-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, L+i8iocKfU/5/kU+ntkN3QUp2KPkrfnau6yDkxY/kiBiyybeTIs7XcqicMY4siyd FCDb/k8xXggoJosAqtAMKg== 0001047469-97-005350.txt : 19971119 0001047469-97-005350.hdr.sgml : 19971119 ACCESSION NUMBER: 0001047469-97-005350 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19971004 FILED AS OF DATE: 19971118 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: NASH FINCH CO CENTRAL INDEX KEY: 0000069671 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-GROCERIES & RELATED PRODUCTS [5140] IRS NUMBER: 410431960 STATE OF INCORPORATION: DE FISCAL YEAR END: 1228 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-00785 FILM NUMBER: 97723649 BUSINESS ADDRESS: STREET 1: 7600 FRANCE AVE STREET 2: PO BOX 355 CITY: SOUTH MINNEAPOLIS STATE: MN ZIP: 55435-0355 BUSINESS PHONE: 6128320534 FORMER COMPANY: FORMER CONFORMED NAME: NASH CO DATE OF NAME CHANGE: 19710617 10-Q 1 FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 10-Q (Mark One) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) / x / OF THE SECURITIES EXCHANGE ACT OF 1934 For the forty weeks ended October 4, 1997 or TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) / / OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File No. 0-785 NASH-FINCH COMPANY (Exact Name of Registrant as Specified in its Charter) DELAWARE 410431960 (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) 7600 France Ave. South, P.O. Box 355, Minneapolis, Minnesota 55440-0355 (Address of principal executive offices) (Zip Code) (612) 832-0534 (Registrant's telephone number including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO ----- ----- Number of shares of common stock outstanding at November 14,1997: 11,322,898 shares PART I - FINANCIAL INFORMATION This report is for the forty week interim period beginning December 29, 1996, through October 4, 1997. The accompanying financial information has been prepared in conformity with generally accepted accounting principles and practices, and methods of applying accounting principles and practices, (including consolidation practices) as reflected in the financial information included in the Company's Annual Report on Form 10-K, filed with the Securities and Exchange Commission for the preceding fiscal year. The financial statements included in this quarterly report include all adjustments which are, in the opinion of management, necessary to a fair presentation of the Company's financial position and results of operations for the interim period. The information contained herein has not been audited by independent certified public accountants and is subject to any adjustments which may develop in connection with the annual audit of its accounts by Ernst & Young LLP, the Company's independent auditors. 2 NASH FINCH COMPANY AND SUBSIDIARIES Condensed Consolidated Statements of Operations (Unaudited) (In thousands, except per share amounts)
Sixteen Weeks Ended Forty Weeks Ended --------------------------- -------------------------- October 4, October 5, October 4, October 5, 1997 1996 1997 1996 ----------- ---------- ----------- ----------- Revenues: Net sales $ 1,329,114 984,799 3,225,711 2,384,089 Other revenues 25,316 19,068 52,001 39,514 ----------- ----------- ----------- ----------- Total revenues 1,354,430 1,003,867 3,277,712 2,423,603 Cost and Expenses: Cost of sales 1,179,698 869,669 2,850,337 2,098,129 Selling, general and administrative and other operating expenses 142,922 108,738 342,566 264,259 Special charges 31,272 - 31,272 - Depreciation and amortization 14,660 10,070 36,453 24,870 Interest expense 9,770 3,969 24,591 9,972 ----------- ----------- ----------- ----------- Total costs and expenses 1,378,322 992,446 3,285,219 2,397,230 Earnings (loss) before income taxes (23,892) 11,421 (7,507) 26,373 Income taxes (benefit) (7,435) 4,625 (570) 10,681 ----------- ----------- ----------- ----------- Net earnings (loss) $ (16,457) 6,796 (6,937) 15,692 ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- Weighted average number of common shares outstanding 11,308 11,121 11,297 10,992 ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- Earnings (loss) per share $ (1.45) 0.61 (0.61) 1.43 ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
- ----------------------------------------------------------------- See accompanying notes to condensed consolidated financial statements. NASH FINCH COMPANY AND SUBSIDIARIES Condensed Consolidated Balance Sheets (In thousands) October 4, December 28, ASSETS 1997 1996 ------------- -------------- Current assets: (unaudited) Cash and cash equivalents $ 891 921 Accounts and notes receivable, net 209,202 206,062 Inventories 323,329 293,458 Prepaid expenses 19,901 20,492 Deferred tax assets 7,533 4,663 ------------- -------------- Total current assets 560,856 525,596 Investments in affiliates 10,713 10,300 Notes receivable, noncurrent 23,139 21,652 Property, plant and equipment: Land 30,684 33,753 Buildings and improvements 142,622 148,227 Furniture, fixtures and equipment 306,717 295,147 Leasehold improvements 58,865 54,925 Construction in progress 22,240 7,543 Assets under capitalized leases 25,659 26,105 ------------- -------------- 586,787 565,700 Less accumulated depreciation and amortization (323,061) (293,845) ------------- -------------- Net property, plant and equipment 263,726 271,855 Intangible assets, net 72,062 80,312 Investment in direct financing leases 19,261 22,011 Deferred tax asset - net 10,628 4,076 Other assets 11,411 9,675 ------------- -------------- Total assets $ 971,796 945,477 ------------- -------------- ------------- -------------- LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Outstanding checks $ 14,715 32,492 Short-term debt payable to banks 12,077 16,171 Current maturities of long-term debt and capitalized lease obligations 7,946 7,795 Accounts payable 206,193 183,501 Accrued expenses 75,179 54,130 Income taxes 1,953 2,999 ------------- -------------- Total current liabilities 318,063 297,088 Long-term debt 376,058 361,819 Capitalized lease obligations 38,887 41,832 Deferred compensation 6,938 7,476 Other 9,944 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 11,575 shares issued in 1997 and 11,574 shares in 1996 19,292 19,290 Additional paid-in capital 17,599 16,816 Foreign currency translation adjustment - net of a $633 deferred tax benefit - (950) Restricted stock (397) (500) Retained earnings 187,308 200,322 ------------- -------------- 223,802 234,978 Less cost of 255 shares and 307 shares of common stock in treasury, respectively. (1,896) (2,117) ------------- -------------- Total stockholders' equity 221,906 232,861 ------------- -------------- Total liabilities and stockholders' equity $ 971,796 945,477 ------------- -------------- ------------- -------------- - --------------------------------------------------------------------- See accompanying notes to condensed consolidated financial statements. NASH FINCH COMPANY AND SUBSIDIARIES Condensed Consolidated Statements of Cash Flows (Unaudited) (In thousands)
Forty Weeks Ended ------------------------------- October 4, October 5, 1997 1996 ------------ ------------- Operating activities: Net earnings $ (6,938) 15,692 Adjustments to reconcile net income to net cash provided by operating activities: Special Charges 28,749 - Depreciation and amortization 36,453 24,870 Provision for bad debts 2,771 1,092 Provision for losses on closed lease locations (601) (284) Deferred income taxes (9,420) (1,126) Deferred compensation (538) (305) Earnings of equity investments (2,565) (735) Other 1,892 306 Changes in operating assets and liabilities: Accounts and notes receivable (18) (15,680) Inventories (15,454) (13,181) Prepaid expenses 1,480 (1,959) Accounts payable and outstanding checks 3,915 2,593 Accrued expenses 13,789 4,591 Income taxes (1,045) (364) ------------ ------------- Net cash provided by operating activities 52,470 15,510 ------------ ------------- Investing activities: Dividends received 1,599 - Disposal of property, plant and equipment 11,534 6,853 Additions to property, plant and equipment excluding capital leases (44,231) (35,004) Business acquired, net of cash acquired (17,748) (88,562) Loans sold, including current portion - 3,402 Loans to customers (15,589) (2,844) Payments from customers on loans 10,959 5,016 Other (749) (295) ------------ ------------- Net cash used for investing activities (54,225) (111,434) ------------ ------------- Financing activities: Proceeds from long-term debt - 30,000 Proceeds from revolving debt 20,000 60,811 Dividends paid (6,077) (5,938) Payments of short-term debt (4,094) - Payments of long-term debt (5,466) (13,653) Payments of capitalized lease obligations (3,089) (406) Other 451 91 ------------ ------------- Net cash provided by financing activities 1,725 70,905 ------------ ------------- Net (decrease) in cash $ (30) (25,019) ------------ ------------- ------------ -------------
- ----------------------------------------------------------- See accompanying notes to condensed consolidated financial statements. NASH FINCH COMPANY AND SUBSIDIARIES Condensed Consolidated Statements of Stockholders' Equity
- ----------------------------------------------------------------------------------------------------------------------------------- Fiscal period ended October 4, 1997, December 28, 1996 and December 30, 1995 (In thousands, except per share amounts) Foreign Common Stock Additional currency ----------------------- paid-in Retained translation Shares Amount capital earnings adjustment - ----------------------------------------------------------------------------------------------------------------------------------- Balance at December 31, 1994 11,224 $ 18,706 11,977 179,212 (572) 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 - - - - (378) --------- ---------- ----------- ---------- ----------- Balance at December 30, 1995 11,224 18,706 12,013 188,578 (950) Net earnings - - - 20,032 - Dividend declared of $.75 per share - - - (8,288) - Shares issued in connection with acquisition of a business 350 584 5,064 - - Treasury stock issued upon exercise of options - - 47 - - Issuance of restricted stock - - (308) - - Amortized compensation under restricted stock plan - - - - - Treasury stock purchased - - - - - --------- ---------- ----------- ---------- ---------- Balance at December 28, 1996 11,574 19,290 16,816 200,322 (950) Net earnings - - - (6,937) - Dividend declared of $.54 per share - - - (6,077) - Treasury stock issued upon exercise of options - - 305 - - Amortized compensation under restricted stock plan - - - - - Repayment of notes receivable from holder of restricted stock - - - - - Distribution of stock pursuant to performance awards - - 460 - - Treasury stock purchased - - - - - Foreign Currency Translation Adjustment - - - - 950 Other 1 2 18 - - --------- ---------- ----------- ---------- ---------- Balance at October 4, 1997 (unaudited) 11,575 $ 19,292 17,599 187,308 - --------- ---------- ----------- ---------- ---------- --------- ---------- ----------- ---------- ---------- Treasury stock Total Restricted -------------------- stockholders' Stock Shares Amount equity - --------------------------------------------------------------------------------------------------------------- Balance at December 31, 1994 - (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) ------------- ----------- ---------- ----------- Balance at December 30, 1995 - (346) (3,034) 215,313 Net earnings - - - 20,032 Dividend declared of $.75 per share - - - (8,288) Shares issued in connection with acquisition of a business - - - 5,648 Treasury stock issued upon exercise of options 6 42 89 Issuance of restricted stock (524) 40 995 163 Amortized compensation under restricted stock plan 24 - - 24 Treasury stock purchased - (7) (120) (120) ------------- ----------- ---------- ----------- Balance at December 28, 1996 (500) (307) (2,117) 232,861 Net earnings - - - (6,937) Dividend declared of $.54 per share - - - (6,077) Treasury stock issued upon exercise of options - 25 123 428 Amortized compensation under restricted stock plan 23 - - 23 Repayment of notes receivable from holder of restricted stock 80 - - 80 Distribution of stock pursuant to performance awards - 30 148 608 Treasury stock purchased - (3) (50) (50) Foreign Currency Translation Adjustment - - - 950 Other - - - 20 ------------- ----------- ---------- ----------- Balance at October 4, 1997 (unaudited) (397) (255) $ (1,896) 221,906 ------------- ----------- ---------- ----------- ------------- ----------- ---------- -----------
- -------------------------------------------------------------- See accompanying notes to condensed consolidated financial statements. NASH FINCH COMPANY AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OCTOBER 4, 1997 NOTE 1 The accompanying financial statements include all adjustments which are, in the opinion of management, necessary to present fairly the financial position of the Company and its subsidiaries at October 4, 1997 and December 28, 1996, and the results of operations for the 40-weeks ending October 4, 1997 and October 5, 1996, and the changes in cash flows for the 40-week periods ending October 4, 1997 and October 5, 1996, respectively. All material intercompany accounts and transactions have been eliminated in the consolidated financial statements. Results of operations for the interim periods presented are not necessarily indicative of the results to be expected for the full year. NOTE 2 The third quarter results include special charges totaling $31.3 million consisting of $15.9 million in asset writedowns and $4.8 million and $8.1 million classified as accrued expenses and other non-current liabilities, respectively. The aggregate 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 charge includes $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. Cooperative, Inc. ("United-A.G.") early in the third quarter. In retail operations, the special charge relates to 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. The retail units covered by the provision had aggregate sales and pretax losses of $24.0 million and $1.1 million, respectively, for the third quarter compared with $27.1 million and $.6 million for the corresponding period last year. On a year to date basis, the retail units included in the provision, had aggregate sales and pretax losses of $63.1 million and $2.0 million respectively, compared with $67.0 million and $1.4 million for the corresponding period last year. 3 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 wholesale operation. The remaining special charges relate to the write down of idle real estate to current market values. 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 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. The carrying value of goodwill not grouped with other amounts being reviewed for impairment is assessed annually and/or when factors indicating impairment are present using an undiscounted cash flow assumption. 4 NOTE 3 The Company uses the LIFO method for valuation of a substantial portion of inventories. If the FIFO method had been used, inventories would have been approximately $42.6 million and $41.6 million higher at October 4, 1997 and at December 28, 1996, respectively. NOTE 4 Companies will be required to present earnings per share data, in accordance with Statement of Financial Accounting Standards (SFAS) NO. 128, EARNINGS PER SHARE, commencing with fiscal 1997. Currently earnings per share calculations are performed pursuant to Accounting Principles Board Opinion No. 15. The computation of earnings per share for both the quarter and year to date of fiscal 1997 and 1996 would substantially be the same under either method. NOTE 5 On September 8, 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 is contingently liable should these notes become uncollectible. The remaining balances of such sold notes receivable totaled $10.2 million and $14.0 million at October 4, 1997 and December 28, 1996, respectively. NOTE 6 Since the first quarter of fiscal 1996, the Company completed two acquisitions which were accounted for under the purchase method of accounting. On November 7, 1996 the Company completed a tender offer to purchase the outstanding shares of common stock of Super Food Services, Inc. ("Super Food"), a wholesale grocery distributor based in Dayton, Ohio, for $15.50 per share in cash. The purchase price exceeded the fair value of the assets acquired resulting in goodwill of approximately $29.8 million which is being amortized on a straight line basis over 25 years. On August 5, 1996, the Company acquired all of the outstanding stock of T. J. Morris Company ("T. J. Morris"), a full line food wholesaler located in Statesboro, Georgia. 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. The following summary, prepared on a pro forma basis, combines the consolidated results of operations as if Super Food 5 and T. J. Morris had been acquired as of the beginning of 1996, after including the impact of certain adjustments such as amortization of intangibles, increased interest expense on acquisition debt and related income tax effects: Forty weeks Ended ----------------- PRO FORMA INFORMATION (Unaudited) October 5, 1996 ----------------- Net revenues $3,398,851 Earnings before income taxes 28,725 Net income 17,032 Earnings per share $1.51 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. NOTE 7 On June 9, 1997, the Company acquired the business and certain assets of United-A.G., a cooperative wholesale grocery distributor located in Omaha for approximately $17.7 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. NOTE 8 On July 21, 1997, the Company entered into three swap agreements, in addition to one swap entered into in the second quarter, with separate financial institutions as a means of managing its interest rate exposure. 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 Libor floating rate and making payments based on a fixed rate range of 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 fair values of the swap agreements are not recognized in the financial statements. Gains and losses on terminations of interest-rate swap agreements are deferred as an adjustment to the carrying amount of the outstanding debt and amortized as an 6 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. 7 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS REVENUES Total revenues for the 16-week third quarter and the 40 weeks to date of fiscal 1997 increased 34.9% and 35.2%, respectively, over comparable periods last year. The revenue increases were primarily in the wholesale segment and resulted from the acquisitions of Super Food and T. J. Morris which occurred in the second half of fiscal 1996. In addition, revenues were favorably impacted by continued growth of the Company's military distribution business. Retail revenues declined during the quarter and year to date by 3.6% and 4.8%, respectively, reflecting a net reduction of seven stores since the prior year quarter, two of which were sold and one closed during the quarter. Competitive market conditions and little or no food price inflation resulted in a decline in same store sales of 1.7% for the quarter and .9% for the year to date compared to last year. GROSS MARGINS Gross margins for the quarter were 12.9% compared to 13.4% last year. On a year to date basis, margins were 13.0% in fiscal 1997 compared to 13.4% for the same period last year. The decline in both the quarter and year to date margins reflects the growing proportion of lower margin wholesale business which currently represents 79.5% of total Company revenues compared to 71.5% last year. Wholesale margins were consistent with last year for the quarter but slightly ahead of last year for the year to date. However, last year's margin does not reflect a full impact of efficiencies resulting from the centralization of procurement activities. Retail margins for the quarter showed a decline compared to last year, but remained slightly ahead on a year to date basis. The quarter was affected by competitive pricing pressures which continue to intensify in certain market areas. Partially offsetting the quarterly decline, retail stores continued a trend toward sales of higher margin, prepared foods and specialty products. OPERATING EXPENSES Operating expenses as a percent of total revenues were 10.6% and 10.5% for the quarter and year to date respectively, compared to 10.8% and 10.9% for the comparable periods last year. Expense levels compare favorably to last year because of the greater percentage of the wholesale business which operates at lower expense levels compared to retail. However, operating expenses for the quarter and year to date included additional expenses related to a project, involving new business information systems technology, which the Company has named Horizons. Incremental 8 expenses associated with Horizons, excluding depreciation, were $1.2 million for the quarter and $3.3 million on a year to date basis. The project represents a major strategic investment for the Company's future, and will change entire business processes thereby improving efficiency and effectiveness. Design and development will continue to impact operating expenses until implementation has been substantially completed in fiscal 1999. Bad debt expense for the year to date was $2.8 million compared to $1.1 million last year. The increase is attributed to maintaining adequate reserve levels consistent with the growth in customer receivables since the prior year quarter. SPECIAL CHARGES On October 8, 1997 the Company announced its intention to accelerate 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 related to all three operating segments of its business. The aggregate 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 charge includes $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. 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. Certain costs related to the stablization of the workforce may continue into the fourth quarter, however, these costs have not been accrued. 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, the volume of closed stores is expected to be consolidated with another retail location in the same relative market area, thereby minimizing the loss of wholesale volume. Continuing operating losses through the dates of closing are unpredictable and are not included in the special charge. The retail units covered by the provision had aggregate sales and 9 pretax losses of $24.0 million and $1.1 million, respectively, for the third quarter compared with $27.1 million and $.6 million for the corresponding period last year. On a year to date basis, the retail units included in the provision, had aggregate sales and pretax losses of $63.1 million and $2.0 million respectively, compared with $67.0 million and $1.4 million for the corresponding period last year. 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 wholesale operation. 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 the write down of idle real estate to current market values. The consolidations of the 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. However, such amounts are expected to be substantially offset by continuing costs related to Horizons. DEPRECIATION Depreciation and amortization expense increased significantly for the quarter and year to date compared to last year, primarily due to acquisitions. In addition, capital expenditures related to the Horizons project resulted in increased depreciation expense of $.6 million for the quarter and $1.6 million year to date compared to last year. Amortization of goodwill and other intangibles for the quarter and year to date were $2.1 million and $5.2 million, respectively, compared to $1.5 million and $3.7 million, respectively, last year. 10 INTEREST EXPENSE Interest expense increased $5.8 million and $14.6 million for the quarter and year to date, respectively, over the same periods last year, primarily due to the debt incurred to finance the acquisition of Super Food. Average short- term borrowings used to fund working capital needs were higher during the quarter compared to last year. However, outstanding short-term borrowings were $4.1 million lower than year end levels. PRETAX RESULTS OF OPERATIONS The Company's pretax results were negatively impacted by the special charges. However, earnings from operations before special charges and interest were $17.2 million compared to $15.4 million last year, an increase of 11.7%. This was largely due to the acquisitions which were not fully reflected in the prior year quarter. Excluding acquisitions and the continued earnings contribution of the military division, earnings for all three segments were below expectations. Retail and wholesale operations were hampered by weak sales while the produce marketing operation was affected by poor market prices and a surplus of available product. INCOME TAXES The effective tax rate before special charges was 41.9%, an incremental increase of 1.4% compared to last year. The increase was due to non- deductibility of goodwill relating to the acquisition of Super Food and T. J. Morris. 11 LIQUIDITY AND CAPITAL RESOURCES Working capital requirements and certain capital expenditures continue to be funded principally from internally generated funds. However, the Company uses short and long-term debt to supplement the financing of major capital projects and acquisitions. Cash provided from operations for the 40-week period was $52.5 million compared to $15.5 million last year. The increase, which was not significantly affected by the special charges, is attributed to changes in the composition of working capital and non-cash adjustments to income. Working capital at the end of the quarter was $242.8 million, an increase of $14.3 million since year-end but a reduction of $10.9 million during the third quarter. The current ratio was 1.76 compared to 1.77 at the end of last year. During the quarter the company funded the $17.7 million for the acquisition of United-A.G. through its existing revolving credit agreement. The Company manages its interest rate risk through four swap agreements for notional amounts of $30.0 million each. Three such agreements took effect during the quarter with separate financial institutions. Of the $31.3 million pre-tax 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. The Company continues to review its financial strategy in light of the strategic initiatives currently underway. This is being done in order to continue to insure that it has adequate access to short-term and long-term credit necessary to meet its needs for growth and expansion in the foreseeable future. 12 PART II - OTHER INFORMATION Items 1, 2, 3, 4, and 5 are not applicable. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. (a) Exhibits: Financial Data Schedule. (b) REPORTS ON FORM 8-K. Not applicable. 13 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. NASH-FINCH COMPANY Registrant Date: November 18, 1997 By /s/ Alfred N. Flaten ------------------------- Alfred N. Flaten President and Chief Executive Officer By /s/ John R. Scherer ------------------------- John R. Scherer Chief Financial Officer 14 NASH FINCH COMPANY EXHIBIT INDEX TO QUARTERLY REPORT ON FORM 10-Q For the Forty Weeks Ended October 4, 1997 Item No. Item Method of Filing - -------- ---- ---------------- 27.1 Financial Data Schedule Filed herewith. 16 EX-27 2 EXHIBIT 27 FDS
5 1,000 9-MOS JAN-03-1998 DEC-29-1996 OCT-04-1997 891 0 228,268 19,066 323,329 560,856 586,787 (323,061) 971,796 318,063 376,058 0 0 19,292 202,614 971,796 3,225,711 3,277,712 2,850,337 3,226,585 31,272 2,771 24,591 (7,507) (570) (6,937) 0 0 0 (6,937) (.61) (.61) Special Charges
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