Marsh Could Put Out For Sale Sign

Supermarket, c-store chain reports $3.4 million loss, signals intention to explore strategic alternatives

INDIANAPOLIS -- Marsh Supermarkets Inc. has reported its financial results for the second fiscal quarter ended Oct. 15, 2005. The company reported a net loss of $3.4 million compared to net income of $1.3 million for the same period last year.

The company also announced that it has retained Merrill Lynch & Co. to explore strategic alternatives for the enhancement of shareholder value, including a possible sale. Marsh is a major regional grocery chain, operating 70 Marsh supermarkets, 38 LoBill Foods stores and eight O'Malia Food Markets; it also [image-nocss] operates 160 Village Pantry convenience stores, 2 Arthur's Fresh Market stores, and 1 Savin$, in Indiana and western Ohio, as well as Crystal Food Services, which provides catering, cafeteria management, office coffee, coffee roasting, vending and concessions, and restaurant management and Primo Banquet Catering & Conference Centers; Floral Fashions, McNamara Florist and Enflora-Flowers for Business.

It attributed the losses to lower contribution from comparable stores, startup and operating losses of new stores and higher general and administrative expenses.

Total revenues for the quarter increased to $549.6 million from $524.9 million for the prior year quarter. Sales in comparable supermarkets and convenience stores increased 3.6% in second-quarter 2006 from the same period in 2005, but comparable store merchandise sales, which exclude gasoline sales, declined 0.7%. The company excludes gasoline sales from its analysis of comparable store merchandise sales because retail gasoline prices fluctuate widely and frequently, making analytical comparisons difficult, it said.

Meanwhile, the company has authorized Merrill Lynch to contact a limited number of prospective strategic and financial purchasers and provide such information as determined to be necessary or appropriate; however, there can be no assurance that the company will consummate a sale or other strategic alternative, Marsh said. It said that it does not expect to update its progress or disclose developments with respect to the exploration of strategic alternatives unless and until its board has approved a definitive transaction.

Marsh also announced that its board has suspended the payment of future cash quarterly dividends on common stock until the company improves its financial performance and its credit ratios on a sustainable basis.

The company added that on Nov. 9, 2005, it entered into a new five-year $95 million revolving credit facility with a group of lenders led by Bank of America. The new credit facility is secured by eligible receivables, inventory, certain real estate and other fixed assets. The company borrowed approximately $51 million to repay the previous credit facility that was scheduled to expire in February 2006. The agreement for the new credit facility contains covenants and events of default that are customary for a credit facility of this kind.

We are clearly disappointed with the loss reported for the quarter, said Don E. Marsh, chairman and CEO of the Indianapolis-based retailer. The positive developments of recording our sixth consecutive quarter of increases in sales from comparable stores and the new credit facility were outweighed by a number of negative factors.

He added, During the past several months, management has been working diligently to reduce costs during a time of increasing competition, and while we believe our initiatives will improve profitability, our responsibility is to consider the best interests of our employees, the communities we serve and, above all, our shareholders. One of the strategic alternatives that we believe should be considered would be the possible sale of the company to the right party. For this reason, we have authorized Merrill Lynch to investigate the potential of such a transaction as an integral part of our considerations.