Nash Finch Reports Fourth Quarter and Fiscal 2009 Results

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 2, 2010.

Financial Results

Sales for fiscal 2009 were $5.213 billion compared to $4.633 billion in the prior-year, an increase of 12.5%. Excluding the $683.3 million of sales attributable to the acquisition of three military distribution centers on January 31, 2009 and the extra week of sales in fiscal 2008, total company comparable sales for fiscal 2009 decreased 0.6%. Sales for the 12 week fourth quarter of fiscal 2009 were $1.222 billion compared to $1.188 billion in the 13 week prior-year quarter, an increase of 2.9%. Excluding the additional sales attributable to the three acquired military distribution centers of $174.8 million and after adjusting sales in fiscal 2008 for the extra week of $99.8 million, total comparable fourth quarter fiscal 2008 sales declined 3.8%.

Consolidated EBITDA¹ for fiscal 2009 decreased 2.5% to $140.1 million, or 2.7% of sales, as compared to $143.7 million, or 3.1% of sales, for the prior year. After excluding the effect of the extra week in fiscal 2008, Consolidated EBITDA declined 0.4% in the fiscal 2009. For the fourth quarter 2009, Consolidated EBITDA decreased 11.9% to $31.3 million, or 2.6% of sales, compared to $35.5 million, or 3.0% of sales, in the same prior-year period. After excluding the effect of the extra week in fiscal 2008 of $3.0 million, Consolidated EBITDA declined 3.9% in the fourth quarter 2009. 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 2009 were $2.8 million, or $0.21 per diluted share, as compared to net earnings of $33.1 million, or $2.52 per diluted share, in fiscal 2008. Net earnings for fiscal 2009 were negatively affected by significant items, which are presented in a table below, totaling $40.3 million (net of tax), or $3.01 per diluted share, while net earnings for fiscal 2008 were negatively impacted by significant items totaling $9.5 million, or $0.73 per diluted share. As announced on January 15, 2010, the Company took a non-cash goodwill impairment charge in the fourth quarter of fiscal 2009 relating to its retail segment. The charge taken was $50.9 million, or $3.58 per diluted share.

A net loss of $43.1 million was recognized during the fourth quarter 2009, or $3.20 per diluted share, as compared to net earnings of $5.4 million, or $0.41 per diluted share, in the prior year quarter. Net earnings for the fourth quarter 2009 were negatively impacted by significant items presented below, totaling $51.7 million, or $3.83 per diluted share, while earnings for the fourth quarter 2008 were negatively affected by significant items totaling $4.9 million, or $0.38 per diluted share.

"In the fourth quarter the food distribution and retail industry continued to feel the impact of shifts in consumer shopping patterns and price deflation and we were no exception. However, we continued to focus on things we could control such as the proactive management of expenses and debt reduction, which helped us to achieve a strong free cash flow to net assets ratio above 10% for the year,” said Alec Covington, President and CEO of Nash Finch. "While we expect industry headwinds to continue, we remain focused on strategic priorities that can drive long-term shareholder value such as prudent management of our balance sheet and financial liquidity, additional investment opportunities in our military business that can drive further growth, and opportunistic acquisitions.”

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 2009 and prior year results:

Military Distribution Results

The military segment sales increased $694.7 million, or 53.8%, to $1.985 billion in fiscal 2009 as compared to fiscal 2008. Excluding the extra sales from the additional week in fiscal 2008 and the acquisition of three distribution centers on January 31, 2009 of $683.3 million, comparable sales increased 2.7% in fiscal 2009. Military segment sales increased $143.0 million, or 42.8%, to $477.0 million in the fourth quarter 2009. Excluding the week of extra sales and the three acquired distribution centers of $174.8 and adjusting sales in the fourth quarter of fiscal 2008 for $28.4 million of the extra week, comparable sales decreased 1.1% in the fourth quarter of 2009.

Military EBITDA increased by 8.2% in fiscal 2009 and 0.8% in the fourth quarter 2009 as compared to the same periods last year. EBITDA as a percentage of sales decreased to 2.8% in fiscal 2009 and 2.7% in the fourth quarter 2009 as compared to 4.0% and 3.8% in the same comparable periods in 2008, respectively, and includes acquisition and integration costs of approximately $2.8 million and $0.5 million, respectively. The military segment EBITDA margin was also negatively impacted by approximately 1.0% of sales in the fourth quarter and fiscal 2009, respectively, as compared to 2008 due to the three newly acquired distribution centers which currently operate at a lower EBITDA margin than the rest of our military business. After excluding the effect of the extra week in fiscal 2008 of $1.1 million, Consolidated EBITDA increased 10.2% as compared to the same period last year.

"The Company is committed to expanding the military business and we will open a 400,000 square foot distribution center in Columbus, Georgia in 2010 that complements our military distribution centers in the Southeast,” said Mr. Covington. "This will allow us to better serve the commissaries in that region and will provide significant transportation savings as well as long-term strategic growth opportunities.”

Food Distribution and Retail Results

The food distribution and retail segments sales decreased by 3.5% to $3.227 billion in fiscal 2009 versus fiscal 2008. Total segment comparable sales for fiscal 2009 were down 2.1% after excluding the extra week of sales attributable to fiscal 2008. The segment sales in the fourth quarter 2009 decreased by 12.8% to $745.4 million versus the fourth quarter of 2008. On a comparable basis, sales decreased 4.8% in the fourth quarter 2009 after adjusting fiscal 2008 sales by $71.3 million for the extra week and were reflective of deflation which translated into negative comparables sales to existing customers and same store sales declines of 3.1% in our retail units.

The food distribution and retail segments EBITDA decreased by 12.4% in fiscal 2009 and decreased 21.4% in the fourth quarter 2009 as compared to the same periods last year. EBITDA decreased as a percentage of sales to 3.8% in fiscal 2009 as compared to 4.2% in fiscal 2008. EBITDA as a percentage of sales declined to 3.7% in the fourth quarter 2009 from 4.1% in 2008. After adjusting for the extra week in the fourth quarter of fiscal 2008 of $2.9 million, EBITDA declined 14.3% as compared to the same period last year.

Summary

"We will continue to implement supply chain and working capital initiatives across our business segments as we work to achieve our long-term financial targets,” said Mr. Covington. "In 2010, in addition to expanding our military facilities, we remain committed to adding new food distribution customers and we will focus on initiatives that reduce administrative and operating expenses. We will also continue to strengthen our balance sheet and reduce debt. We are well positioned and have the financial capacity to make investments in support of our strategic plan.”

Financial Target Progress

Substantial improvements on the Company’s financial targets have been achieved since the targets were announced as part of the Company’s strategic plan in November 2006. In particular, from Fiscal 2006 to the end of Fiscal 2009, Consolidated EBITDA margin improved from 2.2% to 2.7% of sales and the debt leverage ratio has improved by more than one full turn of EBITDA from 3.11x to 2.02x. The organic revenue growth metric was affected by the uncertain economic environment which turned negative 0.6% for fiscal 2009. The ratio of free cash flow to net assets metric was 10.6% in fiscal 2009. 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.

² 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).

Liquidity

Total debt decreased by $49.9 million during the fourth quarter 2009 to $283.5 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 2009 was 2.02x. Availability on the Company’s revolving credit facility at the end of the quarter was $203.3 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 will continue until December 31, 2010. During the fourth quarter of 2009 the Company repurchased 30,720 shares in the open market for $1.0 million dollars at an average price per share of $33.10.

Goodwill Impairment and Special Charge

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 Financial Accounting Standards Board Accounting Standards Codification Topic 350 (originally issued as Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets”). The test indicated an impairment of our retail segment goodwill, and the resulting analysis resulted in a charge of $50.9 million to retail goodwill and reflects the lower market multiples and fair value of the retail business. The impairment of the retail segment goodwill is a non-cash charge that does not impact cash flow or Consolidated EBITDA. After the charge, there is approximately $18.9 million of retail goodwill remaining on the Company’s balance sheet.

In the fourth quarter the Company recorded a non-cash special charge of $6.0 million, due to an asset impairment in the food distribution segment. The charge is composed of write downs of $5.5 million of leasehold improvements and $0.5 million of capital lease and fixtures and equipment.

Customer Transition

Today the Company announced that it will discontinue its supply relationship with a portion of a buying group serviced out of the Company’s distribution center in Lumberton, NC. "Unfortunately, some of the members of this cooperative buying group which is supplied by Nash Finch have decided to leave the group and in doing so will transition to another supplier," said Mr. Covington. While it is not known with certainty which members ultimately will leave the buying group, it appears as though it will result in a reduction of less than 3% of the Company's annual revenue and EBITDA. It is anticipated that the transition of supply will be completed within the next 60 days.

A conference call to review the fourth quarter and fiscal 2009 results is scheduled for 10 a.m. CT (11 a.m. ET) on March 4, 2010. 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 34 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:

• the effect of competition on our food distribution, military and retail businesses;
• 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;
• macroeconomic and geopolitical events affecting commerce generally;
• changes in consumer buying and spending patterns;
• 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 and funding levels;
• 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;
• legal, governmental, legislative or administrative proceedings, disputes, or actions that result in adverse outcomes;
• failure of our internal control over financial reporting;
• 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;
• changes in health care, pension and wage costs and labor relations issues;
• costs related to multi-employer pension plan;
• product liability claims, including claims concerning food and prepared food products;
• threats or potential threats to security; and
• unanticipated problems with product procurement.

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).

¹ Consolidated EBITDA, and segment EBITDA are 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.