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 June 24, 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.
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INGLES MARKETS, INCORPORATED
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(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
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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 July 31, 2000, the Registrant had 9,931,114 shares of Class A
Common Stock, $.05 par value per share, outstanding and 12,646,625 shares of
Class B Common Stock, $.05 par value per share, outstanding.
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INGLES MARKETS, INCORPORATED
INDEX
Page No.
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Part I - Financial Information
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets
June 24, 2000 and September 25, 1999............................. 3
Condensed Consolidated Statements of Income
Three Months Ended June 24, 2000 and June 26, 1999............... 5
Nine Months Ended June 24, 2000 and June 26, 1999................ 6
Condensed Consolidated Statements of Changes in Stockholders'
Equity
Nine Months Ended June 24, 2000 and June 26, 1999................ 7
Condensed Consolidated Statements of Cash Flows
Nine Months Ended June 24, 2000 and June 26, 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............. 21
Part II - Other Information
Item 6. Exhibits and Reports on Form 8-K....................................... 22
Signatures......................................................................... 23
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Part I. Financial Information
Item 1. FINANCIAL STATEMENTS
INGLES MARKETS, INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
JUNE 24, SEPTEMBER 25,
2000 1999
(UNAUDITED) (NOTE)
-------------- --------------
CURRENT ASSETS:
Cash $ 14,862,421 $ 13,959,751
Receivables 22,681,766 25,798,505
Inventories 170,269,143 167,011,044
Refundable income taxes -- 1,500,000
Other 4,430,521 4,491,490
-------------- --------------
Total Current Assets 212,243,851 212,760,790
PROPERTY AND EQUIPMENT - Net 697,296,767 656,706,694
OTHER ASSETS 3,611,655 3,703,590
-------------- --------------
TOTAL ASSETS $ 913,152,273 $ 873,171,074
============== ==============
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.
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INGLES MARKETS, INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (CONCLUDED)
LIABILITIES AND STOCKHOLDERS' EQUITY
JUNE 24, SEPTEMBER 25,
2000 1999
(UNAUDITED) (NOTE)
-------------- --------------
CURRENT LIABILITIES:
Short-term loans and current portion of long-term debt $ 92,423,297 $ 62,002,254
Accounts payable, accrued expenses and current portion
of other long-term liabilities 141,515,744 141,643,477
-------------- --------------
Total Current Liabilities 233,939,041 203,645,731
DEFERRED INCOME TAXES 27,764,578 28,014,578
LONG-TERM DEBT 405,247,310 402,992,151
OTHER LONG-TERM LIABILITIES 14,714,739 14,396,758
-------------- --------------
TOTAL LIABILITIES 681,665,668 649,049,218
-------------- --------------
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; 9,931,114
shares issued and outstanding June 24, 2000; 9,786,491 shares issued
and outstanding September 25, 1999 496,556 489,324
Class B, $.05 par value; 100,000,000 shares authorized; 12,646,625 shares
issued and outstanding June 24, 2000; 12,691,248 shares issued and
outstanding September 25, 1999 632,331 634,563
Paid-in capital in excess of par value 97,943,633 96,898,633
Retained earnings 132,414,085 126,099,336
-------------- --------------
Total Stockholders' Equity 231,486,605 224,121,856
-------------- --------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 913,152,273 $ 873,171,074
============== ==============
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.
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INGLES MARKETS, INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
THREE MONTHS ENDED
------------------------------------
JUNE 24, JUNE 26,
2000 1999
-------------- --------------
Net sales $ 469,364,035 $ 452,878,199
Cost of goods sold 346,785,018 339,277,000
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Gross profit 122,579,017 113,601,199
Operating and administrative expenses 107,575,887 98,839,986
Rental income, net 2,410,755 2,381,210
-------------- --------------
Income from operations 17,413,885 17,142,423
Other income, net 1,920,530 747,748
-------------- --------------
Income before interest and income taxes 19,334,415 17,890,171
Interest expense 10,080,080 9,643,909
-------------- --------------
Income before income taxes 9,254,335 8,246,262
-------------- --------------
Income taxes:
Current 3,350,000 2,200,000
Deferred 300,000 900,000
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3,650,000 3,100,000
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Net income $ 5,604,335 $ 5,146,262
============== ==============
Per share amounts:
Basic earnings per common share $ 0.25 $ 0.23
============== ==============
Diluted earnings per common share $ 0.25 $ 0.23
============== ==============
Cash dividends per common share:
Class A Common Stock $ 0.165 $ 0.165
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Class B Common Stock $ 0.150 $ 0.150
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See notes to unaudited interim financial statements.
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INGLES MARKETS, INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
NINE MONTHS ENDED
---------------------------------------
JUNE 24, JUNE 26,
2000 1999
--------------- ---------------
Net sales $ 1,402,903,267 $ 1,348,396,606
Cost of goods sold 1,044,297,451 1,014,959,558
--------------- ---------------
Gross profit 358,605,816 333,437,048
Operating and administrative expenses 315,087,506 290,432,744
Rental income, net 7,023,369 6,999,321
--------------- ---------------
Income from operations 50,541,679 50,003,625
Other income, net 6,908,495 1,659,805
--------------- ---------------
Income before interest and income taxes 57,450,174 51,663,430
Interest expense 29,896,165 30,332,384
--------------- ---------------
Income before income taxes 27,554,009 21,331,046
--------------- ---------------
Income taxes:
Current 11,050,000 7,300,000
Deferred (400,000) 700,000
--------------- ---------------
10,650,000 8,000,000
--------------- ---------------
Net income $ 16,904,009 $ 13,331,046
=============== ===============
Per share amounts:
Basic earnings per common share $ 0.75 $ 0.59
=============== ===============
Diluted earnings per common share $ 0.75 $ 0.59
=============== ===============
Cash dividends per common share:
Class A Common Stock $ 0.495 $ 0.495
--------------- ---------------
Class B Common Stock $ 0.450 $ 0.450
--------------- ---------------
See notes to unaudited interim financial statements.
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INGLES MARKETS, INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (UNAUDITED)
NINE MONTHS ENDED JUNE 24, 2000 AND JUNE 26, 1999
CLASS A CLASS B PAID-IN
COMMON STOCK COMMON STOCK CAPITAL IN
--------------------- -------------------------- EXCESS OF RETAINED
SHARES AMOUNT SHARES AMOUNT PAR VALUE EARNINGS TOTAL
---------- -------- ------------ ---------- ------------ -------------- --------------
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 -- -- -- -- -- 13,331,046 13,331,046
Cash dividends -- -- -- -- -- (10,500,949) (10,500,949)
Exercise of stock options 12,000 600 -- -- 100,966 -- 101,566
Common stock conversions 91,875 4,594 (91,875) (4,594) -- -- --
---------- -------- ------------ ---------- ------------ -------------- --------------
Balance, June 26, 1999 9,685,516 $484,276 12,692,223 $ 634,611 $ 95,866,133 $ 124,182,386 $ 221,167,406
========== ======== ============ ========== ============ ============== ==============
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 -- -- -- -- -- 16,904,009 16,904,009
Cash dividends -- -- -- -- -- (10,589,260) (10,589,260)
Exercise of stock options 100,000 5,000 -- -- 1,045,000 -- 1,050,000
Common stock conversions 44,623 2,232 (44,623) (2,232) -- -- --
---------- -------- ------------ ---------- ------------ -------------- --------------
BALANCE, JUNE 24, 2000 9,931,114 $496,556 12,646,625 $ 632,331 $ 97,943,633 $ 132,414,085 $ 231,486,605
========== ======== ============ ========== ============ ============== ==============
See notes to unaudited interim financial statements.
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INGLES MARKETS, INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
NINE MONTHS ENDED
------------------------------------
JUNE 24, JUNE 26,
2000 1999
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 16,904,009 $ 13,331,046
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization expense 32,588,517 31,546,121
Amortization of deferred gain on sale/leasebacks (772,177) (596,172)
Gains on disposals of property and equipment (2,485,424) (204,782)
Receipt of advance payments on purchases contracts 2,844,282 7,248,750
Recognition of advance payments on purchases contracts (3,532,572) (2,780,763)
(Decrease) increase in deferred income taxes (400,000) 700,000
Decrease (increase) in receivables 4,616,739 (3,729,990)
Increase in inventory (3,258,099) (8,689,709)
Decrease (increase) in other assets 93,164 (253,894)
(Decrease) increase in accounts payable and accrued
expenses (2,487,722) 5,967,603
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NET CASH PROVIDED BY OPERATING ACTIVITIES 44,110,717 42,538,210
-------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of property and equipment 6,547,733 299,111
Capital expenditures (83,346,398) (37,088,149)
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NET CASH (USED) BY INVESTING ACTIVITIES (76,798,665) (36,789,038)
-------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt 86,868,573 56,843,729
Proceeds from short-term borrowings, net 15,000,000 5,000,000
Proceeds from sale/leaseback transactions 10,453,676 18,371,082
Principal payments on long-term debt (69,192,371) (75,237,631)
Proceeds from exercise of stock options 1,050,000 101,566
Dividends paid (10,589,260) (10,500,949)
-------------- --------------
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES 33,590,618 (5,422,203)
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NET INCREASE IN CASH 902,670 326,969
Cash at beginning of period 13,959,751 19,121,409
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CASH AT END OF PERIOD $ 14,862,421 $ 19,448,378
============== ==============
See notes to unaudited interim financial statements.
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INGLES MARKETS, INCORPORATED AND SUBSIDIARIES
NOTES TO UNAUDITED INTERIM FINANCIAL STATEMENTS
Nine Months Ended June 24, 2000 and June 26, 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 June 24, 2000, and the results of operations, changes
in stockholders' equity and cash flows for the three month and nine month
periods ended June 24, 2000 and June 26, 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 nine month periods ended June
24, 2000 are not necessarily indicative of the results to be expected for the
full fiscal year.
Certain amounts for the three month and nine month periods ended June 26, 1999
have been reclassified for comparative purposes.
B. ALLOWANCE FOR DOUBTFUL ACCOUNTS
Receivables are presented net of an allowance for doubtful accounts of $260,079
and $185,070 at June 24, 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:
JUNE 24, September 25,
2000 1999
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Accounts payable-trade $ 91,489,977 $ 91,748,064
Property, payroll, and other taxes payable 11,531,651 11,358,575
Salaries, wages and bonuses payable 8,901,290 10,812,107
Self-insurance reserves 5,511,000 5,719,000
Accrued litigation settlement 7,819,063 7,819,063
Other 16,262,763 14,186,668
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$ 141,515,744 $ 141,643,477
============== ==============
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.
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Employee insurance expense, including workers' compensation and medical care
benefits, net of employee contributions, totaled $3.0 million and $3.6 million
for the three month periods ended June 24, 2000 and June 26, 1999, respectively.
For the nine month periods ended June 24, 2000 and June 26, 1999, employee
insurance expense totaled $11.4 million and $10.7 million, respectively.
D. LONG-TERM DEBT
During the nine month period ended June 24, 2000, the Company obtained $68.4
million in long-term funding secured by real estate and equipment. The Company
obtained long-term unsecured line of credit financing of $18.5 million. The
proceeds of the loans were used to fund capital expenditures, retire existing
long-term debt and for general corporate purposes. During the year, the Company
completed several equipment sale/leaseback transactions that netted proceeds of
$10.5 million. The proceeds were used to reduce unsecured lines of credit.
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 April 14, 2000, January 17,
2000 and on October 11, 1999 to stockholders of record on April 4, 2000, January
7, 2000 and October 1, 1999, respectively.
F. SUPPLEMENTARY CASH FLOW INFORMATION
Cash paid for interest and taxes is as follows:
NINE MONTHS ENDED
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JUNE 24, June 26,
2000 1999
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Interest (net of amount capitalized) $ 29,931,745 $ 30,542,237
Income taxes 7,758,229 6,869,794
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G. EARNINGS PER COMMON SHARE
The following table sets forth the computation of basic and diluted earnings per
share for the periods indicated:
THREE MONTHS ENDED
------------------------------------
JUNE 24, June 26,
2000 1999
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BASIC:
Net income $ 5,604,335 $ 5,146,262
============== ==============
Weighted average number of common shares
outstanding 22,577,739 22,377,739
============== ==============
Basic earnings per common share $ .25 $ .23
============== ==============
DILUTED:
Net income $ 5,604,335 $ 5,146,262
============== ==============
Weighted average number of common shares and
common stock equivalent shares outstanding 22,642,081 22,544,220
============== ==============
Diluted earnings per common share $ .25 $ .23
============== ==============
The following table sets forth the computation of basic and diluted earnings per
share for the nine month period indicated:
NINE MONTHS ENDED
------------------------------------
JUNE 24, June 26,
2000 1999
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BASIC:
Net income $ 16,904,009 $ 13,331,046
============== ==============
Weighted average number of common shares
outstanding 22,558,325 22,375,636
============== ==============
Basic earnings per common share $ .75 $ .59
============== ==============
DILUTED:
Net income $ 16,904,009 $ 13,331,046
============== ==============
Weighted average number of common shares and
common stock equivalent shares outstanding 22,631,870 22,481,785
============== ==============
Diluted earnings per common share $ .75 $ .59
============== ==============
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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:
THREE MONTHS ENDED NINE MONTHS ENDED
-------------------------- --------------------------
JUNE 24, June 26, JUNE 24, June 26,
2000 1999 2000 1999
---------- ---------- ---------- ----------
Revenues from unaffiliated customers:
Grocery sales $ 451,878 $ 435,881 $1,349,974 $1,294,366
Shopping center rentals 3,998 3,927 11,814 11,665
Fluid dairy 17,486 16,997 52,929 54,031
---------- ---------- ---------- ----------
Total revenues from unaffiliated
customers $ 473,362 $ 456,805 $1,414,717 $1,360,062
========== ========== ========== ==========
Income from operations:
Grocery sales $ 13,058 $ 12,789 $ 38,394 $ 38,050
Shopping center rentals 2,411 2,381 7,024 6,999
Fluid dairy 1,945 1,972 5,124 4,954
---------- ---------- ---------- ----------
Total income from operations $ 17,414 $ 17,142 $ 50,542 $ 50,003
========== ========== ========== ==========
JUNE 24, September 25,
2000 1999
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Assets:
Grocery sales $ 763,501 $ 725,990
Shopping center rentals 123,303 121,277
Fluid dairy 26,348 25,904
--------- ---------
Total assets $ 913,152 $ 873,171
========= =========
Revenue from shopping center rentals is reported on the rental income, net line
of the income statements. Grocery sales and fluid dairy revenues comprise the
net sales reported.
The fluid dairy segment had $10.4 and $10.1 million in sales to the grocery
sales segment for the three months ended June 24, 2000 and June 26, 1999,
respectively. The fluid dairy segment had $33.2 and $32.7 million in sales to
the grocery sales segment in the nine months ended June 24, 2000 and June 26,
1999, respectively. These sales have been eliminated in consolidation.
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Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
Ingles, a leading supermarket chain in the Southeast, operates 209 supermarkets
in Georgia (84), North Carolina (63), South Carolina (33), Tennessee (25),
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 39 weeks of operations included in the unaudited
condensed consolidated statements of income for the three and nine-month
periods, respectively, ended June 24, 2000 and June 26, 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.
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The following table sets forth, for the periods indicated, selected financial
information as a percentage of net sales:
THREE MONTHS ENDED NINE MONTHS ENDED
-----------------------------------------------------
JUNE 24, June 26, JUNE 24, June 26,
2000 1999 2000 1999
-----------------------------------------------------
Net sales 100.0% 100.0% 100.0% 100.0%
Gross profit 26.1% 25.1% 25.6% 24.7%
Operating and administrative
Expenses 22.9% 21.8% 22.5% 21.5%
Rental income, net 0.5% 0.5% 0.5% 0.5%
Other income, net 0.4% 0.1% 0.5% 0.1%
Income before interest and
income taxes 4.1% 3.9% 4.1% 3.8%
Interest expense 2.1% 2.1% 2.1% 2.2%
Income before income taxes 2.0% 1.8% 2.0% 1.6%
Income taxes 0.8% 0.7% 0.8% 0.6%
Net income 1.2% 1.1% 1.2% 1.0%
EBITDA margin(1) 6.5% 6.3% 6.4% 6.2%
- ---------------------------------------------------
(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.
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THREE MONTHS ENDED JUNE 24, 2000 COMPARED TO THE THREE MONTHS ENDED
JUNE 26, 1999
Net Sales
Net sales for the three months ended June 24, 2000 increased 3.6% to $469.4
million, compared to $452.9 million for the three months ended June 26, 1999.
Comparable store sales increased 2.4% for the quarter compared to the same
period last year.
Sales increases were achieved through a combination of effective marketing,
highly visible community involvement and a focus on improving store conditions
and customer service, as well as from rising sales in maturing new stores,
remodeled stores and stores that have been replaced.
Gross Profit
Gross profit for the three months ended June 24, 2000 increased 7.9% to $122.6
million, or 26.1% of sales, compared to $113.6 million, or 25.1% of sales, for
the three months ended June 26, 1999. Efficient purchasing and an expanded array
of higher margin product offerings contributed to increased gross profit.
Operating and Administrative Expenses
Operating and administrative expenses increased 8.8% to $107.6 million for the
three months ended June 24, 2000, from $98.8 million for the three months ended
June 26, 1999. A variety of factors contributed to this increase. Payroll
increases resulted from rising labor costs in a highly competitive labor market.
An increase in bank charges resulted primarily from charges related to the
increased volume and cost of processing credit card and debit card sales. Repair
charges in the first half of the year decreased, as a percentage of sales,
however an increase in refrigeration repairs reversed that trend in the third
quarter. Warehouse expenses increased primarily due to higher labor costs and
increased diesel fuel prices. Equipment rent expense increases resulted from the
leasing of store equipment for new and replacement stores. A breakdown of the
major increases in operating and administrative expenses, expressed as a
percentage of sales, is as follows:
Payroll 0.6%
Bank charges 0.1%
Repairs 0.1%
Warehouse expense 0.1%
Equipment rent expense 0.1%
Rental Income, Net
Rental income, net remained substantially unchanged at $2.4 million for both the
June 2000 and June 1999 quarters. Ingles operated one fewer shopping center
during the three months ended June 24, 2000 than during the same quarter of
1999. This shopping center was sold in February 2000.
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Other Income, Net
Other income, net increased $1.2 million to $1.9 million for the three months
ended June 24, 2000 from $0.7 million for the three months ended June 26, 1999.
The increase results primarily from the proceeds of vendor accounts payable
audits.
Interest Expense
Interest expense increased $0.5 million to $10.1 million for the three months
ended June 24, 2000 from $9.6 million for the three months ended June 26, 1999.
The increase results from a combination of higher debt levels used to fund
capital expenditures and higher interest rates.
Income Taxes
Income tax expense as a percentage of pre-tax income increased to 39.4% in the
June 2000 quarter compared to 37.6% in the June 1999 quarter. This increase is
primarily attributable to higher state income taxes in the June 2000 quarter.
Net Income
Net income for the June 2000 quarter increased 8.9% to $5.6 million, or 1.2% of
sales, compared to $5.1 million, or 1.1% of sales, for the June 1999 quarter.
Basic and diluted earnings per common share were $.25 for the June 2000 quarter
compared to $.23 for the June 1999 quarter.
NINE MONTHS ENDED JUNE 24, 2000 COMPARED TO THE NINE MONTHS ENDED JUNE 26, 1999
Net Sales
Net sales for the nine months ended June 24, 2000 increased 4.0% to $1.403
billion, compared to $1.348 billion for the nine months ended June 26, 1999.
Comparable store sales increased 2.9% for such period. Effective marketing
strategies, increased 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 stores contributed to the increase.
Gross Profit
Gross profit for the nine months ended June 24, 2000 increased 7.5% to $358.6
million, or 25.6% of sales, compared to $333.4 million, or 24.7% of sales, for
the nine months ended June 26, 1999. Efficient purchasing and an expanded array
of higher margin product offerings contributed to increased gross profit.
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Operating and Administrative Expenses
Operating and administrative expenses increased 8.5% to $315.1 million for the
nine months ended June 24, 2000, from $290.4 million for the nine months ended
June 26, 1999. As a percentage of sales, operating and administrative expenses
were 22.5% and 21.5% for the nine months ended June 24, 2000 and June 26, 1999,
respectively. A variety of factors contributed to this increase. Payroll
increases resulted from rising labor costs in a highly competitive labor market.
Warehouse expenses increased primarily due to higher labor costs and increased
diesel fuel prices. Equipment rent expense increases resulted from the leasing
of store equipment for new and replacement stores. Store supply costs rose due
to a combination of upfitting new and replacement stores with supplies and the
addition of new supply items in all stores. An increase in bank charges resulted
primarily from charges related to the increased volume and cost of processing
credit card and debit card sales. Higher group medical insurance costs in the
first half of the year caused accelerated insurance costs year-to-date, however,
the trend stabilized in the third quarter. A breakdown of the major increases in
operating and administrative expenses, expressed as a percentage of sales, is as
follows:
Payroll 0.4%
Warehouse expense 0.2%
Equipment rent expense 0.1%
Store supplies 0.1%
Bank charges 0.1%
Insurance 0.1%
Rental Income, Net
Rental income, net remained substantially unchanged at $7.0 million for both the
June 2000 nine-month period and the June 1999 nine-month period. Ingles operated
one less shopping center at June 2000 than at June 1999. This shopping center
was sold in February 2000.
Other Income, Net
Other income, net increased $5.2 million to $6.9 million for the nine months
ended June 24, 2000 from $1.7 million for the nine months ended June 26, 1999.
Other income for the June 2000 nine-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 in February 2000. The balance of the
increase resulted primarily form the proceeds of vendor accounts payable audits.
Interest Expense
Interest expense decreased $0.4 million to $29.9 million for the nine months
ended June 24, 2000 from $30.3 million for the nine months ended June 26, 1999.
The decrease results primarily from sale/leaseback transactions in March 1999,
partially offset by increased debt
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levels at June 24, 2000 and higher interest rates.
Income Taxes
Income tax expense as a percentage of pre-tax income increased to 38.7% in the
June 2000 nine-month period compared to 37.5% in the June 1999 nine-month
period. The increase is primarily attributable to higher state income taxes in
the June 2000 nine-month period.
Net Income
Net income for the June 2000 nine-month period grew 26.8% to $16.9 million, or
1.2% of sales, compared to $13.3 million, or 1.0% of sales, for the June 1999
nine-month period. Basic and diluted earnings per common share were $.75 for the
June 2000 nine-month period compared to $.59 for the June 1999 nine-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 $83.3 million for the nine months ended June 24,
2000, including expenditures related to the opening of four new stores,
replacement of six older stores, and minor remodeling of nine stores, all of
which were completed during the nine-month period. Capital expenditures also
included costs related to new stores to be opened and remodels to be completed
during the remainder 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 whole of fiscal 2000 include investments of approximately $100
million.
Liquidity
The Company generated $44.1 million of cash from operations for the nine months
ended June 24, 2000 compared to $42.5 million for the nine months ended June 26,
1999.
Cash used by investing activities totaled $76.8 million. The primary use of this
cash was the $83.3 million of capital expenditures during the period, which were
partially offset by $6.5 million of proceeds from the sale of assets.
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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 June 2000 nine-month period,
the Company's financing activities provided $33.6 million in cash, the net
result of dividend payments, long- and short-term borrowings, proceeds from
sale/leaseback transactions and stock option proceeds. Proceeds from long-term
debt totaled $86.9 million, while payments on long-term debt were $69.2 million.
Proceeds from short-term borrowings, net were $15.0 million. As of June 24, 2000
the Company had unencumbered real property and equipment with a net book value
of approximately $260 million.
At June 24, 2000, the Company had lines of credit with seven banks totaling
$140.0 million; of this amount $58.0 million was unused. The $82.0 million
outstanding under lines of credit at June 24, 2000 mature in fiscal years 2001
and 2002; 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 June 24, 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 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
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Company and other factors which the Board of Directors deems relevant. In
addition, certain loan agreements contain provisions restricting the ability of
the Company to pay additional dividends to approximately $30.0 million, based on
tangible net worth at June 24, 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 three 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.
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
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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.
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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
June 24, 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 June 24, 2000.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused the report to be signed on its behalf by the
undersigned thereunto duly authorized.
INGLES MARKETS, INCORPORATED
Date: August 7, 2000 /s/ Robert P. Ingle
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Robert P. Ingle
Chairman of the Board and
Chief Executive Officer
Date: August 7, 2000 /s/ Brenda S. Tudor
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Brenda S. Tudor
Vice President-Finance and
Chief Financial Officer
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