##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549
  FORM 10-Q/A
  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended October 11, 2003 Commission File Number 0-1532 MARSH SUPERMARKETS, INC.
(Exact name of registrant as specified in its charter) INDIANA
(State or other jurisdiction of
incorporation or organization)
    
    35-0918179
(IRS Employer
Identification No.)
 9800 CROSSPOINT BOULEVARD INDIANAPOLIS, INDIANA
(Address of principal executive offices)
    
    46256-3350
(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  [ ]   No  [x] Number of shares outstanding of each class of the registrants common
stock as of October 31, 2003: Class A Common Stock -
    
    
    3,805,838
    
    
    sharesClass B Common Stock -
    
    
    4,134,396
    
    
    shares7,940,234
    
    
    shares




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|                                                     |  |  |  |  |  |  |  | 
|---------------------------------------------------- |  |  |  |  |  |  |  | 
|PART I FINANCIAL INFORMATION                        
|CONDENSED CONSOLIDATED STATEMENTS OF INCOME         
|CONDENSED CONSOLIDATED BALANCE SHEETS               
|CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS     
|NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
|PART II  OTHER INFORMATION                         
|SIGNATURES                                          
|EX-31.1 RULE CERTIFICATION OF THE CEO               
|EX-31.2 RULE CERTIFICATION OF THE CFO               
|EX-32.1 SECTION 1350 CERTIFICATION OF THE CEO       
|EX-32.2 SECTION 1350 CERTIFICATION OF THE CFO       



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INTRODUCTORY NOTE
Form 10-Q/A for the quarter ended October 11, 2003 Subsequent to the date of filing of the original Form 10-Q for the quarter
ended October 11, 2003, the Company reconsidered its methodology of recognizing
slotting allowances and similar consideration received from vendors in
accordance with EITF 02-16. This Amendment No.1 on Form 10-Q/A is being filed to restate certain amounts
(see Note G, Recent Accounting Pronouncements, and Managements Discussion and
Analysis of Financial Condition and Results of Operations) and to revise
certain related disclosure in the Companys Consolidated Financial Statements
for the quarter ended October 11, 2003. Except as set forth herein, this Amendment No.1 does not reflect any events
occurring after the date of filing of the original Form 10-Q for the quarter
ended October 11, 2003, or otherwise modify or update any of the information
contained therein. 2




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PART I FINANCIAL INFORMATION Item 1. Financial Statements 
 MARSH SUPERMARKETS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
(Unaudited) 16 Weeks Ended
    
        28 Weeks EndedRestated*
    
    
    
    
    
        Restated*October 11,
    
        October 12,
    
        October 11,
    
        October 12,2003
    
        2002
    
        2003
    
        2002Sales and other revenues
    
    $
    508,955
    
    
    $
    512,722
    
    
    $
    886,965
    
    
    $
    896,217Gains from sales of property
    
    
    1,814
    
    
    
    1,875
    
    
    
    1,814
    
    
    
    3,546Total revenues
    
    
    510,769
    
    
    
    514,597
    
    
    
    888,779
    
    
    
    899,763Cost of merchandise sold,
including warehousing and transportation,
excluding depreciation
    
    
    358,385
    
    
    
    360,019
    
    
    
    622,464
    
    
    
    626,250Gross profit
    
    
    152,384
    
    
    
    154,578
    
    
    
    266,315
    
    
    
    273,513Selling, general and administrative
    
    
    138,053
    
    
    
    138,739
    
    
    
    240,172
    
    
    
    241,653Depreciation
    
    
    7,660
    
    
    
    7,527
    
    
    
    13,422
    
    
    
    13,117Operating income
    
    
    6,671
    
    
    
    8,312
    
    
    
    12,721
    
    
    
    18,743Interest
    
    
    5,925
    
    
    
    7,410
    
    
    
    10,495
    
    
    
    12,833Other non-operating income
    
    
    (327
    )
    
    
    
    
    
    
    (961
    )
    
    
    Income from continuing operations
before income taxes
    
    
    1,073
    
    
    
    902
    
    
    
    3,187
    
    
    
    5,910Income taxes
    
    
    390
    
    
    
    578
    
    
    
    1,246
    
    
    
    2,425Income from continuing operations
    
    
    683
    
    
    
    324
    
    
    
    1,941
    
    
    
    3,485Loss on disposal of
discontinued operation, net of tax
    
    
    
    
    
    
    (18
    )
    
    
    
    
    
    
    (199
    )Net income
    
    $
    683
    
    
    $
    306
    
    
    $
    1,941
    
    
    $
    3,286Basic earnings per common share:Continuing operations
    
    $
    .09
    
    
    $
    .04
    
    
    $
    .24
    
    
    $
    .44Loss on disposal of discontinued operation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (.03
    )Net income
    
    $
    .09
    
    
    $
    .04
    
    
    $
    .24
    
    
    $
    .41Diluted earnings per common share:Continuing operations
    
    $
    .09
    
    
    $
    .04
    
    
    $
    .24
    
    
    $
    .41Loss on disposal of discontinued operation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (.02
    )Net income
    
    $
    .09
    
    
    $
    .04
    
    
    $
    .24
    
    
    $
    .39Dividends per share
    
    $
    .13
    
    
    $
    .11
    
    
    $
    .26
    
    
    $
    .22
  *
    
    Certain amounts have been restated in conjunction with the Companys
reconsideration of the application of EITF 02-16.
See Note G. See notes to condensed consolidated financial statements. 3




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MARSH SUPERMARKETS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands) Restated*
    
        Restated*October 11,
    
        March 29,
    
        October 12,2003
    
        2003
    
        2002(Unaudited)
    
        (Note A)
    
        (Unaudited)AssetsCurrent assets:Cash and equivalents
    
    $
    27,368
    
    
    $
    28,313
    
    
    $
    33,066Accounts receivable, net
    
    
    26,094
    
    
    
    27,203
    
    
    
    34,417Inventories
    
    
    118,396
    
    
    
    130,297
    
    
    
    138,081Prepaid expenses
    
    
    4,711
    
    
    
    5,731
    
    
    
    6,061Recoverable income taxes
    
    
    2,319
    
    
    
    
    
    
    
    968Total current assets
    
    
    178,888
    
    
    
    191,544
    
    
    
    212,593Property and equipment, less allowances for
depreciation
    
    
    307,533
    
    
    
    311,469
    
    
    
    315,802Other assets
    
    
    50,921
    
    
    
    46,309
    
    
    
    48,142$
    537,342
    
    
    $
    549,322
    
    
    $
    576,537Liabilities and Shareholders EquityCurrent liabilities:Notes payable to bank
    
    $
    
    
    
    $
    1,700
    
    
    $
    Accounts payable
    
    
    69,519
    
    
    
    71,883
    
    
    
    72,538Accrued liabilities
    
    
    51,611
    
    
    
    49,665
    
    
    
    53,754Current maturities of long-term liabilities
    
    
    3,250
    
    
    
    3,452
    
    
    
    3,340Total current liabilities
    
    
    124,380
    
    
    
    126,700
    
    
    
    129,632Long-term liabilities:Long-term debt
    
    
    183,335
    
    
    
    198,148
    
    
    
    217,474Capital lease obligations
    
    
    28,482
    
    
    
    29,009
    
    
    
    29,437Total long-term liabilities
    
    
    211,817
    
    
    
    227,157
    
    
    
    246,911Deferred items:Income taxes
    
    
    12,673
    
    
    
    9,606
    
    
    
    17,337Pension and post-retirement benefits
    
    
    43,723
    
    
    
    40,824
    
    
    
    22,832Other
    
    
    17,005
    
    
    
    17,226
    
    
    
    17,490Total deferred items
    
    
    73,401
    
    
    
    67,656
    
    
    
    57,659Shareholders Equity:Common stock, Classes A and B
    
    
    26,455
    
    
    
    26,439
    
    
    
    26,418Retained earnings
    
    
    131,788
    
    
    
    131,911
    
    
    
    137,068Cost of common stock in treasury
    
    
    (15,014
    )
    
    
    (14,928
    )
    
    
    (14,713
    )Deferred cost  restricted stock
    
    
    (25
    )
    
    
    (54
    )
    
    
    (166
    )Notes receivable  stock options
    
    
    (76
    )
    
    
    (175
    )
    
    
    (948
    )Accumulated other comprehensive loss
    
    
    (15,384
    )
    
    
    (15,384
    )
    
    
    (5,324
    )Total shareholders equity
    
    
    127,744
    
    
    
    127,809
    
    
    
    142,335$
    537,342
    
    
    $
    549,322
    
    
    $
    576,537
  *
    
    Certain amounts have been restated in conjunction with the Companys
reconsideration of the application of EITF 02-16.
See Note G. See notes to condensed consolidated financial statements. 4




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MARSH SUPERMARKETS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited) 28 Weeks EndedRestated*October 11,
    
        October 12,2003
    
        2002Operating activitiesNet income
    
    $
    1,941
    
    
    $
    3,286Adjustments to reconcile net income to net
cash provided by operating activities:Depreciation
    
    
    13,422
    
    
    
    13,117Amortization of other assets
    
    
    817
    
    
    
    798Changes in operating assets and liabilities
    
    
    11,539
    
    
    
    2,614Other operating activities
    
    
    633
    
    
    
    (2,509
    )Net cash provided by operating activities
    
    
    28,352
    
    
    
    17,306Investing activitiesNet acquisition of property, equipment and land
    
    
    (8,462
    )
    
    
    (24,653
    )Other investing activities
    
    
    (1,756
    )
    
    
    (768
    )Net cash used for investing activities
    
    
    (10,218
    )
    
    
    (25,421
    )Financing activitiesRepayments of short-term borrowings
    
    
    (1,700
    )
    
    
    (1,300
    )Proceeds of long-term borrowings
    
    
    20,000
    
    
    
    15,000Proceeds of sale/leasebacks
    
    
    298
    
    
    
    27,309Repayments of long-term debt and capital leases
    
    
    (35,542
    )
    
    
    (35,401
    )Cash dividends paid
    
    
    (2,065
    )
    
    
    (1,754
    )Purchases of shares for treasury
    
    
    (129
    )
    
    
    (321
    )Other financing activities
    
    
    59
    
    
    
    132Net cash provided by (used for) financing activities
    
    
    (19,079
    )
    
    
    3,665Net decrease in cash and equivalents
    
    
    (945
    )
    
    
    (4,450
    )Cash and equivalents at beginning of period
    
    
    28,313
    
    
    
    37,516Cash and equivalents at end of period
    
    $
    27,368
    
    
    $
    33,066
  *
    
    Certain amounts have been restated in conjunction with the Companys
reconsideration of the application of EITF 02-16.
See Note G. See notes to condensed consolidated financial statements. 5




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MARSH SUPERMARKETS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share amounts or as otherwise noted) October 11, 2003 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 29, 2003. The balance sheet at March 29, 2003, 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 2004 and 2003 relate to the fiscal
years ending March 27, 2004 and March 29, 2003, respectively. The condensed consolidated financial statements for the sixteen and
twenty-eight week periods ended October 11, 2003 and October 12, 2002,
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. Certain reclassifications
have been made to prior period amounts to conform to current presentations. Operating results for the twenty-eight week period ended October 11, 2003, are
not necessarily indicative of the results that may be expected for the full
fiscal year ending March 27, 2004. Note B  Discontinued Operation In October 2001, the Company completed the sale of certain assets of its
wholesale division. The loss on disposal of discontinued operation reported in
the condensed consolidated statements of income relates primarily to
adjustments to accounts receivable and a workers compensation reserve
attributable to that division. The remaining assets and liabilities from the
discontinued operation included in the condensed consolidated balance sheet at
October 11, 2003, are not material. 6




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Note C  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: 16 Weeks Ended
    
        28 Weeks EndedOctober 11,
    
October 12,
    
    October 11,
    
October 12,2003
    
        2002
    
        2003
    
        2002Income from continuing operations
    
    $
    683
    
    
    $
    324
    
    
    $
    1,941
    
    
    $
    3,485Loss on disposal of discontinued operation
    
    
    
    
    
    
    (18
    )
    
    
    
    
    
    
    (199
    )Numerator for basic earnings per share
    
    
    683
    
    
    
    306
    
    
    
    1,941
    
    
    
    3,286Effect of convertible debentures
    
    
    
    
    
    
    
    (a)
    
    
    
    
    
    
    442Numerator for diluted earnings per share
 income after assumed conversions
    
    $
    683
    
    
    $
    306
    
    
    $
    1,941
    
    
    $
    3,728Weighted average shares outstanding
    
    
    7,950
    
    
    
    7,970
    
    
    
    7,950
    
    
    
    7,973Non-vested restricted shares
    
    
    (3
    )
    
    
    (27
    )
    
    
    (5
    )
    
    
    (27
    )Denominator for basic earnings per share
    
    
    7,947
    
    
    
    7,943
    
    
    
    7,945
    
    
    
    7,946Effect of dilutive securities:Non-vested restricted shares
    
    
    3
    
    
    
    27
    
    
    
    5
    
    
    
    27Stock options
    
    
    64
    
    
    
    123
    
    
    
    63
    
    
    
    220Convertible debentures
    
    
    
    
    
    
    
    (a)
    
    
    
    
    
    
    1,284Denominator for diluted earnings per share
 adjusted weighted average shares
    
    
    8,014
    
    
    
    8,093
    
    
    
    8,013
    
    
    
    9,477
 (a) convertible debentures are excluded, as the effect would have been
anti-dilutive. Note D  Stock Option Plans The Companys stock option plans are accounted for under the intrinsic value
method of APB Opinion 25 and related interpretations. Since the exercise price
of options granted under the plans is equal to the market price of the
underlying common stock on the grant date, no stock-based compensation cost is
recognized in net income. 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: 16 Weeks Ended
    
        28 Weeks EndedOctober 11,
    
October 12,
    
    October 11,
    
October 12,2003
    
        2002
    
        2003
    
        2002Net income, as reported
    
    $
    683
    
    
    $
    306
    
    
    $
    1,941
    
    
    $
    3,286Less compensation expense using
the fair value method, net of tax
    
    
    (246
    )
    
    
    (344
    )
    
    
    (454
    )
    
    
    (589
    )Pro-forma net income (loss)
    
    $
    437
    
    
    $
    (38
    )
    
    $
    1,487
    
    
    $
    2,697Earnings per share, as reported:Basic
    
    $
    .09
    
    
    $
    .04
    
    
    $
    .24
    
    
    $
    .41Diluted
    
    
    .09
    
    
    
    .04
    
    
    
    .24
    
    
    
    .39Earnings per share, pro-forma:Basic
    
    
    .06
    
    
    
    
    
    
    
    .19
    
    
    
    .34Diluted
    
    
    .05
    
    
    
    
    
    
    
    .19
    
    
    
    .33
 7




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Note E  Long-Term Debt During the second quarter and twenty-eight weeks ended October 11, 2003 the
Company purchased and retired $7.25 million and $16.75 million, respectively,
of its 8 7/8% senior subordinated notes at less than face value. The purchases
resulted in gains of $0.3 million and $0.9 million, respectively, for the
second quarter and twenty-eight weeks ended October 11, 2003. During the quarter ended October 11, 2003, the Companys revolving credit
facility was amended with the effect of a) decreasing permitted borrowings to
$82.5 million from $95.0 million, b) increasing the carrying cost of land and
buildings securing the facility to $73.5 million from $49.6 million, and c)
modifying the measures of certain debt covenants. Note F  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 the 8 7/8% senior subordinated notes. The
Guarantors are wholly owned subsidiaries of the Company. Statement of income for the 16 weeks ended October 11, 2003: Guarantor
    
        ConsolidatingParent
    
        subsidiaries
    
        entries
    
        TotalSales and other revenues
    
    $
    1,513
    
    
    $
    508,952
    
    
    $
    (1,510
    )
    
    $
    508,955Gains from sales of property
    
    
    
    
    
    
    1,814
    
    
    
    
    
    
    
    1,814Total revenues
    
    
    1,513
    
    
    
    510,766
    
    
    
    (1,510
    )
    
    
    510,769Cost of merchandise sold,
including warehousing and transportation,
excluding depreciation
    
    
    
    
    
    
    358,385
    
    
    
    
    
    
    
    358,385Gross profit
    
    
    1,513
    
    
    
    152,381
    
    
    
    (1,510
    )
    
    
    152,384Selling, general and administrative
    
    
    807
    
    
    
    138,756
    
    
    
    (1,510
    )
    
    
    138,053Depreciation
    
    
    550
    
    
    
    7,110
    
    
    
    
    
    
    
    7,660Operating income
    
    
    156
    
    
    
    6,515
    
    
    
    
    
    
    
    6,671Interest
    
    
    562
    
    
    
    5,363
    
    
    
    
    
    
    
    5,925Other non-operating income
    
    
    (327
    )
    
    
    
    
    
    
    
    
    
    
    (327
    )Income (loss) from continuing operations
before income taxes
    
    
    (79
    )
    
    
    1,152
    
    
    
    
    
    
    
    1,073Income taxes (benefit)
    
    
    (33
    )
    
    
    423
    
    
    
    
    
    
    
    390Income (loss) from continuing operations
    
    $
    (46
    )
    
    $
    729
    
    
    $
    
    
    
    $
    683
 8




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Statement of income for the 16 weeks ended October 12, 2002: Guarantor
    
        ConsolidatingParent
    
        subsidiaries
    
        entries
    
        TotalSales and other revenues
    
    $
    1,526
    
    
    $
    512,706
    
    
    $
    (1,510
    )
    
    $
    512,722Gains from sales of property
    
    
    
    
    
    
    1,875
    
    
    
    
    
    
    
    1,875Total revenues
    
    
    1,526
    
    
    
    514,581
    
    
    
    (1,510
    )
    
    
    514,597Cost of merchandise sold,
including warehousing and transportation,
excluding depreciation
    
    
    
    
    
    
    360,019
    
    
    
    
    
    
    
    360,019Gross profit
    
    
    1,526
    
    
    
    154,562
    
    
    
    (1,510
    )
    
    
    154,578Selling, general and administrative
    
    
    834
    
    
    
    139,415
    
    
    
    (1,510
    )
    
    
    138,739Depreciation
    
    
    427
    
    
    
    7,100
    
    
    
    
    
    
    
    7,527Operating income
    
    
    265
    
    
    
    8,047
    
    
    
    
    
    
    
    8,312Interest
    
    
    690
    
    
    
    6,720
    
    
    
    
    
    
    
    7,410Income (loss) from continuing operations
before income taxes
    
    
    (425
    )
    
    
    1,327
    
    
    
    
    
    
    
    902Income taxes (benefit)
    
    
    (187
    )
    
    
    765
    
    
    
    
    
    
    
    578Income (loss) from continuing operations
    
    $
    (238
    )
    
    $
    562
    
    
    $
    
    
    
    $
    324
 Statement of income for the 28 weeks ended October 11, 2003: Guarantor
    
        ConsolidatingParent
    
        subsidiaries
    
        entries
    
        TotalSales and other revenues
    
    $
    2,648
    
    
    $
    886,960
    
    
    $
    (2,643
    )
    
    $
    886,965Gains from sales of property
    
    
    
    
    
    
    1,814
    
    
    
    
    
    
    
    1,814Total revenues
    
    
    2,648
    
    
    
    888,774
    
    
    
    (2,643
    )
    
    
    888,779Cost of merchandise sold,
including warehousing and transportation,
excluding depreciation
    
    
    
    
    
    
    622,464
    
    
    
    
    
    
    
    622,464Gross profit
    
    
    2,648
    
    
    
    266,310
    
    
    
    (2,643
    )
    
    
    266,315Selling, general and administrative
    
    
    1,463
    
    
    
    241,352
    
    
    
    (2,643
    )
    
    
    240,172Depreciation
    
    
    961
    
    
    
    12,461
    
    
    
    
    
    
    
    13,422Operating income
    
    
    224
    
    
    
    12,497
    
    
    
    
    
    
    
    12,721Interest
    
    
    981
    
    
    
    9,514
    
    
    
    
    
    
    
    10,495Other non-operating income
    
    
    (961
    )
    
    
    
    
    
    
    
    
    
    
    (961
    )Income from continuing operations
before income taxes
    
    
    204
    
    
    
    2,983
    
    
    
    
    
    
    
    3,187Income taxes
    
    
    86
    
    
    
    1,160
    
    
    
    
    
    
    
    1,246Income from continuing operations
    
    $
    118
    
    
    $
    1,823
    
    
    $
    
    
    
    $
    1,941
 9




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##### Table of Contents



Statement of income for the 28 weeks ended October 12, 2002: Guarantor
    
        ConsolidatingParent
    
        subsidiaries
    
        entries
    
        TotalSales and other revenues
    
    $
    2,671
    
    
    $
    896,189
    
    
    $
    (2,643
    )
    
    $
    896,217Gains from sales of property
    
    
    
    
    
    
    3,546
    
    
    
    
    
    
    
    3,546Total revenues
    
    
    2,671
    
    
    
    899,735
    
    
    
    (2,643
    )
    
    
    899,763Cost of merchandise sold,
including warehousing and transportation,
excluding depreciation
    
    
    
    
    
    
    626,250
    
    
    
    
    
    
    
    626,250Gross profit
    
    
    2,671
    
    
    
    273,485
    
    
    
    (2,643
    )
    
    
    273,513Selling, general and administrative
    
    
    1,484
    
    
    
    242,812
    
    
    
    (2,643
    )
    
    
    241,653Depreciation
    
    
    743
    
    
    
    12,374
    
    
    
    
    
    
    
    13,117Operating income
    
    
    444
    
    
    
    18,299
    
    
    
    
    
    
    
    18,743Interest
    
    
    1,196
    
    
    
    11,637
    
    
    
    
    
    
    
    12,833Income (loss) from continuing operations
before income taxes
    
    
    (752
    )
    
    
    6,662
    
    
    
    
    
    
    
    5,910Income taxes (benefit)
    
    
    (308
    )
    
    
    2,733
    
    
    
    
    
    
    
    2,425Income (loss) from continuing operations
    
    $
    (444
    )
    
    $
    3,929
    
    
    $
    
    
    
    $
    3,485
 10




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##### Table of Contents



Balance sheet as of October 11, 2003: GuarantorParent
    
        subsidiaries
    
        TotalAssetsCurrent assets:Cash and equivalents
    
    $
    
    
    
    $
    27,368
    
    
    $
    27,368Accounts receivable
    
    
    
    
    
    
    26,094
    
    
    
    26,094Inventories
    
    
    
    
    
    
    118,396
    
    
    
    118,396Prepaid expenses
    
    
    6
    
    
    
    4,705
    
    
    
    4,711Recoverable income taxes
    
    
    
    
    
    
    2,319
    
    
    
    2,319Total current assets
    
    
    6
    
    
    
    178,882
    
    
    
    178,888Property and equipment, less allowances for depreciation
    
    
    33,102
    
    
    
    274,431
    
    
    
    307,533Other assets
    
    
    4,117
    
    
    
    46,804
    
    
    
    50,921$
    37,225
    
    
    $
    500,117
    
    
    $
    537,342Liabilities and Shareholders EquityCurrent liabilities:Accounts payable
    
    $
    
    
    
    $
    69,519
    
    
    $
    69,519Accrued liabilities
    
    
    3,909
    
    
    
    47,702
    
    
    
    51,611Current maturities of long-term liabilities
    
    
    1,509
    
    
    
    1,741
    
    
    
    3,250Total current liabilities
    
    
    5,418
    
    
    
    118,962
    
    
    
    124,380Long-term liabilities:Long-term debt
    
    
    112,948
    
    
    
    70,387
    
    
    
    183,335Capital lease obligations
    
    
    
    
    
    
    28,482
    
    
    
    28,482Total long-term liabilities
    
    
    112,948
    
    
    
    98,869
    
    
    
    211,817Deferred items:Income taxes
    
    
    12,673
    
    
    
    
    
    
    
    12,673Pension and post-retirement benefits
    
    
    39,422
    
    
    
    4,301
    
    
    
    43,723Other
    
    
    60
    
    
    
    16,945
    
    
    
    17,005Total deferred items
    
    
    52,155
    
    
    
    21,246
    
    
    
    73,401Amounts due parent from subsidiaries
    
    
    (141,607
    )
    
    
    141,607
    
    
    
    Shareholders Equity:Common stock, Classes A and B
    
    
    26,455
    
    
    
    
    
    
    
    26,455Retained earnings
    
    
    12,355
    
    
    
    119,433
    
    
    
    131,788Cost of common stock in treasury
    
    
    (15,014
    )
    
    
    
    
    
    
    (15,014
    )Deferred cost  restricted stock
    
    
    (25
    )
    
    
    
    
    
    
    (25
    )Notes receivable  stock options
    
    
    (76
    )
    
    
    
    
    
    
    (76
    )Accumulated other comprehensive loss
    
    
    (15,384
    )
    
    
    
    
    
    
    (15,384
    )Total shareholders equity
    
    
    8,311
    
    
    
    119,433
    
    
    
    127,744$
    37,225
    
    
    $
    500,117
    
    
    $
    537,342
 11




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##### Table of Contents



Balance sheet as of March 29, 2003: GuarantorParent
    
        subsidiaries
    
        TotalAssetsCurrent assets:Cash and equivalents
    
    $
    
    
    
    $
    28,313
    
    
    $
    28,313Accounts receivable
    
    
    
    
    
    
    27,203
    
    
    
    27,203Inventories
    
    
    
    
    
    
    130,297
    
    
    
    130,297Prepaid expenses
    
    
    
    
    
    
    5,731
    
    
    
    5,731Total current assets
    
    
    
    
    
    
    191,544
    
    
    
    191,544Property and equipment, less allowances for depreciation
    
    
    33,777
    
    
    
    277,692
    
    
    
    311,469Other assets
    
    
    4,484
    
    
    
    41,825
    
    
    
    46,309$
    38,261
    
    
    $
    511,061
    
    
    $
    549,322Liabilities and Shareholders EquityCurrent liabilities:Notes payable to bank
    
    $
    
    
    
    $
    1,700
    
    
    $
    1,700Accounts payable
    
    
    
    
    
    
    71,883
    
    
    
    71,883Accrued liabilities
    
    
    6,317
    
    
    
    43,348
    
    
    
    49,665Current maturities of long-term liabilities
    
    
    1,435
    
    
    
    2,017
    
    
    
    3,452Total current liabilities
    
    
    7,752
    
    
    
    118,948
    
    
    
    126,700Long-term liabilities:Long-term debt
    
    
    130,367
    
    
    
    67,781
    
    
    
    198,148Capital lease obligations
    
    
    
    
    
    
    29,009
    
    
    
    29,009Total long-term liabilities
    
    
    130,367
    
    
    
    96,790
    
    
    
    227,157Deferred items:Income taxes
    
    
    9,606
    
    
    
    
    
    
    
    9,606Pension and post-retirement benefits
    
    
    36,700
    
    
    
    4,124
    
    
    
    40,824Other
    
    
    61
    
    
    
    17,165
    
    
    
    17,226Total deferred items
    
    
    46,367
    
    
    
    21,289
    
    
    
    67,656Amounts due parent from subsidiaries
    
    
    (156,425
    )
    
    
    156,425
    
    
    
    Shareholders Equity:Common stock, Classes A and B
    
    
    26,439
    
    
    
    
    
    
    
    26,439Retained earnings
    
    
    14,302
    
    
    
    117,609
    
    
    
    131,911Cost of common stock in treasury
    
    
    (14,928
    )
    
    
    
    
    
    
    (14,928
    )Deferred cost  restricted stock
    
    
    (54
    )
    
    
    
    
    
    
    (54
    )Notes receivable  stock options
    
    
    (175
    )
    
    
    
    
    
    
    (175
    )Accumulated other comprehensive loss
    
    
    (15,384
    )
    
    
    
    
    
    
    (15,384
    )Total shareholders equity
    
    
    10,200
    
    
    
    117,609
    
    
    
    127,809$
    38,261
    
    
    $
    511,061
    
    
    $
    549,322
 12




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##### Table of Contents



Statement of cash flows for the twenty-eight weeks ended October 11, 2003: GuarantorParent
    
        subsidiaries
    
        TotalNet cash provided by operating activities
    
    $
    19,321
    
    
    $
    9,031
    
    
    $
    28,352Net cash provided by (used for) investing activities
    
    
    160
    
    
    
    (10,378
    )
    
    
    (10,218
    )Financing activitiesRepayments of short-term borrowings
    
    
    
    
    
    
    (1,700
    )
    
    
    (1,700
    )Proceeds of long-term borrowings
    
    
    
    
    
    
    20,000
    
    
    
    20,000Repayments of long-term debt and capital leases
    
    
    (17,345
    )
    
    
    (18,197
    )
    
    
    (35,542
    )Cash dividends paid
    
    
    (2,065
    )
    
    
    
    
    
    
    (2,065
    )Other financing activities
    
    
    (71
    )
    
    
    299
    
    
    
    228Net cash provided by (used for) financing activities
    
    
    (19,481
    )
    
    
    402
    
    
    
    (19,079
    )Net decrease in cash and equivalents
    
    
    
    
    
    
    (945
    )
    
    
    (945
    )Cash and equivalents at beginning of period
    
    
    
    
    
    
    28,313
    
    
    
    28,313Cash and equivalents at end of period
    
    $
    
    
    
    $
    27,368
    
    
    $
    27,368
 Statement of cash flows for the twenty-eight weeks ended October 12, 2002: GuarantorParent
    
        subsidiaries
    
        TotalNet cash provided by operating activities
    
    $
    3,730
    
    
    $
    13,576
    
    
    $
    17,306Net cash used for investing activities
    
    
    (1,217
    )
    
    
    (24,204
    )
    
    
    (25,421
    )Financing activitiesRepayments of short-term borrowings
    
    
    
    
    
    
    (1,300
    )
    
    
    (1,300
    )Proceeds of long-term borrowings
    
    
    
    
    
    
    15,000
    
    
    
    15,000Proceeds of sales leaseback/capital lease obligation
    
    
    
    
    
    
    27,309
    
    
    
    27,309Repayments of long-term debt and capital leases
    
    
    (568
    )
    
    
    (34,833
    )
    
    
    (35,401
    )Cash dividends paid
    
    
    (1,754
    )
    
    
    
    
    
    
    (1,754
    )Other financing activities
    
    
    (191
    )
    
    
    2
    
    
    
    (189
    )Net cash provided by (used for) financing activities
    
    
    (2,513
    )
    
    
    6,178
    
    
    
    3,665Net decrease in cash and equivalents
    
    
    
    
    
    
    (4,450
    )
    
    
    (4,450
    )Cash and equivalents at beginning of period
    
    
    
    
    
    
    37,516
    
    
    
    37,516Cash and equivalents at end of period
    
    $
    
    
    
    $
    33,066
    
    
    $
    33,066
 13




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##### Table of Contents



Note G  Recent Accounting Pronouncements
In April 2002, the FASB issued Statement No. 145 (FAS 145), Rescission of FASB
Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13 and Technical
Corrections. Certain provisions of FAS 145 were effective for the Company in
fiscal year 2003. The remaining provisions became effective for the Companys
current fiscal year and had no effect on the Companys results of operations or
financial position for the current quarter. In 2003, the FASB issued FIN 46, Consolidation of Variable Interest Entities.
The broad-based effective date of FIN 46 is deferred for public companies until
the end of periods ending after December 15, 2003. The Company does not believe
the issuance of FIN 46 will have a material impact on its financial position or
results of operations. In April, 2003, the FASB issued Statement No. 149 (FAS 149), Amendment of
Statement 133 on Derivative Instruments and Hedging Activities. FAS 149 is to
be applied prospectively to contracts entered into or modified after June 30,
2003. The adoption of FAS 149 did not have a material impact on the financial
position or results of operations of the Company. In May 2003, the FASB issued Statement No. 150 (FAS 150), Accounting for
Certain Financial Instruments with Characteristics of both Liabilities and
Equity. FAS 150 requires that an issuer classify certain financial instruments
as a liability (or as an asset in some circumstances). FAS 150 was effective for
the Company in the current quarter and the adoption did not have a material
impact on the financial position or results of operations of the Company. EITF (Emerging Issues Task Force) Issue No. 02-16, Accounting by a Customer
(Including a Reseller) for Certain Consideration Received from a Vendor, became
effective as to the Company on January 1, 2003. This issue addresses the
appropriate accounting for consideration received from a vendor. As a result of
this guidance, the Company has adopted a new policy for recognizing slotting
allowances and similar consideration received from vendors. Allowances that are
related to a specific purchase quantity will continue to be recorded as a
component of the item cost of inventory and recognized in merchandise costs when
the item is sold. Due to system constraints and the nature of certain
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 related merchandise is sold. Under
the Companys previous accounting policy for vendor allowances, those credits
were recognized as a reduction to cost of goods sold when the Company had
fulfilled its obligations under the related contract. In connection with the
implementation of this new accounting policy, the Company applied the provisions
of EITF No. 02-16 prospectively which resulted in deferring recognition of
vendor allowances totaling $5.6 million at Marsh 29, 2003, $4.9 million at June
21, 2003, and $4.4 million at October 11, 2003. This deferral reflects an
adjustment of the Companys inventory balance. The resulting
increase in gross profit for
the quarter ended October 11, 2003 of $0.5 million, or $0.3 million after tax,
was recorded in the Companys Condensed Consolidated Statement of Income. The
resulting increase in gross profit for the twenty-eight weeks ended October 11, 2003
recorded in the Companys Condensed Consolidated Statement of Income was $1.1
million, or $0.8 million after tax. The impact of adopting EITF 02-16 is
summarized below: 16 Weeks Ended
    
    28 Weeks EndedOctober 11, 2003
    
    October 11, 2003As Previously
    
    
    
    
    
    As PreviouslyReported
    
    As Restated
    
    Reported
    
    As RestatedGross profit
    
    $
    151,915
    
    
    $
    152,384
    
    
    $
    265,168
    
    
    $
    266,315Operating income
    
    
    6,202
    
    
    
    6,671
    
    
    
    11,574
    
    
    
    12,721Net income
    
    
    375
    
    
    
    683
    
    
    
    1,188
    
    
    
    1,941Basic net income per share
    
    
    .05
    
    
    
    .09
    
    
    
    .15
    
    
    
    .24Diluted net income per share
    
    
    .05
    
    
    
    .09
    
    
    
    .15
    
    
    
    .24Inventories at October 11, 2003
    
    
    122,807
    
    
    
    118,396
    
    
    
    122,807
    
    
    
    118,396
 14




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##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations Cautionary Note Regarding Forward-Looking Statements
This report includes certain forward-looking statements (all 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; softness in the local and
national economies and the general retail food industry; the level of
discounting and promotional spending by competitors; the Companys ability to
improve comparable store sales; the Companys ability to implement its
improvement initiatives; the ability of the Company to predict and respond to
changes in customer preferences and lifestyles; food price deflation;
uncertainties regarding future real estate gains due to limited real estate
holdings available for sale; stability and timing of distribution incentives
from suppliers; the Companys ability to control cost including labor, medical,
rent, credit card, and workers compensation and general liability expense; the
impact of any acquisitions and dispositions; the level of margins achievable in
the Companys operating divisions; uncertainties regarding gasoline prices and
margins; the success of the Companys new and remodeled stores, including image
and rebranding programs; the successful economic implementation of new
technology; uncertainties associated with pension and other retirement
obligations; uncertainties related to state and federal taxation and tobacco and
environmental legislation; the successful integration of acquisitions; potential
interest rate increases on variable rate debt, as well as terms, costs,
availability of capital; the timely and on budget completion of store
construction, expansion, conversion and remodeling; the ability to complete
share repurchases, 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. General
At October 11, 2003, Marsh Supermarkets, Inc. (the Company or Marsh)
operated 111 supermarkets and 167 Village Pantry convenience stores in central
Indiana and western Ohio. The Company believes that Marsh supermarkets have one
of the largest market shares of supermarket chains operating in its market area
and Village Pantry has one of the largest market shares of convenience stores in
its market area. Marsh also owns and operates a food services division, which
specializes in upscale catering, office coffee, coffee roasting, business
cafeteria management, vending and concessions, and a floral division, which
operates eight upscale retail floral shops under the McNamara banner and a
business florist under the name Enflora. Results Of Operations
Results of operations for interim periods do not necessarily reflect the results
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: Second Quarter
    
    Year - to - DatePercent of Revenues
    
    Percent
    
    Percent of Revenues
    
    Percent2004
    
    2003
    
    Change
    
    2004
    
    2003
    
    ChangeTotal revenues
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    (0.7
    %)
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    (1.2
    %)Gross profit
    
    
    29.8
    %
    
    
    30.0
    %
    
    
    (1.4
    %)
    
    
    30.0
    %
    
    
    30.4
    %
    
    
    (2.6
    %)Selling, general and administrative
    
    
    27.0
    %
    
    
    27.0
    %
    
    
    (0.5
    %)
    
    
    27.0
    %
    
    
    26.9
    %
    
    
    (0.6
    %)Depreciation
    
    
    1.5
    %
    
    
    1.5
    %
    
    
    1.8
    %
    
    
    1.5
    %
    
    
    1.5
    %
    
    
    2.3
    %Operating income
    
    
    1.3
    %
    
    
    1.6
    %
    
    
    (19.7
    %)
    
    
    1.4
    %
    
    
    2.1
    %
    
    
    (32.1
    %)Interest
    
    
    1.2
    %
    
    
    1.4
    %
    
    
    (20.0
    %)
    
    
    1.2
    %
    
    
    1.4
    %
    
    
    (18.2
    %)Other non-operating expense (income)
    
    
    (0.1
    %)
    
    
    
    
    
    
    n/a
    
    
    
    (0.1
    %)
    
    
    
    
    
    
    n/aIncome taxes
    
    
    0.1
    %
    
    
    0.1
    %
    
    
    (32.5
    %)
    
    
    0.1
    %
    
    
    0.3
    %
    
    
    (48.6
    %)Income from continuing operations
    
    
    0.1
    %
    
    
    0.1
    %
    
    
    110.8
    %
    
    
    0.2
    %
    
    
    0.4
    %
    
    
    (44.3
    %)
 15




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##### Table of Contents



Total Revenues
In the second quarter of 2004, consolidated total revenues were $510.8 million,
compared to $514.6 million in the second quarter of 2003. Supermarket revenues
decreased $11.6 million, Village Pantry revenues increased $4.4 million and
Crystal Food Service revenues increased $1.3 million. Consolidated total
revenues, excluding fuel sales, decreased 2.0% to $472.3 million from $481.9
million. Sales in comparable supermarkets and convenience stores decreased 1.9%
from the second quarter of 2003 to $472.1 million from $481.1 million. Sales in
comparable supermarkets and convenience stores, excluding fuel, decreased 3.3%
from the second quarter of 2003, to $434.8 million from $449.7 million. The
Company excludes fuel from its analysis of revenues and comparable store sales
and believes this information provides useful information to investors because
fuel prices fluctuate widely and frequently. A store is included in comparable
stores beginning in the four-week period after the store has been in operation
for thirteen full four-week periods. Replacement stores and format conversions
are included in the comparable stores sales calculation. Competitors new store
openings and high levels of competitive promotional activity combined with a
weak economy continue to affect comparable store sales. Consolidated total
revenues for the second quarter of 2004 included gains of $1.8 million from
sales of real estate in the normal course of business, compared to $1.9 million
in 2003. Although results may vary from period to period, future real estate
gains are not expected to equal or exceed historic levels due to the limited
real estate holdings available for sale in the normal course of business, which
could materially adversely affect the Companys results of operations. For the twenty-eight weeks ended October 11, 2003, consolidated total revenues
decreased $11.0 million, or 1.2%, from the same twenty-eight week period of 2003
to $888.8 million. Supermarket revenues decreased $19.4 million, Village Pantry
revenues increased $4.8 million, Crystal Food Service revenues increased $3.7
million and gains on sales of real estate decreased $1.7 million. Consolidated
total revenues, excluding fuel sales, decreased 2.2% to $824.2 million from
$842.7 million. Sales in comparable supermarkets and convenience stores
decreased 1.8% to $823.6 million from $839.1 million. Sales in comparable
stores, excluding fuel, decreased 3.0% from the twenty-eight weeks of 2003 to
$761.0 million from $784.2 million. The Company excludes fuel from its analysis
of revenues and comparable store sales and believes this information provides
useful information to investors because fuel prices fluctuate widely and
frequently. Increased competitive square footage and promotions, and a weak
economy contributed to the decline in same store sales. Consolidated total
revenues for the twenty-eight weeks of 2003 included gains of $1.8 million from
sales of real estate, compared to $3.5 million for the year earlier period. Gross Profit
Gross profit is calculated net of promotional expenses, and warehousing and
transportation, excluding depreciation. In the second quarter of 2004,
consolidated gross profit declined $2.2 million, or 1.4%, from the second
quarter of 2003 to $152.4 million. As a percentage of revenues, consolidated
gross profit was 29.8% in the second quarter of 2004 compared to 30.0% for the
same quarter in 2003. Increased fuel sales, which have a gross margin rate
significantly lower than non-fuel sales, accounts for the decline as a
percentage of revenues. As a percentage of revenues, gross profit increased
slightly in supermarkets, declined in convenience stores and increased slightly
in the food service division. Gross profit in the second quarter of 2003
includes a $1.2 million one-time gain resulting from an increase in cigarette
state excise taxes. The Company has changed its accounting policy with respect
to slotting allowances and similar consideration received from vendors. As more
fully discussed in Note G, the Company had previously recognized certain vendor
allowances when the Company had fulfilled its obligations under the related
contract. Effective January 1, 2003, the Company now includes those allowances
as a reduction in inventory value. The change in this policy resulted in an
increase in gross profit of $0.5 million for the second quarter of 2004. 16




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For the twenty-eight weeks ended October 11, 2003, consolidated gross profit
decreased $7.2 million, or 2.6%, from the year earlier to $266.3 million. As a
percentage of revenues, consolidated gross profit was 30.0% in the current year
compared to 30.4% for 2003. Increased fuel sales at a low margin rate accounted
for 0.3% of the decline as a percentage of revenues. As a percentage of
revenues, gross profit was unchanged in the supermarket division, declined in
convenience stores and increased slightly in the food service division. The
Company has changed its accounting policy with respect to slotting allowances
and similar consideration received from vendors. The change in the policy for
vendor allowances resulted in an increase in gross profit of $1.1 million for the
twenty-eight weeks ended October 11, 2003. Selling, General and Administrative
Selling, general and administrative (SG&A) expenses include store expenses,
administrative and corporate expenses, purchasing personnel costs and
advertising. In the second quarter of 2004, consolidated SG&A expenses decreased
$0.7 million, or 0.5%, from the second quarter of 2003 to $138.0 million. As a
percentage of revenues, SG&A expenses were 27.0% in both the second quarter of
2004 and 2003. Increases in building rent and other occupancy costs, credit and
debit card transaction fees, and general liability premiums were more than
offset by reductions in store wages. Wage expense in stores open both quarters,
excluding supermarket conversions to the LoBill format, decreased 4.7% primarily
reflecting the same store sales decline and continued efforts on labor
efficiency. For the twenty-eight weeks in 2004, SG&A expenses decreased $1.5 million, or
0.6%, from the comparable twenty-eight weeks in 2003. As a percentage of
revenues, consolidated SG&A expenses increased to 27.0% from 26.9% in 2003. In
identical stores, wage expense decreased 4.7% from the comparable twenty-eight
weeks of the prior year primarily reflecting the same store sales decline and
continued efforts on labor efficiency and scheduling. Depreciation
Depreciation for the second quarter of 2004 was $7.7 million, compared to $7.5
million for the second quarter of 2003. As a percentage of revenues,
depreciation was 1.5% for both the second quarter of 2004 and 2003. For the twenty-eight weeks in 2004, depreciation was $13.4 million, compared to
$13.1 million for the twenty-eight weeks in 2003. As a percentage of revenues,
depreciation expense was 1.5% for the twenty-eight weeks in both 2004 and 2003. Operating Income
Operating income (income from continuing operations before interest and taxes)
was $6.7 million for the second quarter of 2004, compared to $8.3 million for
the second quarter of 2003 due to the decrease in gross profit and increase in
depreciation partially offset by the decrease in SG&A expenses. As a percentage
of revenues, operating income was 1.3% in 2004, compared to 1.6% for the second
quarter of 2003. The change in the policy for vendor allowances resulted in an
increase in operating income of $0.5 million for the second quarter of 2004. Operating income was $12.7 million for the twenty-eight weeks in 2004, compared
to $18.7 million for the year earlier period. The decrease in gross profit
combined with the increase in depreciation, slightly offset by lower SG&A
expenses accounts for the decline. As a percentage of revenues, operating income
was 1.4% for the twenty-eight weeks in 2004, compared to 2.1% for the comparable
period in 2003. The change in the policy for vendor allowances resulted in an
increase in operating income of $1.1 million for the twenty-eight weeks in 2004. Interest
Interest for the second quarter of 2004 was $5.9 million, compared to $7.4
million for the second quarter of 2003 due primarily to Company repurchases of
senior subordinated notes subsequent to the year earlier quarter. Interest as a
percentage of sales was 1.2% in 2004 compared to 1.4% in 2003. 17




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For the twenty-eight weeks in 2004, interest was $10.5 million, compared to
$12.8 million in 2003 due primarily to Company repurchases of senior
subordinated notes subsequent to the year earlier period. As a percentage of
revenues, interest was 1.2% for the twenty-eight weeks in 2004, compared to 1.4%
for the comparable period in 2003. Other Non-operating Income
During the second quarter and twenty-eight weeks ended October 11, 2003 the
Company purchased and retired $7.25 million and $16.75 million, respectively, of
its 8 7/8% senior subordinated notes at less than face value. The purchases
resulted in gains of $0.3 million and $0.9 million, respectively, for the second
quarter and twenty-eight weeks ended October 11, 2003. Income Taxes
For the second quarter of 2004, the effective income tax rate was 36.3%. The
effective income tax rate was not meaningful for the second quarter of 2003 due
to the low level of income before taxes. For the twenty-eight weeks of 2004, the
effective income tax rate was 39.1%, compared to 41.0% for the comparable weeks
in 2003. Income from Continuing Operations
Income from continuing operations for the second quarter of 2004 was $0.7
million, compared to $0.3 million for the second quarter of 2003. Decreased
operating income was more than offset by a decrease in interest plus an increase
in other non-operating income. As a percentage of revenues, income from
continuing operations was 0.1% for both the second quarter of 2004 and 2003. The
change in the policy for vendor allowances resulted in an increase in income
from continuing operations of $0.3 million for the second quarter of 2004. For the twenty-eight weeks of 2004, income from continuing operations was $1.9
million, compared to $3.5 million in 2003. Decreased operating income was
partially offset by decreased interest plus an increase in other non-operating
income. As a percentage of revenues, income from continuing operations was 0.2%
for the twenty-eight weeks of 2004 compared to 0.4% for the year earlier period.
The change in the policy for vendor allowances resulted in increase in income
from continuing operations of $0.8 million for the twenty-eight weeks in 2004. Discontinued Operation
During fiscal year 2002, the Company sold certain assets of its wholesale
division and reported a gain from the disposal. During the first two quarters of
2003, the reported gain was decreased by $0.2 million, after tax benefit,
primarily for an increase in provision for doubtful accounts. Deferred Pension and Post-retirement Benefits
Deferred pension and post-retirement benefit obligations increased to $43.7
million at October 11, 2003, from $40.8 million at March 29, 2003. The liability
for an unfunded supplemental executive retirement plan increased $1.6 million
due to higher age and service periods of the participants. The liability for a
deferred compensation plan increased $1.1 million as a result of plan earnings
and employee contributions. 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 half of 2004, one Marsh supermarket was remodeled, one new
LoBill Foods was opened, one Marsh supermarket was converted to the LoBill
format and construction began on two new Marsh supermarkets that will open
during the second half of the year. Also, the convenience store re-imaging
project was completed. Additionally in 2004, the Company plans to remodel two
Marsh supermarkets, acquire one new LoBill Foods and open two McNamara florist
shops. The cost of these projects and other capital commitments is estimated to
be $67 million. Of this amount, the Company plans to fund $40 million through
sale/leasebacks, $13 million through equipment leasing and the remainder from
internally generated funds. For the twenty-eight weeks ended October 11, 2003,
the Company had capital spending of $24 million. 18




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The Companys plans with respect to store 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 availability and cost of
financing, competitive influences, its ability to negotiate successfully 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 half of 2004 was $28.4
million, compared to $17.3 million in the first half of 2003. The increase in
net cash provided by operating activities was due primarily to a decrease in
inventory, which was partially offset by an increase in accounts receivable.
Working capital declined $10.3 million from March 29, 2003 due primarily to a
$11.9 million decrease in inventory resulting from an inventory reduction
initiative. The Company has an amended 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 $44.0 million under the facility at
October 11, 2003. The credit facility is secured by land and buildings having a
net carrying cost of $73.5 million at October 11, 2003 and the facility contains
certain debt covenants, including limits on future indebtedness, 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 $23.2 million as of October 11, 2003. During the quarter ended October 11, 2003, the Companys revolving credit
facility was amended with the effect of a) decreasing permitted borrowings to
$82.5 million from $95.0 million, b) increasing the carrying cost of land and
buildings securing the facility to $73.5 million from $49.6 million, and c)
modifying the measures of certain debt covenants. During the quarter ended October 11, 2003, the Company chose not to renew a bank
commitment that had previously provided $3.0 million in additional available
borrowings. Critical Accounting Policies
The preparation of financial statements requires management to make assumptions
and estimates that can 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 and automotive 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 as
warranted by changes in facts and circumstances. Pension and other retirement benefits are evaluated with the oversight of the
Companys retirement committee. Outside actuaries are consulted to determine
appropriate assumptions and are engaged to perform the calculation of estimated
future obligations. In 1997, the Company froze benefit accruals under its
qualified defined benefit pension plan. 19




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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 certain 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
related merchandise is sold, for transactions entered into on or after January 1,
2003. See Note G to the Condensed Consolidated Financial Statements. 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 October 11,
2003, a 100 basis point change in interest rates would not have had a material
impact on the Company. Item 4. 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 October 11, 2003, that materially affected, or is
reasonably likely to materially affect, the Companys internal control over
financial reporting. 20




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PART II  OTHER INFORMATION Item 1.
    
    Legal ProceedingsNot Applicable.Item 2.
    
    Changes in Securities and Use of ProceedsNot Applicable.Item 3.
    
    Defaults upon Senior SecuritiesNot Applicable.Item 4.
    
    Submission of Matters to a Vote of Security Holders
 On August 5, 2003, the Company held its Annual Meeting of
Shareholders. At the Annual Meeting, the shareholders of the Company elected the
following persons to serve as directors until the Annual Meeting of Shareholders
in 2006 and until such time as their respective successors are duly elected and
qualified with the number of votes cast for or withheld as set forth opposite
their names: VotesWithheldNominee
    
    For
    
    AuthorityDon E. Marsh
    
    
    3,276,903
    
    
    
    35,127William L. Marsh
    
    
    3,279,233
    
    
    
    32,797Stephen M. Huse
    
    
    3,295,610
    
    
    
    15,033John J. Heidt
    
    
    3,295,610
    
    
    
    16,420
 Item 5.
    
    Other InformationNot 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-KCurrent Reports on Form 8-K furnished to the SEC on August 4, 2003  Item 12 Results of Operations and Financial Condition.
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Notwithstanding the foregoing, information furnished under Item 12 of our Current Report on Form 8-K, including the
related exhibits, is not incorporated by reference into this quarterly report on Form 10-Q/A. 
 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Amendment No. 1 to Form 10-Q to be signed on its
behalf by the undersigned thereunto duly authorized. MARSH SUPERMARKETS, INC.February 17, 2004
    
    By:
    
    /s/ Douglas W. DoughertyDouglas W. DoughertySenior Vice President, Chief Financial Officerand TreasurerFebruary 17, 2004
    
    By:
    
    /s/ Mark A. VarnerMark A. VarnerChief Accounting OfficerVice President  Corporate Controller


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