ITEM 1A. RISK FACTORS
COMPETITIVE ENVIRONMENT
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 with national and regional supermarkets, local supermarkets, warehouse club stores, supercenters, drug stores, convenience stores, dollar stores, discount merchandisers, restaurants and other local retailers. Competition with these outlets is based on price, store location, promotion, product assortment, quality and service. Some of these competitors have greater financial resources, lower merchandise acquisition costs and lower operating expenses than we do. In addition, Village made investments in lower prices in fiscal 2013 to combat nontraditional competitors.
GEOGRAPHIC CONCENTRATION AND NEW TRADE AREA
The Company’s stores are concentrated in New Jersey, with one store in northeastern Pennsylvania and two in Maryland. We are vulnerable to economic downturns in New Jersey in addition to those that may affect the country as a whole. Economic conditions such as inflation, deflation, interest rates, energy costs and unemployment rates may adversely affect our sales and profits. Further, since our store base is concentrated in densely populated metropolitan areas, opportunities for future store expansion may be limited, which may adversely affect our business and results of operations.
Village acquired two stores in July 2011 in Maryland, a new market for Village where the ShopRite name is less known than in New Jersey. Marketing and other costs are higher in Maryland than in established markets as Village attempts to build market share and brand awareness. In addition, sales for these two stores are initially expected to be lower than the typical Company store. Potentially higher costs and sales results lower than the Company’s expectations could have a material adverse effect on the Company’s results of operations.
WAKEFERN RELATIONSHIP
Village purchases substantially all of its merchandise from Wakefern. In addition, Wakefern provides the Company with support services in numerous areas including supplies, advertising, liability and property insurance, technology support and other store services. Further, Village receives patronage dividends and other product incentives 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 affect on Village’s results of operations.
LABOR RELATIONS
Approximately 91% of the Company’s employees are covered by collective bargaining agreements with unions. Contracts with the Company’s seven unions expire between October 2013 and July 2016. Approximately 49% of our associates are represented by unions whose contracts have already expired or expire within one year. In future negotiations with labor unions, we expect that rising health care and pension costs, among other issues, will continue to be important topics for negotiation. Upon the expiration of our collective bargaining agreements, work stoppages by the affected workers could occur if we are unable to negotiate acceptable contracts with labor unions. This could significantly disrupt our operations or have an adverse impact on our financial results. Further, if we are unable to control health care and pension costs provided for in the collective bargaining agreement, we may experience increased operating costs and an adverse impact on our results of operations.
HEALTHCARE LEGISLATION
We provide health benefits to a large number of our employees, primarily through multi-employer health plans. Effective January 1, 2015, the Patient Protection and Affordable Care Act will impose new mandates on employers that could significantly increase the number of employees receiving benefits and our required contributions to these multi-employer health plans. We are not able at this time to determine the impact of the law, as it will depend on many factors, including finalization of rules implementing the law, the number of additional employees that we will be required to provide health benefits, and negotiation of collective bargaining agreements, which could be material to our results of operations.
FOOD SAFETY
The Company could be adversely affected if consumers lose confidence in the safety and quality of the food supply chain. Adverse publicity about these types of concerns, whether or not valid, could discourage consumers from buying our products. 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.
REPLACEMENT STORES
The Company is constructing two replacement stores. At the time the replacement stores are expected to open, we will have rental obligations for several years remaining on the existing stores. If we are unable to sublease the existing stores on terms similar to the current rent or otherwise mitigate the rental obligations, we may incur charges for these obligations at the time the existing stores are closed.
MULTI-EMPLOYER PENSION PLANS
The Company is required to make contributions to multi-employer pension plans in amounts established under collective bargaining agreements. Pension expense for these plans is recognized as contributions are funded. Benefits generally are based on a fixed amount for each year of service. Based on the most recent information available to us, certain of these multi-employer plans 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 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 and the actual return on assets held in the plans, among other factors. See Note 8 to the Consolidated Financial Statements for more information relating to our participation in multi-employer pension plans.
CURRENT ECONOMIC CONDITIONS
During the last few years, the supermarket industry was impacted by changing consumer behavior due to the weak economy, high gas prices and high unemployment. Consumers continue to spend cautiously by trading down to lower priced items, including private label, and concentrating their buying on sale items. Our sales and results of operations may be adversely affected if the above trends continue. Also, the Company estimates that product prices overall experienced substantial inflation in the first half of fiscal 2012, with only modest inflation in the second half of fiscal 2012 and during fiscal 2013.
IMPAIRMENT OF LONG-LIVED ASSETS
Our long-lived assets, primarily stores, 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.
TAXES
The Company’s effective tax rate may be impacted by the results of tax examinations and changes in tax laws, including the disputes with the state of New Jersey described in Note 5 to the Consolidated Financial Statements.
INFORMATION TECHNOLOGY
Wakefern provides all members of the cooperative with information technology support that enables us to effectively manage our business data, customer transactions, ordering, communications and other business processes. The failure of our information technology to perform as we anticipate or a breach of these systems could disrupt our business or result in the compromise of confidential customer data. Any such event could damage our reputation, expose us to potential litigation from outside parties and have a material adverse impact on our results of operations.
ITEM 1B.
ITEM 1B. UNRESOLVED STAFF COMMENTS
Not applicable.
ITEM 2.
ITEM 2. PROPERTIES
As of July 27, 2013, Village owns the sites of five of its supermarkets (containing 335,000 square feet of total space), all of which are freestanding stores, except the Egg Harbor store, which is part of a shopping center. The remaining twenty four supermarkets (containing 1,309,000 square feet of total space) and the corporate headquarters are leased, with initial lease terms generally ranging from twenty to thirty years, usually with renewal options. Sixteen of these leased stores are located in shopping centers and the remaining eight are freestanding stores. In addition to the above, the Company owns the land and building of the old Washington store, which is currently available for sale, and owns the property on which the Hanover Township store is currently being constructed.
The annual rent, including capitalized leases, for all of the Company's leased facilities for the year ended July 27, 2013 was approximately $16,436.
Village is a limited partner in two partnerships, one of which owns a shopping center in which one of our leased stores is located. The Company is also a general partner in a partnership that is a lessor of one of the Company's freestanding stores.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS
The state of New Jersey audited the Company’s tax returns for fiscal 2002 through 2005 and has assessed two separate tax deficiencies related to nexus and the deductibility of certain payments between subsidiaries. The Company contested both these assessments through the state’s conference and appeals process. During fiscal 2011, Village received two determinations that the Company’s protests were denied. The Company has filed two complaints in Tax Court against the New Jersey Division of Taxation contesting these decisions. In addition, during fiscal 2012 the state of New Jersey audited the Company’s tax returns for fiscal 2006 through 2009 and has assessed a tax deficiency related to the same issue as above. The Company is currently contesting this assessment through the state’s conference and appeals process. A trial limited to the nexus dispute was conducted in June 2013 and no decision has been rendered. The ultimate resolution of these matters could materially impact our results of operations and cash flows.
In addition, the Company, in the ordinary course of business, is involved in various legal proceedings. Village does not believe the outcome of these proceedings will have a material adverse effect on the Company’s consolidated financial condition, results of operations or liquidity.
PART II
ITEM 5.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Stock Price and Dividend Information
The Class A common stock of Village Super Market, Inc. is traded on the NASDAQ Global Select Market under the symbol “VLGEA.” The table below sets forth the high and low last reported sales price for the fiscal quarter indicated.
As of October 1, 2013, there were approximately 765 holders of Class A common stock.
During fiscal 2013, Village paid cash dividends of $24,048. Dividends in fiscal 2013 consist of $2.00 per Class A common share and $1.30 per Class B common share. These amounts include $12,009 of special dividends paid in December 2012, comprised of $1.00 per Class A common share and $0.65 per Class B common share.
During fiscal 2012, the Company declared cash dividends of $0.85 per Class A common share and $0.5525 per Class B common share.
Performance Graph
Set forth below is a graph comparing the cumulative total return on the Company’s Class A stock against the cumulative total return of the S&P 500 Composite Stock Index and the NASDAQ Retail Trade index for the Company’s last five fiscal years.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA
Selected Financial Data
(Dollars in thousands except per share and square feet data)
Fiscal 2010 contains 53 weeks. All other fiscal years contain 52 weeks.
(1)Amounts for the year ended July 30, 2011 exclude results of the two stores acquired in Maryland in July 2011.
Unaudited Quarterly Financial Data
(Dollars in thousands except per share amounts)
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Dollars in thousands except per share and per square foot data)
OVERVIEW
Village Super Market, Inc. (the “Company” or “Village”) operates a chain of 29 ShopRite supermarkets in New Jersey, Maryland and northeastern Pennsylvania. On January 29, 2012, Village acquired the store fixtures, lease and other assets of the ShopRite in Old Bridge, New Jersey (40,000 sq. ft.) for $3,250 plus inventory and other working capital for $1,116. On July 7, 2011, Village acquired the store fixtures, leases and pharmacy lists of locations in Silver Spring, Maryland (64,000 sq.ft.) and Timonium, Maryland (57,000 sq.ft.) for $6,595 from Super Fresh. These stores opened as ShopRites on July 28, 2011 after remodeling.
Village is the second largest member of Wakefern Food Corporation (“Wakefern”), the nation’s largest retailer-owned food cooperative and owner of the ShopRite name. This ownership interest in Wakefern provides Village many of the economies of scale in purchasing, distribution, advanced retail technology, marketing and advertising associated with larger chains.
The Company’s stores, five of which are owned, average 57,000 total square feet. Larger store sizes enable Village to offer the specialty departments that customers desire for one-stop shopping, including pharmacies, natural and organic departments, ethnic and international foods, and home meal replacement. During fiscal 2013, sales per store were $50,912 and sales per square foot of selling space were $1,140. Management believes these figures are among the highest in the supermarket industry.
The supermarket industry is highly competitive. The Company competes directly with multiple retail formats, 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. Village competes by using low pricing, superior customer service, and a broad range of consistently available quality products, including ShopRite private labeled products. The ShopRite Price Plus card also strengthens customer loyalty.
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; and hourly labor rates.
During the last few years, the supermarket industry was impacted by changing consumer behavior due to the weak economy and high unemployment. Consumers continue to spend cautiously by trading down to lower priced items, including private label, and concentrating their buying on sale items. Also, the Company estimates that product prices overall experienced substantial inflation in the first half of fiscal 2012, with only modest inflation in the second half of fiscal 2012 and during fiscal 2013.
Hurricane Sandy devastated our area on October 29, 2012, two days after the end of our first fiscal quarter. The storm increased sales in the last week of our first quarter of fiscal 2013 as customers prepared for the storm. Sales in the first week of the second quarter of fiscal 2013 were negatively impacted by the closure of almost all of our stores for periods of time ranging from a few hours to eight days. However, this impact was partially offset by improved sales in stores that reopened quickly and by higher sales in most stores in subsequent weeks as customers restocked after their power was restored. In addition, Village disposed of substantial amounts of perishable product due to the loss of power, and also incurred repair, labor and other costs in connection with the storm. The Company has property, casualty and business interruption insurance, subject to deductibles and coverage limits. During the second quarter of fiscal 2013, Village began the process of working with our insurers to recover the damages and has recorded estimated insurance recoveries. Final resolution of our insurance claim related to the storm is expected in fiscal 2014, which could have a material impact on our results of operations.
The Company utilizes a 52 - 53 week fiscal year, ending on the last Saturday in the month of July. Fiscal 2013, 2012 and 2011 contain 52 weeks.
RESULTS OF OPERATIONS
The following table sets forth the components of the Consolidated Statements of Operations of the Company as a percentage of sales:
SALES
Sales were $1,476,457 in fiscal 2013, an increase of $54,214, or 3.8% from the prior year. Sales increased due to the acquisition of a store in Old Bridge, NJ on January 29, 2012 and a same store sales increase of 2.9%. Same store sales increased due to higher sales as customers prepared for hurricane Sandy, improved sales at the stores that reopened quickly after that storm and higher sales in the two stores in Maryland. Sales continued to be impacted by economic weakness, high gas prices and high unemployment, which has resulted in increased sale item penetration and trading down. New stores and replacement stores are included in same store sales in the quarter after the store has been in operation for four full quarters. Store renovations are included in same store sales immediately.
Sales were $1,422,243 in fiscal 2012, an increase of $123,315, or 9.5% from the prior year. Sales increased due to the opening of two new stores in Maryland on July 28, 2011, the acquisition of a store in Old Bridge, NJ on January 29, 2012 and a same store sales increase of 4.9%. Same stores sales increased due to higher sales in seven stores due to store closings by competitors, inflation, increased customer counts, and improved sales in the Washington and Marmora stores, which opened in recent fiscal years. Although Village experienced inflation in fiscal 2012, there was minimal change in the average transaction size during the year. As expected, the impact of the competitive store closures that began in the second half of fiscal 2011 and inflation both moderated beginning in the third quarter of fiscal 2012, resulting in a fourth quarter same store sales increase of 1.8%. Sales continue to be impacted by economic weakness, high gas prices and high unemployment, which has resulted in increased sale item penetration and trading down.
GROSS PROFIT
Gross profit as a percentage of sales decreased .40% in fiscal 2013 compared to the prior year primarily due to decreased departmental gross margin percentages (.47%), partially offset by improved product mix (.06%). Gross margins declined in several departments primarily due to investments in lower prices to combat nontraditional competitors.
Gross profit as a percentage of sales increased .38% in fiscal 2012 compared to the prior year primarily due to increased departmental gross margin percentages (.15%), decreased warehouse assessment charges from Wakefern (.16%) and higher patronage dividends (.11%). These improvements were partially offset by higher promotional spending (.06%).
OPERATING AND ADMINISTRATIVE EXPENSE
Operating and administrative expense as a percentage of sales increased .53% in fiscal 2013 compared to the prior year primarily due to higher payroll (.15%) and fringe benefit (.27%) costs, a charge from settlement of a dispute with a landlord (.04%), and the prior fiscal year included a favorable settlement of a pension withdrawal liability (.04%). These increases were partially offset by income from settlement of the national credit card lawsuit (.08%) in the current fiscal year. Payroll costs increased due to efforts to enhance the customer experience and provide additional services, including our first Village Food Garden at the remodeled Livingston store and the addition of ShopRite from Home in several stores. Fringe benefit costs increased due to higher costs for health, pension and workers compensation.
Operating and administrative expense as percentage of sales decreased .53% in fiscal 2012 compared to the prior year due to the prior year including a $7,028 charge for the withdrawal liability from a multi-employer defined benefit plan (.54%). In addition, fiscal 2012 benefitted from operating leverage from the 4.9% same store sales increase, partially offset by higher operating costs as a percentage of sales for the two new Maryland stores, including store opening costs.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization expense was $20,354, $19,759 and $18,621 in fiscal 2013, 2012 and 2011, respectively. Depreciation and amortization expense increased in fiscal 2013 and 2012 compared to the prior years due to depreciation related to fixed asset additions.
INCOME FROM PARTNERSHIPS
Income from partnerships in fiscal 2013 of $1,450 are distributions received from two partnerships that exceeded the invested amounts. The Company’s partnership interests resulted from its leasing of supermarkets in two shopping centers. The Company remains a tenant in one of these shopping centers.
INTEREST EXPENSE
Interest expense was $3,771, $4,415 and $4,280, in fiscal 2013, 2012 and 2011, respectively. Interest expense decreased in fiscal 2013 compared to the prior year due to interest costs capitalized in the current fiscal year, and the prior fiscal year including interest incurred on a pension withdrawal liability that was paid in fiscal 2012.
INTEREST INCOME
Interest income was $2,783, $2,571 and $2,207 in fiscal 2013, 2012 and 2011, respectively. Interest income increased in fiscal 2013 and 2012 compared to the prior years due to higher amounts invested.
INCOME TAXES
The Company’s effective income tax rate was 42.2%, 41.5% and 42.1% in fiscal 2013, 2012 and 2011, respectively.
NET INCOME
Net income was $25,784 in fiscal 2013 compared to $31,445 in fiscal 2012. Fiscal 2013 includes income from partnership distributions of $840 (net of tax), income from the national credit card lawsuit of $693 (net of tax) and a charge for the settlement of a landlord dispute of $376 (net of tax), while fiscal 2012 includes a favorable settlement of a pension withdrawal liability of $374 (net of tax). Excluding these items from both fiscal years, net income in fiscal 2013 declined 21% compared to the prior year primarily due to lower gross profit percentages and higher operating expenses as a percentage of sales, partially offset by reduced losses in the two Maryland stores compared to the prior year, which was their initial year of operations. Maryland stores sales and operating performance remain lower than expected as we continue to build market share and brand awareness.
Net income was $31,445 in fiscal 2012 compared to $20,982 in the prior year. Excluding a $4,241 (net of tax) charge for the withdrawal liability from a multi-employer pension plan in the prior year, net income increased 25%. Net income increased primarily due to improved same store sales and increased gross profit percentages. Net income increased despite losses in the two new Maryland stores as sales in Maryland are lower than expected and we continue to build market share and brand awareness.
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 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.
IMPAIRMENT
The Company reviews the carrying values of its long-lived assets, such as property, equipment and fixtures for possible impairment whenever events or changes in circumstances indicate that the carrying amount of assets may not be recoverable. Such review analyzes the undiscounted estimated future 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 held for use to their carrying value.
Goodwill is tested for impairment at the end of each fiscal year, or more frequently if circumstances dictate. The Company utilizes valuation techniques, such as earnings multiples, in addition to the Company’s market capitalization to assess goodwill for impairment. Calculating the fair value of a reporting unit requires the use of estimates. Management believes the fair value of Village’s one reporting unit exceeds its carrying value at July 27, 2013. Should the Company’s carrying value of its one reporting unit exceed its fair value, the amount of any resulting goodwill impairment may be material to the Company’s financial position and results of operations.
PATRONAGE DIVIDENDS
As a stockholder of Wakefern, Village earns a share of Wakefern’s earnings, which are distributed as a “patronage dividend” (see Note 3). This dividend is based on a distribution of substantially all of Wakefern’s operating profits for its fiscal year (which ends September 30) 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. The amount of patronage dividends receivable based on these estimates were $11,810 and $10,774 at July 27, 2013 and July 28, 2012, respectively.
PENSION PLANS
The determination of the Company’s obligation and expense for Company-sponsored pension plans is dependent, in part, on Village’s selection of assumptions used by actuaries in calculating those amounts. These assumptions are described in Note 8 and include, among others, the discount rate, the expected long-term rate of return on plan assets and the rate of increase in compensation costs. Actual results that differ from the Company’s assumptions are accumulated and amortized over future periods and, therefore, generally affect recognized expense in future periods. While management believes that its assumptions are appropriate, significant differences in actual experience or significant changes in the Company’s assumptions may materially affect cash flows, pension obligations and future expense.
The objective of the discount rate assumption is to reflect the rate at which the Company’s pension obligations could be effectively settled based on the expected timing and amounts of benefits payable to participants under the plans. Our methodology for selecting the discount rate as of July 27, 2013 was to match the plans cash flows to that of a yield curve on high-quality fixed-income investments. Based on this method, we utilized a weighted-average discount rate of 4.43% at July 27, 2013 compared to 3.59% at July 28, 2012. The .84% increase in the discount rate, and a change in the mortality table utilized, decreased the projected benefit obligation at July 27, 2013 by approximately $10,077. Village evaluated the expected long-term rate of return on plan assets of 7.5% and the expected increase in compensation costs of 4 to 4.5% and concluded no changes in these assumptions were necessary in estimating pension plan obligations and expense.
Sensitivity to changes in the major assumptions used in the calculation of the Company’s pension plans is as follows:
Village contributed $3,254 and $3,227 in fiscal 2013 and 2012, respectively, to these Company-sponsored pension plans. Village expects to contribute $3,000 in fiscal 2014 to these plans. The 2013, 2012 and expected 2014 contributions are substantially all voluntary contributions.
The Company also contributes to several multi-employer pension plans based on obligations arising from collective bargaining agreements. These plans provide retirement benefits to participants based on their service to contributing employers. We recognize expense in connection with these plans as contributions are funded.
SHARE-BASED EMPLOYEE COMPENSATION
All share-based payments to employees are recognized in the financial statements as compensation expense based on the fair market value on the date of grant. Village determines the fair market value of stock option awards using the Black-Scholes option pricing model. This option pricing model incorporates certain assumptions, such as a risk-free interest rate, expected volatility, expected dividend yield and expected life of options, in order to arrive at a fair value estimate.
UNCERTAIN TAX POSITIONS
The Company is subject to periodic audits by various taxing authorities. These audits may challenge certain of the Company’s tax positions such as the timing and amount of deductions and the allocation of income to various tax jurisdictions. Accounting for these uncertain tax positions requires significant management judgment. Actual results could materially differ from these estimates and could significantly affect the effective tax rate and cash flows in future years.
LIQUIDITY and CAPITAL RESOURCES
CASH FLOWS
Net cash provided by operating activities was $51,273 in fiscal 2013 compared to $43,432 in the corresponding period of the prior year. This increase is primarily attributable to the prior year including a settlement of a $7,028 pension liability and changes in the timing of payables.
During fiscal 2013 Village used cash to fund capital expenditures of $21,888 and dividends of $24,048. Capital expenditures include substantial remodels of three stores and the site work and beginning of construction of a replacement store. Dividends paid include $12,009 of special dividends.
Net cash provided by operating activities was $43,432 in fiscal 2012 compared to $64,144 in the corresponding period of the prior year. This decrease is primarily attributable to settlement of a $7,028 pension withdrawal liability in fiscal 2012, a decrease in payables in the current fiscal year as compared to an increase in the prior fiscal year, and the prior year including a refund of cash the Company had placed in escrow to fund a property acquisition. These decreases were partially offset by higher net income in the current fiscal year.
During fiscal 2012, Village used cash to fund capital expenditures of $16,729, the acquisition of the Old Bridge ShopRite of $4,123 and dividends of $9,758. Capital expenditures include remodeling and equipment for the acquired Maryland stores, the installation of solar panels in one store and several small remodels.
LIQUIDITY and DEBT
Working capital was $94,299, $71,672, and $44,448 at July 27, 2013, July 28, 2012 and July 30, 2011, respectively. Working capital ratios at the same dates were 1.85, 1.72, and 1.41 to one, respectively. The Company’s working capital needs are reduced since inventory is generally sold before payments to Wakefern and other suppliers are due.
Village has budgeted approximately $35,000 for capital expenditures in fiscal 2014. Planned expenditures include the construction of two replacement stores, one of which began in fiscal 2013. The Company’s primary sources of liquidity in fiscal 2014 are expected to be cash and cash equivalents on hand at July 27, 2013 and operating cash flow generated in fiscal 2014.
At July 27, 2013, the Company had a $22,421 note receivable due from Wakefern earning a fixed rate of 7%. Previously, this 15-month note was automatically extended for additional, recurring 90-day periods, unless, not later than one year prior to the due date, the Company notified Wakefern requesting payment on the due date. Wakefern has the right to prepay this note at any time and notified the Company that they intend to prepay the note on February 15, 2014.
Village has an unsecured revolving credit agreement providing a maximum amount available for borrowing of $25,000. This loan agreement expires on December 31, 2014. The revolving credit line can be used for general corporate purposes. Indebtedness under this agreement bears interest at the prime rate, or at the Eurodollar rate, at the Company’s option, plus applicable margins based on the Company’s fixed charge coverage ratio. There were no amounts outstanding at July 27, 2013 or July 28, 2012 under this facility.
The revolving loan agreement contains covenants that, among other conditions, require a maximum liabilities to tangible net worth ratio, a minimum fixed charge coverage ratio and a positive net income. At July 27, 2013, the Company was in compliance with all terms and covenants of the revolving loan agreement. Under the above covenants, Village had approximately $138,104 of net worth available at July 27, 2013 for the payment of dividends.
During fiscal 2013, Village paid cash dividends of $24,048. Dividends in fiscal 2013 consist of $2.00 per Class A common share and $1.30 per Class B common share. These amounts include $12,009 of special dividends paid in December 2012, comprised of $1.00 per Class A common share and $0.65 per Class B common share.
During fiscal 2012, Village paid cash dividends of $9,758. Dividends in fiscal 2012 consist of $.85 per Class A common share and $.5525 per Class B common share.
CONTRACTUAL OBLIGATIONS AND COMMITMENTS
The table below presents significant contractual obligations of the Company at July 27, 2013:
(1)
In addition, the Company is obligated to purchase 85% of its primary merchandise requirements from Wakefern (see Note 3).
(2)
The above amounts for capital, financing and operating leases include interest, but do not include certain obligations under these leases for other charges. These charges consisted of the following in fiscal 2013: Real estate taxes - $4,504; common area maintenance - $1,973; insurance - $270; and contingent rentals - $960.
(3)
Pension plan funding requirements are excluded from the above table as estimated contribution amounts for future years are uncertain. Required future contributions will be determined by, among other factors, actual investment performance of plan assets, interest rates required to be used to calculate pension obligations, and changes in legislation. The Company expects to contribute $3,000 in fiscal 2014 to fund Company-sponsored defined benefit pension plans compared to actual contributions of $3,254 in fiscal 2013. The table also excludes contributions under various multi-employer pension plans, which totaled $5,046 in fiscal 2013.
(4)
The amount of unrecognized tax benefits of $11,466 at July 27, 2013 has been excluded from this table because a reasonable estimate of the timing of future tax settlements cannot be determined.
OUTLOOK
This annual report 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: economic conditions; uninsured losses; expected pension plan contributions; projected capital expenditures; expected dividend payments; 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-looking statements. The Company undertakes no obligation to update forward-looking statements to reflect developments or information obtained after the date hereof.
·
We expect same store sales to increase from 1.5% to 3.5% in fiscal 2014.
·
During the last few years, the supermarket industry was impacted by changing consumer behavior due to the weak economy and high unemployment. Consumers continue to spend cautiously by trading down to lower priced items, including private label, and concentrating their buying on sale items. Management expects these trends to continue in fiscal 2014.
·
We expect modest retail price inflation in fiscal 2014.
·
We have budgeted $35,000 for capital expenditures in fiscal 2014. This amount includes the construction of two replacement stores, one of which began in fiscal 2013.
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The Board’s current intention is to continue to pay quarterly dividends in 2014 at the most recent rate of $.25 per Class A and $.1625 per Class B share.
·
We believe cash flow from operations and other sources of liquidity 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 2014 to be 41.5% - 42.5%.
·
We expect operating expenses will be affected by increased costs in certain areas, such as medical and pension costs.
Various uncertainties and other factors could cause actual results to differ from the forward-looking statements contained in this report. These include:
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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 with national and regional supermarkets, local supermarkets, warehouse club stores, supercenters, drug stores, convenience stores, dollar stores, discount merchandisers, restaurants and other local retailers. Some of these competitors have greater financial resources, lower merchandise acquisition costs and lower operating expenses than we do.
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The Company’s stores are concentrated in New Jersey, with one store in northeastern Pennsylvania and two in Maryland. We are vulnerable to economic downturns in New Jersey in addition to those that may affect the country as a whole. Economic conditions such as inflation, deflation, interest rates, energy costs and unemployment rates may adversely affect our sales and profits.
·
Village acquired two stores in July 2011 in Maryland, a new market for Village where the ShopRite name is less known than in New Jersey. Marketing and other costs are higher than in established markets as Village attempts to build market share and brand awareness. In addition, sales for these two stores are initially expected to be lower than the typical Company store. Potentially higher costs and sales results lower than the Company’s expectations could have a material adverse effect on Village’s results of operations.
·
Village purchases substantially all of its merchandise from Wakefern. In addition, Wakefern provides the Company with support services in numerous areas including supplies, advertising, liability and property insurance, technology support and other store services. Further, Village receives patronage dividends and other product incentives 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. Contracts with the Company’s seven unions expire between October 2013 and July 2016. Approximately 49% 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. If we are unable to control health care and pension costs provided for in the collective bargaining agreements, we may experience increased operating costs.
·
Village 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.
·
The Company is constructing two replacement stores. At the time the replacement stores are expected to open, we will have rental obligations for several years remaining on the existing stores. If we are unable to sublease the existing stores on terms similar to the current rent or otherwise mitigate the rental obligations, we may incur charges for these obligations at the time the existing stores are closed.
·
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 and the actual return on assets held in the plans, among other factors.
·
Our long-lived assets, primarily stores, 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 effective tax rate may be impacted by the results of tax examinations and changes in tax laws, including the disputes with the state of New Jersey described in note 5 of the accompanying notes to the consolidated financial statements.
RELATED PARTY TRANSACTIONS
The Company holds an investment in Wakefern, its principal supplier. Village purchases substantially all of its merchandise from Wakefern in accordance with the Wakefern Stockholder Agreement. As part of this agreement, Village is required to purchase certain amounts of Wakefern common stock. At July 27, 2013, the Company’s indebtedness to Wakefern for the outstanding amount of this stock subscription was $2,319. The maximum per store investment, which is currently $825, increased by $25 in both fiscal 2013 and 2012, resulting in additional investments of $949 and $622, respectively. Wakefern distributes as a “patronage dividend” to each member a share of its earnings in proportion to the dollar volume of purchases by the member from Wakefern during the year. Wakefern provides the Company with support services in numerous areas including advertising, supplies, liability and property insurance, technology support and other store services. Additional information is provided in Note 3 to the consolidated financial statements.
At July 27, 2013, the Company had a $22,421 note receivable due from Wakefern earning a fixed rate of 7%. Previously, this 15-month note was automatically extended for additional, recurring 90-day periods, unless, not later than one year prior to the due date, the Company notified Wakefern requesting payment on the due date. Wakefern has the right to prepay this note at any time and notified the Company that they intend to prepay the note on February 15, 2014.
At July 27, 2013, Village had demand deposits invested at Wakefern in the amount of $85,222. These deposits earn overnight money market rates.
The Company subleases the Galloway and Vineland stores from Wakefern at combined current annual rents of $1,237. Both leases contain normal periodic rent increases and options to extend the lease.
Village leases a supermarket from a realty firm partly owned by certain officers of Village. The Company paid rent to this related party of $640, $640 and $615 in fiscal years 2013, 2012 and 2011, respectively. This lease expires in fiscal 2016 with options to extend at increasing annual rents.
The Company has ownership interests in three real estate partnerships. Village paid aggregate rents to two of these partnerships for leased stores of approximately $834, $801 and $764 in fiscal years 2013, 2012 and 2011, respectively. In fiscal 2013, the Company recognized income from partnerships of $1,450 resulting from distributions received from two of these partnerships that exceeded the invested amounts.
ITEM 7A.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
IMPACT OF INFLATION AND CHANGING PRICES
Although the Company cannot accurately determine the precise effect of inflation or deflation on its operations, it estimates that product prices overall experienced slight inflation in fiscal 2013 as compared to substantial inflation in fiscal 2012. The Company recorded a pre-tax LIFO benefit of $56 in fiscal 2013, compared to pre-tax LIFO charges of $601 and $412 in fiscal 2012 and 2011, respectively. The Company calculates LIFO based on CPI indices published by the Department of Labor, which indicated weighted-average CPI changes of (0.1%), 2.1% and 1.3%, in fiscal 2013, 2012 and 2011, respectively.
MARKET RISK
At July 27, 2013, the Company had demand deposits of $85,222 at Wakefern earning interest at overnight money market rates, which are exposed to the impact of interest rate changes.
At July 27, 2013, the Company had a $22,421 note receivable due from Wakefern earning a fixed rate of 7%. Previously, this 15-month note was automatically extended for additional, recurring 90-day periods, unless, not later than one year prior to the due date, the Company notified Wakefern requesting payment on the due date. Wakefern has the right to prepay this note at any time and notified the Company that they intend to prepay the note on February 15, 2014.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
VILLAGE SUPER MARKET, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
See notes to consolidated financial statements.
VILLAGE SUPER MARKET, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
[
See notes to consolidated financial statements.
VILLAGE SUPER MARKET, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(in thousands)
See notes to consolidated financial statements.
VILLAGE SUPER MARKET, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(in thousands)
Years ended July 27, 2013, July 28, 2012, and July 30, 2011
See notes to consolidated financial statements.
VILLAGE SUPER MARKET, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
See notes to consolidated financial statements.
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 29 ShopRite supermarkets in New Jersey, eastern Pennsylvania and Maryland. On January 29, 2012, Village acquired store fixtures, leasehold interests and other assets of the ShopRite in Old Bridge, NJ for $3,250 plus inventory and other working capital for $1,116. In July 2011, Village acquired the store fixtures, leases and other assets of two locations in Maryland for $6,595 from SuperFresh. These stores opened as ShopRites on July 28, 2011 after remodeling. The Company is a member of Wakefern Food Corporation (“Wakefern”), the largest retailer-owned food cooperative in the United States.
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 2013, 2012 and 2011 contain 52 weeks.
Industry segment
The Company consists of one operating segment, the retail sale of food and nonfood products.
Revenue recognition
Merchandise sales are recognized at the point of sale to the customer. Sales tax is excluded from revenue. Discounts provided to customers through ShopRite coupons and loyalty programs are recognized as a reduction of sales as the products are sold.
Cash and cash equivalents
The Company considers all highly liquid investments purchased with a maturity of three months or less and proceeds due from credit and debit card transactions with settlement terms of less than five days to be cash equivalents. Included in cash and cash equivalents at July 27, 2013 and July 28, 2012 are $85,222 and $82,294, respectively, of demand deposits invested at Wakefern at overnight money market rates.
Merchandise inventories
Approximately 65% 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 $14,786 and $14,842 higher than reported in fiscal 2013 and 2012, respectively. All other inventories are stated at the lower of FIFO cost or market.
Vendor allowances and rebates
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.
Property, equipment and fixtures
Property, equipment and fixtures are recorded at cost. Interest cost incurred to finance construction is capitalized as part of the cost of the asset. Maintenance and repairs are expensed as incurred.
Depreciation is provided on a straight-line basis over estimated useful lives of thirty years for buildings, ten years for store fixtures and equipment, and three years for 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 6).
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
Leases that meet certain criteria are classified as capital leases, and assets and liabilities are recorded at amounts equal to the lesser of the present value of the minimum lease payments or the fair value of the leased properties at the inception of the respective leases. Such assets are amortized on a straight- line basis over the shorter of the related lease terms or the estimated useful lives of the related assets. Amounts representing interest expense relating to the lease obligations are recorded to effect constant rates of interest over the terms of the leases. Leases that do not qualify as capital leases are classified as operating leases. The Company accounts for rent holidays, escalating rent provisions, and construction allowances on a straight-line basis over the term of the lease.
For leases in which the Company is involved with the construction of the store, if Village concludes that it has substantively all of the risks of ownership during construction of the leased property and therefore is deemed the owner of the project for accounting purposes, an asset and related financing obligation are recorded for the costs paid by the landlord. Once construction is complete, the Company considers the requirements for sale-leaseback treatment. If the arrangement does not qualify for sale-leaseback treatment, the Company amortizes the financing obligation and depreciates the building over the lease term.
Advertising
Advertising costs are expensed as incurred. Advertising expense was $11,018, $10,952 and $9,294 in fiscal 2013, 2012 and 2011, 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.
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.
Use of estimates
In conformity with U.S. generally accepted accounting principles, management of the Company has made a number of estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Some of the more significant estimates are patronage dividends, pension accounting assumptions, share-based compensation assumptions, accounting for uncertain tax positions, accounting for contingencies and the impairment of long-lived assets and goodwill. Actual results could differ from those estimates.
Fair value
Fair value is defined as the exit price that would be received to sell an asset or paid to transfer a liability. 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. The levels within the hierarchy range from Level 1 having the highest priority to Level 3 having the lowest.
Cash and cash equivalents, patronage dividends receivable, 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 and short and long-term notes payable approximate their fair value based on the short duration of these instruments. As the Company’s investments 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 investments.
Long-lived assets
The Company reviews long-lived assets, such as property, equipment and fixtures on an individual store basis for impairment when circumstances indicate the carrying amount of an asset group may not be recoverable. Such review analyzes the undiscounted estimated future cash flows from such assets to determine if the carrying value of such assets are recoverable from their respective cash flows. If impairment is indicated, it is measured by comparing the fair value of the long-lived assets to their carrying value.
Goodwill
Goodwill is tested at the end of each fiscal year, or more frequently if circumstances dictate, for impairment. An impairment loss is recognized to the extent that the carrying amount of goodwill exceeds its implied fair value. Village operates as a single reporting unit for purposes of evaluating goodwill for impairment and primarily considers earnings multiples and other valuation techniques to measure fair value, in addition to the value of the Company’s stock.
During fiscal 2012, the Company recorded additional goodwill related to the acquisition of the ShopRite in Old Bridge, NJ of $1,452, all of which is deductible for tax purposes.
Net income per share
The Company has two classes of common stock. Class A common stock is entitled to cash dividends as declared 54% greater than those paid on Class B common stock. Shares of Class B common stock are convertible on a share-for-share basis for Class A common stock at any time.
The Company utilizes the two-class method of computing and presenting net income per share. The two-class method is an earnings allocation formula that calculates basic and diluted net income per share for each class of common stock separately based on dividends declared and participation rights in undistributed earnings. Under the two-class method, Class A common stock is assumed to receive a 54% greater participation in undistributed earnings than Class B common stock, in accordance with the classes respective dividend rights. Unvested share-based payment awards that contain nonforfeitable rights to dividends are treated as participating securities and therefore included in computing net income per share using the two-class method.
Diluted net income per share for Class A common stock is calculated utilizing the if-converted method, which assumes the conversion of all shares of Class B common stock to Class A common stock on a share-for- share basis, as this method is more dilutive than the two-class method. Diluted net income per share for Class B common stock does not assume conversion of Class B common stock to shares of Class A common stock.
The tables below reconcile the numerators and denominators of basic and diluted net income per share for all periods presented.
Net income per share is as follows:
Outstanding stock options to purchase Class A shares of 5, 222 and 246 were excluded from the calculation of diluted net income per share at July 27, 2013, July 28, 2012 and July 30, 2011, respectively, as a result of their anti-dilutive effect. In addition, 299, 299 and 292 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 27, 2013, July 28, 2012 and July 30, 2011, 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.
Benefit plans
The Company recognizes the funded status of its Company sponsored retirement plans on the consolidated balance sheet. Actuarial gains or losses, prior service costs or credits and transition obligations not previously recognized are recorded as a component of Accumulated Other Comprehensive Income (Loss).
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.
NOTE 2 - PROPERTY, EQUIPMENT and FIXTURES
Property, equipment and fixtures are comprised as follows:
Amortization of leased property under capital and financing 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 13.7% of the outstanding shares of Wakefern at July 27, 2013. The investment 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 2013, 2012 and 2011. The Company also has an investment of approximately 8.1% in Insure-Rite, Ltd., a Wakefern affiliated company, that 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 27, 2013, the Company’s indebtedness to Wakefern for the outstanding amount of these stock subscriptions was $2,319. Installment payments are due as follows: 2014 - $600; 2015 - $667; 2016 - $518; 2017 - $446; 2018 - $88 and none thereafter. The maximum per store investment, which is currently $825, increased by $25 in both fiscal 2013 and 2012, resulting in additional investments of $949 and $622, respectively. Village receives additional shares of common stock to the extent paid for at the end of each fiscal year (September 30) of Wakefern calculated at the then book value of such shares. 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. Wakefern distributes as a “patronage dividend” to each member a share of substantially all of its earnings in proportion to the dollar volume of purchases by the member from Wakefern during the year. Patronage dividends and other vendor allowances and rebates amounted to $24,779, $23,953 and $17,724 in fiscal 2013, 2012 and 2011, respectively.
Wakefern provides the Company with support services in numerous areas including advertising, supplies, liability and property insurance, technology support and other store services. Village incurred charges of $29,973, $27,991 and $23,453, from Wakefern in fiscal 2013, 2012 and 2011, respectively, for these 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 6) with Wakefern.
At July 27, 2013, the Company had a $22,421 note receivable due from Wakefern earning a fixed rate of 7%. Previously, this 15-month note was automatically extended for additional, recurring 90-day periods, unless, not later than one year prior to the due date, the Company notified Wakefern requesting payment on the due date. Wakefern has the right to prepay this note at any time and notified the Company that they intend to prepay the note on February 15, 2014.
At July 27, 2013, the Company had demand deposits invested at Wakefern in the amount of $85,222. These deposits earn overnight money market rates.
Interest income earned on investments with Wakefern was $2,783, $2,571 and $2,207, in fiscal 2013, 2012 and 2011, respectively.
NOTE 4 - DEBT
Village has an unsecured revolving credit agreement providing a maximum amount available for borrowing of $25,000. This loan agreement expires on December 31, 2014. The revolving credit line can be used for general corporate purposes. Indebtedness under this agreement bears interest at the prime rate, or at the Eurodollar rate, at the Company’s option, plus applicable margins based on the Company’s fixed charge coverage ratio. There were no amounts outstanding at July 27, 2013 or July 28, 2012 under this facility.
The revolving loan agreement provides for up to $3,000 of letters of credit ($2,461 outstanding at July 27, 2013), which secure obligations for self-insured workers’ compensation claims and construction performance guarantees to municipalities.
This loan agreement contains covenants that, among other conditions, require a maximum liabilities to tangible net worth ratio, a minimum fixed charge coverage ratio and a positive net income. At July 27, 2013, the Company was in compliance with all covenants of the revolving loan agreement. Under the above covenants, Village had approximately $138,104 of net worth available at July 27, 2013 for the payment of dividends.
NOTE 5 - INCOME TAXES
The components of the provision for income taxes are:
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:
Deferred income tax assets (liabilities) are included in the following captions on the consolidated balance sheets at July 27, 2013 and July 28, 2012:
A valuation allowance is provided when it is more likely than not that some portion of the deferred tax assets will not be realized. In management’s opinion, in view of the Company’s previous, current and projected taxable income and reversal of deferred tax liabilities, such tax assets will more likely than not be fully realized. Accordingly, no valuation allowance was deemed to be required at July 27, 2013 and July 28, 2012.
The effective income tax rate differs from the statutory federal income tax rate as follows:
A reconciliation of the beginning and ending amount of gross unrecognized tax benefits is as follows:
Unrecognized tax benefits at July 27, 2013 and July 28, 2012 include tax positions of $11,466 and $9,682 (net of federal benefit), respectively, that would reduce the Company’s effective income tax rate, if recognized in future periods.
The Company recognizes interest and penalties on income taxes in income tax expense. The Company recognized $1,211, $1,008 and $817, related to interest and penalties on income taxes in fiscal 2013, 2012 and 2011, respectively. The amount of accrued interest and penalties included in the consolidated balance sheet was $5,820 and $4,609 at July 27, 2013 and July 28, 2012, respectively.
The state of New Jersey audited the Company’s tax returns for fiscal 2002 through 2005 and has assessed two separate tax deficiencies related to nexus and the deductibility of certain payments between subsidiaries. The Company contested both these assessments through the state’s conference and appeals process. During fiscal 2011, Village received two determinations that the Company’s protests were denied. The Company has filed two complaints in Tax Court against the New Jersey Division of Taxation contesting these decisions. In addition, during fiscal 2012 the state of New Jersey audited the Company’s tax returns for fiscal 2006 through 2009 and has assessed a tax deficiency related to the same issue as above. The Company is currently contesting this assessment through the state’s conference and appeals process. A trial limited to the nexus dispute was conducted in June 2013 and no decision has been rendered. The ultimate resolution of these matters could significantly increase or decrease the total amount of the Company’s unrecognized tax benefits and could materially impact our results of operations and cash flows. An examination of the Company’s fiscal 2009 federal tax return was completed in fiscal 2011 with no change.
NOTE 6 - LEASES
Description of leasing arrangements
The Company leased twenty-four stores at July 27, 2013, including five that are capitalized for financial reporting purposes. 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. These options enable Village to retain the use of facilities in desirable operating areas. Management expects that in the normal course of business, most leases will be renewed or replaced by other leases. 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.
Future minimum lease payments by year and in the aggregate for all non-cancelable leases with initial terms of one year or more consist of the following at July 27, 2013:
The following schedule shows the composition of total rental expense for the following years:
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 $640, $640 and $615 in fiscal 2013, 2012 and 2011, respectively. This lease expires in fiscal 2016 with options to extend at increasing annual rents.
The Company has ownership interests in three real estate partnerships. Village paid aggregate rents to two of these partnerships for leased stores of $834, $801 and $764 in fiscal 2013, 2012 and 2011, respectively. In November 2012, the Company received $1,980 in cash distributions from two partnerships. Income from partnerships in fiscal 2013 of $1,450 represents proceeds received in excess of invested amounts.
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 partnerships profits and losses.
The Company leases the Galloway and Vineland stores from Wakefern under sublease agreements which provide for combined annual rent of $1,237. Both leases contain normal periodic rent increases and options to extend the lease.
NOTE 7 - SHAREHOLDERS’ EQUITY
The Company has two classes of common stock. Class A common stock is entitled to one vote per share and to cash dividends as declared 54% greater than those paid on Class B common stock. Class B common stock is entitled to 10 votes per share. Class A and Class B common stock share equally on a per share basis in any distributions in liquidation. Shares of Class B common stock are convertible on a share-for-share basis for Class A common stock at any time. Class B common stock is not transferable except to another holder of Class B common stock or by will or under the laws of intestacy or pursuant to a resolution of the Board of Directors of the Company approving the transfer. As a result of this voting structure, the holders of the Class B common stock control greater than 50% of the total voting power of the shareholders of the Company and control the election of the Board of Directors.
The Company has authorized 10,000 shares of preferred stock. No shares have been issued. The Board of Directors is authorized to designate series, preferences, powers and participations of any preferred stock issued.
Village has three share-based compensation plans, which are described below. The compensation cost charged against income for these plans was $3,222, $3,180 and $3,007 in fiscal 2013, 2012 and 2011, respectively. Total income tax benefit recognized in the consolidated statements of operations for share-based compensation arrangements was $1,140, $1,126 and $1,001 in fiscal 2013, 2012 and 2011, respectively.
The 1997 Incentive and Non-Statutory Stock Option Plan (the “1997 Plan”) provided for the granting of options to purchase up to 1,000 shares of the Company’s Class A common stock by officers, employees and directors of the Company as designated by the Board of Directors. The Plan requires incentive stock options to be granted at exercise prices equal to the fair value of Village’s stock at the date of grant (110% if the optionee holds more than 10% of the voting stock of the Company), while nonqualified options may be granted at an exercise price less than fair value. All options granted under this plan were at fair value, vest over a one-year service period and are exercisable up to ten years from the date of grant. There are no shares remaining for future grants under the 1997 Plan.
The Village Super Market, Inc. 2004 Stock Plan (the “2004 Plan”) provides for awards of incentive and nonqualified stock options and restricted stock. There are 1,200 shares of Class A common stock authorized for issuance to employees and directors under the 2004 Plan. Terms and conditions of awards are determined by the Board of Directors. Option awards are primarily granted at the fair value of the Company’s stock at the date of grant, cliff vest three years from the grant date and are exercisable up to ten years from the date of grant. Restricted stock awards primarily cliff vest three years from the grant date. There are no shares remaining for future grants under the 2004 Plan.
On December 17, 2010, the shareholder’s of the Company approved the Village Super Market, Inc. 2010 Stock Plan (the “2010 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 2010 Plan. Terms and conditions of awards are determined by the Board of Directors. Option awards granted to date were granted at the fair value of the Company stock on the date of grant, primarily cliff vest three years from the grant date and are exercisable up to ten years from the grant date. Restricted stock awards primarily cliff vest three years from the date of grant.
The following table summarizes option activity under all plans for the following years:
As of July 27, 2013, the weighted-average remaining contractual term of options outstanding and options exercisable was 6.1 years and 4.1 years, respectively. As of July 27, 2013, the aggregate intrinsic value of options outstanding and options exercisable was $3,775 and $2,261, respectively. The weighted-average grant date fair value of options granted was $7.30 and $5.78 per share in fiscal 2013 and 2011, respectively. The total intrinsic value of options exercised was $1,344, $685 and $1,009 in fiscal 2013, 2012 and 2011, respectively. The fair value of each option award is estimated on the date of grant using the Black-Scholes Option Pricing Model using the weighted-average assumptions in the following table. 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 the 2004 and 2010 Plans for fiscal 2013, 2012 and 2011:
The total fair value of restricted shares vested during fiscal 2013, 2012 and 2011 was $60, $89 and $7,328, respectively. As of July 27, 2013, there was $2,074 of total unrecognized compensation costs related to nonvested stock options and restricted stock granted under the above plans. That cost is expected to be recognized over a weighted-average period of 0.7 years.
Cash received from option exercises under all share-based compensation arrangements was $1,742, $1,353 and $727 in fiscal 2013, 2012 and 2011, respectively. The actual tax benefit realized for tax deductions from option exercises under share-based compensation arrangements was $537, $280 and $385 in fiscal 2013, 2012 and 2011, respectively.
The Company declared and paid cash dividends on common stock as follows:
Dividends paid in fiscal 2013 include special dividends totaling $12,009 paid in the second quarter, comprised of $1.00 per Class A common share and $.65 per Class B common share. Dividends paid in fiscal 2011 include special dividends totaling $14,005 paid in the second quarter, comprised of $1.25 per Class A common share and $.8125 per Class B common share.
NOTE 8 - PENSION PLANS
Company-Sponsored Pension Plans
The Company sponsors four defined benefit pension plans. Two are tax-qualified plans covering members of unions. Benefits under these two plans are based on a fixed amount for each year of service. One is a tax-qualified plan covering nonunion associates. Benefits under this plan are based upon percentages of annual compensation. Funding for these plans is based on an analysis of the specific requirements and an evaluation of the assets and liabilities of each plan. The fourth plan is an unfunded, nonqualified plan providing supplemental pension benefits to certain executives. The Company uses its fiscal year-end date as the measurement date for these plans.
Net periodic pension cost for the four plans include the following components:
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:
The Company expects approximately $804 of the net actuarial loss to be recognized as a component of net periodic benefit costs in fiscal 2014.
The accumulated benefit obligations of the four plans were $53,034 and $55,873 at July 27, 2013 and July 28, 2012, respectively. The following information is presented for those plans with an accumulated benefit obligation in excess of plan assets:
Weighted average assumptions used to determine benefit obligations and net periodic pension cost for the Company’s defined benefit plans were as follows:
Investments in the pension trusts are overseen by the trustees of the plans, who are officers of Village. The Company’s overall investment strategy is to maintain a broadly diversified portfolio of stocks, bonds and money market instruments that, along with periodic plan contributions, provide the necessary funds for ongoing benefit obligations. Expected rates of return on plan assets are developed by determining projected stock and bond returns and then applying these returns to the target asset allocations of the trusts, resulting in a weighted-average rate of return on plan assets. Equity returns were based primarily on historical returns of the S&P 500 Index. Fixed-income projected returns were based primarily on historical returns for the broad U.S. bond market. The target allocations for plan assets are 50-70% equity securities, 25-40% 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 both directly and through mutual funds. In addition, one plan held Class A common stock of Village in the amount of $837 and $804 at July 27, 2013 and July 28, 2012, respectively.
Risk management is accomplished through diversification across asset classes and fund strategies, multiple investment portfolios and investment guidelines. The plans do not allow for investments in derivative instruments.
The fair value of the pension assets, all of which are valued on quoted prices in active markets for identical assets (Level 1), were as follows:
(1)
Includes directly owned securities and mutual funds, primarily low-cost equity index funds not actively managed that track the S&P 500.
(2)
Includes directly owned securities and mutual funds, which invest in diversified portfolios of publicly traded U.S. common stocks of small and medium cap companies.
(3)
Includes directly owned securities and mutual funds, which invest in diversified portfolios of publicly traded common stocks of large, non-U.S. companies.
(4)
Consists of mutual and exchange traded funds which invest in non-U.S. stocks in emerging markets.
(5)
Includes directly owned securities, mutual funds and exchange traded funds.
(6)
Consists of exchange traded funds which invest in non-U.S. bonds in emerging markets.
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:
The Company expects to contribute $3,000 in cash to all defined benefit pension plans in fiscal 2014.
Multi-Employer Plans
The Company contributes to three multi-employer pension plans under collective bargaining agreements covering union-represented employees. These plans provide benefits to participants that are generally based on a fixed amount for each year of service. Based on the most recent information available, certain of these multi-employer plans are underfunded. The amount of any increase or decrease in Village’s required contributions to these multi- employer pension plans will depend upon the outcome of collective bargaining, actions taken by trustees who manage the plans, government regulations and the actual return on assets held in the plans, among other factors.
The risks of participating in multi-employer pension plans are different from the risks of participating in single-employer pension plans in the following respects:
·
Assets contributed to a multi-employer plan by one employer may be used to provide benefits to employees of other participating employers.
·
If a participating employer stops contributing to the plan, the unfunded obligations of the plan allocable to such withdrawing employer may be borne by the remaining participating employers.
·
If the Company stops participating in some of its multi-employer pension plans, the Company may be required to pay those plans an amount based on its allocable share of the underfunded status of the plan, referred to as a withdrawal liability.
The Company’s participation in these plans is outlined in the following tables. The “EIN / Pension Plan Number” column provides the Employer Identification Number (“EIN”) and the three-digit pension plan number. The most recent “Pension Protection Act Zone Status” available in 2012 and 2011 is for the plan’s year-end at December 31, 2012 and December 31, 2011, 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.
(1)
The information for this fund was obtained from the Form 5500 filed for the plan’s year-end at December 31, 2012 and December 31, 2011.
(2)
The information for this fund was obtained from the Form 5500 filed for the plan’s year-end at December 31, 2011 and December 31, 2010.
(3)
The information for this fund was obtained from the Form 5500 filed for the plan’s year-end at September 30, 2012 and September 30, 2011.
(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 27, 2013, the collective bargaining agreements under which the Company was making contributions were in compliance with rehabilitation plans adopted by each applicable pension fund.
On April 15, 2011, Village, along with all of the other individual employers trading as ShopRite, permanently withdrew from participating in the United Food and Commercial Workers Local 152 Retail Meat Pension Fund (“the Fund”), effective the end of April 2011. The Fund is a multi-employer defined benefit plan that includes other supermarket operators. Village, along with the other affiliated ShopRite operators, determined to withdraw from the Fund due to exposures to market risks associated with all defined benefit plans and the inability to partition ShopRite’s liabilities from those of the other participating supermarket operators. Prior to withdrawal in April 2011, Village contributed $644 to the Fund in fiscal 2011. Village now provides affected associates with a defined contribution plan for future service, which eliminates market risks and the exposure to shared liabilities of other operators, and is estimated to be less costly than the defined benefit plan in the future, while ensuring that our associates are provided a secure benefit. The Company recorded a pre-tax charge of $7,028 in fiscal 2011 for this withdrawal liability, which represented our estimate of the liability based on calculations provided by the Fund actuary. The Company settled this obligation in January 2012, resulting in a pre-tax benefit of $646 in fiscal 2012.
Other Postretirement 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 approximately $22,421, $20,062 and $18,007 in fiscal 2013, 2012 and 2011, 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 $377, $331 and $309 in fiscal 2013, 2012 and 2011, respectively. The Company also contributes to union sponsored defined contribution plans for certain eligible associates. Company contributions under these plans were $802, $690 and $539 in fiscal 2013, 2012 and 2011, respectively.
NOTE 9 - COMMITMENTS and CONTINGENCIES
Hurricane Sandy devastated our area on October 29, 2012 and resulted in the closure of almost all of our stores for periods of time ranging from a few hours to eight days. Village disposed of substantial amounts of perishable product due to the loss of power, and also incurred repair, labor and other costs in connection with the storm. The Company has property, casualty and business interruption insurance, subject to deductibles and coverage limits. During the second quarter of fiscal 2013, Village began the process of working with our insurers to recover the damages and has recorded estimated insurance recoveries. Final resolution of our insurance claim related to the storm is expected in fiscal 2014, which could have a material impact on our results of operations.
Approximately 91% of our employees are covered by collective bargaining agreements. Contracts with the Company’s seven unions expire between October 2013 and July 2016. Approximately 49% 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. Excluding the tax litigation with the State of New Jersey as described in Note 5, 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.
Report of Independent Registered Public Accounting Firm
The Board of Directors and Shareholders
Village Super Market, Inc.:
We have audited the accompanying consolidated balance sheets of Village Super Market, Inc. and subsidiaries as of July 27, 2013 and July 28, 2012, and the related consolidated statements of operations, comprehensive income, shareholders’ equity, and cash flows for the years ended July 27, 2013, July 28, 2012 and July 30, 2011. We also have audited Village Super Market, Inc.’s internal control over financial reporting as of July 27, 2013, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Village Super Market, Inc.’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 these consolidated financial statements and an opinion on the Company’s internal control over financial reporting based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the consolidated financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. 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.
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.
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.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Village Super Market, Inc. and subsidiaries as of July 27, 2013 and July 28, 2012, and the results of their operations and their cash flows for the years ended July 27, 2013, July 28, 2012 and July 30, 2011, in conformity with U.S. generally accepted accounting principles. Also in our opinion, Village Super Market, Inc. maintained, in all material respects, effective internal control over financial reporting as of July 27, 2013, based on criteria established in Internal Control - Integrated Framework issued by COSO.
/s/ KPMG LLP
Short Hills, New Jersey
October 8, 2013
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A.
ITEM 9A. CONTROLS AND PROCEDURES
As required by Rule 13a-15 of the Exchange Act, the Company carried out an evaluation of the effectiveness of the design and operation of the Company’s disclosure controls and procedures at the end of the period covered by this report. This evaluation was carried out under the supervision, and with the participation, of the Company’s management, including the Company’s Chief Executive Officer along with the Company’s Chief Financial Officer. Based upon that evaluation, the Company’s Chief Executive Officer, along with the Company’s Chief Financial Officer, concluded that the Company’s disclosure controls and procedures are effective.
Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in Company reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in Company reports filed under the Exchange Act is accumulated and communicated to management, including the Company’s Chief Executive Officer and Chief Financial Officer as appropriate, to allow timely decisions regarding required disclosure.
MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
The management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting for the Company. With the participation of the Chief Executive Officer and Chief Financial Officer, our management conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework and criteria established in Internal Control - Integrated Framework, issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, our management has concluded that the Company’s internal control over financial reporting was effective as of July 27, 2013.
The Company’s independent registered public accounting firm has audited the accompanying consolidated financial statements and the Company’s internal control over financial reporting, as stated in their report, which is included in Item 8 of this Form 10-K.
James Sumas
Kevin R. Begley
Chairman of the Board and
Chief Financial Officer
Chief Executive Officer
CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING
There have been no changes in internal controls over financial reporting during the fourth quarter of fiscal 2013 that have materially, or are reasonably likely to materially effect, the Company’s internal control over financial reporting.
PART III
ITEM 10.
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information required by this Item 10 is incorporated by reference from the Company's definitive Proxy Statement to be filed on or before October 28, 2013, in connection with its Annual Meeting scheduled to be held on December 13, 2013.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item 11 is incorporated by reference from the Company's definitive Proxy Statement to be filed on or before October 28, 2013, in connection with its Annual Meeting scheduled to be held on December 13, 2013.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The information in the table below is as of July 27, 2013. All data relates to the Village Super Market, Inc. 1997 Stock Option Plan, 2004 Stock Plan and 2010 Stock Plan as described in Item 8 of this Form 10-K.
Additional information required by this Item 12 is incorporated by reference from the Company's definitive Proxy Statement to be filed on or before October 28, 2013, in connection with its annual meeting scheduled to be held on December 13, 2013.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The information required by this Item 13 is incorporated by reference from the Company's definitive Proxy Statement to be filed on or before October 28, 2013, in connection with its annual meeting scheduled to be held on December 13, 2013.
ITEM 14.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
The information required by this Item 14 is incorporated by reference from the Company’s definitive Proxy Statement to be filed on or before October 28, 2013, in connection with its annual meeting scheduled to be held on December 13, 2013.
PART IV
ITEM 15.
ITEM 15. EXHIBITS, FINANCIAL STATEMENTS SCHEDULES
(a)(1)
Financial Statements:
Consolidated Balance Sheets -July 27, 2013 and July 28, 2012
Consolidated Statements of Operations - years ended July 27, 2013, July 28, 2012 and July 30, 2011
Consolidated Statements of Comprehensive Income - years ended July 27, 2013, July 28, 2012 and July 30, 2011
Consolidated Statements of Shareholders' Equity - years ended July 27, 2013, July 28, 2012 and July 30, 2011
Consolidated Statements of Cash Flows - years ended July 27, 2013, July 28, 2012 and July 30, 2011
Notes to consolidated financial statements
Report of Independent Registered Public Accounting Firm
(a)(2)
Financial Statement Schedules:
All schedules are omitted because they are not applicable, or not required, or because the required information is included in the consolidated financial statements or the notes hereto.
(a)(3)
Exhibits
3.1
Certificate of Incorporation*
3.2
By-laws*
4.6
Loan Agreement dated September 16, 1999*
4.7
First Amendment to Loan Agreement*
4.8
Second Amendment to Loan Agreement*
10.1
Wakefern By-Laws*
10.2
Stockholders Agreement dated February 20, 1992 between the Company and Wakefern Food Corp.*
10.6
Employment Agreement dated May 28, 2004*
10.7
Supplemental Executive Retirement Plan*
10.8
2004 Stock Plan*
10.9
2010 Stock Plan*
Code of Ethics
Subsidiaries of Registrant
Consent of KPMG LLP
31.1
Certification
31.2
Certification
32.1
Certification (furnished, not filed)
32.2
Certification (furnished, not filed)
101 INS
XBRL Instance Document**
101 SCH
XBRL Schema Document**
101 CAL
XBRL Calculation Linkbase Document**
101 DEF
XBRL Definition Linkbase Document**
101 LAB
XBRL Labels Linkbase Document**
101 PRE
XBRL Presentation Linkbase Document**
**
The XBRL related information in Exhibit 101 shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to liability of that section and shall not be incorporated by reference into any filing or other document pursuant to the Securities Act of 1933, as amended, except
* The following exhibits are incorporated by reference from the following previous filings:
Form 10-Q for January 2013: 10.1
Form 10-Q for January 2009: 4.8
Form 10-K for 2004: 3.2, 4.7, 10.7
DEF 14A proxy statement filed October 25, 2004: 10.8
Form 10-Q for April 2004: 10.6
Form 10-K for 1999: 4.6
Form 10-K for 1993: 3.1 and 10.2
DEF 14A Proxy Statement filed November 1, 2010: 10.9
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
VILLAGE SUPER MARKET, INC.
By:
/s/ James Sumas
/s/ Kevin Begley
James Sumas
Kevin Begley
Chief Executive Officer and
Chief Financial Officer
Chairman of the Board
Date: October 8, 2013
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on dates indicated:
/s/ James Sumas
/s/ Stephen Rooney
James Sumas, Director
Stephen Rooney, Director
October 8, 2013
October 8, 2013
/s/ Robert Sumas
/s/ William Sumas
Robert Sumas, Director
William Sumas, Director
October 8, 2013
October 8, 2013
/s/ John P. Sumas
/s/ Peter Lavoy
John P. Sumas, Director
Peter Lavoy, Director
October 8, 2013
October 8, 2013
/s/ David C. Judge
/s/ Steven Crystal
David C. Judge, Director
Steven Crystal, Director
October 8, 2013
October 8, 2013
/s/ John J. Sumas
/s/ Nicholas J. Sumas
John J. Sumas, Director
Nicholas J. Sumas, Director
October 8, 2013
October 8, 2013
/s/ Kevin Begley
/s/ John L. Van Orden
Kevin Begley, Chief Financial Officer &
John L. Van Orden, Controller
Director (Principal Financial Officer)
(Principal Accounting Officer)
October 8, 2013
October 8, 2013