NASH FINCH CO - 10-K Annual Report

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®, Econofoods®, Sun Mart®, Family Thrift Center®, Our Family®, Fame®, Value Choice™, Food Pride® and Fresh Place®. The trademark IGA®, referred to in this report, is the registered trademark of IGA, Inc.

ITEM 1. 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, military food distribution and food retailing. We are the second largest publicly traded wholesale food distributor in the United States. Financial information about our business segments for the three most recent fiscal years is contained in Part II, Item 8 of this report under Note (20)—“Segment Information” of Notes to Consolidated Financial Statements.

Food Distribution Segment

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 other customers located in 26 states across the United States. Our customers are relatively diverse, with the largest customer consisting of a consortium of stores representing approximately 11.5%, and five others representing approximately 4.3%, 3.8%, 3.5%, 3.2% and 3.2% of our fiscal 2004 food distribution sales. No other customer represents more than 3% of our food distribution business. Approximately 48% of our food distribution sales in fiscal 2004 were 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 our other customers. The distribution centers are equipped with modern materials handling equipment for receiving, storing and shipping merchandise and are designed for high-volume operations at low unit costs. For fiscal 2004, our distribution centers had an on-time delivery rate, defined as being within ½ hour of our committed delivery time, of 97.8%, a fill rate, defined as the percentage of cases shipped relative to the number of cases ordered, of 96.1%, and selector accuracy, defined as percentage of cases selected matching the order as submitted by the customer, of 99.6%. We

continue to implement operating initiatives to enhance productivity and expand profitability while providing a higher level of service to our distribution customers. Our distribution centers have varying levels of excess capacity to serve additional customers without materially increasing our costs, which enhances our profitability.

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 food or grocery products. Non-food items and specialty grocery products are distributed from a dedicated area of the distribution center located in Bellefontaine, Ohio, and from two distribution centers located in Sioux Falls, South Dakota. We currently have a fleet of 219 tractors and 722 semi-trailers, which deliver the 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 that allows us to partially mitigate the impact of rising fuel costs.

Products

We sell and distribute primarily 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 premium quality private label products under the proprietary trademark Our Family, a long-standing private label of Nash Finch that offers a high quality alternative to national brands. In addition, we sell and distribute two lower-priced lines of private label products under the Fame and Value Choice trademarks. Under our private label line of products, we offer over 2,000 stock keeping units of competitively priced, high quality grocery products, which compete with national branded and other value brand products.

Services

To further strengthen our relationships with our food distribution customers, we offer, either directly or through third parties, 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;

· retail accounting, budgeting and payroll services;

· personnel management assistance and employee training;

· retail equipment procurement assistance;

· consumer and market research;

· 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 January 1, 2005, we had approximately $37.0 million of loans outstanding to 67 of our food distribution customers, and guaranteed outstanding debt and lease obligations of food distribution customers in the amount of $10.6 million. We typically enter into long-term supply agreements with independent customers, ranging from 2 to 20 years. Approximately 48% of food distribution revenues in fiscal 2004 were from customers subject to such arrangements. These agreements may also contain provisions that give us the opportunity to purchase customers’ independent retail businesses before any third party. In the normal course of business, we also sublease retail properties and assign retail property leases to third parties. We estimate that as of January 1, 2005, our maximum contingent liability exposure with respect to the subleased and assigned leases to be approximately $62.3 million and $20.0 million, respectively.

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 January 1, 2005, we served approximately 67 retail stores under our Food Pride banner and 162 stores under the IGA banner.

Military Food Distribution Segment

Our military food distribution segment, the MDV division, is the largest distributor by revenue of grocery products to U.S. military commissaries. The MDV division serves over 300 military commissaries and exchanges located in the continental United States, Europe, Cuba, Puerto Rico, Iceland the Azores and Honduras. Commissaries that we serve in the United States are located primarily in the Mid-Atlantic region, consisting of the states along the Atlantic coast from New York to North Carolina. Our distribution center in Norfolk, Virginia is exclusively dedicated to supplying products to military commissaries and is strategically located among the largest concentration of military bases in the United States and near Atlantic ports used to ship grocery products to overseas commissaries. Our MDV division has an outstanding reputation as a supplier focused exclusively on U.S. military commissaries, based in large measure on its excellent service metrics, which include fill rate, on-time delivery and handling of order adjustments.

The Defense Commissary Agency, also known as DeCA, operates a chain of commissaries on U.S. military bases throughout the world. DeCA contracts with manufacturers to obtain grocery and related products for the commissary system. Manufacturers either deliver the products to the commissaries themselves or, more commonly, contract with distributors such as us to deliver the product. These distributors act as drayage agents for the manufacturers, purchasing and maintaining inventories of products DeCA purchases from the manufacturers, and providing handling, distribution and transportation services for the manufacturers. Manufacturers who use distributors in this fashion must authorize the distributors as their official representatives to DeCA, and the distributors must adhere to DeCA frequent delivery system procedures governing matters such as product identification, ordering and processing, information exchange and resolution of discrepancies. We obtain distribution contracts with manufacturers through competitive bidding processes and direct negotiations.

As commissaries need to be restocked, DeCA identifies each manufacturer with whom an order is to be placed for additional products, determines which distributor is the manufacturer’s official representative in a particular region, and places a product order with that distributor under the auspices of DeCA’s master contract with the applicable manufacturer. The distributor selects that product from its existing inventory, delivers it to the commissary or commissaries designated by DeCA, and bills the manufacturer for the product shipped. The manufacturer then bills DeCA under the terms of its master contract. Overseas commissaries are serviced in a similar fashion, except that a distributor’s responsibility

is to deliver products as and when needed to the port designated by DeCA, which in turn bears the responsibility for shipping the product to the applicable commissary or overseas warehouse.

After we ship a particular manufacturer’s products to commissaries in response to an order from DeCA, we invoice the manufacturer for the same purchase price as was previously paid by us plus a service or drayage fee that is typically based on a percentage of the purchase price, but may in some cases be based on a dollar amount per case or pound of product handled.

MDV has distribution contracts with over 400 manufacturers that supply products to the DeCA commissary system. These contracts generally have an indefinite term, but may be terminated by either party without cause upon 30 days prior written notice to the other party. The contracts typically specify the commissaries we are to supply on behalf of the manufacturer, the manufacturer’s products to be supplied, service and delivery requirements and pricing and payment terms. The ten largest customers of our MDV division currently represent approximately 45% of the military segment’s annual revenue.

Retail Segment

Our food retailing segment is made up of 85 corporate-owned stores located primarily in the Upper Midwest states of Colorado, Illinois, Iowa, Minnesota, Nebraska, North Dakota, South Dakota, Wisconsin and Wyoming. We believe that approximately 74% of our conventional grocery stores are #1 or #2 in their respective local markets, which include all supermarkets and supercenters within the respective city limits in which our stores are located, based on sales. Our corporate-owned stores, which range from stores in rural trade areas to modern supermarkets in growing urban areas, principally operate under the Econofoods, Sun Mart, Family Thrift Center, AVANZA 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 January 1, 2005, we operated 78 conventional supermarkets, 3 AVANZA grocery stores and 3 Wholesale Food Outlet grocery stores, both of which offer products designed to meet the specific tastes and needs of Hispanic shoppers, and 1 other retail store.

During the second quarter of 2004, we completed a strategic review that identified certain retail stores that did not meet return objectives, provide long-term strategic opportunities or justify additional capital investments. As a result of this review, we closed 18 retail stores at the end of the second quarter and are currently seeking purchasers for our three Denver area AVANZA stores. We also closed four stores during the first quarter of 2004, one store in the third quarter of 2004 and one store in the fourth quarter of 2004. The closure and sale of these stores will benefit the retail segment by enabling us to focus on a variety of retail initiatives, such as improvements in merchandising and pricing strategies, store-level execution, and perishable offerings and quality.

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, dry cleaners, banks, and floral departments. These stores also provide services such as check cashing, fax services, money wiring and phone cards. We emphasize outstanding customer service and have created our G.R.E.A.T. (Greet, React, Escort, Anticipate, Thank) Customer Service Program 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 provide feedback on the results to management and store personnel. “The Fresh Place” concept within our conventional grocery stores is an umbrella banner that emphasizes our high-quality perishable products, such as fresh produce, deli, meats, seafood, baked goods, and takeout foods for today’s busy consumer.

Competition

Food Distribution Segment

Competition is intense among the 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 use technology to increase distribution efficiencies. We compete with local, regional and national food distributors, as well as with vertically-integrated national and regional chains using a variety of formats, including supercenters, supermarkets and warehouse clubs, 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. Continuing our quality service by focusing on key metrics such as our on-time delivery rate, fill rate, and selector accuracy will be essential in maintaining our competitive advantage. We believe we lead the industry in on-time delivery rate, fill rate and selector accuracy, which were 97.8%, 96.1%, and 99.6%, respectively, for fiscal 2004.

Military Food Distribution Segment

We are one of six distributors with annual sales to the DeCA commissary system in excess of $100 million. We estimate that over 95% of DeCA’s purchases from distributors are made through these six distributors. The remaining distributors that supply DeCA tend to be smaller, local providers. In addition, manufacturers themselves deliver or contract with others to deliver certain products, primarily fresh meat, poultry, produce, deli items, soft drinks and snack items, directly to DeCA commissaries. Because of the narrow margins in this industry, it is of critical importance for distributors to achieve economies of scale, which is typically a function of the density or concentration of military bases within the geographic market(s) a distributor serves, and the distributor’s share of that market. As a result, no distributor in this industry has a nationwide presence. Rather, distributors tend to concentrate on specific regions, or areas within specific regions, where they can achieve critical mass and utilize warehouse and distribution facilities efficiently. In addition, distributors that operate larger civilian distribution businesses tend to compete for DeCA commissary business in areas where such business would enable them to more efficiently utilize the capacity of their existing civilian distribution centers. We believe the principal competitive factors among distributors within this industry are customer service, price, operating efficiencies, reputation with DeCA and location of distribution centers. We believe our competitive position is very strong with respect to all these factors within the geographic areas where we compete.

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 that operate 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 supercenter and regional chains. During 2004, there were four new supercenters opened in markets where we operate. In 2005, we expect an additional 13 supercenters to open within our markets. Depending upon the market, 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.

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 and 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 specific shipments of goods to retailers, or to customers in the case of our own retail stores, during a specified period (count-recount promotions), 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 also assess an administrative fee, reflected on the invoices sent to vendors, to recoup our reasonable costs of performing the tasks associated with administering count-recount promotions.

We collectively plan promotions with our vendors and arrive at the amount the respective vendor plans to spend on promotions with us. 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. Forecasting promotional expenditures is a critical part of our frequently scheduled planning sessions with our vendors. As individual promotions are completed and the associated billing is processed, the vendors track our promotional program execution and spend rate, and discuss the tracking, performance and spend rate with us on a regular basis throughout the year, variously 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.

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 trademarks, tradenames and servicemarks, such as Our Family and Value Choice, to be of material value to the business conducted by our food distribution and retail segments, and we actively defend and enforce such trademarks, tradenames and servicemarks.

Employees

As of January 1, 2005, we employed 8,658 persons, of whom 4,676 were employed on a full-time basis and 3,982 were employed on a part-time basis. We consider our employee relations to be good. Only 455 of

our employees are represented by unions and consist primarily of warehouse personnel and drivers in our Ohio and Michigan distribution centers.

Recent Developments

On February 24, 2005, we entered into an Asset Purchase Agreement (the “Asset Purchase Agreement”) with Roundy’s, Inc. (“Roundy’s”) whereby we agreed to purchase, with certain exceptions, all of the assets relating to two wholesale food and non-food distribution centers located in Lima, Ohio and Westville, Indiana and the related wholesale distribution business conducted by Roundy’s out of these distribution centers and an additional leased warehouse. In addition, we agreed to purchase two Pick ‘n Save® grocery stores located in Ironton, Ohio and Van Wert, Ohio, the retail grocery business conducted from these stores, Roundy’s general merchandise and health and beauty care products distribution business involving the customers of the two purchased distribution centers, inventory at the purchased facilities and all customer contracts related to the purchased facilities. We have also agreed to offer employment to the approximately 1,150 full- and part-time employees related to the purchased facilities and to assume certain trade payables, accrued expenses and receivables associated with the assets we are acquiring. We have not agreed to assume any debt in connection with this acquisition. The aggregate purchase price for the acquisition is approximately $225 million in cash, subject to certain post-closing adjustments.

The closing of this acquisition is subject to customary conditions, including the expiration or termination of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and financing. We intend to finance this acquisition with borrowings under our existing bank credit facility and a debt or convertible debt financing and expect the acquisition to close in late March or April 2005.

On February 22, 2005, we entered into a First Amendment to our Credit Agreement, dated as of November 12, 2004, with the lenders party to that Credit Agreement and Deutsche Bank Trust Company Americas, as Administrative Agent. Subject to the terms and conditions therein, the First Amendment generally amends the Credit Agreement so as to permit us to enter into the Asset Purchase Agreement and to close and finance the acquisition.

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 amended, as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. We have also posted on our website, under the caption “Corporate Governance,” our Code of Business Conduct that is applicable to all our directors and employees, as well as our Code of Ethics for Senior Financial Management that is applicable to our Chief Executive Officer, Chief Financial Officer and Corporate Controller. Any amendment to or waiver from the provisions of either of these Codes that is applicable to any of these three executive officers will be disclosed on our website under the “Corporate Governance” caption.

PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Our common stock is quoted on the Nasdaq National Market and currently trades under the symbol NAFC. 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 January 1, 2005 there were 2,579 stockholders of record.

	2004			2003		Dividends Per Share
	High		Low	High	Low	2004	2003
First Quarter	$	28.88	19.75	9.86	4.26	0.135	0.00
Second Quarter	25.10		18.06	13.90	6.90	0.135	0.18
Third Quarter	31.99		22.60	18.70	13.33	0.135	0.09
Fourth Quarter	38.66		29.81	24.70	15.97	0.135	0.09

On February 22, 2005, the Nash Finch Board of Directors declared a cash dividend of $0.135 per common share, payable on March 18, 2005 to stockholders of record as of March 4, 2005.

ITEM 6. SELECTED FINANCIAL DATA

NASH FINCH COMPANY and SUBSIDIARIES

Consolidated Summary of Operations
Five years ended January 1, 2005 (not covered by Independent Auditors’ Report)

	2004			2003		2002		2001		2000
	(52 weeks)			(53 weeks)		(52 weeks)		(52 weeks)		(52 weeks)
(Dollar amounts in thousands except per share amounts)
Sales(1)	$	3,897,074		3,971,502		3,874,672		3,982,206		3,839,499
Cost of sales including warehousing and transporation expenses(1)	3,474,329			3,516,460		3,408,409		3,529,124		3,409,778
Selling, general and adminstrative expenses	295,524			326,828		347,418		335,886		322,448
Special charges	34,779			—		(765	)	—		—
Extingusihment of debt	7,204			—		—		—		—
Interest expense	25,798			33,869		29,490		34,303		34,444
Depreciation and amortization	40,241			42,412		39,988		46,601		45,330
Provision for income taxes	4,322			17,254		19,552		15,025		11,659
Net earnings from continuing operations	$	14,877		34,679		30,580		21,267		15,840
Earnings on disposal of discontinued operations, net of income tax	55			413		—		—		—
Extraordinary charge from early extinguishment of debt, net of income tax	—			—		—		—		(369	)
Cumulative effect of change in accounting principle, net of income tax(2)	—			—		(6,960	)	—		—
Net earnings	$	14,932		35,092		23,620		21,267		15,471
Basic earnings per share:
Earnings from continuing operations	$	1.20		2.87		2.59		1.83		1.38
Earnings from discontinued operations	—			0.03		—		—		—
Extraordinary charge from early extinguishment of debt	—			—		—		—		(0.03	)
Cumulative effect of change in accounting principle(2)	—			—		(0.59	)	—		—
Basic earnings per share	$	1.20		2.90		2.00		1.83		1.35
Diluted earnings per share:
Earnings from continuing operations	$	1.18		2.85		2.52		1.78		1.38
Earnings from discontinued operations	—			0.03		—		—		—
Extraordinary charge from early extinguishment of debt	—			—		—		—		(0.03	)
Cumulative effect of change in accounting principle(2)	—			—		(0.57	)	—		—
Diluted earnings per share	$	1.18		2.88		1.95		1.78		1.35
Cash dividends declared per common share	$	0.54		0.36		0.36		0.36		0.36
Pretax earnings from continuing operations as a percent of sales	0.49		%	1.31	%	1.29	%	0.91	%	0.72	%
Net earnings as a percent of sales	0.38		%	0.88	%	0.61	%	0.53	%	0.40	%
Effective income tax rate	22.6		%	33.3	%	39.0	%	41.4	%	42.4	%
Current assets	$	400,587		415,810		468,281		479,364		433,539
Current liabilities	$	280,162		284,752		309,256		383,624		324,786
Net working capital	$	120,425		131,058		159,025		95,740		108,753
Ratio of current assets to current liabilities	1.43			1.46		1.51		1.25		1.33
Total assets	$	815,628		886,352		947,922		970,245		880,828
Capital expenditures	$	22,327		40,728		52,605		43,924		54,066
Long-term obligations (long-term debt and capitalized lease obligations)	$	239,603		326,583		405,376		368,807		353,664
Stockholders’ equity	$	273,928		256,457		221,479		203,408		184,540
Stockholders’ equity per share(3)	$	22.21		21.36		18.61		17.43		16.12
Return on stockholders’ equity(4)	5.43		%	13.52	%	13.81	%	10.46	%	8.58	%
Number of common stockholders of record at year-end	2,579			2,841		2,797		2,710		2,786
Common stock high price(5)	$	38.66		24.70		33.18		35.54		13.56
Common stock low price(5)	$	18.06		4.26		7.12		11.81		6.00

(1) See Item 8, Note 1 of this report under the caption “Revenue Recognition” regarding the reclassification of facilitated services.

(2) See Item 7, of this report under the caption “Cumulative Effect of Change in Accounting Principle” 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.

ITEM 7. 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 $3.9 billion in annual sales. Approximately 50% of our sales come from our food distribution segment, which 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 other customers located in 26 states, primarily in the Midwest and Southeast. Approximately 29% of our annual sales come from our military food distribution segment, which contracts with vendors to distribute a wide variety of grocery products to military commissaries and military distribution centers supporting over 100 military commissaries located primarily in the Mid-Atlantic region of the United States, and in Europe, Cuba, Puerto Rico, Iceland, the Azores and Honduras. The remaining 21% of our annual sales come from our retail segment, which operates 85 corporate-owned stores primarily in the Upper Midwest.

Our food distribution and retail businesses operate in intensely competitive industries, characterized by low profit margins and increasing consolidation. Alternative store formats, such as supercenters, warehouse clubs and extreme value food stores, have gained and continue to gain market share at the expense of conventional grocery stores, which represent the substantial majority of our corporate-owned stores as well as of our independent retail customer base. Largely as a result of this trend, over the three years discussed in this report we have experienced decreasing same store sales in our retail segment and, to a lesser degree, attrition among the existing customer base in our food distribution segment. Despite these competitive pressures, our annual sales over this three-year period have been relatively flat as a result of new business gained by our food distribution and military distribution businesses.

In fiscal 2004, our food distribution sales increased 2.4 % over the year earlier primarily as a result of new customer accounts. Excluding the effect of the 53^rd week in fiscal year 2003, food distribution sales grew 4.2% over the year earlier. We believe that additional business opportunities will continue to be available to our food distribution segment from additional sales opportunities with our current customer base, former customers of Fleming and other wholesalers, independent operators who purchase stores from major retailers seeking to rationalize their markets and retailers adding food to their product offerings. The degree to which we are able to continue to capitalize on these opportunities will determine the degree to which new business gains can exceed customer attrition, which has historically ranged from two to four percent.

Our military food distribution segment continues to experience solid year-over-year sales growth. This was driven by higher sales to military bases both overseas and in the U.S. We believe that our excellent reputation with DeCA has helped us win new business. The segment has continued to capitalize on increased profitability in fiscal 2004 as a result of continued efficiencies gained through the consolidation of two large distribution centers in fiscal 2003. We believe we are well positioned to continue to benefit from this consolidation as well as attain further revenue growth through expansion of our customer base and extension of our product offerings.

Our retail segment 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. During the second quarter of 2004, we completed a strategic review that identified certain retail stores that did not meet return objectives, provide long-term strategic opportunities or justify additional capital investments. As a result of this review, we closed 18 retail stores at the end of the second quarter and are currently seeking purchasers for our three Denver area AVANZA stores. Exiting these underperforming assets is consistent with our commitment to continue to lower operating costs, improve our balance sheet and focus investment and attention on core areas of our business. We believe that the closure and sale of these stores, as well as the closure of six additional stores during 2004, will benefit our retail segment by

enabling us to focus on a variety of retail initiatives, such as improvements in merchandising and pricing strategies, store-level execution, and perishable offerings and quality.

During 2004, we reduced total debt (including capital lease obligations) by $86.8 million as part of a continuing effort to reduce the Company’s leverage, and we believe that doing so reduces the risk profile of the Company. On November 12, 2004 we concluded the refinancing of our senior secured bank credit facility which had been scheduled to mature on December 19, 2005. On December 13, 2004, we redeemed the $165 million in Senior Subordinated Notes due 2008 at a redemption price of 102.833% using proceeds from the new senior secured bank facility.

In February 2004, our Board increased our quarterly dividend from $0.09 per share to $0.135 per share. With the exception of temporary draws on our revolving credit line to build inventories for certain holidays during the year, we expect that cash flow from operations will be sufficient to enable us to further reduce our debt during 2005. Reducing dependence on debt also frees up borrowing capacity to enable us to take advantage of potential acquisition or investment opportunities that present themselves.

Results of Operations

The following discussion summarizes our operating results for fiscal 2004 compared to fiscal 2003 and fiscal 2003 compared to fiscal 2002. However, fiscal 2004 and 2002 results are not directly comparable to fiscal 2003 because fiscal 2003 contained an additional week.

Sales

The following tables summarize our sales activity for fiscal 2004, 2003 and 2002.

	2004							2003						2002
Segment sales:	Sales		Percent of Sales		Percent Change			Sales	Percent of Sales		Percent Change			Sales	Percent of Sales
Food Distribution	$	1,961.2	50.3	%		2.4	%	1,915.2	48.2	%		4.9	%	1,825.8	47.1	%
Military	1,122.1		28.8	%		2.9	%	1,090.0	27.5	%		6.8	%	1,020.7	26.4	%
Retail	813.8		20.9	%		(15.8	)%	966.3	24.3	%		(6.0	)%	1,028.2	26.5	%
Total Sales	$	3,897.1	100.0	%		(1.9	)%	3,971.5	100.0	%		2.5	%	3,874.7	100.0	%

The following table summarizes the impact on Company and segment sales of the additional week in the fourth fiscal quarter of 2003:

Adjusted Fiscal 2003 Sales for the Effect of an Additional Week of Sales

Segment sales:	Sales		53rd Week Sales		Comparable 52 Weeks of Sales			Comparable Percent Change 2004 to 2003
Food Distribution	$	1,915.2	$	33.3		$	1,881.9		4.2	%
Military	1,090.0		17.3			1,072.7			4.6	%
Retail	966.3		17.8			948.5			(14.2	)%
Total Sales	$	3,971.5	$	68.4		$	3,903.1		(0.2	)%

The increase in food distribution sales in fiscal 2004 and fiscal 2003 was due to new business with former Fleming customers and other new accounts. Partially offsetting the fiscal 2003 increase were reduced sales and store closings by certain of our independent retail customers because of increased competition in their respective markets.

The increase in military segment sales in fiscal 2004 and 2003 was due to increased shipments throughout the domestic commissary system and overseas.

Approximately 50% of the decrease in retail sales in fiscal 2004 is attributable to the previously discussed store closures during 2004, with the balance reflecting negative same store sales. Same store sales, which compare retail sales for stores which were in operation for the same number of weeks in the comparative periods, decreased 7.0% for 2004 as compared to 2003. These declines continue to reflect a difficult competitive environment in which supercenters and other alternative formats compete for price conscious consumers. The decrease in retail segment sales from fiscal 2002 to fiscal 2003 primarily reflects a 10.6% decrease in same store sales. During fiscal 2004 and 2003, our corporate store count changed as follows:

	Fiscal Year 2004			Fiscal Year 2003
Number of stores at beginning of year		110			109
New stores		0			4
Acquired stores		0			6
Closed or sold stores		(25	)		(9	)
Number of stores at end of year		85			110

Gross Profit

Gross profit (calculated as sales less cost of sales) for fiscal 2004 was 10.8% of sales compared to 11.5% for fiscal 2003 and 12.0% for fiscal 2002. Gross profit was negatively impacted in fiscal 2004 versus fiscal 2003 and in fiscal 2003 versus 2002 because retail segment sales, which earn a higher gross profit than food distribution and military distribution segment sales, represented a smaller percentage of our total sales. Costs associated with the consolidation of two large warehouse facilities in the military distribution segment reduced gross profit in 2003 by $2.7 million, but completion of the consolidation effort in late 2003 benefited the gross profit margin in the military distribution segment during 2004. In addition, gross profit comparisons were negatively impacted by a LIFO charge of $3.5 million in fiscal 2004 versus credits of $1.1 million in fiscal 2003 and $2.2 million in fiscal 2002. The LIFO charge in fiscal 2004 was due to food price inflation across all categories of products. The LIFO credits in 2003 and 2002 were due to food price deflation and decreased inventory levels as a result of lower sales.

In the fourth quarter of fiscal 2002, we early adopted the provisions of EITF No. 02-16 “Accounting by a Customer (Including a Reseller) for Certain Consideration Received from a Vendor,” (See “Critical Accounting Policies-Vendor Allowances and Credits” 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 (SG&A) for fiscal 2004 were 7.6% of sales as compared to 8.2% of sales in fiscal 2003 and 9.0% of sales in fiscal 2002. SG&A expense in dollars and as a percentage of sales in fiscal 2004 compared to fiscal 2003 was lower because retail segment sales, which have higher SG&A expenses than food distribution and military distribution segment sales, represented a smaller percentage of our total sales. Gains on the sale of real estate increased from $0.8 million in fiscal 2003 to $5.6 million in fiscal 2004. Bad debt expense decreased by $4.5 million due to improved receivables management. Charges for asset impairments other than those recorded as part of the special charge decreased $1.8 million from fiscal 2003 to 2004, from $2.7 million to $0.9 million. The impairment charges for fiscal 2004 and 2003 related primarily to three and six stores, respectively, whose carrying values were impaired due to increased competition within the stores’ respective market areas.

The decrease in SG&A expenses in dollars and as a percentage of sales in fiscal 2003 from fiscal 2002 was primarily due to several factors. SG&A expenses were reduced in fiscal 2003 compared to fiscal 2002 because retail segment sales, which have higher SG&A expenses than food distribution and military distribution segment sales, represented a smaller percentage of our total sales. In addition, health insurance expense for fiscal 2003 decreased by $6.2 million, primarily reflecting a decision to eliminate post-retirement medical benefits for active non-union employees in the fourth quarter. Charges for asset impairments decreased $3.9 million from fiscal 2002 to 2003, from $6.6 million to $2.7 million. The impairment charges for fiscal 2003 and 2002 related to six and fifteen stores, respectively, whose carrying values were impaired due to increased competition within the stores’ respective market areas. Partially offsetting these decreases was a decrease of $3.0 million in gains on the sale of real estate, from $3.8 million in 2002 to $0.8 million in 2003.

Special Charges

During the second quarter of 2004, the Company completed a strategic review that identified certain retail stores that did not meet return objectives, provide long-term strategic opportunities or justify additional capital investments. Consequently, the Company announced that it was closing or selling 21 retail outlets. The Company closed 18 stores in the second quarter of 2004 and is continuing to market its three Denver area AVANZA stores. As a result of these store dispositions, the Company recorded a pre-tax special charge of $36.5 million which was reflected in the “Special charge” line within the consolidated statements of income, and $3.3 million of costs reflected in operating earnings, primarily involving inventory markdowns related to the store closures. The special charge included $21.7 million for asset impairments (including $1.1 million of goodwill allocated to the stores being sold), $14.1 million for future lease obligations, $0.1 million in severance and $0.6 million in other charges based on management’s estimates of fair value of assets, lease subsidies, future payments on exited real estate, lease terminations and other related costs.

During the fourth fiscal quarter of 2004, we recorded a net reversal of $1.6 million of the special charge because we were able to settle five leases for less than initially estimated and adjusted the estimate needed on four other properties for which more current market information was available.

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 affected our food distribution and retail segments and were also designed to redirect our technology efforts. All actions contemplated by the charges are complete. At January 1, 2005, the remaining accrued liability was $1.7 million and consisted primarily of lease commitments.

During fiscal 2004 and fiscal 2002, the Company reversed $0.08 million and $0.76 million, respectively of its fiscal 1998 and 1997 special charges due to agreements reached to settle certain leases for less than what the Company had originally estimated.

Depreciation and Amortization Expense

Depreciation and amortization expense for fiscal 2004 decreased by 5.1% compared to fiscal 2003. The decrease was primarily due to the disposal of retail assets as part of the strategic review completed in the second fiscal quarter. Depreciation and amortization expense for fiscal 2003 increased by 6.1% from fiscal 2002, primarily due to the addition of information technology software in fiscal 2003.

Interest Expense

Interest expense for fiscal 2004 decreased by 23.8% compared to fiscal 2003, primarily due to a decrease in average borrowing level from $137.5 million in 2003 to $74.9 million in 2004. Partially offsetting the decrease in average borrowing levels was an increase in average interest rate from 5.1% in

2003 to 5.9% in 2004. Interest expense for fiscal 2003 included $2.5 million paid to our bondholders and $1.3 million paid to our bank lenders in the first quarter of 2003 as consideration for waivers to extend the deadlines for filing our third quarter Form 10-Q for fiscal 2002, our Form 10-K for fiscal 2002 and our first quarter Form 10-Q for fiscal 2003. Interest expense for fiscal 2003 increased by 14.8% compared to fiscal 2002, due largely to payment of the waiver fees described above. Apart from the waiver fees, the impact of an increase in our average borrowing rate under the bank credit facility from 4.5% in fiscal 2002 to 5.1% in fiscal 2003 was offset by a decrease in our average borrowing level under that facility, from $156.6 million in 2002 to $137.5 million in fiscal 2003.

Income Tax Expense

The effective tax rate for fiscal 2004 was 22.6% compared to 33.3% in fiscal 2003 and 39.0% in fiscal 2002. The decrease in the effective rate from fiscal 2003 to fiscal 2004 and fiscal 2002 to fiscal 2003 was due to reductions in income tax expense of $2.5 million and $3.0 million recognized in 2004 and 2003, respectively, as a result of the resolution of various outstanding state and federal tax issues. Refer to the tax rate table in Part II, Item 8 of this report under Note (10)-“Income Taxes” of Notes to the Consolidated Financial Statements for the comparative components of these rates.

Discontinued Operations

The gain on discontinued operations of $0.1 million in fiscal 2004 and $0.4 million in fiscal 2003 was a result of the resolution of a contingency associated with the sale of our Nash De-Camp produce growing and marketing subsidiary in fiscal 1999.

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 Certain Consideration 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 for fiscal 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 the 52 week fiscal 2004 were $14.9 million, or $1.18 per diluted share, compared to $35.1 million, or $2.88 per diluted share, for the 53 week 2003 year and $23.6 million, or $1.95 per diluted share, for the 52 week 2002 year. Net earnings in each of the three years were affected by a number of events included in the discussion above that affected the comparability of results. Some of the more significant of these events are summarized as follows:

	Fifty-Two Weeks Ended January 1, 2005						Fifty-Three Weeks Ended January 3, 2004						Fifty-Two Weeks Ended December 28, 2002
	$			EPS			$			EPS			$			EPS
Net earnings from continuing operations as reported		14,877			1.18			34,679			2.85			23,620			1.95
Items affecting earnings
Call premium for early redemption of Senior Subordinated Notes (Q4 2004)		2,819			0.22			—			—			—			—
Write-off of unamortized finance costs and original issuance discount on credit facility and senior subordinated notes (Q4 2004)		1,525			0.12			—			—			—			—
Change in estimate of special charge from store dispositions (Q4 2004)		(1,311	)		(0.10	)		—			—			—			—
Special charges from store dispositions (Q2 2004, Q3 2002)		22,261			1.76			—			—			(467	)		(0.03	)
Store closure cost reflected in operations (Q2 2004)		2,009			0.16			—			—			—			—
Fees paid to lenders as consideration for bond indenture and credit facility waivers (Q1 2003)		—			—			2,339			0.19			—			—
Reduction of health insurance expense (Q4 2003)		—			—			(3,790	)		(0.31	)		—			—
Reduction in income tax expense (Q4 2004, Q3 2004 and Q3 2003)		(3,300	)		(0.27	)		(3,000	)		(0.25	)		—			—
Cumulative effect of accounting change (Q1 2002)		—			—			—			—			6,960			0.57

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 and equity financing. During 2005, 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.

Cash flow from operations decreased by $12.6 million in fiscal 2004 compared to fiscal 2003 due to costs related to the 2004 special charge. Partially offsetting these costs was a decrease in inventory of approximately $19.4 million, $15.0 million of which related to the retail store closures. A rise in accounts receivable from the prior year was offset by an increase in accounts payable. Cash flow from operations increased by $53.9 million in fiscal 2003 compared to fiscal 2002. Primary contributors to the 2003 increase were increased earnings of $11.5 million and more efficient receivables management, which resulted in a decrease in accounts receivable of $18.5 million.

Cash used for investing activities decreased by $29.1 million in fiscal 2004 compared to fiscal 2003, mostly due to a decrease in net additions to property, plant and equipment of $26.5 million in fiscal 2004 versus fiscal 2003. Cash used for investing activities increased slightly in fiscal 2003 as compared to fiscal 2002. We expect our capital expenditures for fiscal 2005 to approximate $35 million excluding acquisitions. These expenditures are expected to include maintenance projects in our food distribution segment, store maintenance and remodels in our food retailing segment, information system upgrades and other miscellaneous projects across our business.

Cash used for financing activities increased by $5.5 million in fiscal 2004 compared to fiscal 2003, primarily due to a $4.7 million premium paid for early extinguishment of the 8.5% Senior Subordinated Notes due 2008. The $165 million principal balance on the 8.5% Senior Subordinated Notes was paid during the fourth quarter using proceeds from the new senior secured bank credit facility described below. Cash used for financing activities increased by $95.0 million in fiscal 2003 compared to fiscal 2002, primarily due to $79.4 million used to pay down our revolving bank credit facility. At January 1, 2005, credit availability under the new bank facility was $97.8 million.

Contractual Obligations and Commercial Commitments

The following table summarizes our significant contractual cash obligations as of January 1, 2005, and the expected timing of cash payments related to such obligations in future periods:

	Payments Due by Period
Contractual Obligations	Total		Less than 1 Year		1-3 Years		4-5 Years		Over 5 Years
(in thousands)
Long Term Debt(1)	$	202,060		2,817		4,405		15,068		179,770
Capital Lease Obligations(2)(3)	78,351			7,346		14,680		14,503		41,822
Operating Leases(2)	135,963			23,158		38,947		26,182		47,676
Purchase Obligations(4)	22,476			18,969		3,367		140		—
Total Contractual Cash Obligations(5)	$	438,850		52,290		61,399		55,893		269,268

(1) Refer to Part II, Item 8 in this report under Note (8)—“Long-term Debt and Bank Credit Facilities” in Notes to Consolidated Financial Statements and to the discussion of covenant compliance below for additional information regarding long term debt.

(2) Lease obligations primarily relate to store locations for our retail segment, as well as store locations subleased to independent food distribution customers. A discussion of lease commitments can be found in 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,” below.

(3) Includes amounts classified as imputed interest.

(4) The majority of our purchase obligations involve purchase orders made in the ordinary course of business, which are not included in the table above. Our purchase orders are based on our current needs and are fulfilled by our vendors within very short time horizons. Any amounts for which we are liable under purchase orders are reflected in our consolidated balance sheet as accounts payable upon

shipment of the underlying product. The purchase obligations shown in this table also exclude agreements that are cancelable by us without significant penalty, which include contracts for routine outsourced services. The amount of purchase obligations shown in the table represents the amount of product we are contractually obligated to purchase to earn $2.1 million in upfront contract monies received. Should we not be able to fulfill these purchase obligations, we would be only obligated to pay back the unearned upfront contract monies.

(5) We have not included obligations under our pension and postretirement medical benefit plans in the contractual obligations table. As of December 31, 2004 we had a pension funding obligation of $6.4 million as discussed further in Part II, Item 8 in this report under Note (19)—“Pension and Other Post-retirement Benefits”.

We have also made certain commercial commitments that extend beyond 2004. 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 January 1, 2005:

	Total			Commitment Expiration Per Period
Other Commercial Commitments	Amounts Committed			Less than 1 Year		1-3 Years		4-5 Years		Over 5 Years
	(in thousands)
Standby Letters of Credit(1)		$	17,221		17,221		—		—		—
Guarantees(2)		30,617			1,350		735		10,423		18,109
Total Other Commercial Commitments		$	47,838		18,571		735		10,423		18,109

(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,” below, for additional information regarding debt, lease guarantees and assigned leases.

Bank Credit Agreement

On November 12, 2004 we concluded the refinancing of our senior secured bank credit facility which had been scheduled to mature on December 19, 2005. The new credit facility consists of $125 million in revolving credit, all of which may be used for loans and up to $40 million of which may be used for letters of credit, and a $175 million Term Loan B. The revolving credit portion of the facility has a five year term and the Term Loan B has a six year term. Borrowings under the new credit facility are secured by a security interest in substantially all assets of the Company and its wholly-owned subsidiaries that are not pledged under other debt agreements. Proceeds of the Term Loan B were used to redeem our 8.5% Senior Subordinated Notes due 2008, as discussed below. The refinancing and redemption are expected to reduce our annual interest expense, provide us with the ability to continue reducing our debt by structuring our debt in a form that can be prepaid without penalty and provide a more accommodating covenant structure to increase strategic and operating flexibility.

Borrowings under the new bank credit facility bear interest at either the Eurodollar rate or the prime rate, plus in either case a margin increase that is dependent on our total leverage ratio. The new credit facility requires us to hedge a certain portion of such borrowings through the use of interest rate swaps, as we have done historically. We pay a commitment commission on the unused portion of the revolver, but the Term Loan B was subject to a commitment commission only until the loan was activated. The margin increase and the commitment commission are reset quarterly based on movement of a leverage ratio defined by the agreement. At January 1, 2005 the margin for the revolver and Term Loan B were 1.75%

and 2.25%, respectively and the commitment commission was 0.375%. The margin increase and the commitment commission were 1.75% and 0.375%, respectively under the prior credit facility at the end of fiscal 2003.

The new credit facility represents one of our primary sources of liquidity, both short-term and long-term, and the continued availability of credit under that facility is of material importance to our ability to fund our capital and working capital needs. The credit agreement governing the new credit facility contains various restrictive covenants, compliance with which is essential to continued credit availability. Among the most significant of these restrictive covenants are financial covenants which require us to maintain predetermined ratio levels related to interest 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, upfront fees and expenses incurred in connection with the execution and delivery of the new credit agreement, and non-cash charges (such as LIFO charges, closed store lease costs and asset impairments), less cash payments made during the current period on non-cash charges recorded in prior periods. Consolidated EBITDA should not be considered an alternative measure of our net income, operating performance, cash flow or liquidity. It is provided as additional information relative to compliance with our debt covenants. In addition, the new credit agreement requires us to maintain predetermined ratio levels related to working capital coverage (the ratio of the sum of net trade accounts receivable plus inventory to the sum of loans and letters of credit outstanding under the new credit agreement plus up to $60 million of additional secured indebtedness permitted to be issued under the new credit agreement).

The new credit agreement requires us to maintain an interest coverage ratio of 3.50:1.00 at fiscal year end 2004 and increasing to 4:00:1.00 at fiscal year end 2007 and thereafter, a leverage ratio of 3:50:1.00 at fiscal year end 2004, stepping down to 3.25:1.00 at fiscal year end 2006 and to 3:00:1.00 at fiscal year end 2007 and thereafter, and a working capital ratio of 1.50:1.00 at fiscal year end 2004, stepping up to 1.75:1.00 at fiscal year end 2005 and to 2.00:1.00 at fiscal year end 2008 and thereafter. We must also maintain a senior secured leverage ratio (total unsubordinated secured debt to Consolidated EBITDA) of 2.75:1.00 at fiscal year end 2004, stepping down to 2.50:1.00 at fiscal year end 2006, and to 2.25:1.00 at fiscal year end 2007 and thereafter.

As of January 1, 2005, we were in compliance with all financial covenants as defined in our credit agreement which are summarized as follows:

Financial Covenant	Required Ratio	Actual Ratio
Interest Coverage Ratio(1)	3.50:1.00 (minimum)		4.95:1.00
Leverage Ratio(2)	3.50:1.00 (maximum)		1.92:1.00
Senior Secured Leverage Ratio(3)	2.75:1.00 (maximum)		1.45:1.00
Working Capital Ratio(4)	1.50:1.00 (minimum)		2.07:1.00

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

(2) Total outstanding debt to Consolidated EBITDA for the trailing four quarters.

(3) Total senior secured debt to Consolidated EBITDA for the trailing four quarters.

(4) Ratio of net trade accounts receivable plus inventory to the sum of loans and letters of credit outstanding under the new credit agreement plus certain additional secured debt.

Any failure to comply with any of these financial covenants would 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 fiscal 2004, 2003 and 2002:

	2004
	Qtr 1			Qtr 2		Qtr 3		Qtr 4		Rolling 4 Qtr
Earnings from continuing operations before income taxes	$	7,757		(25.639	)	22,620		14,461			19,199
Interest expense	6,505			6,487		7,799		5,007			25,798
Depreciation and amortization	10,156			9,800		11,615		8,670			40,241
LIFO	392			783		1,043		1,307			3,525
Closed store lease costs	(129		)	1,146		643		3,211			4,871
Asset impairments	—			—		—		853			853
Gains on sale of real estate	(82		)	(14	)	(3,317	)	(2,173	)		(5,586	)
Subsequent cash payments on non-cash charges	(565		)	(625	)	(1,633	)	(693	)		(3,516	)
Extinguishment of debt	—			—		—		7,204			7,204
Special charge	—			36,494		—		(1,715	)		34,779
Total Consolidated EBITDA	$	24,034		28,432		38,770		36,132			127,368

	2003
	Qtr 1			Qtr 2		Qtr 3		Qtr 4		Rolling 4 Qtr
Earnings from continuing operations before income taxes	$	5,346		11,910		14,105		20,572			51,933
Interest expense	10,791			7,035		9,011		7,032			33,869
Depreciation and amortization	9,440			9,642		13,098		10,232			42,412
LIFO	400			400		41		(1,961	)		(1,120	)
Closed store lease costs	354			32		583		187			1,156
Asset impairments	390			—		1,725		591			2,706
Gains on sale of real estate	(66		)	(126	)	(218	)	(338	)		(748	)
Subsequent cash payments on non-cash charges	(532		)	(508	)	(602	)	(598	)		(2,240	)
Curtailment of post retirement plan	—			—		—		(4,004	)		(4,004	)
Total Consolidated EBITDA	$	26,123		28,385		37,743		31,713			123,964

	2002
	Qtr 1			Qtr 2		Qtr 3		Qtr 4		Rolling 4 Qtr.
Earnings from continuing operations before income taxes	$	11,291		15,795		10,508		12,538			50,132
Interest expense	6,647			6,651		9,235		6,957			29,490
Depreciation and amortization	9,307			9,165		12,298		9,218			39,988
LIFO	923			300		—		(3,457	)		(2,234	)
Closed store lease costs	—			—		353		1,101			1,454
Asset impairments	—			—		1,518		5,067			6,585
Gains on sale of real estate	(7		)	(5	)	(1,386	)	(2,428	)		(3,826	)
Subsequent cash payments on non-cash charges	(400		)	(593	)	(684	)	(421	)		(2,098	)
Special charge	—			—		(765	)	—			(765	)
Total Consolidated EBITDA	$	27,761		31,313		31,077		28,575			118,726

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.

Redemption of Senior Subordinated Notes

On December 13, 2004, we redeemed the $165 million in 8.5% Senior Subordinated Notes (the “Notes”) Due 2008 at a redemption price of 102.833%, plus accrued and unpaid interest on the notes as of the redemption date. We drew under the Term Loan B to fund the redemption of these notes. Charges recorded during the fourth fiscal quarter for redemption of the Notes and the refinancing of our credit facility included a call premium of $4.7 million and $2.5 million for unamortized finance costs and original issue discount charge.

Defaults During 2003

In February 2003, we were notified by the Trustee for our 8.5% Senior Subordinated Notes that a default had occurred under the related Indenture as a result of our failure to file our Form 10-Q for the third quarter ended October 5, 2002 with the SEC. If the default was not remedied within the 30 day cure period, an event of default would have occurred under the Indenture and our bank credit facility. Later that month we obtained a waiver of the default under the Indenture, for which we paid a fee to the note holders equal to 1.5% of the outstanding principal amount of the notes. In March 2003 we obtained an extension of time from our bank lenders to submit to them our audited fiscal 2002 financial statements, for which 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 extension. The waiver under the Indenture and the extension from the banks were conditioned upon our receiving audited financial statements for fiscal 2002 and making specified filings with the SEC by specified deadlines. We subsequently complied with the extended deadlines.

Debt Obligations Generally

For debt obligations, the following table presents principal cash flows, related weighted average interest rates by expected maturity dates and fair value as of January 1, 2005:

	Fixed Rate							Variable Rate
	Fair Value			Amount		Rate		Fair Value		Amount		Rate
	(In thousands)
2005				$	2,021	6.7	%			$	796	4.7	%
2006				2,138		6.7	%			723		4.7	%
2007				779		6.7	%			764		4.7	%
2008				708		6.8	%			827		4.7	%
2009				767		6.8	%			12,766		4.7	%
Thereafter				4,770		7.2	%			175,000		4.7	%
		$	11,059	$	11,183			$	191,662	$	190,876

Derivative Instruments

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.

Notional	Effective Date	Termination Date		Fixed Rate
$50,000	12/13/2004		12/13/2005		2.985	%
40,000	12/13/2004		12/13/2005		3.010	%
50,000	12/13/2004		12/13/2005		2.992	%
45,000	12/13/2005		12/13/2006		3.809	%
20,000	12/13/2005		12/13/2006		3.825	%
20,000	12/13/2006		12/13/2007		4.095	%
30,000	12/13/2006		12/13/2007		4.100	%

At January 3, 2004, we had three outstanding interest rate swap agreements which commenced on July 26, 2002, December 6, 2002 and June 6, 2003, respectively. Those three agreements expired on September 25, 2004, October 6, 2004 and October 6, 2004 with notional amounts of $50 million, $35 million and $35 million, respectively.

The interest rate swap agreements described above totaled $255 million in notional amounts as of January 1, 2005 and $120 million in notional amounts as of January 3, 2004, which amounts 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):

Interest Rate Swaps:

	1/1/05			1/3/04
Pay fixed / receive variable	$	255,000		$	120,000
Fair value	(82		)	(1,955		)
Average receive rate for effective swaps	2.4		%	1.2		%
Average pay rate for effective swaps	3.0		%	3.3		%

We are also using commodity swap agreements to reduce price risk associated with anticipated purchases of diesel fuel. The outstanding commodity swap agreements hedge approximately 50% of our expected fuel usage for the periods set forth in the swap agreements. At January 1, 2005, we had two outstanding commodity swap agreements which commenced and expire as follows:

Notional

Effective Date

Termination Date

Fixed Rate

100,000 gallons/month

12/7/2004

11/30/2006

1.18

100,000 gallons/month

1/1/2005

12/31/2006

1.16

The fair market value of the commodity swaps totaled $0.071 million as of 1/1/2005.

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, often referred to as structured finance or special purpose entities, which are generally established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.

Critical Accounting Policies

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 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. Senior management has discussed the development, selection and disclosure of these estimates with the Audit Committee of our Board of Directors and with our independent auditors.

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 following accounting policies to be critical and could result in materially different amounts being reported under different conditions or using different assumptions:

Vendor Allowances and Credits

on our past or anticipated purchases and/or the anticipated performance of the planned promotions. Forecasting promotional expenditures is a critical part of our twice yearly planning sessions with our vendors. As individual promotions are completed and the associated billing is processed, the vendors track our promotional program execution and spend rate, and discuss the tracking, performance and spend rate with us on a regular basis throughout the year, variously 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.

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. We early adopted 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 a decrease in cost of sales of $1.4 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 establish 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 provider 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 a material impact on our currently recorded reserves.

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 collectability 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. 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 ($10.6 million as of January 1, 2005), which would be due in accordance with the underlying agreements. All of the guarantees were issued prior to December 31, 2002 and therefore were not subject to the recognition and measurement provisions of FASB Interpretation No. 45, “Guarantor’s Accounting and Disclosure Requiremetns for Guarantees, Including Indirect Guarantees of Indebtedness of Others, an interpretation of FASB Statements No. 5, 57 and 107 and a recission of FASB Interpretation No. 34” (FIN 45). 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 approximately $20.0 million as of January 1, 2005. In circumstances when we become aware of factors that indicate deterioration in a customer’s ability to meet its financial obligations guaranteed or assigned 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 in “Allowance for Doubtful Accounts—Methodology” and “Lease Commitments”. 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 or obligations under assigned leases would not, however, result in cross default of our debt, but could restrict resources available for general business initiatives.

Impairment of Long-lived Assets

Property, plant and equipment are tested for impairment in accordance with SFAS 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” whenever events or changes in circumstances indicate that the carrying amounts of such long-lived assets may not be recoverable from future net pretax cash flows. Impairment testing requires significant management judgment including estimating future sales and costs, alternative uses for the assets and estimated proceeds from disposal of the assets. Estimates of 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. Impairment testing is conducted at the lowest level where cash flows can be measured and are independent of cash flows of other assets. An asset impairment would be indicated if the sum of the expected future net pretax cash flows from the use of the asset (undiscounted and without interest charges) is less than the carrying amount of the asset. An impairment loss would be measured based on the difference between the fair value of the asset and its carrying amount. We generally determine fair value by discounting expected future cash flows at the rate the Company utilizes to evaluate potential investments.

The estimates and assumptions used in the impairment analysis are consistent with the business plans and estimates we use to manage our business operations and to make acquisition and divestiture decisions. The use of different assumptions would increase or decrease the impairment charge. Actual outcomes may differ from the estimates.

Income Tax Assets and Liabilities

The company provides for income taxes in accordance with Statement of Financial Accounting Standards No. 109, “Accounting for Income Taxes” (“SFAS 109”). SFAS 109 requires the recognition of deferred tax liabilities and assets for the expected future tax consequences of temporary differences between the financial statement carrying amounts and the tax bases of assets and liabilities. The company maintains valuation allowances where it is more likely than not all or a portion of the deferred tax asset will not be realized. Changes in valuation allowances from period to period are included in the Company’s tax provision in the period of change. In determining whether a valuation allowance is warranted, the Company takes into account such factors as prior earnings history, expected future earnings, carryback and carryforward periods, and tax strategies that could potentially enhance the likelihood of realization of a deferred tax asset. The Company is also subject to examination of its income tax returns for multiple years by the Internal Revenue Service and other tax authorities. The Company periodically assesses the likelihood of adverse outcomes resulting from these examinations to determine the impact on its deferred taxes and income tax liabilities and the adequacy of its provision for income taxes.

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, 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 material impact on future claim costs and currently recorded liabilities.

New Accounting Standards

In December 2004, the FASB issued Statement No. 123R (Revised 2004), “Share-Based Payment”. The revisions to SFAS No 123 require compensation costs related to share-based payment transactions to be recognized in the financial statements. With limited exceptions, the amount of compensation cost will be measured based on the grant-date fair value of the equity or liability instruments issued. In addition, liability awards will be remeasured each reporting period. Compensation cost will be recognized over the period that an employee provides service in exchange for the award. Statement 123R replaces FASB Statement No. 123, “Accounting for Stock Based Compensation”, and supercedes APB Opinion No. 25, “Accounting for Stock Issued to Employees”. For public entities, the provisions of the statement are effective as of the beginning of the first interim or annual reporting period that begins after June 15, 2005, however early adoption is allowed. We expect to adopt the provisions of the new statement in the third fiscal quarter of 2005. We do not currently expect that the impact on net income on a full year basis will be significantly different from the historical pro forma impacts as previously disclosed in the “Stock Option Plans” policy description in Part II, Item 8 in this report under Note (1)—“Summary of Signigicant Accounting Policies”.

Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003.” FSP 106-2 requires an employer to initially account for any subsidy received under the Act as an actuarial experience gain to the accumulated postretirement benefit obligation (APBO), which would be amortized over future service periods. Future subsidies would reduce service cost each year. FSP 106-2 was effective for us in the third fiscal quarter ended October 9, 2004. We believe that our postretirement benefit plan is not actuarially equivalent to Medicare Part D under the Act and consequently will not receive significant subsidies under the Act.

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 in the Upper Midwest, has historically competed with traditional grocery stores and is increasingly competing with alternative store formats such as supercenters, warehouse clubs, dollar stores 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 that employ a variety of formats, including supercenters, supermarkets and warehouse clubs. Some of our competitors are substantially larger and may have greater financial resources and geographic scope, 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 and continue to gain 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 our 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.

Need to Improve Retail Operations

Primarily due to the competitive conditions discussed above, same store sales in the Company’s retail business decreased 7.0% in 2004 from 2003, after having decreased 10.6% in 2003 from the prior year. We brought new leadership into the retail business in late 2003 with a view toward improving our response to and performance under these difficult competitive conditions. It is expected that this effort will require a variety of initiatives of varying scope and duration. In connection with such an undertaking there are

numerous risks and uncertainties, including our ability to successfully identify those initiatives that will be the most effective in improving the competitive position of our retail business, our ability to efficiently and timely implement these initiatives, and the response of competitors to these initiatives. If we are unable to improve the overall competitive position of our retail stores, the revenue and operating performance of that segment may continue to decline, and we may be compelled to close or dispose of additional stores and may incur restructuring or other charges associated with such closure and disposition activities.

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

Risks and Costs Associated with Expansion and Acquisition

Efforts to grow our distribution businesses may include acquisitions. Acquisitions entail various risks such as identifying suitable candidates at acceptable rates of return, timely and effectively integrating the operations, systems and personnel of the acquired business, retaining the customer base of the acquired operations, expenses of any undisclosed or potential environmental or legal liabilities and diversion of management’s time and attention from other business concerns. Successful integration of any new operations will depend on our ability to manage those operations, realize opportunities for revenue growth presented by strengthened product offerings and expanded geographic market coverage, maintenance of the customer base and, to some degree, eliminate redundant and excess costs. A failure to effectively manage these risks could increase the costs or reduce the benefits to be derived from acquisitions and expansion, and therefore negatively impact our business and operations.

Customer Retention and Obtaining New Customers in the Distribution Business

Increasing the growth and profitability of our distribution business is particularly dependent upon our ability to retain existing customers and capture additional distribution customers through our existing network of distribution centers, enabling us to more effectively utilize the fixed assets in that business. Our ability to achieve these goals is dependent, in part, upon our ability to continue to provide industry-leading customer service, offer competitive products at low prices, maintain high levels of productivity and efficiency, particularly in the process of integrating new customers into our distribution system, and offer marketing, merchandising and ancillary services that provide value to our independent and military commissary customers. If we are unable to execute these tasks effectively, we may not be able to attract significant numbers of new customers and attrition among our existing customer base could increase, either or both of which could have an adverse impact on our revenue and profitability.

Customer 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 may have limited access to conventional financing. While we seek to obtain security interests and other credit support in connection with the financial accommodations we extend, such collateral may not be sufficient to cover our exposure.

In addition, as of January 1, 2005, one retailer comprised 41.2% of our balance of outstanding loans. 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.

Impact of Debt and Debt Covenants on Operating Flexibility

Covenants in the documents governing our outstanding or future debt, or our future debt levels, 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.

Possible Changes in Military Commissary System

Because our military food distribution segment sells and distributes grocery products to military commissaries in the U.S. and overseas, any material changes in the commissary system, in military staffing levels or in locations of bases may have a corresponding impact on the sales and operating performance of this segment. These changes could include privatization of some or all of the military commissary system, relocation or consolidation in the number of commissaries, base closings, troop redeployments or consolidations in the geographic areas containing commissaries served by us, or a reduction in the number of persons having access to the commissaries.

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; issues affecting the food distribution and retail industry generally, such as food safety concerns, an increase in consumers eating away from home and the manner in which vendors target their promotional dollars; the ability to attract and retain qualified employees; unanticipated problems with product procurement; 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.

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 our debt obligations outstanding, and derivatives employed from time to time to manage our exposure to changes in interest rates and commodity prices.

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 6—“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.”

NASH FINCH COMPANY AND SUBSIDIARIES
Consolidated Statements of Stockholders’ Equity
(In thousands, except per share amounts)

													Accumulated other comprehensive income (loss)
																	Unrealized			Deferred
																	(loss)/			(loss)/
					Additional								Minimum				gain on			gain on
Fiscal period ended January 1, 2005	Common stock				paid-in				Retained				pension liab.				marketable			hedging
Janurary 3, 2004 and December 28, 2002	Shares	Amount			capital				earnings				adjustment				securities			activities
Balance at December 29, 2001	11,831		19,718			21,894				165,317				(2,390		)		—			(128		)
Net earnings	—		—			—				23,620				—				—			—
Other comprehensive income, net of tax
Deferred loss on hedging activities	—		—			—				—				—				—			(1,105		)
Additional minimum pension liability	—		—			—				—				(3,884		)		—			—
Comprehensive income	—		—			—				—				—				—			—
Dividend declared of $.36 per share	—		—			—				(4,292		)		—				—			—
Treasury stock issued upon exercise of options	—		—			73				—				—				—			—
Common stock issued upon exercise of options	21		35			195				—				—				—			—
Common stock issued for employee stock purchase plan	43		72			878				—				—				—			—
Issuance of restricted stock	50		84			1,373				—				—				—			—
Amortized compensation under restricted stock plan	—		—			—
Stock based deferred compensation	—		—			248				—				—				—			—
Forfeiture of restricted stock issued pursuant to	—		—			—				—				—				—			—
performance awards	—					(61		)		—				—				—			—
Distribution of stock pursuant to performance awards	67		112			1675				—				—				—			—
Balance at December 28, 2002	12,012		20,021			26,275				184,645				(6,274		)		—			(1,233		)
Net earnings	—		—			—				35,092				—				—			—
Other comprehensive income, net of tax
Deferred gain on hedging activities	—		—			—				—				—				—			41
Minimum pension liability adjustment	—		—			—				—				1,496				—			—
Comprehensive income	—		—			—				—				—				—			—
Dividend declared of $.36 per share	—		—			—				(4,320		)		—				—			—
Treasury stock issued upon exercise of options	—		—			9				—				—				—			—
Common stock issued upon exercise of options	93		156			784				—				—				—			—
Common stock issued for employee stock purchase plan	47		78			559				—				—				—			—
Amortized compensation under restricted stock plan	—		—			—
Stock based deferred compensation	—		—			277				—				—				—			—
Forfeiture of restricted stock issued pursuant to
performance awards	—		—			(9		)		—				—				—			—
Distribution of stock pursuant to performance awards	—		—			100				—				—				—			—
Balance January 3, 2004	12,152		$	20,255		$	27,995			$	215,417			$	(4,778	)		$	—		$	(1,192	)
Net earnings	—		—			—				14,932				—				—			—
Other comprehensive income, net of tax
Deferred gain on hedging activities	—		—			—				—				—				—			1,186
Unrealized gains (losses) on investments in rabbi trust																		87
Minimum pension liability adjustment	—		—			—				—				(565		)		—			—
Comprehensive income	—		—			—				—				—				—			—
Dividend declared of $.54 per share	—		—			—				(6,673		)		—				—			—
Treasury stock issued upon exercise of options	—		—			(167		)		—				—				—			—
Common stock issued upon exercise of options	347		579			4,605				—				—				—			—
Common stock issued for employee stock purchase plan	40		66			587				—				—				—			—
Common stock issued to a rabbi trust	118		196			(196		)		—				—				—			—
Tax benefit associated with compensation plans	—		—			1,714				—				—				—			—
Amortized compensation under restricted stock plan	—		—			—
Stock based deferred compensation	—		—			340				—				—				—			—
Forfeiture of restricted stock issued pursuant to
performance awards	—		—			(30		)		—				—				—			—
Balance January 1, 2005	12,657		$	21,096		$	34,848			$	223,676			$	(5,343	)		$	87		$	(6	)

See accompanying notes to consolidated financial statements.

NASH FINCH COMPANY AND SUBSIDIARIES
Consolidated Statements of Stockholders’ Equity (Continued)
(In thousands, except per share amounts)

					Deferred			Common stock														Total
Fiscal period ended January 1, 2005	Restricted				compensation			held in a trust							Treasury stock							stockholders’
Janurary 3, 2004 and December 28, 2002	stock				obligation			Shares			Amount				Shares			Amount				equity
Balance at December 29, 2001		—				—			—			—				(73	)		(1,003		)		203,408
Net earnings		—				—			—			—				—			—				23,620
Other comprehensive income, net of tax
Deferred loss on hedging activities		—				—			—			—				—			—				(1,105		)
Additional minimum pension liability		—				—			—			—				—			—				(3,884		)
Comprehensive income		—				—			—			—				—			—				18,631
Dividend declared of $.36 per share		—				—			—			—				—			—				(4,292		)
Treasury stock issued upon exercise of options		—				—			—			—				7			37				110
Common stock issued upon exercise of options		—				—			—			—				—			—				230
Common stock issued for employee stock purchase plan		—				—			—			—				—			—				950
Issuance of restricted stock		(1,457		)		—			—			—				—			—				—
Amortized compensation under restricted stock plan		563				—			—			—				—			—				563
Stock based deferred compensation		—				—			—			—				—			—				248
Forfeiture of restricted stock issued pursuant to		—				—			—			—
performance awards		—				—			—			—				(5	)		(101		)		(162		)
Distribution of stock pursuant to performance awards		—				—			—			—				1			6				1,793
Balance at December 28, 2002		(894		)		—			—			—				(70	)		(1,061		)		221,479
Net earnings		—				—			—			—				—			—				35,092
Other comprehensive income, net of tax
Deferred gain on hedging activities		—				—			—			—				—			—				41
Minimum pension liability adjustment		—				—			—			—				—			—				1,496
Comprehensive income		—				—			—			—				—			—				36,629
Dividend declared of $.36 per share		—				—			—			—				—			—				(4,320		)
Treasury stock issued upon exercise of options		—				—			—			—				12			140				149
Common stock issued upon exercise of options		—				—			—			—				—			—				940
Common stock issued for employee stock purchase plan		—				—			—			—				—			—				637
Amortized compensation under restricted stock plan		419				—			—			—				—			—				419
Stock based deferred compensation		—				—			—			—				12			95				372
Forfeiture of restricted stock issued pursuant to						—			—			—
performance awards		—				—			—			—				(1	)		(3		)		(12		)
Distribution of stock pursuant to performance awards		—				—			—			—				12			64				164
Balance January 3, 2004		$	(475	)		$	—		—			$	—			(35	)		$	(765	)		$	256,457
Net earnings		—				—			—			—				—			—				14,932
Other comprehensive income, net of tax
Deferred gain on hedging activities		—				—			—			—				—			—				1,186
Unrealized gains (losses) on investments in rabbi trust																							87
Minimum pension liability adjustment		—				—			—			—				—			—				(565		)
Comprehensive income		—				—			—			—				—			—				15,640
Dividend declared of $.54 per share		—				—			—			—				—			—				(6,673		)
Treasury stock issued upon exercise of options		—				—			—			—				17			362				195
Common stock issued upon exercise of options		—				—			—			—				—			—				5,184
Common stock issued for employee stock purchase plan		—				—			—			—				—			—				653
Common stock issued to a rabbi trust		—				1,652			(118	)		(1,652		)		—			—				—
Tax benefit associated with compensation plans		—				—			—			—				—			—				1,714
Amortized compensation under restricted stock plan		251				—			—			—				—			—				251
Stock based deferred compensation		—				—			—			—				8			207				547
Forfeiture of restricted stock issued pursuant to									—			—											—
performance awards		—				—			—			—				(1	)		(10		)		(40		)
Balance January 1, 2005		$	(224	)		$	1,652		(118	)		$	(1,652	)		(11	)		$	(206	)		$	273,928

See accompanying notes to consolidated financial statements.

NASH FINCH COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(1) Summary of Significant Accounting Policies

Fiscal Year

Nash Finch Company’s fiscal year ends on the Saturday nearest to December 31. Fiscal year 2004 consisted of 52 weeks, while fiscal year 2003 consisted of 53 weeks and fiscal year 2002 consisted of 52 weeks. The Company’s interim quarters consist of 12 weeks except for the third quarter which has 16 weeks. For fiscal 2003, the Company’s fourth quarter consisted of 13 weeks.

Principles of Consolidation

The accompanying financial statements include the accounts of Nash Finch Company (the “Company”) and its majority-owned subsidiaries. All material intercompany accounts and transactions have been eliminated in the consolidated financial statements.

Reclassifications

Certain reclassifications were made in the consolidated statements of cash flows for prior periods. These reclassifications did not have an impact on operating earnings, earnings before income taxes, net earnings, total cash flows or the financial position for any period.

Cash and Cash Equivalents

In the accompanying financial statements and for purposes of the statements of cash flows, cash and cash equivalents include cash on hand and short-term investments with original maturities of three months or less.

Revenue Recognition

Revenues for the food distribution and military segments are recognized when product orders placed by customers are shipped. Retail segment revenues are recognized at the point of sale.

In fiscal 2002, the Company reclassified its treatment of facilitated services, which include invoicing and payment services, where it acts as a processing agent for its independent retailers. Prior to the reclassification, amounts invoiced to independent retailers by the Company for facilitated services were recorded as sales and the related amounts due and paid by the Company to its vendors were recorded as costs of sales. The reclassification reduced sales and costs of sales by $117.9 million for fiscal 2002, but did not have an impact on gross profit, earnings from continuing operations before income taxes, net earnings, cash flows or financial position for any period or their respective trends.

Cost of sales

Cost of sales includes the cost of inventory sold during the period, including distribution costs and shipping and handling fees. Advertising costs, included in cost of goods sold, are expensed as incurred and were $44.9 million, $47.1 million and $45.4 million for fiscal 2004, 2003 and 2002, respectively. Advertising vendor income offsetting advertising expense was approximately $46.5 million, $48.8 million and $49.4 million for fiscal 2004, 2003 and 2002, respectively.

Vendor Allowances and Credits

The Company reflects vendor allowances and credits, which include allowances and incentives similar to discounts, as a reduction of cost of sales when the related inventory has been sold, based on the underlying arrangement with the vendor. These allowances primarily consist of promotional allowances, quantity discounts and payments under merchandising arrangements. Amounts received under promotional or merchandising arrangements that require specific performance are recognized when the performance is satisfied and the related inventory has been sold. Discounts based on the quantity of purchases from the Company’s vendors or sales to customers are recognized as the product is sold. When payment is received prior to fulfillment of the terms, the amounts are deferred and recognized according to the terms of the arrangement. (Refer to Part II, Item 8 of this report under Note 2, “Vendor Allowances and Credits”.)

Inventories

Inventories are stated at the lower of cost or market. At both January 1, 2005 and January 3, 2004, approximately 82% of the Company’s inventories were valued on the last-in, first-out (LIFO) method. During fiscal 2004, the Company recorded a LIFO charge of $3.5 million compared to a LIFO credit of $1.1 million in fiscal 2003. The remaining inventories are valued on the first-in, first-out (FIFO) method. If the FIFO method of accounting for inventories had been used, inventories would have been $47.9 million and $44.4 million higher at January 1, 2005 and January 3, 2004, respectively.

Capitalization, Depreciation and Amortization

Property, plant and equipment are stated at cost. Assets under capitalized leases are recorded at the present value of future lease payments or fair market value, whichever is lower. Expenditures which improve or extend the life of the respective assets are capitalized while maintenance and repairs are expensed as incurred.

Property, plant and equipment are depreciated on a straight-line basis over the estimated useful lives of the assets which generally range from 10-40 years for buildings and improvements and 3-10 years for furniture, fixtures and equipment. Capitalized leases and leasehold improvements are amortized on a straight-line basis over the shorter of the term of the lease or the useful life of the asset.

Impairment of Long-lived Assets

An impairment loss is recognized whenever events or changes in circumstances indicate the carrying amount of an asset is not recoverable. In applying Statement of Financial Accounting Standards (SFAS) No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, assets are grouped and evaluated at the lowest level for which there are identifiable cash flows that are largely independent of the cash flows of other groups of assets. The Company has generally identified this lowest level to be individual stores or distribution centers; however, there are limited circumstances where, for evaluation purposes, stores could be considered with the distribution center they support. The Company allocates the portion of the profit retained at the servicing distribution center to the individual store when performing the impairment analysis in order to determine the store’s total contribution to the Company. The Company considers historical performance and future estimated results in its evaluation of potential impairment. If the carrying amount of the asset exceeds expected undiscounted future cash flows, the Company measures the amount of the impairment by comparing the carrying amount of the asset to its fair value, generally measured by discounting expected future cash flows at the rate the Company utilizes to evaluate potential investments. In fiscal 2004, 2003 and 2002, the Company recorded impairment charges, other than amounts separately classified as special charges, of $0.9 million, $2.7 million, and $6.6 million, respectively, within the “selling, general and administrative” caption of the consolidated statements of income.

Discontinued Operations

On July 31, 1999, the Company sold the outstanding stock of its wholly-owned produce growing and marketing subsidiary, Nash-De Camp. Nash-De Camp had previously been reported as a discontinued operation following a fourth quarter of fiscal 1998 decision to sell the subsidiary. The gains of $0.06 million in fiscal 2004 and $0.4 million in fiscal 2003 reported under the caption “Discontinued operations” were a result of the resolution of a contingency associated with the sale.

Reserves for Self Insurance

The Company is primarily self-insured for workers’ compensation, general and automobile liability and health insurance costs. It is the Company’s policy to record its 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. The Company has purchased stop-loss coverage to limit its 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.

Goodwill and Intangible Assets

Intangible assets, consisting primarily of goodwill resulting from business acquisitions, are carried at cost. The Company re-evaluates the carrying value of intangible assets for impairment annually and/or when factors indicating impairment are present, using an undiscounted operating cash flow assumption.

Goodwill and intangible assets with indefinite useful lives are tested for impairment at least annually. Separable intangible assets that are not deemed to have an indefinite life are amortized over their useful lives. The Company performed the required impairment test of goodwill as of the end of the Company’s third fiscal quarter in 2004, 2003 and 2002 and determined that no impairment issues existed. The Company had no intangible assets with indefinite useful lives as of January 1, 2005, January 3, 2004 or December 28, 2002. At January 1, 2005, the Company had $147.4 million of goodwill on its consolidated balance sheet, of which $23.2 million related to the food distribution segment, $25.8 million related to the military segment, and $98.4 million related to the retail segment. At January 3, 2004, the Company had $149.8 million of goodwill on its consolidated balance sheet, of which $23.2 million related to the food distribution segment, $25.8 million related to the military segment and $100.8 million related to the retail segment.

Changes in the net carrying amount of goodwill were as follows (in thousands):

	Food Distribution			Military	Retail		Total
Goodwill as of December 29, 2001		$	23,158	25,754	88,425		137,337
Retail acquisitions		—		—	10,691		10,691
Goodwill as of December 28, 2002		$	23,158	25,754	99,116		148,028
Retail acquisitions		—		—	3,530		3,530
Resolution of disputed retail acquisition purchase price		—		—	(1,766	)	(1,766	)
Goodwill as of January 3, 2004		$	23,158	25,754	100,880		149,792
Resolution of disputed retail acquisition purchase price		—		—	(140	)	(140	)
Sale of retail stores		—		—	(1,145	)	(1,145	)
Retail impairment		—		—	(1,072	)	(1,072	)
Goodwill as of January 1, 2005		$	23,158	25,754	98,523		147,435

Other intangible assets included in other assets on the consolidated balance sheets were as follows (in thousands):

	January 1, 2005					January 3, 2004
	Gross Carrying Value		Accum. Amort.	Net Carrying Amount		Gross Carrying Value	Accum. Amort.	Net Carrying Amount
Service contracts	$	11,110	7,051		4,059	11,110	6,110	5,000
Tradenames	3,300		1,056		2,244	3,300	924	2,376
Franchise agreements	2,703		860		1,843	2,703	752	1,951
Non-compete agreements	2,444		1,665		779	2,444	1,310	1,134
Leasehold interests	1,209		1,208		1	1,209	1,195	14
Consulting agreements and other	418		418		—	418	400	18
Total	$	21,184	12,258		8,926	21,184	10,691	10,493

Aggregate amortization expense recognized for fiscal 2004, 2003, and 2002 was $1.6 million, $1.5 million, and $1.8 million, respectively. The aggregate amortization expense for the five succeeding fiscal years is expected to approximate $5.2 million. Intangible assets with a definite life are amortized on a straight-line basis over estimated useful lives ranging from 3-25 years.

Income Taxes

Deferred income taxes are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The company maintains valuation allowances where it is more likely than not all or a portion of the deferred tax asset will not be realized. Changes in valuation allowances from period to period are included in the Company’s tax provision in the period of change.

Financial Instruments

The Company accounts for derivative financial instruments pursuant to SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities as amended. SFAS No. 133 requires derivatives be carried at fair value on the balance sheet and provides for hedge accounting when certain conditions are met.

The Company has market risk exposure to changing interest rates primarily as a result of its borrowing activities. The Company’s objective in managing its exposure to changes in interest rates is to reduce fluctuations in earnings and cash flows. To achieve these objectives, the Company uses derivative instruments, primarily interest rate swap agreements, to manage risk exposures when appropriate, based on market conditions. The Company does not enter into derivative agreements for trading or other speculative purposes, nor is it a party to any leveraged derivative instrument.

Stock Option Plans

As permitted by the provisions of SFAS No. 123, “Accounting for Stock-Based Compensation” (SFAS No. 123), 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 option plans. As a result, the Company does not recognize compensation costs if the option price equals or exceeds market price at date of grant. The following table illustrates the effect on net income and earnings per share if the Company had applied the fair value recognition provisions of SFAS No. 123 to stock-based employee compensation ($ in thousands, except per share amounts):

	2004			2003		2002
Reported net income	$	14,932		35,092		23,620
Add: stock-based compensation expense from restricted stock plan included in net income	251			419		562
Deduct: stock-based compensation expense from restricted stock plan included in net income	(251		)	(419	)	(562	)
Deduct: total stock-based employee compensation expense determined under fair value method for all option awards, net of tax	(1,112		)	(1,214	)	(1,489	)
Adjusted net income	$	13,820		33,878		22,131
Reported basic earnings per share	$	1.20		2.90		2.00
Adjusted basic earnings per share	$	1.11		2.80		1.88
Reported diluted earnings per share	$	1.18		2.88		1.95
Adjusted diluted earnings per share	$	1.09		2.78		1.83

Comprehensive Income

The Company reports comprehensive income in accordance with SFAS No. 130, “Reporting Comprehensive Income.” Other comprehensive income refers to revenues, expenses, gains and losses that are not included in net earnings, but rather are recorded directly in the Consolidated Statements of Stockholders’ Equity.

Use of Estimates

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.

New Accounting Standards

In December 2004, the FASB issued Statement No. 123R (Revised 2004), “Share-Based Payment”. The revisions to SFAS No 123 require compensation costs related to share-based payment transactions to be recognized in the financial statements. With limited exceptions, the amount of compensation cost will be measured based on the grant-date fair value of the equity or liability instruments issued. In addition, liability awards will be remeasured each reporting period. Compensation cost will be recognized over the period that an employee provides service in exchange for the award. Statement 123R replaces FASB Statement No. 123, “Accounting for Stock Based Compensation”, and supercedes APB Opinion No. 25, “Accounting for Stock Issued to Employees”. For public entities, the provisions of the statement are effective as of the beginning of the first interim or annual reporting period that begins after June 15, 2005, however early adoption is allowed. Nash Finch Company expects to adopt the provisions of the new statement in the third fiscal quarter of 2005. The Company does not currently expect that the impact on net income on a full year basis will be significantly different from the historical pro forma impacts as previously disclosed in the “Stock Option Plans” policy description above.

In December 2003, the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (the Act) became law in the United 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 Medicare. The benefit and subsidy introduced by the Act begin in 2006. In May 2004, the FASB issued FASB Staff Position (FSP) No. 106-2, “Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003”. FSP 106-2 requires an employer to initially account for any subsidy received under the Act as an actuarial experience gain to the accumulated postretirement benefit obligation (APBO), which would be amortized over future service periods. Future subsidies would reduce service cost each year. FSP 106-2 was effective for Nash Finch in the third fiscal quarter ended October 9, 2004. Nash Finch believes that its postretirement benefit plan is not actuarially equivalent to Medicare Part D under the Act and consequently will not receive significant subsidies under the Act.

(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 and are often subject to negotiation with 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 specific shipments of goods to retailers, or to customers in the case of the Company’s own retail stores, during a specified period (count-recount promotions), 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. The Company also assesses an administrative fee, reflected on the invoices sent to vendors, to recoup the Company’s reasonable costs of performing the tasks associated with administering count-recount promotions.

The Company collectively plans promotions with its vendors and arrive at the amount the respective vendor plans to spend on promotions with the Company. 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 the Company’s past or anticipated purchases and/or the anticipated performance of the planned promotions. Forecasting promotional expenditures is a critical part of the Company’s frequently scheduled planning sessions with its vendors. As individual promotions are completed and the associated billing is processed, the vendors track the Company’s promotional program execution and spend rate, and discuss the tracking, performance and spend rate with the Company on a regular basis throughout the year, variously 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.

(3) Business Acquisitions

On February 10, 2003, the Company acquired one store in Cannon Falls, Minnesota through a cash purchase of 100% of the net assets. The acquisition of this store resulted in goodwill of $2.0 million in the retail segment. Results of operations are included in the consolidated statements from the date of acquisition. The pro forma effects of the acquisition are immaterial for disclosure.

On March 5, 2002, the Company acquired two stores in Chilton and Kiel, Wisconsin through a cash purchase of 100% of the net assets. The acquisition of these stores resulted in goodwill of $1.9 million in the retail segment. Results of operations are included in the consolidated statements from the date of acquisition. The pro forma effects of the acquisition are immaterial for disclosure.

(4) Special Charges

During the second quarter of 2004, the Company completed a strategic review that identified certain retail stores that did not meet return objectives, provide long-term strategic opportunities or justify additional capital investments. Consequently, the Company announced that it was closing or selling 21 retail outlets. The Company had closed 18 stores by the end of the second quarter of 2004 and is continuing to market the three Denver area AVANZA stores. As a result of these store dispositions, the Company recorded a pre-tax special charge of $36.5 million which was reflected in the “Special charges” line within the consolidated statements of income, and $3.3 million of costs reflected in operating earnings, primarily involving inventory markdowns related to the store closures. The special charge included $21.7 million for asset impairments (including $1.1 million of goodwill allocated to the stores being sold), $14.1 million for future lease obligations, $0.1 million in severance and $0.6 million in other charges based on management’s estimates of fair value of assets, lease subsidies, future payments on exited real estate, lease terminations and other related costs.

During the fourth fiscal quarter of 2004, the Company recorded a net reversal of $1.6 million of the special charge because the Company was able to settle five leases for less than initially estimated and adjusted the estimate needed on four other properties for which more current market information was available.

Following is a summary of the activity in the 2004 reserve established for store dispositions:

	Write- Down of Tangible Assets			Write- Down of Intangible Assets			Lease Commitments			Severance			Other Exit Costs		Total
Initial Accrual	$	20,596			1,072			14,129			109		588		36,494
Change in estimates	889				—			(2,493	)		(23	)	—		(1,627	)
Used in 2004	(21,485		)		(1,072	)		(2,162	)		(86	)	(361	)	(25,166	)
Balance January 1, 2005	$	—			—			9,474			—		227		9,701

The Company 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 affected the Company’s food distribution and retail segments and were also designed to redirect the Company’s technology efforts. All actions contemplated by the charges are complete. At January 1, 2005, the remaining accrued liability was $1.7 million and consisted primarily of lease commitments.

During fiscal 2004, the Company reversed $0.08 million of its fiscal 1998 and 1997 special charges due to agreements reached to settle certain leases for less than what the Company had originally estimated. During fiscal 2002, the Company reversed $0.63 million and $0.13 million of its fiscal 1998 and 1997 special charges, respectively, due to agreements reached to settle certain leases for less than what the Company had originally estimated.

(5) Impairment Charges

Impairment charges of $0.9 million, $2.7 million, and $6.6 million were recorded for asset impairments in fiscal 2004, 2003 and 2002, respectively. These charges related primarily to three stores in fiscal 2004, six stores in fiscal 2003 and fifteen stores in fiscal 2002 that were impaired as a result of 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, therefore these assets were written down in accordance with SFAS No. 144.

(6) Accounts and Notes Receivable

Accounts and notes receivable at the end of fiscal 2004 and 2003 are comprised of the following components (in thousands):

	2004			2003
Customer notes receivable, current	$	5,911		12,341
Customer accounts receivable	136,083			129,560
Other receivables	22,438			20,838
Allowance for doubtful accounts	(7,035		)	(16,837	)
Net current accounts and notes receivable	157,397			145,902
Long-term customer notes receivable	31,043			33,585
Other noncurrent receivables	3,393			3,626
Allowance for doubtful accounts	(7,882		)	(6,033	)
Net long-term notes receivable	$	26,554		31,178

Operating results include bad debt expense totaling $4.2 million, $8.7 million, and $9.0 million during fiscal 2004, 2003 and 2002, respectively.

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.

(7) Long-term Debt and Bank Credit Facilities

Long-term debt at the end of the fiscal 2004 and 2003 is summarized as follows (in thousands):

	2004		2003
Revolving credit	$	10,000	—
Term loan	175,000		100,000
Senior subordinated debt, 8.5% due in 2008	—		164,442
Industrial development bonds, 5.20% to 7.75% due in various installments through 2014	5,625		6,545
Notes payable and mortgage notes, 4.0% to 8.0% due in various installments through 2018	11,435		13,687
	202,060		284,674
Less current maturities	2,817		2,730
	$	199,243	281,944

On November 12, 2004, the Company concluded the refinancing of its senior secured bank credit facility which had been scheduled to mature on December 19, 2005 and had provided a $100 million term loan and $150 million in revolving line of credit, of which $40 million could be used for letters of credit. The new credit facility consists of $125 million in revolving credit, all of which may be utilized for loans and up to $40 million of which may be utilized for letters of credit, and a $175 million Term Loan B, and is secured 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 revolving credit portion of the facility has a five year term and the Term Loan B has a six year term. Borrowings under the bank credit agreement bear interest at the Eurodollar rate plus a margin increase that is dependent on our total leverage ratio and a commitment commission on the unused portion of the revolver. The Term Loan B was subject to a commitment commission only until the loan was activated. The margin increase and the commitment commission are reset quarterly based on movement of a leverage ratio defined by the agreement. At January 1, 2005 the margin for the revolver and Term Loan B were 1.75% and 2.25%, respectively and the commitment commission was 0.375%. The margin increase and the commitment commission were 1.75% and 0.375%, respectively under the prior credit facility at the end of fiscal 2003.

On December 13, 2004, the company redeemed the $165 million in 8.5% Senior Subordinated Notes Due 2008 (the “Notes”) at a redemption price of 102.833%, plus accrued and unpaid interest on the Notes as of the redemption date. The Company drew under the Term Loan B to fund the redemption of the Notes. Charges recorded during the fourth fiscal quarter for redemption of the Notes and the refinancing of the credit facility include a call premium of $4.7 million and $2.5 million for unamortized finance costs and original issue discount charge.

The Company has outstanding letters of credit in the amounts of $17.2 million and $22.6 million at January 1, 2005 and January 3, 2004, respectively, primarily supporting workers’ compensation obligations.

At January 1, 2005, land in the amount of $1.4 million and buildings and other assets with a depreciated cost of approximately $5.1 million are pledged to secure obligations under issues of industrial development bonds.

Aggregate annual maturities of long-term debt for the five fiscal years after January 1, 2005 are as follows (in thousands):

2005	$	2,817
2006	2,861
2007	1,544
2008	1,535
2009	13,533
Thereafter	179,770

Interest paid was $27.2 million, $33.1 million, and $28.4 million in fiscal 2004, 2003 and 2002, respectively.

In February 2003, the Company was notified by the Trustee for its 8.5% Senior Subordinated Notes that a default had occurred under the related Indenture as a result of the Company’s failure to file its Form 10-Q for the third quarter ended October 5, 2002 with the SEC. If the default was not remedied within the 30 day cure period, an event of default would occur under the Indenture and the Company’s bank credit facility. Later that month the Company obtained a waiver of the default under the Indenture, for which it paid a fee to the note holders equal to 1.5% of the outstanding principal amount of the notes. In March 2003 the Company obtained an extension of time from its bank lenders to submit to them its audited fiscal 2002 financial statements, for which it paid a fee to the bank lenders equal to 0.5% of the sum of its revolving loan commitments and aggregate outstanding term loans as of the effective date of the

extension. The waiver under the Indenture and the extension from the banks were conditioned upon the Company receiving audited financial statements for fiscal 2002 and making specified filings with the Securities and Exchange Commission (SEC) by specified deadlines. The Company subsequently complied with the extended deadlines.

(8) Investments

Investments in marketable securities are recorded at fair value based on quoted market prices, and are classified as available-for-sale. All investments in marketable securities are held in a benefits protection trust and relate to deferred compensation plans. The Company established the benefits protection trust during fiscal 2004. A summary of the carrying values and fair values of the Company’s investments is as follows:

January 1, 2005:

(dollars in thousands)	Cost Basis			Gross Unrealized Gains		Fair Value
Equity securities		$	877		142		1,019
Fixed income		259			—		259
Other short term investments		383			—		383
		$	1,519		142		1,661

(9) Derivative Instruments

The Company has market risk exposure to changing interest rates primarily as a result of its borrowing activities and commodity price associated with anticipated purchases of diesel fuel. The Company’s objective in managing our exposure to changes in interest rates and commodity prices is to reduce fluctuations in its earnings and cash flows. To achieve these objectives, the Company uses derivative instruments, primarily interest rate and commodity swap agreements, to manage risk exposures when appropriate, based on market conditions. The Company does not enter into derivative agreements for trading or other speculative purposes, nor is the Company 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 the Company’s consolidated balance sheet and the related gains or losses on these contracts are deferred in stockholders’ equity as a component of other comprehensive 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. At January 1, 2005, the Company did not have any ineffectiveness in its derivatives requiring current income recognition.

Interest rate swap agreements are entered into for periods consistent with related underlying exposures and do not constitute positions independent of those exposures. At January 1, 2005, the Company had seven outstanding interest rate swap agreements. The agreements call for an exchange of interest payments with the Company making payments based on fixed rates for the respective time intervals and receiving payments based on floating rates, without an exchange of notional amount upon which the payments are based. Notional, commencement date, expiration and fixed rates payable by the Company are as follows:

Notional	Effective Date	Termination Date		Fixed Rate
$50,000	12/13/2004		12/13/2005		2.985	%
40,000	12/13/2004		12/13/2005		3.010	%
50,000	12/13/2004		12/13/2005		2.992	%
45,000	12/13/2005		12/13/2006		3.809	%
20,000	12/13/2005		12/13/2006		3.825	%
20,000	12/13/2006		12/13/2007		4.095	%
30,000	12/13/2006		12/13/2007		4.100	%

At January 3, 2004, the Company had three outstanding interest rate swap agreements which commenced on July 26, 2002, December 6, 2002 and June 6, 2003, respectively. Those three agreements expired on September 25, 2004, October 6, 2004 and October 6, 2004 with notional amounts of $50 million, $35 million and $35 million, respectively.

The interest rate swap agreements described above totaled $255 million in notional amounts as of January 1, 2005 and $120 million in notional amounts as of January 3, 2004, 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):

Interest Rate Swaps:

	1/1/05			1/3/04
Pay fixed / receive variable	$	255,000		120,000
Fair value	(82		)	(1,955	)
Average receive rate for effective swaps	2.4%			1.2%
Average pay rate for effective swaps	3.0%			3.3%

In addition, the Company is using commodity swap agreements to reduce price risk associated with anticipated purchases of diesel fuel. The agreements call for an exchange of payments with the Company making payments based on fixed price per gallon and receiving payments based on floating prices, without an exchange of the underlying commodity amount upon which the payments are based. At January 1, 2005, the Company had two outstanding commodity swap agreements which commenced and expire as follows:

Notional

Effective Date

Termination Date

Fixed Rate

100,000 gallons/month

12/7/2004

11/30/2006

1.18

100,000 gallons/month

1/1/2005

12/31/2006

1.16

Interest rate swap and commodity swap agreements are reflected at fair value in the Company’s consolidated balance sheet and related losses, net of income taxes, are deferred in stockholders’ equity as a component of other comprehensive income. The Company expects the losses deferred in other comprehensive income to reverse during fiscal 2005.

(10) Income Taxes

Income tax expense is made up of the following components (in thousands):

	2004			2003		2002
Current:
Federal	$	11,830		3,054		5,409
State	1,361			341		992
Tax credits	(212		)	(168	)	(62	)
Deferred:
Federal	(7737		)	12,860		7,212
State	(884		)	1,432		1,551
Total	$	4,358		17,519		15,102

Total income tax expense is allocated as follows (in thousands):

	2004		2003	2002
Income tax expense from continuing operations	$	4,322	17,254	19,552
Tax effect of discontinued operations	36		265	—
Tax effect of cumulative effect of change in accounting principle	—		—	(4,450	)
Total income tax expense	$	4,358	17,519	15,102

Income tax expense differed from amounts computed by applying the federal income tax rate to pre-tax income as a result of the following:

	2004			2003			2002
Federal statutory tax rate		35.0	%		35.0	%		35.0	%
State taxes, net of federal income tax benefit		3.9			3.9			3.9
Resolution of various outstanding tax issues		(13.0	)		(5.7	)		—
Other net		(3.3	)		0.1			0.1
Effective tax rate		22.6	%		33.3	%		39.0	%

Income taxes paid were $15.4 million, $2.7 million, and $9.2 million during fiscal 2004, 2003 and 2002, respectively. An income tax benefit through stockholders’ equity of $1.7 million will be recognized as compensation expense for tax purposes in excess of amounts recognized for financial reporting purposes.

Income tax provided for fiscal 2004 was 22.6% compared to 33.3% for fiscal 2003. During 2004 and 2003, the company recognized reductions of income tax expense of $2.5 million and $3.0 million, respectively, as a result of resolution of various state and federal tax issues.

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at January 1, 2005 and January 3, 2004 are presented below (in thousands):

	2004			2003
Deferred tax assets:
Provision for obligations to be settled in future periods	$	24,570		26,498
Closed locations	6,115			2,512
Total deferred tax assets	30,685			29,010
Deferred tax liabilities:
Depreciation and amortization	4,629			16,194
Acquired asset adjustments for fair values	10,354			10,286
Accelerated tax deductions	1,106			743
Inventories	2,057			2,295
Other	685			124
Total deferred tax liabilities	18,831			29,642
Net deferred tax (asset)/liability	$	(11,854	)	632

Temporary differences for obligations to be settled in the future consist of deferred compensation, vacation, health benefits and other expenses which are not deductible for tax purposes until paid.

(11) Stockholder Rights Plan

Under the Company’s 1996 Stockholder Rights Plan, one right is attached to each outstanding share of common stock. Each right entitles the holder to purchase, under certain conditions, one-half share of common stock at a price of $30.00 ($60.00 per full share). The rights are not yet exercisable and no separate rights certificates have been distributed. All rights expire on March 31, 2006.

The rights become exercisable 20 days after a “flip-in event” has occurred or 10 business days (subject to extension) after a person or group makes a tender offer for 15% or more of the Company’s outstanding common stock. A flip-in event would occur if a person or group acquires (1) 15% of the Company’s outstanding common stock, or (2) an ownership level set by the Board of Directors at less than 15% if the person or group is deemed by the Board of Directors to have interests adverse to those of the Company and its stockholders. The rights may be redeemed by the Company at any time prior to the occurrence of a flip-in event at $.01 per right. The power to redeem may be reinstated within 20 days after a flip-in event occurs if the cause of the occurrence is removed.

When the rights become exercisable, subject to certain adjustments or alternatives, each right would entitle the holder (other than the acquiring person or group, whose rights become void) to purchase a number of shares of the Company’s common stock having a market value of twice the exercise price of the right. If the Company is involved in a merger or other business combination, or certain other events occur, each right would entitle the holder to purchase common shares of the acquiring company having a market value of twice the exercise price of the right. Within 30 days after the rights become exercisable following a flip-in event, the Board of Directors may exchange shares of Company common stock or cash or other property for exercisable rights.

(12) Stock-Based Compensation Plans

The Company follows APB 25 and related interpretations in accounting for its employee stock options. Under APB 25, when the exercise price of employee stock options equals the market price of the underlying stock on the date of the grant, no compensation expense is recognized.

The Company has three stock incentive plans under which incentive stock options, non-qualified stock options and other forms of stock-based compensation have been, or may be, granted primarily to key employees and non-employee members of the Board of Directors. Under the 1995 Director Stock Option Plan (“1995 Plan”), each non-employee director received a non-qualified stock option covering 5,000 shares of the Company’s common stock in 2002 and 2003. Each option has an exercise price equal to the fair market value of a share of the Company’s stock on the date of grant, becomes fully exercisable six months after the date of grant, and has a five year term. As of December 27, 2004, the Company has terminated the 1995 Plan. Under the 1997 Non-Employee Director Stock Compensation Plan (“1997 Plan”), each non-employee director received prior to 2004 one-half of his or her annual retainer in shares of Company stock. As of December 31, 2003, the 1997 Plan was amended to remove this feature. Participation in the 1997 Plan was frozen as of December 31, 2004.

Under the 2000 Stock Incentive Plan (“2000 Plan”), employees, non-employee directors and consultants may be awarded incentive or non-qualified stock options, shares of restricted stock, stock appreciation rights, performance units or stock bonuses. As of January 1, 2005, only employees and non-employee directors have received awards under the 2000 Plan. Awards to employees have commonly been non-qualified stock options, each with an exercise price equal to the fair market value of a share of the Company’s common stock on the date of grant and a term of 5 years, becoming exercisable in 20% increments 6, 12, 24, 36 and 48 months after the date of the grant. Awards of unrestricted stock in lieu of cash have been made under the 2000 Plan to certain employees in connection with the Company’s annual bonus program for executives. In such cases, additional awards of restricted stock equal to 15% of the number of shares received in lieu of cash have been made to these employees, with such shares subject to a two-year vesting period. In addition, an award of 50,000 restricted shares was made to the Company’s CEO in February 2002, with 20% of such shares vesting on each of the first five anniversaries of the grant date. Under terms of the award, he has voting power over all of the shares, and is entitled to receive ordinary cash dividends paid generally to shareholders. The award also provides for a cash payment on each vesting date in an amount equal to forty percent of the fair market value of the shares vesting at that time to partially offset the taxes due upon vesting. Compensation expense is recognized over the periods during which the restrictions lapse. Performance units have also been granted under the 2000 Plan to two executives in exchange for phantom stock units those executives had accrued under a now discontinued bonus and deferred compensation plan.

Awards to non-employee directors under the 2000 Plan began in 2004 and have taken the form of performance units, also referred to as restricted stock units, that are granted annually to each non-employee director as part of his or her annual compensation for service as a director. The number of such units awarded to each director is determined by dividing $30,000 by the fair market value of a share of the Company’s common stock on the date of grant. Each of these units vest six months after issuance and will entitle a director to receive one share of the Company’s common stock six months after the director’s service on the Company’s Board ends.

The Company also maintains the 1999 Employee Stock Purchase Plan under which Company employees may purchase shares of Company common stock at the end of each offering period at a price equal to 85% of the lesser of the fair market value of a share of the Company’s common stock at the beginning or end of such offering period. An offering period under the plan is typically six months. Employees purchased 28,758, 71,854 and 43,026 shares in fiscal 2004, 2003 and 2002 respectively, under this plan. At January 1, 2005, 78,907 shares of additional common stock were available for purchase under this plan.

Changes in outstanding options under the 1995 Plan and the 2000 Plan (including a predecessor 1994 Stock Incentive Plan) during the three fiscal years ended January 1, 2005 are summarized as follows:

	Shares			Weighted Average Option Price Per Share
	(in thousands)
Options outstanding December 29, 2001		1,146			$	15.04
Exercised		(29	)		11.94
Forfeited		(126	)		21.22
Granted		354			29.93
Options outstanding December 28, 2002		1,345			18.45
Exercised		(105	)		8.20
Forfeited		(215	)		21.23
Granted		328			16.91
Options outstanding January 3, 2004		1,353			18.43
Exercised		(365	)		14.76
Forfeited		(166	)		22.45
Granted		195			24.90
Options outstanding January 1, 2005		1,017			$	20.33

Stock options totaling 629,700 and 767,000 were exercisable at January 1, 2005 and January 3, 2004, respectively.

The following tables summarize information concerning currently outstanding and exercisable stock options at January 1, 2005:

Options Outstanding

Ranges of Exercise Prices	Number Outstanding	Weighted Average Remaining Contractual Life		Weighted Average Exercise Price
$ 5.68 – 11.22	140,700		1.37		$	9.18
12.00 – 16.84	207,350		2.41		16.74
17.35 – 22.19	394,000		2.89		20.41
22.78 – 27.52	124,000		3.96		25.09
30.46 – 35.36	151,100		2.94		31.62
	1,017,150		2.72		$	20.33

Options Exercisable

Ranges of Exercise Prices	Number Exercisable		Weighted Average Exercise Price
$ 5.68 – 11.22		114,900		$	8.75
12.00 – 16.84		203,150		16.79
17.25 – 22.19		214,750		20.72
22.78 – 27.52		18,200		26.69
30.46 – 35.36		78,700		31.45
		629,700		$	18.78

The weighted average fair value of options granted during fiscal 2004, 2003 and 2002 are $9.88, $6.97 and $8.42, respectively. The fair value of each option grant is estimated as of the date of grant using the Black-Scholes single option pricing model using the following assumptions.

Assumption:	2004		2003		2002
Weighted average risk-free interest rate	3.40	%	3.24	%	2.74	%
Expected dividend yield	1.56	%	1.53	%	4.66	%
Expected option lives	2.5 years		2.5 years		2.5 years
Volatility	67	%	72	%	55	%

Pro forma compensation cost for the stock incentive plans would reduce net income as described in the “Summary of Significant Accounting Policies” as required by SFAS No. 148.

(13) Earnings per Share

The following table sets forth the computation of basic and diluted earnings per share for continuing operations (in thousands, except per share amounts):

	2004		2003	2002
Numerator:
Earnings from continuing operations	$	14,877	34,679	30,580
Denominator:
Denominator for basic earnings per share (weighted-average shares)	12,450		12,082	11,796
Effect of dilutive options and awards	207		113	318
Denominator for diluted earnings per share (adjusted weighted-average shares)	12,657		12,195	12,114
Basic earnings per share	$	1.20	2.87	2.59
Diluted earnings per share	$	1.18	2.85	2.52

(14) Leases

A substantial portion of the store and warehouse properties of the Company are leased. The following table summarizes assets under capitalized leases (in thousands):

	2004			2003
Buildings and improvements	$	40,171		41,661
Less accumulated amortization	(18,947		)	(17,039	)
Net assets under capitalized leases	$	21,224		24,622

Total future minimum sublease rents receivable related to operating and capital lease obligations as of January 1, 2005 are $39.7 million and $22.6 million, respectively. Future minimum payments for operating and capital leases have not been reduced by minimum sublease rentals receivable under non-cancelable subleases. At January 1, 2005, future minimum rental payments by the Company under non-cancelable leases (including with respect to properties that have been subleased) are as follows (in thousands):

	Operating		Capital
	Leases		leases
2005	$	23,158	$	7,346
2006	20,548		7,363
2007	18,399		7,317
2008	13,755		7,313
2009	12,427		7,190
Thereafter	47,676		41,822
Total minimum lease payments	$	135,963	$	78,351
Less imputed interest (rates ranging from 8.3% to 24.6%)			35,368
Present value of net minimum lease payments			42,983
Less current maturities			(2,623		)
Capitalized lease obligations			$	40,360

Total rental expense under operating leases for fiscal 2004, 2003 and 2002 was as follows (in thousands):

	2004			2003		2002
Total rentals	$	42,742		45,002		43,858
Less real estate taxes, insurance and other occupancy costs	(4,284		)	(4,399	)	(3,805	)
Minimum rentals	38,458			40,603		40,053
Contingent rentals	(159		)	(104	)	(175	)
Sublease rentals	(8,596		)	(10,986	)	(14,092	)
	$	29,703		29,513		25,786

Most of the Company’s leases provide that the Company must pay real estate taxes, insurance and other occupancy costs applicable to the leased premises. Contingent rentals are determined on the basis of a percentage of sales in excess of stipulated minimums for certain store facilities. Operating leases often contain renewal options. Management expects that, in the normal course of business, leases that expire will be renewed or replaced by other leases.

(15) Concentration of Credit Risk

The Company provides financial assistance in the form of loans to some of its independent retailers for inventories, store fixtures and equipment and store improvements. Loans are generally secured by liens on real estate, inventory and/or equipment, personal guarantees and other types of collateral, and are generally repayable over a period of five to seven years. All of the guarantees were issued prior to December 31, 2002 and therefore were not subject to the recognition and measurement provisions of FASB Interpretation No. 45, “Guarantor’s Accounting and Disclosure Requiremetns for Guarantees, Including Indirect Guarantees of Indebtedness of Others, an interpretation of FASB Statements No. 5, 57 and 107 and a recission of FASB Interpretation No. 34” (FIN 45). The Company establishes allowances for doubtful accounts based upon periodic assessments of the credit risk of specific customers, collateral value, historical trends and other information. The Company believes that adequate provisions have been recorded for any doubtful accounts. In addition, the Company may guarantee debt and lease 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, which would be due in accordance with the underlying agreements.

As of January 1, 2005 and January 3, 2004, one retailer comprised 41.2% and 36.8%, respectively, of the Company’s notes receivable balance. In addition, as of January 1, 2005, the Company has guaranteed outstanding debt and lease obligations of a number of retailers in the amount of $10.6 million, including $4.6 million in loan guarantees to one retailer. In the normal course of business, the Company also subleases and assigns to third parties various leases. As of January 1, 2005, the Company estimates that its maximum potential obligation with respect to the subleases and assigned leases to be approximately $62.3 million and $20.0 million, respectively.

(16) Fair Value of Financial Instruments

The estimated fair value of notes receivable approximates the carrying value at January 1, 2005 and January 3, 2004. Substantially all notes receivable are based on floating interest rates which adjust to changes in market rates.

The estimated fair value of the Company’s long-term debt, including current maturities, was $202.7 million and $285.4 million at January 1, 2005 and January 3, 2004, respectively, utilizing discounted cash flows.

The estimated fair value of the Company’s interest rate swap agreements is the estimated amount the Company would have to pay or receive to terminate the agreements based upon quoted market prices as provided by the financial institutions which are counter parties to the agreements.

(17) Commitments and Contingencies

SEC Investigation

As previously disclosed, on October 9, 2002, Nash Finch received a letter from the staff of the Division of Enforcement of the SEC indicating that they were conducting an informal inquiry into the Company’s process for assessing count-recount charges to its vendors and how it accounts for those charges. In response, the Company commenced an internal review of its practices in conjunction with the Audit Committee, special outside counsel and the Company’s prior and then-current auditors, and filed a written response to the inquiry on November 22, 2002. On February 4, 2003, the Company was notified by the staff of the SEC’s Division of Enforcement that the SEC had approved a formal order of investigation of Nash Finch.

Also as previously disclosed, on February 3, 2003, the Company provided the Office of the Chief Accountant of the SEC a written communication detailing the basis for the manner in which the Company assesses and accounts for count-recount charges, advising that it believes these charges were properly accounted for in accordance with generally accepted accounting principles, and seeking the SEC staff’s concurrence with this conclusion. After a February 19, 2003 meeting with members of the staff of the SEC’s Office of the Chief Accountant and Division of Corporation Finance, Nash Finch received a letter dated March 7, 2003, from the staff of the SEC’s Office of the Chief Accountant and Division of Corporation Finance indicating that, based on our oral and written representations, they would not object at that time to the Company’s accounting for the count-recount charges. The response by the staff of the Office of the Chief Accountant and the Division of Corporation Finance does not preclude any further action by the Division of Enforcement.

(18) Long-Term Compensation Plans

The Company has a profit sharing plan which includes a 401(k) feature, covering substantially all employees meeting specified requirements. Profit sharing contributions, determined by the Board of Directors, are made to a noncontributory profit sharing trust based on profit performance. Effective January 1, 2003, the Company added a Company match to the 401(k) feature of this plan whereby the Company will make an annual matching contribution to each participant’s plan account equal to 50% of the lesser of the participant’s contributions to the plan for the year or 6% of the participant’s eligible compensation for that year. The contribution expense for the Company matching contributions to the 401(k) plan will reduce dollar for dollar the profit sharing contributions that would otherwise be made to the profit sharing plan. Profit sharing expense (including the matching contribution) for fiscal 2004 was $5.8 million and $4.7 million for fiscal 2003 and 2002.

On January 1, 2000, the Company adopted a Supplemental Executive Retirement Plan (“SERP”) for key employees and executive officers. On the last day of the calendar year, each participant’s SERP account is credited with an amount equal to 20% of the participant’s base salary for the year. Benefits payable under the SERP vest based on years of participation in the SERP, ranging from 0% vested for less than five years of participation to 100% vested at 10 years’ participation (or age 60 if that occurs sooner). Amounts credited to a SERP account, plus earnings, are distributed following the executive’s termination of employment. Earnings are based on the quarterly equivalent of the average of the annual yield set forth for each month during the quarter in the Moody’s Corporate Bond Yield Averages. Compensation expense related to the plan was $0.6 million in fiscal 2004, 2003 and 2002.

The Company also has deferred compensation plans for a select group of management or highly compensated employees and for non-employee directors. The plans are unfunded and permit participants to defer receipt of a portion of their base salary, annual bonus or long-term incentive compensation in the case of employees, or cash compensation in the case of non-employee directors, that would otherwise be paid to them. The deferred amounts, plus earnings, are distributed following the executive’s termination of employment or the director’s termination of service on the Board. Earnings are based on the performance of phantom investments elected by the participant from a portfolio of investment options. Under the plans available to non-employee directors, the investment options include share units that correspond to shares of the Company’s common stock. During fiscal 2004, the Company created and funded a benefits protection trust to invest amounts deferred under these plans. The trust is a grantor trust and accounted for in accordance with Emerging Issues Task Force Issue No. 97-14, “Accounting for Deferred Compensation Arrangements Where Amounts Earned are Held in a Rabbi Trust and Invested.” A benefits protection or rabbi trust holds assets that would be available to pay benefits under a deferred compensation plan if the settler of the trust, such as the Company, is unwilling to pay benefits for any reason other than bankruptcy or insolvency. Assets in the trust remain subject to the claims of the Company’s general creditors, and the investment in the rabbi trust is classified as an investment in available-for-sale securities on the Company’s balance sheet.

(19) Pension and Other Post-retirement Benefits

One of the Company’s subsidiaries has a qualified non-contributory retirement plan to provide retirement income for certain eligible full-time employees who are not covered by a union retirement plan. Pension benefits under the plan are based on length of service and compensation. The Company subsidiary contributes amounts necessary to meet minimum funding requirements. This plan has been curtailed and no new employees can enter the plan.

The Company provides certain health care benefits for retired employees not subject to collective bargaining agreements. Such benefits will not be provided to employees who leave the Company after December 31, 2003. Employees who left the Company on or before that date become eligible for those

benefits when they reach early retirement age if they have met minimum age and service requirements. Health care benefits for retirees are provided under a self-insured program administered by an insurance company.

Effective December 31, 2003, the Company recorded a curtailment reduction in the benefit obligation of $2.5 million and a gain of $4.0 million due to the elimination of retiree medical benefits for all active non-union and certain union employees, and the elimination of retiree life insurance benefits for all active non-union employees. In fiscal 2002, the accumulated postretirement benefit obligation was reduced by $9.1 million due to a plan amendment which: (1) froze entry into the plan for employees hired after June 30, 2002, (2) eliminated coverage for employees whose age plus service were less than 50 as of June 30, 2002, and (3) capped the medical benefits to be provided effective July, 1, 2002 at $175 a month for pre-65 retirees and $70 a month for post-65 retirees.

The estimated future cost of providing post-retirement health costs is accrued over the active service life of the employees. The following table sets forth the benefit obligations and funded status of the curtailed pension plan and curtailed post-retirement benefits.

The actuarial present value of benefit obligations and funded plan status as of and for the years ended January 1, 2005 and January 3, 2004 were (in thousands):

	Pension Benefits					Other Benefits
	2004			2003		2004		2003
Change in benefit obligation
Benefit obligation at beginning of year	$	(39,394	)	(41,114	)	(5,605	)	(9,199	)
Service cost	(1		)	(20	)	(4	)	(245	)
Interest cost	(2,376		)	(2,439	)	(293	)	(507	)
Participant contributions	—			—		(1,434	)	(1,058	)
Actuarial (loss) gain	(1,071		)	1,528		127		656
Benefits paid	2,911			2,651		2,131		2,267
Curtailments	—			—		—		2,481
Benefit obligation at end of year	(39,931		)	(39,394	)	(5,078	)	(5,605	)
Change in plan assets
Fair value of plan assets at beginning of year	33,843			32,912		—		—
Actual return on plan assets	2,157			3,264		—		—
Employer contributions	439			318		697		1,209
Plan participants’ contributions	—			—		1,434		1,058
Benefits paid	(2,911		)	(2,651	)	(2,131	)	(2,267	)
Fair value of plan assets at end of year	33,528			33,843		—		—
Funded status	(6,402		)	(5,550	)	(5,078	)	(5,605	)
Unrecognized actuarial loss (gain)	8,831			7,924		1,675		1,871
Unrecognized prior service cost	(47		)	(62	)	(203	)	(233	)
Prepaid (accrued) benefit cost	$	2,382		2,312		(3,606	)	(3,967	)

Amounts recognized in the statement of financial position consist of (in thousands):

	Pension Benefits					Other Benefits
	2004			2003		2004		2003
Prepaid benefit cost	$	2,382		2,312		—		—
Accrued benefit cost	(8,778		)	(7,833	)	(3,606	)	(3,967	)
Deferred tax asset	3,484			3,055		—		—
Accumulated other comprehensive income	5,294			4,778		—		—
Net amount recognized	2,382			2,312		(3,606	)	(3,967	)

The estimated projected benefit obligation, accumulated benefit obligation and fair value of assets for the pension plan as of January 1, 2005 and January 3, 2004 were as follows (in thousands):

	January 1, 2005			January 3, 2004
Projected benefit obligation		$	39,931		39,394
Accumulated benefit obligation		39,925			39,363
Fair value of plan assets		33,528			33,843

The aggregate costs for the Company’s retirement benefits included the following components (in thousands):

Components of net periodic benefit cost (income)

	Pension Benefits							Other Benefits
	2004			2003		2002		2004		2003		2002
Service cost	$	2		20		42		4		245		402
Interest cost	2,376			2,439		2,759		293		507		737
Expected return on plan assets	(2,156		)	(2,236	)	(2,448	)	—		—		—
Amortization of prior service cost	(15		)	(15	)	(15	)	(30	)	(550	)	(550	)
Recognized actuarial (gain) loss	163			128		43		69		289		528
Net periodic benefit cost (income)	370			336		381		336		491		1,117
Curtailment (gain) loss	—			—		—		—		(4,005	)	—
Net periodic benefit cost after curtailments	$	370		336		381		336		(3,514	)	1,117

Weighted-average assumptions used to determine benefit obligations at January 1, 2005 and January 3, 2004:

	Pension Benefits				Other Benefits
	2004		2003		2004		2003
Weighted-average assumptions
Discount rate	6.00	%	6.25	%	6.00	%	6.25	%
Rate of compensation increase	3.00	%	4.00	%	—		—

Weighted-average assumptions used to determine net periodic benefit cost for years ended January 1, 2005 and January 3, 2004:

	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	%	—		—

Assumed health care cost trend rates at January 1, 2005 and January 3, 2004 were as follows:

	January 1, 2005			January 3, 2004
Current year trend rate		9.00	%		10.00	%
Ultimate year trend rate		5.00	%		5.00	%
Year of ultimate trend rate		2009			2009

Assumed health care cost trend rates have a significant effect on the fiscal 2004 amounts reported for the health care plans. A one-percentage point change in assumed health care cost trend rates would have the following effects (in thousands):

	1%			1%
	Increase			Decrease
Effect on total of service and interest cost components		$	2		$	(2	)
Effect on post-retirement benefit obligation		42			(38		)

In December 2003, the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (the Act) became law in the United 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 Medicare. The benefit and subsidy introduced by the Act begin in 2006. In May 2004, the FASB issued FASB Staff Position (FSP) No. 106-2, “Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003.” FSP 106-2 requires an employer to initially account for any subsidy received under the Act as an actuarial experience gain to the accumulated postretirement benefit obligation (APBO), which would be amortized over future service periods. Future subsidies would reduce service cost each year. FSP 106-2 was effective for the Company in the third fiscal quarter ended October 9, 2004. The Company believes that its postretirement benefit plan is not actuarially equivalent to Medicare Part D under the Act and consequently will not receive significant subsidies under the Act.

The Pension Funding Equity Act of 2004 (the Act), signed by President Bush on April 10, 2004, established new benchmark interest rates for determining the IRS defined 90% Current Liability Funded status. In its 2003 consolidated financial statements reported on Form 10-K prior to the Act, the Company disclosed that it expected to contribute between $925,000 and $1,460,000 to its pension plan during the measurement year ending December 31, 2004. Total contributions to the Company’s pension plan in 2004 were $439,000 due to changes effected by the Act.

Pension Plan Assets

The pension plan’s weighted-average asset allocation at January 1, 2005 and January 3, 2004, by asset category are as follows:

	Plan Assets
	January 1,			January 3,
	2005			2004
Weighted-average assumptions
Equity securities		28	%		25	%
Debt securities		10	%		10	%
Guaranteed investment contract		62	%		65	%

Investment Policy and Strategy

The Company’s investment policy is to invest in equity, fixed income and other securities to cover cash flow requirements of the plan and minimize long-term costs.

Estimated Future Benefits: The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid as follows:

	Pension Benefits			Other Benefits
2005		$	2,275		697
2006		2,781			600
2007		2,639			547
2008		2,677			505
2009		2,581			473
2010 - 2014		12,684			2,008
		$	25,637		4,830

Expected Long-Term Rate of Return

The expected return assumption was reviewed by external consultants, based on asset allocations and the expected return and risk components of the various asset classes in the portfolio. This assumption is assumed to be reasonable over a long-term period that is consistent with the liabilities.

Cash Flows

Employer Contributions

Pension Plan

The Company anticipates making contributions of $0 to $1.4 million during the measurement year ending December 31, 2005.

Multi-Employer Plans

Approximately 5.3% of the Company’s employees are covered by collectively-bargained pension plans. Contributions are determined in accordance with the provisions of negotiated union contracts and are generally based on the number of hours worked. The Company does not have the information available to reasonably estimate its share of the accumulated plan benefits or net assets available for benefits under the multi-employer plans. Amounts contributed to those plans were $1.9 million in fiscal 2004 and 2003, and $2.3 million in fiscal 2002.

(20) Segment Information

The Company and its subsidiaries sell and distribute products that are typically found in supermarkets. The Company has three reportable operating segments. The Company’s food distribution segment consists of 15 distribution centers that sell to independently operated retail food stores and other customers. The military distribution segment consists primarily of one distribution center that sells products exclusively to military commissaries. The retail segment consists of corporate-owned stores that sell directly to the consumer.

Information presented below relates only to results of continuing segments. The Company evaluates segment performance and allocates resources based on profit or loss before income taxes, general corporate expenses, interest and restructuring charges. The accounting policies of the reportable segments are the same as those described in the summary of accounting policies except the Company accounts for inventory on a FIFO basis at the segment level compared to a LIFO basis at the consolidated level.

Inter-segment sales are recorded on a market price-plus-fee and freight basis. For segment financial reporting purposes, a portion of the operational profits recorded at the Company’s distribution centers related to corporate-owned stores is allocated to the retail segment. Certain revenues and costs from the Company’s distribution centers are specifically identifiable to either the independent or corporate-owned stores that they serve. The revenues and costs that are specifically identifiable to corporate-owned stores are allocated to the retail segment. Those that are specifically identifiable to independent customers are recorded in the food distribution segment. The remaining revenues and costs that are not specifically identifiable to either the independent or corporate-owned stores are allocated to the retail segment as a percentage of corporate-owned store distribution sales to total distribution center sales. For fiscal 2004, 27% of such warehouse operational profits were allocated to the retail operations compared to 35% and 37% in 2003 and 2002, respectively.

Schedules

Year end January 1, 2005

(in thousands)

	Food Distribution			Military	Retail		Total
Revenue from external customers	$	1,961,179		1,122,056	813,839		3,897,074
Inter-segment revenue	411,515			—	—		411,515
Interest revenue	(392		)	—	(315	)	(707	)
Interest expense (includes capital lease interest)	(384		)	—	3,213		2,829
Depreciation and amortization expense	8,666			1,670	11,017		21,353
Segment profit	73,603			36,266	27,120		136,989
Segment assets	361,072			143,231	119,491		623,794
Expenditures for long-lived assets	7,858			2,689	4,666		15,213

Year end January 3, 2004

(in thousands)

	Food Distribution			Military	Retail		Total
Revenue from external customers	$	1,915,170		1,089,999	966,333		3,971,502
Inter-segment revenue	506,488			—	—		506,488
Interest revenue	(297		)	—	(332	)	(629	)
Interest expense (includes capital lease interest)	(283		)	—	3,199		2,916
Depreciation and amortization expense	8,982			1,534	13,569		24,085
Segment profit	63,898			31,283	30,178		125,359
Segment assets	360,962			126,434	168,323		655,719
Expenditures for long-lived assets	5,918			1,264	25,414		32,596

Year end December 28, 2002

(in thousands)

	Food Distribution			Military	Retail		Total
Revenue from external customers	$	1,825,788		1,020,710	1,028,174		3,874,672
Inter-segment revenue	553,287			—	—		553,287
Interest revenue	(454		)	—	(338	)	(792	)
Interest expense (includes capital lease interest)	(443		)	—	3,302		2,859
Depreciation and amortization expense	10,507			1,420	12,851		24,778
Segment profit	61,493			30,336	33,738		125,567
Segment assets	379,166			132,170	160,673		672,009
Expenditures for long-lived assets	8,126			1,604	22,894		32,624

Reconciliation (In thousands)

	2004			2003		2002
*Revenues*
Total external revenue for segments	$	3,897,074		3,971,502		3,874,672
Inter-segment revenue from reportable segments	411,515			506,488		553,287
Elimination of intra-segment revenue	(411,515		)	(506,488	)	(553,287	)
Total consolidated revenues	$	3,897,074		3,971,502		3,874,672
*Profit*
Total profit for segments	$	136,989		125,359		125,567
Unallocated amounts:
Adjustment of LIFO to inventory	(3,525		)	1,120		2,234
Unallocated corporate overhead	(79,486		)	(74,546	)	(78,434	)
Special charges	(34,779		)	—		765
Income before income taxes	$	19,199		51,933		50,132
*Assets*
Total assets for segments	$	623,794		655,719		672,009
Unallocated corporate assets	240,673			278,189		328,643
Accumulated LIFO reserves	(47,924		)	(44,399	)	(45,519	)
Elimination of intercompany receivables	(915		)	(3,157	)	(7,141	)
Total consolidated assets	$	815,628		886,352		947,992

Other Significant Items—2004

	Segment				Consolidated
	Totals		Adjustments		Totals
Depreciation and amortization expense	$	21,353		18,888		40,241
Interest expense	2,829			22,969		25,798
Expenditures for long-lived assets	15,213			7,114		22,327

Other Significant Items—2003

	Segment				Consolidated
	Totals		Adjustments		Totals
Depreciation and amortization expense	$	24,085		18,327		42,412
Interest expense	2,916			30,953		33,869
Expenditures for long-lived assets	32,596			8,132		40,728

Other Significant Items—2002

	Segment				Consolidated
	Totals		Adjustments		Totals
Depreciation and amortization expense	$	24,778		15,210		39,988
Interest expense	2,859			26,631		29,490
Expenditures for long-lived assets	32,624			19,981		52,605

The reconciling items to adjust expenditures for depreciation, interest revenue, interest expense and expenditures for long-lived assets are for unallocated general corporate activities. All revenues are attributed to and all assets are held in the United States. The Company’s market areas are in the Midwest, Mid-Atlantic and Southeast United States.

(21) 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 borrowings under the $300 million senior secured credit facility.

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

Fiscal Year Ended January 1, 2005

(in thousands)

											Nash Finch
	Nash			Guarantor		Non-Guarantor		Consolidation			Company &
	Finch			Subsidiaries		Subsidiaries		Adjustments			Subsidiaries
Sales	$	3,096,155			938,296		25,563		(162,940	)		3,897,074
Cost and expenses:
Cost of sales	2,789,399				828,867		19,003		(162,940	)		3,474,329
Selling, general and administrative	195,565				94,934		5,025		—			295,524
Special charges	34,779				—		—		—			34,779
Extinguishment of debt	7,204				—		—		—			7,204
Depreciation and amortization	30,342				9,677		222		—			40,241
Equity in consolidated subsidiaries	(2,749		)		—		—		2,749			—
Interest expense	24,417				1,338		43		—			25,798
Total cost and expenses	3,078,957				934,816		24,293		(160,191	)		3,877,875
Earnings from continuing operations before income taxes	17,198				3,480		1,270		(2,749	)		19,199
Income tax expense	2,321				2,001		—		—			4,322
Earnings from continuing operations	14,877				1,479		1,270		(2,749	)		14,877
Discontinued operations
Resolution of contingency	91				—		—		—			91
Tax expense	36				—		—		—			36
Net earnings from discontinued operations	55				—		—		—			55
Net earnings	$	14,932			1,479		1,270		(2,749	)		14,932

Fiscal Year Ended Janauary 3, 2004

(in thousands)

												Nash Finch
	Nash			Guarantor			Non-Guarantor		Consolidation			Company &
	Finch			Subsidiaries			Subsidiaries		Adjustments			Subsidiaries
Sales	$	3,148,360			989,587			28,343		(194,788	)		3,971,502
Cost and expenses:
Cost of sales	2,819,801				870,115			21,332		(194,788	)		3,516,460
Selling, general and administrative	213,899				107,675			5,254		—			326,828
Special charges	—				—					—			—
Extinguishment of debt	—				—			—		—			—
Depreciation and amortization	32,398				9,817			197		—			42,412
Equity in consolidated subsidiaries	(174		)		—			—		174			—
Interest expense	32,322				1,437			110		—			33,869
Total cost and expenses	3,098,246				989,044			26,893		(194,614	)		3,919,569
Earnings from continuing operations before income taxes	50,114				543			1,450		(174	)		51,933
Income tax expense	15,435				1,819			—		—			17,254
Earnings from continuing operations	34,679				(1,276	)		1,450		(174	)		34,679
Discontinued operations
Resolution of contingency	678				—			—		—			678
Tax expense	265				—			—		—			265
Net earnings from discontinued operations	413				—			—		—			413
Net earnings	$	35,092			(1,276	)		1,450		(174	)		35,092

Fiscal Year Ended December 28, 2002

(in thousands)

											Nash Finch
	Nash			Guarantor	Non-Guarantor			Consolidation			Company &
	Finch			Subsidiaries	Subsidiaries			Adjustments			Subsidiaries
Sales	$	3,027,101		1,027,874		29,866			(210,169	)		3,874,672
Cost and expenses:
Cost of sales	2,696,673			899,532		22,373			(210,169	)		3,408,409
Selling, general and administrative	228,359			113,380		5,679			—			347,418
Special charges	(765		)	—		—			—			(765	)
Depreciation and amortization	29,015			10,806		167			—			39,988
Equity in consolidated subsidiaries	(1,780		)	—		—			1,780			—
Interest expense	27,990			1,408		92			—			29,490
Total cost and expenses	2,979,492			1,025,126		28,311			(208,389	)		3,824,540
Earnings from continuing operations before income taxes	47,609			2,748		1,555			(1,780	)		50,132
Income tax expense	17,029			2,523		$	—		—			19,552
Earnings before cumulative effect of change in accounting principle	$	30,580		225		1,555			(1,780	)		30,580
Cumulative effect of change in accounting principle, net of income tax benefits of $4,450	(6,960		)	—		—			—			(6,960	)
Net earnings	$	23,620		225		1,555			(1,780	)		23,620

NASH FINCH COMPANY AND SUBSIDIARIES

Condensed Consolidating Balance Sheets

January 1, 2005

(in thousands)

	Nash Finch		Guarantor Subsidiaries			Non-Guarantor Subsidiaries		Consolidation Adjustments			Nash Finch Company & Subsidiaries
Assets
Current assets:
Cash and cash equivalents	$	4,543		162			324		—			5,029
Accounts and notes receivable, net	123,431			34,354			145		(533	)		157,397
Accounts receivable/payable Subs	43,688			(45,827	)		2,139		—			—
Inventories	135,661			75,707			1,975		—			213,343
Prepaid expenses	14,061			1,460			3		—			15,524
Deferred tax assets	14,749			(5,455	)		—		—			9,294
Total current assets	336,133			60,401			4,586		(533	)		400,587
Investment in subsidiary	200,619			—			—		(200,619	)		—
Investments in marketable securities	1,661			—			—		—			1,661
Notes receivable, net	18,141			8,413			—		—			26,554
Net property, plant and equipment	135,045			77,150			1,474		—			213,669
Deferred tax asset, net	12,195			(9,635	)		—		—			2,560
Goodwill	30,643			114,689			2,103		—			147,435
Investment in direct financing leases	2,494			8,382			—		—			10,876
Other assets	12,272			14			—		—			12,286
Total assets	$	749,203		259,414			8,163		(201,152	)		815,628
Liabilities and Stockholders’ Equity
Current liabilities:
Outstanding checks	$	11,344		—			—		—			11,344
Current maturities of long-term debt and capitalized lease obligations	1,858			3,113			469		—			5,440
Accounts payable	146,548			33,783			561		(533	)		180,359
Accrued expenses	66,913			5,029			258		—			72,200
Income taxes payable	10,819			—			—		—			10,819
Total current liabilities	237,482			41,925			1,288		(533	)		280,162
Long-term debt	190,902			8,033			308		—			199,243
Capitalized lease obligations	27,092			13,268			—		—			40,360
Deferred tax liability, net	—			—			—		—			—
Other liabilities	19,799			1,495			641		—			21,935
Stockholders’ equity	273,928			194,693			5,926		(200,619	)		273,928
Total liabilities and stockholders’ equity	$	749,203		259,414			8,163		(201,152	)		815,628

January 3, 2004

(in thousands)

	Nash Finch			Guarantor Subsidiaries			Non-Guarantor Subsidiaries		Consolidation Adjustments			Nash Finch Company & Subsidiaries
Assets
Current assets:
Cash and cash equivalents	$	12,182			211			364		—			12,757
Accounts and notes receivable, net	113,497				34,750			166		(2,511	)		145,902
Accounts receivable/payable Subs	71,312				(73,478	)		2,166		—			—
Inventories	150,718				83,558			2,013		—			236,289
Prepaid expenses	13,564				1,563			9		—			15,136
Deferred tax assets	11,523				(5,797	)		—		—			5,726
Total current assets	372,796				40,807			4,718		(2,511	)		415,810
Investment in subsidiary	196,496				—			—		(196,476	)		20
Investments in marketable securities	1,395				—			—		(1,395	)		—
Notes receivable, net	20,832				10,346			—		—			31,178
Net property, plant and equipment	170,085				90,852			1,414		—			262,351
Deferred tax asset, net	—				—			—		—			—
Goodwill	32,021				115,668			2,103		—			149,792
Investment in direct financing leases	13,426				—			—		—			13,426
Other assets	2,647				11,128			—		—			13,775
Total assets	$	809,698			268,801			8,235		(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				3,095			444		—			5,278
Accounts payable	137,599				31,044			610		(2,511	)		166,742
Accrued expenses	73,488				5,061			219		—			78,768
Income taxes payable	10,626				(12	)		—		—			10,614
Total current liabilities	246,802				39,188			1,273		(2,511	)		284,752
Long-term debt	271,653				9,489			802		—			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				1,677			563		—			12,202
Stockholders’ equity	256,457				192,274			5,597		(197,871	)		256,457
Total liabilities and stockholders’ equity	$	809,698			268,801			8,235		(200,382	)		886,352

NASH FINCH COMPANY AND SUBSIDIARIES

Consolidating Statements of Cash Flows

Fiscal Year Ended January 1, 2005

(in thousands)

												Nash Finch
	Nash			Guarantor			Non-Guarantor			Consolidation		Company &
	Finch			Subsidiaries			Subsidiaries			Adjustments		Subsidiaries
Operating activities:
Net cash provided by operating activities	$	105,429			(4,246	)		711			—		101,894
Investing activities:
Disposal of property, plant and equipment	6,003				11,133			—			—		17,136
Additions to property, plant and equipment	(17,991		)		(4,054	)		(282	)		—		(22,327	)
Loans to customers	(4,364		)		—			—			—		(4,364	)
Payments from customers on loans	2,760				156			—			—		2,916
Purchase of marketable securities	(2,610		)		—			—			—		(2,610	)
Sale of marketable securities	1,113				—			—			—		1,113
Other	(144		)		—			—			—		(144	)
Net cash used in investing activities	(15,233		)		7,235			(282	)		—		(8,280	)
Financing activities:
Proceeds of revolving debt	14,674				—			—			—		14,674
Dividends paid	(6,673		)		—			—			—		(6,673	)
Proceeds from exercise of stock options	5,380				—			—			—		5,380
Proceeds from employee stock purchase plan	654				—			—			—		654
Proceeds of long-term debt	175,000				—			—			—		175,000
Payments of long-term debt	(265,674		)		(1,904	)		(469	)		—		(268,047	)
Payments of capitalized lease obligations	(1,381		)		(1,134	)		—			—		(2,515	)
(Decrease) increase in outstanding checks	(12,006		)		—			—			—		(12,006	)
Premium paid for early extinguishment of debt	(4,674		)		—			—			—		(4,674	)
Other	(3,135		)		—			—			—		(3,135	)
Net cash used by in financing activities	(97,835		)		(3,038	)		(469	)		—		(101,342	)
Net (decrease) increase in cash	(7,639		)		(49	)		(40	)		—		(7,728	)
Cash at beginning of year	12,182				211			364			—		12,757
Cash at end of year	$	4,543			162			324			—		5,029

Fiscal Year Ended January 3, 2004

(in thousands)

												Nash Finch
	Nash			Guarantor			Non-Guarantor			Consolidation		Company &
	Finch			Subsidiaries			Subsidiaries			Adjustments		Subsidiaries
Operating activities:
Net cash provided by operating activities	$	93,800			19,796			906			—		114,502
Investing activities:
Disposal of property, plant and equipment	8,110				892			—			—		9,002
Additions to property, plant and equipment	(25,532		)		(14,747	)		(449	)		—		(40,728	)
Business acquired, net of cash	(2,661		)		607			—			—		(2,054	)
Loans to customers	(7,577		)		(3,049	)		—			—		(10,626	)
Payments from customers on loans	5,586				1,472			—			—		7,058
Net cash used in investing activities	(22,074		)		(14,825	)		(449	)		—		(37,348	)
Financing activities:
Proceeds of revolving debt	(79,400		)		—			—			—		(79,400	)
Dividends paid	(4,320		)		—			—			—		(4,320	)
Proceeds from exercise of stock options	1,087				—			—			—		1,087
Proceeds from employee stock purchase plan	638				—			—			—		638
Payments of long-term debt	(3,247		)		(3,440	)		(508	)		—		(7,195	)
Payments of capitalized lease obligations	(1,432		)		(1,468	)		—			—		(2,900	)
(Decrease) increase in outstanding checks	(3,726		)		—			—			—		(3,726	)
Net cash used by in financing activities	(90,400		)		(4,908	)		(508	)		—		(95,816	)
Net (decrease) increase in cash	(18,674		)		63			(51	)		—		(18,662	)
Cash at beginning of year	30,856				148			415			—		31,419
Cash at end of year	$	12,182			211			364			—		12,757

Fiscal Year Ended December 28, 2002

(in thousands)

												Nash Finch
	Nash			Guarantor			Non-Guarantor			Consolidation		Company &
	Finch			Subsidiaries			Subsidiaries			Adjustments		Subsidiaries
Operating activities:
Net cash provided by operating activities	$	47,838			12,216			511			—		60,565
Investing activities:
Disposal of property, plant and equipment	12,616				1,819			—			—		14,435
Additions to property, plant and equipment	(39,458		)		(12,880	)		(267	)		—		(52,605	)
Business acquired, net of cash	(3,356		)		—			—			—		(3,356	)
Loans to customers	(5,476		)		(75	)		—			—		(5,551	)
Payments from customers on loans	7,686				2,356			—			—		10,042
Other	2,473				—			—			—		2,473
Net cash used in investing activities	(25,515		)		(8,780	)		(267	)		—		(34,562	)
Financing activities:
Proceeds of revolving debt	39,400				—			—			—		39,400
Dividends paid	(4,292		)		—			—			—		(4,292	)
Proceeds from exercise of stock options	266				—			—			—		266
Proceeds from employee stock purchase plan	878				—			—			—		878
Proceeds of long-term debt	—				—			—			—		0
Payments of long-term debt	(1,752		)		(1,353	)		(386	)		—		(3,491	)
Payments of capitalized lease obligations	(831		)		(2,014	)		—			—		(2,845	)
(Decrease) increase in outstanding checks	(30,674		)		—			—			—		(30,674	)
Other	(4,293		)		—			—			—		(4,293	)
Net cash used by in financing activities	(1,298		)		(3,367	)		(386	)		—		(5,051	)
Net (decrease) increase in cash	21,025				69			(142	)		—		20,952
Cash at beginning of year	9,831				79			557			—		10,467
Cash at end of year	$	30,856			148			415			—		31,419

Delaware	41-0431960
(State of Incorporation)	(I.R.S. Employer Identification No.)
7600 France Avenue South P.O. Box 355 Minneapolis, Minnesota	55440-0355
(Address of principal executive offices)	(Zip Code)

		Page No.
Part I
Item 1.	Business	1
Item 2.	Properties	8
Item 3.	Legal Proceedings	9
Item 4.	Submission of Matters to a Vote of Security Holders	10
Part II
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	12
Item 6.	Selected Financial Data	13
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	14
Item 7A.	Quantitative and Qualitative Disclosures about Market Risk	32
Item 8.	Financial Statements and Supplementary Data	33
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	73
Item 9A.	Controls and Procedures	73
Item 9B.	Other Information	74
Part III
Item 10.	Directors and Executive Officers of the Registrant	74
Item 11.	Executive Compensation	75
Item 12.	Security Ownership of Certain Beneficial Owners and Management	75
Item 13.	Certain Relationships and Related Transactions	75
Item 14.	Principal Accounting Fees and Services	75
Part IV
Item 15.	Exhibits and Financial Statement Schedules	75
SIGNATURES		79

Location	Approx. Size (Square Feet)
Upper Midwest Region:
Omaha, Nebraska		626,900
Cedar Rapids, Iowa		351,900
St. Cloud, Minnesota		329,000
Sioux Falls, South Dakota(1)		303,400
Fargo, North Dakota		288,800
Rapid City, South Dakota(2)		195,100
Minot, North Dakota		185,200
Southeast Region:
Lumberton, North Carolina(3)		336,500
Statesboro, Georgia(3)		230,500
Bluefield, Virginia		187,500
Central Region:
Bellefontaine, Ohio(4)		666,000
Cincinnati, Ohio		403,300
Bridgeport, Michigan(3)		604,500
Total Square Footage		4,708,600

Location	Approx. Size (Square Feet)
Jessup, Maryland		115,200
Norfolk, Virginia(1)		787,500
Total Square Footage		902,700

Banner	Number of Stores		Areas of Operation	Average Square Feet
Econofoods		41	IA, IL, MN, SD, WI, WY		35,915
Sun Mart		31	CO, MN, NE, ND		32,499
Family Thrift Center		6	SD		33,188
AVANZA		3	CO		32,562
Wholesale Food Outlet		3	CO, IA, NE		28,784
Other Stores		1	MN		3,512
Total		85

Name	Age	Year First Elected or Appointed as an Executive Officer		Title
Ron Marshall	50		1998	Chief Executive Officer
Michael J. Lewis	54		2003	Executive Vice President, President of Retail
James M. Patitucci	54		2004	Executive Vice President, Merchandising and Marketing
David J. Bersie	53		2002	Sr. Vice President, Food Distribution
Bruce A. Cross	52		1998	Sr. Vice President, Business Transformation
Joe R. Eulberg	47		2003	Sr. Vice President, Human Resources
Kathleen E. McDermott	55		2002	Sr. Vice President, General Counsel & Secretary
Jeffrey E. Poore	46		2001	Sr. Vice President, Military
LeAnne M. Stewart	40		1999	Sr. Vice President, Chief Financial Officer & Treasurer

Fiscal years ended January 1, 2005,	2004		2003	2002
January 3, 2004 and December 28, 2002	(52 weeks)		(53 weeks)	(52 weeks)
Sales	$	3,897,074	3,971,502	3,874,672
Cost and expenses:
Cost of sales	3,474,329		3,516,460	3,408,409
Selling, general and administrative	295,524		326,828	347,418
Special charges	34,779		—	(765	)
Extinguishment of debt	7,204		—	—
Depreciation and amortization	40,241		42,412	39,988
Interest expense	25,798		33,869	29,490
Total cost and expenses	3,877,875		3,919,569	3,824,540
Earnings from continuing operations before income taxes	19,199		51,933	50,132
Income tax expense	4,322		17,254	19,552
Earnings from continuing operations	14,877		34,679	30,580
Discontinued operations:
Gain on disposition	91		678	—
Tax expense	36		265	—
Net earnings from discontinued operations	55		413	—
Earnings before cumulative effect of change in accounting principle	14,932		35,092	30,580
Cumulative effect of change in accounting principle, net of income tax benefits of $4,450	—		—	(6,960	)
Net earnings	$	14,932	35,092	23,620
Basic earnings per share:
Continuing operations	$	1.20	2.87	2.59
Discontinued operations	—		0.03	—
Cumulative effect of change in accounting principle, net of income tax benefit	—		—	(0.59	)
Net earnings per share	$	1.20	2.90	2.00
Diluted earnings per share:
Continuing operations	$	1.18	2.85	2.52
Discontinued operations	—		0.03	—
Cumulative effect of change in accounting principle, net of income tax benefit	—		—	(0.57	)
Net earnings per share	$	1.18	2.88	1.95

	First Quarter			Second Quarter			Third Quarter		Fourth Quarter
A summary of quarterly	12 Weeks			12 Weeks			16 Weeks		12 Weeks	13 Weeks
financial information is presented.	2004		2003	2004		2003	2004	2003	2004	2003
Sales	$	879,454	856,664	906,393		888,612	1,191,187	1,214,781	920,040	1,011,445
Cost of sales	781,607		756,640	806,928		785,031	1,063,911	1,077,363	821,883	897,426
Earnings from continuing operations before income taxes	7,757		5,346	(25,639	)	11,910	22,620	14,105	14,461	20,572
Income taxes	3,025		2,085	(9,999	)	4,645	8,022	2,501	3,274	8,023
Net earnings from continuing operations	4,732		3,261	(15,640	)	7,265	14,598	11,604	11,187	12,549
Discontinued operations, net of income tax expense	—		—	—		—	—	—	55	413
Net earnings	4,732		3,261	(15,640	)	7,265	14,598	11,604	11,242	12,962
Percent to sales and revenues	0.54		0.38	(1.73	)	0.82	1.23	0.96	1.22	1.28
Basic earnings per share
Continuing operations	$	0.39	0.27	(1.26	)	0.61	1.17	0.96	0.89	1.03
Discontinued operations	$	—	—	—		—	—	—	—	0.03
Net earnings	$	0.39	0.27	(1.26	)	0.61	1.17	0.96	0.89	1.06
Diluted earnings per share
Continuing operations	$	0.38	0.27	(1.26	)	0.61	1.15	0.95	0.87	1.02
Discontinued operations	$	—	—	—		—	—	—	—	0.03
Net earnings	$	0.38	0.27	(1.26	)	0.61	1.15	0.95	0.87	1.05

		Page
1.	Financial Statements.
	The following financial statements are included in this report on the pages indicated:
	Independent Auditors’ Report	34
	Consolidated Statements of Income for the fiscal years ended January 1, 2005, January 3, 2004, and December 28, 2002	35
	Consolidated Balance Sheets as of January 1, 2005 and January 3, 2004	36
	Consolidated Statements of Cash Flows for the fiscal years ended January 1, 2005, January 3, 2004, and December 28, 2002	37
	Consolidated Statements of Stockholders’ Equity for the fiscal years ended January 1, 2005, January 3, 2004, and December 28, 2002	38 to 39
	Notes to Consolidated Financial Statements	40 to 73
2.	Financial Statement Schedules.
	The following financial statement schedule is included herein and should be read in conjunction with the consolidated financial statements referred to above:
	Valuation and Qualifying Accounts	78
	Other Schedules. Other schedules are omitted because the required information is either inapplicable or presented in the consolidated financial statements or related notes.

Exhibit No.		Description
3.1		Restated Certificate of Incorporation of the Company, effective May 16, 1985 (incorporated by reference to Exhibit 3.1 to the Company’s Annual Report on Form-10 K for the fiscal year ended December 28, 1985 (File No. 0-785)).
3.2		Certificate of Amendment to Restated Certificate of Incorporation of the Company, effective May 15, 1987 (incorporated by reference to Exhibit 4.5 to the Company’s Registration Statement on Form S 3 (File No. 33-14871)).
3.3		Certificate of Amendment to Restated Certificate of Incorporation of the Company, effective May 16, 2002 (incorporated by reference to Exhibit 3.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 15, 2002 (File No. 0-785)).
3.4		Bylaws of the Company, Restated April 15, 2003 (incorporated by reference to Exhibit 3.5 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 28, 2002 (File No. 0-785)).
4.1		Stockholder Rights Agreement, dated February 13, 1996, between the Company and Wells Fargo Bank, N.A. (formerly known as Norwest Bank Minnesota, National Association) (incorporated by reference to Exhibit 4 to the Company’s Current Report on Form 8-K dated February 13, 1996 (File No. 0-785)).
4.2		Amendment to Stockholder Rights Agreement dated as of October 30, 2001 (incorporated by reference to Exhibit 4.2 to Amendment No. 1 to the Company’s Registration Statement on Form 8-A (filed July 26, 2002) (File No. 0-785)).
10.1		Credit Agreement dated as of November 12, 2004 among the Company, Various Lenders and Deutsche Bank Trust Company Americas, as administrative agent, (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the sixteen weeks ended October 9, 2004 (File No. 0-785)).
*10.2		Form of Change in Control Agreement (incorporated by reference to Exhibit 10.5 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 28, 2002 (File No. 0-785)).
*10.3		Nash-Finch Company Income Deferral Plan (as amended through May 21, 2004) (incorporated by reference to Exhibit 4.1 to the Company’s Registration Statement on Form S-8 filed May 25, 2004 (File No. 333-115849)).
*10.4		Second Declaration of Amendment to Nash-Finch Company Income Deferral Plan (as amended through May 21, 2004) (filed herewith).
*10.5		Nash Finch Company Deferred Compensation Plan (incorporated by reference to Exhibit 4.1 to the Company’s Registration Statement on Form S-8 filed on December 30, 2004 (File No. 333-121755)).
*10.6		Nash-Finch Company 2000 Stock Incentive Plan (as amended effective February 19, 2002) (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 15, 2002 (File No. 0-785)).
*10.7		Form of Non-Statutory Stock Option Agreement (for employees under the Nash-Finch Company 2000 Stock Incentive Plan, (filed herewith).
*10.8		Nash-Finch Company 1995 Director Stock Option Plan (as amended on February 22, 2000 and February 19, 2002) (incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 15, 2002 (File No. 0-785)).

*10.9		First Declaration of Amendment to the Nash-Finch Company 1995 Director Stock Option Plan (as amended on February 22, 2000 and February 19, 2002) (filed herewith).
*10.10		Form of Non-Statutory Stock Option Agreement (for non-employee directors under the Nash-Finch Company 1995 Director Stock Option Plan) (filed herewith).
*10.11		Nash-Finch Company 1997 Non-Employee Director Stock Compensation Plan (2003 Revision) (incorporated by reference to Exhibit 10.9 to the Company’s Annual Report on Form 10-K for the fiscal year ended January 3, 2004 (File No. 0-785)).
*10.12		Nash-Finch Company 1997 Non-Employee Director Stock Compensation Plan (2003 Revision)—First Declaration of Amendment (filed herewith).
*10.13		Nash-Finch Company 1997 Non-Employee Director Stock Compensation Plan (2003 Revision)—Second Declaration of Amendment (filed herewith).
*10.14		Nash-Finch Company Director Deferred Compensation Plan (incorporated by reference to Exhibit 4.1 to the Company’s Registration Statement on Form S-8 filed on December 30, 2004 (File No. 333-121754)).
*10.15		Nash-Finch Company Supplemental Executive Retirement Plan (incorporated by reference to Exhibit 10.27 to the Company’s Annual Report on Form 10-K for the fiscal year ended January 1, 2000 (File No. 0-785)).
*10.16		Non-Statutory Stock Option Agreement dated as of June 1, 1998 between the Company and Ron Marshall (incorporated by reference to Exhibit 10.20 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 29, 2001 (File No. 0-785)).
*10.17		Restricted Stock Award Agreement between the Company and Ron Marshall, effective as of February 19, 2002 (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended October 5, 2002 (File No. 0-785)).
*10.18		Nash-Finch Company Performance Incentive Plan (incorporated by reference to Exhibit 10.6 to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 15, 2002 (File No. 0-785)).
*10.19		Form of Restricted Stock Unit Award Agreement (for non-employee directors under the 2000 Stock Incentive Plan) (filed herewith).
*10.20		Nash-Finch Company 2000 Stock Incentive Plan Performance Unit Award Agreement dated as of October 1, 2002 between the Company and Ron Marshall (filed herewith).
*10.21		Nash-Finch Company 2000 Stock Incentive Plan Performance Unit Award Agreement dated as of October 1, 2002 between the Company and Bruce A. Cross (filed herewith).
21.1		Subsidiaries of the Company (filed herewith).
23.1		Consent of Ernst & Young LLP (filed herewith).
24.1		Power of Attorney (filed herewith).
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 Chief Executive Officer and Chief Financial Officer (furnished herewith).
		A copy of any of these exhibits will be furnished at a reasonable cost to any stockholder of the Company, upon receipt from any such person of a written request for any such exhibit. Such request should be sent to Nash Finch Company, 7600 France Avenue South, P.O. Box 355, Minneapolis, Minnesota, 55440-0355, and Attention: Secretary.

Description	Balance at beginning of year			Charged to costs and expenses		Charged (credited) to other accounts			Deductions			Balance at end of year
52 weeks ended December 28, 2002:
Allowance for doubtful receivables(c)		$	31,489		8,997		956	(a)		14,418	(b)		27,024
Provision for losses relating to leases on closed locations		5,000			1,454					678	(d)		5,776
		$	36,489		10,451		956			15,096			32,800
53 weeks ended January 3, 2004:
Allowance for doubtful receivables(c)		$	27,024		8,707		173	(a)		13,034	(b)		22,870
Provision for losses relating to leases on closed locations		5,776			1,156					490	(d)		6,442
		$	32,800		9,863		173			13,524			29,312
52 weeks ended January 1, 2005:
Allowance for doubtful receivables(c)		$	22,870		4,220		240	(a)		12,413	(b)		14,917
Provision for losses relating to leases on closed locations		6,442			4,871					2,278	(d)		9,035
		$	29,312		9,091		240			14,691			23,952

Dated: March 2, 2005	NASH-FINCH COMPANY
	By	/s/ RON MARSHALL
		Ron Marshall
		Chief Executive Officer and Director

/s/ RON MARSHALL		/s/ LEANNE M. STEWART
Ron Marshall, Chief Executive Officer		LeAnne M. Stewart, Senior Vice President
(Principal Executive Officer) and Director		and Chief Financial Officer (Principal Financial and Accounting Officer)
/s/ CAROLE F. BITTER*		/s/ JOHN H. GRUNEWALD*
Carole F. Bitter, Director		John H. Grunewald, Director
/s/ RICHARD FISHER*		/s/ LAURA STEIN*
Richard Fisher, Director		Laura Stein, Director
/s/ JERRY L. FORD*		/s/ WILLIAM R. VOSS*
Jerry L. Ford, Director		William R. Voss, Director
/s/ ALLISTER P. GRAHAM*		/s/ WILLIAM H. WEINTRAUB*
Allister P. Graham, Chairman		William H. Weintraub, Director

*By:	/s/ KATHLEEN E. MCDERMOTT
	Kathleen E. McDermott
	Attorney-in-fact

Exhibit No.	Description	Method of Filing
3.1	Restated Certificate of Incorporation of the Company, effective May 16, 1985	Incorporated by reference (IBR)
3.2	Certificate of Amendment to Restated Certificate of Incorporation of the Company, effective May 15, 1987	IBR
3.3	Certificate of Amendment to Restated Certificate of Incorporation of the Company, effective May 16, 2002	IBR
3.4	Bylaws of the Company, Restated April 15, 2003	IBR
4.1	Stockholder Rights Agreement, dated February 13, 1996, between the Company and Wells Fargo Bank, N.A. (formerly known as Norwest Bank Minnesota, National Association)	IBR
4.2	Amendment to Stockholder Rights Agreement dated as of October 30, 2001	IBR
10.1	Credit Agreement, dated as of November 12, 2004 among the Company, Various Lenders and Deutsche Bank Trust Company Americas, as administrative agent	IBR
10.2	Form of Change in Control Agreement	IBR
10.3	Nash-Finch Company Income Deferral Plan (as amended through May 21, 2004)	IBR
10.04	Second Declaration of Amendment to Nash-Finch Company Income Deferral Plan (as amended through May 21, 2004)	Electronically (E)
10.05	Nash-Finch Company Deferred Compensation Plan	IBR
10.6	Nash-Finch Company 2000 Stock Incentive Plan (as amended effective February 19, 2002)	IBR
10.7	Form of Non-Statutory Stock Option Agreement (for employees under 2000 Stock Incentive Plan)	E
10.8	Nash-Finch Company 1995 Director Stock Option Plan (as amended on February 22, 2000 and February 19, 2002)	IBR
10.9	First Declaration of Amendment to Nash-Finch Company 1995 Director Stock Option Plan (as amended on February 22, 2000 and February 19, 2002)	E
10.10	Form of Non-Statutory Stock Option Agreement (for non-employee directors under 1995 Director Stock Option Plan)	E
10.11	Nash-Finch Company 1997 Non-Employee Director Stock Compensation Plan (2003 Revision)	IBR

10.12	Nash-Finch Company 1997 Non-Employee Director Stock Compensation Plan (2003 Revision)—First Declaration of Amendment	E
10.13	Nash-Finch Company 1997 Non-Employee Director Stock Compensation Plan (2003 Revision)—Second Declaration of Amendment	E
10.14	Nash-Finch Company Director Deferred Compensation Plan	IBR
10.15	Nash-Finch Company Supplemental Executive Retirement Plan	IBR
10.16	Non-Statutory Stock Option Agreement dated as of June 1, 1998 between the Company and Ron Marshall	IBR
10.17	Restricted Stock Award Agreement between the Company and Ron Marshall, effective as of February 19, 2002	IBR
10.18	Nash-Finch Company Performance Incentive Plan	IBR
10.19	Form of Restricted Stock Unit Award Agreement (for non-employee directors under 2000 Stock Incentive Plan)	E
10.20	Nash-Finch Company 2000 Stock Incentive Plan Performance Unit Award Agreement dated as of October 1, 2002 between the Company and Ron Marshall	E
10.21	Nash-Finch Company 2000 Stock Incentive Plan Performance Unit Award Agreement dated as of October 1, 2002 between the Company and Bruce A. Cross	E
21.1	Subsidiaries of the Company	E
23.1	Consent of Ernst & Young LLP	E
24.1	Power of Attorney	E
31.1	Rule 13a-14(a) Certification of the Chief Executive Officer	E
31.2	Rule 13a-14(a) Certification of the Chief Financial Officer	E
32.1	Section 1350 Certification of Chief Executive Officer and Chief Financial Officer	E