Nash Finch Company (NASDAQ: NAFC), one of the leading food distribution companies in the United States, today announced financial results for the twelve weeks (first quarter) ended March 27, 2010.

Financial Results

Total company sales for the first quarter 2010 were $1.18 billion compared to $1.14 billion in the prior-year quarter, an increase of 3.5%. Excluding the impact of the sales increase of $59.4 million attributable to the acquisition of three military distribution centers on January 31, 2009, total company sales decreased 1.8% relative to last year.

Consolidated EBITDA 1 for the first quarter 2010 was $28.5 million, or 2.4% of sales, as compared to $29.2 million, or 2.6% of sales, for the prior year quarter. Consolidated EBITDA is a non-GAAP financial measure that is reconciled to the most directly comparable GAAP financial results in the attached financial statements.

Net earnings for the first quarter 2010 were $7.9 million, or $0.59 per diluted share, as compared to net earnings of $14.4 million, or $1.08 per diluted share, in the prior year quarter. Net earnings for the first quarter 2010 and 2009 were affected by significant items totaling ($0.2) million and $6.9 million, or ($0.02) and $0.51 per diluted share, respectively and is detailed in the table below.

“The first quarter results were in-line with our expectations as the trends in price deflation and consumer shopping patterns continued to impact top line sales in the food distribution and retail industry,” said Alec Covington, President and CEO of Nash Finch. “As I mentioned in the fourth quarter press release, we believe these economic headwinds will continue this year. As a result, we are implementing strategic initiatives to increase our supply chain efficiency and reduce our overhead and administrative expenses. We continue to have a strong balance sheet with plenty of liquidity.”

The following table identifies the significant items affecting our Consolidated EBITDA, net earnings and diluted earnings per share for the first quarter 2010 and prior year results:

             
(dollars in millions except per share amounts)     1st Quarter     1st Quarter
        2010       2009  
Significant credits (charges)
Acquisition, integration and start-up costs $ (0.4 ) (0.6 )
Tax consulting fees and other   -   (0.6 )
Significant charges impacting Consolidated EBITDA   (0.4 ) (1.2 )
 
Gain on acquisition of a business - 6.7
Net increase in lease reserves   -   (1.2 )
Total significant net credits (charges) impacting earnings before tax   (0.4 ) 4.3  
Income tax on significant net credits (charges) 0.2 (1.7 )
Income tax effect on gain on acquisition of a business - 2.7
Reversal of previously recorded income tax reserves and refunds   -   1.6  
Total significant net credits (charges) impacting net earnings $ (0.2 ) 6.9  
Diluted earnings per share impact     $ (0.02 )     0.51  
 

Military Distribution Results
(dollars in millions)       1st Quarter     1st Quarter     %
        2010     2009     Change
Sales $ 478.0 410.2 16.5 %
Segment EBITDA1 $ 13.6 11.9 14.0 %
Percentage of Sales         2.8 %     2.9 %      

The military segment sales increased 16.5% reflecting the impact of the acquisition of three military distribution centers on January 31, 2009. Adjusting for the sales impact of these three distribution centers of $59.4 million, sales increased 2.0% in the first quarter primarily due to stronger export sales to commissaries outside of the U.S.

The military segment EBITDA increased by 14.0% in the first quarter 2010 compared to the prior year period. The Military EBITDA as a percentage of sales was 2.8% in the first quarter 2010 as compared to 2.9% in the prior year.

“Despite the challenging economy, our military division posted solid increases in both sales and EBITDA during the first quarter and successfully completed the system conversion for the third and final distribution center that we acquired last year,” said Covington. “We look forward to the opening of our new Columbus, Georgia distribution center for this important segment of our business, which will provide us significant transportation savings as well as long-term strategic growth opportunities. We are on track to open the Columbus distribution center in the third quarter of 2010.”

Food Distribution & Retail Results
 
(dollars in millions)     1st Quarter     1st Quarter     %
        2010       2009       Change
Sales
Food Distribution $ 583.8 602.0 (3.0 %)
Retail   117.9   128.1   (8.0 %)
Total $ 701.7   730.1   (3.9 %)
Segment EBITDA1
Food Distribution $ 11.2 13.3 (15.3 %)
Retail   3.7   4.0   (8.9 %)
Total $ 14.9   17.3   (13.8 %)
Percentage of Sales
Food Distribution 1.9 % 2.2 %
Retail   3.1 % 3.1 %
Total   2.1 % 2.4 %
                         

The decrease in the first quarter 2010 food distribution and retail segment sales versus the comparable 2009 period was primarily attributable to a decrease in comparable sales to existing food distribution customers. Retail same store sales declined 3.7% as compared to the prior year. In addition, we have closed four retail stores since the end of the first quarter 2009.

The food distribution and retail segment EBITDA decreased by 13.8% in the first quarter 2010 compared to the same period last year. Segment EBITDA as a percentage of sales was 2.1% in the first quarter 2010 as compared to 2.4% in the prior year.

Segment EBITDA Includes Overhead Allocation

“Beginning in the first quarter, we allocated overhead costs to the segment EBITDA amounts reported for the current year and prior year. We made this change to provide greater visibility into the Company’s operations as there are fundamental differences between our military, food distribution and retail segments and allocating overhead based on use by segment provides better clarity on the net EBITDA results of each segment,” said Mr. Covington. “We believe the additional detail we are providing by segment allows shareholders to more easily understand the unique characteristics of each business unit allowing for a more appropriate valuation of our equity. Today Nash Finch is not only a well positioned food wholesaler, but is also the nation’s premier supplier to military commissaries at home and abroad.”

Financial Target Progress

Improvements on our key financial targets have been achieved to date since the targets were announced as part of the Company’s strategic plan in November 2006. In particular, Consolidated EBITDA margin improved from 2.2% to 2.4% of sales and the debt leverage ratio has improved from 3.11x to 2.22x from Fiscal 2006 to the first quarter 2010. The ratio of free cash flow to net assets has increased from 8.7% in Fiscal 2007 to 9.4% in the first quarter 2010. Finally, the organic revenue growth metric has also improved as we have started to implement initiatives associated with our strategic plan.

The following table charts the Company’s progress towards its long-term financial targets that are anticipated to be attained through successful execution of the strategic plan.
                                       
Financial Targets     Long-term   1st Quarter   Fiscal   Fiscal   Fiscal   Fiscal
      Target   2010   2009   2008   2007   2006
Organic Revenue Growth 2.0 % (1.8 %) (0.6 %) 3.1 % (2.1 %) (2.9 %)
Consolidated EBITDA Margin 4.0 % 2.4 % 2.7 % 3.1 % 2.8 % 2.2 %
Trailing Four Quarter Free Cash Flow2 / Net Assets 10.0 % 9.4 % 10.6 % 12.0 % 9.2 % 8.7 %
Total Leverage Ratio (Total Debt / Trailing Four Quarter
Consolidated EBITDA)     2.5 - 3.0 x  

2.22

x
 

2.02

x
 

1.75

x
 

2.20

x
 

3.11

x
2 Defined as cash provided from operations less capital expenditures for property, plant & equipment during the trailing four quarters divided by the average net assets for the current period and prior year comparable period (total assets less current liabilities plus current portion of long-term debt and capital leases).

Liquidity

Total debt at the end of the first quarter of 2010 was $310.2 million, a reduction of $40.3 million as compared to $350.5 million at the end of the first quarter of 2009. The Company continues to focus on effectively managing its balance sheet and is currently in compliance with all of its debt covenants. The debt leverage ratio as of the end of the first quarter 2010 was 2.22x. Availability on the Company’s revolving credit facility at the end of the quarter was $176.5 million.

Share Repurchase Program

As previously announced, our Board of Directors approved a share repurchase program authorizing the Company to spend up to $25.0 million to purchase shares of the Company’s common stock. The program took effect on November 16, 2009 and will continue until December 31, 2010. During the first quarter 2010 we repurchased a total of 258,910 shares for $8.8 million, at an average price per share of $33.99. Since the program’s inception, we have repurchased a total of 289,630 shares for $9.8 million, at an average price per share of $33.89.

A conference call to review the first quarter 2010 results is scheduled for at 10 a.m. CT (11 a.m. ET) on April 30, 2010. Interested participants can listen to the conference call over the Internet by logging onto the “Investor Relations” portion of Nash Finch's website at http://www.nashfinch.com. A replay of the webcast will be available and the transcript of the call will be archived on the “Investor Relations” portion of Nash Finch's website under the heading “Audio Archives.” A copy of this press release and the other financial and statistical information about the periods to be discussed in the conference call will be available at the time of the call on the “Investor Relations” portion of the Nash Finch website under the caption “Press Releases.”

Nash Finch Company is a Fortune 500 company and one of the leading food distribution companies in the United States. Nash Finch’s core business, food distribution, serves independent retailers and military commissaries in 36 states, the District of Columbia, Europe, Cuba, Puerto Rico, the Azores and Egypt. The Company also owns and operates a base of retail stores, primarily supermarkets under the Econofoods®, Family Thrift Center®, AVANZA®, Family Fresh Market ® and Sun Mart® trade names. Further information is available on the Company's website at www.nashfinch.com.

This release 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 release 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 effect of competition on our food distribution, military and retail businesses;
  • general sensitivity to economic conditions, including the uncertainty related to the current state of the economy in the U.S. and worldwide economic slowdown; recent disruptions to the credit and financial markets in the U.S. and worldwide; changes in market interest rates; continued volatility in energy prices and food commodities;
  • macroeconomic and geopolitical events affecting commerce generally;
  • changes in consumer buying and spending patterns;
  • our ability to identify and execute plans to expand our food distribution, military and retail operations;
  • possible changes in the military commissary system, including those stemming from the redeployment of forces, congressional action and funding levels;
  • our ability to identify and execute plans to improve the competitive position of our retail operations;
  • the success or failure of strategic plans, new business ventures or initiatives;
  • our ability to successfully integrate and manage current or future businesses we acquire, including the ability to manage credit risks and retain the customers of those operations;
  • changes in credit risk from financial accommodations extended to new or existing customers;
  • 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;
  • legal, governmental, legislative or administrative proceedings, disputes, or actions that result in adverse outcomes;
  • failure of our internal control over financial reporting;
  • changes in accounting standards;
  • technology failures that may have a material adverse effect on our business;
  • severe weather and natural disasters that may impact our supply chain;
  • unionization of a significant portion of our workforce;
  • costs related to multi-employer pension plan;
  • changes in health care, pension and wage costs and labor relations issues;
  • product liability claims, including claims concerning food and prepared food products;
  • threats or potential threats to security; and
  • unanticipated problems with product procurement.

A more detailed discussion of many of these factors, as well as other factors that could affect the Company’s results, is contained in the Company’s periodic reports filed with the SEC. You should carefully consider each of these factors and all of the other information in this release. 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).

1 Consolidated EBITDA, and segment EBITDA is calculated as earnings before interest, income tax, 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, and non-cash charges (such as LIFO, asset impairments, closed store lease costs and share-based compensation), less cash payments made during the current period on non-cash charges recorded in prior periods. Consolidated EBITDA should not be considered an alternative measure of our net income, operating performance, cash flows or liquidity. Consolidated EBITDA is provided as additional information as a key metric used to determine payout pursuant to our Short-Term and Long-Term Incentive Plans.
         
 
NASH FINCH COMPANY AND SUBSIDIARIES
Consolidated Statements of Income
(In thousands, except per share amounts)
Twelve
Weeks Ended
March 27 March 28
2010 2009
 
Sales $ 1,179,693 1,140,320
Cost of sales 1,087,873 1,045,201  
Gross profit 91,820 95,119
 
Other costs and expenses:
Selling, general and administrative 64,647 69,636
Gain on acquisition of a business - (6,682 )
Depreciation and amortization 8,585 9,335
Interest expense 5,258 5,304  
Total other costs and expenses 78,490 77,593
 
Earnings before income taxes 13,330 17,526
 
Income tax expense 5,389 3,106  
Net earnings $ 7,941 14,420  
 
Net earnings per share:
 
Basic $ 0.61 1.11
Diluted $ 0.59 1.08
 
Declared dividends per common share $ 0.18 0.18
 
Weighted average number of common shares
outstanding and common equivalent shares outstanding:
Basic 13,125 12,966
Diluted 13,441 13,331
 
 
NASH FINCH COMPANY AND SUBSIDIARIES        
Consolidated Balance Sheets
(In thousands, except per share amounts)
 

Assets
March 27, 2010 January 2, 2010
Current assets:
Cash and cash equivalents $ 751 830
Accounts and notes receivable, net 240,166 250,767
Inventories 325,036 285,443
Prepaid expenses and other 15,314 11,410
Deferred tax assets 8,962   9,366  
Total current assets 590,229 557,816
 
Notes receivable, net 22,036 23,343
 
Property, plant and equipment: 640,488 637,167
Less accumulated depreciation and amortization (429,098 ) (422,529 )
Net property, plant and equipment 211,390 214,638
 
Goodwill 166,545 166,545
Customer contracts and relationships, net 20,370 21,062
Investment in direct financing leases 3,129 3,185
Other assets 12,311   12,947  
Total assets $ 1,026,010   999,536  
 

Liabilities and Stockholders' Equity
Current liabilities:
Current maturities of long-term debt and capitalized lease obligations $ 3,791 4,438
Accounts payable 247,695 240,483
Accrued expenses 57,085 60,524
Income taxes payable -   3,064  
Total current liabilities 308,571 308,509
 
Long-term debt 285,569 257,590
Capitalized lease obligations 20,815 21,442
Deferred tax liability, net 18,999 19,323
Other liabilities 42,964 42,113
Commitments and contingencies - -
Stockholders' equity:

Preferred stock - no par value.
Authorized 500 shares; none issued - -
Common stock of $1.66 2/3 par value
Authorized 50,000 shares, issued 13,675 and 13,675 shares respectively 22,792 22,792
Additional paid-in capital 108,377 106,705
Common stock held in trust (2,342 ) (2,342 )
Deferred compensation obligations 2,342 2,342
Accumulated other comprehensive income (10,684 ) (10,756 )
Retained earnings 267,410 261,821
Treasury stock at cost, 1,122 and 863 shares, respectively (38,803 ) (30,003 )
Total stockholders' equity 349,092   350,559  
Total liabilities and stockholders' equity $ 1,026,010   999,536  
       
 
NASH FINCH COMPANY AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(In thousands)
 
Twelve
Weeks Ended
March 27 March 28
2010 2009
Operating activities:
Net earnings $ 7,941 14,420

Adjustments to reconcile net earnings to net cash provided byoperating activities:
 
Gain on acquisition of a business - (6,682 )
Depreciation and amortization 8,585 9,335
Amortization of deferred financing costs 423 372
Non-cash convertible debt interest 1,195 1,105
Amortization of rebateable loans 1,201 1,322
Provision for bad debts 37 434
Provision for lease reserves - 1,066
Deferred income tax expense 81 (499 )
Asset impairments 517 -
Share-based compensation 1,605 3,307
Other (276 ) 63
Changes in operating assets and liabilities:
Accounts and notes receivable 10,556 3,392
Inventories (39,553 ) (23,986 )
Prepaid expenses (279 ) (3,049 )
Accounts payable 10,610 7,130
Accrued expenses (3,210 ) (17,465 )
Income taxes payable (6,689 ) 1,311
Other assets and liabilities 1,357   875  
Net cash used by operating activities (5,899 ) (7,549 )
 
Investing activities:
Disposal of property, plant and equipment 192 33
Additions to property, plant and equipment (4,267 ) (877 )
Business acquired, net of cash - (78,056 )
Loans to customers (450 ) (1,000 )
Payments from customers on loans 620 596
Other (333 ) 810  
Net cash used in investing activities (4,238 ) (78,494 )
Financing activities:
Proceeds of revolving debt 26,800 98,200
Dividends paid (2,289 ) -
Repurchase of common stock (8,310 ) -
Payments of long-term debt (15 ) (14 )
Payments of capitalized lease obligations (962 ) (813 )
Decrease in bank overdraft (5,166 ) (8,606 )
Payments of deferred financing costs -   (2,706 )
Net cash provided by financing activities 10,058   86,061  
Net increase in cash and cash equivalents (79 ) 18
Cash and cash equivalents:
Beginning of year 830   824  
End of period $ 751   842  
         
 
NASH FINCH COMPANY AND SUBSIDIARIES
Supplemental Data (Unaudited)
Twelve Twelve
Weeks Ended Weeks Ended
March 27 March 28

Other Data (In thousands)
2010 2009
 
Total debt $ 310,175 350,536
Stockholders' equity $ 349,092 364,462
Capitalization $ 659,267 714,998
Debt to total capitalization 47.0 % 49.0 %
 
Non-GAAP Data
Consolidated EBITDA (a) $ 28,515 29,239
Leverage ratio - trailing 4 qtrs. (debt to consolidated EBITDA) (b) 2.22 2.46
 
Comparable GAAP Data
Debt to earnings before income taxes (b) 15.86 6.37
    (a)  

Consolidated EBITDA is calculated as earnings before interest, income tax, depreciation and amortization, adjusted to exclude extraordinary gains or losses, gains or losses from sales of assets other than inventory in the normal course of business, and non-cash charges (such as LIFO, assets impairments, closed store lease costs and share-based compensation), less cash payments made during the current period on non-cash charges recorded in prior periods. Consolidated EBITDA should not be considered an alternative measure of our net income, operating performance, cash flows or liquidity. Consolidated EBITDA is provided as additional information as a key metric used to determine payout pursuant to our Short-Term and Long-Term Incentive Plans.
 
(b)

Leverage ratio is defined as the Company's total debt at March 27, 2010 and March 28, 2009, divided by Consolidated EBITDA for the respective four trailing quarters. The most comparable GAAP ratio is debt at the same date divided by earnings from continuing operations before income taxes for the respective four quarters.
 
 

Derivation of Consolidated EBITDA; Segment Consolidated EBITDA; and Segment Profit (in thousands)

FY 2010
                   
2009 2009 2009 2010 Rolling
Qtr 2 Qtr 3 Qtr 4 Qtr 1 4 Qtrs
 
Earnings from continuing operations before
income taxes $ 16,114 31,655 (41,545 ) 13,330 19,554
Add/(deduct)
LIFO (287 ) (445 ) (2,301 ) (40 ) (3,073 )
Depreciation and amortization 9,372 12,592 9,304 8,585 39,853
Interest expense 5,840 7,621 5,607 5,258 24,326
Special charge - - 6,020 - 6,020
Goodwill impairment - - 50,927 - 50,927
Gain on litigation settlement - (7,630 ) - - (7,630 )
Closed store lease costs - 425 1,644 - 2,069
Asset impairment 898 840 722 517 2,977
Stock compensation 2,408 1,706 1,663 1,605 7,382
Gains on sale of real estate - (54 ) - - (54 )
Subsequent cash payments on non-cash charges (714 ) (712 ) (772 ) (740 ) (2,938 )
Total Consolidated EBITDA $ 33,631   45,998   31,269   28,515   139,413  
 
2009 2009 2009 2010 Rolling
Segment Consolidated EBITDA Qtr 2 Qtr 3 Qtr 4 Qtr 1 4 Qtrs
Military $ 11,239 15,731 12,031 13,615 52,616
Food Distribution 16,946 22,461 15,455 11,227 66,089
Retail 5,446   7,806   3,783   3,673   20,708  
$ 33,631   45,998   31,269   28,515   139,413  
 
2009 2009 2009 2010 Rolling
Segment profit Qtr 2 Qtr 3 Qtr 4 Qtr 1 4 Qtrs
Military $ 9,421 13,448 10,146 11,816 44,831
Food Distribution 10,508 15,181 11,495 5,799 42,983
Retail 1,209 1,937 (1,449 ) 227 1,924
Unallocated
Interest (5,024 ) (6,541 ) (4,790 ) (4,512 ) (20,867 )
Gain on litigation - 7,630 - - 7,630
Special charge - - (6,020 ) - (6,020 )
Goodwill impairment -   -   (50,927 ) -   (50,927 )
$ 16,114   31,655   (41,545 ) 13,330   19,554  
 
FY 2009
2008 2008 2008 2009 Rolling
Qtr 2 Qtr 3 Qtr 4 Qtr 1 4 Qtrs
Earnings from continuing operations before
income taxes $ 13,838 13,029 10,643 17,526 55,036
Add/(deduct)
LIFO 2,397 8,360 7,849 - 18,606
Depreciation and amortization 8,703 11,643 9,051 9,335 38,732
Interest expense 6,759 7,556 6,034 5,304 25,653
Gain on acquisition of a business - - - (6,682 ) (6,682 )
Closed store lease costs 99 480 (317 ) 1,066 1,328
Asset impairment 401 694 1,065 - 2,160
Stock compensation 2,022 3,013 1,814 3,307 10,156
Subsequent cash payments on non-cash charges (612 ) (787 ) (635 ) (617 ) (2,651 )
Total Consolidated EBITDA $ 33,607   43,988   35,504   29,239   142,338  
 
2008 2008 2008 2009 Rolling
Segment Consolidated EBITDA Qtr 2 Qtr 3 Qtr 4 Qtr 1 4 Qtrs
Military $ 10,494 14,279 11,484 11,948 48,205
Food Distribution 17,756 21,487 17,412 13,257 69,912
Retail 5,357   8,222   6,608   4,034   24,221  
$ 33,607   43,988   35,504   29,239   142,338  
 
2008 2008 2008 2009 Rolling
Segment profit Qtr 2 Qtr 3 Qtr 4 Qtr 1 4 Qtrs
Military $ 9,366 11,783 9,242 9,905 40,296
Food Distribution 9,107 5,869 5,155 5,982 26,113
Retail 1,369 1,916 1,450 (470 ) 4,265
Unallocated
Interest (6,004 ) (6,539 ) (5,204 ) (4,573 ) (22,320 )
Gain on acquisition -   -   -   6,682   6,682  
$ 13,838   13,029   10,643   17,526   55,036  

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