<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 June 24, 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)
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
---------------------------
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 August 1, 1995 the registrant had 4,525,066 shares of Class A Common
Stock, $.05 par value per share, and 13,379,084 shares of Class B Common Stock,
$.05 par value per share, outstanding.
1
<PAGE> 2
INGLES MARKETS, INCORPORATED
INDEX
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
Part I - Financial Information
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets -
June 24, 1995 and
September 24, 1994 3
Consolidated Statements of Income -
Three Months Ended
June 24, 1995 and
June 25, 1994 5
Nine Months Ended
June 24, 1995 and
June 25, 1994 6
Consolidated Statements of Changes in
Stockholders' Equity -
Nine Months Ended
June 24, 1995 and
June 25, 1994 7
Consolidated Statements of Cash Flows -
Nine Months Ended
June 24, 1995 and
June 25, 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 6. Exhibits and Reports on Form 8-K 19
Signatures 20
Exhibits
11 Computation of Earnings Per Common Share
Three Months Ended
June 24, 1995 and
June 25, 1994 21
Nine Months Ended
June 24, 1995 and
June 25, 1994 22
</TABLE>
2
<PAGE> 3
Part I. Financial Information
Item 1. Financial Statements
INGLES MARKETS, INCORPORATED
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
JUNE 24, SEPTEMBER 24,
1995 1994
(UNAUDITED) (NOTE)
------------ -------------
<S> <C> <C>
CURRENT ASSETS
--------------
Cash $ 21,052,372 $ 18,471,011
Receivables 15,441,686 16,663,805
Inventories 109,473,682 103,937,450
Other 1,704,572 2,428,014
------------- -------------
TOTAL CURRENT ASSETS 147,672,312 141,500,280
PROPERTY AND EQUIPMENT - Net 430,223,564 359,670,105
----------------------
OTHER ASSETS 5,171,934 5,422,702
------------ ------------- -------------
TOTAL ASSETS $ 583,067,810 $ 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>
JUNE 24, SEPTEMBER 24,
1995 1994
(UNAUDITED) (NOTE)
------------ -------------
<S> <C> <C>
CURRENT LIABILITIES
-------------------
Short-term loans and current
portion of long-term liabilities $ 47,154,674 $ 29,678,057
Accounts payable and accrued
expenses 92,037,009 86,259,579
------------ ------------
TOTAL CURRENT LIABILITIES 139,191,683 115,937,636
DEFERRED INCOME TAXES 19,426,161 18,626,161
---------------------
LONG-TERM LIABILITIES 264,165,208 214,056,944
--------------------- ------------ ------------
TOTAL LIABILITIES 422,783,052 348,620,741
------------ ------------
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; 4,475,066
shares issued and outstanding
June 24, 1995; 4,412,167 shares
issued and outstanding
September 24, 1994 223,754 220,609
Class B, $.05 par value; 100,000,000
shares authorized; 13,429,084
shares issued and outstanding
June 24, 1995; 13,491,983 shares
issued and outstanding
September 24, 1994 671,454 674,599
Paid-in capital in excess of
par value 48,599,088 48,599,088
Retained earnings 110,790,462 108,478,050
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 160,284,758 157,972,346
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $583,067,810 $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
-------------------------
JUNE 24, JUNE 25,
1995 1994
------------ ------------
<S> <C> <C>
NET SALES $347,778,761 $313,861,847
COST OF GOODS SOLD 268,442,625 244,218,094
------------ ------------
GROSS PROFIT 79,336,136 69,643,753
OPERATING AND ADMINISTRATIVE
EXPENSES 68,039,823 61,412,983
RENTAL INCOME, NET 1,189,904 2,150,472
------------ ------------
INCOME FROM OPERATIONS 12,486,217 10,381,242
OTHER INCOME, NET 1,033,680 1,164,988
------------ ------------
INCOME BEFORE INTEREST
AND INCOME TAXES 13,519,897 11,546,230
INTEREST EXPENSE 6,476,465 4,383,920
------------ ------------
INCOME BEFORE
INCOME TAXES 7,043,432 7,162,310
------------ ------------
INCOME TAXES:
Current 400,000 3,300,000
Deferred 2,100,000 (700,000)
------------ ------------
2,500,000 2,600,000
------------ ------------
NET INCOME $ 4,543,432 $ 4,562,310
============ ============
PER-SHARE AMOUNTS:
Earnings per common share:
Primary earnings per common
share $ .25 $ .25
============ ============
Fully diluted earnings per common
share $ .23 $ .23
============ ============
Cash dividends per common share:
Class A $ .165 $ .330
------------ ------------
Class B $ .150 $ .300
------------ ------------
</TABLE>
See notes to unaudited interim financial statements.
5
<PAGE> 6
INGLES MARKETS, INCORPORATED
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (CONCLUDED)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
---------------------------
JUNE 24, JUNE 25,
1995 1994
-------------- ------------
<S> <C> <C>
NET SALES $1,005,934,657 $913,268,391
COST OF GOODS SOLD 778,492,561 710,270,856
-------------- ------------
GROSS PROFIT 227,442,096 202,997,535
OPERATING AND ADMINISTRATIVE
EXPENSES 198,226,133 177,316,621
RENTAL INCOME, NET 3,511,305 5,145,575
-------------- ------------
INCOME FROM OPERATIONS 32,727,268 30,826,489
OTHER INCOME, NET 1,157,146 1,541,958
-------------- ------------
INCOME BEFORE INTEREST
AND INCOME TAXES 33,884,414 32,368,447
INTEREST EXPENSE 17,516,063 13,001,592
-------------- ------------
INCOME BEFORE
INCOME TAXES 16,368,351 19,366,855
-------------- ------------
INCOME TAXES:
Current 4,300,000 7,300,000
Deferred 1,500,000 (200,000)
-------------- ------------
5,800,000 7,100,000
-------------- ------------
INCOME BEFORE CUMULATIVE EFFECT
OF CHANGE IN ACCOUNTING PRINCIPLE 10,568,351 12,266,855
CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLE FOR INCOME TAXES - 3,334,860
-------------- ------------
NET INCOME $ 10,568,351 $ 15,601,715
============== ============
PER-SHARE AMOUNTS:
Earnings per common share:
Primary earnings per common
share before cumulative effect
of change in accounting principle $ .58 $ .67
Cumulative effect of change in
accounting principle for income taxes - .18
-------------- ------------
Primary earnings per common share $ .58 $ .85
============== ============
Fully diluted earnings per common
share before cumulative effect of
change in accounting principle $ .56 $ .63
Cumulative effect of change in
accounting principle for income taxes - .16
-------------- ------------
Fully diluted earnings per common share $ .56 $ .79
============== ============
Cash dividends per common share:
Class A $ .4950 $ .5775
-------------- ------------
Class B $ .4500 $ .5250
-------------- ------------
</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 . . . . . - - - - - 15,601,715 15,601,715
CASH DIVIDENDS . . . - - - - - (9,628,764) (9,628,764)
CONVERSION OF
CONVERTIBLE
SUBORDINATED
DEBENTURES. . . . . 450 23 - - 4,973 - 4,996
COMMON STOCK
CONVERSIONS . . . . 95,052 4,752 (95,052) (4,752) - - -
--------- -------- ---------- -------- ----------- ------------ ------------
BALANCE,
JUNE 25, 1994 . . . 4,406,357 $220,318 13,497,793 $674,890 $48,599,088 $104,172,780 $153,667,076
========= ======== =========== ======== =========== ============ ============
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 . . . . . - - - - - 10,568,351 10,568,351
CASH DIVIDENDS . . . - - - - - (8,255,939) (8,255,939)
COMMON STOCK
CONVERSIONS . . . . 62,899 3,145 (62,899) (3,145) - - -
--------- -------- ---------- -------- ----------- ------------ ------------
BALANCE,
JUNE 24, 1995 . . . 4,475,066 $223,754 13,429,084 $671,454 $48,599,088 $110,790,462 $160,284,758
========= ======== ========== ======== =========== ============ ============
</TABLE>
See notes to unaudited interim financial statements.
7
<PAGE> 8
INGLES MARKETS, INCORPORATED
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
--------------------------
JUNE 24, JUNE 25,
1995 1994
------------ ------------
<S> <C> <C>
Cash Flows From Operating Activities:
Net income $ 10,568,351 $ 15,601,715
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization expense 19,658,767 16,708,028
Recognition of advance payment on purchases
contract (746,231) (638,262)
Amortization of deferred gains - (12,730)
Gains on disposals of property and
equipment (289,090) (594,782)
Deferred income taxes 1,500,000 (200,000)
Cumulative effect of change in accounting
principle for income taxes - (3,334,860)
Decrease (increase) in receivables 1,246,814 (2,202,251)
(Increase) decrease in inventory (5,536,232) 600,117
Decrease in other assets 77,924 1,129,468
Increase (decrease) in accounts payable
and accrued expenses 5,777,430 (550,135)
------------ ------------
Net Cash Provided by Operating Activities 32,257,733 26,506,308
------------ ------------
Cash Flows From Investing Activities:
Proceeds from sales of property and
equipment 536,128 897,192
Capital expenditures (90,287,673) (41,084,992)
------------ ------------
Net Cash (Used) by Investing Activities (89,751,545) (40,187,800)
------------ ------------
Cash Flows From Financing Activities:
Conversion of Convertible Subordinated
Debentures - 4,996
Proceeds from issuance of long-term debt 95,919,747 12,204,876
Principal payments of long-term debt (26,588,635) (15,823,845)
(Payments) proceeds from short-term
borrowings, net (1,000,000) 27,000,000
Dividends paid (8,255,939) (9,628,764)
------------ ------------
Net Cash Provided By Financing Activities 60,075,173 13,757,263
------------ ------------
Net Increase in Cash 2,581,361 75,771
Cash at Beginning of Period 18,471,011 17,720,151
------------ ------------
Cash at End of Period $ 21,052,372 $ 17,795,922
============ ============
</TABLE>
See notes to unaudited interim financial statements.
8
<PAGE> 9
INGLES MARKETS, INCORPORATED
AND SUBSIDIARIES
NOTES TO UNAUDITED INTERIM FINANCIAL STATEMENTS
June 24, 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 June 24, 1995 and
September 24, 1994, and the results of operations for the three month
and nine month periods ended June 24, 1995 and June 25, 1994 and
changes in stockholders' equity and cash flows for the nine months
ended June 24, 1995 and June 25, 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 nine month periods
ended June 24, 1995 are not necessarily indicative of the results to
be expected for the full fiscal year.
Certain amounts for the three month and nine month periods ended June
25, 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 (18,301,028 and 18,313,789 for the three month and nine month
periods ended June 24, 1995, respectively and 18,388,950 and
18,368,370 for the three month and nine month periods ended June 25,
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 21,731,033 for
the three month and nine month periods ended June 24, 1995. For the
three month and nine month periods ended June 25, 1994, shares used to
compute fully diluted earnings per common share were 21,763,635 and
21,743,055, respectively.
9
<PAGE> 10
C. ALLOWANCE FOR DOUBTFUL ACCOUNTS
Receivables are presented net of an allowance for doubtful accounts of
$140,698 and $95,953 at June 24, 1995 and September 24, 1994,
respectively.
D. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consist of the following:
<TABLE>
<CAPTION>
June 24, September 24,
1995 1994
------------ -------------
<S> <C> <C>
Accounts payable-trade $ 68,202,392 $ 62,135,297
Property, payroll, and
other taxes payable 7,481,480 7,189,278
Salaries, wages and
bonuses payable 6,475,995 6,825,605
Other 9,877,142 10,109,399
------------ -------------
$ 92,037,009 $ 86,259,579
============ =============
</TABLE>
E. LONG-TERM DEBT
During the nine months ended June 24, 1995, the Company obtained $95.9
million in long-term loans. The proceeds were used to reduce
short-term borrowings outstanding under existing bank lines of credit,
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 thirty-day commercial paper
plus 1.9%, maturing 1999 $14,456,277
Interest rate at 8.85%, maturing 2000 32,000,000
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 963,470
-----------
$95,919,747
===========
</TABLE>
The Company obtained three long-term loans subsequent to the nine
month period ended June 24, 1995 aggregating $47.4 million at varying
interest rates based on the term of the loan. The proceeds of these
loans were or will be used to reduce short-term borrowings under
existing bank lines of credit outstanding at June 24, 1995.
Short-term borrowings have been reclassified to long-term liabilities
at June 24, 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 each
of April 10, 1995, January 9, 1995 and October 7, 1994 to stockholders
of record on March 31, 1995, 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>
NINE MONTHS ENDED
--------------------------
June 24, June 25,
1995 1994
------------ ------------
<S> <C> <C>
Interest (net of
amount capitalized) $ 17,824,904 $ 13,970,554
Income taxes 5,053,950 6,948,700
</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 nine months ended June 25, 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
Net income for the second quarter and the results year-to-date were impacted by
the Company's investment in building its store base for long-term growth.
During the past nine (9) months, the Company opened six (6) new stores,
replaced eight (8) older stores and remodeled eight (8) stores. Year-to-date
capital expenditures, including those relating to the expansion of the existing
warehouse facility, were $90.3 million. The Company is excited about this
program, its future and in particular the results achieved in the third quarter
of fiscal 1995.
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.
THREE MONTHS ENDED JUNE 24, 1995 COMPARED
WITH THE THREE MONTHS ENDED JUNE 25, 1994
NET SALES
The third quarter of fiscal 1995 was the thirteenth quarter in a row the
Company has reported an increase in net sales over the prior comparable quarter
(on average $22.0 million per quarter).
For the three month period ended June 24, 1995, net sales increased $33.9
million to $347.8 million, up 10.8% over sales of $313.9 million last year.
Approximately 67% of the dollar increase in sales resulted from an increase in
grocery sales, while the balance resulted principally from increased sales in
the perishable departments. Third quarter sales were bolstered by 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 three months ended June 24, 1995 increased 13.9% to $79.3
million, or 22.8% of sales, compared to $69.6 million, or 22.2% of sales, last
year. Grocery, meat, produce and frozen food gross profit, as a percentage of
sales, improved due to better merchandising and an aggressive purchasing and
pricing program.
OPERATING AND ADMINISTRATIVE EXPENSES
Operating and administrative expenses, as a percentage of sales, were 19.6% in
both fiscal 1995 and fiscal 1994. Increases in the cost of labor at the store
level, depreciation/amortization expense and repairs and maintenance, as a
percentage of sales, were offset by a decrease, as a percentage of sales, in
the cost of insurance, rent expense and advertising and promotional
expenditures.
12
<PAGE> 13
RENTAL INCOME, NET
Rental income, net decreased from $2.2 million last year to $1.2 million this
year. Fiscal 1994 includes a payment of $.9 million, net for the termination
of a lease by a tenant.
INCOME FROM OPERATIONS
Income from operations increased 20.3% to $12.5 million, or 3.6% of sales,
compared to $10.4 million, or 3.3% of sales, last year. The increase in
operating income was due to the increase in sales and the related increase in
gross profit.
OTHER INCOME, NET
Other income, net decreased from $1.2 million last year to $1.0 million this
year.
INCOME BEFORE INTEREST AND INCOME TAXES
Income before interest and income taxes increased 17.1% to $13.5 million this
year, or 3.9% of sales, compared with $11.5 million, or 3.7% of sales, last
year.
INTEREST EXPENSE
Interest expense increased from $4.4 million last year to $6.5 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 $7.0 million, or 2.0% of sales, this year
compared to $7.2 million, or 2.3% of sales, last year.
INCOME TAX EXPENSE
Income tax expense, as a percentage of pre-tax income, was 35.5% this year
versus 36.3% last year.
NET INCOME
Net income for the three month period ended June 24, 1995 was $4.5 million, or
1.3% of sales, compared to $4.6 million, or 1.5% of sales, last year. Primary
earnings per common share were $.25 in both fiscal 1995 and fiscal 1994.
13
<PAGE> 14
NINE MONTHS ENDED JUNE 24, 1995 COMPARED
WITH THE NINE MONTHS ENDED JUNE 25, 1994
NET SALES
Net sales for the nine month period ended June 24, 1995 increased $92.7 million
to $1.0 billion, up 10.1% over sales of $913.3 million last year. Growth in
identical store sales (grocery stores open for the entire duration of the
previous fiscal year) was 6.4%. 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 its 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/replacement program.
GROSS PROFIT
Gross profit for the 1995 nine month period increased 12.0% to $227.4 million,
or 22.6% of sales, compared to $203.0 million, or 22.2% of sales, last year.
Grocery gross profit, as a percentage of sales, increased primarily because of
an aggressive purchasing program. Meat, produce 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 19.7%
this year compared to 19.4% last year. The percentage increase is principally
due to increases in the cost of labor at the store level, increased
depreciation/amortization expense resulting from the Company's aggressive new
store opening, expansion, remodel and/or replacement program, higher repairs
and maintenance expense and an increase in warehouse and transportation expense
due primarily to higher labor cost. The increases were partially offset by
decreases, as a percentage of sales, in rent expense and the cost of insurance.
RENTAL INCOME, NET
Rental income, net decreased from $5.1 million last year to $3.5 million this
year. Fiscal 1994 included gains of $1.5 million in connection with the early
termination by tenants of three (3) leases of premises in shopping centers
owned by the Company.
INCOME FROM OPERATIONS
Income from operations was $32.7 million, or 3.3% of sales, this year compared
with $30.8 million, or 3.4% of sales last year. The percentage 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 $.4 million. Fiscal 1995 includes a gain of $.3
million realized on the sale of an outparcel of land; fiscal 1994 includes
gains of $.6 million realized on the sale of two outparcels of land and the
buildings situated thereon.
14
<PAGE> 15
INCOME BEFORE INTEREST AND INCOME TAXES
Income before interest and income taxes was $33.9 million, or 3.4% of sales,
this year compared with $32.4 million, or 3.5% of sales, last year.
INTEREST EXPENSE
Interest expense increased from $13.0 million last year to $17.5 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 $16.4 million, or 1.6% of sales, this year
compared to $19.4 million, or 2.1% of sales, last year.
INCOME TAX EXPENSE
Income tax expense, as a percentage of pre-tax income, was 35.4% this year
compared to 36.7% last year.
INCOME BEFORE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE
Income before the cumulative effect of the change in accounting principle for
the nine month period ended June 24, 1995 was $10.6 million compared to $12.3
million last year. Primary earnings per common share before the cumulative
effect of the change in accounting principle was $.58 this year compared to
$.67 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 nine months ended
June 25, 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 nine month period ended June
24, 1995 totalled $32.3 million. Net income for the period was $10.6 million
and depreciation and amortization expense was $19.7 million. Accounts payable
and accrued expenses increased $5.8 million and inventory increased $5.5
million.
The increase in accounts payable and accrued expenses was principally due to an
increase in accounts payable-trade resulting from an increase in inventory.
The increase in inventory occurred at both store and warehouse levels and is
the result of six (6) new store openings, sixteen (16) 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 nine month period was $90.3 million. The Company's capital
expenditure program was devoted primarily to obtaining land for new store
locations, the construction of new facilities including the expansion of the
existing warehouse facility, the renovation, modernization and/or expansion of
existing stores and the installation of electronic scanning systems in 23
stores. A portion of these expenditures were 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 $60.1 million. The Company
obtained ten long-term loans during the nine month period ended June 24, 1995
aggregating $95.9 million. The proceeds of the loans were used to reduce
short-term borrowings outstanding under existing bank lines of credit, to pay
for capital expenditures and for general corporate purposes. Principal
payments of long-term debt were $26.6 million. The Company paid cash dividends
of $8.3 million.
FINANCIAL STRENGTH
The Company remains in sound financial condition. At June 24, 1995, total
assets were $583.1 million and stockholders' equity was $160.3 million compared
with $506.6 million and $158.0 million, respectively, 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 nine month period ended June 24, 1995, six new stores were
opened, eight older stores were replaced and eight stores were remodeled.
Capital expenditures aggregated $90.3 million. At June 24, 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 five older stores and enlarge
two 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.
Additional capital expenditures will be made during the fourth quarter 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.
16
<PAGE> 17
Fiscal 1995 capital expenditures, in the aggregate, are expected to be
approximately $100 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 June 24, 1995, the Company had lines of credit with six banks totalling $100
million; of this amount $36 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 spread 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 $210 million which
is available to collateralize additional debt.
The Company obtained three long-term loans subsequent to the nine month period
ended June 24, 1995 aggregating $47.4 million at varying interest rates based
on the term of the loan. The proceeds were or will be used to reduce
short-term borrowings under existing bank lines of credit outstanding at
June 24, 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.
18
<PAGE> 19
Part II. Other Information.
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 June 24, 1995.
19
<PAGE> 20
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: August 7, 1995 /s/ Robert P. Ingle
----------------------------
Robert P. Ingle
Chairman of the Board and
Chief Executive Officer
Date: August 7, 1995 /s/ Jack R. Ferguson
----------------------------
Jack R. Ferguson
Vice President-Finance and
Chief Financial Officer
20
<PAGE> 1
EXHIBIT 11
Page 1 of 2
INGLES MARKETS, INCORPORATED
AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER COMMON SHARE *
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-----------------------
JUNE 24, JUNE 25,
1995 1994
---------- -----------
<S> <C> <C>
PRIMARY
Net income $ 4,543,432 $ 4,562,310
=========== ===========
Shares
Weighted average number of common shares
and common stock equivalent shares
outstanding 18,301,028 18,388,950
=========== ===========
Primary earnings per common share $ .25 $ .25
=========== ===========
FULLY DILUTED:
Net income $ 4,543,432 $ 4,562,310
Add after tax and bonus effect of interest
expense applicable to Convertible
Subordinated Debentures 532,391 529,202
----------- -----------
Fully diluted earnings $ 5,075,823 $ 5,091,512
=========== ===========
Shares
Weighted average number of common
shares and common stock equivalent
shares outstanding 18,356,348 18,388,950
Additional shares assuming conversion
of Convertible Subordinated Debentures 3,374,685 3,374,685
----------- -----------
Weighted average number of common
shares outstanding as adjusted 21,731,033 21,763,635
=========== ===========
Fully diluted earnings per common share $ .23 $ .23
=========== ===========
</TABLE>
* See Note B of the notes to unaudited interim financial statements.
21
<PAGE> 2
EXHIBIT 11
Page 2 of 2
INGLES MARKETS, INCORPORATED
AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER COMMON SHARE *
<TABLE>
<CAPTION>
NINE MONTHS ENDED
--------------------------
JUNE 24, JUNE 25,
1995 1994
------------ ------------
<S> <C> <C>
PRIMARY:
Income before cumulative effect of
change in accounting principle $10,568,351 $12,266,855
Cumulative effect of change in accounting
principle for income taxes - 3,334,860
----------- -----------
Net income $10,568,351 $15,601,715
=========== ===========
Shares
Weighted average number of common shares
and common stock equivalent shares
outstanding 18,313,789 18,368,370
=========== ===========
Primary earnings per common share before
cumulative effect of change in accounting
principle $ .58 $ .67
Cumulative effect of change in accounting
principle for income taxes - .18
----------- -----------
Primary earnings per common share $ .58 $ .85
=========== ===========
FULLY DILUTED:
Income before cumulative effect of
change in accounting principle $10,568,351 $12,266,855
Add after tax and bonus effect of interest
expense applicable to Convertible
Subordinated Debentures 1,597,175 1,587,651
----------- -----------
Fully diluted earnings before cumulative
effect of change in accounting principle 12,165,526 13,854,506
Cumulative effect of change in accounting
principle for income taxes - 3,334,860
----------- -----------
Fully diluted earnings $12,165,526 $17,189,366
=========== ===========
Shares
Weighted average number of common
shares and common stock equivalent
shares outstanding 18,356,348 18,368,370
Additional shares assuming conversion
of Convertible Subordinated Debentures 3,374,685 3,374,685
----------- -----------
Weighted average number of common
shares outstanding as adjusted 21,731,033 21,743,055
=========== ===========
Fully diluted earnings per common share
before cumulative effect of change in
accounting principle $ .56 $ .63
Cumulative effect of change in accounting
principle for income taxes - .16
----------- -----------
Fully diluted earnings per common share $ .56 $ .79
=========== ===========
</TABLE>
* See Note B of the notes to unaudited interim financial statements.
22
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S FINANCIAL STATEMENTS FOR THE NINE MONTHS ENDED JUNE 24, 1995, AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-START> SEP-25-1994
<PERIOD-END> JUN-24-1995
<CASH> 21,052,372
<SECURITIES> 0
<RECEIVABLES> 15,582,384
<ALLOWANCES> 140,698
<INVENTORY> 109,473,682
<CURRENT-ASSETS> 147,672,312
<PP&E> 598,899,773
<DEPRECIATION> 168,676,209
<TOTAL-ASSETS> 583,067,810
<CURRENT-LIABILITIES> 139,191,683
<BONDS> 264,165,208
<COMMON> 895,208
0
0
<OTHER-SE> 159,389,550
<TOTAL-LIABILITY-AND-EQUITY> 583,067,810
<SALES> 1,005,934,657
<TOTAL-REVENUES> 1,012,166,912
<CGS> 778,492,561
<TOTAL-COSTS> 781,213,511
<OTHER-EXPENSES> (1,157,146)
<LOSS-PROVISION> 45,000
<INTEREST-EXPENSE> 17,516,063
<INCOME-PRETAX> 16,368,351
<INCOME-TAX> 5,800,000
<INCOME-CONTINUING> 10,568,351
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,568,351
<EPS-PRIMARY> .58
<EPS-DILUTED> .56
</TABLE>
