10-K
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Form 10-K
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ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the fiscal year ended:
January 3, 2009
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the Transition Period
from to .
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Commission file
number: 0-785
NASH-FINCH COMPANY
(Exact name of Registrant as
specified in its charter)
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Delaware
(State of
Incorporation)
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41-0431960
(I.R.S. Employer
Identification No.)
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7600 France Avenue South
P.O. Box 355
Minneapolis, Minnesota
(Address of principal
executive offices)
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55440-0355
(Zip
Code)
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Registrants telephone number, including area code:
(952) 832-0534
Securities registered pursuant to Section 12(b) of the
Act:
None
Securities registered pursuant to Section 12(g) of the
Act:
Common Stock, par value
$1.662/3
per share
Common Stock Purchase Rights
Indicate by check mark if the Registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes o No þ
Indicate by check mark if the Registrant is not required to file
reports pursuant to Section 13 or 15(d) of the Securities
Exchange
Act. Yes o No þ
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, and (2) has been subject to such filing
requirements for the past
90 days. Yes þ No o
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K
is not contained herein, and will not be contained, to the best
of Registrants knowledge, in definitive proxy or
information statements incorporated by reference in
Part III of this
Form 10-K
or any amendment to this
Form 10-K. o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in Rule
12b-2 of the
Exchange Act. (Check one):
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Large accelerated filer o
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Accelerated filer þ
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Non-accelerated filer o
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Smaller reporting company o
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(Do not check if a smaller reporting company)
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Indicate by check mark whether the Registrant is a shell company
(as defined in Rule 12b-2 of the Securities Exchange
Act). Yes o No þ
The aggregate market value of the voting stock held by
non-affiliates of the Registrant as of June 13, 2008 (the
last business day of the Registrants most recently
completed second fiscal quarter) was $477,437,579, based on the
last reported sale price of $37.43 on that date on NASDAQ.
As of March 2, 2009, 12,817,780 shares of Common Stock
of the Registrant were outstanding.
DOCUMENTS
INCORPORATED BY REFERENCE
Portions of the Registrants definitive Proxy Statement for
its Annual Meeting of Stockholders to be held on May 20,
2009 (the 2009 Proxy Statement) are incorporated by
reference into Part III, as specifically set forth in
Part III.
Nash
Finch Company
PART I
Throughout this report, we refer to Nash-Finch Company, together
with its subsidiaries, as we, us,
Nash Finch or the Company.
Forward-Looking
Information
This report, including the information that is or will be
incorporated by reference into this report, contains
forward-looking statements that relate to trends and events that
may affect our future financial position and operating results.
Such statements are made pursuant to the safe harbor provisions
of the Private Securities Litigation Reform Act of 1995. The
statements in this report that are not historical in nature,
particularly those that use terms such as may,
will, should, likely,
expect, anticipate,
estimate, believe or plan,
or comparable terminology, are forward-looking statements based
on current expectations 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
material differences include the following:
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the effect of competition on our food distribution, military and
retail businesses;
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general sensitivity to economic conditions, including the
uncertainty related to the current recession 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;
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macroeconomic and geopolitical events affecting commerce
generally;
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changes in consumer buying and spending patterns;
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our ability to identify and execute plans to expand our food
distribution, military and retail operations;
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possible changes in the military commissary system, including
those stemming from the redeployment of forces, congressional
action and funding levels;
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our ability to identify and execute plans to improve the
competitive position of our retail operations;
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the success or failure of strategic plans, new business ventures
or initiatives;
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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;
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changes in credit risk from financial accommodations extended to
new or existing customers;
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significant changes in the nature of vendor promotional programs
and the allocation of funds among the programs;
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limitations on financial and operating flexibility due to debt
levels and debt instrument covenants;
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legal, governmental, legislative or administrative proceedings,
disputes, or actions that result in adverse outcomes;
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failure of our internal control over financial reporting;
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changes in accounting standards;
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technology failures that may have a material adverse effect on
our business;
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severe weather and natural disasters that may impact our supply
chain;
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unionization of a significant portion of our workforce;
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costs related to a
multi-employer
pension plan;
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changes in health care, pension and wage costs and labor
relations issues;
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product liability claims, including claims concerning food and
prepared food products;
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threats or potential threats to security; and
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unanticipated problems with product procurement.
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A more detailed discussion of many of these factors is contained
in Part I, Item 1A, Risk Factors, of
this report. You should carefully consider each of these factors
and all of the other information in this report. We undertake no
obligation to revise or update publicly any 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).
Originally established in 1885 and incorporated in 1921, we are
the second largest publicly traded wholesale food distributor in
the United States, in terms of revenue, serving the retail
grocery industry and the military commissary and exchange
systems. Our sales in fiscal 2008 exceeded $4.7 billion.
Our business currently consists of three primary operating
segments: food distribution, military food distribution and
retail. Financial information about our business segments for
the three most recent fiscal years is contained in Part II,
Item 8 of this report under Note (17)
Segment Information in the Notes to Consolidated
Financial Statements.
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:
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Emphasis on a suite of retail formats designed to appeal to the
needs of todays consumers including an initial focus on
everyday value, Hispanic and extreme value formats, as well as
military commissaries;
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Strong, passionate businesses in key areas including
perishables, health and wellness, center store, pharmacy and
military supply, driven by the needs of each format;
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Supply chain services focused on supporting our businesses with
warehouse management, inbound and outbound transportation
management and customized solutions for each business;
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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;
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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
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Integrated shared services company-wide, including IT support
and infrastructure, accounting, finance, human resources and
legal.
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During fiscal 2008, we strengthened our financial position
during a difficult business environment and made significant
progress towards achieving our long-term financial targets. In
addition to the strategic initiatives already in progress, our
2009 initiatives consist of the following:
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Invest in our retail formats, supply chain capabilities and
center store systems.
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Successful integration of three distribution facilities acquired
from GSC Enterprises, Inc. into our military segment.
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Identify acquisitions that support our strategic plan.
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Additional description of our business is found in Part II,
Item 7 of this report.
2
Food
Distribution Segment
Our food distribution segment sells and distributes a wide
variety of nationally branded and private label grocery products
and perishable food products from 16 distribution centers to
approximately 1,600 grocery stores located in 27 states
across the United States. Our customers are relatively diverse
with the largest customer, excluding our corporate-owned stores,
consisting of a consortium of stores representing 9.6%, and two
others representing 4.4% and 3.5%, of our fiscal 2008 food
distribution sales. No other customer represents more than 3.0%
of our food distribution business. Several of our distribution
centers also distribute products to military commissaries and
exchanges located in their geographic areas.
Our distribution centers are strategically located to
efficiently serve our independent customer stores and our
corporate-owned stores. The distribution centers are equipped
with modern materials handling equipment for receiving, storing
and shipping merchandise and are designed for high volume
operations at low unit costs. We continue to implement operating
initiatives to enhance productivity and expand profitability
while providing a higher level of service to our distribution
customers. Our distribution centers have varying levels of
available capacity giving us enough flexibility to service
additional customers by leveraging our existing fixed cost base,
which can enhance our profitability.
Depending upon the size of the distribution center and the
profile of the customers served, our distribution centers
typically carry a full line of national brand and private label
grocery products and perishable food products. Non-food items
and specialty grocery products are distributed from two
distribution centers located in Bellefontaine, Ohio and Sioux
Falls, South Dakota. We currently operate a fleet of tractors
and semi-trailers that deliver the majority of our products to
our customers. Approximately 25% of deliveries are made through
contract carriers.
Our retailers order their inventory at regular intervals through
direct linkage with our information systems. Our food
distribution sales are made on a market price plus fee and
freight basis, with the fee based on the type of commodity and
quantity purchased. We promptly adjust our selling prices based
on the latest market information, and our freight policy
contains a fuel surcharge clause that allows us to partially
mitigate the impact of rising fuel costs.
Products
We primarily sell and distribute nationally branded products and
a number of unbranded products, principally meat and produce,
which we purchase directly from various manufacturers,
processors and suppliers or through manufacturers
representatives and brokers. We also sell and distribute high
quality private label products under the proprietary trademark
Our
Family1,
a long-standing brand of Nash Finch that offers an
alternative to national brands. In addition, we sell and
distribute a premium line of branded products under the Our
Family Pride trademark and a lower priced line of private
label products under the Value Choice trademark. Under
our branded products, we offer over 2,600 stock-keeping units of
competitively priced, high quality grocery products and
perishable food products which compete with national branded and
other value brand products.
Services
To further strengthen our relationships with our food
distribution customers, we offer, either directly or through
third parties, a wide variety of support services to help them
develop and operate stores, as well as compete more effectively.
These services include:
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promotional, advertising and merchandising programs;
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installation of computerized ordering, receiving and scanning
systems;
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1 We
own or have the rights to various trademarks, tradenames and
service marks, including the following referred to in this
report:
AVANZA®,
Econofoods®,
Sun
Mart®,
Family Thrift
Center®,
Family Fresh
Market®,
Our
Family®,
Our Family
Pride®,
Value
Choicetm,
Food
Pride®
and Fresh
Place®.
The trademark
IGA®,
referred to in this report, is the registered trademark of IGA,
Inc.
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retail equipment procurement assistance;
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providing contacts for accounting, budgeting and payroll
services;
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consumer and market research;
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remodeling and store development services;
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securing existing grocery stores that are for sale or lease in
the market areas we serve and occasionally acquiring or leasing
existing stores for resale or sublease to these
customers; and
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NashNet, which provides supply chain efficiencies through
internet services.
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In fiscal 2008, 39% of food distribution revenues were from
customers with whom we had entered into
long-term
supply agreements as compared to 37% in fiscal 2007. The
long-term supply agreements range from 2 to 20 years. These
agreements also may contain provisions that give us the
opportunity to purchase customers independent retail
businesses before any third party.
We also provide financial assistance to our food distribution
customers, primarily in connection with new store development or
the upgrading and expansion of existing stores. As of
January 3, 2009, we had loans, net of reserves, of
$35.5 million outstanding to 38 of our food distribution
customers, and had guaranteed outstanding debt and lease
obligations of certain food distribution customers in the amount
of $15.1 million. We also, in the normal course of
business, sublease retail properties and assign retail property
leases to third parties. As of January 3, 2009, the present
value of our maximum contingent liability exposure, net of
reserves, with respect to the subleases and assigned leases was
$26.2 million and $10.1 million, respectively.
We distribute products to independent stores that carry the
IGA banner and our proprietary Food Pride banner.
We encourage our independent customers to join one of these
banner groups to receive many of the same marketing programs and
procurement efficiencies available to grocery store chains while
allowing them to maintain their flexibility and autonomy as
independents. To use either of these banners, these independents
must comply with applicable program standards. As of
January 3, 2009, we served 123 retail stores under the
IGA banner and 84 retail stores under our Food Pride
banner.
Military
Segment
Our military segment, Military Distributors of Virginia
(MDV) is the largest distributor, by revenue, of grocery
products to U.S. military commissaries and exchanges. MDV
serves over 200 military commissaries and exchanges located in
the continental United States, Europe, Puerto Rico, Cuba, the
Azores and Egypt. Commissaries and exchanges that we serve in
the United States are located primarily in the Mid-Atlantic
region, consisting of the states along the Atlantic coast from
New York to North Carolina. Our distribution centers in Norfolk,
Virginia and Jessup, Maryland are exclusively dedicated to
supplying products to military commissaries and exchanges. These
distribution centers are strategically located among the largest
concentration of military bases in the United States and near
Atlantic ports used to ship grocery products to overseas
commissaries and exchanges. MDV has an outstanding reputation as
a supplier focused exclusively on U.S. military
commissaries and exchanges, based in large measure on its
excellent service metrics, which include fill rate, on-time
delivery and shipping accuracy.
The Defense Commissary Agency, also known as DeCA, operates a
chain of commissaries on U.S. military installations
throughout the world. DeCA contracts with manufacturers to
obtain grocery and related products for the commissary system.
Manufacturers either deliver the products to the commissaries
themselves or, more commonly, contract with distributors such as
us to deliver the products. These distributors act as drayage
agents for the manufacturers by purchasing and maintaining
inventories of products DeCA purchases from the manufacturers,
and providing handling, distribution and transportation services
for the manufacturers. Manufacturers must authorize the
distributors as their official representatives to DeCA, and the
distributors must adhere to DeCAs frequent delivery system
procedures governing matters such as product identification,
ordering and processing, information exchange and resolution of
discrepancies. We obtain distribution contracts with
manufacturers through competitive bidding processes and direct
negotiations.
4
As commissaries need to be restocked, DeCA identifies each
manufacturer with which an order is to be placed for additional
products, determines which distributor is the
manufacturers official representative in a particular
region, and places a product order with that distributor under
the auspices of DeCAs master contract with the applicable
manufacturer. The distributor selects that product from its
existing inventory, delivers it to the commissary or
commissaries designated by DeCA, and bills the manufacturer for
the product shipped. The manufacturer then bills DeCA under the
terms of its master contract. Overseas commissaries are serviced
in a similar fashion, except that a distributors
responsibility is to deliver products as and when needed to the
port designated by DeCA, which in turn bears the responsibility
for shipping the product to the applicable commissary or
overseas warehouse.
After we ship a particular manufacturers products to
commissaries in response to an order from DeCA, we invoice the
manufacturer for the same purchase price previously paid by us
plus a service or drayage fee that is typically based on a
percentage of the purchase price, but may in some cases be based
on a dollar amount per case or pound of product handled.
MDVs order handling and invoicing activities are
facilitated by a procurement and billing system developed
specifically for MDV, addresses the unique aspects of its
business, and provides MDVs manufacturer customers with a
web-based, interactive means of accessing critical order,
inventory and delivery information.
MDV has approximately 500 distribution contracts with
manufacturers that supply products to the DeCA commissary system
and various exchange systems. These contracts generally have an
indefinite term, but may be terminated by either party without
cause upon 30 days prior written notice to the other party.
The contracts typically specify the commissaries and exchanges
we are to supply on behalf of the manufacturer, the
manufacturers products to be supplied, service and
delivery requirements and pricing and payment terms. MDVs
ten largest manufacturer customers represented 46% of the
military segments 2008 sales.
On January 31, 2009, the Company completed the purchase
from GSC Enterprises, Inc., of substantially all of the assets
relating to three wholesale food distribution centers located in
San Antonio, Texas, Pensacola, Florida and Junction City,
Kansas, including all inventory and customer contracts related
to the purchased facilities.
Retail
Segment
Our retail segment is made up of 57 corporate-owned stores,
located primarily in the Upper Midwest, in the states of
Colorado, Iowa, Minnesota, Nebraska, North Dakota, Ohio, South
Dakota and Wisconsin. Our corporate-owned stores principally
operate under the Econofoods, Sun Mart, Family
Thrift Center, Pick n Save, Family Fresh Market,
AVANZA, Wholesale Food Outlet and Food Bonanza banners. Our
stores are typically located close to our distribution centers
in order to create certain operating and logistical
efficiencies. As of January 3, 2009, we operated 50
conventional supermarkets, four AVANZA grocery stores,
one Wholesale Food Outlet grocery store, one Food
Bonanza grocery store and one other retail store. Our retail
segment also includes three corporate-owned pharmacies and one
convenience store that are not included in our store count.
Our conventional grocery stores offer a wide variety of high
quality grocery products and services. Many have specialty
departments such as fresh meat counters, delicatessens,
bakeries, eat-in cafes, pharmacies, dry cleaners, banks and
floral departments. These stores also provide services such as
check cashing, fax services and money transfers. We emphasize
outstanding customer service and have created our G.R.E.A.T.
(Greet, React, Escort, Anticipate and Thank) Customer Service
Program to train every associate (employee) on the core elements
of providing exceptional customer service. The Fresh
Place concept within our conventional grocery stores
is an umbrella banner that emphasizes our high quality
perishable products, such as fresh produce, deli, meats,
seafood, baked goods and takeout foods for todays busy
consumer. The AVANZA grocery stores offer products
designed to meet the specific tastes and needs of Hispanic
shoppers.
5
Competition
Food
Distribution Segment
The food distribution segment is highly competitive as evidenced
by the low margin nature of the business. Success in this
segment is measured by the ability to leverage scale in order to
gain pricing advantages and operating efficiencies, to provide
superior merchandising programs and services to the independent
customer base and to use technology to increase distribution
efficiencies. We compete with local, regional and national food
distributors, as well as with vertically integrated national and
regional chains using a variety of formats, including
supercenters, supermarkets and warehouse clubs that purchase
directly from suppliers and self-distribute products to their
stores. We face competition from these companies on the basis of
price, quality, variety, availability of products, strength of
private label brands, schedules and reliability of deliveries
and the range and quality of customer services.
Continuing our quality service by focusing on key metrics such
as our on-time delivery rate, fill rate, order accuracy and
customer service is essential in maintaining our competitive
advantage. During fiscal 2008, our distribution centers had an
on-time delivery rate, defined as being within
1/2
hour of our committed delivery time, of 98.2%; and a fill rate,
defined as the percentage of cases shipped relative to the
number of cases ordered, of 96.6%. We believe we are an industry
leader with respect to these key metrics.
Military
Segment
We are one of five distributors with annual sales to the DeCA
commissary system in excess of $100 million that
distributes products via the frequent delivery system. The
remaining distributors that supply DeCA tend to be smaller,
regional and local providers. In addition, manufacturers
contract with others to deliver certain products, such as baking
supplies, produce, deli items, soft drinks and snack items,
directly to DeCA commissaries and service exchanges. Because of
the narrow margins in this industry, it is of critical
importance for distributors to achieve economies of scale, which
is typically a function of the density or concentration of
military bases within the geographic market(s) a distributor
serves, and the distributors share of that market. As a
result, no distributor in this industry has a nationwide
presence. Rather, distributors tend to concentrate on specific
regions, or areas within specific regions, where they can
achieve critical mass and utilize warehouse and distribution
facilities efficiently. In addition, distributors that operate
larger civilian distribution businesses tend to compete for DeCA
commissary business in areas where such business would enable
them to more efficiently utilize the capacity of their existing
civilian distribution centers. We believe the principal
competitive factors among distributors within this industry are
customer service, price, operating efficiencies, reputation with
DeCA and location of distribution centers. We believe our
competitive position is very strong with respect to all these
factors within the geographic areas where we compete.
Retail
Segment
Our retail segment is also highly competitive. We compete with
many organizations of various sizes, ranging from national and
regional chains that operate a variety of formats (such as
supercenters, supermarkets, extreme value food stores and
membership warehouse club stores) to local grocery store chains
and privately owned unaffiliated grocery stores. Although our
target geographic areas have a relatively low presence of
national and multi-regional grocery store chains, we are facing
increasing competitive pressure from the expansion of
supercenters and regional chains. In 2008 and 2007, there were
four and five, respectively, of our stores that were impacted by
the opening of new supercenters in their markets and a total of
47 stores as of January 3, 2009, now compete with
supercenters. Depending upon the market, we compete based on
price, quality and assortment, store appeal (including store
location and format), sales promotions, advertising, service and
convenience. We believe our ability to provide convenience,
outstanding perishable execution and exceptional customer
service are particularly important factors in achieving
competitive success.
6
Vendor
Allowances and Credits
We participate with our vendors in a broad menu of promotions to
increase sales of products. These promotions fall into two main
categories, off-invoice allowances and performance-based
allowances, and are often subject to negotiation with our
vendors. In the case of off-invoice allowances, discounts are
typically offered by vendors with respect to certain merchandise
purchased by us during a specified period of time. We use
off-invoice allowances to support a variety of marketing
programs such as reduced price offerings for specific time
periods, food shows, pallet promotions and private label
promotions. The discounts are either reflected directly on the
vendor invoice, as a reduction from the normal wholesale prices
for merchandise to which the allowance applies, or we are
allowed to deduct the allowance as an offset against the
vendors invoice when it is paid.
In the case of performance-based allowances, the allowance or
rebate is based on our completion of some specific activity,
such as purchasing or selling product during a certain time
period. This basic performance requirement may be accompanied by
an additional performance requirement such as providing
advertising or special in-store promotions, tracking specific
shipments of goods to retailers (or to customers in the case of
our own retail stores) during a specified period (retail
performance allowances), slotting (adding a new item to the
system in one or more of our distribution centers) and
merchandising a new item, or achieving certain minimum purchase
quantities. The billing for these performance-based allowances
is normally in the form of a bill-back in which case
we are invoiced at the regular price with the understanding that
we may bill back the vendor for the requisite allowance when the
performance is satisfied. We also assess an administrative fee,
reflected on the invoices sent to vendors, to recoup our
reasonable costs of performing the tasks associated with
administering retail performance allowances.
We collectively plan promotions with our vendors and arrive at
the amount the respective vendor plans to spend on promotions
with us. Each vendor has its own method for determining the
amount of promotional funds to be spent with us. In most
situations, the vendor allowances are based on units we
purchased from the vendor. In other situations, the allowances
are based on our past or anticipated purchases
and/or the
anticipated performance of the planned promotions. Forecasting
promotional expenditures is a critical part of our frequently
scheduled planning sessions with our vendors. As individual
promotions are completed and the associated billing is
processed, the vendors track our promotional program execution
and spend rate, and discuss the tracking, performance and spend
rate with us on a regular basis throughout the year. These
communications include discussions with respect to future
promotions, product cost, targeted retails and price points,
anticipated volume, promotion expenditures, vendor maintenance,
billing issues and procedures, new items/discontinued items, and
trade spend levels relative to budget per event and per year, as
well as the resolution of any issues that arise between the
vendor and us. In the future, the nature and menu of promotional
programs and the allocation of dollars among them may change as
a result of our ongoing negotiations and commercial
relationships with our vendors.
Trademarks
and Servicemarks
We own or license a number of trademarks, tradenames and
servicemarks that relate to our products and services, including
those mentioned in this report. We consider certain of these
trademarks, tradenames and servicemarks, such as Our
Family, Our Family Pride and Value Choice, to
be of material value to the business conducted by our food
distribution and retail segments, and we actively defend and
enforce such trademarks, tradenames and servicemarks.
Employees
As of January 3, 2009, we employed 7,410 persons, of
whom 4,540 were employed on a full-time basis and 2,870 employed
on a part-time basis. Of our total number of employees, 756 were
represented by unions (10.2% of all employees) and consisted
primarily of warehouse personnel and drivers in our Ohio,
Indiana and Michigan distribution centers. We consider our
employee relations to be good.
7
Available
Information
Our internet website is www.nashfinch.com. The
references to our website in this report are inactive references
only, and the information on our website is not incorporated by
reference in this report. Through the Investor Relations portion
of our website and a link to a third-party content provider
(under the tab SEC Filings), you may access, free of
charge, our annual reports on
Form 10-K,
quarterly reports on
Form 10-Q,
current reports on
Form 8-K
and amendments to such reports filed or furnished pursuant to
Sections 13(a) or 15(d) of the Securities Exchange Act of
1934, as amended, as soon as reasonably practicable after we
electronically file such material with, or furnish it to, the
SEC. We have also posted on the Investor Relations portion of
our website, under the caption Corporate Governance,
our Code of Business Conduct that is applicable to all
our directors and employees, as well as our Code of Ethics
for Senior Financial Management that is applicable to our
Chief Executive Officer, Chief Financial Officer and Corporate
Controller. Any amendment to or waiver from the provisions of
either of these Codes that is applicable to any of these three
executive officers will be disclosed on the Investor Relations
portion of our website under the Corporate
Governance caption.
In addition to the other information in this
Form 10-K,
you should carefully consider the specific risk factors set
forth below in evaluating Nash Finch because any of the
following risks could materially affect our business, financial
condition, results of operations and future prospects. The risks
described below are not the only ones we face. Additional risks
and uncertainties not currently known to us may also materially
and adversely affect us.
We
face substantial competition and our competitors may have
superior resources, which could place us at a competitive
disadvantage and adversely affect our financial
performance.
Our businesses are highly competitive and are characterized by
high inventory turnover, narrow profit margins and increasing
consolidation. Our food distribution and military businesses
compete not only with local, regional and national food
distributors, but also with vertically integrated national and
regional chains that employ a variety of formats, including
supercenters, supermarkets and warehouse clubs. Our retail
business, focused in the Upper Midwest, has historically
competed with traditional grocery stores and is increasingly
competing with alternative store formats such as supercenters,
warehouse clubs, dollar stores and extreme value food stores.
Some of our food distribution and retail competitors are
substantially larger and may have greater financial resources
and geographic scope, lower merchandise acquisition costs and
lower operating expenses than we do, intensifying price
competition at the wholesale and retail levels. Industry
consolidation and the expansion of alternative store formats,
which have gained and continue to gain market share at the
expense of traditional grocery stores, tend to produce even
stronger competition for our retail business and for the
independent customers of our distribution business. To the
extent our independent customers are acquired by our competitors
or are not successful in competing with other retail chains and
non-traditional competitors, sales by our distribution business
will also be affected. If we fail to effectively implement
strategies to respond to these competitive pressures, our
operating results could be adversely affected by price
reductions, decreased sales or margins, or loss of market share.
In the military food distribution business we face competition
from large national and regional food distributors as well as
smaller food distributors. Due to the narrow margins in the
military food distribution industry, it is of critical
importance for distributors to achieve economies of scale, which
are typically a function of the density or concentration of
military bases in the geographic markets a distributor serves
and a distributors share of that market. As a result, no
distributor in this industry has a nationwide presence and it is
very difficult, other than through acquisitions, to expand
operations in this industry beyond the geographic regions where
we currently can utilize our warehouse and distribution capacity.
8
Our
business is sensitive to economic conditions that impact
consumer spending
Our business is sensitive to changes in overall economic
conditions that impact consumer spending, including
discretionary spending and buying habits. Economic downturns or
uncertainty may not only adversely affect overall demand and
intensify price competition, but also cause consumers to
trade down by purchasing lower margin items and to
make fewer purchases in traditional supermarket channels. Future
economic conditions affecting disposable consumer income such as
employment levels, business conditions, changes in housing
market conditions, the availability of credit, interest rates,
volatility in fuel and energy costs, food price inflation or
deflation, employment trends in our markets and labor costs, the
impact of natural disasters or acts of terrorism, and other
matters could reduce consumer spending or cause consumers to
shift their spending to lower-priced competitors. A general
reduction in the level of discretionary spending or shifts in
consumer discretionary spending to our competitors could
adversely affect our growth and profitability.
The recent worldwide financial and credit market disruptions
have reduced the availability of liquidity and credit generally
necessary to fund a continuation and expansion of global
economic activity. The shortage of liquidity and credit combined
with recent substantial losses in equity markets has led to a
worldwide economic recession that could become prolonged. The
general slowdown in economic activity caused by an extended
recession could adversely affect our business. A continuation or
worsening of the current difficult financial and economic
conditions could adversely affect our customers ability to
meet the terms of sale or our suppliers ability to fully
perform their commitments to us.
Our
businesses could be negatively affected if we fail to retain
existing customers or attract significant numbers of new
customers.
Growing and increasing the profitability of our distribution
businesses is dependent in large measure upon our ability to
retain existing customers and capture additional distribution
customers through our existing network of distribution centers,
enabling us to more effectively utilize the fixed assets in
those businesses. Our ability to achieve these goals is
dependent, in part, upon our ability to continue to provide a
high level of customer service, offer competitive products at
low prices, maintain high levels of productivity and efficiency,
particularly in the process of integrating new customers into
our distribution system, and offer marketing, merchandising and
ancillary services that provide value to our independent
customers. If we are unable to execute these tasks effectively,
we may not be able to attract significant numbers of new
customers and attrition among our existing customer base could
increase, either or both of which could have an adverse impact
on our revenue and profitability.
Growing and increasing the profitability of our retail business
is dependent on increasing our market share in the markets our
retail stores are located. We plan to invest in redesigning some
of our retail stores into alternative formats in order to
attract new customers and increase our market share. Our results
of operations may be adversely impacted if we are unable to
attract significant numbers of new retail customers.
Our
military segment operations are dependant upon domestic and
international military distribution, and a change in the
military commissary system could negatively impact our results
of operations and financial condition.
Because our military segment sells and distributes grocery
products to military commissaries and exchanges in the
U.S. and overseas, any material changes in the commissary
system, in military staffing levels or in locations of bases may
have a corresponding impact on the sales and operating
performance of this segment. These changes could include
privatization of some or all of the military commissary system,
relocation or consolidation in the number of commissaries and
exchanges, base closings, troop redeployments or consolidations
in the geographic areas containing commissaries and exchanges
served by us, or a reduction in the number of persons having
access to the commissaries and exchanges.
9
Our
results of operations and financial condition could be adversely
affected if we are unable to improve the competitive position of
our retail operations.
Our retail food business faces competition from regional and
national chains operating under a variety of formats that devote
square footage to selling food (i.e., supercenters,
supermarkets, extreme value stores, membership warehouse clubs,
dollar stores, drug stores, convenience stores, various formats
selling prepared foods, and other specialty and discount
retailers), as well as from independent food store operators in
the markets where we have retail operations. During fiscal 2006,
we announced new strategic initiatives designed to create value
within our organization. These initiatives include designing and
reformatting our base of retail stores to increase overall
retail sales performance. In connection with these efforts,
there are numerous risks and uncertainties, including our
ability to successfully identify which course of action will be
most financially advantageous for each retail store, our ability
to identify those initiatives that will be the most effective in
improving the competitive position of the retail stores we
retain, our ability to efficiently and timely implement these
initiatives, and the response of competitors to these
initiatives. If we are unable to improve the overall competitive
position of our remaining retail stores the operating
performance of that segment may continue to decline and we may
need to recognize additional impairments of our long-lived
assets and goodwill, be compelled to close or dispose of
additional stores and may incur restructuring or other charges
to our earnings associated with such closure and disposition
activities. In addition, we cannot assure you that we will be
able to replace any of the revenue lost from these closed or
sold stores from our other operations.
We may
not be able to achieve the expected benefits from the
implementation of new strategic initiatives.
We have begun taking action to improve our competitive
performance through a series of strategic initiatives. The goal
of this effort is to develop and implement a comprehensive and
competitive business strategy, addressing the food distribution
industry environment and our position within the industry and
ultimately create increased shareholder value.
We may not be able to successfully execute our strategic
initiatives and realize the intended synergies, business
opportunities and growth prospects. Many of the other risk
factors mentioned may limit our ability to capitalize on
business opportunities and expand our business. Our efforts to
capitalize on business opportunities may not bring the intended
results. Assumptions underlying estimates of expected revenue
growth or overall cost savings may not be met or economic
conditions may deteriorate. Customer acceptance of new retail
formats developed may not be as anticipated, hampering our
ability to attract new retail customers or maintain our existing
retail customer base. Additionally, our management may have its
attention diverted from other important activities while trying
to execute new strategic initiatives. If these or other factors
limit our ability to execute our strategic initiatives, our
expectations of future results of operations, including expected
revenue growth and cost savings, may not be met.
Our
ability to operate effectively could be impaired by the risks
and costs associated with the current and future efforts to grow
our business through acquisitions.
Efforts to grow our business may include acquisitions.
Acquisitions entail various risks such as identifying suitable
candidates, effecting acquisitions at acceptable rates of
return, obtaining adequate financing and acceptable terms and
conditions. Our success depends in a large part on factors such
as our ability to locate suitable acquisition candidates and
successfully integrate such operations and personnel in a timely
and efficient manner while retaining the customer base of the
acquired operations. If we cannot locate suitable acquisition
candidates, successfully integrate these operations and retain
the customer base, we may experience material adverse
consequences to our results of operations and financial
condition. The integration of separately managed businesses
operating in different markets involves a number of risks,
including the following:
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demands on management related to the significant increase in our
size after the acquisition of operations;
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difficulties in the assimilation of different corporate cultures
and business practices, such as those involving vendor
promotions, and of geographically dispersed personnel and
operations;
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10
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difficulties in the integration of departments, information
technology systems, operating methods, technologies, books and
records and procedures, as well as in maintaining uniform
standards and controls, including internal accounting controls,
procedures and policies; and
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expenses of any undisclosed liabilities, such as those involving
environmental or legal matters.
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Successful integration of new operations, including the
previously announced acquisition of three distribution
facilities from GSC Enterprises Inc. in January of 2009, will
depend on our ability to manage those operations, fully
assimilate the operations into our distribution network, realize
opportunities for revenue growth presented by strengthened
product offerings and expanded geographic market coverage,
maintain the customer base and eliminate redundant and excess
costs. We may not realize the anticipated benefits or savings
from an acquisition in the time frame anticipated, if at all, or
such benefits and savings may include higher costs than
anticipated.
Substantial
operating losses may occur if the customers to whom we extend
credit or for whom we guarantee loan or lease obligations fail
to repay us.
In the ordinary course of business, we extend credit, including
loans, to our food distribution customers, and provide financial
assistance to some customers by guaranteeing their loan or lease
obligations. We also lease store sites for sublease to
independent retailers. Generally, our loans and other financial
accommodations are extended to small businesses that are unrated
and may have limited access to conventional financing. As of
January 3, 2009, we had loans, net of reserves, of
$35.5 million outstanding to 38 of our food distribution
customers and had guaranteed outstanding debt and lease
obligations of food distribution customers totaling
$15.1 million. In the normal course of business, we also
sublease retail properties and assign retail property leases to
third parties. As of January 3, 2009, the present value of
our maximum contingent liability exposure, net of reserves, with
respect to subleases and assigned leases was $26.2 million
and $10.1 million, respectively. While we seek to obtain
security interests and other credit support in connection with
the financial accommodations we extend, such collateral may not
be sufficient to cover our exposure. Greater than expected
losses from existing or future credit extensions, loans,
guarantee commitments or sublease arrangements could negatively
and potentially materially impact our operating results and
financial condition.
Changes
in vendor promotions or allowances, including the way vendors
target their promotional spending, and our ability to
effectively manage these programs could significantly impact our
margins and profitability.
We engage in a wide variety of promotional programs
cooperatively with our vendors. The nature of these programs and
the allocation of dollars among them evolve over time as the
parties assess the results of specific promotions and plan for
future promotions. These programs require careful management in
order for us to maintain or improve margins while at the same
time driving sales for us and for the vendors. A reduction in
overall promotional spending or a shift in promotional spending
away from certain types of promotions that we have historically
utilized could have a significant impact on our gross profit
margin and profitability. Our ability to anticipate and react to
changes in promotional spending by, among other things, planning
and implementing alternative programs that are expected to be
mutually beneficial to the manufacturers and us, will be an
important factor in maintaining or improving margins and
profitability. If we are unable to effectively manage these
programs, it could have a material adverse effect on our results
of operations and financial condition.
Our
debt instruments include financial and other covenants that
limit our operating flexibility and may affect our future
business strategies and operating results.
Covenants in the documents governing our outstanding or future
debt, or our future debt levels, could limit our operating and
financial flexibility. Our ability to respond to market
conditions and opportunities as well as capital needs could be
constrained by the degree to which we are leveraged, by changes
in the availability or cost of capital, and by contractual
limitations on the degree to which we may, without the consent
of our lenders, take actions such as engaging in mergers,
acquisitions or divestitures, incurring
11
additional debt, making capital expenditures, repurchasing
shares of our stock and making investments, loans or advances.
If needs or opportunities were identified that would require
financial resources beyond existing resources, obtaining those
resources could increase our borrowing costs, further reduce
financial flexibility, require alterations in strategies and
affect future operating results.
Legal,
governmental, legislative or administrative proceedings,
disputes or actions that result in adverse outcomes or
unfavorable changes in government regulations may affect our
businesses and operating results.
Adverse outcomes in litigation, governmental, legislative or
administrative proceedings
and/or other
disputes may result in significant liability to the Company and
affect our profitability or impose restrictions on the manner in
which we conduct our business. Our businesses are also subject
to various federal, state and local laws and regulations with
which we must comply. Changes in applicable laws and regulations
that impose additional requirements or restrictions on the
manner in which we operate our businesses could increase our
operating costs.
Failure
of our internal control over financial reporting could
materially impact our business and results.
The Companys management is responsible for establishing
and maintaining adequate internal control over financial
reporting. An internal control system, no matter how well
designed and operated, can provide only reasonable, not
absolute, assurance that the objectives of the control system
are met. Because of the inherent limitations in all internal
control systems, internal control over financial reporting may
not prevent or detect misstatements. Any failure to maintain an
effective system of internal control over financial reporting
could limit our ability to report our financial results
accurately and timely or to detect and prevent fraud, and could
expose us to litigation or adversely affect the market price of
our common stock.
Changes
in accounting standards could materially impact our
results.
Generally accepted accounting principles and related accounting
pronouncements, implementation guidelines, and interpretations
for many aspects of our business, such as accounting for
insurance and self-insurance, inventories, goodwill and
intangible assets, store closures, leases, income taxes and
share-based payments, are highly complex and involve subjective
judgments. Changes in these rules or their interpretation could
significantly change or add significant volatility to our
reported earnings without a comparable underlying change in cash
flow from operations.
We may
experience technology failures which could have a material
adverse effect on our business.
We have large, complex information technology systems that are
important to our business operations. Although we have an
off-site disaster recovery center and have installed security
programs and procedures, security could be compromised and
technology failures and systems disruptions could occur. This
could result in a loss of sales or profits or cause us to incur
significant costs, including payments to third parties for
damages.
Severe
weather and natural disasters can adversely impact our
operations, our suppliers or the availability and cost of
products we purchase.
Severe weather conditions and natural disasters could damage our
properties and adversely impact the geographic areas where we
conduct our business. Severe weather and natural disasters could
also affect the suppliers from whom we procure products and
could cause disruptions in our operations and affect our supply
chain efficiencies. In addition, unseasonably adverse climatic
conditions that impact growing conditions and the crops of food
producers may adversely affect the availability or cost of
certain products.
Unions
may attempt to organize our employees.
While our management believes that our employee relations are
good, we cannot be assured that we will not experience pressure
from labor unions or become the target of campaigns similar to
those faced by our
12
competitors. The potential for unionization could increase if
the United States Congress passes the Federal Employee Free
Choice Act legislation. The unionization of a significant
portion of our workforce could increase our overall costs at the
affected locations and adversely affect our flexibility to run
our business in the most efficient manner to remain competitive
or acquire new business. In addition, significant union
representation would require us to negotiate wages, salaries,
benefits and other terms with many of our employees collectively
and could adversely affect our results of operations by
increasing our labor costs or otherwise restricting our ability
to maximize the efficiency of our operations.
Costs
related to a multi-employer pension plan.
The Company participates in a multi-employer pension plan for
certain unionized employees. The Companys contributions to
the plan may escalate in future years based on factors outside
the Companys control, including the bankruptcy or
insolvency of other participating employers, actions taken by
trustees who manage the plan, government regulations, a funding
deficiency in the plan or our withdrawal from the plan.
Escalating costs associated with these multi-employer plans may
have a material adverse effect on the Companys financial
condition and results of operations.
Increases
in employee benefit costs and other labor relations issues may
lead to labor disputes and disruption of our
businesses.
If we are unable to control health care, pension and wage costs,
or gain operational flexibility under our collective bargaining
agreements, we may experience increased operating costs and an
adverse impact on future results of operations. There can be no
assurance that the Company will be able to negotiate the terms
of any expiring or expired agreement in a manner that is
favorable to the Company. Therefore, potential work disruptions
from labor disputes could result, which may affect future
revenues and profitability.
We are
subject to the risk of product liability claims, including
claims concerning food and prepared food products.
The sale of food and prepared food products for human
consumption may involve the risk of injury. Injuries may result
from tampering by unauthorized third parties, product
contamination or spoilage, including the presence of foreign
objects, substances, chemicals, other agents, or residues
introduced during the growing, storage, handling and
transportation phases. We cannot be sure that consumption of
products we distribute and sell will not cause a health-related
illness in the future or that we will not be subject to claims
or lawsuits relating to such matters.
Negative publicity related to these types of concerns, or
related to product contamination or product tampering, whether
valid or not, might negatively impact demand for products we
distribute and sell, or cause production and delivery
disruptions. We may need to recall products if any of these
products become unfit for consumption. Costs associated with
these potential actions could adversely affect our operating
results.
Threats
or potential threats to security may adversely affect our
business.
Threats or acts of terror, data theft, information espionage, or
other criminal activity directed at the food industry, the
transportation industry, or computer or communications systems,
including security measures implemented in recognition of actual
or potential threats, could increase security costs and
adversely affect our operations.
We
depend upon vendors to supply us with quality merchandise at the
right time and at the right price.
We depend heavily on our ability to purchase merchandise in
sufficient quantities at competitive prices. We have no
assurances of continued supply, pricing, or access to new
products and any vendor could at any time change the terms upon
which it sells to us or discontinue selling to us. Sales demands
may lead to insufficient in-stock positions of our merchandise.
13
Significant changes in our ability to obtain adequate product
supplies due to weather, food contamination, regulatory actions,
labor supply, or product vendor defaults or disputes that limit
our ability to procure products for sale to customers could have
an adverse effect on our operating results.
The foregoing discussion of risk factors is not exhaustive and
we do not undertake to revise any forward-looking statement to
reflect events or circumstances that occur after the date the
statement is made.
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ITEM 1B.
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UNRESOLVED
STAFF COMMENTS
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Not applicable.
Our principal executive offices are located in Minneapolis,
Minnesota and consist of approximately 126,000 square feet
of office space in a building that we own.
Food
Distribution Segment
The table below lists, as of January 3, 2009, the locations
and sizes of our distribution centers primarily used in our food
distribution operations. Unless otherwise indicated, we own each
of these distribution centers.
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Approx. Size
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Location
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(Square Feet)
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Midwest Region:
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Omaha, Nebraska (2)
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671,900
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Cedar Rapids, Iowa
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351,900
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St. Cloud, Minnesota
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329,000
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Sioux Falls, South Dakota (3)
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275,400
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Fargo, North Dakota
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288,800
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Rapid City, South Dakota (4)
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195,100
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Minot, North Dakota
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185,200
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Southeast Region:
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Lumberton, North Carolina (1)
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358,500
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Statesboro, Georgia (1)
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230,500
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Bluefield, Virginia
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187,500
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Great Lakes Region:
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Bellefontaine, Ohio
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666,000
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Lima, Ohio (5)
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648,300
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Bridgeport, Michigan (1)
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604,500
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Westville, Indiana
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631,900
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Cincinnati, Ohio
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403,300
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Total Square Footage
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6,027,800
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(1) |
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Leased facility. |
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(2) |
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Includes 45,000 square feet that we lease. |
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(3) |
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Includes 79,300 square feet that we lease. The Sioux Falls
facility represents two distinct distribution centers. |
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(4) |
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Includes 8,000 square feet that we lease. |
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(5) |
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Includes 134,000 square feet that we lease. |
14
Military
Segment
The table below lists the locations and sizes of our facilities
exclusively used in our military distribution business as of
January 3, 2009. We lease each of these facilities. The
Norfolk facilities comprise our distribution center, while the
Jessup facility is used as an intermediate holding area for high
velocity and large cube products to be delivered to commissaries
and exchanges in the northern portion of the Mid-Atlantic region
that we serve.
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Approx. Size
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Location
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(Square Feet)
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Norfolk, Virginia
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756,200
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Jessup, Maryland
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115,200
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Total Square Footage
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871,400
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Retail
Segment
The table below contains selected information regarding our 57
corporate-owned stores as of January 3, 2009. We own the
facilities of 26 of these stores and lease the facilities of 31
of these stores.
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Number
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Areas
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Average
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Banner
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of Stores
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of Operation
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Square Feet
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Sun Mart
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22
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CO, MN, ND, NE
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33,283
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Econofoods
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19
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IA, MN, SD, WI
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35,465
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Family Thrift Center
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5
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NE, SD
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48,082
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AVANZA
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4
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CO, NE
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31,111
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Pick n Save
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2
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OH
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49,588
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Wholesale Food Outlet
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1
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IA
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19,620
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Food Bonanza
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1
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IA
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36,588
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Prairie Market
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1
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SD
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29,480
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Family Fresh Market
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1
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WI
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54,641
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Other Stores
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1
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MN
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3,500
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Total
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57
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The table excludes three corporate-owned pharmacies and one
convenience store. As of January 3, 2009, the aggregate
square footage of our 57 retail grocery stores totaled
2,013,923 square feet.
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ITEM 3.
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LEGAL
PROCEEDINGS
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Roundys
Supermarkets, Inc. v. Nash Finch
On February 11, 2008, Roundys Supermarkets, Inc.
(Roundys) filed suit against us claiming we breached
the Asset Purchase Agreement (APA), entered into in
connection with our acquisition of certain distribution centers
and other assets from Roundys, by not paying approximately
$7.9 million that Roundys claims is due under the APA
as a purchase price adjustment. We answered the complaint
denying any payment was due to Roundys and asserted
counterclaims against Roundys for, among other things,
breach of contract, misrepresentation, and breach of the duty of
good faith and fair dealing. In our counterclaim we demand
damages from Roundys in excess of $18.0 million.
On or about March 25, 2008, Roundys filed a motion
for judgment on the pleadings with respect to some, but not all,
of the claims, asserted in our counterclaim. On May 27,
2008, we filed an amended counterclaim which rendered
Roundys motion moot. The amended counterclaim asserts
claims against Roundys for, among other things, breach of
contract, fraud, and breach of the duty of good faith and fair
dealing. Our counterclaim demands damages from Roundys in
excess of $18.0 million. Roundys filed an answer to
the counterclaims denying liability, and subsequently moved to
dismiss our counterclaims. The Court denied the motion in part
and granted the motion in part. We intend to vigorously defend
against Roundys complaint and to vigorously prosecute our
claims against it.
15
Due to uncertainties in the litigation process, the Company is
unable to estimate with certainty the financial impact or
outcome of this lawsuit.
Other
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.
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ITEM 4.
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SUBMISSION
OF MATTERS TO A VOTE OF SECURITY HOLDERS
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No matter was submitted to a vote of security holders during the
fourth quarter of the fiscal year covered by this report.
EXECUTIVE
OFFICERS OF THE REGISTRANT
The following table sets forth information about our executive
officers as of March 10, 2009:
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|
|
|
|
|
|
|
|
|
|
|
|
Year First Elected
|
|
|
|
|
|
|
or Appointed as an
|
|
|
Name
|
|
Age
|
|
Executive Officer
|
|
Title
|
|
Alec C. Covington
|
|
|
52
|
|
|
|
2006
|
|
|
President and Chief Executive Officer
|
Christopher A. Brown
|
|
|
46
|
|
|
|
2006
|
|
|
Executive Vice President, Food Distribution
|
Edward L. Brunot
|
|
|
45
|
|
|
|
2006
|
|
|
Senior Vice President, President and Chief Operating Officer of
MDV
|
Robert B. Dimond
|
|
|
47
|
|
|
|
2007
|
|
|
Executive Vice President, Chief Financial Officer and Treasurer
|
Kathleen M. Mahoney
|
|
|
54
|
|
|
|
2006
|
|
|
Senior Vice President, Secretary and General Counsel
|
Jeffrey E. Poore
|
|
|
50
|
|
|
|
2001
|
|
|
Executive Vice President, Supply Chain Management
|
Calvin S. Sihilling
|
|
|
59
|
|
|
|
2006
|
|
|
Executive Vice President and Chief Information Officer
|
Michael W. Rotelle III
|
|
|
49
|
|
|
|
2008
|
|
|
Senior Vice President, Human Resources
|
There are no family relationships between or among any of our
executive officers or directors. Our executive officers are
elected by the Board of Directors for one-year terms after
initial election, commencing with their election at the first
meeting of the Board of Directors immediately following the
annual meeting of stockholders and continuing until the next
such meeting of the Board of Directors.
Alec C. Covington has been our President and Chief
Executive Officer and a Director since May 2006.
Mr. Covington served as President and Chief Executive
Officer of Tree of Life, Inc., a marketer and distributor of
natural and specialty foods, from February 2004 to May 2006, and
for the same period as a member of the Executive Board of Tree
of Lifes parent corporation, Royal Wessanen NV, a
multi-national food corporation based in the Netherlands. From
April 2001 to February 2004, he was Chief Executive Officer of
AmeriCold Logistics, LLC, a provider of supply chain solutions
in the consumer packaged goods industry. Prior to that time,
Mr. Covington served as President of Richfood Inc., a
regional food distributor.
Christopher A. Brown has served as our Executive Vice
President, Food Distribution since November 2006. Prior to that
time, he served for three years as CEO of SimonDelivers, Inc., a
leading Minnesota-based online grocery delivery company. Prior
to joining SimonDelivers, Mr. Brown was the Executive Vice
President, Merchandising at Nash Finch from October 1999 to
September 2003 and responsible for all merchandising,
procurement, marketing, category management and advertising.
During the nine years prior to serving Nash Finch, he held
various management positions of increasing responsibility at
Richfood Holdings, Inc. Mr. Brown holds a BSBA degree from
Winona State University.
16
Edward L. Brunot has served as our Senior Vice President
and President and Chief Operating Officer of MDV since February
2009. Mr. Brunot joined Nash Finch in July 2006 as our
Senior Vice President, Military. Mr. Brunot previously
served as Senior Vice President, Operations for AmeriCold
Logistics, LLC from December 2002 to May 2006, where he was
responsible for 29 distribution facilities in the Western
Region. Before that, Mr. Brunot was Vice President of
Operations for CS Integrated from 1999 to 2002. Mr. Brunot
served as a Captain in the United States Army and holds a BS
degree from the United States Military Academy, West Point
and an MS degree from the University of Scranton.
Robert B. Dimond returned as our Executive Vice
President, Chief Financial Officer and Treasurer in January
2007. He previously served as Chief Financial Officer and Senior
Vice President of Wild Oats Markets, Inc., a leading national
natural and organic foods retailer, from April 2005 to December
2006. From January 2005 through March 2005, Mr. Dimond
served as Executive Vice President and Chief Financial Officer
of The Penn Traffic Company, a food retailer in the eastern
United States, in connection with its emergence from bankruptcy
proceedings. Prior to that, he served as our Executive Vice
President, Chief Financial Officer and Treasurer from May 2002
to November 2004 and as our Chief Financial Officer and Senior
Vice President from September 2000 to May 2002. Before that,
Mr. Dimond held various financial roles with Kroger and
Smiths Food & Drug Centers, Inc. Mr. Dimond
holds a BS degree in accounting from the University of Utah and
is a Certified Public Accountant.
Kathleen M. Mahoney has served as our Senior Vice
President, Secretary and General Counsel since July 2006.
Ms. Mahoney joined Nash Finch as Vice President, Deputy
General Counsel in November 2004, most recently as interim
Secretary and General Counsel. Prior to working at Nash Finch,
she was the Managing Partner of the St. Paul office of Larson
King, LLP from July 2002 to November 2004. Previously, she spent
13 years with the law firm of Oppenheimer,
Wolff & Donnelly, LLP, where she served in a number of
capacities including Managing Partner of their St. Paul office,
Chair of the Labor and Employment Practice Group and Chair of
the EEO Committee. Ms. Mahoney also served as Special
Assistant Attorney General in the Minnesota Attorney
Generals office for six years. Ms. Mahoney earned her
JD degree from Syracuse University College of Law and a BA from
Keene State College.
Jeffrey E. Poore has served as our Executive Vice
President, Supply Chain Management since July 2006. He
previously served as our Senior Vice President, Military from
July 2004 to July 2006 and as our Vice President, Distribution
and Logistics from May 2001 to July 2004. Prior to joining Nash
Finch, Mr. Poore served in various positions with Supervalu
Inc., a food wholesaler and retailer, most recently as Vice
President, Logistics from January 1999 to April 2001. Before
that, Mr. Poore held various distribution and logistics
roles with Computer Sciences Corporation, Hills Department
Stores, Payless Shoe Stores and Payless Cashways. Mr. Poore
holds a BA from Loyola Marymount University.
Calvin S. Sihilling has served as our Executive Vice
President and Chief Information Officer since August 2006.
Mr. Sihilling previously served as Chief Information
Officer for AmeriCold Logistics, LLC from August 2001 to
January 2006, where he was responsible for the oversight of
Information Technology, Transportation, Project Support, and the
National Service Center. Before that, Mr. Sihilling was CIO
of the Eastern Region of Richfood Holdings, Inc./SuperValu Inc.
from August 1998 to August 2001. Prior to that,
Mr. Sihilling held various leadership positions at such
companies as Alex Lee, Inc., PepsiCo Food Systems,
Dr. Pepper Company and Electronic Data Systems.
Mr. Sihilling holds a BS from the Northrop Institute of
Technology.
Michael W. Rotelle III has served as our Senior Vice
President, Human Resources since October 2008. Mr. Rotelle
previously served as Executive Vice President, Human Resources
for Acosta Sales and Marketing Company, a sales and marketing
company serving the foodservice and grocery industries, from
November 2007 to October 2008, where he was responsible for
global Human Resource operations. Before that Mr. Rotelle
served as Senior Vice President, Human Resources for Tree of
Life, Inc. from August 2004 to November 2007. Prior to that
Mr. Rotelle was Vice President, Human Resources of the
Eastern Region of Richfood Holdings, Inc./ Supervalu Inc. from
August 1994 to August 2004. Mr. Rotelle holds a Bachelor of
Science degree in Business Administration from Bloomsburg
University.
17
PART II
|
|
ITEM 5.
|
MARKET
FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS
AND ISSUER PURCHASES OF EQUITY SECURITIES
|
Our common stock is quoted on the NASDAQ Global Select Market
and currently trades under the symbol NAFC. The following table
sets forth, for each of the calendar periods indicated, the
range of high and low closing sales prices for our common stock
as reported by the NASDAQ Global Select Market, and the
quarterly cash dividends paid per share of common stock. At
March 2, 2009, there were 1,995 stockholders of record.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends
|
|
|
|
2008
|
|
|
2007
|
|
|
Per Share
|
|
|
|
High
|
|
|
Low
|
|
|
High
|
|
|
Low
|
|
|
2008
|
|
|
2007
|
|
|
First Quarter
|
|
$
|
37.35
|
|
|
$
|
32.50
|
|
|
$
|
34.29
|
|
|
$
|
26.89
|
|
|
$
|
0.180
|
|
|
$
|
0.180
|
|
Second Quarter
|
|
|
38.60
|
|
|
|
30.97
|
|
|
|
50.00
|
|
|
|
34.46
|
|
|
|
0.180
|
|
|
|
0.180
|
|
Third Quarter
|
|
|
46.33
|
|
|
|
33.53
|
|
|
|
51.29
|
|
|
|
31.62
|
|
|
|
0.180
|
|
|
|
0.180
|
|
Fourth Quarter
|
|
|
45.94
|
|
|
|
35.83
|
|
|
|
40.84
|
|
|
|
32.90
|
|
|
|
0.180
|
|
|
|
0.180
|
|
On March 10, 2009, the Nash Finch Board of Directors
declared a cash dividend of $0.18 per common share, payable on
April 3, 2009, to stockholders of record as of
March 20, 2009.
18
Total
Shareholder Return Graph
The line graph below compares the cumulative total shareholder
return on the Companys common stock for the last five
fiscal years with cumulative total return on the S&P
SmallCap 600 Index and the peer group index described below.
This graph assumes a $100 investment in each of Nash Finch
Company, the S&P SmallCap 600 Index and the peer group
index at the close of trading on January 4, 2004, and also
assumes the reinvestment of all dividends. The stock price
performance shown below is not necessarily indicative of future
performance.
Comparison of 5 Year Cumulative Total Return
Assumes Initial Investment of $100
January 3, 2009
The peer group represented in the line graph above includes the
following nine publicly traded companies: SuperValu Inc., Arden
Group, Inc., The Great Atlantic & Pacific Tea Company,
Inc., Ingles Markets, Incorporated, Ruddick Corporation, Spartan
Stores, Inc., United Natural Foods, Inc., Weis Markets, Inc. and
Core-Mark Holding Company, Inc.
From time-to-time, the peer group companies have changed due to
merger and acquisition activity, bankruptcy filings, company
delistings and other similar occurrences. There were no changes
to the peer group during fiscal 2008.
The performance graph above is being furnished solely to
accompany this Annual Report on
Form 10-K
pursuant to Item 201(e) of
Regulation S-K,
is not being filed for purposes of Section 18 of the
Securities Exchange Act of 1934, as amended, and is not to be
incorporated by reference into any filing of the Company,
whether made before or after the date hereof, regardless of any
general incorporation language in such filing.
19
|
|
ITEM 6.
|
SELECTED
FINANCIAL DATA
|
NASH
FINCH COMPANY AND SUBSIDIARIES
Consolidated Summary of Operations
Five years ended January 3, 2009 (not covered by
Independent Auditors Report)
(Dollar amounts in thousands except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005 (1)
|
|
|
2004
|
|
|
|
(53 Weeks)
|
|
|
(52 Weeks)
|
|
|
(52 Weeks)
|
|
|
(52 Weeks)
|
|
|
(52 Weeks)
|
|
|
Results of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
$
|
4,703,660
|
|
|
$
|
4,532,635
|
|
|
$
|
4,631,629
|
|
|
$
|
4,555,507
|
|
|
$
|
3,897,074
|
|
Cost of sales
|
|
|
4,296,711
|
|
|
|
4,134,981
|
|
|
|
4,229,807
|
|
|
|
4,124,344
|
|
|
|
3,474,329
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
406,949
|
|
|
|
397,654
|
|
|
|
401,822
|
|
|
|
431,163
|
|
|
|
422,745
|
|
Selling, general and administrative
|
|
|
288,263
|
|
|
|
280,818
|
|
|
|
319,678
|
|
|
|
300,837
|
|
|
|
299,727
|
|
Gains on sale of real estate
|
|
|
|
|
|
|
(1,867
|
)
|
|
|
(1,130
|
)
|
|
|
(3,697
|
)
|
|
|
(5,586
|
)
|
Special charges
|
|
|
|
|
|
|
(1,282
|
)
|
|
|
6,253
|
|
|
|
(1,296
|
)
|
|
|
34,779
|
|
Goodwill impairment
|
|
|
|
|
|
|
|
|
|
|
26,419
|
|
|
|
|
|
|
|
|
|
Extinguishment of debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,204
|
|
Depreciation and amortization
|
|
|
38,429
|
|
|
|
38,882
|
|
|
|
41,451
|
|
|
|
43,721
|
|
|
|
40,241
|
|
Interest expense
|
|
|
21,523
|
|
|
|
23,581
|
|
|
|
26,644
|
|
|
|
24,732
|
|
|
|
27,181
|
|
Income tax expense
|
|
|
22,574
|
|
|
|
18,742
|
|
|
|
5,835
|
|
|
|
25,670
|
|
|
|
4,322
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) from continuing operations
|
|
|
36,160
|
|
|
|
38,780
|
|
|
|
(23,328
|
)
|
|
|
41,196
|
|
|
|
14,877
|
|
Net earnings from discontinued operations
|
|
|
|
|
|
|
|
|
|
|
160
|
|
|
|
56
|
|
|
|
55
|
|
Cumulative effect of change in accounting principle, net of
income tax (2)
|
|
|
|
|
|
|
|
|
|
|
169
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss)
|
|
$
|
36,160
|
|
|
$
|
38,780
|
|
|
$
|
(22,999
|
)
|
|
$
|
41,252
|
|
|
$
|
14,932
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per share
|
|
$
|
2.81
|
|
|
$
|
2.88
|
|
|
$
|
(1.72
|
)
|
|
$
|
3.19
|
|
|
$
|
1.20
|
|
Diluted earnings (loss) per share
|
|
$
|
2.75
|
|
|
$
|
2.84
|
|
|
$
|
(1.72
|
)
|
|
$
|
3.13
|
|
|
$
|
1.18
|
|
Cash dividends declared per common share
|
|
$
|
0.72
|
|
|
$
|
0.72
|
|
|
$
|
0.72
|
|
|
$
|
0.675
|
|
|
$
|
0.54
|
|
Selected Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pretax earnings (loss) from continuing operations as a percent
of sales
|
|
|
1.25
|
%
|
|
|
1.27
|
%
|
|
|
(0.38
|
)%
|
|
|
1.47
|
%
|
|
|
0.49
|
%
|
Net earnings (loss) as a percent of sales
|
|
|
0.77
|
%
|
|
|
0.86
|
%
|
|
|
(0.50
|
)%
|
|
|
0.91
|
%
|
|
|
0.38
|
%
|
Effective income tax rate
|
|
|
38.4
|
%
|
|
|
32.6
|
%
|
|
|
33.4
|
%
|
|
|
38.4
|
%
|
|
|
22.5
|
%
|
Current assets
|
|
$
|
467,951
|
|
|
$
|
477,934
|
|
|
$
|
457,053
|
|
|
$
|
512,207
|
|
|
$
|
400,587
|
|
Current liabilities
|
|
$
|
297,729
|
|
|
$
|
282,357
|
|
|
$
|
278,222
|
|
|
$
|
325,859
|
|
|
$
|
280,162
|
|
Net working capital
|
|
$
|
170,222
|
|
|
$
|
195,577
|
|
|
$
|
178,831
|
|
|
$
|
186,348
|
|
|
$
|
120,425
|
|
Ratio of current assets to current liabilities
|
|
|
1.57
|
|
|
|
1.69
|
|
|
|
1.64
|
|
|
|
1.57
|
|
|
|
1.43
|
|
Total assets
|
|
$
|
954,952
|
|
|
$
|
951,382
|
|
|
$
|
954,303
|
|
|
$
|
1,077,424
|
|
|
$
|
815,628
|
|
Capital expenditures
|
|
$
|
31,955
|
|
|
$
|
21,419
|
|
|
$
|
27,469
|
|
|
$
|
24,638
|
|
|
$
|
22,327
|
|
Long-term obligations (long-term debt and capitalized lease
obligations)
|
|
$
|
271,693
|
|
|
$
|
308,328
|
|
|
$
|
347,854
|
|
|
$
|
407,659
|
|
|
$
|
239,603
|
|
Stockholders equity
|
|
$
|
336,050
|
|
|
$
|
315,616
|
|
|
$
|
294,380
|
|
|
$
|
322,578
|
|
|
$
|
273,928
|
|
Stockholders equity per share (3)
|
|
$
|
26.22
|
|
|
$
|
24.05
|
|
|
$
|
21.99
|
|
|
$
|
24.24
|
|
|
$
|
21.66
|
|
Return on stockholders equity (4)
|
|
|
10.76
|
%
|
|
|
12.29
|
%
|
|
|
(7.92
|
)%
|
|
|
12.77
|
%
|
|
|
5.43
|
%
|
Common stock high price (5)
|
|
$
|
46.33
|
|
|
$
|
51.29
|
|
|
$
|
31.74
|
|
|
$
|
44.00
|
|
|
$
|
38.66
|
|
Common stock low price (5)
|
|
$
|
30.97
|
|
|
$
|
26.89
|
|
|
$
|
19.42
|
|
|
$
|
24.83
|
|
|
$
|
18.06
|
|
|
|
|
(1) |
|
Information presented for fiscal 2005 reflects our acquisition
on March 31, 2005, of the Lima and Westville distribution
divisions of Roundys. More generally, discussion regarding
the comparability of information presented in the table above or
material uncertainties that could cause the selected financial
data not to be indicative of future financial condition or
results of operations can be found in Part 1, Item 1A
of this report, Risk Factors, Part II, Item 7
of this report, Managements Discussion and Analysis
of Financial Condition and Results of Operations and
Part II, Item 8 of this report in our Consolidated
Financial Statements and notes thereto. |
|
(2) |
|
Effect of adoption of Statement of Financial Accounting
Standards No. 123(R), Share-Based Payment- Revised
2004, in fiscal 2006. |
|
(3) |
|
Based on outstanding shares at year-end. |
|
(4) |
|
Return based on continuing operations. |
|
(5) |
|
High and low closing sales price on NASDAQ. |
20
|
|
ITEM 7.
|
MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
|
Overview
In terms of revenue, we are the second largest publicly traded
wholesale food distributor in the United States serving the
retail grocery industry and the military commissary and exchange
systems. Our business consists of three primary operating
segments: food distribution, military food distribution and
retail.
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, Puerto Rico, Cuba, the Azores and
Egypt. 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 57 corporate-owned stores primarily
in the Upper Midwest as of January 3, 2009. On
April 1, 2008, we completed the acquisition of two stores
located in Rapid City, SD and Scottsbluff, NE. Primarily due to
highly competitive conditions in which supercenters and other
alternative formats compete for price conscious customers, we
closed or sold 16 retail stores in 2006, three retail stores in
2007 and four retail stores in 2008. We are implementing
initiatives of varying scope and duration with a view toward
improving our response to and performance under these highly
competitive conditions. These initiatives include designing and
reformatting some of our retail stores into alternative 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 goodwill
associated with our retail segment, and may incur restructuring
or other charges in connection with closure or sales activities.
The retail segment yields a higher gross profit percent of sales
and higher selling, general and administrative
(SG&A) expenses as a percent of sales compared
to our food distribution and military segments. Thus, changes in
sales of the retail segment can have a disproportionate impact
on consolidated gross profit and SG&A as compared to
similar changes in sales in our food distribution and military
segments.
Results
of Operations
The following discussion summarizes our operating results for
fiscal 2008 compared to fiscal 2007 and fiscal 2007 compared to
fiscal 2006. However, fiscal 2008 results are not directly
comparable to fiscal 2007 or 2006 because fiscal 2008 contained
an additional week.
Sales
The following tables summarize our sales activity for fiscal
2008, 2007 and 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
Percent
|
|
|
Percent
|
|
|
|
|
|
Percent
|
|
|
Percent
|
|
|
|
|
|
Percent
|
|
Segment Sales:
|
|
Sales
|
|
|
of Sales
|
|
|
Change
|
|
|
Sales
|
|
|
of Sales
|
|
|
Change
|
|
|
Sales
|
|
|
of Sales
|
|
|
|
(In millions)
|
|
|
Food Distribution
|
|
$
|
2,740.5
|
|
|
|
58.3
|
%
|
|
|
1.8
|
%
|
|
$
|
2,693.3
|
|
|
|
59.4
|
%
|
|
|
(3.4
|
)%
|
|
$
|
2,787.7
|
|
|
|
60.2
|
%
|
Military
|
|
|
1,360.7
|
|
|
|
28.9
|
%
|
|
|
9.1
|
%
|
|
|
1,247.6
|
|
|
|
27.5
|
%
|
|
|
4.4
|
%
|
|
|
1,195.0
|
|
|
|
25.8
|
%
|
Retail
|
|
|
602.5
|
|
|
|
12.8
|
%
|
|
|
1.8
|
%
|
|
|
591.7
|
|
|
|
13.1
|
%
|
|
|
(8.8
|
)%
|
|
|
648.9
|
|
|
|
14.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Sales
|
|
$
|
4,703.7
|
|
|
|
100.0
|
%
|
|
|
3.8
|
%
|
|
$
|
4,532.6
|
|
|
|
100.0
|
%
|
|
|
(2.1
|
)%
|
|
$
|
4,631.6
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21
The following table provides comparable sales for fiscal 2008 in
comparison to fiscal 2007 by excluding the additional week of
sales in fiscal 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2008
|
|
|
Fiscal 2008
|
|
|
|
|
|
|
|
|
|
53rd
|
|
|
Comparable
|
|
|
Comparable
|
|
(in millions)
|
|
Fiscal 2008
|
|
|
Week
|
|
|
52 Weeks of
|
|
|
Percent Change
|
|
Segment Sales:
|
|
Sales
|
|
|
Sales
|
|
|
Sales
|
|
|
2008 to 2007
|
|
|
Food Distribution
|
|
$
|
2,740.5
|
|
|
$
|
45.3
|
|
|
$
|
2,695.2
|
|
|
|
0.1
|
%
|
Military
|
|
|
1,360.7
|
|
|
|
20.5
|
|
|
|
1,340.2
|
|
|
|
7.4
|
%
|
Retail
|
|
|
602.5
|
|
|
|
11.3
|
|
|
|
591.2
|
|
|
|
0.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Sales
|
|
$
|
4,703.7
|
|
|
$
|
77.1
|
|
|
$
|
4,626.6
|
|
|
|
2.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2008 food distribution sales increased 1.8% in comparison
to fiscal 2007 but remained relatively flat in comparison to
fiscal 2007 after adjusting for the additional week of sales.
However, fiscal 2007 sales included $72.8 million of
additional sales from a significant customer that transitioned
to a different supplier during fiscal 2007. Excluding the impact
of this customer and the additional week of sales in fiscal
2008, food distribution sales increased 2.9% as compared to
fiscal 2007, primarily due to new account gains and an increase
in sales to existing customers. The decrease in fiscal 2007 food
distribution sales versus fiscal 2006 was primarily attributable
to the loss of the significant customer noted above which
accounted for approximately $82.9 million of the decrease
in sales. Sales to our existing customer base also declined
slightly in fiscal 2007 relative to fiscal 2006 as our existing
customers faced increased competition.
Fiscal 2008 military sales increased 9.1% as compared to fiscal
2007. However, after excluding the additional week of sales in
fiscal 2008, military sales increased 7.4% as compared to fiscal
2007. The sales increase reflected 7.2% stronger sales
domestically and 7.9% stronger sales overseas as compared to
fiscal 2007, after adjusting for the additional week of sales in
fiscal 2008. The increase in military segment sales in fiscal
2007 compared to fiscal 2006 was primarily attributable to
increased volume and new product line offerings. Domestic and
overseas sales represented the following percentages of military
segment sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
2007
|
|
2006
|
|
Domestic
|
|
|
70.1
|
%
|
|
|
70.2
|
%
|
|
|
69.7
|
%
|
Overseas
|
|
|
29.9
|
%
|
|
|
29.8
|
%
|
|
|
30.3
|
%
|
Retail sales for fiscal 2008 increased 1.8% in comparison to
fiscal 2007. However, after excluding the additional week of
sales in fiscal 2008, retail sales decreased 0.1% as compared to
fiscal 2007. The decrease in retail sales for fiscal 2008 was
attributable to a 0.8% decrease in same store sales, which
compare retail sales for stores which were in operation for the
same number of weeks in the comparative periods, and the closure
of four stores during the year. However, this was partially
offset by the acquisition of two stores in fiscal 2008. The
decrease in retail sales for fiscal 2007 as compared to fiscal
2006 was attributable to the closure or sale of three stores
during fiscal 2007 and 16 stores during fiscal 2006 (store
closures accounted for $52.7 million of the
$57.2 million decrease in retail sales). Same store sales
decreased 0.8% in fiscal 2007 as compared to fiscal 2006.
During fiscal 2008, 2007 and 2006, our corporate store count
changed as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year
|
|
|
Fiscal Year
|
|
|
Fiscal Year
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Number of stores at beginning of year (1)
|
|
|
59
|
|
|
|
62
|
|
|
|
78
|
|
Acquired stores
|
|
|
2
|
|
|
|
|
|
|
|
|
|
Closed or sold stores
|
|
|
(4
|
)
|
|
|
(3
|
)
|
|
|
(16
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of stores at end of year (2)(3)
|
|
|
57
|
|
|
|
59
|
|
|
|
62
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Store counts exclude four corporate-owned pharmacies. |
|
(2) |
|
Store count for fiscal 2008 excludes three corporate-owned
pharmacies and one convenience store. |
|
(3) |
|
Store counts for fiscal 2007 and 2006 exclude four
corporate-owned pharmacies. |
22
Gross
Profit
Consolidated gross profit for fiscal 2008 was 8.7% of sales
compared to 8.8% for fiscal 2007 and 8.7% for fiscal 2006.
Fiscal 2008 consolidated gross profit was negatively impacted by
additional year-over-year LIFO charges of 0.3% of sales, or
$14.6 million, and a sales mix shift between our business
segments of 0.1% of sales. The negative impact of the sales mix
shift was due to a higher percentage of 2008 sales occurring in
the military segment, which has a lower gross profit margin than
the retail or food distribution segments. However, our gross
profit margin increased 0.3% of sales in fiscal 2008 relative to
fiscal 2007 as a result of gains achieved from initiatives that
focused on better management of inventories and vendor
relationships.
Consolidated gross profit increased 0.3% of sales in fiscal 2007
relative to fiscal 2006 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 fiscal 2007 sales due to a sales mix shift between
our business segments. This was due to a higher percentage of
fiscal 2007 sales occurring in the military segment and a lower
percentage in the retail and food distribution segments which
traditionally have had a higher gross profit margin.
Inventory markdown and wind down costs related to retail store
closings and retail markdown adjustments are included in cost of
sales and were $0.4 million, $3.1 million and
$2.3 million in fiscal 2008, 2007 and 2006, respectively.
Selling,
General and Administrative Expense
The following table outlines consolidated selling, general and
administrative expenses (SG&A) and the significant factors
affecting consolidated SG&A:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
% of
|
|
|
|
|
|
% of
|
|
|
|
Segment
|
|
$
|
|
|
Sales
|
|
|
$
|
|
|
Sales
|
|
|
$
|
|
|
Sales
|
|
|
|
|
|
(In millions except percentages)
|
|
|
SG&A
|
|
|
|
|
288.3
|
|
|
|
6.1
|
%
|
|
|
280.8
|
|
|
|
6.2
|
%
|
|
|
319.7
|
|
|
|
6.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Significant factors affecting SG&A:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail store impairments and lease reserves
|
|
Corporate overhead
|
|
|
0.9
|
|
|
|
0.0
|
%
|
|
|
2.6
|
|
|
|
0.1
|
%
|
|
|
8.4
|
|
|
|
0.2
|
%
|
Charges related to food distribution customers
|
|
Corporate overhead
|
|
|
(3.3
|
)
|
|
|
(0.1
|
)%
|
|
|
(0.1
|
)
|
|
|
0.0
|
%
|
|
|
12.5
|
|
|
|
0.3
|
%
|
Gain on sale of assets
|
|
Retail
|
|
|
(0.6
|
)
|
|
|
0.0
|
%
|
|
|
(0.7
|
)
|
|
|
0.0
|
%
|
|
|
|
|
|
|
0.0
|
%
|
Acquisition costs
|
|
Corporate overhead
|
|
|
0.5
|
|
|
|
0.0
|
%
|
|
|
|
|
|
|
0.0
|
%
|
|
|
|
|
|
|
0.0
|
%
|
Severance costs
|
|
Corporate overhead
|
|
|
|
|
|
|
0.0
|
%
|
|
|
|
|
|
|
0.0
|
%
|
|
|
4.2
|
|
|
|
0.1
|
%
|
Tradename impairment
|
|
Corporate overhead
|
|
|
|
|
|
|
0.0
|
%
|
|
|
|
|
|
|
0.0
|
%
|
|
|
2.0
|
|
|
|
0.0
|
%
|
Vacation standardization
|
|
All segments
|
|
|
|
|
|
|
0.0
|
%
|
|
|
|
|
|
|
0.0
|
%
|
|
|
2.0
|
|
|
|
0.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total significant factors affecting SG&A
|
|
|
|
|
(2.5
|
)
|
|
|
(0.1
|
)%
|
|
|
1.8
|
|
|
|
0.0
|
%
|
|
|
29.1
|
|
|
|
0.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated SG&A for fiscal 2008 was 6.1% of sales as
compared to 6.2% of sales in fiscal 2007 and 6.9% of sales in
fiscal 2006. A portion of the change in SG&A as a
percentage of sales in the
2006-2008
period is because our retail segment, which has higher SG&A
than our food distribution and military segments (as a
percentage of sales), represented a smaller percentage of our
total sales in each of these periods. The decrease in SG&A
attributable to this shift in revenues was approximately 0.1% of
sales in 2008 and 0.2% of sales in 2007.
Gain
on Sale of Real Estate
The gain on sale of real estate for fiscal 2007 was
$1.9 million and $1.1 million for fiscal 2006. The
gain on sale of real estate was primarily related to the sale of
unoccupied properties.
23
Goodwill
Impairment
Annually, we perform an impairment test of goodwill during the
fourth quarter based on conditions as of the end of our third
fiscal quarter in accordance with Statement of Financial
Accounting Standards No. 142, Goodwill and Other
Intangible Assets. No impairment was indicated or
recorded in fiscal 2008 or 2007. In fiscal 2006, the test, using
an undiscounted operating cash flow assumption, indicated an
impairment of our retail segment goodwill. The resulting
analysis of the discounted cash flows of the retail segment
indicated an impairment necessitating a charge of
$26.4 million to retail goodwill.
Depreciation
and Amortization Expense
Depreciation and amortization expense for fiscal 2008 and 2007
was $38.4 million and $38.9 million, respectively.
Depreciation and amortization expense for fiscal 2007 decreased
by $2.6 million, or 6.2%, as compared to fiscal 2006. The
decrease was primarily due to reduced capital lease amortization
and reduced depreciation on fixtures and equipment.
Interest
Expense
Interest expense decreased $2.1 million to
$21.5 million in fiscal 2008 as compared to
$23.6 million in fiscal 2007. Fiscal 2008 interest expense
includes the write-off of deferred financing costs of
$1.0 million associated with the refinancing of our senior
secured bank credit facility. Average borrowing levels decreased
by $6.4 million from $348.0 million during fiscal 2007
to $341.6 million during fiscal 2008. The effective
interest rate was 5.4% for fiscal 2008 as compared to 6.2% for
fiscal 2007. However, excluding the impact of the write-off of
deferred financing costs, the effective interest rate was 5.1%
for fiscal 2008.
Interest expense decreased $3.0 million to
$23.6 million in fiscal 2007 as compared to
$26.6 million in fiscal 2006. The decrease was primarily
due to a reduction in average borrowing levels of
$56.2 million. Average borrowing levels decreased from
$404.2 million in fiscal 2006 to $348.0 million in
fiscal 2007. Fiscal 2006 interest included a payment of
$0.5 million to amend covenants on our senior secured
credit facility.
Income
Tax Expense
The effective tax rate for income from continuing operations was
38.4%, 32.6% and 33.4% for fiscal 2008, 2007 and 2006,
respectively. Income tax expense from continuing operations
differed from amounts computed by applying the federal income
tax rate to pre-tax income as a result of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Federal statutory tax rate
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
|
|
(35.0
|
)%
|
State taxes, net of federal income tax benefit
|
|
|
4.0
|
%
|
|
|
3.9
|
%
|
|
|
2.5
|
%
|
Non-deductible goodwill
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
|
|
54.8
|
%
|
Change in tax contingencies
|
|
|
1.0
|
%
|
|
|
(4.7
|
)%
|
|
|
9.7
|
%
|
Other net
|
|
|
(1.6
|
)%
|
|
|
(1.6
|
)%
|
|
|
1.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective tax rate
|
|
|
38.4
|
%
|
|
|
32.6
|
%
|
|
|
33.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The effective tax rate for fiscal 2008 was impacted by the
reversal of previously unrecognized tax benefits of
$2.6 million, primarily due to the filing of reports with
various taxing authorities which resulted in the settlement of
uncertain tax positions, a refund on a claim made with the
Internal Revenue Service of $1.2 million and an increase in
reserves of $2.7 million. The effective tax rate for fiscal
2007 was also impacted by the reversal of previously
unrecognized tax benefits of $12.6 million, primarily due
to statute of limitation expirations, audit resolutions, and the
filing of reports with various taxing authorities which resulted
in the settlement of uncertain tax positions. During fiscal year
2006 we increased tax reserves by $1.7 million.
24
Discontinued
Operations
There were no earnings from discontinued operations in fiscal
2008 or fiscal 2007. Earnings from discontinued operations of
$0.3 million in fiscal 2006 was a result of the resolution
of a contingency associated with the sale of our Nash De-Camp
produce growing and marketing subsidiary in fiscal 1999.
Net
Earnings
Net earnings for fiscal 2008 were $36.2 million, or $2.75
per diluted share, compared to net earnings of
$38.8 million, or $2.84 per diluted share, for fiscal 2007,
and a net loss of $23.0 million, or $1.72 per diluted
share, for fiscal 2006. Net earnings in each of the three years
were affected by a number of events included in the discussion
above that affected the comparability of results.
Liquidity
and Capital Resources
Historically, we have financed our capital needs through a
combination of internal and external sources. We expect that
cash flow from operations will be sufficient to meet our working
capital needs and enable us to reduce our debt, with temporary
draws on our revolving credit line needed during the year to
build inventories for certain holidays. Longer term, we believe
that cash flows from operations, short-term bank borrowings,
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.
The following table summarizes our cash flow activity for fiscal
2008, 2007 and 2006 and should be read in conjunction with the
Consolidated Statements of Cash Flows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
Net cash provided by operating activities
|
|
$
|
111,999
|
|
|
$
|
83,616
|
|
|
$
|
90,135
|
|
Net cash used in investing activities
|
|
|
(60,414
|
)
|
|
|
(18,487
|
)
|
|
|
(24,509
|
)
|
Net cash used in financing activities
|
|
|
(51,623
|
)
|
|
|
(65,225
|
)
|
|
|
(65,925
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in cash and cash equivalents
|
|
$
|
(38
|
)
|
|
$
|
(96
|
)
|
|
$
|
(299
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating cash flows were $112.0 million for fiscal 2008,
an increase of $28.4 million from $83.6 million in
fiscal 2007. The primary reasons for the fiscal 2008 increase in
operating cash flows were due to year-over-year decreases in
accounts and notes receivable of $28.7 million due to
increased collections and a year-over-year increase in income
taxes payable of $22.3 million. However, operating cash
flows for fiscal 2008 were negatively impacted by a
year-over-year increase in our investment in inventories due to
inflationary increases of $21.5 million.
Operating cash flows were $83.6 million for fiscal 2007, a
decrease of $6.5 million from $90.1 million in fiscal
2006. The primary reason for the decrease in operating cash
flows for fiscal 2007 as compared to fiscal 2006 was due to
increases in accounts and notes receivable and an increased
investment in inventories of $11.2 million and
$10.0 million, respectively.
Cash used for investing activities was $60.4 million in
fiscal 2008 and $18.5 million in fiscal 2007. The increase
in cash used for investing activities was due to year-over- year
increases in additions to property, plant and equipment and
loans to customers of $10.6 million and $20.2 million,
respectively, and the acquisition of a business, net of cash,
for $6.6 million. Cash used for investing activities was
$18.5 million in fiscal 2007 and $24.5 million in
fiscal 2006. Cash was primarily used for additions of property,
plant and equipment during fiscal 2007 and 2006.
Cash used by financing activities was $51.6 million for
fiscal 2008 as $32.0 million was used to pay down revolving
and other long-term debt, $14.3 million was used to
repurchase shares of our common stock and $9.2 million was
used to pay dividends on our common stock. Cash used by
financing activities was $65.2 million for fiscal 2007 as
$35.6 million was used to pay down revolving and other
long-term debt, $15.0 million was used to repurchase shares
of our common stock and $9.7 million was used to pay
dividends
25
on our common stock. Cash used by financing activities was
$65.9 million for fiscal 2006 as $57.7 million was
used to pay down the revolving debt and other long-term debt and
$9.6 million was used to pay dividends on our common stock.
Share
Repurchase
On November 13, 2007, we announced that our Board of
Directors had authorized a share repurchase program to purchase
up to 1,000,000 shares of the Companys common stock.
The program took effect on November 19, 2007 and concluded
on January 3, 2009. During 2008 we repurchased
429,082 shares at an average price per share of $33.44.
Since the program took effect, we repurchased a total of
842,038 shares at an average price per share of $34.83. The
average prices per share referenced above include commissions.
Contractual
Obligations and Commercial Commitments
The following table summarizes our significant contractual cash
obligations as of January 3, 2009, and the expected timing
of cash payments related to such obligations in future periods:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount Committed by Period
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount
|
|
|
Fiscal
|
|
|
Fiscal
|
|
|
Fiscal
|
|
|
|
|
Contractual Cash
Obligations:
|
|
Committed
|
|
|
2009
|
|
|
2010-2011
|
|
|
2012-2013
|
|
|
Thereafter
|
|
|
|
(In thousands)
|
|
|
Long-Term Debt (1)
|
|
$
|
247,036
|
|
|
$
|
595
|
|
|
$
|
1,298
|
|
|
$
|
95,016
|
|
|
$
|
150,127
|
|
Interest on Long-Term Debt (2)
|
|
|
211,004
|
|
|
|
9,687
|
|
|
|
19,028
|
|
|
|
14,571
|
|
|
|
167,718
|
|
Capital Lease Obligations (3)(4)
|
|
|
47,230
|
|
|
|
6,348
|
|
|
|
11,079
|
|
|
|
8,800
|
|
|
|
21,003
|
|
Operating Leases (3)
|
|
|
97,207
|
|
|
|
21,514
|
|
|
|
32,118
|
|
|
|
20,313
|
|
|
|
23,262
|
|
Benefit Obligations (5)
|
|
|
28,980
|
|
|
|
3,283
|
|
|
|
5,926
|
|
|
|
5,550
|
|
|
|
14,221
|
|
Purchase Obligations (6)
|
|
|
14,955
|
|
|
|
4,006
|
|
|
|
5,101
|
|
|
|
1,991
|
|
|
|
3,857
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total (7)
|
|
$
|
646,412
|
|
|
$
|
45,433
|
|
|
$
|
74,550
|
|
|
$
|
146,241
|
|
|
$
|
380,188
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Refer to Part II, Item 8 in this report under Note
(6) Long-term Debt and Bank Credit
Facilities in the Notes to Consolidated Financial
Statements for additional information regarding long-term debt. |
|
(2) |
|
The interest on long-term debt for periods subsequent to fiscal
2013 reflects our Senior Subordinated Convertible Debt accreted
interest for fiscal 2014 through 2035, should the convertible
debt remain outstanding until maturity. Interest payments assume
debt is held to maturity. For variable rate debt the current
interest rates applicable as of January 3, 2009, were
assumed for the remainder of the term. |
|
(3) |
|
Lease obligations primarily relate to store locations for our
retail segment, as well as store locations subleased to
independent food distribution customers. A discussion of lease
commitments can be found in Part II, Item 8 in this
report under Note (11) Leases in the
Notes to Consolidated Financial Statements and under the caption
Lease Commitments in the Critical Accounting
Policies section below. |
|
(4) |
|
Includes amounts classified as imputed interest. |
|
(5) |
|
Our benefit obligations include obligations related to
third-party sponsored defined benefit pension and
post-retirement benefit plans. For a further discussion see
Part II, Item 8 in this report under Note
(16) Pension and Other Post-retirement
Benefits in the Notes to Consolidated Financial Statements. |
|
(6) |
|
The amount of purchase obligations shown in the table represents
the amount of product we are contractually obligated to
purchase. The majority of our purchase obligations involve
purchase orders made in the ordinary course of business, which
are not included in the table above. Our purchase orders are
based on our current needs and are fulfilled by our vendors
within very short time horizons. The purchase obligations shown
in this table also exclude agreements that are cancelable by us
without significant penalty, which include contracts for routine
outsourced services. |
|
(7) |
|
Payments for reserved tax contingencies are not included as the
timing of specific tax payments is not determinable. |
26
We have also made certain commercial commitments that extend
beyond 2008. These commitments include standby letters of credit
and guarantees of certain food distribution customer debt and
lease obligations. The following summarizes these commitments as
of January 3, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
Commitment Expiration per Period
|
|
Other Commercial
|
|
Amounts
|
|
|
Less than
|
|
|
|
|
|
|
|
|
Over 5
|
|
Commitments
|
|
Committed
|
|
|
1 Year
|
|
|
1-3 Years
|
|
|
4-5 Years
|
|
|
Years
|
|
|
|
(In thousands)
|
|
|
Standby Letters of Credit(1)
|
|
$
|
15,514
|
|
|
$
|
6,075
|
|
|
$
|
9,439
|
|
|
$
|
|
|
|
$
|
|
|
Guarantees(2)
|
|
|
30,999
|
|
|
|
5,046
|
|
|
|
7,925
|
|
|
|
4,965
|
|
|
|
13,063
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Other Commercial Commitments
|
|
$
|
46,513
|
|
|
$
|
11,121
|
|
|
$
|
17,364
|
|
|
$
|
4,965
|
|
|
$
|
13,063
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Letters of credit relate primarily to supporting workers
compensation obligations. |
|
(2) |
|
Refer to Part II, Item 8 of this report under Note
(12) Concentration of Credit Risk in the
Notes to Consolidated Financial Statements and under the caption
Guarantees of Debt and Lease Obligations of Others
in the Critical Accounting Policies section below for additional
information regarding debt guarantees, lease guarantees and
assigned leases. |
Asset-backed
Credit Agreement
On April 11, 2008, we entered into our credit agreement
which is an asset-backed loan consisting of a
$300.0 million revolving credit facility, which includes a
$50.0 million letter of credit sub-facility (the
Revolving Credit Facility). Provided no default is
then existing or would arise, we may from time-to-time, request
that the Revolving Credit Facility be increased by an aggregate
amount (for all such requests) not to exceed $150.0 million.
The Revolving Credit Facility has a
5-year term
and will be due and payable in full on April 11, 2013. We
can elect, at the time of borrowing, for loans to bear interest
at a rate equal to the base rate or LIBOR plus a margin. The
LIBOR interest rate margin currently is 2.00% and can vary
quarterly in 0.25% increments between three pricing levels
ranging from 1.75% to 2.25% based on the excess availability,
which is defined in the credit agreement as (a) the lesser
of (i) the borrowing base; or (ii) the aggregate
commitments; minus (b) the aggregate of the outstanding
credit extensions.
The credit agreement contains no financial covenants unless and
until (i) the continuance of an event of default under the
credit agreement, or (ii) the failure of us to maintain
excess availability (A) greater than 10% of the borrowing
base for more than two (2) consecutive business days or
(B) greater than 7.5% of the borrowing base at any time, in
which event, we must comply with a trailing
12-month
basis consolidated fixed charge covenant ratio of 1.0:1.0, which
ratio shall continue to be tested each month thereafter until
excess availability exceeds 10% of the borrowing base for ninety
(90) consecutive days.
The credit agreement contains standard covenants requiring us,
among other things, to maintain collateral, comply with
applicable laws, keep proper books and records, preserve the
corporate existence, maintain insurance, and pay taxes in a
timely manner. Events of default under the credit agreement are
usual and customary for transactions of this type including,
among other things: (a) any failure to pay principal
thereunder when due or to pay interest or fees on the due date;
(b) material misrepresentations; (c) default under
other agreements governing material indebtedness of the Company;
(d) default in the performance or observation of any
covenants; (e) any event of insolvency or bankruptcy;
(f) any final judgments or orders to pay more than
$15.0 million that remain unsecured or unpaid;
(g) change of control, as defined in the credit agreement;
and (h) any failure of a collateral document, after
delivery thereof, to create a valid mortgage or first-priority
lien.
At January 3, 2009, $190.9 million was available under
the Revolving Credit Facility after giving effect to outstanding
borrowings and to $15.5 million of outstanding letters of
credit primarily supporting workers
27
compensation obligations. We are currently in compliance with
all covenants contained within the credit agreement.
Our Revolving Credit Facility represents one of our primary
sources of liquidity, both short-term and long-term, and the
continued availability of credit under that agreement is of
material importance to our ability to fund our capital and
working capital needs.
Senior
Subordinated Convertible Debt
On March 15, 2005, we completed a private placement of
$150.1 million in aggregate issue price (or
$322.0 million aggregate principal amount at maturity) of
senior subordinated convertible notes due 2035. The funds were
used to finance a portion of the acquisition of the Lima and
Westville divisions from Roundys. 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 at a daily rate of 3.50% per year until the maturity date
of the notes. On the maturity date of the notes, a holder will
receive $1,000 per note. Contingent cash interest will be paid
on the notes during any six-month period, commencing
March 16, 2013, if the average market price of a note for a
ten trading day measurement period preceding the applicable
six-month period equals 130% or more of the accreted principal
amount of the note, plus accrued cash interest, if any. The
contingent cash interest payable with respect to any six-month
period will equal an annual rate of 0.25% of the average market
price of the note for the ten trading day measurement period
described above.
The notes 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 9.312 shares) 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 a combination of both, at our option.
We may redeem all or a portion of the notes for cash at any time
on or after the eighth anniversary of the issuance of the notes.
Holders may require us to purchase for cash all or a portion of
their notes on the 8th, 10th, 15th, 20th and
25th anniversaries of the issuance of the notes. In
addition, upon specified change in control events, each holder
will have the option, subject to certain limitations, to require
us to purchase for cash all or any portion of such holders
notes.
In connection with the closing of the sale of the notes, we
entered into a registration rights agreement with the initial
purchasers of the notes. In accordance with that agreement, we
filed with the Securities and Exchange Commission on
July 13, 2005, a shelf registration statement covering the
resale by security holders of the notes and the common stock
issuable upon conversion of the notes. The shelf registration
statement was declared effective by the Securities and Exchange
Commission on October 5, 2005. Our contractual obligation,
however, to maintain the effectiveness of the shelf registration
statement has expired. As a result, we removed from
registration, by means of a post-effective amendment filed on
July 24, 2007, all notes and common stock that remained
unsold at such time.
28
Debt
Obligations
For debt obligations, the following table presents principal
cash flows, related weighted average interest rates by expected
maturity dates and fair value as of January 3, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed Rate
|
|
|
Variable Rate
|
|
|
|
Fair Value
|
|
|
Amount
|
|
|
Rate
|
|
|
Fair Value
|
|
|
Amount
|
|
|
Rate
|
|
|
|
(In thousands)
|
|
|
2009
|
|
|
|
|
|
$
|
595
|
|
|
|
6.0
|
%
|
|
|
|
|
|
$
|
|
|
|
|
|
|
2010
|
|
|
|
|
|
|
628
|
|
|
|
6.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
2011
|
|
|
|
|
|
|
670
|
|
|
|
6.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
2012
|
|
|
|
|
|
|
704
|
|
|
|
6.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
2013
|
|
|
|
|
|
|
712
|
|
|
|
6.1
|
%
|
|
|
|
|
|
|
93,600
|
|
|
|
4.5
|
%
|
Thereafter
|
|
|
|
|
|
|
150,127
|
|
|
|
3.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
152,645
|
|
|
$
|
153,436
|
|
|
|
|
|
|
$
|
93,600
|
|
|
$
|
93,600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
EBITDA (Non-GAAP Measurement)
The following is a reconciliation of EBITDA and Consolidated
EBITDA to net income for fiscal 2008, 2007 and 2006 (amounts in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Net income (loss)
|
|
$
|
36,160
|
|
|
|
38,780
|
|
|
|
(22,999
|
)
|
Income tax expense
|
|
|
22,574
|
|
|
|
18,742
|
|
|
|
5,835
|
|
Interest expense
|
|
|
21,523
|
|
|
|
23,581
|
|
|
|
26,644
|
|
Depreciation and amortization
|
|
|
38,429
|
|
|
|
38,882
|
|
|
|
41,451
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA
|
|
|
118,686
|
|
|
|
119,985
|
|
|
|
50,931
|
|
LIFO charge
|
|
|
19,740
|
|
|
|
5,091
|
|
|
|
2,630
|
|
Lease reserves
|
|
|
(1,832
|
)
|
|
|
551
|
|
|
|
9,359
|
|
Goodwill impairment
|
|
|
|
|
|
|
|
|
|
|
26,419
|
|
Asset impairments
|
|
|
2,555
|
|
|
|
1,868
|
|
|
|
11,443
|
|
Gains on sale of real estate
|
|
|
|
|
|
|
(1,867
|
)
|
|
|
(1,130
|
)
|
Share-based compensation
|
|
|
8,792
|
|
|
|
7,786
|
|
|
|
1,166
|
|
Special charges
|
|
|
|
|
|
|
(1,282
|
)
|
|
|
6,253
|
|
Subsequent cash payments on non-cash charges
|
|
|
(4,218
|
)
|
|
|
(3,292
|
)
|
|
|
(4,012
|
)
|
Earnings from discontinued operations, net of tax
|
|
|
|
|
|
|
|
|
|
|
(160
|
)
|
Cumulative effect of change in accounting principal, net of tax
|
|
|
|
|
|
|
|
|
|
|
(169
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Consolidated EBITDA
|
|
$
|
143,723
|
|
|
|
128,840
|
|
|
|
102,730
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA and Consolidated EBITDA are measures used by management
to measure operating performance. EBITDA is defined as net
income before interest, taxes, depreciation, and amortization.
Consolidated EBITDA excludes certain non-cash charges and other
items that management does not utilize in assessing operating
performance and is a metric used to determine payout of
performance units pursuant to our Short-Term and Long-Term
Incentive Plans. The above table reconciles net income to EBITDA
and Consolidated EBITDA. Not all companies utilize identical
calculations; therefore, the presentation of EBITDA and
Consolidated EBITDA may not be comparable to other identically
titled measures of other companies. Neither EBITDA or
Consolidated EBITDA are recognized terms under GAAP and do not
purport to be an alternative to net income as an indicator of
operating performance or any other GAAP measure. In addition,
EBITDA and Consolidated EBITDA are not intended to be measures
of free cash flow for managements discretionary use
29
since they do not consider certain cash requirements, such as
interest payments, tax payments and capital expenditures.
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. From time-to-time 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 Statement of
Financial Accounting Standards No. 133, Accounting
for Derivative Instruments and Hedging Activities,
(SFAS 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.
As of January 3, 2009, we had two outstanding interest rate
swap agreements with notional amounts totaling
$52.5 million. The notional amounts of the two outstanding
swaps are reduced annually over their three year terms as
follows (amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
Notional
|
|
Effective Date
|
|
|
Termination Date
|
|
|
Fixed Rate
|
|
|
$30,000
|
|
|
10/15/2008
|
|
|
|
10/15/2009
|
|
|
|
3.49
|
%
|
20,000
|
|
|
10/15/2009
|
|
|
|
10/15/2010
|
|
|
|
3.49
|
%
|
10,000
|
|
|
10/15/2010
|
|
|
|
10/15/2011
|
|
|
|
3.49
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notional
|
|
Effective Date
|
|
|
Termination Date
|
|
|
Fixed Rate
|
|
|
$22,500
|
|
|
10/15/2008
|
|
|
|
10/15/2009
|
|
|
|
3.38
|
%
|
15,000
|
|
|
10/15/2009
|
|
|
|
10/15/2010
|
|
|
|
3.38
|
%
|
7,500
|
|
|
10/15/2010
|
|
|
|
10/15/2011
|
|
|
|
3.38
|
%
|
At December 29, 2007, there were no outstanding interest
rate swap agreements.
From time-to-time 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. Resulting
gains and losses on the fair market value of the commodity swap
agreement are immediately recognized as income or expense.
As of January 3, 2009, there were no commodity swap
agreements in existence. Our only commodity swap agreement in
place during 2008 expired during the first quarter and was
settled for fair market value. Pre-tax gains of
$0.4 million were recorded as a reduction to cost of sales
during fiscal 2007.
In addition to the previously discussed interest rate and
commodity swap agreements, from time-to-time we enter into fixed
price fuel supply agreements to support our food distribution
segment. Effective January 1, 2009, we entered into an
agreement which requires us to purchase a total of 252,000
gallons of diesel fuel per month at prices ranging from $1.90 to
$1.98 per gallon. The term of the agreement is for one year.
During fiscal 2007 and 2008 we had a fixed price fuel supply
agreement which required us to purchase a total of 168,000
gallons of diesel fuel per month at prices ranging from $2.28 to
$2.49 per gallon. The term of the agreement began on
February 1, 2007, and expired on December 31, 2007.
These fixed price fuel agreements
30
qualified for the normal purchase exception under
SFAS 133, therefore the fuel purchases under these
contracts 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.
Critical
Accounting Policies
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts
of assets, liabilities, revenue and expenses, and related
disclosure of contingent assets and liabilities. Management
bases its estimates on historical experience and various other
assumptions that are believed to be reasonable under the
circumstances, the results of which form the basis for making
judgments about the carrying value of assets and liabilities
that may not be readily apparent from other sources. Senior
management has discussed the development, selection and
disclosure of these estimates with the Audit Committee of our
Board of Directors and with our independent auditors.
An accounting policy is considered critical if it requires an
accounting estimate to be made based on assumptions about
matters that are highly uncertain at the time the estimate is
made, and if different estimates that reasonably could have been
used, or changes in the accounting estimates that are reasonably
likely to occur periodically, could materially impact our
financial statements. We consider the following accounting
policies to be critical and could result in materially different
amounts being reported under different conditions or using
different assumptions:
Customer
Exposure and Credit Risk
Allowance for Doubtful Accounts
Methodology. We evaluate the collectibility of
our accounts and notes receivable based on a combination of
factors. In most circumstances when we become aware of factors
that may indicate a deterioration in a specific customers
ability to meet its financial obligations to us (e.g.,
reductions of product purchases, deteriorating store conditions,
changes in payment patterns), we record a specific reserve for
bad debts against amounts due to reduce the net recognized
receivable to the amount we reasonably believe will be
collected. In determining the adequacy of the reserves, we
analyze factors such as the value of any collateral, customer
financial statements, historical collection experience, aging of
receivables and other economic and industry factors. It is
possible that the accuracy of the estimation process could be
materially affected by different judgments as to the
collectibility based on information considered and further
deterioration of accounts. If circumstances change (i.e.,
further evidence of material adverse creditworthiness,
additional accounts become credit risks, store closures), our
estimates of the recoverability of amounts due us could be
reduced by a material amount, including to zero.
Lease Commitments. We have historically leased
store sites for sublease to qualified independent retailers at
rates that are at least as high as the rent paid by us. Under
terms of the original lease agreements, we remain primarily
liable for any commitments an independent retailer may no longer
be financially able to satisfy. We also lease store sites for
our retail segment. Should a retailer be unable to perform under
a sublease or should we close underperforming corporate stores,
we record a charge to earnings for costs of the remaining term
of the lease, less any anticipated sublease income. Calculating
the estimated losses requires that significant estimates and
judgments be made by management. Our reserves for such
properties can be materially affected by factors such as the
extent of interested sub-lessees and their creditworthiness, our
ability to negotiate early termination agreements with lessors,
general economic conditions and the demand for commercial
property. Should the number of defaults by sub-lessees or
corporate store closures materially increase; the remaining
lease commitments we must record could have a material adverse
effect on operating
31
results and cash flows. Refer to Part II, Item 8 of
this report under Note (11) Leases in
the Notes to Consolidated Financial Statements for a discussion
of Lease Commitments.
Guarantees of Debt and Lease Obligations of
Others. We have guaranteed the debt and lease
obligations of certain 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 ($15.1 million as of January 3,
2009), which would be due in accordance with the underlying
agreements.
During fiscal 2008 and 2007, we entered into loan and lease
guarantees on behalf of certain food distribution customers that
are accounted for under Financial Accounting Standards Board
(FASB) Interpretation No. 45, Guarantors
Accounting and Disclosure Requirements, Including Indirect
Guarantees of Indebtedness of Others
(FIN 45). FIN 45 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
guarantees is $11.5 million, which is included in the
$15.1 million total referenced above. These guarantees are
secured by certain business assets and personal guarantees of
the respective customers. We believe these customers will be
able to perform under the lease agreements and that no payments
will be required and no loss will be incurred under the
guarantees. As required by FIN 45, a liability representing
the fair value of the obligations assumed under the guarantees
of $1.3 million is included in the accompanying
consolidated financial statements for the guarantees entered
into during fiscal 2008 and 2007.
We have also assigned various leases to certain food
distribution customers and other third parties. 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, net of reserves, to be
approximately $10.1 million as of January 3, 2009. In
circumstances when we become aware of factors that indicate
deterioration in a customers ability to meet its financial
obligations guaranteed or assigned by us, we record a specific
reserve in the amount we reasonably believe we will be obligated
to pay on the customers behalf, net of any anticipated
recoveries from the customer. In determining the adequacy of
these reserves, we analyze factors such as those described above
in Allowance for Doubtful Accounts
Methodology and Lease Commitments. It is
possible that the accuracy of the estimation process could be
materially affected by different judgments as to the obligations
based on information considered and further deterioration of
accounts, with the potential for a corresponding adverse effect
on operating results and cash flows. Triggering these guarantees
or obligations under assigned leases would not, however, result
in cross default of our debt, but could restrict resources
available for general business initiatives. Refer to
Part II, Item 8 of this report under Note
(12) Concentration of Credit Risk in the
Notes to Consolidated Financial Statements for more information
regarding customer exposure and credit risk.
Impairment
of Long-Lived Assets
Property, plant and equipment are tested for impairment in
accordance with SFAS 144, Accounting for the
Impairment or Disposal of Long-Lived Assets, whenever
events or changes in circumstances indicate that the carrying
amounts of such long-lived assets may not be recoverable from
future net pretax cash flows. Impairment testing requires
significant management judgment including estimating future
sales and costs, alternative uses for the assets and estimated
proceeds from disposal of the assets. Estimates of future
results are often influenced by assessments of changes in
competition, merchandising strategies, human resources and
general market conditions, which may result in not recognizing
an impairment loss. Impairment testing is conducted at the
lowest level where cash flows can be measured and are
independent of cash flows of other assets. An asset impairment
would be indicated if the sum of the expected future net pretax
cash flows from the use of the asset (undiscounted and without
interest charges) is less than the carrying amount of the asset.
An impairment loss would be measured based on the difference
between the fair value of the asset and its carrying amount. We
generally determine fair value by discounting expected future
cash flows at the rate we utilize to evaluate potential
investments.
32
The estimates and assumptions used in the impairment analysis
are consistent with the business plans and estimates we use to
manage our business operations and to make acquisition and
divestiture decisions. The use of different assumptions would
increase or decrease the impairment charge. Actual outcomes may
differ from the estimates. It is possible that the accuracy of
the estimation of future results could be materially affected by
different judgments as to competition, strategies and market
conditions, with the potential for a corresponding adverse
effect on financial condition and operating results.
Goodwill
We maintain three reporting units for purposes of our Goodwill
impairment testing, which are the same as our reporting segments
disclosed in Part II, Item 8 of this report under Note
(17) Segment Reporting. Goodwill for
each of our reporting units is tested for impairment in
accordance with Statement of Financial Accounting Standards
No. 142, Goodwill and Other Intangible Assets,
annually
and/or when
factors indicating impairment are present. Fair value is
determined primarily based on valuation studies performed by us,
which utilize a discounted cash flow methodology, where the
discount rate reflects the weighted average cost of capital.
Valuation analysis requires significant judgments and estimates
to be made by management. Our estimates could be materially
impacted by factors such as competitive forces, customer
behaviors, changes in growth trends and specific industry
conditions, with the potential for a corresponding adverse
effect on financial condition and operating results potentially
resulting in impairment of the goodwill. We have either met or
exceeded assumptions used in prior years goodwill
impairment models. None of the reporting units are more
susceptible to economic conditions than others. The cash flow
model used to determine fair value is most sensitive to the
discount rate and the EBITDA margin rate applicable for each
reporting segment as a percent of sales assumptions in the
model. For example, we performed a sensitivity analysis on both
of these factors and determined that the discount rate used
could increase by a factor of 25.0% or EBITDA margin rate used
could decrease by 1.0% from the EBITDA margin rate utilized and
the goodwill of our reporting segments would not be impaired.
Income
Taxes
When preparing our consolidated financial statements, we are
required to estimate our income taxes in each of the
jurisdictions in which we operate. The process involves
estimating our actual current tax obligations based on expected
income, statutory tax rates and tax planning opportunities in
the various jurisdictions in which we operate. In the event
there is a significant unusual or one-time item recognized in
our results of operations, the tax attributable to that item
would be separately calculated and recorded in the period the
unusual or one-time item occurred.
We utilize the liability method of accounting for income taxes
as set forth in Statement of Financial Accounting Standards 109,
Accounting for Income Taxes (SFAS 109).
Under the liability method, deferred taxes are determined based
on the temporary differences between the financial statement and
tax basis of assets and liabilities using tax rates expected to
be in effect during the years in which the basis differences
reverse or are settled. A valuation allowance is recorded when
it is more likely than not that all or a portion of the deferred
tax assets will not be realized. Changes in valuation allowances
from period to period are included in our tax provision in the
period of change.
We establish reserves when, despite our belief that the tax
return positions are fully supportable, certain positions could
be challenged and we may ultimately not prevail in defending our
positions. These reserves are adjusted in light of changing
facts and circumstances, such as the closing of a tax audit or
the expiration of statutes of limitations. The effective tax
rate includes the impact of reserve provisions and changes to
reserves that are considered appropriate, as well as, related
penalties and interest. These reserves relate to various tax
years subject to audit by taxing authorities.
The Company adopted the provisions of FASB Interpretation
No. 48, Accounting for Uncertainty in Income
Taxes, (FIN 48) on December 31, 2006.
FIN 48 provides detailed guidance for the financial
statement recognition, measurement and disclosure of uncertain
tax positions recognized in an enterprises financial
statements in accordance with SFAS 109. Income tax
positions must meet a more-likely-than-not recognition
33
threshold at the effective date to be recognized upon the
adoption of FIN 48 and in subsequent periods. We recognize
potential accrued interest and penalties related to the
unrecognized tax benefits in income tax expense. 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.
Prior to fiscal 2007 we determined our tax contingencies in
accordance with Statement of Financial Accounting Standards
No. 5, Accounting for Contingencies. We
recorded estimated tax liabilities to the extent the
contingencies were probable and could be reasonably estimated.
Reserves
for Self Insurance
We are primarily self-insured for workers compensation,
general and automobile liability and health insurance costs. It
is our policy to record our self-insurance liabilities based on
claims filed and an estimate of claims incurred but not yet
reported. Workers compensation, general and automobile
liabilities are actuarially determined on a discounted basis. We
have purchased stop-loss coverage to limit our exposure to any
significant exposure on a per claim basis. On a per claim basis,
our exposure for workers compensation, auto liability and
general liability is $0.5 million and for health insurance
our exposure is $0.4 million. Any projection of losses
concerning workers compensation, general and automobile
and health insurance liability is subject to a considerable
degree of variability. Among the causes of this variability are
unpredictable external factors affecting future inflation rates,
litigation trends, legal interpretations, benefit level changes
and claim settlement patterns. Although our estimates of
liabilities incurred do not anticipate significant changes in
historical trends for these variables, such changes could have a
material impact on future claim costs and currently recorded
liabilities. A 100 basis point change in discount rates
would increase our liability by approximately $0.2 million.
Vendor
Allowances and Credits
As is common in our industry, we use a third party service to
undertake accounts payable audits on an ongoing basis. These
audits examine vendor allowances offered to us during a given
year as well as cash discounts, freight allowances and duplicate
payments and establish a basis for us to recover overpayments
made to vendors. We reduce future payments to vendors based on
the results of these audits, at which time we also establish
reserves for commissions payable to the third party service
provider as well as for amounts that may not be collected. We
also establish reserves for future repayments to vendors for
disputed payment deductions related to accounts payable audits,
promotional allowances and other items. Although our estimates
of reserves do not anticipate changes in our historical payback
rates, such changes could have a material impact on our
currently recorded reserves.
Share-based
Compensation
On January 1, 2006, we adopted Statement of Financial
Accounting Standards No. 123(R), Share-Based
Payment Revised 2004, (SFAS 123R)
using the modified prospective transition method. Beginning in
2006, our results of operations reflect compensation expense for
newly issued stock options and other forms of share-based
compensation granted under our stock incentive plans, for the
unvested portion of previously issued stock options and other
forms of share-based compensation granted, and for our employee
stock purchase plan. SFAS 123R requires companies to
estimate the fair value of share-based payment awards on the
date of grant. The Company uses the grant date closing price per
share of Nash Finch common stock to estimate the fair value of
Restricted Stock Units (RSUs) and performance units granted
pursuant to its long-term incentive plan (LTIP). The Company
uses the Black-Scholes option-pricing model to estimate the fair
value of stock options. The Company uses a lattice model to
estimate the fair value of stock appreciation rights (SARs)
which contain market conditions. The value of the portion of the
awards ultimately expected to vest is recognized as expense over
the requisite service period which is derived from the data in
the lattice valuation model. Share-based compensation is based
on awards ultimately expected to vest, and is reduced for
estimated forfeitures. SFAS 123R requires forfeitures be
estimated at the time of grant and revised, if necessary, in
subsequent periods if actual forfeitures differ materially from
those estimates. Significant judgment is required in selecting
the assumptions used for estimating fair value of share-based
compensation
34
as well estimating forfeiture rates. Further, any awards with
performance conditions that can affect vesting also add
additional judgment in determining the amount expected to vest.
There can be significant volatility in many of our assumptions
and therefore our estimates of fair value, forfeitures, etc. are
sensitive to changes in these assumptions.
New
Accounting Standards
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.
SFAS 157 does not require any new fair value measurements,
but applies under other accounting pronouncements that require
or permit fair value measurements. The effective date of
SFAS 157 for non-financial assets and liabilities that are
not recognized or disclosed on a recurring basis has been
delayed to fiscal years beginning after November 15, 2008.
Effective January 1, 2008, we adopted the provisions of
SFAS 157 related to financial assets and liabilities
recognized or disclosed on a recurring basis.
In May 2008, the FASB issued FASB Staff Position (FSP) APB
14-1,
Accounting for Convertible Debt and Debt Issued with
Stock Purchase Warrants (FSP APB
14-1), which
will impact the accounting associated with our existing
$150.1 million senior convertible notes. When adopted FSP
APB 14-1
will require us to recognize non-cash interest expense based on
the market rate for similar debt instruments without the
conversion feature. Furthermore, it will require recognizing
interest expense in prior periods pursuant to retrospective
accounting treatment. It is expected that the cumulative effect
upon adoption would be to record approximately
$16.8 million in pretax non-cash interest expense for prior
periods and $4.0 million to $6.0 million in additional
pretax non-cash interest expense annually. FSP APB
14-1 is
effective for financial statements issued for fiscal years
beginning after December 15, 2008.
In December 2007, the FASB issued Statement of Financial
Accounting Standards No. 141R, Business
Combinations (SFAS 141R). This standard
establishes principles and requirements for the reporting entity
in a business combination, including recognition and measurement
in the financial statements of the identifiable assets acquired,
the liabilities assumed, and any noncontrolling interest in the
acquiree. This statement also establishes disclosure
requirements to enable financial statement users to evaluate the
nature and financial effects of the business combination.
SFAS 141R is effective for fiscal years beginning on or
after December 15, 2008. The impact of adopting
SFAS 141R will be dependent on the future business
combinations that the Company may pursue after its effective
date.
In December 2007, the FASB issued Statement of Financial
Accounting Standards No. 160, Noncontrolling
Interests in Consolidated Financial Statements
(SFAS 160). This statement establishes accounting and
reporting standards for noncontrolling interests in consolidated
financial statements. SFAS 160 is effective for fiscal
years beginning on or after December 15, 2008. Early
adoption is prohibited. Based on the Companys current
operations, it does not expect that the adoption of
SFAS 160 will have a material impact on its financial
position or results of operations.
|
|
ITEM 7A.
|
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. We do not use financial
instruments or derivatives for any trading or other speculative
purposes.
We carry notes receivable because, in the normal course of
business, we make long-term loans to certain retail customers.
Substantially all notes receivable are based on floating
interest rates which adjust to changes in market rates. As a
result, the carrying value of notes receivable approximates
market value. Refer to Part II, Item 8 of this report
under Note (5) Accounts and Notes
Receivable in the Notes to Consolidated Financial
Statements for more information.
35
The table below provides information about our debt obligations
that are sensitive to changes in interest rates. For debt
obligations, the table presents principal cash flows and related
weighted average interest rates by expected maturity dates.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 3,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Value
|
|
|
Total
|
|
|
2009
|
|
|
2010
|
|
|
2011
|
|
|
2012
|
|
|
2013
|
|
|
Thereafter
|
|
|
|
(In millions, except rates)
|
|
|
Debt with variable interest rate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal payable
|
|
$
|
93.6
|
|
|
$
|
93.6
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
93.6
|
|
|
$
|
|
|
Average variable rate payable
|
|
|
|
|
|
|
4.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4.5
|
%
|
|
|
|
|
Debt with fixed interest rates:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal payable
|
|
$
|
152.6
|
|
|
$
|
153.4
|
|
|
$
|
0.6
|
|
|
$
|
0.6
|
|
|
$
|
0.7
|
|
|
$
|
0.7
|
|
|
$
|
0.7
|
|
|
$
|
150.1
|
|
Average fixed rate payable
|
|
|
|
|
|
|
3.6
|
%
|
|
|
6.0
|
%
|
|
|
6.0
|
%
|
|
|
6.2
|
%
|
|
|
6.2
|
%
|
|
|
6.1
|
%
|
|
|
3.5
|
%
|
36
|
|
ITEM 8.
|
FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA
|
Report of
Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
Nash-Finch Company
We have audited the accompanying consolidated balance sheets of
Nash-Finch Company and subsidiaries as of January 3, 2009,
and December 29, 2007, and the related consolidated
statements of income, stockholders equity, and cash flows
for each of the three years in the period ended January 3,
2009. Our audits also included the financial statement schedule
referenced in Part IV, Item 15(2) of this report.
These financial statements and schedule are the responsibility
of the Companys management. Our responsibility is to
express an opinion on these financial statements and schedule
based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of Nash-Finch Company and subsidiaries at
January 3, 2009 and December 29, 2007, and the
consolidated results of their operations and their cash flows
for each of the three years in the period ended January 3,
2009, in conformity with U.S. generally accepted accounting
principles. Also, in our opinion, the related financial
statement schedule, when considered in relation to the basic
financial statements taken as a whole, presents fairly, in all
material respects, the information set forth therein.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States),
Nash-Finch Companys internal control over financial
reporting as of January 3, 2009, based on criteria
established in Internal Control-Integrated Framework
issued by the Committee of Sponsoring Organizations of the
Treadway Commission and our report dated March 11, 2009
expressed an unqualified opinion thereon.
Minneapolis, Minnesota
March 11, 2009
37
NASH
FINCH COMPANY AND SUBSIDIARIES
Consolidated
Statements of Income
(In
thousands, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Years Ended
January 3, 2009,
|
|
|
|
|
|
|
|
|
|
December 29, 2007 and December 30, 2006
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Sales
|
|
$
|
4,703,660
|
|
|
$
|
4,532,635
|
|
|
$
|
4,631,629
|
|
Cost of sales
|
|
|
4,296,711
|
|
|
|
4,134,981
|
|
|
|
4,229,807
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
406,949
|
|
|
|
397,654
|
|
|
|
401,822
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative
|
|
|
288,263
|
|
|
|
280,818
|
|
|
|
319,678
|
|
Gains on sales of real estate
|
|
|
|
|
|
|
(1,867
|
)
|
|
|
(1,130
|
)
|
Special charges
|
|
|
|
|
|
|
(1,282
|
)
|
|
|
6,253
|
|
Goodwill impairment
|
|
|
|
|
|
|
|
|
|
|
26,419
|
|
Depreciation and amortization
|
|
|
38,429
|
|
|
|
38,882
|
|
|
|
41,451
|
|
Interest expense
|
|
|
21,523
|
|
|
|
23,581
|
|
|
|
26,644
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other costs and expenses
|
|
|
348,215
|
|
|
|
340,132
|
|
|
|
419,315
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) from continuing operations before income taxes
and cumulative effect of a change in accounting principle
|
|
|
58,734
|
|
|
|
57,522
|
|
|
|
(17,493
|
)
|
Income tax expense
|
|
|
22,574
|
|
|
|
18,742
|
|
|
|
5,835
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) from continuing operations before cumulative
effect of a change in accounting principle
|
|
|
36,160
|
|
|
|
38,780
|
|
|
|
(23,328
|
)
|
Earnings from discontinued operations, net of income tax expense
of $102 in 2006
|
|
|
|
|
|
|
|
|
|
|
160
|
|
Cumulative effect of a change in accounting principle, net of
income tax expense of $119 in 2006
|
|
|
|
|
|
|
|
|
|
|
169
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss)
|
|
$
|
36,160
|
|
|
$
|
38,780
|
|
|
$
|
(22,999
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations before cumulative effect of a change in
accounting principle
|
|
$
|
2.81
|
|
|
$
|
2.88
|
|
|
$
|
(1.74
|
)
|
Discontinued operations, net of income tax expense
|
|
|
|
|
|
|
|
|
|
|
0.01
|
|
Cumulative effect of a change in accounting principle, net of
income tax expense
|
|
|
|
|
|
|
|
|
|
|
0.01
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss) per share
|
|
$
|
2.81
|
|
|
$
|
2.88
|
|
|
$
|
(1.72
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations before cumulative effect of a change in
accounting principle
|
|
$
|
2.75
|
|
|
$
|
2.84
|
|
|
$
|
(1.74
|
)
|
Discontinued operations, net of income tax expense
|
|
|
|
|
|
|
|
|
|
|
0.01
|
|
Cumulative effect of a change in accounting principle, net of
income tax expense
|
|
|
|
|
|
|
|
|
|
|
0.01
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss) per share
|
|
$
|
2.75
|
|
|
$
|
2.84
|
|
|
$
|
(1.72
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
38
NASH
FINCH COMPANY AND SUBSIDIARIES
Consolidated
Balance Sheets
(In
thousands, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
January 3,
|
|
|
December 29,
|
|
|
|
2009
|
|
|
2007
|
|
|
ASSETS
|
Current Assets:
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
824
|
|
|
$
|
862
|
|
Accounts and notes receivable, net
|
|
|
185,943
|
|
|
|
197,807
|
|
Inventories
|
|
|
261,491
|
|
|
|
246,762
|
|
Prepaid expenses and other
|
|
|
13,909
|
|
|
|
27,882
|
|
Deferred tax assets
|
|
|
5,784
|
|
|
|
4,621
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
467,951
|
|
|
|
477,934
|
|
Notes receivable, net
|
|
|
28,353
|
|
|
|
12,429
|
|
Property, plant and equipment:
|
|
|
|
|
|
|
|
|
Property, plant and equipment
|
|
|
590,894
|
|
|
|
617,241
|
|
Less accumulated depreciation and amortization
|
|
|
(392,807
|
)
|
|
|
(414,704
|
)
|
|
|
|
|
|
|
|
|
|
Net property, plant and equipment
|
|
|
198,087
|
|
|
|
202,537
|
|
Goodwill
|
|
|
218,414
|
|
|
|
215,174
|
|
Customer contracts & relationships, net
|
|
|
24,762
|
|
|
|
28,368
|
|
Investment in direct financing leases
|
|
|
3,388
|
|
|
|
4,969
|
|
Other assets
|
|
|
13,997
|
|
|
|
9,971
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
954,952
|
|
|
$
|
951,382
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Outstanding checks
|
|
$
|
18,845
|
|
|
$
|
8,895
|
|
Current maturities of long-term debt and capitalized lease
obligations
|
|
|
4,032
|
|
|
|
3,842
|
|
Accounts payable
|
|
|
201,765
|
|
|
|
200,507
|
|
Accrued expenses
|
|
|
73,087
|
|
|
|
69,113
|
|
Income taxes payable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
297,729
|
|
|
|
282,357
|
|
Long-term debt
|
|
|
246,441
|
|
|
|
278,443
|
|
Capitalized lease obligations
|
|
|
25,252
|
|
|
|
29,885
|
|
Deferred tax liability, net
|
|
|
13,940
|
|
|
|
7,227
|
|
Other liabilities
|
|
|
35,540
|
|
|
|
37,854
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
Preferred stock no par value Authorized
500 shares; none issued
|
|
|
|
|
|
|
|
|
Common stock of
$1.662/3
par value Authorized 50,000 shares, issued 13,665 and
13,559 shares, respectively
|
|
|
22,776
|
|
|
|
22,599
|
|
Additional paid-in capital
|
|
|
74,836
|
|
|
|
61,446
|
|
Restricted stock
|
|
|
|
|
|
|
|
|
Common stock held in trust
|
|
|
(2,243
|
)
|
|
|
(2,122
|
)
|
Deferred compensation obligations
|
|
|
2,243
|
|
|
|
2,122
|
|
Accumulated other comprehensive income
|
|
|
(10,876
|
)
|
|
|
(5,092
|
)
|
Retained earnings
|
|
|
278,804
|
|
|
|
252,142
|
|
Common stock in treasury, 848 and 434 shares, respectively
|
|
|
(29,490
|
)
|
|
|
(15,479
|
)
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
336,050
|
|
|
|
315,616
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
954,952
|
|
|
$
|
951,382
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
39
NASH
FINCH COMPANY AND SUBSIDIARIES
Consolidated
Statements of Cash Flows
(In
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss)
|
|
$
|
36,160
|
|
|
$
|
38,780
|
|
|
$
|
(22,999
|
)
|
Adjustments to reconcile net earnings (loss) to net cash
provided by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Special charges non cash portion
|
|
|
|
|
|
|
(1,282
|
)
|
|
|
6,253
|
|
Impairment of retail goodwill
|
|
|
|
|
|
|
|
|
|
|
26,419
|
|
Discontinued operations
|
|
|
|
|
|
|
|
|
|
|
(262
|
)
|
Depreciation and amortization
|
|
|
38,429
|
|
|
|
38,882
|
|
|
|
41,451
|
|
Amortization of deferred financing costs
|
|
|
1,850
|
|
|
|
817
|
|
|
|
823
|
|
Rebateable loans
|
|
|
2,992
|
|
|
|
2,200
|
|
|
|
3,926
|
|
Provision for bad debts
|
|
|
(1,292
|
)
|
|
|
1,234
|
|
|
|
5,600
|
|
Provision for lease reserves
|
|
|
(1,832
|
)
|
|
|
551
|
|
|
|
7,042
|
|
Deferred income tax expense
|
|
|
5,550
|
|
|
|
26,830
|
|
|
|
3,417
|
|
Gain on sale of real estate and other
|
|
|
(187
|
)
|
|
|
(2,371
|
)
|
|
|
(1,881
|
)
|
LIFO charge
|
|
|
19,740
|
|
|
|
5,092
|
|
|
|
2,630
|
|
Asset impairments
|
|
|
2,555
|
|
|
|
1,869
|
|
|
|
11,443
|
|
Share-based compensation
|
|
|
8,792
|
|
|
|
7,786
|
|
|
|
1,166
|
|
Cumulative effect of a change in accounting principle
|
|
|
|
|
|
|
|
|
|
|
(288
|
)
|
Deferred compensation
|
|
|
244
|
|
|
|
734
|
|
|
|
(226
|
)
|
Other
|
|
|
(742
|
)
|
|
|
20
|
|
|
|
(1,192
|
)
|
Changes in operating assets and liabilities, net of effects of
acquisitions
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts and notes receivable
|
|
|
17,430
|
|
|
|
(11,246
|
)
|
|
|
5,889
|
|
Inventories
|
|
|
(31,489
|
)
|
|
|
(9,979
|
)
|
|
|
44,619
|
|
Prepaid expenses
|
|
|
839
|
|
|
|
2,813
|
|
|
|
3,128
|
|
Accounts payable
|
|
|
(1,037
|
)
|
|
|
1,924
|
|
|
|
(21,729
|
)
|
Accrued expenses
|
|
|
3,970
|
|
|
|
1,782
|
|
|
|
(10,564
|
)
|
Income taxes payable
|
|
|
13,048
|
|
|
|
(9,213
|
)
|
|
|
(10,536
|
)
|
Other assets and liabilities
|
|
|
(3,021
|
)
|
|
|
(13,607
|
)
|
|
|
(3,994
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
111,999
|
|
|
|
83,616
|
|
|
|
90,135
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Disposal of property, plant and equipment
|
|
|
438
|
|
|
|
4,978
|
|
|
|
6,333
|
|
Additions to property, plant and equipment
|
|
|
(31,955
|
)
|
|
|
(21,419
|
)
|
|
|
(27,469
|
)
|
Business acquired, net of cash
|
|
|
(6,566
|
)
|
|
|
|
|
|
|
|
|
Loans to customers
|
|
|
(24,050
|
)
|
|
|
(3,856
|
)
|
|
|
(5,767
|
)
|
Payments from customers on loans
|
|
|
1,588
|
|
|
|
1,854
|
|
|
|
2,165
|
|
Purchase of marketable securities
|
|
|
|
|
|
|
|
|
|
|
(233
|
)
|
Sale of marketable securities
|
|
|
|
|
|
|
2
|
|
|
|
921
|
|
Corporate-owned life insurance, net
|
|
|
131
|
|
|
|
(46
|
)
|
|
|
(320
|
)
|
Other
|
|
|
|
|
|
|
|
|
|
|
(139
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(60,414
|
)
|
|
|
(18,487
|
)
|
|
|
(24,509
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds (payments) of revolving debt
|
|
|
87,300
|
|
|
|
(35,000
|
)
|
|
|
(41,600
|
)
|
Dividends paid
|
|
|
(9,229
|
)
|
|
|
(9,702
|
)
|
|
|
(9,611
|
)
|
Proceeds from exercise of stock options
|
|
|
329
|
|
|
|
2,002
|
|
|
|
680
|
|
Proceeds from employee stock purchase plan
|
|
|
238
|
|
|
|
498
|
|
|
|
502
|
|
Repurchase of common stock
|
|
|
(14,348
|
)
|
|
|
(14,980
|
)
|
|
|
|
|
Payments of long-term debt
|
|
|
(119,255
|
)
|
|
|
(626
|
)
|
|
|
(16,104
|
)
|
Payments of capitalized lease obligations
|
|
|
(3,639
|
)
|
|
|
(3,834
|
)
|
|
|
(2,901
|
)
|
Increase (decrease) in outstanding checks
|
|
|
9,951
|
|
|
|
(4,441
|
)
|
|
|
2,549
|
|
Payments of deferred financing costs
|
|
|
(3,573
|
)
|
|
|
|
|
|
|
|
|
Tax benefit from exercise of stock options
|
|
|
603
|
|
|
|
857
|
|
|
|
68
|
|
Other
|
|
|
|
|
|
|
1
|
|
|
|
492
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities
|
|
|
(51,623
|
)
|
|
|
(65,225
|
)
|
|
|
(65,925
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net decrease in cash
|
|
|
(38
|
)
|
|
|
(96
|
)
|
|
|
(299
|
)
|
Cash at beginning of year
|
|
|
862
|
|
|
|
958
|
|
|
|
1,257
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash at end of year
|
|
$
|
824
|
|
|
$
|
862
|
|
|
$
|
958
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
Non cash investing and financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition of minority interest
|
|
$
|
64
|
|
|
$
|
|
|
|
$
|
21
|
|
See accompanying notes to consolidated financial statements.
40
NASH
FINCH COMPANY
Consolidated
Statements of Stockholders Equity
(In
thousands, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
Total
|
|
Fiscal years ended January 3, 2009,
|
|
Common
|
|
|
Paid-in
|
|
|
Retained
|
|
|
Comprehensive
|
|
|
|
|
|
Treasury
|
|
|
Stockholders
|
|
December 29, 2007 and December 30, 2006
|
|
Stock
|
|
|
Capital
|
|
|
Earnings
|
|
|
Income (Loss)
|
|
|
Other
|
|
|
Stock
|
|
|
Equity
|
|
|
Balance at December 31, 2005
|
|
|
22,195
|
|
|
|
49,430
|
|
|
|
256,149
|
|
|
|
(4,912
|
)
|
|
|
(78
|
)
|
|
|
(206
|
)
|
|
|
322,578
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
(22,999
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(22,999
|
)
|
Other comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred loss on hedging activities, net of tax of $619
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(969
|
)
|
|
|
|
|
|
|
|
|
|
|
(969
|
)
|
Minimum pension liability adjustment, net of tax of $271
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
424
|
|
|
|
|
|
|
|
|
|
|
|
424
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(23,544
|
)
|
Adjustment to initially apply SFAS Statement No. 158,
net of tax of $559
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
875
|
|
|
|
|
|
|
|
|
|
|
|
875
|
|
Dividends declared of $.72 per share
|
|
|
|
|
|
|
|
|
|
|
(9,611
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(9,611
|
)
|
Share-based compensation
|
|
|
1
|
|
|
|
2,679
|
|
|
|
(123
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,557
|
|
Common stock issued upon exercise of options
|
|
|
59
|
|
|
|
621
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
680
|
|
Common stock issued for employee purchase plan
|
|
|
42
|
|
|
|
460
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
502
|
|
Common stock issued for performance units
|
|
|
45
|
|
|
|
445
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
490
|
|
Common stock issued to a rabbi trust
|
|
|
6
|
|
|
|
(6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax benefit associated with compensation plans
|
|
|
|
|
|
|
68
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
68
|
|
Amortized compensation under restricted stock plan
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
78
|
|
|
|
|
|
|
|
78
|
|
Forfeiture of restricted stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(293
|
)
|
|
|
(293
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 30, 2006
|
|
|
22,348
|
|
|
|
53,697
|
|
|
|
223,416
|
|
|
|
(4,582
|
)
|
|
|
|
|
|
|
(499
|
)
|
|
|
294,380
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings
|
|
|
|
|
|
|
|
|
|
|
38,780
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
38,780
|
|
Other comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred loss on hedging activities, net of tax of ($295)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(461
|
)
|
|
|
|
|
|
|
|
|
|
|
(461
|
)
|
Minimum pension liability adjustment, net of tax of $180
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
281
|
|
|
|
|
|
|
|
|
|
|
|
281
|
|
Minimum other post-retirement liability adjustment, net of tax
of ($211)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(330
|
)
|
|
|
|
|
|
|
|
|
|
|
(330
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
38,270
|
|
Dividends declared of $.72 per share
|
|
|
|
|
|
|
|
|
|
|
(9,702
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(9,702
|
)
|
Share-based compensation
|
|
|
2
|
|
|
|
4,641
|
|
|
|
(352
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,291
|
|
Common stock issued upon exercise of options
|
|
|
125
|
|
|
|
1,878
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,003
|
|
Common stock issued for employee purchase plan
|
|
|
40
|
|
|
|
457
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
497
|
|
Common stock issued for performance units
|
|
|
84
|
|
|
|
(84
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repurchase of shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(14,980
|
)
|
|
|
(14,980
|
)
|
Tax benefit associated with compensation plans
|
|
|
|
|
|
|
857
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
857
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 29, 2007
|
|
$
|
22,599
|
|
|
$
|
61,446
|
|
|
$
|
252,142
|
|
|
$
|
(5,092
|
)
|
|
$
|
|
|
|
$
|
(15,479
|
)
|
|
$
|
315,616
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings
|
|
|
|
|
|
|
|
|
|
|
36,160
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
36,160
|
|
Other comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred loss on hedging activities, net of tax of ($745)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,165
|
)
|
|
|
|
|
|
|
|
|
|
|
(1,165
|
)
|
Minimum pension liability adjustment, net of tax of ($2,710)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,239
|
)
|
|
|
|
|
|
|
|
|
|
|
(4,239
|
)
|
Minimum other post-retirement liability adjustment, net of tax
of ($243)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(380
|
)
|
|
|
|
|
|
|
|
|
|
|
(380
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30,376
|
|
Dividends declared of $.72 per share
|
|
|
|
|
|
|
|
|
|
|
(9,229
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(9,229
|
)
|
Share-based compensation
|
|
|
3
|
|
|
|
8,871
|
|
|
|
(269
|
)
|
|
|
|
|
|
|
|
|
|
|
338
|
|
|
|
8,943
|
|
Share-based compensation modified from liability to equity based
|
|
|
|
|
|
|
3,412
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,412
|
|
Common stock issued upon exercise of options
|
|
|
26
|
|
|
|
415
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
441
|
|
Common stock issued for employee purchase plan
|
|
|
13
|
|
|
|
224
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
237
|
|
Common stock issued for performance units
|
|
|
135
|
|
|
|
(135
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repurchase of shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(14,348
|
)
|
|
|
(14,348
|
)
|
Forfeiture of restricted stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
(1
|
)
|
Tax benefit associated with compensation plans
|
|
|
|
|
|
|
603
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
603
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 3, 2009
|
|
$
|
22,776
|
|
|
$
|
74,836
|
|
|
$
|
278,804
|
|
|
$
|
(10,876
|
)
|
|
$
|
|
|
|
$
|
(29,490
|
)
|
|
$
|
336,050
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
41
NASH
FINCH COMPANY AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
|
|
(1)
|
Summary
of Significant Accounting Policies
|
Fiscal
Year
The fiscal year of Nash-Finch Company (Nash Finch)
ends on the Saturday nearest to December 31. Fiscal 2008
consisted of 53 weeks while fiscal years 2007 and 2006 each
consisted of 52 weeks. Our interim quarters consist of
12 weeks except for the third quarter which consists of
16 weeks. For fiscal 2008, the Companys fourth
quarter consisted of 13 weeks.
Principles
of Consolidation
The accompanying financial statements include our accounts and
the accounts of our majority-owned subsidiaries. All material
inter-company accounts and transactions have been eliminated in
the consolidated financial statements.
Cash
and Cash Equivalents
In the accompanying financial statements and for purposes of the
statements of cash flows, cash and cash equivalents include cash
on hand and short-term investments with original maturities of
three months or less.
Revenue
Recognition
We recognize revenue when the sales price is fixed or
determinable, collectibility is reasonably assured and the
customer takes possession of the merchandise.
Revenues for the food distribution segment are recognized upon
delivery of the product which is typically the same day the
product is shipped.
Revenues for the military segment are recognized upon the
delivery of the product to the commissary or commissaries
designated by the Defense Commissary Agency (DeCA), or in the
case of overseas commissaries, when the product is delivered to
the port designated by DeCA, which is when DeCA takes possession
of the merchandise and bears the responsibility for shipping the
product to the commissary or overseas warehouse.
Revenue is recognized for retail store sales when the customer
receives and pays for the merchandise at the point of sale.
Sales taxes collected from customers are remitted to the
appropriate taxing jurisdictions and are excluded from sales
revenue as the Company considers itself a pass-through conduit
for collecting and remitting sales taxes.
Cost
of sales
Cost of sales includes the cost of inventory sold during the
period, including distribution costs and shipping and handling
fees. Advertising costs, included in cost of goods sold, are
expensed as incurred and were $58.2 million,
$53.7 million and $52.6 million for fiscal 2008, 2007
and 2006, respectively. Advertising income, included in cost of
goods sold, was approximately $56.4 million,
$55.8 million and $57.0 million for fiscal 2008, 2007
and 2006, respectively.
Vendor
Allowances and Credits
We reflect vendor allowances and credits, which include
allowances and incentives similar to discounts, as a reduction
of cost of sales when the related inventory has been sold, based
on the underlying arrangement with the vendor. These allowances
primarily consist of promotional allowances, quantity discounts
and payments under merchandising arrangements. Amounts received
under promotional or merchandising arrangements that require
specific performance are recognized in the consolidated
statements of income when the
42
NASH
FINCH COMPANY AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
performance is satisfied and the related inventory has been
sold. Discounts based on the quantity of purchases from our
vendors or sales to customers are recognized in the consolidated
statements of income as the product is sold. When payment is
received prior to fulfillment of the terms, the amounts are
deferred and recognized according to the terms of the
arrangement.
Inventories
Inventories are stated at the lower of cost or market.
Approximately 84% of our inventories were valued on the
last-in,
first-out (LIFO) method at January 3, 2009 and
December 29, 2007. During fiscal 2008, we recorded a LIFO
charge of $19.7 million compared to a $5.1 million
charge in fiscal 2007 and a $2.6 million charge in fiscal
2006. The remaining inventories are valued on the
first-in,
first-out (FIFO) method. If the FIFO method of accounting for
inventories had been used, inventories would have been
$76.1 million, $56.4 million and $51.2 million
higher at January 3, 2009, December 29, 2007 and
December 30, 2006, respectively.
Capitalization,
Depreciation and Amortization
Property, plant and equipment are stated at cost. Assets under
capitalized leases are recorded at the present value of future
lease payments or fair market value, whichever is lower.
Expenditures which improve or extend the life of the respective
assets are capitalized while maintenance and repairs are
expensed as incurred.
Property, plant and equipment are depreciated on a straight-line
basis over the estimated useful lives of the assets which
generally range from
10-40 years
for buildings and improvements and 3-10 years for
furniture, fixtures and equipment. Capitalized leases and
leasehold improvements are amortized on a straight-line basis
over the shorter of the term of the lease or the useful life of
the asset.
Net property, plant and equipment consisted of the following (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
January 3,
|
|
|
December 29,
|
|
|
|
2009
|
|
|
2007
|
|
|
Land
|
|
$
|
17,281
|
|
|
$
|
16,558
|
|
Buildings and improvements
|
|
|
196,954
|
|
|
|
194,194
|
|
Furniture, fixtures and equipment
|
|
|
275,888
|
|
|
|
309,040
|
|
Leasehold improvements
|
|
|
65,499
|
|
|
|
64,976
|
|
Construction in progress
|
|
|
4,453
|
|
|
|
1,654
|
|
Assets under capitalized leases
|
|
|
30,819
|
|
|
|
30,819
|
|
|
|
|
|
|
|
|
|
|
|
|
|
590,894
|
|
|
|
617,241
|
|
Accumulated depreciation and amortization
|
|
|
(392,807
|
)
|
|
|
(414,704
|
)
|
|
|
|
|
|
|
|
|
|
Net property, plant and equipment
|
|
$
|
198,087
|
|
|
$
|
202,537
|
|
|
|
|
|
|
|
|
|
|
Impairment
of Long-Lived Assets
An impairment loss is recognized whenever events or changes in
circumstances indicate the carrying amount of an asset is not
recoverable. In applying Statement of Financial Accounting
Standards No. 144, Accounting for the Impairment
or Disposal of Long-Lived Assets, assets are grouped
and evaluated at the lowest level for which there are
identifiable cash flows that are largely independent of the cash
flows of other groups of assets. We have generally identified
this lowest level to be individual stores or distribution
centers; however, there are limited circumstances where, for
evaluation purposes, stores could be considered with the
distribution center they support. We allocate the portion of the
profit retained at the servicing distribution
43
NASH
FINCH COMPANY AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
center to the individual store when performing the impairment
analysis in order to determine the stores total
contribution to us. We consider historical performance and
future estimated results in the impairment evaluation. If the
carrying amount of the asset exceeds expected undiscounted
future cash flows, we measure the amount of the impairment by
comparing the carrying amount of the asset to its fair value;
generally measured by discounting the expected future cash flows
at the rate we utilize to evaluate potential investments. In
fiscal 2008, 2007 and 2006, we recorded impairment charges of
$2.6 million, $1.9 million and $11.4 million,
respectively, within the selling, general and
administrative line of the consolidated statements of
income.
Discontinued
Operations
On July 31, 1999, we sold the outstanding stock of our
wholly-owned produce growing and marketing subsidiary, Nash-De
Camp. Nash-De Camp had previously been reported as a
discontinued operation following a fourth quarter fiscal 1998
decision to sell the subsidiary. The net earnings from
discontinued operations of $0.2 million in fiscal 2006
reported within the discontinued operations line of
the consolidated statements of income was a result of the
resolution of a contingency associated with the sale.
Reserves
for Self-Insurance
We are primarily self-insured for workers compensation,
general and automobile liability and health insurance costs. It
is our policy to record our self-insurance liabilities based on
claims filed and an estimate of claims incurred but not yet
reported. Workers compensation, general and automobile
liabilities are actuarially determined on a discounted basis. We
have purchased stop-loss coverage to limit our exposure to any
significant exposure on a per claim basis. On a per claim basis,
our exposure for workers compensation, auto liability and
general liability is $0.5 million and for health insurance
our exposure is $0.4 million. Any projection of losses
concerning workers compensation, general and automobile
and health insurance liability is subject to a considerable
degree of variability. Among the causes of this variability are
unpredictable external factors affecting future inflation rates,
litigation trends, legal interpretations, benefit level changes
and claim settlement patterns. Although our estimates of
liabilities incurred do not anticipate significant changes in
historical trends for these variables, such changes could have a
material impact on future claim costs and currently recorded
liabilities. A 100 basis point change in discount rates
would increase our liability by approximately $0.2 million.
Goodwill
and Intangible Assets
Intangible assets, consisting primarily of goodwill and customer
contracts resulting from business acquisitions, are carried at
cost. Separate intangible assets that are not deemed to have an
indefinite life are amortized over their useful lives. In
accordance with Statement of Financial Accounting Standards
No. 142, Goodwill and Other Intangible
Assets, (SFAS 142) we test goodwill for
impairment on an annual basis in the fourth quarter or more
frequently if we believe indicators of impairment exist. The
performance of the test involves a two-step process. The first
step of the impairment test involves comparing the fair values
of the applicable reporting units with their aggregate carrying
values, including goodwill. We generally determine the fair
value of our reporting units using the income approach
methodology of valuation that includes the discounted cash flow
method as well as other generally accepted valuation
methodologies. If the carrying amount of a reporting unit
exceeds the reporting units fair value, we perform the
second step of the goodwill impairment test to determine the
amount of impairment loss. The second step of the goodwill
impairment test involves comparing the implied fair value of the
affected reporting units goodwill with the carrying value
of that goodwill.
We performed our annual impairment test of goodwill during the
fourth quarter based on conditions as of the end of our third
quarter in fiscal 2008 and 2007, in accordance with
SFAS 142, and determined that no impairment was necessary
based on the conditions at that time. During fiscal 2006 the
impairment tests
44
NASH
FINCH COMPANY AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
indicated that our retail segment goodwill was impaired
necessitating a charge of $26.4 million. The impairment was
due to decreased sales and cash flows in our retail segment as a
result of closing or selling retail stores and continued
declines in same store sales brought about by competition from
supercenters and other alternative formats.
Changes in the net carrying amount of goodwill were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Food
|
|
|
|
|
|
|
|
|
|
|
|
|
Distribution
|
|
|
Military
|
|
|
Retail
|
|
|
Total
|
|
|
|
(In thousands)
|
|
|
Goodwill as of December 30, 2006
|
|
$
|
121,863
|
|
|
$
|
25,754
|
|
|
$
|
67,557
|
|
|
$
|
215,174
|
|
Goodwill as of December 29, 2007
|
|
|
121,863
|
|
|
|
25,754
|
|
|
|
67,557
|
|
|
|
215,174
|
|
Acquisition of retail stores
|
|
|
|
|
|
|
|
|
|
|
3,240
|
|
|
|
3,240
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill as of January 3, 2009
|
|
$
|
121,863
|
|
|
$
|
25,754
|
|
|
$
|
70,797
|
|
|
$
|
218,414
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer contracts & relationships intangibles were as
follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 3, 2009
|
|
|
|
|
|
|
Gross
|
|
|
|
|
|
Net
|
|
|
Estimated
|
|
|
|
Carrying
|
|
|
Accum.
|
|
|
Carrying
|
|
|
Life
|
|
|
|
Value
|
|
|
Amort.
|
|
|
Amount
|
|
|
(years)
|
|
|
Customer contracts and relationships
|
|
$
|
43,082
|
|
|
$
|
(18,320
|
)
|
|
$
|
24,762
|
|
|
|
5-20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 29, 2007
|
|
|
|
|
|
|
Gross
|
|
|
|
|
|
Net
|
|
|
Estimated
|
|
|
|
Carrying
|
|
|
Accum.
|
|
|
Carrying
|
|
|
Life
|
|
|
|
Value
|
|
|
Amort.
|
|
|
Amount
|
|
|
(years)
|
|
|
Customer contracts and relationships
|
|
$
|
43,082
|
|
|
$
|
(14,714
|
)
|
|
$
|
28,368
|
|
|
|
5-20
|
|
Other intangible assets included in other assets on the
consolidated balance sheets were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 3, 2009
|
|
|
|
|
|
|
Gross
|
|
|
|
|
|
Net
|
|
|
Estimated
|
|
|
|
Carrying
|
|
|
Accum.
|
|
|
Carrying
|
|
|
Life
|
|
|
|
Value
|
|
|
Amort.
|
|
|
Amount
|
|
|
(years)
|
|
|
Franchise agreements
|
|
$
|
2,739
|
|
|
$
|
(1,291
|
)
|
|
$
|
1,448
|
|
|
|
5-25
|
|
Non-compete agreements
|
|
|
416
|
|
|
|
(360
|
)
|
|
|
56
|
|
|
|
5-7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 29, 2007
|
|
|
|
|
|
|
Gross
|
|
|
|
|
|
Net
|
|
|
Estimated
|
|
|
|
Carrying
|
|
|
Accum.
|
|
|
Carrying
|
|
|
Life
|
|
|
|
Value
|
|
|
Amort.
|
|
|
Amount
|
|
|
(years)
|
|
|
Franchise agreements
|
|
$
|
2,694
|
|
|
$
|
(1,176
|
)
|
|
$
|
1,518
|
|
|
|
17-25
|
|
Non-compete agreements
|
|
|
938
|
|
|
|
(830
|
)
|
|
|
108
|
|
|
|
5-7
|
|
Aggregate amortization expense recognized for fiscal 2008, 2007
and 2006 was $4.0 million, $4.4 million and
$4.5 million, respectively. In fiscal 2006 we incurred an
impairment charge of $2.0 million reflecting the impairment
of a tradename which was deemed to have no future value. The
aggregate amortization expense for the five succeeding fiscal
years is expected to approximate $3.8 million,
$3.6 million, $2.9 million, $2.6 million and
$2.2 million for fiscal years 2009 through 2013,
respectively.
45
NASH
FINCH COMPANY AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Income
Taxes
When preparing our consolidated financial statements, we are
required to estimate our income taxes in each of the
jurisdictions in which we operate. The process involves
estimating our actual current tax obligations based on expected
income, statutory tax rates and tax planning opportunities in
the various jurisdictions in which we operate. In the event
there is a significant, unusual or one-time item recognized in
our results of operations, the tax attributable to that item
would be separately calculated and recorded in the period the
unusual or one-time item occurred.
We utilize the liability method of accounting for income taxes
as set forth in Statement of Financial Accounting Standards
No. 109, Accounting for Income Taxes
(SFAS 109). Under the liability method, deferred taxes
are determined based on the temporary differences between the
financial statement and tax basis of assets and liabilities
using tax rates expected to be in effect during the years in
which the basis differences reverse or are settled. A valuation
allowance is recorded when it is more likely than not that all
or a portion of the deferred tax assets will not be realized.
Changes in valuation allowances from period to period are
included in our tax provision in the period of change.
We establish reserves when, despite our belief that the tax
return positions are fully supportable, certain positions could
be challenged and we may ultimately not prevail in defending our
positions. These reserves are adjusted in light of changing
facts and circumstances, such as the closing of a tax audit or
the expiration of statutes of limitations. The effective tax
rate includes the impact of reserve provisions and changes to
reserves that are considered appropriate, as well as, related
penalties and interest. These reserves relate to various tax
years subject to audit by taxing authorities.
The Company adopted the provisions of FASB Interpretation
No. 48, Accounting for Uncertainty in Income
Taxes, (FIN 48) on December 31, 2006.
FIN 48 provides detailed guidance for the financial
statement recognition, measurement and disclosure of uncertain
tax positions recognized in an enterprises financial
statements in accordance with SFAS 109. Income tax
positions must meet a more-likely-than-not recognition threshold
at the effective date to be recognized upon the adoption of
FIN 48 and in subsequent periods. We recognize potential
accrued interest and penalties related to the unrecognized tax
benefits in income tax expense. 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.
Prior to fiscal 2007 we determined our tax contingencies in
accordance with Statement of Financial Accounting Standards
No. 5, Accounting for Contingencies
(SFAS 5). We recorded estimated tax liabilities to the
extent the contingencies were probable and could be reasonably
estimated.
Financial
Instruments
We account for derivative financial instruments pursuant to
Statement of Financial Accounting Standards No. 133,
Accounting for Derivative Instruments and Hedging
Activities (SFAS 133). SFAS 133 requires
derivatives be carried at fair value on the balance sheet and
provides for hedge accounting when certain conditions are met.
We have market risk exposure to changing interest rates
primarily as a result of our borrowing activities and to the
cost of fuel in our distribution operations. Our objective in
managing our exposure to changes in interest rates and the cost
of fuel is to reduce fluctuations in earnings and cash flows. To
achieve these objectives, from time-to time we use derivative
instruments, primarily interest rate swap agreements and fuel
hedges, 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.
46
NASH
FINCH COMPANY AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Share-based
compensation
On January 1, 2006, we adopted Statement of Financial
Accounting Standards No. 123(R), Share-Based
Payment Revised 2004, (SFAS 123R)
using the modified prospective transition method. Beginning in
2006, our results of operations reflect compensation expense for
newly issued stock options and other forms of share-based
compensation granted under our stock incentive plans, for the
unvested portion of previously issued stock options and other
forms of share-based compensation granted, and for our employee
stock purchase plan. In accordance with SFAS 123R, we
estimate the fair value of share-based payment awards on the
date of the grant. We use the grant date closing price per share
of Nash Finch common stock to estimate the fair value of
Restricted Stock Units (RSUs) and performance units granted
pursuant to its long-term incentive plan (LTIP). We use the
Black-Scholes option-pricing model to estimate the fair value of
stock options and a lattice model to estimate the fair value of
stock appreciation rights (SARs) which contain certain market
conditions. For all types of awards, the value of the portion of
the awards ultimately expected to vest is recognized as expense
over the requisite service period.
Comprehensive
Income
We report comprehensive income in accordance with Statement of
Financial Accounting Standards No. 130, Reporting
Comprehensive Income. Other comprehensive income
refers to revenues, expenses, gains and losses that are not
included in net earnings such as minimum pension liability
adjustments and unrealized gains or losses on hedging
instruments, but rather are recorded directly in the
consolidated statements of stockholders equity.
Use of
Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the amounts reported
in the financial statements and accompanying notes. Actual
results could differ from those estimates.
New
Accounting Standards
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.
SFAS 157 does not require any new fair value measurements,
but applies under other accounting pronouncements that require
or permit fair value measurements. The effective date of
SFAS 157 for non-financial assets and liabilities that are
not recognized or disclosed on a recurring basis has been
delayed to fiscal years beginning after November 15, 2008.
Effective January 1, 2008, we adopted the provisions of
SFAS 157 related to financial assets and liabilities
recognized or disclosed on a recurring basis.
In May 2008, the FASB issued FASB Staff Position (FSP) APB
14-1,
Accounting for Convertible Debt and Debt Issued with
Stock Purchase Warrants (FSP APB
14-1), which
will impact the accounting associated with our existing
$150.1 million senior convertible notes. When adopted FSP
APB 14-1
will require us to recognize non-cash interest expense based on
the market rate for similar debt instruments without the
conversion feature. Furthermore, it will require recognizing
interest expense in prior periods pursuant to retrospective
accounting treatment. It is expected that the cumulative effect
upon adoption would be to record approximately
$16.8 million in pretax non-cash interest expense for prior
periods and $4.0 million to $6.0 million in additional
pretax non-cash interest expense annually. FSP APB
14-1 is
effective for financial statements issued for fiscal years
beginning after December 15, 2008.
In December 2007, the FASB issued Statement of Financial
Accounting Standards No. 141R, Business
Combinations (SFAS 141R). This standard
establishes principles and requirements for the reporting entity
in
47
NASH
FINCH COMPANY AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
a business combination, including recognition and measurement in
the financial statements of the identifiable assets acquired,
the liabilities assumed, and any noncontrolling interest in the
acquiree. This statement also establishes disclosure
requirements to enable financial statement users to evaluate the
nature and financial effects of the business combination.
SFAS 141R is effective for fiscal years beginning on or
after December 15, 2008. The impact of adopting
SFAS 141R will be dependent on the future business
combinations that the Company may pursue after its effective
date.
In December 2007, the FASB issued Statement of Financial
Accounting Standards No. 160, Noncontrolling
Interests in Consolidated Financial Statements
(SFAS 160). This statement establishes accounting and
reporting standards for noncontrolling interests in consolidated
financial statements. SFAS 160 is effective for fiscal
years beginning on or after December 15, 2008. Early
adoption is prohibited. Based on the Companys current
operations, it does not expect that the adoption of
SFAS 160 will have a material impact on its financial
position or results of operations.
|
|
(2)
|
Vendor
Allowances and Credits
|
We participate with our vendors in a broad menu of promotions to
increase sales of products. These promotions fall into two main
categories: off-invoice allowances and performance-based
allowances. These allowances are often subject to negotiation
with our vendors. In the case of off-invoice allowances,
discounts are typically offered by vendors with respect to
certain merchandise purchased by us during a specified period of
time. We use off-invoice allowances to support a variety of
marketing programs such as reduced price offerings for specific
time periods, food shows, pallet promotions and private label
promotions. The discounts are either reflected directly on the
vendors invoice, as a reduction from the normal wholesale
prices for merchandise to which the allowance applies, or we are
allowed to deduct the allowance as an offset against the
vendors invoice when it is paid.
In the case of performance-based allowances, the allowance or
rebate is based on our completion of some specific activity,
such as purchasing or selling product during a certain time
period. This basic performance requirement may be accompanied by
an additional performance requirement such as providing
advertising or special in-store promotion, tracking specific
shipments of goods to retailers (or to customers in the case of
our own retail stores) during a specified period (retail
performance allowances), slotting (adding a new item to the
system in one or more of our distribution centers) and
merchandising a new item, or achieving certain minimum purchase
quantities. The billing for these performance-based allowances
is normally in the form of a bill-back, in which
case we are invoiced at the regular price with the understanding
that we may bill back the vendor for the requisite allowance
when the performance is satisfied. We also assess an
administrative fee, reflected on the invoices sent to vendors,
to recoup our reasonable costs of performing the tasks
associated with administering retail performance allowances.
We collectively plan promotions with our vendors and arrive at
the amount the respective vendor plans to spend on promotions
with us. Each vendor has its own method for determining the
amount of promotional funds to be spent with us. In most
situations, the vendor allowances are based on units we purchase
from the vendor. In other situations, the allowances are based
on our past or anticipated purchases
and/or the
anticipated performance of the planned promotions. Forecasting
promotional expenditures is a critical part of our frequently
scheduled planning sessions with our vendors. As individual
promotions are completed and the associated billing is
processed, the vendors track our promotional program execution
and spend rate, and discuss the tracking, performance and spend
rate with us on a regular basis throughout the year. These
communications include discussions with respect to future
promotions, product cost, targeted retails and price points,
anticipated volume, promotion expenditures, vendor maintenance,
billing issues and procedures, new items/discontinued items and
trade spend levels relative to budget per event and per year, as
well as the resolution of any issues that arise between the
vendor and us. In the future, the nature and menu of
48
NASH
FINCH COMPANY AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
promotional programs and the allocation of dollars among them
may change as a result of ongoing negotiations and commercial
relationships between vendors and us.
We have a vendor dispute resolution process to facilitate timely
research and resolution of disputed deductions from vendor
payments. We estimate and record a payable based on current and
historical claims.
2004
Special Charge
In fiscal 2004, we recorded a charge of $34.9 million
related to the closure of 18 retail stores and our intent to
seek purchasers for our Denver area AVANZA retail stores.
The charge was reflected in the 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 as the assets of these stores were revalued at
historical cost less depreciation during the time
held-for-sale.
Partially offsetting this reversal was a $0.2 million
change in estimate for one other property.
In fiscal 2006, we recorded additional charges related to two
properties included in the 2004 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 fiscal 2007, we reversed $1.6 million of previously
established lease reserves after subleasing a property earlier
than anticipated. This reversal was partially offset by a charge
of $0.3 million due to revised lease commitment estimates.
In fiscal 2008, no special charges or reversal of previous
charges were recognized.
49
NASH
FINCH COMPANY AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Following is a summary of the activity in the 2004 reserve
established for store dispositions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Write-
|
|
|
Write-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Down of
|
|
|
Down of
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
Tangible
|
|
|
Intangible
|
|
|
Lease
|
|
|
|
|
|
Exit
|
|
|
|
|
|
|
Assets
|
|
|
Assets
|
|
|
Commitments
|
|
|
Severance
|
|
|
Costs
|
|
|
Total
|
|
|
|
(In thousands)
|
|
|
Initial accrual
|
|
$
|
20,596
|
|
|
$
|
1,072
|
|
|
$
|
14,129
|
|
|
$
|
109
|
|
|
$
|
588
|
|
|
$
|
36,494
|
|
Change in estimates
|
|
|
889
|
|
|
|
|
|
|
|
(2,493
|
)
|
|
|
(23
|
)
|
|
|
|
|
|
|
(1,627
|
)
|
Used in 2004
|
|
|
(21,485
|
)
|
|
|
(1,072
|
)
|
|
|
(2,162
|
)
|
|
|
(86
|
)
|
|
|
(361
|
)
|
|
|
(25,166
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at 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 at 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 at December 30, 2006
|
|
|
|
|
|
|
|
|
|
|
6,333
|
|
|
|
|
|
|
|
96
|
|
|
|
6,429
|
|
Change in estimates
|
|
|
|
|
|
|
|
|
|
|
(1,282
|
)
|
|
|
|
|
|
|
|
|
|
|
(1,282
|
)
|
Used in 2007
|
|
|
|
|
|
|
|
|
|
|
(947
|
)
|
|
|
|
|
|
|
(1
|
)
|
|
|
(948
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 29, 2007
|
|
$
|
|
|
|
$
|
|
|
|
$
|
4,104
|
|
|
$
|
|
|
|
$
|
95
|
|
|
$
|
4,199
|
|
Change in estimates
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Used in 2008
|
|
|
|
|
|
|
|
|
|
|
(855
|
)
|
|
|
|
|
|
|
|
|
|
|
(855
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 3, 2009
|
|
$
|
|
|
|
$
|
|
|
|
$
|
3,249
|
|
|
$
|
|
|
|
$
|
95
|
|
|
$
|
3,344
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4)
|
Long-Lived
Asset Impairment Charges
|
Impairment charges of $2.6 million, $1.9 million and
$11.4 million were recorded for long-lived asset
impairments in fiscal 2008, 2007 and 2006, respectively. In
fiscal 2006, these charges included $3.1 million of
impairment charges to write off capital leases subleased to a
customer who declared bankruptcy and an impairment charge of
$2.0 million reflecting the impairment of a tradename which
was deemed to have no future value. The remaining impairment
charges primarily related to eight retail stores in 2008, seven
retail stores in 2007 and 14 retail stores in fiscal 2006 that
were impaired as a result of increased competition within the
stores respective market areas. The estimated undiscounted
cash flows related to these facilities indicated that the
carrying value of the assets may not be recoverable based on
current expectations, therefore these assets were written down
in accordance with Statement of Financial Accounting Standards
No. 144, Accounting for the Impairment or Disposal
of Long-Lived Assets.
50
NASH
FINCH COMPANY AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
(5)
|
Accounts
and Notes Receivable
|
Accounts and notes receivable at the end of fiscal 2008 and 2007
are comprised of the following components:
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands)
|
|
|
Customer notes receivable, current
|
|
$
|
8,434
|
|
|
$
|
5,663
|
|
Customer accounts receivable
|
|
|
160,202
|
|
|
|
176,923
|
|
Other receivables
|
|
|
22,101
|
|
|
|
22,841
|
|
Allowance for doubtful accounts
|
|
|
(4,794
|
)
|
|
|
(7,620
|
)
|
|
|
|
|
|
|
|
|
|
Net current accounts and notes receivable
|
|
$
|
185,943
|
|
|
$
|
197,807
|
|
|
|
|
|
|
|
|
|
|
Long-term customer notes receivable
|
|
$
|
29,090
|
|
|
$
|
12,478
|
|
Allowance for doubtful accounts
|
|
|
(737
|
)
|
|
|
(49
|
)
|
|
|
|
|
|
|
|
|
|
Net long-term notes receivable
|
|
$
|
28,353
|
|
|
$
|
12,429
|
|
|
|
|
|
|
|
|
|
|
Operating results include the reversal of bad debt expense of
$1.3 million during fiscal 2008 compared to bad debt
expense of $1.2 million and $5.6 million during fiscal
2007 and 2006, respectively.
|
|
(6)
|
Long-term
Debt and Bank Credit Facilities
|
Long-term debt at the end of the fiscal 2008 and 2007 is
summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands)
|
|
|
Senior secured credit facility:
|
|
|
|
|
|
|
|
|
Revolving credit
|
|
$
|
|
|
|
|
6,300
|
|
Term Loan B
|
|
|
|
|
|
|
118,700
|
|
Asset-backed credit agreement:
|
|
|
|
|
|
|
|
|
Revolving credit
|
|
|
93,600
|
|
|
|
|
|
Senior subordinated convertible debt, 3.50% due in 2035
|
|
|
150,087
|
|
|
|
150,087
|
|
Industrial development bonds, 5.60% to 6.00% due in various
installments through 2014
|
|
|
2,875
|
|
|
|
3,345
|
|
Notes payable and mortgage notes, 7.95% due in various
installments through 2013
|
|
|
474
|
|
|
|
559
|
|
|
|
|
|
|
|
|
|
|
Total debt
|
|
|
247,036
|
|
|
|
278,991
|
|
Less current maturities
|
|
|
(595
|
)
|
|
|
(548
|
)
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
$
|
246,441
|
|
|
|
278,443
|
|
|
|
|
|
|
|
|
|
|
Asset-backed
Credit Agreement
On April 11, 2008, we entered into our credit agreement
which is an asset-backed loan consisting of a
$300.0 million revolving credit facility, which includes a
$50.0 million letter of credit
sub-facility
(the Revolving Credit Facility). Provided no default
is then existing or would arise, the Company may from
time-to-time,
request that the Revolving Credit Facility be increased by an
aggregate amount (for all such requests) not to exceed
$150.0 million. The Revolving Credit Facility has a
5-year term
and will be due and payable in full on April 11, 2013. The
Company can elect, at the time of borrowing, for loans to bear
interest
51
NASH
FINCH COMPANY AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
at a rate equal to the base rate or LIBOR plus a margin. The
LIBOR interest rate margin currently is 2.00% and can vary
quarterly in 0.25% increments between three pricing levels
ranging from 1.75% to 2.25% based on the excess availability,
which is defined in the credit agreement as (a) the lesser
of (i) the borrowing base; or (ii) the aggregate
commitments; minus (b) the aggregate of the outstanding
credit extensions. At January 3, 2009, $190.9 million
was available under the Revolving Credit Facility after giving
effect to outstanding borrowings and to $15.5 million of
outstanding letters of credit primarily supporting workers
compensation obligations.
The credit agreement contains no financial covenants unless and
until (i) the continuance of an event of default under the
credit agreement, or (ii) the failure of the Company to
maintain excess availability (A) greater than 10% of the
borrowing base for more than two (2) consecutive business
days or (B) greater than 7.5% of the borrowing base at any
time, in which event, the Company must comply with a trailing
12-month
basis consolidated fixed charge covenant ratio of 1.0:1.0, which
ratio shall continue to be tested each month thereafter until
excess availability exceeds 10% of the borrowing base for ninety
(90) consecutive days.
The credit agreement contains standard covenants requiring the
Company and its subsidiaries, among other things, to maintain
collateral, comply with applicable laws, keep proper books and
records, preserve the corporate existence, maintain insurance,
and pay taxes in a timely manner. Events of default under the
credit agreement are usual and customary for transactions of
this type including, among other things: (a) any failure to
pay principal there under when due or to pay interest or fees on
the due date; (b) material misrepresentations;
(c) default under other agreements governing material
indebtedness of the Company; (d) default in the performance
or observation of any covenants; (e) any event of
insolvency or bankruptcy; (f) any final judgments or orders
to pay more than $15.0 million that remain unsecured or
unpaid; (g) change of control, as defined in the credit
agreement; and (h) any failure of a collateral document,
after delivery thereof, to create a valid mortgage or
first-priority lien.
Senior
Subordinated Convertible Debt
To finance a portion of the acquisition from Roundys, we
sold $150.1 million in aggregate issue price (or
$322.0 million aggregate principal amount at maturity) of
senior subordinated convertible notes due 2035 in a private
placement completed on March 15, 2005. 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.
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 at a daily rate of 3.50% per year until the maturity date
of the notes. On the maturity date of the notes, a holder will
receive $1,000 per note (a $1,000 Note). Contingent
cash interest will be paid on the notes during any six-month
period, commencing March 16, 2013, if the average market
price of a note for a ten trading day measurement period
preceding the applicable six-month period equals 130% or more of
the accreted principal amount of the note, plus accrued cash
interest, if any. The contingent cash interest payable with
respect to any six-month period will equal an annual rate of
0.25% of the average market price of the note for the ten
trading day measurement period described above.
The notes will be convertible at the option of the holder only
upon the occurrence of certain events summarized as follows:
|
|
|
|
(1)
|
if the closing price of our stock reaches a specified threshold
(currently $64.35) for a specified period of time,
|
(2) if the notes are called for redemption,
52
NASH
FINCH COMPANY AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(3) if specified corporate transactions or distributions to
the holders of our common stock occur,
(4) if a change in control occurs or,
(5) during the ten trading days prior to, but not on, the
maturity date.
Upon conversion by the holder, the notes convert at an adjusted
conversion rate of 9.4164 shares (initially
9.3120 shares) of our common stock per $1,000 Note (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 (or residual value shares), if
any, in cash, stock or both, at our option. The conversion rate
is adjusted upon certain dilutive events as described in the
indenture, but in no event shall the conversion rate exceed
12.7109 shares per $1,000 Note. The number of residual
value shares cannot exceed 7.1469 shares per $1,000 Note.
We may redeem all or a portion of the notes for cash at any time
on or after the eighth anniversary of the issuance of the notes.
Holders may require us to purchase for cash all or a portion of
their notes on the 8th, 10th, 15th, 20th and
25th anniversaries of the issuance of the notes. In
addition, upon specified change in control events, each holder
will have the option, subject to certain limitations, to require
us to purchase for cash all or any portion of such holders
notes.
In connection with the closing of the sale of the notes, we
entered into a registration rights agreement with the initial
purchasers of the notes. In accordance with that agreement, we
filed with the Securities and Exchange Commission a shelf
registration statement covering the resale by security holders
of the notes and the common stock issuable upon conversion of
the notes. The shelf registration statement was declared
effective by the Securities and Exchange Commission on
October 5, 2005. Our contractual obligation, however, to
maintain the effectiveness of the shelf registration statement
has expired. As a result, we removed from registration, by means
of a post-effective amendment filed on July 24, 2007, all
notes and common stock that remained unsold at such time.
Industrial
Development Bonds and Mortgages
At January 3, 2009, land in the amount of $1.4 million
and buildings and other assets with a depreciated cost of
approximately $3.4 million are pledged to secure
obligations under issues of industrial development bonds and
mortgages.
Aggregate annual maturities of long-term debt for the five
fiscal years after January 3, 2009, are as follows (in
thousands):
|
|
|
|
|
2009
|
|
$
|
595
|
|
2010
|
|
|
628
|
|
2011
|
|
|
670
|
|
2012
|
|
|
704
|
|
2013
|
|
|
94,312
|
|
Thereafter
|
|
|
150,127
|
|
|
|
|
|
|
Total
|
|
$
|
247,036
|
|
|
|
|
|
|
Interest paid was $18.7 million, $22.0 million and
$26.3 million in fiscal 2008, 2007 and 2006, respectively.
|
|
(7)
|
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
53
NASH
FINCH COMPANY AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
exposure to changes in interest rates and commodity prices is to
reduce fluctuations in earnings and cash flows. To achieve these
objectives, from time-to-time 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 Statement of
Financial Accounting Standards No. 133, Accounting
for Derivative Instruments and Hedging Activities,
(SFAS 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.
As of January 3, 2009, we had two outstanding interest rate
swap agreements with notional amounts totaling
$52.5 million. The notional amounts of the two outstanding
swaps are reduced annually over their three year terms as
follows (amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
Notional
|
|
Effective Date
|
|
|
Termination Date
|
|
|
Fixed Rate
|
|
|
$30,000
|
|
|
10/15/2008
|
|
|
|
10/15/2009
|
|
|
|
3.49
|
%
|
20,000
|
|
|
10/15/2009
|
|
|
|
10/15/2010
|
|
|
|
3.49
|
%
|
10,000
|
|
|
10/15/2010
|
|
|
|
10/15/2011
|
|
|
|
3.49
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notional
|
|
Effective Date
|
|
|
Termination Date
|
|
|
Fixed Rate
|
|
|
$22,500
|
|
|
10/15/2008
|
|
|
|
10/15/2009
|
|
|
|
3.38
|
%
|
15,000
|
|
|
10/15/2009
|
|
|
|
10/15/2010
|
|
|
|
3.38
|
%
|
7,500
|
|
|
10/15/2010
|
|
|
|
10/15/2011
|
|
|
|
3.38
|
%
|
Interest rate swap agreements outstanding at January 3,
2009 and their fair values are summarized as follows:
|
|
|
|
|
|
|
January 3,
|
|
(In thousands, except
percentages)
|
|
2009
|
|
|
Notional amount (pay fixed/receive variable)
|
|
$
|
52,500
|
|
Fair value (liability)
|
|
|
(1,911
|
)
|
Average receive rate for effective swaps
|
|
|
2.6
|
%
|
Average pay rate for effective swaps
|
|
|
3.4
|
%
|
At December 29, 2007, there were no outstanding interest
rate swap agreements.
From time-to-time 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. Resulting
gains and losses on the fair market value of the commodity swap
agreement are immediately recognized as income or expense.
As of January 3, 2009, there were no commodity swap
agreements in existence. Our only commodity swap agreement in
place during fiscal 2008 expired during the first quarter and
was settled for fair market value. Pre-tax gains of
$0.4 million were recorded as a reduction to cost of sales
during fiscal 2007.
54
NASH
FINCH COMPANY AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
In addition to the previously discussed interest rate and
commodity swap agreements, from time-to-time we enter into a
fixed price fuel supply agreements to support our food
distribution segment. Effective January 1, 2009, we entered
into an agreement which requires us to purchase a total of
252,000 gallons of diesel fuel per month at prices ranging from
$1.90 to $1.98 per gallon. The term of the agreement is for one
year. During fiscal 2007 and 2008 we had a fixed price fuel
supply agreement which required us to purchase a total of
168,000 gallons of diesel fuel per month at prices ranging from
$2.28 to $2.49 per gallon. The term of the agreement began on
February 1, 2007, and expired on December 31, 2007.
These fixed price fuel agreements qualified for the normal
purchase exception under SFAS 133, therefore the fuel
purchases under these contracts are expensed as incurred as an
increase to cost of sales.
Total income tax expense is allocated as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
Income tax expense from continuing operations
|
|
$
|
22,574
|
|
|
$
|
18,742
|
|
|
$
|
5,835
|
|
Tax effect of discontinued operations
|
|
|
|
|
|
|
|
|
|
|
102
|
|
Tax effect of change in accounting principle
|
|
|
|
|
|
|
|
|
|
|
119
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total income tax expense
|
|
$
|
22,574
|
|
|
$
|
18,742
|
|
|
$
|
6,056
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense from continuing operations is made up of the
following components:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
12,414
|
|
|
$
|
(493
|
)
|
|
$
|
2,770
|
|
State
|
|
|
1,656
|
|
|
|
337
|
|
|
|
85
|
|
Tax credits
|
|
|
(130
|
)
|
|
|
(97
|
)
|
|
|
(226
|
)
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
8,014
|
|
|
|
17,443
|
|
|
|
2,963
|
|
State
|
|
|
620
|
|
|
|
1,552
|
|
|
|
243
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
22,574
|
|
|
$
|
18,742
|
|
|
$
|
5,835
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense from continuing operations differed from
amounts computed by applying the federal income tax rate to
pre-tax income as a result of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Federal statutory tax rate
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
|
|
(35.0
|
)%
|
State taxes, net of federal income tax benefit
|
|
|
4.0
|
%
|
|
|
3.9
|
%
|
|
|
2.5
|
%
|
Non-deductible goodwill
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
|
|
54.8
|
%
|
Change in tax contingencies
|
|
|
1.0
|
%
|
|
|
(4.7
|
)%
|
|
|
9.7
|
%
|
Other net
|
|
|
(1.6
|
)%
|
|
|
(1.6
|
)%
|
|
|
1.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective tax rate
|
|
|
38.4
|
%
|
|
|
32.6
|
%
|
|
|
33.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
55
NASH
FINCH COMPANY AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The tax effects of temporary differences that give rise to
significant portions of the deferred tax assets and deferred tax
liabilities are as follows:
|
|
|
|
|
|
|
|
|
|
|
January 3,
|
|
|
December 29,
|
|
|
|
2009
|
|
|
2007
|
|
|
|
(In thousands)
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Compensation related accruals
|
|
$
|
12,528
|
|
|
$
|
10,425
|
|
Reserve for bad debts
|
|
|
2,200
|
|
|
|
2,765
|
|
Reserve for store shutdown and special charges
|
|
|
1,671
|
|
|
|
1,994
|
|
Workers compensation accruals
|
|
|
3,253
|
|
|
|
3,527
|
|
Pension accruals
|
|
|
6,347
|
|
|
|
3,608
|
|
Reserve for future rents
|
|
|
3,123
|
|
|
|
5,149
|
|
Other
|
|
|
3,918
|
|
|
|
3,709
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets
|
|
|
33,040
|
|
|
|
31,177
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Property, plant and equipment
|
|
|
5,431
|
|
|
|
4,246
|
|
Intangible assets
|
|
|
16,727
|
|
|
|
12,810
|
|
Inventories
|
|
|
11,571
|
|
|
|
12,516
|
|
Convertible debt interest
|
|
|
11,387
|
|
|
|
8,069
|
|
Other
|
|
|
1,448
|
|
|
|
2,024
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax liabilities
|
|
|
46,564
|
|
|
|
39,665
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax asset (liability)
|
|
$
|
(13,524
|
)
|
|
$
|
(8,488
|
)
|
|
|
|
|
|
|
|
|
|
Our income tax expense from continuing operations was
$22.6 million, $18.7 million and $5.8 million for
fiscal years 2008, 2007 and 2006, respectively. The income tax
rate from continuing operations for fiscal 2008 was 38.4%
compared to 32.6% for fiscal 2007 and 33.4% for fiscal 2006. The
effective income tax rate for fiscal 2008 and 2007 represented
income tax expense incurred on pre-tax income from continuing
operations. The effective income tax rate for fiscal 2006
represented income tax expense incurred on pre-tax loss from
continuing operations. The effective tax rate for fiscal 2008
was impacted by the reversal of previously unrecognized tax
benefits of $2.6 million, the filing of reports with various
taxing authorities which resulted in the settlement of uncertain
tax positions, a refund on a claim made with the Internal
Revenue Service of $1.2 million and an increase in reserves
of $2.7 million.
Net income taxes paid were $0.8 million,
$12.1 million, and $13.2 million during fiscal 2008,
2007 and 2006, respectively. Income tax benefits recognized
through stockholders equity were $0.6 million,
$0.9 million and $0.1 million during fiscal years
2008, 2007 and 2006, respectively, as compensation expense for
tax purposes were in excess of amounts recognized for financial
reporting purposes.
At January 3, 2009, the total amount of unrecognized tax
benefits was $9.4 million compared to $9.2 million at
December 29, 2007. The net increase in unrecognized tax
benefits of $0.2 million since December 29, 2007 was
comprised of the following: $2.6 million due to a decrease
in the unrecognized tax benefits relating to prior period tax
positions and $2.8 million due to the increase in
unrecognized tax benefits as a result of tax positions taken in
the current period. The net reduction in unrecognized tax
benefits of $12.4 million during the year ended
December 29, 2007, was comprised of the following:
$5.7 million due to the reduction of unrecognized tax
benefits as a result of the expiration of the applicable
statutes of limitation, $9.1 million due to a decrease in
the unrecognized tax benefits relating to prior period tax
positions and
56
NASH
FINCH COMPANY AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
$2.3 million due to the increase in unrecognized tax
benefits as a result of tax positions taken in the current
period.
The following table summarizes the activity related to our
unrecognized tax benefits under FIN 48:
|
|
|
|
|
|
|
($ in thousands)
|
|
|
Unrecognized tax benefits opening balance at 12/30/07
|
|
$
|
9,281
|
|
Increases related to current year tax period
|
|
|
2,740
|
|
Decreases related to prior year tax periods
|
|
|
(2,583
|
)
|
Lapse of statute of limitations
|
|
|
|
|
|
|
|
|
|
Unrecognized tax benefits ending balance 1/03/09
|
|
$
|
9,438
|
|
|
|
|
|
|
|
|
|
|
|
|
|
($ in thousands)
|
|
|
Unrecognized tax benefits opening balance at 12/31/06
|
|
$
|
21,844
|
|
Increases related to current year tax period
|
|
|
2,286
|
|
Decreases related to prior year tax periods
|
|
|
(9,117
|
)
|
Lapse of statute of limitations
|
|
|
(5,732
|
)
|
|
|
|
|
|
Unrecognized tax benefits ending balance 12/29/07
|
|
$
|
9,281
|
|
|
|
|
|
|
The total amount of tax benefits that if recognized would impact
the effective tax rate was $3.3 million at January 3,
2009 and $2.7 million at December 29, 2007. The
accrual for potential penalties and interest related to
unrecognized tax benefits did not materially change during 2008,
and in total, as of January 3, 2009, is $2.0 million.
The accrual for potential penalties and interest related to
unrecognized tax benefits decreased by $1.7 million during
fiscal 2007.
We do not expect our unrecognized tax benefits to change
significantly over the next 12 months.
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.
|
|
(9)
|
Share-based
Compensation Plans
|
On January 1, 2006, we adopted Statement of Financial
Accounting Standards No. 123(R), Share-Based
Payment Revised 2004, (SFAS 123R)
using the modified prospective transition method. Beginning in
2006, our results of operations reflect compensation expense for
newly issued stock options and other forms of share-based
compensation granted under our stock incentive plans, for the
unvested portion of previously issued stock options and other
forms of share-based compensation granted, and for our employee
stock purchase plan.
SFAS 123R 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 to be recognized as expense over
the requisite service period. Share-based compensation expense
recognized in our consolidated statements of income for fiscal
years ended January 3, 2009, December 29, 2007, and
December 30, 2006, included compensation expense for the
share-based payment awards granted prior to, but not yet vested
as of January 1, 2006, based on the grant date fair value
estimated in accordance with the pro forma provisions of
SFAS 123. Compensation expense for the share-based payment
awards granted subsequent to January 1, 2006 was based on
the grant date fair value estimated in accordance with the
provisions of SFAS 123R. Share-based compensation expense
recognized in the consolidated statements of income for years
ended January 3, 2009, December 29, 2007, and
December 30, 2006, was based on awards ultimately expected
57
NASH
FINCH COMPANY AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
to vest, and therefore has been reduced for estimated
forfeitures. SFAS 123R 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). The effect to earnings per share was a $0.01
increase in the period of adoption.
We have four equity compensation plans under which incentive
stock options, non-qualified stock options and other forms of
share-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 was
frozen as of December 31, 2004. The Board adopted the
Director Deferred Compensation Plan for amounts deferred on or
after January 1, 2005. The plan permits non-employee
directors to annually defer all or a portion of his or her cash
compensation for service as a director, and have the amount
deferred into either a cash account or a share unit account.
Each share unit is payable in one share of Nash Finch common
stock following termination of the participants service as
a director.
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.
Awards to non-employee directors under the 2000 Plan began in
2004 and have taken the form of restricted stock units
(RSUs) 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 2008 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 directors service on our Board ends.
For stock options, the fair value of each option grant is
estimated as of the date of grant using the Black-Scholes single
option pricing model. Expected volatilities are based upon
historical volatility of our common stock which is believed to
be representative of future stock volatility. We use historical
data to estimate the amount of option exercises and terminations
with the valuation model primarily based on the vesting period
of the option grant. The expected term of options granted is
based upon historical employee behavior and the vesting period
of the option grant. The risk-free interest rates are based on
the U.S. Treasury yield curve in effect at the time of
grant. Because our employee stock options have characteristics
significantly different from those of traded options, and
because changes in the input assumptions can materially affect
the fair value estimate, the existing models may not provide a
reliable single measure of the fair value of our employee stock
options. Management will continue to assess the assumptions and
methodologies used to calculate estimated fair value of
share-based compensation.
No options were granted during the years ended January 3,
2009, December 29, 2007 or December 30, 2006. The
weighted-average grant date fair value of stock options granted
during the year ended January 1, 2005 was $9.88. The
following assumptions were used to estimate the fair value using
the Black-Scholes single option pricing model as of the grant
date for the last options granted during fiscal year 2004:
|
|
|
|
|
Assumptions
|
|
2004
|
|
|
Weighted-average risk-free interest rate
|
|
|
3.40
|
%
|
Expected dividend yield
|
|
|
1.56
|
%
|
Expected option lives
|
|
|
2.5 years
|
|
Expected volatility
|
|
|
67
|
%
|
58
NASH
FINCH COMPANY AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following table summarizes information concerning
outstanding and exercisable options under the 2000 Plan as of
January 3, 2009 (number of shares in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding & Exercisable
|
|
|
|
|
|
|
Weighted Average
|
|
|
Weighted
|
|
|
|
Number
|
|
|
Remaining
|
|
|
Average
|
|
Range of
|
|
of Options
|
|
|
Contractual
|
|
|
Exercise
|
|
Exercise Prices
|
|
Outstanding
|
|
|
Life (in years)
|
|
|
Price
|
|
|
24.55
|
|
|
8.0
|
|
|
|
0.52
|
|
|
$
|
24.55
|
|
35.36
|
|
|
10.0
|
|
|
|
0.86
|
|
|
|
35.36
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18.0
|
|
|
|
0.71
|
|
|
$
|
30.56
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The aggregate intrinsic value of the options outstanding as of
January 3, 2009, was $0.3 million. All remaining
options outstanding as of January 3, 2009 were exercisable
and had a weighted average remaining contractual term of
0.7 years.
Since 2005, awards have taken the form of performance units
(including share units pursuant to our Long-Term Incentive Plan
(LTIP)), RSUs and Stock Appreciation Rights (SARS).
Performance units were granted during 2005, 2006, 2007 and 2008
under the 2000 Plan pursuant to our LTIP. These units vest at
the end of a three-year performance period. The 2005 plan
provided for payout in shares of our common stock or cash, or a
combination of both, at the election of the participant, and
therefore was accounted for as a liability award in accordance
with SFAS 123(R). All units under the 2005 plan were
settled in shares of our common stock during the second quarter
2008. The payout for units granted in 2005 was determined by
comparing our growth in Consolidated EBITDA (defined
as net income, adjusted by (i) adding thereto interest
expense, provision for income taxes, depreciation and
amortization expense, and other non-cash charges that were
deducted in computing net income for the period;
(ii) excluding the amount of any extraordinary gains or
losses and gains or losses from sales of assets other than
inventory in the ordinary course of business; and
(iii) subtracting cash payments made during the period with
respect to non-cash charges incurred in a previous period) and
return on net assets (RONA) (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.
In February 2008, the Compensation and Management Development
Committee (the Committee) of the Board of Directors
amended the 2006 and 2007 LTIP plans to take into account the
Companys decision in the fall of 2007 to invest strategic
capital in support of its strategic plan. To ensure the
interests of management and shareholders remained aligned after
the decision to invest strategic capital, the Committee decided
in February 2008 to revise the 2006 and 2007 LTIP plans by,
among other things, adding a definition for Strategic Project
and amending the definitions of Net Assets, RONA and Free Cash
Flow. The 2006 and 2007 LTIP Plans were amended as follows:
|
|
|
|
|
2006 LTIP Plan: The Committee amended the definition of RONA in
the 2006 LTIP as follows: RONA means the weighted
average of the return on Net Assets for the fiscal years during
a Measurement Period. This is the quotient of (i) the sum
of net income for each fiscal year (or portion thereof) during
the Measurement Period divided by (ii) the sum of Average
Net Assets for each fiscal year (or portion thereof) during the
measurement period. Each of the measures in (i) and
(ii) shall be as reported by the entity for the applicable
fiscal periods in periodic reports filed with the Securities and
Exchange Commission (SEC) under the Exchange Act.
Net Income will be adjusted by (x) subtracting projected
Strategic Project Consolidated EBITDA, offset by the associated
interest, depreciation and income taxes. If a Strategic Project
generates positive Consolidated EBITDA through July 1 of the
year placed in service, the adjustment for (x) above will
only be made through July 1 of that year. If a
|
59
NASH
FINCH COMPANY AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
Strategic Project first generates positive Consolidated EBITDA
after July 1 of the year placed in service, then the adjustment
for (x) above will be made through the first anniversary
date of the Strategic Project being placed in service. Weighting
of the return on Net Assets for the fiscal years during the
Measurement Period shall be based upon the Average Net Assets
for each fiscal year.
|
|
|
|
|
|
2007 LTIP Plan: The Committee amended the definition of
net assets consistent with the change to the 2006
LTIP Plan to allow for the impact on net assets resulting from
the Companys decision to expend strategic capital. Net
Assets is defined in the amended Plan as: Net Assets
means total assets minus current liabilities, excluding current
maturities of long-term debt and capitalized lease obligations
and further adjusted by (x) subtracting the additions of
Strategic Project PP&E and Strategic Project Working
Capital. Strategic Project means projects of the
following type that have been approved by the Committee:
(i) all Strategic Projects identified in the Companys
Five-Year Plan dated October 29, 2007; (ii) new retail
store additions; (iii) conversions of current retail stores
to a new format; (iv) conversion of current wholesale
distribution centers; (v) new wholesale distribution
centers or additions thereto; (vi) conversion of current
distribution network systems; (vii) conversion of current
wholesale or retail pricing and billing systems;
(viii) conversion of current wholesale or retail
merchandising systems; (ix) conversion of vendor income
management systems. If a Strategic Project generates positive
Consolidated EBITDA through July 1 of the year placed in
service, then the adjustment for (x) above will not be
made. If a Strategic Project first generates positive
Consolidated EBITDA after July 1 of the year placed in service,
then the adjustment for (x) above will be made during that
fiscal year only. Net Assets will be further adjusted upward by
the amount of any impairment of goodwill that the Company
records beginning with the affected year during the Measurement
Period. In addition, the Committee amended the definition of
Free Cash Flow to provide as follows: Free
Cash Flow means cash provided by operating activities
minus additions of property, plant and equipment
(PP&E); and (i) adding back the additions of
Strategic Project PP&E; (ii) adding back Strategic
Project Working Capital; and (iii) subtracting projected
Strategic Project Consolidated EBITDA, offset by the associated
cash interest and income taxes. If a Strategic Project generates
positive Consolidated EBITDA through July 1 of the year placed
in service, the adjustment for (iii) above will only be
made through July 1 of that year. If a Strategic Project first
generates positive Consolidated EBITDA after July 1 of the year
placed in service, then the adjustment for (iii) above will
be made through the first anniversary date of the Strategic
Project being placed in service.
|
The Committee made the following additional amendments to those
plans at its February 2008 meeting; (1) removing the plan
participants option to receive payout of the award in
cash; instead requiring that all awards be paid in stock; and
(2) automatically deferring settlement of stock payouts to
senior vice presidents, executive vice presidents and the CEO
until 30 days following termination of their employment or
until six months after termination of their employment if they
are determined to be specified employees under
409A(a)(2)(B)(i) of the Internal Revenue Code of 1986. The above
modifications resulted in replacement of the previously
outstanding liability awards with equity awards as defined by
SFAS 123(R). Therefore, the total expense recognized over
the remaining service (vesting) period of the awards will equal
the grant date fair value times number of shares that ultimately
vest. The Company estimates expected forfeitures in determining
the compensation expense recorded each period. The Company
recorded $0.1 million of incremental compensation cost
during fiscal 2008 as a result of modifying the 2006 and 2007
LTIP awards. The incremental compensation cost is attributable
to a small increase in the number of units issued as replacement
for the original 2006 units due to the effect of a lower
market price per share on the calculation of the targeted
payout. As of January 3, 2009, the modification of the
performance metrics did not impact the expected payout under the
2006 and 2007 plans and therefore had no impact on compensation
cost recorded for the LTIP.
60
NASH
FINCH COMPANY AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
In the first quarter 2008, units were granted pursuant to our
2008 LTIP. Depending on our ranking on compound annual growth
rate for Consolidated EBITDA among the companies in the peer
group and our free cash flow return on net assets performance
against targets established by the Committee for the 2008
awards, a participant could receive a number of shares ranging
from zero to 200% of the number of performance units granted.
Because these units can only be settled in stock, compensation
expense equal to the grant date fair value (for shares expected
to vest) is recorded over the three-year vesting period.
We also maintained the 1999 Employee Stock Purchase Plan under
which our employees could 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.
Employees purchased 18,456 and 27,544 in fiscal 2007 and 2006,
respectively, under this plan. Compensation expense related to
this plan of $0.2 million was recognized in each of fiscal
2007 and 2006. This plan was terminated effective
January 1, 2008.
During fiscal 2008, 2007 and 2006, restricted stock units (RSUs)
were awarded to certain executives of the Company, 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 Companys 2000 Stock
Incentive Plan. The new RSU grant replaced a previous grant of
100,000 performance units awarded to Mr. Covington when he
joined the Company in 2006. 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. Covingtons 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. At the date of the modification, the Company deemed
it improbable that the performance vesting conditions of the
original awards would be achieved and therefore was not accruing
compensation expense related to the original grant. Accordingly,
the replacement of the previous grant had no immediate financial
impact but resulted in incremental compensation cost in periods
subsequent the modification due to the expectation that the
replacement awards will vest. As of January 3, 2009, the
Company has recognized cumulative compensation expense related
to the modified awards of $2.6 million versus
$1.5 million that would have been recorded for the original
awards based on actual and forecast performance relative to the
performance vesting conditions. The Company expects to record
total compensation $4.7 million for the replacement awards
over the
4-year
vesting period compared with $2.1 million for the original
awards.
On December 17, 2008, in connection with the Companys
announcement of its planned acquisition of certain military
distribution assets of GSC Enterprises, Inc. (GSC) as discussed
in Note 18 Subsequent Event
Acquisition , eight executives of the Company were granted a
total of 267,345 stock appreciation rights (SARs) with a per
share price of $38.44. The SARs are eligible to become vested
during the 36 month period commencing on closing of the
acquisition of the GSC assets which was January 31, 2009.
The SARs will vest on the first business day during the vesting
period that follows the date on which the average of the closing
prices on NASDAQ for a share of Nash Finch common stock for the
previous 90 days is at least $55.00 or a change in control
occurs following the six month anniversary of the grant date or
termination of the executives employment due to death or
disability. Upon vesting and exercise, the Company will award
the executive a number of shares of restricted stock equal to
(a) the product of (i) the number of shares with
respect to which the SAR is exercised and (ii) the excess,
if any, of (x) the fair market value per share of common
stock on the date of exercise over (y) the base price per
share relating to such SAR, divided by (b) the fair market
value of a share of common stock on the date such SAR is
exercised. The restricted stock shall vest on the first
anniversary of the date of exercise so long as the executive
remains continuously employed with the Company.
61
NASH
FINCH COMPANY AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The fair value of Stock Appreciation Rights (SARs) is estimated
on the date of grant using a modified binomial lattice model
which factors in the market and service vesting conditions. The
modified binomial lattice model used by the Company incorporates
a risk-free interest rate based on the
5-year
treasury rate on the date of the grant. The model uses an
expected volatility calculated as the daily price variance over
60, 200 and 400 days prior to grant date using the Fair
Market Value (average of daily high and low market price of Nash
Finch common stock) on each day. Dividend yield utilized in the
model is calculated by the Company as the average of the daily
yield (as a percent of the Fair Market Value) over 60, 200 and
400 days prior to the grant date. The modified binomial
lattice model calculated a fair value of $8.44 per SAR which
will be recorded over a derived service period of
3.55 years.
The following assumptions were used to determine the fair value
of SARs during fiscal 2008:
|
|
|
|
|
Assumptions SARs
Valuation
|
|
2008
|
|
|
Weighted-average risk-free interest rate
|
|
|
1.37
|
%
|
Expected dividend yield
|
|
|
1.86
|
%
|
Expected volatility
|
|
|
35
|
%
|
Exercise price
|
|
$
|
38.44
|
|
Market vesting price (90 day average)
|
|
$
|
55.00
|
|
Contractual term
|
|
|
5.1 years
|
|
Share-based compensation recognized under SFAS 123R for the
year ended January 3, 2009, was $8.8 million.
Share-based compensation was $7.8 million during 2007 and
$1.2 million in fiscal 2006 (excluding the cumulative
effect of the accounting change.) Share-based compensation
amounts are included in selling, general &
administrative expense lines of our consolidated statements of
income.
The following tables summarize activity in our share-based
compensation plans during the fiscal year ended January 3,
2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Restricted
|
|
|
Average
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
Stock
|
|
|
Remaining
|
|
|
|
Stock
|
|
|
Option
|
|
|
|
|
|
Awards/
|
|
|
Restriction/
|
|
|
|
Option
|
|
|
Price per
|
|
|
Intrinsic
|
|
|
Peformance
|
|
|
Vesting Period
|
|
|
|
Shares
|
|
|
Share
|
|
|
Value
|
|
|
Units
|
|
|
(in years)
|
|
|
|
(In thousands, except per share amounts)
|
|
|
Outstanding at December 29, 2007
|
|
|
35.1
|
|
|
$
|
25.85
|
|
|
|
|
|
|
|
907.0
|
|
|
|
1.9
|
|
Granted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
403.1
|
|
|
|
|
|
Exercised/restrictions lapsed*
|
|
|
(15.5
|
)
|
|
|
|
|
|
|
|
|
|
|
(98.2
|
)
|
|
|
|
|
Forfeited/cancelled
|
|
|
(1.6
|
)
|
|
|
|
|
|
|
|
|
|
|
(285.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at January 3, 2009
|
|
|
18.0
|
|
|
|
30.56
|
|
|
$
|
276.9
|
|
|
|
926.0
|
|
|
|
1.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares expected to vest
|
|
|
18.0
|
|
|
$
|
30.56
|
|
|
$
|
|
|
|
|
840.3
|
|
|
|
1.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable/unrestricted at December 29, 2007
|
|
|
28.1
|
|
|
$
|
25.40
|
|
|
|
|
|
|
|
168.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable/unrestricted at
January 3, 2009
|
|
|
18.0
|
|
|
$
|
30.56
|
|
|
$
|
276.9
|
|
|
|
300.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
The exercised/restrictions lapsed amount above under
Restricted Stock Awards/Performance Units excludes 82,433 RSUs
held by Alec Covington and 25,952 RSUs held by Robert Dimond
that vested during |
62
NASH
FINCH COMPANY AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
fiscal 2008, respectively. Mr. Covington and
Mr. Dimond elected to defer the shares until after their
employment with the Company ends. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
Stock
|
|
|
Average
|
|
|
|
Appreciation
|
|
|
Base/Exercise
|
|
|
|
Rights
|
|
|
Price Per SAR
|
|
|
|
(In thousands, except per
|
|
|
|
share amounts)
|
|
|
Outstanding at December 29, 2007
|
|
|
|
|
|
|
|
|
Granted
|
|
|
267.3
|
|
|
$
|
38.44
|
|
Exercised/restrictions lapsed
|
|
|
|
|
|
|
|
|
Forfeited/cancelled
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at January 3, 2009
|
|
|
267.3
|
|
|
|
38.44
|
|
|
|
|
|
|
|
|
|
|
Shares expected to vest
|
|
|
240.6
|
|
|
|
38.44
|
|
|
|
|
|
|
|
|
|
|
Exercisable/unrestricted at December 29, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable/unrestricted at January 3, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The weighted-average grant-date fair value of equity based
restricted stock/performance units granted was $37.35, $32.86
and $23.57 during fiscal years 2008, 2007 and 2006,
respectively. The weighted-average grant-date fair value of
equity based SARs granted during 2008 was $8.44 per SAR.
The following tables present the non-vested equity awards,
including options, restricted stock/performance units including
LTIP, and stock appreciation rights.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Restricted
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Stock Awards/
|
|
|
|
|
|
|
|
|
|
Fair
|
|
|
Performance
|
|
|
Weighted
|
|
|
|
Stock
|
|
|
Value at
|
|
|
Units
|
|
|
Average Fair
|
|
|
|
Option
|
|
|
Date of
|
|
|
(including
|
|
|
Value at Date
|
|
|
|
Shares
|
|
|
Grant
|
|
|
LTIP)
|
|
|
of Grant
|
|
|
|
(In thousands, except per share amounts)
|
|
|
Non-vested at December 29, 2007
|
|
|
7.0
|
|
|
$
|
11.11
|
|
|
|
505.4
|
|
|
$
|
28.86
|
|
Granted**
|
|
|
|
|
|
|
|
|
|
|
403.1
|
|
|
|
37.35
|
|
Vested/restrictions lapsed
|
|
|
(5.3
|
)
|
|
|
12.35
|
|
|
|
(230.4
|
)
|
|
|
33.38
|
|
Forfeited/cancelled
|
|
|
(1.7
|
)
|
|
|
7.10
|
|
|
|
(52.6
|
)
|
|
|
35.76
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-vested at January 3, 2009
|
|
|
|
|
|
$
|
|
|
|
|
625.5
|
|
|
$
|
32.24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
** |
|
The December 29, 2007 balance above for Restricted
Stock Awards/Performance Units (including LTIP) and the
Forfeited/cancelled amount excludes
233,271 units that were classified as liability awards at
12/29/2007
that were replaced with equity awards during 2008. The
replacement awards are included in the Granted
amount to arrive at the final non-vested balance outstanding as
of January 3, 2009. |
63
NASH
FINCH COMPANY AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
Stock
|
|
|
Average Fair
|
|
|
|
Appreciation
|
|
|
Value at Date
|
|
|
|
Rights
|
|
|
of Grant
|
|
|
|
(In thousands, except per
|
|
|
|
share amounts)
|
|
|
Non-vested at December 29, 2007
|
|
|
|
|
|
$
|
|
|
Granted
|
|
|
267.3
|
|
|
|
8.44
|
|
Vested/restrictions lapsed
|
|
|
|
|
|
|
|
|
Forfeited/cancelled
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-vested at January 3, 2009
|
|
|
267.3
|
|
|
$
|
8.44
|
|
|
|
|
|
|
|
|
|
|
The total grant date fair value of stock options that vested
during the year was $0.1 million, $0.1 million and
$0.3 million for fiscal 2008, 2007 and 2006, respectively.
The total grant date fair value for all other share-based awards
that vested during the year was $6.7 million,
$1.7 million and $1.1 million for fiscal 2008, 2007
and 2006, respectively. As of January 3, 2009, the total
unrecognized compensation costs related to non-vested
share-based compensation arrangements under our stock-based
compensation plans was nil for stock options, $13.0 million
for performance units and $2.3 million for stock
appreciation rights. The costs are expected to be recognized
over a weighted-average period of 1.9 years for the
restricted stock and performance units and 3.5 years for
stock appreciation rights.
Cash received from employees resultant from our
share-based compensation plans was $0.6 million,
$2.5 million and $1.2 million for the fiscal 2008,
2007 and 2006, respectively. The actual tax benefit realized for
the tax deductions from share-based compensation plans was
$0.7 million, $1.0 million and $0.1 million for
the fiscal years 2008, 2007 and 2006, respectively. The
intrinsic value of stock options exercised was $0.3 million
in 2008, $1.1 million in 2007 and $0.2 million in
2006. The value of share-based liability awards paid during 2008
was $0.8 million related to settlement of units outstanding
for 2005 LTIP grants. No liability awards were settled during
fiscal 2007 or 2006.
64
NASH
FINCH COMPANY AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following table sets forth the computation of basic and
diluted earnings per share for continuing operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands, except per
|
|
|
|
share amounts)
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) from continuing operations
|
|
$
|
36,160
|
|
|
$
|
38,780
|
|
|
$
|
(23,328
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for basic earnings per share (weighted- average
shares)
|
|
|
12,886
|
|
|
|
13,479
|
|
|
|
13,382
|
|
Effect of dilutive options and awards
|
|
|
275
|
|
|
|
163
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for diluted earnings per share (adjusted
weighted-average shares)
|
|
|
13,161
|
|
|
|
13,642
|
|
|
|
13,382
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per share from continuing operations
|
|
$
|
2.81
|
|
|
$
|
2.88
|
|
|
$
|
(1.74
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings (loss) per share from continuing operations
|
|
$
|
2.75
|
|
|
$
|
2.84
|
|
|
$
|
(1.74
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average anti-dilutive options excluded from calculation
|
|
|
|
|
|
|
23
|
|
|
|
205
|
|
Certain options were excluded from the diluted earnings per
share calculation because the exercise price was greater than
the market price of the stock or there was a loss from
continuing operations 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 the 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.
Therefore, the notes are not currently dilutive to earnings per
share as they are only dilutive above the accreted value.
Performance units granted during 2005 under the 2000 Plan for
the LTIP were payable in shares of Nash Finch common stock or
cash, or a combination of both, at the election of the
participant. No recipients notified the Company by the required
notification date for the 2005 awards that they wished to be
paid in cash. Therefore, all units under the 2005 plan were
settled in shares of common stock during fiscal 2008. Other
performance and RSUs granted during 2006, 2007 and 2008 pursuant
to the 2000 Plan will pay out in shares of Nash Finch common
stock. Unvested RSUs 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 at
the payout percentage based on performance criteria results as
of the end of the respective reporting period and then accounted
for using the treasury stock method, if dilutive. For fiscal
2008, approximately 121,000 shares related to the LTIP and
150,000 shares related to RSUs were included under
effect of dilutive options and awards in the
calculation of diluted EPS.
65
NASH
FINCH COMPANY AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
A substantial portion of our store and warehouse properties are
leased. The following table summarizes assets under capitalized
leases:
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands)
|
|
|
Building and improvements
|
|
$
|
30,819
|
|
|
$
|
30,819
|
|
Less accumulated amortization
|
|
|
(24,851
|
)
|
|
|
(23,884
|
)
|
|
|
|
|
|
|
|
|
|
Net assets under capitalized leases
|
|
$
|
5,968
|
|
|
$
|
6,935
|
|
|
|
|
|
|
|
|
|
|
Total future minimum sublease rents receivable related to
operating and capital lease obligations as of January 3,
2009, are $30.7 million and $9.4 million,
respectively. Future minimum payments for operating and capital
leases have not been reduced by minimum sublease rentals
receivable under non-cancelable subleases. At January 3,
2009, our future minimum rental payments under non-cancelable
leases (including properties that have been subleased) are as
follows:
|
|
|
|
|
|
|
|
|
|
|
Operating
|
|
|
Capital
|
|
|
|
Leases
|
|
|
Leases
|
|
|
|
(In thousands)
|
|
|
2009
|
|
$
|
21,514
|
|
|
$
|
6,348
|
|
2010
|
|
|
17,873
|
|
|
|
6,201
|
|
2011
|
|
|
14,245
|
|
|
|
4,878
|
|
2012
|
|
|
12,502
|
|
|
|
4,703
|
|
2013
|
|
|
7,811
|
|
|
|
4,097
|
|
Thereafter
|
|
|
23,262
|
|
|
|
21,003
|
|
|
|
|
|
|
|
|
|
|
Total minimum lease payments
|
|
$
|
97,207
|
|
|
$
|
47,230
|
|
|
|
|
|
|
|
|
|
|
Less imputed interest (rates ranging from 8.3% to 24.6)%
|
|
|
|
|
|
|
18,542
|
|
|
|
|
|
|
|
|
|
|
Present value of net minimum lease payments
|
|
|
|
|
|
|
28,688
|
|
Less current maturities
|
|
|
|
|
|
|
(3,436
|
)
|
|
|
|
|
|
|
|
|
|
Capitalized lease obligations
|
|
|
|
|
|
$
|
25,252
|
|
|
|
|
|
|
|
|
|
|
Total rental expense under operating leases for fiscal 2008,
2007 and 2006 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
Total rentals
|
|
$
|
40,822
|
|
|
$
|
40,457
|
|
|
$
|
43,612
|
|
Less: real estate taxes, insurance and other occupancy costs
|
|
|
(3,614
|
)
|
|
|
(3,206
|
)
|
|
|
(2,906
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minimum rentals
|
|
|
37,208
|
|
|
|
37,251
|
|
|
|
40,706
|
|
Contingent rentals
|
|
|
(108
|
)
|
|
|
(19
|
)
|
|
|
(18
|
)
|
Sublease rentals
|
|
|
(8,611
|
)
|
|
|
(10,061
|
)
|
|
|
(10,789
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
28,489
|
|
|
$
|
27,171
|
|
|
$
|
29,899
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Most of our leases provide that we must pay real estate taxes,
insurance and other occupancy costs applicable to the leased
premises. Contingent rentals are determined on the basis of a
percentage of sales in excess of stipulated minimums for certain
store facilities. Operating leases often contain renewal
options. In those locations in which it makes economic sense to
continue to operate, management expects that, in the normal
course of business, leases that expire will be renewed or
replaced by other leases.
66
NASH
FINCH COMPANY AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
(12)
|
Concentration
of Credit Risk
|
We provide financial assistance in the form of loans to some of
our independent retailers for inventories, store fixtures and
equipment and store improvements. Loans are generally secured by
liens on real estate, inventory
and/or
equipment, personal guarantees and other types of collateral,
and are generally repayable over a period of five to seven
years. We establish allowances for doubtful accounts based upon
periodic assessments of the credit risk of specific customers,
collateral value, historical trends and other information. We
believe that adequate provisions have been recorded for any
doubtful accounts. In addition, we may guarantee debt and lease
obligations of retailers. 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, which would be due in accordance with the
underlying agreements.
As of January 3, 2009, we have guaranteed outstanding debt
and lease obligations of a number of retailers in the amount of
$15.1 million. In the normal course of business, we also
sublease and assign to third parties various leases. As of
January 3, 2009, we estimate that the present value of our
maximum potential obligation, net of reserves, with respect to
the subleases to be approximately $26.2 million and
assigned leases to be approximately $10.1 million.
During fiscal 2008 and 2007, we entered into loan and lease
guarantees on behalf of certain food distribution customers that
are accounted for under Financial Accounting Standards Board
(FASB) Interpretation No. 45, Guarantors
Accounting and Disclosure Requirements, Including Indirect
Guarantees of Indebtedness of Others
(FIN 45). FIN 45 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
guarantees is $11.5 million, which is included in the
$15.1 million total referenced above. These guarantees are
secured by certain business assets and personal guarantees of
the respective customers. We believe these customers will be
able to perform under the lease agreements and that no payments
will be required and no loss will be incurred under the
guarantees. As required by FIN 45, a liability representing
the fair value of the obligations assumed under the guarantees
of $1.3 million is included in the accompanying
consolidated financial statements for the guarantees entered
into during 2008 and 2007.
|
|
(13)
|
Fair
Value of Financial Instruments
|
The estimated fair value of notes receivable approximates the
carrying value at January 3, 2009 and December 29,
2007. Substantially all notes receivable are based on floating
interest rates which adjust to changes in market rates.
The estimated fair value of our long-term debt, including
current maturities, was $246.2 million and
$276.8 million at January 3, 2009 and
December 29, 2007, respectively, utilizing discounted cash
flows.
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. It
also applies under other accounting pronouncements that require
or permit fair value measurements. Effective January 1,
2008, we adopted the provisions of SFAS 157 related to
financial assets and liabilities recognized or disclosed on a
recurring basis.
The fair value hierarchy for disclosure of fair value
measurements under SFAS 157 is as follows:
Level 1: Quoted prices (unadjusted) in active
markets for identical assets or liabilities.
Level 2: Quoted prices, other than quoted prices
included in Level 1, that are observable for the assets or
liabilities, either directly or indirectly.
Level 3: Inputs that are unobservable for the
assets or liabilities.
67
NASH
FINCH COMPANY AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Our outstanding interest rate swap agreements are classified
within level 2 of the valuation hierarchy as readily
observable market parameters are available to use as the basis
of the fair value measurement. As of January 3, 2009, we
have recorded a fair value liability of $1.9 million in
relation to our outstanding interest rate swap agreements.
|
|
(14)
|
Commitments
and Contingencies
|
Roundys
Supermarkets, Inc. v. Nash Finch
On February 11, 2008, Roundys Supermarkets, Inc.
(Roundys) filed suit against us claiming we breached
the Asset Purchase Agreement (APA), entered into in
connection with our acquisition of certain distribution centers
and other assets from Roundys, by not paying approximately
$7.9 million that Roundys claims is due under the APA
as a purchase price adjustment. We answered the complaint
denying any payment was due to Roundys and asserted
counterclaims against Roundys for, among other things,
breach of contract, misrepresentation, and breach of the duty of
good faith and fair dealing. In our counterclaim we demand
damages from Roundys in excess of $18.0 million.
On or about March 25, 2008, Roundys filed a motion
for judgment on the pleadings with respect to some, but not all,
of the claims, asserted in our counterclaim. On May 27,
2008, we filed an amended counterclaim which rendered
Roundys motion moot. The amended counterclaim asserts
claims against Roundys for, among other things, breach of
contract, fraud, and breach of the duty of good faith and fair
dealing. Our counterclaim demands damages from Roundys in
excess of $18.0 million. Roundys filed an answer to
the counterclaims denying liability, and subsequently moved to
dismiss our counterclaims. The Court denied the motion in part
and granted the motion in part. We intend to vigorously defend
against Roundys complaint and to vigorously prosecute our
claims against it.
Due to uncertainties in the litigation process, the Company is
unable to estimate with certainty the financial impact or
outcome of this lawsuit.
Other
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.
|
|
(15)
|
Long-Term
Compensation Plans
|
We have a profit sharing plan which includes a 401(k) feature,
covering substantially all employees meeting specified
requirements. Profit sharing contributions, determined by the
Board of Directors, are made to a noncontributory profit sharing
trust based on profit performance. Effective January 1,
2003, we added a match to the 401(k) feature of this plan, which
was subsequently amended effective January 1, 2008, whereby
we will make an annual matching contribution to each
participants plan account. The annual matching
contribution provides that we will match 100% of the
participants contributions up to 3% of the
participants eligible compensation for the year. In the
event the participants contributions exceed 3% of their
eligible compensation for the year, we will match 50% of the
next 2% of the participants eligible compensation for the
year. The contribution expense for our matching contributions to
the 401(k) plan will reduce dollar for dollar the profit sharing
contributions that would otherwise be made to the profit sharing
plan. Total profit sharing expense (including the matching
contribution) was $7.9 million, $6.1 million and
$2.8 million for fiscal 2008, 2007 and 2006, respectively.
On January 1, 2000, we adopted a Supplemental Executive
Retirement Plan (SERP) for key employees and
executive officers. On the last day of the calendar year, each
participants SERP account is credited with an amount equal
to 20% of the participants base salary for the year.
Benefits payable under the SERP
68
NASH
FINCH COMPANY AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
typically vest based on years of participation in the SERP,
ranging from 0% vested for less than five years of participation
to 100% vested at 10 years participation (or
age 60 if that occurs sooner). Amounts credited to a SERP
account, plus earnings, are distributed following the
executives termination of employment. Earnings are based
on the quarterly equivalent of the average of the annual yield
set forth for each month during the quarter in the Moodys
Corporate Bond Yield Averages. In February 2007, our Board of
Directors fully vested the SERP account of Alec C. Covington,
our President and Chief Executive Officer. Compensation expense
related to the plan was $0.8 million in fiscal 2008,
$0.7 million in fiscal 2007 and $0.5 million in fiscal
2006.
We also have deferred compensation plans for a select group of
management or highly compensated employees and for non-employee
directors. The plans are unfunded and permit participants to
defer receipt of a portion of their base salary, annual bonus or
long-term incentive compensation in the case of employees, or
cash compensation in the case of non-employee directors, which
would otherwise be paid to them. The deferred amounts, plus
earnings, are distributed following the executives
termination of employment or the directors termination of
service on the Board. Earnings are based on the performance of
phantom investments elected by the participant from a portfolio
of investment options. Under the plans available to non-employee
directors, the investment options include share units that
correspond to shares of our common stock.
During fiscal 2004, we created and funded a benefits protection
trust to invest amounts deferred under these plans. The trust is
a grantor trust and accounted for in accordance with Emerging
Issues Task Force Issue
No. 97-14,
Accounting for Deferred Compensation Arrangements Where
Amounts Earned are Held in a Rabbi Trust and Invested.
A benefits protection or rabbi trust holds assets that would
be available to pay benefits under a deferred compensation plan
if the settler of the trust, such as us, is unwilling to pay
benefits for any reason other than bankruptcy or insolvency. The
rabbi trust now holds corporate-owned life insurance which is
intended to fund potential future obligations. Assets in the
trust remain subject to the claims of our general creditors, and
the investment in the rabbi trust is classified in other
assets on our consolidated balance sheets.
|
|
(16)
|
Pension
and Other Post-retirement Benefits
|
One of our subsidiaries has a qualified non-contributory
retirement plan to provide retirement income for certain
eligible full-time employees who are not covered by a union
retirement plan. Pension benefits under the plan are based on
length of service and compensation. Our subsidiary contributes
amounts necessary to meet minimum funding requirements. This
plan has been curtailed and no new employees can enter the plan.
We provide certain health care benefits for retired employees
not subject to collective bargaining agreements. Such benefits
are not provided to any employee who left us after
December 31, 2003. Employees who left us on or before that
date become eligible for those benefits when they reach early
retirement age if they have met minimum age and service
requirements. Effective December 31, 2006, we terminated
these health care benefits for retired employees and their
spouses or dependents that were eligible for coverage under
Medicare. We provide coverage to retired employees and their
spouses until the end of the month in which they become eligible
for Medicare (which generally is age 65). Health care
benefits for retirees are provided under a self-insured program
administered by an insurance company.
Adoption
of SFAS 158
On December 30, 2006, we adopted the recognition and
disclosure provisions of Statement of Financial Accounting
Standards No. 158, Employers Accounting for
Defined Benefit Pension and Other Postretirement
Plans an amendment of FASB Statements No. 87,
88, 106, and 132(R) (SFAS 158). SFAS 158
required us to recognize the funded status (i.e., the difference
between the fair value of plan assets and the projected benefit
obligations) of our pension plan and other post-retirement
benefits in the December 30, 2006, statement of financial
position, with a corresponding adjustment to accumulated other
comprehensive income, net of tax. The adjustment to accumulated
other comprehensive income at adoption represents the net
unrecognized
69
NASH
FINCH COMPANY AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
actuarial losses, unrecognized prior service costs, and
unrecognized transition obligation remaining from the initial
adoption of Statement of Financial Accounting Standards
No. 87, Employers Accounting for
Pensions, (SFAS 87) all of which were
previously netted against the plans funded status in our
statement of financial position pursuant to the provisions of
SFAS 87. These amounts will be subsequently recognized as
net periodic benefit cost pursuant to our historical accounting
policy for amortizing such amounts. Further, actuarial gains and
losses that arise in subsequent periods and are not recognized
as net periodic benefit cost in the same periods will be
recognized as a component of other comprehensive income. Those
amounts will be subsequently recognized as a component of net
periodic benefit cost on the same basis as the amounts
recognized in accumulated other comprehensive income at the
adoption of SFAS 158.
Accumulated other comprehensive income at January 3, 2009,
consists of the following amounts that have not yet been
recognized in net periodic benefit cost:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Post-
|
|
|
|
|
|
|
|
|
|
Retirement
|
|
|
|
|
|
|
Pension
|
|
|
Benefits
|
|
|
Total
|
|
|
|
(In thousands)
|
|
|
Unrecognized prior service credits
|
|
$
|
|
|
|
$
|
(133
|
)
|
|
$
|
(133
|
)
|
Unrecognized actuarial losses (gains)
|
|
|
16,190
|
|
|
|
(137
|
)
|
|
|
16,053
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrecognized net periodic benefit cost
|
|
|
16,190
|
|
|
|
(270
|
)
|
|
|
15,920
|
|
Less deferred taxes
|
|
|
(6,314
|
)
|
|
|
105
|
|
|
|
(6,209
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
9,876
|
|
|
$
|
(165
|
)
|
|
$
|
9,711
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated other comprehensive income at December 29,
2007, consisted of the following amounts that had not yet been
recognized in net periodic benefit cost:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Post-
|
|
|
|
|
|
|
|
|
|
Retirement
|
|
|
|
|
|
|
Pension
|
|
|
Benefits
|
|
|
Total
|
|
|
|
(In thousands)
|
|
|
Unrecognized prior service credits
|
|
$
|
(2
|
)
|
|
$
|
(778
|
)
|
|
$
|
(780
|
)
|
Unrecognized actuarial losses (gains)
|
|
|
9,243
|
|
|
|
(115
|
)
|
|
|
9,128
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrecognized net periodic benefit cost
|
|
|
9,241
|
|
|
|
(893
|
)
|
|
|
8,348
|
|
Less deferred taxes
|
|
|
(3,604
|
)
|
|
|
348
|
|
|
|
(3,256
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrecognized net periodic benefit cost
|
|
$
|
5,637
|
|
|
$
|
(545
|
)
|
|
$
|
5,092
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The prior service costs (credits) and actuarial losses (gains)
included in other comprehensive income and expected to be
recognized in net periodic cost during the fiscal year ended
January 2, 2010 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Post-
|
|
|
|
|
|
|
Retirement
|
|
|
|
Pension
|
|
|
Benefits
|
|
|
|
(In thousands)
|
|
|
Unrecognized prior service (credits)
|
|
$
|
|
|
|
$
|
(82
|
)
|
Unrecognized actuarial losses (gains)
|
|
|
1,370
|
|
|
|
(5
|
)
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,370
|
|
|
$
|
(87
|
)
|
|
|
|
|
|
|
|
|
|
70
NASH
FINCH COMPANY AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Funded
Status
The following table sets forth the actuarial present value of
benefit obligations and funded status of the curtailed pension
plan and curtailed post-retirement benefits for the years ended.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
|
Other Post-Retirement Benefits
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands)
|
|
|
Funded Status
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Projected benefit obligation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning of year
|
|
$
|
(39,037
|
)
|
|
$
|
(40,351
|
)
|
|
$
|
(894
|
)
|
|
$
|
(1,164
|
)
|
Interest cost
|
|
|
(2,252
|
)
|
|
|
(2,340
|
)
|
|
|
(46
|
)
|
|
|
(56
|
)
|
Participant contributions
|
|
|
|
|
|
|
|
|
|
|
(86
|
)
|
|
|
(134
|
)
|
Plan amendments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actuarial gain
|
|
|
(485
|
)
|
|
|
529
|
|
|
|
25
|
|
|
|
110
|
|
Benefits paid
|
|
|
3,210
|
|
|
|
3,125
|
|
|
|
156
|
|
|
|
350
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
End of year
|
|
|
(38,564
|
)
|
|
|
(39,037
|
)
|
|
|
(845
|
)
|
|
|
(894
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning of year
|
|
|
35,380
|
|
|
|
34,877
|
|
|
|
|
|
|
|
|
|
Actual return on plan assets
|
|
|
(4,590
|
)
|
|
|
2,017
|
|
|
|
|
|
|
|
|
|
Employer contributions
|
|
|
1,079
|
|
|
|
1,612
|
|
|
|
70
|
|
|
|
216
|
|
Participant contributions
|
|
|
|
|
|
|
|
|
|
|
86
|
|
|
|
134
|
|
Benefits paid
|
|
|
(3,210
|
)
|
|
|
(3,126
|
)
|
|
|
(156
|
)
|
|
|
(350
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
End of year
|
|
|
28,659
|
|
|
|
35,380
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funded status
|
|
|
(9,905
|
)
|
|
|
(3,657
|
)
|
|
|
(845
|
)
|
|
|
(894
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated benefit obligation
|
|
$
|
(38,564
|
)
|
|
$
|
(39,037
|
)
|
|
$
|
(845
|
)
|
|
$
|
(894
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts recognized in the consolidated balance sheets consist of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
|
Other Benefits
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands)
|
|
|
Current liabilities
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(160
|
)
|
|
$
|
(179
|
)
|
Non-current liabilities
|
|
|
(9,905
|
)
|
|
|
(3,657
|
)
|
|
|
(685
|
)
|
|
|
(715
|
)
|
Deferred taxes
|
|
|
6,314
|
|
|
|
3,604
|
|
|
|
(105
|
)
|
|
|
(349
|
)
|
Accumulated other comprehensive income (loss)
|
|
|
9,876
|
|
|
|
5,637
|
|
|
|
(165
|
)
|
|
|
(545
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net amount recognized
|
|
$
|
6,285
|
|
|
$
|
5,584
|
|
|
$
|
(1,115
|
)
|
|
$
|
(1,788
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
71
NASH
FINCH COMPANY AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Components
of net periodic benefit cost (income)
The aggregate costs for our retirement benefits included the
following components:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
|
Other Benefits
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
Interest cost
|
|
$
|
2,252
|
|
|
$
|
2,340
|
|
|
$
|
2,267
|
|
|
$
|
47
|
|
|
$
|
56
|
|
|
$
|
70
|
|
Expected return on plan assets
|
|
|
(2,410
|
)
|
|
|
(2,307
|
)
|
|
|
(2,347
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of prior service cost
|
|
|
(2
|
)
|
|
|
(15
|
)
|
|
|
(15
|
)
|
|
|
(645
|
)
|
|
|
(645
|
)
|
|
|
(593
|
)
|
Recognized actuarial loss (gain)
|
|
|
539
|
|
|
|
237
|
|
|
|
307
|
|
|
|
(2
|
)
|
|
|
(7
|
)
|
|
|
(4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost (gain)
|
|
$
|
379
|
|
|
$
|
255
|
|
|
$
|
212
|
|
|
$
|
(600
|
)
|
|
$
|
(596
|
)
|
|
$
|
(527
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assumptions
Weighted-average assumptions used to determine benefit
obligations at January 3, 2009 and December 29, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
Other Benefits
|
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
Discount rate
|
|
|
6.30
|
%
|
|
|
6.00
|
%
|
|
|
6.30
|
%
|
|
|
6.00
|
%
|
Rate of compensation increase
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
Weighted-average assumptions used to determine net periodic
benefit cost for years ended January 3, 2009 and
December 29, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
|
Other Benefits
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
Discount rate
|
|
|
6.0
|
%
|
|
|
6.0
|
%
|
|
|
6.0
|
%
|
|
|
6.0
|
%
|
Expected return on plan assets
|
|
|
7.0
|
%
|
|
|
7.0
|
%
|
|
|
N/A
|
|
|
|
N/A
|
|
Rate of compensation increase
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
Assumed health care cost trend rates were as follows:
|
|
|
|
|
|
|
|
|
|
|
January 3,
|
|
|
December 29,
|
|
|
|
2009
|
|
|
2007
|
|
|
Current year trend rate
|
|
|
10.00
|
%
|
|
|
8.00
|
%
|
Ultimate year trend rate
|
|
|
5.00
|
%
|
|
|
5.00
|
%
|
Year of ultimate trend rate
|
|
|
2014
|
|
|
|
2011
|
|
Assumed health care cost trend rates have an effect on the
fiscal 2008 amounts reported for the health care plans. A
one-percentage point change in assumed health care cost trend
rates would have the following effects (in thousands):
|
|
|
|
|
|
|
|
|
|
|
1%
|
|
1%
|
|
|
Increase
|
|
Decrease
|
|
Effect on total of service and interest cost components
|
|
$
|
1
|
|
|
$
|
(1
|
)
|
Effect on post-retirement benefit obligation
|
|
|
9
|
|
|
|
(8
|
)
|
72
NASH
FINCH COMPANY AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
In December 2003, the Medicare Prescription Drug, Improvement
and Modernization Act of 2003 (the Act) became law in the United
States. The Act introduces a prescription drug benefit under
Medicare as well as a federal subsidy to sponsors of retiree
health care benefit plans that provide a benefit that is at
least actuarially equivalent to Medicare. We believe
that our postretirement benefit plan is not actuarially
equivalent to Medicare Part D under the Act and
consequently will not receive significant subsidies under the
Act.
Pension
Plan Investment Policy, Strategy and Assets
Our investment policy is to invest in equity, fixed income and
other securities to cover cash flow requirements of the plan and
minimize long-term costs. The targeted allocation of assets is
30% Equity securities and 70% debt securities. The pension
plans weighted-average asset allocation by asset category
is as follows:
|
|
|
|
|
|
|
|
|
|
|
January 3,
|
|
|
December 29,
|
|
|
|
2009
|
|
|
2007
|
|
|
Equity securities
|
|
|
27
|
%
|
|
|
39
|
%
|
Debt securities
|
|
|
18
|
%
|
|
|
15
|
%
|
Guaranteed investment contract
|
|
|
55
|
%
|
|
|
46
|
%
|
Cash
|
|
|
0
|
%
|
|
|
0
|
%
|
Estimated
Future Benefits Payments
The following benefit payments, which reflect expected future
service, as appropriate, are expected to be paid as follows:
|
|
|
|
|
|
|
|
|
|
|
Pension
|
|
|
Other
|
|
Year
|
|
Benefits
|
|
|
Benefits
|
|
|
2009
|
|
$
|
3,123
|
|
|
$
|
160
|
|
2010
|
|
|
2,956
|
|
|
|
114
|
|
2011
|
|
|
2,737
|
|
|
|
119
|
|
2012
|
|
|
2,666
|
|
|
|
103
|
|
2013
|
|
|
2,688
|
|
|
|
93
|
|
2014 or later
|
|
|
13,989
|
|
|
|
232
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
28,159
|
|
|
$
|
821
|
|
|
|
|
|
|
|
|
|
|
Expected
Long-Term Rate of Return
The expected return assumption was based on asset allocations
and the expected return and risk components of the various asset
classes in the portfolio. This assumption is assumed to be
reasonable over a long-term period that is consistent with the
liabilities. Management has reviewed these assumptions and takes
responsibility for the valuation of pension assets and
obligations.
Employer
Contributions
Pension
Plan
We anticipate making contributions of $3.6 million during
the measurement year ending December 31, 2009.
73
NASH
FINCH COMPANY AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Multi-Employer
Plans
Approximately 5.5% of our employees are covered by
collectively-bargained pension plans. Contributions are
determined in accordance with the provisions of negotiated union
contracts and are generally based on the number of hours worked.
We do not have the information available to reasonably estimate
our share of the accumulated plan benefits or net assets
available for benefits under the multi-employer plans. Amounts
contributed to those plans were $3.4 million in each of
fiscal 2008, 2007 and 2006.
We sell and distribute products that are typically found in
supermarkets. We have three reportable operating segments. Our
food distribution segment consists of 16 distribution centers
that sell to independently operated retail food 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.
We evaluate segment performance and allocate resources based on
profit or loss before income taxes, general corporate overhead,
interest and restructuring charges. The accounting policies of
the reportable segments are the same as those described in the
summary of accounting policies except we account for inventory
on a FIFO basis at the segment level compared to a LIFO basis at
the consolidated level.
Inter-segment sales are recorded on a market price-plus-fee and
freight basis. For segment financial reporting purposes, a
portion of the operational profits recorded at our distribution
centers related to corporate- owned stores is allocated to the
retail segment. Certain revenues and costs from our distribution
centers are specifically identifiable to either the independent
or corporate-owned stores that they serve. The revenues and
costs that are specifically identifiable to corporate-owned
stores are allocated to the retail segment. Those that are
specifically identifiable to independent customers are recorded
in the food distribution segment. The remaining revenues and
costs that are not specifically identifiable to either the
independent or corporate-owned stores are allocated to the
retail segment as a percentage of corporate-owned store
distribution sales to total distribution center sales. For
fiscal 2008, 18% of such warehouse operational profits were
allocated to the retail operations compared to 19% and 23% in
fiscal 2007 and 2006, respectively.
Major
Segments of the Business
Year End January 3, 2009
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Food
|
|
|
|
|
|
|
|
|
|
|
|
|
Distribution
|
|
|
Military
|
|
|
Retail
|
|
|
Total
|
|
|
Revenue from external customers
|
|
$
|
2,740,462
|
|
|
$
|
1,360,741
|
|
|
$
|
602,457
|
|
|
$
|
4,703,660
|
|
Inter-segment revenue
|
|
|
307,591
|
|
|
|
|
|
|
|
|
|
|
|
307,591
|
|
Interest revenue
|
|
|
(8
|
)
|
|
|
|
|
|
|
|
|
|
|
(8
|
)
|
Interest expense (including capitalized lease interest)
|
|
|
(7
|
)
|
|
|
|
|
|
|
3,278
|
|
|
|
3,271
|
|
Depreciation expense
|
|
|
9,359
|
|
|
|
2,039
|
|
|
|
6,769
|
|
|
|
18,167
|
|
Segment profit
|
|
|
100,275
|
|
|
|
49,125
|
|
|
|
21,335
|
|
|
|
170,735
|
|
Assets
|
|
|
451,222
|
|
|
|
150,151
|
|
|
|
99,128
|
|
|
|
700,501
|
|
Expenditures for long-lived assets
|
|
|
6,131
|
|
|
|
3,395
|
|
|
|
12,835
|
|
|
|
22,361
|
|
74
NASH
FINCH COMPANY AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Major
Segments of the Business
Year End December 29, 2007
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Food
|
|
|
|
|
|
|
|
|
|
|
|
|
Distribution
|
|
|
Military
|
|
|
Retail
|
|
|
Total
|
|
|
Revenue from external customers
|
|
$
|
2,693,346
|
|
|
$
|
1,247,591
|
|
|
$
|
591,698
|
|
|
$
|
4,532,635
|
|
Inter-segment revenue
|
|
|
300,290
|
|
|
|
|
|
|
|
|
|
|
|
300,290
|
|
Interest revenue
|
|
|
(17
|
)
|
|
|
|
|
|
|
|
|
|
|
(17
|
)
|
Interest expense (including capitalized lease interest)
|
|
|
(17
|
)
|
|
|
|
|
|
|
2,849
|
|
|
|
2,832
|
|
Depreciation expense
|
|
|
10,342
|
|
|
|
1,924
|
|
|
|
6,060
|
|
|
|
18,326
|
|
Segment profit
|
|
|
91,920
|
|
|
|
42,115
|
|
|
|
18,637
|
|
|
|
152,672
|
|
Assets
|
|
|
424,849
|
|
|
|
155,474
|
|
|
|
89,155
|
|
|
|
669,478
|
|
Expenditures for long-lived assets
|
|
|
3,647
|
|
|
|
3,078
|
|
|
|
3,191
|
|
|
|
9,916
|
|
Major
Segments of the Business
Year End December 30, 2006
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Food
|
|
|
|
|
|
|
|
|
|
|
|
|
Distribution
|
|
|
Military
|
|
|
Retail
|
|
|
Total
|
|
|
Revenue from external customers
|
|
$
|
2,787,669
|
|
|
$
|
1,195,041
|
|
|
$
|
648,919
|
|
|
$
|
4,631,629
|
|
Inter-segment revenue
|
|
|
332,067
|
|
|
|
|
|
|
|
|
|
|
|
332,067
|
|
Interest revenue
|
|
|
(53
|
)
|
|
|
|
|
|
|
|
|
|
|
(53
|
)
|
Interest expense (including capitalized lease interest)
|
|
|
(51
|
)
|
|
|
|
|
|
|
2,840
|
|
|
|
2,789
|
|
Depreciation expense
|
|
|
10,966
|
|
|
|
1,876
|
|
|
|
6,915
|
|
|
|
19,757
|
|
Segment profit
|
|
|
75,790
|
|
|
|
40,526
|
|
|
|
20,813
|
|
|
|
137,129
|
|
Assets
|
|
|
412,062
|
|
|
|
143,214
|
|
|
|
98,821
|
|
|
|
654,097
|
|
Expenditures for long-lived assets
|
|
|
9,097
|
|
|
|
4,091
|
|
|
|
3,034
|
|
|
|
16,222
|
|
75
NASH
FINCH COMPANY AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Reconciliation
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
Total external revenue for segments
|
|
$
|
4,703,660
|
|
|
$
|
4,532,635
|
|
|
$
|
4,631,629
|
|
Inter-segment revenue from reportable segments
|
|
|
307,591
|
|
|
|
300,290
|
|
|
|
332,067
|
|
Elimination of inter-segment revenues
|
|
|
(307,591
|
)
|
|
|
(300,290
|
)
|
|
|
(332,067
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consolidated revenues
|
|
$
|
4,703,660
|
|
|
$
|
4,532,635
|
|
|
$
|
4,631,629
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit (Loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
Total profit for segments
|
|
$
|
170,735
|
|
|
$
|
152,672
|
|
|
$
|
137,129
|
|
Unallocated amounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustment of inventory to LIFO
|
|
|
(19,740
|
)
|
|
|
(5,092
|
)
|
|
|
(2,630
|
)
|
Unallocated corporate overhead
|
|
|
(92,261
|
)
|
|
|
(91,340
|
)
|
|
|
(119,320
|
)
|
Goodwill impairment
|
|
|
|
|
|
|
|
|
|
|
(26,419
|
)
|
Special charge
|
|
|
|
|
|
|
1,282
|
|
|
|
(6,253
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) from continuing operations before income taxes
|
|
$
|
58,734
|
|
|
$
|
57,522
|
|
|
$
|
(17,493
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets for segments
|
|
$
|
700,501
|
|
|
$
|
669,478
|
|
|
$
|
654,097
|
|
Unallocated corporate assets
|
|
|
331,186
|
|
|
|
338,860
|
|
|
|
352,064
|
|
Adjustment of inventory to LIFO
|
|
|
(76,110
|
)
|
|
|
(56,369
|
)
|
|
|
(51,278
|
)
|
Elimination of intercompany receivables
|
|
|
(625
|
)
|
|
|
(587
|
)
|
|
|
(580
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consolidated assets
|
|
$
|
954,952
|
|
|
$
|
951,382
|
|
|
$
|
954,303
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
Significant Items-2008 (In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment
|
|
|
Reconciling
|
|
|
Consolidated
|
|
|
|
Totals
|
|
|
Items
|
|
|
Totals
|
|
|
Depreciation and amortization
|
|
$
|
18,167
|
|
|
$
|
20,262
|
|
|
$
|
38,429
|
|
Interest expense
|
|
|
3,271
|
|
|
|
18,252
|
|
|
|
21,523
|
|
Expenditures for long-lived assets
|
|
|
22,361
|
|
|
|
9,594
|
|
|
|
31,955
|
|
Other
Significant Items-2007 (In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment
|
|
|
Reconciling
|
|
|
Consolidated
|
|
|
|
Totals
|
|
|
Items
|
|
|
Totals
|
|
|
Depreciation and amortization
|
|
$
|
18,326
|
|
|
$
|
20,556
|
|
|
$
|
38,882
|
|
Interest expense
|
|
|
2,832
|
|
|
|
20,749
|
|
|
|
23,581
|
|
Expenditures for long-lived assets
|
|
|
9,916
|
|
|
|
11,503
|
|
|
|
21,419
|
|
76
NASH
FINCH COMPANY AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Other
Significant Items-2006 (In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment
|
|
|
Reconciling
|
|
|
Consolidated
|
|
|
|
Totals
|
|
|
Items
|
|
|
Totals
|
|
|
Depreciation and amortization
|
|
$
|
19,757
|
|
|
$
|
21,694
|
|
|
$
|
41,451
|
|
Interest expense
|
|
|
2,789
|
|
|
|
23,855
|
|
|
|
26,644
|
|
Expenditures for long-lived assets
|
|
|
16,222
|
|
|
|
11,247
|
|
|
|
27,469
|
|
The reconciling items to adjust expenditures for depreciation,
interest expense and expenditures for long-lived assets are for
unallocated general corporate activities. All revenues are
attributed to and all assets are held in the United States. Our
market areas are in the Midwest, Mid-Atlantic, Great Lakes and
Southeast United States.
|
|
(18)
|
Subsequent
Event Acquisition
|
On January 31, 2009, the Company completed the purchase
from GSC Enterprises, Inc., of substantially all of the assets
relating to three wholesale food distribution centers located in
San Antonio, Texas, Pensacola, Florida and Junction City,
Kansas serving military commissaries and exchanges, the business
conducted by GSC Enterprises out of those distribution centers
involving the customers of the three purchased distribution
centers, any inventory at the purchased facilities and all
customer contracts related to the purchased facilities. The
Company also assumed certain trade payables, accrued expenses
and receivables associated with the assets being acquired.
The aggregate purchase price paid was approximately
$78.0 million in cash, and is subject to customary
post-closing adjustments based upon changes in the working
capital of the purchased businesses through the closing date.
The three distribution centers represent approximately
$768.8 million in annual food distribution sales. No
facility closures are expected given the strategic fit of these
distribution centers into the Companys network.
The acquisition funded by the Companys asset-backed credit
agreement, the aggregate commitments under which were increased
by an amount equal to $40.0 million.
77
NASH
FINCH COMPANY AND SUBSIDIARIES
Quarterly
Financial Information (Unaudited)
(In
thousands, except per share amounts and percent to
sales)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter
|
|
|
Second Quarter
|
|
|
Third Quarter
|
|
|
Fourth Quarter
|
|
|
|
12 Weeks
|
|
|
12 Weeks
|
|
|
16 Weeks
|
|
|
13 Weeks
|
|
|
12 Weeks
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
Sales
|
|
$
|
1,021,910
|
|
|
$
|
1,032,243
|
|
|
$
|
1,042,388
|
|
|
$
|
1,063,974
|
|
|
$
|
1,436,490
|
|
|
$
|
1,367,116
|
|
|
$
|
1,202,872
|
|
|
$
|
1,069,302
|
|
Cost of sales
|
|
|
929,296
|
|
|
|
941,522
|
|
|
|
948,100
|
|
|
|
967,892
|
|
|
|
1,314,325
|
|
|
|
1,245,731
|
|
|
|
1,104,990
|
|
|
|
979,836
|
|
Gross profit
|
|
|
92,614
|
|
|
|
90,721
|
|
|
|
94,288
|
|
|
|
96,082
|
|
|
|
122,165
|
|
|
|
121,385
|
|
|
|
97,882
|
|
|
|
89,466
|
|
Earnings from continuing operations before income taxes
|
|
|
17,364
|
|
|
|
9,485
|
|
|
|
14,946
|
|
|
|
17,304
|
|
|
|
14,520
|
|
|
|
18,237
|
|
|
|
11,904
|
|
|
|
12,496
|
|
Income tax expense
|
|
|
6,087
|
|
|
|
4,197
|
|
|
|
4,838
|
|
|
|
7,697
|
|
|
|
5,926
|
|
|
|
2,832
|
|
|
|
5,723
|
|
|
|
4,016
|
|
Net earnings
|
|
|
11,277
|
|
|
|
5,288
|
|
|
|
10,108
|
|
|
|
9,607
|
|
|
|
8,594
|
|
|
|
15,405
|
|
|
|
6,181
|
|
|
|
8,480
|
|
Net earnings as percentage of sales
|
|
|
1.10
|
%
|
|
|
0.51
|
%
|
|
|
0.97
|
%
|
|
|
0.90
|
%
|
|
|
0.60
|
%
|
|
|
1.13
|
%
|
|
|
0.51
|
%
|
|
|
0.79
|
%
|
Basic earnings per share
|
|
$
|
0.87
|
|
|
$
|
0.39
|
|
|
$
|
0.79
|
|
|
$
|
0.71
|
|
|
$
|
0.67
|
|
|
$
|
1.14
|
|
|
$
|
0.48
|
|
|
$
|
0.63
|
|
Diluted earnings per share
|
|
$
|
0.85
|
|
|
$
|
0.39
|
|
|
$
|
0.77
|
|
|
$
|
0.70
|
|
|
$
|
0.65
|
|
|
$
|
1.12
|
|
|
$
|
0.47
|
|
|
$
|
0.62
|
|
Significant items by quarter include the following:
|
|
|
1. |
|
Reversal of $4.9 million of previously established tax
reserves during third quarter of 2007. |
|
2. |
|
Retail store impairments and lease reserve charges of
$0.1 million, $1.1 million, $1.3 million and
$0.1 million in the first, second, third and fourth
quarters, respectively, of 2007. |
|
3. |
|
Net decrease in special charges of $1.3 million in the
second quarter of 2007. |
|
4. |
|
Inventory markdown and wind down costs related to retail store
closings and retail markdown adjustments of $0.5 million
and $2.6 million in the third and fourth quarter,
respectively, of 2007. |
|
5. |
|
Gain on sales of assets of $0.7 million in the second
quarter of 2007. |
|
6. |
|
Year-over-year increase in non-cash LIFO charges of
$0.3 million, $1.6 million, $7.3 million and
$5.5 million in the first, second, third and fourth
quarters, respectively, of 2008. |
|
7. |
|
Reversal of bad debt and lease reserves related to food
distribution customers of $3.0 million and
$0.3 million in the first and fourth quarters,
respectively, of 2008. |
|
8. |
|
Gain on the sale of intangible assets of $0.2 million and
$0.4 million in the first and third quarters, respectively,
of 2008. |
|
9. |
|
Inventory markdown and wind down costs related to retail store
closings and retail markdown adjustments of $0.1 million in
the first quarter of 2008. |
|
10. |
|
Retail store impairments and lease reserves of
$0.3 million, $0.3 million and $0.6 million in
the first, second and third quarters, respectively, of 2008. |
|
11. |
|
Write-off of deferred financing costs of $1.0 million in
the second quarter of 2008. |
|
12. |
|
Acquisition costs of $0.5 million in the fourth quarter of
2008. |
78
|
|
ITEM 9.
|
CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
|
Not applicable.
|
|
ITEM 9A.
|
CONTROLS
AND PROCEDURES
|
Disclosure
Controls and Procedures
Under the supervision and with the participation of our
management, including our Chief Executive Officer and Chief
Financial Officer, we evaluated the effectiveness of the design
and operation of our disclosure controls and procedures (as
defined in
Rule 13a-15(e)
under the Securities Exchange Act of 1934). Based on that
evaluation, our Chief Executive Officer and Chief Financial
Officer have concluded that, as of the end of the period covered
by this report, our disclosure controls and procedures were
effective.
Changes
in Internal Control Over Financial Reporting
There was no change in our internal control over financial
reporting (as defined in
Rule 13a-15(f)
under the Exchange Act) 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.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
Managements
Annual Report On Internal Control Over Financial
Reporting
Our management is responsible for establishing and maintaining
adequate internal control over financial reporting, as such term
is defined in
Rule 13a-15(f)
of the Securities Exchange Act. Under the supervision and with
the participation of our management, including our Chief
Executive Officer and our Chief Financial Officer, we conducted
an evaluation of the effectiveness of our internal control over
financial reporting as of January 3, 2009. In conducting
its evaluation, our management used the criteria set forth by
the framework in Internal Control Integrated
Framework issued by the Committee of Sponsoring Organizations of
the Treadway Commission. Based on that evaluation, management
believes our internal control over financial reporting was
effective as of January 3, 2009.
Our internal control over financial reporting as of
January 3, 2009 has been audited by Ernst & Young
LLP, an independent registered public accounting firm, as stated
in their below included report.
79
Report of
Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
Nash-Finch Company
We have audited Nash-Finch Companys internal control over
financial reporting as of January 3, 2009, based on
criteria established in Internal Control
Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (the COSO criteria).
Nash-Finch Companys management is responsible for
maintaining effective internal control over financial reporting,
and for its assessment of the effectiveness of internal control
over financial reporting included in the accompanying
Managements Annual Report On Internal Control Over
Financial Reporting. Our responsibility is to express an opinion
on the companys internal control over financial reporting
based on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control
over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of
internal control over financial reporting, assessing the risk
that a material weakness exists, testing and evaluating the
design and operating effectiveness of internal control based on
the assessed risk, and performing such other procedures as we
considered necessary in the circumstances. We believe that our
audit provides a reasonable basis for our opinion.
A companys internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A companys
internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of
management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
Companys assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
In our opinion, Nash-Finch Company maintained, in all material
respects, effective internal control over financial reporting as
of January 3, 2009, based on the COSO criteria.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
consolidated balance sheets of Nash-Finch Company and
subsidiaries as of January 3, 2009, and December 29,
2007, and the related consolidated statements of income,
stockholders equity, and cash flows for each of the three
years in the period ended January 3, 2009 and our report
dated March 11, 2009 expressed an unqualified opinion
thereon.
Minneapolis, Minnesota
March 11, 2009
80
|
|
ITEM 9B.
|
OTHER
INFORMATION
|
Not applicable.
PART III
|
|
ITEM 10.
|
DIRECTORS
AND EXECUTIVE OFFICERS OF THE REGISTRANT AND CORPORATE
GOVERNANCE
|
In addition to the information set forth under the caption
Executive Officers of the Registrant in Part I
of this Annual Report on
Form 10-K,
the information required by this item is incorporated by
reference to the sections titled Proposal Number 3:
Election of Directors Information About Directors
and Nominees, Proposal Number 3: Election of
Directors Information About the Board of Directors
and Its Committees, Corporate Governance
Governance Guidelines, Corporate
Governance Director Candidates and
Section 16(a) Beneficial Ownership Reporting
Compliance of our 2009 Proxy Statement.
|
|
ITEM 11.
|
EXECUTIVE
COMPENSATION
|
The information required by this item is incorporated by
reference to the sections titled Proposal Number 3:
Election of Directors Compensation of
Directors, Proposal Number 3: Election of
Directors Compensation and Management Development
Committee Interlocks and Insider Participation and
Executive Compensation and Other Benefits of our
2009 Proxy Statement.
|
|
ITEM 12.
|
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
|
Equity
Compensation Plan Information
The following table provides information about Nash Finch common
stock that may be issued upon the exercise of stock options, the
payout of share units or performance units, or the granting of
other awards under all of Nash Finchs equity compensation
plans in effect as of January 3, 2009:
Equity
Compensation Plan Information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Securities
|
|
|
|
Number of Securities to
|
|
|
|
|
|
Remaining Available for
|
|
|
|
be Issued Upon
|
|
|
Weighted-Average
|
|
|
Future Issuance Under Equity
|
|
|
|
Exercise of
|
|
|
Exercise Price of
|
|
|
Compensation Plans
|
|
|
|
Outstanding Options,
|
|
|
Outstanding Options,
|
|
|
(Excluding Securities
|
|
|
|
Warrants and Rights
|
|
|
Warrants and Rights
|
|
|
Reflected in Column (a))
|
|
Plan Category
|
|
(a)
|
|
|
(b)
|
|
|
(c)
|
|
|
Equity compensation plans approved by security holders
|
|
|
1,185,403
|
(1)
|
|
$
|
37.94
|
(2)
|
|
|
274,888
|
(3)
|
Equity compensation plans not approved by security holders
|
|
|
16,471
|
|
|
|
|
|
|
|
29,021
|
(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,201,874
|
|
|
$
|
37.94
|
|
|
|
303,909
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes stock options, stock appreciation rights, restricted
stock units and performance units awarded under the 2000 Stock
Incentive Plan (2000 Plan) and share units acquired
by directors under the 1997 Non-Employee Director Stock
Compensation Plan (1997 Director Plan) net of
23,301 outstanding shares held by a benefits protection trust
with respect to such share units. |
|
(2) |
|
Each share unit acquired through the deferral of director
compensation under the 1997 Director Plan and each
performance unit granted under the 2000 Plan is payable in one
share of Nash Finch common stock |
81
|
|
|
|
|
following the participants termination of service as an
officer or director. As they have no exercise price, the Share
units and performance units outstanding at January 3, 2009
are not included in the calculation of the weighted average
exercise price. |
|
(3) |
|
The following numbers of shares remained available for issuance
under each of our equity compensation plans at January 3,
2009. Grants under each plan may be in the form of any of the
types of awards noted: |
|
|
|
|
|
|
|
Plan
|
|
Number of Shares
|
|
Type of Award
|
|
2000 Plan
|
|
|
225,731
|
|
|
Stock options, restricted stock, stock appreciation rights,
performance units, and stock bonuses.
|
1997 Director Plan
|
|
|
36,652
|
|
|
Share units
|
Employee Stock Purchase Plan
|
|
|
12,505
|
|
|
Stock options (IRC §423 plan)
|
The Employee Stock Purchase Plan was terminated on
January 1, 2008.
|
|
|
(4) |
|
Shares remaining available for issuance under the Director
Deferred Compensation Plan. Each share unit acquired through the
deferral of director compensation under the Director Deferred
Compensation Plan is payable in one share of Nash Finch common
stock following the individuals termination of service as
a director. |
Description
of Plans Not Approved by Shareholders
Director Deferred Compensation Plan. The
Director Deferred Compensation Plan was adopted by the Board in
December 2004 as a result of amendments to the Internal Revenue
Code that affected the operation of non-qualified deferred
compensation arrangements for amounts deferred on or after
January 1, 2005. The Board reserved 50,000 shares of
Nash Finch common stock for issuance in connection with the
plan. The plan permits a participant to annually defer all or a
portion of his or her cash compensation for service as a
director, and have the amount deferred credited to either a cash
account or a share account. Amounts credited to a share account
are deemed to have purchased a number of share units determined
by dividing the amount deferred by the then-current market price
of a share of Nash Finch common stock. Each share unit
represents the right to receive one share of Nash Finch common
stock. The balance in a share account is payable only in stock
following termination of service as a director.
Security
Ownership of Certain Beneficial Owners and Management
In addition to the information set forth above, the information
required by this item is incorporated by reference to the
sections titled Security Ownership of Certain Beneficial
Owners and Security Ownership of Management of
our 2009 Proxy Statement.
|
|
ITEM 13.
|
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR
INDEPENDENCE
|
The information required by this item is incorporated by
reference to the sections titled Proposal Number 3:
Election of Directors Information About the Board of
Directors and Its Committees, Corporate
Governance Governance Guidelines
Independent Directors and Corporate
Governance Related Party Transaction Policy and
Procedures of our 2009 Proxy Statement.
|
|
ITEM 14.
|
PRINCIPAL
ACCOUNTANT FEES AND SERVICES
|
The information required by this item is incorporated by
reference to the sections titled Independent
Auditors Fees Paid to Independent Auditors and
Independent Auditors Pre-Approval of Audit and
Non-Audit Services of our 2009 Proxy Statement.
82
PART IV
|
|
ITEM 15.
|
EXHIBITS AND
FINANCIAL STATEMENT SCHEDULES
|
The following financial statements are included in this report
on the pages indicated:
Report of Independent Registered Public Accounting
Firm page 37
Consolidated Statements of Income for the fiscal years ended
January 3, 2009, December 29,
2007 and December 30, 2006 page 38
Consolidated Balance Sheets as of January 3, 2009 and
December 29, 2007 page 39
Consolidated Statements of Cash Flows for the fiscal years ended
January 3, 2009, December 29, 2007 and
December 30, 2006 page 40
Consolidated Statements of Stockholders Equity for the
fiscal years ended January 3, 2009, December 29, 2007
and December 30, 2006 page 41
Notes to Consolidated Financial Statements pages 42
to 77
|
|
2.
|
Financial
Statement Schedules.
|
The following financial statement schedule is included herein
and should be read in conjunction with the consolidated
financial statements referred to above:
Valuation and Qualifying Accounts page 88
Other Schedules. Other schedules are omitted
because the required information is either inapplicable or
presented in the consolidated financial statements or related
notes.
|
|
|
|
|
Exhibit
|
|
|
No.
|
|
Description
|
|
|
|
|
|
|
|
2
|
.1
|
|
Asset Purchase Agreement between Roundys, Inc. and
Nash-Finch Company, dated as of February 24, 2005
(incorporated by reference to Exhibit 2.1 to our current
report on
Form 8-K
filed February 28, 2005 (File
No. 0-785)).
|
|
|
|
|
|
|
2
|
.2
|
|
Asset Purchase Agreement between GSC Enterprises, Inc., MKM
Management, L.L.C., Michael K. McKenzie, Grocery Supply
Acquisition Corp. and Nash-Finch Company, dated as of
December 17, 2008 (incorporated by reference to
Exhibit 1.01 to our current report on
Form 8-K
filed December 18, 2008 (File
No. 0-785)).
|
|
|
|
|
|
|
2
|
.3
|
|
First Amendment to Asset Purchase Agreement between GSC
Enterprises, Inc., MKM Management, L.L.C., Michael K. McKenzie,
Grocery Supply Acquisition Corp. and Nash-Finch Company, dated
as of January 31, 2009 (incorporated by reference to
Exhibit 10.1 to our current report on
Form 8-K
filed February 3, 2009 (File
No. 0-785)).
|
|
|
|
|
|
|
3
|
.1
|
|
Restated Certificate of Incorporation of the Company, effective
May 16, 1985 (incorporated by reference to Exhibit 3.1
to our Annual Report on
Form 10-K
for the fiscal year ended December 28, 1985 (File
No. 0-785)).
|
|
|
|
|
|
|
3
|
.2
|
|
Certificate of Amendment to Restated Certificate of
Incorporation of the Company, effective May 15, 1987
(incorporated by reference to Exhibit 4.5 to our
Registration Statement on
Form S-3
(filed June 8, 1987 (File
No. 33-14871)).
|
|
|
|
|
|
|
3
|
.3
|
|
Certificate of Amendment to Restated Certificate of
Incorporation of the Company, effective May 16, 2002
(incorporated by reference to Exhibit 3.1 to our Quarterly
Report on
Form 10-Q
for the quarter ended June 15, 2002 (File
No. 0-785)).
|
83
|
|
|
|
|
Exhibit
|
|
|
No.
|
|
Description
|
|
|
|
|
|
|
|
3
|
.4
|
|
Certificate of Amendment to Restated Certificate of
Incorporation of the Company, effective May 13, 2008
(incorporated by reference to Exhibit 3.1 to our current
report on
Form 8-K
dated May 16, 2008 (File
No. 0-785)).
|
|
|
|
|
|
|
3
|
.5
|
|
Nash-Finch Company Bylaws (as amended November 9, 2005)
(incorporated by reference to Exhibit 3.1 to our current
report on
Form 8-K
filed November 14, 2005 (File
No. 0-785)).
|
|
|
|
|
|
|
3
|
.6
|
|
Amended and Restated Bylaws of Nash-Finch Company (as amended
May 13, 2008) (incorporated by reference to
Exhibit 3.2 to our current report on
Form 8-K/A
filed May 19, 2008
(File No. 0-785)).
|
|
|
|
|
|
|
4
|
.1
|
|
Stockholder Rights Agreement, dated February 13, 1996,
between the Company and Wells Fargo Bank, N.A. (formerly known
as Norwest Bank Minnesota, National Association) (incorporated
by reference to Exhibit 4 to our current report on
Form 8-K
dated February 13, 1996 (File
No. 0-785)).
|
|
|
|
|
|
|
4
|
.2
|
|
Amendment to Stockholder Rights Agreement dated as of
October 30, 2001 (incorporated by reference to
Exhibit 4.2 to Amendment No. 1 to our Registration
Statement on
Form 8-A
(filed July 26, 2002) (File
No. 0-785)).
|
|
|
|
|
|
|
4
|
.3
|
|
Indenture dated as of March 15, 2005 between Nash-Finch
Company and Wells Fargo Bank, National Association, as Trustee
(including form of Senior Subordinated Convertible Notes due
2035) (incorporated by reference to Exhibit 10.1 to our
current report on
Form 8-K
filed March 9, 2005 (File
No. 0-785)).
|
|
|
|
|
|
|
4
|
.4
|
|
Registration Rights Agreement dated as of March 15, 2005
between Nash-Finch Company and Deutsche Bank Securities Inc.,
Merrill Lynch & Co. and Merrill Lynch, Pierce,
Fenner & Smith Incorporated (incorporated by reference
to Exhibit 10.2 to our current report on
Form 8-K
filed March 9, 2005 (File
No. 0-785)).
|
|
|
|
|
|
|
4
|
.5
|
|
Notice of Adjustment of Conversion Rate of the Senior
Subordinated Convertible Notes Due 2035 (incorporated by
reference to Exhibit 99.1 to our current report on
Form 8-K
filed November 21, 2006 (File
No. 0-785)).
|
|
|
|
|
|
|
4
|
.6
|
|
First Supplemental Indenture to Senior Convertible Notes Due
2035 (incorporated by reference to Exhibit 4.1 to our
Quarterly Report on
Form 10-Q
for the quarter ended June 14, 2008
(File No. 0-785)).
|
|
|
|
|
|
|
10
|
.1
|
|
Credit Agreement dated as of November 12, 2004 among
Nash-Finch Company, Various Lenders and Deutsche Bank
Trust Company Americas, as administrative agent
(incorporated by reference to Exhibit 10.1 to our Quarterly
Report on
Form 10-Q
for the sixteen weeks ended October 9, 2004 (File
No. 0-785)).
|
|
|
|
|
|
|
10
|
.2
|
|
First Amendment to Credit Agreement dated as of
November 12, 2004 among Nash-Finch Company, Various Lenders
and Deutsche Bank Trust Company Americas, as administrative
agent (incorporated by reference to Exhibit 10.1 to our
current report on
Form 8-K
filed February 28, 2005 (File
No. 0-785)).
|
|
|
|
|
|
|
10
|
.3
|
|
Second Amendment to Credit Agreement, dated November 28,
2006, among Nash-Finch Company, the Lenders party thereto, and
Deutsche Bank Trust Company Americas, as Administrative
Agent (incorporated by reference to Exhibit 99.1 to our
current report on
Form 8-K
filed November 28, 2006 (File
No. 0-785))
|
|
|
|
|
|
|
10
|
.4
|
|
Credit Agreement, dated as of April 11, 2008, among Nash
Finch Company, Various Lenders and Bank of America, N.A. as
Administrative Agent (incorporated by reference to
Exhibit 10.1 to our current report on
Form 8-K
filed April 14, 2008 (File
No. 0-785)).
|
|
|
|
|
|
|
*10
|
.5
|
|
Nash-Finch Company Income Deferral Plan (as amended through
May 21, 2004) (incorporated by reference to
Exhibit 4.1 to our Registration Statement on
Form S-8
filed May 25, 2004
(File No. 333-115849)).
|
|
|
|
|
|
|
*10
|
.6
|
|
Second Declaration of Amendment to Nash-Finch Company Income
Deferral Plan (as amended through May 21, 2004)
(incorporated by reference to Exhibit 10.4 to our Annual
Report on
Form 10-K
for the fiscal year ended January 1, 2005 (File
No. 0-785)).
|
84
|
|
|
|
|
Exhibit
|
|
|
No.
|
|
Description
|
|
|
|
|
|
|
|
*10
|
.7
|
|
Nash-Finch Company Deferred Compensation Plan (incorporated by
reference to Exhibit 4.1 to our Registration Statement on
Form S-8
filed on December 30, 2004 (File
No. 333-121755)).
|
|
|
|
|
|
|
*10
|
.8
|
|
Amended and Restated Nash-Finch Company Deferred Compensation
Plan (filed herewith).
|
|
|
|
|
|
|
*10
|
.9
|
|
Nash-Finch Company 2000 Stock Incentive Plan (as amended
February 25, 2008) (incorporated by reference to
Exhibit 10.1 to our current report on
Form 8-K
filed May 16, 2008 (File
No. 0-785)).
|
|
|
|
|
|
|
*10
|
.10
|
|
Nash-Finch Company 2000 Stock Incentive Plan (as amended and
restated on July 14, 2008) (filed herewith).
|
|
|
|
|
|
|
*10
|
.11
|
|
Form of Non-Statutory Stock Option Agreement (for employees
under the Nash-Finch Company 2000 Stock Incentive Plan)
(incorporated by reference to Exhibit 10.7 to our Annual
Report on
Form 10-K
for the fiscal year ended January 1, 2005 (File
No. 0-785)).
|
|
|
|
|
|
|
*10
|
.12
|
|
Description of Nash-Finch Company Long-Term Incentive Program
Utilizing Performance Unit Awards (incorporated by reference to
Appendix I to our Proxy Statement for our Annual Meeting of
Stockholders on May 10, 2005 (filed March 21, 2005)
(File
No. 0-785)).
|
|
|
|
|
|
|
*10
|
.13
|
|
Nash-Finch Company 1995 Director Stock Option Plan (as
amended on February 22, 2000 and February 19, 2002)
(incorporated by reference to Exhibit 10.2 to our Quarterly
Report on
Form 10-Q
for the quarter ended June 15, 2002 (File
No. 0-785)).
|
|
|
|
|
|
|
*10
|
.14
|
|
First Declaration of Amendment to the Nash-Finch Company
1995 Director Stock Option Plan (as amended on
February 22, 2000 and February 19, 2002) (incorporated
by reference to Exhibit 10.9 to our Annual Report on
Form 10-K
for the fiscal year ended January 1, 2005 (File
No. 0-785)).
|
|
|
|
|
|
|
*10
|
.15
|
|
Form of Non-Statutory Stock Option Agreement (for non-employee
directors under the Nash-Finch Company 1995 Director Stock
Option Plan) (incorporated by reference to Exhibit 10.10 to
our Annual Report on
Form 10-K
for the fiscal year ended January 1, 2005 (File
No. 0-785)).
|
|
|
|
|
|
|
*10
|
.16
|
|
Nash-Finch Company 1997 Non-Employee Director Stock Compensation
Plan (2003 Revision) (incorporated by reference to
Exhibit 10.9 to our Annual Report on
Form 10-K
for the fiscal year ended January 3, 2004 (File
No. 0-785)).
|
|
|
|
|
|
|
*10
|
.17
|
|
Nash-Finch Company 1997 Non-Employee Director Stock Compensation
Plan (2003 Revision) First Declaration of Amendment
(incorporated by reference to Exhibit 10.12 to our Annual
Report on
Form 10-K
for the fiscal year ended January 1, 2005 (File
No. 0-785)).
|
|
|
|
|
|
|
*10
|
.18
|
|
Nash-Finch Company 1997 Non-Employee Director Stock Compensation
Plan (2003 Revision) Second Declaration of Amendment
(incorporated by reference to Exhibit 10.13 to our Annual
Report on
Form 10-K
for the fiscal year ended January 1, 2005 (File
No. 0-785)).
|
|
|
|
|
|
|
*10
|
.19
|
|
Nash-Finch Company Director Deferred Compensation Plan
(incorporated by reference to Exhibit 4.1 to our
Registration Statement on
Form S-8
filed on December 30, 2004
(File No. 333-121754)).
|
|
|
|
|
|
|
*10
|
.20
|
|
Amended and Restated Nash-Finch Company Director Deferred
Compensation Plan (filed herewith).
|
|
|
|
|
|
|
*10
|
.21
|
|
Nash-Finch Company Supplemental Executive Retirement Plan
(incorporated by reference to Exhibit 10.27 to our Annual
Report on
Form 10-K
for the fiscal year ended January 1, 2000
(File No. 0-785)).
|
|
|
|
|
|
|
*10
|
.22
|
|
Nash-Finch Company Supplemental Executive Retirement Plan (as
amended and restated on July 14, 2008) (filed herewith).
|
|
|
|
|
|
|
*10
|
.23
|
|
Nash-Finch Company Performance Incentive Plan (incorporated by
reference to Exhibit 10.6 to our Quarterly Report on
Form 10-Q
for the quarter ended June 15, 2002 (File
No. 0-785)).
|
|
|
|
|
|
|
*10
|
.24
|
|
Description of Nash-Finch Company 2005 Executive Incentive
Program (incorporated by reference to Exhibit 10.4 to our
Quarterly Report on
Form 10-Q
for the twelve weeks ended March 26, 2005 (File
No. 0-785)).
|
85
|
|
|
|
|
Exhibit
|
|
|
No.
|
|
Description
|
|
|
|
|
|
|
|
*10
|
.25
|
|
Form of Restricted Stock Unit Award Agreement (for non-employee
directors under the 2000 Stock Incentive Plan) (incorporated by
reference to Exhibit 10.19 to our Annual Report on
Form 10-K
for the fiscal year ended January 1, 2005 (File
No. 0-785)).
|
|
|
|
|
|
|
*10
|
.26
|
|
Form of Amended and Restated Restricted Stock Unit Agreement
(for non-employee directors under the 2000 Stock Incentive Plan)
(filed herewith).
|
|
|
|
|
|
|
*10
|
.27
|
|
New Form of Restricted Stock Unit Award Agreement (for
non-employee directors under the 2000 Stock Incentive Plan)
(filed herewith).
|
|
|
|
|
|
|
*10
|
.28
|
|
Form of Restricted Stock Unit Award Agreement (under the 2000
Stock Incentive Plan) (incorporated by reference to
Exhibit 10.1 to our
Form 8-K
filed August 11, 2006 (File
No. 0-785)).
|
|
|
|
|
|
|
*10
|
.29
|
|
Form of Amended and Restated Restricted Stock Unit Award
Agreement (under the 2000 Stock Incentive Plan) (incorporated by
reference to Exhibit 10.3 to our
Form 10-Q
filed November 6, 2008 (File
No. 0-785)).
|
|
|
|
|
|
|
*10
|
.30
|
|
New Form of Executive Restricted Stock Unit Agreement (under the
2000 Stock Incentive Plan), effective July 14, 2008
(incorporated by reference to Exhibit 10.2 to our
Form 10-Q
filed November 6, 2008 (File
No. 0-785)).
|
|
|
|
|
|
|
*10
|
.31
|
|
Nash-Finch Company 2000 Stock Incentive Plan Performance Unit
Award Agreement dated as of May 1, 2006 between the Company
and Alec C. Covington (incorporated by reference to
Exhibit 10.3 to our
Form 10-Q
for the quarter ended June 17, 2006 (File
No. 0-785)).
|
|
|
|
|
|
|
*10
|
.32
|
|
Nash-Finch Company 2000 Stock Incentive Plan Restricted Stock
Unit Award Agreement dated as of May 1, 2006 between the
Company and Alec C. Covington (incorporated by reference to
Exhibit 10.2 to our
Form 10-Q
for the quarter ended June 17, 2006 (File
No. 0-785)).
|
|
|
|
|
|
|
*10
|
.33
|
|
Letter Agreement between Nash-Finch Company and Alec C.
Covington dated March 16, 2006 (incorporated by reference
to Exhibit 10.1 to our
Form 8-K
filed April 18, 2006 (File
No. 0-785)).
|
|
|
|
|
|
|
*10
|
.34
|
|
Amendment to the Letter Agreement between Nash-Finch Company and
Alec C. Covington dated February 27, 2007 (incorporated by
reference to Exhibit 10.1 to our
Form 8-K
filed March 1, 2007 (File
No. 0-785)).
|
|
|
|
|
|
|
*10
|
.35
|
|
Change in Control Agreement entered into by Nash-Finch Company
and Alec. C. Covington dated February 26, 2008
(incorporated by reference to Exhibit 10.1 to our
Form 8-K/A
filed February 28, 2008 (File
No. 0-785)).
|
|
|
|
|
|
|
*10
|
.36
|
|
Restricted Stock Unit Agreement between the Company and Alec C.
Covington dated February 27, 2007 (incorporated by
reference to Exhibit 10.2 to our
Form 10-Q
filed May 1, 2007 (File
No. 0-785)).
|
|
|
|
|
|
|
*10
|
.37
|
|
Letter Agreement between Nash-Finch Company and Robert B. Dimond
dated November 29, 2006 (incorporated by reference to
Exhibit 10.1 to our
Form 8-K
filed December 21, 2006
(File No. 0-785)).
|
|
|
|
|
|
|
*10
|
.38
|
|
Amended Form of Change in Control Agreement for Senior and
Executive Vice Presidents, effective November 3, 2008
(incorporated by reference to Exhibit 10.1 to our
Form 10-Q
filed November 6, 2008 (File
No. 0-785)).
|
|
|
|
|
|
|
*10
|
.39
|
|
Form of Amended and Restated Indemnification Agreement
(incorporated by reference to Exhibit 10.1 to our
Form 10-Q
filed November 13, 2007 (File
No. 0-785)).
|
|
|
|
|
|
|
*10
|
.40
|
|
Stock Appreciation Rights Agreement under the Nash-Finch Company
2000 Stock Incentive Plan dated December 17, 2008
(incorporated by reference to Exhibit 10.2 to our
Form 8-K
filed February 3, 2009 (File
No. 0-785)).
|
|
|
|
|
|
|
12
|
.1
|
|
Computation of Ratio of Earnings to Fixed Charges (filed
herewith).
|
|
|
|
|
|
|
21
|
.1
|
|
Our subsidiaries (filed herewith).
|
|
|
|
|
|
|
23
|
.1
|
|
Consent of Ernst & Young LLP (filed herewith).
|
86
|
|
|
|
|
Exhibit
|
|
|
No.
|
|
Description
|
|
|
|
|
|
|
|
24
|
.1
|
|
Power of Attorney (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 (furnished herewith).
|
|
|
|
|
|
|
|
|
|
A copy of any of these exhibits will be furnished at a
reasonable cost to any of our stockholders, upon receipt from
any such person of a written request for any such exhibit. Such
request should be sent to Nash Finch Company, 7600 France Avenue
South, P.O. Box 355, Minneapolis, Minnesota,
55440-0355,
Attention: Secretary.
|
|
|
|
* |
|
Items that are management contracts or compensatory plans or
arrangements required to be filed as exhibits pursuant to
Item 15(a)(3) of
Form 10-K. |
87
NASH
FINCH COMPANY AND SUBSIDIARIES
Valuation and Qualifying Accounts
Fiscal Years ended January 3, 2009, December 29, 2007
and December 30, 2006
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charged to
|
|
|
Charged
|
|
|
|
|
|
|
|
|
|
Balance at
|
|
|
(Reversed from)
|
|
|
(Credited)
|
|
|
|
|
|
Balance
|
|
|
|
Beginning
|
|
|
Costs and
|
|
|
to Other
|
|
|
|
|
|
at End
|
|
|
|
of Year
|
|
|
Expenses
|
|
|
Accounts(a)
|
|
|
Deductions
|
|
|
of Year
|
|
|
Description
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
52 weeks ended December 30, 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts(c)
|
|
$
|
20,518
|
|
|
$
|
5,600
|
|
|
$
|
987
|
|
|
$
|
1,144
|
(b)
|
|
$
|
25,961
|
|
Provision for losses relating to leases on closed locations
|
|
|
7,638
|
|
|
|
9,358
|
|
|
|
|
|
|
|
1,924
|
(d)
|
|
|
15,072
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
28,156
|
|
|
$
|
14,958
|
|
|
$
|
987
|
|
|
$
|
3,068
|
|
|
$
|
41,033
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
52 weeks ended December 29, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts(c)
|
|
$
|
25,961
|
|
|
$
|
1,234
|
|
|
$
|
460
|
|
|
$
|
19,986
|
(b)
|
|
$
|
7,669
|
|
Provision for losses relating to leases on closed locations
|
|
|
15,072
|
|
|
|
552
|
|
|
|
|
|
|
|
2,422
|
(d)
|
|
|
13,202
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
41,033
|
|
|
$
|
1,786
|
|
|
$
|
460
|
|
|
$
|
22,408
|
|
|
$
|
20,871
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
53 weeks ended January 3, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts(c)
|
|
$
|
7,669
|
|
|
$
|
(1,292
|
)
|
|
$
|
37
|
|
|
$
|
883
|
(b)
|
|
$
|
5,531
|
|
Provision for losses relating to leases on closed locations
|
|
|
13,202
|
|
|
|
(1,831
|
)
|
|
|
|
|
|
|
3,364
|
(d)
|
|
|
8,007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
20,871
|
|
|
$
|
(3,123
|
)
|
|
$
|
37
|
|
|
$
|
4,247
|
|
|
$
|
13,538
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Recoveries on accounts previously written off, unless noted
otherwise |
|
(b) |
|
Reversal of reserve relating to write-offs |
|
(c) |
|
Includes current and non-current receivables |
|
(d) |
|
Net payments of lease obligations & termination fees |
88
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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
Alec C. Covington
President and Chief Executive Officer
Dated: March 12, 2009
Pursuant to the requirements of the Securities Exchange Act of
1934, this Report has been signed below on March 12, 2009
by the following persons on behalf of the Registrant and in the
capacities indicated.
|
|
|
|
|
/s/ Alec
C. Covington
Alec
C. Covington, President and Chief Executive Officer (Principal
Executive Officer)
|
|
/s/ Robert
B. Dimond
Robert
B. Dimond, Executive Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
|
|
|
|
/s/ William
R. Voss*
William
R. Voss, Chairman of the Board
|
|
/s/ Mickey
P. Foret*
Mickey
P. Foret
|
|
|
|
/s/ Robert
L. Bagby*
Robert
L. Bagby
|
|
/s/ Douglas
A. Hacker*
Douglas
A. Hacker
|
|
|
|
/s/ Sam
K. Duncan*
Sam
K. Duncan
|
|
/s/ Hawthorne
L.
Proctor* Hawthorne
L. Proctor
|
|
|
|
|
|
*By:
|
|
/s/ Kathleen
M. Mahoney
Kathleen
M. Mahoney
Attorney-in-fact
|
|
|
89
NASH-FINCH
COMPANY
EXHIBIT INDEX TO ANNUAL REPORT
ON
FORM 10-K
For Fiscal Year Ended January 3, 2009
|
|
|
|
|
Exhibit
|
|
|
|
|
No.
|
|
Description
|
|
Method of Filing
|
|
2.1
|
|
Asset Purchase Agreement between Roundys, Inc. and
Nash-Finch Company, dated as of February 24, 2005.
|
|
Incorporated by
reference (IBR)
|
2.2
|
|
Asset Purchase Agreement between GSC Enterprises, Inc., MKM
Management, L.L.C., Michael K. McKenzie, Grocery Supply
Acquisition Corp. and Nash-Finch Company, dated as of
December 17, 2008.
|
|
IBR
|
2.3
|
|
First Amendment to Asset Purchase Agreement between GSC
Enterprises, Inc., MKM Management, L.L.C., Michael K. McKenzie,
Grocery Supply Acquisition Corp. and Nash-Finch Company, dated
as of January 31, 2009.
|
|
IBR
|
3.1
|
|
Restated Certificate of Incorporation of the Company, effective
May 16, 1985.
|
|
IBR
|
3.2
|
|
Certificate of Amendment to Restated Certificate of
Incorporation of the Company, effective May 15, 1987.
|
|
IBR
|
3.3
|
|
Certificate of Amendment to Restated Certificate of
Incorporation of the Company, effective May 16, 2002.
|
|
IBR
|
3.4
|
|
Certificate of Amendment to Restated Certificate of
Incorporation of the Company, effective May 13, 2008.
|
|
IBR
|
3.5
|
|
Nash-Finch Company Bylaws, as amended November 9, 2005.
|
|
IBR
|
3.6
|
|
Amended and Restated Bylaws of Nash-Finch Company (as amended
May 13, 2008).
|
|
IBR
|
4.1
|
|
Stockholder Rights Agreement, dated February 13, 1996,
between the Company and Wells Fargo Bank, N.A. (formerly known
as Norwest Bank Minnesota, National Association).
|
|
IBR
|
4.2
|
|
Amendment to Stockholder Rights Agreement dated as of
October 30, 2001.
|
|
IBR
|
4.3
|
|
Indenture dated as of March 15, 2005 between Nash-Finch
Company and Wells Fargo Bank, National Association, as Trustee
(including form of Senior Subordinated Convertible Notes due
2035).
|
|
IBR
|
4.4
|
|
Registration Rights Agreement dated as of March 15, 2005
between Nash-Finch Company and Deutsche Bank Securities Inc.,
Merrill Lynch & Co. and Merrill Lynch, Pierce,
Fenner & Smith Incorporated.
|
|
IBR
|
4.5
|
|
Notice of Adjustment of Conversion Rate of the Senior
Subordinated Convertible Notes Due 2035.
|
|
IBR
|
4.6
|
|
First Supplemental Indenture to Senior Convertible Notes Due
2035.
|
|
IBR
|
10.1
|
|
Credit Agreement dated as of November 12, 2004 among
Nash-Finch Company, Various Lenders and Deutsche Bank
Trust Company Americas, as administrative agent.
|
|
IBR
|
10.2
|
|
First Amendment to Credit Agreement dated as of
November 12, 2004 among Nash-Finch Company, Various Lenders
and Deutsche Bank Trust Company Americas, as administrative
agent.
|
|
IBR
|
10.3
|
|
Second Amendment to Credit Agreement dated as of
November 28, 2006 among Nash-Finch Company, Various Lenders
and Deutsche Bank Trust Company Americas, as administrative
agent.
|
|
IBR
|
10.4
|
|
Credit Agreement, dated as of April 11, 2008, among Nash
Finch Company, Various Lenders and Bank of America, N.A. as
Administrative Agent.
|
|
IBR
|
10.5
|
|
Nash-Finch Company Income Deferral Plan (as amended through
May 21, 2004).
|
|
IBR
|
10.6
|
|
Second Declaration of Amendment to Nash-Finch Company Income
Deferral Plan (as amended through May 21, 2004).
|
|
IBR
|
90
|
|
|
|
|
Exhibit
|
|
|
|
|
No.
|
|
Description
|
|
Method of Filing
|
|
10.7
|
|
Nash-Finch Company Deferred Compensation Plan.
|
|
IBR
|
10.8
|
|
Amended and Restated Nash-Finch Company Deferred Compensation
Plan.
|
|
Filed Electronically (E)
|
10.9
|
|
Nash-Finch Company 2000 Stock Incentive Plan.
|
|
IBR
|
10.10
|
|
Nash-Finch Company 2000 Stock Incentive Plan (as amended and
restated on July 14, 2008).
|
|
E
|
10.11
|
|
Form of Non-Statutory Stock Option Agreement (for employees
under the Nash-Finch Company 2000 Stock Incentive Plan).
|
|
IBR
|
10.12
|
|
Description of Nash-Finch Company Long-Term Incentive Program
Utilizing Performance Unit Awards.
|
|
IBR
|
10.13
|
|
Nash-Finch Company 1995 Director Stock Option Plan (as
amended on February 22, 2000 and February 19, 2002).
|
|
IBR
|
10.14
|
|
First Declaration of Amendment to the Nash-Finch Company
1995 Director Stock Option Plan (as amended on
February 22, 2000 and February 19, 2002).
|
|
IBR
|
10.15
|
|
Form of Non-Statutory Stock Option Agreement (for non-employee
directors under the Nash-Finch Company 1995 Director Stock
Option Plan).
|
|
IBR
|
10.16
|
|
Nash-Finch Company 1997 Non-Employee Director Stock Compensation
Plan (2003 Revision).
|
|
IBR
|
10.17
|
|
Nash-Finch Company 1997 Non-Employee Director Stock Compensation
Plan (2003 Revision) First Declaration of Amendment.
|
|
IBR
|
10.18
|
|
Nash-Finch Company 1997 Non-Employee Director Stock Compensation
Plan (2003 Revision) Second Declaration of Amendment.
|
|
IBR
|
10.19
|
|
Nash-Finch Company Director Deferred Compensation Plan.
|
|
IBR
|
10.20
|
|
Amended and Restated Nash-Finch Company Director Deferred
Compensation Plan.
|
|
E
|
10.21
|
|
Nash-Finch Company Supplemental Executive Retirement Plan.
|
|
IBR
|
10.22
|
|
Nash-Finch Company Supplemental Executive Retirement Plan (as
amended and restated on July 14, 2008).
|
|
E
|
10.23
|
|
Nash-Finch Company Performance Incentive Plan.
|
|
IBR
|
10.24
|
|
Description of Nash-Finch Company 2005 Executive Incentive
Program.
|
|
IBR
|
10.25
|
|
Form of Restricted Stock Unit Award Agreement (for non-employee
directors under the 2000 Stock Incentive Plan).
|
|
IBR
|
10.26
|
|
Form of Amended and Restated Restricted Stock Unit Agreement
(for non-employee directors under the 2000 Stock Incentive Plan).
|
|
E
|
10.27
|
|
New Form of Restricted Stock Unit Award Agreement (for
non-employee directors under the 2000 Stock Incentive Plan).
|
|
E
|
10.28
|
|
Form of Restricted Stock Unit Award Agreement (under the 2000
Stock Incentive Plan).
|
|
IBR
|
10.29
|
|
Form of Amended and Restated Restricted Stock Unit Award
Agreement (under the 2000 Stock Incentive Plan).
|
|
IBR
|
10.30
|
|
New Form of Executive Restricted Stock Unit Agreement (under the
2000 Stock Incentive Plan), effective July 14, 2008.
|
|
IBR
|
10.31
|
|
Nash-Finch Company 2000 Stock Incentive Plan Performance Unit
Award Agreement dated as of May 1, 2006 between the Company
and Alec C. Covington.
|
|
IBR
|
10.32
|
|
Nash-Finch Company 2000 Stock Incentive Plan Restricted Stock
Unit Award Agreement dated as of May 1, 2006 between the
Company and Alec C. Covington.
|
|
IBR
|
10.33
|
|
Letter Agreement between Nash-Finch Company and Alec C.
Covington dated March 16, 2006.
|
|
IBR
|
91
|
|
|
|
|
Exhibit
|
|
|
|
|
No.
|
|
Description
|
|
Method of Filing
|
|
10.34
|
|
Amendment to the Letter Agreement between Nash-Finch Company and
Alec. C. Covington dated February 27, 2007.
|
|
IBR
|
10.35
|
|
Change in Control Agreement entered into by Nash Finch Company
and Alec C. Covington dated February 26, 2008.
|
|
IBR
|
10.36
|
|
Restricted Stock Unit Agreement between the Company and Alec C.
Covington dated February 27, 2007.
|
|
IBR
|
10.37
|
|
Letter Agreement between Nash-Finch Company and Robert B Dimond
dated November 29, 2006.
|
|
IBR
|
10.38
|
|
Amended Form of Change in Control Agreement for Senior and
Executive Vice Presidents, effective November 3, 2008.
|
|
IBR
|
10.39
|
|
Form of Amended and Restated Indemnification Agreement.
|
|
IBR
|
10.40
|
|
Stock Appreciation Rights Agreement under the Nash-Finch Company
2000 Stock Incentive Plan dated December 17, 2008.
|
|
IBR
|
12.1
|
|
Computation of Ratio of Earnings to Fixed Charges.
|
|
E
|
21.1
|
|
Our subsidiaries.
|
|
E
|
23.1
|
|
Consent of Ernst & Young LLP.
|
|
E
|
24.2
|
|
Power of Attorney.
|
|
E
|
31.3
|
|
Rule 13a-14(a)
Certification of the Chief Executive Officer.
|
|
E
|
31.4
|
|
Rule 13a-14(a)
Certification of the Chief Financial Officer.
|
|
E
|
32.2
|
|
Section 1350 Certification of Chief Executive Officer and
Chief Financial Officer.
|
|
E
|
92