<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 December 24, 1994
/ / 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 January 27, 1995, the registrant had 4,425,292 shares of Class A Common
Stock, $.05 par value per share, and 13,478,858 shares of Class B Common Stock,
$.05 par value per share, outstanding.
<PAGE> 2
INGLES MARKETS, INCORPORATED
INDEX
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
Part I - Financial Information
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets -
December 24, 1994 and
September 24, 1994 3
Consolidated Statements of Income -
Three Months Ended
December 24, 1994 and
December 25, 1993 5
Consolidated Statements of Changes in
Stockholders' Equity
Three Months Ended
December 24, 1994 and
December 25, 1993 6
Consolidated Statements of Cash Flows -
Three Months Ended
December 24, 1994 and
December 25, 1993 7
Notes to Unaudited Interim Financial Statements 8
Item 2. Management's Discussion and Analysis of
Results of Operations and Financial
Condition 10
Part II - Other Information
Item 6. Exhibits and Reports on Form 8-K 14
Signatures 15
Exhibits
10.4 Bonus Agreement between the Company and Landy B. Laney 17
dated December 23, 1994.
11 Computation of Earnings Per Common Share 22
27 Financial Data Schedule (for SEC filing purposes only)
</TABLE>
2
<PAGE> 3
Part I. Financial Information
Item 1. Financial Statements
INGLES MARKETS, INCORPORATED
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 24, SEPTEMBER 24,
1994 1994
(UNAUDITED) (NOTE)
------------ -------------
<S> <C> <C>
CURRENT ASSETS
--------------
Cash $ 22,182,498 $ 18,471,011
Receivables 17,977,023 16,663,805
Inventories 107,327,712 103,937,450
Other 2,521,283 2,428,014
------------- -------------
TOTAL CURRENT ASSETS 150,008,516 141,500,280
PROPERTY AND EQUIPMENT - Net 387,129,564 359,670,105
----------------------
OTHER ASSETS 5,400,527 5,422,702
------------ ------------- -------------
TOTAL ASSETS $ 542,538,607 $ 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>
DECEMBER 24, SEPTEMBER 24,
1994 1994
(UNAUDITED) (NOTE)
------------ -------------
<S> <C> <C>
CURRENT LIABILITIES
-------------------
Short-term loans and current
portion of long-term liabilities $ 52,027,090 $ 29,678,057
Accounts payable and accrued
expenses 89,139,598 86,259,579
------------ ------------
TOTAL CURRENT LIABILITIES 141,166,688 115,937,636
DEFERRED INCOME TAXES 18,526,161 18,626,161
---------------------
LONG-TERM LIABILITIES 223,787,430 214,056,944
--------------------- ------------ ------------
TOTAL LIABILITIES 383,480,279 348,620,741
------------ ------------
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; 4,424,992
shares issued and outstanding
December 24, 1994; 4,412,167 shares
issued and outstanding
September 24, 1994 221,250 220,609
Class B, $.05 par value; 100,000,000
shares authorized; 13,479,158
shares issued and outstanding
December 24, 1994; 13,491,983 shares
issued and outstanding
September 24, 1994 673,958 674,599
Paid-in capital in excess of
par value 48,599,088 48,599,088
Retained earnings 109,564,032 108,478,050
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 159,058,328 157,972,346
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $542,538,607 $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
-------------------------
DECEMBER 24, DECEMBER 25,
1994 1993
------------ ------------
<S> <C> <C>
NET SALES $330,206,368 $297,874,598
COST OF GOODS SOLD 256,622,143 232,497,536
------------ ------------
GROSS PROFIT 73,584,225 65,377,062
OPERATING AND ADMINISTRATIVE
EXPENSES 63,759,908 57,110,310
RENTAL INCOME, NET 1,294,944 1,835,339
------------ ------------
INCOME FROM OPERATIONS 11,119,261 10,102,091
OTHER INCOME, NET 31,719 339,238
------------ ------------
INCOME BEFORE INTEREST
AND INCOME TAXES 11,150,980 10,441,329
INTEREST EXPENSE 5,113,192 4,296,200
------------ ------------
INCOME BEFORE
INCOME TAXES 6,037,788 6,145,129
------------ ------------
INCOME TAXES:
Current 2,500,000 3,000,000
Deferred (300,000) (700,000)
------------ ------------
2,200,000 2,300,000
------------ ------------
INCOME BEFORE CUMULATIVE EFFECT
OF CHANGE IN ACCOUNTING PRINCIPLE 3,837,788 3,845,129
CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLE FOR INCOME TAXES - 3,334,860
------------ ------------
NET INCOME $ 3,837,788 $ 7,179,989
============ ============
PER-SHARE AMOUNTS:
Earnings per common share:
Primary earnings per common
share before cumulative effect
of change in accounting principle $ .21 $ .21
Cumulative effect of change in
accounting principle for income taxes - .18
------------ ------------
Primary earnings per common share $ .21 $ .39
============ ============
Fully diluted earnings per common
share before cumulative effect of
change in accounting principle $ .20 $ .20
Cumulative effect of change in
accounting principle for income taxes - .15
------------ ------------
Fully diluted earnings per common share $ .20 $ .35
============ ============
Cash dividends per common share:
Class A $ .165 $ .2475
------------ ------------
Class B $ .150 $ .2250
------------ ------------
</TABLE>
See notes to unaudited interim financial statements.
5
<PAGE> 6
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> <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 . . . . . - - - - - 7,179,989 7,179,989
CASH DIVIDENDS . . . - - - - - (4,125,577) (4,125,577)
COMMON STOCK
CONVERSIONS . . . . 16,491 824 (16,491) (824) - - -
--------- -------- ---------- -------- ----------- ------------ ------------
BALANCE,
DECEMBER 25, 1993 . 4,327,346 $216,367 13,576,354 $678,818 $48,594,115 $101,254,241 $150,743,541
========= ======== ========== ======== =========== ============ ============
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 . . . . . - - - - - 3,837,788 3,837,788
CASH DIVIDENDS . . . - - - - - (2,751,806) (2,751,806)
COMMON STOCK
CONVERSIONS . . . . 12,825 641 (12,825) (641) - - -
--------- -------- ---------- -------- ----------- ------------ ------------
BALANCE,
DECEMBER 24,1994. . 4,424,992 $221,250 13,479,158 $673,958 $48,599,088 $109,564,032 $159,058,328
========= ======== ========== ======== =========== ============ ============
</TABLE>
See notes to unaudited interim financial statements.
6
<PAGE> 7
INGLES MARKETS, INCORPORATED
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------------
DECEMBER 24, DECEMBER 25,
1994 1993
------------ ------------
<S> <C> <C>
Cash Flows From Operating Activities:
Net income $ 3,837,788 $ 7,179,989
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization expense 6,149,306 5,443,092
Recognition of advance payment on purchases
contract (302,100) (295,075)
Amortization of deferred gains - (4,243)
Losses (gains) on disposals of property and
equipment 85,170 (8,520)
Deferred income taxes (300,000) (700,000)
Cumulative effect of change in accounting
principle for income taxes - (3,334,860)
Increase in receivables (1,306,012) (117,378)
(Increase) decrease in inventory (3,390,262) 1,394,999
Decrease in other assets 67,022 337,929
Increase (decrease) in accounts payable
and accrued expenses 2,880,019 (1,460,407)
------------ ------------
Net Cash Provided by Operating Activities 7,720,931 8,435,526
------------ -------------
Cash Flows From Investing Activities:
Proceeds from sales of property and
equipment 24,652 17,650
Capital expenditures (33,663,909) (11,026,604)
------------ ------------
Net Cash (Used) by Investing Activities (33,639,257) (11,008,954)
------------ ------------
Cash Flows From Financing Activities:
Proceeds from issuance of long-term debt 50,947,760 12,000,000
Principal payments of long-term debt (3,566,141) (5,273,751)
Payments on short-term borrowings, net (15,000,000) -
Dividends paid (2,751,806) (4,125,577)
------------ ------------
Net Cash Provided By Financing Activities 29,629,813 2,600,672
------------ ------------
Net Increase in Cash 3,711,487 27,244
Cash at Beginning of Period 18,471,011 17,720,151
------------ ------------
Cash at End of Period $ 22,182,498 $ 17,747,395
============ ============
</TABLE>
See notes to unaudited interim financial statements.
7
<PAGE> 8
INGLES MARKETS, INCORPORATED
AND SUBSIDIARIES
NOTES TO UNAUDITED INTERIM FINANCIAL STATEMENTS
December 24, 1994
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 December 24, 1994 and September 24,
1994, and the results of operations, changes in stockholders' equity and
cash flows for the three months ended December 24, 1994 and December 25,
1993. 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 period ended December 24,
1994 are not necessarily indicative of the results to be expected for the
full fiscal year.
Certain amounts for the three month period ended December 25, 1993 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
(18,354,685 and 18,309,901 for the three months ended December 24, 1994
and December 25, 1993, 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 21,729,370 and 21,784,949 for the
three months ended December 24, 1994 and December 25, 1993, respectively.
C. ALLOWANCE FOR DOUBTFUL ACCOUNTS
Receivables are presented net of an allowance for doubtful accounts of
$95,929 and $95,953 at December 24, 1994 and September 24, 1994,
respectively.
8
<PAGE> 9
D. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consist of the following:
<TABLE>
<CAPTION>
December 24, September 24,
1994 1994
------------ -------------
<S> <C> <C>
Accounts payable-trade $ 65,777,948 $ 62,135,297
Property, payroll, and
other taxes payable 7,198,780 7,189,278
Salaries, wages and
bonuses payable 4,831,565 6,825,605
Other 11,331,305 10,109,399
------------ -------------
$ 89,139,598 $ 86,259,579
============ =============
</TABLE>
E. LONG-TERM DEBT
During the three months ended December 24, 1994, the Company obtained
$50,947,760 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 $11,753,217
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
Other 694,543
-----------
$50,947,760
===========
</TABLE>
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 October 7, 1994
to stockholders of record on September 27, 1994.
G. SUPPLEMENTARY CASH FLOW INFORMATION
Cash paid for interest and taxes is as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-------------------------------
December 24, December 25,
1994 1993
------------ ------------
<S> <C> <C>
Interest (net of
amount capitalized) $ 6,002,607 $ 5,159,938
Income taxes 789,600 982,250
</TABLE>
H. CHANGE IN METHOD OF ACCOUNTING FOR INCOME TAXES
Effective September 26, 1993, the Company adopted FASB Statement No. 109,
"Accounting of 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 three months
ended December 25, 1993 by $3,334,860 or $.18 per common share.
9
<PAGE> 10
Item 2. Management's Discussion and Analysis of Results of Operations
and Financial Condition.
THREE MONTHS ENDED DECEMBER 24, 1994 COMPARED
WITH THE THREE MONTHS ENDED DECEMBER 25, 1993
NET SALES
Net sales for the three month period ended December 24, 1994 increased $32.3
million to $330.2 million, up 10.9% over sales of $297.9 million last year.
Growth in identical store sales (grocery stores open for the entire duration of
the previous fiscal year) were 7.5%. Approximately 68% of the dollar increase
in sales resulted from an increase in grocery sales, while the balance resulted
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, conducted an effective advertising campaign and increased variety
in its grocery department. Sales also benefited from the Company's on-going
store expansion, remodel and/or replacement program.
The first quarter of fiscal 1995 was the eleventh quarter in a row the Company
has reported an increase in net sales over the prior comparable quarter (on
average $20.5 million per quarter). During the quarter, five (5) new stores
were opened (four (4) new 42,000 square foot stores and a Best Food) and two
(2) older stores were replaced - one with a new 52,000 square foot prototype
store. At December 24, 1994, the Company operated 180 supermarkets in six (6)
states: North Carolina (57), South Carolina (28), Georgia (70), Tennessee
(21), Virginia (3) and Alabama (1).
GROSS PROFIT
Gross profit for the three month period in fiscal 1995 increased 12.6% to $73.6
million, or 22.3% of sales, compared to $65.4 million, or 21.9% of sales, last
year. Grocery gross profit, as a percentage of sales, increased principally
due to an aggressive purchasing program. Meat, produce, frozen food and
deli/bakery gross profit, as a percentage of sales, improved due to better
merchandising, aggressive pricing and an effective advertising campaign.
OPERATING AND ADMINISTRATIVE EXPENSES
Operating and administrative expenses, as a percentage of sales, were 19.3%
this year compared to 19.2% 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 rent and insurance expense.
RENTAL INCOME, NET
Rental income, net decreased from $1.8 million last year to $1.3 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.
10
<PAGE> 11
INCOME FROM OPERATIONS
Income from operations increased 10.1% to $11.1 million, or 3.4% of sales,
compared to $10.1 million, or 3.4% of sales, last year. The increase in
operating income was due to the related increases in sales and gross profit.
OTHER INCOME, NET
Other income, net decreased $.3 million. The decrease is principally due to a
decrease in miscellaneous other income.
INCOME BEFORE INTEREST AND INCOME TAXES
Income before interest and income taxes was $11.1 million, or 3.4% of sales,
this year compared with $10.4 million, or 3.5% of sales, last year.
INTEREST EXPENSE
Interest expense increased from $4.3 million last year to $5.1 million this
year due to an increase in debt to fund the Company's aggressive expansion,
remodel and/or replacement program and an increase in interest rates.
INCOME BEFORE INCOME TAXES
Income before income taxes was $6.0 million, or 1.8% of sales, this year
compared to $6.1 million, or 2.1% of sales, last year.
INCOME TAXES
Income tax expense, as a percentage of pre-tax income, was 36.4% this year
compared with 37.4% last year.
INCOME BEFORE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE
Income before the cumulative effect of the change in accounting principle for
the three month period ended December 24, 1994 was $3.8 million compared to
$3.8 million last year. Primary earnings per common share before the
cumulative effect of the change in accounting principle was $.21 in both fiscal
1995 and fiscal 1994.
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 three months ended
December 25, 1993 by $3.3 million, or $.18 per common share.
LIQUIDITY AND CAPITAL RESOURCES
OPERATING ACTIVITIES
Net cash provided by operating activities for the three month period ended
December 24, 1994 totalled $7.7 million. For the period, net income was $3.8
million and depreciation and amortization expense was $6.1 million.
11
<PAGE> 12
Accounts payable and accrued expenses increased $2.9 million, inventory
increased $3.4 million and accounts receivable increased $1.3 million.
The increase in accounts payable and accrued expenses was primarily due to an
increase in accounts payable-trade ($3.6 million), an increase in income taxes
payable ($1.7 million), a decrease in salaries and wages payable ($2.0 million)
and a decrease in interest payable ($.9 million). The increase in accounts
payable-trade was primarily due to a build-up of inventory during the Christmas
holiday season. Estimated income tax payments for the first quarter of fiscal
1995 were made in January. Salaries and wages payable decreased as a result of
the payment of fiscal 1994 annual bonuses in the month of December. Semi-annual
interest due on the Company's Convertible Subordinated Debentures was paid in
the month of October 1994.
INVESTING ACTIVITIES
Net cash used by investing activities - namely expenditures for capital assets -
during the 1995 three month period was $33.7 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
seven stores. Expenditures were also incurred for new stores and remodels
expected to become operational in fiscal 1996.
FINANCING ACTIVITIES
Net cash provided by financing activities totalled $29.6 million. Proceeds
from the issuance of long-term debt were $50.9 million. The Company obtained
six loans during the quarter: two from an insurance company in the principal
amounts of $3.8 million and $7.9 million on September 30, 1994 and December 22,
1994, 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; 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 under existing bank lines of credit, to
finance capital expenditures and for general corporate purposes. Payments on
short-term borrowings, net were $15.0 million. Principal payments of long-term
debt were $3.6 million. The Company paid cash dividends of $2.7 million.
FINANCIAL STRENGTH
The Company remains in sound financial condition. At December 24, 1994, total
assets were $542.5 million and stockholders' equity was $159.1 million compared
with $506.6 million and $158.0 million, respectively, at year-end, September
24, 1994.
CAPITAL REQUIREMENTS
The Company resumed its store expansion, remodel and/or replacement program in
fiscal 1994 and is continuing this program in fiscal 1995. The Company
currently has two new stores under construction and sixteen stores which are in
the process of being expanded, remodeled and/or replaced. During the balance
of fiscal 1995, we expect to open the two new stores under
12
<PAGE> 13
construction and complete all sixteen of the stores currently in the process of
being expanded, remodeled and/or replaced.
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 construction is
expected to be approximately $12 million.
Additional capital expenditures will be made during the second, 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 $60 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 December 24, 1994, the Company had lines of credit with six banks totalling
$95 million; of this amount $51.5 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 $220 million
which is available to collateralize additional debt.
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
13
<PAGE> 14
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.
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 6. Exhibits and Reports on Form 8-K
(a) The following exhibits are filed as part of this report. The exhibit
number refer to Item 601 of Regulation S-K.
Exhibit 10.4 - Bonus Agreement between the Company and Landy B.
Laney dated December 23, 1994.
(MANAGEMENT CONTRACT OR COMPENSATORY PLAN OR ARRANGEMENT REQUIRED TO
BE FILED AS AN EXHIBIT TO THIS REPORT ON FORM 10-Q PURSUANT TO ITEM
6(a) OF FORM 10-Q.)
Exhibit 11 - Computation of Earnings Per Common Share.
Exhibit 27 - Financial Data Schedule (for SEC filing purposes only)
(b) Reports on Form 8-K. There were no reports on Form 8-K filed for
the quarter ended December 24, 1994.
14
<PAGE> 15
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: February 6, 1995 /s/ Robert P. Ingle
----------------------------
Robert P. Ingle
Chairman of the Board and
Chief Executive Officer
Date: February 6, 1995 /s/ Jack R. Ferguson
----------------------------
Jack R. Ferguson
Vice President-Finance and
Chief Financial Officer
15
<PAGE> 16
INDEX TO EXHIBITS
-----------------
Exhibit
Number Description
- ------- -----------
10.4 Bonus Agreement between the Company and Landy B. Laney dated
December 23, 1994 (MANAGEMENT CONTRACT OR COMPENSATORY PLAN OR
ARRANGEMENT REQUIRED TO BE FILED AS AN EXHIBIT TO THIS REPORT
ON FORM 10-Q PURSUANT TO ITEM 6(a) OF FORM 10-Q.)
11 Computation of Earnings Per Common Share
27 Financial Data Schedule (for SEC filing purposes only)
16
<PAGE> 1
EXHIBIT 10.4
BONUS AGREEMENT
THIS BONUS AGREEMENT (this "Agreement") is made and entered into on
the 23rd day of December, 1994, by and between INGLES MARKETS, INCORPORATED, a
North Carolina corporation (the "Company"), and LANDY B. LANEY ("Employee").
W I T N E S S E T H T H A T:
WHEREAS, the parties desire to enter into an agreement with respect to
certain bonus compensation to be paid by the Company to Employee.
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:
1 . Term. The term of this Agreement (the "Term") shall commence
on the date of this Agreement, and shall continue until the earlier of (i) the
payment of the full amount of the Bonus (as defined below), or (ii) any
voluntary termination by Employee of his employment by the Company that results
in his being deemed to have earned none of the Bonus in accordance with this
Agreement.
2 . Bonus. The Company agrees to pay to Employee bonus
compensation of up to One Million Five Hundred Thousand and No/100 Dollars
($1,500,000) which shall be determined and, if earned, paid as follows (the
"Bonus"):
A. Bonus Accrued. The Bonus shall accrue at a rate
equal to Three Hundred Thousand and No/100 Dollars ($300,000.00) per
year effective as of September 25, 1994 (the "Commencement Date").
B. Bonus Earned. Subject to Sections 2C, 2D, 2E, 2F and
2G, if Employee continues to be employed by the Company through and
including September 25, 1999, Employee shall be deemed to have earned
the full amount of the Bonus, which shall be an aggregate amount of
One Million Five Hundred Thousand and No/100 Dollars ($1,500,000).
C. 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
as an employee of the Company consistently on a full-time basis for a
period of six (6) calendar months after the commencement of such
disability, Employee shall be deemed to have earned a pro rata portion
of the Bonus
17
<PAGE> 2
calculated on a per diem basis from the Commencement Date to the
effective date of his disability by multiplying (a) Three Hundred
Thousand and No/100 Dollars ($300,000.00) by (b) the sum of (i) the
number of full fiscal years between the Commencement Date and the
effective date of his disability plus (ii) a fraction, the numerator of
which is the number of days between the date on which his disability
commences and the last day of the immediately preceding fiscal year of
the Company, and the denominator of which is the number of days in the
fiscal year in which his disability commences). Coverage of Employee,
if any, under any major medical and hospitalization insurance provided
by the Company for its employees shall not be adversely affected by
this provision.
D. Death. If Employee shall die during the Term of this
Agreement, then Employee shall be deemed to have earned (and the legal
representative of his estate, or his designated beneficiary, as the
case may be, shall receive) a pro rata portion of the Bonus calculated
on a per diem basis from the Commencement Date to the date of his
death by multiplying (a) Three Hundred Thousand and No/100 Dollars
($300,000.00) by (b) the sum of (i) the number of full fiscal years
between the Commencement Date and the date of his death plus (ii) a
fraction, the numerator of which is the number of days between the
date of his death and the last day of the immediately preceding fiscal
year of the Company, and the denominator of which is the number of
days in the fiscal year in which his death occurs). Coverage of
Employee, if any, under any major medical and hospitalization
insurance provided by the Company for its employees shall not be
adversely affected by this provision.
E. Termination of Employment. If Employee's employment
by the Company shall be terminated by the Company at any time on or
before September 25, 1999, whether with or without cause, Employee
shall deemed to have earned the full amount of the Bonus, which shall
be an aggregate amount equal to One Million Five Hundred Thousand and
No/100 Dollars ($1,500,000).
F. Sale of the Company. Employee shall be deemed to
have earned the full amount of the Bonus, which shall be an aggregate
amount equal to One Million Five Hundred Thousand and No/100 Dollars
($1,500,000), if (a) a majority (more than 50%) of the voting rights
or equity interest held by all of the holders of stock (of all
classes) of the Company shall be held or controlled, directly or
indirectly, other than by either Robert P. Ingle, any one or more
members of his immediate family (with immediate family meaning for
such purposes his spouse and his lineal descendants, which shall
include for such purposes any adopted child of any such person), or
the Ingles Markets, Incorporated Investment/Profit Sharing Plan,
or some combination thereof, or (b) the Company
18
<PAGE> 3
shall be otherwise sold (with "sold" for these purposes including
taxable or nontaxable transactions of whatever form, including, without
limitation, by merger, share exchange, consolidation, or sale of all
or substantially all of the assets of the Company), and (c) if upon
any such change of control or sale Employee shall give the Company
(or its successor in interest) notice of his determination, in his
sole discretion, that he no longer desires to continue to be employed
by the Company or its successor in interest because of such sale or
change in control.
G. Other Voluntary Termination of Employment. If
Employee elects to voluntarily terminate his employment by the Company
at any time on or before September 25, 1999, other than as provided in
Sections 2C, 2D, or 2F, Employee shall be deemed to have earned none
of the Bonus.
H. Payment of Bonus. If Employee continues to be an
employee of the Company through and including September 25, 1999,
$750,000.00 (fifty percent [50%] of the Bonus to which Employee is
entitled) shall be paid to Employee on September 25, 1999, and the
remaining $750,000.00 shall be paid to Employee on January 3, 2000.
Otherwise, if Employee is entitled to be paid all or any portion of
the Bonus pursuant to Section 2C, 2D, 2E, or 2F, he shall be paid
fifty percent (50%) of the Bonus to which he is entitled reasonably
promptly (and in no event later than thirty (30) days) after receipt
by the Company of notice of the event giving rise to Employee's right
to receive the Bonus (and in the event of Employee's death, notice of
the name and address of his legal representative), and the remaining
fifty percent (50%) on the first business day that is not in the same
fiscal year and calendar year as the date on which the first fifty
percent (50%) of the Bonus was paid to him.
3 . Not an Employment Agreement. This Agreement shall not be
deemed to be an employment agreement and shall not be construed in any manner
to obligate the Company to employ Employee, to obligate Employee to continue to
be employed by the Company, or to address any aspect of Employee's employment
obligations or the termination thereof other than as such events relate to
payment or nonpayment of the Bonus.
4 . Waiver of Breach or Violation Not Deemed Continuing. The
waiver by either party of any provision of this Agreement shall not operate as,
or be construed to be, a waiver of any subsequent breach hereof.
5 . Notices. Any and all notices required or permitted to be
given under this Agreement will be deemed given if in writing, on the third
(3rd) day after the notice is sent by certified U.S. mail, return receipt
requested, (a) to Employee at the address
19
<PAGE> 4
indicated below Employee's signature hereto, or, (b) to the Company, to the
address of the Company'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.
6 . 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 or the validity of any other Term of this Agreement shall in any
way be effected thereby.
7 . Item Headings. The item headings contained in this Agreement
are for convenience only and shall in no manner be construed as a part of this
Agreement.
8 . 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.
9 . 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 beneficiaries or
any other person. Notwithstanding the foregoing, the Company shall assign this
Agreement to any corporation or other business entities succeeding to
substantially all the business and assets of the Company by merger,
consolidation, sale of assets, or otherwise and shall obtain the assumption of
this Agreement by such successor.
[signatures begin on next page]
20
<PAGE> 5
IN WITNESS WHEREOF, the Company has hereunto caused this Agreement to
be executed on the day and year first above written, 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: THE COMPANY:
- -------- -----------
INGLES MARKETS, INCORPORATED
/s/ Landy B. Laney (SEAL) By: /s/ Robert P. Ingle
- ------------------------ -----------------------------
LANDY B. LANEY ROBERT P. INGLE, Chairman
(CORPORATE SEAL)
Address:
P.O. Box 6676, Highway 70,
Asheville, N.C. 28816
21
<PAGE> 1
EXHIBIT 11
INGLES MARKETS, INCORPORATED
AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER COMMON SHARE *
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------
DECEMBER 24, DECEMBER 25,
1994 1993
------------ ------------
<S> <C> <C>
PRIMARY:
Income before cumulative effect of
change in accounting principle $ 3,837,788 $ 3,845,129
Cumulative effect of change in accounting
principle for income taxes - 3,334,860
----------- -----------
Net Income $ 3,837,788 $ 7,179,989
=========== ===========
Shares
Weighted average number of common shares
and common stock equivalent shares
outstanding 18,354,685 18,309,901
=========== ===========
Primary earnings per common share before
cumulative effect of change in accounting
principle $ .21 $ .21
Cumulative effect of change in accounting
principle for income taxes - .18
----------- -----------
Primary earnings per common share $ .21 $ .39
=========== ===========
FULLY DILUTED:
Income before cumulative effect of
change in accounting principle $ 3,837,788 $ 3,845,129
Add after tax and bonus effect of interest
expense applicable to Convertible
Subordinated Debentures 528,112 520,547
----------- -----------
Fully diluted earnings before cumulative
effect of change in accounting principle 4,365,900 4,365,676
Cumulative effect of change in accounting
principle for income taxes - 3,334,860
----------- -----------
Fully diluted earnings $ 4,365,900 $ 7,700,536
=========== ===========
Shares
Weighted average number of common
shares and common stock equivalent
shares outstanding 18,354,685 18,409,814
Additional shares assuming conversion
of Convertible Subordinated Debentures 3,374,685 3,375,135
----------- -----------
Weighted average number of common
shares outstanding as adjusted 21,729,370 21,784,949
=========== ===========
Fully diluted earnings per common share
before cumulative effect of change in
accounting principle $ .20 $ .20
Cumulative effect of change in accounting
principle for income taxes - .15
----------- -----------
Fully diluted earnings per common share $ .20 $ .35
=========== ===========
</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 THREE MONTHS ENDED DECEMBER 24, 1994 AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-START> SEP-25-1994
<PERIOD-END> DEC-24-1994
<CASH> 22,182,498
<SECURITIES> 0
<RECEIVABLES> 18,072,952
<ALLOWANCES> 95,929
<INVENTORY> 107,327,712
<CURRENT-ASSETS> 150,008,516
<PP&E> 542,774,427
<DEPRECIATION> 155,644,863
<TOTAL-ASSETS> 542,538,607
<CURRENT-LIABILITIES> 141,166,688
<BONDS> 223,787,430
<COMMON> 895,208
0
0
<OTHER-SE> 158,163,120
<TOTAL-LIABILITY-AND-EQUITY> 542,538,607
<SALES> 330,206,368
<TOTAL-REVENUES> 332,348,464
<CGS> 256,622,143
<TOTAL-COSTS> 257,469,295
<OTHER-EXPENSES> (31,719)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,113,192
<INCOME-PRETAX> 6,037,788
<INCOME-TAX> 2,200,000
<INCOME-CONTINUING> 3,837,788
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,837,788
<EPS-PRIMARY> .21
<EPS-DILUTED> .20
</TABLE>
