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

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

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 has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the proceeding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o

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

Large accelerated filer o		Accelerated filer þ		Non-accelerated filer o		Smaller reporting company 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 April 22, 2010, 12,567,853 shares of Common Stock of the Registrant were outstanding.

 

 

Index

		Page No.
Part I — FINANCIAL INFORMATION
Item 1. Financial Statements
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			17
Item 3. Quantitative and Qualitative Disclosures about Market Risk			25
Item 4. Controls and Procedures			25
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			26
Item 3. Defaults upon Senior Securities			26
Item 4. (Removed and Reserved)			26
Item 5. Other Information			26
Item 6. Exhibits			27
SIGNATURES			28
Exhibit 12.1
Exhibit 31.1
Exhibit 31.2
Exhibit 32.1

PART I. — FINANCIAL INFORMATION

ITEM 1. Financial Statements

NASH-FINCH COMPANY AND SUBSIDIARIES

Consolidated Statements of Income (unaudited)

(In thousands, except per share amounts)

		12 Weeks Ended
		March 27,				March 28,
		2010				2009
Sales		$	1,179,693				1,140,320
Cost of sales			1,087,873				1,045,201
Gross profit			91,820				95,119
Other costs and expenses:
Selling, general and administrative			64,647				69,636
Gain on acquisition of a business			—				(6,682	)
Depreciation and amortization			8,585				9,335
Interest expense			5,258				5,304
Total other costs and expenses			78,490				77,593
Earnings before income taxes			13,330				17,526
Income tax expense			5,389				3,106
Net earnings		$	7,941				14,420
Net earnings per share:
Basic		$	0.61				1.11
Diluted		$	0.59				1.08
Declared dividends per common share		$	0.18				0.18
Weighted average number of common shares outstanding and common equivalent shares outstanding:
Basic			13,125				12,966
Diluted			13,441				13,331

See accompanying notes to consolidated financial statements.

NASH-FINCH COMPANY AND SUBSIDIARIES

Consolidated Balance Sheets

(In thousands, except per share amounts)

		March 27,				January 2,
		2010				2010
		(unaudited)
Assets
Current assets:
Cash and cash equivalents		$	751				830
Accounts and notes receivable, net			240,166				250,767
Inventories			325,036				285,443
Prepaid expenses and other			15,314				11,410
Deferred tax asset, net			8,962				9,366
Total current assets			590,229				557,816
Notes receivable, net			22,036				23,343
Property, plant and equipment:
Property, plant and equipment			640,488				637,167
Less accumulated depreciation and amortization			(429,098	)			(422,529	)
Net property, plant and equipment			211,390				214,638
Goodwill			166,545				166,545
Customer contracts and relationships, net			20,370				21,062
Investment in direct financing leases			3,129				3,185
Other assets			12,311				12,947
Total assets		$	1,026,010				999,536
Liabilities and Stockholders’ Equity
Current liabilities:
Current maturities of long-term debt and capitalized lease obligations		$	3,791				4,438
Accounts payable			247,695				240,483
Accrued expenses			57,085				60,524
Income taxes payable			—				3,064
Total current liabilities			308,571				308,509
Long-term debt			285,569				257,590
Capitalized lease obligations			20,815				21,442
Deferred tax liability, net			18,999				19,323
Other liabilities			42,964				42,113
Commitments and contingencies			—				—
Stockholders’ equity:
Preferred stock — no par value. Authorized 500 shares; none issued			—				—
Common stock — $1.66 2/3 par value. Authorized 50,000 shares, issued 13,675 and 13,675 shares, respectively			22,792				22,792
Additional paid-in capital			108,377				106,705
Common stock held in trust			(2,342	)			(2,342	)
Deferred compensation obligations			2,342				2,342
Accumulated other comprehensive income (loss)			(10,684	)			(10,756	)
Retained earnings			267,410				261,821
Common stock in treasury, 1,122 and 863 shares, respectively			(38,803	)			(30,003	)
Total stockholders’ equity			349,092				350,559
Total liabilities and stockholders’ equity		$	1,026,010				999,536

See accompanying notes to consolidated financial statements.

NASH-FINCH COMPANY AND SUBSIDIARIES

Consolidated Statements of Cash Flows (unaudited)

(In thousands)

		12 Weeks Ended
		March 27,				March 28,
		2010				2009
Operating activities:
Net earnings		$	7,941				14,420
Adjustments to reconcile net earnings to net cash provided by operating activities:
Gain on acquisition of a business			—				(6,682	)
Depreciation and amortization			8,585				9,335
Amortization of deferred financing costs			423				372
Non-cash convertible debt interest			1,195				1,105
Amortization of rebateable loans			1,201				1,322
Provision for bad debts			37				434
Provision for lease reserves			—				1,066
Deferred income tax expense			81				(499	)
Asset impairments			517				—
Share-based compensation			1,605				3,307
Other			(276	)			63
Changes in operating assets and liabilities:
Accounts and notes receivable			10,556				3,392
Inventories			(39,553	)			(23,986	)
Prepaid expenses			(279	)			(3,049	)
Accounts payable			10,610				7,130
Accrued expenses			(3,210	)			(17,465	)
Income taxes payable			(6,689	)			1,311
Other assets and liabilities			1,357				875
Net cash used by operating activities			(5,899	)			(7,549	)
Investing activities:
Disposal of property, plant and equipment			192				33
Additions to property, plant and equipment			(4,267	)			(877	)
Business acquired, net of cash			—				(78,056	)
Loans to customers			(450	)			(1,000	)
Payments from customers on loans			620				596
Other			(333	)			810
Net cash used in investing activities			(4,238	)			(78,494	)
Financing activities:
Proceeds of revolving debt			26,800				98,200
Dividends paid			(2,289	)			—
Repurchase of common stock			(8,310	)			—
Payments of long-term debt			(15	)			(14	)
Payments of capitalized lease obligations			(962	)			(813	)
Decrease in book overdraft			(5,166	)			(8,606	)
Payments of deferred financing costs			—				(2,706	)
Net cash provided by financing activities			10,058				86,061
Net increase (decrease) in cash and cash equivalents			(79	)			18
Cash and cash equivalents:
Beginning of year			830				824
End of period		$	751				842

See accompanying notes to consolidated financial statements.

Nash-Finch Company and Subsidiaries

Note 1 — Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP 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 January 2, 2010.

The accompanying unaudited 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” or “the Company”) at March 27, 2010 and January 2, 2010, the results of operations for the 12 weeks ended March 27, 2010 (“first quarter 2010”) and March 28, 2009 (“first quarter 2009”) and changes in cash flows for the 12 weeks ended March 27, 2010 and March 28, 2009. 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 U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.

Note 2 — Acquisition

On January 31, 2009, the Company completed the purchase from GSC Enterprises, Inc. (“GSC”), of substantially all of the assets relating to three military food distribution centers located in San Antonio, Texas, Pensacola, Florida and Junction City, Kansas serving military commissaries and exchanges (“Business”). The Company also assumed certain trade payables, accrued expenses and receivables associated with the assets being acquired. The aggregate purchase price paid was $78.1 million in cash.

The following table summarizes the fair values of the assets acquired and liabilities of the Business assumed at the acquisition date:

As of January 31, 2009
(in thousands)
Cash and cash equivalents		$	47
Accounts receivable			61,285
Inventories			42,061
Prepaid expenses and other			210
Property, plant and equipment			30,294
Other assets			890
Total identifiable assets acquired			134,787
Current liabilities			43,114
Accrued expenses			1,162
Deferred tax liability, net			4,272
Other long-term liabilities			1,456
Total liabilities assumed			50,004
Net assets acquired		$	84,783

The fair value of the net identifiable assets acquired and liabilities assumed of $84.8 million exceeded the purchase price of $78.1 million. Consequently, the Company reassessed the recognition and measurement of identifiable assets acquired and liabilities assumed and concluded that the valuation procedures and resulting measures were appropriate. As a result, the Company recognized a gain of $6.7 million (net of tax) in the first quarter 2009 associated with the acquisition of the Business. The gain is included in the line item “Gain on acquisition of a business” in the Consolidated Statement of Income.

A contingency of $0.3 million is included in the other long-term liabilities account in the table above related to a payment the Company would be required to make in the event a purchase option is not exercised associated with the sublease of the Pensacola, FL facility prior to October 10, 2010. The Company has determined the range of the potential loss on the contingency is zero to $1.0 million and the acquisition date fair value of the contingency is $0.3 million based upon a probability-weighted discounted cash flow valuation technique. As of March 27, 2010, there were no changes in the recognized amounts or range of outcomes associated with this contingency.

The Company recognized acquisition and integration costs of $0.3 million and $0.6 million during the first quarter 2010 and first quarter 2009, respectively.

Sales of the Business included in the Consolidated Statement of Income for the first quarter 2010 and first quarter 2009 were $173.5 million and $111.8 million, respectively. Although the Company has made reasonable efforts to do so, synergies achieved through the integration of the Business into the Company’s military segment, unallocated interest expense and the allocation of shared overhead specific to the Business cannot be precisely determined. Accordingly, the Company has deemed it impracticable to calculate the precise impact the Business will have on the Company’s net earnings. However, please refer to “Note 13-Segment Reporting” of this Form 10-Q for a comparison of military segment sales and profit for the first quarters of fiscal 2010 and 2009.

Supplemental pro forma financial information

The unaudited pro forma financial information in the table below combines the historical results for the Company and the historical results for the Business for the 12 weeks ended March 28, 2009. This pro forma financial information is provided for illustrative purposes only and does not purport to be indicative of the actual results that would have been achieved by the combined operations for the periods presented or that will be achieved by the combined operations in the future.

		12 Weeks Ended
		March 28
(in thousands, except per share data)		2009
Total revenues		$	1,202,610
Net earnings			14,586
Basic earnings per share			1.12
Diluted earnings per share			1.09

Note 3 — 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 $73.0 million higher at March 27, 2010 and $73.1 million higher at January 2, 2010. In the first quarter 2010 we recorded a LIFO credit of approximately $40,000 while no charge was recorded during the comparable prior year period.

Note 4 — Share-Based Compensation

We account for share-based compensation awards in accordance with the provisions of ASC Topic 718 (“ASC 718”, originally issued as 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 as a component of selling, general and administrative expense in our Consolidated Statements of Income of $1.6 million for the first quarter 2010 versus $3.3 million for the first quarter 2009.

We have four equity compensation plans under which incentive stock options, non-qualified stock options and other forms of share-based compensation have been, or may be, granted primarily to key employees and non-employee members of the Board of Directors. These plans include the 2009 Incentive Award Plan, the 2000 Stock Incentive Plan (“2000 Plan”), the Director Deferred Compensation Plan, and the 1997 Non-Employee Director Stock Compensation Plan. These plans are more fully described in Part II, Item 8 in our Annual Report on Form 10-K for the fiscal year ended January 2, 2010 under the caption “Footnote 11 — Share-based Compensation Plans” and in Exhibit 10.1 to our current report on Form 8-K dated May 26, 2009.

As of March 28, 2009, options to purchase 18,000 shares of common stock at a weighted average price of $30.56 per share were outstanding and exercisable under the 2000 Plan. As of March 27, 2010, no options are outstanding.

Since 2005, awards have taken the form of performance units (including share units pursuant to our Long-Term Incentive Plan (“LTIP”)), restricted stock units (“RSUs”) and Stock Appreciation Rights (“SARs”).

Performance units have been granted during each of fiscal years 2005 through 2010 pursuant to our LTIP. These units vest at the end of a three-year performance period. All units under the 2006 plan were settled in shares of our common stock during the second quarter 2009. 102,133 units outstanding under the 2007 plan vested on January 2, 2010 and are expected to be settled in the second quarter 2010 for approximately 165,000 shares of common stock of which approximately 133,500 are expected to be deferred by recipients until termination of employment as provided in the plan.

During the first quarter 2010 and fiscal year 2009, 121,165 and 108,696 units, respectively, were granted pursuant to our 2010 and 2009 LTIP. Depending on a comparison of the Company’s cumulative three-year actual EBITDA results to the cumulative three-year strategic plan EBITDA targets and the Company’s ranking on absolute return on net assets and compound annual growth rate for return on net assets among the companies in the peer group, a participant could receive a number of shares ranging from zero to 200% of the number of performance units granted. Because these units can only be settled in stock, compensation expense (for shares expected to vest) is recorded over the three-year period for the grant date fair value.

During fiscal 2006, 2007, 2008 and 2009, RSUs were awarded to certain executives of the Company. 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. In addition to the time vesting criteria, awards granted in 2008 and 2009 to two of the Company’s executives include performance vesting conditions. The Company records expense for such awards over the service vesting period if the Company anticipates the performance vesting conditions will be satisfied.

On December 17, 2008, in connection with the Company’s announcement of its planned acquisition of certain military distribution assets of GSC, eight executives of the Company were granted a total of 267,345 SARs with a per share price of $38.44. The SARs are eligible to become vested during the 36 month period commencing on closing of the acquisition of the GSC assets which was January 31, 2009. The SARs will vest on the first business day during the vesting period that follows the date on which the closing prices on NASDAQ for a share of Nash Finch common stock for the previous 90 market days is at least $55.00 or a change in control occurs following the six month anniversary of the grant date or termination of the executive’s employment due to death or disability. Upon exercise, the Company will award the executive a number of shares of restricted stock equal to (a) the product of (i) the number of shares with respect to which the SAR is exercised and (ii) the excess, if any, of (x) the fair market value per share of common stock on the date of exercise over (y) the base price per share relating to such SAR, divided by (b) the fair market value of a share of common stock on the date such SAR is exercised. The restricted stock shall vest on the first anniversary of the date of exercise so long as the executive remains continuously employed with the Company.

The fair value of SARs is estimated on the date of grant using a modified binomial lattice model which factors in the market and service vesting conditions. The modified binomial lattice model used by the Company incorporates a risk-free interest rate based on the 5-year treasury rate on the date of the grant. The model uses an expected volatility calculated as the daily price variance over 60, 200 and 400 days prior to grant date using the Fair Market Value (average of daily high and low market price of Nash Finch common stock) on each day. Dividend yield utilized in the model is calculated by the Company as the average of the daily yield (as a percent of the Fair Market Value) over 60, 200 and 400 days prior to the grant date. The modified binomial lattice model calculated a fair value of $8.44 per SAR which will be recorded over a derived service period of 3.55 years.

The following assumptions were used to determine the fair value of SARs granted during fiscal 2008:

Assumptions — SARs Valuation		2008 Grants
Weighted-average risk-free interest rate			1.37	%
Expected dividend yield			1.86	%
Expected volatility			35	%
Exercise price		$	38.44
Market vesting price (90 consecutive market days at or above this price)		$	55.00
Contractual term		5.1 years

The following table summarizes activity in our share-based compensation plans during the year-to-date period 2010:

						Weighted								Weighted
						Average				Performance				Average
						Remaining				Based Grants				Remaining
		Service Based				Restriction/				(LTIP &				Restriction/
		Grants (Board				Vesting Period				Performance				Vesting Period
(in thousands, except vesting periods)		Units and RSUs)				(Years)				RSUs)				(Years)
Outstanding at January 2, 2010			606.8				1.0				339.6				1.2
Granted			4.3								121.3
Exercised/units settled			(0.2	)							—
Forfeited/cancelled			—								(5.2	)
Outstanding at March 27, 2010			610.9				0.8				455.7				1.5
Exercisable/unrestricted at January 2, 2010			273.6								102.1
Exercisable/unrestricted at March 27, 2010			276.1								102.1

						Weighted
		Stock				Average
		Appreciation				Base/Exercise
(in thousands, except per share amounts)		Rights				Price Per SAR
Outstanding at January 2, 2010			267.3			$	38.44
Granted			—
Exercised/restrictions lapsed			—
Forfeited/cancelled			—
Outstanding at March 27, 2010			267.3				38.44
Exercisable/unrestricted at January 2, 2010			—
Exercisable/unrestricted at March 27, 2010			—

The weighted-average grant-date fair value of time vesting equity units and performance vesting units granted during the first quarter 2010 was $33.80 and 35.74, respectively.

Note 5 — Fair Value Measurements

ASC Topic 820 (“ASC 820”, originally issued as SFAS No. 157, “Fair Value Measurements”) defines fair value, establishes a framework for measuring fair value and expands disclosures about financial and non-financial assets and liabilities recorded at fair value. It also applies under other accounting pronouncements that require or permit fair value measurements.

The fair value hierarchy for disclosure of fair value measurements under ASC 820 is as follows:

Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities.

Level 2: Quoted prices, other than quoted prices included in Level 1, which are observable for the assets or liabilities, either directly or indirectly.

Level 3: Inputs that are unobservable for the assets or liabilities.

Our outstanding interest rate swap agreements are classified within level 2 of the valuation hierarchy as readily observable market parameters are available to use as the basis of the fair value measurement. As of March 27, 2010, we have recorded a fair value liability of $1.0 million in relation to our outstanding interest rate swap agreements.

Other Financial Assets and Liabilities

Financial assets with carrying values approximating fair value include cash and cash equivalents and accounts receivable. Financial liabilities with carrying values approximating fair value include accounts payable and outstanding checks. The carrying value of these financial assets and liabilities approximates fair value due to their short maturities.

The fair value of notes receivable approximates the carrying value at March 27, 2010 and January 2, 2010. Substantially all notes receivable are based on floating interest rates which adjust to changes in market rates.

Long-term debt, which includes the current maturities of long-term debt, at March 27, 2010, had a carrying value and fair value of $286.2 million and $281.9 million, respectively, and at January 2, 2010, had a carrying value and fair value of $258.2 million and $255.0 million, respectively. The fair value is based on interest rates that are currently available to us for issuance of debt with similar terms and remaining maturities.

We account for the impairment of long-lived assets in accordance with ASC Subtopic 360-10-35 (originally issued as SFAS No. 144, “Accounting for the Impairment or Disposal of Long-lived Assets”). During the first quarter 2010 we recognized asset impairments of $0.5 million while no asset impairment charge was recognized during the first quarter 2009. We utilize a discounted cash flow model that incorporates unobservable level 3 inputs to test for long-lived asset impairment.

Note 6 — Derivatives

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. From time-to-time 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 ASC Topic 815 (“ASC 815”, originally issued as SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities”) 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.

As of March 27, 2010, we had two outstanding interest rate swap agreements with notional amounts totaling $35.0 million as compared to $52.5 million as of March 28, 2009. The notional amounts of the two outstanding swaps are reduced as follows (amounts in thousands):

Notional				Effective Date				Termination Date				Fixed Rate
$	30,000				10/15/2008				10/15/2009				3.49	%
	20,000				10/15/2009				10/15/2010				3.49	%
	10,000				10/15/2010				10/15/2011				3.49	%

Notional				Effective Date				Termination Date				Fixed Rate
$	22,500				10/15/2008				10/15/2009				3.38	%
	15,000				10/15/2009				10/15/2010				3.38	%
	7,500				10/15/2010				10/15/2011				3.38	%

In addition to the previously discussed interest rate and commodity swap agreements, from time-to-time we enter into fixed price fuel supply agreements to support our food distribution segment. On January 1, 2009, we entered into an agreement which required us to purchase a total of 252,000 gallons of diesel fuel per month at prices ranging from $1.90 to $1.98 per gallon. The term of the agreement was for one year and expired on December 31, 2009. This fixed price fuel agreement qualified for the “normal purchase” exception under ASC 815, therefore the fuel purchases under the contract were expensed as incurred as an increase to cost of sales.

Note 7 — Other Comprehensive Income

Other comprehensive income consists of market value adjustments to reflect derivative instruments at fair value, pursuant to ASC 815. The components of comprehensive income are as follows:

		12 Weeks Ended
		March 27,				March 28,
(In thousands)		2010				2009
Net earnings		$	7,941				14,420
Change in fair value of derivatives, net of tax			71	(1)			23	(2)
Comprehensive income		$	8,012				14,443

Our outstanding interest rate swap agreements are designated as cash flow hedges of interest payments on borrowings under our asset-backed credit agreement and are 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. The gain reported in other comprehensive income during the first quarters of 2010 and 2009 reflect a change in fair value of those agreements during the respective periods. During the first quarter of 2010 and 2009 our outstanding interest rate swap agreements were designated as cash flow hedges.

Note 8 — Long-term Debt and Bank Credit Facilities

Total debt outstanding was comprised of the following:

		March 27,				January 2,
(In thousands)		2010				2010
Asset-backed credit agreement:
Revolving credit		$	150,900				124,100
Senior subordinated convertible debt, 3.50% due in 2035			132,559				131,364
Industrial development bonds, 5.60% to 5.75% due in various installments through 2014			2,365				2,365
Notes payable and mortgage notes, 7.95% due in various installments through 2013			373				388
Total debt			286,197				258,217
Less current maturities			(628	)			(627	)
Long-term debt		$	285,569				257,590

Asset-backed Credit Agreement

Our credit agreement is an asset-backed loan consisting of a $340.0 million revolving credit facility, which includes a $50.0 million letter of credit sub-facility (the “Revolving Credit Facility”). Provided no default is then existing or would arise, the Company may from time-to-time, request that the Revolving Credit Facility be increased by an aggregate amount (for all such requests) not to exceed $110.0 million. The Revolving Credit Facility has a 5-year term and will be due and payable in full on April 11, 2013. The Company can elect, at the time of borrowing, for loans to bear interest at a rate equal to the base rate, as defined in the credit agreement, or LIBOR plus a margin. The LIBOR interest rate margin was 2.00% as of March 27, 2010 and can vary quarterly in 0.25% increments between three pricing levels ranging from 1.75% to 2.25% based on the excess availability, which is defined in the credit agreement as (a) the lesser of (i) the borrowing base; or (ii) the aggregate commitments; minus (b) the aggregate of the outstanding credit extensions. As of March 27, 2010, $176.5 million was available under the Revolving Credit Facility after giving effect to outstanding borrowings and to $12.6 million of outstanding letters of credit primarily supporting workers’ compensation obligations.

The credit agreement contains no financial covenants unless and until (i) the continuance of an event of default under the credit agreement, or (ii) the failure of the Company to maintain excess availability (a) greater than 10% of the borrowing base for more than two (2) consecutive business days or (b) greater than 7.5% of the borrowing base at any time, in which event, the Company must comply with a trailing 12-month basis consolidated fixed charge covenant ratio of 1.0:1.0, which ratio shall continue to be tested each month thereafter until excess availability exceeds 10% of the borrowing base for ninety (90) consecutive days.

The credit agreement contains standard covenants requiring the Company and its subsidiaries, among other things, to maintain collateral, comply with applicable laws, keep proper books and records, preserve the corporate existence, maintain insurance, and pay taxes in a timely manner. Events of default under the credit agreement are usual and customary for transactions of this type including, among other things: (a) any failure to pay principal there under when due or to pay interest or fees on the due date; (b) material misrepresentations; (c) default under other agreements governing material indebtedness of the Company; (d) default in the performance or observation of any covenants; (e) any event of insolvency or bankruptcy; (f) any final judgments or orders to pay more than $15.0 million that remain unsecured or unpaid; (g) change of control, as defined in the credit agreement; and (h) any failure of a collateral document, after delivery thereof, to create a valid mortgage or first-priority lien.

We are currently in compliance with all covenants contained within the credit agreement.

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 Revolving Credit Facility. See our Annual Report on Form 10-K for the fiscal year ended January 2, 2010 for additional information regarding the notes.

Note 9 — Guarantees

We have guaranteed debt and lease obligations of certain 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 ($13.2 million as of March 27, 2010 as compared to $13.5 million as of January 2, 2010), which would be due in accordance with the underlying agreements.

We have entered into loan and lease guarantees on behalf of certain food distribution customers that are accounted for under ASC Topic 460 (“ASC 460”, originally issued as FASB Interpretation No. 45, “Guarantor’s Accounting and Disclosure Requirements, Including Indirect Guarantees of Indebtedness of Others”). ASC 460 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 guarantees is $10.1 million, which is included in the $13.2 million total referenced above. These guarantees are secured by certain business assets and personal guarantees of the respective customers. We believe these customers will be able to perform under their respective agreements and that no payments will be required and no loss will be incurred under the guarantees. As required by ASC 460, a liability representing the fair value of the obligations assumed under the guarantees of $1.1 million is included in the accompanying consolidated financial statements for the guarantees accounted for under ASC 460. All of the other guarantees were issued prior to December 31, 2002 and therefore not subject to the recognition and measurement provisions of ASC 460.

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 $7.5 million as of March 27, 2010 as compared to $8.0 million as of January 2, 2010.

Note 10 — Income Taxes

For the first quarter 2010 and 2009, our tax expense was $5.4 million and $3.1 million, respectively.

The provision for income taxes reflects the Company’s estimate of the effective rate expected to be applicable for the full fiscal year, adjusted for any discrete events, which are reported in the period that they occur. This estimate is re-evaluated each quarter based on the Company’s estimated tax expense for the full fiscal year. During the first quarter 2010 and 2009 the Company filed reports with various taxing authorities which resulted in the refunds of tax. The effect of these discrete events in the first quarter was less than $0.1 million for 2010 and $1.6 million in 2009. Additionally, for the first quarter 2009 the effective rate reflected the impact of the gain on the acquisition of the net GSC assets of $2.7 million. For the first quarter 2010, the effective tax rate was 40.4% and 17.7% for the first quarter 2009.

The total amount of unrecognized tax benefits as of end of the first quarter 2010 was $12.5 million. The net increase in unrecognized tax benefits of $0.6 million since January 2, 2010 is due to the increase in unrecognized tax benefits as a result of tax positions taken in prior periods. The total amount of tax benefits that if recognized would impact the effective tax rate was $4.3 million at the end of the first quarter 2010. We recognize interest and penalties accrued related to unrecognized tax benefits in income tax expense. At the end of the first quarter 2010, we had approximately $2.3 million for the payment of interest and penalties accrued.

During the next 12 months, the Company expects various state and local statutes of limitation to expire. Due to the uncertain response of the taxing authorities, an estimate of the range of possible outcomes cannot be reasonably estimated at this time. Audit outcomes and the timing of audit settlements are subject to significant uncertainty. We do not expect our unrecognized tax benefits to change significantly over the next 12 months.

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 2004 and prior.

Note 11 — Pension and Other Postretirement Benefits

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

12 Weeks Ended March 27, 2010 and March 28, 2009

		Pension Benefits								Other Benefits
(In thousands)		2010				2009				2010				2009
Interest cost		$	510				537				9				11
Expected return on plan assets			(428	)			(413	)			—				—
Amortization of prior service cost			—				—				(7	)			(19	)
Recognized actuarial loss (gain)			323				316				(1	)			(1	)
Net periodic benefit cost		$	405				440				1				(9	)

Weighted-average assumptions used to determine net periodic benefit cost for the first quarter 2010 and first quarter 2009 were as follows:

		Pension Benefits								Other Benefits
		2010				2009				2010				2009
Weighted-average assumptions:
Discount rate			5.60	%			6.30	%			5.60	%			6.30	%
Expected return on plan assets			6.50	%			7.00	%			N/A				N/A
Rate of compensation increase			N/A				N/A				N/A				N/A

Total contributions to our pension plan in fiscal 2010 are expected to be $0.9 million.

Note 12- Earnings Per Share

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

		First Quarter
		Ended
		March 27,				March 28,
(In thousands, except per share amounts)		2010				2009
Net earnings		$	7,941				14,420
Net earnings per share-basic:
Weighted-average shares outstanding			13,125				12,966
Net earnings per share-basic		$	0.61				1.11
Net earnings per share-diluted:
Weighted-average shares outstanding			13,125				12,966
Dilutive impact of options			—				2
Shares contingently issuable			316				363
Weighted-average shares and potential dilutive shares outstanding			13,441				13,331
Net earnings per share-diluted		$	0.59				1.08

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 9.5776 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 $48.67 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.

During the second quarter 2009, performance units granted under the 2006 LTIP Plan were settled in shares of common stock. Other performance units and RSUs granted during 2007, 2008 and 2009 pursuant to the 2000 Plan will be settled in shares of Nash Finch common stock. Unvested RSUs 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 ASC Topic 260 (originally issued as SFAS No. 128, “Earnings per Share”). Therefore, the performance units are included in diluted earnings per share at the payout percentage based on performance criteria results as of the end of the respective reporting period and then accounted for using the treasury stock method, if dilutive. For the first quarter 2010, approximately 112,000 shares related to the LTIP and 204,000 shares related to RSUs were included under “shares contingently issuable” in the calculation of diluted EPS as compared to 185,000 shares related to the LTIP and 178,000 shares related to RSUs during the first quarter 2009.

Note 13 — 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 15 distribution centers that sell to independently operated retail food stores, our corporate owned stores and other customers. The military segment consists primarily of five 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.

In fiscal 2010, the Company revised its calculation of segment profit and unallocated corporate overhead to present segment profitability on a fully-allocated basis, with the exception of costs associated with corporate debt and other discrete items as shown in the “as adjusted” columns below. In addition, LIFO expenses or credits are now allocated to the business segments. Management believes the revised calculation of segment profit more accurately represents the operating profitability of the reporting segments, on a pre-tax basis. The revision had no impact on the Company’s consolidated financial statements in any period presented. Previously, interest expense was included in unallocated corporate overhead. Certain prior year amounts shown below have been revised to conform to the current year presentation. Amounts related to fiscal 2009 periods after the first quarter will be revised as shown the next time those periods are presented.

		1st Quarter 2009								2nd Quarter 2009								3rd Quarter 2009
		Segment profit								Segment profit								Segment profit
		As				As				As				As				As				As
(In thousands)		adjusted				reported				adjusted				reported				adjusted				reported
Food Distribution		$	5,982				18,832				10,508				21,371				15,181				27,302
Military			9,905				12,036				9,421				11,098				13,448				15,183
Retail			(470	)			3,328				1,209				4,297				1,937				5,882
Total segment profit			15,417				34,196				21,138				36,766				30,566				48,367
Adjustment of inventory to LIFO			—				—				—				287				—				445
Gain on acquisition of a business			6,682				6,682				—				—				—				—
Gain on litigation settlement			—				—				—				—				7,630				7,630
Goodwill impairment			—				—				—				—				—				—
Interest			(4,573	)			—				(5,024	)			—				(6,541	)			—
Unallocated corporate overhead			—				(23,352	)			—				(20,939	)			—				(24,787	)
Earnings before income taxes		$	17,526				17,526				16,114				16,114				31,655				31,655

		4th Quarter 2009								Fiscal 2009
		Segment profit								Segment profit
		As				As				As				As
(In thousands)		adjusted				reported				adjusted				reported
Food Distribution		$	11,495				20,611				43,166				88,116
Military			10,146				11,400				42,920				49,717
Retail			(1,449	)			2,381				1,227				15,888
Total segment profit			20,192				34,392				87,313				153,721
Adjustment of inventory to LIFO			—				2,301				—				3,033
Gain on acquisition of a business			—				—				6,682				6,682
Gain on litigation settlement			—				—				7,630				7,630
Goodwill impairment			(50,927	)			(50,927	)			(50,927	)			(50,927	)
Special charge			(6,020	)			(6,020	)			(6,020	)			(6,020	)
Interest			(4,790	)			—				(20,928	)			—
Unallocated corporate overhead			—				(21,291	)			—				(90,369	)
Earnings before income taxes		$	(41,545	)			(41,545	)			23,750				23,750

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

		First Quarter Ended
		March 27, 2010												March 28, 2009
		Sales from												Sales from				Inter-
		external				Inter-				Segment				external				segment				Segment
(In thousands)		customers				segment sales				profit				customers				sales				profit
Food Distribution		$	583,829				58,292				5,799				601,980				64,553				5,982
Military			477,997				—				11,816				410,248				—				9,905
Retail			117,867				—				227				128,092				—				(470	)
Eliminations			—				(58,292	)			—				—				(64,553	)			—
Total		$	1,179,693				—				17,842				1,140,320				—				15,417

Reconciliation to Consolidated Statements of Income:

		First Quarter Ended
		March 27,				March 28,
(In thousands)		2010				2009
Total segment profit		$	17,842				15,417
Unallocated amounts:
Gain on acquisition of a business			—				6,682
Interest			(4,512	)			(4,573	)
Earnings before income taxes		$	13,330				17,526

Note 14 — Share Repurchase

On November 10, 2009, our Board of Directors approved a share repurchase program authorizing the Company to spend up to $25.0 million to purchase shares of the Company’s common stock. The program took effect on November 16, 2009 and will continue until the earlier to occur of (i) the date that the aggregate purchases under the program reach $25.0 million, or (ii) December 31, 2010. During the first quarter 2010 we repurchased a total of 258,910 shares for $8.8 million, at an average price per share of $33.99. Since the program’s inception, we have repurchased a total of 289,630 shares for $9.8 million, at an average price per share of $33.89. The average prices per share referenced above include commissions.

Note 15 — Legal Proceedings

We are 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 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 effect of competition on our food distribution, military and retail businesses;
•		general sensitivity to economic conditions, including the uncertainty related to the current state of the economy in the U.S. and worldwide economic slowdown; recent disruptions to the credit and financial markets in the U.S. and worldwide; changes in market interest rates; continued volatility in energy prices and food commodities;
•		macroeconomic and geopolitical events affecting commerce generally;
•		changes in consumer buying and spending patterns;
•		our ability to identify and execute plans to expand our food distribution, military and retail operations;
•		possible changes in the military commissary system, including those stemming from the redeployment of forces, congressional action and funding levels;
•		our ability to identify and execute plans to improve the competitive position of our retail operations;
•		the success or failure of strategic plans, new business ventures or initiatives;
•		our ability to successfully integrate and manage current or future businesses we acquire, including the ability to manage credit risks and retain the customers of those operations;
•		changes in credit risk from financial accommodations extended to new or existing customers;
•		significant changes in the nature of vendor promotional programs and the allocation of funds among the programs;
•		limitations on financial and operating flexibility due to debt levels and debt instrument covenants;
•		legal, governmental, legislative or administrative proceedings, disputes, or actions that result in adverse outcomes;
•		failure of our internal control over financial reporting;
•		changes in accounting standards;
•		technology failures that may have a material adverse effect on our business;
•		severe weather and natural disasters that may impact our supply chain;
•		unionization of a significant portion of our workforce;
•		costs related to a multi-employer pension plan;
•		changes in health care, pension and wage costs and labor relations issues;
•		product liability claims, including claims concerning food and prepared food products;
•		threats or potential threats to security; and
•		unanticipated problems with product procurement.

A more detailed discussion of many of these factors, as well as other factors, that could affect the Company’s results is contained in Part I, Item 1A, “Risk Factors,” of our Annual Report on Form 10-K for the fiscal year ended January 2, 2010. 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

In terms of revenue, we are the second largest publicly traded wholesale food distributor in the United States serving the retail grocery industry and the military commissary and exchange systems. Our business consists of three primary operating segments: food distribution, military food distribution and retail.

In November 2006, we announced the launch of a strategic plan, Operation Fresh Start, designed to sharpen our focus and provide a strong platform to support growth initiatives. Our strategic plan is built upon extensive knowledge of current industry, consumer and market trends, and formulated to differentiate the Company. The strategic plan includes long-term initiatives to increase revenues and earnings, improve productivity and cost efficiencies of our Food Distribution, Retail, and Military business segments, and leveraging our corporate support services. The Company has strategic initiatives to improve working capital, manage debt, and increase shareholder value through capital expenditures with acceptable returns on investment. Several important elements of the strategic plan include:

•

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

•

Growing the Military business segment through acquisition and expansion of products and services, as well as creating warehousing and transportation cost efficiencies with a long-term distribution center strategic plan;

•

Providing our independent retail customers with high level of order fulfillment, broad product selection including leveraging the Our Family brand, support services emphasizing best-in-class offerings in marketing, advertising, merchandising, store design and construction, market research, retail store support, retail pricing and license agreement opportunities; and

•

Emphasis on a suite of retail formats designed to appeal to the needs of today’s consumers.

In addition to the strategic initiatives already in progress, our 2010 initiatives consist of the following:

•

Implement our military distribution center network expansion including opening a new distribution center, completing the integration of three distribution facilities acquired from GSC Enterprises, and identifying alternative locations for future expansion;

•

Complete supply chain and center store initiatives within our food distribution segment;

•

Implement new cost reduction and profit improvement initiatives; and

•

Identify acquisitions that support our strategic plan.

Our food distribution segment sells and distributes a wide variety of nationally branded and private label grocery products and perishable food products from 15 distribution centers to approximately 1,700 independent retail locations located in 28 states across the United States. Several of our distribution centers also distribute products to military commissaries and exchanges located in their respective geographic areas.

Our military segment contracts with manufacturers to distribute a wide variety of grocery products to military commissaries and exchanges located in the United States and the District of Columbia, and in Europe, Puerto Rico, Cuba, the Azores and Egypt. We have over 30 years of experience acting as a distributor to U.S. military commissaries and exchanges. On January 31, 2009, we completed the purchase from GSC Enterprises, Inc., of substantially all of the assets relating to three wholesale food distribution centers located in San Antonio, Texas, Pensacola, Florida and Junction City, Kansas, including all inventory and customer contracts related to the purchased facilities (“GSC acquisition”). On December 1, 2009, we announced our purchase of a facility in Columbus, Georgia which is scheduled to begin servicing military commissaries and exchanges in the late third or fourth fiscal quarter of 2010.

Our retail segment operated 54 corporate-owned stores primarily in the Upper Midwest as of March 27, 2010. Primarily due to highly competitive conditions in which supercenters and other alternative formats compete for price conscious customers, we closed four retail stores in 2009. We are implementing initiatives of varying scope and duration with a view toward improving our response to and performance under these highly competitive conditions. These initiatives include designing and reformatting some of our 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 goodwill associated with our retail segment, and may incur restructuring or other charges in connection with closure or sales activities. The retail segment yields a higher gross profit percent of sales and higher selling, general and administrative (“SG&A”) expenses as a percent of sales compared to our food distribution and military segments. Thus, changes in sales of the retail segment can have a disproportionate impact on consolidated gross profit and SG&A as compared to similar changes in sales in our food distribution and military segments.

Results of Operations

Sales

The following tables summarize our sales activity for the 12 weeks ended March 27, 2010 (“first quarter 2010”) compared to the 12 weeks ended March 28, 2009 (“first quarter 2009”):

		First quarter 2010								First quarter 2009								Increase/(Decrease)
						Percent of								Percent of
(In thousands)		Sales				Sales				Sales				Sales				$				%
Segment Sales:
Food Distribution		$	583,829				49.5	%			601,980				52.8	%			(18,151	)			(3.0	%)
Military			477,997				40.5	%			410,248				36.0	%			67,749				16.5	%
Retail			117,867				10.0	%			128,092				11.2	%			(10,225	)			(8.0	%)
Total Sales		$	1,179,693				100.0	%			1,140,320				100.0	%			39,373				3.5	%

The decrease in food distribution sales for the first quarter 2010 of 3.0% is primarily attributable to a decrease in comparable sales to existing customers. This comparable sales decline to existing customers was driven primarily by deflation in certain perishable categories.

Military segment sales were up 16.5% during the first quarter 2010 as compared against the prior year, which is primarily attributable to the GSC acquisition. However, excluding the additional sales recognized attributable to the acquired locations during the first quarter 2010 of $59.4 million, comparable military segment sales increased by 2.0% in comparison to the prior year. The comparable increase in military segment sales is due to 11.4% stronger sales overseas during the first quarter 2010 as compared to the prior year, while domestic sales remained relatively flat.

Domestic and overseas sales represented the following percentages of military segment sales. Note that the business acquired through the GSC acquisition services domestic military bases only.

		First Quarter
		2010				2009
Domestic			80.3	%			79.4	%
Overseas			19.7	%			20.6	%

Retail sales were down 8.0% in comparison to the prior year period which is primarily attributable to the closure of four stores since the end of the first quarter 2009. The impact of the closure of the four stores was partially offset by the opening of a new store during the second fiscal quarter of 2009. In addition, same store sales declined by 3.7% as compared to the comparable prior year period. Same store sales compare retail sales for stores which were in operation for the same number of weeks in the comparative periods.

During the first quarters of 2010 and 2009, our corporate store count changed as follows:

		First quarter				First quarter
		2010				2009
Number of stores at beginning of period			54				57
Closed or sold stores			—				—
Number of stores at end of period			54				57

Consolidated Gross Profit

Consolidated gross profit was 7.8% of sales for the first quarter 2010 compared to 8.3% of sales for the first quarter 2009. Our overall gross profit margin was negatively affected by 0.4% of sales in the first quarter 2010 due to a sales mix shift between our business segments between the years. This was due to a higher percentage of 2010 sales occurring in the military segment due to the GSC acquisition and a lower percentage in the retail and food distribution segments which have a higher gross profit margin.

Consolidated Selling, General and Administrative Expenses

Consolidated SG&A for the first quarter 2010 was 5.5% of sales as compared to 6.1% of sales during the first quarter 2009. Our SG&A margin benefited by 0.4% of sales in the first quarter 2010 due to the sales mix shift between our business segments due to the higher level of military sales due to the GSC acquisition relative to the other business segments in 2009. In addition, non-cash stock compensation was $1.7 million lower than the comparable prior year period which contributed to a lower SG&A margin during the first quarter 2010.

Gain on Acquisition of a Business

A gain on the acquisition of a business of $6.7 million (net of tax) was recognized during the first quarter 2009 related to the GSC acquisition. The fair value of the identifiable assets acquired and liabilities assumed of $84.8 million exceeded the fair value of the purchase price of the business of $78.1 million. Consequently, we reassessed the recognition and measurement of identifiable assets acquired and liabilities assumed and concluded that the valuation procedures and resulting measures were appropriate.

Depreciation and Amortization Expense

Depreciation and amortization expense was $8.6 million for the first quarter 2010 as compared to $9.3 million during the comparable prior year period. The decrease over the prior year is attributable to lower depreciation and amortization expense in our food distribution and retail segments.

Interest Expense

Interest expense was $5.3 million for the first quarter 2010 compared to $5.3 million for the comparable prior year period. Average borrowing levels decreased from $343.4 million during the first quarter 2009 to $315.0 million during the first quarter 2010. The effective interest rate was 4.7% for both the first quarter 2010 and 2009. Certain components of our interest expense are excluded from the calculation of our effective interest rate as the costs are not directly attributable to our long-term borrowings.

The calculation of our effective interest rate excludes non-cash interest required to be recognized on our senior subordinated convertible notes under Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Subtopic 470-20 (“ASC 470-20”, originally issued as FASB Staff Position APB 14-1, “Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement)”). Non-cash interest expense recognized under ASC 470-20 was $1.2 million and $1.1 million during the first quarter 2010 and 2009, respectively. Additionally, the calculation of our average borrowing levels includes the unamortized equity component of our senior subordinated convertible notes that is required to be recognized under ASC 470-20. The inclusion of the unamortized equity component brings the basis in our senior subordinated convertible notes to $150.1 million for purposes of calculating our average borrowing levels, or their aggregate issue price, which we are required to pay semi-annual cash interest on at a rate of 3.50% until March 15, 2013.

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 change 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 40.4% and 17.7% for the first quarter 2010 and first quarter 2009, respectively.

During the first quarter of 2010 and 2009, the Company filed claims with and received refunds from various tax authorities. Accordingly, the Company reported the effect of these discrete events in the first quarters of 2010 and 2009. The lower effective tax rate for the first quarter 2009 was reflective of the results from the refund of a claim made with the Internal Revenue Service of $1.6 million and the gain on the acquisition of the net assets from GSC of $2.7 million. The effective rate for the first quarters differed from statutory rates due to the amount of permanent book tax differences relative to the Company’s pre-tax book income. We estimate the full year effective tax rate for 2010 will be approximately 40.6% which excludes the potential impact of discrete events.

Net Earnings

Net earnings for the first quarter 2010 were $7.9 million, or $0.59 per diluted share, as compared to net earnings of $14.4 million, or $1.08 per diluted share, in the first quarter 2009. Net earnings in the periods presented in this report were affected by a number of events included in the discussion above that affected the comparability of results.

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:

		12 Weeks Ended
		March 27,				March 28,				Increase/
(In thousands)		2010				2009				(Decrease)
Net cash used by operating activities		$	(5,899	)			(7,549	)			1,650
Net cash used in investing activities			(4,238	)			(78,494	)			74,256
Net cash provided by financing activities			10,058				86,061				(76,003	)
Net change in cash and cash equivalents		$	(79	)			18				(97	)

Cash used by operating activities decreased $1.7 million during the first quarter 2010 as compared to the first quarter 2009. A year-over-year increase in accrued expenses of $14.3 million, a year-over-year decrease of accounts receivable of $7.2 million and a year-over-year increase in accounts payable of $3.5 million contributed to the decrease in cash used by operating activities. However, these items were partially offset by a year-over-year increase in our investment in inventories of $15.6 million and a year-over-year decrease in income taxes payable of $8.0 million. The year-over-year increase in accrued expense was primarily attributable to higher bonus and profit sharing payments made in the first quarter 2009 as compared to the first quarter 2010. The year-over-year decrease in accounts receivable was due primarily to a temporary timing difference related to our military accounts receivable billing cycle that accelerated collections into the last week of fiscal 2008 which caused collections in the first quarter 2009 to be lower than the current year.

Net cash used in investing activities decreased by $74.3 million during the first quarter 2010 as compared to the first quarter 2009. Net cash used in investing activities for the first quarter 2010 consisted primarily of additions to property, plant and equipment of $4.3 million. During the first quarter 2009 net cash used in investing activities consisted primarily of the GSC acquisition of $78.1 million.

Cash provided by financing activities decreased by $76.0 million during the first quarter 2010 as compared to the first quarter 2009. During the first quarter 2010 cash provided by financing activities consisted primarily of net borrowing of long-term debt of $26.8 million, which was partially offset by share repurchases of $8.3 million, a decrease in outstanding checks of $5.2 million and dividend payments of $2.3 million. Cash provided by financing activities during the first quarter 2009 included net borrowings of long-term debt of $98.2 million, primarily due to the GSC acquisition, which were partially offset by a decrease in outstanding checks of $8.6 million and payments of deferred financing costs of $2.7 million.

During the remainder of fiscal 2010, we expect that cash flows from operations will be sufficient to meet our working capital needs and enable us to reduce our debt, with temporary draws on our credit facility 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.

Asset-backed Credit Agreement

Our credit agreement is an asset-backed loan consisting of a $340.0 million revolving credit facility, which includes a $50.0 million letter of credit sub-facility (the “Revolving Credit Facility”). Provided no default is then existing or would arise, we may from time-to-time, request that the Revolving Credit Facility be increased by an aggregate amount (for all such requests) not to exceed $110.0 million.

The Revolving Credit Facility has a 5-year term and will be due and payable in full on April 11, 2013. We can elect, at the time of borrowing, for loans to bear interest at a rate equal to the base rate, as defined in the credit agreement, or LIBOR plus a margin. The LIBOR interest rate margin was 2.00% as of March 27, 2010 and can vary quarterly in 0.25% increments between three pricing levels ranging from 1.75% to 2.25% based on the excess availability, which is defined in the credit agreement as (a) the lesser of (i) the borrowing base; or (ii) the aggregate commitments; minus (b) the aggregate of the outstanding credit extensions.

The credit agreement contains no financial covenants unless and until (i) the continuance of an event of default under the credit agreement, or (ii) the failure of us to maintain excess availability (a) greater than 10% of the borrowing base for more than two (2) consecutive business days or (b) greater than 7.5% of the borrowing base at any time, in which event, we must comply with a trailing 12-month basis consolidated fixed charge covenant ratio of 1.0:1.0, which ratio shall continue to be tested each month thereafter until excess availability exceeds 10% of the borrowing base for ninety (90) consecutive days.

The credit agreement contains standard covenants requiring us, among other things, to maintain collateral, comply with applicable laws, keep proper books and records, preserve the corporate existence, maintain insurance, and pay taxes in a timely manner. Events of default under the credit agreement are usual and customary for transactions of this type including, among other things: (a) any failure to pay principal thereunder when due or to pay interest or fees on the due date; (b) material misrepresentations; (c) default under other agreements governing material indebtedness of the Company; (d) default in the performance or observation of any covenants; (e) any event of insolvency or bankruptcy; (f) any final judgments or orders to pay more than $15.0 million that remain unsecured or unpaid; (g) change of control, as defined in the credit agreement; and (h) any failure of a collateral document, after delivery thereof, to create a valid mortgage or first-priority lien.

At March 27, 2010, $176.5 million was available under the Revolving Credit Facility after giving effect to outstanding borrowings and to $12.6 million of outstanding letters of credit primarily supporting workers’ compensation obligations. We are currently in compliance with all covenants contained within the credit agreement.

Our Revolving Credit Facility represents one of our primary sources of liquidity, both short-term and long-term, and the continued availability of credit under that agreement is of material importance to our ability to fund our capital and working capital needs.

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 January 2, 2010 for additional information.

Consolidated EBITDA (Non-GAAP Measurement)

The following is a reconciliation of EBITDA and Consolidated EBITDA to net earnings for the first quarter 2010 compared to the first quarter 2009 (amounts in thousands):

		2010				2009
		Qtr 1				Qtr 1
Net earnings		$	7,941				14,420
Income tax expense			5,389				3,106
Interest expense			5,258				5,304
Depreciation and amortization			8,585				9,335
EBITDA			27,173				32,165
LIFO charge			(40	)			—
Lease reserves			—				1,066
Asset impairments			517				—
Share-based compensation			1,605				3,307
Subsequent cash payments on non-cash charges			(740	)			(617	)
Gain on acquisition of a business			—				(6,682	)
Consolidated EBITDA		$	28,515				29,239

EBITDA and Consolidated EBITDA are measures used by management to measure operating performance. EBITDA is defined as net earnings before interest, taxes, depreciation, and amortization. Consolidated EBITDA excludes certain non-cash charges and other items that management does not utilize in assessing operating performance and is a metric used to determine payout of performance units pursuant to our Short-Term and Long-Term Incentive Plans. The above table reconciles net earnings to EBITDA and Consolidated EBITDA. Not all companies utilize identical calculations; therefore, the presentation of EBITDA and Consolidated EBITDA may not be comparable to other identically titled measures of other companies. Neither EBITDA or Consolidated EBITDA are recognized terms under GAAP and do not purport to be an alternative to net earnings as an indicator of operating performance or any other GAAP measure. In addition, EBITDA and Consolidated EBITDA are not intended to be measures of free cash flow for management’s discretionary use since they do not consider certain cash requirements, such as interest payments, tax payments and capital expenditures.

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. From time-to-time 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 ASC Topic 815 (“ASC 815”, originally issued as FASB Statement of Financial Accounting Standards (“SFAS”) No. 133, “Accounting for Derivative Instruments and Hedging Activities,”) 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.

As of March 27, 2010, we had two outstanding interest rate swap agreements with notional amounts totaling $35.0 million as compared to $52.5 million as of March 28, 2009. The notional amounts of the two outstanding swaps are reduced as follows (amounts in thousands):

Notional				Effective Date				Termination Date				Fixed Rate
$	30,000				10/15/2008				10/15/2009				3.49	%
	20,000				10/15/2009				10/15/2010				3.49	%
	10,000				10/15/2010				10/15/2011				3.49	%

Notional				Effective Date				Termination Date				Fixed Rate
$	22,500				10/15/2008				10/15/2009				3.38	%
	15,000				10/15/2009				10/15/2010				3.38	%
	7,500				10/15/2010				10/15/2011				3.38	%

In addition to the previously discussed interest rate and commodity swap agreements, from time-to-time we enter into fixed price fuel supply agreements to support our food distribution segment. On January 1, 2009, we entered into an agreement which required us to purchase a total of 252,000 gallons of diesel fuel per month at prices ranging from $1.90 to $1.98 per gallon. The term of the agreement was for one year and expired on December 31, 2009. This fixed price fuel agreement qualified for the “normal purchase” exception under ASC 815, therefore the fuel purchases under the contract were 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.

Recoverability of Goodwill

Our most recent annual impairment test of goodwill was completed during the fourth quarter of fiscal 2009 based on conditions as of the end of our third quarter of fiscal 2009 and determined that no indication of impairment existed in our food distribution and military segments. The fair value of the food distribution segment was approximately 24% higher than its carrying value, while the military segment’s fair value exceeded its carrying value by over 100%. We determined that an indication of impairment existed in our retail reporting unit in the first step of the fiscal 2009 impairment analysis which required us to calculate our retail segment’s implied fair value in the second step of the impairment analysis. Based on retail’s implied fair value we were required to write-off $50.9 million of goodwill in fiscal 2009.

The fair value for each reporting unit is determined based on an income approach which incorporates a discounted cash flow analysis which uses significant unobservable inputs, or level 3 inputs, as defined by the fair value hierarchy, and a market approach that utilizes current earnings multiples of comparable publicly-traded companies. The Company has weighted the valuation of its reporting units at 70% based on the income approach and 30% based on the market approach. The Company believes that this weighting is appropriate since it is often difficult to find other comparable publicly-traded companies that are similar to our reporting units and it is our view that future discounted cash flows are more reflective of the value of the reporting units.

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 January 2, 2010, “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 12 weeks ended March 27, 2010.

Recently Adopted and Proposed Accounting Standards

In June 2009, the FASB issued amendments to ASC Topic 810 (“ASC 810”, originally issued as SFAS No. 167, “Amendments to FASB Interpretation No. 46(R)”), which addresses the elimination of the concept of a qualifying special purpose entity. The amended guidance also replaces the quantitative-based risks and rewards calculation for determining which enterprise has a controlling financial interest in a variable interest entity with an approach focused on identifying which enterprise has the power to direct the activities of a variable interest entity and the obligation to absorb losses of the entity or the right to receive benefits from the entity. Additionally, the amended guidance provides more timely and useful information about an enterprise’s involvement with a variable interest entity. Effective January 3, 2010, we adopted the amended provisions of ASC 810 which had no impact on our consolidated financial statements.

On December 15, 2009, the FASB issued Accounting Standards Update No. 2010-06, Fair Value Measurements and Disclosures Topic 820 “Improving Disclosures about Fair Value Measurements”. This ASU requires some new disclosures and clarifies some existing disclosure requirements about fair value measurement as set forth in ASC Subtopic 820-10. The FASB’s objective is to improve these disclosures and, thus, increase the transparency in financial reporting. The Company adopted the provision of ASU 2010-06 effective January 3, 2010. The adoption of this ASU did not have a material impact on the Company’s 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 Annual Report on Form 10-K for the fiscal year ended January 2, 2010 and Part I, Item 2 of this report under the caption “Liquidity and Capital Resources”).

ITEM 4. Controls and Procedures

Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934). Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were effective.

Except as set forth below, there was no change in our internal control over financial reporting that occurred during the period covered by this quarterly report that materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

On January 31, 2009, the Company completed the purchase from GSC Enterprises, Inc., of substantially all of the assets relating to three military food distribution centers located in San Antonio, Texas, Pensacola, Florida and Junction City, Kansas serving military commissaries and exchanges (“Business”). The acquisition of the Business represents a material change in the Company’s internal control over financial reporting since management’s last assessment. We are currently integrating policies, processes, people, technology and operations in relation to the Business. Management will continue to evaluate our internal control over financial reporting as we execute integration activities and will include the Business as a part of management’s next assessment of the Company’s internal control over financial reporting.

PART II — OTHER INFORMATION

ITEM 1. Legal Proceedings

We are 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

There have been no material changes to our risk factors contained in Part I, Item 1A, “Risk Factors,” in our Annual Report on Form 10-K for the fiscal year ended January 2, 2010.

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

The following table provides information about shares of common stock the Company acquired during the first quarter of fiscal 2010:

										(c) Total number
										of shares				(d) Maximum
		(a) Total								purchased as part				amount that
		number of				(b) Average				of publicly				may be spent
		shares				price paid per				announced plans				under plans or
Period		purchased (1)				share (1)				or programs (1)				programs (1)
Period 2 (January 31, 2010 to February 27, 2010)			37,838			$	33.54				37,838			$	22,714,085
Period 3 (February 28, 2010 to March 27, 2010)			221,072			$	34.06				221,072			$	15,183,691
Total			258,910			$	33.99				258,910

ITEM 3. Defaults upon Senior Securities

None

ITEM 4. (Removed and Reserved)

ITEM 5. Other Information

None

ITEM 6. Exhibits

Exhibits filed or furnished with this Form 10-Q:

Exhibit
No.				Description
	10.1			Nash-Finch Company 2009 Incentive Award Plan (As Amended and Restated as of March 2, 2010)
	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

SIGNATURES

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

NASH FINCH COMPANY

EXHIBIT INDEX TO QUARTERLY REPORT
ON FORM 10-Q

For the Quarter Ended March 27, 2010

Exhibit						Method of
No.				Item		Filing
	10.1			Nash-Finch Company 2009 Incentive Award Plan (As Amended and Restated as of March 2, 2010) (incorporated by reference to Exhibit 10.1 to our current report on Form 8-K/A filed March 5, 2010 (File No. 0-785))		Incorporated by reference
	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