-----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, BI3zIuyy+nDNsUcfG0Xw0ZlonnBcmKCDxMmfhNesRWAXos2wss9nUBvZjiuhYcjt 7H0c/9jb7lcqHV3K4uO0Gw== 0001047469-99-029592.txt : 19990811 0001047469-99-029592.hdr.sgml : 19990811 ACCESSION NUMBER: 0001047469-99-029592 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19990619 FILED AS OF DATE: 19990803 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: 0102 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-00785 FILM NUMBER: 99676931 BUSINESS ADDRESS: STREET 1: 7600 FRANCE AVE STREET 2: PO BOX 355 CITY: SOUTH MINNEAPOLIS STATE: MN ZIP: 55435-0355 BUSINESS PHONE: 6128320534 FORMER COMPANY: FORMER CONFORMED NAME: NASH CO DATE OF NAME CHANGE: 19710617 10-Q 1 FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 10-Q (Mark One) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) / x / OF THE SECURITIES EXCHANGE ACT OF 1934 For the twenty-four weeks ended June 19, 1999 or TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) / / OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File No. 0-785 NASH-FINCH COMPANY (Exact Name of Registrant as Specified in its Charter) DELAWARE 41-0431960 (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) 7600 France Ave. South, Edina, Minnesota 55435 (Address of principal executive offices) (Zip Code) (612) 832-0534 (Registrant's telephone number including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO ----- ----- Number of shares of common stock outstanding at July 26, 1999: 11,342,897 shares PART I - FINANCIAL INFORMATION This report is for the twenty-four week interim period beginning January 3, 1999, through June 19, 1999. The accompanying financial information has been prepared in conformity with generally accepted accounting principles and practices, and methods of applying accounting principles and practices, (including consolidation practices) as reflected in the financial information included in the Company's Annual Report on Form 10-K, filed with the Securities and Exchange Commission for the preceding fiscal year. The financial statements included in this quarterly report include all adjustments which are, in the opinion of management, necessary to a fair presentation of the Company's financial position and results of operations for the interim period. The information contained herein has not been audited by independent auditors and is subject to any adjustments which may develop in connection with the annual audit of its accounts by the Company's independent auditors. NASH FINCH COMPANY AND SUBSIDIARIES Condensed Consolidated Statements of Operations (unaudited) (In thousands, except per share amounts)
Twelve Weeks Ended Twenty-four Weeks Ended --------------------------- --------------------------- June 19, June 20, June 19, June 20, 1999 1998 1999 1998 ------------ ------------ ------------ ------------ Total sales and revenues $ 935,951 973,069 1,870,747 1,906,035 Cost and expenses: Cost of sales 841,694 881,212 1,686,771 1,725,688 Selling, general and administrative 74,001 69,205 144,943 134,046 Special charges - (1,262) - (1,262) Depreciation and amortization 9,429 11,030 19,155 21,836 Interest expense 6,882 6,762 13,865 13,622 ------------ ------------ ------------ ------------ Total costs and expenses 932,006 966,947 1,864,734 1,893,930 Earnings from continuing operations before income taxes and extraordinary charge 3,945 6,122 6,013 12,105 Income taxes 1,673 2,542 2,549 4,807 ------------ ------------ ------------ ------------ Earnings from continuing operations before extraordinary charge 2,272 3,580 3,464 7,298 Discontinued operations: Earnings (loss) from discontinued operations, net of income tax - 36 - (1,055) ------------ ------------ ------------ ------------ Earnings before extraordinary charge 2,272 3,616 3,464 6,243 Extraordinary charge from early extinguishment of debt, net of income tax benefit of $3,951 - - - 5,569 ------------ ------------ ------------ ------------ Net earnings $ 2,272 3,616 3,464 674 ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ Basic and diluted earnings per share: Earnings from continuing operations $ 0.20 0.32 0.31 0.65 Earnings (loss) from discontinued operations - - - (0.09) ------------ ------------ ------------ ------------ Earnings before extraordinary charge 0.20 0.32 0.31 0.55 Extraordinary charge from early extinguishment of debt, net of income tax benefit - - - (0.49) ------------ ------------ ------------ ------------ Net earnings per share $ 0.20 0.32 0.31 0.06 ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ Weighted average number of common shares outstanding and common equivalent shares outstanding: Basic 11,333 11,314 11,332 11,307 Diluted 11,342 11,364 11,342 11,363
- ------------------------------------------------------------------- See accompanying notes to consolidated financial statements. NASH FINCH COMPANY AND SUBSIDIARIES Condensed Consolidated Balance Sheets (In thousands, except per share amounts)
June 19, January 2, 1999 1999 -------------- ------------ (unaudited) ASSETS Current assets: Cash and cash equivalents $ 4,355 848 Accounts and notes receivable, net 168,451 169,748 Inventories 238,035 267,040 Prepaid expenses 21,424 13,154 Deferred tax assets 17,468 16,318 -------------- ------------ Total current assets 449,733 467,108 Investments in affiliates 6,566 4,805 Notes receivable, noncurrent 24,250 12,936 Property, plant and equipment: Land 31,151 25,386 Buildings and improvements 149,093 130,988 Furniture, fixtures and equipment 296,905 302,450 Leasehold improvements 60,624 61,983 Construction in progress 10,833 10,107 Assets under capitalized leases 27,842 24,878 -------------- ------------ 576,448 555,792 Less accumulated depreciation and amortization (330,875) (333,414) -------------- ------------ Net property, plant and equipment 245,573 222,378 Intangible assets, net 110,471 69,141 Investment in direct financing leases 15,808 16,155 Deferred tax asset - net 25,925 31,908 Other assets 8,195 8,664 -------------- ------------ Total assets $ 886,521 833,095 -------------- ------------ -------------- ------------ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Outstanding checks $ 23,382 33,329 Short-term debt payable to banks 5,700 5,525 Current maturities of long-term debt and capitalized lease obligations 1,840 2,563 Accounts payable 206,824 189,382 Accrued expenses 100,426 97,683 Income taxes 2,040 2,991 -------------- ------------ Total current liabilities 340,212 331,473 Long-term debt 338,229 293,280 Capitalized lease obligations 34,507 34,667 Deferred compensation 6,572 6,450 Other 9,077 10,752 Stockholders' equity: Preferred stock - no par value Authorized 500 shares; none issued - - Common stock of $1.66 2/3 par value Authorized 25,000 shares, issued 11,575 shares in 1999 and 1998 19,292 19,292 Additional paid-in capital 17,949 17,944 Restricted stock (92) (113) Retained earnings 122,607 121,185 -------------- ------------ 159,756 158,308 Less cost of 233 shares and 234 shares of common stock in treasury, respectively. (1,832) (1,835) -------------- ------------ Total stockholders' equity 157,924 156,473 -------------- ------------ Total liabilities and stockholders' equity $ 886,521 833,095 -------------- ------------ -------------- ------------
- ------------------------------------------------------------------- See accompanying notes to consolidated financial statements. NASH FINCH COMPANY AND SUBSIDIARIES Condensed Consolidated Statements of Cash Flows (Unaudited) (In thousands)
Twenty-four Weeks Ended ---------------------------- June 19, June 20, 1999 1998 ------------ ------------ Operating activities: Net earnings $ 3,464 674 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 19,155 22,378 Provision for bad debts 1,487 976 Provision for losses (recovery from) closed lease locatio (506) 443 Extraordinary charges - extinguishment of debt - 142 Deferred income taxes 4,166 - Deferred compensation (696) (218) (Earnings) loss of equity investments (485) (231) Other (839) 209 Changes in operating assets and liabilities: Accounts and notes receivable 5,427 2,055 Inventories 44,273 13,841 Prepaid expenses (4,305) 2,485 Accounts payable 4,475 22,536 Accrued expenses (1,926) 5,619 Accrued expenses - special charge (3,338) (2,764) Income taxes (1,209) 4,379 ------------ ------------ Net cash provided by operating activities 69,143 72,524 ------------ ------------ Investing activities: Dividends received - 800 Disposal of property, plant and equipment 4,349 2,864 Additions to property, plant and equipment excluding capital leases (20,558) (25,151) Business acquired, net of cash acquired (57,261) (1,846) Loans to customers (20,541) (7,788) Payments from customers on loans 13,007 7,650 Sale (repurchase) of receivables 327 (3,001) Other (579) (3,684) ------------ ------------ Net cash used for investing activities (81,256) (30,156) ------------ ------------ Financing activities: Proceeds from long-term debt 449 165,000 Proceeds (Payments) from revolving debt 30,000 (74,000) Dividends paid (2,042) (4,079) Proceeds (payments) from short-term debt 175 (10,489) Payments of long-term debt (2,947) (107,983) Payments of capitalized lease obligations (765) (743) Increase in outstanding checks (9,948) (10,471) Other 697 296 ------------ ------------ Net cash (used in) provided by financing activities 15,619 (42,469) ------------ ------------ Net increase (decrease) in cash $ 3,506 (101) ------------ ------------ ------------ ------------
- ------------------------------------------------------------------- See accompanying notes to consolidated financial statements. NASH FINCH COMPANY AND SUBSIDIARIES Consolidated Statements of Stockholders' Equity
- --------------------------------------------------------------------------------------------------------------------------------- Fiscal period ended June 19, 1999 January 2, 1999 and January 3, 1998 Foreign (In thousands, except per share amounts) Common Stock Additional currency --------------------- paid-in Retained translation Shares Amount capital earnings adjustment - --------------------------------------------------------------------------------------------------------------------------------- Balance at December 28, 1996 11,574 $ 19,290 16,816 200,322 (950) Net earnings (loss) - - - (1,228) - Dividend declared of $.72 per share - - - (8,110) - Treasury stock issued upon exercise of options - - 354 - - Amortized compensation under restricted stock plan - - - - - Repayment of notes receivable from holder of restricted stock - - - - - Distribution of stock pursuant to performance awards - - 460 - - Treasury stock purchased - - - - - Foreign currency translation adjustment - - - - 950 Other 1 2 18 - - --------- ----------- ---------- ------------ ------------ Balance at January 3, 1998 11,575 19,292 17,648 190,984 - Net earnings (loss) - - - (61,637) - Dividend declared of $.72 per share - - - (8,162) - Treasury stock issued upon exercise of options - - 47 - - Amortized compensation under restricted stock plan - - - - - Repayment of notes receivable from holders of restricted stock - - - - - Distribution of stock pursuant to performance awards - - 246 - - Treasury stock purchased - - - - - Other 3 - - --------- ----------- ---------- ------------ ------------ Balance at January 2, 1999 11,575 19,292 17,944 121,185 - Net earnings - - - 3,464 - Dividend declared of $.18 per share - - - (2,042) - Amortized compensation under restricted stock plan - - - - - Repayment of notes receivable from holders of restricted stock - - - - - Distribution of stock pursuant to performance awards - - 5 - - --------- ----------- ---------- ------------ ------------ Balance at June 19, 1999 (unaudited) 11,575 19,292 17,949 122,607 - --------- ----------- ---------- ------------ ------------ --------- ----------- ---------- ------------ ------------ - ---------------------------------------------------------------------------------------------------------------- Fiscal period ended June 19, 1999 January 2, 1999 and January 3, 1998 (In thousands, except per share amounts) Treasury Stock Total Restricted -------------------- stockholders' Stock Shares Amount equity - ---------------------------------------------------------------------------------------------------------------- Balance at December 28, 1996 (500) (307) $ (2,117) 232,861 Net earnings (loss) - - - (1,228) Dividend declared of $.72 per share - - - (8,110) Treasury stock issued upon exercise of options - 29 143 497 Amortized compensation under restricted stock plan 29 - - 29 Repayment of notes receivable from holder of restricted stock 80 - - 80 Distribution of stock pursuant to performance awards - 30 148 608 Treasury stock purchased - (4) (89) (89) Foreign currency translation adjustment - - - 950 Other - - - 20 --------- -------- ---------- ----------- Balance at January 3, 1998 (391) (252) (1,915) 225,618 Net earnings (loss) - - - (61,637) Dividend declared of $.72 per share - - - (8,162) Treasury stock issued upon exercise of options - 4 21 68 Amortized compensation under restricted stock plan 72 - - 72 Repayment of notes receivable from holders of restricted stock 206 - - 206 Distribution of stock pursuant to performance awards - 15 75 321 Treasury stock purchased - (1) (16) (16) Other - - - 3 --------- -------- ---------- ----------- Balance at January 2, 1999 (113) (234) (1,835) 156,473 Net earnings - - - 3,464 Dividend declared of $.18 per share - - - (2,042) Amortized compensation under restricted stock plan 4 - - 4 Repayment of notes receivable from holders of restricted stock 17 - - 17 Distribution of stock pursuant to performance awards - 1 3 8 --------- -------- ---------- ----------- Balance at June 19, 1999 (unaudited) (92) (233) $ (1,832) 157,924 --------- -------- ---------- ----------- --------- -------- ---------- -----------
- ------------------------------------------------------------ See accompanying notes to consolidated financial statements. NASH FINCH COMPANY AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS JUNE 19, 1999 NOTE 1 The accompanying financial statements include all adjustments which are, in the opinion of management, necessary to present fairly the financial position of the Company and its subsidiaries at June 19, 1999, and January 2, 1999, and the result of operations for the 12-weeks ended June 19, 1999 and June 20, 1998, and the changes in cash flows for the 24-week periods ended June 19, 1999 and June 20, 1998, respectively. All material intercompany accounts and transactions have been eliminated in the consolidated financial statements. Results of operations for the interim periods presented are not necessarily indicative of the results to be expected for the full year. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. NOTE 2 The Company uses the LIFO method for valuation of a substantial portion of inventories. If the FIFO method had been used, inventories would have been approximately $47.4 million and $47.1 million higher at June 19, 1999 and January 2, 1999, respectively. NOTE 3 The following table sets forth the computation of basic and diluted earnings per share.
Twelve Weeks Ended Twenty-four Weeks Ended ------------------------------ ------------------------------ June 19, June 20, June 19, June 20, 1999 1998 1999 1998 ------------ ------------- ------------- ------------- Numerator: Earnings from continuing operations $ 2,272 3,580 3,464 7,298 ------------ ------------- ------------- ------------- Denominator: Denominator of basic earnings per share; weighted-average shares 11,333 11,314 11,332 11,307 Effect of dilutive securities: Employee stock options 24 30 Contingent 9 26 10 26 ------------ ------------- ------------- ------------- Dilutive common shares 9 50 10 56 Denominator for diluted earnings per share; adjusted weighted average shares 11,342 11,364 11,342 11,363 ------------ ------------- ------------- ------------- ------------ ------------- ------------- ------------- Basic earnings per share $ .20 .32 0.31 0.65 ------------ ------------- ------------- ------------- ------------ ------------- ------------- ------------- Diluted earnings per share $ .20 .32 0.31 0.65 ------------ ------------- ------------- ------------- ------------ ------------- ------------- -------------
NOTE 4 On June 10, 1999 the Company acquired Erickson's Diversified Corporation (Erickson's) through a cash purchase of all of Erickson's outstanding capital stock. Erickson's operates 18 supermarkets in Minnesota and Wisconsin with annual sales of approximately $200 million. In addition to the stores, the acquisition includes a number of real estate holdings in the two state market area. The acquisition was accounted for as a purchase, with the cash purchase price totaling $59.0 million (subject to purchase price adjustment), initially allocated based on estimated fair values at date of acquisition, pending final determination of certain acquired asset and liability valuations. This preliminary allocation has resulted in acquired goodwill of approximately $43.4 million, which is being amortized on a straight line basis over 40 years. The following unaudited pro forma information presents a summary of consolidated earnings from continuing operations before extraordinary charge as if the acquisition had taken place at the beginning of 1998.
Twenty-Four Weeks Ended -------------------------------------- June 19, 1999 June 20, 1998 ------------- ------------- Revenues $1,966,986 $1,997,224 Earnings from continuing operations before extraordinary charge 3,141 7,062 Basic and Diluted earnings per share .28 .62
These unaudited pro forma results have been prepared for comparative purpose only and include certain adjustments such as additional amortization expense on acquired goodwill and increased interest expense on acquisition debt. They do not purport to be indicative of the results of operations that actually would have resulted had the acquisition occurred on the date indicated, or may result in the future. NOTE 5 On December 29, 1997, a Receivables Purchase Agreement (the "Agreement") was executed by the Company, Nash Finch Funding Corporation (NFFC), a wholly owned subsidiary of the Company, and a certain third party purchaser (the "Purchaser") pursuant to a securitization transaction. The Agreement is a five-year, $50 million revolving receivable purchase facility allowing the Company to sell additional receivables to NFFC, and NFFC to sell, from time to time, variable undivided interests in these receivables to the Purchaser. NFFC maintains a variable undivided interest in these receivables and is subject to losses on its share of the receivables and, accordingly, maintains an allowance of doubtful accounts. As of January 2, 1999 and June 19, 1999 the Company had sold $45.7 million and $47.4 million, respectively, of accounts receivable on a non-recourse basis to NFFC. NFFC sold $36.8 million and $37.1 million, respectively, of its undivided interest in such receivables to the Purchaser, subject to specified collateral requirements. NOTE 6 1998 SPECIAL CHARGES During the fourth quarter of 1998, the Company recorded special charges, totaling $68.5 million relative to abandonment and impairment of assets, and consolidation of certain warehouse and retail stores. During the first half of 1999, the Company closed distribution centers in Appleton, Wisconsin, Grand Island, Nebraska and Liberal, Kansas, and closed three retail stores. Costs totaling $2.4 million incurred largely as a result of the closure of these units were charged to accrued expenses. During the second quarter of 1999, accruals in the amount of $1.2 million were reversed. These reversals were primarily for properties originally scheduled for closure that were sold. At June 19, 1999, remaining accrued liabilities established as a result of the 1998 special charges totaled $25.1 million. 1997 SPECIAL CHARGES During the third quarter of 1997, the Company recorded special charges, totaling $31.3 million relative to asset impairment and consolidation of certain warehouses and retail stores. During the first half of 1999, costs totaling $1.8 million incurred as a result of the closing of certain warehouses and retail stores were charged to accrued expenses. During the second quarter additional accruals in the amount of $1.5 million were recorded primarily for additional losses for write-downs of tangible assets on locations that have been closed and additional lease costs for one retail store and one warehouse location closed in the second quarter of 1999. During the second quarter accruals in the amount of $0.3 million were reversed. These reversals resulted primarily from the final lease settlement and exit from the Lexington, Kentucky warehouse which was closed in 1998. At June 19, 1999, remaining accrued liabilities established for purposes of the 1997 special charges totaled $6.9 million. NOTE 7 A summary of the Major Segments of the Business is as follows: TWELVE WEEKS ENDED JUNE 19, 1999
All (In thousands) Wholesale Retail Military Other Totals - ------------------------------------------------------------------------------------------------------------------------- Revenues from external customers $ 537,363 175,333 219,050 891 932,637 Intra segment revenues 105,668 - - 1,025 106,693 Segment pretax profit (loss) 11,128 2,982 5,808 (140) 19,778
TWELVE WEEKS ENDED JUNE 20, 1998
All (In thousands) Wholesale Retail Military Other Totals - ------------------------------------------------------------------------------------------------------------------------- Revenues from external customers $ 581,280 176,744 212,316 616 970,956 Intra segment revenues 106,217 - - 651 106,868 Segment pretax profit (loss) 11,827 2,277 5,623 12 19,739
TWENTY-FOUR WEEKS ENDED JUNE 19, 1999
All (In thousands) Wholesale Retail Military Other Totals - ------------------------------------------------------------------------------------------------------------------------- Revenues from external customers $1,080,618 337,854 443,225 1,459 1,863,156 Intra segment revenues 205,441 - - 2,202 207,643 Segment pretax profit (loss) 19,941 3,540 11,962 (321) 35,122
TWENTY-FOUR WEEKS ENDED JUNE 20, 1998
All (In thousands) Wholesale Retail Military Other Totals - ------------------------------------------------------------------------------------------------------------------------- Revenues from external customers $1,134,939 347,792 418,457 1,168 1,902,356 Intra segment revenues 209,570 - - 1,301 210,871 Segment pretax profit (loss) 20,530 2,526 10,891 (1) 33,946
Reconciliation to statements of operations (In thousands) 12 WEEKS ENDED JUNE 19, 1999 AND JUNE 20, 1998
1999 1998 -------------------- -------------------- PROFIT OR LOSS Total profit for segments $ 19,778 19,739 Unallocated amounts Adjustment of inventory to LIFO - (750) Unallocated corporate overhead (15,833) (12,867) -------------------- -------------------- Income from continuing operations before income taxes $ 3,945 6,122 -------------------- -------------------- -------------------- --------------------
24 WEEKS ENDED JUNE 19, 1999 AND JUNE 20, 1998
1999 1998 -------------------- -------------------- PROFIT OR LOSS Total profit for segments $ 35,122 33,946 Unallocated amounts Adjustment of inventory to LIFO (300) (250) Unallocated corporate overhead (28,809) (22,853) Special charges - 1,262 -------------------- -------------------- Income from continuing operations before income taxes $ 6,013 12,105 -------------------- -------------------- -------------------- --------------------
NOTE 8 As of June 30, 1999 the Company sold its majority interest in Gillette Dairy of the Black Hills, Inc. and Nebraska Dairies, Inc. to Marigold Foods, Inc. ("Marigold"). Marigold purchased all of the outstanding shares of each company for cash. The transaction is subject to finalization of a closing balance sheet which should be completed in the third quarter. The Company expects to realize approximately $15 million in cash from the sale. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS REVENUES Total revenues for the second quarter were $936.0 million a decline of 3.8% compared to the prior year quarter. For the twenty-four weeks, total revenues were $1.871 billion compared to $1.906 billion last year, a decline of 1.8%. The revenue declines are principally related to the wholesale segment which has experienced both the loss of independent retail business in Nebraska and business from a national chain in Colorado, since last year. Wholesale revenues during the quarter were $537.4 million compared to $581.3 million, a decrease of 7.6%. On a year to date basis, wholesale revenues were $1.1 billion, a decrease of 4.8% compared to last year. Revenues for the quarter and year to date have also been negatively impacted by competitive pressures in the Company's Michigan market area. However, on July 20, 1999 , the Company announced that it had reached an agreement in principle to purchase certain assets of Midwest Wholesale Food, Inc., a wholesale supplier to grocery stores in the Detroit metro area. In addition, agreements have been reached with owners of more than 40 stores serviced by Midwest, to have the Company become their supplier. These stores will be serviced by the Company's Bridgeport, Michigan distribution center in the third quarter. Retail segment revenues for the quarter were $175.3 million compared to $176.7 million last year, a decline of .8%. Same store sales declined .43% after posting three consecutive quarters of growth. Intense competition in the Iowa market offset same store sales gains realized in other market regions. During the quarter the Company announced the acquisition of 18 Erickson's stores and two Smith's Food and Drug Stores in Cheyenne, Wyoming. The effect of these acquisitions on revenues was minimal since they occurred near the end of the quarter. Military segment revenues increased 3.2% for the quarter over last year and 5.9% on a year to date basis. The increase is attributed to the introduction of new product lines and stronger overseas business. GROSS MARGIN Gross margin for the quarter was 10.1% compared to 9.4% last year. The improvement is attributed to a number of factors: better overall margins for the retail segment as a result of a greater proportion of revenues derived from higher margin departments within the stores, improvements at wholesale due to efficiencies in warehousing and transportation which lower the cost of sales, no impact of LIFO during the quarter compared to a LIFO charge of $.8 million last year and lastly, during the quarter retail revenues, which achieve higher margins, represented a greater portion of total Company revenues compared to last year. On a year to date basis, margins for the twenty-four weeks of 1999 were 9.8% compared to 9.5% for the same period last year. SELLING, GENERAL AND ADMINISTRATIVE Selling , general and administrative expenses as a percent of total revenues were 7.9% compared 7.1% a year ago. The current year quarter includes $4.3 million of costs related to the Company's Year 2000 remediation program and $.3 million in costs associated with the closing of certain facilities which could not be provided for as part of the 1998 restructuring charge. For the year to date, selling, general and administrative expenses were 7.8% in 1999 compared to 7.0% in 1998. Again the primary factors for the increased expense relate to Year 2000 remediation costs and non-recurring closed facilities costs, which were $7.6 million and $1.6 million, respectively, for the twenty-four week period. DEPRECIATION EXPENSE Depreciation and amortization expense decreased 14.5% compared to last year. The decrease reflects a reduction in depreciable assets since last year due to the closing of three distribution centers, closing or sale of thirteen retail stores and the write down of impaired assets as part of the restructuring charge recorded at the end of 1998. On a year to date basis, depreciation and amortization expense decreased 12.3%. Amortization of goodwill and other intangibles for the current and prior year quarters was $1.6 million and $1.8 million, respectively. For the twenty-four weeks, amortization expense was $3.1 million for 1999 and $3.3 million 1998. INTEREST EXPENSE Interest expense for the quarter was $6.9 million, an increase of 1.8% over last year. The higher interest costs are attributed to higher average borrowing rates partially offset by lower borrowing levels during the quarter, due to inventory reductions compared to a year ago. Year to date interest expense was $13.9 million compared to $13.6 million last year, an increase of 1.8%. EARNINGS FROM CONTINUING OPERATIONS BEFORE INCOME TAXES AND EXTRAORDINARY CHARGE Earnings from continuing operations before income taxes and extraordinary charge for the quarter and year to date were $3.9 million and $6.0 million, respectively, compared to $6.1 million and $12.1 million, respectively, last year. The reductions this year are primarily attributed to Year 2000 remediation costs and non-recurring costs associated with the closing of certain facilities which could not be provided for as part of the 1998 restructuring charge. INCOME TAXES The effective income tax rate for 1999 is estimated at 42.4% compared to a tax rate benefit of 32.2% for 1998. The 1998 annual rate was significantly affected by losses related to the restructuring charges. EXTRAORDINARY CHARGE During the first quarter of 1998, the Company prepaid $106.3 million of senior notes, and paid prepayment premiums and wrote-off related deferred financing costs totaling $9.5 million. This transaction resulted in an extraordinary charge of $5.6 million, or $.49 per share, after income tax benefits of $3.9 million. DISCONTINUED OPERATIONS In October 1998, the Company adopted a plan to sell its produce growing and marketing subsidiary, Nash-De Camp Company. On June 14, 1999 the Company announced it had entered into a definitive agreement to sell Nash-De Camp to Agriholding, Inc., a private company. The transaction is structured as a sale of all outstanding stock of Nash-De Camp for a cash amount to be finalized at closing but expected to be approximately of $17 million. At January 2, 1999 the Company recorded an estimated pretax loss resulting from the expected sale of Nash-De Camp Company of $27.5 million, which includes a provision for anticipated operating losses until disposal of $1.8 million. The sale of Nash-De Camp is expected to be completed in the third quarter and should result in a gain to be recorded in the third quarter of 1999. YEAR 2000 The Company is executing its remediation plan toward resolving Year 2000 issues. The plan addresses the modification and/or replacement of existing business critical software and the identification of the non-information technology systems that may be affected by Year 2000. In addition, the plan assesses the readiness of third parties and the related risks to the Company of their non-compliance. To expedite this Year 2000 solution, the Company has reallocated internal resources and has contracted outside resources to assist in the remediation effort. The Company's plan to assess and update systems for Year 2000 compliance consists of three major phases: 1) Conducting a complete INVENTORY and assessment of potentially affected business areas, 2) REMEDIATION of affected systems and 3) TESTING remediated components. The chart below shows the percent complete of each phase as of the end of the second quarter of 1999:
Inventory Remediation Testing --------- ----------- ------- I/T Systems 100% 65% 60% Non-I/T Systems 100% 75% 50%
The Company expects to complete all mission-critical areas of the project in the third quarter of 1999 and is currently ahead of schedule. The total cost for Year 2000 remediation is estimated at approximately $18.5 million, which includes $4.0 million for the purchase of new equipment that will be capitalized and $14.5 million will be expensed. Project expenses totaling $3.3 million and $4.3 million were incurred in the first and second quarters of 1999, respectively, primarily for internal and external costs associated with the modification of existing software and testing. Capital expenditures to date have been $1.2 million. The total remaining expense associated with the Year 2000 project is estimated to be approximately $3.9 million. The costs or consequences of incomplete or untimely resolution of the Year 2000 issue may have a material effect on the Company's business, results of operations and financial condition. However, at this time, the Company is unable to measure the monetary impact of any such failure to comply or failure of other parties on which it is dependent. The Company has established contingency plans to provide viable alternatives for the Company's core business processes. The plans describe the communications, operations and activities necessary in the event of a Year 2000 systems related failure. Contingency planning is 100% complete with plans in place. LIQUIDITY AND CAPITAL RESOURCE Historically, the Company has financed its capital needs through a combination of internal and external sources. These sources include cash flow from operations, short-term bank borrowings, various types of long-term debt and lease financing. Cash flow provided from operations totaled $69.1 million for the quarter compared to $72.5 million last year. The decline in operating cash flow resulted primarily from changes in working capital partially offset by higher net income for the current twenty-four week period. Working capital was $109.5 million at the end of the quarter compared to $135.6 million at year end. The current ratio decreased from 1.41 at the end of 1998 to 1.32 at the end of the second quarter. During the quarter the Company announced the acquisition of Erickson's Diversified Corporation through the purchase of stock. The cash purchase price of $59.0 million (subject to purchase price adjustment) was financed through borrowings under the Company's revolving credit agreement. The Company also announced the sales of its produce growing and marketing subsidiary and its equity interest in two dairy operations. The combination of these transactions should result in cash proceeds totaling approximately $33.0 million, which will be used to pay down the revolving credit facility. Both transactions are scheduled for completion in the third quarter. Other transactions affecting liquidity during the twenty-four week period include capital expenditures of $20.6 million, cash dividends of $2.0 million and the acquisition of two Wyoming retail stores for approximately $1.3 million in cash. The Company believes that borrowing under the revolving credit facility, proceeds from its sale of subordinated notes in 1998, other credit agreements, cash flows from operating activities and lease financing will be adequate to meet the Company's working capital needs, planned capital expenditures and debt service obligations for the foreseeable future. FORWARD-LOOKING STATEMENTS The information contained in this Form 10-Q Report includes forward-looking statements made under the safe harbor provisions of the Private Securities Litigation by the use of words like "believes," "expects," "may," "will," "should," "anticipates," or similar expressions, as discussions of strategy. Although such statements represent management's current expectations based on available data, they are subject to risks, uncertainties and other factors which could cause actual results to differ materially from those anticipated. Such risks, uncertainties and other factors may include, but are not limited to, the ability to: meet debt service obligations and maintain future financial flexibility; respond to continuing competitive pricing pressures; retain existing independent wholesale customers and attract new accounts; address Year 2000 issues as they affect the Company, its customers and vendors; and fully integrate acquisitions and realize expected synergies. PART II - OTHER INFORMATION Items 1, 2, 3 and 5 are not applicable. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. (a) The annual meeting of stockholders was held on May 11, 1999. (b) Not required.(Proxies were solicited pursuant to Regulation 14A under the Securities Exchange Act of 1934, there was no solicitation in opposition to management's nominees as listed in the proxy statement, and all of such nominees were elected.) (c) At the annual meeting, the following proposals were presented to the shareholders and voted upon: (1) election of directors, (2) adoption of the 1999 Employee Stock Purchase Plan; (3) elimination of the classified structure of the Board of Directors, and (4) prompt sale of the Company to the highest bidder. (1) ELECTION OF DIRECTORS. Four director nominees were elected to serve for three-year terms expiring in 2002, all of whom were incumbent directors. The terms of the other seven directors do not expire until 2000 and 2001. The director nominees and voting results are as follows:
Votes Broker Nominee Votes For Withheld Non-Votes ------- --------- -------- --------- Carole F. Bitter 8,951,038 333,246 - 0 - Richard A. Fisher 8,859,559 424,725 - 0 - John H. Grunewald 8,949,907 334,377 - 0 - William R. Voss 8,945,177 339,106 - 0 -
(2) ADOPTION OF THE 1999 EMPLOYEE STOCK PURCHASE PLAN. The 1999 Employee Stock Purchase Plan was adopted by the shareholders. The voting results are as follows:
Votes Broker Votes For Votes Against Withheld Non-Votes --------- ------------- -------- --------- 8,878,000 344,550 61,733 0
(3) ELIMINATION OF THE CLASSIFIED STRUCTURE OF THE BOARD OF DIRECTORS. A stockholder proposal was introduced to request the Board of Directors to take the necessary steps, in accordance with state law, to declassify the Board of Directors so that all directors are elected annually. This stockholder proposal provided that such declassification was to be effected in a manner that did not affect the unexpired terms of directors previously elected. The voting results are as follows:
Broker Votes For Votes Against Abstentions Non-Votes --------- ------------- ----------- --------- 2,884,167 4,370,622 116,584 1,912,911
(4) PROMPT SALE OF NASH FINCH COMPANY TO THE HIGHEST BIDDER. A stockholder proposal was introduced to urge the Board of Directors to arrange for the prompt sale of Nash Finch Company to the highest bidder. The voting results are as follows:
Broker Votes For Votes Against Abstentions Non-Votes --------- ------------- ----------- --------- 619,935 6,605,817 145,620 1,912,911
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. (a) EXHIBITS. 27.1 Financial Data Schedule (b) REPORTS ON FORM 8-K. Not applicable. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. NASH-FINCH COMPANY Registrant Date: August 3, 1999 By /s/ John A. Haedicke ------------------------- John A. Haedicke Executive Vice President and Chief Financial and Administrative Officer By /s/ Lawrence A. Wojtasiak ----------------------------- Lawrence A. Wojtasiak Controller NASH FINCH COMPANY EXHIBIT INDEX TO QUARTERLY REPORT ON FORM 10-Q For the Twenty-Four Weeks Ended June 19, 1999
Item No. Item Method of Filing - -------- ---- ---------------- 27.1 Financial Data Schedule Filed herewith
EX-27 2 EXHIBIT 27
5 1,000 6-MOS JAN-01-2000 JAN-03-1999 JUN-19-1999 4,355 0 194,043 25,592 238,035 449,733 576,448 330,875 886,521 340,212 338,229 0 0 19,292 138,632 886,521 1,870,747 1,870,747 1,686,771 129,591 0 1,487 13,865 6,013 2,549 3,464 0 0 0 3,464 .31 .31
EX-27.1 3 EXHIBIT 27.1
5 1,000 3-MOS JAN-01-2000 JAN-03-1999 MAR-27-1999 11,415 0 189,423 25,161 256,150 469,302 557,462 336,316 831,690 325,437 298,606 0 0 19,292 137,367 831,690 934,797 934,797 845,076 79,783 0 885 6,983 2,070 878 1,192 0 0 0 1,192 .11 .11
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