INGLES MARKETS, INCORPORATED AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (UNAUDITED)



	Three Months Ended
	December 26,		December 28,
	2020		2019
Net sales	$	1,190,443,141	$	1,078,354,937
Cost of goods sold		876,254,999		820,865,210
Gross profit		314,188,142		257,489,727
Operating and administrative expenses		238,199,077		221,978,850
Gain from sale or disposal of assets		451,719		2,964,484
Income from operations		76,440,784		38,475,361
Other income, net		692,017		197,487
Interest expense		6,400,714		11,949,286
Loss on early extinguishment of debt		—		3,719,209
Income before income taxes		70,732,087		23,004,353
Income tax expense		16,908,000		5,317,000
Net income	$	53,824,087	$	17,687,353

Other comprehensive income:
Change in fair value of interest rate swap	$	2,763,738	$	2,848,879
Income tax expense		675,000		696,986
Other comprehensive income, net of tax		2,088,738		2,151,893
Comprehensive income	$	55,912,825	$	19,839,246

Per share amounts:
Class A Common Stock
Basic earnings per common share	$	2.73	$	0.90
Diluted earnings per common share	$	2.66	$	0.87
Class B Common Stock
Basic earnings per common share	$	2.48	$	0.82
Diluted earnings per common share	$	2.48	$	0.82
Cash dividends per common share
Class A Common Stock	$	0.165	$	0.165
Class B Common Stock	$	0.150	$	0.150

Three Months Ended

March 28,

March 30,

2020

2019
Net sales

$
1,145,482,049

$
1,001,843,929
Cost of goods sold

853,894,303

757,543,262
Gross profit

291,587,746

244,300,667
Operating and administrative expenses

228,395,420

216,466,382
Gain from sale or disposal of assets

108,352

2,911,704
Income from operations

63,300,678

30,745,989
Other income, net

207,441

447,914
Interest expense

10,183,839

11,996,863
Income before income taxes

53,324,280

19,197,040
Income tax expense

13,032,000

4,197,000
Net income

$
40,292,280

$
15,000,040

Other comprehensive expense:

Change in fair value of interest rate swap

$
(13,926,534)

$
(598,764)
Income tax benefit

3,401,000

139,316
Other comprehensive expense, net of tax

(10,525,534)

(459,448)
Comprehensive income

$
29,766,746

$
14,540,592

Per share amounts:

Class A Common Stock

Basic earnings per common share

$
2.04

$
0.76
Diluted earnings per common share

$
1.99

$
0.74
Class B Common Stock

Basic earnings per common share

$
1.86

$
0.69
Diluted earnings per common share

$
1.86

$
0.69
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 INCOME AND COMPREHENSIVE INCOME (UNAUDITED)~~

Six Months Ended

March 28,

March 30,

2020

2019
Net sales

$
2,223,836,986

$
2,063,680,587
Cost of goods sold

1,674,759,514

1,560,969,126
Gross profit

549,077,472

502,711,461
Operating and administrative expenses

450,374,270

435,151,046
Gain from sale or disposal of assets

3,072,837

2,649,113
Income from operations

101,776,039

70,209,528
Other income, net

404,928

1,343,373
Interest expense

22,133,125

24,208,524
Loss on early extinguishment of debt

3,719,209

—
Income before income taxes

76,328,633

47,344,377
Income tax expense

18,349,000

10,192,000
Net income

$
57,979,633

$
37,152,377

Other comprehensive expense:

Change in fair value of interest rate swap

$
(11,077,655)

$
(154,727)
Income tax benefit

2,704,014

35,618
Other comprehensive expense, net of tax

(8,373,641)

(119,109)
Comprehensive income

$
49,605,992

$
37,033,268

Per share amounts:

Class A Common Stock

Basic earnings per common share

$
2.94

$
1.88
Diluted earnings per common share

$
2.86

$
1.83
Class B Common Stock

Basic earnings per common share

$
2.68

$
1.71
Diluted earnings per common share

$
2.68

$
1.71
Cash dividends per common share

Class A Common Stock

$
0.33

$
0.33
Class B Common Stock

$
0.30

$
0.30

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

~~INGLES MARKETS, INCORPORATED AND SUBSIDIARIES~~

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

THREE ~~AND SIX~~ MONTHS ENDED ~~MARCH 28,~~DECEMBER 26, 2020 AND ~~MARCH 30,~~DECEMBER 28, 2019



							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 28, 2019	14,180,485	$	709,024	6,079,291	$	303,965	$	12,311,249	$	(1,265,650)	$	650,664,018	$	662,722,606
Net income	—		—	—		—		—		—		17,687,353		17,687,353
Other comprehensive income, net of income tax	—		—	—		—		—		2,151,893		—		2,151,893
Cash dividends	—		—	—		—		—		—		(3,251,673)		(3,251,673)
Common stock conversions	12,500		625	(12,500)		(625)		—		—		—		—
Balance, December 28, 2019	14,192,985	$	709,649	6,066,791	$	303,340	$	12,311,249	$	886,243	$	665,099,698	$	679,310,179
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

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 29, 2018

14,145,385

$
707,269

6,114,391

$
305,720

$
12,311,249

$
—

$
582,089,570

$
595,413,808
Net income

               —

          —

             —

          —

               —

               —

22,152,337

22,152,337
Other comprehensive (expense) income, net of income tax

               —

          —

             —

          —

               —

340,339

                 —

340,339
Cash dividends

               —

          —

             —

          —

               —

               —

(3,251,148)

(3,251,148)
Common stock conversions

               —

          —

             —

          —

               —

               —

                 —

                 —
Balance, December 29, 2018

14,145,385

$
707,269

6,114,391

$
305,720

$
12,311,249

$
340,339

$
600,990,759

$
614,655,336
Net income

               —

          —

             —

          —

               —

               —

15,000,040

15,000,040
Other comprehensive (expense) income, net of income tax

               —

          —

             —

          —

               —

(459,448)

                 —

(459,448)
Cash dividends

               —

          —

             —

          —

               —

               —

(3,251,152)

(3,251,152)
Common stock conversions

31,950

1,598

(31,950)

(1,598)

               —

               —

                 —

                 —
Balance, March 30, 2019

14,177,335

$
708,867

6,082,441

$
304,122

$
12,311,249

$
(119,109)

$
612,739,647

$
625,944,776

Balance, September 28, 2019

14,180,485

$
709,024

6,079,291

$
303,965

$
12,311,249

$
(1,265,650)

$
650,664,018

$
662,722,606
Net income

               —

          —

             —

          —

               —

               —

17,687,353

17,687,353
Other comprehensive (expense) income, net of income tax

               —

          —

             —

          —

               —

2,151,893

                 ��

2,151,893
Cash dividends

               —

          —

             —

          —

               —

               —

(3,251,673)

(3,251,673)
Common stock conversions

12,500

625

(12,500)

(625)

               —

               —

                 —

                 —
Balance, December 28, 2019

14,192,985

$
709,649

6,066,791

$
303,340

$
12,311,249

$
886,243

$
665,099,698

$
679,310,179
Net income

—

—

—

—

—

—

40,292,280

40,292,280
Other comprehensive (expense) income, net of income tax

—

—

—

—

—

(10,525,534)

—

(10,525,534)
Cash dividends

—

—

—

—

—

—

(3,251,862)

(3,251,862)
Common stock conversions

375

19

(375)

(19)

—

—

—

—
Balance, March 28, 2020

14,193,360

$
709,668

6,066,416

$
303,321

$
12,311,249

$
(9,639,291)

$
702,140,116

$
705,825,063

See notes to unaudited condensed consolidated financial statements.

‎

INGLES MARKETS, INCORPORATED AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)



	Six Months Ended				Three Months Ended
	March 28,		March 30,		December 26,		December 28,
	2020		2019		2020		2019
Cash Flows from Operating Activities:
Net income	$	57,979,633	$	37,152,377	$	53,824,087	$	17,687,353
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization expense		57,357,438		55,607,103		29,878,689		28,434,454
Non cash operating lease cost		5,332,302		—		1,672,035		2,186,588
Gain from sale or disposal of assets		(3,072,837)		(2,649,113)		(451,719)		(2,964,484)
Loss on early extinguishment of debt		3,719,209		—		—		3,719,209
Receipt of advance payments on purchases contracts		500,000		1,000,000		250,000		500,000
Recognition of advance payments on purchases contracts		(1,309,835)		(1,265,788)		(753,511)		(870,015)
Deferred income taxes		499,000		7,141,000		429,000		552,014
Changes in operating assets and liabilities:
Receivables		(10,321,941)		(3,531,623)		(19,589,583)		(3,576,221)
Inventory		58,860,562		6,440,232		(6,722,127)		2,547,440
Other assets		(4,505,320)		16,359,326		(1,342,505)		(1,719,985)
Operating lease liabilities		(5,516,359)		—		(1,766,313)		(2,276,367)
Accounts payable and accrued expenses		15,836,348		(8,041,671)		2,346,228		(27,970,295)
Net Cash Provided by Operating Activities		175,358,200		108,211,843		57,774,281		16,249,691
Cash Flows from Investing Activities:
Proceeds from sales of property and equipment		5,321,389		7,283,055		593,245		5,223,283
Capital expenditures		(56,824,266)		(94,219,647)		(34,239,257)		(31,103,774)
Net Cash Used by Investing Activities		(51,502,877)		(86,936,592)		(33,646,012)		(25,880,491)
Cash Flows from Financing Activities:
Proceeds from short-term borrowings		—		300,186,059		248,719,275		—
Payments on short-term borrowings		—		(299,504,655)		(262,603,345)		—
Debt issuance costs		(854,793)		—		—		(822,412)
Proceeds from new long term debt		155,000,000		—		—		155,000,000
Principal payments on long-term borrowings		(165,678,517)		(9,310,958)		(3,890,502)		(157,422,326)
Prepayment penalties on debt extinguishment		(2,971,350)		—		—		(2,971,350)
Dividends paid		(6,503,535)		(6,502,300)		(3,252,152)		(3,251,673)
Net Cash Used by Financing Activities		(21,008,195)		(15,131,854)		(21,026,724)		(9,467,761)
Net Increase in Cash and Cash Equivalents		102,847,128		6,143,397
Net Increase (Decrease) in Cash and Cash Equivalents						3,101,545		(19,098,561)
Cash and cash equivalents at beginning of period		42,125,105		10,537,303		6,903,955		42,125,105
Cash and Cash Equivalents at End of Period	$	144,972,233	$	16,680,700	$	10,005,500	$	23,026,544

See notes to unaudited condensed consolidated financial statements.

‎

INGLES MARKETS, INCORPORATED AND SUBSIDIARIES

NOTES TO UNAUDITED INTERIM FINANCIAL STATEMENTS

Three Months ~~and Six Months~~ Ended ~~March 28,~~December 26, 2020 and ~~March 30,~~December 28, 2019

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 ~~March 28,~~December 26, 2020, and the results of operations and changes in stockholders’ equity ~~for the three-month and six-month periods ended March 28, 2020 and March 30, 2019,~~ and cash flows for the ~~six~~three months ended ~~March 28,~~December 26, 2020 and ~~March 30,~~December 28, 2019. 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 ~~28, 2019,~~26, 2020, filed by the Company under the Securities Exchange Act of 1934, as amended, on December 10, ~~2019.~~2020.

The results of operations for the ~~three-month and six-month periods~~three months ended ~~March 28,~~December 26, 2020 are not necessarily indicative of the results to be expected for the full fiscal year.

B. NEW ACCOUNTING PRONOUNCEMENTS

~~On September 29, 2019,~~In March 2020, the ~~Company adopted~~FASB issued ASU 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial ~~Accounting Standards Board Accounting Standards Update~~Reporting.” The ASU ~~2016-02, “Leases” (ASU 2016-02), which requires~~provides optional guidance to ease the ~~Company as lessee to recognize most leases on the balance sheet thereby resulting~~potential burden in ~~the recognition of right of use assets and lease liabilities for those leases currently classified as operating leases. The~~ accounting for ~~leases where~~reference rate reform on financial reporting in response to the ~~Company~~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 the lessor remains largely unchanged. As both lessee and lessor, the Company adopted the standard utilizing the transition election to not restate comparative periods for the impact of adopting the standard. The Company elected the practical expedient related to leases of twelve months or less. The Company elected the package of transition expedientsonly available for ~~expired or existing contracts, which allowed~~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 ~~carryforward~~use of ~~historical assessments of (1) whether contracts are or contain leases, (2) lease classification~~LIBOR and, ~~(3) initial direct costs.~~therefore, this ASU is not yet effective for us. To the extent our debt and interest rate swap arrangements change to another accepted rate, we will utilize the relief in this ASU to continue hedge accounting.

The adoption of ASU 2016-02 resulted in the recognition of operating lease assets of $45.0 million and operating lease liabilities of $48.1 million, respectively as of September 29, 2019. Included in the measurement of the new lease assets is the reclassification of certain balances historically recorded as deferred rent and lease obligations for closed stores. The adoption of ASU 2016-02 did not materially affect the Company’s consolidated net income or cash flows.

~~See Note I for additional information required by ASU 2016-02.~~

C. ALLOWANCE FOR DOUBTFUL ACCOUNTS

Receivables are presented net of an allowance for doubtful accounts of $325,000 at ~~March 28,~~December 26, 2020 and ~~$156,000~~ at September ~~28, 2019.~~ 26, 2020.

D. INCOME TAXES

The Company’s effective tax rate differs from the federal statutory rate primarily as a result of state income taxes and tax credits.

The Company has unrecognized tax benefits and could 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. ACCRUED EXPENSES AND CURRENT PORTION OF OTHER LONG-TERM LIABILITIES

Accrued expenses and current portion of other long-term liabilities consist of the following:



	March 28,		September 28,		December 26,		September 26,
	2020		2019		2020		2020
Property, payroll and other taxes payable	$	16,195,765	$	20,273,626	$	21,296,793	$	22,334,471
Salaries, wages and bonuses payable		35,907,085		31,861,220		30,016,704		44,975,510
Self-insurance liabilities		13,620,261		13,146,292		14,231,397		14,064,210
Interest payable		11,011,503		13,342,260		2,468,868		6,686,195
Income taxes payable						10,208,918		—
Other		4,115,542		5,025,885		3,441,653		3,951,960
	$	80,850,156	$	83,649,283	$	81,664,333	$	92,012,346

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. ~~Effective October 1, 2019, the~~The Company is currently insured for covered costs in excess of $1.0 million per occurrence for workers’ compensation and for general liability and $450,000 per covered person for medical care benefits for a policy year. The Company’s self-insurance reserves totaled ~~$33.6~~$34.5 million and ~~$31.0~~$34.1 million at ~~March 28,~~December

26, 2020 and September ~~28, 2019,~~26, 2020, respectively. Of this amount, ~~$13.6~~$14.2 million is accounted for as a current liability and ~~$20.0~~$20.3 million as a long-term liability, which is inclusive of ~~$5.4~~$4.8 million of expected self-insurance recoveries from excess cost insurance or other sources that are recorded as a receivable at ~~March 28,~~December 26, 2020. At September ~~28, 2019, $13.1~~26, 2020, $14.1 million iswas accounted for as a current liability and ~~$17.9~~$20.0 million as a long-term liability, which is inclusive of ~~$3.6~~$4.7 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 ~~$7.8~~$12.3 million and ~~$9.4~~$10.6 million for the ~~three-month periods~~three months ended ~~March 28,~~December 26, 2020 and ~~March 30,~~December 28, 2019, respectively. ~~For the six-month periods ended March 28, 2020 and March 30, 2019 employee insurance expense, net of employee contributions totaled $18.3 million and $19.6 million, respectively.~~

The Company’s fuel operations contain underground tanks for the storage of gasoline and diesel fuel. The Company reviewed FASB Accounting Standards Codification Topic 410 (“FASB ASC 410”) and determined we have a legal obligation to remove tanks at a point in the future and accordingly determined we have met the requirements of an asset retirement obligation. The Company followed the FASB ASC 410 model for determining the asset retirement cost and asset retirement obligation. The amounts recorded are immaterial for each fuel center as well as in the aggregate at ~~March 28,~~December 26, 2020 and September ~~28, 2019.~~26, 2020.

F. LONG-TERM DEBT

In June 2013, the Company issued $700.0 million aggregate principal amount of senior notes due in 2023 (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 at the following redemption prices (expressed as percentages of the principal amount), if redeemed during the 12-month period beginning June 15 of the years indicated below:



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

In November 2019, the Company closed a $155 million ~~ten-year~~ten year amortizing real estate loan (the “Loan”) and issued notice to redeem a like principal amount of the Notes. The Loan was funded and the Notes were redeemed thirty days after the redemption notice in December 2019. The Notes were redeemed at 101.917% of par value, and the Company recognized debt extinguishment costs of approximately $3.7 million during the quarter ended December 28, 2019. The Loan matures January 31, 2030 and has monthly principal payments of $0.65 million plus floating rate interest based on LIBOR.

In June 2020, the Company issued an irrevocable notice to redeem $150 million principal amount of the Notes. The Notes were redeemed at 100.958% of par value on July 9, 2020.

In July 2020 the Company issued an irrevocable notice to redeem $100 million principal amount of the Notes. The Notes were redeemed at 100.958% of par value on August 27, 2020. Following this redemption, there were $295.0 million aggregate principal amount of the Notes outstanding at December 26, 2020.

The Company has a $175.0 million line of credit (the “Line”) that matures in September 2022. 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 million in unused letters of credit, of which ~~$9.1~~$1.1 million of unused letters of credit were issued at ~~March 28,~~December 26, 2020. The Company is not required to maintain compensating balances in connection with the Line. At ~~March 28,~~December 26, 2020, the Company had no$25.0 million of borrowings outstanding under the Line.

In December 2010, the Company completed the funding of $99.7 million of bonds (the “Bonds”) for construction of new warehouse and distribution space adjacent to its existing space in Buncombe County, North Carolina (the “Project”). The final maturity date of the Bonds is January 1, 2036.

Under a Continuing Covenant and Collateral Agency Agreement (the “Covenant Agreement”) between certain financial institutions and the Company, the financial institutions would hold the Bonds until September 2026, subject to certain events. Mandatory redemption of the Bonds by the Company in the annual amount of $4.5 million began on January 1, 2014. The outstanding balance of the Bonds is $68.0 million as of December 26, 2020. The Company may redeem the Bonds without penalty or premium at any time prior to September 26, 2026.

Interest earned by bondholders on the Bonds is exempt from Federal and North Carolina income taxation. The interest rate on the Bonds is equal to one-month LIBOR (adjusted monthly) plus a credit spread, adjusted to reflect the income tax exemption.

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

The Company has an interest rate swap agreement for a current notional amount of ~~$45.5~~$41.0 million at a fixed rate of 3.92%. Under this agreement, the Company pays monthly the fixed rate of 3.92% and receives the one-month LIBOR plus 1.65%. The interest rate swap

effectively hedges floating rate debt in the same amount as the current notional amount of the interest swap. Both the floating rate debt and the interest rate swap have monthly principal amortization of $0.5 million and mature October 1, 2027.

The Company has an interest rate swap agreement for a current notional amount of ~~$151.8~~$146.0 million at a fixed rate of 2.95%. Under this agreement, the Company pays monthly the fixed rate of 2.95% and receives the one-month LIBOR plus 1.50%. The interest rate swap effectively hedges floating rate debt in the same amount as the current notional amount of the interest swap. Both the floating rate debt and the interest rate swap have monthly principal amortization of $0.65 million and mature in fiscal year 2030.

The Company recognizes differences between the variable rate interest payments and the fixed interest rate settlements with the swap counterparties as an adjustment to interest expense each period over the life of the swaps. The Company has designated the swaps as cash flow hedges and records the changes in the estimated fair value of the swaps to other comprehensive income each period. For the ~~three- and six-month periods~~three months ended ~~March 28,~~December 26, 2020, the Company recorded ~~$10.5 million and $8.4~~$2.1 million of other comprehensive ~~expense, respectively,~~income, net of income taxes, in its Consolidated Statements of Comprehensive ~~income.~~Income. Unrealized losses of ~~$12.8~~$10.8 million are ~~recorded~~included as a liability at fair value in the line “Other Long Term Liabilities” on the Consolidated Balance Sheet as of ~~March 28,~~December 26, 2020. For the ~~three- and six-month periods~~three-month period ended ~~March 30,~~December 28, 2019, the Company recorded ~~$0.5 million and $0.1~~$2.2 million of other comprehensive ~~expense, respectively,~~income, net of income taxes, in its Consolidated Statements of Comprehensive ~~income. Unrealized losses of $0.1 million are recorded as a liability at fair value in the line “Other Long Term Liabilities” on the Consolidated Balance Sheet as of March 30, 2019.~~Income.

The Company’s long-term debt agreements generally contain provisions that under certain circumstances would permit lending institutions to terminate or withdraw their respective extensions of credit to the Company. Included among the triggering factors permitting the termination or withdrawal of the Line to the Company are certain events of default, including both monetary and non-monetary defaults, the initiation of bankruptcy or insolvency proceedings, and the failure of the Company to meet certain financial covenants designated in its respective loan documents. The Company was in compliance with all financial covenants at ~~March 28,~~December 26, 2020.

The Company’s long-term debt agreements generally have cross-default provisions which could result in the acceleration of payments due under all long-term debt agreements in the event of default under any one instrument.

At ~~March 28,~~December 26, 2020, property and equipment with an undepreciated cost of approximately ~~$363.5~~$298.1 million was 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 ~~March 28,~~December 26, 2020, the Company had excess net worth totaling ~~$143.4~~$222.4 million calculated under covenants in the Notes, 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.

G. DIVIDENDS

The Company paid cash dividends of $0.165 for each share of Class A Common Stock and $0.15 for each share of Class B Common Stock on October ~~17, 2019~~15, 2020 to stockholders of record on October ~~10, 2019.~~ 8, 2020.

~~The Company paid cash dividends of $0.165 for each share of Class A Common Stock and $0.15 for each share of Class B Common Stock on January 16, 2020 to stockholders of record on January 9, 2020.~~

For additional information regarding the dividend rights of the Class A Common Stock and Class B Common Stock, please see Note 8, “Stockholders’ Equity” to the Consolidated Financial Statements of the Annual Report on Form 10-K filed by the Company under the Securities Exchange Act of 1934, as amended, on December 10, ~~2019.~~2020.

H. 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				Six Months Ended				Three Months Ended				Three Months Ended
	March 28, 2020				March 28, 2020				December 26, 2020				December 28, 2019
	Class A		Class B		Class A		Class B		Class A		Class B		Class A		Class B
Numerator: Allocated net income
Net income allocated, basic	$	29,017,203	$	11,275,077	$	41,740,166	$	16,239,467	$	38,813,986	$	15,010,101	$	12,728,647	$	4,958,706
Conversion of Class B to Class A shares		11,275,077		—		16,239,467		—		15,010,101		—		4,958,706		—
Net income allocated, diluted	$	40,292,280	$	11,275,077	$	57,979,633	$	16,239,467	$	53,824,087	$	15,010,101	$	17,687,353	$	4,958,706

Denominator: Weighted average shares outstanding
Weighted average shares outstanding, basic		14,193,290		6,066,486		14,187,986		6,071,790		14,213,562		6,046,214		14,182,683		6,077,093
Conversion of Class B to Class A shares		6,066,486		—		6,071,790		—		6,046,214		—		6,077,093		—
Weighted average shares outstanding, diluted		20,259,776		6,066,486		20,259,776		6,071,790		20,259,776		6,046,214		20,259,776		6,077,093

Earnings per share
Basic	$	2.04	$	1.86	$	2.94	$	2.68	$	2.73	$	2.48	$	0.90	$	0.82
Diluted	$	1.99	$	1.86	$	2.86	$	2.68	$	2.66	$	2.48	$	0.87	$	0.82

Three Months Ended

Six Months Ended

March 30, 2019

March 30, 2019

Class A

Class B

Class A

Class B
Numerator: Allocated net income

Net income allocated, basic

$
10,773,567

$
4,226,473

$
26,678,194

$
10,474,183
Conversion of Class B to Class A shares

4,226,473

                —

10,474,183

                —
Net income allocated, diluted

$
15,000,040

$
4,226,473

$
37,152,377

$
10,474,183

Denominator: Weighted average shares outstanding

Weighted average shares outstanding, basic

14,154,424

6,105,352

14,149,904

6,109,872
Conversion of Class B to Class A shares

6,105,352

                —

6,109,872

                —
Weighted average shares outstanding, diluted

20,259,776

6,105,352

20,259,776

6,109,872

Earnings per share

Basic

$
0.76

$
0.69

$
1.88

$
1.71
Diluted

$
0.74

$
0.69

$
1.83

$
1.71

I. 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 ~~$2.3~~$2.7 million for the three months ended ~~March 28,2020 and $5.0 million for the six- months ending March 28,~~December 26, 2020. This amount includes short-term (less than one year) leases, common area expenses, and variable lease costs, all of which are insignificant. ~~Sublease income of $0.2 million is included as a reduction of operating lease cost.~~ Cash paid for lease liabilities in operating activities approximates operating lease cost.

Maturities of operating lease liabilities as of ~~March 28,~~December 26, 2020 are as follows:



Fiscal Year
Remainder of 2020	$	4,993,363
2021		7,820,804
Remainder of 2021			$	7,438,683
2022		7,408,458		9,732,036
2023		5,302,279		8,041,690
2024		2,908,072		5,257,390
2025				4,456,683
Thereafter		27,187,517		25,611,667
Total lease payments	$	55,620,493	$	60,538,149
Less amount representing interest		12,992,441		12,957,293
Present value of lease liabilities	$	42,628,052	$	47,580,856

The weighted average remaining lease term for the Company’s operating leases is ~~14.3~~12.9 years. The weighted average discount rate used to determine lease liability balances as of ~~March 28,~~December 26, 2020 is 3.51%, based on recent Company financings collateralized by store properties.

As a result of the adoption of ASU 2016-02 on September 29, 2019 the Company is required to present future minimum lease payments for operating leases having initial or remaining non-cancelable lease terms in excess of one year. These future minimum lease payments were previously disclosed in our 2019 Annual Report on Form 10-K and accounted for under previous lease guidance. Commitments as of September 28, 2019 were as follows:

At ~~September 28, 2019,~~December 26, 2020, the Company owned and operated 7983 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.

~~As a result of the adoption of ASU 2016-02 on September 29, 2019 the Company is required to present future~~ minimum operating lease income receipts for operating leases having initial or remaining non-cancelable lease terms in excess of one year. These future minimum lease payments were previously disclosed in our 2019 Annual Report on Form 10-K and accounted for under previous lease guidance. Future minimum operating lease receipts as of September 28, 2019 were as follows:

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:

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

For the three-month periods ended ~~March 28,~~December 26, 2020 and ~~March 30,~~December 28, 2019, respectively, the fluid dairy operation had $12.3 million and ~~$10.2~~$11.5 million in sales to the grocery sales segment. ~~The fluid dairy had $23.8 million and $21.2 million in sales to the retail grocery segment for the six-month periods ended March 28, 2020 and March 30, 2019, respectively.~~ These sales have been eliminated in consolidation and are excluded from the amounts in the table above.

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

Various legal proceedings and claims arising in the ordinary course of business are pending against the Company. In the opinion of management, the ultimate liability, if any, from all pending legal proceedings and claims ~~will~~is not expected to materially affect the Company’s financial position, the results of its operations, or its cash flows.

In November 2019, the Company sold two land parcels for $4.3 million to a limited liability corporation having Robert P. Ingle II, the Company’s Chairman of the Board, as one of its principals with a financial interest in the transaction. In accordance with the Company’s Related Party Transaction policy, independent fair market value appraisals were obtained to determine the selling price, and the Company’s Audit Committee approved the transactions.

~~The following risk factor disclosure should be read in conjunction with the risk factors described in the Company’s Annual Report on Form 10-K~~

The coronavirus pandemic was declared a national emergency on March 13, 2020 and the Company was classified as an essential business. We remained open to safely serve the needs of our customers during various isolation measures imposed to reduce pandemic risks.

These measures closed schools, restaurants, and many businesses in the Company’s market area. Sales and customer traffic increased and the Company’s implemented numerous sanitation and social distancing protocols to keep our customers and our associates safe. These protocols included shortened operating hours, frequent extensive cleaning, personal protective equipment, and measures to maintain safe distances in our stores. We hired additional associates due to the increased demands on our stores and our distribution center.

At the present time, we do not know how long current national, state and local mandates related to the pandemic will continue, or how mandates will change in the future. We do not know how our customer base will be impacted by unemployment or various assistance programs. We do not know what risks may impact or suppliers as a result of plant closures or transportation disruptions. We do not know the longer-term impact on tenants in Company-owned shopping centers.

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

Ingles, a leading supermarket chain in the Southeast, operates ~~198~~197 supermarkets in North Carolina (73), Georgia (66), 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 ~~March 28,~~December 26, 2020, the Company operated ~~108~~109 in-store pharmacies and ~~104~~106 fuel centers.

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.

Three Months Ended ~~March 28,~~December 26, 2020 Compared to the Three Months Ended ~~March 30,~~December 28, 2019

Net income for the ~~second~~first quarter of fiscal ~~2020~~2021 totaled ~~$40.3~~$53.8 million, compared with net income of ~~$15.0~~$17.7 million earned for the ~~second~~first quarter of fiscal ~~2019.~~2020. The COVID-19 pandemic resulted in various stay-at-home measures, as well as the closing of most schools and ~~restaurants.~~restaurants beginning in March 2020. Many of these measures were still in place throughout the quarter ended December 26, 2020. As a result, retail grocery sales increased ~~for approximately the last two weeks of the current fiscal quarter.~~substantially. Corresponding operating expenses did not increase as much, resulting in higher pre-tax income.

Net Sales. Net sales increased by ~~$143.6~~$112.1 million, or ~~14.3%~~10.4%, to ~~$1.14~~$1.19 billion for the three months ended ~~March 28,~~December 26, 2020 compared with ~~$1.0~~$1.08 billion for the three months ended ~~March 30,~~December 28, 2019. Comparing the ~~second~~first quarter of fiscal ~~2020~~2021 with the ~~second~~first quarter of fiscal ~~2019,~~2020, gasoline sales dollars and gallons sold were lower due to decreased ~~travel~~demand as a result of the COVID-19 pandemic and oversupply. Excluding gasoline sales, total grocery comparable store sales increased ~~17.5%~~15.2% over the comparative fiscal quarters. Comparing the ~~second~~first quarters of fiscal years ~~2020~~2021 and ~~2019~~2020 (and excluding gasoline), the number of customer transactions ~~increased 2.8%~~decreased 4.3% and the average transaction size increased ~~14.3%~~16.8%. We believe that because of the COVID-19 pandemic customers consolidated trips to our stores resulting in a lower transaction count and a higher spend per visit.

Ingles operated 197 stores at December 26, 2020 and 198 stores at ~~March~~December 28, ~~2020 and 200 stores at March 30,~~ 2019. Retail square feet totaled approximately 11.3 million square feet at ~~both March 28,~~December 26, 2020 and ~~March 30,~~11.2 million square feet at December 28, 2019. During the ~~last~~ twelve months ended December 26, 2020, the Company ~~opened~~closed one ~~store and closed three stores.~~ store.

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

Changes in retail grocery sales for the quarter ended ~~March 28,~~December 26, 2020 are summarized as follows (in thousands):

Gross Profit. Gross profit for the three-month period ended ~~March 28,~~December 26, 2020 totaled ~~$291.6~~$314.2 million, an increase of ~~$47.3~~$56.7 million, or ~~19.4%~~22.0%, compared with gross profit of ~~$244.3~~$257.5 million for the three-month period ended ~~March 30,~~December 28, 2019. Gross profit as a percentage of sales was ~~25.5%~~26.4% and ~~24.4%~~23.9% for the three months ended ~~March 28,~~December 26, 2020 and ~~March 30,~~December 28, 2019, respectively.

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

~~Advertising and promotion expenses~~Depreciation expense increased due to ~~higher digital advertising expenses~~equipment purchased for store improvements and ~~lower income contributions from vendors.~~the distribution network.

~~Rent~~Repairs and maintenance expense ~~decreased~~increased due to ~~the closing of leased stores~~extra sales and ~~the purchase of formerly leased stores.~~

~~Insurance expense decreased due to better claims experience under the Company’s self-insurance programs and the reduction of certain medical services~~enhanced cleaning protocols as a result of the COVID-19 pandemic.

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

Gain (loss) from Sale or Disposal of Assets. Gain from the sale or disposal of assets totaled ~~$0.1~~$0.5 million ~~with no significant transactions~~ during the three months ended ~~March 28,~~December 26, 2020. During the quarter ended ~~March 30,~~December 28, 2019, the ~~Company recognized a $3.2~~gain from the sale or disposal of assets totaled $3.0 million, ~~gain on~~primarily from the sale of ~~a former store property.~~ land.

Interest Expense. Interest expense totaled ~~$10.2~~$6.4 million for the three-month period ended ~~March 28,~~December 26, 2020 compared with ~~$12.0~~$11.9 million for the three-month period ended ~~March 30,~~December 28, 2019. Total debt at ~~March~~December 2020 was ~~$842.1~~$587.9 million compared with ~~$857.5~~$850.0 million at ~~March~~December 2019. Over the past twelve months, the ~~Company’s~~Company has reduced ~~debt and line~~or refinanced higher rate debt. LIBOR decreased significantly during calendar year 2020, reducing the cost of ~~credit usage, and refinanced approximately $155 million at significantly lower interest rates.~~ some of the Company’s debt.

Income Taxes. Income tax expense totaled ~~$13.0~~$16.9 million for the three months ended ~~March 28,~~December 26, 2020, an effective tax rate of ~~24.4%~~23.9% of pretax income. Income tax expense totaled ~~$4.2~~$5.3 million for the three months ended ~~March 30,~~December 28, 2019, an effective tax rate of ~~21.9%~~23.1% of pretax income.

Net Income. Net income totaled ~~$40.3~~$53.8 million for the three-month period ended ~~March 28,~~December 26, 2020 compared with ~~$15.0~~$17.7 million for the three-month period ended ~~March 30,~~December 28, 2019. Basic and diluted earnings per share for Class A Common Stock were ~~$2.04~~$2.73 and ~~$1.99,~~$2.66, respectively, for the ~~March~~December 2020 quarter, compared to ~~$0.76~~$0.90 and ~~$0.74,~~$0.87, respectively, for the ~~March~~December 2019 quarter. Basic and diluted earnings per share for Class B Common Stock were each ~~$1.86~~$2.48 for the ~~March~~December 2020 quarter compared with ~~$0.69~~$0.82 for the ~~March~~December 2019 quarter.

~~Six Months Ended March 28, 2020 Compared to the Six Months Ended March 30, 2019~~

Net income for the first half of fiscal 2020 totaled $58.0 million, compared with net income of $37.2 million earned for the first half of fiscal 2019. As was the case with the second quarter fiscal year 2020, the COVID-19 pandemic resulted in various stay-at-home measures, as well as the closing of most schools and restaurants. As a result, retail grocery sales increased for approximately the last two weeks of the current fiscal quarter. Corresponding operating expenses did not increase as much, resulting in higher pre-tax income. Offsetting that, the Company incurred debt extinguishment costs of $3.7 million to refinance and extend $155 million of debt at a substantially lower interest rate.

~~Net Sales.~~ Net sales increased by $160.2 million, or 7.8%, to $2.22 billion for the six months ended March 28, 2020 compared with $2.06 billion for the six months ended March 30, 2019. Comparing the first half of fiscal 2020 with the first half of fiscal 2019, gasoline sales dollars and gallons sold were lower due to decreased travel and oversupply. Excluding gasoline sales, total grocery comparable store sales increased 9.7% over the comparative fiscal quarters. Comparing the first halves of fiscal years 2020 and 2019 (and excluding gasoline), the number of customer transactions increased 1.5% and the average transaction size increased 8.2%.

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

~~Changes in retail grocery sales for the six months ended March 28, 2020 are summarized as follows (in thousands):~~

~~Sales growth for the remainder of fiscal 2020 will depend largely on the duration of various pandemic stay-at-home measures, including restaurant and travel restrictions.~~

~~Gross Profit.~~ Gross profit for the six-month period ended March 28, 2020 totaled $549.1 million, an increase of $46.4 million, or 9.2%, compared with gross profit of $502.7 million for the six-month period ended March 30, 2019. Gross profit as a percentage of sales was 24.7% and 24.4% for the six months ended March 28, 2020 and March 30, 2019, respectively. Gasoline gross profit dollars and margin were higher during the first half of the current fiscal year; retail gross margin excluding gas was stable over the comparable six-month period.

~~Operating and Administrative Expenses.~~ Operating and administrative expenses increased $15.2 million, or 3.5%, to $450.4 million for the six months ended March 28, 2020, from $435.2 million for the six months ended March 30, 2019. As a percentage of sales, operating and administrative expenses were 20.3% for the six months ended March 2020 and 21.1% for the six months ended March 2019. Excluding gasoline sales and associated gasoline operating expenses (primarily payroll), operating expenses were 22.7% of sales for the first six months of fiscal 2020 compared with 24.1% for the first six months of fiscal 2019.

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

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

~~Advertising and promotion expenses increased due to higher digital advertising expenses and lower income contributions from vendors.~~

~~Rent expense decreased due to the closing of leased stores and the purchase of formerly leased stores.~~

~~Repairs and maintenance increased due to a higher level of maintenance required on more sophisticated equipment.~~

~~Gain (loss) from Sale or Disposal of Assets.~~ Gain from the sale or disposal of assets totaled $3.1 million from the sale of land during the six months ended March 28, 2020. During the prior year six-month period, the Company recognized a $3.2 million gain on the sale of a former property. There were no other significant sale/disposal transactions in either six-month period ended March 28, 2020 or March 30, 2019.

~~Interest Expense.~~ Interest expense totaled $22.1 million for the six-month period ended March 28, 2020 compared with $24.2 million for the six-month period ended March 30, 2019. Total debt at March 2020 was $842.1 million compared with $857.5 million at March 2019. Over the past twelve months, the Company has reduced debt and line of credit usage, and refinanced approximately $155 million at significantly lower interest rates.

~~Loss on Early Extinguishment of Debt.~~ In November 2019, the Company closed a $155 million ten-year amortizing real estate loan (the “Loan”) and issued notice to redeem a like principal amount of the Notes. The Loan was funded and the Notes redeemed thirty days after the redemption notice in December 2019. The Notes were redeemed at 101.917% of par value, and the Company recognized debt extinguishment costs of approximately $3.7 million during the quarter ending December 28, 2019. The debt extinguishment costs were comprised of $3.0 million of redemption premium and a $0.7 million write off of capitalized loan costs related to the redeemed Notes.

~~Income Taxes.~~ Income tax expense totaled $18.3 million for the six months ended March 28, 2020, an effective tax rate of 24.0% of pretax income. Income tax expense totaled $10.2 million for the six months ended March 30, 2019, an effective tax rate of 21.5% of pretax income.

~~Net Income.~~ Net income totaled $58.0 million for the six-month period ended March 28, 2020 compared with $37.2 million for the six-month period ended March 30, 2019. Basic and diluted earnings per share for Class A Common Stock were $2.94 and $2.86, respectively, for the six months ended March 28, 2020, compared to $1.88 and $1.83, respectively, for the six months ended March 30, 2019. Basic and diluted earnings per share for Class B Common Stock were each $2.68 for the March 2020 six- month period compared with $1.71 for the March 2019 six-month period.

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. 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.

Capital expenditures totaled ~~$56.8~~$34.2 million for the ~~six-month~~three-month period ended ~~March 28,~~December 26, 2020. These capital expenditures focused on construction on stores scheduled to open later in fiscal ~~2020,~~2021, site acquisition, and smaller-scale remodeling projects in a number of the Company’s stores. Capital expenditures also included the costs of upgrading and replacing store equipment, technology investments, rolling stock, and capital expenditures related to the Company’s milk processing plant.

Ingles’ capital expenditure plans for fiscal ~~2020~~2021 currently include investments of approximately ~~$120~~$100 to ~~$160~~$120 million. At this time the Company does not anticipate that the COVID-19 pandemic will have an adverse impact on its capital expenditure plans. The Company currently plans to dedicate the majority of ~~the Company’s~~its fiscal ~~2020~~2021 capital expenditures ~~will be dedicated~~ to continued improvement of its store base and also include investments in stores expected to open in fiscal ~~2020~~2021, 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 construction commitments totaled ~~$17.6~~$9.9 million at ~~March 28,~~December 26, 2020.

Liquidity

The Company generated ~~$175.4~~$57.8 million net cash from operations in the ~~March~~December 2020 ~~six-month~~three-month period compared with ~~$108.2~~$16.2 million during the ~~March~~December 2019 ~~six-month~~three-month period. The increase is primarily attributable to higher net income ~~and lower inventory balances caused by extra pandemic~~as a result of increased sales indue to the ~~current fiscal quarter.~~ COVID-19 pandemic.

Cash used by investing activities for the ~~six-month~~three-month periods ended ~~March 28,~~December 26, 2020 and ~~March 30,~~December 28, 2019 totaled ~~$51.5~~$33.6 million and ~~$86.9~~$25.9 million, respectively, consisting primarily of capital expenditures offset by ~~insignificant~~ proceeds from property and equipment sales. ~~Capital expenditures were higher~~Land sales during the ~~prior year six-month period due to~~December 2019 quarter account for the ~~purchase of a shopping center where~~difference in investing activities between the ~~Company had previously leased a store.~~two quarters.

Cash used by financing activities totaled $21.0 million for the ~~six-month~~three-month period ended ~~March 28,~~December 26, 2020, compared with ~~$15.1~~$9.5 million for the ~~six-month~~three-month period ended ~~March 30,~~December 28, 2019. The increase is primarily related to the ~~$3.0 million redemption premium paid on $155 million~~repayment of borrowings under the ~~Notes.~~Line (as defined below).

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

In November 2019, the Company closed ~~the~~a $155 million ~~Loan~~ten year amortizing real estate loan (the “Loan”) and issued notice to redeem a like principal amount of the Notes. The Loan was funded and the Notes were redeemed at 101.917% of par value thirty days after the redemption notice in December ~~2019. The Notes were redeemed at 101.917% of par value, and the Company recognized debt extinguishment costs of approximately $3.7 million during the quarter ending December 28,~~ 2019. The Loan matures January 31, 2030 and has monthly principal payments of $0.65 million plus floating rate interest based on LIBOR.

In June 2020, the ~~London Interbank Offering Rate (“LIBOR”).~~ Company issued an irrevocable notice to redeem $150 million principal amount of the Notes. The Notes were redeemed at 100.958% of par value on July 9, 2020. In July 2020 the Company issued an irrevocable notice to redeem $100 million principal amount of the Notes. The Notes were redeemed at 100.958% of par value on August 27, 2020. Following this redemption, there were $295.0 million aggregate principal amount of the Notes outstanding at December 26, 2020.

The Company has a $175.0 million line of credit (the “Line”) that matures in September 2022. The Line provides the Company with various interest rate options based on the prime rate, the Federal Funds Rate, or ~~“LIBOR”.~~LIBOR. The Line allows the Company to issue up to $20.0 million in unused letters of credit, of which ~~$9.1~~$1.1 million of unused letters of credit were issued at ~~March 28,~~December 26, 2020. The Company is not required to maintain compensating balances in connection with the Line. At ~~March 28,~~December 26, 2020, the Company had no$25.0 million of borrowings outstanding under the Line.

In December 2010, the Company completed the funding of $99.7 million of Bonds (the “Bonds”) for the construction of new warehouse and distribution space adjacent to its existing space in Buncombe County, North Carolina (the “Project”). The final maturity date of the Bonds is January 1, 2036.

Under a Continuing Covenant and Collateral Agency Agreement (the “Covenant Agreement”) between certain financial institutions and the Company, the financial institutions would hold the Bonds until September 26, 2026, subject to certain events. Mandatory redemption of the Bonds by the Company in the annual amount of $4.5 million began on January 1, 2014. The outstanding balance of the Bonds is $68.0 million as of December 26, 2020. The Company may redeem the Bonds without penalty or premium at any time prior to September 26, 2026.

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 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 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 ~~March 28,~~December 26, 2020, the Company was in compliance with these covenants. Under the most restrictive of these covenants, the Company would be able to incur approximately ~~$889.2 million~~$1.72 billion of additional borrowings (including borrowings under the Line) as of ~~March 28,~~December 26, 2020.

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, 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

The Company has assumed various financial obligations and commitments in the normal course of its operations and financing activities. Financial obligations are considered to represent known future cash payments that the Company is required to make under existing contractual arrangements, such as debt and lease arrangements. The following table represents the scheduled maturities of the Company’s long-term contractual obligations as of March 28, 2020:

Contractual Obligations

Less than

1-3

3-5

More than
(amounts in thousands)

Total

1 year

years

years

5 years
Long-term debt and line of credit

$
842,056

$
38,079

$
38,200

$
585,165

$
180,612
Scheduled interest on long-term debt (1)

164,484

39,894

77,764

28,228

18,598
Advance payments on purchase contracts

3,416

1,914

686

84

732
Operating leases (2)

54,257

8,761

13,300

6,102

26,094
Construction commitments

17,640

17,640

—

—

—
Total

$
1,081,853

$
106,288

$
129,950

$
619,579

$
226,036


~~(1)~~	~~Scheduled interest on floating debt calculated using rates in effect on March 28, 2020.~~
~~(2)~~	Operating lease obligations in the above table do not include variable common area maintenance, insurance, utility and tax payments for which the Company is obligated under certain operating leases. These amounts are not significant compared with the operating lease payments listed in the above table.

The Company has entered supply contracts to provide approximately 83% of the fuel sold in its fuel centers. Pricing is based on certain market indices at the time of purchase. The suppliers can modify or terminate the contracts if the Company does not meet certain minimum monthly purchase requirements.

The Company is self-insured for workers’ compensation, general liability, and group medical and dental benefits. The Company’s self-insurance reserves totaled $33.6 million at March 28, 2020 and $31.0 million at September 28, 2019. Self-insurance liabilities are based on estimates and actuarial assumptions and can fluctuate in both amount and in timing of cash settlement if historical trends are not predictive of the future. For this reason they are not included in the above table.

The Company has a nonqualified investment plan to provide retirement benefits to certain of the Company’s management employees who are otherwise subject to limited participation in the 401(k) feature of the Company’s Investment/Profit Sharing Plan. The liability to plan participants totaled $13.7 million at March 28, 2020 and $16.4 million at September 28, 2019. The settlement of this obligation is

~~dependent upon participant elections to withdraw funds, which cannot be predicted. For this reason they are not included in the above table.~~

Various legal proceedings and claims arising in the ordinary course of business are pending against the Company. In the opinion of management, the ultimate liability, if any, from all pending legal proceedings and claims will not materially affect the Company’s financial position, the results of its operations, or its cash flows.

There have been no other material changes in contractual obligations and commercial commitments subsequent to September ~~28, 2019~~26, 2020 other than as described elsewhere in this Form 10-Q.

Off Balance Sheet Arrangements

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

Quarterly Cash Dividends

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 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, 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

~~The following table from the United States Bureau of Labor Statistics lists annualized~~There have been no other material changes in the ~~Consumer Price Index that could have an effect on the Company’s operations. One~~impact of ~~the Company’s significant costs is labor, which changes with general inflation. Inflation or deflation~~inflation subsequent to September 26, 2020 other than as described elsewhere in ~~energy costs affects the Company’s gasoline sales, distribution expenses, utility expenses and plastic supply costs.~~this Form 10-Q.

Six Months Ended


March 28,

March 30,

2020

2019
All items

0.1
%

0.2
%
Food and beverages

0.2
%

0.2
%
Energy

(0.7)
%

(0.4)
%

Forward Looking Statements

This Quarterly Report contains certain forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended. 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 10Q, the Company is a party to interest rate swap agreements for a current aggregate notional amount of ~~$197.3~~$187.0 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 ~~28, 2019.~~ 26, 2020.

Item 4. CONTROLS AND PROCEDURES

~~(a)~~

~~Evaluation of Disclosure 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 ~~March 28,~~December 26, 2020, 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 ~~2019.~~2020. 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 ~~March 28,~~December 26, 2020.

(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 ~~2020.~~2021.

No 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).


~~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 ~~March 28,~~December 26, 2020, 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.
‎

2519

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: ~~May 7, 2020~~February 4, 2021		/s/ James W. Lanning
		James W. Lanning
		~~James W. Lanning~~
		Chief Executive Officer and President

Date: ~~May 7, 2020~~February 4, 2021		/s/ Ronald B. Freeman
		Ronald B. Freeman
		~~Ronald B. Freeman~~
		Vice President-Finance and Chief Financial Officer


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~~ ☐Large Accelerated Filer ¨	~~Smaller reporting company~~ ☐Accelerated Filer x
Non-Accelerated Filer ¨	Smaller Reporting Company ¨
	Emerging ~~growth company~~ ☐Growth Company ¨


~~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~~



		Page No.
Part I – Financial Information

Item 1. Financial Statements (Unaudited)

Condensed Consolidated Balance Sheets as of ~~March 28,~~December 26, 2020 and September ~~28, 2019~~26, 2020		3
	3

Condensed Consolidated Statements of Income and Comprehensive Income for the
Three Months Ended ~~March 28,~~December 26, 2020 and ~~March 30,~~December 28, 2019		4
~~Six Months Ended March 28, 2020 and March 30, 2019~~		5
	4

Condensed Consolidated Statements of Changes in Stockholders’ Equity for the Three Months ~~and Six Months~~ Ended ~~March 28,~~December 26, 2020 and ~~March 30,~~December 28, 2019		6
	5

Condensed Consolidated Statements of Cash Flows for the ~~Six~~Three Months Ended ~~March 28,~~December 26, 2020 and ~~March 30,~~December 28, 2019		7
	6

Notes to Unaudited Interim Financial Statements		8
	7
~~Item 1A. Risk Factors~~			14

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		15 12

Item 3. Quantitative and Qualitative Disclosures About Market Risk		23 18

Item 4. Controls and Procedures		23
	18

Part II – Other Information


Item 6. Exhibits		24
	19
~~Signatures~~
Signatures	26	20



	Three Months Ended				Six Months Ended
	March 30, 2019				March 30, 2019
	Class A		Class B		Class A		Class B
Numerator: Allocated net income
Net income allocated, basic	$	10,773,567	$	4,226,473	$	26,678,194	$	10,474,183
Conversion of Class B to Class A shares		4,226,473		—		10,474,183		—
Net income allocated, diluted	$	15,000,040	$	4,226,473	$	37,152,377	$	10,474,183

Denominator: Weighted average shares outstanding
Weighted average shares outstanding, basic		14,154,424		6,105,352		14,149,904		6,109,872
Conversion of Class B to Class A shares		6,105,352		—		6,109,872		—
Weighted average shares outstanding, diluted		20,259,776		6,105,352		20,259,776		6,109,872

Earnings per share
Basic	$	0.76	$	0.69	$	1.88	$	1.71
Diluted	$	0.74	$	0.69	$	1.83	$	1.71


Fiscal Year
2020	$	9,756,136
2021		7,532,373
2022		6,692,661
2023		4,907,148
2024		2,583,629
Thereafter		27,187,519
Total minimum future rental commitments	$	58,659,466


		Three Months Ended
		December 26, 2020
Rents earned on owned and subleased properties:
Base rentals	$	4,675,352
Variable rentals		72,458
Total		4,747,810
Depreciation on owned properties leased to others		(1,319,635)
Other shopping center expenses		(851,493)
Total	$	2,576,682


Fiscal Year
Remainder of 2020	$	5,880,856
2021		10,170,740
Remainder of 2021			$	10,343,513
2022		8,279,676		12,969,906
2023		7,189,842		11,869,911
2024		6,369,072		10,918,920
2025				9,679,470
Thereafter		15,419,999		36,937,146
Total minimum future rental income	$	53,310,185	$	92,718,866


Fiscal Year
2020	$	11,265,775
2021		8,855,781
2022		6,967,583
2023		5,862,260
2024		5,145,632
Thereafter		13,723,315
Total minimum future rental income	$	51,820,346

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.



	Carrying				Fair Value	Carrying				Fair Value
	Amount		Fair Value		Measurements	Amount		Fair Value		Measurements
Senior Notes	$	545,000	$	517,069	Level 2	$	295,000	$	297,950	Level 2
Facility Bonds		68,030		68,030	Level 2		68,030		68,030	Level 2
Secured notes payable and other		229,026		229,026	Level 2		224,917		224,917	Level 2
Interest rate swap derivative contracts		12,752		12,752	Level 2		10,799		10,799	Level 2
Non-qualified retirement plan assets		13,666		13,666	Level 2		19,301		19,301	Level 2



~~Total retail sales for the three months ended March 30, 2019~~	$	~~970,175~~
~~Comparable store sales increase (including gasoline)~~		~~140,523~~
~~Impact of stores opened in fiscal 2019~~		~~6,800~~
~~Impact of stores closed in fiscal 2019~~		~~(5,479)~~
~~Other~~		~~(404)~~
~~Total retail sales for the three months ended March 28, 2020~~	$	~~1,111,615~~



Total retail sales for the three months ended December 28, 2019	$	1,044,276
Comparable store sales increase (including gasoline)		109,629
Impact of stores closed in fiscal 2020		(494)
Other		130
Total retail sales for the three months ended December 26, 2020	$	1,153,541



			Increase
	Increase		(decrease)				Increase
	(decrease)		as a % of		Increase		as a % of
	in millions		sales		in millions		sales
Salaries and wages	$	11.6	1.01	%	$	9.7	0.82	%
Advertising and promotion	$	3.2	0.28	%
Rent	$	(1.2)	(0.11)	%
Depreciation and amortization					$	2.0	0.17	%
Repairs and maintenance					$	1.0	0.08	%
Insurance	$	(1.1)	(0.10)	%	$	0.9	0.07	%



	Three Months Ended				Six Months Ended				Three Months Ended
	March 28,		March 30,		March 28,		March 30,		December 26,		December 28,
	2020		2019		2020		2019		2020		2019
Revenues from unaffiliated customers:
Grocery	$	424,664	$	351,558	$	802,993	$	727,197	$	442,121	$	378,329
Non-foods		260,914		223,067		506,945		455,564		279,688		246,030
Perishables		304,105		267,565		584,910		542,960		321,263		280,805
Gasoline		121,932		127,985		261,044		274,496		110,469		139,112
Total Retail	$	1,111,615	$	970,175	$	2,155,892	$	2,000,217	$	1,153,541	$	1,044,276
Other		33,867		31,669		67,945		63,464		36,902		34,079
Total revenues from unaffiliated customers	$	1,145,482	$	1,001,844	$	2,223,837	$	2,063,681	$	1,190,443	$	1,078,355

Income from operations:
Retail	$	58,069	$	26,434	$	92,290	$	62,051	$	71,519	$	34,221
Other		5,232		4,312		9,486		8,159		4,922		4,254
Total income from operations	$	63,301	$	30,746	$	101,776	$	70,210	$	76,441	$	38,475



	March 28,		September 28,		December 26,		September 26,
	2020		2019		2020		2020
Assets:
Retail	$	1,792,303	$	1,698,904	$	1,737,607	$	1,712,203
Other		175,195		170,720		193,026		189,607
Elimination of intercompany receivable		(3,268)		(2,296)		(2,133)		(2,511)
Total assets	$	1,964,230	$	1,867,328	$	1,928,500	$	1,899,299



~~Total retail sales for the six months ended March 30, 2019~~	$	~~2,000,217~~
~~Comparable store sales increase (including gasoline)~~		~~154,335~~
~~Impact of stores opened in fiscal 2019~~		~~12,271~~
~~Impact of stores closed in fiscal 2019~~		~~(11,291)~~
~~Other~~		~~360~~
~~Total retail sales for the six months ended March 28, 2020~~	$	~~2,155,892~~


Contractual Obligations			Less than		1-3		3-5		More than
(amounts in thousands)	Total		1 year		years		years		5 years
Long-term debt and line of credit	$	842,056	$	38,079	$	38,200	$	585,165	$	180,612
Scheduled interest on long-term debt (1)		164,484		39,894		77,764		28,228		18,598
Advance payments on purchase contracts		3,416		1,914		686		84		732
Operating leases (2)		54,257		8,761		13,300		6,102		26,094
Construction commitments		17,640		17,640		—		—		—
Total	$	1,081,853	$	106,288	$	129,950	$	619,579	$	226,036