<PAGE> 1
UNITED STATES
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 25, 1999
[ ] 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 offices) (Zip Code)
(828) 669-2941
(Registrant's telephone number, including area code)
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 February 1, 1999, the registrant had 9,905,339 shares of Class A Common
Stock, $.05 par value per share, and 12,672,400 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)
Condensed Consolidated Balance Sheets
December 25, 1999 and September 25, 1999 3
Condensed Consolidated Statements of Income
Three Months Ended December 25, 1999 and December 26, 1998 5
Condensed Consolidated Statements of Changes in Stockholders' Equity
Three Months Ended December 25, 1999 and December 26, 1998 6
Condensed Consolidated Statements of Cash Flows
Three Months Ended December 25, 1999 and December 26, 1998 7
Notes to Unaudited Interim Financial Statements 8
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 11
Item 3. Quantitative and Qualitative Disclosures About Market Risk 17
Part II - Other Information
Item 6. Exhibits and Reports on Form 8-K 17
Signatures 18
</TABLE>
2
<PAGE> 3
Part I. Financial Information
Item 1. Financial Statements
INGLES MARKETS, INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 25, SEPTEMBER 25,
1999 1999
(UNAUDITED) (NOTE)
------------ ------------
<S> <C> <C>
CURRENT ASSETS:
Cash $ 11,587,525 $ 13,959,751
Receivables 33,545,642 25,798,505
Inventories 168,811,122 167,011,044
Refundable income taxes -- 1,500,000
Other 4,370,184 4,491,490
------------ ------------
Total Current Assets 218,314,473 212,760,790
PROPERTY AND EQUIPMENT - Net 676,827,817 656,706,694
OTHER ASSETS 3,605,270 3,703,590
------------ ------------
TOTAL ASSETS $898,747,560 $873,171,074
============ ============
</TABLE>
NOTE: The balance sheet at September 25, 1999 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
CONDENSED CONSOLIDATED BALANCE SHEETS (CONCLUDED)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
DECEMBER 25, SEPTEMBER 25,
1999 1999
(UNAUDITED) (NOTE)
------------ ------------
<S> <C> <C>
CURRENT LIABILITIES:
Short-term loans and current portion of $ 75,937,365 $ 62,002,254
long-term debt
Accounts payable, accrued expenses and
current portion of other long-term liabilities 146,238,731 141,643,477
------------ ------------
Total Current Liabilities 222,176,096 203,645,731
DEFERRED INCOME TAXES 27,954,578 28,014,578
LONG-TERM DEBT 409,269,366 402,992,151
OTHER LONG-TERM LIABILITIES 12,787,656 14,396,758
------------ ------------
TOTAL LIABILITIES 672,187,696 649,049,218
------------ ------------
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; 9,903,239 shares issued
and outstanding December 25, 1999;
9,786,491 shares issued and outstanding
September 25, 1999 495,162 489,324
Class B, $.05 par value; 100,000,000 shares
authorized; 12,674,500 shares issued
and outstanding December 25, 1999;
12,691,248 shares issued and outstanding
September 25, 1999 633,725 634,563
Paid-in capital in excess of par value 97,943,633 96,898,633
Retained earnings 127,487,344 126,099,336
------------ ------------
Total Stockholders' Equity 226,559,864 224,121,856
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $898,747,560 $873,171,074
============ ============
</TABLE>
NOTE: The balance sheet at September 25, 1999 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
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-------------------------------------
DECEMBER 25, DECEMBER 26,
1999 1998
------------- -------------
<S> <C> <C>
Net sales $ 468,400,201 $ 453,341,284
Cost of goods sold 351,054,261 342,753,517
------------- -------------
Gross profit 117,345,940 110,587,767
Operating and administrative expenses 102,911,567 96,254,140
Rental income, net 2,231,853 2,171,088
------------- -------------
Income from operations 16,666,226 16,504,715
Other income, net 943,190 403,079
------------- -------------
Income before interest and income taxes 17,609,416 16,907,794
Interest expense 9,702,949 10,438,115
------------- -------------
Income before income taxes 7,906,467 6,469,679
------------- -------------
Income taxes:
Current 3,150,000 3,500,000
Deferred (150,000) (1,100,000)
------------- -------------
3,000,000 2,400,000
------------- -------------
Net income $ 4,906,467 $ 4,069,679
============= =============
Per-share amounts:
Basic earnings per common share $ .22 $ .18
============= =============
Diluted earnings per common share $ .22 $ .18
============= =============
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
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (UNAUDITED)
THREE MONTHS ENDED DECEMBER 25, 1999 AND DECEMBER 26, 1998
<TABLE>
<CAPTION>
CLASS A CLASS B PAID-IN
COMMON STOCK COMMON STOCK CAPITAL IN
--------------------- ------------------------- EXCESS OF RETAINED
SHARES AMOUNT SHARES AMOUNT PAR VALUE EARNINGS TOTAL
--------- -------- ----------- --------- ----------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance,
September 26, 1998 9,581,641 $479,082 12,784,098 $ 639,205 $95,765,167 $ 121,352,289 $ 218,235,743
Net income -- -- -- -- -- 4,069,679 4,069,679
Cash dividends -- -- -- -- -- (3,498,588) (3,498,588)
Exercise of stock
Options 12,000 600 -- -- 100,966 -- 101,566
Common stock
Conversions 6,300 315 (6,300) (315) -- -- --
--------- -------- ----------- --------- ----------- ------------- -------------
Balance,
December 26, 1998 9,599,941 $479,997 12,777,798 $ 638,890 $95,866,133 $ 121,923,380 $ 218,908,400
========= ======== =========== ========= =========== ============= =============
Balance,
September 25, 1999 9,786,491 $489,324 12,691,248 $ 634,563 $96,898,633 $ 126,099,336 $ 224,121,856
Net income -- -- -- -- -- 4,906,467 4,906,467
Cash dividends -- -- -- -- -- (3,518,459) (3,518,459)
Exercise of stock
options 100,000 5,000 -- -- 1,045,000 -- 1,050,000
Common stock
conversions 16,748 838 (16,748) (838) -- -- --
--------- -------- ----------- --------- ----------- ------------- -------------
BALANCE,
DECEMBER 25, 1999 9,903,239 $495,162 12,674,500 $ 633,725 $97,943,633 $ 127,487,344 $ 226,559,864
========= ======== =========== ========= =========== ============= =============
</TABLE>
See notes to unaudited interim financial statements.
6
<PAGE> 7
INGLES MARKETS, INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-----------------------------------
DECEMBER 25, DECEMBER 26,
1999 1998
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 4,906,467 $ 4,069,679
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization expense 10,632,567 10,601,974
Amortization of deferred gains on
sale/leasebacks (273,368) (178,304)
Loss (gain) on disposals of property
& equipment 120,521 (204,638)
Receipt of advance payments on
purchase contracts 1,034,282 1,848,750
Recognition of advance payments on
purchase contracts (1,402,651) (746,318)
Deferred income taxes (150,000) (1,100,000)
Increase in receivables (6,247,137) (3,659,840)
Increase in inventory (1,800,078) (3,524,807)
Decrease (increase) in other assets 241,821 (451,425)
Increase (decrease) in accounts payable 486,193 (805,664)
------------ ------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 7,548,617 5,849,407
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of property and
equipment -- 221,825
Capital expenditures (27,664,710) (14,362,915)
------------ ------------
NET CASH (USED) BY INVESTING ACTIVITIES (27,664,710) (14,141,090)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt 50,053,573 26,000,000
Principal payments of long-term debt (29,841,247) (13,536,397)
Proceeds from exercise of stock options 1,050,000 101,566
Dividends paid (3,518,459) (3,498,588)
------------ ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 17,743,867 9,066,581
------------ ------------
NET (DECREASE) INCREASE IN CASH (2,372,226) 774,898
Cash at Beginning of Period 13,959,751 19,121,409
------------ ------------
CASH AT END OF PERIOD $ 11,587,525 $ 19,896,307
============ ============
</TABLE>
See notes to unaudited interim financial statements.
7
<PAGE> 8
INGLES MARKETS, INCORPORATED AND SUBSIDIARIES
NOTES TO UNAUDITED INTERIM FINANCIAL STATEMENTS
Three Months Ended December 25, 1999 and December 26, 1998
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 25, 1999, and the results of operations,
changes in stockholders' equity and cash flows for the three month periods ended
December 25, 1999 and December 26, 1998. 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 1999 Annual Report on Form 10-K filed by the Company under the Securities
Exchange Act of 1934 on December 23, 1999.
The results of operations for the three month period ended December 25, 1999 are
not necessarily indicative of the results to be expected for the full fiscal
year.
Certain amounts for the three month period ended December 26, 1998 have been
reclassified for comparative purposes.
B. ALLOWANCE FOR DOUBTFUL ACCOUNTS
Receivables are presented net of an allowance for doubtful accounts of $198,109
and $185,070 at December 25, 1999 and September 25, 1999, respectively.
C. ACCOUNTS PAYABLE, ACCRUED EXPENSES AND CURRENT PORTION OF OTHER
LONG-TERM LIABILITIES
Accounts payable, accrued expenses and current portion of other long-term
liabilities consist of the following:
<TABLE>
<CAPTION>
DECEMBER 25, September 25,
1999 1999
------------ ------------
<S> <C> <C>
Accounts payable-trade $100,770,806 $ 91,748,064
Property, payroll, and other taxes payable 8,688,045 11,358,575
Salaries, wages and bonuses payable 7,726,083 10,812,107
Self-insurance reserves 5,809,000 5,719,000
Accrued litigation settlement 7,819,063 7,819,063
Other 15,425,734 14,186,668
------------ ------------
$146,238,731 $141,643,477
============ ============
</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
8
<PAGE> 9
covered person for medical care benefits for a policy year. Employee insurance
expense, including workers' compensation and medical care benefits, net of
employee contributions, totaled $3.9 million and $3.4 million for the three
month periods ended December 25, 1999 and December 26, 1998, respectively.
D. LONG-TERM DEBT
During the three month period ended December 25, 1999, the Company obtained
$50.1 million in long-term funding secured by real estate and equipment. The
proceeds of the loans were used to fund capital expenditures, retire existing
long-term debt and for general corporate purposes.
E. DIVIDENDS
On October 11, 1999, 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 to
stockholders of record on October 1, 1999.
F. SUPPLEMENTARY CASH FLOW INFORMATION
Cash paid for interest and taxes is as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
----------------------------
DECEMBER 25, December 26,
1999 1998
------------ ------------
<S> <C> <C>
Interest (net of amount capitalized) $9,807,975 $10,122,548
Income taxes 427,229 1,098,613
</TABLE>
G. EARNINGS PER COMMON SHARE
The following table sets forth the computation of basic and diluted earnings per
share for the periods indicated:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
----------------------------
DECEMBER 25, December 26,
1999 1998
------------ ------------
<S> <C> <C>
BASIC:
Net income $ 4,906,467 $ 4,069,679
============ ===========
Shares
Weighted average number of common shares
outstanding 22,519,497 22,371,453
============ ===========
Basic earnings per common share $ .22 $ .18
============ ===========
DILUTED:
Diluted earnings $ 4,906,467 $ 4,069,679
============ ===========
Shares
Weighted average number of common shares and
common stock equivalent shares outstanding 22,589,682 22,389,913
============ ===========
Diluted earnings per common share $ .22 $ .18
============ ===========
</TABLE>
9
<PAGE> 10
H. LINES OF BUSINESS
The Company operates three lines of business: retail grocery sales, shopping
center rentals, and a fluid dairy processing plant. All of the Company's
operations are domestic. Information about the Company's operations by lines of
business (in thousands) is as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------------
DECEMBER 25, December 26,
1999 1998
------------ ------------
<S> <C> <C>
Revenues from unaffiliated customers:
Grocery sales $450,278 $435,417
Shopping center rentals 3,840 3,729
Fluid dairy 18,122 17,924
-------- --------
Total revenues from unaffiliated customers $472,240 $457,070
======== ========
Income from operations:
Grocery sales $ 13,101 $ 12,791
Shopping center rentals 2,232 2,171
Fluid dairy 1,333 1,543
-------- --------
Total income from operations $ 16,666 $ 16,505
======== ========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 25, September 25,
1999 1999
------------ -------------
<S> <C> <C>
Assets:
Grocery sales $750,093 $725,990
Shopping center rentals 122,921 121,277
Fluid dairy 25,734 25,904
-------- --------
Total assets $898,748 $873,171
======== ========
</TABLE>
Revenue from shopping center rentals is reported on the rental income, net line
of the income statements. The other revenues comprise the reported net sales.
The fluid dairy segment had $11.8 and $10.7 million in sales to the grocery
sales segment in the three months ended December 25, 1999 and December 26, 1998,
respectively. These sales have been eliminated in consolidation.
10
<PAGE> 11
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
Ingles, a leading supermarket chain in the Southeast, operates 208 supermarkets
in Georgia (85), North Carolina (63), South Carolina (32), Tennessee (24),
Virginia (3) and Alabama (1). The Company locates its supermarkets primarily in
suburban areas, small towns and rural communities, where management believes the
market may be under-served by existing supermarkets. Ingles supermarkets offer
customers a wide variety of nationally advertised food products, including
grocery, meat and dairy products, produce, frozen foods and other perishables,
non-food products, including health and beauty care products and general
merchandise, as well as quality private label items. Within the markets it
serves, the Company has developed strong name recognition and a reputation for
combining low overall prices with high levels of customer service and
convenience. Real estate ownership is an important component of the Company's
operations, providing both operational and economic benefits.
RESULTS OF OPERATIONS
Ingles operates on a 52 or 53-week fiscal year ending on the last Saturday in
September. The unaudited condensed consolidated statements of income for the
three-month periods ended December 25, 1999 and December 26, 1998 both include
13 weeks of operations. Comparable store sales are defined as sales by grocery
stores in operation for the entire duration of the previous fiscal year.
Replacement stores and major and minor remodels are included in the comparable
store sales calculation. A replacement store is a new store that is opened to
replace an existing store that is closed nearby. A major remodel entails
substantial remodeling of an existing store and may include additional retail
square footage. A minor remodel includes repainting, remodeling and updating the
lighting and equipment throughout an existing store.
11
<PAGE> 12
The following table sets forth, for the periods indicated, selected financial
information as a percentage of net sales:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------------------
DECEMBER 25, December 26,
1999 1998
------------ ------------
<S> <C> <C>
Net sales 100.0% 100.0%
Gross profit 25.1% 24.4%
Operating and administrative
expenses 22.0% 21.2%
Rental income, net 0.5% 0.4%
Other income, net 0.2% 0.1%
Income before interest and
income taxes 3.8% 3.7%
Interest expense 2.1% 2.3%
Income before income taxes 1.7% 1.4%
Income taxes 0.6% 0.5%
Net income 1.1% 0.9%
EBITDA margin(1) 6.0% 6.1%
</TABLE>
- ----------------------------------
(1) EBITDA represents earnings before interest, income taxes, depreciation
and amortization, non-recurring charges and extraordinary items.
Management believes that EBITDA is a useful measure of operating
performance because it allows for a means of comparing Ingles with
other companies that operate supermarkets, many of which do not own the
real property on which the supermarkets are operated. EBITDA is
unaffected by the debt and equity structure of Ingles. EBITDA does not
represent cash flow from operations as defined by generally accepted
accounting principles (GAAP), is not necessarily indicative of cash
available to fund all cash flow needs and should not be considered as
an alternative to net income under GAAP for evaluating Ingles' results
of operations.
12
<PAGE> 13
THREE MONTHS ENDED DECEMBER 25, 1999 COMPARED TO THE THREE MONTHS ENDED
DECEMBER 26, 1998
Net Sales
Net sales for the three months ended December 25, 1999 increased 3.3% to $468.4
million, compared to $453.3 million for the three months ended December 26,
1998.
Sales growth was solid in spite of a slow down in store openings during fiscal
1999. Comparable store sales for the first quarter of fiscal 2000 held strong
with an increase of 2.4% measured against the substantial comparable store sales
growth in the first quarter of fiscal 1999 of 7.5%.
Gross Profit
Gross profit for the three months ended December 25, 1999 increased 6.1% to
$117.3 million, or 25.1% of net sales, compared to $110.6 million, or 24.4% of
net sales, for the three months ended December 26, 1998. The improvement, as a
percentage of sales, results from increased sales in the expanded higher margin
perishable departments, as well as through effective product management.
Operating and Administrative Expenses
Operating and administrative expenses increased 6.9% to $102.9 million, or 22.0%
of net sales, for the three months ended December 25, 1999, from $96.3 million,
or 21.2% of sales, for the three months ended December 26, 1998. The rise in
operating and administrative expenses resulted primarily from increases, as a
percentage of sales, in salaries and wages, warehouse expense, equipment rent
and insurance expense.
Salaries and wages, as a percentage of sales, increased due to wage adjustments
made at the store level to attract and retain employees in the current tight
labor market. Warehouse expenses, as a percentage of sales rose from a
combination of higher labor costs, the increased price of diesel fuel and rising
health care costs. Equipment rent expense increased due to several
sale/leaseback transactions of equipment during fiscal 1999. Insurance expense
increased due to a combination of a larger volume of claims and rising health
care costs under the Company's self insured group medical coverage. A breakdown
of the major increases (decreases) in operating and administrative expense
categories, expressed as a percentage of net sales, is as follows:
<TABLE>
<S> <C>
Salaries and wages .3 %
Warehouse expense .2 %
Equipment rent expense .2 %
Insurance .2 %
Repairs (.1)%
</TABLE>
Rental Income, Net
Rental income, net remained constant at $2.2 million for both the December 1999
and December 1998 quarters.
Other Income, Net
Other income, net increased $0.5 million to $0.9 million for the three months
ended December 25, 1999 from $0.4 million for the three months ended December
26, 1998. The increase resulted primarily from the proceeds of vendor accounts
payable audits.
13
<PAGE> 14
Interest Expense
Interest expense decreased $0.7 million to $9.7 million for the three months
ended December 25, 1999 from $10.4 million for the three months ended December
26, 1998. The decrease results primarily from reduced debt levels between
December 1998 and December 1999 due to a decrease in capital expenditures and
the use of sale/leaseback transactions in fiscal 1999.
Income Taxes
Income tax expense as a percentage of pre-tax income increased to 37.9% in the
December 1999 quarter compared to 37.1% in the December 1998 quarter, due
primarily to the higher income level in the December 1999 quarter.
Net Income
Net income for the December 1999 quarter increased $0.8 million to $4.9 million,
or 1.1% of net sales, compared to $4.1 million, or 0.9% of net sales, for the
December 1998 quarter. Basic and diluted earnings per common share were $.22 for
the December 1999 quarter compared to $.18 for the December 1998 quarter.
LIQUIDITY AND CAPITAL RESOURCES
Capital Expenditures
The Company believes that a key to its ability to continue to develop a loyal
customer base is providing conveniently located, clean and modern stores which
provide customers with good service and a broad selection of competitively
priced products. As such, the Company has invested and will continue to invest
significant amounts of capital toward the modernization of its store base. The
Company's modernization program includes the opening of new stores, the
completion of major remodels and expansion of selected existing stores, the
relocation of selected existing stores to larger, more convenient locations and
the completion of minor remodeling of its remaining existing stores.
Capital expenditures totaled $27.7 million for the three months ended December
25, 1999, including expenditures related to two new stores, the replacement of
one older store and minor remodeling of three stores that were completed during
the quarter. Capital expenditures also included costs related to two new stores,
seven replacement stores, two major remodel/expansions and 11 minor remodels to
be completed during the balance of fiscal 2000, as well as costs of upgrading
and replacing store equipment, technology investments, the purchase of future
store sites, and capital expenditures related to the Company's distribution
operation and its milk processing plant. Ingles capital expenditure plans for
fiscal year 2000 include investments of approximately $75 million.
Liquidity
The Company generated $7.5 million of cash from operations for the three months
ended December 25, 1999. Increases of $6.2 million in receivables are primarily
amounts due from vendors as a result of purchasing and marketing promotions.
14
<PAGE> 15
Cash used by investing activities totaled $27.7 million, all of which related to
capital expenditures.
The Company generally funds its capital expenditures with cash provided from
operations and borrowings under lines of credit. The lines of credit are later
refinanced with secured long-term debt. During the December 1999 quarter, the
Company's financing activities provided $17.7 million in cash. Proceeds from
long-term debt totaled $50.1 million, while payments on long-term debt were
$29.8 million. As of December 25, 1999, the Company had unencumbered real
property and equipment with a net book value of approximately $236 million.
At December 25, 1999, the Company had lines of credit with seven banks totaling
$125.0 million; of this amount $69.1 million was unused. The $55.9 million
outstanding under lines of credit at December 25, 1999 mature in fiscal years
2000 and 2001, however, the Company expects that it will be able to renew those
commitments upon maturity. 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 was in compliance with all financial
covenants related to these lines of credit at December 25, 1999.
The Company's principal sources of liquidity are expected to be cash flow from
operations, borrowings under its lines of credit and long-term financing. The
Company believes, based on its current results of operations and financial
condition, that its financial resources, including existing bank lines of
credit, short- and long-term financing expected to be available to it and
internally generated funds, will be sufficient to meet planned capital
expenditures and working capital requirements for the foreseeable future,
including any debt service requirements of additional borrowings. However, there
can be no assurance that any such source of financing will be available to the
Company on acceptable terms, or at all.
In addition, it is possible that, in the future, the Company's results of
operations and financial condition will be different from that described in this
report 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. It is also possible, for such reasons, that the
results of operations from new, expanded, remodeled and/or replacement stores
will not meet or exceed the results of operations from existing stores that are
described in this report.
Quarterly Cash Dividends
Since December 27, 1993, the Company has paid regular quarterly cash dividends
of $.165 (sixteen and one-half cents) per share on its Class A Common Stock and
$.15 (fifteen cents) per share on its Class B Common Stock for an annual rate of
$.66 and $.60 per share, respectively.
The Company expects to continue paying regular cash dividends on a quarterly
basis. However, the Board of Directors periodically reconsiders the declaration
of dividends. The Company pays these dividends at the discretion of the Board of
Directors and the continuation of these payments, the amount of such dividends,
and the form in which the dividends are paid (cash or stock) depends upon the
results of operations, the financial condition of the Company and other factors
which the Board of Directors deems relevant. In addition, certain loan
agreements containing provisions providing minimum tangible net worth
requirements restrict the ability of the Company to pay additional dividends to
approximately $25.0 million, based on tangible net worth at December 25, 1999.
15
<PAGE> 16
Self-Insurance
The Company is self-insured for workers' compensation and group medical and
dental benefits. Risks and uncertainties are associated with self-insurance;
however, the Company has limited its exposure by maintaining excess liability
coverages. Self-insurance reserves are established based on claims filed and
estimates of claims incurred but not reported. The estimates are based on data
provided by the respective claims administrators. The majority of the Company's
properties are self-insured for casualty losses and business interruption,
however liability coverage is maintained. 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.
Impact of Inflation
Inflation in food prices during the first quarter of fiscal 2000 and during
fiscal 1999 continued to be lower than the overall increase in the Consumer
Price Index. One of the Company's significant costs is labor, which increases
with inflation.
New Accounting Pronouncement
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" (SFAS 133). SFAS 133 establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and hedging activities. The Company
intends to adopt SFAS 133 in the first quarter of fiscal 2001. The Company is
still determining how SFAS 133 will impact the financial statements.
Year 2000
Even though the date is now past January 1, 2000 and the Company has not
experienced any immediate adverse impact from the transition to the Year 2000,
the Company cannot provide assurance that our suppliers and customers have not
been affected in a manner that is not yet apparent. As a result, the Company
will continue to monitor Year 2000 compliance and the Year 2000 compliance of
our suppliers and customers.
Forward Looking Statements
This Quarterly Report contains certain forward-looking statements within the
meaning of Section 21E of the Securities Exchange Act of 1934, relating to,
among other things, capital expenditures, cost reduction, operating improvements
and expected results. The words "expect", "anticipate", "intend", "plan",
"believe", "seek" and similar expressions are intended to identify
forward-looking statements. Such statements are subject to inherent risks and
uncertainties including, among others: business and economic conditions
generally in the Company's operating area; pricing pressures and other
competitive factors; results of the Company's programs to reduce costs and
achieve improvements in operating results; and the availability and terms of
financing. Consequently, actual events affecting the Company and the impact of
such events on the Company's operations may vary significantly from those
described in this report or contemplated or implied by statements in this
report.
16
<PAGE> 17
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes regarding the Company's market risk position
during the first quarter of fiscal 2000 from the information provided in the
Company's Form 10-K for the fiscal year ended September 25, 1999.
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 27.1 - Financial Data Schedule for the period ended
December 25, 1999 (for SEC purposes only).
(b) Reports on Form 8-K. There were no reports on Form 8-K filed
by the Company during the three month period ended December
25, 1999.
17
<PAGE> 18
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 7, 2000 /s/ Robert P. Ingle
--------------------------
Robert P. Ingle
Chairman of the Board and
Chief Executive Officer
Date: February 7, 2000 /s/ Brenda S. Tudor
--------------------------
Brenda S. Tudor
Vice President-Finance and
Chief Financial Officer
18
<PAGE> 19
EXHIBIT INDEX
27.1 Financial Data Schedule (for SEC use only). (page 20)
19
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF INGLES MARKETS, INCORPORATED FOR THE THREE MONTHS ENDED
DECEMBER 25, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-2000
<PERIOD-START> SEP-26-1999
<PERIOD-END> DEC-25-1999
<CASH> 11,587,525
<SECURITIES> 0
<RECEIVABLES> 33,743,751
<ALLOWANCES> 198,109
<INVENTORY> 168,811,122
<CURRENT-ASSETS> 218,314,473
<PP&E> 993,904,565
<DEPRECIATION> 317,076,748
<TOTAL-ASSETS> 898,747,560
<CURRENT-LIABILITIES> 222,176,096
<BONDS> 409,269,366
0
0
<COMMON> 1,128,887
<OTHER-SE> 225,430,977
<TOTAL-LIABILITY-AND-EQUITY> 898,747,560
<SALES> 468,400,201
<TOTAL-REVENUES> 472,240,472
<CGS> 351,054,261
<TOTAL-COSTS> 352,662,679
<OTHER-EXPENSES> (943,190)
<LOSS-PROVISION> 24,000
<INTEREST-EXPENSE> 9,702,949
<INCOME-PRETAX> 7,906,467
<INCOME-TAX> 3,000,000
<INCOME-CONTINUING> 4,906,467
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,906,467
<EPS-BASIC> 0.22
<EPS-DILUTED> 0.22
</TABLE>
