VILLAGE SUPER MARKET INC 10-Q

ITEM 1. FINANCIAL STATEMENTS VILLAGE SUPER MARKET, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In thousands) (Unaudited) April 29, 2023 July 30, 2022 ASSETS Current assets Cash and cash equivalents $ 124,625 $ 134,832 Merchandise inventories 45,859 44,190 Patronage dividend receivable 8,612 12,239 Notes receivable from Wakefern 30,799 28,627 Income taxes receivable 46 631 Other current assets 16,961 17,446 Total current assets 226,902 237,965 Property, equipment and fixtures, net 276,089 265,333 Operating lease assets 274,513 293,295 Notes receivable from Wakefern 61,400 29,157 Investment in Wakefern 33,107 33,004 Investments in Real Estate Partnerships 11,363 7,162 Goodwill 24,190 24,190 Other assets 37,191 34,342 Total assets $ 944,755 $ 924,448 LIABILITIES and SHAREHOLDERS' EQUITY Current liabilities Operating lease obligations $ 20,281 $ 20,351 Finance lease obligations 649 596 Notes payable to Wakefern 737 1,134 Current portion of debt 9,370 7,466 Accounts payable to Wakefern 75,199 77,037 Accounts payable and accrued expenses 28,789 24,266 Accrued wages and benefits 28,296 27,221 Income taxes payable 476 98 Total current liabilities 163,797 158,169 Long-term debt Operating lease obligations 266,916 284,300 Finance lease obligations 20,852 21,510 Notes payable to Wakefern 1,814 1,961 Long-term debt 74,811 66,264 Total long-term debt 364,393 374,035 Pension liabilities 4,823 4,569 Other liabilities 15,992 15,566 Commitments and contingencies (Note 6) 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 11,478 shares at April 29, 2023 and 10,971 shares at July 30, 2022 74,865 72,891 Class B common stock, no par value: Authorized 20,000 shares; issued and outstanding 4,294 shares at April 29, 2023 and July 30, 2022 697 697 Retained earnings 331,551 306,974 Accumulated other comprehensive income 6,964 6,135 Less treasury stock, Class A, at cost: 914 shares at April 29, 2023 and 752 shares at July 30, 2022 ( 18,327 ) ( 14,588 ) Total shareholders’ equity 395,750 372,109 Total liabilities and shareholders’ equity $ 944,755 $ 924,448 See notes to consolidated financial statements. 3 VILLAGE SUPER MARKET, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share amounts) (Unaudited) 13 Weeks Ended 39 Weeks Ended April 29, 2023 April 30, 2022 April 29, 2023 April 30, 2022 Sales $ 529,294 $ 501,962 $ 1,612,848 $ 1,533,581 Cost of sales 378,071 360,371 1,157,461 1,102,199 Gross profit 151,223 141,591 455,387 431,382 Operating and administrative expense 128,787 137,751 384,452 385,521 Depreciation and amortization 8,392 8,130 25,597 24,925 Operating income (loss) 14,044 ( 4,290 ) 45,338 20,936 Interest expense ( 1,085 ) ( 991 ) ( 3,137 ) ( 2,923 ) Interest income 3,151 950 7,798 2,831 Income (loss) before income taxes 16,110 ( 4,331 ) 49,999 20,844 Income taxes 5,093 ( 1,100 ) 15,577 6,617 Net income (loss) $ 11,017 $ ( 3,231 ) $ 34,422 $ 14,227 Net income (loss) per share: Class A common stock: Basic $ 0.84 $ ( 0.25 ) $ 2.64 $ 1.09 Diluted $ 0.75 $ ( 0.22 ) $ 2.36 $ 0.97 Class B common stock: Basic $ 0.54 $ ( 0.16 ) $ 1.71 $ 0.71 Diluted $ 0.54 $ ( 0.16 ) $ 1.71 $ 0.71 See notes to consolidated financial statements. 4 VILLAGE SUPER MARKET, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (In thousands) (Unaudited) 13 Weeks Ended 39 Weeks Ended April 29, 2023 April 30, 2022 April 29, 2023 April 30, 2022 Net income (loss) $ 11,017 $ ( 3,231 ) $ 34,422 $ 14,227 Other comprehensive income: Unrealized (losses) gains on interest rate swaps, net of tax (1) ( 445 ) 2,572 1,117 4,122 Amortization of pension actuarial (gain) loss, net of tax (2) ( 96 ) 89 ( 288 ) 265 Pension settlement loss, net of tax (3) — 8,525 — 8,525 Pension remeasurement, net of tax (4) — 1,642 — 1,642 Comprehensive income $ 10,476 $ 9,597 $ 35,251 $ 28,781 (1) Amount is net of tax of $ 201 and $ 1,104 for the 13 weeks ended April 29, 2023 and April 30, 2022, respectively, and $ 501 and $ 1,767 for the 39 weeks ended April 29, 2023 and April 30, 2022, respectively. (2) Amounts are net of tax of $ 43 and $ 37 for the 13 weeks ended April 29, 2023 and April 30, 2022, respectively, and $ 129 and $ 113 for the 39 weeks ended April 29, 2023 and April 30, 2022, respectively. All amounts are reclassified from accumulated other comprehensive income to operating and administrative expense. (3) Amounts are net of tax of $ 3,780 . All amounts are reclassified from accumulated other comprehensive loss to operating and administrative expense. (4) Amounts are net of tax of $ 702 . See notes to consolidated financial statements. 5 VILLAGE SUPER MARKET, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (In thousands) (Unaudited) 13 Weeks Ended April 29, 2023 and April 30, 2022 Class A Common Stock Class B Common Stock Accumulated Other Comprehensive Income (Loss) Treasury Stock Class A Total Shareholders' Equity Shares Issued Amount Shares Issued Amount Retained Earnings Shares Amount Balance, January 28, 2023 10,970 $ 74,099 4,294 $ 697 $ 323,872 $ 7,505 752 $ ( 14,588 ) $ 391,585 Net income — — — — 11,017 — — — 11,017 Other comprehensive loss, net of tax of $ 244 — — — — — ( 541 ) — — ( 541 ) Dividends — — — — ( 3,338 ) — — — ( 3,338 ) Treasury stock purchases — — — — — — 162 ( 3,739 ) ( 3,739 ) Restricted shares forfeited — ( 73 ) — — — — — — ( 73 ) Share-based compensation expense 508 839 — — — — — — 839 Balance, April 29, 2023 11,478 $ 74,865 4,294 $ 697 $ 331,551 $ 6,964 914 $ ( 18,327 ) $ 395,750 Balance, January 29, 2022 10,981 $ 71,808 4,294 $ 697 $ 304,117 $ ( 7,338 ) 730 $ ( 14,028 ) $ 355,256 Net loss — — — — ( 3,231 ) — — — ( 3,231 ) Other comprehensive income, net of tax of $ 5,623 — — — — — 12,828 — — 12,828 Dividends — — — — ( 3,261 ) — — — ( 3,261 ) Treasury stock purchases — — — — — — 22 ( 560 ) ( 560 ) Restricted shares forfeited ( 6 ) ( 73 ) — — — — — — ( 73 ) Share-based compensation expense — 616 — — — — — — 616 Balance, April 30, 2022 10,975 $ 72,351 4,294 $ 697 $ 297,625 $ 5,490 752 $ ( 14,588 ) $ 361,575 39 Weeks Ended April 29, 2023 and April 30, 2022 Class A Common Stock Class B Common Stock Accumulated Other Comprehensive Income (Loss) Treasury Stock Class A Total Shareholders' Equity Shares Issued Amount Shares Issued Amount Retained Earnings Shares Amount Balance, July 30, 2022 10,971 $ 72,891 4,294 $ 697 $ 306,974 $ 6,135 752 $ ( 14,588 ) $ 372,109 Net income — — — — 34,422 — — — 34,422 Other comprehensive income, net of tax of $ 372 — — — — — 829 — — 829 Dividends — — — — ( 9,845 ) — — — ( 9,845 ) Treasury stock purchases — — — — — — 162 ( 3,739 ) ( 3,739 ) Restricted shares forfeited ( 1 ) ( 114 ) — — — — — — ( 114 ) Share-based compensation expense 508 2,088 — — — — — — 2,088 Balance, April 29, 2023 11,478 $ 74,865 4,294 $ 697 $ 331,551 $ 6,964 914 $ ( 18,327 ) $ 395,750 Balance, July 31, 2021 10,978 $ 70,594 4,294 $ 697 $ 293,185 $ ( 9,064 ) 726 $ ( 13,939 ) $ 341,473 Net income — — — — 14,227 — — — 14,227 Other comprehensive income, net of tax of $ 6,362 — — — — — 14,554 — — 14,554 Dividends — — — — ( 9,787 ) — — — ( 9,787 ) Treasury stock purchases — — — — — — 26 ( 649 ) ( 649 ) Restricted shares forfeited ( 12 ) ( 129 ) — — — — — — ( 129 ) Share-based compensation expense 9 1,886 — — — — — — 1,886 Balance, April 30, 2022 10,975 $ 72,351 4,294 $ 697 $ 297,625 $ 5,490 752 $ ( 14,588 ) $ 361,575 See notes to consolidated financial statements. 6 VILLAGE SUPER MARKET, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (Unaudited) 39 Weeks Ended April 29, 2023 April 30, 2022 CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 34,422 $ 14,227 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 26,857 26,060 Non-cash share-based compensation 1,974 1,757 Non-cash pension settlement charges — 10,811 Deferred taxes ( 395 ) ( 3,674 ) Provision to value inventories at LIFO 2,038 1,462 Gain on sale of property, equipment and fixtures ( 177 ) ( 220 ) Changes in assets and liabilities: Merchandise inventories ( 3,707 ) ( 5,258 ) Patronage dividend receivable 3,627 3,494 Accounts payable to Wakefern ( 1,033 ) 1,538 Accounts payable and accrued expenses 1,793 ( 1,747 ) Accrued wages and benefits 1,075 1,054 Income taxes receivable / payable 963 ( 1,116 ) Other assets and liabilities 807 3,314 Net cash provided by operating activities 68,244 51,702 CASH FLOWS FROM INVESTING ACTIVITIES Capital expenditures ( 35,689 ) ( 36,834 ) Proceeds from the sale of assets 177 4,225 Investment in notes receivable from Wakefern ( 63,265 ) ( 1,788 ) Maturity of notes receivable from Wakefern 28,850 — Investment in real estate partnership ( 4,268 ) ( 4,393 ) Net cash used in investing activities ( 74,195 ) ( 38,790 ) CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from issuance of long-term debt 17,125 7,350 Principal payments of long-term debt ( 7,764 ) ( 6,174 ) Debt issuance costs ( 33 ) ( 51 ) Dividends ( 9,845 ) ( 9,787 ) Treasury stock purchases, including shares surrendered for withholding taxes ( 3,739 ) ( 649 ) Net cash used in financing activities ( 4,256 ) ( 9,311 ) NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS ( 10,207 ) 3,601 CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 134,832 116,314 CASH AND CASH EQUIVALENTS, END OF PERIOD $ 124,625 $ 119,915 SUPPLEMENTAL DISCLOSURES OF CASH PAYMENTS MADE FOR: Interest $ 3,137 $ 2,923 Income taxes $ 15,005 $ 17,740 NONCASH SUPPLEMENTAL DISCLOSURES: Capital expenditures included in accounts payable and accrued expenses $ 5,709 $ 4,152 See notes to consolidated financial statements. 7 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (In thousands) (Unaudited) 1. BASIS OF PRESENTATION and ACCOUNTING POLICIES In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments (consisting of normal and recurring accruals) necessary to present fairly the consolidated financial position as of April 29, 2023 and the consolidated statements of operations, comprehensive income and cash flows for the 13 and 39 weeks ended April 29, 2023 and April 30, 2022 of Village Super Market, Inc. (“Village” or the “Company”). The significant accounting policies followed by the Company are set forth in Note 1 to the Company's consolidated financial statements in the July 30, 2022 Village Super Market, Inc. Annual Report on Form 10-K, which should be read in conjunction with these financial statements. The results of operations for the period ended April 29, 2023 are not necessarily indicative of the results to be expected for the full year. Disaggregated Revenues The following table presents the Company's sales by product categories during each of the periods indicated: 13 Weeks Ended 39 Weeks Ended April 29, 2023 April 30, 2022 April 29, 2023 April 30, 2022 Amount % Amount % Amount % Amount % Center Store (1) $ 317,532 60.0 % $ 297,892 59.4 % $ 973,173 60.4 % $ 918,228 59.9 % Fresh (2) 192,436 36.4 185,757 37.0 581,947 36.1 559,909 36.5 Pharmacy 17,581 3.3 16,761 3.3 52,371 3.2 50,365 3.3 Other (3) 1,745 0.3 1,552 0.3 5,357 0.3 5,079 0.3 Total Sales $ 529,294 100.0 % $ 501,962 100.0 % $ 1,612,848 100.0 % $ 1,533,581 100.0 % (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. 2. MERCHANDISE INVENTORIES At April 29, 2023 and July 30, 2022, approximately 64 % and 61 %, respectively, of merchandise inventories are valued by the LIFO method while the balance is valued by FIFO. If the FIFO method had been used for the entire inventory, inventories would have been $ 20,654 and $ 18,616 higher than reported at April 29, 2023 and July 30, 2022, respectively. 3. NET INCOME PER SHARE The Company has two classes of common stock. Class A common stock is entitled to cash dividends as declared 54 % greater than those paid on Class B common stock. Shares of Class B common stock are convertible on a share-for-share basis for Class A common stock at any time. The Company utilizes the two-class method of computing and presenting net income per share. The two-class method is an earnings allocation formula that calculates basic and diluted net income per share for each class of common stock separately based on dividends declared and participation rights in undistributed earnings. Under the two-class method, Class A common stock is assumed to receive a 54 % greater participation in undistributed earnings than Class B common stock, in accordance with the classes' respective dividend rights. Unvested share-based payment awards that contain nonforfeitable rights to dividends are treated as participating securities and therefore included in computing net income per share using the two-class method. 8 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 table below reconciles Net income (loss) to Net income available to Class A and Class B shareholders: 13 Weeks Ended 39 Weeks Ended April 29, 2023 April 30, 2022 April 29, 2023 April 30, 2022 Net income (loss) $ 11,017 $ ( 3,231 ) $ 34,422 $ 14,227 Distributed and allocated undistributed Net income (loss) to unvested restricted shareholders 369 ( 93 ) 1,014 429 Net income available to Class A and Class B shareholders $ 10,648 $ ( 3,138 ) $ 33,408 $ 13,798 The tables below reconcile the numerators and denominators of basic and diluted Net income (loss) per share for all periods presented. 13 Weeks Ended 39 Weeks Ended April 29, 2023 April 29, 2023 Class A Class B Class A Class B Numerator: Net income (loss) allocated, basic $ 8,311 $ 2,336 $ 26,055 $ 7,354 Conversion of Class B to Class A shares 2,336 — 7,354 — Net income (loss) allocated, diluted $ 10,647 $ 2,336 $ 33,409 $ 7,354 Denominator: Weighted average shares outstanding, basic 9,863 4,294 9,863 4,294 Conversion of Class B to Class A shares 4,294 — 4,294 — Weighted average shares outstanding, diluted 14,157 4,294 14,157 4,294 13 Weeks Ended 39 Weeks Ended April 30, 2022 April 30, 2022 Class A Class B Class A Class B Numerator: Net income allocated, basic $ ( 2,447 ) $ ( 691 ) $ 10,757 $ 3,041 Conversion of Class B to Class A shares ( 691 ) — 3,041 — Effect of share-based compensation on allocated net income ( 19 ) ( 14 ) — — Net income allocated, diluted $ ( 3,157 ) $ ( 705 ) $ 13,798 $ 3,041 Denominator: Weighted average shares outstanding, basic 9,876 4,294 9,871 4,294 Conversion of Class B to Class A shares 4,294 — 4,294 — Weighted average shares outstanding, diluted 14,170 4,294 14,165 4,294 Outstanding stock options to purchase Class A shares of 90 and 102 were excluded from the calculation of diluted net income per share at April 29, 2023 and April 30, 2022, respectively, as a result of their anti-dilutive effect. In addition, 507 and 363 non-vested restricted Class A shares, which are considered participating securities, and their allocated net income were excluded from the diluted net income per share calculation at April 29, 2023 and April 30, 2022, respectively, due to their anti-dilutive effect. 9 4. PENSION PLANS Net periodic pension cost for the two defined benefit pension plans sponsored in fiscal 2023 and the three defined benefit pension plans sponsored in fiscal 2022 includes the following components: 13 Weeks Ended 39 Weeks Ended April 29, 2023 April 30, 2022 April 29, 2023 April 30, 2022 Service cost $ 34 $ 47 $ 101 $ 140 Interest cost on projected benefit obligations 70 420 210 1,261 Expected return on plan assets ( 19 ) ( 409 ) ( 57 ) ( 1,227 ) Loss on settlement — 12,296 — 12,296 Amortization of net (gains) losses ( 139 ) 126 ( 417 ) 378 Net periodic pension cost $ ( 54 ) $ 12,480 $ ( 163 ) $ 12,848 In April 2022, the Company terminated the Village Super Market, Inc. Employees’ Retirement Plan. Prior to termination, the Company made a $ 1,485 contribution to fully fund the plan. Plan assets were liquidated to fund lump sum distributions to participants of $ 37,289 and purchase annuity contracts totaling $ 14,930 with an insurance company for all participants who did not elect a lump sum distribution. The Company recognized a $ 12,296 pre-tax settlement charge as a result of the termination, including a $ 10,856 non-cash charge for unrecognized losses within accumulated other comprehensive loss as of the termination date. No benefit obligation or plan assets related to the Village Super Market, Inc. Employees’ Retirement Plan remain as of April 29, 2023. Contributions to the remaining plans are expected to be immaterial in fiscal 2023. 5. RELATED PARTY INFORMATION A description of the Company’s transactions with Wakefern, its principal supplier, and with other related parties is included in the Company’s Annual Report on Form 10-K for the year ended July 30, 2022. On August 15, 2022, notes receivable due from Wakefern of $ 28,850 that earned interest at the prime rate plus 1.25 % matured. The Company invested all of the proceeds received in variable rate notes receivable from Wakefern that earn interest at the prime rate plus .50 % and mature on August 15, 2027. On September 28, 2022, the Company invested an additional $ 30,000 in variable rate notes receivable from Wakefern that earn interest at the prime rate plus .50 % and mature on September 28, 2027. At April 29, 2023, the Company held variable rate notes receivable due from Wakefern of $ 30,799 that earn interest at the prime rate plus .75 % and mature on February 15, 2024, $ 30,212 that earn interest at the prime rate plus .50 % and mature on August 15, 2027 and $ 31,188 that earn interest at the prime rate plus .50 % and mature on September 28, 2027. Wakefern has the right to prepay these notes at any time. Under certain conditions, the Company can require Wakefern to prepay the notes, although interest earned since inception would be reduced as if it was earned based on overnight money market rates as paid by Wakefern on demand deposits. Included in cash and cash equivalents at April 29, 2023 and July 30, 2022 are $ 105,832 and $ 110,739 , respectively, of demand deposits invested at Wakefern at overnight money market rates. On April 28, 2022, the Company entered into a partnership agreement for 30 % interest in the development of a retail center in Old Bridge, New Jersey, which includes a Village replacement store with future lease obligations of $ 9,280 . Village's share of project costs are estimated to be $ 15,000 to $ 20,000 . As of April 29, 2023, Village has invested $ 9,278 into the real estate partnership, which is accounted for as an equity method investment. There have been no other significant changes in the Company’s relationships or nature of transactions with related parties during the 39 weeks ended April 29, 2023. 10 6. COMMITMENTS and CONTINGENCIES The Company is involved in litigation incidental to the normal course of business. Company management is of the opinion that the ultimate resolution of these legal proceedings should not have a material adverse effect on the consolidated financial position, results of operations or liquidity of the Company. 7. DEBT Long-term debt consists of: April 29, 2023 July 30, 2022 Secured term loans $ 54,977 $ 50,796 Unsecured term loan 23,961 17,507 New Market Tax Credit Financing 5,243 5,427 Total debt, excluding obligations under leases 84,181 73,730 Less current portion 9,370 7,466 Total long-term debt, excluding obligations under leases $ 74,811 $ 66,264 Credit Facility The Company has a credit facility (the “Credit Facility”) with Wells Fargo National Bank, National Association (“Wells Fargo”). The principal purpose of the Credit Facility is to finance general corporate and working capital requirements, Village’s fiscal 2020 acquisition of certain Fairway assets and certain capital expenditures. Among other things, the Credit Facility provides for: • An unsecured revolving line of credit providing a maximum amount available for borrowing of $ 75,000 . Indebtedness under this agreement bears interest at the applicable Secured Overnight Financing Rate ("SOFR") plus 1.10 % and expires on May 6, 2025. • An unsecured $ 25,500 term loan issued on May 12, 2020, repayable in equal monthly installments based on a seven-year amortization schedule through May 4, 2027 and bearing interest at the applicable SOFR plus 1.46 %. An interest rate swap with notional amounts equal to the term loan fixes the base SOFR at .26 % per annum through May 4, 2027, resulting in a fixed effective interest rate of 1.72 % on the term loan. • A secured $ 50,000 term loan issued on September 1, 2020 repayable in equal monthly installments based on a fifteen-year amortization schedule through September 1, 2035 and bearing interest at the applicable SOFR plus 1.61 %. An interest rate swap with notional amounts equal to the term loan fixes the base SOFR at .57 % per annum through September 1, 2035, resulting in a fixed effective interest rate of 2.18 % on the 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. • A secured $ 7,350 term loan issued on January 28, 2022 repayable in equal monthly installments based on a fifteen-year amortization schedule through January 28, 2037 and bearing interest at the applicable SOFR plus 1.50 %. An interest rate swap with notional amounts equal to the term loan fixes the base SOFR at 1.41 % per annum through January 28, 2037, resulting in a fixed effective interest rate of 2.91 % on the term loan. The term loan is secured by the Galloway store shopping center acquired for $ 9,800 in the first quarter of fiscal 2022. On September 1, 2022, the Company amended the Credit Facility due to the execution of a seven year $ 10,000 unsecured term loan. The unsecured term loan is repayable in equal monthly installments based on a seven year amortization schedule through September 4, 2029 and bears interest at the applicable SOFR plus 1.35 %. Village also executed an interest rate swap for a notional amount equal to the term loan amount that fixes the base SOFR at 2.95 %, resulting in a fixed effective rate of 4.30 %. This loan qualified for an interest rate subsidy program with Wakefern on financing related to certain capital expenditure projects. Net of the subsidy, the Company will pay interest at a fixed effective rate of 2.30 %. 11 On January 27, 2023, the Company purchased the Vineland store shopping center for $ 9,500 . As part of the purchase, the Company amended the Credit Facility due to the execution of a fifteen year $ 7,125 term loan secured by the Vineland store shopping center. The secured term loan is repayable in equal monthly installments based on a fifteen year amortization schedule through January 27, 2038 and bears interest at the applicable SOFR plus 1.75 %. Village also executed an interest rate swap for a notional amount equal to the term loan amount that fixes the base SOFR at 3.59 %, resulting in a fixed effective rate of 5.34 %. The Credit Facility also provides for up to $ 25,000 of letters of credit ($ 7,336 outstanding at April 29, 2023), 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 April 29, 2023. As of April 29, 2023, $ 67,664 remained available under the unsecured revolving line of credit. New Markets Tax Credit Financing On December 29, 2017, the Company entered into a financing transaction with Wells Fargo Community Investment Holdings, LLC (“Wells Fargo”) under a qualified New Markets Tax Credit (“NMTC”) program related to the construction of a new store in the Bronx, New York. The NMTC program was provided for in the Community Renewal Tax Relief Act of 2000 (the “Act”) and is intended to induce capital investment in qualified lower income communities. The Act permits taxpayers to claim credits against their Federal income taxes for up to 39% of qualified investments in the equity of community development entities (“CDEs”). CDEs are privately managed investment institutions that are certified to make qualified low-income community investments. In connection with the financing, the Company loaned $ 4,835 to VSM Investment Fund, LLC (the "Investment Fund") at an interest rate of 1.403 % per year and with a maturity date of December 31, 2044. Repayments on the loan commence in March 2025. Wells Fargo contributed $ 2,375 to the Investment Fund and, by virtue of such contribution, is entitled to substantially all of the tax benefits derived from the NMTC. The Investment Fund is a wholly owned subsidiary of Wells Fargo. The loan to the Investment Fund is recorded in Other assets in the consolidated balance sheets. The Investment Fund then contributed the proceeds to a CDE, which, in turn, loaned combined funds of $ 6,563 , net of debt issuance costs, to Village Super Market of NY, LLC, a wholly-owned subsidiary of the Company, at an interest rate of 1.000 % per year with a maturity date of December 31, 2051. These loans are secured by the leasehold improvements and equipment related to the construction of the Bronx store. Repayment of the loans commences in March 2025. The proceeds of the loans from the CDE were used to partially fund the construction of the Bronx store. The Notes payable related to New Markets Tax Credit, net of debt issuance costs, are recorded in long-term debt in the consolidated balance sheets. The NMTC is subject to 100% recapture for a period of seven years. The Company is required to be in compliance with various regulations and contractual provisions that apply to the New Markets Tax Credit arrangement. Noncompliance could result in Wells Fargo's projected tax benefits not being realized and, therefore, require the Company to indemnify Wells Fargo for any loss or recapture of NMTCs. The Company does not anticipate any credit recapture will be required in connection with this financing arrangement. The transaction includes a put/call provision whereby the Company may be obligated or entitled to repurchase Wells Fargo's interest in the Investment Fund. The value attributed to the put/call is de minimis. We believe that Wells Fargo will exercise the put option in December 2024, at the end of the recapture period, that will result in a net benefit to the Company of $ 1,728 . The Company is recognizing the net benefit over the seven-year compliance period in operating and administrative expense. 8. DERIVATIVES AND HEDGING ACTIVITIES The Company is exposed to interest rate risk arising from fluctuations in SOFR 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. As of April 29, 2023, the Company had five interest rate swaps with an aggregate initial notional value of $ 99,975 to hedge the variable cash flows associated with variable-rate loans under the Company's Credit Facility. The interest rate swaps 12 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 the reference rate. The swaps replaced the applicable reference rate 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 income and subsequently reclassified into interest expense in the same period during which the hedged transaction affects earnings. Amounts reported in Accumulated other comprehensive income related to derivatives will be reclassified to interest expense as interest payments are made on the variable-rate loans. The Company reclassified $ 677 and $ 89 during the 13 weeks ended April 29, 2023 and April 30, 2022, respectively, and $ 1,425 and $ 262 during the 39 weeks ended April 29, 2023 and April 30, 2022, respectively, from Accumulated other comprehensive income to Interest expense. The notional value of the interest rate swaps were $ 79,255 as of April 29, 2023. The fair value of interest rate swaps recorded in Other assets in the consolidated balance sheets is $ 7,637 as of April 29, 2023. 13