<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 25, 2000
[ ] 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 of (I.R.S. Employer
incorporation or organization) Identification No.)
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 May 1, 2000, the Registrant had 9,928,539 shares of Class A
Common Stock, $.05 par value per share, outstanding and 12,649,200 shares of
Class B Common Stock, $.05 par value per share, outstanding.
1
<PAGE> 2
INGLES MARKETS, INCORPORATED
INDEX
<TABLE>
<CAPTION>
Part I - Financial Information Page No.
--------
<S> <C>
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets
March 25, 2000 and September 25, 1999........................................ 3
Condensed Consolidated Statements of Income
Three Months Ended March 25, 2000 and March 27, 1999 ........................ 5
Six Months Ended March 25, 2000 and March 27, 1999 .......................... 6
Condensed Consolidated Statements of Changes in Stockholders' Equity
Six Months Ended March 25, 2000 and March 27, 1999 .......................... 7
Condensed Consolidated Statements of Cash Flows
Six Months Ended March 25, 2000 and March 27, 1999 .......................... 8
Notes to Unaudited Interim Financial Statements ...................................... 9
Item 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations ........................................................................ 13
Item 3. Quantitative and Qualitative Disclosures About Market Risk ..... .................. 20
Part II - Other Information
Item 4. Submission of Matters to a Vote of Security Holders ............................... 20
Item 6. Exhibits and Reports on Form 8-K .................................................. 20
Signatures .................................................................................... 21
</TABLE>
2
<PAGE> 3
Part I. Financial Information
Item 1. FINANCIAL STATEMENTS
INGLES MARKETS, INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
MARCH 25, SEPTEMBER 25,
2000 1999
(UNAUDITED) (NOTE)
------------ ------------
<S> <C> <C>
CURRENT ASSETS:
Cash $16,899,313 $ 13,959,751
Receivables 24,419,075 25,798,505
Inventories 166,675,637 167,011,044
Refundable income taxes -- 1,500,000
Other 4,637,235 4,491,490
------------ ------------
Total Current Assets 212,631,260 212,760,790
PROPERTY AND EQUIPMENT - Net 695,845,842 656,706,694
OTHER ASSETS 3,564,447 3,703,590
------------ ------------
TOTAL ASSETS $912,041,549 $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>
MARCH 25, SEPTEMBER 25,
2000 1999
(UNAUDITED) (NOTE)
------------ ------------
<S> <C> <C>
CURRENT LIABILITIES:
Short-term loans and current portion of long-term debt $107,032,871 $ 62,002,254
Accounts payable, accrued expenses and current portion
of other long-term liabilities 137,887,317 141,643,477
------------ ------------
Total Current Liabilities 244,920,188 203,645,731
DEFERRED INCOME TAXES 27,564,578 28,014,578
LONG-TERM DEBT 395,148,919 402,992,151
OTHER LONG-TERM LIABILITIES 14,990,004 14,396,758
------------ ------------
TOTAL LIABILITIES 682,623,689 649,049,218
------------ ------------
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; 9,928,539 shares issued and outstanding
March 25, 2000; 9,786,491 shares issued and
outstanding September 25, 1999 496,427 489,324
Class B, $.05 par value; 100,000,000 shares
authorized; 12,649,200 shares issued and
outstanding March 25, 2000; 12,691,248 shares
issued and outstanding September 25, 1999 632,460 634,563
Paid-in capital in excess of par value 97,943,633 96,898,633
Retained earnings 130,345,340 126,099,336
------------ ------------
Total Stockholders' Equity 229,417,860 224,121,856
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $912,041,549 $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
-------------------------------
MARCH 25, MARCH 27,
2000 1999
------------ ------------
<S> <C> <C>
Net sales $465,139,031 $442,177,123
Cost of goods sold 346,458,172 332,929,041
------------ ------------
Gross profit 118,680,859 109,248,082
Operating and administrative expenses 104,600,052 95,338,618
Rental income, net 2,380,761 2,447,023
------------ ------------
Income from operations 16,461,568 16,356,487
Other income, net 4,044,775 508,978
------------ ------------
Income before interest and income taxes 20,506,343 16,865,465
Interest expense 10,113,136 10,250,360
------------ ------------
Income before income taxes 10,393,207 6,615,105
------------ ------------
Income taxes:
Current 4,550,000 1,600,000
Deferred (550,000) 900,000
------------ ------------
4,000,000 2,500,000
------------ ------------
Net income $ 6,393,207 $ 4,115,105
============ ============
Per share amounts:
Basic earnings per common share $ 0.28 $ 0.18
============ ============
Diluted earnings per common share $ 0.28 $ 0.18
============ ============
Cash dividends per common share:
Class A Common Stock $ 0.165 $ 0.165
------------ ------------
Class B Common Stock $ 0.150 $ 0.150
------------ ------------
</TABLE>
See notes to unaudited interim financial statements.
5
<PAGE> 6
INGLES MARKETS, INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
---------------------------------
MARCH 25, MARCH 27,
2000 1999
------------- -------------
<S> <C> <C>
Net sales $ 933,539,232 $ 895,518,407
Cost of goods sold 697,512,433 675,682,558
------------- -------------
Gross profit 236,026,799 219,835,849
Operating and administrative expenses 207,511,619 191,592,758
Rental income, net 4,612,614 4,618,111
------------- -------------
Income from operations 33,127,794 32,861,202
Other income, net 4,987,965 912,057
------------- -------------
Income before interest and income taxes 38,115,759 33,773,259
Interest expense 19,816,085 20,688,475
------------- -------------
Income before income taxes 18,299,674 13,084,784
------------- -------------
Income taxes:
Current 7,700,000 5,100,000
Deferred (700,000) (200,000)
------------- -------------
7,000,000 4,900,000
------------- -------------
Net income $ 11,299,674 $ 8,184,784
============= =============
Per share amounts:
Basic earnings per common share $ 0.50 $ 0.36
============= =============
Diluted earnings per common share $ 0.50 $ 0.36
============= =============
Cash dividends per common share:
Class A Common Stock $ 0.33 $ 0.33
------------- -------------
Class B Common Stock $ 0.30 $ 0.30
------------- -------------
</TABLE>
See notes to unaudited interim financial statements.
6
<PAGE> 7
INGLES MARKETS, INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (UNAUDITED)
SIX MONTHS ENDED MARCH 25, 2000 AND MARCH 27, 1999
<TABLE>
<CAPTION>
CLASS A CLASS B
COMMON STOCK COMMON STOCK PAID-IN CAPITAL
--------------------- ----------------------- IN EXCESS OF
SHARES AMOUNT SHARES AMOUNT PAR VALUE RETAINED 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 -- -- -- -- -- 8,184,784 8,184,784
Cash dividends -- -- -- -- -- (6,999,315) (6,999,315)
Exercise of stock options 12,000 600 -- -- 100,966 -- 101,566
Common stock conversions 71,050 3,553 (71,050) (3,553) -- -- --
--------- -------- ----------- --------- ----------- ------------- -------------
BALANCE, MARCH 27, 1999 9,664,691 $483,235 12,713,048 $ 635,652 $95,866,133 $ 122,537,758 $ 219,522,778
========= ======== =========== ========= =========== ============= =============
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 -- -- -- -- -- 11,299,674 11,299,674
Cash dividends -- -- -- -- -- (7,053,670) (7,053,670)
Exercise of stock options 100,000 5,000 -- -- 1,045,000 -- 1,050,000
Common stock conversions 42,048 2,103 (42,048) (2,103) -- -- --
--------- -------- ----------- --------- ----------- ------------- -------------
BALANCE, MARCH 25, 2000 9,928,539 $496,427 12,649,200 $ 632,460 $97,943,633 $ 130,345,340 $ 229,417,860
========= ======== =========== ========= =========== ============= =============
</TABLE>
See notes to unaudited interim financial statements.
7
<PAGE> 8
INGLES MARKETS, INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
---------------------------------
MARCH 25, MARCH 27,
2000 1999
------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 11,299,674 $ 8,184,784
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization expense 21,505,148 21,097,676
Amortization of deferred gain on sale/leasebacks (531,629) (322,804)
Gains on disposals of property and equipment (2,487,662) (195,106)
Receipt of advance payments on purchases contracts 2,977,224 7,248,750
Recognition of advance payments on purchases contracts (2,465,680) (1,816,351)
Deferred income taxes (700,000) (200,000)
Decrease (increase) in receivables 2,879,430 (3,499,380)
Decrease (increase) in inventory 335,407 (10,125,154)
Decrease (increase) in other assets 105,479 (206,463)
(Decrease) increase in accounts payable and
accrued expenses (8,295,128) 3,563,251
------------- -------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 24,622,263 23,729,203
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of property and equipment 6,547,033 224,380
Capital expenditures (59,413,449) (23,924,239)
------------- -------------
NET CASH (USED) BY INVESTING ACTIVITIES (52,866,416) (23,699,859)
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt 50,053,573 24,988,894
Proceeds from short-term borrowings, net 30,000,000 16,500,000
Proceeds from sale/leaseback transactions -- 16,160,633
Principal payments on long-term debt (42,866,188) (48,356,777)
Proceeds from exercise of stock options 1,050,000 101,566
Dividends paid (7,053,670) (6,999,315)
------------- -------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 31,183,715 2,395,001
------------- -------------
NET INCREASE IN CASH 2,939,562 2,424,345
Cash at beginning of period 13,959,751 19,121,409
------------- -------------
CASH AT END OF PERIOD $ 16,899,313 $ 21,545,754
============= =============
</TABLE>
See notes to unaudited interim financial statements.
8
<PAGE> 9
INGLES MARKETS, INCORPORATED AND SUBSIDIARIES
NOTES TO UNAUDITED INTERIM FINANCIAL STATEMENTS Six Months Ended March 25, 2000
and March 27, 1999
A. BASIS OF PREPARATION
In the opinion of management, the accompanying unaudited interim financial
statements contain all adjustments necessary to present fairly the Company's
financial position as of March 25, 2000, and the results of operations, changes
in stockholders' equity and cash flows for the three month and six month periods
ended March 25, 2000 and March 27, 1999. 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 and six month periods ended March
25, 2000 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 27, 1999
have been reclassified for comparative purposes.
B. ALLOWANCE FOR DOUBTFUL ACCOUNTS
Receivables are presented net of an allowance for doubtful accounts of $232,914
and $185,070 at March 25, 2000 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>
MARCH 25, September 25,
2000 1999
------------ -------------
<S> <C> <C>
Accounts payable-trade $ 89,260,734 $ 91,748,064
Property, payroll, and other taxes payable 9,674,285 11,358,575
Salaries, wages and bonuses payable 7,431,511 10,812,107
Self-insurance reserves 5,899,000 5,719,000
Accrued litigation settlement 7,819,063 7,819,063
Other 17,802,724 14,186,668
------------ ------------
$137,887,317 $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 covered person for medical
care benefits for a policy year.
9
<PAGE> 10
Employee insurance expense, including workers' compensation and medical care
benefits, net of employee contributions, totaled $4.4 million and $3.7 million
for the three month periods ended March 25, 2000 and March 27, 1999,
respectively.
For the six month periods ended March 25, 2000 and March 27, 1999, employee
insurance expense totaled $8.3 million and $7.1 million, respectively.
D. LONG-TERM DEBT
During the six month period ended March 25, 2000, 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.
Subsequent to March 25, 2000, the Company obtained long-term unsecured line of
credit financing. The proceeds of this debt were used to reduce short-term
borrowings outstanding at March 25, 2000. Short-term borrowings of $5.0 million
have been reclassified to long-term debt at March 25, 2000 due to this
refinancing.
E. 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 17, 2000 and on
October 11, 1999 to stockholders of record on January 7, 2000, and October 1,
1999, respectively.
F. SUPPLEMENTARY CASH FLOW INFORMATION
Cash paid for interest and taxes is as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
------------------------------------
MARCH 25, March 27,
2000 1999
------------ ------------
<S> <C> <C>
Interest (net of amount capitalized) $ 19,668,798 $ 20,429,360
Income taxes 4,432,728 4,157,223
</TABLE>
10
<PAGE> 11
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
------------------------------------
MARCH 25, March 27,
2000 1999
------------ ------------
<S> <C> <C>
BASIC:
Net income $ 6,393,207 $ 4,115,105
============ ============
Weighted average number of common shares
outstanding 22,577,739 22,377,717
============ ============
Basic earnings per common share $ .28 $ .18
============ ============
DILUTED:
Net income $ 6,393,207 $ 4,115,105
============ ============
Weighted average number of common shares and
common stock equivalent shares outstanding 22,614,803 22,394,296
============ ============
Diluted earnings per common share $ .28 $ .18
============ ============
</TABLE>
The following table sets forth the computation of basic and diluted earnings per
share for the six month period indicated:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
------------------------------------
MARCH 25, March 27,
2000 1999
------------ ------------
<S> <C> <C>
BASIC:
Net income $ 11,299,674 $ 8,184,784
============ ============
Weighted average number of common shares
outstanding 22,548,618 22,374,585
============ ============
Basic earnings per common share $ .50 $ .36
============ ============
DILUTED:
Net income $ 11,299,674 $ 8,184,784
============ ============
Weighted average number of common shares and
common stock equivalent shares outstanding 22,559,599 22,391,164
============ ============
Diluted earnings per common share $ .50 $ .36
============ ============
</TABLE>
11
<PAGE> 12
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 SIX MONTHS ENDED
------------------------ ------------------------
MARCH 25, March 27, MARCH 25, March 27,
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues from unaffiliated customers:
Grocery sales $447,818 $423,067 $898,096 $858,484
Shopping center rentals 3,976 4,010 7,816 7,739
Fluid dairy 17,321 19,110 35,443 37,034
-------- -------- -------- --------
Total revenues from unaffiliated
customers $469,115 $446,187 $941,355 $903,257
======== ======== ======== ========
Income from operations:
Grocery sales $ 12,235 $ 12,470 $ 25,336 $ 25,261
Shopping center rentals 2,381 2,447 4,613 4,618
Fluid dairy 1,846 1,439 3,179 2,982
-------- -------- -------- --------
Total income from operations $ 16,462 $ 16,356 $ 33,128 $ 32,861
======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
MARCH 25, September 25,
2000 1999
------------- -------------
<S> <C> <C>
Assets:
Grocery sales $ 764,142 $ 725,990
Shopping center rentals 121,682 121,277
Fluid dairy 26,218 25,904
------------- -------------
Total assets $ 912,042 $ 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 net sales reported.
For the three months ended March 25, 2000 and March 27, 1999, respectively, the
fluid dairy segment has $11.1 and $11.9 million in sales to the grocery sales
segment. The fluid dairy segment has $22.9 and $22.6 million in sales to the
grocery sales segment in the six months ended March 25, 2000 and March 27, 1999,
respectively. These sales have been eliminated in consolidation.
12
<PAGE> 13
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
Ingles, a leading supermarket chain in the Southeast, operates 207 supermarkets
in Georgia (84), 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. 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. There are 13 and 26 weeks of operations included in the unaudited
condensed consolidated statements of income for the three and six-month periods
ended March 25, 2000 and March 27, 1999. Comparable store sales are defined as
sales by grocery stores in operation for the entire 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.
13
<PAGE> 14
The following table sets forth, for the periods indicated, selected financial
information as a percentage of net sales:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
-----------------------------------------------------
MARCH 25, March 27, MARCH 25, March 27,
2000 1999 2000 1999
-----------------------------------------------------
<S> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0%
Gross profit 25.5% 24.7% 25.3% 24.6%
Operating and administrative
expenses 22.5% 21.6% 22.2% 21.4%
Rental income, net 0.5% 0.6% 0.5% 0.5%
Other income, net 0.9% 0.1% 0.5% 0.1%
Income before interest and
income taxes 4.4% 3.8% 4.1% 3.8%
Interest expense 2.2% 2.3% 2.1% 2.3%
Income before income taxes 2.2% 1.5% 2.0% 1.5%
Income taxes 0.8% 0.6% 0.8% 0.6%
Net income 1.4% 0.9% 1.2% 0.9%
EBITDA margin(1) 6.8% 6.2% 6.4% 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. 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.
THREE MONTHS ENDED MARCH 25, 2000 COMPARED TO THE THREE MONTHS ENDED MARCH 27,
1999
Net Sales
Net sales for the three months ended March 25, 2000 increased 5.2% to $465.1
million, compared to $442.2 million for the three months ended March 27, 1999.
Ingles sales growth was achieved through successful marketing efforts, community
involvement and improvements in store conditions, as well as from maturing new
stores, remodeled stores and stores that have been replaced.
Comparable store sales growth of 4.0% for the second quarter of fiscal 2000 held
strong measured against the substantial comparable store sales growth in the
second quarter of fiscal 1999 of 9.1%.
Gross Profit
Gross profit for the three months ended March 25, 2000 increased 8.6% to $118.7
million, or 25.5% of sales, compared to $109.2 million, or 24.7% of sales, for
the three months ended March 27, 1999. The improvement, as a percentage of
sales, results from a combination of
14
<PAGE> 15
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 9.7% to $104.6 million for the
three months ended March 25, 2000, from $95.3 million for the three months ended
March 27, 1999. Operating and administrative expenses also increased as a
percentage of sales, equaling 22.5% of sales for the second quarter of fiscal
2000 compared to 21.6% for the second quarter of fiscal 1999. Payroll costs in
the current tight labor market, increased warehouse & transportation expense due
primarily to higher fuel prices, group medical insurance costs and rent expense
on the leasing of store equipment were the primary factors in the increase. A
breakdown of the major increases in operating and administrative expenses,
expressed as a percentage of sales, is as follows:
<TABLE>
<CAPTION>
<S> <C>
Payroll 0.3 %
Warehouse & transportation expense 0.2 %
Insurance expense 0.2 %
Equipment rent expense 0.1 %
</TABLE>
Rental Income, Net
Rental income, net remained substantially constant at $2.4 million for both the
March 2000 and the March 1999 quarters.
Other Income, Net
Other income, net increased $3.5 million to $4.0 million for the three months
ended March 25, 2000 from $0.5 million for the three months ended March 27,
1999. Other income for the March 2000 quarter includes gains on the sale of
assets of $2.6 million. The sale of assets includes a shopping center in which
the land, building and equipment were sold. Ingles is no longer operating a
supermarket at that location. The balance of the increase resulted primarily
from the proceeds of vendor accounts payable audits.
Interest Expense
Interest expense decreased $0.2 million to $10.1 million for the three months
ended March 25, 2000 from $10.3 million for the three months ended March 25,
1999. The decrease results primarily from sale/leaseback transactions in March
1999.
Income Taxes
Income tax expense as a percentage of pre-tax income increased to 38.5% in the
March 2000 quarter compared to 37.8% in the March 1999 quarter. The increase is
primarily attributable to higher state income taxes in the March 2000 quarter.
Net Income
Net income for the March 2000 quarter was $6.4 million, or 1.4% of sales,
compared to $4.1 million, or 0.9% of sales, for the March 1999 quarter. Basic
and diluted earnings per common
15
<PAGE> 16
share were $.28 for the March 2000 quarter compared to $.18 for the March 1999
quarter.
SIX MONTHS ENDED MARCH 25, 2000 COMPARED TO THE SIX MONTHS ENDED MARCH 27, 1999
Net Sales
Net sales for the six months ended March 25, 2000 increased 4.2% to $933.5
million, compared to $895.5 million for the six months ended March 27, 1999.
Comparable store sales increased 3.2% for such period. Marketing efforts in all
media, community involvement and the improvement of store conditions all had a
positive effect on sales. Also the maturation of new stores and increased sales
from remodeled and replacement stores contributed to the increase.
Gross Profit
Gross profit for the six months ended March 25, 2000 increased 7.4% to $236.0
million, or 25.3% of sales, compared to $219.8 million, or 24.6% of sales, for
the six months ended March 27, 1999. Increased sales distribution in the higher
margin perishable departments, as well as effective purchasing and promotional
strategies, accounted for the increase.
Operating and Administrative Expenses
Operating and administrative expenses increased 8.3% to $207.5 million for the
six months ended March 25, 2000, from $191.6 million for the six months ended
March 27, 1999. As a percentage of sales, operating and administrative expenses
increased to 22.2% for the March 2000 six-month period from 21.4% for the same
period last year. A breakdown of the major increases in operating and
administrative expenses, expressed as a percentage of sales, is as follows:
<TABLE>
<CAPTION>
<S> <C>
Payroll 0.3 %
Warehouse & transportation expense 0.2 %
Insurance expense 0.2 %
Equipment rent expense 0.1 %
</TABLE>
Rental Income, Net
Rental income, net remained substantially constant at $4.6 million for both the
March 2000 and the March 1999 six-month periods.
Other Income, Net
Other income, net increased $4.1 million to $5.0 million for the six months
ended March 25, 2000 from $0.9 million for the six months ended March 27, 1999.
Other income for the March 2000 six-month period includes gains on the sale of
assets of $2.5 million. The sale of assets includes a shopping center in which
the land, building and equipment were sold. Ingles is no longer operating a
supermarket at that location. The balance of the increase resulted primarily
from the proceeds of vendor accounts payable audits.
16
<PAGE> 17
Interest Expense
Interest expense decreased $0.9 million to $19.8 million for the six months
ended March 27, 2000 from $20.7 million for the six months ended March 27, 1999.
The decrease results primarily from sale/leaseback transactions in March 1999.
Income Taxes
Income tax expense as a percentage of pre-tax income increased to 38.3% in the
March 2000 six-month period compared to 37.4% in the March 1999 six-month
period. The increase is primarily attributable to higher state income taxes in
the March 2000 six-month period.
Net Income
Net income for the March 2000 six-month period was $11.3 million, or 1.2% of
sales, compared to $8.2 million, or 0.9% of sales, for the March 1999 six-month
period. Basic and diluted earnings per common share were $.50 for the March 2000
six-month period compared to $.36 for the March 1999 six-month period.
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 $59.4 million for the six months ended March 25,
2000, including expenditures related to the opening of two new stores,
replacement of three older stores, and minor remodeling of six stores - all of
which were completed during the six-month period. Capital expenditures also
included costs related to new stores to be opened and remodels to be completed
during the balance of fiscal 2000 and in fiscal 2001, 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 the year previously included investments of approximately $75 million.
The plans have been revised and now include investments of approximately
$90-$100 million.
Liquidity
The Company generated $24.6 million of cash from operations for the six months
ended March 25, 2000.
17
<PAGE> 18
Cash used by investing activities totaled $52.9 million. The primary use of this
cash was the $59.4 million of capital expenditures during the period, which were
partially offset by $6.5 million of net proceeds from the sale of assets.
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 March 2000 six-month period,
the Company's financing activities provided $31.2 million in cash, the net
result of dividend payments, long- and short-term borrowings and stock option
proceeds. Proceeds from long-term debt totaled $50.1 million, while payments on
long-term debt were $42.9 million. Proceeds from the short-term borrowings, net
were $30.0 million. As of March 25, 2000 the Company had unencumbered real
property and equipment with a net book value of approximately $256 million.
At March 25, 2000, the Company had lines of credit with seven banks totaling
$125.0 million; of this amount $38.7 million was unused. The $86.3 million
outstanding under lines of credit at March 25, 2000 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 March 25, 2000.
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
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<PAGE> 19
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 $27.9
million, based on tangible net worth at March 25, 2000.
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 and second quarters 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 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
19
<PAGE> 20
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.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes regarding the Company's market risk position
from the information provided in Form 10-K for the fiscal year ended September
25, 1999.
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 15, 2000. The only matter submitted to a vote of the
stockholders at this meeting was the election of nine 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: 8,877,455 votes for,
136,710 votes withheld, 0 abstentions and 0 broker nonvotes and (b) Mr. Wingate:
8,875,354 votes for, 138,811 votes withheld, 0 abstentions and 0 broker
nonvotes. Robert P. Ingle, Vaughn C. Fisher, Anthony S. Federico, Ralph H.
Gardner, Robert P. Ingle, II, Laura Ingle Sharp and Brenda S. Tudor were elected
by the holders of Class B Common Stock by the following vote: (a) Mr. Robert P.
Ingle: 12,259,738 votes for, 0 votes withheld, 0 abstentions and 0 broker
nonvotes; (b) Mr. Fisher: 12,259,738 votes for, 0 votes withheld, 0 abstentions
and 0 broker nonvotes; (c) Mr. Federico: 12,259,738 votes for, 0 votes withheld,
0 abstentions and 0 broker nonvotes; (d) Mr. Gardner: 12,259,738 votes for, 0
votes withheld, 0 abstentions and 0 broker nonvotes; (e) Mr. Robert P. Ingle,
II: 12,259,738 votes for, 0 votes withheld, 0 abstentions and 0 broker nonvotes;
(f) Ms. Sharp: 12,259,738 votes for, 0 votes withheld, 0 abstentions and 0
broker nonvotes; (g) Ms. Tudor: 12,259,738 votes for, 0 votes withheld, 0
abstentions and 0 broker nonvotes.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibit is filed as part of this report. The
exhibit number refers to Item 601 of Regulation S-K.
Exhibit 27.1 - Financial Data Schedule for the period ended
March 25, 2000 (for SEC purposes only).
(b) Reports on Form 8-K. There were no reports on Form 8-K filed
by the Company for the quarter ended March 25, 2000.
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 8, 2000 /s/ Robert P. Ingle
-----------------------------
Robert P. Ingle
Chairman of the Board and
Chief Executive Officer
Date: May 8, 2000 /s/ Brenda S. Tudor
-----------------------------
Brenda S. Tudor
Vice President-Finance and
Chief Financial Officer
21
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF INGLES MARKETS, INCORPORATED FOR THE SIX MONTHS ENDED
MARCH 25, 2000 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-2000
<PERIOD-START> SEP-26-1999
<PERIOD-END> MAR-25-2000
<CASH> 16,899,313
<SECURITIES> 0
<RECEIVABLES> 24,651,989
<ALLOWANCES> 232,914
<INVENTORY> 166,675,637
<CURRENT-ASSETS> 212,631,260
<PP&E> 1,022,851,093
<DEPRECIATION> 327,005,251
<TOTAL-ASSETS> 912,041,549
<CURRENT-LIABILITIES> 244,920,188
<BONDS> 395,148,919
0
0
<COMMON> 1,128,887
<OTHER-SE> 228,288,973
<TOTAL-LIABILITY-AND-EQUITY> 912,041,549
<SALES> 933,539,232
<TOTAL-REVENUES> 941,355,045
<CGS> 697,512,433
<TOTAL-COSTS> 700,715,632
<OTHER-EXPENSES> (4,987,965)
<LOSS-PROVISION> 48,000
<INTEREST-EXPENSE> 19,816,085
<INCOME-PRETAX> 18,299,674
<INCOME-TAX> 7,000,000
<INCOME-CONTINUING> 11,299,674
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11,299,674
<EPS-BASIC> 0.50
<EPS-DILUTED> 0.50
</TABLE>
