Nash Finch Reports Third Quarter 2013 Results

Nash Finch Company (NASDAQ: NAFC), one of the leading food distribution companies in the United States, today announced financial results for the sixteen weeks (third quarter) ended October 5, 2013.

Financial Results

Total Company sales for the third quarter 2013 were $1.56 billion compared to $1.51 billion in the prior-year quarter, an increase of 3.5%. The increase was primarily attributable to sales to new customers in our Food Distribution segment. The increase in Food Distribution sales was partially offset by a reduction in Military segment sales resulting from the impacts of sequestration and the government shutdown which occurred during our third quarter. The closure of commissaries caused by the government sequestration and shutdown reduced Military segment sales by approximately $60.2 million in the third quarter.

Adjusted Consolidated EBITDA¹ was $31.9 million or 2.0% of sales in the third quarter of 2013 as compared to $43.7 million or 2.9% of sales in the third quarter of 2012. Consolidated EBITDA³ was adjusted to exclude the impact of significant items of $0.4 million and $4.0 million in the third quarters of 2013 and 2012, respectively. Including the impact of significant items, Consolidated EBITDA for the third quarter 2013 was $31.5 million or 2.0% of sales as compared to $39.7 million or 2.6% of sales in the prior year quarter. The year over year comparison was negatively impacted by $8.6 million due to the reversal of year-to-date incentive compensation accruals that occurred in the third quarter of 2012.

"We continued to experience solid sales performance across all of our business segments in the third quarter. Excluding the impact of the government sequestration and shutdown, our total company sales growth would have been over 7%”, said Alec Covington, President and CEO of Nash Finch. “The third quarter Consolidated EBITDA and EPS comparisons to the prior year came in right where we expected; the comparisons were negatively skewed by the reversal of year-to-date incentive compensation accruals last year.”

Adjusted Net Earnings⁴ were $8.7 million or $0.66 per diluted share in the third quarter 2013 as compared to $18.0 million or $1.38 per diluted share in the third quarter 2012. Net earnings were adjusted to exclude the impact of significant items totaling $2.7 million or $0.20 per diluted share in 2013 and $3.3 million or $0.26 per diluted share in 2012. Including the impact of significant items, our reported net earnings for the third quarter of 2013 were $6.0 million or $0.46 per diluted share as compared to $14.6 million or $1.12 per diluted share in 2012.

The following table identifies the significant items affecting our Consolidated EBITDA, net earnings and diluted earnings per share for the third quarter 2013 and prior year results:

Military Distribution Results

The Military segment net sales decreased 6.5% to $665.5 million in the third quarter compared to the prior year. The Military segment EBITDA was $10.5 million or 1.6% of sales in the third quarter 2013 as compared to $13.7 million or 1.9% of sales in the third quarter 2012. The decrease in Military sales was due to the effects of the government sequestration and shutdown which directly impacted the operation of the military commissaries. The decrease in third quarter EBITDA relative to 2012 was partially due to the reversal of year-to-date incentive compensation accruals in the third quarter of 2012.

“Excluding the $60 million sales impact from the government shut down and sequestration, our third quarter Military sales would have been above the prior year by approximately 1.9%,” said Covington. “We are pleased that the commissaries are all back open for business and delivering the important commissary benefit upon which our military heroes and their families have come to rely. We look forward to being able to serve even more of our military heroes and their families once our perishable and frozen addition at our Landover facility is open early next year. The combination of the expanded operations in Landover and leveraging our world-wide military distribution network should lead to additional growth in the military segment."

Food Distribution & Retail Results

The combined Food Distribution and Retail segment sales increased 12.4% to $898.0 million in the third quarter of 2013 as compared to the prior year period. The increase in Food Distribution sales was primarily attributable to shipments to new customers.

The combined Food Distribution and Retail segment EBITDA was $20.9 million or 2.3% of sales in the third quarter 2013 as compared to $26.1 million or 3.3% of sales in the third quarter 2012. The decrease in third quarter EBITDA relative to 2012 was entirely due to the reversal of year-to-date incentive compensation accruals in the third quarter of 2012.

“I am extremely pleased with the sales performance of the Food Distribution and Retail segments during the third quarter,” said Covington. “We continue to look for creative ways to expand our portfolio of business and to work with new and existing retailers in the growth of their businesses. We also added two new stores to our Retail store base during the third quarter with the acquisition of two very successful stores from existing customers.”

Liquidity

Total debt at the end of the third quarter 2013 was $400.9 million as compared to $433.0 million at the end of the second quarter 2013. The Company continues to focus on effectively managing its balance sheet and is currently in compliance with all of its debt covenants. The Total Debt Leverage Ratio⁵ as of the end of the third quarter 2013 was 4.05. Availability on the Company’s revolving credit facility at the end of the quarter was $248.0 million.

Merger Update

On July 22, 2013, the Company announced that it had entered into a definitive merger agreement under which Nash Finch Company and Spartan Stores, Inc. will combine in an all-stock merger valued at approximately $1.3 billion, including existing net debt at each company. A special meeting of shareholders is scheduled for November 18, 2013. Upon closing, each share of the Company’s common stock will be converted into 1.2 shares of Spartan Stores common stock. Spartan Stores shareholders will own approximately 57.7% of the equity of the combined company and Nash Finch shareholders will own approximately 42.3% of the Company’s common stock

¹ References to Adjusted EBITDA or Adjusted Consolidated EBITDA are defined as EBITDA adjusted for any significant items.

² Adjusted EPS is defined as earnings per share 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) and other items that management does not utilize in assessing operating performance, 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 Adjusted Net Earnings is defined as net earnings adjusted for any significant items.

⁵ Total Debt 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.

A conference call to review the third quarter 2013 results is scheduled at 9:00 a.m. CT (10:00 a.m. ET) on November 12, 2013. 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 is a Fortune 500 company and the largest food distributor serving military commissaries and exchanges in the United States. Nash-Finch's core businesses include distributing food to military commissaries and retailers located in 44 states, the District of Columbia, Europe, Cuba, Puerto Rico, the Azores, Bahrain and Egypt. The Company also owns and operates a base of retail stores, primarily supermarkets under the Family Fresh Market®, Econofoods®, Family Thrift Center®, No Frills®, Bag 'n Save®, AVANZA®, and Sun Mart® trade names. Further information is available on the Company's website, www.nashfinch.com.

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

• the effect of traditional and alternative competition on our food distribution, military and retail businesses;
• general sensitivity to economic conditions, including the uncertainty related to the current state of the economy in the U.S. and worldwide economic slowdown; disruptions to the credit and financial markets in the U.S. and worldwide; changes in market interest rates; continued volatility in energy prices and food commodities;
• macroeconomic and geopolitical events affecting commerce generally;
• changes in consumer buying and spending patterns including a shift to non-traditional retail channels;
• our ability to identify and execute plans to expand our food distribution, military and retail operations;
• possible changes in the military commissary system, including those stemming from the redeployment of forces, congressional action, changes in funding levels or the effect of mandated reductions or sequestration of government expenditures;
• our ability to identify and execute plans to improve the competitive position of our retail operations;
• the success or failure of strategic plans, new business ventures or initiatives;
• our ability to successfully integrate and manage current or future businesses we acquire, including the ability to manage credit risks and retain the customers of those operations;
• changes in credit risk from financial accommodations extended to new or existing customers;
• significant changes in the nature of vendor promotional programs and the allocation of funds among the programs;
• limitations on financial and operating flexibility due to debt levels and debt instrument covenants and ability to access capital to support capital spending and growth opportunities;
• legal, governmental, legislative or administrative proceedings, disputes, or actions that result in adverse outcomes;
• our ability to identify and remediate any material weakness in our internal controls that could affect our ability to detect and prevent fraud, expose us to litigation, or prepare financial statements and reports in a timely manner;
• changes in accounting standards;
• technology failures that may have a material adverse effect on our business;
• severe weather and natural disasters that may impact our supply chain;
• unionization of a significant portion of our workforce;
• costs related to a multi-employer pension plan which has liabilities in excess of plan assets;
• changes in health care, pension and wage costs and labor relations issues;
• product liability claims, including claims concerning food and prepared food products;
• changes in food safety regulations and other regulations applicable to the products we sell;
• threats or potential threats to security;
• unanticipated problems with product procurement; and
• 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).