129.1 million at the end of the quarter compared to $138.2 million at year
end. The current ratio at the end of the quarter remained at 1.42 as reported at
the end of 1999.
During the quarter the Company acquired Hinky Dinky Supermarkets Inc.
and two other retail stores in separate transactions for cash totaling $19.5
million. The acquisitions were financed from the revolving credit facility.
Other transactions affecting liquidity during the quarter were capital
expenditures of $8.2 million and cash dividends paid to shareholders of $1.0
million.
The Company believes that borrowing under the revolving credit
facility, proceeds from its sale of subordinated notes in 1998, other credit
agreements, cash flows from operating activities and lease financing will be
adequate to meet the Company's working capital needs, planned capital
expenditures and debt service obligations for the foreseeable future.
FORWARD-LOOKING STATEMENTS
The information contained in this Form 10-Q Report includes
forward-looking statements made under the safe harbor provisions of the Private
Securities Litigation by the use of words like "believes," "expects," "may,"
"will," "should," "anticipates," or similar expressions, as discussions of
strategy. Although such statements represent management's current expectations
based on available data, they are subject to risks, uncertainties and other
factors which could cause actual results to differ materially from those
anticipated. Such risks, uncertainties and other factors may include, but are
not limited to, the ability to: meet debt service obligations and maintain
future financial flexibility; respond to continuing competitive pricing
pressures; retain existing independent wholesale customers and attract new
accounts; and fully integrate acquisitions and realize expected synergies.
<PAGE>
PART II - OTHER INFORMATION
Items 1, 2, 3, 4 and 5 are not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) EXHIBITS:
27.1 Financial Data Schedule
(b) REPORTS ON FORM 8-K.
Not applicable.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NASH-FINCH COMPANY
------------------
Registrant
Date: May 4, 2000 By /s/ Ron Marshall
---------------- ---------------------
Ron Marshall
President and Chief Executive Officer
By /s/LeAnne M. Stewart
-------------------------
LeAnne M. Stewart
Vice President and Corporate Controller
<PAGE>
NASH FINCH COMPANY
EXHIBIT INDEX TO QUARTERLY REPORT
ON FORM 10-Q
For the Twelve Weeks Ended March 25, 2000
<TABLE>
<CAPTION>
Item No. Item Method of Filing
- -------- ---- ----------------
<S> <C> <C>
27.1 Financial Data Schedule Filed herewith
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-30-2000
<PERIOD-START> JAN-02-2000
<PERIOD-END> MAR-25-2000
<CASH> 13,259
<SECURITIES> 0
<RECEIVABLES> 149,985
<ALLOWANCES> 23,579
<INVENTORY> 262,547
<CURRENT-ASSETS> 435,926
<PP&E> 569,304
<DEPRECIATION> 329,336
<TOTAL-ASSETS> 852,968
<CURRENT-LIABILITIES> 306,817
<BONDS> 321,921
0
0
<COMMON> 19,402
<OTHER-SE> 154,513
<TOTAL-LIABILITY-AND-EQUITY> 852,968
<SALES> 892,673
<TOTAL-REVENUES> 892,673
<CGS> 789,972
<TOTAL-COSTS> 88,474
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 2,744
<INTEREST-EXPENSE> 7,573
<INCOME-PRETAX> 3,910
<INCOME-TAX> 1,658
<INCOME-CONTINUING> 2,252
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,252
<EPS-BASIC> .20
<EPS-DILUTED> .20
</TABLE>
