LAWSUIT CHARGES MARSH, EXECUTIVES

MARK HAMSTRA

INDIANAPOLIS - Shareholders of Marsh Supermarkets here last week filed a lawsuit accusing the family-run company and its executives of mismanagement and fraud.

The suit is seeking class-action status. It also names the company's board of directors as defendants.

A Marsh spokeswoman declined to comment on the suit, which was filed by Indianapolis law firm Parr Richey Obremsky & Morton and San Diego law firm Lerach Coughlin Stoia Geller Rudman & Robbins.

Marsh, which has seen its performance decline over the past few years, recently reached an agreement to be acquired by Sun Capital Partners, Boca Raton, Fla., for about $88 million.

The lawsuit closely followed Marsh's reporting of a fourth-quarter loss of $27.9 million, which included several one-time charges. The company posted a deficit of $1.4 million in the year-ago period.

In a recorded message broadcast to employees, a transcript of which was filed with the Securities and Exchange Commission last week, Don Marsh, chairman and chief executive officer, tried to assure employees that the fourth-quarter performance was an aberration.

"Most of the loss charges reported are one-time, non-cash write-offs required under accounting rules," he said. "It is important for you to know that many of these non-cash charges do not reflect our operating performance or impact our liquidity."

Charges in the quarter, which ended April 1, totaled $30.7 million. They included $2.2 million in impairment charges for abandoned construction projects and "to write down real estate held for sale to fair market value based on recent appraisals." The company also took a charge of $8.4 million for the closure of two supermarkets, six convenience stores and a restaurant, plus other abandoned projects.

The company took another $7 million charge for personnel-related costs due to a reduction in the company's headquarters workforce by 25 employees, including four officers. The company also took $13.1 million in goodwill write-downs following the acquisition offer by Sun Capital.

In addition, the company said its comp-store sales, excluding gasoline, fell by 5.6% in the period amid increased promotional activity by rival retailers and increased competitive openings. Including gas, comps were down 3.8% for the period.

Total sales for the quarter were down about 9.9%, to $377.5 million vs. the year-ago span, which included an extra week.

For the full fiscal year, Marsh posted a loss of $40.2 million, vs. net income of $4.2 million in fiscal 2005. One-time charges for the year totaled $43.5 million.

Sales for the 52-week year were $1.74 billion vs. $1.75 billion in the 53-week year in fiscal 2005. Comps were up 0.8% for the full year and down 1.7%, excluding gas.

"We have been reducing expenses and reorganizing the company," Marsh said in his presentation to employees. "There will always be new challenges, but I feel we are headed in the right direction. We have great stores, outstanding employees and a fine reputation, and we intend to go forward as planned."

Although it has recommended that its shareholders vote to accept Sun Capital's offer, Marsh has sued to determine if it can discuss another proposed offer by Dallas-based real estate firm Cardinal Paragon to buy the chain for about $108 million. Marsh has not yet set a date for a shareholder vote on the Sun Capital offer.

4th-QUARTER RESULTS

Qtr Ended: 4/1/06; 4/2/05

Sales: $377.5 million; $419.1 million

Change: -9.9%

Comp-store: -3.8%

Net income: ($27.9 million); ($1.4 million)

Change: N/A

Inc/Share: ($3.53); (18 cents)

Year: 2006; 2005

Sales: $1.74 billion; $1.75 billion

Change: 0%

Comp-store: 0.8%

Net income: ($40.24 million); $4.16 million

Change: N/A

Inc/share: ($5.09); 52 cents