Summary of Significant Accounting Policies

12 Months Ended

Dec. 29, 2012

Significant Accounting Policies [Text Block]

(1) Summary of Significant Accounting Policies

Fiscal Year

The fiscal year of Nash-Finch Company (“Nash Finch”) ends on the Saturday nearest to December 31. Fiscal years 2012, 2011 and 2010 each consisted of 52 weeks.  Our interim quarters consist of 12 weeks except for the third quarter which consists of 16 weeks. 

Principles of Consolidation

The accompanying financial statements include our accounts and the accounts of our majority‑owned subsidiaries.  All material inter-company accounts and transactions have been eliminated in the consolidated financial statements.

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 when purchased which are carried at fair value.  We had no short-term investments at the end of any of the fiscal years referenced in the financial statements.

Accounts and Notes Receivable

We evaluate the collectability of our accounts and notes receivable based on a combination of factors.  In most circumstances when we become aware of factors that may indicate a deterioration in a specific customer’s ability to meet its financial obligations to us (e.g., reductions of product purchases, deteriorating store conditions, changes in payment patterns), we record a specific reserve for bad debts against amounts due to reduce the net recognized receivable to the amount we reasonably believe will be collected.  In determining the adequacy of the reserves, we analyze factors such as the value of any collateral, customer financial statements, historical collection experience, aging of receivables and other economic and industry factors.  It is possible that the accuracy of the estimation process could be materially affected by different judgments as to the collectability based on information considered and further deterioration of accounts.   If circumstances change (i.e., further evidence of material adverse creditworthiness, additional accounts become credit risks, store closures), our estimates of the recoverability of amounts due us could be reduced by a material amount, including to zero.

Revenue Recognition

We recognize revenue when the sales price is fixed or determinable, collectability is reasonably assured and the customer takes possession of the merchandise.

Revenues for the Military segment are recognized upon the delivery of the product to the commissary or commissaries designated by the Defense Commissary Agency (DeCA), or in the case of overseas commissaries, when the product is delivered to the port designated by DeCA, which is when DeCA takes possession of the merchandise and bears the responsibility for shipping the product to the commissary or overseas warehouse.  Revenues from consignment sales are included in our reported sales on a net basis.

Revenues for the Food Distribution segment are recognized upon delivery of the product which is typically the same day the product is shipped.

Revenue is recognized for the Retail segment when the customer receives and pays for the merchandise at the point of sale.  Sales taxes collected from customers are remitted to the appropriate taxing jurisdictions and are excluded from sales revenue as the Company considers itself a pass-through conduit for collecting and remitting sales taxes.

Based upon the nature of the products we sell, our customers have limited rights of return, which are immaterial.

                In fiscal 2012, the Company revised its presentation of fees received from customers for shipping, handling, and the performance of certain other services, which primarily impacted our Food Distribution and Military business segments.  The Company historically presented these items, such as freight fees, fuel surcharges, and fees for advertising services as a reduction to cost of sales.  In accordance with the provisions of FASB Accounting Standards Codification (“ASC”) Topic 605, the Company has revised its presentation to classify amounts billed to a customer related to shipping and handling in a sale transaction as revenue.  The Company has also revised its presentation to classify fees received for the performance of certain other services as revenue.  The revisions had the effect of increasing both sales and cost of sales, but did not have an impact on gross profit, earnings before income taxes, net earnings, cash flows, or financial position for any period, or their respective trends.  Management has determined that the change in presentation is not material to any period.  Prior year amounts shown below have been revised to conform to the current year presentation.

		52 Weeks Ended
		December 31, 2011				52 Weeks Ended
		As Originally				December 31, 2011
(in 000's)		Reported	% of Sales	Adjustments		As Revised	% of Sales
Sales	$	4,807,215	100.0%	48,244	$	4,855,459	100.0%
Cost of Sales		4,427,189	92.1%	48,244		4,475,433	92.2%
Gross Profit	$	380,026	7.9%	-	$	380,026	7.8%

		52 Weeks Ended
		January 1, 2011				52 Weeks Ended
		As Originally				January 1, 2011
(in 000's)		Reported	% of Sales	Adjustments		As Revised	% of Sales
Sales	$	4,991,979	100.0%	42,947	$	5,034,926	100.0%
Cost of Sales		4,591,191	92.0%	42,947		4,634,138	92.0%
Gross Profit	$	400,788	8.0%	-	$	400,788	8.0%

Cost of sales

Cost of sales includes the cost of inventory sold during the period, including distribution costs, shipping and handling fees, and vendor allowances and credits (see below).  Advertising costs, included in cost of goods sold, are expensed as incurred and were $65.6 million, $56.7 million and $61.1 million for fiscal 2012, 2011 and 2010, respectively.  Amounts billed that offset the cost of the advertising in cost of goods sold, were approximately $61.8 million, $55.5 million and $60.1 million for fiscal 2012, 2011 and 2010, respectively.

Vendor Allowances and Credits

                We reflect vendor allowances and credits, which include allowances and incentives similar to discounts, as a reduction of cost of sales when the related inventory has been sold, based on the underlying arrangement with the vendor.  These allowances primarily consist of promotional allowances, quantity discounts and payments under merchandising arrangements.  Amounts received under promotional or merchandising arrangements that require specific performance are recognized in the Consolidated Statements of Income (Loss) when the performance is satisfied and the related inventory has been sold.  Discounts based on the quantity of purchases from our vendors or sales to customers are recognized in the Consolidated Statements of Income (Loss) as the product is sold.  When payment is received prior to fulfillment of the terms, the amounts are deferred and recognized according to the terms of the arrangement.

Inventories

Inventories are stated at the lower of cost or market.  Approximately 79% of our inventories were valued on the last‑in, first‑out (LIFO) method at December 29, 2012 as compared to approximately 84% at December 31, 2011.  We recorded LIFO charges of $3.3 million, $14.2 million, and $0.1 million for fiscal 2012, 2011 and 2010, respectively.  The remaining inventories are valued on the first‑in, first‑out (FIFO) method.  If the FIFO method of accounting for inventories had been applied to all inventories, inventories would have been higher by $90.7 million and $87.3 million at December 29, 2012 and December 31, 2011, respectively.

Capitalization, Depreciation and Amortization

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.

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.  Capitalized leases and leasehold improvements are amortized on a straight‑line basis over the shorter of the term of the lease or the useful life of the asset.

Net property, plant and equipment consisted of the following (in thousands):

	December 29, 2012	December 31, 2011
Land	$ 45,745	$ 30,129
Buildings and improvements	307,899	292,538
Furniture, fixtures and equipment	313,815	286,780
Leasehold improvements	47,679	42,500
Construction in progress	276	3,571
Assets under capitalized leases	23,443	31,276
Gross property, plant and equipment	738,857	686,794
Accumulated depreciation and amortization	(436,572)	(413,695)
Net property, plant and equipment	$ 302,285	$ 273,099

Impairment of Long-Lived Assets

An impairment loss is recognized whenever events or changes in circumstances indicate the carrying amount of an asset is not recoverable.  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.  We have generally identified this lowest level to be individual stores or distribution centers; however, there are limited circumstances where, for evaluation purposes, stores could be considered with the distribution center they support.  We allocate the portion of the profit retained at the servicing distribution center to the individual store when performing the impairment analysis in order to determine the store’s total contribution to us.  We consider historical performance and future estimated results in the impairment evaluation.  If the carrying amount of the asset exceeds expected undiscounted future cash flows, we measure the amount of the impairment by comparing the carrying amount of the asset to its fair value as determined using an income approach.  The inputs used in the income approach use significant unobservable inputs, or level 3 inputs, in the fair value hierarchy.  We recorded impairment charges of $13.1 million, $0.6 million and $0.9 million in fiscal 2012, 2011 and 2010, respectively.

Reserves for Self-Insurance

We are primarily self-insured for workers’ compensation, general and automobile liability and health insurance costs.  It is our policy to record our self-insurance liabilities based on claims filed and an estimate of claims incurred but not yet reported.  Workers’ compensation, general and automobile liabilities are actuarially determined on a discounted basis.  We have purchased stop-loss coverage to limit our exposure on a per claim basis.  On a per claim basis as of December 29, 2012, our exposure for workers’ compensation is $0.6 million, for auto liability and general liability is $0.5 million and for health insurance our exposure is $0.4 million.  Any projection of losses concerning workers’ compensation, general and automobile and health insurance liability is subject to a considerable degree of variability.  Among the causes of this variability are unpredictable external factors affecting future inflation rates, litigation trends, legal interpretations, benefit level changes and claim settlement patterns.  Although our estimates of liabilities incurred do not anticipate significant changes in historical trends for these variables, such changes could have a material impact on future claim costs and currently recorded liabilities.

Goodwill and Intangible Assets

Intangible assets, consisting primarily of goodwill and customer contracts resulting from business acquisitions, are carried at cost unless a determination has been made that their value is impaired.  Goodwill is not amortized and customer contracts and other intangible assets that are not deemed to have an indefinite life are amortized over their useful lives.  We test goodwill for impairment on an annual basis in the fourth quarter based on conditions as of the end of our third quarter or more frequently if we believe indicators of impairment exist.  Such indicators may include a decline in our expected future cash flows, unanticipated competition, slower growth rates, increase in discount rates, or a sustained significant decline in our share price and market capitalization, among others. Any adverse change in these factors could have a significant impact on the recoverability of our goodwill and could have a material impact on our consolidated financial statements.

The goodwill impairment test involves a two-step process.  The first step of the impairment test involves comparing the fair values of the applicable reporting units with their carrying values, including goodwill.  If the carrying amount of a reporting unit exceeds the reporting unit’s fair value, we perform the second step of the goodwill impairment test to determine the amount of impairment loss.  The second step of the goodwill impairment test involves comparing the implied fair value of the affected reporting unit’s goodwill with the carrying value of that goodwill.

Our fair value for each reporting unit is determined based on an income approach which incorporates a discounted cash flow analysis which uses significant unobservable inputs, or level 3 inputs, as defined by the fair value hierarchy, and a market approach that utilizes current earnings multiples of comparable publicly-traded companies.  We have weighted the valuation of our reporting units at 75% based on the income approach and 25% based on the market approach.  We believe that this weighting is appropriate since it is often difficult to find other comparable publicly-traded companies that are similar to our reporting units and it is our view that future discounted cash flows are more reflective of the value of the reporting units.

During the second quarter of fiscal 2012, we performed an impairment test of goodwill due to market conditions as of the end of our fifth fiscal period.  The Company’s market capitalization as calculated, using the share price multiplied by the shares outstanding, had declined in the second quarter and from fiscal year end 2011 resulting in a market value significantly lower than the fair value of the business segments. We determined this was an indication of impairment, and we performed the second step of the analysis utilizing the assistance of a third-party valuation firm. The analysis included determining the fair value of inventory and other current assets and liabilities, as well as fair values of real estate, buildings and fixtures based on recent appraisals. We recorded a goodwill impairment charge of $132.0 million in the second quarter of fiscal 2012, of which $113.0 million related to our Food Distribution segment and $19.0 million related to our Retail segment. The fair value of the Military segment exceeded the carrying value by approximately $15.7 million, or 4%. Key assumptions used in the impairment test were; discount rates applied ranged from 12.0% to 15.0% and growth rates ranged from -1.0% to 2.0%. For the Military segment to have an indication of impairment, the discount rate applied would have needed to increase by over 1.0% or the assumed long-term growth rate would have needed to decrease by over 2.0% with a corresponding increase in the discount rate of 0.5%.

We performed our fiscal 2012 annual impairment test of goodwill during the fourth quarter of fiscal 2012 based on conditions as of the end of the third quarter of fiscal 2012 and determined in the first step of our analysis that an indication of impairment existed in our Military reporting segment.  This required us to calculate our Military segment’s implied fair value in the second step of the impairment analysis.  Compared to the analysis performed during the second quarter of 2012, management’s financial forecast for the Military business segment at this time reflected lower gross margins and the impact of other competitive factors, which resulted in lower projected cash flows for the Military segment.  For the second step of the analysis, we utilized recent appraisals of land and buildings belonging to our Military segment to determine the fair value of these assets.  The carrying values of certain assets and liabilities, such as accounts receivable and accounts payable, approximated fair value due to their short maturities.  Also, in order to determine the fair value of the Military segment’s inventory, the LIFO reserve related to that inventory was eliminated from its carrying value.  These adjustments to the carrying value of the Military segment resulted in an implied fair value for the segment that was significantly lower than the segment’s carrying value.  As a result of this analysis, we recorded a goodwill impairment charge of $34.6 million in the fourth quarter of fiscal 2012 to fully impair the goodwill associated with the Military reporting segment.  The carrying value of the Food Distribution segment exceeded its fair value as determined in the first step of our analysis, however, due to the impairment charge recorded in the second quarter of fiscal 2012, there is no longer any goodwill associated with that reporting segment.  The fair value of the Retail segment was approximately 14% higher than its carrying value.

Discount rates applied in our income approach during fiscal 2012 ranged from 9.0% to 12.0% and were reflective of the weighted average cost of capital of comparable publicly-traded companies with an adjustment for equity and size premiums based on market capitalization.  Growth rates ranged from zero to 2.0%.  For the Retail segment to have an indication of impairment, the discount rate applied would need to increase by over 1.5% or the assumed long-term growth rate would need to decrease by over 1.5% with a corresponding increase in the discount rate of 1.5%.

The accounting principles regarding goodwill acknowledge that the observed market prices of individual trades of a company's stock (and thus its computed market capitalization) may not be representative of the fair value of the company as a whole.  Additional value may arise from the ability to take advantage of synergies and other benefits that flow from control over another entity.  Consequently, measuring the fair value of a collection of assets and liabilities that operate together in a controlled entity is different from measuring the fair value of that entity's individual common stock.  In most industries, including ours, an acquiring entity typically is willing to pay more for equity securities that give it a controlling interest than an investor would pay for a number of equity securities representing less than a controlling interest.  We have taken into consideration the current trends in our market capitalization and the current book value of our equity in relation to fair values arrived at in our fiscal 2012 goodwill impairment analysis, including the implied control premium, and have deemed the result to be reasonable.

During fiscal 2010, the Retail segment recorded goodwill of $0.6 million for the value of a store buy-out agreement for one of our minority owned retail locations.  Additionally, we transferred $8.9 million of goodwill from our Food Distribution segment to our Military segment related to a segment reporting reclassification resulting from the movement of certain business between those two segments that occurred during fiscal 2010.

During fiscal 2011, $4.1 million of Retail goodwill was recorded due to the Company’s acquisition of a new retail store and $0.3 million was written off due to the sale or closure of stores.

During the first quarter of fiscal 2012, completion of the purchase accounting for a retail store purchased in the fourth quarter of 2011 led us to recognize an additional $0.2 million in goodwill related to that acquisition.  The subsequent sale of this store and the sale of an additional retail store resulted in a $4.5 million reduction to Retail segment goodwill, which was recorded in the second quarter of 2012.  As referenced above, in the second quarter of 2012, a goodwill impairment charge of $132.0 million was recorded, of which $113.0 million related to our Food Distribution segment and $19.0 million related to our Retail segment.  During the third quarter of fiscal 2012, the Retail segment recorded $22.9 million in goodwill related to the acquisition of eighteen No Frills supermarkets located in Nebraska and western Iowa.  Also, as referenced above, our annual goodwill impairment test resulted in an additional impairment charge of $34.6 million related to our Military segment goodwill during the fourth quarter of 2012.

Changes in the net carrying amount of goodwill were as follows:

(in thousands)		Military		Food Distribution		Retail		Total
Goodwill as of January 1 , 2011	$	34,639	$	112,978	$	19,549	$	167,166
Retail store acquisition		-		-		4,085		4,085
Retail store sales/closures		-		-		(310)		(310)
Goodwill as of December 31, 2011		34,639		112,978		23,324		170,941
Retail store acquisitions		-		-		23,028		23,028
Retail store sales/closures		-		-		(4,462)		(4,462)
Goodwill impairment		(34,639)		(112,978)		(19,013)		(166,630)
Goodwill as of December 29, 2012	$	-	$	-	$	22,877	$	22,877

During the fourth quarter of fiscal 2012, we tested the customer relationships associated with the   purchase of our Westville and Lima Food Distribution facilities in 2005 for impairment.  In the first step of our  analysis, the undiscounted cash flows generated by the related asset groups (the Westville and Lima distribution   centers, individually, inclusive of the value of the customer relationships allocated to each distribution center)  were compared to the book value of the asset groups.  In the case of the Westville asset group, the cash flows  did not exceed the book value, necessitating the second step of the recoverability test.

                        In the second step of the recoverability test, the discounted cash flows attributable to the asset group were compared to the fair value of the other assets in the Westville asset group in order to determine the implied fair value of the intangible assets in the group. We utilized a recent appraisal of the value of the Westville   distribution center’s land and building to determine the fair value of the other assets in the asset group.  The discounted cash flow analysis determined that there was not enough value in the asset group to recognize any  value in the customer relationships related to the Westville facility.  This resulted in a $6.5 million impairment charge in the fourth quarter of fiscal 2012 related to the customer relationships associated with the Westville facility.  This impairment charge is included in the Consolidated Statements of Income (Loss) under selling, general and administrative expenses.

Customer contracts and relationships intangibles were as follows (in thousands):

	December 29, 2012
	Gross Carrying Value	Accum. Amort.	Net Carrying Amount	Estimated Life (years)
Customer contracts and relationships	$ 28,569	$ (21,920)	$ 6,649	10-20

	December 31, 2011
	Gross Carrying Value	Accum. Amort.	Net Carrying Amount	Estimated Life (years)
Customer contracts and relationships	$ 42,218	$ (26,819)	$ 15,399	10-20

Other intangible assets included in other assets on the consolidated balance sheets were as follows (in thousands):

	December 29, 2012
	Gross Carrying Value	Accum. Amort.	Net Carrying Amount	Estimated Life (years)
Franchise agreements	$ 2,694	$ (1,718)	$ 976	17-25
Non-compete agreements	520	(251)	269	5
Pharmacy scripts	2,477	(1,413)	1,064	5
License agreements	53	(47)	6	5
Tradenames	2,900	(100)	2,800	15
Leasehold interests	4,170	(203)	3,967	5-25

	December 31, 2011
	Gross Carrying Value	Accum. Amort.	Net Carrying Amount	Estimated Life (years)
Franchise agreements	$ 2,694	$ (1,609)	$ 1,085	17-25
Non-compete agreements	366	(225)	141	4-10
Pharmacy scripts	2,034	(940)	1,094	5
License agreements	53	(38)	15	5
Tradenames	209	-	209	Indefinite

Aggregate amortization expense recognized for fiscal 2012, 2011 and 2010 was $3.2 million, $3.2 million and $3.4 million, respectively.  The aggregate amortization expense for the five succeeding fiscal years is expected to approximate $2.2 million, $2.0 million, $1.9 million, $1.7 million and $1.2 million for fiscal years 2013 through 2017, respectively.

                Income Taxes

When preparing our consolidated financial statements, we are required to estimate our income taxes in each of the jurisdictions in which we operate.  The process involves estimating our actual current tax obligations based on expected income, statutory tax rates and tax planning opportunities in the various jurisdictions in which we operate.  In the event there is a significant, unusual or one-time item recognized in our results of operations, the tax attributable to that item would be separately calculated and recorded in the period the unusual or one-time item occurred.

We utilize the liability method of accounting for income taxes.  Under the liability method, deferred taxes are determined based on the temporary differences between the financial statement and tax basis of assets and liabilities using tax rates expected to be in effect during the years in which the basis differences reverse or are settled.  A valuation allowance is recorded when it is more likely than not that all or a portion of the deferred tax assets will not be realized.  Changes in valuation allowances from period to period are included in our tax provision in the period of change.

We establish reserves when, despite our belief that the tax return positions are fully supportable, certain positions could be challenged and we may ultimately not prevail in defending our positions.  These reserves are adjusted in light of changing facts and circumstances, such as the closing of a tax audit or the expiration of statutes of limitations.  The effective tax rate includes the impact of reserve provisions and changes to reserves that are considered appropriate, as well as related penalties and interest.  These reserves relate to various tax years subject to audit by taxing authorities.

Income tax positions must meet a more-likely-than-not recognition threshold at the effective date to be recognized.  We recognize potential accrued interest and penalties related to the unrecognized tax benefits in income tax expense.

Derivative Instruments

Derivative financial instruments are carried at fair value on the balance sheet and we apply hedge accounting when certain conditions are met.

We have market risk exposure to changing interest rates primarily as a result of our borrowing activities.  Our objective in managing our exposure to changes in interest rates is to reduce fluctuations in earnings and cash flows.  To achieve these objectives, from time-to-time we use derivative instruments, primarily interest rate swap agreements, to manage risk exposures when appropriate, based on market conditions.  We do not enter into derivative agreements for trading or other speculative purposes, nor are we a party to any leveraged derivative instrument.

Share-based compensation

Our results of operations reflect compensation expense based on the value and vesting schedule for newly issued and previously issued share-based compensation instruments granted.  We estimate the fair value of share-based payment awards on the date of the grant.  We use the grant date market value per share of Nash Finch common stock to estimate the fair value of Restricted Stock Units (RSUs) and performance units granted pursuant to our long-term incentive plan (LTIP).  We used a lattice model to estimate the fair value of stock appreciation rights (SARs) which contain certain market conditions.  For RSUs and LTIP awards, the value of the portion of the awards ultimately expected to vest is recognized as expense over the requisite service period.  The SARs did not meet the market conditions required to vest, however, we were required to recognize expense over the requisite service period.

Comprehensive Income (Loss)

We report comprehensive income (loss) that includes our net income (loss) and other comprehensive income (loss).  Other comprehensive income (loss) refers to revenues, expenses, gains and losses that are not included in net earnings such as minimum pension and other post retirement liabilities adjustments and unrealized gains or losses on hedging instruments, but rather are recorded directly in the Consolidated Statements of Stockholders’ Equity.  These amounts are also presented in our Consolidated Statements of Comprehensive Income (Loss).

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

There have been no recently adopted accounting standards that have resulted in a material impact to the Company’s financial statements.