INGLES MARKETS INC 10-Q

Item 1. FINANCIAL STATEMENTS INGLES MARKETS, INCORPORATED AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) December 25, September 25, 2021 2021 ASSETS Current Assets: Cash and cash equivalents $ 27,644,219 $ 70,313,350 Short term investments 115,007,106 5,000,000 Receivables - net 103,033,744 95,082,014 Inventories 389,467,377 389,953,456 Other current assets 14,032,928 15,091,595 Total Current Assets 649,185,374 575,440,415 Property and Equipment - Net 1,358,098,133 1,370,769,432 Operating lease right of use assets 38,109,698 40,145,098 Other Assets 32,604,498 31,989,010 Total Assets $ 2,077,997,703 $ 2,018,343,955 LIABILITIES AND STOCKHOLDERS’ EQUITY Current Liabilities: Current portion of long-term debt $ 17,595,785 $ 17,600,739 Current portion of operating lease liabilities 8,303,132 8,635,998 Accounts payable - trade 204,197,268 189,432,027 Accrued expenses and current portion of other long-term liabilities 77,753,280 90,428,567 Total Current Liabilities 307,849,465 306,097,331 Deferred Income Taxes 72,122,000 72,768,000 Long-Term Debt 568,532,952 571,913,204 Noncurrent operating lease liabilities 32,090,620 33,887,935 Other Long-Term Liabilities 49,607,450 50,418,947 Total Liabilities 1,030,202,487 1,035,085,417 Stockholders’ Equity Preferred stock, $ 0.05 par value; 10,000,000 shares authorized; no shares issued — — Common stocks: Class A, $ 0.05 par value; 150,000,000 shares authorized; ‎ 14,304,635 shares issued and outstanding December 25, 2021; ‎ 14,271,335 shares issued and outstanding at September 25, 2021 715,232 713,567 Class B, convertible to Class A, $ 0.05 par value; ‎ 100,000,000 shares authorized; ‎ 4,689,741 shares issued and outstanding December 25, 2021; ‎ 4,723,041 shares issued and outstanding at September 25, 2021 234,487 236,152 Paid-in capital in excess of par value — — Accumulated other comprehensive income ( 2,015,253 ) ( 3,426,140 ) Retained earnings 1,048,860,750 985,734,959 Total Stockholders’ Equity 1,047,795,216 983,258,538 Total Liabilities and Stockholders’ Equity $ 2,077,997,703 $ 2,018,343,955 See notes to unaudited condensed consolidated financial statements. ‎ 3 INGLES MARKETS, INCORPORATED AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (UNAUDITED) Three Months Ended December 25, December 26, 2021 2020 Net sales $ 1,391,529,510 $ 1,190,443,141 Cost of goods sold 1,040,985,244 876,254,999 Gross profit 350,544,266 314,188,142 Operating and administrative expenses 260,085,404 238,199,077 (Loss) gain from sale or disposal of assets ( 56,028 ) 451,719 Income from operations 90,402,834 76,440,784 Other income, net 1,592,055 692,017 Interest expense 5,413,871 6,400,714 Income before income taxes 86,581,018 70,732,087 Income tax expense 20,392,000 16,908,000 Net income $ 66,189,018 $ 53,824,087 Other comprehensive income: Change in fair value of interest rate swap $ 1,866,887 $ 2,763,738 Income tax expense 456,000 675,000 Other comprehensive income, net of tax 1,410,887 2,088,738 Comprehensive income $ 67,599,905 $ 55,912,825 Per share amounts: Class A Common Stock Basic earnings per common share $ 3.57 $ 2.73 Diluted earnings per common share $ 3.48 $ 2.66 Class B Common Stock Basic earnings per common share $ 3.24 $ 2.48 Diluted earnings per common share $ 3.24 $ 2.48 Cash dividends per common share Class A Common Stock $ 0.165 $ 0.165 Class B Common Stock $ 0.150 $ 0.150 4 INGLES MARKETS, INCORPORATED AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (UNAUDITED) THREE MONTHS ENDED DECEMBER 25, 2021 AND DECEMBER 26, 2020 Paid-in Accumulated Class A Class B Capital in Other Common Stock Common Stock Excess of Comprehensive Retained Shares Amount Shares Amount Par Value Income (Loss) Earnings Total Balance, September 26, 2020 14,212,360 $ 710,618 6,047,416 $ 302,371 $ 12,311,249 $ ( 10,251,296 ) $ 816,258,015 $ 819,330,957 Net income — — — — — — 53,824,087 53,824,087 Other comprehensive income, net of income tax — — — — — 2,088,738 — 2,088,738 Cash dividends — — — — — — ( 3,252,151 ) ( 3,252,151 ) Common stock conversions 8,175 409 ( 8,175 ) ( 409 ) — — — — Balance, December 26, 2020 14,220,535 $ 711,027 6,039,241 $ 301,962 $ 12,311,249 $ ( 8,162,558 ) $ 866,829,951 $ 871,991,631 Balance, September 25, 2021 14,271,335 $ 713,567 4,723,041 $ 236,152 $ — $ ( 3,426,140 ) $ 985,734,959 $ 983,258,538 Net income — — — — — — 66,189,018 66,189,018 Other comprehensive income, net of income tax — — — — — 1,410,887 — 1,410,887 Cash dividends — — — — — — ( 3,063,227 ) ( 3,063,227 ) Common stock conversions 33,300 1,665 ( 33,300 ) ( 1,665 ) — — — — Balance, December 25, 2021 14,304,635 $ 715,232 4,689,741 $ 234,487 $ — $ ( 2,015,253 ) $ 1,048,860,750 $ 1,047,795,216 See notes to unaudited condensed consolidated financial statements. ‎ 5 INGLES MARKETS, INCORPORATED AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) Three Months Ended December 25, December 26, 2021 2020 Cash Flows from Operating Activities: Net income $ 66,189,018 $ 53,824,087 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization expense 29,297,267 29,878,689 Non cash operating lease cost 2,035,400 1,672,035 Loss (gain) from sale or disposal of assets 56,028 ( 451,719 ) Receipt of advance payments on purchases contracts 250,000 250,000 Recognition of advance payments on purchases contracts ( 746,529 ) ( 753,511 ) Deferred income taxes ( 1,102,000 ) 429,000 Changes in operating assets and liabilities: Receivables ( 7,951,730 ) ( 19,589,583 ) Inventory 486,079 ( 6,722,127 ) Other assets 233,187 ( 1,342,505 ) Operating lease liabilities ( 2,130,181 ) ( 1,766,313 ) Accounts payable and accrued expenses 8,361,969 2,346,228 Net Cash Provided by Operating Activities 94,978,508 57,774,281 Cash Flows from Investing Activities: Purchase of short term investments ( 110,007,106 ) — Proceeds from sales of property and equipment 215,289 593,245 Capital expenditures ( 21,333,456 ) ( 34,239,257 ) Net Cash Used by Investing Activities ( 131,125,273 ) ( 33,646,012 ) Cash Flows from Financing Activities: Proceeds from short-term borrowings — 248,719,275 Payments on short-term borrowings — ( 262,603,345 ) Principal payments on long-term borrowings ( 3,459,139 ) ( 3,890,502 ) Dividends paid ( 3,063,227 ) ( 3,252,152 ) Net Cash Used by Financing Activities ( 6,522,366 ) ( 21,026,724 ) Net (Decrease) Increase in Cash and Cash Equivalents ( 42,669,131 ) 3,101,545 Cash and cash equivalents at beginning of period 70,313,350 6,903,955 Cash and Cash Equivalents at End of Period $ 27,644,220 $ 10,005,500 See notes to unaudited condensed consolidated financial statements. ‎ 6 INGLES MARKETS, INCORPORATED AND SUBSIDIARIES NOTES TO UNAUDITED INTERIM FINANCIAL STATEMENTS Three Months Ended December 25, 2021 and December 26, 2020 A. BASIS OF PREPARATION In the opinion of management, the accompanying unaudited interim financial statements contain all adjustments necessary to present fairly the Company’s financial position as of December 25, 2021 and the results of operations and changes in stockholders’ equity and cash flows for the three months ended December 25, 2021 and December 26, 2020. 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 25, 2021, filed by the Company with the Securities and Exchange Commission on November 24, 2021. The results of operations for the three months ended December 25, 2021 are not necessarily indicative of the results to be expected for the full fiscal year. B. NEW ACCOUNTING PRONOUNCEMENTS In March 2020, the FASB issued ASU 2020-04, “ Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting .” The ASU provides optional guidance to ease the potential burden in accounting for reference rate reform on financial reporting in response to the risk of cessation of the London Interbank Offered Rate (“LIBOR”). This amendment provides for optional expedients and exceptions for applying generally accepted accounting principles to contracts and hedging relationships that are affected by LIBOR and other reference rates. The ASU generally allows for hedge accounting to continue if the hedge was highly effective or met other standards prior to reference rate reform. Entities are permitted to apply the amendments to all contracts, cash flow and net investment hedge relationships that exist as of March 12, 2020. The relief provided in this ASU is only available for a limited time, generally through December 31, 2022. The Company’s debt agreements and interest rate swaps that utilize LIBOR have not yet discontinued the use of LIBOR and, therefore, this ASU is not yet effective for us. To the extent our debt and interest rate swap arrangements change to another accepted rate, we will utilize the relief in this ASU to continue hedge accounting. C. SHORT TERM INVESTMENTS The Company purchases financial products that can be readily converted into cash and the Company accounts for such financial products as short-term investments. The financial products include money market funds, bonds and mutual funds. The carrying values of the Company’s short-term investments approximate fair value because of their liquidity. D. ALLOWANCE FOR DOUBTFUL ACCOUNTS Receivables are presented net of an allowance for doubtful accounts of $ 302,000 at December 25, 2021 and $ 157,000 at September 25, 2021. E. INCOME TAXES The Company’s effective tax rate differs from the federal statutory rate primarily as a result of state income taxes and tax credits. The Company has unrecognized tax benefits and could incur interest and penalties related to uncertain tax positions. These amounts are insignificant and are not expected to significantly increase or decrease within the next twelve months. 7 F. ACCRUED EXPENSES AND CURRENT PORTION OF OTHER LONG-TERM LIABILITIES Accrued expenses and current portion of other long-term liabilities consist of the following: December 25, September 25, 2021 2021 Property, payroll and other taxes payable $ 11,182,431 $ 22,621,486 Salaries, wages and bonuses payable 31,341,874 45,890,517 Self-insurance liabilities 13,421,539 13,319,556 Interest payable 994,024 4,481,104 Income taxes payable 16,797,341 — Other 4,016,071 4,115,904 $ 77,753,280 $ 90,428,567 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 currently insured for covered costs in excess of $ 1.0 million per occurrence for workers’ compensation and for general liability and $ 450,000 per covered person for medical care benefits for a policy year. The Company’s self-insurance reserves totaled $ 32.1 million at both December 25, 2021 and September 25, 2021. Of this amount, $ 13.4 million is accounted for as a current liability and $ 18.7 million as a long-term liability, which is inclusive of $ 4.2 million of expected self-insurance recoveries from excess cost insurance or other sources that are recorded as a receivable at December 25, 2021. At September 25, 2021, $ 13.3 million was accounted for as a current liability and $ 18.8 million as a long-term liability, which is inclusive of $ 4.2 million of expected self-insurance recoveries from excess cost insurance or other sources that are recorded as a receivable. Employee insurance expense, including workers’ compensation and medical care benefits, net of employee contributions, totaled $ 13.4 million and $ 12.3 million for the three months ended December 25, 2021 and December 26, 2020, respectively. The Company’s fuel operations contain underground tanks for the storage of gasoline and diesel fuel. The Company reviewed FASB Accounting Standards Codification Topic 410 (“FASB ASC 410”) and determined we have a legal obligation to remove tanks at a point in the future and accordingly determined we have met the requirements of an asset retirement obligation. The Company followed the FASB ASC 410 model for determining the asset retirement cost and asset retirement obligation. The amounts recorded are immaterial for each fuel center as well as in the aggregate at December 25, 2021 and September 25, 2021. G. LONG-TERM DEBT In June 2021, the Company issued at par $ 350.0 million aggregate principal amount of 4.00 % senior notes due 2031 (the “Notes”). The Company may redeem all or a portion of the Notes at any time at the following redemption prices (expressed as percentages of the principal amount), if redeemed during the 12-month period beginning June 15 of the years indicated below: Year 2026 102.000 % 2027 101.333 % 2028 100.667 % 2029 and thereafter 100.000 % The Company had a $ 175.0 million line of credit that was scheduled to mature in September 2022 . In June 2021, the Company replaced that line by entering into 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 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 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 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 December 2029, 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 was $ 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 quarter ended December 25, 2021 to extend the holding period and reduce the interest rate on the Bonds. 8 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. The Covenant Agreement incorporates substantially all financial covenants included in the Line. The Company has an interest rate swap agreement for a current notional amount of $ 35.0 million at a fixed rate of 3.92 %. Under this agreement, the Company pays monthly the fixed rate of 3.92 % and receives the one-month LIBOR plus 1.65 %. The interest rate swap effectively hedges floating rate debt in the same amount as the current notional amount of the interest swap. Both the floating rate debt and the interest rate swap have monthly principal amortization of $ 0.5 million and mature October 1, 2027 . The Company has an interest rate swap agreement for a current notional amount of $ 138.2 million at a fixed rate of 2.95 %. Under this agreement, the Company pays monthly the fixed rate of 2.95 % and receives the one-month LIBOR plus 1.50 %. The interest rate swap effectively hedges floating rate debt in the same amount as the current notional amount of the interest swap. Both the floating rate debt and the interest rate swap have monthly principal amortization of $ 0.65 million and mature in fiscal year 2030. The Company recognizes differences between the variable rate interest payments and the fixed interest rate settlements with the swap counterparties as an adjustment to interest expense each period over the life of the swaps. The Company has designated the swaps as cash flow hedges and records the changes in the estimated fair value of the swaps to other comprehensive income each period. For the three months ended December 25, 2021, the Company recorded $ 1.4 million of other comprehensive income, net of income taxes, in its Consolidated Statements of Comprehensive Income. Unrealized losses of $ 2.7 million are included as a liability at fair value in the line “Other Long Term Liabilities” on the Consolidated Balance Sheet as of December 25, 2021. For the three-month period ended December 26, 2020, the Company recorded $ 2.1 million of other comprehensive income, net of income taxes, in its Consolidated Statements of Comprehensive Income. The Company’s long-term debt agreements generally contain provisions that under certain circumstances would permit lending institutions to terminate or withdraw their respective extensions of credit to the Company. Included among the triggering factors permitting the termination or withdrawal of the Line to the Company are certain events of default, including both monetary and non-monetary defaults, the initiation of bankruptcy or insolvency proceedings, and the failure of the Company to meet certain financial covenants designated in its respective loan documents. The Company was in compliance with all financial covenants at December 25, 2021. The Company’s long-term debt agreements generally have cross-default provisions which could result in the acceleration of payments due under all long-term debt agreements in the event of default under any one instrument. At December 25, 2021, property and equipment with an undepreciated cost of approximately $ 277.4 million were pledged as collateral for long-term debt. Long-term debt and Line agreements contain various restrictive covenants requiring, among other things, minimum levels of net worth and maintenance of certain financial ratios. At December 25, 2021, the Company had excess net worth totaling $ 267.1 million calculated under covenants in the Bonds, the Loan, and the Line. This amount is available to pay dividends; however, certain loan agreements containing provisions outlining minimum tangible net worth requirements restrict the ability of the Company to pay cash dividends in excess of the current annual per share dividends paid on the Company’s Class A and Class B Common Stock. Further, the Company is prevented from paying cash dividends at any time that it is in default under the indenture governing the Notes. In addition, the terms of the indenture may restrict the ability of the Company to pay additional cash dividends based on certain financial parameters. H. 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 14, 2021 to stockholders of record on October 7, 2021 . 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 contained in the Company’s Annual Report on Form 10-K filed by the Company with the Securities and Exchange Commission on November 24, 2021. I. EARNINGS PER COMMON SHARE The Company has two classes of common stock: Class A which is publicly traded, and Class B, which has no public market. The Class B Common Stock has restrictions on transfer; however, each share is convertible into one share of Class A Common Stock at any time . Each share of Class A Common Stock has one vote per share and each share of Class B Common Stock has ten votes per share . Each share of Class A Common Stock is entitled to receive cash dividends equal to 110 % of any cash dividend paid on Class B Common Stock. The Company calculates earnings per share using the two-class method in accordance with FASB ASC Topic 260. 9 The two-class method of computing basic earnings per share for each period reflects the cash dividends declared per share for each class of stock, plus allocated undistributed earnings per share computed using the participation percentage which reflects the dividend rights of each class of stock. Diluted earnings per share is calculated assuming the conversion of all shares of Class B Common Stock to shares of Class A Common Stock on a share-for-share basis. The tables below reconcile the numerators and denominators of basic and diluted earnings per share for current and prior periods. Three Months Ended Three Months Ended December 25, 2021 December 26, 2020 Class A Class B Class A Class B Numerator: Allocated net income Net income allocated, basic $ 50,899,553 $ 15,289,465 $ 38,813,986 $ 15,010,101 Conversion of Class B to Class A shares 15,289,465 — 15,010,101 — Net income allocated, diluted $ 66,189,018 $ 15,289,465 $ 53,824,087 $ 15,010,101 Denominator: Weighted average shares outstanding Weighted average shares outstanding, basic 14,277,211 4,717,165 14,213,562 6,046,214 Conversion of Class B to Class A shares 4,717,165 — 6,046,214 — Weighted average shares outstanding, diluted 18,994,376 4,717,165 20,259,776 6,046,214 Earnings per share Basic $ 3.57 $ 3.24 $ 2.73 $ 2.48 Diluted $ 3.48 $ 3.24 $ 2.66 $ 2.48 J. LEASES Leases as Lessee The Company conducts part of its retail operations from leased facilities. The initial terms of the leases are generally 20 years. The majority of the leases include one or more renewal options and provide that the Company pay property taxes, utilities, repairs and certain other costs incidental to occupation of the premises. Several leases contain clauses calling for percentage rentals based upon gross sales of the supermarket occupying the leased space. Step rent provisions, escalation clauses and lease incentives are taken into account in computing minimum lease payments. Operating lease cost for all operating leases totaled $ 2.6 million for the three months ended December 25, 2021. This amount includes short-term (less than one year) leases, common area expenses, and variable lease costs, all of which are insignificant. Cash paid for lease liabilities in operating activities approximates operating lease cost. Maturities of operating lease liabilities as of December 25, 2021 are as follows: Fiscal Year Remainder of 2022 $ 7,493,701 2023 8,300,557 2024 5,516,257 2025 4,715,550 2026 2,983,602 Thereafter 22,905,731 Total lease payments $ 51,915,398 Less amount representing interest 11,521,646 Present value of lease liabilities $ 40,393,752 The weighted average remaining lease term for the Company’s operating leases is 13.4 years. The weighted average discount rate used to determine lease liability balances as of December 25, 2021 is 3.51 %, based on recent Company financings collateralized by store properties. Leases as Lessor At December 25, 2021, the Company owned and operated 83 shopping centers in conjunction with its supermarket operations. The Company leases to others a portion of its shopping center properties. The leases are non-cancelable operating lease agreements for periods ranging up to 20 years. 10 Rental income is included in the line item “Net sales” on the Consolidated Statements of Income. Depreciation on owned properties leased to others and other shopping center expenses are included in the line item “Cost of goods sold” on the Consolidated Statements of Income. Three Months Ended December 25, 2021 Rents earned on owned and subleased properties: Base rentals $ 4,897,358 Variable rentals 67,892 Total 4,965,250 Depreciation on owned properties leased to others ( 1,463,937 ) Other shopping center expenses ( 647,787 ) Total $ 2,853,526 Future minimum operating lease receipts at December 25, 2021 are as follows: Fiscal Year Remainder of 2022 $ 15,000,268 2023 13,606,495 2024 12,389,010 2025 11,000,293 2026 7,992,449 Thereafter 32,810,154 Total minimum future rental income $ 92,798,669 K. SEGMENT INFORMATION The Company operates one primary business segment, retail grocery sales. “Other” includes our remaining operations - fluid dairy and shopping center rentals. Information about the Company’s operations by lines of business (amounts in thousands) is as follows: Three Months Ended December 25, December 26, 2021 2020 Revenues from unaffiliated customers: Grocery $ 488,407 $ 442,121 Non-foods 304,672 279,688 Perishables 364,350 321,263 Gasoline 190,832 110,469 Total Retail $ 1,348,261 $ 1,153,541 Other 43,269 36,902 Total revenues from unaffiliated customers $ 1,391,530 $ 1,190,443 Income from operations: Retail $ 85,499 $ 71,519 Other 4,904 4,922 Total income from operations $ 90,403 $ 76,441 December 25, September 25, 2021 2021 Assets: Retail $ 1,847,898 $ 1,794,160 Other 232,141 226,762 Elimination of intercompany receivable ( 2,041 ) ( 2,578 ) Total assets $ 2,077,998 $ 2,018,344 The grocery category includes grocery, dairy, and frozen foods. The non-foods category includes alcoholic beverages, tobacco, pharmacy, and health/beauty/cosmetic products. The perishables category includes meat, produce, deli and bakery. For the three-month periods ended December 25, 2021 and December 26, 2020, respectively, the fluid dairy operation had $ 12.6 million and $ 12.3 million in sales to the grocery sales segment. These sales have been eliminated in consolidation and are excluded from the amounts in the table above. 11 L. FAIR VALUES OF FINANCIAL INSTRUMENTS The carrying amounts for cash and cash equivalents, short term investments, accounts receivable and accounts payable approximate fair value due to the short-term maturity of these instruments. The fair value of the Company’s debt and interest rate swaps are estimated using valuation techniques under the accounting guidance related to fair value measurements based on observable and unobservable inputs. Observable inputs reflect readily available data from independent sources, while unobservable inputs reflect the Company’s market assumptions. These inputs are classified into the following hierarchy: Level 1 Inputs – Quoted prices for identical assets or liabilities in active markets. Level 2 Inputs – Quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; and model-derived valuations whose inputs are observable or whose significant value drivers are observable. Level 3 Inputs – Pricing inputs are unobservable for the assets or liabilities and include situations where there is little, if any, market activity for the assets or liabilities. The inputs into the determination of fair value require significant management judgment or estimation. The carrying amount and fair value of the Company’s debt, interest rate swaps, and non-qualified retirement plan assets at December 25, 2021 are as follows (in thousands): Carrying Fair Value Amount Fair Value Measurements Senior Notes $ 350,000 $ 349,125 Level 2 Facility Bonds 63,500 63,500 Level 2 Secured notes payable and other 172,629 172,585 Level 2 Interest rate swap derivative contracts 2,664 2,664 Level 2 Non-qualified retirement plan assets 22,060 22,060 Level 2 The fair values for Level 2 measurements were determined primarily using market yields and taking into consideration the underlying terms of the instrument. M. COMMITMENTS AND CONTINGENCIES Various legal proceedings and claims arising in the ordinary course of business are pending against the Company. In the opinion of management, the ultimate liability, if any, from all pending legal proceedings and claims is not expected to materially affect the Company’s financial position, the results of its operations, or its cash flows. N. RELATED PARTY TRANSACTIONS The Company will from time to time make short-term non-interest bearing loans to the Company’s Investment/Profit Sharing Plan to allow the plan to meet distribution obligations during a time when the plan was prohibited from selling shares of the Company’s Class A Common Stock. During the three months ended December 25, 2021, there were no such loans made, repaid or outstanding.