What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2022-02-03 compared with 2021-08-05 · 102 added, 168 removed, 136 unchanged (67% of the section changed)

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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 26, 2021, the Company operated 111 in-store pharmacies and 107 fuel centers.

As of December 25, 2021, the Company operated 111 in-store pharmacies and 107 fuel centers.

Coronavirus (COVID-19) Pandemic Impact

The coronavirus (COVID-19) pandemic was declared a national emergency on March 13, 2020.

As an essential business, the Company has remained open throughout the pandemic and implemented numerous protocols to keep our customers and associates safe.

Since the pandemic was declared, sales and customer traffic have increased and have had a significant impact on the Company’s results of operation.

The three months ended June 26, 2021 represent the first full fiscal quarter in which both the current and the prior year fiscal quarters were impacted by the pandemic.

During this time period, and especially after vaccines became widely available, isolation measures have lifted to some extent as restaurants and schools have reopened and many public activities have resumed.

As discussed later in this form 10-Q, the Company’s sales and financial performance for the three months ended June 26, 2021 continue to be significantly above pre-pandemic levels and compare favorably with the quarter ended June 27, 2020 early in the pandemic.

As the economy and daily life have opened back up

 We have experienced labor shortages and upward pressure on wages

 Availability of some products has been disrupted

 Transportation delays have been encountered

 Food at home costs have increased, and the overall rate of inflation has increased to levels not seen for many years

In future months, our sales and financial performance could be impacted by

 The delta variant (and any future variants) of COVID-19, which has recently increased the number of people impacted by the coronavirus

 The return to classrooms in late summer 2021

 Changes to or elimination of various economic assistance programs

Accordingly, at the present time we do not know how long, and to what extent the pandemic could impact our sales and financial performance.

The COVID-19 pandemic which began in March 2020 and has continued through the three months ended December 25, 2021, has impacted supermarket operations, as the Company implemented several enhanced cleaning and social distancing protocols designed to keep our customers and our associates safe.

Since March 2020, the Company’s stores have experienced increased customer traffic and have had experienced occasional product shortages due to supply chain issues.

Recently, an extremely tight labor market has impacted the Company’s ability to attract and retain qualified store personnel, but these impacts have not materially affected our operations.

Finally, as the economy recovers, inflation has reached levels not seen in decades.

Inflation impacts product costs, labor costs and other goods used by the Company.

At the present time, we do not know how long and to what extent the pandemic could impact our sales and financial performance.

Critical Accounting Policies

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however, liability coverage is maintained.

At June 26, 2021 the Company’s self-insurance reserves totaled $33.7 million.

At December 25, 2021 the Company’s self-insurance reserves totaled $32.1 million.

This amount is inclusive of $4.2 million of expected self-insurance recoveries from excess cost insurance or other sources that are recorded as a receivable.

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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 26, 2021.

There were no asset impairments during the three-month period ended December 25, 2021.

Vendor Allowances

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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 practicable, 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.

Whenever practical, 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 the use of the retail method of store inventory 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 $30.0 million and $22.4 million for the fiscal quarters ended June 26, 2021 and June 27, 2020, respectively.

For the nine-month periods ended June 26, 2021 and June 27, 2020, vendor allowances applied as a reduction of merchandise costs totaled $88.7 million

and $81.2 million, respectively.

Vendor allowances applied as a reduction of merchandise costs totaled $31.9 million and $29.7 million for the fiscal quarters ended December 25, 2021 and December 26, 2020, respectively.

Vendor advertising allowances that represent a reimbursement of specific identifiable incremental costs of advertising the vendor’s specific products are recorded as a reduction to the related expense in the period in which the related expense is incurred.

Vendor advertising allowances recorded as a reduction of advertising expense totaled $2.0 million and $0.7 million for the fiscal quarters ended June 26, 2021 and June 27, 2020, respectively.

For the nine-month periods ended June 26, 2021 and June 27, 2020, vendor advertising allowances recorded as a reduction of advertising expense totaled $6.0 million and $6.5 million, respectively.

Overall, v endor allowances decreased at the March 2020 onset of the COVID-19 pandemic as many promotional activities were curtailed.

During the current fiscal year, promotional activities have increased, but have not fully returned to pre-pandemic levels.

Vendor advertising allowances recorded as a reduction of advertising expense totaled $2.1 million and $1.9 million for the fiscal quarters ended December 25, 2021 and December

26, 2020, respectively.

Overall, v endor allowances decreased significantly at the onset of the COVID-19 pandemic as vendors reduced support for promotional activities.

Vendor promotional support subsequently increased, but has not reached pre-pandemic levels.

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.

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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 26, 2021 and June 27, 2020, respectively.

The Condensed Consolidated Statements of Income for the three-month periods ended December 25, 2021 and December 26, 2020 both include 13 weeks of operations.

Comparable store sales are defined as sales by retail stores in operation for five full fiscal quarters.

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A major remodel entails substantial remodeling of an existing store and includes additional retail square footage.

For both the three- and nine-month periods ended June 26, 2021 and June 27, 2020, comparable store sales included 197 and 196 stores, respectively.

For the three-month period ended December 25, 2021, comparable store sales included 196 stores.

For the three-month period ended December 26, 2020, comparable store sales included 197 stores.

The following table sets forth, for the periods indicated, selected financial information as a percentage of net sales.

For information regarding the various segments of the business, see Note I “Segment Information” to the Condensed Consolidated Financial Statements.

For information regarding the various segments of the business, see Note K “Segment Information” to the Condensed Consolidated Financial Statements.

Three Months Ended

Nine Months Ended

Operating and administrative expenses

Gain from sale or disposal of assets

Income from operations

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Interest expense

Loss on early extinguishment of debt

Income tax expense

Three Months Ended June 26, 2021 Compared to the Three Months Ended June 27, 2020

Net income for the third quarter of fiscal 2021 totaled $72.0 million, compared with net income of $62.8 million earned for the third quarter of fiscal 2020.

The COVID-19 pandemic was declared a national emergency on March 13, 2020, therefore, each of the three months ended June 26, 2021 and June 27, 2020 was influenced by the pandemic.

These comparative third quarters had high sales as various social distancing measures, were still in place and most schools and restaurants were not fully back to pre-pandemic operations.

While the Company has incurred significant additional operating expenses to maintain clean and safe stores, expenses did not increase as much as sales, resulting in higher pre-tax income.

Net sales increased by $87.9 million, or 7.4%, to $1.28 billion for the three months ended June 26, 2021 compared with $1.19 billion for the three months ended June 27, 2020.

Comparing the third quarter of fiscal 2021 with the third quarter of fiscal 2020, total grocery sales excluding gasoline only decreased by 0.5% even with a reopening of daily life in most of our market area.

Compared with the pre-pandemic third quarter ended June 2019, grocery sales excluding gasoline for the June 2021 quarter increased 23.0%.

Gasoline sales dollars and gallons sold were higher for the June 2021 fiscal quarter as compared to the June 2020 fiscal quarter due to increased travel as COVID-19 pandemic restrictions have eased.

Excluding gasoline sales, total grocery comparable store sales for the June 2021 quarter decreased 0.9% over the comparative fiscal quarter.

Comparing the third quarters of fiscal years 2021 and 2020 (and excluding gasoline), the number of customer transactions increased 8.2% and the average transaction size

decreased 8.0%.

We believe that easing of the COVID-19 pandemic restrictions has resulted in more trips to our stores at a lower transaction size even as dollar sales were somewhat level.

Ingles operated 198 stores at June 26, 2021 and 197 stores at June 27, 2020.

Retail square feet totaled approximately 11.3 million square feet at June 26, 2021 and at June 27, 2020.

During the twelve months ended June 26, 2021, the Company opened one store.

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

Three Months Ended December 25, 2021 Compared to the Three Months Ended December 26, 2020

Net income for the first quarter of fiscal 2022 totaled $66.2 million, compared with net income of $53.8 million earned for the first quarter of fiscal 2021.

At the beginning of the COVID-19 pandemic in March 2020, there were widespread stay-at-home measures, as well as the closing of most schools and restaurants.

While such orders and mass closures have lessened, the emergence of the Delta and Omicron COVID-19 variants resulted in the return, to some extent of these type of measures, which were still in place throughout the three months ended December 25, 2021.

As a result, retail grocery sales have benefited and continued to increase almost two years into the pandemic.

Corresponding operating expenses did not increase as much as sales, resulting in higher pre-tax income.

Net sales increased by $201.1 million, or 16.9%, to $1.39 billion for the three months ended December 25, 2021 compared with $1.19 billion for the three months ended December 26, 2020.

Comparing the first quarter of fiscal 2022 with the first quarter of fiscal 2021, gasoline sales dollars and gallons sold were higher due to increased holiday travel and a substantial increase in market prices for fuel.

Excluding gasoline sales, total grocery comparable store sales increased 10.0% over the comparative fiscal quarter.

Comparing the first quarters of fiscal years 2022 and 2021 (and excluding gasoline), the number of customer transactions increased 7.3% and the average transaction size increased 3.4%.

As noted above, the COVID-19 pandemic has resulted in more meals consumed at home due in part to school closures and customers limiting their dining out.

Overall, food and gasoline inflation has also impacted the dollar amount of sales.

Ingles operated 198 stores at December 25, 2021 and 197 stores at December 26, 2020.

Retail square feet totaled approximately 11.3 million square feet at December 25, 2021 and 11.3 million square feet at December 26, 2020.

During the twelve months ended December 25, 2021, the Company opened two new stores and closed one store.

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

Three Months Ended

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

Changes in retail grocery sales for the quarter ended June 26, 2021 are summarized as follows (in thousands):

Total retail sales for the three months ended June 27, 2020

Comparable store sales increase (including gasoline)

Impact of stores opened in fiscal 2021

Impact of stores closed in fiscal 2020

Total retail sales for the three months ended June 26, 2021

Gross Profit.

Gross profit for the three-month period ended June 26, 2021 totaled $337.5 million, an increase of $12.8 million, or 3.9%, compared with gross profit of $324.7 million for the three-month period ended June 27, 2020.

Gross profit as a percentage of sales was 26.4% and 27.3% for the three months ended June 26, 2021 and June 27, 2020, respectively.

Since the beginning of the COVID-19 pandemic, we have seen a decrease in discounting and shrink, resulting in higher gross profit and gross margin.

As a comparison, gross profit as a percentage of sales for the pre-pandemic quarter ended June 2019 was 24.4%.

Retail grocery gross margin excluding gasoline was 55 basis points higher for the quarter ended June 26, 2021 compared with the quarter ended June 27, 2020 .

Gasoline gross profit was also higher for the June 2021 fiscal quarter compared with the June 2020 fiscal quarter as travel has increased due to the easing of COVID-19 restrictions.

Operating and Administrative Expenses.

Operating and administrative expenses increased $4.8 million, or 2.1%, to $239.4 million for the three months ended June 26, 2021, from $234.6 million for the three months ended June 27, 2020.

As a percentage of sales, operating and administrative expenses were 18.7% and 19.7% for the June 2021 and June 2020 quarters, respectively.

Excluding gasoline sales and associated gasoline operating expenses (primarily payroll), operating expenses were 21.3% of sales for the third fiscal quarter of 2021 compared with 21.0% for the third fiscal quarter of 2020.

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

Store supplies

Depreciation and amortization

Store supplies increased due to raw material cost increases and commensurate with the increase in sales.

Depreciation expense increased due to equipment purchased for store improvements and the distribution network.

Bank charges increased as a result of increased sales and higher card usage compared with cash or checks.

Insurance expense decreased due to lower claims under the Company’s self-insurance programs.

Gain from Sale or Disposal of Assets.

Gain from the sale or disposal of assets totaled $2.5 million during the three months ended June 26, 2021, primarily from the sale of a former store property.

During the quarter ended June 27, 2020, the gain from the sale or disposal of assets totaled $1.3 million primarily from a land parcel sale.

Interest Expense.

Interest expense totaled $5.5 million for the three-month period ended June 26, 2021 compared with $9.7 million for the three-month period ended June 27, 2020.

Total debt at June 2021 was $901.2 million compared with $819.3 million at June 2020.

Excluding the $295.0 million of the 2023 Notes redeemed on July 16, 2021, debt would total $606.2 million at June 26, 2021.

Over the past twelve months, the Company has reduced or refinanced its higher rate debt.

LIBOR decreased significantly during calendar year 2020, reducing the carrying cost of some of the Company’s debt.

Loss on Early Extinguishment of Debt.

In conjunction with the June 2021 issuance of the 2031 Notes and the Line, the Company wrote off $1.1 million of capitalized loan costs related to the 2023 Notes and the Company’s former line of credit.

Income Taxes.

Income tax expense totaled $22.7 million for the three months ended June 26, 2021, an effective tax rate of 24.0% of pretax income.

Income tax expense totaled $19.6 million for the three months ended June 27, 2020, an effective tax rate of 23.8% of pretax income.

Net income totaled $72.0 million for the three-month period ended June 26, 2021 compared with $62.8 million for the three-month period ended June 27, 2020.

Basic and diluted earnings per share for Class A Common Stock were $3.88 and $3.79, respectively, for the June 2021 quarter, compared to $3.18 and $3.10, respectively, for the June 2020 quarter.

Basic and diluted earnings per share for Class B Common Stock were each $3.52 for the June 2021 quarter compared with $2.89 for the June 2020 quarter.

Nine Months Ended June 26, 2021 Compared to the Nine Months Ended June 27, 2020

Net income for the nine months ended June 26, 2021 totaled $178.0 million, compared with net income of $120.7 million earned for the first nine months of fiscal 2020.

The COVID-19 pandemic resulted in various stay-at-home measures, as well as the closing of most schools and restaurants beginning in March 2020.

Many of these measures were still in place throughout the nine-month period ended June 26, 2021.

As a result, retail grocery sales increased.

Corresponding operating expenses did not increase as much, resulting in higher pre-tax income.

Net sales increased by $239.0 million, or 7.0%, to $3.65 billion for the nine months ended June 26, 2021 compared with $3.41 billion for the nine months ended June 27, 2020.

T he COVID-19 pandemic impacted the full nine-month period ended June 2021, while it impacted only 15 of the 39 weeks ended June 2020.

Comparing the first nine months of fiscal 2021 with the first nine months of fiscal 2020, gasoline sales dollars and gallons sold were higher as the public began to travel more and market prices increased.

Excluding gasoline sales, total grocery comparable store sales increased 5.2% over the comparative nine-month period.

Comparing the first nine months of fiscal years 2021 and 2020 (and excluding gasoline), the number of customer transactions increased 2.2% and the average transaction size increased 3.1%.

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

Nine Months Ended

Total retail grocery

Changes in retail grocery sales for the nine months ended June 26, 2021 are summarized as follows (in thousands):

Total retail sales for the nine months ended June 27, 2020

Changes in retail grocery sales for the quarter ended December 25, 2021 are summarized as follows (in thousands):

Total retail sales for the three months ended December 26, 2020

Comparable store sales increase (including gasoline)

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Impact of stores closed in fiscal 2021

Total retail sales for the nine months ended June 26, 2021

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

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

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

Total retail sales for the three months ended December 25, 2021

Gross Profit.

Gross profit for the nine-month period ended June 26, 2021 totaled $962.2 million, an increase of $88.4 million, or 10.1%, compared with gross profit of $873.8 million for the nine-month period ended June 27, 2020.

Gross profit as a percentage of sales was 26.3% and 25.6% for the nine months ended June 26, 2021 and June 27, 2020, respectively.

Retail grocery gross margin excluding gasoline was 102 basis points higher for the nine months ended June 26, 2021 compared with the nine months ended June 27, 2020.

There was less discounting and shrink during the current nine-month period as compared with the prior nine-month period.

Gross profit for the three-month period ended December 25, 2021 totaled $350.5 million, an increase of $36.3 million, or 11.6%, compared with gross profit of $314.2 million for the three-month period ended December 26, 2020.

Gross profit as a percentage of sales was 25.2% and 26.4% for the three months ended December 25, 2021 and December 26, 2020, respectively.

The gross margin for gasoline was lower during the current year quarter due to a sharply higher per gallon cost and sales price.

Retail segment gross profit, excluding gasoline increased 18 basis points for the quarter ended December 25, 2021, as compared with the quarter ended December 26, 2020.

Operating and Administrative Expenses.

Operating and administrative expenses increased $29.5 million, or 4.3%, to $714.5 million for the nine months ended June 26, 2021, from $685.0 million for the nine months ended June 27, 2020.

As a percentage of sales, operating and administrative expenses were 19.6% and 20.1% for the June 2021 and June 2020 nine-month periods, respectively.

Excluding gasoline sales and associated gasoline operating expenses (primarily payroll), operating expenses were 21.8% of sales for the first nine months of 2021 compared with 22.1% for the first nine months of 2020.

The fiscal 2021 first nine month expense percentages are lower due to additional pandemic-related sales during the first nine months of 2021.

Operating and administrative expenses increased $21.9 million, or 9.2%, to $260.1 million for the three months ended December 25, 2021, from $238.2 million for the three months ended December 26, 2020.

As a percentage of sales, operating and administrative expenses were 18.7% and 20.0% for the December 2021 and December 2020 quarters, respectively.

Excluding gasoline sales and associated gasoline operating expenses (primarily payroll), operating expenses were 21.5% of sales for the first fiscal quarter of 2022 compared with 21.9% for the first fiscal quarter of 2021.

The fiscal 2022 first quarter expense percentages are lower due to additional pandemic-related sales during the first fiscal quarter of 2022.

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

Salaries and wages

Depreciation and amortization

Store supplies

Repairs and maintenance

Professional fees

Salaries and wages increased in dollars due to additional labor hours required for the increased sales volume, including extra labor needed in response to the COVID-19 pandemic .

Depreciation expense increased due to equipment purchased for store improvements, information technology, and the distribution network.

Bank charges increased as a result of increased sales and higher card usage compared with cash or checks.

Store supplies increased due to raw material cost increases and commensurate with the increase in sales.

Repairs and maintenance expense increased due to extra sales and enhanced cleaning protocols as a result of the COVID-19 pandemic.

Gain from Sale or Disposal of Assets.

Gain from the sale or disposal of assets totaled $3.6 million during the nine months ended June 26, 2021, primarily from the sale of a former store property.

During the nine months ended June 27, 2020, the gain from the sale or disposal of assets totaled $4.4 million primarily from the sale of land.

Store supplies increased as a result of increased sales and market costs of certain supplies.

The COVID-19 pandemic has resulted in higher usage of cleaning and packaging products to maintain product safety and the safety of our employees and customers.

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

Bank charges increased due to increased sales and a greater portion of sales settled with credit/debit cards instead of cash or check.

Professional fees increased in conjunction with improvements to the Company’s information technology platforms.

Other Income.

Other income totaled $1.6 million for the three months ended December 25, 2021 compared with $0.7 million for the three months ended December 26, 2020.

The increase is attributable to higher sales of waste paper and other recyclables.

Interest Expense.

Interest expense totaled $18.1 million for the nine-month period ended June 26, 2021 compared with $31.8 million for the nine -month period ended June 27, 2020.

Over the past twelve months, the Company has reduced or refinanced its higher rate debt.

LIBOR decreased significantly during calendar year 2020, reducing the cost of some of the Company’s debt.

Loss on Early Extinguishment of Debt.

During the nine month June 2021 period, the Company wrote off $1.1 million of capitalized loan costs related to the retirement of the 2023 Notes and the Company’s former line of credit.

During the nine-month June 2020 period, the Company incurred $3.7 million of extinguishment costs related to the early repayment of $155 million of 2023 Notes.

Interest expense totaled $5.4 million for the three-month period ended December 25, 2021 compared with $6.4 million for the three-month period ended December 26, 2020.

Total debt at December 25, 2021 was $586.1 million compared with $587.9 million at December 26, 2020.

Over the past twelve months, the Company has reduced or refinanced higher rate debt.

Income Taxes.

Income tax expense totaled $56.2 million for the nine months ended June 26, 2021, an effective tax rate of 24.0% of pretax income.

Income tax expense totaled $38.0 million for the nine months ended June 27, 2020, an effective tax rate of 23.9% of pretax income.

Net income totaled $178.0 million for the nine-month period ended June 26, 2021 compared with $120.7 million for the nine-month period ended June 27, 2020.

Basic and diluted earnings per share for Class A Common Stock were $9.22 and $8.98, respectively, for the nine months ended June 26, 2021, compared to $6.13 and $5.96, respectively, for the nine months ended June 27, 2020.

Basic and diluted earnings per share for Class B Common Stock were each $8.38 for the nine-months ended June 26, 2021 compared with $5.57 for the nine months ended June 27, 2020.

Income tax expense totaled $20.4 million for the three months ended December 25, 2021, an effective tax rate of 23.6% of pretax income.

Income tax expense totaled $16.9 million for the three months ended December 26, 2020, an effective tax rate of 23.9% of pretax income.

Net income totaled $66.2 million for the three-month period ended December 25, 2021 compared with $53.8 million for the three-month period ended December 26, 2020.

Basic and diluted earnings per share for Class A Common Stock were $3.57 and $3.48, respectively, for the December 2021 quarter, compared to $2.73 and $2.66, respectively, for the December 2020 quarter.

Basic and diluted earnings per share for Class B Common Stock were each $3.24 for the December 2021 quarter compared with $2.48 for the December 2020 quarter.

Liquidity and Capital Resources

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The Company’s modernization program includes the opening of new stores, the completion of major remodels and expansion of selected existing stores, the relocation of selected existing stores to larger, more convenient locations and the completion of minor remodeling of its remaining existing stores.

Capital expenditures totaled $108.0 million for the nine-month period ended June 26, 2021.

These capital expenditures focused on construction of stores opened or scheduled to open later in fiscal 2021, site acquisition, and smaller-scale remodeling projects in a number of the Company’s stores.

Capital expenditures totaled $21.3 million for the three-month period ended December 25, 2021.

These capital expenditures focused on construction of stores scheduled to open later in fiscal 2022, site acquisition, and smaller-scale remodeling projects in a number of the Company’s stores.

Capital expenditures also included the costs of upgrading and replacing store equipment, technology investments, rolling stock, and capital expenditures related to the Company’s milk processing plant.

Ingles’ capital expenditure plans for fiscal 2021 currently include investments of approximately $120 to $140 million.

Capital expenditures were lower this quarter due to both increased costs and reduced availability of labor and materials.

The Company expects to increase capital expenditures when labor and material costs normalize.

The Company’s capital expenditure plans for fiscal 2022 currently include investments of approximately $100 to $120 million.

At this time the Company does not anticipate that the COVID-19 pandemic will have an adverse impact on its long-term capital expenditure plans.

The Company currently plans to dedicate the majority of its fiscal 2022 capital expenditures to continued improvement of its store base and also include investments in stores expected to open in fiscal 2022, as well as technology improvements, upgrading and replacing existing store equipment and warehouse and transportation equipment and improvements to the Company’s milk processing plant.

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The Company does not generally enter into commitments for capital expenditures other than on a store-by-store basis at the time it begins construction on a new store or begins a major or minor remodeling project.

Outstanding construction commitments totaled $3.2 million at June 26, 2021.

The Company generated $213.9 million net cash from operations in the June 2021 nine-month period compared with $229.0 million during the June 2020 nine-month period.

Net income was higher for the nine-month 2021 period compared with the prior year, but this was offset by higher working capital uses to maintain higher levels of inventory needed to support increased pandemic-related sales.

Cash used by investing activities for the nine-month periods ended June 26, 2021 and June 27, 2020 totaled $396.4 million and $71.6 million, respectively.

$295.0 million of 2031 Notes proceeds were invested short-term prior to the redemption of the 2023 Notes in July 2021.

Cash provided by financing activities totaled $200.1 million for the nine-month period ended June 26, 2021, compared with cash used by financing activities of $47.3 million for the nine-month period ended June 27, 2020.

The increase is primarily related to the issuance of the 2031 Notes and the repurchase of common stock during the 2021 period.

In June 2021, the Company issued $350.0 million aggregate principal amount of senior notes due in 2031 (the “2031 Notes”).

The Company had no outstanding construction commitments at December 25, 2021.

The Company generated $95.0 million net cash from operations in the December 2021 three-month period compared with $57.8 million during the December 2020 three-month period.

The increase is primarily attributable to higher net income as a result of increased sales due to the COVID-19 pandemic .

Cash used by investing activities for the three-month periods ended December 25, 2021 and December 26, 2020 totaled $131.1 million and $33.6 million, respectively.

Excess cash of approximately $110 million has been invested in short-term financial instruments.

Cash used by financing activities totaled $6.5 million for the three-month period ended December 25, 2021, compared with $21.0 million for the three-month period ended December 26, 2020.

The decrease is primarily related to the repayment of borrowings under the Line (as defined below) during the quarter ended December 26, 2020.

In June 2021, the Company issued $350.0 million aggregate principal amount of senior notes due 2031 (the “Notes”).

The Notes bear an interest rate of 4.00% per annum and were issued at par.

Upon issuance of the 2031 Notes, the Company issued an irrevocable notice to redeem the remaining $295.0 million principal amount of 5.75% senior notes due in 2023 (the “2023 Notes”).

These 2023 Notes were redeemed at par value on July 16, 2021.

In November 2019, the Company closed a $155.0 million ten year amortizing real estate loan (the “Loan”) and issued notice to redeem a like principal amount of the 2023 Notes.

The Loan was funded and the 2023 Notes were redeemed at 101.917% of par value thirty days after the redemption notice in December 2019.

The Loan matures January 31, 2030 and has monthly principal payments of $0.65 million plus floating rate interest based on LIBOR.

In June 2020, the Company issued an irrevocable notice to redeem $150.0 million principal amount of the 2023 Notes.

The 2023 Notes were redeemed at 100.958% of par value on July 9, 2020.

In July 2020, the Company issued an irrevocable notice to redeem $100 million principal amount of the 2023 Notes.

The 2023 Notes were redeemed at 100.958% of par value on August 27, 2020.

Upon issuance of the Notes, the Company issued an irrevocable notice to redeem the remaining $295.0 million principal amount of the Company’s 5.75% senior notes due 2023 which the Company redeemed at par value on July 16, 2021.

The Company has a $150.0 million line of credit (the “Line”) that matures in June 2026.

The Line provides the Company with various interest rate options based on the prime rate, the Federal Funds Rate, or LIBOR.

The Line allows the Company to issue up to $10.0 million in unused letters of credit, of which none were issued at June 26, 2021.

The Line allows the Company to issue up to $10.0 million in letters of credit, of which none were issued at December 25, 2021.

The Company is not required to maintain compensating balances in connection with the Line.

At June 26, 2021, the Company had no borrowings outstanding under the Line.

At December 25, 2021, the Company had no borrowings outstanding under the Line.

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

The final maturity date of the Bonds is January 1, 2036.

Under a Continuing Covenant and Collateral Agency Agreement (the “Covenant Agreement”) between certain financial institutions and the Company, the financial institutions would hold the Bonds until September 26, 2026, subject to certain events.

Mandatory redemption of the Bonds by the Company in the annual amount of $4.5 million began on January 1, 2014.

The outstanding balance of the Bonds is $63.5 million as of June 26, 2021.

The Company may redeem the Bonds without penalty or premium at any time prior to September 26, 2026.

The outstanding balance of the Bonds is $63.5 million as of December 25, 2021.

The Company may redeem the Bonds without penalty or premium at any time prior to December 17, 2029.

The Covenant Agreement was amended during the three months ended December 25, 2021 to extend the holding period and reduce the interest rate on the Bonds.

The Company has an interest rate swap agreement for a current notional amount of $35.0 million at a fixed rate of 3.92%.

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Included among the triggering factors permitting the termination or withdrawal of the Line to the Company are certain events of default, including both monetary and non-monetary defaults, the initiation of bankruptcy or insolvency proceedings, and the failure of the Company to meet certain financial covenants designated in its respective loan documents.

As of June 26, 2021, the Company was in compliance with these covenants.

Under the most restrictive of these covenants, the Company would be able to incur approximately $1.53 billion of additional borrowings (including borrowings under the Line) as of June 26, 2021.

As of December 25, 2021, the Company was in compliance with these covenants.

Under the most restrictive of these covenants, the Company would be able to incur approximately $2.1 billion of additional borrowings (including borrowings under the Line) as of December 25, 2021.

The Company’s principal sources of liquidity are expected to be cash flow from operations, borrowings under the Line and long-term debt financing.

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These factors may include, among others, increased competition, changing regional and national economic conditions, adverse climatic conditions affecting food production and delivery, changing demographics, and the impact of the COVID-19 pandemic, as well as the additional factors discussed below under “Forward Looking Statements.” It is also possible, for such reasons, that the results of operations from the new, expanded, remodeled and/or replacement stores will not meet or exceed the results of operations from existing stores that are described in this report.

Contractual Obligations and Commercial Commitments

There have been no other material changes in contractual obligations and commercial commitments subsequent to September 25, 2021 other than as described elsewhere in this Form 10-Q.

Off Balance Sheet Arrangements

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

Quarterly Cash Dividends

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The Company’s real estate activities are not subject to seasonal variations.

Impact of Inflation

As the economy recovers from the initial impact of the COVID-19 pandemic, inflation has recently reached levels not experienced in decades.

Food and energy costs have increased, reflecting a tight labor market and supply chain/transportation disruptions.

The following table from the United States Bureau of Labor Statistics lists annualized changes in the Consumer Price Index that could have an effect on the Company’s operations.

One of the Company’s significant costs is labor, which increases with general inflation.

Inflation or deflation in energy costs affects the Company’s gasoline sales, distribution expenses and plastic supply costs.

During the past twelve months, inflation has reached its highest level in a number of years, impacting food costs, transportation costs, and labor costs.

Twelve Months Ended

December 2021

Forward Looking Statements

This Quarterly Report contains certain forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended.

This Quarterly Report on Form 10-Q contains certain forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended.

The words “expect”, “anticipate”, “intend”, “plan”, “likely”, “goal”, “believe”, “seek”, “will”, “may”, “would”, “should” and similar expressions are intended to identify forward-looking statements.

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the maturation of new and expanded stores;

the Company’s ability to reduce costs and achieve improvements in operating results;

the Company’s ability to reduce costs and achieve

improvements in operating results;

the availability and terms of financing;

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis