UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
(Mark One)
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[x] | QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. |
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| For the quarterly period ended: January 27, 2018October 26, 2019 |
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OR |
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[ ] | TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. |
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Commission File No. 0-2633 |
VILLAGE SUPER MARKET, INC.
(Exact name of registrant as specified in its charter)
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NEW JERSEY | 22-1576170 |
(State or other jurisdiction of incorporation or organization) | (I. R. S. Employer Identification No.) |
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733 MOUNTAIN AVENUE, SPRINGFIELD, NEW JERSEY | 07081 |
(Address of principal executive offices) | (Zip Code) |
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(973) 467-2200 | |
(Registrant's telephone number, including area code) | |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No __
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes X No __
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12-b2 of the Exchange Act.
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Large accelerated filer q | Accelerated filer x |
Non-accelerated filer q (Do not check if a smaller reporting company) | Smaller reporting company qx |
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Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes _____ No __X__ |
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Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: |
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| | March 7, 2018December 4, 2019 |
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| Class A Common Stock, No Par Value | 10,065,04510,089,561 Shares |
| Class B Common Stock, No Par Value | 4,303,7484,293,748 Shares |
VILLAGE SUPER MARKET, INC.
INDEX
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PART I | PAGE NO. |
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FINANCIAL INFORMATION | |
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Item 1. Financial Statements (Unaudited) | |
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Consolidated Balance Sheets | |
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Consolidated Statements of Operations | |
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Consolidated Statements of Comprehensive Income | |
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Consolidated Statements of Shareholders' Equity | |
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Consolidated Statements of Cash Flows | |
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Notes to Consolidated Financial Statements | |
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Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations | |
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Item 3. Quantitative & Qualitative Disclosures about Market Risk | |
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Item 4. Controls and Procedures | |
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PART II | |
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OTHER INFORMATION | |
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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
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Item 6. Exhibits | |
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Signatures | |
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
VILLAGE SUPER MARKET, INC. CONSOLIDATED BALANCE SHEETS (In thousands) (Unaudited) | VILLAGE SUPER MARKET, INC. CONSOLIDATED BALANCE SHEETS (In thousands) (Unaudited) | VILLAGE SUPER MARKET, INC. CONSOLIDATED BALANCE SHEETS (In thousands) (Unaudited) |
| | January 27, 2018 | | July 29, 2017 | October 26, 2019 | | July 27, 2019 |
ASSETS | | | | | | |
Current assets | | | | | | |
Cash and cash equivalents | $ | 89,738 |
| | $ | 87,435 |
| $ | 77,941 |
| | $ | 101,121 |
|
Merchandise inventories | 42,346 |
| | 41,852 |
| 40,683 |
| | 38,503 |
|
Patronage dividend receivable | 4,850 |
| | 12,655 |
| 16,275 |
| | 11,908 |
|
Notes receivable from Wakefern | — |
| | 22,118 |
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Income taxes receivable | 2,673 |
| | 1,742 |
| 78 |
| | 43 |
|
Other current assets | 18,424 |
| | 15,670 |
| 16,833 |
| | 17,206 |
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Total current assets | 158,031 |
| | 181,472 |
| 151,810 |
| | 168,781 |
|
| | | | | | |
Property, equipment and fixtures, net | 205,401 |
| | 204,440 |
| 224,489 |
| | 224,890 |
|
Operating lease assets | | 96,093 |
| | — |
|
Notes receivable from Wakefern | 45,731 |
| | 22,562 |
| 51,004 |
| | 50,208 |
|
Investment in Wakefern | 27,093 |
| | 27,093 |
| 28,783 |
| | 28,644 |
|
Goodwill | 12,057 |
| | 12,057 |
| 12,650 |
| | 12,650 |
|
Other assets | 19,574 |
| | 7,601 |
| 16,862 |
| | 17,116 |
|
| | | | | | |
Total assets | $ | 467,887 |
| | $ | 455,225 |
| $ | 581,691 |
| | $ | 502,289 |
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LIABILITIES AND SHAREHOLDERS' EQUITY | |
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Current liabilities | | | | | | |
Capital and financing lease obligations | $ | 714 |
| | $ | 652 |
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Operating lease obligations | | $ | 11,325 |
| | $ | — |
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Finance lease obligations | | 416 |
| | 1,022 |
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Notes payable to Wakefern | 254 |
| | 292 |
| 89 |
| | 43 |
|
Accounts payable to Wakefern | 63,332 |
| | 59,556 |
| 64,581 |
| | 66,130 |
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Accounts payable and accrued expenses | 16,401 |
| | 17,279 |
| 22,666 |
| | 23,950 |
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Accrued wages and benefits | 16,620 |
| | 17,810 |
| 19,101 |
| | 20,259 |
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Income taxes payable | 822 |
| | 604 |
| 2,243 |
| | 1,070 |
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Total current liabilities | 98,143 |
| | 96,193 |
| 120,421 |
| | 112,474 |
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Long-term debt | | | | | | |
Capital and financing lease obligations | 42,167 |
| | 42,532 |
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Operating lease obligations | | 97,092 |
| | — |
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Finance lease obligations | | 23,595 |
| | 40,753 |
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Notes payable to Wakefern | 6 |
| | 114 |
| 839 |
| | 803 |
|
Notes payable related to New Markets Tax Credit | 6,563 |
| | — |
| 6,107 |
| | 6,169 |
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Total long-term debt | 48,736 |
| | 42,646 |
| 127,633 |
| | 47,725 |
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Pension liabilities | 14,431 |
| | 15,194 |
| 4,672 |
| | 4,759 |
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Other liabilities | 12,393 |
| | 14,372 |
| 6,518 |
| | 18,659 |
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Commitments and contingencies |
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Shareholders' equity | |
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Preferred stock, no par value: Authorized 10,000 shares, none issued | — |
| | — |
| — |
| | — |
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Class A common stock, no par value: Authorized 20,000 shares; issued 10,569 shares at January 27, 2018 and 10,562 shares at July 29, 2017 | 59,573 |
| | 57,852 |
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Class B common stock, no par value: Authorized 20,000 shares; issued and outstanding 4,304 shares at January 27, 2018 and July 29, 2017 | 699 |
| | 699 |
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Class A common stock, no par value: Authorized 20,000 shares; issued 10,593 shares at October 26, 2019 and July 27, 2019 | | 65,947 |
| | 65,114 |
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Class B common stock, no par value: Authorized 20,000 shares; issued and outstanding 4,294 shares at October 26, 2019 and July 27, 2019 | | 697 |
| | 697 |
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Retained earnings | 250,397 |
| | 244,308 |
| 273,614 |
| | 270,753 |
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Accumulated other comprehensive loss | (7,220 | ) | | (7,406 | ) | (8,241 | ) | | (8,342 | ) |
Less treasury stock, Class A, at cost: 504 shares at January 27, 2018 and 477 shares at July 29, 2017 | (9,265 | ) | | (8,633 | ) | |
Less treasury stock, Class A, at cost: 503 shares at October 26, 2019 and 502 shares at July 27, 2019 | | (9,570 | ) | | (9,550 | ) |
Total shareholders’ equity | 294,184 |
| | 286,820 |
| 322,447 |
| | 318,672 |
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Total liabilities and shareholders’ equity | $ | 467,887 |
| | $ | 455,225 |
| $ | 581,691 |
| | $ | 502,289 |
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See accompanying Notes to Consolidated Financial Statements.
VILLAGE SUPER MARKET, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share amounts) (Unaudited) | VILLAGE SUPER MARKET, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share amounts) (Unaudited) | VILLAGE SUPER MARKET, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share amounts) (Unaudited) |
| | 13 Weeks Ended | | 26 Weeks Ended | 13 Weeks Ended |
| January 27, 2018 | | January 28, 2017 | | January 27, 2018 | | January 28, 2017 | October 26, 2019 | | October 27, 2018 |
Sales | $ | 417,382 |
| | $ | 412,215 |
| | $ | 803,856 |
| | $ | 801,907 |
| $ | 407,402 |
| | $ | 401,550 |
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| | | | | | | | | | |
Cost of sales | 305,097 |
| | 300,977 |
| | 587,691 |
| | 586,021 |
| 293,856 |
| | 289,437 |
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| | | | | | | | | | |
Gross profit | 112,285 |
| | 111,238 |
| | 216,165 |
| | 215,886 |
| 113,546 |
| | 112,113 |
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Operating and administrative expense | 96,066 |
| | 94,393 |
| | 188,358 |
| | 185,524 |
| 103,140 |
| | 96,293 |
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| | | | | | | | | | |
Depreciation and amortization | 6,386 |
| | 6,233 |
| | 12,621 |
| | 12,296 |
| 7,438 |
| | 6,898 |
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Operating income | 9,833 |
| | 10,612 |
| | 15,186 |
| | 18,066 |
| 2,968 |
| | 8,922 |
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Interest expense | (1,102 | ) | | (1,114 | ) | | (2,207 | ) | | (2,230 | ) | (567 | ) | | (1,116 | ) |
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Interest income | 864 |
| | 648 |
| | 1,764 |
| | 1,335 |
| 1,259 |
| | 1,178 |
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| | | | | | | | | | |
Income before income taxes | 9,595 |
| | 10,146 |
| | 14,743 |
| | 17,171 |
| 3,660 |
| | 8,984 |
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| | | | | | | | | | |
Income taxes | 84 |
| | 4,154 |
| | 2,215 |
| | 7,070 |
| 1,093 |
| | 2,715 |
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Net income | $ | 9,511 |
| | $ | 5,992 |
| | $ | 12,528 |
| | $ | 10,101 |
| $ | 2,567 |
| | $ | 6,269 |
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Net income per share: | Net income per share: | | |
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| Net income per share: | | |
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Class A common stock: | Class A common stock: | | |
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| Class A common stock: | | |
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Basic | $ | 0.74 |
| | $ | 0.47 |
| | $ | 0.97 |
| | $ | 0.80 |
| $ | 0.20 |
| | $ | 0.49 |
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Diluted | $ | 0.66 |
| | $ | 0.42 |
| | $ | 0.87 |
| | $ | 0.71 |
| $ | 0.18 |
| | $ | 0.43 |
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Class B common stock: | | | |
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Basic | $ | 0.48 |
| | $ | 0.31 |
| | $ | 0.63 |
| | $ | 0.52 |
| $ | 0.13 |
| | $ | 0.32 |
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Diluted | $ | 0.48 |
| | $ | 0.31 |
| | $ | 0.63 |
| | $ | 0.52 |
| $ | 0.13 |
| | $ | 0.32 |
|
See accompanying Notes to Consolidated Financial Statements.
VILLAGE SUPER MARKET, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (In thousands) (Unaudited) | VILLAGE SUPER MARKET, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (In thousands) (Unaudited) | VILLAGE SUPER MARKET, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (In thousands) (Unaudited) |
| | 13 Weeks Ended | | 26 Weeks Ended | 13 Weeks Ended |
| January 27, 2018 | | January 28, 2017 | | January 27, 2018 | | January 28, 2017 | October 26, 2019 | | October 27, 2018 |
Net income | $ | 9,511 |
| | $ | 5,992 |
| | $ | 12,528 |
| | $ | 10,101 |
| $ | 2,567 |
| | $ | 6,269 |
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Other comprehensive income: | |
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Amortization of pension actuarial loss, net of tax (1) | 102 |
| | 224 |
| | 186 |
| | 491 |
| 101 |
| | 102 |
|
Pension remeasurement, net of tax (2) | — |
| | 372 |
| | — |
| | 372 |
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| | | | | | | | | | |
Comprehensive income | $ | 9,613 |
| | $ | 6,588 |
| | $ | 12,714 |
| | $ | 10,964 |
| $ | 2,668 |
| | $ | 6,371 |
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(1) | Amounts are net of tax of $41$44 and $154$43 for the 13 weeks ended JanuaryOctober 26, 2019 and October 27, 2018, and January 28, 2017, respectively, and $98 and $264 for the 26 weeks ended January 27, 2018 and January 28, 2017, respectively. All amounts are reclassified from accumulatedAccumulated other comprehensive loss to operatingOperating and administrative expense. |
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(2) | Amount is net of tax of $257. |
See accompanying Notes to Consolidated Financial Statements.
VILLAGE SUPER MARKET, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (Unaudited) |
| | | | | | | |
| 26 Weeks Ended |
| January 27, 2018 | | January 28, 2017 |
CASH FLOWS FROM OPERATING ACTIVITIES | | | |
Net income | $ | 12,528 |
| | $ | 10,101 |
|
Adjustments to reconcile net income to net cash provided by operating activities: | | | |
|
Depreciation and amortization | 12,621 |
| | 12,296 |
|
Non-cash share-based compensation | 1,721 |
| | 1,484 |
|
Deferred taxes | (2,221 | ) | | (90 | ) |
| | | |
Changes in assets and liabilities: | | | |
|
Merchandise inventories | (494 | ) | | (1,420 | ) |
Patronage dividend receivable | 7,805 |
| | 7,907 |
|
Accounts payable to Wakefern | 3,776 |
| | 1,001 |
|
Accounts payable and accrued expenses | (1,692 | ) | | (1,712 | ) |
Accrued wages and benefits | (1,190 | ) | | (664 | ) |
Income taxes receivable / payable | (713 | ) | | (11,502 | ) |
Other assets and liabilities | (3,717 | ) | | (2,255 | ) |
Net cash provided by operating activities | 28,424 |
| | 15,146 |
|
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CASH FLOWS FROM INVESTING ACTIVITIES | |
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Capital expenditures | (12,731 | ) | | (13,013 | ) |
Proceeds from the sale of assets | 16 |
| | — |
|
Investment in notes receivable from Wakefern | (23,223 | ) | | (927 | ) |
Maturity of notes receivable from Wakefern | 22,172 |
| | — |
|
Investment in notes receivable related to New Markets Tax Credit financing
| (4,835 | ) | | — |
|
Net cash used in investing activities | (18,601 | ) | | (13,940 | ) |
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CASH FLOWS FROM FINANCING ACTIVITIES | |
| | |
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Proceeds from exercise of stock options | — |
| | 812 |
|
Excess tax benefit related to share-based compensation | — |
| | 83 |
|
Proceeds from New Markets Tax Credit financing | 6,860 |
| | — |
|
Debt Issuance Costs | (297 | ) | | — |
|
Principal payments of long-term debt | (449 | ) | | (1,043 | ) |
Dividends | (6,439 | ) | | (6,330 | ) |
Treasury stock purchases | (632 | ) | | — |
|
Net cash used in financing activities | (957 | ) | | (6,478 | ) |
| | | |
NET INCREASE (DECREASE) IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH | 8,866 |
| | (5,272 | ) |
| | | |
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, BEGINNING OF PERIOD | 87,435 |
| | 88,379 |
|
| | | |
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, END OF PERIOD | $ | 96,301 |
| | $ | 83,107 |
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SUPPLEMENTAL DISCLOSURES OF CASH PAYMENTS MADE FOR: | |
| | |
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Interest | $ | 2,207 |
| | $ | 2,230 |
|
Income taxes | $ | 5,140 |
| | $ | 18,559 |
|
VILLAGE SUPER MARKET, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (In thousands) (Unaudited) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 13 Weeks Ended October 26, 2019 and October 27, 2018 |
| Class A Common Stock | | Class B Common Stock | | | | Accumulated Other Comprehensive Income (Loss)
| | Treasury Stock Class A | | Total Shareholders' Equity
|
| Shares Issued | | Amount | | Shares Issued | | Amount | | Retained Earnings | | Shares | | Amount |
Balance, July 27, 2019 | 10,593 |
| | $ | 65,114 |
| | 4,294 |
| | $ | 697 |
| | $ | 270,753 |
| | $ | (8,342 | ) | | 502 |
| | $ | (9,550 | ) | | $ | 318,672 |
|
Net income | — |
| | — |
| | — |
| | — |
| | 2,567 |
| | — |
| | — |
| | — |
| | 2,567 |
|
Other comprehensive income, net of tax of $44 | — |
| | — |
| | — |
| | — |
| | — |
| | 101 |
| | — |
| | — |
| | 101 |
|
Dividends | — |
| | — |
| | — |
| | — |
| | (3,220 | ) | | — |
| | — |
| | — |
| | (3,220 | ) |
Treasury stock purchases | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 1 |
| | (20 | ) | | (20 | ) |
Restricted shares forfeited | (2 | ) | | (30 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (30 | ) |
Share-based compensation expense | 2 |
| | 863 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 863 |
|
Adjustment due to the adoption of ASU 2016-02, net of tax of $1,385 | — |
| | — |
| | — |
| | — |
| | 3,514 |
| | — |
| | — |
| | — |
| | 3,514 |
|
Balance, October 26, 2019 | 10,593 |
| | $ | 65,947 |
| | 4,294 |
| | $ | 697 |
| | $ | 273,614 |
| | $ | (8,241 | ) | | 503 |
| | $ | (9,570 | ) | | $ | 322,447 |
|
| | | | | | | | | | | | | | | | | |
Balance, July 28, 2018 | 10,575 |
| | $ | 61,678 |
| | 4,304 |
| | $ | 699 |
| | $ | 258,104 |
| | $ | (8,185 | ) | | 496 |
| | $ | (9,151 | ) | | $ | 303,145 |
|
Net income | — |
| | — |
| | — |
| | — |
| | 6,269 |
| | — |
| | — |
| | — |
| | 6,269 |
|
Other comprehensive income, net of tax of $43 | — |
| | — |
| | — |
| | — |
| | — |
| | 102 |
| | — |
| | — |
| | 102 |
|
Dividends | — |
| | — |
| | — |
| | — |
| | (3,222 | ) | | — |
| | — |
| | — |
| | (3,222 | ) |
Treasury stock purchases | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 22 |
| | (565 | ) | | (565 | ) |
Share-based compensation expense | 8 |
| | 821 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 821 |
|
Balance, October 27, 2018 | 10,583 |
| | $ | 62,499 |
| | 4,304 |
| | $ | 699 |
| | $ | 261,151 |
| | $ | (8,083 | ) | | 518 |
| | $ | (9,716 | ) | | $ | 306,550 |
|
See accompanying Notes to Consolidated Financial Statements.
VILLAGE SUPER MARKET, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (Unaudited) |
| | | | | | | |
| 13 Weeks Ended |
| October 26, 2019 | | October 27, 2018 |
CASH FLOWS FROM OPERATING ACTIVITIES | | | |
Net income | $ | 2,567 |
| | $ | 6,269 |
|
Adjustments to reconcile net income to net cash provided by operating activities: | | | |
|
Depreciation and amortization | 7,438 |
| | 6,898 |
|
Non-cash share-based compensation | 833 |
| | 821 |
|
Deferred taxes | 1,270 |
| | (254 | ) |
Provision to value inventories at LIFO | — |
| | 103 |
|
| | | |
Changes in assets and liabilities: | | | |
|
Merchandise inventories | (2,180 | ) | | 11 |
|
Patronage dividend receivable | (4,367 | ) | | (4,351 | ) |
Accounts payable to Wakefern | 1,294 |
| | (4,189 | ) |
Accounts payable and accrued expenses | (1,381 | ) | | 239 |
|
Accrued wages and benefits | (1,158 | ) | | (929 | ) |
Income taxes receivable / payable | 1,138 |
| | 2,969 |
|
Other assets and liabilities | (2,079 | ) | | (1,462 | ) |
Net cash provided by operating activities | 3,375 |
| | 6,125 |
|
| | | |
CASH FLOWS FROM INVESTING ACTIVITIES | |
| | |
|
Capital expenditures | (22,349 | ) | | (8,571 | ) |
Investment in notes receivable from Wakefern | (796 | ) | | (743 | ) |
Net cash used in investing activities | (23,145 | ) | | (9,314 | ) |
| | | |
CASH FLOWS FROM FINANCING ACTIVITIES | |
| | |
|
Principal payments of long-term debt | (170 | ) | | (298 | ) |
Dividends | (3,220 | ) | | (3,222 | ) |
Treasury stock purchases, including shares surrendered for withholding taxes | (20 | ) | | (565 | ) |
Net cash used in financing activities | (3,410 | ) | | (4,085 | ) |
| | | |
NET DECREASE IN CASH AND CASH EQUIVALENTS | (23,180 | ) | | (7,274 | ) |
| | | |
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD | 101,121 |
| | 96,108 |
|
| | | |
CASH AND CASH EQUIVALENTS, END OF PERIOD | $ | 77,941 |
| | $ | 88,834 |
|
| | | |
SUPPLEMENTAL DISCLOSURES OF CASH PAYMENTS MADE FOR: | |
| | |
|
Interest | $ | 567 |
| | $ | 1,116 |
|
Income taxes | $ | 68 |
| | $ | — |
|
| | | |
NONCASH SUPPLEMENTAL DISCLOSURES: | |
| | |
|
Investment in Wakefern and increase in notes payable to Wakefern | $ | 93 |
| | $ | 1,482 |
|
See accompanying Notes to Consolidated Financial Statements.
VILLAGE SUPER MARKET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands) (Unaudited)
1. BASIS OF PRESENTATION and ACCOUNTING POLICIES
In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments (consisting of normal and recurring accruals) necessary to present fairly the consolidated financial position as of January 27, 2018October 26, 2019 and the consolidated statements of operations, comprehensive income and cash flows for the 13 weeks ended October 26, 2019 and 26 week periods ended JanuaryOctober 27, 2018 and January 28, 2017 of Village Super Market, Inc. (“Village” or the “Company”).
On June 24, 2019, the Company purchased three Gourmet Garage specialty markets in Manhattan, New York City. Village acquired the store fixtures, leases, inventory, other working capital and other assets for $5,267, net of cash and cash equivalents. Village has accounted for this transaction as a business combination in accordance with the acquisition method of accounting, which requires, among other things, that assets acquired and liabilities assumed be recognized at their estimated fair values as of the acquisition date. In connection with this acquisition, the Company recorded $593 of goodwill attributable to the assembled workforce of Gourmet Garage and cost synergies and a $1,485 indefinite-lived intangible asset related to the trade name. Transaction costs were expensed as incurred. The allocation of the purchase price consideration to the assets acquired and the liabilities assumed will be completed upon the finalization of working capital adjustments.
The significant accounting policies followed by the Company, except as updated for the adoption of new lease guidance, are set forth in Note 1 to the Company's consolidated financial statements in the July 29, 201727, 2019 Village Super Market, Inc. Annual Report on Form 10-K, which should be read in conjunction with these financial statements. The results of operations for the periodsperiod ended January 27, 2018October 26, 2019 are not necessarily indicative of the results to be expected for the full year.
Recently adopted accounting standards
On July 28, 2019, the Company adopted ASU 2016-02, “Leases.” This guidance requires lessees to recognize lease liabilities and a right-of-use asset for all leases with terms of more than 12 months on the balance sheet. The Company adopted the standard using the modified retrospective approach under which the cumulative effect of initially applying the standard was recognized as an adjustment to opening fiscal 2020 retained earnings, with no restatement of prior year amounts. In addition, the Company applied the transition package of practical expedients permitted within the standard, which allowed the carryforward of historical lease classification, and applied the transition option which does not require application of the guidance to comparative periods in the year of adoption.
The adoption of the standard resulted in the recognition of operating lease assets and operating lease liabilities of $99,415 and $111,139, respectively, as of the date of adoption. Included in the initial measurement of the new lease assets is the reclassification of certain prepaid and deferred rent balances. Additionally, the Company recorded an adjustment to reduce its opening retained earnings balance by $3,514, net of income taxes, as the Company derecognized the remaining financing obligations of $17,442 and related net assets of $12,543 for leases in which the Company was previously deemed to be the owner of the project for accounting purposes but did not qualify for sale-leaseback treatment. As such designation ended for these leases with adoption of the ASU, operating lease right-of-use asset and liability balances were established for these leases based on the Company's remaining fixed payment obligations under the leases and are included in the amounts described above. Accordingly, the fixed lease payments related to these leases will be recognized as an operating lease cost on a straight-line basis over the lease term, and eliminated depreciation and interest expense in the fiscal 2020 consolidated statement of operations. For the 13 weeks ended October 26, 2019 the Company recognized $677 of lease costs in Operating and administrative expense, and for the 13 weeks ended October 27, 2018 the Company recognized $107 of depreciation expense and $540 of interest expense related to these leases. The adoption of this standard also resulted in a change in naming convention for leases classified historically as capital leases to finance leases. The adoption of the new standard did not have a material impact on the consolidated statement of cash flows. Additional information on leases is provided in Note 7.
2. MERCHANDISE INVENTORIES
At both January 27, 2018October 26, 2019 and July 29, 2017,27, 2019, approximately 65%64% of merchandise inventories are valued by the LIFO method while the balance is valued by FIFO. If the FIFO method had been used for the entire inventory, inventories would have been $14,410$14,512 higher than reported at both January 27, 2018October 26, 2019 and July 29, 2017.27, 2019.
3. NET INCOME PER SHARE
The Company has two classes of common stock. Class A common stock is entitled to cash dividends as declared 54% greater than those paid on Class B common stock. Shares of Class B common stock are convertible on a share-for-share basis for Class A common stock at any time.
The Company utilizes the two-class method of computing and presenting net income per share. The two-class method is an earnings allocation formula that calculates basic and diluted net income per share for each class of common stock separately based on dividends declared and participation rights in undistributed earnings. Under the two-class method, Class A common stock is assumed to receive a 54% greater participation in undistributed earnings than Class B common stock, in accordance with the classes' respective dividend rights. Unvested share-based payment awards that contain nonforfeitable rights to dividends are treated as participating securities and therefore included in computing net income per share using the two-class method.
Diluted net income per share for Class A common stock is calculated utilizing the if-converted method, which assumes the conversion of all shares of Class B common stock to Class A common stock on a share-for-share basis, as this method is more dilutive than the two-class method. Diluted net income per share for Class B common stock does not assume conversion of Class B common stock to shares of Class A common stock.
The tables below reconcile the numerators and denominators of basic and diluted net income per share for all periods presented.
| | | 13 Weeks Ended | | 26 Weeks Ended | 13 Weeks Ended |
| January 27, 2018 | | January 27, 2018 | October 26, 2019 |
| Class A | | Class B | | Class A | | Class B | Class A | | Class B |
Numerator: | | | | | | | | | | |
Net income allocated, basic | $ | 7,174 |
| | $ | 2,065 |
| | $ | 9,452 |
| | $ | 2,721 |
| $ | 1,939 |
| | $ | 558 |
|
Conversion of Class B to Class A shares | 2,065 |
| | — |
| | 2,721 |
| | — |
| 558 |
| | — |
|
Effect of share-based compensation on allocated net income | — |
| | — |
| | — |
| | — |
| (2 | ) | | (1 | ) |
Net income allocated, diluted | $ | 9,239 |
| | $ | 2,065 |
| | $ | 12,173 |
| | $ | 2,721 |
| $ | 2,495 |
| | $ | 557 |
|
| | | | | | | | | | |
Denominator: | |
| | |
| | |
| | |
| |
| | |
|
Weighted average shares outstanding, basic | 9,714 |
| | 4,304 |
| | 9,718 |
| | 4,304 |
| 9,770 |
| | 4,294 |
|
Conversion of Class B to Class A shares | 4,304 |
| | — |
| | 4,304 |
| | — |
| 4,294 |
| | — |
|
Dilutive effect of share-based compensation | — |
| | — |
| | — |
| | — |
| |
Weighted average shares outstanding, diluted | 14,018 |
| | 4,304 |
| | 14,022 |
| | 4,304 |
| 14,064 |
| | 4,294 |
|
| | | | | | | | | | |
| 13 Weeks Ended | | 26 Weeks Ended | 13 Weeks Ended |
| January 28, 2017 | | January 28, 2017 | October 27, 2018 |
| Class A | | Class B | | Class A | | Class B | Class A | | Class B |
Numerator: | |
| | |
| | |
| | |
| |
| | |
|
Net income allocated, basic | $ | 4,548 |
| | $ | 1,327 |
| | $ | 7,664 |
| | $ | 2,239 |
| $ | 4,739 |
| | $ | 1,361 |
|
Conversion of Class B to Class A shares | 1,327 |
| | — |
| | 2,239 |
| | — |
| 1,361 |
| | — |
|
Effect of share-based compensation on allocated net income | 6 |
| | (3 | ) | | 8 |
| | (3 | ) | |
Net income allocated, diluted | $ | 5,881 |
| | $ | 1,324 |
| | $ | 9,911 |
| | $ | 2,236 |
| $ | 6,100 |
| | $ | 1,361 |
|
| | | | | | | | | | |
Denominator: | |
| | |
| | |
| | |
| |
| | |
|
Weighted average shares outstanding, basic | 9,613 |
| | 4,319 |
| | 9,603 |
| | 4,319 |
| 9,732 |
| | 4,304 |
|
Conversion of Class B to Class A shares | 4,319 |
| | — |
| | 4,319 |
| | — |
| 4,304 |
| | — |
|
Dilutive effect of share-based compensation | 52 |
| | — |
| | 50 |
| | — |
| |
Weighted average shares outstanding, diluted | 13,984 |
| | 4,319 |
| | 13,972 |
| | 4,319 |
| 14,036 |
| | 4,304 |
|
Outstanding stock options to purchase Class A shares of 384241 and 52278 were excluded from the calculation of diluted net income per share at JanuaryOctober 26, 2019 and October 27, 2018, and January 28, 2017, respectively, as a result of their anti-dilutive effect. In addition, 369323 and 246340 non-vested restricted Class A shares, which are considered participating securities, and their allocated net income were
excluded from the diluted net income per share calculation at JanuaryOctober 26, 2019 and October 27, 2018, and January 28, 2017, respectively, due to their anti-dilutive effect.
4. PENSION PLANS
The Company sponsors four defined benefit pension plans. Net periodic pension cost for the four plans includes the following components:
| | | 13 Weeks Ended | | 26 Weeks Ended | 13 Weeks Ended |
| January 27, 2018 | | January 28, 2017 | | January 27, 2018 | | January 28, 2017 | October 26, 2019 | | October 27, 2018 |
Service cost | $ | 65 |
| | $ | 116 |
| | $ | 130 |
| | $ | 255 |
| $ | 51 |
| | $ | 53 |
|
Interest cost on projected benefit obligations | 629 |
| | 604 |
| | 1,258 |
| | 1,209 |
| 565 |
| | 655 |
|
Expected return on plan assets | (820 | ) | | (973 | ) | | (1,640 | ) | | (1,946 | ) | (703 | ) | | (721 | ) |
Amortization of net losses | 142 |
| | 378 |
| | 284 |
| | 755 |
| 145 |
| | 145 |
|
Net periodic pension cost | $ | 16 |
| | $ | 125 |
| | $ | 32 |
| | $ | 273 |
| $ | 58 |
| | $ | 132 |
|
On November 29, 2016, the Company amended the Village Super Market Local 72 Retail Clerks Employees’ Retirement Plan, which covers union employees in the Stroudsburg store, to freeze all benefits effective January 31, 2017. As a result of this amendment, the Company recognized a pre-tax remeasurement gain totaling $629 in accumulated other comprehensive loss during fiscal 2017. The remeasurement had no impact on the consolidated statements of operations.
As of January 27, 2018,October 26, 2019, the Company has contributed $510not made any contributions to its pension plans in fiscal 2018.2020. The Company expects contributions to contribute approximately $3,500 duringits defined benefit pension plans to be immaterial in fiscal 2018 to fund its pension plans.2020.
5. RELATED PARTY INFORMATION - WAKEFERN
A description of the Company’s transactions with Wakefern, its principal supplier, and with other related parties is included in the Company’s Annual Report on Form 10-K for the year ended July 29, 2017. 27, 2019.
Included in cash and cash equivalents at October 26, 2019 and July 27, 2019 are $52,945 and $73,879, respectively, of demand deposits invested at Wakefern at overnight money market rates.
There have been no other significant changes in the Company’s relationships or nature of transactions with related parties during the first13 weeks ended October 26, weeks of fiscal 2018 except for the maturity of $22,172 in notes receivable from Wakefern that earned interest at the prime rate plus .25% on August 15, 2017. The Company invested $22,000 of the proceeds received in variable rate notes receivable from Wakefern that earn interest at the prime rate plus 1.25% and mature on August 15, 2022. Wakefern has the right to prepay these notes at any time. Under certain conditions, the Company can require Wakefern to prepay the notes, although interest earned since inception would be reduced as if it was earned based on overnight money market rates as paid by Wakefern on demand deposits.
Included in cash and cash equivalents at January 27, 2018 and July 29, 2017 are $69,619 and $60,037, respectively, of demand deposits invested at Wakefern at overnight money market rates.2019.
6. DEBT
Effective November 9, 2017, the Company entered into a credit agreement that amends, restatesCOMMITMENTS and supersedes in its entirety the loan agreement dated September 16, 1999 and all amendments to that agreement. The agreement maintains Village's unsecured revolving line of credit providing a maximum amount available for borrowing of $25,000, and extends the credit agreement to December 31, 2020. The revolving credit line can be used for general corporate purposes. Indebtedness under this agreement bears interest at the applicable LIBOR rate plus 1.25%. The credit agreement continues to provide for up to $3,000 of letters of credit, which secure obligations for construction performance guarantees to municipalities. The credit agreement continues to contain covenants that, among other conditions, require a maximum liabilities to tangible net worth ratio, a minimum fixed charge coverage ratio and a positive net income. There were no amounts outstanding at January 27, 2018 or July 29, 2017 under the superseded facility.CONTINGENCIES
On DecemberSuperstorm Sandy devastated Village's trade area on October 29, 2017,2012 and resulted in the Company entered intoclosure of almost all of our stores for periods of time ranging from a financing transaction under the New Markets Tax Credit program, see note 8few hours to the unaudited consolidated financial statements for further discussion.
7. INCOME TAXES
On December 22, 2017 the Tax Cutseight days. Village disposed of substantial amounts of perishable product and Jobs Act (the “Tax Act”) was enacted by the U.S. Government. The Tax Act made significant changes to the U.S. tax code that will affect the Company's fiscal year ending July 28, 2018, including, but not limited to, reducing the U.S. federal corporate tax rate from 35.0%% to 21.0%% effective January 1, 2018,also incurred repair, labor and introducing bonus depreciation that will allow for full expensing of qualified property.
As the Company’s fiscal year ends on July 28, 2018, the Company’s U.S. federal corporate statutory income tax rate will be subject to a full year blended tax rate of 26.9%% for fiscal 2018, and 21.0%% for subsequent fiscal years. Asother costs as a result of the decreasestorm. Wakefern, as the policy holder, has pursued recovery of uncollected insurance claims on behalf of all Wakefern members through litigation against the insurance carrier and others since October 2013. This litigation is ongoing and the Company received an additional $415 in November 2018 which was recognized as a reduction in Operating and administrative expense in the U.S. federal corporate statutory rate, deferred tax balances were remeasured based on the rates at which they are expected to reverse in the future. In the 26 weeks ended January 27, 2018, a benefit of $2,726 was recognized related to the remeasurement of the Company’s deferred tax balances, which is included in Income taxes on the consolidated statements of operations.
On December 22, 2017, the Securities Exchange Commission ("SEC") issued guidance under Staff Accounting Bulletin No. 118, "Income Tax Accounting Implications of the Tax Cuts and Jobs Act," allowing taxpayers to record provisional amounts for reasonable estimates when they do not have the necessary information available, prepared or analyzed (including computations) in reasonable detail to complete their accounting for certain income tax effects of the Tax Act. The SEC has issued rules that would allow for a measurement period of up to one year after the enactment date of the Tax Act to finalize the related tax impacts. The Company has completed recording the impacts of the change in tax rate. Estimates on the other impacts of the Tax Act were based on information currently available. The final impacts of the Tax Act may differ from the Company’s estimates due to changes in interpretations of the Tax Act or further legislation related to the Tax Act. Any changes could affect the measurement of deferred tax balances or potentially give rise to new deferred tax amounts.
8. NEW MARKETS TAX CREDIT
2017 New Markets Tax Credit
On December 29, 2017, the Company entered into a financing transaction with Wells Fargo Community Investment Holdings, LLC (“Wells Fargo”) under a qualified New Markets Tax Credit (“NMTC”) program related to the construction of a new store in the Bronx, New York. The NMTC program was provided for in the Community Renewal Tax Relief Act of 2000 (the “Act”) and is intended to induce capital investment in qualified lower income communities. The Act permits taxpayers to claim credits against their Federal income taxes for up to 39% of qualified investments in the equity of community development entities (“CDEs”). CDEs are privately managed investment institutions that are certified to make qualified low-income community investments.
In connection with the financing, the Company loaned $4,835 to VSM Investment Fund, LLC (the "Investment Fund") at an interest rate of 1.403% per year and with a maturity date of December 31, 2044. Repayments on the loan commence in March 2025. Wells Fargo contributed $2,375 to the Investment Fund and, by virtue of such contribution, is entitled to substantially all of the tax benefits derived from the NMTC. The Investment Fund is a wholly owned subsidiary of Wells Fargo. The loan to the Investment Fund is recorded in Other assets in the consolidated balance sheets.
The Investment Fund then contributed the proceeds to a CDE, which, in turn, loaned combined funds of $6,563, net of debt issuance costs, to Village Super Market of NY, LLC, a wholly-owned subsidiary of the Company, at an interest rate of 1.000% per year with a maturity date of December 31, 2051. These loans are secured by the leasehold improvements and equipment related to the construction of the Bronx store. Repayment of the loans commences in March 2025. The proceeds of the loans from the CDE will be used to partially fund the construction of the Bronx store. The Notes payable related to New Markets Tax Credit, net of debt issuance costs, are recorded in Long-term debt in the consolidated balance sheets.
The NMTC is subject to 100% recapture for a period of seven years. The Company is required to be in compliance with various regulations and contractual provisions that apply to the New Markets Tax Credit arrangement. Noncompliance could result in Wells Fargo's projected tax benefits not being realized and, therefore, require the Company to indemnify Wells Fargo for any loss or recapture of NMTCs. The Company does not anticipate any credit recapture will be required in connection with this financing arrangement. The transaction includes a put/call provision whereby the Company may be obligated or entitled to repurchase Wells Fargo's interest in the Investment Fund. The value attributed to the put/call is de minimis. We believe that Wells Fargo will exercise the put option in December 2024, at the end of the recapture period, that will result in a net benefit to the Company of $1,728. The Company is recognizing the net benefit over the seven-year compliance period.
Restricted Cash
In November 2016, the FASB issued ASU No. 2016-18, "Restricted Cash," which requires that the statement of cash flows explain the change during the period in the total of cash, cash equivalents, and restricted cash. Accordingly, restricted cash will be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts presented on the statement of cash flows. The Company early-adopted ASU No. 2016-18 during the secondfirst quarter of fiscal 2019. Including the November 2018 and applied its provisions retrospectively. Other than the change in presentation within the consolidated statement of cash flows, the adoption of ASU No. 2016-18 did not have an impact on the Company's consolidated financial statements. Included in Other assets at January 27, 2018 is $6,563 of cash and cash equivalentsrecoveries, Village has received $3,998 related to the NMTC financing transaction thatlosses incurred as a result of Superstorm Sandy. Any further proceeds recovered will be recognized as they are restricted as to withdrawal and designated for expenditure in the construction of noncurrent assets in the Bronx store. There were no restricted cash or cash equivalents at July 29, 2017.received.
9. COMMITMENTS and CONTINGENCIES
The Company is involved in other litigation incidental to the normal course of business. Company management is of the opinion that the ultimate resolution of these legal proceedings should not have a material adverse effect on the consolidated financial position, results of operations or liquidity of the Company.
7. LEASES
The Company leases 27 retail stores, as well as the corporate headquarters and equipment at October 26, 2019. The majority of initial lease terms range from 20 to 30 years. Most of the Company’s leases contain renewal options at increased rents of five to ten years each at the Company’s sole discretion. These options enable Village to retain the use of facilities in desirable operating areas. Each renewal option is evaluated when recognizing the lease right-of-use assets and liabilities, and the Company
utilizes the lease term for which it is reasonably certain to use the underlying asset. Leases with an initial term of 12 months or less are not recorded on the balance sheet. The Company is obligated under all leases to pay for real estate taxes, utilities and liability insurance, and under certain leases to pay additional amounts based on maintenance and a percentage of sales in excess of stipulated amounts. The Company accounts for rent holidays, escalating rent provisions, and construction allowances on a straight-line basis over the term of the lease.
The composition of total lease cost is as follows:
|
| | | | | |
|
| | 13 Weeks Ended |
| Consolidated Statement of Operations Classification | | October 26, 2019 |
Operating lease cost | Operating and administrative expense | | $ | 4,779 |
|
Finance lease cost | | | |
Amortization of leased assets | Depreciation and amortization | | 237 |
|
Interest on lease liabilities | Interest expense | | 517 |
|
Variable lease cost | Operating and administrative expense | | 3,695 |
|
| | | |
Total lease cost | | | $ | 9,228 |
|
As of October 26, 2019, finance lease right-of-use assets of $14,464 are included in Property, equipment and fixtures, net in the Company's Consolidated Balance Sheet. Maturities of operating and finance lease liabilities, including options to extend lease terms that are reasonably certain of being exercised, are as follows as of October 26, 2019:
|
| | | | | | | | | | | | |
| | Operating leases | | Finance leases | | Total |
Remainder of 2020 | | $ | 12,663 |
| | $ | 2,000 |
| | $ | 14,663 |
|
2021 | | 15,453 |
| | 2,689 |
| | 18,142 |
|
2022 | | 14,658 |
| | 2,689 |
| | 17,347 |
|
2023 | | 14,504 |
| | 2,689 |
| | 17,193 |
|
2024 | | 12,369 |
| | 2,689 |
| | 15,058 |
|
Thereafter | | 79,309 |
| | 24,428 |
| | 103,737 |
|
Total lease payments | | 148,956 |
| | 37,184 |
| | 186,140 |
|
Less amount representing interest
| | 40,539 |
| | 13,173 |
| | 53,712 |
|
| | | | | |
|
|
Present value of lease liabilities | | $ | 108,417 |
| | $ | 24,011 |
| | $ | 132,428 |
|
The Company has approximately $9,280 of future payment obligations related to lease agreements that have not yet commenced but have been executed as of October 26, 2019.
For purposes of measuring the present value of its fixed payment obligations for a given lease, the Company uses its incremental borrowing rate as the discount rate implicit within its leases is generally not determinable. The Company's incremental borrowing rate reflects the rate it would pay to borrow on a secured basis, and incorporates the term and economic environment of the lease. As of October 26, 2019, the Company's lease terms and discount rates are as follows:
|
| | |
| October 26, 2019 |
Weighted-average remaining lease term (years) |
|
Operating leases | 12.2 |
|
Finance leases | 16.3 |
|
Weighted-average discount rate | |
Operating leases | 5.3 | % |
Finance leases | 8.5 | % |
Supplemental cash flow information related to leases is as follows:
|
| | | | |
| | 13 Weeks Ended |
| | October 26, 2019 |
Cash paid for amounts in the measurement of lease liabilities | | |
Operating cash flows from operating leases | | $ | 4,380 |
|
Operating cash flows from finance leases | | 517 |
|
Financing cash flows from finance leases | | 113 |
|
In the first quarter of fiscal 2020, the Company adopted ASU 2016-02, and as required, the following disclosure is provided for periods prior to adoption. Future minimum lease payments by year and in the aggregate for all non-cancelable leases with initial terms of one year or more consisted of the following at July 27, 2019:
|
| | | | | | | |
| Capital and financing leases | | Operating leases |
2020 | $ | 5,173 |
| | $ | 13,573 |
|
2021 | 5,240 |
| | 12,972 |
|
2022 | 5,240 |
| | 10,348 |
|
2023 | 5,305 |
| | 9,747 |
|
2024 | 5,342 |
| | 7,457 |
|
Thereafter | 43,708 |
| | 61,043 |
|
Minimum lease payments | 70,008 |
| | $ | 115,140 |
|
Less amount representing interest | 28,233 |
| | |
|
| | | |
Present value of minimum lease payments | 41,775 |
| | |
|
| | | |
Less current portion | 1,022 |
| | |
|
| $ | 40,753 |
| | |
|
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Dollars in Thousands)
OVERVIEW
Village Super Market, Inc. (the “Company” or “Village”) operates a chain of 2930 ShopRite supermarkets in New Jersey, eastern Pennsylvania, Maryland and northeastern Pennsylvania.New York City and three Gourmet Garage specialty markets in Manhattan, New York City. On November 1, 2019, Village opened a 82,000 sq. ft. (52,000 selling sq. ft.) store in Stroudsburg, Pennsylvania and replaced our existing 53,000 sq. ft. store. On June 24, 2019, Village acquired the assets and certain liabilities of Gourmet Garage for $5,267. Gourmet Garage operates three specialty markets averaging 11,000 sq. ft. (5,800 selling sq. ft.) in Manhattan, New York City. On June 28, 2018, Village opened a 53,000 sq. ft. (31,000 selling sq. ft.) ShopRite in the Bronx, New York City. Village is the second largest member of Wakefern Food Corporation (“Wakefern”), the nation’s largest retailer-owned food cooperative and owner of the ShopRite name.and Gourmet Garage names. As further described in the Company’s Form 10-K, this ownership interest in Wakefern provides Village many of the economies of scale in purchasing, distribution, private label products,store brands, advanced retail technology, marketing and advertising associated with chains of greater size and geographic coverage.
The supermarket industry is highly competitive and characterized by narrow profit margins. The Company competes directly with multiple retail formats, both in-store and online, including national, regional and local supermarket chains as well as warehouse clubs, supercenters, drug stores, discount general merchandise stores, fast food chains, restaurants, dollar stores and convenience stores. Village competes by using low pricing, providing a superior customer service experience and a broad range of consistently available quality products, (includingincluding our own brands portfolio. In October 2019, ShopRite private labeled products).introduced the Right Price Promise pricing strategy, a commitment to everyday low prices on the items customers purchase most frequently. The ShopRite Price Plus preferred customer program enables Village to offer continuity programs, focus on target marketing initiatives and to offer discounts and attach digital coupons directly to a customer's Price Plus card.
In November 2019, ShopRite launched the Bowl & Basket and Paperbird store brands. Bowl & Basket foods pair thoughtfully selected ingredients at a budget friendly price and Paperbird offers a new line of effective and beautifully designed household products. More than 100 newly branded items, including packaged salads, salty snacks, cooking oils, bottled water and paper goods, were introduced in early November. ShopRite expects to add nearly 3,500 Bowl & Basket foods and Paperbird household products over the next 18 months. The introduction of Bowl & Basket and Paperbird follows the successful 2016 launch of ShopRite’s Wholesome Pantry brands, which include the Wholesome Pantry Organic line as well as a range of products free from 110 ingredients and artificial additives and preservatives. Wholesome Pantry will also be introducing new products in the coming months, rounding out ShopRite’s reinvention of its own brands portfolio.
The Company’s stores, six of which are owned, average 59,00055,000 total square feet. These larger store sizes enable the Company’s stores to provide a “one-stop” shopping experience and to feature expanded higher margin specialty departments such as an on-site bakery, an expanded delicatessen, a variety of natural and organic foods, ethnic and international foods, prepared foods and pharmacies.
Many of our stores emphasize a Power Alley, which features high margin, fresh, convenience offerings in an area within the store that provides quick customer entry and exit for those customers shopping for today's lunch or dinner. Certain of our stores include the Village Food Garden concept featuring a restaurant style kitchen, and several kiosks offering a wide variety of store prepared specialty foods for both take-home and in-store dining.
Village also has on-site registered dieticians in seventeen19 ShopRite stores that provide customers with free, private consultations on healthy meals and proper nutrition, as well as leading health related events both in store and in the community as part of the Well Everyday program. We have thirteen18 stores that offer ShopRite from Home covering most of the communities served by our stores. ShopRite from Home is an online ordering system that provides for in-store pickup or home delivery. Customers can browse our circular, create and edit shopping lists and use ShopRite from Home through shoprite.com or on their smart phones or tablets through the ShopRite app.
We consider a variety of indicators to evaluate our performance, such as same store sales; percentage of total sales by department (mix); shrink; departmental gross profit percentage; sales per labor hour; units per labor hour; and hourly labor rates.
RESULTS OF OPERATIONS
The following table sets forth the major components of the Consolidated Statements of Operations as a percentage of sales:
| | | 13 Weeks Ended | | 26 Weeks Ended | 13 Weeks Ended |
| January 27, 2018 | | January 28, 2017 | | January 27, 2018 | | January 28, 2017 | October 26, 2019 | | October 27, 2018 |
Sales | 100.00 | % | | 100.00 | % | | 100.00 | % | | 100.00 | % | 100.00 | % | | 100.00 | % |
Cost of sales | 73.10 |
| | 73.01 |
| | 73.11 |
| | 73.08 |
| 72.13 |
| | 72.08 |
|
Gross profit | 26.90 |
| | 26.99 |
| | 26.89 |
| | 26.92 |
| 27.87 |
| | 27.92 |
|
Operating and administrative expense | 23.02 |
| | 22.90 |
| | 23.43 |
| | 23.14 |
| 25.32 |
| | 23.98 |
|
Depreciation and amortization | 1.53 |
| | 1.52 |
| | 1.57 |
| | 1.53 |
| 1.82 |
| | 1.71 |
|
Operating income | 2.35 |
| | 2.57 |
| | 1.89 |
| | 2.25 |
| 0.73 |
| | 2.23 |
|
Interest expense | (0.26 | ) | | (0.27 | ) | | (0.27 | ) | | (0.28 | ) | (0.14 | ) | | (0.28 | ) |
Interest income | 0.21 |
| | 0.16 |
| | 0.22 |
| | 0.17 |
| 0.31 |
| | 0.29 |
|
Income before taxes | 2.30 |
| | 2.46 |
| | 1.84 |
| | 2.14 |
| 0.90 |
| | 2.24 |
|
Income taxes | 0.02 |
| | 1.01 |
| | 0.28 |
| | 0.88 |
| 0.27 |
| | 0.68 |
|
Net income | 2.28 | % | | 1.45 | % | | 1.56 | % | | 1.26 | % | 0.63 | % | | 1.56 | % |
Sales. Sales were $417,382$407,402 in the second quarter of fiscal 2018,13 weeks ended October 26, 2019, an increase of 1.3%1.5% compared to the second quarter13 weeks ended October 27, 2018. Sales increased due to the acquisition of the prior year.Gourmet Garage on June 24, 2019 and a 0.1% increase in same store sales. Same store sales increased due to continued sales growth in the Bronx, New York City store opened on June 28, 2018, recently remodeled or replaced stores and expanded stores in Chester and Stirling, inflation and increased promotional spending.continued growth of ShopRite from Home including expansion to four additional stores. These increases were partially offset by the impact of two competitor store openings.openings, decreased promotional spending in Maryland and reduced sales in our existing store in Stroudsburg, Pennsylvania leading up to its closure and the opening of a replacement store on November 1, 2019. The Company expects same store sales in fiscal 20182020 to range from a 0.5%2.0% decrease to a 0.5% increase.flat.
Although the Company cannot accurately determine the precise impact of inflation or deflation on operations due to changes in product mix, customer buying patterns and competitive factors, we estimate that product prices experienced modest inflation during the 13 weeks ended October 26, 2019. New stores and replacement stores are included in same store sales in the quarter after the store has been in operation for four full quarters. Store renovations and expansions are included in same store sales immediately.
Sales were $803,856 in the six-month period of fiscal 2018, an increase of 0.2% from the six-month period of the prior year. Same store sales increased 0.2% due primarily to sales growth in recently remodeled and expanded stores in Chester and Stirling, inflation and increased promotional spending. These increases were partially offset by four competitor store openings.
Although the Company cannot accurately determine the precise impact of inflation or deflation on operations due to changes in product mix, customer buying patterns and competitive factors, we estimate that product prices experienced moderate inflation during the second quarter and six-month period of fiscal 2018 across all selling departments other than pharmacy, which continued to experience deflation.
Gross Profit. Gross profit as a percentage of sales decreased .09%.05% in the second quarter of fiscal 201813 weeks ended October 26, 2019 compared to the second quarter13 weeks ended October 27, 2018. Excluding the impact of the prior yearaddition of Gourmet Garage, gross profit as a percentage of sales decreased .26% in the 13 weeks ended October 26, 2019 compared to the 13 weeks ended October 27, 2018 due primarily due to decreased patronage dividends from Wakefern (.07%), increased promotional spending (.05%) and decreased departmental gross margin percentages (.11%(.28%), increased warehouse assessment charges from Wakefern (.05%) partially offset by a favorable change in product mix (.12%(.04%) and decreased LIFO charges (.03%).
Gross profit Departmental gross profits decreased due primarily to decreased pharmacy margins as a percentageresult of sales decreased .03%continued downward pressure on prescription reimbursement rates from third party providers and price investments, including the introduction in early October 2019 of ShopRite's Right Price Promise pricing strategy, a commitment to everyday low prices on the six-month period of fiscal 2018 compared to the six-month period of the prior year primarily due to decreased patronage dividends from Wakefern (.04%) and increased promotional spending (.09%) partially offset by a favorable change in product mix (.12%).items customers purchase most frequently.
Operating and Administrative Expense. Operating and administrative expense as a percentage of sales increased .12%1.34% in the second quarter of fiscal 201813 weeks ended October 26, 2019 compared to the second quarter13 weeks ended October 27, 2018. The 13 weeks ended October 26, 2019 includes pre-opening costs related to the Stroudsburg, Pennsylvania replacements store (.21%), charges to write off the lease asset related to the old Stroudsburg store (.07%) and lease costs reclassified from Depreciation and Amortization and Interest Expense to Operating and Administrative Expense (.17%) as a result of the prior year due primarilyadoption of ASU 2016-02, “Leases” (see note 1 to payroll investments in service departments, training and other initiatives (.21%the consolidated financial statements). The 13 weeks ended October 27, 2018 includes a gain for Superstorm Sandy insurance proceeds received (.10%).
Operating Excluding these items from both periods, operating and administrative expense as a percentage of sales increased .29%.79% in the six-monthperiod of fiscal 201813 weeks ended October 26, 2019 compared to the six-monthperiod of the prior year primarily13 weeks ended October 27, 2018 due primarily to increased payroll investments in service departments, training(.35%), fringe benefit costs (.13%) and other initiatives (.32%occupancy costs (.19%). Payroll increased due primarily to the addition of Gourmet Garage and continued growth of ShopRite from Home and expansion to four additional stores. Fringe benefit costs increased primarily due to increased claim costs on self-insured medical plans. Occupancy costs increased due primarily to the addition of Gourmet Garage and increased common area maintenance charges.
Depreciation and Amortization. Depreciation and amortization expense increased in the second quarter and six-month period of fiscal 201813 weeks ended October 26, 2019 compared to the corresponding periods of the prior year13 weeks ended October 27, 2018 due to depreciation related to fixed asset additions.acquisition of Gourmet Garage, capital expenditures and accelerated depreciation related to assets at the existing Stroudsburg store that was replaced on November 1, 2019.
Interest Expense. Interest expense in the second quarter and six-month period of fiscal 2018 was flat13 weeks ended October 26, 2019 decreased compared to the corresponding period13 weeks ended October 27, 2018 due to lease costs reclassified to Operating and Administrative Expenses (.13%) as a result of the prior year.adoption of ASU 2016-02, “Leases” (see note 1 to the consolidated financial statements).
Interest Income. Interest income increased in the second quarter and six-month period of fiscal 201813 weeks ended October 26, 2019 compared to the corresponding period of the prior year13 weeks ended October 27, 2018 due primarily to higherlarger amounts invested and higher interest rates earned onin variable rate notes receivable from Wakefern and demand deposits invested at Wakefern.
Income Taxes. The effective income tax rate was .9%29.9% in the second quarter of fiscal 201813 weeks ended October 26, 2019 compared to 40.9%30.2% in the second quarter of the prior year.13 weeks ended October 27, 2018. The effective income tax rate was 15.0% in the six-month period of fiscal 2018 compareddecreased due to 41.2% in the six-month period of the prior year.
The effective tax rate was impacted by theincreased estimated Work Opportunity Tax Cuts and Jobs Act (the "Tax Act") enacted on December 22, 2017. The Tax Act makes significant changes to the U.S tax code that will affect our fiscal year ended July 28, 2018, including, but not limited to, reducing the U.S. federal statutory tax rate from 35% to 21% effective January 1, 2018 and bonus depreciation that will allow for full expensing of qualified property.
For the fiscal year ended July 28, 2018 the Company will have a blended federal corporate tax rate of 26.9% based on the effective date of the tax rate reduction. As a result of the decrease in the federal rate, the Company recognized a decrease in its net deferred tax liabilities of $2,726 in the second quarter of fiscal 2018, with a corresponding reduction to deferred income tax expense. Excluding the impact of the adjustment to deferred tax expense, the effective income tax rates were 29.3% and 33.5% in the second quarter and six-month period of fiscal 2018, respectively.Credits.
Net Income. Net income was $9,511$2,567 in the second quarter of fiscal 201813 weeks ended October 26, 2019 compared to $5,992$6,269 in the second quarter13 weeks ended October 27, 2018. The 13 weeks ended October 26, 2019 includes pre-opening costs related to the Stroudsburg, Pennsylvania replacement store of $594 (net of tax) and charges to write off the prior year.lease asset related to the old Stroudsburg store of $191 (net of tax). The second quarter of fiscal13 weeks ended October 27, 2018 includes a $2,726 non-cash reduction in deferred tax expense as a result$290 (net of the Tax Act.tax) gain for Superstorm Sandy insurance proceeds received. Excluding this itemthese items from the second quarter of fiscal 2018,both periods, net income increased 13%decreased 44% in the second quarter of fiscal 201813 weeks ended October 26, 2019 compared to the prior year due primarily due to the favorable impact of a reduction in the fiscal 2018 estimated effective tax rate to 33.5% as a result of the Tax Act.
Net income was $12,528 in the six-month period of fiscal 2018 compared to $10,101 in the six-month period of the prior year. Fiscal 2018 includes a $2,726 non-cash reduction in deferred tax expense as a result of the Tax Act. Excluding this item, net income decreased 3% in the six-month period of fiscal 2018 compared to the prior year primarily due to highergross profit margins and increased operating and administrative expenses partially offset by the favorable impact of a reduction in the fiscal 2018 estimated effective tax rate to 33.5% as a result of the Tax Act.expenses.
CRITICAL ACCOUNTING POLICIES
Critical accounting policies are those accounting policies that management believes are important to the portrayal of the Company’s financial condition and results of operations. These policies require management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. The Company’s critical accounting policies relating to the impairment of long-lived assets and goodwill, accounting for patronage dividends earned as a stockholder of Wakefern and accounting for pension plans, are described in the Company’s Annual Report on Form 10-K for the year ended July 29, 2017. As no material uncertain tax positions remain27, 2019. Except for the changes due to the adoption of ASU 2016-02 related to leases discussed in the Company’s financial condition"Recently adopted accounting standards," Note 1, and resultsNote 7 as of operations, the Company has updated its critical accounting policies to exclude accounting for uncertain tax positions. As of January 27, 2018,October 26, 2019, there have been no other changes to the critical accounting policies contained therein.
The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities was $28,424$3,375 in the six-monthperiod of fiscal 201813 weeks ended October 26, 2019 compared to $15,146$6,125 in the corresponding period of the prior year. The increasedecrease in net cash provided by operating activities in fiscal 20182020 was primarily due to changes in working capital anddecreased net income adjusted for non-cash expenses including depreciationexpense and amortization, share-based compensation and deferred taxes.changes in working capital. Working capital changes, including Other assets and Other liabilities, increased net cash provided
by operating activities in fiscal 2018 by $3,775 and decreased net cash provided by operating activities by $8,645$8,733 in fiscal 2017.2020 compared to a decrease of $7,712 in fiscal 2019. The largerchange in impact of working capital changes in fiscal 2017 is due primarily to an increase in merchandise inventories partially offset by changes in income taxes receivable/payable as a result of the timing of estimated tax payments.payments for payables.
During the six-monthperiod of fiscal 2018,13 weeks ended October 26, 2019, Village used cash to fund capital expenditures of $12,731,$22,349, dividends of $6,439$3,220 and invested an additional $1,051investments of $796 in notes receivable from Wakefern, net of proceeds received on matured notes.Wakefern. Capital expenditures primarily include costs associated with several smaller remodels.the Stroudsburg replacement store, expansion of ShopRite from Home and equipment purchases.
At January 27, 2018,October 26, 2019, the Company had $45,731 inheld variable rate notes receivable due from Wakefern of $25,095 that earn interest at the prime rate plus $1.25% with $23,265 that mature on February 15, 20191.25% and $22,466 that mature on August 15, 2022. On August 15, 2017, notes receivable due from Wakefern of $22,1422022 and $25,909 that earnedearn interest at the prime rate plus .25% matured. The Company invested $22,000 of the proceeds received in variable rate notes receivable from Wakefern that.75% and mature on AugustFebruary 15, 2022.2024. Wakefern has the right to prepay these notes at any time. Under certain conditions, the Company can require
Wakefern to prepay the notes, although interest earned since inception would be reduced as if it was earned based on overnight money market rates as paid by Wakefern on demand deposits.
Village has revised its budgeted $55,000 for capital expenditures downward from prior estimates to approximately $30,000 for fiscal 2018 due to delays in the timing of certain projects.2020. Planned expenditures include the construction of a newreplacement store in the Bronx, New York, twoStroudsburg, Pennsylvania, three major remodels, several smaller remodelsexpansion of ShopRite from Home, and various merchandising, technology, upgrade projects.equipment and facility upgrades. The Company’s primary sources of liquidity in fiscal 20182020 are expected to be cash and cash equivalents on hand at January 27, 2018,October 26, 2019 and operating cash flow generated in fiscal 2018 and funding through the New Markets Tax Credit program as described in note 8 to the unaudited consolidated financial statements.2020.
Working capital was $59,888$31,389 at January 27, 2018October 26, 2019 compared to $85,279$56,307 at July 29, 2017.27, 2019. Working capital ratios at the same dates were 1.611.26 and 1.891.50 to 1, respectively. The decrease in working capital in fiscal 20182020 compared to fiscal 20172019 is due primarily to maturitya decrease in cash and cash equivalents as a result of $22,142 in notes receivable from Wakefern,capital expenditures related to the Stroudsburg replacement store and recognition of which $22,000 was reinvested in long-term notes receivable from Wakefern.current operating lease obligations as a result of the adoption of ASU 2016-02, “Leases”. The Company’s working capital needs are reduced, since inventories are generally sold by the time payments to Wakefern and other suppliers are due.
Effective November 9, 2017, the Company entered into aVillage has an unsecured revolving credit agreement that amends, restates and supersedes in its entirety the loan agreement dated September 16, 1999 and all amendments to that agreement. The agreement maintains Village's unsecured revolving line of credit providing a maximum amount available for borrowing of $25,000, and extends the credit agreement to December 31, 2020. $25,000.
The revolving credit line can be used for general corporate purposes.purposes and expires on December 31, 2020. Indebtedness under this agreement bears interest at the applicable LIBOR rate plus 1.25%. The credit agreement continues to provideprovides for up to $3,000 of letters of credit, which secure obligations for construction performance guarantees to municipalities. The credit agreement continues to containcontains covenants that, among other conditions, require a maximum liabilities to tangible net worth ratio, a minimum fixed charge coverage ratio and a positive net income. There were no amounts outstanding at January 27, 2018October 26, 2019 or July 29, 201727, 2019 under the new or superseded facility, respectively.facility.
There have been no other substantial changes as of January 27, 2018October 26, 2019 to the contractual obligations and commitments discussed in the Company’s Annual Report on Form 10-K for the year ended July 29, 2017.27, 2019.
OUTLOOK
This Form 10-Q contains certain forward-looking statements about Village’s future performance. These statements are based on management’s assumptions and beliefs in light of information currently available. Such statements relate to, for example: same store sales; economic conditions; expected pension plan contributions; projected capital expenditures; cash flow requirements; inflation expectations; and legal matters; and are indicated by words such as “will,” “expect,” “should,” “intend,” “anticipates,” “believes” and similar words or phrases. The Company cautions the reader that there is no assurance that actual results or business conditions will not differ materially from the results expressed, suggested or implied by such forward-looking statements. The Company undertakes no obligation to update forward-looking statements to reflect developments or information obtained after the date hereof.
We expect same store sales to range from a 2.0% decrease of 0.5% to an increase of 0.5%a flat in fiscal 2018. We expect sales trends to be negatively impacted by several local competitor store openings.2020, including the impact of expected investments in retail pricing and expansion of our own brand product portfolio.
We have revised budgeted $55,000 for capital expenditures downward from prior estimates to approximately $30,000 forin fiscal 2018 due to delays in the timing of certain projects.2020. Planned expenditures include the construction of a newreplacement store in the Bronx, New York, twoStroudsburg, Pennsylvania, three major remodels, several smaller remodelsexpansion of ShopRite from Home, and various merchandising, technology, upgrade projects.equipment and facility upgrades.
The Board’s current intention is to continue to pay quarterly dividends in 20182020 at the most recent rate of $.25 per Class A and $.1625 per Class B share.
We believe cash and cash equivalents on hand, operating cash flow from operations and other sources of liquidity will be adequate to meet anticipated requirements for working capital, capital expenditures and debt payments for the foreseeable future.
We expect our effective income tax rate in fiscal 20182020 to be in the range of 33.0%29.5% - 34.0%30.5%.
We expect operating expenses will be affected by increased costs in certain areas, such as medical and other fringe benefit costs.
We expect approximately $100$1,600 of net periodic pension costs in fiscal 20182020 related to the four Company sponsored defined benefit pension plans. The Company expects contributions to contribute $3,500 in cash to allits defined benefit pension plans to be immaterial in fiscal 2018.2020.
Various uncertainties and other factors could cause actual results to differ from the forward-looking statements contained in this report. These include:
The supermarket business is highly competitive and characterized by narrow profit margins. Results of operations may be materially adversely impacted by competitive pricing and promotional programs, industry consolidation and competitor store openings. Village competes directly with multiple retail formats both in-store and online, including national, regional and local supermarket chains as well as warehouse clubs, supercenters, drug stores, discount general merchandise stores, fast food chains, restaurants, dollar stores and convenience stores. Some of these competitors have greater financial resources, lower merchandise acquisition costs and lower operating expenses than we do.
The Company’s stores are concentrated in New Jersey, with two stores in Maryland, and one in northeastern Pennsylvania.Pennsylvania and four in New York City. We are vulnerable to economic downturns in New Jersey in addition to those that may affect the country as a whole. Economic conditions such as inflation, deflation, interest rate fluctuations, movements in energy costs, social programs, minimum wage legislation, unemployment rates and changing demographics may adversely affect our sales and profits.
Village purchases substantially all of its merchandise from Wakefern. In addition, Wakefern provides the Company with support services in numerous areas including advertising, liability and property insurance, supplies, certain equipment purchasing, coupon processing, certain financial accounting applications, retail technology support, and other store services. Further, Village receives patronage dividends and other product incentives from Wakefern and also has demand deposits and notes receivable due from Wakefern.
Any material change in Wakefern’s method of operation or a termination or material modification of Village’s relationship with Wakefern could have an adverse impact on the conduct of the Company’s business and could involve additional expense for Village. The failure of any Wakefern member to fulfill its obligations to Wakefern or a member’s insolvency or withdrawal from Wakefern could result in increased costs to the Company. Additionally, an adverse change in Wakefern’s results of operations or solvency could have an adverse effect on Village’s results of operations.
Approximately 91%88% of our employees are covered by collective bargaining agreements. Any work stoppages could have an adverse impact on our financial results. If we are unable to control health care and pension costs provided for in the collective bargaining agreements, we may experience increased operating costs.
The Company could be adversely affected if consumers lose confidence in the safety and quality of the food supply chain. The real or perceived sale of contaminated food products by us could result in a loss of consumer confidence and product liability claims, which could have a material adverse effect on our sales and operations.
Certain of the multi-employer plans to which we contribute are underfunded. As a result, we expect that contributions to these plans may increase. Additionally, the benefit levels and related items will be issues in the negotiation of our collective bargaining agreements. Under current law, an employer that withdraws or partially withdraws from a multi-employer pension plan may incur a withdrawal liability to the plan, which represents the portion of the plan’s underfunding that is allocable to the withdrawing employer under very complex actuarial and allocation rules. The failure of a withdrawing employer to fund these obligations can impact remaining employers. The amount of any increase or decrease in our required contributions to these multi-employer pension plans will depend upon the outcome of collective bargaining, actions taken by trustees who manage the plans, government regulations, withdrawals by other participating employers and the actual return on assets held in the plans, among other factors.
The Company uses a combination of insurance and self-insurance to provide for potential liability for workers’ compensation, automobile and general liability, property, director and officers’ liability, and certain employee health care benefits. Any projection of losses is subject to a high degree of variability. Changes in legal claims, trends and interpretations, variability in inflation rates, changes in the nature and method of claims settlement, benefit level changes due to changes in applicable laws, and insolvency of insurance carriers could all affect our financial condition, results of operations, or cash flows.
Our long-lived assets, primarily store property, equipment and fixtures, are subject to periodic testing for impairment. Failure of our asset groups to achieve sufficient levels of cash flow could result in impairment charges on long-lived assets.
Our effective tax rate may be impacted by the results of tax examinations and changes in tax laws.
Wakefern provides all members of the cooperative with information system support that enables us to effectively manage our business data, customer transactions, ordering, communications and other business processes. These information systems are subject to damage or interruption from power outages, computer or telecommunications failures, computer viruses and related malicious software, catastrophic weather events, or human error. Any material interruption of our or Wakefern’s information systems could have a material adverse impact on our results of operations.
Due to the nature of our business, personal information about our customers, vendors and associates is received and stored in these information systems. In addition, confidential information is transmitted through our ShopRite from Home online business at shoprite.com and through the ShopRite app. Unauthorized parties may attempt to access information stored in or to sabotage or disrupt these systems. Wakefern and the Company maintain substantial security measures to prevent and detect unauthorized access to such information, including utilizing third-party service providers for monitoring our networks, security reviews, and other functions. It is possible that computer hackers, cyber terrorists and others may be able to defeat the security measures in place at the Company, Wakefern or those of third-party service providers.
Any breach of these security measures and loss of confidential information, which could be undetected for a period of time, could damage our reputation with customers, vendors and associates, cause Wakefern and Village to incur significant costs to protect any customers, vendors and associates whose personal data was compromised, cause us to make changes to our information systems and could result in government enforcement actions and litigation against Wakefern and/or Village from outside parties. Any such breach could have a material adverse impact on our operations, consolidated financial condition, results of operations, and liquidity if the related costs to Wakefern and Village are not covered or are in excess of carried insurance policies. In addition, a security breach could require Wakefern and Village to devote significant management resources to address problems created by the security breach and restore our reputation.
RELATED PARTY TRANSACTIONS
See note 5 to the unaudited consolidated financial statements for information on related party transactions.
RECENTLY ISSUED ACCOUNTING STANDARDS
In May 2014,August 2018, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers,” which provides2018-14, "Compensation-Retirement Benefits-Defined Benefit Plans-General (Subtopic 715-20): Disclosure Framework-Changes to the Disclosure Requirements for Defined Benefit Plans." The guidance modifies disclosure requirements for revenue recognition. The standard’s core principle is that a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. The new guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2017. The Company expects to adopt the new standard in the first quarter of its fiscal year ending July 27, 2019. The Company does not anticipate it will have a material impact on its recognition of revenue at the point of sale, and is continuing to identify and assess transactions that may be affected by the new standard.
In February 2016, the FASB issued ASU 2016-02, "Leases." This guidance requires lessees to recognize lease liabilities and a right-of-use asset for all leases with terms of more than 12 months on the balance sheet.defined benefit plans. This guidance is effective for fiscal years and interim periods within those years, beginningending after December 15, 2018, with earlier2020, and early adoption is permitted. The Company expects to adoptis currently assessing the new standard in the first quarter of its fiscal year ending July 25, 2020. ASU 2016-02 requires a modified retrospective approach for all leases existing at, or entered into after the date of initial adoption. The adoptionpotential impact of ASU 2016-02 will result in a significant increase to the Company’s Consolidated Balance Sheets for lease liabilities and right-of-use assets, and the Company is currently evaluating the other effects of adoption of this standard2018-14 on its consolidated financial statements and relatedstatement disclosures.
In February 2018, the FASB issued ASU No. 2018-02, “Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income,” which will allow a reclassification from accumulated other comprehensive income to retained earnings for the tax effects resulting from the Tax Act that are stranded in accumulated other comprehensive income. This standard also requires certain disclosures about stranded tax effects. This ASU, however, does not change the underlying guidance that requires that the effect of a change in tax laws or rates be included in income from continuing operations. The new guidance is effective for the first interim and annual periods beginning after December 15, 2018, with early adoption permitted. It must be applied either in the period of adoption or retrospectively to each period in which the effect of the change in the U.S. federal corporate income tax rate in the Act is recognized. The Company is currently evaluating the effects of adoption of this standard on its consolidated financial statements and related disclosures.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
At January 27, 2018,October 26, 2019, the Company had demand deposits of $69,619$52,945 at Wakefern earning interest at overnight money market rates, which are exposed to the impact of interest rate changes.
At January 27, 2018,October 26, 2019, the Company had $45,731 inheld variable rate notes receivable due from Wakefern of $25,095 that earn interest at the prime rate plus $1.25% with $23,2651.25% and mature on August 15, 2022 and $25,909 that earn interest at the prime rate plus .75% and mature on February 15, 2019 and $22,466 that mature on August 15, 2022.2024. Wakefern has the right to prepay these notes at any time. Under certain conditions, the Company can require Wakefern to prepay the notes, although interest earned since inception would be reduced as if it was earned based on overnight money market rates as paid by Wakefern on demand deposits.
ITEM 4. CONTROLS AND PROCEDURES
As required by Rule 13a-15 under the Exchange Act, the Company carried out an evaluation of the effectiveness of the design and operation of the Company’s disclosure controls and procedures at the end of the period. This evaluation was carried out under the supervision, and with the participation, of the Company’s management, including the Company’s Chief Executive Officer along with the Company’s Chief Financial Officer. Based upon that evaluation, the Company’s Chief Executive Officer, along with the Company’s Chief Financial Officer, concluded that the Company’s disclosure controls and procedures are effective.
Disclosure controls and procedures are designed to ensure that information required to be disclosed in Company reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in
the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in Company reports filed under the Exchange
Act is accumulated and communicated to management, including the Company’s Chief Executive Officer and Chief Financial Officer as appropriate, to allow timely decisions regarding required disclosure.
On July 28, 2019, the Company adopted ASU 2016-02, “Leases.” As part of the adoption of the new lease standard, the Company implemented additional internal controls and processes related to leases. There have been no other changes in the Company’s internal control over financial reporting during the quarter ended January 27, 2018October 26, 2019 that have materially affected, or are reasonably likely to materially affect, the Company’s internal controls over financial reporting.
PART II - OTHER INFORMATION
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
ITEM 2C. ISSUER PURCHASES OF EQUITY SECURITIES
The number and average price of shares purchased in each fiscal month of the secondfirst quarter of fiscal 20182020 are set forth in the table below:
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| | | | | | | | |
Period(1) | | Total Number of Shares Purchased(2) | | Average Price Paid Per Share | | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | | Maximum Dollar Value of Shares that May Yet Be Purchased Under the Plan or Programs |
October 29, 2017 to November 25, 2017 | | — | | $— | | — | | $2,008,972 |
November 26, 2017 to December 23, 2017 | | 8,893 | | $23.02 | | 8,893 | | $1,804,255 |
December 24, 2017 to January 27, 2018 | | 11,845 | | $23.02 | | 11,845 | | $1,531,583 |
Total | | 20,738 | | $23.02 | | 20,738 | | $1,531,583 |
|
| | | | | | | | |
Period(1) | | Total Number of Shares Purchased(2) | | Average Price Paid Per Share | | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | | Maximum Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (3) |
July 28, 2019 to August 24, 2019 | | 812 | | $24.01 | | 812 | | $665,465 |
August 25, 2019 to September 21, 2019 | | — | | $— | | — | | $5,665,465 |
September 22, 2019 to October 26, 2019 | | — | | $— | | — | | $5,665,465 |
Total | | 812 | | $24.96 | | 812 | | $5,665,465 |
| |
(1) | The reported periods conform to our fiscal calendar. |
(2) Includes shares repurchased under a $5.0 million repurchase program of the Company's Class A Common Stock authorized by the Board of Directors and announced on June 12, 2015. Repurchases may be made from time-to-time through a variety of methods, including open market purchases and other negotiated transactions, including through plans designed to comply with Rule 10b5-1 under the Securities Exchange Act of 1934.
(3) Includes amount remaining under the program described in (2) and an additional $5.0 million repurchase program of the Company's Class A Common Stock authorized by the Board of Directors and announced on September 13, 2019. Repurchases may be made from time-to-time through a variety of methods, including open market purchases and other negotiated transactions, including through plans designed to comply with Rule 10b5-1 under the Securities Exchange Act of 1934.
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Item 6. | Exhibits |
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Exhibit 31.1 | |
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Exhibit 31.2 | |
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Exhibit 32.1 | |
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Exhibit 32.2 | |
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Exhibit 99.1 | |
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101 INS | XBRL Instance |
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101 SCH | XBRL Schema |
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101 CAL | XBRL Calculation |
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101 DEF | XBRL Definition |
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101 LAB | XBRL Label |
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101 PRE | XBRL Presentation |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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| Village Super Market, Inc. |
| Registrant |
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Dated: March 8, 2018December 5, 2019 | /s/ Robert P. Sumas |
| Robert P. Sumas |
| (Chief Executive Officer) |
| |
Dated: March 8, 2018December 5, 2019 | /s/ John Van Orden |
| John Van Orden |
| (Chief Financial Officer) |