Nash Finch Reports Fourth Quarter and Fiscal 2010 Results

Fourth Quarter Consolidated EBITDA¹ Exceeds Prior Year on Lower Sales

MINNEAPOLIS (March 3, 2011) — Nash Finch Company (NASDAQ: NAFC), one of the  leading food distribution companies in the United States, today announced financial results for the 12 week and 52 week periods ended January 1, 2011.

Financial Results

Sales for fiscal 2010 were $4.992 billion compared to $5.213 billion in the prior-year, a decrease of 4.2%.  Excluding the previously announced transition of a portion of a food distribution customer buying group to another supplier during 2010 of $95.2 million and the non-comparable sales increase of $59.4 million attributable to the acquisition of three military distribution centers on January 31, 2009, total company comparable sales for fiscal 2010 decreased 3.6%.  Sales for the 12 week fourth quarter of fiscal 2010 were $1.147 billion compared to $1.222 billion in the prior-year quarter, a decrease of 6.2%.  Excluding the transition of a portion of a food distribution customer buying group to another supplier during 2010, sales decreased 3.5% during the fourth quarter, which is an improvement from the decrease of 4.9% in the third quarter.

Consolidated EBITDA for fiscal 2010 decreased 1.9% to $137.5 million, or 2.8% of sales, as compared to $140.1 million, or 2.7% of sales, for the prior year.  For the fourth quarter 2010, Consolidated EBITDA increased 6.3% to $33.2 million, or 2.9% of sales, as compared to $31.3 million, or 2.6% of sales, in the prior-year period.  Consolidated EBITDA is a non-GAAP financial measure that is reconciled to the most directly comparable GAAP financial results in the attached financial statements.

Net earnings for fiscal 2010 were $50.9 million, or $3.86 per diluted share, as compared to net earnings of $2.8 million, or $0.21 per diluted share, in fiscal 2009.  Net earnings for fiscal 2010 benefited by significant items, which are presented in a table below, totaling $4.0 million (net of tax), or $0.30 per diluted share, while net earnings for fiscal 2009 were negatively impacted by significant items totaling $39.5 million (net of tax), or $2.95 per diluted share, resulting primarily from a non-cash goodwill impairment charge in the fourth quarter of fiscal 2009 related to the retail segment.  

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Net earnings of $16.9 million were recognized during the fourth quarter 2010, or $1.30 per diluted share, as compared to a net loss of $43.1 million, or $3.20 per diluted share, in the prior year quarter.  Net earnings for the fourth quarter 2010 benefited by significant items presented below, totaling $3.9 million, or $0.30 per diluted share, while earnings for the fourth quarter 2009 were negatively impacted by significant items totaling $51.6 million, or $3.83 per diluted share, primarily due to the retail segment goodwill impairment charge mentioned above.

The following table identifies the significant net credits (charges) affecting our Consolidated EBITDA, net earnings and diluted earnings per share for the fourth quarter, fiscal 2010 and prior year results:

“I am pleased with the year-over-year improvements made in our fourth quarter Consolidated EBITDA and net earnings performance across all three business segments,” said Alec Covington, President and CEO of Nash Finch. "We intend to build on the positive momentum evident in the fourth quarter results as we remain focused on partnering with our independent retailers on their journey to maintain profitability notwithstanding the economic turmoil and on completing the expansion of our military footprint, which will position us to serve our military customers over a broader geographic area.”

Food Distribution and Military Distribution Change in Reporting

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The Company had four Food Distribution warehouses that served both wholesale and military customers. Due to the addition of strategically located military warehouses, we have transferred the military business from three of the Food Distribution warehouses in 2010 and we will transfer the remaining business when the Oklahoma City warehouse begins operations.  As a result, we are changing the Food Distribution and Military segment reporting so that our Military segment reflects all military sales and EBITDA, including the military business that has historically been reported in the Food Distribution segment. The accompanying financial information reflects the changes to the prior and current year periods.  A more detailed reconciliation of the effects of this change is contained in our Annual Report on Form 10-K for the year ended January 1, 2011 filed with the SEC as well as on the “Investor Relations” portion of the Nash Finch website under the caption “Presentations – Supplemental Financial Information.”

Military Distribution Results

The military segment sales increased $35.6 million, or 1.6%, to $2.290 billion in fiscal 2010 as compared to fiscal 2009.  Excluding the non-comparable sales increase of $59.4 million pertaining to the acquisition of three distribution centers on January 31, 2009, comparable sales decreased 1.1% in fiscal 2010.  Military segment sales decreased $4.1 million, or 0.8%, to $534.9 million in the fourth quarter 2010, which is an improvement from the decrease of 2.8% in the third quarter 2010.

Military EBITDA increased by 8.2% in fiscal 2010 and 5.1% in the fourth quarter 2010 as compared to the same periods last year.  EBITDA increased as a percentage of sales to 2.7% in fiscal 2010 as compared to 2.5% in fiscal 2009.  EBITDA as a percentage of sales increased to 2.6% in the fourth quarter 2010 as compared to 2.5% in 2009.  Acquisition and integration costs negatively impacted EBITDA by approximately $2.9 million in fiscal 2010 as compared to $2.8 million in fiscal 2009.  EBITDA included integration costs of $1.2 million in the fourth quarter 2010 as compared to $0.4 million in the prior year period.

“We are pleased to announce that our new Bloomington, Indiana distribution center began servicing military commissaries at the end of the fourth quarter. The start-up has gone very smoothly, and our customers’ responses have been gratifying,” said Covington. “As previously announced, we began operations in our Columbus, Georgia distribution center late in the third quarter, and that location continues to perform to our expectations.  During the third quarter we announced the purchase of two distribution centers totaling 538,000 square feet in Oklahoma City, Oklahoma, which we anticipate will be operational during the first quarter of 2012. The new distribution centers were acquired to support the strategic expansion of our military distribution segment and we believe these facilities will provide significant productivity and transportation savings once they are all operational,” continued Covington.

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Food Distribution and Retail Results

Sales for the combined food distribution and retail segment decreased by 8.7% to $2.702 billion in fiscal 2010 versus fiscal 2009. Total segment comparable sales for fiscal 2010 were down 5.6% after excluding $95.2 million of sales associated with the transition of a portion of a buying group to another supplier during 2010. The combined food distribution and retail segment sales in the fourth quarter 2010 decreased by 10.5% to $611.9 million versus the fourth quarter of 2009.  On a comparable basis, after excluding $34.3 million in sales associated with the transition of a portion of a buying group to another supplier, total segment sales decreased 5.7% in the fourth quarter 2010, which is an improvement from the decrease of 6.6% in the third quarter 2010.  Same store sales declined 5.0% in our retail segment for both the fiscal year and fourth quarter 2010.

The combined food distribution and retail segment EBITDA decreased by 8.7% in fiscal 2010 and increased by 7.2% in the fourth quarter 2010 as compared to the same periods last year.  EBITDA as a percentage of sales was unchanged at 2.8% in fiscal 2010 as compared fiscal 2009.  EBITDA as a percentage of sales increased to 3.1% in the fourth quarter 2010 from 2.6% in 2009 as a result of gross margin and productivity improvements in both our food distribution and retail businesses.  

Financial Target Progress

Progress on the Company’s financial targets that has been achieved since the targets were announced as part of the Company’s strategic plan in November 2006, is provided below.  In particular, from fiscal 2006 to the end of fiscal 2010, Consolidated EBITDA margin improved from 2.2% to 2.8% of sales and the debt leverage ratio has improved by nearly one full turn of EBITDA from 3.11x to 2.29x.  The organic revenue growth metric was affected by the downturn in the economy and declined 5.4% during fiscal 2010.  The ratio of free cash flow to net assets excluding the impact of

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strategic projects metric was 8.4% in fiscal 2010.  The following table charts the Company’s progress towards its long-term financial targets that are anticipated to be attained through successful execution of the strategic plan.

Liquidity

Total debt decreased by $7.6 million during the fourth quarter 2010 to $314.3 million.  The Company continues to focus on effectively managing its balance sheet and is currently in compliance with all of its debt covenants.  The debt leverage ratio as of the end of the fourth quarter 2010 was 2.29x.  Availability on the Company’s revolving credit facility at the end of fiscal 2010 was $174.2 million.

Share Repurchase Program

As previously announced, the Board of Directors authorized a share repurchase program for the Company to spend up to $25.0 million to purchase shares of the Company’s common stock.  The program took effect on November 16, 2009 and ended on December 31, 2010.   During the fourth quarter of 2010, the Company repurchased 60,499 shares in the open market for $2.5 million at an average price per share of $41.55.  During the entire program the Company repurchased 673,954 shares for $23.8 million at an average price per share of $35.31.

¹ Consolidated EBITDA, and segment EBITDA is calculated as earnings before interest, income tax, depreciation and amortization, adjusted to exclude extraordinary gains or losses, gains or losses from sales of assets other than inventory in the ordinary course of business, and non-cash charges (such as LIFO, asset impairments, closed store lease costs and share-based compensation), less cash payments made during the current period on non-cash charges recorded in prior periods.  Consolidated EBITDA should not be considered an alternative measure of our net income, operating performance, cash flows or liquidity.  Consolidated EBITDA is provided as additional information as a key metric used to determine payout pursuant to our Short-Term and Long-Term Incentive Plans.

² Organic Revenue Growth is the percentage change in revenues for a fiscal period(s) compared to the similar prior year fiscal period(s), excluding incremental revenue obtained through acquisitions.

³ Consolidated EBITDA Margin is calculated by dividing Consolidated EBITDA by sales.  

⁴ Trailing Four Quarter Free Cash Flow to Net Assets ratio is defined as cash provided from operations less capital expenditures for property, plant & equipment during the trailing four quarters divided by the average net assets for the current period and prior year comparable period (total assets less current liabilities plus current portion of long-term debt and capital leases).

⁵ Trailing Four Quarter Free Cash Flow to Net Assets excluding impact of strategic projects ratio is defined as cash provided from operations (excluding the impact of cash generated from strategic projects) less capital expenditures for property, plant & equipment (excluding capital expenditures for strategic projects) during the trailing four quarters divided by the average net assets (excluding average net assets generated from strategic projects) for the current period and prior year comparable period (total assets less current liabilities plus current portion of long-term debt and capital leases).  

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⁶ 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 and fiscal 2010 results is scheduled for 10 a.m. CT (11 a.m. ET) on March 3, 2011.  Interested participants can listen to the conference call over the Internet by logging onto the “Investor Relations” portion of Nash Finch's website at http://www.nashfinch.com.  A replay of the webcast will be available and the transcript of the call will be archived on the “Investor Relations” portion of Nash Finch's website under the heading “Audio Archives.”  A copy of this press release and the other financial and statistical information about the periods to be discussed in the conference call will be available at the time of the call on the “Investor Relations” portion of the Nash Finch website under the caption “Press Releases.”

Nash Finch Company is a Fortune 500 company and one of the leading food distribution companies in the United States.  Nash Finch’s core business, food distribution, serves independent retailers and military commissaries in 33 states, the District of Columbia, Europe, Cuba, Puerto Rico, the Azores and Egypt.  The Company also owns and operates a base of retail stores, primarily supermarkets under the Econofoods®, Family Thrift Center®, AVANZA® and Sun Mart® trade names.  Further information is available on the Company's website at www.nashfinch.com.

This release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended.  Such statements relate to trends and events that may affect our future financial position and operating results.  Any statement contained in this release that is not statements of historical fact may be deemed forward-looking statements.  For example, words such as “may,” “will,” “should,” “likely,” “expect,” “anticipate,” “estimate,” “believe,” “intend, ” “potential” or “plan,” or comparable terminology, are intended to identify forward-looking statements.  Such statements are based upon current expectations, estimates and assumptions, and entail various risks and uncertainties that could cause actual results to differ materially from those expressed in such forward-looking statements.  Important factors known to us that could cause or contribute to material differences include, but are not limited to, the following:

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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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changes in health care, pension and wage costs and labor relations issues;

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costs related to multi-employer pension plan which has liabilities in excess of plan assets;

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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;

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un-anticipated problems with product procurement; and

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maintaining our reputation and corporate image.

A more detailed discussion of many of these factors, as well as other factors that could affect the Company’s results, is contained in the Company’s periodic reports filed with the SEC.  You should carefully consider each of these factors and all of the other information in this release.  We believe that all forward-looking statements are based upon reasonable assumptions when made.  However, we caution that it is impossible to predict actual results or outcomes and that accordingly you should not place undue reliance on these statements.  Forward-looking statements speak only as of the date when made and we undertake no obligation to revise or update these statements in light of subsequent events or developments.  Actual results and outcomes may differ materially from anticipated results or outcomes discussed in forward-looking statements. You are advised, however, to consult any future disclosures we make on related subjects in future reports to the Securities and Exchange Commission (SEC).

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Contact: Bob Dimond, Executive VP & CFO, 952-844-1060

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