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

Three Months Ended

December 30,

December 24,

2017

2016

Net sales

$
1,013,786,078

$
982,758,339
Cost of goods sold


769,126,450


745,673,858
Gross profit


244,659,628


237,084,481
Operating and administrative expenses


208,828,396


206,296,215
Gain from sale or disposal of assets


57,270


1,378,117
Income from operations


35,888,502


32,166,383
Other income, net


953,960


663,135
Interest expense


11,451,722


11,312,631
Income before income taxes


25,390,740


21,516,887
Income tax (benefit) expense


(19,756,000)

7,693,000
Net income

$
45,146,740

$
13,823,887





Per share amounts:





Class A Common Stock

Basic earnings  per common share

$
2.29

$
0.70
Diluted earnings  per common share

$
2.23

$
0.68
Class B Common Stock

Basic earnings  per common share

$
2.08

$
0.64
Diluted earnings  per common share

$
2.08

$
0.64
Cash dividends per common share

Class A Common Stock

$
0.165

$
0.165
Class B Common Stock

$
0.150

$
0.150

~~See notes to unaudited condensed consolidated financial statements.~~

INGLES MARKETS, INCORPORATED AND SUBSIDIARIES

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

THREE MONTHS ENDED DECEMBER ~~30, 2017~~25, 2021 AND DECEMBER ~~24, 2016~~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

Paid-in


Class A

Class B

Capital in

Common Stock

Common Stock

Excess of

Retained


Shares

Amount

Shares

Amount

Par Value

Earnings

Total







Balance, September 24, 2016

13,966,476

$
698,324

6,293,300

$
314,665

$
12,311,249

$
456,851,372

$
470,175,610
Net income

—

—

—

—

—

13,823,887

13,823,887
Cash dividends

—

—

—

—

—

(3,248,464)

(3,248,464)
Common stock conversions

75

4

(75)

(4)

—

—

—
Balance, December 24, 2016

13,966,551

$
698,328

6,293,225

$
314,661

$
12,311,249

$
467,426,795

$
480,751,033
Balance, September 30, 2017

14,084,044

$
704,202

6,175,732

$
308,787

$
12,311,249

$
497,727,765

$
511,052,003
Net income

—

—

—

—

—

45,146,740

45,146,740
Cash dividends

—

—

—

—

—

(3,250,228)

(3,250,228)
Common stock conversions

34,200

1,710

(34,200)

(1,710)

—

—

—
Balance, December 30, 2017

14,118,244

$
705,912

6,141,532

$
307,077

$
12,311,249

$
539,624,277

$
552,948,515

See notes to unaudited condensed consolidated financial statements.

‎

INGLES MARKETS, INCORPORATED AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)



	Three Months Ended				Three Months Ended
	December 30,		December 24,		December 25,		December 26,
	2017		2016		2021		2020
Cash Flows from Operating Activities:
Net income	$	45,146,740	$	13,823,887	$	66,189,018	$	53,824,087
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization expense		27,989,567		27,079,917		29,297,267		29,878,689
Gain from sale or disposal of assets		(57,270)		(1,378,117)
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		1,000,000		1,000,000		250,000		250,000
Recognition of advance payments on purchases contracts		(498,746)		(820,158)		(746,529)		(753,511)
Deferred income taxes		(22,812,000)		(19,000)		(1,102,000)		429,000
Changes in operating assets and liabilities:
Receivables		(5,184,856)		(18,946,812)		(7,951,730)		(19,589,583)
Inventory		(12,293,863)		(8,715,364)		486,079		(6,722,127)
Other assets		(5,760,061)		(1,284,220)		233,187		(1,342,505)
Operating lease liabilities						(2,130,181)		(1,766,313)
Accounts payable and accrued expenses		9,859,803		6,452,116		8,361,969		2,346,228
Net Cash Provided by Operating Activities		37,389,314		17,192,249		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		64,713		1,368,806		215,289		593,245
Capital expenditures		(56,780,084)		(29,278,744)		(21,333,456)		(34,239,257)
Net Cash Used by Investing Activities		(56,715,371)		(27,909,938)		(131,125,273)		(33,646,012)
Cash Flows from Financing Activities:
Proceeds from short-term borrowings		65,519,466		103,292,831		—		248,719,275
Payments on short-term borrowings		(51,253,678)		(78,255,268)		—		(262,603,345)
Principal payments on long-term borrowings		(1,846,230)		(1,594,690)		(3,459,139)		(3,890,502)
Dividends paid		(3,250,228)		(3,248,464)		(3,063,227)		(3,252,152)
Net Cash Provided by Financing Activities		9,169,330		20,194,409
Net Cash Used by Financing Activities						(6,522,366)		(21,026,724)
Net (Decrease) Increase in Cash and Cash Equivalents		(10,156,727)		9,476,720		(42,669,131)		3,101,545
Cash and cash equivalents at beginning of period		23,912,100		5,679,509		70,313,350		6,903,955
Cash and Cash Equivalents at End of Period	$	13,755,373	$	15,156,229	$	27,644,220	$	10,005,500

See notes to unaudited condensed consolidated financial statements.

‎

INGLES MARKETS, INCORPORATED AND SUBSIDIARIES

NOTES TO UNAUDITED INTERIM FINANCIAL STATEMENTS

Three Months Ended December ~~30, 2017~~25, 2021 and December ~~24, 2016~~ 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 ~~30, 2017,~~25, 2021 and the results of operations and changes in stockholders’ equity and cash flows for the three months ended December ~~30, 2017~~25, 2021 and December ~~24, 2016.~~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 ~~30, 2017,~~25, 2021, filed by the Company ~~under~~with the Securities and Exchange ~~Act of 1934~~Commission on ~~December 6, 2017.~~November 24, 2021.

The results of operations for the ~~three-month period~~three months ended December ~~30, 2017~~25, 2021 are not necessarily indicative of the results to be expected for the full fiscal year.

B. NEW ACCOUNTING PRONOUNCEMENTS

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

In May 2014, the FASB issued Accounting Standards Update ASU 2014-09 “Revenue from Contracts with Customers” (ASU 2014-09). ASU 2014-09 is a comprehensive new revenue recognition model that requires a company to recognize or to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be revenue entitled in exchange for those goods and services. In August 2015,March 2020, the FASB issued ASU ~~2015-14 which deferred the effective date~~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 ~~fiscal years beginning after December 15, 2017 and interim periods within those fiscal years, with early adoption permitted.~~ continue hedge accounting.

C. SHORT TERM INVESTMENTS

The Company ~~is currently evaluating~~purchases financial products that can be readily converted into cash and the ~~impact~~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 ~~adopting this ASU on its consolidated financial statements.~~the Company’s short-term investments approximate fair value because of their liquidity.

C.D. ALLOWANCE FOR DOUBTFUL ACCOUNTS

Receivables are presented net of an allowance for doubtful accounts of ~~$306,000~~$302,000 at December ~~30, 2017~~25, 2021 and $157,000 at September ~~30, 2017, respectively.~~ 25, 2021.

D.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.

On December 22, 2017, the U.S. Government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the “Tax Act”). The Tax Act makes broad and complete changes to the U.S tax code that will affect the Company’s fiscal year ended September 29, 2018, including, but not limited to (1) reducing the U.S. federal corporate tax rate from 35% to 21% effective January 1, 2018, (2) creating a new limitation on deductible interest expense, and (3) bonus depreciation that will allow for full expensing of qualified property.

For the fiscal year ended September 29, 2018 the Company expects to have a blended federal corporate tax rate of 24.5% based on the effective date of the tax rate reduction. As a result of the decrease in the federal rate, the Company has recorded in the current fiscal quarter a decrease in its net deferred tax liabilities of $26.7 million, with a corresponding reduction to deferred income tax expense.

On December 22, 2017, Staff Accounting Bulletin No. 118 ("SAB 118") was issued to address the application of US GAAP in situations when a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the Act. SAB 118 allows registrants to record provisional amounts for reasonable estimates that require more subsequent analysis. The Company has completed its analysis and does not have any provisional amounts subject to SAB 118 as of December 30, 2017.

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.

E.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

December 30,

September 30,

2017

2017
Property, payroll and other taxes payable

$
14,659,164

$
21,261,924
Salaries, wages and bonuses payable


23,145,905


28,369,250
Self-insurance liabilities


13,767,391


13,326,110
Interest payable

3,247,752

13,175,382
Other


8,546,786


6,319,191

$
63,366,998

$
82,451,857

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 ~~$750,000~~$1.0 million per occurrence for workers’ compensation ~~$500,000~~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 ~~$37.4 million and $35.5~~$32.1 million at both December ~~30, 2017~~25, 2021 and September ~~30, 2017, respectively.~~25, 2021. Of this amount, ~~$13.8~~$13.4 million is accounted for as a current liability and ~~$23.6~~$18.7 million as a long-term liability, which is inclusive of ~~$6.6~~$4.2 million of expected self-insurance recoveries from excess cost insurance or other sources that are recorded as a receivable at December ~~30, 2017.~~25, 2021. At September ~~30, 2017, $13.7~~25, 2021, $13.3 million iswas accounted for as a current liability and ~~$21.8~~$18.8 million as a long-term liability, which is inclusive of ~~$4.8~~$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 ~~$8.6~~$13.4 million and ~~$9.3~~$12.3 million for the ~~three-month periods~~three months ended December ~~30, 2017~~25, 2021 and December ~~24, 2016,~~26, 2020, respectively.

F.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 ~~2013,~~2021, the Company issued ~~$700.0~~at par $350.0 million aggregate principal amount of 4.00% senior notes due ~~in 2023~~2031 (the “Notes”). ~~The Notes bear an interest rate of 5.750% per annum and were issued at par.~~

The Company may redeem all or a portion of the Notes at any time ~~on or after June 15, 2018~~ at the following redemption prices (expressed as percentages of the principal amount), if redeemed during the 12-month period beginning June 15 of the years indicated below:

Year

2018
102.875%
2019
101.917%
2020
100.958%
2021 and thereafter
100.000%



Year
2026	102.000%
2027	101.333%
2028	100.667%
2029 and thereafter	100.000%

The Company ~~has~~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 ~~September 2022.~~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”).~~LIBOR. The Line allows the Company to issue up to ~~$20.0~~$10.0 million in ~~unused~~ letters of credit, of which ~~$9.9 million of unused letters of credit~~NaN were issued at December ~~30, 2017.~~25, 2021. The Company is not required to maintain compensating balances in connection with the Line. At December ~~30, 2017,~~25, 2021, the Company had ~~$14.3 million of~~0 borrowings outstanding under the Line.

OnIn December ~~29,~~ 2010, the Company completed the funding of $99.7 million of bonds (the ~~”Bonds”~~“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 ~~June 30, 2021,~~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 ~~June 30, 2021.~~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.

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~~one-month LIBOR (adjusted monthly) plus a credit spread, adjusted to reflect the income tax exemption. ~~Effective January 1, 2018, the interest rate on the Bonds will be adjusted to reflect the reduction in the federal corporate tax rate under the Tax Act.~~

The Company’s obligation to repay the Bonds is collateralized by the Project. ~~Additional collateral was required in order to meet certain loan to value criteria in the Covenant Agreement.~~ The Covenant Agreement incorporates substantially all financial covenants included in the Line.

~~In September 2017, the~~The Company refinanced approximately $60 million secured borrowing obligations that were scheduled to mature in fiscal years 2018-2020 with a LIBOR-based floating rate loan maturing in October 2027. On December 19, 2017 the Company entered intohas an interest rate swap agreement for a current notional amount of ~~$58.5~~$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 ~~the~~ floating rate debt ~~closed by~~in the ~~Company in September, 2017.~~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 ~~fair market value~~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 ~~is measured quarterly with adjustments recorded~~have monthly principal amortization of $0.65 million and mature in ~~other comprehensive income.~~ fiscal year 2030.

The ~~difference~~Company recognizes differences between the ~~notional amount~~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 ~~market~~ value of the ~~interest rate swap~~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 ~~30, 2017 was not significant.~~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 ~~Notes, the Bonds and the Line~~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 ~~30, 2017.~~ 25, 2021.

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 Notes indenture~~all long-term debt agreements in the event of default under any one instrument.

G.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 ~~19, 2017~~14, 2021 to stockholders of record on October ~~12, 2017.~~ 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 ofcontained in the Company’s Annual Report on Form 10-K filed by the Company ~~under~~with the Securities and Exchange ~~Act of 1934~~Commission on ~~December 6, 2017.~~November 24, 2021.

H.I. EARNINGS PER COMMON SHARE

The Company has ~~two~~2 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~~1 vote per share and each share of Class B Common Stock has ~~ten~~10 votes per share. Each share of Class A Common Stock is entitled to receive cash dividends equal to 110% of any cash dividend paid on Class B Common Stock.

The Company calculates earnings per share using the two-class method in accordance with FASB ASC Topic 260.

The two-class method of computing basic earnings per share for each period reflects the cash dividends 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				Three Months Ended				Three Months Ended
	December 30, 2017				December 24, 2016				December 25, 2021				December 26, 2020
	Class A		Class B		Class A		Class B		Class A		Class B		Class A		Class B
Numerator: Allocated net income
Net income allocated, basic	$	32,317,668	$	12,829,071	$	9,806,717	$	4,017,170	$	50,899,553	$	15,289,465	$	38,813,986	$	15,010,101
Conversion of Class B to Class A shares		12,829,071		—		4,017,170		—		15,289,465		—		15,010,101		—
Net income allocated, diluted	$	45,146,739	$	12,829,071	$	13,823,887	$	4,017,170	$	66,189,018	$	15,289,465	$	53,824,087	$	15,010,101

Denominator: Weighted average shares outstanding
Weighted average shares outstanding, basic		14,103,343		6,156,433		13,966,506		6,293,270		14,277,211		4,717,165		14,213,562		6,046,214
Conversion of Class B to Class A shares		6,156,433		—		6,293,270		—		4,717,165		—		6,046,214		—
Weighted average shares outstanding, diluted		20,259,776		6,156,433		20,259,776		6,293,270		18,994,376		4,717,165		20,259,776		6,046,214

Earnings per share
Basic	$	2.29	$	2.08	$	0.70	$	0.64	$	3.57	$	3.24	$	2.73	$	2.48
Diluted	$	2.23	$	2.08	$	0.68	$	0.64	$	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.

I.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~~1 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

Three Months Ended


December 30,

December 24,

2017

2016
Revenues from unaffiliated customers:




Grocery

$
363,325

$
360,901
Non-foods

217,744

212,311
Perishables

265,294

255,849
Gasoline

136,674

118,523
Total retail


983,037


947,584
Other


30,749


35,174
Total revenues from unaffiliated customers

$
1,013,786

$
982,758





Income from operations:




Retail

$
32,903

$
28,991
Other


2,986


3,175
Total income from operations

$
35,889

$
32,166



	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

December 30,

September 30,

2017

2017
Assets:


Retail

$
1,639,964

$
1,600,699
Other


135,538

135,076
Elimination of intercompany receivable


(1,839)

(2,469)
Total assets

$
1,773,662

$
1,733,306

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

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

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

For the three-month periods ended December ~~30, 2017~~25, 2021 and December ~~24, 2016,~~26, 2020, respectively, the fluid dairy operation had ~~$11.3~~$12.6 million and ~~$11.8~~$12.3 million in sales to the grocery sales segment. These sales have been eliminated in ~~consolidation.~~consolidation and are excluded from the amounts in the table above.

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 isand 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 ~~30, 2017 is~~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

Carrying



Fair Value

Amount

Fair Value

Measurements
Senior Notes

$
700,000

$
700,000

Level 2
Facility Bonds


81,620


81,620

Level 2
Secured notes payable and other


94,655


94,655

Level 2
Line of credit payable

14,266

14,266

Level 2
Total debt

$
890,541

$
890,541

~~The fair value of the interest rate swap, whch is a level 2 fair value measurement, was insignificant December 30, 2017.~~

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

~~K. SUBSEQUENT EVENTS~~M. COMMITMENTS AND CONTINGENCIES

~~We have evaluated subsequent events~~Various legal proceedings and ~~transactions for potential recognition or disclosure~~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 ~~statements through~~position, the ~~day~~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 ~~financial statements~~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 ~~issued.~~no such loans made, repaid or outstanding.

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

Overview

Ingles, a leading supermarket chain in the Southeast, operates ~~200~~198 supermarkets in ~~Georgia (70),~~ North Carolina ~~(71)~~(75), Georgia (65), South Carolina ~~(36)~~(35), Tennessee (21), Virginia (1) and Alabama (1). The Company locates its supermarkets primarily in suburban areas, small towns and rural communities. Ingles supermarkets offer customers a wide variety of nationally advertised food products, including grocery, meat and dairy products, produce, frozen foods and other perishables and non-food products. Non-food products include fuel centers, pharmacies, ~~health and beauty care~~health/beauty/cosmetic products and general merchandise, as well as quality private label items. 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 December ~~30, 2017,~~25, 2021, the Company operated ~~105~~111 in-store pharmacies and 99107 fuel centers.

~~Ingles also operates a fluid dairy~~

Coronavirus (COVID-19) Pandemic Impact

The COVID-19 pandemic which began in March 2020 and ~~earns shopping center rentals. The fluid dairy sells approximately 28% of its products~~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 ~~the retail grocery segment~~keep our customers and ~~approximately 72% of its products to third parties. Real estate ownership is an important component of~~our associates safe. Since March 2020, the Company’s ~~operations, providing both operational~~stores have experienced increased customer traffic and ~~economic benefits.~~ 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

Critical accounting policies are those accounting policies that management believes are important to the ~~portrayal~~presentation of the Company’s financial condition and results of operations, and require management’s most difficult, subjective or complex judgments, often as a result of the need to ~~make estimates about~~estimate the effect of matters that are inherently uncertain. Estimates are based on historical experience and other factors believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Management estimates, by their nature, involve judgments regarding future uncertainties, and actual results may therefore differ materially from these estimates.

Self-Insurance

The Company is self-insured for workers’ compensation and group medical and dental benefits. Risks and uncertainties are associated with self-insurance; however, the Company has limited its exposure by maintaining excess liability coverage of ~~$750,000~~$1.0 million per occurrence for workers’ compensation ~~$500,000~~and for general liability, and $450,000 per covered person for medical care benefits for a policy year. Self-insurance liabilities are established based on claims filed and estimates of claims incurred but not reported. The estimates are based on data provided by the respective claims administrators. These estimates can fluctuate if historical trends are not predictive of the future. The majority of the Company’s properties are self-insured for casualty losses and business interruption; however, liability coverage is maintained. At December ~~30, 2017~~25, 2021 the Company’s self-insurance reserves totaled ~~$37.4~~$32.1 million. ~~Of this~~This amount ~~$13.8 million is accounted for as a current liability and $23.6 million as a long-term liability, which~~ is inclusive of ~~$6.6~~$4.2 million of expected self-insurance recoveries from excess cost insurance or other sources that are recorded as a receivable.

Asset Impairments

The Company accounts for the impairment of long-lived assets in accordance with ~~Financial Accounting Standards Board Accounting Standards Codification (“~~FASB ~~ASC”)~~ASC Topic 360. For assets to be held and used, the Company tests for impairment using

undiscounted cash flows and calculates the amount of impairment using discounted cash flows. For assets held for sale, impairment is recognized based on the excess of remaining book value over expected recovery value. The recovery value is the fair value as determined by independent quotes or expected sales prices developed by internal associates. Estimates of future cash flows and expected sales prices are judgments based upon the Company’s experience and knowledge of local operations and cash flows that are projected for several years into the future. These estimates can fluctuate significantly due to changes in real estate market conditions, the economic environment, capital spending decisions and inflation. The Company monitors the carrying value of long-lived assets for potential impairment each quarter based on whether any indicators of impairment have occurred. There were no asset impairments during the three-month period ended December ~~30, 2017.~~25, 2021.

Vendor Allowances

The Company receives funds for a variety of merchandising activities from the many vendors whose products the Company buys for resale in its stores. These incentives and allowances are primarily ~~comprised~~composed of volume or purchase based incentives, advertising allowances, slotting fees, and promotional discounts. The purpose of these incentives and allowances is generally to help defray the costs incurred by the Company for stocking, advertising, promoting and selling the applicable vendor’s products. These allowances generally relate to short term arrangements with vendors, often relating to a period of a month or less, and are negotiated on a purchase-by-purchase or transaction-by-transaction basis. Whenever ~~possible,~~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 ~~system constraints~~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 ~~$31.8~~$31.9 million and ~~$30.7~~$29.7 million for the fiscal quarters ended December ~~30, 2017~~25, 2021 and December ~~24, 2016,~~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 ~~$4.0~~$2.1 million and ~~$3.9~~$1.9 million for the fiscal quarters ended December ~~30, 2017~~25, 2021 and December ~~24, 2016,~~

26, 2020, respectively. Overall, vendor 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.

Similarly, the Company is not able to assess the impact of vendor advertising allowances on creating additional revenue, as such allowances do not directly generate revenue for the Company’s stores.

Results of Operations

Ingles operates on a 52 or 53-week fiscal year ending on the last Saturday in September. The Condensed Consolidated Statements of Income for the three-month periods ended December ~~30, 2017~~25, 2021 and December ~~24, 2016~~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. Sales from replacement stores, major remodels and the addition of fuel stations to existing stores are included in the comparable store sales calculation from the date thereof. A replacement store is a ~~new~~newly-opened store that ~~is opened to replace~~replaces an existing nearby store that is closed. A major remodel entails substantial remodeling of an existing store and includes additional retail square footage. For ~~both~~ the three-month ~~periods~~period ended December ~~30, 2017 and December 24, 2016,~~25, 2021, comparable store sales ~~include~~included 196 stores. For the three-month period ended December 26, 2020, comparable store sales included 197 ~~and 199 stores, respectively.~~ 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 IK “Segment Information” to the Condensed Consolidated Financial Statements.



	Three Months Ended
	December 25,		December 26,
	2021		2020
Net sales	100.0	%	100.0	%
Gross profit	25.2	%	26.4	%
Operating and administrative expenses	18.7	%	20.0	%
Income from operations	6.5	%	6.4	%
Other income, net	0.1	%	—	%
Interest expense	0.4	%	0.5	%
Income tax expense	1.4	%	1.4	%
Net income	4.8	%	4.5	%

Three Months Ended


December 30,

December 24,

2017

2016
Net sales

100.0
%

100.0
%
Gross profit

24.1
%

24.1
%
Operating and administrative expenses

20.6
%

21.0
%
Gain from sale or disposal of assets

—
%

0.2
%
Income from operations

3.5
%

3.3
%
Other income, net

0.1
%

0.1
%
Interest expense

1.1
%

1.2
%
Income tax expense

(2.0)
%

0.8
%
Net income

4.5
%

1.4
%

Three Months Ended December ~~30, 2017~~25, 2021 Compared to the Three Months Ended December ~~24, 2016~~ 26, 2020

Net income for the first quarter of fiscal ~~2018~~2022 totaled ~~$45.1~~$66.2 million, compared with net income of ~~$13.8~~$53.8 million earned for the first quarter of fiscal ~~2017. Total revenues~~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 ~~gross margin increased~~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 ~~greater extent than did~~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 ~~increased~~higher pre-tax income. Changes to federal tax law enacted on December 22, 2017 had a $26.7 million positive impact on the Company’s current tax expense and on deferred tax liabilities that will be settled at a lower rate in future periods.

Net Sales. Net sales increased by ~~$31.0~~$201.1 million, or ~~3.2%~~16.9%, to ~~$1.01~~$1.39 billion for the three months ended December ~~30, 2017~~25, 2021 compared with ~~$982.8 million~~$1.19 billion for the three months ended December ~~24, 2016.~~26, 2020. Comparing the first quarter of fiscal ~~2018~~2022 with the first quarter of fiscal ~~2017,~~2021, gasoline sales dollars ~~increased~~and gallons sold were higher due to ~~a 15% in gallons sold~~increased holiday travel and a ~~relatively flat retail sales price per gallon.~~substantial increase in market prices for fuel. Excluding gasoline sales, total grocery comparable store sales increased ~~2.2%~~10.0% over the comparative fiscal ~~quarters.~~quarter. Comparing the first quarters of fiscal years ~~2018~~2022 and ~~2017~~2021 (and excluding gasoline), the number of customer transactions ~~decreased 0.1%~~increased 7.3% and the average transaction size increased ~~2.2%~~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 ~~200 and 202~~198 stores at December ~~30, 2017~~25, 2021 and 197 stores at December ~~24, 2016, respectively.~~26, 2020. Retail square feet totaled approximately 11.3 million square feet at December ~~30, 2017~~25, 2021 and ~~11.2~~11.3 million square feet at December ~~24, 2016.~~26, 2020. During the ~~last~~ twelve months ended December 25, 2021, the Company opened two ~~stores, relocated one store into a~~ new ~~building~~stores and closed ~~four stores,~~ one ~~of which was closed in fiscal 2017 and reopened in a new building during fiscal year 2018.~~ store.

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



	Three Months Ended				Three Months Ended
	December 30,		December 24,		December 25,		December 26,
	2017		2016		2021		2020
Grocery	$	363,325	$	360,901	$	488,407	$	442,121
Non-foods		217,744		212,311		304,672		279,688
Perishables		265,294		255,849		364,350		321,263
Gasoline		136,674		118,523		190,832		110,469
Total retail grocery	$	983,037	$	947,584	$	1,348,261	$	1,153,541

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

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

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

Changes in retail grocery sales for the quarter ended December ~~30, 2017~~25, 2021 are summarized as follows (in thousands):



Total retail sales for the three months ended December 26, 2020	$	1,153,541
Comparable store sales increase (including gasoline)		181,232
Impact of stores opened in fiscal 2021		14,800
Impact of stores closed in fiscal 2021		(2,573)
Other		1,261
Total retail sales for the three months ended December 25, 2021	$	1,348,261


~~Total retail grocery sales for the three months ended December 24, 2016~~	$	~~947,584~~
~~Comparable store sales increase (including gasoline)~~		~~33,090~~
~~Impact of stores opened in fiscal 2017 and 2018~~		~~10,099~~
~~Impact of stores closed in fiscal 2017~~		~~(6,183)~~
~~Other~~		~~(1,553)~~
~~Total retail grocery sales for the three months ended December 30, 2017~~	$	~~983,037~~

Gross Profit. Gross profit for the three-month period ended December ~~30, 2017~~25, 2021 totaled ~~$244.7~~$350.5 million, an increase of ~~$7.6~~$36.3 million, or ~~3.2%~~11.6%, compared with gross profit of ~~$237.1~~$314.2 million for the three-month period ended December ~~24, 2016.~~26, 2020. Gross profit as a percentage of sales was ~~24.1%~~25.2% and 26.4% for ~~both~~ the three months ended December ~~30, 2017and~~25, 2021 and December ~~24, 2016.~~

26, 2020, respectively. The gross ~~profit dollar increase is attributable~~margin for gasoline was lower during the current year quarter due to a sharply higher ~~sales. Gasoline~~per gallon cost and sales price. Retail segment gross profit, ~~dollars and margin were higher~~excluding gasoline increased 18 basis points for the quarter ended December 25, 2021, as compared with the ~~first~~ quarter ~~of last fiscal year. Excluding gasoline sales, grocery gross profit as a percentage of sales for the first quarter of fiscal 2018 was unchanged compared with the same fiscal 2017 period.~~ended December 26, 2020.

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

Operating and Administrative Expenses. Operating and administrative expenses increased ~~$2.5~~$21.9 million, or ~~1.2%~~9.2%, to ~~$208.8~~$260.1 million for the three months ended December ~~30, 2017,~~25, 2021, from ~~$206.3~~$238.2 million for the three months ended December ~~24, 2016.~~26, 2020. As a percentage of sales, operating and administrative expenses were ~~20.6%~~18.7% and ~~21.0%~~20.0% for the December ~~2017~~2021 and December ~~2016~~2020 quarters, respectively. Excluding gasoline sales and associated gasoline operating expenses (primarily payroll), operating expenses were ~~23.6%~~21.5% of sales for the first fiscal quarter of ~~2018~~2022 compared with ~~23.7%~~21.9% for the first fiscal quarter of ~~2017.~~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:






			Increase
	Increase		as a % of
	in millions		sales
Salaries and wages	$	9.4	0.68	%
Store supplies	$	2.5	0.18	%
Insurance	$	1.9	0.13	%
Bank charges	$	1.7	0.12	%
Professional fees	$	1.7	0.12	%

Increase

Increase

(Decrease)

(Decrease)

as a % of

in millions

sales
Salaries and wages

$
2.4

0.24
%
Insurance

$
(1.5)

(0.15)
%
Depreciation

$
1.2

0.12
%
Bank charges

$
0.4

0.04
%
Store supplies

$
0.4

0.04
%

Salaries and wages increased in dollars due to additional labor hours required for the increased sales volume, including ~~new stores opened~~extra labor needed in response to the ~~past twelve months. Competition for labor~~COVID-19 pandemic.

Store supplies increased as a result of increased sales and market costs of certain supplies. The COVID-19 pandemic has ~~also increased~~resulted in higher usage of cleaning and packaging products to maintain product safety and the ~~Company’s market area.~~safety of our employees and customers.

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

~~Depreciation increased as a result of the Company’s capital expenditure programs, including new stores and remodeling projects.~~

Bank charges increased due to increased ~~card usage compared with other forms of payment, and to increased charges implemented by card issuers and processors.~~

~~Store supplies increased from higher perishable~~ sales and ~~market increases~~a greater portion of sales settled with credit/debit cards instead of cash or check.

Professional fees increased in conjunction with improvements to the ~~cost of petroleum-based packaging.~~Company’s information technology platforms.

~~Gain from Sale or Disposal of Assets.~~ ~~Gain from sale or disposal of assets was insignificant~~Other Income. Other income totaled $1.6 million for the three months ended December ~~30, 2017~~25, 2021 compared with ~~$1.4~~$0.7 million for the ~~comparable prior year period. There were no individually significant transactions in either fiscal period.~~three months ended December 26, 2020. The increase is attributable to higher sales of waste paper and other recyclables.

Interest Expense. Interest expense totaled ~~$11.5~~$5.4 million for the three-month period ended December ~~30, 2017~~25, 2021 compared with ~~$11.3~~$6.4 million for the three-month period ended December ~~24, 2016.~~26, 2020. Total debt at December ~~2017~~25, 2021 was ~~$890.5~~$586.1 million compared with ~~$900.2~~$587.9 million at December ~~2016.~~26, 2020. Over the past twelve months, the ~~London Interbank Offering Rate (“LIBOR”)~~Company has ~~increased, resulting in~~reduced or refinanced higher ~~interest on the Company’s floating~~ rate debt. ~~Somewhat offsetting this increase were fiscal year 2017 loan refinancings at more favorable terms.~~

Income Taxes. Income tax ~~benefit~~expense totaled ~~$19.8~~$20.4 million for the three months ended December ~~30, 2017,~~25, 2021, an effective tax rate of ~~(77.8%)~~23.6% of pretax income. Income tax expense totaled ~~$7.7~~$16.9 million for the three months ended December ~~24, 2016,~~26, 2020, an effective tax rate of ~~35.9%~~23.9% of pretax income.

On December 22, 2017, the U.S. Government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the “Tax Act”). The Tax Act makes broad and complete changes to the U.S tax code that will affect our fiscal year ended September 29, 2018, including, but not limited to (1) reducing the U.S. federal corporate tax rate from 35% to 21% effective January 1, 2018. (2) creating a new limitation on deductible interest expense, and (3) bonus depreciation that will allow for full expensing of qualified property.

For the fiscal year ended September 29, 2018 the Company will have a blended federal corporate tax rate of 24.5% based on the effective date of the tax rate reduction. As a result of the decrease in the federal rate, the Company has recorded in the current fiscal quarter a decrease in its net deferred tax liabilities of $26.7 million, with a corresponding reduction to deferred income tax expense.

Net Income. Net income totaled ~~$45.1~~$66.2 million for the three-month period ended December ~~30, 2017~~25, 2021 compared with ~~$13.8~~$53.8 million for the three-month period ended December ~~24, 2016. Net income, as a percentage of sales, was 4.5% and 1.4% for the December 2017 quarter and the December 2016 quarter, respectively.~~26, 2020. Basic and diluted earnings per share for Class A Common Stock were ~~$2.29~~$3.57 and ~~$2.23,~~$3.48, respectively, for the December ~~2017~~2021 quarter, compared to ~~$0.70~~$2.73 and ~~$0.68,~~$2.66, respectively, for the December ~~2016~~2020 quarter. Basic and diluted earnings per share for Class B Common Stock were each ~~$2.08~~$3.24 for the December ~~2017~~2021 quarter compared with ~~$0.64~~$2.48 for the December ~~2016~~2020 quarter.

Liquidity and Capital Resources

Capital Expenditures

The Company believes that a key to its ability to continue to develop a loyal customer base is providing conveniently located, clean and modern stores which provide customers with good service and ~~a broad~~an increasingly diverse selection of competitively priced products. ~~As such,~~Therefore, the Company has invested and ~~will~~plans to continue to invest significant amounts of capital toward the modernization of its store base. 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. ~~The Company will also add fuel centers and other products complementary to grocery sales where market conditions and real estate considerations warrant.~~

Capital expenditures totaled ~~$56.8~~$21.3 million for the three-month period ended December 30, 2017. This is a higher than usual quarterly amount due to the purchase of two shopping centers where the Company operated leased stores, and the opening of two new store buildings during the quarter ended December 30, 2017.25, 2021. These capital expenditures ~~also~~ focused on construction onof stores scheduled to open later in fiscal ~~2018,~~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. 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.

~~Ingles’~~The Company’s capital expenditure plans for fiscal ~~2018~~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 ~~$160 million. The~~dedicate the majority of ~~the Company’s~~its fiscal ~~2018~~2022 capital expenditures ~~will be dedicated~~ to continued improvement of its store base and also include investments in stores expected to open in fiscal ~~2018~~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.

The Company currently expects that its annual capital expenditures will be in the range of approximately $100 to $160 million going forward in order to maintain a modern store base. ~~Planned~~Among other things, planned expenditures for any given future fiscal year will be affected by the availability of financing, which can affect both the number of projects pursued at any given time and the cost of those projects. The number of projects may also fluctuate due to the varying costs of the types of projects pursued including new stores and major remodel/expansions. The Company makes decisions on the allocation of capital expenditure dollars based on many factors including the competitive environment, other Company capital initiatives and its financial condition.

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~~The Company had no outstanding construction commitments ~~totaled $10.9 million~~ at December ~~30, 2017.~~25, 2021.

Liquidity

The Company generated ~~$37.4~~$95.0 million net cash from operations in the December ~~2017~~2021 three-month period compared with ~~$17.2~~$57.8 million during the December ~~2016~~2020 three-month period. The increase is primarily attributable to higher net income ~~exclusive~~as a result of ~~the non-cash increase to net income resulting from certain aspects of the Tax Act. Operating cash generation tends to be lower during the December quarter of each fiscal year~~increased sales due to ~~seasonal inventory increases and semi-annual interest payments on Senior Notes obligations.~~the COVID-19 pandemic.

Cash used by investing activities for the three-month periods ended December ~~30, 2017~~25, 2021 and December ~~24, 2016~~26, 2020 totaled ~~$56.7~~$131.1 million and ~~$27.9~~$33.6 million, ~~respectively, consisting primarily~~respectively. Excess cash of ~~capital expenditures offset by insignificant proceeds from property and equipment sales.~~ approximately $110 million has been invested in short-term financial instruments.

Cash ~~provided~~used by financing activities totaled ~~$9.2 million and $20.2~~$6.5 million for the ~~fiscal quarters~~three-month period ended December ~~2017 and 2016, respectively. Short term~~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 ~~tend to increase~~under the Line (as defined below) during the quarter ended December ~~quarter of each fiscal year to finance seasonal inventory increases and the semi-annual Senior Note interest payment.~~26, 2020.

In June ~~2013,~~2021, the Company issued ~~$700.0~~$350.0 million aggregate principal amount of senior notes due ~~in 2023~~2031 (the “Notes”). The Notes bear an interest rate of ~~5.750%~~4.00% per annum and were issued at par. 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 ~~$175.0~~$150.0 million line of credit (the “Line”) that matures in ~~September 2022.~~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”).~~LIBOR. The Line allows the Company to issue up to ~~$20.0~~$10.0 million in ~~unused~~ letters of credit, of which ~~$9.9 million of unused letters of credit~~none were issued at December ~~30, 2017.~~25, 2021. The Company is not required to maintain compensating balances in connection with the Line. At December ~~30, 2017,~~25, 2021, the Company had ~~$14.3 million of~~no borrowings outstanding under the Line.

OnIn December ~~29,~~ 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 ~~June 30, 2021,~~December 17, 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 is $63.5 million as of December 25, 2021. The Company may redeem the Bonds without penalty or premium at any time prior to ~~June 30, 2021.~~ 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%. 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. 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 fair market value of the interest rate swaps are measured quarterly with adjustments recorded in other comprehensive income.

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

The ~~Notes, the Bonds and the Line~~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. As of December ~~30, 2017,~~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 ~~$429 million~~$2.1 billion of additional borrowings (including borrowings under the Line) as of December ~~30, 2017.~~ 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. The Company believes, based on its current results of operations and financial condition, that its financial resources, including the 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 is 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 report based on a number of factors. These factors may include, among others, increased competition, changing regional and national economic conditions, adverse climatic conditions affecting food production and delivery, ~~and~~ 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 ~~30, 2017~~25, 2021 other than as ~~disclosed~~described elsewhere in this Form 10-Q.

Off Balance Sheet Arrangements

On December 19, 2017 the Company entered into an interest rate swap agreement for a notional amount of $58.5 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 $60 million of floating rate debt closed by the Company in September 2017. Both the floating rate debt and the interest rate swap have monthly principal amortization of $0.5 million and mature October 1, 2027. The fair market value of the interest rate swap is measured quarterly, with adjustments, if significant, recorded on other comprehensive income. The difference between the notional amount and fair market value of the interest rate swap at December 30, 2017 was not significant. The Company is not a party to any ~~other~~ 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

Since December 27, 1993, the Company has paid regular quarterly cash dividends of $0.165 (sixteen and one-half cents) per share on its Class A Common Stock and $0.15 (fifteen cents) per share on its Class B Common Stock for an annual rate of $0.66 and $0.60 per share, respectively.

The Company expects to continue paying regular cash dividends on a quarterly basis. However, the Board of Directors periodically reconsiders the declaration of dividends. The Company pays these dividends at the discretion of the Board of Directors and the continuation of these payments, the amount of such dividends, and the form in which the dividends are paid (cash or stock) depends upon the results of operations, the financial condition of the Company and other factors which the Board of Directors deems relevant. In addition, the Notes, the Bonds, the Line, and other ~~loan~~debt agreements contain provisions that, based on certain financial parameters, restrict the ability of the Company to pay additional cash dividends in excess of current quarterly per share amounts. Further, the Company is prevented from declaring dividends at any time that it is in default under the indenture governing the Notes.

Seasonality

Grocery sales are subject to a slight seasonal variance due to holiday related sales and due to sales in areas where seasonal homes are located. Sales are traditionally higher in the Company’s first fiscal quarter due to the inclusion of sales related to Thanksgiving and Christmas. The Company’s second fiscal quarter traditionally has the lowest sales of the ~~year.~~year, unless Easter falls in that quarter. In the third and fourth quarter, sales are affected by the return of customers to seasonal homes in our market area. The Company’s fluid dairy operations have slight seasonal variation to the extent of its sales into the grocery industry. 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 ~~changes~~increases with general inflation. Inflation or deflation in energy costs affects the Company’s gasoline sales, distribution expenses ~~utility 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.

Three Months Ended


December 30,

December 24,

2017

2016
All items

0.2
%

0.3
%
Food and beverages

0.1
%

—
%
Energy

0.6
%

2.1
%



	Twelve Months Ended
	December 2021
All items	7.0	%
Food at home	6.5	%
Gasoline	49.6	%

Forward Looking Statements

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. While these forward-looking statements and the related assumptions are made in good faith and reflect the Company’s current judgment regarding the direction of the Company’s business, actual results will almost always vary, sometimes materially, from any estimates, predictions, projections, assumptions or other future performance suggested ~~herein.~~or described by such forward-looking statements. Such statements are based upon a number of assumptions and estimates which are inherently subject to significant risks and uncertainties many of which are beyond the Company’s control. Some of these assumptions inevitably will not materialize, and unanticipated events will occur which will affect the Company’s results. Some important factors (but not necessarily all factors) that affect the Company’s revenues, financial position, growth strategies, ~~future~~ profitability and operating results, or that otherwise could cause actual results to differ materially from those expressed in or implied by any forward-looking statement, include the potential continued impact of the COVID-19 pandemic on our business and economic conditions generally in the Company’s operating area; the Company’s ability to successfully implement its expansion and operating strategies and to manage rapid expansion; pricing pressures and other competitive factors; reduction in per gallon retail gasoline prices; the maturation of new and expanded stores; the Company’s ability to reduce costs and achieve

improvements in operating results; the availability and terms of financing; increases in labor and utility costs; success or failure in the ownership and development of real estate; changes in the laws and government regulations applicable to the Company; ~~and~~disruptions in the efficient distribution of food products; changes in accounting policies, standards, guidelines or principles as may be adopted by regulatory agencies as well as the Financial Accounting Standards ~~Board.~~Board; and those factors contained under the heading “Risk Factors” in Item 1A of Part I of our most recent Annual Report on Form 10-K.

Consequently, actual events affecting the Company and the impact of such events on the Company’s operations may vary significantly from those described in this report or contemplated or implied by statements in this report. The Company does not undertake and specifically denies any obligation to update any such statements or to publicly announce the results of any revisions to any such statements to reflect future events or ~~developments.~~ developments, except to the extent required by applicable law.

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

As ~~previously mentioned,~~disclosed elsewhere in this Quarterly Report on Form 10-Q, the Company is a party to an interest rate swap ~~agreement~~agreements for a current aggregate notional amount of ~~$58.5 million at a fixed rate of 3.92%.~~$173.2 million. Otherwise, the Company does not typically utilize financial instruments for trading or other speculative purposes, nor does it typically utilize leveraged financial instruments. There have been no other material changes in the market risk factors from those disclosed in the Company’s Annual Report on Form 10-K for the year ended September ~~30, 2017.~~ 25, 2021.

Item 4. CONTROLS AND PROCEDURES

(a)Evaluation of Disclosure Controls and Procedures

The Company maintains disclosure controls and procedures designed to provide reasonable assurance of achieving the objective that information in its Exchange Act reports is recorded, processed, summarized and reported within the time periods specified and pursuant to the regulations of the Securities and Exchange Commission. Disclosure controls and procedures, as defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act, include controls and procedures designed to ensure the information required to be disclosed by the Company in the reports it files or submits under the Exchange Act is accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. It should be noted that the Company’s system of controls, however well designed and operated, can provide only reasonable, and not absolute, assurance that the objectives of the system are met.

As required by SEC Rule 13a-15(b), the Company carried out an evaluation, under the supervision and with participation of its management, including its Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of its disclosure controls and procedures as of December ~~30, 2017,~~25, 2021, the end of the period covered by this report. In making this evaluation, it considered matters previously identified and disclosed in connection with the filing of its Annual Report on Form 10-K for fiscal ~~2017.~~2021. After consideration of the matters discussed above and the changes in internal control over financial reporting discussed below, the Company has concluded that its controls and procedures were effective as of December ~~30, 2017.~~ 25, 2021.

(b) Changes in Internal Control over Financial Reporting

The Company is currently planning and performing tests of internal controls over financial reporting for fiscal year ~~2018.~~2022.

No ~~other change~~changes in internal control over financial reporting occurred during the Company’s last fiscal quarter that materially affected, or isare reasonably likely to materially affect, the Company’s internal control over financial reporting.

Part II. OTHER INFORMATION

Item 6. EXHIBITS

(a) Exhibits.


~~3.1~~	31.1	Articles of Incorporation of Ingles Markets, Incorporated (included as Exhibit 3.1 to Ingles Markets, Incorporated’s Registration Statement on Form S-1, File No. 33-23919, previously filed with the Commission and incorporated herein by this reference). (Filed on paper – hyperlink is not required pursuant to Rule 105 of Regulation S-T.)


~~3.2~~	*	Articles of Amendment to Articles of Incorporation of Ingles Markets, Incorporated (included as Exhibit 3.3 to Ingles Markets, Incorporated’s Annual Report on Form 10-K for the fiscal year ended September 25, 2004, File No. 0-14706, previously filed with the Commission and incorporated herein by this reference).Rule 13a-14(a) Certification


~~3.3~~ 31.2	*	Articles of Amendment to Articles of Incorporation of Ingles Markets, Incorporated dated February 14, 2012 (included as Exhibit 3.3 to Ingles Markets, Incorporated Quarterly Report on Form 10-Q for the fiscal quarter ended March 24, 2012, File No. 0-14706, previously filed with the Commission and incorporated herein by this reference).Rule 13a-14(a) Certification

4
~~3.4~~ 32.1	**	Amended and Restated By-Laws of Ingles Markets, Incorporated (included as Exhibit 99.1 to Ingles Markets, Incorporated’s Current Report on Form 8-K, File No. 0-14706, previously filed with the Commission on August 30, 2007 and incorporated herein by this reference).


~~4.1~~		Articles 4 and 9 of the Articles of Incorporation of Ingles Markets, Incorporated (included as Exhibit 3.1 to Ingles Markets, Incorporated’s Registration Statement on Form S-1, File No. 33-23919, (filed on paper – hyperlink is not required pursuant to Rule 105 of Regulation S-T) and Exhibit 3.3 to Ingles Markets, Incorporated’s Annual Report on Form 10-K for the fiscal year ended September 25, 2004, File No. 0-14706, respectively, each of which were previously filed with the Commission and are incorporated herein by this reference).


~~4.2~~		Articles 2, 3, 10, 11 and 14 of the Amended and Restated By-Laws of Ingles Markets, Incorporated (included as Exhibit 99.1 to Ingles Markets, Incorporated’s Current Report on Form 8-K, File No. 0-14706, previously filed with the Commission on August 30, 2007 and incorporated herein by this reference).

3
~~4.3~~		Indenture, dated as of June 12, 2013, between Ingles Markets, Incorporated and Branch Banking and Trust Company, as Trustee, governing the 5.75% Senior Notes Due 2023, including the form of unregistered 5.75% Senior Note Due 2023 (included as Exhibit 4.1 to Ingles Markets, Incorporated’s Current Report on Form 8-K, File No. 0-14706, previously filed with the Commission on June 12, 2013 and incorporated herein by this reference).


~~4.4~~		Registration Rights Agreement, dated June 12, 2013, among the Company and Merrill Lynch, Pierce, Fenner and Smith Incorporated, Wells Fargo Securities, LLC, BB&T Capital Markets, a division of BB&T Securities, LLC and SunTrust Robinson Humphrey, Inc. (included as Exhibit 4.3 to Ingles Markets, Incorporated’s Current Report on Form 8-K, File No. 0-14706, previously filed with the Commission on June 12, 2013 and incorporated herein by this reference).

10
~~10.1~~		Credit Agreement, dated May 12, 2009, among the Company and the lenders party thereto, Bank of America, as administrative agent, swing line lender and l/c issuer, Branch Banking and Trust Company, as syndication agent, Wachovia Bank, National Association, as documentation agent, and Banc of America Securities LLC, Branch Banking and Trust Company and Wachovia Capital Markets, LLC, as joint lead arrangers and book managers (included as Exhibit 10.1 to Ingles Markets, Incorporated’s Current Report on Form 8-K, File No. 0-14706, previously filed with the Commission on May 15, 2009 and incorporated herein by this reference).


~~10.2~~		Waiver and First Amendment to the Credit Agreement dated as of July 31, 2009, among the Company the lenders from time to time party thereto, Bank of America, N.A., as administrative agent, swing line lender and l/c issuer, and the other agents, joint lead arrangers and joint book managers party thereto (included as Exhibit 10.3 to Ingles Markets, Incorporated’s Annual Report on Form 10-K for the fiscal year ended September 29, 2012, File No. 0-14706, previously filed with the Commission and incorporated herein by this reference).

~~10.3~~

Second Amendment to the Credit Agreement dated as of December 29, 2010, among the Company the lenders from time to time party thereto, Bank of America, N.A., as administrative agent, swing line lender and l/c issuer, and the other agents, joint lead arrangers and joint book managers party thereto (included as Exhibit 10.1 to Ingles Markets, Incorporated’s Current Report on Form 8-K, File No. 0-14706, previously filed with the Commission on January 4, 2011 and incorporated herein by this reference).


~~10.4~~		Third Amendment to the Credit Agreement dated as of September 6, 2012, among the Company the lenders from time to time party thereto, Bank of America, N.A., as administrative agent, swing line lender and l/c issuer, and the other agents, joint lead arrangers and joint book managers party thereto (included as Exhibit 10.5 to Ingles Markets, Incorporated’s Annual Report on Form 10-K for the fiscal year ended September 29, 2012, File No. 0-14706, previously filed with the Commission and incorporated herein by this reference).


~~10.5~~		Fourth Amendment to the Credit Agreement dated as of June 12, 2013, among the Company the lenders from time to time party thereto, Bank of America, N.A., as administrative agent, swing line lender and l/c issuer, and the other agents, joint lead arrangers and joint book managers party thereto (included as Exhibit 10.6 to Ingles Markets, Incorporated’s Quarterly Report on Form 10-Q for the quarter ended June 29, 2013, File No. 0-14706, previously filed with the Commission and incorporated herein by this reference).


~~10.6~~		Fifth Amendment to the Credit Agreement dated as of January 31, 2014, among the Company the lenders from time to time party thereto, Bank of America, N.A., as administrative agent, swing line lender and l/c issuer, and the other agents, joint lead arrangers and joint book managers party thereto (included as Exhibit 10.7 to Ingles Markets, Incorporated’s Quarterly Report on Form 10-Q for the quarter ended December 28, 2013, File No. 0-14706, previously filed with the Commission and incorporated herein by this reference).


~~10.7~~		Sixth Amendment to the Credit Agreement dated as of June 23, 2014, among the Company the lenders from time to time party thereto, Bank of America, N.A., as administrative agent, swing line lender and l/c issuer, and the other agents, joint lead arrangers and joint book managers party thereto (included as Exhibit 10.1 to Ingles Markets, Incorporated’s Current Report on Form 8-K, File No. 0-14706, previously filed with the Commission on June 24, 2014 and incorporated herein by this reference).


~~10.8~~		Seventh Amendment to the Credit Agreement dated as of September 27, 2017, among the Company the lenders from time to time party thereto, Bank of America, N.A., as administrative agent, swing line lender and l/c issuer, and the other agents, joint lead arrangers and joint book managers party thereto (included as Exhibit 10.13 to Ingles Markets, Incorporated’s Annual Report on Form 10-K for the fiscal year ended September 30, 2017, File No. 0-14706, previously filed with the Commission and incorporated herein by this reference).


~~10.9~~	*	~~Ingles Markets, Incorporated Investment/Profit Sharing Plan (Amended and Restated effective January 1, 2017)~~.


~~10.10~~	*	~~Ingles Markets, Incorporated Investment/Profit Sharing Plan Summary Plan Description.~~


~~10.11~~	*	~~Amendment to Investment/Profit Sharing Plan to Permit In-Plan Roth Transfers.~~


~~10.12~~	*	~~Participation Agreement for Milkco, Inc. (Amended and Restated effective January 1, 2017).~~


~~31.1~~	*	~~Rule 13a-14(a) Certification~~


~~31.2~~	*	~~Rule 13a-14(a) Certification~~


~~32.1~~	*	Certification Pursuant to 18 U.S.C. Section 1350


32.2	**	Certification Pursuant to 18 U.S.C. Section 1350


101	*	*	The following financial information from the Quarterly Report on Form 10-Q for the fiscal quarter ended December ~~30, 2017,~~25, 2021, formatted in ~~XBRL (Extensible~~iXBRL (Inline Extensible Business Reporting Language) and furnished electronically herewith: (i) the Consolidated Statements of Earnings; (ii) the Consolidated Balance Sheets; (iii) the Consolidated Statements of Cash Flows; (iv) the Consolidated Statements of Comprehensive Income; and (v) the Notes to the Consolidated Financial Statements.


104	*	Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).

________

*Filed herewith.

**Furnished herewith.
‎

1920

SIGNATURES

~~SIGNATURES~~

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Form 10-Q to be signed on its behalf by the undersigned thereunto duly authorized.



		INGLES MARKETS, INCORPORATED

Date: February ~~8, 2018~~3, 2022		/s/ James W. Lanning
		James W. Lanning
		~~James W. Lanning~~
		Chief Executive Officer and President

Date: February ~~8, 2018~~3, 2022		/s/ Ronald B. Freeman
		Ronald B. Freeman
		~~Ronald B. Freeman~~
		Vice President-Finance and Chief Financial Officer

~~North Carolina~~		~~56-0846267~~
North Carolina		56-0846267
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)
P.O. Box 6676, Asheville NC		28816
(Address of principal executive offices)		(Zip Code)


Title of each class	Trading Symbol	Name of each exchange on which registered
Class A Common Stock, $0.05 par value per share	IMKTA	The NASDAQ Global Select Market

~~Large accelerated filer~~ ☐	~~Accelerated filer ☒~~
~~Non-accelerated filer~~ ☐~~(Do not check if a smaller reporting company.)~~Large Accelerated Filer x	~~Smaller reporting company~~ ☐Accelerated Filer ¨
Non-Accelerated Filer ¨	Smaller Reporting Company ¨
	Emerging ~~growth company~~ ☐Growth Company ¨



		Page No.
Part I – Financial Information

Item 1. Financial Statements (Unaudited)

Condensed Consolidated Balance Sheets as of December ~~30, 2017~~25, 2021 and September ~~30, 2017~~ 25, 2021		3

Condensed Consolidated Statements of Income and Comprehensive Income for the
Three Months Ended December ~~30, 2017~~25, 2021 and December 26, 2020		4
~~and December 24, 2016~~			4

Condensed Consolidated Statements of Changes in Stockholders’ Equity for the Three Months Ended December ~~30, 2017~~25, 2021 and December ~~24, 2016~~26, 2020		5

Condensed Consolidated Statements of Cash Flows for the Three Months Ended December ~~30, 2017~~25, 2021 and December ~~24, 2016~~26, 2020		6
	6

Notes to Unaudited Interim Financial Statements		7

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		11 12

Item 3. Quantitative and Qualitative Disclosures About Market Risk		17 19

Item 4. Controls and Procedures		17
	19

Part II – Other Information


Item 6. Exhibits		18
	19
~~Signatures~~
Signatures	20	21



	December 30,		September 30,		December 25,		September 25,
	2017		2017		2021		2021
ASSETS
Current Assets:
Cash and cash equivalents	$	13,755,373	$	23,912,100	$	27,644,219	$	70,313,350
Short term investments						115,007,106		5,000,000
Receivables - net		71,514,020		66,329,164		103,033,744		95,082,014
Inventories		361,626,877		349,333,013		389,467,377		389,953,456
Other current assets		8,680,581		6,265,737		14,032,928		15,091,595
Total Current Assets		455,576,851		445,840,014		649,185,374		575,440,415
Property and Equipment – Net		1,292,455,999		1,265,112,350
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		25,629,028		22,353,410		32,604,498		31,989,010
Total Assets	$	1,773,661,878	$	1,733,305,774	$	2,077,997,703	$	2,018,343,955

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Current portion of long-term debt	$	12,672,037	$	12,210,571	$	17,595,785	$	17,600,739
Current portion of operating lease liabilities						8,303,132		8,635,998
Accounts payable - trade		176,003,202		150,901,051		204,197,268		189,432,027
Accrued expenses and current portion of other long-term liabilities		63,366,998		82,451,857		77,753,280		90,428,567
Total Current Liabilities		252,042,237		245,563,479		307,849,465		306,097,331
Deferred Income Taxes		47,106,000		69,918,000		72,122,000		72,768,000
Long-Term Debt		877,868,771		865,659,744		568,532,952		571,913,204
Noncurrent operating lease liabilities						32,090,620		33,887,935
Other Long-Term Liabilities		43,696,355		41,112,548		49,607,450		50,418,947
Total Liabilities		1,220,713,363		1,222,253,771		1,030,202,487		1,035,085,417
Stockholders’ Equity
Preferred stock, $0.05 par value; 10,000,000 shares authorized; no shares issued		—		—
Preferred stock, $0.05 par value; 10,000,000 shares authorized; 0 shares issued						—		—
Common stocks:
Class A, $0.05 par value; 150,000,000 shares authorized; 14,118,244 shares issued and outstanding December 30, 2017; 14,084,044 shares issued and outstanding at September 30, 2017		705,912		704,202
Class B, convertible to Class A, $0.05 par value; 100,000,000 shares authorized; 6,141,532 shares issued and outstanding December 30, 2017; 6,175,732 shares issued and outstanding at September 30, 2017		307,077		308,787
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		12,311,249		12,311,249		—		—
Accumulated other comprehensive income						(2,015,253)		(3,426,140)
Retained earnings		539,624,277		497,727,765		1,048,860,750		985,734,959
Total Stockholders’ Equity		552,948,515		511,052,003		1,047,795,216		983,258,538
Total Liabilities and Stockholders’ Equity	$	1,773,661,878	$	1,733,305,774	$	2,077,997,703	$	2,018,343,955


Year
2018	102.875%
2019	101.917%
2020	100.958%
2021 and thereafter	100.000%



			Increase
	Increase		(Decrease)
	(Decrease)		as a % of
	in millions		sales
Salaries and wages	$	2.4	0.24	%
Insurance	$	(1.5)	(0.15)	%
Depreciation	$	1.2	0.12	%
Bank charges	$	0.4	0.04	%
Store supplies	$	0.4	0.04	%