Company Quick10K Filing
Ingles Markets
Price1.00 EPS-81,580,662
Shares-0 P/E-0
MCap-0 P/FCF-0
Net Debt810 EBIT154
TEV810 TEV/EBIT5
TTM 2019-09-28, in MM, except price, ratios
10-Q 2020-03-28 Filed 2020-05-07
10-Q 2019-12-28 Filed 2020-02-06
10-K 2019-09-28 Filed 2019-12-10
10-Q 2019-06-29 Filed 2019-08-08
10-Q 2019-03-30 Filed 2019-05-08
10-Q 2018-12-29 Filed 2019-02-07
10-K 2018-09-29 Filed 2018-12-07
10-Q 2018-06-30 Filed 2018-08-09
10-Q 2018-03-31 Filed 2018-05-09
10-Q 2017-12-30 Filed 2018-02-08
10-K 2017-09-30 Filed 2017-12-06
10-Q 2017-06-24 Filed 2017-08-02
10-Q 2017-03-25 Filed 2017-05-03
10-Q 2016-12-24 Filed 2017-02-01
10-K 2016-09-24 Filed 2016-12-16
10-Q 2016-06-25 Filed 2016-08-03
10-Q 2016-03-26 Filed 2016-05-05
10-Q 2015-12-26 Filed 2016-02-04
10-K 2015-09-26 Filed 2015-12-10
10-Q 2015-06-27 Filed 2015-08-04
10-Q 2015-03-28 Filed 2015-05-06
10-Q 2014-12-27 Filed 2015-02-05
10-K 2014-09-27 Filed 2014-12-16
10-Q 2014-06-28 Filed 2014-08-07
10-Q 2014-03-29 Filed 2014-05-06
10-Q 2013-12-28 Filed 2014-02-04
10-K 2013-09-28 Filed 2013-12-12
10-Q 2013-06-29 Filed 2013-08-06
10-Q 2013-03-30 Filed 2013-05-08
10-Q 2012-12-29 Filed 2013-02-07
10-K 2012-09-29 Filed 2012-12-26
10-Q 2012-06-23 Filed 2012-08-01
10-Q 2012-03-24 Filed 2012-05-03
10-Q 2011-12-24 Filed 2012-01-30
10-K 2011-09-24 Filed 2011-12-02
10-Q 2011-06-25 Filed 2011-08-09
10-Q 2011-03-26 Filed 2011-04-29
10-Q 2010-12-25 Filed 2011-01-31
10-K 2010-09-25 Filed 2010-11-30
10-Q 2010-06-26 Filed 2010-07-30
10-Q 2010-03-27 Filed 2010-04-30
10-Q 2009-12-26 Filed 2010-01-29
8-K 2020-06-08
8-K 2020-05-07
8-K 2020-02-18
8-K 2020-02-06
8-K 2019-12-10
8-K 2019-11-22
8-K 2019-08-08
8-K 2019-05-08
8-K 2019-02-15
8-K 2019-02-07
8-K 2018-12-07
8-K 2018-08-09
8-K 2018-05-10
8-K 2018-04-26
8-K 2018-02-09

IMKT 10Q Quarterly Report

Part I. Financial Information
Item 1. Financial Statements
Item 1A. Risk Factors
Item 2. Management’S Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II. Other Information
Item 6. Exhibits
EX-31.1 imkt-20200328xex31_1.htm
EX-31.2 imkt-20200328xex31_2.htm
EX-32.1 imkt-20200328xex32_1.htm
EX-32.2 imkt-20200328xex32_2.htm

Ingles Markets Earnings 2020-03-28

Balance SheetIncome StatementCash Flow
1.91.51.10.80.40.02012201420172020
Assets, Equity
1.10.90.60.40.1-0.12012201420172020
Rev, G Profit, Net Income
0.10.10.0-0.0-0.1-0.12012201420172020
Ops, Inv, Fin

10-Q 1 imkt-20200328x10q.htm 10-Q 20200328 Q2 10Q

 

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: