VILLAGE SUPER MARKET INC 10-Q

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Dollars in Thousands) OVERVIEW Village Super Market, Inc. (the “Company” or “Village”) was founded in 1937. Village operates a chain of 34 supermarkets in New Jersey (26), New York (6), Maryland (1) and Pennsylvania (1) under the ShopRite and Fairway banners and three Gourmet Garage specialty markets in New York City. Village is the second largest member of Wakefern Food Corporation (“Wakefern”), the nation’s largest retailer-owned food cooperative and owner of the ShopRite, Fairway and Gourmet Garage names. As further described in the Company’s Form 10-K, this ownership interest in Wakefern provides Village with many of the economies of scale in purchasing, distribution, advanced retail technology, marketing and advertising associated with chains of greater size and geographic coverage. The supermarket industry is highly competitive and characterized by narrow profit margins. The Company competes directly with multiple retail formats, both in-store and online, including national, regional and local supermarket chains as well as warehouse clubs, supercenters, drug stores, discount general merchandise stores, fast food chains, restaurants, dollar stores and convenience stores. The Company competes by providing a superior customer service experience, competitive pricing and a broad range of consistently available quality products. The ShopRite Price Plus and Fairway Insider customer loyalty programs enable Village to offer continuity programs, focus on target marketing initiatives and to offer discounts and attach digital coupons directly to a customer's loyalty card. Online grocery ordering for in-store pick up or home delivery is available in all of our ShopRite stores through either shoprite.com, the ShopRite app or through third party service providers. Additionally, the ShopRite Order Express app enables customers to pre-order deli, catering, specialty occasion cakes and other items. Online ordering for home delivery is available in all Fairway stores through fairwaymarket.com, the Fairway app or through third party service providers. Online ordering for home delivery is available in all Gourmet Garage stores through gourmetgarage.com, the Gourmet Garage app or through third party service providers. To promote production efficiency, product quality and consistency, the Company operates a centralized commissary supplying certain products in deli, bakery, prepared foods and other perishable product categories to all stores. The Company’s stores, eight of which are owned, average 56,000 total square feet. These larger store sizes enable the Company to offer a wide variety of national branded and locally sourced food products, including grocery, meat, produce, dairy, deli, seafood, prepared foods, bakery and frozen foods as well as non-food product offerings, including health and beauty care, general merchandise, liquor and 21 in-store pharmacies. Most product departments include high-quality, competitively priced own-brand offerings under the Wholesome Pantry, Bowl & Basket, Paperbird, Fairway and Gourmet Garage brands. Our Fairway Markets offer a one-stop destination shopping experience with an emphasis on fresh, unique, and high quality offerings paired with an expansive variety of natural, organic, specialty and gourmet products. Our Gourmet Garage specialty markets offer organic produce, signature soups and prepared foods, high-quality meat and seafood, charcuterie and gourmet cheeses, artisan baked bread and pastries, chef-prepared meals to go and pantry staples. The Company has an ongoing program to evaluate, upgrade and expand its supermarket chain. This program has included store remodels as well as the opening or acquisition of additional stores. When remodeling, Village has sought, whenever possible, to increase the amount of selling space in its stores. On March 17, 2024, we opened an 83,000 sq. ft. replacement ShopRite store in Old Bridge, NJ, that replaced an existing 32,000 sq. ft. store. On November 1, 2023, Village closed an 8,400 sq. ft. Gourmet Garage store located in New York City. The impact associated with the closure and ongoing results of operating were not material to Village’s consolidated financial statements. We consider a variety of indicators to evaluate our performance, such as same store sales; percentage of total sales by department (mix); shrink; departmental gross profit percentage; sales per labor hour; units per labor hour; and hourly labor rates. 13 RESULTS OF OPERATIONS The following table sets forth the major components of the Consolidated Statements of Operations as a percentage of sales: 13 Weeks Ended 26 Weeks Ended January 25, 2025 January 27, 2024 January 25, 2025 January 27, 2024 Sales 100.00 % 100.00 % 100.00 % 100.00 % Cost of sales 71.65 71.60 71.32 71.55 Gross profit 28.35 28.40 28.68 28.45 Operating and administrative expense 23.22 23.71 23.91 23.99 Depreciation and amortization 1.44 1.48 1.47 1.53 Operating income 3.69 3.21 3.30 2.93 Interest expense (0.16) (0.18) (0.17) (0.19) Interest income 0.56 0.65 0.60 0.68 Income before income taxes 4.09 3.68 3.73 3.42 Income taxes 1.27 1.16 1.16 1.08 Net income 2.82 % 2.52 % 2.57 % 2.34 % Sales . Sales were $599,651 in the 13 weeks ended January 25, 2025, an increase of 4.2% compared to the 13 weeks ended January 27, 2024. Sales increased due to an increase in same store sales of 2.3% and the opening of the Old Bridge, NJ replacement store on March 17, 2024. Same store sales increased due primarily to digital sales growth, continued growth in recently remodeled stores, higher pharmacy sales and inflation in the meat and dairy departments. New stores, replacement stores and stores with banner changes are included in same store sales in the quarter after the store has been in operation for four full quarters. Store renovations and expansions are included in same store sales immediately. Sales were $1,157,347 in the 26 weeks ended January 25, 2025, an increase of 4.1% compared to the 26 weeks ended January 27, 2024. Sales increased due to an increase in same store sales of 2.4% and the opening of the Old Bridge, NJ replacement store on March 17, 2024. Same store sales increased due primarily to digital sales growth, continued growth in recently remodeled stores, higher pharmacy sales and inflation in the meat and dairy departments. Gross Profit . Gross profit as a percentage of sales decreased .05% in the 13 weeks ended January 25, 2025 compared to the 13 weeks ended January 27, 2024 due primarily to higher promotional spending (.16%), an unfavorable change in product mix (.14%) and decreased patronage dividends and rebates received from Wakefern (.02%) partially offset by increased departmental gross margin percentages (.17%), decreased warehouse assessment charges from Wakefern (.06%) and lower LIFO charges (.04%). Gross profit in both the 13 weeks ended January 25, 2025 and the 13 weeks ended January 27, 2024 was favorably impacted by receipt of patronage dividends from Wakefern greater than estimated amounts accrued in both the second quarter of fiscal 2025 (.62%) and 2024 (.58%). Gross profit as a percentage of sales increased .23% in the 26 weeks ended January 25, 2025 compared to the 26 weeks ended January 27, 2024 due primarily to increased departmental gross margin percentages (.17%), higher patronage dividends and rebates received from Wakefern (.16%), decreased warehouse assessment charges from Wakefern (.13%) and lower LIFO charges (.05%) partially offset by an unfavorable change in product mix (.18%) and higher promotional spending (.10%). Gross profit in both the 26 weeks ended January 25, 2025 and the 26 weeks ended January 27, 2024 was favorably impacted by receipt of patronage dividends from Wakefern greater than estimated amounts accrued in both the second quarter of fiscal 2025 (.32%) and 2024 (.30%). Operating and Administrative Expense. Operating and administrative expense as a percentage of sales decreased .49% in the 13 weeks ended January 25, 2025 compared to the 13 weeks ended January 27, 2024 due primarily to lower facility insurance costs (.12%), decreased legal and consulting fees (.13%), sales leverage on occupancy and facility costs (.07%), reduced supply (.07%), employee costs (.06%) and security spends (.05%). Operating and administrative expense as a percentage of sales decreased .08% in the 26 weeks ended January 25, 2025 compared to the 26 weeks ended January 27, 2024 due primarily to sales leverage on occupancy and facility costs (.09%), lower 14 facility insurance costs (.07%), reduced supply spending (.06%), lower legal and consulting fees (.05%) and decreased security spends (.04%) partially offset by increased external fees associated with digital sales growth (.11%) and employee costs (.10%). Depreciation and Amortization . Depreciation and amortization expense varied slightly in the 13 and 26 weeks ended January 25, 2025 compared to the 13 and 26 weeks ended January 27, 2024, respectively, due primarily to capital expenditures. Interest Expense . Interest expense decreased in the 13 and 26 weeks ended January 25, 2025 compared to the 13 and 26 weeks ended January 27, 2024 due primarily to lower average outstanding debt balances. Interest Income . Interest income decreased in the 13 weeks ended January 25, 2025 compared to the 13 weeks ended January 27, 2024 due primarily to lower interest rates earned on variable rate notes receivable from Wakefern and demand deposits invested at Wakefern. Interest income decreased in the 26 weeks ended January 25, 2025 compared to the 26 weeks ended January 27, 2024 due primarily to lesser amounts invested in demand deposits at Wakefern and lower interest rates earned on variable rate notes receivable from Wakefern and demand deposits invested at Wakefern. Income Taxes. The effective income tax rate was 31.1% in the 13 weeks ended January 25, 2025 compared to 31.5% in the 13 weeks ended January 27, 2024. The effective income tax rate was 31.1% in the 26 weeks ended January 25, 2025 compared to 31.5% in the 26 weeks ended January 27, 2024. Net Income . Net income was $16,896 in the 13 weeks ended January 25, 2025 compared to $14,480 in the 13 weeks ended January 27, 2024. Net income was $29,697 in the 26 weeks ended January 25, 2025 compared to $26,066 in the 26 weeks ended January 27, 2024. CRITICAL ACCOUNTING POLICIES Critical accounting policies are those accounting policies that management believes are important to the portrayal of the Company’s financial condition and results of operations. These policies require management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. The Company’s critical accounting policies relating to the impairment of long-lived assets, goodwill and indefinite-lived intangible assets and accounting for patronage dividends earned as a stockholder of Wakefern, are described in the Company’s Annual Report on Form 10-K for the year ended July 27, 2024. A s of January 25, 2025, there have been no changes to the critical accounting policies contained therein. The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. LIQUIDITY AND CAPITAL RESOURCES Net cash provided by operating activities was $60,952 in the 26 weeks ended January 25, 2025 compared to $48,674 in the corresponding period of the prior year. The change in cash flows from operating activities in fiscal 2025 was primarily due to an increase in net income and changes in working capital. Working capital changes, including Other assets and liabilities, increased cash flows from operating activities by $11,221 in fiscal 2025 compared to an increase of $2,551 in fiscal 2024. The change in impact of working capital is due primarily to the timing of tax payments, increased patronage dividends received partially offset by timing of payments associated with promotional funding and pension benefits. During the 26 weeks ended January 25, 2025, Village used cash to fund capital expenditures of $27,548, dividends of $6,652, principal payments of long-term debt of $5,468, additional net investments of $4,298 in notes receivable from Wakefern and an investment in a real estate partnership for the development of a retail center in Old Bridge, New Jersey of $339. Capital expenditures primarily include costs associated with construction of replacement stores and various technology, equipment and facility upgrades. 15 We have budgeted $75,000 for capital expenditures in fiscal 2025. Planned expenditures include costs for construction of replacement stores in both East Orange, NJ and Watchung, NJ, real estate purchases, several smaller store remodels and merchandising initiatives and various technology, equipment and facility upgrades. The Company’s primary sources of liquidity in fiscal 2025 are expected to be cash and cash equivalents on hand at January 25, 2025 and operating cash flow generated in fiscal 2025. On April 28, 2022, the Company entered into a partnership agreement for a 30% interest in the development of a retail center in Old Bridge, New Jersey, which includes the Village Old Bridge replacement store with an operating lease obligation of $4,352 as of January 25, 2025. As of January 25, 2025, Village has invested $17,694 into the real estate partnership, which is accounted for as an equity method investment included in Investments in Real Estate Partnerships on the Consolidated Balance Sheet. No additional equity investment is expected for this project. On February 15, 2024, notes receivable due from Wakefern of $33,338 that earned interest at the prime rate plus .75% matured. The Company invested all of the proceeds received in variable rate notes receivable from Wakefern that earn interest at the SOFR plus 2.25% and mature on February 15, 2029. At January 25, 2025, the Company held variable rate notes receivable due from Wakefern of $35,223 that earn interest at the prime rate plus .50% and mature on August 15, 2027, $36,360 that earn interest at the prime rate plus .50% and mature on September 28, 2027, and $35,577 that earn interest at the SOFR plus 2.25% and mature on February 15, 2029. 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. Working capital was $24,821 at January 25, 2025 compared to $25,485 at July 27, 2024. Working capital ratios at the same dates were 1.13 and 1.15 to one, respectively. The Company’s working capital needs are reduced, since inventories are generally sold by the time payments to Wakefern and other suppliers are due. 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. • An unsecured $10,000 term loan issued on September 1, 2022 repayable in equal monthly installments based on a seven-year amortization schedule through September 4, 2029 and bearing interest at the applicable SOFR plus 1.35%. 16 An interest rate swap for a notional amount equal to the term loan fixes the base SOFR at 2.95% per annum through September 4, 2029, resulting in a fixed effective interest rate of 4.30% on the term loan. 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%. • A secured $7,125 term loan issued on January 27, 2023 repayable in equal monthly installments based on a fifteen-year amortization schedule through January 27, 2038 and bearing interest at the applicable SOFR plus 1.75%. An interest rate swap for a notional amount equal to the term loan fixes the base SOFR at 3.59% per annum through January 27, 2038, resulting in a fixed effective interest rate of 5.34% on the term loan. The term loan is secured by the Vineland store shopping center. 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. 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 was 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. 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, were recorded in long-term debt in the consolidated balance sheets. The NMTC was subject to 100% recapture for a period of seven years, which ended in December 2024. The Company was required to and fulfilled its obligation to be in compliance with various regulations and contractual provisions that applied to the New Markets Tax Credit arrangement for the duration of the seven year recapture period. The transaction included a put/call provision whereby the Company would be obligated or entitled to repurchase Wells Fargo's interest in the Investment Fund for a de minimus amount. In January 2025, Wells Fargo exercised the put option requiring Village to repurchase Wells Fargo's interest in the Investment Fund. This resulted in a non-cash extinguishment of the $6,563 loans payable to the CDE and the $4,835 loan receivable from the Investment Fund. The $1,728 net benefit resulting from the loan extinguishments was recognized ratably over the seven-year compliance period as a reduction in operating and administrative expense. Based on current trends, the Company believes cash and cash equivalents on hand at January 25, 2025, operating cash flow and availability under our Credit Facility are sufficient to meet our liquidity needs for the next twelve months and for the foreseeable future beyond the next twelve months. There have been no other substantial changes as of January 25, 2025 to the contractual obligations and commitments discussed in the Company’s Annual Report on Form 10-K for the year ended July 27, 2024. OUTLOOK This Form 10-Q contains certain forward-looking statements about Village’s future performance. These statements are based on management’s assumptions and beliefs in light of information currently available. Such statements relate to, for example: same store sales; economic conditions; expected pension plan contributions; projected capital expenditures; cash flow requirements; inflation expectations; and legal matters; and are indicated by words such as “will,” “expect,” “should,” “intend,” “anticipates,” “believes” and similar words or phrases. The Company cautions the reader that there is no assurance that actual results or business conditions will not differ materially from the results expressed, suggested or implied by such forward- 17 looking statements. The Company undertakes no obligation to update forward-looking statements to reflect developments or information obtained after the date hereof. • We expect the increase in same store sales to range from 1.0% to 3.0% in fiscal 2025. • We have budgeted $75,000 for capital expenditures in fiscal 2025. Planned expenditures include costs for construction of replacement stores in both East Orange, NJ and Watchung, NJ, real estate purchases, several smaller store remodels and merchandising initiatives and various technology, equipment and facility upgrades. • The Board’s current intention is to continue to pay quarterly dividends in 2025 at the most recent rate of $.25 per Class A and $.1625 per Class B share. • We believe cash and cash equivalents on hand, operating cash flow and the Company's Credit Facility will be adequate to meet anticipated requirements for working capital, capital expenditures and debt payments for the foreseeable future. • We expect our effective income tax rate in fiscal 2025 to be in the range of 31.0% - 32.0%. Various uncertainties and other factors could cause actual results to differ from the forward-looking statements contained in this report. These include: • The supermarket business is highly competitive and characterized by narrow profit margins. Results of operations may be materially adversely impacted by competitive pricing and promotional programs, industry consolidation and competitor store openings. Village competes directly with multiple retail formats both in-store and online, including national, regional and local supermarket chains as well as warehouse clubs, supercenters, drug stores, discount general merchandise stores, fast food chains, restaurants, dollar stores and convenience stores. Some of these competitors have greater financial resources, lower merchandise acquisition costs and lower operating expenses than we do. • The Company’s stores are concentrated in New Jersey, New York, Pennsylvania and Maryland. We are vulnerable to economic downturns in these states in addition to those that may affect the country as a whole. Results of operations may be materially adversely impacted by inflation, deflation, interest rate fluctuations, movements in energy costs, social programs, minimum wage legislation, labor shortages, changing demographics, natural disasters, terrorist attacks, the outbreak of pandemics or other illnesses, disruptions to supply chains and disturbances due to social unrest, geopolitical conflict and political instability. • Village purchases substantially all of its merchandise from Wakefern. In addition, Wakefern provides the Company with support services in numerous areas including advertising, liability and property insurance, supplies, certain equipment purchasing, coupon processing, certain financial accounting applications, retail technology support, and other store services. Further, Village receives patronage dividends and other product incentives from Wakefern and also has demand deposits and notes receivable due from Wakefern. Any material change in Wakefern’s method of operation or a termination or material modification of Village’s relationship with Wakefern could have an adverse impact on the conduct of the Company’s business and could involve additional expense for Village. The failure of any Wakefern member to fulfill its obligations to Wakefern or a member’s insolvency or withdrawal from Wakefern could result in increased costs to the Company. Additionally, an adverse change in Wakefern’s results of operations could have an adverse effect on Village’s results of operations. • Approximately 91% of our employees are covered by collective bargaining agreements. Any work stoppages could have an adverse impact on our financial results. If we are unable to control health care and pension costs provided for in the collective bargaining agreements, we may experience increased operating costs. • The Company could be adversely affected if consumers lose confidence in the safety and quality of the food supply chain. The real or perceived sale of contaminated food products by us could result in a loss of consumer confidence and product liability claims, which could have a material adverse effect on our sales and operations. 18 • Certain of the multi-employer plans to which we contribute are underfunded. As a result, we expect that contributions to these plans may increase. Additionally, the benefit levels and related items will be issues in the negotiation of our collective bargaining agreements. Under current law, an employer that withdraws or partially withdraws from a multi-employer pension plan may incur a withdrawal liability to the plan, which represents the portion of the plan’s underfunding that is allocable to the withdrawing employer under very complex actuarial and allocation rules. The failure of a withdrawing employer to fund these obligations can impact remaining employers. The amount of any increase or decrease in our 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, withdrawals by other participating employers and the actual return on assets held in the plans, among other factors. • The Company uses a combination of insurance and self-insurance to provide for potential liability for workers’ compensation, automobile, general liability, property, employment practices, director and officers’ liability, and certain employee health care benefits. Any projection of losses is subject to a high degree of variability. Changes in legal claims, trends and interpretations, variability in inflation rates, changes in the nature and method of claims settlement, benefit level changes due to changes in applicable laws, and insolvency of insurance carriers could all affect our financial condition, results of operations, or cash flows. • Our long-lived assets, primarily store property, equipment and fixtures, are subject to periodic testing for impairment. Failure of our asset groups to achieve sufficient levels of cash flow could result in impairment charges on long-lived assets. • Our goodwill and indefinite-lived intangible assets are tested at the end of each fiscal year, or more frequently if circumstances dictate, for impairment. Failure of acquired businesses to achieve their forecasted expectations could result in impairment charges to goodwill and indefinite-lived intangible assets. • Our effective tax rate may be impacted by the results of tax examinations and changes in tax laws. • Wakefern provides all members of the cooperative with information system support that enables us to effectively manage our business data, customer transactions, ordering, communications and other business processes. These information systems are subject to damage or interruption from power outages, computer or telecommunications failures, computer viruses and related malicious software, catastrophic weather events, or human error. Any material interruption of our or Wakefern’s information systems could have a material adverse impact on our results of operations. Due to the nature of our business, personal information about our customers, vendors and associates is received and stored in these information systems. In addition, confidential information is transmitted through our online business at shoprite.com and through the ShopRite app. Unauthorized parties may attempt to access information stored in or to sabotage or disrupt these systems. Wakefern and the Company maintain substantial security measures to prevent and detect unauthorized access to such information, including utilizing third-party service providers for monitoring our networks, security reviews, and other functions. It is possible that computer hackers, cyber terrorists and others may be able to defeat the security measures in place at the Company, Wakefern or those of third-party service providers. Any breach of these security measures and loss of confidential information, which could be undetected for a period of time, could damage our reputation with customers, vendors and associates, cause Wakefern and Village to incur significant costs to protect any customers, vendors and associates whose personal data was compromised, cause us to make changes to our information systems and could result in government enforcement actions and litigation against Wakefern and/or Village from outside parties. Any such breach could have a material adverse impact on our operations, consolidated financial condition, results of operations, and liquidity if the related costs to Wakefern and Village are not covered or are in excess of carried insurance policies. In addition, a security breach could require Wakefern and Village to devote significant management resources to address problems created by the security breach and restore our reputation. RELATED PARTY TRANSACTIONS See note 4 to the unaudited consolidated financial statements for information on related party transactions. 19 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Not applicable.