0000050493-15-000009.txt : 20150506 0000050493-15-000009.hdr.sgml : 20150506 20150506162055 ACCESSION NUMBER: 0000050493-15-000009 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 11 CONFORMED PERIOD OF REPORT: 20150328 FILED AS OF DATE: 20150506 DATE AS OF CHANGE: 20150506 FILER: COMPANY DATA: COMPANY CONFORMED NAME: INGLES MARKETS INC CENTRAL INDEX KEY: 0000050493 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-GROCERY STORES [5411] IRS NUMBER: 560846267 STATE OF INCORPORATION: NC FISCAL YEAR END: 0928 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-14706 FILM NUMBER: 15837283 BUSINESS ADDRESS: STREET 1: PO BOX 6676 CITY: ASHEVILLE STATE: NC ZIP: 28816 BUSINESS PHONE: 828-669-2941 MAIL ADDRESS: STREET 1: P O BOX 6676 CITY: ASHEVILLE STATE: NC ZIP: 28816 10-Q 1 imkt-20150328x10q.htm 10-Q 20150328 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,  2015

 

         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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 or a smaller reporting company.  See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.  (Check one): 

 

Large accelerated filer

Accelerated filer

Non-accelerated filer (Do not check if a smaller reporting company.)

Smaller reporting company

 

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

  

As of May 4, 2015 the Registrant had 13,760,976 shares of Class A Common Stock, $0.05 par value per share, outstanding and 6,498,800 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, 2015 and September 27, 2014 

  

 

 

Condensed Consolidated Statements of Income for the

  

 

Three Months Ended March 28, 2015 and March 29, 2014

  

Six Months Ended March 28, 2015 and March 29, 2014

  

 

 

Condensed Consolidated Statements of Changes in Stockholders’ Equity for the Six Months Ended March 28, 2015 and March 29, 2014

  

 

 

Condensed Consolidated Statements of Cash Flows for the Six Months Ended March 28, 2015 and March 29, 2014

  

 

 

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

  

22 

 

 

   Item 4. Controls and Procedures

 

22 

 

 

Part II – Other Information

  

 

 

 

 

 

 

 

    Item 6. Exhibits

  

22 

 

 

Signatures

  

25 

 

2

 


 

Part I. FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS 

 

INGLES MARKETS, INCORPORATED AND SUBSIDIARIES 

 

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 28,

 

September 27,

 

2015

 

2014

ASSETS

  

 

  

 

 

Current Assets:

  

 

  

 

 

Cash and cash equivalents

$

8,684,175 

 

$

8,613,628 

Receivables - net

  

64,368,373 

  

 

60,991,062 

Inventories

  

337,056,383 

  

 

329,523,604 

Other current assets

  

15,286,536 

  

 

14,789,004 

Total Current Assets

  

425,395,467 

  

 

413,917,298 

Property and Equipment – Net

  

1,208,453,632 

  

 

1,218,607,029 

Other Assets

  

24,391,182 

  

 

24,427,237 

Total Assets

$

1,658,240,281 

  

$

1,656,951,564 

 

  

 

  

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

  

 

  

 

 

Current Liabilities:

  

 

  

 

 

Current portion of long-term debt

$

13,939,858 

  

$

12,488,400 

Accounts payable - trade

 

157,556,951 

 

 

167,314,891 

Accrued expenses and current portion of other long-term liabilities

  

60,464,274 

  

 

70,944,728 

Total Current Liabilities

  

231,961,083 

  

 

250,748,019 

Deferred Income Taxes

  

73,865,000 

  

 

70,040,000 

Long-Term Debt

  

914,597,118 

  

 

924,771,343 

Other Long-Term Liabilities

  

32,359,706 

  

 

28,790,035 

Total Liabilities

  

1,252,782,907 

  

 

1,274,349,397 

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; 13,760,083 shares issued and outstanding March 28, 2015; 13,540,333 shares issued and outstanding at September 27, 2014

  

688,004 

 

 

677,017 

Class B, convertible to Class A, $0.05 par value; 100,000,000 shares authorized; 6,499,693 shares issued and outstanding March 28, 2015; 6,719,443 shares issued and outstanding at September 27, 2014

  

324,985 

 

 

335,972 

Paid-in capital in excess of par value

  

12,311,249 

 

 

12,311,249 

Retained earnings

  

392,133,136 

 

 

369,277,929 

Total Stockholders’ Equity

  

405,457,374 

 

 

382,602,167 

Total Liabilities and Stockholders’ Equity

$

1,658,240,281 

 

$

1,656,951,564 

 

See notes to unaudited condensed consolidated financial statements.

3

 


 

INGLES MARKETS, INCORPORATED AND SUBSIDIARIES 

 

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

March 28,

 

March 29,

 

 

2015

 

2014

 

 

 

 

 

 

 

Net sales

 

$

915,334,689 

 

$

947,760,587 

Cost of goods sold

 

  

696,643,697 

 

  

741,636,640 

Gross profit

 

  

218,690,992 

 

  

206,123,947 

Operating and administrative expenses

 

  

185,578,000 

 

  

178,402,604 

Gain from sale or disposal of assets

 

  

521,222 

 

  

83,283 

Income from operations

 

  

33,634,214 

 

  

27,804,626 

Other income, net

 

  

563,966 

 

  

737,862 

Interest expense

 

  

11,577,970 

 

  

11,698,560 

Income before income taxes

 

  

22,620,210 

 

  

16,843,928 

Income tax expense

 

  

8,318,000 

 

 

6,389,000 

Net income

 

$

14,302,210 

 

$

10,454,928 

 

 

  

 

 

  

 

Per share amounts:

 

  

 

 

  

 

Class A Common Stock

 

 

 

 

 

 

Basic earnings  per common share

 

$

0.72 

 

$

0.47 

Diluted earnings  per common share

 

$

0.71 

 

$

0.46 

Class B Common Stock

 

 

 

 

 

 

Basic earnings  per common share

 

$

0.66 

 

$

0.43 

Diluted earnings  per common share

 

$

0.66 

 

$

0.43 

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 (UNAUDITED)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Six Months Ended

 

 

March 28,

 

March 29,

 

 

2015

 

2014

 

 

 

 

 

 

 

Net sales

 

$

1,879,831,524 

 

$

1,892,885,457 

Cost of goods sold

 

  

1,436,747,974 

 

  

1,483,255,844 

Gross profit

 

  

443,083,550 

 

  

409,629,613 

Operating and administrative expenses

 

  

372,556,852 

 

  

355,832,785 

Gain from sale or disposal of assets

 

  

639,004 

 

  

208,156 

Income from operations

 

  

71,165,702 

 

  

54,004,984 

Other income, net

 

  

1,126,726 

 

  

1,577,865 

Interest expense

 

  

23,600,880 

 

  

23,480,791 

Income before income taxes

 

  

48,691,548 

 

  

32,102,058 

Income tax expense

 

  

19,351,000 

 

 

12,114,000 

Net income

 

$

29,340,548 

 

$

19,988,058 

 

 

  

 

 

  

 

Per share amounts:

 

  

 

 

  

 

Class A Common Stock

 

 

 

 

 

 

Basic earnings per common share

 

$

1.49 

 

$

0.91 

Diluted earnings per common share

 

$

1.45 

 

$

0.88 

Class B Common Stock

 

 

 

 

 

 

Basic earnings per common share

 

$

1.36 

 

$

0.83 

Diluted earnings per common share

 

$

1.36 

 

$

0.83 

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)

 

SIX MONTHS ENDED MARCH 28, 2015 AND MARCH 29,  2014 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Paid-in

  

 

 

 

 

 

 

 

Class A

 

Class B

 

Capital in

 

 

 

 

 

 

 

 

Common Stock

 

Common Stock

 

Excess of

 

Retained

 

 

 

 

  

Shares

  

Amount

 

Shares

 

Amount

 

Par Value

  

Earnings

 

Total

 

  

 

  

 

 

 

 

 

 

 

 

 

 

  

 

 

 

 

 

Balance, September 28, 2013

 

13,437,975 

  

$

671,899 

 

9,321,801 

 

$

466,090 

 

$

77,186,249 

 

$

332,315,037 

 

$

410,639,275 

Net income

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

19,988,058 

 

 

19,988,058 

Cash dividends

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

(7,231,123)

 

 

(7,231,123)

Common stock conversions

 

30,562 

 

 

1,528 

 

(30,562)

 

 

(1,528)

 

 

 —

 

 

 —

 

 

 —

Balance, March 29, 2014

 

13,468,537 

 

$

673,427 

 

9,291,239 

 

$

464,562 

 

$

77,186,249 

 

$

345,071,972 

 

$

423,396,210 

Balance, September 27, 2014

 

13,540,333 

  

$

677,017 

 

6,719,443 

 

$

335,972 

 

$

12,311,249 

 

$

369,277,929 

 

$

382,602,167 

Net income

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

29,340,548 

 

 

29,340,548 

Cash dividends

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

(6,485,341)

 

 

(6,485,341)

Common stock conversions

 

219,750 

 

 

10,987 

 

(219,750)

 

 

(10,987)

 

 

 —

 

 

 —

 

 

 —

Balance, March 28, 2015

 

13,760,083 

 

$

688,004 

 

6,499,693 

 

$

324,985 

 

$

12,311,249 

 

$

392,133,136 

 

$

405,457,374 

 

 

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 29,

 

 

2015

 

2014

Cash Flows from Operating Activities:

  

 

 

 

 

 

Net income

  

$

29,340,548 

 

$

19,988,058 

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

  

 

 

 

 

 

Depreciation and amortization expense

 

 

50,898,628 

 

 

48,113,901 

Gain from sale or disposal of assets

 

 

(639,004)

 

 

(208,156)

Receipt of advance payments on purchases contracts

  

 

3,518,251 

 

 

2,516,458 

Recognition of advance payments on purchases contracts

  

 

(2,298,705)

 

 

(1,632,251)

Deferred income taxes

  

 

3,825,000 

 

 

(3,271,000)

Changes in operating assets and liabilities:

 

 

 

 

 

 

Receivables

  

 

(3,006,991)

 

 

(4,994,302)

Inventory

  

 

(7,532,779)

 

 

(3,732,015)

Other assets

 

 

(317,709)

 

 

2,064,706 

Accounts payable and accrued expenses

 

 

(14,886,343)

 

 

(8,095,489)

Net Cash Provided by Operating Activities

  

 

58,900,896 

 

 

50,749,910 

Cash Flows from Investing Activities:

  

 

 

 

 

 

Proceeds from sales of property and equipment

  

 

674,380 

 

 

200,804 

Capital expenditures

  

 

(44,296,622)

 

 

(51,838,307)

Net Cash Used by Investing Activities

  

 

(43,622,242)

 

 

(51,637,503)

Cash Flows from Financing Activities:

  

 

 

 

 

 

Proceeds from short-term borrowings

 

 

398,870,522 

 

 

297,451,513 

Payments on short-term borrowings

 

 

(399,108,140)

 

 

(297,451,513)

Proceeds from other long-term borrowings

 

 

 —

 

 

14,000,000 

Principal payments on long-term borrowings

  

 

(8,485,148)

 

 

(15,337,958)

Dividends paid

  

 

(6,485,341)

 

 

(7,231,123)

Net Cash Used by Financing Activities

  

 

(15,208,107)

 

 

(8,569,081)

Net Increase (Decrease) in Cash and Cash Equivalents

  

 

70,547 

 

 

(9,456,674)

Cash and cash equivalents at beginning of period

  

 

8,613,628 

 

 

16,844,007 

Cash and Cash Equivalents at End of Period

  

$

8,684,175 

 

$

7,387,333 

 

 

See notes to unaudited condensed consolidated financial statements.

7

 


 

INGLES MARKETS, INCORPORATED AND SUBSIDIARIES

 

NOTES TO UNAUDITED INTERIM FINANCIAL STATEMENTS 

Six Months Ended March 28, 2015 and March 29, 2014 

 

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 March 28, 2015, the results of operations for the three-month and six-month periods ended March 28, 2015 and March 29, 2014, and the changes in stockholders’ equity and cash flows for the six-month periods ended March 28, 2015 and March 29, 2014. 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 27, 2014 filed by the Company under the Securities Exchange Act of 1934 on December 16, 2014.  

 

The results of operations for the three-month and six-month periods ended March 28, 2015 are not necessarily indicative of the results to be expected for the full fiscal year.

 

B. NEW ACCOUNTING PRONOUNCEMENTS

 

There were no new accounting standards adopted in the six-month period ended March 28, 2015.

 

C. ALLOWANCE FOR DOUBTFUL ACCOUNTS

 

Receivables are presented net of an allowance for doubtful accounts of $527,000 at March 28, 2015 and $307,000 at September 27, 2014, respectively.  

 

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 also incur interest and penalties related to uncertain tax positions.  The amounts are not material and are not expected to significantly increase or decrease within the next twelve months.

 

The Company files income tax returns with federal and various state jurisdictions.  With few exceptions, the Company is no longer subject to federal and state income tax examinations by tax authorities for the years before 2011.  

 

On September 13, 2013, the IRS released final tangible property regulations under Sections 162(a) and 263(a) of the Internal Revenue Code regarding the deduction and capitalization of expenditures related to tangible property as well as dispositions of tangible property.  These regulations are effective for the Company’s fiscal year ending September 26, 2015.  The Company has determined that the regulations do not have a material impact on the Company’s consolidated results of operations, cash flows or financial position.

 

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 27,

 

 

2015

 

2014

Property, payroll and other taxes payable

  

$

10,366,402 

 

$

16,469,128 

Salaries, wages and bonuses payable

  

 

22,156,139 

 

  

25,514,842 

Self-insurance liabilities

  

 

11,005,845 

 

  

12,934,920 

Interest payable

 

 

12,793,594 

 

 

12,676,648 

Other

  

 

4,142,294 

 

  

3,349,190 

 

 

$

60,464,274 

 

$

70,944,728 

 

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. The Company is insured for covered costs in excess of $750,000 per occurrence for workers’ compensation, $500,000 for general liability and $325,000 per covered person for medical care benefits for a policy year. At March 28, 2015, the Company’s self-insurance reserves totaled $30.3 million.  Of this amount, $11.0 million is accounted for as a current liability and $19.3 million as a long-term liability. Employee insurance expense, including workers’ compensation and medical care benefits, net of employee contributions, totaled $8.6 million and $5.8 million for each of the three-month periods ended March 28, 2015 and March 29, 2014, respectively. For the six-month periods ended March 28, 2015 and March 29, 2014, employee insurance expense, net of employee contributions, totaled $16.3 million and $12.0 million, respectively.

 

F. LONG-TERM DEBT

 

In June 2013, the Company issued $700.0 million aggregate principal amount of senior notes due in 2023 (the “Notes”) in a private placement.  The Notes bear an interest rate of 5.750% per annum and were issued at par. Note proceeds were used to repay $575.0 million aggregate principal amount of senior notes maturing in 2017,  $52.0 million of indebtedness outstanding under the Company’s line of credit, and to pay costs related to the offering of the Notes.  Remaining Note proceeds were used for general corporate purposes, including future capital expenditures.

 

The Company filed a registration statement with the Securities and Exchange Commission to exchange the private placement notes with registered notes. The exchange has been completed.

 

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%

 

In connection with the offering of the Notes, the Company extended the maturity date of its $175.0 million line of credit from December 29, 2015 to June 12, 2018 and modified certain interest rate options and covenants.  Outstanding borrowings under the line of credit totaled $29.7 million at March 28, 2015 and $29.9 million at September 27, 2014.

 

The line of credit provides the Company with various interest rate options based on the prime rate, the Federal Funds Rate, or the London Interbank Offering Rate. The line allows the Company to issue up to $30.0 million in unused letters of credit, of which $10.3 million of unused letters of credit were issued at March 28, 2015.  The Company is not required to maintain compensating balances in connection with the line of credit.

 

On December 29, 2010, the Company completed the funding of $99.7 million of Recovery Zone Facility Bonds (the “Bonds”) for:  (A) acquisition, construction and equipping of an approximately 830,000 square foot new warehouse and distribution center located in Buncombe County, North Carolina (the “Project”), and (B) the payment of certain expenses incurred in connection with the issuance of the Bonds.  The final maturity date of the Bonds is January 1, 2036.

 

The Bonds were issued by the Buncombe County Industrial Facilities and Pollution Control Financing Authority and were purchased by certain financial institutions.  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 January 2, 2018, 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

 

In connection with the offering of the Notes, the Company extended the maturity date of the Covenant Agreement from January 2, 2018 to June 30, 2021 and modified certain interest rate options and covenants. The Company may redeem the Bonds without penalty or premium at any time prior to June 30, 2021.

 

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 of credit.

 

The Notes, the Bonds and the line of credit 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

9

 


 

termination or withdrawal of the line of credit 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 March 28, 2015.  

 

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

 

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 23, 2014 to stockholders of record on October 9, 2014

 

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 22, 2015 to stockholders of record on January 8, 2015.  

 

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 16,  2014.

 

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 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

 

Six Months Ended

 

 

March 28, 2015

 

March 28, 2015

 

 

Class A

 

Class B

 

Class A

 

Class B

Numerator: Allocated net income

 

 

               

 

 

 

 

 

 

 

 

 

Net income allocated, basic

 

$

9,917,366 

 

$

4,384,844 

 

$

20,283,204 

 

$

9,057,344 

Conversion of Class B to Class A shares

 

  

4,384,844 

 

 

 —

 

 

9,057,344 

 

 

 —

Net income allocated, diluted

 

$

14,302,210 

 

$

4,384,844 

 

$

29,340,548 

 

$

9,057,344 

 

 

  

 

 

 

 

 

 

 

 

 

 

Denominator: Weighted average shares outstanding

 

  

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding, basic

 

  

13,653,154 

 

 

6,606,622 

 

 

13,598,039 

 

 

6,661,737 

Conversion of Class B to Class A shares

 

  

6,606,622 

 

 

 —

 

 

6,661,737 

 

 

 —

Weighted average shares outstanding, diluted

 

  

20,259,776 

 

 

6,606,622 

 

 

20,259,776 

 

 

6,661,737 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per share

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.72 

 

$

0.66 

 

$

1.49 

 

$

1.36 

Diluted

 

$

0.71 

 

$

0.66 

 

$

1.45 

 

$

1.36 

 

10

 


 

The per share amounts for the second quarter of fiscal 2014 and the six months ended March 29, 2014 are based on the following amounts:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  Three Months Ended

 

Six Months Ended

 

 

March 29, 2014

 

March 29, 2014

 

 

Class A

 

Class B

 

Class A

 

Class B

Numerator: Allocated net income

 

 

 

 

 

 

 

 

 

 

 

 

Net income allocated, basic

 

$

6,417,400 

 

$

4,037,528 

 

$

12,263,861 

 

$

7,724,197 

Conversion of Class B to Class A shares

 

  

4,037,528 

 

 

 —

 

 

7,724,197 

 

 

 —

Net income allocated, diluted

 

$

10,454,928 

 

$

4,037,528 

 

$

19,988,058 

 

$

7,724,197 

 

 

  

 

 

 

 

 

 

 

 

 

 

Denominator: Weighted average shares outstanding

 

  

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding, basic

 

  

13,456,262 

 

 

9,303,514 

 

 

13,447,893 

 

 

9,311,883 

Conversion of Class B to Class A shares

 

  

9,303,514 

 

 

 —

 

 

9,311,883 

 

 

 —

Weighted average shares outstanding, diluted

 

  

22,759,776 

 

 

9,303,514 

 

 

22,759,776 

 

 

9,311,883 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per share

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.47 

 

$

0.43 

 

$

0.91 

 

$

0.83 

Diluted

 

$

0.46 

 

$

0.43 

 

$

0.88 

 

$

0.83 

 

 

 

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

 

Six Months Ended

 

 

March 28,

  

March 29,

 

March 28,

  

March 29,

 

 

2015

 

2014

 

2015

 

2014

Revenues from unaffiliated customers:

 

 

 

  

 

 

 

 

 

  

 

 

Grocery sales

 

$

879,838 

  

$

908,448 

 

$

1,805,840 

  

$

1,818,534 

Other

 

 

35,496 

  

 

39,313 

 

 

73,992 

  

 

74,351 

Total revenues from unaffiliated customers

 

$

915,335 

  

$

947,761 

 

$

1,879,832 

  

$

1,892,885 

 

 

 

 

  

 

 

 

 

 

  

 

 

Income from operations:

 

 

 

  

 

 

 

 

 

  

 

 

Grocery sales

 

$

29,598 

  

$

24,284 

 

$

64,575 

  

$

48,449 

Other

 

 

4,036 

  

 

3,521 

 

 

6,591 

  

 

5,556 

Total income from operations

 

$

33,634 

  

$

27,805 

 

$

71,166 

  

$

54,005 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  

March 28,

 

September 27,

 

 

2015

 

2014

Assets:

  

 

 

 

 

 

Grocery sales

  

$

1,515,901 

 

$

1,515,055 

Other

  

 

144,008 

 

 

144,667 

Elimination of intercompany receivable

  

 

(1,669)

 

 

(2,770)

Total assets

  

$

1,658,240 

 

$

1,656,952 

 

11

 


 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  

Three Months Ended

 

Six Months Ended

 

  

March 28,

  

March 29,

 

March 28,

  

March 29,

 

 

2015

 

2014

 

2015

 

2014

Grocery

  

$

348,269 

  

$

355,658 

 

$

706,585 

  

$

714,557 

Non-foods

  

 

185,428 

  

 

176,580 

 

 

375,576 

  

 

358,454 

Perishables

 

 

241,002 

 

 

230,450 

 

 

480,613 

 

 

457,052 

Gasoline

  

 

105,139 

  

 

145,760 

 

 

243,066 

  

 

288,471 

Total grocery segment

  

$

879,838 

  

$

908,448 

 

$

1,805,840 

  

$

1,818,534 

 

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

The non-foods include alcoholic beverages, tobacco, pharmacy, health and video.

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

The gasoline category includes car wash sales.

 

For the three-month periods ended March 28, 2015 and March 29, 2014, respectively, the fluid dairy operation had $12.4 million and $15.3 million in sales to the grocery sales segment. The fluid dairy operation had $27.0 million and $30.1 million in sales to the grocery sales segment for the six-month periods ended March 28, 2015 and March 29, 2014, respectively. These sales have been eliminated in consolidation.

 

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.

 

The carrying amount and fair value of the Company’s debt at March 28, 2015 is as follows (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  

Carrying

  

 

 

  

Fair Value

 

 

Amount

 

Fair Value

 

Measurements

Senior Notes

  

$

700,000 

  

$

722,750 

 

Level 2

Facility Bonds

  

 

90,680 

  

  

90,680 

 

Level 2

Real estate and equipment notes payable

  

 

108,185 

  

  

108,240 

 

Level 2

Line of credit payable

 

 

29,672 

 

 

29,672 

 

Level 2

Total debt

  

$

928,537 

  

$

951,342 

 

 

 

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

 

12

 


 

K.  NONQUALIFIED INVESTMENT PLAN

 

The purpose of the Executive Nonqualified Excess Plan is to provide retirement benefits similar to the Company’s Investment/Profit Sharing Plan to certain of the Company’s management employees who are otherwise subject to limited participation in the 401(k) feature of the Company’s Investment/Profit Sharing Plan.  Participant retirement account balances are liabilities of the Company.  Assets of the plan are assets of the Company and are held in trust for employees and distributed upon retirement, death, disability, in-service distributions, or other termination of employment.  In accordance with the trust, the Company may not use these assets for general corporate purposes.  During the six months ended March 28, 2015 and March 29, 2014,  the Company invested a portion of the proceeds of liquidated life insurance policy assets in marketable securities.  These marketable securities will be liquidated and invested in other life insurance policies in future periods.  Life insurance policies and marketable securities held in the trust are included in the caption “Other assets” in the Condensed Consolidated Balance Sheets.

 

L. SUBSEQUENT EVENTS

 

We have evaluated subsequent events and transactions for potential recognition or disclosure in the financial statements through the day the financial statements were issued.

 

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

 

Overview

 

Ingles, a leading supermarket chain in the Southeast, operates 202 supermarkets in Georgia (71), North Carolina (71), South Carolina (36), Tennessee (21), Virginia (2) 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 March 28, 2015, the Company operated 97 in-store pharmacies and 85 fuel centers. 

 

Ingles also operates a fluid dairy and earns shopping center rentals. The fluid dairy processing operation sells approximately 28% of its products to the retail grocery segment and approximately 72% 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 $750,000 per occurrence for workers’ compensation, $500,000 for general liability, and $325,000 per covered person for medical care benefits for a policy year. Self-insurance liabilities are established based on claims filed and estimates of claims incurred but not reported. The estimates are based on data provided by the respective claims administrators. These estimates can fluctuate if historical trends are not predictive of the future. The majority of the Company’s properties are self-insured for casualty losses and business interruption; however, liability coverage is maintained.  At March 28, 2015, the Company’s self-insurance reserves totaled $30.3 million for employee group insurance, workers’ compensation insurance and general liability insurance.

 

Asset Impairments

 

The Company accounts for the impairment of long-lived assets in accordance with Financial Accounting Standards Board Accounting Standards Codification (“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

13

 


 

expected sales prices are judgments based upon the Company’s experience and knowledge of local operations and cash flows that are projected for several years into the future. These estimates can fluctuate significantly due to changes in real estate market conditions, the economic environment, capital spending decisions and inflation. The Company monitors the carrying value of long-lived assets for potential impairment each quarter based on whether any indicators of impairment have occurred.  There were no asset impairments during the six-month period ended March 28, 2015.

 

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 $28.4 million and $32.3 million for the fiscal quarters ended March 28, 2015 and March 29, 2014, respectively.  For the six-month periods ended March 28, 2015 and March 29, 2014, vendor allowances applied as a reduction of merchandise costs totaled $60.6 million and $63.8 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 $3.4 million and $3.5 million for the fiscal quarters ended March 28, 2015 and March 29, 2014, respectively.  For the six-month periods ended March 28, 2015 and March 29, 2014, vendor advertising allowances recorded as a reduction of advertising expense totaled $7.5 million and $7.4 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.

 

Uncertain Tax Positions

 

Despite the Company’s belief that its tax positions are consistent with applicable tax laws, the Company believes that certain positions are likely to be challenged by taxing authorities. Settlement of any challenge can result in no change, a complete disallowance, or some partial adjustment reached through negotiations or litigation. Significant judgment is required in evaluating the Company’s tax positions. The Company’s positions are evaluated in light of changing facts and circumstances, such as the progress of its tax audits as well as evolving case law. Income tax expense includes the impact of provisions for and changes to uncertain tax positions as the Company considers appropriate. Unfavorable settlement of any particular position would require use of cash. Favorable resolution would be recognized as a reduction to income tax expense at the time of resolution.

 

Results of Operations

 

Ingles operates on a 52- or 53-week fiscal year ending on the last Saturday in September. There are 13 and 26  weeks of operations included in the Unaudited Condensed Consolidated Statements of Income for the three- and six-month periods ended March 28, 2015 and March 29, 2014, respectively. Comparable store sales are defined as sales by grocery stores in operation for five full fiscal quarters.  Sales from replacement stores, major remodels and the addition of fuel stations to existing stores are included in the comparable store sales calculation from the date thereof. A replacement store is a new store that is opened to replace an existing nearby store that is closed. A major remodel entails substantial remodeling of an existing store and includes additional retail square footage. For the three- and six-month periods ended March 28, 2015 and March 29, 2014, comparable store sales include 201 and 202 stores, respectively.

 

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 Unaudited Condensed Consolidated Financial Statements.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  

Three Months Ended

 

Six Months Ended

 

  

March 28,

 

March 29,

 

March 28,

 

March 29,

 

 

2015

 

2014

 

2015

 

2014

Net sales

  

100.0 

%

 

100.0 

%

 

100.0 

%

 

100.0 

%

Gross profit

  

23.9 

%

 

21.7 

%

 

23.6 

%

 

21.6 

%

Operating and administrative expenses

  

20.2 

%

 

18.8 

%

 

19.8 

%

 

18.8 

%

Income from operations

  

3.7 

%

 

2.9 

%

 

3.8 

%

 

2.8 

%

Other income, net

  

0.1 

%

 

0.1 

%

 

0.1 

%

 

0.1 

%

Interest expense

  

1.3 

%

 

1.2 

%

 

1.3 

%

 

1.2 

%

Income tax expense

  

0.9 

%

 

0.7 

%

 

1.0 

%

 

0.6 

%

Net income

  

1.6 

%

 

1.1 

%

 

1.6 

%

 

1.1 

%

 

 

Three Months Ended March 28, 2015 Compared to the Three Months Ended March 29, 2014

 

Net income for the second quarter of fiscal 2015 totaled $14.3 million, compared with net income of $10.5 million earned for the second quarter of fiscal 2014Dollar sales (excluding gasoline) increased and overall gross margin (including gasoline) increased.  The resulting gross profit dollars increase more than offset increases in operating expenses. 

 

Net Sales. Because of decreases in retail gasoline prices, net sales decreased by $32.5 million, or 3.4% to $915.3 million for the three months ended March 28, 2015 from $947.8 million for the three months ended March 29, 2014.  Comparing the second quarter of fiscal 2015 with the second quarter of fiscal 2014, gasoline sales dollars decreased 28.0% due to a 34.8% decrease in the average sales price per gallon.  Gallons sold increased 10.4% over the same comparable periods.  Excluding gasoline sales, total grocery comparable store sales increased 1.2% over the comparative fiscal second quarters.  Comparing the second quarters of fiscal year 2015 and 2014 (and excluding gasoline), the number of customer transactions decreased 0.7% and the average transaction size increased 3.2%.  Ingles operated 202 stores at March 28, 2015 and 203 stores at March 29, 2014. Retail square footage totaled 11.1 million at March 28, 2015 and March 29, 2014.  During the twelve months ended March 28, 2015, the Company opened one new store and closed two stores.    

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  

Three Months Ended

 

  

March 28,

  

March 29,

 

 

2015

 

2014

Grocery

  

$

348,269 

  

$

355,658 

Non-foods

  

 

185,428 

  

 

176,580 

Perishables

 

 

241,002 

 

 

230,450 

Gasoline

  

 

105,139 

  

 

145,760 

Total grocery segment

  

$

879,838 

  

$

908,448 

 

The grocery category includes grocery, dairy and frozen foods.

The non-foods category includes alcoholic beverages, tobacco, pharmacy, health and video.

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

The gasoline category includes car wash sales.

 

15

 


 

Changes in grocery segment sales for the quarter ended March 28, 2015 are summarized as follows (in thousands):

 

 

 

 

 

 

 

 

  

 

 

Total grocery sales for the three months ended March 29, 2014

  

$

908,448 

Comparable store sales decrease (including gasoline)

  

 

(32,625)

Impact of stores opened in fiscal 2014

  

 

5,952 

Impact of stores closed in fiscal 2014

  

 

(1,848)

Other

 

 

(89)

Total grocery sales for the three months ended March 28, 2015

  

$

879,838 

 

Gross Profit. Gross profit for the three-month period ended March 28, 2015 increased $12.6 million, or 6.1%, to $218.7 million, or 23.9% of sales, compared with gross profit $206.1 million, or 21.7% of sales, for the three-month period ended March 29, 2014.

 

Excluding gasoline sales, grocery segment gross profit as a percentage of sales was increased 47 basis points comparing the second quarter of fiscal 2015 compared with the same fiscal 2014 period.  Gasoline gross profit dollars were higher for the quarter ended March 28, 2015 compared with the quarter ended March 29, 2014. 

 

In addition to the direct product cost, the cost of goods sold line item for the grocery segment includes inbound freight charges and the costs related to the Company’s distribution network.  The Fluid dairy is a manufacturing process; therefore, the costs mentioned above as well as purchasing, production costs, and internal transfer costs incurred by the fluid dairy processing operation are included in the cost of goods sold line item, while these items are included in operating and administrative expenses in the grocery segment.

  

Operating and Administrative Expenses. Operating and administrative expenses increased $7.2 million, or 4.0%, to $185.6 million for the three months ended March 28, 2015, from $178.4 million for the three months ended March 29, 2014. As a percentage of sales, operating and administrative expenses were 20.2%  for the three months ended March 28, 2015 compared with 18.8% for the three months ended March 29, 2014.  Excluding gasoline sales and associated gasoline operating expenses (primarily payroll), operating expenses were 22.7% of sales for the second fiscal 2015 quarter and 22.1% for the second fiscal 2014 quarter.

 

The major increases (decreases) in operating and administrative expenses were as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

Increase

 

 

Increase

 

(Decrease)

 

 

(Decrease)

 

as a % of

 

 

in millions

 

sales

Salaries and wages

  

$

4.2

 

0.45 

%

Insurance

  

$

2.5

 

0.27 

%

Depreciation and amortization

  

$

1.1

 

0.12 

%

Advertising and promotion

  

$

(1.0)

 

(0.11)

%

 

Salaries and wages expenses increased due to the additional labor hours required to support the increased non-gasoline sales volume.

 

Insurance expense increased due to higher claims under the Company’s self-insurance programs.

 

Depreciation and amortization expense increased as a result of capital expenditures to improve the Company’s store base and distribution operations. 

 

Advertising and promotional expense decreased due to lower production and distribution costs and greater vendor participation in promotional activities.

 

Interest Expense. Interest expense decreased $0.1 million for the three-month period ended March 28, 2015 to $11.6 million from $11.7 million for the three-month period ended March 29, 2014. The decrease is attributable to the lower interest rates, partially offset by higher total debt.  Total debt at March 2015 was $928.5 million compared with $911.1 million at March 2014.

 

Income Taxes. Income tax expense as a percentage of pre-tax income was 36.8% for the quarter ended March 28, 2015 compared with 37.9% for the quarter ended March 29, 2014  

16

 


 

 

Net Income. Net income totaled $14.3 million for the three-month period ended March 28, 2015 compared with $10.5 million for the three-month period ended March 29, 2014.   Net income, as a percentage of sales, was 1.6% for the quarter ended March 28, 2015 and 1.1% for the quarter ended March 29, 2014.  Basic and diluted earnings per share for Class A Common Stock were $0.72 and $0. 71, respectively, for the quarter ended March 28, 2015 compared to $0.47 and $0.46, respectively, for the quarter ended March 29, 2014.  Basic and diluted earnings per share for Class B Common Stock were each $0.66 for the quarter ended March 28, 2015 compared to $0.43 of basic and diluted earnings per share for the quarter ended March 29, 2014.

 

Six Months Ended March 28, 2015 Compared to the Six Months Ended March 29, 2014 

 

Net income for the first half of fiscal 2015 totaled $29.3 million compared with net income of $20.0 million earned for the comparable fiscal 2014 period.  Dollar sales (excluding gasoline) increased and overall gross margin (including gasoline) increased.  The resulting gross profit dollars increase more than offset increases in operating expenses.

 

Net Sales. Because of decreases in retail gasoline prices, net sales decreased by $13.1 million to $1.88 billion for the six months ended March 28, 2015 from $1.89 billion for the six months ended March 29, 2014.  Excluding gasoline, total sales increased 2.0% over the comparative six month 2015 and 2014 periods.

 

Grocery segment comparable store sales, excluding the effect of gasoline increased 1.8%.  The number of customer transactions (excluding gasoline) decreased 0.6%, while the average transaction size (excluding gasoline) increased by 2.7%.

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  

Six Months Ended

 

  

March 28,

  

March 29,

 

 

2015

 

2014

Grocery

  

$

706,585 

  

$

714,557 

Non-foods

  

 

375,576 

  

 

358,454 

Perishables

 

 

480,613 

 

 

457,052 

Gasoline

  

 

243,066 

  

 

288,471 

Total grocery segment

  

$

1,805,840 

  

$

1,818,534 

 

The grocery category includes grocery, dairy and frozen foods.

The non-foods category includes alcoholic beverages, tobacco, pharmacy, health and video.

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

The gasoline category includes car wash sales.

 

Changes in grocery segment sales for the six months ended March 28, 2015 are summarized as follows (in thousands):

 

 

 

 

 

 

 

  

 

 

Total grocery sales for the six months ended March 29, 2014

  

$

1,818,534 

Comparable store sales decrease (including gasoline)

  

 

(21,617)

Impact of stores opened in fiscal 2014

  

 

12,811 

Impact of stores closed in fiscal 2014

  

 

(3,761)

Other

 

 

(127)

Total grocery sales for the six months ended March 28, 2015

  

$

1,805,840 

 

Sales growth for the remainder of fiscal 2015 will depend upon the pace of economic improvement, inflation and market prices for gasoline and raw milkIn addition to a new store that opened in September 2014, the Company expects that the maturation of previous new and expanded stores will contribute to sales growthThe Company continues to remodel existing stores in order to increase sales and gross profit at a lower cost than additional square footage.

 

Gross Profit. Gross profit for the six months ended March 28, 2015 increased $33.5 million, or 8.2%, to $443.1 million compared with $409.6 million, for the six months ended March 29, 2014.   As a percent of sales, gross profit was 23.6% for the six months ended March 28, 2015 compared with 21.6% for the six months ended March 29, 2014

 

Excluding gasoline sales, grocery segment gross profit as a percentage of sales increased 52 basis points comparing the first half of fiscal 2015 compared with the same fiscal 2014 period.  Gasoline gross profit dollars were higher for the six months ended March 28, 2015 compared with the six months ended March 29, 2014.

 

17

 


 

Operating and Administrative Expenses. Operating and administrative expenses increased $16.7 million to $372.5 million for the six months ended March 28, 2015, from $355.8 million for the six months ended March 29, 2014.   As a percentage of sales, operating and administrative expenses were 19.8% for the six-month period ended March 28, 2015 compared with 18.8% for the six-month period ended March 29