Back to GetFilings.com
1
FACING PAGE
Page 1 of 2
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D. C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended September 28, 1996
------------------
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _________________ to __________________.
Commission File Number 0-14706
-------
INGLES MARKETS, INCORPORATED
------------------------------------------------------
(Exact name of registrant as specified in its charter)
North Carolina 56-0846267
- ------------------------------- ---------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
P.O. Box 6676, Asheville, NC 28816
- ------------------------------- ---------------------------
(Address of principal executive (Zip Code)
offices)
Registrant's telephone number,
including area code: (704) 669-2941
---------------------------
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
- ------------------------------- ---------------------------
None None
- ------------------------------- ---------------------------
Securities registered pursuant to Section 12(g) of the Act:
Class A Common Stock, $0.05 par value
Class B Common Stock, $0.05 par value
Convertible Subordinated Debentures due October 2008
----------------------------------------------------
(Title of Class)
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 .
--- ---
Exhibit Index is Located on pages 47 - 48
-- --
1
2
FACING PAGE
Page 2 of 2
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. ( )
As of December 10, 1996, the aggregate market value of voting stock held
by non-affiliates of the registrant, based on the closing sales price of the
Class A Common Stock on The Nasdaq Stock Market's National Market on December
10, 1996, was approximately $91.0 million.
As of December 10, 1996, the registrant had 6,500,917 shares of Class A
Common Stock outstanding and 12,999,171 shares of Class B Common Stock
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement to be used in connection with the
solicitation of proxies to be voted at the registrant's annual meeting of
stockholders to be held on February 18, 1997, to be filed with the Commission,
are incorporated by reference into Part III of this Report on Form 10-K.
2
3
PART I
Item 1. BUSINESS
General
Ingles Markets, Incorporated ("Ingles" or the "Company") is a leading
supermarket chain with operations in six southeastern states. At September 28,
1996, the Company, headquartered in Asheville, North Carolina, operated 188
supermarkets in North Carolina, South Carolina, Georgia, Tennessee, Virginia
and Alabama. Ingles' strategy is to locate its supermarkets primarily in
suburban areas, small towns and rural communities, where management believes
the market may be underserved by existing supermarkets. The Company's existing
stores average approximately 36,000 square feet.
The Company resumed its new store opening, expansion, remodel and/or
replacement program in fiscal 1994 and continued this program in fiscal 1995
and 1996. During fiscal 1996, seven new stores were opened, seven older stores
were remodeled and/or replaced and one store was closed. All of the stores
which were remodeled or replaced were enlarged, the results of which have been
excellent, as evidenced by increased sales and market share. Fiscal 1996
capital expenditures, including those relating to the expansion of the existing
warehouse facility, aggregated $107.3 million. The Company believes that its
new store opening, expansion, remodel and/or replacement program contributes to
the continuing success of the Company and should improve monetary returns and
build stockholder value over the long-term. It is the Company's aim to make
Ingles among the most modern supermarket chains in the industry.
During the past five years, the number of supermarkets operated by the Company
increased from 171 to 188. The aggregate sales area in all stores increased
from approximately 3.7 million square feet to approximately 4.7 million square
feet. In addition, weighted average annual sales per store increased from $6.0
million to $7.7 million.
Substantially all stores are located within 250 miles of the Company's 760,000
square foot, state-of-the-art warehouse and distribution center located outside
of Asheville, North Carolina. This facility supplies approximately 67% of the
inventory requirements of the Company's stores. A 310,000 square foot addition
to the existing warehouse facility was completed in October and November 1995.
The addition accommodates an expanded inventory of perishable goods and
increased dry grocery space. The new addition enabled the Company to warehouse
and distribute produce for the first time in its 33-year history during fiscal
year 1996.
The Company's supermarkets, featuring brightly lit and spacious aisles, offer
the customer a broad selection of nationally advertised food and non-food
products as well as quality private label items, all at competitive prices with
an emphasis on convenient locations and superior customer service. Each store
is staffed with helpful, friendly employees who provide customers with fast
check-out and carry-out service. Ingles was one of the first supermarket
chains in its region to introduce higher margin specialty departments, such as
delicatessens and bakeries, as well as offering extended operating hours. All
stores are open seven days a week; many are open 24 hours a day.
3
4
In conjunction with its supermarket operations, the Company owns and operates
74 neighborhood shopping centers, all but three of which contain an Ingles
supermarket. The Company also owns and holds for future development or sale
numerous outparcels and other acreage located adjacent to the shopping centers
and store properties it owns.
Ingles also owns and operates, as a wholly-owned subsidiary, a milk processing
and packaging plant which sells approximately 58% of its milk and related dairy
products to unaffiliated customers.
The Company was founded by Robert P. Ingle, the Company's Chairman of the Board
and Chief Executive Officer. As of September 28, 1996, Mr. Ingle retains
approximately 89% of the combined voting power and 68% of the total number of
shares of the Company's outstanding Class A Common Stock and Class B Common
Stock (in each case including stock deemed to be beneficially owned by Mr.
Ingle as one of the trustees of the Company's Investment/Profit Sharing Plan
and Trust). The Company became a publicly traded company in September 1987.
Its Class A Common Stock is traded on the Nasdaq National Market tier of the
Nasdaq Stock Market under the symbol IMKTA.
The Company was incorporated in 1965 under the laws of the State of North
Carolina. Its principal executive offices are located at P. O. Box 6676,
Highway 70, Asheville, North Carolina 28816, and its telephone number is
704-669-2941.
Business
The Company operates in two lines of business: retail grocery and food sales
(principally retail sales) and shopping center rentals. Information about the
Company's operations by lines of business (in millions) is as follows (for
information regarding the Company's industry segments, see Note 12 to the
Consolidated Financial Statements on page 42 of this report on Form 10-K):
Fiscal Year Ended September
-------------------------------------------------
1996 1995 1994
---------------- --------------- --------------
Revenues from
unaffiliated customers:
Grocery and food sales $1,472.6 99.4% $1,385.1 99.4% $1,233.5 99.2%
Shopping center rentals 9.6 .6% 8.3 .6% 9.8 .8%
-------- ----- -------- ----- -------- -----
$1,482.2 100.0% $1,393.4 100.0% $1,243.3 100.0%
======== ===== ======== ===== ======== =====
Income from operations:
Grocery and food sales $ 54.4 91.4% $ 45.3 91.7% $ 35.2 84.6%
Shopping center rentals 5.1 8.6% 4.1 8.3% 6.4 15.4%
-------- ----- -------- ----- -------- -----
59.5 100.0% 49.4 100.0% 41.6 100.0%
===== ===== =====
Other income (expense),
net 3.1 1.9 1.9
Interest expense 29.0 24.7 17.3
-------- -------- --------
Income before income
taxes and cumulative
effect of change in
accounting principle $ 33.6 $ 26.6 $ 26.2
======== ======== ========
4
5
Supermarket Operations
The Company follows the strategy of locating its supermarkets primarily in
small towns, rural communities and, in particular with respect to new stores,
suburban areas where management believes the market may be underserved by
existing stores.
At September 28, 1996, the Company operated 185 supermarkets under the name
"Ingles" and 3 supermarkets under the name "Best Food" in western North
Carolina, western South Carolina, northern Georgia, eastern Tennessee,
southwestern Virginia and northeastern Alabama. The "Best Food" store concept,
developed in 1994, accommodates a smaller shopping area in a 22,500 square foot
building. The store carries a full line of dry groceries, fresh meat and
produce, all of which are displayed in a modern readily accessible environment.
The store is also operated in accordance with Ingles' high standards of
customer service and quality products at a low price.
The following table sets forth certain information with respect to the
Company's supermarket operations.
Number of Supermarkets Percentage of Total
at Fiscal Net Sales for Fiscal
Year Ended September Year Ended September
---------------------- --------------------
1996 1995 1994 1996 1995 1994
---- ---- ---- ---- ---- ----
North Carolina 59 57 57 35% 35% 35%
South Carolina 28 28 28 14% 14% 14%
Georgia 76 72 65 38% 38% 37%
Tennessee 21 21 21 11% 11% 12%
Virginia 3 3 3 2% 2% 2%
Alabama 1 1 1 0% 0% 0%
---- --- --- --- --- ---
188 182 175 100% 100% 100%
==== === === === === ===
The Company's supermarkets, featuring brightly lit and spacious aisles, offer
the customer a full line of food items, including grocery, meat and dairy
products, produce and frozen foods, as well as a number of non-food items, such
as health and beauty care products, all at competitive prices with an emphasis
on convenient locations and superior customer service. All stores are open 7
days a week and many are open 24 hours a day. Most of the Company's stores
also contain specialty departments such as delicatessens and bakeries.
Management believes that specialty departments result in higher inventory
turnover than other departments and improve overall profit margins. As an
additional convenience to its customers, the Company leases space to local
banks who independently operate branches in 19 stores.
The Company sells a broad selection of nationally advertised brands of
merchandise and carries a wide variety of products under its "Laura Lynn"
private label. The private label products are packed to the Company's
specifications and are generally sold at prices lower than those of national
brands.
5
6
Selected statistics on the Company's supermarket operations are presented
below:
Fiscal Year Ended September
-------------------------------------------
1996 1995(1) 1994 1993 1992
------- ------- ------- ------- -------
Weighted Average Sales
Per Store (000's) $ 7,710 $ 7,445 $ 6,930 $ 6,495 $ 6,035
Total Square Feet at
End of Year (000's) 6,746 6,217 5,575 5,299 5,278
Average Total Square
Feet per Store 35,886 34,160 31,859 31,170 31,047
Average Square Feet of
Selling Space per Store (2) 25,120 23,912 22,301 21,819 21,733
Average Sales Per Square
Foot of Selling Space (2) $ 315 $ 321 $ 314 $ 299 $ 277
Stores:
Opened 14 25 9 3 6
Replaced and/or closed 8 18 4 3 7
Size of Stores:
Less than 29,999 Sq Ft. 44 47 58 60 61
30,000 - 41,999 Sq. Ft. 82 87 92 93 93
42,000 - 51,999 Sq. Ft. 36 36 24 16 15
Greater than 52,000 Sq Ft. 26 12 1 1 1
------- ------- ------- ------- -------
Total Stores Open at
End of Year 188 182 175 170 170
======= ======= ======= ======= =======
(1) Fiscal 1995 was a 53 week year.
(2) Selling space is estimated to be 70% of total store square footage.
Merchandising
The Company's merchandising strategy is to provide convenient supermarket
locations which offer the customer a broad selection of quality products at
competitive prices with an emphasis on superior customer service. Customer
service includes, among other things, maintaining an awareness of customer
tastes and preferences and offering cut-to-order meat, carry-out service to the
customer's automobiles and Sunday hours.
The Company attempts to reinforce its quality and superior service image
through advertising, which is conducted primarily in newspapers, through the
distribution of circulars, and on radio and television. During fiscal 1996,
1995, and 1994 advertising and promotion expenditures, net were approximately
$17.8 million, $18.7 million, and $17.1 million, or 1.2% of net sales in 1996,
1.4% of net sales in 1995 and 1.4% of net sales in 1994. The Company stresses
its American ownership as a contrast to the foreign ownership of several of its
principal competitors. From time to time, the Company uses special promotions
at many of its store locations as part of its promotional strategy. The
Company sponsors an annual "food show" in Asheville, North Carolina where food
vendors operate booths and provide
6
7
information about and samples of products that are offered for sale in the
Company's stores. The net proceeds from the food show are donated to
charitable organizations.
Purchasing and Distribution
The Company supplies approximately 67% of its supermarkets' inventory
requirements from a 760,000 square foot, "state-of-the-art" warehouse and
distribution center located near Asheville, North Carolina. A 310,000 square
foot addition to the facility was completed in October and November 1995. The
new addition enabled the Company to warehouse and distribute produce for the
first time in its 33-year history during fiscal year 1996, as well as store
more dry goods, meat and dairy products. The warehouse services all of the
Company's stores and receives merchandise, principally by truck, from sources
located throughout the country. Goods from the facility are distributed to the
Company's stores by its fleet of 103 tractors and 438 trailers.
Approximately 15% of the Company's inventory requirements in fiscal 1996,
primarily frozen food and slower moving items which the Company preferred not
to stock, were purchased from a wholesale grocery distributor with which the
Company has had a continuing relationship since 1963. Purchases from the
distributor were approximately $168 million in 1996, $236 million in 1995 and
$207 million in 1994. The Company believes that alternative sources of supply
are readily available. This distributor owned approximately 5% of the
Company's Class A Common Stock and approximately 1% of the Company's Class B
Common Stock at September 28, 1996.
The remaining 18% of the Company's inventory requirements, primarily beverages,
bread and snack foods, are supplied directly to the Company's supermarkets by
local distributors and manufacturers.
The Company's centrally managed purchasing and distribution operations provide
several advantages. The Company: (1) is able to negotiate and reduce the cost
of merchandise it purchases, (2) is able to decrease overhead costs, (3) is
able to better manage its inventory at both warehouse and store level, (4) is
able to decrease in-store stock room space by making frequent deliveries, which
increases the square footage available for retail selling space and (5) is able
to turn inventory rapidly which enables the Company to offer consistently high
quality meat and produce items in its stores.
Stores order merchandise electronically. Shipments from the warehouse to the
stores are wrapped which reduces damage during shipment.
The Company engages in forward purchasing arrangements on high turnover
inventory items in order to take advantage of special prices offered by
manufacturers for limited periods. The ability to take advantage of forward
purchasing is limited by several factors including carrying costs and warehouse
space.
In 1982, the Company purchased Milkco, Inc., an integrated milk processing and
packaging plant located in Asheville, North Carolina. The plant processes and
packages milk, fruit juices and spring water under the Sealtest, Pet and
Biltmore labels, as well as under the Company's own "Laura Lynn" private label.
The plant supplies 90% of the fluid milk needs
7
8
of Ingles. Production from the plant has increased from a rate of 5 million
gallons per year at the time of acquisition to over 45 million gallons per year
and is currently the second largest milk processing and packaging plant in
North Carolina. Sales to nonaffiliates in fiscal 1996 were approximately $52.1
million or 58% of its business.
Expansion and Store Development
From the beginning of fiscal 1992 through the end of fiscal 1996, the number of
supermarkets operated by the Company increased from 171 to 188. During this
period, total supermarket square footage increased from 5.2 to 6.7 million
square feet and average square feet per store increased from approximately
31,000 to 36,000.
The Company uses independent contractors to construct its supermarkets from
prototype designs. The two current prototype designs are for "MegaStores"
which contain 54,000 or 59,000 square feet, depending on the store location.
These larger stores, 14 of which were opened in fiscal 1996, offer customers a
wider range of convenience and services, including a deli-bakery, sit-down
cafe, floral department and a video store. The "MegaStores" also provide
greater selection in both food and non-food categories. The construction of
stores is closely monitored and controlled by the Company.
The Company remodels older stores on a regular basis, including minor remodels
("facelifts"), in order to increase customer traffic, compete effectively
against new store openings by competitors and support its "quality image"
merchandising strategy. The Company has elected to relocate, rather than
remodel, certain stores where relocation was more economical and, in some
instances, provided a more convenient location. Most stores over ten years old
have been or are currently being remodeled. Inclusion of specialty departments
typically found in new stores is frequently a part of remodeling.
The Company spent an aggregate of approximately $294.4 million in capital
expenditures during the past three fiscal years, primarily on new stores, store
expansions and remodeling, including equipment.
The Company plans to open 10 new stores, perform minor remodels ("facelifts")
at 20 existing store locations and replace eight stores in fiscal 1997. The
Company's ability to open new stores is subject to many factors, including the
acquisition of satisfactory sites and the successful negotiation of new leases,
and may be limited by zoning and other governmental regulation. In addition,
the Company's expansion, remodeling and replacement plans are continually
reviewed and are subject to change.
Competition
The supermarket industry is highly competitive. The number and type of
competitors vary by location. Principal competitive factors include store
location, price, service, convenience, cleanliness, product quality and
variety.
The Company's principal competitors are Winn Dixie Stores, Inc., Kroger
Company, Food Lion, Inc. and BI-LO, Inc. The Company also competes with other
food store chains as well as local supermarkets, specialty and convenience food
stores and small chains that have significant market share
8
9
in limited areas. The Company believes that its principal competitive
advantages are its clean stores, which feature brightly lit and spacious
aisles, their convenient locations, the Company's quality image, superior level
of customer service, including fast check-out and carry-out service, and broad
selection of nationally advertised food and non-food products as well as
quality private label items, all at competitive prices.
Employees
At September 28, 1996, the Company had 10,662 employees, including 179
administrative and management personnel, 10,254 supermarket personnel, and 229
employees engaged in the milk processing and packaging operations.
Approximately 56% of these employees work on a part-time basis, substantially
all of whom are supermarket personnel. None of the employees are represented
by a labor union. Management considers employee relations to be excellent.
The Company pays monthly bonuses to certain managerial personnel based on their
store's performance. Annual bonuses based on pre-tax, pre-bonus income, as
defined, are paid to all eligible personnel. The Company believes that its
employee incentive compensation program is unique in its industry, provides a
competitive advantage by encouraging employees to respond to consumer
preferences and needs and results in improved employee morale and loyalty, thus
enhancing the Company's ability to retain experienced personnel.
Insurance
The Company maintains general liability, automobile insurance and excess
liability coverages. The Company carries $10 million liability insurance
coverage on four aircraft used in its business. The Company carries casualty
insurance only on those properties where it is required to do so. The Company
has elected to self-insure its other properties.
The Company is self-insured for workers' compensation and employee group
medical and dental benefits up to a maximum per occurrence of $350,000 for
workers' compensation and up to a maximum of $150,000 per covered person for
medical care benefits for a policy year. The Company is insured for covered
costs in excess of these limits.
Trademarks and Licenses
The Company employs various trademarks and service marks in its business, the
most important of which are its own "Laura Lynn" private label trademark and
the "Ingles" service mark. Each mark is federally registered and renewed when
required. In addition, the Company uses the "Sealtest", "Pet", and "Biltmore"
trademarks pursuant to agreements entered into in connection with its milk,
fruit juice and spring water processing and packaging operations. The Company
believes it has all licenses and permits necessary to conduct its business.
Item 2. PROPERTIES
At September 28, 1996, the Company owned and operated 74 shopping centers, all
but three of which contained an Ingles supermarket. The shopping centers
contain an aggregate of 5.3 million square feet of leasable space, of which 2.7
million square feet is used by the Company's supermarkets. The remainder of
the leasable space in each center is leased by the Company
9
10
to third party tenants. The Company also owns and holds for future development
or sale numerous outparcels and other acreage located adjacent to the shopping
centers and store properties it owns.
A breakdown by size of the shopping centers operated by the Company is as
follows:
Less than 50,000 square feet 25
50,000-100,000 square feet 35
Over 100,000 square feet 14
---
74
===
In addition to an Ingles supermarket, many shopping centers include a national
drug store chain as a tenant. Several shopping centers include space leased to
a regional or national discount department store. In some instances, space is
also leased to local tenants such as cleaners, restaurants and other service
businesses or specialty retailers. The Company believes that the businesses
operated by its tenants, combined with an Ingles supermarket, offer one-stop
shopping convenience and increase traffic in its stores.
Typically, Ingles offers a drug store tenant a 20 year lease with renewal
options for an average 40 year term. A department store tenant is typically
offered a 15 to 20 year lease with renewal options for an average 30 to 40 year
term. Leases to local tenants have a maximum five year term. Most tenant
leases contain percentage rent provisions based on sales volume and are triple
net leases. None of the tenant leases provide an option to purchase.
The Company manages the leasing of the shopping centers. It employs
maintenance workers and also engages local contractors to maintain the
properties. The vacancy rate for shopping centers operated by the Company was
approximately 18.0%, 20.1% and 18.5% at fiscal year-end 1996, 1995 and 1994,
respectively. The total annual rental income from third party tenants,
including payments in connection with the early termination of leases, was
approximately $9.6 million, $8.3 million and $9.8 million in fiscal 1996, 1995
and 1994, respectively.
Of the 117 supermarket locations not included in shopping centers owned by the
Company, 30 are owned by the Company and 87 are leased from various
unaffiliated third parties. Most of the leases give the Company the right of
first refusal to purchase the entire shopping center in which the supermarkets
are located and have exclusivity clauses prohibiting the developer from renting
to another supermarket within a designated radius. The majority of leases
require that the Company pay property taxes, utilities, insurance, repairs and
certain other expenses incidental to occupation of the premises. In addition
to base rent, most leases require the Company to pay additional percentage rent
(ranging from .75% to 1%) for sales in excess of a specified amount.
Rental rates range from $1.00 to $5.50 per square foot. During fiscal year
1996, 1995 and 1994, the Company paid a total of $11.7 million, $11.8 million
and $12.0 million, respectively, in supermarket rent, exclusive of property
taxes, utilities, insurance, repairs and other expenses. The following table
summarizes lease expiration dates as of September 28, 1996,
10
11
with respect to the initial and any renewal option terms of leases of
supermarkets not located in shopping centers operated by the Company.
Year of Expiration Number of Stores
(including renewal terms) With Leases Expiring
--------------------------- ----------------------
2000-2019 11
2020-2039 5
2040 or after 71
Management believes that the long-term rent stability provided by these leases
is a valuable asset of the Company.
The Company owns a 810,000 square foot facility which is strategically located
between Interstate 40 and Highway 70 near Asheville, North Carolina. The
facility includes the Company's principal executive offices and its 760,000
square foot "state-of-the-art" warehouse and distribution center, as well as
the 78 acres of land on which it is situated. The property also includes truck
servicing and fuel storage facilities.
The Company's milk processing and packaging subsidiary, Milkco, Inc., owns a
54,000 square foot manufacturing and storage facility in Asheville, North
Carolina. In addition to the plant itself, the property includes truck
servicing and fuel storage facilities.
Item 3. LEGAL PROCEEDINGS
Various legal proceedings and claims arising in the ordinary course of business
are pending against the Company. In the opinion of management, the ultimate
liability, if any, from all pending legal proceedings and claims would not
materially affect the Company's financial position or the results of its
operations.
Item 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
No matters were submitted to the vote of the security holders during the fourth
quarter of the fiscal year covered by this report.
11
12
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Market Information
The Company has two classes of Common Stock: Class A and Class B. Class A
Common Stock is traded on the Nasdaq National Market tier of The Nasdaq Stock
Market under the symbol IMKTA. There is no public market for the Company's
Class B Common Stock. However, under the terms of the Company's Articles of
Incorporation, any holder of Class B Common Stock may convert any portion or
all of his shares of Class B Common Stock into an equal number of shares of
Class A Common Stock at any time. As of December 10, 1996, there were
approximately 1,357 holders of record of the Company's Class A Common Stock
(approximately 4,800 beneficial holders) and 275 holders of record of the
Company's Class B Common Stock. The following table sets forth the reported
high and low closing sales price for the Class A Common Stock during the period
indicated as reported in the National Market System. The quotations reflect
actual inter-dealer prices without retail mark-up, mark-down or commission and
may not necessarily represent actual transactions.
1996 Fiscal Year High Low
- ----------------- ---- ---
First Quarter (ended December 30, 1995) $11-7/8 $ 9-5/8
Second Quarter (ended March 30, 1996) $12-3/4 $10-3/4
Third Quarter (ended June 29, 1996) $13-3/4 $11-3/4
Fourth Quarter (ended September 28, 1996) $16-1/8 $11-3/8
1995 Fiscal Year High Low
- ---------------- ---- ---
First Quarter (ended December 24, 1994) $12 $ 9-3/4
Second Quarter (ended March 25, 1995) $10-1/2 $ 9-1/4
Third Quarter (ended June 24, 1995) $11 $ 8-7/8
Fourth Quarter (ended September 30, 1995) $11 $10
On December 10, 1996, the closing sales price of the Company's Class A Common
Stock on The Nasdaq Stock Market's National Market was $13-3/4 per share.
Dividends
The Company has paid cash dividends on its Common Stock in each of the past
seventeen fiscal years, except for the 1984 fiscal year when the Company paid a
3% stock dividend. During both fiscal 1996 and fiscal 1995 the Company paid
quarterly dividends totalling $.66 per share of Class A Common Stock and $.60
per share of Class B Common Stock.
The Company expects to continue the payment of regular dividends on a quarterly
basis. The Board of Directors, however, reconsiders the declaration of
dividends periodically, and there can be no assurance as to the declaration of
or the amount of dividends to be paid. The payment of dividends is subject to
the discretion of the Board of Directors and will depend upon the results of
operations, the financial condition of the Company and other factors which the
Board of Directors deems relevant. The payment of dividends is also subject to
restrictions contained in certain financing arrangements. (See Note 7 to the
Consolidated Financial Statements on pages 37 through 39 of this report on Form
10-K).
12
13
Item 6. SELECTED FINANCIAL DATA
The selected financial data set forth below has been derived from the Company's
consolidated financial statements. The information should be read in
conjunction with the information under the heading "MANAGEMENT'S DISCUSSION AND
ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION" and in the Company's
Consolidated Financial Statements and Notes thereto included elsewhere herein.
Selected Income Statement
Data for the Year Ended
September
(in thousands except
per share amounts) 1996 1995 1994 1993 1992
- -------------------- ---------- ---------- ---------- ---------- ----------
Net Sales $1,472,578 $1,385,127 $1,233,497 $1,141,800 $1,066,332
Gross Profit 345,648 317,239 275,062 250,592 235,039
Income Before
Cumulative Effect
of Change in
Accounting Principle 20,731 17,023 16,572 11,701 5,499
Primary Earnings per
Common Share Before
Cumulative Effect of
Change in Accounting
Principle 1.12 .93 .90 .65 .31
Cash Dividends per
Common Share
Class A .66 .66 .5775 .2475 .22
Class B .60 .60 .5250 .2250 .20
Selected Balance Sheet
Data at September
(in thousands) 1996 1995 1994 1993 1992
- ---------------------- -------- -------- -------- -------- --------
Current Assets $169,915 $155,828 $141,500 $136,316 $141,453
Property and Equipment,
net 530,228 450,541 359,670 312,516 258,882
Total Assets 707,965 611,827 506,593 456,549 404,988
Current Liabilities,
including Current
Portion of Long-Term
Liabilities 161,409 135,019 115,938 123,882 72,375
Long-Term Liabilities,
net of Current Portion 349,511 292,765 214,057 163,013 162,581
Stockholders' Equity 175,010 163,816 157,972 147,689 140,113
13
14
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
RESULTS OF OPERATIONS
The Company's fiscal year ends on the last Saturday in September.
Fiscal years 1996 and 1994 consisted of 52 weeks, while fiscal year 1995 was a
53-week year.
During the past five years, the Company's sales grew at an average
annual compound rate of 7.1%. This growth is attributable to both the opening
of new stores and increased sales in existing stores. During the period, the
number of stores increased from 171 to 188 and weighted average sales per store
increased from $6.0 million to $7.7 million. Sales also benefited from modest
population growth in the Company's geographic markets and increased market
share resulting from the expansion, remodel and/or replacement of existing
stores and the addition of new stores. Sales are slightly seasonal with higher
volume in the summer months due to increased sales by stores located in
vacation and seasonal home areas.
The following table sets forth for the years indicated the percentage
which selected items in the consolidated statements of income bear to net sales
and the percentage changes in dollar amounts of such items as compared to the
indicated prior year.
- ---------------------------------------------------------------------------
PERCENTAGE CHANGE
-----------------
PERCENTAGE OF NET SALES FISCAL YEAR
FISCAL YEAR -----------------
ENDED SEPTEMBER 1996 1995
----------------------- VS. VS.
1996 1995 1994 1995 1994
---- ---- ---- ---- ----
Net sales . . . . . . . . . . 100.0% 100.0% 100.0% 6.3% 12.3%
Cost of goods sold . . . . . 76.5 77.1 77.7 5.5 11.4
----- ----- -----
Gross profit . . . . . . . . 23.5 22.9 22.3 9.0 15.3
Operating and administrative
expenses . . . . . . . . . 19.8 19.6 19.4 7.1 13.4
Rental income, net. . . . . . .3 .3 .5 24.1 (35.6)
----- ----- -----
Income from operations. . . . 4.0 3.6 3.4 20.3 18.8
Other income (expense), net . .2 .1 .1 62.0 3.9
----- ----- -----
Income before interest and
income taxes and cumulative
effect of change in
accounting principle. . . . 4.2 3.7 3.5 21.9 18.2
Interest expense . . . . . . 1.9 1.8 1.4 17.1 43.0
----- ----- -----
Income before income taxes and
cumulative effect of change
in accounting principle . . 2.3 1.9 2.1 26.3 1.7
Income taxes . . . . . . . . .9 .7 .8 34.4 0.0
----- ----- -----
Income before cumulative
effect of change in
accounting principle. . . . 1.4% 1.2% 1.3% 21.8 2.7
===== ===== =====
- ---------------------------------------------------------------------------
FISCAL 1996 COMPARED WITH FISCAL 1995
NET SALES
Net sales for the year ended September 28, 1996 increased $87.5 million,
to $1.473 billion, up 6.3% over sales of $1.385 billion last year, which
14
15
was a 53-week year. Excluding the 53rd week of 1995, 1996 sales increased
8.3%. Growth in identical store sales (grocery stores open for the entire
duration of the previous fiscal year), on a comparable 52-week basis, was 5.0%.
The strong gain in sales was driven by the opening of new stores, the
expansion, remodel and/or replacement of existing stores and the increase in
identical store sales. The Company's continuing commitment to superior
customer service, its broad selection of quality food and non-food products,
including private label items, at competitive prices, and its effective
marketing and merchandising efforts also helped boost sales.
In fiscal 1996, the Company opened seven new stores; expanded, remodeled,
and/or replaced seven existing stores; and closed one older store. All seven
new stores and all seven expansions, remodels, and/or replacements in fiscal
1996 were "MegaStores". This new concept store offers the customer a wider
range of convenience and services, including a deli-bakery, sit-down cafe,
floral department and video store. The new "MegaStores" also provide greater
selection in both food and non-food products.
During the prior and current fiscal years, 14 new stores were opened, 25
older stores were expanded, remodeled and/or replaced and minor remodels
("face-lifts") were performed at 12 existing store locations. At September 28,
1996, the Company operated 188 supermarkets in six states: North Carolina
(59), South Carolina (28), Georgia (76), Tennessee (21), Virginia (3) and
Alabama (1).
Fiscal 1996 was the 32nd consecutive year Ingles achieved an increase in
net sales.
GROSS PROFIT
Gross profit for the year was $345.7 million, or 23.5% of sales, compared
with $317.2 million, or 22.9% of sales, a year ago - an increase of 9.0%. A
larger percentage of sales came from higher margin perishable departments,
increasing gross profit overall. Grocery gross profit, as a percentage of
sales, was positively impacted by effective buying, an aggressive merchandising
and pricing program, good promotional strategy and improved product mix. Meat,
produce and deli gross profit, as a percentage of sales, improved due to better
merchandising, effective purchasing and pricing programs and reduced shrinkage
of inventory.
OPERATING AND ADMINISTRATIVE EXPENSES
Operating and administrative expenses, as a percentage of sales, increased
from 19.6% last year to 19.8% this year. The cost of labor at store level,
depreciation and amortization expense and repairs and maintenance, as a
percentage of sales, increased. The increase in depreciation and amortization
expense results from the Company's aggressive capital expenditure program last
year and this year. The cost of supplies at store level, advertising and
promotional expenses, rent expense and the cost of insurance, as a percentage
of sales, decreased.
RENTAL INCOME, NET
Rental income, net was $4.1 million in 1995 - $5.1 million this year. The
increase is due to an increase in gross rental income, $1.3 million,
15
16
net of increased expenses, $.3 million, associated with the remodeling of
shopping centers.
INCOME FROM OPERATIONS
Income from operations increased 20.3% to $59.5 million, or 4.0% of sales,
this year compared with $49.4 million, or 3.6% of sales, last year. The
increase in operating income is due to the increase in sales, the related
increase in gross profit and the increase in net rental income.
OTHER INCOME (EXPENSE), NET
Other income (expense), net was $3.1 million in 1996 - $1.9 million in
1995. Fiscal 1996 includes gains of $2.4 million on the sale of seven
outparcels of land located adjacent to shopping centers owned by the Company;
fiscal 1995 includes gains of $.6 million on the sale of two outparcels. Other
miscellaneous income decreased $.6 million.
INCOME BEFORE INTEREST AND INCOME TAXES
Income before interest and income taxes increased 21.9% to $62.6 million,
or 4.3% of sales, this year compared with $51.4 million, or 3.7% of sales, last
year.
INTEREST EXPENSE
Interest expense increased from $24.7 million last year to $29.0 million
this year due to an overall increase in debt levels to fund the Company's
aggressive capital expenditure program.
INCOME BEFORE INCOME TAXES
Income before income taxes was $33.6 million, or 2.3% of sales, this year
compared with $26.6 million, or 1.9% of sales, the prior year.
INCOME TAXES
The elimination of the targeted jobs tax credit and higher state income
taxes resulted in a higher effective income tax rate in fiscal 1996 of 38.4%
compared to an effective rate of 36.1% in fiscal 1995.
NET INCOME
Net income for fiscal 1996 was $20.7 million, or 1.4% of sales, compared
with $17.0 million, or 1.2% of sales, a year ago - an increase of 21.8%.
Primary earnings per common share rose from $.93 last year to $1.12 this year.
FISCAL 1995 COMPARED WITH FISCAL 1994
FISCAL YEAR
The Company's fiscal year ends on the last Saturday in September. Fiscal
year 1995 was a 53-week year, while fiscal 1994 consisted of 52 weeks.
16
17
NET SALES
Net sales for the year ended September 30, 1995 increased $151.6 million,
to $1.385 billion, up 12.3% over sales of $1.233 billion the prior year. The
Company estimates approximately 2% of the 12.3% increase in sales was related
to the additional week's operations. Approximately 68% of the dollar increase
in sales resulted from an increase in grocery sales, while the balance resulted
substantially from increased sales in the perishable departments. The
continuation by the Company of its lower price strategy on dry grocery goods,
aggressive merchandising, aggressive pricing and effective advertising helped
boost sales. Sales also benefited by increased volume in stores that were
expanded, remodeled and/or replaced. Growth in identical store sales (grocery
stores open for the entire duration of the previous fiscal year), on a
comparable 52 week basis, was 6.5%. Fiscal 1995 was the 31st consecutive year
Ingles achieved an increase in net sales.
During fiscal 1995, seven, net new stores were opened and eighteen older
stores were remodeled and/or replaced. All of the stores which were remodeled
and/or replaced were enlarged, the results of which were excellent, as
evidenced by increased sales and market share. At September 30, 1995, the
Company operated 182 supermarkets in six states: North Carolina (57), South
Carolina (28), Georgia (72), Tennessee (21), Virginia (3) and Alabama (1).
GROSS PROFIT
Gross profit for fiscal 1995 was $317.2 million, or 22.9% of sales,
compared to $275.1 million, or 22.3% of sales, the prior year - an increase of
15.3%. Grocery gross profit, as a percentage of sales, increased primarily
because of an aggressive purchasing program. Meat, produce and frozen food
gross profit, as a percentage of sales, improved due to better merchandising
and aggressive purchasing and pricing programs.
OPERATING AND ADMINISTRATIVE EXPENSES
Operating and administrative expenses, as a percentage of sales, were
19.6% in 1995 compared to 19.4% the prior year. The percentage increase was
primarily due to increases in the cost of labor at the store level, increased
depreciation and amortization expense resulting from the Company's aggressive
new store opening, expansion, remodel and/or replacement program and higher
expense associated with repairs and maintenance. These increases were
partially offset by a decrease, as a percentage of sales, in rent expense.
RENTAL INCOME, NET
Rental income, net was $6.4 million in 1994 - $4.1 million in 1995.
Fiscal 1994 included gains of $1.5 million in connection with the early
termination by tenants of three leases of premises in shopping centers owned by
the Company.
INCOME FROM OPERATIONS
Income from operations in fiscal 1995 was $49.4 million, or 3.6% of sales,
compared with $41.6 million, or 3.4% of sales, the prior year. The increase in
operating income was due to the increase in sales and the related increase in
gross profit.
17
18
OTHER INCOME (EXPENSE), NET
Other income (expense), net was $1.8 million in 1994 - $1.9 million in
1995.
INCOME BEFORE INTEREST AND INCOME TAXES
Income before interest and income taxes increased 18.2% to $51.4 million,
or 3.7% of sales, in 1995, compared to $43.5 million, or 3.5% of sales, the
prior year.
INTEREST EXPENSE
Interest expense was $17.3 million in fiscal 1994 - $24.7 million in
fiscal 1995. The increase in interest expense was due to an increase in debt
to fund the Company's aggressive new store opening, expansion, remodel and/or
replacement program coupled with an increase in interest rates.
INCOME BEFORE INCOME TAXES
Income before income taxes in 1995 was $26.6 million, or 1.9% of sales,
compared with $26.2 million, or 2.1% of sales, the prior year.
INCOME TAXES
Income tax expense, as a percentage of pre-tax income, was 36.1% in 1995
compared with 36.7% in 1994.
INCOME BEFORE CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLE
Income before the cumulative effect of the change in accounting principle
was $17.0 million in 1995 compared to $16.6 million the prior year. Primary
earnings per common share before the cumulative effect of the change in
accounting principle rose from $.90 in fiscal 1994 to $.93 in fiscal 1995.
FINANCIAL CONDITION
LIQUIDITY AND CAPITAL RESOURCES
FISCAL 1996
OPERATING ACTIVITIES
Net cash provided by operating activities for the year ended September 28,
1996 totalled $42.3 million. Net income for the year was $20.7 million and
depreciation and amortization expense was $32.9 million. Inventory increased
$11.5 million, receivables $2.5 million and accounts payable and accrued
expenses $2.9 million. The receipt of advance payments on purchases contracts
was $3.2 million, recognition of advance payments on purchases contracts was
$2.8 million and gains on disposals of property and equipment were $2.4
million.
The increase in inventory occurred at both store and warehouse levels and
is the result of seven new store openings, seven store expansions, remodels
and/or replacements, an expanded warehouse facility, increased variety and the
Company's desire to maintain inventory levels to support
18
19
increased sales volume. The increase in receivables is principally due to an
increase in rebates and allowances due from suppliers. Accounts payable-trade,
excluding non-cash additions of property and equipment ($6.0 million) increased
$2.0 million due primarily to the increase in inventory. Accrued expenses
increased $.9 million. Salaries, wages and bonuses payable were $1.7 million
more, income tax payable was $1.7 million less and miscellaneous other accrued
expenses were up $.9 million. Annual bonuses were more because the Company had
a more profitable year. Certain executive bonuses were accrued in accordance
with the terms of the respective employment/bonus agreements. The accrual of
salaries and wages increased. Income tax payable was less due to estimated
payments made during the fiscal year.
INVESTING ACTIVITIES
Net cash used by investing activities - primarily expenditures for capital
assets - during fiscal 1996 was $103.9 million. The Company's capital
expenditure program was devoted primarily to obtaining land for new store
locations, the construction of new facilities including the expansion of the
existing warehouse facility, the renovation, modernization and/or expansion of
existing stores and the installation of electronic scanning systems in 39
stores. A portion of these expenditures were for new stores, store expansions,
remodels and/or replacements expected to become operational in fiscal 1997.
FINANCING ACTIVITIES
Net cash provided by financing activities totalled $63.9 million.
Proceeds from the issuance of long-term debt in fiscal 1996 aggregated
$130.2 million. The proceeds of this debt were used to reduce short-term
borrowings outstanding under existing bank lines of credit. Additional
short-term debt was subsequently incurred to pay for capital expenditures and
for general corporate purposes. Payments on short-term borrowings, net were
$20.0 million. Principal payments of long-term debt were $36.4 million. The
Company paid cash dividends of $11.1 million.
FINANCIAL STRENGTH
At September 28, 1996, the Company remained in sound financial condition.
Total assets were $708.0 million and stockholders' equity was $175.0 million
compared with $611.8 million and $163.8 million, respectively, at year-end,
September 30, 1995. Favorable inventory turnover rates (cost of
sales/inventory) in 1996 of 8.8 helped generate cash flow from operations.
Return on assets (net income/total assets) increased from 2.8% in 1995 to 2.9%
in 1996. Return on investment (net income/average stockholders' equity)
improved from 10.6% in fiscal 1995 to 12.2% in fiscal 1996.
CAPITAL REQUIREMENTS
The Company's new store opening, expansion, remodel and/or replacement
plans are continually reviewed and are subject to change. The Company's
ability to open new stores and expand, remodel and/or replace existing stores is
subject to several factors, including the acquisition of satisfactory sites and
the successful negotiation of new leases, and may be effected by zoning and
other governmental regulation.
The 1997 capital expenditures budget includes plans to open 10 new stores,
perform minor remodels ("face-lifts") at 20 existing store
19
20
locations and replace eight stores. Additional capital expenditures will be
made to: (1) upgrade and replace existing store equipment, (2) install
electronic scanning systems in new and existing stores and (3) secure sites for
future store expansion. Fiscal 1997 capital expenditures, in the aggregate,
are expected to be approximately $100 million. Some of the expenditures that
will be incurred toward fiscal year-end will relate to assets that will be
placed in service in fiscal 1998.
FINANCIAL RESOURCES
At September 28, 1996, the Company had lines of credit with seven banks
totalling $121 million; of this amount $43 million was unused. The Company
monitors its cash position daily and makes draws or repayments on its lines of
credit. The lines provide the Company with various interest rate options
generally at rates less than prime. The Company is not required to maintain
compensating balances in connection with these lines of credit. The Company
has unencumbered property with a net book value of approximately $220 million
which is available to collateralize additional debt.
On December 6, 1996, the Company announced plans to redeem all its
outstanding Convertible Subordinated Debentures (the "Debentures") on January
20, 1997. Pursuant to the Indenture, the holders may convert their Debentures
into the Company's Class A Common Stock, $0.05 par value per share, before the
close of business on January 16, 1997. The current conversion price is $11.10.
Upon conversion, no payment will be made for interest accrued on the Debentures
between the October 15, 1996 interest payment date and the redemption date. If
any Debentures are not converted before the redemption date, the Company would
be required to pay the holders of the redeemed Debentures the redemption price
of 101.80% of the principal amount thereof, plus accrued interest to the
redemption date. (See Note 17 of the Notes to Consolidated Financial
Statements.)
The Company believes, based on its current results of operations, and
financial condition, that the financial resources available, including amounts
available under long-term financing arrangements, existing bank lines of credit
and internally generated funds, will be sufficient to meet planned capital
expenditures and working capital requirements for the foreseeable future,
including any debt servicing required by additional borrowings. The Company
believes that its current new store opening, expansion, remodel and/or
replacement program will not have a material adverse effect on the availability
of these financial resources or on the sufficiency of these resources for the
purpose described. There can be no assurance, however, that the Company's
results of operations and financial condition will not change in the future
based on a number of intangible factors. These factors may include, among
others, increased competition, changing regional and national economic
conditions, adverse climatic conditions affecting food production and delivery
and changing demographics. In addition, for such reasons, there can be no
assurance that the results of operations from the new, expanded, remodeled
and/or replacement stores will meet or exceed the results of operations of
existing stores.
QUARTERLY CASH DIVIDENDS
At their quarterly meeting on December 3, 1993, the Company's Board of
Directors voted to increase the Company's regular quarterly cash dividends
100%. Effective with dividends paid December 27, 1993, the dividends were
increased from $.0825 (eight and one-quarter cents) per share on Class A
20
21
Common Stock to $.165 (sixteen and one-half cents) per share and from $.075
(seven and one-half cents) per share on Class B Common Stock to $.15 (fifteen
cents) per share for an annual rate of $.66 and $.60 per share, respectively.
The Company expects to continue the payment of regular dividends on a
quarterly basis at the rates approved December 3, 1993. The Board of
Directors, however, reconsiders the declaration of dividends periodically, and
there can be no assurance as to the declaration of or the amount of dividends
to be paid. The payment of dividends is subject to the discretion of the Board
of Directors and will depend upon the results of operations, the financial
condition of the Company and other factors which the Board of Directors deems
relevant. The payment of dividends is also limited by various provisions in
certain financing arrangements. (See Note 7 of the Notes to Consolidated
Financial Statements.)
INSURANCE
The Company maintains general liability, automobile and excess liability
coverages. The Company carries $10 million liability insurance coverage on
four aircraft used in its business. The Company carries casualty insurance
only on those properties where it is required to do so.
Because of the sharp escalation in the cost of insurance, the Company has
elected to self-insure certain other costs representing approximately 71% of
the total cost of insurance. Risks and uncertainties are associated with self-
insurance; however, the Company has limited its exposure by maintaining excess
liability coverages. The Company believes that its mix between insurance and
self-insurance is prudent, is in accordance with general industry practice and
is in the best interest of the Company.
Self-insurance reserves are established for workers' compensation and
employee group medical and dental benefits based on claims filed and claims
incurred but not reported, with a maximum per occurrence of $350,000 for
workers' compensation and up to a maximum of $150,000 per covered person for
medical care benefits for a policy year. The Company is insured for covered
costs in excess of these limits.
Insurance expense, as a percentage of sales, for the year ended September
28, 1996, decreased .07%.
IMPACT OF INFLATION
Inflation in food prices during fiscal years 1996, 1995 and 1994 continued
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.
IMPACT OF SFAS 121
The Financial Accounting Standards Board issued a new standard (SFAS 121),
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to be Disposed Of" effective for the fiscal year ended September 1997. The
Company will adopt Statement 121 in the first quarter of 1997 and, based on
current circumstances, does not believe the effect of adoption will be
material.
21
22
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following consolidated financial statements of the Company are included on
pages 26 through 44 of this report on Form 10-K:
Report of Ernst & Young LLP, Independent Auditors;
Consolidated Balance Sheets as of September 28, 1996, and September 30,
1995;
Consolidated Statements of Income for the years ended September 28, 1996,
September 30, 1995, and September 24, 1994;
Consolidated Statements of Changes in Stockholders' Equity for the years
ended September 28, 1996, September 30, 1995, and September 24, 1994;
Consolidated Statements of Cash Flows for the years ended September 28,
1996, September 30, 1995, and September 24, 1994;
Notes to Consolidated Financial Statements;
Selected quarterly financial data required by this Item is included in
Note 13 on page 43 of the Consolidated Financial Statements.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this Item is incorporated herein by reference from
the data under the heading "ELECTION OF DIRECTORS" in the Proxy Statement to be
used in connection with the solicitation of proxies for the Company's annual
meeting of stockholders to be held February 18, 1997, to be filed with the
Commission.
Item 11. EXECUTIVE COMPENSATION
The information required by this Item is incorporated herein by reference from
the data under the heading "EXECUTIVE COMPENSATION" in the Proxy Statement to
be used in connection with the solicitation of proxies for the Company's annual
meeting of stockholders to be held February 18, 1997, to be filed with the
Commission.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is incorporated herein by reference from
the data under the heading "VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF" in
the Proxy Statement to be used in connection with the solicitation of proxies
for the Company's annual meeting of stockholders to be held February 18, 1997,
to be filed with the Commission.
22
23
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is incorporated herein by reference from
the data under the headings "EXECUTIVE COMPENSATION - Additional Information
with Respect to Compensation Committee Interlocks and Insider Participation in
Compensation Decisions" and "CERTAIN RELATIONSHIPS AND RELATED PARTY
TRANSACTIONS" in the Proxy Statement to be used in connection with the
solicitation of proxies for the Company's annual meeting of stockholders to be
held February 18, 1997, to be filed with the Commission.
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Documents filed as part of this report:
1. The following financial statements of the Registrant are
included in response to Item 8 of this 10-K:
Consolidated Balance Sheets as of September 28, 1996, and
September 30, 1995;
Consolidated Statements of Income for the years ended
September 28, 1996, September 30, 1995, and September 24,
1994;
Consolidated Statements of Changes in Stockholders' Equity for
the years ended September 28, 1996, September 30, 1995, and
September 24,1994;
Consolidated Statements of Cash Flows for the years ended
September 28, 1996, September 30, 1995, and September 24,
1994;
Notes to Consolidated Financial Statements.
2. The following financial statement schedule of the Registrant
required by Item 8 and Item 14(d) of Form 10-K is included as page
45 of this report:
Schedule II - Supplemental schedule of valuation and qualifying
accounts.
All other schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission are
not required under the related instructions or are inapplicable and,
therefore, have been omitted.
3. The following exhibits required by Item 601 of Regulation S-K
and Item 14(c) of Form 10-K are filed herewith or incorporated by
reference as indicated.
EXHIBIT NUMBER AND DESCRIPTION
3.1 Articles of Incorporation of Ingles Markets, Incorporated, as amended.
(Included as Exhibit 3.1 to Registrant's S-1 Registration Statement, File
No. 33-23919, previously filed with the Commission and incorporated herein
by this reference.)
3.2 By-laws of Ingles Markets, Incorporated. (Included as Exhibit 3.2 to
23
24
Registrant's Annual Report on Form 10-K for the fiscal year ended
September 24, 1988, File No. 0-14706, previously filed with the Commission
and incorporated herein by this reference.)
4.1 Indenture between Registrant and Connecticut National Bank (including
specimen Debenture as Exhibit A). (Included as Exhibit 4.1 to the
Registrant's Annual Report on Form 10-K for the fiscal year ended
September 24, 1988, File No. 0-14706, previously filed with the Commission
and incorporated herein by this reference.)
4.2 Letters dated October 11, 1990 to the Registrant's Board of Directors from
Kidder, Peabody & Co. Incorporated and Wheat First Butcher & Singer
relating to interest rate reset under Debentures. (Included as Exhibit
4.2 to Registrant's Annual Report on Form 10-K for the fiscal year ended
September 29, 1990, File No. 0-14706, previously filed with the Commission
and incorporated herein by this reference.)
4.3 See Exhibits 3.1 and 3.2 for provisions of Articles of Incorporation, as
amended and By-laws of Registrant defining rights of holders of capital
stock of Registrant.
10.1 Amended and Restated Ingles Markets, Incorporated 1987 Employee Incentive
Stock Option Plan. (Included as Exhibit 10.1 to Registrant's Annual
Report on Form 10-K for the fiscal year ended September 30, 1995, File No.
0-14706, previously filed with the Commission and incorporated herein by
this reference.)
(MANAGEMENT CONTRACT OR COMPENSATORY PLAN OR ARRANGEMENT REQUIRED TO
BE FILED AS AN EXHIBIT TO THIS REPORT ON FORM 10-K PURSUANT TO ITEM
14(C) OF FORM 10-K.)
10.2 Restatement and Amendment by the Entirety of the Ingles Markets,
Incorporated Investment/Profit Sharing Plan and Trust effective September
26, 1993 (as amended through June 30, 1995). (Included as Exhibit 10.2 to
Registrant's Annual Report on Form 10-K for the fiscal year ended September
30, 1995, File No. 0-14706, previously filed with the Commission and
incorporated herein by this reference.)
(MANAGEMENT CONTRACT OR COMPENSATORY PLAN OR ARRANGEMENT REQUIRED TO
BE FILED AS AN EXHIBIT TO THIS REPORT ON FORM 10-K PURSUANT TO ITEM
14(C) OF FORM 10-K.)
10.3 Loan Agreement between the Registrant and Metropolitan Life Insurance
Company dated March 21, 1990. (Included as Exhibit 19 to Registrant's
Quarterly Report on Form 10-Q for the quarter ended March 31, 1990, File
0-14706, previously filed with the Commission and incorporated herein by
this reference.)
10.4 Amended and Restated Ingles Markets, Incorporated 1991 Nonqualified Stock
Option Plan. (Included as Exhibit 10.4 to Registrant's Annual Report on
Form 10-K for the fiscal year ended September 30, 1995, File No. 0-14706,
previously filed with the Commission and incorporated herein by this
reference.)
(MANAGEMENT CONTRACT OR COMPENSATORY PLAN OR ARRANGEMENT REQUIRED TO
BE FILED AS AN EXHIBIT TO THIS REPORT ON FORM 10-K PURSUANT TO ITEM
14(C) OF FORM 10-K.)
10.5 Stock Option Agreement Between the Company and Edward J. Kolodzieski, Vice
President-Strategic Planning of the Company, dated as of August
24
25
2, 1995. (Included as Exhibit 10.9 to Registrant's Annual Report on Form
10-K for the fiscal year ended September 30, 1995, File No. 0-14706,
previously filed with the Commission and incorporated herein by this
reference.)
(MANAGEMENT CONTRACT OR COMPENSATORY PLAN OR ARRANGEMENT REQUIRED TO
BE FILED AS AN EXHIBIT TO THIS REPORT ON FORM 10-K PURSUANT TO ITEM
14(C) OF FORM 10-K.)
11 Statement Regarding Computation of Earnings Per Common Share.
12 Statement Regarding Computation of Ratio of Earnings to Fixed Charges.
21 Subsidiaries of the Registrant.
23 Consent of Ernst & Young LLP, Independent Auditors.
27 Financial Data Schedule (for SEC use only).
_____________________________
(b) The Registrant did not file any current reports on Form 8-K
during the fourth quarter of its fiscal year ending September
28, 1996.
(c) Exhibits - The response to this portion of Item 14 is
submitted in the response to Item 14(a)(3) of this report.
(d) Financial Statement Schedules - The response to this portion
of Item 14 is submitted in the response to Item 14(a)(2) of
this report.
25
26
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Stockholders and Board of Directors
Ingles Markets, Incorporated
We have audited the accompanying consolidated balance sheets of Ingles Markets,
Incorporated and subsidiaries as of September 28, 1996 and September 30, 1995,
and the related consolidated statements of income, changes in stockholders'
equity, and cash flows for each of the three years in the period ended
September 28, 1996. Our audits also included the financial statement schedule
listed in the Index at Item 14(a). These financial statements and schedule are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements and schedule based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Ingles
Markets, Incorporated and subsidiaries at September 28, 1996 and September 30,
1995, and the consolidated results of their operations and their cash flows for
each of the three years in the period ended September 28, 1996, in conformity
with generally accepted accounting principles. Also, in our opinion, the
related financial statement schedule, when considered in relation to the basic
financial statements taken as a whole, presents fairly in all material respects
the information set forth therein.
As discussed in Note 2 to the consolidated financial statements, in 1994 the
Company changed its method of accounting for income taxes.
/s/ Ernst & Young LLP
Greenville, South Carolina
November 8, 1996,
except for Note 17, as to which the date is
December 6, 1996
26
27
INGLES MARKETS, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 28, 1996 AND SEPTEMBER 30, 1995
_____________________________________________
------------- -------------
ASSETS
1996 1995
------------- -------------
CURRENT ASSETS:
Cash . . . . . . . . . . . . . . . . . . . $ 22,418,003 $ 20,120,776
Receivables (less allowance for doubtful
accounts of $106,073 - 1996 and
$85,490 - 1995). . . . . . . . . . . . . . 15,197,129 15,176,746
Inventories . . . . . . . . . . . . . . . . 128,364,435 116,863,588
Other . . . . . . . . . . . . . . . . . . . 3,935,825 3,667,010
------------- -------------
Total current assets . . . . . . . . . . . 169,915,392 155,828,120
PROPERTY AND EQUIPMENT - Net . . . . . . . 530,227,505 450,540,776
OTHER ASSETS . . . . . . . . . . . . . . . 7,821,820 5,458,358
------------- -------------
TOTAL ASSETS . . . . . . . . . . . . . . . $ 707,964,717 $ 611,827,254
============= =============
See notes to consolidated financial statements.
27
28
INGLES MARKETS, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONTINUED)
SEPTEMBER 28, 1996 AND SEPTEMBER 30, 1995
_____________________________________________
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
1996 1995
------------ ------------
CURRENT LIABILITIES:
Short-term loans and current
portion of long-term liabilities. . . . . . $ 54,274,426 $ 36,899,696
Accounts payable and accrued expenses. . . . 107,134,357 98,119,632
------------ ------------
Total current liabilities . . . . . . . . . 161,408,783 135,019,328
DEFERRED INCOME TAXES . . . . . . . . . . . 22,034,578 20,226,161
LONG-TERM LIABILITIES. . . . . . . . . . . . 349,511,494 292,765,280
------------ ------------
Total liabilities . . . . . . . . . . . . . 532,954,855 448,010,769
------------ ------------
STOCKHOLDERS' EQUITY
Preferred stock, $.05 par value;
10,000,000 shares authorized;
no shares issued - -
Common stocks:
Class A, $.05 par value; 150,000,000
shares authorized;
1996-5,097,291 shares issued and
outstanding
1995-4,577,541 shares issued and
outstanding . . . . . . . . . . . . . . . 254,864 228,877
Class B, $.05 par value; 100,000,000
shares authorized;
1996-13,006,859 shares issued and
outstanding
1995-13,326,609 shares issued and
outstanding . . . . . . . . . . . . . . . 650,344 666,331
Paid-in capital in excess of par value . . . 50,139,088 48,599,088
Retained earnings. . . . . . . . . . . . . . 123,965,566 114,322,189
------------ ------------
Total stockholders' equity . . . . . . . . . 175,009,862 163,816,485
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY . . . . . . . . . . . . . . . . . . $707,964,717 $611,827,254
============ ============
See notes to consolidated financial statements.
28
29
INGLES MARKETS, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FISCAL YEARS ENDED SEPTEMBER 28, 1996,
SEPTEMBER 30, 1995 AND SEPTEMBER 24, 1994
_____________________________________________
-------------- -------------- --------------
1996 1995 1994
-------------- -------------- --------------
NET SALES $1,472,577,792 $1,385,127,130 $1,233,496,726
COST OF GOODS SOLD 1,126,929,804 1,067,888,239 958,434,847
-------------- -------------- --------------
GROSS PROFIT 345,647,988 317,238,891 275,061,879
OPERATING AND ADMINISTRATIVE
EXPENSES 291,266,074 271,912,200 239,834,915
RENTAL INCOME, NET 5,114,840 4,119,979 6,397,040
-------------- -------------- --------------
INCOME FROM OPERATIONS 59,496,754 49,446,670 41,624,004
OTHER INCOME (EXPENSE), NET 3,103,633 1,915,630 1,844,525
-------------- -------------- --------------
INCOME BEFORE INTEREST AND INCOME TAXES
AND CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLE 62,600,387 51,362,300 43,468,529
INTEREST EXPENSE 28,968,921 24,739,770 17,296,406
-------------- -------------- --------------
INCOME BEFORE INCOME TAXES AND CUMULATIVE
EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE 33,631,466 26,622,530 26,172,123
-------------- -------------- --------------
INCOME TAXES:
Current 10,800,000 9,000,000 9,400,000
Deferred 2,100,000 600,000 200,000
-------------- -------------- --------------
12,900,000 9,600,000 9,600,000
-------------- -------------- --------------
INCOME BEFORE CUMULATIVE EFFECT
OF CHANGE IN ACCOUNTING PRINCIPLE 20,731,466 17,022,530 16,572,123
CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLE FOR INCOME TAXES - - 3,334,860
-------------- -------------- --------------
NET INCOME $ 20,731,466 $ 17,022,530 $ 19,906,983
============== ============== ==============
PER-SHARE AMOUNTS:
Earnings per common share:
Primary earnings per common
share before cumulative effect
of change in accounting principle $ 1.12 $ .93 $ .90
Cumulative effect of change in
accounting principle for income taxes - - .18
-------------- -------------- --------------
Primary earnings per common share $ 1.12 $ .93 $ 1.08
============== ============== ==============
Fully diluted earnings per common
share before cumulative effect of
change in accounting principle $ 1.03 $ .88 $ .86
Cumulative effect of change in
accounting principle for income taxes - - .15
-------------- -------------- --------------
Fully diluted earnings per common share $ 1.03 $ .88 $ 1.01
============== ============== ==============
Cash dividends per common share:
Class A $ .66 $ .66 $ .5775
-------------- -------------- --------------
Class B $ .60 $ .60 $ .5250
-------------- -------------- --------------
See notes to consolidated financial statements.
29
30
INGLES MARKETS, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FISCAL YEARS ENDED SEPTEMBER 28, 1996, SEPTEMBER 30, 1995
AND SEPTEMBER 24, 1994
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 25, 1993. 4,310,855 $215,543 13,592,845 $679,642 $48,594,115 $98,199,829 $147,689,129
NET INCOME . . . . . - - - - - 19,906,983 19,906,983
CASH DIVIDENDS . . . - - - - - (9,628,762) (9,628,762)
CONVERSION OF
CONVERTIBLE SUBORDINATED
DEBENTURES. . . . . 450 23 - - 4,973 - 4,996
COMMON STOCK
CONVERSIONS . . . . 100,862 5,043 (100,862) (5,043) - - -
--------- -------- ---------- -------- ----------- ------------ ------------
BALANCE,
SEPTEMBER 24, 1994. 4,412,167 220,609 13,491,983 674,599 48,599,088 108,478,050 157,972,346
NET INCOME . . . . . - - - - - 17,022,530 17,022,530
CASH DIVIDENDS . . . - - - - - (11,178,391) (11,178,391)
COMMON STOCK
CONVERSIONS . . . . 165,374 8,268 (165,374) (8,268) - - -
--------- -------- ---------- -------- ----------- ------------ ------------
BALANCE,
SEPTEMBER 30, 1995. 4,577,541 228,877 13,326,609 666,331 48,599,088 114,322,189 163,816,485
NET INCOME . . . . . - - - - - 20,731,466 20,731,466
CASH DIVIDENDS . . . - - - - - (11,088,089) (11,088,089)
EXERCISE OF STOCK
OPTIONS . . . . . . 200,000 10,000 - - 1,540,000 - 1,550,000
COMMON STOCK
CONVERSIONS . . . . 319,750 15,987 (319,750) (15,987) - - -
--------- ------- ----------- -------- ----------- ------------ -----------
BALANCE,
SEPTEMBER 28, 1996. 5,097,291 $254,864 13,006,859 $650,344 $50,139,088 $123,965,566 $175,009,862
========= ======== ========== ======== =========== ============ ============
See notes to consolidated financial statements.
30
31
INGLES MARKETS, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FISCAL YEARS ENDED SEPTEMBER 28, 1996, SEPTEMBER 30, 1995
AND SEPTEMBER 24, 1994
____________________________________
----------- ----------- -----------
1996 1995 1994
----------- ----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $20,731,466 $17,022,530 $19,906,983
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation and amortization expense 32,880,525 26,852,645 22,496,341
Cumulative effect of change in
accounting principle for income taxes - - (3,334,860)
Amortization of deferred gains - - (14,144)
Gains on disposals of property and
equipment (2,407,736) (181,070) (747,060)
Receipt of advance payments on
purchases contracts 3,209,955 2,000,000 -
Recognition of advance payments on
purchases contracts (2,828,760) (943,106) (834,469)
Deferred income taxes 2,100,000 600,000 200,000
(Increase) decrease in receivables (2,473,628) 1,531,021 (2,577,393)
(Increase) in inventory (11,500,847) (12,926,138) (2,218,609)
(Increase) decrease in other assets (304,583) (548,301) 1,197,040
Increase in accounts payable
and accrued expenses 2,938,639 11,860,053 6,209,809
----------- ----------- -----------
Net Cash Provided By
Operating Activities 42,345,031 45,267,634 40,283,638
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of property and
equipment 3,425,913 869,520 1,288,904
Capital expenditures (107,325,377)(118,182,079) (68,921,873)
------------ ----------- -----------
NET CASH (USED) BY
INVESTING ACTIVITIES (103,899,464)(117,312,559) (67,632,969)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term
debt 130,160,690 124,846,585 51,744,393
(Payments) proceeds on short-term
borrowings, net (20,000,000) 15,000,000 7,000,000
Principal payments on long-term debt (36,420,941) (54,973,504) (21,020,436)
Conversion of Convertible Subordinated
Debentures - - 4,996
Proceeds from exercise of stock options 1,200,000 - -
Dividends paid (11,088,089) (11,178,391) (9,628,762)
----------- ----------- -----------
NET CASH PROVIDED BY FINANCING
ACTIVITIES 63,851,660 73,694,690 28,100,191
----------- ----------- -----------
NET INCREASE IN CASH 2,297,227 1,649,765 750,860
Cash at Beginning of Year 20,120,776 18,471,011 17,720,151
----------- ----------- -----------
CASH AT END OF YEAR $22,418,003 $20,120,776 $18,471,011
=========== =========== ===========
See notes to consolidated financial statements.
31
32
INGLES MARKETS, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Fiscal years ended September 28, 1996, September 30, 1995
and September 24, 1994
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION - The consolidated financial statements include the
accounts of Ingles Markets, Incorporated and its wholly-owned subsidiaries, Sky
King, Inc., Ingles Markets Investments, Inc. and Milkco, Inc. (collectively,
the "Company"). All significant intercompany balances and transactions have
been eliminated in consolidation.
FISCAL YEAR - The Company's fiscal year ends on the last Saturday in September.
Fiscal years 1996 and 1994 each consisted of 52 weeks, while fiscal year 1995
was a 53-week year.
CASH EQUIVALENTS - All highly liquid investments with a maturity of three
months or less when purchased are considered cash.
FINANCIAL INSTRUMENTS - The Company has overnight investments and short-term
certificates of deposit included in cash. The Company's policy is to invest
its excess cash nightly either in reverse repurchase agreements or in
commercial paper. Commercial paper is not secured; reverse repurchase
agreements are secured by government obligations. At September 28, 1996,
investments in certificates of deposit totaled $5.0 million and investments in
commercial paper totaled $3.6 million. Certificates of deposit, commercial
paper and demand deposits of approximately $15.2 million in 24 banks exceed the
$100,000 insurance limit per bank.
INVENTORIES - Warehouse inventories are valued at the lower of average cost or
market. Store inventories are valued at FIFO using the retail method.
PROPERTY, EQUIPMENT AND DEPRECIATION - Property and equipment are stated at
cost and depreciated over the estimated useful lives (principally 5 to 30
years) of the various classes of assets by the straight-line method.
SELF-INSURANCE - 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 certain limits.
INCOME TAXES - The Company accounts for income taxes under FASB Statement No.
109, "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.
PRE-OPENING COSTS - Costs associated with the opening of new stores are
expensed when the stores are opened.
RECLASSIFICATIONS - Certain amounts for 1995 and 1994 have been reclassified
for comparative purposes.
PER-SHARE AMOUNTS - 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
32
33
INGLES MARKETS, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Fiscal years ended September 28, 1996, September 30, 1995
and September 24, 1994
period. 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.
ADVERTISING - The Company expenses the costs of advertising as incurred.
USE OF ESTIMATES - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements
and accompanying notes. Although these estimates are based on management's
knowledge of current events and actions it may undertake in the future, they
may ultimately differ from actual results.
RECENT PRONOUNCEMENTS - In March 1995, the FASB issued Statement no. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to Be Disposed Of" which requires impairment losses to be recorded on
long-lived assets used in operations when indicators of impairment are present
and the undiscounted cash flows estimated to be generated by those assets are
less than the assets' carrying amounts. Statement 121 also addresses the
accounting for long-lived assets that are expected to be disposed of. The
Company will adopt Statement 121 in the first quarter of 1997 and, based on
current circumstances, does not believe the effect of adoption will be
material.
2. INCOME TAXES
DEFERRED INCOME TAX LIABILITIES AND ASSETS - Significant components of the
Company's deferred tax liabilities and assets are as follows:
-------------- -------------
SEPTEMBER 28, September 30,
1996 1995
-------------- -------------
Deferred tax liabilities:
Tax over book depreciation . . . . . . . . $ 27,181,000 $ 24,123,000
Property tax method. . . . . . . . . . . . 261,000 203,000
-------------- -------------
Total deferred tax liabilities. . . . . . 27,442,000 24,326,000
-------------- -------------
Deferred tax assets:
Excess of tax basis over financial
reporting basis of property and equipment 3,971,000 3,971,000
Insurance reserves . . . . . . . . . . . . 2,287,000 2,192,000
Advance payments on purchases contracts. . 1,125,000 -
Other. . . . . . . . . . . . . . . . . . . 1,145,000 898,000
-------------- -------------
Total deferred tax assets . . . . . . . . 8,528,000 7,061,000
-------------- -------------
Net deferred tax liabilities. . . . . . . $ 18,914,000 $ 17,265,000
============== =============
INCOME TAX EXPENSE - Income tax expense is different from the amounts computed
by applying the statutory federal rates to income before income taxes. The
reasons for the differences are as follows:
33
34
INGLES MARKETS, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Fiscal years ended September 28, 1996, September 30, 1995
and September 24, 1994
1996 1995 1994
----------- ---------- ----------
Federal tax at statutory rate . $11,771,000 $9,318,000 $9,160,000
State income tax, net of
federal tax benefits . . . . 1,015,000 715,000 685,000
Other . . . . . . . . . . . . . 114,000 (433,000) (245,000)
---------- ---------- ----------
Total . . . . . . . . . . . . . $12,900,000 $9,600,000 $9,600,000
=========== ========== ==========
Income taxes payable of $1,175,131 at September 28, 1996 and $2,872,093 at
September 30, 1995 are included in the accompanying balance sheets in accounts
payable and accrued expenses.
Current and deferred income tax expense are as follows:
---------- ---------- ----------
1996 1995 1994
---------- ---------- ----------
Current:
Federal . . . . . . . . . . . . $9,600,000 $8,000,000 $8,400,000
State . . . . . . . . . . . . . 1,200,000 1,000,000 1,000,000
----------- ---------- ----------
Total current . . . . . . 10,800,000 9,000,000 9,400,000
---------- ---------- ----------
Deferred:
Depreciation . . . . . . . . . 2,965,000 1,184,000 355,000
Deferred gains . . . . . . . . - - 48,000
Self-insurance reserves . . . . (102,000) (213,000) 12,000
Property taxes. . . . . . . . . 62,000 (37,000) (26,000)
Advance payments on purchases
contracts . . . . . . . . . . (390,000) - -
Other . . . . . . . . . . . . . (435,000) (334,000) (189,000)
---------- ---------- ----------
Total deferred . . . . . 2,100,000 600,000 200,000
---------- ---------- ----------
Total expense . . . . . . . . . $12,900,000 $9,600,000 $9,600,000
=========== ========== ==========
Current deferred income tax benefits of $3,120,690 and $2,960,690 for 1996 and
1995, respectively, included in other current assets, result from timing
differences arising from vacation pay, bad debts and self-insurance reserves
and from capitalization of certain overhead costs in inventory for tax
purposes.
CHANGE IN METHOD OF ACCOUNTING FOR INCOME TAXES - Effective September 26, 1993,
the Company adopted FASB Statement No. 109, "Accounting for Income Taxes". As
permitted by Statement 109, the Company elected not to restate the financial
statements of any prior years. The cumulative effect of the change increased
net income for the year ended September 24, 1994 by $3,334,860 or $.18 per
common share.
34
35
INGLES MARKETS, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Fiscal years ended September 28, 1996, September 30, 1995
and September 24, 1994
3. PROPERTY AND EQUIPMENT
Property and equipment, net consist of the following:
------------- -------------
SEPTEMBER 28, September 30,
1996 1995
------------- -------------
Land . . . . . . . . . . . . . . . . $ 107,965,769 $ 93,915,087
Construction in progress . . . . . . 23,621,825 30,347,722
Buildings . . . . . . . . . . . . . 301,822,944 237,241,858
Store, office and warehouse
equipment . . . . . . . . . . . . 249,294,101 213,156,608
Transportation equipment . . . . . . 16,453,550 13,922,509
Property under capital leases. . . . 151,264 151,264
Leasehold improvements . . . . . . . 35,573,043 35,977,020
------------- -------------
Total. . . . . . . . . . . . . . . . 734,882,496 624,712,068
Less accumulated depreciation and
amortization. . . . . . . . . . . . 204,654,991 174,171,292
------------- -------------
Property and equipment,net . . . . . $ 530,227,505 $ 450,540,776
============= =============
The Company currently maintains general liability, automobile insurance and
excess liability coverages. The Company maintains $10 million liability
insurance coverage on four aircraft used in its business. The Company
maintains casualty insurance only on those properties where it is required to
do so. The Company has elected to self-insure its other properties.
4. PROPERTY HELD FOR LEASE AND RENTAL INCOME
At September 28, 1996, the Company owned and operated 74 shopping centers in
conjunction with its supermarket operations. The Company leases to others a
portion of its shopping center properties. The leases are noncancelable
operating lease agreements for periods ranging up to twenty-five years.
Substantially all leases covering retail properties provide for one or more
renewal periods and for percentage rent based on gross sales of the lessee.
Rental income, net included in the accompanying consolidated statements of
income consists of the following:
----------- ----------- -----------
1996 1995 1994
----------- ----------- -----------
Rents earned on owned and
subleased properties:
Base rentals including lease
termination payments . . . . . $ 9,002,824 $ 7,705,645 $ 9,398,680
Contingent rentals. . . . . . . 577,379 596,154 428,712
----------- ----------- -----------
Total. . . . . . . . . . . 9,580,203 8,301,799 9,827,392
Depreciation on owned
properties leased to others . . (3,236,144) (3,027,886) (2,438,373)
Other shopping center expenses . . (1,229,219) (1,153,934) (991,979)
----------- ----------- -----------
Total. . . . . . . . . . . . . $ 5,114,840 $ 4,119,979 $ 6,397,040
=========== =========== ===========
35
36
INGLES MARKETS, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Fiscal years ended September 28, 1996, September 30, 1995
and September 24, 1994
Owned properties leased to others under operating leases by major classes are
summarized as follows:
------------
SEPTEMBER 28,
1996
------------
Land . . . . . . . . . . . . . . . . . . . . . . . $ 27,499,000
Buildings . . . . . . . . . . . . . . . . . . . . . 90,279,000
------------
Total . . . . . . . . . . . . . . . . . . . . . . 117,778,000
Less accumulated depreciation . . . . . . . . . . . 21,071,000
------------
Property leased to others, net . . . . . . . . . . $ 96,707,000
============
The above amounts are included in the respective captions at Note 3.
The following is a schedule of minimum future rental income on noncancelable
operating leases as of September 28, 1996:
FISCAL YEAR
-----------
1997 . . . . . . . . . . . . . . . . . . . . . . . $ 8,059,099
1998 . . . . . . . . . . . . . . . . . . . . . . . 7,000,593
1999 . . . . . . . . . . . . . . . . . . . . . . . 5,639,225
2000 . . . . . . . . . . . . . . . . . . . . . . . 4,662,929
2001 . . . . . . . . . . . . . . . . . . . . . . . 3,458,127
Thereafter . . . . . . . . . . . . . . . . . . . . 16,990,268
----------
Total minimum future rental income . . . . . . . . . $45,810,241
===========
5. LEASES AND RENTAL EXPENSE
The Company conducts part of its retail operations from leased facilities. The
initial terms of the leases expire at various times over the next twenty years.
The majority of the leases include one or more renewal options and provide that
the Company pay property taxes, utilities, repairs and certain other costs
incidental to occupation of the premises. Several leases contain clauses
calling for percentage rentals based upon gross sales of the supermarket
occupying the leased space.
OPERATING LEASES - Rent expense for all operating leases of $11,741,462,
$11,796,628 and $12,016,352 for fiscal years 1996, 1995 and 1994, respectively
is included in operating and administrative expenses.
The aggregate minimum rental commitments under noncancelable operating leases
as of September 28, 1996 are as follows:
FISCAL YEAR
-----------
1997 . . . . . . . . . . . . . . . . . . . . . . . . $ 11,494,574
1998 . . . . . . . . . . . . . . . . . . . . . . . . 11,319,125
1999 . . . . . . . . . . . . . . . . . . . . . . . . 11,107,881
2000 . . . . . . . . . . . . . . . . . . . . . . . . 10,815,527
2001 . . . . . . . . . . . . . . . . . . . . . . . . 10,749,730
Thereafter . . . . . . . . . . . . . . . . . . . . . 68,608,906
------------
Total minimum future rental commitments. . . . . . . . $124,095,743
============
36
37
INGLES MARKETS, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Fiscal years ended September 28, 1996, September 30, 1995
and September 24, 1994
6. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consist of the following:
------------- -------------
SEPTEMBER 28, September 30,
1996 1995
------------- -------------
Accounts payable-trade . . . . . . . . . $ 74,850,388 $ 66,815,027
Property, payroll, and
other taxes payable . . . . . . . . . 8,694,621 9,363,814
Salaries, wages, and bonuses payable . . 9,696,321 7,970,396
Other . . . . . . . . . . . . . . . . . . 9,378,027 9,620,395
Self-insurance reserves . . . . . . . . . 4,515,000 4,350,000
------------- -------------
Total . . . . . . . . . . . . . . . . . . $ 107,134,357 $ 98,119,632
============= =============
Self-insurance reserves are established for workers' compensation and employee
group medical and dental benefits based on claims filed and claims incurred but
not reported. The Company is insured for covered costs in excess of $350,000
per occurrence for workers' compensation and $150,000 per covered person for
medical care benefits for a policy year. Employee insurance expense, including
workers' compensation and medical care benefits, net of employee contributions,
totalled $8,362,306 and $8,627,447 for the year ended September 28, 1996 and
September 30, 1995, respectively.
7. LONG-TERM LIABILITIES AND SHORT-TERM LOANS
Long-term liabilities and short-term loans are summarized as follows:
------------- -------------
SEPTEMBER 28, September 30,
1996 1995
------------- -------------
Long-term debt:
10% Convertible Subordinated
Debentures, maturing 2008. . . . . . . . $ 37,459,000 $ 37,459,000
------------- -------------
Notes payable:
Real estate and equipment:
Weighted average interest rate of 9.06%,
maturing 1997-2015 . . . . . . . . . . 231,056,171 180,607,382
Interest rate at the average weekly yield
of one month commercial paper plus 1.9%,
maturing 1997-2000 . . . . . . . . . . 29,552,394 39,575,832
Other:
Weighted average interest rate of 6.93%,
maturing 1998. . . . . . . . . . . . . 68,000,000 10,000,000
Interest at 8.9%, secured by stock of
Milkco, Inc., maturing 2002. . . . . . 15,000,005 17,857,145
Other. . . . . . . . . . . . . . . . . . 6,166,682 8,166,674
------------- -------------
349,775,252 256,207,033
------------- -------------
37
38
INGLES MARKETS, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Fiscal years ended September 28, 1996, September 30, 1995
and September 24, 1994
Short-term loans, interest rates at less
than the prime rate. . . . . . . . . . . . 10,000,000 30,000,000
------------- -------------
Other long-term liabilities:
Advance payments on purchases contracts. . 6,030,570 5,649,375
Other. . . . . . . . . . . . . . . . . . . 521,098 349,568
------------- -------------
Total . . . . . . . . . . . . . . . . . . 6,551,668 5,998,943
------------- -------------
Total long-term liabilities and short-term
loans . . . . . . . . . . . . . . . . . . 403,785,920 329,664,976
Less current portion . . . . . . . . . . . . 54,274,426 36,899,696
------------- -------------
Long-term liabilities, net of current
portion . . . . . . . . . . . . . . . . . $ 349,511,494 $ 292,765,280
============= =============
The Convertible Subordinated Debentures (the "Debentures") are unsecured and
subordinated in right of payment to all existing and future Senior Indebtedness
(as defined by the Indenture) of the Company. Interest is payable
semi-annually on April 15 and October 15.
The Debentures are convertible into Class A Common Stock of the Company at any
time prior to maturity or redemption at $11.10 per share, subject to adjustment
under certain conditions. The Debentures are redeemable at any time, in whole
or in part, at the option of the Company under certain conditions. (See Note
17 of the Notes to Consolidated Financial Statements regarding redemption of
all of the Company's outstanding Convertible Subordinated Debentures.)
During October 1996, the Company obtained a $6 million bank loan at an interest
rate of 7.15% maturing in December 1997. The proceeds from the loan were used
to reduce short-term borrowings outstanding at September 28, 1996. Short-term
borrowings have been reclassified to long-term liabilities at September 28,
1996 pursuant to this refinancing.
At September 28, 1996, property and equipment with an undepreciated cost of
approximately $273 million was pledged as collateral for long-term debt. Loan
agreements relating to certain debt contain various provisions which, among
other things, set minimum stockholders' equity balances. The most
restrictive of these provisions at September 28, 1996, has the effect of
restricting funds available for dividends to approximately $20.0 million.
At September 28, 1996, the Company had unused lines of credit of $43 million.
The lines provide the Company with various interest rate options, generally at
rates less than prime.
Components of interest costs are as follows:
----------- ----------- -----------
1996 1995 1994
----------- ----------- -----------
Total interest costs . . . . $31,338,464 $26,501,706 $18,184,443
Interest capitalized . . . . (2,369,543) (1,761,936) (888,037)
----------- ----------- -----------
Interest expense . . . . . . $28,968,921 $24,739,770 $17,296,406
=========== =========== ===========
ADVANCE PAYMENTS ON PURCHASES CONTRACTS - The Company has entered into
agreements with suppliers whereby payment is received in advance for
commitments to purchase product from these suppliers in the future. The
38
39
INGLES MARKETS, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Fiscal years ended September 28, 1996, September 30, 1995
and September 24, 1994
unearned portion, included in other long-term liabilities, will be recognized
in accordance with the terms of the contract.
Maturities of long-term liabilities at September 28, 1996 are as follows:
FISCAL YEAR
-----------
1997 . . . . . . . . . . . . . . . . . . . . . . . $ 54,274,426
1998 . . . . . . . . . . . . . . . . . . . . . . . 112,014,374
1999 . . . . . . . . . . . . . . . . . . . . . . . 43,594,246
2000 . . . . . . . . . . . . . . . . . . . . . . . 31,575,663
2001 . . . . . . . . . . . . . . . . . . . . . . . 18,893,282
Thereafter . . . . . . . . . . . . . . . . . . . . 143,433,929
------------
Total $403,785,920
============
8. STOCKHOLDERS' EQUITY
The Company has two classes of Common Stock: Class A and Class B. Class A
Common Stock is traded on the Nasdaq National Market tier of the Nasdaq Stock
Market under the symbol IMKTA. There is no public market for the Company's
Class B Common Stock. However, each share of Class B Common Stock is
convertible at any time, at the option of the holder, into one share of Class A
Common Stock. Upon any transfers of Class B Common Stock (other than to
immediate family members and the Investment/Profit Sharing Plan), such stock is
automatically converted into Class A Common Stock.
The holders of the Class A Common Stock and Class B Common Stock are entitled
to dividends and other distributions as and when declared out of assets legally
available therefor, subject to the dividend rights of any Preferred Stock that
may be issued in the future. Each share of Class A Common Stock is entitled to
receive a cash dividend and liquidation payment in an amount equal to 110% of
any cash dividend or liquidation payment on Class B Common Stock. Any stock
dividend must be paid in shares of Class A Common Stock with respect to Class A
Common Stock and in shares of Class B Common Stock with respect to Class B
Common Stock.
The voting powers, preferences and relative rights of Class A Common Stock and
Class B Common Stock are identical in all respects, except that the holders of
Class A Common Stock have one vote per share and the holders of Class B Common
Stock have ten votes per share. In addition, holders of Class A Common Stock,
as a separate class, are entitled to elect 25% of all directors constituting
the Board of Directors (rounded to the nearest whole number). As long as the
Class B Common Stock represents at least 12.5% of the total outstanding Common
Stock of both classes, holders of Class B Common Stock, as a separate class,
are entitled to elect 75% of the directors.
EARNINGS PER COMMON SHARE - Weighted average number of common shares used to
compute earnings per share is as follows:
---------- ---------- ----------
1996 1995 1994
---------- ---------- ----------
Primary . . . . . . . . . . 18,520,459 18,316,672 18,386,557
Fully diluted . . . . . . . 22,098,790 21,691,357 21,792,770
9. EMPLOYEE BENEFIT PLANS
INVESTMENT/PROFIT SHARING PLAN - The purpose of the qualified profit sharing
plan is to provide retirement benefits to eligible employees. Assets of the
39
40
INGLES MARKETS, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Fiscal years ended September 28, 1996, September 30, 1995
and September 24, 1994
plan, including the Company's Class B Common Stock, are held in trust for
employees and distributed upon retirement, death, disability or other
termination of employment. Company contributions are discretionary and are
determined annually by the Board of Directors. On February 2, 1994, a 401(k)
feature was added to the Profit Sharing Plan. The Profit Sharing Plan
including the 401(k) feature was renamed the Ingles Markets, Incorporated
Investment/Profit Sharing Plan. Company contributions for fiscal 1995 and 1994
were allocated only to employees participating in the 401(k) portion of the
plan.
Company contributions to the plan, included in operating and administrative
expenses, were $700,000 for 1996, $700,000 for 1995 and $452,195 for 1994.
CASH BONUS PLAN - The Company pays monthly bonuses to various managerial
personnel based on performance of the operating units controlled by these
personnel. Except for certain employees who receive monthly bonuses, annual
bonuses based on pre-tax, pre-bonus income are paid to all employees who worked
the entire fiscal year. The Company has a discretionary bonus plan for certain
executive officers providing for bonuses upon attainment of certain operating
goals. Operating and administrative expenses include bonuses of $5,398,478,
$4,241,183 and $3,602,687 for 1996, 1995 and 1994, respectively.
BONUS AGREEMENT WITH PRESIDENT - On December 23, 1994, the Company entered into
an agreement with its President, whereby the Company agreed to pay a bonus that
will accrue in the amount of $300,000 per year during fiscal years 1995 through
1999 up to a maximum aggregate bonus of $1,500,000. The President will receive
the full amount of the bonus if he continues to be employed by the Company
through September 25, 1999, and prior to that date only if his employment is
terminated by the Company with or without cause, or if, in the event of the
sale of the Company or a change in control of the Company, the President should
terminate his employment with the Company. The President would be entitled to
a pro-rata portion of the full amount of the bonus in the event of his death or
disability prior to September 25, 1999.
STOCK OPTIONS PLANS - The Company has stock option plans under which options
may be issued to salaried employees who are officers or are employed in an
executive, administrative, managerial or professional capacity by the Company.
The Company's stock option plans provide that stock may be issued at a price of
not less than 100% of fair market value of the Company's Class A Common Stock
at the date of the grant of the option. The options may be exercised within a
period of three months after five years from the date of issue or upon death,
disability or retirement. Information with respect to each stock option plan
is as follows:
1987 EMPLOYEE INCENTIVE STOCK OPTION PLAN - The Company has an incentive stock
option plan under which an aggregate of 250,000 shares of the Company's Class A
Common Stock may be issued to qualified employees from time to time on or
before September 8, 1997. No options may be granted to any employee who owns,
at the time of the proposed grant, stock possessing more than 10% of the total
combined voting power of all classes of stock of the Company. Options that
lapse or are canceled may be reissued by the Company. As of September 28,
1996, no options were exercisable under this plan. Information with respect to
options granted, canceled and outstanding follows:
40
41
INGLES MARKETS, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Fiscal years ended September 28, 1996, September 30, 1995
and September 24, 1994
SHARES
UNDER OPTION PRICE
OPTION PER SHARE TOTAL
-------- ------------- ----------
Outstanding,
September 25, 1993 . . . 163,500 $6.13-$10.00 $1,267,250
Granted . . . . . . . . 27,000 8.63 232,875
Canceled . . . . . . . . (35,500) 6.13-10.00 (323,000)
-------- ----------
Outstanding,
September 24, 1994 . . . 155,000 6.13-10.00 1,177,125
Granted . . . . . . . . 27,000 11.38 307,125
Canceled . . . . . . . . (46,500) 6.13-11.38 (425,375)
-------- ----------
Outstanding,
September 30, 1995 . . . 135,500 6.13-11.38 1,058,875
Granted . . . . . . . . 53,000 10.00 530,000
Canceled . . . . . . . . (27,000) 6.13-11.38 (256,500)
-------- ----------
OUTSTANDING,
SEPTEMBER 28, 1996 . . . 161,500 $6.13-$11.38 $1,332,375
======== ==========
1991 NONQUALIFIED STOCK OPTION PLAN - The Company has a nonqualified stock
option plan under which an aggregate of 1,000,000 shares of the Company's Class
A Common Stock were issuable to qualified employees until August 6, 1996. As
of September 28, 1996, no options were currently exercisable under this plan.
Information with respect to options granted, canceled and outstanding follows:
SHARES
UNDER OPTION PRICE
OPTION PER SHARE TOTAL
-------- ------------- ----------
Outstanding,
September 25, 1993 . . . 896,000 $5.75-$6.88 $5,760,000
Granted . . . . . . . . 200,000 10.38-11.50 2,187,500
Canceled . . . . . . . . (100,000) 6.88 (687,500)
-------- -----------
Outstanding,
September 24, 1994 . . . 996,000 5.75-11.50 7,260,000
Granted . . . . . . . . - - -
Canceled . . . . . . . . - - -
-------- -----------
Outstanding,
September 30, 1995 . . . 996,000 5.75-11.50 7,260,000
Granted . . . . . . . . - - -
Canceled . . . . . . . . (5,000) 6.88 (34,375)
--------- ----------
OUTSTANDING,
SEPTEMBER 28, 1996. . 991,000 $5.75-$11.50 $7,225,625
======== ==========
STOCK OPTION AGREEMENTS WITH EXECUTIVE OFFICERS - During the year ended
September 28, 1996, Robert P. Ingle, Chairman of the Board of Directors and
Chief Executive Officer of the Company, and Landy B. Laney, President and Chief
Operating Officer of the Company, each exercised their options to purchase
100,000 shares of the Company's Class A Common Stock at an option price of
$6.00 per share. The difference between the fair market value of the Class A
Common Stock at the date of the grant of the options ($7.75 per share) and the
option price ($6.00 per share) was previously expensed on the Company's books.
On August 2, 1995, the Company entered into a nonqualified stock option
agreement with one of its executive officers under which 100,000 shares of the
Company's Class A Common Stock may be issued to him at $10.625 per share (the
41
42
INGLES MARKETS, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Fiscal years ended September 28, 1996, September 30, 1995
and September 24, 1994
fair market value of the stock at the date the option was granted). The option
is exercisable within a period of three months after five years from the date
of issue or upon death, disability, or retirement.
MEDICAL CARE PLAN - Medical and dental benefits are provided to qualified
employees under a self-insured plan. Expenses under the plan include claims
paid, administrative expenses and an estimated liability for claims incurred
but not yet paid.
10. MAJOR SUPPLIER
A large portion of inventory is purchased from a wholesale grocery distributor.
Purchases from the distributor were approximately $168 million in 1996, $236
million in 1995 and $207 million in 1994. This distributor owns approximately
5% of the Company's Class A Common Stock and approximately 1% of the Company's
Class B Common Stock at September 28, 1996. Amounts owed to this distributor,
included in accounts payable-trade, were $3.8 million and $4.6 million at
September 28, 1996 and September 30, 1995, respectively.
11. SUPPLEMENTARY INCOME STATEMENT DATA
Operating and administrative expenses include the following:
----------- ----------- -----------
1996 1995 1994
----------- ----------- -----------
Advertising and promotion expense. . $17,849,164 $18,656,718 $17,129,161
=========== =========== ===========
12. LINES OF BUSINESS
The Company operates in two lines of business: retail grocery and food sales
(principally retail sales) and shopping center rentals. Information about the
Company's operations by lines of business (in thousands) is as follows:
----------- ----------- -----------
1996 1995 1994
----------- ----------- -----------
Revenues from unaffiliated
customers:
Grocery and food sales . . . $ 1,472,578 $ 1,385,127 $ 1,233,497
Shopping center rentals. . . 9,580 8,302 9,827
Income from operations:
Grocery and food sales . . . 54,382 45,327 35,227
Shopping center rentals. . . 5,115 4,120 6,397
Assets:
Grocery and food sales . . . 611,258 517,142 428,944
Shopping center rentals. . . 96,707 94,685 77,649
Capital expenditures:
Grocery and food sales . . . 104,212 104,527 65,012
Shopping center rentals. . . 9,087 13,655 3,910
Depreciation and amortization:
Grocery and food sales . . . 29,645 23,825 20,058
Shopping center rentals. . . 3,236 3,028 2,438
42
43
INGLES MARKETS, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Fiscal years ended September 28, 1996, September 30, 1995
and September 24, 1994
13. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
The following is a summary of unaudited financial data regarding the Company's
quarterly results of operations. Each of the quarters in the two fiscal years
presented contain thirteen weeks, except for the fourth quarter of fiscal 1995
which contains fourteen weeks.
(in thousands except earnings per common share)
-----------------------------------------------
1ST 2ND 3RD 4TH
1996 QUARTER QUARTER QUARTER QUARTER TOTAL
- ---- ------- ------- ------- ------- ----------
NET SALES . . . . . . . $357,406 $364,223 $370,352 $380,597 $1,472,578
GROSS PROFIT. . . . . . 82,368 84,324 87,518 91,438 345,648
NET INCOME. . . . . . . 4,722 4,431 5,897 5,681 20,731
PRIMARY EARNINGS
PER COMMON SHARE . . . .26 .24 .32 .30 1.12
1995
- ----
Net sales . . . . . . . $330,206 $327,950 $347,779 $379,192 $1,385,127
Gross profit. . . . . . 73,584 74,522 79,336 89,797 317,239
Net income. . . . . . . 3,838 2,187 4,543 6,455 17,023
Primary earnings per
common share . . . . . .21 .12 .25 .35 .93
14. LITIGATION
Various legal proceedings and claims arising in the ordinary course of business
are pending against the Company. In the opinion of management, the ultimate
liability, if any, from all pending legal proceedings and claims would not
materially affect the Company's financial position or the results of its
operations.
15. FAIR VALUES OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used by the Company in estimating
its fair value disclosures for financial instruments:
Cash and cash equivalents: The carrying amount reported in the balance
sheet for cash and cash equivalents approximates its fair value.
Receivables: The carrying amount reported in the balance sheet for
receivables approximates its fair value.
Long and short-term liabilities: The carrying amounts of the Company's
short-term borrowings approximate their fair value. The fair values of the
Company's long-term liabilities are based on quoted market prices, where
available, or discounted cash flow analyses, based on the Company's
current incremental borrowing rates for similar types of borrowing
arrangements.
The carrying amounts and fair values of the Company's financial instruments at
September 28, 1996 are as follows (amounts in thousands):
43
44
INGLES MARKETS, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Fiscal years ended September 28, 1996, September 30, 1995
and September 24, 1994
Carrying Amount Fair Value
--------------- ----------
Cash and cash equivalents. . . . . . . . . . $ 22,418 $ 22,418
Receivables. . . . . . . . . . . . . . . . . 15,197 15,197
Short-term liabilities . . . . . . . . . . . 10,000 10,000
Long-term liabilities:
10% Convertible Subordinated Debentures . 37,459 53,513
Real estate and equipment . . . . . . . . 260,609 262,084
Other . . . . . . . . . . . . . . . . . . 95,718 95,718
16. CASH FLOW INFORMATION
Supplemental disclosure of cash flow information is as follows:
----------- ----------- -----------
1996 1995 1994
----------- ----------- -----------
Cash paid during the year for:
Interest (net of amounts
capitalized) . . . . . . . . . . . $28,570,394 $23,914,428 $16,979,825
Income taxes . . . . . . . . . . . . 12,948,545 7,186,997 9,769,130
Non cash item:
Property and equipment additions
included in accounts payable . . . 5,974,503 - -
17. SUBSEQUENT EVENT
On December 6, 1996, the Company announced its intention to redeem all its
outstanding Convertible Subordinated Debentures ("the Debentures") on January
20, 1997. As discussed in Note 7, the holders of the Debentures have the right
to convert their Debentures into shares of the Company's Class A Common Stock
at $11.10 per share prior to the redemption. In October and November 1996,
approximately $10.8 million of the Debentures were converted into approximately
970,000 shares of Class A Common Stock. Had the conversion of all of the
outstanding Debentures occurred at the beginning of fiscal year 1996, primary
earnings per common share for the year ended September 28, 1996 would have
decreased from $1.12 to $1.04.
44
45
INGLES MARKETS, INCORPORATED AND SUBSIDIARIES SEC SCHEDULE II
SUPPLEMENTAL SCHEDULE OF VALUATION AND QUALIFYING ACCOUNTS
BALANCE AT
BEGINNING OF CHARGED TO BALANCE AT
DESCRIPTION YEAR COSTS & EXPENSES DEDUCTIONS END OF YEAR
- ------------------------------------- ------------ ---------------- ---------- -----------
Fiscal year ended September 28, 1996:
Deducted from asset accounts:
Allowance for doubtful accounts $ 85,490 $ 30,000 $ 9,417 (1) $ 106,073
Fiscal year ended September 30, 1995:
Deducted from asset accounts:
Allowance for doubtful accounts $ 95,953 $10,463 (1) $ 85,490
Fiscal year ended September 24, 1994:
Deducted from asset accounts:
Allowance for doubtful accounts $ 100,000 $ 4,047 (1) $ 95,953
(1) Uncollectible accounts written off, net of recoveries.
45
46
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
INGLES MARKETS, INCORPORATED
By: /s/ Robert P. Ingle
-------------------------
Robert P. Ingle
Chairman of the Board and
Chief Executive Officer
Date: December 23, 1996
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:
/s/ Robert P. Ingle December 23, 1996
- ------------------------------------
Robert P. Ingle, Chairman of the
Board, Chief Executive Officer
and Director
/s/ Landy B. Laney December 23, 1996
- ------------------------------------
Landy B. Laney, President, Chief
Operating Officer and Director
/s/ Jack R. Ferguson December 23, 1996
- ------------------------------------
Jack R. Ferguson, Vice President-
Finance, Chief Financial Officer
and Director
/s/ Vaughn C. Fisher December 23, 1996
- ------------------------------------
Vaughn C. Fisher, Vice President-
Sales Manager and Director
/s/ Anthony S. Federico December 23, 1996
- ------------------------------------
Anthony S. Federico, Vice President-
Non-Foods and Director
/s/ Brenda S. Tudor December 23, 1996
- ------------------------------------
Brenda S. Tudor, CPA
Secretary and Controller
46
47
EXHIBIT INDEX
3.1 Articles of Incorporation of Ingles Markets, Incorporated, as amended.
(Included as Exhibit 3.1 to Registrant's S-1 Registration Statement, File
No. 33-23919, previously filed with the Commission and incorporated herein
by this reference.)
3.2 By-laws of Ingles Markets, Incorporated. (Included as Exhibit 3.2 to
Registrant's Annual Report on Form 10-K for the fiscal year ended
September 24, 1988, File No. 0-14706, previously filed with the Commission
and incorporated herein by this reference.)
4.1 Indenture between Registrant and Connecticut National Bank (including
specimen Debenture as Exhibit A). (Included as Exhibit 4.1 to the
Registrant's Annual Report on Form 10-K for the fiscal year ended
September 24, 1988, File No. 0-14706, previously filed with the Commission
and incorporated herein by this reference.)
4.2 Letters dated October 11, 1990 to the Registrant's Board of Directors from
Kidder, Peabody & Co. Incorporated and Wheat First Butcher & Singer
relating to interest rate reset under Debentures. (Included as Exhibit
4.2 to Registrant's Annual Report on Form 10-K for the fiscal year ended
September 29, 1990, File No. 0-14706, previously filed with the Commission
and incorporated herein by this reference.)
4.3 See Exhibits 3.1 and 3.2 for provisions of Articles of Incorporation, as
amended and By-laws of Registrant defining rights of holders of capital
stock of Registrant.
10.1 Amended and Restated Ingles Markets, Incorporated 1987 Employee Incentive
Stock Option Plan. (Included as Exhibit 10.1 to Registrant's Annual
Report on Form 10-K for the fiscal year ended September 30, 1995, File No.
0-14706, previously filed with the Commission and incorporated herein by
this reference.)
(MANAGEMENT CONTRACT OR COMPENSATORY PLAN OR ARRANGEMENT REQUIRED TO
BE FILED AS AN EXHIBIT TO THIS REPORT ON FORM 10-K PURSUANT TO ITEM
14(C) OF FORM 10-K.)
10.2 Restatement and Amendment by the Entirety of the Ingles Markets,
Incorporated Investment/Profit Sharing Plan and Trust effective September
26, 1993 (as amended through June 30, 1995). (Included as Exhibit 10.2 to
Registrant's Annual Report on Form 10-K for the fiscal year ended
September 30, 1995, File No. 0-14706, previously filed with the Commission
and incorporated herein by this reference.)
(MANAGEMENT CONTRACT OR COMPENSATORY PLAN OR ARRANGEMENT REQUIRED TO
BE FILED AS AN EXHIBIT TO THIS REPORT ON FORM 10-K PURSUANT TO ITEM
14(C) OF FORM 10-K.)
10.3 Loan Agreement between the Registrant and Metropolitan Life Insurance
Company dated March 21, 1990. (Included as Exhibit 19 to Registrant's
Quarterly Report on Form 10-Q for the quarter ended March 31, 1990, File
0-14706, previously filed with the Commission and incorporated herein by
this reference.)
47
48
10.4 Amended and Restated Ingles Markets, Incorporated 1991 Nonqualified Stock
Option Plan. (Included as Exhibit 10.4 to Registrant's Annual Report on
Form 10-K for the fiscal year ended September 30, 1995, File No. 0-14706,
previously filed with the Commission and incorporated herein by this
reference.)
(MANAGEMENT CONTRACT OR COMPENSATORY PLAN OR ARRANGEMENT REQUIRED TO
BE FILED AS AN EXHIBIT TO THIS REPORT ON FORM 10-K PURSUANT TO ITEM
14(C) OF FORM 10-K.)
10.5 Stock Option Agreement Between the Company and Edward J. Kolodzieski, Vice
President-Strategic Planning of the Company, dated as of August 2, 1995.
(Included as Exhibit 10.9 to Registrant's Annual Report on Form 10-K for
the fiscal year ended September 30, 1995, File No. 0-14706, previously
filed with the Commission and incorporated herein by this reference.)
(MANAGEMENT CONTRACT OR COMPENSATORY PLAN OR ARRANGEMENT REQUIRED TO
BE FILED AS AN EXHIBIT TO THIS REPORT ON FORM 10-K PURSUANT TO ITEM
14(C) OF FORM 10-K.)
11 Statement Regarding Computation of Earnings Per Common Share. (page 49)
(Edgar version only: See document number 2 of this Edgarized Report)
12 Statement Regarding Computation of Ratio of Earnings to Fixed Charges.
(page 50)(Edgar version only: See document Number 3 of this Edgarized
report)
21 Subsidiaries of the Registrant. (page 51)(Edgar version only: See document
Number 4 of this Edgarized report)
23 Consent of Ernst & Young LLP, Independent Auditors. (page 52)(Edgar
version only: See document Number 5 of this Edgarized report)
27 Financial Data Schedule (for SEC use only).
48