Company Quick10K Filing
Quick10K
Ingles Markets
10-Q 2019-06-29 Quarter: 2019-06-29
10-Q 2019-03-30 Quarter: 2019-03-30
10-Q 2018-12-29 Quarter: 2018-12-29
10-K 2018-09-29 Annual: 2018-09-29
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-Q 2017-12-30 Quarter: 2017-12-30
10-K 2017-09-30 Annual: 2017-09-30
10-Q 2017-06-24 Quarter: 2017-06-24
10-Q 2017-03-25 Quarter: 2017-03-25
10-Q 2016-12-24 Quarter: 2016-12-24
10-K 2016-09-24 Annual: 2016-09-24
10-Q 2016-06-25 Quarter: 2016-06-25
10-Q 2016-03-26 Quarter: 2016-03-26
10-Q 2015-12-26 Quarter: 2015-12-26
10-K 2015-09-26 Annual: 2015-09-26
10-Q 2015-06-27 Quarter: 2015-06-27
10-Q 2015-03-28 Quarter: 2015-03-28
10-Q 2014-12-27 Quarter: 2014-12-27
10-K 2014-09-27 Annual: 2014-09-27
10-Q 2014-06-28 Quarter: 2014-06-28
10-Q 2014-03-29 Quarter: 2014-03-29
10-Q 2013-12-28 Quarter: 2013-12-28
8-K 2019-08-08 Earnings, Exhibits
8-K 2019-05-08 Earnings
8-K 2019-02-15 Shareholder Vote
8-K 2019-02-07 Earnings, Exhibits
8-K 2018-12-07 Earnings
8-K 2018-08-09 Earnings
8-K 2018-05-10 Earnings, Exhibits
8-K 2018-04-26 Shareholder Vote
8-K 2018-02-09 Earnings, Exhibits
AFSI Amtrust Financial Services 2,869
BAR Graniteshares Gold Trust 535
VCOR Visiber57 32
ONS Oncobiologics 19
OVAS Ovascience 13
ACCA Acacia Diversified Holdings 1
ALPP Alpine 4 Technologies 0
DD DuPont 0
SQFL SQL Technologies 0
WUYI China Wuyi Mountain 0
IMKT 2019-06-29
Part I. Financial Information
Item 1. Financial Statements
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-20190629xex31_1.htm
EX-31.2 imkt-20190629xex31_2.htm
EX-32.1 imkt-20190629xex32_1.htm
EX-32.2 imkt-20190629xex32_2.htm

Ingles Markets Earnings 2019-06-29

IMKT 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 imkt-20190629x10q.htm 10-Q 20190629 Q3 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 June 29, 2019

 

   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 and post such files). Yes     No .  

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company or emerging growth company.  See the 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 August 6, 2019, the Registrant had 14,177,335 shares of Class A Common Stock, $0.05 par value per share, outstanding and 6,082,441 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 June 29, 2019 and September 29, 2018

  

Condensed Consolidated Statements of Income and Other Comprehensive Income for the

  

 

Three Months Ended June 29, 2019 and June 30, 2018

  

Nine Months Ended June 29, 2019 and June 30, 2018

  

Condensed Consolidated Statements of Changes in Stockholders’ Equity for the Nine Months Ended June 29, 2019 and June 30, 2018

  

Condensed Consolidated Statements of Cash Flows for the Nine Months Ended June 29, 2019 and June 30, 2018

  

Notes to Unaudited Interim Financial Statements

  

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

  

13 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

  

21 

Item 4. Controls and Procedures

 

21 

Part II — Other Information

  

 

Item 6. Exhibits

  

22 

Signatures

  

24 



 

2


 

Part I. FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS

 

INGLES MARKETS, INCORPORATED AND SUBSIDIARIES 

 

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)





 

 

 

 

 

 



 

 

 

 

 

 



 

June 29,

 

September 29,



 

2019

 

2018

ASSETS

 

 

 

 

 

 

Current Assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

18,553,093 

 

$

10,537,303 

Receivables - net

 

 

77,810,507 

 

 

70,056,909 

Inventories

 

 

368,087,914 

 

 

372,195,421 

Other current assets

 

 

11,221,789 

 

 

43,953,483 

Total Current Assets

 

 

475,673,303 

 

 

496,743,116 

Property and Equipment - Net

 

 

1,335,183,975 

 

 

1,303,044,370 

Other Assets

 

 

28,176,045 

 

 

25,123,334 

Total Assets

 

$

1,839,033,323 

 

$

1,824,910,820 



 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

Current Liabilities:

 

 

 

 

 

 

Current portion of long-term debt

 

$

12,875,550 

 

$

12,848,013 

Accounts payable - trade

 

 

146,846,650 

 

 

165,165,312 

Accrued expenses and current portion of other long-term liabilities

 

 

71,562,083 

 

 

82,124,766 

Total Current Liabilities

 

 

231,284,283 

 

 

260,138,091 

Deferred Income Taxes

 

 

79,104,720 

 

 

74,461,000 

Long-Term Debt

 

 

841,836,809 

 

 

852,739,760 

Other Long-Term Liabilities

 

 

41,402,174 

 

 

42,158,161 

Total Liabilities

 

 

1,193,627,986 

 

 

1,229,497,012 

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;
14,177,335 shares issued and outstanding June 29, 2019;
14,145,385 shares issued and outstanding at September 29, 2018

 

 

708,867 

 

 

707,269 

Class B, convertible to Class A, $0.05 par value;
100,000,000 shares authorized;
6,082,441 shares issued and outstanding June 29, 2019;
6,114,391 shares issued and outstanding at September 29, 2018

 

 

304,122 

 

 

305,720 

Paid-in capital in excess of par value

 

 

12,311,249 

 

 

12,311,249 

Accumulated other comprehensive income

 

 

(917,206)

 

 

                      — 

Retained earnings

 

 

632,998,305 

 

 

582,089,570 

Total Stockholders’ Equity

 

 

645,405,337 

 

 

595,413,808 

Total Liabilities and Stockholders’ Equity

 

$

1,839,033,323 

 

$

1,824,910,820 





See notes to unaudited condensed consolidated financial statements.

 

3


 

INGLES MARKETS, INCORPORATED AND SUBSIDIARIES 

 

CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND OTHER COMPREHENSIVE INCOME (UNAUDITED)









 

 

 

 

 

 



 

 

 

 

 

 



 

Three Months Ended



 

June 29,

 

June 30,



 

2019

 

2018

Net sales

 

$

1,062,262,169 

 

$

1,034,768,578 

Cost of goods sold

 

 

803,322,422 

 

 

790,877,750 

Gross profit

 

 

258,939,747 

 

 

243,890,828 

Operating and administrative expenses

 

 

216,462,666 

 

 

214,718,142 

Gain from sale or disposal of assets

 

 

875,708 

 

 

605,507 

Income from operations

 

 

43,352,789 

 

 

29,778,193 

Other income, net

 

 

129,971 

 

 

647,886 

Interest expense

 

 

11,655,475 

 

 

11,956,421 

Income before income taxes

 

 

31,827,285 

 

 

18,469,658 

Income tax expense (benefit)

 

 

8,317,000 

 

 

(6,014,000)

Net income

 

$

23,510,285 

 

$

24,483,658 



 

 

 

 

 

 

Other comprehensive (expense) income:

 

 

 

 

 

 

 Change in fair value of interest rate swap

 

$

(1,036,759)

 

$

 —

 Income tax benefit

 

 

238,662 

 

 

 —

Other comprehensive (expense) income, net of tax

 

 

(798,097)

 

 

 —

Comprehensive income

 

$

22,712,188 

 

$

24,483,658 



 

 

 

 

 

 

Per share amounts:

 

 

 

 

 

 

Class A Common Stock

 

 

 

 

 

 

Basic earnings per common share

 

$

1.19 

 

$

1.24 

Diluted earnings per common share

 

$

1.16 

 

$

1.21 

Class B Common Stock

 

 

 

 

 

 

Basic earnings per common share

 

$

1.08 

 

$

1.13 

Diluted earnings per common share

 

$

1.08 

 

$

1.13 

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 OTHER COMPREHENSIVE INCOME (UNAUDITED)

 





 

 

 

 

 

 



 

 

 

 

 

 



 

Nine Months Ended



 

June 29,

 

June 30,



 

2019

 

2018

Net sales

 

$

3,125,942,755 

 

$

3,033,116,829 

Cost of goods sold

 

 

2,364,291,547 

 

  

2,309,378,730 

Gross profit

 

 

761,651,208 

 

 

723,738,099 

Operating and administrative expenses

 

 

651,613,713 

 

 

635,188,232 

Gain from sale or disposal of assets

 

 

3,524,821 

 

 

671,000 

Income from operations

 

 

113,562,316 

 

 

89,220,867 

Other income, net

 

 

1,473,344 

 

 

2,466,326 

Interest expense

 

 

35,863,999 

 

 

35,621,008 

Income before income taxes

 

 

79,171,661 

 

 

56,066,185 

Income tax expense (benefit)

 

 

18,509,000 

 

 

(22,859,000)

Net income

 

$

60,662,661 

 

$

78,925,185 



 

 

 

 

 

 

Other comprehensive (expense) income:

 

 

 

 

 

 

 Change in fair value of interest rate swap

 

$

(1,191,486)

 

$

 —

 Income tax benefit

 

 

274,280 

 

 

 —

Other comprehensive (expense) income, net of tax

 

 

(917,206)

 

 

 —

Comprehensive income

 

$

59,745,455 

 

$

78,925,185 



 

 

 

 

 

 

Per share amounts:

 

 

 

 

 

 

Class A Common Stock

 

 

 

 

 

 

Basic earnings per common share

 

$

3.07 

 

$

4.00 

Diluted earnings per common share

 

$

2.99 

 

$

3.90 

Class B Common Stock

 

 

 

 

 

 

Basic earnings per common share

 

$

2.80 

 

$

3.64 

Diluted earnings per common share

 

$

2.80 

 

$

3.64 

Cash dividends per common share

 

 

 

 

 

 

Class A Common Stock

 

$

0.495 

 

$

0.495 

Class B Common Stock

 

$

0.450 

 

$

0.450 





See notes to unaudited condensed consolidated financial statements.

 

5


 

INGLES MARKETS, INCORPORATED AND SUBSIDIARIES 

 

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

 

NINE MONTHS ENDED JUNE 29, 2019 AND JUNE 30, 2018







 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

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 30, 2017

 

14,084,044 

  

$

704,202 

 

6,175,732 

 

$

308,787 

 

$

12,311,249 

 

$

 —

 

$

497,727,765 

 

$

511,052,003 

Net income

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

45,146,740 

 

 

45,146,740 

Cash dividends

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(3,250,228)

 

 

(3,250,228)

Common stock conversions

 

34,200 

 

 

1,710 

 

(34,200)

 

 

(1,710)

 

 

 —

 

 

 —

 

 

 —

 

 

 —

Balance, December 30, 2017

 

14,118,244 

 

$

705,912 

 

6,141,532 

 

$

307,077 

 

$

12,311,249 

 

$

 —

 

$

539,624,277 

 

$

552,948,515 

Net income

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

9,294,788 

 

 

9,294,788 

Cash dividends

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(3,250,742)

 

 

(3,250,742)

Common stock conversions

 

7,800 

 

 

390 

 

(7,800)

 

 

(390)

 

 

 —

 

 

 —

 

 

 —

 

 

 —

Balance, March 31, 2018

 

14,126,044 

 

$

706,302 

 

6,133,732 

 

$

306,687 

 

$

12,311,249 

 

$

 —

 

$

545,668,323 

 

$

558,992,561 

Net income

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

24,483,658 

 

 

24,483,658 

Cash dividends

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(3,250,857)

 

 

(3,250,857)

Common stock conversions

 

9,250 

 

 

463 

 

(9,250)

 

 

(463)

 

 

 —

 

 

 —

 

 

 —

 

 

 —

Balance, June 30, 2018

 

14,135,294 

 

$

706,765 

 

6,124,482 

 

$

306,224 

 

$

12,311,249 

 

$

 —

 

$

566,901,124 

 

$

580,225,362 

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 

Net income

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

23,510,285 

 

 

23,510,285 

Other comprehensive (expense) income, net of income tax

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

(798,097)

 

 

 

 

 

(798,097)

Cash dividends

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(3,251,627)

 

 

(3,251,627)

Common stock conversions

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

Balance, June 29, 2019

 

14,177,335 

 

$

708,867 

 

6,082,441 

 

$

304,122 

 

$

12,311,249 

 

$

(917,206)

 

$

632,998,305 

 

$

645,405,337 





See notes to unaudited condensed consolidated financial statements.

 

6


 

INGLES MARKETS, INCORPORATED AND SUBSIDIARIES 

 

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)  





 

 

 

 

 

 



  

 

 

 

 

 



 

Nine Months Ended



  

June 29,

 

June 30,



 

2019

 

2018

Cash Flows from Operating Activities:

 

 

 

 

 

 

Net income

 

$

60,662,661 

 

$

78,925,185 

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

 

 

 

 

 

 

Depreciation and amortization expense

 

 

83,592,966 

 

 

84,628,425 

Gain from sale or disposal of assets

 

 

(3,524,821)

 

 

(671,000)

Receipt of advance payments on purchases contracts

 

 

2,284,000 

 

 

2,108,133 

Recognition of advance payments on purchases contracts

 

 

(1,903,432)

 

 

(1,545,168)

Deferred income taxes

 

 

4,918,000 

 

 

(4,853,000)

Changes in operating assets and liabilities:

 

 

 

 

 

 

Receivables

 

 

(7,753,599)

 

 

(7,399,527)

Inventory

 

 

4,107,507 

 

 

(14,181,568)

Other assets

 

 

29,543,048 

 

 

(35,751,944)

Accounts payable and accrued expenses

 

 

(27,412,258)

 

 

6,334,420 

Net Cash Provided by Operating Activities

 

 

144,514,072 

 

 

107,593,956 

Cash Flows from Investing Activities:

 

 

 

 

 

 

Proceeds from sales of property and equipment

 

 

8,183,106 

 

 

1,420,272 

Capital expenditures

 

 

(123,218,270)

 

 

(120,530,409)

Net Cash Used by Investing Activities

 

 

(115,035,164)

 

 

(119,110,137)

Cash Flows from Financing Activities:

 

 

 

 

 

 

Proceeds from short-term borrowings

 

 

303,810,043 

 

 

444,869,313 

Payments on short-term borrowings

 

 

(303,810,043)

 

 

(424,774,315)

Principal payments on long-term borrowings

 

 

(11,709,191)

 

 

(11,096,299)

Dividends paid

 

 

(9,753,927)

 

 

(9,751,826)

Net Cash Used by Financing Activities

 

 

(21,463,118)

 

 

(753,127)

Net Increase (Decrease) in Cash and Cash Equivalents

 

 

8,015,790 

 

 

(12,269,308)

Cash and cash equivalents at beginning of period

 

 

10,537,303 

 

 

23,912,100 

Cash and Cash Equivalents at End of Period

 

$

18,553,093 

 

$

11,642,792 





See notes to unaudited condensed consolidated financial statements.

 

7


 

INGLES MARKETS, INCORPORATED AND SUBSIDIARIES

 

NOTES TO UNAUDITED INTERIM FINANCIAL STATEMENTS

Nine Months Ended June 29, 2019 and June 30, 2018

 

A. BASIS OF PREPARATION

 

In the opinion of management, the accompanying unaudited interim financial statements contain all adjustments necessary to present fairly the financial position of Ingles Markets, Incorporated and Subsidiaries (the “Company”) as of June 29, 2019, the results of operations for the three-month and nine-month periods ended June 29, 2019 and June 30, 2018, and the changes in stockholders’ equity and cash flows for the nine-month periods ended June 29, 2019 and June 30, 2018. 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 29, 2018 filed by the Company under the Securities Exchange Act of 1934 on December  7, 2018.



The results of operations for the three-month and nine-month periods ended June 29, 2019 are not necessarily indicative of the results to be expected for the full fiscal year.

 

B. NEW ACCOUNTING PRONOUNCEMENTS

 

In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update ASU 2016-02 “Leases” (ASU 2016-02).  ASU 2016-02 requires lessees to recognize lease assets and lease liabilities on the balance sheet for those leases previously classified as operating leases.  This ASU is effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years, with early adoption permitted. The Company will adopt the standard in the first quarter of fiscal 2020. The Company is currently evaluating the impact of adopting this ASU on its consolidated financial statements.



In May 2014, the FASB issued Accounting Standards Update ASU 2014-09 “Revenue from Contracts with Customers” (ASU 2014-09).  ASU 2014-09 is a comprehensive new revenue recognition model that requires a company to recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and services.  In August 2015, the FASB issued ASU 2015-14 which deferred the effective date of the ASU to fiscal years beginning after December 15, 2017 and interim periods within those fiscal years, with early adoption permitted.  The Company adopted the standard at the beginning of the current fiscal year, and determined the impact of adopting the new guidance was immaterial to its annual and interim financial statements.  The Company’s assessment included a detailed review of contracts for each of its disaggregated revenue streams and a comparison of its historical accounting policies and practices to the new standard.

 

C. ALLOWANCE FOR DOUBTFUL ACCOUNTS

 

Receivables are presented net of an allowance for doubtful accounts of $380,000 at June 29, 2019 and $433,000 at September 29, 2018.

 

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.



In December 2017, the Tax Cuts and Jobs Act (the “Tax Act”) became law.  Among other things, the Tax Act reduced the U.S. federal corporate tax rate from 35% to 21% effective January 1, 2018, and allowed full expensing of qualified property when placed into service.



For the fiscal years ended September 28, 2019 and September 29, 2018 the Company has a blended federal corporate tax rate of 21.0% and 24.5%, respectively, based on the effective date of the tax rate reduction.  As a result of the decrease in the federal rate, the Company recorded in the first quarter ended December 30, 2017 (fiscal 2018) a decrease in its net deferred tax liabilities of $26.7 million, with a corresponding reduction to deferred income tax expense. 



During the third quarter ended June 30, 2018 (fiscal 2018) the Company adopted a tax calculation method change that resulted in the accelerated deduction of certain property-related expenditures.  This change was included in the Company’s fiscal 2017 tax return that was finalized during third fiscal quarter (fiscal 2018).  As a result of this change and the change in the federal statutory tax rate from 35% to 21% in December 2017, the Company recorded in the fiscal third quarter ended June 30, 2018 (fiscal 2018) a decrease in its net deferred tax liabilities of $10.6 million, with a corresponding reduction to deferred income tax expense.



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.

 

 

8


 

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:

 





 

 

 

 

 

 



 

 

 

 

 

 



 

June 29,

 

September 29,



 

2019

 

2018

Property, payroll and other taxes payable

 

$

20,046,179 

 

$

22,327,253 

Salaries, wages and bonuses payable

 

 

29,573,424 

 

 

29,583,266 

Self-insurance liabilities

 

 

12,856,639 

 

 

13,576,329 

Interest payable

 

 

3,323,478 

 

 

13,397,615 

Other

 

 

5,762,363 

 

 

3,240,303 



 

$

71,562,083 

 

$

82,124,766 



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. The Company is insured for covered costs in excess of $1,000,000 per occurrence for workers’ compensation, $500,000 for general liability and $450,000 per covered person for medical care benefits for a policy year. The Company’s self-insurance liabilities totaled $31.0 million and $34.7 million at June 29, 2019 and September 29, 2018, respectively.  Of this amount, $12.9 million is accounted for as a current liability and $18.1 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 at June 29, 2019.  At September 29, 2018, $13.6 million is accounted for as a current liability and $21.1 million as a long-term liability, which is inclusive of $4.6 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 $7.3 million and $8.1 million for the three-month periods ended June 29, 2019 and June 30, 2018, respectively.  For the nine-month periods ended June 29, 2019 and June 30, 2018, employee insurance expense, net of employee contributions, totaled $26.9 million and $27.1 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 ASC 410 (“FASB ASC 410”) and determined we have a legal obligation to remove the tanks at a point in the future and accordingly determined we have met the requirements of an asset retirement obligation.  The Company followed 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 June 29, 2019 and September 29, 2018.

 

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 5.75% per annum and were issued at par.



The Company may redeem all or a portion of the Notes at any time on or after June 15, 2018 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% 



The Company has $175.0 million line of credit (the “Line”) that matures 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 $9.7 million of unused letters of credit were issued at June 29, 2019.  The Company is not required to maintain compensating balances in connection with the Line.  At June 29, 2019, the Company had no borrowings outstanding under the line. 



In December 2010, the Company completed the funding of $99.7 million of Recovery Zone Facility Bonds (the “Bonds”) for construction of new warehouse and distribution 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 the 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.

 

9


 



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 $50.0 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 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 swap.  The Company has designated the swap as a cash flow hedge and records the changes in the estimated fair value of the swap to other comprehensive income each period.  For the three- and nine-month periods ended June 29, 2019 the Company recorded $0.8 million and $0.9 million of other comprehensive expense, respectively, net of income taxes, in its Consolidated Statements of Comprehensive income.  Unrealized losses of $1.2 million are recorded as a liability at fair value in the line “Other Long Term Liabilities” on the Consolidated Balance Sheet as of June 29, 2019.



The Notes, the Bonds and the Line 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 related to its borrowings at June 29, 2019.



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, Bond and Notes indenture in the event of default under any one instrument.



At June 29, 2019, property and equipment with an undepreciated cost of approximately $200 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 June 29, 2019, the Company had excess net worth totaling $122 million calculated under covenants in the Notes, the Bonds, 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 18, 2018 to stockholders of record on October 11, 2018.



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 17, 2019 to stockholders of record on January 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 April 18, 2019 to stockholders of record on April 11, 2019.



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 7, 2018.

 

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 time.  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.  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. 



 

10


 

The Company calculates earnings per share using the two-class method in accordance with FASB Accounting Standards Codification ("FASB ASC”) Topic 260. 



The two-class method of computing basic earnings per share for each period reflects the cash dividends paid per share for each class of stock, plus the amount of 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 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

 

Nine Months Ended



 

June 29, 2019

 

June 29, 2019



 

Class A

 

Class B

 

Class A

 

Class B

Numerator: Allocated net income

 

 

 

 

 

 

 

 

 

 

 

 

Net income allocated, basic

 

$

16,913,589 

 

$

6,596,695 

 

$

43,579,258 

 

$

17,083,403 

Conversion of Class B to Class A shares

 

 

6,596,695 

 

 

 —

 

 

17,083,403 

 

 

 —

Net income allocated, diluted

 

$

23,510,284 

 

$

6,596,695 

 

$

60,662,661 

 

$

17,083,403 



 

 

 

 

 

 

 

 

 

 

 

 

Denominator: Weighted average shares outstanding

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding, basic

 

 

14,177,335 

 

 

6,082,441 

 

 

14,155,632 

 

 

6,104,144 

Conversion of Class B to Class A shares

 

 

6,082,441 

 

 

 —

 

 

6,104,144 

 

 

 —

Weighted average shares outstanding, diluted

 

 

20,259,776 

 

 

6,082,441 

 

 

20,259,776 

 

 

6,104,144 



 

 

 

 

 

 

 

 

 

 

 

 

Earnings per share

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

1.19 

 

$

1.08 

 

$

3.07 

 

$

2.80 

Diluted

 

$

1.16 

 

$

1.08 

 

$

2.99 

 

$

2.80 



The per share amounts for the three- and nine-month periods ended June 30, 2018 are based on the following amounts:





 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 



 

Three Months Ended

 

Nine Months Ended



 

June 30, 2018

 

June 30, 2018



 

Class A

 

Class B

 

Class A

 

Class B

Numerator: Allocated net income

 

 

 

 

 

 

 

 

 

 

 

 

Net income allocated, basic

 

$

17,557,024 

 

$

6,926,634 

 

$

56,551,833 

 

$

22,373,352 

Conversion of Class B to Class A shares

 

 

6,926,634 

 

 

 —

 

 

22,373,352 

 

 

 —

Net income allocated, diluted

 

$

24,483,658 

 

$

6,926,634 

 

$

78,925,185 

 

$

22,373,352 



 

 

 

 

 

 

 

 

 

 

 

 

Denominator: Weighted average shares outstanding

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding, basic

 

 

14,128,772 

 

 

6,131,004 

 

 

14,117,449 

 

 

6,142,327 

Conversion of Class B to Class A shares

 

 

6,131,004 

 

 

 —

 

 

6,142,327 

 

 

 —

Weighted average shares outstanding, diluted

 

 

20,259,776 

 

 

6,131,004 

 

 

20,259,776 

 

 

6,142,327 



 

 

 

 

 

 

 

 

 

 

 

 

Earnings per share

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

1.24 

 

$

1.13 

 

$

4.00 

 

$

3.64 

Diluted

 

$

1.21 

 

$

1.13 

 

$

3.90 

 

$

3.64 

 

 

11


 

I. SEGMENT INFORMATION

 

The Company operates one primary business segment, retail grocery sales.  The “Other” activities include 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

 

Nine Months Ended



 

June 29,

 

June 30,

 

June 29,

 

June 30,



 

2019

 

2018

 

2019

 

2018

Revenues from unaffiliated customers:

 

 

 

 

 

 

 

 

 

 

 

 

Grocery

 

$

352,687 

 

$

343,687 

 

$

1,079,884 

 

$

1,055,896 

Non-foods

 

 

238,471 

 

 

221,885 

 

 

694,036 

 

 

648,043 

Perishables

 

 

281,655 

 

 

273,339 

 

 

824,614 

 

 

800,018 

Gasoline

 

 

155,897 

 

 

165,510 

 

 

430,393 

 

 

438,722 

Total Retail

 

$

1,028,710 

 

$

1,004,421 

 

$

3,028,927 

 

$

2,942,679 

Other

 

 

33,552 

 

 

30,348 

 

 

97,016 

 

 

90,438 

Total revenues from unaffiliated customers

 

$

1,062,262 

 

$

1,034,769 

 

$

3,125,943 

 

$

3,033,117 



 

 

 

 

 

 

 

 

 

 

 

 

Income from operations:

 

 

 

 

 

 

 

 

 

 

 

 

Retail

 

$

38,746 

 

$

26,555 

 

$

100,796 

 

$

79,843 

Other

 

 

4,607 

 

 

3,223 

 

 

12,766 

 

 

9,378 

Total income from operations

 

$

43,353 

 

$

29,778 

 

$

113,562 

 

$

89,221 

 





 

 

 

 

 

 



 

 

 

 

 

 



  

June 29,

 

September 29,



 

2019

 

2018

Assets:

 

 

 

 

 

 

Retail

 

$

1,663,762 

 

$

1,679,301 

Other

 

 

177,804 

 

 

147,988 

Elimination of intercompany receivable

 

 

(2,533)

 

 

(2,378)

Total assets

 

$

1,839,033 

 

$

1,824,911 

 

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

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

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



For the three-month periods ended June 29, 2019 and June 30, 2018, respectively, the fluid dairy operation had $10.2 million and $9.7 million in sales to the grocery sales operation. The fluid dairy operation had $31.4 million and $31.0 million in sales to the grocery sales operation for the nine-month periods ended June 29, 2019 and June 30, 2018, respectively. These sales have been eliminated in consolidation and are excluded from the amounts in the table above.

 

J. 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 is 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.



 

12


 

The carrying amount and fair value of the Company’s debt, interest rate swap, and non-qualified plan assets at June 29, 2019 is as  follows (in thousands):







 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 



 

Carrying

 

 

 

  

Fair Value



 

Amount

 

Fair Value

 

Measurements

Senior Notes

 

$

700,000 

 

$

708,750 

 

Level 2

Facility Bonds

 

 

72,560 

 

 

72,560 

 

Level 2

Secured notes payable and other

 

 

82,152 

 

 

82,152 

 

Level 2

Interest rate swap derivative contract liability

 

 

1,191 

 

 

1,191 

 

Level 2

Non-qualified retirement plan assets

 

 

15,136 

 

 

15,136 

 

Level 2



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

 

K. 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.

 



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



Overview

 

Ingles, a leading supermarket chain in the Southeast, operates 199 supermarkets in North Carolina (73), Georgia (67), 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. 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 June 29, 2019, the Company operated 108  in-store pharmacies and 104 fuel centers. 



Ingles also operates a fluid dairy and earns shopping center rentals. The fluid dairy processing operation sells approximately 27% of its products to the retail grocery operation and approximately 73% of its products to third parties. Real estate ownership is an important component of the Company’s operations, providing both operational and economic benefits.



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 $1,000,000 per occurrence for workers’ compensation, $500,000 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 June 29, 2019 the Company’s self-insurance liabilities totaled $31.0 million.  Of this amount, $12.9 million is accounted for as a current liability and $18.1 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 at June 29, 2019.



 

13


 

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 nine-month period ended June 29, 2019.



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 $26.9 million for each of the fiscal quarters ended June 29, 2019 and June 30, 2018.  For the nine-month periods ended June 29, 2019 and June 30, 2018, vendor allowances applied as a reduction of merchandise costs totaled $84.6 million and $89.1 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 $3.5 million and $3.1 million for the fiscal quarters ended June 29, 2019 and June 30, 2018, respectively.  For the nine-month periods ended June 29, 2019 and June 30, 2018, vendor advertising allowances recorded as a reduction of advertising expense totaled $10.7 million and $10.6 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 39 weeks of operations included in the unaudited Condensed Consolidated Statements of Income for the three and nine-month periods ended June 29, 2019 and June 30, 2018.  Comparable store sales are defined as sales by grocery stores in operation for five full fiscal quarters.  Sales from replacement stores, major remodels, minor 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 may include additional retail square footage.  For both the three- and nine-month periods ended June 29, 2019 and June 30, 2018, comparable store sales include 196 stores. 



 

14


 

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

 

Nine Months Ended



 

June 29,

 

June 30,

 

June 29,

 

June 30,



 

2019

 

2018

 

2019

 

2018

Net sales

 

100.0 

%

 

100.0 

%

 

100.0 

%

 

100.0 

%

Gross profit

 

24.4 

%

 

23.6 

%

 

24.4 

%

 

23.9 

%

Operating and administrative expenses

 

20.4 

%

 

20.8 

%

 

20.9 

%

 

20.9 

%

Gain from sale or disposal of assets

 

0.1 

%

 

0.1 

%

 

0.1 

%

 

 —

%

Income from operations

 

4.1 

%

 

2.9 

%

 

3.6 

%

 

3.0 

%

Other income, net

 

 —

%

 

0.1 

%

 

 —

%

 

0.1 

%

Interest expense

 

1.1 

%

 

1.2 

%

 

1.1 

%

 

1.2 

%

Income tax expense (benefit)

 

0.8 

%

 

(0.6)

%

 

0.6 

%

 

(0.7)

%

Net income

 

2.2 

%

 

2.4 

%

 

1.9 

%

 

2.6 

%



Three Months Ended June 29, 2019 Compared to the Three Months Ended June 30, 2018

 

Net income for the third quarter of fiscal 2019 totaled $23.5 million compared with $24.5 million for the third quarter of fiscal 2018.  Pretax income of $31.8 million for the three months ended June 29, 2019 is 72.3% higher than pretax income of $18.5 million for the three months ended June 30, 2018.  An income tax benefit of $6.0 million was recorded last year’s June quarter from the adoption of certain income tax computation method changes.  Comparing the quarters, fiscal 2019 had higher sales and gross profit and somewhat level expenses and interest.    



Net Sales. Net sales increased by $27.5 million, or 2.7%  to $1.06 billion for the three months ended June 29, 2019 from $1.03 billion for the three months ended June 30, 2018.  Sales increased in each retail product category, except for gasoline where both the number of gallons sold and the average sale price decreased.   The 2019 Easter holiday occurred in April, benefitting the current year June quarter.  The 2018 Easter holiday occurred in March, benefitting last year’s March quarter.  Excluding gasoline sales and the effect of extra Easter sales in this year’s third quarter, grocery comparable store sales increased 4.3% over the comparative fiscal quarters.  Comparing the third quarters of fiscal year 2019 and 2018 (and excluding gasoline), the number of customer transactions increased slightly and the average transaction size increased 3.6%.  



Ingles operated 199 stores at June 29, 2019 and 200 stores at June 30, 2018.  Retail square footage was approximately 11.3 million at June 29, 2019 and at June 30, 2018.



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







 

 

 

 

 

 



 

 

 

 

 

 



 

Three Months Ended



 

June 29,

 

June 30,



 

2019

 

2018

Grocery

 

$

352,687 

 

$

343,687 

Non-foods

 

 

238,471 

 

 

221,885 

Perishables

 

 

281,655 

 

 

273,339 

Gasoline

 

 

155,897 

 

 

165,510 

Total retail grocery

 

$

1,028,710 

 

$

1,004,421 



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

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

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



Changes in grocery segm