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
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For the forty weeks ended October 9, 1999
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
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/ / OF THE SECURITIES EXCHANGE ACT OF 1934
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Commission File No. 0-785
NASH-FINCH COMPANY
(Exact Name of Registrant as Specified in its Charter)
DELAWARE 41-0431960
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
7600 France Ave. South, Edina, Minnesota 55435
(Address of principal executive offices) (Zip Code)
(612) 832-0534
(Registrant's telephone number including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
------ ------
Number of shares of common stock outstanding at November 17, 1999:
11,343,967 shares
PART I - FINANCIAL INFORMATION
------------------------------
This report is for the forty week interim period beginning January 3,
1999, through October 9, 1999.
The accompanying financial information has been prepared in
conformity with generally accepted accounting principles and practices, and
methods of applying accounting principles and practices, (including
consolidation practices) as reflected in the financial information included
in the Company's Annual Report on Form 10-K, filed with the Securities and
Exchange Commission for the preceding fiscal year. The financial statements
included in this quarterly report include all adjustments which are, in the
opinion of management, necessary to a fair presentation of the Company's
financial position and results of operations for the interim period.
The information contained herein has not been audited by independent
auditors and is subject to any adjustments which may develop in connection
with the annual audit of its accounts by the Company's independent auditors.
NASH FINCH COMPANY AND SUBSIDIARIES
Condensed Consolidated Statements of Operations (unaudited)
(In thousands, except per share amounts)
Sixteen Weeks Ended Forty Weeks Ended
--------------------------- ---------------------------
October 9, October 10, October 9, October 10,
1999 1998 1999 1998
------------ ------------ ------------ ------------
Total sales and revenues $ 1,289,156 1,282,533 3,159,903 3,188,568
Cost and expenses:
Cost of sales 1,150,965 1,167,211 2,837,735 2,901,008
Selling, general and administrative 109,307 88,368 254,251 214,305
Special charges - - - (1,262)
Depreciation and amortization 13,394 13,760 32,548 35,596
Interest expense 9,454 8,691 23,318 22,313
------------ ------------ ------------ ------------
Total costs and expenses 1,283,120 1,278,030 3,147,852 3,171,960
Earnings from continuing operations before
income taxes and extraordinary charge 6,036 4,503 12,051 16,608
Income taxes 2,559 1,984 5,110 6,791
------------ ------------ ------------ ------------
Earnings from continuing operations before
extraordinary charge 3,477 2,519 6,941 9,817
Discontinued operations:
Earnings (loss) from discontinued operations,
net of income tax (benefit) - 879 - (176)
Earnings from disposal of discontinued
operations, including profit of $1,017 during
the phase out period, net of income tax of $3,587 4,566 - 4,566 -
------------ ------------ ------------ ------------
Earnings before extraordinary charge 8,043 3,398 11,507 9,641
Extraordinary charge from early
extinguishment of debt, net of income tax
benefit of $3,951 - - - 5,569
------------ ------------ ------------ ------------
Net earnings $ 8,043 3,398 11,507 4,072
============ ============ ============ ============
Basic earnings per share:
Earnings from continuing operations $ 0.31 0.22 0.62 0.87
Earnings (loss) from discontinued operations 0.40 0.08 0.40 (0.02)
------------ ------------ ------------ ------------
Earnings before extraordinary charge 0.71 0.30 1.02 0.85
Extraordinary charge from early
extinguishment of debt, net of income
tax benefit - - - (0.49)
------------ ------------ ------------ ------------
Net earnings per share $ 0.71 0.30 1.02 0.36
============ ============ ============ ============
Diluted earnings per share:
Earnings from continuing operations $ 0.31 0.22 0.61 0.87
Earnings (loss) from discontinued operations 0.40 0.08 0.40 (0.02)
------------ ------------ ------------ ------------
Earnings before extraordinary charge 0.71 0.30 1.01 0.85
Extraordinary charge from early
extinguishment of debt, net of income
tax benefit - - - (0.49)
------------ ------------ ------------ ------------
Net earnings (loss) per share $ 0.71 0.30 1.01 0.36
============ ============ ============ ============
Weighted average number of common shares
outstanding and common equivalent shares
outstanding:
Basic 11,334 11,314 11,333 11,310
Diluted 11,343 11,340 11,343 11,336
- ------------------------------------------------
See accompanying notes to consolidated financial statements.
NASH FINCH COMPANY AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(In thousands, except per share amounts)
October 9, January 2,
1999 1999
-------------- ------------
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 1,301 848
Accounts and notes receivable, net 164,231 169,748
Inventories 275,015 267,040
Prepaid expenses 12,051 13,154
Deferred tax assets 33,421 16,318
-------------- ------------
Total current assets 486,019 467,108
Investments 556 4,805
Notes receivable, noncurrent 23,550 12,936
Property, plant and equipment:
Land 22,982 25,386
Buildings and improvements 134,571 130,988
Furniture, fixtures and equipment 287,812 302,450
Leasehold improvements 61,821 61,983
Construction in progress 24,434 10,107
Assets under capitalized leases 27,841 24,878
-------------- ------------
559,461 555,792
Less accumulated depreciation and amortization (318,835) (333,414)
-------------- ------------
Net property, plant and equipment 240,626 222,378
Intangible assets, net 108,677 69,141
Investment in direct financing leases 15,625 16,155
Deferred tax asset - net 3,662 31,908
Other assets 7,969 8,664
-------------- ------------
Total assets $ 886,684 833,095
============== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Outstanding checks $ 29,114 33,329
Short-term debt payable to banks 15,800 5,525
Current maturities of long-term debt and
capitalized lease obligations 3,172 2,563
Accounts payable 215,555 189,382
Accrued expenses 94,732 97,683
Income taxes 2,272 2,991
-------------- ------------
Total current liabilities 360,645 331,473
Long-term debt 313,918 293,280
Capitalized lease obligations 34,107 34,667
Deferred compensation 4,585 6,450
Other 8,452 10,752
Stockholders' equity:
Preferred stock - no par value
Authorized 500 shares; none issued - -
Common stock of $1.66 2/3 par value
Authorized 25,000 shares, issued 11,575 shares
in 1999 and 1998 19,292 19,292
Additional paid-in capital 17,953 17,944
Restricted stock (75) (113)
Retained earnings 129,630 121,185
-------------- -----------
166,800 158,308
Less cost of 231 shares and 234 shares of
common stock in treasury, respectively. (1,823) (1,835)
-------------- -----------
Total stockholders' equity 164,977 156,473
-------------- -----------
Total liabilities and stockholders' equity $ 886,684 833,095
============== ===========
- ----------------------------------------------------------------
See accompanying notes to consolidated financial statements.
NASH FINCH COMPANY AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows (Unaudited)
(In thousands)
Forty Weeks Ended
----------------------------
October 9, October 10,
1999 1998
------------ ------------
Operating activities:
Net earnings $ 11,507 4,072
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 32,548 36,620
Provision for bad debts 2,608 1,878
(Recovery from) provision for losses
closed lease locations (509) 1,178
Extraordinary charges - extinguishment of debt - 9,520
Deferred income taxes 9,022 -
Deferred compensation (2,683) (404)
Earnings from equity investments (718) (201)
Other (386) (2,120)
Changes in operating assets and liabilities:
Accounts and notes receivable (82) (4,090)
Inventories 7,340 (10,216)
Prepaid expenses 3,742 5,027
Accounts payable 13,048 38,398
Accrued expenses (5,634) 12,387
Accrued expenses - special charge (7,148) (3,595)
Income taxes (434) 5,986
------------ ----------
Net cash provided by operating activities 62,221 94,440
------------ ----------
Investing activities:
Dividends received - 799
Disposal of property, plant and equipment 26,158 11,994
Additions to property, plant and equipment
excluding capital leases (41,512) (39,980)
Business acquired, net of cash acquired (58,792) (2,895)
Loans to customers (22,812) (12,118)
Payments from customers on loans 22,558 12,205
Sale (repurchase) of receivables 1,125 (7,400)
Proceeds from sale of dairy operations 5,302 -
Other (1,030) (4,624)
------------ ----------
Net cash used for investing activities (69,003) (42,019)
------------ ----------
Financing activities:
Proceeds from long-term debt 649 165,000
Proceeds (payments) from revolving debt 7,000 (79,000)
Dividends paid (3,062) (6,121)
Proceeds (payments) from short-term debt 9,909 50
Payments of long-term debt (2,505) (108,219)
Payments of capitalized lease obligations (1,246) (1,205)
Extinguishment of debt - (9,378)
Decrease in outstanding checks (4,215) (13,866)
Other 705 364
------------ ----------
Net cash provided by (used in) financing
activities 7,235 (52,375)
------------ ----------
Net increase in cash $ 453 46
============ ==========
- --------------------------------------------------------------
See accompanying notes to consolidated financial statements.
NASH FINCH COMPANY AND SUBSIDIARIES
Consolidated Statements of Stockholders'
Equity
- ----------------------------------------------------------------------------------------------------------------------
Fiscal period ended October 9, 1999
January 2, 1999 and January 3, 1998
(In thousands, except per share amounts) Foreign
Common Stock Additional currency
--------------------- paid-in Retained translation
Shares Amount capital earnings adjustment
- ----------------------------------------------------------------------------------------------------------------------
Balance at December 28, 1996 11,574 $ 19,290 16,816 200,322 (950)
Net earnings (loss) - - - (1,228) -
Dividend declared of $.72 per share - - - (8,110) -
Treasury stock issued upon exercise of
options - - 354 - -
Amortized compensation under restricted
stock plan - - - - -
Repayment of notes receivable from holder of
restricted stock - - - - -
Distribution of stock pursuant to
performance awards - - 460 - -
Treasury stock purchased - - - - -
Foreign currency translation adjustment - - - - 950
Other 1 2 18 - -
--------- ---------- ---------- ----------- -----------
Balance at January 3, 1998 11,575 19,292 17,648 190,984 -
Net earnings (loss) - - - (61,637) -
Dividend declared of $.72 per share - - - (8,162) -
Treasury stock issued upon exercise of
options - - 47 - -
Amortized compensation under restricted
stock plan - - - - -
Repayment of notes receivable from holders
of restricted stock - - - - -
Distribution of stock pursuant to
performance awards - - 246 - -
Treasury stock purchased - - - - -
Other 3 - -
--------- ---------- ---------- ----------- -----------
Balance at January 2, 1999 11,575 19,292 17,944 121,185 -
Net earnings - - - 11,507 -
Dividend declared of $.27 per share - - - (3,062) -
Amortized compensation under restricted
stock plan - - - - -
Repayment of notes receivable from holders
of restricted stock - - - - -
Distribution of stock pursuant to
performance awards - - 9 - -
--------- ---------- ---------- ----------- -----------
Balance at October 9, 1999 (unaudited) 11,575 $19,292 17,953 129,630 -
========= ========== ========== =========== ===========
-------------------------------------------------
Treasury Stock Total
Restricted ------------------- stockholders'
stock Shares Amount equity
-------------------------------------------------
Balance at December 28, 1996 (500) (307) $(2,117) 232,861
Net earnings (loss) - - - (1,228)
Dividend declared of $.72 per share - - - (8,110)
Treasury stock issued upon exercise of
options - 29 143 497
Amortized compensation under restricted
stock plan 29 - - 29
Repayment of notes receivable from holder of
restricted stock 80 - - 80
Distribution of stock pursuant to
performance awards - 30 148 608
Treasury stock purchased - (4) (89) (89)
Foreign currency translation adjustment - - - 950
Other - - - 20
--------- --------- --------- ---------
Balance at January 3, 1998 (391) (252) (1,915) 225,618
Net earnings (loss) - - - (61,637)
Dividend declared of $.72 per share - - - (8,162)
Treasury stock issued upon exercise of
options - 4 21 68
Amortized compensation under restricted
stock plan 72 - - 72
Repayment of notes receivable from holders
of restricted stock 206 - - 206
Distribution of stock pursuant to
performance awards - 15 75 321
Treasury stock purchased - (1) (16) (16)
Other - - - 3
--------- --------- --------- ---------
Balance at January 2, 1999 (113) (234) (1,835) 156,473
Net earnings - - - 11,507
Dividend declared of $.27 per share - - - (3,062)
Amortized compensation under restricted
stock plan 13 - - 13
Repayment of notes receivable from holders
of restricted stock 25 - - 25
Distribution of stock pursuant to
performance awards - 3 12 21
--------- --------- --------- ----------
Balance at October 9, 1999 (unaudited) (75) (231) $ (1,823) 164,977
========= ========= ========= ==========
- -----------------------------------------------------------
See accompanying notes to consolidated financial statements.
NASH FINCH COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 9, 1999
NOTE 1
The accompanying financial statements include all adjustments which
are, in the opinion of management, necessary to present fairly the financial
position of the Company and its subsidiaries at October 9, 1999, and January
2, 1999, and the result of operations for the 16-weeks ended October 9, 1999
and October 10, 1998, and the 40-week periods ended October 9, 1999 and
October 10, 1998, and the changes in cash flows for the 40-week periods ended
October 9, 1999 and October 10, 1998, respectively. All material intercompany
accounts and transactions have been eliminated in the consolidated financial
statements. Results of operations for the interim periods presented are not
necessarily indicative of the results to be expected for the full year.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
NOTE 2
The Company uses the LIFO method for valuation of a substantial
portion of inventories. If the FIFO method had been used, inventories would
have been approximately $47.7 million and $47.1 million higher at October 9,
1999 and January 2, 1999, respectively.
NOTE 3
The following table sets forth the computation of basic and diluted
earnings per share.
Sixteen Weeks Ended Forty Weeks Ended
------------------------------- --------------------------------
October 9, October 10, October 9, October 10,
1999 1998 1999 1998
------------ ------------- -------------- --------------
Numerator:
Earnings from continuing $
operations 3,477 2,519 6,941 9,817
------------ ------------- -------------- --------------
Denominator:
Denominator of basic earnings per
share; weighted-average shares 11,334 11,314 11,333 11,310
Effect of dilutive securities:
Contingent shares 9 26 10 26
------------ ------------- -------------- --------------
Dilutive common shares 9 26 10 26
Denominator for diluted earnings
per share; adjusted weighted
average shares 11,343 11,340 11,343 11,336
============ ============= ============== ==============
Basic earnings per share $ .31 .22 .62 .87
============ ============= ============== ==============
Diluted earnings per share $ .31 .22 .61 .87
============ ============= ============== ==============
NOTE 4
On June 10, 1999 the Company acquired Erickson's Diversified
Corporation (Erickson's) through a cash purchase of all of Erickson's
outstanding capital stock. Erickson's operates 18 supermarkets in Minnesota
and Wisconsin with annual sales of approximately $200 million. In addition to
the stores, the acquisition includes a number of real estate holdings in the
two state market area. The acquisition was accounted for as a purchase, with
the cash purchase price totaling $59.0 million initially allocated based on
estimated fair values at date of acquisition, pending final determination of
certain acquired asset and liability valuations. This preliminary allocation
has resulted in acquired goodwill of approximately $43.0 million, which is
being amortized on a straight line basis over 40 years.
The following unaudited pro forma information presents a summary of
consolidated earnings from continuing operations before extraordinary charge as
if the acquisition had taken place at the beginning of 1998.
Forty Weeks Ended
---------------------------------------
October 9, 1999 October 10, 1998
--------------- ----------------
Revenues $3,210,844 $3,275,046
Earnings from continuing operations
before extraordinary charge 6,618 9,387
Basic and Diluted earnings per share .58 .83
These unaudited pro forma results have been prepared for comparative
purposes only and include certain adjustments such as additional amortization
expense on acquired goodwill and increased interest expense on acquisition
debt. They do not purport to be indicative of the results of operations that
actually would have resulted had the acquisition occurred on the date
indicated, or may result in the future.
NOTE 5
On December 29, 1997, a Receivables Purchase Agreement (the
"Agreement") was executed by the Company, Nash Finch Funding Corporation
(NFFC), a wholly owned subsidiary of the Company, and a certain third party
purchaser (the "Purchaser") pursuant to a securitization transaction. The
Agreement is a five-year, $50 million revolving receivable purchase facility
allowing the Company to sell additional receivables to NFFC, and NFFC to
sell, from time to time, variable undivided interests in these receivables to
the Purchaser. NFFC maintains a variable undivided interest in these
receivables and is subject to losses on its share of the receivables and,
accordingly, maintains an allowance for doubtful accounts. As of October 9,
1999 and January 2, 1999 the Company had sold $45.3 million and $45.7
million, respectively, of accounts receivable on a non-recourse basis to
NFFC. NFFC sold $37.9 million and $36.8
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 $68.5 million relative to abandonment and impairment of
assets, and consolidation of certain warehouse and retail stores. During the
first three quarters of 1999, the Company closed distribution centers in
Appleton, Wisconsin, Grand Island, Nebraska and Liberal, Kansas, and closed
five retail stores. Costs totaling $3.5 million incurred as a result of the
closure of these units were charged to accrued expenses. During the second
quarter of 1999, accruals in the amount of $1.2 million were reversed. These
reversals were primarily for properties originally scheduled for closure that
were sold. At October 9, 1999, remaining accrued liabilities established as a
result of the 1998 special charges totaled $21.4 million.
1997 SPECIAL CHARGES
During the third quarter of 1997, the Company recorded special
charges, totaling $31.3 million relative to asset impairment and
consolidation of certain warehouses and retail stores. During the third
quarter of 1999 the company announced the closing of the distribution center
in Denver, Colorado and closed its distribution center in Rocky Mount, North
Carolina. During the first three quarters of 1999, costs totaling $2.2
million incurred as a result of the closing of certain warehouses and retail
stores were charged to accrued expenses. During the second quarter additional
accruals in the amount of $1.5 million were recorded primarily for additional
losses for write-downs of tangible assets on locations that have been closed
and additional lease costs for one retail store and one warehouse location
closed in the second quarter of 1999. Also in the second quarter, accruals in
the amount of $0.3 million were reversed. These reversals resulted primarily
from the final lease settlement and exit from the Lexington, Kentucky
warehouse which was closed in 1998. At October 9, 1999, remaining accrued
liabilities established for purposes of the 1997 special charges totaled $6.5
million.
NOTE 7
A summary of the Major Segments of the Business is as follows:
SIXTEEN WEEKS ENDED OCTOBER 9, 1999
All
(In thousands) Wholesale Retail Military Other Totals
- -------------------------------------------------------------------------------------------------------------------------
Revenues from external
customers $ 699,367 293,292 288,393 1,630 1,282,682
Intra segment revenues 169,877 - - 1,301 171,178
Segment pretax profit
(loss) 12,254 6,465 7,262 (43) 25,938
SIXTEEN WEEKS ENDED OCTOBER 10, 1998
All
(In thousands) Wholesale Retail Military Other Totals
- -------------------------------------------------------------------------------------------------------------------------
Revenues from external
customers $ 780,069 221,149 275,310 1,070 1,277,598
Intra segment revenues 130,794 - - 732 131,526
Segment pretax profit
(loss) 14,472 1,281 6,804 (61) 22,496
FORTY WEEKS ENDED OCTOBER 9, 1999
All
(In thousands) Wholesale Retail Military Other Totals
- -------------------------------------------------------------------------------------------------------------------------
Revenues from external
customers $ 1,779,985 631,146 731,617 3,089 3,145,837
Intra segment revenues 375,318 - - 3,503 378,821
Segment pretax profit
(loss) 32,195 10,005 19,224 (364) 61,060
FORTY WEEKS ENDED OCTOBER 10, 1998
All
(In thousands) Wholesale Retail Military Other Totals
- -------------------------------------------------------------------------------------------------------------------------
Revenues from external
customers $ 1,915,009 568,941 693,767 2,238 3,179,955
Intra segment revenues 340,364 - - 2,032 342,396
Segment pretax profit
(loss) 35,002 3,808 17,695 (63) 56,442
Reconciliation to statements of operations
(In thousands)
16 WEEKS ENDED OCTOBER 9, 1999 AND OCTOBER 10, 1998
1999 1998
-------------------- ------------------
PROFIT OR LOSS
Total profit for segments $ 25,938 22,496
Unallocated amounts
Adjustment of inventory to LIFO (250) (750)
Unallocated corporate overhead (19,652) (17,243)
-------------------- ------------------
Income from continuing operations
before income taxes $ 6,036 4,503
==================== ==================
40 WEEKS ENDED OCTOBER 9, 1999 AND OCTOBER 10, 1998
1999 1998
-------------------- ------------------
PROFIT OR LOSS
Total profit for segments $ 61,060 56,442
Unallocated amounts
Adjustment of inventory to LIFO (550) (1,000)
Unallocated corporate overhead (48,459) (38,834)
-------------------- ------------------
Income from continuing operations
before income taxes $ 12,051 16,608
==================== ==================
NOTE 8
On June 30, 1999 the Company sold its majority interest in Gillette
Dairy of the Black Hills, Inc. and Nebraska Dairies, Inc. to Marigold Foods,
Inc. ("Marigold"). Marigold purchased all of the outstanding shares of each
company for cash. The Company realized $15.9 million in cash and recognized a
pretax gain of $3.1 million.
On July 31, 1999 the Company sold the outstanding stock of Nash
DeCamp Company to Agriholding, Inc. of Pebble Beach, California. Nash DeCamp
has previously been reported as a discontinued operation. As a result of the
sale the Company realized $17.1 million in cash and recognized a pretax
reversal of a charge, taken for discontinued operations in the fourth quarter
of 1998, in the amount of $8.2 million.
On November 1, 1999 the company announced its intent to acquire
Fairway Foods of Michigan, Inc., ("Fairway Foods") a Menominee, Michigan
based wholesale subsidiary of Fairway Foods, Inc., which is a subsidiary of
Holiday Companies through a cash purchase of outstanding stock. The
acquisition is expected to be completed in the first quarter of 2000.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
REVENUES
Total revenues for the sixteen week third quarter were $1.289 billion an
increase of .5% compared to the prior year quarter. For the forty weeks,
total revenues were $3.160 billion compared to $3.189 billion last year, a
decline of .9%. Revenue improvements during the quarter are attributed to the
retail segment, particularly the acquisition of the Erickson stores. The
decline for the forty weeks is principally related to the wholesale segment
which has experienced competitive pressures and the consolidation of a number
of distribution facilities since last year.
Wholesale revenues during the quarter were $699.4 million compared to $780.1
million, a decrease of 10.3%. On a year to date basis, wholesale revenues
were $1.780 billion, a decrease of 7.1% compared to last year. Revenues for
the quarter were negatively impacted by the shift of business to the retail
segment following the acquisition of the Erickson stores in early June.
During the quarter the Company announced that it had reached an agreement to
purchase certain assets of Midwest Wholesale Food, Inc., a wholesale supplier
to grocery stores in the Detroit metro area. As a result, the Company began
servicing, from its Bridgeport, Michigan distribution center, 55 independent
retailers who were previously supplied by Midwest. This additional volume has
improved productivity and provided some relief from the competitive pressures
experienced by the Company in its Michigan market area. In accordance with
the Company's revitalization plan to streamline wholesale operations
announced in the fourth quarter of 1998, the Rocky Mount distribution center
was closed in July, with the business transferred to the Company's newly
expanded Lumberton facility.
Retail segment revenues for the quarter were $293.3 million compared to
$221.1 million last year, an increase of 32.6%. The improvement is primarily
due to the acquisition of 18 Erickson stores in Minnesota and Wisconsin, two
stores in Cheyenne, Wyoming and two stores in Myrtle Beach , South Carolina.
Same store sales increased .8% resulting in positive sales growth in four of
the past five quarters. Intense competition continued however, in the
Company's Iowa market, partially offsetting same store sales gains realized
in other market regions. On a year to date basis, retail segment sales
increased 10.9% compared to last year.
Military segment revenues increased 4.8% for the quarter over last year and
5.5% on a year to date basis. The increase is attributed to the introduction
of new product lines and stronger overseas business.
GROSS MARGIN
Gross margin for the quarter was 10.7% compared to 9.0% last year. The
increase reflects the growth in the proportion of retail revenues to total
revenues resulting from the Erickson's acquisition. In addition, a number of
operational factors have contributed to improvements in third quarter
margins: better overall margins for the retail segment as a result of a
greater proportion of revenues derived from higher margin departments within
the stores, improvements at wholesale due to efficiencies in warehousing and
transportation which lower the cost of sales, reduced LIFO impact of $.3
million during the quarter compared to $.8 million last year. On a year to
date basis, margins for the forty weeks of 1999 were 10.2% compared to 9.0%
for the same period last year.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE
Selling , general and administrative expenses for the third quarter, as a
percent of total revenues, were 8.5% compared 7.0% a year ago. The increase
primarily results from the greater proportion of retail business which
typically operates at higher operating expense levels than wholesale. Also,
contributing to the increase are $2.8 million of costs related to the
Company's Year 2000 remediation program and $1.0 million in costs associated
with administrative staff reductions which were initiated throughout the
Company during the quarter. For the year to date, selling, general and
administrative expenses were 8.1% in 1999 compared to 6.7% in 1998. Again the
primary factors for the increased expense relate to Year 2000 remediation
costs of $10.9 million and the growing proportion of retail business for the
forty week period.
DEPRECIATION EXPENSE
Depreciation and amortization expense for the quarter decreased 2.7% compared
to last year. The decrease reflects a reduction in depreciable assets since
last year due to the closing of four distribution centers, closing or sale of
sixteen retail stores and the write down of impaired assets as part of the
restructuring charge recorded at the end of 1998. The decrease was partially
offset by the acquisition of Ericksons and other retail stores. On a year to
date basis, depreciation and amortization expense decreased 8.6%.
Amortization of goodwill and other intangibles for the current and prior year
quarters was $2.4 million and $2.0 million, respectively. For the forty
weeks, amortization expense was $5.5 million for 1999 and $5.4 million 1998.
INTEREST EXPENSE
Interest expense for the quarter was $9.5 million, an increase of 8.8% over
last year. The higher interest costs are attributed to higher net debt levels
due to the acquisition of Ericksons partially offset from proceeds from the
sale of Nash DeCamp and the dairy operations and higher average borrowing
rates compared to a year
ago. Year to date interest expense was $23.3 million compared to $22.3
million last year, an increase of 4.5%.
EARNINGS FROM CONTINUING OPERATIONS BEFORE INCOME TAXES AND EXTRAORDINARY
CHARGE
Earnings from continuing operations before income taxes and
extraordinary charge for the quarter and year to date were $6.0 million and
$12.1 million, respectively, compared to $4.5 million and $16.6 million,
respectively, last year. The increase for the quarter reflects improved
retail segment profitability, and a gain on the sale of the dairy operations,
partially offset by Year 2000 remediation costs. On a year to date basis, the
reduction this year is primarily attributed to Year 2000 remediation costs.
INCOME TAXES
The effective income tax rate for 1999 is estimated at 42.4%
compared to a tax rate benefit of 32.2% for 1998. The 1998 annual rate was
significantly affected by losses related to the restructuring charges.
EXTRAORDINARY CHARGE
During the first quarter of 1998, the Company prepaid $106.3 million
of senior notes, and paid prepayment premiums and wrote-off related deferred
financing costs totaling $9.5 million. This transaction resulted in an
extraordinary charge of $5.6 million, or $.49 per share, after income tax
benefits of $3.9 million.
DISCONTINUED OPERATIONS
In October 1998, the Company adopted a plan to sell its produce
growing and marketing subsidiary, Nash-De Camp Company . At January 2, 1999
the Company recorded an estimated pretax loss resulting from the expected
sale of Nash-De Camp Company of $27.5 million, which includes a provision for
anticipated operating losses until disposal of $1.8 million.
On July 31, 1999 the Company completed the sale of Nash-De Camp Company to
Agriholding, Inc., a private company. The transaction was structured as a
sale of all outstanding stock of Nash-De Camp for a cash amount of $17.1
million and impacted third quarter results by $4.6 million.
YEAR 2000
The Company is executing its remediation plan toward resolving Year 2000
issues. The plan addresses the modification and/or replacement of existing
business critical software and the identification of the non-information
technology systems that may be affected by Year 2000. In addition, the plan
assesses the readiness of third parties and the related risks to the Company
of their non-compliance. To expedite this Year 2000 solution, the Company has
reallocated
internal resources and has contracted outside resources to assist in the
remediation effort. The Company's plan to assess and update systems for Year
2000 compliance consists of three major phases: 1) Conducting a complete
INVENTORY and assessment of potentially affected business areas, 2)
REMEDIATION of affected systems and 3) TESTING remediated components. The
chart below shows the percent complete of each phase as of the end of the
third quarter of 1999:
Inventory Remediation Testing
--------- ----------- -------
I/T Systems 100% 95% 94%
Non-I/T Systems 100% 100% 100%
The Company completed all mission-critical areas of the project in the third
quarter of 1999. The current information technology systems focus is related
to non-mission critical areas. In addition, the Company is finalizing its due
diligence projects, including rollover planning and event management.
The total cost for Year 2000 remediation is estimated at approximately $18.5
million, which includes $4.0 million for the purchase of new equipment that
will be capitalized and $14.5 million will be expensed. Project expenses
totaling $3.3 million, $4.3 and $2.8 million were incurred in the first,
second and third quarters of 1999, respectively, primarily for internal and
external costs associated with the modification of existing software and
testing. Total remaining expense associated with the Year 2000 project is
estimated to be $1.1 million. Capital expenditures to date have been $1.9
million.
The costs or consequences of incomplete or untimely resolution of the Year
2000 issue may have a material effect on the Company's business, results of
operations and financial condition. However, at this time, the Company is
unable to measure the monetary impact of any such failure to comply or
failure of other parties on which it is dependent.
The Company has established contingency plans to provide viable alternatives
for the Company's core business processes. The plans describe the
communications, operations and activities necessary in the event of a Year
2000 systems related failure. Contingency planning is 100% complete with
plans in place. The event management process will address the execution of
the contingency plans.
LIQUIDITY AND CAPITAL RESOURCE
Historically, the Company has financed its capital needs through a
combination of internal and external sources. These sources include cash flow
from operations, short-term bank borrowings, various types of long-term debt
and lease financing.
Cash flow provided from operations totaled $62.2 million for the
quarter compared to $94.4 million last year. The decline in operating cash
flow resulted primarily from changes in working capital partially offset by
higher net income for the current forty week period. Working capital was
$125.4 million at the end of the quarter compared to $135.6 million at year
end. The current ratio decreased from 1.41 at the end of 1998 to 1.35 at the
end of the third quarter.
During the quarter the Company completed the sales of its produce
growing and marketing subsidiary and its equity interest in two dairy
operations. The combination of these transactions resulted in cash proceeds
totaling $33.0 million, which was used to pay down the revolving credit
facility.
Transactions affecting liquidity during the forty week period
include the acquisition of the Erickson stores for $59.0 million in cash,
capital expenditures of $41.5 million, cash dividends of $3.1 million and the
acquisition of retail stores in Wyoming and South Carolina for approximately
$2.4 million in cash.
The Company believes that borrowing under the revolving credit
facility, proceeds from its sale of subordinated notes in 1998, other credit
agreements, cash flows from operating activities and lease financing will be
adequate to meet the Company's working capital needs, planned capital
expenditures and debt service obligations for the foreseeable future.
FORWARD-LOOKING STATEMENTS
The information contained in this Form 10-Q Report includes
forward-looking statements made under the safe harbor provisions of the
Private Securities Litigation by the use of words like "believes," "expects,"
"may," "will," "should," "anticipates," or similar expressions, as
discussions of strategy. Although such statements represent management's
current expectations based on available data, they are subject to risks,
uncertainties and other factors which could cause actual results to differ
materially from those anticipated. Such risks, uncertainties and other
factors may include, but are not limited to, the ability to: meet debt
service obligations and maintain future financial flexibility; respond to
continuing competitive pricing pressures; retain existing independent
wholesale customers and attract new accounts; address Year 2000 issues as
they affect the Company, its customers and vendors; and fully integrate
acquisitions and realize expected synergies.
PART II - OTHER INFORMATION
Items 1, 2, 3, 4 and 5 are not applicable
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) EXHIBITS.
10.1 Fifth Amendment to Credit Agreement
27.1 Financial Data Schedule
(b) REPORTS ON FORM 8-K.
Not applicable.
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: November 19, 1999 By /s/ John A. Haedicke
-------------------------
John A. Haedicke
Executive Vice President and Chief
Financial and Administrative Officer
By /s/ Lawrence A. Wojtasiak
-------------------------
Lawrence A. Wojtasiak
Controller
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: NOVEMBER 19, 1999 By
------------------------------------
John A. Haedicke
Executive Vice President and Chief
Financial and Administrative Officer
By
------------------------------------
Lawrence A. Wojtasiak
Controller
NASH FINCH COMPANY
EXHIBIT INDEX TO QUARTERLY REPORT
ON FORM 10-Q
For the Forty Weeks Ended October 9, 1999
Item No. Item Method of Filing
- -------- ---- ----------------
10.1 Fifth Amendment to the Credit Agreement Filed herewith
27.1 Financial Data Schedule Filed herewith