<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended October 10, 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)
Registrant (1) has filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve
months and (2) has been subject to such filing requirements for at least the
past 90 days.
Number of shares outstanding of each class of the registrant's common
stock as of October 30, 1998:
Class A Common Stock - 3,951,733 shares
Class B Common Stock - 4,488,765 shares
---------
8,440,498 shares
=========
<PAGE> 2
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MARSH SUPERMARKETS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
16 Weeks Ended 28 Weeks Ended
--------------------------- -----------------------------
October 10, October 11, October 10, October 11,
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Sales and other revenues $ 488,483 $ 465,650 $ 849,105 $ 809,574
Cost of merchandise sold, including
warehousing and transportation 367,555 350,779 638,768 610,926
--------- --------- --------- ---------
Gross profit 120,928 114,871 210,337 198,648
Selling, general and administrative 104,446 100,446 180,151 172,709
Depreciation and amortization 6,712 5,935 11,609 10,311
--------- --------- --------- ---------
Operating income 9,770 8,490 18,577 15,628
Interest and debt expense amortization 6,120 5,822 10,404 8,885
--------- --------- --------- ---------
Income before income taxes
and extraordinary item 3,650 2,668 8,173 6,743
Income taxes 1,194 843 2,689 2,019
--------- --------- --------- ---------
Income before extraordinary item 2,456 1,825 5,484 4,724
Extraordinary item, net of tax -- (3,278) -- (3,278)
Net income (loss) $ 2,456 $ (1,453) $ 5,484 $ 1,446
========= ========= ========= =========
Earnings (loss) per common share
Before effect of extraordinary item $ .30 $ .22 $ .66 $ .56
Extraordinary item -- (.39) -- (.39)
--------- --------- --------- ---------
Net income (loss) $ .30 $ (.17) $ .66 $ .17
========= ========= ========= =========
Earnings (loss) per common share
- assuming dilution:
Before effect of extraordinary item $ .28 $ .21 $ .61 $ .53
Extraordinary item -- (.38) -- (.33)
--------- --------- --------- ---------
Net income (loss) $ .28 $ (.17) $ .61 $ .20
========= ========= ========= =========
Dividends per share $ .11 $ .11 $ .22 $ .22
========= ========= ========= =========
</TABLE>
See notes to condensed consolidated financial statements.
2
<PAGE> 3
MARSH SUPERMARKETS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
October 10, March 28, October 11,
1998 1998 1997
----------- --------- -----------
(Unaudited) (Note A) (Unaudited)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and equivalents $ 29,554 $ 33,546 $ 47,467
Accounts receivable 36,013 27,315 27,286
Inventories, less LIFO reserve: October 10, 1998 - $15,223 103,195 98,828 97,440
March 28, 1998 - $15,084; October 11, 1997 - $17,754
Prepaid expenses 3,989 4,477 3,864
Recoverable income taxes 474 3,867 1,508
--------- --------- ---------
Total current assets 173,225 168,033 177,565
Property and equipment, less allowances for depreciation 264,287 248,795 234,434
Other assets 52,819 43,211 38,243
--------- --------- ---------
$ 490,331 $ 460,039 $ 450,242
========= ========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable to bank $ 8,458 $ -- $ --
Accounts payable 67,022 60,503 58,264
Accrued liabilities 45,538 45,294 42,696
Current maturities of long-term liabilities 2,924 2,806 2,802
--------- --------- ---------
Total current liabilities 123,942 108,603 103,762
Long-term liabilities:
Long-term debt 214,650 206,004 208,139
Capital lease obligations 8,939 6,457 3,923
--------- --------- ---------
Total long-term liabilities 223,589 212,461 212,062
Deferred items:
Income taxes 10,413 10,219 7,686
Other 12,758 12,677 12,445
--------- --------- ---------
Total deferred items 23,171 22,896 20,131
Shareholders' Equity:
Common stock, Classes A and B (Note B) 25,172 24,784 24,784
Retained earnings 104,558 100,917 98,074
Cost of common stock in treasury (8,053) (7,268) (5,909)
Deferred cost - restricted stock (1,707) (2,022) (2,337)
Notes receivable - stock options (341) (332) (325)
--------- --------- ---------
Total shareholders' equity 119,629 116,079 114,287
--------- --------- ---------
$ 490,331 $ 460,039 $ 450,242
========= ========= =========
</TABLE>
See notes to condensed consolidated financial statements.
3
<PAGE> 4
MARSH SUPERMARKETS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
28 Weeks Ended
----------------------------
October 10, October 11,
1998 1997
---- ----
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 5,484 $ 1,446
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 11,609 10,311
Amortization of other assets 2,281 2,755
Debt extinguishment costs -- 3,278
Changes in operating assets and liabilities 1,211 (4,741)
Other operating activities (645) (1,787)
--------- ---------
Net cash provided by operating activities 19,940 11,262
INVESTING ACTIVITIES
Net acquisition of property, equipment and land (30,511) (12,726)
Other investing activities (7,891) (3,403)
--------- ---------
Net cash used for investing activities (38,402) (16,129)
FINANCING ACTIVITIES
Proceeds (payments) of short-term borrowing 8,458 (10,755)
Proceeds of long-term borrowing 10,000 172,000
Repayments of long-term debt and capital leases (1,351) (109,662)
Debt acquisition costs -- (5,718)
Debt extinguishment costs -- (3,278)
Purchase of shares for treasury (1,181) (1,817)
Stock options exercised 395 881
Cash dividends paid (1,851) (1,846)
--------- ---------
Net cash provided by financing activities 14,470 39,805
--------- ---------
Net increase (decrease) in cash and equivalents (3,992) 34,938
Cash and equivalents at beginning of period 33,546 12,529
--------- ---------
Cash and equivalents at end of period $ 29,554 $ 47,467
========= =========
</TABLE>
See notes to condensed consolidated financial statements.
4
<PAGE> 5
MARSH SUPERMARKETS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share amounts or as otherwise noted)
OCTOBER 10, 1998
NOTE A -- BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements of Marsh
Supermarkets, Inc. and subsidiaries were prepared in accordance with generally
accepted accounting principles for interim financial information and the
instructions to Form 10-Q. Accordingly, they do not include all the information
and footnotes necessary for a fair presentation of financial position, results
of operations, and cash flows in conformity with generally accepted accounting
principles. This report should be read in conjunction with the Company's
Consolidated Financial Statements for the year ended March 28, 1998. The
balance sheet at March 28, 1998, has been derived from the audited financial
statements at that date.
The Company's fiscal year ends on Saturday of the thirteenth week of each
calendar year. All references herein to "1999" and "1998" relate to the fiscal
years ending March 27, 1999 and March 28, 1998, respectively.
The condensed consolidated financial statements for the sixteen and
twenty-eight week periods ended October 10, 1998 and October 11, 1997,
respectively, were not audited by independent auditors. Preparation of the
financial statements requires management to make estimates that affect the
reported amounts of assets, liabilities, revenues and expenses for the
reporting periods. In the opinion of management, the statements reflect all
adjustments (consisting of normal recurring accruals) considered necessary to
present fairly, on a condensed basis, the financial position, results of
operations and cash flows for the periods presented.
Operating results, for the twenty-eight week period ended October 10, 1998, are
not necessarily indicative of the results that may be expected for the full
fiscal year ending March 27, 1999.
NOTE B -- COMMON STOCK
Class A Common Stock and Class B Common Stock each have 15 million shares
authorized. On October 10, 1998, March 28, 1998 and October 11, 1997, there
were 3,937,883, 3,944,387 and 3,994,529 shares of Class A Common Stock
outstanding and 4,483,863, 4,485,101 and 4,514,790 shares of Class B Common
Stock outstanding, respectively.
In November 1997, the Company authorized an increase in its previously
announced stock repurchase plan from $4.0 million to $6.0 million. Through
October 10, 1998, the Company has repurchased 442,308 shares at an aggregate
cost of $6.0 million. The total number of shares repurchased under the plan
represents approximately 5.3% of the currently outstanding common stock.
NOTE C -- RESTRICTED STOCK
In September 1997, 150,750 shares of restricted Class A Common Stock were
granted to certain key employees under the 1991 Employee Stock Incentive Plan.
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.
5
<PAGE> 6
NOTE D - LONG-TERM DEBT AND GUARANTOR SUBSIDIARIES
In August 1997, the Company sold $150.0 million of 8 7/8% Senior Subordinated
Notes, SERIES A (THE "144A Notes") in a private offering under Rule 144A of the
Securities Act of 1933. The proceeds were used to repay senior unsecured
indebtedness and related prepayment fees, all borrowings then outstanding under
revolving credit agreements and all borrowings the outstanding under notes
payable to banks, with $42.2 million of net proceeds remaining for general
corporate purposes. Subsequent to the offering, the Company and guarantor
subsidiaries filed a registration statement on Form S-4 to enable the Company to
offer to exchange its 8 7/8% Senior Subordinated Notes, Series B (the "Exchange
Notes" and, together with the 144A Notes, the "Notes") for all outstanding 144A
Notes.
Other than three inconsequential subsidiaries, all of the Company's
subsidiaries (the "Guarantors") have fully and unconditionally guaranteed on a
joint and several basis the Company's obligations under the 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 the Guarantors is set forth below:
<TABLE>
<CAPTION>
October 10, March 28, October 11,
1998 1998 1997
---- ---- ----
<S> <C> <C> <C>
Current assets $ 169,409 $ 164,316 $ 175,946
Current liabilities 117,570 104,486 99,304
Noncurrent assets 269,593 244,400 222,579
Noncurrent liabilities 51,411 49,188 44,320
<CAPTION>
16 Weeks Ended 28 Weeks Ended
---------------------------- ----------------------------
October 10, October 11, October 10, October 11,
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Total revenues $ 488,478 $ 465,648 $ 849,097 $ 809,572
Gross profit 120,923 114,869 210,329 198,646
Net income 6,902 1,844 13,254 5,933
</TABLE>
NOTE E -- INCOME TAXES
During fiscal 1997, the Company implemented a corporate restructuring pursuant
to which the Company's retail operations were organized as wholly-owned limited
liability companies and their intellectual property was transferred to a
passive investment company. As a result of the restructuring, the prior year
effective tax rate was significantly lower than the statutory rate due to the
reversal of a portion of deferred tax accruals.
6
<PAGE> 7
NOTE F - RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board (FASB) issued Statement
No. 130, "Reporting Comprehensive Income" (FAS 130), and Statement No. 131,
"Disclosure About Segments of an Enterprise and Related Information" (FAS 131).
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 and is effective for the
Company in 1999, but need not be applied to interim financial statements in the
initial year of application. FAS 131 may require a change in the Company's
financial reporting; however, the extent of the change, if any, has not been
determined.
In February 1998, the FASB issued Statement No. 132, "Employer's Disclosures
about Pensions and Other Postretirement Benefits". The Statement does not
change the recognition or measurement of pension or postretirement benefit
plans, but standardizes disclosure requirements, requires some additional
information be disclosed and eliminates certain unnecessary disclosures. The
Statement is effective for the Company in 1999 and may require a change in the
Company's financial reporting; however, the extent of the change, if any, has
not been determined.
NOTE G - 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. Earnings per share amounts for the sixteen and
twenty-eight weeks ended October 11, 1997 presented on the income statement
have been restated to 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):
<TABLE>
<CAPTION>
16 Weeks Ended 28 Weeks Ended
------------------------- --------------------------
October 10, October 11, October 10, October 11,
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Income before extraordinary item $ 2,456 $ 1,825 $ 5,484 $ 4,724
Extraordinary item, net of tax -- (3,278) -- (3,278)
------- ------- ------- -------
Numerator for basic earnings (loss) per share 2,456 (1,453) 5,484 1,446
Effect of convertible debentures 289 --(a) 505 523
------- ------- ------- -------
Numerator for diluted earnings (loss) per share
- income (loss) after assumed conversions $ 2,745 $(1,453) $ 5,989 $ 1,969
======= ======= ======= =======
Weighted average shares outstanding 8,412 8,418 8,416 8,408
Non-vested restricted shares (142) (35) (146) (20)
------- ------- ------- -------
Denominator for basic earnings (loss) per share 8,270 8,383 8,270 8,388
Effect of dilutive securities:
Non-vested restricted shares 142 35 146 20
Employee stock options 113 133 110 97
Convertible debentures 1,290 --(a) 1,290 1,290
------- ------- ------- -------
Denominator for diluted earnings (loss) per share
- adjusted weighted average shares 9,815 8,551 9,816
======= ======= ======= =======
9,795
</TABLE>
(a) convertible debentures excluded because the effect would have been
antidilutive
7
<PAGE> 8
ITEM 2. 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.
Results of operations for interim periods do not necessarily reflect the
results that may be expected for the fiscal year.
The following table sets forth certain income statement components, expressed
as a percentage of sales and other revenues, and the percentage change in such
components:
<TABLE>
<CAPTION>
Second Quarter Year - to - Date
-------------------------------- ---------------------------------
Percent of Revenues Percent of Revenues
-------------------- Percent --------------------- Percent
1999 1998 Change 1999 1998 Change
---- ---- ------ ---- ---- ------
<S> <C> <C> <C> <C> <C> <C>
Sales and other revenues 100.0% 100.0% 4.9% 100.0% 100.0% 4.9%
Gross profit 24.8% 24.7% 5.3% 24.8% 24.5% 5.9%
Selling, general and administrative 21.4% 21.6% 4.0% 21.2% 21.3% 4.3%
Depreciation and amortization 1.4% 1.3% 13.1% 1.4% 1.3% 12.6%
Operating income 2.0% 1.8% 15.1% 2.2% 1.9% 18.9%
Interest and debt expense amortization 1.3% 1.3% 5.1% 1.2% 1.1% 17.1%
Income taxes 0.2% 0.2% 41.6% 0.3% 0.2% 33.2%
Income before extraordinary item 0.5% 0.4% 34.6% 0.6% 0.6% 16.1%
Extraordinary item, net of tax -- (0.7%) (100.0%) -- (0.4%) (100.0%)
Net income (loss) 0.5% (0.3%) n/m 0.6% 0.2% 279.3%
n/m = non-meaningful comparison
</TABLE>
SALES AND OTHER REVENUES
In the second quarter of 1999, consolidated sales and other revenues of $488.5
million increased $22.8 million, or 4.9%, compared to the same quarter of 1998.
Supermarket revenues increased $10.8 million and Convenience Store Distributing
Company (CSDC) revenues increased $12.2 million. Crystal Food Services revenues
were essentially the same as the prior year, while Village Pantry revenues
decreased $1.7 million. Retail sales (excluding fuel sales) increased 3.7%.
Sales in comparable supermarkets and convenience stores (including replacement
stores and format conversions) increased 3.5% from the second quarter of 1998.
The increase in supermarket revenues was attributable to same store sales
gains, the replacement of one Indianapolis store and the addition of pharmacies
in three existing stores. Approximately $9.3 million of the increase in CSDC
revenues resulted from passing on higher manufacturer cigarette prices to
customers. Village Pantry inside store revenues increased $1.5 million, but
fuel sales declined $3.2 million primarily as a result of average retail pump
prices $.19 per gallon lower than the same quarter of 1998 and, to a lesser
extent, due to the closing of fuel operations at six stores.
8
<PAGE> 9
For the twenty-eight weeks ended October 10, 1998, consolidated sales and other
revenues of $849.1 million increased $39.5 million, or 4.9%, compared to the
same twenty-eight weeks of the prior year. Supermarket revenues increased $19.6
million and CSDC revenues increased $21.2 million, while Crystal Food Services
revenues decreased $0.4 million and Village Pantry revenues decreased $3.3
million. Retail sales (excluding fuel sales) increased 3.7%. Sales in
comparable stores (including replacement stores and format conversions)
increased 3.5% from the prior year. The increase in supermarket revenues
resulted from same store sales gains, the replacement of one Indianapolis store
and the addition of pharmacies in three existing stores. The increase in CSDC
revenues resulted primarily from passing on higher manufacturer cigarette
prices to customers. Village Pantry inside same store revenues increased 2.5%,
but fuel sales declined due to average retail pump prices $.16 per gallon lower
than the year earlier period. Also, Village Pantry opened three new generation
stores and closed ten older, smaller stores during 1999, contributing nominally
to the total sales decrease.
GROSS PROFIT
Gross profit is calculated net of warehousing, transportation, and promotional
expenses. In the second quarter of 1999, consolidated gross profit increased
$6.1 million, or 5.3%, to $120.9 million from the comparable quarter of 1998.
As a percentage of revenues, consolidated gross profit increased to 24.8% from
24.7%. Gross profit increased in all divisions and, as a percentage of
revenues, increased in supermarkets, Village Pantry and Crystal Food Services,
but declined slightly in CSDC.
For the twenty-eight weeks ended October 10, 1998, consolidated gross profit
increased $11.7 million, or 5.9%, to $210.3 million, from the comparable year
earlier period. As a percentage of revenues, consolidated gross profit
increased to 24.8% from 24.5%. Gross profit increased in supermarkets, Village
Pantry and CSDC, but declined slightly in Crystal Food Services. As a
percentage of revenues, gross profit increased in all divisions.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
In the second quarter of 1999, selling, general and administrative expenses
(SG&A) increased $4.0 million, or 4.0%, to $104.4 million from $100.4 million
in the second quarter of 1998. As a percentage of revenues, SG&A expenses
decreased to 21.4% from 21.6% in the comparable year earlier quarter. The
higher current quarter expenses were attributable to increases of $3.3 million
in wage and fringe benefit costs, $1.4 million in store occupancy and other
store costs, $1.1 million in advertising and $0.2 million in other general and
administrative costs, net of a $0.6 million credit from the reduction of
environmental liability reserves. Additionally, $1.4 million of cost reduction
related consulting fees expensed in the year earlier quarter did not recur in
the current quarter. Wage expense in stores open both quarters, excluding
supermarket conversions to the LoBill format, increased 1.9%. The Company
believes that labor scheduling techniques implemented in the current year
resulted in the reduction of labor hours without adversely affecting customer
service levels.
For the twenty-eight weeks in 1999, SG&A increased $7.4 million, or 4.3%, to
$180.1 million from $172.7 million for the comparable twenty-eight weeks of
1998. As a percentage of revenues, consolidated SG&A expenses decreased to
21.2% from 21.3% in 1998. The increase in 1999 is attributable to increases in
wages and fringe benefit costs of $4.3 million, store occupancy and other store
costs of $2.2 million, advertising $1.3 million and other general and
administrative costs $1.7 million, net of a $0.7 million credit from the
reduction of environmental liability reserves. Additionally, $1.4 million of
cost reduction related consulting fees expensed in the year earlier period did
not recur in the current year period. In identical stores, wages increased 2.5%
from the comparable twenty-eight weeks of the prior year.
9
<PAGE> 10
DEPRECIATION AND AMORTIZATION EXPENSE
Depreciation and amortization expense for the second quarter of 1999 was $6.7
million, compared to $5.9 million for the year earlier quarter. As a percentage
of revenues, depreciation and amortization expense was 1.4% for the second
quarter of 1999, compared to 1.3% for the second quarter of 1998.
For the twenty-eight weeks in 1999, depreciation and amortization expense was
$11.6 million, compared to $10.3 million for the prior year period. As a
percentage of revenues, depreciation and amortization expense was 1.4% for the
twenty-eight weeks in 1999, compared to 1.3% for the comparable weeks of the
prior year.
OPERATING INCOME
Operating income (income from continuing operations before interest, taxes and
debt extinguishment costs) increased to $9.8 million for the second quarter of
1999 from $8.5 million for the year earlier quarter. Gains from sales of real
estate accounted for $1.2 million of 1999 operating income. Operating income,
as a percentage of revenues, was 2.0% in 1999, compared to 1.8% for the
comparable period in 1998.
For the twenty-eight weeks in 1999, operating income was $18.6 million,
compared to $15.6 million in 1998. Operating divisions accounted for $1.1
million of the increase, gains on real estate sales contributed $1.2 million of
the increase, and the remaining $0.7 million increase resulted from the release
from liability under a guarantor arrangement. Operating income, as a percentage
of revenues, was 2.2% in 1999, compared to 1.9% for the comparable period in
1998.
INTEREST EXPENSE
Interest expense for the second quarter of 1999 was $6.1 million, compared to
$5.8 million for the second quarter of 1998. For the twenty-eight weeks in
1999, interest expense was $10.4 million, compared to $8.9 million in 1998.
Both the second quarter and twenty-eight week increases resulted from the
issuance of $150.0 million in principal amount of the Notes, consummated in
August, 1997, as previously discussed.
INCOME TAXES
For the second quarter of 1999, the effective income tax rate was 32.7%,
compared to 31.6% for the comparable quarter in 1998. For the twenty-eight
weeks of 1999, the effective income tax rate was 32.9%, compared to 29.9% for
the comparable weeks of the prior year. The year earlier effective rate was
lower due to the reversal of deferred tax accruals resulting primarily from
restructuring the Company's retail operations.
INCOME BEFORE EXTRAORDINARY ITEM
Income before debt extinguishment for the second quarter of 1999 was $2.5
million, compared to $1.8 million for the year earlier quarter. As a percentage
of revenues, income before debt extinguishment was 0.5% in 1999, compared to
0.4% in 1998.
For the twenty-eight weeks of 1999, income before debt extinguishment was $5.5
million, compared to $4.4 million in 1998. As a percentage of revenues, income
before debt extinguishment was 0.7% in 1999, compared to 0.6% in 1998.
EXTRAORDINARY ITEM: DEBT EXTINGUISHMENT
In August 1997, the Company consummated the issuance of $150.0 million in
principal amount of Notes, as previously discussed, and 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 was $.33 per diluted share for the twenty-eight weeks in 1998.
10
<PAGE> 11
NET INCOME (LOSS)
Net income for the second quarter of 1999 was $2.5 million, compared to a $1.4
million net loss for the second quarter of 1998. Net income, as a percentage of
revenues, was 0.5% in 1999, compared to (0.3%) in 1998.
For the twenty-eight weeks of 1999, net income was $5.5 million, compared to
$1.4 million in 1998. Net income, as a percentage of revenues, was 0.7% in
1999, compared to 0.2% in 1998.
CAPITAL EXPENDITURES
The Company's capital requirements have traditionally been financed through
internally generated funds, long-term borrowings and lease financings,
including capital and operating leases.
During the first twenty-eight weeks of 1999, the following stores opened or
were under construction:
<TABLE>
<CAPTION>
Square
Store Type Category Feet Location Status
---------- -------- ---- -------- ------
<S> <C> <C> <C> <C>
Supermarket Replacement 80,000 Carmel, IN Open
Supermarket Remodel 80,000 Lafayette, IN Complete
Supermarket Replacement 65,000 Indianapolis, IN Under construction
LoBill Conversion 28,000 Rushville, IN Open
LoBill New 31,000 Noblesville, IN Open
Convenience New 4,500 Cicero, IN Open
Convenience New 2,500 Kokomo, IN Open
Convenience New 4,500 Lafayette, IN Open
Convenience New 4,500 Zionsville, IN Open
Convenience Replacement 4,500 Muncie, IN Under construction
</TABLE>
In 1999, the Company plans to acquire several sites for future development and
has opened pharmacies in storerooms adjacent to three supermarkets. The cost of
these projects and other capital commitments is estimated to be $64.0 million.
Of this amount, the Company plans to fund $20.0 million through equipment
leasing and believes it can finance the balance with current cash balances and
internally generated funds. As of October 10, 1998, the Company had expended
$30.7 million for capital expenditures.
The Company's plans with respect to store construction, expansion and
remodeling are subject to a number of risks and uncertainties and may be
revised in light of changing conditions, such as competitive influences, the
Company's ability to negotiate successfully site acquisitions or leases, zoning
limitations and other governmental regulations. The timing of projects is
subject to normal construction and other delays. It is possible that some of
the projects described above may not commence, others may be added and a
portion of the 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 in the twenty-eight weeks ended
October 10, 1998 was $19.9 million, compared to $11.3 million for the
comparable period of the prior year. Cash flow growth from operating working
capital increased due primarily to the year-over-year change in inventory and
prepaid expenses, combined with increased net income and non-cash charges for
depreciation and amortization. Working capital decreased $10.1 million from
March 28, 1998. Cash and equivalents decreased $4.0 million and notes payable
to bank increased $8.5 million primarily to acquire fixed assets and for other
investing activities. Accounts receivable increased $8.7 million due to
seasonal activity. Inventory increased $4.4 million, but was more than funded
by a $6.5 million increase in accounts payable. Recoverable income taxes
decreased $3.4 million as a result of the tax liability from current year
earnings.
11
<PAGE> 12
At October 10, 1998, the Company's bank revolving credit agreements provided
$50.0 million of available financing, of which $10.0 million was utilized.
Commitments from various banks for short-term borrowings provided an additional
$20.0 million available at rates based upon the then prevailing federal funds
rate, of which $8.5 million was utilized at October 10, 1998.
The Company believes current cash balances, 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 completed an assessment of its computer and other operating
systems to identify those which could be affected by the "Year 2000" issue. The
assessment included the review of business applications hardware and software
(information technology, or IT), non-IT areas such as microprocessors and
embedded chips, and third parties, including merchandise suppliers and service
providers. The Company is monitoring progress toward Year 2000 compliance
through the phases detailed in the following table:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
Project segment Remediation phase Testing phase Implementation phase
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
IT areas:
Mainframe and 60% complete 60% complete 60% complete
central servers Expected completion Sep. 1999 Expected completion Sep. 1999 Expected completion Oct. 1999
Stores 75% complete 50% complete 50% complete
Expected completion Aug. 1999 Expected completion Aug. 1999 Expected completion Sept. 1999
Distribution 75% complete 75% complete 75% complete
centers/other Expected completion Sep. 1999 Expected completion Sep. 1999 Expected completion Oct. 1999
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
Non-IT areas 90% complete 90% complete 90% complete
Expected completion Aug. 1999 Expected completion Aug. 1999 Expected completion Sep. 1999
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
Third parties 25% complete Not applicable Not applicable
Expected completion Sep. 1999
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The remediation phase includes modification to, or replacement of, software,
hardware or microprocessors, and obtaining assurances from third parties that
they have addressed the Year 2000 issue. Testing includes conducting trials
adequate to ensure compliance prior to the implementation, or installation, of
the compliant solution.
The estimated total costs, excluding internal costs, to complete compliance are
$13.2 million, of which $12.8 million will be capitalized and $0.4 million will
be charged to expense. As of October 10, 1998, the Company had expended $10.4
million, of which $10.2 million was capitalized and $0.2 million was expensed.
The Company does not separately track the internal costs incurred for the Year
2000 project; those costs are principally the payroll and related costs for its
information systems group. The costs of the project have been, and will
continue to be, funded through operating cash flows.
The Company believes it has an effective program in place to resolve
the Year 2000 issue in a timely manner. As indicated above, the Company has not
completed all necessary phases of the Year 2000 project. Year 2000 miss for the
Company include unsuccessful testing of software changes, failed attempts to
obtain =vendor software and failure on the part of suppliers and service
providers. The Company believes that under reasonably likely worst case
scenarios The Company would be unable to order product or to fill customer
orders, and certain supermarket automated data collection processes would revert
to manual processes. Such an event could have a material adverse impact on the
Company's operating results of financial position. Contingency plans to address
those risks have not been fully developed, however the Company intends to
finalize its contingency plan for those risks by May 1999.
12
<PAGE> 13
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not Applicable.
ITEM 2. CHANGES IN SECURITIES
Not Applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES OR RIGHTS OF HOLDERS THEREOF
Not Applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held its Annual Meeting of Shareholders on August 4, 1998
(the "Annual Meeting"). At the Annual Meeting, shareholders voted on
the following proposals: 1. To elect three directors for terms of
three years each and until their successors are duly elected and
qualified; 2. To consider and approve the Outside Directors' Stock
Plan; 3. To consider and approve the Marsh Supermarkets, Inc. 1998
Stock Incentive Plan; and 4. To consider and approve the Executive
Stock Purchase Plan. The table below sets forth the number of votes
cast for, against or withheld with respect to each of such proposals:
<TABLE>
<CAPTION>
For Against Withheld/Abstain
--- ------- ----------------
<S> <C> <C> <C>
1. Election of Directors
---------------------
Nominees:
Garnet R. Marsh 3,136,266 N.A. 210,376
Catherine A. Langham 3,008,323 N.A. 338,319
K. Clay Smith 3,136,979 N.A. 209,663
2. Outside Directors' Stock Plan 3,075,647 69,936 40,108
-----------------------------
3. Marsh Supermarkets, Inc. 1998 Stock Incentive Plan 2,300,515 751,603 38,921
--------------------------------------------------
4. Executive Stock Purchase Plan 3,081,104 52,849 46,800
-----------------------------
</TABLE>
ITEM 5. OTHER INFORMATION
Not Applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibits are included herein:
Exhibit 10 (a) consulting Agreement, dated as of October 9,
1998, between Marsh Supermarkets, Inc. and C. Alan Marsh
Exhibit 27 (a) Financial Data Schedule for the quarter for
which this report is filed
Exhibit 27 (b) Financial Data Schedule for the quarter ended
October 11, 1997
(b) Reports on Form 8-K
No reports on From 8-K were filed during the quarter for
which this report is filed.
13
<PAGE> 14
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MARSH SUPERMARKETS, INC.
November 23, 1998 By: /s/ Douglas W. Dougherty
----------------------------------------
Douglas W. Dougherty
Senior Vice President, Chief Financial Officer
and Treasurer
November 23, 1998 By: /s/ Mark A. Varner
---------------------------------------
Mark A. Varner
Chief Accounting Officer,
Corporate Controller
14
<PAGE> 15
Exhibit Index
Exhibit 10 (a) Consulting Agreement, dated as of October 9, 1998, between Marsh
Supermarkets, Inc. and C. Alan Marsh
Exhibit 27 (a) Financial Data Schedule for the quarter for which this report is
filed (for SEC use only).
Exhibit 27 (b) Financial Data Schedule for the quarter ended October 11, 1997
(for SEC use only).
15
<PAGE> 1
EXHIBIT - 10(A)
CONSULTING AGREEMENT
THIS CONSULTING AGREEMENT (this "Agreement"), dated on the 9th day of
October, 1998 and effective as of December 31, 1998 (the "Effective Date "), by
and between Marsh Supermarkets, Inc., an Indiana corporation (together with its
direct and indirect subsidiaries and affiliated entities, the "Company") and C.
Alan Marsh ("Consultant").
W I T N E S S E T H:
WHEREAS, Consultant has been employed by the Company since 1957 in
various capacities, and, since 1992, as its Vice Chairman of the Board and
Senior Vice President-Corporate Development pursuant to that certain Amended
and Restated Agreement dated December 31, 1992 (the "Employment Agreement"),
between the Company and Consultant;
WHEREAS, Consultant desires to resign his employment with the Company
and in connection therewith, Consultant and the Company desire to terminate the
Employment Agreement;
WHEREAS, the Company desires the benefit of Consultant's experience in
and knowledge of the convenience store industry and, therefore, desires to
retain his consulting services after his resignation, and Consultant desires to
provide such consulting services; and
WHEREAS, the Company desires reasonable protection of its confidential
business information which it has developed over the years at substantial
expense and assurance that Consultant will not compete with the Company for a
reasonable period of time after his resignation.
NOW, THEREFORE, in consideration of the premises and the covenants and
agreement contained herein, the Company and Consultant hereby agree as follows:
1. Resignation as Employee and Director; Termination of
Employment Agreement. Consultant hereby resigns as an officer and as a director
of the Company, and Consultant's employment by the Company is hereby
terminated, effective as of the Effective Date. Consultant shall deliver to the
Company's Corporate Secretary a letter in the form attached hereto as Exhibit
A, resigning as an officer and as a director of the Company. The Employment
Agreement is hereby terminated effective as of the Effective Date and shall be
of no further force or effect. The Company and Consultant hereby agree that all
of the duties and obligations of the Company on the one hand and the Consultant
on the other, under the Employment Agreement are hereby completely discharged
and all of the rights and privileges of the Company and Consultant under the
Employment Agreement are hereby completely extinguished. The parties agree that
(except for this Agreement, the Indemnification Agreement (as defined below),
the Split-Dollar Agreement (as defined below), the option agreements entered
into pursuant to the Option Plans (as defined below) and all other obligations
and agreements arising out of employee benefit plans
<PAGE> 2
and programs sponsored by the Company which covered Consultant on the date on
which this Agreement was executed which agreements, plans and programs are
referred to herein as the "Other Agreements"), the Employment Agreement
constitutes the entire and sole agreement between the Company and Consultant
(or any other party or parties) with respect to Consultant's employment by the
Company or the terms or conditions thereof, and that there are no other
agreements or understandings, either written or oral, with respect thereto.
2. Continued Indemnification. From and after the Effective Date,
the Company shall honor its obligations with respect to the indemnification of
(and advancement of related expenses to) Consultant as an officer of the
Company arising out the Indemnity Agreement, dated August 1, 1989 (the
"Indemnity Agreement"), between Consultant and the Company's affiliate, Marsh
Village Pantries, Inc. ("Village Pantries"), to the full extent as in effect on
the date on which this Agreement was executed, in connection with any actual or
alleged act or omission occurring prior to the Effective Date in Consultant's
official capacity as an officer of the Company. The Company shall take any and
all actions necessary to cause Village Pantries to honor its obligations to
Consultant under the Indemnity Agreement.
3. ADEA. Consultant's employment relationship with the Company is
covered by the Age Discrimination in Employment Act of 1967, as amended (the
"ADEA"). Consultant acknowledges that the Company (a) provided him this
Agreement on September 8, 1998, (b) advised and advises him to consult an
attorney prior to signing this Agreement; (c) at that time informed him that he
could have twenty-one (21) days to consider this Agreement; and (d) advised him
that this Agreement shall not be effective or enforceable against him or the
Company if he revokes it not later than seven days after he signs it. Consultant
signed this Agreement on October 9, 1998.
4. Return of Property. Except as provided in Section 5 below, on
the Effective Date, Consultant shall turn over to the Company all property
(including, without limitation, all company credit, debit, charge and telephone
cards) owned, leased or otherwise procured by the Company for Consultant's use
during the period of his employment, and all copies of all electronic or other
data, customer lists, business correspondence, papers, reports, financial
statements, books, records and all other documents containing information
regarding the properties, business, operations, condition or personnel of the
Company in Consultant's possession or control, all of which are agreed to be
the sole and exclusive property of the Company. Further, Consultant agrees that
all information contained in any of the foregoing is subject to Section 14(c)
below.
5. Automobile. Consultant shall retain the Company automobile
(including the mobile telephone in his possession on the Effective Date). As
promptly as practical after the Effective Date, but in no event later than
January 31, 1999, the Company shall convey full title to such automobile to
Consultant, free of all liens and encumbrances. From and after the Effective
Date, Consultant shall be responsible for all costs and expenses (including,
without limitation, all insurance responsibility and expenses) associated with
such automobile (including the mobile telephone), and shall assume all
liability arising from the use of such automobile, notwithstanding that title to
such automobile shall not have been conveyed to Consultant until
<PAGE> 3
after the Effective Date. The parties hereby stipulate and agree that, for all
purposes, the fair market value of the automobile shall be the amount paid to
the lessor of the automobile by the Company in order to convey clear title
thereto to Consultant.
6. Termination Payment.
(a) On the Effective Date, regardless of whether
Consultant is living on such date, the Company shall contribute
$450,000 to the irrevocable trust referred to in subsection (b)
reduced only by Consultant's share of the Hospital Insurance (i.e.,
"Medicare") employment taxes with respect to such payment. Other than
such amounts as to which Consultant is entitled under the Other
Agreements, the payment under this Section 6 shall be in full and
final satisfaction of any and all obligations that the Company may
have under the Employment Agreement or otherwise in connection with
Consultant's employment or the termination thereof.
(b) Attached hereto as Exhibit B is a copy of the
Irrevocable Trust Agreement between the Company and Merrill Lynch
Trust Company, as Trustee ("Trust"). The termination payment referred
to in subsection (a) shall be contributed to the Trustee by the
Company, in a single lump sum in cash on the Effective Date,
regardless of whether Consultant is still living on the Effective
Date. Upon making such contribution, all of the Company's obligations
to Consultant and his beneficiaries and heirs under this Section 6
shall be fully discharged and the rights of Consultant and his
beneficiaries and heirs, in and to the termination payment referred to
in subsection (a), shall be governed solely by the provisions of the
Trust.
7. Stock Options. The Company hereby agrees that, as of the
Effective Date, all of the options to purchase shares of the Company's common
stock granted to Consultant pursuant to the Company's 1987 Stock Option Plan
("1987 Option Plan") and 1991 Employee Stock Incentive Plan ("1991 Option
Plan") (collectively, the "Option Plans") shall immediately vest and be
exercisable in accordance with the terms and conditions of the Option Plans not
later than the earlier of the following: (i) the dates the options expire
pursuant to their terms under the respective Option Plans, or (ii) June 30,
1999 in the case of options granted under the 1987 Option Plan and December 31,
2001 in the case of options granted under the 1991 Option Plan. Attached hereto
as Exhibit C is a copy of resolutions adopted by the Compensation Committee of
the Board of Directors which authorize the actions necessary to carry out the
provisions of the preceding sentence. Notwithstanding anything to the contrary
contained herein or in either or both of the Plans, the Company, in lieu of
issuing shares of common stock to Consultant upon Consultant's exercise of any
options granted under the Option Plans, shall pay to Consultant, in cash, the
amount by which the closing price of the common stock on the date of
Consultant's exercise of any such options, exceeds the option price of such
options.
8. Moving Expense and Outplacement Service Expense Allowance. On
the date on which this Agreement was executed, the Company paid to Consultant,
in a single lump sum (less all applicable tax withholdings), a moving expense
and outplacement service allowance of $25,000 to enable Consultant to defray
the expenses incurred by him in connection with
<PAGE> 4
obtaining new employment and relocating his principal residence away from
Marion County, Indiana, including (i) travel and lodging expenses incurred by
him in connection with his search for, purchase of, and move into, a new
principal residence and, (ii) the costs reasonably incurred by him to have his
personal belongings packed and moved from his current principal residence to
his new principal residence.
9. Medical Benefits. During the term of this Agreement, including
any renewal term, the Company shall provide coverage for Consultant and his
spouse for their lifetime under the Company's group medical plan, at no expense
to Consultant, as if Consultant had continued as an employee of the Company,
provided that such continued participation is possible under the terms and
provisions of the Company's group medical plan. Any future increases in
benefits available to employees of the Company generally shall also be provided
to Consultant and his spouse. In the event that participation by Consultant, as
a former employee or a Consultant, or by his spouse, in the group medical plan
is bared, or if the benefits to Consultant and his spouse (after taking into
account any Medicare benefits provided by Title XVIII of the Social Security
Act to which Consultant and his spouse may be entitled) are reduced to a level
below what they were on the date on which this Agreement was executed, or if
Consultant or his spouse elects at any time by notice in writing to the
Company, the Company shall arrange to provide both Consultant and his spouse
with benefits substantially similar to those which they were receiving under
such group medical plan immediately prior to the date on which this Agreement
was executed, such benefits to be provided at the Company's expense by means of
individual insurance polices, or if such policies cannot be obtained, from the
Company's assets. These benefits shall continue after the death of Consultant
to his spouse, if she survives him, for her lifetime. If at any time after the
Effective Date, Consultant should accept employment with another employer and
if either Consultant or his spouse, or both, should become covered under that
employer's medical benefit plan, then effective on the date that such coverage
commences, the obligation of the Company to provide any medical benefits to
whoever of Consultant or his spouse, or both, is covered under the medical
benefit plan of the other employer shall terminate. The medical benefits
provided to Consultant and his spouse after the Effective Date are intended by
the parties to be in lieu of the rights of Consultant and his spouse to
continuation coverage (commonly known as "COBRA") under Section 601 et seq. of
the Employee Retirement Income Security Act of 1974 ("ERISA"), and Section
4908B of the Internal Revenue Code of 1986, as either of the foregoing statutes
may be amended. In addition, "Lifetime Medical Benefits" shall include the
requirement that if any medical benefits provided to Consultant (or his spouse)
are subject to federal and/or state income taxes, including the alternative
minimum tax, the Company will pay to Consultant (or his spouse) the full amount
of such taxes plus such additional amount as may be necessary so that the net
payment after taxes is sufficient to reimburse Consultant (or his spouse) for
all taxes imposed on the provision of medical benefits.
<PAGE> 5
10. Life Insurance.
(a) Prior to March 31, 1999, Consultant may direct the
Company to assign to him (or to a trust established by him or
otherwise) any insurance policies on his life owned by it and so
assignable, other than the policy subject to the Split-Dollar
Agreement (as defined below). If so directed, the Company shall
promptly thereafter assign its entire interest in such policies in the
manner directed by Consultant. In addition, the Company shall
reimburse Consultant for the premiums paid by him to maintain the
policies so assigned in effect so long as the consulting engagement
set forth in Section 12 below is in effect, promptly upon his
submission to the Company of written statements for reimbursement in
reasonable detail.
(b) The Agreement Concerning the Interest of Marsh
Supermarkets, Inc. in a Policy Insuring the Life of Charles Alan
Marsh, dated March 31, 1986 (the "Split-Dollar Agreement"), relating
to Northwestern Mutual Life Insurance Policy Number 6569864, shall
remain in effect in accordance with its terms, with the express
agreement of the Consultant and the Company that (i) the phrase
"Coverage Termination Date set forth in Paragraph 4(b)(4) of that
certain letter agreement executed by Charles Alan Marsh and Marsh
Village Pantries, Inc., a wholly owned subsidiary of the Company,
dated December 31, 1985," which appears in Paragraph 6 of the
Split-Dollar Agreement, shall mean and refer to the date on which the
consulting engagement as set forth in Section 12 shall terminate; and
(ii) the phrase "Date of Termination, as defined in Section 3(e) of
the Letter Agreement," which appears in Paragraph 7 of the
Split-Dollar Agreement, shall mean and refer to March 31, 1986.
(c) The addendum to Northwestern Mutual Life Insurance
Policy 11-887-418, executed by Marsh Supermarkets, Inc. and C. Alan
Marsh on September 3, 1991, shall remain in effect in accordance with
its terms. The Company agrees that the provisions of the Split-Dollar
Agreement shall also apply to Northwestern Mutual Life Insurance
Policy 11-887-418.
(d) The Company agrees that, so long as the consulting
engagement set forth in Section 12 below is in effect, it shall (i)
continue to pay all insurance premiums and interest on policy loans on
Northwestern Mutual Life Insurance Policies 6569864 and 11-887-418
(the "Split-Dollar Policies"); (ii) take no further policy loans on
either of the Split-Dollar Policies; and (iii) take no action to
surrender either or both of the Split-Dollar Policies and receive the
cash surrender value thereof, or to take any other action which would
endanger the interest of the Consultant, without the prior written
consent of the Consultant.
(e) The Company agrees that, so long as the consulting
engagement set forth in Section 12 below is in effect, (i) it shall
pay all premium cost required to provide insurance to the Consultant
under the Company's new group life insurance plan (or any successor
thereto), in an amount equal to two (2) times the Consultant's annual
compensation from the Company; and (ii) the Consultant shall have the
option, at his
<PAGE> 6
own expense, of electing additional insurance on his life up to three
(3) times the Consultant's annual compensation from the Company, up to
a maximum of $1,000,000 for both basic and optional life insurance
coverage.
11. Other Benefits.
(a) Consultant shall be entitled to receive all benefits
that have accrued to him prior to the Effective Date pursuant to the
Employees' Pension Plan of Marsh Supermarkets, Inc. and Subsidiaries,
the Company's 401(k) Plan, the Company's Supplemental Retirement Plan,
as amended and restated as of January 1, 1997 ("SERP"), and any other
deferred compensation or retirement type plan sponsored by the Company
which covered Consultant on the date on which this Agreement was
executed all in accordance with the terms of those respective plans.
(b) On or before the Effective Date, the Company shall
take all action necessary to amend the SERP, effective as of the
Effective Date, to provide Consultant with an unreduced early
retirement benefit thereunder commencing at age 62. Such amendment
shall provide that the amount of Consultant's Supplemental Retirement
Benefit (as defined in the SERP) shall be calculated as if his "Normal
Retirement Date" under the SERP is the first day of the month
following the month in which Consultant attains age 62. The Company
acknowledges and agrees that Consultant is eligible for a benefit
under Article III of the SERP and was designated as a Participant in
the SERP before December 31, 1996.
(c) Consultant shall also be entitled to receive up to
$15,000 to reimburse him for reasonable legal, accounting, actuarial
and consulting fees and expenses incurred in connection with this
Agreement, including fees and expenses incurred after the Effective
Date which relate to the interpretation of Consultant's rights
hereunder or under the Other Agreements and the calculation of his
benefits hereunder and thereunder and related matters subject to the
delivery to the Company of invoices reflecting the incurrence of such
fees and expenses.
12. Consulting Services. The Company hereby engages Consultant to
provide advice and services of a consulting nature to the President and Chief
Executive Officer of the Company and the President of the Company's Pantry
Division (the "Company Contacts") with respect to the management of the
Company's convenience store operations upon reasonable request during a term of
four consecutive calendar years after the Effective Date. The term of this
consulting obligation shall be extended for an additional term of one year on
the same terms and conditions unless the Company provides Consultant with
written notice of its intent not to extend the term of this Agreement not less
than 90 days prior to the end of the initial four year term.
(a) During the period covered by this Section 12,
Consultant hereby specifically agrees to participate in official
functions of the NACS and to provide such reports and advice to the
Company Contacts regarding convenience store industry matters as are
requested by the Company Contacts.
<PAGE> 7
(b) All advice and services rendered by Consultant under
this Section 12 shall be performed promptly and conscientiously and
Consultant shall be reimbursed for any reasonable expenses incurred by
him in connection with the consulting services requested by the
Company, including, without limitation, all reasonable food, lodging,
travel and transportation expenses incurred by Consultant in
connection with attending official NACS functions. Consultant shall
for all purposes be deemed to be an independent contractor and shall
have no authority to act for or represent the Company in any way.
(c) During the term of this Agreement, including any
renewal term, and thereafter, the Company shall indemnify and hold
Consultant harmless from any and all liabilities, damages, costs,
expenses and reasonable attorneys' fees associated with consulting
services provided to the Company provided by Consultant under this
Agreement. For purposes of this Section 12, (i) the standards of
Consultant's conduct with respect to the services provided by him
hereunder and against which such conduct shall be measured in
determining whether he is eligible for indemnification, and (ii) the
circumstances under which the Company shall indemnify Consultant and
the scope of the Company's indemnification obligations, shall be
identical to the standards of conduct, the circumstances under which
the Company shall indemnify Consultant and the scope of indemnity
contained in the Indemnity Agreement as in effect on the date on which
this Agreement was executed.
13. Consulting Payments. In consideration for Consultant's
services hereunder and his performance of his agreements herein, for a period
of four (4) years after the date of this Agreement, the Company shall pay to
Consultant the aggregate amount of $280,000 per year, payable monthly, with the
first such payment being made on the Effective Date. Provided, however, that
the Company's obligations to make such payments shall terminate upon the
continuing violation by Consultant of any material agreement contained herein
after written notice thereof to Consultant by the Company followed by a period
of thirty days during which Consultant shall have the opportunity to rectify,
to the Company's reasonable satisfaction, such continuing violation of this
Agreement specified by the Company in such notice. Consultant shall be
responsible for the payment, without any withholding by the Company, of all
federal, state and local taxes payable with respect to the foregoing payments
and any other amounts received by Consultant pursuant to this Agreement after
the Effective Date unless the terms of one or more of the Other Agreements or
applicable law otherwise impose a separate withholding obligation on the
Company.
14. Restrictive Covenants. Consultant hereby agrees that for such
period as he is receiving payments pursuant to Section 13 hereof, he shall not,
acting alone or in conjunction with others,
(a) Directly or indirectly, at any place within a 50 mile
radius of any city within the states of Indiana and Ohio where the
Company is engaged in the supermarket and convenience store business
as of the date on which this Agreement was executed, engage in
business in competition with the business being conducted by the
Company
<PAGE> 8
("Covered Business"), whether as an individual or sole proprietor or
as owner, partner, shareholder (except for 1% or less of any class of
outstanding securities listed on any national securities exchange or
actively traded in an over-the-counter market), officer, director,
employee, member, manager, agent, consultant, formal or informal
advisor, or by or through the lending of any form of assistance; or
(b) Seek to, or assist or encourage others to, or provide
any written or oral information to any person who seeks to (i)
acquire, agree or offer to acquire, or cause to be acquired,
beneficial ownership of any of the Company's material assets or 5% or
more of any class or series of the Company's securities, or any bank
debt, claims or other obligations of the Company, or options or other
rights to acquire any of the foregoing (including from a third party)
or (ii) influence or control the management or policies of the Company
or any other person or entity controlling, controlled by or under
common control with the Company, or obtain representation on the
Company's Board of Directors, or participate in the solicitation of
any proxies or consent with respect to any securities of the Company;
or
(c) Divulge or furnish any information that is not
generally available to the public regarding Covered Business including
the intellectual property, trade secrets (as defined in IC 24-2-3-2),
or any other confidential information concerning Covered Business or
the assets, plans or customers of the Company, to any entity or other
person, or use any such information, trade secret or other
confidential information, directly or indirectly, for his own benefit
or for the benefit of any entity or other person.
15. Put Option. At any time from and after the date on which this
Agreement was executed through December 31, 1998, Consultant shall have a "put
option" with respect to all shares of the Company's Class A Common Stock which
are directly owned by him on the date this Agreement was executed. In order to
exercise such option, which exercise may, in Consultant's sole discretion,
apply to any or all of such shares, Consultant shall provide the Secretary of
the Company with at least five days' prior written notice of his intent to
exercise such option. Such notice shall include the identification of the
shares to which the put option exercise relates, and shall be accompanied by
the certificates for the shares with respect to which the exercise relates duly
endorsed for transfer, free and clear of any liens or encumbrances. Consultant
represents and warrants that all shares with respect to which Consultant
exercises his put option rights under this Section 15 shall be free and clear
of all liens and encumbrances and Consultant shall indemnify and hold the
Company harmless from any damages incurred by the Company as a result of any
breach by Consultant of such representation and warranty. All shares of Class A
Common Stock which are the subject of a put exercise notice hereunder shall be
purchased by the Company (or an entity or person designated by the Company),
for cash, within five business days alter its receipt of Consultant's notice of
exercise and the shares with respect to which the exercise relates, at a price
per share equal to the closing price of such shares on the last trading day
prior to the Company's receipt of such notice on the principal securities
exchange on which such shares are traded or, if such shares are not then traded
on any exchange, at the average of the low bid and high asked price of such
securities on such trading day in the over-the-counter market. The put option
provided to Consultant by the Company under this Section 15
<PAGE> 9
shall be assignable by Consultant during his lifetime only to a trust with
respect to which Consultant is the settlor or grantor and shall be transferable
only by operation of his will.
16. Enforcement. Consultant acknowledges that any violation by him
of Section 14 of this Agreement will cause irreparable harm to the Company,
that money damages for such harm will be incapable of precise measurement and
that, as a result, the Company will not have an adequate remedy at law to
redress the harm caused by such violation. Therefore, in the event of any such
violation, Consultant agrees that, in addition to its other remedies, the
Company shall be entitled to injunctive relief, including but not limited to,
temporary restraining orders and/or preliminary or permanent injunctions to
restrain or enjoin any such violation. Consultant agrees to and hereby does
submit to jurisdiction before any state or federal court of record in Hamilton
County, Indiana, or in the state and county in which such violation may occur,
at the Company's election, for that purpose, and Consultant hereby waives any
right to raise the questions of jurisdiction and venue in any action that the
Company may bring in any such court against Consultant.
17. Release by Consultant. Consultant, on behalf of himself, his
agents, attorneys, heirs, successors in interest, subrogees, subrogors and
assigns, hereby waives, releases and forever discharges the Company and its
successors and assigns, and all persons acting by, through, under or in concert
with the Company, including all other persons, agents, directors, officers,
employees, attorneys, partnerships, parents, subsidiaries, joint ventures,
corporations, associations and any other legal entities with whom the Company,
has been, is now, or may hereafter be affiliated or associated, of and from any
and all manner of action or actions, cause or causes of action, in law or in
equity, suits, debts, liens, contracts, agreements, promises, liabilities,
claims, damages, costs, demands, losses of every kind and nature whatsoever,
fixed or contingent, whether known or unknown, anticipated or unanticipated,
direct or indirect, whether based on tort, contract, statutory or other legal
theories of recovery, and whether for compensatory (both general and specific),
punitive or exemplary, statutory or any other form of damages (hereinafter
called "Claims"), (a) that have arisen or may arise under ADEA on or before the
date of this Agreement or (b) that Consultant otherwise now has, ever had or may
have against the Company; provided, however, that the release set forth in this
Section 17 shall not apply to (a) Claims based on or arising out of any breach
by the Company of any of its agreements set forth in this Agreement which are
material or the Other Agreements or (b) Claims based on or arising out of any
material matter as to which there has been active and intentional concealment by
the Company from Consultant. Consultant acknowledges that his release of Claims
under ADEA is done in return for compensation in addition to anything of value
to which Consultant was already entitled prior to the date on which this
Agreement was executed.
18. Release by the Company. The Company, on behalf of itself, its
agents, attorneys, successors in interest, subrogees, subrogors and assigns,
hereby waives, releases and forever discharges Consultant and his successors
and assigns, of and from any and all Claims which the Company now has, ever had
or may have against Consultant; provided, however, that the release set forth in
this Section 18 shall not apply to (a) Claims based on or arising out of any
breach by Consultant of any of his agreements set forth in this Agreement which
are material or (b) Claims
<PAGE> 10
based on or arising out of any material matter as to which there has been
active and intentional concealment by Consultant from the Company.
19. Severability; Interpretation. Should any clause, portion or
paragraph of this Agreement be unenforceable or invalid for any reason, such
unenforceability or invalidity shall not affect the enforceability or validity
of the remainder of this Agreement. Should any particular covenant or
restriction, including but not limited to the covenants and restrictions of
Section 14, be held to be unreasonable or unenforceable for any reason,
including without limitation the time period, geographical area and scope of
activity covered by such covenant, then such covenant or restriction shall be
given effect and enforced to whatever extent would be reasonable and
enforceable.
20. Binding on Successors and Assigns. No party hereto may assign
its or his rights or obligations hereunder without the prior written consent of
the other parties hereto. The terms and conditions hereof shall inure to the
benefit of and be binding upon the successors and permitted assigns of the
Company and the heirs, executors and personal representatives of Consultant.
21. Entire Agreement; Modifications. This Agreement constitutes
the entire agreement between the parties relating to the subject matter hereof.
No amendment to or modification of this Agreement shall be effective unless the
amendment or modification is in writing and signed by the Company and
Consultant.
22. Notices. All notices and other communications given or made
pursuant hereto shall be in writing and shall be deemed to have been duly given
on the date delivered, if delivered personally, on the fifth business day after
being mailed by registered or certified mail postage prepaid, return receipt
requested), in each case, to the parties at the following addresses, or on the
date sent and confirmed by electronic transmission to the telecopier number
specified below (or at such other address or telecopier number for a party as
shall be specified by notice given in accordance with this Section 22):
(a) If to Consultant: C. Alan Marsh
8650 Jaffa Ct., W. Dr. Apt. 16
Indianapolis, Indiana 46260
Telecopier No.: (317) 848-1294
(b) If to the Company: Marsh Supermarkets, Inc.
9800 Crosspoint Blvd.
Indianapolis, Indiana 46256-3350
Attention; Corporate Secretary
Telecopier No.: (317) 594-2704
23. Governing Law. Except to the extent preempted by the laws of
the United States, Agreement shall be governed by and construed in accordance
with the laws of the State of Indiana, without regard to the conflicts of laws
principles thereof.
<PAGE> 11
24. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original and all of which
together shall constitute one and the same instrument.
25. Other Agreements. Attached as Exhibits D through S are copies
of all Other Agreements in effect on the date this Agreement was executed. The
Company hereby represents and warrants to Consultant and his heirs, personal
representatives and assigns that, as of the date on which this Agreement was
executed, the Other Agreements attached hereto are true, accurate and complete
copies of the Other Agreements and that, such Other Agreements had not been
amended, superseded or terminated and were in full force and effect.
IN WITNESS WHEREOF, the Company, by its officers thereunder duly
authorized, and Consultant, have executed this Agreement on this 9th day of
October, 1998.
MARSH SUPERMARKETS, INC. MARSH SUPERMARKETS, INC.
By: /s/ Don E. Marsh By: /s/ Stephen M. Huse
------------------------------- -------------------------
Don E. Marsh, President and Stephen M. Huse, Chairman
Chief Executive Officer Compensation Committee
Attest: /s/ P. Lawrence Butt
-----------------------------
P. Lawrence Butt, Secretary
/s/ C. Alan Marsh
-------------------------
C. Alan Marsh
"Company" "Consultant"
The Schedules and Exhibits to the Consulting Agreement have been
omitted, but will be furnished to the Commission supplementally upon request.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S 10-Q FOR THE PERIOD ENDED OCTOBER 10, 1998 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS AND THE NOTES THERETO.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-27-1999
<PERIOD-END> OCT-10-1998
<CASH> 29,554
<SECURITIES> 0
<RECEIVABLES> 36,013
<ALLOWANCES> 0
<INVENTORY> 103,195
<CURRENT-ASSETS> 173,225
<PP&E> 413,025
<DEPRECIATION> 148,738
<TOTAL-ASSETS> 490,331
<CURRENT-LIABILITIES> 123,942
<BONDS> 223,589
0
0
<COMMON> 8,421,746<F1>
<OTHER-SE> 94,457
<TOTAL-LIABILITY-AND-EQUITY> 490,331
<SALES> 849,105
<TOTAL-REVENUES> 849,105
<CGS> 638,768
<TOTAL-COSTS> 818,919<F2>
<OTHER-EXPENSES> 11,609
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10,404
<INCOME-PRETAX> 8,173
<INCOME-TAX> 2,689
<INCOME-CONTINUING> 5,484
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,484
<EPS-PRIMARY> 0.66<F3>
<EPS-DILUTED> 0.61<F3>
<FN>
<F1>NUMBER OF CLASS A AND CLASS B SHARES OUTSTANDING, MULTIPLIER IS 1.
<F2>INCLUDES (i) $638,768 OF COST OF GOODS SOLD (ITEM 5-03(B)2(A) OF REGULATION
S-X) AND (ii) $180,151 OF SELLING, GENERAL AND ADMINISTRATIVE EXPENSES (ITEM
5-03(B)4 OF REGULATION S-X).
<F3>MULTIPLIER IS 1 FOR PER SHARE DATA.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S 10-Q FOR THE PERIOD ENDED OCTOBER 10, 1998 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS AND THE NOTES THERETO.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-28-1998
<PERIOD-END> OCT-11-1997
<CASH> 47,467
<SECURITIES> 0
<RECEIVABLES> 27,286
<ALLOWANCES> 0
<INVENTORY> 97,440
<CURRENT-ASSETS> 177,565
<PP&E> 366,128
<DEPRECIATION> 131,694
<TOTAL-ASSETS> 450,242
<CURRENT-LIABILITIES> 103,762
<BONDS> 212,062
0
0
<COMMON> 8,509,319<F1>
<OTHER-SE> 89,503
<TOTAL-LIABILITY-AND-EQUITY> 450,242
<SALES> 809,574
<TOTAL-REVENUES> 809,574
<CGS> 610,926
<TOTAL-COSTS> 783,635<F2>
<OTHER-EXPENSES> 10,311
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,885
<INCOME-PRETAX> 6,743
<INCOME-TAX> 2,019
<INCOME-CONTINUING> 4,724
<DISCONTINUED> 0
<EXTRAORDINARY> (3,278)
<CHANGES> 0
<NET-INCOME> 1,446
<EPS-PRIMARY> .17<F3>
<EPS-DILUTED> .20<F3>
<FN>
<F1>NUMBER OF CLASS A AND CLASS B SHARES OUTSTANDING, MULTIPLIER IS 1.
<F2>INCLUDES (i) $610,926 OF COST OF GOODS SOLD (ITEM 5-03(b)2(a) OF
REGULATION S-X) AND (ii) $172,709 OF SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES (ITEM 5-03(b)4 OF REGULATION S-X).
<F3>MULTIPLIER IS 1 FOR PER SHARE DATA.
</FN>
</TABLE>
