What changed in this filing

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Item 7. Management’s Discussion and Analysis

2023-11-29 compared with 2022-11-23 · 60 added, 94 removed, 153 unchanged (50% of the section changed)

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Ingles, a leading supermarket chain in the Southeast United States, operates 198 supermarkets in North Carolina (75), Georgia (65), South Carolina (35), Tennessee (21), Virginia (1) and Alabama (1).

The Company locates its supermarkets primarily in suburban areas, small towns and neighborhood shopping centers.

Ingles is a leading supermarket chain in the Southeast United States and operates a total of 198 supermarkets in North Carolina (75), Georgia (65), South Carolina (35), Tennessee (21), Virginia (1) and Alabama (1).

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.

Non-food products include fuel centers, pharmacies, health/beauty/cosmetic products and general merchandise.

The Company offers quality private label items in most of its departments.

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 September 24, 2022, the Company operated 112 in-store pharmacies and 107 fuel centers.

In addition, the Company focuses on selling products to its customers through the development of certified organic products, bakery departments and prepared foods including delicatessen sections.

As of September 30, 2023, the Company operated 114 in-store pharmacies and 108 fuel stations.

Ingles also operates a fluid dairy and earns shopping center rentals.

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The Company’s self-insurance reserves totaled $32.9 million and $31.0 million for employee group insurance, workers’ compensation insurance and general liability insurance at September 30, 2023 and September 24, 2022, respectively.

These amounts are inclusive of expected recoveries from excess cost insurance or other sources that are recorded as receivables of $4.0 million at September 24, 2022 and $4.2 million at September 25, 2021.

These amounts were inclusive of expected recoveries from excess cost insurance or other sources that are recorded as receivables of $4.3 million at September 30, 2023 and $4.0 million at September 24, 2022.

Asset Impairments

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Vendor advertising allowances recorded as a reduction of advertising expense totaled $8.5 million, $7.1 million, and $8.1 million for the fiscal years ended September 30, 2023, September 24, 2022, and September 25, 2021, respectively.

During fiscal years 2022, 2021 and 2020, the COVID-19 pandemic increased the Company’s sales.

As a result, vendors offered the Company a lower level of incentives to sell their products.

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.

The consolidated statements of income for the fiscal years ended September 24, 2022, September 25, 2021 and September 26, 2020, each consisted of 52 weeks of operations.

The consolidated statements of income for the fiscal year ended September 30, 2023 had 53 weeks.

The consolidated statements of income for fiscal years September 24, 2022, and September 25, 2021 each consisted of 52 weeks of operations.

Comparable Store Sales

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Interest expense

Loss on early extinguishment of debt

Income before income taxes

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Fiscal Year Ended September 30, 2023 Compared to the Fiscal Year Ended September 24, 2022

The Company’s performance for fiscal year 2021, which commenced in September 2020, was heavily influenced by the COVID-19 pandemic.

Various stay-at-home measures were enacted, most schools closed to in-person learning, and restaurant dining was severely restricted.

Many of these measures have been relaxed or eliminated, but retail grocery sales have remained higher throughout the United States, as compared to the pre-pandemic period.

Net income for the fiscal year ended September 30, 2023 was $210.8 million, compared with net income of $272.8 million for the fiscal year ended September 24, 2022.

Comparisons of fiscal year 2023 to fiscal year 2022 are affected by the difference in the number of weeks in each year.

Fiscal year 2023 had 53 weeks and fiscal year 2022 had 52 weeks.

Net income as a percentage of sales was 3.6% for fiscal year 2023 compared with 4.8% for fiscal year 2022.

Sales increased and gross margin decreased slightly in the retail segment, including increases in gasoline gross profit.

Expenses increased primarily as a result of the tight labor market and increases in the cost of goods and supplies.

Fluid dairy income increased 5.8% over the comparable fiscal year, and real estate income increased slightly.

Inflation in the cost of goods and increases in operating expenses due to the competition in the labor market contributed to this decrease.

Net sales for the fiscal year ended September 30, 2023 totaled $5.89 billion, compared with $5.68 billion for the fiscal year ended September 24, 2022.

Retail comparable store sales excluding gasoline increased 7.7% for fiscal 2022 compared with 2021.

The number of transactions (excluding gasoline) increased 3.5% while the average transaction size (excluding gasoline) increased by 4.2%.

Comparing fiscal 2022 with 2021, gasoline gallons sold increased 5.0% and per gallon gasoline prices increased 44.9%.

In fiscal years with 53 weeks, such as 2023, management analyzes comparable stores sales for the 53 weeks of the year with the corresponding 52 calendar weeks of the previous year plus one additional week.

On this basis, retail grocery comparable store sales excluding fuel increased 4.0% for fiscal 2023 compared with 2022.

The number of transactions (excluding fuel) increased 2.9% while the average transaction size (excluding fuel) increased by 0.9%.

Comparing fiscal 2023 with 2022, fuel gallons sold decreased 0.4% and per gallon fuel prices decreased 10.2%.

Sales by product category for the fiscal years ended September 30, 2023 and September 24, 2022 were as follows:

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Changes in retail grocery sales for the fiscal year ended September 30, 2023 are summarized as follows (in thousands):

Total grocery sales for the fiscal year ended September 25, 2021

Total retail grocery sales for the fiscal year ended September 24, 2022

Comparable store sales increase

Impact of stores closed in fiscal 2021

Effect of 53rd week

Sales growth from stores opened fiscal 2023

Total retail grocery sales for the fiscal year ended September 30, 2023

Sales began to increase during fiscal year 2020 due to the COVID-19 pandemic and have continued through fiscal year 2022.During fiscal year 2022, inflation increased top-line sales, including sharp increases in the cost of gasoline.

Increased sales were also from new and replacement stores, the introduction of new products and product presentation, especially in higher margin products, effective promotions and cost competitiveness.

We continued to improve our use of data gained from The Ingles Advantage Savings and Rewards Card (the “Ingles Advantage Card”) to increase net sales and comparable store sales through enhanced loyalty programs and special offers.

Information obtained from holders of the Ingles Advantage Card also assists the Company in optimizing product offerings and promotions specific to customer shopping patterns.

We expect that sales for the 2023 fiscal year compared with fiscal year 2022 will in large part depend upon the impact of inflation on food and gasoline prices, as well as on supply chain issues.

The Company anticipates adding new stores in fiscal year 2023, expects to continue remodeling a significant number of existing stores, and plans to add more fuel stations and pharmacies.

Increased sales for fiscal year 2023 were due to comparable store sales through enhanced loyalty programs and special offers, as well as the additional 53 rd week in fiscal year 2023.

Gross Profit.

Gross profit for the fiscal year ended September 24, 2022 increased $112.3 million, or 8.6%, to $1.42 billion compared with $1.30 billion for the fiscal year ended September 25, 2021.

Gross profit for the fiscal year ended September 30, 2023 decreased $10.9 million, or 0.77%, to $1.40 billion compared with $1.42 billion for the fiscal year ended September 24, 2022.

As a percentage of sales, gross profit totaled 23.8% for the fiscal year ended September 30, 2023 as compared to 24.9% for the fiscal year ended September 24, 2022.

Gasoline gross profit increased $13.0 million for fiscal year 2022 compared with 2021.

Grocery segment gross profit as a percentage of total sales (excluding gasoline) decreased 11 basis points in fiscal year 2022 compared with fiscal year 2021.

Retail grocery gross profit as a percentage of total sales (excluding fuel) decreased 182 basis points in fiscal year 2023 compared with fiscal year 2022.

The gross margin decrease was primarily due to inflation and supply chain factors that impacted prices and mix of products sold.

In general, product cost inflation was incorporated into higher sales prices.

In addition to the direct

product cost, the cost of goods sold line item for the grocery segment includes inbound freight charges, which generally increased in fiscal year 2022 as compared to fiscal year 2021, and increased costs related to the Company’s distribution network, including the impact of higher diesel prices.

In addition to the direct product cost, the cost of goods sold line item for the grocery segment includes inbound freight charges, which generally increased in fiscal year 2023 as compared to fiscal year 2022, and increased costs related to the Company’s distribution network, including the impact of higher diesel prices.

Operating and Administrative Expenses.

Operating and administrative expenses increased $76.9 million, or 8.0%, to $1.0 billion for the fiscal year ended September 24, 2022, from $963.3 million for the fiscal year ended September 25, 2021.

Operating and administrative expenses increased $75.2 million, or 7.2%, to $1.1 billion for the fiscal year ended September 30, 2023, from $1.0 billion for the fiscal year ended September 24, 2022.

As a percentage of sales, operating and administrative expenses were 18.9% and 18.3% for fiscal years 2023 and 2022, respectively.

Excluding gasoline, which does not have significant direct operating expenses, the ratio of operating expenses to sales was 21.5% for fiscal year 2022 compared with 21.7% for fiscal year 2021.

Fiscal year 2022 sales growth resulted in operating expense leverage.

Excluding fuel, which does not have significant direct operating expenses, the ratio of operating expenses to sales was 21.7% for fiscal year 2023 compared with 21.5% for fiscal year 2022.

A breakdown of the major increases and (decreases) in operating and administrative expenses is as follows.

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Salaries and wages

Store supplies

Repairs and maintenance

Utilities and fuel

Salaries and wages increased due to increased competition in the labor market in the Company’s market area.

Store supplies, which include customer packaging containers, increased as a result of increased sales, market costs of certain supplies, and supply chain issues for certain raw materials.

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

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

Repairs and maintenance increased due to additional safety and sanitation equipment necessitated by COVID-19 and a higher level of maintenance required on more sophisticated equipment .

Utilities and fuel costs increased due to the impact of energy inflation.

Advertising and promotion

Store supplies

Salaries and wages increased due to increased competition in the labor market in the Company’s market area, in addition to the extra week of expense for the 53 rd week.

Repairs and maintenance increased due to higher refrigerant costs and the cost of other supply items, as well as increased wear and tear on equipment to accommodate sales volume, in addition to the extra week of expense for the 53 rd week.

Advertising and promotion costs decreased due to absorbing some of the activity in-house and moving towards lower-cost types of advertising.

Store supplies, which include customer packaging containers, increased as a result of increased sales, market costs of certain supplies, and supply chain issues for certain raw materials, in addition to the extra week of expense for the 53 rd week.

Gain from Sale or Disposal of Assets.

Gains on sale or disposal of assets totaled $2.8 million for fiscal year 2023 and $1.4 million for fiscal year 2022.

During fiscal year 2021, the Company recognized $9.3 million from the sales of two former store properties.

There were no other significant sale/disposal transactions in either fiscal year 2022 or 2021.

Other Income, Net.

Other income, net totaled $8.3 million and $5.8 million for the fiscal years ended September 30, 2023 and September 24, 2022, respectively.

Other income consists primarily of sales of waste paper and packaging.

The market cost for each of these increased during fiscal year 2022.

Other income consists primarily of interest earned and sales of waste paper and packaging.

Interest Expense.

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Total debt was $550.2 million at the end of fiscal year 2023 compared with $571.9 million at the end of fiscal year 2022.

During fiscal year 2021, the Company redeemed $295 million aggregate principal amount of 5.75% Senior Notes, representing 100% of the aggregate principal amount such notes, using a portion of the proceeds from its issuance of the 2031 Notes (as defined below), which have an interest rate of 4.00%, and additionally used a portion of the proceeds of the 2031 notes to repay other debt.

Loss on Early Extinguishment of Debt.

No losses on early extinguishment of debt were recognized in fiscal year 2022 compared to $1.1 million for the fiscal year ended September 25, 2021.

In June 2021, the Company issued at par $350.0 million aggregate principal amount of 4.00% senior notes due in 2031 (the “2031 Notes”).

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

The Company wrote off $1.1 million of capitalized loan costs related to this transaction.

During fiscal year 2020, the Company refinanced or repaid early $405 million of the 2023 Notes, incurring debt extinguishment costs totaling $7.1 million.

Income Taxes.

Income tax expense totaled $88.5 million for fiscal year 2022, an effective tax rate of 24.5%.

Income tax expense totaled $67.7 million for fiscal year 2023, reflecting an effective tax rate of 24.3%.

This compares with an income tax expense totaling $88.5 million and an effective tax rate of 24.5% for fiscal year 2022.

Net income totaled $210.8 million for the fiscal year ended September 30, 2023 compared with net income of $272.8 million for the fiscal year ended September 24, 2022.

Basic and diluted earnings per share for Class A Common Stock were

$14.69 and $14.36, respectively, for the fiscal year ended September 24, 2022 compared with $13.06 and $12.73, respectively, for the fiscal year ended September 25, 2021.

Basic and diluted earnings per share for Class A Common Stock were $11.35 and $11.10, respectively, for the fiscal year ended September 30, 2023 compared with $14.69 and $14.36, respectively, for the fiscal year ended September 24, 2022.

Basic and diluted earnings per share for Class B Common Stock were each $10.32 for the fiscal year ended September 30, 2023 compared with $13.35 of basic and diluted earnings per share for the fiscal year ended September 24, 2022.

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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, and the relocation of selected existing stores to larger, more convenient locations.

Capital expenditures totaled $119.6 million and $140.6 million for fiscal years 2022 and 2021, respectively.

Capital expenditures totaled $173.6 million and $119.6 million for fiscal years 2023 and 2022, respectively, with the increase driven primarily by the purchase of new sites and land parcels.

Major capital expenditures included the following:

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Ingles’ capital expenditure plans for fiscal year 2024 include investments of approximately $120 to $170 million.

At this time, the Company does not anticipate that the COVID-19 pandemic or current labor shortages will have a long-term adverse impact on its capital expenditure plans.

The Company currently plans to dedicate the majority of its fiscal 2023 capital expenditures to continued improvement of its store base including the construction of one or more new/remodeled stores.

Additionally, the Company’s planned fiscal year 2023 capital expenditures include investments in stores expected to open in fiscal year 2024, 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.

The Company also plans to consider property acquisitions for future store development.

The Company currently plans to dedicate the majority of its fiscal 2024 capital expenditures to continued improvement of its store base, as well as technology improvements, upgrading and replacing existing store, warehouse and transportation equipment and improvements to the Company’s milk processing plant.

The Company currently expects that its net annual capital expenditures will be in the range of approximately $100 to $160 million going forward in order to maintain a modern store base.

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The Company generated $266.4 million of cash from operations in fiscal 2023 compared with $339.5 million for fiscal year 2022.

The increase resulted primarily from a $23.0 million increase in net income for fiscal year 2022 compared with fiscal 2021.

The decrease resulted primarily from a $61.9 million decrease in net income for fiscal year 2023 compared with fiscal 2022.

Cash used by investing activities for fiscal year 2023 totaled $170.1 million compared with $112.0 million for fiscal year 2022.

The Company’s most significant investing activity is capital expenditures, which decreased in fiscal year 2022 as compared to fiscal year 2021.

The Company’s most significant investing activity is capital expenditures, which increased in fiscal year 2023 as compared to fiscal year 2022.

The Company’s cash used by net financing activities totaled $35.0 million and $30.6 million for fiscal years 2023 and 2022, respectively.

In fiscal year 2021 there were $80.0 million of stock repurchases compared with none in fiscal year 2022.

In June 2021, the Company issued $350.0 million aggregate principal amount of the 2031 Notes.

The 2031 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 outstanding of 5.75% 2023 Notes.

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

Dollar LIBOR panel ceased following June 30, 2023, and the Company’s debt agreements and interest rate swaps that utilized LIBOR discontinued the use of LIBOR and adopted the Secured Overnight Financing Rate (“SOFR”).

In June 2021, the Company issued at par $350.0 million aggregate principal amount of 4.00% senior notes due 2031 (the “2031 Notes”) and used a portion of the proceeds to redeem the remaining outstanding $295.0 million principal amount of the Company’s 5.75% senior notes due.

The Company has a $150.0 million unsecured senior 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 the London Interbank Offering Rate (“LIBOR”).

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

The Line allows the Company to issue up to $10.0 million in letters of credit, of which none were issued at September 30, 2023.

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At September 30, 2023, the Company had no borrowings outstanding under the Line.

In December 2010, the Company completed the funding of $99.7 million of Recovery Zone Facility Bonds (the “Bonds”) for construction and equipping of an approximately 830,000 square foot new warehouse and distribution center located in Buncombe County, North Carolina (the “Project”).

In December 2010, the Company completed the funding of $99.7 million of Recovery Zone Facility 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, such financial institutions hold the Bonds until September 2026, subject to certain events.

Mandatory redemption of the Bonds by the Company in the annual amount of $4,530,000 began on January 1, 2014.

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

In September 2017, the Company refinanced approximately $60 million of secured borrowing obligations with a LIBOR-based amortizing floating rate loan secured by real estate maturing in October 2027.

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

The outstanding aggregate principal amount of the Bonds was $54.4 million at September 30, 2023.

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

In September 2017, the Company refinanced approximately $60 million of secured borrowing obligations with a SOFR-based amortizing floating rate loan secured by real estate, which matures in October 2027.

The Company has an interest rate swap agreement for a current notional amount of $24.5 million at a fixed rate of 3.962%.

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 rate swap.

Under this agreement, the Company pays monthly the fixed rate of 3.962% and receives the one-month SOFR plus 1.75%.

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.

In December 2019, the Company closed a $155 million LIBOR-based amortizing floating rate loan secured by real estate maturing in January 2030.

In December 2019, the Company closed a $155 million SOFR-based amortizing floating rate loan secured by real estate, which matures in January 2030.

The Company has an interest rate swap agreement for a current notional amount of $124.6 million at a fixed rate of 2.998%.

Under this agreement, the Company pays monthly the fixed rate of 2.95% and receives the one-month LIBOR plus 1.50%.

Under this agreement, the Company pays monthly the fixed rate of 2.998% and receives the one-month SOFR plus 1.60%.

The interest rate swap effectively hedges floating rate debt in the same amount as the current notional amount of the interest swap.

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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, Bonds and 2031 Notes indenture in the event of default under any one instrument.

The Bonds and the Line contain provisions that under certain circumstances would permit lending institutions to terminate or withdraw their respective extensions of credit to the Company.

The Bonds and the Line contain provisions that under certain circumstances would permit the acceleration of the indebtedness under such instruments or would otherwise 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 Bonds and 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 September 24, 2022, the Company was in compliance with these covenants by a significant margin.

Under the most restrictive of these covenants, the Company would be able to incur approximately $2.33 billion of additional borrowings (including borrowings under the Line) as of September 24, 2022.

As of September 30, 2023, the Company was in compliance with these covenants.

Under the most restrictive of these covenants, the Company would have been permitted to incur approximately $1.8 billion of additional borrowings (including borrowings under the Line) as of September 30, 2023.

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

The Company believes, based on its current results of operations and financial condition, that its financial resources, including cash balances, the existing Line, short- and long-term financing expected to be available to it and internally generated funds, will be sufficient to meet planned capital expenditures and working capital requirements for the foreseeable future, including any debt service requirements of additional borrowings.

However, there can be no assurance that any such sources of financing will be available to the Company on acceptable terms, or at all.

It is possible that, in the future, the Company’s results of operations and financial condition will be different from that described in this report based on a number of intangible factors.

These factors may include, among others, resolution of the COVID-19 pandemic, increased competition, changing regional and national economic conditions, adverse climatic conditions affecting food production and

delivery and changing demographics as well as the additional factors discussed above and elsewhere under “Item 1A.

Risk Factors.” 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.

However, there can be no assurance that any such sources of financing will be available to the Company when needed on acceptable terms, or at all.

It is possible that, in the future, the Company’s results of operations and financial condition will be different from that described in this Annual Report on Form 10-K based on a number of intangible factors.

These factors may include, among others, resurgence of the COVID-19 pandemic virus, increased competition, changing regional and national economic conditions, adverse climatic conditions affecting food production and delivery and changing demographics as well as the additional factors discussed above and elsewhere under “Item 1A.

Quarterly Cash Dividends

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Outlook and Trends in the Company’s Markets

The COVID-19 pandemic that began in March 2020 has had a significant impact on the Company’s markets for fiscal years 2021 and 2022.

We do not know how long and to what extent COVID-19 will impact our markets in fiscal year 2023.

The Company has improved the interior layout and product offerings in a significant number of stores over the past few fiscal years.

Economic conditions have remained favorable and the Company continues to increase and improve its total retail square footage.

The COVID-19 pandemic that began in March 2020 substantially impacted supermarket operations during fiscal years 2020, 2021 and 2022.

While the effects of the pandemic on the Company have eased considerably over the fiscal year ended September 30, 2023, some effects have continued through the year ended September 30, 2023, and we do not know how long and to what extent COVID-19 will impact our markets in fiscal year 2024.

The Company continually assesses and modifies its business model to meet the changing needs and expectations of its customers.

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 Volatile petroleum costs will impact utility and distribution costs, plastic supplies cost and may change customer shopping and dining behavior.

 Retail gasoline costs and retail prices will continue to be volatile, affecting the Company’s gasoline sales and gross margin.

The Company plans to continue to focus on balancing sales growth and gross margin maintenance (excluding the effect of gasoline sales) and will carefully monitor its product mix and customer trends.

 Retail fuel costs and retail prices will continue to be volatile, affecting the Company’s fuel sales and gross margin.

The Company plans to continue to focus on balancing sales growth and gross margin maintenance (excluding the effect of fuel sales) and will carefully monitor its product mix and customer trends.

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-K

Item 7. Management’s Discussion and Analysis