Nash Finch Reports Fiscal 2003 Results; Strong Fourth Quarter Gains in Food Distribution and...

Business Editors

MINNEAPOLIS--(BUSINESS WIRE)--Feb. 26, 2004

Nash Finch Company (Nasdaq:NAFC), a leading national food retailer and distributor, today announced that earnings for the 53 week fiscal 2003 year increased to $35.1 million, or $2.88 per diluted share, as compared

Earnings from continuing operations were $34.7 million, or $2.85 per diluted share, for fiscal 2003, as compared to $30.6 million, or $2.52 per diluted share, for fiscal 2002. Fiscal 2003 earnings from continuing operations were affected by several events that had a net favorable impact of $4.5 million, or 37 cents per diluted share. These events included a third quarter reduction in income tax expense of $3.0 million as a result of the resolution of various outstanding state and federal tax issues. They also included a fourth quarter $3.8 million reduction in health insurance expense primarily reflecting a decision to eliminate post-retirement medical benefits for current non-union employees, while retaining benefits for associates who retired prior to December 31, 2003. Partially offsetting these events was $2.3 million paid in the first quarter to our lenders as consideration for bond indenture and credit facility waivers.

Fiscal 2002 earnings from continuing operations were favorably affected by a special charge reversal that increased earnings by $0.5 million, or 4 cents per diluted share.

For the 13 week fourth quarter of fiscal 2003, net earnings were $13.0 million, or $1.05 per diluted share, compared to $7.6 million, or 64 cents per diluted share in the 12 week fourth quarter of fiscal 2002. Fourth quarter 2003 earnings from continuing operations were $12.5 million, or $1.02 per diluted share, and were favorably affected by $3.8 million, or 31 cents per diluted share, resulting from the previously mentioned reduction in insurance expense. Total sales for the 2003 fourth quarter were $1.011 billion, versus year-ago sales of $880.8 million. Excluding the sales from the 53rd week, sales for the 2003 fourth quarter would have been $943 million.

The Company has continued to strengthen its balance sheet. Over the past few years, improvements have been made through the rationalization of inventory, efficient receivables management and leveraging of accounts payable. Most notably, the Company has focused on reducing its leverage ratio through the reduction of debt and improving Consolidated EBITDA, as defined in the accompanying supplemental data schedule, as a percent of sales. As a result, the Company's leverage has improved 25 percent since 1998, to 2.7 times Consolidated EBITDA. During fiscal 2003, total debt was reduced by $81 million.

Food Distribution Results

Food distribution segment sales for fiscal 2003 were $1.915 billion versus $1.826 billion in fiscal 2002. Food distribution segment profits were $63.9 million for fiscal 2003 versus $61.5 million last year.

In the fourth quarter of 2003, sales in the food distribution segment were $501.4 million versus $416.4 million in the year-ago quarter. Segment profits for the current quarter were $16.6 million versus $15.1 million in the prior-year period. Food distribution performance was driven by new account gains, principally with former Fleming customers.

Military segment sales for fiscal 2003 were $1.090 billion compared to $1.021 billion for fiscal 2002. Profits were $31.3 million versus $30.3 million for fiscal 2002. In September 2003, the Company completed the consolidation of two large warehouses into one located in Norfolk, Virginia. Transitional expenses negatively impacted military profit margins by $2.7 million for the year.

In the fourth quarter of 2003, military segment sales were $276.4 million versus $240.7 million in the year-ago period. Segment profits in the current quarter totaled $8.6 million versus $6.3 million in the prior-year period, as the Company began to realize benefits from the completion of the warehouse consolidation project.

Retail Results

Corporate retail sales were $966.3 million in fiscal 2003 versus $1.028 billion in fiscal 2002. Same-store sales decreased 10.6 percent for fiscal 2003 relative to fiscal 2002 and decreased 7.7 percent in the fourth quarter of fiscal 2003 relative to the fourth quarter of fiscal 2002. These declines reflect the continued difficult competitive environment, in which an ever-increasing number of supercenters and other alternative formats compete for price-conscious consumers. Retail segment profits were $30.2 million for fiscal 2003 versus $33.7 million in fiscal 2002. Retail profits in 2003 were negatively impacted by start-up costs relating to the Company's new AVANZA format, totaling approximately $4 million during fiscal 2003 and $1 million during the fourth quarter of fiscal 2003. The Company's total store count at the end of 2003 was 110 compared to 109 at the end of 2002.

In the fourth quarter of 2003, sales in the retail segment were $233.6 million versus $223.6 million in the year-ago period. Segment profits were $5.8 million versus $8.9 million in the prior-year period.

Outlook

The Company estimates that its diluted earnings per share will range between $2.46 and $2.54 for the 52 week fiscal 2004 year.

A conference call to review fourth quarter and fiscal 2003 results is scheduled for 10 a.m. (CT) on February 26, 2004. Interested participants can listen to the conference call over the Internet by logging onto the "Investor Relations" portion of Nash Finch's website at http://www.nashfinch.com. A replay of the Internet broadcast will be available and the transcript of the call will be archived on the "Investor Relations" portion of Nash Finch's website under the heading "Audio Archives." A copy of this press release and the other financial and statistical information about the periods to be discussed in the conference call will be available at the time of the call on the "Investor Relations" portion of the Nash Finch website under the caption "Press Releases."

Nash Finch Company is a Fortune 500 company and one of the leading food retail and distribution companies in the United States with approximately $4 billion in annual revenues. Nash Finch currently owns and operates more than 100 stores in the Upper Midwest, principally supermarkets under the AVANZA(R), Buy n Save(R), Econofoods(R), Family Thrift Center(TM) and Sun Mart(R) trade names. In addition to its retail operations, Nash Finch's food distribution business serves independent retailers and military commissaries in 28 states, the District of Columbia and Europe. Further information is available on the company's website at www.nashfinch.com.

The statements in this release that refer to anticipated financial results, plans and expectations are forward-looking statements based on current expectations and assumptions, and entail risks and uncertainties that could cause actual results to differ materially from those expressed in such forward-looking statements. Important factors that could cause material differences include the effect of competition on the Company's distribution and retail businesses; the Company's ability to successfully execute plans to improve retail operations and to expand wholesale operations; general economic conditions; credit risk from financial accommodations extended to customers; the success or failure of new business ventures and initiatives; changes in consumer spending and buying patterns; risks entailed by expansion, affiliations and acquisitions; changes in vendor promotions or allowances; limitations on financial and operating flexibility due to debt levels and debt instrument covenants; adverse determinations or developments with respect to litigation, other legal proceedings or the SEC investigation; and other cautionary factors discussed in the Company's periodic reports filed with the SEC. The Company does not undertake to update forward-looking statements to reflect future events or circumstances, but investors are advised to consult future disclosures involving these topics in our periodic reports filed with the SEC.

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



                           Thirteen   Twelve   Fifty -Three Fifty-Two
                            Weeks      Weeks       Weeks      Weeks
                            Ended      Ended       Ended      Ended
                         --------------------- -----------------------
                           Jan. 3,    Dec. 28,   Jan. 3,    Dec. 28,
                             2004       2002       2004       2002
                          ---------- --------- ----------- -----------
                         (Unaudited)(Unaudited)
Sales                    $1,011,445  $880,759  $3,971,502  $3,874,672

Cost and expenses:
 Cost of sales              897,426   770,695   3,516,460   3,408,409
 Selling, general and
  administrative             76,183    81,351     326,828     347,418
                          ---------- --------- ----------- -----------
     Operating earnings      37,836    28,713     128,214     118,845

 Special charge                   -         -           -        (765)
 Depreciation and
  amortization               10,232     9,218      42,412      39,988
 Interest expense             7,032     6,957      33,869      29,490
                          ---------- --------- ----------- -----------
     Total costs and
      expenses              990,873   868,221   3,919,569   3,824,540

     Earnings from
      continuing
      operations before
      income taxes           20,572    12,538      51,933      50,132

Income tax expense            8,023     4,891      17,254      19,552
                          ---------- --------- ----------- -----------

     Earnings from
      continuing
      operations             12,549     7,647      34,679      30,580

 Discontinued operations:
     Resolution of
      contingency               678         -         678           -
     Tax expense                265         -         265           -
                          ---------- --------- ----------- -----------
 Net earnings from
  discontinued operations       413         -         413           -

 Earnings before
  cumulative effect of
  change in accounting
  principle                  12,962     7,647      35,092      30,580

 Cumulative effect of
  change in accounting
  principle, net of
  income tax benefit
  of $4,450                       -         -           -      (6,960)
                          ---------- --------- ----------- -----------
 Net earnings               $12,962    $7,647     $35,092     $23,620
                          ========== ========= =========== ===========


Basic earnings per share:
 Continuing operations        $1.03     $0.65       $2.87       $2.59
 Discontinued operations       0.03         -        0.03           -
 Cumulative effect of
  change in accounting
  principle, net of
  income tax benefits             -         -           -       (0.59)
                          ---------- --------- ----------- -----------
 Net earnings per share       $1.06     $0.65       $2.90       $2.00

Diluted earnings per
 share:
 Continuing operations        $1.02     $0.64       $2.85       $2.52
 Discontinued operations       0.03         -        0.03           -
 Cumulative effect of
  change in accounting
  principle, net of
  income tax benefits             -         -           -       (0.57)
                          ---------- --------- ----------- -----------
 Net earnings per share       $1.05     $0.64       $2.88       $1.95

Weighted average number
 of common shares
 outstanding and common
 equivalent shares
 outstanding:
 Basic                       12,192    11,839      12,082      11,796
 Diluted                     12,357    11,975      12,195      12,114



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



                                             January 3,   December 28,
Assets                                          2004          2002
------                                       ----------- -------------
Current assets:
 Cash                                       $    12,757 $      31,419
 Accounts and notes receivable, net             145,902       165,527
 Inventories                                    236,289       245,477
 Prepaid expenses                                15,136        12,335
 Deferred tax assets                              5,726        13,523
                                             ----------- -------------
      Total current assets                      415,810       468,281

Investments in affiliates                            20           556
Notes receivable, net                            31,178        32,596

Property, plant and equipment:
 Land                                            24,121        25,500
 Buildings and improvements                     163,693       155,865
 Furniture, fixtures and equipment              328,318       323,201
 Leasehold improvements                          86,746        75,360
 Construction in progress                         1,673         7,169
 Assets under capitalized leases                 41,661        42,040
                                             ----------- -------------
                                                646,212       629,135
 Less accumulated depreciation and
  amortization                                 (383,861)     (360,615)
                                             ----------- -------------
      Net property, plant and equipment         262,351       268,520

Goodwill                                        149,792       148,028
Investment in direct financing leases            13,426        14,463
Deferred tax asset, net                               -           467
Other assets                                     13,775        15,011
                                             ----------- -------------
      Total assets                          $   886,352 $     947,922
                                             =========== =============

Liabilities and Stockholders' Equity
------------------------------------
Current liabilities:
 Outstanding checks                         $    23,350 $      27,076
 Current maturities of long-term debt and
    capitalized lease obligations                 5,278         7,497
 Accounts payable                               166,742       170,542
 Accrued expenses                                78,768        94,068
 Income taxes                                    10,614        10,073
                                             ----------- -------------
        Total current liabilities               284,752       309,256

Long-term debt                                  281,944       357,592
Capitalized lease obligations                    44,639        47,784
Deferred tax liability, net                       6,358             -
Other liabilities                                12,202        11,811
Commitments and contingencies                         -             -
Stockholders' equity:
 Preferred stock - no par value
      Authorized 500 shares;  none issued             -             -
 Common stock of $1.66 2/3 par value
      Authorized 50,000 shares, issued
       12,152 and 12,012 shares,
       respectively                              20,255        20,021
 Additional paid-in capital                      27,995        26,275
 Restricted stock                                  (475)         (894)
 Accumulated other comprehensive income          (5,970)       (7,507)
 Retained earnings                              215,417       184,645
                                             ----------- -------------
                                                257,222       222,540
 Less cost of 35 and 70 shares of common
   stock in treasury, respectively                 (765)       (1,061)
                                             ----------- -------------
        Total stockholders' equity              256,457       221,479
                                             ----------- -------------

        Total liabilities and stockholders'
         equity                             $   886,352 $     947,922
                                             =========== =============




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

                                                      2003      2002
                                                    --------  --------
Operating activities:
 Net earnings                                      $ 35,092  $ 23,620
 Adjustments to reconcile net income to net cash
 provided by operating activities:
  Special charges - non cash portion                      -      (765)
  Discontinued operations                              (678)        -
  Curtailment of post retirement plan                (4,004)        -
  Depreciation and amortization                      42,412    39,988
  Amortization of deferred financing costs            1,129     1,135
  Amortization of rebatable loans                     1,521     1,798
  Provision for bad debts                             8,707     8,997
  Deferred income tax expense                        15,480     8,320
  Gain on sale of property, plant and equipment      (1,003)   (3,815)
  Cumulative effect of change in accounting
   principle                                              -     6,960
  LIFO charge (credit)                               (1,120)   (2,234)
  Impairments                                         2,706     6,585
  Other                                                (883)    1,256
 Changes in operating assets and liabilities, net
  of effects of acquisitions
  Accounts and notes receivable                      18,484      (859)
  Inventories                                        13,145    24,448
  Prepaid expenses                                   (2,564)    2,675
  Accounts payable                                   (3,817)  (48,718)
  Accrued expenses                                   (9,411)   (8,265)
  Income taxes                                          541    (1,309)
  Other assets and liabilities                       (1,286)   (2,777)
                                                    --------  --------
        Net cash provided by operating activities   114,451    57,040
                                                    --------  --------

Investing activities:
 Disposal of property, plant and equipment            9,002    14,435
 Additions to property, plant and equipment         (40,728)  (52,605)
 Business acquired, net of cash                      (2,054)   (3,356)
 Loans to customers                                 (10,626)   (5,551)
 Payments from customers on loans                     7,058    10,042
 Other                                                  750     2,473
                                                    --------  --------
  Net cash used in investing activities             (36,598)  (34,562)
                                                    --------  --------

Financing activities:
 (Payments) proceeds of revolving debt              (79,400)   39,400
 Dividends paid                                      (4,320)   (4,292)
 Payments of long-term debt                          (7,195)   (3,491)
 Payments of capitalized lease obligations           (2,900)   (2,845)
 (Decrease) increase in outstanding checks           (3,726)  (30,674)
 Other                                                1,026       376
                                                    --------  --------
  Net cash (used) provided by in financing
   activities                                       (96,515)   (1,526)
                                                    --------  --------
  Net (decrease) increase in cash                   (18,662)   20,952
  Cash at beginning of year                          31,419    10,467
                                                    --------  --------
  Cash at end of year                              $ 12,757  $ 31,419
                                                    ========  ========

Supplemental disclosure of cash flow information:
 Non cash investing and financing activities
  Purchase of real estate under capital leases     $      -  $  3,789
  Acquisition of minority interest                        -     1,849




NASH FINCH COMPANY AND SUBSIDIARIES
Supplemental Data (In thousands)



                        Thirteen     Twelve    Fifty-Three  Fifty-Two
                       Weeks Ended Weeks Ended Weeks Ended Weeks Ended
Other Data (In           Jan. 3,    Dec. 28,     Jan. 3,    Dec. 28,
 thousands)               2004        2002        2004        2002
-----------            ----------- ----------- ----------- -----------

Cash from operations -
 4th qtr.                 $14,943    $(16,178)   $114,451     $57,040
Debt to total
 capitalization               56%         65%         56%         65%
Total debt               $331,861    $412,873    $331,861    $412,873
Capital spending - 4th
 qtr.                     $15,169     $23,716     $40,728     $52,605
Capitalization           $588,318    $634,352    $588,318    $634,352
Stockholders' Equity     $256,457    $221,479    $256,457    $221,479


Non-GAAP Data
--------------
Consolidated EBITDA (a)   $31,713     $28,575    $123,964    $118,726
Leverage Ratio -
 trailing 4 qtrs.
 (debt to Consolidated
 EBITDA) (b)                  2.7         3.5         2.7         3.5
Interest Coverage
 Ratio - trailing 4
 qtrs. (Consolidated
 EBITDA to interest
 expense) (c)                 3.7         4.0         3.7         4.0

Comparable GAAP Data
----------------------
Debt to earnings from
 continuing operations (b)    6.4         8.2         6.4         8.2
Earnings from
 continuing operations
 to interest expense (c)      1.5         1.7         1.5         1.7



                         Required      Actual
Debt Covenants             Ratio        Ratio
-----------------      ------------- -----------
Leverage Ratio         3.50 (maximum)     2.7
Interest Coverage
 Ratio                 3.25 (minimum)     3.7

(a) Consolidated EBITDA, as defined in our credit agreement, is
    earnings before interest, income tax, depreciation and
    amortization, adjusted to exclude extraordinary gains or losses,
    gains or losses from sales of assets other than inventory in the
    ordinary course of business, and non-cash LIFO and other charges
    (such as impairments and closed store lease costs) less subsequent
    cash payments made on non-cash charges. Consolidated EBITDA should
    not be considered an alternative measure of our net income,
    operating performance, cash flow or liquidity. The amount of
    Consolidated EBITDA is provided as additional information relative
    to compliance with our debt covenants.

(b) Leverage Ratio is defined as the Company's end of period debt at
    January 3, 2004 and December 28, 2002, divided by Consolidated
    EBITDA for the respective four trailing quarters. The most
    comparable GAAP ratio is debt at the same dates divided by
    earnings from continuing operations for the respective four
    trailing quarters.

(c) Interest Coverage Ratio is defined as the Company's Consolidated
    EBITDA divided by interest expense for the four trailing quarters
    ending January 3, 2004 and December 28, 2002. The most comparable
    GAAP ratio is earnings from continuing operations divided by
    interest expense for the same periods.


Reconciliation of Consolidated EBITDA
--------------------------------------
Consolidated EBITDA. Consolidated EBITDA is derived from the Company's
earnings from continuing operations before income taxes as follows:

                         ---------------------------------------------
                                          Fiscal 2003
                         ---------------------------------------------
                                                              Rolling
                           Qtr 1    Qtr 2    Qtr 3    Qtr 4    4 Qtr
                         -------- -------- -------- -------- ---------
   Consolidated EBITDA
    Reconciliation (In thousands)
   ------------------------------

   Earnings before income
    taxes and cumulative
    effect of change in
    accounting
    principle             $5,346  $11,910  $14,105  $20,572   $51,933
   Add/(deduct)
    LIFO                     400      400       41   (1,961)   (1,120)
    Depreciation and
     amortization          9,440    9,642   13,098   10,232    42,412
    Interest expense      10,791    7,035    9,011    7,032    33,869
    Impairments              390        -    1,725      591     2,706
    Closed store lease
     costs                   354       32      583      187     1,156
    Gains on sale of real
     estate                  (66)    (126)    (218)    (338)     (748)
    Subsequent cash
     payments on non-cash
     charges                (532)    (508)    (602)    (598)   (2,240)
    Curtailment of post
     retirement health
     care plan                 -        -        -   (4,004)   (4,004)
                         -------- -------- -------- -------- ---------
   Total Adjusted EBITDA $26,123  $28,385  $37,743  $31,713  $123,964
                         ======== ======== ======== ======== =========

   Consolidated EBITDA by
    Segment
    Food Distribution    $13,254  $16,288  $24,440  $18,615   $72,597
    Retail                10,886   13,110   13,099    9,851    46,946
    Military               7,043    7,046    9,736    8,992    32,817
    Unallocated Corporate
     Overhead             (5,060)  (8,059)  (9,532)  (5,745)  (28,396)
                         -------- -------- -------- -------- ---------
                         $26,123  $28,385  $37,743  $31,713  $123,964
                         ======== ======== ======== ======== =========

                         ---------------------------------------------
                                          Fiscal 2002
                         ---------------------------------------------
                                                              Rolling
                           Qtr 1    Qtr 2    Qtr 3    Qtr 4    4 Qtr
                         -------- -------- -------- -------- ---------
   Consolidated EBITDA
    Reconciliation (In thousands)
   ------------------------------

   Earnings before income
    taxes and cumulative
    effect of change in
    accounting principle $11,291  $15,795  $10,508  $12,538   $50,132
   Add/(deduct)
    LIFO                     923      300        -   (3,457)   (2,234)
    Depreciation and
     amortization          9,307    9,165   12,298    9,218    39,988
    Interest expense       6,647    6,651    9,235    6,957    29,490
    Impairments                -        -    1,518    5,067     6,585
    Closed store lease
     costs                     -        -      353    1,101     1,454
    Gains on sale of real
     estate                   (7)      (5)  (1,386)  (2,428)   (3,826)
    Subsequent cash
     payments on non-cash
     charges                (400)    (593)    (684)    (421)   (2,098)
    Special charges            -        -     (765)       -      (765)
                         -------- -------- -------- -------- ---------
   Total Consolidated
    EBITDA               $27,761  $31,313  $31,077  $28,575  $118,726
                         ======== ======== ======== ======== =========

   Consolidated EBITDA by
    Segment               Qtr 1     Qtr 2    Qtr 3    Qtr 4    4 Qtr
                         -------- -------- -------- -------- ---------
    Food Distribution    $15,855  $18,647  $19,818  $17,237   $71,557
    Retail                12,572   13,695   11,009   12,615    49,891
    Military               7,469    7,821    9,823    6,643    31,756
    Unallocated Corporate
     Overhead             (8,135)  (8,850)  (9,573)  (7,920)  (34,478)
                         -------- -------- -------- -------- ---------
                         $27,761  $31,313  $31,077  $28,575  $118,726
                         ======== ======== ======== ======== =========