Nash Finch Reports Fourth Quarter and Fiscal 2012 Results

Adjusted EPS 1 of $0.49 for Fourth Quarter and $3.03 for Fiscal 2012

MINNEAPOLIS--(BUSINESS WIRE)-- Nash Finch Company (NAS: NAFC) , one of the leading food distribution companies in the United States, today announced financial results for the twelve weeks (fourth quarter) and fiscal year ended December 29, 2012.


Financial Results

Total Company sales for the fourth quarter 2012 were $1.136 billion compared to $1.148 billion in the prior-year quarter, a decrease of 1.1%. The acquisition of eighteen No Frills® stores during the third quarter of 2012 and twelve Bag 'N Save® stores during the second quarter of 2012 contributed to a net increase in total Company sales of $35.4 million. After adjusting for these acquisitions, total Company fourth quarter comparable sales decreased 4.1% relative to the prior year period. For Fiscal 2012 sales were $4.821 billion compared to $4.855 billion in the prior-year, a decrease of 0.7%. The acquisitions of the No Frills® and Bag 'N Save® stores contributed to a net increase in total Company sales of $95.6 million. After adjusting for these acquisitions, total Company Fiscal 2012 comparable sales decreased 2.4% relative to the prior year period.

Adjusted Consolidated EBITDA2 was $26.5 million, or 2.3% of sales in the fourth quarter of 2012 as compared to $34.6 million, or 3.0% of sales in the fourth quarter of 2011. Consolidated EBITDA3 was adjusted to exclude the impact of significant items totaling $3.9 million and $1.2 million in the fourth quarter 2012 and 2011, respectively. Including the impact of significant items, Consolidated EBITDA for the fourth quarter 2012 was $22.6 million, or 2.0% of sales, as compared to $33.4 million, or 2.9% of sales, in the prior year quarter. For Fiscal 2012, Adjusted Consolidated EBITDAwas $122.0 million, or 2.5% of sales compared to $146.2 million, or 3.0% of sales in 2011. Consolidated EBITDA was adjusted to exclude the impact of significant items totaling $10.7 million and $7.0 million in 2012 and 2011, respectively. Including the impact of significant items, Consolidated EBITDA for Fiscal 2012 was $111.3 million, or 2.3% of sales, as compared to $139.2 million, or 2.9% of sales, in the prior year.

"We are pleased to see the sales increase in our food distribution and retail segments, which was driven primarily by our retail acquisitions and the investments we made in our Food Distribution segment marketing programs. We experienced a decline in sales in our Military segment driven primarily by a softness in Military export sales. As a result, our total company sales were down slightly", said Alec Covington, President and CEO of Nash Finch. "As expected, our gross margin continued to be negatively impacted by lower food price inflation and lower contractual margin rates in our Military segment."

"In 2013 we are focusing our efforts on sales growth and reducing expenses and are already beginning to see progress. As previously announced by Dollar General, Nash Finch was selected to distribute cigarettes and other tobacco products to Dollar General stores nationally and that project is already underway. We are proud to have been selected by Dollar General as its distribution partner for this endeavor", said Covington.

Net earnings, as adjusted were $6.4 million or $0.49 per diluted share in the fourth quarter of 2012, compared to $12.7 million or $0.97 per diluted share in the fourth quarter of 2011. Net earnings were adjusted to exclude the impact of significant items totaling $35.4 million or $2.72 per diluted share in 2012 and $4.6 million or $0.35 per diluted share in the 2011 quarter. Including the impact of significant items, our reported net loss for the fourth quarter of 2012 was $29.0 million or $2.23 per diluted share, as compared to net earnings of $8.2 million or $0.62 per diluted share in the prior year quarter. For Fiscal 2012, net earnings, as adjusted were $39.7 million or $3.03 per diluted share compared to $51.2 million or $3.92 per diluted share in 2011. Net earnings were adjusted to exclude the impact of significant items totaling $133.5 million or $10.27 per diluted share in 2012 and $15.4 million or $1.18 per diluted share in 2011. Including the impact of significant items, our reported net loss for Fiscal 2012 was $93.9 million or $7.24 per diluted share, as compared to net earnings of $35.8 million or $2.74 per diluted share in the prior year, and is detailed in the table below.

Goodwill Impairment and Long-lived Asset Impairment

The fourth quarter 2012 results included non-cash after tax charges of $24.2 million related to goodwill impairment in the Military segment and $8.0 million related to other intangibles and other long-lived assets in the Food Distribution and Military segments. For Fiscal 2012, results included non-cash after tax goodwill impairment charges of $121.1 million, the long-lived assets impairment of $8.0 million and a $4.1 million after tax gain on acquisition of a business. The impairments and acquisition gain are non-cash items in our quarter and Fiscal year consolidated financial statements. Accordingly, none of these items had any impact on our cash flows or Consolidated EBITDA.

The following table identifies the significant items affecting Consolidated EBITDA, net earnings and diluted earnings per share for the fourth quarter and fiscal 2012 and prior year periods:

               
(dollars in millions except per share amounts) 4th Quarter     Fiscal
2012     2011     2012     2011
Significant items
Transaction and integration costs related to business acquisitions $ (0.1 ) - (2.0 ) -
Restructuring and centralization costs (1.0 ) (0.2 ) (1.0 ) (1.6 )
Retail store closing costs - - - (0.2 )
Military distribution center conversion and transition costs (1.0 ) (0.5 ) (5.5 ) (1.9 )
Write off of capitalized software costs (1.0 ) - (1.0 ) (0.6 )
Food distribution center closing costs (0.8 ) (0.8 )
Food distribution transition costs - - (0.4 ) (0.2 )
Unusual professional fees   -       (0.5 )     -       (2.5 )
Significant charges impacting Consolidated EBITDA $ (3.9 ) (1.2 ) (10.7 ) (7.0 )
 
LIFO charges (1.3 ) (4.5 ) (3.3 ) (14.2 )
Goodwill impairment (34.6 ) - (166.6 ) -
Other long-lived asset impairments (13.1 ) - (13.1 ) (0.4 )
Early termination of capital lease - - - 0.4
Gain on acquisition of business - - 6.6 -
Military distribution center non-cash pre-opening expense - - (0.1 ) -
Write off of deferred financing costs - (1.8 ) - (1.8 )
Non-cash loss on sale or closure of retail stores   -       -       -       (2.2 )
Total significant charges impacting earnings before tax $ (52.9 ) (7.5 ) (187.2 ) (25.2 )
Income tax on significant net charges 7.1 2.9 10.7 9.8
Tax on gain on acquisition of business - - (2.5 ) -
Tax on goodwill impairment   10.4       -       45.5       -  
Total significant charges impacting net earnings $ (35.4 )     (4.6 )     (133.5 )     (15.4 )
Diluted earnings (loss) per share impact from significant items (2.72 ) (0.35 ) (10.27 ) (1.18 )
Diluted earnings (loss) per share, as reported   (2.23 )     0.62       (7.24 )     2.74  
Diluted earnings per share, as adjusted $ 0.49       0.97       3.03       3.92  
 
Consolidated EBITDA, as reported 22.6 33.4 111.3 139.2
Consolidated EBITDA impact from significant items   (3.9 )     (1.2 )     (10.7 )     (7.0 )
Consolidated EBITDA, as adjusted $ 26.5       34.6       122.0       146.2  
 
 

Military Distribution Results

             
(dollars in millions) 4th Quarter

 

    Fiscal
2012     2011       2012     2011
Net Sales $   536.8     566.8

 

2,309.5     2,352.9

Segment EBITDA3

8.8 17.1

 

47.6 68.4
Percentage of Sales 1.6 % 3.0 %

 

2.1 % 2.9 %
 

The Military segment net sales were $536.8 million, a decrease of 5.3% in the fourth quarter 2012 compared to the prior year. However, a larger portion of Military sales during the current year have been on a consignment basis, which are included in our reported sales on a net basis. Including the impact of consignment sales, comparable Military sales decreased 5.0% in the fourth quarter. For Fiscal 2012, net sales were $2.31 billion, a decrease of 1.8% compared to the prior year. Including the impact of consignment sales, comparable Military sales decreased 1.4% in 2012.

The Military segment EBITDA was $8.8 million, or 1.6% of sales, in the fourth quarter 2012 as compared to $17.1 million, or 3.0% of sales, in the fourth quarter 2011. For Fiscal 2012, EBITDA was $47.6 million, or 2.1% of sales as compared to $68.4 million, or 2.9% of sales, in Fiscal 2011. The decrease in Military EBITDA in both the fourth quarter and fiscal year was primarily due to declines in gross margins related to lower inflation year-over-year and reduced contractual margin rates as well as higher start-up and transition costs from the opening of distribution centers in 2012 as compared to 2011.

"In 2012 we continued our investment in expanding our military footprint to create a world-wide military distribution network, in partnership with Coastal Pacific Food Distributors. I am pleased that in the fourth quarter several additional military vendors chose our world-wide network to distribute their products to the military," said Covington. "Our new Landover, Maryland distribution center has begun servicing commissaries in the Northeast United States with non-perishable products. In 2013, we will add frozen and chill capability to Landover to make it a full-service distribution center." "With that addition, our military footprint should now be complete," said Covington.

 

Food Distribution & Retail Results

       
(dollars in millions) 4th Quarter     Fiscal
2012     2011     2012     2011
Sales        
Food Distribution $   413.8 475.5 1,844.9 2,032.6
Retail     185.0       105.4       666.4       470.0  
Total $   598.8       580.9       2,511.3       2,502.6  

Segment EBITDA3

Food Distribution $ 6.2 10.7 36.9 51.0
Retail     7.6       5.6       26.8       19.9  
Total $   13.8       16.3       63.7       70.9  
 
Percentage of Sales
Food Distribution 1.5 % 2.3 % 2.0 % 2.5 %
Retail     4.1 %     5.3 %     4.0 %     4.2 %
Total     2.3 %     2.8 %     2.5 %     2.8 %
 

The combined Food Distribution and Retail segment sales were $598.8 million, an increase of 3.1% in the fourth quarter as compared to the prior year period. The increase in Retail sales was primarily attributable to the Bag 'N Save® and No Frills® supermarkets acquisitions, which were responsible for an $81.9 million increase in sales as compared to the prior year quarter. Because these were acquisitions of Food Distribution customers, these transactions were also responsible for a $46.5 million decrease in Food Distribution segment sales as compared to the fourth quarter of 2011. Retail same store sales declined 1.4% as compared to the prior year quarter.

For Fiscal 2012, sales were $2.51 billion, an increase of 0.4% in Fiscal 2012 as compared to the prior year period. The increase in Retail sales was primarily attributable to the Bag 'N Save® and No Frills® supermarkets acquisitions, which were responsible for a $215.2 million increase in sales as compared to the prior year. As a result of these acquisitions, the transactions were responsible for a $119.7 million decrease in Food Distribution segment sales as compared to the prior year. Retail same store sales declined 1.1% as compared to the prior year.

The combined Food Distribution and Retail segment EBITDA was $13.8 million, or 2.3% of sales, in the fourth quarter 2012 as compared to $16.3 million, or 2.8% of sales, in the fourth quarter 2011. For Fiscal 2012, EBITDA was $63.7 million, or 2.5% of sales, as compared to $70.9 million, or 2.8% of sales, in Fiscal 2011.

"In the fourth quarter, the combined Food Distribution and Retail segment delivered top line sales performance and we continue to be pleased by our retail acquisitions of the Bag 'N Save® and No Frills® supermarkets in the Omaha, Nebraska market," said Covington. "Kevin Elliott joined us in December, 2012 and his focus on growing the food distribution and retail business should help us continue this positive trend."

Full Redemption of Convertible Notes

The Company announced on February 13, 2013 that holders of the Company's Senior Subordinated Convertible Notes due 2035 were notified that the Company will redeem all $322 million in aggregate principle amount at maturity on March 15, 2013. The Convertible Notes will be redeemed at a price equal to $466.11 per $1,000 in principal amount at maturity which represents a total payment to be made of $150.1 million.

Liquidity

Total debt at the end of the fourth quarter 2012 increased to $373.3 million, primarily due to the Bag 'N Save and No Frills acquisitions, compared to $297.4 million at the end of the fourth quarter 2011. The Company continues to focus on effectively managing its balance sheet and is in compliance with all of its debt covenants. The Company's Total Leverage Ratio4 as of the end of the fourth quarter 2012 was 3.35x. Availability on the Company's revolving credit facility at the end of the quarter was $238.5 million, after taking into consideration a $150 million reserve for the redemption of the convertible notes.

1 Adjusted EPS is defined as net earnings adjusted for any significant items divided by diluted shares outstanding.

2 Adjusted Consolidated EBITDA is defined as EBITDA adjusted for any significant items.

3 References to EBITDA, Consolidated EBITDA, and segment EBITDA are calculated as earnings (loss) before interest, income tax, depreciation and amortization, adjusted to exclude extraordinary gains or losses, gains or losses from sales of assets other than inventory in the ordinary course of business, and non-cash charges (such as LIFO, asset impairments, closed store lease costs and share-based compensation), less cash payments made during the current period on non-cash charges recorded in prior periods. Consolidated EBITDA should not be considered an alternative measure of our net income (loss), operating performance, cash flows or liquidity. Consolidated EBITDA is provided as additional information as a key metric used to determine payout pursuant to our Short-Term and Long-Term Incentive Plans. The Company also believes investors find the information useful because it reflects the resources available for strategic investments including, for example, capital needs of the business, strategic acquisitions and debt service.

4 Total Leverage Ratio is defined as total debt (current portion of long-term debt and capital leases, long-term debt and capitalized lease obligations) divided by the trailing four quarters Consolidated EBITDA.

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A conference call to review the fourth quarter 2012 results is scheduled at 9 a.m. CT (10 a.m. ET) on February 28, 2012. Interested participants can listen to the conference call over the Internet by logging onto the "Investor Relations" portion of Nash Finch's website at


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