e10vq
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark
One)
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þ |
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the sixteen weeks ended October 6, 2007
or
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o |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File No. 0-785
NASH-FINCH COMPANY
(Exact Name of Registrant as Specified in its Charter)
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DELAWARE
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41-0431960 |
(State or other jurisdiction of
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(IRS Employer |
incorporation or organization)
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Identification No.) |
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7600 France Avenue South, |
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P.O. Box 355 |
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Minneapolis, Minnesota
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55440-0355 |
(Address of principal executive offices)
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(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 þ No o
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer,
or a non-accelerated filer. (See definition of “accelerated filer and large accelerated filer” in
Rule 12b-2 of the Exchange Act).
Large accelerated filer o Accelerated filer þ Non-accelerated filer o
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act). Yes o No þ
As of November 5, 2007, 13,527,024 shares of Common Stock of the Registrant were outstanding.
PART I. — FINANCIAL INFORMATION
ITEM 1. Financial Statements
NASH FINCH COMPANY AND SUBSIDIARIES
Consolidated Statements of Income (unaudited)
(In thousands, except per share amounts)
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Sixteen Weeks Ended |
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Forty Weeks Ended |
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October 6, |
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October 7, |
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October 6, |
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October 7, |
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2007 |
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2006 |
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2007 |
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2006 |
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Sales |
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$ |
1,367,116 |
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1,426,967 |
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$ |
3,463,333 |
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3,532,490 |
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Cost of sales |
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1,245,731 |
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1,307,171 |
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3,155,145 |
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3,223,760 |
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Gross profit |
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121,385 |
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119,796 |
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308,188 |
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308,730 |
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Other costs and expenses: |
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Selling, general and administrative |
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84,298 |
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99,214 |
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216,492 |
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243,787 |
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Losses (gains) on sale of real estate |
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— |
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25 |
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(147 |
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(1,167 |
) |
Special charges |
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— |
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6,253 |
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(1,282 |
) |
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6,253 |
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Depreciation and amortization |
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11,902 |
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12,685 |
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29,885 |
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32,004 |
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Interest expense |
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6,948 |
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7,906 |
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18,214 |
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20,093 |
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Total other costs and expenses |
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103,148 |
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126,083 |
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263,162 |
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300,970 |
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Earnings (loss) before income taxes and cumulative effect of
a change in accounting principle |
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18,237 |
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(6,287 |
) |
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45,026 |
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7,760 |
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Income tax expense (benefit) |
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2,832 |
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(1,670 |
) |
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14,726 |
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4,560 |
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Net earnings (loss) before cumulative effect of a change in
accounting principle |
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15,405 |
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(4,617 |
) |
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30,300 |
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3,200 |
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Cumulative effect of a change in accounting principle, net
of income tax expense of $119 in 2006 |
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— |
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— |
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— |
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169 |
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Net earnings (loss) |
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$ |
15,405 |
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(4,617 |
) |
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$ |
30,300 |
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3,369 |
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Net earnings (loss) per share: |
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Basic: |
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Net earnings (loss) before cumulative effect of a change in
accounting principle |
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$ |
1.14 |
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(0.34 |
) |
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$ |
2.25 |
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0.24 |
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Cumulative effect of a change in accounting principle,
net of income tax expense |
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— |
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— |
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— |
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0.01 |
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Net earnings (loss) per share |
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$ |
1.14 |
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(0.34 |
) |
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$ |
2.25 |
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0.25 |
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Diluted: |
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Net earnings (loss) before cumulative effect of a change in
accounting principle |
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$ |
1.12 |
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(0.34 |
) |
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$ |
2.22 |
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0.24 |
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Cumulative effect of a change in accounting principle,
net of income tax expense |
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— |
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— |
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— |
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0.01 |
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Net earnings (loss) per share |
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$ |
1.12 |
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(0.34 |
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$ |
2.22 |
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0.25 |
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Declared dividends per common share |
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$ |
0.180 |
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0.180 |
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$ |
0.540 |
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0.540 |
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Weighted average number of common shares
outstanding and common equivalent shares outstanding: |
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Basic |
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13,524 |
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13,384 |
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13,490 |
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13,368 |
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Diluted |
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13,720 |
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13,384 |
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13,622 |
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13,382 |
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See accompanying notes to consolidated financial statements.
2
NASH FINCH COMPANY AND SUBSIDIARIES
Consolidated Balance Sheets
(In thousands, except per share amounts)
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October 6, |
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December 30, |
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2007 |
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2006 |
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(unaudited) |
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Assets |
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Current assets: |
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Cash and cash equivalents |
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$ |
4,687 |
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958 |
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Accounts and notes receivable, net |
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184,242 |
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186,833 |
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Inventories |
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286,395 |
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241,875 |
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Prepaid expenses and other |
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14,342 |
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15,445 |
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Deferred tax asset, net |
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19,919 |
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11,942 |
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Total current assets |
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509,585 |
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457,053 |
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Notes receivable, net |
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12,002 |
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13,167 |
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Property, plant and equipment: |
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Property, plant and equipment |
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620,684 |
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620,555 |
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Less accumulated depreciation and amortization |
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(420,400 |
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(400,750 |
) |
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Net property, plant and equipment |
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200,284 |
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219,805 |
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Goodwill |
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215,174 |
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215,174 |
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Customer contracts and relationships, net |
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29,239 |
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32,141 |
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Investment in direct financing leases |
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5,081 |
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6,143 |
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Other assets |
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10,217 |
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10,820 |
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Total assets |
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$ |
981,582 |
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954,303 |
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Liabilities
and Stockholders’ Equity |
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Current liabilities: |
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Current maturities of long-term debt and capitalized lease obligations |
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$ |
4,028 |
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3,776 |
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Accounts payable |
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243,269 |
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209,503 |
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Accrued expenses |
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65,840 |
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64,943 |
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Total current liabilities |
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313,137 |
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278,222 |
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Long-term debt |
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272,451 |
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313,985 |
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Capitalized lease obligations |
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31,088 |
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33,869 |
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Deferred tax liability, net |
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994 |
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4,214 |
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Other liabilities |
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40,281 |
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29,633 |
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Stockholders’ equity: |
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Preferred stock — no par value. Authorized 500 shares; none issued |
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— |
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— |
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Common stock — $1.66 2/3 par value. Authorized 50,000 shares,
issued 13,548 and 13,409 shares, respectively |
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22,580 |
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22,348 |
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Additional paid-in capital |
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60,268 |
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53,697 |
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Common stock held in trust |
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(2,122 |
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(2,051 |
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Deferred compensation obligations |
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2,122 |
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2,051 |
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Accumulated other comprehensive income (loss) |
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(4,904 |
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(4,582 |
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Retained earnings |
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246,186 |
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223,416 |
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Common stock in treasury, 21 and 21 shares, respectively |
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(499 |
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(499 |
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Total stockholders’ equity |
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323,631 |
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294,380 |
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Total liabilities and stockholders’ equity |
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$ |
981,582 |
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954,303 |
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See accompanying notes to consolidated financial statements.
3
NASH FINCH COMPANY AND SUBSIDIARIES
Consolidated Statements of Cash Flows (unaudited)
(In thousands)
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Forty Weeks Ended |
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October 6, |
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October 7, |
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2007 |
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2006 |
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Operating activities: |
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Net earnings |
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$ |
30,300 |
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3,369 |
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Adjustments to reconcile net earnings to net cash provided by operating activities: |
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Special charges |
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(1,282 |
) |
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6,253 |
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Depreciation and amortization |
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29,885 |
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32,004 |
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Amortization of deferred financing costs |
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629 |
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634 |
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Amortization of rebatable loans |
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2,126 |
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3,503 |
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Provision for bad debts |
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894 |
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4,274 |
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Provision for lease reserves |
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551 |
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4,542 |
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Deferred income tax expense (benefit) |
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5,299 |
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(2,049 |
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Gain on sale of real estate and other |
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(422 |
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(1,225 |
) |
LIFO charge |
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2,692 |
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2,513 |
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Asset impairments |
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1,781 |
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7,316 |
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Share-based compensation |
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4,172 |
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|
680 |
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Cumulative effect of a change in accounting principle |
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— |
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(288 |
) |
Deferred compensation |
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558 |
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(696 |
) |
Other |
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(36 |
) |
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(719 |
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Changes in operating assets and liabilities: |
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Accounts and notes receivable |
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2,048 |
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(2,375 |
) |
Inventories |
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(47,213 |
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(996 |
) |
Prepaid expenses |
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(259 |
) |
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|
5,064 |
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Accounts payable |
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32,837 |
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|
16,424 |
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Accrued expenses |
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(1,802 |
) |
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(12,453 |
) |
Income taxes payable |
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7,747 |
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(6,714 |
) |
Other assets and liabilities |
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(8,920 |
) |
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(2,753 |
) |
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Net cash provided by operating activities |
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61,585 |
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56,308 |
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Investing activities: |
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Disposal of property, plant and equipment |
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2,412 |
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5,284 |
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Additions to property, plant and equipment |
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(10,371 |
) |
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(18,434 |
) |
Loans to customers |
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(2,494 |
) |
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(5,767 |
) |
Payments from customers on loans |
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1,493 |
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1,867 |
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Purchase of marketable securities |
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— |
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(233 |
) |
Sale of marketable securities |
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2 |
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|
921 |
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Corporate owned life insurance, net |
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(85 |
) |
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|
(246 |
) |
Other |
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— |
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(180 |
) |
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Net cash used in investing activities |
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(9,043 |
) |
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(16,788 |
) |
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Financing activities: |
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Payments of revolving debt |
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(41,300 |
) |
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(24,200 |
) |
Dividends paid |
|
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(7,269 |
) |
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|
(7,202 |
) |
Proceeds from exercise of stock options |
|
|
1,913 |
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|
647 |
|
Proceeds from employee stock purchase plan |
|
|
497 |
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|
502 |
|
Payments of long-term debt |
|
|
(344 |
) |
|
|
(5,823 |
) |
Payments of capitalized lease obligations |
|
|
(2,418 |
) |
|
|
(2,241 |
) |
Decrease in book overdraft |
|
|
(851 |
) |
|
|
(2,081 |
) |
Tax benefit from exercise of stock options |
|
|
959 |
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|
58 |
|
Other |
|
|
— |
|
|
|
493 |
|
|
|
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Net cash used by financing activities |
|
|
(48,813 |
) |
|
|
(39,847 |
) |
|
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Net increase (decrease) in cash and cash equivalents |
|
|
3,729 |
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|
|
(327 |
) |
Cash and cash equivalents: |
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Beginning of year |
|
|
958 |
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|
|
1,257 |
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|
End of period |
|
$ |
4,687 |
|
|
|
930 |
|
|
|
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|
See accompanying notes to consolidated financial statements.
4
Nash Finch Company and Subsidiaries
Notes to Consolidated Financial Statements
October 6, 2007
Note 1 — Basis of Presentation
The accompanying unaudited 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. For further information, refer to the consolidated
financial statements and footnotes included in our Annual Report on Form 10-K for the year ended
December 30, 2006.
The accompanying consolidated financial statements include all adjustments which are, in the
opinion of management, necessary to present fairly the financial position of Nash-Finch Company and
our subsidiaries (Nash Finch) at October 6, 2007 and December 30, 2006, the results of operations
for the sixteen and forty weeks ended October 6, 2007 and October 7, 2006 and changes in cash flows
for the forty weeks ended October 6, 2007 and October 7, 2006. Adjustments consist only of normal
recurring items, except for any items discussed in the notes below. All material intercompany
accounts and transactions have been eliminated in the unaudited 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 reflected in the accompanying unaudited consolidated
financial statements for the third quarter and year-to-date periods ended October 6, 2007. These
reclassifications did not have an impact on operating earnings, earnings before income taxes, net
earnings, total cash flows or the financial position for any period presented.
Note 2 — Inventories
We use 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 are based on
management’s estimates of expected year-end inventory levels and costs. Because these estimates
are subject to many factors 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 $54.0 million and $51.3 million higher at October 6, 2007 and December 30, 2006,
respectively. In the third quarter of 2007 we recorded LIFO charges of $1.1 million compared to
$1.5 million for third quarter 2006. Year-to-date LIFO charges recorded were $2.7 million and $2.5
million, respectively, at October 6, 2007 and October 7, 2006.
Note 3 — Share-Based Compensation
We account for share-based compensation awards in accordance with the provisions of Statement
of Financial Accounting Standards (SFAS) No. 123(R), “Share-Based Payment — Revised,” which
requires companies to estimate the fair value of share-based payment awards on the date of grant
using an option-pricing model. The value of the portion of the awards ultimately expected to vest
is recognized as expense over the requisite service period. We recognized share-based compensation
expense in our Consolidated Statements of Income of $1.6 and $4.2 million, respectively, for the
sixteen and forty weeks ended October 6, 2007, versus expense of $0.2 and $0.7 million for the
sixteen and forty weeks ended October 7, 2006.
In addition, SFAS 123(R) requires forfeitures to be estimated at the time of grant and
revised, if necessary, in subsequent periods if actual forfeitures differ materially from those
estimates. As such, during the first fiscal quarter of 2006, we recorded a cumulative effect
for a change in accounting principle of $0.2 million in benefit, net of tax, as a result of
estimating forfeitures for our Long-Term Incentive Program (LTIP).
5
We have three stock incentive plans under which incentive stock options, non-qualified stock
options and other forms of stock-based compensation have been, or may be, granted primarily to key
employees and non-employee members of the Board of Directors. The 1995 Director Stock Option Plan
was terminated as of December 27, 2004 and participation in the 1997 Non-Employee Director Stock
Compensation Plan (“1997 Director Plan”) was frozen as of December 31, 2004.
Under the 2000 Stock Incentive Plan (“2000 Plan”), employees, non-employee directors,
consultants and independent contractors may be awarded incentive or non-qualified stock options,
shares of restricted stock, stock appreciation rights, performance units or stock bonuses. No
options have been granted since fiscal 2004. Option awards granted to employees prior to 2005 had
commonly been non-qualified stock options, each with an exercise price equal to the fair market
value of a share of our common stock on the date of grant and a term of 5 years, becoming
exercisable in 20% increments 6, 12, 24, 36 and 48 months after the date of the grant.
The following table summarizes information concerning outstanding and exercisable options
under the 1997 Director Plan and 2000 Plan as of October 6, 2007 (number of shares in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding |
|
Options Exercisable |
|
|
Number of |
|
Weighted |
|
Number of |
|
Weighted |
Range of Exercise |
|
Options |
|
Average |
|
Options |
|
Average |
Prices |
|
Outstanding |
|
Exercise Price |
|
Exercisable |
|
Exercise Price |
|
|
$17.35 — 17.95
|
|
|
14.1 |
|
|
|
|
|
|
|
14.1 |
|
|
|
|
|
24.55 — 35.36
|
|
|
26.0 |
|
|
|
|
|
|
|
17.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
40.1 |
|
|
$ |
24.86 |
|
|
|
31.1 |
|
|
$ |
23.56 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Since 2005, awards have taken the form of performance units (including share units pursuant to
our LTIP) and restricted stock units.
Performance units were granted during 2005, 2006 and 2007 under the 2000 Stock Incentive Plan
pursuant to our Long Term Incentive Plan. These units vest at the end of a three year performance
period. The payout, if any, for units granted in 2005 will be determined by comparing our growth in
“Consolidated EBITDA” (defined as in our senior secured credit agreement) and return on net assets
(defined as net income divided by the sum of net fixed assets plus the difference between current
assets and current liabilities) during the performance period to the growth in those measures over
the same period experienced by the companies in a peer group selected by us. The Long Term
Incentive Plan was amended in 2006, and the payout, if any, for units granted in 2006 will be
determined on the basis described above with return on net assets defined as the weighted average
of the return on net assets for the fiscal years during a Measurement Period, where the return on
net assets for each such fiscal year shall be the quotient of (i) net income for such fiscal year
divided by (ii) the average of the difference between total assets and current liabilities
(excluding current maturities of long-term debt and capital lease obligations) determined as of the
beginning and the end of such fiscal year. The Long Term Incentive Plan was further amended in
2007, and the payout, if any, for units granted in 2007 will be determined on the basis described
above with free cash flow (defined as cash provided from operations less capital expenditures for
property, plant and equipment) replacing the return on net assets. The performance units will pay
out in shares of our common stock or cash, or a combination of both, at the election of the
participant. Depending on our ranking among the companies in the peer group for the 2005 and 2006
awards, a participant could receive a number of shares (or the cash value thereof) ranging from
zero to 200% of the number of performance units granted. For the 2007 awards, a participant could
receive a number of shares (or the cash value thereof) ranging from zero to 200% of the number of
performance units granted depending on our ranking among the peer group for EBITDA and our free
cash flow (as a percent of net assets) versus targets approved by the Board of Directors. Because
these units can be settled in cash or
stock, compensation expense is recorded over the three year period and adjusted to market
value each period.
Awards to non-employee directors under the 2000 Plan began in 2004 and have taken the form of
restricted stock units that are granted annually to each non-employee director as part of his or
her annual compensation for service as a director. The number of such units awarded to each
director in 2007 was determined by dividing $45,000 by the fair market value of a share of our
common stock on the date of grant. Each of these units vest six months after issuance and will
entitle a director to receive one share of our common stock six months after the director’s service
on our Board ends. The awards are expensed over the six month vesting period.
6
We also maintain the 1999 Employee Stock Purchase Plan under which our employees may purchase
shares of our common stock at the end of each six-month offering period at a price equal to 85% of
the lesser of the fair market value of a share of our common stock at the beginning or end of such
offering period. Effective January 1, 2008 this plan will be terminated.
During fiscal 2006 and the three quarters ended October 6, 2007, restricted stock units (RSUs)
were awarded to twelve of our executives, including Alec C. Covington, our President and Chief
Executive Officer. Awards vest in increments over the term of the grant or cliff vest on the fifth
anniversary of the grant date, as designated in the award documents.
On February 27, 2007, Mr. Covington was granted a total of 152,500 RSUs under the Company’s
2000 Stock Incentive Plan. The new RSU grant replaces a previous grant of 100,000 performance
units awarded to Mr. Covington when he joined the Company last year. The previous 100,000 unit
grant has been cancelled. The new grant delivers additional equity in lieu of the cash “tax gross
up” payment included in the previous award; therefore no cash outlay will be required by the
Company. Vesting of the new RSU grant to Mr. Covington will occur over a four year period,
assuming Mr. Covington’s continued employment with Nash Finch. However, Mr. Covington will not
receive the stock until six months after the termination of his employment, whenever that may
occur.
On January 2, 2007, the Company granted Robert B. Dimond, Executive Vice President, Chief
Financial Officer and Treasurer a total of 75,000 performance units, 37,500 of which vest in
one-third increments on each of the first three anniversaries of the grant date and 37,500 of which
vest on the fifth anniversary of the date of grant.
The following table summarizes activity in our share-based compensation plans during the
year-to-date period ended October 6, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average |
|
|
|
|
|
|
Weighted |
|
Restricted |
|
Remaining |
|
|
|
|
|
|
Average |
|
Stock Awards/ |
|
Restriction/ |
(In thousands, except per share |
|
Stock Option |
|
Option Price |
|
Performance |
|
Vesting Period |
amounts) |
|
Shares |
|
Per Share |
|
Units |
|
(Years) |
|
|
Outstanding at December 30, 2006 |
|
|
124.8 |
|
|
$ |
26.68 |
|
|
|
618.9 |
|
|
|
2.1 |
|
Granted |
|
|
— |
|
|
|
|
|
|
|
464.7 |
|
|
|
|
|
Exercised/restrictions |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lapsed |
|
|
(69.9 |
) |
|
|
|
|
|
|
(44.3 |
) |
|
|
|
|
Forfeited/cancelled |
|
|
(14.8 |
) |
|
|
|
|
|
|
(129.9 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at October 6, 2007 |
|
|
40.1 |
|
|
$ |
24.86 |
|
|
|
909.4 |
|
|
|
2.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable/unrestricted at
December 30, 2006 |
|
|
97.0 |
|
|
$ |
27.33 |
|
|
|
171.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable/unrestricted at
October 6, 2007 |
|
|
31.1 |
|
|
$ |
23.56 |
|
|
|
149.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
The “exercised/restrictions lapsed” amount above excludes 18,670 restricted stock units held by
Alec Covington that vested during the third fiscal quarter but were deferred until after his
employment with the Company ends. |
7
The weighted-average grant-date fair value of equity based restricted stock/performance units
granted was $32.82 during the forty weeks ended October 6, 2007 versus $22.88 during the comparable
period ended October 7, 2006. Awards under our LTIP, which is a liability award re-measured at
each balance sheet date, are not included in these values.
Note 4 — Other Comprehensive Income
Other comprehensive income consists of market value adjustments to reflect available-for-sale
securities and derivative instruments at fair value, pursuant to SFAS No. 115, “Accounting for
Certain Investments in Debt and Equity Securities,” and SFAS No. 133, “Accounting for Derivative
Instruments and Hedging Activities.”
During the quarter and year-to-date periods ended October 7, 2006 all interest rate and
commodity swap agreements were designated as cash flow hedges and were reflected at fair value in
our Consolidated Balance Sheet with the related gains or losses on these contracts deferred in
stockholders’ equity as a component of other comprehensive income, and were accounted for
consistent to the prior year. During the quarter and year-to-date periods ended October 6, 2007
our only outstanding commodity swap agreement did not qualify for hedge accounting in accordance
with SFAS No. 133, and the corresponding changes in fair value of the commodity swap agreement were
recognized in earnings. All investments in available-for-sale securities held by us are amounts
held in a rabbi trust in connection with the deferred compensation arrangement described below and
are included in other assets on the Consolidated Balance Sheet. The components of comprehensive
income are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sixteen Weeks |
|
|
Year-to-date |
|
|
|
Ended |
|
|
Ended |
|
|
|
October 6, |
|
|
October 7, |
|
|
October 6, |
|
|
October 7, |
|
(In thousands) |
|
2007 |
|
|
2006 |
|
|
2007 |
|
|
2006 |
|
|
|
Net Earnings |
|
$ |
15,405 |
|
|
|
(4,617 |
) |
|
|
30,300 |
|
|
|
3,369 |
|
Change in fair value of derivatives, net of tax |
|
|
(122 |
) |
|
|
(894 |
) |
|
|
(322 |
) |
|
|
(629 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income |
|
$ |
15,283 |
|
|
|
(5,511 |
) |
|
|
29,978 |
|
|
|
2,740 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We offer deferred compensation arrangements, which allow certain employees, officers, and
directors to defer a portion of their earnings. The amounts deferred are held in a rabbi trust.
The assets of the rabbi trust include life insurance policies to fund our obligations under
deferred compensation arrangements for certain employees, officers and directors. The cash
surrender value of these policies is included in other assets on the Consolidated Balance Sheets.
The assets of the rabbi trust also include shares of Nash Finch common stock. These shares are
included in stockholders’ equity on the Consolidated Balance Sheets.
8
Note 5 — Long-term Debt and Bank Credit Facilities
Total debt outstanding was comprised of the following:
|
|
|
|
|
|
|
|
|
|
|
October 6, |
|
|
December 30, |
|
(In thousands) |
|
2007 |
|
|
2006 |
|
|
|
Senior secured credit facility: |
|
|
|
|
|
|
|
|
Revolving credit |
|
$ |
— |
|
|
|
— |
|
Term Loan B |
|
|
118,700 |
|
|
|
160,000 |
|
Senior subordinated convertible debt, 3.50% due in 2035 |
|
|
150,087 |
|
|
|
150,087 |
|
Industrial development bonds, 5.60% to 5.75% due in
various installments through 2014 |
|
|
3,615 |
|
|
|
3,790 |
|
Notes payable and mortgage notes, 7.95% due in various
installments through 2013 |
|
|
571 |
|
|
|
741 |
|
|
|
|
|
|
|
|
Total debt |
|
|
272,973 |
|
|
|
314,618 |
|
Less current maturities |
|
|
(522 |
) |
|
|
(633 |
) |
|
|
|
|
|
|
|
Long-term debt |
|
$ |
272,451 |
|
|
|
313,985 |
|
|
|
|
|
|
|
|
Senior Secured Credit Facility
Our senior secured credit facility consists of $125.0 million in revolving credit, all of
which may be utilized for loans, and up to $40.0 million of which may be utilized for letters of
credit, and a $118.7 million Term Loan B. The Term Loan B portion of the facility was $160.0
million as of December 30, 2006 of which $5.0 million and $41.3 million was permanently paid down
during the third quarter 2007 and year-to-date 2007 periods, respectively. The facility is secured
by a security interest in substantially all of our assets that are not pledged under other debt
agreements. The revolving credit portion of the facility has a five year term and the Term Loan B
has a six year term. Borrowings under the facility bear interest at the Eurodollar rate or the
prime rate, plus, in either case, a margin increase that is dependent on our total leverage ratio
and a commitment commission on the unused portion of the revolver. The margin spread and the
commitment commission is reset quarterly based on movement of a leverage ratio defined by the
agreement. At October 6, 2007, the margin spreads for the revolver and Term Loan B maintained as
Eurodollar loans were 2.0% and 2.5%, respectively, and the unused commitment commission was 0.375%.
The margin spread for the revolver maintained at the prime rate was 1.0%. At October 6, 2007,
$105.9 million was available under the revolving line of credit after giving effect to outstanding
borrowings and to $19.1 million of outstanding letters of credit primarily supporting workers’
compensation obligations.
Senior Subordinated Convertible Debt
To finance a portion of the acquisition of distribution centers in 2005, we sold $150.1
million in aggregate issue price (or $322.0 million aggregate principal amount at maturity) of
senior subordinated convertible notes due in 2035. The notes are our unsecured senior subordinated
obligations and rank junior to our existing and future senior indebtedness, including borrowings
under our senior secured credit facility. See our Annual Report on Form 10-K for the fiscal year
ended December 30, 2006 for additional information regarding the notes.
Note 6 — Special Charge
In fiscal 2004, we closed 18 retail stores and sought purchasers for our three Denver area
AVANZA stores. As a result of these actions, we recorded net charges of $34.9 million reflected in
a “Special charges” line within the Consolidated Statements of Income.
In fiscal 2005, we decided to continue to operate the three Denver area AVANZA stores and
therefore recorded a reversal of $1.5 million of the special
charge related to the stores. Partially offsetting this reversal was a $0.2 million change
in estimate for one other property.
9
In fiscal 2006, we recorded additional charges, related to two properties included in the
special charge, of $5.5 million to write down capitalized leases and $0.9 million to reserve for
lease commitments as a result of lower than originally estimated sublease income. Additionally, we
reversed $0.2 million of a previously recorded charge to change an estimate for another property.
In the second quarter of 2007, we reversed $1.6 million of previously established lease
reserves after subleasing a property earlier than anticipated. Also in the second quarter of 2007,
we recorded an additional $0.3 million in charges due to revised lease commitment estimates.
Following is a summary of the activity in the 2004 reserve established for store dispositions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Write- Down |
|
|
Write-Down of |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
of Tangible |
|
|
Intangible |
|
|
Lease |
|
|
|
|
|
|
Other Exit |
|
|
|
|
(In thousands) |
|
Assets |
|
|
Assets |
|
|
Commitments |
|
|
Severance |
|
|
Costs |
|
|
Total |
|
|
Initial net charge
accrual |
|
$ |
21,485 |
|
|
|
1,072 |
|
|
|
11,636 |
|
|
|
86 |
|
|
|
588 |
|
|
|
34,867 |
|
Used in 2004 |
|
|
(21,485 |
) |
|
|
(1,072 |
) |
|
|
(2,162 |
) |
|
|
(86 |
) |
|
|
(361 |
) |
|
|
(25,166 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance January 1,
2005 |
|
|
— |
|
|
|
— |
|
|
|
9,474 |
|
|
|
— |
|
|
|
227 |
|
|
|
9,701 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in estimates |
|
|
(1,531 |
) |
|
|
— |
|
|
|
235 |
|
|
|
— |
|
|
|
— |
|
|
|
(1,296 |
) |
Used in 2005 |
|
|
1,531 |
|
|
|
— |
|
|
|
(2,026 |
) |
|
|
— |
|
|
|
(55 |
) |
|
|
(550 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance December
31, 2005 |
|
|
— |
|
|
|
— |
|
|
|
7,683 |
|
|
|
— |
|
|
|
172 |
|
|
|
7,855 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in estimates |
|
|
5,516 |
|
|
|
— |
|
|
|
737 |
|
|
|
— |
|
|
|
— |
|
|
|
6,253 |
|
Used in 2006 |
|
|
(5,516 |
) |
|
|
— |
|
|
|
(2,087 |
) |
|
|
— |
|
|
|
(76 |
) |
|
|
(7,679 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance December
30, 2006 |
|
|
— |
|
|
|
— |
|
|
|
6,333 |
|
|
|
— |
|
|
|
96 |
|
|
|
6,429 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in estimates |
|
|
— |
|
|
|
— |
|
|
|
(1,282 |
) |
|
|
— |
|
|
|
— |
|
|
|
(1,282 |
) |
Used in 2007 |
|
|
— |
|
|
|
— |
|
|
|
(763 |
) |
|
|
— |
|
|
|
(1 |
) |
|
|
(764 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance October 6,
2007 |
|
$ |
— |
|
|
|
— |
|
|
|
4,288 |
|
|
|
— |
|
|
|
95 |
|
|
|
4,383 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of October 6, 2007, we believe the remaining reserves are adequate.
Note 7 — Guarantees
We have guaranteed the debt and lease obligations of certain of our food distribution
customers. In the event these retailers are unable to meet their debt service payments or
otherwise experience an event of default, we would be unconditionally liable for the outstanding
balance of their debt and lease obligations ($7.4 million as of October 6, 2007), which would be
due in accordance with the underlying agreements.
We entered into a new debt guarantee in first quarter 2007 with a food distribution customer
that is accounted for under Financial Accounting Standards Board (FASB) Interpretation No. 45,
“Guarantor’s Accounting and Disclosures Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others,”(FIN 45) which provides that at the time a company
issues a guarantee, the company must recognize an initial liability for the fair value of the
obligation it assumes under that guarantee. The maximum undiscounted payments we would be required
to make in the event of default under the guarantee is $3.0 million, which is included in the $7.4
million total referenced above. The maximum amount of the guarantee is reduced annually during the
approximate five-year term of the agreement, and is secured by a personal guarantee from the
affiliated customer. The initial liability was recorded at fair value, and is immaterial to the
accompanying consolidated financial statements. All of the other guarantees were issued prior to
December 31, 2002 and therefore not subject to the recognition and measurement provisions of FIN
45.
10
We have also assigned various leases to other entities. If the assignees were to become
unable to continue making payments under the assigned leases, we estimate our maximum potential
obligation with respect to the assigned leases to be $11.6 million as of October 6, 2007.
Note 8 — Income Taxes
For the third quarter 2007 and 2006, our tax expense was $2.8 million and ($1.7) million
respectively. For the year-to-date periods of 2007 and 2006, our tax expense was $14.7 million
and $4.6 million, respectively.
The provision for income taxes reflects the Company’s estimate of the effective rate expected
to be applicable for the full fiscal year, adjusted for any discrete events, which are reported in
the period that they occur. This estimate is re-evaluated for each quarter based on the Company’s
estimated tax expense for the full fiscal year. During the third quarter the Company closed an
Internal Revenue Service examination of the 2004 and 2005 income tax returns. Additionally, the
2003 statute of limitations expired for the 2003 tax year at the Federal level and for many
jurisdictions at the State and Local levels. The Company also filed reports with various taxing
authorities which resulted in the settlement of uncertain tax positions. Accordingly, the Company
reported the effect of these discrete events in the third quarter as a decrease in tax expense of
$4.5 million. The lower effective tax rate for the quarter of 15.5% and year-to-date period of
32.7% is the result of the release of certain income tax contingency reserves related to these
discrete events. The effective rate for the third quarter 2006 of 26.6% and year-to-date period of
58.8% differed from statutory rates due to anticipated pre-tax income relative to certain
nondeductible expenses predominantly related to the impairment of goodwill.
The Company adopted the provisions of FASB Interpretation No. 48, Accounting for Uncertainty
in Income Taxes, (FIN 48) on December 31, 2006. We did not recognize any adjustment in the
liability for unrecognized tax benefits, as a result of FIN 48, that impacted the December 31, 2006
balance of retained earnings. The total amount of unrecognized tax benefits was $21.8 million at
December 31, 2006. The total amount of tax benefits that if recognized would impact the effective
tax rate was $3.1 million at December 31, 2006. We recognize interest and penalties accrued related
to unrecognized tax benefits in income tax expense. We had approximately $3.7 million for the
payment of interest and penalties accrued at December 31, 2006.
The total amount of unrecognized tax benefits as of end of third quarter of 2007 was $13.4
million. The net reduction in unrecognized tax benefits of $8.4 million since December 31, 2006 is
comprised of the following: $5.7 million is from the reduction of unrecognized tax benefits as a
result of a lapse of the applicable statute of limitations; $4.9 million is from a decrease in the
unrecognized tax benefits relating to settlements with taxing authorities. These were offset by a
$2.2 million increase in unrecognized tax benefits as a result of tax positions taken in prior
periods. The total amount of tax benefits that if recognized would impact the effective tax rate
was $2.5 million at the end of the third quarter 2007. We had approximately $2.3 million for the
payment of interest and penalties accrued at the end of the third quarter 2007.
During the next 12 months, the Company intends to file various reports to settle various tax
liabilities related to open tax years. The Company also expects various statutes of limitation to
expire during the year. Due to the uncertain response of the taxing authorities, an estimate of
the range of possible outcomes cannot be reasonably estimated at this time. Audit outcomes and the
timing of audit settlements are subject to significant uncertainty.
The Company or one of its subsidiaries files income tax returns in the U.S. federal
jurisdiction, and various state and local jurisdictions. With few exceptions, we are no longer
subject to U.S. federal, state or local examinations by tax authorities for years 2003 and prior.
11
Note 9 — Pension and Other Postretirement Benefits
The following tables present the components of our pension and postretirement net periodic
benefit cost:
Sixteen Weeks Ended October 6, 2007 and October
7, 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits |
|
|
Other Benefits |
|
(In thousands) |
|
2007 |
|
|
2006 |
|
|
2007 |
|
|
2006 |
|
|
Interest cost |
|
$ |
585 |
|
|
|
567 |
|
|
|
14 |
|
|
|
15 |
|
Expected return on plan assets |
|
|
(577 |
) |
|
|
(587 |
) |
|
|
— |
|
|
|
— |
|
Amortization of prior service cost |
|
|
(4 |
) |
|
|
(4 |
) |
|
|
(161 |
) |
|
|
(161 |
) |
Recognized actuarial loss (gain) |
|
|
59 |
|
|
|
77 |
|
|
|
(2 |
) |
|
|
(1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost |
|
$ |
63 |
|
|
|
53 |
|
|
|
(149 |
) |
|
|
(147 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Forty Weeks Ended October 6, 2007 and October 7,
2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits |
|
|
Other Benefits |
|
(In thousands) |
|
2007 |
|
|
2006 |
|
|
2007 |
|
|
2006 |
|
|
Interest cost |
|
$ |
1,755 |
|
|
|
1,700 |
|
|
|
42 |
|
|
|
55 |
|
Expected return on plan assets |
|
|
(1,731 |
) |
|
|
(1,759 |
) |
|
|
— |
|
|
|
— |
|
Amortization of prior service cost |
|
|
(11 |
) |
|
|
(11 |
) |
|
|
(483 |
) |
|
|
(432 |
) |
Recognized actuarial loss (gain) |
|
|
178 |
|
|
|
230 |
|
|
|
(6 |
) |
|
|
(3 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost |
|
$ |
191 |
|
|
|
160 |
|
|
|
(447 |
) |
|
|
(380 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average assumptions used to determine net periodic benefit cost for the third quarter
and year-to-date periods ended October 6, 2007 and October 7, 2006 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits |
|
Other Benefits |
|
|
2007 |
|
2006 |
|
2007 |
|
2006 |
|
Weighted-average assumptions: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate |
|
|
6.00 |
% |
|
|
5.50 |
% |
|
|
6.00 |
% |
|
|
5.50 |
% |
Expected return on plan assets |
|
|
7.00 |
% |
|
|
7.50 |
% |
|
|
N/A |
|
|
|
N/A |
|
Rate of compensation increase |
|
|
N/A |
|
|
|
3.00 |
% |
|
|
N/A |
|
|
|
N/A |
|
Total contributions to our pension plan in 2007 are expected to be $1.6 million.
12
Note 10— Earnings Per Share
The following table reflects the calculation of basic and diluted earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Third Quarter |
|
|
Year-to-Date |
|
|
|
Ended |
|
|
Ended |
|
|
|
October 6, |
|
|
October 7, |
|
|
October 6, |
|
|
October 7, |
|
(In thousands, except per share amounts) |
|
2007 |
|
|
2006 |
|
|
2007 |
|
|
2006 |
|
|
Net earnings |
|
$ |
15,405 |
|
|
|
(4,617 |
) |
|
|
30,300 |
|
|
|
3,369 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings per share-basic: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average shares outstanding |
|
|
13,524 |
|
|
|
13,384 |
|
|
|
13,490 |
|
|
|
13,368 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings per share-basic |
|
$ |
1.14 |
|
|
|
(0.34 |
) |
|
|
2.25 |
|
|
|
0.25 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings per share-diluted: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average shares outstanding |
|
|
13,524 |
|
|
|
13,384 |
|
|
|
13,490 |
|
|
|
13,368 |
|
Dilutive impact of options |
|
|
8 |
|
|
|
— |
|
|
|
7 |
|
|
|
1 |
|
Shares contingently issuable |
|
|
188 |
|
|
|
— |
|
|
|
125 |
|
|
|
13 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average shares and potential
dilutive shares
outstanding |
|
|
13,720 |
|
|
|
13,384 |
|
|
|
13,622 |
|
|
|
13,382 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings per share-diluted |
|
$ |
1.12 |
|
|
|
(0.34 |
) |
|
|
2.22 |
|
|
|
0.25 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Anti-dilutive options excluded from
calculation (weighted-average amount
for period) |
|
|
— |
|
|
|
86 |
|
|
|
31 |
|
|
|
81 |
|
Certain options were excluded from the calculation of diluted net earnings per share because
the exercise price was greater than the market price of the stock and would have been anti-dilutive
under the treasury stock method.
The senior subordinated convertible notes due 2035 will be convertible at the option of the
holder, only upon the occurrence of certain events, at an adjusted conversion rate of 9.4164 shares
(initially 9.3120) of our common stock per $1,000 principal amount at maturity of notes (equal to
an adjusted conversion price of approximately $49.50 per share). Upon conversion, we will pay the
holder the conversion value in cash up to the accreted principal amount of the note and the excess
conversion value, if any, in cash, stock or both, at our option. The notes are only dilutive above
their accreted value and for all periods presented the weighted average market price of the
Company’s stock did not exceed the accreted value. Therefore, the notes are not dilutive to
earnings per share for any of the periods presented.
Performance units granted during 2005, 2006 and 2007 under the 2000 Plan for the LTIP will pay
out in shares of Nash Finch common stock or cash, or a combination of both, at the election of the
participant. Other performance and restricted stock units granted during 2006 and 2007 pursuant to
the 2000 Plan will pay out in shares of Nash Finch common stock. Unvested restricted units are not
included in basic earnings per share until vested. All shares of time-restricted stock are
included in diluted earnings per share using the treasury stock method, if dilutive. Performance
units granted for the LTIP are only issuable if certain performance criteria are met, making these
shares contingently issuable under SFAS No. 128, “Earnings per Share.” Therefore, the performance
units are included in diluted earnings per share only if the performance criteria are met as of the
end of the respective reporting period and then accounted for using the treasury stock method, if
dilutive.
13
Note 11 — Segment Reporting
We sell and distribute products that are typically found in supermarkets and operate three
reportable operating segments. Our food distribution segment consists of 16 distribution centers
that sell to independently operated retail food stores, our corporate owned stores and other
customers. The military segment consists primarily of two distribution centers that distribute
products exclusively to military commissaries and exchanges. The retail segment consists of
corporate-owned stores that sell directly to the consumer.
A summary of the major segments of the business is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Third Quarter Ended |
|
|
|
October 6, 2007 |
|
|
October 7, 2006 |
|
|
|
Sales from |
|
|
|
|
|
|
|
|
|
|
Sales from |
|
|
|
|
|
|
|
|
|
external |
|
|
Inter-segment |
|
|
Segment |
|
|
external |
|
|
Inter-segment |
|
|
Segment |
|
(In thousands) |
|
customers |
|
|
sales |
|
|
profit |
|
|
customers |
|
|
sales |
|
|
profit |
|
|
|
Food Distribution |
|
$ |
810,281 |
|
|
|
91,330 |
|
|
|
28,601 |
|
|
|
861,185 |
|
|
|
102,621 |
|
|
|
22,689 |
|
Military |
|
|
376,094 |
|
|
|
— |
|
|
|
12,406 |
|
|
|
364,971 |
|
|
|
— |
|
|
|
11,283 |
|
Retail |
|
|
180,741 |
|
|
|
— |
|
|
|
5,096 |
|
|
|
200,811 |
|
|
|
— |
|
|
|
5,645 |
|
Eliminations |
|
|
— |
|
|
|
(91,330 |
) |
|
|
— |
|
|
|
— |
|
|
|
(102,621 |
) |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
1,367,116 |
|
|
|
— |
|
|
|
46,103 |
|
|
|
1,426,967 |
|
|
|
— |
|
|
|
39,617 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year-to-Date Ended |
|
|
|
October 6, 2007 |
|
|
October 7, 2006 |
|
|
|
Sales from |
|
|
|
|
|
|
|
|
|
|
Sales from |
|
|
|
|
|
|
|
|
|
external |
|
|
Inter-segment |
|
|
Segment |
|
|
external |
|
|
Inter-segment |
|
|
Segment |
|
(In thousands) |
|
customers |
|
|
sales |
|
|
profit |
|
|
customers |
|
|
sales |
|
|
profit |
|
|
|
Food Distribution |
|
$ |
2,058,133 |
|
|
|
228,483 |
|
|
|
68,124 |
|
|
|
2,121,197 |
|
|
|
257,532 |
|
|
|
58,114 |
|
Military |
|
|
948,359 |
|
|
|
— |
|
|
|
32,048 |
|
|
|
906,493 |
|
|
|
— |
|
|
|
31,041 |
|
Retail |
|
|
456,841 |
|
|
|
— |
|
|
|
16,735 |
|
|
|
504,800 |
|
|
|
— |
|
|
|
16,517 |
|
Eliminations |
|
|
— |
|
|
|
(228,483 |
) |
|
|
— |
|
|
|
— |
|
|
|
(257,532 |
) |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
3,463,333 |
|
|
|
— |
|
|
|
116,907 |
|
|
|
3,532,490 |
|
|
|
— |
|
|
|
105,672 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation to Consolidated Statements of Income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Third Quarter |
|
|
Year-To-Date |
|
|
|
Ended |
|
|
Ended |
|
|
|
October 6, |
|
|
October 7, |
|
|
October 6, |
|
|
October 7, |
|
(In thousands) |
|
2007 |
|
|
2006 |
|
|
2007 |
|
|
2006 |
|
|
|
Total segment profit |
|
$ |
46,103 |
|
|
|
39,617 |
|
|
|
116,907 |
|
|
|
105,672 |
|
Unallocated amounts: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustment of inventory to
LIFO |
|
|
(1,077 |
) |
|
|
(1,590 |
) |
|
|
(2,692 |
) |
|
|
(2,513 |
) |
Special charges |
|
|
— |
|
|
|
(6,253 |
) |
|
|
1,282 |
|
|
|
(6,253 |
) |
Unallocated corporate overhead |
|
|
(26,789 |
) |
|
|
(38,061 |
) |
|
|
(70,471 |
) |
|
|
(89,146 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings before income taxes
and cumulative effect of a
change in accounting principle |
|
$ |
18,237 |
|
|
|
(6,287 |
) |
|
|
45,026 |
|
|
|
7,760 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14
Note 12 — Legal Proceedings
On September 10, 2007, the Company received a purported notice of default, which was
subsequently reissued on September 27, 2007 to correct a procedural defect in the initial notice,
from certain hedge funds who are beneficial owners purporting to hold at least 25% of the aggregate
principal amount of the Nash-Finch Senior Subordinated Convertible Notes due 2035 (“the Notes”)
declaring an acceleration of any debt due under the Indenture governing the Notes (the
“Indenture”).
Nash Finch filed a petition on September 26, 2007, asking the Hennepin County District Court
to determine that Nash Finch properly adjusted the conversion rate on the Notes after Nash Finch
increased the amount of the dividends it paid to its shareholders.
On October 5, 2007, Nash Finch announced that the Hennepin County District Court in Minnesota
granted a temporary restraining order preventing and enjoining such hedge funds from declaring an
acceleration of any debt due under the Indenture while the litigation is pending.
The temporary restraining order also tolls the 30-day cure period, during which Nash Finch may
cure the alleged default under the Indenture, should the Court determine that a default has
occurred. The restraining Order will remain in effect until 10 days after the Court reaches a
decision on the underlying dispute as to whether the Trustee should execute the Supplemental
Indenture submitted by the Company and whether the Company’s adjustment to the conversion rate was
done in accord with the terms of the Indenture.
15
ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Forward Looking Information and Cautionary Factors
This report contains forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as
amended. Such statements relate to trends and events that may affect our future financial position
and operating results. Any statement contained in this report that is not statements of historical
fact may be deemed forward-looking statements. For example, words such as “may,” “will,” “should,”
“likely,” “expect,” “anticipate,” “estimate,” “believe,” “intend, ” “potential” or “plan,” or
comparable terminology, are intended to identify forward-looking statements. Such statements are
based upon current expectations, estimates and assumptions, and entail various risks and
uncertainties that could cause actual results to differ materially from those expressed in such
forward-looking statements. Important factors known to us that could cause or contribute to
material differences include, but are not limited to the following:
• |
|
the success or failure of strategic plans, new business ventures or initiatives;
|
|
• |
|
the effect of competition on our distribution, military and retail businesses; |
|
• |
|
our ability to identify and execute plans to improve the competitive position of our retail
operations; |
|
• |
|
risks entailed by future acquisitions, including the ability to successfully integrate
acquired operations and retain the customers of those operations; |
|
• |
|
technology failures which have a material adverse effect on our business;
|
|
• |
|
changes in credit risk from financial accommodations extended to new or existing customers; |
|
• |
|
general sensitivity to economic conditions, including volatility in energy prices, food
commodities, and changes in market interest rates; |
|
• |
|
our ability to identify and execute plans to expand our food distribution, military and
retail operations; |
|
• |
|
significant changes in the nature of vendor promotional programs and the allocation of funds
among the programs; |
|
• |
|
limitations on financial and operating flexibility due to debt levels and debt instrument
covenants; |
|
• |
|
possible changes in the military commissary system, including those stemming from the
redeployment of forces, congressional action and funding levels; |
|
• |
|
legal, governmental or administrative proceedings and/or disputes that result in adverse
outcomes, such as adverse determinations or developments with respect to the litigation or SEC
inquiry discussed in Part I, Item 3 of our Annual Report on Form 10-K for the fiscal year
ended December 30, 2006; |
|
• |
|
changes in consumer spending or buying patterns; |
|
• |
|
unanticipated problems with product procurement; |
|
• |
|
severe weather and natural disasters adversely impacting our supply chain; |
|
• |
|
changes in health care, pension and wage costs, and labor relations issues; and |
|
• |
|
threats or potential threats to security or food safety. |
A more detailed discussion of many of these factors, as well as other factors, that could
affect the Company’s results, is contained in Part II, Item 1A, “Risk Factors” of this Form 10-Q
and in Part I, Item 1A, “Risk Factors,” of our Annual Report on Form 10-K for the fiscal year ended
December 30, 2006. You should carefully consider each of these factors and all of the other
information in this report. We believe that all forward-looking statements are based upon
reasonable assumptions when made. However, we caution that it is impossible to predict actual
results or outcomes and that accordingly you should not place undue reliance on these statements.
Forward-looking statements speak only as of the date when made and we undertake no obligation to
revise or update these statements in light of subsequent events or developments. Actual results
and outcomes may differ materially from anticipated results or outcomes discussed in
forward-looking statements. You are advised, however, to consult any future disclosures we make on
related subjects in future reports to the Securities and Exchange Commission (SEC).
16
Overview
We are the second largest publicly traded wholesale food distribution company in the United
States. Our business consists of three primary operating segments: food distribution, military and
food retailing.
In November 2006 we announced the launch of a new strategic plan, Operation Fresh Start,
designed to sharpen our focus and provide a strong platform to support growth initiatives. Built
upon extensive knowledge of current industry, consumer and market trends, and formulated to
differentiate the Company, the new strategy focuses activities on specific retail formats,
businesses and support services designed to delight consumers. The strategic plan encompasses
several important elements:
|
• |
|
Emphasis on a suite of retail formats designed to appeal to today’s consumers
including everyday value, multicultural, urban, extreme value and upscale formats,
as well as military commissaries and exchanges; |
|
|
• |
|
Strong, passionate businesses in key areas including perishables, health and
wellness, center store, pharmacy and military supply, driven by the needs of each
format; |
|
|
• |
|
Supply chain services focused on supporting our businesses with warehouse
management, inbound and outbound transportation management and customized solutions
for each business; |
|
|
• |
|
Retail support services emphasizing best-in-class offerings in marketing,
advertising, merchandising, store design and construction, store brands, market
research, retail store support, retail pricing and license agreement opportunities; |
|
|
• |
|
Store brand management dedicated to leveraging the strength of the Our Family
brand as a regional brand through exceptional product development coupled with
pricing and marketing support; and |
|
|
• |
|
Integrated shared services company-wide including IT support and infrastructure,
accounting, finance, human resources and legal. |
In addition, we may from time to time identify and evaluate acquisition opportunities in our
food distribution and military segments, and to the extent we believe such opportunities present
strategic benefits to those segments and can be achieved in a cost-effective manner, complete such
acquisitions.
Our food distribution segment sells and distributes a wide variety of nationally branded and
private label products to independent grocery stores and other customers primarily in the Midwest
and Southeast regions of the United States.
Our military segment contracts with manufacturers to distribute a wide variety of grocery
products to military commissaries and exchanges located primarily in the Mid-Atlantic region of the
United States, and in Europe, Cuba, Puerto Rico, Egypt and the Azores. We are the largest
distributor of grocery products to U.S. military commissaries and exchanges, with over 30 years of
experience acting as a distributor to U.S. military commissaries and exchanges.
Our retail segment operated 59 corporate-owned stores primarily in the Upper Midwest as of
October 6, 2007. Primarily due to intensely competitive conditions in which supercenters and other
alternative formats compete for price conscious customers, same store sales in our retail business
have declined since 2002, although the declines have moderated in more recent periods. As a
result, we closed or sold 25 retail stores in 2004, nine retail stores in 2005, 16 retail stores in
2006 and 3 retail stores in 2007. We are taking and expect to take further initiatives of varying
scope and duration with a view toward improving our response to and performance under these
difficult competitive conditions. Our strategic initiatives are designed to provide steps to
create value within our organization. These steps include designing and reformatting our base of
retail stores into new formats to increase overall retail sales performance. As we continue to
assess the impact of performance improvement initiatives and the operating results of individual
stores, we may need to recognize additional impairments of long-lived assets and additional
goodwill impairment associated with our retail segment, and may incur restructuring or other
charges in connection with closure or sales activities.
17
Results of Operations
Sales
The following tables summarize our sales activity for the sixteen weeks ended October 6, 2007
(Third quarter 2007) compared to the sixteen weeks ended October 7, 2006 (Third quarter 2006) and
the forty weeks ended October 6, 2007 (Year-to-date 2007) compared to the forty weeks ended October
7, 2006 (Year-to-date 2006):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Third quarter 2007 |
|
Third quarter 2006 |
|
Increase/(Decrease) |
|
|
|
|
|
|
Percent of |
|
|
|
|
|
Percent of |
|
|
|
|
(In thousands) |
|
Sales |
|
Sales |
|
Sales |
|
Sales |
|
$ |
|
% |
|
Segment Sales: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Food Distribution |
|
$ |
810,281 |
|
|
|
59.3 |
% |
|
|
861,185 |
|
|
|
60.3 |
% |
|
|
(50,904 |
) |
|
|
(5.9 |
%) |
Military |
|
|
376,094 |
|
|
|
27.5 |
% |
|
|
364,971 |
|
|
|
25.6 |
% |
|
|
11,123 |
|
|
|
3.0 |
% |
Retail |
|
|
180,741 |
|
|
|
13.2 |
% |
|
|
200,811 |
|
|
|
14.1 |
% |
|
|
(20,070 |
) |
|
|
(10.0 |
%) |
|
|
|
|
|
|
|
Total Sales |
|
$ |
1,367,116 |
|
|
|
100.0 |
% |
|
|
1,426,967 |
|
|
|
100.0 |
% |
|
|
(59,851 |
) |
|
|
(4.2 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year-to-date 2007 |
|
Year-to-date 2006 |
|
Increase/(Decrease) |
|
|
|
|
|
|
Percent of |
|
|
|
|
|
Percent of |
|
|
|
|
(In thousands) |
|
Sales |
|
Sales |
|
Sales |
|
Sales |
|
$ |
|
% |
|
|
|
Segment Sales: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Food Distribution |
|
$ |
2,058,133 |
|
|
|
59.4 |
% |
|
|
2,121,197 |
|
|
|
60.0 |
% |
|
|
(63,064 |
) |
|
|
(3.0 |
%) |
Military |
|
|
948,359 |
|
|
|
27.4 |
% |
|
|
906,493 |
|
|
|
25.7 |
% |
|
|
41,866 |
|
|
|
4.6 |
% |
Retail |
|
|
456,841 |
|
|
|
13.2 |
% |
|
|
504,800 |
|
|
|
14.3 |
% |
|
|
(47,959 |
) |
|
|
(9.5 |
%) |
|
|
|
|
|
|
|
Total Sales |
|
$ |
3,463,333 |
|
|
|
100.0 |
% |
|
|
3,532,490 |
|
|
|
100.0 |
% |
|
|
(69,157 |
) |
|
|
(2.0 |
%) |
|
|
|
|
|
|
|
The decreases in food distribution sales for the third quarter and year-to-date periods versus
the comparable 2006 periods are primarily attributable to customer attrition that has occurred
since the third quarter 2006 that has not been fully offset by new account gains achieved. In
addition, sales in the third quarter and year-to-date periods included the loss of a significant
customer which accounted for $43.8 million of the sales decrease in the third quarter 2007 as
compared to the same period in 2006.
Military segment sales were up 3.0% during the third quarter 2007 and 4.6% year-to-date 2007
compared to the same periods in 2006. The sales increases in the third quarter reflected 5.4%
stronger sales domestically which was partially offset by a 2.4% sales decline overseas as a result
of planned decreases in inventory levels caused by the initiation of troop redeployments that were
previously delayed. Year-to-date overseas sales however have benefited from these previous troop
redeployment delays, whereas the domestic sales increase reflects increased product line offerings
that have resulted in new sales volumes. Domestic and overseas sales represented the following
percentages of military segment sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Third quarter |
|
Year-to-date |
|
|
2007 |
|
2006 |
|
2007 |
|
2006 |
|
Domestic |
|
|
71.0 |
% |
|
|
69.4 |
% |
|
|
69.8 |
% |
|
|
69.4 |
% |
Overseas |
|
|
29.0 |
% |
|
|
30.6 |
% |
|
|
30.2 |
% |
|
|
30.6 |
% |
The decreases in retail sales in both the quarterly and year-to-date comparisons are
attributable to the closure of eight stores since the end of the third quarter of 2006. Same store
sales, which compare retail sales for stores which were in operation for the same number of weeks
in the comparative periods, decreased 1.6% in the third quarter of 2007 and are down 0.6%
year-to-date when compared to the same periods in 2006. The overall decline in same store sales
during the third quarter 2007 were negatively affected by five competitive openings in our market
areas. Additionally, several of our retail stores were also negatively impacted by summer road
construction projects.
18
During the third quarters of fiscal 2007 and 2006, our corporate store count changed as
follows:
|
|
|
|
|
|
|
|
|
|
|
Third quarter |
|
Third quarter |
|
|
2007 |
|
2006 |
Number of stores at beginning of period |
|
|
62 |
|
|
|
69 |
|
Closed or sold stores |
|
|
(3 |
) |
|
|
(2 |
) |
|
|
|
|
|
|
|
|
|
Number of stores at end of period |
|
|
59 |
|
|
|
67 |
|
|
|
|
|
|
|
|
|
|
During the year-to-date fiscal 2007 and 2006 periods ended October 6, 2007 and October 7,
2006, respectively, our corporate store count changed as follows:
|
|
|
|
|
|
|
|
|
|
|
Year-to-date |
|
Year-to-date |
|
|
2007 |
|
2006 |
Number of stores at beginning of year |
|
|
62 |
|
|
|
78 |
|
Closed or sold stores |
|
|
(3 |
) |
|
|
(11 |
) |
|
|
|
|
|
|
|
|
|
Number of stores at end of period |
|
|
59 |
|
|
|
67 |
|
|
|
|
|
|
|
|
|
|
Gross Profit
Gross profit was 8.9% of sales for the third quarter 2007 and year-to-date 2007 compared to
8.4% and 8.7% of sales for the same periods in the prior year. Our gross profit margin increased by
0.5% of sales in our third quarter 2007 and 0.2% of sales year-to-date 2007 relative to prior
periods as a result of initiatives that focused on better management of inventories and vendor
relationships. However, our overall gross profit margin was negatively affected by 0.2% of sales in
the third quarter 2007 and 0.3% of sales in the year-to-date 2007 period due to a sales mix shift
between our business segments between the years. This was due to a higher percentage of 2007 sales
occurring in the military segment and a lower percentage in the retail and food distribution
segments which have a higher gross profit margin.
Selling, General and Administrative Expenses
Selling, general and administrative expenses (SG&A) for third quarter 2007 were $84.3 million,
or 6.2% of sales, as compared to $99.2 million, or 7.0%, in the prior year quarter. SG&A for the
year-to-date 2007 were $216.5 million, or 6.3%, as compared to $243.8 million, or 6.9%, in the same
period last year.
The following table outlines the significant factors affecting differences in SG&A between the
comparable periods (amounts in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Third quarter |
|
Year-to-date |
|
|
2007 |
|
2006 |
|
2007 |
|
2006 |
|
|
|
Significant one-time charges |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Executive Severance |
|
$ |
— |
|
|
|
4.2 |
|
|
|
— |
|
|
|
4.2 |
|
Customer Loan and Lease Reserve Adjustments |
|
|
— |
|
|
|
5.0 |
|
|
|
0.7 |
|
|
|
10.4 |
|
Reserve Adjustments Costs on Closed Stores |
|
|
1.2 |
|
|
|
2.5 |
|
|
|
1.4 |
|
|
|
4.0 |
|
Gain on Sale of Assets |
|
|
— |
|
|
|
— |
|
|
|
(0.7 |
) |
|
|
— |
|
Vacation Policy Adjustment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1.5 |
) |
|
|
|
Total expense decrease |
|
$ |
1.2 |
|
|
|
11.7 |
|
|
|
1.4 |
|
|
|
17.1 |
|
|
|
|
% of Sales |
|
|
0.1 |
% |
|
|
0.8 |
% |
|
|
0.0 |
% |
|
|
0.5 |
% |
|
|
|
The significant
factors identified above for the third quarter of 2007 relative to the prior
year quarter account for 0.7% of the 0.8% difference in SG&A margin between the years. For the year-to-date 2007 and 2006 periods, the significant factors account for
0.5% of the 0.6% difference in SG&A margin between the years. In
addition, SG&A expense for both of
the 2007 periods benefited by approximately 0.2% of sales due to a sales mix shift between our
business segments between years. This was due to a higher
percentage of 2007 sales occurring in the military segment and a lower percentage in the
retail and food distribution segments which have higher SG&A margin.
19
Special Charges
There were no special charges recognized during the third quarter 2007. In the third quarter
of 2006, we recorded $6.2 million consisting predominantly of write-offs of two capitalized leased
properties.
Depreciation and Amortization Expense
Depreciation and amortization expense of $11.9 million for third quarter 2007 decreased $0.8
million compared to the same period last year. Year-to-date depreciation expense decreased from
$32.0 million in 2006 to $29.9 million in 2007. The decreases for the quarter and year-to-date
periods were primarily due to decreased depreciation and amortization for fixtures and equipment,
capital leases, and vehicles.
Interest Expense
Interest expense was $6.9 million for the third quarter 2007 compared to $7.9 million for the
same period in 2006. Average borrowing levels decreased from $389.1 million during the third
quarter 2006 to $334.7 million during the third quarter 2007, primarily due to decreases in
revolving credit levels under our bank credit facility. The effective interest rate was 6.2% for
the third quarter of 2007 compared to 6.1% effective interest rate in the third quarter of 2006.
Interest expense decreased to $18.2 million for year-to-date 2007 from $20.1 million in the
same period of 2006. Average borrowing levels decreased from $406.1 million during year-to-date
2006 to $350.7 million during the year-to-date 2007, primarily due to decreases in credit levels
under our bank credit facility. The effective interest rate was 6.2% for year-to-date 2007 as
compared to 6.0% for year-to-date 2006. The increase in the effective interest rate reflected the
impact of rising interest rates on variable rate debt, a portion of which was effectively fixed in
2006 and 2007 through use of interest rate swaps.
Income Taxes
Income tax expense is provided on an interim basis using management’s estimate of the annual
effective rate. Our effective tax rate for the full fiscal year is subject to changes and may be
impacted by changes to nondeductible items and tax reserve requirements in relation to our
forecasts of operations, sales mix by taxing jurisdictions, or to changes in tax laws and
regulations. The effective income tax rate was 15.5% and 26.6% for third quarter 2007 and 2006,
respectively, and 32.7% and 58.8% for year-to-date 2007 and 2006 periods respectively.
During the third quarter 2007, the Company closed an Internal Revenue Service examination for
2004 and 2005. Additionally, the 2003 statute of limitations expired at the Federal level and for
most jurisdictions at the State and Local levels. The Company also filed various reports to settle
potential tax liabilities. Accordingly, the Company reported the effect of these discrete events
in the third quarter. The lower effective tax rate for the quarter and year-to-date period is the
result of the release of certain income tax contingency reserves related to these discrete events.
The effective rate for the third quarter 2006 and year-to-date periods differed from statutory
rates due to anticipated pre-tax income relative to certain nondeductible expenses predominantly
related to goodwill impairment.
Net Earnings
Net earnings in third quarter 2007 were $15.4 million, or $1.12 per diluted share, as compared
to a net loss of ($4.6) million, or ($0.34) per diluted share, in the third quarter of 2006. Net
earnings year-to-date 2007 were $30.3 million, or $2.22 per diluted share, opposed to net earnings
of $3.4 million, or $0.25 per diluted share, for the same period of the previous year.
Year-to-date 2006 net earnings included the favorable impact of $0.2 million, or $0.01 per diluted
share, for the cumulative effect of an accounting change related to the adoption of SFAS No.
123(R), “Share-Based Payment — Revised.”
20
Liquidity and Capital Resources
The following table summarizes our cash flow activity and should be read in conjunction with
the Consolidated Statements of Cash Flows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year-to-date Ended |
|
|
|
|
|
|
October 6, |
|
|
October 7, |
|
|
Increase/ |
|
(In thousands) |
|
2007 |
|
|
2006 |
|
|
(Decrease) |
|
|
Net cash provided by operating activities |
|
$ |
61,585 |
|
|
|
56,308 |
|
|
|
5,277 |
|
Net cash used in investing activities |
|
|
(9,043 |
) |
|
|
(16,788 |
) |
|
|
7,745 |
|
Net cash used by financing activities |
|
|
(48,813 |
) |
|
|
(39,847 |
) |
|
|
(8,966 |
) |
|
|
|
|
|
|
|
|
|
|
Net change in cash and cash equivalents |
|
$ |
3,729 |
|
|
|
(327 |
) |
|
|
4,056 |
|
|
|
|
|
|
|
|
|
|
|
Cash flows from operating activities increased $5.3 million in year-to-date 2007 as compared
to year-to-date 2006 as a result of an increase in net earnings of $26.9 million. This earnings
increase was offset primarily by an increase to our inventory (net of accounts payable) relative to
2006 of $29.8 million. This increase in the inventory and accounts payable levels in 2007 is
normal relative to prior years during the third quarter to support the holiday season. The 2006
year-to-date cash flow included a reduction due to the consolidation of inventories at two
distribution centers.
Net cash used for investing activities decreased by $7.7 million for the year-to-date 2007
period as compared to the same period last year. The most significant factor for the
year-over-year variance was decreased capital spending of $10.4 in year-to-date 2007 compared to
$18.4 million in year-to-date 2006.
Cash used by financing activities increased by $9.0 million in year-to-date 2007 compared to
year-to-date 2006. The increase in cash used by financing activities included an $11.6 million net
increase in revolving debt payments/proceeds, when comparing cash flow activity from year-to-date
2007 to the comparable period in 2006. During year-to-date 2007 $41.3 million of the Term Loan B
portion of our existing credit facility was permanently paid down. Year-to-date 2006 included the
repayment of $24.2 million of our revolving debt.
During the remainder of fiscal 2007, we expect that cash flows from operations will be
sufficient to meet our working capital needs and enable us to further reduce our debt, with
temporary draws on our revolving credit line during the year to build inventories for certain
holidays. Longer term, we believe that cash flows from operations, short-term bank borrowing,
various types of long-term debt and lease and equity financing will be adequate to meet our working
capital needs, planned capital expenditures and debt service obligations.
Senior Secured Credit Facility
Our senior secured credit facility consists of $125.0 million in revolving credit, all of
which may be utilized for loans, and up to $40.0 million of which may be utilized for letters of
credit, and a $118.7 million Term Loan B. The Term Loan B portion of the facility was $160.0
million as of December 30, 2006 of which $5.0 million and $41.3 million was permanently paid down
during the third quarter 2007 and year-to-date 2007 periods, respectively. Borrowings under the
facility bear interest at either the Eurodollar rate or the prime rate, plus in either case a
margin spread that is dependent on our total leverage ratio. We pay a commitment commission on the
unused portion of the revolver. The margin spreads and the commitment commission is reset
quarterly based on changes to our total leverage ratio defined by the applicable credit agreement.
At October 6, 2007 the margin spreads for the revolver and Term Loan B maintained as Eurodollar
loans were 2.0% and 2.5%, respectively, and the unused commitment commission was 0.375%. The
margin spread for the revolver maintained at the prime rate was 1.0%. The credit facility requires
us to hedge a certain portion of such borrowings through the use of interest rate swaps, as we have
done historically. At October 6, 2007, credit availability under the senior secured credit
facility was $105.9 million.
Our senior secured credit facility represents one of our primary sources of liquidity, both
short-term and long-term, and the continued availability of credit under that facility is of
material importance to our ability to fund our capital and working capital needs. The credit
agreement governing the credit facility contains various restrictive covenants, compliance with
which is essential to continued credit availability. Among the most significant of these
restrictive covenants are financial covenants which require us to maintain predetermined ratio
21
levels related to interest coverage and leverage. These ratios are based on EBITDA, on a
rolling four quarter basis, with some adjustments (“Consolidated EBITDA”). Consolidated EBITDA is a
non-GAAP financial measure that is defined in our bank credit agreement as earnings before
interest, income taxes, depreciation and amortization, adjusted to exclude extraordinary gains or
losses, gains or losses from sales of assets other than inventory in the ordinary course of
business, upfront fees and expenses incurred in connection with the execution and delivery of the
credit agreement, and non-cash charges (such as LIFO charges, closed store lease costs, asset
impairments and share-based compensation), less cash payments made during the current period on
certain non-cash charges recorded in prior periods. In addition, for purposes of determining
compliance with prescribed leverage ratios and adjustments in the credit facility’s margin spread
and commitment commission, Consolidated EBITDA is calculated on a pro forma basis that takes into
account all permitted acquisitions that have occurred since the beginning of the relevant four
quarter computation period. Consolidated EBITDA should not be considered an alternative measure of
our net income, operating performance, cash flow or liquidity. It is provided as additional
information relative to compliance with our debt covenants. In addition, the credit agreement
requires us to maintain predetermined ratio levels related to working capital coverage (the ratio
of the sum of net trade accounts receivable plus inventory to the sum of loans and letters of
credit outstanding under the new credit agreement plus up to $60 million of additional secured
indebtedness permitted to be issued under the new credit agreement).
The financial covenants specified in the credit agreement, as amended, vary over the term of
the credit agreement and can be summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
For The Fiscal |
|
|
|
|
Periods Ending |
|
|
Financial Covenants |
|
Closest to |
|
Required Ratio |
|
Interest Coverage Ratio |
|
12/31/04 through 9/30/07 |
|
|
3.50:1.00 |
|
|
(minimum) |
|
|
12/31/07 and thereafter |
|
|
4.00:1.00 |
|
|
|
|
|
|
|
|
|
|
|
|
Total Leverage Ratio |
|
12/31/04 through 9/30/06 |
|
|
3.50:1.00 |
|
|
(maximum) |
|
|
12/31/06 through 3/31/07 |
|
|
3.75:1.00 |
|
|
|
|
|
6/30/07 through 9/30/07 |
|
|
3.50:1.00 |
|
|
|
|
|
12/31/07 and thereafter |
|
|
3.00:1.00 |
|
|
|
|
|
|
|
|
|
|
|
|
Senior Secured Leverage Ratio |
|
12/31/04 through 9/30/06 |
|
|
2.75:1.00 |
|
|
(maximum) |
|
|
12/31/06 through 9/30/07 |
|
|
2.50:1.00 |
|
|
|
|
|
12/31/07 and thereafter |
|
|
2.25:1.00 |
|
|
|
|
|
|
|
|
|
|
|
|
Working Capital Ratio |
|
12/31/05 through 9/30/08 |
|
|
1.75:1.00 |
|
|
(minimum) |
|
|
Thereafter |
|
|
2.00:1.00 |
|
|
|
As of October 6, 2007, we were in compliance with all financial covenants as defined in our
credit agreement which are summarized as follows:
|
|
|
|
|
|
|
|
|
Financial Covenant |
|
Required Ratio |
|
Actual Ratio |
Interest Coverage Ratio (1) |
|
3.50:1.00 (minimum) |
|
|
5:08:1.00 |
|
|
|
|
|
|
|
|
|
|
Total Leverage Ratio (2) |
|
3.50:1.00 (maximum) |
|
|
2:51:1.00 |
|
Senior Secured Leverage Ratio (3) |
|
2.50:1.00 (maximum) |
|
|
0:97:1.00 |
|
Working Capital Ratio (4) |
|
1.75:1.00 (minimum) |
|
|
3:83:1.00 |
|
|
|
|
(1) |
|
Ratio of Consolidated EBITDA for the trailing four quarters to interest expense for
such period. |
|
(2) |
|
Total outstanding debt to Consolidated EBITDA for the trailing four quarters. |
|
(3) |
|
Total outstanding senior secured debt to Consolidated EBITDA for the trailing four
quarters. |
|
(4) |
|
Ratio of net trade accounts receivable plus inventory to the sum of loans and letters
of credit outstanding under the new credit agreement plus certain additional secured debt. |
Any failure to comply with any of these financial covenants would constitute an event of
default under the bank credit agreement, entitling a majority of the bank lenders to, among other
things, terminate future credit availability under the agreement and accelerate the maturity of
outstanding obligations under that agreement.
22
The following is a summary of the calculation of Consolidated EBITDA for the trailing four
quarters ended October 6, 2007 and October 7, 2006 (amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006 |
|
|
2007 |
|
|
2007 |
|
|
2007 |
|
|
Trailing |
|
Trailing four quarters ended October 6, 2007: |
|
Qtr 4 |
|
|
Qtr 1 |
|
|
Qtr 2 |
|
|
Qtr 3 |
|
|
4 Qtrs |
|
|
|
|
Earnings (loss) from continuing
operations before income taxes |
|
$ |
(25,253 |
) |
|
|
9,485 |
|
|
|
17,304 |
|
|
|
18,237 |
|
|
|
19,773 |
|
Interest expense |
|
|
6,551 |
|
|
|
5,595 |
|
|
|
5,671 |
|
|
|
6,948 |
|
|
|
24,765 |
|
Depreciation and amortization |
|
|
9,447 |
|
|
|
9,082 |
|
|
|
8,901 |
|
|
|
11,902 |
|
|
|
39,332 |
|
LIFO charge |
|
|
117 |
|
|
|
808 |
|
|
|
807 |
|
|
|
1,077 |
|
|
|
2,809 |
|
Lease reserves |
|
|
2,675 |
|
|
|
(888 |
) |
|
|
825 |
|
|
|
614 |
|
|
|
3,226 |
|
Goodwill impairment |
|
|
26,419 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
26,419 |
|
Asset impairments |
|
|
4,127 |
|
|
|
866 |
|
|
|
275 |
|
|
|
640 |
|
|
|
5,908 |
|
Losses (gains) on sale of real estate |
|
|
37 |
|
|
|
— |
|
|
|
(147 |
) |
|
|
— |
|
|
|
(110 |
) |
Share-based compensation |
|
|
486 |
|
|
|
956 |
|
|
|
1,584 |
|
|
|
1,632 |
|
|
|
4,658 |
|
Subsequent cash payments on non-cash
charges |
|
|
(686 |
) |
|
|
(700 |
) |
|
|
(663 |
) |
|
|
(918 |
) |
|
|
(2,967 |
) |
Special Charges |
|
|
— |
|
|
|
— |
|
|
|
(1,282 |
) |
|
|
— |
|
|
|
(1,282 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Consolidated EBITDA |
|
$ |
23,920 |
|
|
|
25,204 |
|
|
|
33,275 |
|
|
|
40,132 |
|
|
|
122,531 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 |
|
|
2006 |
|
|
2006 |
|
|
2006 |
|
|
Trailing |
|
Trailing four quarters ended October 7, 2006: |
|
Qtr 4 |
|
|
Qtr 1 |
|
|
Qtr 2 |
|
|
Qtr 3 |
|
|
4 Qtrs |
|
|
Earnings (loss) from continuing operations
before income taxes |
|
$ |
21,364 |
|
|
|
6,314 |
|
|
|
7,733 |
|
|
|
(6,287 |
) |
|
|
29,124 |
|
Interest expense |
|
|
6,048 |
|
|
|
6,067 |
|
|
|
6,120 |
|
|
|
7,906 |
|
|
|
26,141 |
|
Depreciation and amortization |
|
|
10,376 |
|
|
|
9,702 |
|
|
|
9,617 |
|
|
|
12,685 |
|
|
|
42,380 |
|
LIFO charge |
|
|
(452 |
) |
|
|
462 |
|
|
|
461 |
|
|
|
1,590 |
|
|
|
2,061 |
|
Lease reserves |
|
|
(191 |
) |
|
|
902 |
|
|
|
1,327 |
|
|
|
4,455 |
|
|
|
6,493 |
|
Goodwill impairment |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Asset impairments |
|
|
851 |
|
|
|
1,547 |
|
|
|
3,247 |
|
|
|
2,522 |
|
|
|
8,167 |
|
Losses (gains) on sale of real estate |
|
|
(2,600 |
) |
|
|
33 |
|
|
|
(1,225 |
) |
|
|
25 |
|
|
|
(3,767 |
) |
Share-based compensation |
|
|
14 |
|
|
|
(187 |
) |
|
|
634 |
|
|
|
233 |
|
|
|
694 |
|
Subsequent cash payments on non-cash charges |
|
|
(2,690 |
) |
|
|
(808 |
) |
|
|
(656 |
) |
|
|
(1,862 |
) |
|
|
(6,016 |
) |
Special Charges |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
6,253 |
|
|
|
6,253 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Consolidated EBITDA |
|
$ |
32,720 |
|
|
|
24,032 |
|
|
|
27,258 |
|
|
|
27,520 |
|
|
|
111,530 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The credit agreement also contains covenants that limit our ability to incur debt (including
guaranteeing the debt of others) and liens, acquire or dispose of assets, pay dividends on and
repurchase our stock, make capital expenditures and make loans or advances to others, including
customers.
Our contractual obligations and commercial commitments are discussed in Part II, Item 7 of our
Annual Report on Form 10-K for the fiscal year ended December 30, 2006, “Management’s Discussion
and Analysis of Financial Condition and Results of Operations” under the caption “Contractual
Obligations and Commercial Commitments.” There have been no material changes to our contractual
obligations and commercial commitments during the third quarter ended October 6, 2007.
Senior Subordinated Convertible Debt
We also have outstanding $150.1 million in aggregate issue price (or $322.0 million in
aggregate principal amount at maturity) of senior subordinated convertible notes due in 2035. The
notes are unsecured senior subordinated obligations and rank junior to our existing and future
senior indebtedness, including borrowings under our senior secured credit facility. Cash interest
at the rate of 3.50% per year is payable semi-annually on the issue price of the notes until March
15, 2013. After that date, cash interest will not be payable, unless contingent cash interest
becomes payable, and original issue discount for non-tax purposes will accrue on the notes daily at
a rate of 3.50% per year until the maturity date of the notes. See our Annual Report on Form 10-K
for the fiscal year ended December 30, 2006 for additional information.
23
Derivative Instruments
We have market risk exposure to changing interest rates primarily as a result of our borrowing
activities and commodity price risk associated with anticipated purchases of diesel fuel. Our
objective in managing our exposure to changes in interest rates and commodity prices is to reduce
fluctuations in earnings and cash flows. To achieve these objectives, we use derivative
instruments, primarily interest rate and commodity 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.
The interest rate swap agreements are designated as cash flow hedges and are reflected at fair
value in our Consolidated Balance Sheet and the related gains or losses on these contracts are
deferred in stockholders’ equity as a component of other comprehensive income. Deferred gains and
losses are amortized as an adjustment to expense over the same period in which the related items
being hedged are recognized in income. However, to the extent that any of these contracts are not
considered to be effective in accordance with SFAS No. 133 in offsetting the change in the value of
the items being hedged, any changes in fair value relating to the ineffective portion of these
contracts are immediately recognized in income.
Interest rate swap agreements are entered into for periods consistent with related underlying
exposures and do not constitute positions independent of those exposures. At October 6, 2007, we
had four outstanding interest rate swap agreements with notional amounts totaling $90.0 million,
which commence and expire as follows (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
Notional |
|
|
|
Effective Date |
|
Termination Date |
|
Fixed Rate |
|
$ |
20,000 |
|
|
|
|
12/13/2005
|
|
12/13/2007
|
|
4.737% |
|
30,000 |
|
|
|
|
12/13/2006
|
|
12/13/2007
|
|
4.100% |
|
20,000 |
|
|
|
|
12/13/2006
|
|
12/13/2007
|
|
4.095% |
|
20,000 |
|
|
|
|
12/13/2006
|
|
12/13/2007
|
|
4.751% |
At October 7, 2006 we had seven outstanding interest rate swap agreements with notional
amounts totaling $185.0 million. Three of those agreements with notional amounts totaling $95.0
million expired on December 13, 2006.
We use commodity swap agreements to reduce price risk associated with anticipated purchases of
diesel fuel. The agreements call for an exchange of payments with us making payments based on
fixed price per gallon and receiving payments based on floating prices, without an exchange of the
underlying commodity amount upon which the payments are made. At October 6, 2007, our one
outstanding commodity swap agreement did not qualify for hedge accounting in accordance with SFAS
No. 133. Resulting gains and losses on the fair market value of the commodity swap agreement are
immediately recognized as income or expense. Pre-tax losses of $0.1 million on the commodity swap
agreement were recorded as an increase to cost of sales during the third quarter 2007 and pre-tax
gains of $0.4 million were recorded as a reduction to cost of sales during the third quarter
year-to-date 2007 period. The commodity swap agreement commenced and will expire as follows:
|
|
|
|
|
|
|
Notional |
|
Effective Date |
|
Termination Date |
|
Fixed Rate |
|
145,000 gallons/month
|
|
02/01/2007
|
|
02/29/2008
|
|
$1.65/gallon |
In addition to the previously discussed interest rate and commodity swap agreements, we
entered into a fixed price fuel supply agreement in the first quarter of 2007 to support our food
distribution segment. The agreement requires us to purchase a total of 168,000 gallons per month at prices ranging from
$2.28 to $2.49 per gallon. The term of the agreement began on February 1, 2007 and will end on
December 31, 2007. The fixed price fuel agreement qualifies for the “normal purchase” exception
under SFAS No. 133, therefore the fuel purchases under this contract are expensed as incurred as an
increase to cost of sales.
Off-Balance Sheet Arrangements
As of the date of this report, we do not participate in transactions that generate
relationships with unconsolidated entities or financial partnerships, often referred to as
structured finance or special purpose entities,
which are generally established for the purpose of
facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.
24
Critical Accounting Policies and Estimates
Our critical accounting policies are discussed in Part II, Item 7 of our annual report on Form
10-K for the fiscal year ended December 30, 2006, “Management’s Discussion and Analysis of
Financial Condition and Results of Operations” under the caption “Critical Accounting Policies.”
There have been no material changes to these policies or the estimates used in connection therewith
during the forty weeks ended October 6, 2007, other than the adoption of FIN 48 discussed below.
Recently Adopted and Proposed Accounting Standards
In July 2007, the FASB released a proposed FASB Staff Position (FSP) APB 14-a, “Accounting for
Convertible Debt and Debt Issued with Stock Purchase Warrants” that would alter the accounting
treatment for convertible debt instruments that allow for either mandatory or optional cash
settlements, which would impact the accounting associated with the Company’s existing $150 million
senior convertible notes. If adopted, as currently proposed, this proposal would require the
company to recognize non-cash interest expense based on the market rate for similar debt
instruments without the conversion feature. Furthermore, it would require recognizing interest
expense in prior periods pursuant to retrospective accounting treatment. The comment period ended
on October 15, 2007. If final consensus is reached, the proposal would be effective for fiscal
years beginning after December 15, 2007. The Company is monitoring the developments of this
proposal and is evaluating the potential impact it will have on its financial statements, which
could be significant.
In February 2007, the FASB issued Statement of Financial Accounting Standards No. 159, “The
Fair Value Option for Financial Assets and Financial Liabilities — Including an amendment of FASB
Statement No. 115,” (SFAS 159). This standard allows a company to irrevocably elect fair value as
the initial and subsequent measurement attribute for certain financial assets and financial
liabilities on a contract-by-contract basis, with changes in fair value recognized in earnings. The
provisions of this standard are effective as of the beginning of our fiscal year 2008. We are
currently evaluating what effect the adoption of SFAS 159 will have on our consolidated financial
statements.
In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157, “Fair
Value Measurements” (SFAS 157). SFAS 157 defines fair value, establishes a framework for measuring
fair value, and expands disclosures about instruments recorded at fair value. FASB 157 does not
require any new fair value measurements, but applies under other accounting pronouncements that
require or permit fair value measurements. SFAS 157 is effective for financial statements issued
for fiscal years beginning after November 15, 2007 (our fiscal 2008). We believe that
implementation of FASB 157 will have little or no impact on our consolidated financial statements.
In June 2006, the Financial Accounting Standards Board (FASB) issued FASB Interpretation No.
48, “Accounting for Uncertainty in Income Taxes — an interpretation of FASB Statement No. 109” (FIN
48). This interpretation prescribes a minimum recognition threshold and measurement attribute for
the financial statement recognition and measurement of a tax position taken or expected to be taken
in a tax return. This interpretation also provides guidance on recognition, measurement,
classification, interest and penalties, accounting in interim periods, disclosure and transition.
On December 31, 2006 we adopted the recognition and disclosure provisions of FIN 48. Please refer
to “Note 8 — Income Taxes” in the accompanying financial statements for additional information
regarding the impact of our adoption of FIN 48.
25
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk
Our exposure in the financial markets consists of changes in interest rates relative to our
investment in notes receivable, the balance of our debt obligations outstanding and derivatives
employed from time to time to manage our exposure to changes in interest rates and diesel fuel
prices. (See Part II, Item 7 of our December 30, 2006 Form 10-K and Part I, Item 2 of this report
under the caption “Liquidity and Capital Resources”).
ITEM 4. Controls and Procedures
Management of Nash Finch, with the participation and under the supervision of the Chief
Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure
controls and procedures (as defined in Exchange Act Rule 13a-15(e)) as of the end of the period
covered by this quarterly report. Based on this evaluation, the Chief Executive Officer and Chief
Financial Officer have concluded that our disclosure controls and procedures are effective as of
the end of the period covered by this quarterly report to provide reasonable assurance that
material information required to be disclosed by us in the reports that we file or submit under the
Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time
periods specified by the Securities and Exchange Commission’s rules and forms. A controls system,
no matter how well designed and operated, cannot provide absolute assurance that the objectives of
the controls system are met, and no evaluation of controls can provide absolute assurance that all
control issues and instances of fraud, if any, within a company have been detected.
There was no change in our internal control over financial reporting that occurred during our
most recently completed fiscal quarter that materially affected, or is reasonably likely to
materially affect, our internal control over financial reporting.
PART
II - OTHER INFORMATION
ITEM 1. Legal Proceedings
On September 10, 2007, the Company received a purported notice of default, which was
subsequently reissued on September 27, 2007 to correct a procedural defect in the initial notice,
from certain hedge funds who are beneficial owners purporting to hold at least 25% of the aggregate
principal amount of the Nash-Finch Senior Subordinated Convertible
Notes due 2035 (“the Notes”) declaring an acceleration of any debt due under the Indenture governing the Notes (the
“Indenture”).
Nash Finch filed a petition on September 26, 2007, asking the Hennepin County District Court
to determine that Nash Finch properly adjusted the conversion rate on the Notes after Nash Finch
increased the amount of the dividends it paid to its shareholders.
On October 5, 2007, Nash Finch announced that the Hennepin County District Court in Minnesota
granted a temporary restraining order preventing and enjoining such hedge funds from declaring an
acceleration of any debt due under the Indenture while the litigation is pending.
The temporary restraining order also tolls the 30-day cure period, during which Nash Finch may
cure the alleged default under the Indenture, should the Court determine that a default has
occurred. The restraining Order will remain in effect until 10 days after the Court reaches a
decision on the underlying dispute as to whether the Trustee should execute the Supplemental
Indenture submitted by the Company and whether the Company’s adjustment to the conversion rate was
done in accord with the terms of the Indenture.
On December 19, 2005 and January 4, 2006, two purported class action lawsuits were filed
against us and certain of our executive officers in the United States District Court for the
District of Minnesota on behalf of purchasers of Nash Finch common stock during the period from
February 24, 2005, the date we announced an agreement to acquire two distribution divisions from
Roundy’s, through October 20, 2005, the date we announced a downward revision to our earnings
outlook for fiscal 2005. One of the complaints was voluntarily dismissed on March 3, 2006 and a
consolidated complaint was filed on June 30, 2006. The consolidated complaint alleges that the
defendants violated the Securities Exchange Act of 1934 by issuing false statements regarding,
among other things, the integration of the distribution divisions acquired from
26
Roundy’s, the performance
of our core businesses, our internal controls and our financial projections, so as to artificially
inflate the price of our common stock. The defendants filed a joint motion to dismiss the
consolidated complaint, which the Court denied on May 1, 2007. We intend to vigorously defend
against the consolidated complaint. No damages have been specified. We are unable to evaluate the
likelihood of prevailing in this case at this early stage of the proceedings, but do not believe
the eventual outcome will have a material impact on our financial position or results of
operations.
There have been no material changes to the legal proceedings described in Part I, Item 3,
“Legal Proceedings,” of our Annual Report on Form 10-K for the fiscal year ended December 30, 2006,
other than the Court’s denial of the joint motion to dismiss described above. We are also engaged
from time to time in routine legal proceedings incidental to our business. We do not believe that
these routine legal proceedings, taken as a whole, will have a material impact on our business or
financial condition.
ITEM 1A. Risk Factors
There have been no material changes in our risk factors contained in Part I, Item 1A, “Risk
Factors,” of our Annual Report on Form 10-K for the fiscal year ended December 30, 2006 and Part
II, Item 1A, “Risk Factors,” of our most recent
reported second quarter Form 10-Q.
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds
The following table summarizes purchases of Nash Finch common stock by the trustee of the
Nash-Finch Company Deferred Compensation Plan Trust during the third quarter 2007. All such
purchases reflect the reinvestment by the trustee of dividends paid during the third quarter of
2007 on shares of Nash Finch common stock held in the Trust in accordance with the regulations of
the trust agreement.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(c) |
|
(d) |
|
|
(a) |
|
|
|
|
|
Total number of |
|
Maximum number (or |
|
|
Total |
|
(b) |
|
shares purchased as |
|
approximate dollar value) of |
|
|
number of |
|
Average |
|
part of publicly |
|
shares that may yet be |
|
|
shares |
|
price paid |
|
announced plans or |
|
purchased under plans or |
Period |
|
purchased |
|
per share |
|
programs |
|
programs |
|
Period 7
(June 17 to July 14, 2007) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Period 8
(July 15 to August 11, 2007) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Period 9
(August 12 to September 8, 2007) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
Period 10
(September 9 to October 6, 2007) |
|
|
677 |
|
|
|
35.19 |
|
|
|
(* |
) |
|
|
(* |
) |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
677 |
|
|
|
35.19 |
|
|
|
(* |
) |
|
|
(* |
) |
|
|
|
(*) |
|
The Nash-Finch Company Deferred Compensation Plan’s Trust Agreement requires that dividends
paid on Nash Finch common stock held in the Trust be reinvested in additional shares of such common
stock. |
ITEM 3. Defaults upon Senior Securities
None
ITEM 4. Submission of Matters to a Vote of Security Holders
None
ITEM 5. Other Information
New Indemnification Agreement. The Board of Directors recently approved a form of amended and
restated indemnification agreement filed herewith as Exhibit 10.1 (the “Indemnification
Agreement”). The Board of Directors authorized the Company to enter into the Indemnification
Agreement with its directors and employees that may be selected from
time to time by the Company. The amended
and restated Indemnification Agreements will replace any prior indemnification agreements in
effect between the Company and any of its current directors and officers. As a result of the
foregoing, in November 2007, the Company entered into the amended and restated Indemnification
Agreement with each member of the Board of Directors, including Alec
C. Covington, and with Robert B. Dimond,
Christopher A. Brown, Jeffrey E. Poore and Kathleen M. Mahoney.
27
The Indemnification Agreement provides, among other matters, that: (1) the Company shall
indemnify the indemnitee to the fullest extent permitted by applicable law in the event the
indemnitee was, is or becomes a party to or witness or other participant in any threatened, pending
or completed action, suit or proceeding or any inquiry or investigation, whether conducted or
initiated by the Company, whether brought by or in the right of the Company or any subsidiary or
any other party, whether civil, criminal, administrative or investigative, by reason of the fact
that the indemnitee is or was a director, officer, employee, agent or fiduciary of the Company or
any other corporation, partnership, joint venture, employee benefit plan, trust or other enterprise
which such person is or was serving at the request of the Company; (2) the Company will, subject to
certain exceptions, advance expenses incurred by the indemnitee upon receipt by the Company of an
undertaking by or on behalf of the indemnitee to repay such amount to the extent that it ultimately
that the indemnitee is not entitled to be indemnified; and (3) the indemnification provided by the
Indemnification Agreement shall be in addition to any rights to which the indemnitee may be
entitled under the Company’s bylaws, the Delaware General Corporation Law, any agreement or
otherwise. Notwithstanding the foregoing, the Company has no obligation to provide such
indemnification if the party selected by the Board of Directors to review the indemnitee’s request
for indemnification (the “Reviewing Party”) determines that the indemnitee would not be permitted
to be indemnified under applicable law. The Reviewing Party may include a member or members of the
Company’s Board of Directors and independent legal counsel.
This indemnification under the Indemnification Agreement shall continue until and terminate
upon the later of (1) 10 years after the date that the indemnitee shall have ceased to serve as a
director or officer of the Company or of any other corporation, partnership, joint venture, trust,
employee benefit plan or other enterprise which the indemnitee served at the express written
request of the Company; or (2) the final termination of all pending claims in respect of which the
indemnitee is granted rights of indemnification or advancement of expenses.
The foregoing summary of the Indemnification Agreement is qualified in its entirety by
reference to the full text of the Indemnification Agreement filed herewith as Exhibit 10.1
Share Repurchase Program
On November 6, 2007, the Board of Directors authorized a share repurchase program authorizing
the Company to purchase up to 1 million shares of the Company’s common stock. The program will
take effect on November 19, 2007 and will continue until January 3, 2009.
28
ITEM 6. Exhibits
Exhibits filed or furnished with this Form 10-Q:
|
|
|
Exhibit |
|
|
No. |
|
Description |
|
|
|
10.1
|
|
Form of Amended and Restated Indemnification Agreement |
|
|
|
12.1
|
|
Calculation of Ratio of Earnings to Fixed Charges |
|
|
|
31.1
|
|
Rule 13a-14(a) Certification of the Chief Executive Officer. |
|
|
|
31.2
|
|
Rule 13a-14(a) Certification of the Chief Financial Officer. |
|
|
|
32.1
|
|
Section 1350 Certification of Chief Executive Officer and
Chief Financial Officer (furnished herewith). |
29
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
|
|
|
|
|
NASH-FINCH COMPANY
Registrant
|
|
Date: November 13, 2007 |
by /s/ Alec C. Covington
|
|
|
Alec C. Covington |
|
|
President and Chief Executive Officer |
|
|
|
|
|
|
|
|
|
|
Date: November 13, 2007 |
by /s/ Robert B. Dimond
|
|
|
Robert B. Dimond |
|
|
Executive Vice President and Chief Financial Officer |
|
30
NASH FINCH COMPANY
EXHIBIT INDEX TO QUARTERLY REPORT
ON FORM 10-Q
For the Quarter Ended October 6, 2007
|
|
|
|
|
Exhibit |
|
|
|
Method of |
No. |
|
Item |
|
Filing |
|
|
|
|
|
10.1
|
|
Form of Amended and Restated Indemnification Agreement
|
|
Filed herewith |
|
|
|
|
|
12.1
|
|
Calculation of Ratio of Earnings to Fixed Charges
|
|
Filed herewith |
|
|
|
|
|
31.1
|
|
Rule 13a-14(a) Certification of the Chief Executive Officer.
|
|
Filed herewith |
|
|
|
|
|
31.2
|
|
Rule 13a-14(a) Certification of the Chief Financial Officer
|
|
Filed herewith |
|
|
|
|
|
32.1
|
|
Section 1350 Certification of Chief Executive Officer and
Chief Financial Officer
|
|
Filed herewith |
31