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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 January 3, 2004

Commission File Number 0-1532

MARSH SUPERMARKETS, INC.

(Exact name of registrant as specified in its charter)


INDIANA
    
    35-0918179(State or other jurisdiction of
    
    (IRS Employerincorporation or organization)
    
    Identification No.)


9800 CROSSPOINT
BOULEVARDINDIANAPOLIS, 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 o   No x

Number of shares outstanding of each class of the registrants common
stock as of January 31, 2004:

Class A Common Stock -
    
    
    3,801,689
    
    
    sharesClass B Common Stock -
    
    
    4,136,161
    
    
    shares7,937,850
    
    
    shares






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|                                                     |  |  |  |  |  |  |  | 
|---------------------------------------------------- |  |  |  |  |  |  |  | 
|PART I FINANCIAL INFORMATION                        
|NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
|Part II Other Information                           
|SIGNATURES                                          
|EX-31.1 SECTION 302 CERTIFICATION OF THE CEO        
|EX-31.2 SECTION 302 CERTIFICATION OF THE CFO        
|EX-32.1 SECTION 906 CERTIFICATION OF THE CEO        
|EX-32.2 SECTION 906 CERTIFICATION OF THE CFO        



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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)

12 Weeks Ended
    
    40 Weeks EndedJanuary 3,
    
    January 4,
    
    January 3,
    
    January 4,2004
    
    2003
    
    2004
    
    2003Sales and other revenues
    
    $
    388,417
    
    
    $
    382,305
    
    
    $
    1,275,382
    
    
    $
    1,278,522Gains from sales of property
    
    
    354
    
    
    
    406
    
    
    
    2,168
    
    
    
    3,952Total revenues
    
    
    388,771
    
    
    
    382,711
    
    
    
    1,277,550
    
    
    
    1,282,474Cost of merchandise sold, including
warehousing and transportation,
excluding depreciation
    
    
    270,889
    
    
    
    268,878
    
    
    
    893,353
    
    
    
    895,128Gross profit
    
    
    117,882
    
    
    
    113,833
    
    
    
    384,197
    
    
    
    387,346Selling, general and administrative
    
    
    103,874
    
    
    
    101,586
    
    
    
    344,046
    
    
    
    343,239Depreciation
    
    
    5,781
    
    
    
    5,633
    
    
    
    19,203
    
    
    
    18,750Operating income
    
    
    8,227
    
    
    
    6,614
    
    
    
    20,948
    
    
    
    25,357Interest
    
    
    4,268
    
    
    
    5,416
    
    
    
    14,763
    
    
    
    18,249Other non-operating income
    
    
    
    
    
    
    (971
    )
    
    
    (961
    )
    
    
    (971
    )Income from continuing operations
before income taxes
    
    
    3,959
    
    
    
    2,169
    
    
    
    7,146
    
    
    
    8,079Income taxes
    
    
    1,635
    
    
    
    965
    
    
    
    2,881
    
    
    
    3,390Income from continuing operations
    
    
    2,324
    
    
    
    1,204
    
    
    
    4,265
    
    
    
    4,689Gain (loss) on disposal of
discontinued operation, net of tax
    
    
    
    
    
    
    25
    
    
    
    
    
    
    
    (174
    )Net income
    
    $
    2,324
    
    
    $
    1,229
    
    
    $
    4,265
    
    
    $
    4,515Basic earnings per common share:Continuing operations
    
    $
    .29
    
    
    $
    .15
    
    
    $
    .54
    
    
    $
    .59Gain (loss) on disposal of discontinued operation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (.02
    )Net income
    
    $
    .29
    
    
    $
    .15
    
    
    $
    .54
    
    
    $
    .57Diluted earnings per common share:Continuing operations
    
    $
    .29
    
    
    $
    .15
    
    
    $
    .53
    
    
    $
    .57Gain (loss) on disposal of discontinued operation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (.02
    )Net income
    
    $
    .29
    
    
    $
    .15
    
    
    $
    .53
    
    
    $
    .55Dividends per share
    
    $
    .13
    
    
    $
    .11
    
    
    $
    .39
    
    
    $
    .33


See notes to condensed consolidated financial statements.

2



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MARSH SUPERMARKETS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)

January 3,
    
    March 29,
    
    January 4,2004
    
    2003
    
    2003(Unaudited)
    
    (Note A)
    
    (Unaudited)AssetsCurrent assets:Cash and equivalents
    
    $
    36,609
    
    
    $
    28,313
    
    
    $
    36,634Accounts receivable
    
    
    26,073
    
    
    
    27,203
    
    
    
    35,594Inventories
    
    
    128,064
    
    
    
    130,297
    
    
    
    136,609Prepaid expenses
    
    
    6,420
    
    
    
    5,731
    
    
    
    5,898Recoverable income taxes
    
    
    2,764
    
    
    
    
    
    
    
    Total current assets
    
    
    199,930
    
    
    
    191,544
    
    
    
    214,735Property and equipment, less allowances for depreciation
    
    
    299,150
    
    
    
    311,469
    
    
    
    308,258Other assets
    
    
    51,893
    
    
    
    46,309
    
    
    
    47,234$
    550,973
    
    
    $
    549,322
    
    
    $
    570,227Liabilities and Shareholders EquityCurrent liabilities:Notes payable to bank
    
    $
    
    
    
    $
    1,700
    
    
    $
    Accounts payable
    
    
    78,633
    
    
    
    71,883
    
    
    
    77,953Accrued liabilities
    
    
    51,936
    
    
    
    49,665
    
    
    
    52,141Current maturities of long-term liabilities
    
    
    3,364
    
    
    
    3,452
    
    
    
    3,389Total current liabilities
    
    
    133,933
    
    
    
    126,700
    
    
    
    133,483Long-term liabilities:Long-term debt
    
    
    181,755
    
    
    
    198,148
    
    
    
    203,002Capital lease obligations
    
    
    28,442
    
    
    
    29,009
    
    
    
    29,225Total long-term liabilities
    
    
    210,197
    
    
    
    227,157
    
    
    
    232,227Deferred items:Income taxes
    
    
    15,501
    
    
    
    9,606
    
    
    
    19,297Pension and post-retirement benefits
    
    
    45,748
    
    
    
    40,824
    
    
    
    23,439Other
    
    
    16,592
    
    
    
    17,226
    
    
    
    18,215Total deferred items
    
    
    77,841
    
    
    
    67,656
    
    
    
    60,951Shareholders Equity:Common stock, Classes A and B
    
    
    26,455
    
    
    
    26,439
    
    
    
    26,424Retained earnings
    
    
    133,081
    
    
    
    131,911
    
    
    
    137,423Cost of common stock in treasury
    
    
    (15,062
    )
    
    
    (14,928
    )
    
    
    (14,704
    )Notes receivable  stock options
    
    
    (74
    )
    
    
    (175
    )
    
    
    (173
    )Deferred cost restricted stock
    
    
    (14
    )
    
    
    (54
    )
    
    
    (80
    )Accumulated other comprehensive loss
    
    
    (15,384
    )
    
    
    (15,384
    )
    
    
    (5,324
    )Total shareholders equity
    
    
    129,002
    
    
    
    127,809
    
    
    
    143,566$
    550,973
    
    
    $
    549,322
    
    
    $
    570,227


See notes to condensed consolidated financial statements.

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MARSH SUPERMARKETS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)

40 Weeks EndedJanuary 3,
    
    January 4,2004
    
    2003Operating activitiesNet income
    
    $
    4,265
    
    
    $
    4,515Adjustments to reconcile net income to net
cash provided by operating activities:Depreciation
    
    
    19,203
    
    
    
    18,750Amortization of other assets
    
    
    855
    
    
    
    1,161Changes in operating assets and liabilities
    
    
    10,426
    
    
    
    12,341Other operating activities
    
    
    2,084
    
    
    
    (1,152
    )Net cash provided by operating activities
    
    
    36,833
    
    
    
    35,615Investing activitiesNet acquisition of property, equipment and land
    
    
    (7,070
    )
    
    
    (33,305
    )Other investing activities
    
    
    (1,788
    )
    
    
    (349
    )Net cash used for investing activities
    
    
    (8,858
    )
    
    
    (33,654
    )Financing activitiesPayments of short-term borrowing
    
    
    (1,700
    )
    
    
    (1,300
    )Proceeds from long-term borrowings
    
    
    45,000
    
    
    
    29,000Payments of long-term debt and capital leases
    
    
    (62,048
    )
    
    
    (64,036
    )Proceeds from sale/leasebacks
    
    
    2,286
    
    
    
    36,297Purchase of shares for treasury
    
    
    (177
    )
    
    
    (325
    )Cash dividends paid
    
    
    (3,099
    )
    
    
    (2,630
    )Other financing activities
    
    
    59
    
    
    
    151Net cash used for financing activities
    
    
    (19,679
    )
    
    
    (2,843
    )Net increase (decrease) in cash and equivalents
    
    
    8,296
    
    
    
    (882
    )Cash and equivalents at beginning of period
    
    
    28,313
    
    
    
    37,516Cash and equivalents at end of period
    
    $
    36,609
    
    
    $
    36,634


See notes to condensed consolidated financial statements.

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MARSH SUPERMARKETS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands except per share amounts or as otherwise noted)

January 3, 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 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 twelve and forty week
periods ended January 3, 2004 and January 4, 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. Certain amounts in the 2003 financial
statements were reclassified to conform with the 2004 presentation.

Operating results for the forty week period ended January 3, 2004 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 operations 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
January 3, 2004, were not material.

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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 common
share:

12 Weeks Ended
    
    40 Weeks EndedJanuary 3,
    
    January 4,
    
    January 3,
    
    January 4,2004
    
    2003
    
    2004
    
    2003Income from continuing operations
    
    $
    2,324
    
    
    $
    1,204
    
    
    $
    4,265
    
    
    $
    4,689Gain (loss) on disposal of discontinued operation
    
    
    
    
    
    
    25
    
    
    
    
    
    
    
    (174
    )Numerator for basic earnings per share
    
    
    2,324
    
    
    
    1,229
    
    
    
    4,265
    
    
    
    4,515Effect of convertible debentures
    
    
    
    
    
    
    179
    
    
    
    
    
    
    
    620Numerator for diluted earnings per share -
income after assumed conversions
    
    $
    2,324
    
    
    $
    1,408
    
    
    $
    4,265
    
    
    $
    5,135Weighted average shares outstanding
    
    
    7,938
    
    
    
    7,962
    
    
    
    7,946
    
    
    
    7,970Non-vested restricted shares
    
    
    (3
    )
    
    
    (24
    )
    
    
    (4
    )
    
    
    (26
    )Denominator for basic earnings per share
    
    
    7,935
    
    
    
    7,938
    
    
    
    7,942
    
    
    
    7,944Effect of dilutive securities:Non-vested restricted shares
    
    
    3
    
    
    
    24
    
    
    
    4
    
    
    
    26Stock options
    
    
    42
    
    
    
    80
    
    
    
    56
    
    
    
    163Convertible debentures
    
    
    
    
    
    
    1,284
    
    
    
    
    
    
    
    1,284Denominator for diluted earnings per share -
adjusted weighted average shares
    
    
    7,980
    
    
    
    9,326
    
    
    
    8,002
    
    
    
    9,417


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:

12 Weeks Ended
    
    40 Weeks EndedJanuary 3,
    
    January 4,
    
    January 3,
    
    January 4,2004
    
    2003
    
    2004
    
    2003Net income, as reported
    
    $
    2,324
    
    
    $
    1,229
    
    
    $
    4,265
    
    
    $
    4,515Less compensation expense using
the fair value method, net of tax
    
    
    (184
    )
    
    
    (255
    )
    
    
    (610
    )
    
    
    (810
    )Pro-forma net income
    
    $
    2,140
    
    
    $
    974
    
    
    $
    3,655
    
    
    $
    3,705Earnings per share, as reported:Basic
    
    $
    .29
    
    
    $
    .15
    
    
    $
    .54
    
    
    $
    .57Diluted
    
    
    .29
    
    
    
    .15
    
    
    
    .53
    
    
    
    .55Earnings per share, pro-forma:Basic
    
    
    .27
    
    
    
    .12
    
    
    
    .46
    
    
    
    .47Diluted
    
    
    .27
    
    
    
    .12
    
    
    
    .46
    
    
    
    .46


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Note E  Long-Term Debt

During the forty weeks ended January 3, 2004, the Company purchased and retired
$16.8 million of its 8 7/8% senior subordinated notes at less than face value
resulting in gains of $1.0 million. The balance of senior subordinated notes at
January 3, 2004, was $102.8 million.

In October 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 12 weeks ended January 3, 2004:

Guarantor
    
    ConsolidatingParent
    
    subsidiaries
    
    entries
    
    TotalSales and other revenues
    
    $
    1,131
    
    
    $
    388,419
    
    
    $
    (1,133
    )
    
    $
    388,417Gains from sales of property
    
    
    
    
    
    
    354
    
    
    
    
    
    
    
    354Total revenues
    
    
    1,131
    
    
    
    388,773
    
    
    
    (1,133
    )
    
    
    388,771Cost of merchandise sold,
including warehousing and transportation,
excluding depreciation
    
    
    
    
    
    
    270,889
    
    
    
    
    
    
    
    270,889Gross profit
    
    
    1,131
    
    
    
    117,884
    
    
    
    (1,133
    )
    
    
    117,882Selling, general and administrative
    
    
    633
    
    
    
    104,374
    
    
    
    (1,133
    )
    
    
    103,874Depreciation
    
    
    88
    
    
    
    5,693
    
    
    
    
    
    
    
    5,781Operating income
    
    
    410
    
    
    
    7,817
    
    
    
    
    
    
    
    8,227Interest
    
    
    407
    
    
    
    3,861
    
    
    
    
    
    
    
    4,268Income from continuing operations
before income taxes
    
    
    3
    
    
    
    3,956
    
    
    
    
    
    
    
    3,959Income taxes
    
    
    1
    
    
    
    1,634
    
    
    
    
    
    
    
    1,635Income from continuing operations
    
    $
    2
    
    
    $
    2,322
    
    
    $
    
    
    
    $
    2,324


7



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Statement of income for the 12 weeks ended January 4, 2003:

Guarantor
    
    ConsolidatingParent
    
    subsidiaries
    
    entries
    
    TotalSales and other revenues
    
    $
    1,169
    
    
    $
    382,298
    
    
    $
    (1,162
    )
    
    $
    382,305Gains from sales of property
    
    
    
    
    
    
    406
    
    
    
    
    
    
    
    406Total revenues
    
    
    1,169
    
    
    
    382,704
    
    
    
    (1,162
    )
    
    
    382,711Cost of merchandise sold,
including warehousing and transportation,
excluding depreciation
    
    
    
    
    
    
    268,878
    
    
    
    
    
    
    
    268,878Gross profit
    
    
    1,169
    
    
    
    113,826
    
    
    
    (1,162
    )
    
    
    113,833Selling, general and administrative
    
    
    915
    
    
    
    101,833
    
    
    
    (1,162
    )
    
    
    101,586Depreciation
    
    
    321
    
    
    
    5,312
    
    
    
    
    
    
    
    5,633Operating income (loss)
    
    
    (67
    )
    
    
    6,681
    
    
    
    
    
    
    
    6,614Interest
    
    
    391
    
    
    
    5,025
    
    
    
    
    
    
    
    5,416Other non-operating income
    
    
    (971
    )
    
    
    
    
    
    
    
    
    
    
    (971
    )Income from continuing operations
before income taxes
    
    
    513
    
    
    
    1,656
    
    
    
    
    
    
    
    2,169Income taxes
    
    
    208
    
    
    
    757
    
    
    
    
    
    
    
    965Income from continuing operations
    
    $
    305
    
    
    $
    899
    
    
    $
    
    
    
    $
    1,204


Statement of income for the 40 weeks ended January 3, 2004:

Guarantor
    
    ConsolidatingParent
    
    subsidiaries
    
    entries
    
    TotalSales and other revenues
    
    $
    3,779
    
    
    $
    1,275,379
    
    
    $
    (3,776
    )
    
    $
    1,275,382Gains from sales of property
    
    
    
    
    
    
    2,168
    
    
    
    
    
    
    
    2,168Total revenues
    
    
    3,779
    
    
    
    1,277,547
    
    
    
    (3,776
    )
    
    
    1,277,550Cost of merchandise sold,
including warehousing and transportation,
excluding depreciation
    
    
    
    
    
    
    893,353
    
    
    
    
    
    
    
    893,353Gross profit
    
    
    3,779
    
    
    
    384,194
    
    
    
    (3,776
    )
    
    
    384,197Selling, general and administrative
    
    
    2,096
    
    
    
    345,726
    
    
    
    (3,776
    )
    
    
    344,046Depreciation
    
    
    1,049
    
    
    
    18,154
    
    
    
    
    
    
    
    19,203Operating income
    
    
    634
    
    
    
    20,314
    
    
    
    
    
    
    
    20,948Interest
    
    
    1,388
    
    
    
    13,375
    
    
    
    
    
    
    
    14,763Other non-operating income
    
    
    (961
    )
    
    
    
    
    
    
    
    
    
    
    (961
    )Income from continuing operations
before income taxes
    
    
    207
    
    
    
    6,939
    
    
    
    
    
    
    
    7,146Income taxes
    
    
    85
    
    
    
    2,796
    
    
    
    
    
    
    
    2,881Income from continuing operations
    
    $
    122
    
    
    $
    4,143
    
    
    $
    
    
    
    $
    4,265


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##### Table of Contents



Statement of income for the 40 weeks ended January 4, 2003:

Guarantor
    
    ConsolidatingParent
    
    subsidiaries
    
    entries
    
    TotalSales and other revenues
    
    $
    3,840
    
    
    $
    1,278,487
    
    
    $
    (3,805
    )
    
    $
    1,278,522Gains from sales of property
    
    
    
    
    
    
    3,952
    
    
    
    
    
    
    
    3,952Total revenues
    
    
    3,840
    
    
    
    1,282,439
    
    
    
    (3,805
    )
    
    
    1,282,474Cost of merchandise sold,
including warehousing and transportation,
excluding depreciation
    
    
    
    
    
    
    895,128
    
    
    
    
    
    
    
    895,128Gross profit
    
    
    3,840
    
    
    
    387,311
    
    
    
    (3,805
    )
    
    
    387,346Selling, general and administrative
    
    
    2,399
    
    
    
    344,645
    
    
    
    (3,805
    )
    
    
    343,239Depreciation
    
    
    1,064
    
    
    
    17,686
    
    
    
    
    
    
    
    18,750Operating income
    
    
    377
    
    
    
    24,980
    
    
    
    
    
    
    
    25,357Interest
    
    
    1,587
    
    
    
    16,662
    
    
    
    
    
    
    
    18,249Other non-operating expense
    
    
    (971
    )
    
    
    
    
    
    
    
    
    
    
    (971
    )Income (loss) from continuing operations
before income taxes
    
    
    (239
    )
    
    
    8,318
    
    
    
    
    
    
    
    8,079Income taxes (benefit)
    
    
    (100
    )
    
    
    3,490
    
    
    
    
    
    
    
    3,390Income (loss) from continuing operations
    
    $
    (139
    )
    
    $
    4,828
    
    
    $
    
    
    
    $
    4,689


9



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##### Table of Contents



Balance sheet as of January 3, 2004:

GuarantorParent
    
    subsidiaries
    
    TotalAssetsCurrent assets:Cash and equivalents
    
    $
    
    
    
    $
    36,609
    
    
    $
    36,609Accounts receivable
    
    
    
    
    
    
    26,073
    
    
    
    26,073Inventories
    
    
    
    
    
    
    128,064
    
    
    
    128,064Prepaid expenses
    
    
    
    
    
    
    6,420
    
    
    
    6,420Recoverable income taxes
    
    
    743
    
    
    
    2,021
    
    
    
    2,764Total current assets
    
    
    743
    
    
    
    199,187
    
    
    
    199,930Property and equipment, less allowances for depreciation
    
    
    33,005
    
    
    
    266,145
    
    
    
    299,150Other assets
    
    
    4,048
    
    
    
    47,845
    
    
    
    51,893$
    37,796
    
    
    $
    513,177
    
    
    $
    550,973Liabilities and Shareholders EquityCurrent liabilities:Accounts payable
    
    $
    
    
    
    $
    78,633
    
    
    $
    78,633Accrued liabilities
    
    
    9,335
    
    
    
    42,601
    
    
    
    51,936Current maturities of long-term liabilities
    
    
    1,547
    
    
    
    1,817
    
    
    
    3,364Total current liabilities
    
    
    10,882
    
    
    
    123,051
    
    
    
    133,933Long-term liabilities:Long-term debt
    
    
    112,566
    
    
    
    69,189
    
    
    
    181,755Capital lease obligations
    
    
    
    
    
    
    28,442
    
    
    
    28,442Total long-term liabilities
    
    
    112,566
    
    
    
    97,631
    
    
    
    210,197Deferred items:Income taxes
    
    
    15,501
    
    
    
    
    
    
    
    15,501Pension and post-retirement benefits
    
    
    41,435
    
    
    
    4,313
    
    
    
    45,748Other
    
    
    58
    
    
    
    16,534
    
    
    
    16,592Total deferred items
    
    
    56,994
    
    
    
    20,847
    
    
    
    77,841Amounts due parent from subsidiaries
    
    
    (149,908
    )
    
    
    149,908
    
    
    
    Shareholders Equity:Common stock, Classes A and B
    
    
    26,455
    
    
    
    
    
    
    
    26,455Retained earnings
    
    
    11,341
    
    
    
    121,740
    
    
    
    133,081Cost of common stock in treasury
    
    
    (15,062
    )
    
    
    
    
    
    
    (15,062
    )Deferred cost  restricted stock
    
    
    (14
    )
    
    
    
    
    
    
    (14
    )Notes receivable  stock options
    
    
    (74
    )
    
    
    
    
    
    
    (74
    )Accumulated other comprehensive loss
    
    
    (15,384
    )
    
    
    
    
    
    
    (15,384
    )Total shareholders equity
    
    
    7,262
    
    
    
    121,740
    
    
    
    129,002$
    37,796
    
    
    $
    513,177
    
    
    $
    550,973


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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


11



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##### Table of Contents



Statement of cash flows for the forty weeks ended January 3, 2004:

GuarantorParent
    
    subsidiaries
    
    TotalNet cash provided by operating activities
    
    $
    20,952
    
    
    $
    15,881
    
    
    $
    36,833Net cash used for investing activities
    
    
    (60
    )
    
    
    (8,798
    )
    
    
    (8,858
    )Financing activitiesRepayments of short-term borrowings
    
    
    
    
    
    
    (1,700
    )
    
    
    (1,700
    )Proceeds of long-term borrowings
    
    
    
    
    
    
    45,000
    
    
    
    45,000Proceeds of sale leaseback/capital lease obligations
    
    
    
    
    
    
    2,286
    
    
    
    2,286Repayments of long-term debt and capital leases
    
    
    (17,689
    )
    
    
    (44,359
    )
    
    
    (62,048
    )Cash dividends paid
    
    
    (3,099
    )
    
    
    
    
    
    
    (3,099
    )Other financing activities
    
    
    (104
    )
    
    
    (14
    )
    
    
    (118
    )Net cash provided by (used for) financing activities
    
    
    (20,892
    )
    
    
    1,213
    
    
    
    (19,679
    )Net decrease in cash and equivalents
    
    
    
    
    
    
    8,296
    
    
    
    8,296Cash and equivalents at beginning of period
    
    
    
    
    
    
    28,313
    
    
    
    28,313Cash and equivalents at end of period
    
    $
    
    
    
    $
    36,609
    
    
    $
    36,609


Statement of cash flows for the forty weeks ended January 4, 2003:

GuarantorParent
    
    subsidiaries
    
    TotalNet cash provided by operating activities
    
    $
    19,813
    
    
    $
    15,802
    
    
    $
    35,615Net cash used for investing activities
    
    
    (1,007
    )
    
    
    (32,647
    )
    
    
    (33,654
    )Financing activitiesRepayments of short-term borrowings
    
    
    
    
    
    
    (1,300
    )
    
    
    (1,300
    )Proceeds of long-term borrowings
    
    
    
    
    
    
    29,000
    
    
    
    29,000Proceeds of sales leaseback/capital lease obligation
    
    
    
    
    
    
    36,297
    
    
    
    36,297Repayments of long-term debt and capital leases
    
    
    (15,812
    )
    
    
    (48,224
    )
    
    
    (64,036
    )Cash dividends paid
    
    
    (2,630
    )
    
    
    
    
    
    
    (2,630
    )Other financing activities
    
    
    (364
    )
    
    
    190
    
    
    
    (174
    )Net cash provided by (used for) financing activities
    
    
    (18,806
    )
    
    
    15,963
    
    
    
    (2,843
    )Net decrease in cash and equivalents
    
    
    
    
    
    
    (882
    )
    
    
    (882
    )Cash and equivalents at beginning of period
    
    
    
    
    
    
    37,516
    
    
    
    37,516Cash and equivalents at end of period
    
    $
    
    
    
    $
    36,634
    
    
    $
    36,634


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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 March 15, 2004, for non-special purpose
interests. 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 $5.6 million of allowances at March 29, 2003, and $4.4
million at January 3, 2004. This deferral reflects an adjustment of the
Companys inventory balance. The change did not have a material
impact on the results of operations of the Company for the twelve
weeks ended January 3, 2004.



|        |  |                                                                                      
|------- |  | -------------------------------------------------------------------------------------
|Item 2. |  | Managements Discussion and Analysis of Financial Condition and Results of Operations

General

At January 3, 2004, Marsh Supermarkets, Inc. (the Company or Marsh)
operated through wholly-owned subsidiaries 113 supermarkets and 166 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 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 of McNamara and
one business florist under the name Enflora.

Business Overview

Revenues from supermarket operations represented 80.0% of total revenues for
the forty weeks ended January 3, 2004, while convenience stores and
foodservices contributed 15.5% and 3.3% of revenues, respectively. Sales

13



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##### Table of Contents



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 August 2003.

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 January 3, 2004, there
were 8 major competitors stores opened or remodeled within the last 12 months,
compared to 20 at January 2003 and 16 at January 2002. The
Company believes the number of competitors new store openings
has peaked, however it is expected that new stores will continue to
be opened in the market. Employment in
Indianapolis declined 1.2% from December 2002 to December 2003.

The Companys ability to increase gross profit rates has been hindered by
competitive pricing and promotional activity for the past several quarters.
However, the Companys promotional spending for the twelve weeks ended January 3, 2004 was
significantly lower than the year earlier period. Future levels of
promotional spending will be dictated primarily by competitive
pressures.

Management Focus

Given the continued pressures on revenues and gross profit rates, the Companys
management has intensified efforts on merchandising plans, expense reduction, asset management and
cash flow.

The
Company believes it is differentiated from its competitors by its
marketing and merchandising. Two new lifestyle
supermarkets have been opened in the past ninety days, with one store
in a new market. The Company believes product placement and presentation in the new stores
is dramatically different from both the Companys traditional
supermarkets and competitors stores. The new lifestyle stores
are designed to complement the Companys emphasis on the fresh
departments, which include meat, deli, bakery and produce, and also
to better align category placement to customer shopping patterns.
While it is too early to predict the success of the new format,
customer acceptance, in the short term, has been good. The
Company expects to take the new format to other select sites outside
its current marketing area.

In January 2003, management identified a number of potential cost improvement
initiatives that the Company pursued during its third and fourth
quarters of fiscal year
2003 and continuing in fiscal year 2004. Those initiatives included 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, improvements in warehousing and delivery logistics,
and many others. The initiatives completed to date have partially
offset other increases in
non-controllable and other selling, general and administrative
expenses.

Critical
Accounting Estimates

Employee
medical costs can vary considerably from period to period and can be difficult to estimate
due to the effects of
high dollar claims, healthcare industry trends and plan changes. The Company made plan changes beginning in its
fourth quarter of fiscal 2004 that are expected to reduce future
medical costs. The accuracy of near-term estimates for claim
reserves, typically based on historical experience, may be impacted
by the lack of relevant experience under the modified plan.

Notes
and accounts receivable are periodically evaluated for collectibility
and valuation reserves are adjusted accordingly.

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:

Third Quarter
    
    Year - to - DatePercent of Revenues
    
    
    
    
    
    Percent of RevenuesPercent
    
    
    
    Percent2004
    
    2003
    
    Change
    
    2004
    
    2003
    
    ChangeTotal revenues
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    1.6
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    (0.4
    %)Gross profit
    
    
    30.3
    %
    
    
    29.7
    %
    
    
    3.6
    %
    
    
    30.1
    %
    
    
    30.2
    %
    
    
    (0.8
    %)Selling, general and administrative
    
    
    26.7
    %
    
    
    26.5
    %
    
    
    2.3
    %
    
    
    26.9
    %
    
    
    26.8
    %
    
    
    0.2
    %Depreciation
    
    
    1.5
    %
    
    
    1.5
    %
    
    
    2.6
    %
    
    
    1.5
    %
    
    
    1.5
    %
    
    
    2.4
    %Operating income
    
    
    2.1
    %
    
    
    1.7
    %
    
    
    24.4
    %
    
    
    1.6
    %
    
    
    2.0
    %
    
    
    (17.4
    %)Interest
    
    
    1.1
    %
    
    
    1.4
    %
    
    
    (21.2
    %)
    
    
    1.2
    %
    
    
    1.4
    %
    
    
    (19.1
    %)Other non-operating income
    
    
    
    
    
    
    0.3
    %
    
    
    n/m
    
    
    
    0.1
    %
    
    
    0.1
    %
    
    
    (1.0
    %)Income taxes
    
    
    0.4
    %
    
    
    0.3
    %
    
    
    69.4
    %
    
    
    0.2
    %
    
    
    0.3
    %
    
    
    (15.0
    %)Income from continuing operations
    
    
    0.6
    %
    
    
    0.3
    %
    
    
    93.0
    %
    
    
    0.3
    %
    
    
    0.4
    %
    
    
    (9.0
    %)




---

| |  | n/m = not meaningful
| |  | --------------------

14



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##### Table of Contents



Total Revenues

In the third quarter of 2004, consolidated total revenues were $388.8 million,
compared to $382.7 million in the third quarter of 2003. Supermarket revenues
increased $1.8 million, Village Pantry revenues increased $3.4 million and
Crystal Food Service revenues increased $0.5 million. Consolidated total
revenues for the third quarter of 2004, excluding fuel sales, increased 1.0% to
$361.4 million from the third quarter of 2003. Sales in comparable supermarkets
and convenience stores were essentially the same in the third quarter of both
2004 and 2003 at $361.0 million. Sales in comparable supermarkets and
convenience stores, excluding fuel, decreased 0.8% to $333.8 million from
$336.3 million in the third quarter of 2003. The Company excludes fuel sales
from its analysis of revenues and comparable store sales and believes it is
useful information for investors and the Company 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 a full year. Replacement stores
and format conversions are included in the comparable store sales calculation.
Competitors new store openings and continued high levels of competitive
promotional activity combined with a weak economy continue to affect adversely
comparable store sales. Consolidated total revenues for the third quarters of
both 2004 and 2003 included $0.4 million gains from sales of property in the
normal course of business. Although results may vary from
period to period, future real estate gains are not expected to equal or exceed
historical 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 forty weeks ended January 3, 2004, consolidated total revenues declined
0.4% to $1,277.6 million from the same forty-week period of 2003. Supermarket
revenues decreased $17.6 million, Village Pantry revenues increased $8.3
million, Crystal Food Service revenues increased $4.2 million and gains from
sales of real estate decreased $1.8 million. Consolidated total revenues,
excluding fuel sales, declined 1.3% to $1,185.6 million in 2004 from $1,200.7
million in 2003. Sales in comparable supermarkets and convenience stores
declined 1.3% to $1,186.4 million in 2004 from 2003. Sales in comparable
supermarkets, excluding fuel sales, decreased 2.3% to $1,094.8 million in 2004.
Competitors new store openings and continued high levels of competitive
promotional activity combined with a weak economy continue to affect adversely
comparable store sales. Consolidated total revenues for the forty weeks of 2004
included $2.2 million in gains from sales of real estate compared to $4.0
million for the year earlier period.

Gross Profit

Gross profit is calculated net of promotional expenses, and warehousing and
transportation, excluding depreciation. In the third quarter of 2004,
consolidated gross profit increased $4.0 million, or 3.6%, to $117.9 million
from the third quarter of 2003. As a percentage of total revenues, consolidated
gross profit was 30.3% for the third quarter of 2004 compared to 29.7% for the
year earlier quarter. As a
percentage of revenues, gross profit increased in all retail operating
divisions. The gross profit improvement as a percentage of
revenues was primarily attributable to reduced promotional costs.

For the forty weeks ended January 3, 2004, consolidated gross profit decreased
$3.1 million, or 0.8%, to $384.2 million from the same period of 2003. Gains
from sales of real estate in the normal course of business account for $1.8
million of the decline from 2003 with the remaining decline due to
the sales shortfall compared to the prior year. Consolidated gross profit as a percentage of
revenues was 30.1% in 2004 compared to 30.2% in 2003. Excluding fuel,
consolidated gross profit as a percentage of revenues was 31.6% for the forty
weeks of both 2004 and 2003. Gross profit as a percentage of revenues improved
slightly in supermarkets, increased in Crystal Food Services and decreased in
Village Pantry.

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Selling, General and Administrative Expenses

Selling, general and administrative (SG&A) expenses include stores expenses,
administrative and corporate expenses, purchasing personnel costs and
advertising. In the third quarter of 2003, consolidated SG&A expenses increased
$2.3 million, or 2.3%, to $103.9 million from the third quarter of 2003. As a
percentage of total revenues, SG&A expenses were 26.7% in the third quarter of
2004 compared to 26.5% for the third quarter of 2003. Increases in fringe
benefits, rent, repairs and liability insurance account for the bulk of the
increase. Additionally, the third quarter of 2004 included $0.5 million in new
store opening costs; no opening costs were incurred in the third quarter of
2003. Total wage expense in supermarkets and convenience stores
decreased 1.1% due to a reduction in both overtime and regular hours worked.
Wage expense in stores open both quarters, excluding supermarket conversions to
the LoBill format, decreased 3.2% due to a reduction in hours worked. The use of improved labor scheduling techniques and store
specific labor profiles primarily accounted for the reduction in
hours worked.

For the forty weeks ended January 3, 2004, SG&A expenses increased $0.8
million, or 0.2%, to $344.0 million from the comparable forty weeks in 2003. As
a percentage of total revenues SG&A expenses increased to 26.9% in 2004 from
26.8% in 2003 due primarily to increases in those items cited above
and lower comparable store sales. Total wage
expense in supermarkets and convenience stores decreased 3.2%. Wage expense in
stores open both quarters, excluding supermarket conversions to the LoBill
format, decreased 4.2% due to a reduction in hours worked, as
discussed previously.

Depreciation Expense

Depreciation expense for the third quarter of 2004 was $5.8 million, compared
to $5.6 million for the third quarter of 2003. Depreciation expense as a
percentage of revenues was 1.5% for the third quarter of both years.

For
the forty weeks ended January 3, 2004, depreciation expense
increased $0.4 million, or 2.4%, to $19.2
million from $18.8 million for the forty weeks in 2003. Depreciation
expense as a percentage of revenues was 1.5% for the forty weeks of both 2004
and 2003.

Operating Income

Operating income (income from continuing operations before interest and taxes)
was $8.2 million for the third quarter of 2004, compared to $6.6 million for
the third quarter of 2003, with the increase attributable primarily to the
higher gross profit. Operating income as a percentage of revenues was 2.1% for
the third quarter of 2004, compared to 1.7% for the third quarter of 2003.

For the forty weeks ended January 3, 2004, operating income was $20.9 million
compared to $25.4 million for the year earlier period. Lower gross profit and
gains from real estate sales, combined with both slightly higher SG&A expense
and depreciation expense account for the decrease. Operating income as a
percentage of revenues was 1.6% for the forty weeks of 2004 and 2.0% for the
forty weeks of 2003.

Other Non-operating Income

During the quarter ended January 4, 2003, the Company purchased $15.0 million
of its 8 7/8% senior subordinated debentures in various transactions at less
than face value. The transactions resulted in a gain, net of pro rata issuance
costs, of $1.0 million.

During the first forty weeks of both 2004 and 2003, purchases of senior
subordinated notes at less than face value resulted in gains of $1.0 million.

Interest Expense

Interest expense for the third quarter of 2004 was $4.3 million compared to
$5.4 million for the third quarter of 2003, with the decline attributable to
both a lower total debt level and a higher portion of lower
variable-rate debt. Interest expense as a percentage of
revenues was 1.1% for the third quarter of 2004 compared to 1.4% for the third
quarter of 2003.

For the forty weeks ended January 3, 2004, interest expense was $14.8 million
compared to $18.2 million for the forty weeks of 2003 due again to the past
repurchases of debt. Interest expense as a percentage of revenues was 1.2% for
the forty weeks of 2004 and 1.4% for the forty weeks of 2003.

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Income Taxes

For the third quarter of 2004, the effective income tax rate was 41.3% compared
to 44.5% for the prior year quarter. For the forty weeks ended January 3, 2004,
the effective income tax rate was 40.3% compared to 42.0% for the comparable
weeks of 2003.

Income from Continuing Operations

Income from continuing operations for the third quarter of 2004 was $2.3
million compared to $1.2 million for the third quarter of 2003. Higher
operating income in 2004 combined with lower interest expense accounts for the
increase. Income from continuing operations as a percentage of revenues was
0.6% for the third quarter of 2004 compared to 0.3% for the third quarter of
2003.

For the forty weeks of 2004, income from continuing operations was $4.3 million
compared to $4.7 million for the forty weeks of 2003. Lower operating income in
2004 was partially offset by lower interest expense. Income from continuing
operations as a percentage of revenues was 0.3% for the forty weeks in 2004
compared to 0.4% for the forty weeks of 2003.

Discontinued Operation

During fiscal year 2002, the Company sold certain assets of its wholesale
division. The discontinued operation reported nominal income/expense for the
third quarter and forty weeks ended in 2003, resulting from adjustments to
assets and liabilities remaining after the sale.

Deferred Pension and Post-retirement Benefits

Deferred pension and post-retirement benefit obligations increased to $45.7
million at January 3, 2004, from $40.8 million at March 29, 2003. The liability
for an unfunded supplemental executive retirement plan increased $2.2 million
due to higher age and service periods of the participants. The liability for a
deferred compensation plan increased $1.8 million as a result of plan earnings
and employee contributions.

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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 three quarters of 2004, one new Marsh supermarket was opened,
one Marsh supermarket was remodeled, one LoBill Foods was acquired, one Marsh
supermarket was converted to the LoBill format and construction continued on a
new Marsh supermarket that opened subsequent to the end of the quarter. Also,
the convenience store re-imaging project was completed. During the remainder of
2004, the Company also plans to convert one supermarket to the LoBill
format  and open one new
McNamara florist shop. For 2004, the cost of these projects and other capital
commitments is estimated to be $52-62 million. Of this amount, the Company
plans to fund $40 million through sale/leasebacks, $15 million through
equipment leasing and the remainder from internally generated funds. For the
forty weeks ended January 3, 2004, the Company had capital spending, including
operating leases, of $42 million.

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 for the forty weeks ended January 3,
2004 was $36.8 million, compared to $35.6 million for the year earlier period.
There were no significant changes in the components of net cash provided by
operating activities from year to year. Working capital increased $1.1 million
to $66.0 million from March 29, 2003. Changes in working capital included an
$8.3 million increase in cash and equivalents and a $6.8 million increase in
accounts payable, both due primarily to the timing of purchase of and
subsequent payment for inventory.

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 $43.0 million under the facility
at January 3, 2004. The credit facility is secured by land and buildings having
a net carrying cost of $72.7 million at January 3, 2004 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 $26.0 million as of January 3, 2004.

In October 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 forty weeks ended January 4, 2003 the Company purchased and retired
$16.8 million of its 8 7/8% senior subordinated notes in various transactions
at less than face value funded by variable rate bank debt. The transactions
resulted in gains of $1.0 million. The balance of senior subordinated notes
outstanding at January 3, 2004, was $102.8 million.

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Critical Accounting Policies

The preparation of financial statements requires management to make assumptions
and estimates that could have a material impact on the reported results of
operations. While 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
when 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.

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 the item cost of
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.

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 allowances 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; 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 ability to
collect outstanding notes and accounts receivable; 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

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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.

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|        |  |                                                           
|------- |  | ----------------------------------------------------------
|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 January 3,
2004, 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 January 3, 2004, that materially affected, or is
reasonably likely to materially affect, the Companys internal control over
financial reporting.

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Part II      Other Information



|        |  |                  
|------- |  | -----------------
|Item 1. |  | Legal Proceedings

Not Applicable.



|        |  |                                                                                 
|------- |  | --------------------------------------------------------------------------------
|Item 2. |  | Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities

Not Applicable.



|        |  |                                
|------- |  | -------------------------------
|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
| | --- |  | -------------------



| |  |  | Current Report on Form 8-K furnished to the SEC on November 25, 2003
  Item 12 Results of Operations and Financial Condition.
| |  |  | --------------------------------------------------------------------------------------------------------------------------------



| |  |  | Notwithstanding the foregoing, information furnished under Item 12 of the
Companys Current Report on Form 8-K, including the related exhibits, is not
incorporated by reference into this quarterly report on Form 10-Q.
| |  |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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SIGNATURES

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

MARSH SUPERMARKETS, INCFebruary 17, 2004
    
    By:
    
    /s/ Douglas W. DoughertyDouglas W. Dougherty
Senior Vice President, Chief Financial Officer
and TreasurerFebruary 17, 2004
    
    By:
    
    /s/ Mark A. VarnerMark A. Varner
Chief Accounting Officer,
Vice President  Corporate Controller


23