<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM 10-Q
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 25, 1995
--------------
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to .
----------------- -----------------
Commission File Number 0-14706
INGLES MARKETS, INCORPORATED
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
North Carolina 56-0846267
- ------------------------------- ---------------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
P.O. Box 6676, Asheville, NC 28816
- ------------------------------- ---------------------------
(Address of principal executive (Zip Code)
offices)
Registrant's telephone number,
including area code: (704) 669-2941
---------------------------
</TABLE>
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 .
---- ----
As of May 1, 1995, the registrant had 4,474,241 shares of Class A Common Stock,
$.05 par value per share, and 13,429,909 shares of Class B Common Stock, $.05
par value per share, outstanding.
1
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INGLES MARKETS, INCORPORATED
INDEX
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
Part I - Financial Information
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets -
March 25, 1995 and
September 24, 1994 3
Consolidated Statements of Income -
Three Months Ended
March 25, 1995 and
March 26, 1994 5
Six Months Ended
March 25, 1995 and
March 26, 1994 6
Consolidated Statements of Changes in
Stockholders' Equity
Six Months Ended
March 25, 1995 and
March 26, 1994 7
Consolidated Statements of Cash Flows -
Six Months Ended
March 25, 1995 and
March 26, 1994 8
Notes to Unaudited Interim Financial Statements 9
Item 2. Management's Discussion and Analysis of
Results of Operations and Financial
Condition 12
Part II - Other Information
Item 4. Submission of Matters to a Vote of Security
Holders 18
Item 6. Exhibits and Reports on Form 8-K 18
Signatures 19
Exhibits
11 Computation of Earnings Per Common Share
Three Months Ended
March 25, 1995 and
March 26, 1994 20
Six Months Ended
March 25, 1995 and
March 26, 1994 21
27 Financial Data Schedule (for SEC use only)
</TABLE>
2
<PAGE> 3
Part I. Financial Information
Item 1. Financial Statements
INGLES MARKETS, INCORPORATED
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
MARCH 25, SEPTEMBER 24,
1995 1994
(UNAUDITED) (NOTE)
------------ -------------
<S> <C> <C>
CURRENT ASSETS
--------------
Cash $ 20,228,276 $ 18,471,011
Receivables 17,397,233 16,663,805
Inventories 110,091,729 103,937,450
Other 3,176,228 2,428,014
------------- -------------
TOTAL CURRENT ASSETS 150,893,466 141,500,280
PROPERTY AND EQUIPMENT - Net 407,827,920 359,670,105
----------------------
OTHER ASSETS 5,207,565 5,422,702
------------ ------------- -------------
TOTAL ASSETS $ 563,928,951 $ 506,593,087
============= =============
</TABLE>
NOTE: The balance sheet at September 24, 1994 has been derived from the
audited financial statements at that date.
See notes to unaudited interim financial statements.
3
<PAGE> 4
INGLES MARKETS, INCORPORATED
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONCLUDED)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
MARCH 25, SEPTEMBER 24,
1995 1994
(UNAUDITED) (NOTE)
------------ -------------
<S> <C> <C>
CURRENT LIABILITIES
-------------------
Short-term loans and current
portion of long-term liabilities $ 49,258,101 $ 29,678,057
Accounts payable and accrued
expenses 79,916,618 86,259,579
------------ ------------
TOTAL CURRENT LIABILITIES 129,174,719 115,937,636
DEFERRED INCOME TAXES 18,826,161 18,626,161
---------------------
LONG-TERM LIABILITIES 257,434,610 214,056,944
--------------------- ------------ ------------
TOTAL LIABILITIES 405,435,490 348,620,741
------------ ------------
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; 4,432,167
shares issued and outstanding
March 25, 1995; 4,412,167 shares
issued and outstanding
September 24, 1994 221,609 220,609
Class B, $.05 par value; 100,000,000
shares authorized; 13,471,983
shares issued and outstanding
March 25, 1995; 13,491,983 shares
issued and outstanding
September 24, 1994 673,599 674,599
Paid-in capital in excess of
par value 48,599,088 48,599,088
Retained earnings 108,999,165 108,478,050
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 158,493,461 157,972,346
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $563,928,951 $506,593,087
============ ============
</TABLE>
NOTE: The balance sheet at September 24, 1994 has been derived from the
audited financial statements at that date.
See notes to unaudited interim financial statements.
4
<PAGE> 5
INGLES MARKETS, INCORPORATED
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-------------------------
MARCH 25, MARCH 26,
1995 1994
------------ ------------
<S> <C> <C>
NET SALES $327,949,528 $301,531,946
COST OF GOODS SOLD 253,427,793 233,555,226
------------ ------------
GROSS PROFIT 74,521,735 67,976,720
OPERATING AND ADMINISTRATIVE
EXPENSES 66,426,402 58,793,328
RENTAL INCOME, NET 1,026,457 1,159,764
------------ ------------
INCOME FROM OPERATIONS 9,121,790 10,343,156
OTHER INCOME, NET 91,747 37,732
------------ ------------
INCOME BEFORE INTEREST
AND INCOME TAXES 9,213,537 10,380,888
INTEREST EXPENSE 5,926,406 4,321,472
------------ ------------
INCOME BEFORE
INCOME TAXES 3,287,131 6,059,416
------------ ------------
INCOME TAXES:
Current 1,400,000 1,000,000
Deferred (300,000) 1,200,000
------------ ------------
1,100,000 2,200,000
------------ ------------
INCOME BEFORE CUMULATIVE EFFECT
OF CHANGE IN ACCOUNTING PRINCIPLE 2,187,131 3,859,416
CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLE FOR INCOME TAXES - -
------------ ------------
NET INCOME $ 2,187,131 $ 3,859,416
============ ============
PER-SHARE AMOUNTS:
Earnings per common share:
Primary earnings per common
share before cumulative effect
of change in accounting principle $ .12 $ .21
Cumulative effect of change in
accounting principle for income taxes - -
------------ ------------
Primary earnings per common share $ .12 $ .21
============ ============
Fully diluted earnings per common
share before cumulative effect of
change in accounting principle $ .12 $ .20
Cumulative effect of change in
accounting principle for income taxes - -
------------ ------------
Fully diluted earnings per common share $ .12 $ .20
============ ============
Cash dividends per common share:
Class A $ .165 $ -
------------ ------------
Class B $ .150 $ -
------------ ------------
</TABLE>
See notes to unaudited interim financial statements.
5
<PAGE> 6
INGLES MARKETS, INCORPORATED
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
-------------------------
MARCH 25, MARCH 26,
1995 1994
------------ ------------
<S> <C> <C>
NET SALES $658,155,896 $599,406,544
COST OF GOODS SOLD 510,049,936 466,052,762
------------ ------------
GROSS PROFIT 148,105,960 133,353,782
OPERATING AND ADMINISTRATIVE
EXPENSES 130,186,310 115,903,638
RENTAL INCOME, NET 2,321,401 2,995,103
------------ ------------
INCOME FROM OPERATIONS 20,241,051 20,445,247
OTHER INCOME, NET 123,466 376,970
------------ ------------
INCOME BEFORE INTEREST
AND INCOME TAXES 20,364,517 20,822,217
INTEREST EXPENSE 11,039,598 8,617,672
------------ ------------
INCOME BEFORE
INCOME TAXES 9,324,919 12,204,545
------------ ------------
INCOME TAXES:
Current 3,900,000 4,000,000
Deferred (600,000) 500,000
------------ ------------
3,300,000 4,500,000
------------ ------------
INCOME BEFORE CUMULATIVE EFFECT
OF CHANGE IN ACCOUNTING PRINCIPLE 6,024,919 7,704,545
CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLE FOR INCOME TAXES - 3,334,860
------------ ------------
NET INCOME $ 6,024,919 $ 11,039,405
============ ============
PER-SHARE AMOUNTS:
Earnings per common share:
Primary earnings per common
share before cumulative effect
of change in accounting principle $ .33 $ .42
Cumulative effect of change in
accounting principle for income taxes - .18
------------ ------------
Primary earnings per common share $ .33 $ .60
============ ============
Fully diluted earnings per common
share before cumulative effect of
change in accounting principle $ .33 $ .40
Cumulative effect of change in
accounting principle for income taxes - .16
------------ ------------
Fully diluted earnings per common share $ .33 $ .56
============ ============
Cash dividends per common share:
Class A $ .33 $ .2475
------------ ------------
Class B $ .30 $ .2250
------------ ------------
</TABLE>
See notes to unaudited interim financial statements.
6
<PAGE> 7
INGLES MARKETS, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(UNAUDITED)
_____________________________________________
<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>
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 . . . . . - - - - - 11,039,405 11,039,405
CASH DIVIDENDS . . . - - - - - (4,125,577) (4,125,577)
COMMON STOCK
CONVERSIONS . . . . 84,152 4,207 (84,152) (4,207) - - -
--------- -------- ---------- -------- ----------- ------------ ------------
BALANCE,
MARCH 26, 1994. . . 4,395,007 $219,750 13,508,693 $675,435 $48,594,115 $105,113,657 $154,602,957
========= ======== ========== ======== =========== ============ ============
BALANCE,
SEPTEMBER 24, 1994. 4,412,167 $220,609 13,491,983 $674,599 $48,599,088 $108,478,050 $157,972,346
NET INCOME . . . . . - - - - - 6,024,919 6,024,919
CASH DIVIDENDS . . . - - - - - (5,503,804) (5,503,804)
COMMON STOCK
CONVERSIONS . . . . 20,000 1,000 (20,000) (1,000) - - -
--------- -------- ---------- -------- ----------- ------------ ------------
BALANCE,
MARCH 25, 1995. . . 4,432,167 $221,609 13,471,983 $673,599 $48,599,088 $108,999,165 $158,493,461
========= ======== ========== ======== =========== ============ ============
</TABLE>
See notes to unaudited interim financial statements.
7
<PAGE> 8
INGLES MARKETS, INCORPORATED
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
--------------------------
MARCH 25, MARCH 26,
1995 1994
------------ ------------
<S> <C> <C>
Cash Flows From Operating Activities:
Net income $ 6,024,919 $ 11,039,405
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization expense 12,713,323 11,028,693
Recognition of advance payment on purchases
contract (540,606) (456,325)
Amortization of deferred gains - (8,487)
Losses (gains) on disposals of property and
equipment 64,826 (8,799)
Deferred income taxes (600,000) 500,000
Cumulative effect of change in accounting
principle for income taxes - (3,334,860)
Increase in receivables (676,260) (547,800)
(Increase) decrease in inventory (6,154,279) 2,229,812
Decrease (increase) in other assets 95,520 (1,443,757)
Decrease in accounts payable
and accrued expenses (6,342,961) (9,665,382)
------------ ------------
Net Cash Provided by Operating Activities 4,584,482 9,332,500
------------ ------------
Cash Flows From Investing Activities:
Proceeds from sales of property and
equipment 55,204 18,150
Capital expenditures (60,876,933) (24,856,944)
------------ ------------
Net Cash (Used) by Investing Activities (60,821,729) (24,838,794)
------------ ------------
Cash Flows From Financing Activities:
Proceeds from issuance of long-term debt 63,650,820 25,204,876
Principal payments of long-term debt (12,652,504) (4,790,070)
Proceeds from short-term borrowings, net 12,500,000 -
Dividends paid (5,503,804) (4,125,577)
------------ ------------
Net Cash Provided By Financing Activities 57,994,512 16,289,229
------------ ------------
Net Increase in Cash 1,757,265 782,935
Cash at Beginning of Period 18,471,011 17,720,151
------------ ------------
Cash at End of Period $ 20,228,276 $ 18,503,086
============ ============
</TABLE>
See notes to unaudited interim financial statements.
8
<PAGE> 9
INGLES MARKETS, INCORPORATED
AND SUBSIDIARIES
NOTES TO UNAUDITED INTERIM FINANCIAL STATEMENTS
March 25, 1995
A. BASIS OF PREPARATION
In the opinion of management, the accompanying unaudited interim
financial statements contain all adjustments necessary to present fairly
the Company's financial position as of March 25, 1995 and September 24,
1994, and the results of operations, changes in stockholders' equity and
cash flows for the three months and six months ended March 25, 1995 and
March 26, 1994. The adjustments made are of a normal recurring nature.
Certain information and footnote disclosures normally included in the
annual financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to the rules
and regulations of the Securities and Exchange Commission for Form 10-Q.
It is suggested that these unaudited interim financial statements be read
in conjunction with the audited financial statements and the notes thereto
included in the 1994 Annual Report on Form 10-K filed by the Company under
the Securities Exchange Act of 1934 on December 21, 1994.
The results of operations for the three month and six month periods
ended March 25, 1995 are not necessarily indicative of the results to be
expected for the full fiscal year.
Certain amounts for the three month and six month periods ended March
26, 1994 have been reclassified for comparative purposes.
The fiscal year ending September 30, 1995 will contain 53 weeks. The
Company's quarters normally end on the last Saturday in the month. For
comparison purposes, the first quarter of fiscal 1995 ended on December 24,
1994 instead of December 31, 1994. The first three quarters of the fiscal
year ending September 30, 1995 will contain thirteen weeks each, while the
fourth quarter will consist of fourteen weeks.
B. EARNINGS PER COMMON SHARE
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
(18,289,829 and 18,321,171 for the three month and six month periods ended
March 25, 1995, respectively and 18,421,580 and 18,358,174 for the three
month and six month periods ended March 26, 1994, respectively).
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. The weighted average number of shares used to compute fully
diluted earnings per common share were 21,695,856 for the six months ended
March 25, 1995 and 21,796,715 and 21,733,309 for the three months and six
months ended March 26, 1994, respectively. The effect for the three month
period ended March 25, 1995 of the
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<PAGE> 10
conversion of the Convertible Subordinated Debentures was anti-dilutive
and therefore the conversion was not assumed in the fully diluted
calculation for this period.
C. ALLOWANCE FOR DOUBTFUL ACCOUNTS
Receivables are presented net of an allowance for doubtful accounts of
$125,706 and $95,953 at March 25, 1995 and September 24, 1994,
respectively.
D. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consist of the following:
<TABLE>
<CAPTION>
March 25, September 24,
1995 1994
------------ -------------
<S> <C> <C>
Accounts payable-trade $ 57,946,832 $ 62,135,297
Property, payroll, and
other taxes payable 6,612,393 7,189,278
Salaries, wages and
bonuses payable 5,018,180 6,825,605
Other 10,339,213 10,109,399
------------ -------------
$ 79,916,618 $ 86,259,579
============ =============
</TABLE>
E. LONG-TERM DEBT
During the six months ended March 25, 1995, the Company obtained
$63,650,820 in long-term loans. The proceeds were used to reduce
short-term debt, to fund capital expenditures and for general corporate
purposes. Details are as follows:
<TABLE>
<S> <C>
Equipment:
Interest rate at the average weekly
yield of one month commercial paper
plus 1.9%, maturing 1999 $14,456,277
Other:
Interest rate at 7.95%, maturing 1999 10,000,000
Interest rate at 8.90%, secured by
stock of subsidiary, Milkco, Inc.,
maturing 2001 20,000,000
Interest at certain LIBOR rates plus
a specified margin, maturing 1996 8,500,000
Interest rate at 7.75%, maturing 1996 10,000,000
Other 694,543
-----------
$63,650,820
===========
</TABLE>
On March 31, 1995, the Company obtained a $32,000,000 long-term loan
from a credit corporation at an interest rate of 8.85%. The proceeds from
this loan were used to reduce short-term borrowings outstanding at March
25, 1995. Short-term borrowings have been reclassified to long-term
liabilities at March 25, 1995 pursuant to this refinancing.
F. DIVIDENDS
The Company paid cash dividends of $.165 for each share of Class A
Common Stock and $.15 for each share of Class B Common Stock on January 9,
1995 and October 7, 1994 to stockholders of record on December 30, 1994 and
September 27, 1994, respectively.
10
<PAGE> 11
G. SUPPLEMENTARY CASH FLOW INFORMATION
Cash paid for interest and taxes is as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
-------------------------------
March 25, March 26,
1995 1994
------------ ------------
<S> <C> <C>
Interest (net of
amount capitalized) $ 10,703,817 $ 8,650,653
Income taxes 5,029,100 5,276,500
</TABLE>
H. CHANGE IN METHOD OF ACCOUNTING FOR INCOME TAXES
Effective September 26, 1993, the Company adopted FASB Statement No.
109, "Accounting for Income Taxes". As permitted by Statement 109, the
Company elected not to restate the financial statements of any prior
years. The cumulative effect of the change increased net income for the
six months ended March 26, 1994 by $3,334,860 or $.18 per common share.
11
<PAGE> 12
Item 2. Management's Discussion and Analysis of Results of Operations
and Financial Condition.
RESULTS OF OPERATIONS
The Company reports good sales growth but lower earnings in comparison
with last year's strong second quarter and year-to-date results. This year's
second quarter, in particular, was impacted by the Company's investment in
building its store base for long-term growth. In the past six (6) months, the
Company has pursued a very aggressive new store opening, expansion, remodel
and/or replacement program. During this period, the Company opened six (6) new
stores and replaced eight (8) older stores. As a consequence, weighted
average sales per store increased from $6.9 million for the fiscal year ended
September 24, 1994 to $7.1 million (on an annualized basis) for the six month
period ended March 25, 1995; total square feet of store space increased from
approximately 5.6 million to 6.0 million; average total square footage per
store increased from 31,859 to 32,984 and average square feet of selling space
per store (estimated to be 70% of total store square footage) increased from
22,301 to 23,089. New and replacement stores opened by the Company in the last
six (6) months have averaged approximately 44,000 square feet. Stores expected
to be opened, expanded, remodeled and/or replaced during the balance of fiscal
1995 will range in size from 42,000 to 52,000 square feet.
It is the Company's aim to make Ingles among the most modern supermarket
chains in the industry. The Company believes that as a result of the
aggressive new store opening, expansion, remodel and/or replacement
program, it is ensuring the continuing success of the Company which will
improve monetary returns and build stockholder value over the long-term. The
Company is excited about this program and its future.
THREE MONTHS ENDED MARCH 25, 1995 COMPARED
WITH THE THREE MONTHS ENDED MARCH 26, 1994
NET SALES
The second quarter of fiscal 1995 was the twelfth quarter in a row the Company
has reported an increase in net sales over the prior comparable quarter (on
average $21.0 million per quarter).
For the three month period ended March 25, 1995, net sales increased $26.4
million to $327.9 million, up 8.8% over sales of $301.5 million last year.
Approximately 68% of the dollar increase in sales resulted from an increase in
grocery sales, while the balance substantially resulted from increased sales in
the perishable departments. Second quarter sales were bolstered by new store
openings and increased volume in stores that were expanded, remodeled and/or
replaced. In addition, the Company continued its lower price strategy on dry
grocery goods, commenced during the third quarter of fiscal 1992, and also
continued to pursue an aggressive merchandising and pricing strategy to boost
sales in its perishable departments.
GROSS PROFIT
Gross profit for the 1995 three month period increased 9.6% to $74.5 million,
or 22.7% of sales, compared to $68.0 million, or 22.5% of sales, last year.
Grocery, meat, produce and deli/bakery gross profit, as a
12
<PAGE> 13
percentage of sales, were down slightly from the prior year due to reduced
pricing. Frozen food gross profit, as a percentage of sales, improved due to
better merchandising and an aggressive purchasing program. The Company's
wholly owned subsidiary, Milkco, Inc., expanded and increased its food service
business, which generated higher profit margins, and improved efficiency in its
plant operations.
OPERATING AND ADMINISTRATIVE EXPENSES
Operating and administrative expenses, as a percentage of sales, were 20.3%
this year compared to 19.5% last year. The percentage increase is principally
due to increases in the cost of labor at store level, increased depreciation
and amortization expense resulting from the Company's aggressive new store
opening, expansion, remodel and/or replacement program, higher advertising and
promotional expenditures and an increase in warehouse and transportation
expense primarily due to higher labor cost.
RENTAL INCOME, NET
Rental income, net decreased from $1.2 million last year to $1.0 million this
year due to slightly lower gross rental income and higher shopping center
expenses.
INCOME FROM OPERATIONS
Income from operations was $9.1 million, or 2.8% of sales, this year compared
with $10.3 million, or 3.4% of sales, last year. The decrease was primarily
due to higher operating and administrative expenses (as a percentage of sales).
INCOME BEFORE INTEREST AND INCOME TAXES
Income before interest and income taxes was $9.2 million, or 2.8% of sales, in
fiscal 1995, compared with $10.4 million, or 3.4% of sales, the prior year.
INTEREST EXPENSE
Interest expense increased from $4.3 million last year to $5.9 million this
year. The higher interest expense in fiscal 1995 is the result of an increase
in overall debt levels to fund the Company's aggressive new store opening,
expansion, remodel and/or replacement program and an increase in interest
rates.
INCOME TAXES
Income tax expense, as a percentage of pre-tax income, was 33.5% this year
compared with 36.3% last year due to lower state income tax and increased
targeted jobs tax credits.
NET INCOME
Net income for the three month period ended March 25, 1995 was $2.2 million
compared to $3.9 million last year. Primary earnings per common share declined
from $.21 last year to $.12 this year.
13
<PAGE> 14
SIX MONTHS ENDED MARCH 25, 1995 COMPARED
WITH THE SIX MONTHS ENDED MARCH 26, 1994
NET SALES
Net sales for the six month period ended March 25, 1995 increased $58.7 million
to $658.2 million, up 9.8% over sales of $599.4 million last year. Growth in
identical store sales (grocery stores open for the entire duration of the
previous year) were 6.0% despite the continuing lack of food price inflation.
Approximately 68% of the dollar increase in sales resulted from an increase in
grocery sales, while the balance resulted substantially 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 continued to pursue an aggressive merchandising and pricing strategy to
boost sales in its perishable departments. Sales also benefited from the
Company's new store opening, expansion, remodel and/or replacement program.
GROSS PROFIT
Gross profit for the 1995 six month period increased 11.1% to $148.1 million,
or 22.5% of sales, compared to $133.4 million, or 22.2% of sales, last year.
Grocery gross profit, as a percentage of sales, increased principally due to an
aggressive purchasing program. Meat and frozen food gross profit, as a
percentage of sales, improved due to better merchandising and aggressive
pricing.
OPERATING AND ADMINISTRATIVE EXPENSES
Operating and administrative expenses, as a percentage of sales, were 19.8%
this year compared to 19.3% last year. Increases in the cost of labor,
depreciation/amortization, 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 rent expense.
RENTAL INCOME, NET
Rental income, net decreased from $3.0 million last year to $2.3 million this
year. Fiscal 1994 included gains of $.6 million in connection with the early
termination by tenants of two (2) leases of premises in shopping centers owned
by the Company.
INCOME FROM OPERATIONS
Income from operations for the six month period ended March 25, 1995 was $20.2
million, or 3.1% of sales, compared with $20.4 million, or 3.4% of sales, the
prior year. The decrease was due to higher operating and administrative
expenses (as a percentage of sales) and the decrease in rental income, net.
OTHER INCOME, NET
Other income, net decreased $.3 million. The decrease is principally due to a
decrease in miscellaneous other income.
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<PAGE> 15
INCOME BEFORE INTEREST AND INCOME TAXES
Income before interest and income taxes was $20.4 million, or 3.1% of sales,
this year compared with $20.8 million, or 3.5% of sales, last year.
INTEREST EXPENSE
Interest expense increased from $8.6 million last year to $11.0 million this
year due to an increase in debt to fund the Company's aggressive new store
opening, expansion, remodel and/or replacement program and an increase in
interest rates.
INCOME BEFORE INCOME TAXES
Income before income taxes was $9.3 million, or 1.4% of sales, this year
compared to $12.2 million, or 2.0% of sales, last year.
INCOME TAXES
Income tax expense, as a percentage of pre-tax income, was 35.4% this year
compared to 36.9%,last year.
INCOME BEFORE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE
Income before the cumulative effect of the change in accounting principle for
the six month period ended March 25, 1995 was $6.0 million compared to $7.7
million last year. Primary earnings per common share before the cumulative
effect of the change in accounting principle was $.33 this year compared to
$.42 last year.
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE FOR INCOME TAXES
Effective September 26, 1993, the Company adopted FASB Statement No. 109,
"Accounting for Income Taxes". As permitted by Statement 109, the Company
elected not to restate the financial statements of any prior years. The
cumulative effect of the change increased net income for the six months ended
March 26, 1994 by $3.3 million, or $.18 per common share.
FINANCIAL CONDITION
LIQUIDITY AND CAPITAL RESOURCES
OPERATING ACTIVITIES
Net cash provided by operating activities for the six month period ended March
25, 1995 amounted to $4.6 million. Net income for the period was $6.0 million
and depreciation and amortization expense was $12.7 million. Accounts payable
and accrued expenses decreased $6.3 million and inventory increased $6.2
million.
The decrease in accounts payable and accrued expenses was primarily due to a
decrease in accounts payable-trade ($4.2 million), and a decrease in salaries
and wages payable ($1.8 million). The increase in inventory occurred at both
store and warehouse levels and is the result of six (6) new store openings,
eight (8) store expansions, remodels and/or replacements, increased variety and
the Company's desire to maintain inventory levels to support increased sales
volume.
15
<PAGE> 16
INVESTING ACTIVITIES
Net cash used by investing activities - namely expenditures for capital assets -
during the 1995 six month period was $60.9 million. The Company's capital
expenditure program was devoted primarily to obtaining land for new store
locations, the construction of new facilities, the renovation, modernization
and/or expansion of existing stores and the installation of electronic scanning
systems in 14 stores. Expenditures were also incurred for new stores, store
expansions, remodels and/or replacements expected to become operational in
fiscal 1996.
FINANCING ACTIVITIES
Net cash provided by financing activities totalled $58.0 million. Proceeds
from the issuance of long-term debt were $63.6 million. The Company obtained
eight loans during the six month period ended March 25, 1995: three from an
insurance company in the principal amounts of $3.8 million, $7.9 million and
$2.7 million on September 30, 1994, December 22, 1994 and March 24, 1995,
respectively; one from a bank in the principal amount of $20.0 million on
October 12, 1994; one from a bank in the principal amount of $10.0 million on
October 17, 1994; one from a bank in the principal amount of $10.0 million on
February 10, 1995; a loan of $8.5 million under a long-term bank line of credit
and a loan in the amount of $.7 million assumed by the Company in connection
with the purchase of certain real property. The proceeds of the loans were
used to reduce short-term borrowings outstanding under existing bank lines of
credit, to finance capital expenditures and for general corporate purposes.
Principal payments of long-term debt were $12.6 million. Proceeds from
short-term borrowings, net were $12.5 million. The Company paid cash dividends
of $5.5 million.
FINANCIAL STRENGTH
The Company remains in sound financial condition. At March 25, 1995, total
assets were $563.9 million compared with $506.6 million at year-end, September
24, 1994.
CAPITAL REQUIREMENTS
The Company resumed its new store opening, expansion, remodel and/or
replacement program in fiscal 1994 and is continuing this program in fiscal
1995. During the six month period ended March 25, 1995, six new stores were
opened and eight older stores were expanded, remodeled and/or replaced.
Capital expenditures aggregated $60.9 million. At March 25, 1995, the Company
operated 181 supermarkets in six states: North Carolina (57), South Carolina
(28), Georgia (71), Tennessee (21), Virginia (3) and Alabama (1).
During the balance of fiscal 1995, the Company expects to open one new
store which is currently under construction, replace seven older stores and
enlarge four stores.
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 October
or November 1995. The total cost of the site work and building construction is
expected to be approximately $12 million.
16
<PAGE> 17
Additional capital expenditures will be made during the third and fourth
quarters of fiscal 1995 to: (1) upgrade and replace existing store equipment,
(2) install electronic scanning systems in new and existing stores (3) purchase
additional equipment required in connection with the expansion of the existing
warehouse facility and (4) secure sites for future store expansion.
Fiscal 1995 capital expenditures, in the aggregate, are expected to be
approximately $80 - $90 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. The Company's new store opening, expansion, remodel
and/or replacement program will be closely scrutinized during the fourth
quarter of fiscal 1995 and a determination made relative to plans for fiscal
1996.
FINANCIAL RESOURCES
At March 25, 1995, the Company had lines of credit with six banks totalling
$100 million; of this amount $14 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
had unencumbered property with a net book value of approximately $240 million
which is available to collateralize additional debt.
On March 31, 1995, the Company obtained a $32 million loan from a credit
corporation at an interest rate of 8.85% and a term of sixty (60) months. The
proceeds of the loan were used to reduce short-term borrowings under existing
bank lines of credit outstanding at March 25, 1995.
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
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.
17
<PAGE> 18
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.
Part II. Other Information.
Item 4. Submission of Matters to a Vote of Security Holders
The Annual Meeting of Stockholders of Ingles Markets, Incorporated
was held Tuesday, February 21, 1995. The only matter submitted
to a vote of the stockholders at this meeting was the election
of directors. John O. Pollard and J. Alton Wingate were elected
at the Annual Meeting by the holders of Class A Common Stock
by the following vote: (a) Mr. Pollard: 3,653,298 votes for, 234,053
votes withheld, 0 abstentions and 0 broker nonvotes and (b) Mr.
Wingate: 3,650,998 votes for, 236,353 votes withheld, 0 abstentions
and 0 broker nonvotes. Robert P. Ingle, Landy B. Laney, Anthony S.
Federico, Jack R. Ferguson, Vaughn C. Fisher and Ralph H. Gardner were
elected by the holders of Class B Common Stock by the following vote:
(a) Mr. Ingle: 13,087,523 votes for, 1,128 votes withheld, 0
abstentions and 0 broker nonvotes and (b) Mr. Laney: 13,087,523 votes
for, 1,128 votes withheld, 0 abstentions and 0 broker nonvotes and (c)
Mr. Federico: 13,086,773 votes for, 1,878 votes withheld, 0
abstentions and 0 broker nonvotes and (d) Mr. Ferguson: 13,087,523
votes for, 1,128 votes withheld, 0 abstentions and 0 broker nonvotes
and (e) Mr. Fisher: 13,087,523 votes for, 1,128 votes withheld, 0
abstentions and 0 broker nonvotes and (f) Mr. Gardner: 13,087,423
votes for, 1,228 votes withheld, 0 abstentions and 0 broker nonvotes.
Item 6. Exhibits and Reports on Form 8-K
(a) The following exhibit is filed as part of this report. The exhibit
number refers to Item 601 of Regulation S-K.
Exhibit 11 - Computation of Earnings Per Common Share.
Exhibit 27 - Financial Data Schedule (for SEC use only)
(b) Reports on Form 8-K. There were no reports on Form 8-K filed for the
quarter ended March 25, 1995.
18
<PAGE> 19
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused the report to be signed on its behalf by the
undersigned thereunto duly authorized.
INGLES MARKETS, INCORPORATED
Date: May 8, 1995 /s/ Robert P. Ingle
----------------------------
Robert P. Ingle
Chairman of the Board and
Chief Executive Officer
Date: May 8, 1995 /s/ Jack R. Ferguson
----------------------------
Jack R. Ferguson
Vice President-Finance and
Chief Financial Officer
19
<PAGE> 1
EXHIBIT 11
Page 1 of 2
INGLES MARKETS, INCORPORATED
AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER COMMON SHARE *
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------
MARCH 25, MARCH 26,
1995 1994
------------ ------------
<S> <C> <C>
PRIMARY:
Income before cumulative effect of
change in accounting principle $ 2,187,131 $ 3,859,416
Cumulative effect of change in accounting
principle for income taxes - -
----------- -----------
Net income $ 2,187,131 $ 3,859,416
=========== ===========
Shares
Weighted average number of common shares
and common stock equivalent shares
outstanding 18,289,829 18,421,580
=========== ===========
Primary earnings per common share before
cumulative effect of change in accounting
principle $ .12 $ .21
Cumulative effect of change in accounting
principle for income taxes - -
----------- -----------
Primary earnings per common share $ .12 $ .21
=========== ===========
FULLY DILUTED:
Income before cumulative effect of
change in accounting principle $ 2,187,131 $ 3,859,416
Add after tax and bonus effect of interest
expense applicable to Convertible
Subordinated Debentures 530,097 522,353
----------- -----------
Fully diluted earnings before cumulative
effect of change in accounting principle 2,717,228 4,381,769
Cumulative effect of change in accounting
principle for income taxes - -
----------- -----------
Fully diluted earnings $ 2,717,228 $ 4,381,769
=========== ===========
Shares
Weighted average number of common
shares and common stock equivalent
shares outstanding 18,289,829 18,421,580
Additional shares assuming conversion
of Convertible Subordinated Debentures 3,374,685 3,375,135
----------- -----------
Weighted average number of common
shares outstanding as adjusted 21,664,514 21,796,715
=========== ===========
Fully diluted earnings per common share
before cumulative effect of change in
accounting principle** $ .12 $ .20
Cumulative effect of change in accounting
principle for income taxes - -
----------- -----------
Fully diluted earnings per common share** $ .12 $ .20
=========== ===========
</TABLE>
* See note B of the notes to unaudited interim financial statements.
** The effect for the three month period ended March 25, 1995 of the
conversion of the Convertible Subordinated Debentures was
anti-dilutive and therefore the conversion was not assumed in the
fully diluted calculation for this period.
20
<PAGE> 2
EXHIBIT 11
Page 2 of 2
INGLES MARKETS, INCORPORATED
AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER COMMON SHARE *
<TABLE>
<CAPTION>
SIX MONTHS ENDED
----------------
MARCH 25, MARCH 26,
1995 1994
------------ ------------
<S> <C> <C>
PRIMARY:
Income before cumulative effect of
change in accounting principle $ 6,024,919 $ 7,704,545
Cumulative effect of change in accounting
principle for income taxes - 3,334,860
----------- -----------
Net income $ 6,024,919 $11,039,405
=========== ===========
Shares
Weighted average number of common shares
and common stock equivalent shares
outstanding 18,321,171 18,358,174
=========== ===========
Primary earnings per common share before
cumulative effect of change in accounting
principle $ .33 $ .42
Cumulative effect of change in accounting
principle for income taxes - .18
----------- -----------
Primary earnings per common share $ .33 $ .60
=========== ===========
FULLY DILUTED:
Income before cumulative effect of
change in accounting principle $ 6,024,919 $ 7,704,545
Add after tax and bonus effect of interest
expense applicable to Convertible
Subordinated Debentures 1,058,209 1,044,708
----------- -----------
Fully diluted earnings before cumulative
effect of change in accounting principle 7,083,128 8,749,253
Cumulative effect of change in accounting
principle for income taxes - 3,334,860
----------- -----------
Fully diluted earnings $ 7,083,128 $12,084,113
=========== ===========
Shares
Weighted average number of common
shares and common stock equivalent
shares outstanding 18,321,171 18,358,174
Additional shares assuming conversion
of Convertible Subordinated Debentures 3,374,685 3,375,135
----------- -----------
Weighted average number of common
shares outstanding as adjusted 21,695,856 21,733,309
=========== ===========
Fully diluted earnings per common share
before cumulative effect of change in
accounting principle $ .33 $ .40
Cumulative effect of change in accounting
principle for income taxes - .16
----------- -----------
Fully diluted earnings per common share $ .33 $ .56
=========== ===========
</TABLE>
* See note B of the notes to unaudited interim financial statements.
21
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED MARCH 25, 1995 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-START> SEP-25-1994
<PERIOD-END> MAR-25-1995
<CASH> 20,228,276
<SECURITIES> 0
<RECEIVABLES> 17,522,939
<ALLOWANCES> 125,706
<INVENTORY> 110,091,729
<CURRENT-ASSETS> 150,893,466
<PP&E> 569,937,815
<DEPRECIATION> 162,109,895
<TOTAL-ASSETS> 563,928,951
<CURRENT-LIABILITIES> 129,174,719
<BONDS> 257,434,610
<COMMON> 895,208
0
0
<OTHER-SE> 157,598,253
<TOTAL-LIABILITY-AND-EQUITY> 563,928,951
<SALES> 658,155,896
<TOTAL-REVENUES> 662,260,957
<CGS> 510,049,936
<TOTAL-COSTS> 511,833,596
<OTHER-EXPENSES> (123,466)
<LOSS-PROVISION> 30,000
<INTEREST-EXPENSE> 11,039,598
<INCOME-PRETAX> 9,324,919
<INCOME-TAX> 3,300,000
<INCOME-CONTINUING> 6,024,919
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,024,919
<EPS-PRIMARY> .33
<EPS-DILUTED> .33
</TABLE>
