Washington, DC 20549

 

FORM 10-Q

 

(Mark One)

 

or

 

 

Commission File No. 0-785

 

 

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 (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

 

 

Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

Yes  ý     No  o

 

As of April 20, 2004, 12,301,896 shares of Common Stock of the Registrant were outstanding.

 

 

Index

 

Part I – FINANCIAL INFORMATION
Item 1.	Consolidated Financial Statements and Notes
	Consolidated Statements of Income
	Consolidated Balance Sheets
	Consolidated Statements of Cash Flows
	Notes to Consolidated Financial Statements
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 3.	Quantitative and Qualitative Disclosures about Market Risk
Item 4.	Controls and Procedures
Part II – OTHER INFORMATION
Item 6.	Exhibits and Reports on Form 8-K
SIGNATURES

 

2

 

NASH FINCH COMPANY AND SUBSIDIARIES

Consolidated Statements of Income (unaudited)

(In thousands, except per share amounts)

 

		Twelve Weeks Ended
		March 27, 2004			March 22, 2003
Sales		$	879,454		$	856,664
Cost and expenses:
Cost of sales		779,606			756,640
Selling, general and administrative		75,430			74,447
Operating earnings		24,418			25,577
Depreciation and amortization		10,156			9,440
Interest expense		6,505			10,791
Total costs and expenses		871,697			851,318
Earnings before income taxes		7,757			5,346
Income tax expense		3,025			2,085
Net earnings		$	4,732		$	3,261
Net earnings per share:
Basic earnings per share		$	0.39		$	0.27
Diluted earnings per share		$	0.38		$	0.27
Cash dividends per common share		$	0.135		$	—
Weighted average number of common shares outstanding and common equivalent shares outstanding:
Basic		12,276			11,903
Diluted		12,445			11,963

 

See accompanying notes to consolidated financial statements.

 

3

 

NASH FINCH COMPANY & SUBSIDIARIES

Consolidated Balance Sheets

(in thousands, except per share amounts)

 

		March 27, 2004			January 3, 2004			March 22, 2003
		(unaudited)						(unaudited)
Assets
Current assets:
Cash and cash equivalents		$	9,069		$	12,757		$	14,538
Accounts and notes receivable, net		148,208			145,902			148,197
Inventories		242,512			236,289			250,447
Prepaid expenses		13,529			15,136			14,322
Deferred tax assets		5,850			5,726			11,292
Total current assets		419,168			415,810			438,796
Investments in affiliates		20			20			180
Notes receivable, net		32,901			31,178			33,616
Property, plant and equipment:
Land		24,000			24,121			25,477
Buildings and improvements		160,735			163,693			155,579
Furniture, fixtures and equipment		323,488			328,318			324,958
Leasehold improvements		87,141			86,746			76,226
Construction in progress		461			1,673			4,313
Assets under capitalized leases		41,570			41,661			42,040
		637,395			646,212			628,593
Less accumulated depreciation and amortization		(384,109		)	(383,861		)	(366,076		)
Net property, plant and equipment		253,286			262,351			262,517
Goodwill		149,792			149,792			150,053
Investment in direct financing leases		13,148			13,426			14,214
Other assets		13,182			13,775			15,062
Total assets		$	881,497		$	886,352		$	914,438
Liabilities and Stockholders’ Equity
Current liabilities:
Outstanding checks		$	6,152		$	23,350		$	10,595
Current maturities of long-term debt and capitalized lease obligations		5,371			5,278			7,035
Accounts payable		171,956			166,742			185,287
Accrued expenses		80,669			78,768			100,977
Income taxes payable		10,405			10,614			9,410
Total current liabilities		274,553			284,752			313,304
Long-term debt		281,600			281,944			317,836
Capitalized lease obligations		43,959			44,639			46,582
Deferred tax liability, net		7,524			6,358			71
Other liabilities		11,287			12,202			11,644
Commitments and Contingencies
Stockholders’ equity:
Preferred stock - no par value. Authorized 500 shares; none issued		—			—			—
Common stock - $1.66 2/3 par value. Authorized 50,000 shares, issued 12,314, 12,152 and 12,012 shares, respectively		20,524			20,255			20,021
Additional paid-in capital		30,026			27,995			26,344
Restricted stock		(400		)	(475		)	(762		)
Accumulated other comprehensive income		(5,678		)	(5,970		)	(7,447		)
Retained earnings		218,500			215,417			187,906
		262,972			257,222			226,062
Less cost of 21, 35 and 70 shares of common stock in treasury, respectively		(398		)	(765		)	(1,061		)
Total stockholders’ equity		262,574			256,457			225,001
Total liabilities and stockholders’ equity		$	881,497		$	886,352		$	914,438

 

See accompanying notes to consolidated financial statements.

 

4

 

 

NASH FINCH COMPANY AND SUBSIDIARIES

Consolidated Statements of Cash Flows (unaudited)

(In thousands)

 

		Twelve Weeks Ended
		March 27, 2004			March 22, 2003
Operating activities:
Net earnings		$	4,732		$	3,261
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		10,156			9,440
Amortization of deferred financing costs		259			260
Amortization of rebatable loans		714			68
Provision for bad debts		780			1,437
Deferred income tax expense		1,042			2,769
Gain on sale of property, plant and equipment		(469		)	(173		)
LIFO charge		392			400
Asset impairments		—			390
Other		199			(95		)
Changes in operating assets and liabilities, net of effects of acquisitions
Accounts and notes receivable		(2,579		)	17,784
Inventories		(6,615		)	(2,533		)
Prepaid expenses		1,607			(1,714		)
Accounts payable		5,214			13,391
Accrued expenses		2,193			6,052
Income taxes payable		(209		)	(663		)
Other assets and liabilities		(238		)	(523		)
Net cash provided by operating activities		17,178			49,551
Investing activities:
Disposal of property, plant and equipment		1,937			751
Additions to property, plant and equipment		(2,958		)	(3,664		)
Business acquired, net of cash		—			(2,054		)
Loans to customers		(2,513		)	(3,264		)
Payments from customers on loans		580			1,584
Other		477			2
Net cash used in investing activities		(2,477		)	(6,645		)
Financing activities:
Payments of revolving debt		—			(39,400		)
Dividends paid		(1,649		)	—
Payments of long-term debt		(343		)	(3,375		)
Payments of capitalized lease obligations		(588		)	(531		)
Decrease in outstanding checks		(17,198		)	(16,481		)
Other		1,389			—
Net cash used in financing activities		(18,389		)	(59,787		)
Net decrease in cash		(3,688		)	(16,881		)
Cash at beginning of year		12,757			31,419
Cash at end of year		$	9,069		$	14,538

 

See accompanying notes to consolidated financial statements.

 

5

 

Nash Finch Company and Subsidiaries

Notes to Consolidated Financial Statements

March 27, 2004

 

Note 1 – Basis of Presentation

 

The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information.  Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements.  For further information, refer to the consolidated financial statements and footnotes included in the Company’s Annual Report on Form  10-K for the year ended January 3, 2004.

 

The accompanying financial statements include all adjustments which are, in the opinion of management, necessary to present fairly the financial position of the Company and its subsidiaries at March 27, 2004, January 3, 2004 and March 22, 2003, and the results of operations and changes in cash flows for the twelve weeks ended March 27, 2004 and March 22, 2003.  All material intercompany accounts and transactions have been eliminated in the unaudited consolidated financial statements.  Results of operations for the interim periods presented are not necessarily indicative of the results to be expected for the full year.

 

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes.  Actual results could differ from those estimates.

 

Note 2 – Vendor Allowances and Credits

 

The Company participates with its 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 the Company’s vendors.

 

In the case of off-invoice allowances, discounts are typically offered by vendors with respect to certain merchandise purchased by the Company during a specified period of time.  The Company uses 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 the Company is 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 the Company’s 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, 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 the Company is invoiced at the regular price with the understanding that the Company may bill back the vendor for the requisite allowance when the performance is satisfied.

 

6

 

Collectively with its vendors, the Company plans promotions and arrives at the amount the respective vendor plans to spend on promotions with the Company. The Company 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 the Company during the period.  In most situations, the vendor allowances are based on units the Company purchased from the vendor.  In other situations, the allowances are based on its past or anticipated purchases and/or the anticipated performance of the planned promotions.

 

The Company jointly negotiates with its vendors the promotional calendar that governs all promotions. Forecasting promotional expenditures is a critical part of the Company’s twice yearly planning sessions with its vendors.  Most vendors work with the Company 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 the Company’s promotional program execution and spend rate.  The vendors discuss the tracking, performance and spend rate with the Company 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 the Company. 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.

 

Note 3 - Inventories

 

The Company uses the LIFO method for valuation of a substantial portion of inventories.  An actual valuation of inventory under the LIFO method can be made only at the end of each year based on the inventory levels and costs at that time.  Accordingly, interim LIFO calculations must necessarily be based on management’s estimates of expected year-end inventory levels and costs.  Because these are subject to many factors beyond management’s control, interim results are subject to the final year-end LIFO inventory valuation. If the FIFO method had been used, inventories would have been approximately $44.8 million, $44.4 million and $45.9 million higher at March 27, 2004, January 3, 2004 and March 22, 2003, respectively.  For the twelve weeks ending March 27, 2004 and March 22, 2003, the Company recorded a LIFO charge of $0.4 million.

 

Note 4 – Stock Option Plans

 

As permitted by the provisions of Statement of Financial Accounting Standard (SFAS) No. 123, “Accounting for Stock-Based Compensation”, the Company has chosen to continue to apply Accounting Principles Board Opinion No. 25 (APB 25), “Accounting for Stock Issued to Employees” and related interpretations in accounting for its stock-based compensation.  As a result, the Company does not recognize compensation costs if the option price equals or exceeds the market price at the date of grant. The following table illustrates the effect on net income and earnings per share for the twelve weeks ended March 27, 2004 and March 22, 2003 if the Company had applied the fair value recognition provisions of SFAS No. 123, “Accounting for Stock-Based Compensation”, to stock-based employee compensation (in thousands, except per share amounts):

 

7

 

 

		Twelve Weeks Ended
		March 27, 2004			March 22, 2003
Reported net income		$	4,732		$	3,261
Add: stock-based compensation expense from restricted stock plan included in net income		75			131
Deduct: stock-based compensation expense from restricted stock plan included in net income		(75		)	(131		)
Deduct: total stock-based employee compensation expense determined under fair value method for all option awards, net of tax		(142		)	(335		)
Adjusted net income		$	4,590		$	2,926
Reported basic earnings per share		$	0.39		$	0.27
Adjusted basic earnings per share		$	0.37		$	0.25
Reported diluted earnings per share		$	0.38		$	0.27
Adjusted diluted earnings per share		$	0.37		$	0.24

 

Note 5 – Other Comprehensive Income

 

Comprehensive income is as follows (in thousands):

 

		Twelve Weeks Ended
		March 27, 2004			March 22, 2003
Net earnings:		$	4,732		$	3,261
Unrealized gain, net of tax		178			37
Comprehensive income		$	4,910		$	3,298

 

During 2004 and 2003, other comprehensive income consisted of market value adjustments to reflect derivative instruments designated as cash flow hedges at fair value, pursuant to SFAS No. 133.

 

Note 6 – Recently Adopted and Issued Accounting Standards

 

In January 2003, the FASB issued Interpretation No. 46, “Consolidation of Variable Interest Entities – an Interpretation of ARB No. 51” (FIN No. 46).  In general, a variable interest entity is a corporation, partnership, trust, or any other legal structure used for business purposes that either (a) does not have equity investors with voting rights or (b) has equity investors that do not provide sufficient financial resources for the entity to support its activities.  A variable interest entity often holds financial assets, including loans or receivables, real estate or other property.  A variable interest entity may be essentially passive or it may engage in activities on behalf of another company.  Until now, a company generally has included another entity in its consolidated financial statements only if it controlled the entity through voting interests.  FIN No. 46 changes that by requiring a variable interest entity to be consolidated by a company if that company is subject to a majority of the risk of loss from the variable interest entity’s activities or is entitled to receive a majority of the entity’s residual returns or both.  On December 17, 2003, the FASB provided a revised interpretation on what constitutes a variable interest under FIN No. 46.  The FASB stated in the revised interpretation that an enterprise need not determine if an entity is a variable interest entity if the entity is a “business” (as defined within EITF Issue No. 98-3, “Determining Whether a Nonmonetary Transaction Involves Receipt of Productive Assets or of a Business”).  As a result of the revised interpretation, the adoption of FIN No. 46 did not have an impact on our consolidated financial statements.

 

8

 

In December 2003, the FASB issued revisions to SFAS No. 132, “Employers’ Disclosures about Pensions and Other Postretirement Benefits”.  The revisions to SFAS No. 132 required changes to existing disclosures as well as new disclosures related to pension and other postretirement benefit plans.  The Company adopted revisions of SFAS No. 132 in the fourth quarter of fiscal 2003 and incorporated the revision in the Company’s consolidated financial statements as of January 3, 2004.  The interim disclosures can be found in Part I, Item 1 of this report under Note 8 – “Pension and Other Post-Retirement Benefits” in Notes to Consolidated Financial Statements.

 

Note 7 – Segment Reporting

 

A summary of the major segments of the business is as follows:

(In thousands)

 

Twelve weeks ended March 27, 2004

 

		Food Distribution			Military			Retail			Totals
Revenue from external customers		$	431,128		$	253,690		$	194,636		$	879,454
Inter-segment revenue		97,828			—			—			97,878
Segment profit		14,493			8,217			2,750			25,460

 

Twelve weeks ended March 22, 2003

 

		Food Distribution			Military			Retail			Totals
Revenue from external customers		$	388,448		$	246,759		$	221,457		$	856,664
Inter-segment revenue		117,556			—			—			117,556
Segment profit		11,203			6,676			7,237			25,116

 

 

Reconciliation to statements of operations:

(In thousands)

 

Twelve weeks ended March 27, 2004 and March 22, 2003

 

		2004			2003
Profit and loss
Total profit for segments		$	25,460		$	25,116
Unallocated amounts:
Adjustment of inventory to LIFO		(392		)	(400		)
Unallocated corporate overhead		(17,311		)	(19,370		)
Earnings before income taxes		$	7,757		$	5,346

 

9

 

 

Note 8 – Guarantees

 

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.

 

In the normal course of business, the Company may guarantee lease and debt obligations of retailers.  In the event these retailers are unable to meet their debt service payments or otherwise experience an event of default, the Company would be unconditionally liable for the outstanding balance of their debt and lease obligations ($12.8 million as of March 27, 2004), which would be due in accordance with the underlying agreements.  We have also assigned various leases to certain food distribution customers.  If the assignees were to become unable to continue making payments under the assigned leases, we estimate our maximum potential obligation with respect to the assigned leases to be $9.4 million as of March 27, 2004.

 

Note 9 – Pension and Other Post-Retirement Benefits

 

The following table presents the components of the Company’s pension and postretirement net periodic benefit cost for the twelve weeks ended March 27, 2004 and March 22, 2003 (in thousands):

 

		Pension Benefits						Other Benefits
		2004			2003			2004			2003
Service cost		$	—		$	5		$	2		$	61
Interest cost		594			610			76			127
Expected return on plan assets		(539		)	(559		)	—			—
Amortization of prior service cost		(4		)	(4		)	(7		)	(137		)
Recognized actuarial (gain) loss		41			32			20			72
Net periodic benefit cost		$	92		$	84		$	91		$	123

 

Weighted-average assumptions used to determine net periodic benefit cost for first quarter of fiscal 2004 and 2003 were as follows:

 

		PENSION BENEFITS				OTHER BENEFITS
		2004		2003		2004		2003
Weighted-average assumptions
Discount rate		6.25	%	6.75	%	6.25	%	6.75	%
Expected return on plan assets		7.50	%	8.00	%	—		—
Rate of compensation increase		4.00	%	4.00	%	—		—

 

Total contributions to the Company’s pension plan in 2004 are expected to be approximately $300,000.

 

In December 2003, the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (the Act) became law in the Unites States.  The act introduces a prescription drug benefit under Medicare as well as a federal subsidy to sponsors of retiree health care benefit plans that provide a benefit that is at least actuarially equivalent to the Medicare benefit.  In accordance with FASB Staff

 

10

 

Position FAS 106-1, “Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003”, the Company has elected to defer recognition of the effects of the Act in any measures of the benefit obligation or cost.  FAS 106-1 will become effective for the Company in the first interim period beginning after June 15, 2004, which for the Company is its third quarter of fiscal 2004.  Finalization of pending guidance could result in a reduction in the accumulated post retirement benefit obligation and future net periodic post retirement benefit cost.

 

Note 10 – Subsidiary Guarantees

 

The following table presents summarized combined financial information for certain wholly owned subsidiaries which guarantee on a full unconditional and joint and several basis, $165.0 million of senior subordinated notes due May 1, 2008, which were offered and sold by the Company on April 24, 1998.

 

The guarantor subsidiaries are 100% owned subsidiaries of the Company.  Condensed consolidating financial information for the Company and its guarantor subsidiaries is as follows:

 

NASH FINCH COMPANY AND SUBSIDIARIES

Consolidating Statements of Income

Twelve Weeks Ended March 27, 2004

(in thousands)

 

		Nash Finch			Guarantor Subsidiaries			Consolidation Adjustments			Nash Finch Company & Subsidiaries
Sales		$	695,485		$	221,639		$	(37,670	)	$	879,454
Cost and expenses:
Cost of sales		622,994			194,282			(37,670		)	779,606
Selling, general and administrative		49,601			25,829			—			75,430
Operating earnings		22,890			1,528			—			24,418
Depreciation and amortization		7,891			2,265			—			10,156
Equity in consolidated subsidiaries		749			—			(749		)	—
Interest expense		6,175			330			—			6,505
Total cost and expenses		687,410			222,706			(38,419		)	871,697
Earnings before income taxes		8,075			(1,067		)	749			7,757
Income tax expense		3,343			(318		)				3,025
Net earnings		$	4,732		$	(749	)	$	749		$	4,732

 

11

 

Twelve Weeks Ended March 22, 2003

(in thousands)

 

		Nash Finch			Guarantor Subsidiaries			Consolidation Adjustments			Nash Finch Company & Subsidiaries
Sales		$	679,130		$	222,504		$	(44,970	)	$	856,664
Cost and expenses:
Cost of sales		606,974			194,636			(44,970		)	756,640
Selling, general and administrative		47,984			26,463			—			74,447
Operating earnings		24,172			1,405			—			25,577
Depreciation and amortization		7,135			2,305			—			9,440
Equity in consolidated subsidiaries		764			—			(764		)	—
Interest expense		10,422			369			—			10,791
Total cost and expenses		673,279			223,773			(45,734		)	851,318
Earnings before income taxes		5,851			(1,269		)	764			5,346
Income tax expense		2,590			(505		)	—			2,085
Net earnings		$	3,261		$	(764	)	$	764		$	3,261

 

12

 

NASH FINCH COMPANY AND SUBSIDIARIES

Condensed Consolidating Balance Sheets

March 27, 2004

(in thousands)

 

		Nash Finch			Guarantor Subsidiaries			Consolidation Adjustments			Nash Finch Company & Subsidiaries
Assets
Current assets:
Cash and cash equivalents		$	8,554		$	515		$	—		$	9,069
Accounts and notes receivable, net		115,531			34,531			(1,854		)	148,208
Accounts receivable/payable subs		65,002			(65,002		)	—			—
Inventories		155,685			86,827			—			242,512
Prepaid expenses		12,311			1,218			—			13,529
Deferred tax assets		11,835			(5,985		)	—			5,850
Total current assets		368,918			52,104			(1,854		)	419,168
Investments in affiliates		197,142			—			(197,122		)	20
Notes receivable, net		24,758			8,143			—			32,901
Net property, plant and equipment		163,875			89,411			—			253,286
Goodwill		32,021			117,771			—			149,792
Other assets		15,492			10,838						26,330
Total assets		$	802,206		$	278,267		$	(198,976	)	$	881,497
Liabilities and Stockholders’ Equity
Current liabilities:
Outstanding checks		$	6,152		$	—		—			$	6,152
Current maturities of long-term debt and capitalized lease obligations		1,778			3,593						5,371
Accounts payable		139,765			34,045			$	(1,854	)	171,956
Accrued expenses		75,005			5,664			—			80,669
Income taxes payable		10,405			—			—			10,405
Total current liabilities		233,105			43,302			(1,854		)	274,553
Long-term debt		271,560			10,040			—			281,600
Capitalized lease obligations		27,909			16,050			—			43,959
Deferred tax liability, net		(2,223		)	9,747			—			7,524
Other liabilities		9,281			2,006			—			11,287
Stockholders’ equity		262,574			197,122			(197,122		)	262,574
Total liabilities and stockholders’ equity		$	802,206		$	278,267		$	(198,976	)	$	881,497

 

13

 

January 3, 2004

(in thousands)

 

		Nash Finch			Guarantor Subsidiaries			Consolidation Adjustments			Nash Finch Company & Subsidiaries
Assets
Current assets:
Cash and cash equivalents		$	12,182		$	575		$			$	12,757
Accounts and notes receivable, net		113,497			34,916			(2,511		)	145,902
Accounts receivable/payable subs		71,312			(71,312		)	—			—
Inventories		150,718			85,571						236,289
Prepaid expenses		13,564			1,572			—			15,136
Deferred tax assets		11,523			(5,797		)	—			5,726
Total current assets		372,796			45,525			(2,511		)	415,810
Investments in affiliates		197,891			—			(197,871		)	20
Notes receivable, net		20,832			10,346						31,178
Net property, plant and equipment		170,085			92,266			—			262,351
Goodwill		32,021			117,771			—			149,792
Other assets		16,073			11,128						27,201
Total assets		$	809,698		$	277,036		$	(200,382	)	$	886,352
Liabilities and Stockholders’ Equity
Current liabilities:
Outstanding checks		$	23,350		$	—					$	23,350
Current maturities of long-term debt and											—
capitalized lease obligations		1,739			3,539						5,278
Accounts payable		137,599			31,654			$	(2,511	)	166,742
Accrued expenses		73,488			5,280						78,768
Income taxes payable		10,626			(12		)	—			10,614
Total current liabilities		246,802			40,461			(2,511		)	284,752
Long-term debt		271,653			10,291			—			281,944
Capitalized lease obligations		28,157			16,482			—			44,639
Deferred tax liability, net		(3,333		)	9,691						6,358
Other liabilities		9,962			2,240						12,202
Stockholders’ equity		256,457			197,871			(197,871		)	256,457
Total liabilities and stockholders’ equity		$	809,698		$	277,036		$	(200,382	)	$	886,352

 

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March 22, 2003

(in thousands)

 

		Nash Finch			Guarantor Subsidiaries			Consolidation Adjustments			Nash Finch Company & Subsidiaries
Assets
Current assets:
Cash and cash equivalents		$	13,971		$	567		—			$	14,538
Accounts and notes receivable, net		111,379			42,107			$	(5,289	)	148,197
Accounts receivable/payable subs		73,390			(73,390		)	—			—
Inventories		156,945			93,502			—			250,447
Prepaid expenses		12,664			1,658						14,322
Deferred tax assets		15,851			(4,559		)	—			11,292
Total current assets		384,200			59,885			(5,289		)	438,796
Investments in affiliates		197,113						(196,933		)	180
Notes receivable, net		26,486			7,130			—			33,616
Net property, plant and equipment		175,511			87,006						262,517
Goodwill		32,021			118,032						150,053
Other assets		17,305			11,971						29,276
Total assets		$	832,636		$	284,024		$	(202,222	)	$	914,438
Liabilities and Stockholders’ Equity
Current liabilities:
Outstanding checks		$	10,595		$	—		—			$	10,595
Current maturities of long-term debt and capitalized lease obligations		3,583			3,452			—			7,035
Accounts payable		154,874			35,702			$	(5,289	)	185,287
Accrued expenses		92,835			8,142			—			100,977
Income taxes payable		10,621			(1,211		)	—			9,410
Total current liabilities		272,508			46,085			(5,289		)	313,304
Long-term debt		305,893			11,943			—			317,836
Capitalized lease obligations		28,852			17,730			—			46,582
Deferred tax liability, net		(8,752		)	8,823						71
Other liabilities		9,134			2,510			—			11,644
Stockholders’ equity		225,001			196,933			(196,933		)	225,001
Total liabilities and stockholders’ equity		$	832,636		$	284,024		$	(202,222	)	$	914,438

 

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NASH FINCH COMPANY AND SUBSIDIARIES

Consolidating Statements of Income

Twelve Weeks Ended March 27, 2004

(in thousands)

 

		Nash Finch			Guarantor Subsidiaries			Consolidation Adjustments			Nash Finch Company & Subsidiaries
Operating activities:
Net cash provided by operating activities		$	16,873		$	305		$	—		$	17,178
Investing activities:
Disposal of property, plant and equipment		1,416			521			—			1,937
Additions to property, plant and equipment		(2,672		)	(286		)	—			(2,958		)
Loans to customers		(2,513		)	—			—			(2,513		)
Payments from customers on loans		551			29			—			580
Other		477			—			—			477
Net cash (used in) provided by investing activities		(2,741		)	264			—			(2,477		)
Financing activities:
Dividends paid		(1,649		)	—			—			(1,649		)
Payments of long-term debt		(91		)	(252		)	—			(343		)
Payments of capitalized lease obligations		(211		)	(377		)	—			(588		)
Decrease in outstanding checks		(17,198		)	—			—			(17,198		)
Other		1,389			—			—			1,389
Net cash used by in financing activities		(17,760		)	(629		)	—			(18,389		)
Net decrease in cash		(3,628		)	(60		)	—			(3,688		)
Cash at beginning of year		12,182			575			—			12,757
Cash at end of year		$	8,554		$	515		$	—		$	9,069

 

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Twelve Weeks Ended March 22, 2003

(in thousands)

 

		Nash Finch			Guarantor Subsidiaries			Consolidation Adjustments			Nash Finch Company & Subsidiaries
Operating activities:
Net cash provided by operating activities		$	46,258		$	3,293		$	—		$	49,551
Investing activities:
Disposal of property, plant and equipment		273			478			—			751
Additions to property, plant and equipment		(1,682		)	(1,982		)	—			(3,664		)
Business acquired, net of cash		(2,661		)	607			—			(2,054		)
Loans to customers		(3,264		)	—			—			(3,264		)
Payments from customers on loans		1,373			211			—			1,584
Other		2			—			—			2
Net cash used in investing activities		(5,959		)	(686		)	—			(6,645		)
Financing activities:
Proceeds of revolving debt		(39,400		)	—			—			(39,400		)
Payments of long-term debt		(1,110		)	(2,265		)	—			(3,375		)
Payments of capitalized lease obligations		(193		)	(338		)	—			(531		)
Decrease in outstanding checks		(16,481		)	—			—			(16,481		)
Net cash used in financing activities		(57,184		)	(2,603		)	—			(59,787		)
Net increase (decrease) in cash		(16,885		)	4			—			(16,881		)
Cash at beginning of year		30,856			563			—			31,419
Cash at end of year		$	13,971		$	567		$	—		$	14,538

 

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ITEM 2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

OVERVIEW

 

We are one of the leading food distribution and retail companies in the United States, with approximately $4.0 billion in annual sales.  Approximately 49% of our sales for the twelve weeks ended March 27, 2004 were the result of our food distribution segment, which sells and distributes a wide variety of nationally branded and private label products to independent grocery stores and institutional customers primarily in the Midwest and Southeast.  Approximately 29% of our first quarter 2004 sales were the result of our military food distribution segment, which contracts with vendors to distribute a wide variety of grocery products to military commissaries located primarily in the Mid-Atlantic region of the Unites States, and in Europe, Cuba, Puerto Rico and Iceland.  The remaining 22% of our first quarter 2004 sales were attributed to our retail segment, which as of March 27, 2004, operated 106 corporate-owned stores primarily in the Upper Midwest.

 

During the first quarter of 2004, our food distribution revenue grew by 11% compared to the same period last year primarily as a result of new customer accounts, the largest number of whom are former customers of Fleming Companies, Inc.  We believe that additional business opportunities will be available to our food distribution segment throughout 2004 from former customers of Fleming and other wholesalers, from independent operators who purchase stores from major retailers seeking to rationalize their markets, and from retailers adding groceries to their product offerings.  The degree to which we are able to capitalize on these opportunities will determine the degree to which new business gains can exceed customer attrition in the historical range of two to four percent.  Profitability in our military segment increased in the first quarter of fiscal 2004 as a result of efficiencies gained through the consolidation of two large warehouse facilities in fiscal 2003.

 

Our retail segment, comprised primarily of conventional grocery stores, continued to be negatively affected by increasing competition, primarily from the growth of alternative store formats that have gained market share at the expense of conventional stores.  Retail segment profits compared negatively to the prior year partially due to the impact of negative same store sales and partially due to losses incurred by the AVANZA stores opened last year.  To defend and improve upon the competitive position of our retail segment, we are assessing and have begun to undertake a variety of initiatives of varying scope and duration, including improved merchandising and pricing strategies, improving store-level execution and improving perishables offerings and quality.

 

RESULTS OF OPERATIONS

 

The following discussion compares our operating results for the twelve weeks ended March 27, 2004 to the twelve weeks ended March 22, 2003.

 

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Sales

 

The following tables summarize our sales activity for the twelve weeks ended March 27, 2004 compared to the twelve weeks ended March 22, 2003 (dollars in millions):

 

		2004							2003
Segment sales:		Sales			Percent of Sales		Percent Change		Sales			Percent of Sales
Food Distribution		$	431.1		49.0	%	11.0	%	$	388.4		45.3	%
Military		253.7			28.9	%	2.8	%	246.8			28.8	%
Retail		194.7			22.1	%	(12.1	)%	221.5			25.9	%
Total Sales		$	879.5		100.0	%	2.7	%	$	856.7		100.0	%

 

The increase in food distribution sales for twelve weeks ended March 27, 2004 is due to new business with former Fleming customers and other new accounts as well as growth from our existing customer base.  Partially offsetting this increase were reduced sales to, and store closings by, certain independent retailers because of increased competition in their respective markets.

 

The increase in military segment sales for the twelve weeks ended March 27, 2004 is primarily due to product line extensions in our domestic commissary business.

 

The decrease in retail segment sales for the twelve weeks ended March 27, 2004 primarily reflects a 10.9% decrease in same store sales, which compares retail sales for stores which were in operation for the same number of weeks in the comparative periods.  The decline is attributed to the intense level of competition throughout our retail marketing areas, largely reflecting the growth of supercenter competition, and retail customers trading down and/or purchasing less in conventional supermarket channels.  During the twelve weeks ended March 27, 2004 our corporate store count changed as follows:

 

Number of stores at beginning of period		110
Closed or sold stores		(4	)
Number of stores at end of period		106

 

Gross Profit

 

Gross profit (calculated as sales less cost of sales) for the twelve weeks ended March 27, 2004 was 11.4% of sales compared to 11.7% for the same period last year.  Gross profit was negatively impacted for the twelve weeks ended March 27, 2004 compared to the same period last year because retail segment sales, which earn a higher gross profit than food distribution and military segment sales, represented a smaller percentage of our total sales.  The decrease in our overall gross profit margin was partially offset by improved gross profit margins in the military and food distribution segments.  The increase in our military segment was due to efficiencies gained through the consolidation of two large warehouse facilities in the second and third quarters of fiscal 2003, while the improvement in our food distribution segment reflected greater efficiencies in warehouse and transportation costs.

 

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Selling, General and Administrative Expenses

 

Selling, general and administrative expenses (SG&A) for the twelve weeks ended March 27, 2004 were 8.6% of sales compared to 8.7% for the same period last year.  This decrease in SG&A expenses as a percentage of sales primarily reflected the fact that first quarter fiscal 2004 sales in our retail segment, which has higher SG&A expenses than our food distribution and military distribution segments, represented a smaller percentage of our total sales.  The impact on SG&A as a percentage of sales resulting from the decrease in our retail sales was partially offset by our retail segment’s fixed costs, which remained flat quarter over quarter.

 

Depreciation and Amortization Expense

 

Depreciation and amortization expense for the twelve weeks ended March 27, 2004 increased by $0.7 million compared to the same period last year.  The increase in depreciation and amortization primarily represents additional information technology projects added subsequent to the first quarter of 2003 and in the first quarter of 2004 which are being depreciated over three years.

 

Interest Expense

 

Interest expense for the twelve weeks ended March 27, 2004 decreased by $4.3 million compared to the same period last year, primarily due to $3.8 million paid to our bondholders and bank lenders in 2003 as consideration for waivers to extend the deadlines for filing certain 2002 and 2003 periodic reports.  In addition, our average borrowing level under our bank credit facility decreased from $159.8 million for the twelve weeks ended March 22, 2003 to $104.1 million for the twelve weeks ended March 27, 2004.  Partially offsetting the impact of these factors was an increase in our effective interest rate from 4.9% for the twelve weeks ended March 22, 2003 to 5.5% for the twelve weeks ended March 27, 2004.

 

Income Taxes

 

Income tax expense is provided on an interim basis using management’s estimate of the annual effective rate.  The effective income tax rate was 39.0% for both the twelve weeks ended March 27, 2004 and March 22, 2003.

 

Net Earnings

 

Net earnings for the twelve weeks ended March 27, 2004 were $4.7 million, or $0.38 per diluted share, compared to $3.3 million, or $0.27 per diluted share, for the twelve weeks ended March 22, 2003.  As noted above, net earnings in the first quarter of fiscal 2003 were adversely affected by $2.3 million net of tax, or $0.20 per diluted share, paid to lenders as consideration for waivers.

 

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CRITICAL ACCOUNTING POLICIES AND ESTIMATES

 

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities.  Management bases its estimates on historical experience, consultation with experts and various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that may not be readily apparent from other sources.

 

An accounting policy is considered critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time the estimate is made, and if different estimates that reasonably could have been used, or changes in the accounting estimates that are reasonably likely to occur periodically, could materially impact our financial statements.  We consider the accounting policies discussed under the caption “Critical Accounting Policies” in Part II, Item 7 of our Form 10-K for the year ended January 3, 2004 to be critical in that materially different amounts could be reported under different conditions or using different assumptions

 

Any effects on our business, financial position or results of operations resulting from revised estimates or different assumptions are recorded in the period in which the facts that give rise to the revision become known.

 

LIQUIDITY AND CAPITAL RESOURCES

 

Historically, we have financed our 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 financing.  For the remainder of fiscal 2004, we expect that cash flow from operations will be sufficient to meet our working capital needs and enable us to further reduce our debt, with temporary draws on our revolving credit line needed during the year to build inventories for certain holidays.  Longer term, 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.

 

Operating cash flows decreased by $32.4 million for the twelve weeks ended March 27, 2004 compared to the same period last year, primarily as a result of a decrease of $17.8 million in accounts receivable in the first quarter 2003, reflecting more efficient receivables management.  In addition, our accounts payable increased by $5.2 million and $13.4 million for the twelve weeks ended March 27, 2004 and March 22, 2003, respectively.

 

Cash used for investing activities decreased by $4.2 million for the twelve weeks ended March 27, 2004 as compared to the same period last year, primarily because we made no acquisitions during the fiscal 2004 quarter.

 

Cash used for financing activities decreased by $41.4 million for the twelve weeks ended March 27, 2004 compared to the same period last year, primarily due to $39.4 million used to pay down our revolving bank credit facility during the first quarter of fiscal 2003.  At March 27, 2004, credit availability under this facility was $123.9 million.

 

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Bank Credit Facility

 

Our bank credit agreement has a five year term ending December 19, 2005 and provides a $100 million term loan and $150 million in revolving credit available for loans which includes $40 million in letters of credit.  It represents one of our primary sources of liquidity, both short-term and long-term, and the continued availability of credit under that agreement is of material importance to our ability to fund our capital and working capital needs.  We anticipate refinancing the current agreement during 2004.

 

The bank credit agreement contains various restrictive covenants, compliance with which is essential to continued credit availability under the credit agreement.  Among the most significant of these restrictive covenants are financial covenants which require us to maintain predetermined ratio levels related to interest coverage, fixed charge coverage, and leverage.  These ratios are based on EBITDA, on a rolling four quarter basis, with some adjustments (“Consolidated EBITDA”).  Consolidated EBITDA is a non-GAAP financial measure that is defined in our bank 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 asset impairments), less subsequent cash payments made on non-cash charges.  Consolidated EBITDA should not be considered an alternative measure of our net income, operating performance, cash flow or liquidity.  It is provided as additional information relative to compliance with our debt covenants.

 

As of March 27, 2004, we were in compliance with all Consolidated EBITDA-based debt covenants as defined in our credit agreement which are summarized as follows:

 

Financial Covenant		Required Ratio		Actual Ratio
Interest Coverage Ratio (1)		3.25:1.00 (minimum)		4.12:1.00
Fixed Charge Coverage Ratio(2)		1.10:1.00 (minimum)		1.53:1.00
Leverage Ratio (3)		3.50:1.00 (maximum)		2.72:1.00

 

(1)   Ratio of Consolidated EBITDA for the trailing four quarters to interest expense for such period.

(2)   Ratio of Consolidated EBITDA plus rent expense for the trailing four quarters to the sum of interest expense, rent expense and capital expenditures for such period.

(3)   Total outstanding debt and capitalized leases to Consolidated EBITDA for the trailing four quarters.

 

Any failure to comply with any of these financial covenants would, after the expiration of any applicable cure period, constitute an event of default under the bank credit agreement, entitling a majority of the bank lenders to, among other things, terminate future credit availability under the agreement and accelerate the maturity of outstanding obligations under that agreement.

 

The following is a summary of the calculation of Consolidated EBITDA (in thousands) for the trailing four quarters ended March 27, 2004 and March 22, 2003:

 

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		2003 Qtr 2			2003 Qtr 3			2003 Qtr 4			2004 Qtr 1			Rolling 4 Qtr
Earnings before income taxes		$	11,910		$	14,105		$	20,572		$	7,757		$	54,344
Interest expense		7,035			9,011			7,032			6,505			29,583
Depreciation and amortization		9,642			13,098			10,232			10,156			43,128
LIFO		400			41			(1,961		)	392			(1,128		)
Closed store lease costs		32			583			187			(129		)	673
Asset impairments		—			1,725			591			—			2,316
Gains on sale of real estate		(126		)	(218		)	(338		)	(82		)	(764		)
Subsequent cash payments on non-cash charges		(508		)	(602		)	(598		)	(565		)	(2.273		)
Curtailment of post retirement plan		—			—			(4,004		)	—			(4,004		)
Total Consolidated EBITDA		$	28,385		$	37,743		$	31,713		$	24,034		$	121,875

 

		2002 Qtr 2			2002 Qtr 3			2002 Qtr 4			2003 Qtr 1			Rolling 4 Qtr.
Earnings before income taxes		$	15,795		$	10,508		$	12,538		$	5,346		$	44,187
Interest expense		6,651			9,235			6,957			10,791			33,634
Depreciation and amortization		9,165			12,298			9,218			9,440			40,121
LIFO		300			—			(3,457		)	400			(2,757		)
Closed store lease costs		—			353			1,101			354			1,808
Asset impairments		—			1,518			5,067			390			6,975
Gains on sale of real estate		(5		)	(1,386		)	(2,428		)	(66		)	(3,885		)
Subsequent cash payments on non-cash charges		(593		)	(684		)	(421		)	(532		)	(2,230		)
Special charge		—			(765		)	—			—			(765		)
Total Consolidated EBITDA		$	31,313		$	31,077		$	28,575		$	26,123		$	117,088

 

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 specify a minimum working capital ratio, limit our ability to incur debt (including guaranteeing the debt of others) and liens, acquire or dispose of assets, pay dividends on and repurchase our stock, make capital expenditures and make loans or advances to others, including customers.

 

Derivative Instruments

 

We have market risk exposure to changing interest rates primarily as a result of our borrowing activities. Our objective in managing our exposure to changes in interest rates is to reduce fluctuations in earnings and cash flows. To achieve these objectives, we use derivative instruments, primarily interest rate 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 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

 

23

 

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 March 27, 2004 we had three outstanding interest rate swap agreements which commenced on July 26, 2002, December 6, 2002 and June 6, 2003 to manage interest rates on a portion of our long-term debt.  The agreements expire on September 25, 2004, October 6, 2004 and October 6, 2004 with notional amounts of $50 million, $35 million and $35 million, respectively.  The agreements call for an exchange of interest payments with us making payments based on fixed rates of 2.75%, 3.5% and 3.97% for the respective time intervals and receiving payments based on floating rates, without an exchange of the notional amount upon which the payments are based.

 

Off-Balance Sheet Arrangements

 

As of the date of this report, we do not participate in transactions that generate relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.

 

FORWARD LOOKING INFORMATION

 

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 include the following:

 

•		the effect of competition on our distribution and retail businesses;
•		the ability to successfully identify and implement initiatives to improve retail operations;
•		general sensitivity to economic conditions;
•		risks entailed by expansion, affiliations and acquisitions;
•		the ability to increase growth and profitability of our distribution business;
•		credit risk from financial accommodations extended to customers;
•		limitations on financial and operating flexibility due to debt levels and debt instrument covenants;
•		possible changes in the military commissary system;
•		changes in vendor promotions or allowances;
•		changes in consumer spending, buying patterns or food safety concerns;
•		adverse determinations or developments with respect to litigation, other legal proceedings or the SEC investigation discussed in Part I, Item 3 of our Annual Report on Form 10-K for the fiscal year ended January 3, 2004;
•		unanticipated problems with product procurement; and
•		the success or failure of new business ventures or initiatives.

 

These factors are discussed more fully in Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year ended January 3, 2004 under the caption “Cautionary Factors.”  You should carefully consider each cautionary factor and all of the other information in this report.  We undertake no

 

24

 

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 SEC.

 

NEW ACCOUNTING STANDARDS

 

In January 2003, the FASB issued Interpretation No. 46, “Consolidation of Variable Interest Entities – an Interpretation of ARB No. 51” (FIN No. 46).  In general, a variable interest entity is a corporation, partnership, trust, or any other legal structure used for business purposes that either (a) does not have equity investors with voting rights or (b) has equity investors that do not provide sufficient financial resources for the entity to support its activities.  A variable interest entity often holds financial assets, including loans or receivables, real estate or other property.  A variable interest entity may be essentially passive or it may engage in activities on behalf of another company.  Until now, a company generally has included another entity in its consolidated financial statements only if it controlled the entity through voting interests.  FIN No. 46 changes that by requiring a variable interest entity to be consolidated by a company if that company is subject to a majority of the risk of loss from the variable interest entity’s activities or is entitled to receive a majority of the entity’s residual returns or both.  On December 17, 2003, the FASB provided a revised interpretation on what constitutes a variable interest under FIN No. 46.  The FASB stated in the revised interpretation that an enterprise need not determine if an entity is a variable interest entity if the entity is a “business” (as defined within EITF Issue No. 98-3, “Determining Whether a Nonmonetary Transaction Involves Receipt of Productive Assets or of a Business”).  As a result of the revised interpretation, the adoption of FIN No. 46 did not have an impact on our consolidated financial statements.

 

In December 2003, the FASB issued revisions to SFAS No. 132, “Employers’ Disclosures about Pensions and Other Postretirement Benefits”.  The revisions to SFAS No. 132 required changes to existing disclosures as well as new disclosures related to pension and other postretirement benefit plans.  We adopted the revisions of SFAS No. 132 and incorporated them in our consolidated financial statements as of January 3, 2004.  The interim disclosures can be found in Part I, Item 1 of this report under Note 8 – “Pension and Other Post-Retirement Benefits” in Notes to Consolidated Financial Statements.

 

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

We have market risk exposure to changing interest rates primarily as a result of our borrowing activities.  We use interest rate swap agreements to manage our risk exposure (See Part II, Item 7 of our January 3, 2004 Form 10-K and Part I, Item 2 of this report under the caption “Liquidity and Capital Resources”).

 

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ITEM 4.  CONTROLS AND PROCEDURES

 

Management of the Company, with the participation and under the supervision of the Chief Executive Officer and Chief Financial Officer has evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e)) as of the end of the period covered by this quarterly report.  Based on this evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures are effective as of the end of the period covered by this quarterly report to provide reasonable assurance that material information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified by the Securities and Exchange Commission’s rules and forms.  There was no change in the Company’s internal control over financial reporting that occurred during the Company’s most recently completed fiscal quarter that materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

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PART II - OTHER INFORMATION

 

ITEM 6.          EXHIBITS AND REPORTS ON FORM 8-K.

 

(a)	Exhibits filed or furnished with this Form 10-Q:
	31.1	Rule 13a-14(a) Certification of the Chief Executive Officer.
	31.2	Rule 13a-14(a) Certification of the Chief Financial Officer.
	32.1	Section 1350 Certification of Chief Executive Officer and Chief Financial Officer (furnished herewith).
(b)	Reports on Form 8-K:
	On February 26, 2004, the Company furnished a Form 8-K reporting under “Item 12 – Results of Operations and Financial Condition” its results for the thirteen and fifty-three weeks ended January 3, 2004.

 

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SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

 

	NASH-FINCH COMPANY
	Registrant
Date:  May 4, 2004	By  /s/ Ron Marshall
	Ron Marshall
	Chief Executive Officer
Date: May 4, 2004	By  /s/ Robert B. Dimond
	Robert B. Dimond
	Executive Vice President and Chief Financial Officer

 

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NASH FINCH COMPANY

 

EXHIBIT INDEX TO QUARTERLY REPORT

ON FORM 10-Q

 

For the Twelve Weeks Ended March 27, 2004

 

Item No.		Item		Method of Filing
31.1		Rule 13a-14(a) Certification of the Chief Executive Officer		Filed herewith
31.2		Rule 13a-14(a) Certification of the Chief Financial Officer		Filed herewith
32.1		Section 1350 Certification of the Chief Executive Officer and Chief Financial Officer		Furnished herewith

 

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