What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2020-12-03 compared with 2020-06-04 · 168 added, 189 removed, 172 unchanged (67% of the section changed)

1 unchanged sentence

VILLAGE SUPER MARKET, INC.

AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In thousands) (Unaudited)

2020 July 25,

Current assets

9 unchanged sentences

Investment in Wakefern 30,132 29,462

Goodwill 24,190 24,190

Other assets 32,422 32,069

Total assets $ 901,868 $ 915,546

LIABILITIES and SHAREHOLDERS' EQUITY

3 unchanged sentences

Notes payable to Wakefern 1,005 303

Current portion of debt 6,976 6,421

Accounts payable to Wakefern 76,918 83,045

7 unchanged sentences

Notes payable to Wakefern 761 882

Notes payable related to New Markets Tax Credit

Long-term debt 72,186 74,194

Total long-term debt 390,273 396,181

7 unchanged sentences

Authorized 20,000 shares;

issued 10,970 shares at April 25, 2020 and 10,593 shares at July 27, 2019

issued 10,988 shares at October 24, 2020 and 10,985 shares at July 25, 2020

68,695 68,072

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

issued and outstanding 4,294 shares at October 24, 2020 and July 25, 2020

Retained earnings 286,344 286,241

1 unchanged sentence

Less treasury stock, Class A, at cost:

726 shares at April 25, 2020 and 502 shares at July 27, 2019

726 shares at October 24, 2020 and July 25, 2020

( 13,939 ) ( 13,939 )

Total shareholders’ equity 333,741 332,320

Total liabilities and shareholders’ equity $ 901,868 $ 915,546

See accompanying Notes to Consolidated Financial Statements.

See notes to consolidated financial statements.

VILLAGE SUPER MARKET, INC.

AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

1 unchanged sentence

13 Weeks Ended

39 Weeks Ended

2020 October 26,

Sales $ 490,136 $ 407,402

Cost of sales 352,173 293,856

Gross profit 137,963 113,546

Operating and administrative expense 124,363 103,140

4 unchanged sentences

Income before income taxes 4,790 3,660

Income taxes 1,430 1,093

Net income $ 3,360 $ 2,567

Net income per share:

Class A common stock:

Basic $ 0.26 $ 0.20

Diluted $ 0.23 $ 0.18

Class B common stock:

See accompanying Notes to Consolidated Financial Statements.

Basic $ 0.17 $ 0.13

Diluted $ 0.17 $ 0.13

See notes to consolidated financial statements.

VILLAGE SUPER MARKET, INC.

AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

1 unchanged sentence

13 Weeks Ended

39 Weeks Ended

2020 October 26,

Net income $ 3,360 $ 2,567

Other comprehensive income:

Unrealized gains on interest rate swaps, net of tax (1) 594 —

Amortization of pension actuarial loss, net of tax (2) 101 101

Pension settlement loss, net of tax (2)

Pension remeasurement, net of tax (3)

Comprehensive income $ 4,055 $ 2,668

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.

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.

(1) Amount is net of tax of $ 261 for the 13 weeks ended October 24, 2020.

(2) Amounts are net of tax of $ 46 and $ 44 for the 13 weeks ended October 24, 2020 and October 26, 2019, respectively.

All amounts are reclassified from accumulated other comprehensive loss to operating and administrative expense.

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.

See notes to consolidated financial statements.

VILLAGE SUPER MARKET, INC.

2 unchanged sentences

(In thousands) (Unaudited)

13 Weeks Ended April 25, 2020 and April 27, 2019

Comprehensive

Income (Loss)

Treasury Stock

Shareholders'

Shares Issued

Retained Earnings

Balance, January 25, 2020

Other comprehensive income, net of tax of $216

Treasury stock purchases

Restricted shares forfeited

Share-based compensation expense

Balance, April 25, 2020

Balance, January 26, 2019

Other comprehensive income, net of tax of $172

Exercise of stock options

Share-based compensation expense

Conversion of Class B shares to Class A shares

Balance, April 27, 2019

39 Weeks Ended April 25, 2020 and April 27, 2019

13 Weeks Ended October 24, 2020 and October 26, 2019

Common Stock Class B

Common Stock Accumulated

Comprehensive

1 unchanged sentence

Treasury Stock

Class A Total

Shareholders'

Shares Issued

Retained Earnings

Shares Issued Amount Shares Issued Amount Retained Earnings Shares Amount

Balance, July 25, 2020 10,985 $ 68,072 4,294 $ 697 $ 286,241 $ ( 8,751 ) 726 $ ( 13,939 ) $ 332,320

Net income — — — — 3,360 — — — 3,360

Other comprehensive income, net of tax of $ 307

Treasury stock purchases

— — — — — 695 — — 695

Dividends — — — — ( 3,257 ) — — — ( 3,257 )

Restricted shares forfeited ( 5 ) ( 12 ) — — — — — — ( 12 )

Share-based compensation expense 8 635 — — — — — — 635

Adjustment due to the adoption of ASU 2016-02, net of tax of $1,385

Balance, April 25, 2020

Balance, October 24, 2020 10,988 $ 68,695 4,294 $ 697 $ 286,344 $ ( 8,056 ) 726 $ ( 13,939 ) $ 333,741

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

Exercise of stock options

— — — — — 101 — — 101

Dividends — — — — ( 3,220 ) — — — ( 3,220 )

Treasury stock purchases — — — — — — 1 ( 20 ) ( 20 )

1 unchanged sentence

Share-based compensation expense 2 863 — — — — — — 863

Conversion of Class B shares to Class A shares

Balance, April 27, 2019

See accompanying Notes to Consolidated Financial Statements.

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

See notes to consolidated financial statements.

VILLAGE SUPER MARKET, INC.

AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

1 unchanged sentence

13 Weeks Ended

2020 October 26,

CASH FLOWS FROM OPERATING ACTIVITIES

Net income $ 3,360 $ 2,567

Adjustments to reconcile net income to net cash provided by operating activities:

1 unchanged sentence

Non-cash share-based compensation 623 833

Loss on pension settlements

Deferred taxes ( 836 ) 1,270

Provision to value inventories at LIFO

Gain on sale of assets

Gain on sale of property, equipment and fixtures ( 42 ) —

Changes in assets and liabilities:

6 unchanged sentences

Other assets and liabilities ( 376 ) ( 2,079 )

Net cash provided by operating activities

Net cash (used in) provided by operating activities ( 3,353 ) 3,375

CASH FLOWS FROM INVESTING ACTIVITIES

2 unchanged sentences

Investment in notes receivable from Wakefern ( 567 ) ( 796 )

Maturity of notes receivable from Wakefern

Acquisition deposit in escrow

Acquisition of Gourmet Garage, net of cash acquired

Net cash used in investing activities ( 3,803 ) ( 23,145 )

CASH FLOWS FROM FINANCING ACTIVITIES

Proceeds from exercise of stock options

Excess tax benefit related to share-based compensation

Proceeds from issuance of long-term debt 50,000 —

Principal payments of long-term debt ( 1,444 ) ( 170 )

Treasury stock purchases, including shares surrendered for withholding taxes

Payments on revolving line of credit ( 50,000 ) —

Debt issuance costs ( 222 ) —

Dividends ( 3,257 ) ( 3,220 )

Treasury stock purchases — ( 20 )

Net cash used in financing activities ( 4,923 ) ( 3,410 )

NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS

NET DECREASE IN CASH AND CASH EQUIVALENTS ( 12,079 ) ( 23,180 )

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 111,681 101,121

1 unchanged sentence

SUPPLEMENTAL DISCLOSURES OF CASH PAYMENTS MADE FOR:

Interest $ 987 $ 567

Income taxes $ — $ 68

NONCASH SUPPLEMENTAL DISCLOSURES:

Investment in Wakefern and increase in notes payable to Wakefern $ 670 $ 93

See accompanying Notes to Consolidated Financial Statements.

VILLAGE SUPER MARKET, INC.

Capital expenditures included in accounts payable and accrued expenses $ 4,951 $ 2,585

See notes to consolidated financial statements.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1 unchanged sentence

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.

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 October 24, 2020 and the consolidated statements of operations, comprehensive income and cash flows for the 13 weeks ended October 24, 2020 and October 26, 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.

The significant accounting policies followed by the Company are set forth in Note 1 to the Company's consolidated financial statements in the July 25, 2020 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

The results of operations for the period ended October 24, 2020 are not necessarily indicative of the results to be expected for the full year.

Disaggregated Revenues

The following table presents the Company's sales by product categories during each of the periods indicated:

13 Weeks Ended

Consolidated Statement of Operations Classification

Operating and administrative expense

Depreciation and amortization

Interest expense

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.

October 24, 2020 October 26, 2019

Amount % Amount %

Center Store (1) $ 295,940 60.4 % $ 248,057 60.9 %

Fresh (2) 175,644 35.8 140,680 34.5

Pharmacy 16,432 3.4 17,524 4.3

Other (3) 2,120 0.4 1,141 0.3

Total Sales $ 490,136 100.0 % $ 407,402 100.0 %

(1) Consists primarily of grocery, dairy, frozen, health and beauty care, general merchandise and liquor.

(2) Consists primarily of produce, meat, deli, seafood, bakery, prepared foods and floral.

(3) Consists primarily of sales related to other income streams, including ShopRite from Home service fees, gift card and lottery commissions and wholesale sales.

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.

At both October 24, 2020 and July 25, 2020, approximately 63 % 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 $ 15,101 higher than reported at both October 24, 2020 and July 25, 2020.

NET INCOME PER SHARE

10 unchanged sentences

13 Weeks Ended

39 Weeks Ended

April 25, 2020

October 24, 2020

Class A Class B

Net income allocated, basic $ 2,526 $ 716

Conversion of Class B to Class A shares 716 —

Effect of share-based compensation on allocated net income

Net income allocated, diluted $ 3,242 $ 716

3 unchanged sentences

13 Weeks Ended

39 Weeks Ended

April 27, 2019

October 26, 2019

Class A Class B

Net income allocated, basic $ 1,939 $ 558

4 unchanged sentences

Conversion of Class B to Class A shares 4,294 —

Dilutive effect of share-based compensation

Weighted average shares outstanding, diluted 14,064 4,294

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.

Outstanding stock options to purchase Class A shares of 154 and 241 were excluded from the calculation of diluted net income per share at October 24, 2020 and October 26, 2019, respectively, as a result of their anti-dilutive effect.

In addition, 416 and 323 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 October 24, 2020 and October 26, 2019, respectively, due to their anti-dilutive effect.

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

Net periodic pension cost for the three defined benefit pension plans sponsored in fiscal 2021 and the four defined benefit pension plans sponsored in fiscal 2020 includes the following components:

13 Weeks Ended

2020 October 26,

Service cost $ 54 $ 51

Interest cost on projected benefit obligations 422 565

Expected return on plan assets ( 483 ) ( 703 )

Loss on settlement

Amortization of net losses 147 145

Net periodic pension cost $ 140 $ 58

As of April 25, 2020 , the Company has no t made any contributions to its pension plans in fiscal 2020 .

As of October 24, 2020, the Company has no t made any contributions to its pension plans in fiscal 2021.

The Company expects contributions to its defined benefit pension plans to be immaterial in fiscal 2021.

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% .

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 25, 2020.

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 .

Included in cash and cash equivalents at October 24, 2020 and July 25, 2020 are $ 69,025 and $ 76,259 , 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 13 weeks ended October 24, 2020.

COMMITMENTS and CONTINGENCIES

1 unchanged sentence

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.

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.

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

Operating lease cost

Operating and administrative expense

Finance lease cost

Amortization of leased assets

Depreciation and amortization

Interest on lease liabilities

Interest expense

Variable lease cost

Operating and administrative expense

Total lease cost

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

Remainder of 2020

Total lease payments

Less amount representing interest

Present value of lease liabilities

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:

Weighted-average remaining lease term (years)

Operating leases

Finance leases

Weighted-average discount rate

Operating leases

Finance leases

Supplemental cash flow information related to leases is as follows:

39 Weeks Ended

Cash paid for amounts in the measurement of lease liabilities

Operating cash flows from operating leases

Operating cash flows from finance leases

Financing cash flows from finance leases

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:

financing leases

Minimum lease payments

Less amount representing interest

Present value of minimum lease payments

Long-term debt consists of:

2020 July 25,

Unsecured revolving line of credit $ — $ 50,000

Secured term loan 49,505 —

Unsecured term loan 23,797 24,694

New Market Tax Credit Financing 5,860 5,921

Total debt, excluding obligations under leases 79,162 80,615

Less current portion 6,976 6,421

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.

SUBSEQUENT EVENTS

Total long-term debt, excluding obligations under leases $ 72,186 $ 74,194

Credit Facility

8 unchanged sentences

• 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.

On September 1, 2020, Village converted $ 50,000 of its revolving line of credit to a secured converted term loan.

The conversion reduced the maximum amount available for borrowing under the revolving line of credit from $ 125,000 to $ 75,000 .

The term loan bears interest at the applicable LIBOR rate plus 1.50 % and is repayable in equal monthly installments based on a fifteen-year amortization schedule beginning on the conversion date.

Additionally, Village previously executed a forward interest rate swap, effective on the conversion date, for a notional amount equal to the term loan amount that fixes the base LIBOR rate at .69 % per annum for 15 years, resulting in a fixed effective interest rate of 2.19 % on the converted term loan.

The term loan is secured by real properties of Village Super Market, Inc.

and its subsidiaries, including the sites of three Village stores.

The Credit Facility also provides for up to $ 25,000 of letters of credit ($ 7,336 outstanding at October 24, 2020), which secure obligations for store leases and construction performance guarantees to municipalities.

The Credit Facility 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.

The Company was in compliance with all covenants of the credit agreement at October 24, 2020.

New Markets Tax Credit Financing

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 were 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 in operating and administrative expense.

DERIVATIVES AND HEDGING ACTIVITIES

The Company is exposed to interest rate risk arising from fluctuations in LIBOR related to the Company’s Credit Facility.

The Company manages exposure to this risk and the variability of related cash flows primarily by the use of derivative financial instruments, specifically, interest rate swaps.

The Company’s objectives in using interest rate swaps are to add stability to interest expense and to manage its exposure to interest rate movements.

Interest rate swaps designated as cash flow hedges involve the receipt of variable amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount.

In 2020, the Company executed two interest rate swaps with an aggregate notional value of $ 75,500 to hedge the variable cash flows associated with variable-rate loans under the Company's Credit Facility.

The interest rate swaps were executed for risk management and are not held for trading purposes.

The objective of the interest rate swaps is to hedge the variability of cash flows resulting from fluctuations in LIBOR.

The swaps replaced the applicable LIBOR with fixed interest rates and payments are settled monthly when payments are made on the variable-rate loans.

The Company's derivatives qualify and have been designated as cash flow hedges of interest rate risk.

The gain or loss on the derivative is recorded in Accumulated other comprehensive loss and subsequently reclassified into interest expense in the same period during which the hedged transaction affects earnings.

Amounts reported in Accumulated other comprehensive loss related to derivatives will be reclassified to interest expense as interest payments are made on the variable-rate loans.

The Company reclassified $ 66 from Accumulated other comprehensive loss to Interest expense during the 13 weeks ended October 24, 2020.

The notional value of the interest rate swaps were $ 73,704 as of October 24, 2020.

The fair value of interest rate swaps recorded in other liabilities is $ 67 as of October 24, 2020.

BUSINESS ACQUISITION

On May 14, 2020, Village completed its acquisition of certain assets, including five supermarkets averaging 52,000 sq.

( 30,000 selling sq.

ft.), 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.

Village paid $ 73,622 for the Fairway assets, net of cash acquired, and assumed certain liabilities, consisting primarily of those arising from acquired leases.

Additionally, at the time of closing Village received a $ 2,035 credit arising from the breakup of Village’s initial “stalking horse” bid under the January 20, 2020 Asset Purchase Agreement.

The credit was recognized as a reduction in operating and administrative expense in the fourth quarter of fiscal 2020.

The Fairway acquisition expands our presence in New York City under an iconic city brand and provides Village the ability to expand centralized food production to support stores under all of our banners.

Village 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 $ 11,540 of goodwill attributable to the assembled workforce and cost synergies.

The goodwill related to this acquisition is deductible for tax purposes.

Additionally, the Company recorded a $ 14,200 indefinite-lived intangible asset related to the trade name.

The fair value of the intangible asset was determined based on the discounted cash flow model using the relief from royalty method.

The fair value of the property, equipment and fixtures were determined based on the indirect cost approach in which current costs that were not new were adjusted for all forms of depreciation.

The Company also evaluated the fair value of the leases assumed in the acquisition, which evaluated comparable rents in the areas of the locations.

Leases were determined to be at market apart from one location.

For this location, the Company recorded a favorable lease of $ 4,360 within operating lease assets.

The favorable lease is being amortized over the remaining duration of the lease.

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.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements