Marsh Supermarkets: 10-K for Year ended 03/28/98 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) of the Securities Exchange Act of 1934 For the fiscal year ended March 28, 1998 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 Employer incorporation or organization) Identification No.) 9800 CROSSPOINT BOULEVARD INDIANAPOLIS, INDIANA 46256-3350 (Address of principal executive offices) (Zip Code) 317-594-2100 (Registrant's telephone number, including area code) SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: None SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: Class A Common Stock Class B Common Stock 7% Convertible Subordinated Debentures, due 2003 Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained to the best of the Registrant's knowledge, in the definitive proxy statement incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K: X Aggregate market value of Class A Common Stock held by non-affiliates of the Registrant as of June 1, 1998: $44,802,371. This calculation assumes all shares of Common Stock beneficially held by officers and members of the Board of Directors of the Registrant are owned by "affiliates", a status which each of the officers and directors individually disclaims. At June 1, 1998, there were 3,943,963 shares of Class A Common Stock and 4,484,830 shares of Class B Common Stock outstanding. Portions of the 1998 Annual Report to Shareholders for the year ended March 28, 1998 are incorporated by reference into Part I. Portions of the Proxy Statement for the Annual Shareholders' Meeting to be held August 4, 1998 are incorporated by reference into Part III. PART I ITEM 1. BUSINESS GENERAL At March 28, 1998, Marsh Supermarkets, Inc. (the "Company" or "Marsh") operated 89 supermarkets and 181 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 owns and operates a specialized convenience store distribution business which serves its Village Pantry stores as well as over 1,290 unaffiliated convenience stores in a seven state area. Marsh also owns and operates a food services division which provides upscale catering, vending, concession and business cafeteria management services. SUPERMARKETS At March 28, 1998, the Company operated 75 supermarkets in central Indiana and 14 in western Ohio. The 37 stores in the Indianapolis metropolitan market area constitute the Company's major market. The remaining supermarkets operate in 37 other communities. Revenues from supermarket operations represent approximately 68% of the Company's fiscal 1998 consolidated sales and other revenues. The Company's supermarket merchandising strategy emphasizes service, quality and convenient one-stop shopping at competitive prices. Of the Company's supermarkets, 53 are open 24 hours a day and 12 are open until midnight, with the remainder having various other schedules. All stores are open seven days a week. The Company believes providing quality merchandise is an important factor in maintaining and expanding its customer base. In recent years, the Company has devoted a greater proportion of new and remodeled stores to fresh, high quality perishables, such as produce, delicatessen items, baked goods, prepared foods, seafood and floral items. The Company believes fresh produce is an important customer draw; therefore, it focuses on buying premium quality produce worldwide. The geographic concentration of the Company's supermarkets enables the Company to deliver fresh items to its stores quickly and frequently. An extension of this theme is convenient, high quality, ready to eat meals. The "Chef Fresh" program offers take-home items for immediate consumption in 36 stores. These products are prepared in the Company's central kitchen, which is now a shared facility, providing fresh items to most of the Company's divisions. The Company's new and expanded large superstore format offers customers convenient one-stop shopping. Its Marsh supermarkets feature an extended line of traditional grocery store items as well as service and specialty departments such as delicatessens, bakeries, prepared foods, prime cut meats, fresh seafood, floral and video rental. The Company features nationally advertised and distributed merchandise along with products under its own trademarks, service marks and trade names. Service and specialty departments included in Marsh supermarkets include delicatessens (89 stores), hot prepared foods (57), bakeries (89), prime cut service meat (58), fresh seafood (60), floral shops (58), imported cheese shops (51), wines and beer (84), salad bars (31), video rental (66), cosmetic counters (12) and shoe repair (19). Twenty-five of the Company's supermarkets include pharmacies in food and drug combination stores. To combat increasing competition from other retail formats, such as wholesale clubs, 38 of the Company's supermarkets also include warehouse-type sections offering large size and multi-pack products typically featured by wholesale clubs, priced competitively with club prices. In addition, banks or savings institutions operate branch facilities in 34 of the Company's stores, and 37 stores offer ATM machines. Home delivery of orders placed by customers via telephone, fax or the Internet is offered to the Indianapolis metropolitan market. The Company's superstore format is in excess of 75,000 square feet, and its modern conventional supermarket format is approximately 55,000 to 65,000 square feet. The Company currently operates five superstores and 8 modern conventional supermarkets. Approximately one-third of the sales area in these stores is devoted to merchandising fresh, high quality perishable products such as delicatessens, bakeries, prepared foods and produce, and approximately 5,000 square feet are devoted to warehouse-type merchandising of bulk club pack merchandise. The Company has developed a smaller, low-price supermarket format with limited service and specialty departments as an alternative to the large, full service Marsh supermarket. As of March 28, 1998, the Company operated 16 of its supermarkets under this concept. Subsequent to March 28, 1998, a conventional Marsh supermarket was converted to this format. The stores operate under the trade name LoBill Foods. There is an ongoing development program to remodel selected Marsh supermarkets to the LoBill format. The Company believes the LoBill format offers an opportunity to maximize its market area by expanding into smaller communities and inner city metropolitan areas that can be better served by that format and to appeal to the price motivated consumer in markets currently serviced by traditional Marsh stores. The Company's supermarkets range in size from 15,000 to 81,500 square feet. The average size is approximately 38,100 square feet. The Company has an ongoing development program of constructing larger Marsh supermarkets within its market area and remodeling, enlarging and replacing existing supermarkets. Future development will continue to focus on a food and drug combination store format of approximately 55,000 to 65,000 square feet, with superstores in excess of 75,000 square feet in select locations. The Company believes a larger store format enables it to offer a wider variety of products and expanded service and specialty departments, thereby strengthening its competitive position. The following summarizes the number of stores by size categories: Number Square Feet of Stores ----------- --------- More than 75,000 ................................. 5 55,000 - 75,000 .................................. 8 45,000 - 55,000 .................................. 7 35,000 - 45,000 .................................. 21 25,000 - 35,000 .................................. 42 Less than 25,000 ................................. 6 -- 89 == The Company advertises through various media, including circulars, newspapers, radio and television. Printed circulars are used extensively on a weekly basis to advertise featured items. The focus of the television campaign promotes a quality and service image rather than specific products and prices. The Indianapolis television market covers approximately 80% of the Company's supermarkets. Various sales enhancement promotional activities, including free grocery and other programs designed to encourage repeat shoppers, are conducted as an important part of the Company's merchandising strategy. The Company utilizes a frequent shopper card program, "Fresh I.D.E.A(R)." This card functions as a check cashing card, video rental card and automatically provides electronic coupons. Further, a customer may select a VISA(R) co-branded credit card option for their Fresh I.D.E.A. card and earn rebates on all credit card purchases regardless of the merchant. The credit card rebates are funded by the Company's bank partner. CONVENIENCE STORES At March 28, 1998, the Company operated 181 convenience stores under the Village Pantry trade name. These self-service stores offer a broad selection of grocery, bakery, dairy and delicatessen items, including fresh pastry products and sandwiches prepared in the stores. Approximately 52% of the stores also offer petroleum products. Revenues from the convenience stores represented approximately 12% of the Company's fiscal 1998 consolidated sales and other revenues. Carry-out cold beer, a high-volume item typically found in convenience stores in other states, may be sold only by package liquor stores and taverns in Indiana; accordingly, it is not sold in the Company's convenience stores in Indiana. In Indiana, all but 12 of the Company's convenience stores are open 24 hours a day; the remaining stores close at 11:00 P.M. or midnight. All stores are open seven days a week. The Company has added higher margin food and beverage products, such as store-prepared pizza (37 stores), chicken (42), and self-service fountain drinks, as well as sit-down eating areas in 45 stores. The Company is a Taco Bell Express franchisee in three stores which increases the variety of available fast food. These stores include drive-thru service. The Company has also partnered with Shell Oil Company in the Kokomo, Indiana and Anderson, Indiana markets whereby the Company receives a fixed fee and a commission based on fuel sales above a base level without investing capital in the fuel inventory or dispensing equipment. The Company also added drive-thru car washes at three store locations. The Company has an ongoing program of remodeling, upgrading and replacing existing Village Pantry stores with particular emphasis on developing locations that will yield a high volume of gasoline sales. New stores generally average 3,700-4,500 square feet, compared to 1,800-2,500 square feet for older stores. The larger size accommodates the aforementioned new food products. In constructing new stores, and remodeling and expanding existing stores, the Company tailors the format to each specific market, with heavy emphasis on food service in areas which the Company believes to be less susceptible to intense competition from major fast food operators, such as smaller towns and high density neighborhoods. CONVENIENCE STORE DISTRIBUTING COMPANY ("CSDC") CSDC serves the Company's Village Pantry stores and over 1,290 unaffiliated stores in a seven state area. CSDC distributes a wide range of products typically sold in convenience stores, including groceries, cigarette and other tobacco products, snack items, housewares and health and beauty care products. Customers have the opportunity to order most product lines in single units. CSDC owns a 210,000 square foot warehouse and distribution facility in Richmond, Indiana, which the Company estimates is operating at 70% of capacity. CSDC utilizes its own trucks and drivers for its transportation needs. The CSDC sales and marketing staff of approximately 43 employees services existing customers and actively solicits new customers. CSDC accounted for approximately 18% of the Company's fiscal 1998 consolidated sales and other revenues. CRYSTAL FOOD SERVICES The Company's food service operation does business under the trade name Crystal Food Services. It offers a range of services including banquet hall catering, special events catering, concession services, vending and cafeteria management. The Company focuses on presenting expertly prepared cuisine of unsurpassed freshness and quality in all of its food service operations. The Company began its food service operations in 1993 with ALLtimate Catering and expanded in January 1995 with the acquisition of Crystal Catering. In May 1995, the Company expanded again with the acquisition of Martz and Associates Food Services. The Company intends to expand the food services operations through the solicitation of new customers and possible acquisition of businesses that will complement the existing operations. The combination of these operations has created a unique range of services, products and facilities. The Company's banquet hall facilities include the Crystal Yacht Club, the Indiana Roof Ballroom and the Murat Shrine Centre. The Company does special event catering at the Indianapolis Motor Speedway, Conner Prairie Museum, Indianapolis Museum of Art, the Eiteljorg Western Museum of Art, the RCA Tennis Championships and the Horizon Convention Center in Muncie, Indiana. The Company also provides concession services at the Indianapolis Zoo, Conner Prairie, the Indiana State Fairgrounds and Prairie View Golf Club, and cafeteria management to 10 major employers and vending services to over 100 clients throughout the greater Indianapolis area. The Company's food service operation also provides meals at the child development centers for Marsh and Eli Lilly and Company in Indianapolis. SUPPLY AND DISTRIBUTION The Company supplies its supermarkets from three Company-operated distribution facilities. Dry grocery and frozen food products are distributed from a 409,000 square foot leased facility in Indianapolis. Produce and meat products are distributed from a 191,000 square foot perishable products facility in Yorktown, Indiana. Non-food products are distributed from 180,000 square feet of a 388,000 square foot Company owned warehouse in Yorktown. In addition, the Company leases a 172,000 square foot warehouse for storage of forward purchases of merchandise and seasonal items. Additional outside warehouse space is leased as needed to meet seasonal demand. The Company's distribution centers are modern and highly automated. Merchandise is controlled through an on-line computerized buying and inventory control system. In fiscal 1997, the perishable products facility was expanded by approximately 67,000 square feet to provide additional capacity. The receiving dock was modified to enhance product flow. Also, new state-of-the-art banana rooms were added to ensure high quality bananas with consistent color. The Company believes its distribution centers are adequate for its needs for the foreseeable future without major additional capital investment. The Company estimates the supermarket distribution centers currently operate at approximately 75% of capacity. Approximately 80% of the delivery trips from distribution centers to supermarkets are 75 miles or less. The Company also operates a commissary and a central kitchen to produce products sold through the delicatessen departments of its supermarkets and convenience stores and to third parties through CSDC. The Company believes centralized direct buying from major producers and growers and its purchasing and distribution functions provide it with advantages compared to purchasing from a third-party wholesaler. Direct buying, centralized purchasing, and controlled distribution reduce merchandise cost by allowing the Company to minimize purchases from wholesalers and distributors and to take advantage of volume buying opportunities and forward purchases of merchandise. Centralized purchasing and distribution promote a consistent merchandising strategy throughout the Company's supermarkets. Rapid inventory turnover at the warehouse permits the Company's stores to offer consistently fresh, high-quality products. Through frequent deliveries to the stores, the Company is able to reduce in-store stockroom space and increase square footage available for retail selling. Some products, principally bakery, dairy and beverage items, and snack foods are delivered directly to the supermarkets and convenience stores by distributors of national and regional brands. CSDC supplies grocery, produce, housewares, health and beauty care, and cigarette and tobacco products to the Company's convenience stores. Also, CSDC supplies cigarette and tobacco products to the Company's supermarkets. The Company's supermarket transportation function is performed through a subsidiary which leases most of its tractor/trailer fleet under long term, full service leases with by Ruan Transportation Management Systems ("Ruan"), an unaffiliated transportation management and equipment leasing company. This service is provided under a seven year contract, dated September 18, 1987, which is automatically renewed for successive one year terms unless canceled by Ruan or the Company at least 60 days prior to the anniversary date, subject to early cancellation in stages under certain conditions. Under the arrangement, Ruan employs the drivers, dispatchers and maintenance personnel who perform the Company's distribution function. MANAGEMENT INFORMATION SYSTEMS All of the Company's supermarkets are equipped with electronic scanning checkout systems to minimize item pricing, provide more efficient and accurate checkout line operation, and provide product movement data for merchandising decisions and other purposes. The checkout systems are integrated with the Company's frequent shopper card program to provide customer specific data to facilitate individualized marketing programs. Additionally, the Company plans to upgrade supermarket front-end systems and scale equipment, and is implementing new inventory/procurement distribution software. Point-of-sale electronic funds transfer and credit card systems are in place in the supermarkets. Through the use of a bank debit card, a customer can authorize the immediate transfer of funds from their account to the Company at the point of purchase. The Company utilizes in-store micro-computers in the supermarkets to automate various tasks, such as electronic messaging, processing the receiving and billing of vendor direct-store-delivered (DSD) merchandise, processing of video rentals, processing pharmacy records in the 25 food and drug combination stores, and time keeping for payroll processing. Future supermarket applications currently under development include computer-assisted reordering and an electronic shelf tag program. All convenience stores are equipped with micro-computers for electronic transmission of accounting and merchandising data to headquarters, electronic messaging and processing DSD merchandise receiving and billing. In 1998, the Company began broadcasting live video communications by satellite to its supermarkets from the corporate office. The Company believes this medium has greater appeal to a generation of employees accustomed to learning from television. In addition, the immediacy of live broadcasts reduces the barriers of time, distance and consistency in communicating competitive strategies and other information to retail operations. These communications are further enhanced through a toll free telephone line which permits questions to be asked and answered during each broadcast. The network is currently used for merchandising, training and employee benefits communications. COMPETITION The retail food industry is highly competitive. Marsh believes competitive factors include quality perishable products, service, price, location, product variety, physical layout and design of store interior, ease of ingress and egress to the store and minimal out-of-stock conditions. Marsh endeavors to concentrate its efforts on all of these factors with special emphasis on maintaining high quality store conditions, high quality perishable products, expanded service and specialty departments, and competitive pricing. The Company believes it is one of the largest supermarket chains operating in its market area. The Company's supermarkets are subject to competition from local, regional and national supermarket chains, independent supermarkets, and other retail formats, such as discount stores and wholesale clubs. The number of competitors and degree of competition experienced by the Company's supermarkets vary by location, with the Indianapolis metropolitan market generally being subject to more price competition than the smaller markets. The principal supermarket chain competitors are The Kroger Co., Super Valu Food Stores, Inc., operating in the Indianapolis market through its "Cub Foods" stores, and Meijer, Inc. The Company believes Village Pantry is one of the largest convenience store chains in its market area. Major competitors are petroleum marketing companies which have converted or expanded gasoline locations to include convenience food operations. National convenience store chains do not have a significant presence in the Company's marketing area. The Company believes the principal competitive factor for convenience stores is location, and it actively pursues the acquisition of attractive sites for replacing existing stores and future development of new stores. The Company believes the primary competitive factors in CSDC's wholesale distribution business are pricing, and the timeliness and accuracy of deliveries. CSDC's major competitors are McLane Company, Inc. and several regional wholesale distributors. SEASONALITY Marsh's supermarket sales are subject to some seasonal fluctuation, as are other retail food chains. Traditionally, higher sales occur during the third quarter holiday season, and lower sales occur in the warm weather months of the second quarter. Convenience store sales traditionally peak in the summer months. EMPLOYEES The Company has approximately 12,800 employees. Approximately 7,360 employees are employed on a part-time basis. All employees are non-union, except approximately 200 supermarket distribution facility employees who are unionized under two three-year collective bargaining agreements which extend to May, 2001. The Company considers its employee relations to be excellent. The Company opened a child development center in fiscal 1997 in an effort to help employees meet day care needs. The operation is located in a 12,500 square foot facility near one of the Company's supermarkets in Carmel, Indiana. Marsh owns the building and the equipment. The operations are run by an unaffiliated child care firm. The service is limited to the Company's employees and immediate family members and operates five days a week. REGULATORY MATTERS As a retailer of alcoholic beverages, tobacco products and gasoline, the Company is subject to federal and state statutes, ordinances and regulations concerning the storage and sale of these products. The Company is aware of the existence of petroleum contamination at 23 Village Pantry locations and has commenced remediation at each of these sites. The cost of remediation varies significantly depending on the extent, source and location of the contamination, geological and hydrological conditions and other factors. ITEM 2. PROPERTIES The following table summarizes the per unit and aggregate size of the retail facilities operated by Marsh, together with an indication of the age of the total square footage operated. Per Store Footage Operated Average 0-5 Years 5-10 Years Over 10 Years ---------------- ------- --------- ---------- ------------- Supermarkets 3,397,000 38,100 35% 33% 32% Convenience Stores 510,000 2,800 18% 38% 44% --------- 3,835,000 ========= Owned and leased retail facilities are summarized as follows: Convenience Supermarkets Stores ------------ ------ Owned 34 128 Leased: Fixed rentals only 28 27 Fixed plus contingent rentals 27 26 --- --- 55 53 --- --- 89 181 === === All leases, except for three supermarkets and 18 Village Pantry stores, have one to four renewal options for periods of two to five years each. The majority of leases provide for payment of property taxes, maintenance and insurance by the Company. In addition, the Company is obligated under leases for 11 closed stores, of which eight were subleased at March 28, 1998. One supermarket (considered owned for purposes of the foregoing analysis) is leased under an equity lease arrangement pursuant to which ownership is transferred to the Company at the expiration of the lease. The non-perishable grocery products warehouse in Indianapolis is leased with an initial lease term expiring in 2000 and options available through 2014. The facility, constructed in 1969, is located on a 44 acre site and has a total of 409,000 square feet, of which 382,000 are utilized for grocery warehousing operations. The remainder consists of a floral design center and office space. A 191,000 square foot refrigerated perishable products handling facility in Yorktown, Indiana, serves as the distribution center for meat, produce and delicatessen items. The facility was completed in 1981 and was financed by an economic development bond . Ownership of the warehouse was reconveyed to the Company in 1996, and the facility was expanded and updated in fiscal 1997. Marsh owns an additional 388,000 square foot facility in Yorktown, Indiana. Approximately 180,000 square feet of this facility is used as a distribution center for non-food products, approximately 21,000 square feet is used by the retail maintenance department, and an additional 55,000 square feet of warehouse space is leased to third parties. The portion of this facility formerly utilized for the Company's corporate offices currently is vacant. The Company leases a 172,000 square foot warehouse in Indianapolis for storage of forward purchases of merchandise and seasonal items as well as housing the Company's product reclamation center. The 160,000 square foot corporate headquarters in Indianapolis is owned by the Company. This facility was completed and occupied in May 1991. CSDC owns a 210,000 square foot warehouse and distribution facility in Richmond, Indiana. ITEM 3. LEGAL PROCEEDINGS There are no pending legal proceedings to which Marsh is a party which are material to its business, financial condition or results of operations or which would otherwise be required to be disclosed under this item. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of the security holders during the fourth quarter of fiscal 1998. EXECUTIVE OFFICERS OF REGISTRANT Information required by Item 10 with respect to the Registrant's executive officers is set forth below. Each officer has been elected for a term to expire in August 1998 or upon election of the officer's successor by the Board of Directors. NAME POSITION AGE FAMILY RELATIONSHIP ---- -------- --- ------------------- DON E. MARSH Chairman of the Board, President 60 Son of Garnet R. Marsh, and Chief Executive Officer brother of C. Alan Marsh and of William L. Marsh Mr. Don E. Marsh has held his current position as Chairman of the Board of Directors, President and Chief Executive Officer of the Company for more than the past five years. He has been employed by the Company in various supervisory and executive capacities since 1961. - -------------------------------------------------------------------------------- C. ALAN MARSH Vice Chairman of the Board and 56 Son of Garnet R. Marsh, Senior Vice President-Corporate brother of Don E. Marsh Development and William L. Marsh Mr. C. Alan Marsh has held his current position for more than the past five years. Prior thereto, he served as President and Chief Operating Officer, Marsh Village Pantries, Inc. He has been employed by the Company in various supervisory and executive capacities since 1965. - -------------------------------------------------------------------------------- FRANK J. BRYJA President and Chief Operating 56 None Officer, Supermarket Division Mr. Frank J. Bryja has held his current position since August 1996. For more than five years prior thereto, he served as Vice President-Merchandising. He has been employed by the Company in various supervisory and executive capacities since 1965. - -------------------------------------------------------------------------------- P. LAWRENCE BUTT Senior Vice President, Counsel 56 None and Secretary Mr. P. Lawrence Butt has held his current position since August 1997. For more than the five years prior thereto, he served as Vice President, Counsel and Secretary. He has been employed by the Company in various executive capacities since 1977. - -------------------------------------------------------------------------------- DOUGLAS W. DOUGHERTY Senior Vice President, Chief Financial 54 None Officer and Treasurer Mr. Douglas W. Dougherty has held his current position since August 1997. He has been employed by the Company as Chief Financial Officer since March 1994. His prior experience includes senior financial executive positions with Hartmarx, Inc. from November 1990 to March 1994. Prior experience includes senior management positions at Dayton Hudson Corp. and The May Department Stores Company. - -------------------------------------------------------------------------------- WILLIAM L. MARSH Senior Vice President - Property 54 Son of Garnet R. Marsh, Management brother of Don E. Marsh and C. Alan Marsh Mr. William L. Marsh has held his current position since August 1997. For more than five years prior thereto, he served as Vice President-General Manager, Property Management. In May 1991, he was elected a director of the Company. He has been employed by the Company in various supervisory and executive capacities since 1974. - -------------------------------------------------------------------------------- RONALD R. WALICKI President and Chief Operating 60 None Officer, Village Pantry Division Mr. Ronald R. Walicki has held his current position since August 1996. Prior thereto, he served as Executive Vice President, Supermarket Division, since February 1994, and President and Chief Operating Officer of Marsh Village Pantries, Inc. since February 1992. For more than five years prior to February 1992, he served as Vice President General Manager, Supermarket Division. He has been employed by the Company in various supervisory and management positions since 1965. - -------------------------------------------------------------------------------- THEODORE R. VARNER President and Chief Operating 62 None Officer, Convenience Store Distributing Company Division Mr. Theodore R. Varner has held his current position since August 1994. For more than five years prior thereto, he served as Vice President - General Manager, Convenience Store Distributing Company Division. - -------------------------------------------------------------------------------- JACK J. BAYT President and Chief Operating 41 None Officer, Crystal Food Services Division Mr. Jack J. Bayt has held his current position since January 1995. For more than five years prior thereto, he was President and Chief Executive Officer of Crystal Catering of Indiana, Inc. - -------------------------------------------------------------------------------- MARK A. VARNER Corporate Controller 48 None Mr. Mark A. Varner has held his current position since 1990. He has been employed by the Company in various accounting positions since 1971. - -------------------------------------------------------------------------------- PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER MATTERS Information on Common Stock and Shareholder Matters on pages 17 and 36 of the 1998 Annual Report to Shareholders for the year ended March 28, 1998 is incorporated herein by reference. ITEM 6. SELECTED FINANCIAL DATA Selected Financial Data on page 16 of the 1998 Annual Report to Shareholders is incorporated herein by reference. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Management's Discussion and Analysis of Financial Condition and Results of Operations on pages 18 through 21 of the 1998 Annual Report to Shareholders for the year ended March 28, 1998 is incorporated herein by reference. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The consolidated financial statements and notes thereto on pages 23 to 35 of the 1998 Annual Report to Shareholders are incorporated herein by reference. Quarterly Financial Data on page 17 of the 1998 Annual Report to Shareholders is incorporated herein by reference. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III In accordance with Instruction G(3), except as indicated in the following sentence, the information called for by Items 10, 11, 12 and 13 is incorporated by reference from the Registrant's definitive Proxy Statement pursuant to Regulation 14A, to be filed with the Commission not later than 120 days after March 28, 1998, the end of the fiscal year covered by this report. As permitted by instruction G(3), the information on executive officers called for by Item 10 is included in Part I of this Annual Report on Form 10-K under the caption "Executive Officers of Registrant". PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) (1) The following consolidated financial statements of Marsh Supermarkets, Inc. and subsidiaries, included in the 1998 Annual Report to Shareholders for the year ended March 28, 1998 are incorporated by reference in Item 8: Consolidated Balance Sheets as of March 28, 1998 and March 29, 1997. Consolidated Statements of Income for each of the three years in the period ended March 28, 1998. Consolidated Statements of Changes in Shareholders' Equity for each of the three years in the period ended March 28, 1998. Consolidated Statements of Cash Flows for each of the three years in the period ended March 28, 1998. Notes to consolidated financial statements. Report of Independent Auditors. (2) The following consolidated financial statement schedules of Marsh Supermarkets, Inc. and subsidiaries are included in Item 14(d): Note: All schedules for which provision is made in the applicable accounting regulation of the Securities and Exchange Commission are not required under the related instructions, or are inapplicable, and therefore have been omitted. (3) The following exhibits are included in Item 14(c): Exhibit 3 (a) - Restated Articles of Incorporation, as amended as of May 15, 1991 - Incorporated by reference to Form 10-K for the year ended March 30, 1991. (b) - By-Laws as amended as of November 26, 1997 - Incorporated by reference to Form 10-Q for the quarter ended January 3, 1998. Exhibit 4 (a) - Articles V, VI and VII of the Company's Restated Articles of Incorporation, as amended as of May 15, 1991 - Incorporated by reference to Form 10-K for the year ended March 30, 1991. (b) - Articles I and IV of the Company's By-Laws, as amended as of August 7, 1990 Incorporated by reference to Form 10-Q for the quarter ended January 5, 1991. (c) - Agreement of the Company to furnish a copy of any agreement relating to certain long-term debt and leases to the Securities and Exchange Commission upon its request Incorporated by reference to Form 10-K for the year ended March 27, 1987. (d) - Note Agreement, dated as of May 1, 1988, for $25,000,000 9.48% Senior Notes due June 30, 2003 - Incorporated by reference to Form 10-Q for the quarter ended June 25, 1988. (e) - Rights Agreement, dated as of August 1, 1989, between Marsh Supermarkets, Inc. and National City Bank, as successor to Merchants National Bank and Trust Company of Indianapolis - Incorporated by reference to Form 10-Q for the quarter ended October 14, 1989. (f) - Amendment No. 1, dated as of May 1, 1991, to Rights Agreement, dated as of August 1, 1989 - Incorporated by reference to Form 10-K for the year ended March 30, 1991. (g) - Note Agreement, dated as of October 15, 1992, for $35,000,000 8.54% Senior Notes, Series A, due December 31, 2007, and $15,000,000 8.13% Senior Notes, Series B, due December 31, 2004 - Incorporated by reference to Registration Statement on Form S-2 (File No. 33-56738). (h) - Indenture, dated as of February 15, 1993, between Marsh Supermarkets, Inc. and Society National Bank, as trustee, including form of Indenture, for $17,500,000 7% Convertible Subordinated Debentures, due 2003 - Incorporated by reference to Registration Statement on Form S-2 (File No. 33-56738). (i) - Amendment to Note Agreements and Assumption Agreement, dated March 29, 1997, for $35,000,000 8.54% Senior Notes, Series A, due December 31, 2007, and $15,000,000 8.13%, Series B, due December 31, 2004 - Incorporated by reference to form 10-K for the year ended March 29, 1997. (j) - Amendment to Note Agreements and Assumption Agreement, dated March 29, 1997, for $25,000,000 9.48% Senior Notes, due June 20, 2003 - Incorporated by reference to Form 10-K for the year ended March 29, 1997. (k) - Indenture, dated August 5, 1997, between Marsh Supermarkets, Inc. and certain of its subsidiaries and State Street Bank and Trust Company, as trustee, for $150,000,000 8-7/8% Senior Subordinated Notes, due 2007 - Incorporated by reference to Registration Statement on Form S-4 (File No. 333-34855). (l) - First Supplemental Indenture between Marsh Supermarkets, Inc. and certain of its subsidiaries and State Street Bank and Trust Company, as trustee, dated December 31, 1997. Exhibit 10 (a) - Agreements between Ruan Leasing Company and Marsh Supermarkets, Inc., dated September 18, 1987 - Incorporated by reference to Registration Statement on Form S-2 (File No. 33-17730). (b) - Lease agreements relating to warehouse located at 333 South Franklin Road, Indianapolis, Indiana - Incorporated by reference to Registration Statement on Form S-2 (File No. 33-17730). Management Contracts and Compensatory Plans. (c) - Marsh Supermarkets, Inc. 1987 Stock Option Plan - Incorporated by reference to Registration Statement on Form S-8 (File No. 33-33427). (d) - Amendment to the Marsh Supermarkets, Inc. 1987 Stock Option Plan - Incorporated by reference to Proxy Statement, dated March 22, 1991, for a Special Meeting of Shareholders held May 1, 1991. (e) - Amended and Restated Employment and Severance Agreements, dated December 3, 1992 - Incorporated by reference to Registration Statement on Form S-2 (File No. 33-56738). (f) - Marsh Supermarkets, Inc. 1980 Marsh Stock Plan - Incorporated by reference to Registration Statement on Form S-8 (File No. 2-74859). (g) - Amendment to the Marsh Supermarkets, Inc. 1980 Marsh Stock Plan - Incorporated by reference to Proxy Statement, dated March 22, 1991, for a Special Meeting of Shareholders held May 1, 1991. (h) - Supplemental Retirement Plan of Marsh Supermarkets, Inc. and Subsidiaries Incorporated by reference to Registration Statement on Form S-2 (File No. 33-17730). (i) - Indemnification Agreements - Incorporated by reference to Form 10-Q for quarter ended January 6, 1990. (j) - Marsh Supermarkets, Inc. 1991 Employee Stock Incentive Plan - Incorporated by reference to Proxy Statement, dated March 22, 1991, for a Special Meeting of Shareholders held May 1, 1991. (k) - Marsh Supermarkets, Inc. Executive Life Insurance Plan - Incorporated by reference to Form 10-K for the year ended March 30, 1991. (l) - Marsh Supermarkets, Inc. Executive Supplemental Long-Term Disability Plan Incorporated by reference to Form 10-K for the year ended March 30, 1991. (m) - Marsh Supermarkets, Inc. 1992 Stock Option Plan for Outside Directors - Incorporated by reference to Proxy Statement, dated June 25, 1992, for the Annual Meeting of Shareholders held August 4, 1992. (n) - Employment contracts, dated January 1, 1995 - Incorporated by reference to Form 10-Q for the quarter ended January 7, 1995. (o) - Amendment to Marsh Supermarkets, Inc. 1991 Employee Stock Incentive Plan Incorporated by reference to Proxy Statement, dated June 22, 1995, for Annual Meeting of Shareholders held August 1, 1995. (p) - Severance Benefits Agreements, dated as of January 1, 1996 - Incorporated by reference to Form 10-K for the year ended March 29, 1997. (q) - Form of Split Dollar Insurance Agreement for the benefit of Don E. Marsh - Incorporated by reference to Form 10-K for the year ended March 29, 1997. (r) - Form of Restricted Stock Agreement, dated as of September 15, 1997 - Incorporated by reference to Form 10-Q for the quarter ended October 11, 1997. (s) - Form of Employment Contract, dated as of June 1, 1997 --Incorporated by reference to Form 10-Q for the quarter ended October 11, 1997. (t) - Marsh Supermarkets, Inc. Outside Directors' Stock Plan, as adopted November 26, 1997 Incorporated by reference to Form 10-Q for the quarter ended January 3, 1998. Exhibit 13 - 1998 Annual Report to Shareholders (only portions specifically incorporated by reference are included herein). Exhibit 21 - Subsidiaries of the Registrant. Exhibit 23 - Consent of Independent Auditors. Exhibit 27 (a) - Financial Data Schedule for the year for which this report is filed (for SEC use only). Exhibit 27 (b) - Financial Data Schedule for the year ended March 29, 1997 (for SEC use only). Exhibit 27 (c) - Financial Data Schedule for the year ended March 30, 1996 (for SEC use only). (b) Reports on Form 8-K: There were no reports on Form 8-K filed by the Registrant with respect to the fourth quarter of its fiscal year ended March 28, 1998. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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, INC. June 25, 1998 By: /s/ Don E. Marsh --------------------------- Don E. Marsh, President and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. June 25, 1998 /s/ Don E. Marsh ----------------------------------- Don E. Marsh, Chairman of the Board, President and Chief Executive Officer and Director June 25, 1998 /s/ Douglas W. Dougherty ----------------------------------- Douglas W. Dougherty, Senior Vice President, Chief Financial Officer and Treasurer June 25, 1998 /s/ Mark A. Varner ----------------------------------- Mark A. Varner, Corporate Controller June 25, 1998 /s/ C. Alan Marsh ----------------------------------- C. Alan Marsh, Vice Chairman of the Board and Senior Vice President-Corporate Development, and Director June 25, 1998 /s/ William L. Marsh ----------------------------------- William L. Marsh, Senior Vice President-Property Management, and Director June 25, 1998 /s/ Garnet R. Marsh ----------------------------------- Garnet R. Marsh, Director June 25, 1998 /s/ J. Michael Blakley ----------------------------------- J. Michael Blakley, Director June 25, 1998 /s/ Charles R. Clark ----------------------------------- Charles R. Clark, Director June 25, 1998 /s/ Stephen M. Huse ----------------------------------- Stephen M. Huse, Director June 25, 1998 /s/ Catherine A. Langham ----------------------------------- Catherine A. Langham, Director June 25, 1998 /s/ James K. Risk ----------------------------------- James K. Risk, III, Director June 25, 1998 /s/ K. Clay Smith ----------------------------------- K. Clay Smith, Director Exhibit Index Page No. ------------- -------- Exhibit 3 (a) - Restated Articles of Incorporation, as amended as of May 15, 1991 - Incorporated by reference to Form 10-K for the year ended March 30, 1991. (b) - By-Laws as amended as of November 26, 1997 - Incorporated by reference to Form 10-Q for the quarter ended January 3, 1998. Exhibit 4 (a) - Articles V, VI and VII of the Company's Restated Articles of Incorporation, as amended as of May 15, 1991 - Incorporated by reference to Form 10-K for the year ended March 30, 1991. (b) - Articles I and IV of the Company's By-Laws, as amended as of August 7, 1990 Incorporated by reference to Form 10-Q for the quarter ended January 5, 1991. (c) - Agreement of the Company to furnish a copy of any agreement relating to certain long-term debt and leases to the Securities and Exchange Commission upon its request Incorporated by reference to Form 10-K for the year ended March 27, 1987. (d) - Note Agreement, dated as of May 1, 1988, for $25,000,000 9.48% Senior Notes due June 30, 2003 - Incorporated by reference to Form 10-Q for the quarter ended June 25, 1988. (e) - Rights Agreement, dated as of August 1, 1989, between Marsh Supermarkets, Inc. and National City Bank, as successor to Merchants National Bank and Trust Company of Indianapolis - Incorporated by reference to Form 10-Q for the quarter ended October 14, 1989. (f) - Amendment No. 1, dated as of May 1, 1991, to Rights Agreement, dated as of August 1, 1989 - Incorporated by reference to Form 10-K for the year ended March 30, 1991. (g) - Note Agreement, dated as of October 15, 1992, for $35,000,000 8.54% Senior Notes, Series A, due December 31, 2007, and $15,000,000 8.13% Senior Notes, Series B, due December 31, 2004 - Incorporated by reference to Registration Statement on Form S-2 (File No. 33-56738). (h) - Indenture, dated as of February 15, 1993, between Marsh Supermarkets, Inc. and Society National Bank, as trustee, including form of Indenture, for $17,500,000 7% Convertible Subordinated Debentures, due 2003 - Incorporated by reference to Registration Statement on Form S-2 (File No. 33-56738). (i) - Amendment to Note Agreements and Assumption Agreement, dated March 29, 1997, for $35,000,000 8.54% Senior Notes, Series A, due December 31, 2007, and $15,000,000 8.13%, Series B, due December 31, 2004 - Incorporated by reference to form 10-K for the year ended March 29, 1997. (j) - Amendment to Note Agreements and Assumption Agreement, dated March 29, 1997, for $25,000,000 9.48% Senior Notes, due June 20, 2003 - Incorporated by reference to Form 10-K for the year ended March 29, 1997. (k) - Indenture, dated August 5, 1997, between Marsh Supermarkets, Inc. and certain of its subsidiaries and State Street Bank and Trust Company, as trustee, for $150,000,000 8-7/8% Senior Subordinated Notes, due 2007 - Incorporated by reference to Registration Statement on Form S-4 (File No. 333-34855). (l) - First Supplemental Indenture between Marsh Supermarkets, Inc. and certain of its subsidiaries and State Street Bank and Trust Company, as trustee, dated December 31, 1997. Exhibit 10 (a) - Agreements between Ruan Leasing Company and Marsh Supermarkets, Inc., dated September 18, 1987 - Incorporated by reference to Registration Statement on Form S-2 (File No. 33-17730). (b) - Lease agreements relating to warehouse located at 333 South Franklin Road, Indianapolis, Indiana - Incorporated by reference to Registration Statement on Form S-2 (File No. 33-17730). Management Contracts and Compensatory Plans. (c) - Marsh Supermarkets, Inc. 1987 Stock Option Plan - Incorporated by reference to Registration Statement on Form S-8 (File No. 33-33427). (d) - Amendment to the Marsh Supermarkets, Inc. 1987 Stock Option Plan - Incorporated by reference to Proxy Statement, dated March 22, 1991, for a Special Meeting of Shareholders held May 1, 1991. (e) - Amended and Restated Employment and Severance Agreements, dated December 3, 1992 - Incorporated by reference to Registration Statement on Form S-2 (File No. 33-56738). (f) - Marsh Supermarkets, Inc. 1980 Marsh Stock Plan - Incorporated by reference to Registration Statement on Form S-8 (File No. 2-74859). (g) - Amendment to the Marsh Supermarkets, Inc. 1980 Marsh Stock Plan - Incorporated by reference to Proxy Statement, dated March 22, 1991, for a Special Meeting of Shareholders held May 1, 1991. (h) - Supplemental Retirement Plan of Marsh Supermarkets, Inc. and Subsidiaries Incorporated by reference to Registration Statement on Form S-2 (File No. 33-17730). (i) - Indemnification Agreements - Incorporated by reference to Form 10-Q for quarter ended January 6, 1990. (j) - Marsh Supermarkets, Inc. 1991 Employee Stock Incentive Plan - Incorporated by reference to Proxy Statement, dated March 22, 1991, for a Special Meeting of Shareholders held May 1, 1991. (k) - Marsh Supermarkets, Inc. Executive Life Insurance Plan - Incorporated by reference to Form 10-K for the year ended March 30, 1991. (l) - Marsh Supermarkets, Inc. Executive Supplemental Long-Term Disability Plan Incorporated by reference to Form 10-K for the year ended March 30, 1991. (m) - Marsh Supermarkets, Inc. 1992 Stock Option Plan for Outside Directors - Incorporated by reference to Proxy Statement, dated June 25, 1992, for the Annual Meeting of Shareholders held August 4, 1992. (n) - Employment contracts, dated January 1, 1995 - Incorporated by reference to Form 10-Q for the quarter ended January 7, 1995. (o) - Amendment to Marsh Supermarkets, Inc. 1991 Employee Stock Incentive Plan Incorporated by reference to Proxy Statement, dated June 22, 1995, for Annual Meeting of Shareholders held August 1, 1995. (p) - Severance Benefits Agreements, dated as of January 1, 1996 - Incorporated by reference to Form 10-K for the year ended March 29, 1997. (q) - Form of Split Dollar Insurance Agreement for the benefit of Don E. Marsh - Incorporated by reference to Form 10-K for the year ended March 29, 1997. (r) - Form of Restricted Stock Agreement, dated as of September 15, 1997 - Incorporated by reference to Form 10-Q for the quarter ended October 11, 1997. (s) - Form of Employment Contract, dated as of June 1, 1997 --Incorporated by reference to Form 10-Q for the quarter ended October 11, 1997. (t) - Marsh Supermarkets, Inc. Outside Directors' Stock Plan, as adopted November 26, 1997 Incorporated by reference to Form 10-Q for the quarter ended January 3, 1998. Exhibit 13 - 1998 Annual Report to Shareholders (only portions specifically incorporated by reference are included herein). Exhibit 21 - Subsidiaries of the Registrant. Exhibit 23 - Consent of Independent Auditors. Exhibit 27 (a) - Financial Data Schedule for the year for which this report is filed (for SEC use only). Exhibit 27 (b) - Financial Data Schedule for the year ended March 29, 1997 (for SEC use only). Exhibit 27 (c) - Financial Data Schedule for the year ended March 30, 1996 (for SEC use only). REPORT OF MANAGEMENT ON RESPONSIBILITY FOR FINANCIAL REPORTING The management of Marsh Supermarkets, Inc. is responsible for the preparation and integrity of the consolidated financial statements included in this annual report. The financial statements were prepared in accordance with generally accepted accounting principles and necessarily include some amounts based on management's best estimates and judgment. All financial information appearing in this annual report is consistent with that in the financial statements. The Company maintains a system of internal controls designed to provide reasonable assurance, on a cost-effective basis, that assets are safeguarded and transactions are properly authorized and recorded accurately in the financial records. The Company believes its control system is enhanced by its long-standing emphasis on conducting business in accordance with the highest standards of conduct and ethics. Independent auditors, Ernst & Young LLP, have audited the accompanying financial statements. Their report is included herein. Their audits, conducted in accordance with generally accepted auditing standards, included the review and evaluation of selected internal accounting controls for purposes of designing their audit tests. The Audit Committee of the Board of Directors meets periodically with the independent auditors to discuss the scope and results of their audit work, their assessment of internal controls, and the quality of financial reporting. The independent auditors are engaged by the Board of Directors, upon recommendation of the Audit Committee. Don E. Marsh Douglas Dougherty Mark Varner Chairman of the Board, Senior Vice President, Corporate Controller President and Chief Financial Officer and Chief Executive Officer Treasurer REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS To the Shareholders and Board of Directors of Marsh Supermarkets, Inc. We have audited the accompanying consolidated balance sheets of Marsh Supermarkets, Inc. and subsidiaries as of March 28, 1998 and March 29, 1997, and the related consolidated statements of income, changes in shareholders' equity and cash flows for each of the three years in the period ended March 28, 1998. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Marsh Supermarkets, Inc. and subsidiaries at March 28, 1998 and March 29, 1997, and the consolidated results of their operations and their cash flows for each of the three years in the period ended March 28, 1998, in conformity with generally accepted accounting principles. Ernst & Young LLP Indianapolis, Indiana May 15, 1998 CONSOLIDATED STATEMENTS OF INCOME (in thousands, except per share amounts) YEAR ENDED March 28, 1998 March 29, 1997 March 30, 1996 - ------------------------------------------------------------------------------------------------------------------------------ Sales and other revenues ............................................... $ 1,505,133 $ 1,451,730 $1,390,543 Cost of merchandise sold, including warehousing and transportation ..... 1,132,296 1,096,586 1,047,193 ----------- ----------- ---------- Gross profit ........................................................... 372,837 355,144 343,350 Selling, general and administrative expenses ........................... 321,977 318,634 297,022 Depreciation and amortization .......................................... 20,019 23,729 18,957 ----------- ----------- ---------- Operating profit ....................................................... 30,841 12,781 27,371 Interest and debt expense amortization ................................. 17,745 13,030 13,087 ----------- ----------- ---------- Income (loss) before income taxes and extraordinary item ............... 13,096 (249) 14,284 Income taxes (credit) .................................................. 3,651 (5) 5,251 ----------- ----------- ---------- Income (loss) before extraordinary item ................................ 9,445 (244) 9,033 Extraordinary item, net of tax ......................................... (3,278) -- -- ----------- ----------- ---------- NET INCOME (LOSS) ............................................... $ 6,167 $ (244) $ 9,033 =========== =========== ========== Earnings (loss) per common share Before effect of extraordinary item .................................. $ 1.13 $ (.03) $ 1.07 Extraordinary item ................................................... (.39) -- -- ----------- ----------- ---------- Net income (loss) per common share ................................... $ .74 $ (.03) $ 1.07 =========== =========== ========== Earnings (loss) per common share - assuming dilution Before effect of extraordinary item .................................. $ 1.07 $ (.03) $ 1.02 Extraordinary item ................................................... (.34) -- -- ----------- ----------- ---------- Net income (loss) per common share ................................... $ .73 $ (.03) $ 1.02 =========== =========== ========== Dividends per share .................................................... $ .44 $ .44 $ .44 =========== =========== ========== See Notes to Consolidated Financial Statements. CONSOLIDATED BALANCE SHEETS (in thousands) ASSETS March 28, 1998 March 29, 1997 - ------------------------------------------------------------------------------------------------------------ Current Assets Cash and equivalents .................................................... $ 33,546 $ 12,529 Accounts receivable, less allowances $1,053 in 1998, and $848 in 1997 ... 27,315 25,634 Inventories ............................................................. 98,828 88,262 Prepaid expenses ........................................................ 4,477 5,362 Recoverable income taxes ................................................ 3,867 941 Deferred income taxes ................................................... -- 650 -------- -------- TOTAL CURRENT ASSETS ................................................ 168,033 133,378 Property and Equipment Land ..................................................................... 52,799 48,565 Buildings ................................................................ 147,500 144,201 Fixtures and equipment ................................................... 117,300 103,220 Leasehold improvements ................................................... 50,402 47,910 Construction in progress ................................................. 7,650 2,430 Property under capital leases ............................................ 12,139 9,214 -------- -------- 387,790 355,540 Allowances for depreciation and amortization ............................. 138,995 122,859 -------- -------- TOTAL PROPERTY AND EQUIPMENT ........................................ 248,795 232,681 Other Assets ............................................................... 43,211 29,572 -------- -------- $460,039 $395,631 ======== ======== See Notes to Consolidated Financial Statements. LIABILITIES AND SHAREHOLDERS' EQUITY March 28, 1998 March 29, 1997 - -------------------------------------------------------------------------------------------------- Current Liabilities Notes payable to banks ....................................... $ -- $ 10,755 Accounts payable ............................................. 60,503 54,132 Employee compensation and other liabilities .................. 13,563 11,957 State and local taxes ........................................ 10,852 10,786 Other accounts payable and accrued expenses .................. 19,259 18,474 Dividends payable ............................................ 933 923 Deferred income taxes ........................................ 687 -- Current maturities of long-term liabilities .................. 2,806 7,097 --------- --------- TOTAL CURRENT LIABILITIES .............................. 108,603 114,124 Long-term Liabilities Long-term debt ............................................... 206,004 141,264 Capital lease obligations .................................... 6,457 4,165 --------- --------- TOTAL LONG-TERM LIABILITIES ............................ 212,461 145,429 Deferred Items Income taxes ................................................. 10,219 7,865 Other ........................................................ 12,677 12,765 --------- --------- TOTAL DEFERRED ITEMS ................................... 22,896 20,630 Shareholders' Equity Series A Junior Participating Cumulative Preferred stock: Authorized: 5,000,000 shares; Issued: None Class A Common Stock, no par value: Authorized: 15,000,000 shares; Issued: 4,695,253 .......... 8,552 8,552 Class B Common Stock, no par value: Authorized: 15,000,000 shares; Issued: 5,265,158 ........ 16,232 16,232 Retained earnings ............................................ 100,917 98,474 Cost of Common Stock in treasury Class A: 1998 - 750,866; 1997 - 844,662 shares ........... (2,620) (3,977) Class B: 1998 - 780,057; 1997 - 720,586 shares ........... (4,648) (3,511) Deferred cost - restricted stock ............................. (2,022) -- Notes receivable - stock options ............................. (332) (322) --------- --------- TOTAL SHAREHOLDERS' EQUITY ............................. 116,079 115,448 --------- --------- $ 460,039 $ 395,631 ========= ========= CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (in thousands) Class A Class B Cost of Common Common Retained Stock in Stock Stock Earnings Treasury Other Total - -------------------------------------------------------------------------------------------------------------------------------- Balance at April 1, 1995 ................................ $ 8,552 $15,974 $ 97,078 $(6,978) $ (312) $ 114,314 Net income ............................................ 9,033 9,033 Cash dividends declared ............................... (3,696) (3,696) Issuance of shares - Martz & Associates acquisition ... 258 198 456 Repurchase of 62,250 shares ........................... (696) (696) Additional minimum pension liability .................. (1,258) (1,258) Other ................................................. (1) 6 5 ------- ------- --------- ------- ------- --------- Balance at March 30, 1996 ............................... 8,552 16,232 102,414 (7,476) (1,564) 118,158 Net loss .............................................. (244) (244) Cash dividends declared ............................... (3,694) (3,694) Restricted stock grant of 500 shares .................. (2) 2 -- Repurchase of 2,390 shares ............................ (28) (28) Exercise of stock options - 1,500 shares .............. 14 14 Minimum pension liability reversal .................... 1,258 1,258 Other ................................................. (16) (16) ------- ------- --------- ------- ------- --------- Balance at March 29, 1997 ............................... 8,552 16,232 98,474 (7,488) (322) 115,448 Net income ............................................ 6,167 6,167 Cash dividends declared ............................... (3,724) (3,724) Restricted stock grant of 150,750 shares .............. 2,336 (2,022) 314 Repurchase of 205,150 shares .......................... (3,189) (3,189) Exercise of stock options - 88,725 shares ............. 1,073 1,073 Other ................................................. (10) (10) ------- ------- --------- ------- ------- --------- Balance at March 28, 1998 ............................... $ 8,552 $16,232 $ 100,917 $(7,268) $(2,354) $ 116,079 ======= ======= ========= ======= ======= ========= See Notes to Consolidated Financial Statements. CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) YEAR ENDED March 28, 1998 March 29, 1997 March 30, 1996 - ----------------------------------------------------------------------------------------------------------------------- OPERATING ACTIVITIES Net income (loss) ................................................ $ 6,167 $ (244) $ 9,033 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization ................................ 20,019 23,729 18,957 Amortization of other assets ................................. 4,743 5,343 5,488 Increase (decrease) in deferred income taxes ................. 3,691 (1,724) 219 Debt extinguishment costs .................................... 3,278 -- -- Changes in operating assets and liabilities: Accounts receivable ........................................ (1,681) (1,844) (5,673) Inventories ................................................ (10,565) 1,484 (7,338) Prepaid expenses and recoverable income taxes .............. (2,041) (1,178) 916 Accounts payable and accrued expenses ...................... 8,828 5,895 5,148 Other operating activities ................................... (673) 1,085 1,432 --------- -------- -------- NET CASH PROVIDED BY OPERATING ACTIVITIES .................... 31,766 32,546 28,182 INVESTING ACTIVITIES Acquisition of property, equipment and land held for expansion ... (42,450) (33,594) (22,736) Disposition of property, equipment and land held for expansion ... 7,653 1,673 959 Other investing activities ....................................... (9,987) (3,400) (4,397) --------- -------- -------- NET CASH USED FOR INVESTING ACTIVITIES ....................... (44,784) (35,321) (26,174) FINANCING ACTIVITIES Proceeds (repayments) of short-term borrowings ................... (10,755) (4,245) 8,000 Proceeds of long-term borrowings ................................. 172,000 47,580 68,200 Payments of long-term debt and capital lease obligations ......... (112,183) (37,141) (76,357) Debt acquisition costs ........................................... (5,918) -- -- Debt extinguishment costs ........................................ (3,278) -- -- Purchase of Class A and Class B Common Stock for treasury ........ (3,189) (28) (696) Cash dividends paid .............................................. (3,715) (3,697) (3,699) Stock options exercised .......................................... 1,073 -- -- Other financing activities ....................................... -- 13 -- --------- -------- -------- NET CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES .................................... 34,035 2,482 (4,552) INCREASE (DECREASE) IN CASH AND EQUIVALENTS ......................... 21,017 (293) (2,544) Cash and equivalents at beginning of year ........................... 12,529 12,822 15,366 --------- -------- -------- CASH AND EQUIVALENTS AT END OF YEAR ................................. $ 33,546 $ 12,529 $ 12,822 ========= ======== ======== - -------------------------------------------------------------------------------- See Notes to Consolidated Financial Statements. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in thousands, except per share amounts or as otherwise noted) NOTE A -- SIGNIFICANT ACCOUNTING POLICIES Significant accounting policies followed in preparation of the consolidated financial statements are: FISCAL YEAR The Company's fiscal year ends on Saturday of the thirteenth week of each calendar year. All references herein to "1998", "1997" and "1996" relate to the fiscal years ended March 28, 1998, March 29, 1997, and March 30, 1996, respectively. PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of Marsh Supermarkets, Inc. and all majority-owned subsidiaries ("the Company"). Investments in partnerships are accounted for by the equity method. Significant intercompany accounts and transactions have been eliminated. The Company is principally involved in a single significant business segment: the distribution and retail sale of food and related products through supermarkets, convenience stores and food services. CASH AND EQUIVALENTS Cash equivalents consist of highly liquid investments with a maturity of three months or less when purchased. The carrying amount approximates fair value of these assets. INVENTORIES Inventories are stated at the lower of cost or market. Cost is determined by the last-in, first-out ("LIFO") method for the principal components of inventories, and by the first-in, first-out ("FIFO") method for the remainder (see Note B). PROPERTY AND EQUIPMENT Property and equipment are stated at cost, including a provision for capitalized interest. For financial reporting purposes, depreciation is computed by the straight-line method over the estimated useful lives of the assets. For income tax purposes, accelerated methods and statutory lives are used to compute depreciation. CAPITALIZED LEASE PROPERTY Capitalized lease assets are amortized using the straight-line method over the term of the lease, or in accordance with practices established for similar owned assets if ownership transfers to the Company at the end of the lease term. Amortization is included with depreciation expense. INCOME TAXES Deferred tax assets and liabilities result from differences between financial reporting and tax bases of assets and liabilities, measured using enacted tax rates and laws expected to be in effect when the differences reverse. EXCISE TAXES Sales and cost of merchandise sold include state and federal excise taxes on tobacco, gasoline and alcohol products of approximately $100 million, $97 million and $91 million in 1998, 1997 and 1996, respectively. ADVERTISING COSTS Advertising communication costs are expensed in the period incurred and production costs are expensed the first time the advertising is distributed. Advertising expenses in the amounts of $16.4 million, $16.0 million, and $16.6 million were recorded for 1998, 1997 and 1996, respectively. COST OF OPENING STORES Non-capital expenditures associated with opening new stores are expensed as incurred. RECLASSIFICATIONS Certain items in the 1997 and 1996 consolidated financial statements were reclassified to conform with the 1998 presentation. USE OF ESTIMATES Preparation of the consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The more significant estimates include allowances for doubtful accounts, provisions for self-insurance losses and income taxes. Actual results could differ from those estimates. ACCOUNTING CHANGES Accounting for the Impairment of Long-Lived Assets The Company adopted FAS 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of," in the first quarter of 1997. The Statement establishes accounting standards for recognizing and measuring impairment of long-lived assets, and requires reducing the carrying amount of any impaired assets to fair value. Adoption of FAS 121 resulted in a charge to earnings of $4.6 million, net of tax, primarily related to the adjustment of building and equipment carrying costs and leases of eight supermarkets and 12 convenience stores. The Company estimated fair value based on its experience in the acquisition and disposal of similar assets. The charge was reflected in income as follows: $2.6 million ($1.6 million net of tax) in selling, general and administrative expenses, and $4.9 million ($3.0 million net of tax) in depreciation and amortization. The Company continues to expect prospective earnings to improve approximately $0.9 million annually ($0.6 million after tax, or $.06 per diluted share) as a result of adopting FAS 121. Recent Accounting Pronouncements In June 1997, the Financial Accounting Standards Board issued Statement No. 130, "Reporting Comprehensive Income" (FAS 130), and Statement No. 131, "Disclosure About Segments of an Enterprise and Related Information" (FAS 131). Both statements are effective for the Company in 1999. FAS 130 requires separate reporting of certain items already disclosed by the Company. FAS 131 establishes requirements for reporting information about operating segments in annual and interim reports. FAS 131 may require a change in the Company's financial reporting, however, the extent of the change, if any, has not been determined. ENVIRONMENTAL LIABILITIES The Company recognizes environmental liabilities when environmental assessments indicate remedial efforts are required and the costs can be reasonably estimated. Estimates of liability are based on all currently known facts, prior remediation experience, existing technology, and presently enacted federal and state statutes, ordinances and regulations concerning the storage and dispensing of petroleum products. These estimated liabilities are subject to revision in future periods as actual costs and new information becomes known. The liabilities are recorded in the balance sheet at their undiscounted amounts, and do not consider any potential recovery the Company may receive from either the Indiana Underground Storage Tank Excess Liability fund, which reimburses owners and operators of underground storage tanks ("USTs") for approved costs incurred in connection with the remediation of soil and groundwater contamination, or from third parties that may be responsible for all or part of the contamination. Current environmental laws and regulations require the removal or abandonment of USTs at 19 Village Pantry locations by December 1998. Earlier removal or abandonment is required in the event any UST fails any leak detection test, which the Company performs at least annually. All USTs at these locations passed the most recent leak detection tests in calendar 1997, which results were consistent with data from the Company's established petroleum product inventory control program. The Company is aware of the existence of petroleum contamination at 23 Village Pantry locations and has commenced remediation at each of these sites. The Company currently estimates the maximum aggregate cost to be incurred in connection with compliance with existing environmental laws and regulations applicable to USTs will not exceed approximately $0.9 million and has charged this amount to earnings. NOTE B -- INVENTORIES Inventories valued by the LIFO method represented approximately 75% and 76% of consolidated inventories at March 28, 1998 and March 29, 1997, respectively. Current inventory cost exceeded the carrying amount of LIFO inventories by $15.1 million at March 28, 1998, and $17.6 million at March 29, 1997. NOTE C -- DEBT ARRANGEMENTS Long-term debt consisted of the following: 1998 1997 --------- --------- 8 7/8% Senior Subordinated Notes ......... $ 150,000 $ -- Less discount .......................... (1,144) -- Notes payable to insurance companies: 8.54% Senior Notes, unsecured ...... -- 35,000 8.13% Senior Notes, unsecured ...... -- 10,909 9.48% Senior Notes, unsecured ...... -- 17,500 10.05% notes ........................ 18,116 18,897 9.05% notes ........................ 18,882 19,630 7% convertible subordinated debentures ... 19,909 19,909 Revolving credit agreements .............. -- 20,000 Other .................................... 2,391 5,661 Less current maturities .................. (2,150) (6,242) --------- --------- $ 206,004 $ 141,264 ========= ========= The 8 7/8% Senior Subordinated Notes were issued in August 1997. Proceeds from the issuance were used to prepay the 8.54%, 8.13% and 9.48% senior notes and related prepayment penalties, and amounts outstanding under existing revolving credit agreements. Interest is payable semi-annually and the principal matures in August 2007. The discounted effective interest rate is 9.0%. The 10.05% notes are payable in monthly installments (principal and interest) of $220,000 through 2009. The 9.05% notes are payable in quarterly installments (principal and interest) of $625,000 through 2011. In 2000, the Company or lender may initiate an interest rate renegotiation or require retirement of the notes. The 7% convertible subordinated debentures mature February 15, 2003. They are convertible, at the holder's option at any time, into Class B Common Stock at a conversion price of $15.50 per share. They are redeemable, at the Company's option, at declining prices which started at 103.5% of the principal amount in 1996. The debentures are subordinate to all present and future senior indebtedness. A portion of the proceeds from the issuance of the 8 7/8% Senior Subordinated Notes was used to repay $60.9 million in principal amount of senior unsecured indebtedness and $5.0 million in related prepayment penalties. The prepayment penalties, plus $0.2 million in unamortized debt acquisition costs, were charged to income as an extraordinary item during the second quarter of 1998. The after tax charge of $3.3 million represents $.34 per diluted share. Land and buildings with a net carrying amount of approximately $39.0 million are pledged as collateral to the 10.05% notes and the 9.05% notes. Subsequent to March 28, 1998, a lender released the Company's guarantee of a $1.5 million portion of two mortgages for a 25% owned, unconsolidated subsidiary. At March 28, 1998, the fair market value of the Company's long-term debt was approximately $217.5 million. The fair market value was estimated using quoted market rates for publicly traded debt and current incremental borrowing rates for non-public debt. Several of the loan agreements require maintenance of minimum working capital and limit cash dividends, repurchases of common stock, future indebtedness, lease obligations, investments, and disposition of assets. Under the most restrictive covenant, the amount available for payment of dividends and purchases of treasury shares was approximately $5 million at March 28, 1998. The Company's revolving credit agreements permit borrowings up to $50 million. Interest is based on various money market rates selected by the Company at the time of borrowing. The Company pays commitment fees of from 0.15% to 0.25% on unused amounts. No amounts were borrowed at March 28, 1998. The Company has commitments from various banks for short-term borrowings of up to $20 million at rates at or below the prime rates of the committed banks. At March 29, 1997, $11.0 million was utilized, at an average rate of 6.2%. No amounts were borrowed at March 28, 1998. Aggregate principal payments of long-term debt outstanding at March 28, 1998 for the succeeding five years and thereafter are: 1999 ........................ $ 2,150 2000 ........................ 2,225 2001 ........................ 2,209 2002 ........................ 2,426 2003 ........................ 2,675 Thereafter .................. 196,469 Interest expense consisted of: 1998 1997 1996 ------- ------- ------- Long-term debt ................. $16,802 $12,141 $12,016 Capital lease obligations ...... 543 641 991 Other .......................... 400 248 80 ------- ------- ------- Total interest expense ......... $17,745 $13,030 $13,087 ======= ======= ======= Interest capitalized ........... $ 413 $ 528 $ 714 ======= ======= ======= Cash payments for interest ..... $17,004 $13,511 $13,632 ======= ======= ======= NOTE D - GUARANTOR SUBSIDIARIES Other than three inconsequential subsidiaries, all of the Company's subsidiaries (the "Guarantors") have guaranteed on a joint and several basis the Company's obligations under the $150.0 million 8 7/8% Senior Subordinated Notes. The Guarantors are 100% wholly-owned subsidiaries of the Company. The Guarantors comprise all of the direct and indirect subsidiaries of the Company (other than three inconsequential subsidiaries). The Company has not presented separate financial statements and other disclosures concerning each Guarantor because management has determined that such information is not material to investors. Summarized combined financial information (in accordance with Rule 1-02(bb) of Regulation S-X) for 1998, 1997 and 1996 for the Guarantors is set forth below: 1998 1997 -------- -------- Current assets ........... $164,316 $132,964 Current liabilities ...... 104,486 110,892 Noncurrent assets ........ 244,400 216,590 Noncurrent liabilities ... 49,188 45,152 1998 1997 1996 ---------- ---------- ---------- Total revenues .......... $1,498,045 $1,445,870 $1,383,720 Gross profit ............ 365,749 349,284 336,527 Income before extraordinary item .... 10,549 534 9,285 Net income .............. 7,271 534 9,285 NOTE E -- LEASES Of the Company's 270 retail stores, 108 are leased under commercial lease agreements providing for initial terms generally from 15 to 20 years with options to extend the initial terms up to an additional 20 years. The Company also leases a portion of its transportation and store equipment for periods from three to eight years plus renewal and purchase options. Capitalized lease property consisted of store facilities having a net carrying cost of $5.6 million at March 28, 1998 and $3.1 million at March 29, 1997. Future minimum lease payments for capital and operating leases with terms in excess of one year, and the present value of capital lease obligations, at March 28, 1998, were as follows: Capital Operating Leases Leases ------ ------- 1999........................................... $ 1,220 $17,647 2000........................................... 1,332 14,199 2001........................................... 1,152 11,113 2002........................................... 912 7,553 2003........................................... 912 4,990 Later years.................................... 6,840 11,102 ------- ------- 12,368 $66,604 ======= Less: Estimated executory costs................... 42 Amounts representing interest............... 5,213 ------- Present value of net minimum lease payments.............................. $ 7,113 ======= Minimum annual lease payments will be reduced by $4.6 million from future sublease rentals due over the term of the subleases. Rental expense consisted of: 1998 1997 1996 -------- -------- -------- Minimum rentals ......... $ 20,900 $ 21,719 $ 22,017 Contingent rentals ...... 125 151 147 Sublease rental income .. (1,895) (1,715) (2,217) -------- -------- -------- $ 19,130 $ 20,155 $ 19,947 ======== ======== ======== NOTE F -- RETIREMENT PLANS Historically, the Company provided a qualified defined benefit pension plan covering the majority of its non-union employees and an unfunded supplemental retirement plan for corporate officers designated by the Board of Directors. The benefit formula under the qualified plan is based upon years of service and the highest consecutive four years of earnings during the last ten years worked. The benefits under both plans are similar; however, the supplemental plan takes into consideration compensation in excess of amounts that can be recognized under the qualified plan. On December 31, 1996, the Company froze benefit accruals under its qualified defined benefit pension plan and concurrently amended one of the Company's defined contribution savings plans to permit discretionary Company contributions. As a result of freezing the pension plan, the Company recorded a pretax net pension curtailment loss of $2.4 million in the first quarter of 1997, in addition to the $1.8 million net pension expense reported for 1997. The Company's funding policy with regard to the qualified defined benefit pension plan is consistent with federal laws and regulations. The Company contributed $1.0 million and $2.2 million to the plan in 1998 and 1997, respectively. Plan assets consist principally of listed stocks, corporate and government notes and bonds, and 92,675 shares each of Class A and Class B Common Stock of the Company. At March 28, 1998, the Company's Common Stock in the qualified plan had a market value of $2.9 million. The supplemental plan is unfunded. The actuarial present value of the projected benefit obligation under the supplemental plan was $5.5 million and $4.9 million at March 28, 1998 and March 29, 1997, respectively. The funded status of the plans and amounts recognized in the consolidated balance sheets were as follows: 1998 1997 -------- -------- Actuarial present value of obligations: Vested benefits ....................... $ 44,124 $ 38,962 Nonvested benefits .................... 2,993 2,083 -------- -------- Accumulated benefit obligation ........... 47,117 41,045 Effect of future salary increases ........ 2,334 2,016 -------- -------- Projected benefit obligation ............. 49,451 43,061 Plan assets at fair value ................ 46,324 38,649 -------- -------- Funded status ......................... (3,127) (4,412) Unrecognized net gain from past experience different from assumed ...... (1,008) (637) Unrecognized net obligation at adoption ........................... 52 89 Unrecognized prior service cost .......... 1,106 1,238 -------- -------- Accrued pension cost ..................... $ (2,977) $ (3,722) ======== ======== The components of net pension expense included: 1998 1997 1996 ------- ------- ------- Service cost of benefits earned .............. $ 192 $ 1,510 $ 1,784 Interest on projected benefit obligation ................................. 3,312 3,267 3,154 Actual return on plan assets ................. (8,515) (3,590) (5,161) Net amortization and deferral ................ 5,253 606 2,703 ------- ------- ------- Net pension expense........................... $ 242 $ 1,793 $ 2,480 ======= ======= ======= The following actuarial assumptions were used to compute net pension expense and funded status of the plans: 1998 1997 1996 ---- ---- ---- Discount rate ...................... 7.00% 8.00% 7.65% Rate of increase in compensation ... 3.50 3.50 3.50 Expected long-term rate of return on assets ....................... 9.00 9.00 9.00 The 1.00% change in discount rate increased the projected benefit obligation at March 28, 1998 by approximately $5.2 million. The Company participates in a multi-employer plan that provides defined benefits to its union employees. The Company expense for this plan amounted to $0.7 million in both 1998 and 1997, and $0.6 million in 1996. The Company provides two defined contribution savings plans. These plans allow 401(k) contributions covering employees who work a minimum of 1,000 hours per year, are age 21 or older and elect to participate. The plans provide the opportunity for additional financial security during retirement by offering employees an incentive to make tax advantaged contributions to a savings plan. The Company expense for these plans was $3.4 million in 1998, $1.3 million in 1997 and $1.3 million in 1996. The $2.1 million increase in 1998 is the estimated Company discretionary contribution to the plan amended concurrent with the December 1996 benefit freeze under the defined benefit plan. NOTE G -- POSTRETIREMENT HEALTH BENEFITS The Company provides certain post retirement health care benefits for its non-union retirees and their eligible spouses. The plans are contributory with retiree contributions adjusted annually and certain other cost sharing features, such as deductibles and co-insurance. Eligibility for these benefits is generally limited to retirees, who are at least age 55 and less than age 65, with ten or more years of vested service. Optional spousal coverage continues for the lesser of five years after retirement or until the spouse reaches age 65. Benefits generally cease after reaching age 65, at which time the retiree or spouse is generally eligible for Medicare. The amounts recognized in the consolidated balance sheets for the Company's contributory defined benefit postretirement plans were as follows: 1998 1997 ------ ------ Accumulated participants benefit obligation: Current retirees ............................ $ 622 $ 534 Fully eligible active plan participants ..... 1,051 915 Other active plan participants .............. 1,066 810 ------ ------ Total benefit obligation .................. 2,739 2,259 Unrecognized gain .............................. 717 1,144 ------ ------ Accrued postretirement benefit cost ............ $3,456 $3,403 ====== ====== Net postretirement benefit expense included: 1998 1997 1996 ----- ----- ----- Service cost of benefits earned during the year ................ $ 215 $ 215 185 Interest cost on projected benefit obligation ............. 169 161 167 Net amortization and deferral .... (89) (73) (68) ----- ----- ----- $ 295 $ 303 $ 284 ===== ===== ===== For measurement purposes, the weighted average discount rate used in determining the accumulated postretirement benefit obligation and related expense was 7.00% for 1998, 8.00% for 1997 and 7.65% for 1996. The Company's assumed healthcare cost trend rate is 11.00% for 1999, decreasing gradually to 6.00% by 2013, and thereafter. If these trend rates increased by one percentage point each year, the accumulated postretirement benefit obligation and expense would have increased by approximately 9.00% and 11.00%, respectively. NOTE H -- INCOME TAXES The following are components of deferred tax assets and liabilities: 1998 1997 -------- -------- Deferred tax assets: Compensation and benefit accruals .. $ 3,565 $ 3,406 Self insurance reserves ............ 1,967 2,593 Other .............................. 2,873 2,757 -------- -------- Total deferred tax assets ....... 8,405 8,756 Deferred tax liabilities: Property and equipment, including leased property ................. (14,764) (12,330) Inventory .......................... (2,531) (3,023) Other .............................. (2,016) (617) -------- -------- Total deferred tax liabilities .. (19,311) (15,970) -------- -------- Net deferred tax liability ............ $(10,906) $ (7,214) ======== ======== Income tax expense (credit) consisted of the following: 1998 1997 1996 ------- ------- ------- Current - Federal .... $ (230) $ 526 $ 4,209 State ...... 189 445 887 Deferred - Federal .... 4,431 (849) 158 State ...... (739) (127) (3) ------- ------- ------- $ 3,651 $ (5) $ 5,251 ======= ======= ======= Cash payments ......... $ 1,340 $ 1,807 $ 5,428 ======= ======= ======= A reconciliation of income tax expense (credit) is as follows: 1998 1997 1996 ------- ----- ------- Federal statutory tax rate ............ $ 4,584 $ (96) $ 4,999 State and local, net of federal tax ... (357) 206 575 Other ................................. (576) (115) (323) ------- ----- ------- Total income tax expense (credit) ..... $ 3,651 $ (5) $ 5,251 ======= ===== ======= NOTE I - EARNINGS PER SHARE In 1997, the Financial Accounting Standards Board issued FAS 128, "Earnings per Share". FAS 128 simplifies the standards for computing earnings per share by replacing primary and fully diluted earnings per share with basic and diluted earnings per share. Unlike primary earnings per share, basic earnings per share excludes any dilutive effects of options, warrants and convertible securities. Diluted earnings per share is very similar to the previously reported fully diluted earnings per share. All earnings per share amounts presented on the income statement conform to FAS 128. The following table sets forth the computation of the numerators and denominators used in the computation of basic and diluted earnings per share (amounts in thousands): 1998 1997 1996 ------- ------- ------ Numerator for basic EPS - net income (loss) ................... $ 6,167 $ (244) $9,033 Effect of convertible debentures ...... 999 -- 882 ------- ------- ------ Numerator for diluted EPS - income (loss) after assumed conversions ..... $ 7,166 $ (244) $9,915 ======= ======= ====== Weighted average shares outstanding ... 8,438 8,395 8,403 Non-vested restricted shares ........ (80) -- -- ------- ------- ------ Denominator for basic EPS ............. 8,358 8,395 8,403 Effect of dilutive securities: Employee stock options .............. 117 37 37 Convertible debentures .............. 1,290 -- 1,290 ------- ------- ------ Denominator for diluted EPS - adjusted weighted average shares .... 9,765 8,432 9,730 ======= ======= ====== Convertible debentures were not included in the computation of 1997 earnings per share because the effect would be antidilutive. NOTE J -- SHAREHOLDERS' EQUITY AND EMPLOYEE STOCK PLANS COMMON STOCK Class A Common Stock has one vote per share; Class B Common Stock is non-voting except with respect to certain matters affecting the rights and preferences of that class. Each class is entitled to equal per share dividends and consideration in any merger, consolidation or liquidation of the Company. A person who, subsequent to May 15, 1991, acquires 10% or more of outstanding Class A Common Stock without acquiring a like percentage of Class B Common Stock must make a public tender offer to acquire additional Class B Common Stock. Failure to do so results in suspension of the voting rights of the Class A Common Stock held by such person. STOCK OPTION PLANS AND SHARES RESERVED The 1991 Employee Stock Incentive Plan (as amended in May 1995) reserves 750,000 shares of common stock, in any combination of Class A and Class B, for the grant of stock options, stock appreciation rights, restricted stock, deferred stock, stock purchase rights and/or other stock-based awards. Grants of options made under this plan are non-qualified. Substantially all grants were at the market value of the underlying common stock at date of grant. They become exercisable pro-rata over a four year period beginning one year from date of grant and expire 10 years from date of grant. Grants made prior to 1992 were under the 1987 Stock Option Plan at prices equal to 85% of market value of the underlying common stock at the date of grant. They are exercisable pro-rata over a four year period and expire 10 years from date of grant. The 1987 plan authorized 375,000 shares for grants of options; no further grants may be made under the 1987 Plan. At the 1992 Annual Meeting, shareholders approved the 1992 Stock Option Plan for Outside Directors under which 50,000 shares of Class B Common Stock were reserved for the grant of stock options and restricted stock to non-employee directors. Options are granted upon election of each of the directors by the shareholders at the market value of the underlying common stock at date of grant. The options become exercisable and restrictions lapse in equal installments, on the date of each of the two Annual Meetings following the date of grant and expire 10 years from date of grant. Additionally, 3,500 shares of restricted stock have been issued to outside directors upon their first election as a director. A summary of the Company's stock option activity follows (price is weighted average; options are in thousands): Class A shares Class B shares ------------------- ------------------ Price Options Price Options ----- ------- ----- ------- Outstanding at April 1, 1995 ... $12.71 163 $12.10 458 Granted ........................ 13.50 355 12.25 5 --- --- Outstanding at March 30, 1996 .. 13.26 518 12.10 463 Granted ........................ 13.50 10 10.50 4 Exercised ...................... -- -- 9.50 (2) Forfeited ...................... 12.86 (33) 12.73 (53) --- --- Outstanding at March 29, 1997 .. 13.28 495 12.01 412 Granted ........................ -- -- 14.75 2 Exercised ...................... 10.91 (35) 10.40 (54) Forfeited ...................... 13.50 (18) 11.35 (3) --- --- Outstanding at March 28, 1998 .. $13.46 442 $12.27 357 === === Related stock option information is as follows (options are in thousands): 1998 1997 1996 ------- ------- ------- Exercisable at the end of the year Class A shares ................. 272 227 163 Class B shares ................. 328 345 361 Weighted average exercise price Class A shares ................. $ 13.44 $ 13.03 $ 12.71 Class B shares ................. 12.48 12.47 12.79 Weighted average exercise price of options granted during the year Class A shares ................. $ -- $ 13.50 $ 13.50 Class B shares ................. 14.75 10.50 12.25 At March 28, 1998, the range of option exercise prices for Class A shares was $12.75 to $13.81 and for Class B shares was $9.50 to $15.50 and the weighted-average remaining contractual life of those options for Class A and Class B shares was 6.2 years and 4.0 years, respectively. The Company has adopted the disclosure only provisions of FAS 123, "Accounting for Stock Based Compensation". In accordance with the provisions of FAS 123, the Company applies APB Opinion 25 and related interpretations in accounting for its stock option plans and, accordingly, does not recognize compensation cost if the exercise price of the options granted is equal to the market price of the underlying common stock at the date of grant. If the Company had elected to recognize compensation cost based on the fair value of the options granted at grant date as prescribed by FAS 123, net income would have been reduced by $234,000 in 1998, $201,000 in 1997 and $79,000 in 1996. Earnings per share would have been reduced by $.03 in 1998, $.02 in 1997 and $.01 in 1996. Diluted earnings per share would have been reduced $.02 in 1998 and 1997, and $.01 in 1996. The fair value of options granted were estimated using a Black-Scholes option pricing model with the following assumptions for 1998, 1997 and 1996; a risk-free interest rate of 6.8%; dividend yield of 3.3%, a volatility factor of the expected market price of the Company's common stock of .26; and a weighted-average expected life of the options of nine years. Because the Company's employee stock options have characteristics significantly different from those typically valued using the Black-Scholes option pricing model, and changes in the subjective input assumptions can materially affect the fair market estimate, in management's opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options. The Company presently holds notes receivable totaling $332,000 from three employees of the Company. The notes arose when the Company loaned the employees money to exercise stock options under the 1987 plan and an expired 1980 plan. The notes under the 1980 plan bear interest at 6% per annum, are due on May 28, 2000, and are collateralized by the shares. The amount of the receivable is shown on the balance sheet as a reduction of equity. In September 1997, 150,750 shares of restricted Class A Common Stock were granted under the 1991 Employee Stock Incentive Plan to certain key employees. The shares will vest ratably on each of the first four anniversaries of the date of grant and are subject to restrictions on their sale or transfer. As of March 28, 1998, a total of 1,290,323 shares of Class B Common Stock is reserved for conversion of debentures, 4,425 shares in any combination of Class A and Class B are reserved for future awards under the 1991 Plan, and 27,000 shares of Class B are reserved under the Stock Option Plan for Outside Directors. CHANGES IN SHARES OUTSTANDING Changes in shares issued and treasury shares during the three years ended March 28, 1998, were as follows: Issued shares: Class A Class B - -------------- --------- --------- Balance at March 30, 1996, March 29, 1997 and March 28, 1998 .............. 4,695,253 5,265,158 Treasury shares: - ---------------- Balance at April 1, 1995 ............... 817,530 728,494 Acquisition of shares ................ 27,025 35,225 Issuance of shares - Martz & Associates acquisition ...... -- (43,416) ---------- ---------- Balance at March 30, 1996 .............. 844,555 720,303 Acquisition of shares ................ 107 2,283 Stock options exercised .............. -- (1,500) Restricted stock grant ............... -- (500) ---------- ---------- Balance at March 29, 1997 .............. 844,662 720,586 Acquisition of shares ................ 91,604 113,546 Stock options exercised .............. (34,650) (54,075) Restricted stock grant ............... (150,750) -- ---------- ---------- Balance at March 28,1998 ............... 750,866 780,057 ---------- ---------- Net outstanding at March 28, 1998 ...... 3,944,387 4,485,101 ========== ========== SHAREHOLDER RIGHTS PLAN Under the 1989 Shareholder Rights Plan, preferred stock purchase rights ("Rights") were distributed as a dividend at the rate of one Right for each common share held. Each Right entitles a shareholder to buy one one-hundredth of a share of Series A Junior Participating Cumulative Preferred Stock of the Company at an exercise price of $65. The Rights will be exercisable only if a person or group acquires beneficial ownership of 20% or more of either class of the Company's common stock or commences a tender or exchange offer upon consummation of which such person or group would beneficially own 20% or more of either class of the Company's common stock. If any person becomes the beneficial owner of 20% or more of either class of the Company's common stock, or if a 20% or more shareholder engages in certain self-dealing transactions or a merger transaction with the Company in which the Company is the surviving corporation and its common shares are not changed or converted, then each Right not owned by such person or related parties will entitle its holder to purchase, at the Right's then-current exercise price, shares of common stock (or, in certain circumstances as determined by the Board, cash, property or other securities of the Company) having a value of twice the Right's exercise price. In addition, if the Company is involved in a merger or other business combination transaction with another person in which its common stock is changed or converted, or sells 50% or more of its assets or earning power to another person, each Right will entitle its holder to purchase, at the Right's then-current exercise price, common shares of such other person having a value of twice the Right's exercise price. The Company will generally be entitled to redeem the rights at $.01 per Right, at any time until the 15th day following public announcement that a 20% position has been acquired. The Rights expire on July 31, 1999. NOTE K -- ACQUISITIONS On January 1, 1995, the Company purchased the assets of Crystal Catering and its affiliated companies, the largest caterer in Indianapolis. The purchase price of $4.8 million included: (i) $2.4 million cash, (ii) a $1.4 million note payable to Crystal, and (iii) issuance of 97,810 shares of Class B Common Stock, valued at $1.0 million. Additionally, a $1.0 million adjustment earned based on the catering division achieving specified profitability levels for 1996, 1997 and 1998 was treated as a purchase price adjustment. Goodwill, resulting from this acquisition in the amount of $5.0 million, is being amortized using the straight-line method over a twenty year life. On May 1, 1995, the Company purchased the assets of Martz & Associates Food Services, an Indianapolis vending and cafeteria management services firm. The purchase price included $1.0 million cash and 43,416 shares of Class B Common Stock, valued at $456,000. Goodwill resulting from this acquisition in the amount of $568,000 is being amortized using the straight-line method over a twenty year life. EXHIBIT 4 (L) FIRST SUPPLEMENTAL INDENTURE BETWEEN MARSH SUPERMARKETS, INC. AND CERTAIN OF ITS SUBSIDIARIES AND STATE STREET BANK AND TRUST COMPANY, AS TRUSTEE MARSH SUPERMARKETS, INC., as Issuer, MARSH DRUGS, INC., MARSH VILLAGE PANTRIES, INC. MUNDY REALTY, INC., MAR PROPERTIES, INC., MARLEASE, INC., MARSH INTERNATIONAL, INC., MARAINES GREENERY, INC., LIMITED HOLDINGS, INC., CONVENIENCE STORE DISTRIBUTING COMPANY, MARSH P.Q., INC., S.C.T., INC., NORTH MARION DEVELOPMENT CORPORATION, CONTRACT TRANSPORT, INC., CRYSTAL FOOD SERVICES, LLC, LOBILL FOODS, LLC, CONTRACT TRANSPORT, LLC, MARSH SUPERMARKETS, LLC, VILLAGE PANTRY, LLC, MARSH DRUGS, LLC, TRADEMARK HOLDINGS, INC., MARSH CLEARING HOUSE, LLC as Existing Guarantors CONVENIENCE STORE DISTRIBUTING COMPANY, LLC, CONVENIENCE STORE TRANSPORTATION COMPANY, LLC, CRYSTAL FOOD MANAGEMENT SERVICES, LLC and BUTTERFIELD FOODS, LLC as Additional Guarantors, and STATE STREET BANK AND TRUST COMPANY, as Trustee ---------- FIRST SUPPLEMENTAL INDENTURE Dated as of December 31, 1997 $150,000,000 8 7/8% Senior Subordinated Notes due 2007 FIRST SUPPLEMENTAL INDENTURE, dated as of December 31, 1997, among Marsh Supermarkets, Inc., an Indiana corporation (the "Company"), Marsh Drugs, Inc., an Indiana corporation, Marsh Village Pantries, Inc., an Indiana corporation, Mundy Realty, Inc., an Indiana corporation, Mar Properties, Inc., an Indiana corporation, Marlease, Inc., an Indiana corporation, Marsh International, Inc., an Indiana corporation, Maraines Greenery, Inc., an Indiana corporation, Limited Holdings, Inc., an Indiana corporation, Convenience Store Distributing Company, an Ohio partnership, Marsh P.Q., Inc., an Indiana corporation, S.C.T., Inc., an Indiana corporation, North Marion Development Corporation, an Indiana corporation, Contract Transport, Inc., an Indiana corporation, Crystal Food Services, LLC, an Indiana limited liability company, LoBill Foods, LLC, an Indiana limited liability company, Contract Transport, LLC, an Indiana limited liability company, Marsh Supermarkets, LLC, an Indiana limited liability company, Village Pantry, LLC, an Indiana limited liability company, Marsh Drugs, LLC, an Indiana limited liability company, Trademark Holdings, Inc., a Delaware corporation, and Marsh Clearing House, LLC, an Indiana limited liability company, (collectively, the "Existing Guarantors"), and Convenience Store Distributing Company, LLC, an Indiana limited liability company, Convenience Store Transportation Company, LLC, an Indiana limited liability company, Crystal Food Management Services, LLC, an Indiana limited liability company and Butterfield Foods, LLC, an Indiana limited liability company (collectively, the "Additional Guarantors"), and State Street Bank and Trust Company, a Massachusetts trust company, as trustee (the "Trustee"). WHEREAS, the Company and the Existing Guarantors executed and delivered to the Trustee the Indenture dated August 5, 1997 among the Company, the Existing Guarantors and the Trustee (the "Indenture"; each capitalized terms used herein which is not defined in this First Supplemental Indenture shall have the meanings given to them in the Indenture); WHEREAS, each of the Additional Guarantors has become a Restricted Subsidiary since the date of the Indenture; WHEREAS, certain of the Existing Guarantors desire to transfer certain of their assets to certain of the Additional Guarantors; WHEREAS, Section 1015 of the Indenture permits a Guarantor to transfer its assets to a Restricted Subsidiary if the Restricted Subsidiary transferee is a Guarantor or simultaneously executes and delivers a supplemental indenture to the Indenture providing for a Guarantee of the payment of the Securities by such Restricted Subsidiary on a senior subordinated basis; WHEREAS, each of the Additional Guarantors desires to become a Guarantor under the Indenture, as amended and supplemented hereby; WHEREAS, Section 901 of the Indenture provides for the circumstances pursuant to which the Indenture may be amended without the consent of the holders of the Securities and the Guarantee; WHEREAS, Section 901 of the Indenture provides that the Indenture may be amended without the consent of the holders of the Securities and the Guarantee in order to correct or supplement any provision which may be defective or inconsistent with any other provision of the Indenture or in the Securities or any Guarantee, or to make any other provisions with respect to matters or questions arising under the Indenture, the Securities or the Guarantees, provided that such provision shall not adversely affect the interest of the Holders; WHEREAS, the Prospectus for the Securities, describing amendments to the Indenture permitted without the consent of the holders of the Securities, includes "to add a Guarantor under the Indenture"; WHEREAS, the addition of additional Guarantors under the Indenture will not adversely affect the interest of the Holders; WHEREAS, all things necessary to make this First Supplemental Indenture a valid agreement of the Company, the Existing Guarantors, the Additional Guarantors and the Trustee have been done; NOW THEREFORE, THIS FIRST SUPPLEMENTAL INDENTURE WITNESSETH, that, for and in consideration of the premises, the Company, the Existing Guarantors and the Additional Guarantors agree with the Trustee as follows: ARTICLE ONE AMENDMENT TO INDENTURE Section 101. Amendment of Section 901 ------------------------ Section 901 of the Indenture is amended to delete the words "pursuant to the requirements of Section 1014". ARTICLE TWO DELIVERY OF ADDITIONAL GUARANTIES Section 201. Execution of Guaranty. ---------------------- Simultaneously with the execution and delivery of this First Supplemental Indenture, each of the Additional Guarantors shall execute and deliver to the Trustee a Guarantee in the form described in Section 205 of the Indenture. Section 202. Additional Guarantors are Guarantors Under Indenture and -------------------------------------------------------- Securities. - ----------- Each of the Additional Guarantors hereby expressly assumes each of the obligations of a Guarantor, and upon execution of the Guarantee described above and this First Supplemental Indenture, the defined term "Guarantor" in the Indenture shall include each Additional Guarantor and the defined term "Guarantee" in the Indenture shall include the guarantee executed pursuant to Section 201 of this First Supplemental Indenture. ARTICLE THREE MISCELLANEOUS Section 301. Counterpart Originals. ---------------------- The parties may sign any number of copies of this First Supplemental Indenture. Each signed copy shall be an original, but all of them together represent the same agreement. Section 302. Governing Law. -------------- THIS FIRST SUPPLEMENTAL INDENTURE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES THEREOF. Section 303. Effectiveness. -------------- The provisions of this First Supplemental Indenture will take effect immediately upon its execution and delivery to the Trustee. IN WITNESS WHEREOF, the parties hereto have caused this First Supplemental Indenture to be duly executed, all as of the date and year first written above. MARSH DRUGS, INC. MUNDY REALTY, INC. MAR PROPERTIES, INC. MARLEASE, INC. MARSH INTERNATIONAL, INC. MARAINES GREENERY, INC. LIMITED HOLDINGS, INC. MARSH P.Q., INC. S.C.T., INC. NORTH MARION DEVELOPMENT CORPORATION CONTRACT TRANSPORT, INC. TRADEMARK HOLDINGS, INC. By: /s/ Don E. Marsh -------------------------------------- Name: Don E. Marsh Title: President CRYSTAL FOOD SERVICES, LLC By: Marsh Supermarkets, Inc., its Chief Operating Officer LOBILL FOODS, LLC By: Marsh Supermarkets, Inc., its Chief Operating Officer CONTRACT TRANSPORT, LLC By: Marsh Supermarkets, Inc., its Chief Operating Officer MARSH SUPERMARKETS, LLC By: Marsh Supermarkets, Inc., its Chief Operating Officer VILLAGE PANTRY, LLC By: Marsh Supermarkets, Inc., its Chief Operating Officer MARSH DRUGS, LLC By: Marsh Supermarkets, Inc., its Chief Operating Officer MARSH CLEARING HOUSE, LLC By: Marsh Supermarkets, Inc., its Chief Operating Officer CONVENIENCE STORE DISTRIBUTING COMPANY, LLC By: Marsh Supermarkets, Inc., its Chief Operating Officer CONVENIENCE STORE TRANSPORTATION COMPANY, LLC By: Marsh Supermarkets, Inc., its Chief Operating Officer CRYSTAL FOOD MANAGEMENT SERVICES, LLC By: Marsh Supermarkets, Inc., its Chief Operating Officer BUTTERFIELD FOODS, LLC By: Marsh Supermarkets, Inc., its Chief Operating Officer By: /s/ Don E. Marsh ------------------------------------- Name: Don E. Marsh Title: President and Chief Executive Officer MARSH VILLAGE PANTRIES, INC. CONVENIENCE STORE DISTRIBUTING COMPANY By: Marsh Village Pantries, Inc., its General Partner By: /s/ Don E. Marsh ------------------------------------- Name: Don E. Marsh Title: Chief Executive Officer Attest: /s/ P. Lawrence Butt --------------------------------- P. Lawrence Butt, Secretary Marsh Supermarkets, Inc. Marsh Drugs, Inc. Marsh Village Pantries, Inc. Mundy Realty, Inc. Mar Properties, Inc. Marlease, Inc. Marsh International, Inc. Maraines Greenery, Inc. Limited Holdings, Inc. Marsh Village Pantries, Inc., as general partner of Convenience Store Distributing Company Marsh P.Q., Inc. S.C.T., Inc. North Marion Development Corporation Contract Transport, Inc. Marsh Supermarkets, Inc., as Chief Operating Officer of Crystal Food Services, LLC LoBill Foods, LLC Contract Transport, LLC Marsh Supermarkets, LLC Village Pantry, LLC Marsh Drugs, LLC Marsh Clearing House, LLC Convenience Store Distributing Company, LLC Convenience Store Transportation Company, LLC Crystal Food Management Services, LLC Butterfield Foods, LLC Attest: /s/ P. Lawrence Butt --------------------------------------- P. Lawrence Butt, Assistant Secretary Trademark Holdings, Inc. STATE STREET BANK & TRUST COMPANY, as Trustee By: /s/ Dennis Fisher ------------------------------------------- Name: Dennis Fisher Title: Assistant Vice President EXHIBIT 13 PORTIONS OF 1998 ANUAL REPORT TO SHAREHOLDERS INCORPORATED BY REFERENCE, INCLUDING OPINION OF INDEPENDENT AUDITORS FINANCIAL HIGHLIGHTS (in thousands, except per share amounts) 1998 1997 1996 ---------- ---------- ---------- Sales and other revenues ................. $1,505,133 $1,451,730 $1,390,543 Income (loss) before extraordinary item .. 9,445 (244) 9,033 Extraordinary item, net of tax ........... (3,278) -- -- ---------- ---------- ---------- Net income (loss) ........................ $ 6,167 $ (244) $ 9,033 ========== ========== ========== Income (loss) per share before extraordinary item - assuming dilution $ 1.07 $ (.03) $ 1.02 Dividends per share ...................... .44 .44 .44 Total assets ............................. $ 460,039 $ 395,631 $ 387,294 Long-term liabilities .................... 212,461 145,429 135,066 Shareholders' equity ..................... 116,079 115,448 118,158 Book value per share ..................... $ 13.77 $ 13.75 $ 14.07 Number of shares outstanding at year end . 8,429 8,395 8,396 Net income (loss) as a percentage of: Sales and other revenues .............. .4% --% .6% Average shareholders' equity .......... 5.3% (0.2)% 7.7% Stores open at year-end: Supermarkets ........................... 89 88 90 Convenience stores ..................... 181 182 181 ================================================================================ Marsh Supermarkets, Inc. was founded in 1931 with one store in Muncie, Indiana. In 1953, the Company went public with 16 stores. Today, it is a leading regional food retailer headquartered in Indianapolis, Indiana. The Company operates 72 Marsh(R) Supermarkets, 17 LoBill Foods(R), 181 Village Pantry(R) convenience stores in Indiana and Ohio, Convenience Store Distributing Company (CSDC(R)) serving 1,290 non-affiliated convenience stores in seven states, and Crystal Food Services(TM), the largest food service operator in Indianapolis. The 12,800 Marsh employees serve two million customers each week. SELECTED FINANCIAL DATA (in thousands, except per share amounts) March 28, March 29, March 30, April 1, April 2, As of and for the year ended 1998 1997 1996 1995 1994 - -------------------------------------------------------------------------------------------------------------------------------- Sales and other revenues .......................... $1,505,133 $1,451,730 $1,390,543 $1,303,261 $1,263,191 Income (loss) before income taxes, extraordinary item and cumulative effect of changes in accounting principles ................ 13,096 (249) 14,284 12,790 13,517 Income (loss) before extraordinary item and cumulative effect of changes in accounting principles ........................... 9,445 (244) 9,033 8,573 8,526 Extraordinary item, net of tax .................... (3,278) -- -- -- -- Cumulative effect of changes in accounting principles ......................... -- -- -- -- 1,941 ---------- ---------- ---------- ---------- ---------- Net income (loss) ................................. $ 6,167 $ (244) $ 9,033 $ 8,573 $ 10,467 ========== ========== ========== ========== ========== Earnings (loss) per common share: Before extraordinary item and cumulative effect of changes in accounting principles ... $ 1.13 $ (.03) $ 1.07 $ 1.02 $ 1.01 Net income (loss) ............................. .74 (.03) 1.07 1.02 1.24 Earnings (loss) per common share assuming dilution: Before extraordinary item and cumulative effect of changes in accounting principles $ 1.07 $ (.03) $ 1.02 $ .98 $ .97 Net income (loss) ............................. .73 (.03) 1.02 .98 1.17 Dividends declared per share ...................... $ .44 $ .44 $ .44 $ .44 $ .44 Total assets ...................................... $ 460,039 $ 395,631 $ 387,294 $ 378,471 $ 375,683 Long-term liabilities ............................. 212,461 145,429 135,066 143,102 148,818 Total shareholders' equity ........................ 116,079 115,448 118,158 114,314 109,794 Earnings per share amounts for 1994 through 1997 have been restated to comply with Statement of Financial Accounting Standard No. 128, "Earnings Per Share". SELECTED QUARTERLY FINANCIAL DATA (unaudited) (in thousands, except per share amounts) ------------------------------------------ ----------------------------------------- 1998 1997 Fourth Third Second First Fourth Third Second First -------- -------- -------- -------- -------- -------- -------- -------- Sales and other revenues ............... $339,353 $356,206 $465,650 $343,924 $328,671 $338,116 $449,099 $335,844 Gross profit ........................... 86,257 87,932 114,871 83,777 82,565 82,153 109,180 81,246 Selling, general and administrative .... 73,196 76,072 100,446 72,263 71,063 71,391 95,444 80,736 Depreciation and amortization .......... 5,039 4,669 5,935 4,376 4,571 4,461 5,633 9,064 -------- -------- -------- -------- -------- -------- -------- -------- Operating income (loss) ................ 8,022 7,191 8,490 7,138 6,931 6,301 8,103 (8,554) Interest and debt expense amortization . 4,406 4,454 5,822 3,063 3,200 2,992 3,824 3,014 -------- -------- -------- -------- -------- -------- -------- -------- Income (loss) before income taxes and extraordinary item ................... 3,616 2,737 2,668 4,075 3,731 3,309 4,279 (11,568) Income taxes (credit) .................. 856 776 843 1,176 1,608 1,303 1,540 (4,456) -------- -------- -------- -------- -------- -------- -------- -------- Income (loss) before extraordinary item 2,760 1,961 1,825 2,899 2,123 2,006 2,739 (7,112) Extraordinary item, net of tax ......... -- -- (3,278) -- -- -- -- -- -------- -------- -------- -------- -------- -------- -------- -------- Net income (loss) ...................... $ 2,760 $ 1,961 $ (1,453) $ 2,899 $ 2,123 $ 2,006 $ 2,739 $ (7,112) ======== ======== ======== ======== ======== ======== ======== ======== Earnings (loss) per common share Before effect of extraordinary item .. $ .33 $ .24 $ .22 $ .35 $ .25 $ .24 $ .33 $ (.85) Extraordinary item ................... -- -- (.39) -- -- -- -- -- -------- -------- -------- -------- -------- -------- -------- -------- Net income (loss) per common share ... $ .33 $ .24 $ (.17) $ .35 $ .25 $ .24 $ .33 $ (.85) ======== ======== ======== ======== ======== ======== ======== ======== Earnings (loss) per common share - assuming dilution Before effect of extraordinary item .. $ .31 $ .22 $ .21 $ .32 $ .24 $ .23 $ .31 $ (.85) Extraordinary item ................... -- -- (.38) -- -- -- -- -- -------- -------- -------- -------- -------- -------- -------- -------- Net income (loss) per common share ... $ .31 $ .22 $ (.17) $ .32 $ .24 $ .23 $ .31 $ (.85) ======== ======== ======== ======== ======== ======== ======== ======== COMMON STOCK PRICES: Class A - High ...................... $ 16.75 $ 15.75 $ 16.25 $ 14.88 $ 15.25 $ 14.37 $ 12.25 $ 13.00 Low ....................... 15.38 14.88 13.75 12.25 12.25 10.75 11.25 11.50 Class B - High ..................... 16.13 16.50 17.00 14.38 14.37 11.75 11.75 13.12 Low ...................... 14.88 14.75 13.75 11.75 11.62 9.75 9.75 11.50 CASH DIVIDEND: Class A ................. $ .11 $ .11 $ .11 $ .11 $ .11 $ .11 $ .11 $ .11 Class B ................. .11 .11 .11 .11 .11 .11 .11 .11 Cash dividends have been paid on the common stock during each quarter of the past 38 years. Earnings per share amounts for 1997 and the first two quarters of 1998 have been restated to comply with Statement of Financial Accounting Standard No. 128, "Earnings Per Share". - -------------------------------------------------------------------------------- Quarterly earnings per share are based on weighted average shares outstanding. The sum of the quarters may not equal the full year earnings per share amount. The first, third and fourth quarters are 12 weeks, and the second quarter is 16 weeks. Unusual or infrequently occurring items recognized in net income in the quarterly results are as follows: Fourth quarter 1998: Income per diluted share increased $.12 from sales of surplus real estate. Third quarter 1998: Income per diluted share increased $.02 from sales of surplus real estate. Second quarter 1998: Income per diluted share increased $.03 from sales of surplus real estate. Fourth quarter 1997: Income per diluted share increased $.10 from the sale of a closed supermarket. First quarter 1997: Loss per diluted share included $.47 from reducing the carrying amounts of impaired assets and $.15 from curtailment of the defined benefit pension plan. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS The following discussion includes certain forward-looking statements. Actual results could differ materially from those reflected by the forward-looking statements in the discussion, and a number of factors could adversely affect future results, liquidity and capital resources. These factors include softness in the general retail food industry, the entry of new competitive stores in the Company's market, the stability of distribution incentives from suppliers, the level of discounting by competitors, the timely and on-budget completion of store construction, expansion, conversion and remodeling, uncertainties relating to tobacco and environmental regulations, the ability of the Company and significant third parties with whom it does business to effect conversions to new technological systems, including being Year 2000 compliant, and the level of margins achievable in the Company's operating divisions and their ability to minimize operating expenses. Although management believes it has the business strategy and resources needed for improved operations, future revenue and margin trends cannot be reliably predicted. The Company undertakes no obligation to update or revise any forward-looking statements to reflect subsequent events or circumstances. The following table sets forth certain income statement components, expressed as a percentage of sales and other revenues, and the year-to-year percentage changes in such components: Percentage of Revenues Year Ended Percentage Change ---------------------------------- --------------------- March 28, March 29, March 30, 1998 1997 1998 1997 1996 vs. 1997 vs. 1996 --------- --------- --------- -------- -------- Sales and other revenues ................... 100.0% 100.0% 100.0% 3.7% 4.4% Gross profit ............................... 24.8 24.5 24.7 5.0 3.4 Selling, general and administrative expenses 21.4 21.9 21.4 1.0 7.3 Depreciation and amortization .............. 1.3 1.6 1.4 (15.6) 25.2 Operating income ........................... 2.0 0.9 2.0 141.3 (53.3) Interest and debt amortization expense ..... 1.2 0.9 0.9 36.2 (0.4) Income (loss) before income taxes and extraordinary item ................... 0.9 0.0 1.0 n/m (101.7) Income taxes (credit) ...................... 0.2 0.0 0.4 n/m (100.1) Income (loss) before extraordinary item .... 0.6 0.0 0.6 n/m (102.8) Extraordinary item, net of tax ............. (0.2) 0.0 0.0 n/m -- Net income (loss) .......................... 0.4 0.0 0.6 n/m (102.8) n/m = not meaningful SALES AND OTHER REVENUES In 1998, consolidated sales and other revenues of $1,505.1 million increased $53.4 million, or 3.7%, from 1997, despite 1998 not including an Easter holiday. Consolidated sales and revenues for 1998 include gains from sales of real estate of $2.3 million, compared to $1.8 million from sales of real estate in 1997. Supermarket, convenience store (Village Pantry), convenience wholesale (CSDC), and food service (Crystal Food Services) revenues accounted for 68%, 12%, 18%, and 2%, respectively, of consolidated revenues. Revenues increased approximately $26.8 million from supermarkets, $30.6 million from CSDC, and $2.9 million from Crystal Food Services, while Village Pantry revenues decreased $7.7 million. Retail sales (excluding fuel sales) increased 2.0%. Sales in comparable stores (including replacement supermarkets and convenience stores and format conversions) in 1998 increased 1.4% from 1997. Approximately two-thirds of the revenue increase in supermarkets was due to identical store gains, with the remainder attributable to new stores and format conversions. Of the decrease in Village Pantry revenues, approximately half resulted from lower retail fuel prices and the closing of 14 fuel operations beginning in the middle of the prior year, with the remaining decline due to competition from fast food restaurants and other convenience stores. Half of the increase in CSDC revenues resulted from passing on cigarette manufacturer price increases to customers. At the end of 1998, CSDC served 1,290 non-related stores, compared to 1,400 at the end of 1997. The decrease was due to the loss of a 160 store chain that accounted for sales of $10.3 million in 1998 and $11.1 million in 1997. The increase in Crystal Food Services revenues resulted primarily from the maturation of service sites added in the prior year. In 1997, consolidated revenues increased $61.2 million, or 4.4%, from 1996. Supermarket, Village Pantry, CSDC and Crystal Food Services revenues accounted for 69%, 13%, 17% and 1%, respectively, of 1997 consolidated revenues. The supermarket, Village Pantry, CSDC and Crystal Food Services operations increased revenues compared to 1996 by $20.1 million, $9.5 million, $28.6 million and $4.9 million, respectively. Retail sales (excluding fuel sales) increased 2.3%. Sales in comparable stores (including replacement supermarkets and convenience stores and format conversions) in 1997 increased 0.8% from 1996. The revenue increases in supermarkets and Village Pantry were due principally to stores opened in 1996. CSDC sales increased due to new customers and volume increases from existing customers. The increase in Crystal Food Services revenues was attributable to the addition of two major venues and five lesser venues, as well as increases at existing service sites. Comparable store sales for each of the past five quarters have increased over the respective year earlier quarter, in spite of competitive activity and low rates of food price inflation. With the pace of new competitive openings slowing, the Company believes that current marketing and merchandising programs continue to be positioned to achieve improvement in the comparable store sales trend. GROSS PROFIT Gross profit is net of warehousing, transportation and promotional expenses. In 1998, consolidated gross profit was $372.8 million and increased $17.7 million, or 5.0%, compared to 1997. The increase was attributable to improvements of $12.7 million in supermarkets, $0.4 million in Village Pantry, $1.8 million in CSDC and $2.4 million in Crystal Food Services. Expressed as a percentage of revenues, consolidated gross profit was 24.8% in 1998, an increase of 0.3% from 24.5% in 1997. The $17.7 million increase in gross profit resulted from improvements in profit margin rates in all divisions and profits on incremental revenues. In 1997, consolidated gross profit increased $11.8 million, or 3.4%, from 1996. Expressed as a percentage of revenues, consolidated gross profit was 24.5% in 1997 and 24.7% in 1996. The 0.2% decrease was primarily attributable to increases in Village Pantry fuel sales and CSDC sales, both of which have gross profit margins significantly lower than the average of the Company's other operations. Supermarket and Crystal Food Services gross margins, as a percentage of sales, improved in 1997, while Village Pantry and CSDC gross margins, as a percentage of sales, declined slightly due to higher sales of Village Pantry fuel and CSDC cigarettes at margin rates lower than food products. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES Selling, general and administrative expenses in 1998, compared to 1997, increased $3.3 million, or 1.0%, to $322.0 million. Expressed as a percentage of revenues, selling, general and administrative expenses decreased 0.5% to 21.4% in 1998, from 21.9% in 1997. In 1998, wages and fringe benefits increased $8.7 million (including a $2.1 million discretionary contribution to the 401(k) plan), advertising increased $0.4 million, store occupancy costs increased $0.8 million and other operating costs increased $3.3 million. The increases were partially offset by a decrease of $1.6 million in workers compensation and general liability expenses, and a $3.0 million reduction in certain expenses that is anticipated to recur annually as a result of the restructuring of retail operations. Additionally, $1.5 million of reorganization related consulting fees were expensed during 1998. Expenses in 1997 that did not recur in 1998 included: $2.6 million in FAS 121 charges related to future lease obligations and the write-down of land values for impaired stores; $2.4 million from the decision to curtail the accrual of benefits under the Company's qualified defined benefit pension plan; $1.3 million for recruiting and relocation of certain personnel hired during the first quarter of 1997, consulting fees and the severance of certain employees, and a $0.5 million charge to merchandising allowances related to a supplier contract. Wages in identical stores increased 1.5% in 1998 from 1997, following a 2.1% increase in 1997 from 1996. A tight labor market resulted in a shift to more full-time employees, wage increases and increased overtime. Retailers generally offset wage increases with higher gross margin rates, higher same store sales, and productivity gains. The Company expects the tight labor market to continue, but implemented labor productivity changes in 1998 and 1997 aimed at reducing the recent increases in wage costs, while continuing to maintain high customer service levels. Selling, general and administrative expenses in 1997, compared to 1996, increased $21.6 million, or 7.3%, to $318.6 million. Expressed as a percentage of revenues, selling, general and administrative expenses increased 0.5% to 21.9% in 1997, from 21.4% in 1996. The increase was primarily attributable to selling expenses in supermarkets opened since July 1995, additional Crystal Food Services operating venues and the $6.8 million in charges not normally recurring. DEPRECIATION AND AMORTIZATION EXPENSE Depreciation and amortization expense was $20.0 million, $23.7 million and $19.0 million for 1998, 1997 and 1996, respectively. Depreciation and amortization in 1997 included $4.9 million in FAS 121 charges primarily related to the adjustment of building and equipment carrying costs of eight supermarkets and 12 convenience stores. Expressed as a percentage of revenues, depreciation and amortization expense was 1.3% for 1998, 1.6% for 1997 and 1.4% for 1996. INTEREST EXPENSE Interest expense was $17.7 million in 1998 compared to $13.0 million in 1997. The increase resulted from the issuance of $150.0 million of 8 7/8% Senior Subordinated Notes (the "Notes") in August 1997. As a percentage of revenues, interest was 1.2% in 1998 compared to 0.9% in both 1997 and 1996. INCOME TAXES The effective income tax rate was 27.9% for 1998 and was lower than the statutory rate due to contributions, tax credits and the reversal of deferred tax accruals resulting from restructuring the Company's retail operations. The effective income tax rate for 1997 was not meaningful. The effective income tax rate for 1996 was 36.8%. The effective income tax rate for 1999 is expected to approximate 32.6%. INCOME (LOSS) BEFORE EXTRAORDINARY ITEM Income before extraordinary item was $13.1 million, or 0.9% of revenues, for 1998 compared to a $0.2 million loss for 1997. The $17.7 million increase in gross profit, combined with the $3.7 million decrease in depreciation and amortization and the $6.8 million in selling, general and administrative expenses in 1997 that did not recur in 1998, were reduced by $10.1 million in increased selling, general and administrative expenses and $4.7 million in increased interest. Income (loss) in 1997 was a $0.2 million loss and decreased from 1996 income of $9.0 million due principally to the FAS 121 charges included in depreciation and amortization in 1997 and additional 1997 charges not normally recurring. EXTRAORDINARY ITEM: DEBT EXTINGUISHMENT In August 1997, the Company consummated the issuance of $150.0 million in principal amount of 8 7/8% Senior Subordinated Notes. A portion of the proceeds was used to repay $60.9 million in principal amount of senior unsecured indebtedness and $5.0 million in related prepayment penalties. The prepayment penalties, plus $0.2 million in unamortized debt acquisition costs, were charged to income during the second quarter of 1998. The after tax charge of $3.3 million represents $.34 diluted earnings per share. CAPITAL EXPENDITURES Capital expenditures and major capital projects completed during the last three years consisted of: 1998 1997 1996 ----- ----- ----- Capital expenditures (millions) $42.5 $33.6 $22.7 ===== ===== ===== Supermarkets New/acquired stores ..... 2 1 3 Closed stores ........... 1 3 1 Major remodels/expansions 2 0 5 Convenience stores New/acquired stores ..... 0 3 1 Closed stores ........... 1 2 1 All years include land acquisitions for future store development. During 1998, the Company opened the following stores: SQUARE TYPE / CATEGORY FEET LOCATION OPENED - --------------- ---- -------- ------ Superstore Remodel 80,000 Fishers, IN Sep. 8, 1997 Superstore Remodel 75,000 Westfield, IN Nov. 17, 1997 LoBill New 42,000 Hamilton, OH Apr. 24, 1997 LoBill Conversion 23,000 Connersville, IN Apr. 7, 1997 LoBill Replacement 32,000 Portland, IN Jan 15, 1998 During 1997, the Company opened the following stores: SQUARE TYPE / CATEGORY FEET LOCATION OPENED - --------------- ---- -------- ------ Supermarket Replacement 65,000 Muncie, IN Nov. 8, 1996 LoBill Conversion 32,000 Indianapolis, IN Apr. 1, 1996 LoBill Conversion 22,000 Portland, IN Jul. 26, 1996 LoBill Conversion 17,000 Union City, OH Jul. 26, 1996 LoBill Conversion 22,000 Indianapolis, IN Sep. 26, 1996 Convenience New 4,500 Cambridge C, IN Jun. 13, 1996 Convenience New 4,500 Albany, IN Jul. 11, 1996 Convenience New 4,500 Frankfort, IN Oct. 25, 1996 In 1998, the Company began construction of a replacement supermarket in Carmel, Indiana and a new prototype convenience store in Cicero, Indiana, acquired one shopping center adjacent to its south Kokomo, Indiana supermarket, installed scale management software and equipment in the supermarket division and began implementation of new generation inventory procurement/distribution software. In 1997, the Company expanded the square footage of the perishable products facility in Yorktown, Indiana to 191,000 square feet from 124,000 square feet and constructed a central commissary in an existing storeroom in Noblesville, Indiana. In 1996, the Company purchased the assets of Martz & Associates Food Services and in January 1995, the Company purchased the assets of Crystal Catering and its affiliated companies, the largest caterer in Indianapolis. Subsequent to March 28, 1998, the Company converted a supermarket in Rushville, Indiana to the LoBill format, opened a new convenience store in Cicero, Indiana and purchased a convenience store in Kokomo, Indiana. In 1999, the Company plans to remodel two supermarkets, open two replacement supermarkets and open six new convenience stores. The cost of these projects and other capital commitments is estimated to be $60 million. Of this amount, the Company plans to fund $20 million through equipment leasing, and believes it can finance the balance with current cash balances and internally generated funds. The Company's plans with respect to store construction, expansion, conversion and remodeling may be revised in light of changing conditions, such as competitive influences, its ability to successfully negotiate site acquisitions or leases, zoning limitations and other governmental regulations. The timing of projects is subject to normal construction and other delays. It is possible that projects described above may not commence, others may be added, and a portion of planned expenditures with respect to projects commenced during the current fiscal year may carry over to the subsequent fiscal year. LIQUIDITY AND CAPITAL RESOURCES Net cash provided by operating activities during 1998 was $31.8 million, a $0.8 million decrease from 1997. Working capital increased $40.2 million as cash, net of short-term amounts payable to banks, increased $31.8 million, inventories, net of accounts payable, increased $4.2 million and current maturities of long-term obligations decreased $4.3 million. The increase in cash and decreases in current amounts due to banks and current portions of long-term obligations resulted from the issuance of the Notes. The increase in inventory net of payables was primarily due to the build-up of inventory for the Easter holiday sales in April. For 1998, investing activities consisted of $34.8 million in expenditures for acquisition of property, equipment and land for expansion, net of dispositions, and $10.0 million in other investing activities, primarily acquisition of rental video tapes and deferred costs associated with the new generation inventory procurement/distribution software project. The Company's capital requirements are traditionally financed through internally generated funds, long-term borrowings and lease financings, including capital and operating leases. The Company anticipates continued access to such financing sources. The Company's long-term debt and capital lease obligations, net of current maturities, amounted to $212.5 million at March 28, 1998, compared to $145.4 million at March 29, 1997. All of the long-term debt and capital lease obligations at March 28, 1998 were at fixed rates of interest with an 8.7% weighted average rate. In connection with the issuance of the 8 7/8% Senior Subordinated Notes in August 1997, the Company repaid $35.0 million borrowed on existing revolving credit facilities and short-term borrowing arrangements and entered into new $30.0 million and $20.0 million revolving credit facilities. As a result, at March 28, 1998, the Company had $50.0 million of availability under its revolving credit facilities. Commitments from various banks for short-term borrowings provide an additional $20.0 million of available financing at rates based upon the then prevailing federal funds rate. At March 28, 1998, no amounts were outstanding on revolving credit facilities or short-term borrowing arrangements. The Company believes the remaining net proceeds of the offering of the Notes, borrowings under its revolving credit agreements and notes payable to banks, cash flows from operating activities and lease financings will be adequate to meet the Company's working capital needs, planned capital expenditures and debt service obligations for the foreseeable future. YEAR 2000 ISSUE The Company has reviewed its computer and other operating systems to identify those which could be affected by the "Year 2000" issue and is currently addressing those systems. Management believes those changes will be made in a timely fashion and the Year 2000 issue will not pose significant operational problems for the Company. Moreover, management does not expect that Year 2000 associated costs will have a material adverse impact on the Company's financial condition or results of operations. It is management's understanding the significant third parties with which the Company does business are now, or will be, Year 2000 compliant in a timely manner. However, if the Company or one or more significant third parties with whom it does business fails to complete its Year 2000 program in a timely manner, there can be no assurance that such failure will not have a material adverse effect on the Company's operations or financial position. REPORT OF MANAGEMENT ON RESPONSIBILITY FOR FINANCIAL REPORTING The management of Marsh Supermarkets, Inc. is responsible for the preparation and integrity of the consolidated financial statements included in this annual report. The financial statements were prepared in accordance with generally accepted accounting principles and necessarily include some amounts based on management's best estimates and judgment. All financial information appearing in this annual report is consistent with that in the financial statements. The Company maintains a system of internal controls designed to provide reasonable assurance, on a cost-effective basis, that assets are safeguarded and transactions are properly authorized and recorded accurately in the financial records. The Company believes its control system is enhanced by its long-standing emphasis on conducting business in accordance with the highest standards of conduct and ethics. Independent auditors, Ernst & Young LLP, have audited the accompanying financial statements. Their report is included herein. Their audits, conducted in accordance with generally accepted auditing standards, included the review and evaluation of selected internal accounting controls for purposes of designing their audit tests. The Audit Committee of the Board of Directors meets periodically with the independent auditors to discuss the scope and results of their audit work, their assessment of internal controls, and the quality of financial reporting. The independent auditors are engaged by the Board of Directors, upon recommendation of the Audit Committee. Don E. Marsh Douglas Dougherty Mark Varner Chairman of the Board, Senior Vice President, Corporate Controller President and Chief Financial Officer and Chief Executive Officer Treasurer EXHIBIT 21 MARSH SUPERMARKETS, INC. AND SUBSIDIARIES SUBSIDIARIES OF THE REGISTRANT State of Name under which Business Name as Specified Incorporation Done if Different from in Charter or Organization Name Specified in Charter ---------- --------------- ------------------------- Marsh Drugs, Inc. Indiana Marsh Drugs Marsh Village Pantries, Inc. Indiana Village Pantry Mundy Realty, Inc. Indiana Mar Properties, Inc. Indiana Marlease, Inc. Indiana Marsh International, Inc. Indiana Maraines Greenery, Inc. Indiana Floral Fashions Limited Holdings, Inc. Indiana Convenience Store Distributing Company Ohio CSDC Marsh P.Q., Inc. Indiana S.C.T., Inc. Indiana North Marion Development Corp. Indiana Contract Transport, Inc. Indiana Crystal Food Services, LLC Indiana Crystal Food Services LoBill Foods, LLC Indiana LoBill Contract Transport, LLC Indiana Marsh Supermarkets, LLC Indiana Marsh Village Pantry, LLC Indiana Village Pantry Marsh Drugs, LLC Indiana Marsh Drugs Trademark Holdings, Inc. Delaware Marsh Clearing House, LLC Indiana Convenience Store Transportation Company, LLC Indiana CSTC Convenience Store Distributing Company, LLC Indiana CSDC Crystal Food Management Services, LLC Indiana Butterfield Foods, LLC Indiana Butterfield EXHIBIT 23 CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in this Annual Report (Form 10-K) of Marsh Supermarkets, Inc. of our report dated May 15, 1998 included in the 1998 Annual Report to Shareholders of Marsh Supermarkets, Inc. We also consent to the incorporation by reference in Registration Statement Number 2-74859 on Form S-8 of the 1980 Marsh Stock Plan, dated December 2, 1981, Registration Statement Number 33-33427 on Form S-8 of the Marsh Supermarkets, Inc. 1987 Stock Option Plan, dated February 12, 1990, Registration Statement Number 33-43817 on Form S-8 of the Marsh Employees' Monthly Stock Investment Plan - 1977, dated November 7, 1991, Registration Statement Number 33-56630 on Form S-8 of the 1991 Employee Stock Incentive Plan, dated December 31, 1992, Registration Statement Number 33-56624 on Form S-8 of the 1992 Stock Option Plan for Outside Directors, dated December 31, 1992, and Registration Statement Number 33-56626 on Form S-8 of the Marsh Supermarkets, Inc. 401(k) Plan, dated December 31, 1992, of our report dated May 15, 1998, with respect to the consolidated financial statements incorporated herein by reference in this Annual Report (Form 10-K) of Marsh Supermarkets, Inc. Ernst & Young LLP Indianapolis, Indiana June 23, 1998 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM MARSH SUPERMARKETS' 10-K FOR THE PERIOD ENDED MARCH 28, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS AND THE NOTES THERETO. S-X) AND (II) $321,977 OF SELLING, GENERAL AND ADMINISTRATIVE EXPENSES (ITEM 5-03(B)4 OF REGULATION S-X). THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM MARSH SUPERMARKETS' 10-K FOR THE PERIOD ENDED MARCH 29, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS AND THE NOTES THERETO. S-X) AND (II) $318,634 OF SELLING, GENERAL AND ADMINISTRATIVE EXPENSES (ITEM 5-03(B)4 OF REGULATION S-X). ANTIDILUTIVE STOCK OPTIONS AND CONVERTIBLE SUBORDINATED DEBENTURES. THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM MARSH SUPERMARKETS' 10-K FOR THE PERIOD ENDED MARCH 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS AND THE NOTES THERETO. S-X) AND (II) $297,022 OF SELLING, GENERAL AND ADMINISTRATIVE EXPENSES (ITEM 5-03(B)4 OF REGULATION S-X). End