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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549

 

FORM 10-Q

 

 

(Mark One)

ý

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the twelve weeks ended June 15, 2002

 

or

 

o

 

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)

 

(952) 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   ý

 

NO   o

 

 

 

 

As of July 22, 2001, 11,923,942 shares of Common Stock of the Registrant were outstanding.

 

 



 

PART I - FINANCIAL INFORMATION

 

                This report is for the twelve and twenty-four week interim periods beginning March 24, 2002 and December 30, 2001, respectively, and ended June 15, 2002.

 

                The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information.  Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements.  In the opinion of management, all adjustments necessary to a fair presentation have been included.

 

                For further information, refer to the consolidated financial statements and footnotes included in the Company’s Annual Report on Form 10-K for the year ended December 29, 2001.

 

 

2



 

NASH FINCH COMPANY AND SUBSIDIARIES
Condensed Consolidated Statements of Income (unaudited)
(In thousands, except per share amounts)

 

 

 

Twelve Weeks Ended

 

Twenty-four Weeks Ended

 

 

 

June 15,

 

June 16,

 

June 15,

 

June 16,

 

 

 

2002

 

2001

 

2002

 

2001

 

 

 

 

 

 

 

 

 

 

 

Total sales and revenues

 

$

937,050

 

949,559

 

1,857,891

 

1,854,498

 

 

 

 

 

 

 

 

 

 

 

Cost and expenses:

 

 

 

 

 

 

 

 

 

Cost of sales

 

828,477

 

842,447

 

1,645,403

 

1,644,320

 

Selling, general and administrative

 

79,342

 

79,380

 

157,554

 

158,043

 

Depreciation and amortization

 

9,165

 

10,631

 

18,472

 

21,278

 

Interest expense

 

6,651

 

8,085

 

13,298

 

16,287

 

Total costs and expenses

 

923,635

 

940,543

 

1,834,727

 

1,839,928

 

 

 

 

 

 

 

 

 

 

 

Earnings before income taxes

 

13,415

 

9,016

 

23,164

 

14,570

 

 

 

 

 

 

 

 

 

 

 

Income taxes

 

5,352

 

3,733

 

9,242

 

6,032

 

 

 

 

 

 

 

 

 

 

 

Net earnings

 

$

8,063

 

5,283

 

13,922

 

8,538

 

 

 

 

 

 

 

 

 

 

 

Basic earnings per share:

 

$

0.68

 

0.46

 

1.18

 

0.74

 

 

 

 

 

 

 

 

 

 

 

Diluted earnings per share:

 

0.66

 

0.44

 

1.15

 

0.72

 

 

 

 

 

 

 

 

 

 

 

Weighted average number of common shares outstanding and common equivalent shares outstanding:

 

 

 

 

 

 

 

 

 

Basic

 

11,795

 

11,579

 

11,752

 

11,543

 

Diluted

 

12,196

 

12,025

 

12,154

 

11,876

 


See accompanying notes to condensed consolidated financial statements.

 

3



 

NASH FINCH COMPANY AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(In thousands, except per share amounts)

 

 

 

June 15,

 

December 29,

 

June 16,

 

 

 

2002

 

2001

 

2001

 

 

 

(unaudited)

 

 

 

(unaudited)

 

Assets

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

Cash

 

$

1,501

 

10,467

 

8,380

 

Accounts and notes receivable, net

 

165,119

 

166,808

 

131,736

 

Inventories

 

251,960

 

274,995

 

262,562

 

Prepaid expenses

 

14,322

 

16,345

 

15,911

 

Deferred tax assets

 

8,533

 

10,748

 

16,455

 

Total current assets

 

441,435

 

479,363

 

435,044

 

 

 

 

 

 

 

 

 

Investments in affiliates

 

556

 

621

 

704

 

Notes receivable, net

 

27,805

 

31,736

 

36,978

 

 

 

 

 

 

 

 

 

Property, plant and equipment:

 

 

 

 

 

 

 

Land

 

26,828

 

26,979

 

24,991

 

Buildings and improvements

 

158,540

 

157,159

 

152,066

 

Furniture, fixtures and equipment

 

319,906

 

319,378

 

309,347

 

Leasehold improvements

 

71,256

 

68,487

 

66,701

 

Construction in progress

 

7,977

 

4,309

 

1,678

 

Assets under capitalized leases

 

42,040

 

40,860

 

40,860

 

 

 

626,547

 

617,172

 

595,643

 

Less accumulated depreciation and amortization

 

(355,253

)

(343,873

)

(335,508

)

Net property, plant and equipment

 

271,294

 

273,299

 

260,135

 

 

 

 

 

 

 

 

 

Goodwill, net

 

139,721

 

137,337

 

112,824

 

Investment in direct financing leases

 

13,017

 

13,490

 

13,945

 

Deferred tax asset, net

 

2,407

 

7,549

 

8,507

 

Other assets

 

25,308

 

26,850

 

25,883

 

Total assets

 

$

921,543

 

970,245

 

894,020

 

 

 

 

 

 

 

 

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

Outstanding checks

 

$

13,408

 

57,750

 

10,662

 

Current maturities of long-term debt and capitalized lease obligations

 

6,738

 

5,364

 

5,716

 

Accounts payable

 

216,284

 

217,822

 

236,670

 

Accrued expenses

 

81,281

 

90,869

 

76,149

 

Income taxes

 

7,267

 

11,819

 

14,127

 

Total current liabilities

 

324,978

 

383,624

 

343,324

 

 

 

 

 

 

 

 

 

Long-term debt

 

320,792

 

321,761

 

294,082

 

Capitalized lease obligations

 

47,027

 

47,046

 

48,120

 

Other liabilities

 

10,783

 

14,406

 

15,220

 

Stockholders’ equity:

 

 

 

 

 

 

 

Preferred stock — no par value

 

 

 

 

 

 

 

Authorized 500 shares;  none issued

 

 

 

 

Common stock of $1.66 2/3 par value

 

 

 

 

 

 

 

Authorized 50,000 shares, issued 11,981, 11,831 and 11,764 shares, respectively

 

19,969

 

19,718

 

19,608

 

Additional paid-in capital

 

25,643

 

21,894

 

21,018

 

Restricted stock

 

(1,252

)

 

(4

)

Accumulated other comprehensive income

 

(2,479

)

(2,518

)

(949

)

Retained earnings

 

177,097

 

165,317

 

154,702

 

 

 

218,978

 

204,411

 

194,375

 

Less cost of 68, 73 and 92 shares of common stock in treasury, respectively

 

(1,015

)

(1,003

)

(1,101

)

Total stockholders’ equity

 

217,963

 

203,408

 

193,274

 

 

 

 

 

 

 

 

 

Total liabilities and stockholders’ equity

 

$

921,543

 

970,245

 

894,020

 


See accompanying notes to condensed consolidated financial statements.

 

4



 

NASH FINCH COMPANY AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows (Unaudited)
(In thousands)

 

 

 

Twenty-four Weeks Ended

 

 

 

June 15,

 

June 16,

 

 

 

2002

 

2001

 

Operating activities:

 

 

 

 

 

Net earnings

 

$

13,922

 

8,538

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

Depreciation and amortization

 

18,472

 

21,278

 

Provision for bad debts

 

1,790

 

2,210

 

Deferred income tax expense

 

7,357

 

2,131

 

Other

 

62

 

(99

)

Changes in operating assets and liabilities, net of effects of acquisitions

 

 

 

 

 

Accounts and notes receivable

 

(81

)

4,622

 

Inventories

 

23,889

 

9,278

 

Prepaid expenses

 

2,033

 

(3,958

)

Accounts payable

 

(1,568

)

49,369

 

Accrued expenses

 

(11,971

)

7,704

 

Income taxes

 

(4,553

)

727

 

Net cash provided by operating activities

 

49,352

 

101,800

 

 

 

 

 

 

 

Investing activities:

 

 

 

 

 

Disposal of property, plant and equipment

 

512

 

3,119

 

Additions to property, plant and equipment

 

(14,441

)

(20,413

)

Business acquired, net of cash

 

(3,356

)

(1,070

)

Loans to customers

 

(1,609

)

(9,954

)

Payments from customers on loans

 

6,022

 

3,667

 

Repurchase of receivables

 

 

(3,950

)

Other

 

1,767

 

(6,324

)

Net cash used in investing activities

 

(11,105

)

(34,925

)

 

 

 

 

 

 

Financing activities:

 

 

 

 

 

Payments of revolving debt

 

 

(17,300

)

Dividends paid

 

(2,142

)

(2,090

)

Payments of long-term debt

 

(990

)

(662

)

Payments of capitalized lease obligations

 

(987

)

(589

)

Decrease in outstanding checks

 

(44,342

)

(41,380

)

Other

 

1,248

 

1,992

 

 

 

 

 

 

 

Net cash used in financing activities

 

(47,213

)

(60,029

)

Net (decrease) increase in cash

 

$

(8,966

)

6,846

 

 

 

 

 

 

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

Non cash investing and financing activities

 

 

 

 

 

Purchase of real estate under capital leases

 

$

1,180

 

3,866

 

Acquisition of minority interest

 

1,182

 

4,294

 


See accompanying notes to condensed consolidated financial statements.

 

5



 

NASH FINCH COMPANY AND SUBSIDIARIES
Consolidated Statements of Stockholders’ Equity

 

Fiscal period ended June 15, 2002
December 29, 2001 and December 30, 2000

 

Common stock

 

Additional paid-in

 

Retained

 

Accumulated other  comprehensive

 

Restricted

 

Treasury stock

 

Total stockholders’

 

(In thousands, except per share amounts)

 

Shares

 

Amount

 

capital

 

earnings

 

income (loss)

 

stock

 

Shares

 

Amount

 

equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at January 1, 2000

 

11,641

 

19,402

 

18,247

 

136,905

 

 

(57

)

(231

)

(1,823

)

172,674

 

Net earnings

 

 

 

 

15,471

 

 

 

 

 

15,471

 

Dividend declared of $.36 per share

 

 

 

 

(4,122

)

 

 

 

 

(4,122

)

Common stock issued for employee stock purchase plan

 

70

 

116

 

309

 

 

 

 

 

 

425

 

Amortized compensation under restricted stock plan

 

 

 

 

 

 

4

 

 

 

4

 

Repayment of notes receivable from holders of restricted stock

 

 

 

 

 

 

43

 

 

 

43

 

Distribution of stock pursuant to performance awards

 

 

 

8

 

 

 

 

5

 

37

 

45

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 30, 2000

 

11,711

 

19,518

 

18,564

 

148,254

 

 

(10

)

(226

)

(1,786

)

184,540

 

Net earnings

 

 

 

 

21,267

 

 

 

 

 

21,267

 

Other comprehensive income, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deferred loss on hedging activities

 

 

 

 

 

(128

)

 

 

 

(128

)

Additional minimum pension liability

 

 

 

 

 

(2,390

)

 

 

 

(2,390

)

Comprehensive income

 

 

 

 

 

 

 

 

 

18,749

 

Dividend declared of $.36 per share

 

 

 

 

(4,204

)

 

 

 

 

(4,204

)

Treasury stock issued upon exercise of options

 

 

 

943

 

 

 

 

102

 

523

 

1,466

 

Common stock issued upon exercise of options

 

28

 

46

 

264

 

 

 

 

 

 

310

 

Common stock issued for employee stock purchase plan

 

92

 

154

 

655

 

 

 

 

 

 

809

 

Amortized compensation under restricted stock plan

 

 

 

 

 

 

1

 

 

 

1

 

Stock based deferred compensation

 

 

 

993

 

 

 

 

 

 

993

 

Repayment of notes receivable from holders of restricted stock

 

 

 

 

 

 

9

 

 

 

9

 

Distribution of stock pursuant to performance awards

 

 

 

475

 

 

 

 

51

 

260

 

735

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 29, 2001

 

11,831

 

19,718

 

21,894

 

165,317

 

(2,518

)

 

(73

)

(1,003

)

203,408

 

Net earnings

 

 

 

 

13,922

 

 

 

 

 

13,922

 

Other comprehensive income, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deferred gain on hedging activities

 

 

 

 

 

39

 

 

 

 

39

 

Comprehensive income

 

 

 

 

 

 

 

 

 

13,961

 

Dividend declared of $.18 per share

 

 

 

 

(2,142

)

 

 

 

 

(2,142

)

Treasury stock issued upon exercise of options

 

 

 

73

 

 

 

 

7

 

37

 

110

 

Common stock issued upon exercise of options

 

15

 

24

 

120

 

 

 

 

 

 

144

 

Common stock issued for employee stock purchase plan

 

24

 

41

 

429

 

 

 

 

 

 

470

 

Issuance of restricted stock

 

50

 

84

 

1,373

 

 

 

(1,456

)

 

 

1

 

Amortized compensation under restricted stock plan

 

 

 

 

 

 

204

 

 

 

204

 

Stock based deferred compensation

 

 

 

81

 

 

 

 

 

 

81

 

Forfeiture of restricted stock issued pursuant to performance awards

 

 

 

(12

)

 

 

 

(3

)

(51

)

(63

)

Distribution of stock pursuant to performance awards

 

61

 

102

 

1,685

 

 

 

 

1

 

2

 

1,789

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at June 15, 2002 (unaudited)

 

11,981

 

$

19,969

 

25,643

 

177,097

 

(2,479

)

(1,252

)

(68

)

$

(1,015

)

217,963

 


See accompanying notes to condensed consolidated financial statements.

 

6



 

Nash Finch Company and Subsidiaries

Notes to Condensed Consolidated Financial Statements

June 15, 2002

 

Note 1 — Basis of Presentation

 

                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 15, 2002, December 29, 2001, and June 16, 2001, and the results of operations and changes in cash flows for the 12 and 24-weeks ended June 15, 2002 and June 16, 2001, 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.

 

                Certain reclassifications have been made to the financial statements.  These reclassifications had no impact on net income, earnings per share or stockholders’ equity.

 

Note 2 — Inventories

 

                The Company uses the LIFO method for valuation of a substantial portion of inventories.  An actual valuation of inventory under the LIFO method can be made only at the end of each year based on the inventory levels and costs at that time.  Accordingly, interim LIFO calculations must necessarily be based on management’s estimates of expected year-end inventory levels and costs.  Because these are subject to many forces beyond management’s control, interim results are subject to the final year-end LIFO inventory valuation.  If the FIFO method had been used inventories would have been approximately $49.0 million, $47.8 million and $46.0 million higher at June 15, 2002, December 29, 2001 and June 16, 2001, respectively.  For the twenty-four week period ending June 15, 2002 and June 16, 2001, the Company recorded a LIFO charge of $1.2 million and $.9 million, respectively.

 

7



 

Note 3 — Earning per share

 

                The following table sets forth the computation of basic and diluted earnings per share (in thousands, except per share amounts):

 

 

 

Twelve Weeks Ended

 

Twenty-four Weeks Ended

 

 

 

June 15,

 

June 16,

 

June 15,

 

June 16,

 

 

 

2002

 

2001

 

2002

 

2001

 

Numerator:

 

 

 

 

 

 

 

 

 

Net earnings

 

$

8,063

 

5,283

 

13,922

 

8,538

 

Denominator:

 

 

 

 

 

 

 

 

 

Denominator of basic earnings per share (weighted-average shares)

 

11,795

 

11,579

 

11,752

 

11,543

 

Effect of diluted options and awards

 

401

 

446

 

402

 

333

 

Denominator for diluted earnings per share (adjusted weighted average shares)

 

12,196

 

12,025

 

12,154

 

11,876

 

Basic earnings per share

 

$

.68

 

.46

 

1.18

 

.74

 

Diluted earnings per share

 

$

.66

 

.44

 

1.15

 

.72

 

 

Note 4 — Derivative Instruments

 

                The Company uses interest rate swap agreements that effectively convert a portion of variable rate debt to a fixed rate basis.  In addition, the Company is using a commodity swap agreement to reduce price risk associated with anticipated purchases of diesel fuel. Such swap agreements are considered to be a hedge against changes in future cash flows.  Accordingly, interest rate and commodity swap agreements are reflected at fair value in the Company’s consolidated balance sheet and the related gains or losses on these contracts are deferred in stockholders’ equity as a component of other comprehensive income.  These deferred gains and losses are then recognized as an adjustment to expense over the same period in which the related payments being hedged are recognized in the income statement.  For the twenty-four week period ending June 15, 2002 deferred gains in the amount of $.04 million, net of taxes, are recognized as other comprehensive income, increasing stockholder’s equity.

 

                At June 15, 2002 the Company had two outstanding interest rate swap agreements, which commenced on December 6, 2001, each with notional amounts of $35 million.  One expires on December 6, 2002 and the other on June 6, 2003.  The commodity swap, with a notional amount of 3,500 barrels, or approximately 40% of the Company’s monthly fuel consumption, expires in August 2003.

 

Note 5 — Recently Adopted Accounting Standards

 

                In July 2001, the Financial Accounting Standards Board (“FASB”) issued, Statement of Financial Accounting Standards (“SFAS”) No. 141, Business Combinations, and SFAS No. 142, Goodwill and Other Intangible Assets.  These standards require that all business combinations be accounted for using the purchase method and that goodwill and intangible assets with indefinite useful lives should no longer be amortized but instead tested for impairment at least annually.  Separable intangible assets that are not deemed to have an indefinite life will continue to be amortized over their useful lives.  These standards outline the criteria for initial recognition and measurement of

 

8



 

intangibles, assignment of assets and liabilities including goodwill to reporting units and goodwill impairment testing.  The Company was required to apply the provisions of SFAS No. 141 including the nonamortization provision of goodwill under SFAS No. 142 to all business combinations completed after June 30, 2001, while SFAS No. 142 is fully effective at the beginning of 2002.  The Company has performed the required impairment tests of goodwill and indefinite lived intangible assets and determined that no impairment issues exist.

 

Note 6 — Goodwill Amortization

 

                In conjunction with SFAS No. 142 the following table provides a reconciliation of 2001 reported earnings for the twelve and twenty-four weeks ended June 16, 2001 to adjusted earnings excluding goodwill amortization (in thousands, except per share amounts):

 

 

 

Twelve Weeks

 

Twenty-four Weeks

 

 

 

June 15,
2002

 

June 16,
2001

 

June 15,
2002

 

June 16,
2001

 

 

 

 

 

 

 

 

 

 

 

Reported net income:

 

$

8,063

 

5,283

 

13,922

 

8,538

 

Add back: Goodwill amortization net of income taxes

 

 

1,103

 

 

2,099

 

Adjusted net income

 

$

8,063

 

6,386

 

13,922

 

10,637

 

Basic earnings-per-share:

 

 

 

 

 

 

 

 

 

Reported net income

 

$

.68

 

.46

 

1.18

 

.74

 

Goodwill amortization net of income taxes

 

 

.09

 

 

.18

 

Adjusted net income

 

$

.68

 

.55

 

1.18

 

.92

 

Diluted earnings-per-share:

 

 

 

 

 

 

 

 

 

Reported net income

 

$

.66

 

.44

 

1.15

 

.72

 

Goodwill amortization net of income taxes

 

 

.09

 

 

.18

 

Adjusted net income

 

$

.66

 

.53

 

1.15

 

.90

 

 

Note 7 — Restricted Stock

 

On February 19, 2002 the Board of Directors awarded 50,000 shares of restricted stock to the Company’s Chief Executive Officer.  Under terms of the award, he has voting power over all of the shares, and is entitled to receive cash dividends or other distributions made to stockholders generally.  Investment power, however, will vest in 20% increments on February 19 of each of the years 2003 through 2007, inclusive.  The award provides for a cash payment in the amount equal to forty percent of the fair market value of each increment, at the time of vesting, to partially offset the taxes due upon lapse of the restrictions.  Compensation expense is recognized on a straight-line basis over the vesting period.

 

9



 

Note 8 — Segment Reporting

 

A summary of the major segments of the business is as follows (in thousands):

 

Twelve weeks ended June 15, 2002

 

 

Food Distribution

 

Retail

 

Military

 

Totals

 

 

 

 

 

 

 

 

 

 

 

Revenue from external customers

 

$

456,715

 

245,073

 

235,262

 

937,050

 

Inter-segment revenue

 

130,706

 

 

 

130,706

 

Segment profit

 

14,638

 

9,232

 

7,499

 

31,369

 

 

 

 

 

 

 

 

 

 

 

 

Twelve weeks ended June 16, 2001

 

 

Food Distribution

 

Retail

 

Military

 

Totals

 

 

 

 

 

 

 

 

 

 

 

Revenue from external customers

 

$

478,360

 

237,117

 

234,082

 

949,559

 

Inter-segment revenue

 

131,296

 

 

 

131,296

 

Segment profit

 

13,644

 

8,723

 

7,713

 

30,080

 

 

 

 

 

 

 

 

 

 

 

 

Twenty-four weeks ended June 15, 2002

 

 

Food Distribution

 

Retail

 

Military

 

Totals

 

 

 

 

 

 

 

 

 

 

 

Revenue from external customers

 

$

908,892

 

482,903

 

466,096

 

1,857,891

 

Inter-segment revenue

 

259,334

 

 

 

259,334

 

Segment profit

 

26,735

 

17,837

 

14,651

 

59,223

 

 

 

 

 

 

 

 

 

 

 

 

Twenty-four weeks ended June 16, 2001

 

 

Food Distribution

 

Retail

 

Military

 

Totals

 

 

 

 

 

 

 

 

 

 

 

Revenue from external customers

 

$

932,722

 

466,644

 

455,132

 

1,854,498

 

Inter-segment revenue

 

260,140

 

 

 

260,140

 

Segment profit

 

25,494

 

15,684

 

14,183

 

55,361

 

 

 

 

 

 

 

 

 

 

 

 

10



 

Reconciliation to statements of income:
(In thousands)

 

Twelve weeks ended June 15, 2002 and June 16, 2001

 

 

 

2002

 

2001

 

 

 

 

 

 

 

Profit and loss

 

 

 

 

 

Total profit for segments

 

$

31,369

 

30,080

 

Unallocated amounts:

 

 

 

 

 

Adjustment of inventory to LIFO

 

(300

)

(692

)

Unallocated corporate overhead

 

(17,654

)

(20,372

)

Earnings before income taxes

 

$

13,415

 

9,016

 

 

Twenty-four weeks ended June 15, 2002 and June 16, 2001

 

 

 

2002

 

2001

 

 

 

 

 

 

 

Profit and loss

 

 

 

 

 

Total profit for segments

 

$

59,223

 

55,361

 

Unallocated amounts:

 

 

 

 

 

Adjustment of inventory to LIFO

 

(1,223

)

(892

)

Unallocated corporate overhead

 

(34,836

)

(39,899

)

Earnings before income taxes

 

$

23,164

 

14,570

 

 

Note 9 — Subsequent Events

 

                On July 9, 2002 the Company extended two interest rate swap agreements, each with a notional amount of $35 million.  The agreements commence on December 6, 2002 and June 6, 2003 and are at rates of 3.50% and 3.97%, respectively.  Both agreements expire on October 6, 2004.

 

                In addition, the Company executed an additional swap agreement with a notional amount of $50 million at a rate of 2.75%.  The agreement begins on July 26, 2002 and expires on September 25, 2004.

 

11



 

ITEM 2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

RESULTS OF OPERATIONS

 

Revenues

 

                Total revenues for the twelve-week second quarter were $937.1 million compared to $949.6 million last year, a decrease of 1.3%.  For the twenty-four weeks, total revenues increased .2% from $1.854 billion to $1.858 billion.

 

                Food distribution revenues for the twelve and twenty-four weeks ended June 15, 2002, were $456.7 million and $908.9 million respectively, compared to $478.4 million and $932.7 million for the same periods last year reflecting a decrease of 4.5%, and 2.6% for the twelve and twenty-four weeks, respectively.  The revenue decline is attributed to soft sales experienced by independent retailers because of new competition in certain markets, as well as the loss of marginal accounts the Company chose to no longer service.

 

                Retail segment revenues for the twelve and twenty-four weeks ended June 15, 2002, were $245.1 million and $482.9 million compared to $237.1 million and $466.6 million for the same periods last year, reflecting increases of 3.4% and 3.5% for the twelve and twenty-four weeks, respectively.  The increase is primarily attributed to the Company’s acquisition, in August 2001, of U Save Foods, Inc. (“U Save”), a privately held company operating 14 stores primarily in the state of Nebraska, offset by the sale of 20 stores in the Southeast region in 2001.  All U Save stores acquired have been converted to the Company’s primary banners.  Same store sales declined 3.6% compared to the twelve week second quarter last year and declined 2.2% compared to the twenty-four week period last year.  The decline is attributed to new store openings and increased competitive activity experienced system wide.  During the quarter the Company closed one under-performing conventional retail store that had reached the end of its lease.  In the first quarter of 2002 the Company acquired one conventional retail store and closed an additional under-performing store.  At the end of the quarter, the Company operated 112 stores compared to 105 stores at the end of the second quarter last year and 110 stores at the end of 2001.

 

                The Company has developed two specialty store formats, one designed to service the Hispanic market, which the Company believes is under-served by traditional grocery stores, and a second format under the Buy n Save® name to service low income, value conscious consumers.  During the quarter, the Company opened one new Buy n Save location.  In the first quarter, the Company opened one new Buy n Save store and converted two other existing stores to the Buy n Save format.  The Company currently operates a total of eight Buy n Save stores and expects to further expand this format in the Upper Midwest in 2002.  The Company currently operates three Hispanic format stores under the name Wholesale Food Outlet and has announced a new banner for the Hispanic stores called AVANZA™.  The first AVANZA store opened in the second quarter in Denver, Colorado, with expectation of opening additional stores during 2002.

 

                Military segment revenues for the quarter were $235.3 million compared to $234.1 million last year, an increase of .5%.  For the twenty-four weeks, revenues were $466.1 million compared to $455.1 million last year, an increase of 2.4%.  The increase resulted primarily from higher year-over-year exports to bases overseas. We expect overall sales to remain stable for the year.

 

12



 

Gross Margin

 

                Gross margin for the quarter was 11.6% compared to 11.3% last year.  The improvement is attributed to increased productivity and efficient utilization of distribution facilities, improved retail store sales mix in higher margin departments and to a lesser degree the higher proportion of retail segment revenues.  For the twenty-four week period gross margin was an 11.4% in fiscal 2002 compared to 11.3% last year.

 

Selling, General and Administrative Expenses

 

                Selling, general and administrative expenses for the quarter, as a percent of total revenues, were 8.5% compared to 8.4% a year ago. The increase is largely due to a higher percentage of retail segment revenues that operate at higher expense levels than does food distribution or military offset by overhead cost reductions attained through implementation of many process improvements.  For the twenty-four week period selling, general and administration expenses were 8.5% for the current and prior year.

 

Depreciation and Amortization Expense

 

                Depreciation and amortization expense for the quarter was $9.2 million compared to $10.6 million last year, a decrease of 13.2%.  For the twenty-four weeks, depreciation and amortization expense decreased from $21.3 million last year to $18.5 million in 2002, a decrease of 13.1%.  The decrease primarily reflects the elimination of goodwill amortization of $1.4 million and $2.7 million for the twelve and twenty-four weeks, respectively, resulting from a new accounting standard (see Note 5 — Recently Adopted Accounting Standards) which was effective at the beginning of this year. 

 

Interest Expense

 

                Interest expense for the quarter was $6.7 million compared to $8.1 million last year, a decrease of 17.3%.  For the twenty-four week period interest expense was $13.3 million compared to $16.3 million, a decrease of 18.4%.  The decreased costs are attributed to lower borrowing rates this year, under the revolving credit facility, partially offset by an average borrowing level that was higher than last year.  The average borrowing rate under the revolving credit facility, which consists of a $100 million term loan and $150 million in revolving credit, including the impact of the swap agreements, was 4.39% this year compared to 9.30% last year.  Higher average borrowing levels under the revolving credit facility were a result of the termination of the receivable securitization agreement in December 2001.  The receivable securitization facility provided approximately $35 million in off balance sheet financing.

 

Income Taxes

 

                Income tax expense is provided on an interim basis using management’s estimate of the annual effective tax rate.  The effective income tax rate for 2002 decreased to 39.9% from 41.4% in fiscal 2001.  The reduction in the effective rate is primarily attributed to changes in accounting rules relating to elimination of goodwill amortization for financial reporting (see Note 5 — Recently Adopted Accounting Standards).

 

13



 

Net Earnings

 

                Net earnings for the quarter were $8.1 million compared to $6.4 million last year, excluding goodwill amortization, an increase of 26.6%.  For the twenty-four weeks, net earnings increased 31.1% to $13.9 million from $10.6 million, excluding goodwill amortization.  The increase was driven by a combination of gross margin improvements, overhead cost reductions and lower interest rates.  All segments continue to contribute to the improvement over prior year performance through operational efficiencies, cost containment efforts and leveraging of procurement opportunities. Corporate overhead, which is not allocated back to business segments, generally decreased on a pretax basis by $2.7 million due to the elimination of goodwill amortization compared to last year.

 

EBITDA

 

                The Company’s revolving credit facility contains various restrictive covenants.  Several of these covenants are based on earnings from operations before interest, taxes, depreciation, amortization and non-recurring items (EBITDA).  At the end of the second quarter the Company is in compliance with all its debt convenants.  This information is not intended to be an alternative to performance measures under generally accepted accounting principles, but rather as a presentation important for understanding the Company’s performance relative to its debt covenants (in thousands):

 

 

 

Twelve Weeks

 

Twenty-four Weeks

 

 

 

June 15,

 

June 16,

 

June 15,

 

June 16,

 

 

 

2002

 

2001

 

2002

 

2001

 

Earnings before income taxes

 

 

 

 

 

 

 

 

 

Add (Deduct):

 

$

13,415

 

9,016

 

23,164

 

14,570

 

LIFO effect

 

300

 

662

 

1,223

 

862

 

Depreciation and amortization

 

9,165

 

10,631

 

18,472

 

21,278

 

Interest expense

 

6,651

 

8,085

 

13,298

 

16,287

 

Other

 

(5

)

154

 

 

436

 

Total EBITDA

 

$

29,526

 

28,548

 

56,145

 

53,433

 

 

LIQUIDITY AND CAPITAL RESOURCES

 

                Historically, the Company has financed its capital needs through a combination of internal and external sources.  These sources include cash flow from operations, short-term bank borrowings, various types of long-term debt and lease financing.

 

                Cash provided by operating activities was $45.1 million for the first twenty-four weeks of 2002 compared to $101.8 million last year.  The change in cash flows from operating activities is primarily the result of changes in operating assets and liabilities as compared to the same period last year.

 

                Cash used in investing activities decreased from $34.9 million last year to $6.9 million for the twenty-four week period this year.  Investing activities in 2002 consisted primarily of $14.4 million in capital expenditures, offset by $8.6 million in net loan payments from customers.  The Company’s capital plan for the year is approximately $50 million with most initiatives scheduled during the remainder of the year. Also, during the twenty-four week period, the Company acquired a store in Wisconsin from an existing customer. Investing activities are funded by cash flows from operations and the revolving credit facility. Prior year investing activities primarily included $20.4 million for capital

 

14



 

expenditures, $6.3 million of loans to customers, net of payments received, and the repurchase of $4.0 million in receivables under a revolving securitization agreement that was terminated in December 2001.

 

                Cash used in financing activities decreased from $60.0 million in 2001 to $47.2 million in 2002.  This change is primarily due to payments on the revolving credit facility in the prior year of $17.3 million.

 

                Working capital increased to $116.5 million from $95.7 million at year-end and $91.7 million last year.  The change from year-end is primarily attributed to a seasonal reduction in inventory and accounts payable including outstanding checks.  The increase compared to last year results primarily from an increase in accounts receivable largely due to the termination of the securitization agreement in December 2001.

 

                At June 15, 2002 total debt was $374.6 million compared to $374.2 million at the end of 2001 and $347.9 million last year. Amounts outstanding under the revolving credit facility were $40 million at the end of the quarter and at the end of last year as compared to $10 million at the end of the second quarter last year.  Changes in total debt largely reflect utilization of the revolving credit facility as a supplement to operating cash flows to fund transactions such as the U Save acquisition in August 2001 and the termination of the securitization agreement.  In December 2001, the Company entered into three swap agreements converting floating rate debt to fixed.  The agreements, each with notional amounts of $35 million, provide fixed interest rates of 2.35%, 2.58% and 2.97% expiring in six, twelve and eighteen month intervals, respectively.  The two remaining agreements were each extended through October 6, 2004 at rates of 3.50% and 3.97% subsequent to quarter end.  In addition the Company executed an additional swap agreement with a notional amount of $50 million at a rate of 2.75%.  The agreement begins on July 26, 2002 and expires on September 25, 2004.

 

                The Company believes that borrowing under the revolving credit facility, proceeds from its 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

 

                This Form 10-Q and the documents that may be incorporated by reference into this report contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.  The words “may,” “will,” “believe,” “expect,” “anticipate,” “intend,” and other similar expressions generally identify forward-looking statements.  These forward-looking statements are based largely on the Company’s current expectations and are subject to a number of risks and uncertainties, including, without limitation:

 

                  risks related to the Company’s industry as a whole, including the emergence of new or growing competitors and the competitive practices in the Company’s industry, changes in the Company’s economic and business operating environments and changes in the food distribution and retail industry in which the Company operate;

                  risks related to the Company’s business and strategy, including the Company’s ability to acquire, and successfully integrate, traditional grocery stores, successfully roll out the Company’s new store formats and retain the Company’s customers or acquire new customers, the risk of credit losses, the Company’s ability to attract and retain qualified personnel and the risk of issues with the quality,

 

15



 

 

                        safety or integrity of the food products the Company sells; and

                  risks related to the Company’s indebtedness, including the adverse impact of outstanding debt on the Company’s operating results or of certain terms of the Company’s outstanding debt that could materially restrict the Company’s business and operating flexibility.

 

                Additional information regarding these and other risks is included in Exhibit 99.1, “Risk Factors,” filed with the Company’s Form 10-K for the fiscal year ended December 29, 2001.

 

                In light of these risks and uncertainties, there can be no assurance that the matters referred to in the forward-looking statements will in fact occur.  The forward-looking statements are based on the Company’s predictions of future performance and actual results may differ materially from those expressed in the forward-looking statements.  As a result, you should not place undue reliance on these forward-looking statements.  The Company does not undertake to update the Company’s forward-looking statements to reflect future events or circumstances.

 

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

                In December 2000 the Company completed the refinancing of a revolving credit facility.  The agreement has a five year term and provides a $100 million term loan and $150 million in revolving credit.  Borrowings under the term loan bear interest at the Eurodollar rate plus a margin increase and a commitment commission in the unused portion of the revolver.  The margin increase and the commitment commission are reset quarterly based on movement of a leverage ratio defined by the agreement.  The new agreement contains financial covenants which among other matters requires the Company to maintain predetermined ratio levels related to interest coverage, fixed charges, leverage and working capital.  The Company uses interest rate swap agreements to manage its exposure to variable rate debt.

 

                The Company is also subject to commodity price risk associated with the purchase of diesel fuel.  The Company uses a commodity swap agreement to hedge this risk (See Note 4 — Derivative Instruments and Note 9 — Subsequent Events).

 

16



 

PART II - OTHER INFORMATION

 

Items 3 and 5 are not applicable.

 

Item  1                    Legal Proceedings

 

The Company is engaged from time to time in routine legal proceedings incidental to our business.  We do not believe that any pending legal proceedings will have a material impact on the business or financial condition of Nash Finch Company and its subsidiaries, taken as a whole.

 

Item  2                    Changes in Securities and Use of Proceeds

 

During the quarter, the Company and Wells Fargo Bank Minnesota, N.A. entered into an amendment to the Company’s Stockholder Rights Agreement.  The amendment further clarifies the terms of the Company’s Common Stock Purchase Rights, providing that the covenant to reserve shares of common stock to permit the exercise in full of all outstanding rights is not an immediate requirement and is applicable only if a Distribution Date, as defined under the Rights Agreement, occurs.

 

Item  4.                   Submission of Matters to a Vote of Security Holders.

 

(a)        The annual meeting of stockholders was held on May 14, 2002.

 

(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 stockholders and voted upon:  (1) election of directors, (2) adoption to the amendment to Nash Finch’s Restated Certificate of Incorporation, (3) adoption of an amendment to the Nash Finch 2000 Stock Incentive Plan, (4) adoption of an amendment to the Nash Finch 1995 Director Stock Option Plan, and (5) adoption of the Nash Finch Performance Incentive Plan.

 

(1)           Election of Directors.
Three nominees, all incumbent directors, were elected to serve for three-year  terms expiring in 2005.  The terms of the other seven directors do not expire until  2003 and 2004.

 

17



 

 

                The director nominees elected for and voting results are as follows:

 

Name

 

Votes For

 

Votes
Withheld

 

Broker
Non-Votes

 

Carole F. Bitter

 

9,790,304

 

924,319

 

-0-

 

John H Grunewald

 

9,773,654

 

940,969

 

-0-

 

William R. Voss

 

9,789,861

 

924,762

 

-0-

 

 

 

(2)           Amendment to Nash Finch’s Restated Certificate of Incorporation.
Stockholders approved the adoption of the amendment to Nash Finch’s Restated Certificate of Incorporation.  The voting results are as follows:

 

Votes For

 

Votes
Against

 

Abstentions

 

Broker
Non-Votes

 

8,210,839

 

2,434,733

 

69,051

 

-0-

 

 

(3)           Amendment to the Nash Finch 2002 Stock Incentive Plan.
The stockholders approved the adoption of the amendment to the Nash Finch 2000 Stock Incentive.  The voting results are as follows:

 

Votes For

 

Votes
Against

 

Abstentions

 

Broker Non-Votes

 

8,112,493

 

2,541,050

 

61,080

 

-0-

 

 

(3)           Amendment to the Nash Finch 1995 Director Stock Option Plan.
The stockholders approved the adoption of the amendment to the Nash Finch 1995 Director Stock Option Plan.  The voting results are as follows:

 

Votes For

 

Votes
Against

 

Abstentions

 

Broker
Non-Votes

 

8,429,328

 

2,222,852

 

62,443

 

-0-

 

 

(3)           Adoption of the Nash Finch Performance Incentive Plan.
The stockholders approved the adoption of the Nash Finch Performance Incentive Plan. The voting results are as follows:

 

Votes For

 

Votes
Against

 

Abstentions

 

Broker
Non-Votes

 

9,955,658

 

688,020

 

70,945

 

-0-

 

 

 

18



 

Item 6.                    Exhibits and Reports on Form 8-K.

 

(a)           Exhibits:

 

                The exhibits to this Form 10-Q are listed in the exhibit index on page 21.

 

(b)                               Reports on Form 8-K:

 

                Not applicable.

 

 

19



 

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: July 25, 2002

 

 

 

By  /s/ Ron Marshall

 

 

 

 

 

Ron Marshall

 

 

 

 

 

President and Chief Executive Officer

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

By  /s/ Robert B. Dimond

 

 

 

 

 

Robert B. Dimond

 

 

 

 

 

Executive Vice President and Chief Financial Officer

 

 

 

 

20



 

NASH FINCH COMPANY

 

EXHIBIT INDEX TO QUARTERLY REPORT
ON FORM 10-Q
For the Twelve Weeks Ended June 15, 2002

 

 

Item No.

 

Item

 

Method of Filing

3.1

 

Amendment to Restated Certificate of Incorporation of the Company, effective May 16, 2002

 

Filed herewith

 

 

 

 

 

4.1

 

Amendment to Restated Certificate of Incorporation of the Company, effective May 16, 2002

 

See Exhibit 3.1

 

 

 

 

 

10.1

 

Nash Finch 2000 Stock Incentive Plan, as amended

 

Filed herewith

 

 

 

 

 

10.2

 

Nash Finch 1995 Director Stock Option Plan, as amended

 

Filed herewith

 

 

 

 

 

10.3

 

Amendment to Stockholder Rights Agreement, dated October 30, 2001

 

Incorporated by reference to Exhibit 4.2 to Amendment No. 1 to the Company’s Registration Statement on Form 8-A (filed on July 26, 2002)

 

 

 

 

 

10.4

 

Form of letter agreement specifying benefits in the event of termination following a change in control, entered into by Michael Mott and Kathleen McDermott

 

Filed herewith

 

 

 

 

 

10.5

 

Restricted Stock Award Agreement between the Company and Ron Marshall, dated effective as of February 19, 2002

 

Filed herewith

 

 

 

 

 

10.6

 

Nash Finch Performance Incentive Plan

 

Filed herewith

 

 

21