VILLAGE SUPER MARKET INC 10-K

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA VILLAGE SUPER MARKET, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In thousands) July 31, 2021 July 25, 2020 ASSETS Current Assets Cash and cash equivalents $ 116,314 $ 111,681 Merchandise inventories 42,633 42,135 Patronage dividend receivable 11,860 11,204 Income taxes receivable 5,111 12,801 Other current assets 20,398 19,499 Total current assets 196,316 197,320 Property, equipment and fixtures, net 256,154 269,741 Operating lease assets 289,461 309,756 Notes receivable from Wakefern 55,295 53,008 Investment in Wakefern 33,004 29,462 Goodwill 24,190 24,190 Other assets 34,584 32,069 Total assets $ 889,004 $ 915,546 LIABILITIES and SHAREHOLDERS’ EQUITY Current Liabilities Operating lease obligations $ 21,627 $ 19,121 Finance lease obligations 531 466 Notes payable to Wakefern 632 303 Current portion of debt 6,976 6,421 Accounts payable to Wakefern 70,792 83,045 Accounts payable and accrued expenses 25,098 29,793 Accrued wages and benefits 25,036 23,649 Income taxes payable 1,601 — Total current liabilities 152,293 162,798 Long-term debt Operating lease obligations 278,135 298,027 Finance lease obligations 22,325 23,078 Notes payable to Wakefern 2,791 882 Long-term debt 66,827 74,194 Total long-term debt 370,078 396,181 Pension liabilities 10,182 6,166 Other liabilities 14,978 18,081 Commitments and Contingencies (Notes 3, 4, 5, 6, 7, 9 and 11) 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 10,978 shares at July 31, 2021 and 10,985 shares at July 25, 2020 70,594 68,072 Class B common stock, no par value: Authorized 20,000 shares; issued and outstanding 4,294 shares at July 31, 2021 and July 25, 2020 697 697 Retained earnings 293,185 286,241 Accumulated other comprehensive loss ( 9,064 ) ( 8,751 ) Less treasury stock, Class A, at cost: 726 shares at July 31, 2021 and July 25, 2020 ( 13,939 ) ( 13,939 ) Total shareholders’ equity 341,473 332,320 Total liabilities and shareholders' equity $ 889,004 $ 915,546 See notes to consolidated financial statements. 22 VILLAGE SUPER MARKET, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share amounts) Years ended July 31, 2021 July 25, 2020 (53 Weeks) (52 Weeks) Sales $ 2,030,330 $ 1,804,594 Cost of sales 1,465,286 1,298,119 Gross profit 565,044 506,475 Operating and administrative expense 498,786 444,833 Depreciation and amortization 34,195 31,358 Impairment of assets 2,900 — Operating income 29,163 30,284 Interest expense ( 3,943 ) ( 2,611 ) Interest income 3,633 4,060 Income before income taxes 28,853 31,733 Income taxes 8,859 6,794 Net income $ 19,994 $ 24,939 Net income per share: Class A common stock: Basic $ 1.53 $ 1.93 Diluted $ 1.37 $ 1.72 Class B common stock: Basic $ 1.00 $ 1.25 Diluted $ 1.00 $ 1.25 See notes to consolidated financial statements. 23 VILLAGE SUPER MARKET, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (In thousands) Years ended July 31, 2021 July 25, 2020 Net income $ 19,994 $ 24,939 Other comprehensive income (loss): Unrealized gain (loss) on interest rate swaps, net of tax (1) 1,428 ( 659 ) Amortization of pension actuarial loss, net of tax (2) 409 397 Pension remeasurement, net of tax (3) ( 2,559 ) ( 1,307 ) Pension settlement loss, net of tax (4) 409 1,160 Total other comprehensive loss ( 313 ) ( 409 ) Comprehensive income $ 19,681 $ 24,530 (1) Amount is net of tax of $ 604 and $ 262 for 2021and 2020, respectively. (2) Amounts are net of tax of $ 179 and $ 158 for 2021 and 2020, respectively. All amounts are reclassified from accumulated other comprehensive loss to operating and administrative expense. (3) Amounts are net of tax of $ 1,484 and $ 536 for 2021 and 2020, respectively. (4) Amounts are net of tax of $ 178 and $ 444 for 2021 and 2020, respectively. All amounts are reclassified from accumulated other comprehensive loss to operating and administrative expense. See notes to consolidated financial statements. 24 VILLAGE SUPER MARKET, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (In thousands) Years ended July 31, 2021 and July 25, 2020 Accumulated Other Comprehensive Loss Total Shareholders' Equity Class A Common Stock Class B Common Stock Treasury Stock Class A 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 — — — — 24,939 — — — 24,939 Other comprehensive loss, net of tax of $ 196 — — — — — ( 409 ) — — ( 409 ) Dividends — — — — ( 12,965 ) — — — ( 12,965 ) Treasury stock purchases — — — — — — 224 ( 4,389 ) ( 4,389 ) Restricted shares forfeited ( 20 ) ( 208 ) — — — — — — ( 208 ) Share-based compensation expense 412 3,166 — — — — — — 3,166 Adjustment due to the adoption of ASU 2016-02 , net of tax of $ 1,358 — — — — 3,514 — — — 3,514 Balance, July 25, 2020 10,985 $ 68,072 4,294 $ 697 $ 286,241 $ ( 8,751 ) 726 $ ( 13,939 ) $ 332,320 Net income — — — — 19,994 — — — 19,994 Other comprehensive loss, net of tax of $ 523 — — — — — ( 313 ) — — ( 313 ) Dividends — — — — ( 13,050 ) — — — ( 13,050 ) Restricted shares forfeited ( 15 ) ( 71 ) — — — — — — ( 71 ) Share-based compensation expense 8 2,593 — — — — — — 2,593 Balance, July 31, 2021 10,978 $ 70,594 4,294 $ 697 $ 293,185 $ ( 9,064 ) 726 $ ( 13,939 ) $ 341,473 See notes to consolidated financial statements. 25 VILLAGE SUPER MARKET, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) Years ended July 31, 2021 July 25, 2020 (53 Weeks) (52 Weeks) CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 19,994 $ 24,939 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 35,701 31,701 Non-cash share-based compensation 2,522 2,958 Loss on pension settlements 587 1,604 Deferred taxes ( 2,542 ) 11,190 Provision to value inventories at LIFO 220 589 Amortization of business acquisition inventory step-up — 508 Impairment of assets 2,900 — Gain on sale of assets ( 5,103 ) ( 1,252 ) Changes in assets and liabilities: Merchandise inventories ( 718 ) 661 Patronage dividend receivable ( 656 ) 704 Accounts payable to Wakefern ( 10,645 ) 18,866 Accounts payable and accrued expenses ( 3,741 ) 6,210 Accrued wages and benefits 1,387 2,767 Income taxes receivable / payable 9,291 ( 13,828 ) Other assets and liabilities 3,495 ( 3,669 ) Net cash provided by operating activities 52,692 83,948 CASH FLOWS FROM INVESTING ACTIVITIES Capital expenditures ( 25,233 ) ( 54,495 ) Proceeds from the sale of assets 1,147 1,261 Investment in notes receivable from Wakefern ( 2,287 ) ( 2,800 ) Business acquisitions, net of cash acquired — ( 73,622 ) Net cash used in investing activities ( 26,373 ) ( 129,656 ) CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from issuance of long-term debt 50,000 25,500 Principal payments of long-term debt ( 8,414 ) ( 1,666 ) Proceeds from revolving line of credit — 61,915 Payments on revolving line of credit ( 50,000 ) ( 11,915 ) Debt issuance costs ( 222 ) ( 212 ) Dividends ( 13,050 ) ( 12,965 ) Treasury stock purchases, including shares surrendered for withholding taxes — ( 4,389 ) Net cash (used in) provided by financing activities ( 21,686 ) 56,268 NET INCREASE IN CASH AND CASH EQUIVALENTS 4,633 10,560 CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 111,681 101,121 CASH AND CASH EQUIVALENTS, END OF YEAR $ 116,314 $ 111,681 SUPPLEMENTAL DISCLOSURES OF CASH PAYMENTS MADE FOR: Interest $ 3,943 $ 2,611 Income taxes 1,475 9,432 NONCASH SUPPLEMENTAL DISCLOSURES: Investment in Wakefern and increase in notes payable to Wakefern $ 2,872 $ 382 Capital expenditures included in accounts payable and accrued expenses 3,162 5,050 See notes to consolidated financial statements. 26 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (All amounts are in thousands, except per share data). NOTE 1 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Nature of operations Village Super Market, Inc. (the “Company” or “Village”) operates a chain of 34 supermarkets under the ShopRite and Fairway names in New Jersey, Maryland, New York and eastern Pennsylvania and three specialty markets under the Gourmet Garage name in New York City. The Company is a 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 relationship provides Village many of the economies of scale in purchasing, distribution, store and own branded products, advanced retail technology, marketing and advertising associated with chains of greater size and geographic coverage. Principles of consolidation The consolidated financial statements include the accounts of Village Super Market, Inc. and its subsidiaries, which are wholly owned. Intercompany balances and transactions have been eliminated. Fiscal year The Company and its subsidiaries utilize a 52-53 week fiscal year ending on the last Saturday in the month of July. Fiscal 2021 contains 53 weeks and fiscal 2020 contains 52 weeks. Use of estimates In conformity with U.S. generally accepted accounting principles, management of the Company has made a number of estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Some of the more significant estimates are patronage dividends, pension accounting assumptions, accounting for contingencies, accounting for derivative instruments and hedging activities, purchase accounting and the impairment of long-lived assets, goodwill and indefinite-lived intangible assets. Actual results could differ from those estimates. Industry segment The Company consists of one operating segment, the retail sale of food and nonfood products. Revenue recognition Revenue is recognized at the point of sale to the customer, including Pharmacy sales. Digital channel sales are recognized either upon pickup in-store or upon delivery to the customer, including any related service revenues. Sales tax is excluded from revenue. Discounts provided to customers through store coupons and loyalty programs are recognized as a reduction of sales as products are sold. Discounts provided to customers by vendors are not recognized as a reduction in sales. Rather, the Company records a receivable from the vendor for the difference in sales price and payment received from the customer. The Company does not recognize revenue when it sells gift cards redeemable at Wakefern member stores. Payment collected from customers for sale of these gift cards is passed on to Wakefern as they can be redeemed at other locations, including those operated by Wakefern or other Wakefern members. Revenue is recognized and a receivable from Wakefern is recorded when a customer redeems these gift cards to purchase products or services. 27 Disaggregated Revenues The following table presents the Company's sales by product categories during each of the periods indicated: Years Ended July 31, 2021 July 25, 2020 Amount % Amount % Center Store (1) $ 1,218,550 60.6 % $ 1,111,751 61.6 % Fresh (2) 736,657 35.7 % 616,271 34.2 % Pharmacy 67,048 3.3 % 68,508 3.8 % Other (3) 8,075 0.4 % 8,064 0.4 % Total Sales $ 2,030,330 100.0 % $ 1,804,594 100.0 % (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 service fees related to digital sales, gift card and lottery commissions and wholesale sales. Cost of sales Cost of sales consists of costs of inventory, inbound freight charges, and production costs at the Company's centralized commissary, including materials, labor and overhead. The Company receives vendor allowances and rebates, including the patronage dividend and amounts received as a pass through from Wakefern, related to the Company’s buying and merchandising activities. Vendor allowances and rebates are recognized as a reduction in cost of sales when the related merchandise is sold or when the required contractual terms are completed. Shipping and handling costs associated with the Company’s digital sales are included in operating and administrative expense. Cash and cash equivalents The Company considers all highly liquid investments purchased with a maturity of three months or less to be cash equivalents. Included in cash and cash equivalents are proceeds due from credit and debit card transactions, which typically settle within five business days, of $ 10,638 and $ 11,535 at July 31, 2021 and July 25, 2020, respectively. Included in cash and cash equivalents at July 31, 2021 and July 25, 2020 are $ 86,670 and $ 76,259 , respectively, of demand deposits invested at Wakefern at overnight money market rates. Merchandise inventories Approximately 62 % of merchandise inventories are stated at the lower of LIFO (last-in, first-out) cost or market. If the FIFO (first-in, first-out) method had been used, inventories would have been $ 15,321 and $ 15,101 higher than reported in fiscal 2021 and 2020, respectively. All other inventories are stated at the lower of FIFO cost or market. Property, equipment and fixtures Property, equipment and fixtures are recorded at cost. Interest cost incurred to finance construction is capitalized as part of the cost of the asset. Maintenance and repairs are expensed as incurred. Depreciation is provided on a straight-line basis over estimated useful lives of thirty years for buildings, ten years for store fixtures and equipment, and three years for computer equipment, shopping carts and vehicles. Leasehold improvements are amortized over the shorter of the related lease terms or the estimated useful lives of the related assets. When assets are sold or retired, their cost and accumulated depreciation are removed from the accounts, and any gain or loss is reflected in the consolidated financial statements. 28 Investments The Company’s investments in its principal supplier, Wakefern, and a Wakefern affiliate, Insure-Rite, Ltd., are stated at cost (see Note 3). Village evaluates its investments in Wakefern and Insure-Rite, Ltd. for impairment through consideration of previous, current and projected levels of profit of those entities. The Company’s 20%-50% investments in certain real estate partnerships are accounted for under the equity method. One of these partnerships is a variable interest entity which does not require consolidation as Village is not the primary beneficiary (see Note 7). Store opening and closing costs All store opening costs are expensed as incurred. The Company records a liability for the future minimum lease payments and related costs for closed stores from the date of closure to the end of the remaining lease term, net of estimated cost recoveries that may be achieved through subletting, discounted using a risk-adjusted interest rate. Leases 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. The adoption of this standard also resulted in a change in naming convention for leases classified historically as capital leases to finance leases. The Company determines if an arrangement is a lease at inception, and recognizes a finance and operating lease liability and asset for all leases with terms of more than 12 months at the lease commencement date. Finance and operating lease liabilities represent the present value of minimum lease payments not yet paid. 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. 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. 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 related to operating leases in rent expense on a straight-line basis over the term of the lease. Finance lease payments are charged to interest expense and depreciation and amortization expense over the lease term. Additional information on leases is provided in Note 7. Advertising Advertising costs are expensed as incurred. Advertising expense was $ 12,268 and $ 10,904 in fiscal 2021 and 2020, respectively. Income taxes Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and 29 liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in operations in the period that includes the enactment date. The Company recognizes a tax benefit for uncertain tax positions if it is “more likely than not” that the position is sustainable, based on its technical merits. The tax benefit of a qualifying position is the largest amount of tax benefit that is greater than 50% likely of being realized upon effective settlement with a taxing authority having full knowledge of all relevant information. Derivative Instruments and Hedging Activities The Company records all derivatives on the balance sheet at fair value. Derivatives designated and qualifying as a hedge of the exposure to variability in expected future cash flows are considered cash flow hedges. The Company records changes in the fair value of its interest rate swap contracts to Accumulated other comprehensive loss, net of taxes, as the Company has elected to designate its swaps as cash flow hedges and apply hedge accounting when the hedging relationship has satisfied the criteria necessary to apply hedge accounting. Additional information on derivative and hedging activities is provided in Note 5. Fair value Fair value is defined as the exit price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. Fair value is a market-based measurement that should be determined using assumptions that market participants would use in pricing an asset or liability. The fair value guidance establishes a three-level hierarchy to prioritize the inputs used in measuring fair value. Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date. Level 2 inputs are inputs other than quoted prices within Level 1 that are observable for the asset or liability, either directly or indirectly, such as quoted prices for similar assets or liabilities in active markets observable at commonly quoted intervals. Level 3 inputs are unobservable inputs for the asset or liability. Cash and cash equivalents, patronage dividend receivable, income taxes receivable/payable, accounts payable and accrued expenses are reflected in the consolidated financial statements at carrying value, which approximates fair value because of the short-term maturity of these instruments. The carrying values of the Company’s notes receivable from Wakefern approximate their fair value as interest is earned at variable market rates. As the Company’s investment in Wakefern can only be sold to Wakefern at amounts that approximate the Company’s cost, it is not practicable to estimate the fair value of such investment. Long-lived assets The Company reviews long-lived assets, such as property, equipment and fixtures and operating lease assets on an individual store basis for impairment when circumstances indicate the carrying amount of an asset group may not be recoverable. Such review analyzes the undiscounted estimated future cash flows from such assets 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 assets to their carrying value. For the year ended July 31, 2021 the Company recorded an impairment of long-lived assets for one Gourmet Garage store of $ 514 . Goodwill and indefinite-lived intangible assets 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's indefinite-lived intangible assets balance of $ 13,299 and $ 15,685 as of July 31, 2021 and July 25, 2020, respectively, are related to the Fairway and Gourmet Garage trade names. An impairment loss is recognized to the extent that the carrying amount of goodwill and indefinite-lived intangible assets exceeds its implied fair value. Village considers earnings multiples and other valuation techniques to measure fair value at the reporting unit level, in addition to the value of the Company’s stock. The fair value of trade names 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. 30 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. 2021 2020 Class A Class B Class A Class B Numerator: Net income allocated, basic $ 15,095 $ 4,273 $ 18,857 $ 5,363 Conversion of Class B to Class A shares 4,273 — 5,363 — Net income allocated, diluted $ 19,368 $ 4,273 $ 24,220 $ 5,363 Denominator: Weighted average shares outstanding, basic 9,853 4,294 9,794 4,294 Conversion of Class B to Class A shares 4,294 — 4,294 — Weighted average shares outstanding, diluted 14,147 4,294 14,088 4,294 Net income per share is as follows: 2021 2020 Class A Class B Class A Class B Basic $ 1.53 $ 1.00 $ 1.93 $ 1.25 Diluted $ 1.37 $ 1.00 $ 1.72 $ 1.25 Outstanding stock options to purchase Class A shares of 102 and 154 were excluded from the calculation of diluted net income per share at July 31, 2021 and July 25, 2020, respectively, as a result of their anti-dilutive effect. In addition, 392 and 413 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 July 31, 2021 and July 25, 2020, respectively, due to their anti-dilutive effect. Share-based compensation All share-based payments to employees are recognized in the financial statements as compensation costs based on the fair market value on the date of the grant. 31 Benefit plans The Company recognizes the funded status of its Company sponsored retirement plans on the consolidated balance sheet. Actuarial gains or losses, curtailments, prior service costs or credits, and transition obligations not previously recognized are recorded as a component of Accumulated Other Comprehensive Loss. The Company uses July 31 as the measurement date for these plans. The Company also contributes to several multi-employer pension plans under the terms of collective bargaining agreements that cover certain union-represented employees. Pension expense for these plans is recognized as contributions are made. Recently issued accounting standards In March 2020 and January 2021, the FASB issued ASU 2020-04, "Facilitation of the Effects of Reference Rate Reform on Financial Reporting" and ASU 2021-01, "Reference Rate Reform: Scope", respectively. These standards provide temporary optional expedients and exceptions for the application of GAAP to certain contract modifications, hedging relationships, and other arrangements that are expected to be impacted by the global transition away from certain reference rates, such as LIBOR. The guidance was effective upon issuance and, once adopted, may be applied prospectively to contract modifications and hedging relationships through December 31, 2022. The Company is currently assessing the potential impact of these standards on its consolidated financial statements and related disclosures, if adopted. NOTE 2 — PROPERTY, EQUIPMENT and FIXTURES Property, equipment and fixtures are comprised as follows: July 31, 2021 July 25, 2020 Land and buildings $ 105,325 $ 101,099 Store fixtures and equipment 329,454 321,746 Leasehold improvements 178,062 174,198 Leased property under finance leases 25,211 25,211 Construction in progress 5,535 4,777 Vehicles 3,494 4,369 Total property, equipment and fixtures 647,081 631,400 Accumulated depreciation ( 378,522 ) ( 350,201 ) Accumulated amortization of property under finance leases ( 12,405 ) ( 11,458 ) Property, equipment and fixtures, net $ 256,154 $ 269,741 Amortization of leased property under finance leases is included in depreciation and amortization expense. NOTE 3 — RELATED PARTY INFORMATION - WAKEFERN The Company’s ownership interest in its principal supplier, Wakefern, which is operated on a cooperative basis for its stockholder members, is 12.2 % of the outstanding shares of Wakefern at July 31, 2021. The investment is stated at cost and is pledged as collateral for any obligations to Wakefern. In addition, all obligations to Wakefern are personally guaranteed by certain shareholders of Village. The Company is obligated to purchase 85 % of its primary merchandise requirements from Wakefern until ten years from the date that stockholders representing 75 % of Wakefern sales notify Wakefern that those stockholders request that the Wakefern Stockholder Agreement be terminated. If this purchase obligation is not met, Village is required to pay Wakefern’s profit contribution shortfall attributable to this failure. Similar payments are due if Wakefern loses volume by reason of the sale of Company stores or a merger with another entity. Village fulfilled the above obligation in fiscal 2021 and 2020. The Company also has an investment of approximately 9.3 % in Insure-Rite, Ltd., a Wakefern affiliated company, which provides Village with workers' compensation, liability and property insurance coverage. 32 Wakefern has increased from time to time the required investment in its common stock for each supermarket owned by a member, with the exact amount per store computed based on the amount of each store’s purchases from Wakefern. At July 31, 2021, the Company’s indebtedness to Wakefern for the outstanding amount of these stock subscriptions was $ 3,423 . Installment payments are due as follows: 2022 - $ 632 ; 2023 - $ 844 ; 2024 - $ 512 ; 2025 - $ 512 ; 2026 - $ 511 ; and $ 412 thereafter. The maximum per store investment increased from $ 950 to $ 975 in fiscal 2021, resulting in an additional $ 670 capital pledge, which was paid in fiscal 2021. Village receives additional shares of common stock to the extent paid for at the end of each fiscal year (which ends on or about September 30) of Wakefern calculated at the then book value per share. The payments, together with any stock issued thereunder, at the option of Wakefern, may be null and void and all payments on this subscription shall become the property of Wakefern in the event the Company does not complete the payment of this subscription in a timely manner. Village purchases substantially all of its merchandise from Wakefern. As a stockholder of Wakefern, Village earns a share of Wakefern’s earnings, which are distributed as a “patronage dividend.” This dividend is based on a distribution of substantially all of Wakefern’s operating profits for its fiscal year in proportion to the dollar volume of purchases by each member from Wakefern during that fiscal year. Patronage dividends are recorded as a reduction of cost of sales as merchandise is sold. Village accrues estimated patronage dividends due from Wakefern quarterly based on an estimate of the annual Wakefern patronage dividend and an estimate of Village’s share of this annual dividend based on Village’s estimated proportional share of the dollar volume of business transacted with Wakefern that year. Patronage dividends and other vendor allowances and rebates amounted to $ 43,003 and $ 33,151 in fiscal 2021 and 2020, respectively. 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. Village incurred charges of $ 47,462 and $ 33,303 from Wakefern in fiscal 2021 and 2020, respectively, for non-merchandise products and services, which are reflected in operating and administrative expense in the consolidated statements of operations. Additionally, the Company has certain related party leases (see Note 7) with Wakefern. 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. 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. At July 31, 2021, the Company had demand deposits invested at Wakefern in the amount of $ 86,670 . These deposits earn overnight money market rates. Interest income earned on investments with Wakefern was $ 3,522 and $ 3,992 in fiscal 2021 and 2020, respectively. NOTE 4 — DEBT Long-term debt consists of: July 31, 2021 July 25, 2020 Unsecured revolving line of credit $ — $ 50,000 Secured term loan 47,025 $0 — Unsecured term loan 21,104 24,694 New Market Tax Credit Financing 5,674 5,921 Total debt, excluding obligations under leases 73,803 80,615 Less current portion 6,976 6,421 Total long-term debt, excluding obligations under leases $ 66,827 $ 74,194 33 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. • 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 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 Company was in compliance with all covenants of the credit agreement at July 31, 2021. The carrying values of the Company’s long-term debt related to the Company's Credit Facility approximate their fair value as interest is charged at variable market rates. The estimated fair values of the Company's long-term debt are based on Level 2 inputs. New Markets Tax Credit On December 29, 2017, the Company entered into a financing transaction with Wells Fargo Community Investment Holdings, LLC (“Wells Fargo”) under a qualified New Markets Tax Credit (“NMTC”) program related to the construction of a new store in the Bronx, New York. The NMTC program was provided for in the Community Renewal Tax Relief Act of 2000 (the “Act”) and is intended to induce capital investment in qualified lower income communities. The Act permits taxpayers to claim credits against their Federal income taxes for up to 39% of qualified investments in the equity of community development entities (“CDEs”). CDEs are privately managed investment institutions that are certified to make qualified low-income community investments. In connection with the financing, the Company loaned $ 4,835 to VSM Investment Fund, LLC (the "Investment Fund") at an interest rate of 1.403 % per year and with a maturity date of December 31, 2044. Repayments on the loan commence in March 2025. Wells Fargo contributed $ 2,375 to the Investment Fund and, by virtue of such contribution, is entitled to substantially all of the tax benefits derived from the NMTC. The Investment Fund is a wholly owned subsidiary of Wells Fargo. The loan to the Investment Fund is recorded in other assets in the consolidated balance sheets. The Investment Fund then contributed the proceeds to a CDE, which, in turn, loaned combined funds of $ 6,563 , net of debt issuance costs, to Village Super Market of NY, LLC, a wholly-owned subsidiary of the Company, at an interest rate of 1.000 % per year with a maturity date of December 31, 2051. These loans are secured by the leasehold improvements and equipment related to the construction of the Bronx store. Repayment of the loans commences in March 2025. The proceeds of the loans from the CDE 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. 34 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. NOTE 5 — 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 $ 328 and $ 12 from Accumulated other comprehensive loss to Interest expense during fiscal 2021 and 2020, respectively. The notional value of the interest rate swaps were $ 68,472 as of July 31, 2021. The fair value of interest rate swaps are included in the following captions on the consolidated balance sheets at July 31, 2021 and July 25, 2020: 2021 2020 Other assets (liabilities) 1,111 ( 921 ) The fair values of the Company’s interest rate swaps are based on Level 2 inputs, including the present value of estimated future cash flows based on market expectations of the yield curve on variable interest rates. NOTE 6 — INCOME TAXES The components of the provision for income taxes are: 2021 2020 Federal: Current $ 7,172 $ ( 8,023 ) Deferred ( 2,037 ) 10,846 State: Current 4,229 3,627 Deferred ( 505 ) 344 $ 8,859 $ 6,794 35 Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company’s deferred tax assets and liabilities are as follows: July 31, 2021 July 25, 2020 Deferred tax assets: Lease liabilities $ 106,615 $ 98,149 Tax credit carryforward — 508 Compensation related costs 4,377 2,945 Pension costs 3,248 1,881 Other 552 752 Total deferred tax assets 114,792 104,235 Deferred tax liabilities: Tax over book depreciation 22,653 23,626 Lease assets 98,994 92,021 Patronage dividend receivable 4,162 3,133 Investment in partnerships 1,162 1,076 Other 611 178 Total deferred tax liabilities 127,582 120,034 Net deferred tax liability $ ( 12,790 ) $ ( 15,799 ) Deferred income tax assets (liabilities) are included in the following captions on the consolidated balance sheets at July 31, 2021 and July 25, 2020: 2021 2020 Other assets 1,642 702 Other liabilities ( 14,432 ) ( 16,501 ) A valuation allowance is provided when it is more likely than not that some portion of the deferred tax assets will not be realized. In management’s opinion, in view of the Company’s previous, current and projected taxable income and reversal of deferred tax liabilities, such tax assets will more likely than not be fully realized. Accordingly, no valuation allowance was deemed to be required at July 31, 2021 and July 25, 2020. The effective income tax rate differs from the statutory federal income tax rate as follows: 2021 2020 Statutory federal income tax rate 21.0 % 21.0 % State income taxes, net of federal tax benefit 10.3 % 9.9 % Federal net operating loss carryback — % ( 7.9 ) % Other ( 0.6 ) % ( 1.6 ) % Effective income tax rate 30.7 % 21.4 % Fiscal 2020 includes a $ 2,512 incremental benefit from a federal net operating loss carryback at a rate higher than the current statutory tax rate. 36 The Company is not currently under audit by any tax authorities, but is open to examination with varying statutes of limitations, generally ranging from three to four years . NOTE 7 — LEASES Description of leasing arrangements The Company leases 32 retail stores, as well as a production distribution center (the "PDC"), the corporate headquarters and equipment at July 31, 2021. 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 years each at the Company’s sole discretion. These options enable Village to retain the use of facilities in desirable operating areas. The composition of total lease cost is as follows: Years ended Consolidated Statement of Operations Classification July 31, 2021 July 25, 2020 Operating lease cost Operating and administrative expense $ 37,677 $ 22,911 Finance lease cost Amortization of leased assets Depreciation and amortization 947 947 Interest on lease liabilities Interest expense 2,000 2,059 Variable lease cost Operating and administrative expense 19,479 16,473 Total lease cost $ 60,103 $ 42,390 As of July 31, 2021 and July 25, 2020, finance lease right-of-use assets of $ 12,806 and $ 13,753 , respectively, 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 July 31, 2021: Operating leases Finance leases Total 2022 $ 32,984 $ 2,470 $ 35,454 2023 35,988 2,689 38,677 2024 34,005 2,689 36,694 2025 32,563 2,820 35,383 2026 31,758 2,893 34,651 Thereafter 214,944 26,187 241,131 Total lease payments 382,242 39,748 421,990 Less amount representing interest 82,480 16,892 99,372 Present value of lease liabilities $ 299,762 $ 22,856 $ 322,618 The Company has approximately $ 9,280 of future payment obligations related to lease agreements that have not yet commenced but have been executed as of July 31, 2021. As of July 31, 2021, the Company's lease terms and discount rates are as follows: July 31, 2021 July 25, 2020 Weighted-average remaining lease term (years) Operating leases 12.5 13.3 Finance leases 14.4 15.4 Weighted-average discount rate Operating leases 3.9 % 3.9 % Finance leases 8.5 % 8.5 % Supplemental cash flow information related to leases is as follows: 37 2021 2020 Cash paid for amounts in the measurement of lease liabilities Operating cash flows from operating leases $ 34,768 $ 21,287 Operating cash flows from finance leases 2,000 2,059 Financing cash flows from finance leases 689 572 Related party leases 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 $ 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 rent. The Company has ownership interests in three real estate partnerships. Village paid aggregate rents to two of these partnerships for leased stores of $ 1,579 and $ 1,556 in fiscal 2021 and 2020, respectively, and has related aggregate lease obligations of $ 12,781 at July 31, 2021. One of these partnerships is a variable interest entity, which is not consolidated as Village is not the primary beneficiary. This partnership owns one property, a stand-alone supermarket leased to the Company since 1974. Village is a general partner entitled to 33 % of the partnership's profits and losses. The Company subleases the Galloway and Vineland stores from Wakefern under sublease agreements which provided for combined annual rents of $ 1,355 in both fiscal 2021 and 2020, and has related aggregate lease obligations of $ 2,276 at July 31, 2021. Both leases contain normal periodic rent increases and options to extend the lease. NOTE 8 — SHAREHOLDERS’ EQUITY The Company has two classes of common stock. Class A common stock is entitled to one vote per share and to cash dividends as declared 54 % greater than those paid on Class B common stock. Class B common stock is entitled to 10 votes per share. Class A and Class B common stock share equally on a per share basis in any distributions in liquidation. Shares of Class B common stock are convertible on a share-for-share basis for Class A common stock at any time. Class B common stock is not transferable except to another holder of Class B common stock or by will or under the laws of intestacy or pursuant to a resolution of the Board of Directors of the Company approving the transfer. As a result of this voting structure, the holders of the Class B common stock control greater than 50 % of the total voting power of the shareholders of the Company and control the election of the Board of Directors. The Company has authorized 10,000 shares of preferred stock. No shares have been issued. The Board of Directors is authorized to designate series, preferences, powers and participations of any preferred stock issued. The Company maintains share repurchase programs that comply with Rule 10b5-1 under the Securities Exchange Act of 1934. Repurchases of Village Class A common stock may be made from time to time through a variety of methods, including open market purchases and other negotiated transactions. In September 2019, the Company's Board of Directors authorized an incremental $ 5,000 share repurchase program, supplementing the existing authorization. The Company made open market purchases totaling $ 2,482 under this repurchase program in fiscal 2020 and an additional $ 1,907 in shares of Class A Common Stock were surrendered in satisfaction of withholding taxes in connection with the vesting of restricted shares in fiscal 2020. The Company's share repurchase program had $ 3,203 remaining at July 31, 2021 and July 25, 2020. Village has two share-based compensation plans, which are described below. The compensation cost charged against income for these plans was $ 2,522 and $ 2,958 in fiscal 2021 and 2020, respectively. Total income tax benefit recognized in the consolidated statements of operations for share-based compensation arrangements was $ 633 and $ 202 in fiscal 2021 and 2020, respectively. On December 16, 2016, the shareholders of the Company approved the Village Super Market, Inc. 2016 Stock Plan (the “2016 Plan”) under which awards of incentive and non-qualified stock options and restricted stock may be made. There are 1,200 shares of Class A common stock authorized for issuance to employees and directors under the 2016 Plan. Terms and conditions of awards are determined by the Board of Directors. Restricted stock awards primarily cliff vest three years from the date of grant. There are 1,078 shares remaining for future grants under the 2016 Plan. 38 The following table summarizes option activity under all plans for the following years: 2021 2020 Shares Weighted-average exercise price Shares Weighted-average exercise price Outstanding at beginning of year 156 $ 28.43 245 $ 28.43 Exercised — — — — Forfeited ( 54 ) 27.40 ( 89 ) 28.42 Expired — $ — — $ — Outstanding at end of year 102 $ 28.98 156 $ 28.43 Options exercisable at end of year 102 $ 28.98 156 $ 28.43 As of July 31, 2021, the weighted-average remaining contractual term of options outstanding and options exercisable was 2.6 years. As of July 31, 2021, the aggregate intrinsic value was $ 0 for both options outstanding and options exercisable. The fair value of each option award is estimated on the date of grant using the Black-Scholes Option Pricing Model. The Company uses historical data for similar groups of employees in order to estimate the expected life of options granted. Expected volatility is based on the historical volatility of the Company’s stock for a period of years corresponding to the expected life of the option. The risk-free interest rate is based on the U.S. Treasury yield curve at the time of grant for securities with a maturity period similar to the expected life of the option. The following table summarizes restricted stock activity under all plans for the following years: 2021 2020 Shares Weighted-average grant date fair value Shares Weighted-average grant date fair value Nonvested at beginning of year 413 $ 19.40 323 $ 27.02 Granted 8 25.06 412 19.40 Vested ( 14 ) 18.98 ( 302 ) 27.14 Forfeited ( 15 ) 18.98 ( 20 ) 25.59 Nonvested at end of year 392 $ 19.55 413 $ 19.40 The total fair value of restricted shares vested during fiscal 2021 and 2020 was $ 363 and $ 5,968 , respectively. As of July 31, 2021, there was $ 4,172 of total unrecognized compensation costs related to nonvested restricted stock granted under the above plans. That cost is expected to be recognized over a weighted-average period of 1.6 years. 39 The Company declared and paid cash dividends on common stock as follows: 2021 2020 Per share: Class A common stock $ 1.00 $ 1.00 Class B common stock 0.65 0.65 Aggregate: Class A common stock $ 10,259 $ 10,174 Class B common stock 2,791 2,791 $ 13,050 $ 12,965 NOTE 9 — PENSION PLANS Company-Sponsored Pension Plans The Company sponsored four defined benefit pension plans. One of the plans was terminated in fiscal 2020, and two of the plans are frozen and participants no longer earn service credit. Two are tax-qualified plans covering members of unions. Benefits under these two plans are based on a fixed amount for each year of service. One is a tax-qualified plan covering nonunion associates. Benefits under this plan are based upon percentages of annual compensation. Funding for these plans is based on an analysis of the specific requirements and an evaluation of the assets and liabilities of each plan. The fourth plan is an unfunded, nonqualified plan providing supplemental pension benefits to certain executives. Net periodic pension cost for the plans include the following components: 2021 2020 Service cost $ 216 $ 202 Interest cost on projected benefit obligation 1,689 2,154 Expected return on plan assets ( 1,932 ) ( 2,792 ) Loss on settlement 587 1,604 Amortization of gains and losses 588 555 Net periodic pension cost $ 1,148 $ 1,723 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 remained as of the termination date. As a result of this termination, the Company recognized a non-cash pre-tax settlement charge totaling $ 669 during fiscal 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 $ 587 and $ 935 in fiscal 2021 and 2020, respectively, for plans where benefits paid exceeded the sum of the service cost and interest cost components of net periodic pension cost. 40 The changes in benefit obligations and the reconciliation of the funded status of the Company’s plans to the consolidated balance sheets were as follows: 2021 2020 Changes in Benefit Obligation: Benefit obligation at beginning of year $ 76,849 $ 69,932 Service cost 216 202 Interest cost 1,689 2,154 Benefits paid ( 796 ) ( 887 ) Settlement ( 2,563 ) ( 6,733 ) Actuarial loss ( 2,166 ) 12,181 Benefit obligation at end of year $ 73,229 $ 76,849 Changes in Plan Assets: Fair value of plan assets at beginning of year $ 70,683 $ 65,173 Actual return on plan assets ( 4,277 ) 13,130 Employer contributions — — Benefits paid ( 796 ) ( 887 ) Settlements paid ( 2,563 ) ( 6,733 ) Fair value of plan assets at end of year 63,047 70,683 Funded status at end of year $ 10,182 $ 6,166 Amounts recognized in the consolidated balance sheets: Pension liabilities 10,182 6,166 Accumulated other comprehensive loss, net of income taxes 9,833 8,092 Amounts included in Accumulated other comprehensive loss (pre-tax): Net actuarial loss $ 14,167 $ 11,299 Company expects approximately $ 504 of the net actuarial loss, excluding the impact of any potential plan settlements, to be recognized as a component of net periodic benefit costs in fiscal 2022. The accumulated benefit obligations of the plans were $ 71,931 and $ 76,849 at July 31, 2021 and July 25, 2020, respectively. The following information is presented for those plans with an accumulated benefit obligation in excess of plan assets: 2021 2020 Projected benefit obligation $ 73,229 $ 11,465 Accumulated benefit obligation 71,931 11,465 Fair value of plan assets 63,047 4,068 Weighted average assumptions used to determine benefit obligations and net periodic pension cost for the Company’s defined benefit plans were as follows: 2021 2020 Assumed discount rate — net periodic pension cost 2.26 % 3.41 % Assumed discount rate — benefit obligation 2.44 % 2.26 % Assumed rate of increase in compensation levels 4.50 % 4.50 % Expected rate of return on plan assets 3.36 % 4.82 % 41 Investments in the pension trusts are overseen by the trustees of the plans, who are officers of Village. 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. This is achieved by investing more of the plan assets in fixed income instruments to more closely match the duration of the plan liability. The investment allocation to fixed income instruments will increase as each plans' funded status increases. The target allocations for plan assets are 0 - 15 % equity securities, 85 - 100 % fixed income securities and 0 - 10 % cash. Asset allocations are reviewed periodically and appropriate rebalancing is performed. Equity securities include investments in large-cap, small-cap and mid-cap companies located both in and outside the United States. Fixed income securities include U.S. treasuries, mortgage-backed securities and corporate bonds of companies from diversified industries. Investments in securities are made through mutual funds. In addition, one plan held Class A common stock of Village in the amount of $ 512 and $ 573 at July 31, 2021 and July 25, 2020, respectively. Risk management is accomplished through diversification across asset classes and fund strategies, multiple investment portfolios and investment guidelines. The plans do not allow for investments in derivative instruments. The fair value of the pension assets were as follows: July 31, 2021 July 25, 2020 Asset Category Level 1 Assets Measured at NAV Total Level 1 Assets Measured at NAV Total Cash $ 83 $ — $ 83 $ 61 $ — $ 61 Equity securities: Company stock 512 — 512 573 — 573 Mutual/Collective Trust Funds - U.S. (1) — 1,174 1,174 — 1,214 1,214 Mutual/Collective Trust Funds - International (1) — 387 387 — 396 396 Fixed income securities: Mutual/Collective Trust Funds - Fixed Income (1) — 60,891 60,891 — 68,439 68,439 Total $ 595 $ 62,452 $ 63,047 $ 634 $ 70,049 $ 70,683 (1) Includes pools of investments that are measured at fair value using the Net Asset Value (NAV) per share (or its equivalent) practical expedient. The NAV is based on the underlying net assets owned by the fund and the relative interest of each participating investor in the fair value of the underlying assets. The underlying investments are classified as either level 1 or 2 of the fair value hierarchy. Based on actuarial assumptions, estimated future defined benefit payments, which may be significantly impacted by participant elections related to retirement dates and forms of payment, are as follows: Fiscal Year 2022 $ 63,114 2023 180 2024 220 2025 170 2026 7,410 2027 - 2030 1,010 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, 42 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. Multi-Employer Plans The Company contributes to three multi-employer pension plans under collective bargaining agreements covering union-represented employees. These plans provide benefits to participants that are generally based on a fixed amount for each year of service. Based on the most recent information available, certain of these multi-employer plans are underfunded. The amount of any increase or decrease in Village’s 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 and the actual return on assets held in the plans, among other factors. The risks of participating in multi-employer pension plans are different from the risks of participating in single-employer pension plans in the following respects: • Assets contributed to a multi-employer plan by one employer may be used to provide benefits to employees of other participating employers. • If a participating employer stops contributing to the plan, the unfunded obligations of the plan allocable to such withdrawing employer may be borne by the remaining participating employers. • If the Company stops participating in some of its multi-employer pension plans, the Company may be required to pay those plans an amount based on its allocable share of the underfunded status of the plan, referred to as a withdrawal liability. The Company’s participation in these plans is outlined in the following tables. The “EIN / Pension Plan Number” column provides the Employer Identification Number (“EIN”) and the three-digit pension plan number. The most recent “Pension Protection Act Zone Status” available in 2020 and 2019 is for the plan’s year-end at December 31, 2020 and December 31, 2019, respectively, unless otherwise noted. Among other factors, generally, plans in the red zone are less than 65 percent funded, plans in the yellow zone are between 65 and 80 percent funded and plans in the green zone are at least 80 percent funded. The “FIP/RP Status Pending / Implemented” column indicates plans for which a funding improvement plan (“FIP”) or a rehabilitation plan (“RP”) is either pending or has been implemented. Pension Protection Act Zone Status FIP/RP Status Pending / Implemented Contributions for the year ended (5) Expiration date of Collective- Bargaining Agreement Pension Fund EIN / Pension Plan Number 2020 2019 July 31, 2021 July 25, 2020 Surcharge Imposed (6) Pension Plan of Local 464A (1) 22-6051600-001 Green Green N/A $ 874 $ 886 N/A August 2025 UFCW Local 1262 & Employers Pension Fund (2), (4) 22-6074414-001 Red Red Implemented 2,721 2,789 No October 2023 UFCW Regional Pension Plan (3), (4) 16-6062287-074 Red Red Implemented $ 1,260 $ 1,231 No June 2024 Total Contributions $ 4,855 $ 4,906 (1) The information for this fund was obtained from the Form 5500 filed for the plan’s year-end at December 31, 2020 and December 31, 2019. (2) The information for this fund was obtained from the Form 5500 filed for the plan’s year-end at December 31, 2019 and December 31, 2018. (3) The information for this fund was obtained from the Form 5500 filed for the plan’s year-end at September 30, 2020 and September 30, 2019. 43 (4) This plan has elected to utilize special amortization provisions provided under the Preservation of Access to Care for Medicare Beneficiaries and Pension Relief Act of 2010. There were no changes to the plan’s zone status as a result of this election. (5) The Company’s contributions represent more than 5 % of the total contributions received by each applicable pension fund for all periods presented. (6) Under the Pension Protection Act, a surcharge may be imposed when employers make contributions under a collective bargaining agreement that is not in compliance with a rehabilitation plan. As of July 31, 2021, the collective bargaining agreements under which the Company was making contributions were in compliance with rehabilitation plans adopted by each applicable pension fund. Other Multi-Employer Benefit Plans The Company also contributes to various other multi-employer benefit plans that provide health and welfare benefits to active and retired participants. Total contributions made by the Company to these other multi-employer benefit plans were $ 33,270 and $ 29,965 in fiscal 2021 and 2020, respectively. Defined Contribution Plans The Company sponsors a 401(k) savings plan for certain eligible associates. Company contributions under that plan, which are based on specified percentages of associate contributions, were $ 1,791 and $ 1,765 in fiscal 2021 and 2020, respectively. The Company also contributes to union sponsored defined contribution plans for certain eligible associates. Company contributions under these plans were $ 3,296 and $ 2,296 in fiscal 2021 and 2020, respectively. NOTE 10 — BUSINESS ACQUISITIONS Fairway Acquisition On May 14, 2020, Village completed its acquisition of certain assets, including five supermarkets averaging 52,000 sq. ft. ( 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 $ 73,622 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 final allocation of the purchase price consideration to the assets acquired and the liabilities assumed has been completed. 44 The following table summarizes how the purchase price has been allocated to the assets acquired and liabilities assumed at the date of acquisition. May 14, 2020 ASSETS Current Assets Cash and cash equivalents $ 257 Merchandise inventories 5,390 Other current assets 247 Total current assets $ 5,894 Property, equipment and fixtures, net $ 37,006 Operating lease assets 218,326 Trade name intangible asset 14,200 Other assets 271 Total assets $ 275,697 LIABILITIES Accrued wages and benefits $ 623 Operating lease obligations 212,735 Total liabilities $ 213,358 Total Net Assets Acquired $ 62,339 Goodwill 11,540 Total Purchase Price $ 73,879 The pro forma information includes historical results of operations of the Fairway locations acquired but does not include efficiencies, cost reductions, synergies or investments for the Company’s customers expected to result from the acquisitions. The unaudited pro forma financial information in the table below is not necessarily indicative of the results that would have occurred had the Fairway locations been acquired at the beginning of fiscal year 2019. Year ended July 25, 2020 Sales $ 2,034,163 Net Income 30,313 NOTE 11 — COMMITMENTS and CONTINGENCIES 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 $ 2,733 in fiscal 2020 which was recognized as a reduction in operating and administrative expense. Village has received a total of $ 6,730 related to losses incurred as a result of Superstorm Sandy. Approximately 89 % of our employees are covered by collective bargaining agreements. Contracts with the Company’s seven unions have or will expire between March 2020 and August 2025. Approximately 10 % of our associates are represented by unions whose contracts have already expired or expire within one year . Any work stoppages could have an adverse impact on our financial results. 45 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. NOTE 12 — SUBSEQUENT EVENTS On October 13, 2021, Village completed the acquisition of the Galloway store shopping center for $ 9,800 . As of July 31, 2021, the right-of-use asset and obligation related to the Galloway store's lease were $ 873 and $ 887 , respectively. 46 Report of Independent Registered Public Accounting Firm To the Shareholders and Board of Directors Village Super Market, Inc.: Opinions on the Consolidated Financial Statements and Internal Control Over Financial Reporting We have audited the accompanying consolidated balance sheets of Village Super Market, Inc. and subsidiaries (the Company) as of July 31, 2021 and July 25, 2020, the related consolidated statements of operations, comprehensive income, shareholders’ equity, and cash flows for the years then ended, and the related notes (collectively, the consolidated financial statements). We also have audited the Company’s internal control over financial reporting as of July 31, 2021, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of July 31, 2021 and July 25, 2020, and the results of its operations and its cash flows for the years then ended, in conformity with U.S. generally accepted accounting principles. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of July 31, 2021 based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Change in Accounting Principle As discussed in Note 1 to the consolidated financial statements, the Company has changed its method of accounting for leases as of July 28, 2019 due to the adoption of Accounting Standards Update (ASU) No. 2016-02, Leases (Topic 842). Basis for Opinions The Company’s management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s consolidated financial statements and an opinion on the Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions. Definition and Limitations of Internal Control Over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the 47 company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Critical Audit Matter The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. Evaluation of trade name intangible asset for impairment As discussed in Note 1 to the consolidated financial statements, the Company tests its indefinite-lived intangible assets for impairment at the end of each fiscal year, or more frequently if circumstances dictate. 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 intangible asset of $2,386 for the year ended July 31, 2021. The estimated fair value of the trade name intangible asset was determined using the relief from royalty method. The Company’s indefinite-lived intangible asset balance of $13,299 as of July 31, 2021, included the Fairway trade name. We identified the evaluation of the Company’s fair value assessment of the Fairway trade name intangible asset as a critical audit matter. Challenging and subjective auditor judgment was required to evaluate estimated future revenue and the discount rate used to determine the fair value of the Fairway trade name intangible asset due to their significant measurement uncertainty. Minor changes to these assumptions had a significant effect on the Company’s estimate of the fair value of the Fairway trade name intangible asset. Additionally, the audit effort associated with the evaluation of the Company’s discount rate required valuation professionals with specialized skills and knowledge. The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating effectiveness of certain internal controls related to the Company’s indefinite lived intangible asset valuation process, including controls over the future revenue and discount rate assumptions. We compared estimates of future revenue to historical actual results and to current economic trends, including the impact of, and anticipated recovery from, the COVID-19 pandemic. We performed sensitivity analyses over the future revenue assumption to assess the impact of changes on the Company’s determination of fair value. We involved valuation professionals with specialized skills and knowledge, who assisted in evaluating the elements of the discount rate assumption used by management, by comparing them against publicly available market data. /s/ KPMG LLP We have served as the Company’s auditor since 1987. Short Hills, New Jersey October 14, 2021 48 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None.