<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 30, 1996
[ ] 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 May 7, 1996, the registrant had 4,840,266 shares of Class A Common
Stock, $.05 par value per share, and 13,263,884 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 -
March 30, 1996 and
September 30, 1995 3
Consolidated Statements of Income -
Three Months Ended
March 30, 1996 and
March 25, 1995 5
Six Months Ended
March 30, 1996 and
March 25, 1995 6
Consolidated Statements of Changes in
Stockholders' Equity -
Six Months Ended
March 30, 1996 and
March 25, 1995 7
Consolidated Statements of Cash Flows -
Six Months Ended
March 30, 1996 and
March 25, 1995 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 19
Item 6. Exhibits and Reports on Form 8-K 20
Signatures 21
Exhibits
11 Computation of Earnings Per Common Share
Three Months Ended
March 30, 1996 and
March 25, 1995 22
Six Months Ended
March 30, 1996 and
March 25, 1995 23
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 30, SEPTEMBER 30,
1996 1995
(UNAUDITED) (NOTE)
------------ -------------
<S> <C> <C>
CURRENT ASSETS
--------------
Cash $ 23,381,684 $ 20,120,776
Receivables 17,880,454 15,176,746
Inventories 122,224,192 116,863,588
Other 4,552,948 3,667,010
------------- -------------
TOTAL CURRENT ASSETS 168,039,278 155,828,120
PROPERTY AND EQUIPMENT - Net 485,345,731 450,540,776
----------------------
OTHER ASSETS 5,389,820 5,458,358
------------ ------------- -------------
TOTAL ASSETS $ 658,774,829 $ 611,827,254
============= =============
</TABLE>
NOTE: The balance sheet at September 30, 1995 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 (CONTINUED)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
MARCH 30, SEPTEMBER 30,
1996 1995
(UNAUDITED) (NOTE)
------------ -------------
<S> <C> <C>
CURRENT LIABILITIES
-------------------
Short-term loans and current
portion of long-term liabilities $ 72,081,668 $ 36,899,696
Accounts payable and accrued
expenses 95,361,287 98,119,632
------------ ------------
TOTAL CURRENT LIABILITIES 167,442,955 135,019,328
DEFERRED INCOME TAXES 20,926,161 20,226,161
---------------------
LONG-TERM LIABILITIES 301,394,995 292,765,280
--------------------- ------------ ------------
TOTAL LIABILITIES 489,764,111 448,010,769
------------ ------------
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; 4,790,266
shares issued and outstanding
March 30, 1996; 4,577,541 shares
issued and outstanding
September 30, 1995 239,513 228,877
Class B, $.05 par value; 100,000,000
shares authorized; 13,313,884
shares issued and outstanding
March 30, 1996; 13,326,609 shares
issued and outstanding
September 30, 1995 665,695 666,331
Paid-in capital in excess of
par value 50,139,088 48,599,088
Retained earnings 117,966,422 114,322,189
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 169,010,718 163,816,485
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $658,774,829 $611,827,254
============ ============
</TABLE>
NOTE: The balance sheet at September 30, 1995 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 30, MARCH 25,
1996 1995
------------ ------------
<S> <C> <C>
NET SALES $364,223,309 $327,949,528
COST OF GOODS SOLD 279,898,927 253,427,793
------------ ------------
GROSS PROFIT 84,324,382 74,521,735
OPERATING AND ADMINISTRATIVE
EXPENSES 72,072,746 66,426,402
RENTAL INCOME, NET 1,239,253 1,026,457
------------ ------------
INCOME FROM OPERATIONS 13,490,889 9,121,790
OTHER INCOME, NET 909,479 91,747
------------ ------------
INCOME BEFORE INTEREST
AND INCOME TAXES 14,400,368 9,213,537
INTEREST EXPENSE 7,269,661 5,926,406
------------ ------------
INCOME BEFORE
INCOME TAXES 7,130,707 3,287,131
------------ ------------
INCOME TAXES:
Current 2,900,000 1,400,000
Deferred (200,000) (300,000)
------------ ------------
2,700,000 1,100,000
------------ ------------
NET INCOME $ 4,430,707 $ 2,187,131
============ ============
PER-SHARE AMOUNTS:
Earnings per common share:
Primary earnings per common share $ .24 $ .12
============ ============
Fully diluted earnings per common share $ .23 $ .12
============ ============
Cash dividends per common share:
Class A $ .165 $ .165
------------ ------------
Class B $ .150 $ .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 30, MARCH 25,
1996 1995
------------ ------------
<S> <C> <C>
NET SALES $721,629,574 $658,155,896
COST OF GOODS SOLD 554,937,363 510,049,936
------------ ------------
GROSS PROFIT 166,692,211 148,105,960
OPERATING AND ADMINISTRATIVE
EXPENSES 141,145,363 130,186,310
RENTAL INCOME, NET 2,234,600 2,321,401
------------ ------------
INCOME FROM OPERATIONS 27,781,448 20,241,051
OTHER INCOME, NET 1,479,263 123,466
------------ ------------
INCOME BEFORE INTEREST
AND INCOME TAXES 29,260,711 20,364,517
INTEREST EXPENSE 14,507,888 11,039,598
------------ ------------
INCOME BEFORE
INCOME TAXES 14,752,823 9,324,919
------------ ------------
INCOME TAXES:
Current 5,900,000 3,900,000
Deferred (300,000) (600,000)
------------ ------------
5,600,000 3,300,000
------------ ------------
NET INCOME $ 9,152,823 $ 6,024,919
============ ============
PER-SHARE AMOUNTS:
Earnings per common share:
Primary earnings per common share $ .50 $ .33
============ ============
Fully diluted earnings per common share $ .46 $ .33
============ ============
Cash dividends per common share:
Class A $ .33 $ .33
------------ ------------
Class B $ .30 $ .30
------------ ------------
</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> <C>
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
========= ======== ========== ======== =========== ============ ============
BALANCE,
SEPTEMBER 30, 1995. 4,577,541 $228,877 13,326,609 $666,331 $48,599,088 $114,322,189 $163,816,485
NET INCOME . . . . . - - - - - 9,152,823 9,152,823
CASH DIVIDENDS . . . - - - - - (5,508,590) (5,508,590)
EXERCISE OF STOCK
OPTIONS . . . . . . 200,000 10,000 - - 1,540,000 - 1,550,000
COMMON STOCK
CONVERSIONS . . . . 12,725 636 (12,725) (636) - - -
--------- -------- ---------- -------- ----------- ------------ ------------
BALANCE,
MARCH 30, 1996. . . 4,790,266 $239,513 13,313,884 $665,695 $50,139,088 $117,966,422 $169,010,718
========= ======== ========== ======== =========== ============ ============
</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 30, MARCH 25,
1996 1995
------------ ------------
<S> <C> <C>
Cash Flows From Operating Activities:
Net income $ 9,152,823 $ 6,024,919
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization expense 15,831,881 12,713,323
Receipt of advance payments on purchases
contracts 2,000,000 -
Recognition of advance payments on purchases
contracts (1,240,625) (540,606)
(Gains) losses on disposals of property and
equipment (1,455,082) 64,826
Deferred income taxes (300,000) (600,000)
Increase in receivables (2,676,827) (676,260)
Increase in inventory (5,360,604) (6,154,279)
Decrease in other assets 19,896 95,520
Decrease in accounts payable
and accrued expenses (2,408,345) (6,342,961)
------------ ------------
Net Cash Provided by Operating Activities 13,563,117 4,584,482
------------ ------------
Cash Flows From Investing Activities:
Proceeds from sales of property and
equipment 2,023,241 55,204
Capital expenditures (51,069,172) (60,876,933)
------------ ------------
Net Cash (Used) by Investing Activities (49,045,931) (60,821,729)
------------ ------------
Cash Flows From Financing Activities:
Proceeds from issuance of long-term debt 48,714,551 63,650,820
Principal payments on long-term debt (26,662,239) (12,652,504)
Proceeds from short-term borrowings, net 21,000,000 12,500,000
Proceeds from exercise of stock options 1,200,000 -
Dividends paid (5,508,590) (5,503,804)
------------ ------------
Net Cash Provided By Financing Activities 38,743,722 57,994,512
------------ ------------
Net Increase in Cash 3,260,908 1,757,265
Cash at Beginning of Period 20,120,776 18,471,011
------------ ------------
Cash at End of Period $ 23,381,684 $ 20,228,276
============ ============
</TABLE>
See notes to unaudited interim financial statements.
8
<PAGE> 9
INGLES MARKETS, INCORPORATED
AND SUBSIDIARIES
NOTES TO UNAUDITED INTERIM FINANCIAL STATEMENTS
March 30, 1996
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 30, 1996, and the results of operations, changes
in stockholders' equity and cash flows for the three month and six month
periods ended March 30, 1996 and March 25, 1995. 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 1995 Annual Report on Form 10-K filed by the
Company under the Securities Exchange Act of 1934 on December 15, 1995.
The results of operations for the three month and six month periods ended March
30, 1996 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 25, 1995
have been reclassified for comparative purposes.
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 (18,474,353 and
18,425,683 for the three month and six month periods ended March 30, 1996,
respectively and 18,289,829 and 18,321,171 for the three month and six month
periods ended March 25, 1995, 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 21,920,578 and 21,917,329 for the three and six month periods ended
March 30, 1996, respectively, and 21,695,856 for the six month period ended
March 25, 1995. 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.
C. ALLOWANCE FOR DOUBTFUL ACCOUNTS
Receivables are presented net of an allowance for doubtful accounts of $85,598
and $85,490 at March 30, 1996 and September 30, 1995, respectively.
9
<PAGE> 10
D. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consist of the following:
<TABLE>
<CAPTION>
March 30, September 30,
1996 1995
------------ -------------
<S> <C> <C>
Accounts payable-trade $ 68,252,169 $ 66,815,027
Property, payroll and
other taxes payable 8,742,358 9,363,814
Salaries, wages and
bonuses payable 6,468,594 7,970,396
Self-insurance reserves 4,410,000 4,350,000
Other 7,488,166 9,620,395
------------ -------------
$ 95,361,287 $ 98,119,632
============ =============
</TABLE>
Self-insurance reserves are established for workers' compensation and employee
group medical and dental benefits based on claims filed and claims incurred but
not reported. The Company is insured for covered costs in excess of $350,000
per occurrence for workers' compensation and $150,000 per covered person for
medical care benefits for a policy year. Employee insurance expense, including
workers' compensation and medical care benefits, net of employee contributions,
totalled $2,184,926 and $2,512,654 for the three month periods ended March 30,
1996 and March 25, 1995, respectively. For the six month periods ended March
30, 1996 and March 25, 1995, employee insurance expense totalled $4,149,030 and
$4,151,976, respectively.
E. LONG-TERM LIABILITIES
During the six month period ended March 30, 1996, the Company
obtained $48,714,551 in long-term loans. The proceeds were used to reduce
short-term debt, to fund capital expenditures and for general corporate
purposes. Details of the new debt are as follows:
<TABLE>
<S> <C>
Interest rate at 7.58%, maturing 2002
secured by real estate and equipment $ 28,357,403
Interest rate at 7.61%, maturing 2000,
secured by equipment 5,000,000
Interest rate at 9.25%, maturing 2005,
secured by real estate 2,092,893
Interest at LIBOR rate plus a specified
margin, maturing May 1997, unsecured 13,000,000
Other 264,255
-------------
$ 48,714,551
=============
</TABLE>
During April 1996, the Company obtained a $10.0 million loan from a bank under a
previously existing long-term line of credit expiring in May 1997 with a rate of
interest at LIBOR plus a specified margin. On May 7, 1996, the Company
obtained a commitment for a five-year loan in the amount of $10.0 million from
a bank at an interest rate fixed at 1.85% over the 5-year U.S. Treasury bill
rate. The proceeds of these loans were or will be used to reduce short-term
borrowings outstanding at March 30, 1996. Short-term borrowings have been
reclassified to long-term liabilities at March 30, 1996 pursuant to this
refinancing.
10
<PAGE> 11
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 16, 1996 and October
16, 1995 to stockholders of record on January 5, 1996 and October 6, 1995,
respectively.
G. SUPPLEMENTARY CASH FLOW INFORMATION
Cash paid for interest and taxes is as follows:
<TABLE>
<CAPTION>
SIX MONTH PERIOD ENDED
--------------------------------
March 30, March 25,
1996 1995
------------ ------------
<S> <C> <C>
Interest (net of
amount capitalized) $ 14,292,574 $ 10,703,817
Income taxes 8,456,090 5,029,100
</TABLE>
H. EXERCISE OF STOCK OPTION AGREEMENTS WITH EXECUTIVE OFFICERS
During the three month period ended March 30, 1996, Robert P. Ingle, Chairman
of the Board of Directors and Chief Executive Officer of the Company, and Landy
B. Laney, President and Chief Operating Officer of the Company, each exercised
their options to purchase 100,000 shares of the Company's Class A Common Stock
at an option price of $6.00 per share. The difference between the fair market
value of the Class A Common Stock at the date of the grant of the options
($7.75 per share) and the option price ($6.00 per share) was previously
expensed on the Company's books.
11
<PAGE> 12
Item 2. Management's Discussion and Analysis of Results of Operations and
Financial Condition.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 30, 1996 COMPARED
WITH THE THREE MONTHS ENDED MARCH 25, 1995
NET SALES
Net sales for the three month period ended March 30, 1996 increased $36.3
million, to $364.2 million, up 11.1% over sales of $327.9 million last year.
Approximately 64% 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. The Company pursued an aggressive merchandising
and pricing strategy to boost sales in all departments, conducted an effective
advertising campaign, and increased variety in its grocery department. Sales
also benefited from increased volume in stores which were expanded, remodeled
and/or replaced during the prior and current fiscal years.
During the three month period ended March 30, 1996, one new store was opened
and an older store was replaced.
GROSS PROFIT
Gross profit for the period was $84.3 million, or 23.2% of sales, compared to
$74.5 million, or 22.7% of sales, a year ago - an increase of 13.2%. Grocery
gross profit, as a percentage of sales, increased primarily because of an
aggressive purchasing program. Meat, produce and deli gross profit, as a
percentage of sales, improved due to better merchandising and aggressive
purchasing and pricing programs.
OPERATING AND ADMINISTRATIVE EXPENSES
Operating and administrative expenses, as a percentage of sales, were 19.8%
this year compared to 20.3% last year. The percentage decrease is primarily
due to decreases in advertising and promotional expenditures, the cost of labor
at store level, insurance and rent expense, and the cost of store supplies.
These decreases were partially offset by increases, as a percentage of sales,
in depreciation and amortization expense resulting from the Company's
aggressive capital expenditure program and higher expense associated with
repairs and maintenance.
RENTAL INCOME, NET
Rental income, net increased from $1.0 million last year to $1.2 million this
year. The increase is due to an increase in rental income, $.3 million, net of
increased expense, $.1 million, associated with the remodeling of shopping
centers.
12
<PAGE> 13
INCOME FROM OPERATIONS
Income from operations increased 47.9% to $13.5 million, or 3.7% of sales,
compared to $9.1 million, or 2.8% of sales, the prior year. The increase in
operating income in fiscal 1996 is due to the increase in sales, the related
increase in gross profit and the decrease, as a percentage of sales, in
operating and administrative expenses.
OTHER INCOME, NET
Other income, net increased $.8 million. Fiscal 1996 includes gains of $.9
million on the sale of two outparcels of land located adjacent to shopping
centers owned by the Company.
INCOME BEFORE INTEREST AND INCOME TAXES
Income before interest and income taxes increased 56.3% to $14.4 million, or
3.9% of sales, this year compared with $9.2 million, or 2.8% of sales, last
year.
INTEREST EXPENSE
Interest expense was $7.3 million in fiscal 1996 - $5.9 million in fiscal 1995.
The increase in interest expense was principally due to an increase in debt to
fund the Company's aggressive capital expenditure program.
INCOME BEFORE INCOME TAXES
Income before income taxes was $7.1 million, or 2.0% of sales, this year
compared with $3.3 million, or 1.0% of sales, last year.
INCOME TAXES
Income tax expense, as a percentage of pre-tax income was 37.9% this year
compared with 33.5% last year due to the elimination of the targeted jobs tax
credit and higher state income taxes.
NET INCOME
Net income for the three month period ended March 30, 1996 increased 102.6% to
$4.4 million, or 1.2% of sales, compared to $2.2 million, or .7% of sales, the
prior year. Primary earnings per common share doubled - from $.12 last year to
$.24 this year.
SIX MONTHS ENDED MARCH 30, 1996 COMPARED
WITH THE SIX MONTHS ENDED MARCH 25, 1995
NET SALES
Net sales for the six month period ended March 30, 1996 increased $63.5 million
to $721.6 million, up 9.6% over sales of $658.1 million last year. Growth in
identical store sales (grocery stores open for the entire duration of the
previous fiscal year) was 7.0%. Aggressive merchandising, aggressive pricing
and effective advertising helped boost sales. Sales also benefited by
increased volume in stores that were expanded, remodeled and/or replaced during
the past year.
13
<PAGE> 14
During the period, two new stores were opened and four older stores were
expanded, remodeled and/or replaced. At March 30, 1996, the Company operated
184 supermarkets in six states: North Carolina (58), South Carolina (28),
Georgia (73), Tennessee (21), Virginia (3) and Alabama (1).
GROSS PROFIT
Gross profit for the 1996 six month period was $166.7 million, or 23.1% of
sales, compared with $148.1 million, or 22.5% of sales, the prior year.
Grocery gross profit, as a percentage of sales, increased primarily because of
aggressive merchandising, aggressive pricing, effective advertising and
increased variety in the department. Meat, produce and deli gross profit, as a
percentage of sales, improved due to better merchandising and aggressive
purchasing and pricing programs.
OPERATING AND ADMINISTRATIVE EXPENSES
Operating and administrative expenses, as a percentage of sales, were 19.6% in
fiscal 1996 - 19.8% in fiscal 1995. During fiscal 1996, depreciation and
amortization expense increased due to the Company's aggressive capital
expenditure program last year and so far this year. The cost of repairs and
maintenance also increased. These increases were more than offset by
decreases, as a percentage of sales, in advertising and promotional
expenditures, the cost of store supplies, rent and insurance expense and the
cost of labor at store level.
RENTAL INCOME, NET
Rental income, net was $2.3 million last year - $2.2 million this year.
Increased rental income was more than offset by increased expense associated
with the remodeling of shopping centers.
INCOME FROM OPERATIONS
Income from operations in fiscal 1996 was $27.8 million, or 3.8% of sales,
compared to $20.2 million, or 3.1% of sales, last year. The increase in
operating income was due to the increase in sales, the related increase in
gross profit and the decrease, as a percentage of sales, in operating and
administrative expenses.
OTHER INCOME, NET
Other income, net increased $1.4 million. Fiscal 1996 includes gains of $1.4
million on the sale of four outparcels of land located adjacent to shopping
centers owned by the Company.
INCOME BEFORE INTEREST AND INCOME TAXES
Income before interest and income taxes increased 43.7% to $29.3 million, or
4.0% of sales, this year compared to $20.4 million, or 3.1% of sales, last
year.
INTEREST EXPENSE
Interest expense was $14.5 million in fiscal 1996 - $11.0 million in fiscal
1995. The increase in interest expense is principally due to an increase in
debt to fund the Company's aggressive capital expenditure program.
14
<PAGE> 15
INCOME BEFORE INCOME TAXES
Income before income taxes was $14.8 million, or 2.0% of sales, this year
compared with $9.3 million, or 1.4% of sales, last year.
INCOME TAXES
Income tax expense, as a percentage of pre-tax income, was 37.9% this year
compared with 35.4% last year due to the elimination of the targeted jobs tax
credit and higher state income taxes.
NET INCOME
Net income for the six month period ended March 30, 1996 increased 51.9% to
$9.2 million, or 1.3% of sales, compared to $6.0 million, or .9% of sales, the
prior year. Primary earnings per common share rose from $.33 last year to $.50
this year.
FINANCIAL CONDITION
LIQUIDITY AND CAPITAL RESOURCES
OPERATING ACTIVITIES
Net cash provided by operating activities for the six month period ended March
30, 1996 totalled $13.6 million. Net income for the period was $9.2 million
and depreciation and amortization expense was $15.8 million. Inventory
increased $5.4 million, receivables increased $2.7 million, accounts payable
and accrued expenses decreased $2.4 million, the receipt of advanced payments
on purchases contracts was $2.0 million, recognition of advance payments on
purchases contracts was $1.2 million and gains on the disposals of property and
equipment were $1.5 million.
The increase in inventory occurred at both store and warehouse levels and is
the result of two new store openings, four store expansions, remodels and/or
replacements, an expanded warehouse facility, increased variety and the
Company's desire to maintain inventory levels to support increased sales
volume. The increase in receivables is primarily the result of an increase in
rebates and allowances due from suppliers. The decrease in accounts payable
and accrued expenses was principally due to a decrease in property, payroll and
other taxes payable ($.6 million), a decrease in salaries, wages and bonuses
payable ($1.5 million) and a decrease in miscellaneous other payables ($2.1
million) partially offset by an increase in accounts payable trade ($1.4
million).
INVESTING ACTIVITIES
Net cash used by investing activities - primarily expenditures for capital
assets - during the period was $49.0 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 fifteen
stores. A portion of these expenditures were for new stores, store expansions,
remodels and/or replacements expected to become operational in fiscal 1997.
15
<PAGE> 16
FINANCING ACTIVITIES
Net cash provided by financing activities totalled $38.7 million. Proceeds
from the issuance of long-term debt aggregated $48.7 million. The proceeds of
this debt were used to reduce short-term borrowings outstanding under existing
bank lines of credit. Additional short-term debt was subsequently incurred to
pay for capital expenditures and for general corporate purposes. Proceeds from
short-term borrowings, net were $21.0 million. Principal payments on long-term
debt were $26.7 million. The Company paid cash dividends of $5.5 million.
FINANCIAL STRENGTH
At March 30, 1996, the Company remained in sound financial condition. Total
assets were $658.8 million and stockholders' equity was $169.0 million,
compared with $611.8 million and $163.8 million, respectively, at year-end,
September 30, 1995. Favorable inventory turnover rates (cost of
sales/inventory on an annualized basis) in 1996 of 9.1 helped generate cash
flow from operations. Return on assets (net income/total assets annualized)
increased from 2.1% in 1995 to 2.8% in 1996. Return on investment (net
income/average stockholders' equity annualized) improved from 7.6% in fiscal
1995 to 11.0% in fiscal 1996.
CAPITAL REQUIREMENTS
The Company's store expansion, remodeling and/or replacement plans are
continually reviewed and are subject to change. The Company's ability to open
new stores is subject to several factors, including the acquisition of
satisfactory sites and the successful negotiation of new leases, and may be
limited by zoning and other governmental regulation.
During the period ended March 30, 1996, two new stores were opened and four
older stores were expanded, remodeled and/or replaced. During the balance of
fiscal 1996, the Company expects to open six new stores and expand, remodel
and/or replace three existing stores. In addition, the Company plans minor
remodels ("face-lifts") at seven existing store locations. Additional capital
expenditures will be made to: (1) upgrade and replace existing store equipment,
(2) install electronic scanning systems in new and existing stores and (3)
secure sites for future store expansion. Fiscal 1996 capital expenditures, in
the aggregate, are expected to be approximately $75 million to $80 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 1997.
FINANCIAL RESOURCES
At March 30, 1996, the Company had lines of credit with six banks totalling
$106 million; of this amount $42 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 generally at rates
less than prime. 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 $230 million which is available
to collateralize additional debt.
16
<PAGE> 17
During April 1996, the Company obtained a $10.0 million loan from a bank under a
previously existing long-term line of credit expiring May 1997 with a rate of
interest at LIBOR plus a specified margin. On May 7, 1996, the Company
obtained a commitment for a five year loan in the amount of $10.0 million from
a bank at an interest rate fixed at 1.85% over the 5-year U.S. Treasury bill
rate. The proceeds of these loans were or will be used to reduce short-term
borrowings outstanding at March 30, 1996.
The Company believes, based on its current results of operations and financial
condition, 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. The Company
believes that its current expansion, remodel and/or replacement program will
not have a material adverse effect on the availability of these financial
resources or on the sufficiency of these resources for the purpose described.
There can be no assurance, however, that the Company's results of operations
and financial condition will not change in the future based on a number of
intangible factors. These factors may include, among others, increased
competition, changing regional and national economic conditions, adverse
climatic conditions affecting food production and delivery and changing
demographics. In addition, for such reasons, there can be no assurance that
the results of operations from the expanded, remodeled and/or replacement
stores will meet or exceed the results of operations from existing stores.
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.
INSURANCE
The Company maintains general liability, automobile and excess liability
coverages. The Company carries $10 million liability insurance coverage on
four aircraft used in its business. The Company carries casualty insurance
only on those properties where it is required to do so.
Because of the sharp escalation in the cost of insurance, the Company has
elected to self-insure certain other costs representing approximately 71%
17
<PAGE> 18
of the total cost of insurance. Risks and uncertainties are associated with
self-insurance; however, the Company has limited its exposure by maintaining
excess liability coverages. The Company believes that its mix between
insurance and self-insurance is prudent, is in accordance with general industry
practice and is in the best interest of the Company.
Self-insurance reserves are established for workers' compensation and employee
group medical and dental benefits based on claims filed and claims incurred but
not reported, with a maximum per occurrence of $350,000 for workers'
compensation and up to a maximum of $150,000 per covered person for medical
care benefits for a policy year. The Company is insured for covered costs in
excess of these limits.
Insurance expense, as a percentage of sales, for the six month period ended
March 30, 1996, decreased .07%.
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 is dependent on improved operating
efficiencies and, to the extent possible, improved gross margins.
IMPACT OF SFAS 121 AND SFAS 123
The Financial Accounting Standards Board issued new standards (SFAS 121),
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to be Disposed Of" and (SFAS 123), "Accounting for Stock-based Compensation"
effective for the fiscal year ending September 1997. The effect of adopting
the standards has not been determined.
18
<PAGE> 19
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 20, 1996. Matters submitted to a vote of
the stockholders at this meeting were as follows:
(1) Election of eight directors for the ensuing year. John O.
Pollard and J. Alton Wingate were elected by the holders of Class A
Common Stock by the following vote: (a) Mr. Pollard: 3,931,952 votes
for, 178,616 votes withheld, 0 abstentions and 0 broker nonvotes and
(b) Mr. Wingate: 3,938,508 votes for, 172,260 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: 13,072,335 votes for, 0 votes
withheld, 0 abstentions and 0 broker nonvotes and (b) Mr Laney:
13,072,260 votes for, 75 votes withheld, 0 abstentions and 0 broker
nonvotes and (c) Mr. Federico: 13,072,110 votes for, 225 votes
withheld, 0 abstentions and 0 broker nonvotes and (d) Mr. Ferguson:
13,072,335 votes for, 0 votes withheld, 0 abstentions and 0 broker
nonvotes and (e) Mr. Fisher: 13,071,135 votes for, 1,200 votes
withheld, 0 abstentions and 0 broker nonvotes and (f) Mr. Gardner:
13,072,335 votes for, 0 votes withheld, 0 abstentions and 0 broker
nonvotes.
(2) The Amended and Restated Ingles Markets, Incorporated 1991
Nonqualified Stock Option Plan was adopted and approved by the
following vote. Holders of Class A Common Stock: 3,560,218 votes
for, 160,247 against, 62,004 abstentions and 0 broker nonvotes.
Holders of Class B Common Stock (10 votes per share): 13,066,635
shares voting for, 0 shares voting against, 5,700 shares
abstaining and 328,299 broker nonvotes.
(3) The Amended and Restated Stock Option Agreement between the
Company and Robert P. Ingle, Chairman of the Board of Directors and
Chief Executive Officer of the Company, effective as of July 21, 1993
was adopted and approved by the following vote. Holders of Class A
Common Stock: 3,675,786 votes for, 259,025 votes against, 56,878
abstentions and 0 broker nonvotes. Holders of Class B Common Stock
(10 votes per share): 13,066,835 shares voting for, 75 shares voting
against, 5,425 shares abstaining and 119,079 broker nonvotes.
(4) The Amended and Restated Stock Option Agreement between the
Company and Landy B. Laney, President and Chief Operating Officer of
the Company, effective as of July 21, 1993 was adopted and approved
by the following vote. Holders of Class A Common Stock: 3,672,891
votes for, 264,058 votes against, 54,740 abstentions and 0 broker
nonvotes. Holders of Class B Common Stock (10 votes per share):
13,066,835 shares voting for, 75 shares voting against, 5,425 shares
abstaining and 119,079 broker nonvotes.
(5) The Stock Option Agreement between the Company and Edward J.
Kolodzieski, Vice President-Strategic Planning of the Company,
19
<PAGE> 20
dated as of August 2, 1995 was adopted and approved by the following
vote. Holders of Class A Common Stock: 3,777,083 votes for, 155,028
votes against, 59,878 abstentions and 0 broker nonvotes. Holders of
Class B Common Stock (10 votes per share): 13,066,610 shares voting
for, 300 shares voting against, 5,425 shares abstaining and 119,079
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 30, 1996.
20
<PAGE> 21
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 13, 1996 /s/ Robert P. Ingle
----------------------------
Robert P. Ingle
Chairman of the Board and
Chief Executive Officer
Date: May 13, 1996 /s/ Jack R. Ferguson
----------------------------
Jack R. Ferguson
Vice President-Finance and
Chief Financial Officer
21
<PAGE> 1
EXHIBIT 11
INGLES MARKETS, INCORPORATED Page 1 of 2
AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER COMMON SHARE *
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------
MARCH 30, MARCH 25,
1996 1995
------------ ------------
<S> <C> <C>
PRIMARY:
Net income $ 4,430,707 $ 2,187,131
=========== ===========
Shares
Weighted average number of common shares
and common stock equivalent shares
outstanding 18,474,353 18,289,829
=========== ===========
Primary earnings per common share $ .24 $ .12
=========== ===========
FULLY DILUTED:
Net income $ 4,430,707 $ 2,187,131
Add after tax and bonus effect of interest
expense applicable to Convertible
Subordinated Debentures 514,039 530,097
----------- -----------
Fully diluted earnings $ 4,944,746 $ 2,717,228
=========== ===========
Shares
Weighted average number of common
shares and common stock equivalent
shares outstanding 18,545,893 18,289,829
Additional shares assuming conversion
of Convertible Subordinated Debentures 3,374,685 3,374,685
----------- -----------
Weighted average number of common
shares outstanding as adjusted 21,920,578 21,664,514
=========== ===========
Fully diluted earnings per common share** $ .23 $ .12
=========== ===========
</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.
22
<PAGE> 2
EXHIBIT 11
INGLES MARKETS, INCORPORATED Page 2 of 2
AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER COMMON SHARE *
<TABLE>
<CAPTION>
SIX MONTHS ENDED
----------------
MARCH 30, MARCH 25,
1996 1995
------------ ------------
<S> <C> <C>
PRIMARY:
Net income $ 9,152,823 $ 6,024,919
=========== ===========
Shares
Weighted average number of common shares
and common stock equivalent shares
outstanding 18,425,683 18,321,171
=========== ===========
Primary earnings per common share $ .50 $ .33
=========== ===========
FULLY DILUTED:
Net Income $ 9,152,823 $ 6,024,919
Add after tax and bonus effect of interest
expense applicable to Convertible
Subordinated Debentures 1,028,078 1,058,209
----------- -----------
Fully diluted earnings $10,180,901 $ 7,083,128
=========== ===========
Shares
Weighted average number of common
shares and common stock equivalent
shares outstanding 18,542,644 18,321,171
Additional shares assuming conversion
of Convertible Subordinated Debentures 3,374,685 3,374,685
----------- -----------
Weighted average number of common
shares outstanding as adjusted 21,917,329 21,695,856
=========== ===========
Fully diluted earnings per common share $ .46 $ .33
=========== ===========
</TABLE>
* See note B of the notes to unaudited interim financial statements.
23
<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 30, 1996 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-28-1996
<PERIOD-START> OCT-01-1995
<PERIOD-END> MAR-30-1996
<CASH> 23,381,684
<SECURITIES> 0
<RECEIVABLES> 17,966,052
<ALLOWANCES> 85,598
<INVENTORY> 122,224,192
<CURRENT-ASSETS> 168,039,278
<PP&E> 674,333,348
<DEPRECIATION> 188,987,617
<TOTAL-ASSETS> 658,774,829
<CURRENT-LIABILITIES> 167,442,955
<BONDS> 301,394,995
0
0
<COMMON> 905,208
<OTHER-SE> 168,105,510
<TOTAL-LIABILITY-AND-EQUITY> 658,774,829
<SALES> 721,629,574
<TOTAL-REVENUES> 726,033,801
<CGS> 554,937,363
<TOTAL-COSTS> 557,106,990
<OTHER-EXPENSES> (1,479,263)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 14,507,888
<INCOME-PRETAX> 14,752,823
<INCOME-TAX> 5,600,000
<INCOME-CONTINUING> 9,152,823
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,152,823
<EPS-PRIMARY> .50
<EPS-DILUTED> .46
</TABLE>
