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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

For the fiscal year ended: December 28, 2002

For the Transition Period                               to                              .

Commission file number: 0-785

NASH-FINCH COMPANY
(Exact name of Registrant as specified in its charter)

Registrant's telephone number, including area code: (952) 832-0534

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, par value $1.66²/3 per share
Common Stock Purchase Rights

        Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. Yes         No X

        Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

        Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes X    No     

        The aggregate market value of the voting stock held by non-affiliates of the Registrant as of June 15, 2002 (the last business day of the Registrant's most recently completed second fiscal quarter) was $342,655,096, based on the last reported sale price of $29.50 on the NASDAQ National Market on the last trading day prior to such date.

        As of April 30, 2003, 11,943,217 shares of Common Stock of the Registrant were outstanding.

DOCUMENTS INCORPORATED BY REFERENCE: None.

Nash Finch Company

Index

Nash Finch Company

PART I

        Throughout this report, we refer to Nash Finch Company, together with its subsidiaries, as "we," "us," "Nash Finch" or "the Company."

        This report, including the information that is or will be incorporated by reference into this report, contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. The statements regarding the Company contained in this report that are not historical in nature, particularly those that utilize terminology such as "may," "will," "should," "likely," "expects," "anticipates," "estimates," "believes" or "plans," or comparable terminology, are forward-looking statements based on current expectations 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 material differences are identified and discussed in this report, particularly in Part II, Item 7 under the caption "Cautionary Factors". You should carefully consider each cautionary factor and all of the other information in this report. We undertake no obligation to revise or update publicly any 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 (the "SEC" or the "Commission").

        We own or have the rights to various trademarks, trade names and service marks, including the following referred to in this report: AVANZA™, Buy•n•Save®, Econofoods®, Sun Mart®, Family Thrift Center™, Our Family®, Fame®, Value Choice™, Food Pride®, Fresh Place®, Kids Korner™ Performance Driven® and logo. The trademark IGA®, referred to in this report, is the registered trademark of another.

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Explanatory Note

        On November 18, 2002, we announced a delay in the filing of our Quarterly Report on Form 10-Q for the quarter ended October 5, 2002 because of a previously disclosed internal review of our practices and procedures with respect to certain promotional allowances provided to us that reduce the cost of sales. The review was focused on how we assess "count-recount" charges (see Item 1 of this report under the caption "Vendor Allowances and Credits"), which was also the subject of a previously disclosed informal inquiry then being conducted by the staff of the Division of Enforcement of the SEC (see Item 3 of this report under the caption "SEC Investigation").

        As a result of this delay, we received a Nasdaq Staff Determination on November 26, 2002 indicating that our failure to timely file that Form 10-Q violated Nasdaq Marketplace Rules and caused our securities to be subject to delisting by Nasdaq. We requested and received a hearing before the Nasdaq Listing Qualifications Panel ("Nasdaq Panel"), which continued the listing of our securities subject to our filing the third quarter 2002 Form 10-Q by March 19, 2003, and this Annual Report on Form 10-K by March 28, 2003 (see Item 5 of this report). The delay in filing the Form 10-Q also resulted in a breach of a reporting covenant under the indenture for our 8¹/2% Senior Subordinated Notes due 2008 which, if unremedied, would have resulted in an event of default under both that indenture and our bank credit facility. We obtained amendments to both the indenture and the bank credit facility to extend the deadlines for us to file the third quarter 2002 Form 10-Q, this Annual Report, and our first quarter 2003 Form 10-Q (see Item 7 of this report under the caption "Liquidity and Capital Resources").

        Effective January 28, 2003, Deloitte & Touche LLP resigned as our independent auditors (see Item 9 of this report and Exhibit 99.2). On February 4, 2003 we received a formal order of investigation from the SEC. After providing a written communication detailing the basis for the manner in which we assess and account for count-recount charges, and after meeting with members of the staff of the SEC's Office of the Chief Accountant and Division of Corporation Finance, we were informed by a letter dated March 7, 2003 that, based on our oral and written representations, the staffs of the SEC's Office of the Chief Accountant and Division of Corporation Finance would not object at that time to our accounting for the count-recount charges. The investigation by the SEC's Division of Enforcement is ongoing.

        Effective March 11, 2003, our Audit Committee engaged Ernst & Young LLP as our independent auditors, and we sought a further extension of the filing deadlines from the Nasdaq Panel. On March 24, 2003, we were notified that the Nasdaq Panel had agreed to extend the filing deadlines for our third quarter 2002 Form 10-Q to May 15, 2003, for this Annual Report to May 30, 2003, and for our first quarter 2003 Form 10-Q to June 9, 2003. These filing deadlines are the same as or earlier than those established in the amendments to the indenture and the bank credit facility.

        The third quarter 2002 Form 10-Q was filed with the SEC on May 15, 2003, and this Annual Report is being filed on May 15, 2003. We expect to file our first quarter 2003 Form 10-Q on or before the June 9, 2003 deadline.

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ITEM 1. BUSINESS

A. GENERAL DEVELOPMENT OF BUSINESS.

        Originally established in 1885 and incorporated in 1921, today we are one of the leading food distribution and retail companies in the United States, with approximately $3.9 billion in annual sales. Our business consists of three primary operating segments: food distribution, food retailing and military food distribution.

        Our food distribution segment sells and distributes a wide variety of nationally branded and private label grocery products from 15 distribution centers to more than 1,500 grocery stores and institutional customers located in 24 states across the United States. We continue to implement operating initiatives to enhance productivity and expand profitability while providing a higher level of service to our distribution customers. We believe that in order to continue to grow our food distribution operations we must provide our customers with low prices, exceptional customer service and successful marketing and merchandising programs.

        Our food retailing segment is made up of 109 corporate-owned stores located primarily in the Upper Midwest states of Colorado, Illinois, Iowa, Kansas, Minnesota, Nebraska, North Dakota, South Dakota and Wisconsin. We believe that approximately 62% of our conventional grocery stores are #1 or #2 in their respective local markets, which includes all stores within the respective city limits in which our stores are located, based on sales. We are focused on becoming the leading grocery store chain in the Upper Midwest, as there are currently few national or multi-regional grocery store chains that have a significant presence in this market. Our corporate-owned stores, which range from conventional stores in rural trade areas to modern supermarkets in growing urban areas, principally operate under the following six banners: AVANZA, Buy•n•Save, Econofoods, Sun Mart, Family Thrift Center and Wholesale Food Outlet. During 2002, we opened our first two prototype Hispanic supermarkets in Denver, Colorado under the AVANZA trade name. Our AVANZA and existing Wholesale Food Outlet stores are designed to meet the specific tastes and needs of Hispanic shoppers which we believe are under-served by conventional grocery stores. We also opened three Buy•n•Save locations, converted two other existing stores to the Buy•n•Save format and closed an underperforming existing location to bring the total number of Buy•n•Save stores in operation to eight. These stores are designed to service low income, value conscious consumers.

        Our military food distribution segment sells and distributes a wide variety of grocery products to approximately 100 domestic and European-based U.S. military commissaries. We primarily conduct our military distribution operations in the Mid-Atlantic region of the United States, consisting of the states along the border of the Atlantic Ocean from New York to North Carolina. We have two distribution centers in this region that exclusively provide products to U.S. military commissaries.

B. FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS.

        Financial information about our business segments for the most recent three fiscal years is contained in Part II, Item 8 of this report under Note (20)—"Segment Information" of Notes to Consolidated Financial Statements.

C. NARRATIVE DESCRIPTION OF THE BUSINESS.

Food Distribution Segment

Overview

        Our food distribution segment, which operates 15 distribution centers, sells and distributes a wide variety of grocery products to approximately 1,500 grocery stores and institutional customers across the United States. Our customers are relatively diverse, with the largest customer consisting of a

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consortium of stores representing approximately 11.8%, and three others representing approximately 3.8%, 3.6% and 3.1% of our fiscal 2002 food distribution sales. No other customer represents more than 3% of our food distribution business. Approximately 54% of our food distribution sales are generated through customers with whom we have long-term sales and service agreements. Several of our distribution centers also distribute products to military commissaries located in their geographic areas.

        Our distribution centers are strategically located to efficiently serve our corporate-owned stores, our independent customer stores and other institutional customers. The distribution centers are equipped with modern materials handling equipment for receiving, storing and shipping goods and merchandise and are designed for high-volume operations at low unit costs. Our distribution centers are profitable, yet we believe that we have substantial capacity to serve additional customers without materially increasing our costs.

        Depending upon the size of the distribution center and the profile of the customers served, our distribution centers typically carry a full line of national brand, private label and perishable products. Non-food items and specialty grocery products are distributed from a dedicated area of the distribution center located in Bellefontaine, Ohio, and from the distribution centers located in Sioux Falls, South Dakota. We currently have a modern fleet of 283 tractors and 709 semi-trailers, which deliver the vast majority of our products to our customers.

        Our retailers order their inventory at regular intervals through direct linkage with our information systems. Our food distribution sales are made on a market price-plus-fee and freight basis, with the fee based on the type of commodity and quantity purchased. We promptly adjust our selling prices based on the latest market information, and our freight policy contains a fuel surcharge clause which allows us to partially mitigate the impact of rising fuel costs.

Products

        We primarily sell and distribute nationally advertised branded products and a number of unbranded products, principally meat and produce, which we purchase directly from various manufacturers, processors and suppliers or through manufacturers' representatives and brokers. We also sell and distribute first quality private label products under the proprietary trademark Our Family, a long-standing private label of Nash Finch. During the year, we introduced AVANZA, a first quality private label, to address the tastes of our Hispanic customers. In addition, we sell and distribute a second label price brands program under the Fame and a new Value Choice line. Under our private label line of products, we offer over 2,500 SKUs of competitively priced high quality grocery products, which compete with national branded products and other value brand products.

Services

        To further enhance our reputation and strengthen our relationships with our food distribution customers, we offer a wide variety of support services to help them develop and operate stores, as well as compete more effectively. These services include:

•

promotional, advertising and merchandising programs;



•

installation of computerized ordering, receiving and scanning systems;



•

establishment and supervision of computerized retail accounting, budgeting and payroll systems;



•

personnel management assistance and employee training;



•

retail equipment procurement assistance;



•

consumer and market research;

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•

remodeling and store development services;



•

negotiating real estate transactions;



•

securing existing grocery stores that are for sale or lease in the market areas we serve and, occasionally, acquiring or leasing existing stores for resale or sublease to these customers; and



•

NashNet which provides supply chain efficiencies through internet services.

        We also provide financial assistance to our food distribution customers primarily in connection with new store development or the upgrading and expansion of existing stores. As of December 28, 2002, we had approximately $43.8 million of loans outstanding to 97 of our food distribution customers, and guaranteed outstanding debt and lease obligations of other food distribution customers in the amount of $26.5 million. We typically enter into long-term supply agreements with independent customers, ranging from 2 to 20 years, representing more than 54% of food distribution revenues. These agreements may also contain provisions that give us the opportunity to purchase customers' independent retail businesses before any third party.

        We distribute products to independent stores that carry our proprietary Food Pride banner and the IGA banner. We encourage our independent customers to join one of these banner groups to receive many of the same marketing programs and procurement efficiencies available to larger grocery store chains while allowing them to maintain their flexibility and autonomy as independents. To use either of these banners, these independents must comply with applicable program standards. As of December 28, 2002, we served approximately 83 retail stores under our Food Pride banner and 153 stores under the IGA banner.

Retail Segment

Overview

        Our food retailing segment is made up of our corporate-owned stores which range from conventional stores in rural trade areas to modern supermarkets in growing urban areas. These stores principally operate under the AVANZA, Buy•n•Save, Econofoods, Sun Mart, Family Thrift Center and Wholesale Food Outlet banners. Our stores are typically located close to our distribution centers in order to create certain operating and logistical efficiencies. As of December 28, 2002, we operated 109 corporate-owned stores, primarily in the Upper Midwest, including 94 conventional grocery stores, 3 Wholesale Food Outlet grocery stores, 8 Buy•n•Save grocery stores, 2 AVANZA grocery stores and 2 other retail stores. The Company continues to focus on operating and customer service initiatives to improve the financial performance of our retail stores.

Conventional Grocery Stores

        Our conventional grocery stores offer a wide variety of high quality grocery products and services. Many have specialty departments such as fresh meat counters, delicatessens, bakeries, eat-in cafes, pharmacies, photo centers, dry cleaners, banks, floral and video rental departments. Kids Korner, which is offered in 15 store locations, is a secure, complimentary in-store supervised play area for children. Upon entering the play area, each child is given a wristband, which will trigger an alarm if the child leaves the area, and the parents are given a pager so that they can be immediately contacted if there are any problems with their child. Video monitors are also placed throughout the store so parents can monitor their children while shopping. We emphasize outstanding customer service. We have created our G.R.E.A.T. (Greet, React, Escort, Anticipate, Thank) Customer Service Program in order to train every associate (employee) on the core elements of providing exceptional customer service. A mystery shopper visits each store every two weeks to measure performance and we distribute the results to management and store personnel.

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        We continued the expansion of the "Fresh Place" concept within our conventional grocery stores. "Fresh Place" is an umbrella banner that emphasizes our conventional grocery stores' high-quality perishable products, such as fresh produce, deli, meats, seafood, baked goods, and takeout foods for today's busy consumer. Of our 94 conventional grocery stores, 32 carry the Fresh Place banner.

Hispanic Stores

        Our Hispanic stores currently operate under the AVANZA and Wholesale Food Outlet banners and offer products designed to meet the specific tastes and needs of Hispanic shoppers, with a focus on the higher profit products most frequently purchased by Hispanic shoppers such as produce, meat, baked goods and imported products from Mexico. In addition to a vast selection of familiar Hispanic products, these stores have bilingual signs and product packaging, national magazines in both English and Spanish and Spanish-speaking personnel in a clean, festive environment. These stores also provide services such as check cashing, fax services, money wiring and phone cards. Our AVANZA and Wholesale Food Outlet stores are located in Colorado, Iowa, and Nebraska.

Extreme Value Stores

        In addition to responding to the changing demographics in the United States, we have also responded to the shift in income disparity with our extreme value grocery stores operating under the Buy•n•Save banner. Buy•n•Save stores were designed to attract value-conscious shoppers, typically with household incomes under $35,000, for whom low prices are a critical factor in selecting a grocery store. These stores provide a limited assortment of Grade A quality products, consisting of approximately 20% national brands and 80% private label products, including our own proprietary labels, with savings up to 40% off comparable nationally branded items. As of December 28, 2002, we operated eight Buy•n•Save stores in Minnesota, Iowa and Nebraska.

Military Food Distribution Segment

        Our military food segment distributes grocery products to U.S. military commissaries located predominately in the Mid-Atlantic region of the United States. We also distribute grocery products for use on U.S. military ships afloat and U.S. military bases located in Europe. We have two distribution centers which are located near the largest concentration of military bases in the United States and are exclusively dedicated to supplying products to commissaries. These distribution centers are located in Norfolk, Virginia and Baltimore, Maryland. We have consistently received the highest available service ratings from the Defense Commissary Agency, which performs monthly assessments of service to military commissaries. The ratings are based on service metrics which include fill rate, on-time delivery and handling of order adjustments. We have an outstanding reputation as a supplier to U.S. military commissaries, with fill rates among the highest in the industry.

Competition

Food Distribution Segment

        Competition is intense among the top distributors in the food distribution segment as evidenced by the low margin nature of the business. Success in this segment will be measured by the ability to leverage scale in order to gain pricing advantages, to provide superior merchandising programs and services to the independent customer base and to utilize technology to increase distribution efficiencies. We compete with local, regional and national food distributors, as well as grocery store and supercenter chains that purchase directly from suppliers and self-distribute products to their stores. We face competition from these companies on the basis of price, quality, variety and availability of products, strength of private label brands, schedules and reliability of deliveries, and the range and quality of customer services.

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Food Retailing Segment

        Competition in the retail grocery business in our geographic markets is intense. We compete with many organizations of various sizes, ranging from national and regional chains utilizing a variety of formats (such as supercenters, supermarkets, extreme value food stores and membership warehouse club stores) to local grocery store chains and privately owned unaffiliated grocery stores. Although our target geographic areas have a relatively low presence of national and multi-regional grocery store chains, we are facing increasing competitive pressure from the expansion of national and regional supercenter chains. These competitive pressures, occurring in the context of a low margin industry, have contributed to the current trend toward consolidation in the retail grocery business. Depending upon the product and location involved, we compete based on price, quality and assortment, store appeal, including store location and format, sales promotions, advertising, service and convenience. We believe that by focusing on convenience, outstanding perishable execution and exceptional customer service, we can successfully compete.

        Our AVANZA and Wholesale Food Outlet stores compete primarily with small independent Hispanic retailers, which we believe lack the scale to have a meaningful impact on our targeted markets, as well as with national grocery store chains and supercenters.

Military Food Distribution Segment

        We face competition in our military food distribution business from large food distributors. We believe we compete effectively based on customer service, cost operating efficiencies and the location of our military distribution centers.

Vendor Allowances and Credits

        We participate with our vendors in a broad menu of promotions to increase sales of products. These promotions fall into two main categories: off-invoice allowances and performance-based allowances. These promotional arrangements are often subject to negotiation with our vendors.

        In the case of off-invoice allowances, discounts are typically offered by vendors with respect to certain merchandise purchased by us during a specified period of time. We use off-invoice allowances to support a variety of marketing programs such as reduced price offerings for specific time periods, food shows, pallet promotions and private label promotions. The discounts are either reflected directly on the vendor invoice, as a reduction from the normal wholesale prices for merchandise to which the allowance applies, or we are allowed to deduct the allowance as an offset against the vendor's invoice when it is paid.

        In the case of performance-based allowances, the allowance or rebate is based on our completion of some specific activity, such as purchasing or selling product during a certain time period. This basic performance requirement may be accompanied by an additional performance requirement such as providing advertising or special in-store promotion, tracking quantities of product sold (as is the case with count-recount promotions discussed below), slotting (adding a new item to the system) and merchandising a new item, or achieving certain minimum purchase quantities. The billing for these performance-based allowances is normally in the form of a "bill-back" in which case we are invoiced at the regular price with the understanding that we may bill back the vendor for the requisite allowance when the performance is satisfied.

        We collectively plan promotions with our vendors and arrive at the amount the respective vendor plans to spend on promotions with us. We and the vendors then monitor, review and discuss the results of such promotions, and resolve issues relating to promotions and billings. Each vendor has its own method for determining the amount of promotional funds budgeted to be spent with us during the period. In most situations, the vendor allowances are based on units we purchased from the vendor. In

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other situations, the allowances are based on our past or anticipated purchases and/or the anticipated performance of the planned promotions.

        We jointly negotiate with our vendors the promotional calendar that governs all promotions. Forecasting promotional expenditures is a critical part of our twice yearly planning sessions with our vendors. Most vendors work with us to project not just overall spending, but also spending on a category and regional basis. As individual promotions are completed and the associated billing is processed, the vendors track our promotional program execution and spend rate. The vendors discuss the tracking, performance and spend rate with us on a regular basis throughout the year. Depending upon the vendor arrangements, such discussions can occur on a weekly, monthly, quarterly or annual basis. These communications include future promotions, product cost, targeted retails and price points, anticipated volume, promotion expenditures, vendor maintenance, billing issues and procedures, new items/discontinued items, and trade spend levels relative to budget per event and per year, as well as the resolution of any issues that arise between the vendor and us. In the future, the nature and menu of promotional programs and the allocation of dollars among them may change as a result of ongoing negotiations and commercial relationships between vendors and us.

Count-Recount Charges

        As discussed above, we participate with our vendors in a broad menu of promotions to increase sales of products. Certain promotions require us to track specific shipments of goods to retailers, or to customers in the case of our own retail stores, during a specified period. At the end of the promotional period, we invoice our vendors for the total promotional allowance based on the quantity of goods sold. This type of promotion, which is often referred to as "count-recount," requires wholesalers and retailers such as us to incur significant administrative and other costs to manage such programs.

        As a result of the increased costs associated with count-recount program administration and implementation, we historically, but not uniformly, assessed an administrative fee to recoup our reasonable costs of performing the tasks associated with administering these promotions. In some instances this fee was separately identified on the invoice to the vendor and in other instances we raised the invoice amounts by adding additional cases to the quantity of goods sold reflected on the invoices to vendors. Although we attempted to standardize the latter practice at a range of between 15% and 20% on wholesale movement billings and approximately 12% on retail scan billings for our retail stores, the application of the practice was uneven across time and divisions. The aggregate fees charged to vendors, represented as a percent of total count-recount promotional dollars, were approximately 17% in fiscal 2000 and 23% in fiscal 2001 and 2002. Our costs associated with administering this program are estimated at approximately 20% of the total count-recount promotional dollars.

        The count-recount practice described above was established against a backdrop of what we believe was a common industry practice, of which vendors generally were aware. We believe that our efforts to recapture count-recount costs by adding additional cases to the invoices in lieu of a separately delineated administrative fee were appropriate. The arrangements between us and our vendors did not separately address or provide for the addition of such charges in lieu of a separately invoiced administrative fee. Our conclusion that our accounting for such charges has been correct, that the charges were appropriately recognized as a reduction of cost of sales in the period the product was sold and in which the count-recount promotions were actually performed by us, is based on our overall relationship and method of doing business with our vendors.

Historical Accounting Treatment and Impact on Financial Statements

        Count-recount allowances are recorded as a reduction to cost of sales as performance has been completed and as the related inventory is sold. Count-recount charges in lieu of administrative fees

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were approximately $6.7 million in fiscal 2000, $8.6 million in fiscal 2001 and $6.7 million through November 17, 2002 when we, as a uniform practice across all divisions, began stating the administrative fee separately on the invoices to the vendor.

Communications with Vendors

        In November 2002, we met with our vendors, and brokers representing vendors, collectively comprising approximately 88% of our purchases that were subject to count-recount charges in lieu of an administrative fee. In those meetings, we advised the vendors and brokers that (i) we had a historical practice of charging an administrative fee either separately or, in most instances, by adding amounts to actual quantities sold in the range of 15% to 20% in lieu of an administrative fee, (ii) such fee had not always been separately disclosed on invoices to vendors, (iii) we had attempted to standardize the practice in late 1999 at a range of 15% to 20%, (iv) we had not been successful in standardizing such practice in that in some situations the application of the practice had been uneven across time and divisions resulting in a move away from a fixed percentage and sometimes resulting in an uneven percentage being applied, and (v) in the future we will charge a flat fee set at a fixed percentage of sales, which would be separately itemized on invoices. In those meetings, substantially all the vendors acknowledged the fees previously charged and none indicated that they would seek any refund based upon the past practice. Subsequently, on November 26, 2002, we notified all of our vendors and brokers (including but not limited to those with whom we had met in person) in writing of its prior and current practices related to count-recount. As of the date of the filing of these financial statements, none of our vendors or brokers is requesting a return of any of the historical count-recount charges assessed, and none has indicated they will make a reduction in future promotional funding.

SEC Investigation

        As previously disclosed, on October 9, 2002, we received a letter from the staff of the Division of Enforcement of the SEC indicating that they were conducting an informal inquiry into our process for assessing count-recount charges to our vendors and how we account for those charges. In response, we commenced an internal review of our practices in conjunction with the Audit Committee, special outside counsel and our prior and then-current auditors. We filed a written response to the inquiry on November 22, 2002.

        On February 3, 2003, we provided the Office of the Chief Accountant of the SEC a written communication detailing the basis for the manner in which we assess and account for count-recount charges, advising that we believe these charges were properly accounted for in accordance with generally accepted accounting principles, seeking the SEC staff's concurrence with this conclusion, and requesting a meeting with the staff of the Office of Chief Accountant at which these matters could be discussed. On February 4, 2003, we were notified by the staff of the SEC's Division of Enforcement that the SEC had approved a formal order of investigation of Nash Finch.

        Our representatives met with members of the staff of the SEC's Office of the Chief Accountant and Division of Corporation Finance on February 19, 2003. In a letter dated March 7, 2003, the staffs of the SEC's Office of the Chief Accountant and Division of Corporation Finance indicated that, based on our oral and written representations, they would not object at that time to our accounting for the count-recount charges. The investigation by the SEC's Division of Enforcement is, however, ongoing and the response by the staffs of the Office of the Chief Accountant and the Division of Corporation Finance does not preclude any further action by the Division of Enforcement.

Trademarks and Servicemarks

        We own or license a number of trademarks, tradenames and servicemarks that relate to our products and services, including those mentioned in this report. We consider certain of these

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trademarks, tradenames and servicemarks to be of material value to our business, and we actively defend and enforce such trademarks, tradenames and servicemarks.

Employees

        As of December 28, 2002, we employed 10,621 persons, of whom 6,063 were employed on a full-time basis and 4,558 were employed on a part-time basis. We consider our employee relations to be good. Only 487 of our employees are represented by unions and consist primarily of the distribution center personnel and drivers in our Ohio and Michigan distribution centers.

Available Information

        Our internet website is www.nashfinch.com. The references to our website in this report are inactive references only, and the information on our website is not incorporated by reference in this report. Through the Investor Relations portion of our website and a link to a third-party content provider (under the tab "SEC Filings"), you may access, free of charge, our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to such reports filed or furnished pursuant to Sections 13(a) or 15(d) of the Securities Exchange Act of 1934 as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC.

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ITEM 2. PROPERTIES

        Our principal executive offices are located in Minneapolis, Minnesota, and consist of approximately 120,486 square feet of office space in a building that we own.

Food Retailing Segment

        The table below sets forth, as of December 28, 2002, selected information regarding our 109 corporate-owned stores. We own 34 and lease 75 of these stores.

        As of December 28, 2002, the aggregate square footage of our 109 retail grocery stores totaled 3,662,557 square feet.

Food Distribution Segment

        The table below lists, as of December 28, 2002, the locations and sizes of our distribution centers primarily used in our food distribution operations. Unless otherwise indicated, we own each of these distribution centers.

(1)

Includes 11,400 square feet that we lease.

(2)

Leased facility.

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(3)

Includes 8,000 square feet that we lease.

(4)

Includes 107,300 square feet that we lease. The Sioux Falls facility represents two distinct distribution centers, one that distributes limited variety and slow moving products, and the other that distributes general merchandise and health and beauty care products.

(5)

Includes 40,500 square feet that we lease. This facility includes two separate distribution operations, one that distributes dry groceries, frozen foods, fresh and processed meat products, and a variety of non-food products, and the other that distributes health and beauty care products, general merchandise and specialty grocery products. The general merchandise services distribution center uses approximately 254,000 square feet of the total owned and leased space.

(6)

Includes 8,600 square feet that we lease.

Military Distribution Segment

        The table below lists, as of December 28, 2002, the locations and sizes of our distribution centers exclusively used in our military distribution business. Unless otherwise indicated, we lease each of these distribution centers.

(1)

Includes 59,300 square feet that we own.

ITEM 3. LEGAL PROCEEDINGS

Shareholder Litigation

        Between December 2002 and March 2003, seven class action lawsuits were filed against the Company and certain of its executive officers in the United States District Court for the District of Minnesota on behalf of purchasers of the Company's common stock during the period from February 23, 2000 through February 4, 2003. The complaints generally allege that the defendants violated the Securities Exchange Act of 1934 by issuing false statements, including false financial results in which the Company included income from vendor promotions to which the Company was not entitled, so as to maintain favorable credit ratings on its debt. Three derivative actions have also been filed in state court in Minnesota by shareholders alleging that certain officers and directors violated duties to the Company to oversee and administer the Company's accounting. These actions are directly tied to the allegations in the federal securities action. We believe that the lawsuits are without merit and intend to vigorously defend the actions. No damages have been specified. We are unable to evaluate the likelihood of prevailing in these cases at this early stage of the proceedings, but do not believe that the eventual outcome will have a material impact on our financial position or results of operations.

SEC Investigation

        On October 9, 2002, we received a letter from the staff of the Division of Enforcement of the SEC indicating that they were conducting an informal inquiry into our process for assessing count-recount charges to our vendors and how we account for those charges. In response, we commenced an internal review of our practices in conjunction with the Audit Committee, special outside counsel and our prior and then-current auditors. We filed a written response to the inquiry on November 22, 2002.

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        On February 3, 2003, we provided the Office of the Chief Accountant of the SEC a written communication detailing the basis for the manner in which we assess and account for count-recount charges, advising that we believe these charges were properly accounted for in accordance with generally accepted accounting principles, seeking the SEC staff's concurrence with this conclusion, and requesting a meeting with the staff of the Office of Chief Accountant at which these matters could be discussed. On February 4, 2003, we were notified by the staff of the SEC's Division of Enforcement that the SEC had approved a formal order of investigation of Nash Finch.

        Our representatives met with members of the staff of the SEC's Office of the Chief Accountant and Division of Corporation Finance on February 19, 2003. In a letter dated March 7, 2003, the staffs of the SEC's Office of the Chief Accountant and Division of Corporation Finance indicated that, based on our oral and written representations, they would not object at that time to our accounting for the count-recount charges. The investigation by the SEC's Division of Enforcement is, however, ongoing and the response by the staffs of the Office of the Chief Accountant and the Division of Corporation Finance does not preclude any further action by the Division of Enforcement.

USDA Inspection

        In December 1999, the U.S. Department of Agriculture began an investigation of our Lumberton, North Carolina distribution center. We cooperated throughout the investigation and the inquiry culminated in an agreement between the Company and the United States on October 4, 2001. In accordance with that agreement, the Company appeared in Federal District Court for the Eastern District of North Carolina and entered a guilty plea to a misdemeanor charge of causing and permitting articles capable of use as human food to become exposed to dust, dirt and unsanitary conditions (the "causing" charge), and applied to a pre-trial diversion program with respect to a misdemeanor charge of selling adulterated meat and poultry products to a South Carolina salvage dealer (the "selling" charge).

        On March 13, 2002, the Company was sentenced to pay a fine of $100,000 and to a probationary period of five years on the causing charge, with the probation subject to certain special conditions regarding establishment of a quality control program, employee training, documentation of disposal of unwholesome products, monthly inspections and reports to appropriate authorities by representatives of the Company's home office, and that this matter be disclosed in this report. The Company was accepted into the pre-trial diversion program on the selling charge and, as part of that program, donated 40,000 pounds of food to charitable organizations in North Carolina. Upon successful completion of this 18 month program, the Government will dismiss the selling charge.

        We are also engaged from time to time in routine legal proceedings incidental to our business. We do not believe that any of the pending legal proceedings not discussed above will have a material impact on the business or financial condition of the Company and its subsidiaries, taken as a whole.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

        No matter was submitted to a vote of security holders during the fourth quarter of the fiscal year covered by this report.

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PART II

ITEM 5. MARKET FOR COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

        Our common stock is listed on the Nasdaq National Market and currently trades under the symbol NAFCE. On November 26, 2002, we received a Nasdaq staff determination stating that the delay in filing our Form 10-Q for the quarter ended October 5, 2002 violates Nasdaq Marketplace Rule 4310(c) (14) and that our common stock is subject to delisting from the Nasdaq National Market. In connection with this determination, the letter "E" was added to our stock symbol. The delay in filing was attributable to the previously described investigation of our practices and procedures with respect to count-recount charges. On January 22, 2003, we received a determination from the Nasdaq Listing Qualifications Panel ("Nasdaq Panel") that continued the listing of our securities on the Nasdaq National Market so long as we filed with the SEC and Nasdaq by March 19, 2003 our Quarterly Report on Form 10-Q for the quarter ended October 5, 2002 and by March 28, 2003 our Annual Report on Form 10-K for the fiscal year ended December 28, 2002. On March 24, 2003, the Nasdaq Panel agreed to extend the deadlines for the filing of our Quarterly Report on Form 10-Q for third quarter of fiscal 2002 until May 15, 2003, our Annual Report on Form 10-K for fiscal 2002 until May 30, 2003 and our Quarterly Report on Form 10-Q for the first quarter of fiscal 2003 until June 9, 2003. Satisfaction of the revised deadlines is a condition to the continued listing of our securities on the Nasdaq National Market.

        The following table sets forth, for each of the calendar periods indicated, the range of high and low closing sales prices for our common stock as reported by the Nasdaq National Market, and the quarterly cash dividends paid per share of common stock. Prices do not include adjustments for retail mark-ups, mark-downs or commissions. At December 28, 2002 there were 2,797 stockholders of record.

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NASH FINCH COMPANY and SUBSIDIARIES
Consolidated Summary of Operations
Five years ended December 28, 2002 (not covered by Independent Auditors' Report)

(1)

See Item 8, Note 1 of this report under the caption "Revenue Recognition" regarding the reclassification of facilitated services.

(2)

See Item 8, Note 1 of this report under the caption "New Accounting Standards" regarding the adoption of EITF No. 02-16.

(3)

Based on average outstanding shares at year-end.

(4)

Return based on continuing operations.

(5)

High and low closing sales price on Nasdaq National Market.

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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

RESULTS OF OPERATIONS

Fiscal 2002 vs. 2001

Sales

        Sales for fiscal 2002 were $3,874.7 million compared to $3,982.2 million for fiscal 2001, a decrease of 2.7%. The decrease is due to increased competitive pressures and a weak economy for fiscal 2002. The distribution of sales by operating segment is as follows:

        Food distribution segment sales decreased 6.4% from fiscal 2001 to 2002 due to continued difficult economic conditions, soft sales and store closings because of increased competition in certain markets and the elimination of marginal accounts the Company chose to no longer service.

        Retail segment sales decreased 0.7% from fiscal 2001 to fiscal 2002 as declines in same store sales were largely offset by the acquisition of U Save Foods Inc. (U Save) in the second half of fiscal 2001. Same store sales, which compares retail sales for stores which were in operation for the same number of weeks in the comparative years, declined by 5.3% from fiscal 2001 to fiscal 2002 and by 11.7% for the fourth quarter of fiscal 2002 relative to the fourth quarter of fiscal 2001. These declines primarily reflected the growth of supercenter competition in our retail territories and retail consumers trading down and/or purchasing less in conventional supermarket channels. As a result of the competitive environment, we expect the trend of declining same store sales to continue in fiscal 2003. During fiscal 2002, our corporate store count changed as follows:

        We continued to actively respond to the increasingly competitive retail environment by expanding our two specialty store formats in fiscal 2002. The first format under the AVANZA banner is designed to service the Hispanic market, which we believe is under-served by conventional grocery stores. We opened our first two prototype Hispanic supermarkets in Denver, Colorado under the AVANZA trade name. The second format under the Buy•n•Save banner is designed to service low income, value conscious consumers. We opened three Buy•n•Save locations, converted two other existing stores to the Buy•n•Save format and closed an underperforming location, bringing the total number of Buy•n•Save stores in operation to eight compared to four stores in fiscal 2001. The expansion of these two new store formats is part of our strategy to differentiate ourselves in today's competitive retail markets.

        Military segment sales increased 2.5% from fiscal 2001 to 2002. The increase is primarily attributed to higher year-over-year sales to bases overseas and U.S. military ships afloat. We expect the

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deployment of military forces in and about the Middle East to temporarily benefit sales in our military segment.

Gross Profit

        Gross profit for fiscal 2002 was 12.0% of sales compared to 11.4% for fiscal 2001. Gross profit was positively impacted by distribution efficiencies gained in our food distribution segment as well as more efficient use of promotional spending in our retail segment. In addition, gross profit was increased by a LIFO credit of $2.2 million in fiscal 2002 compared to a LIFO charge of $2.7 million, in fiscal 2001. The LIFO credit in fiscal 2002 is due to food price deflation and decreased inventory levels as a result of lower sales.

        In the fourth quarter of fiscal 2002 we elected to early adopt the provisions of EITF No. 02-16 "Accounting by a Customer (Including a Reseller) for Certain Consideration Received from a Vendor," (See "New Accounting Standards" below for discussion) retroactive to the beginning of fiscal 2002. The impact of the adoption on gross profit in fiscal 2002, excluding the cumulative effect adjustment, was an increase of $1.4 million. In addition, the adoption resulted in a reclassification of $9.1 million of net cooperative advertising income from selling, general and administrative expenses to cost of sales.

Selling, General and Administrative

        Selling, general and administrative expenses for fiscal 2002 were $347.4 million, or 9.0% of sales, compared to $335.9 million, or 8.4% of sales, for fiscal 2001, an increase of $11.5 million or 3.4%. Selling, general and administrative expense included a $6.6 million charge in fiscal 2002 for retail impairments compared to a $1.9 million charge recorded in fiscal 2001. The impairment charge for fiscal 2002 related to fifteen stores whose carrying values were impaired due to increased competition within the stores, respective market areas. The estimated undiscounted cash flows related to these facilities indicated that the carrying value of the assets may not be recoverable based on current expectations, causing these assets to be written down in accordance with SFAS No. 144. Selling, general and administrative expenses also included a $1.5 million charge for fiscal 2002 for closed store lease costs compared to a $1.1 million charge recorded in fiscal 2001. The closed store lease costs were recorded for non-cancelable lease costs related to closed corporate-owned and independent customer stores where we were obligated to assume the lease liability. Selling, general and administrative expenses were also impacted by an increase in bad debt expense from $4.8 million in fiscal 2001 to $9.0 million in fiscal 2002. The increase in bad debt expense is primarily due to a former customer that has filed for bankruptcy. The foregoing charges were partially offset by $3.8 million and $2.6 million in gains on the sale of real estate for fiscal 2002 and 2001, respectively. In addition, selling, general and administrative expenses were impacted by employee benefit costs which increased by $5.5 million in fiscal 2002 relative to fiscal 2001 as a result of rising health care costs, offset by overhead cost reductions attained through process improvements and cost savings initiatives. Finally, selling, general and administrative expenses were increased as a result of the reclassification of net cooperative advertising income of $9.1 million to cost of sales in accordance with EITF No. 02-16. (See Item 7 of this report under the caption "New Accounting Standards")

Special Charges

        We recorded special charges totaling $31.3 million in fiscal 1997 and $71.4 million (offset by $2.9 million of fiscal 1997 charge adjustments) in fiscal 1998. These charges impacted our food distribution and retail segments as well as our produce growing and marketing business which was sold in fiscal 1999, and were also designed to redirect our technologies efforts. All actions contemplated by the charges are complete. At December 28, 2002, the remaining accrued liability is $2.6 million and consists primarily of lease commitments and pension and post-employment related obligations.

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        During fiscal 2002, we reversed $0.63 million and $0.13 million of our fiscal 1998 and fiscal 1997 special charges, respectively, due to an agreement reached to buyout the remaining lease for less than what we had originally estimated. In addition, during fiscal 2002 we recorded $0.9 million of pension benefits related to the distribution segment and $2.5 million in continuing lease and exit costs related to closed retail stores through our 1997 and 1998 special charge reserves.

Depreciation and Amortization Expense

        Depreciation and amortization expense for fiscal 2002 was $40.0 million compared to $46.6 million for fiscal 2001, a decrease of $6.6 million or 14.2%. The decrease primarily reflects the elimination of goodwill amortization of $5.9 million resulting from the adoption of SFAS No. 142, at the beginning of fiscal 2002, which requires that goodwill no longer be amortized, but instead be tested at least annually for impairment.

Interest Expense

        Interest expense for fiscal 2002 was $29.5 million compared to $34.3 million for fiscal 2001, a decrease of $4.8 million or 14.0%. The decrease primarily relates to a $4.3 million reduction in interest expense paid under the revolving credit facility as a result of a lower average borrowing rate, partially offset by an increase in the average borrowing level under the credit facility. The average borrowing rate under the credit facility was 4.5% in fiscal 2002 and 8.5% in fiscal 2001. The average borrowing level under the credit facility was $156.6 million in fiscal 2002 and $133.7 million in fiscal 2001.

Income Tax Expense

        The effective tax rate for fiscal 2002 was 39.0% compared to 41.4% in fiscal 2001. The reduction in the effective rate is primarily attributed to changes in accounting rules relating to the elimination of goodwill amortization for financial reporting as well as a higher proportion of taxable income being generated in lower tax jurisdictions. Refer to the tax rate table in Part II, Item 8 of this report under Note (9)—"Income Taxes" of Notes to the Consolidated Financial Statements for the comparative components of these rates.

Cumulative Effect of Change in Accounting Principle

        We adopted the provisions of EITF Issue No. 02-16, "Accounting by a Customer (Including a Reseller) for Cash Considerations Received From a Vendor" as of the beginning of fiscal 2002. The cumulative effect at the beginning of fiscal 2002 was a charge of $7.0 million, net of income taxes of $4.4 million. The cumulative effect of a change in accounting principle has been presented in our consolidated statement of income as of December 28, 2002 (See "Critical Accounting Polices" under the caption "Vendor Allowances and Credits" and "New Accounting Standards" in Part II, Item 7 of this report).

Net Earnings

        Net earnings for fiscal 2002 were $23.6 million, or $1.95 per diluted share compared to $21.3 million, or $1.78 per diluted share, for fiscal 2001. Excluding the cumulative effect of change in accounting principle for fiscal 2002 due to the adoption of EITF No. 02-16 and excluding the goodwill

18

amortization in fiscal 2001, which was no longer required in fiscal 2002 upon the adoption of SFAS No. 142, net earnings are as follows:

Fiscal 2001 vs. 2000

Sales

        Sales for fiscal 2001 were $3,982.2 million compared to $3,839.5 million for fiscal 2000, an increase of 3.7%. The increase is attributed to new food distribution and military business we were able to capture in fiscal 2001. The distribution of total revenues by operating segment is as follows:

        Food distribution segment revenues for fiscal 2001 were $1,951.4 million compared to $1,841.6 million for fiscal 2000, an increase of 6.0%. The increase is primarily attributed to new food distribution customers as we continued to improve service to new and existing customers. In addition, food distribution revenues were improved by the transfer of revenues from the retail segment as a result of the sale of 18 corporate-owned retail stores, in North and South Carolina, to existing food distribution customers during fiscal 2001.

        Retail segment revenues were $1,035.1 million for fiscal 2001 compared to $1,029.0 million for fiscal 2000, an increase of 0.6%. The improvement is largely due to the acquisition of 14 stores from U Save on August 13, 2001, offset by the sale of the corporate-owned stores in the Southeast. U Save, a privately held company, operates stores primarily in Nebraska. All of the stores acquired have been converted to ourprimarybanners. The sale of the Southeast stores allows us to focus our retail strategy on store operations in the upper Midwest.

        Same store sales, which compares retail sales for stores which were in operation for the same number of weeks in the comparative years, declined by 1%, a direct result of reductions in promotional

19

activity compared to fiscal 2000 and competitive pressures in certain markets. During fiscal 2001, our corporate store count changed as follows:

        Military segment revenues were $995.7 million for fiscal 2001 compared to $968.9 million for fiscal 2000, an increase of 2.8%. The improvement reflects an addition of new business in Europe and North Carolina, awarded to us in fiscal 2000 by a major manufacturer. The deployment of military forces in response to the September 11 terrorist attacks had a short-term negative impact, though not significant (0.9%), on military sales. The negative impact was a result of tighter security which prevented merchandise from reaching certain military bases as well as off-base personnel having limited access to shop on the base.

Gross Profit

        Gross profit was 11.4% of sales for fiscal 2001, compared to 11.2% for fiscal 2000. The improvement is attributed to increased productivity, more efficient utilization of distribution facilities, improved sales mix of private label and value-added products in retail stores and increased procurement efficiencies. These increases were partially offset by a LIFO charge of $2.7 million, or .07% of sales, in fiscal 2001 compared to a LIFO credit of $1.1 million, or .03% of sales, which increased gross margins for fiscal 2000. The charge in fiscal 2001 is due to food price inflation and increased inventory levels to accommodate new business.

Selling, General and Administrative Expense

        Selling, general and administrative expenses for fiscal 2001 were $335.9 million compared to $322.4 million for fiscal 2000, both representing 8.4% of sales, and an increase of $13.5 million, or 4.2%. Selling, general and administrative expenses in fiscal 2001 included retail store impairments of $1.9 million. The write-down of long-lived assets resulted from our intention to close two stores, as well as the write down of the carrying value of three additional stores due to increased competition within the respective market areas which resulted in declining market share, deterioration of operating performance and inadequate projected cash flows for these stores. There were no impairment charges recorded in fiscal 2000. Bad debt expense of $4.8 million was recorded in fiscal 2001 relative to $7.4 million in 2000. The decrease is primarily due to a variety of accounts experiencing financial difficulty in fiscal 2000. In addition, selling, general and administrative expense for 2001 and 2000 included gains from the sale of real estate in the amounts of $2.6 million and $3.0 million, respectively. Substantially all of the gain in fiscal 2001 relates to the sale of real estate associated with a distribution center closed as part of the 1998 revitalization plan. The fiscal 2000 real estate gains included $1.1 million from the sale of real estate associated with a distribution center closed as part of the 1997 revitalization plan, while the remainder primarily relates to the sale of retail stores. Lease related costs associated with stores closed in fiscal 2001 and fiscal 2000 were $1.1 million and $2.7 million, respectively.

Special Charges

        All actions contemplated by the previously discussed special charges we recorded in fiscal 1997 and fiscal 1998 were complete at December 29, 2001. At December 29, 2001, the remaining accrued liability

20

was $6.8 million and consisted primarily of lease commitments and pension and post-employment related obligations.

        During fiscal 2001, we recorded $0.7 million of pension benefits related to the distribution segment and $0.8 million in continuing lease and exit costs related to closed retail stores through our 1998 special charges reserve. In addition, we recorded $0.13 million and $0.19 million related to warehouse and retail closing through our 1997 special charge reserve.

Depreciation and Amortization Expense

        Depreciation and amortization expense was $46.6 million for fiscal 2001 compared to $45.3 million for fiscal 2000, an increase of $1.3 million or 2.9%. The increase primarily reflects the addition of several new stores in fiscal 2000 and 2001 including the acquisition of U Save, offset by the sale of the Southeast stores.

Interest Expense

        Interest expense for the year was relatively flat at $34.3 million for fiscal 2001 compared to $34.4 million for fiscal 2000. Higher interest costs under the revolving credit facility resulted from the Company fixing a rate under a swap agreement which expired on December 6, 2001. The average borrowing rate under the revolving credit facility, including the impact of the interest swap was 8.5% for fiscal 2001 compared to 8.0% for fiscal 2000. The rate difference was offset by an average revolving debt level that was $23.4 million lower relative to fiscal 2000.

Income Taxes

        The effective income tax rate for fiscal 2001 was 41.4% compared to 42.4% for fiscal 2000. The rate reduction is attributed to a decrease in the ratio of nondeductible goodwill to pretax income. Refer to the tax rate tables in Part II, Item 8 of this report under Note (9)—"Income Taxes" of Notes to Consolidated Financial Statements for the comparative components of these rates.

Net Earnings

        Net earnings for fiscal 2001 were $21.3 million, or $1.78 per diluted share, compared to $15.5 million, or $1.35 per diluted share, for fiscal 2000.

CRITICAL ACCOUNTING POLICIES

        The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions in applying certain critical accounting policies. Critical accounting policies are those that require the most subjective and complex judgments. We consider the following to be critical and could result in materially different amounts being reported under different conditions or using different assumptions:

Vendor Allowances and Credits

        We participate with our vendors in a broad menu of promotions to increase sales of products. These promotions fall into two main categories: off-invoice allowances and performance-based allowances. These promotional arrangements are often subject to negotiation with our vendors.

        In the case of off-invoice allowances, discounts are typically offered by vendors with respect to certain merchandise purchased by us during a specified period of time. We use off-invoice allowances to support a variety of marketing programs such as reduced price offerings for specific time periods, food shows, pallet promotions and private label promotions. The discounts are either reflected directly on the vendor invoice, as a reduction from the normal wholesale prices for merchandise to which the

21

allowance applies, or we are allowed to deduct the allowance as an offset against the vendor's invoice when it is paid.

        In the case of performance-based allowances, the allowance or rebate is based on our completion of some specific activity, such as purchasing or selling product during a certain time period. This basic performance requirement may be accompanied by an additional performance requirement such as providing advertising or special in-store promotion, tracking quantities of product sold (as is the case with count-recount promotions discussed below), slotting (adding a new item to the system) and merchandising a new item, or achieving certain minimum purchase quantities. The billing for these performance-based allowances is normally in the form of a "bill-back" in which case we are invoiced at the regular price with the understanding that we may bill back the vendor for the requisite allowance when the performance is satisfied.

        We collectively plan promotions with our vendors and arrive at the amount the respective vendor plans to spend on promotions with us. We and the vendors then monitor, review and discuss the results of such promotions, and resolve issues relating to promotions and billings. Each vendor has its own method for determining the amount of promotional funds budgeted to be spent with us during the period. In most situations, the vendor allowances are based on units we purchased from the vendor. In other situations, the allowances are based on our past or anticipated purchases and/or the anticipated performance of the planned promotions.

        We jointly negotiate with our vendors the promotional calendar that governs all promotions. Forecasting promotional expenditures is a critical part of our twice yearly planning sessions with our vendors. Most vendors work with us to project not just overall spending, but also spending on a category and regional basis. As individual promotions are completed and the associated billing is processed, the vendors track our promotional program execution and spend rate. The vendors discuss the tracking, performance and spend rate with us on a regular basis throughout the year. Depending upon the vendor arrangements, such discussions can occur on a weekly, monthly, quarterly or annual basis. These communications include future promotions, product cost, targeted retails and price points, anticipated volume, promotion expenditures, vendor maintenance, billing issues and procedures, new items/discontinued items, and trade spend levels relative to budget per event and per year, as well as the resolution of any issues that arise between the vendor and us. In the future, the nature and menu of promotional programs and the allocation of dollars among them may change as a result of ongoing negotiations and commercial relationships between vendors and the Company.

        EITF Issue No. 02-16, "Accounting by a Customer (Including a Reseller) for Cash Consideration Received from a Vendor," addresses how a reseller of a vendor's products should account for cash consideration received from a vendor and how to measure that consideration in its income statement. We elected to early adopt the provisions of EITF No. 02-16 at the beginning of fiscal 2002, and recognized a charge of $7.0 million, net of income taxes of $4.4 million, that represents the cumulative effect of the deferral of consideration received from vendors as of the beginning of fiscal 2002. Excluding the cumulative impact, the adoption of EITF No. 02-16 on the year ended December 28, 2002 was an increase to net earnings of $0.8 million, net of income taxes of $0.6 million.

        As is common in our industry, we use a third party service to undertake accounts payable audits on an ongoing basis. These audits examine vendor allowances offered to us during a given year as well as cash discounts, freight allowances and duplicate payments and establishes a basis for us to recover overpayments made to vendors. We reduce future payments to vendors based on the results of these audits, at which time we also establish reserves for commissions payable to the third party service as well as for amounts that may not be collected. Although our estimates of reserves do not anticipate changes in our historical payback rates, such changes could have considerable impact on our currently recorded reserves.

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Customer Exposure and Credit Risk

Allowance for Doubtful Accounts—Methodology

        We evaluate the collectability of our accounts and notes receivable based on a combination of factors. In most circumstances when we become aware of factors that may indicate a deterioration in a specific customer's ability to meet its financial obligations to us (e.g., reductions of product purchases, deteriorating store conditions, changes in payment patterns), we record a specific reserve for bad debts against amounts due to reduce the net recognized receivable to the amount we reasonably believe will be collected. In determining the adequacy of the reserves, we analyze factors such as the value of any collateral, customer financial statements, historical collection experience, aging of receivables and other economic and industry factors. It is possible that the accuracy of the estimation process could be materially affected by different judgments as to the collectibility based on information considered and further deterioration of accounts. If circumstances change (i.e., further evidence of material adverse creditworthiness, additional accounts become credit risks, store closures), our estimates of the recoverability of amounts due us could be reduced by a material amount, including to zero. Refer to Part II, Item 8 of this report under Note (7)—"Accounts and Notes Receivable" of Notes to Consolidated Financial Statements for a discussion of these allowances.

Lease Commitments

        We have historically leased store sites for sublease to qualified independent retailers, at rates that are at least as high as the rent paid by us. Under terms of the original lease agreements, we remain primarily liable for any commitments an independent retailer may no longer be financially able to satisfy. We also lease store sites for our retail segment. Should a retailer be unable to perform under a sublease or should we close underperforming corporate stores, we record a charge to earnings for costs of the remaining term of the lease, less any anticipated sublease income. Calculating the estimated losses requires that significant estimates and judgments be made by management. Our reserves for such properties can be materially affected by factors such as the extent of interested sublessees and their creditworthiness, our ability to negotiate early termination agreements with lessors, and general economic conditions and the demand for commercial property. More often than not, we have been able to re-sublease such locations to other qualified retailers with minimal interruption of sublease recoveries and cost to us. Should the number of defaults by sublessees or corporate store closures materially increase, the remaining lease commitments we must record could have a material adverse effect on operating results and cash flows. Refer to Part II, Item 8 of this report under Note (14)—"Leases" of Notes to Consolidated Financial Statements for a discussion of Lease Commitments.

Guarantees of Debt and Lease Obligations of Others

        We have guaranteed the debt and lease obligations of certain of our food distribution customers. In the event these retailers are unable to meet their debt service payments or otherwise experience an event of default, we would be unconditionally liable for the outstanding balance of their debt and lease obligations ($26.5 million as of December 28, 2002), which would be due in accordance with the underlying agreements. In circumstances when we become aware of factors that indicate deterioration in a customer's ability to meet its financial obligations guaranteed by us, we record a specific reserve in the amount we reasonably believe we will be obligated to pay on the customer's behalf, net of any anticipated recoveries from the customer. In determining the adequacy of these reserves, we analyze factors such as those described above. It is possible that the accuracy of the estimation process could be materially affected by different judgments as to the obligations based on information considered and further deterioration of accounts. Triggering these guarantees would not, however, result in cross default of our debt, but could restrict resources available for general business initiatives.

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Impairment of Long-lived Assets

        Impairment losses are recognized when expected net future cash flows are less than the assets' carrying value. We consider historical performance and estimated future results in our evaluation of potential impairment. Future results are often influenced by assessments of changes in competition, merchandising strategies, human resources and general market conditions, which may result in not recognizing an impairment loss. No assurance can be given that these assessments and implementation of any resulting initiatives will result in profit margins sufficient to recover the carrying value of long lived assets.

Reserves for Self Insurance

        We are primarily self-insured for workers' compensation, general and automobile liability and health insurance costs. It is our policy to record our self-insurance liabilities based on claims filed and an estimate of claims incurred but not yet reported. Worker's compensation and general and automobile liabilities are actuarially determined on a discounted basis. We have purchased stop-loss coverage to limit our exposure to any significant exposure on a per claim basis. Any projection of losses concerning workers' compensation, general and automobile and health insurance liability is subject to a considerable degree of variability. Among the causes of this variability are unpredictable external factors affecting future inflation rates, litigation trends, legal interpretations, benefit level changes and claim settlement patterns. Although our estimates of liabilities incurred do not anticipate significant changes in historical trends for these variables, such changes could have a considerable impact on future claim costs and currently recorded liabilities.

LIQUIDITY AND CAPITAL RESOURCES

        Historically, we have financed capital needs through a combination of internal and external sources. These sources include cash flow from operations, short-term bank borrowings, various types of long-term debt and lease and equity financing.

        Operating cash flows were $57.0 million during fiscal 2002 compared to $90.2 million in fiscal 2001 and $82.2 million in fiscal 2000. The decrease in operating cash flows in fiscal 2002 was primarily due to changes in operating assets and liabilities. Accounts payable decreased by approximately $48.7 million which was partially offset by a decrease in inventory balances of approximately $24.4 million. Both of the changes are the result of management's efforts to reduce inventory levels in conjunction with lower sales volume from the continued difficult economy. The changes in operating cash flows in fiscal 2001 were also due to changes in operating assets and liabilities. Accounts receivable increased by $36.3 million primarily due to the discontinuance of a receivables securitization program in December 2001, offset by increases in accounts payable of $26.2 million and accrued expenses of $17.1 million due to timing of payments and increased benefit costs, respectively.

        Cash used for investing activities for fiscal 2002 was $34.6 million compared to $92.2 million in 2001 and $81.3 million in 2000. The reduction in cash used for investing activities in 2002 primarily relates to the level of acquisitions in fiscal 2001 and fiscal 2000 relative to fiscal 2002 and the reduction in loans extended to customers during fiscal 2002. Investing activities in fiscal 2002 included $3.4 million of business acquisitions and $4.5 million in net payments received from customer loan activity. In fiscal 2001, investing activities included business acquisitions of $47.7 million, primarily attributed to U Save, and loans to customers, net of payments received, totaling $9.9 million. Investing activities for 2000 included business acquisitions of $20.0 million, which consisted of the Hinky Dinky Supermarkets, Inc. acquisition in January of 2000 as well as three other stores, and loans to customers, net of payments received, totaling $14.9 million.

        Cash used for financing activities for fiscal 2002 was $1.5 million compared to $10.9 million in cash provided by financing activities in fiscal 2001. In fiscal 2000, cash used for financing activities was

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$15.8 million. Cash used in financing activities increased in fiscal 2002 compared to fiscal 2001 due to an increase in proceeds received from the revolving line of credit of $39.4 million which was offset by a decrease in outstanding checks of $30.7 million. In fiscal 2001, the proceeds from the revolving line of credit were $12.7 million and there was an increase in outstanding checks of $5.7 million. In fiscal 2000 the Company made a net payment on the revolving line of credit of $2.7 million after it had completed the refinancing of the agreement. In addition, the outstanding checks decreased by $2.9 million in fiscal 2000.

        We have certain contractual obligations that extend beyond 2002. These commitments include long-term debt and capital and operating lease obligations, primarily related to store locations for the our retail segment, as well as store locations subleased to independent food distribution customers. The following summarizes these contractual cash obligations as of December 28, 2002:

(1)

The $183,382 shown as scheduled for payment in years 1-3 includes repayment of the revolving credit facility based on the current outstanding balance of $179,400. Typically, the Company is able to refinance the credit facility with a new agreement either before or upon maturity of the current agreement. Refer to Part II, Item 8 in this report under Note (8) —"Long-term Debt and Credit Facilities" in Notes to Consolidated Financial Statements to the discussion of covenant compliance below for additional information regarding long term debt.

(2)

A discussion of lease commitments can be found Part II, Item 8 in this report under Note (14)—"Leases" in Notes to Consolidated Financial Statements and under the caption "Lease Commitments" under "Critical Accounting Policies," above.

(3)

Includes amounts classified as imputed interest.

        We also have made certain commercial commitments that extend beyond 2002. These commitments include standby letters of credit and guarantees of certain food distribution customer debt and lease obligations. The following summarizes these commitments as of December 28, 2002:

(1)

Letters of credit relate primarily to supporting workers' compensation obligations and are renewable annually.

(2)

Refer to Part II, Item 8 of this report under Note (15)—"Concentration of Credit Risk" of Notes to Consolidated Financial Statements and under the caption "Guarantees of Debt and Lease Obligations of Others" under "Critical Accounting Policies," above, for additional information regarding debt and lease guarantees.

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        In December 2000, we completed the refinancing of our revolving credit facility. The credit agreement has a five year term and provides a $100 million term loan and $150 million in revolving credit. Borrowings under the term loan bear interest at the Eurodollar rate plus a margin increase and a commitment commission on the unused portion of the revolver. The margin increase and the commitment commission are reset quarterly based on movement of a leverage ratio defined by the agreement. At December 28, 2002 the margin and commitment commission were 2.0% and 0.5%, respectively, compared to 1.75% and 0.375% at the end of 2001.

        The credit agreement contains financial covenants which, among other matters, require us to maintain predetermined ratio levels related to interest coverage, fixed charges coverage, leverage and working capital based on EBITDA. Several of these financial covenants are based on EBITDA with some adjustments ("Adjusted EBITDA"). Adjusted EBITDA is defined in our credit agreement as earnings before interest, income taxes, 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 closed store lease costs and retail impairments).

        As of December 28, 2002, we were in compliance with all Adjusted EBITDA-based debt covenants as defined in our credit agreement. Adjusted EBITDA should not be considered an alternative measure of our net income, operating performance, cash flow or liquidity. The amount of Adjusted EBITDA is provided as additional information relative to compliance with our debt covenants. The following is a summary of the calculation of Adjusted EBITDA (in thousands) for 2002, 2001 and 2000:

        Borrowings under the credit facility are collateralized by a security interest in substantially all assets of the Company and its wholly-owned subsidiaries that are not pledged under other debt agreements. The credit agreement also contains covenants that limit the Company's ability to incur debt (including guaranteeing the debt of others) and liens, acquire or dispose of assets, pay dividends on and repurchase its stock, make capital expenditures and make loans or advances to others, including customers.

        On February 13, 2003 we were notified by the Trustee for our $165.0 million 8.5% Senior Subordinated Notes, due in 2008 that a default had occurred under the Indenture as a result of our failure to file our Form 10-Q for the third quarter ended October 5, 2002 with the SEC and that, unless remedied within the 30 day grace period, such failure would constitute an event of default under the Indenture. In addition, if the default was not remedied within the 30 days, an event of default would also occur under our bank credit facility.

        On February 28, 2003 we announced that holders of more than 51% of our Senior Subordinated Notes agreed to waive the default under the Indenture. The waiver requires us to file our Form 10-Q for the third fiscal quarter of 2002 by May 15, 2003. Such holders also agreed to extend the time for us

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to file our Form 10-K for our fiscal year ended December 28, 2002 until May 30, 2003 and our Form 10-Q for the first fiscal quarter ended March 22, 2003 until June 15, 2003. In consideration for the waiver, we paid a fee to the bondholders equal to 1.5% of the outstanding principal amount of the notes.

        On March 26, 2003, we announced that the requisite number of bank lenders under our revolving credit facility had agreed to extend until June 15, 2003 the deadline for submission to the lenders of our audited fiscal 2002 financial statements. The credit agreement had originally called for us to provide to our lenders our audited financial statements for fiscal 2002 by March 28, 2003. In consideration for the amendment to the credit facility, we paid a fee to the bank lenders equal to 0.5% of the sum of our revolving loan commitments and aggregate outstanding term loans as of the effective date of the amendment.

        For debt obligations, the following table presents principal cash flows, related weighted average interest rates by expected maturity dates and fair value as of December 28, 2002:

        We have market risk exposure to changing interest rates primarily as a result of our borrowing activities and commodity price risk associated with anticipated purchases of diesel fuel. Our objective in managing our exposure to changes in interest rates and commodity prices is to reduce fluctuations in earnings and cash flows. To achieve these objectives, we use derivative instruments, primarily interest rate and commodity swap agreements, to manage risk exposures when appropriate, based on market conditions. We do not enter into derivative agreements for trading or other speculative purposes, nor are we a party to any leveraged derivative instrument.

        The interest rate swap and commodity swap agreements are designated as cash flow hedges and are reflected at fair value in our consolidated balance sheet and the related gains or losses on these contracts are deferred in stockholders' equity as a component of other comprehensive income. Deferred gains and losses are amortized as an adjustment to expense over the same period in which the related items being hedged are recognized in income. However, to the extent that any of these contracts are not considered to be perfectly effective in offsetting the change in the value of the items being hedged, any changes in fair value relating to the ineffective portion of these contracts are immediately recognized in income.

        Interest rate swap agreements are entered into for periods consistent with related underlying exposures and do not constitute positions independent of those exposures. At December 28, 2002, we had three outstanding interest rate swap agreements which commenced on December 6, 2001, July 26, 2002 and December 6, 2002, respectively. The agreements expire on June 6, 2003, September 25, 2004 and October 6, 2004 with notional amounts of $35 million, $50 million and $35 million, respectively. In addition, we are using a commodity swap agreement to reduce price risk associated with anticipated purchases of diesel fuel. The commodity swap agreement, with a notional amount of 3,500 barrels per month, or approximately 40% of our monthly fuel consumption, expires in August 2003.

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        The three interest rate swap agreements described above total $120.0 million in notional amounts, which are used to calculate the contractual cash flows to be exchanged under the contract. Interest rate swap agreements outstanding at year end and their fair value at that date are summarized as follows (in thousands):

        We expect our capital expenditures for fiscal 2003 to approximate $60.0 million excluding acquisitions. Approximately $40.0 million of the 2003 capital budget has been identified for use in the Company's retail segment with the remaining balance relating to distribution maintenance, information technology and other corporate projects.

        We believe that cash flows from operations, short-term bank borrowings, various types of long-term debt and lease and equity financing will be adequate to meet our working capital needs, planned capital expenditures and debt service obligations for the foreseeable future.

NEW ACCOUNTING STANDARDS

        In June 2001, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 142, "Goodwill and Other Intangible Assets". SFAS No. 142 requires that goodwill and intangible assets with indefinite useful lives no longer be amortized but instead be tested for impairment at least annually. Separable intangible assets that are not deemed to have an indefinite life will continue to be amortized over their useful lives. We were required to apply provisions SFAS No. 142 at the beginning of 2002, at which time goodwill was tested for impairment. We have performed the required impairment test of goodwill upon adoption and as of December 28, 2002 and determined that no impairment issues exist.

        In October 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets", (SFAS No. 144). This statement addresses financial accounting and reporting for the impairment or disposal of long-lived assets. SFAS No. 144 retains and expands upon the fundamental provisions of existing guidance related to the recognition and measurement of the impairment of long-lived assets to be held and used and the measurement of long-lived assets to be disposed of by sale and broadens the financial reporting presentation of discontinued operations to include more disposal transactions. On December 30, 2001, we adopted SFAS No. 144. The standard did not have a significant effect on our consolidated financial statements.

        In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections", (SFAS No. 145). SFAS No. 145 allows only gains and losses on the extinguishment of debt that meet the criteria of extraordinary items to be treated as such in the financial statements. SFAS No. 145 also requires sales-leaseback accounting for certain lease modifications that have economic effects that are similar to sales-leaseback transactions. Certain provisions of SFAS No. 145 are effective for transactions occurring after May 15, 2002, while the remaining provisions became effective for us on December 29, 2002. The standard did not and is not expected to have a significant effect on our consolidated financial statements.

        In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities", (SFAS No. 146). SFAS No. 146 addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies Emerging Issues Task Force (EITF) Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)". SFAS No. 146 applies to costs associated

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with an exit activity that does not involve an entity newly acquired in a business combination or with a disposal activity covered by SFAS No. 144. The provisions of SFAS No. 146 are effective for exit or disposal activities that are initiated after December 31, 2002.

        In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based Compensation Transition and Disclosure—an Amendment of FASB Statement No. 123", (SFAS No. 148). SFAS No. 148 provides two additional transition methods for entities adopting the fair value method of accounting for stock issued to employees and requires expanded disclosure regarding stock-based compensation in the Summary of Significant Accounting Polices in the Notes to the Consolidated Financial Statements. The adoption of the standard did not have a financial impact on the consolidated financial statements. The expanded disclosure will be required in our quarterly financial reports beginning the first quarter of 2003.

        In November 2002, the FASB issued Interpretation No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others", (FIN 45). FIN 45 elaborates on the existing disclosure requirements for most guarantees, including residual value guarantees issued in conjunction with operating lease agreements. It also clarifies that at the time a company issues a guarantee, the company must recognize an initial liability for the fair value of the obligation it assumes under that guarantee and must disclose that information in its interim and annual financial statements. The initial recognition and measurement provisions apply on a prospective basis to guarantees issued or modified after December 31, 2002. The disclosure requirements are effective for financial statements of interim or annual periods ending after December 15, 2002. The adoption of FIN 45 will have no impact on our historical financial statements as existing guarantees are not subject to the measurement provisions of FIN 45. Future guarantees, if issued, will be accounted for in accordance with this pronouncement.

        Emerging Issue Task Force (EITF) Issue No. 01-09, "Accounting for Consideration Given by a Vendor to a Customer (Including a Reseller of a Vendor's Products)", which codified EITF Issue Nos. 00-14, "Accounting for Certain Sales Incentives"; 00-22, "Accounting for Points and Certain Other Time-Based Sales and Incentive Offers"; and 00-25, "Vendor Income Statement Characterization of Consideration Paid to a Reseller of the Vendor's Products" became effective for us on December 30, 2001. These issues address the accounting for consideration given by a vendor to a customer or a reseller of the vendor's products. EITF No. 01-09 did not have a significant effect on our consolidated financial statements.

        EITF Issue No. 02-16, "Accounting by a Customer (Including a Reseller) for Certain Consideration Received from a Vendor", addresses how a reseller of a vendor's products should account for cash consideration received from a vendor and how to measure that consideration in its income statement.

        In January 2003, the EITF concluded that new arrangements, including modifications of existing arrangements entered into after December 31, 2002 should apply the treatment outlined in EITF No. 02-16. If determinable, pro forma disclosure of the impact of the consensus on prior periods presented is encouraged. In March 2003, the EITF concluded that entities may elect to early adopt the provisions of EITF No. 02-16 as a cumulative effect of change in accounting principle. We elected to early adopt the provisions of EITF No. 02-16 at the beginning of fiscal 2002, and recognized a charge of $7.0 million, net of income taxes of $4.4 million, that represents the cumulative effect of a change in accounting principle as of the beginning of fiscal 2002. The impact of the adoption of EITF No. 02-16, on the year ended December 28, 2002, excluding the cumulative effect adjustment, was an increase to net earnings of $0.8 million, net of income taxes of $0.6 million.

        In January 2003, the FASB issued FIN No. 46, "Consolidation of Variable Interest Entities". FIN No. 46 states that companies that have exposure to the economic risks and potential rewards from another entity's assets and activities may have a controlling financial interest in a variable interest entity and should consolidate the entity, despite the absence of clear control through a voting equity interest.

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The consolidation requirements apply to all variable interest entities created after January 31, 2003. For variable interest entities that existed prior to February 1, 2003 the consolidation requirements are effective for annual or interim periods beginning after June 15, 2003 (the third quarter of 2003 for us), regardless of when the variable interest was created. We are currently evaluating the impact the adoption of FIN No. 46 will have on the consolidated financial statements.

CAUTIONARY FACTORS

        Nash Finch and its representatives may, from time to time, make written or oral forward-looking statements relating to developments, results, conditions or other events that the Company expects or anticipates will occur in the future. These forward-looking statements may involve a wide variety of topics, such as the Company's future financial performance or condition, its strategies, market or economic conditions or the competitive environment. Any forward-looking statements made are based on management's then current expectations and assumptions and, as a result, are subject to various risks and uncertainties that could cause actual results or conditions to differ materially from those predicted or projected.

        The following cautionary factors are considered to be the more significant factors that could cause actual results to differ materially from those predicted or projected by any forward-looking statements, and are provided here as a readily available reference. These factors are in addition to any other cautionary statements, written or oral, which may be made or referred to in connection with any forward-looking statement, or contained elsewhere in this report.

Competitive Conditions

        The wholesale food distribution and food retailing businesses are intensely competitive, characterized by high inventory turnover, narrow profit margins and increasing consolidation. Our food retailing business, focused on the Upper Midwest, has historically competed with traditional grocery stores and is increasingly competing with alternative store formats such as supercenters, warehouse clubs and extreme value food stores. Our distribution business competes not only with local, regional and national food distributors, but also with vertically-integrated national and regional chains utilizing a variety of formats, including supercenters, supermarkets and warehouse clubs. Some of our competitors are substantially larger and may have greater financial resources, lower merchandise acquisition costs and lower operating expenses than we do, intensifying price competition at the wholesale and retail levels. Industry consolidation and the expansion of alternative store formats, which have gained market share at the expense of traditional grocery stores, tend to produce even stronger competition for our food retail business and for the independent retailer customers of our distribution business. To the extent our independent customers are acquired by competitors or are not successful in competing with other retail chains and non-traditional competitors, sales by our distribution business will also be affected. If we fail to effectively implement strategies to respond to these competitive pressures, our operating results could be adversely affected by price reductions, decreased sales or margins, or loss of market share.

Economic Conditions

        The food distribution and retailing industry is sensitive to national and regional economic conditions, particularly those that influence consumer confidence, spending and buying habits. Economic downturns or uncertainty may not only adversely affect overall demand and exacerbate price competition, but also cause consumers to "trade down" by purchasing lower priced, and often lower margin, items and to purchase less in traditional supermarket channels. These consumer responses, coupled with the impact of general economic factors such as prevailing interest rates, food price inflation or deflation, employment trends in our markets, and labor and energy costs, can also have a significant impact on the Company's operating results and performance with respect to forecasts.

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Increasing volatility in financial markets may cause these factors to change with a greater degree of frequency and magnitude.

Credit Risk

        In the ordinary course of business, we extend credit, including loans, to our food distribution customers, and provide financial assistance to some customers by guaranteeing their loan or lease obligations. We also lease store sites for sublease to independent retailers. Generally, our loans and other financial accommodations are extended to small businesses that are unrated and have limited access to conventional financing. Greater than expected losses from existing or future credit extensions, loans, guarantee commitments or sublease arrangements, particularly in times of economic difficulty or uncertainty, could negatively impact our financial condition and operating results.

Expansion and Acquisition

        The growth strategy for our retail and distribution businesses includes new store openings, new affiliations and acquisitions. Expansion is subject to a number of risks, including the adequacy of our capital resources, the location of suitable store or distribution center sites and the negotiation of acceptable lease or purchase terms, the expansion into formats with which we have limited experience, and the ability to hire and train employees. Acquisitions entail certain additional risks such as identifying suitable candidates, effecting acquisitions at acceptable rates of return, timely and effectively integrating the operations, systems and personnel of the acquired business, and diversion of management's time and attention from other business concerns.

Indebtedness and Liquidity

        Our current level of debt and covenants in the documents governing our outstanding debt could limit our operating and financial flexibility. Our ability to respond to market conditions and opportunities as well as capital needs could be constrained by the degree to which we are leveraged, by changes in the availability or cost of capital, and by contractual limitations on the degree to which we may, without the consent of our lenders, take actions such as engaging in mergers or acquisitions, incurring additional debt, making capital expenditures and making investments, loans or advances. If needs or opportunities were identified that would require financial resources beyond existing resources, obtaining those resources could increase the Company's borrowing costs, further reduce financial flexibility, require alterations in strategies and affect future operating results.

Other Factors

        Other factors that could cause actual results to differ materially from those predicted include changes in federal, state and local laws and regulations; changes affecting the food distribution and retail industry generally, such as a shift in consumer preferences towards eating away from home, other changes in consumer buying and spending patterns, the growth of alternative store formats, and the manner in which vendors target their promotional dollars; the ability to attract and retain qualified employees; unanticipated problems with product procurement and changes in vendor promotions or allowances; adverse determinations or developments with respect to litigation, other legal proceedings or the SEC investigation of Nash Finch; the success or failure of new business ventures or initiatives; natural disasters and acts of terrorism.

        The foregoing discussion of important factors is not exhaustive, and we do not undertake to revise any forward-looking statement to reflect events or circumstances that occur after the date the statement is made.

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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

        Our exposure in the financial markets consists of changes in interest rates relative to our investment in notes receivable, the balance of debt obligations outstanding, and derivatives employed from time to time to time to hedge long term variable interest rate debt. In addition, we are using a commodity swap agreement to reduce price risk associated with anticipated purchases of diesel fuel.

        We carry notes receivable because, in the normal course of business, we make long-term loans to certain retail customers. Substantially all notes receivable are based on floating interest rates which adjust to changes in market rates. As a result, the carrying value of notes receivable approximates market value. (Refer to Part II, Item 8 of this report under Note 7—"Accounts and Notes Receivable" in Notes to Consolidated Financial Statements for more information). See disclosures set forth under Item 7 under the caption "Liquidity and Capital Resources."

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Nash Finch Company
Report of Management

        The consolidated financial statements are the responsibility of management and have been prepared in conformity with generally accepted accounting principles and include, where required, amounts based on management's best estimates and judgments. Financial information appearing throughout this Annual Report is consistent with that in the consolidated financial statements. In order to meet its responsibility, management maintains a system of internal controls designed to provide reasonable assurance that assets are safeguarded and that all transactions are properly authorized and reflected in the financial records. The concept of reasonable assurance recognizes that the relative cost of a control procedure should not exceed the expected benefits. Management believes the selection and development of qualified personnel, the establishment and communication of accounting and administrative policies and procedures (including a code of conduct), and a program of internal audit are important elements of these control systems. The report of Ernst & Young LLP, the Company's independent accountants, covering their audit of the financial statements, is included in this Annual Report. Their independent audit of the Company's financial statements includes a review of the system of internal accounting controls to the extent they consider necessary to evaluate the system as required by auditing standards generally accepted in the United States. The Audit Committee of the Board of Directors, composed entirely of directors who are not employees of the Company and who are, in the opinion of the Board of Directors, free of any relationships that would interfere with the exercise of judgment independent of management, meets regularly with financial management, the independent auditors, and the director of internal audit to review accounting control, auditing and financial reporting matters. The internal and independent auditors have unrestricted access to the Audit Committee.

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REPORT OF INDEPENDENT AUDITORS

The Board of Directors and Stockholders
Nash Finch Company:

        We have audited the accompanying consolidated balance sheets of Nash Finch Company and subsidiaries as of December 28, 2002 and December 29, 2001, and the related consolidated statements of income, stockholders' equity, and cash flows for each of the three years in the period ended December 28, 2002. Our audits also included the financial statement schedule listed in the Index at Item 15(2). These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.

        We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

        In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Nash Finch Company and subsidiaries at December 28, 2002 and December 29, 2001, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 28, 2002, in conformity with accounting principles generally accepted in the United States. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.

        As discussed in Note 1 to the consolidated financial statements, effective December 30, 2001, the Company adopted Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets."

May 12, 2003
Minneapolis, Minnesota

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NASH FINCH COMPANY AND SUBSIDIARIES
Consolidated Statements of Income

See accompanying notes to consolidated financial statements.

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

See accompanying notes to consolidated financial statements.

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