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 26, 1994
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
----------------- ----------------- .
Commission File Number 0-14706
INGLES MARKETS, INCORPORATED
(Exact name of registrant as specified in its charter)
North Carolina 56-0846267
- ------------------------------- ---------------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
P.O. Box 6676, Asheville, NC 28816
- ------------------------------- ---------------------------
(Address of principal executive (Zip Code)
offices)
Registrant's telephone number,
including area code: (704) 669-2941
---------------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES X NO
--- ---.
As of April 29, 1994, the registrant had 4,405,007 shares of Class A Common
Stock, $.05 par value per share, and 13,498,693 shares of Class B Common
Stock, $.05 par value per share, outstanding.
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INGLES MARKETS, INCORPORATED
INDEX
Page No.
--------
Part I - Financial Information
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets -
March 26, 1994 and
September 25, 1993 3
Consolidated Statements of Income -
Three Months Ended
March 26, 1994 and
March 27, 1993 5
Six Months Ended
March 26, 1994 and
March 27, 1993 6
Consolidated Statements of Changes in
Stockholders' Equity -
Six Months Ended
March 26, 1994 and
March 27, 1993 7
Consolidated Statements of Cash Flows -
Six Months Ended
March 26, 1994 and
March 27, 1993 8
Notes to Unaudited Interim Financial Statements 9
Item 2. Management's Discussion and Analysis of
Results of Operations and Financial
Condition 12
Part II - Other Information
Item 4. Submission of Matters to a Vote of Security Holders 18
Item 6. Exhibits and Reports on Form 8-K 18
Signatures 19
Exhibits
11 Computation of Earnings Per Common Share
Three Months Ended
March 26, 1994 and
March 27, 1993 20
Six Months Ended
March 26, 1994 and
March 27, 1993 21
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Part I. Financial Information
Item 1. Financial Statements
INGLES MARKETS, INCORPORATED
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
MARCH 26, SEPTEMBER 25,
1994 1993
(UNAUDITED) (NOTE)
------------ -------------
CURRENT ASSETS
Cash $ 18,503,086 $ 17,720,151
Receivables 14,591,792 14,043,992
Inventories 99,489,029 101,718,841
Other 1,878,339 2,833,268
------------- -------------
TOTAL CURRENT ASSETS 134,462,246 136,316,252
PROPERTY AND EQUIPMENT - Net 326,456,502 312,516,161
OTHER ASSETS 9,338,750 7,716,358
------------- -------------
TOTAL ASSETS $ 470,257,498 $ 456,548,771
============= =============
NOTE: The balance sheet at September 25, 1993 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
CONSOLIDATED BALANCE SHEETS (CONCLUDED)
LIABILITIES AND STOCKHOLDERS' EQUITY
MARCH 26, SEPTEMBER 25,
1994 1993
(UNAUDITED) (NOTE)
------------ -------------
CURRENT LIABILITIES
Short-term loans and current
portion of long-term liabilities $ 46,171,228 $ 43,832,239
Accounts payable and accrued
expenses 70,384,388 80,049,770
------------ ------------
TOTAL CURRENT LIABILITIES 116,555,616 123,882,009
DEFERRED GAINS ON SALE LEASEBACKS 139,999 148,486
DEFERRED INCOME TAXES 18,326,161 21,815,873
LONG-TERM LIABILITIES 180,632,765 163,013,274
------------ ------------
TOTAL LIABILITIES 315,654,541 308,859,642
------------ ------------
STOCKHOLDERS' EQUITY
Preferred stock, $.05 par value;
10,000,000 shares authorized;
no shares issued
Common stocks:
Class A, $.05 par value; 150,000,000
shares authorized; 4,395,007
shares issued and outstanding
March 26, 1994; 4,310,855 shares
issued and outstanding
September 25, 1993 219,750 215,543
Class B, $.05 par value; 100,000,000
shares authorized; 13,508,693
shares issued and outstanding
March 26, 1994; 13,592,845 shares
issued and outstanding
September 25, 1993 675,435 679,642
Paid-in capital in excess of
par value 48,594,115 48,594,115
Retained earnings 105,113,657 98,199,829
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 154,602,957 147,689,129
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $470,257,498 $456,548,771
============ ============
NOTE: The balance sheet at September 25, 1993 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
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
THREE MONTHS ENDED
-------------------------
MARCH 26, MARCH 27,
1994 1993
------------ ------------
NET SALES $301,531,946 $280,773,822
COST OF GOODS SOLD 233,555,226 219,963,405
------------ ------------
GROSS PROFIT 67,976,720 60,810,417
OPERATING AND ADMINISTRATIVE
EXPENSES 58,793,328 53,984,812
RENTAL INCOME, NET 1,159,764 1,268,691
------------ ------------
INCOME FROM OPERATIONS 10,343,156 8,094,296
OTHER INCOME, NET 37,732 329,364
------------ ------------
INCOME BEFORE INTEREST
AND INCOME TAXES 10,380,888 8,423,660
INTEREST EXPENSE 4,321,472 4,500,806
------------ ------------
INCOME BEFORE
INCOME TAXES 6,059,416 3,922,854
------------ ------------
INCOME TAXES:
Current 1,000,000 1,300,000
Deferred 1,200,000 100,000
------------ ------------
2,200,000 1,400,000
------------ ------------
INCOME BEFORE CUMULATIVE EFFECT
OF CHANGE IN ACCOUNTING PRINCIPLE 3,859,416 2,522,854
CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLE FOR INCOME TAXES - -
------------ ------------
NET INCOME $ 3,859,416 $ 2,522,854
============ ============
PER-SHARE AMOUNTS:
Earnings per common share:
Primary earnings per common
share before cumulative effect
of change in accounting principle $ .21 $ .14
Cumulative effect of change in
accounting principle for income taxes - -
------------ ------------
Primary earnings per common share $ .21 $ .14
============ ============
Fully diluted earnings per common
share before cumulative effect of
change in accounting principle $ .20 $ .14
Cumulative effect of change in
accounting principle for income taxes - -
------------ ------------
Fully diluted earnings per common share $ .20 $ .14
============ ============
Cash dividends per common share:
Class A $ - $ -
------------ ------------
Class B $ - $ -
------------ ------------
See notes to unaudited interim financial statements.
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INGLES MARKETS, INCORPORATED
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (CONCLUDED)
(UNAUDITED)
SIX MONTHS ENDED
-------------------------
MARCH 26, MARCH 27,
1994 1993
------------ ------------
NET SALES $599,406,544 $557,330,665
COST OF GOODS SOLD 466,052,762 436,227,198
------------ ------------
GROSS PROFIT 133,353,782 121,103,467
OPERATING AND ADMINISTRATIVE
EXPENSES 115,903,638 107,092,477
RENTAL INCOME, NET 2,995,103 2,377,294
------------ ------------
INCOME FROM OPERATIONS 20,445,247 16,388,284
OTHER INCOME, NET 376,970 448,212
------------ ------------
INCOME BEFORE INTEREST
AND INCOME TAXES 20,822,217 16,836,496
INTEREST EXPENSE 8,617,672 9,001,718
------------ ------------
INCOME BEFORE
INCOME TAXES 12,204,545 7,834,778
------------ ------------
INCOME TAXES:
Current 4,000,000 2,700,000
Deferred 500,000 100,000
------------ ------------
4,500,000 2,800,000
------------ ------------
INCOME BEFORE CUMULATIVE EFFECT
OF CHANGE IN ACCOUNTING PRINCIPLE 7,704,545 5,034,778
CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLE FOR INCOME TAXES 3,334,860 -
------------ ------------
NET INCOME $ 11,039,405 $ 5,034,778
============ ============
PER-SHARE AMOUNTS:
Earnings per common share:
Primary earnings per common
share before cumulative effect
of change in accounting principle $ .42 $ .28
Cumulative effect of change in
accounting principle for income taxes .18 -
------------ ------------
Primary earnings per common share $ .60 $ .28
============ ============
Fully diluted earnings per common
share before cumulative effect of
change in accounting principle $ .40 $ .28
Cumulative effect of change in
accounting principle for income taxes .16 -
------------ ------------
Fully diluted earnings per common share $ .56 $ .28
============ ============
Cash dividends per common share:
Class A $ .2475 $ .11
------------ ------------
Class B $ .2250 $ .10
------------ ------------
See notes to unaudited interim financial statements.
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INGLES MARKETS, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(UNAUDITED)
_____________________________________________
PAID-IN
CLASS A CLASS B CAPITAL IN
...COMMON STOCK... ...COMMON STOCK... EXCESS OF RETAINED
SHARES AMOUNT SHARES AMOUNT PAR VALUE EARNINGS TOTAL
--------- -------- ---------- -------- ----------- ------------ ------------
BALANCE,
SEPTEMBER 26, 1992. 4,292,747 $214,637 13,610,953 $680,548 $48,594,115 $ 90,623,702 $140,113,002
NET INCOME . . . . . - - - - - 5,034,778 5,034,778
CASH DIVIDENDS . . . - - - - - (1,833,315) (1,833,315)
COMMON STOCK
CONVERSIONS . . . . 7,390 370 (7,390) (370) - - -
--------- -------- ---------- -------- ----------- ------------ ------------
BALANCE,
MARCH 27, 1993. . . 4,300,137 $215,007 13,603,563 $680,178 $48,594,115 $ 93,825,165 $143,314,465
========= ======== ========== ======== =========== ============ ============
BALANCE,
SEPTEMBER 25, 1993. 4,310,855 $215,543 13,592,845 $679,642 $48,594,115 $ 98,199,829 $147,689,129
NET INCOME . . . . . - - - - - 11,039,405 11,039,405
CASH DIVIDENDS . . . - - - - - (4,125,577) (4,125,577)
COMMON STOCK
CONVERSIONS . . . . 84,152 4,207 (84,152) (4,207) - - -
--------- -------- ---------- -------- ----------- ------------ ------------
BALANCE,
MARCH 26, 1994. . . 4,395,007 $219,750 13,508,693 $675,435 $48,594,115 $105,113,657 $154,602,957
========= ======== ========== ======== =========== ============ ============
See notes to unaudited interim financial statements.
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INGLES MARKETS, INCORPORATED
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
SIX MONTHS ENDED
--------------------------
MARCH 26, MARCH 27,
1994 1993
------------ ------------
Cash Flows From Operating Activities:
Net income $ 11,039,405 $ 5,034,778
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization expense 11,028,693 10,481,566
Recognition of advance payment on purchases
contract (456,325) -
Amortization of deferred gains (8,487) (18,847)
Gains on disposals of property and
equipment (8,799) (32,147)
Deferred income taxes 500,000 100,000
Cumulative effect of change in accounting
principle for income taxes (3,334,860) -
Increase in receivables (547,800) (917,350)
Decrease in inventory 2,229,812 1,692,893
(Increase) decrease in other assets (1,443,757) 147,941
(Decrease) increase in accounts payable
and accrued expenses (9,665,382) 7,096,914
------------ ------------
Net Cash Provided by Operating Activities 9,332,500 23,585,748
------------ ------------
Cash Flows From Investing Activities:
Proceeds from sales of property and
equipment 18,150 149,526
Capital expenditures (24,856,944) (63,516,148)
------------ -----------
Net Cash (Used) by Investing Activities (24,838,794) (63,366,622)
------------ ------------
Cash Flows From Financing Activities:
Proceeds from issuance of long-term debt 25,204,876 100,000
Principal payments of long-term debt (4,790,070) (6,331,811)
Proceeds from short-term borrowings, net - 41,000,000
Dividends paid (4,125,577) (1,833,315)
------------ ------------
Net Cash Provided By Financing Activities 16,289,229 32,934,874
------------ ------------
Net Increase (Decrease) in Cash 782,935 (6,846,000)
Cash at Beginning of Period 17,720,151 24,743,544
------------ ------------
Cash at End of Period $ 18,503,086 $ 17,897,544
============ ============
See notes to unaudited interim financial statements.
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INGLES MARKETS, INCORPORATED
AND SUBSIDIARIES
NOTES TO UNAUDITED INTERIM FINANCIAL STATEMENTS
March 26, 1994
A. BASIS OF PREPARATION
In the opinion of management, the accompanying unaudited interim
financial statements contain all adjustments necessary to present fairly
the Company's financial position as of March 26, 1994 and September 25,
1993, and the results of operations, changes in stockholders' equity and
cash flows for the three month and six month periods ended March 26, 1994
and March 27, 1993. The adjustments made are of a normal recurring
nature. Certain information and footnote disclosures normally included in
the annual financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to
the rules and regulations of the Securities and Exchange Commission for
Form 10-Q. It is suggested that these unaudited interim financial
statements be read in conjunction with the audited financial statements
and the notes thereto included in the 1993 Annual Report on Form 10-K
filed by the Company under the Securities Exchange Act of 1934 on December
20, 1993.
The results of operations for the three month and six month periods
ended March 26, 1994 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, 1993 have been reclassified for comparative purposes.
B. EARNINGS PER COMMON SHARE
Primary earnings per common share is computed by dividing consolidated
net income by the weighted average number of shares of common stock and
dilutive common stock equivalent shares outstanding during the period
(18,421,580 and 18,358,174 for the three month and six month periods ended
March 26, 1994, respectively and 17,936,641 and 17,929,879 for the three
month and six month periods ended March 27, 1993, respectively).
Fully diluted earnings per common share gives effect to the assumed
conversion, if dilutive, of the Convertible Subordinated Debentures, after
elimination of related interest expense, net of the bonus and income tax
effect. The weighted average number of shares used to compute fully
diluted earnings per common share were 21,796,715 and 21,733,309 for the
three month and six month periods ended March 26, 1994, respectively. The
effect for the three and six month periods ended March 27, 1993 of the
conversion of the Convertible Subordinated Debentures was anti-dilutive
and therefore the conversion was not assumed in the fully diluted
calculation for these periods.
C. ALLOWANCE FOR DOUBTFUL ACCOUNTS
Receivables are presented net of an allowance for doubtful accounts of
$100,000 at March 26, 1994 and September 25, 1993.
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D. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consist of the following:
March 26, September 25,
1994 1993
------------ -------------
Accounts payable-trade $ 50,080,391 $ 57,679,269
Property, payroll, and
other taxes payable 5,680,546 6,526,695
Income taxes payable 1,061,570 1,428,220
Salaries, wages and
bonuses payable 4,936,216 5,765,393
Interest payable 2,492,605 2,525,586
Self-insurance reserves 4,445,000 4,260,000
Other 1,688,060 1,864,607
------------ -------------
$ 70,384,388 $ 80,049,770
============ =============
E. LONG-TERM DEBT
On September 30, 1993, the Company obtained a $12 million loan from an
insurance company. The loan is secured by store equipment and is
payable in sixty monthly installments of $226,730 including interest
at a rate equal to the average weekly yield of thirty day Commercial
Paper plus 190 basis points (5.02% at March 26, 1994). Proceeds of
the loan were used to reduce short-term debt outstanding at that time.
During March 1994, the Company obtained a $13 million unsecured bank
loan maturing in May 1995. Interest only is payable monthly at the
thirty day London Interbank Rate (LIBOR) plus 1.5% (5.06% at March 26,
1994). Proceeds of the loan were used to fund capital expenditures.
F. DIVIDENDS
The Company paid cash dividends of $.0825 for each share of Class A
Common Stock and $.075 for each share of Class B Common Stock on October
8, 1993 to stockholders of record on September 28, 1993. 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 December 27, 1993 to
stockholders of record on December 17, 1993. Both of these dividends were
reflected in the first quarter.
G. SUPPLEMENTARY CASH FLOW INFORMATION
Cash paid for interest and taxes is as follows:
SIX MONTHS ENDED
-------------------------------
March 26, March 27,
1994 1993
------------ ------------
Interest (net of
amount capitalized) $ 8,650,653 $ 8,981,795
Income taxes 5,276,500 2,563,250
H. CHANGE IN METHOD OF ACCOUNTING FOR INCOME TAXES
Effective September 26, 1993, the Company adopted FASB Statement No. 109,
"Accounting for Income Taxes". Under Statement 109, the liability method
is used in accounting for income taxes. Under this method, deferred
tax assets and liabilities are determined based on differences between
financial reporting and tax bases of assets and liabilities and are
measured using the currently enacted tax rates. Prior to the adoption
of Statement 109, income tax expense was
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determined using the deferred method. Deferred tax expense was based on items
of income and expense that were reported in different years in the financial
statements and tax returns and were measured at the tax rate in effect in the
year the difference originated.
As permitted by Statement 109, the Company has elected not to restate the
financial statements of any prior years. The effect of the change on pre-tax
income for the three and six month periods ended March 26, 1994 was not
material; however, the cumulative effect of the change increased net income by
$3,334,860 or $.18 per common share.
Significant components of the Company's deferred tax liabilities and assets as
of September 26, 1993 were as follows (in thousands):
Deferred tax liabilities:
Tax over book depreciation $22,203
Property tax method 272
-------
Total deferred tax liabilities 22,475
-------
Deferred tax assets:
Excess of tax basis over financial reporting
basis of property and equipment 3,977
Insurance reserves 1,619
Other 414
-------
Total deferred tax assets 6,010
-------
Net deferred tax liabilities $16,465
=======
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Item 2. Management's Discussion and Analysis of Results of Operations
and Financial Condition.
THREE MONTHS ENDED MARCH 26, 1994 COMPARED
WITH THE THREE MONTHS ENDED MARCH 27, 1993
NET SALES
Net sales for the three months ended March 26, 1994 increased $20.8 million to
$301.5 million, up 7.4% over sales of $280.8 million last year. In addition to
continuing the lower price strategy on dry grocery goods commenced during the
third quarter of fiscal 1992, the Company has pursued an aggressive
merchandising and pricing strategy to boost sales in its perishable departments
and has increased variety in its grocery department. An effective advertising
campaign was used to call attention to these practices. The Company has
reported increases in net sales, from the comparable quarter of the prior
fiscal year, of $10.6, $15.4, $17.0, $22.1, $16.5, $19.9, $21.3 and $20.8
million in the third and fourth quarters of fiscal 1992, the first, second,
third and fourth quarters of fiscal 1993 and the first and second quarters of
fiscal 1994, respectively.
During the second quarter of fiscal 1994, one new store was opened and one
older store was replaced. At March 26, 1994, the Company operated 172
supermarkets in North Carolina, South Carolina, Georgia, Tennessee and
Virginia.
GROSS PROFIT
Gross profit for the 1994 three month period increased 11.8% to $68.0 million,
or 22.5% of sales, compared with $60.8 million, or 21.7% of sales, a year ago.
Grocery gross profit, as a percentage of sales, increased principally due to an
aggressive purchasing program. Meat and produce gross profit, as a percentage
of sales, was positively impacted by better merchandising, more aggressive
pricing and an effective advertising campaign.
OPERATING AND ADMINISTRATIVE EXPENSES
Operating and administrative expenses, as a percentage of sales, were 19.5% this
year compared to 19.2% last year. The percentage increase is principally due
to increases in the cost of labor, warehouse and transportation expense, and
repairs and maintenance expense. These increases were partially offset by a
decrease in advertising and promotional expenditures.
RENTAL INCOME, NET
Rental income, net decreased from $1.3 million last year to $1.2 million this
year primarily due to an increase in depreciation expense.
INCOME FROM OPERATIONS
Income from operations increased 27.8% to $10.3 million, or 3.4% of sales,
compared to $8.1 million, or 2.9% of sales, last year. The increase in
operating income was due to the increase in sales and the related increase in
gross profit.
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INCOME BEFORE INTEREST AND INCOME TAXES
Income before interest and income taxes was $10.4 million, or 3.4% of sales,
this year versus $8.4 million, or 3.0% of sales, last year.
INTEREST EXPENSE
Despite an increase in debt this quarter, compared to the comparable quarter
last year, interest expense decreased from $4.5 million in 1993 to $4.3 million
in 1994, due to lower borrowing rates.
INCOME BEFORE INCOME TAXES
Income before income taxes was $6.1 million, or 2.0% of sales, this year
compared to $3.9 million, or 1.4% of sales, last year.
INCOME TAX EXPENSE
Income tax expense, as a percentage of pre-tax income, was 36.3% this year
compared with 35.7% last year due primarily to an increase in the federal
income tax rate.
NET INCOME
Net income for the three months ended March 26, 1994 increased $1.3 million, to
$3.9 million, up 53.0% over income of $2.5 million last year. Primary earnings
per common share rose from $.14 last year to $.21 this year.
SIX MONTHS ENDED MARCH 26, 1994 COMPARED
WITH THE SIX MONTHS ENDED MARCH 27, 1993
NET SALES
Net sales for the six month period ended March 26, 1994 increased $42.1 million
to $599.4 million, up 7.5% over sales of $557.3 million last year. Growth in
identical store sales (grocery stores open for the entire duration of the
previous fiscal year) was an impressive 7.0%. Approximately one half of the
dollar increase in sales resulted from an increase in grocery sales - the other
half from an increase in sales in the perishable departments. In addition to
continuing the lower price strategy on dry grocery goods commenced during the
third quarter of fiscal 1992, the Company has pursued an aggressive
merchandising and pricing strategy in its perishable departments, has conducted
an overall effective advertising campaign and has increased variety in its
grocery department.
GROSS PROFIT
Gross profit for the six months ended March 26, 1994 increased 10.1% to $133.4
million, or 22.2% of sales, compared to $121.1 million, or 21.7% of sales, last
year. Grocery gross profit, as a percentage of sales, increased primarily due
to an aggressive purchasing program. Meat and produce gross profit, as a
percentage of sales, improved due to better merchandising, aggressive pricing
and more effective advertising.
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OPERATING AND ADMINISTRATIVE EXPENSES
Operating and administrative expenses, as a percentage of sales, were 19.3%
this year compared to 19.2% last year. Due to good expense control as well as
the ability to spread expenses over a higher sales volume, the increase in
operating and administrative expenses, as a percentage of sales, was minimal.
Increases in the cost of labor, as a percentage of sales, was partially offset
by a decrease, as a percentage of sales, in advertising and promotional
expenditures.
RENTAL INCOME, NET
Rental income, net increased from $2.4 million last year to $3.0 million this
year. Fiscal 1994 includes a payment of $.6 million for the termination of two
leases of premises owned by the Company which were occupied by a tenant.
INCOME FROM OPERATIONS
Income from operations increased 24.8% to $20.4 million, or 3.4% of sales,
compared with $16.4 million, or 2.9% of sales the prior year. The increase was
due to the increase in sales, the increase in gross profit and the increase in
rental income, net.
INCOME BEFORE INTEREST AND INCOME TAXES
Income before interest and income taxes was $20.8 million, or 3.5% of sales, in
fiscal 1994 compared with $16.8 million, or 3.0% of sales, last year.
INTEREST EXPENSE
Despite an increase in debt this six month period, compared to the comparable
period last year, interest expense decreased from $9.0 million in 1993 to $8.6
million in 1994, due to lower borrowing rates.
INCOME BEFORE INCOME TAXES
Income before income taxes increased $4.4 million to $12.2 million, or 2.0% of
sales, this year compared to $7.8 million, or 1.4% of sales, last year.
INCOME TAX EXPENSE
Income tax expense, as a percentage of pre-tax income, was 36.9% this year
compared with 35.7% last year due primarily to the increase in the federal
income tax rate.
INCOME BEFORE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE
Income before the cumulative effect of the change in accounting principle for
the six months ended March 26, 1994 increased $2.7 million, to $7.7 million, up
53.0% over income of $5.0 million last year. Primary earnings per common share
before the cumulative effect of the change in accounting principle rose from
$.28 last year to $.42 this year.
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE FOR INCOME TAXES
In February 1992, the Financial Accounting Standards Board issued a new
standard (SFAS 109), "Accounting for Income Taxes". A significant feature
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of the standard is the use of an approach under which recorded deferred taxes
are adjusted for changes in tax rates. Under prior rules (APB 11), deferred
taxes were provided at current tax rates and were not adjusted for subsequent
changes in these rates. The new standard was adopted by the Company at the
beginning of the current fiscal year. The cumulative effect of adopting the
standard resulted in a non-cash credit to net earnings for the six month period
ended March 26, 1994 of $3.3 million, or $.18 per common share.
LIQUIDITY AND CAPITAL RESOURCES
OPERATING ACTIVITIES
Net cash provided by operating activities for the six month period ended March
26, 1994 totalled $9.3 million. Depreciation and amortization expense was
$11.0 million. Accounts payable and accrued expenses decreased $9.7 million.
The cumulative effect of the change in accounting principle that resulted from
the Company's adoption of the Financial Accounting Standards Board (FASB)
Statement Number 109, "Accounting for Income Taxes" was $3.3 million (See page
14).
INVESTING ACTIVITIES
Net cash used by investing activities during the 1994 six month period totalled
$24.8 million. Capital expenditures aggregated $24.8 million. The Company's
capital expenditure program was devoted primarily to obtaining land for new
store locations, the construction of new facilities, and the renovation and
modernization of existing stores. The installation of electronic scanning
systems in 10 stores and expenditures on new stores and remodels expected to
become operational in fiscal 1995 also are included in such investing
activities.
FINANCING ACTIVITIES
Net cash provided by financing activities totalled $16.3 million. Proceeds
from the issuance of long-term debt were $25.2 million. Principal payments of
long-term debt totalled $4.8 million. The Company paid cash dividends of $4.1
million.
ACTIVITY/PROFITABILITY RATIOS
The following activity/profitability ratios are calculated by annualizing the
results for the six month periods ended March 26, 1994 and March 27, 1993.
Favorable inventory turnover rates (cost of sales/inventory) in 1994 of 9.4
(compared with 8.6 in 1993) helped generate cash flow from operations. Return
on assets (income before the cumulative effect of the change in accounting
principle/total assets) increased from 2.29% in 1993 to 3.28% in 1994. Return
on investment (income before the cumulative effect of the change in accounting
principle/average stockholders' equity) improved significantly to 10.2%
compared to 7.1% the prior year.
FINANCIAL STRENGTH
The Company remains in sound financial condition. At March 26, 1994, total
assets were $470.3 million and stockholders' equity was $154.6 million
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compared with $456.5 million and $147.7 million, respectively, at year-end,
September 25, 1993. Working capital totalled $17.9 million and the current
ratio (current assets/current liabilities) improved to 1.15 to 1 compared
with 1.10 to 1 at the end of fiscal 1993.
CAPITAL REQUIREMENTS
The Company has resumed its store expansion program in fiscal 1994 and has
increased the number of stores it expects to expand and/or remodel. We
currently have 22 new stores under construction and 25 stores which are in
the process of being expanded and/or remodeled. In fiscal 1994, we expect to
open 8 of the new stores under construction and complete 3 of the stores being
expanded and/or remodeled. One of the new stores which will be opened in
fiscal 1994 will be located in Centre, Alabama - our first venture into this
state. The remaining new stores currently under construction and the balance
of those presently in the process of being expanded and/or remodeled will be
opened in fiscal 1995.
During fiscal 1994, the Company expects to invest approximately $40-$50 million
in new stores, the expansion and/or remodeling of existing stores, replacing
equipment, installing electronic scanning systems in new and existing stores
and securing sites for future expansion.
FINANCIAL RESOURCES
Available lines of credit at March 26, 1994 with three banks totalled $30.0
million. All of the lines carry interest rates below prime. The Company
is not required to maintain compensating balances in connection with these
lines of credit. The Company has unencumbered property with a net book value
of approximately $190 million which is available to collateralize additional
debt. The Company believes that long-term bank financing is available as well
as sale/leaseback arrangements. The Company continues to pursue appropriate
long-term financing to replace short-term borrowings, currently outstanding,
used to finance the purchase of twenty-two shopping center properties and one
free-standing store on October 1, 1992.
The Company believes that the financial resources available, including amounts
available under long-term financing arrangements, existing bank lines of credit
and internally generated funds, will be sufficient to meet planned capital
expenditures and working capital requirements for the foreseeable future,
including any debt servicing required by additional borrowings.
At their quarterly meeting on December 3, 1993, the Company's Board of
Directors voted to increase the Company's regular quarterly cash dividends
100%. Effective with dividends paid December 27, 1993, the dividends were
increased from $.0825 (eight and one-quarter cents) per share on Class A
Common Stock to $.165 (sixteen and one-half cents) per share and from $.075
(seven and one-half cents) per share on Class B Common Stock to $.15 (fifteen
cents) per share for an annual rate of $.66 and $.60 per share, respectively.
The Company expects to continue the payment of regular dividends on a quarterly
basis at the rates approved December 3, 1993. The Board of Directors, however,
reconsiders the declaration of dividends periodically, and there can be no
assurance as to the declaration of or the amount of dividends to be paid. The
payment of dividends is subject to the
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discretion of the Board of Directors and will depend upon the results of
operations, the financial condition of the Company and other factors which the
Board of Directors deems relevant.
IMPACT OF INFLATION
Inflation in retail food prices continues to be lower than the overall increase
in the Consumer Price Index. Ingles' primary costs, inventory and labor,
increase with inflation. Recovery of these costs has to come from improved
operating efficiencies and, to the extent possible, through improved gross
margins.
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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 22, 1994. The only
matter submitted to a vote of the stockholders at this meeting
was the election of directors. John O. Pollard and J. Alton
Wingate were elected at the Annual Meeting by the holders of
Class A Common Stock by the following vote:(a) Mr. Pollard:
3,623,484 votes for, 8,975 votes withheld, 0 abstentions and 0
broker nonvotes and (b) Mr. Wingate: 3,623,384 votes for,
9,075 votes withheld, 0 abstentions and 0 broker nonvotes.
Robert P. Ingle, Landy B. Laney, Anthony S. Federico, Jack R.
Ferguson, Vaughn C. Fisher and Ralph H. Gardner were elected
by the holders of Class B Common Stock by the following vote:
(a) Mr. Ingle: 13,330,781 votes for, 303 votes withheld, 0
abstentions and 0 broker nonvotes and (b) Mr. Laney:
13,329,881 votes for, 1203 votes withheld, 0 abstentions and 0
broker nonvotes and (c) Mr. Federico: 13,330,856 votes for,
228 votes withheld, 0 abstentions and 0 broker nonvotes and
(d) Mr. Ferguson: 13,330,856 votes for, 228 votes withheld,
0 abstentions and 0 broker nonvotes and (e) Mr. Fisher:
13,330,031 votes for, 1053 votes withheld, 0 abstentions and 0
broker nonvotes and (f) Mr. Gardner: 13,330,856 votes for,
228 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 11 - Computation of Earnings Per Common Share.
(b) Reports on Form 8-K. There were no reports on Form 8-K filed
for the quarter ended March 26, 1994.
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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: May 9, 1994 /s/ Robert P. Ingle
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Robert P. Ingle
Chairman of the Board and
Chief Executive Officer
Date: May 9, 1994 /s/ Jack R. Ferguson
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Jack R. Ferguson
Vice President-Finance and
Chief Financial Officer
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