What changed in this filing

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Item 7. Management’s Discussion and Analysis

2021-10-14 compared with 2020-10-08 · 115 added, 81 removed, 228 unchanged (46% of the section changed)

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(Dollars in thousands, except per share and per square foot data).

Village operates a chain of thirty ShopRite supermarkets, five Fairway Markets and three Gourmet Garage specialty markets located in New Jersey, New York, Pennsylvania and Maryland.

Village operates a chain of twenty-nine ShopRite supermarkets, five Fairway Markets and three Gourmet Garage specialty markets located in New Jersey, New York, Pennsylvania and Maryland.

Village is the second largest member of Wakefern Food Corporation (“Wakefern”), the nation’s largest retailer-owned food cooperative and owner of the ShopRite, Fairway and Gourmet Garage names.

This ownership interest in Wakefern provides Village with many of the economies of scale in purchasing, distribution, advanced retail technology, marketing and advertising associated with larger chains.

On February 22, 2021, Village closed the ShopRite store located in Silver Spring, Maryland.

Despite continued investment in marketing and promotional programs, the store was unable to generate sales at a level sufficient to maintain profitability, resulting in its closure.

The impacts associated with this closure were not material to the consolidated financial statements.

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

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The PDC is a centralized commissary that promotes production efficiency, product quality and consistency in the bakery, prepared foods, meals to go and other perishable product categories.

Production costs at the PDC, including materials, labor and overhead, are included in Cost of sales.

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.

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ft.) ShopRite in Stroudsburg, Pennsylvania and replaced our existing 53,000 sq.

On June 24, 2019, Village acquired the assets and certain liabilities of Gourmet Garage for $5,267.

Gourmet Garage operates three specialty markets averaging 11,000 sq.

(5,800 selling sq.

ft.) in Manhattan, New York City.

The supermarket industry is highly competitive and characterized by narrow profit margins.

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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 2019.

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 55,000 total square feet.

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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.

Online grocery ordering for in-store pick up or home delivery through ShopRite from Home is available in twenty-six stores.

Customers can browse our circular, create and edit shopping lists and use ShopRite from Home through shoprite.com or the

ShopRite app.

Online grocery ordering for in-store pick up or home delivery through ShopRite from Home is available in all of our ShopRite stores.

Customers can browse our circular, create and edit shopping lists and use ShopRite from Home through shoprite.com or the ShopRite app.

Additionally, the ShopRite Order Express app enables customers to pre-order deli, catering, specialty occasion cakes and other items.

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The Company utilizes a 52 - 53 week fiscal year, ending on the last Saturday in the month of July.

Fiscal 2020 and 2019 contain 52 weeks.

Fiscal 2021 contains 53 weeks and fiscal 2020 contains 52 weeks.

The Company was significantly impacted by the COVID-19 outbreak as it operates in and around one of the early U.S.

epicenters of the health crisis with much of our trade area under stay-at-home orders from mid-March 2020 through June 2020.

epicenters of the health crisis.

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 has and will continue to be the safety of our associates and our customers.

We implemented enhanced sanitation programs, including hourly cleaning of high touch point areas throughout our stores, nightly deep cleaning and bi-weekly disinfectant fogging in every store, reduced store hours to allow appropriate time for cleaning, limited the number of customers allowed in each store at a time, reduced service department offerings including the sale of bulk self-service merchandise and closure of in-store restaurants and dining areas, a personal protective equipment program, required temperature checks for associates and installation of Plexiglas shields, floor markers and additional signage in high traffic areas to signify six-foot distances to encourage proper social distancing.

Associate Support.

We paid temporary wage premiums up to $2 per hour above the standard wage rate for hourly front-line associates and weekly premiums for salaried front-line associates from March 22nd through August 3rd, provided Emergency Paid Leave to associates affected by COVID-19, supplied meals to our associates on duty through our Feeding Our Village Heroes Program, expanded remote work capabilities, limited travel of regional supervision teams, created a centralized call center and real-time alert text communication platform.

Responding to the needs of our Customers and Communities.

Expanded digital capabilities, including expansion of stores offering ShopRite from Home, expanded the ShopRite Order Express app to provide pre-ordering capabilities in the deli and other areas, contactless pickup, prescription drug pickup and delivery, launched partnerships with online grocery picking and delivery services to better support our customers increased demand for these services, expanded mobile scan to an additional 10 stores, donated and supplied masks to local hospitals and reserved the first hour of business each day for elderly and at-risk customers.

Village incurred incremental operating expenses of over $13,500 in the second half of fiscal 2020 for these programs and initiatives implemented to support and protect our associates, customers and the communities we serve.

We continue to experience changes in customer shopping habits, shifts in product mix and increased demand through digital channels as a result of the COVID-19 pandemic.

Demand remains high in most stores, however sales at Fairway and Gourmet Garage locations in Manhattan have been negatively impacted by localized residential population migration out of the city and less commuter and tourist traffic.

We expect continued uncertainty in our business as well as the local and regional economies in which we operate depending on the duration and intensity of the COVID-19 pandemic (see the "Outlook" section below for further discussion of risks and uncertainties).

NON-GAAP MEASURES

The accompanying Consolidated Financial Statements, including the related notes, are presented in accordance with generally accepted accounting principles (“GAAP”).

We provide non-GAAP measures, including Adjusted net income and Adjusted operating and administrative expenses management believes these metrics are useful to investors and analysts.

These non-GAAP financial measures should not be considered as an alternative to GAAP measures such as net income, operating income, operating and administrative expense or any other GAAP measure of performance.

These measures should not be reviewed in isolation or considered as a substitute for our financial results as reported in accordance with GAAP.

We believe Adjusted net income and Adjusted operating and administrative expense are useful metrics to investors and analysts because they present more accurate year-over-year comparisons of our net income and operating and administrative expense.

Other companies may have different definitions of Non-GAAP Measures and provide for different adjustments, and comparability to the Company's results of operations may be impacted by such differences.

The Company's presentation of Non-GAAP Measures should not be construed as an implication that its future results will be unaffected by unusual or non-recurring items.

The following tables reconciles Net income to Adjusted net income and Operating and administrative expenses to Adjusted operating and administrative expenses:

53 Weeks Ended 52 Weeks Ended

2021 July 25,

Net Income $ 19,994 $ 24,938

Adjustments to Gross Profit:

Amortization of acquisition related inventory step up — 507

Adjustments to Operating and administrative expense:

Gain on sale of assets (1) (4,768) (1,220)

Non-cash pension termination and settlement charges 587 1,604

Store closure costs (2) 325 799

New store pre-opening costs (3) — 1,274

Gain on Superstorm Sandy insurance proceeds — (2,733)

Fairway acquisition transaction costs — 2,701

Break-up fee income (4) — (2,035)

Other adjustments:

Impairment of assets (5) 2,900 —

Estimated income from 53rd week (6) (602) —

Adjustments to Income taxes:

Tax impact of adjustments to gross profit and operating expenses 478 (236)

Tax gain on federal net operating loss carryback — (2,512)

Adjusted net income $ 18,914 $ 23,087

Operating and administrative expense 498,786 444,833

Total adjustments to operating administrative expense 3,856 (390)

Adjusted operating and administrative expense 502,642 444,443

Adjusted operating and administrative expense as a % of sales 24.76 % 24.63 %

(1) Fiscal 2021 includes a $4,044 gain on the sale of the leasehold interest in a non-supermarket related parking lot obtained as part of the Fairway acquisition and a $724 gain on the sale of the pharmacy prescription list related to the Silver Spring store.

Fiscal 2020 includes a gain on the sale of the pharmacy prescription lists related to three store pharmacies closed in March 2020.

(2) Fiscal 2021 includes costs associated with the closure of the Silver Spring, Maryland store on February 22, 2021 and Fiscal 2020 includes charges to write off the lease asset and related obligations for the old Stroudsburg store.

(3) Fiscal 2020 pre-opening costs relate to the Stroudsburg replacement store opened on November 1, 2019.

(4) Fiscal 2020 gain due to the breakup of Village’s initial “stalking horse” bid under the January 20, 2020 Fairway Asset Purchase Agreement.

(5) Fiscal 2021 non-cash impairment charges for the Fairway trade name of $2,386 and the long-lived assets for one Gourmet Garage store of $514.

(6) Fiscal 2021 is a 53-week fiscal year, with the additional week included in the fourth quarter.

RESULTS OF OPERATIONS

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Depreciation and amortization 1.69 % 1.74 %

Impairment of assets 0.14 % — %

Operating income 1.43 % 1.68 %

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Sales were $2,030,330 in fiscal 2021, an increase of $225,736, or 12.5% from fiscal 2020.

Sales increased due to the Fairway acquisition completed on May 14, 2020, the opening of the Stroudsburg replacement store on November 1, 2019, the Gourmet Garage acquisition on June 24, 2019 and a same store sales increase of 5.3%.

Same store sales increased due primarily to increased customer demand across most stores due to the impact of the COVID-19 pandemic, most significantly in March where sales reached unprecedented levels.

Following the outbreak, average basket sizes increased and transaction counts decreased as customers consolidated shopping trips.

Digital sales growth accelerated through both ShopRite from Home and partnerships with online grocery picking and delivery services, increasing 83% in fiscal 2020 compared to fiscal 2019.

Sales in Gourmet Garage and Fairway have declined significantly compared to historical levels due primarily to population migration out of Manhattan during the pandemic.

Sales increased $35,433, or 2.0%, due to fiscal 2021 containing 53 weeks.

Excluding the impact of the 53rd week, sales increased due to the Fairway acquisition completed on May 14, 2020, the opening of the Stroudsburg replacement store on November 1, 2019 and a same store sales increase of 1.8%.

Excluding the impact of the 53rd week, same store sales increased 7.5% in fiscal 2021 on a two-year stacked basis compared to fiscal 2019.

Since the beginning of the COVID-19 pandemic, we have experienced higher average basket sizes and decreased transaction counts as customers have consolidated shopping trips.

Additionally, both food inflation and increased Supplemental Nutrition Assistance Program ("SNAP") benefits positively impacted sales.

Same store digital sales growth accelerated through both ShopRite from Home and partnerships with online grocery picking and delivery services, increasing 68% in fiscal 2021 compared to fiscal 2020 and 219% on a two-year stacked basis.

During the COVID-19 pandemic, fiscal 2021 sales at Fairway and Gourmet Garage locations in Manhattan have been significantly negatively impacted due primarily to residential population migration out of the city and less commuter and tourist traffic.

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 as a percentage of sales increased .28% in fiscal 2020 compared to fiscal 2019 due primarily to higher margins associated with the acquisitions of Gourmet Garage and Fairway, net of amortization of the acquisition related inventory step-up (.03%).

Excluding the impact of acquired stores, gross profit as a percentage of sales decreased .23% due primarily to decreased departmental gross margin percentages (.31%), decreased patronage dividends and rebates received from Wakefern (.08%) and an unfavorable change in product mix (.12%) partially offset by lower promotional spending (.15%) and increased leverage on warehouse assessment charges from Wakefern (.13%).

Departmental gross profits, excluding the impact of acquired stores, decreased in fiscal 2020 compared to fiscal 2019 due primarily to price investments, including ShopRite's Right Price Promise pricing strategy introduced in October 2019, a commitment to everyday low prices on the items customers purchase most frequently.

Departmental gross profits also decreased as pharmacy margins declined due primarily to continued downward pressure on prescription reimbursement rates from third party providers.

Both product mix and departmental gross margin percentages were also impacted by limitations in service departments and product availability as a result of the COVID-19 pandemic in the second half of the year.

Gross profit as a percentage of sales decreased to 27.83% in fiscal 2021 compared to 28.07% in fiscal 2020.

Higher margins associated with Fairway increased gross profit (.22%), despite higher costs as we transition and integrate commissary operations into our business.

Excluding the impact of Fairway, gross profit as a percentage of sales decreased .46% due primarily to decreased departmental gross margin percentages (.48%) and increased warehouse assessment charges from Wakefern (.34%), partially offset by a favorable change in product mix (0.17%), lower promotional spending (0.16%) and increased patronage dividends and rebates received from Wakefern (.03%).

Departmental gross profits decreased due partly to price investments.

OPERATING AND ADMINISTRATIVE EXPENSE

Operating and administrative expense as a percentage of sales increased .63% in fiscal 2020 compared to fiscal 2019.

Fiscal 2020 includes a gain on the sale of pharmacy prescription lists related to three store pharmacies closed in March 2020 (.07%), a gain for Superstorm Sandy insurance proceeds received (.15%), a gain arising from the breakup of Village’s initial “stalking

horse” bid under the January 20, 2020 Fairway Asset Purchase Agreement (.11)%, transaction costs incurred for the Fairway acquisition (.15%), a non-cash pension charge related to the termination of a company-sponsored pension plan and other pension settlement charges (.09%) (see note 9 to the consolidated financial statements), pre-opening costs of the Stroudsburg, Pennsylvania replacement store (.07%), store closure costs and charges to write off the lease asset and related obligations for the old Stroudsburg store (.04%) 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).

Fiscal 2019 includes a gain for Superstorm Sandy insurance proceeds received (.03%) and pension settlement charges (.03%).

Excluding these items from both periods, operating and administrative expense as a percentage of sales increased .47% in fiscal 2020 compared to fiscal 2019 due primarily to incremental costs related to COVID-19, including enhanced wages and benefits and expanded safety and sanitation protocols (.76%), increased occupancy costs due primarily to the acquisitions of Fairway and Gourmet Garage (.33%) partially offset by reduced workers compensation expense (.23)% and increased leverage from higher sales.

Operating and administrative expense as a percentage of sales decreased to 24.57% in fiscal 2021 compared to 24.65% in fiscal 2020.

Adjusted operating and administrative expense as a percentage of sales increased to 24.76% in fiscal 2021 compared to 24.63% in fiscal 2020.

Adjusted operating and administrative expense increased due primarily to increased occupancy costs due primarily to the Fairway acquisition (.56%) and increased external fees and transportation costs associated with digital sales (.42%), partially offset by decreased costs related to COVID-19, including enhanced wages and benefits, security and outside sanitation services (.62%) and lower payroll and fringe benefit costs (.24%).

Payroll and fringe benefits decreased primarily due to leverage from higher sales, reductions in service department offerings, labor shortages and productivity initiatives partially offset by the addition of Fairway, growth of ShopRite from Home and minimum wage and demand driven pay rate increases.

DEPRECIATION AND AMORTIZATION

Depreciation and amortization expense was $34,195 and $31,358 in fiscal 2021 and 2020, respectively.

Depreciation and amortization expense increased in fiscal 2020 compared to the prior year due to depreciation related to acquisitions of Fairway and Gourmet Garage and capital expenditures.

Depreciation and amortization expense increased in fiscal 2021 compared to the prior year due to depreciation related to assets acquired as part of the Fairway acquisition.

IMPAIRMENT OF ASSETS

Impairment of assets includes non-cash charges related to the Fairway trade name of $2,386 (see note 1 to the consolidated financial statements) and the long-lived assets for one Gourmet Garage store of $514.

INTEREST EXPENSE

Interest expense was $3,943 and $2,611 in fiscal 2021 and 2020, respectively.

Interest expense decreased in fiscal 2020 compared to fiscal 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) partially offset by interest expense related to the credit agreement entered into on May 6, 2020 (see note 4 to the consolidated financial statements).

Interest expense increased in fiscal 2021 compared to fiscal 2020 due primarily to interest expense related to the credit agreement entered into on May 6, 2020 (see note 7 to the consolidated financial statements).

INTEREST INCOME

Interest income was $3,633 and $4,060 in fiscal 2021 and 2020, respectively.

Interest income decreased in fiscal 2020 compared to fiscal 2019 due primarily to lower amounts invested in demand deposits at Wakefern and lower interest rates earned on variable rate notes receivable from Wakefern and demand deposits invested at Wakefern.

Interest income decreased in fiscal 2021 compared to fiscal 2020 due primarily to lower interest rates for amounts invested in variable rate notes receivable from Wakefern and demand deposits invested at Wakefern.

The Company’s effective income tax rate was 30.7% and 21.4% in fiscal 2021 and 2020, respectively.

Fiscal 2020 includes a $2,512 benefit from a federal net operating loss carryback at a rate higher than the current statutory tax rate and fiscal 2019 includes a tax benefit of $777 related to the favorable settlement of a tax audit with the New Jersey Division of Taxation.

Excluding the impact of these adjustments, the effective income tax rate was 29.3% and 30.3% in fiscal 2020 and 2019, respectively.

The reduction in the effective tax rate in fiscal 2020 is due to increased work opportunity tax credits.

Fiscal 2020 includes a $2,512 benefit from a federal net operating loss carryback at a rate higher than the current statutory tax rate.

Excluding the impact of these adjustments, the effective income tax rate was 29.3% in fiscal 2020.

The increase in the effective tax rate in fiscal 2021 is due primarily to favorable return to provision adjustments in fiscal 2020 and increased state taxable income in higher tax rate jurisdictions.

Net income was $19,994 in fiscal 2021 compared to $24,939 in fiscal 2020.

Fiscal 2020 includes a $1,911 (net of tax) gain for Superstorm Sandy insurance proceeds received, an $854 (net of tax) gain on the sale of pharmacy prescription lists related to three store pharmacies closed in March 2020, a $2,512 benefit from a federal net operating loss carryback at a rate higher than the current statutory tax rate, a $1,423 (net of tax) gain arising from the breakup of Village’s initial “stalking horse” bid under the January 20, 2020 Fairway Asset Purchase Agreement, transaction costs incurred for the Fairway acquisition of $1,888 (net of tax), amortization of acquisition related inventory step-up of $355 (net of tax), a non-cash pension charge related to the termination of a company-sponsored pension plan and other pension settlement charges of $1,160 (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).

Fiscal 2019 includes a $290 (net of tax) gain for Superstorm Sandy insurance proceeds received, a tax benefit of $777 related to the favorable settlement of a tax audit with the New Jersey Division of Taxation and pension settlement charges of $302 (net of tax).

Excluding these items from both periods, net income decreased 8% in fiscal 2020 compared to the prior year.

Adjusted net income was $18,914 in fiscal 2021 compared to $23,087 in fiscal 2020.

Adjusted net income decreased 18% in fiscal 2021 compared to the prior year due primarily to lower sales volumes in Manhattan and higher costs as we transition and integrate commissary operations into our business.

CRITICAL ACCOUNTING POLICIES

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Such review analyzes the undiscounted estimated future net cash flows from asset groups at the store level to determine if the carrying value of such assets are recoverable from their respective cash flows.

If impairment is indicated, it is measured by comparing the fair value of the long-lived asset groups, which include long-term leases, to their carrying value.

Goodwill is tested for impairment at the end of each fiscal year, or more frequently if circumstances dictate.

If impairment is indicated, it is measured by comparing the fair value of the long-lived asset groups to their carrying value.

Goodwill and indefinite-lived intangible assets are tested at the end of each fiscal year, or more frequently if circumstances dictate, for impairment.

The Company utilizes valuation techniques, such as earnings multiples, in addition to the Company’s market capitalization, to assess goodwill for impairment.

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Should the Company’s carrying value of its one reporting unit exceed its fair value, the amount of any resulting goodwill impairment may be material to the Company’s financial position and results of operations.

The fair value of indefinite-lived intangible assets are estimated based on the discounted cash flow model using the relief from royalty method.

Manhattan store sales have been impacted by localized residential population migration out of Manhattan and less commuter and tourist traffic during the COVID-19 pandemic.

Due to uncertainty regarding the duration and extent of the impact of the COVID-19 pandemic on Manhattan, the Company recognized an impairment charge related to the Fairway trade name of $2,386 for year ended July 31, 2021.

PATRONAGE DIVIDENDS

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Based on this method, we utilized a weighted-average discount rate of 2.44% at July 31, 2021 compared to 2.26% at July 25, 2020.

Changes in the discount rate and updated assumptions on mortality tables and improvement scales resulted in a net increase in the projected benefit obligation by approximately $12,599 at July 25, 2020.

Changes in the discount rate and updated assumptions on mortality tables and improvement scales resulted in a net decrease in the projected benefit obligation by approximately $(1,206) at July 31, 2021.

Village evaluated the expected increase in compensation costs of 4.50% and concluded no changes in this assumption was necessary in estimating pension plan obligations and expense.

In fiscal 2018, the Company transitioned to a liability-driven investment ("LDI") strategy.

The Company utilizes a liability-driven investment ("LDI") strategy.

A LDI strategy focuses on maintaining a close to fully-funded status over the long-term with minimal funded status risk.

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Expected return on assets + / - 1.0 % $ — — $ 589 $ (589)

Village made no contributions in fiscal 2020 and $5,009 in fiscal 2019 to these Company-sponsored pension plans.

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

The 2019 contributions include $2,178 in benefit payments related to the unfunded, non-qualified supplemental benefit plan.

Substantially all other contributions in 2019 were voluntary contributions.

Village made no contributions in both fiscal 2021 and fiscal 2020 to these Company-sponsored pension plans.

In fiscal 2020 the Company began the process of terminating the Village Super Market, Inc.

Employees’ Retirement Plan.

Upon satisfaction of all regulatory requirements, which is expected to occur during fiscal 2022, the Company will fully fund and liquidate all plan assets to purchase annuity contracts from an insurance company for all participants who do not elect a lump sum distribution.

At the time of settlement, the Company will recognize a non-cash pre-tax charge representing the plan’s remaining unrecognized losses within accumulated other comprehensive loss as of the termination date.

As of July 31, 2021, the funded status of this plan is a net liability of $3,844 and the pre-tax amount included in Accumulated other comprehensive loss is $15,155.

Contributions to the remaining plans are expected to be immaterial in fiscal 2022.

RECENTLY ISSUED ACCOUNTING STANDARDS

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Net cash provided by operating activities was $52,692 in fiscal 2021 compared to $83,948 in fiscal 2020.

Net cash provided by operating activities was generated primarily by changes in working capital and net income adjusted for non-cash items including depreciation and amortization, share-based compensation, deferred taxes, loss on pension settlements, the provision to value inventories at LIFO and the gain on sale of prescription lists and property, equipment and fixtures.

Working capital changes, including other assets and other liabilities, increased net cash provided by operating activities by $11,711 in fiscal 2020 compared to $1,127 in fiscal 2019.

This change in impact of working capital is due primarily to higher accounts payable to Wakefern due to higher inventory turnover, changes in timing of payments of accounts payable and accrued expenses, increased accrued wages and benefits and a reduction in patronage dividend receivable partially offset by changes in timing of income tax payments.

The change in cash flows from operating activities in fiscal 2021 was primarily due to changes in working capital and net income adjusted for non-cash items including depreciation and amortization, share-based compensation, deferred taxes, loss on pension settlements, the provision to value inventories at LIFO and the gain on sale of prescription lists and property, equipment and fixtures.

Working capital changes, including other assets and other liabilities, decreased net cash provided by operating activities by $1,587 in fiscal 2021 compared an increase in net cash provided by operating activities of $1,127 in fiscal 2020.

This change in impact of working capital is due primarily to lower accounts payable to Wakefern and Accounts payable and accrued expense due to inventory turnover and operations normalizing after the initial impact of the pandemic partially offset by changes in timing of income tax payments.

During fiscal 2021, Village used cash to fund capital expenditures of $25,233, dividends of $13,050, principal payments of long-term debt of $8,414 and additional investments of $2,287 in notes receivable from Wakefern, net of proceeds received on matured notes.

Capital expenditures include one major remodel, continued expansion of ShopRite from Home and self-checkout, and various merchandising, technology, equipment and facility upgrades.

During fiscal 2020, Village used cash to fund capital expenditures of $54,495, dividends of $12,965, treasury stock purchases of $4,389 and additional investments of $2,800 in notes receivable from Wakefern, net of proceeds received on matured notes.

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store, expansion of ShopRite from Home, including the opening of an automated micro-fulfillment center in southern New Jersey, one major store remodel, several smaller remodels and equipment upgrades, including those in the integration of the Fairway acquisition.

During fiscal 2019, Village used cash to fund capital expenditures of $27,988, dividends of $12,890, the acquisition of Gourmet Garage for $5,267, treasury stock purchases of $1,070 and additional investments of $3,127 in notes receivable from Wakefern, net of proceeds received on matured notes.

Capital expenditures primarily include costs associated with the Bronx, New York store, the Stroudsburg replacement store, expansion of self-checkout, several smaller remodels and small equipment purchases.

LIQUIDITY and DEBT

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Working capital ratios at the same dates were 1.29 and 1.21 to one, respectively.

The decrease in working capital in fiscal 2020 compared to fiscal 2019 is due primarily to recognition of current operating lease obligations as a result of the adoption of ASU 2016-02, “Leases” and the current portion of long-term debt issued in conjunction with the Fairway acquisition.

The Company’s working capital needs are reduced, since inventories are generally sold by the time payments to Wakefern and other suppliers are due.

We have budgeted $40,000 for capital expenditures in fiscal 2022.

Planned expenditures include two major remodels, several smaller store remodels, continued expansion of ShopRite from Home and self-checkout, and various merchandising, technology, equipment and facility upgrades.

Planned expenditures include three major remodels, several smaller store remodels, the purchase of the Galloway store shopping center, one new Gourmet Garage store, continued expansion of ShopRite from Home and self-checkout, and various merchandising, technology, equipment and facility upgrades.

The Company’s primary sources of liquidity in fiscal 2022 are expected to be cash and cash equivalents on hand at July 31, 2021 and operating cash flow generated in fiscal 2022.

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These deposits earn overnight money market rates.

Village had an unsecured revolving credit agreement dated November 9, 2017 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 July 27, 2019 under the 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.

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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.

• 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.

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 0.69% per annum for 15 years, resulting in a fixed effective interest rate of 2.19% on the converted term loan.

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The Credit Facility also provides for up to $25,000 of letters of credit ($7,336 outstanding at July 31, 2021), 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 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 July 31, 2021.

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The Company undertakes no obligation to update forward-looking statements to reflect developments or information obtained after the date hereof.

• We estimate that same store sales trends will be flat to slightly down in fiscal 2021 with positive trends in the first half of the year being offset by negative trends in the second half of the year as we recycle the impact of the COVID-19 health crisis.

• Excluding the impact of acquired stores, we expect decreased gross profit margins due to continued investments in retail pricing through the Right Price Promise commitment to everyday low pricing on the items customers purchase most frequently that was introduced in October 2019.

• Due to continued uncertainties in the extent and duration of the COVID-19 pandemic and its impact on our business, we will not provide same store sales guidance for fiscal 2022.

• We have budgeted $40,000 for capital expenditures in fiscal 2022.

• The Board’s current intention is to continue to pay quarterly dividends in 2022 at the most recent rate of $.25 per Class A and $.1625 per Class B share.

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• We expect our effective income tax rate in fiscal 2022 to be in the range of 30.5% - 31.5%.

• We expect approximately $1,400 of net periodic pension costs in fiscal 2021 related to the three Company sponsored defined benefit pension plans.

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

• We expect approximately $15,891 of net periodic pension costs in fiscal 2022 related to the three Company sponsored defined benefit pension plans, including a $15,155 non-cash, pre-tax settlement charge representing the remaining unrecognized losses within accumulated other comprehensive loss related to a plan termination expected to occur during fiscal 2022.

The Company will fully fund this plan and liquidate all plan assets to purchase annuity contracts from an insurance company for all participants who do not elect a lump sum distribution.

As of July 31, 2021, the funded status of this plan is a net liability of $3,844.

Contributions to the remaining plans are expected to be immaterial in fiscal 2022.

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

These include:

• 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 from mid-March 2020 through June 2020.

• The Company operates in and around one of the epicenters of the initial COVID-19 health crisis in the United States with much of our trade area under stay-at-home orders from mid-March 2020 through June 2020.

The Company is classified as an essential business and has remained open to serve our customers and the communities in which we operate.

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• 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 technology, standards, processes, procedures and controls.

Sales and operating profits in the 4th quarter of fiscal 2020 have underperformed compared to projected amounts due primarily to population migration out of Manhattan during the COVID-19 pandemic.

Sales and operating profits have underperformed compared to projected amounts due primarily to population migration out of Manhattan and less commuter and tourist traffic during the COVID-19 pandemic.

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.

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• 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.

In addition, Wakefern provides the Company with support services in numerous areas including advertising, workers' compensation, 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.

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Failure of our asset groups to achieve sufficient levels of cash flow could result in impairment charges on long-lived assets.

• Our goodwill and indefinite-lived intangible assets are tested at the end of each fiscal year, or more frequently if circumstances dictate, for impairment.

Failure of acquired businesses to achieve their forecasted expectations could result in impairment charges to goodwill and indefinite-lived intangible assets.

• Our effective tax rate may be impacted by the results of tax examinations and changes in tax laws.

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The maximum per store investment is currently $975.

Wakefern distributes as a “patronage dividend” to each member a share of its earnings in proportion to the dollar volume of purchases by the member from Wakefern during the year.

Wakefern provides the Company with support services in numerous areas including advertising, supplies, liability and property insurance, technology support and other store services.

distributes as a “patronage dividend” to each member a share of its earnings in proportion to the dollar volume of purchases by the member from Wakefern during the year.

Wakefern provides the Company with support services in numerous areas including advertising, supplies, workers' compensation, liability and property insurance, technology support and other store services.

Additional information is provided in Note 3 to the consolidated financial statements.

At July 31, 2021, the Company held variable rate notes receivable due from Wakefern of $27,325 that earn interest at the prime rate plus 1.25% and mature on August 15, 2022 and $27,970 that earn interest at the prime rate plus .75% and mature on February 15, 2024.

The Company invested $24,937 of the proceeds received from the notes that matured on February 15, 2019 in variable rate notes receivable from Wakefern 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.

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The Company leases a supermarket from a realty firm 30% owned by certain officers of Village.

The Company paid rent to related parties under this lease of $688 in both fiscal 2020 and 2019, and has a related lease obligation of $3,772 at July 25, 2020.

The Company paid rent to related parties under this lease of $704 and $688 in fiscal 2021 and 2020, respectively, and has a related lease obligation of $3,227 at July 31, 2021.

This lease expires in fiscal 2026 with options to extend at increasing annual rents.

2 unchanged sentences

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-K

Item 7. Management’s Discussion and Analysis