e10vq

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the twelve weeks ended June 16, 2007


o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File No. 0-785

NASH-FINCH COMPANY

(Exact Name of Registrant as Specified in its Charter)


DELAWARE (State or other jurisdiction of incorporation or organization)		41-0431960 (IRS Employer Identification No.)

7600 France Avenue South, P.O. Box 355
Minneapolis, Minnesota		55440-0355
(Address of principal executive offices)		(Zip Code)

(952) 832-0534
(Registrant’s telephone number including area code)

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

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. (See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act).

Large accelerated filer o Accelerated filer þ Non-accelerated filer o

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

As of July 13, 2007, 13,462,788 shares of Common Stock of the Registrant were outstanding.

PART I. — FINANCIAL INFORMATION

ITEM 1. Financial Statements

NASH FINCH COMPANY AND SUBSIDIARIES
Consolidated Statements of Income (unaudited)
(In thousands, except per share amounts)


	Twelve Weeks Ended					Twenty-Four Weeks Ended
	June 16,			June 17,		June 16,			June 17,
	2007			2006		2007			2006

Sales	$	1,063,974			1,070,764	$	2,096,217			2,105,523
Cost of sales		967,892			974,249		1,909,414			1,916,589

Gross profit		96,082			96,515		186,803			188,934


Other costs and expenses:
Selling, general and administrative		65,488			73,045		132,047			143,381
Special charges		(1,282	)		—		(1,282	)		—
Depreciation and amortization		8,901			9,617		17,983			19,319
Interest expense		5,671			6,120		11,266			12,187

Total other costs and expenses		78,778			88,782		160,014			174,887


Earnings before income taxes and cumulative effect of a change in accounting principle		17,304			7,733		26,789			14,047

Income tax expense		7,697			3,603		11,894			6,230


Net earnings before cumulative effect of a change in accounting principle		9,607			4,130		14,895			7,817

Cumulative effect of a change in accounting principle, net of income tax expense of $119 in 2006		—			—		—			169


Net earnings	$	9,607			4,130	$	14,895			7,986


Net earnings per share:

Basic:
Net earnings before cumulative effect of a change in accounting principle	$	0.71			0.31	$	1.11			0.59
Cumulative effect of a change in accounting principle, net of income tax expense		—			—		—			0.01

Net earnings per share	$	0.71			0.31	$	1.11			0.60


Diluted:
Net earnings before cumulative effect of a change in accounting principle	$	0.70			0.31	$	1.10			0.59
Cumulative effect of a change in accounting principle, net of income tax expense		—			—		—			0.01

Net earnings per share	$	0.70			0.31	$	1.10			0.60


Declared dividends per common share	$	0.180			0.180	$	0.360			0.360

Weighted average number of common shares outstanding and common equivalent shares outstanding:
Basic		13,492			13,366		13,465			13,357
Diluted		13,630			13,377		13,563			13,375

See accompanying notes to consolidated financial statements.

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


	June 16,			December 30,
	2007			2006
	(unaudited)
Assets
Current assets:
Cash and cash equivalents	$	1,334			958
Accounts and notes receivable, net		179,327			186,833
Inventories		259,804			241,875
Prepaid expenses and other		13,291			15,445
Deferred tax asset, net		12,660			11,942

Total current assets		466,416			457,053

Notes receivable, net		11,325			13,167
Property, plant and equipment:
Property, plant and equipment		619,448			620,555
Less accumulated depreciation and amortization		(412,397	)		(400,750	)

Net property, plant and equipment		207,051			219,805

Goodwill		215,174			215,174
Customer contracts and relationships, net		30,400			32,141
Investment in direct financing leases		5,241			6,143
Deferred tax asset, net		8,601			—
Other assets		10,514			10,820

Total assets	$	954,722			954,303


Liabilities and Stockholders’ Equity
Current liabilities:
Current maturities of long-term debt and capitalized lease obligations	$	3,858			3,776
Accounts payable		204,527			209,503
Accrued expenses		67,337			64,943

Total current liabilities		275,722			278,222

Long-term debt		288,478			313,985
Capitalized lease obligations		32,224			33,869
Deferred tax liability, net		—			4,214
Other liabilities		50,171			29,633
Stockholders’ equity:
Preferred stock — no par value. Authorized 500 shares; none issued		—			—
Common stock — $1.66 2/3 par value. Authorized 50,000 shares, issued 13,480 and 13,409 shares, respectively		22,467			22,348
Additional paid-in capital		57,636			53,697
Common stock held in trust		(2,074	)		(2,051	)
Deferred compensation obligations		2,074			2,051
Accumulated other comprehensive income		(4,782	)		(4,582	)
Retained earnings		233,305			223,416
Common stock in treasury, 21 and 21 shares, respectively		(499	)		(499	)

Total stockholders’ equity		308,127			294,380

Total liabilities and stockholders’ equity	$	954,722			954,303

See accompanying notes to consolidated financial statements.

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


	Twenty-Four Weeks Ended
	June 16,			June 17,
	2007			2006
Operating activities:
Net earnings	$	14,895			7,986
Adjustments to reconcile net earnings to net cash provided by operating activities:
Special charges		(1,282	)		—
Depreciation and amortization		17,983			19,319
Amortization of deferred financing costs		377			380
Amortization of rebatable loans		1,446			1,006
Provision for bad debts		873			3,435
Provision for lease reserves		(63	)		1,295
Deferred income tax expense		2,963			1,140
Gain on sale of real estate and other		(319	)		(1,784	)
LIFO charge		1,615			923
Asset impairments		1,141			4,794
Share-based compensation		2,540			447
Cumulative effect of a change in accounting principle		—			(288	)
Deferred compensation		362			(1,307	)
Other		(60	)		(532	)
Changes in operating assets and liabilities:
Accounts and notes receivable		6,856			7,809
Inventories		(19,545	)		21,611
Prepaid expenses		2,630			691
Accounts payable		649			5,739
Accrued expenses		(1,179	)		(4,947	)
Income taxes payable		8,468			(2,152	)
Other assets and liabilities		(283	)		(736	)

Net cash provided by operating activities		40,067			64,829


Investing activities:
Disposal of property, plant and equipment		2,259			5,112
Additions to property, plant and equipment		(5,804	)		(8,460	)
Loans to customers		(433	)		(5,524	)
Payments from customers on loans		755			1,021
Purchase of marketable securities		—			(233	)
Sale of marketable securities		2			920
Corporate owned life insurance, net		(123	)		(208	)
Other		—			(179	)

Net cash used in investing activities		(3,344	)		(7,551	)

Financing activities:

Payments of revolving debt		(25,300	)		(35,600	)
Dividends paid		(4,834	)		(4,798	)
Proceeds from exercise of stock options		1,638			288
Proceeds from employee stock purchase plan		255			253
Payments of long-term debt		(319	)		(653	)
Payments of capitalized lease obligations		(1,451	)		(1,361	)
Decrease in book overdraft		(6,590	)		(6,556	)
Tax benefit from exercise of stock options		254			58
Other		—			267

Net cash used by financing activities		(36,347	)		(48,102	)

Net increase in cash and cash equivalents		376			9,176
Cash and cash equivalents:
Beginning of year		958			1,257

End of period	$	1,334			10,433

See accompanying notes to consolidated financial statements.

Nash Finch Company and Subsidiaries
Notes to Consolidated Financial Statements
June 16, 2007

Note 1 — Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. For further information, refer to the consolidated financial statements and footnotes included in our Annual Report on Form 10-K for the year ended December 30, 2006.

The accompanying consolidated financial statements include all adjustments which are, in the opinion of management, necessary to present fairly the financial position of Nash-Finch Company and our subsidiaries (Nash Finch) at June 16, 2007 and December 30, 2006, the results of operations for the twelve and twenty-four weeks ended June 16, 2007 and June 17, 2006 and changes in cash flows for the twenty-four weeks ended June 16, 2007 and June 17, 2006. Adjustments consist only of normal recurring items, except for any items discussed in the notes below. All material intercompany accounts and transactions have been eliminated in the unaudited consolidated financial statements. Results of operations for the interim periods presented are not necessarily indicative of the results to be expected for the full year.

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

Certain reclassifications have been reflected in the accompanying unaudited consolidated financial statements for the second quarter and year-to-date periods ended June 16, 2007. 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 presented.

Note 2 — Inventories

We use the LIFO method for valuation of a substantial portion of inventories. An actual valuation of inventory under the LIFO method can be made only at the end of each year based on the inventory levels and costs at that time. Accordingly, interim LIFO calculations are based on management’s estimates of expected year-end inventory levels and costs. Because these estimates are subject to many factors beyond management’s control, interim results are subject to the final year-end LIFO inventory valuation. If the FIFO method had been used, inventories would have been approximately $52.9 million and $51.3 million higher at June 16, 2007 and December 30, 2006, respectively. In the second quarter of 2007 we recorded LIFO charges of $0.8 million compared to $0.5 million for second quarter 2006. Year-to-date LIFO charges recorded were $1.6 million and $1.0 million, respectively, at June 16, 2007 and June 17, 2006.

Note 3 — Share-Based Compensation

We account for share-based compensation awards in accordance with the provisions of Statement of Financial Accounting Standards (SFAS) No. 123(R), “Share-Based Payment — Revised,” which requires companies to estimate the fair value of share-based payment awards on the date of grant using an option-pricing model. The value of the portion of the awards ultimately expected to vest is recognized as expense over the requisite service period. We recognized share-based compensation expense in our Consolidated Statements of Income of $1.6 and $2.5 million, respectively, for the twelve and twenty-four weeks ended June 16, 2007, versus expense of $0.6 and $0.4 million for the twelve and twenty-four weeks ended June 17, 2006.

In addition, SFAS 123(R) requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ materially from those estimates. As such, during the first fiscal quarter of 2006, we recorded a cumulative effect for a change in accounting principle of $0.2 million in benefit, net of tax, as a result of estimating forfeitures for our Long-Term Incentive Program (LTIP).

We have 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. The 1995 Director Stock Option Plan was terminated as of December 27, 2004 and participation in the 1997 Non-Employee Director Stock Compensation Plan (“1997 Director Plan”) was frozen as of December 31, 2004.

Under the 2000 Stock Incentive Plan (“2000 Plan”), employees, non-employee directors, consultants and independent contractors may be awarded incentive or non-qualified stock options, shares of restricted stock, stock appreciation rights, performance units or stock bonuses. No options have been granted since fiscal 2004. Option awards granted to employees prior to 2005 had commonly been non-qualified stock options, each with an exercise price equal to the fair market value of a share of our 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.

The following table summarizes information concerning outstanding and exercisable options under the 1997 Director Plan and 2000 Plan as of June 16, 2007 (number of shares in thousands):

Options Outstanding

Options Exercisable

Number

Weighted

Number of

Weighted

Range of

of Options

Average

Options

Average

Exercise Prices

Outstanding

Exercise Price

Exercisable

Exercise Price

$17.35 – 17.95

24.8

18.8

24.55 – 35.36

31.5

16.5

56.3

24.02

32.3

23.72

Since 2005, awards have taken the form of performance units (including share units pursuant to our LTIP) and restricted stock units.

Performance units were granted during 2005, 2006 and 2007 under the 2000 Stock Incentive Plan pursuant to our Long Term Incentive Plan. These units vest at the end of a three year performance period. The payout, if any, for units granted in 2005 will be determined by comparing our growth in “Consolidated EBITDA” (defined as in our senior secured credit agreement) and return on net assets (defined as net income divided by the sum of net fixed assets plus the difference between current assets and current liabilities) during the performance period to the growth in those measures over the same period experienced by the companies in a peer group selected by us. The Long Term Incentive Plan was amended in 2006, and the payout, if any, for units granted in 2006 will be determined on the basis described above with return on net assets defined as the weighted average of the return on net assets for the fiscal years during a Measurement Period, where the return on net assets for each such fiscal year shall be the quotient of (i) net income for such fiscal year divided by (ii) the average of the difference between total assets and current liabilities (excluding current maturities of long-term debt and capital lease obligations) determined as of the beginning and the end of such fiscal year. The Long Term Incentive Plan was further amended in 2007, and the payout, if any, for units granted in 2007 will be determined on the basis described above with free cash flow (defined as cash provided from operations less capital expenditures for property, plant and equipment) replacing the return on net assets. The performance units will pay out in shares of our common stock or cash, or a combination of both, at the election of the participant. Depending on our ranking among the companies in the peer group for the 2005 and 2006 awards, a participant could receive a number of shares (or the cash value thereof) ranging from zero to 200% of the number of performance units granted. For the 2007 awards, a participant could receive a number of shares (or the cash value thereof) ranging from zero to 200% of the number of performance units granted depending on our ranking among the peer group for EBITDA and our free cash flow (as a percent of net assets) versus targets approved by the Board of Directors. Because these units can be settled in cash or stock, compensation expense is recorded over the three year period and adjusted to market value each period.

Awards to non-employee directors under the 2000 Plan began in 2004 and have taken the form of 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 in 2006 was determined by dividing $45,000 by the fair market value of a share of our 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 our common

stock six months after the director’s service on our Board ends. The awards are expensed over the six month vesting period.

We also maintain the 1999 Employee Stock Purchase Plan under which our employees may purchase shares of our common stock at the end of each six-month offering period at a price equal to 85% of the lesser of the fair market value of a share of our common stock at the beginning or end of such offering period.

During fiscal 2006 and the first two quarters of fiscal 2007, restricted stock units (RSUs) were awarded to ten of our executives, including Alec C. Covington, our President and Chief Executive Officer. Awards vest in increments over the term of the grant or cliff vest on the fifth anniversary of the grant date, as designated in the award documents.

On February 27, 2007, Mr. Covington was granted a total of 152,500 RSUs under the Company’s 2000 Stock Incentive Plan. The new RSU grant replaces a previous grant of 100,000 performance units awarded to Mr. Covington when he joined the Company last year. The previous 100,000 unit grant has been cancelled. The new grant delivers additional equity in lieu of the cash “tax gross up” payment included in the previous award; therefore no cash outlay will be required by the Company. Vesting of the new RSU grant to Mr. Covington will occur over a four year period, assuming Mr. Covington’s continued employment with Nash Finch. However, Mr. Covington will not receive the stock until six months after the termination of his employment, whenever that may occur.

On January 2, 2007, we granted Robert B. Dimond, Executive Vice President, Chief Financial Officer and Treasurer a total of 75,000 performance units, 37,500 of which vest in one-third increments on each of the first three anniversaries of the grant date and 37,500 of which vest on the fifth anniversary of the date of grant.

The following table summarizes activity in our share-based compensation plans during the year-to-date period ended June 16, 2007:


									Weighted
									Average
				Weighted		Restricted			Remaining
				Average		Stock			Restriction/
	Stock			Option		Awards/			Vesting
	Option			Price Per		Performance			Period
(In thousands, except per share amounts)	Shares			Share		Units			(Years)


Outstanding at December 30, 2006		124.8		$	26.68		618.9			2.1
Granted		—					437.5
Exercised/restrictions Lapsed		(56.5	)				—	*
Forfeited/cancelled		(12.0	)				(127.8	)

Outstanding at June 16, 2007		56.3		$	24.02		928.6			2.2

Exercisable/unrestricted at December 30, 2006		97.0		$	27.33		171.2

Exercisable/unrestricted at June 16, 2007		35.3		$	23.72		191.2


*		The “exercised/restrictions lapsed” amount above excludes 18,575 restricted stock units held by Alec Covington that vested during the second fiscal quarter but were deferred until after his employment with the Company ends.

The weighted-average grant-date fair value of equity based restricted stock/performance units granted was $30.03 during the twenty-four weeks ended June 16, 2007 versus $23.45 during the comparable period ended June 17, 2006. Awards under our LTIP, which is a liability award re-measured at each balance sheet date, are not included in these values.

Note 4 — Other Comprehensive Income

Other comprehensive income consists of market value adjustments to reflect available-for-sale securities and derivative instruments at fair value, pursuant to SFAS No. 115, “Accounting for Certain Investments in Debt and Equity Securities,” and SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities.”

During the quarter and year-to-date periods ended June 17, 2006 all interest rate and commodity swap agreements were designated as cash flow hedges and were reflected at fair value in our Consolidated Balance Sheet with the related gains or losses on these contracts deferred in stockholders’ equity as a component of other comprehensive income, and were accounted for consistent to the prior year. During the quarter and year-to-date periods ended June 16, 2007 our only outstanding commodity swap agreement did not qualify for hedge accounting in accordance with SFAS No. 133, and the corresponding changes in fair value of the commodity swap agreement were recognized in earnings. All investments in available-for-sale securities held by us are amounts held in a rabbi trust in connection with the deferred compensation arrangement described below and are included in other assets on the Consolidated Balance Sheet. The components of comprehensive income are as follows:


	Second Quarter					Year-to-Date
	Ended					Ended
	June 16,			June 17,		June 16,			June 17,
(In thousands)	2007			2006		2007			2006


Net earnings	$	9,607			4,130		14,895			7,986
Change in fair value of available-for-sale securities, net of tax		—			3		—			—
Change in fair value of derivatives, net of tax		(80	)		188		(200	)		265

Comprehensive income	$	9,527			4,321		14,695			8,251

We offer deferred compensation arrangements, which allow certain employees, officers, and directors to defer a portion of their earnings. The amounts deferred are held in a rabbi trust. The assets of the rabbi trust include life insurance policies to fund our obligations under deferred compensation arrangements for certain employees, officers and directors. The cash surrender value of these policies is included in other assets on the Consolidated Balance Sheets. The assets of the rabbi trust also include shares of Nash Finch common stock. These shares are included in stockholders’ equity on the Consolidated Balance Sheets.

Note 5 — Long-term Debt and Bank Credit Facilities

Total debt outstanding was comprised of the following:


	June 16,			December 30,
(In thousands)	2007			2006


Senior secured credit facility:
Revolving credit	$	11,000			—
Term Loan B		123,700			160,000
Senior subordinated convertible debt, 3.50% due in 2035		150,087			150,087
Industrial development bonds, 5.60% to 5.75% due in various installments through 2014		3,615			3,790
Notes payable and mortgage notes, 7.95% to 8.00% due in various installments through 2013		596			741

Total debt		288,998			314,618
Less current maturities		(520	)		(633	)

Long-term debt	$	288,478			313,985

Senior Secured Credit Facility

Our senior secured credit facility consists of $125.0 million in revolving credit, all of which may be utilized for loans, and up to $40.0 million of which may be utilized for letters of credit, and a $123.7 million Term Loan B. The Term Loan B portion of the facility was $160.0 million as of December 30, 2006 of which $20.0 million and $36.3 million was permanently paid down during the second quarter 2007 and year-to-date 2007 periods, respectively. The facility is secured by a security interest in substantially all of our assets 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 facility bear interest at the Eurodollar rate or the prime rate, plus, in either case, a margin increase that is dependent on our total leverage ratio and a commitment commission on the unused portion of the revolver. The margin spread and the commitment commission is reset quarterly based on movement of a leverage ratio defined by the agreement. At June 16, 2007 the margin spreads for the revolver and Term Loan B maintained as Eurodollar loans were 2.0% and 2.5%, respectively, and the unused commitment commission was 0.375%. The margin spread for the revolver maintained at the prime rate was 1.0%. At June 16, 2007, $95.8 million was available under the revolving line of credit after giving effect to outstanding borrowings and to $18.2 million of outstanding letters of credit primarily supporting workers’ compensation obligations.

Senior Subordinated Convertible Debt

To finance a portion of the acquisition of distribution centers in 2005, we sold $150.1 million in aggregate issue price (or $322.0 million aggregate principal amount at maturity) of senior subordinated convertible notes due in 2035. The notes are our unsecured senior subordinated obligations and rank junior to our existing and future senior indebtedness, including borrowings under our senior secured credit facility. See our Annual Report on Form 10-K for the fiscal year ended December 30, 2006 for additional information.

Note 6 — Special Charge

In fiscal 2004, we closed 18 retail stores and sought purchasers for our three Denver area AVANZA stores. As a result of these actions, we recorded net charges of $34.9 million reflected in a “Special charges” line within the Consolidated Statements of Income.

In fiscal 2005, we decided to continue to operate the three Denver area AVANZA stores and therefore recorded a reversal of $1.5 million of the special charge related to the stores. Partially offsetting this reversal was a $0.2 million change in estimate for one other property.

In fiscal 2006, we recorded additional charges, related to two properties included in the special charge, of $5.5 million to write down capitalized leases and $0.9 million to reserve for lease commitments as a result of

lower than originally estimated sublease income. Additionally, we reversed $0.2 million of a previously recorded charge to change an estimate for another property.

In the second quarter of 2007, we reversed $1.6 million of previously established lease reserves for one location after subleasing the property earlier than anticipated. We also recoded an additional $0.3 million in charges due to revised lease commitment estimates for another property in the second quarter of 2007.

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


	Write- Down of			Write-Down
(In thousands)	Tangible Assets			of Intangible Assets			Lease Commitments			Severance			Other Exit Costs			Total


Initial net charge accrual	$	21,485			1,072			11,636			86			588			34,867
Used in 2004		(21,485	)		(1,072	)		(2,162	)		(86	)		(361	)		(25,166	)

Balance January 1, 2005		—			—			9,474			—			227			9,701
Change in estimates		(1,531	)		—			235			—			—			(1,296	)
Used in 2005		1,531			—			(2,026	)		—			(55	)		(550	)

Balance December 31, 2005		—			—			7,683			—			172			7,855
Change in estimates		5,516			—			737			—			—			6,253
Used in 2006		(5,516	)		—			(2,087	)		—			(76	)		(7,679	)

Balance December 30, 2006		—			—			6,333			—			96			6,429
Change in estimates		—			—			(1,282	)		—			—			(1,282	)
Used in 2007		—			—			(462	)		—			(1	)		(463	)

Balance June 16, 2007	$	—			—			4,589			—			95			4,684

As of June 16, 2007, we believe the remaining reserves are adequate.

Note 7 — Guarantees

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 ($7.6 million as of June 16, 2007), which would be due in accordance with the underlying agreements.

We entered into a new debt guarantee in first quarter 2007 with a food distribution customer that is accounted for under Financial Accounting Standards Board (FASB) Interpretation No. 45, “Guarantor’s Accounting and Disclosures Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others,”(FIN 45) which provides that at the time a company issues a guarantee, the company must recognize an initial liability for the fair value of the obligation it assumes under that guarantee. The maximum undiscounted payments we would be required to make in the event of default under the guarantee is $3.0 million, which is included in the $7.6 million total referenced above. The maximum amount of the guarantee is reduced annually during the approximate five-year term of the agreement, and is secured by a personal guarantee from the affiliated customer. The initial liability was recorded at fair value, and is immaterial to the accompanying consolidated financial statements. All of the other guarantees were issued prior to December 31, 2002 and therefore not subject to the recognition and measurement provisions of FIN 45.

We have also assigned various leases to other entities. 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 $12.3 million as of June 16, 2007.

Note 8 — Income Taxes

The Company or one of its subsidiaries files income tax returns in the U.S. federal jurisdiction, and various state and local jurisdictions. With few exceptions, we are no longer subject to U.S. federal, state or local examinations by tax authorities for years before 2003. The Internal Revenue Service (IRS) has examined our U.S. income tax returns for 2004 and 2005.

During the next 12 months, the Company intends to file various reports to settle various tax liabilities related to open tax years. The Company also expects various statutes of limitation to expire during the year. Due to the uncertain response of the taxing authorities, a range of outcomes cannot be reasonably estimated at this time.

The Company adopted the provisions of FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes, (FIN 48) on December 31, 2006. We did not recognize any adjustment in the liability for unrecognized tax benefits, as a result of FIN 48, that impacted the December 31, 2006 balance of retained earnings. The total amount of unrecognized tax benefits was $21.8 million at December 31, 2006 million. The total amount of tax benefits that if recognized would impact the effective tax rate was $3.1 million at December 31, 2006. We recognize interest and penalties accrued related to unrecognized tax benefits in income tax expense. We had approximately $3.7 million for the payment of interest and penalties accrued at December 31, 2006.

There have been no material changes to the amount of unrecognized tax benefits, the amount of tax benefits that would impact the effective rate if recognized, or the amount of accrued interest and penalties since the Company adopted the provisions of FIN 48 on December 31, 2006.

Note 9 — Pension and Other Postretirement Benefits

The following tables present the components of our pension and postretirement net periodic benefit cost:

Twelve Weeks Ended June 16, 2007 and June 17, 2006:


	Pension Benefits						Other Benefits
(In thousands)	2007			2006			2007			2006


Interest cost	$	585			567			14			15
Expected return on plan assets		(578	)		(586	)		—			—
Amortization of prior service cost		(3	)		(3	)		(161	)		(161	)
Recognized actuarial loss (gain)		59			76			(2	)		(1	)

Net periodic benefit cost	$	63			54			(149	)		(147	)

Twenty-Four Weeks Ended June 16, 2007 and June 17, 2006:


	Pension Benefits						Other Benefits
(In thousands)	2007			2006			2007			2006


Interest cost	$	1,170			1,133			28			40
Expected return on plan assets		(1,154	)		(1,172	)		—			—
Amortization of prior service cost		(7	)		(7	)		(322	)		(271	)
Recognized actuarial loss (gain)		118			153			(4	)		(2	)

Net periodic benefit cost	$	127			107			(298	)		(233	)

Weighted-average assumptions used to determine net periodic benefit cost for the second quarter and year-to-date periods ended June 16, 2007 and June 17, 2006 were as follows:


	Pension Benefits						Other Benefits
	2007			2006			2007			2006

Weighted-average assumptions:
Discount rate		6.00	%		5.50	%		6.00	%		5.50	%
Expected return on plan assets		7.00	%		7.50	%		N/A			N/A
Rate of compensation increase		N/A			N/A			N/A			N/A

Total contributions to our pension plan in 2007 are expected to be $1.6 million.

Note 10— Earnings Per Share

The following table reflects the calculation of basic and diluted earnings per share:


	Second Quarter				Year-to-Date
	Ended				Ended
(In thousands, except per share amounts)	June 16, 2007		June 17, 2006		June 16, 2007		June 17, 2006


Net earnings	$	9,607		4,130		14,895		7,986


Net earnings per share-basic:
Weighted-average shares outstanding		13,492		13,366		13,465		13,357

Net earnings per share-basic	$	0.71		0.31		1.11		0.60


Net earnings per share-diluted:
Weighted-average shares outstanding		13,492		13,366		13,465		13,357
Dilutive impact of options		9		—		5		—
Shares contingently issuable		129		11		93		18

Weighted-average shares and potential dilutive shares outstanding		13,630		13,377		13,563		13,375


Net earnings per share-diluted	$	0.70		0.31		1.10		0.60


Anti-dilutive options excluded from calculation (weighted-average amount for period)		30		71		46		71

Certain options were excluded from the calculation of diluted net earnings per share because the exercise price was greater than the market price of the stock and would have been anti-dilutive under the treasury stock method.

The senior subordinated convertible notes due 2035 will be convertible at the option of the holder, only upon the occurrence of certain events, at an adjusted conversion rate of 9.4164 shares (initially 9.3120) of our common stock per $1,000 principal amount at maturity of notes (equal to an adjusted conversion price of approximately $49.50 per share). Upon conversion, we will pay the holder the conversion value in cash up to the accreted principal amount of the note and the excess conversion value, if any, in cash, stock or both, at our option. The notes are only dilutive above their accreted value and for all periods presented the weighted average market price of the Company’s stock did not exceed the accreted value. Therefore, the notes are not dilutive to earnings per share for any of the periods presented.

Performance units granted during 2005, 2006 and 2007 under the 2000 Plan for the LTIP will pay out in shares of Nash Finch common stock or cash, or a combination of both, at the election of the participant. Other performance and restricted stock units granted during 2006 and 2007 pursuant to the 2000 Plan will pay out in

shares of Nash Finch common stock. Unvested restricted units are not included in basic earnings per share until vested. All shares of time-restricted stock are included in diluted earnings per share using the treasury stock method, if dilutive. Performance units granted for the LTIP are only issuable if certain performance criteria are met, making these shares contingently issuable under SFAS No. 128, “Earnings per Share.” Therefore, the performance units are included in diluted earnings per share only if the performance criteria are met as of the end of the respective reporting period and then accounted for using the treasury stock method, if dilutive.

Note 11 — Segment Reporting

We sell and distribute products that are typically found in supermarkets and operate three reportable operating segments. Our food distribution segment consists of 16 distribution centers that sell to independently operated retail food stores, our corporate owned stores and other customers. The military segment consists primarily of two distribution centers that distribute products exclusively to military commissaries and exchanges. The retail segment consists of corporate-owned stores that sell directly to the consumer.

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


	Second Quarter Ended
	June 16, 2007							June 17, 2006
(In thousands)	Sales from external customers		Inter-segment sales			Segment profit		Sales from external customers		Inter-segment sales			Segment profit


Food Distribution	$	633,066		70,234			21,343		639,536		77,303			17,584
Military		290,458		—			10,170		278,677		—			11,011
Retail		140,450		—			6,818		152,551		—			6,600
Eliminations		—		(70,234	)		—		—		(77,303	)		—

Total	$	1,063,974		—			38,331		1,070,764		—			35,195


	Year-to-Date Ended
	June 16, 2007							June 17, 2006
(In thousands)	Sales from external customers		Inter-segment sales			Segment profit		Sales from external customers		Inter-segment sales			Segment profit


Food Distribution	$	1,247,852		137,153			39,523		1,260,012		154,911			35,425
Military		572,265		—			19,642		541,522		—			19,758
Retail		276,100		—			11,639		303,989		—			10,872
Eliminations		—		(137,153	)		—		—		(154,911	)		—

Total	$	2,096,217		—			70,804		2,105,523		—			66,055

ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Forward Looking Information and Cautionary Factors

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

•		the success or failure of strategic plans, new business ventures or initiatives;

•		the effect of competition on our distribution, military and retail businesses;

•		our ability to identify and execute plans to improve the competitive position of our retail operations;

•		risks entailed by future acquisitions, including the ability to successfully integrate acquired operations and retain the customers of those operations;

•		technology failures which have a material adverse effect on our business;

•		changes in credit risk from financial accommodations extended to new or existing customers;

•		general sensitivity to economic conditions, including volatility in energy prices, food commodities, and changes in market interest rates;

•		our ability to identify and execute plans to expand our food distribution, military and retail operations;

•		significant changes in the nature of vendor promotional programs and the allocation of funds among the programs;

•		limitations on financial and operating flexibility due to debt levels and debt instrument covenants;

•		possible changes in the military commissary system, including those stemming from the redeployment of forces, congressional action and funding levels;

•		Legal, governmental or administrative proceedings and/or disputes that result in adverse outcomes, such as adverse determinations or developments with respect to the litigation or SEC inquiry discussed in Part I, Item 3 of our Annual Report on Form 10-K for the fiscal year ended December 30, 2006;

•		changes in consumer spending or buying patterns;

•		unanticipated problems with product procurement;

•		severe weather and natural disasters adversely impacting our supply chain;

•		changes in health care, pension and wage costs, and labor relations issues; and

•		threats or potential threats to security or food safety.

A more detailed discussion of many of these factors, as well as other factors, that could affect the Company’s results, is contained in Part II, Item 1A, “Risk Factors” of this Form 10-Q and in Part I, Item 1A, “Risk Factors,” of our Annual Report on Form 10-K for the fiscal year ended December 30, 2006. You should carefully consider each of these factors and all of the other information in this report. We believe that all forward-looking statements are based upon reasonable assumptions when made. However, we caution that it is impossible to predict actual results or outcomes and that accordingly you should not place undue reliance on these statements. Forward-looking statements speak only as of the date when made and we undertake no obligation to revise or update these statements in light of subsequent events or developments. Actual results and outcomes may differ materially from anticipated results or outcomes discussed in forward-looking statements. You are advised, however, to consult any future disclosures we make on related subjects in future reports to the Securities and Exchange Commission (SEC).

Overview

We are the second largest publicly traded wholesale food distribution company in the United States. Our business consists of three primary operating segments: food distribution, military and food retailing.

In November 2006 we announced the launch of a new strategic plan, Operation Fresh Start, designed to sharpen our focus and provide a strong platform to support growth initiatives. Built upon extensive knowledge of current industry, consumer and market trends, and formulated to differentiate the Company, the new strategy focuses activities on specific retail formats, businesses and support services designed to delight consumers. The strategic plan encompasses several important elements:

	•		Emphasis on a suite of retail formats designed to appeal to today’s consumers including everyday value, multicultural, urban, extreme value and upscale formats, as well as military commissaries and exchanges;

	•		Strong, passionate businesses in key areas including perishables, health and wellness, center store, pharmacy and military supply, driven by the needs of each format;

	•		Supply chain services focused on supporting our businesses with warehouse management, inbound and outbound transportation management and customized solutions for each business;

	•		Retail support services emphasizing best-in-class offerings in marketing, advertising, merchandising, store design and construction, store brands, market research, retail store support, retail pricing and license agreement opportunities;

	•		Store brand management dedicated to leveraging the strength of the Our Family brand as a regional brand through exceptional product development coupled with pricing and marketing support; and

	•		Integrated shared services company-wide including IT support and infrastructure, accounting, finance, human resources and legal.

In addition, we may from time to time identify and evaluate acquisition opportunities in our food distribution and military segments, and to the extent we believe such opportunities present strategic benefits to those segments and can be achieved in a cost-effective manner, complete such acquisitions.

Our food distribution segment sells and distributes a wide variety of nationally branded and private label products to independent grocery stores and other customers primarily in the Midwest and Southeast regions of the United States.

Our military segment contracts with manufacturers to distribute a wide variety of grocery products to military commissaries and exchanges located primarily in the Mid-Atlantic region of the United States, and in Europe, Cuba, Puerto Rico, Egypt and the Azores. We are the largest distributor of grocery products to U.S. military commissaries and exchanges, with over 30 years of experience acting as a distributor to U.S. military commissaries and exchanges.

Our retail segment operated 62 corporate-owned stores primarily in the Upper Midwest as of June 16, 2007. Primarily due to intensely competitive conditions in which supercenters and other alternative formats compete for price conscious customers, same store sales in our retail business have declined since 2002, although the declines have moderated in more recent periods. As a result, we closed or sold 25 retail stores in 2004, nine retail stores in 2005 and 16 retail stores in 2006. There have been no stores sold or closed during 2007. We are taking and expect to take further initiatives of varying scope and duration with a view toward improving our response to and performance under these difficult competitive conditions. Our strategic initiatives are designed to provide steps to create value within our organization. These steps include designing and reformatting our base of retail stores into alternative formats to increase overall retail sales performance. As we continue to assess the impact of performance improvement initiatives and the operating results of individual stores, we may need to recognize additional impairments of long-lived assets and additional goodwill impairment associated with our retail segment, and may incur restructuring or other charges in connection with closure or sales activities.

Results of Operations

Sales

The following tables summarize our sales activity for the twelve weeks ended June 16, 2007 (Second quarter 2007) compared to the twelve weeks ended June 17, 2006 (Second quarter 2006) and the twenty-four weeks ended June 16, 2007 (Year-to-date 2007) compared to the twenty-four weeks ended June 17, 2006 (Year-to-date 2006):


	Second quarter 2007					Second quarter 2006					Increase/(Decrease)
			Percent of					Percent of
(In thousands)	Sales		Sales			Sales		Sales			$			%

Segment Sales:
Food Distribution	$	633,066		59.5	%		639,536		59.7	%		(6,470	)		(1.0	%)
Military		290,458		27.3	%		278,677		26.0	%		11,781			4.2	%
Retail		140,450		13.2	%		152,551		14.3	%		(12,101	)		(7.9	%)

Total Sales	$	1,063,974		100.0	%		1,070,764		100.0	%		(6,790	)		(0.6	%)


	Year-to-date 2007					Year-to-date 2006					Increase/(Decrease)
			Percent of					Percent of
(In thousands)	Sales		Sales			Sales		Sales			$			%

Segment Sales:
Food Distribution	$	1,247,852		59.5	%		1,260,012		59.9	%		(12,160	)		(1.0	%)
Military		572,265		27.3	%		541,522		25.7	%		30,743			5.7	%
Retail		276,100		13.2	%		303,989		14.4	%		(27,889	)		(9.2	%)

Total Sales	$	2,096,217		100.0	%		2,105,523		100.0	%		(9,306	)		(0.4	%)

The decreases in food distribution sales for the second quarter and year-to-date periods versus the comparable 2006 periods are primarily attributable to the annualized impact of lost customer sales in 2006 that have not yet been fully offset by new account gains achieved. In addition, sales in the second quarter and year-to-date periods to our existing customer base have also declined relative to 2006.

Military segment sales were up 4.2% during the second quarter 2007 and 5.7% year-to-date 2007 compared to the same periods in 2006. The sales increases reflect stronger sales both domestically and overseas. Export sales have benefited from troop redeployment delays, whereas the domestic sales increase reflects increased product line offerings that have resulted in new sales volumes. Domestic and overseas sales represented the following percentages of military segment sales:


	Second quarter						Year-to-date
	2007			2006			2007			2006

Domestic		67.6	%		67.5	%		69.1	%		69.4	%
Overseas		32.4	%		32.5	%		30.9	%		30.6	%

The decreases in retail sales in both the quarterly and year-to-date comparisons are attributable to the closure of seven stores since the end of the second quarter of 2006. Same store sales, which compare retail sales for stores which were in operation for the same number of weeks in the comparative periods, increased 0.3% in the second quarter of 2007 and are essentially flat year-to-date when compared to the same periods in 2006. The decline in same store sales has continued to show improvement, marking the seventh consecutive quarter the year-to-date comparable sales percentage has improved from the preceding quarter.

During the second quarters of fiscal 2007 and 2006, our corporate store count changed as follows:


	Second quarter		Second quarter
	2007		2006
Number of stores at beginning of period		62		71
Closed or sold stores		—		(2	)

Number of stores at end of period		62		69

During the year-to-date fiscal 2007 and 2006 periods ended June 16, 2007 and June 17, 2006, respectively, our corporate store count changed as follows:


	Year-to-date		Year-to-date
	2007		2006
Number of stores at beginning of year		62		78
Closed or sold stores		—		(9	)

Number of stores at end of period		62		69

During June 2007, we announced our intention to close our Fairfield, Iowa retail store location by June 30, 2007. As of June 16, 2007, we sold the retail pharmacy operation located at this facility. This location is still included as an open store in the above tables.

Gross Profit

Gross profit was 9.0% of sales for the second quarter 2007 and 8.9% year-to-date 2007 compared to 9.0% of sales for both comparable prior year periods. Our overall gross profit margin was negatively affected by 0.2% of sales in the 2007 period due to a sales mix shift between our business segments between the years. This was due to a higher percentage of 2007 sales occurring in the military segment and a lower percentage in the retail and food distribution segments which have a higher gross profit margin, offsetting this shift was year over year impact from implementing an enhanced forward buy strategy.

Selling, General and Administrative Expenses

Selling, general and administrative expenses (SG&A) for second quarter 2007 and year-to-date 2007 were 6.2% and 6.3% of sales, respectively, compared to 6.8% for both comparable periods last year.

SG&A expenses for the 2006 periods included a second quarter 2006 charge of $5.5 million or 0.5% of sales related to a long-time food distribution customer whose business was discontinued following actions taken by another creditor. The charge reflected the impairment of certain retail properties leased to this customer and additional bad debt expense related to accounts and notes receivable owed by this customer. SG&A expense in 2007 benefited by approximately 0.2% of sales due to our retail segment which has a higher SG&A expenses than our military and food distribution segments, and represented a smaller percentage of our total sales in 2007.

In addition, in the second quarter and year-to-date period 2007, we realized a gain net of impairments of $0.5 million primarily related to the sale of a retail pharmacy customer database file. Gains on sale of real estate in fiscal 2006 of $1.2 million were primarily related to the sale of unoccupied properties. The provision for lease reserves increased $0.8 million for the second quarter 2007 and decreased $0.1 million year-to-date 2007 compared to an increase of $0.8 million and an increase of $1.3 million for both comparable periods last year.

Special Charges

In the second quarter of 2007, we reversed $1.6 million of previously established lease reserves for one location after subleasing the property earlier than anticipated. We also recorded an additional $0.3 million in charges due to revised lease commitment estimates for another property in the second quarter of 2007. There were no special charges recognized during the second quarter and year-to-date 2006 periods.

Depreciation and Amortization Expense

Depreciation and amortization expense of $8.9 million for second quarter 2007 decreased $0.7 million compared to the same period last year. Year-to-date depreciation expense decreased from $19.3 million in 2006 to $18.0 million in 2007. The decreases for the quarter and year-to-date periods were primarily due to decreased depreciation and amortization for fixtures and equipment, capital leases, and vehicles.

Interest Expense

Interest expense was $5.7 million for the second quarter 2007 compared to $6.1 million for the same period in 2006. Average borrowing levels decreased from $408.6 million during the second quarter 2006 to $360.9 million during the second quarter 2007, primarily due to decreases in revolving credit levels under our bank credit facility. The effective interest rate was 6.1% for the second quarter of 2007, which was equal to the effective interest rate in the second quarter of 2006.

Interest expense decreased to $11.3 million for year-to-date 2007 from $12.2 million in the same period of 2006. Average borrowing levels decreased from $417.4 million during year-to-date 2006 to $361.3 million during the year-to-date 2007, primarily due to decreases in revolving credit levels under our bank credit facility. The effective interest rate was 6.2% for year-to-date 2007 as compared to 6.0% for year-to-date 2006. The increase in the effective interest rate reflected the impact of rising interest rates on variable rate debt partially offset by the impact of interest rate swaps.

Income Taxes

Income tax expense is provided on an interim basis using management’s estimate of the annual effective rate. Our effective tax rate for the full fiscal year is subject to changes and may be impacted by changes to nondeductible items and tax reserve requirements in relation to our forecasts of operations, sales mix by taxing jurisdictions, or to changes in tax laws and regulations. The effective income tax rate was 44.5% and 46.6% for second quarter 2007 and 2006, respectively, and 44.4% for both the year-to-date 2007 and 2006 periods.

Net Earnings

Net earnings in second quarter 2007 were $9.6 million, or $0.70 per diluted share, as compared to $4.1 million, or $0.31 per diluted share, in the second quarter of 2006. Net earnings year-to-date 2007 were $14.9 million, or $1.10 per diluted share, opposed to net earnings of $8.0 million, or $0.60 per diluted share, for the same period of the previous year. Year-to-date 2006 net earnings included the favorable impact of $0.2 million, or $0.01 per diluted share, for the cumulative effect of an accounting change related to the adoption of SFAS No. 123(R), “Share-Based Payment — Revised.”

Liquidity and Capital Resources

The following table summarizes our cash flow activity and should be read in conjunction with the Consolidated Statements of Cash Flows:


	Year-to-date Ended
	June 16,			June 17,			Increase/
(In thousands)	2007			2006			(Decrease)


Net cash provided by operating activities	$	40,067			64,829			(24,762	)
Net cash used in investing activities		(3,344	)		(7,551	)		4,207
Net cash used by financing activities		(36,347	)		(48,102	)		11,755

Net change in cash and cash equivalents	$	376			9,176			(8,880	)

Cash flows from operating activities decreased $24.8 million in year-to-date 2007 as compared to year-to-date 2006. The primary factor for the decrease was changes to inventory. During year-to-date 2007 increased inventory during the year resulted in decreased cash from operations of $19.5 million, compared to year-to-date 2006 where decreased inventory resulted in an increase in cash from operations of $21.6 million. The 2007

inventory increased, in part, to improve our fill rate and opportunistic buying of products. The 2006 inventory reduction was due to the consolidation of two distribution centers. Partially offsetting the changes in inventory was an increase in 2007 year-to-date net earnings of $6.9 million and an increase in taxes payable of $10 million when compared to the same period in 2006.

Net cash used for investing activities decreased by $4.2 million for the year-to-date 2007 period as compared to the same period last year. The most significant factor for the year-over-year variance was new loans to customers, with cash used of $0.4 million in year-to-date 2007 compared to $5.5 million in year-to-date 2006.

Cash used by financing activities decreased by $11.8 million in year-to-date 2007 compared to year-to-date 2006. The decrease in cash used by financing activities included a $10.3 million net decrease in revolving debt payments/proceeds, when comparing cash flow activity from year-to-date 2007 to the comparable period in 2006. During year-to-date 2007 $36.3 million of the Term Loan B portion of our existing credit facility was permanently paid down, which was partially offset by increased borrowings under our revolving credit facility of $11.0 million. Year-to-date 2006 included the repayment of $35.6 million of our revolving debt.

During the remainder of fiscal 2007, we expect that cash flows 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 during the year to build inventories for certain holidays. Longer term, we believe that cash flows from operations, short-term bank borrowing, 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.

Senior Secured Credit Facility

Our senior secured credit facility consists of $125.0 million in revolving credit, all of which may be utilized for loans, and up to $40.0 million of which may be utilized for letters of credit, and a $123.7 million Term Loan B. The Term Loan B portion of the facility was $160.0 million as of December 30, 2006 of which $20.0 million and $36.3 million was permanently paid down during the second quarter 2007 and year-to-date 2007 periods, respectively. Borrowings under the facility bear interest at either the Eurodollar rate or the prime rate, plus in either case a margin spread that is dependent on our total leverage ratio. We pay a commitment commission on the unused portion of the revolver. The margin spreads and the commitment commission are reset quarterly based on changes to our total leverage ratio defined by the applicable credit agreement. At June 16, 2007 the margin spreads for the revolver and Term Loan B maintained as Eurodollar loans were 2.0% and 2.5%, respectively, and the unused commitment commission was 0.375%. The margin spread for the revolver maintained at the prime rate was 1.0%. The credit facility requires us to hedge a certain portion of such borrowings through the use of interest rate swaps, as we have done historically. At June 16, 2007, credit availability under the senior secured credit facility was $95.8 million.

Our senior secured 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 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 credit agreement, and non-cash charges (such as LIFO charges, closed store lease costs, asset impairments and share-based compensation), less cash payments made during the current period on certain non-cash charges recorded in prior periods. In addition, for purposes of determining compliance with prescribed leverage ratios and adjustments in the credit facility’s margin spread and commitment commission, Consolidated EBITDA is calculated on a pro forma basis that takes into account all permitted acquisitions that have occurred since the beginning of the relevant four quarter computation period. 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 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 financial covenants specified in the credit agreement, as amended, vary over the term of the credit agreement and can be summarized as follows:


	For The Fiscal
	Periods Ending
Financial Covenants	Closest to	Required Ratio

Interest Coverage Ratio	12/31/04 through 9/30/07		3.50:1.00	(minimum)
	12/31/07 and thereafter		4.00:1.00

Total Leverage Ratio	12/31/04 through 9/30/06		3.50:1.00	(maximum)
	12/31/06 through 3/31/07		3.75:1.00
	6/30/07 through 9/30/07		3.50:1.00
	12/31/07 and thereafter		3.00:1.00

Senior Secured Leverage Ratio	12/31/04 through 9/30/06		2.75:1.00	(maximum)
	12/31/06 through 9/30/07		2.50:1.00
	12/31/07 and thereafter		2.25:1.00

Working Capital Ratio	12/31/05 through 9/30/08		1.75:1.00	(minimum)
	Thereafter		2.00:1.00

As of June 16, 2007, 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)	4:38:1.00

Total Leverage Ratio (2)	3.50:1.00 (maximum)	2:95:1.00
Senior Secured Leverage Ratio (3)	2.50:1.00 (maximum)	1:23:1.00
Working Capital Ratio (4)	1.75:1.00 (minimum)	3:24:1.00


(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 outstanding 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 for the trailing four quarters ended June 16, 2007 and June 17, 2006 (amounts in thousands):



		2006				2006				2007				2007				Trailing
	Qtr 3				Qtr 4				Qtr 1				Qtr 2				4 Qtrs

Earnings (loss) from continuing operations before income taxes		$	(6,287	)			(25,253	)			9,485				17,304				(4,751	)
Interest expense			7,906				6,551				5,595				5,671				25,723
Depreciation and amortization			12,685				9,447				9,082				8,901				40,115
LIFO charge			1,590				117				808				807				3,322
Lease reserves			4,455				2,675				(888	)			825				7,067
Goodwill impairment			—				26,419				—				—				26,419
Asset impairments			2,522				4,127				866				275				7,790
Losses (gains) on sale of real estate			25				37				—				(147	)			(85	)
Share-based compensation			233				486				956				1,584				3,259
Subsequent cash payments on non-cash charges			(1,862	)			(686	)			(700	)			(663	)			(3,911	)
Special Charges			6,253				—				—				(1,282	)			4,971

Total Consolidated EBITDA		$	27,520				23,920				25,204				33,275				109,919



	2005			2005			2006			2006			Trailing
Trailing four quarters ended June 17, 2006:	Qtr 3			Qtr 4			Qtr 1			Qtr 2			4 Qtrs

Earnings from continuing operations before income taxes	$	18,100			21,364			6,314			7,733			53,511
Interest expense		7,919			6,048			6,067			6,120			26,154
Depreciation and amortization		14,357			10,376			9,702			9,617			44,052
LIFO charge (benefit)		(229	)		(452	)		462			461			242
Lease reserves		216			(191	)		902			1,327			2,254
Asset impairments		1,772			851			1,547			3,247			7,417
Losses (gains) on sale of real estate		(556	)		(2,600	)		33			(1,225	)		(4,348	)
Share-based compensation		488			14			(187	)		634			949
Subsequent cash payments on non-cash charges		(752	)		(2,690	)		(808	)		(656	)		(4,906	)

Total Consolidated EBITDA	$	41,315			32,720			24,032			27,258			125,325

The credit agreement also contains covenants that limit our ability to incur debt (including guaranteeing the debt of others) and liens, acquire or dispose of assets, pay dividends on and repurchase our stock, make capital expenditures and make loans or advances to others, including customers.

Our contractual obligations and commercial commitments are discussed in Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year ended December 30, 2006, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” under the caption “Contractual Obligations and Commercial Commitments.” There have been no material changes to our contractual obligations and commercial commitments during the second quarter ended June 16, 2007.

Senior Subordinated Convertible Debt

We also have outstanding $150.1 million in aggregate issue price (or $322.0 million in aggregate principal amount at maturity) of senior subordinated convertible notes due in 2035. The notes are unsecured senior subordinated obligations and rank junior to our existing and future senior indebtedness, including borrowings under our senior secured credit facility. Cash interest at the rate of 3.50% per year is payable semi-annually on the issue price of the notes until March 15, 2013. After that date, cash interest will not be payable, unless contingent cash interest becomes payable, and original issue discount for non-tax purposes will accrue on the notes daily at a rate of 3.50% per year until the maturity date of the notes. See our Annual Report on Form 10-K for the fiscal year ended December 30, 2006 for additional information.

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 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 effective in accordance with SFAS No. 133 in offsetting the change in the value of the items being hedged, any changes in fair value relating to the ineffective portion of these contracts are immediately recognized in income.

Interest rate swap agreements are entered into for periods consistent with related underlying exposures and do not constitute positions independent of those exposures. At June 16, 2007, we had four outstanding interest rate swap agreements with notional amounts totaling $90.0 million, which commence and expire as follows (dollars in thousands):


Notional	Effective Date	Termination Date	Fixed Rate

$20,000	12/13/2005	12/13/2007		4.737	%
30,000	12/13/2006	12/13/2007		4.100	%
20,000	12/13/2006	12/13/2007		4.095	%
20,000	12/13/2006	12/13/2007		4.751	%

At June 17, 2006 we had seven outstanding interest rate swap agreements with notional amounts totaling $185.0 million. Three of those agreements with notional amounts totaling $95.0 million expired on December 13, 2006.

We use commodity swap agreements to reduce price risk associated with anticipated purchases of diesel fuel. The agreements call for an exchange of payments with us 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 made. At June 16, 2007, our one outstanding commodity swap agreement did not qualify for hedge accounting in accordance with SFAS No. 133. Resulting gains and losses on the fair market value of the commodity swap agreement are immediately recognized as income or expense. Pre-tax gains of $0.2 million and $0.5 million on the commodity swap agreement were recorded as a reduction to cost of sales during the second quarter 2007 and year-to-date 2007 periods, respectively. The commodity swap agreement will commence and expire as follows:

Notional

Effective Date

Termination Date

Fixed Rate

145,000

2/1/2007

2/29/2008

$1.65/gallon

gallons/month

In addition to the previously discussed interest rate and commodity swap agreements, we entered into a fixed price fuel supply agreement in the first quarter of 2007 to support our food distribution segment. The agreement requires us to purchase a total of 168,000 gallons per month at prices ranging from $2.28 to $2.49 per gallon. The term of the agreement began on February 1, 2007 and will end on December 31, 2007. The fixed price fuel agreement qualifies for the “normal purchase” exception under SFAS No. 133, therefore the fuel purchases under this contract are expensed as incurred as an increase to cost of sales.

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 and Estimates

Our critical accounting policies are discussed in Part II, Item 7 of our annual report on Form 10-K for the fiscal year ended December 30, 2006, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” under the caption “Critical Accounting Policies.” There have been no material changes to these policies or the estimates used in connection therewith during the twenty-four weeks ended June 16, 2007, other than the adoption of FIN 48 discussed below.

Recently Adopted and Proposed Accounting Standards

In June 2006, the Financial Accounting Standards Board (FASB) issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes — an interpretation of FASB Statement No. 109” (FIN 48). This interpretation prescribes a minimum recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. This interpretation also provides guidance on recognition, measurement, classification, interest and penalties, accounting in interim periods, disclosure and transition. On December 31, 2006 we adopted the recognition and disclosure provisions of FIN 48. Please refer to “Note 8 — Income Taxes” in the accompanying financial statements for additional information regarding the impact of our adoption of FIN 48.

In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157, “Fair Value Measurements” (SFAS 157). SFAS 157 defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value instruments. FASB 157 does not require any new fair value measurements, but applies under other accounting pronouncements that require or permit fair value measurements. SFAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007 (our fiscal 2008). We believe that implementation of FASB 157 will have little or no impact on our Consolidated Financial Statements.

In February 2007, the FASB issued Statement of Financial Accounting Standards No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities — Including an amendment of FASB Statement No. 115,” (SFAS 159). This standard allows a company to irrevocably elect fair value as the initial and subsequent measurement attribute for certain financial assets and financial liabilities on a contract-by-contract basis, with changes in fair value recognized in earnings. The provisions of this standard are effective as of the beginning of our fiscal year 2008. We are currently evaluating what effect the adoption of SFAS 159 will have on our consolidated financial statements.

ITEM 3. 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 diesel fuel prices. (See Part II, Item 7 of our December 30, 2006 Form 10-K and Part I, Item 2 of this report under the caption “Liquidity and Capital Resources”).

ITEM 4. Controls and Procedures

Management of Nash Finch, with the participation and under the supervision of the Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e)) as of the end of the period covered by this quarterly report. Based on this evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures are effective as of the end of the period covered by this quarterly report to provide reasonable assurance that material information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time

periods specified by the Securities and Exchange Commission’s rules and forms. A controls system, no matter how well designed and operated, cannot provide absolute assurance that the objectives of the controls system are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected.

There was no change in our internal control over financial reporting that occurred during our most recently completed fiscal quarter that materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II — OTHER INFORMATION

ITEM 1. Legal Proceedings

On December 19, 2005 and January 4, 2006, two purported class action lawsuits were filed against us and certain of our executive officers in the United States District Court for the District of Minnesota on behalf of purchasers of Nash Finch common stock during the period from February 24, 2005, the date we announced an agreement to acquire two distribution divisions from Roundy’s, through October 20, 2005, the date we announced a downward revision to our earnings outlook for fiscal 2005. One of the complaints was voluntarily dismissed on March 3, 2006 and a consolidated complaint was filed on June 30, 2006. The consolidated complaint alleges that the defendants violated the Securities Exchange Act of 1934 by issuing false statements regarding, among other things, the integration of the distribution divisions acquired from Roundy’s, the performance of our core businesses, our internal controls and our financial projections, so as to artificially inflate the price of our common stock. The defendants filed a joint motion to dismiss the consolidated complaint, which the Court denied on May 1, 2007. We intend to vigorously defend against the consolidated complaint. No damages have been specified. We are unable to evaluate the likelihood of prevailing in this case at this early stage of the proceedings, but do not believe the eventual outcome will have a material impact on our financial position or results of operations.

There have been no material changes to the legal proceedings described in Part I, Item 3, “Legal Proceedings,” of our Annual Report on Form 10-K for the fiscal year ended December 30, 2006, other than the Court’s denial of the joint motion to dismiss described above. We are also engaged from time to time in routine legal proceedings incidental to our business. We do not believe that these routine legal proceedings, taken as a whole, will have a material impact on our business or financial condition.

ITEM 1A. Risk Factors

In addition to the risk factors contained in Part I, Item 1A, “Risk Factors,” of our Annual Report on Form 10-K for the fiscal year ended December 30, 2006, we have identified the following modification to our risk factor disclosure:

Legal, governmental or administrative proceedings and/or disputes that result in adverse outcome or unfavorable changes in government regulations or accounting standards may affect our businesses and operating results.

Adverse outcomes in litigation, governmental or administrative proceedings and/or other disputes may result in significant liability to the Company and affect our profitability or impose restrictions on the manner in which we conduct our business. Our businesses are also subject to various federal, state and local laws and regulations with which we must comply. Our ability to comply with governmental regulations to timely obtain permits, invest in capital expenditures required to maintain compliance in expanding our existing facilities or new store openings could adversely affect our business operations. Changes in applicable laws and regulations that impose additional requirements or restrictions on the manner in which we operate our businesses could increase our operating costs. In addition, changes in accounting standards could impact our reported revenue and profitability as reported in our financial statements.

Severe weather and natural disasters can adversely impact our operations, our suppliers, or the availability and cost of products we purchase.

Severe weather conditions and natural disasters could damage our properties and adversely impact the geographic areas where we conduct our business or the suppliers from whom we procure products or otherwise cause disruptions to our food distribution, military or retail operations or affect our supply chain efficiencies. In addition, unseasonably adverse climatic conditions that impact growing conditions and the crops of food producers may adversely affect the availability or cost of certain products.

Increase in employee benefit costs and other labor relations issues may lead to labor disputes and disruption of our businesses.

Some of our employees are participants in collective bargaining agreements, and associates at some of our locations participate in multi-employer health and pension plans. The costs of providing benefits through such plans have increased in recent years. A reduction in the number of employers contributing to the plans we participate in could result in a significant increase in the amount of future contributions we will be required to provide to the plans. Contributions to these plans may continue to increase and the benefit levels and other issues may continue to create collective bargaining challenges, which could increase our costs and materially affect our financial condition and results of operations. In addition, potential labor disputes may affect sales at our ability to distribute our products.

If we are unable to control health care, pension and wage costs, or gain operational flexibility under our collective bargaining agreements, we may experience increased operating costs and an adverse impact on future results of operations. There can be no assurance that the Company will be able to negotiate the terms of any expiring or expired agreement in a manner that is favorable to the Company. Therefore, potential work disruptions from labor disputes could result, which may affect future revenues and profitability.

Threats or potential threats to security or food safety may adversely affect our business.

Threats or acts of terror, data theft, information espionage, or other criminal activity directed at the food industry, the transportation industry, or computer or communications systems, including security measures implemented in recognition of actual or potential threats, could increase security costs, adversely affect our operations. Other events that give rise to actual or potential food contamination, drug contamination, or food-borne illness could have an adverse effect on our operating results.

Changes in consumer spending or buying patterns.

Significant changes in consumer buying patterns due to shifts in shopping preferences, adverse local economic conditions, or entry of new stores providing similar products in the geographic areas where we operate could have an adverse effect on our future revenues and profitability.

Unanticipated problems with product procurement.

Significant changes in our ability to obtain adequate product supplies due to weather, food contamination, regulatory actions, labor supply, or product vendor defaults or disputes that limit our ability to procure products for sale to customers could have an adverse effect on our operating results

ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds

The following table summarizes purchases of Nash Finch common stock by the trustee of the Nash-Finch Company Deferred Compensation Plan Trust during the second quarter 2007. All such purchases reflect the reinvestment by the trustee of dividends paid during the first and second quarters of 2007 on shares of Nash Finch common stock held in the Trust in accordance with the regulations of the trust agreement.

(c)

(d)

(a)

Total number of shares

Maximum number (or

Total number

(b)

purchased as part of

approximate dollar value) of

of shares

Average price

publicly announced

shares that may yet be purchased

Period

purchased

paid per share

plans or programs

under plans or programs

Period 4 (March 25 to April 21, 2007)

661

35.76

—

Period 5 (April 22 to May 19, 2007)

—

Period 6 (May 20 to June 16, 2007)

475

49.92

)

Total

1,136

41.66

)


(*)		The Nash-Finch Company Deferred Compensation Plan’s Trust Agreement requires that dividends paid on Nash Finch common stock held in the Trust be reinvested in additional shares of such common stock.

ITEM 3. Defaults Upon Senior Securities

None.

ITEM 4. Submission of Matters to a Vote of Security Holders

(a)		The Company held its Annual Meeting of Stockholders on May 15, 2007.

(c)		Election of Directors

		Two individuals were nominated by the Board to serve as Class A directors for three-year terms expiring at the 2010 annual meeting of stockholders. Both nominees were elected, with the results of votes of stockholders as follows:


Class A Director Nominees	Votes For		Votes Withheld
Alec C. Covington		11,939,766		297,502
Mickey P. Foret		11,638,474		598,794

ITEM 5. Other Information

Restricted Stock Unit Awards. On August 7, 2006, the Company granted RSUs to each of Jeffrey E. Poore, Executive Vice President, Supply Chain Management, Calvin S. Sihilling, Executive Vice President, Chief Information Officer and Kathleen M. Mahoney, Senior Vice President, General Counsel and Secretary. In addition, on November 6, 2006, the Company granted RSUs to Christopher A. Brown, in connection with his acceptance of an offer to serve as the Company’s Executive Vice President, Food Distribution. The grants of the RSUs were previously reported by the Company on a Form 8-K filed on August 11, 2006 with respect to the RSUs granted to Messrs. Poore and Sihilling and Ms. Mahoney and a Form 8-K filed on October 25, 2006 with respect to RSUs granted to Mr. Brown. Each of Messrs. Poore, Sihilling and Brown and Ms. Mahoney entered into a Restricted Stock Unit Award Agreement in connection with the grant of their respective RSUs.

On July 18, 2007, each Restricted Stock Unit Award Agreement entered into by Messrs. Poore, Sihilling and Brown and Ms. Mahoney was amended to clarify that all of their respective RSUs will immediately vest in full upon a change in control of the Company. The Amended and Restated form of Restricted Stock Unit Award Agreement entered into by Messrs. Poore, Sihilling and Brown and Ms. Mahoney is filed herewith as Exhibit 10.1.


Exhibit
No.		Description

10.1		Form of Amended and Restated Restricted Stock Unit Award Agreement

12.1		Calculation of Ratio of Earnings to Fixed Charges

31.1		Rule 13a-14(a) Certification of the Chief Executive Officer.

31.2		Rule 13a-14(a) Certification of the Chief Financial Officer.

32.1		Section 1350 Certification of Chief Executive Officer and Chief Financial Officer (furnished herewith).


	NASH-FINCH COMPANY Registrant
Date: July 19, 2007	by	/s/ Alec C. Covington
		Alec C. Covington
		President and Chief Executive Officer


Date: July 19, 2007	by	/s/ Robert B. Dimond
		Robert B. Dimond
		Executive Vice President and Chief Financial Officer


Exhibit		Method of
No.	Item	Filing

10.1	Form of Amended and Restated Restricted Stock Unit Award Agreement.	Filed herewith

12.1	Calculation of Ratio of Earnings to Fixed Charges	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	Filed herewith

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		Page No.

Part I — FINANCIAL INFORMATION

Item 1.	Financial Statements		2

	Consolidated Statements of Income		2

	Consolidated Balance Sheets		3

	Consolidated Statements of Cash Flows		4

	Notes to Consolidated Financial Statements		5

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		15

Item 3.	Quantitative and Qualitative Disclosures about Market Risk		24

Item 4.	Controls and Procedures		24

Part II — OTHER INFORMATION

Item 1.	Legal Proceedings		25

Item 1A.	Risk Factors		25

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		27

Item 3.	Defaults Upon Senior Securities		27

Item 4.	Submission of Matters to a Vote of Security Holders		27

Item 5.	Other Information		27

Item 6.	Exhibits		28

SIGNATURES			29
Form of Amended and Restated Restricted Stock Unit Award Agreement
Calculation of Ratio of Earnings to Fixed Charges
Certification
Certification
Certification