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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D. C. 20549
FORM 10-K
[X] Annual report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 (Fee Required)
For the fiscal year ended September 24, 1994
------------------
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 (No Fee Required)
For the transition period from _________________ to _________________
Commission File Number 0-14706
INGLES MARKETS, INCORPORATED
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
North Carolina 56-0846267
- -------------------------------- ------------------------
(State or other jurisdiction of (I.R.S. Employer ID no.)
incorporation or organization)
P.O. Box 6676, Asheville, NC 28816
- -------------------------------- ------------------------
(Address of principal executive (Zip Code)
offices)
Registrant's telephone number, including area code: (704) 669-2941
------------------------
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
- ------------------------------- ---------------------------
None None
- ------------------------------- ---------------------------
Securities registered pursuant to Section 12(g) of the Act:
Class A Common Stock, $0.05 par value
Class B Common Stock, $0.05 par value
-------------------------------------
Convertible Subordinated Debentures due October 2008
----------------------------------------------------
(Title of Class)
Indicate by check mark whether the 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 (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES X NO .
----- -----
Exhibit Index is Located on pages 52 - 54
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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 registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. (X)
As of December 9, 1994, the aggregate market value of voting stock held by
non-affiliates of the registrant, based on the closing sales price of the Class
A Common Stock on the Nasdaq Stock Market (National Market) on December 9,
1994, was approximately $52,400,000.
As of December 9, 1994, the registrant had 4,424,992 shares of Class A
Common Stock outstanding and 13,479,158 shares of Class B Common Stock
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement to be used in connection with the
solicitation of proxies to be voted at the registrant's annual meeting of
stockholders to be held on February 21, 1995, to be filed with the Commission,
are incorporated by reference into Part III of this Report on Form 10-K.
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PART I
Item 1. BUSINESS
General
Ingles Markets, Incorporated ("Ingles" or the "Company") is a leading regional
supermarket chain with operations in six southeastern states. At September 24,
1994, the Company, headquartered in Asheville, North Carolina, operated 175
supermarkets in North Carolina, South Carolina, Georgia, Tennessee, Virginia
and Alabama. Ingles' strategy is to locate its supermarkets primarily in
suburban areas, small towns and rural communities, where management believes
the market may be underserved by existing supermarkets. The Company's existing
stores average approximately 32,000 square feet. The Company currently has
underway an on-going expansion, remodel and/or replacement program to upgrade
certain existing supermarkets to a new 52,000 square foot prototype store.
This is being done in selected markets, the results of which have been
excellent, as evidenced by increased sales and market share.
Substantially all stores are located within 250 miles of the Company's 450,000
square foot warehouse and distribution center located outside of Asheville,
North Carolina. This facility supplies approximately 62% of the inventory
requirements of the Company's supermarkets. Construction is currently underway
to add a 310,000 square foot addition to the existing warehouse facility which
will accommodate an expanded inventory of perishable goods and increase dry
grocery storage space. The addition is scheduled for completion in September
1995.
The Company's supermarkets offer the customer a broad selection of quality
products at competitive prices with an emphasis on convenient locations and
superior customer service. Ingles was one of the first supermarket chains in
its region to introduce higher margin specialty departments, such as
delicatessens and bakeries, as well as offering extended operating hours. All
stores are open seven days a week, with many open 24 hours a day.
In conjunction with its supermarket activities, the Company owns and operates
70 neighborhood shopping centers, all but two of which contain an Ingles
supermarket. The Company also owns and holds for future development or sale
numerous outparcels and other acreage adjacent to shopping centers which it
owns.
Ingles owns and operates, as a wholly-owned subsidiary, a milk processing and
packaging plant which sells approximately 53% of its milk and related dairy
products to unaffiliated customers.
During the past five years, the number of supermarkets operated by the Company
increased from 156 to 175. The aggregate sales area in all stores increased
from approximately 3.2 million square feet to approximately 3.9 million square
feet. In addition, weighted average sales per store increased from $6.0
million to $6.9 million.
The Company was founded in 1963 by Robert P. Ingle, the Company's Chairman of
the Board and Chief Executive Officer. As of September 24, 1994, Mr. Ingle
retains approximately 89% of the combined voting power and 70% of the total
number of shares of the Company's outstanding Class A Common Stock and Class B
Common Stock (in each case including stock held by Mr. Ingle as a trustee of
the Company's Investment/Profit Sharing Plan and Trust). The Company became a
publicly held company in September 1987.
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The Company is incorporated under the Laws of the State of North Carolina. Its
principal executive offices are located at P. O. Box 6676, Highway 70,
Asheville, North Carolina 28816, and its telephone number is 704-669-2941.
Business
The Company operates in two lines of business: retail grocery and food sales
(principally retail sales) and shopping center rentals. For information
regarding the Company's industry segments, see Note 12 to the Consolidated
Financial Statements on page 45 of this report on Form 10-K. Information about
the Company's operations by lines of business (in millions) follows:
Fiscal Year Ended September
--------------------------------------------------
1994 1993 1992
---------------- --------------- ---------------
Revenues from
unaffiliated customers:
Grocery and food sales $1,233.5 99.2% $1,141.8 99.3% $1,066.3 99.3%
Shopping center rentals 9.8 .8% 8.0 .7% 7.3 .7%
-------- ----- -------- ----- -------- -----
$1,243.3 100.0% $1,149.8 100.0% $1,073.6 100.0%
======== ===== ======== ===== ======== =====
Income before interest
and income taxes and
cumulative effect of
change in accounting
principle:
Grocery and food sales $ 37.1 85.3% $ 31.0 87.1% $ 23.1 93.9%
Shopping center rentals 6.4 14.7% 4.6 12.9% 1.5 6.1%
-------- ----- -------- ----- -------- -----
43.5 100.0% 35.6 100.0% 24.6 100.0%
===== ===== =====
Interest expense 17.3 17.3 16.2
-------- -------- --------
Total pretax income $ 26.2 $ 18.3 $ 8.4
======== ======== ========
Supermarket Operations
At September 24, 1994, the Company operated 172 supermarkets under the name
"Ingles" and three supermarkets under the name "Best Food" in western North
Carolina, western South Carolina, northern Georgia, eastern Tennessee,
southwestern Virginia and northeastern Alabama. The "Best Food" stores are a
new concept developed in 1994 to accommodate a smaller store carrying a full
line of dry groceries, fresh meat and produce, all of which are displayed in a
modern readily accessible environment. One of the "Best Food" stores replaced
the former "Fine Fare" store. The Company has followed a strategy of locating
its supermarkets primarily in small towns, rural communities and, particularly
with respect to new stores, suburban areas, where management believes the
market may be underserved by existing supermarkets. The following table sets
forth certain information with respect to the Company's supermarket operations.
Number of Supermarkets Percentage of Total
at Fiscal Net Sales for Fiscal
Year Ended September Year Ended September
---------------------- --------------------
1994 1993 1992 1994 1993 1992
---- ---- ---- ---- ---- ----
North Carolina 57 56 56 35% 35% 35%
South Carolina 28 28 28 14% 15% 16%
Georgia 65 64 64 37% 37% 37%
Tennessee 21 19 19 12% 11% 11%
Virginia 3 3 3 2% 2% 1%
Alabama 1 0 0 0% 0% 0%
--- --- --- --- --- ---
175 170 170 100% 100% 100%
=== === === === === ===
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The Company's supermarkets offer the customer a full line of food items,
including grocery, meat and dairy products, produce and frozen foods, as well
as a number of non-food items, such as health and beauty care products, at
competitive prices with an emphasis on convenient locations and superior
customer service. All stores are open 7 days a week and many are open 24 hours
a day. Most of the Company's stores also contain specialty departments such as
delicatessens and bakeries. Management believes that specialty departments
result in higher inventory turnover than other departments and improve overall
profit margins. As an additional convenience to its customers, the Company
leases space to local banks who independently operate branch banks in 16
stores.
The Company sells national brands of merchandise and carries a wide variety of
products under its "Laura Lynn" private label. The private label products are
packed to the Company's specifications and are generally sold at prices lower
than those of national brands.
Selected statistics on the Company's supermarket operations are shown below:
Fiscal Year Ended September
-------------------------------------------
1994 1993 1992 1991 1990
-------- ------- ------- ------- -------
Weighted Average Sales
Per Store (000's) $ 6,930 $ 6,495 $ 6,035 $ 5,990 $ 6,017
Total Square Feet at
End of Year (000's) 5,575 5,299 5,278 5,237 5,015
Average Total Square
Feet per Store 31,859 31,170 31,047 30,628 30,030
Average Square Feet of
Selling Space per Store (1) 22,301 21,819 21,733 21,439 21,021
Average Sales Per Square
Foot of Selling Space (1) $ 314 $ 299 $ 277 $ 282 $ 291
Number of Stores:
Opened 9 3 6 6 18
Closed 4 3 7 2 7
Size of Stores:
Less than 19,999 Sq Ft. 5 6 6 7 7
20,000 - 29,999 Sq Ft. 53 54 55 59 63
30,000 - 39,999 Sq. Ft. 91 92 93 92 89
Greater than 40,000 Sq Ft. 26 18 16 13 8
------- ------- ------- ------- -------
Total Stores Open at
End of Year 175 170 170 171 167
======= ======= ======= ======= =======
(1) Selling space is estimated to be 70% of total store square footage.
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Merchandising
The Company's merchandising strategy is to provide convenient supermarket
locations which offer the customer a broad selection of quality products at
competitive prices with an emphasis on superior customer service. Customer
service includes, among other things, maintaining an awareness of customer
tastes and preferences, offering cut-to-order meat, carry-out service to the
customer's automobiles and Sunday hours.
The Company attempts to reinforce its quality and superior service image
through advertising, which is conducted primarily in newspapers, through the
distribution of circulars, and on radio and television. During fiscal 1994,
1993, and 1992 advertising and promotion expenditures, net were approximately
$17.1 million, $17.3 million, and $18.1 million, or 1.4% of net sales in 1994,
1.5% of net sales in 1993 and 1.7% of net sales in 1992. The Company stresses
its American ownership in its merchandising and advertising programs as a
contrast to the foreign ownership of several of its principal competitors.
From time to time, the Company uses special promotions at many of its store
locations as part of its promotional strategy. During the third quarter of
fiscal 1992, the Company began a new low price program on dry grocery items,
which is being emphasized in its advertising programs. The Company also
sponsors an annual "food show" in Asheville, North Carolina where food vendors
operate booths and provide information about and samples of products that are
offered for sale in the Company's stores.
Purchasing and Distribution
The Company supplies approximately 62% of its supermarkets' inventory
requirements from a 450,000 square foot warehouse (with approximately 30,000
square feet of refrigerated space) located near Asheville, North Carolina. The
warehouse services all of the Company's stores and receives merchandise
principally by truck from primary sources located throughout the country. The
warehouse facility is managed and operated by Thomas & Howard Company of
Asheville, Inc. The Company distributes goods from this facility to its stores
using its fleet of 76 tractors and 314 trailers. Thomas & Howard employs the
truck drivers.
Construction is currently underway to add a 310,000 square foot addition to the
existing warehouse facility which will accommodate an expanded inventory of
perishable goods (200,000 square feet) and increase dry grocery storage space
(110,000 square feet). The projected completion date is September 1995.
Approximately 21% of the Company's inventory requirements, primarily
produce, frozen food and slower moving items that the Company does not
presently stock, are purchased from Merchant Distributors, Inc. ("MDI"). MDI
is a wholesale grocery distributor and supermarket operator in Hickory, North
Carolina, with which the Company has had a continuing relationship since 1963.
Purchases from MDI by the Company were approximately $207 million, $179 million
and $162 million, in fiscal 1994, 1993 and 1992, respectively. The Company
believes that alternative sources of supply are readily available for all
merchandise purchased from MDI. This distributor owned approximately 6% of the
Company's Class A Common Stock and approximately 1% of the Company's Class B
Common Stock at September 24, 1994.
The remaining 17% of the Company's inventory requirements, primarily beverages,
bread and snack foods, are supplied directly to the Company's supermarkets by
local distributors and manufacturers.
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The Company's purchasing and distribution operations are centrally managed.
Individual stores order items electronically from the central warehouse or MDI.
Individual store shipments from the central warehouse are wrapped and sealed,
which reduces damage during shipment.
Management believes that centralization of the Company's purchasing and
distribution operations provides it with several advantages. Rapid inventory
turnover at the central warehouse and the Company's relationship with MDI
enable Company stores to offer consistently fresh, high-quality meat and
produce items. Second, centralized purchasing and distribution reduce the
Company's cost of merchandise and related transportation costs. Third, due to
frequent deliveries to stores, the Company is able to reduce in-store stock
room space and increase the square footage available for retail selling.
The Company engages in forward purchasing arrangements on high turnover
inventory items in order to take advantage of special market prices offered by
manufacturers for limited periods. The ability to take advantage of forward
purchasing is limited by several factors including carrying costs and warehouse
space. Forward purchasing also exposes the Company to the risk of significant
shifts in product pricing during the period that inventory is stocked.
In 1982, the Company purchased an integrated milk processing and packaging
plant located in Asheville, North Carolina. The plant processes and packages
milk, fruit juices and spring water under the Sealtest, Pet and Biltmore
labels, as well as under the Company's own "Laura Lynn" private label.
Production from the plant has increased from a rate of 5 million gallons per
year at the time of acquisition to over 40 million gallons per year currently.
During fiscal 1994, such operations generated sales to nonaffiliates of
approximately $36.9 million.
Expansion and Store Development
From the beginning of fiscal 1990 through the end of fiscal 1994, the number of
supermarkets operated by the Company increased from 156 to 175. During this
period, total supermarket square footage increased from 4.5 to 5.6 million
square feet and average square feet per store increased from 29,000 to 32,000.
The Company uses independent contractors to construct its supermarkets from
prototype designs which include specialty service departments such as expanded
meat and produce sections, delicatessens, in-store bakeries, periodical and
greeting card departments, and, in some stores, branch banking and video
departments. The two current prototype designs for "Ingles" stores include
either approximately 42,000 or 52,000 total square feet, depending on the
market area of the site. The prototype for a "Best Food" store includes
approximately 22,500 total square feet. Construction of stores is closely
monitored and controlled by the Company.
The Company remodels older stores on a regular basis in order to increase
customer traffic, compete effectively against new store openings by competitors
and support its "quality image" merchandising strategy. The Company has
elected to relocate, rather than remodel, certain stores where relocation was
more economical. Most stores over ten years old have been or are currently
being remodeled. Inclusion of specialty departments typically found in new
stores is frequently a part of remodeling. The Company spent an aggregate of
approximately $19.0 million during the past three fiscal years on store
expansion and remodeling.
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The Company's ability to open new stores is subject to many factors, including
the acquisition of satisfactory sites and the successful negotiation of new
leases, and may be limited by zoning and other governmental regulation. In
addition, the Company's expansion and remodeling plans are continually reviewed
and are subject to change.
Competition
The supermarket industry is highly competitive. The number and type of
competitors vary by location. Principal competitive factors include store
location, price, service, convenience, cleanliness, product quality and
variety.
The Company's principal competitors are Winn Dixie Stores, Inc., Kroger
Company, Food Lion, Inc. and BI-LO, Inc. The Company also competes with other
food store chains as well as local supermarkets, specialty and convenience food
stores and small chains that have significant market share in limited areas.
The Company believes that its principal competitive advantages are its store
locations, quality image, superior level of service and broad selection of
products at competitive prices.
Employees
At September 24, 1994, the Company had approximately 9,952 employees, including
165 administrative and management personnel, 9,581 supermarket personnel, and
206 employees engaged in the milk processing and packaging operations.
Approximately 59% of these employees work on a part-time basis, substantially
all of whom are supermarket personnel. None of these employees are represented
by labor unions. Management considers employee relations to be excellent.
The Company pays monthly bonuses to certain managerial personnel based on the
performance of their stores. Annual bonuses based on pre-tax, pre-bonus
income, as defined, are paid to all eligible personnel. The Company believes
that its employee incentive compensation system is unusual in its industry and
that such compensation program provides a competitive advantage in encouraging
employees to respond to consumer preferences and needs and results in improved
employee morale and loyalty, thus enhancing the Company's ability to retain
experienced employees.
Insurance
The Company currently maintains general liability and automobile insurance
coverages with a $25,000 deductible per claim. Excess liability coverages are
also maintained. The Company maintains casualty insurance only on those
properties where it is required to do so. The Company has elected to
self-insure its other properties, including four aircraft used in its business
which are not covered by casualty or liability insurance. The aircraft are
used for site selection and travel by management personnel, principally in the
Company's six state operating area.
The Company is self-insured for workers' compensation and employee group
medical and dental benefits up to a maximum per occurrence of $300,000 for
workers' compensation and up to a maximum of $150,000 per covered person
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for medical care benefits for a policy year. The Company is insured for
covered costs in excess of these limits.
Trademarks and Licenses
The Company employs various tradenames and service marks in its business, the
most important of which are the "Laura Lynn" trademark and the "Ingles" service
mark. Each such mark is federally registered. In addition, the Company uses
the "Sealtest", "Pet", and "Biltmore" trademarks pursuant to agreements entered
into in connection with its milk, fruit juice and spring water processing and
packaging operations. The Company believes it has all licenses and permits
necessary to conduct business.
Item 2. PROPERTIES
At September 24, 1994, the Company owned and operated 70 shopping centers, all
but two of which contained an Ingles supermarket. The shopping centers contain
an aggregate of 4.4 million square feet of leasable space, of which 2.2 million
square feet is used by the Company's supermarkets. The remainder of the
leasable space in each center is leased by the Company to third party tenants.
The Company also owns and holds for future development or sale numerous
outparcels and other acreage adjacent to the shopping centers.
A breakdown by size of the shopping centers operated by the Company is as
follows:
Less than 50,000 square feet 32
50,000-100,000 square feet 30
Over 100,000 square feet 8
---
70
===
In addition to an Ingles supermarket, most shopping centers include a national
drug store chain as a tenant. Shopping centers containing more than 50,000
square feet typically include space leased or subleased to a regional or
national discount department store. In some instances, space is also leased or
subleased to local tenants such as cleaners, restaurants and other service
businesses or specialty retailers. The Company believes that the businesses
operated by its tenants, combined with an Ingles supermarket, offer one-stop
shopping convenience and increase traffic for the supermarket.
Typically, Ingles offers a drug store tenant a 20 year lease term with renewal
options for an average 40 year term. A department store tenant is typically
offered a 15 to 20 year lease term with renewal options for an average 30 to 40
year term. Leases to local tenants have a maximum five year term. Most tenant
leases contain percentage rent provisions based on sales volume and are triple
net leases. None of the tenant leases provide for any purchase option.
The Company manages the leasing of the shopping centers. It employs
maintenance workers and also engages local contractors to provide some of the
maintenance services for the properties. The vacancy rate for shopping centers
operated by the Company was approximately 18.5% as of September 24, 1994. The
total annual rental income from third party tenants, including lease
termination payments, was approximately $9.8 million, $8.0 million and $7.3
million in fiscal 1994, 1993 and 1992, respectively.
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In fiscal 1987, the Company sold 21 of its stores and related shopping center
properties in a sale-leaseback transaction. Robert P. Ingle sold three
additional shopping centers as a part of the transaction. The Company leased
back 23 of such shopping centers and 1 store. During fiscal 1991, the Company
repurchased one of the centers. On October 1, 1992 the Company repurchased the
remaining 23 store and shopping center properties.
Of the 107 supermarket locations not included in shopping centers owned by the
Company, 17 are owned by the Company and 90 are leased from various
unaffiliated third parties. Most of the leases give the Company the right of
first refusal to purchase the entire shopping center in which the supermarkets
are located and have exclusivity clauses prohibiting the developer from renting
to another supermarket within a designated radius. The majority of leases
require that the Company pay property taxes, utilities, insurance, repairs and
certain other expenses incidental to occupation of the premises. In addition
to base rentals, most leases require the Company to pay additional percentage
rentals (ranging from .75% to 1%) for sales in excess of specified amounts.
Rental expenses range from $1.00 to $5.50 per square foot. During fiscal year
1994, 1993 and 1992, the Company paid a total of $12.0 million, $12.0 million,
and $14.5 million, respectively, in supermarket rentals, exclusive of property
taxes, utilities, insurance, repairs and other expenses. The following table
summarizes lease expiration dates as of September 24, 1994, with respect to the
initial and any renewal option terms of leases of supermarkets not located in
shopping centers operated by the Company.
Year of Expiration Number of Stores
(including renewal terms) With Leases Expiring
--------------------------- ----------------------
2000-2019 12
2020-2039 6
2040 or after 72
Management believes that the long-term rent stability provided by these leases
is a valuable asset of the Company.
The Company owns a 500,000 square foot facility which is strategically located
between Interstate 40 and Highway 70 near Asheville, North Carolina. The
facility includes the Company's principal executive offices and its 450,000
square foot central warehouse, as well as the 78 acres of land on which it is
situated.
The Company's milk processing and packaging subsidiary, Milkco, Inc., owns a
54,000 square foot manufacturing and storage facility in Asheville, North
Carolina. In addition to the plant itself, the property includes truck
servicing and fuel storage facilities.
Item 3. LEGAL PROCEEDINGS
The Company is involved in a number of legal proceedings with respect to
matters arising in the ordinary course of business which the Company believes,
in the aggregate, will not have a material impact on the results of operations,
financial condition or business of the Company.
Item 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
No matters were submitted to the vote of the security holders during the fourth
quarter of the fiscal year covered by this report.
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PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Market Information
The Company has two classes of Common Stock: Class A and Class B. Class A
Common Stock is traded on the Nasdaq Stock Market (National Market) under the
symbol IMKTA. There is no public market for the Company's Class B Common
Stock. However, under the terms of the Company's Articles of Incorporation,
any holder of Class B Common Stock may convert any portion or all of his shares
of Class B Common Stock into an equal number of shares of Class A Common Stock
at any time. As of December 9, 1994, there were approximately 1,473 holders of
record of the Company's Class A Common Stock and 650 holders of record of the
Company's Class B Common Stock. The following table sets forth the reported
high and low closing sales price for the Class A Common Stock during the period
indicated as reported in the National Market System. The quotations reflect
actual sales prices without retail mark-up, mark-down or commissions.
1994 Fiscal Year High Low
- ---------------- ---- ---
First Quarter (ended December 25, 1993) $11-3/8 $ 8-3/8
Second Quarter (ended March 26, 1994) $12-3/4 $10-1/4
Third Quarter (ended June 25, 1994) $12-3/8 $10-1/8
Fourth Quarter (ended September 24, 1994) $12-1/4 $10-1/8
1993 Fiscal Year
- ----------------
First Quarter (ended December 26, 1992) $ 6-3/8 $ 5-1/2
Second Quarter (ended March 27, 1993) $ 7 $ 5-7/8
Third Quarter (ended June 26, 1993) $ 7-1/4 $ 5-5/8
Fourth Quarter (ended September 25, 1993) $ 9 $ 6-7/8
On December 9, 1994, the closing sales price of the Company's Class A Common
Stock on the Nasdaq Stock Market (National Market) was $10-1/8 per share.
Dividends
The Company has paid cash dividends on its Common Stock in each of the past
fifteen fiscal years, except for the 1984 fiscal year when the Company paid a
3% stock dividend. During fiscal 1994 the Company paid quarterly dividends
totalling $.5775 per share of Class A Common Stock and $.5250 per share of
Class B Common Stock. During fiscal 1993, the Company paid quarterly dividends
totalling $.2475 per share of Class A Common Stock and $.2250 per share of
Class B Common Stock.
The Company expects to continue the payment of regular dividends on a quarterly
basis. The Board of Directors, however, reconsiders the declaration of
dividends periodically, and there can be no assurance as to the declaration of
or the amount of dividends to be paid. The payment of dividends is subject to
the discretion of the Board of Directors and will depend upon the results of
operations, the financial condition of the Company and other factors which the
Board of Directors deems relevant. The payment of dividends is also subject to
restrictions contained in certain loan agreements entered into by the Company
and by the terms of the Debentures. See Note 7 to the Consolidated Financial
Statements on pages 39 through 41 of this report on Form 10-K.
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Item 6. SELECTED FINANCIAL DATA
The selected financial data set forth below have been derived from the
Company's consolidated financial statements. The information should be read in
conjunction with MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION and the CONSOLIDATED FINANCIAL STATEMENTS and Notes
thereto included elsewhere herein.
Selected Income Statement
Data for the Year Ended
September
(in thousands except
per share amounts) 1994 1993 1992 1991 1990
- -------------------- ---------- ---------- ---------- ---------- ----------
Net Sales $1,233,497 $1,141,800 $1,066,332 $1,044,452 $1,006,790
Gross Profit 275,062 250,592 235,039 236,374 225,607
Income Before
Cumulative Effect
of Change in
Accounting Principle 16,572 11,701 5,499 10,745 10,042
Primary Earnings per
Common Share Before
Cumulative Effect of
Change in Accounting
Principle .90 .65 .31 .60 .56
Cash Dividends Declared
per Common Share
Class A .5775 .2475 .22 .22 .22
Class B .5250 .2250 .20 .20 .20
Selected Balance Sheet
Data at September
(in thousands) 1994 1993 1992 1991 1990
- --------------------- ---------- ---------- ---------- ---------- ----------
Current Assets $ 141,500 $ 136,316 $ 141,453 $ 129,539 $ 152,882
Property and Equipment,
net 359,670 312,516 258,882 262,546 251,055
Total Assets 506,593 456,549 404,988 396,939 408,818
Current Liabilities,
including Current
Portion of Long-Term
Liabilities 115,938 123,882 72,375 78,130 75,430
Long-Term Liabilities,
net of Current Portion 214,057 163,013 162,581 149,815 172,621
Stockholders' Equity 157,972 147,689 140,113 138,280 131,153
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Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
RESULTS OF OPERATIONS
The Company's fiscal year ends on the last Saturday in September.
Fiscal years 1994, 1993 and 1992 each consisted of 52 weeks.
During the past five years, the Company's sales grew at an annual
compound rate of 6.4%. This growth is attributable to both the opening of new
stores and increased sales in existing stores. During the period, the number
of stores increased from 156 to 175 and weighted average sales per store
increased from $6.0 million to $6.9 million. Sales also benefited from modest
population growth in the Company's geographic markets and increased market
share resulting from the expansion, remodel and/or replacement of existing
stores and the addition of new stores. Sales are slightly seasonal with higher
volume in the summer months due to increased sales by stores located in
vacation and seasonal home areas.
The following table sets forth for the years indicated the percentage
which selected items in the consolidated statements of income bear to net sales
and the percentage changes in dollar amounts of such items as compared to the
indicated prior year.
- --------------------------------------------------------------------------------
PERCENTAGE CHANGE
-----------------
PERCENTAGE OF NET SALES FISCAL YEAR
FISCAL YEAR -----------------
ENDED SEPTEMBER 1994 1993
----------------------- VS. vs.
1994 1993 1992 1993 1992
---- ---- ---- ---- ----
Net sales . . . . . . . . . . 100.0% 100.0% 100.0% 8.0% 7.1%
Cost of goods sold . . . . . 77.7 78.1 78.0 7.5 7.2
----- ----- -----
Gross profit . . . . . . . . 22.3 21.9 22.0 9.8 6.6
Operating and administrative
expenses . . . . . . . . . 19.4 19.3 20.0 8.7 3.0
Rental income, net. . . . . . .5 .4 .1 38.2 210.3
----- ----- -----
Income from operations. . . . 3.4 3.0 2.1 20.6 55.0
Other income (expense), net . .1 .1 .2 71.0 (54.4)
----- ----- -----
Income before interest and
income taxes and cummulative
effect of change in accounting
principal . . . . . . . . . 3.5 3.1 2.3 22.1 44.5
Interest expense . . . . . . 1.4 1.5 1.5 .1 6.7
----- ----- -----
Income before income taxes
and cummulative effect of
change in accounting
principal . . . . . . . . . 2.1 1.6 .8 43.0 117.2
Income taxes . . . . . . . . .8 .6 .3 45.5 125.6
----- ----- -----
Income before cumulative
effect of change in
accounting principle. . . . 1.3% 1.0% .5% 41.6 112.8
===== ===== =====
- --------------------------------------------------------------------------------
FISCAL 1994 COMPARED WITH FISCAL 1993
NET SALES
Net sales for the year ended September 24, 1994 increased $91.7
million, to $1.233 billion, up 8.0% over sales of $1.142 billion last year.
Growth in identical store sales (grocery stores open for the entire duration of
the previous fiscal year) was 7.0%. Fiscal 1994 was the 30th consecutive year
Ingles has achieved an increase in net sales. Approximately one-half of the
dollar increase in sales resulted from an
13
<PAGE> 14
increase in grocery sales - the other half from increased sales in the
perishable departments. In addition to continuing the lower price strategy on
dry grocery goods, commenced during the third quarter of fiscal 1992, the
Company has pursued an aggressive merchandising and pricing strategy to boost
sales in its perishable departments, has conducted a more effective advertising
campaign and has increased variety in its grocery department. The fourth
quarter of fiscal 1994 was the tenth quarter in a row the Company has reported
an increase in sales over the prior comparable quarter (on average $19.3
million per quarter).
During fiscal 1994, nine new stores were opened and four older stores
were closed. At September 24, 1994, the Company operated 175 supermarkets in
six states: North Carolina (57), South Carolina (28), Georgia (65), Tennessee
(21), Virginia (3) and Alabama (1).
GROSS PROFIT
Gross profit for the year ended September 24, 1994 increased 9.8% to
$275.1 million, or 22.3% of sales, compared to $250.6 million, or 21.9% of
sales, last year. Grocery gross profit, as a percentage of sales, this year
was the same as last year. Lower gross margins on dry grocery goods due to
reduced pricing were compensated for by an aggressive purchasing program.
Meat, produce and frozen food gross profit, as a percentage of sales, improved
due to better merchandising, aggressive pricing and more effective advertising.
OPERATING AND ADMINISTRATIVE EXPENSES
Operating and administrative expenses, as a percentage of sales, were
19.4% this year compared to 19.3% last year. Increases in the cost of labor,
warehouse and transportation expense and repairs and maintenance, as a
percentage of sales, were partially offset by a decrease, as a percentage of
sales, in advertising and promotional expenditures, rent expense and utilities.
Insurance expense, as a percentage of sales, increased slightly this
year. Approximately 71% of insurance costs relate to expenses of the
self-insured group medical and workers' compensation coverages. The Company is
insured for covered costs in excess of certain limits.
RENTAL INCOME, NET
Rental income, net increased from $4.6 million last year to $6.4
million this year. Fiscal 1994 includes gains of $1.5 million in connection
with the early termination by tenants of three leases of premises in shopping
centers owned by the Company.
INCOME FROM OPERATIONS
Income from operations increased 20.6% to $41.6 million, or 3.4% of
sales, compared to $34.5 million, or 3.0% of sales, last year. The increase in
operating income was due to the increase in sales, the related increase in
gross profit and the increase in rental income, net.
14
<PAGE> 15
OTHER INCOME (EXPENSE), NET
Other income (expense), net increased $.8 million. The increase is
primarily due to an increase in miscellaneous other income.
INCOME BEFORE INTEREST AND INCOME TAXES AND CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLE
Income before interest and income taxes and the cumulative effect of
the change in accounting principle was $43.5 million, or 3.5% of sales, this
year compared with $35.6 million, or 3.1% of sales, last year.
INTEREST EXPENSE
Despite an increase in debt this year versus last year, interest
expense was $17.3 million both years due to lower borrowing rates in fiscal
1994 and an increase in the capitalization of construction period interest.
INCOME BEFORE INCOME TAXES AND CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING
PRINCIPLE
Income before income taxes and the cumulative effect of the change in
accounting principle increased $7.9 million to $26.2 million, or 2.1% of sales,
this year compared to $18.3 million, or 1.6% of sales, last year.
INCOME TAXES
Income tax expense, as a percentage of pre-tax income, was 36.7% this
year compared with 36.1% last year due primarily to an increase in the federal
income tax rate.
INCOME BEFORE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE
Income before the cumulative effect of the change in accounting
principle for the year ended September 24, 1994 increased $4.9 million, to
$16.6 million, up 41.6% over income of $11.7 million last year. Primary
earnings per common share before the cumulative effect of the change in
accounting principle rose from $.65 last year to $.90 this year.
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE FOR INCOME TAXES
In February 1992, the Financial Accounting Standards Board issued a
new standard (SFAS 109), "Accounting for Income Taxes". A significant feature
of the standard is the use of an approach under which recorded deferred taxes
are adjusted for changes in tax rates. Under prior rules (APB 11), deferred
taxes were provided at current tax rates and were not adjusted for subsequent
changes in these rates. The new standard was adopted by the Company at the
beginning of the current fiscal year. The cumulative effect of adopting the
standard resulted in a non-cash credit to income for the year ended September
24, 1994 of $3.3 million, or $.18 per common share.
NET INCOME
Net income for the year ended September 24, 1994 was $19.9 million
compared to $11.7 million last year. Primary earnings per common share rose
from $.65 last year to $1.08 this year.
15
<PAGE> 16
FISCAL 1993 COMPARED WITH FISCAL 1992
NET SALES
Net sales for the year ended September 25, 1993 increased $75.5
million, to $1.142 billion, up 7.1% over sales of $1.066 billion the prior
year. Growth in identical store sales (grocery stores open for the entire
duration of the previous fiscal year) was 7.4%. Sales benefited primarily from
the continuation of the lower price strategy on dry grocery goods which the
Company commenced during the third quarter of fiscal 1992.
Three new stores were opened during fiscal 1993 and three older stores
were closed. At September 25, 1993, the Company operated 170 supermarkets in
North Carolina, South Carolina, Georgia, Tennessee, and Virginia.
GROSS PROFIT
Gross profit for the year ended September 25, 1993 increased 6.6% to
$250.6 million, or 21.9% of sales, compared with $235.0 million, or 22.0% of
sales, the prior year. Grocery gross profit, as a percentage of sales, was
negatively impacted by the reduced pricing strategy on dry grocery goods. Meat
and deli/bakery gross profit, as a percentage of sales, improved due to better
merchandising and better control of shrink. The Company's wholly owned
subsidiary, Milkco, Inc., expanded and increased its business in areas that
produced higher profit margins, primarily supplying institutional food jobbers.
As a percentage of net sales, total gross profit was down only slightly.
OPERATING AND ADMINISTRATIVE EXPENSES
Operating and administrative expenses in fiscal 1993 increased 3.0% to
$220.7 million, or 19.3% of sales, compared with $214.3 million, or 20.0% of
sales, the prior year. The decrease, as a percentage of sales, was primarily
due to the increase in sales, effective control over increases in the cost of
labor and decreases in advertising and promotional expense and the cost of
utilities, partially offset by an increase in the cost of store supplies.
Insurance expense, as a percentage of sales, decreased slightly in
fiscal 1993. Approximately 69% of insurance costs relate to expenses of the
self-insured group medical and workers' compensation coverages. The Company is
insured for covered costs in excess of certain limits.
On October 1, 1992, the Company purchased twenty-two shopping center
properties and one free standing store (discussed more fully in the "Liquidity
and Capital Resources" section of this report under the caption Fiscal 1993).
The effect of this transaction decreased real property rental costs $2.7
million and increased depreciation expense $.7 million during fiscal 1993.
RENTAL INCOME, NET
Rental income, net in fiscal 1993 was $4.6 million compared with $1.5
million the prior year. The increase was principally due to the
16
<PAGE> 17
elimination of that portion of the rent paid ($3.7 million) on the properties
purchased, October 1, 1992, which was allocated to and offset rental income,
net the prior year. Depreciation expense allocated to rental income, net
increased approximately $.7 million in fiscal 1993, due to the purchase of
these properties.
INCOME FROM OPERATIONS
Income from operations for the year ended September 25, 1993 increased
55.0% to $34.5 million, or 3.0% of sales, compared with $22.3 million, or 2.1%
of sales, the prior year. The increase was due to the increase in sales
combined with lower operating and administrative expenses (as a percentage of
sales) and the increase in rental income, net.
OTHER INCOME (EXPENSE), NET
Other income (expense), net decreased from $2.4 million in fiscal 1992
to $1.1 million in fiscal 1993 due primarily to the loss of the amortization of
the deferred gain ($.7 million) as a result of the real estate transaction
referred to above. In addition, gains on the sale of assets in fiscal 1992
were $.8 million; gains in fiscal 1993 were $.6 million.
INCOME BEFORE INTEREST AND INCOME TAXES
Income before interest and income taxes was $35.6 million, or 3.1% of
sales, in fiscal 1993 compared with $24.6 million, or 2.3% of sales, the prior
year.
INTEREST EXPENSE
Interest expense increased from $16.2 million in fiscal 1992 to $17.3
million in fiscal 1993 primarily due to an increase in debt to finance the
purchase of the properties referred to above. The expense associated with the
increase in debt was somewhat offset by lower interest rates in fiscal 1993
versus the prior fiscal year.
INCOME BEFORE INCOME TAXES
Income before income taxes increased $9.9 million to $18.3 million, or
1.6% of sales, in fiscal 1993 compared with $8.4 million, or .8% of sales, the
prior year.
INCOME TAXES
Income tax expense, as a percentage of pre-tax income, was 36.1% in
1993 compared with 34.7% in 1992 due primarily to the increase in the federal
income tax rate.
NET INCOME
Net income for the year ended September 25, 1993 increased $6.2
million, to $11.7 million, up 112.8% over income of $5.5 million the prior
year. Primary earnings per common share rose from $.31 to $.65.
17
<PAGE> 18
LIQUIDITY AND CAPITAL RESOURCES
FISCAL 1994
OPERATING ACTIVITIES
Net cash provided by operating activities for the year ended September
24, 1994 totalled $40.3 million. Depreciation and amortization expense was
$22.5 million. Accounts payable and accrued expenses increased $6.2 million.
Accounts payable-trade accounted for $4.4 million of this increase. Salaries,
wages and bonuses payable increased $1.1 million. In addition to the normal
annual increase in salaries and wages, bonuses accrued this year were more
because the Company had a more profitable year.
INVESTING ACTIVITIES
Net cash used by investing activities during fiscal 1994 totalled
$67.6 million. Capital expenditures aggregated $68.9 million. The Company's
capital expenditure program was devoted primarily to obtaining land for new
store locations, the construction of new facilities, the renovation and
modernization of existing stores and the installation of electronic scanning
systems in 23 stores. Proceeds from sales of property and equipment (primarily
the sale of outparcels of land located adjacent to shopping centers owned by
the Company) were $1.3 million.
FINANCING ACTIVITIES
Net cash provided by financing activities totalled $28.1 million.
Proceeds from the issuance of long-term debt were $51.7 million. The Company
obtained four loans: two from an insurance company in the principal amounts of
$12.0 million and $5.5 million on September 30, 1993 and June 30, 1994,
respectively; one from a bank in the principal amount of $13.0 million on July
21, 1994; and a loan from a credit corporation in the principal amount of $21.0
million on September 23, 1994. The proceeds of the loans were used to reduce
short-term borrowings under existing bank lines of credit, which were used to
finance the purchase on October 1, 1992, of twenty-two (22) shopping center
properties and one (1) free standing store which were previously subject to a
sale-leaseback arrangement, to finance capital expenditures and for general
corporate purposes. Proceeds from short-term loans, net totalled $7.0 million.
Principal payments of long-term debt were $21.0 million. The Company paid cash
dividends of $9.6 million.
ACTIVITY/PROFITABILITY RATIOS
Favorable inventory turnover rates (cost of sales/inventory) in 1994
of 9.2 (compared with 8.8 in 1993) helped generate cash flow from operations.
Return on assets (income before the cumulative effect of the change in
accounting principle/total assets) increased from 2.6% in 1993 to 3.3% in 1994.
Return on investment (income before the cumulative effect of the change in
accounting principle/average stockholders' equity) improved significantly to
10.8% compared to 8.1% the prior year.
FINANCIAL STRENGTH
The Company remains in sound financial condition. At September 24,
1994, total assets were $506.6 million and stockholders' equity was $158.0
million compared with $456.5 million and $147.7 million, respectively, at
year-end, September 25, 1993. Working capital at September 24, 1994
18
<PAGE> 19
totalled $25.6 million.
CAPITAL REQUIREMENTS
The Company resumed its store expansion, remodel and/or replacement
program in fiscal 1994 and plans to continue this program in fiscal 1995.
During fiscal 1995, the Company expects to open seven new stores. Currently,
nineteen stores are in the process of being expanded, remodeled and/or
replaced - sixteen of which are expected to be completed in fiscal 1995. The
Company expects to invest approximately $28 million in these projects.
Construction is currently underway to add a 310,000 square foot
addition to the Company's existing warehouse facility which will accommodate an
expanded inventory of perishable goods (200,000 square feet) and increase dry
grocery storage space (110,000 square feet). The projected completion date is
September 1995. The total cost of the site work and building is expected to be
approximately $12 million.
The Company expects to invest an additional $10 million in upgrading
and replacing existing store equipment, installing electronic scanning systems
in new and existing stores, purchasing additional equipment required in
connection with the expansion of the existing warehouse facility and securing
sites for future store locations.
Fiscal 1995 capital expenditures, in the aggregate, are expected to be
approximately $50 million. Some of the expenditures that will be incurred
toward fiscal year-end will relate to assets that will be placed in service in
fiscal 1996.
FINANCIAL RESOURCES
At September 24, 1994, the Company had lines of credit with six banks
totalling $105 million; of this amount $55 million was unused. The Company
monitors its cash position daily and makes draws or repayments on its lines of
credit. The lines provide the Company with various interest rate options of no
more than prime rate, LIBOR plus a specified margin or such lower pricing as
the bank may elect to bid from time to time. The Company is not required to
maintain compensating balances in connection with these lines of credit. The
Company has unencumbered property with a net book value of approximately $200
million which is available to collateralize additional debt.
During October 1994, the Company obtained two long-term bank loans: a
$20 million loan at an interest rate of 8.9% and a $10 million loan at an
interest rate of 7.95%. A portion of the proceeds from these loans was used to
reduce short-term borrowings outstanding at September 24, 1994.
The Company believes that the financial resources available, including
amounts available under long-term financing arrangements, existing bank lines
of credit and internally generated funds, will be sufficient to meet planned
capital expenditures and working capital requirements for the foreseeable
future, including any debt servicing required by additional borrowings.
QUARTERLY CASH DIVIDENDS
At their quarterly meeting on December 3, 1993, the Company's Board of
Directors voted to increase the Company's regular quarterly cash dividends
19
<PAGE> 20
100%. Effective with dividends paid December 27, 1993, the dividends were
increased from $.0825 (eight and one-quarter cents) per share on Class A Common
Stock to $.165 (sixteen and one-half cents) per share and from $.075 (seven and
one-half cents) per share on Class B Common Stock to $.15 (fifteen cents) per
share for an annual rate of $.66 and $.60 per share, respectively.
The Company expects to continue the payment of regular dividends on a
quarterly basis at the rates approved December 3, 1993. The Board of
Directors, however, reconsiders the declaration of dividends periodically, and
there can be no assurance as to the declaration of or the amount of dividends
to be paid. The payment of dividends is subject to the discretion of the Board
of Directors and will depend upon the results of operations, the financial
condition of the Company and other factors which the Board of Directors deems
relevant.
FISCAL 1993
MAJOR ACQUISITION OF ASSETS
On October 1, 1992, the Company purchased twenty-two shopping center
properties and one free standing store containing approximately 1.7 million
square feet of retail space which were leased to Ingles and anchored by
supermarkets operated by the Company. These properties were previously sold by
the Company in December 1986 for $58.3 million, in connection with a sale-
leaseback transaction.
The purchase price for these properties, $55.6 million, was paid with
existing cash ($10.6 million) and by short-term borrowings under existing bank
lines of credit ($45.0 million) at interest rates below the prime rate.
The Company believed the properties were undervalued considering the
depressed real estate market at the time of purchase. Other factors considered
by the Company in connection with the purchase were the sales price of these
properties in 1986, anticipated cash flow, tenants and terms of leases in
place, occupancy rates, the physical condition and location of the properties
and the Company's desire to undertake a renovation and modernization program on
some of the locations which could best be accomplished through direct
ownership.
The unamortized portion of the deferred gain (approximately $10.0
million) that resulted from the 1986 sale-leaseback transaction reduced the
cost of the properties acquired for financial reporting purposes. The
transaction reduced the Company's rental expense $6.4 million, increased
interest expense approximately $2.5 million, increased depreciation expense
$1.4 million and decreased the amortization of the deferred gain that resulted
from the 1986 transaction $.7 million. The net effect after income taxes of
the transaction increased net income in fiscal 1993 approximately $1.1 million
or $.06 per common share.
OPERATING ACTIVITIES
Net cash provided by operating activities in fiscal 1993 totalled
$49.5 million. Depreciation and amortization expense was $20.8 million.
Accounts payable and accrued expenses increased $18.7 million. Of this amount,
accounts payable-trade accounted for $14.3 million of the increase. The
increase in accounts payable-trade was due to a substantial increase in
construction in progress toward year-end and a substantial increase in
20
<PAGE> 21
warehouse inventory during the month of September 1993. Warehouse inventory
was reduced during the month of August 1993 to facilitate re-racking of a
portion of the warehouse facility. Accrued expenses increased $4.4 million
primarily due to: (a) an increase in salaries, wages and bonuses payable; (b)
an increase in property, payroll and other taxes payable and (c) an increase in
worker's compensation self-insurance reserves. The Company changed its pay
week in fiscal 1993 from Sunday through Saturday to Wednesday through Tuesday
which resulted in an increase in accrued salaries and wages at year-end.
Annual bonuses accrued were more because the Company had a more profitable
year. The increase in property, payroll and other taxes payable was due to the
increase in salaries, wages and bonuses payable and increases in property
taxes payable.
INVESTING ACTIVITIES
Net cash used by investing activities in fiscal 1993 totalled $86.4
million. Capital expenditures aggregated $87.3 million of which $55.6 million
was used to purchase the shopping center properties discussed above. The
balance of the Company's capital expenditure program was devoted primarily to
construction of new facilities, renovation and modernization of existing
stores, the installation of electronic scanning systems in 21 stores and
expenditures on new stores and remodels which became operational in
fiscal 1994. Proceeds from sales of property and equipment (primarily the sale
of outparcels of land located adjacent to shopping centers owned by the
Company) were $.9 million.
FINANCING ACTIVITIES
Net cash provided by financing activities totalled $29.9 million. The
Company paid cash dividends of $4.1 million. The Company borrowed $45.0
million under existing short-term bank lines of credit to finance the purchase
of the shopping center properties - $9.0 million of which was converted to
long-term debt in fiscal 1993. During the year ended September 25, 1993, the
Company repaid $1.0 million, net of the $45.0 million originally borrowed to
purchase the shopping center properties. Principal payments of long-term debt
totalled $10.1 million. During fiscal 1993, excluding borrowings under
existing bank lines of credit to finance the purchase of the properties
discussed above, the Company financed its capital expenditures, debt repayments
and the payment of cash dividends through internally generated funds.
ACTIVITY RATIOS
Favorable inventory turnover rates (cost of sales/inventory) in 1993
of 8.8 (compared with 8.1 in 1992) helped generate cash flow from operations.
Return on assets (net income/total assets) increased from 1.4% in 1992 to 2.6%
in 1993. Return on investment (net income/average stockholders' equity)
improved significantly to 8.1% compared to 4.0% the prior year.
FISCAL 1992
OPERATING ACTIVITIES
Net cash provided by operating activities totalled $23.1 million.
Depreciation and amortization expense was $19.6 million. In the fourth
quarter, the Company received an advance payment of $6.3 million on a purchases
contract (See Note 7 to the Consolidated Financial Statements).
21
<PAGE> 22
INVESTING ACTIVITIES
Net cash used by investing activities totalled $15.0 million. Capital
expenditures were $16.4 million. The Company's capital expenditure program was
devoted primarily to construction of new facilities and renovation and
modernization of existing ones. During fiscal 1992, the Company opened six new
stores, closed six older stores and sold one store. Several existing stores
were remodeled or were in the process of being remodeled. Electronic scanning
systems were installed in seventeen stores. Proceeds from sales of property
and equipment of $1.4 million consisted primarily of the sale of outparcels of
land located adjacent to shopping centers operated by the Company.
FINANCING ACTIVITIES
Net cash provided by financing activities was $1.9 million. The
Company paid cash dividends of $3.7 million. The Company monitors its cash
position daily and makes draws or repayments on its lines of credit, as
required. The net increase in long-term debt and short-term loans was
comprised of the following:
Proceeds from an insurance company
loan, secured by store equipment. . . . . . . . . . $ 10.2 million
Proceeds from a bank loan, secured
by warehouse equipment. . . . . . . . . . . . . . . 10.0 million
Proceeds from long-term bank line
of credit . . . . . . . . . . . . . . . . . . . . . 165.0 million
Principal payments, under bank
line of credit. . . . . . . . . . . . . . . . . . . (167.5) million
Other principal payments of
long-term debt. . . . . . . . . . . . . . . . . . . (10.7) million
-------
$ 7.0 million
=======
IMPACT OF INFLATION
Inflation in food prices continues to be lower than the overall
increase in the Consumer Price Index. Ingles primary costs, inventory and
labor, increase with inflation. Recovery of these costs has to come from
improved operating efficiencies and, to the extent possible, through improved
gross margins.
IMPACT OF SFAS 112
In November 1992, the Financial Accounting Standards Board issued a
new standard (SFAS 112), "Employers' Accounting for Post Employment Benefits".
The statement must be adopted by the Company no later than the fiscal year
ending September 1995. The effect of adopting the standard is not expected to
be material to the Company's financial position or results of operations.
22
<PAGE> 23
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following consolidated financial statements of the Company are included on
pages 28 through 46 of this report on Form 10-K:
Report of Ernst & Young LLP
Consolidated Balance Sheets as of September 24, 1994, and September
25, 1993;
Consolidated Statements of Income for the years ended September 24,
1994, September 25, 1993, and September 26, 1992;
Consolidated Statements of Changes in Stockholders' Equity for the
years ended September 24, 1994, September 25, 1993, and September 26,
1992;
Consolidated Statements of Cash Flows for the years ended September
24, 1994, September 25, 1993, and September 26, 1992;
Notes to Consolidated Financial Statements;
Selected quarterly financial data required by this Item is included in
Note 13 on page 45 through 46 of the Consolidated Financial
Statements.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
23
<PAGE> 24
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this Item is incorporated herein by reference from
the data under the heading "ELECTION OF DIRECTORS" in the Proxy Statement to be
used in connection with the solicitation of proxies for the Company's annual
meeting of stockholders to be held February 21, 1995, to be filed with the
Commission.
Item 11. EXECUTIVE COMPENSATION
The information required by this Item is incorporated herein by reference from
the data under the heading "EXECUTIVE COMPENSATION" in the Proxy Statement to
be used in connection with the solicitation of proxies for the Company's annual
meeting of stockholders to be held February 21, 1995, to be filed with the
Commission.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is incorporated herein by reference from
the data under the heading "VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF" in
the Proxy Statement to be used in connection with the solicitation of proxies
for the Company's annual meeting of stockholders to be held February 21, 1995,
to be filed with the Commission.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is incorporated herein by reference from
the data under the headings "EXECUTIVE COMPENSATION - Additional Information
with Respect to Compensation Committee Interlocks and Insider Participation in
Compensation Decisions" and "CERTAIN RELATIONSHIPS AND RELATED PARTY
TRANSACTIONS" in the Proxy Statement to be used in connection with the
solicitation of proxies for the Company's annual meeting of stockholders to be
held February 21, 1995, to be filed with the Commission.
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Documents filed as part of this report:
1. The following financial statements of the Registrant are
included in response to Item 8 of this 10-K:
Consolidated Balance Sheets as of September 24, 1994, and
September 25, 1993;
Consolidated Statements of Income for the years ended September 24,
1994, September 25, 1993, and September 26, 1992;
Consolidated Statements of Changes in Stockholders' Equity for the
years ended September 24, 1994, September 25, 1993, and September 26,
1992;
Consolidated Statements of Cash Flows for the years ended September
24, 1994, September 25, 1993, and September 26, 1992;
24
<PAGE> 25
Notes to Consolidated Financial Statements.
2. The following financial statement schedules of the Registrant
required by Item 8 and Item 14(d) of Form 10-K are included as pages
47 through 50 of this report:
Schedule V - Supplemental schedule of consolidated property and
equipment;
Schedule VI - Supplemental schedule of consolidated accumulated
depreciation and amortization;
Schedule VIII - Supplemental schedule of valuation and qualifying
accounts; and
Schedule IX - Supplemental schedule of short-term borrowings.
All other schedules for which provision is made in the applicable
accounting regulations 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 required by Item 601 of Regulation S-K and
Item 14(c) of Form 10-K are filed herewith or incorporated by
reference as indicated.
EXHIBIT NUMBER AND DESCRIPTION
3.1 Articles of Incorporation of Ingles Markets, Incorporated, as amended.
(Included as Exhibit 3.1 to Registrant's S-1 Registration Statement,
File No. 33-23919, previously filed with the Commission and
incorporated herein by this reference.)
3.2 By-laws of Ingles Markets, Incorporated. (Included as Exhibit 3.2 to
Registrant's Annual Report on Form 10-K for the fiscal year ended
September 24, 1988, File No. 0-14706, previously filed with the
Commission and incorporated herein by this reference.)
4.1 Indenture between Registrant and Connecticut National Bank (including
specimen Debenture as Exhibit A). (Included as Exhibit 4.1 to the
Registrant's Annual Report on Form 10-K for the fiscal year ended
September 24, 1988, File No. 0-14706, previously filed with the
Commission and incorporated herein by this reference.)
4.2 Letters dated October 11, 1990 to the Registrant's Board of Directors
from Kidder, Peabody & Co. Incorporated and Wheat First Butcher &
Singer relating to interest rate reset under Debentures. (Included as
Exhibit 4.2 to Registrant's Annual Report on Form 10-K for the fiscal
year ended September 29, 1990, File No. 0-14706, previously filed with
the Commission and incorporated herein by this reference.)
4.3 See Exhibits 3.1 and 3.2 for provisions of Articles of Incorporation,
as amended and By-laws of Registrant defining rights of holders of
capital stock of Registrant.
25
<PAGE> 26
10.1 Ingles Markets, Incorporated 1987 Employee Incentive Stock Option
Plan. (Incorporated by reference to Exhibit 10.7 from Registrant's
Registration Statement on Form S-1, File 33-16160, which was filed
with the Commission and became effective on September 22, 1987.)
(MANAGEMENT CONTRACT OR COMPENSATORY PLAN OR ARRANGEMENT REQUIRED TO
BE FILED AS AN EXHIBIT TO THIS REPORT ON FORM 10-K PURSUANT TO ITEM
14(C) OF FORM 10-K.)
10.2 Ingles Markets, Incorporated Employee Profit Sharing Plan and Trust.
(Incorporated by reference to Exhibit 10.8 from Registrant's
Registration Statement on Form S-1, File 33-16160, which was filed
with the Commission and became effective on September 22, 1987.)
(MANAGEMENT CONTRACT OR COMPENSATORY PLAN OR ARRANGEMENT REQUIRED TO
BE FILED AS AN EXHIBIT TO THIS REPORT ON FORM 10-K PURSUANT TO ITEM
14(C) OF FORM 10-K.)
10.3 Restatement and Amendment by the Entirety of the 1983 Stock Option
Plan of Ingles Markets, Incorporated. (Incorporated by reference to
Exhibit 10.10 from Registrant's Registration Statement on Form S-1,
File 33-16160, which was filed with the Commission and became
effective on September 22, 1987.)
(MANAGEMENT CONTRACT OR COMPENSATORY PLAN OR ARRANGEMENT REQUIRED TO
BE FILED AS AN EXHIBIT TO THIS REPORT ON FORM 10-K PURSUANT TO ITEM
14(C) OF FORM 10-K.)
10.4 (Intentionally Deleted)
10.5 Loan Agreement between the Registrant and Metropolitan Life Insurance
Company dated March 21, 1990. (Included as Exhibit 19 to
Registrant's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1990, File 0-14706, previously filed with the Commission
and incorporated herein by this reference.)
10.6 Ingles Markets, Incorporated 1991 Nonqualified Stock Option Plan.
(Included as Exhibit 10.7 to Registrant's Annual Report on Form 10-K
for the fiscal year ended September 28, 1991, File No. 0-14706,
previously filed with the Commission and incorporated herein by this
reference.)
(MANAGEMENT CONTRACT OR COMPENSATORY PLAN OR ARRANGEMENT REQUIRED TO
BE FILED AS AN EXHIBIT TO THIS REPORT ON FORM 10-K PURSUANT TO ITEM
14(C) OF FORM 10-K.)
10.7 Amended and Restated Employment Agreement Between the Company and
Robert P. Ingle dated as of September 26, 1993. (Attached hereto as
Exhibit 10.7.)
(MANAGEMENT CONTRACT OR COMPENSATORY PLAN OR ARRANGEMENT REQUIRED TO
BE FILED AS AN EXHIBIT TO THIS REPORT ON FORM 10-K PURSUANT TO ITEM
14(C) OF FORM 10-K.)
26
<PAGE> 27
10.8 Stock Option Agreement Between the Company and Robert P. Ingle,
Chairman of the Board of Directors and Chief Executive Officer of the
Company, dated as of July 21, 1993. (Included as Exhibit 10.8 to
Registrant's Annual Report on Form 10-K for the fiscal year ended
September 25, 1993, File No. 0-14706, previously filed with the
Commission and incorporated herein by this reference.)
(MANAGEMENT CONTRACT OR COMPENSATORY PLAN OR ARRANGEMENT REQUIRED TO
BE FILED AS AN EXHIBIT TO THIS REPORT ON FORM 10-K PURSUANT TO ITEM
14(C) OF FORM 10-K.)
10.9 Stock Option Agreement Between the Company and Landy B. Laney,
President and Chief Operating Officer of the Company, dated as of
July 21, 1993. (Included as Exhibit 10.9 to Registrant's Annual
Report on Form 10-K for the fiscal year ended September 25, 1993,
File No. 0-14706, previously filed with the Commission and
incorporated herein by this reference.)
(MANAGEMENT CONTRACT OR COMPENSATORY PLAN OR ARRANGEMENT REQUIRED TO
BE FILED AS AN EXHIBIT TO THIS REPORT ON FORM 10-K PURSUANT TO ITEM
14(C) OF FORM 10-K.)
10.10 Letter of Understanding dated September 8, 1992 between the Company
and IRT. (Included as Exhibit B to Registrant's Current Report on
Form 8-K dated October 1, 1992, File No. 0-14706, previously filed
with the Commission and incorporated herein by this reference.)
11 Statement Regarding Computation of Earnings Per Common Share.
12 Statement Regarding Computation of Ratio of Earnings to Fixed
Charges.
21 Subsidiaries of the Registrant.
23 Consent of Ernst & Young LLP.
27 Financial Data Schedule (for SEC use only).
- -------------------------------------
(b) The Registrant did not file any current reports on Form 8-K
during the fourth quarter of its fiscal year ending September
24, 1994.
(c) Exhibits - The response to this portion of Item 14 is
submitted as a separate section of this report.
(d) Financial Statement Schedules - The response to this portion
of Item 14 is submitted as a separate section of this report.
27
<PAGE> 28
INDEPENDENT AUDITOR'S REPORT
Report of Independent Auditors
Stockholders and Board of Directors
Ingles Markets, Incorporated
We have audited the accompanying consolidated balance sheets of Ingles Markets,
Incorporated and subsidiaries as of September 24, 1994 and September 25, 1993,
and the related consolidated statements of income, changes in stockholders'
equity, and cash flows for each of the three years in the period ended
September 24, 1994. Our audits also included the financial statement schedules
listed in the Index at Item 14(a). These financial statements and schedules
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements and schedules 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 consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial possition of
Ingles Markets, Incorporated and subsidiaries at September 24, 1994 and
September 25, 1993, and the consolidated results of their operations and their
cash flows for each of the three years in the period ended September 24, 1994,
in conformity with generally accepted accounting principles. Also, in our
opinion, the related financial statement schedules, when considered in relation
to the basic financial statements taken as a whole, present fairly in all
material respects the information set forth therein.
As discussed in Note 2 to the consolidated financial statements, in 1994 the
Company changed its method of accounting for income taxes.
ERNST & YOUNG LLP
November 17, 1994
28
<PAGE> 29
INGLES MARKETS, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 24, 1994 AND SEPTEMBER 25, 1993
- ---------------------------------------------
------------- -------------
ASSETS 1994 1993
------------- -------------
CURRENT ASSETS:
Cash . . . . . . . . . . . . . . . . . . . $ 18,471,011 $ 17,720,151
Receivables (less allowance for doubtful
accounts of $95,953 - 1994 and
$100,000 - 1993) . . . . . . . . . . . . . 16,663,805 14,043,992
Inventories . . . . . . . . . . . . . . . . 103,937,450 101,718,841
Other . . . . . . . . . . . . . . . . . . . 2,428,014 2,833,268
------------- -------------
Total current assets . . . . . . . . . . . 141,500,280 136,316,252
PROPERTY AND EQUIPMENT - Net . . . . . . . 359,670,105 312,516,161
OTHER ASSETS . . . . . . . . . . . . . . . 5,422,702 7,716,358
------------- -------------
TOTAL ASSETS . . . . . . . . . . . . . . . $ 506,593,087 $ 456,548,771
============= =============
See notes to consolidated financial statements.
29
<PAGE> 30
INGLES MARKETS, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 24, 1994 AND SEPTEMBER 25, 1993
- ---------------------------------------------
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY 1994 1993
------------ ------------
CURRENT LIABILITIES:
Short-term loans and current
portion of long-term liabilities. . . . . . $ 29,678,057 $ 43,832,239
Accounts payable and accrued expenses. . . . 86,259,579 80,049,770
------------ ------------
Total current liabilities . . . . . . . . . 115,937,636 123,882,009
DEFERRED GAINS ON SALE LEASEBACKS . . . . . - 148,486
DEFERRED INCOME TAXES . . . . . . . . . . . 18,626,161 21,815,873
LONG-TERM LIABILITIES. . . . . . . . . . . . 214,056,944 163,013,274
------------ ------------
Total liabilities . . . . . . . . . . . . . 348,620,741 308,859,642
------------ ------------
STOCKHOLDERS' EQUITY
- --------------------
Preferred stock, $.05 par value;
10,000,000 shares authorized;
no shares issued
Common stocks:
Class A, $.05 par value; 150,000,000
shares authorized;
1994-4,412,167 shares issued and
outstanding
1993-4,310,855 shares issued and
outstanding . . . . . . . . . . . . . . . 220,609 215,543
Class B, $.05 par value; 100,000,000
shares authorized;
1994-13,491,983 shares issued and
outstanding
1993-13,592,845 shares issued and
outstanding . . . . . . . . . . . . . . . 674,599 679,642
Paid-in capital in excess of par value . . . 48,599,088 48,594,115
Retained earnings. . . . . . . . . . . . . . 108,478,050 98,199,829
------------ ------------
Total stockholders' equity . . . . . . . . . 157,972,346 147,689,129
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY . . . . . . . . . . . . . . . . . . $506,593,087 $456,548,771
============ ============
See notes to consolidated financial statements.
30
<PAGE> 31
INGLES MARKETS, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FISCAL YEARS ENDED SEPTEMBER 24, 1994,
SEPTEMBER 25, 1993 AND SEPTEMBER 26, 1992
- ---------------------------------------------
<TABLE>
<CAPTION>
-------------- -------------- --------------
1994 1993 1992
-------------- -------------- --------------
<S> <C> <C> <C>
NET SALES $1,233,496,726 $1,141,800,153 $1,066,332,399
COST OF GOODS SOLD 958,434,847 891,208,237 831,292,968
-------------- -------------- --------------
GROSS PROFIT 275,061,879 250,591,916 235,039,431
OPERATING AND ADMINISTRATIVE
EXPENSES 239,834,915 220,714,164 214,274,180
RENTAL INCOME, NET 6,397,040 4,629,792 1,491,998
-------------- -------------- --------------
INCOME FROM OPERATIONS 41,624,004 34,507,544 22,257,249
OTHER INCOME (EXPENSE), NET 1,844,525 1,078,790 2,363,305
-------------- -------------- --------------
INCOME BEFORE INTEREST AND INCOME TAXES
AND CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLE 43,468,529 35,586,334 24,620,554
INTEREST EXPENSE 17,296,406 17,285,113 16,196,409
-------------- -------------- --------------
INCOME BEFORE INCOME TAXES AND CUMULATIVE
EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE 26,172,123 18,301,221 8,424,145
-------------- -------------- --------------
INCOME TAXES:
Current 9,400,000 4,800,000 1,900,000
Deferred 200,000 1,800,000 1,025,000
-------------- -------------- --------------
9,600,000 6,600,000 2,925,000
-------------- -------------- --------------
INCOME BEFORE CUMULATIVE EFFECT
OF CHANGE IN ACCOUNTING PRINCIPLE 16,572,123 11,701,221 5,499,145
CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLE FOR INCOME TAXES 3,334,860 - -
-------------- -------------- --------------
NET INCOME $ 19,906,983 $ 11,701,221 $ 5,499,145
============== ============== ==============
PER-SHARE AMOUNTS:
Earnings per common share:
Primary earnings per common
share before cumulative effect
of change in accounting principle $ .90 $ .65 $ .31
Cumulative effect of change in
accounting principle for income taxes .18 - -
-------------- -------------- --------------
Primary earnings per common share $ 1.08 $ .65 $ .31
============== ============== ==============
Fully diluted earnings per common
share before cumulative effect of
change in accounting principle $ .86 $ .64 $ .31
Cumulative effect of change in
accounting principle for income taxes .15 - -
-------------- -------------- --------------
Fully diluted earnings per common share $ 1.01 $ .64 $ .31
============== ============== ==============
Cash dividends per common share:
Class A $ .5775 $ .2475 $ .22
-------------- -------------- --------------
Class B $ .5250 $ .2250 $ .20
-------------- -------------- --------------
</TABLE>
See notes to consolidated financial statements.
31
<PAGE> 32
INGLES MARKETS, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FISCAL YEARS ENDED SEPTEMBER 24, 1994, SEPTEMBER 25, 1993
AND SEPTEMBER 26, 1992
<TABLE>
<CAPTION>
PAID-IN
CLASS A CLASS B CAPITAL IN
...COMMON STOCK... ...COMMON STOCK... EXCESS OF RETAINED
SHARES AMOUNT SHARES AMOUNT PAR VALUE EARNINGS TOTAL
--------- -------- ---------- -------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE,
SEPTEMBER 28, 1991. 4,270,675 $213,534 13,633,025 $681,651 $48,594,115 $ 88,790,937 $138,280,237
NET INCOME . . . . . - - - - - 5,499,145 5,499,145
CASH DIVIDENDS . . . - - - - - (3,666,380) (3,666,380)
COMMON STOCK
CONVERSIONS . . . . 22,072 1,103 (22,072) (1,103) - - -
--------- -------- ---------- -------- ----------- ------------ ------------
BALANCE,
SEPTEMBER 26, 1992. 4,292,747 214,637 13,610,953 680,548 48,594,115 90,623,702 140,113,002
NET INCOME . . . . . - - - - - 11,701,221 11,701,221
CASH DIVIDENDS . . . - - - - - (4,125,094) (4,125,094)
COMMON STOCK
CONVERSIONS . . . . 18,108 906 (18,108) (906) - - -
--------- -------- ---------- -------- ----------- ------------ ------------
BALANCE,
SEPTEMBER 25, 1993. 4,310,855 215,543 13,592,845 679,642 48,594,115 98,199,829 147,689,129
NET INCOME . . . . . - - - - - 19,906,983 19,906,983
CASH DIVIDENDS . . . - - - - - (9,628,762) (9,628,762)
CONVERSION OF
CONVERTIBLE
SUBORDINATED
DEBENTURES. . . . . 450 23 - - 4,973 - 4,996
COMMON STOCK
CONVERSIONS . . . . 100,862 5,043 (100,862) (5,043) - - -
--------- -------- ---------- -------- ----------- ------------ ------------
BALANCE,
SEPTEMBER 24, 1994. 4,412,167 $220,609 13,491,983 $674,599 $48,599,088 $108,478,050 $157,972,346
========= ======== ========== ======== =========== ============ ============
</TABLE>
See notes to consolidated financial statements.
32
<PAGE> 33
INGLES MARKETS, INCORPORATED AND SUBSIDIARIES
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
FISCAL YEARS ENDED SEPTEMBER 24, 1994, SEPTEMBER 25, 1993
AND SEPTEMBER 26, 1992
- ---------------------------------------- ------------ ----------- -----------
1994 1993 1992
------------ ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $19,906,983 $11,701,221 $ 5,499,145
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization expense 22,496,341 20,838,311 19,577,367
Cumulative effect of change in
accounting principle for income taxes (3,334,860) - -
Amortization of deferred gains (14,144) (27,334) (715,860)
Gains on disposals of property and
equipment (747,060) (503,796) (758,887)
Loss on repurchase of Convertible
Subordinated Debentures - - 19,120
(Recognition) receipt of advance
payment on purchases contract (834,469) (823,050) 6,250,000
Deferred income taxes 200,000 1,800,000 1,025,000
Increase in receivables (2,577,393) (2,365,350) (1,302,901)
(Increase) decrease in inventory (2,218,609) 1,112,913 (1,604,578)
Decrease (increase) in other assets 1,197,040 (997,289) (39,853)
Increase (decrease) in accounts payable
and accrued expenses 6,209,809 18,715,593 (4,817,842)
----------- ----------- ----------
NET CASH PROVIDED BY
OPERATING ACTIVITIES 40,283,638 49,451,219 23,130,711
----------- ----------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of property and
equipment 1,288,904 897,887 1,404,511
Capital expenditures (68,921,873) (87,293,822) (16,357,783)
----------- ----------- -----------
NET CASH (USED) BY
INVESTING ACTIVITIES (67,632,969) (86,395,935) (14,953,272)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt 51,744,393 9,100,000 185,231,164
Proceeds (payments) of short-term loans,
net 7,000,000 35,000,000 (2,500,000)
Principal payments of long-term debt (21,020,436) (10,053,583) (175,701,581)
Conversion of Convertible Subordinated
Debentures 4,996 - -
Repurchase of Convertible Subordinated
Debentures - - (1,421,000)
Dividends paid (9,628,762) (4,125,094) (3,666,380)
----------- ----------- -----------
NET CASH PROVIDED BY FINANCING
ACTIVITIES 28,100,191 29,921,323 1,942,203
----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH 750,860 (7,023,393) 10,119,642
Cash at Beginning of Year 17,720,151 24,743,544 14,623,902
----------- ----------- -----------
CASH AT END OF YEAR $18,471,011 $17,720,151 $24,743,544
=========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
33
<PAGE> 34
INGLES MARKETS, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Fiscal years ended September 24, 1994, September 25, 1993
and September 26, 1992
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION - The consolidated financial statements include the
accounts of Ingles Markets, Incorporated and its wholly-owned subsidiaries, Sky
King, Inc., Ingles Markets Investments, Inc. and Milkco, Inc. (collectively,
the "Company"). All significant intercompany balances and transactions have
been eliminated in consolidation.
FISCAL YEAR - The Company's fiscal year ends on the last Saturday in September.
Fiscal years 1994, 1993 and 1992 each consisted of 52 weeks.
CASH EQUIVALENTS - All highly liquid investments with a maturity of three
months or less when purchased are considered cash.
FINANCIAL INSTRUMENTS - The Company has overnight investments and short-term
certificates of deposit included in cash. The Company's policy is to invest
its excess cash nightly either in reverse repurchase agreements or in
commercial paper. Commercial paper is not secured; reverse repurchase
agreements are secured by government obligations. At September 24, 1994, all
investments were in certificates of deposit totaling $4,087,137. Certificates
of deposit and demand deposits of approximately $12,500,000 in 22 banks exceed
the $100,000 insurance limit per bank.
INVENTORIES - Warehouse inventories are valued at the lower of average cost or
market. Store inventories are valued at FIFO using the retail method.
PROPERTY, EQUIPMENT AND DEPRECIATION - Property and equipment are stated at
cost and depreciated over the estimated useful lives (principally 5 to 30
years) of the various classes of assets by the straight-line method.
SELF-INSURANCE - Self-insurance reserves are established for workers'
compensation and employee group medical and dental benefits based on claims
filed and claims incurred but not reported. The Company is insured for covered
costs in excess of certain limits.
INCOME TAXES - Effective September 26, 1993, the Company adopted FASB Statement
No. 109, "Accounting for Income Taxes". Under Statement 109, the liability
method is used in accounting for income taxes. Under this method, deferred tax
assets and liabilities are determined based on differences between financial
reporting and tax bases of assets and liabilities and are measured using the
currently enacted tax rates.
PRE-OPENING COSTS - Costs associated with the opening of new stores are
expensed when the stores are opened.
DEFERRED GAIN AMORTIZATION - Deferred gains on sale leaseback transactions are
amortized and included in other income (expense), net using the straight-line
method over the lives of the respective leases.
RECLASSIFICATIONS - Certain amounts for 1993 and 1992 have been reclassified
for comparative purposes.
34
<PAGE> 35
INGLES MARKETS, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Fiscal years ended September 24, 1994, September 25, 1993
and September 26, 1992
PER-SHARE AMOUNTS - Primary earnings per common share is computed by dividing
consolidated net income by the weighted average number of shares of common
stock and dilutive common stock equivalent shares outstanding during the
period. Fully diluted earnings per common share gives effect to the assumed
conversion, if dilutive, of the Convertible Subordinated Debentures, after
elimination of related interest expense, net of the bonus and income tax
effect.
2. INCOME TAXES
CHANGE IN METHOD OF ACCOUNTING FOR INCOME TAXES - Effective September 26, 1993,
the Company adopted FASB Statement No. 109, "Accounting for Income Taxes".
Under Statement 109, the liability method is used in accounting for income
taxes. Under this method, deferred tax assets and liabilities are determined
based on differences between financial reporting and tax bases of assets and
liabilities and are measured using the currently enacted tax rates. Prior to
the adoption of Statement 109, income tax expense was determined using the
deferred method. Deferred tax expense was based on items of income and expense
that were reported in different years in the financial statements and tax
returns and were measured at the tax rate in effect in the year the difference
originated.
As permitted by Statement 109, the Company has elected not to restate the
financial statements of any prior years. The effect of the change on pre-tax
income for the year ended September 24, 1994 was not material; however, the
cumulative effect of the change increased net income by $3,334,860 or $.18 per
common share.
Significant components of the Company's deferred tax liabilities and assets as
of September 24, 1994 were as follows:
Deferred tax liabilities:
Tax over book depreciation . . . . . . . . . . . . . $22,652,000
Property tax method. . . . . . . . . . . . . . . . . 243,000
-----------
Total deferred tax liabilities . . . . . . . . . . 22,895,000
-----------
Deferred tax assets:
Excess of tax basis over financial reporting
basis of property and equipment. . . . . . . . . . 3,971,000
Insurance reserves . . . . . . . . . . . . . . . . . 1,605,000
Other. . . . . . . . . . . . . . . . . . . . . . . . 629,000
-----------
Total deferred tax assets. . . . . . . . . . . . . 6,205,000
-----------
Net deferred tax liabilities . . . . . . . . . . . $16,690,000
===========
INCOME TAX EXPENSE - Income tax expense is different from the amounts computed
by applying the statutory federal rates to income before income taxes. The
reasons for the differences are as follows:
LIABILITY METHOD Deferred Method
---------------- ------------------------
1994 1993 1992
---------- ---------- ----------
Federal tax at statutory rate . . $9,160,243 $6,405,427 $2,864,209
State income tax, net of
federal tax benefits . . . . . 685,377 360,475 93,378
Other . . . . . . . . . . . . . . (245,620) (165,902) (32,587)
---------- ---------- ----------
Total . . . . . . . . . . . . . . $9,600,000 $6,600,000 $2,925,000
========== ========== ==========
35
<PAGE> 36
INGLES MARKETS, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Fiscal years ended September 24, 1994, September 25, 1993
and September 26, 1992
Income tax payments of $9,769,130, $4,194,801 and $2,189,481 were made during
fiscal years 1994, 1993 and 1992, respectively. Income taxes payable of
$1,059,090 at September 24, 1994 and $1,428,220 at September 25, 1993 are
included in the accompanying balance sheets in accounts payable and accrued
expenses.
Current and deferred income tax expense are as follows:
---------- ---------- ----------
1994 1993 1992
---------- ---------- ----------
Current:
Federal . . . . . . . . . . . . $8,400,000 $4,300,000 $1,725,000
State . . . . . . . . . . . . . 1,000,000 500,000 175,000
----------- ---------- ----------
Total current . . . . . . 9,400,000 4,800,000 1,900,000
---------- ---------- ----------
Deferred:
Depreciation . . . . . . . . . 355,000 1,730,000 237,000
Deferred gains . . . . . . . . 48,000 130,000 601,000
Self-insurance reserves . . . . 12,000 (251,000) 35,000
Property taxes. . . . . . . . . (26,000) 423,000 357,000
Other . . . . . . . . . . . . . (189,000) (232,000) (205,000)
---------- ---------- ----------
Total deferred . . . . . 200,000 1,800,000 1,025,000
---------- ---------- ----------
Total expense . . . . . . . . . $9,600,000 $6,600,000 $2,925,000
========== ========== ==========
Current deferred income tax benefits of $1,960,690 and $2,015,542 for 1994 and
1993, respectively, included in other current assets, result from timing
differences arising from vacation pay, bad debts and self-insurance reserves
and from capitalization of certain overhead costs in inventory for tax
purposes.
3. PROPERTY AND EQUIPMENT
Property and equipment, net consist of the following:
------------- -------------
SEPTEMBER 24, September 25,
1994 1993
------------- -------------
Land . . . . . . . . . . . . . . . . $ 74,303,692 $ 64,153,586
Construction in progress . . . . . . 24,402,728 6,399,813
Buildings . . . . . . . . . . . . . 190,585,670 169,912,445
Store, office and warehouse
equipment . . . . . . . . . . . . 176,245,189 157,132,479
Transportation equipment . . . . . . 10,499,783 10,070,641
Property under capital leases. . . . 151,264 402,084
Leasehold improvements . . . . . . . 33,737,527 33,863,864
------------- -------------
Total. . . . . . . . . . . . . . . . 509,925,853 441,934,912
Less accumulated depreciation and
amortization. . . . . . . . . . . . 150,255,748 129,418,751
------------- -------------
Property and equipment,net . . . . . $ 359,670,105 $ 312,516,161
============= =============
On October 1, 1992, the Company purchased twenty-two shopping center properties
and one free-standing store, all of which were leased to the Company and
contained supermarkets operated by the Company. These properties were
36
<PAGE> 37
INGLES MARKETS, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Fiscal years ended September 24, 1994, September 25, 1993
and September 26, 1992
previously sold by the Company in December 1986, in connection with a
sale-leaseback transaction. The purchase price was approximately $56,000,000.
The unamortized portion of the deferred gain of approximately $10,000,000 that
resulted from the 1986 sale-leaseback transaction reduced the cost of the
properties acquired for financial reporting purposes.
The Company currently maintains general liability and automobile insurance
coverages with a $25,000 deductible per claim. Excess liability coverages are
also maintained. The Company maintains casualty insurance only on those
properties where it is required to do so. The Company has elected to
self-insure its other properties, including four aircraft used in its business,
which are not covered by casualty or liability insurance.
4. PROPERTY HELD FOR LEASE AND RENTAL INCOME
At September 24, 1994, the Company owned and operated 70 shopping centers in
conjunction with its supermarket activities. The Company leases to others a
portion of its shopping center properties. The leases are noncancelable
operating lease agreements for periods ranging up to twenty-five years.
Substantially all leases covering retail properties provide for one or more
renewal periods and for percentage rentals based upon gross sales of the
lessee.
Rental income, net included in the accompanying consolidated statements of
income consists of the following:
----------- ----------- -----------
1994 1993 1992
----------- ----------- -----------
Rents earned on owned and
subleased properties:
Base rentals including lease
termination payments. . . . $ 9,398,680 $ 7,576,190 $ 6,948,242
Contingent rentals. . . . . . 428,712 382,919 389,268
----------- ----------- -----------
Total. . . . . . . . . . . 9,827,392 7,959,109 7,337,510
Depreciation on owned
properties leased to others . . (2,438,373) (2,402,905) (1,456,776)
Rent expense on subleased
properties . . . . . . . . . . . - - (3,591,886)
Other shopping center expenses . . (991,979) (926,412) (796,850)
----------- ----------- -----------
Total. . . . . . . . . . . . . $ 6,397,040 $ 4,629,792 $ 1,491,998
=========== =========== ===========
Owned properties leased to others under operating leases by major classes is as
follows:
--------------
September 24,
1994
--------------
Land . . . . . . . . . . . . . . . . . . . . . . . $ 24,947,248
Buildings . . . . . . . . . . . . . . . . . . . . . 66,760,409
------------
Total . . . . . . . . . . . . . . . . . . . . . . 91,707,657
Less accumulated depreciation . . . . . . . . . . . 14,059,098
------------
Property leased to others, net . . . . . . . . . . $ 77,648,559
============
37
<PAGE> 38
INGLES MARKETS, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Fiscal years ended September 24, 1994, September 25, 1993
and September 26, 1992
The above amounts are included in the respective captions at Note 3.
The following is a schedule of minimum future rental income on noncancelable
operating leases as of September 24, 1994:
FISCAL YEAR
-----------
1995 . . . . . . . . . . . . . . . . . . . . . . . $ 6,567,648
1996 . . . . . . . . . . . . . . . . . . . . . . . 5,833,939
1997 . . . . . . . . . . . . . . . . . . . . . . . 4,981,816
1998 . . . . . . . . . . . . . . . . . . . . . . . 4,213,093
1999 . . . . . . . . . . . . . . . . . . . . . . . 3,345,829
Thereafter . . . . . . . . . . . . . . . . . . . . 19,359,046
-----------
Total minimum future rental income . . . . . . . . . $44,301,371
===========
5. LEASES AND RENTAL EXPENSE
The Company conducts part of its retail operations from leased facilities. The
initial terms of the leases expire at various times over the next twenty years.
The majority of the leases include one or more renewal options and provide that
the Company pay property taxes, utilities, repairs and certain other costs
incidental to occupation of the premises. Several leases contain clauses
calling for percentage rentals based upon gross sales of the supermarket
occupying the leased space.
OPERATING LEASES - The following schedule shows the composition of total rental
expense for all operating leases:
----------- ----------- -----------
1994 1993 1992
----------- ----------- -----------
Base rentals . . . . . . . . . . . $11,891,759 $11,823,460 $17,892,170
Contingent rentals . . . . . . . . 124,593 148,274 201,033
Rent expense on property
subleased to others . . . . . . . - - (3,591,886)
----------- ----------- -----------
Total. . . . . . . . . . . . . . . $12,016,352 $11,971,734 $14,501,317
=========== =========== ===========
Rent expense, excluding rent expense on properties subleased to others, is
included in operating and administrative expenses. Rent expense on properties
subleased to others reduces net rental income (Note 4).
The aggregate minimum rental commitments under noncancelable operating leases
as of September 24, 1994 are as follows:
FISCAL YEAR
-----------
1995 . . . . . . . . . . . . . . . . . . . . . . . . $ 11,454,149
1996 . . . . . . . . . . . . . . . . . . . . . . . . 11,537,749
1997 . . . . . . . . . . . . . . . . . . . . . . . . 11,400,924
1998 . . . . . . . . . . . . . . . . . . . . . . . . 11,275,291
1999 . . . . . . . . . . . . . . . . . . . . . . . . 11,133,789
Thereafter . . . . . . . . . . . . . . . . . . . . . 89,406,792
------------
Total minimum future rental commitments. . . . . . . . $146,208,694
============
38
<PAGE> 39
INGLES MARKETS, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Fiscal years ended September 24, 1994, September 25, 1993
and September 26, 1992
6. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consist of the following:
SEPTEMBER 24, September 25,
1994 1993
------------- -------------
Accounts payable-trade . . . . . . . . . $ 62,135,297 $ 57,679,269
Property, payroll, and
other taxes payable . . . . . . . . . 7,189,278 6,526,695
Salaries, wages, and bonuses payable . . 6,825,605 5,765,393
Other . . . . . . . . . . . . . . . . . . 10,109,399 10,078,413
------------- -------------
Total . . . . . . . . . . . . . . . . . . $ 86,259,579 $ 80,049,770
============= =============
7. LONG-TERM LIABILITIES AND SHORT-TERM LOANS
Long-term liabilities and short-term loans are summarized as follows:
SEPTEMBER 24, September 25,
1994 1993
------------- -------------
Long-term debt:
10% Convertible Subordinated
Debentures, maturing 2008. . . . . . . . $ 37,459,000 $ 37,464,000
------------- -------------
Notes payable:
Real estate:
Weighted average interest rate of 9.98%,
maturing 1995-2015 . . . . . . . . . . 94,276,011 98,313,487
Equipment:
Interest rate of 8.41%,
maturing 1999 . . . . . . . . . . . . 21,000,000 -
Interest rate at the average weekly yield
of one month commercial paper plus 1.9%,
maturing 1997-1999 . . . . . . . . . . 21,907,040 8,381,504
Interest at the prime rate less 1/2%,
with a maximum rate of 8.75% over the
life of the loan, maturing 1997. . . . 5,333,324 7,333,328
Other:
Interest at certain LIBOR rates plus
1-1/8% to 1-1/4%, maturing 1996 . . . . 30,000,000 -
Interest at the prime rate less 1/2%,
maturing 1995. . . . . . . . . . . . . - 9,000,000
Interest rate at 8.65%, maturing 1995. . 3,750,000 5,625,000
------------- -------------
176,266,375 128,653,319
------------- -------------
Short-term loans, interest rates at less
than the prime rate. . . . . . . . . . . . 25,000,000 35,000,000
------------- -------------
Other long-term liabilities:
Advance payment received on purchases
contract . . . . . . . . . . . . . . . . 4,592,481 5,426,950
Other. . . . . . . . . . . . . . . . . . . 417,145 301,244
------------- -------------
Total . . . . . . . . . . . . . . . . . . 5,009,626 5,728,194
------------- -------------
Total long-term liabilities and short-term
loans . . . . . . . . . . . . . . . . . . 243,735,001 206,845,513
Less current portion . . . . . . . . . . . . 29,678,057 43,832,239
------------- -------------
Long-term liabilities, net of current
portion . . . . . . . . . . . . . . . . . $ 214,056,944 $ 163,013,274
============= =============
39
<PAGE> 40
INGLES MARKETS, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Fiscal years ended September 24, 1994, September 25, 1993
and September 26, 1992
The Company has repurchased $14,771,000 of the Convertible Subordinated
Debentures (the "Debentures") and $5,000 of the Debentures have been converted
into Class A Common Stock of the Company as of September 24, 1994.
The Debentures are unsecured and subordinated in right of payment to all
existing and future Senior Indebtedness (as defined by the Indenture) of the
Company. Interest is payable semi-annually on April 15 and October 15.
The Debentures are convertible into Class A Common Stock of the Company at any
time prior to maturity or redemption at $11.10 per share, subject to adjustment
under certain conditions.
Mandatory annual redemption payments equal to 7% of the original principal
amount ($52,235,000) of the Debentures are required commencing October 15, 1998
and are calculated to retire 70% of the issue prior to maturity. The Company
may deliver Debentures, including converted and repurchased Debentures, in lieu
of cash as a credit against mandatory redemption payments.
The Debentures are redeemable at any time, in whole or in part, at the option
of the Company under certain conditions.
During October 1994, the Company obtained two long-term bank loans: a
$20,000,000 loan at an interest rate of 8.90% and a $10,000,000 loan at an
interest rate of 7.95%. A portion of the proceeds from these loans was used to
reduce short-term borrowings outstanding at September 24, 1994. Short-term
borrowings under lines of credit totalling $15,000,000 have been reclassified
to long-term liabilities at September 24, 1994 pursuant to this refinancing.
At September 24, 1994, property and equipment with an undepreciated cost of
approximately $124 million was pledged as collateral for long-term debt. Loan
agreements relating to certain debt contain various provisions which, among
other things, set minimum stockholders' equity balances. The most restrictive
of these provisions at September 24, 1994, has the effect of restricting funds
available for dividends to approximately $13.0 million.
At September 24, 1994, the Company had unused lines of credit of $55 million.
The lines provide the Company with various interest rate options of no more
than prime rate, LIBOR plus a specified margin or such lower pricing as the
bank may elect to bid from time to time.
Components of interest costs are as follows:
----------- ----------- -----------
1994 1993 1992
----------- ----------- -----------
Total interest costs . . . . $18,184,443 $17,535,853 $16,496,628
Interest capitalized . . . . 888,037 250,740 300,219
----------- ----------- -----------
Interest expense . . . . . . $17,296,406 $17,285,113 $16,196,409
=========== =========== ===========
Interest payments (net of amounts capitalized) were $16,979,825 for 1994,
$17,325,002 for 1993, and $16,338,563 for 1992.
40
<PAGE> 41
INGLES MARKETS, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Fiscal years ended September 24, 1994, September 25, 1993
and September 26, 1992
ADVANCE PAYMENT RECEIVED ON PURCHASES CONTRACT - During fiscal 1992, the
Company entered into a contract to purchase certain products. Under the
contract, the supplier paid the Company $7,250,000 of which $1,000,000 was
earned upon contract signing. The remaining $6,250,000 is earned as product is
purchased. The unearned portion, included in other long-term liabilities, will
be recognized as product is purchased. If the agreement is canceled, the
Company must refund the unearned portion of the payment.
Maturities of long-term liabilities at September 24, 1994 are as follows:
FISCAL YEAR
-----------
1995 . . . . . . . . . . . . . . . . . . . . . . . $ 29,678,057
1996 . . . . . . . . . . . . . . . . . . . . . . . 50,040,101
1997 . . . . . . . . . . . . . . . . . . . . . . . 16,751,432
1998 . . . . . . . . . . . . . . . . . . . . . . . 13,001,768
1999 . . . . . . . . . . . . . . . . . . . . . . . 10,897,922
Thereafter . . . . . . . . . . . . . . . . . . . . 123,365,721
------------
Total $243,735,001
============
8. STOCKHOLDERS' EQUITY
The Company has two classes of Common Stock: Class A and Class B. Class A
Common Stock is traded on the Nasdaq Stock Market (National Market) under the
symbol IMKTA. There is no public market for the Company's Class B Common
Stock. However, each share of Class B Common Stock is convertible at any time,
at the option of the holder, into one share of Class A Common Stock. Upon any
transfers of Class B Common Stock (other than to immediate family members and
the Investment/Profit Sharing Plan), such stock is automatically converted into
Class A Common Stock.
The holders of the Class A Common Stock and Class B Common Stock are entitled
to dividends and other distributions as and when declared out of assets legally
available therefor, subject to the dividend rights of any Preferred Stock that
may be issued in the future. Each share of Class A Common Stock is entitled to
receive a cash dividend and liquidation payment in an amount equal to 110% of
any cash dividend or liquidation payment on Class B Common Stock. Any stock
dividend must be paid in shares of Class A Common Stock with respect to Class A
Common Stock and in shares of Class B Common Stock with respect to Class B
Common Stock.
The voting powers, preferences and relative rights of Class A Common Stock and
Class B Common Stock are identical in all respects, except that the holders of
Class A Common Stock have one vote per share and the holders of Class B Common
Stock have ten votes per share. In addition, holders of Class A Common Stock,
as a separate class, are entitled to elect 25% of all directors constituting
the Board of Directors (rounded to the nearest whole number). As long as the
Class B Common Stock represents at least 12.5% of the total outstanding Common
Stock of both classes, holders of Class B Common Stock, as a separate class,
are entitled to elect 75% of the directors.
41
<PAGE> 42
INGLES MARKETS, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Fiscal years ended September 24, 1994, September 25, 1993
and September 26, 1992
The Preferred Stock may be issued by the Board of Directors from time to time,
without stockholder approval, in one or more series for such consideration and,
within certain limits, with such relative rights and preferences as the Board
may determine. Accordingly, the Board has the power to set the dividend rate
and to establish the provisions, if any, relating to voting rights, redemption
rates, sinking funds, liquidation preferences, and conversion rights for any
series of Preferred Stock issued in the future.
EARNINGS PER COMMON SHARE - Weighted average number of common shares used to
compute earnings per share is as follows:
---------- ---------- ----------
1994 1993 1992
---------- ---------- ----------
Primary . . . . . . . . . . 18,386,557 17,969,971 17,903,700
Fully diluted . . . . . . . 21,792,770 21,345,107 21,378,244
9. EMPLOYEE BENEFIT PLANS
EMPLOYEES' INVESTMENT/PROFIT SHARING PLAN - The purpose of the qualified profit
sharing plan is to provide retirement benefits to eligible employees. Assets
of the plan, including the Company's Common Stock, are held in trust for
employees and distributed upon retirement, death, disability or other
termination of employment. Company contributions are discretionary and are
determined annually by the Board of Directors. On February 2, 1994, a 401(k)
feature was added to the Profit Sharing Plan. The Profit Sharing Plan
including the 401(k) feature was renamed the Ingles Markets, Incorporated
Investment/Profit Sharing Plan. Company contributions for fiscal 1994 were
allocated only to employees participating in the 401(k) portion of the plan.
Company contributions to the plan, included in operating and administrative
expenses, were $452,195 for 1994, $775,000 for 1993, and $750,000 for 1992.
CASH BONUS PLAN - The Company pays monthly bonuses to various managerial
personnel based on performance of the operating units controlled by these
personnel. Except for certain employees who receive monthly bonuses, annual
bonuses based on pre-tax, pre-bonus income are paid to all employees who worked
the entire fiscal year. The Company has a discretionary bonus plan for certain
executive officers providing for bonuses upon attainment of certain operating
goals. Operating and administrative expenses include bonuses of $3,602,687,
$2,842,329 and $2,111,466 for 1994, 1993 and 1992, respectively.
STOCK OPTIONS PLANS - The Company has stock option plans under which options
may be issued to salaried employees who are officers or are employed in an
executive, administrative, managerial or professional capacity by the Company.
The Company's stock option plans provide that stock may be issued at a price of
not less than 100% of fair market value of the Company's Class A Common Stock
at the date of the grant of the option. The options may be exercised within a
period of three months after five years from the date of issue or upon death,
disability or retirement. Information with respect to each stock option plan
is as follows:
42
<PAGE> 43
INGLES MARKETS, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Fiscal years ended September 24, 1994, September 25, 1993
and September 26, 1992
1983 NONQUALIFIED STOCK OPTION PLAN - The Company had a stock option plan under
which an aggregate of 750,000 shares of the Company's Class B Common Stock were
issuable to qualified employees as nonqualified stock options until December
22, 1988.
As of September 26, 1992, all of the outstanding options under this plan
expired and had been canceled. Information with respect to options canceled
and outstanding follows:
SHARES
UNDER OPTION PRICE
OPTION PER SHARE TOTAL
-------- ------------- ----------
Outstanding,
September 28, 1991 . . . 34,500 $10.00 $ 345,000
Canceled . . . . . . . . (34,500) 10.00 (345,000)
-------- ----------
Outstanding,
September 26, 1992 . . . 0 $ 0
======== ==========
1987 EMPLOYEE INCENTIVE STOCK OPTION PLAN - The Company has an incentive stock
option plan under which an aggregate of 250,000 shares of the Company's Class A
Common Stock may be issued to qualified employees from time to time on or
before September 8, 1997. No options may be granted to any employee who owns,
at the time of the proposed grant, stock possessing more than 10% of the total
combined voting power of all classes of stock of the Company. Options that
lapse or are canceled may be reissued by the Company. As of September 24,
1994, 28,500 shares under option are exercisable. Information with respect to
options granted, canceled and outstanding follows:
SHARES
UNDER OPTION PRICE
OPTION PER SHARE TOTAL
-------- ------------- ----------
Outstanding,
September 28, 1991 . . . 106,000 $6.88-$12.75 $1,063,750
Granted . . . . . . . . 88,500 7.00 619,500
Canceled . . . . . . . . (25,000) 7.00-12.75 (228,500)
-------- ----------
Outstanding,
September 26, 1992 . . . 169,500 6.88-12.75 1,454,750
Granted . . . . . . . . 40,000 6.13 245,000
Canceled . . . . . . . . (46,000) 6.13-12.75 (432,500)
-------- ----------
Outstanding,
September 25, 1993 . . . 163,500 6.13-10.00 1,267,250
Granted . . . . . . . . 27,000 8.63 232,875
Canceled . . . . . . . . (35,500) 6.13-10.00 (323,000)
-------- ----------
OUTSTANDING,
SEPTEMBER 24, 1994 . . . 155,000 $6.13-$10.00 $1,177,125
======== ==========
1991 NONQUALIFIED STOCK OPTION PLAN - The Company has a nonqualified stock
option plan under which an aggregate of 1,000,000 shares of the Company's Class
A Common Stock may be issued to qualified employees from time to time on or
before August 6, 1996. Options that lapse or are cancelled may be reissued by
43
<PAGE> 44
INGLES MARKETS, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Fiscal years ended September 24, 1994, September 25, 1993
and September 26, 1992
the Company. No options are currently exercisable under this plan.
Information with respect to options granted, canceled and outstanding follows:
SHARES
UNDER OPTION PRICE
OPTION PER SHARE TOTAL
-------- ------------- ----------
Outstanding,
September 28, 1991 . . . 0 $ 0
Granted . . . . . . . . 499,000 $6.88 3,430,625
Canceled . . . . . . . . (3,000) 6.88 (20,625)
-------- ----------
Outstanding,
September 26, 1992 . . . 496,000 6.88 3,410,000
Granted . . . . . . . . 400,000 5.75- 6.00 2,350,000
-------- ----------
Outstanding,
September 25, 1993 . . . 896,000 5.75- 6.88 5,760,000
Granted . . . . . . . . 200,000 10.38-11.50 2,187,500
Canceled . . . . . . . . (100,000) 6.88 (687,500)
-------- ----------
OUTSTANDING,
SEPTEMBER 24, 1994 . . . 996,000 $5.75-$11.50 $7,260,000
======== ==========
STOCK OPTION AGREEMENTS WITH EXECUTIVE OFFICERS - On July 21, 1993, the Company
entered into nonqualified stock option agreements with each of Robert P. Ingle,
Chairman of the Board of Directors and Chief Executive Officer of the Company,
and Landy B. Laney, President and Chief Operating Officer of the Company, under
which an aggregate of 100,000 shares of the Company's Class A Common Stock may
be issued to each of them. The options may be exercised from time to time
until July 20, 1998 at an option price of $6.00 per share. The option may also
be exercised at any time upon the death of the optionee prior to July 20, 1998.
MEDICAL CARE PLAN - Medical and dental benefits are provided to qualified
employees under a self-insured plan. Expenses under the plan include claims
paid, administrative expenses, and an estimated liability for claims incurred
but not yet paid.
10. MAJOR SUPPLIER
A large portion of inventory is purchased from a wholesale grocery distributor.
Purchases from the distributor were approximately $207 million in 1994, $179
million in 1993 and $162 million in 1992. This distributor owns approximately
6% of the Company's Class A Common Stock and approximately 1% of the Company's
Class B Common Stock at September 24, 1994. Amounts owed to this distributor,
included in accounts payable-trade, were $3.1 million and $2.8 million at
September 24, 1994 and September 25, 1993, respectively.
11. SUPPLEMENTARY INCOME STATEMENT DATA
Operating and administrative expenses include the following:
----------- ----------- -----------
1994 1993 1992
----------- ----------- -----------
Advertising and
promotion expense . . . . . $17,129,161 $17,295,081 $18,054,830
=========== =========== ===========
44
<PAGE> 45
INGLES MARKETS, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Fiscal years ended September 24, 1994, September 25, 1993
and September 26, 1992
12. LINES OF BUSINESS
The Company operates in two lines of business: retail grocery and food sales
(principally retail sales) and shopping center rentals. Information about the
Company's operations by lines of business (in thousands) is as follows:
----------- ----------- -----------
1994 1993 1992
----------- ----------- -----------
Revenues from unaffiliated
customers:
Grocery and food sales . . . $ 1,233,497 $ 1,141,800 $ 1,066,332
Shopping center rentals. . . 9,827 7,959 7,338
Income before interest and income
taxes and cumulative effect of
change in accounting principle:
Grocery and food sales . . . 37,072 30,956 23,129
Shopping center rentals. . . 6,397 4,630 1,492
Assets:
Grocery and food sales . . . 428,944 377,242 354,672
Shopping center rentals. . . 77,649 79,307 50,316
Capital expenditures:
Grocery and food sales . . . 65,012 58,676 12,214
Shopping center rentals. . . 3,910 28,618 4,144
Depreciation and amortization:
Grocery and food sales . . . 20,058 18,435 18,120
Shopping center rentals. . . 2,438 2,403 1,457
13. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
The following is a summary of unaudited financial data regarding the Company's
quarterly results of operations. Each of the quarters in the two fiscal years
presented contain thirteen weeks.
(in thousands except earnings per common share)
------------------------------------------------------
1ST 2ND 3RD 4TH
1994 QUARTER QUARTER QUARTER QUARTER TOTAL
- ---- ------- ------- ------- ------- ----------
NET SALES . . . . .$297,875 $301,532 $313,862 $320,228 $1,233,497
GROSS PROFIT. . . . 65,377 67,977 69,644 72,064 275,062
INCOME BEFORE
CUMULATIVE EFFECT
OF CHANGE IN
ACCOUNTING
PRINCIPLE. . . . . 3,845 3,859 4,562 4,306 16,572
NET INCOME. . . . . 7,180 3,859 4,562 4,306 19,907
PRIMARY EARNINGS
PER COMMON SHARE
BEFORE CUMULATIVE
EFFECT OF CHANGE
IN ACCOUNTING
PRINCIPLE. . . . . .21 .21 .25 .23 .90
PRIMARY EARNINGS
PER COMMON SHARE . .39 .21 .25 .23 1.08
45
<PAGE> 46
Ingles Markets, Incorporated and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Fiscal years ended September 24, 1994, September 25, 1993
and September 26, 1992
(in thousands except earnings per common share)
-----------------------------------------------------
1st 2nd 3rd 4th
Quarter Quarter Quarter Quarter Total
------- ------- ------- ------- ---------
1993
- ----
Net sales . . . . . $276,557 $280,774 $289,167 $295,302 $1,141,800
Gross profit. . . . 60,293 60,810 63,752 65,737 250,592
Net income. . . . . 2,512 2,523 3,018 3,648 11,701
Primary earnings
per common share . .14 .14 .17 .20 .65
14. LITIGATION
Various legal proceedings and claims arising in the ordinary course of business
are pending against the Company. In the opinion of management, the ultimate
liability, if any, from all pending legal proceedings and claims would not
materially affect the Company's financial position or the results of its
operations.
15. FAIR VALUES OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used by the Company in estimating
its fair value disclosures for financial instruments:
Cash and cash equivalents: The carrying amount reported in the
balance sheet for cash and cash equivalents approximates its fair
value.
Receivables: The carrying amount reported in the balance sheet for
receivables approximates its fair value.
Long and short-term debt: The carrying amounts of the Company's
short-term borrowings approximate their fair value. The fair values
of the Company's long-term debt are based on quoted market prices,
where available, or discounted cash flow analyses, based on the
Company's current incremental borrowing rates for similar types of
borrowing arrangements.
The carrying amounts and fair values of the Company's financial instruments at
September 24, 1994 are as follows (amounts in thousands):
Carrying Amount Fair Value
--------------- ----------
Cash and cash equivalents. . . . . . . . . . $ 18,471 $ 18,471
Receivables. . . . . . . . . . . . . . . . . 16,664 16,664
Short-term liabilities . . . . . . . . . . . 35,000 35,000
Long-term liabilities:
10% Convertible Subordinated Debentures . 37,459 41,252
Real Estate . . . . . . . . . . . . . . . 94,276 100,875
Other . . . . . . . . . . . . . . . . . . 77,000 77,000
46
<PAGE> 47
INGLES MARKETS, INCORPORATED AND SUBSIDIARIES SEC SCHEDULE V
- ---------------------------------------------
SUPPLEMENTAL SCHEDULE OF CONSOLIDATED PROPERTY AND EQUIPMENT
- ------------------------------------------------------------
<TABLE>
<CAPTION>
BALANCE AT BALANCE AT
BEGINNING ADDITIONS END
OF YEAR AT COST TRANSFERS RETIREMENTS OF YEAR
---------- ---------- --------- ----------- ----------
<S> <C> <C> <C> <C> <C>
FISCAL YEAR ENDED SEPTEMBER 24, 1994
- ------------------------------------
Land $ 64,153,586 $ 8,937,006 $ 1,374,554 (1)(3) $ 161,454 $ 74,303,692
Construction in progress 6,399,813 33,665,225 (15,662,310)(1) 24,402,728
Buildings 169,912,445 4,629,969 16,125,412 (1)(3) 82,156 190,585,670
Store, office and warehouse equipment 157,132,479 21,137,651 2,024,941 176,245,189
Transportation equipment 10,070,641 539,504 110,362 10,499,783
Property under capital leases 402,084 250,820 151,264
Leasehold improvements 33,863,864 12,518 679,855 (1) 818,710 33,737,527
------------ ----------- ------------ ---------- ------------
TOTAL $441,934,912 $68,921,873 $ 2,517,511 (3) $3,448,443 $509,925,853
============ =========== ============ ========== ============
FISCAL YEAR ENDED SEPTEMBER 25, 1993
- ------------------------------------
Land $ 51,080,183 $13,809,657 $ (604,844)(1)(3) $ 131,410 $ 64,153,586
Construction in progress 373,791 12,393,081 (6,367,059)(1) 6,399,813
Buildings 123,484,463 37,360,508 9,067,474 (1)(2)(3) 169,912,445
Store, office and warehouse equipment 145,046,156 12,689,202 602,879 157,132,479
Transportation equipment 9,745,564 1,015,400 690,323 10,070,641
Property under capital leases 5,555,998 5,153,914 402,084
Leasehold improvements 38,356,720 (4,292,451)(1)(2) 200,405 33,863,864
------------ ----------- ------------ ---------- ------------
TOTAL $373,642,875 $77,267,848 $ (2,196,880)(3) $6,778,931 $441,934,912
============ =========== ============ ========== ============
FISCAL YEAR ENDED SEPTEMBER 26, 1992
- ------------------------------------
Land $ 49,057,629 $ 758,232 $ 1,531,561 (1)(3) $ 267,239 $ 51,080,183
Construction in progress 10,055,064 5,141,264 (14,822,537)(1) 373,791
Buildings 108,130,252 2,622,546 12,796,733 (1)(2)(3) 65,068 123,484,463
Store, office and warehouse equipment 140,692,386 6,891,231 2,537,461 145,046,156
Transportation equipment 9,856,461 928,885 1,039,782 9,745,564
Property under capital leases 6,344,681 788,683 5,555,998
Leasehold improvements 38,202,131 15,625 274,905 (1)(2) 135,941 38,356,720
------------ ----------- ------------ ---------- ------------
TOTAL $362,338,604 $16,357,783 $ (219,338)(3) $4,834,174 $373,642,875
============ =========== ============ ========== ============
</TABLE>
(1) Transfers of completed projects from construction in progress.
(2) Transfers of assets resulting from purchase of leased store.
(3) Transfer of assets held for resale from (to) other assets.
(4) The annual provisions for depreciation have been computed principally
on a straight line basis in accordance with the following ranges of lives:
Buildings 20-30 years
Store, office and warehouse equipment 5-10 years
Transportation equipment 3-8 years
Leasehold improvements term of lease
47
<PAGE> 48
INGLES MARKETS, INCORPORATED AND SUBSIDIARIES SEC SCHEDULE VI
- ---------------------------------------------
SUPPLEMENTAL SCHEDULE OF CONSOLIDATED ACCUMULATED DEPRECIATION AND AMORTIZATION
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
BALANCE AT DEPRECIATION & BALANCE AT
BEGINNING AMORTIZATION END
OF YEAR EXPENSE TRANSFERS RETIREMENTS OF YEAR
----------- ----------- --------- ------------ -----------
<S> <C> <C> <C> <C> <C>
FISCAL YEAR ENDED SEPTEMBER 24, 1994
- ------------------------------------
Buildings and leasehold improvements $ 43,660,440 $ 8,309,542 $1,253,267(1) $ 774,542 $ 52,448,707
Store, office and warehouse equipment 79,719,722 12,873,805 1,771,115 90,822,412
Transportation equipment 5,810,417 1,154,626 73,815 6,891,228
Property under capital leases 228,172 18,014 152,785 93,401
------------ ----------- ---------- ---------- ------------
TOTAL $129,418,751 $22,355,987 $1,253,267(1) $2,772,257 $150,255,748
============ =========== ========== ========== ============
FISCAL YEAR ENDED SEPTEMBER 25, 1993
- ------------------------------------
Buildings and leasehold improvements $ 36,122,636 $ 7,615,293 $ 0 $ 77,489 $ 43,660,440
Store, office and warehouse equipment 68,267,159 11,469,299 16,736 79,719,722
Transportation equipment 5,267,172 1,190,325 647,080 5,810,417
Property under capital leases 5,104,286 252,030 5,128,144 228,172
------------ ----------- ---------- ---------- ------------
TOTAL $114,761,253 $20,526,947 $ 0 $5,869,449 $129,418,751
============ =========== ========== ========== ============
FISCAL YEAR ENDED SEPTEMBER 26, 1992
- ------------------------------------
Buildings and leasehold improvements $ 30,337,892 $ 6,122,496 $ (155,083)(1) $ 182,669 $ 36,122,636
Store, office and warehouse equipment 59,561,026 10,987,124 2,280,991 68,267,159
Transportation equipment 5,091,349 1,112,029 936,206 5,267,172
Property under capital leases 4,802,648 1,090,321 788,683 5,104,286
------------ ----------- ---------- ---------- ------------
TOTAL $ 99,792,915 $19,311,970 $ (155,083)(1) $4,188,549 $114,761,253
============ =========== ========== ========== ============
</TABLE>
(1) Transfer of assets held for resale from (to) other assets.
48
<PAGE> 49
INGLES MARKETS, INCORPORATED AND SUBSIDIARIES SEC SCHEDULE VIII
- ---------------------------------------------
SUPPLEMENTAL SCHEDULE OF VALUATION AND QUALIFYING ACCOUNTS
- ----------------------------------------------------------
<TABLE>
<CAPTION>
BALANCE AT
BEGINNING OF CHARGED TO BALANCE AT
DESCRIPTION YEAR COSTS & EXPENSES DEDUCTIONS END OF YEAR
- ---------------------------------- ------------ ---------------- ---------- -----------
<S> <C> <C> <C> <C>
Fiscal Year ended September 24, 1994:
Deducted from asset accounts:
Allowance for doubtful accounts $ 100,000 $ 4,047 (1) $ 95,953
Fiscal Year ended September 25, 1993:
Deducted from asset accounts:
Allowance for doubtful accounts $ 118,000 $18,000 (1) $ 100,000
Fiscal Year ended September 26, 1992:
Deducted from asset accounts:
Allowance for doubtful accounts $ 125,000 $ 7,000 (1) $ 118,000
</TABLE>
(1) Uncollectible accounts written off, net of recoveries.
49
<PAGE> 50
INGLES MARKETS, INCORPORATED AND SUBSIDIARIES SEC SCHEDULE IX
- ---------------------------------------------
SUPPLEMENTAL SCHEDULE OF SHORT-TERM BORROWINGS
- ----------------------------------------------
Maximum Average Weighted
Weighted Amount Amount Average
Balance Average Outstanding Outstanding Interest
at End of Interest During During Rate During
Period Rate Period Period Period
---------- -------- ----------- ----------- -----------
Fiscal year ended
September 24, 1994:
Notes payable to
banks [1][2] $25,000,000 5.69% $70,000,000 $50,945,833 5.29%
Fiscal year ended
September 25, 1993:
Notes payable to
banks [1][2] $35,000,000 4.73% $51,000,000 $42,300,000 5.18%
Fiscal year ended
September 26, 1992:
Notes payable to
banks [1][2] $ 0 -- $32,000,000 $15,179,167 6.08%
[1] Notes payable to banks represent borrowings under lines of credit
arrangements.
[2] Weighted average interest rates and amounts outstanding are computed using
daily rates and balances.
50
<PAGE> 51
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.
INGLES MARKETS, INCORPORATED
By: /s/ Robert P. Ingle
-------------------------
Robert P. Ingle
Chairman of the Board and
Chief Executive Officer
Date: December 21, 1994
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:
/s/ Robert P. Ingle December 21, 1994
- ---------------------------------
Robert P. Ingle, Chairman of the
Board, Chief Executive Officer
and Director
/s/ Landy B. Laney December 21, 1994
- ---------------------------------
Landy B. Laney, President, Chief
Operating Officer and Director
/s/ Jack R. Ferguson December 21, 1994
- ---------------------------------
Jack R. Ferguson, Vice President-
Finance, Chief Financial Officer
and Director
/s/ Vaughn C. Fisher December 21, 1994
- ---------------------------------
Vaughn C. Fisher, Vice President-
Sales Manager and Director
/s/ Anthony S. Federico December 21, 1994
- ---------------------------------
Anthony S. Federico, Vice President-
Non-Foods and Director
/s/ Brenda S. Tudor December 21, 1994
- ---------------------------------
Brenda S. Tudor, CPA
Secretary and Controller
51
<PAGE> 52
EXHIBIT INDEX
3.1 Articles of Incorporation of Ingles Markets, Incorporated, as amended.
(Included as Exhibit 3.1 to Registrant's S-1 Registration Statement,
File No. 33-23919, previously filed with the Commission and
incorporated herein by this reference.)
3.2 By-laws of Ingles Markets, Incorporated. (Included as Exhibit 3.2 to
Registrant's Annual Report on Form 10-K for the fiscal year ended
September 24, 1988, File No. 0-14706, previously filed with the
Commission and incorporated herein by this reference.)
4.1 Indenture between Registrant and Connecticut National Bank (including
specimen Debenture as Exhibit A). (Included as Exhibit 4.1 to the
Registrant's Annual Report on Form 10-K for the fiscal year ended
September 24, 1988, File No. 0-14706, previously filed with the
Commission and incorporated herein by this reference.)
4.2 Letters dated October 11, 1990 to the Registrant's Board of Directors
from Kidder, Peabody & Co. Incorporated and Wheat First Butcher &
Singer relating to interest rate reset under Debentures. (Included as
Exhibit 4.2 to Registrant's Annual Report on Form 10-K for the fiscal
year ended September 29, 1990, File No. 0-14706, previously filed with
the Commission and incorporated herein by this reference.)
4.3 See Exhibits 3.1 and 3.2 for provisions of Articles of Incorporation,
as amended and By-laws of Registrant defining rights of holders of
capital stock of Registrant.
10.1 Ingles Markets, Incorporated 1987 Employee Incentive Stock Option
Plan. (Incorporated by reference to Exhibit 10.7 from Registrant's
Registration Statement on Form S-1, File 33-16160, which was filed
with the Commission and became effective on September 22, 1987.)
(MANAGEMENT CONTRACT OR COMPENSATORY PLAN OR ARRANGEMENT REQUIRED TO
BE FILED AS AN EXHIBIT TO THIS REPORT ON FORM 10-K PURSUANT TO ITEM
14(C) OF FORM 10-K.)
10.2 Ingles Markets, Incorporated Employee Profit Sharing Plan and Trust.
(Incorporated by reference to Exhibit 10.8 from Registrant's
Registration Statement on Form S-1, File 33-16160, which was filed
with the Commission and became effective on September 22, 1987.)
(MANAGEMENT CONTRACT OR COMPENSATORY PLAN OR ARRANGEMENT REQUIRED TO
BE FILED AS AN EXHIBIT TO THIS REPORT ON FORM 10-K PURSUANT TO ITEM
14(C) OF FORM 10-K.)
10.3 Restatement and Amendment by the Entirety of the 1983 Stock Option
Plan of Ingles Markets, Incorporated. (Incorporated by reference to
Exhibit 10.10 from Registrant's Registration Statement on Form S-1,
File 33-16160, which was filed with the Commission and became
effective on September 22, 1987.)
(MANAGEMENT CONTRACT OR COMPENSATORY PLAN OR ARRANGEMENT REQUIRED TO
BE FILED AS AN EXHIBIT TO THIS REPORT ON FORM 10-K PURSUANT TO ITEM
14(C) OF FORM 10-K.)
52
<PAGE> 53
EXHIBIT INDEX (CONTINUED)
10.4 (Intentionally Deleted)
10.5 Loan Agreement between the Registrant and Metropolitan Life Insurance
Company dated March 21, 1990. (Included as Exhibit 19 to Registrant's
Quarterly Report on Form 10-Q for the quarter ended March 31, 1990,
File 0-14706, previously filed with the Commission and incorporated
herein by this reference.)
10.6 Ingles Markets, Incorporated 1991 Nonqualified Stock Option Plan.
(Included as Exhibit 10.7 to Registrant's Annual Report on Form 10-K
for the fiscal year ended September 28, 1991, File No. 0-14706,
previously filed with the Commission and incorporated herein by this
reference.)
(MANAGEMENT CONTRACT OR COMPENSATORY PLAN OR ARRANGEMENT REQUIRED TO
BE FILED AS AN EXHIBIT TO THIS REPORT ON FORM 10-K PURSUANT TO ITEM
14(C) OF FORM 10-K.)
10.7 Amended and Restated Employment Agreement Between the Company and
Robert P. Ingle dated as of September 26, 1993. (Attached hereto as
Exhibit 10.7 on Page 55.)
(MANAGEMENT CONTRACT OR COMPENSATORY PLAN OR ARRANGEMENT REQUIRED TO
BE FILED AS AN EXHIBIT TO THIS REPORT ON FORM 10-K PURSUANT TO ITEM
14(C) OF FORM 10-K.)
10.8 Stock Option Agreement Between the Company and Robert P. Ingle,
Chairman of the Board of Directors and Chief Executive Officer of the
Company, dated as of July 21, 1993. (Included as Exhibit 10.8 to
Registrant's Annual Report on Form 10-K for the fiscal year ended
September 25, 1993, File No. 0-14706, previously filed with the
Commission and incorporated herein by this reference.)
(MANAGEMENT CONTRACT OR COMPENSATORY PLAN OR ARRANGEMENT REQUIRED TO
BE FILED AS AN EXHIBIT TO THIS REPORT ON FORM 10-K PURSUANT TO ITEM
14(C) OF FORM 10-K.)
10.9 Stock Option Agreement Between the Company and Landy B. Laney
President and Chief Operating Officer of the Company, dated as of July
21, 1993. (Included as Exhibit 10.9 to Registrant's Annual Report on
Form 10-K for the fiscal year ended September 25, 1993, File No.
0-14706, previously filed with the Commission and incorporated herein
by this reference.)
(MANAGEMENT CONTRACT OR COMPENSATORY PLAN OR ARRANGEMENT REQUIRED TO
BE FILED AS AN EXHIBIT TO THIS REPORT ON FORM 10-K PURSUANT TO ITEM
14(C) OF FORM 10-K.)
10.10 Letter of Understanding dated September 8, 1992 between the company
and IRT. (Included as Exhibit B to Registrant's Current Report on
Form 8-K dated October 1, 1992, File No. 0-14706, previously filed
with the Commission and incorporated herein by this reference.)
53
<PAGE> 54
EXHIBIT INDEX (CONTINUED)
11 Statement Regarding Computation of Earnings Per Common Share (page
66).
12 Statement Regarding Computation of Ratio of Earnings to Fixed Charges
(page 67).
21 Subsidiaries of the Registrant (page 68).
23 Consent of Ernst & Young LLP (page 69).
27 Financial Data Schedule (for SEC use only).
54
<PAGE> 1
EXHIBIT 10.7
AMENDED AND RESTATED
EMPLOYMENT AGREEMENT
THIS AMENDED AND RESTATED EMPLOYMENT AGREEMENT (this "Agreement") is
made and entered into effective as of the 26th day of September, 1993 (the
"Effective Date"), by and between INGLES MARKETS, INCORPORATED, a North
Carolina corporation ("Employer") and ROBERT P. INGLE ("Employee").
W I T N E S S E T H T H A T:
WHEREAS, the parties have entered into an Employment Agreement (the
"Employment Agreement") dated as of December 6, 1992; and
WHEREAS, the parties desire to amend the Employment Agreement effective
with respect to all Base Salary and Bonus (each as herein defined) due on and
after the Effective Date, including, without limitation, all Bonus due with
respect to Employer's 1994 fiscal year.
WHEREAS, the parties desire to amend and restate the Employment
Agreement in its entirety.
NOW THEREFORE, the parties, for and in consideration of the mutual and
reciprocal covenants and agreements hereinafter contained, and for other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, do contract and agree as follows:
55
<PAGE> 2
1. Employment. Employer hereby employs Employee and Employee hereby
accepts employment by Employer upon all of the terms and conditions as are
hereinafter set forth.
2. Duties. Employee's duties shall include serving as the Chairman of
the Board of Directors, if elected by the shareholders of Employer and as
Chairman of the Board by the Board of Directors of Employer, and as its Chief
Executive Officer of Employer. Employee shall be responsible for the general
supervision of Employer's operations, policies and financial affairs. Employer
agrees that Employee's principal place of employment shall be located in or
near Asheville, North Carolina, unless Employee shall agree otherwise in
writing.
3. Term. The term of this Agreement (the "Term") shall commence on the
effective date, and shall continue until the earlier of (i) three (3) years
from and after the Effective Date, (ii) disability or death of Employee
pursuant to Items 10 and 11 hereof, respectively, (iii) Employer's termination
of this Agreement for cause pursuant to Item 12 hereof, or (iv) Employee's
voluntary termination of this Agreement pursuant to Item 13 hereof.
4. Base Salary. Employer agrees to pay Employee, and Employee agrees
to accept from Employer, in payment for services rendered by Employee and work
to be performed by him under the terms of this Agreement, a "Base Salary" to be
determined by the Audit/Compensation Committee of Employer's Board of Directors
or any other committee of Employer's Board of Directors responsible for
compensation matters (the "Compensation Committee") with
56
<PAGE> 3
respect to each fiscal year of Employer during the Term of this Agreement (an
"applicable fiscal year") and, if earned, a Bonus, as provided in Item 5
hereof. The Base Salary for each applicable fiscal year shall not be less than
the Base Salary paid to Employee by Employer during the immediately preceding
fiscal year. Employee's Base Salary for Employer's 1993 fiscal year was One
Hundred Seventy Thousand and No/100 Dollars ($170,000.00). Employee's Base
Salary for Employer's 1994 fiscal year shall be One Hundred Seventy Thousand
and No/100 Dollars ($170,000.00). Employee's Base Salary for Employer's 1995
fiscal year shall be Two Hundred Thousand and No/100 Dollars ($200,000.00).
The Base Salary shall be paid to Employee no less frequently than monthly.
5. Bonus. Employer agrees to pay to Employee a bonus (a "Bonus") if
(a) certain financial results are achieved by Employer during an applicable
fiscal year commencing with the Employer's 1995 fiscal year and (b) the
Compensation Committee determines that payment of such Bonus is appropriate.
Employee acknowledges that he is not entitled to be paid a Bonus pursuant
hereto with respect to the Employer's 1993 and 1994 fiscal years. The Bonus
shall be determined and, if earned, shall be paid as follows:
A. Employer shall determine Employer's consolidated annual pre-tax
income for Employer's 1994 fiscal year and each subsequent applicable fiscal
year in accordance with generally accepted accounting principles as reflected
in the Company's audited financial statements but without regard to (i) any
cash bonus due Employee hereunder with respect to such applicable
57
<PAGE> 4
fiscal year and (ii) any unusual, nonrecurring or infrequent item or items of
income or expense with respect to such applicable fiscal year which the
Compensation Committee determines should not be reflected in the financial
results of Employer for purposes of calculating the amount of the Bonus to
Employee. With respect to any applicable fiscal year that is 53 weeks rather
than 52 weeks long, for purposes of this Agreement, consolidated annual
pre-tax income for such applicable fiscal year shall be an amount equal to the
consolidated annual pre-tax income for such applicable fiscal year divided by
53 and then multiplied by 52. The amount of such consolidated annual pre-tax
income as so determined is referred to herein as the "adjusted annual pre-tax
income."
B. At the end of each applicable fiscal year during the Term of
this Agreement, the adjusted annual pre-tax income for such applicable fiscal
year shall be compared to the adjusted annual pre-tax income for the immediately
preceding applicable fiscal year.
C. For each full increment of $500,000 by which the adjusted
annual pre-tax income for the current applicable fiscal year exceeds the
adjusted annual pre-tax income for the immediately preceding applicable fiscal
year, Employee's Bonus shall be as follows:
<TABLE>
<CAPTION>
Income Bonus
------ -----
<S> <C>
For the first full
increment of $500,000.00 $150,000.00
For each successive full
increment of $500,000.00 $150,000.00
</TABLE>
58
<PAGE> 5
D. Notwithstanding anything in this Agreement to the contrary,
Employee's Bonus for any applicable fiscal year shall not exceed the lesser of
(a) one and one-half (1 1/2) times the amount of his Base Salary for that
applicable fiscal year or (b) such amount that, when added to all of Employee's
compensation (as defined for purposes of Section 162(m) of the Internal Revenue
Code of 1986, as amended [the "Code"] and applicable regulations promulgated
thereunder [("Treasury Regulations"]), equals the amount of any deduction cap
applicable to Employer and Employee under Section 162(m) of the Code and the
Treasury Regulations for purposes of determining the maximum amount deductible
by Employer for Employee's compensation (which for Employer's 1994 fiscal year
was $1 million of compensation).
E. Employee's Bonus may be estimated and payable in quarterly
installments and shall be adjusted, as necessary, within seventy-five (75) days
after the end of the applicable fiscal year. Employee and Employer each agree
to pay any amounts owed to the other with respect to such adjustment within a
reasonable period of time after the determination of any adjustment.
6. Advances. At any time, and from time to time, Employee may receive
advances from Employer against his Base Salary and estimated Bonus in an amount
not to exceed, at any one time, $500,000.00. Simple interest shall be
determined and charged quarter annually based upon the average outstanding
amount of such advances at the Applicable Federal Rate, as determined under
59
<PAGE> 6
Section 1274(d) of the Code and the Treasury Regulations promulgated
thereunder, for short term debts.
7. Extent of Services. Employee agrees to devote his full time and
undivided attention during normal business hours to Employer's businesses as
shall be necessary or appropriate to the business and affairs of Employer,
except for reasonable vacations and except for illness or incapacity, but
nothing in this Agreement shall preclude Employee from devoting reasonable
periods required for serving as a director or member of a committee of any
organization involving no conflict of interest with the interest of Employer
and from engaging in charitable and community activities, provided that such
activities do not materially interfere with the regular performance of his
duties and responsibilities.
8. Vacation. Employee shall be entitled to up to six (6) weeks of
vacation time with pay during each applicable fiscal year in which this
Agreement is in effect.
9. Fringe Benefits. Employee shall be entitled to participate in any
employee benefit plans or agreements maintained by Employer in accordance with
their terms, as the same may from time to time be adopted or amended, unless
Employee is otherwise excluded from such plan. Employee shall also be entitled
to perquisites, including, without limitation, an office, secretarial,
clerical and accounting staff and other fringe benefits at least equal to those
enjoyed by Employee during Employer's 1994 fiscal year. From time to time,
Employer will provide Employee personal
60
<PAGE> 7
use of Employer's aircraft and Employee shall reimburse Employer for such cost.
10. Disability. If Employee shall become mentally or physically
disabled (i.e., an illness more serious than periodic or minor illnesses or
injuries) so as to be unable to perform his duties hereunder consistently on a
full-time basis for a period of six (6) calendar months after the commencement
of such disability, he shall receive seventy-five (75%) percent of his Base
Salary for the applicable fiscal year in which such disability commenced for
the remainder of the Term of this Agreement. Employee and Employee's spouse
shall remain covered by the major medical and hospitalization insurance
provided by Employer for its employees for the remainder of their respective
lives.
11. Death. If Employee shall die during the Term of this Agreement,
then the legal representative of his estate, or his designated beneficiary, as
the case may be, shall receive seventy-five (75%) percent of his Base Salary
for the applicable year of his death for the remainder of the Term of this
Agreement. Employee's surviving spouse shall remain covered by the major
medical and hospitalization insurance provided by Employer for its employees
for the remainder of her life.
Employer and Employee agree that this Agreement shall be amended upon
the adoption by the Employer of any deferred compensation program that is to
commence upon retirement, with or without life insurance.
61
<PAGE> 8
12. Termination For Cause. Employer may terminate this Agreement for
cause and without prior notice in the event Employee shall commit any act or
acts of material dishonesty which constitute a felony for which Employee could
be incarcerated for five (5) years or more and which result or were intended to
result, directly or indirectly, in Employee's gain or personal enrichment at
Employer's expense.
13. Termination Not For Cause. Employee may, without cause, terminate
this Agreement by giving to Employer one hundred eighty (180) days' written
notice by certified U.S. mail, Return Receipt Requested, at the office of
Employer and such termination shall be effective on the one hundred eightieth
(180th) day following the date of such notice. It is further agreed that upon
Employee's resignation, except for obligations of either party to the other
which have accrued as of the date such resignation shall become effective,
Employee and Employer shall become and remain fully and finally released from
all further and future obligations in performance under this Agreement.
14. Indemnity. To the extent Employee signs or has signed any
personal guarantee or obligation with respect to any of Employer's monetary or
lease obligations, Employer hereby agrees to indemnify Employee against all
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by him with respect thereto.
15. Waiver of Breach or Violation Not Deemed Continuing. The waiver
by either party of any provision of this Agreement shall
62
<PAGE> 9
not operate as, or be construed to be, a waiver of any subsequent breach hereof.
16. Notices. Any and all notices required or permitted to be given
under this Agreement will be deemed given if in writing, upon three (3) days
following the sending of such notice by certified U.S. mail, return receipt
requested, (a) to Employee at the address indicated below Employee's signature
hereto, or, (b) to Employer, to the address of Employer's principal office in
Asheville, North Carolina. Either party shall have the right to change the
address to which notice is to be sent by written notice to the other party as
provided herein.
17. Amendment; Law Governing. This Agreement represents the entire
agreement between the parties with respect to the subject matter contained
herein, and all agreements entered into prior hereto and any attempt at oral
modification of this Agreement shall be void and of no effect. This Agreement
may be amended only by a written instrument signed by the parties hereto which
makes specific reference to this Agreement. This Agreement shall be construed
in accordance with the laws of the State of North Carolina. If any part or
portions hereof shall be determined to be invalid or illegal or unenforceable
in whole or in part, neither the validity of the remaining part of such term
nor the validity of any other Term of this Agreement shall in any way be
effected thereby.
18. Item Headings. The item headings contained in this Agreement are
for convenience only and shall in no manner be
63
<PAGE> 10
construed as a part of this Agreement.
19. Counterparts. This Agreement may be executed in counterparts,
each of which shall be deemed an original and together shall constitute one in
the same Agreement.
20. Assignment; Binding Effect. This Agreement shall inure to the
benefit of and shall be binding upon the parties hereto and their respective
executors, administrators, heirs, personal representatives, successors and
assigns, but neither this Agreement nor any right hereunder may be assigned or
transferred by either party thereto, any beneficiary or any other person, nor
be subject to alienation, anticipation, sale, pledge, encumbrance, execution,
levy or other legal process of any kind against Employee, his beneficiary or
any other person. Notwithstanding the foregoing, Employer shall assign this
Agreement to any corporation or other business entities succeeding to
substantially all the business and assets of Employer by merger, consolidation,
sale of assets, or otherwise and shall obtain the assumption of this Agreement
by such successor.
21. No Salary or Bonus Owed. Employee acknowledges that he has been
paid all amounts owed to him under the Employment Agreement and this Agreement
with respect to all fiscal years of the Employer through and including fiscal
1994 and Employee agrees to make no claim against Employer seeking the payment
of any compensation pursuant to the Employment Agreement or this Agreement with
respect to any such fiscal year.
64
<PAGE> 11
22. Amendment of Employment Agreement. This Agreement shall be deemed
to amend and restate the Employment Agreement in its entirety as of the
Effective Date.
IN WITNESS WHEREOF, Employer has hereunto caused this Agreement to
be executed by its duly authorized officers and its seal to be affixed and
Employee has hereunto set his hand and seal on the day and year first above
written.
EMPLOYEE: EMPLOYER:
INGLES MARKETS, INCORPORATED
/s/ Robert P. Ingle (SEAL) By:/s/ Landy B. Laney
- ------------------------ -----------------------------
ROBERT P. INGLE LANDY B. LANEY, President
Address:
P.O. Box 6676, Highway 70,
Asheville, N.C. 28816
Attest:/s/ Brenda S. Tudor
-------------------
BRENDA S. TUDOR,
Secretary
(CORPORATE SEAL)
65
<PAGE> 1
INGLES MARKETS, INCORPORATED AND SUBSIDIARIES
- ---------------------------------------------
COMPUTATION OF EARNINGS PER COMMON SHARE Exhibit 11
- ----------------------------------------
FISCAL YEAR ENDED SEPTEMBER
-------------------------------------
1994 1993 1992
----------- ----------- -----------
PRIMARY
Income before cumulative effect of
change in accounting principle $16,572,123 $11,701,221 $ 5,499,145
Cumulative effect of change in
accounting for income taxes 3,334,860 - -
----------- ----------- -----------
Net Income $19,906,983 $11,701,221 $ 5,499,145
=========== =========== ===========
Shares
Weighted average number of common
shares and common stock
equivalent shares outstanding 18,386,557 17,969,971 17,903,700
=========== =========== ===========
Primary earnings per common
share before cumulative effect
of change in accounting principle $ .90 $ .65 $ .31
Cumulative effect of change in
accounting for income taxes .18 - -
----------- ----------- -----------
Primary earnings per common share $ 1.08 $ .65 $ .31
=========== =========== ===========
FULLY DILUTED
Income before cumulative effect of
change in accounting principle $16,572,123 $11,701,221 $ 5,499,145
Add after tax and bonus effect of
interest expense applicable to
Convertible Subordinated
Debentures 2,081,397 2,023,308 2,122,377
----------- ----------- -----------
Fully diluted earnings before
cumulative effect of change
in accounting principle 18,653,520 13,724,529 7,621,522
Cumulative effect of change in
accounting for income taxes 3,334,860 - -
----------- ----------- -----------
Fully diluted earnings $21,988,380 $13,724,529 $ 7,621,522
=========== =========== ===========
Shares
Weighted average number of common
shares and common stock
equivalent shares outstanding 18,418,085 17,969,971 17,903,700
Additional shares assuming
conversion of Convertible
Subordinated Debentures * 3,374,685 3,375,136 3,474,544
----------- ----------- -----------
Weighted average number of common
shares outstanding as adjusted 21,792,770 21,345,107 21,378,244
=========== =========== ===========
Fully diluted earnings per common
share before cumulative effect of
change in accounting principle** $ .86 $ .64 $ .31
Cumulative effect of change in
accounting for income taxes .15 - -
----------- ----------- -----------
Fully diluted earnings per common
share $ 1.01 $ .64 $ .31
=========== =========== ===========
* Additional shares assuming conversion of the Convertible Subordinated
Debentures are computed using the weighted average of Debentures
outstanding during the period.
**The effect for the year ended September 26, 1992 of the conversion of
the Convertible Subordinated Debentures was anti-dilutive, and
therefore, the conversion was not assumed in the fully diluted
calculation for that period.
66
<PAGE> 1
INGLES MARKETS, INCORPORATED AND SUBSIDIARIES
- ---------------------------------------------
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES Exhibit 12
- -------------------------------------------------
FISCAL YEAR ENDED SEPTEMBER
--------------------------------------
1994 1993 1992 1991 1990
------ ------ ------ ------ ------
(in thousands except ratios)
Income Before Income Taxes . . . . $26,172 $18,301 $ 8,424 $16,595 $16,392
Fixed Charges . . . . . . . . . . 22,306 21,645 21,450 22,510 20,640
Less Capitalized Interest . . . . (888) (251) (300) (545) (1,010)
------- ------- ------- ------- -------
Total Earnings . . . . . . . $47,590 $39,695 $29,574 $38,560 $36,022
======= ======= ======= ======= =======
Fixed Charges
Interest Expense . . . . . . . . $17,296 $17,285 $16,196 $16,927 $14,982
Capitalized Interest . . . . . . 888 251 300 545 1,010
Amortization of Debt Expense . . 117 118 120 141 125
1/3 of Rent Expense . . . . . . 4,005 3,991 4,834 4,897 4,523
------- ------- ------- ------- -------
Total Fixed Charges . . . . . $22,306 $21,645 $21,450 $22,510 $20,640
======= ======= ======= ======= =======
Ratio of Earnings to Fixed
Charges . . . . . . . . . . . . 2.1x 1.8x 1.4x 1.7x 1.7x
67
<PAGE> 1
INGLES MARKETS, INCORPORATED AND SUBSIDIARIES
- ---------------------------------------------
SUBSIDIARIES OF THE REGISTRANT Exhibit 21
- ------------------------------
Milkco, Inc., a North Carolina corporation.
Sky King, Inc., a North Carolina corporation.
Ingles Markets Investments, Inc., a Nevada corporation.
68
<PAGE> 1
CONSENT OF ERNST & YOUNG LLP
EXHIBIT 23 -- CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement
(Form S-8 No. 33-24187) pertaining to the Ingles Markets, Incorporated 1983
Stock Option Plan and in the related Prospectus of our report dated November
17, 1994 with respect to the consolidated financial statements and schedules of
Ingles Markets, Incorporated and subsidiaries included in the Annual Report
(Form 10-K) for the year ended September 24, 1994.
ERNST & YOUNG LLP
Greenville, South Carolina
December 19, 1994
69
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
EXHIBIT 27
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED SEPTEMBER 24, 1994 AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-24-1994
<PERIOD-START> SEP-26-1993
<PERIOD-END> SEP-24-1994
<CASH> 18,471,011
<SECURITIES> 0
<RECEIVABLES> 16,759,758
<ALLOWANCES> 95,953
<INVENTORY> 103,937,450
<CURRENT-ASSETS> 141,500,280
<PP&E> 509,925,853
<DEPRECIATION> 150,255,748
<TOTAL-ASSETS> 506,593,087
<CURRENT-LIABILITIES> 115,937,636
<BONDS> 214,056,944
<COMMON> 895,208
0
0
<OTHER-SE> 157,077,138
<TOTAL-LIABILITY-AND-EQUITY> 506,593,087
<SALES> 1,233,496,726
<TOTAL-REVENUES> 1,243,324,118
<CGS> 958,434,847
<TOTAL-COSTS> 961,865,199
<OTHER-EXPENSES> (1,844,525)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 17,296,406
<INCOME-PRETAX> 26,172,123
<INCOME-TAX> 9,600,000
<INCOME-CONTINUING> 16,572,123
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 3,334,860
<NET-INCOME> 19,906,983
<EPS-PRIMARY> 1.08
<EPS-DILUTED> 1.01
</TABLE>
