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NASH FINCH WOES SEEN MINOR

MINNEAPOLIS -- Nash Finch's warnings about its financial condition, the resignation of its auditors and the investigation into its accounting practices by the Securities and Exchange Commission might all be a lot more smoke than fire, analysts and others in the industry told SN last week.On Feb. 7 the company said it could violate its loan covenants, face liquidity issues, and be delisted from Nasdaq

MINNEAPOLIS -- Nash Finch's warnings about its financial condition, the resignation of its auditors and the investigation into its accounting practices by the Securities and Exchange Commission might all be a lot more smoke than fire, analysts and others in the industry told SN last week.

On Feb. 7 the company said it could violate its loan covenants, face liquidity issues, and be delisted from Nasdaq if the SEC does not agree that its accounting methods have been proper, if the SEC's Division of Enforcement recommends other action against the company, or if it cannot find a new auditor.

Deloitte & Touche resigned as Nash Finch's accountants earlier this month, six months after the wholesaler/retailer dismissed Ernst & Young.

One analyst, who asked not to be identified, said it was unclear how serious the SEC investigation might be, noting that such investigations have become increasingly common in the past year. In addition, the analyst said, the specific focus of the investigation -- the count-recount charges that are used to determine vendor allowances and reduce the cost of sales -- can be accounted for in different ways without violating generally accepted accounting principles, or GAAP.

The company said the charges in question totaled $6.7 million in 2000, $8.6 million in 2001, and $3.8 million through the first half of 2002, and the charges were recorded as reductions in the cost of sales.

Nash Finch said it has asked the Office of the Chief Accountant at the SEC to concur that the company's assessment of the charges was in accordance with GAAP. The company said it is seeking a new auditor, but one analyst said the company may hope to get the SEC to approve its financial statements in case it cannot find a new auditor to approve its overdue financial reports. Nasdaq has informed Nash Finch that it will be delisted if it does not report its third-quarter and year-end results by March 19 and March 28, respectively, and meet other requirements for listing on the national market.

Analysts said their primary concern is to be able to review those reports to assess the overall condition of the company.

"The big issue is their core business. That's something to really keep a focus on," said Sheila McNeely, a director in the Chicago office of Fitch Ratings, New York.

Richard Juro, chief executive officer, No Frills Supermarkets, Omaha, Neb., a customer of Nash Finch who has 10 stores in Iowa and Nebraska, said Nash Finch told him in a recent meeting that the wholesaler's problems are not serious.

"They've assured us that it's a minor accounting problem," he told SN last week. "I don't see any reason to be concerned. As far as the effect on us, there's been none."

One analyst said the total of the charges that are in dispute appears to be minimal, and any revision of prior earnings that Nash Finch might eventually have to issue could relate more to the timing of the charges rather than the amount.

In a prepared statement, Nash Finch said the amounts in dispute represented 0.19% of the cost of sales in 2000, 0.24% in 2001, and 0.23% in the first half of 2002.

"The company has submitted its position to the OCA explaining in detail our views that our accounting has been correct," said Ron Marshall, CEO, in a prepared statement.

The company could not be reached for further comment.