##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549
 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 19, 2004 Commission File Number 0-1532 MARSH SUPERMARKETS, INC.  INDIANA
    
    35-0918179(State or other jurisdiction of
    
    (IRS Employerincorporation or organization)
    
    Identification No.)
 9800 CROSSPOINT BOULEVARDINDIANAPOLIS, INDIANA
    
    46256-3350(Address of principal executive offices)
    
    (Zip Code)
 (317) 594-2100
(Registrants telephone number, including area code) 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 twelve months
and (2) has been subject to such filing requirements for at least the past 90
days. Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes o No x Number of shares outstanding of each class of the registrants common
stock as of July 21, 2004: Class A Common Stock
Class B Common Stock
    
    
    3,743,090
4,153,675
    
    
    shares
shares7,896,765
    
    
    shares




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TABLE OF CONTENTS  PART I  FINANCIAL INFORMATIONCONDENSED CONSOLIDATED BALANCE SHEETSCONDENSED CONSOLIDATED STATEMENTS OF INCOMECONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWSNOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTSPART II  OTHER INFORMATIONSIGNATURESEX-31.1 SECTION 302 CERTIFICATION OF THE CEOEX-31.2 SECTION 302 CERTIFICATION OF THE CFOEX-32.1 DON E. MARSH SECTION 1350 CERTIFICATIONEX-32.2 DOUGLAS W. DOUGHETRY SECTION 1350 CERTIFICATION    Table of Contents  
 PART I  FINANCIAL INFORMATION Item 1. Financial Statements MARSH SUPERMARKETS, INC. 
 CONDENSED CONSOLIDATED BALANCE SHEETS
  June 19,
    
    March 27,
    
    June 21,2004
    
    2004
    
    2003(Unaudited)
    
    (Note A)
    
    (Unaudited)AssetsCurrent assets:Cash and equivalents
    
    $
    41,656
    
    
    $
    27,584
    
    
    $
    25,947Accounts and notes receivable, net
    
    
    22,924
    
    
    
    23,864
    
    
    
    28,704Inventories
    
    
    127,280
    
    
    
    126,840
    
    
    
    125,917Prepaid expenses
    
    
    3,829
    
    
    
    6,495
    
    
    
    4,019Recoverable income taxes
    
    
    3,289
    
    
    
    5,400
    
    
    
    Total current assets
    
    
    198,978
    
    
    
    190,183
    
    
    
    184,587Property and equipment, less allowances for depreciation
    
    
    294,955
    
    
    
    297,028
    
    
    
    311,417Other assets
    
    
    52,801
    
    
    
    55,194
    
    
    
    44,998Total Assets
    
    $
    546,734
    
    
    $
    542,405
    
    
    $
    541,002Liabilities and Shareholders EquityCurrent liabilities:Accounts payable
    
    $
    76,333
    
    
    $
    80,614
    
    
    $
    70,842Accrued liabilities
    
    
    46,925
    
    
    
    48,170
    
    
    
    49,287Current maturities of long-term liabilities
    
    
    5,080
    
    
    
    3,427
    
    
    
    3,177Total current liabilities
    
    
    128,338
    
    
    
    132,211
    
    
    
    123,306Long-term liabilities:Long-term debt
    
    
    181,163
    
    
    
    174,161
    
    
    
    191,312Capital lease obligations
    
    
    27,935
    
    
    
    28,188
    
    
    
    28,787Pension and post-retirement benefits
    
    
    43,766
    
    
    
    42,725
    
    
    
    41,684Total long-term liabilities
    
    
    252,864
    
    
    
    245,074
    
    
    
    261,783Deferred items:Income taxes
    
    
    18,483
    
    
    
    18,309
    
    
    
    9,840Gains from sale/leasebacks
    
    
    15,337
    
    
    
    15,238
    
    
    
    15,329Other
    
    
    3,526
    
    
    
    3,297
    
    
    
    2,681Total deferred items
    
    
    37,346
    
    
    
    36,844
    
    
    
    27,850Shareholders Equity:Common stock, Classes A and B
    
    
    26,588
    
    
    
    26,570
    
    
    
    26,443Retained earnings
    
    
    131,399
    
    
    
    130,813
    
    
    
    132,137Cost of common stock in treasury
    
    
    (15,724
    )
    
    
    (15,011
    )
    
    
    (14,917
    )Deferred cost  restricted stock
    
    
    (191
    )
    
    
    (211
    )
    
    
    (39
    )Notes receivable  stock purchases
    
    
    (11
    )
    
    
    (11
    )
    
    
    (177
    )Accumulated other comprehensive loss
    
    
    (13,875
    )
    
    
    (13,874
    )
    
    
    (15,384
    )Total shareholders equity
    
    
    128,186
    
    
    
    128,276
    
    
    
    128,063Total Liabilities and Shareholders Equity
    
    $
    546,734
    
    
    $
    542,205
    
    
    $
    541,002
 See notes to condensed consolidated financial statements. 2




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##### Table of Contents



MARSH SUPERMARKETS, INC. 
 CONDENSED CONSOLIDATED STATEMENTS OF INCOME
 
 12 Weeks EndedJune 19,
    
    June 21,2004
    
    2003Sales and other revenues
    
    $
    399,396
    
    
    $
    378,010Gains from sales of property
    
    
    456
    
    
    
    Total revenues
    
    
    399,852
    
    
    
    378,010Cost of merchandise sold, including
warehousing and transportation,
excluding depreciation
    
    
    281,123
    
    
    
    264,079Gross profit
    
    
    118,729
    
    
    
    113,931Selling, general and administrative
    
    
    106,039
    
    
    
    102,119Depreciation
    
    
    5,785
    
    
    
    5,762Operating income
    
    
    6,905
    
    
    
    6,050Interest
    
    
    4,283
    
    
    
    4,570Other non-operating income
    
    
    
    
    
    
    (634
    )Income before income taxes
    
    
    2,622
    
    
    
    2,114Income taxes
    
    
    1,004
    
    
    
    856Net income
    
    $
    1,618
    
    
    $
    1,258Earnings per common share:Basic
    
    $
    .20
    
    
    $
    .16Diluted
    
    
    .20
    
    
    
    .16Dividends declared per share
    
    $
    .13
    
    
    $
    .13
 See notes to condensed consolidated financial statements. 3




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MARSH SUPERMARKETS, INC. 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 
 12 Weeks EndedJune 19,
    
    June 21,2004
    
    2003Operating activitiesNet income
    
    $
    1,618
    
    
    $
    1,258Adjustments to reconcile net income to net
cash provided by operating activities:Depreciation
    
    
    5,785
    
    
    
    5,762Amortization of other assets
    
    
    357
    
    
    
    297Changes in operating assets and liabilities
    
    
    1,776
    
    
    
    5,655Other operating activities
    
    
    606
    
    
    
    1,629Net cash provided by operating activities
    
    
    10,142
    
    
    
    14,601Investing activitiesNet acquisition of property, equipment and land
    
    
    (13,670
    )
    
    
    (6,154
    )Other investing activities
    
    
    115
    
    
    
    (727
    )Net cash used for investing activities
    
    
    (13,555
    )
    
    
    (6,881
    )Financing activitiesRepayments of short-term borrowings
    
    
    
    
    
    
    (1,700
    )Proceeds of long-term borrowings
    
    
    30,000
    
    
    
    5,000Proceeds of sale/leasebacks
    
    
    10,810
    
    
    
    Payments of long-term debt and capital leases
    
    
    (21,598
    )
    
    
    (12,333
    )Cash dividends paid
    
    
    (1,032
    )
    
    
    (1,034
    )Purchase of common shares for treasury
    
    
    (794
    )
    
    
    Other financing activities
    
    
    99
    
    
    
    (19
    )Net cash provided by (used for) financing activities
    
    
    17,485
    
    
    
    (10,086
    )Net increase (decrease) in cash and equivalents
    
    
    14,072
    
    
    
    (2,366
    )Cash and equivalents at beginning of period
    
    
    27,584
    
    
    
    28,313Cash and equivalents at end of period
    
    $
    41,656
    
    
    $
    25,947
 See notes to condensed consolidated financial statements. 4




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MARSH SUPERMARKETS, INC. 
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
  June 19, 2004 Note A  Basis of Presentation The accompanying unaudited condensed consolidated financial statements of Marsh
Supermarkets, Inc. and subsidiaries were prepared in accordance with generally
accepted accounting principles for interim financial information and the
instructions to Form 10-Q. Accordingly, they do not include all the information
and footnotes necessary for a fair presentation of financial position, results
of operations, and cash flows in conformity with accounting principles
generally accepted in the United States. This report should be read in
conjunction with the Companys Consolidated Financial Statements for the year
ended March 27, 2004. The balance sheet at March 27, 2004, has been derived
from the audited financial statements at that date. The Companys fiscal year ends on Saturday of the thirteenth week of each
calendar year. All references herein to 2005 and 2004 relate to the fiscal
years ending April 2, 2005 and March 27, 2004, respectively. The condensed consolidated financial statements for the twelve-week periods
ended June 19, 2004 and
June 21, 2003, respectively, were not audited by independent auditors.
Preparation of the financial statements requires management to make estimates
that affect the reported amounts of assets, liabilities, revenues and expenses
for the reporting periods. In the opinion of management, the statements reflect
all adjustments (consisting of normal recurring accruals) considered necessary
to present fairly, on a consolidated basis, the financial position, results of
operations and cash flows for the periods presented. Operating results for the twelve week period ended June 19, 2004, are not
necessarily indicative of the results that may be expected for the full fiscal
year ending April 2, 2005. Note B  Earnings Per Share The following table sets forth the computation of the numerators and
denominators used in the computation of basic and diluted earnings per share: 12 Weeks EndedJune 19,
    
    June 21,2004
    
    2003Net income
    
    $
    1,618
    
    
    $
    1,258Weighted average shares outstanding
    
    
    7,924
    
    
    
    7,949Non-vested restricted shares
    
    
    (17
    )
    
    
    (6
    )Denominator for basic earnings per share
    
    
    7,907
    
    
    
    7,943Effect of dilutive securities:Non-vested restricted shares
    
    
    17
    
    
    
    6Stock options
    
    
    126
    
    
    
    61Denominator for diluted earnings per share -
adjusted weighted average shares
    
    
    8,050
    
    
    
    8,010
 5




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Note C  Stock Option Plans The Companys stock option plans are accounted for under the intrinsic value
method of APB Opinion 25 and related interpretations. The following table
illustrates the effect on net income and earnings per share if the Company had
applied the fair value recognition provisions of FAS 123: 12 Weeks EndedJune 19,
    
    June 21,2004
    
    2003Net income, as reported
    
    $
    1,618
    
    
    $
    1,258Compensation expense recorded
    
    
    9
    
    
    
    7Compensation expense using
the fair value method, net of tax
    
    
    (180
    )
    
    
    (215
    )Pro-forma net income
    
    $
    1,447
    
    
    $
    1,050Reported earnings per share:Basic
    
    $
    .20
    
    
    $
    .16Diluted
    
    
    .20
    
    
    
    .16Pro-forma earnings per share:Basic
    
    
    .18
    
    
    
    .13Diluted
    
    
    .18
    
    
    
    .13
 6




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Note D  Long-Term Debt and Guarantor Subsidiaries Other than three minor subsidiaries, all of the Companys subsidiaries (the
Guarantors) have fully and unconditionally guaranteed on a joint and several
basis the Companys obligations under its 8 7/8% senior subordinated notes. The
Guarantors are wholly-owned subsidiaries of the Company. Balance sheet as of June 19, 2004: GuarantorParent
    
    subsidiaries
    
    TotalAssetsCurrent assets:Cash and equivalents
    
    $
    
    
    
    $
    41,656
    
    
    $
    41,656Accounts and notes receivable, net
    
    
    
    
    
    
    22,924
    
    
    
    22,924Inventories
    
    
    
    
    
    
    127,280
    
    
    
    127,280Prepaid expenses
    
    
    
    
    
    
    3,829
    
    
    
    3,829Recoverable income taxes
    
    
    3,289
    
    
    
    
    
    
    
    3,289Total current assets
    
    
    3,289
    
    
    
    195,689
    
    
    
    198,978Property and equipment, less allowances for depreciation
    
    
    32,681
    
    
    
    262,274
    
    
    
    294,955Other assets
    
    
    3,349
    
    
    
    49,452
    
    
    
    52,801Total Assets
    
    $
    39,319
    
    
    $
    507,415
    
    
    $
    546,734Liabilities and Shareholders EquityCurrent liabilities:Accounts payable
    
    $
    
    
    
    $
    76,333
    
    
    $
    76,333Accrued liabilities
    
    
    10,864
    
    
    
    36,061
    
    
    
    46,925Current maturities of long-term liabilities
    
    
    1,612
    
    
    
    3,468
    
    
    
    5,080Total current liabilities
    
    
    12,476
    
    
    
    115,862
    
    
    
    128,338Long-term liabilities:Long-term debt
    
    
    111,913
    
    
    
    69,250
    
    
    
    181,163Capital lease obligations
    
    
    
    
    
    
    27,935
    
    
    
    27,935Pension and post-retirement benefits
    
    
    39,514
    
    
    
    4,252
    
    
    
    43,766Total long-term liabilities
    
    
    151,427
    
    
    
    101,437
    
    
    
    252,864Deferred items:Income taxes
    
    
    18,483
    
    
    
    
    
    
    
    18,483Other
    
    
    56
    
    
    
    18,807
    
    
    
    18,863Total deferred items
    
    
    18,539
    
    
    
    18,807
    
    
    
    37,346Amounts due parent from subsidiaries
    
    
    (148,962
    )
    
    
    148,962
    
    
    
    Shareholders Equity:Common stock, Classes A and B
    
    
    26,588
    
    
    
    
    
    
    
    26,588Retained earnings
    
    
    9,052
    
    
    
    122,347
    
    
    
    131,399Cost of common stock in treasury
    
    
    (15,724
    )
    
    
    
    
    
    
    (15,724
    )Deferred cost  restricted stock
    
    
    (191
    )
    
    
    
    
    
    
    (191
    )Notes receivable  stock purchase
    
    
    (11
    )
    
    
    
    
    
    
    (11
    )Accumulated other comprehensive loss
    
    
    (13,875
    )
    
    
    
    
    
    
    (13,875
    )Total shareholders equity
    
    
    5,839
    
    
    
    122,347
    
    
    
    128,186Total Liabilities and Shareholders Equity
    
    $
    39,319
    
    
    $
    507,415
    
    
    $
    546,734
 7




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Balance sheet as of March 27, 2004: GuarantorParent
    
    subsidiaries
    
    TotalAssetsCurrent assets:Cash and equivalents
    
    $
    
    
    
    $
    27,584
    
    
    $
    27,584Accounts and notes receivable, net
    
    
    
    
    
    
    23,864
    
    
    
    23,864Inventories
    
    
    
    
    
    
    126,840
    
    
    
    126,840Prepaid expenses
    
    
    
    
    
    
    6,495
    
    
    
    6,495Recoverable income taxes
    
    
    5,400
    
    
    
    
    
    
    
    5,400Total current assets
    
    
    5,400
    
    
    
    184,783
    
    
    
    190,183Property and equipment, less allowances for depreciation
    
    
    32,717
    
    
    
    264,311
    
    
    
    297,028Other assets
    
    
    3,247
    
    
    
    51,947
    
    
    
    55,194Total Assets
    
    $
    41,364
    
    
    $
    501,041
    
    
    $
    542,405Liabilities and Shareholders EquityCurrent liabilities:Accounts payable
    
    $
    
    
    
    $
    80,614
    
    
    $
    80,614Accrued liabilities
    
    
    8,722
    
    
    
    39,448
    
    
    
    48,160Current maturities of long-term liabilities
    
    
    1,587
    
    
    
    1,840
    
    
    
    3,427Total current liabilities
    
    
    10,309
    
    
    
    121,902
    
    
    
    132,211Long-term liabilities:Long-term debt
    
    
    112,173
    
    
    
    61,988
    
    
    
    174,161Capital lease obligations
    
    
    
    
    
    
    28,188
    
    
    
    28,188Pension and post-retirement benefits
    
    
    38,541
    
    
    
    4,184
    
    
    
    42,725Total long-term liabilities
    
    
    150,714
    
    
    
    94,360
    
    
    
    245,074Deferred items:Income taxes
    
    
    18,309
    
    
    
    
    
    
    
    18,309Other
    
    
    55
    
    
    
    18,480
    
    
    
    18,535Total deferred items
    
    
    18,364
    
    
    
    18,480
    
    
    
    36,844Amounts due parent from subsidiaries
    
    
    (145,664
    )
    
    
    145,664
    
    
    
    Shareholders Equity:Common stock, Classes A and B
    
    
    26,570
    
    
    
    
    
    
    
    26,570Retained earnings
    
    
    10,178
    
    
    
    120,635
    
    
    
    130,813Cost of common stock in treasury
    
    
    (15,011
    )
    
    
    
    
    
    
    (15,011
    )Deferred cost  restricted stock
    
    
    (211
    )
    
    
    
    
    
    
    (211
    )Notes receivable  stock purchases
    
    
    (11
    )
    
    
    
    
    
    
    (11
    )Accumulated other comprehensive loss
    
    
    (13,874
    )
    
    
    
    
    
    
    (13,874
    )Total shareholders equity
    
    
    7,641
    
    
    
    120,635
    
    
    
    128,276Total Liabilities and Shareholders Equity
    
    $
    41,364
    
    
    $
    501,041
    
    
    $
    542,405
 8




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##### Table of Contents



Statement of income for the 12 weeks ended June 19, 2004: Guarantor
    
    ConsolidatingParent
    
    subsidiaries
    
    entries
    
    TotalTotal revenues
    
    $
    1,152
    
    
    $
    399,833
    
    
    $
    (1,133
    )
    
    $
    399,852Cost of merchandise sold, including warehousing
and transportation, excluding depreciation
    
    
    
    
    
    
    281,123
    
    
    
    
    
    
    
    281,123Gross profit
    
    
    1,152
    
    
    
    118,710
    
    
    
    (1,133
    )
    
    
    118,729Selling, general and administrative
    
    
    529
    
    
    
    106,643
    
    
    
    (1,133
    )
    
    
    106,039Depreciation
    
    
    320
    
    
    
    5,465
    
    
    
    
    
    
    
    5,785Operating income
    
    
    303
    
    
    
    6,602
    
    
    
    
    
    
    
    6,905Interest
    
    
    420
    
    
    
    3,863
    
    
    
    
    
    
    
    4,283Income (loss) before income taxes
    
    
    (117
    )
    
    
    2,739
    
    
    
    
    
    
    
    2,622Income taxes (benefit)
    
    
    (42
    )
    
    
    1,046
    
    
    
    
    
    
    
    1,004Net income (loss)
    
    $
    (75
    )
    
    $
    1,693
    
    
    $
    
    
    
    $
    1,618
 Statement of income for the 12 weeks ended June 21, 2003: Guarantor
    
    ConsolidatingParent
    
    subsidiaries
    
    entries
    
    TotalTotal revenues
    
    $
    1,135
    
    
    $
    378,008
    
    
    $
    (1,133
    )
    
    $
    378,010Cost of merchandise sold, including warehousing
and transportation, excluding depreciation
    
    
    
    
    
    
    264,079
    
    
    
    
    
    
    
    264,079Gross profit
    
    
    1,135
    
    
    
    113,929
    
    
    
    (1,133
    )
    
    
    113,931Selling, general and administrative
    
    
    656
    
    
    
    102,596
    
    
    
    (1,133
    )
    
    
    102,119Depreciation
    
    
    411
    
    
    
    5,351
    
    
    
    
    
    
    
    5,762Operating income
    
    
    68
    
    
    
    5,982
    
    
    
    
    
    
    
    6,050Interest
    
    
    419
    
    
    
    4,151
    
    
    
    
    
    
    
    4,570Other non-operating income
    
    
    (634
    )
    
    
    
    
    
    
    
    
    
    
    (634
    )Income before income taxes
    
    
    283
    
    
    
    1,831
    
    
    
    
    
    
    
    2,114Income taxes
    
    
    119
    
    
    
    737
    
    
    
    
    
    
    
    856Net income
    
    $
    164
    
    
    $
    1,094
    
    
    $
    
    
    
    $
    1,258
 9




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Statement of cash flows for the twelve weeks ended June 19, 2004: GuarantorParent
    
    subsidiaries
    
    TotalNet cash provided by operating activities
    
    $
    2,265
    
    
    $
    7,877
    
    
    $
    10,142Net cash used for investing activities
    
    
    (284
    )
    
    
    (13,271
    )
    
    
    (13,555
    )Financing activitiesProceeds of long-term borrowings
    
    
    
    
    
    
    30,000
    
    
    
    30,000Proceeds of
sale/leasebacks
    
    
    
    
    
    
    10,810
    
    
    
    10,810Repayments of long-term debt and capital leases
    
    
    (235
    )
    
    
    (21,363
    )
    
    
    (21,598
    )Cash dividends paid
    
    
    (1,032
    )
    
    
    
    
    
    
    (1,032
    )Purchase of common shares for treasury
    
    
    (794
    )
    
    
    
    
    
    
    (794
    )Other financing activities
    
    
    80
    
    
    
    19
    
    
    
    99Net cash provided by (used for) financing activities
    
    
    (1,981
    )
    
    
    19,466
    
    
    
    17,485Net increase in cash and equivalents
    
    
    
    
    
    
    14,072
    
    
    
    14,072Cash and equivalents at beginning of period
    
    
    
    
    
    
    27,584
    
    
    
    27,584Cash and equivalents at end of period
    
    $
    
    
    
    $
    41,656
    
    
    $
    41,656
 Statement of cash flows for the twelve weeks ended June 21, 2003: GuarantorParent
    
    subsidiaries
    
    TotalNet cash provided by operating activities
    
    $
    10,772
    
    
    $
    3,829
    
    
    $
    14,601Net cash used for investing activities
    
    
    (79
    )
    
    
    (6,802
    )
    
    
    (6,881
    )Financing activitiesRepayments of short-term borrowings
    
    
    
    
    
    
    (1,700
    )
    
    
    (1,700
    )Proceeds of long-term borrowings
    
    
    
    
    
    
    5,000
    
    
    
    5,000Repayments of long-term debt and capital leases
    
    
    (9,674
    )
    
    
    (2,659
    )
    
    
    (12,333
    )Cash dividends paid
    
    
    (1,034
    )
    
    
    
    
    
    
    (1,034
    )Other financing activities
    
    
    15
    
    
    
    (34
    )
    
    
    (19
    )Net cash provided by (used for) financing activities
    
    
    (10,693
    )
    
    
    607
    
    
    
    (10,086
    )Net decrease in cash and equivalents
    
    
    
    
    
    
    (2,366
    )
    
    
    (2,366
    )Cash and equivalents at beginning of period
    
    
    
    
    
    
    28,313
    
    
    
    28,313Cash and equivalents at end of period
    
    $
    
    
    
    $
    25,947
    
    
    $
    25,947
 10




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##### Table of Contents



Note E  Employee Benefit Plans The components of net periodic benefit cost were as follows: Pension
    
    Post-retirementJune 19,
    
    June 21,
    
    June 19,
    
    June 21,2004
    
    2003
    
    2005
    
    2004Service cost
    
    $
    223
    
    
    $
    200
    
    
    $
    120
    
    
    $
    129Interest cost
    
    
    1,039
    
    
    
    1,017
    
    
    
    63
    
    
    
    71Expected return on plan assets
    
    
    (763
    )
    
    
    (652
    )
    
    
    
    
    
    
    Recognized actuarial loss
    
    
    365
    
    
    
    395
    
    
    
    9
    
    
    
    9Amortization of prior service cost
    
    
    85
    
    
    
    85
    
    
    
    (5
    )
    
    
    2Benefit cost
    
    $
    949
    
    
    $
    1,045
    
    
    $
    187
    
    
    $
    211
 Note F  Recent Accounting Pronouncements In December 2003, the Medicare Prescription Drug, Improvement and Modernization
Act of 2003 (the Act) was signed. The Act allows a possible subsidy to
retirement health plan sponsors to help offset the costs of participant
prescription drug benefits. In 2004, the FASB issued Staff Position No. 106-2,
Accounting and Disclosure Requirements Related to the Act, which is
effective for interim or annual periods beginning after June 15, 2004.
Accordingly, the Companys accumulated post-retirement benefit obligation does
not reflect the effects of this Act. The Company believes that any future
effect of the Act on its consolidated financial statements will not be
material. 11




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##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations General At June 19, 2004, Marsh Supermarkets, Inc. (the Company or Marsh) operated
through wholly-owned subsidiaries 113 supermarkets and 164 Village Pantry
convenience stores in central Indiana and western Ohio. Marsh also owns Crystal
Food Services, which provides upscale and mid-level catering, vending,
concession, coffee roasting and distribution, and business cafeteria management
services; and McNamara, which operates six upscale retail floral shops under
the name McNamara and one business florist under the name Enflora. Business Overview Revenues from supermarket operations represented 77.8% of total revenues for
the twelve weeks ended June 19, 2004, while convenience stores and foodservices
contributed 17.5% and 3.8% of revenues, respectively. Sales are generally for
cash. Data from various non-affiliated sources reported Marsh supermarkets
market share at #1 or #2 in its marketing area as of February 2004. Market Trends The Companys efforts to increase revenues have been affected primarily by
competitive store openings and remodels and the challenging local economy. The
rate of competitive store openings has slowed during the current year; at June
19, 2004, there were 8 major competitors stores opened or remodeled within the
last 12 months, compared to 15 at June 21, 2003. Although the Company believes
that the number of competitors new store openings has peaked, is expected that
new stores will continue to be opened in the market. Employment in the five
largest cities in the Companys market area increased 0.7%, or about 8,000
jobs, from May 2002 to May 2004. The Companys ability to increase gross profit rates continues to be a
challenge due to competitors pricing and promotional activity. Also, during
the past few months there have been significant commodity price increases,
particularly in beef, pork, poultry and dairy, creating additional pressures on
gross profit rates. Management Focus Given the continued pressures on revenues and gross profit rates, the Companys
management continues its focus on merchandising plans, expense reduction, asset
management and cash flow. The Companys merchandising plan is currently focused on pricing strategies and
the enhancement of its price image, increasing sales of its private label
products and the effective store execution of merchandising programs. The Company continues to seek expense reduction initiatives, which were
initiated in fiscal year 2003. Those initiatives included, among others,
seeking greater efficiencies in store labor scheduling, changes to employee
medical benefits plans, lowering interest expense by replacing fixed rate debt
with lower variable rate debt, and improvements in warehousing and delivery
logistics. The initiatives completed to date have partially offset increases
in non-controllable and other selling, general and administrative expenses. 12




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##### Table of Contents



Results of Operations Results of operations for interim periods do not necessarily reflect the
results of operations that may be expected for the fiscal year. The following table sets forth certain income statement components, expressed
as a percentage of sales and other revenues, and the percentage change in such
components: First QuarterPercent of RevenuesPercent2005
    
    2004
    
    ChangeTotal revenues
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    5.8
    %Gross profit
    
    
    29.7
    %
    
    
    30.1
    %
    
    
    4.2
    %Selling, general and administrative
    
    
    26.5
    %
    
    
    27.0
    %
    
    
    3.8
    %Depreciation
    
    
    1.4
    %
    
    
    1.5
    %
    
    
    0.4
    %Operating income
    
    
    1.7
    %
    
    
    1.6
    %
    
    
    14.1
    %Interest
    
    
    1.1
    %
    
    
    1.2
    %
    
    
    (6.3
    %)Other non-operating income
    
    
    
    
    
    
    0.2
    %
    
    
    n/mIncome taxes
    
    
    0.3
    %
    
    
    0.2
    %
    
    
    17.3
    %Income from continuing operations
    
    
    0.4
    %
    
    
    0.3
    %
    
    
    28.6
    %
 n/m = not meaningful Total Revenues Consolidated total revenues were $399.9 million for the first quarter of 2005,
compared to $378.0 million for the first quarter of 2004. Gasoline sales were
$38.0 million for the first quarter of 2005 compared to $26.1 million for the
first quarter of 2004, and consolidated total revenues excluding gasoline sales
were $361.9 million and $351.9 million, respectively, for the first quarter of
2005 and 2004. The Company excludes gasoline sales from its analysis of
revenues and comparable store sales and believes it is useful information for
others because gasoline prices fluctuate widely and frequently. Sales in
comparable supermarkets and convenience stores increased 3.2% in 2005 from
2004, but sales in comparable supermarkets and convenience stores excluding
gasoline sales declined 0.4%. A store is included in comparable store sales
beginning in the four-week period after the store has been in operation a full
year, including replacement stores and format conversions. Competitors new
store openings and continued high levels of competitive promotional activity
continue to adversely affect comparable store sales. Gross Profit Gross profit is calculated net of promotional expenses and warehousing and
transportation costs, but excludes depreciation. Gross profit as a percentage
of revenues may not be comparable to other supermarket retailers because the
Company does not include purchasing costs and advertising costs in the
calculation. Consolidated gross profit was 29.7% of revenues for the first
quarter of 2005 compared to 30.1% for the same quarter of 2004. The decline is
solely attributable to an increase in gasoline sales at a margin rate
significantly lower than the margin rates achieved in the Companys other lines
of business. Selling, General and Administrative Expenses Selling, general and administrative (SG&A) expenses include store expenses,
administrative and corporate expenses, advertising and purchasing personnel
costs. Consolidated SG&A expenses increased $3.9 million to $106.0 million from
the year earlier quarter. The increase resulted from four supermarkets opened
subsequent to the end of the year earlier quarter and higher advertising
outlays. Consolidated SG&A expenses were 26.5% of revenues for the first
quarter of 2005 compared to 27.0% for the first quarter of 2004. Total wage
expense in supermarkets and convenience stores increased 0.4% as a result of
the aforementioned store openings. Wage expense in stores open both quarters,
excluding supermarket conversions to the LoBill format, decreased 3.0% due to a
reduction in hours worked. The continued refinement of labor scheduling
utilizing store specific labor profiles primarily accounted for the reduction
in hours worked. 13




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##### Table of Contents



Depreciation Expense Depreciation expense was $5.8 million for the first quarter of both 2005 and
2004. Depreciation expense as a percentage of revenues was 1.4% in 2005 and
1.5% in 2004. Other Non-operating Income During the quarter ended June 21, 2003, the Company purchased $9.5 million of
its 8 7/8% senior subordinated notes in various transactions at less than face
value. The transactions resulted in a gain, net of pro rata issuance costs, of
$0.6 million. Interest Expense Interest expense was $4.3 million for the first quarter of 2005 compared to
$4.6 million for the first quarter of 2004, with the decline attributable to a
lower total debt level. Interest expense as a percentage of revenues was 1.1%
for the first quarter of 2005 compared to 1.2% for the first quarter of 2004. Income Taxes The effective income tax rate was 38.3% for the first quarter of 2005 compared
to 40.5% for the prior year quarter. The decline in the effective rate for the
first quarter of 2005 is attributable to the increase in pre-tax income. Pension and Post-retirement Benefits Deferred pension and post-retirement benefit obligations increased $1.0 million
to $43.8 million at June 19, 2004, from March 27, 2004. The increase is
primarily attributable to the recognition of periodic expense for deferred
pension plans. Capital Expenditures The Companys capital requirements have traditionally been financed through
internally generated funds, long-term borrowings and lease financing, including
capital and operating leases. During the first quarter of 2005, one Marsh supermarket was converted to the
LoBill format and construction began on both a new Marsh supermarket and a new
concept 21,000 square foot Arthurs Fresh Market. Additionally in 2005, the
Company plans to construct a Marsh lifestyle supermarket and one new LoBill
Foods, remodel four supermarkets and construct one additional Arthurs Fresh
Market. The cost of these projects and other capital commitments is estimated
to be $60 million. Of this amount, the Company plans to fund approximately $27
million through sale/leasebacks or build to suit arrangements, $13 million
through equipment leasing and believes it can finance the balance with
internally generated funds. The Companys plans with respect to store financing, construction, expansion,
conversion and remodeling are subject to known and unknown risks and
uncertainties and may be revised in light of changing conditions, such as
competitive influences, cost and availability of capital, its ability to
successfully negotiate site acquisitions or leases, zoning limitations and
other governmental regulations. The timing of projects is subject to normal
construction and other delays. It is possible that projects described above may
not commence, others may be added, a portion of planned expenditures with
respect to projects commenced during the current fiscal year may carry over to
the subsequent fiscal year and the Company may use other or different financing
arrangements. Liquidity and Capital Resources Net cash provided by operating activities in the first quarter of 2005 was
$10.1 million, compared to $14.6 million in the first quarter of 2004. Net cash
provided by operating activities in the first quarter of 2005 was less than in
the first quarter of 2004 due to a decline in inventory in the first quarter of
2004 and a decline in accounts payable in 2005, partially offset by declines in
accounts and notes receivable and prepaid expenses in 2005. Working capital at
June 19, 2004 increased $12.7 million to $70.6 million from March 27, 2004 due
primarily to a $14.1 million increase in cash and equivalents. 14




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##### Table of Contents



The Company has a revolving credit facility that permits total borrowings of up
to $82.5 million. Amounts borrowed are for terms selected by the Company at the
time of borrowing. Interest rates are based on LIBOR or floating prime rate,
and principal and interest are payable at maturity. Commitment fees of 0.5% are
paid on unused amounts and the facility matures in February 2006. The Company
had borrowings of $45.0 million under the facility at June 19, 2004. The credit
facility is secured by land and buildings having a net carrying cost of $68.4
million at June 19, 2004 and the facility contains certain debt covenants,
including limits on future indebtedness, and limitations on the ratio of
long-term debt to EBITDA and on fixed charge coverage, cash dividends,
repurchases of common stock and disposition of assets. Under the most
restrictive debt covenant, the Company would have had additional permitted
borrowing of $37.5 million as of June 19, 2004. During the quarter ended June 21, 2003 the Company purchased and retired $9.5
million of its 8 7/8% senior subordinated notes at less than face value. The
purchase resulted in a gain of $0.6 million. Critical Accounting Policies and Estimates The preparation of financial statements requires management to make assumptions
and estimates that could have a material impact on the reported results of
operations. Although management applies its judgment based on assumptions
believed to be reasonable under the circumstances, actual results could vary
from those assumptions and it is possible that materially different amounts
would be reported using different assumptions. The Company is self-insured for most healthcare claims, workers compensation
claims, and general liability losses. Reported claims and related loss reserves
are estimated by third party administrators. Claims incurred but not reported
are recorded based on historical experience and industry trends, which are
continually monitored, and accruals are adjusted when warranted by changes in
facts and circumstances. Pension and other retirement benefits are administered by the Retirement
Committee of Marsh Supermarkets, Inc. and Subsidiaries. An independent
financial consulting firm is engaged to advise the retirement committee and
independent actuaries are consulted to assist in the determination of
appropriate assumptions and are engaged to calculate estimated future
obligations. Long-lived assets are depreciated over estimated useful lives based on the
Companys historical experience and prevailing industry practice. Estimated
useful lives are periodically reviewed to ensure they remain appropriate.
Long-lived assets are tested for impairment whenever an event occurs that
indicates an impairment may exist. Income tax assets and liabilities are recognized generally based upon tax
statutes, regulations and case law, but also include estimates. The estimated
amounts are reviewed periodically and adjusted based upon factual changes and
the related impact on managements judgment. The Company receives allowances and credits from many of the vendors whose
products the Company purchases for resale. Allowances that are related to a
specific purchase quantity are recorded as a component of item cost inventory
and recognized in merchandise costs when the item is sold. Other allowances
include consideration received for new item introduction, item shelf placement
and temporary retail price reduction. Due to system constraints and the nature
of certain of these allowances, it is sometimes not practicable to apply
allowances to the item cost of inventory. In those instances, the allowances
are applied as a reduction of merchandise costs using a systematic and rational
methodology, which results in the recognition of these incentives when the
initial purchase of the related merchandise is sold. 15




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##### Table of Contents



Notes and accounts receivable are reviewed for collectibility on a regular and
periodic basis. Valuation allowances are adjusted for small recurring type
transactions based on past experience, while large notes and amounts receivable
are reviewed and adjusted on a specific transaction basis. Cautionary Note Regarding Forward-Looking Statements This report includes certain forward-looking statements (statements other than
those made solely with respect to historical fact). Actual results could differ
materially and adversely from those contemplated by the forward-looking
statements due to known and unknown risks and uncertainties, many of which are
beyond the Companys control. The forward-looking statements and the Companys
future results, liquidity and capital resources are subject to risks and
uncertainties including, but not limited to, the following: the entry of new
competitive stores and their impact on the Company; the Companys ability to
improve comparable store sales; the level of discounting and promotional
spending by competitors; the stability and timing of distribution incentives
from suppliers; the level of margins achievable in the Companys operating
divisions; softness in the local and national economies and the general retail
food industry; the success of the Companys new and remodeled stores, including
image and rebranding programs; potential interest rate increases on variable
rate debt, as well as terms, costs and the availability of capital; the
Companys ability to control employee medical costs; uncertainties regarding
future real estate gains due to limited real estate holdings available for
sale; the ability of the Company to predict and respond to changes in customer
preferences and lifestyles; the ability of the Company to respond to commodity
price fluctuations; uncertainties regarding gasoline prices and margins; the
Companys ability to control costs including labor, rent, credit card, and
workers compensation and general liability expense; the Companys ability to
implement cost improvement initiatives; uncertainties related to state and
federal taxation and tobacco and environmental legislation; the Companys
ability to collect outstanding notes and accounts receivable; uncertainties
associated with pension and other retirement obligations; the successful
economic implementation of new technology; the impact of any acquisitions and
dispositions; the timely and on budget completion of store construction,
expansion, conversion and remodeling; and other known and unknown risks and
uncertainties. The Company undertakes no obligation to update or revise any
forward-looking statements to reflect subsequent events or circumstances. Item 3. Quantitative and Qualitative Disclosures About Market Risk The Company, as a policy, does not engage in significant speculative or
derivative transactions, nor does it hold or issue financial instruments for
trading purposes. The Company is exposed to changes in interest rates primarily
as a result of its borrowing activities. Based on interest rates at June 19,
2004, a one percent change in interest rates would not have had a material
impact on the Company. Item 4. Disclosure Controls and Procedures Evaluation of Disclosure Controls and Procedures The Chief Executive Officer and Chief Financial Officer carried out an
evaluation of the effectiveness of the Companys disclosure controls and
procedures (as defined in the Securities Exchange Act of 1934 Rules 13a-15(e)
and 15d-15(e)) as of the end of the period covered by this report. Based on
that evaluation, these officers have concluded that as of the end of the period
covered by this report, the Companys disclosure controls and procedures were
effective and designed to ensure that material information relating to the
Company would be made known to them by others within the Company on a timely
basis. Internal Control over Financial Reporting There was no change in the Companys internal control over financial reporting
during the quarter ended
June 19, 2004, that materially affected, or is reasonably likely to materially
affect, the Companys internal control over financial reporting. 16




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##### Table of Contents



PART II  OTHER INFORMATION Item 1. Legal Proceedings Not Applicable. Item 2. Changes in Securities, Use of Proceeds and Issuers Purchases of Equity Securities In July 1994, the Board of Directors announced a plan for the repurchase
of its Class A Common Stock and/or Class B Common Stock. The amount
originally authorized has been subsequently amended, most recently to
$18.0 million. Share repurchases during the quarter ended June 19, 2004,
were as follows: Class A shares
    
    Class B sharesAverage
    
    
    
    
    
    AverageBegin
    
    End
    
    Number
    
    price
    
    Number
    
    price03/28/04
    
    
    04/27/04
    
    
    
    1,700
    
    
    
    14.48
    
    
    
    300
    
    
    
    13.3004/28/04
    
    
    05/27/04
    
    
    
    51,300
    
    
    
    14.76
    
    
    
    
    
    
    
    05/28/04
    
    
    06/19/04
    
    
    
    599
    
    
    
    13.78
    
    
    
    
    
    
    
    Total
    
    
    
    
    
    
    53,599
    
    
    
    14.74
    
    
    
    300
    
    
    
    13.30
 All of the share purchases during the quarter ended June 19, 2004 were
made under the plan. At
June 19, 2004, the maximum amount that may yet be purchased under the plan
was $1.0 million. The plan does not have a specified termination date. Item 3. Defaults upon Senior Securities Not Applicable. Item 4. Submission of Matters to a Vote of Security Holders Not Applicable. Item 5. Other Information Not Applicable. Item 6. Exhibits and Reports on Form 8-K (a)
    
    
    The following exhibits are included herein:31.1
    
    
    Rule 13(a)-14(a)/15(d)-14(a) Certification of Don E. Marsh.31.2
    
    
    Rule 13(a)-14(a)/15(d)-14(a) Certification of Douglas W. Dougherty.32.1
    
    
    Section 1350 Certification of Don E. Marsh.32.2
    
    
    Section 1350 Certification of Douglas W. Dougherty.(b)
    
    
    Reports on Form 8-K
 17




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##### Table of Contents



Current Reports on Form 8-K furnished to the SEC on June 10, 2004  Item
12 Results of Operations and Financial Condition from the Companys Annual
Report to Shareholders for the fiscal year ended March 27, 2004. Notwithstanding the foregoing, information furnished under Item 12 of the
Current Report on Form 8-K, including the related exhibits, is not incorporated
by reference into this quarterly report on Form 10-Q. 18




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##### Table of Contents



SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Form 10-Q to be signed on its behalf by the
undersigned thereunto duly authorized. MARSH SUPERMARKETS, INC.August 2, 2004
    By:
    /s/ Douglas W. DoughertyDouglas W. DoughertySenior Vice President, Chief Financial Officer
and Treasurer August 2, 2004
    By:
    /s/ Mark A. VarnerMark A. VarnerChief Accounting Officer
Vice President  Corporate Controller 19