-----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, SZYjw0ZFbpIeD9B4LRyQTmt3eS0tV89FmWFAq93aDYcw94pOOXu6wRsU3UFmc02l WNmmdVDSDu96oX//aNITYQ== 0001047469-99-013475.txt : 19990405 0001047469-99-013475.hdr.sgml : 19990405 ACCESSION NUMBER: 0001047469-99-013475 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 11 CONFORMED PERIOD OF REPORT: 19990102 FILED AS OF DATE: 19990402 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-K SEC ACT: SEC FILE NUMBER: 000-00785 FILM NUMBER: 99586784 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-K 1 10-K - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 --------- FORM 10-K Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the fiscal year ended: Commission file number: January 2, 1999 0-785 --------- NASH-FINCH COMPANY (Exact name of Registrant as specified in its charter) Delaware 41-0431960 (State of Incorporation) (I.R.S. Employer Identification No.) 7600 France Avenue South P.O. Box 355 Minneapolis, Minnesota (Address of principal 55440-0355 executive offices) (Zip Code) Registrant's telephone number, including area code: (612) 832-0534 --------- Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common Stock, par value $1.66-2/3 per share Common Stock Purchase Rights --------- 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, and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] As of March 22, 1999, 11,341,887 shares of Common Stock of the Registrant were outstanding, and the aggregate market value of the Common Stock of the Registrant as of that date (based upon the last reported sale price of the Common Stock at that date by the Nasdaq National Market), excluding outstanding shares deemed beneficially owned by directors and officers, was approximately $96,406,040. --------- Parts I, II and IV of this Annual Report on Form 10-K incorporate by reference information (to the extent specific pages are referred to herein) from the Registrant's Annual Report to Stockholders for the Year Ended January 2, 1999 (the "1998 Annual Report"). Parts II and III of this Annual Report on Form 10-K incorporate by reference information (to the extent specific sections are referred to herein) from the Registrant's Proxy Statement for its Annual Meeting to be held on May 11, 1999 (the "1999 Proxy Statement"). - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- PART I ITEM 1. BUSINESS. A. GENERAL DEVELOPMENT OF BUSINESS. Nash Finch Company, a Delaware corporation, was organized in 1921 as the successor to a business established in 1885. Its principal executive offices are located at 7600 France Avenue South, Edina, Minnesota 55435 (Telephone: 612-832-0534). Unless the context indicates otherwise, the term "Company," as used in this Report, means Nash Finch Company and its consolidated subsidiaries. The Company is one of the largest food wholesalers in the United States. Its business consists of three primary operating segments: (i) the wholesale distribution segment, which supplies food and non-food items to independently owned retail grocery stores, corporately owned retail grocery stores and institutional customers; (ii) the retail segment, which is made up of corporately owned retail grocery stores with a variety of store formats; and (iii) the military distribution segment, which supplies food and related products to military commissaries. Currently, the Company conducts its wholesale and retail operations primarily in the Midwestern and Southeastern regions of the United States and its military distribution operations primarily in the Mid-Atlantic region of the United States. Early in 1999, the Company announced a five-year strategic revitalization plan to streamline its wholesale operations and build its retail business. The new strategic plan resulted from an intensive diagnostic assessment, conducted in 1998, of the entire Company's operations. During this assessment, the performance of the Company was benchmarked against its competitors in order to evaluate opportunities to improve profitability and enhance shareholder value. The following strategic objectives were set: - Focusing energies on wholesale and retail distribution of supermarket products, primarily in Midwest and Southeast markets; - Making wholesale operations sales driven and focused on premier customer service and low cost; - Enabling corporate retail to dominate its primary trade areas through convenience, consistently excellent execution and superior customer service; - Utilizing business process changes aggressively to reduce costs through productivity gains and to create a responsive management structure; and - Equipping employees with the required training and tools, measuring success through contribution and performance. The five-year strategic plan is expected to be implemented in three phases: (i) Phase I - the stabilization of the Company's existing business; (ii) Phase II - rebuilding the Company's foundation; and (iii) Phase III-growing the Company's business. Within each phase, various initiatives will be established and implemented. The timing and importance of each initiative will be determined in accordance with how well it (i) leverages the Company's scale by centralizing operations, (ii) attains operational efficiency, (iii) develops the Company's retail competency, and (iv) enables the Company to pursue growth strategies. 2 The Company has been taking steps during 1998 to begin the implementation of Phase I and will continue to implement Phase I throughout 1999. The following list represents the five top initiatives within Phase I: - REVAMPING THE ORGANIZATIONAL STRUCTURE AND MANAGEMENT PROCESS. The Company's organizational structure has been realigned to establish clear lines of accountability. Key performance metrics have been established to measure success. A new performance-based compensation program has been approved for management that clearly aligns management's interests with those of the Company's shareholders. - DEVELOPING FUNCTIONAL INFORMATION SYSTEMS. The Company has decided to halt the software development related to the Company's HORIZONS project. This decision was driven by the need to shift resources to a Year 2000 remediation plan, as well as a concern over the functionality of the software platform. Year 2000 remediation is now the Company's highest business priority. - EVALUATING AND EXECUTING STRATEGIES FOR NON-CORE ASSETS, UNDERPERFORMING DISTRIBUTION CENTERS, STORES AND PRODUCTS. All business units and non-core assets will be, or have been, reviewed. Assets that do not provide an acceptable rate of return will be identified and the Company will evaluate its strategic alternatives, including consolidation, sale or closure. Resources will be focused on the Company's core wholesale distribution, retail distribution and military operations. - ENHANCING WORKING CAPITAL LEVERAGE. Steps were taken in 1998 to strengthen the balance sheet and position the Company for future growth. - REDUCING COST STRUCTURE. The Company will more efficiently manage labor in its corporate stores and distribution centers, and improve transportation and warehousing costs. It is intended that inventory levels will be brought in line with industry averages, and product procurement and merchandising efforts will be leveraged. Related to the revitalization plan and the diagnostic assessment, the Company recorded special pretax charges in the fourth quarter of 1998 totaling $105.6 million, including charges associated with the reporting of the Company's produce growing and marketing subsidiary as a discontinued operation. In support of its focus on increasing efficiencies at its distribution centers and decreasing operating costs, the Company closed its warehouses in Lexington, Kentucky, and Grand Island, Nebraska during 1998. The operations in Lexington were consolidated into the operations in Cincinnati, Ohio and Bluefield, Virginia, whereas the Grand Island operations were consolidated into the operations in Omaha, Nebraska and Denver, Colorado. During the initial months of 1999, the Company has closed its warehouses in Liberal, Kansas and Appleton, Wisconsin. The Liberal operations have been consolidated into the operations in Denver, Colorado, whereas the Appleton operations have been consolidated into the operations in Cedar Rapids, Iowa, and St. Cloud, Minnesota. The Company also has plans to consolidate the operations of Rocky Mount, North Carolina into the Lumberton warehouse. 3 Additional information relating to the Company's business, the new strategic plan and related special charges are contained in the "Management's Discussion and Analysis of Financial Condition and Results of Operations" section of the Company's 1998 Annual Report (Exhibit 13.1), pages 18-22, which information is incorporated herein by reference. B. FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS. Financial information about the Company's business segments for the most recent three fiscal years is contained on pages 35-36 of the 1998 Annual Report (Note (15) to the Consolidated Financial Statements). For segment financial reporting purposes, a portion of the operational profits of wholesale distribution centers are allocated to retail operations to the extent that merchandise is purchased by these distribution centers and transferred to retail stores directly operated by the Company. For fiscal 1998, seventeen percent (17%) of such warehouse operational profits were allocated to retail operations. C. NARRATIVE DESCRIPTION OF THE BUSINESS. 1. WHOLESALE OPERATIONS. a. PRODUCTS AND SERVICES. The Company's wholesale operations are essentially divided into two segments. The first segment sells and distributes a wide variety of food and non-food products to independently owned and corporately owned retail grocery stores (the "wholesale segment"). The second sells and distributes food and non-food products to military commissaries (the "military segment"). In 1998, the wholesale segment accounted for 60.0% of the Company's total revenues; the military segment 22.1%. The Company provides to its customers a full line of food products, including dry groceries, fresh fruits and vegetables, frozen foods, fresh and processed meat products and dairy products, and a variety of non-food products, including health and beauty care, tobacco, paper products, cleaning supplies and small household items. The Company primarily distributes and sells nationally advertised branded products and a number of unbranded products (principally meats and produce) purchased directly from various manufacturers, processors and suppliers or through manufacturers' representatives and brokers. The Company also distributes and sells private label products that are branded primarily under the OUR FAMILY-Registered Trademark- trademark, a long-standing private label of the Company, and the FAME-Registered Trademark- trademark, which the Company obtained in the acquisition of Super Food Services, Inc. ("Super Food"). Under its private label line of products, the Company offers a wide variety of grocery, dairy, packaged meat, frozen foods, health and beauty care products, paper and household products, beverages, and other packaged products that have been manufactured or processed by other companies on behalf of the Company. The Company also offers to independent retailers a broad range of services, including the following: (i) promotional, advertising and merchandising programs; (ii) the installation of computerized ordering, receiving and scanning systems; (iii) the establishment and supervision of computerized retail accounting, budgeting and payroll systems; (iv) personnel management assistance and employee training; (v) consumer and market research; (vi) remodeling and store development services; and (vii) insurance programs. The Company believes that its support services help the independent retailers compete more effectively in their markets and build customer loyalty. 4 The Company's retail counselors and other Company personnel advise and counsel independent retailers, and directly provide many of the above services. Separate charges may be made for some of these services. The Company also provides retailers with marketing and store upgrade services, many of which have been developed in connection with Company owned stores. For example, the Company assists retailers in installing and operating delicatessens and other specialty food sections. Rather than offering a single program for the services it provides, the Company has developed multiple, flexible programs to serve the needs of most independent retailers, whether rural or urban, large or small. The Company's assistance to independent retailers in store development provides a means of continued growth for the Company through the development of new retail store locations and the enlargement or remodeling of existing retail stores. Services provided include site selection, marketing studies, building design, store layout and equipment planning and procurement. The Company assists wholesale customers in securing existing supermarkets that are for sale from time to time in market areas served by the Company and, occasionally, acquires existing stores for resale to wholesale customers. The Company also provides financial assistance to its independent retailers generally in connection with new store development and the upgrading or expansion of existing stores. For example, the Company makes secured loans to some of its independent retailers, generally repayable over a period of five or seven years, 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 security. As of January 2, 1999, the Company had approximately $33.3 million outstanding of such secured loans to 156 independent retailers. In addition, the Company may provide such assistance to independent retailers by guarantying loans from financial institutions and leases entered into directly with lessors. The Company also uses its credit strength to lease supermarket locations for sublease to independent retailers, at rates that are at least as high as the rent paid by the Company. b. CUSTOMERS. The Company offers its products and services to approximately 2,000 independent retail grocery stores, U.S. military commissaries and other customers in nearly thirty (30) states. As of the end of the fiscal year, no customer accounted for a significant portion of the Company's sales. The Company's wholesale segment customers are primarily self-service retail grocery stores that carry a wide variety of grocery products, health and beauty care products and general merchandise. Many of these stores also have one or more specialty departments such as a delicatessen, an in-store bakery, a restaurant, a pharmacy and a flower shop. The size of the customers' stores ranges from 5,000 to 75,000 square feet. The Company's military segment currently delivers products to approximately eighty (80) U.S. military commissaries in the United States. Due to the amount of revenue generated with the U.S. military commissaries and the number of U.S. military commissaries that the Company does business with, the Company believes that it is the largest distributor of groceries and related products to such facilities in the United States. 5 c. DISTRIBUTION. The Company currently distributes products from eighteen (18) distribution centers located in Colorado, Georgia, Iowa, Maryland, Michigan, Minnesota, Nebraska, North Carolina (2), North Dakota (2), Ohio (3), South Dakota (2), and Virginia (2). The Company's distribution centers are located at strategic points to efficiently serve Company owned stores, independent customers and military commissaries. The distribution centers are equipped with modern materials handling equipment for receiving, storing and shipping goods and merchandise and are designed for high-volume operations at low unit costs. Distribution centers serve as central sources of supply for Company owned and independent stores, military commissaries and other institutional customers within their operating areas. Generally, the distribution centers maintain complete inventories containing most national brand grocery products sold in supermarkets and a wide variety of high-volume private label items. In addition, distribution centers provide full lines of perishables, including fresh meats and poultry, fresh fruits and vegetables (except Super Food distribution centers), dairy and delicatessen products and frozen foods. Health and beauty care products, general merchandise and specialty grocery products are distributed from a dedicated area of a distribution center located in Bellefontaine, Ohio, and from the distribution center located in Sioux Falls, South Dakota. Retailers order their inventory requirements at regular intervals through direct linkage with the Company's computers. Deliveries of product are made primarily by the Company's transportation fleet. The frequency of deliveries varies, depending upon customer needs. The Company currently has a modern fleet of over 500 tractors and nearly 1050 semi-trailers, most of which are owned by the Company. In addition, many types of meats, dairy products, bakery and other products are sold by the Company but are delivered by the suppliers directly to retail food stores. Virtually all of the Company's wholesale sales to independent retailers are made on a market price-plus-fee and freight basis, with the fee based on the type of commodity and quantity purchased. Selling prices are changed promptly, based on the latest market information. The Company distributes groceries and related products directly to military commissaries in the U.S., and distribution centers also provide products for distribution to U.S. military commissaries in Europe and to ships afloat. These distribution services are provided primarily under contractual arrangements with the manufacturers of those products. The Company provides storage, handling and transportation services for the manufacturers and, as products ordered from the Company by the commissaries are delivered to the commissaries, the Company invoices the manufacturers for the cost of the merchandise delivered plus negotiated fees. 2. RETAIL OPERATIONS As of January 2, 1999, the Company operated ninety-three (93) retail stores primarily in the Midwestern and Southeastern states. These stores, nineteen (19) of which the Company owns (the remainder are leased), range in size up to approximately one hundred six thousand (106,000) square feet. These stores offer a wide variety of high quality groceries, fresh fruits and vegetables, dairy products, frozen foods, fresh fish, fresh and processed meat and health and beauty care products. Many have specialty departments such as delicatessens, bakeries, pharmacies, banks and floral and video departments. In 1998, the retail segment accounted for 17.8% of the Company's total revenues. During 1999, the Company will reduce the number of regional store names under which it operates from 17 to four: ECONOFOODS-Registered Trademark-, SUN MART -Registered Trademark-, FAMILY THRIFT CENTER -TM- and IGA (a registered trademark of IGA, Inc.). This will be done to build brand equity and eliminate inefficiencies. 6 As part of its revitalization plan, the Company has announced that it is focused on strengthening its corporate retail presence, and plans to expand this segment over five years so that it represents as much as 50 percent of total Company sales. 3. PRODUCE GROWING AND MARKETING OPERATIONS Through a wholly owned subsidiary, Nash-DeCamp Company ("Nash-DeCamp"), the Company grows, packs, ships and markets fresh fruits and vegetables from locations in California and the countries of Chile and Mexico to customers in the United States, Canada and overseas. For regulatory reasons, the amount of business between Nash-DeCamp and the Company is limited. The Company owns and operates three modern packing, shipping and/or cold storage facilities that ship fresh grapes, plums, peaches, nectarines, apricots, pears, persimmons, kiwi fruit and other products. The Company also acts as marketing agent for other packers of fresh produce in California and in the countries of Chile and Mexico. For the above services, the Company receives, in addition to a selling commission, a fee for packing, handling and shipping produce. The Company also owns vineyards and orchards for the production of table grapes, tree fruit, kiwi and citrus. The Company has announced that it is seeking to sell Nash-DeCamp during 1999, and for financial reporting purposes is reporting this as a discontinued operation. 4. COMPETITION. All segments of the Company's business are highly competitive. The Company competes directly at the wholesale level with a number of cooperative wholesalers and voluntary wholesalers that supply food and non-food products to independent retailers. "Cooperative" wholesalers are wholesalers that are owned by their retail customers. On the other hand, "voluntary" wholesalers are wholesalers who, like the Company, are not owned by their retail customers but sponsor a program under which single-unit or multi-unit independent retailers may affiliate under a common name. Certain of these competing wholesalers may also engage in distribution to military commissaries. The Company also competes indirectly with the warehouse and distribution operations of the large integrated grocery store chains. Such retail grocery store chains own their wholesale operations and self-distribute their food and non-food products. At the wholesale level, the principal methods of competition are price, quality, breadth and availability of products offered, strength of private label brands offered, schedules and reliability of deliveries and the range and quality of services offered, such as store financing and use of store names, and the services offered to manufacturers of products sold to military commissaries. The success of the Company's wholesale business also depends upon the ability of its retail store customers to compete successfully with other retail food stores. The Company also competes on the retail level in a fragmented market with many organizations of various sizes, ranging from national and regional retail chains to local chains and privately owned unaffiliated stores. Depending on the product and location involved, the principal methods of competition at the retail level are price, quality and assortment, store location and format, sales promotions, advertising, availability of parking, hours of operation and store appeal. 7 The Company competes directly in its produce marketing operations with a large number of other firms that pack, ship and market produce. The Company also competes indirectly with larger, integrated firms that grow, pack, ship and market produce. The principal methods of competition in this segment are service provided to growers and the ability to sell produce at the most favorable prices. 5. EMPLOYEES. As of January 2, 1999, the Company employed 11,750 persons (5,263 of which were employed on a part-time basis). All employees are non-union, except 704 employees who are unionized under various bargaining agreements. The Company considers its employee relations to be good. 6. FORWARD LOOKING STATEMENTS. The information contained in this report and in the documents incorporated herein by reference include 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 upon available data, they are subject to risks, uncertainties and other factors that 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: (i) meet debt service obligations and maintain future financial flexibility; (ii) respond to continuing competitive pricing pressures; (iii) retain existing independent wholesale customers and attract new accounts; (iv) address Year 2000 issues as they affect the Company, its customers and vendors; and (v) fully integrate acquisitions and realize expected synergies. A more detailed description of some of the risk factors is set forth in Exhibit 99.1. ITEM 2. PROPERTIES. The principal executive offices of the Company are located in Edina, Minnesota, and consist of approximately 68,000 square feet of office space in a building owned by the Company. The executive office for the Super Food subsidiary is located in Dayton, Ohio and consists of 8,580 square feet of leased office space. In addition to these executive offices, the Company leases an additional 26,250 square feet of office space in Edina, Minnesota and St. Louis Park, Minnesota as well as 14,580 square feet in Cincinnati, Ohio. A. WHOLESALE DISTRIBUTION. The locations and sizes of the Company's distribution centers used primarily in its wholesale distribution operations are listed below (all of which are owned, except as indicated). The distribution center facilities that are leased have varying terms, all with remaining terms of less than 20 years.
Approx. Size Location (Square Feet) -------- ------------- Midwest/West: Denver, Colorado (a) 335,800 Cedar Rapids, Iowa (b) 399,900 St. Cloud, Minnesota 329,000 Omaha, Nebraska (a) 626,900 Fargo, North Dakota (c) 303,800 Minot, North Dakota 185,200 Rapid City, South Dakota (d) 189,500 Sioux Falls, South Dakota (e) 271,100 Southeast: Statesboro, Georgia (a) (f) 287,800 8 Approx. Size Location (Square Feet) -------- ------------- Lumberton, North Carolina (a) (g) 256,600 Rocky Mount, North Carolina (a) 191,800 Bluefield, Virginia 187,500 Super Food Services, Inc. Bellefontaine, Ohio (h) 868,200 Cincinnati, Ohio 445,600 Bridgeport, Michigan (a) 604,500 Total Square Footage 5,483,200
- ----------------------------- (a) Leased facility. (b) Includes 48,000 square feet that are leased by the Company. (c) Includes 15,000 square feet that are leased by the Company. (d) Includes 2,400 square feet that are leased by the Company. (e) Includes 75,000 square feet that are leased by the Company. (f) Includes 46,400 square feet that are owned by the Company. (g) Includes 16,100 square feet of produce warehouse space located in Wilmington, North Carolina that are leased by the Company. The warehouse is currently being expanded to include an additional 95,900 square feet of warehouse space. (h) Includes 197,000 square feet that are leased by the Company. This facility is considered by the Company to constitute two distribution centers: (1) Super Food distribution center - distribution of dry groceries, frozen foods, fresh and processed meat products, and a variety of non-food products; and (2) General Merchandise Services distribution center - distribution of health and beauty care products, general merchandise and specialty grocery products. General Merchandise Services, an operating unit of Super Food, utilizes approximately 254,000 square feet of the total space (owned and leased). Various of these distribution centers also distribute products to military commissaries located in their geographic area. B. MILITARY DISTRIBUTION. The locations and sizes of the Company's distribution centers used primarily in its military distribution operations are listed below (each of which is leased, except as indicated). The distribution center facilities that are leased have varying terms, each with a remaining term of less than 20 years.
Approx. Size Location (Square Feet) -------- ------------- Baltimore, Maryland (a) 350,500 Norfolk, Virginia (a) (b) 568,600 Total Square Footage 919,100
- ----------------------------- (a) Leased facility. (b) Includes 59,250 square feet that are owned by the Company. 9 C. RETAIL OPERATIONS. As of January 2, 1999, the aggregate square footage of the Company's ninety-three (93) retail grocery stores totaled 2,649,650 square feet. D. OTHER OPERATIONS. Nash-DeCamp has executive offices comprising approximately 11,600 square feet of leased space in an office building located in Visalia, California. It owns and operates three packing, shipping and/or cold storage facilities in California in connection with its produce marketing operations, with total space of approximately 174,000 square feet. In addition to such storage facilities, Nash-DeCamp also owns approximately 879 acres for the production of table grapes, 1,110 acres for the production of peaches, plums, apricots, persimmons and nectarines, 42 acres for the production of citrus, and 252 acres of open ground for future development, all in San Joaquin Valley of California. Nash-DeCamp also leases 185 acres for the production of tree fruit located in the San Joaquin Valley and, through a 99%-owned Chilean subsidiary, approximately 740 acres in Chile for the production of table grapes. ITEM 3. LEGAL PROCEEDINGS. The Company is subject to ordinary routine legal proceedings incidental to its business. There are no pending matters, however, which are expected to have a material impact on the business or financial condition of the Company. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. No matter was submitted to a vote of security holders during the fourth quarter of the fiscal year covered by this Report. 10 ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT. The executive officers of the Company, their ages, the year first elected or appointed as an executive officer and the offices held as of March 31, 1999 are as follows:
Year First Elected or Appointed as an Name Age Executive Officer Title - ---- --- ----------------- ----- Ron Marshall 45 1998 President and Chief Executive Officer John A. Haedicke 46 1999 Exec. Vice President, Chief Financial and Administrative Officer Bruce A. Cross 47 1998 Sr. Vice President and Chief Information Officer John M. McCurry 50 1996 Sr. Vice President - Wholesale Operations William A. Merrigan 54 1998 Sr. Vice President - Distribution & Logistics Norman R. Soland 58 1986 Sr. Vice President, Secretary and General Counsel Mark Ahlstrom 43 1999 Vice President - Category Management Arthur L. Keeney 46 1998 Vice President - Corporate Retail Stores Gerald D. Maurice 65 1993 Vice President - Store Development Charles F. Ramsbacher 56 1991 Vice President - Marketing John R. Scherer 48 1994 Vice President and Chief Financial Officer Suzanne S. Allen 34 1996 Treasurer Lawrence A. Wojtasiak 53 1990 Controller
There are no family relationships between or among any of the executive officers or directors of the Company. Executive officers of the Company are elected by the Board of Directors for one-year terms, commencing with their election at the first meeting of the Board of Directors immediately following the annual meeting of stockholders and continuing until the next such meeting of the Board of Directors. Mr. Marshall was elected as President and Chief Executive Officer as of June 1, 1998. Mr. Marshall previously served as Executive Vice President and Chief Financial Officer of Pathmark Stores, Inc. (a retail grocery store chain) from September 1994 to May 1998 and as Senior Vice President and Chief Financial Officer of Dart Group Corporation (a retailer of groceries, auto parts and books) from November 1991 to September 1994. Mr. Haedicke was elected as Executive Vice President, Chief Financial and Administrative Officer as of March 1, 1999. Mr. Haedicke previously served as Executive Vice President and Chief Operating Officer of OneSource, a third-party warehousing and consolidation service division of C&S Wholesale Grocers, Inc. (a food wholesaler) from March 1997 to February 1999, Vice President of Finance (ECR Division) of Kraft Foods, Inc. from September 1994 to March 1997, and as Director, Activity Based Costing, of Coca-Cola Company from December 1990 to September 1994. 11 Mr. Cross was elected as Senior Vice President, Chief Information Officer as of September 29, 1998. Mr. Cross previously served as Senior Project Executive for IBM Global Services from January 1995 to September 1998 and as Director of Information Services for Safeway, Inc. (a retail grocery store chain) from May 1988 to May 1994. Mr. McCurry was elected as Senior Vice President - Wholesale Operations as of January 3, 1999. He previously served as Vice President, Independent Store Operations from May 1996 to January 1999 and as Director of Independent Store Operations from August 1993 to May 1996. Mr. Merrigan was elected as Senior Vice President - Distribution and Logistics as of November 30, 1998. He previously served as Vice President - Logistics for Wakefern Food Corp. (a cooperative wholesale food distributor) from August 1986 to November 1998. Mr. Soland was elected as Senior Vice President on July 14, 1998, and has served as Secretary and General Counsel since January 1986. He served as Vice President, Secretary and General Counsel from May 1988 to July 1998. Mr. Ahlstrom was elected as Vice President - Category Management on February 17, 1999. He previously served as National Product Manager for American Stores Company (a retail grocery store chain) from May 1996 to February 1999, and as Director of Grocery for Ralphs Grocery Company (a retail grocery store chain) from January 1994 to May 1996. Mr. Keeney was elected as Vice President - Corporate Retail Stores on July 14, 1998. He previously served as Director of Sales and Advertising for the Super K Division of Kmart Corporation, from July 1995 to June 1998, as well as its Director of Grocery Operations from December 1993 to July 1995. Mr. Maurice was elected Vice President, Store Development in May 1993. He previously served as an operating Vice President and division manager for more than five years. Mr. Ramsbacher has served as Vice President, Marketing since May 1991. Mr. Scherer was appointed as Chief Financial Officer in November 1995 and elected as Vice President effective as of December 1994. He previously served as Vice President, Planning and Financial Services from December 1994 to November 1995, and as Director of Strategic Planning and Financial Services from April 1994 to December 1994. Ms. Allen was elected as Treasurer effective as of January 1996. She previously served as Assistant Treasurer from May 1995 to January 1996, and Treasury Manager from January 1993 to May 1995. Mr. Wojtasiak has served as Controller since May 1990. 12 PART II ITEM 5. MARKET FOR COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The information under the caption "Price Range of Common Stock and Dividends" on page 22 of the Company's 1998 Annual Report is incorporated herein by reference. ITEM 6. SELECTED FINANCIAL DATA The financial information under the caption "Consolidated Summary of Operations" on pages 38 and 39 of the Company's 1998 Annual Report is incorporated herein by reference. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The information under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations" on pages 18-22 of the Company's 1998 Annual Report is incorporated herein by reference. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. The information under the caption "Liquidity and Capital Resources" on pages 21-22 of the Company's 1998 Annual Report is incorporated herein by reference. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The Company's Consolidated Financial Statements and the report of its independent auditors on pages 22-36 of the Company's 1998 Annual Report are incorporated herein by reference, as is the unaudited information set forth under the caption "Quarterly Financial Information" on page 37. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not applicable. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. A. DIRECTORS OF THE REGISTRANT. The information under the captions "Election of Directors--Information About Directors and Nominees" and "Election of Directors--Other Information About Directors and Nominees" in the Company's 1999 Proxy Statement is incorporated herein by reference. 13 B. EXECUTIVE OFFICERS OF THE REGISTRANT. Information concerning executive officers of the Company is included in this Report under Item 4A, "Executive Officers of the Registrant". C. COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT OF 1934. Information under the caption "Section 16(a) Beneficial Ownership Reporting Compliance" in the Company's 1999 Proxy Statement is incorporated herein by reference. ITEM 11. EXECUTIVE COMPENSATION The information under the captions "Election of Directors--Compensation of Directors" and "Executive Compensation and Other Benefits" in the Company's 1999 Proxy Statement is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information under the captions "Security Ownership of Certain Beneficial Owners" and "Security Ownership of Management" in the Company's 1999 Proxy Statement is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information under the captions "Election of Directors--Other Information About Directors and Nominees" and "Executive Compensation and Other Benefits--Indebtedness of Management" in the Company's 1999 Proxy Statement is incorporated herein by reference. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K A. FINANCIAL STATEMENTS. The following Financial Statements are incorporated herein by reference from the pages indicated in the Company's 1998 Annual Report: - Independent Auditors' Report -- page 22 - Consolidated Statements of Operations for the fiscal years ended January 2, 1999, January 3, 1998, and December 28, 1996 -- page 23 - Consolidated Balance Sheets as of January 2, 1999 and January 3, 1998 -- page 24 - Consolidated Statements of Cash Flows for the fiscal years ended January 2, 1999, January 3, 1998, and December 28, 1996 -- page 25. - Consolidated Statements of Stockholders' Equity for the fiscal years ended January 2, 1999, January 3, 1998, and December 28, 1996 -- page 26 14 - Notes to Consolidated Financial Statements -- pages 27-36 B. FINANCIAL STATEMENT SCHEDULE. The following financial statement schedules are included herein and should be read in conjunction with the consolidated financial statements referred to above (page numbers refer to pages in this Report): - Valuation and Qualifying Accounts - page 18 - Other Schedules. Other schedules are omitted because the required information is either inapplicable or presented in the consolidated financial statements or related notes. C. EXHIBITS. The exhibits to this Report are listed in the Exhibit Index on pages E-1 to E-9 herein. A copy of any of these exhibits will be furnished at a reasonable cost to any person who was a stockholder of the Company as of March 22, 1999, upon receipt from any such person of a written request for any such exhibit. Such request should be sent to Nash Finch Company, 7600 France Avenue South, P.O. Box 355, Minneapolis, Minnesota, 55440-0355, Attention: Secretary. The following is a list of each management contract or compensatory plan or arrangement required to be filed as an exhibit to this Annual Report on Form 10-K pursuant to Item 14(c): 1. Nash Finch Profit Sharing Plan - 1994 Revision and Nash Finch Profit Sharing Trust Agreement (as restated effective January 1, 1994) (incorporated by reference to Exhibit 10.6 to the Company's Annual Report on Form 10-K for the fiscal year ended January 1, 1994 (File No. 0-785)). 2. Nash Finch Profit Sharing Plan - 1994 Revision - First Declaration of Amendment (incorporated by reference to Exhibit 10.7 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1994 (File No. 0-785)). 3. Nash Finch Profit Sharing Plan - 1994 Revision - Second Declaration of Amendment (incorporated by reference to Exhibit 10.10 to the Company's Annual Report on Form 10-K for the fiscal year ended December 30, 1995 (File No. 0-785)). 4. Nash Finch Profit Sharing Plan - 1994 Revision - Third Declaration of Amendment (incorporated by reference to Exhibit 10.22 to the Company's Annual Report on Form 10-K for the fiscal year ended January 3, 1998 (File No. 0-785)). 5. Nash Finch Profit Sharing Plan - 1994 Revision - Fourth Declaration of Amendment (incorporated by reference to Exhibit 10.23 to the Company's Annual Report on Form 10-K for the fiscal year ended January 3, 1998 (File No. 0-785)). 15 6. Nash Finch Profit Sharing Plan - 1994 Revision - Fifth Declaration of Amendment (incorporated by reference to Exhibit 10.24 to the Company's Annual Report on Form 10-K for the fiscal year ended January 3, 1998 (File No. 0-785)). 7. Nash Finch Executive Incentive Bonus and Deferred Compensation Plan (as amended and restated effective December 31, 1993) (incorporated by reference to Exhibit 10.7 to the Company's Annual Report on Form 10-K for the fiscal year ended January 1, 1994 (File No. 0-785)). 8. Excerpts from minutes of the November 11, 1986 meeting of the Board of Directors regarding Nash Finch Pension Plan, as amended (incorporated by reference to Exhibit 10.9 to the Company's Annual Report on Form 10-K for the fiscal year ended January 3, 1987 (File No. 0-785)). 9. Excerpts from minutes of the November 21, 1995 meeting of the Board of Directors regarding Nash Finch Pension Plan, as amended (incorporated by reference to Exhibit 10.13 to the Company's Annual Report on Form 10-K for the fiscal year ended December 30, 1995 (File No. 0-785)). 10. Excerpts from minutes of the April 9, 1996 meeting of the Board of Directors regarding director compensation (incorporated by reference to Exhibit 10.22 to the Company's Annual Report on Form 10-K for the fiscal year ended December 28, 1996 (File No. 0-785)). 11. Excerpts from minutes of the November 19, 1996 meeting of the Board of Directors regarding director compensation (incorporated by reference to Exhibit 10.23 to the Company's Annual Report on Form 10-K for the fiscal year ended December 28, 1996 (File No. 0-785)). 12. Form of letter agreement specifying benefits in the event of termination of employment following a change in control of Nash Finch (incorporated by reference to Exhibit 10.20 to the Company's Annual Report on Form 10-K for the fiscal year ended December 29, 1990 (File No. 0-785)). 13. Nash Finch Income Deferral Plan (incorporated by reference to Exhibit 10.17 to the Company's Annual Report on Form 10-K for the fiscal year ended January 1, 1994 (File No. 0-785)). 14. Nash Finch 1994 Stock Incentive Plan, as amended (incorporated by reference to Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the period ended June 14, 1997 (File No. 0-785)). 15. Nash Finch 1995 Director Stock Option Plan (incorporated by reference to Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the period ended June 17, 1995 (File No. 0-785)). 16. Nash Finch 1997 Non-Employee Director Stock Compensation Plan (incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the period ended June 14, 1997 (File No. 0-785)). 17. Excerpts from minutes of the November 17, 1998 meeting of the Board of Directors regarding director compensation (filed herewith as Exhibit 10.35) 16 18. Retirement Agreement dated as of May 12, 1998 between Alfred N. Flaten and the Company (incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the period ended October 10, 1998 (File No. 0-785)). 19. Offer of Employment to Ron Marshall dated May 7, 1998 from Donald R. Miller, Board Chair (filed herewith). D. REPORTS ON FORM 8-K: No reports on Form 8-K were filed during the fourth quarter of the fiscal year ended January 2, 1999. 17 NASH FINCH COMPANY AND SUBSIDIARIES SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS FISCAL YEARS ENDED JANUARY 2, 1999 JANUARY 3, 1998 AND DECEMBER 28, 1996 (IN THOUSANDS)
Additions ----------------------------------- Balance at Charged to beginning costs and Due to Description of year expenses acquisitions - --------------------------------- ------------ ------------- --------------- 52 weeks ended December 28, 1996: Allowance for doubtful receivables (c) $4,880 1,893 23,314 Provision for losses relating to leases on closed locations 2,758 195 2,599 ------------ ------------- --------------- $7,638 2,088 25,913 ------------ ------------- --------------- ------------ ------------- --------------- 53 weeks ended January 3, 1998: Allowance for doubtful receivables (c) $ 28,093 5,055 -- Provision for losses relating to leases on closed locations 4,878 393 -- ------------ ------------- --------------- $32,971 5,448 -- ------------ ------------- --------------- ------------ ------------- --------------- 52 weeks ended January 2, 1999: Allowance for doubtful receivables (c) $26,668 10,637 -- Provision for losses relating to leases on closed locations 4,317 4,205 -- ------------ ------------- --------------- $30,985 14,842 -- ------------ ------------- --------------- ------------ ------------- --------------- Charged (credited) Balance to other at end Description accounts Deductions of year - --------------------------------- ------------ ------------- ---------- 52 weeks ended December 28, 1996: Allowance for doubtful receivables (c) 126 (a) 2,120 (b) 28,093 Provision for losses relating to leases on closed locations -- 674 (d) 4,878 ------------ ------------- ---------- 126 2,794 32,971 ------------ ------------- ---------- ------------ ------------- ---------- 53 weeks ended January 3, 1998: Allowance for doubtful receivables (c) 67 (a) 6,547 (d) 26,668 Provision for losses relating to leases on closed locations -- 954 (d) 4,317 ------------ ------------- ---------- 67 7,501 30,985 ------------ ------------- ---------- ------------ ------------- ---------- 52 weeks ended January 2, 1999: Allowance for doubtful receivables (c) 7 (a) 2,895 (b) 34,417 Provision for losses relating to leases on closed locations -- 2,286 (d) 6,236 ------------ ------------- ---------- 7 5,181 40,653 ------------ ------------- ---------- ------------ ------------- ----------
(a) Recoveries on accounts previously charged off. (b) Accounts charged off. (c) Includes current and non-current receivables. (d) Payments of lease obligations. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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. Dated: April 2, 1999 NASH-FINCH COMPANY By /s/ Ron Marshall ------------------------------- Ron Marshall President, Chief Executive Officer, and Director Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below on April 2, 1999 by the following persons on behalf of the Registrant and in the capacities indicated. /s/ Ron Marshall /s/ Lawrence A. Wojtasiak - ---------------------------------------------------- -------------------------------------------- Ron Marshall, President, Lawrence A. Wojtasiak, Controller (Principal Chief Executive Officer (Principal Executive Accounting Officer) Officer) and Director /s/ John A. Haedicke /s/ Carole F. Bitter - ---------------------------------------------------- -------------------------------------------- John A. Haedicke, Chief Financial and Carole F. Bitter, Director Administrative Officer (Principal Financial Officer) /s/ Richard A. Fisher /s/ Jerry L. Ford - ---------------------------------------------------- -------------------------------------------- Richard A. Fisher, Director Jerry L. Ford, Director /s/ Allister P. Graham /s/ John H. Grunewald - ---------------------------------------------------- -------------------------------------------- Allister P. Graham, Director John H. Grunewald, Director /s/ Richard G. Lareau /s/ Donald R. Miller - ---------------------------------------------------- -------------------------------------------- Richard G. Lareau, Director Donald R. Miller, Director /s/ Robert F. Nash /s/ Jerome O. Rodysill - ---------------------------------------------------- -------------------------------------------- Robert F. Nash, Director Jerome O. Rodysill, Director - ---------------------------------------------------- William R. Voss, Director
NASH FINCH COMPANY EXHIBIT INDEX TO ANNUAL REPORT ON FORM 10-K For Fiscal Year Ended January 2, 1999
Item No. Item Method of Filing - ---- ---- ---------------- 2.1 Agreement and Plan of Merger dated as of October 8, 1996 among the Company, NFC Acquisition Corporation, and Super Food Services, Inc. Incorporated by reference to Exhibit 2.1 to the Company's Current Report on Form 8-K dated November 22, 1996 (File No. 0-785). 3.1 Restated Certificate of Incorporation of the Company Incorporated by reference to Exhibit 3.1 to the Company's Annual Report on Form 10-K for the fiscal year ended December 28, 1985 (File No. 0-785). 3.2 Amendment to Restated Certificate of Incorporation of the Company, effective May 29, 1986 Incorporated by reference to Exhibit 19.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended October 4, 1986 (File No. 0-785). 3.3 Amendment to Restated Certificate of Incorporation of the Company, effective May 15, 1987 Incorporated by reference to Exhibit 4.5 to the Company's Registration Statement on Form S-3 (File No. 33-14871). 3.4 Bylaws of the Company as amended, effective November 21, 1995 Incorporated by reference to Exhibit 3.4 to the Company's Annual Report on Form 10-K for the fiscal year ended December 30, 1995 (File No. 0-785). E-1 Item No. Item Method of Filing - ---- ---- ---------------- 4.1 Stockholder Rights Agreement, dated February 13, 1996, between the Company and Norwest Bank Minnesota, National Association Incorporated by reference to Exhibit 4 to the Company's Current Report on Form 8-K dated February 13, 1996 (File No. 0-785). 4.2 Indenture dated as of April 24, 1998 between the Company, the Guarantors, and U.S. Bank Trust National Association Incorporated by reference to Exhibit 4.2 to the Company's Registration Statement on Form S-4 filed May 22, 1998 (File No. 333-53363). 4.3 Form of Company's 8.5% Senior Subordinated Notes due 2008 Series A Incorporated by reference to Exhibit 4.2 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 20, 1998 (File No. 0-785). 4.4 Form of Company's 8.5% Senior Subordinated Notes due 2008 Series B Incorporated by reference to Exhibit 4.3 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 20, 1998 (File No. 0-785). 10.1 Note Agreements, dated September 15, 1987, between the Company and IDS Life Insurance Company, and between the Company and IDS Life Insurance Company of New York ("1987 Note Agreements") Incorporated by reference to Exhibit 19.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended October 10, 1987 (File No. 0-785). 10.2 Note Agreements, dated September 29, 1989, between the Company and Nationwide Life Insurance Company, and between the Company and West Coast Life Insurance Company ("1989 Note Agreements") Incorporated by reference to Exhibit 19.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended October 7, 1989 (File No. 0-785). E-2 Item No. Item Method of Filing - ---- ---- ---------------- 10.3 Note Agreements dated March 22, 1991, between the Company and The Minnesota Mutual Life Insurance Company, and between the Company and The Minnesota Mutual Life Insurance Company - Separate Account F ("1991 Note Agreements") Incorporated by reference to Exhibit 19.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended March 23, 1991 (File No. 0-785). 10.4 Note Agreements, dated as of February 15, 1993, between the Company and Principal Mutual Life Insurance Company, and between the Company and Aid Association for Lutherans ("1993 Note Agreements") Incorporated by reference to Exhibit 19.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended March 27, 1993 (File No. 0-785). 10.5 Note Agreements, dated March 22, 1996, between the Company and The Variable Annuity Life Insurance Company, Independent Life and Accident Insurance Company, Northern Life Insurance Company, and Northwestern National Life Insurance Company ("1996 Note Agreements") Incorporated by reference to Exhibit 10.6 to the Company's Annual Report on Form 10-K for the fiscal year ended December 30, 1995 (File No. 0-785). 10.6 First Amendment to the 1987 Note Agreements, 1989 Note Agreements, 1991 Note Agreements, 1993 Note Agreements, and 1996 Note Agreements dated as of November 15, 1996 Incorporated by reference to Exhibit 10.6 to the Company's Annual Report on Form 10-K for the fiscal year ended December 28, 1996 (File No. 0-785). E-3 Item No. Item Method of Filing - ---- ---- ---------------- 10.7 Second Amendment to the 1987 Note Agreements, 1989 Note Agreements, 1991 Note Agreements, 1993 Note Agreements, and 1996 Note Agreements dated as of November 15, 1996 Incorporated by reference to Exhibit 10.7 to the Company's Annual Report on Form 10-K for the fiscal year ended December 28, 1996 (File No. 0-785). 10.8 Third Amendment to the 1987 Note Agreements dated as of January 15, 1997 Incorporated by reference to Exhibit 10.8 to the Company's Annual Report on Form 10-K for the fiscal year ended December 28, 1996 (File No. 0-785). 10.9 Third Amendment to the 1989 Note Agreements dated as of January 15, 1997 Incorporated by reference to Exhibit 10.9 to the Company's Annual Report on Form 10-K for the fiscal year ended December 28, 1996 (File No. 0-785). 10.10 Third Amendment to the 1991 Note Agreements dated as of January 15, 1997 Incorporated by reference to Exhibit 10.10 to the Company's Annual Report on Form 10-K for the fiscal year ended December 28, 1996 (File No. 0-785). 10.11 Third Amendment to the 1993 Note Agreements dated as of January 15, 1997 Incorporated by reference to Exhibit 10.11 to the Company's Annual Report on Form 10-K for the fiscal year ended December 28, 1996 (File No. 0-785). 10.12 Third Amendment to the 1996 Note Agreements dated as of January 15, 1997 Incorporated by reference to Exhibit 10.12 to the Company's Annual Report on Form 10-K for the fiscal year ended December 28, 1996 (File No. 0-785). E-4 Item No. Item Method of Filing - ---- ---- ---------------- 10.13 Note Agreements dated November 1, 1989, between Super Food Services, Inc. and Nationwide Life Insurance Co., . Employers Life Insurance Company of Wausau, and West Coast Life Insurance Company ("SFS 1989 Note Agreements") Incorporated by reference to Exhibit 10.13 to the Company's Annual Report on Form 10-K for the fiscal year ended December 28, 1996 (File No. 0-785). 10.14 Credit Agreement dated as of October 8, 1996 among the Company, NFC Acquisition Corp., Harris Trust and Savings Bank, as Administrative Agent, and Bank of Montreal and PNC Bank, N.A., as Co-Syndication Agents ("Credit Agreement") Incorporated by reference to Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the quarter ended October 5, 1996 (File No. 0-785). 10.15 First Amendment to Credit Agreement dated as of December 18, 1996 Incorporated by reference to Exhibit 10.15 to the Company's Annual Report on Form 10-K for the fiscal year ended December 28, 1996 (File No. 0-785). 10.16 Second Amendment to Credit Agreement dated as of November 10, 1997 Incorporated by reference to Exhibit 10.16 to the Company's Annual Report on Form 10-K for the fiscal year ended January 3, 1998 (File No. 0-785). 10.17 Fourth Amendment to the 1996 Note Agreements dated as of December 1, 1997 Incorporated by reference to Exhibit 10.17 to the Company's Annual Report on Form 10-K for the fiscal year ended January 3, 1998 (File No. 0-785). E-5 Item No. Item Method of Filing - ---- ---- ---------------- 10.18 Assumption Agreement and Amended and Restated Note Agreement dated as of January 31, 1997, between the Company, Nationwide Life Insurance Company, Employers Life Insurance Company of Wausau, and West Coast Life Insurance Company (amending and restating the SFS 1989 Note Agreements) Incorporated by reference to Exhibit 10.18 to the Company's Annual Report on Form 10-K for the fiscal year ended January 3, 1998 (File No. 0-785). 10.19 Nash Finch Profit Sharing Plan--1994 Revision and Nash Finch Profit Sharing Trust Agreement (as restated effective January 1, 1994) Incorporated by reference to Exhibit 10.6 to the Company's Annual Report on Form 10-K for the fiscal year ended January 1, 1994 (File No. 0-785). 10.20 Nash Finch Profit Sharing Plan -- 1994 Revision -- First Declaration of Amendment Incorporated by reference to Exhibit 10.7 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1994 (File No. 0-785). 10.21 Nash Finch Profit Sharing Plan -- 1994 Revision -- Second Declaration of Amendment Incorporated by reference to Exhibit 10.10 to the Company's Annual Report on Form 10-K for the fiscal year ended December 30, 1995 (File No. 0-785). 10.22 Nash Finch Profit Sharing Plan -- 1994 Revision -- Third Declaration of Amendment Incorporated by reference to Exhibit 10.22 to the Company's Annual Report on Form 10-K for the fiscal year ended January 3, 1998 (File No. 0-785). E-6 Item No. Item Method of Filing - ---- ---- ---------------- 10.23 Nash Finch Profit Sharing Plan -- 1994 Revision -- Fourth Declaration of Amendment Incorporated by reference to Exhibit 10.23 to the Company's Annual Report on Form 10-K for the fiscal year ended January 3, 1998 (File No. 0-785). 10.24 Nash Finch Profit Sharing Plan -- 1994 Revision -- Fifth Declaration of Amendment Incorporated by reference to Exhibit 10.24 to the Company's Annual Report on Form 10-K for the fiscal year ended January 3, 1998 (File No. 0-785). 10.25 Nash Finch Executive Incentive Bonus and Deferred Compensation Plan (as amended and restated effective December 31, 1993) Incorporated by reference to Exhibit 10.7 to the Company's Annual Report on Form 10-K for the fiscal year ended January 1, 1994 (File No. 0-785). 10.26 Excerpts from minutes of the November 11, 1986 meeting of the Board of Directors regarding Nash Finch Pension Plan, as amended effective January 2, 1966 Incorporated by reference to Exhibit 10.9 to the Company's Annual Report on Form 10-K for the fiscal year ended January 3, 1987 ( File No. 0-785). 10.27 Excerpts from minutes of the November 21, 1995 meeting of the Board of Directors regarding Nash Finch Pension Plan, as amended Incorporated by reference to Exhibit 10.13 to the Company's Annual Report on Form 10-K for the fiscal year ended December 30, 1995 (File No. 0-785). 10.28 Excerpts from minutes of the April 9, 1996 meeting of the Board of Directors regarding director compensation Incorporated by reference to Exhibit 10.22 to the Company's Annual Report on Form 10-K for the fiscal year ended December 28, 1996 (File No. 0-785). 10.29 Excerpts from minutes of the November 19, 1996 meeting of the Board of Directors regarding director compensation Incorporated by reference to Exhibit 10.23 to the Company's Annual Report on Form 10-K for the fiscal year ended December 28, 1996 (File No. 0-785). E-7 Item No. Item Method of Filing - ---- ---- ---------------- 10.30 Form of Letter Agreement Specifying Benefits in the Event of Termination of Employment Following a Change in Control of Company Incorporated by reference to Exhibit 10.20 to the Company's Annual Report on Form 10-K for the fiscal year ended December 29, 1990 (File No. 0-785). 10.31 Nash Finch Income Deferral Plan Incorporated by reference to Exhibit 10.17 to the Company's Annual Report on Form 10-K for the fiscal year ended January 1, 1994 (File No. 0-785). 10.32 Nash Finch 1994 Stock Incentive Plan, as amended Incorporated by reference to Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the period ended June 14, 1997 (File No. 0-785). 10.33 Nash Finch 1995 Director Stock Option Plan Incorporated by reference to Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the period ended June 17, 1995 (File No. 0-785). 10.34 Nash Finch 1997 Non-Employee Director Stock Compensation Plan Incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the period ended June 14, 1997 (File No. 0-785). 10.35 Excerpts from minutes of the November 17, 1998 meeting of the Board of Directors regarding director compensation Filed herewith. 10.36 Third Amendment to the Credit Agreement Incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the period ended March 28, 1998 (File No. 0-785). 10.37 Fourth Amendment to the Credit Agreement Filed herewith. 10.38 Retirement Agreement dated as of May 12, 1998 between Alfred N. Flaten and the Company Incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the period ended October 10, 1998 (File No. 0-785). E-8 Item No. Item Method of Filing - ---- ---- ---------------- 10.39 Offer of Employment to Ron Marshall dated May 7, 1998 from Donald R. Miller, Board Chair Filed herewith. 13.1 1998 Annual Report to Stockholders (selected portions of pages 18-39) Filed herewith. 21.1 Subsidiaries of the Company Filed herewith. 23.1 Consent of Ernst & Young LLP Filed herewith. 27.1 Financial Data Schedule Filed herewith. 99.1 Risk Factors Filed herewith.
E-9 EX-10.35 2 EXHIBIT 10.35 EXCERPTS OF MINUTES OF MEETING OF THE BOARD OF DIRECTORS OF NASH FINCH COMPANY November 17, 1998 RESOLVED, that the resolutions adopted by this Board of Directors on November 19, 1996, relating to compensation of outside directors generally, be and hereby are amended and modified to provide that the per month retainer for serving as a director be increased from $1,250 per month ($15,000 per year) to $1,500 per month ($18,000 per year) effective January 1, 1999. RESOLVED FURTHER, that except to the extent amended and modified by the foregoing resolution, the said resolutions adopted November 19, 1996 remain in full force and effect. EX-10.37 3 EXHIBIT 10.37 NASH-FINCH COMPANY FOURTH AMENDMENT TO CREDIT AGREEMENT Harris Trust and Savings Bank, as Administrative Agent Chicago, Illinois Other Banks party to the Credit Agreement Ladies and Gentlemen: We refer to the Credit Agreement dated as of October 8, 1996 (such Credit Agreement, as heretofore amended and as may be amended from time to time, being hereinafter referred to as the "CREDIT AGREEMENT") and currently in effect between you and us. Capitalized terms used without definition below shall have the same meanings herein as they have in the Credit Agreement. The Borrower has requested that the Banks make certain modifications to the borrowing arrangements provided for in the Credit Agreement and the Banks have agreed to accommodate such request by the Borrower on the terms and conditions set forth herein. 1. AMENDMENTS. Upon satisfaction of the conditions precedent to effectiveness set forth below, the Credit Agreement shall be amended (effective as of January 1, 1999) as follows: SECTION 1.01. NEW APPLICABLE MARGIN. (a) Section 1.3(c) of the Credit Agreement shall be amended by deleting the text appearing before the proviso therein and inserting the following in lieu therefor: "(c) APPLICABLE MARGIN. With respect to Committed Loans and the facility fee payable under Section 4.1 hereof, the "Applicable Margin" shall mean the rate specified for such Obligation below, subject to adjustment as hereinafter provided:
When Following Applicable Applicable Applicable Status Exists Margin Margin Margin For Base Rate For Eurodollar Loans Is: For Facility Fee Is: Loans Is: Level I Status 0.00% .625% 0.125% Level II Status 0.00% 1.000% 0.250% Level III Status 0.00% 1.125% 0.375% Level IV Status 0.250% 1.25% 0.500% Level V Status 0.50% 1.50% 0.500%"
(b) Section 1.3(c) of the Credit Agreement shall be further amended by striking each of subsections (ii) and (iii) appearing after the proviso therein and substituting therefor the phrase "[intentionally omitted]." SECTION 1.02. NEW DEFINITIONS. Section 6.1 of the Credit Agreement shall be amended by inserting the following new definition in the appropriate alphabetical location: "FISCAL 1998 CHARGES" means the following non-recurring cash and non-cash charges recorded by the Borrower in accordance with GAAP during the fourth fiscal quarter of the Borrower's 1998 fiscal year against the Borrower's earnings for its 1998 fiscal year in an aggregate amount not to exceed $108,500,000: (i) a special charge of not more than $72,500,000 of which not less than $50,000,000 consists of non-cash charges, relating to the consolidation and closure of distribution centers and retail stores, the abandonment of assets (such as the SAP software) and the impairment of assets (such as the writedown of asset values); (ii) up to $1,000,000 of miscellaneous financing and other expenses relating to the above special charge; (iii) up to $27,500,000 of charges relating to the discontinuance of Nash DeCamp and other operations; and (iv) up to $7,500,000 of charges related to running operating expenses through the balance sheet (such as the writedown of the accounts and notes receivable). "YEAR 2000 PROBLEM" means any significant risk that computer hardware, software, or equipment containing embedded microchips essential to the business or operations of the Borrower or any of the Subsidiaries will not in the case of dates or time periods occurring after December 31, 1999, function at least as reasonably adequately as in the case of times or time periods occurring before January 1, 2000, including the making of accurate leap year calculations. -2- SECTION 1.03. REVISED DEFINITIONS. The definitions of "LEVEL I STATUS", "LEVEL II STATUS", "LEVEL III STATUS ", "LEVEL IV STATUS ", "LEVEL V STATUS " and "TANGIBLE NET WORTH " appearing in Section 6.1 of the Credit Agreement shall be amended and restated in their entirety to read as follows: "LEVEL I STATUS" means the S&P Rating is at least BBB- or higher AND the Moody's Rating is at least Baa3 or higher. "LEVEL II STATUS" means Level I Status does not exist, but the S&P Rating is at least BB+ or higher AND the Moody's Rating is at least Bal or higher. "LEVEL III STATUS" means neither Level I Status nor Level II Status exists, but the S&P Rating is at least BB or higher AND the Moody's Rating is at least Ba2 or higher. "LEVEL IV STATUS" means none of Level I Status, Level II Status, and Level III Status exist, but the S&P Rating is at least BB- AND the Moody's Rating is at least Ba3 or higher. "LEVEL V STATUS" means none of Level I Status, Level II Status, Level III Status or Level IV Status exist. "NET WORTH" means as of any time the same is to be determined, the excess of total assets of the Borrower and its Subsidiaries over total liabilities of the Borrower and its Subsidiaries, total assets and total liabilities each to be determined on a consolidated basis in accordance with GAAP. SECTION 1.04. LEVERAGE RATIO. The definition of "LEVERAGE RATIO" appearing in Section 6.1 of the Credit Agreement shall be amended by inserting the following sentence immediately at the end thereof "The foregoing to the contrary notwithstanding, for purposes of determining the Leverage Ratio, EBITDA for any period which includes the fourth fiscal quarter of the Borrower's 1998 fiscal year shall be computed so as not to give effect to the Fiscal 1998 Charges." SECTION 1.05. SENIOR LEVERAGE RATIO. The definition of "SENIOR LEVERAGE RATIO" appearing in Section 6.1 of the Credit Agreement shall be amended by inserting the following sentence immediately at the end thereof: "The foregoing to the contrary notwithstanding, for purposes of determining the Senior Leverage Ratio, EBITDA for any period which includes the fourth fiscal quarter of the Borrower's 1998 fiscal year shall be computed so as not to give effect to the Fiscal 1998 Charges." SECTION 1.06. INTEREST COVERAGE RATIO. The definition of "INTEREST COVERAGE RATIO" appearing in Section 6.1 of the Credit Agreement shall be amended by inserting the following immediately at the end thereof: -3- "The foregoing to the contrary notwithstanding, for purposes of determining the Interest Coverage Ratio, EBITDA for any period which includes the fourth fiscal quarter of the Borrower's 1998 fiscal year shall be computed so as not to give effect to the Fiscal 1998 Charges." SECTION 1.07. NEW NET WORTH COVENANT. Section 9.8 of the Credit Agreement shall be amended and as so amended shall be restated in its entirety to read as follows: "SECTION 9.8. NET WORTH. The Borrower shall not at any time permit Net Worth to be less than the Minimum Required Amount. For purposes hereof, the term "MINIMUM REQUIRED AMOUNT" shall mean (a) $150,000,000 through January 2, 1999 and (b) shall increase (but never decrease) on a cumulative basis as of March 27, 1999 and as of the last day of each fiscal quarter of the Borrower thereafter, by an amount equal to 50% of Consolidated Net Income for the fiscal quarter of the Borrower then ended (if positive for such quarter)." SECTION 1.08. ACQUISITION LIMIT. Subsection (h) of Section 9.14 of the Credit Agreement shall be amended by inserting the following immediately at the end thereof: "and (v) either (1) the aggregate amount of cash and cash equivalents expended by the Borrower and its Subsidiaries as consideration for such acquisition, when taken together with the aggregate amount of cash and cash equivalents expended by the Borrower and its Subsidiaries as consideration for all other acquisitions on or at any time after January 1, 1999 on a cumulative basis (the aggregate of the consideration for the acquisition in question and all such other acquisitions being hereinafter referred to the "AGGREGATE CUMULATIVE ACQUISITION CONSIDERATION"), does not exceed $50,000,000 or (2) if the Aggregate Cumulative Acquisition Consideration exceeds $50,000,000, both (A) the aggregate amount of cash and cash equivalents expended as consideration for the acquisition in question is less than $5,000,000 and (B) the aggregate purchase price due from the Borrower and its Subsidiaries as consideration for such acquisition (including the assumption of indebtedness but excluding any such consideration in the form of capital stock of the Borrower) does not exceed the product of 4.5 and EBITDA reasonably attributable to the Person (in the case of an acquisition of such Person's Voting Stock) or the Property so acquired (in the case of an acquisition of such Person's Property), in each case for such Person's twelve most recently completed monthly accounting periods ("EBITDA" for such purposes to mean EBITDA as such term is defined herein, but with such Person and its subsidiaries substituted in such definition and all ancillary definitions in the place and stead of the Borrower and its Subsidiaries)." -4- SECTION 1.09. YEAR 2000. Section 7 of the Credit Agreement shall be amended by adding a new Section 7.17 at the end thereof which shall be stated to read as follows: "SECTION 7.17. YEAR 2000 COMPLIANCE. The Borrower and its Subsidiaries are conducting a comprehensive review and assessment of their computer applications, and are making such inquiry of their respective material suppliers, service vendors (including data processors) and customers as the Borrower or relevant Subsidiary (as the case may be) deem appropriate, with respect to any material defect in computer software, data bases, hardware, controls and peripherals related to the occurrence of the year 2000 or the use of any date after December 31, 1999, in connection therewith. The Company is not aware of any Year 2000 Problem which would reasonably be expected to have a material adverse effect on the business, operations, Properties, condition (financial or otherwise) or prospects of the Borrower and its Subsidiaries taken as a whole." SECTION 1.10. YEAR 2000 COMPLIANCE. Section 9 of the Credit Agreement shall be amended by adding a new Section 9.23 which shall be stated to read as follows: "SECTION 9.23. YEAR 2000 COMPLIANCE. At the reasonable request of the Administrative Agent or any Bank, the Borrower will provide the Administrative Agent (which shall promptly furnish each Bank) with reasonable evidence (including, but not limited to, the results of internal or external audit reports prepared in the ordinary course of business) of the capability of the Borrower and its Subsidiaries to conduct its and their businesses and operations before, on and after January l, 2000, without experiencing a Year 2000 Problem." 2. CONDITIONS PRECEDENT. The effectiveness of this Amendment is subject to the satisfaction of all of the following conditions precedent: (a) The Borrower and the Required Banks shall have executed this Amendment. (b) Each Guarantor shall have accepted this Amendment in the space provided for that purpose below. (c) Legal matters incident to the execution and delivery of this Amendment shall be satisfactory to the Required Banks and their counsel. Upon the satisfaction of such conditions precedent, this Amendment shall take effect as of January 1, 1999. 3. REPRESENTATIONS REAFFIRMED. -5- In order to induce the Banks to execute and deliver this Agreement, the Borrower hereby represents to the Banks that as of the date hereof and as of the time that this Amendment becomes effective, each of the representations and warranties set forth in Section 7 of the Credit Agreement, after giving effect to the amendments made hereby, are and shall be true and correct (except that the representations contained in Section 7.4 shall be deemed to refer to the most recent financial statements of the Borrower delivered to the Banks). 4. MISCELLANEOUS. This Amendment may be executed in any number of counterparts and by different parties hereto on separate counterparts, each of which when so executed shall be an original but all of which shall constitute one and the same instrument. Except as specifically amended and modified hereby, all of the terms and conditions of the Credit Agreement shall stand and remain unchanged and in full force and effect. No reference to this Amendment need be made in any note, instrument or other document making reference to the Credit Agreement, any reference to the Credit Agreement in any such note, Instrument or other document to be deemed to be a reference to the Credit Agreement as amended hereby. The Borrower confirms its agreement to pay the reasonable fees and disbursements of Messrs. Chapman and Cutler, counsel to the Administrative Agent, in connection with the preparation, execution and delivery of this Amendment and the transactions and documents contemplated hereby. This instrument shall be construed and governed by and in accordance with the laws of the State of Illinois (without regard to principles of conflicts of laws). -6- Dated as of this ___ day of February, 1999, but effective as of January 1, 1999. NASH-FINCH COMPANY By --------------------------------- Name: ------------------------- Title: ------------------------ Accepted and agreed to as of the date last above written. HARRIS TRUST AND SAVINGS BANK, in its individual capacity as a Bank and as Administrative Agent By --------------------------------- Its Vice President PNC BANK, NATIONAL ASSOCIATION By ---------------------------- Its ---------------------------- ABN AMRO BANK N.V. By --------------------------------- Its --------------------------- By --------------------------------- Its ----------------------------- -7- THE BANK OF TOKYO-MITSUBISHI, LTD., CHICAGO BRANCH By --------------------------------- Its --------------------------- CIBC-WOOD GUNDY By --------------------------------- Its ---------------------------- ISTITUTO BANCARIO SANPAOLO Dl TORINO SPA By --------------------------------- Its --------------------------- KEYBANK, N.A. By -------------------------------- Its ---------------------------- COMMERZBANK AKTIENGESELLSCHAFT CHICAGO BRANCH By -------------------------------- Its -------------------------------- By --------------------------------- Its ----------------------------- -8- THE FUJI BANK, LIMITED By --------------------------------- Its ---------------------------- CREDIT AGRICOLE INDOSUEZ By --------------------------------- Its ---------------------------- FIRST BANK NATIONAL ASSOCIATION By --------------------------------- Its --------------------------- MELLON BANK, N.A. By --------------------------------- Its ----------------------------- SUNTRUST BANK, ATLANTA By --------------------------------- Its --------------------------- THE MITSUBISHI TRUST AND BANKING CORPORATION By --------------------------------- Its ---------------------------- -9- NATIONAL CITY BANK OF COLUMBUS By --------------------------------- Its ---------------------------- THE SANWA BANK, LIMITED By -------------------------------- Its --------------------------- THE SUMITOMO BANK, LIMITED By -------------------------------- Its --------------------------- BANKERS TRUST COMPANY By --------------------------------- Its ---------------------------- THE BANK OF NEW YORK By --------------------------------- Its ---------------------------- MITSUI TRUST AND BANKING COMPANY, LIMITED By --------------------------------- Its -------------------------- CRESTAR BANK By --------------------------------- Its ----------------------------- -10- EX-10.39 4 EXHIBIT 10.39 [LETTERHEAD] May 7, 1998 Ron Marshall 24 High Point Road Holmdel, NJ 07733 Dear Ron: I am pleased to offer you the positions of Chief Executive Officer and President of Nash Finch Company (the "Company") and membership on the Company's Board of Directors (the "Board"), subject to approval by the Board at its May 12, 1998 meeting. The terms of the offer (assuming that you begin work on or before July 1, 1998) are as follows: 1. Base salary at the annual rate of $500,000. Your base salary is subject to review by the Compensation Committee of the Board and may be adjusted from time to time by the Compensation Committee. 2. Fiscal 1998 bonus (payable within 2-1/2 months after the end of fiscal 1998) of at least $200,000. The bonus could be increased to 60 percent of your annual base salary rate at target performance levels and 75 percent of your annual base salary rate at maximum performance levels (in each case as established by the Compensation Committee of the Board). At your option, the bonus could be paid in whole or in part in shares of the Company's common stock, $1.66-2/3 par value per share (the "Common Stock"). Your bonus for future fiscal years will be determined by the Compensation Committee of the Board on the basis of performance against agreed upon goals. 3. A "nonqualified" option to purchase 200,000 shares of the Company's common stock, $1.66-2/3 par value per share (the "Common Stock") at an exercise price equal to the fair market value of the Common Stock on the date on which the option is granted. The option will become exercisable in 25 percent increments at the end of each of the four years following the date of the grant. If, however, the market price for Common Stock reaches and remains at or over $30 per share for 30 consecutive trading days, the option will become immediately exercisable with respect to 100,000 shares and if the market price for Common Stock reaches and remains at or over $40 per share for 30 consecutive trading days, the option will become immediately exercisable with respect to the remaining 100,000 shares. The terms of the option will otherwise be in accordance with the Company's stock option plans. 4. A performance unit grant under the Company's Performance Equity Plan for the 1998 fiscal year consisting of a right to receive a number of shares of Common Stock equal to 120% of salary divided by the average market price during the fourth quarter of 1997 according to the terms and subject to the restrictions and conditions established by the Compensation Committee of the Board. 5. By the third anniversary of your date of hire, you will be required to own Common Stock with a value of at least two and one-half times your annual base salary at the time. By the fifth anniversary of your date of hire and thereafter, you will be required to own Common Stock with a value of at least five times your annual base salary at the time. To facilitate attaining this level of ownership, the Compensation Committee of the Board may cause your bonus to be paid in whole or in part in the form of Common Stock. 6. You will be eligible to participate in the Company's Executive Incentive Bonus and Deferred Compensation Plan commencing with fiscal year 1998. 7. You will be eligible to participate in the Company's Income Deferral Plan immediately. 8. Relocation expenses for you and your family (consisting of moving costs, realtor's fees, home closing costs and fees for legal and tax advice relating to the sale of your residence in New Jersey and the purchase of your residence in Minnesota) up to $25,000. If you anticipate that your expenses will exceed $25,000, please let us know in advance so that we can discuss reimbursement of the excess expenses before they are incurred. You agree to make every reasonable effort to move your family to Minnesota within three months of commencement of employment with the company. However, the Company will reimburse you for airfare to and from your home in New Jersey every week for six months or, if earlier, until you have moved your family to Minnesota. The Company will also pay you $2,500 per month for reasonable temporary living expenses for six months or, if earlier, until you have moved your family to Minnesota. All reimbursements are subject to presentation of receipts or other documentation acceptable to the Company. The Company agrees to gross up the amounts set forth above to cover the net income tax effect to you of the reimbursement of the expenses described above. 9. You will be provided a standard form of change in control agreement pursuant to which, if your employment is terminated within 24 months after a change in control (or in limited circumstances prior to a change in control) other than by reason of death, disability, retirement or cause, or you terminate your employment for good reason, the Company will pay or cause to be paid to you a lump sum equal to your monthly compensation multiplied by 36 months and will maintain or cause to be maintained benefit plans for you and your dependents for 36 months, all in accordance with the Company's standard form of change in control agreement. In addition, in the event that your employment is terminated by the Company, other than for cause, within the first 12 months, the Company will provide you with 12 months severance compensation. 10. You will be eligible to participate in other benefit plans, practices and policies of the Company in accordance with their terms. 11. During your first two years of employment, you will not sit on any other corporate boards. Thereafter, corporate board membership will be at the discretion of the Board. 12. Your employment with the Company is at will and may be terminated by you or the Company at any time without liability other than for base salary earned through termination and other compensation and benefits due under the terms of any applicable benefit plan, practice or policy of the Company. I very much look forward to a long and prosperous relationship. Best Regards, /s/ Donald R. Miller - ------------------------------ Donald R. Miller Board Chair I have read the foregoing letter and hereby agree to all of the terms and conditions thereof. /s/ Ron Marshall -------------------------- Ron Marshall EX-13.1 5 EXHIBIT 13.1 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 REVENUES Total revenues decreased 4.2 percent for the 52 weeks of 1998 to $4.160 billion, compared to $4.341 billion for the 53 weeks of 1997. Excluding the additional week, revenues for 1998 would have declined by 2.3 percent. Each of the Company's three major segments were affected by a decline in revenues. Wholesale revenues, after eliminating the additional week in 1997, deceased .9 percent from $2.515 billion to $2.492 billion. Revenue gains were reported by certain Midwest and Southeast distribution centers as a result of new wholesale accounts added during the year and the full year effect of the United-A.G. Cooperative Inc. ("United-A.G.") acquisition which occurred in June 1997. However, these gains were more than offset by the declining sales base caused by persistent competitive pressures throughout the year in the Company's Michigan market area. Wholesale revenues in 1997 increased dramatically over 1996 primarily due to acquisitions and the additional week of business. Retail segment revenues were $738.0 million for the year, compared to $808.4 million for a 52-week adjusted 1997, a decline of 8.7 percent. The declines are largely due to the closing or sale of 14 stores during the year, partially offset by the opening or acquisition of ten stores during the same period. Included in the stores acquired were two locations in Rapid City and a third location in Sturgis, South Dakota, acquired from Sooper Dooper Markets, Inc. The acquisition expands the Company's already strong presence in the area and makes it the leading retailer in this market. Same store sales for the year increased 1.1 percent over 1997. Fourth quarter same store sales increased 2.3 percent over last year, following several quarterly declines. Revenues in 1997 declined from 1996 levels due to a net reduction of nine corporate owned stores during the year. Revenues of the Military Division, the third major segment of the Company, declined .6 percent compared to 1997, after adjustment for the additional week of business in 1997. Revenues were flat throughout the year due to little growth in the number and size of the military commissaries serviced. Export or overseas sales during the year were also not as robust by comparison to 1997, when the Company realized significant gains in this area. Management of the Military Division continues to work with existing and prospective vendors to expand product lines and provide a greater distribution of items to the commissaries it services. Military revenues in 1997 increased over 1996 due to expansion of certain vendor product lines and sales to overseas commissaries. GROSS MARGINS During 1998, the Company reclassified warehousing and transportation expenses from selling, general and administrative expenses to cost of sales. Although this reclassification had no impact on operating income and net income, this presentation conforms the Company's reporting practices to those of other large wholesale food distributors. Gross margins were 9.1 percent in 1998, compared to 9.3 percent in 1997 and 9.9 percent in 1996. The decline over the three year period is a result of the growth of wholesale and military revenues which return lower gross margins than retail. Wholesale revenues, including the military, as a percent of total reported revenues were 81.9 percent in 1998, compared to 80.7 percent and 74.2 percent in 1997 and 1996, respectively. A decline in retail margins, resulting from continuing competitive pressures in some markets, also contributed to lower margins. In 1998, the Company recorded a LIFO charge of $4.0 million compared to charges of $1.5 million and $1.6 million in 1997 and 1996, respectively. Although the Company's internally measured food price index indicated a slight level of inflation, continued price increases throughout the year for tobacco and tobacco related products was the primary factor causing the higher LIFO charge in 1998. SELLING, GENERAL AND ADMINISTRATIVE EXPENSE Selling, general and administrative expenses as a percent of total revenues were 7.0 percent in 1998 compared to 6.8 percent in 1997 and 7.5 percent in 1996. The declines in 1998 and 1997 from 1996, are due again to the increasing proportion of wholesale business, which typically operates at lower expense levels than retail. During the fourth quarter of 1998, the Company recorded an additional provision for bad debts of $7.5 million, principally related to sales and credit deterioration in its Michigan and Ohio market areas. Bad debt expense for 1998 was $10.6 million compared to $5.1 million in 1997 and $1.9 million in 1996. Partially offsetting these additional 1998 costs, the Company changed accounting policies when it adopted new rules requiring capitalization of internal software development costs, which had previously been expensed as incurred. As a result, $5.1 million in payroll and payroll related costs for employees who were directly involved in software development projects were capitalized. Such amounts were subsequently written-off as an element of the 1998 special charges. Operating expenses during 1998 were also adversely affected by increased information systems costs related to the HORIZONS project, through the third quarter, of $2.4 million; and Year 2000 remediation costs of approximately $3.0 million in the fourth quarter. SPECIAL CHARGES During the fourth quarter of 1998, the Company announced a five-year revitalization plan to streamline wholesale operations and build retail operations. The new strategic plan's objectives are to: leverage Nash Finch's scale by centralizing operations; improve operational efficiency; and develop a strong retail competency. The Company will also redirect technology efforts, and close, sell or reassess underperforming businesses and investments. 18 NASH FINCH COMPANY AND SUBSIDIARIES The 1998 special charges of $68.5 million reflect the results of an intensive diagnostic assessment of the entire Company's operations. As a result of this assessment in 1998, the Company's new management reevaluated all actions to be taken under the 1997 strategic plan. Substantially all actions to be taken under the 1997 strategic plan were reaffirmed and are in the process of being implemented; however, some actions included in the 1997 plan were changed in 1998 which reduced the charge by $2.9 million. The Company expects the 1998 plan and any remaining initiatives under the 1997 plan to be substantially complete by October 1999. 1998 CHARGES The charges include $34.4 million principally for the abandonment of software modules, not currently implemented, related to the Company's HORIZONS information system project. Although the Company is using portions of the developed software, the abandoned assets relate to purchased software and related development costs associated with modules which, without significant investment in continuing development, lack sufficient inherent functionality to meet the Company's business and Year 2000 needs. Total costs associated with the write-off include development costs, both external and internal, totaling $31.0 million, purchased software costs of $1.9 million and $.2 million in abandoned hardware. As a result of the Company's decision to abandon further development, resources have been shifted from HORIZONS to a Year 2000 remediation plan. Also included in abandoned assets is $1.3 million in unamortized purchased packaging design costs, relating to a private label product line that will be redesigned. The variety of products marketed under this label will be substantially reduced, resulting in approximately 200 fast moving items with a redesigned merchandising strategy and packaging. The special charges include $17.1 million to streamline the Company's wholesale operations by closing of three warehouses by the end of the third quarter of 1999. The sales volume of these facilities will be consolidated with other locations, resulting in improved warehouse capacity utilization, further aligning the Company's distribution capacity with its current and anticipated wholesale operations. The Company believes its strategy of closing underutilized warehouses, including the closure of its Appleton, Wisconsin distribution center announced in January 1999, and concentrating sales volume into existing facilities, will improve operational efficiency and lower distribution costs. The components of the special charges resulting in cash outlays include $2.6 million of post-employment benefit costs consistent with existing practices, $2.7 million of penalties upon withdrawal from multi-employer pension plans and $3.6 million to cover other exit costs related to closing these facilities. With the exception of the multi-employer pension plan withdrawal penalties, the majority of these costs will be incurred during the first nine months of fiscal 1999, and will be funded from operations. The special charges also provide $3.2 million to write-down to fair value real estate to be disposed of, since each of the locations is an owned facility, and $5.0 million to record at fair value warehouse equipment and other tangible assets to be disposed of. At January 2, 1999, these costs have been included in accrued expenses on the balance sheet. The Company will close twelve underperforming corporate retail stores, and one store jointly developed with a wholesale customer, at an approximate cost of $9.6 million. The stores are primarily located in geographic areas where the Company cannot attain a strong market presence. The Company's focus is to develop corporate stores that can dominate their primary trade areas. The aforementioned provision includes $3.4 million for non-cancelable lease obligations associated with ten stores and $.8 million for other miscellaneous closing costs, both of which will result in cash outlays, and $3.5 million of asset write-downs related to the disposal of real estate, store equipment and the write-off of leasehold improvements, and $1.9 million for abandonment of assets. Substantially all stores have either been closed by March 1999 or are involved in transactions currently being negotiated. For 1998, corporate owned retail units included in the provision had aggregate sales and pretax losses of $42.9 million and $1.9 million, respectively, compared with $42.7 million and $.1 million for 1997. The provision relating to closed stores is included in accrued expenses on the balance sheet at January 2, 1999. The remaining aggregate special charge is a $10.3 million provision for asset impairment of which $8.2 million relates to ten owned retail stores. Increased competition resulting in declining market share, deterioration of operating performance and inadequate projected cash flows were the factors indicating impairment. The impaired assets, which include leasehold improvements and store equipment, were measured based on a comparison of the assets' net book value to the present value of the stores' estimated future cash flows. In addition, the Company recorded a $2.1 million asset impairment charge writing off its equity investment in a joint venture with an independent retailer it continues to service. Operating losses and projected cash flow reductions were the primary factors in determining that a permanent decline in the value of the investment had occurred. 1997 CHARGES In 1997 the Company accelerated its strategic plan to strengthen its competitive position. Coincident with the implementation of the plan, the Company recorded special charges totaling $31.3 million impacting the Company's wholesale and retail segments, as well as the produce growing and marketing segment discontinued during 1998. 19 NASH FINCH COMPANY AND SUBSIDIARIES The aggregate special charges included $14.5 million for the consolidation or downsizing of seven underutilized warehouses. The charges, as further detailed in the table below, provided for non-cancelable lease obligations, write-down to fair value of tangible assets to be disposed of, and other costs to exit the facilities. Also included are post-employment benefit costs consistent with existing practice and the unamortized portion of goodwill for one of the locations.
Write- Write- Post down of down of Lease Employment Intangible Tangible Exit Commitments Benefits Assets Assets(1) Costs Total - ------------------------------------------------------------------------------------------------------------ Initial accrual ...... $ 5,198 1,815 3,225 2,442 1,835 14,515 Used in 1997 ......... (3,225) (2,442) (5,667) -------------------------------------------------------------------------------------- Balance 1/3/98 ....... 5,198 1,815 -- -- 1,835 8,848 Reversals in 1998 .... (1,591) (352) -- -- (358) (2,301) Additional accruals in 1998 ............ 271 194 -- 669 845 1,979 Used in 1998 ......... (1,328) (625) -- (669) (269) (2,891) -------------------------------------------------------------------------------------- Balance 1/2/99 ....... $ 2,550 1,032 -- -- 2,053 5,635 -------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------
(1) The Company reversed $1.1 million of the write-down of tangible assets recorded in 1997, as discussed below. During the second quarter of 1998, a change in leadership of the Company occurred and new management began its own diagnostic assessment of the Company. Following months of review, new management determined the following: one distribution center identified for closure under the 1997 plan would remain open, another distribution center identified for downsizing in 1997 was scheduled for closure in 1998, and an additional write-down of assets was necessary since not all of the assets of closed warehouses could be used in other locations. The reversal and additional accruals recorded in 1998 reflect these revisions to the plan (see Note (3) of Notes to Consolidated Financial Statements). Closure of five of the remaining distribution centers included in the 1997 plan have been announced, three of which were closed as of year end. Also, related to wholesale operations, the special charges included $2.5 million of integration costs, incurred in the third quarter of 1997, associated with the acquisition of the business and certain assets from United-A.G. In retail operations, the special charges relate to the closing of fourteen, principally leased, stores. The $5.2 million charge, as detailed in the table below, covers provisions for continuing non-cancelable lease obligations, anticipated losses on disposals of tangible assets, including abandonment of leasehold improvements, and the write-off of intangible assets.
Write- Write- down of down of Lease Intangible Tangible Exit Commitments Assets Assets(1) Costs Total - -------------------------------------------------------------------------------------------- Initial accrual ...... $ 2,780 396 1,603 393 5,172 Used in 1997 ......... (10) (396) (1,603) (63) (2,072) ---------------------------------------------------------------------- Balance 1/3/98 ....... 2,770 -- -- 330 3,100 Used in 1998 ......... (416) -- -- (28) (444) Reversals in 1998 .... (1,448) -- -- (131) (1,579) Additional accruals in 1998 ............ 486 -- -- 198 684 ---------------------------------------------------------------------- Balance 1/2/99 ....... $ 1,392 -- -- 369 1,761 ---------------------------------------------------------------------- ----------------------------------------------------------------------
(1) The Company reversed $608,000 of the write-down of tangible assets recorded in 1997, as discussed below. The amount reversed in 1998 is principally the planned closure of a retail store which was subleased during the third quarter of 1998. Ten of the identified retail stores were closed during 1998 with the remaining four stores scheduled to be closed by November 1999. For 1998, the ten retail stores closed during 1998 and the four stores to be closed in 1999 had aggregate sales of $8.4 million and $38.6 million, and pretax losses of $1.0 million and pretax profits of $1.0 million, respectively. The aggregate special charges contain a provision of $5.4 million for impairment of assets of seven retail stores. Declining market share due to increasing competition, deterioration of operating performance in the third quarter of 1997, 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 included real estate, leasehold improvements and, to a lesser extent, goodwill related to two of the stores. Store fixed asset write-downs were measured based on a comparison of the assets' net book value to the net present value of the stores' estimated future net cash flows. An asset impairment charge of $1.0 million was recorded against several farming operations of Nash DeCamp, the Company's produce growing and 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 production of these products. Other special charges aggregating $2.8 million consisted primarily of $.9 million related to the abandonment of system software which was replaced and a loss of $.6 million realized on the sale of the Company's equity investment in Alfa Trading Company, a Hungarian food wholesaler, which was completed in the fourth quarter of 1997. The remaining special charges relate principally to writing-down idle real estate held for resale to current market values, all of which were sold in 1998. The consolidation 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 costs are expected to be substantially offset in 1999 by Year 2000 remediation costs. DEPRECIATION EXPENSE Depreciation and amortization expense for the year was $46.1 million compared to $46.4 million in 1997, a decline of .6 percent. The decrease primarily reflects a reduction in depreciable assets resulting from the sale or closing of warehouses and retail stores and lower depreciation resulting from the write-down of impaired assets recorded in the 1997 special charges. Partially offsetting this decline was depreciation associated with new assets placed into service in 1998. Depreciation and amortization expense in 1997 increased 39.1 percent over 1996 primarily due to a full year of amortization of goodwill and depreciation of property, plant and equipment related to the acquisition of Super Food which occurred in 1996. The 1999 impact of suspending depreciation on wholesale assets held for disposal is projected to be $1.6 million. INTEREST EXPENSE Interest expense decreased from $32.8 million in 1997 to $29.0 million in 1998, a decline of 11.4 percent. The reduction is attributed to lower borrowings under the revolving credit facility, brought about by the sale of accounts receivable at the 20 NASH FINCH COMPANY AND SUBSIDIARIES end of 1997 and improved asset management in the second half of 1998. Also, the Company reduced its long-term borrowing rates through the sale of $165.0 million of senior subordinated notes which was completed during the second quarter of 1998. Interest expense as a percent of revenues was .70 percent, .75 percent and .40 percent for 1998, 1997 and 1996, respectively. The increase in interest expense in 1997 compared to 1996 was primarily due to the full year impact of financing the acquisition of Super Food. EXTRAORDINARY CHARGE During 1998, in conjunction with the senior subordinated debt offering, the Company prepaid $106.3 million of senior notes, and paid prepayment premiums and wrote-off related deferred financing costs totaling $9.5 million, all with borrowings under the Company's revolving credit facility. This transaction resulted in an extraordinary charge of $5.6 million, or $.49 per share, after income tax benefits of $3.9 million. EARNINGS (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES AND EXTRAORDINARY CHARGE Earnings (loss) from continuing operations before income taxes and extraordinary charge were a loss of $58.4 million in 1998, and earnings of $1.2 million in 1997 and $32.5 million in 1996. Excluding the special charges, earnings from continuing operations before taxes and extraordinary charge would have been $10.0 million, $31.3 million and $32.5 million in 1998, 1997 and 1996, respectively. The earnings reduction in 1998 is principally attributed to the additional provision for bad debts, closing costs of $1.3 million which could not be accrued in the 1997 special charge, costs associated with the HORIZONS project for a portion of the year and costs incurred related to Year 2000 remediation efforts. INCOME TAXES No valuation allowance has been established against the net deferred tax asset because management believes that all of the deferred tax assets will be realized upon the Company generating sufficient future taxable income to offset the reversal of deductible temporary differences. The Company will need to generate approximately $104 million of future taxable income over 20 years to realize these assets. Excluding the impact of special charges, the Company's earnings for financial reporting purposes would be sufficient for realization of the deferred tax assets. The realization of assets could be reduced if estimates of future taxable income are reduced. YEAR 2000 The Company's Year 2000 resolution was initially incorporated in the system design of the HORIZONS project. However, as a result of the abandonment of further development of the project, the Company has developed a remediation plan which accelerates existing efforts toward resolving Year 2000 issues. The plan will result in an aggressive timetable to address the modification and/or replacement of existing business critical software and the identification of the non-information technology systems that may be affected by Year 2000. In addition, the plan assesses the readiness of third parties and the related risks to the Company of their non-compliance. To expedite this Year 2000 solution, the Company has reallocated internal resources and has contracted knowledgeable outside resources to assist in the remediation effort. The Company has developed a plan to assess and update systems for Year 2000 compliance which consists of three major phases: 1) Conducting a complete INVENTORY and assessment of potentially affected business areas, 2) REMEDIATION of affected systems and 3) TESTING remediated components. The chart below shows the estimated percent complete of each phase as of the end of the first quarter 1999:
Inventory Remediation Testing - ---------------------------------------------------------------------------- I/T Systems .................. 100% 33% 20% Non I/T Systems .............. 100% 10% 0%
The Company expects to complete all mission-critical areas of the project in the third quarter of 1999. The total cost for Year 2000 remediation is estimated at approximately $18.5 million, which includes $4.0 million for the purchase of new equipment that will be capitalized and $14.5 million, which will be expensed as incurred, primarily for internal and external costs associated with the modification of existing software. Project expenses for 1998 were $3.0 million. The total remaining expenditures associated with the Year 2000 project are estimated to be $15.5 million. The costs or consequences of incomplete or untimely resolution of the Year 2000 issue may have a material effect on the Company's business, results of operations and financial condition. However, at this time, the Company is unable to measure the monetary impact of any such failure to comply or failure of other parties on which it is dependent. The Company is currently in the process of establishing and implementing contingency plans to provide viable alternatives for the Company's core business processes. The plans will describe the communications, operations and activities necessary in the event of a Year 2000 systems related failure. Contingency planning is 40 percent complete at the end of the first quarter of 1999. Comprehensive contingency plans will be in place by the end of the second quarter of 1999. LIQUIDITY AND CAPITAL RESOURCES Operating activities generated positive net cash flows of $102.5 million during 1998 compared to $84.0 million in 1997 and $35.3 million in 1996. The improvement is primarily due to improved asset management, particularly inventory, and increases in accounts payable and accrued expenses. Working capital was $135.6 million at the end of 1998, a reduction of $64.3 million, or 32.2 percent, from the end of 1997. The current ratio decreased from 1.68 at the end of fiscal 1997 to 1.41 at the end of 1998, due primarily to the effect of the special charges. While the cash impact of the special charges is $26.0 million, the sale of real estate assets and Nash DeCamp may generate $37.0 million resulting in net cash proceeds of $11.0 million. Nash DeCamp, in the normal course of business, makes cash advances to produce growers during various product growing seasons to fund production costs. The Company will continue to fund these advances through the expected sale date in mid-1999. On January 2,1999, and January 3, 1998, the Company had $5.5 million and $11.3 million, respectively, in short-term debt from available lines of credit totaling $10 million. On April 24, 1998, the Company completed the sale of $165 million of 8.5 percent senior subordinated notes due May 1, 2008, using the net proceeds from the offering, after fees and expenses, to reduce certain amounts borrowed under its revolving credit facility. 21 NASH FINCH COMPANY AND SUBSIDIARIES The following table provides information about the Company's derivative financial instruments and other financial instruments that are sensitive to changes in interest rates. For debt obligations, the table presents principal cash flows and related weighted-average interest rates by expected maturity dates. For interest rate swaps, the table presents notional amounts and weighted-average interest rates by contractual maturity dates. Notional amounts are used to calculate the contractual cash flows to be exchanged under the contract.
Fixed Rate Variable - ------------------------------------------------------------------------------- (IN THOUSANDS) Amount Rate Amount Rate - ------------------------------------------------------------------------------- 1999..................... $ 835 8.6% $ 5,675 6.4% 2000..................... 621 8.6% 110 6.5% 2001..................... 1,946 8.6% 120,110 6.5% 2002..................... 473 8.6% 1,210 3.6% 2003..................... 3,034 8.5% 110 3.6% thereafter............... 165,216 8.5% 450 3.6% -------- -------- $172,125 $127,665 -------- --------
Swap agreements with notional amounts of $60 million and $30 million expire in 1999 and 2000, respectively. Pay variable/receive fixed ............. $ 60,000 $ 30,000 Average receive rate ................... 5.5% 5.5% Average pay rate ....................... 6.4% 6.5%
Other transactions affecting liquidity during the year include capital expenditures for the year of $52.7 million, and payment of a cash dividend of $8.2 million, or $.72 per share. The Company has announced it will reduce future cash dividends by fifty percent, allowing it to reinvest approximately $4.0 million back into the business. On June 22, 1998 the Company sold three stores to Miracle Mart, Inc., a new wholesale customer in Mandan, North Dakota, for approximately $4.7 million in cash. Also, on September 21, 1998, the Company purchased three stores in South Dakota from Sooper Dooper Markets, Inc. for cash and other consideration totaling $2.3 million. The Company believes that borrowing under the revolving credit facility, sale of subordinated notes, other credit agreements, cash flows from operating activities and lease financing will be adequate to meet the Company's working capital needs, planned capital expenditures and debt service obligations for the foreseeable future. FORWARD-LOOKING STATEMENTS - ------------------------------------------------------------------------------- The information contained in this 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; 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 2, 1999 there were 2,214 stockholders of record.
Dividends 1998 1997 Per Share High Low High Low 1998 1997 - ------------------------------------------------------------------------------------- First Quarter ...... 20 18 3/4 22 18 .18 .18 Second Quarter ..... 19 7/8 14 1/2 22 1/4 17 1/2 .18 .18 Third Quarter ...... 15 5/8 13 7/8 24 7/8 19 3/4 .18 .18 Fourth Quarter ..... 15 5/16 13 1/8 24 1/2 17 1/2 .18 .18 - -------------------------------------------------------------------------------------
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 2, 1999 and January 3, 1998, and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the three years in the period ended January 2, 1999. 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 2, 1999 and January 3, 1998, and the consolidated results of their operations and their cash flows for each of the three years in the period ended January 2, 1999, in conformity with generally accepted accounting principles. /s/ Ernst & Young LLP Minneapolis, Minnesota February 24, 1999 22 NASH FINCH COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS - ------------------------------------------------------------------------------------------------------------ Fiscal years ended January 2, 1999, January 3, 1998 and December 28, 1996. 1998 1997 1996 (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 52 weeks 53 weeks 52 weeks - ------------------------------------------------------------------------------------------------------------ INCOME: Net sales ..................................................... $ 4,115,589 4,293,555 3,300,935 Other revenues ................................................ 44,422 47,540 23,035 ----------- --------- --------- Total revenues .............................................. 4,160,011 4,341,095 3,323,970 COST AND EXPENSES: Cost of sales ................................................. 3,783,661 3,936,813 2,996,596 Selling, general and administrative ........................... 291,199 293,876 248,141 Special charges ............................................... 68,471 30,034 -- Depreciation and amortization ................................. 46,064 46,353 33,314 Interest expense .............................................. 29,034 32,773 13,408 ----------- --------- --------- Total costs and expenses .................................... 4,218,429 4,339,849 3,291,459 Earnings (loss) from continuing operations before income taxes and extraordinary charge .................... (58,418) 1,246 32,511 Income taxes (benefit) ........................................ (18,837) 2,320 13,174 ----------- --------- --------- Earnings (loss) from continuing operations before extraordinary charge ..................................... (39,581) (1,074) 19,337 DISCONTINUED OPERATIONS: Earnings (loss) from discontinued operations, net of income taxes (benefit) ............................ 426 (154) 695 Loss on disposal of discontinued operations, including provision of $1,800, for future operating losses during phase out period, net of income tax benefit of $10,587 ..................... (16,913) -- -- ----------- --------- --------- Earnings (loss) before extraordinary charge .............. (56,068) (1,228) 20,032 Extraordinary charge from early extinguishment of debt, net of income tax benefit of $3,951 ...................... 5,569 -- -- ----------- --------- --------- Net earnings (loss) ........................................... $ (61,637) (1,228) 20,032 ----------- --------- --------- BASIC EARNINGS (LOSS) PER SHARE: Earnings (loss) from continuing operations .................... $ (3.50) (0.10) 1.77 Earnings (loss) from discontinued operations .................. (1.46) (0.01) 0.06 ----------- --------- --------- Earnings (loss) before extraordinary charge ................. (4.96) (0.11) 1.83 Extraordinary charge from early extinguishment of debt, net of income tax benefit ................................ (0.49) -- -- ----------- --------- --------- Net earnings (loss) per share ................................. $ (5.45) (0.11) 1.83 ----------- --------- --------- DILUTED EARNINGS (LOSS) PER SHARE: Earnings (loss) from continuing operations .................... $ (3.50) (0.10) 1.75 Earnings (loss) from discontinued operations .................. (1.46) (0.01) 0.06 ----------- --------- --------- Earnings (loss) before extraordinary charge ................. (4.96) (0.11) 1.81 Extraordinary charge from early extinguishment of debt, net of income tax benefit ................................ (0.49) -- -- ----------- --------- --------- Net earnings (loss) per share ................................. $ (5.45) (0.11) 1.81 ----------- --------- --------- Weighted average number of common shares outstanding and common equivalent shares outstanding: Basic ......................................................... 11,318 11,270 10,947 Diluted ....................................................... 11,318 11,270 11,093 - -------------------------------------------------------------------------------------------------------------
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. 23 NASH FINCH COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS - ---------------------------------------------------------------------------------------------------------------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) January 2, January 3, ASSETS 1999 1998 - ---------------------------------------------------------------------------------------------------------------- CURRENT ASSETS: Cash ....................................................................... $ 848 933 Accounts and notes receivable, net ......................................... 169,748 173,962 Inventories ................................................................ 267,040 287,801 Prepaid expenses ........................................................... 13,154 22,582 Deferred tax assets ........................................................ 16,318 9,072 --------- -------- Total current assets .................................................. 467,108 494,350 Investments in affiliates ..................................................... 4,805 7,679 Notes receivable, noncurrent .................................................. 12,936 23,092 PROPERTY, PLANT AND EQUIPMENT: Land ....................................................................... 25,386 31,229 Buildings and improvements ................................................. 130,988 137,070 Furniture, fixtures and equipment .......................................... 302,450 306,762 Leasehold improvements ..................................................... 61,983 60,578 Construction in progress ................................................... 10,107 28,485 Assets under capitalized leases ............................................ 24,878 25,048 --------- -------- 555,792 589,172 Less accumulated depreciation and amortization ............................. (333,414) (312,939) --------- -------- Net property, plant and equipment ..................................... 222,378 276,233 Intangible assets, net ........................................................ 69,141 70,732 Investment in direct financing leases ......................................... 16,155 19,094 Deferred tax asset, net ....................................................... 31,908 2,622 Other assets .................................................................. 8,664 11,081 --------- -------- Total assets .......................................................... $ 833,095 904,883 --------- -------- --------- -------- LIABILITIES AND STOCKHOLDERS' EQUITY - ----------------------------------------------------------------------------------------------------------------- CURRENT LIABILITIES: Outstanding checks ......................................................... $ 33,329 36,271 Short-term debt payable to banks ........................................... 5,525 11,300 Current maturities of long-term debt and capitalized lease obligations ..... 2,563 7,964 Accounts payable ........................................................... 189,382 177,548 Accrued expenses ........................................................... 97,683 60,599 Income taxes ............................................................... 2,991 737 --------- -------- Total current liabilities ............................................. 331,473 294,419 Long-term debt ................................................................ 293,280 325,489 Capitalized lease obligations ................................................. 34,667 38,517 Deferred compensation ......................................................... 6,450 6,768 Other ......................................................................... 10,752 14,072 STOCKHOLDERS' EQUITY: Preferred stock - no par value Authorized 500 shares; none issued ...................................... -- -- Common stock of $1.66 2/3 par value Authorized 25,000 shares; issued 11,575 shares in 1998 and 1997 ......................................................... 19,292 19,292 Additional paid-in capital ................................................. 17,944 17,648 Restricted stock ........................................................... (113) (391) Retained earnings .......................................................... 121,185 190,984 --------- -------- 158,308 227,533 Less cost of 234 shares and 252 shares of common stock in treasury, respectively ............................................................. (1,835) (1,915) --------- -------- Total stockholders' equity ............................................ 156,473 225,618 --------- -------- Total liabilities and stockholders' equity ............................ $ 833,095 904,883 --------- -------- --------- -------- - ----------------------------------------------------------------------------------------------------------------
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. 24 NASH FINCH COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - -------------------------------------------------------------------------------------------------------------------- (IN THOUSANDS) 1998 1997 1996 - -------------------------------------------------------------------------------------------------------------------- OPERATING ACTIVITIES: Net earnings ................................................... $ (61,637) (1,228) 20,032 Adjustments to reconcile net income to net cash provided by operating activities: Special charges - non-cash portion ........................... 65,181 28,749 -- Discontinued operations ...................................... 27,500 -- -- Depreciation and amortization ................................ 47,196 47,697 34,759 Provision for bad debts ...................................... 10,637 5,055 1,893 Provision for (recovery from) losses on closed lease locations 1,099 1,722 (458) Extraordinary charge - extinguishment of debt ................ 9,520 -- -- Deferred income taxes ........................................ (36,532) (2,955) (2,278) Deferred compensation ........................................ (318) (708) (149) (Earnings) loss of equity investments ........................ (262) 469 616 Other ........................................................ (2,017) 2,003 326 Changes in operating assets and liabilities: Accounts and notes receivable ................................ (3,604) (3,744) (12,544) Inventories .................................................. 23,400 19,821 14,021 Prepaid expenses ............................................. 6,722 (1,201) (349) Accounts payable ............................................. 11,072 (6,953) (21,850) Accrued expenses ............................................. 2,276 (2,512) 2,219 Income taxes ................................................. 2,254 (2,262) (967) -------- ------- -------- Net cash provided by operating activities ................. 102,487 83,953 35,271 -------- ------- -------- INVESTING ACTIVITIES: Dividends received ............................................. 799 1,600 -- Disposal of property, plant and equipment ...................... 21,274 16,721 9,169 Additions to property, plant and equipment excluding capital leases ..................................... (52,730) (67,725) (51,333) Business acquired, net of cash acquired ........................ (2,908) (17,863) (257,868) Investment in an affiliate ..................................... -- -- (2,500) Loans to customers ............................................. (15,290) (18,816) (4,997) Payments from customers on loans ............................... 15,554 14,080 4,713 Sale (repurchase) of receivables ............................... (250) 37,000 3,402 Other .......................................................... (4,174) (739) (2,896) -------- ------- -------- Net cash used for investing activities .................... (37,725) (35,742) (302,310) -------- ------- -------- FINANCING ACTIVITIES: Proceeds from long-term debt ................................... 165,000 -- 30,000 (Payments) proceeds from revolving debt ........................ (94,000) (30,000) 244,000 Dividends paid ................................................. (8,162) (8,110) (8,288) (Payments) proceeds from short-term debt ....................... (5,775) (4,871) 1,171 Payments of long-term debt ..................................... (108,608) (6,009) (21,946) Payments of capitalized lease obligations ...................... (1,504) (3,467) (717) Extinguishment of debt ......................................... (9,378) -- -- Increase (decrease) in outstanding checks ...................... (2,942) 3,779 (2,395) Other .......................................................... 522 479 111 -------- ------- -------- Net cash (used in) provided by financing activities ....... (64,847) (48,199) 241,936 -------- ------- -------- Net (decrease) increase in cash ........................... $ (85) 12 (25,103) -------- ------- -------- - -----------------------------------------------------------------------------------------------------------------
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. 25 NASH FINCH COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY - ------------------------------------------------------------------------------------------------------------------- Fiscal years ended January 2, 1999, January 3, 1998 and December 28, 1996 (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Foreign Common stock Additional currency ----------------- paid-in Retained translation Restricted Shares Amount capital earnings adjustment stock - ------------------------------------------------------------------------------------------------------------- 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) -- -- (524) Amortized compensation under restricted stock plan............. -- -- -- -- -- 24 Treasury stock purchased............. -- -- -- -- -- -- ------- ------- ------- -------- ----- ----- BALANCE AT DECEMBER 28, 1996......... 11,574 19,290 16,816 200,322 (950) (500) 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............. -- -- -- -- -- 29 Repayment of notes receivable from holders of restricted stock.. -- -- -- -- -- 80 Distribution of stock pursuant to performance awards................ -- -- 460 -- -- -- Treasury stock purchased ............ -- -- -- -- -- -- Foreign currency translation adjustment........................ -- -- -- -- 950 -- Other................................ 1 2 18 -- -- -- ------- ------- ------- -------- ----- ----- BALANCE AT JANUARY 3, 1998........... 11,575 19,292 17,648 190,984 -- (391) Net earnings (loss).................. -- -- -- (61,637) -- -- Dividend declared of $.72 per share.. -- -- -- (8,162) -- -- Treasury stock issued upon exercise of options............... -- -- 47 -- -- -- Amortized compensation under restricted stock plan............. -- -- -- -- -- 72 Repayment of notes receivable from holders of restricted stock....... -- -- -- -- -- 206 Distribution of stock pursuant to performance awards................ -- -- 246 -- -- -- Treasury stock purchased ............ -- -- -- -- -- -- Other................................ -- -- 3 -- -- -- ------- ------- ------- -------- ----- ----- BALANCE AT JANUARY 2, 1999........... 11,575 $19,292 17,944 121,185 -- (113) ------- ------- ------- -------- ----- ----- ------- ------- ------- -------- ----- ----- Treasury stock Total ----------------------- stockholders' Shares Amount equity -------------------------------------- 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......... 40 995 163 Amortized compensation under restricted stock plan............. -- -- 24 Treasury stock purchased............. (7) (120) (120) ----- ------- ------- BALANCE AT DECEMBER 28, 1996......... (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 Repayment of notes receivable from holders of restricted stock.. -- -- 80 Distribution of stock pursuant to performance awards................ 30 148 608 Treasury stock purchased ............ (4) (89) (89) Foreign currency translation adjustment........................ -- -- 950 Other................................ -- -- 20 ----- ------- ------- BALANCE AT JANUARY 3, 1998........... (252) (1,915) 225,618 Net earnings (loss).................. -- -- (61,637) Dividend declared of $.72 per share.. -- -- (8,162) Treasury stock issued upon exercise of options............... 4 21 68 Amortized compensation under restricted stock plan............. -- -- 72 Repayment of notes receivable from holders of restricted stock....... -- -- 206 Distribution of stock pursuant to performance awards................ 15 75 321 Treasury stock purchased ............ (1) (16) (16) Other................................ -- -- 3 ----- ------- ------- BALANCE AT JANUARY 2, 1999........... (234) $(1,835) 156,473 ----- ------- ------- ----- ------- ------- - -----------------------------------------------------------------------------------------------------------------------------------
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. 26 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 1998 consisted of 52 weeks, while 1997 and 1996 consisted of 53 weeks and 52 weeks, respectively. 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 percent 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 1998 presentation. During 1998, warehousing and transportation expenses, historically classified as selling, general and administrative expenses and other operating expenses, are reclassified as cost of sales. For 1998, 1997 and 1996, $121.9 million, $135.7 million and $87.6 million, respectively, were reclassified. These reclassifications have no impact on operating income and net income but conform the Company's financial reporting with the reporting practices of other large wholesale food distributors. 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 January 2, 1999 and January 3, 1998, approximately 87 percent and 85 percent, respectively, of the Company's inventories are valued on the last-in, first-out (LIFO) method. During fiscal 1998 the Company recorded a LIFO charge of $4.0 million compared to $1.5 million in 1997. 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 $47.1 million and $43.1 million higher at January 2, 1999 and January 3, 1998, 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, ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF, 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 could be 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 2, 1999, January 3, 1998, and December 28, 1996 was $5.8 million, $5.9 million and $5.2 million, respectively. The accumulated amortization of intangible assets was $18.5 million and $13.5 million at January 2, 1999 and January 3, 1998, respectively. The carrying value of intangible assets is reviewed for impairment annually and/or when factors indicating impairment is 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 3-10 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. Effective January 4, 1998, the Company early adopted the American Institute of Certified Public Accountants Statement of Position ("SOP") 98-1, ACCOUNTING FOR THE COST OF COMPUTER SOFTWARE DEVELOPED OR OBTAINED FOR INTERNAL USE. The SOP requires the capitalization of certain costs incurred in connection with developing or obtaining software for internal use. Certain costs that are required to be capitalized by the SOP were previously being expensed as incurred by the Company. As a result of this change in accounting, during 1998, the Company capitalized $5.1 million in payroll and payroll-related costs for employees who are directly involved with and devote time to internal-use software development projects. Such amounts were subsequently written-off during 1998 (see Note (3) of Notes to Consolidated Financial Statements). 27 NASH FINCH COMPANY AND SUBSIDIARIES 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 basis. 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. STOCK OPTION PLANS As permitted by 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. As a result, the Company does not recognize compensation costs if the option price equals or exceeds market price at date of grant. Note (8) 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. 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 The Financial Accounting Standards Board ("FASB") issued SFAS No. 133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES, which standardizes the accounting for derivative instruments, and requires the Company to recognize all derivatives on the balance sheet at fair value. This Statement is effective for the Company's fiscal year 2000. Management has not assessed the impact on earnings or financial position. (2) ACQUISITIONS 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") for $15.50 per share in cash, with 10.6 million shares tendered, 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 $5.8 million are being amortized over 25 years on a straight-line basis. The acquisition was 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 the date of acquisition. Pro forma, unaudited results of operations as if the above operation 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, would have resulted in 1996 net revenues of $4.7 billion, earnings before income tax of $23.7 million, net income of $14.1 million and basic earnings per share of $1.28. (3) SPECIAL CHARGES 1998 CHARGES During the fourth quarter of 1998, the Company recorded charges totaling $71.4 million (offset by $2.9 million of 1997 charge adjustments) as a result of the Company's planned actions designed to redirect its technology efforts, optimize warehouse capacity through consolidation, and to close, sell or reassess underperforming businesses and investments. The special charges include $34.4 million for the abandonment of assets principally related to the Company's HORIZONS information system project. Although the Company is using certain modules of the developed software, the abandoned assets relate to purchased software and related development costs associated with abandoned in-process modules and software modules which, without significant investment in continuing development, lack sufficient inherent functionality to meet the Company's business and Year 2000 needs. As a result, the Company has terminated further HORIZONS development, abandoned in-process modules, and shifted its resources to a Year 2000 remediation plan. Also included in abandoned assets is $1.3 million in unamortized packaging design costs relating to a private label product line that will be redesigned. The special charges include $17.1 million and $9.6 million for restructuring wholesale and retail operations, respectively. Three warehouses will be closed by the end of the third quarter of 1999. Their volume will be consolidated with other locations, thereby further aligning the Company's distribution capacity with current and anticipated wholesale operations. The $17.1 million is comprised of $2.6 million of post-employment benefit costs consistent with existing practices, $2.7 million of penalties upon withdrawal from multi-employer pension plans, $8.2 million to write-down to fair value assets to be abandoned or disposed of (based on management's estimates and appraisals where available), and $3.6 million of employee salary and benefits and other costs to be incurred to close facilities after operations have ceased. Assets held for disposal were $24.6 million at January 2, 1999. Twelve underperforming corporately owned retail stores, and one store jointly developed with a wholesale customer, will also be closed. Substantially all stores have either been closed by March 1999 or are involved in transactions currently being negotiated. The $9.6 million consists of $3.4 million of non-cancelable lease obligations and related costs required under lease agreements, $3.5 million to write-down to fair value assets held for disposal, $.8 million of post-closing facility exit costs and $1.9 million for asset abandonment. At January 2, 1999, these costs have been included in accrued expenses on the balance sheet. For 1998, the corporately owned retail units to be closed had aggregate sales and pretax losses of $42.9 million and $1.9 million, respectively, compared with $42.7 million and $.1 million in 1997. The impact of suspending depreciation on assets to be disposed of is not material. Assets held for disposal at January 2, 1999 were $3.5 million. 28 NASH FINCH COMPANY AND SUBSIDIARIES The remainder of the aggregate special charges is a $10.3 million provision for asset impairment of which $8.2 million relates to ten owned retail stores. Increased competition resulting in declining market share, deterioration of operating performance and inadequate projected cash flows were the factors indicating impairment. The impaired assets, which include leasehold improvements and store equipment, were measured based on a comparison of the assets' net book value to the present value of the stores' estimated cash flows. In addition, the Company recorded a $2.1 million asset impairment charge writing off its equity investment in a joint venture with an independent retailer it continues to service. Current and projected operating losses and projected negative cash flow were the primary factors in determining that a permanent decline in the value of the investment had occurred. 1997 CHARGES In 1997 the Company accelerated its plan to strengthen its competitive position. Coincident with the implementation of the plan, the Company recorded special charges totaling $31.3 million impacting the Company's wholesale and retail segments, as well as the produce growing and marketing segment discontinued during 1998. The aggregate special charges included $14.5 million for the consolidation or downsizing of seven underutilized warehouses. The charges, as further detailed in the table below, provided for non-cancelable lease obligations, the write-down to fair value of tangible assets held for resale, and other costs to exit facilities. Also included are post-employment benefits consistent with existing practice and the unamortized portion of goodwill for one of the locations.
Write- Write- Post down of down of Lease Employment Intangible Tangible Exit Commitments Benefits Assets Assets(1) Costs Total - ------------------------------------------------------------------------------------------------------------ Initial accrual ... $ 5,198 1,815 3,225 2,442 1,835 14,515 Used in 1997 ...... (3,225) (2,442) (5,667) -------------------------------------------------------------------------------------- Balance 1/3/98 .... 5,198 1,815 -- -- 1,835 8,848 Reversals in 1998 . (1,591) (352) -- -- (358) (2,301) Additional accruals in 1998 ......... 271 194 -- 669 845 1,979 Used in 1998 ...... (1,328) (625) -- (669) (269) (2,891) -------------------------------------------------------------------------------------- Balance 1/2/99 .... $ 2,550 1,032 -- -- 2,053 5,635 -------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------
(1) The Company reversed $1.1 million of the write-down of tangible assets recorded in 1997, as discussed below. As a result of management changes during 1998, all actions to be taken under the 1997 plan were reevaluated by the Company's new management team. Substantially all actions contemplated by the 1997 plan were reaffirmed in 1998 and are in process of being implemented; however, some actions included in the 1997 plan were changed in 1998. The accruals reversed in 1998 relate to new management's determination that one distribution center identified for closure in the 1997 plan would remain open. The additional accruals are principally for one distribution center identified for downsizing in 1997, which will now be closed, and the additional write-down of assets management has determined in 1998 will not be used in operations upon the closure of distribution centers. Closure of five distribution centers included in the 1997 plan have been announced, three of which were closed as of year-end. Also, related to wholesale operations, the special charges included $2.5 million of integration costs, incurred in the third quarter of 1997, associated with the acquisition of the business and certain assets from United-A.G. Cooperative, Inc. ("United-A.G."). In retail operations, the special charges relate to the closing of fourteen, principally leased, stores. The $5.2 million charge, as detailed in the table below, covers provisions for continuing non-cancelable lease obligations, anticipated losses on disposals of tangible assets, including abandonment of leasehold improvements, and the write-off of intangible assets.
Write- Write- down of down of Lease Intangible Tangible Exit Commitments Assets Assets(1) Costs Total - -------------------------------------------------------------------------------------------- Initial accrual ... $ 2,780 396 1,603 393 5,172 Used in 1997 ...... (10) (396) (1,603) (63) (2,072) ----------------------------------------------------------------------- Balance 1/3/98 .... 2,770 -- -- 330 3,100 Used in 1998 ...... (416) -- -- (28) (444) Reversals in 1998 . (1,448) -- -- (131) (1,579) Additional accruals in 1998 ......... 486 -- -- 198 684 ----------------------------------------------------------------------- Balance 1/2/99 .... $ 1,392 -- -- 369 1,761 ----------------------------------------------------------------------- -----------------------------------------------------------------------
(1) The Company reversed $608,000 of the write-down of tangible assets recorded in 1997, as discussed below. The amount reversed in 1998 is principally the planned closure of a leased retail store which was subleased during the third quarter of 1998. Ten of the identified retail stores were closed during 1998 with the remaining four stores scheduled to be closed by November 1999. For 1998, the ten retail units closed during 1998 and the four units to be closed in 1999 had aggregate sales of $8.4 million and $38.6 million, and pretax losses of $1.0 million and pretax profits of $1.0 million, respectively. The impact of suspending depreciation on assets to be disposed of was not material. The aggregate special charges contain a provision of $5.4 million for impaired assets of seven retail stores. Declining market share due to increasing competition, deterioration of operating performance in the third quarter of 1997, 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. Store fixed asset write-downs were measured based on a comparison of the assets' net book value to the net present value of the stores' estimated future net cash flows. 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 growing and marketing subsidiary. The impairment determination was based on 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 system software which was replaced, and a loss of $.6 million realized on the sale of the Company's 22.4 percent equity investment in Alfa Trading Company, a Hungarian wholesale operation. The remaining special charges relate principally to the write-down of idle real estate to current market values. 29 NASH FINCH COMPANY AND SUBSIDIARIES (4) DISCONTINUED OPERATIONS In October 1998, the Company adopted a plan to sell its produce growing and marketing subsidiary, Nash DeCamp Company. Pursuant to APB Opinion No. 30, REPORTING THE RESULTS OF OPERATIONS -- REPORTING THE EFFECTS OF DISPOSAL OF A SEGMENT OF A BUSINESS AND EXTRAORDINARY, UNUSUAL AND INFREQUENTLY OCCURRING EVENTS AND TRANSACTIONS, Nash DeCamp is reported as a discontinued operation for all periods presented. The Company is actively marketing this operation with expected sale before mid-year 1999. The estimated pretax loss resulting from the expected sale of Nash DeCamp is $27.5 million, which includes an investment write-down, based upon estimated proceeds, of $17 million and a provision for anticipated operating losses until disposal of $1.8 million. The reported loss is net of an income tax benefit of $10.6 million. Summary operating results of the discontinued operation (in thousands) are as follows:
1998 1997 1996 - ------------------------------------------------------------------------------- Revenues ............................... $47,802 50,507 51,515 Cost and expenses ...................... 47,196 51,987 50,359 ------------------------------------ Income (loss) before taxes ............. 606 (1,480) 1,156 Income taxes (benefit) ................. 180 (1,326) 461 ------------------------------------ Net income (loss) ...................... $ 426 (154) 695 ------------------------------------ ------------------------------------
Net assets of the discontinued operation at January 2, 1999 included in the consolidated balance sheets (in thousands) are as follows:
1998 - ----------------------------------------------------------------- Current assets(1) Cash ............................................ $ 2 Accounts and notes receivable, net .............. 14,174 Inventories ..................................... 1,215 Other current assets ............................ 131 -------- Less current liabilities Accounts payable ................................ 9,388 Other current liabilities ....................... 11,095 -------- Net current assets ................................. $ (4,961) -------- Long-term assets(1) Notes receivable, non-current ................... $ 58 Net property, plant and equipment ............... 14,285 Other assets .................................... 371 -------- Less long-term liabilities Deferred compensation ........................... 2,140 Other liabilities ............................... 650 -------- Net long-term assets ............................... $ 11,924 -------- --------
(1) The investment write-down of $25.0 million is reflected in the asset values above. In the normal course of business, Nash DeCamp 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 2, 1999, $12.1 million in notes and grower advances were outstanding. (5) ACCOUNTS AND NOTES RECEIVABLE Accounts and notes receivable at the end of fiscal years 1998 and 1997 are comprised of the following components (in thousands):
1998 1997 - -------------------------------------------------------------------------------------- Customer notes receivable - current portion ............. $ 10,950 9,256 Customer accounts receivable ............................ 158,610 157,737 Other receivables ....................................... 25,199 26,970 Allowance for doubtful accounts ......................... (25,011) (20,001) -------------------------- Net current accounts and notes receivable ............... $ 169,748 173,962 -------------------------- Noncurrent customer notes receivable .................... 22,342 29,759 Allowance for doubtful accounts ......................... (9,406) (6,667) -------------------------- Net noncurrent notes receivable ......................... $ 12,936 23,092 -------------------------- --------------------------
Operating results include bad debt expense totaling $10.6 million, $5.1 million and $1.9 million during fiscal years 1998, 1997 and 1996, respectively. On January 1, 1997, the Company adopted the requirements of SFAS No. 125, ACCOUNTING FOR TRANSFERS AND SERVICING OF FINANCIAL ASSETS AND EXTINGUISHMENT 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 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. 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 interest in these receivables to the Purchaser. NFFC maintains a variable undivided interest in these receivables and is subject to losses on its share of the receivables and, accordingly, maintains an allowance for doubtful accounts. As of January 2, 1999, the Company had sold $45.7 million of accounts receivable on a non-recourse basis to NFFC. NFFC sold $36.8 million of its undivided interest in such receivables to the Purchaser, subject to specified collateral requirements. In 1995, the Company had entered into an agreement with a financial institution which allowed the Company to sell on a revolving basis customer notes receivable with recourse. The remaining balances of such sold notes receivable totaled $5.2 million and $9.1 million at January 2, 1999 and January 3, 1998, 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. 30 NASH FINCH COMPANY AND SUBSIDIARIES (6) LONG-TERM DEBT AND CREDIT FACILITIES Long-term debt at the end of the fiscal years 1998 and 1997 is summarized as follows (in thousands):
1998 1997 - ----------------------------------------------------------------------------------------- Variable rate - revolving credit agreement ................. $120,000 214,000 Senior subordinated debt, 8.5% due in 2008 ................. 163,781 -- Industrial development bonds, 5.4% to 7.8% due in various installments through 2009 ................ 3,840 4,370 Term loan, 9.55% due in 2001 ............................... 1,250 107,528 Notes payable and mortgage notes, 3% to 11.5% due in various installments through 2003 ................ 5,394 5,975 ----------------------------- 294,265 331,873 Less current maturities .................................... 985 6,384 ----------------------------- $293,280 325,489 -----------------------------
On April 24, 1998, the Company completed the sale of $165 million of 8.5 percent senior subordinated notes due May 1, 2008, using the net proceeds from the offering after fees and expenses, to reduce certain amounts borrowed under its revolving credit facility. In the first quarter of 1998, in conjunction with the senior subordinated debt offering, the Company prepaid $106.3 million of senior notes, and paid prepayment premiums and wrote-off related deferred financing costs totaling $9.5 million. This transaction resulted in an extraordinary charge of $5.6 million, or $.49 per share, net of income tax benefits of $3.9 million. During 1997, the Company entered into four swap agreements, with separate financial institutions. At the end of fiscal year 1998 there were three swap agreements remaining. 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 percent to 6.54 percent, 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, totalling $.9 million, 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 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. The Company has a revolving credit facility (the "Credit Facility") with two lead banks that was reduced to $350 million in available borrowings during 1998. The Credit Facility matures in October 2001. Borrowings under this agreement will bear interest at variable rates equal to LIBOR plus 1.125 percent. In addition, the Company pays commitment fees of .375 percent on the entire facility both used and unused. The average borrowing rate during the period was 6.5 percent. The Credit Facility and subordinated debt agreements contain covenants which among other matters, limit the Company's ability to incur indebtedness, buy and sell assets, impose dividend payment limitations and require compliance to predetermined ratios related to net worth, debt to equity and interest coverage. At January 2, 1999, land, buildings and other assets pledged to secure outstanding mortgage notes and obligations under issues of industrial development bonds have a depreciated cost of approximately $4.6 million and $4.2 million, respectively. Aggregate annual maturities of long-term debt for the five fiscal years after January 2, 1999 are as follows (in thousands): - ------------------------------------------------------------- 1999 ......................................... $ 985 2000 ......................................... 731 2001 ......................................... 122,056 2002 ......................................... 1,683 2003 ......................................... 3,144 2004 and thereafter .......................... $165,666 - -------------------------------------------------------------
Interest paid was $32.0 million, $31.6 million and $14.3 million, for fiscal years 1998, 1997 and 1996, respectively. In addition, the Company maintains informal lines of credit at various banks. At January 2, 1999 unused informal lines of credit amounted to $4.5 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 $277.3 million. (7) INCOME TAXES Income tax expense related to continuing operations is made up of the following components (in thousands):
1998 1997 1996 - ------------------------------------------------------------ Current: Federal .............. $ 6,048 3,029 11,781 State ................ 1,060 667 2,262 Deferred: Federal .............. (23,717) (1,079) (678) State ................ (2,228) (297) (191) --------------------------------- Total .............. $(18,837) 2,320 13,174 --------------------------------- ---------------------------------
31 NASH FINCH COMPANY AND SUBSIDIARIES Total income tax expense (benefit) relating to continuing operations represents effective tax rates of (32.2) percent, 186.2 percent and 40.5 percent for the fiscal years 1998, 1997 and 1996, respectively. The reasons for differences compared with the US federal statutory tax rate (expressed as a percentage of pretax income) are as follows:
1998 1997 1996 - ----------------------------------------------------------------------------------- Federal statutory tax rate ................... (35.0)% 35.0% 35.0% State taxes, net of federal income tax benefit (2.0) 18.0 4.2 Foreign equity earnings ...................... -- (5.2) -- Dividends received deduction on domestic stock of under 80% owned companies .............. (.4) (36.0) -- Non-deductible goodwill ...................... .9 131.4 .2 Non-deductible meals and entertainment ....... .3 17.8 .7 Adjustment to other income tax accruals ...... 3.9 27.7 .4 Other net .................................... .1 (2.5) -- ------------------------------- Effective tax rate ........................ (32.2)% 186.2% 40.5% ------------------------------- -------------------------------
Income taxes paid (refunded) were $(4.4) million, $8.9 million and $12.4 million during fiscal years 1998, 1997 and 1996, respectively. The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at January 2, 1999, January 3, 1998, and December 28, 1996, are presented below (in thousands):
1998 1997 1996 - -------------------------------------------------------------------------------------------- Deferred tax assets: Accounts and notes receivable, principally due to allowance for doubtful accounts .......... $12,102 5,891 7,625 Inventories, principally due to additional costs inventoried for tax purposes .................... 2,963 3,405 2,956 Health care claims ................................. 3,116 2,668 2,991 Deferred compensation .............................. 4,624 2,546 2,376 Compensated absences ............................... 3,192 3,086 2,286 Compensation and casualty loss ..................... 2,191 1,780 1,959 Discontinued operations ............................ 10,587 -- -- Closed locations ................................... 18,168 10,612 3,126 Other .............................................. 1,782 731 2,236 --------------------------------------- Total deferred tax assets .......................... 58,725 30,719 25,555 --------------------------------------- Deferred tax liabilities: Purchased intangibles .............................. -- 231 1,055 Plant and equipment, principally due to differences in depreciation ..................... 457 9,704 6,511 Inventories, principally due to differences in LIFO basis ................................... 7,686 7,686 7,230 Other .............................................. 2,356 1,404 2,020 --------------------------------------- Total deferred tax liabilities ..................... 10,499 19,025 16,816 --------------------------------------- Net deferred tax asset .......................... $48,226 11,694 8,739 ---------------------------------------
The Company has determined that a valuation allowance for the net deferred tax assets is not required since it is more likely than not that the deferred tax asset will be realized through carryback to taxable income in prior years, future reversals of existing taxable temporary timing differences, future taxable income and tax planning strategies. The Company's conclusion that it is "more likely than not" that the deferred tax asset will be realized is based upon federal taxable income in the carryback period and its lengthy and consistent history of profitable operations. (8) 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 percent or more of the Company's outstanding common stock. A flip-in event would occur if a person or group acquires (1) 15 percent of the Company's outstanding common stock, or (2) an ownership level set by the Board of Directors at less than 15 percent 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 percent 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 percent 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. 32 NASH FINCH COMPANY AND SUBSIDIARIES At January 2, 1999, under the 1994 Plan, options to purchase 294,770 shares of common stock of the Company at an average price of $16.89 per share and exercisable over terms of five to seven years from the dates of grant, have been granted and are outstanding. Effective June 1, 1998, options totaling 200,000 shares were granted to a key senior executive. These options, which were not granted under the 1994 Plan, become exercisable in 50,000 share increments over a four year period, beginning one year after the date of grant, at a price of $16.84 per share (100 percent of fair market value at the date of grant). In February 1996, certain members of management exercised rights to purchase restricted stock from the Company at a 25 percent 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 percent payment in cash with the remaining balance evidenced by a 5-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 material. At January 2, 1999, 9,645 shares of restricted stock have been issued and are outstanding. Performance unit awards having a maximum potential payout of 215,518 shares have also been granted and are outstanding. Reserved for the granting of future stock options, restricted stock awards and performance unit awards are 213,693 shares. At January 2, 1999 under the Director Plan, options to purchase 15,500 shares of common stock of the Company, at an average price of $17.79 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 22,500 shares. Changes in outstanding options during the three fiscal years ended January 2, 1999 are summarized as follows (in thousands):
Weighted Average Option Price Shares Per Share - ------------------------------------------------------------------------------------ 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 17.24 Exercised ..................................... (4) 16.58 Forfeited ..................................... (33) 16.83 Granted ....................................... 255 16.48 - ------------------------------------------------------------------------------------ Options outstanding January 2, 1999 .............. 510(a) 16.89 - ------------------------------------------------------------------------------------
(a) Remaining average contractual life of options outstanding at January 2, 1999 was 2.5 years, with an exercise price range of $14.72 to $22.31. Options exercisable at January 2, 1999 ............................... 239 $ 17.12 January 3, 1998 ............................... 164 17.09
The weighted average fair value of options granted during 1998, 1997 and 1996 are $2.49, $2.62 and $2.40, 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 4.6 percent, an expected dividend yield of 2.0 percent, expected lives of two and one-half years and volatility of 22.8 percent. 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 1998 and 1997 net loss and loss per share would have increased by less than 1 percent. The effects of applying the fair value method of measuring compensation expense for 1998 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. (9) EARNINGS PER SHARE The following table sets forth the computation of basic and diluted earnings per share for continuing operations:
1998 1997 1996 - --------------------------------------------------------------------------------------------------- Numerator: Earnings (loss) for continuing operations .......... $(39,581) (1,074) 19,337 ----------------------------------------- Denominator: Denominator for basic earnings per share; weighted-average shares ............................ 11,318 11,270 10,947 Effect of dilutive securities: Employee stock options ............................. -- -- 8 Contingent shares .................................. -- -- 138 ----------------------------------------- Dilutive common shares ................................ -- -- 146 Denominator for diluted earnings per share; adjusted weighted average shares ................... 11,318 11,270 11,093 ----------------------------------------- Basic earnings (loss) per share ....................... $ (3.50) (0.10) 1.77 ----------------------------------------- Diluted earnings (loss) per share ..................... $ (3.50) (0.10) 1.75 -----------------------------------------
(10) 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):
1998 1997 - ------------------------------------------------------------------------------------ Buildings and improvements ............................. $ 24,878 25,048 Less accumulated amortization .......................... (11,213) (10,243) -------------------------- Net assets under capitalized leases ................. $ 13,665 14,805 -------------------------- --------------------------
At January 2, 1999, future minimum rental payments under non-cancelable leases and subleases are as follows (in thousands):
Operating Capital Leases Leases - ------------------------------------------------------------------- 1999 $ 31,918 5,613 2000 27,320 5,447 2001 24,475 5,384 2002 30,120 5,395 2003 and thereafter 119,289 48,345 ------------------------- Total minimum lease payments (a) $233,122 70,184 Less imputed interest (rates ranging from 7.8% to 16.0%) (33,939) ---------- Present value of net minimum lease payments 36,245 Less current maturities (1,578) ---------- Capitalized lease obligations $34,667 ---------- ----------
(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 2, 1999 are $121.2 million and $36.2 million, respectively. 33 NASH FINCH COMPANY AND SUBSIDIARIES Total rental expense under operating leases for fiscal years 1998, 1997 and 1996 is as follows (in thousands):
1998 1997 1996 - --------------------------------------------------------------------------------------- Total rentals ................................. $ 44,320 42,584 33,316 Less real estate taxes, insurance and other occupancy costs ............................ (2,357) (2,731) (2,070) -------------------------------------- Minimum rentals ............................... 41,963 39,853 31,246 Contingent rentals ............................ (154) 244 183 Sublease rentals .............................. (16,358) (13,744) (9,449) -------------------------------------- $ 25,451 26,353 21,980 -------------------------------------- --------------------------------------
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. (11) 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 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 2, 1999, the Company has guaranteed outstanding promissory note obligations of three customers in the amount of $17.5 million, $7.1 million and $6.5 million, respectively. The Company has guaranteed certain lease and promissory note obligations of customers aggregating approximately $37.1 million. 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. (12) 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 1998, 1997 and 1996 was $3.9 million, $2.5 million and $4.1 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 contributions to the deferred compensation plan, which are based on Company performance, are expensed. No annual contribution was made in 1998 or 1997. (13) PENSION AND OTHER POSTRETIREMENT BENEFITS Super Food has a qualified non-contributory retirement plan to provide retirement income for eligible full-time employees who are not covered by union retirement plans. Pension benefits under the plans 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. All employees impacted by the curtailment were transferred into the Company's existing defined contribution plan effective January 1, 1998. The Company provides certain health care benefits for retired employees not subject to collective bargaining agreements. Employees become eligible for those benefits when they reach normal retirement age and 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 employees. The following table sets forth the benefit obligations of postretirement benefits and the funded status of the curtailed Super Food pension plan. The actuarial present value of benefit obligations, and funded plan status at January 2, 1999 and January 3, 1998 were (in thousands):
PENSION BENEFITS OTHER BENEFITS - -------------------------------------------------------------------------------------------- 1998 1997 1998 1997 - -------------------------------------------------------------------------------------------- CHANGE IN BENEFIT OBLIGATION Benefit obligation at beginning of year ............. $(37,646) (32,560) (8,604) (7,978) Service cost ..................... (199) (660) (376) (354) Interest cost .................... (2,630) (2,663) (560) (576) Plan amendments .................. 148 3,784 -- -- Actuarial (loss) gain ............ (1,462) (7,524) 23 (294) Benefits paid .................... 2,203 1,977 624 598 ----------------------------------------------------- Benefit obligation at end of year. $(39,586) (37,646) (8,893) (8,604) CHANGE IN PLAN ASSETS Fair value of plan assets at beginning of year ............. $ 36,261 34,274 -- -- Actual return on plan assets ..... 3,622 3,587 -- -- Employer contribution ............ 1,540 377 624 598 Plan participants' contributions . -- -- -- -- Benefits paid ................. (2,203) (1,977) (624) (598) ----------------------------------------------------- Fair value of plan assets at end of year ................... $ 39,220 36,261 -- -- ----------------------------------------------------- Funded status .................... $ (366) (1,385) (8,893) (8,604) Unrecognized actuarial loss (gain).......................... 2,806 2,098 (403) (380) Unrecognized transition obligation...................... -- -- 3,467 3,714 Unrecognized prior service cost .. (136) -- -- -- ----------------------------------------------------- Prepaid (accrued) benefit cost ... $ 2,304 713 (5,829) (5,270) ----------------------------------------------------- -----------------------------------------------------
WEIGHTED-AVERAGE ASSUMPTIONS AS OF JANUARY 2, 1999 Discount rate............................ 7.00% 7.25% 7.00% 6.75% Expected return on plan assets........... 8.00% 8.00% -- -- Rate of compensation increase............ 5.00% 5.00% -- --
34 NASH FINCH COMPANY AND SUBSIDIARIES The aggregate costs for the Company's retirement benefits included the following components (in thousands): COMPONENTS OF NET PERIODIC BENEFIT COST (INCOME)
PENSION BENEFITS OTHER BENEFITS - ------------------------------------------------------------------------------------------------------------------- 1998 1997 1996 1998 1997 1996 - ------------------------------------------------------------------------------------------------------------------- Service cost ........... $ 199 660 237 376 354 260 Interest cost .......... 2,630 2,663 882 560 576 403 Expected return on plan assets .......... (2,867) (2,857) (1,855) -- -- -- Amortization of prior service costs ........ (12) -- 931 -- -- -- Amortization of unrecognized transition obligation. -- -- -- 248 235 248 --------------------------------------------------------------------------------------- Net periodic benefit cost (income) ........ $ (50) 466 195 1,184 1,165 911 ---------------------------------------------------------------------------------------
Assumed health care cost trend rates have a significant effect on the 1998 amounts reported for the health care plans. The assumed annual rate of future increases in per capita cost of health care benefits was 9.0 percent in fiscal 1998, declining at a rate of .5 percent per year to 5.5 percent in 2005 and thereafter. A one-percentage point change in assumed health care cost trend rates would have the following effects:
1% Increase 1% Decrease - ---------------------------------------------------------------------------------------- Effect on total of service and interest cost components .... $ 71 (60) Effect on postretirement benefit obligation ................ 461 (406)
Approximately 6 percent of the Company's 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. Amounts contributed to those plans during 1998 and 1997 were $2.9 million and $2.2 million, respectively. The Company has a practice of providing post-employment benefits when closing distribution center facilities. (14) SUBSIDIARY GUARANTEES The following tables presents summarized combined financial information for certain wholly owned subsidiaries which guarantee on a full, unconditional and joint and several basis, $165.0 million of senior subordinated notes due May 1, 2008, which were offered and sold on April 24, 1998 by the Company: CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS) 1998 1997 1996 - ------------------------------------------------------------------------------------ Operating revenues ...................... $1,060,331 1,068,857 269,090 Operating expenses ...................... 1,056,390 1,058,695 266,386 Operating income (loss) ................. 3,941 10,162 2,703 Other income ............................ 4,732 4,168 1,108 Income (loss) before income tax ......... 8,673 14,330 3,812 Income tax expense (benefit) ............ 7,203 5,621 1,524 Net income (loss) ....................... $ 1,470 8,709 2,288
CONDENSED CONSOLIDATED BALANCE SHEET DATA
1998 1997 - ------------------------------------------------------------------- Current assets ............................ $148,906 160,125 Non-current assets ........................ 105,456 117,698 Current liabilities ....................... 64,921 57,862 Long-term debt and obligations ............ 23,907 27,152 Deferred credits and other liabilities .... 3,990 14,452
The following tables sets forth summarized combined financial information relating to non-wholly owned subsidiaries which have on a full, unconditional and joint and several basis, guaranteed the aforementioned debt of the Company. CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS) 1998 1997 1996 - --------------------------------------------------------------------------------- Operating revenues ....................... $31,713 34,929 36,695 Operating expenses ....................... 30,795 33,075 35,370 Operating income ......................... 918 1,854 1,325 Other income ............................. 425 276 240 Income before income tax ................. 1,343 2,130 1,565 Income tax expense ....................... 492 773 564 Net income ............................... $ 851 1,357 1,001
CONDENSED CONSOLIDATED BALANCE SHEET DATA
1998 1997 - ----------------------------------------------------------------- Current assets ........................... $3,068 3,129 Non-current assets ....................... 2,921 3,289 Current liabilities ...................... 2,127 2,524 Long-term debt and obligations ........... $ 211 447
Non-guarantor subsidiaries, all of which are wholly owned, are inconsequential. (15) SEGMENT INFORMATION The Company and its subsidiaries sell and distribute food and non-food products that are typically found in supermarkets. The Company has three reportable operating segments. The Company's wholesale distribution segment is made up of 17 distribution centers that sell food and food related products to independently owned retail food stores, corporately owned retail food stores and institutional customers. The retail segment is made up of 93 corporately owned stores that sell food and food related products directly to the consumer. The military distribution segment sells food and food related products to military commissaries. In 1998, the Company discontinued the operations of Nash DeCamp (see Note (4) of Notes to Consolidated Financial Statements). Information presented below relates only to results of continuing segments. The Company evaluates performance and allocates resources based on profit or loss before income taxes, not including general corporate expenses and earnings from equity investments. The accounting policies of the reportable segments are the same as those described in the summary of accounting policies except that the Company accounts for inventory on a FIFO basis at the segment level compared to a LIFO basis at the consolidated level. Intra-segment sales and transfers are recorded on a cost plus markup basis. Wholesale segment profits on sales to Company owned stores have been allocated back to the retail operating segment. 35 NASH FINCH COMPANY AND SUBSIDIARIES
SCHEDULES YEAR-END JANUARY 2, 1999 (IN THOUSANDS) Wholesale Retail Military All Other Totals - ---------------------------------------------------------------------------------------------------------------------------------- Revenues from external customers ...................... $ 2,491,736 738,018 916,819 3,004(1) 4,149,577 Intra-segment revenues ................................ 443,061 -- -- 2,628 445,689 Interest revenue ...................................... (3,431) (37) -- -- (3,468) Interest expense (includes capital lease interest) .... 2,910 15 -- -- 2,925 Depreciation expense .................................. 17,916 9,794 2,250 119 30,079 Segment profit (loss) ................................. 41,571 5,923 23,540 (205) 70,829 Assets ................................................ 460,996 96,765 139,388 2,553 699,702 Expenditures for long-lived assets .................... 7,987 9,327 1,550 4 18,868 YEAR-END JANUARY 3, 1998 (IN THOUSANDS) Wholesale Retail Military All Other Totals - ---------------------------------------------------------------------------------------------------------------------------------- Revenues from external customers ...................... $ 2,563,795 823,922 940,365 2,355(1) 4,330,437 Intra-segment revenues ................................ 501,062 -- -- 2,497 503,559 Interest revenue ...................................... (4,001) (12) -- -- (4,013) Interest expense (includes capital lease interest) .... 3,340 20 -- -- 3,360 Depreciation expense .................................. 18,318 10,496 2,011 116 30,941 Segment profit (loss) ................................. 51,351 5,450 24,667 123 81,591 Assets ................................................ 461,642 98,180 143,437 587 703,846 Expenditures for long-lived assets .................... 16,129 17,510 2,786 392 36,817 YEAR-END DECEMBER 28, 1996 (IN THOUSANDS) Wholesale Retail Military All Other Totals - ---------------------------------------------------------------------------------------------------------------------------------- Revenues from external customers ...................... $ 1,606,611 850,729 858,906 2,143(1) 3,318,389 Intra-segment revenues ................................ 529,184 -- -- 1,396 530,580 Interest revenue ...................................... (79) (1) -- -- (80) Interest expense (includes capital lease interest) .... 402 24 612 -- 1,038 Depreciation expense .................................. 9,335 10,250 1,736 46 21,367 Segment profit (loss) ................................. 32,285 7,234 19,013 54 58,586 Assets ................................................ 478,808 105,296 140,121 597 724,822 Expenditures for long-lived assets .................... 13,431 14,536 3,193 59 31,219
(1) Revenue from the segments in All Other is attributable to a trucking transport business. RECONCILIATION
(IN THOUSANDS) 1998 1997 1996 - -------------------------------------------------------------------------------- REVENUES Total external revenues for segments .................. $ 4,149,577 4,330,437 3,318,389 Intra-segment revenues from reportable segments ........... 445,689 503,559 530,580 Unallocated amounts .............. 10,434 10,658 5,581 Elimination of intra-segment revenues ...................... (445,689) (503,559) (530,580) ------------------------------------------- Total consolidated revenues ... $ 4,160,011 4,341,095 3,323,970 ------------------------------------------- ------------------------------------------- PROFIT OR LOSS Total profit for segments ........ $ 70,829 81,591 58,586 Unallocated amounts Adjustment of inventory to LIFO ..................... (3,975) (1,500) (1,560) Unallocated corporate overhead .................... (56,801) (48,811) (24,515) Special charges ............... (68,471) (30,034) -- ------------------------------------------- Income from continuing operations before income taxes ........... $ (58,418) 1,246 $ 32,511 ------------------------------------------- ------------------------------------------- ASSETS Total assets for segments ........ $ 699,702 703,846 724,822 Assets of a discontinued operation 30,236 47,051 42,221 Unallocated corporate assets ..... 180,273 228,514 268,934 Adjustment for LIFO inventory .... (47,043) (43,068) (41,569) Elimination of intercompany receivables ................... (30,106) (31,460) (48,931) Other eliminations ............... 33 -- -- ------------------------------------------- Total consolidated assets ..... $ 833,095 904,883 945,477 ------------------------------------------- -------------------------------------------
OTHER SIGNIFICANT ITEMS (IN THOUSANDS)
Segment Consolidated 1998 Totals Adjustments Totals - --------------------------------------------------------------------------------- Depreciation ........................... $30,079 15,985 46,064 Interest revenue ....................... 3,468 1,358 4,826 Interest expense ....................... 2,925 26,109 29,034 Expenditures for long-lived assets ..... 18,868 33,862 52,730 1997 - --------------------------------------------------------------------------------- Depreciation ........................... $30,941 15,412 46,353 Interest revenue ....................... 4,013 2,367 6,380 Interest expense ....................... 3,360 29,413 32,773 Expenditures for long-lived assets ..... 36,817 30,908 67,725 1996 - --------------------------------------------------------------------------------- Depreciation ........................... $21,367 11,947 33,314 Interest revenue ....................... 80 1,533 1,613 Interest expense ....................... 1,038 12,370 13,408 Expenditures for long-lived assets ..... 31,219 20,114 51,333
The reconciling items to adjust expenditures for depreciation, interest revenue, interest expense and expenditures for long-lived assets are for unallocated general corporate activities. All revenues are attributed to and all assets are held in the United States. The Company's market areas are in the Midwest, West, Mid-Atlantic and Southeast United States. 36 NASH FINCH COMPANY AND SUBSIDIARIES 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 12 Weeks 13 Weeks --------------- ------------- --------------- --------------------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 1998 1997 1998 1997 1998 1997 1998 1997 - ----------------------------------------------------------------------------------------------------------------------------------- Net sales and other revenue ............. $ 932,966 943,662 973,069 964,743 1,282,533 1,328,866 971,443 1,103,824 Cost of sales ........................... 825,321 830,770 889,458 872,590 1,186,229 1,227,394 882,653 1,006,059 Earnings (loss) from continuing operations before income taxes and extraordinary charge ............. 5,984 6,387 6,122 11,234 4,503 (23,647) (75,026) 7,272 Income taxes (benefit) .................. 2,265 2,433 2,542 4,674 1,984 (7,358) (25,628) 2,572 Net earnings (loss) from continuing operations before extraordinary charge ................. 3,719 3,954 3,580 6,560 2,519 (16,289) (49,398) 4,700 Earnings (loss) from discontinued operations, net of income tax (benefit) ............................ (1,091) (898) 36 (96) 879 (168) 602 1,008 Earnings (loss) from disposal of discontinued operations, net of income tax (benefit) .............. -- -- -- -- -- -- (16,913) -- Earnings (loss) before extraordinary charge ................. 2,628 3,056 3,616 6,464 3,398 (16,457) (65,709) 5,708 Extraordinary charge from early extinguishment of debt, net of income tax (benefit) ................. 5,569 -- -- -- -- -- -- -- Net earnings (loss) ..................... (2,941) 3,056 3,616 6,464 3,398 (16,457) (65,709) 5,708 Percent to sales and revenues ........... (0.32) 0.32 0.37 0.66 0.26 (1.24) (6.76) 0.52 BASIC EARNINGS (LOSS) PER SHARE Earnings (loss) from continuing operations before extraordinary charge ................. $ .33 .35 .32 .58 .22 (1.45) (4.36) .42 Earnings (loss) before extraordinary charge ................. $ .23 .27 .32 .57 .30 (1.46) (5.80) .51 Net earnings (loss) ..................... $ (.26) .27 .32 .57 .30 (1.46) (5.80) .51 DILUTED EARNINGS (LOSS) PER SHARE Earnings (loss) from continuing operations before extraordinary charge ................. $ .33 .35 .32 .58 .22 (1.45) (4.36) .41 Earnings (loss) before extraordinary charge ................. $ .23 .27 .32 .57 .30 (1.46) (5.80) .50 Net earnings (loss) ..................... $ (.26) .27 .32 .57 .30 (1.46) (5.80) .50
37 NASH FINCH COMPANY AND SUBSIDIARIES CONSOLIDATED SUMMARY OF OPERATIONS - ------------------------------------------------------------------------------ Eleven years ended January 2, 1999 (not covered by Independent Auditors' Report)
1998 1997 1996 1995 1994 1993 (DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) (52 weeks) (53 weeks) (52 weeks) (52 weeks) (52 weeks) (52 weeks) - ----------------------------------------------------------------------------------------------------------------------------------- Sales and revenues .................................. $ 4,147,582 4,326,051 3,319,027 2,828,873 2,780,033 2,677,629 Other income ........................................ 12,429 15,044 4,943 10,655 8,625 6,880 ----------- --------- --------- --------- --------- --------- Total sales, revenues and other income .............. 4,160,011 4,341,095 3,323,970 2,839,528 2,788,658 2,684,509 Cost of sales including warehousing and transportation expenses .......................... 3,783,661 3,936,813 2,996,596 2,528,241 2,468,856 2,382,283 Selling, general, administrative and other operating expenses ......................... 287,622 291,357 244,137 243,358 250,639 237,373 Special charges ..................................... 68,471 30,034 -- -- -- -- Interest expense .................................... 29,034 32,773 13,408 9,007 9,950 9,021 Depreciation and amortization ....................... 46,064 46,353 33,314 27,864 30,369 27,815 Profit sharing contribution ......................... 3,577 2,519 4,004 3,673 3,417 3,553 Provision for income taxes .......................... (18,837) 2,320 13,174 10,748 10,148 10,047 ----------- --------- --------- --------- --------- --------- Net earnings (loss) from continuing operations ............................ $ (39,581) (1,074) 19,337 16,637 15,279 14,417 Earnings (loss) from discontinued operations, net of income tax .................... 426 (154) 695 777 201 1,457 Earnings (loss) on disposal of discontinued operations, net of income tax .................... (16,913) -- -- -- -- -- Extraordinary charge from early extinguishment of debt, net of income tax ........ (5,569) ----------- --------- --------- --------- --------- --------- Net earnings (loss) ................................. $ (61,637) (1,228) 20,032 17,414 15,480 15,874 ----------- --------- --------- --------- --------- --------- Basic earnings (loss) per share: Earnings (loss) from continuing operations ......................... $ (3.50) (0.10) 1.77 1.53 1.40 1.33 Earnings (loss) from discontinued operations ....................... (1.46) (0.01) 0.06 0.07 0.02 0.13 Extraordinary charge from early extinguishment of debt ........................ (0.49) ----------- --------- --------- --------- --------- --------- Basic earnings (loss) per share ..................... $ (5.45) (0.11) 1.83 1.60 1.42 1.46 ----------- --------- --------- --------- --------- --------- Diluted earnings (loss) per share: Earnings (loss) from continuing operations ......................... $ (3.50) (0.10) 1.75 1.53 1.40 1.33 Earnings (loss) from discontinued operations ....................... (1.46) (0.01) 0.06 0.07 0.02 0.13 Extraordinary charge from early extinguishment of debt ........................ (0.49) ----------- --------- --------- --------- --------- --------- Diluted earnings (loss) per share ................... $ (5.45) (0.11) 1.81 1.60 1.42 1.46 ----------- --------- --------- --------- --------- --------- Cash dividends declared per common share ............ $ 0.72 .72 .75 .74 .73 .72 Pretax earnings as a percent of sales and revenues ............................... % -- -- 1.00 .99 .91 .98 Net earnings (loss) as a percent of sales and revenues ............................... % (1.48) (0.03) .59 .60 .55 .58 Effective income tax rate ........................... % (32.2) 425.4 40.5 39.1 40.0 40.5 Current assets ...................................... $ 467,108 494,350 525,596 311,690 309,522 294,925 Current liabilities ................................. $ 331,473 294,419 297,088 207,688 220,065 215,021 Net working capital ................................. $ 135,635 199,931 228,508 104,002 89,457 79,904 Ratio of current assets to current liabilities ...... 1.41 1.68 1.77 1.50 1.41 1.37 Total assets ........................................ $ 833,095 904,883 945,477 514,260 531,604 521,654 Capital expenditures ................................ $ 52,730 67,725 51,333 33,264 34,965 36,382 Long-term obligations (long-term debt and capitalized lease obligations) ............... $ 327,947 364,006 403,651 81,188 95,960 97,887 Stockholders' equity ................................ $ 156,473 225,618 232,861 215,313 206,269 199,264 Stockholders' equity per share(1) ................... $ 13.80 19.96 21.06 19.80 18.97 18.33 Return on average stockholders' equity .............. % (32.26) (0.53) 8.94 8.26 7.63 8.13 Number of common stockholders of record at year-end ............................... 2,214 2,226 2,230 1,940 2,074 2,074 Common stock high price(2) .......................... $ 20 24 7/8 21 3/4 20 1/2 18 1/4 23 1/4 Common stock low price(2) ........................... $ 13 1/8 17 1/2 15 1/2 15 3/4 15 3/8 17 - ------------------------------------------------------------------------------- (1) Based on outstanding shares at year-end. (2) High and low closing sale price. 38 1992 1991 1990 1989 1988 (DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) (53 weeks) (52 weeks) (52 weeks) (52 weeks) (52 weeks) - ----------------------------------------------------------------------------------------------------------------------------- Sales and revenues .................................. 2,475,729 2,303,236 2,335,532 2,190,901 2,066,988 Other income ........................................ 4,979 4,764 4,878 3,931 5,705 --------- --------- --------- --------- --------- Total sales, revenues and other income .............. 2,480,708 2,308,000 2,340,410 2,194,832 2,072,693 Cost of sales including warehousing and transportation expenses .......................... 2,200,058 2,040,612 2,078,424 1,947,102 1,845,801 Selling, general, administrative and other operating expenses ......................... 210,947 201,662 198,418 194,039 168,777 Special charges ..................................... -- -- -- -- Interest expense .................................... 8,329 7,996 7,962 7,748 7,797 Depreciation and amortization ....................... 25,867 25,067 24,774 22,381 19,391 Profit sharing contribution ......................... 3,874 3,699 3,519 3,021 2,752 Provision for income taxes .......................... 12,137 11,109 10,694 7,717 10,635 --------- --------- --------- --------- --------- Net earnings (loss) from continuing operations ............................ 19,496 17,855 16,619 12,824 17,540 Earnings (loss) from discontinued operations, net of income tax .................... 572 1,200 1,211 328 635 Earnings (loss) on disposal of discontinued operations, net of income tax .................... -- -- -- -- -- Extraordinary charge from early extinguishment of debt, net of income tax ........ --------- --------- --------- --------- --------- Net earnings (loss) ................................. 20,068 19,055 17,830 13,152 18,175 --------- --------- --------- --------- --------- Basic earnings (loss) per share: Earnings (loss) from continuing operations ......................... 1.80 1.64 1.53 1.18 1.61 Earnings (loss) from discontinued operations ....................... 0.05 0.11 0.11 0.03 0.06 Extraordinary charge from early extinguishment of debt ........................ --------- --------- --------- --------- --------- Basic earnings (loss) per share ..................... 1.85 1.75 1.64 1.21 1.67 --------- --------- --------- --------- --------- Diluted earnings (loss) per share: Earnings (loss) from continuing operations ......................... 1.80 1.64 1.53 1.18 1.61 Earnings (loss) from discontinued operations ....................... 0.05 0.11 0.11 0.03 0.06 Extraordinary charge from early extinguishment of debt ........................ --------- --------- --------- --------- --------- Diluted earnings (loss) per share ................... 1.85 1.75 1.64 1.21 1.67 --------- --------- --------- --------- --------- Cash dividends declared per common share ............ .71 .70 .69 .67 .65 Pretax earnings as a percent of sales and revenues ............................... 1.30 1.31 1.22 .95 1.38 Net earnings (loss) as a percent of sales and revenues ............................... .80 .81 .75 .59 .87 Effective income tax rate ........................... 38.4 38.1 38.4 37.9 37.4 Current assets ...................................... 310,170 239,850 234,121 212,264 219,956 Current liabilities ................................. 213,691 154,993 159,439 128,159 153,068 Net working capital ................................. 96,479 84,857 74,682 84,105 66,888 Ratio of current assets to current liabilities ...... 1.45 1.55 1.47 1.66 1.44 Total assets ........................................ 513,615 429,648 416,233 380,771 388,269 Capital expenditures ................................ 42,991 36,836 36,129 34,635 52,019 Long-term obligations (long-term debt and capitalized lease obligations) ............... 94,145 82,532 74,333 77,950 66,216 Stockholders' equity ................................ 191,204 178,846 167,388 157,024 151,043 Stockholders' equity per share(1) ................... 17.59 16.45 15.40 14.45 13.90 Return on average stockholders' equity .............. 10.85 11.01 10.99 8.54 12.45 Number of common stockholders of record at year-end ............................... 2,087 2,122 2,138 2,146 2,227 Common stock high price(2) .......................... 19 3/4 20 1/4 25 1/4 25 3/4 27 1/2 Common stock low price(2) ........................... 16 1/4 16 1/2 16 1/4 21 1/4 18
- ------------------------------------------------------------------------------- (1) Based on outstanding shares at year-end. (2) High and low closing sale price. [GRAPH] [GRAPH] [GRAPH] 39 EX-21.1 6 EXHIBIT 21.1 EXHIBIT 21.1 SUBSIDIARIES OF NASH FINCH COMPANY A. Direct subsidiaries of Nash Finch Company (the voting stock of which is owned, with respect to each subsidiary, 100 percent by Nash Finch Company):
Subsidiary State of Corporation Incorporation ----------- ------------- GTL Truck Lines, Inc. Nebraska Norfolk, Nebraska Nash De-Camp Company California Visalia, California Nash Finch Funding Corp. Delaware Edina, Minnesota Piggly Wiggly Northland Corporation Minnesota Edina, Minnesota Super Food Services, Inc. Delaware Dayton, Ohio T.J. Morris Company Georgia Statesboro, Georgia
B. Direct subsidiaries of Nash Finch Company (the voting stock of which is owned, with respect to each subisidiary, 66.6 percent by Nash Finch Company):
Subsidiary State of Corporation Incorporation ----------- ------------- Gillette Dairy of the Black Hills, Inc. South Dakota Rapid City, South Dakota Nebraska Dairies, Inc. Nebraska Norfolk, Nebraska
C. Subsidiaries of Nash-DeCamp Company (the voting stock of which is owned, with respect to each subsidiary other than Agricola Nadco Limitada, 100 percent by Nash-DeCamp Company):
Subsidiary State of Corporation Incorporation ----------- ------------- Forrest Transportation Service, Inc. California Visalia, California Agricola Nadco Limitada (*) Chile * Ninety-nine percent (99%) is owned by Nash-DeCamp Company.
EX-23.1 7 EXHIBIT 23.1 Exhibit 23.1 Consent of Independent Auditors We consent to the incorporation by reference in this Annual Report (Form 10-K) of Nash Finch Company of our report dated February 24, 1999, included in the 1998 Annual Report to Shareholders of Nash Finch Company. Our audits also included the financial statement schedule of Nash Finch Company listed in Item 14(a). This schedule is the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits. In our opinion, the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein insofar as such information relates to the periods covered by our report. We also consent to the incorporation by reference in the Registration Statement No. 33-54487 pertaining to the 1994 Stock Incentive Plan of Nash Finch Company, Registration Statement No. 33-64313 pertaining to the 1995 Director Stock Option Plan of Nash Finch Company, and Registration Statement No. 333-27563 pertaining to the 1997 Non-Employee Director Stock Compensation Plan all on Form S-8 of our report dated February 24, 1999 with respect to the consolidated financial statements incorporated herein by reference, and our report included in the preceding paragraph with respect to the financial statement schedule included in this Annual Report (Form 10-K) of Nash Finch Company for the year ended January 2, 1999. /s/ Ernst & Young LLP - ---------------------------------- Minneapolis, Minnesota March 31, 1999 EX-27.1 8 EXHIBIT 27.1
5 1,000 YEAR JAN-02-1999 JAN-04-1998 JAN-02-1999 848 0 194,759 25,011 267,040 467,108 555,792 333,414 833,095 331,473 293,280 0 0 19,292 139,016 833,095 4,115,589 4,160,011 3,783,661 395,097 0 10,637 29,034 (58,418) (18,837) (39,581) (16,487) (5,569) 0 (61,637) (5.45) (5.45) INCLUDES FOURTH QUARTER PROVISION FOR SPECIAL CHARGES TOTALING $69.7 MILLION. IN OCTOBER 1998 THE COMPANY ADOPTED A PLAN TO SELL NASH DECAMP, ITS PRODUCE GROWING AND MARKETING SUBSIDIARY. LOSS ON EXTINGUISHMENT OF DEBT NET OF TAX BENEFIT OF $3,951.
EX-27.2 9 EXHIBIT 27.2
5 1,000 3-MOS 6-MOS 9-MOS JAN-02-1999 JAN-02-1999 JAN-02-1999 JAN-04-1998 JAN-04-1999 JAN-04-1999 MAR-28-1998 JUN-20-1998 OCT-10-1998 773 831 979 0 0 0 157,168 154,396 205,977 19,466 19,828 20,012 287,991 275,446 300,655 501,480 479,709 514,265 597,211 605,916 605,152 319,203 326,252 332,004 912,423 891,367 917,873 315,366 305,552 336,062 324,145 313,747 308,531 0 0 0 0 0 0 19,292 19,292 19,292 203,529 203,280 204,722 912,423 891,367 917,873 919,431 1,878,684 3,134,409 932,966 1,906,035 3,188,568 825,321 1,714,779 2,901,008 94,641 164,551 246,682 0 0 0 160 976 1,952 6,860 13,624 22,318 5,984 12,105 16,608 2,265 4,807 6,791 3,719 7,298 9,817 (1,091) (1,055) (176) (5,569) (5,569) (5,569) 0 0 0 (2,941) 674 4,072 (0.26) .06 .36 (0.26) .06 .36 IN OCTOBER 1998, THE COMPANY ADOPTED A PLAN TO SELL NASH DECAMP COMPANY, ITS PRODUCE GROWING AND MARKETING SUBSIDIARY LOSS FROM EARLY EXTINGUISHMENT OF DEBT, NET OF INCOME TAX BENEFIT OF $3,951.
EX-27.3 10 EXHIBIT 27.3
5 1,000 YEAR YEAR 3-MOS 6-MOS 9-MOS DEC-28-1996 JAN-03-1998 JAN-03-1998 JAN-03-1998 JAN-03-1998 DEC-31-1995 DEC-29-1996 DEC-29-1996 DEC-29-1996 DEC-29-1996 DEC-28-1998 JAN-03-1998 MAR-22-1997 JUN-14-1997 OCT-04-1997 921 933 886 909 891 0 0 0 0 0 226,584 193,963 216,610 241,653 228,268 20,522 20,001 19,655 22,522 19,066 293,458 287,801 291,207 297,904 323,329 525,596 494,350 522,678 546,920 560,856 565,700 589,172 569,680 577,274 586,787 293,845 312,939 300,515 306,340 323,061 945,477 904,883 935,806 964,903 971,796 297,088 294,419 275,284 292,728 318,063 361,819 325,489 374,793 377,171 376,058 0 0 0 0 0 0 0 0 0 0 19,290 19,292 19,290 19,292 19,292 215,688 208,241 215,276 219,860 202,614 945,477 904,883 935,806 964,903 971,796 3,300,935 4,293,555 931,827 1,881,720 3,185,270 3,323,970 4,341,095 943,662 1,908,405 3,237,271 2,996,596 3,936,813 830,770 1,703,360 2,930,754 279,562 368,947 97,891 170,465 285,181 0 0 0 0 0 1,893 5,055 1,293 2,139 2,771 13,408 29,034 7,321 14,820 24,591 32,511 1,246 6,387 17,621 (6,026) 13,174 2,320 2,433 7,107 (251) 19,337 (1,074) 3,954 10,514 (5,775) 695 (154) (898) (994) (1,162) 0 0 0 0 0 0 0 0 0 0 20,032 (1,228) 3,056 9,520 (6,937) 1.83 (.11) .27 .84 (.61) 1.81 (.11) .27 .84 (.61) IN OCTOBER 1998, THE COMPANY ADOPTED A PLAN TO SELL NASH DECAMP COMPANY, ITS PRODUCE GROWING AND MARKETING SUBSIDIARY.
EX-99.1 11 EXHIBIT 99.1 Exhibit 99.1 RISK FACTORS A. SUBSTANTIAL LEVERAGE. The Company has substantial indebtedness and, as a result, significant debt service obligations. As of January 2, 1999, the Company had approximately $293.3 million of long-term indebtedness which would have represented approximately 35% of total capitalization. The ability of the Company to satisfy its debt obligations will be dependent on the future operating performance of the Company, which could be affected by changes in economic conditions and financial, competitive, legislative, regulatory and other factors, including factors beyond the control of the Company. A failure to comply with the covenants and other provisions of any debt instruments could result in events of default under such instruments, which could permit acceleration of the debt under such instruments and in some cases acceleration of debts under other instruments that contain cross-default or cross-acceleration provisions. The Company believes, based on current circumstances, that the Company's cash flow, together with available borrowings under the bank credit facilities, will be sufficient to permit the Company to meet its operating expenses, to pay dividends on its common stock and to service its debt requirements as they become due for the foreseeable future. Significant assumptions underlie this belief, including, among other things, that the Company will succeed in implementing its business strategy and that there will be no material adverse developments in the business, liquidity or capital requirements of the Company. There can be no assurance that the Company will be able to generate sufficient cash flow to service its interest payment obligations under its indebtedness or that cash flows, future borrowings or equity financing will be available for the payment or refinancing of the Company's indebtedness. If the Company is unable to service its indebtedness, it will be required to adopt alternative strategies, which may include actions such as reducing or delaying capital expenditures, selling assets, restructuring or refinancing its indebtedness or seeking additional equity capital. There can be no assurance that any of these strategies could be effected on satisfactory terms, if at all. The degree to which the Company is leveraged could have important consequences, including: (i) the Company's ability to obtain additional financing in the future for working capital, capital expenditures, acquisitions or general corporate purposes may be impaired; (ii) a substantial portion of the Company's cash flows from operations may be dedicated to the payment of principal and interest on its indebtedness, thereby reducing the funds available to the Company for its future operations; (iii) certain of the Company's indebtedness contains financial and other restrictive covenants, including those restricting the incurrence of additional indebtedness, the creation of liens, the payment of dividends, sales of assets and minimum net worth requirements; (iv) certain of the Company's borrowings are and will continue to be at variable rates of interest which exposes the Company to the risk of greater interest rates; and (v) the Company's substantial leverage may make it more vulnerable to changing economic conditions, limit its ability to withstand competitive pressures and reduce its flexibility in responding to changing business and economic conditions. As a result of the Company's current level of indebtedness, its financial capacity to respond to market conditions, capital needs and other factors may be limited. B. DEPENDENCE UPON THE OPERATIONS OF SUBSIDIARIES. As of the end of fiscal year 1998, a substantial portion of the consolidated assets of the Company were held by the subsidiaries of the Company and a substantial portion of the Company's cash flow and net income was generated by the such subsidiaries. Therefore, the Company's ability to be profitable is dependent, in part, upon the profitability of its subsidiaries. C. LOW MARGIN BUSINESS; INCREASING COMPETITION AND MARGIN PRESSURE. The wholesale food distribution and retail grocery industries in which the Company operates are characterized by low profit margins. As a result, the Company's results of operations are sensitive to, and may be materially adversely impacted by, among other things, competitive pricing pressures, vendor selling programs, increasing interest rates and food price deflation. There can be no assurance that one or more of such factors will not have a material adverse affect the Company's business, financial condition or results of operations. The wholesale food distribution industry is undergoing change as producers, manufacturers, distributors and retailers seek to lower costs and increase services in an increasingly competitive environment of relatively static over-all demand, resulting in increasing pressure on the industry's already low profit margins. Alternative format food stores (such as warehouse stores and supercenters) have gained market share at the expense of traditional supermarket operators, including independent operators, many of whom are customers of the Company. Vendors, seeking to ensure that more of their promotional dollars are used by retailers to increase sales volume, increasingly direct promotional dollars to large self-distributing chains. The Company believes that these changes have led to reduced margins and lower profitability among many of its customers and at the Company itself. In response to these changes, the Company is pursuing a multi-faceted strategy that includes various cost savings and value added initiatives, and growth through strategic acquisitions and alliances. The Company believes that its ultimate success will depend on its ability to pursue and execute these strategic initiatives, and on the effectiveness of these strategic initiatives in reducing costs of operations and enhancing operating margins. Any significant delay or failure in the implementation of these strategic initiatives could result in diminished sales and operating margins. No assurance can be given that the Company's strategic initiatives, if implemented, will result in increased sales or enhanced profit margins. D. ACQUISITION STRATEGY. Partly in response to changes in the wholesale food distribution industry discussed above, the Company has for several years pursued a strategy of aggressive growth through acquisitions in the wholesale food distribution market, including both general and military distribution operations, and in retail store operations. The Company intends to continue to pursue strategic acquisition opportunities in these business segments, both in existing and new geographic markets. In pursuing this acquisition strategy, the Company faces risks commonly encountered with growth through acquisitions, including completed acquisitions. These risks include, but are not limited to, incurring significantly higher than anticipated capital expenditures and operating expenses, failing to assimilate the operations and personnel of acquired businesses, failing to install and integrate all necessary systems and controls, losing customers, entering markets in which the Company has no or limited experience, disrupting the Company's ongoing business and dissipating the Company's management resources. Realization of the anticipated benefits of a strategic acquisition may take several years or may not occur at all. The Company's acquisition strategy has placed, and will continue to place, a significant strain on the Company's management, operational, financial and other resources. The success of the Company's acquisition strategy will depend on many factors, including the ability of the Company to (i) identify suitable acquisition opportunities, (ii) successfully close acquisition opportunities at valuations that will provide superior returns on invested capital, (iii) successfully integrate acquired operations quickly and effectively in order to realize operating synergies, and (iv) obtain necessary financing on satisfactory terms. There can be no assurance that the Company will be able to successfully execute and manage its acquisition strategy, and any failure to do so could have a material adverse effect on the Company's business, financial condition and results of operations. E. YEAR 2000 COMPLIANCE. The Company has halted its investment of financial and other resources into the development and implementation of HORIZONS. Instead, the Company has channeled its resources into establishing a remediation plan to resolve potential Year 2000 issues. The Company could encounter significant business risks from the failure of any of its vendors or customers, or the failure of governmental agencies, to adequately address Year 2000 issues. Any material failure of information systems on the part of such vendors, customers or governmental agencies, or the Company's Year 2000 compliance plan, could have a material adverse effect on the Company's business, financial condition and results of operations. No assurance can be given that the Company will be able to successfully develop and implement its Year 2000 compliance plan or that its vendors, customers or governmental agencies will successfully develop and implement its Year 2000 compliance plans. F. POTENTIAL CREDIT LOSSES FROM LOANS TO RETAILERS. From time to time, the Company extends secured loans to independent retailers, often in conjunction with the establishment or expansion of supply arrangements with such retailers. Such loans are generally extended to small businesses which are unrated, and such loans are highly illiquid. The Company also from time to time provides financial assistance to independent retailers by guaranteeing loans from financial institutions and leases entered into directly with lessors. The Company intends to continue, and possibly increase, the amount of loans and guarantees to independent retailers, and there can be no assurance that credit losses from existing or future loans or commitments will not have a material adverse effect on the Company's business, financial condition and results of operations. G. MILITARY COMMISSARY SALES. A significant portion of the Company's sales in fiscal 1998 resulted from distribution of products to U.S. military commissaries. No assurance can be given that the U.S. military commissary system will not undergo significant changes in the foreseeable future, such as further base closings, privatization of the military commissary system or a reduction in the number of persons having access to such commissaries. Such changes could result in disruptions to existing supply arrangements or reductions in volumes of purchases and could have a material adverse effect on the Company's business, financial condition and results of operations. H. COMPETITION. The food marketing and distribution industry is highly competitive. The Company faces competition from national, regional and local food distributors on the basis of price, quality, breadth and availability of products offered, strength of private label brands offered, schedules and reliability of deliveries and the range and quality of services provided. In addition, food wholesalers compete based on willingness to invest capital in their customers. Such investments present substantial risks as described above under the caption "Potential Credit Losses from Loans to Retailers." The Company also competes with retail supermarket chains that provide their own distribution function, purchasing directly from producers and distributing products to their supermarkets for sale to consumers. In its retail operations, the Company competes with other food outlets on the basis of price, quality and assortment, store location and format, sales promotions, advertising, availability of parking, hours of operation and store appeal. Traditional mass merchandisers have gained a growing market share with alternative store formats, such as warehouse stores and supercenters, which depend on concentrated buying power and low-cost distribution technology. Market share of stores with alternative formats is expected to continue to grow in the future. To meet the challenges of a rapidly changing and highly competitive retail environment, the Company must maintain operational flexibility and develop effective strategies across many market segments. The inability to adapt to changing environments could have a material adverse effect on the Company's business, financial condition and results of operations. Some of the Company's competitors have greater financial and other resources than the Company. In addition, consolidation in the industry, heightened competition among the Company's suppliers, new entrants and trends toward vertical integration could create additional competitive pressures that reduce margins and adversely affect the Company's business, financial condition and results of operations. There can be no assurance that the Company will be able to continue to compete effectively in its industry. I. COMPETITIVE LABOR MARKET; INCREASING LABOR COSTS The Company's continued success depends on its ability to attract and retain qualified personnel in all areas of its business. The Company competes with other businesses in its markets with respect to attracting and retaining qualified employees. The labor market is currently very tight and the Company expects the tight labor market to continue. A shortage of qualified employees may require the Company to continue to enhance its wage and benefits package in order to compete effectively in the hiring and retention of qualified employees or to hire more expensive temporary employees. No assurance can be given that the Company's labor costs will not continue to increase, or that such increases can be recovered through increased prices charged to customers. Any significant failure of the Company to attract and retain qualified employees, to control its labor costs, or to recover any increased labor costs through increased prices charged to customers could have a material adverse effect on the Company's business, financial condition and results of operations. J. DEPENDENCE ON MANAGEMENT. The Company depends on the services of its executive officers for the management of the Company. The loss or interruption of the continued full-time services of certain of these executives could have a material adverse effect on the Company and there can be no assurance that the Company will be able to find replacements with equivalent skills or experience at acceptable salaries. Generally, the Company does not have employment contracts with its executive officers, other than agreements providing certain benefits upon certain changes in control of the Company. -----END PRIVACY-ENHANCED MESSAGE-----