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 29, 2023 July 30, 2022 ASSETS Current Assets Cash and cash equivalents $ 140,910 $ 134,832 Merchandise inventories 44,515 44,190 Patronage dividend receivable 12,466 12,239 Notes receivable from Wakefern 31,483 28,627 Income taxes receivable — 631 Other current assets 17,313 17,446 Total current assets 246,687 237,965 Property, equipment and fixtures, net 277,310 265,333 Operating lease assets 274,100 293,295 Notes receivable from Wakefern 62,726 29,157 Investment in Wakefern 33,107 33,004 Investments in Real Estate Partnerships 13,155 7,162 Goodwill 24,190 24,190 Other assets 36,431 34,342 Total assets $ 967,706 $ 924,448 LIABILITIES and SHAREHOLDERS’ EQUITY Current Liabilities Operating lease obligations $ 20,389 $ 20,351 Finance lease obligations 667 596 Notes payable to Wakefern 737 1,134 Current portion of debt 9,370 7,466 Accounts payable to Wakefern 77,033 77,037 Accounts payable and accrued expenses 31,441 24,266 Accrued wages and benefits 29,853 27,221 Income taxes payable 9,483 98 Total current liabilities 178,973 158,169 Long-term debt Operating lease obligations 266,683 284,300 Finance lease obligations 20,623 21,510 Notes payable to Wakefern 1,686 1,961 Long-term debt 72,426 66,264 Total long-term debt 361,418 374,035 Pension liabilities 4,893 4,569 Other liabilities 12,256 15,566 Commitments and Contingencies (Notes 3, 4, 5, 6, 7, 9 and 10) 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 11,563 shares at July 29, 2023 and 10,971 shares at July 30, 2022 76,179 72,891 Class B common stock, no par value: Authorized 20,000 shares; issued and outstanding 4,204 shares at July 29, 2023 and 4,294 shares at July 30, 2022 683 697 Retained earnings 343,497 306,974 Accumulated other comprehensive income 8,134 6,135 Less treasury stock, Class A, at cost: 912 shares at July 29, 2023 and 752 shares at July 30, 2022 ( 18,327 ) ( 14,588 ) Total shareholders’ equity 410,166 372,109 Total liabilities and shareholders' equity $ 967,706 $ 924,448 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 29, 2023 July 30, 2022 Sales $ 2,166,654 $ 2,061,084 Cost of sales 1,550,204 1,481,417 Gross profit 616,450 579,667 Operating and administrative expense 516,902 507,597 Depreciation and amortization 34,002 33,122 Operating income 65,546 38,948 Interest expense ( 4,220 ) ( 3,907 ) Interest income 11,399 4,023 Income before income taxes 72,725 39,064 Income taxes 23,009 12,234 Net income $ 49,716 $ 26,830 Net income per share: Class A common stock: Basic $ 3.78 $ 2.06 Diluted $ 3.38 $ 1.84 Class B common stock: Basic $ 2.45 $ 1.34 Diluted $ 2.45 $ 1.34 See notes to consolidated financial statements. 23 VILLAGE SUPER MARKET, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (In thousands) Years ended July 29, 2023 July 30, 2022 Net income $ 49,716 $ 26,830 Other comprehensive income: Unrealized gain on interest rate swaps, net of tax (1) 2,308 3,398 Amortization of pension actuarial (gain) loss, net of tax (2) ( 342 ) 233 Pension remeasurement, net of tax (3) 9 3,012 Pension settlement loss, net of tax (4) 24 8,556 Total other comprehensive income 1,999 15,199 Comprehensive income $ 51,715 $ 42,029 (1) Amounts are net of tax of $ 807 and $ 1,505 for 2023 and 2022, respectively. (2) Amounts are net of tax of $ 214 and $ 102 for 2023 and 2022, respectively. All amounts are reclassified from accumulated other comprehensive loss to operating and administrative expense. (3) Amounts are net of tax of $ 6 and $ 1,349 for 2023 and 2022, respectively. (4) Amounts are net of tax of $ 15 and $ 3,785 for 2023 and 2022, 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 29, 2023 and July 30, 2022 Accumulated Other Comprehensive Income (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 31, 2021 10,978 $ 70,594 4,294 $ 697 $ 293,185 $ ( 9,064 ) 724 $ ( 13,939 ) $ 341,473 Net income — — — — 26,830 — — — 26,830 Other comprehensive loss, net of tax of $ 6,741 — — — — — 15,199 — — 15,199 Dividends — — — — ( 13,041 ) — — — ( 13,041 ) Treasury stock purchases — — — — — — 26 ( 649 ) ( 649 ) Restricted shares forfeited ( 16 ) ( 198 ) — — — — — — ( 198 ) Share-based compensation expense 9 2,495 — — — — — — 2,495 Balance, July 30, 2022 10,971 $ 72,891 4,294 $ 697 $ 306,974 $ 6,135 750 $ ( 14,588 ) $ 372,109 Net income — — — — 49,716 — — — 49,716 Other comprehensive income, net of tax of $ 614 — — — — — 1,999 — — 1,999 Dividends — — — — ( 13,193 ) — — — ( 13,193 ) Treasury stock purchases — — — — — — 162 ( 3,739 ) ( 3,739 ) Restricted shares forfeited ( 10 ) ( 47 ) — — — — — — ( 47 ) Share-based compensation expense 512 3,321 — — — — — — 3,321 Conversion of Class B shares to Class A shares 90 14 ( 90 ) ( 14 ) — — — — — Balance, July 29, 2023 11,563 $ 76,179 4,204 $ 683 $ 343,497 $ 8,134 912 $ ( 18,327 ) $ 410,166 See notes to consolidated financial statements. 25 VILLAGE SUPER MARKET, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) Years ended July 29, 2023 July 30, 2022 CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 49,716 $ 26,830 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 35,711 34,705 Non-cash share-based compensation 3,274 2,297 Non-cash pension settlement charges — 10,856 Deferred taxes ( 2,088 ) ( 5,093 ) Provision to value inventories at LIFO 2,622 3,295 Loss (Gain) on sale of assets 257 ( 346 ) Changes in assets and liabilities: Merchandise inventories ( 2,947 ) ( 4,852 ) Patronage dividend receivable ( 227 ) ( 379 ) Accounts payable to Wakefern 928 6,550 Accounts payable and accrued expenses 4,436 ( 1,759 ) Accrued wages and benefits 2,632 2,185 Income taxes receivable / payable 9,737 2,976 Other assets and liabilities 462 2,360 Net cash provided by operating activities 104,513 79,625 CASH FLOWS FROM INVESTING ACTIVITIES Capital expenditures ( 46,400 ) ( 43,270 ) Proceeds from the sale of assets 262 4,352 Investment in notes receivable from Wakefern ( 65,275 ) ( 2,489 ) Investment in real estate partnerships ( 5,865 ) ( 5,010 ) Maturity of notes receivable from Wakefern 28,850 — Net cash used in investing activities ( 88,428 ) ( 46,417 ) CASH FLOWS FROM FINANCING ACTIVITIES Excess tax benefit related to share-based compensation 279 — Proceeds from issuance of long-term debt 17,125 7,350 Principal payments of long-term debt ( 10,446 ) ( 8,299 ) Debt issuance costs ( 33 ) ( 51 ) Dividends ( 13,193 ) ( 13,041 ) Treasury stock purchases, including shares surrendered for withholding taxes ( 3,739 ) ( 649 ) Net cash used in financing activities ( 10,007 ) ( 14,690 ) NET INCREASE IN CASH AND CASH EQUIVALENTS 6,078 18,518 CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 134,832 116,314 CASH AND CASH EQUIVALENTS, END OF YEAR $ 140,910 $ 134,832 SUPPLEMENTAL DISCLOSURES OF CASH PAYMENTS MADE FOR: Interest $ 4,220 $ 3,907 Income taxes 15,080 20,685 NONCASH SUPPLEMENTAL DISCLOSURES: Capital expenditures included in accounts payable and accrued expenses $ 5,591 $ 3,784 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 four 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 2023 and 2022 contain 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, accounting for contingencies, accounting for derivative instruments and hedging activities, 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 29, 2023 July 30, 2022 Amount % Amount % Center Store (1) $ 1,300,061 60.0 % $ 1,229,336 59.7 % Fresh (2) 787,770 36.4 % 757,383 36.7 % Pharmacy 71,749 3.3 % 67,780 3.3 % Other (3) 7,074 0.3 % 6,585 0.3 % Total Sales $ 2,166,654 100.0 % $ 2,061,084 100.0 % (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. Depreciation expense of $ 1,709 and $ 1,583 related to the centralized commissary is included in cost of sales in fiscal 2023 and 2022, respectively. 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. Operating and administrative expense Operating and administrative expenses consists primarily of store and corporate costs, including employee salaries, wages, company-sponsored and multi-employer health and welfare, pension, and defined contribution benefits, supplies, advertising, utilities, facility repairs and maintenance, rent, occupancy costs and administrative expenses. 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 $ 11,891 and $ 11,653 at July 29, 2023 and July 30, 2022, respectively. Included in cash and cash equivalents at July 29, 2023 and July 30, 2022 are $ 122,028 and $ 110,739 , respectively, of demand deposits invested at Wakefern at overnight money market rates. Merchandise inventories At April 29, 2023 and July 30, 2022, approximately 64 % and 61 %, respectively, 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 $ 21,238 and $ 18,616 higher than reported in fiscal 2023 and 2022, respectively. All other inventories are stated at the lower of FIFO cost or market. 28 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, five to 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. 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 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 $ 10,658 and $ 10,320 in fiscal 2023 and 2022, 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 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. 29 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 income, 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 the carrying values of its long-lived assets, such as property, equipment and fixtures and operating lease assets on an individual store basis for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset group may not be recoverable. Factors considered by the Company that could result in an impairment triggering event include a current period operating or cash flow loss, underperformance of a store relative to historical or expected operating results, and significant negative industry or economic trends. If an impairment triggering event is identified, the Company analyzes the undiscounted estimated future net cash flows from asset groups at the store level to determine if the carrying value of such assets are recoverable from their respective cash flows. If impairment is indicated, it is measured by comparing the fair value of the long-lived asset groups to their carrying value. 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 as of July 29, 2023 and July 30, 2022 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 of goodwill 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. 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 30 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 table below reconciles Net income to Net income available to Class A and Class B shareholders: Years ended July 29, 2023 July 30, 2022 Net income $ 49,716 $ 26,830 Distributed and allocated undistributed Net income to unvested restricted shareholders 1,589 777 Net income available to Class A and Class B shareholders $ 48,127 $ 26,053 The tables below reconcile the numerators and denominators of basic and diluted net income per share for all periods presented. 2023 2022 Class A Class B Class A Class B Numerator: Net income allocated, basic $ 37,639 $ 10,487 $ 20,311 $ 5,742 Conversion of Class B to Class A shares 10,487 — 5,742 — Net income allocated, diluted $ 48,127 $ 10,487 $ 26,053 $ 5,742 Denominator: Weighted average shares outstanding, basic 9,949 4,281 9,869 4,294 Conversion of Class B to Class A shares 4,281 — 4,294 — Weighted average shares outstanding, diluted 14,230 4,281 14,163 4,294 Net income per share is as follows: 2023 2022 Class A Class B Class A Class B Basic $ 3.78 $ 2.45 $ 2.06 $ 1.34 Diluted $ 3.38 $ 2.45 $ 1.84 $ 1.34 Outstanding stock options to purchase Class A shares of 88 and 97 were excluded from the calculation of diluted net income per share at July 29, 2023 and July 30, 2022, respectively, as a result of their anti-dilutive effect. In addition, 503 and 359 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 29, 2023 and July 30, 2022, 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 income. 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 The Company monitors accounting standards recently issued by the FASB to assess their impact on the consolidated financial statements, if any. There were no recently issued accounting standards that will have a material impact on our consolidated financial statements. NOTE 2 — PROPERTY, EQUIPMENT and FIXTURES Property, equipment and fixtures are comprised as follows: July 29, 2023 July 30, 2022 Land and buildings $ 142,000 $ 129,103 Store fixtures and equipment 360,335 341,924 Leasehold improvements 193,113 183,188 Leased property under finance leases 25,211 25,211 Construction in progress 14,034 8,054 Vehicles 2,150 2,746 Total property, equipment and fixtures 736,843 690,226 Accumulated depreciation ( 445,234 ) ( 411,541 ) Accumulated amortization of property under finance leases ( 14,299 ) ( 13,352 ) Property, equipment and fixtures, net $ 277,310 $ 265,333 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 12.7 % of the outstanding shares of Wakefern at July 29, 2023. 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 2023 and 2022. The Company also has an investment of approximately 8.8 % in Insure-Rite, Ltd., a Wakefern affiliated company, which provides Village with liability and property insurance coverage. 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 29, 2023, the Company’s indebtedness to Wakefern for the outstanding amount of these stock subscriptions was $ 2,423 . Installment payments are due as follows: 2024 - $ 737 ; 2025 - $ 747 ; 2026 - $ 511 ; 2027 - $ 372 ; 2028 - $ 56 ; and $ 0 thereafter. 32 The maximum per store investment remained $ 975 in fiscal 2023. 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 $ 43,967 and $ 39,038 in fiscal 2023 and 2022, respectively. Wakefern provides the Company with support services in numerous areas including advertising, liability and property insurance, supplies, certain equipment purchasing, coupon processing, certain financial accounting applications, retail technology support, and other store services. Village incurred charges of $ 42,678 and $ 47,877 from Wakefern in fiscal 2023 and 2022, 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. 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 July 29, 2023, the Company held variable rate notes receivable due from Wakefern of $ 31,483 that earn interest at the prime rate plus .75 % and mature on February 15, 2024, $ 30,865 that earn interest at the prime rate plus .50 % and mature on August 15, 2027 and $ 31,861 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. At July 29, 2023, the Company had demand deposits invested at Wakefern in the amount of $ 122,028 . These deposits earn overnight money market rates. Interest income earned on investments with Wakefern was $ 11,295 and $ 3,953 in fiscal 2023 and 2022, respectively. NOTE 4 — DEBT Long-term debt consists of: July 29, 2023 July 30, 2022 Secured term loan $ 53,912 $ 50,796 Unsecured term loan 22,702 17,507 New Market Tax Credit Financing 5,182 5,427 Total debt, excluding obligations under leases 81,796 73,730 Less current portion 9,370 7,466 Total long-term debt, excluding obligations under leases $ 72,426 $ 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 33 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 4, 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 4, 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 for a notional amount 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 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 %. 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 July 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 July 29, 2023. As of July 29, 2023, $ 67,664 remained available under the unsecured revolving line of credit. 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 34 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. NOTE 5 — 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 July 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 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 $ 2,179 and $ 262 during the fiscal years ended July 29, 2023 and July 30, 2022, respectively, from Accumulated other comprehensive income to Interest expense. The notional value of the interest rate swaps were $ 76,912 as of July 29, 2023. The fair value of interest rate swaps are included in the following captions on the consolidated balance sheets at July 29, 2023 and July 30, 2022: July 29, 2023 July 30, 2022 Other assets 9,135 6,020 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. 35 NOTE 6 — INCOME TAXES The components of the provision for income taxes are: 2023 2022 Federal: Current $ 14,749 $ 10,766 Deferred ( 1,274 ) ( 3,547 ) State: Current 10,348 6,561 Deferred ( 814 ) ( 1,546 ) $ 23,009 $ 12,234 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 29, 2023 July 30, 2022 Deferred tax assets: Lease liabilities $ 89,638 $ 100,275 Compensation related costs 4,705 3,618 Pension costs 1,544 1,536 Other 730 710 Total deferred tax assets 96,617 106,139 Deferred tax liabilities: Tax over book depreciation 20,242 20,859 Lease assets 81,676 92,375 Patronage dividend receivable 3,457 3,950 Investment in partnerships 1,107 1,164 Other 3,079 2,206 Total deferred tax liabilities 109,561 120,554 Net deferred tax liability $ ( 12,944 ) $ ( 14,415 ) Deferred income tax assets (liabilities) are included in the following captions on the consolidated balance sheets at July 29, 2023 and July 30, 2022: July 29, 2023 July 30, 2022 Other assets 1,245 515 Other liabilities ( 14,189 ) ( 14,930 ) 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 36 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 29, 2023 and July 30, 2022. The effective income tax rate differs from the statutory federal income tax rate as follows: 2023 2022 Statutory federal income tax rate 21.0 % 21.0 % State income taxes, net of federal tax benefit 9.9 % 10.1 % Other 0.7 % 0.2 % Effective income tax rate 31.6 % 31.3 % 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 30 retail stores, as well as a commissary, the corporate headquarters and equipment at July 29, 2023. 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 29, 2023 July 30, 2022 Operating lease cost Operating and administrative expense $ 36,146 $ 36,909 Finance lease cost Amortization of leased assets Depreciation and amortization 947 947 Interest on lease liabilities Interest expense 1,874 1,939 Variable lease cost Operating and administrative expense 21,275 20,483 Total lease cost $ 60,242 $ 60,278 As of July 29, 2023 and July 30, 2022, finance lease right-of-use assets of $ 10,912 and $ 11,859 , 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. The Company's lease liabilities mature as follows as of July 29, 2023: Operating leases Finance leases Total 2024 $ 32,033 $ 2,470 $ 34,503 2025 34,714 2,820 37,534 2026 32,909 2,893 35,802 2027 32,224 2,893 35,117 2028 30,822 2,893 33,715 Thereafter 210,996 20,400 231,396 Total lease payments 373,698 34,369 408,067 Less amount representing interest 86,626 13,079 99,705 Present value of lease liabilities $ 287,072 $ 21,290 $ 308,362 37 The Company has approximately $ 31,027 of future payment obligations related to lease agreements that have not yet commenced but have been executed as of July 29, 2023. As of July 29, 2023, the Company's lease terms and discount rates are as follows: July 29, 2023 July 30, 2022 Weighted-average remaining lease term (years) Operating leases 12.6 13.1 Finance leases 12.4 13.4 Weighted-average discount rate Operating leases 4.2 % 4.1 % Finance leases 8.5 % 8.5 % Supplemental cash flow information related to leases is as follows: 2023 2022 Cash paid for amounts in the measurement of lease liabilities Operating cash flows from operating leases $ 34,442 $ 35,730 Operating cash flows from finance leases 1,874 1,939 Financing cash flows from finance leases 815 750 Lease obligations obtained in exchange for right-of-use assets (non-cash) 5,724 29,940 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 $ 735 in both fiscal 2023 and 2022, and has a related lease obligation of $ 1,851 at July 29, 2023. This lease expires in fiscal 2026 with options to extend at increasing annual rent. The Company has ownership interests in four real estate partnerships. Village paid aggregate rents to two of these partnerships for leased stores of $ 1,568 and $ 1,556 in fiscal 2023 and 2022, respectively, and has related aggregate lease obligations of $ 15,996 at July 29, 2023. 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 subleased the Galloway and Vineland stores from Wakefern under sublease agreements which provided for combined annual rents of $ 413 and $ 959 in fiscal 2023 and 2022. Both leases contained normal periodic rent increases and options to extend the lease. The sublease agreements were terminated upon the acquisition of the Galloway store shopping center in fiscal 2022 and Vineland store shopping center in fiscal 2023 for $ 9,800 and $ 9,500 , respectively. 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 participation 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 38 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 did not make any open market purchases under this repurchase program in fiscal 2023 and 2022. The Company's share repurchase program had $ 3,203 remaining at July 29, 2023 and July 30, 2022. In fiscal 2023, the Company purchased $ 3,739 in shares of Class A Common Stock that were surrendered in satisfaction of withholding taxes in connection with the vesting of restricted shares in fiscal 2023. In fiscal 2022, the Company purchased 23 shares totaling $ 561 from the Village Super Market, Inc. Employees' Retirement Plan related to the termination and related liquidation of the plan's assets (see note 9). Village has two share-based compensation plans, which are described below. The compensation cost charged against income for these plans was $ 3,274 and $ 2,297 in fiscal 2023 and 2022, respectively. Total income tax benefit recognized in the consolidated statements of operations for share-based compensation arrangements was $ 1,100 and $ 532 in fiscal 2023 and 2022, 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 597 shares remaining for future grants under the 2016 Plan. The following table summarizes option activity under all plans for the following years: 2023 2022 Shares Weighted-average exercise price Shares Weighted-average exercise price Outstanding at beginning of year 97 $ 28.98 102 $ 28.98 Exercised — — — — Forfeited ( 9 ) 31.81 ( 5 ) 28.83 Expired — $ — — $ — Outstanding at end of year 88 $ 28.72 97 $ 28.98 Options exercisable at end of year 88 $ 28.72 97 $ 28.98 As of July 29, 2023, the weighted-average remaining contractual term of options outstanding and options exercisable was 0.7 years. As of July 29, 2023, 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: 2023 2022 Shares Weighted-average grant date fair value Shares Weighted-average grant date fair value Nonvested at beginning of year 359 $ 19.40 392 $ 19.55 Granted 512 23.00 9 21.52 Vested ( 358 ) 19.61 ( 26 ) 21.92 Forfeited ( 10 ) 22.50 ( 16 ) 20.21 Nonvested at end of year 503 $ 22.90 359 $ 19.40 39 The total fair value of restricted shares vested during fiscal 2023 and 2022 was $ 8,227 and $ 588 , respectively. As of July 29, 2023, there was $ 10,114 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 2.6 years. The Company declared and paid cash dividends on common stock as follows: 2023 2022 Per share: Class A common stock $ 1.00 $ 1.00 Class B common stock 0.65 0.65 Aggregate: Class A common stock $ 10,417 $ 10,250 Class B common stock 2,776 2,791 $ 13,193 $ 13,041 NOTE 9 — PENSION PLANS Company-Sponsored Pension Plans In fiscal 2023, the Company sponsored two defined benefit pension plans. One of the plans is a tax-qualified plan covering members of a union, which is frozen and participants no longer earn service credit. Benefits under the union plan are based on a fixed amount for each year of service, and benefits under the nonunion 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 second plan is an unfunded, nonqualified plan providing supplemental pension benefits to certain executives. In fiscal 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. No benefit obligation or plan assets related to the Village Super Market, Inc. Employees’ Retirement Plan remain as of July 29, 2023. In fiscal 2022, 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. Additionally, the Company recognized a settlement loss of $ 39 and $ 45 in fiscal 2023 and 2022, respectively, for plans where benefits paid exceeded the sum of the service cost and interest cost components of net periodic pension cost. Net periodic pension cost for the plans include the following components: 2023 2022 Service cost $ 135 $ 187 Interest cost on projected benefit obligation 279 1,306 Expected return on plan assets ( 75 ) ( 1,258 ) Loss on settlement 39 12,341 Amortization of net (gains) and losses ( 556 ) 335 Net periodic pension cost $ ( 178 ) $ 12,911 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: 2023 2022 Changes in Benefit Obligation: Benefit obligation at beginning of year $ 7,513 $ 73,229 Service cost 135 187 Interest cost 279 1,306 Benefits paid ( 36 ) ( 676 ) Settlement ( 315 ) ( 54,742 ) Actuarial loss ( 279 ) ( 11,791 ) Benefit obligation at end of year $ 7,297 $ 7,513 Changes in Plan Assets: Fair value of plan assets at beginning of year $ 2,944 $ 63,047 Actual return on plan assets ( 189 ) ( 6,170 ) Employer contributions — 1,485 Benefits paid ( 36 ) ( 676 ) Settlements paid ( 315 ) ( 54,742 ) Fair value of plan assets at end of year 2,404 2,944 Funded status at end of year $ 4,893 $ 4,569 Amounts recognized in the consolidated balance sheets: Pension liabilities 4,893 4,569 Accumulated other comprehensive income ( 1,652 ) ( 1,962 ) Amounts included in Accumulated other comprehensive income (pre-tax): Net actuarial loss $ ( 2,370 ) $ ( 2,872 ) The Company expects approximately $ 438 of the net actuarial gain, excluding the impact of any potential plan settlements, to be recognized as a component of net periodic benefit costs in fiscal 2024. The accumulated benefit obligations of the plans were $ 7,297 and $ 7,513 at July 29, 2023 and July 30, 2022, respectively. The following information is presented for those plans with an accumulated benefit obligation in excess of plan assets: 2023 2022 Projected benefit obligation $ 7,297 $ 7,513 Accumulated benefit obligation 7,297 7,513 Fair value of plan assets 2,404 2,944 Weighted average assumptions used to determine benefit obligations and net periodic pension cost for the Company’s defined benefit plans were as follows: 2023 2022 Assumed discount rate — net periodic pension cost 3.77 % 2.44 % Assumed discount rate — benefit obligation 4.85 % 3.77 % Assumed rate of increase in compensation levels 4.50 % 4.50 % Expected rate of return on plan assets 5.75 % 5.25 % 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- 41 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 30 - 50 % equity securities, 50 - 70 % 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. 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 29, 2023 July 30, 2022 Asset Category Assets Measured at NAV Total Assets Measured at NAV Total Equity securities: Mutual/Collective Trust Funds - U.S. (1) 750 750 915 915 Mutual/Collective Trust Funds - International (1) 248 248 301 301 Fixed income securities: Mutual/Collective Trust Funds - Fixed Income (1) 1,406 1,406 1,728 1,728 Total $ 2,404 $ 2,404 $ 2,944 $ 2,944 (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 2024 $ 540 2025 220 2026 240 2027 270 2028 6,880 2028 - 2031 850 The Company expects contributions to its defined benefit pension plans to be immaterial in fiscal 2024. 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. 42 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 2022 and 2021 is for the plan’s year-end at December 31, 2022 and December 31, 2021, 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 2022 2021 July 29, 2023 July 30, 2022 Surcharge Imposed (6) Pension Plan of Local 464A (1) 22-6051600- 001 Green Green N/A $ 887 $ 808 N/A August 2025 UFCW Local 1262 & Employers Pension Fund (2), (4) 22-6074414- 001 Red Red Implemented 2,671 2,745 No October 2027 UFCW Regional Pension Plan (3), (4) 16-6062287- 074 Red Red Implemented $ 1,305 $ 1,288 No June 2024 Total Contributions $ 4,863 $ 4,841 (1) The information for this fund was obtained from the Form 5500 filed for the plan’s year-end at December 31, 2022 and December 31, 2021. (2) The information for this fund was obtained from the Form 5500 filed for the plan’s year-end at December 31, 2021 and December 31, 2020. (3) The information for this fund was obtained from the Form 5500 filed for the plan’s year-end at September 30, 2022 and September 30, 2021. (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 29, 2023, the collective bargaining agreements under which the Company was making contributions were in compliance with rehabilitation plans adopted by each applicable pension fund. 43 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 $ 33,741 and $ 32,847 in fiscal 2023 and 2022, 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 $ 1,865 and $ 2,054 in fiscal 2023 and 2022, respectively. The Company also contributes to union sponsored defined contribution plans for certain eligible associates. Company contributions under these plans were $ 3,118 and $ 2,944 in fiscal 2023 and 2022, respectively. NOTE 10 — COMMITMENTS and CONTINGENCIES Approximately 92 % of our employees are covered by collective bargaining agreements. Contracts with the Company’s seven unions have or will expire between June 2024 and October 2027. 18 % 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. 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. 44 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 29, 2023 and July 30, 2022, 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 29, 2023, 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 29, 2023 and July 30, 2022, 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 29, 2023 based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. 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 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. 45 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. Assessment of indicators of impairment of long-lived assets As discussed in Note 1 to the consolidated financial statements, the Company reviews its long-lived assets, such as property, equipment and fixtures and operating lease assets, for events or changes in circumstances that might indicate the carrying amount of an asset group may not be recoverable. The Company’s judgment regarding the identification of impairment indicators is based, in part, on operational performance at the store level. Factors considered by the Company that could result in an impairment triggering event include a current period operating or cash flow loss, underperformance of a store relative to historical or expected operating results, and significant negative industry or economic trends. At July 29, 2023, the Company had property, equipment and fixtures, net and operating lease assets of $277,310 thousand and $274,100 thousand, respectively. We identified the assessment of impairment triggering events related to long-lived assets as a critical audit matter. A high degree of auditor judgment was required to evaluate the Company’s assessment of whether any of the following were indicators of impairment: (1) stores with current period operating or cash flow losses, (2) underperforming stores based on current period operating or cash flow results relative to their respective historical and expected results, and (3) negative industry or economic trends. 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 long-lived asset impairment process. This included a control related to the Company’s assessment of impairment triggering events. We assessed the Company’s identification and evaluation of potential impairment triggering events by: • inspecting operating results and cash flows by store to identify stores with current period losses • comparing actual operating and cash flow results to historical results, expected results, industry and economic trends, and to the net book value of store assets for a selection of stores • reading board of directors meeting minutes and available industry information /s/ KPMG LLP We have served as the Company’s auditor since 1987. Short Hills, New Jersey October 11, 2023 46 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None.