VILLAGE SUPER MARKET INC - Quarter Report: 2020 April (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

FORM 10-Q

(Mark One)



[x]	QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

	For the quarterly period ended: April 25, 2020

OR

[ ]	TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

Commission File No. 0-2633

VILLAGE SUPER MARKET, INC.

(Exact name of registrant as specified in its charter)



NEW JERSEY	22-1576170
(State or other jurisdiction of incorporation or organization)	(I. R. S. Employer Identification No.)

733 MOUNTAIN AVENUE, SPRINGFIELD, NEW JERSEY	07081
(Address of principal executive offices)	(Zip Code)

(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.



Large accelerated filer q		Accelerated filer x
Non-accelerated filer q (Do not check if a smaller reporting company)		Smaller reporting company x

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes _____ No __X__



Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date:

		June 4, 2020

	Class A Common Stock, No Par Value	10,243,990 Shares
	Class B Common Stock, No Par Value	4,293,748 Shares

VILLAGE SUPER MARKET, INC.

INDEX



PART I	PAGE NO.

FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited)

Consolidated Balance Sheets	3

Consolidated Statements of Operations	4

Consolidated Statements of Comprehensive Income	5

Consolidated Statements of Shareholders' Equity	6

Consolidated Statements of Cash Flows	7

Notes to Consolidated Financial Statements	8

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

Item 3. Quantitative & Qualitative Disclosures about Market Risk	23

Item 4. Controls and Procedures	23

PART II

OTHER INFORMATION

Item 6. Exhibits	25

Signatures	26

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

VILLAGE SUPER MARKET, INC. CONSOLIDATED BALANCE SHEETS (In thousands) (Unaudited)

	April 25, 2020			July 27, 2019
ASSETS
Current assets
Cash and cash equivalents	$	89,602		$	101,121
Merchandise inventories	32,613			38,503
Patronage dividend receivable	7,500			11,908
Income taxes receivable	19			43
Other current assets	15,853			17,206
Total current assets	145,587			168,781

Property, equipment and fixtures, net	230,886			224,890
Operating lease assets	94,838			—
Notes receivable from Wakefern	52,451			50,208
Investment in Wakefern	28,783			28,644
Goodwill	12,586			12,650
Other assets	24,965			17,116

Total assets	$	590,096		$	502,289

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Operating lease obligations	$	11,765		$	—
Finance lease obligations	452			1,022
Notes payable to Wakefern	141			43
Accounts payable to Wakefern	71,211			66,130
Accounts payable and accrued expenses	19,350			23,950
Accrued wages and benefits	19,277			20,259
Income taxes payable	2,324			1,070
Total current liabilities	124,520			112,474

Long-term debt
Operating lease obligations	95,418			—
Finance lease obligations	23,243			40,753
Notes payable to Wakefern	766			803
Notes payable related to New Markets Tax Credit	5,983			6,169
Total long-term debt	125,410			47,725

Pension liabilities	5,080			4,759
Other liabilities	8,078			18,659

Commitments and contingencies

Shareholders' equity
Preferred stock, no par value: Authorized 10,000 shares, none issued	—			—
Class A common stock, no par value: Authorized 20,000 shares; issued 10,970 shares at April 25, 2020 and 10,593 shares at July 27, 2019	67,422			65,114
Class B common stock, no par value: Authorized 20,000 shares; issued and outstanding 4,294 shares at April 25, 2020 and July 27, 2019	697			697
Retained earnings	280,294			270,753
Accumulated other comprehensive loss	(7,466		)	(8,342		)
Less treasury stock, Class A, at cost: 726 shares at April 25, 2020 and 502 shares at July 27, 2019	(13,939		)	(9,550		)
Total shareholders’ equity	327,008			318,672

Total liabilities and shareholders’ equity	$	590,096		$	502,289

See accompanying Notes to Consolidated Financial Statements.

VILLAGE SUPER MARKET, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share amounts) (Unaudited)

	13 Weeks Ended						39 Weeks Ended
	April 25, 2020			April 27, 2019			April 25, 2020			April 27, 2019
Sales	$	458,292		$	395,458		$	1,303,116		$	1,225,137

Cost of sales	328,391			284,847			941,722			884,678

Gross profit	129,901			110,611			361,394			340,459

Operating and administrative expense	106,987			97,351			317,861			293,679

Depreciation and amortization	7,678			6,566			22,914			20,481

Operating income	15,236			6,694			20,619			26,299

Interest expense	(563		)	(1,106		)	(1,698		)	(3,334		)

Interest income	910			1,402			3,199			3,886

Income before income taxes	15,583			6,990			22,120			26,851

Income taxes	4,431			2,020			6,396			8,041

Net income	$	11,152		$	4,970		$	15,724		$	18,810

Net income per share:
Class A common stock:
Basic	$	0.86		$	0.39		$	1.22		$	1.46
Diluted	$	0.77		$	0.34		$	1.09		$	1.31

Class B common stock:
Basic	$	0.56		$	0.25		$	0.79		$	0.95
Diluted	$	0.56		$	0.25		$	0.79		$	0.95

See accompanying Notes to Consolidated Financial Statements.

VILLAGE SUPER MARKET, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (In thousands) (Unaudited)

	13 Weeks Ended				39 Weeks Ended
	April 25, 2020		April 27, 2019		April 25, 2020			April 27, 2019
Net income	$	11,152	$	4,970	$	15,724		$	18,810

Other comprehensive income:
Amortization of pension actuarial loss, net of tax (1)	100		102		303			306
Pension settlement loss, net of tax (2)	83		302		954			302
Pension remeasurement, net of tax (3)	323		—		(381		)	—

Comprehensive income	$	11,658	$	5,374	$	16,600		$	19,418


(1)	Amounts are net of tax of $44 and $43 for the 13 weeks ended April 25, 2020 and April 27, 2019, respectively, and $132 and $131 for the 39 weeks ended April 25, 2020 and April 27, 2019, respectively. All amounts are reclassified from Accumulated other comprehensive loss to Operating and administrative expense.


(2)	Amounts are net of tax of $33 and $129 for the 13 weeks ended April 25, 2020 and April 27, 2019, respectively, and $408 and $129 for the 39 weeks ended April 25, 2020 and April 27, 2019, respectively. All amounts are reclassified from accumulated other comprehensive loss to operating and administrative expense.


(3)	Amounts are net of tax of $139 and $164 for the 13 and 39 weeks ended April 25, 2020.

See accompanying Notes to Consolidated Financial Statements.

VILLAGE SUPER MARKET, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (In thousands) (Unaudited)

	13 Weeks Ended April 25, 2020 and April 27, 2019
	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, January 25, 2020	10,586			$	66,655			4,294			$	697			$	272,401			$	(7,972	)		513			$	(9,799	)	$	321,982
Net income	—			—				—			—				11,152				—				—			—			11,152
Other comprehensive income, net of tax of $216	—			—				—			—				—				506				—			—			506
Dividends	—			—				—			—				(3,259		)		—				—			—			(3,259		)
Treasury stock purchases	—			—				—			—				—				—				213			(4,140		)	(4,140		)
Restricted shares forfeited	(1	)		(19		)		—			—				—				—				—			—			(19		)
Share-based compensation expense	385			786				—			—				—				—				—			—			786
Balance, April 25, 2020	10,970			$	67,422			4,294			$	697			$	280,294			$	(7,466	)		726			$	(13,939	)	$	327,008

Balance, January 26, 2019	10,574			$	63,194			4,304			$	699			$	265,508			$	(7,981	)		524			$	(9,880	)	$	311,540
Net income	—			—				—			—				4,970				—				—			—			4,970
Other comprehensive income, net of tax of $172	—			—				—			—				—				404				—			—			404
Dividends	—			—				—			—				(3,222		)		—				—			—			(3,222		)
Exercise of stock options	—			337				—			—				—				—				(36	)		671			1,008
Share-based compensation expense	12			871				—			—				—				—				—			—			871
Conversion of Class B shares to Class A shares	10			2				(10	)		(2		)		—				—				—			—			—
Balance, April 27, 2019	10,596			$	64,404			4,294			$	697			$	267,256			$	(7,577	)		488			$	(9,209	)	$	315,571

	39 Weeks Ended April 25, 2020 and April 27, 2019
	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	—		—	—			—	—		—	—			—	15,724			—	—			—	—		—	—			15,724
Other comprehensive income, net of tax of $376	—		—	—			—	—		—	—			—	—			—	876			—	—		—	—			876
Dividends	—		—	—			—	—		—	—			—	(9,697		)	—	—			—	—		—	—			(9,697		)
Treasury stock purchases	—		—	—			—	—		—	—			—	—			—	—			—	224		—	(4,389		)	(4,389		)
Restricted shares forfeited	(10	)	—	(199		)	—	—		—	—			—	—			—	—			—	—		—	—			(199		)
Share-based compensation expense	387		—	2,507			—	—		—	—			—	—			—	—			—	—		—	—			2,507
Adjustment due to the adoption of ASU 2016-02, net of tax of $1,385	—			—				—			—				3,514				—				—			—			3,514
Balance, April 25, 2020	10,970			$	67,422			4,294			$	697			$	280,294			$	(7,466	)		726			$	(13,939	)	$	327,008

Balance, July 28, 2018	10,575			$	61,678			4,304			$	699			$	258,104			$	(8,185	)		496			$	(9,151	)	$	303,145
Net income	—		—	—			—	—		—	—			—	18,810			—	—			—	—		—	—			18,810
Other comprehensive income, net of tax of $260	—		—	—			—	—		—	—			—	—			—	608			—	—		—	—			608
Dividends	—		—	—			—	—		—	—			—	(9,658		)	—	—			—	—		—	—			(9,658		)
Exercise of stock options	—		—	337			—	—		—	—			—	—			—	—			—	(36	)	—	671			1,008
Treasury stock purchases	—		—	—			—	—		—	—			—	—			—	—			—	28		—	(729		)	(729		)
Restricted shares forfeited	(9	)	—	(127		)	—	—		—	—			—	—			—	—			—	—		—	—			(127		)
Share-based compensation expense	20		—	2,514			—	—		—	—			—	—			—	—			—	—		—	—			2,514
Conversion of Class B shares to Class A shares	10		—	2			—	(10	)	—	(2		)	—	—			—	—			—	—		—	—			—
Balance, April 27, 2019	10,596			$	64,404			4,294			$	697			$	267,256			$	(7,577	)		488			$	(9,209	)	$	315,571

See accompanying Notes to Consolidated Financial Statements.

VILLAGE SUPER MARKET, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (Unaudited)

	39 Weeks Ended
	April 25, 2020			April 27, 2019
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	15,724		$	18,810
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	22,914			20,481
Non-cash share-based compensation	2,308			2,387
Loss on pension settlements	1,362			431
Deferred taxes	983			(392		)
Provision to value inventories at LIFO	400			303
Gain on sale of assets	(1,252		)	(102		)

Changes in assets and liabilities:
Merchandise inventories	5,490			188
Patronage dividend receivable	4,408			3,575
Accounts payable to Wakefern	9,962			(2,132		)
Accounts payable and accrued expenses	(3,153		)	1,069
Accrued wages and benefits	(982		)	495
Income taxes receivable / payable	1,278			(2,394		)
Other assets and liabilities	(38		)	(2,950		)
Net cash provided by operating activities	59,404			39,769

CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures	(47,812		)	(18,815		)
Proceeds from the sale of assets	1,261			102
Investment in notes receivable from Wakefern	(2,243		)	(27,263		)
Maturity of notes receivable from Wakefern	—			24,937
Acquisition deposit in escrow	(7,600		)	—
Acquisition of Gourmet Garage, net of cash acquired	64			—
Net cash used in investing activities	(56,330		)	(21,039		)

CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from exercise of stock options	—			1,008
Excess tax benefit related to share-based compensation	—			26
Principal payments of long-term debt	(507		)	(1,354		)
Dividends	(9,697		)	(9,658		)
Treasury stock purchases, including shares surrendered for withholding taxes	(4,389		)	(729		)
Net cash used in financing activities	(14,593		)	(10,707		)

NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS	(11,519		)	8,023

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD	101,121			96,108

CASH AND CASH EQUIVALENTS, END OF PERIOD	$	89,602		$	104,131

SUPPLEMENTAL DISCLOSURES OF CASH PAYMENTS MADE FOR:
Interest	$	1,698		$	3,334
Income taxes	$	4,132		$	10,790

NONCASH SUPPLEMENTAL DISCLOSURES:
Investment in Wakefern and increase in notes payable to Wakefern	$	93		$	838

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 April 25, 2020 and the consolidated statements of operations, comprehensive income and cash flows for the 13 and 39 weeks ended April 25, 2020 and April 27, 2019 of Village Super Market, Inc. (“Village” or the “Company”).

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 27, 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 periods ended April 25, 2020 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. The Company recognized expense related to these leases in fiscal 2020 and 2019 as follows:



	13 Weeks Ended				39 Weeks Ended
Consolidated Statement of Operations Classification	April 25, 2020		April 27, 2019		April 25, 2020		April 27, 2019
Operating and administrative expense	$	677	$	—	$	2,031	$	—

Depreciation and amortization	—		91		—		305
Interest expense	—		535		—		1,612

	$	677	$	626	$	2,031	$	1,917

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 April 25, 2020 and July 27, 2019, approximately 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 $14,912 and $14,512 higher than reported at April 25, 2020 and July 27, 2019, respectively.

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					39 Weeks Ended
	April 25, 2020					April 25, 2020
	Class A		Class B			Class A		Class B
Numerator:
Net income allocated, basic	$	8,431	$	2,398		$	11,892	$	3,390
Conversion of Class B to Class A shares	2,398		—			3,390		—
Effect of share-based compensation on allocated net income	—		—			—		—
Net income allocated, diluted	$	10,829	$	2,398		$	15,282	$	3,390

Denominator:
Weighted average shares outstanding, basic	9,789		4,294			9,775		4,294
Conversion of Class B to Class A shares	4,294		—			4,294		—
Weighted average shares outstanding, diluted	14,083		4,294			14,069		4,294

	13 Weeks Ended					39 Weeks Ended
	April 27, 2019					April 27, 2019
	Class A		Class B			Class A		Class B
Numerator:
Net income allocated, basic	$	3,770	$	1,076		$	14,237	$	4,083
Conversion of Class B to Class A shares	1,076		—			4,083		—
Effect of share-based compensation on allocated net income	5		(1		)	—		(1		)
Net income allocated, diluted	$	4,851	$	1,075		$	18,320	$	4,082

Denominator:
Weighted average shares outstanding, basic	9,756		4,294			9,737		4,300
Conversion of Class B to Class A shares	4,294		—			4,300		—
Dilutive effect of share-based compensation	17		—			—		—
Weighted average shares outstanding, diluted	14,067		4,294			14,037		4,300

Outstanding stock options to purchase Class A shares of 159 and 163 were excluded from the calculation of diluted net income per share at April 25, 2020 and April 27, 2019, respectively, as a result of their anti-dilutive effect. In addition, 397 and 314 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 April 25, 2020 and April 27, 2019, respectively, due to their anti-dilutive effect.

4. PENSION PLANS

The Company sponsored four defined benefit pension plans in fiscal 2020 and 2019. Net periodic pension cost for the four plans includes the following components:



	13 Weeks Ended						39 Weeks Ended
	April 25, 2020			April 27, 2019			April 25, 2020			April 27, 2019
Service cost	$	51		$	53		$	152		$	160
Interest cost on projected benefit obligations	512			655			1,643			1,964
Expected return on plan assets	(733		)	(721		)	(2,061		)	(2,162		)
Loss on settlement	116			431			1,362			431
Amortization of net losses	144			145			435			437
Net periodic pension cost	$	90		$	563		$	1,531		$	830

As of April 25, 2020, the Company has not made any contributions to its pension plans in fiscal 2020. The Company expects contributions to its defined benefit pension plans to be immaterial in fiscal 2020.

On December 23, 2019, the Company terminated the Village Super Market, Inc. Retail Clerks Employees’ Retirement Plan. All participants of the plan were former employees of a store previously closed in 1994. An annuity contract totaling $1,302 was purchased with an insurance company for all participants who did not elect a lump sum distribution. Additionally, lump sum distributions related to the termination totaled $451. The plan had sufficient assets to satisfy all termination transaction obligations, and no benefit obligation or plan assets related to the Village Super Market, Inc. Retail Clerks Employees’ Retirement Plan remain as of April 25, 2020. As a result of this termination, the Company recognized a non-cash pre-tax settlement charge totaling $669 during the 13 weeks ended January 25, 2020. This settlement charge represents the plan’s remaining unrecognized losses within accumulated other comprehensive loss as of the termination date.

Additionally, the Company recognized a settlement loss of $116 and $693 in the 13 and 39 weeks ended April 25, 2020 and $431 in both the 13 and 39 weeks ended April 27, 2019 for a plan where benefits paid exceeded the sum of the service cost and interest cost components of net periodic pension cost. Assumptions used in the related remeasurement include a discount rate of 2.85% and long term expected rate of return on plan assets of 5.00%.

5. RELATED PARTY INFORMATION

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 27, 2019.

Included in cash and cash equivalents at April 25, 2020 and July 27, 2019 are $60,770 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 39 weeks ended April 25, 2020.

6. 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.

COVID-19

The Company operates in and around one of the epicenters of the COVID-19 health crisis with much of our trade area under stay-at-home orders since mid-March 2020. The Company is classified as an essential business and has remained open to serve our customers and the communities in which we operate. The continuing impact on our business, including the length and impact of stay-at-home orders and/or regional quarantines, labor shortages and employment trends, disruptions to supply chains, including our ability to obtain products from our suppliers, higher operating costs, the form and impact of economic stimulus and general overall economic instability, is uncertain at this time and could have a material adverse effect on our business, results of operations, financial condition and cash flows.

7. LEASES

The Company leases 27 retail stores, as well as the corporate headquarters and equipment at April 25, 2020. 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		39 Weeks Ended
	Consolidated Statement of Operations Classification	April 25, 2020		April 25, 2020
Operating lease cost	Operating and administrative expense	$	4,393	$	13,597
Finance lease cost
Amortization of leased assets	Depreciation and amortization	237		710
Interest on lease liabilities	Interest expense	512		1,544
Variable lease cost	Operating and administrative expense	3,724		11,387

Total lease cost		$	8,866	$	27,238

As of April 25, 2020, finance lease right-of-use assets of $13,990 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 April 25, 2020:



	Operating leases		Finance leases		Total
Remainder of 2020	$	4,946	$	672	$	5,618
2021	16,621		2,689		19,310
2022	15,739		2,689		18,428
2023	15,412		2,689		18,101
2024	13,276		2,689		15,965
Thereafter	79,385		24,428		103,813
Total lease payments	145,379		35,856		181,235
Less amount representing interest	38,196		12,161		50,357

Present value of lease liabilities	$	107,183	$	23,695	$	130,878

The Company has approximately $16,671 of future payment obligations related to lease agreements that have not yet commenced but have been executed as of April 25, 2020.

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 April 25, 2020, the Company's lease terms and discount rates are as follows:



	April 25, 2020
Weighted-average remaining lease term (years)
Operating leases	11.7
Finance leases	15.9
Weighted-average discount rate
Operating leases	5.3	%
Finance leases	8.5	%

Supplemental cash flow information related to leases is as follows:



	39 Weeks Ended
	April 25, 2020
Cash paid for amounts in the measurement of lease liabilities
Operating cash flows from operating leases	$	13,167
Operating cash flows from finance leases	1,544
Financing cash flows from finance leases	414

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

8. BUSINESS ACQUISITION

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 $5,203, 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 $529 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 final allocation of the purchase price consideration to the assets acquired and the liabilities assumed has been completed.

9. SUBSEQUENT EVENTS

Credit Facility

On May 6, 2020, Village entered into a credit agreement (the “Credit Facility”) with Wells Fargo National Bank, National Association (“Wells Fargo”) that supersedes in its entirety the prior credit agreement with Wells Fargo dated November 9, 2017. The principal purpose of the Credit Facility is to finance general corporate and working capital requirements and Village’s acquisition of certain Fairway assets. Among other things, the Credit Facility provides for a maximum loan amount of $150,500, as further set forth below:


•	An unsecured revolving line of credit providing a maximum amount available for borrowing of $125,000. Indebtedness under this agreement bears interest at the applicable LIBOR rate plus 1.10% and expires on May 6, 2025.

•

An unsecured term loan with a maximum loan amount of $25,500. On May 12, 2020, Village executed a $25,500 term note, repayable in equal monthly installments based on a seven-year amortization schedule through May 4, 2027 and bearing interest at the applicable LIBOR rate plus 1.35%. Additionally, Village executed an interest rate swap for a notional amount equal to the term loan amount that fixes the base LIBOR rate at .41% per annum through May 4, 2027, resulting in a fixed effective interest rate of 1.76% on the term note.

•

The ability to convert up to $50,000 of the revolving line of credit to a secured converted term loan, which shall reduce the maximum amount available for borrowing under the revolving line of credit. Village expects to reduce the capacity of the revolving line of credit by converting approximately $50,000 to a converted term loan that will bear interest at the applicable LIBOR rate plus 1.50% and will be repayable in equal monthly installments based on a fifteen-year amortization schedule beginning on the conversion date. The converted term loan is subject to completion of closing conditions, including title searches and environmental studies for properties to be mortgaged. Additionally, Village executed a forward interest rate swap, effective August 3, 2020, for a notional amount of $50,000 that fixes the base LIBOR rate at .69% per annum for fifteen years, resulting in a fixed effective interest rate of 2.19% on the converted term loan.

The Credit Facility also provides for up to $25,000 of letters of credit, and contains covenants that, among other conditions, require a minimum tangible net worth, a minimum fixed charge coverage ratio and a maximum adjusted debt to EBITDAR ratio.

Fairway Markets

On May 14, 2020, Village completed its acquisition of certain assets, including five supermarkets, a production distribution center (the “PDC”) and the intellectual property of Fairway Group Holdings Corp. and certain of its subsidiaries (“Fairway”), including the names “Fairway” and “Fairway Markets.” Four of the supermarkets are in Manhattan, specifically the Upper West Side, Upper East Side, Kips Bay and Chelsea locations, and a fifth store is located in Pelham, NY. The acquisition was effectuated pursuant to the Asset Purchase Agreement (the "APA"), entered into on January 20, 2020, revised on March 25, 2020 and approved by the United States Bankruptcy Court for the Southern District of New York through a Sale Order entered on April 20, 2020. Village paid $73,200 for the Fairway assets, net of adjustments set forth in the APA, and assumed certain liabilities, consisting primarily of those arising from acquired leases. Additionally, Village’s cash purchase price was reduced by a $2,000 credit arising from the breakup of Village’s initial “stalking horse” bid under the January 20, 2020 Asset Purchase Agreement.

The purchase price for the acquisition was funded by borrowing against the Company’s unsecured revolving line of credit and the $25,500 unsecured term loan pursuant to the Company's Credit Facility. Additionally, as required by the APA, Village made a $7,600 deposit into escrow which is included in Other assets in the Company's Consolidated Balance Sheet as of April 25, 2020.

Superstorm Sandy Recovery

Superstorm Sandy devastated Village's trade area on October 29, 2012 and resulted in the closure of almost all of our stores for periods of time ranging from a few hours to eight days. Village disposed of substantial amounts of perishable product and also incurred repair, labor and other costs as a result of the storm. 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. Litigation over this matter has ended and the Company received an additional $2,266 in May 2020 which will be recognized as a reduction in Operating and administrative expense in the fourth quarter of fiscal 2020. Village previously recognized $415 as a reduction in Operating and administrative expense in the first quarter of fiscal 2019, and has received a total of $6,264 related to losses incurred as a result of Superstorm Sandy.

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 30 ShopRite supermarkets in New Jersey, eastern Pennsylvania, Maryland and 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 $5,203. 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 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, 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, including our own brands portfolio. In October 2019, ShopRite 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 line of newly 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 through fiscal 2021. The introduction of Bowl & Basket and Paperbird follows the 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.

The Company’s stores, six of which are owned, average 56,000 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.

We 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 also offer online purchasing through various third party digital platforms.

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.

COVID-19

The Company was significantly impacted by the COVID-19 outbreak as it operates in and around one of the epicenters of the health crisis with much of our trade area under stay-at-home orders since mid-March 2020. The Company is classified as an essential business and has remained open to serve our customers and the communities in which we operate. Our first priority throughout this unprecedented time has and will continue to be the safety of our associates and our customers. In response to COVID-19, Village incurred incremental operating expenses of over $5,500 in the 13 weeks ended April 25, 2020 for programs and new initiatives implemented to support and protect our associates, customers and the communities we are a part of including:


•	Enhanced and more frequent sanitation practices, including hourly cleaning of high touch point areas throughout our stores, nightly deep cleaning and bi-weekly disinfectant fogging in every store


•	Reduced store operating hours, including the closure of all stores on Easter Sunday, to provide time for our associates to rest and complete the enhanced cleaning practices


•	Created a centralized call center to provide our associates with consistent, accurate, reliable guidance regarding Company policies and CDC recommended protocols


•	Created a text communication platform to provide enrolled associates with real-time alerts and updates


•	Expanded remote work capabilities for office associates and limited travel of regional supervision teams


•	Provided over 150,000 meals, including two hot meals during the day to all associates on duty and a boxed lunch to all night crew associates, through the Feeding Our Village Heroes Program


•	Provided over 15,000 meals sourced from local restaurants to healthcare professionals through our Heroes Feeding Heroes program


•	Reserved the first hour of business each day for elderly and at-risk customers


•	Implemented a temporary wage premium of $2 per hour above the standard base rate of pay for all hourly front-line associates and weekly premiums for salaried front-line associates, applied to hours worked from March 22nd through June 13th


•	Accelerated payment of quarterly bonuses for the 13 weeks ended April 25, 2020


•	Provided Emergency Paid Leave to associates affected by COVID-19


•	Maintained health care coverage for all associates unable to work due to COVID-19


•	Blue Squares for Social Distancing program - installed floor markers and additional signage in high traffic areas to signify six-foot distances to encourage proper social distancing


•	Installed plexiglass shields at all registers, guest services and pharmacy counters


•	Reduced offerings at service departments, eliminated the sale of bulk self-service merchandise and closed in-store restaurants and dining areas to assist and encourage social distancing


•	Limited the number of customers to approximately 30% of each store's maximum occupancy


•	Implemented a Personal Protective Equipment program and provided associates with masks and gloves


•	Donated and supplied masks to local hospitals


•	Implemented temperature checks for all associates


•	Expanded digital capabilities, including four rapidly deployed "pop-up" ShopRite from Home stores, contactless pickup and prescription drug pickup and delivery


•	Expanded partnerships with online grocery picking and delivery services to better support our customers increased demand for these services


•	Introduced the Essentials Box Program - providing a safe and convenient way to stock up on in-demand produce or cleaning products, pre-packaged and available for delivery


•	Expanded mobile scan to an additional 10 stores

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				39 Weeks Ended
	April 25, 2020		April 27, 2019		April 25, 2020		April 27, 2019
Sales	100.00	%	100.00	%	100.00	%	100.00	%
Cost of sales	71.66		72.03		72.27		72.21
Gross profit	28.34		27.97		27.73		27.79
Operating and administrative expense	23.34		24.62		24.39		23.97
Depreciation and amortization	1.68		1.65		1.76		1.66
Operating income	3.32		1.70		1.58		2.16
Interest expense	(0.12	)	(0.28	)	(0.13	)	(0.27	)
Interest income	0.20		0.35		0.25		0.32
Income before taxes	3.40		1.77		1.70		2.21
Income taxes	0.97		0.51		0.49		0.66
Net income	2.43	%	1.26	%	1.21	%	1.55	%

Sales. Sales were $458,292 in the 13 weeks ended April 25, 2020, an increase of 15.9% compared to the 13 weeks ended April 27, 2019. Sales increased due to the opening of the Stroudsburg replacement store on November 1, 2019, the acquisition of Gourmet Garage on June 24, 2019 and a same store sales increase of 13.6%. Same store sales increased due primarily to the impact of the COVID-19 outbreak and related stay-at-home measures, most significantly in March where sales reached unprecedented levels. Same store sales also increased due to continued sales growth in the Bronx, New York City store opened on June 28, 2018 and digital sales growth of 41.8%.

Sales were $1,303,116 in the 39 weeks ended April 25, 2020, an increase of 6.4% from the 39 weeks ended April 27, 2019. Sales increased due to the opening of the Stroudsburg replacement store on November 1, 2019, the acquisition of Gourmet Garage on June 24, 2019 and a same store sales increase of 4.5%. Same store sales increased due primarily to the impact of the COVID-19 outbreak and related stay-at-home measures. Same store sales also increased due to continued sales growth in the Bronx, New York City store opened on June 28, 2018 and digital sales growth of 28.1%. These increases were partially offset by the impact of two competitor store openings and decreased promotional spending in Maryland.

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.

Gross Profit. Gross profit as a percentage of sales increased .37% in the 13 weeks ended April 25, 2020 compared to the 13 weeks ended April 27, 2019. Excluding the impact of the addition of Gourmet Garage, gross profit as a percentage of sales increased .16% in the 13 weeks ended April 25, 2020 compared to the 13 weeks ended April 27, 2019 due primarily to lower promotional spending due to uncertainty of product availability during the COVID-19 outbreak (.49%) and increased leverage on fixed warehouse assessment charges from Wakefern (.26%). These increases were partially offset by an unfavorable change in product mix (.37%), decreased departmental gross margin percentages (.18%) and decreased patronage dividends and rebates received from Wakefern (.05%). Both product mix and departmental gross margin percentages were impacted by limitations in service departments and product availability as a result of the COVID-19 outbreak.

Gross profit as a percentage of sales decreased .06% in the 39 weeks ended April 25, 2020 compared to the 39 weeks ended April 27, 2019. Excluding the impact of the addition of Gourmet Garage, gross profit as a percentage of sales decreased

.28% due primarily to decreased departmental gross margin percentages (.31%), decreased patronage dividends and rebates received from Wakefern (.07%) and an unfavorable change in product mix (.10%) partially offset by lower promotional spending (.11%) and increased leverage on warehouse assessment charges from Wakefern (.09%).

Departmental gross profits decreased in both the 13 and 39 week periods ended April 25, 2020 compared to the 13 and 39 weeks ended April 27, 2019 due primarily to limitations in service departments and product availability as a result of the COVID-19 outbreak, price investments, including the ShopRite's Right Price Promise pricing strategy, a commitment to everyday

low prices on the items customers purchase most frequently, introduced in October 2019, and decreased pharmacy margins as a result of continued downward pressure on prescription reimbursement rates from third party providers.

Operating and Administrative Expense. Operating and administrative expense as a percentage of sales decreased 1.28% in the 13 weeks ended April 25, 2020 compared to the 13 weeks ended April 27, 2019. The 13 weeks ended April 25, 2020 includes a gain on the sale of pharmacy prescription lists related to three store pharmacies closed in March 2020 (.26%) and lease costs reclassified from Depreciation and Amortization and Interest Expense to Operating and Administrative Expense (.14%) as a result of the adoption of ASU 2016-02, “Leases” (see note 1 to the consolidated financial statements), and a reduction in pension settlement charges of (.08%) compared to the 13 weeks ended April 27, 2019. Excluding these items, operating and administrative expense as a percentage of sales decreased 1.08% in the 13 weeks ended April 25, 2020 compared to the 13 weeks ended April 27, 2019 due primarily to leverage from higher sales despite incremental costs related to COVID-19, including enhanced wages and benefits and expanded safety and sanitation protocols (1.21%).

Operating and administrative expense as a percentage of sales increased .42% in the 39 weeks ended April 25, 2020 compared to the 39 weeks ended April 27, 2019. The 39 weeks ended April 25, 2020 includes a gain on the sale of pharmacy prescription lists related to three store pharmacies closed in March 2020 (.09%), a non-cash pension charge related to the termination of a company-sponsored pension plan and other pension settlement charges (.10%) (see note 4 to the consolidated financial statements), pre-opening costs of the Stroudsburg, Pennsylvania replacement store (.10%), store closure costs and charges to write off the lease asset and related obligations for the old Stroudsburg store (.06%) and lease costs reclassified from Depreciation and Amortization and Interest Expense to Operating and Administrative Expense (.14%) as a result of the adoption of ASU 2016-02, “Leases” (see note 1 to the consolidated financial statements). The 39 weeks ended April 27, 2019 includes a gain for Superstorm Sandy insurance proceeds received (.03%) and pension settlement charges (.04%). Excluding these items from both periods, operating and administrative expense as a percentage of sales increased .10% in the 39 weeks ended April 25, 2020 compared to the 39 weeks ended April 27, 2019 due primarily to incremental costs related to COVID-19, including enhanced wages and benefits and expanded safety and sanitation protocols (.42%) partially offset by increased leverage from higher sales.

Depreciation and Amortization. Depreciation and amortization expense increased in the 13 weeks ended April 25, 2020 compared to the 13 weeks ended April 27, 2019 due to depreciation related to acquisition of Gourmet Garage and capital expenditures. Depreciation and amortization expense increased in the 39 weeks ended April 25, 2020 compared to the 39 weeks ended April 27, 2019 due to depreciation related to 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 13 and 39 weeks ended April 25, 2020 decreased compared to the 13 and 39 weeks ended April 27, 2019 due to lease costs reclassified to Operating and Administrative Expenses as a result of the adoption of ASU 2016-02, “Leases” (see note 1 to the consolidated financial statements).

Interest Income. Interest income decreased in the 13 and 39 weeks ended April 25, 2020 compared to the 13 and 39 weeks ended April 27, 2019 due primarily to lower amounts invested in variable rate notes receivable from Wakefern and demand deposits invested at Wakefern and lower interest rates.

Income Taxes. The effective income tax rate was 28.4% and 28.9% in the 13 and 39 weeks ended April 25, 2020, respectively, compared to 28.9% and 29.9% in the 13 and 39 weeks ended April 27, 2019, respectively.

Net Income. Net income was $11,152 in the 13 weeks ended April 25, 2020 compared to $4,970 in the 13 weeks ended April 27, 2019. The 13 weeks ended April 25, 2020 includes a gain on the sale of pharmacy prescription lists related to three store pharmacies closed in March 2020 of $854 (net of tax). The 13 weeks ended April 25, 2020 includes pension settlement charges of $83 (net of tax) compared to $302 (net of tax) in the 13 weeks ended April 27, 2019. Excluding these items from both periods, net income increased 97% in the 13 weeks ended April 25, 2020 compared to the prior year.

Net income was $15,724 in the 39 weeks ended April 25, 2020 compared to $18,810 in the 39 weeks ended April 27, 2019. The 39 weeks ended April 25, 2020 includes a gain on the sale of pharmacy prescription lists related to three store pharmacies closed in March 2020 of $854 (net of tax), a non-cash pension charge related to the termination of a company-sponsored pension plan and other pension settlement charges of $954 (net of tax), pre-opening costs related to the Stroudsburg, Pennsylvania replacement store of $891 (net of tax) and store closure costs and charges to write off the lease asset and related obligations for the old Stroudsburg store of $557 (net of tax). The 39 weeks ended April 27, 2019 includes a $290 (net of tax) gain for Superstorm Sandy insurance proceeds received and pension settlement charges of $302 (net of tax). Excluding these items from both periods, net income decreased 8% in the 39 weeks ended April 25, 2020 compared to the prior year.

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 27, 2019. Except for the changes due to the adoption of ASU 2016-02 related to leases discussed in "Recently adopted accounting standards," Note 1, and Note 7 as of April 25, 2020, there have been no 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 $59,404 in the 39 weeks ended April 25, 2020 compared to $39,769 in the corresponding period of the prior year. The increase in net cash provided by operating activities in fiscal 2020 was primarily due to changes in working capital. Working capital changes, including Other assets and liabilities, increased net cash provided by operating activities by $16,965 in fiscal 2020 compared to a decrease of $1,718 in fiscal 2019. The change in impact of working capital is due primarily to lower merchandise inventories caused by higher sales due to COVID-19 and higher accounts payable to Wakefern due to higher purchase fulfillment at the end of April.

During the 39 weeks ended April 25, 2020, Village used cash to fund capital expenditures of $47,812, dividends of $9,697, a $7,600 deposit into escrow related to the Fairway acquisition and additional investments of $2,243 in notes receivable from Wakefern. Capital expenditures primarily include costs associated with the Stroudsburg replacement store, expansion of ShopRite from Home and equipment purchases.

Village has budgeted $55,000 for capital expenditures for fiscal 2020. Planned expenditures include the construction of a replacement store in Stroudsburg, Pennsylvania, one major remodel, expansion of ShopRite from Home, and various merchandising, technology, equipment and facility upgrades. The Company’s primary sources of liquidity in fiscal 2020 are expected to be cash and cash equivalents on hand at April 25, 2020, operating cash flow generated in fiscal 2020 and the Company's Credit Facility.

At April 25, 2020, the Company held variable rate notes receivable due from Wakefern of $25,839 that earn interest at the prime rate plus 1.25% and mature on August 15, 2022 and $26,612 that earn interest at the prime rate plus .75% and mature on February 15, 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.

Working capital was $21,067 at April 25, 2020 compared to $56,307 at July 27, 2019. Working capital ratios at the same dates were 1.17 and 1.50 to 1, respectively. The decrease in working capital in fiscal 2020 compared to fiscal 2019 is due primarily to a decrease in merchandise inventories caused by higher sales and intermittent supply chain disruptions due to COVID-19 and recognition of 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.

Village had an unsecured revolving credit agreement providing a maximum amount available for borrowing of $25,000. The credit agreement provided for up to $3,000 of letters of credit, which secured obligations for construction performance guarantees to municipalities. There were no amounts outstanding at April 25, 2020 or July 27, 2019 under the facility.

On May 6, 2020, Village entered into a credit agreement (the “Credit Facility”) with Wells Fargo Bank, National Association (“Wells Fargo”) that supersedes in its entirety the prior $25,000 credit agreement with Wells Fargo dated November 9, 2017. The principal purpose of the Credit Facility is to finance general corporate and working capital requirements and Village’s acquisition of certain Fairway assets which closed on May 14, 2020. Among other things, the Credit Facility provides for a maximum loan amount of $150,500, as further set forth below:


•	An unsecured revolving line of credit providing a maximum amount available for borrowing of $125,000. Indebtedness under this agreement bears interest at the applicable LIBOR rate plus 1.10% and expires on May 6, 2025.

•

The ability to convert up to $50,000 of the revolving line of credit to a secured converted term loan, which shall reduce the maximum amount available for borrowing under the revolving line of credit. Village expects to reduce the capacity of the revolving line of credit by converting approximately $50,000 to a converted term loan that will bear interest at the applicable LIBOR rate plus 1.50% and will be repayable in equal monthly installments based on a fifteen-year amortization schedule beginning on the conversion date. The converted term loan is subject to completion of customary closing conditions, including title searches and environmental studies for properties to be mortgaged. Additionally, Village executed a forward interest rate swap, effective August 3, 2020, for a notional amount of $50,000 that fixes the base LIBOR rate at .69% per annum for fifteen years, resulting in a fixed effective interest rate of 2.19% on the converted term loan.

Fairway Markets

The $73,200 purchase price for the Fairway acquisition was funded by borrowing against the Company’s unsecured revolving line of credit and an unsecured term loan pursuant to the Company's Credit Facility. Additionally, as required by the APA, Village had made a $7,600 deposit into escrow which is included in Other assets in the Company's Consolidated Balance Sheet as of April 25, 2020.

There have been no other substantial changes as of April 25, 2020 to the contractual obligations and commitments discussed in the Company’s Annual Report on Form 10-K for the year ended July 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.


•	Due to the uncertainty arising from the COVID-19 global health crisis and its significant impact on our business, the Company will not provide same store sales guidance for fiscal 2020.


•	We have budgeted $55,000 for capital expenditures in fiscal 2020. Planned expenditures include the construction of a replacement store in Stroudsburg, Pennsylvania, one major remodel, expansion of ShopRite from Home, and various merchandising, technology, equipment and facility upgrades.


•	The Board’s current intention is to continue to pay quarterly dividends in 2020 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 and the Company's Credit Facility will be adequate to meet anticipated requirements for working capital, capital expenditures, acquisition of Fairway and debt payments for the foreseeable future.


•	We expect our effective income tax rate in fiscal 2020 to be in the range of 29.5% - 30.5%.


•	We expect approximately $1,800 of net periodic pension costs in fiscal 2020 related to the four Company sponsored defined benefit pension plans. The Company expects contributions to its defined benefit pension plans to be immaterial in fiscal 2020.

Various uncertainties and other factors could cause actual results to differ from the forward-looking statements contained in this report. These include:

•

The Fairway acquisition involves a number of risks, uncertainties and challenges, including under-performance relative to our expectations, additional capital requirements, unforeseen expenses or delays, imprecise assumptions or our inability to achieve projected cost savings or other synergies, competitive factors in the marketplace and difficulties integrating the business, including merging company cultures, cultivating brand strategy, expansion of food production and conforming the acquired company's standards, processes, procedures and controls. Many of these potential circumstances are outside of our control and any of them could result in an adverse impact on our results of operations, financial condition and cash flows and the diversion of management time and resources.

•

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, New York, Pennsylvania and Maryland. We are vulnerable to economic downturns in these states 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 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 August 2018, the FASB issued ASU 2018-14, "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 defined benefit plans. This guidance is effective for fiscal years ending after December 15, 2020, and early adoption is permitted. The Company is currently assessing the potential impact of ASU 2018-14 on its consolidated financial statement disclosures.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable.

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.

As a result of the COVID-19 pandemic, certain of our employees began working remotely in March 2020 but these remote working arrangements did not have a material effect on our internal control over financial reporting. There have been no changes in the Company’s internal control over financial reporting during the quarter ended April 25, 2020 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 third quarter of fiscal 2020 are set forth in the table below:



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)
January 26, 2020 to February 22, 2020	—	$—	—	$5,435,665
February 23, 2020 to March 21, 2020	212,867	$19.45	116,103	$3,202,713
March 22, 2020 to April 25, 2020	—	$—	—	$3,202,713
Total	212,867	$—	116,103	$3,202,713


(1)	The reported periods conform to our fiscal calendar.

(2) Includes (i) shares repurchased under two $5.0 million repurchase programs of the Company's Class A Common Stock authorized by the Board of Directors and announced on June 12, 2015 and September 13, 2019 and (ii) 96,764 shares surrendered to the Company to cover employee related taxes withheld on vested restricted stock.

(3) Includes amount remaining under the programs described in (2). 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.



Item 6.	Exhibits

Exhibit 31.1	Certification

Exhibit 31.2	Certification

Exhibit 32.1	Certification (furnished, not filed)

Exhibit 32.2	Certification (furnished, not filed)

Exhibit 99.1	Press Release

101 INS	XBRL Instance

101 SCH	XBRL Schema

101 CAL	XBRL Calculation

101 DEF	XBRL Definition

101 LAB	XBRL Label

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.



	Village Super Market, Inc.
	Registrant

Dated: June 4, 2020	/s/ Robert P. Sumas
	Robert P. Sumas
	(Chief Executive Officer)

Dated: June 4, 2020	/s/ John Van Orden
	John Van Orden
	(Chief Financial Officer)