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    Marsh's Quarterly Loss Widens

    Parent of Village Pantry sees same-store sales decline.

    INDIANAPOLIS -- Marsh Supermarkets Inc., operator of 154 Village Pantry convenience stores, as well as 69 supermarkets and nearly 50 other food stores, posted a 10-percent decline in revenues in the fourth-quarter, to $377.5 million, compared with $419 million in revenues a year ago.

    The retailer's same-store sales, excluding gasoline, fell 5.6 percent.

    In a statement made after the market's close on Friday, Marsh officials cited continued high levels of rival promotional activity and competitors' new store openings as the chief culprits in its faltering performance.

    "These financial results reflect continuing competitive pressure, as well as some difficult decisions that significantly impacted the bottom line, but which also should enhance our ability to improve future earnings," said Don E. Marsh, Chairman and CEO.

    "Throughout the strategic alternatives review process, the company has gained significant insights into its business," Marsh continued. "Although this has been a challenging year, we are proud of what we've accomplished in our 75 years. Despite the realities of working in an industry with low margins and high competition, we've grown our business while focusing on bringing the best in service and products to our customers."

    During the fourth quarter, Marsh closed two supermarkets, six convenience stores and a restaurant; abandoned its plans to further develop a new prototype restaurant; and recorded other charges related to the abandonment of certain other leased equipment.

    Also significant in the quarter was a 25-percent workforce reduction at its headquarters, including four officers, in addition to incurring severance and other personnel related costs related to terminating employees at the closed store locations. All told, Marsh tabbed a $7 million charge for the personnel related costs.

    The 12-week period resulted in a $28 million net loss, versus a $1.4 million loss in the same period a year ago. Loss before income taxes for the 2006 quarter was $40.2 million, compared to a loss before income taxes of $2.3 million for the 2005 quarter.

    Marsh attributed the loss before income taxes for the 2006 quarter primarily to charges recorded in the quarter for asset impairment, restructuring and goodwill impairment charges totaling $30.7 million, inclusive of $2.2 million primarily related to abandoned construction in progress assets and to write-down real estate held for sale to fair market value based on recent appraisals.

    The charges were in addition to the $12.8 million impairment charge previously announced and recorded during the third quarter of fiscal 2006 to reduce the carrying costs of buildings and building improvements, fixtures and equipment for nine supermarkets and 10 convenience stores. Total long-lived asset impairment charges for fiscal 2006 were $15.0 million.

    On May 2, 2006 Marsh signed a definitive merger agreement to be acquired by MSH Supermarkets Holding Corp., an affiliate of Sun Capital Partners Group IV Inc., pursuant to which all of the shares of common stock of the company would be converted to cash at $11.125 per share, or approximately $88.7 million in total.

    For the 52-week 2006 fiscal year, Marsh's total revenues were $1,744.4 million compared to $1,747.4 million for the 53-week 2005 fiscal year. Retail sales in comparable supermarkets and convenience stores in fiscal 2006 were 0.8 percent above last year, while same store merchandise sales in fiscal 2006, which exclude gasoline, declined 1.7 percent from last year.

    Net loss for fiscal 2006 was $40.2 million, or $5.09 per diluted share, as compared to net income of $4.2 million, or $0.52 per diluted share, last year. Loss before income taxes in fiscal 2006 was $57.9 million, as compared to income before income taxes of $6.5 million last year.

    At the April 1, 2006 quarter's end, Marsh had unused borrowing capacity under its revolving credit facility of $49.3 million, net of $11.2 million of outstanding letters of credit. Unused borrowing capacity increased to $59.6 million as of June 23, 2006.

    Along with the convenience stores and supermarkets, Marsh operates 38 LoBill Food stores, 8 O'Malia's Food Markets and two Arthur's Fresh Markets.

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