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
1997 1996 1995
- -----------------------------------------------------------------------------------------
Total revenues ......................... 100.0% 100.0% 100.0%
-----------------------------------------------
-----------------------------------------------
Gross margin ........................... 12.9 13.1 14.5
Selling, general and administrative,
and other operating expenses ...... 10.3 10.7 12.1
Special charges ........................ .7 -- --
Depreciation and amortization .......... 1.1 1.0 1.0
Interest expense ....................... .7 .4 .4
Earnings before income taxes ........... -- 1.0 1.0
Income taxes ........................... -- .4 .4
-----------------------------------------------
Net earnings ........................... -- .6 .6
-----------------------------------------------
-----------------------------------------------
REVENUES
Total revenues increased 30.1% during fiscal 1997 to $4.392 billion compared
to $3.375 billion in 1996 and $2.889 billion in 1995. The increase in 1997 is
largely attributed to the acquisition of Super Food Services, Inc. ("Super
Food"), which took place during fiscal 1996 (see Note (2) of Notes to
Consolidated Financial Statements), the addition of new independent retail
accounts and an additional week of operations in 1997.
Wholesale segment revenues increased 41.9% to $3.503 billion from $2.469
billion in 1996, primarily due to the acquisitions of Super Food and T. J.
Morris Company ("T. J. Morris") in 1996 and the business and certain assets of
United-A.G. Cooperative Inc. ("United-A.G.") in fiscal 1997. Wholesale revenues
include an additional week of business and reflect a full year's volume from
Sunshine Food Markets, a seven-store chain which the Company began servicing in
November 1996, following its acquisition by a joint venture, 50% of which is
owned by the Company. Fiscal 1996 revenues increased 25.4% over 1995 because of
the expansion of business from acquisitions, in particular Military Distributors
of Virginia ("MDV") which occurred in January 1996.
Retail segment revenues declined 3.3% from $850.4 million in fiscal 1996 to
$822.2 million in 1997. The decline is attributed to a net reduction of nine
stores. During the year, the Company closed eight underperforming stores, sold
four other units to non-affiliated retailers and opened three stores to
strengthen existing market areas in South Dakota and North Carolina. Same store
sales, expressed on an equivalent 52-week basis, declined .9% compared to last
year. This decline is indicative of competitive market conditions in certain
market areas and little or no food price inflation. Retail revenues during 1996
decreased 1.1% from 1995, again due to the closing or selling of stores not
meeting performance expectations.
GROSS MARGINS
Gross margins were 12.9% in 1997, compared to 13.1% in 1996 and 14.5% in 1995.
The decline over the three-year period results from the growth of wholesale
revenues which achieve lower margins than retail. Wholesale operations
represented 80.0% of combined segment revenues in 1997, compared to 73.3% and
68.4% in 1996 and 1995, respectively. During 1997, wholesale margins increased
as a result of three initiatives: (i) regionalizing procurement functions for
the Company's Midwest and Southeast distribution centers, (ii) implementing more
efficient logistical systems for handling of variety or specialty food products
through the Company's distribution centers, and (iii) improving coordination
with suppliers to optimize ordering and delivery of product. All these have
contributed to improved operating efficiencies and lower product costs.
Retail margins for the year were flat. Improvements which resulted from a
continued trend of sales of higher margin prepared foods, specialty products and
services were offset by competitive pricing pressures which continued to
intensify in certain market areas.
Margins for fiscal 1995 reflect a greater proportion of retail segment
business which achieves higher margins.
OPERATING EXPENSES
Selling, general and administrative expenses as a percent of total revenues
were 10.3% in 1997 compared to 10.7% in 1996 and 12.1% in 1995. The decline in
expense levels as a percent of revenues is due to the increasing proportion of
wholesale business which operates at lower expense levels than retail.
For fiscal 1997, operating expense includes costs associated with a project
involving new business information systems technology, which the Company has
named HORIZONS. Although the project began in fiscal 1996, incremental expenses
associated with HORIZONS were of greater significance throughout 1997 as costs
associated with system design, software configuration and installation of
hardware across the Company were incurred. Operating expenses related to the
Company's management information systems were $3.2 million higher in 1997
compared to 1996, substantially all of which related to HORIZONS. This
incremental expenditure is expected to continue through 1998 and into 1999 as
the Company implements HORIZONS in substantially all operating units and trains
associates in the optimal use of the system. Because HORIZONS is anticipated to
become an integral part of the future of Nash Finch's business, incremental
technology-related spending is anticipated to continue beyond 1999 although at a
lesser rate.
The Company expects benefits from the project to begin to accrue as the system
becomes operational unit by unit, and to reach more significant levels beyond
1999 when the system is in place in substantially all operating units. The
project represents a major strategic investment for the Company's future and is
expected to provide greater flexibility to ultimately change business processes,
thereby improving efficiency and effectiveness.
Bad debt expense in 1997 was $5.1 million compared to $1.9 million in 1996.
The increase is attributed to maintaining adequate reserve levels consistent
with the growth, through acquisition, of customer receivables. Fiscal 1995
expense of $4.0 million included additional provisions primarily for Nash DeCamp
grower accounts and notes.
SPECIAL CHARGES
During 1997, the Company accelerated its strategic plan relative to
strengthening its competitive position for the future. Coincident with the
implementation of the plan, the Company recorded special charges, totaling $31.3
million, during the third quarter relating to all three operating segments of
its business.
The aggregate special charges include $14.5 million for the consolidation of
selected warehouses. This charge contains provisions for non-cancelable lease
obligations, expected losses on disposals of tangible assets, and other
continuing occupancy costs. Also included are employee severance costs
consistent with existing practices and the unamortized portion of goodwill for
one of the locations.
Also, related to wholesale operations, the special charges include $2.5
million of integration costs, incurred in the third quarter,
14
NASH FINCH COMPANY and Subsidiaries
associated with the acquisition of the business and certain assets of
United-A.G. early in the third quarter. These expenses resulted from incremental
labor costs due to a substantial turnover in workforce, training and other
start-up activities. Stabilization of the workforce improved substantially
during the fourth quarter, lowering expenses from levels experienced just after
the acquisition.
In retail operations, the strategic plan involves the closing or consolidation
of fourteen, primarily leased stores. The special charges include a $5.2 million
provision for the continuing non-cancelable lease obligations, anticipated
losses on disposals of tangible assets, abandonment of certain leaseholds and
the write-off of intangibles. The time frame for individual store closings will
vary but should be completed by the first quarter of fiscal 1999. In some
instances, closed stores are expected to be consolidated with other retail
locations in the same relative market area, thereby minimizing the loss of
wholesale volume.
Continued operating losses through the dates of closing are unpredictable and
were not included in the special charges. For 1997, the retail units included in
the provision had aggregate sales and pretax losses of $82.9 million and $2.7
million, respectively, compared with $88.3 million and $1.8 million for 1996.
The aggregate special charges contain a provision of $5.4 million for asset
impairment of seven retail stores. Declining market share due to increasing
competition, deterioration of operating performance in the third quarter, 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.
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 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 agricultural production of these products.
Other special charges aggregating $2.8 million consist primarily of $.9
million related to the abandonment of current system software which is being
replaced by the Company's HORIZONS project, and a loss of $.6 million realized
on the sale of the Company's 22.4% equity investment in Alfa Trading Company, a
Hungarian food wholesaler. Negotiations for the sale were substantially
completed during the third quarter, and the transaction was completed in the
fourth quarter. The remaining special charges relate principally to writing down
idle real estate held for resale to current market values.
The consolidations 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 amounts
are expected to be substantially offset by continuing costs related to HORIZONS.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization expense increased 37.2% from 1996 to $47.7
million in 1997. The increase was primarily due to a full year of amortization
of goodwill and depreciation of property, plant and equipment associated with
the acquisition of Super Food which occurred in 1996.
In addition, capital expenditures related to the HORIZONS project resulted in
increased depreciation expense of $2.0 million compared to last year. The
increase in 1996 compared to 1995 is the result of acquisitions occurring in
1996, partially offset by lower depreciation expenses resulting from sale or
closing of several retail stores.
INTEREST EXPENSE
Interest expense increased from $14.9 million to $32.8 million largely due to
the full year debt costs related to financing the Super Food acquisition last
year. The acquisition of the business and certain assets of United-A.G. also
contributed to higher interest expense in 1997. Interest expense as a percent of
revenues was .75%, .44% and .37% for 1997, 1996 and 1995, respectively.
The increase in interest expense in 1996 compared to 1995 was primarily due to
financing the acquisition of MDV early in 1996.
EARNINGS (LOSS) BEFORE INCOME TAXES
Including the special charges, the Company reported a pretax loss of $234,000
for 1997 compared to pretax earnings of $33.7 million in 1996 and $28.6 million
in 1995. Each segment of the Company's business was negatively affected by these
charges (see Note (14) of Notes to Consolidated Financial Statements). Operating
profit of $26.2 million in 1997 declined 44.1% from $46.9 million in 1996, while
1996 improved 28.2% compared to $36.6 million in 1995.
Excluding special charges, wholesale segment operating profit would have been
$50.8 million, or 1.45% of segment sales and other operating revenues, compared
to $37.1 million, or 1.5% of such revenues a year ago. The lower margin reflects
a decline in earnings as a percent of revenues for the existing and newly
acquired wholesale operations, where independent retail customers were affected
by a weak sales environment, somewhat offset by increases in earnings
contributions of the military division.
Retail segment operating profit before special charges would have been $5.8
million compared to $7.7 million last year. The decline resulted from
competitive pricing pressures in certain markets throughout the year, and the
loss of sales volume due to the sale or closure of certain underperforming
stores.
Nash DeCamp, the Company's produce marketing subsidiary would have reported
operating profit of $934,000 before special charges compared to $2.1 million and
$2.4 million in 1996 and 1995, respectively. The weak performance resulted from
poor market prices caused by a surplus of available product, particularly tree
fruit.
INCOME TAXES
The effective income tax rate for 1997 is influenced by a number of factors
that do not allow for a meaningful comparison to prior years. The tax provision
substantially results from the nondeductibility of goodwill relating to the
acquisitions of Super Food and T. J. Morris, partially offset by other items as
shown in tax rate tables in Note (6) of Notes to Consolidated Financial
Statements.
YEAR 2000 COMPLIANCE
Some of the Company's older computer programs were written using two digits
rather than four to define the applicable year. As a result, those computer
programs have time-sensitive software that recognize a date using "00" as the
year 1900 rather than the year 2000. This could cause a system failure or
miscalculations causing disruptions of operations, including, among other
things, a temporary inability to process transactions, send invoices, or engage
in similar normal business activities.
15
NASH FINCH COMPANY and Subsidiaries
The Company uses a significant number of computer software programs and
embedded operating systems that are essential to its business. The Company's
resolution to the year 2000 issue is substantially incorporated in the system
design of the HORIZONS project. In addition, since all segments of the Company
will not be initially impacted by HORIZONS, the Company has been actively
engaged in a process designed to mitigate any detrimental effects from the year
2000 to any of these segments.
The Company has also initiated communications with its significant suppliers
and large customers with whom the Company's systems interface, exchange data or
are dependent upon, for the purpose of coordinating efforts to minimize its
vulnerability resulting from third parties' failure to resolve their own year
2000 issues. However, there can be no guarantee that the systems of such third
parties will be timely corrected and would not have an adverse effect on the
Company's system. The Company expects to be completed with year 2000 compliance
in mid-1999 and believes that with the HORIZONS project and modifications of its
existing software and systems, year 2000 compliance will not pose significant
operating problems. However, the Company's business, results of operations or
financial condition could be adversely affected by the failure of its system, or
others' systems, to operate properly beyond 1999. Wherever possible, the Company
will be developing and executing contingency plans designed to allow continued
operation in the event of failure of the Company's or other third party systems.
Costs associated with a substantial portion of year 2000 compliance coincide
with the new software and system design of the HORIZONS project. The cost of
year 2000 compliance for business operations not affected by HORIZONS is not
expected to have a material effect on results of operations.
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, lease
and equity financing.
Cash provided from operating activities was $87.7 million compared to $32.9
million in 1996. The increase is attributed to the improvements in operating
profit before special charges and depreciation and amortization expenses.
Working capital at January 3, 1998 declined to $199.9 million compared to
$228.5 million at the end of 1996, reflecting the reduction in current assets.
The current ratio was 1.68 in 1997 compared to 1.77 in 1996.
At January 3, 1998, the Company had $11.3 million in short-term debt compared
to $16.2 million at fiscal year-end 1996. As of January 3, 1998, the Company had
uncommitted lines of credit totaling $25 million with two banks, under which a
total of $13.7 million was unused. The Revolving Credit Facility provides for
borrowings of up to $360 million, under which a total of $204 million was
outstanding at year-end. An agreement with a trust company provides for
borrowings of up to $150 million, under which $10 million was borrowed at
year-end. During the year, the Company utilized the existing revolving
agreements to finance the acquisition of United-A.G. and capital outlays related
to HORIZONS.
During the first quarter of 1998, and in conjunction with a planned $150
million unregistered, subordinated debt offering, the Company prepaid $106.3
million of senior notes and paid prepayment premiums totaling $9.4 million, all
with drawings under the Revolving Credit Facility. The Company intends to use
the net proceeds from the offering, after fees and expenses, to repay certain
amounts outstanding under the Revolving Credit Facility.
During fiscal 1997, the Company provided financial assistance in the form of
secured loans totaling $18.8 million to new or existing independent retailers.
These loans are generally used to maintain and expand their businesses. In
addition, the Company sold $37.0 million of trade accounts receivable and used
proceeds from the sale to reduce long-term debt.
Of the $31.3 million pretax special charges, approximately $13.6 million
involve cash outflows, while the balance are non-cash. On an after tax basis,
the cash impact is estimated to be $8.5 million, to be funded primarily from
internally generated funds.
Capital projects designed to maintain operating capacity, expand operations or
improve efficiency totaled $67.7 million in 1997 compared to $51.3 million in
1996. Included in 1997 and 1996 expenditures are approximately $20.0 million and
$8.1 million, respectively, related to the HORIZONS project. Total cash outlay
for the design, installation of, and training for HORIZONS is projected to be
about $76 million over the period of 1996 through 2004. Approximately half of
such amount had been expended as of January 3, 1998. Of the $76 million, $58.7
million is expected to be capitalized. A majority of the remaining projected
capital expenditures relating to HORIZONS are expected to be made in 1998.
The Company believes that borrowings under the Revolving Credit Facility,
other credit agreements, cash flows from operating activities and lease
financings 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; successfully
implement the HORIZONS system in a timely manner and without substantial
unexpected cost; otherwise 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 3, 1998 there were 2,226
stockholders of record.
Dividends
1997 1996 Per Share
--------------- ---------------- --------------
High Low High Low 1997 1996
- ---------------------------------------------------------------------------------------
First Quarter ............... $22 18 18 1/2 16 .18 .18
Second Quarter .............. 22 1/4 17 1/2 18 15 3/4 .18 .18
Third Quarter ............... 24 7/8 19 3/4 16 3/4 15 1/2 .18 .18
Fourth Quarter .............. 24 1/2 17 1/2 21 3/4 16 1/4 .18 .21
- ---------------------------------------------------------------------------------------
16
NASH FINCH COMPANY and Subsidiaries
CONSOLIDATED STATEMENTS OF EARNINGS/LOSS
Fiscal years ended January 3, 1998,
December 28, 1996 and December 30, 1995. 1997 1996 1995
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 53 WEEKS 52 weeks 52 weeks
- ----------------------------------------------------------------------------------------------------------
INCOME:
Net sales ....................................................... $ 4,319,095 3,322,666 2,831,114
Other revenues .................................................. 72,507 52,819 57,722
----------- --------- ---------
Total revenues ................................................ 4,391,602 3,375,485 2,888,836
COST AND EXPENSES:
Cost of sales ................................................... 3,826,377 2,932,709 2,469,841
Selling, general and administrative, and other operating
expenses ....................................................... 453,645 359,456 350,201
Special charges ................................................. 31,272 -- --
Depreciation and amortization ................................... 47,697 34,759 29,406
Interest expense ................................................ 32,845 14,894 10,793
----------- --------- ---------
Total costs and expenses ...................................... 4,391,836 3,341,818 2,860,241
Earnings (loss) before income taxes ........................... (234) 33,667 28,595
Income taxes .................................................... 994 13,635 11,181
----------- --------- ---------
Net earnings (loss) ............................................. $ (1,228) 20,032 17,414
----------- --------- ---------
----------- --------- ---------
Basic earnings (loss) per share ................................. $ (0.11) 1.83 1.60
----------- --------- ---------
----------- --------- ---------
Diluted earnings (loss) per share ............................... $ (0.11) 1.81 1.60
----------- --------- ---------
----------- --------- ---------
- ----------------------------------------------------------------------------------------------------------
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
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 3, 1998 and December 28, 1996, and the
related consolidated statements of earnings/loss, stockholders' equity, and cash
flows for each of the three years in the period ended January 3, 1998. 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 3, 1998 and December 28, 1996, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended January 3, 1998, in conformity with generally accepted
accounting principles.
/s/ Ernst & Young LLP
Minneapolis, Minnesota
March 26, 1998
17
NASH FINCH COMPANY and Subsidiaries
CONSOLIDATED BALANCE SHEETS
January 3, 1998 and December 28, 1996
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
ASSETS 1997 1996
- -----------------------------------------------------------------------
CURRENT ASSETS:
Cash ....................................... $ 933 921
Accounts and notes receivable, net.......... 173,962 206,062
Inventories ................................ 287,801 293,458
Prepaid expenses ........................... 22,582 20,492
Deferred tax assets ........................ 9,072 4,663
--------- -------
Total current assets ..................... 494,350 525,596
Investments in affiliates .................... 7,679 10,300
Notes receivable, noncurrent ................. 23,092 21,652
PROPERTY, PLANT AND EQUIPMENT:
Land ....................................... 31,229 33,753
Buildings and improvements ................. 137,070 148,227
Furniture, fixtures and equipment .......... 306,762 295,147
Leasehold improvements ..................... 60,578 54,925
Construction in progress ................... 28,485 7,543
Assets under capitalized leases ............ 25,048 26,105
--------- -------
589,172 565,700
Less accumulated depreciation and
amortization .............................. (312,939) (293,845)
--------- -------
Net property, plant and equipment ........ 276,233 271,855
Intangible assets, net ....................... 70,732 80,312
Investment in direct financing leases ........ 19,094 22,011
Deferred tax asset, net ...................... 2,622 4,076
Other assets ................................. 11,081 9,675
--------- -------
Total assets ............................. $ 904,883 945,477
--------- -------
--------- -------
- -----------------------------------------------------------------------
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
18
NASH FINCH COMPANY and Subsidiaries
LIABILITIES AND STOCKHOLDERS' EQUITY 1997 1996
- -------------------------------------------------------------------------------------------------------
CURRENT LIABILITIES:
Outstanding checks ......................................................... $ 36,271 32,492
Short-term debt payable to banks ........................................... 11,300 16,171
Current maturities of long-term debt and capitalized lease
obligations .............................................................. 7,964 7,795
Accounts payable ........................................................... 177,548 183,501
Accrued expenses ........................................................... 60,599 54,130
Income taxes ............................................................... 737 2,999
--------- ---------
Total current liabilities ................................................ 294,419 297,088
Long-term debt ............................................................... 325,489 361,819
Capitalized lease obligations ................................................ 38,517 41,832
Deferred compensation ........................................................ 6,768 7,476
Other ........................................................................ 14,072 4,401
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 shares (1997 - 11,575; 1996 - 11,574) . 19,292 19,290
Additional paid-in capital ................................................. 17,648 16,816
Foreign currency translation adjustment - net of a $633
deferred tax benefit ..................................................... -- (950)
Restricted stock ........................................................... (391) (500)
Retained earnings .......................................................... 190,984 200,322
--------- ---------
227,533 234,978
Less cost of 252 shares and 307 shares of common stock in
treasury, respectively ................................................... (1,915) (2,117)
--------- ---------
Total stockholders' equity ............................................ 225,618 232,861
--------- ---------
Total liabilities and stockholders' equity ............................ $ 904,883 945,477
--------- ---------
--------- ---------
- -------------------------------------------------------------------------------------------------------
19
NASH FINCH COMPANY and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
Fiscal years ended January 3, 1998,
December 28, 1996 and December 30, 1995.
(IN THOUSANDS) 1997 1996 1995
- --------------------------------------------------------------------------------------------
OPERATING ACTIVITIES:
Net earnings (loss) ................................... $ (1,228) 20,032 17,414
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Special charges ..................................... 28,749 -- --
Depreciation and amortization ....................... 47,697 34,759 29,406
Provision for bad debts ............................. 5,055 1,893 3,997
Provision for (recovery from) losses on closed lease
locations ......................................... 1,722 (458) 1,361
Deferred income taxes ............................... (2,955) (2,278) (4,187)
Deferred compensation ............................... (708) (149) (901)
Loss of equity investments .......................... 469 616 (501)
Other ............................................... 2,003 326 (157)
Changes in operating assets and liabilities:
Accounts and notes receivable ....................... (3,744) (12,544) 8,115
Inventories ......................................... 19,821 14,021 14,680
Prepaid expenses .................................... (1,201) (349) (3,441)
Accounts payable and outstanding checks ............. (3,174) (24,245) 15,339
Accrued expenses .................................... (2,512) 2,219 2,160
Income taxes ........................................ (2,262) (967) 2,508
-------- -------- --------
Net cash provided by operating activities ......... 87,732 32,876 85,793
-------- -------- --------
INVESTING ACTIVITIES:
Dividends received .................................. 1,600 -- 890
Disposals of property, plant and equipment, net ..... 16,721 9,169 14,858
Additions to property, plant and equipment,
excluding capital leases .......................... (67,725) (51,333) (33,264)
Businesses acquired, net of cash acquired ........... (17,863) (257,868) --
Investment in an affiliate .......................... -- (2,500) (1,379)
Loans to customers .................................. (18,816) (4,997) (9,199)
Payments from customers on loans .................... 14,080 4,713 8,788
Sale of receivables ................................. 37,000 3,402 13,744
Other ............................................... (739) (2,896) (137)
-------- -------- --------
Net cash used in investing activities ............. (35,742) (302,310) (5,699)
-------- -------- --------
FINANCING ACTIVITIES:
Proceeds from long-term debt ........................ -- 30,000 352
(Payments) proceeds from revolving debt ............. (30,000) 244,000 --
Dividends paid ...................................... (8,110) (8,288) (8,048)
Payments of short-term debt ......................... (4,871) 1,171 (41,400)
Payments of long-term debt .......................... (6,009) (21,946) (5,568)
Payments of capitalized lease obligations ........... (3,467) (717) (540)
Other ............................................... 479 111 56
-------- -------- --------
Net cash (used in) provided by financing
activities ...................................... (51,978) 244,331 (55,148)
-------- -------- --------
Net increase (decrease) cash ...................... $ 12 (25,103) 24,946
-------- -------- --------
-------- -------- --------
- --------------------------------------------------------------------------------------------
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
20
NASH FINCH COMPANY and Subsidiaries
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Fiscal years ended January 3, 1998,
December 28, 1996 and December 30, 1995
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Common stock Additional
------------------ paid-in Retained
Shares Amount capital earnings
- ------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1994 .............. 11,224 $18,706 11,977 179,212
Net earnings .............................. -- -- -- 17,414
Dividend declared of $.74 per share ....... -- -- -- (8,048)
Treasury stock issued upon
exercise of options ..................... -- -- 36 --
Foreign currency translation adjustment
- net of a $252 deferred tax benefit .... -- -- -- --
------- ------- ------- -------
BALANCE AT DECEMBER 30, 1995 .............. 11,224 18,706 12,013 188,578
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) --
Amortized compensation under
restricted stock plan ................... -- -- -- --
Treasury stock purchased .................. -- -- -- --
------- ------- ------- -------
BALANCE AT DECEMBER 28, 1996 .............. 11,574 19,290 16,816 200,322
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 holders of restricted stock ........ -- -- -- --
Distribution of stock pursuant to
performance awards ...................... -- -- 460 --
Treasury stock purchased .................. -- -- -- --
Foreign currency translation
adjustment .............................. -- -- -- --
Other ..................................... 1 2 18 --
------- ------- ------- -------
BALANCE AT JANUARY 3, 1998 ................ 11,575 $19,292 17,648 190,984
------- ------- ------- -------
------- ------- ------- -------
Foreign
currency Treasury stock Total
translation Restricted -------------------- stockholders'
adjustment stock Shares Amount equity
- ---------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1994 .............. (572) -- (349) $(3,054) 206,269
Net earnings .............................. -- -- -- -- 17,414
Dividend declared of $.74 per share ....... -- -- -- -- (8,048)
Treasury stock issued upon
exercise of options ..................... -- -- 3 20 56
Foreign currency translation adjustment
- net of a $252 deferred tax benefit .... (378) -- -- -- (378)
------- ------- ------- ------- -------
BALANCE AT DECEMBER 30, 1995 .............. (950) -- (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 .............. -- (524) 40 995 163
Amortized compensation under
restricted stock plan ................... -- 24 -- -- 24
Treasury stock purchased .................. -- -- (7) (120) (120)
------- ------- ------- ------- -------
BALANCE AT DECEMBER 28, 1996 .............. (950) (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 holders 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 -- -- -- 950
Other ..................................... -- -- -- -- 20
------- ------- ------- ------- -------
BALANCE AT JANUARY 3, 1998 ................ -- (391) (252) $(1,915) 225,618
------- ------- ------- ------- -------
------- ------- ------- ------- -------
21
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 1997 consisted of 53 weeks, while 1996 and 1995 consisted of 52
weeks.
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% 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 1997 presentation.
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 both January 3, 1998
and December 28, 1996, approximately 85% of the Company's inventories are valued
on the last-in, first-out (LIFO) method. During fiscal 1997, the Company
recorded a LIFO charge of $1.5 million compared to $1.6 million in 1996. 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 $43.1 million and $41.6 million higher at January 3, 1998 and December
28, 1996, 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, 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 are 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 3,
1998, December 28, 1996, and December 30, 1995 was $5.9 million, $5.2 million
and $1.8 million, respectively. The accumulated amortization of intangible
assets was $13.5 million and $10.1 million at January 3, 1998 and December 28,
1996, respectively. The carrying value of intangible assets is reviewed for
impairment annually and/or when factors indicating impairment are 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 to 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.
ADVERTISING
Advertising costs included in selling, general and administrative, and
other operating expenses, are expensed as incurred and were $5.0 million, $5.9
million and $8.5 million in 1997, 1996 and 1995, respectively.
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 bases. 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.
EARNINGS PER SHARE
In 1997, the Financial Accounting Standards Board ("FASB") issued SFAS No.
128, EARNINGS PER SHARE. SFAS No. 128 replaced the previously reported primary
and fully diluted earnings per share with basic and diluted earnings per share.
Unlike primary earnings per share, basic earnings per share excludes any
dilutive effects of options, warrants, contingent, and convertible securities.
Diluted earnings per share is very similar to the previously reported fully
diluted earnings per share. All earnings per share amounts for all periods have
been presented, and where necessary, restated to conform to the SFAS No. 128
requirements.
STOCK OPTION PLANS
In accordance with 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, and,
accordingly, does not recognize compensation costs, if the option price equals
or exceeds market price at date of grant. Note (7) 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.
22
NASH FINCH COMPANY and Subsidiaries
FOREIGN CURRENCY TRANSLATION
Adjustments resulting from the translation of assets and liabilities of a
foreign investment are included in stockholders' equity.
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
In June 1997, the FASB issued SFAS No. 130, REPORTING
COMPREHENSIVE INCOME and SFAS No. 131, DISCLOSURES ABOUT SEGMENTS
OF AN ENTERPRISE AND RELATED INFORMATION. SFAS No. 130
establishes standards for the reporting and presentation of
comprehensive income and its components. SFAS No. 131 establishes
standards for defining operating segments and the reporting of
certain information regarding operating segments. Because these
statements only impact how financial information is disclosed in
interim and annual reports, the adoption will have no impact to
the Company's financial condition or results of operations.
In March 1998, the American Institute of Certified Public Accountants issued
Statement of Position ("SOP") 98-1, ACCOUNTING FOR THE COSTS OF COMPUTER
SOFTWARE DEVELOPED FOR OR OBTAINED FOR INTERNAL USE. The SOP is effective for
the Company beginning on January 1, 1999, however, early adoption is permitted.
The SOP will require the capitalization of certain costs incurred after the date
of adoption in connection with developing or obtaining software for internal
use. Some, but not all, of the costs that are required to be capitalized by the
SOP are currently being expensed by the Company. The Company has not yet
assessed what the impact of the SOP will be on the Company's future earnings or
financial position.
(2) ACQUISITIONS
The following acquisitions have been 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 their respective dates of acquisition.
On June 9, 1997, the Company acquired the business and certain assets from
United-A.G., a cooperative wholesale grocery distributor located in Omaha, for
approximately $17.9 million in cash. Real estate which was not included in the
purchase price, is being leased under a five-year agreement from a third party.
This operating lease contains an option to purchase the property at fair market
value, or a renewal option for an additional five years at the end of the
initial lease term. In addition, the Company has guaranteed a residual value for
the leased real estate. United-A.G., with pre-acquisition annual revenues of
approximately $200 million, served stores in Nebraska, Kansas, Iowa, Colorado
and South Dakota.
On November 7, 1996, the Company completed a tender offer to purchase the
outstanding shares of common stock of Super Food for $15.50 per share in cash,
with 10.6 million shares tendered at that date, 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 $7.1 million are being amortized over 25
years on a straight line basis.
On August 5, 1996, the Company acquired all of the outstanding stock of T. J.
Morris, a full line food wholesaler located in Statesboro, Georgia, with annual
revenues of $110.0 million. In exchange for the T. J. Morris stock, the Company
issued 350,764 shares of its common stock, valued at approximately $5.7 million,
of which 25,002 shares are held in escrow at January 3, 1998. Such shares were
issued January 8, 1998. The excess of purchase price over fair value of the
assets acquired resulted in goodwill of approximately $3.1 million which is
being amortized on a straight line basis over a 15-year period.
On January 2, 1996, the Company acquired substantially all of the business and
assets of MDV located in Norfolk, Virginia for approximately $56.0 million in
cash and the assumption of certain liabilities totaling approximately $54.0
million. MDV, with revenues of approximately $350.0 million, is a major
distributor of grocery products to military commissaries in the eastern United
States and Europe. The purchase price exceeded the fair value of the net assets
acquired by approximately $43 million. The resulting goodwill is being amortized
on a straight line basis over 15 years.
The following summary, prepared on a pro forma basis, combines the
consolidated results of operations as if the above operations had been acquired
as of the beginning of the periods presented, after including the impact of
certain adjustments such as amortization of intangibles, increased interest
expense on acquisition debt and related income tax effects:
PRO FORMA INFORMATION (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 1997 1996 1995
- --------------------------------------------------------------------------------------------
NET REVENUES ............................................ $4,499,543 4,713,664 4,589,362
Earnings (loss) before income taxes ..................... (36) 23,790 32,291
Net income (loss) ....................................... (247) 14,120 19,060
Basic earnings (loss) per share ......................... $ (.02) 1.28 1.70
----------------------------------
The pro forma information is provided for informational purposes only. It is
based on historical information and does not necessarily reflect results that
would have occurred had the acquisitions been made as of those dates or results
which may occur in the future.
23
NASH FINCH COMPANY and Subsidiaries
(3) SPECIAL CHARGES
During the third quarter of 1997, the Company recorded special charges
totaling $31.3 million consisting of $12.6 million in asset writedowns and $6.5
million and $9.7 million classified as accrued expenses and other noncurrent
liabilities, respectively.
The aggregate special charges include $14.5 million for the consolidation of
selected warehouses. This charge contains provisions for non-cancelable lease
obligations, expected losses on disposals of tangible assets, and other
continuing occupancy costs. Also included are employee severance costs
consistent with existing practices and the unamortized portion of goodwill for
one of the locations.
Also, related to wholesale operations, the special charges include $2.5
million of integration costs, incurred in the third quarter, associated with the
acquisition of the business and certain assets from United-A.G.
In retail operations, the special charges relate to the closing or
consolidation of fourteen, primarily leased stores. The special charges include
a $5.2 million provision for continuing non-cancelable lease obligations,
anticipated losses on disposals of tangible assets, abandonment of certain
leaseholds and the write-off of intangibles. The time frame for individual store
closings will vary but should be completed by the first quarter of fiscal 1999.
For 1997, the retail units included in the provision had aggregate sales and
pretax losses of $82.9 million and $2.7 million, respectively, compared with
$88.3 million and $1.8 million for 1996.
The aggregate special charges contain a provision of $5.4 million for asset
impairment of seven retail stores. Declining market share due to increasing
competition, deterioration of operating performance in the third quarter, 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.
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 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 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 current system software which is being
replaced by the Company's HORIZONS project, and a loss of $.6 million realized
on the sale of the Company's 22.4% equity investment in Alfa Trading Company, a
Hungarian food wholesaler. The remaining special charges relate principally to
the write down of idle real estate held for sale to current market values.
During the fourth quarter of 1997, rents totaling $198,000 were charged to
reserves established as a result of the special charges recorded in the third
quarter. Reserves related to the closing or consolidation of wholesale and
retail operations in the amount of $6.3 million and $9.7 million are included in
accrued expense and other liabilities, respectively, on the balance sheet at
January 3, 1998.
(4) ACCOUNTS AND NOTES RECEIVABLE
Accounts and notes receivable at the end of fiscal years 1997 and 1996 are
comprised of the following components (in thousands):
1997 1996
- ----------------------------------------------------------------------------
Customer notes receivable - current portion ....... $ 9,256 8,090
Customer accounts receivable ...................... 157,737 197,336
Other receivables ................................. 26,970 21,158
Allowance for doubtful accounts ................... (20,001) (20,522)
----------------------
Net current accounts and notes receivable ......... $ 173,962 206,062
----------------------
----------------------
Noncurrent customer notes receivable .............. 29,759 29,223
Allowance for doubtful accounts ................... (6,667) (7,571)
----------------------
Net noncurrent notes receivable ................... $ 23,092 21,652
----------------------
----------------------
Operating results include bad debt expense totaling $5.1 million, $1.9 million
and $4.0 million during fiscal years 1997, 1996 and 1995, respectively.
On January 1, 1997, the Company adopted the requirements of SFAS No. 125,
ACCOUNTING FOR TRANSFERS AND SERVICING OF FINANCED ASSETS AND EXTINGUISHMENTS 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 extinguishments of 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. On this date the Company sold $44.6
million of accounts receivable on a non-recourse basis to NFFC. NFFC sold $37.0
million of its undivided interest in such receivables to the Purchaser, subject
to specified collateral requirements. 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. 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 interests in
these receivables to the Purchaser.
In 1995, the Company entered into an agreement with a financial institution
which allowed the Company to sell on a revolving basis customer notes
receivable. Although the agreement lapsed on December 28, 1996, the notes, which
have maturities through the year 2002, were sold at face value with recourse. As
a result, the Company continues to be responsible for collection of the notes
and remits the principal plus a floating rate of interest to the purchaser on a
monthly basis. Proceeds from the sale of the notes receivable were used to fund
working capital requirements.
The remaining balances of such sold notes receivable totaled $9.1 million and
$14.0 million at January 3, 1998 and December 28, 1996, 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.
24
NASH FINCH COMPANY and Subsidiaries
(5) LONG-TERM DEBT AND CREDIT FACILITIES
Long-term debt at the end of the fiscal years 1997 and 1996 is summarized as
follows (in thousands):
1997 1996
- -------------------------------------------------------------------------------------------------------
Variable rate - revolving credit agreement ................................... $ 214,000 244,000
Industrial development bonds, 5.4% to 7.8% due in
various installments through 2009 .......................................... 4,370 4,885
Term loans, 7.5% to 9.9% due in various installments
through 2008 ............................................................... 107,528 112,250
Notes payable and mortgage notes, 9.3% to 12.0%
due in various installments through 2003 ................................... 5,975 6,747
----------------------
$ 331,873 367,882
Less current maturities ...................................................... 6,384 6,063
----------------------
$ 325,489 361,819
----------------------
----------------------
During 1997, the Company entered into four swap agreements, with separate
financial institutions. 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% to 6.54%,
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 Company is exposed to credit loss in the event of non-performance by
counter-parties to these financial instruments, but it does not expect any
counter-party to fail to meet its obligations. The amount of such credit
exposure is generally the unrealized gains in such contracts. To manage credit
risks, the Company selects counter-parties based on credit ratings, limits
exposure to a single counter-party and monitors the market position with each
counter-party.
The fair values of the swap agreements are not material and have not been
recognized in the financial statements at January 3, 1998. 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.
On October 8, 1996, the Company entered into a $500 million senior unsecured
revolving credit facility (the "Revolving Credit Facility") with two lead banks.
The agreement calls for a scheduled reduction of the facility within two years,
to $400 million, with the remaining balance maturing five years from closing.
During 1997, the Company exercised its right to reduce the Revolving Credit
Facility to $360 million. Borrowings under this agreement bear interest at
variable rates equal to LIBOR plus .30%. In addition, the Company pays
commitment fees of .175% on the entire facility both used and unused. The
average borrowing rate during the period was 6.0%.
The Revolving Credit Facility contains covenants which, among other matters,
limits the Company's ability to incur indebtedness, buy and sell assets, and
requires compliance to predetermined ratios related to net worth, debt to equity
and interest coverage.
At January 3, 1998, land, buildings and other assets pledged to secure
outstanding mortgage notes and obligations under industrial development bond
issues have a depreciated cost of approximately $4.8 million and $4.3 million,
respectively.
Aggregate annual maturities of long-term debt for the five fiscal years after
January 3, 1998 are as follows (in thousands):
- --------------------------------------------------------------------------------
1998 ................................................................ $ 6,384
1999 ................................................................ 1,844
2000 ................................................................ 33,576
2001 ................................................................ 240,394
2002 and thereafter ................................................. $ 49,675
- --------------------------------------------------------------------------------
Interest paid was $31.6 million, $14.3 million and $11.4 million, for the
fiscal years 1997, 1996 and 1995, respectively.
In addition, the Company maintains informal lines of credit at various
banks. At January 3, 1998, unused uncommitted lines of credit amounted to
$13.7 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 $340.3
million.
(6) INCOME TAXES
Income tax expense for fiscal years 1997, 1996 and 1995 is made up of the
following components (in thousands):
1997 1996 1995
- --------------------------------------------------------------------------------------------
Current:
Federal .............................................. $ 3,293 12,125 12,244
State ................................................ 692 2,354 2,872
Deferred:
Federal .............................................. (2,644) (576) (3,145)
State ................................................ (347) (268) (790)
--------------------------------
Total .............................................. $ 994 13,635 11,181
--------------------------------
--------------------------------
Total income tax expense represents effective tax rates of 425.4%, 40.5% and
39.1% for the fiscal years 1997, 1996 and 1995, respectively. The reasons for
differences compared with the U.S. federal statutory tax rate (expressed as a
percentage of pretax income) are as follows:
1997 1996 1995
- ---------------------------------------------------------------------------------------------
Federal statutory tax rate .............................. (35.0)% 35.0% 35.0%
Items affecting federal income tax rate:
State taxes, net of federal income tax benefit .......... 96.0 4.3 4.9
Foreign equity earnings ................................. (27.6) -- --
Dividends received deduction on
domestic stock of under
80% owned companies ................................. (191.7) -- --
Non-deductible goodwill ................................. 700.1 .2 --
Non-deductible meals and entertainment .................. 94.6 .6 .8
Adjustment to valuation allowance and
other income tax accruals ........................... (198.0) .4 (.6)
Other net ............................................... (13.0) -- (1.0)
-----------------------------
Effective tax rate .................................. 425.4% 40.5% 39.1%
-----------------------------
-----------------------------
Income taxes paid were $8.9 million, $12.4 million and $10.8 million during
fiscal years 1997, 1996 and 1995, respectively.
25
NASH FINCH COMPANY and Subsidiaries
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at January 3,
1998, December 28, 1996, and December 30, 1995, are presented below (in
thousands):
1997 1996 1995
- --------------------------------------------------------------------------------------------
Deferred tax assets:
Accounts and notes receivable, principally
due to allowance for doubtful accounts .............. $ 5,891 7,625 1,964
Inventories, principally due to additional
costs inventoried for tax purposes pursuant
to the Tax Reform Act of 1986 ....................... 3,405 2,956 1,654
Health care claims, principally due to accrual
for financial reporting purposes .................... 2,668 2,991 1,073
Deferred compensation, principally due to
accrual for financial reporting purposes ............ 2,546 2,376 3,173
Compensated absences, principally due to
accrual for financial reporting purposes ............ 3,086 2,286 1,379
Compensation and casualty loss,
principally due to accrual for financial
reporting purposes .................................. 1,780 1,959 2,135
Purchased intangibles ................................... -- -- 1,958
Closed locations ........................................ 10,612 3,126 1,110
Other ................................................... 731 2,236 1,193
--------------------------------
Total gross deferred tax assets ......................... 30,719 25,555 15,639
Less valuation allowance ................................ -- -- --
--------------------------------
Net deferred tax assets ............................. 30,719 25,555 15,639
--------------------------------
Deferred tax liabilities:
Purchased intangibles ................................... 231 1,055 --
Plant and equipment, principally due to
differences in depreciation ......................... 9,704 6,511 5,978
Inventories, principally due to differences
in LIFO basis ....................................... 7,686 7,230 2,070
Other ................................................... 1,404 2,020 1,082
--------------------------------
Total gross deferred tax liabilities .................... 19,025 16,816 9,130
--------------------------------
Net deferred tax asset .............................. $ 11,694 8,739 6,509
--------------------------------
--------------------------------
Since it is more likely than not that the deferred tax asset of $30,719,
$25,555 and $15,639 at January 3, 1998, December 28, 1996 and December 30, 1995,
respectively, will be realized through carry back to taxable income in prior
years, future reversals of existing taxable temporary differences, future
taxable income and tax planning strategies, the Company has determined that
there is no need to establish a valuation allowance for the deferred tax asset
at January 3, 1998 and December 28, 1996 as required by SFAS No. 109, ACCOUNTING
FOR INCOME TAXES.
(7) 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% or more of the Company's outstanding common stock. A flip-in event
would occur if a person or group acquires (1) 15% of the Company's outstanding
common stock, or (2) an ownership level set by the Board of Directors at less
than 15% 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% 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% 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.
At January 3, 1998, under the 1994 Plan, options to purchase 280,380 shares of
common stock of the Company at an average price of $17.23 per share and
exercisable over terms of five to seven years from the dates of grant, have been
granted and are outstanding. In February 1996, certain members of management
exercised rights to purchase restricted stock from the Company at a 25% 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% payment in cash with
the remaining balance evidenced by a five-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 significant. At January 3, 1998,
32,832 shares of restricted stock have been issued and are outstanding.
Performance unit awards having a maximum potential payout of 340,071 shares have
also been granted and are outstanding.
26
NASH FINCH COMPANY and Subsidiaries
Reserved for the granting of future stock options, restricted stock awards and
performance unit awards are 120,254 shares.
At January 3, 1998 under the Director Plan, options to purchase 12,000 shares
of common stock of the Company, at an average price of $17.47 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
26,000 shares.
Changes in outstanding options during the three fiscal years ended January 3,
1998 are summarized as follows (in thousands, except per share amounts):
Weighted Average
Option Price
Shares Per Share
- ------------------------------------------------------------------------
Options outstanding December 31 1994 ...... 291 $ 16.86
Exercised ............................. (3) 16.72
Forfeited ............................. (36) 16.88
Granted ............................... 4 16.06
- ------------------------------------------------------------------------
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(a) 17.24
- ------------------------------------------------------------------------
- ------------------------------------------------------------------------
(a) Remaining average contractual life of options outstanding at January 3, 1998
was 2.5 years.
Options exercisable at:
January 3, 1998 ....................... 164 $ 17.09
December 28, 1996 ..................... 147 16.95
The weighted average fair value of options granted during 1997, 1996 and 1995
are $2.62, $2.40 and $2.26, 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 6.0%, an expected
dividend yield of 4.0%, expected lives of two and one-half years and volatility
of 22.1%. 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 1997 and 1996 net earnings (loss) and earnings (loss) per
share would have been impacted by less than 1%. The effects of applying the fair
value method of measuring compensation expense for 1997 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.
(8) EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings
per share (in thousands, except per share amounts):
1997 1996 1995
- --------------------------------------------------------------------------------------------
Numerator:
Net earnings (loss) ................................. $ (1,228) 20,032 17,414
--------------------------------
Denominator:
Denominator for basic earnings per share;
weighted average shares ............................. 11,270 10,947 10,875
Effect of dilutive securities:
Employee stock options .............................. -- 8 20
Contingent shares ................................... 46 138 --
--------------------------------
Dilutive common shares .................................. 46 146 20
Denominator for diluted earnings per share;
adjusted weighted average shares .................... 11,316 11,093 10,895
--------------------------------
--------------------------------
Basic earnings (loss) per share ......................... $ (0.11) 1.83 1.60
--------------------------------
--------------------------------
Diluted earnings (loss) per share ....................... $ (0.11) 1.81 1.60
--------------------------------
--------------------------------
(9) 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):
1997 1996
- -------------------------------------------------------------------------
Buildings and improvements ..................... $ 25,048 26,105
Less accumulated amortization .................. (10,243) (10,147)
----------------------
Net assets under capitalized leases ............ $ 14,805 15,958
----------------------
----------------------
At January 3, 1998, future minimum rental payments under non-cancelable leases
and subleases are as follows (in thousands):
Operating Capital
leases leases
- ----------------------------------------------------------------------------------------
1998 .............................................................. $ 29,877 $ 6,006
1999 .............................................................. 26,186 6,168
2000 .............................................................. 23,488 6,035
2001 .............................................................. 20,548 5,934
2002 and thereafter ............................................... 117,400 57,161
-------------------
Total minimum lease payments (a) .................................. $ 217,499 81,304
Less imputed interest (rates ranging from 7.8% to 16.0%) .......... (41,207)
--------
Present value of net minimum lease payments ....................... 40,097
Less current maturities ........................................... (1,580)
--------
Capitalized lease obligations ..................................... $ 38,517
--------
--------
(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 3, 1998 are $91.8 million and $41.7 million,
respectively.
Total rental expense under operating leases for fiscal years 1997, 1996 and
1995 is as follows (in thousands):
1997 1996 1995
- --------------------------------------------------------------------------------------------
Total rentals ........................................... $ 42,584 33,316 27,533
Less real estate taxes, insurance and
other occupancy costs ............................... (2,731) (2,070) (2,095)
--------------------------------
Minimum rentals ......................................... 39,853 31,246 25,438
Contingent rentals ...................................... 244 183 312
Sublease rentals ........................................ (13,744) (9,449) (7,964)
--------------------------------
$ 26,353 21,980 17,786
--------------------------------
--------------------------------
27
NASH FINCH COMPANY and Subsidiaries
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.
The Company has guaranteed certain lease and promissory note obligations of
customers aggregating approximately $28.6 million.
In addition, the Company had outstanding letters of credit in the amounts of
$9.1 million and $9.0 million at January 3, 1998 and December 28, 1996,
respectively, primarily supporting workers' compensation obligations.
(10) 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,
working capital 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 3, 1998, the Company has guaranteed outstanding promissory note
obligations of one customer in the amount of $8.4 million and of another
customer in the amount of $7.1 million.
In the normal course of business, the Company's produce marketing operation in
California 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
3, 1998, $9.2 million in notes and growers advances were outstanding.
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.
(11) 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 1997, 1996 and 1995 was $2.5 million,
$4.1 million and $3.8 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 increments to the deferred compensation plan are charged to
earnings. No annual contribution was made in 1997.
(12) PENSION
Super Food has a qualified noncontributory retirement plan to provide
retirement income for eligible full-time employees who are not covered by union
retirement plans. Pension benefits under the plan 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. The plan, effective January 1, 1998, did not
result in a material effect on the Company's financial position or results of
operations. All employees impacted by the curtailment will be transferred into
the Company's existing defined contribution plan.
The plan's funded status at January 3, 1998 was (in thousands):
1997 1996
- -------------------------------------------------------------------------------------------------------
Actuarial present value of benefit obligation:
Vested benefits .......................................................... $ 36,772 28,979
Nonvested benefits ....................................................... -- 388
----------------------
Accumulated benefit obligation ...................................... 36,772 29,367
Additional benefits based on future salary levels ........................ 874 3,193
----------------------
Projected benefit obligation ............................................. 37,646 32,560
Plan assets at fair value, principally listed securities ................. (36,261) (34,274)
----------------------
Plan assets (over) under projected benefit obligation .................... 1,385 (1,714)
Unrecognized net (gain) loss ................................................. 2,098 (911)
----------------------
Net prepaid pension cost ............................................ $ 713 (803)
----------------------
----------------------
Assumptions used in the determination of the above amounts, in conjunction
with the recording of the Super Food acquisition, include the following:
1997 1996
- ------------------------------------------------------------------------------
Discount rate for determining
estimated obligations and interest cost ........ 7.25% 8.5%
Expected aggregate average long-term
change in compensation ......................... 5.0% 4.5%
Expected long-term return on assets ................ 8.0% 8.5%
Approximately 49% of Super Food 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.
Aggregate cost for the Company's retirement plans includes the following
components (in thousands):
1997 1996
- -------------------------------------------------------------------------------------------------------
Defined benefit plan:
Service cost benefits earned during the year ............................. $ 660 237
Interest cost on projected benefit obligation ............................ 2,663 882
Return on assets ......................................................... (3,587) (1,855)
Net amortization and deferral ............................................ 730 931
----------------------
Net pension expense .......................................................... 466 195
Multi-employer plans ......................................................... 2,166 370
----------------------
Total pension and retirement plan expense ................................ $ 2,632 565
----------------------
----------------------
Fiscal 1996 costs reflect the two month period following the acquisition of
Super Food.
(13) POSTRETIREMENT HEALTH CARE BENEFITS
The Company provides certain health care benefits for retired employees.
Substantially all of the Company's employees not subject to collective
bargaining agreements, become eligible for those benefits when they reach normal
retirement age and who 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 employee.
The periodic postretirement benefit costs were as follows (in thousands):
1997 1996 1995
- --------------------------------------------------------------------------------------------
Service costs ........................................... $ 354 260 273
Interest costs .......................................... 576 403 382
Amortization of unrecognized
transition obligation ............................... 235 248 249
--------------------------------
Net postretirement costs ................................ $ 1,165 911 904
--------------------------------
--------------------------------
28
NASH FINCH COMPANY and Subsidiaries
The actuarial present value of benefit obligations at January 3, 1998,
December 28, 1996 and December 30, 1995 are as follows (in thousands):
1997 1996 1995
- --------------------------------------------------------------------------------------------
Retirees eligible for benefits .......................... $ 3,092 1,969 1,903
Active employees fully eligible ......................... 617 428 493
Active employees not fully eligible ..................... 4,895 3,204 3,147
--------------------------------
$ 8,604 5,601 5,543
--------------------------------
--------------------------------
The assumed annual rate of future increases in per capita cost of health care
benefits was 10.5% in fiscal 1997 declining at a rate of .5% per year to 6.5% in
2005 and thereafter. Increasing the health care cost trend rate by 1% in each
year would increase the accumulated benefit obligation by $475,000 at January 3,
1998 and the service and interest costs by $77,000 for fiscal 1997. The discount
rate used in determining the accumulated benefit obligation was 6.75%.
(14) SEGMENT INFORMATION
The Company and its subsidiaries sell and distribute food and nonfood products
that are typically found in supermarkets. The Company's wholesale distribution
segment sells to independently owned retail food stores, institutional and
military customers while the retail distribution segment sells directly to the
consumer. Produce marketing includes farming, packing and marketing operations.
The Company's market areas are in the Midwest, West, Mid-Atlantic and
Southeastern United States.
Operating profit is net sales and other revenues, less operating expenses. In
computing operating profit, none of the following items have been added or
deducted: general corporate expenses, interest expense, interest income, income
taxes and earnings from equity investments. Wholesale distribution operating
profits on sales through Company-owned stores have been allocated to the retail
segment.
Identifiable assets are those used exclusively by that industry segment or an
allocated portion of assets used jointly by two industry segments. Corporate
assets are principally cash and cash equivalents, notes receivable, corporate
office facilities and equipment.
MAJOR SEGMENTS OF BUSINESS
(IN THOUSANDS) 1997 1996 1995
- --------------------------------------------------------------------------------------------
Net sales and other operating revenues:
Wholesale distribution .............................. $3,502,822 2,468,695 1,968,982
Retail distribution ................................. 822,178 850,404 859,956
Produce marketing and other ......................... 50,949 50,410 48,154
----------------------------------
Total net sales and other
operating revenues .............................. $4,375,949 3,369,509 2,877,092
----------------------------------
----------------------------------
Operating profit (loss):
Wholesale distribution .............................. $ 32,576 37,115 30,047
Retail distribution ................................. (6,041) 7,709 4,143
Produce marketing and other ......................... (303) 2,124 2,439
----------------------------------
Total operating profit ............................ 26,232 46,948 36,629
Interest income ..................................... 6,379 1,613 2,759
Interest expense .................................... (32,845) (14,894) (10,793)
----------------------------------
Earnings (loss) before income taxes ............... $ (234) 33,667 28,595
----------------------------------
----------------------------------
Identifiable assets:
Wholesale distribution .............................. 620,644 649,470 205,288
Retail distribution ................................. 171,326 203,217 201,493
Produce marketing and other ......................... 47,191 41,948 45,662
Corporate ........................................... 65,722 50,842 61,817
----------------------------------
$904,883 945,477 514,260
----------------------------------
----------------------------------
Capital expenditures:
Wholesale distribution .............................. $ 18,245 15,511 8,704
Retail distribution ................................. 23,246 19,795 15,517
Produce marketing and other ......................... 4,166 2,234 5,259
Corporate ........................................... 22,068 13,793 3,784
----------------------------------
$ 67,725 51,333 33,264
----------------------------------
----------------------------------
Depreciation and amortization:
Wholesale distribution .............................. $ 25,148 14,996 11,121
Retail distribution ................................. 16,158 15,791 14,454
Produce marketing and other ......................... 1,481 1,511 1,597
Corporate ........................................... 4,910 2,461 2,234
----------------------------------
$ 47,697 34,759 29,406
----------------------------------
----------------------------------
Fiscal 1997 operating profit before the effects of the special charges for the
wholesale, retail and produce marketing segments would have been $50.8 million,
$5.8 million and $.9 million, respectively.
(15) SUBSEQUENT EVENT
During the first quarter of 1998, and in conjunction with a planned $150
million unregistered, subordinated debt offering, the Company prepaid $106.3
million of senior notes and paid prepayment premiums totaling $9.4 million, all
with drawings under the Revolving Credit Facility. As a result, the Company
recorded an extraordinary charge of $5.5 million, net of $4.0 million in taxes,
consisting of prepayment premiums and the write-off of deferred financing costs
related to early extinguishment of debt.
QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
A summary of quarterly financial First Quarter Second Quarter Third Quarter Fourth Quarter
information is presented. 12 Weeks 12 Weeks 16 Weeks 13 Weeks 12 Weeks
------------------ ----------------- ---------------------- -------------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 1997 1996 1997 1996 1997 1996 1997 1996
- -----------------------------------------------------------------------------------------------------------------------------------
Net sales and other revenue ............... $947,832 684,494 975,450 735,242 1,354,430 1,003,867 1,113,890 951,882
Cost of sales ............................. 825,189 593,145 845,450 635,315 1,179,698 869,669 976,040 834,580
Earnings (loss) before income taxes ....... 5,259 4,699 11,126 10,253 (23,892) 11,421 7,273 7,294
Income taxes .............................. 2,203 1,903 4,662 4,153 7,435 4,625 1,564 2,954
Net earnings (loss) ....................... 3,056 2,796 6,464 6,100 (16,457) 6,796 5,708 4,340
Percent to sales and revenues ............. .32 .41 .66 .82 (1.22) .68 .51 .46
Net earnings (loss) per share
Basic .................................. $ .27 .26 .58 .56 (1.47) .62 .51 .39
Diluted ................................ $ .27 .26 .57 .56 (1.46) .61 .50 .38
- -----------------------------------------------------------------------------------------------------------------------------------
29
NASH FINCH COMPANY and Subsidiaries
CONSOLIDATED SUMMARY OF OPERATIONS
Eleven years ended January 3, 1998
(not covered by Independent Auditors' Report)
1997 1996 1995 1994 1993 1992
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) (53 WEEKS) (52 weeks) (52 weeks) (52 weeks) (52 weeks) (53 weeks)
- -----------------------------------------------------------------------------------------------------------------------------------
Sales and revenues .................................... $ 4,375,949 3,369,509 2,877,092 2,822,262 2,715,787 2,509,464
Other income .......................................... 15,653 5,976 11,744 9,738 7,748 5,974
----------- --------- --------- --------- --------- ---------
Total sales, revenues and other income ................ 4,391,602 3,375,485 2,888,836 2,832,000 2,723,535 2,515,438
Cost of sales ......................................... 3,826,377 2,932,709 2,469,841 2,410,292 2,325,249 2,147,845
Selling, general and administrative, and other
operating expenses, including warehousing
and transportation expenses ......................... 451,126 355,364 346,442 349,190 328,703 294,700
Special charges ....................................... 31,272 -- -- -- -- --
Interest expense ...................................... 32,845 14,894 10,793 11,384 10,114 9,294
Depreciation and amortization ......................... 47,697 34,759 29,406 31,831 29,145 27,038
Profit sharing contribution ........................... 2,519 4,092 3,759 3,493 3,646 3,963
Provision for income taxes ............................ 994 13,635 11,181 10,330 10,804 12,530
----------- --------- --------- --------- --------- ---------
Net earnings (loss) ................................... $ (1,228) 20,032 17,414 15,480 15,874 20,068
----------- --------- --------- --------- --------- ---------
----------- --------- --------- --------- --------- ---------
Basic earnings (loss) per share ....................... $ (0.11) 1.83 1.60 1.42 1.46 1.85
----------- --------- --------- --------- --------- ---------
----------- --------- --------- --------- --------- ---------
Diluted earnings (loss) per share ..................... $ (0.11) 1.81 1.60 1.42 1.46 1.85
----------- --------- --------- --------- --------- ---------
----------- --------- --------- --------- --------- ---------
Cash dividends declared per common share (2) .......... $ .72 .75 .74 .73 .72 .71
----------- --------- --------- --------- --------- ---------
----------- --------- --------- --------- --------- ---------
Pretax earnings as a percent of
sales and revenues .................................. % -- 1.00 .99 .91 .98 1.30
Net earnings (loss) as a percent
of sales and revenues ............................... % (0.03) .59 .60 .55 .58 .80
Effective income tax rate ............................. % 425.4 40.5 39.1 40.0 40.5 38.4
Current assets ........................................ $ 494,350 525,596 311,690 309,522 294,925 310,170
Current liabilities ................................... $ 294,419 297,088 207,688 220,065 215,021 213,691
Net working capital ................................... $ 199,931 228,508 104,002 89,457 79,904 96,479
Ratio of current assets to current liabilities ........ 1.68 1.77 1.50 1.41 1.37 1.45
Total assets .......................................... $ 904,883 945,477 514,260 531,604 521,654 513,615
Capital expenditures .................................. $ 67,725 51,333 33,264 34,965 36,382 42,991
Long-term obligations (long-term debt
and capitalized lease obligations) .................. $ 364,006 403,651 81,188 95,960 97,887 94,145
Stockholders' equity .................................. $ 225,618 232,861 215,313 206,269 199,264 191,204
Stockholders' equity per share (1), (2) ............... $ 19.96 21.06 19.80 18.97 18.33 17.59
Return (loss) on average stockholders' equity ......... % (0.53) 8.94 8.26 7.63 8.13 10.85
Number of common stockholders of record
at year-end ......................................... 2,226 2,230 1,940 2,074 2,074 2,087
Common stock high price (2), (3) ...................... $ 24 7/8 21 3/4 20 1/2 18 1/4 23 1/4 19 3/4
Common stock low price (2), (3) ....................... $ 17 1/2 15 1/2 15 3/4 15 3/8 17 16 1/4
1991 1990 1989 1988 1987
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) (52 weeks) (52 weeks) (52 weeks) (52 weeks) (52 weeks)
- -------------------------------------------------------------------------------------------------------------------
Sales and revenues .................................... 2,337,560 2,369,054 2,219,451 2,091,822 1,938,758
Other income .......................................... 5,718 5,799 4,312 6,012 4,590
--------- --------- --------- --------- ---------
Total sales, revenues and other income ................ 2,343,278 2,374,853 2,223,763 2,097,834 1,943,348
Cost of sales ......................................... 1,997,462 2,036,335 1,904,041 1,807,448 1,682,667
Selling, general and administrative, and other
operating expenses, including warehousing
and transportation expenses ......................... 276,144 271,735 264,024 230,221 198,553
Special charges ....................................... -- -- -- -- --
Interest expense ...................................... 8,966 8,670 8,277 8,106 8,087
Depreciation and amortization ......................... 26,124 25,551 23,170 20,193 18,389
Profit sharing contribution ........................... 3,789 3,603 3,089 2,832 2,734
Provision for income taxes ............................ 11,738 11,129 8,010 10,859 14,416
--------- --------- --------- --------- ---------
Net earnings (loss) ................................... 19,055 17,830 13,152 18,175 18,502
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Basic earnings (loss) per share ....................... 1.75 1.64 1.21 1.67 1.75
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Diluted earnings (loss) per share ..................... 1.75 1.64 1.21 1.67 1.74
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Cash dividends declared per common share (2) .......... .70 .69 .67 .65 .57
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Pretax earnings as a percent of
sales and revenues .................................. 1.31 1.22 .95 1.38 1.69
Net earnings (loss) as a percent
of sales and revenues ............................... .81 .75 .59 .87 .95
Effective income tax rate ............................. 38.1 38.4 37.9 37.4 43.8
Current assets ........................................ 239,850 234,121 212,264 219,956 209,305
Current liabilities ................................... 154,993 159,439 128,159 153,068 127,608
Net working capital ................................... 84,857 74,682 84,105 66,888 81,697
Ratio of current assets to current liabilities ........ 1.55 1.47 1.66 1.44 1.64
Total assets .......................................... 429,648 416,233 380,771 388,269 352,187
Capital expenditures .................................. 36,836 36,129 34,635 52,019 29,680
Long-term obligations (long-term debt
and capitalized lease obligations) .................. 82,532 74,333 77,950 66,216 66,988
Stockholders' equity .................................. 178,846 167,388 157,024 151,043 140,850
Stockholders' equity per share (1), (2) ............... 16.45 15.40 14.45 13.90 12.97
Return (loss) on average stockholders' equity ......... 11.01 10.99 8.54 12.45 14.38
Number of common stockholders of record
at year-end ......................................... 2,122 2,138 2,146 2,227 2,234
Common stock high price (2), (3) ...................... 20 1/4 25 1/4 25 3/4 27 1/2 26 1/2
Common stock low price (2), (3) ....................... 16 1/2 16 1/4 21 1/4 18 14 3/4
(1) Based on weighted average outstanding shares at year-end.
(2) Adjusted to reflect 2-for-1 stock split 1987.
(3) High and low closing sale price.
30
[CHART]
TOTAL ASSETS
MILLIONS Of DOLLARS
[CHART]
WORKING CAPITAL PROVIDED FROM OPERATIONS
MILLIONS Of DOLLARS
- - DEPRECIATION AND AMORTIZATION
- - NET EARNINGS (LOSS)
[CHART]
CAPITAL STRUCTURE
MILLIONS Of DOLLARS
- - STOCKHOLDERS' EQUITY
- - LONG-TERM DEBT INCLUDING CAPITALIZED LEASES
31