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EXHIBIT 99.1
RISKS RELATED TO OUR INDUSTRY
IF WE FAIL TO SUCCESSFULLY COMPETE AGAINST EXISTING OR FUTURE COMPETITORS IN OUR
INDUSTRY, OUR OPERATING RESULTS MAY SUFFER.
We operate in a highly competitive industry. If we fail to successfully
respond to competitive pressures in this industry, or to effectively implement
our strategies to respond to these pressures, our operating results may be
negatively affected. Some of our competitors have greater financial and other
resources than we do. Our distribution business competes with local, regional
and national food distributors, as well as vertically integrated grocery store
chains that purchase directly from suppliers and self-distribute products to
their stores. Our food retailing business, which focuses on the Upper Midwest,
competes with traditional grocery stores and alternative store formats, such as
warehouse stores and supercenters. If any of the large national grocery store
chains begin to target the Upper Midwest, our strategy of focusing the growth of
our food retailing operations in this geographic area could prove to be
unsuccessful. Consolidation of self-distributing grocery store chains and other
grocery stores may produce even stronger competition for our food distribution
and retail businesses. Consolidation may also result in declining sales for our
food distribution business if our existing independent customers are acquired by
our competitors. In addition, heightened competition among our suppliers, new
entrants in the industry and trends toward vertical integration could create
additional competitive pressures. These factors could result in price
reductions, reduced sales and margins or loss of market share, any of which
could negatively impact our operating results.
WE OPERATE IN A LOW-MARGIN INDUSTRY MAKING US SUSCEPTIBLE TO CHANGES IN OUR
ECONOMIC AND BUSINESS OPERATING ENVIRONMENTS.
The food distribution and retail industry is characterized by high sales
volume and low profit margin and is sensitive to national and regional economic
conditions. Our operating results could be negatively affected by a variety of
factors, such as food price deflation, inventory control weaknesses, competitive
pricing pressures, severe weather conditions, increases in wages or other labor
costs, fuel and other transportation-related costs and fluctuations in interest
rates.
IF WE ARE UNABLE TO ADEQUATELY RESPOND TO CHANGES IN THE FOOD DISTRIBUTION AND
RETAIL INDUSTRY IN WHICH WE OPERATE, OUR OPERATING RESULTS MAY SUFFER.
Changes in the food distribution and retail industry have increased the
pressure on our industry's already low profit margins. Consequently, our
operating results are sensitive to, and may be negatively impacted by, such
changes as the following:
- the shift in consumer preference towards eating away from home, which
has increased food spending at restaurants at the expense of traditional
grocery stores;
- alternative store formats, such as warehouse stores and supercenters,
which have gained market share at the expense of traditional grocery
stores, including independent grocery store owners, many of whom are our
food distribution customers;
- producers, manufacturers, distributors and retailers who are seeking to
lower costs and to increase services in an increasingly competitive
environment of relatively static over-
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all demand; and
- vendors who are increasingly directing their promotional dollars to
larger self-distributing chains to ensure that more of these dollars are
used by retailers to increase sales volume.
We believe that these changes have negatively impacted our margins and our
profitability, as well as the margins and profitability of many of our
customers. If the strategic initiatives we are pursuing to respond to these
changes fail, or are significantly delayed, our operating results may be further
negatively impacted.
RISKS RELATED TO OUR BUSINESS
IF WE ARE UNABLE TO ACQUIRE, AND SUCCESSFULLY INTEGRATE, TRADITIONAL GROCERY
STORES, OUR REVENUES AND PROFITS WILL NOT GROW AS EXPECTED AND OUR OPERATING
RESULTS MAY SUFFER.
Part of our growth strategy is dependent upon acquiring traditional grocery
stores. Our ability to grow through acquisitions depends upon our ability to
identify, negotiate and complete suitable acquisitions. Even if we complete
acquisitions, these acquisitions may cause us to:
- incur significantly higher than anticipated capital expenditures and
operating expenses;
- fail to timely and effectively integrate the operations, systems,
controls and personnel of the acquired businesses into our existing
business;
- issue additional equity securities, which would reduce your percentage
ownership in Nash Finch, or to assume additional liabilities;
- lose customers;
- experience difficulties finding and retaining key employees necessary to
manage these acquisitions; and
- divert our management's time and attention from other business concerns.
IF WE ARE UNABLE TO SUCCESSFULLY ROLL OUT OUR NEW STORE FORMATS, OUR REVENUES
AND PROFITS WILL NOT GROW AS EXPECTED AND OUR OPERATING RESULTS MAY SUFFER.
A portion of our growth strategy is dependent upon the successful roll out
of our new AVANZA(TM) and Buy-n-Save(R) store formats. We will likely open some
of these stores in new geographic markets where we currently do not have retail
experience. The successful roll out of these new store formats is dependent upon
numerous factors including:
- a dedicated and focused management team;
- available real estate in our target markets;
- store formats that enhance the shopping experience; and
- our competency in Hispanic and extreme value merchandising.
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IF WE FAIL TO RETAIN OUR CUSTOMERS OR ACQUIRE NEW CUSTOMERS, OUR REVENUES AND
PROFITS WILL NOT GROW AS EXPECTED AND OUR OPERATING RESULTS MAY SUFFER.
Our sales and earnings are dependent upon our ability to retain customers
and attract new customers. The growth of our distribution business is
particularly dependent upon our ability to capture additional distribution
business through our existing network of distribution centers. If we are unable
to retain our current customers, or to acquire new customers, our revenues and
profitability may be reduced. Our ability to retain customers and attract new
customers is dependent, in part, upon our ability to:
- satisfy our customers;
- provide industry-leading customer service;
- control our costs;
- offer competitive products at low prices;
- maintain high levels of productivity and efficiency; and
- offer marketing, merchandising and ancillary services in the
distribution segment of our business that provide value to our
independent customers.
In addition, if the U.S. military commissary system undergoes any
significant changes, such as base closings, privatization of the military
commissary system or a reduction in the number of persons having access to the
commissaries, our military distribution sales could decline
IF WE EXPERIENCE CREDIT LOSSES, OUR FINANCIAL CONDITION AND OPERATING RESULTS
MAY SUFFER.
In the ordinary course of business, we extend credit, including loans, to
our food distribution customers. We also provide financial assistance to some
customers by guaranteeing their loan or lease obligations. Generally our loans
are extended to small businesses that are unrated and have limited access to
conventional financing. Credit losses from our existing or future credit
extensions, loans or guaranty commitments could negatively impact our financial
condition and operating results. We intend to continue, and possibly increase,
the amount of financial assistance we provide to our food distribution
customers.
IF WE CANNOT ATTRACT AND RETAIN QUALIFIED PERSONNEL, OUR OPERATING RESULTS MAY
SUFFER.
In the past three years, we have assembled a new management team.
Competition for experienced and qualified management personnel in our industry
is intense. If we lose the services of one or more of our executive management
team, our operating results may suffer. Generally, we do not have employment
contracts with our executive officers, other than agreements providing benefits
upon changes in control of Nash Finch. We do not maintain key-person life
insurance on any of our executive officers.
We also compete with other businesses in our industry with respect to
attracting and retaining other qualified employees. We may be required to
continue to enhance wages and benefits in order to effectively compete in the
hiring and retention of qualified employees or to hire more expensive temporary
employees. As a result of the shortage of qualified employees, our labor costs
could increase.
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IF WE EXPERIENCE PROBLEMS WITH THE QUALITY, SAFETY OR INTEGRITY OF THE FOOD
PRODUCTS WE SELL, OUR OPERATING RESULTS MAY SUFFER.
If consumers do not view the food products we sell as safe for consumption,
our operating results may suffer. We sell food products for human consumption,
which involves risks, such as product contamination or spoilage, product
tampering and other adulteration. An actual or alleged problem with the quality,
safety or integrity of the food products we sell could result in:
- product withdrawals or recalls;
- negative publicity;
- reduced demand for the products we sell;
- product liability claims; and
- substantial costs of compliance or remediation.
Any of these events could result in significant costs or loss of customers
and could harm our ability to market and sell our food products.
RISKS RELATED TO OUR INDEBTEDNESS
OUR OUTSTANDING DEBT COULD NEGATIVELY IMPACT OUR OPERATING RESULTS.
Our current level of debt could limit our capability to respond to market
conditions and capital needs. As of December 29, 2001 we had approximately
$374.2 million of outstanding debt, which includes approximately $49.1 million
of capitalized leases. The degree to which we are leveraged could:
- impair, or materially limit, our ability to obtain additional financing
or refinancing in the future for working capital, capital expenditures,
acquisitions or other general corporate purposes;
- reduce the funds we have available for future operations and growth
opportunities, since a portion of our operating cash flows may be
dedicated to the payment of principal and interest on our debt;
- expose us to the risk of greater interest rates, since some of our
borrowings are and will continue to be at variable rates of interest;
- limit our ability to withstand competitive pressures; or
- reduce our flexibility to respond to changing business and economic
conditions.
If we are unable to generate sufficient cash flow to service our debt, or
if future borrowings or equity financing are not available to us for the payment
or refinancing of our debt, our operating results may suffer. If we are unable
to service our debt, we will be required to adopt alternative strategies, such
as reducing or delaying capital expenditures, selling assets, restructuring or
refinancing our debt or seeking additional equity capital.
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THE DOCUMENTS GOVERNING OUR OUTSTANDING DEBT CONTAIN PROVISIONS THAT COULD
MATERIALLY RESTRICT OUR BUSINESS AND OPERATING FLEXIBILITY.
Without the consent of our lenders, or unless we satisfy certain financial
tests, we may be unable to take numerous actions, such as:
- engage in mergers or acquisitions;
- incur additional debt;
- make capital expenditures;
- enter into capital leases;
- make investments, loans or advances;
- guarantee third-party obligations;
- repay other debt or amend other debt instruments;
- create liens on assets;
- pay dividends; or
- engage in certain transactions with our subsidiaries and affiliates.
The documents governing our outstanding debt also require us to comply with
a number of financial ratios and tests. Our failure to comply with these
obligations could result in an event of default under these documents, which
could cause the acceleration of some or all of our debt. Our ability to comply
with these obligations will depend upon our future operating performance.
Changes in economic conditions and financial, competitive, legislative,
regulatory and other factors, many of which we cannot control, could affect our
future operating performance.