UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

 

FORM 10-Q



 

 

        QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended March 28, 2020

 

         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

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

P.O. Box 6676,  Asheville NC

 

28816

(Address of principal executive offices)

 

(Zip Code)

 

(828)  669-2941 

Registrant’s telephone number, including area code

 

 

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes     No .  



Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes     No .  

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company.  See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.  (Check one):



Large accelerated filer

Accelerated filer 

Non-accelerated filer

Smaller reporting company



Emerging growth company



If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  .



Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  No .



Securities registered pursuant to Section 12(b) of the Act:





 

 

Title of each class

 Trading Symbol

Name of each exchange on which registered

Class A Common Stock, $0.05 par value per share

IMKTA

The NASDAQ Global Select Market

  

As of May 5, 2020, the Registrant had 14,196,360 shares of Class A Common Stock, $0.05 par value per share, outstanding and 6,063,416 shares of Class B Common Stock, $0.05 par value per share, outstanding.



 

1

 


 

 

INGLES MARKETS, INCORPORATED

 

INDEX

 



 

 



 

 

 

  

Page

No.

 

Part I – Financial Information

  

 



 

    Item 1. Financial Statements (Unaudited)

  

 



 

Condensed Consolidated Balance Sheets as of March 28, 2020 and September 28, 2019

  



 

Condensed Consolidated Statements of Income and Comprehensive Income for the

  

 

Three Months Ended March 28, 2020 and March 30, 2019

 

Six Months Ended March 28, 2020 and March 30, 2019

 



 

Condensed Consolidated Statements of Changes in Stockholders’ Equity for the Three Months and Six Months Ended March 28, 2020 and March 30, 2019

  



 

Condensed Consolidated Statements of Cash Flows for the  Six Months Ended March 28, 2020 and March 30, 2019

  



 

Notes to Unaudited Interim Financial Statements

  



 

    Item 1A. Risk Factors

 

14 



 

 

    Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

  

15 



 

    Item 3. Quantitative and Qualitative Disclosures About Market Risk

  

23 



 

   Item 4. Controls and Procedures

 

23 



 

Part II – Other Information

  

 



 

 

    Item 6. Exhibits

  

24 



 

Signatures

  

26 



2

 


 

Part I. FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS

 

INGLES MARKETS, INCORPORATED AND SUBSIDIARIES 

 

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)





 

 

 

 

 

 



 

 

 

 

 

 



 

March 28,

 

September 28,



 

2020

 

2019

ASSETS

 

 

 

 

 

 

Current Assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

144,972,233 

 

$

42,125,105 

Receivables - net

 

 

82,273,244 

 

 

71,951,303 

Inventories

 

 

315,268,498 

 

 

374,129,060 

Other current assets

 

 

13,522,582 

 

 

8,897,903 

Total Current Assets

 

 

556,036,557 

 

 

497,103,371 

Property and Equipment - Net

 

 

1,342,672,327 

 

 

1,344,267,315 

Operating lease right of use assets

 

 

39,683,044 

 

 

 —

Other Assets

 

 

25,838,322 

 

 

25,957,682 

Total Assets

 

$

1,964,230,250 

 

$

1,867,328,368 



 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

Current Liabilities:

 

 

 

 

 

 

Current portion of long-term debt

 

$

38,078,268 

 

$

12,600,131 

Current portion of operating lease liabilities

 

 

7,678,403 

 

 

 —

Accounts payable - trade

 

 

168,260,158 

 

 

151,329,975 

Accrued expenses and current portion of other long-term liabilities

 

 

80,850,156 

 

 

83,649,283 

Total Current Liabilities

 

 

294,866,985 

 

 

247,579,389 

Deferred Income Taxes

 

 

73,294,000 

 

 

75,499,000 

Long-Term Debt

 

 

803,977,294 

 

 

839,637,691 

Noncurrent operating lease liabilities

 

 

34,949,649 

 

 

 —

Other Long-Term Liabilities

 

 

51,317,259 

 

 

41,889,682 

Total Liabilities

 

 

1,258,405,187 

 

 

1,204,605,762 

Stockholders’ Equity

 

 

 

 

 

 

Preferred stock, $0.05 par value; 10,000,000 shares authorized; no shares issued

 

 

 —

 

 

 —

Common stocks:

 

 

 

 

 

 

Class A, $0.05 par value; 150,000,000 shares authorized;
14,193,360 shares issued and outstanding March 28, 2020;
14,180,485 shares issued and outstanding at September 28, 2019

 

 

709,668 

 

 

709,024 

Class B, convertible to Class A, $0.05 par value;
100,000,000 shares authorized;
6,066,416 shares issued and outstanding March 28, 2020;
6,079,291 shares issued and outstanding at September 28, 2019

 

 

303,321 

 

 

303,965 

Paid-in capital in excess of par value

 

 

12,311,249 

 

 

12,311,249 

Accumulated other comprehensive income

 

 

(9,639,291)

 

 

(1,265,650)

Retained earnings

 

 

702,140,116 

 

 

650,664,018 

Total Stockholders’ Equity

 

 

705,825,063 

 

 

662,722,606 

Total Liabilities and Stockholders’ Equity

 

$

1,964,230,250 

 

$

1,867,328,368 



See notes to unaudited condensed consolidated financial statements.

3

 


 

INGLES MARKETS, INCORPORATED AND SUBSIDIARIES 

 

CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (UNAUDITED)









 

 

 

 

 

 



 

 

 

 

 

 



 

Three Months Ended



 

March 28,

 

March 30,



 

2020

 

2019

Net sales

 

$

1,145,482,049 

 

$

1,001,843,929 

Cost of goods sold

 

 

853,894,303 

 

 

757,543,262 

Gross profit

 

 

291,587,746 

 

 

244,300,667 

Operating and administrative expenses

 

 

228,395,420 

 

 

216,466,382 

Gain from sale or disposal of assets

 

 

108,352 

 

 

2,911,704 

Income from operations

 

 

63,300,678 

 

 

30,745,989 

Other income, net

 

 

207,441 

 

 

447,914 

Interest expense

 

 

10,183,839 

 

 

11,996,863 

Income before income taxes

 

 

53,324,280 

 

 

19,197,040 

Income tax expense

 

 

13,032,000 

 

 

4,197,000 

Net income

 

$

40,292,280 

 

$

15,000,040 



 

 

 

 

 

 

Other comprehensive expense:

 

 

 

 

 

 

 Change in fair value of interest rate swap

 

$

(13,926,534)

 

$

(598,764)

 Income tax benefit

 

 

3,401,000 

 

 

139,316 

Other comprehensive expense, net of tax

 

 

(10,525,534)

 

 

(459,448)

Comprehensive income

 

$

29,766,746 

 

$

14,540,592 



 

 

 

 

 

 

Per share amounts:

 

 

 

 

 

 

Class A Common Stock

 

 

 

 

 

 

Basic earnings per common share

 

$

2.04 

 

$

0.76 

Diluted earnings per common share

 

$

1.99 

 

$

0.74 

Class B Common Stock

 

 

 

 

 

 

Basic earnings per common share

 

$

1.86 

 

$

0.69 

Diluted earnings per common share

 

$

1.86 

 

$

0.69 

Cash dividends per common share

 

 

 

 

 

 

Class A Common Stock

 

$

0.165 

 

$

0.165 

Class B Common Stock

 

$

0.150 

 

$

0.150 





See notes to unaudited condensed consolidated financial statements.

4

 


 

INGLES MARKETS, INCORPORATED AND SUBSIDIARIES 

 

CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (UNAUDITED)





 

 

 

 

 

 



 

 

 

 

 

 



 

Six Months Ended



 

March 28,

 

March 30,



 

2020

 

2019

Net sales

 

$

2,223,836,986 

 

$

2,063,680,587 

Cost of goods sold

 

 

1,674,759,514 

 

  

1,560,969,126 

Gross profit

 

 

549,077,472 

 

 

502,711,461 

Operating and administrative expenses

 

 

450,374,270 

 

 

435,151,046 

Gain from sale or disposal of assets

 

 

3,072,837 

 

 

2,649,113 

Income from operations

 

 

101,776,039 

 

 

70,209,528 

Other income, net

 

 

404,928 

 

 

1,343,373 

Interest expense

 

 

22,133,125 

 

 

24,208,524 

Loss on early extinguishment of debt

 

 

3,719,209 

 

 

 —

Income before income taxes

 

 

76,328,633 

 

 

47,344,377 

Income tax expense

 

 

18,349,000 

 

 

10,192,000 

Net income

 

$

57,979,633 

 

$

37,152,377 



 

 

 

 

 

 

Other comprehensive expense:

 

 

 

 

 

 

 Change in fair value of interest rate swap

 

$

(11,077,655)

 

$

(154,727)

 Income tax benefit

 

 

2,704,014 

 

 

35,618 

Other comprehensive expense, net of tax

 

 

(8,373,641)

 

 

(119,109)

Comprehensive income

 

$

49,605,992 

 

$

37,033,268 



 

 

 

 

 

 

Per share amounts:

 

 

 

 

 

 

Class A Common Stock

 

 

 

 

 

 

Basic earnings per common share

 

$

2.94 

 

$

1.88 

Diluted earnings per common share

 

$

2.86 

 

$

1.83 

Class B Common Stock

 

 

 

 

 

 

Basic earnings per common share

 

$

2.68 

 

$

1.71 

Diluted earnings per common share

 

$

2.68 

 

$

1.71 

Cash dividends per common share

 

 

 

 

 

 

Class A Common Stock

 

$

0.33 

 

$

0.33 

Class B Common Stock

 

$

0.30 

 

$

0.30 











See notes to unaudited condensed consolidated financial statements.

5

 


 

INGLES MARKETS, INCORPORATED AND SUBSIDIARIES 

 

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (UNAUDITED)

 

THREE AND SIX MONTHS ENDED MARCH 28, 2020 AND MARCH 30, 2019







 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

Paid-in

 

Accumulated

 

 

 

 

 

 



 

Class A

 

Class B

 

Capital in

 

Other

 

 

 

 

 

 



 

Common Stock

 

Common Stock

 

Excess of

 

Comprehensive

 

Retained

 

 

 



  

Shares

  

Amount

 

Shares

 

Amount

 

Par Value

 

Income (Loss)

  

Earnings

 

Total

Balance, September 29, 2018

 

14,145,385 

  

$

707,269 

 

6,114,391 

 

$

305,720 

 

$

12,311,249 

 

$

 —

 

$

582,089,570 

 

$

595,413,808 

Net income

 

               —

 

 

          —

 

             —

 

 

          —

 

 

               —

 

 

               —

 

 

22,152,337 

 

 

22,152,337 

Other comprehensive (expense) income, net of income tax

 

               —

 

 

          —

 

             —

 

 

          —

 

 

               —

 

 

340,339 

 

 

                 —

 

 

340,339 

Cash dividends

 

               —

 

 

          —

 

             —

 

 

          —

 

 

               —

 

 

               —

 

 

(3,251,148)

 

 

(3,251,148)

Common stock conversions

 

               —

 

 

          —

 

             —

 

 

          —

 

 

               —

 

 

               —

 

 

                 —

 

 

                 —

Balance, December 29, 2018

 

14,145,385 

 

$

707,269 

 

6,114,391 

 

$

305,720 

 

$

12,311,249 

 

$

340,339 

 

$

600,990,759 

 

$

614,655,336 

Net income

 

               —

 

 

          —

 

             —

 

 

          —

 

 

               —

 

 

               —

 

 

15,000,040 

 

 

15,000,040 

Other comprehensive (expense) income, net of income tax

 

               —

 

 

          —

 

             —

 

 

          —

 

 

               —

 

 

(459,448)

 

 

                 —

 

 

(459,448)

Cash dividends

 

               —

 

 

          —

 

             —

 

 

          —

 

 

               —

 

 

               —

 

 

(3,251,152)

 

 

(3,251,152)

Common stock conversions

 

31,950 

 

 

1,598 

 

(31,950)

 

 

(1,598)

 

 

               —

 

 

               —

 

 

                 —

 

 

                 —

Balance, March 30, 2019

 

14,177,335 

 

$

708,867 

 

6,082,441 

 

$

304,122 

 

$

12,311,249 

 

$

(119,109)

 

$

612,739,647 

 

$

625,944,776 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, September 28, 2019

 

14,180,485 

  

$

709,024 

 

6,079,291 

 

$

303,965 

 

$

12,311,249 

 

$

(1,265,650)

 

$

650,664,018 

 

$

662,722,606 

Net income

 

               —

 

 

          —

 

             —

 

 

          —

 

 

               —

 

 

               —

 

 

17,687,353 

 

 

17,687,353 

Other comprehensive (expense) income, net of income tax

 

               —

 

 

          —

 

             —

 

 

          —

 

 

               —

 

 

2,151,893 

 

 

                 —

 

 

2,151,893 

Cash dividends

 

               —

 

 

          —

 

             —

 

 

          —

 

 

               —

 

 

               —

 

 

(3,251,673)

 

 

(3,251,673)

Common stock conversions

 

12,500 

 

 

625 

 

(12,500)

 

 

(625)

 

 

               —

 

 

               —

 

 

                 —

 

 

                 —

Balance, December 28, 2019

 

14,192,985 

 

$

709,649 

 

6,066,791 

 

$

303,340 

 

$

12,311,249 

 

$

886,243 

 

$

665,099,698 

 

$

679,310,179 

Net income

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

40,292,280 

 

 

40,292,280 

Other comprehensive (expense) income, net of income tax

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

(10,525,534)

 

 

 —

 

 

(10,525,534)

Cash dividends

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(3,251,862)

 

 

(3,251,862)

Common stock conversions

 

375 

 

 

19 

 

(375)

 

 

(19)

 

 

 —

 

 

 —

 

 

 —

 

 

 —

Balance, March 28, 2020

 

14,193,360 

 

$

709,668 

 

6,066,416 

 

$

303,321 

 

$

12,311,249 

 

$

(9,639,291)

 

$

702,140,116 

 

$

705,825,063 





See notes to unaudited condensed consolidated financial statements.

6

 


 

INGLES MARKETS, INCORPORATED AND SUBSIDIARIES 

 

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)  





 

 

 

 

 

 



  

 

 

 

 

 



 

Six Months Ended



  

March 28,

 

March 30,



 

2020

 

2019

Cash Flows from Operating Activities:

 

 

 

 

 

 

Net income

 

$

57,979,633 

 

$

37,152,377 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

 

 Depreciation and amortization expense

 

 

57,357,438 

 

 

55,607,103 

 Non cash operating lease cost

 

 

5,332,302 

 

 

 —

 Gain from sale or disposal of assets

 

 

(3,072,837)

 

 

(2,649,113)

 Loss on early extinguishment of debt

 

 

3,719,209 

 

 

 —

 Receipt of advance payments on purchases contracts

 

 

500,000 

 

 

1,000,000 

 Recognition of advance payments on purchases contracts

 

 

(1,309,835)

 

 

(1,265,788)

 Deferred income taxes

 

 

499,000 

 

 

7,141,000 

 Changes in operating assets and liabilities:

 

 

 

 

 

 

   Receivables

 

 

(10,321,941)

 

 

(3,531,623)

   Inventory

 

 

58,860,562 

 

 

6,440,232 

   Other assets

 

 

(4,505,320)

 

 

16,359,326 

   Operating lease liabilities

 

 

(5,516,359)

 

 

 —

   Accounts payable and accrued expenses

 

 

15,836,348 

 

 

(8,041,671)

Net Cash Provided by Operating Activities

 

 

175,358,200 

 

 

108,211,843 

Cash Flows from Investing Activities:

 

 

 

 

 

 

Proceeds from sales of property and equipment

 

 

5,321,389 

 

 

7,283,055 

Capital expenditures

 

 

(56,824,266)

 

 

(94,219,647)

Net Cash Used by Investing Activities

 

 

(51,502,877)

 

 

(86,936,592)

Cash Flows from Financing Activities:

 

 

 

 

 

 

Proceeds from short-term borrowings

 

 

 —

 

 

300,186,059 

Payments on short-term borrowings

 

 

 —

 

 

(299,504,655)

Debt issuance costs

 

 

(854,793)

 

 

 —

Proceeds from new long term debt

 

 

155,000,000 

 

 

 —

Principal payments on long-term borrowings

 

 

(165,678,517)

 

 

(9,310,958)

Prepayment penalties on debt extinguishment

 

 

(2,971,350)

 

 

 —

Dividends paid

 

 

(6,503,535)

 

 

(6,502,300)

Net Cash Used by Financing Activities

 

 

(21,008,195)

 

 

(15,131,854)

Net Increase in Cash and Cash Equivalents

 

 

102,847,128 

 

 

6,143,397 

Cash and cash equivalents at beginning of period

 

 

42,125,105 

 

 

10,537,303 

Cash and Cash Equivalents at End of Period

 

$

144,972,233 

 

$

16,680,700 





See notes to unaudited condensed consolidated financial statements.

7

 


 

INGLES MARKETS, INCORPORATED AND SUBSIDIARIES

 

NOTES TO UNAUDITED INTERIM FINANCIAL STATEMENTS 

Three Months and Six Months Ended March 28, 2020 and March 30, 2019 

 

A. BASIS OF PREPARATION



In the opinion of management, the accompanying unaudited interim financial statements contain all adjustments necessary to present fairly the Company’s financial position as of March 28, 2020, and the results of operations and changes in stockholders’ equity for the three-month and six-month periods ended March 28, 2020 and March 30, 2019, and cash flows for the  six months ended March 28, 2020 and March 30, 2019. The adjustments made are of a normal recurring nature. Certain information and footnote disclosures normally included in the annual financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission for Form 10-Q. It is suggested that these unaudited interim financial statements be read in conjunction with the audited financial statements and the notes thereto included in the Annual Report on Form 10-K for the year ended September 28, 2019, filed by the Company under the Securities Exchange Act of 1934 on December 10, 2019.

 

The results of operations for the three-month and six-month periods ended March 28, 2020 are not necessarily indicative of the results to be expected for the full fiscal year.



B. NEW ACCOUNTING PRONOUNCEMENTS



On September 29, 2019, the Company adopted Financial Accounting Standards Board Accounting Standards Update ASU 2016-02, “Leases” (ASU 2016-02), which requires the Company as lessee to recognize most leases on the balance sheet thereby resulting in the recognition of right of use assets and lease liabilities for those leases currently classified as operating leases. The accounting for leases where the Company is the lessor remains largely unchanged. As both lessee and lessor, the Company adopted the standard utilizing the transition election to not restate comparative periods for the impact of adopting the standard.  The Company elected the practical expedient related to leases of twelve months or less.  The Company elected the package of transition expedients available for expired or existing contracts, which allowed the carryforward of historical assessments of (1) whether contracts are or contain leases, (2) lease classification and (3) initial direct costs.



The adoption of ASU 2016-02 resulted in the recognition of operating lease assets of $45.0 million and operating lease liabilities of $48.1 million, respectively as of September 29, 2019.  Included in the measurement of the new lease assets is the reclassification of certain balances historically recorded as deferred rent and lease obligations for closed stores.  The adoption of ASU 2016-02 did not materially affect the Company’s consolidated net income or cash flows.



See Note I for additional information required by ASU 2016-02.



C. ALLOWANCE FOR DOUBTFUL ACCOUNTS

 

Receivables are presented net of an allowance for doubtful accounts of $325,000 at March 28, 2020 and $156,000 at September 28, 2019.  



D. INCOME TAXES



The Company’s effective tax rate differs from the federal statutory rate primarily as a result of state income taxes and tax credits.



The Company has unrecognized tax benefits and could incur interest and penalties related to uncertain tax positions. These amounts are insignificant and are not expected to significantly increase or decrease within the next twelve months.



E. ACCRUED EXPENSES AND CURRENT PORTION OF OTHER LONG-TERM LIABILITIES

 

Accrued expenses and current portion of other long-term liabilities consist of the following:





 

 

 

 

 

 



 

 

 

 

 

 



 

March 28,

 

September 28,



 

2020

 

2019

Property, payroll and other taxes payable

 

$

16,195,765 

 

$

20,273,626 

Salaries, wages and bonuses payable

 

 

35,907,085 

 

 

31,861,220 

Self-insurance liabilities

 

 

13,620,261 

 

 

13,146,292 

Interest payable

 

 

11,011,503 

 

 

13,342,260 

Other

 

 

4,115,542 

 

 

5,025,885 



 

$

80,850,156 

 

$

83,649,283 



8

 


 

Self-insurance liabilities are established for general liability claims, workers’ compensation and employee group medical and dental benefits based on claims filed and estimates of claims incurred but not reported. Effective October 1, 2019, the Company is insured for covered costs in excess of $1.0 million per occurrence for workers’ compensation and for general liability and $450,000 per covered person for medical care benefits for a policy year. The Company’s self-insurance reserves totaled $33.6 million and $31.0 million at March 28, 2020 and September 28, 2019, respectively.  Of this amount, $13.6 million is accounted for as a current liability and $20.0 million as a long-term liability, which is inclusive of $5.4 million of expected self-insurance recoveries from excess cost insurance or other sources that are recorded as a receivable at March 28, 2020.  At September 28, 2019, $13.1 million is accounted for as a current liability and $17.9 million as a long-term liability, which is inclusive of $3.6 million of expected self-insurance recoveries from excess cost insurance or other sources that are recorded as a receivable.  Employee insurance expense, including workers’ compensation and medical care benefits, net of employee contributions, totaled $7.8 million and $9.4 million for the three-month periods ended March 28, 2020 and March 30, 2019, respectively.  For the six-month periods ended March 28, 2020 and March 30, 2019 employee insurance expense, net of employee contributions totaled $18.3 million and $19.6 million, respectively.



The Company’s fuel operations contain underground tanks for the storage of gasoline and diesel fuel.  The Company reviewed FASB Accounting Standards Codification Topic 410 (“FASB ASC 410”) and determined we have a legal obligation to remove tanks at a point in the future and accordingly determined we have met the requirements of an asset retirement obligation.  The Company followed the FASB ASC 410 model for determining the asset retirement cost and asset retirement obligation.  The amounts recorded are immaterial for each fuel center as well as in the aggregate at March 28, 2020 and September 28, 2019.

 

F. LONG-TERM DEBT

 

In June 2013, the Company issued $700.0 million aggregate principal amount of senior notes due in 2023 (the “Notes”).  The Notes bear an interest rate of 5.750% per annum and were issued at par.



The Company may redeem all or a portion of the Notes at any time at the following redemption prices (expressed as percentages of the principal amount), if redeemed during the 12-month period beginning June 15 of the years indicated below:





 



 

Year

 

2018

102.875% 

2019

101.917% 

2020

100.958% 

2021 and thereafter

100.000% 



In November 2019, the Company closed a $155 million ten-year amortizing real estate loan (the “Loan”) and issued notice to redeem a like principal amount of the Notes.  The Loan was funded and the Notes were redeemed thirty days after the redemption notice in December 2019.  The Notes were redeemed at 101.917% of par value, and the Company recognized debt extinguishment costs of approximately $3.7 million during the quarter ended December 28, 2019.  The Loan matures January 31, 2030 and has monthly principal payments of $0.65 million plus floating rate interest based on LIBOR. 



The Company has a $175.0 million line of credit (the “Line”) that matures in September 2022.  The Line provides the Company with various interest rate options based on the prime rate, the Federal Funds Rate, or the London Interbank Offering Rate (“LIBOR”). The Line allows the Company to issue up to $20.0 million in unused letters of credit, of which $9.1 million of unused letters of credit were issued at March 28, 2020.  The Company is not required to maintain compensating balances in connection with the Line.  At March 28, 2020, the Company had no borrowings outstanding under the Line. 



In December 2010, the Company completed the funding of $99.7 million of bonds (the Bonds”) for construction of new warehouse and distribution space adjacent to its existing space in Buncombe County, North Carolina (the “Project”).  The final maturity date of the Bonds is January 1, 2036.

 

Under a Continuing Covenant and Collateral Agency Agreement (the “Covenant Agreement”) between certain financial institutions and the Company, the financial institutions would hold the Bonds until September 2026, subject to certain events.  Mandatory redemption of the Bonds by the Company in the annual amount of $4.5 million began on January 1, 2014.  The Company may redeem the Bonds without penalty or premium at any time prior to September 26, 2026.

 

Interest earned by bondholders on the Bonds is exempt from Federal and North Carolina income taxation.  The interest rate on the Bonds is equal to one-month LIBOR (adjusted monthly) plus a credit spread, adjusted to reflect the income tax exemption.    



The Company’s obligation to repay the Bonds is collateralized by the Project.  Additional collateral was required in order to meet certain loan to value criteria in the Covenant Agreement.  The Covenant Agreement incorporates substantially all financial covenants included in the Line.



The Company has an interest rate swap agreement for a current notional amount of $45.5 million at a fixed rate of 3.92%.  Under this agreement, the Company pays monthly the fixed rate of 3.92% and receives the one-month LIBOR plus 1.65%.  The interest rate swap

9

 


 

effectively hedges floating rate debt in the same amount as the current notional amount of the interest swap.  Both the floating rate debt and the interest rate swap have monthly principal amortization of $0.5 million and mature October 1, 2027.



The Company has an interest rate swap agreement for a current notional amount of $151.8 million at a fixed rate of 2.95%.  Under this agreement, the Company pays monthly the fixed rate of 2.95% and receives the one-month LIBOR plus 1.50%.  The interest rate swap effectively hedges floating rate debt in the same amount as the current notional amount of the interest swap.  Both the floating rate debt and the interest rate swap have monthly principal amortization of $0.65 million and mature in fiscal year 2030. 

 

The Company recognizes differences between the variable rate interest payments and the fixed interest rate settlements with the swap counterparties as an adjustment to interest expense each period over the life of the swaps.  The Company has designated the swaps as cash flow hedges and records the changes in the estimated fair value of the swaps to other comprehensive income each period.  For the three- and six-month periods ended March 28, 2020, the Company recorded $10.5 million and $8.4 million of other comprehensive expense, respectively, net of income taxes, in its Consolidated Statements of Comprehensive income.  Unrealized losses of $12.8 million are recorded as a liability at fair value in the line “Other Long Term Liabilities” on the Consolidated Balance Sheet as of March 28, 2020.  For the three- and six-month periods ended March 30, 2019, the Company recorded $0.5 million and $0.1 million of other comprehensive expense, respectively, net of income taxes, in its Consolidated Statements of Comprehensive income.  Unrealized losses of $0.1 million are recorded as a liability at fair value in the line “Other Long Term Liabilities” on the Consolidated Balance Sheet as of March 30, 2019.



The Company’s long-term debt agreements generally contain provisions that under certain circumstances would permit lending institutions to terminate or withdraw their respective extensions of credit to the Company. Included among the triggering factors permitting the termination or withdrawal of the Line to the Company are certain events of default, including both monetary and non-monetary defaults, the initiation of bankruptcy or insolvency proceedings, and the failure of the Company to meet certain financial covenants designated in its respective loan documents. The Company was in compliance with all financial covenants at March 28, 2020.  



The Company’s long-term debt agreements generally have cross-default provisions which could result in the acceleration of payments due under all long-term debt agreements in the event of default under any one instrument.



At March 28, 2020, property and equipment with an undepreciated cost of approximately $363.5 million was pledged as collateral for long-term debt. Long-term debt and Line agreements contain various restrictive covenants requiring, among other things, minimum levels of net worth and maintenance of certain financial ratios. At March 28, 2020, the Company had excess net worth totaling $143.4 million calculated under covenants in the Notes, the Bonds, the Loan, and the Line.  This amount is available to pay dividends; however, certain loan agreements containing provisions outlining minimum tangible net worth requirements restrict the ability of the Company to pay cash dividends in excess of the current annual per share dividends paid on the Company’s Class A and Class B Common Stock. Further, the Company is prevented from paying cash dividends at any time that it is in default under the indenture governing the Notes. In addition, the terms of the indenture may restrict the ability of the Company to pay additional cash dividends based on certain financial parameters.



G. DIVIDENDS

 

The Company paid cash dividends of $0.165 for each share of Class A Common Stock and $0.15 for each share of Class B Common Stock on October 17, 2019 to stockholders of record on October 10, 2019



The Company paid cash dividends of $0.165 for each share of Class A Common Stock and $0.15 for each share of Class B Common Stock on January 16,  2020 to stockholders of record on January 9, 2020.



For additional information regarding the dividend rights of the Class A Common Stock and Class B Common Stock, please see Note 8, “Stockholders’ Equity” to the Consolidated Financial Statements of the Annual Report on Form 10-K filed by the Company under the Securities Exchange Act of 1934 on December 10, 2019.



H. EARNINGS PER COMMON SHARE



The Company has two classes of common stock:  Class A which is publicly traded, and Class B, which has no public market.  The Class B Common Stock has restrictions on transfer; however, each share is convertible into one share of Class A Common Stock at any timeEach share of Class A Common Stock has one vote per share and each share of Class B Common Stock has ten votes per share.  Each share of Class A Common Stock is entitled to receive cash dividends equal to 110% of any cash dividend paid on Class B Common Stock. 



The Company calculates earnings per share using the two-class method in accordance with FASB ASC Topic 260. 



The two-class method of computing basic earnings per share for each period reflects the cash dividends declared per share for each class of stock, plus allocated undistributed earnings per share computed using the participation percentage which reflects the dividend

10

 


 

rights of each class of stock.  Diluted earnings per share is calculated assuming the conversion of all shares of Class B Common Stock to shares of Class A Common Stock on a share-for-share basis. The tables below reconcile the numerators and denominators of basic and diluted earnings per share for current and prior periods.

 





 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 



 

Three Months Ended

 

Six Months Ended



 

March 28, 2020

 

March 28, 2020



 

Class A

 

Class B

 

Class A

 

Class B

Numerator: Allocated net income

 

 

               

 

 

 

 

 

 

 

 

 

Net income allocated, basic

 

$

29,017,203 

 

$

11,275,077 

 

$

41,740,166 

 

$

16,239,467 

Conversion of Class B to Class A shares

 

  

11,275,077 

 

 

 —

 

 

16,239,467 

 

 

 —

Net income allocated, diluted

 

$

40,292,280 

 

$

11,275,077 

 

$

57,979,633 

 

$

16,239,467 



 

  

 

 

 

 

 

 

 

 

 

 

Denominator: Weighted average shares outstanding

 

  

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding, basic

 

  

14,193,290 

 

 

6,066,486 

 

 

14,187,986 

 

 

6,071,790 

Conversion of Class B to Class A shares

 

  

6,066,486 

 

 

 —

 

 

6,071,790 

 

 

 —

Weighted average shares outstanding, diluted

 

  

20,259,776 

 

 

6,066,486 

 

 

20,259,776 

 

 

6,071,790 



 

 

 

 

 

 

 

 

 

 

 

 

Earnings per share

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

2.04 

 

$

1.86 

 

$

2.94 

 

$

2.68 

Diluted

 

$

1.99 

 

$

1.86 

 

$

2.86 

 

$

2.68 







 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 



 

Three Months Ended

 

Six Months Ended



 

March 30, 2019

 

March 30, 2019



 

Class A

 

Class B

 

Class A

 

Class B

Numerator: Allocated net income

 

 

 

 

 

 

 

 

 

 

 

 

Net income allocated, basic

 

$

10,773,567 

 

$

4,226,473 

 

$

26,678,194 

 

$

10,474,183 

Conversion of Class B to Class A shares

 

 

4,226,473 

 

 

                — 

 

 

10,474,183 

 

 

                — 

Net income allocated, diluted

 

$

15,000,040 

 

$

4,226,473 

 

$

37,152,377 

 

$

10,474,183 



 

 

 

 

 

 

 

 

 

 

 

 

Denominator: Weighted average shares outstanding

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding, basic

 

 

14,154,424 

 

 

6,105,352 

 

 

14,149,904 

 

 

6,109,872 

Conversion of Class B to Class A shares

 

 

6,105,352 

 

 

                — 

 

 

6,109,872 

 

 

                — 

Weighted average shares outstanding, diluted

 

 

20,259,776 

 

 

6,105,352 

 

 

20,259,776 

 

 

6,109,872 



 

 

 

 

 

 

 

 

 

 

 

 

Earnings per share

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.76 

 

$

0.69 

 

$

1.88 

 

$

1.71 

Diluted

 

$

0.74 

 

$

0.69 

 

$

1.83 

 

$

1.71 





















I. LEASES



Leases as Lessee



The Company conducts part of its retail operations from leased facilities. The initial terms of the leases are generally 20 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.  Step rent provisions, escalation clauses and lease incentives are taken into account in computing minimum lease payments.  



Operating lease cost for all operating leases totaled $2.3 million for the three months ended March 28,2020 and $5.0 million for the six- months ending March 28, 2020.  This amount includes short-term (less than one year) leases, common area expenses and variable lease costs, which are insignificant.  Sublease income of $0.2 million is included as a reduction of operating lease cost. Cash paid for lease liabilities in operating activities approximates operating lease cost.



11

 


 

Maturities of operating lease liabilities as of March 28, 2020 are as follows:





 

 



 

 

Fiscal Year

 

 

Remainder of 2020

$

4,993,363 

2021

 

7,820,804 

2022

 

7,408,458 

2023

 

5,302,279 

2024

 

2,908,072 

Thereafter

 

27,187,517 

Total lease payments

$

55,620,493 

Less amount representing interest

 

12,992,441 

Present value of lease liabilities

$

42,628,052 



The weighted average remaining lease term for the Company’s operating leases is 14.3 years.  The weighted average discount rate used to determine lease liability balances as of March 28, 2020 is 3.51%, based on recent Company financings collateralized by store properties.



Prior Period Disclosures – Lessee



As a result of the adoption of ASU 2016-02 on September 29, 2019 the Company is required to present future minimum lease payments for operating leases having initial or remaining non-cancelable lease terms in excess of one year.  These future minimum lease payments were previously disclosed in our 2019 Annual Report on Form 10-K and accounted for under previous lease guidance.  Commitments as of September 28, 2019 were as follows:  





 

 

Fiscal Year

 

 

2020

$

9,756,136 

2021

 

7,532,373 

2022

 

6,692,661 

2023

 

4,907,148 

2024

 

2,583,629 

Thereafter

 

27,187,519 

Total minimum future rental commitments

$

58,659,466 



Leases as Lessor



At September 28, 2019, the Company owned and operated 79 shopping centers in conjunction with its supermarket operations. The Company leases to others a portion of its shopping center properties. The leases are non-cancelable operating lease agreements for periods ranging up to 20 years.



Rental income is included in the line item “Net sales” on the Consolidated Statements of Income.  Depreciation on owned properties leased to others and other shopping center expenses are included in the line item “Cost of goods sold” on the Consolidated Statements of Income.





 

 

 

 

 



 

Three Months Ended

 

 

Six Months Ended



 

March 28, 2020

 

 

March 28, 2020

Rents earned on owned and subleased properties:

 

 

 

 

 

Base rentals

$

4,144,319 

 

$

7,964,639 

Variable rentals

 

69,665 

 

 

139,330 

 Total

 

4,213,984 

 

 

8,103,969 

Depreciation on owned properties leased to others

 

(1,328,968)

 

 

(2,657,936)

Other shopping center expenses

 

(899,763)

 

 

(1,750,748)

 Total

$

1,985,253 

 

$

3,695,285 



Future minimum operating lease receipts at March 28, 2020 are as follows:





 

 

Fiscal Year

 

 

Remainder of 2020

$

5,880,856 

2021

 

10,170,740 

2022

 

8,279,676 

2023

 

7,189,842 

2024

 

6,369,072 

Thereafter

 

15,419,999 

Total minimum future rental income

$

53,310,185 



12

 


 

Prior Period Disclosures – Lessor



As a result of the adoption of ASU 2016-02 on September 29, 2019 the Company is required to present future minimum operating lease income receipts for operating leases having initial or remaining non-cancelable lease terms in excess of one year.  These future minimum lease payments were previously disclosed in our 2019 Annual Report on Form 10-K and accounted for under previous lease guidance.  Future minimum operating lease receipts as of September 28, 2019 were as follows:





 

 

Fiscal Year

 

 

2020

$

11,265,775 

2021

 

8,855,781 

2022

 

6,967,583 

2023

 

5,862,260 

2024

 

5,145,632 

Thereafter

 

13,723,315 

Total minimum future rental income

$

51,820,346 











J. SEGMENT INFORMATION

 

The Company operates one primary business segment, retail grocery sales.  “Other” includes our remaining operations - fluid dairy and shopping center rentals.  Information about the Company’s operations by lines of business (amounts in thousands) is as follows: 





 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 



 

Three Months Ended

 

Six Months Ended



 

March 28,

 

March 30,

 

March 28,

 

March 30,



 

2020

 

2019

 

2020

 

2019

Revenues from unaffiliated customers:

 

 

 

 

 

 

 

 

 

 

 

 

Grocery

 

$

424,664 

 

$

351,558 

 

$

802,993 

 

$

727,197 

Non-foods

 

 

260,914 

 

 

223,067 

 

 

506,945 

 

 

455,564 

Perishables

 

 

304,105 

 

 

267,565 

 

 

584,910 

 

 

542,960 

Gasoline

 

 

121,932 

 

 

127,985 

 

 

261,044 

 

 

274,496 

Total Retail

 

$

1,111,615 

 

$

970,175 

 

$

2,155,892 

 

$

2,000,217 

Other

 

 

33,867 

 

 

31,669 

 

 

67,945 

 

 

63,464 

Total revenues from unaffiliated customers

 

$

1,145,482 

 

$

1,001,844 

 

$

2,223,837 

 

$

2,063,681 



 

 

 

 

 

 

 

 

 

 

 

 

Income from operations:

 

 

 

 

 

 

 

 

 

 

 

 

Retail

 

$

58,069 

 

$

26,434 

 

$

92,290 

 

$

62,051 

Other

 

 

5,232 

 

 

4,312 

 

 

9,486 

 

 

8,159 

Total income from operations

 

$

63,301 

 

$

30,746 

 

$

101,776 

 

$

70,210 

  





 

 

 

 

 

 



 

 

 

 

 

 



 

March 28,

 

September 28,



 

2020

 

2019

Assets:

 

 

 

 

 

 

Retail

 

$

1,792,303 

 

$

1,698,904 

Other

 

 

175,195 

 

 

170,720 

Elimination of intercompany receivable

 

 

(3,268)

 

 

(2,296)

Total assets

 

$

1,964,230 

 

$

1,867,328 





The grocery category includes grocery, dairy, and frozen foods.

The non-foods category includes alcoholic beverages, tobacco, pharmacy, and health/beauty/cosmetic products.

The perishables category includes meat, produce, deli and bakery.



For the three-month periods ended March 28, 2020 and March 30, 2019, respectively, the fluid dairy operation had $12.3 million and $10.2 million in sales to the grocery sales segment.  The fluid dairy had $23.8 million and $21.2 million in sales to the retail grocery segment for the six-month periods ended March 28, 2020 and March 30, 2019, respectively. These sales have been eliminated in consolidation and are excluded from the amounts in the table above.



K. FAIR VALUES OF FINANCIAL INSTRUMENTS



The carrying amounts for cash and cash equivalents, accounts receivable and accounts payable approximate fair value due to the short-term maturity of these instruments.



The fair value of the Company’s debt and interest rate swaps are estimated using valuation techniques under the accounting guidance related to fair value measurements based on observable and unobservable inputs.  Observable inputs reflect readily available data from

13

 


 

independent sources, while unobservable inputs reflect the Company’s market assumptions.  These inputs are classified into the following hierarchy:



Level 1 Inputs  –

Quoted prices for identical assets or liabilities in active markets.



 

Level 2 Inputs  –

Quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; and model-derived valuations whose inputs are observable or whose significant value drivers are observable.



 

Level 3 Inputs  –

Pricing inputs are unobservable for the assets or liabilities and include situations where there is little, if any, market activity for the assets or liabilities.  The inputs into the determination of fair value require significant management judgment or estimation.



The carrying amount and fair value of the Company’s debt, interest rate swaps, and non-qualified retirement plan assets at March 28, 2020 are as follows (in thousands):





 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 



 

Carrying

 

 

 

  

Fair Value



 

Amount

 

Fair Value

 

Measurements

Senior Notes

 

$

545,000 

 

$

517,069 

 

Level 2

Facility Bonds

 

 

68,030 

 

 

68,030 

 

Level 2

Secured notes payable and other

 

 

229,026 

 

 

229,026 

 

Level 2

Interest rate swap derivative contracts

 

 

12,752 

 

 

12,752 

 

Level 2

Non-qualified retirement plan assets

 

 

13,666 

 

 

13,666 

 

Level 2



The fair values for Level 2 measurements were determined primarily using market yields and taking into consideration the underlying terms of the instrument.



L. COMMITMENTS AND CONTINGENCIES



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 will not materially affect the Company’s financial position, the results of its operations, or its cash flows.



M. RELATED PARTY TRANSACTIONS



In November 2019, the Company sold two land parcels for $4.3 million to a limited liability corporation having Robert P. Ingle II, the Company’s Chairman of the Board, as one of its principals with a financial interest in the transaction.  In accordance with the Company’s Related Party Transaction policy, independent fair market value appraisals were obtained to determine the selling price, and the Company’s Audit Committee approved the transactions





Item 1A. RISK FACTORS



The following risk factor disclosure should be read in conjunction with the risk factors described in the Company’s Annual Report on Form 10-K



Coronavirus Pandemic Impact



The coronavirus pandemic was declared a national emergency on March 13, 2020 and the Company was classified as an essential business.  We remained open to safely serve the needs of our customers during various isolation measures imposed to reduce pandemic risks. 



These measures closed schools, restaurants, and many businesses in the Company’s market area.  Sales and customer traffic increased and the Company’s implemented numerous sanitation and social distancing protocols to keep our customers and our associates safe.  These protocols included shortened operating hours, frequent extensive cleaning, personal protective equipment, and measures to maintain safe distances in our stores.  We hired additional associates due to the increased demands on our stores and our distribution center.



At the present time, we do not know how long current national, state and local mandates related to the pandemic will continue, or how mandates will change in the future.  We do not know how our customer base will be impacted by unemployment or various assistance programs.  We do not know what risks may impact or suppliers as a result of plant closures or transportation disruptions.  We do not know the longer-term impact on tenants in Company-owned shopping centers.

14

 


 

Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS                     



Overview

 

Ingles, a leading supermarket chain in the Southeast, operates 198 supermarkets in North Carolina (73), Georgia (66), South Carolina (36), Tennessee (21), Virginia (1) and Alabama (1). The Company locates its supermarkets primarily in suburban areas, small towns and rural communities. Ingles supermarkets offer customers a wide variety of nationally advertised food products, including grocery, meat and dairy products, produce, frozen foods and other perishables and non-food products. Non-food products include fuel centers, pharmacies, health and beauty care products and general merchandise, as well as quality private label items. In addition, the Company focuses on selling high-growth, high-margin products to its customers through the development of certified organic products, bakery departments and prepared foods including delicatessen sections.  As of March 28, 2020, the Company operated 108 in-store pharmacies and 104 fuel centers. 



Critical Accounting Policies

 

Critical accounting policies are those accounting policies that management believes are important to the portrayal of the Company’s financial condition and results of operations, and require management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. Estimates are based on historical experience and other factors believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.  Management estimates, by their nature, involve judgments regarding future uncertainties, and actual results may therefore differ materially from these estimates.

 

Self-Insurance

 

The Company is self-insured for workers’ compensation and group medical and dental benefits. Risks and uncertainties are associated with self-insurance; however, the Company has limited its exposure by maintaining excess liability coverage of $1.0 million per occurrence for workers’ compensation and for general liability, and $450,000 per covered person for medical care benefits for a policy year. Self-insurance liabilities are established based on claims filed and estimates of claims incurred but not reported.  The estimates are based on data provided by the respective claims administrators.  These estimates can fluctuate if historical trends are not predictive of the future. The majority of the Company’s properties are self-insured for casualty losses and business interruption; however, liability coverage is maintained.  At March 28, 2020 the Company’s self-insurance reserves totaled $33.6 million.  This amount is inclusive of $5.4 million of expected self-insurance recoveries from excess cost insurance or other sources that are recorded as a receivable.

 

Asset Impairments

 

The Company accounts for the impairment of long-lived assets in accordance with FASB ASC Topic 360. For assets to be held and used, the Company tests for impairment using undiscounted cash flows and calculates the amount of impairment using discounted cash flows. For assets held for sale, impairment is recognized based on the excess of remaining book value over expected recovery value. The recovery value is the fair value as determined by independent quotes or expected sales prices developed by internal associates. Estimates of future cash flows and expected sales prices are judgments based upon the Company’s experience and knowledge of local operations and cash flows that are projected for several years into the future. These estimates can fluctuate significantly due to changes in real estate market conditions, the economic environment, capital spending decisions and inflation. The Company monitors the carrying value of long-lived assets for potential impairment each quarter based on whether any indicators of impairment have occurred.  There were no asset impairments during the six-month period ended March 28, 2020.



Vendor Allowances

 

The Company receives funds for a variety of merchandising activities from the many vendors whose products the Company buys for resale in its stores.  These incentives and allowances are primarily comprised of volume or purchase based incentives, advertising allowances, slotting fees, and promotional discounts.  The purpose of these incentives and allowances is generally to help defray the costs incurred by the Company for stocking, advertising, promoting and selling the vendor’s products.  These allowances generally relate to short term arrangements with vendors, often relating to a period of a month or less, and are negotiated on a purchase-by-purchase or transaction-by-transaction basis.  Whenever possible, vendor discounts and allowances that relate to buying and merchandising activities are recorded as a component of item cost in inventory and recognized in merchandise costs when the item is sold.  Due to system constraints and the nature of certain allowances, it is sometimes not practicable to apply allowances to the item cost of inventory. In those instances, the allowances are applied as a reduction of merchandise costs using a rational and systematic methodology, which results in the recognition of these incentives when the inventory related to the vendor consideration received is sold.  Vendor allowances applied as a reduction of merchandise costs totaled $27.3 million and $28.3 million for the fiscal quarters ended March 28, 2020 and March 30, 2019, respectively.  For the six-month periods ended March 28, 2020 and March 30, 2019,

15

 


 

vendor allowances applied as a reduction of merchandise costs totaled $55.8 million and $57.3 million, respectively.  Vendor advertising allowances that represent a reimbursement of specific identifiable incremental costs of advertising the vendor’s specific products are recorded as a reduction to the related expense in the period in which the related expense is incurred.  Vendor advertising allowances recorded as a reduction of advertising expense totaled $2.3 million and $3.3 million for the fiscal quarters ended March 28, 2020 and March 30, 2019, respectively. For the six-month periods ended March 28, 2020 and March 30, 2019, vendor advertising allowances recorded as a reduction of advertising expense totaled $5.8 million and $7.7 million, respectively.



If vendor advertising allowances were substantially reduced or eliminated, the Company would likely consider other methods of advertising, as well as the volume and frequency of the Company’s product advertising, which could increase or decrease the Company’s expenditures.



Similarly, the Company is not able to assess the impact of vendor advertising allowances on creating additional revenue, as such allowances do not directly generate revenue for the Company’s stores.



Results of Operations

 

Ingles operates on a 52 or 53-week fiscal year ending on the last Saturday in September.  There are 13 and 26 weeks of operations included in the Unaudited Condensed Consolidated Statements of Income for the three- and six-month periods ended March 28, 2020 and March 30, 2019, respectively. Comparable store sales are defined as sales by retail stores in operation for five full fiscal quarters. Sales from replacement stores, major remodels and the addition of fuel stations to existing stores are included in the comparable store sales calculation from the date thereof.  A replacement store is a new store that is opened to replace an existing nearby store that is closed.  A major remodel entails substantial remodeling of an existing store and includes additional retail square footage. For both the three- and six-month periods ended March 28, 2020 and March 30, 2019, comparable store sales included 197 stores. 



The following table sets forth, for the periods indicated, selected financial information as a percentage of net sales.  For information regarding the various segments of the business, see Note I “Segment Information” to the Condensed Consolidated Financial Statements. 





 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 



 

Three Months Ended

 

Six Months Ended



 

March 28,

 

March 30,

 

March 28,

 

March 30,



 

2020

 

2019

 

2020

 

2019

Net sales

 

100.0 

%

 

100.0 

%

 

100.0 

%

 

100.0 

%

Gross profit

 

25.4 

%

 

24.4 

%

 

24.7 

%

 

24.4 

%

Operating and administrative expenses

 

19.9 

%

 

21.6 

%

 

20.3 

%

 

21.1 

%

Gain from sale or disposal of assets

 

 —

%

 

0.3 

%

 

0.1 

%

 

0.1 

%

Income from operations

 

5.5 

%

 

3.1 

%

 

4.6 

%

 

3.4 

%

Other income, net

 

 —

%

 

 —

%

 

 —

%

 

0.1 

%

Interest expense

 

0.9 

%

 

1.2 

%

 

1.0 

%

 

1.2 

%

Loss on early extinguishment of debt

 

 —

%

 

 —

%

 

0.2 

%

 

 —

%

Income tax expense

 

1.1 

%

 

0.4 

%

 

0.8 

%

 

0.5 

%

Net income

 

3.5 

%

 

1.5 

%

 

2.6 

%

 

1.8 

%



Three Months Ended March 28, 2020 Compared to the Three Months Ended March 30, 2019 

 

Net income for the second quarter of fiscal 2020 totaled $40.3 million, compared with net income of $15.0 million earned for the second quarter of fiscal 2019.  The COVID-19 pandemic resulted in various stay-at-home measures, as well as the closing of most schools and restaurants.  As a result, retail grocery sales increased for approximately the last two weeks of the current fiscal quarter.  Corresponding operating expenses did not increase as much, resulting in higher pre-tax income.    



Net Sales. Net sales increased by $143.6 million, or 14.3%, to $1.14 billion for the three months ended March 28, 2020 compared with $1.0 billion for the three months ended March 30, 2019Comparing the second quarter of fiscal 2020 with the second quarter of fiscal 2019, gasoline sales dollars and gallons sold were lower due to decreased travel and oversupply.  Excluding gasoline sales, total grocery comparable store sales increased 17.5% over the comparative fiscal quarters.  Comparing the second quarters of fiscal years 2020 and 2019 (and excluding gasoline), the number of customer transactions increased 2.8% and the average transaction size increased 14.3%. 



Ingles operated 198 stores at March 28, 2020 and 200 stores at March 30, 2019.  Retail square feet totaled 11.3 million square feet at both March 28, 2020 and March 30, 2019.  During the last twelve months the Company opened one store and closed three stores. 

16

 


 



Sales by product category (in thousands) are as follows:







 

 

 

 

 

 



 

 

 

 

 

 



 

Three Months Ended



 

March 28,

 

March 30,



 

2020

 

2019

Grocery

 

$

424,664 

 

$

351,558 

Non-foods

 

 

260,914 

 

 

223,067 

Perishables

 

 

304,105 

 

 

267,565 

Gasoline

 

 

121,932 

 

 

127,985 

Total retail grocery

 

$

1,111,615 

 

$

970,175 



The grocery category includes grocery, dairy, and frozen foods.

The non-foods category includes alcoholic beverages, tobacco, pharmacy, and health/beauty/cosmetic products.

The perishables category includes meat, produce, deli and bakery.



Changes in retail grocery sales for the quarter ended March 28, 2020 are summarized as follows (in thousands):







 

 

 



  

 

 

Total retail sales for the three months ended March 30, 2019

 

$

970,175 

Comparable store sales increase (including gasoline)

 

 

140,523 

Impact of stores opened in fiscal 2019

 

 

6,800 

Impact of stores closed in fiscal 2019

 

 

(5,479)

Other

 

 

(404)

Total retail sales for the three months ended March 28, 2020

 

$

1,111,615 

 

Gross Profit. Gross profit for the three-month period ended  March 28, 2020 totaled $291.6 million, an increase of $47.3 million, or 19.4%, compared with gross profit of $244.3 million for the three-month period ended March 30, 2019.  Gross profit as a percentage of sales was 25.5% and 24.4% for the three months ended March 28, 2020 and March 30, 2019, respectively.    



Operating and Administrative Expenses. Operating and administrative expenses increased $11.9 million, or 5.5%, to $228.4 million for the three months ended March 28, 2020, from $216.5 million for the three months ended March 30, 2019.  As a percentage of sales, operating and administrative expenses were 19.9%  and 21.6% for the March 2020 and March 2019 quarters, respectively.  Excluding gasoline sales and associated gasoline operating expenses (primarily payroll), operating expenses were 22.11% of sales for the second fiscal quarter of 2020 compared with 24.5% for the second fiscal quarter of 2019.  The fiscal 2020 second quarter expense percentages are lower due to extra pandemic-related sales the last two weeks of the current fiscal quarter.

 

A breakdown of the major changes in operating and administrative expenses is as follows:





 

 

 

 

 

 



 

 

 

 

 

 



 

 

 

 

Increase



 

Increase

 

(decrease)



 

(decrease)

 

as a % of



 

in millions

 

sales

Salaries and wages

 

$

11.6 

 

1.01 

%

Advertising and promotion

 

$

3.2 

 

0.28 

%

Rent

 

$

(1.2)

 

(0.11)

%

Insurance

 

$

(1.1)

 

(0.10)

%

 

Salaries and wages increased in dollars due to additional labor hours required for the increased sales volume, including extra labor needed in response to the pandemic.



Advertising and promotion expenses increased due to higher digital advertising expenses and lower income contributions from vendors.



Rent expense decreased due to the closing of leased stores and the purchase of formerly leased stores.



Insurance expense decreased due to better claims experience under the Company’s self-insurance programs and the reduction of certain medical services as a result of the pandemic.



Gain (loss) from Sale or Disposal of Assets. Gain from the sale or disposal of assets totaled $0.1 million with no significant transactions during the three months ended March 28, 2020.  During the quarter ended March 30, 2019, the Company recognized a $3.2 million gain on the sale of a former store property



Interest Expense. Interest expense totaled $10.2 million for the three-month period ended March 28, 2020 compared with $12.0 million for the three-month period ended March 30, 2019.  Total debt at March 2020 was $842.1 million compared with $857.5 million at March 2019Over the past twelve months, the Company’s has reduced debt and line of credit usage, and refinanced approximately $155 million at significantly lower interest rates. 

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Income Taxes. Income tax expense totaled $13.0 million for the three months ended March 28, 2020, an effective tax rate of 24.4%  of pretax income.  Income tax expense totaled $4.2 million for the three months ended March 30, 2019, an effective tax rate of 21.9% of pretax income.



Net Income. Net income totaled $40.3 million for the three-month period ended March 28, 2020 compared with $15.0 million for the three-month period ended March 30, 2019.  Basic and diluted earnings per share for Class A Common Stock were $2.04 and $1.99,  respectively, for the March 2020 quarter, compared to $0.76 and $0.74, respectively, for the March 2019 quarter.  Basic and diluted earnings per share for Class B Common Stock were each $1.86 for the March 2020 quarter compared with $0.69 for the March 2019 quarter.



Six Months Ended March 28, 2020 Compared to the Six Months Ended March 30, 2019 

 

Net income for the first half of fiscal 2020 totaled $58.0 million, compared with net income of $37.2 million earned for the first half of fiscal 2019.  As was the case with the second quarter fiscal year 2020, the COVID-19 pandemic resulted in various stay-at-home measures, as well as the closing of most schools and restaurants.  As a result, retail grocery sales increased for approximately the last two weeks of the current fiscal quarter.  Corresponding operating expenses did not increase as much, resulting in higher pre-tax income.  Offsetting that, the Company incurred debt extinguishment costs of $3.7 million to refinance and extend $155 million of debt at a substantially lower interest rate. 



Net Sales. Net sales increased by $160.2 million, or 7.8%, to $2.22 billion for the six months ended March 28, 2020 compared with $2.06 billion for the six months ended March 30, 2019Comparing the first half of fiscal 2020 with the first half of fiscal 2019, gasoline sales dollars and gallons sold were lower due to decreased travel and oversupply.  Excluding gasoline sales, total grocery comparable store sales increased 9.7% over the comparative fiscal quarters.  Comparing the first halves of fiscal years 2020 and 2019 (and excluding gasoline), the number of customer transactions increased 1.5% and the average transaction size increased 8.2%. 



Sales by product category (in thousands) are as follows:











 

 

 

 

 

 



 

 

 

 

 

 



  

Six Months Ended



 

March 28,

 

March 30,



 

2020

 

2019

Grocery

 

$

802,993 

 

$

727,197 

Non-foods

 

 

506,945 

 

 

455,564 

Perishables

 

 

584,910 

 

 

542,960 

Gasoline

 

 

261,044 

 

 

274,496 

Total retail grocery

 

$

2,155,892 

 

$

2,000,217 



The grocery category includes grocery, dairy, and frozen foods.

The non-foods category includes alcoholic beverages, tobacco, pharmacy, and health/beauty/cosmetic products.

The perishables category includes meat, produce, deli and bakery.



Changes in retail grocery sales for the six months ended March 28, 2020 are summarized as follows (in thousands):









 

 

 



  

 

 

Total retail sales for the six months ended March 30, 2019

 

$

2,000,217 

Comparable store sales increase (including gasoline)

 

 

154,335 

Impact of stores opened in fiscal 2019

 

 

12,271 

Impact of stores closed in fiscal 2019

 

 

(11,291)

Other

 

 

360 

Total retail sales for the six months ended March 28, 2020

 

$

2,155,892 



Sales growth for the remainder of fiscal 2020 will depend largely on the duration of various pandemic stay-at-home measures, including restaurant and travel restrictions.



Gross Profit. Gross profit for the six-month period ended March 28, 2020 totaled $549.1 million, an increase of $46.4 million, or 9.2%, compared with gross profit of $502.7 million for the six-month period ended March 30, 2019.  Gross profit as a percentage of sales was 24.7% and 24.4% for the six months ended March 28, 2020 and March 30, 2019, respectively.    Gasoline gross profit dollars and margin were higher during the first half of the current fiscal year; retail gross margin excluding gas was stable over the comparable six-month period.  



Operating and Administrative Expenses. Operating and administrative expenses increased $15.2 million, or 3.5%, to $450.4 million for the six months ended March 28, 2020, from $435.2 million for the six months ended March 30, 2019.  As a percentage of sales, operating and administrative expenses were 20.3% for the six months ended March 2020 and 21.1% for the six months ended March 2019.  Excluding gasoline sales and associated gasoline operating expenses (primarily payroll), operating expenses were 22.7% of sales for the first six months of fiscal 2020 compared with 24.1% for the first six months of fiscal 2019.

18

 


 

 

A breakdown of the major changes in operating and administrative expenses is as follows:







 

 

 

 

 

 



 

 

 

 

 

 



 

 

 

Increase



 

Increase

 

(decrease)



 

(decrease)

 

as a % of



 

in millions

 

sales

Salaries and wages

 

$

13.7 

 

0.62 

%

Advertising and promotion

 

$

3.1 

 

0.14 

%

Rent

 

$

(1.6)

 

(0.07)

%

Repairs and maintenance

 

$

1.5 

 

0.07 

%

 

Salaries and wages increased in dollars due to additional labor hours required for the increased sales volume, including extra labor needed in response to the pandemic.



Advertising and promotion expenses increased due to higher digital advertising expenses and lower income contributions from vendors.



Rent expense decreased due to the closing of leased stores and the purchase of formerly leased stores.



Repairs and maintenance increased due to a higher level of maintenance required on more sophisticated equipment.



Gain (loss) from Sale or Disposal of Assets. Gain from the sale or disposal of assets totaled $3.1 million from the sale of land during the six months ended March 28, 2020.  During the prior year six-month period, the Company recognized a $3.2 million gain on the sale of a former property.    There were no other significant sale/disposal transactions in either six-month period ended March 28, 2020 or March 30, 2019.



Interest Expense. Interest expense totaled $22.1 million for the six-month period ended March 28, 2020 compared with $24.2 million for the six-month period ended March 30, 2019Total debt at March 2020 was $842.1 million compared with $857.5 million at March 2019.  Over the past twelve months, the Company has reduced debt and line of credit usage, and refinanced approximately $155 million at significantly lower interest rates. 



Loss on Early Extinguishment of DebtIn November 2019, the Company closed a $155 million ten-year amortizing real estate loan (the “Loan”) and issued notice to redeem a like principal amount of the Notes.  The Loan was funded and the Notes redeemed thirty days after the redemption notice in December 2019.  The Notes were redeemed at 101.917% of par value, and the Company recognized debt extinguishment costs of approximately $3.7 million during the quarter ending December 28, 2019.  The debt extinguishment costs were comprised of $3.0 million of redemption premium and a $0.7 million write off of capitalized loan costs related to the redeemed Notes.



Income Taxes. Income tax expense totaled $18.3 million for the six months ended March 28, 2020, an effective tax rate of 24.0% of pretax income.  Income tax expense totaled $10.2 million for the six months ended March 30, 2019, an effective tax rate of 21.5% of pretax income.



Net Income. Net income totaled $58.0 million for the six-month period ended March 28, 2020 compared with $37.2 million for the six-month period ended March 30, 2019.  Basic and diluted earnings per share for Class A Common Stock were $2.94 and $2.86, respectively, for the six months ended March 28, 2020, compared to $1.88 and $1.83, respectively, for the six months ended March 30, 2019.  Basic and diluted earnings per share for Class B Common Stock were each $2.68 for the March 2020 six- month period compared with $1.71 for the March 2019 six-month period.



Liquidity and Capital Resources

 

Capital Expenditures

 

The Company believes that a key to its ability to continue to develop a loyal customer base is providing conveniently located, clean and modern stores which provide customers with good service and a broad selection of competitively priced products.  Therefore, the Company has invested and will continue to invest significant amounts of capital toward the modernization of its store base.  The Company’s modernization program includes the opening of new stores, the completion of major remodels and expansion of selected existing stores, the relocation of selected existing stores to larger, more convenient locations and the completion of minor remodeling of its remaining existing stores. 



Capital expenditures totaled $56.8 million for the six-month period ended March 28, 2020.  These capital expenditures focused on construction on stores scheduled to open later in fiscal 2020, site acquisition, and smaller-scale remodeling projects in a number of the Company’s stores.  Capital expenditures also included the costs of upgrading and replacing store equipment, technology investments, rolling stock, and capital expenditures related to the Company’s milk processing plant. 

19

 


 

 

Ingles’ capital expenditure plans for fiscal 2020 include investments of approximately $120 to $160 million.  At this time the Company does not anticipate the pandemic will have an adverse impact on its capital expenditure plans.  The majority of the Company’s fiscal 2020 capital expenditures will be dedicated to continued improvement of its store base and also include investments in stores expected to open in fiscal 2020 as well as technology improvements, upgrading and replacing existing store equipment and warehouse and transportation equipment and improvements to the Company’s milk processing plant.

 

The Company expects that its annual capital expenditures will be in the range of approximately $100 to $160 million going forward in order to maintain a modern store base.  Planned expenditures for any given future fiscal year will be affected by the availability of financing, which can affect both the number of projects pursued at any given time and the cost of those projects.  The number of projects may also fluctuate due to the varying costs of the types of projects pursued including new stores and major remodel/expansions.  The Company makes decisions on the allocation of capital expenditure dollars based on many factors including the competitive environment, other Company capital initiatives and its financial condition.

 

The Company does not generally enter into commitments for capital expenditures other than on a store-by-store basis at the time it begins construction on a new store or begins a major or minor remodeling project.  Outstanding construction commitments totaled $17.6 million at March 28, 2020.

 

Liquidity

 

The Company generated $175.4 million net cash from operations in the March 2020 six-month period compared with $108.2 million during the March 2019 six-month period.  The increase is primarily attributable to higher net income and lower inventory balances caused by extra pandemic sales in the current fiscal quarter.  



Cash used by investing activities for the six-month periods ended March 28, 2020 and March 30, 2019 totaled $51.5 million and $86.9 million, respectively, consisting primarily of capital expenditures offset by insignificant proceeds from property and equipment sales. Capital expenditures were higher during the prior year six-month period due to the purchase of a shopping center where the Company had previously leased a store.

 

Cash used by financing activities totaled $21.0 million for the six-month period ended March 28, 2020, compared with $15.1 million for the six-month period ended March 30, 2019.  The increase is primarily related to the $3.0 million redemption premium paid on $155 million of the Notes.



In June 2013, the Company issued $700.0 million aggregate principal amount of senior notes due in 2023 (the “Notes”).  The Notes bear an interest rate of 5.750% per annum and were issued at par.  In November 2019, the Company closed the $155 million Loan and issued notice to redeem a like principal amount of the Notes.  The Loan was funded and the Notes were redeemed thirty days after the redemption notice in December 2019.  The Notes were redeemed at 101.917% of par value, and the Company recognized debt extinguishment costs of approximately $3.7 million during the quarter ending December 28, 2019.  The Loan matures January 31, 2030 and has monthly principal payments of $0.65 million plus floating rate interest based on the London Interbank Offering Rate (“LIBOR”)



The Company has a $175.0 million line of credit (the “Line”) that matures in September 2022.  The Line provides the Company with various interest rate options based on the prime rate, the Federal Funds Rate, or “LIBOR”.  The Line allows the Company to issue up to $20.0 million in unused letters of credit, of which $9.1 million of unused letters of credit were issued at March 28, 2020.  The Company is not required to maintain compensating balances in connection with the Line.  At March 28, 2020, the Company had no borrowings outstanding under the Line. 



In December 2010, the Company completed the funding of $99.7 million of Bonds (the “Bonds”) for the construction of new warehouse and distribution space adjacent to its existing space in Buncombe County, North Carolina (the “Project”).  The final maturity date of the Bonds is January 1, 2036.



Under a Continuing Covenant and Collateral Agency Agreement (the “Covenant Agreement”) between certain financial institutions and the Company, the financial institutions would hold the Bonds until September 26, 2026, subject to certain events.  Mandatory redemption of the Bonds by the Company in the annual amount of $4.5 million began on January 1, 2014.  The Company may redeem the Bonds without penalty or premium at any time prior to September 26, 2026.



The Company has an interest rate swap agreement for a current notional amount of $45.5 million at a fixed rate of  3.92%.  Under this agreement, the Company pays monthly the fixed rate of 3.92% and receives the one-month LIBOR plus 1.65%.  The interest rate swap effectively hedges floating rate debt in the same amount as the current notional amount of the interest rate swap.  Both the floating rate debt and the interest rate swap have monthly principal amortization of $0.5 million and mature October 1, 2027    



The Company has an interest rate swap agreement for a current notional amount of $151.8 million at a fixed rate of 2.95%.  Under this agreement, the Company pays monthly the fixed rate of 2.95% and receives the one-month LIBOR plus 1.50%.  The interest rate swap

20

 


 

effectively hedges floating rate debt in the same amount as the current notional amount of the interest swap.  Both the floating rate debt and the interest rate swap have monthly principal amortization of $0.65 million and mature in fiscal year 2030. 



The fair market value of the interest rate swaps are measured quarterly with adjustments recorded in other comprehensive income.    



The Company’s long-term debt agreements generally have cross-default provisions which could result in the acceleration of payments due under the Company’s Line, Bonds and Notes indenture in the event of default under any one instrument.



The Company’s long-term debt agreements generally contain provisions that under certain circumstances would permit lending institutions to terminate or withdraw their respective extensions of credit to the Company.  Included among the triggering factors permitting the termination or withdrawal of the Line to the Company are certain events of default, including both monetary and non-monetary defaults, the initiation of bankruptcy or insolvency proceedings, and the failure of the Company to meet certain financial covenants designated in its respective loan documents.  As of March 28, 2020, the Company was in compliance with these covenants.  Under the most restrictive of these covenants, the Company would be able to incur approximately $889.2 million of additional borrowings (including borrowings under the Line) as of March 28, 2020.  



The Company’s principal sources of liquidity are expected to be cash flow from operations, borrowings under the Line and long-term financing.  The Company believes, based on its current results of operations and financial condition, that its financial resources, including the Line, short- and long-term financing expected to be available to it and internally generated funds, will be sufficient to meet planned capital expenditures and working capital requirements for the foreseeable future, including any debt service requirements of additional borrowings.  However, there is no assurance that any such sources of financing will be available to the Company when needed on acceptable terms, or at all.

 

It is possible that, in the future, the Company’s results of operations and financial condition will be different from that described in this report based on a number of factors.  These factors may include, among others, increased competition, changing regional and national economic conditions, adverse climatic conditions affecting food production and delivery, changing demographics, and the impact of the pandemic, as well as the additional factors discussed below under “Forward Looking Statements.”  It is also possible, for such reasons, that the results of operations from the new, expanded, remodeled and/or replacement stores will not meet or exceed the results of operations from existing stores that are described in this report. 

 

Contractual Obligations and Commercial Commitments

 

The Company has assumed various financial obligations and commitments in the normal course of its operations and financing activities.  Financial obligations are considered to represent known future cash payments that the Company is required to make under existing contractual arrangements, such as debt and lease arrangements.  The following table represents the scheduled maturities of the Company’s long-term contractual obligations as of March 28, 2020:  







 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Contractual Obligations

 

 

 

 

Less than

 

1-3

 

3-5

 

More than

(amounts in thousands)

 

Total

 

1 year

 

years

 

years

 

5 years

Long-term debt and line of credit

 

$

842,056 

 

$

38,079 

 

$

38,200 

 

$

585,165 

 

$

180,612 

Scheduled interest on long-term debt (1)

 

 

164,484 

 

 

39,894 

 

 

77,764 

 

 

28,228 

 

 

18,598 

Advance payments on purchase contracts

 

 

3,416 

 

 

1,914 

 

 

686 

 

 

84 

 

 

732 

Operating leases (2)

 

 

54,257 

 

 

8,761 

 

 

13,300 

 

 

6,102 

 

 

26,094 

Construction commitments

 

 

17,640 

 

 

17,640 

 

 

 —

 

 

 —

 

 

 —

Total

 

$

1,081,853 

 

$

106,288 

 

$

129,950 

 

$

619,579 

 

$

226,036 





 

(1)

Scheduled interest on floating debt calculated using rates in effect on March 28, 2020.

(2)

Operating lease obligations in the above table do not include variable common area maintenance, insurance, utility and tax payments for which the Company is obligated under certain operating leases.  These amounts are not significant compared with the operating lease payments listed in the above table.



The Company has entered supply contracts to provide approximately 83% of the fuel sold in its fuel centers.  Pricing is based on certain market indices at the time of purchase.  The suppliers can modify or terminate the contracts if the Company does not meet certain minimum monthly purchase requirements.



The Company is self-insured for workers’ compensation, general liability, and group medical and dental benefits.  The Company’s self-insurance reserves totaled $33.6 million at March  28, 2020 and $31.0 million at September 28, 2019.  Self-insurance liabilities are based on estimates and actuarial assumptions and can fluctuate in both amount and in timing of cash settlement if historical trends are not predictive of the future.  For this reason they are not included in the above table.



The Company has a nonqualified investment plan to provide retirement benefits to certain of the Company’s management employees who are otherwise subject to limited participation in the 401(k) feature of the Company’s Investment/Profit Sharing Plan.  The liability to plan participants totaled $13.7 million at March  28, 2020 and $16.4 million at September 28, 2019.  The settlement of this obligation is

21

 


 

dependent upon participant elections to withdraw funds, which cannot be predicted.  For this reason they are not included in the above table.



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 will not materially affect the Company’s financial position, the results of its operations, or its cash flows.



There have been no other material changes in contractual obligations and commercial commitments subsequent to September 28, 2019 other than as described elsewhere in this Form 10-Q.

 

Off Balance Sheet Arrangements

 

The Company is not a party to any off-balance sheet arrangements that have, or are reasonably likely to have, a current or future material effect on the Company’s financial condition, revenues, expenses, results of operations, liquidity, capital expenditures or capital resources.

 

Quarterly Cash Dividends

 

Since December 27, 1993, the Company has paid regular quarterly cash dividends of $0.165 (sixteen and one-half cents) per share on its Class A Common Stock and $0.15 (fifteen cents) per share on its Class B Common Stock for an annual rate of $0.66 and $0.60 per share, respectively.  

 

The Company expects to continue paying regular cash dividends on a quarterly basis.  However, the Board of Directors periodically reconsiders the declaration of dividends.  The Company pays these dividends at the discretion of the Board of Directors and the continuation of these payments, the amount of such dividends, and the form in which the dividends are paid (cash or stock) depends upon the results of operations, the financial condition of the Company and other factors which the Board of Directors deems relevant.  In addition, the Notes, the Bonds, the Line, and other debt agreements contain provisions that, based on certain financial parameters, restrict the ability of the Company to pay additional cash dividends in excess of current quarterly per share amounts.  Further, the Company is prevented from declaring dividends at any time that it is in default under the indenture governing the Notes. 

 

Seasonality

 

Grocery sales are subject to a slight seasonal variance due to holiday related sales and due to sales in areas where seasonal homes are located.  Sales are traditionally higher in the Company’s first fiscal quarter due to the inclusion of sales related to Thanksgiving and Christmas.  The Company’s second fiscal quarter traditionally has the lowest sales of the year, unless Easter falls in that quarter.  In the third and fourth quarter, sales are affected by the return of customers to seasonal homes in our market area.  The Company’s fluid dairy operations have slight seasonal variation to the extent of its sales into the grocery industry.  The Company’s real estate activities are not subject to seasonal variations.

 

Impact of Inflation

 

The following table from the United States Bureau of Labor Statistics lists annualized changes in the Consumer Price Index that could have an effect on the Company’s operations.  One of the Company’s significant costs is labor, which changes with general inflation.  Inflation or deflation in energy costs affects the Company’s gasoline sales, distribution expenses, utility expenses and plastic supply costs.





 

 

 

 

 

 



 

 

 

 

 

 



  

Six Months Ended



  

March 28,

 

March 30,



 

2020

 

2019

All items

  

0.1 

%

 

0.2 

%

Food and beverages

  

0.2 

%

 

0.2 

%

Energy

  

(0.7)

%

 

(0.4)

%



Forward Looking Statements

 

This Quarterly Report contains certain forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended.  The words “expect”, “anticipate”, “intend”, “plan”, “likely”, “goal”, “believe”, “seek” and similar expressions are intended to identify forward-looking statements.  While these forward-looking statements and the related assumptions are made in good faith and reflect the Company’s current judgment regarding the direction of the Company’s business, actual results will almost always vary, sometimes materially, from any estimates, predictions, projections, assumptions or other future performance suggested herein.  Such statements are based upon a number of assumptions and estimates which are inherently subject to significant risks and uncertainties many of which are beyond the Company’s control.  Some of these assumptions inevitably will not materialize, and unanticipated events will occur which will affect the Company’s results.  Some important factors (but not necessarily all factors) that affect the Company’s revenues, growth strategies, future profitability and operating results, or that otherwise could cause actual results to differ materially from those expressed in or implied by any forward-looking statement, include business and economic conditions

22

 


 

generally in the Company’s operating area; the Company’s ability to successfully implement its expansion and operating strategies and to manage rapid expansion; pricing pressures and other competitive factors; reduction in per gallon retail gasoline prices; the maturation of new and expanded stores; the Company’s ability to reduce costs and achieve improvements in operating results; the availability and terms of financing; increases in labor and utility costs; success or failure in the ownership and development of real estate; changes in the laws and government regulations applicable to the Company; and changes in accounting policies, standards, guidelines or principles as may be adopted by regulatory agencies as well as the Financial Accounting Standards Board.

 

Consequently, actual events affecting the Company and the impact of such events on the Company’s operations may vary significantly from those described in this report or contemplated or implied by statements in this report.  The Company does not undertake and specifically denies any obligation to update any such statements or to publicly announce the results of any revisions to any such statements to reflect future events or developments.



Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

As previously mentioned, the Company is party to interest rate swap agreements for a current notional amount of $197.3 millionOtherwise, the Company does not typically utilize financial instruments for trading or other speculative purposes, nor does it typically utilize leveraged financial instruments.  There have been no other material changes in the market risk factors from those disclosed in the Company’s Annual Report on Form 10-K for the year ended September 28, 2019.  



Item 4. CONTROLS AND PROCEDURES    



(a)

Evaluation of Disclosure Controls and Procedures



The Company maintains disclosure controls and procedures designed to provide reasonable assurance of achieving the objective that information in its Exchange Act reports is recorded, processed, summarized and reported within the time periods specified and pursuant to the regulations of the Securities and Exchange Commission.  Disclosure controls and procedures, as defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act, include controls and procedures designed to ensure the information required to be disclosed by the Company in the reports it files or submits under the Exchange Act is accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.  It should be noted that the Company’s system of controls, however well designed and operated, can provide only reasonable, and not absolute, assurance that the objectives of the system are met.

 

As required by SEC Rule 13a-15(b), the Company carried out an evaluation, under the supervision and with participation of its management, including its Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of its disclosure controls and procedures as of March 28, 2020, the end of the period covered by this report. In making this evaluation, it considered matters previously identified and disclosed in connection with the filing of its Form 10-K for fiscal 2019. After consideration of the matters discussed above and the changes in internal control over financial reporting discussed below, the Company has concluded that its controls and procedures were effective as of March 28, 2020

 

(b) Changes in Internal Control over Financial Reporting



The Company is currently planning and performing tests of internal controls over financial reporting for fiscal year 2020.



No changes in internal control over financial reporting occurred during the Company’s last fiscal quarter that materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

23

 


 



Part II. OTHER INFORMATION



Item 6. EXHIBITS

 

(a)      Exhibits.





 

 

3.1 

 

Articles of Incorporation of Ingles Markets, Incorporated (included as Exhibit 3.1 to Ingles Markets, Incorporated’s Registration Statement on Form S-1, File No. 33-23919, previously filed with the Commission and incorporated herein by this reference).  (Filed on paper – hyperlink is not required pursuant to Rule 105 of Regulation S-T.)





 

 

3.2 

 

Articles of Amendment to Articles of Incorporation of Ingles Markets, Incorporated (included as Exhibit 3.3 to Ingles Markets, Incorporated’s Annual Report on Form 10-K for the fiscal year ended September 25, 2004, File No. 0-14706, previously filed with the Commission and incorporated herein by this reference).





 

 

3.3 

 

Articles of Amendment to Articles of Incorporation of Ingles Markets, Incorporated dated February 14, 2012 (included as Exhibit 3.3 to Ingles Markets, Incorporated Quarterly Report on Form 10-Q for the fiscal quarter ended March 24, 2012, File No. 0-14706, previously filed with the Commission and incorporated herein by this reference).



4

 

 

3.4 

 

Amended and Restated By-Laws of Ingles Markets, Incorporated (included as Exhibit 99.1 to Ingles Markets, Incorporated’s Current Report on Form 8-K, File No. 0-14706, previously filed with the Commission on August 30, 2007 and incorporated herein by this reference).





 

 

4.1 

 

Articles 4 and 9 of the Articles of Incorporation of Ingles Markets, Incorporated (included as Exhibit 3.1 to Ingles Markets, Incorporated’s Registration Statement on Form S-1, File No. 33-23919, (filed on paper – hyperlink is not required pursuant to Rule 105 of Regulation S-T) and Exhibit 3.3 to Ingles Markets, Incorporated’s Annual Report on Form 10-K for the fiscal year ended September 25, 2004, File No. 0-14706, respectively, each of which were previously filed with the Commission and are incorporated herein by this reference).





 

 

4.2 

 

Articles 2, 3, 10, 11 and 14 of the Amended and Restated By-Laws of Ingles Markets, Incorporated (included as Exhibit 99.1 to Ingles Markets, Incorporated’s Current Report on Form 8-K, File No. 0-14706, previously filed with the Commission on August 30, 2007 and incorporated herein by this reference).



3

 

 

4.3 

 

Indenture, dated as of June 12, 2013, between Ingles Markets, Incorporated and Branch Banking and Trust Company, as Trustee, governing the 5.75% Senior Notes Due 2023, including the form of unregistered 5.75% Senior Note Due 2023 (included as Exhibit 4.1 to Ingles Markets, Incorporated’s Current Report on Form 8-K, File No. 0-14706, previously filed with the Commission on June 12, 2013 and incorporated herein by this reference).





 

 

4.4 

 

Registration Rights Agreement, dated June 12, 2013, among the Company and Merrill Lynch, Pierce, Fenner and Smith Incorporated, Wells Fargo Securities, LLC, BB&T Capital Markets, a division of BB&T Securities, LLC and SunTrust Robinson Humphrey, Inc. (included as Exhibit 4.3 to Ingles Markets, Incorporated’s Current Report on Form 8-K, File No. 0-14706, previously filed with the Commission on June 12, 2013 and incorporated herein by this reference).



10

 

 

10.1 

 

Credit Agreement, dated May 12, 2009, among the Company and the lenders party thereto, Bank of America, as administrative agent, swing line lender and l/c issuer, Branch Banking and Trust Company, as syndication agent, Wachovia Bank, National Association, as documentation agent, and Banc of America Securities LLC, Branch Banking and Trust Company and Wachovia Capital Markets, LLC, as joint lead arrangers and book managers (included as Exhibit 10.1 to Ingles Markets, Incorporated’s Current Report on Form 8-K, File No. 0-14706, previously filed with the Commission on May 15, 2009 and incorporated herein by this reference).





 

 

10.2 

 

Waiver and First Amendment to the Credit Agreement dated as of July 31, 2009, among the Company the lenders from time to time party thereto, Bank of America, N.A., as administrative agent, swing line lender and l/c issuer, and the other agents, joint lead arrangers and joint book managers party thereto (included as Exhibit 10.3 to Ingles Markets, Incorporated’s Annual Report on Form 10-K for the fiscal year ended September 29, 2012, File No. 0-14706, previously filed with the Commission and incorporated herein by this reference).





 

 

10.3 

 

Second Amendment to the Credit Agreement dated as of December 29, 2010, among the Company the lenders from time to time party thereto, Bank of America, N.A., as administrative agent, swing line lender and l/c issuer, and the other agents, joint lead arrangers and joint book managers party thereto (included as Exhibit 10.1 to Ingles Markets, Incorporated’s Current Report on Form 8-K, File No. 0-14706, previously filed with the Commission on January 4, 2011 and incorporated herein by this reference).





 

 

24

 


 

10.4 

 

Third Amendment to the Credit Agreement dated as of September 6, 2012, among the Company the lenders from time to time party thereto, Bank of America, N.A., as administrative agent, swing line lender and l/c issuer, and the other agents, joint lead arrangers and joint book managers party thereto (included as Exhibit 10.5 to Ingles Markets, Incorporated’s Annual Report on Form 10-K for the fiscal year ended September 29, 2012, File No. 0-14706, previously filed with the Commission and incorporated herein by this reference).

 



 

 

10.5 

 

Fourth Amendment to the Credit Agreement dated as of June 12, 2013, among the Company the lenders from time to time party thereto, Bank of America, N.A., as administrative agent, swing line lender and l/c issuer, and the other agents, joint lead arrangers and joint book managers party thereto (included as Exhibit 10.6 to Ingles Markets, Incorporated’s Quarterly Report on Form 10-Q for the quarter ended June 29, 2013, File No. 0-14706, previously filed with the Commission and incorporated herein by this reference).

 



 

 

10.6 

 

Fifth Amendment to the Credit Agreement dated as of January 31, 2014, among the Company the lenders from time to time party thereto, Bank of America, N.A., as administrative agent, swing line lender and l/c issuer, and the other agents, joint lead arrangers and joint book managers party thereto (included as Exhibit 10.7 to Ingles Markets, Incorporated’s Quarterly Report on Form 10-Q for the quarter ended December 28, 2013, File No. 0-14706, previously filed with the Commission and incorporated herein by this reference).





 

 

10.7 

 

Sixth Amendment to the Credit Agreement dated as of June 23, 2014, among the Company the lenders from time to time party thereto, Bank of America, N.A., as administrative agent, swing line lender and l/c issuer, and the other agents, joint lead arrangers and joint book managers party thereto (included as Exhibit 10.1 to Ingles Markets, Incorporated’s Current Report on Form 8-K, File No. 0-14706, previously filed with the Commission on June 24, 2014 and incorporated herein by this reference).





 

 

10.8 

 

Seventh Amendment to the Credit Agreement dated as of September 27, 2017, among the Company the lenders from time to time party thereto, Bank of America, N.A., as administrative agent, swing line lender and l/c issuer, and the other agents, joint lead arrangers and joint book managers party thereto (included as Exhibit 10.13 to Ingles Markets, Incorporated’s Annual Report on Form 10-K for the fiscal year ended September 30, 2017, File No. 0-14706, previously filed with the Commission and incorporated herein by this reference).





 

 

31.1 

*

Rule 13a-14(a) Certification





 

 

31.2 

*

Rule 13a-14(a) Certification





 

 

32.1 

*

Certification Pursuant to 18 U.S.C. Section 1350





 

 

32.2 

*

Certification Pursuant to 18 U.S.C. Section 1350





 

 

101 

*

The following financial information from the Quarterly Report on Form 10-Q for the fiscal quarter ended March 28, 2020, formatted in XBRL (Extensible Business Reporting Language) and furnished electronically herewith: (i) the Consolidated Statements of Earnings; (ii) the Consolidated Balance Sheets; (iii) the Consolidated Statements of Cash Flows; (iv) the Consolidated Statements of Comprehensive Income; and (v) the Notes to the Consolidated Financial Statements.

________

* Filed herewith.

25

 


 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Form 10-Q to be signed on its behalf by the undersigned thereunto duly authorized.

 



 

 



 

 

 

 

INGLES MARKETS, INCORPORATED



 

Date: May 7, 2020

 

/s/ James W. Lanning

 

 

 

James W. Lanning

 

 

Chief Executive Officer and President



 

Date: May 7, 2020

 

/s/ Ronald B. Freeman

 

 

 

Ronald B. Freeman

 

 

Vice President-Finance and Chief Financial Officer















26

 


Exhibit 311

Exhibit 31.1

 

CERTIFICATION PURSUANT TO 17 CFR 240.13a-14

PROMULGATED UNDER SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

 

I, James W. Lanning, certify that:

 

1.I have reviewed this quarterly report on Form 10-Q of Ingles Markets, Incorporated;

 

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15 (e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a – 15(f) and 15d – 15(f)) for the registrant and have:

 

(a)

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

 

(b)

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;



(c)

Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and



(d)

Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s first fiscal quarter) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5.

The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):  



(a)

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

(b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

 





Date: May 7,  2020



/s/ James W. Lanning

 

James W. Lanning

Chief Executive Officer and President



 

 


Exhibit 312

Exhibit 31.2

 

CERTIFICATION PURSUANT TO 17 CFR 240.13a-14

PROMULGATED UNDER SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

 

I, Ronald B. Freeman, certify that:

 

1.I have reviewed this quarterly report on Form 10-Q of Ingles Markets, Incorporated;

 

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15 (e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a – 15(f) and 15d – 15(f)) for the registrant and have:

 

(a)

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

(b)

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;



(c)

Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and



(d)

Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s first fiscal quarter) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5.

The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):  



(a)

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

(b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.



6



Date: May 7,  2020



/s/ Ronald B. Freeman

 

Ronald B. Freeman

Vice President - Finance and

Chief Financial Officer



 

 


Exhibit 321

Exhibit 32.1

 

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

 

In connection with the Quarterly Report of Ingles Markets, Incorporated (the “Company”) on Form 10-Q for the period ended March 28,  2020 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, James W. Lanning, Chief Executive Officer and President of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

 

1)

The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and



2)

The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.





 



/s/ James W. Lanning

 

James W. Lanning

Chief Executive Officer and President

May 7,  2020





The foregoing certification is being furnished as an exhibit of the Report pursuant to Item 601(b)(32) of Regulation S-K and Section 906 of the Sarbanes-Oxley Act of 2002 and, accordingly, is not being filed with the Securities and Exchange Commission as part of the Report and is not to be incorporated by reference into any filing of the Company under the Securities Act of 1933, as amended, or the Securities Act of 1934, as amended (whether made before or after the date of the Report, irrespective of any general incorporation language contained in such filing).

 

 


Exhibit 322

Exhibit 32.2

 

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

 

In connection with the Quarterly Report of Ingles Markets, Incorporated (the “Company”) on Form 10-Q for the period ended March 28,  2020 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Ronald B. Freeman, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

 

1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

 

2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

 







/s/ Ronald B. Freeman

 

Ronald B. Freeman

Vice President - Finance and

Chief Financial Officer

May  7,  2020





The foregoing certification is being furnished as an exhibit of the Report pursuant to Item 601(b)(32) of Regulation S-K and Section 906 of the Sarbanes-Oxley Act of 2002 and, accordingly, is not being filed with the Securities and Exchange Commission as part of the Report and is not to be incorporated by reference into any filing of the Company under the Securities Act of 1933, as amended, or the Securities Act of 1934, as amended (whether made before or after the date of the Report, irrespective of any general incorporation language contained in such filing).

 

 


v3.20.1
Allowance For Doubtful Accounts
6 Months Ended
Mar. 28, 2020
Allowance For Doubtful Accounts [Abstract]  
Allowance For Doubtful Accounts

C. ALLOWANCE FOR DOUBTFUL ACCOUNTS

 

Receivables are presented net of an allowance for doubtful accounts of $325,000 at March 28, 2020 and $156,000 at September 28, 2019.



v3.20.1
Allowance For Doubtful Accounts (Narrative) (Details) - USD ($)
Mar. 28, 2020
Sep. 28, 2019
Allowance For Doubtful Accounts [Abstract]    
Allowance for doubtful accounts receivable $ 325,000 $ 156,000
v3.20.1
Condensed Consolidated Statements Of Changes In Stockholders' Equity - USD ($)
Class A Common Stock [Member]
Common Stock [Member]
Class B Common Stock [Member]
Common Stock [Member]
Paid-in Capital in Excess of Par Value [Member]
Accumulated Other Comprehensive Income (Loss) [Member]
Retained Earnings [Member]
Total
Balance at Sep. 29, 2018 $ 707,269 $ 305,720 $ 12,311,249   $ 582,089,570 $ 595,413,808
Balance (in shares) at Sep. 29, 2018 14,145,385 6,114,391        
Net income         22,152,337 22,152,337
Other comprehensive (expense) income, net of income tax       $ 340,339   340,339
Cash dividends         (3,251,148) (3,251,148)
Balance at Dec. 29, 2018 $ 707,269 $ 305,720 12,311,249 340,339 600,990,759 614,655,336
Balance (in shares) at Dec. 29, 2018 14,145,385 6,114,391        
Balance at Sep. 29, 2018 $ 707,269 $ 305,720 12,311,249   582,089,570 595,413,808
Balance (in shares) at Sep. 29, 2018 14,145,385 6,114,391        
Net income           37,152,377
Other comprehensive (expense) income, net of income tax           (119,109)
Balance at Mar. 30, 2019 $ 708,867 $ 304,122 12,311,249 (119,109) 612,739,647 625,944,776
Balance (in shares) at Mar. 30, 2019 14,177,335 6,082,441        
Balance at Dec. 29, 2018 $ 707,269 $ 305,720 12,311,249 340,339 600,990,759 614,655,336
Balance (in shares) at Dec. 29, 2018 14,145,385 6,114,391        
Net income         15,000,040 15,000,040
Other comprehensive (expense) income, net of income tax       (459,448)   (459,448)
Cash dividends         (3,251,152) (3,251,152)
Common stock conversions $ 1,598 $ (1,598)        
Common stock conversions (in shares) 31,950 (31,950)        
Balance at Mar. 30, 2019 $ 708,867 $ 304,122 12,311,249 (119,109) 612,739,647 625,944,776
Balance (in shares) at Mar. 30, 2019 14,177,335 6,082,441        
Balance at Sep. 28, 2019 $ 709,024 $ 303,965 12,311,249 (1,265,650) 650,664,018 662,722,606
Balance (in shares) at Sep. 28, 2019 14,180,485 6,079,291        
Net income         17,687,353 17,687,353
Other comprehensive (expense) income, net of income tax       2,151,893   2,151,893
Cash dividends         (3,251,673) (3,251,673)
Common stock conversions $ 625 $ (625)        
Common stock conversions (in shares) 12,500 (12,500)        
Balance at Dec. 28, 2019 $ 709,649 $ 303,340 12,311,249 886,243 665,099,698 679,310,179
Balance (in shares) at Dec. 28, 2019 14,192,985 6,066,791        
Balance at Sep. 28, 2019 $ 709,024 $ 303,965 12,311,249 (1,265,650) 650,664,018 662,722,606
Balance (in shares) at Sep. 28, 2019 14,180,485 6,079,291        
Net income           57,979,633
Other comprehensive (expense) income, net of income tax           (8,373,641)
Balance at Mar. 28, 2020 $ 709,668 $ 303,321 12,311,249 (9,639,291) 702,140,116 705,825,063
Balance (in shares) at Mar. 28, 2020 14,193,360 6,066,416        
Balance at Dec. 28, 2019 $ 709,649 $ 303,340 12,311,249 886,243 665,099,698 679,310,179
Balance (in shares) at Dec. 28, 2019 14,192,985 6,066,791        
Net income         40,292,280 40,292,280
Other comprehensive (expense) income, net of income tax       (10,525,534)   (10,525,534)
Cash dividends         (3,251,862) (3,251,862)
Common stock conversions $ 19 $ (19)        
Common stock conversions (in shares) 375 (375)        
Balance at Mar. 28, 2020 $ 709,668 $ 303,321 $ 12,311,249 $ (9,639,291) $ 702,140,116 $ 705,825,063
Balance (in shares) at Mar. 28, 2020 14,193,360 6,066,416        
v3.20.1
Document And Entity Information - shares
6 Months Ended
Mar. 28, 2020
May 05, 2020
Document Type 10-Q  
Document Quarterly Report true  
Document Transition Report false  
Document Period End Date Mar. 28, 2020  
Current Fiscal Year End Date --09-26  
Document Fiscal Year Focus 2020  
Document Fiscal Period Focus Q2  
Entity File Number 0-14706  
Entity Registrant Name INGLES MARKETS INC  
Entity Incorporation, State or Country Code NC  
Entity Tax Identification Number 56-0846267  
Entity Address, Address Line One P.O. Box 6676  
Entity Address, City or Town Asheville  
Entity Address, State or Province NC  
Entity Address, Postal Zip Code 28816  
City Area Code 828  
Local Phone Number 669-2941  
Entity Current Reporting Status Yes  
Entity Interactive Data Current Yes  
Entity Filer Category Accelerated Filer  
Entity Small Business false  
Entity Emerging Growth Company false  
Entity Shell Company false  
Title of 12(b) Security Class A Common Stock, $0.05 par value per share  
Trading Symbol IMKTA  
Security Exchange Name NASDAQ  
Entity Central Index Key 0000050493  
Amendment Flag false  
Class A Common Stock [Member]    
Entity Common Stock, Shares Outstanding   14,196,360
Class B Common Stock [Member]    
Entity Common Stock, Shares Outstanding   6,063,416
v3.20.1
Leases (Tables)
6 Months Ended
Mar. 28, 2020
Leases [Abstract]  
Maturities Of Operating Lease Liabilities



 

 



 

 

Fiscal Year

 

 

Remainder of 2020

$

4,993,363 

2021

 

7,820,804 

2022

 

7,408,458 

2023

 

5,302,279 

2024

 

2,908,072 

Thereafter

 

27,187,517 

Total lease payments

$

55,620,493 

Less amount representing interest

 

12,992,441 

Present value of lease liabilities

$

42,628,052 



Future Minimum Operating Lease Payments Prior To Adoption Of ASU 2016-02



 

 

Fiscal Year

 

 

2020

$

9,756,136 

2021

 

7,532,373 

2022

 

6,692,661 

2023

 

4,907,148 

2024

 

2,583,629 

Thereafter

 

27,187,519 

Total minimum future rental commitments

$

58,659,466 



Schedule Of Rental Income



 

 

 

 

 



 

Three Months Ended

 

 

Six Months Ended



 

March 28, 2020

 

 

March 28, 2020

Rents earned on owned and subleased properties:

 

 

 

 

 

Base rentals

$

4,144,319 

 

$

7,964,639 

Variable rentals

 

69,665 

 

 

139,330 

  Total

 

4,213,984 

 

 

8,103,969 

Depreciation on owned properties leased to others

 

(1,328,968)

 

 

(2,657,936)

Other shopping center expenses

 

(899,763)

 

 

(1,750,748)

  Total

$

1,985,253 

 

$

3,695,285 



Future Minimum Operating Lease Receipts



 

 

Fiscal Year

 

 

Remainder of 2020

$

5,880,856 

2021

 

10,170,740 

2022

 

8,279,676 

2023

 

7,189,842 

2024

 

6,369,072 

Thereafter

 

15,419,999 

Total minimum future rental income

$

53,310,185 



Future Minimum Operating Lease Receipts Prior To Adoption Of ASU 2016-02



 

 

Fiscal Year

 

 

2020

$

11,265,775 

2021

 

8,855,781 

2022

 

6,967,583 

2023

 

5,862,260 

2024

 

5,145,632 

Thereafter

 

13,723,315 

Total minimum future rental income

$

51,820,346 



v3.20.1
Segment Information (Operations By Lines Of Business) (Details) - USD ($)
3 Months Ended 6 Months Ended
Mar. 28, 2020
Mar. 30, 2019
Mar. 28, 2020
Mar. 30, 2019
Sep. 28, 2019
Segment Reporting Information By Segment [Line Items]          
Total revenues from unaffiliated customers $ 1,145,482,049 $ 1,001,843,929 $ 2,223,836,986 $ 2,063,680,587  
Total income from operations 63,300,678 30,745,989 101,776,039 70,209,528  
Total assets 1,964,230,250   1,964,230,250   $ 1,867,328,368
Elimination of intercompany receivable [Member]          
Segment Reporting Information By Segment [Line Items]          
Total assets (3,268,000)   (3,268,000)   (2,296,000)
Grocery [Member]          
Segment Reporting Information By Segment [Line Items]          
Total revenues from unaffiliated customers 424,664,000 351,558,000 802,993,000 727,197,000  
Non-foods [Member]          
Segment Reporting Information By Segment [Line Items]          
Total revenues from unaffiliated customers 260,914,000 223,067,000 506,945,000 455,564,000  
Perishables [Member]          
Segment Reporting Information By Segment [Line Items]          
Total revenues from unaffiliated customers 304,105,000 267,565,000 584,910,000 542,960,000  
Gasoline [Member]          
Segment Reporting Information By Segment [Line Items]          
Total revenues from unaffiliated customers 121,932,000 127,985,000 261,044,000 274,496,000  
Retail [Member]          
Segment Reporting Information By Segment [Line Items]          
Total revenues from unaffiliated customers 1,111,615,000 970,175,000 2,155,892,000 2,000,217,000  
Total income from operations 58,069,000 26,434,000 92,290,000 62,051,000  
Total assets 1,792,303,000   1,792,303,000   1,698,904,000
Other Segment [Member]          
Segment Reporting Information By Segment [Line Items]          
Total revenues from unaffiliated customers 33,867,000 31,669,000 67,945,000 63,464,000  
Total income from operations 5,232,000 $ 4,312,000 9,486,000 $ 8,159,000  
Total assets $ 175,195,000   $ 175,195,000   $ 170,720,000
v3.20.1
Leases
6 Months Ended
Mar. 28, 2020
Leases [Abstract]  
Leases











I. LEASES



Leases as Lessee



The Company conducts part of its retail operations from leased facilities. The initial terms of the leases are generally 20 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.  Step rent provisions, escalation clauses and lease incentives are taken into account in computing minimum lease payments.  



Operating lease cost for all operating leases totaled $2.3 million for the three months ended March 28,2020 and $5.0 million for the six- months ending March 28, 2020.  This amount includes short-term (less than one year) leases, common area expenses and variable lease costs, which are insignificant.  Sublease income of $0.2 million is included as a reduction of operating lease cost. Cash paid for lease liabilities in operating activities approximates operating lease cost.



Maturities of operating lease liabilities as of March 28, 2020 are as follows:





 

 



 

 

Fiscal Year

 

 

Remainder of 2020

$

4,993,363 

2021

 

7,820,804 

2022

 

7,408,458 

2023

 

5,302,279 

2024

 

2,908,072 

Thereafter

 

27,187,517 

Total lease payments

$

55,620,493 

Less amount representing interest

 

12,992,441 

Present value of lease liabilities

$

42,628,052 



The weighted average remaining lease term for the Company’s operating leases is 14.3 years.  The weighted average discount rate used to determine lease liability balances as of March 28, 2020 is 3.51%, based on recent Company financings collateralized by store properties.



Prior Period Disclosures – Lessee



As a result of the adoption of ASU 2016-02 on September 29, 2019 the Company is required to present future minimum lease payments for operating leases having initial or remaining non-cancelable lease terms in excess of one year.  These future minimum lease payments were previously disclosed in our 2019 Annual Report on Form 10-K and accounted for under previous lease guidance.  Commitments as of September 28, 2019 were as follows:  





 

 

Fiscal Year

 

 

2020

$

9,756,136 

2021

 

7,532,373 

2022

 

6,692,661 

2023

 

4,907,148 

2024

 

2,583,629 

Thereafter

 

27,187,519 

Total minimum future rental commitments

$

58,659,466 



Leases as Lessor



At September 28, 2019, the Company owned and operated 79 shopping centers in conjunction with its supermarket operations. The Company leases to others a portion of its shopping center properties. The leases are non-cancelable operating lease agreements for periods ranging up to 20 years.



Rental income is included in the line item “Net sales” on the Consolidated Statements of Income.  Depreciation on owned properties leased to others and other shopping center expenses are included in the line item “Cost of goods sold” on the Consolidated Statements of Income.





 

 

 

 

 



 

Three Months Ended

 

 

Six Months Ended



 

March 28, 2020

 

 

March 28, 2020

Rents earned on owned and subleased properties:

 

 

 

 

 

Base rentals

$

4,144,319 

 

$

7,964,639 

Variable rentals

 

69,665 

 

 

139,330 

  Total

 

4,213,984 

 

 

8,103,969 

Depreciation on owned properties leased to others

 

(1,328,968)

 

 

(2,657,936)

Other shopping center expenses

 

(899,763)

 

 

(1,750,748)

  Total

$

1,985,253 

 

$

3,695,285 



Future minimum operating lease receipts at March 28, 2020 are as follows:





 

 

Fiscal Year

 

 

Remainder of 2020

$

5,880,856 

2021

 

10,170,740 

2022

 

8,279,676 

2023

 

7,189,842 

2024

 

6,369,072 

Thereafter

 

15,419,999 

Total minimum future rental income

$

53,310,185 



Prior Period Disclosures – Lessor



As a result of the adoption of ASU 2016-02 on September 29, 2019 the Company is required to present future minimum operating lease income receipts for operating leases having initial or remaining non-cancelable lease terms in excess of one year.  These future minimum lease payments were previously disclosed in our 2019 Annual Report on Form 10-K and accounted for under previous lease guidance.  Future minimum operating lease receipts as of September 28, 2019 were as follows:





 

 

Fiscal Year

 

 

2020

$

11,265,775 

2021

 

8,855,781 

2022

 

6,967,583 

2023

 

5,862,260 

2024

 

5,145,632 

Thereafter

 

13,723,315 

Total minimum future rental income

$

51,820,346 



v3.20.1
Accrued Expenses And Current Portion Of Other Long-Term Liabilities
6 Months Ended
Mar. 28, 2020
Accrued Expenses And Current Portion Of Other Long-Term Liabilities [Abstract]  
Accrued Expenses And Current Portion Of Other Long-Term Liabilities

E. ACCRUED EXPENSES AND CURRENT PORTION OF OTHER LONG-TERM LIABILITIES

 

Accrued expenses and current portion of other long-term liabilities consist of the following:





 

 

 

 

 

 



 

 

 

 

 

 



 

March 28,

 

September 28,



 

2020

 

2019

Property, payroll and other taxes payable

 

$

16,195,765 

 

$

20,273,626 

Salaries, wages and bonuses payable

 

 

35,907,085 

 

 

31,861,220 

Self-insurance liabilities

 

 

13,620,261 

 

 

13,146,292 

Interest payable

 

 

11,011,503 

 

 

13,342,260 

Other

 

 

4,115,542 

 

 

5,025,885 



 

$

80,850,156 

 

$

83,649,283 



Self-insurance liabilities are established for general liability claims, workers’ compensation and employee group medical and dental benefits based on claims filed and estimates of claims incurred but not reported. Effective October 1, 2019, the Company is insured for covered costs in excess of $1.0 million per occurrence for workers’ compensation and for general liability and $450,000 per covered person for medical care benefits for a policy year. The Company’s self-insurance reserves totaled $33.6 million and $31.0 million at March 28, 2020 and September 28, 2019, respectively.  Of this amount, $13.6 million is accounted for as a current liability and $20.0 million as a long-term liability, which is inclusive of $5.4 million of expected self-insurance recoveries from excess cost insurance or other sources that are recorded as a receivable at March 28, 2020.  At September 28, 2019, $13.1 million is accounted for as a current liability and $17.9 million as a long-term liability, which is inclusive of $3.6 million of expected self-insurance recoveries from excess cost insurance or other sources that are recorded as a receivable.  Employee insurance expense, including workers’ compensation and medical care benefits, net of employee contributions, totaled $7.8 million and $9.4 million for the three-month periods ended March 28, 2020 and March 30, 2019, respectively.  For the six-month periods ended March 28, 2020 and March 30, 2019 employee insurance expense, net of employee contributions totaled $18.3 million and $19.6 million, respectively.



The Company’s fuel operations contain underground tanks for the storage of gasoline and diesel fuel.  The Company reviewed FASB Accounting Standards Codification Topic 410 (“FASB ASC 410”) and determined we have a legal obligation to remove tanks at a point in the future and accordingly determined we have met the requirements of an asset retirement obligation.  The Company followed the FASB ASC 410 model for determining the asset retirement cost and asset retirement obligation.  The amounts recorded are immaterial for each fuel center as well as in the aggregate at March 28, 2020 and September 28, 2019.

 

v3.20.1
Related Party Transactions
6 Months Ended
Mar. 28, 2020
Related Party Transactions [Abstract]  
Related Party Transactions

M. RELATED PARTY TRANSACTIONS



In November 2019, the Company sold two land parcels for $4.3 million to a limited liability corporation having Robert P. Ingle II, the Company’s Chairman of the Board, as one of its principals with a financial interest in the transaction.  In accordance with the Company’s Related Party Transaction policy, independent fair market value appraisals were obtained to determine the selling price, and the Company’s Audit Committee approved the transactions. 



v3.20.1
Dividends (Narrative) (Details) - $ / shares
3 Months Ended 6 Months Ended
Jan. 16, 2020
Oct. 17, 2019
Mar. 28, 2020
Mar. 30, 2019
Mar. 28, 2020
Mar. 30, 2019
Class A Common Stock [Member]            
Dividends Payable [Line Items]            
Cash dividends per share of common stock     $ 0.165 $ 0.165 $ 0.33 $ 0.33
Class B Common Stock [Member]            
Dividends Payable [Line Items]            
Cash dividends per share of common stock     $ 0.150 $ 0.150 $ 0.30 $ 0.30
Dividend I [Member]            
Dividends Payable [Line Items]            
Dividend payment date         Oct. 17, 2019  
Dividend record date         Oct. 10, 2019  
Dividend I [Member] | Class A Common Stock [Member]            
Dividends Payable [Line Items]            
Cash dividends per share of common stock   $ 0.165        
Dividend I [Member] | Class B Common Stock [Member]            
Dividends Payable [Line Items]            
Cash dividends per share of common stock   $ 0.15        
Dividend II [Member]            
Dividends Payable [Line Items]            
Dividend payment date         Jan. 16, 2020  
Dividend record date         Jan. 09, 2020  
Dividend II [Member] | Class A Common Stock [Member]            
Dividends Payable [Line Items]            
Cash dividends per share of common stock $ 0.165          
Dividend II [Member] | Class B Common Stock [Member]            
Dividends Payable [Line Items]            
Cash dividends per share of common stock $ 0.15          
v3.20.1
Leases (Maturities Of Operating Lease Liabilities) (Details)
Mar. 28, 2020
USD ($)
Lessee, Operating Lease, Liability, Payment, Due [Abstract]  
Remainder of 2020 $ 4,993,363
2021 7,820,804
2022 7,408,458
2023 5,302,279
2024 2,908,072
Thereafter 27,187,517
Total lease payments 55,620,493
Less amount representing interest 12,992,441
Present value of lease liabilities $ 42,628,052
v3.20.1
Commitments And Contingencies
6 Months Ended
Mar. 28, 2020
Commitments And Contingencies [Abstract]  
Commitments And Contingencies

L. COMMITMENTS AND CONTINGENCIES



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 will not materially affect the Company’s financial position, the results of its operations, or its cash flows.



v3.20.1
Earnings Per Common Share
6 Months Ended
Mar. 28, 2020
Earnings Per Common Share [Abstract]  
Earnings Per Common Share

H. EARNINGS PER COMMON SHARE



The Company has two classes of common stock:  Class A which is publicly traded, and Class B, which has no public market.  The Class B Common Stock has restrictions on transfer; however, each share is convertible into one share of Class A Common Stock at any timeEach share of Class A Common Stock has one vote per share and each share of Class B Common Stock has ten votes per share.  Each share of Class A Common Stock is entitled to receive cash dividends equal to 110% of any cash dividend paid on Class B Common Stock. 



The Company calculates earnings per share using the two-class method in accordance with FASB ASC Topic 260. 



The two-class method of computing basic earnings per share for each period reflects the cash dividends declared per share for each class of stock, plus allocated undistributed earnings per share computed using the participation percentage which reflects the dividend rights of each class of stock.  Diluted earnings per share is calculated assuming the conversion of all shares of Class B Common Stock to shares of Class A Common Stock on a share-for-share basis. The tables below reconcile the numerators and denominators of basic and diluted earnings per share for current and prior periods.

 





 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 



 

Three Months Ended

 

Six Months Ended



 

March 28, 2020

 

March 28, 2020



 

Class A

 

Class B

 

Class A

 

Class B

Numerator: Allocated net income

 

 

               

 

 

 

 

 

 

 

 

 

Net income allocated, basic

 

$

29,017,203 

 

$

11,275,077 

 

$

41,740,166 

 

$

16,239,467 

Conversion of Class B to Class A shares

 

  

11,275,077 

 

 

 —

 

 

16,239,467 

 

 

 —

Net income allocated, diluted

 

$

40,292,280 

 

$

11,275,077 

 

$

57,979,633 

 

$

16,239,467 



 

  

 

 

 

 

 

 

 

 

 

 

Denominator: Weighted average shares outstanding

 

  

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding, basic

 

  

14,193,290 

 

 

6,066,486 

 

 

14,187,986 

 

 

6,071,790 

Conversion of Class B to Class A shares

 

  

6,066,486 

 

 

 —

 

 

6,071,790 

 

 

 —

Weighted average shares outstanding, diluted

 

  

20,259,776 

 

 

6,066,486 

 

 

20,259,776 

 

 

6,071,790 



 

 

 

 

 

 

 

 

 

 

 

 

Earnings per share

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

2.04 

 

$

1.86 

 

$

2.94 

 

$

2.68 

Diluted

 

$

1.99 

 

$

1.86 

 

$

2.86 

 

$

2.68 







 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 



 

Three Months Ended

 

Six Months Ended



 

March 30, 2019

 

March 30, 2019



 

Class A

 

Class B

 

Class A

 

Class B

Numerator: Allocated net income

 

 

 

 

 

 

 

 

 

 

 

 

Net income allocated, basic

 

$

10,773,567 

 

$

4,226,473 

 

$

26,678,194 

 

$

10,474,183 

Conversion of Class B to Class A shares

 

 

4,226,473 

 

 

                — 

 

 

10,474,183 

 

 

                — 

Net income allocated, diluted

 

$

15,000,040 

 

$

4,226,473 

 

$

37,152,377 

 

$

10,474,183 



 

 

 

 

 

 

 

 

 

 

 

 

Denominator: Weighted average shares outstanding

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding, basic

 

 

14,154,424 

 

 

6,105,352 

 

 

14,149,904 

 

 

6,109,872 

Conversion of Class B to Class A shares

 

 

6,105,352 

 

 

                — 

 

 

6,109,872 

 

 

                — 

Weighted average shares outstanding, diluted

 

 

20,259,776 

 

 

6,105,352 

 

 

20,259,776 

 

 

6,109,872 



 

 

 

 

 

 

 

 

 

 

 

 

Earnings per share

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.76 

 

$

0.69 

 

$

1.88 

 

$

1.71 

Diluted

 

$

0.74 

 

$

0.69 

 

$

1.83 

 

$

1.71 



v3.20.1
Income Taxes
6 Months Ended
Mar. 28, 2020
Income Taxes [Abstract]  
Income Taxes

D. INCOME TAXES



The Company’s effective tax rate differs from the federal statutory rate primarily as a result of state income taxes and tax credits.



The Company has unrecognized tax benefits and could incur interest and penalties related to uncertain tax positions. These amounts are insignificant and are not expected to significantly increase or decrease within the next twelve months.



v3.20.1
Earnings Per Common Share (Narrative) (Details)
6 Months Ended
Mar. 28, 2020
item
Earnings Per Share [Line Items]  
Conversion feature for Class B Common Stock each share is convertible into one share of Class A Common Stock at any time
Voting rights for shareholders Each share of Class A Common Stock has one vote per share and each share of Class B Common Stock has ten votes per share
Percentage of cash dividend on Class B Common Stock entitled to receive for each share of Class A Common Stock 110.00%
Class A Common Stock [Member]  
Earnings Per Share [Line Items]  
Number of votes for common stock 1
Class B Common Stock [Member]  
Earnings Per Share [Line Items]  
Number of votes for common stock 10
v3.20.1
Leases (Future Minimum Lease Payments Prior To Adoption Of ASU 2016-02) (Details)
Sep. 28, 2019
USD ($)
Leases [Abstract]  
2020 $ 9,756,136
2021 7,532,373
2022 6,692,661
2023 4,907,148
2024 2,583,629
Thereafter 27,187,519
Total minimum future rental commitments $ 58,659,466
v3.20.1
New Accounting Pronouncements (Narrative) (Details) - USD ($)
Mar. 28, 2020
Sep. 29, 2019
Right of use assets $ 39,683,044  
Operating lease liabilities $ 42,628,052  
Accounting Standards Update 2016-02 [Member]    
Right of use assets   $ 45,000,000
Operating lease liabilities   $ 48,100,000
v3.20.1
Condensed Consolidated Statements Of Income And Other Comprehensive Income - USD ($)
3 Months Ended 6 Months Ended
Mar. 28, 2020
Mar. 30, 2019
Mar. 28, 2020
Mar. 30, 2019
Net sales $ 1,145,482,049 $ 1,001,843,929 $ 2,223,836,986 $ 2,063,680,587
Cost of goods sold 853,894,303 757,543,262 1,674,759,514 1,560,969,126
Gross profit 291,587,746 244,300,667 549,077,472 502,711,461
Operating and administrative expenses 228,395,420 216,466,382 450,374,270 435,151,046
Gain from sale or disposal of assets 108,352 2,911,704 3,072,837 2,649,113
Income from operations 63,300,678 30,745,989 101,776,039 70,209,528
Other income, net 207,441 447,914 404,928 1,343,373
Interest expense 10,183,839 11,996,863 22,133,125 24,208,524
Loss on early extinguishment of debt     (3,719,209)  
Income before income taxes 53,324,280 19,197,040 76,328,633 47,344,377
Income tax expense 13,032,000 4,197,000 18,349,000 10,192,000
Net income 40,292,280 15,000,040 57,979,633 37,152,377
Other comprehensive expense:        
Change in fair value of interest rate swap (13,926,534) (598,764) (11,077,655) (154,727)
Income tax benefit 3,401,000 139,316 2,704,014 35,618
Other comprehensive expense, net of tax (10,525,534) (459,448) (8,373,641) (119,109)
Comprehensive income $ 29,766,746 $ 14,540,592 $ 49,605,992 $ 37,033,268
Class A Common Stock [Member]        
Per share amounts:        
Basic earnings per common share $ 2.04 $ 0.76 $ 2.94 $ 1.88
Diluted earnings per common share 1.99 0.74 2.86 1.83
Cash dividends per common share 0.165 0.165 0.33 0.33
Class B Common Stock [Member]        
Per share amounts:        
Basic earnings per common share 1.86 0.69 2.68 1.71
Diluted earnings per common share 1.86 0.69 2.68 1.71
Cash dividends per common share $ 0.150 $ 0.150 $ 0.30 $ 0.30
v3.20.1
Earnings Per Common Share (Tables)
6 Months Ended
Mar. 28, 2020
Earnings Per Common Share [Abstract]  
Reconciliation Of Numerators And Denominators Of Basic And Diluted Earnings Per Share



 

Three Months Ended

 

Six Months Ended



 

March 28, 2020

 

March 28, 2020



 

Class A

 

Class B

 

Class A

 

Class B

Numerator: Allocated net income

 

 

               

 

 

 

 

 

 

 

 

 

Net income allocated, basic

 

$

29,017,203 

 

$

11,275,077 

 

$

41,740,166 

 

$

16,239,467 

Conversion of Class B to Class A shares

 

  

11,275,077 

 

 

 —

 

 

16,239,467 

 

 

 —

Net income allocated, diluted

 

$

40,292,280 

 

$

11,275,077 

 

$

57,979,633 

 

$

16,239,467 



 

  

 

 

 

 

 

 

 

 

 

 

Denominator: Weighted average shares outstanding

 

  

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding, basic

 

  

14,193,290 

 

 

6,066,486 

 

 

14,187,986 

 

 

6,071,790 

Conversion of Class B to Class A shares

 

  

6,066,486 

 

 

 —

 

 

6,071,790 

 

 

 —

Weighted average shares outstanding, diluted

 

  

20,259,776 

 

 

6,066,486 

 

 

20,259,776 

 

 

6,071,790 



 

 

 

 

 

 

 

 

 

 

 

 

Earnings per share

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

2.04 

 

$

1.86 

 

$

2.94 

 

$

2.68 

Diluted

 

$

1.99 

 

$

1.86 

 

$

2.86 

 

$

2.68 







 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 



 

Three Months Ended

 

Six Months Ended



 

March 30, 2019

 

March 30, 2019



 

Class A

 

Class B

 

Class A

 

Class B

Numerator: Allocated net income

 

 

 

 

 

 

 

 

 

 

 

 

Net income allocated, basic

 

$

10,773,567 

 

$

4,226,473 

 

$

26,678,194 

 

$

10,474,183 

Conversion of Class B to Class A shares

 

 

4,226,473 

 

 

                — 

 

 

10,474,183 

 

 

                — 

Net income allocated, diluted

 

$

15,000,040 

 

$

4,226,473 

 

$

37,152,377 

 

$

10,474,183 



 

 

 

 

 

 

 

 

 

 

 

 

Denominator: Weighted average shares outstanding

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding, basic

 

 

14,154,424 

 

 

6,105,352 

 

 

14,149,904 

 

 

6,109,872 

Conversion of Class B to Class A shares

 

 

6,105,352 

 

 

                — 

 

 

6,109,872 

 

 

                — 

Weighted average shares outstanding, diluted

 

 

20,259,776 

 

 

6,105,352 

 

 

20,259,776 

 

 

6,109,872 



 

 

 

 

 

 

 

 

 

 

 

 

Earnings per share

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.76 

 

$

0.69 

 

$

1.88 

 

$

1.71 

Diluted

 

$

0.74 

 

$

0.69 

 

$

1.83 

 

$

1.71 



v3.20.1
New Accounting Pronouncements
6 Months Ended
Mar. 28, 2020
New Accounting Pronouncements [Abstract]  
New Accounting Pronouncements

B. NEW ACCOUNTING PRONOUNCEMENTS



On September 29, 2019, the Company adopted Financial Accounting Standards Board Accounting Standards Update ASU 2016-02, “Leases” (ASU 2016-02), which requires the Company as lessee to recognize most leases on the balance sheet thereby resulting in the recognition of right of use assets and lease liabilities for those leases currently classified as operating leases. The accounting for leases where the Company is the lessor remains largely unchanged. As both lessee and lessor, the Company adopted the standard utilizing the transition election to not restate comparative periods for the impact of adopting the standard.  The Company elected the practical expedient related to leases of twelve months or less.  The Company elected the package of transition expedients available for expired or existing contracts, which allowed the carryforward of historical assessments of (1) whether contracts are or contain leases, (2) lease classification and (3) initial direct costs.



The adoption of ASU 2016-02 resulted in the recognition of operating lease assets of $45.0 million and operating lease liabilities of $48.1 million, respectively as of September 29, 2019.  Included in the measurement of the new lease assets is the reclassification of certain balances historically recorded as deferred rent and lease obligations for closed stores.  The adoption of ASU 2016-02 did not materially affect the Company’s consolidated net income or cash flows.



See Note I for additional information required by ASU 2016-02.



v3.20.1
Fair Values Of Financial Instruments (Carrying Amount And Fair Value Of Debt, Interest Rate Swap And Non-Qualified Plan Assets) (Details) - Level 2 [Member]
$ in Thousands
Mar. 28, 2020
USD ($)
Carrying Amount [Member] | Non-Qualified Retirement Plan [Member]  
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]  
Retirement plan assets $ 13,666
Fair Value [Member] | Non-Qualified Retirement Plan [Member]  
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]  
Retirement plan assets 13,666
Senior Notes, net of unamortized original issue discount [Member] | Carrying Amount [Member]  
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]  
Debt 545,000
Senior Notes, net of unamortized original issue discount [Member] | Fair Value [Member]  
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]  
Debt 517,069
Recovery Zone Facility Bonds [Member] | Carrying Amount [Member]  
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]  
Debt 68,030
Recovery Zone Facility Bonds [Member] | Fair Value [Member]  
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]  
Debt 68,030
Interest Rate Swap Derivative Contract [Member] | Carrying Amount [Member]  
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]  
Derivative contract asset 12,752
Interest Rate Swap Derivative Contract [Member] | Fair Value [Member]  
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]  
Derivative contract asset 12,752
Secured Notes Payable And Other [Member] | Carrying Amount [Member]  
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]  
Debt 229,026
Secured Notes Payable And Other [Member] | Fair Value [Member]  
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]  
Debt $ 229,026
v3.20.1
Leases (Future Minimum Operating Lease Receipts) (Details)
Mar. 28, 2020
USD ($)
Lessor, Operating Lease, Payments, Fiscal Year Maturity [Abstract]  
Remainder of 2020 $ 5,880,856
2021 10,170,740
2022 8,279,676
2023 7,189,842
2024 6,369,072
Thereafter 15,419,999
Total minimum future rental income $ 53,310,185
v3.20.1
Long-Term Debt (Schedule Of Redemption Prices Of Senior Notes) (Details)
6 Months Ended
Mar. 28, 2020
2018  
Debt instrument, redemption price as percentage of principal amount 102.875%
2019  
Debt instrument, redemption price as percentage of principal amount 101.917%
2020  
Debt instrument, redemption price as percentage of principal amount 100.958%
2021 and thereafter  
Debt instrument, redemption price as percentage of principal amount 100.00%
v3.20.1
Leases (Narrative) (Details)
$ in Millions
3 Months Ended 6 Months Ended 12 Months Ended
Mar. 28, 2020
USD ($)
Mar. 28, 2020
USD ($)
Sep. 28, 2019
item
Leases [Abstract]      
Initial terms of leases 20 years 20 years  
Operating lease cost $ 2.3 $ 5.0  
Operating sub-lease rental income   $ 0.2  
Weighted average remaining lease term 14 years 3 months 18 days 14 years 3 months 18 days  
Operating lease weighted average discount rate 3.51% 3.51%  
Lessor non-cancelable operating lease agreements     20 years
Number of shopping centers owned and operated | item     79
v3.20.1
Segment Information
6 Months Ended
Mar. 28, 2020
Segment Information [Abstract]  
Segment Information

J. SEGMENT INFORMATION

 

The Company operates one primary business segment, retail grocery sales.  “Other” includes our remaining operations - fluid dairy and shopping center rentals.  Information about the Company’s operations by lines of business (amounts in thousands) is as follows: 





 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 



 

Three Months Ended

 

Six Months Ended



 

March 28,

 

March 30,

 

March 28,

 

March 30,



 

2020

 

2019

 

2020

 

2019

Revenues from unaffiliated customers:

 

 

 

 

 

 

 

 

 

 

 

 

Grocery

 

$

424,664 

 

$

351,558 

 

$

802,993 

 

$

727,197 

Non-foods

 

 

260,914 

 

 

223,067 

 

 

506,945 

 

 

455,564 

Perishables

 

 

304,105 

 

 

267,565 

 

 

584,910 

 

 

542,960 

Gasoline

 

 

121,932 

 

 

127,985 

 

 

261,044 

 

 

274,496 

Total Retail

 

$

1,111,615 

 

$

970,175 

 

$

2,155,892 

 

$

2,000,217 

Other

 

 

33,867 

 

 

31,669 

 

 

67,945 

 

 

63,464 

Total revenues from unaffiliated customers

 

$

1,145,482 

 

$

1,001,844 

 

$

2,223,837 

 

$

2,063,681 



 

 

 

 

 

 

 

 

 

 

 

 

Income from operations:

 

 

 

 

 

 

 

 

 

 

 

 

Retail

 

$

58,069 

 

$

26,434 

 

$

92,290 

 

$

62,051 

Other

 

 

5,232 

 

 

4,312 

 

 

9,486 

 

 

8,159 

Total income from operations

 

$

63,301 

 

$

30,746 

 

$

101,776 

 

$

70,210 

  





 

 

 

 

 

 



 

 

 

 

 

 



 

March 28,

 

September 28,



 

2020

 

2019

Assets:

 

 

 

 

 

 

Retail

 

$

1,792,303 

 

$

1,698,904 

Other

 

 

175,195 

 

 

170,720 

Elimination of intercompany receivable

 

 

(3,268)

 

 

(2,296)

Total assets

 

$

1,964,230 

 

$

1,867,328 





The grocery category includes grocery, dairy, and frozen foods.

The non-foods category includes alcoholic beverages, tobacco, pharmacy, and health/beauty/cosmetic products.

The perishables category includes meat, produce, deli and bakery.



For the three-month periods ended March 28, 2020 and March 30, 2019, respectively, the fluid dairy operation had $12.3 million and $10.2 million in sales to the grocery sales segment.  The fluid dairy had $23.8 million and $21.2 million in sales to the retail grocery segment for the six-month periods ended March 28, 2020 and March 30, 2019, respectively.  These sales have been eliminated in consolidation and are excluded from the amounts in the table above.

v3.20.1
Long-Term Debt
6 Months Ended
Mar. 28, 2020
Long-Term Debt [Abstract]  
Long-Term Debt

F. LONG-TERM DEBT

 

In June 2013, the Company issued $700.0 million aggregate principal amount of senior notes due in 2023 (the “Notes”).  The Notes bear an interest rate of 5.750% per annum and were issued at par.



The Company may redeem all or a portion of the Notes at any time at the following redemption prices (expressed as percentages of the principal amount), if redeemed during the 12-month period beginning June 15 of the years indicated below:





 



 

Year

 

2018

102.875% 

2019

101.917% 

2020

100.958% 

2021 and thereafter

100.000% 



In November 2019, the Company closed a $155 million ten-year amortizing real estate loan (the “Loan”) and issued notice to redeem a like principal amount of the Notes.  The Loan was funded and the Notes were redeemed thirty days after the redemption notice in December 2019.  The Notes were redeemed at 101.917% of par value, and the Company recognized debt extinguishment costs of approximately $3.7 million during the quarter ended December 28, 2019.  The Loan matures January 31, 2030 and has monthly principal payments of $0.65 million plus floating rate interest based on LIBOR. 



The Company has a $175.0 million line of credit (the “Line”) that matures in September 2022.  The Line provides the Company with various interest rate options based on the prime rate, the Federal Funds Rate, or the London Interbank Offering Rate (“LIBOR”). The Line allows the Company to issue up to $20.0 million in unused letters of credit, of which $9.1 million of unused letters of credit were issued at March 28, 2020.  The Company is not required to maintain compensating balances in connection with the Line.  At March 28, 2020, the Company had no borrowings outstanding under the Line. 



In December 2010, the Company completed the funding of $99.7 million of bonds (the Bonds”) for construction of new warehouse and distribution space adjacent to its existing space in Buncombe County, North Carolina (the “Project”).  The final maturity date of the Bonds is January 1, 2036.

 

Under a Continuing Covenant and Collateral Agency Agreement (the “Covenant Agreement”) between certain financial institutions and the Company, the financial institutions would hold the Bonds until September 2026, subject to certain events.  Mandatory redemption of the Bonds by the Company in the annual amount of $4.5 million began on January 1, 2014.  The Company may redeem the Bonds without penalty or premium at any time prior to September 26, 2026.

 

Interest earned by bondholders on the Bonds is exempt from Federal and North Carolina income taxation.  The interest rate on the Bonds is equal to one-month LIBOR (adjusted monthly) plus a credit spread, adjusted to reflect the income tax exemption.    



The Company’s obligation to repay the Bonds is collateralized by the Project.  Additional collateral was required in order to meet certain loan to value criteria in the Covenant Agreement.  The Covenant Agreement incorporates substantially all financial covenants included in the Line.



The Company has an interest rate swap agreement for a current notional amount of $45.5 million at a fixed rate of 3.92%.  Under this agreement, the Company pays monthly the fixed rate of 3.92% and receives the one-month LIBOR plus 1.65%.  The interest rate swap effectively hedges floating rate debt in the same amount as the current notional amount of the interest swap.  Both the floating rate debt and the interest rate swap have monthly principal amortization of $0.5 million and mature October 1, 2027.



The Company has an interest rate swap agreement for a current notional amount of $151.8 million at a fixed rate of 2.95%.  Under this agreement, the Company pays monthly the fixed rate of 2.95% and receives the one-month LIBOR plus 1.50%.  The interest rate swap effectively hedges floating rate debt in the same amount as the current notional amount of the interest swap.  Both the floating rate debt and the interest rate swap have monthly principal amortization of $0.65 million and mature in fiscal year 2030. 

 

The Company recognizes differences between the variable rate interest payments and the fixed interest rate settlements with the swap counterparties as an adjustment to interest expense each period over the life of the swaps.  The Company has designated the swaps as cash flow hedges and records the changes in the estimated fair value of the swaps to other comprehensive income each period.  For the three- and six-month periods ended March 28, 2020, the Company recorded $10.5 million and $8.4 million of other comprehensive expense, respectively, net of income taxes, in its Consolidated Statements of Comprehensive income.  Unrealized losses of $12.8 million are recorded as a liability at fair value in the line “Other Long Term Liabilities” on the Consolidated Balance Sheet as of March 28, 2020.  For the three- and six-month periods ended March 30, 2019, the Company recorded $0.5 million and $0.1 million of other comprehensive expense, respectively, net of income taxes, in its Consolidated Statements of Comprehensive income.  Unrealized losses of $0.1 million are recorded as a liability at fair value in the line “Other Long Term Liabilities” on the Consolidated Balance Sheet as of March 30, 2019.



The Company’s long-term debt agreements generally contain provisions that under certain circumstances would permit lending institutions to terminate or withdraw their respective extensions of credit to the Company. Included among the triggering factors permitting the termination or withdrawal of the Line to the Company are certain events of default, including both monetary and non-monetary defaults, the initiation of bankruptcy or insolvency proceedings, and the failure of the Company to meet certain financial covenants designated in its respective loan documents. The Company was in compliance with all financial covenants at March 28, 2020.



The Company’s long-term debt agreements generally have cross-default provisions which could result in the acceleration of payments due under all long-term debt agreements in the event of default under any one instrument.



At March 28, 2020, property and equipment with an undepreciated cost of approximately $363.5 million was pledged as collateral for long-term debt. Long-term debt and Line agreements contain various restrictive covenants requiring, among other things, minimum levels of net worth and maintenance of certain financial ratios. At March 28, 2020, the Company had excess net worth totaling $143.4 million calculated under covenants in the Notes, the Bonds, the Loan, and the Line.  This amount is available to pay dividends; however, certain loan agreements containing provisions outlining minimum tangible net worth requirements restrict the ability of the Company to pay cash dividends in excess of the current annual per share dividends paid on the Company’s Class A and Class B Common Stock. Further, the Company is prevented from paying cash dividends at any time that it is in default under the indenture governing the Notes. In addition, the terms of the indenture may restrict the ability of the Company to pay additional cash dividends based on certain financial parameters.

v3.20.1
Segment Information (Tables)
6 Months Ended
Mar. 28, 2020
Segment Information [Abstract]  
Operations By Lines Of Business





 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 



 

Three Months Ended

 

Six Months Ended



 

March 28,

 

March 30,

 

March 28,

 

March 30,



 

2020

 

2019

 

2020

 

2019

Revenues from unaffiliated customers:

 

 

 

 

 

 

 

 

 

 

 

 

Grocery

 

$

424,664 

 

$

351,558 

 

$

802,993 

 

$

727,197 

Non-foods

 

 

260,914 

 

 

223,067 

 

 

506,945 

 

 

455,564 

Perishables

 

 

304,105 

 

 

267,565 

 

 

584,910 

 

 

542,960 

Gasoline

 

 

121,932 

 

 

127,985 

 

 

261,044 

 

 

274,496 

Total Retail

 

$

1,111,615 

 

$

970,175 

 

$

2,155,892 

 

$

2,000,217 

Other

 

 

33,867 

 

 

31,669 

 

 

67,945 

 

 

63,464 

Total revenues from unaffiliated customers

 

$

1,145,482 

 

$

1,001,844 

 

$

2,223,837 

 

$

2,063,681 



 

 

 

 

 

 

 

 

 

 

 

 

Income from operations:

 

 

 

 

 

 

 

 

 

 

 

 

Retail

 

$

58,069 

 

$

26,434 

 

$

92,290 

 

$

62,051 

Other

 

 

5,232 

 

 

4,312 

 

 

9,486 

 

 

8,159 

Total income from operations

 

$

63,301 

 

$

30,746 

 

$

101,776 

 

$

70,210 

  





 

 

 

 

 

 



 

 

 

 

 

 



 

March 28,

 

September 28,



 

2020

 

2019

Assets:

 

 

 

 

 

 

Retail

 

$

1,792,303 

 

$

1,698,904 

Other

 

 

175,195 

 

 

170,720 

Elimination of intercompany receivable

 

 

(3,268)

 

 

(2,296)

Total assets

 

$

1,964,230 

 

$

1,867,328 



v3.20.1
Condensed Consolidated Statements Of Cash Flows - USD ($)
6 Months Ended
Mar. 28, 2020
Mar. 30, 2019
Cash Flows from Operating Activities:    
Net income $ 57,979,633 $ 37,152,377
Adjustments to reconcile net income to net cash provided by operating activities:    
Depreciation and amortization expense 57,357,438 55,607,103
Non cash operating lease cost 5,332,302  
Gain from sale or disposal of assets (3,072,837) (2,649,113)
Loss on early extinguishment of debt 3,719,209  
Receipt of advance payments on purchases contracts 500,000 1,000,000
Recognition of advance payments on purchases contracts (1,309,835) (1,265,788)
Deferred income taxes 499,000 7,141,000
Changes in operating assets and liabilities:    
Receivables (10,321,941) (3,531,623)
Inventory 58,860,562 6,440,232
Other assets (4,505,320) 16,359,326
Operating lease liabilities (5,516,359)  
Accounts payable and accrued expenses 15,836,348 (8,041,671)
Net Cash Provided by Operating Activities 175,358,200 108,211,843
Cash Flows From Investing Activities:    
Proceeds from sales of property and equipment 5,321,389 7,283,055
Capital expenditures (56,824,266) (94,219,647)
Net Cash Used by Investing Activities (51,502,877) (86,936,592)
Cash Flows from Financing Activities:    
Proceeds from short-term borrowings   300,186,059
Payments on short-term borrowings   (299,504,655)
Debt issuance costs (854,793)  
Proceeds from new long term debt 155,000,000  
Principal payments on long-term borrowings (165,678,517) (9,310,958)
Prepayment penalties on debt extinguishment (2,971,350)  
Dividends paid (6,503,535) (6,502,300)
Net Cash Used by Financing Activities (21,008,195) (15,131,854)
Net Increase in Cash and Cash Equivalents 102,847,128 6,143,397
Cash and cash equivalents at beginning of period 42,125,105 10,537,303
Cash and Cash Equivalents at End of Period $ 144,972,233 $ 16,680,700
v3.20.1
Condensed Consolidated Balance Sheets - USD ($)
Mar. 28, 2020
Sep. 28, 2019
Current Assets:    
Cash and cash equivalents $ 144,972,233 $ 42,125,105
Receivables - net 82,273,244 71,951,303
Inventories 315,268,498 374,129,060
Other current assets 13,522,582 8,897,903
Total Current Assets 556,036,557 497,103,371
Property and Equipment – Net 1,342,672,327 1,344,267,315
Operating lease right of use assets 39,683,044  
Other Assets 25,838,322 25,957,682
Total Assets 1,964,230,250 1,867,328,368
Current Liabilities:    
Current portion of long-term debt 38,078,268 12,600,131
Current portion of operating lease liabilities 7,678,403  
Accounts payable - trade 168,260,158 151,329,975
Accrued expenses and current portion of other long-term liabilities 80,850,156 83,649,283
Total Current Liabilities 294,866,985 247,579,389
Deferred Income Taxes 73,294,000 75,499,000
Long-Term Debt 803,977,294 839,637,691
Noncurrent operating lease liabilities 34,949,649  
Other Long-Term Liabilities 51,317,259 41,889,682
Total Liabilities 1,258,405,187 1,204,605,762
Stockholders’ Equity    
Preferred stock, $0.05 par value; 10,000,000 shares authorized; no shares issued
Paid-in capital in excess of par value 12,311,249 12,311,249
Accumulated other comprehensive income (9,639,291) (1,265,650)
Retained earnings 702,140,116 650,664,018
Total Stockholders’ Equity 705,825,063 662,722,606
Total Liabilities and Stockholders’ Equity 1,964,230,250 1,867,328,368
Class A Common Stock [Member]    
Stockholders’ Equity    
Common stocks 709,668 709,024
Class B Common Stock [Member]    
Stockholders’ Equity    
Common stocks $ 303,321 $ 303,965
v3.20.1
Accrued Expenses And Current Portion Of Other Long-Term Liabilities (Tables)
6 Months Ended
Mar. 28, 2020
Accrued Expenses And Current Portion Of Other Long-Term Liabilities [Abstract]  
Accrued Expenses And Current Portion Of Other Long-Term Liabilities



 

 

 

 

 

 



 

 

 

 

 

 



 

March 28,

 

September 28,



 

2020

 

2019

Property, payroll and other taxes payable

 

$

16,195,765 

 

$

20,273,626 

Salaries, wages and bonuses payable

 

 

35,907,085 

 

 

31,861,220 

Self-insurance liabilities

 

 

13,620,261 

 

 

13,146,292 

Interest payable

 

 

11,011,503 

 

 

13,342,260 

Other

 

 

4,115,542 

 

 

5,025,885 



 

$

80,850,156 

 

$

83,649,283 



v3.20.1
Accrued Expenses And Current Portion Of Other Long-Term Liabilities (Narrative) (Details) - USD ($)
$ in Thousands
3 Months Ended 6 Months Ended
Mar. 28, 2020
Mar. 30, 2019
Mar. 28, 2020
Mar. 30, 2019
Oct. 01, 2019
Sep. 28, 2019
Accrued Expenses And Current Portion Of Other Long-Term Liabilities [Abstract]            
Workers' compensation per occurrence covered under insurance cost         $ 1,000  
Medical care benefits per person covered under insurance cost         $ 450  
Self insurance liabilities $ 33,600   $ 33,600     $ 31,000
Self insurance liabilities, current 13,600   13,600     13,100
Self insurance liabilities, noncurrent 20,000   20,000     17,900
Receivable for expected self-insurance recoveries from excess cost insurance 5,400   5,400     $ 3,600
Employee insurance expense $ 7,800 $ 9,400 $ 18,300 $ 19,600    
v3.20.1
Segment Information (Narrative) (Details)
$ in Millions
3 Months Ended 6 Months Ended
Mar. 28, 2020
USD ($)
Mar. 30, 2019
USD ($)
Mar. 28, 2020
USD ($)
segment
Mar. 30, 2019
USD ($)
Segment Reporting Information [Line Items]        
Number of operating segments | segment     1  
Fluid dairy [Member]        
Segment Reporting Information [Line Items]        
Sales eliminated in consolidation | $ $ 12.3 $ 10.2 $ 23.8 $ 21.2
v3.20.1
Accrued Expenses And Current Portion Of Other Long-Term Liabilities (Accrued Expenses And Current Portion Of Other Long-Term Liabilities) (Details) - USD ($)
Mar. 28, 2020
Sep. 28, 2019
Accrued Expenses And Current Portion Of Other Long-Term Liabilities [Abstract]    
Property, payroll and other taxes payable $ 16,195,765 $ 20,273,626
Salaries, wages and bonuses payable 35,907,085 31,861,220
Self-insurance liabilities 13,620,261 13,146,292
Interest payable 11,011,503 13,342,260
Other 4,115,542 5,025,885
Total $ 80,850,156 $ 83,649,283
v3.20.1
Fair Values Of Financial Instruments (Tables)
6 Months Ended
Mar. 28, 2020
Fair Values Of Financial Instruments [Abstract]  
Carrying Amount And Fair Value Of Debt, Interest Rate Swap And Non-Qualified Plan Assets



 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 



 

Carrying

 

 

 

  

Fair Value



 

Amount

 

Fair Value

 

Measurements

Senior Notes

 

$

545,000 

 

$

517,069 

 

Level 2

Facility Bonds

 

 

68,030 

 

 

68,030 

 

Level 2

Secured notes payable and other

 

 

229,026 

 

 

229,026 

 

Level 2

Interest rate swap derivative contracts

 

 

12,752 

 

 

12,752 

 

Level 2

Non-qualified retirement plan assets

 

 

13,666 

 

 

13,666 

 

Level 2



v3.20.1
Basis Of Preparation
6 Months Ended
Mar. 28, 2020
Basis Of Preparation [Abstract]  
Basis Of Preparation

A. BASIS OF PREPARATION



In the opinion of management, the accompanying unaudited interim financial statements contain all adjustments necessary to present fairly the Company’s financial position as of March 28, 2020, and the results of operations and changes in stockholders’ equity for the three-month and six-month periods ended March 28, 2020 and March 30, 2019, and cash flows for the six months ended March 28, 2020 and March 30, 2019. The adjustments made are of a normal recurring nature. Certain information and footnote disclosures normally included in the annual financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission for Form 10-Q. It is suggested that these unaudited interim financial statements be read in conjunction with the audited financial statements and the notes thereto included in the Annual Report on Form 10-K for the year ended September 28, 2019, filed by the Company under the Securities Exchange Act of 1934 on December 10, 2019.

 

The results of operations for the three-month and six-month periods ended March 28, 2020 are not necessarily indicative of the results to be expected for the full fiscal year.



v3.20.1
Condensed Consolidated Balance Sheets (Parenthetical) - $ / shares
Mar. 28, 2020
Sep. 28, 2019
Preferred stock, par value $ 0.05 $ 0.05
Preferred stock, shares authorized 10,000,000 10,000,000
Preferred stock, shares issued 0 0
Class A Common Stock [Member]    
Common stock, par value $ 0.05 $ 0.05
Common stock, shares authorized 150,000,000 150,000,000
Common stock, shares issued 14,193,360 14,180,485
Common stock, shares outstanding 14,193,360 14,180,485
Class B Common Stock [Member]    
Common stock, par value $ 0.05 $ 0.05
Common stock, shares authorized 100,000,000 100,000,000
Common stock, shares issued 6,066,416 6,079,291
Common stock, shares outstanding 6,066,416 6,079,291
v3.20.1
Long-Term Debt (Tables)
6 Months Ended
Mar. 28, 2020
Long-Term Debt [Abstract]  
Schedule Of Redemption Prices Of Senior Notes



 



 

Year

 

2018

102.875% 

2019

101.917% 

2020

100.958% 

2021 and thereafter

100.000% 



v3.20.1
Leases (Future Minimum Operating Lease Receipts Prior To Adoption Of ASU 2016-02) (Details)
Sep. 28, 2019
USD ($)
Operating Leases, Future Minimum Payments Receivable [Abstract]  
2020 $ 11,265,775
2021 8,855,781
2022 6,967,583
2023 5,862,260
2024 5,145,632
Thereafter 13,723,315
Total minimum future rental income $ 51,820,346
v3.20.1
Related Party Transactions (Narrative) (Details) - Robert P. Ingle II, Chairman of Board [Member]
$ in Millions
1 Months Ended
Nov. 30, 2019
USD ($)
item
Related Party Transaction [Line Items]  
Number of land parcels sold | item 2
Related party transaction, other revenues from transactions with related party | $ $ 4.3
v3.20.1
Long-Term Debt (Narrative) (Details) - USD ($)
3 Months Ended 6 Months Ended
Nov. 01, 2019
Mar. 28, 2020
Dec. 28, 2019
Mar. 30, 2019
Dec. 29, 2018
Mar. 28, 2020
Mar. 30, 2019
Nov. 30, 2019
Sep. 28, 2019
Jun. 30, 2013
Dec. 31, 2010
Debt Instrument [Line Items]                      
Loss on early extinguishment of debt           $ (3,719,209)          
Other comprehensive income, net of tax   $ (10,525,534) $ 2,151,893 $ (459,448) $ 340,339 (8,373,641) $ (119,109)        
Other Assets   25,838,322       25,838,322     $ 25,957,682    
Annual amount of redemption of bonds   4,500,000       $ 4,500,000          
Mandatory bonds redemption beginning period           Jan. 01, 2014          
Mandatory bonds redemption period end date           Sep. 26, 2026          
Payment of debt extinguishment costs           $ 2,971,350          
Other comprehensive expense net of income taxes   (13,926,534)   (598,764)   (11,077,655) (154,727)        
Property and equipment with undepreciated cost pledge as collateral for long term debt   363,500,000       363,500,000          
Excess net worth calculated under covenants in the Notes, the Bonds, and the Line   143,400,000       143,400,000          
Interest Rate Swap Two [Member]                      
Debt Instrument [Line Items]                      
Derivative notional amount   $ 151,800,000       $ 151,800,000          
Derivative, fixed interest rate   2.95%       2.95%          
Interest Rate Swap Two [Member] | One-Month LIBOR [Member]                      
Debt Instrument [Line Items]                      
Debt instrument variable interest rate           1.50%          
Interest Rate Swap [Member]                      
Debt Instrument [Line Items]                      
Derivative notional amount   $ 45,500,000       $ 45,500,000          
Derivative, fixed interest rate   3.92%       3.92%          
Other comprehensive expense net of income taxes   $ 10,500,000   $ 500,000   $ 8,400,000 100,000        
Unrealized gain on cash flow hedge           $ 12,800,000 $ 100,000        
Interest Rate Swap [Member] | One-Month LIBOR [Member]                      
Debt Instrument [Line Items]                      
Debt instrument variable interest rate           1.65%          
Senior Notes, Interest Rate of 5.75%, Maturing 2023 [Member]                      
Debt Instrument [Line Items]                      
Debt instrument principal amount                   $ 700,000,000  
Debt instrument, redemption price as percentage of principal amount           101.917%          
Loan redeption period after rdemption notice 30 days                    
Maturity period of senior notes           2023          
Debt instrument stated interest rate                   5.75%  
Secured Debt [Member] | Interest Rate Swap Two [Member]                      
Debt Instrument [Line Items]                      
Monthly principal amortization           $ 650,000          
Secured Debt [Member] | Interest Rate Swap [Member]                      
Debt Instrument [Line Items]                      
Debt maturity date           Oct. 01, 2027          
Monthly principal amortization           $ 500,000          
Recovery Zone Facility Bonds [Member]                      
Debt Instrument [Line Items]                      
Debt maturity date           Jan. 01, 2036          
Description of interest rate on bonds           The interest rate on the Bonds is equal to one-month LIBOR (adjusted monthly) plus a credit spread, adjusted to reflect the income tax exemption.          
Total amount of bonds funded                     $ 99,700,000
Credit Line [Member]                      
Debt Instrument [Line Items]                      
Line of credit facility borrowing capacity   175,000,000       $ 175,000,000          
Borrowings outstanding   0       $ 0          
Line of credit facility expiration date           Sep. 01, 2022          
Credit Line [Member] | Unused Letters Of Credit [Member]                      
Debt Instrument [Line Items]                      
Line of credit facility borrowing capacity   20,000,000       $ 20,000,000          
Unused letters of credit issued   $ 9,100,000       $ 9,100,000          
Real Estate Loan (the “Loan”) [Member]                      
Debt Instrument [Line Items]                      
Debt instrument principal amount               $ 155,000,000      
Debt instrument term 10 years                    
Debt instrument, periodic principal payment $ 650,000                    
Debt maturity date           Jan. 31, 2030          
Real Estate Loan (the “Loan”) [Member] | Senior Notes, Interest Rate of 5.75%, Maturing 2023 [Member]                      
Debt Instrument [Line Items]                      
Loss on early extinguishment of debt           $ 3,700,000          
v3.20.1
Earnings Per Common Share (Reconciliation Of Numerators And Denominators Of Basic And Diluted Earnings Per Share) (Details) - USD ($)
3 Months Ended 6 Months Ended
Mar. 28, 2020
Mar. 30, 2019
Mar. 28, 2020
Mar. 30, 2019
Class A Common Stock [Member]        
Schedule Of Calculation Of Numerator And Denominator In Earnings Per Share [Line Items]        
Net income allocated, basic $ 29,017,203 $ 10,773,567 $ 41,740,166 $ 26,678,194
Conversion of Class B to Class A shares 11,275,077 4,226,473 16,239,467 10,474,183
Net income allocated, diluted $ 40,292,280 $ 15,000,040 $ 57,979,633 $ 37,152,377
Weighted average shares outstanding, basic 14,193,290 14,154,424 14,187,986 14,149,904
Conversion of Class B to Class A shares 6,066,486 6,105,352 6,071,790 6,109,872
Weighted average shares outstanding, diluted 20,259,776 20,259,776 20,259,776 20,259,776
Earnings per share, Basic $ 2.04 $ 0.76 $ 2.94 $ 1.88
Earnings per share, Diluted $ 1.99 $ 0.74 $ 2.86 $ 1.83
Class B Common Stock [Member]        
Schedule Of Calculation Of Numerator And Denominator In Earnings Per Share [Line Items]        
Net income allocated, basic $ 11,275,077 $ 4,226,473 $ 16,239,467 $ 10,474,183
Net income allocated, diluted $ 11,275,077 $ 4,226,473 $ 16,239,467 $ 10,474,183
Weighted average shares outstanding, basic 6,066,486 6,105,352 6,071,790 6,109,872
Weighted average shares outstanding, diluted 6,066,486 6,105,352 6,071,790 6,109,872
Earnings per share, Basic $ 1.86 $ 0.69 $ 2.68 $ 1.71
Earnings per share, Diluted $ 1.86 $ 0.69 $ 2.68 $ 1.71
v3.20.1
Leases (Schedule Of Rental Income) (Details) - USD ($)
3 Months Ended 6 Months Ended
Mar. 28, 2020
Mar. 28, 2020
Operating Leases, Income Statement, Lease Revenue [Abstract]    
Base rentals $ 4,144,319 $ 7,964,639
Variable rentals 69,665 139,330
Total 4,213,984 8,103,969
Depreciation on owned properties leased to others (1,328,968) (2,657,936)
Other shopping center expenses (899,763) (1,750,748)
Total $ 1,985,253 $ 3,695,285
v3.20.1
Fair Values Of Financial Instruments
6 Months Ended
Mar. 28, 2020
Fair Values Of Financial Instruments [Abstract]  
Fair Values Of Financial Instruments

K. FAIR VALUES OF FINANCIAL INSTRUMENTS



The carrying amounts for cash and cash equivalents, accounts receivable and accounts payable approximate fair value due to the short-term maturity of these instruments.



The fair value of the Company’s debt and interest rate swaps are estimated using valuation techniques under the accounting guidance related to fair value measurements based on observable and unobservable inputs.  Observable inputs reflect readily available data from independent sources, while unobservable inputs reflect the Company’s market assumptions.  These inputs are classified into the following hierarchy:



Level 1 Inputs  –

Quoted prices for identical assets or liabilities in active markets.



 

Level 2 Inputs  –

Quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; and model-derived valuations whose inputs are observable or whose significant value drivers are observable.



 

Level 3 Inputs  –

Pricing inputs are unobservable for the assets or liabilities and include situations where there is little, if any, market activity for the assets or liabilities.  The inputs into the determination of fair value require significant management judgment or estimation.



The carrying amount and fair value of the Company’s debt, interest rate swaps, and non-qualified retirement plan assets at March 28, 2020 are as follows (in thousands):





 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 



 

Carrying

 

 

 

  

Fair Value



 

Amount

 

Fair Value

 

Measurements

Senior Notes

 

$

545,000 

 

$

517,069 

 

Level 2

Facility Bonds

 

 

68,030 

 

 

68,030 

 

Level 2

Secured notes payable and other

 

 

229,026 

 

 

229,026 

 

Level 2

Interest rate swap derivative contracts

 

 

12,752 

 

 

12,752 

 

Level 2

Non-qualified retirement plan assets

 

 

13,666 

 

 

13,666 

 

Level 2



The fair values for Level 2 measurements were determined primarily using market yields and taking into consideration the underlying terms of the instrument.

v3.20.1
Dividends
6 Months Ended
Mar. 28, 2020
Dividends [Abstract]  
Dividends

G. DIVIDENDS

 

The Company paid cash dividends of $0.165 for each share of Class A Common Stock and $0.15 for each share of Class B Common Stock on October 17, 2019 to stockholders of record on October 10, 2019



The Company paid cash dividends of $0.165 for each share of Class A Common Stock and $0.15 for each share of Class B Common Stock on January 16, 2020 to stockholders of record on January 9, 2020.



For additional information regarding the dividend rights of the Class A Common Stock and Class B Common Stock, please see Note 8, “Stockholders’ Equity” to the Consolidated Financial Statements of the Annual Report on Form 10-K filed by the Company under the Securities Exchange Act of 1934 on December 10, 2019.