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
30
ShopRite supermarkets in New Jersey, eastern Pennsylvania, Maryland and New York City. The Company is a member of Wakefern Food Corporation ("Wakefern"), the nation's largest retailer-owned food cooperative and owner of the ShopRite name. This relationship provides Village many of the economies of scale in purchasing, distribution, private label products, advanced retail technology, marketing and advertising associated with chains of greater size and geographic coverage.
Principles of consolidation
The consolidated financial statements include the accounts of Village Super Market, Inc. and its subsidiaries, which are wholly owned. Intercompany balances and transactions have been eliminated.
Fiscal year
The Company and its subsidiaries utilize a 52-53 week fiscal year ending on the last Saturday in the month of July. Fiscal
2018
and
2017
contain 52 weeks.
Use of estimates
In conformity with U.S. generally accepted accounting principles, management of the Company has made a number of estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Some of the more significant estimates are patronage dividends, pension accounting assumptions, accounting for contingencies and the impairment of long-lived assets and goodwill. Actual results could differ from those estimates.
Industry segment
The Company consists of
one
operating segment, the retail sale of food and nonfood products.
Revenue recognition
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 to be cash equivalents. Included in cash and cash equivalents are proceeds due from credit and debit card transactions, which typically settle within five business days, of
$8,227
and
$7,641
at
July 28, 2018
and
July 29, 2017
, respectively. Included in cash and cash equivalents at
July 28, 2018
and
July 29, 2017
are
$63,413
and
$60,037
, 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
$14,234
and
$14,410
higher than reported in fiscal
2018
and
2017
, 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 computer equipment, shopping carts and vehicles. Leasehold improvements are amortized over the shorter of the related lease terms or the estimated useful lives of the related assets.
When assets are sold or retired, their cost and accumulated depreciation are removed from the accounts, and any gain or loss is reflected in the consolidated financial statements.
Investments
The Company’s investments in its principal supplier, Wakefern, and a Wakefern affiliate, Insure-Rite, Ltd., are stated at cost (see Note 3). Village evaluates its investments in Wakefern and Insure-Rite, Ltd. for impairment through consideration of previous, current and projected levels of profit of those entities.
The Company’s 20%-50% investments in certain real estate partnerships are accounted for under the equity method. One of these partnerships is a variable interest entity which does not require consolidation as Village is not the primary beneficiary (see Note 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. Deferred rent obligations of $
13,259
and $
6,790
at July 28, 2018 and July 29, 2017, respectively, were classified within Other liabilities in the consolidated balance sheets.
For leases in which the Company is involved with the construction of the store, if Village concludes that it has substantially 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
$11,514
and
$11,824
in fiscal
2018
and
2017
, 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.
Fair value
Fair value is defined as the exit price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. Fair value is a market-based measurement that should be determined using assumptions that market participants would use in pricing an asset or liability. The fair value guidance establishes a three-level hierarchy to prioritize the inputs used in measuring fair value. Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date. Level 2 inputs are inputs other than quoted prices within Level 1 that are observable for the asset or liability, either directly or indirectly, such as quoted prices for similar assets or liabilities in active markets observable at commonly quoted intervals. Level 3 inputs are unobservable inputs for the asset or liability.
Cash and cash equivalents, patronage dividend receivable, income taxes receivable/payable, accounts payable and accrued expenses are reflected in the consolidated financial statements at carrying value, which approximates fair value because of the short-term maturity of these instruments. The carrying values of the Company’s notes receivable from Wakefern approximate their fair value as interest is earned at variable market rates. As the Company’s investment in Wakefern can only be sold to Wakefern at amounts that approximate the Company’s cost, it is not practicable to estimate the fair value of such investment.
Long-lived assets
The Company reviews long-lived assets, such as property, equipment and fixtures 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 considers earnings multiples and other valuation techniques to measure fair value, in addition to the value of the Company’s stock.
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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
2017
|
|
Class A
|
|
Class B
|
|
Class A
|
|
Class B
|
Numerator:
|
|
|
|
|
|
|
|
Net income allocated, basic
|
$
|
18,925
|
|
|
$
|
5,447
|
|
|
$
|
17,354
|
|
|
$
|
5,025
|
|
Conversion of Class B to Class A shares
|
5,447
|
|
|
—
|
|
|
5,025
|
|
|
—
|
|
Effect of share-based compensation on allocated net income
|
—
|
|
|
—
|
|
|
25
|
|
|
(4
|
)
|
Net income allocated, diluted
|
$
|
24,372
|
|
|
$
|
5,447
|
|
|
$
|
22,404
|
|
|
$
|
5,021
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding, basic
|
9,717
|
|
|
4,304
|
|
|
9,663
|
|
|
4,314
|
|
Conversion of Class B to Class A shares
|
4,304
|
|
|
—
|
|
|
4,314
|
|
|
—
|
|
Dilutive effect of share-based compensation
|
—
|
|
|
—
|
|
|
27
|
|
|
—
|
|
Weighted average shares outstanding, diluted
|
14,021
|
|
|
4,304
|
|
|
14,004
|
|
|
4,314
|
|
Net income per share is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
2017
|
|
Class A
|
|
Class B
|
|
Class A
|
|
Class B
|
Basic
|
$
|
1.95
|
|
|
$
|
1.27
|
|
|
$
|
1.80
|
|
|
$
|
1.16
|
|
Diluted
|
$
|
1.74
|
|
|
$
|
1.27
|
|
|
$
|
1.60
|
|
|
$
|
1.16
|
|
Outstanding stock options to purchase Class A shares of
9
and
376
were excluded from the calculation of diluted net income per share at
July 28, 2018
and
July 29, 2017
, respectively, as a result of their anti-dilutive effect. In addition,
356
and
361
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 28, 2018
and
July 29, 2017
, 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, curtailments, prior service costs or credits, and transition obligations not previously recognized are recorded as a component of Accumulated Other Comprehensive Loss. The Company uses July 31 as the measurement date for these plans.
The Company also contributes to several multi-employer pension plans under the terms of collective bargaining agreements that cover certain union-represented employees. Pension expense for these plans is recognized as contributions are made.
Recently issued accounting standards
In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers,” which provides guidance for revenue recognition. The standard’s core principle is that a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. The new guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2017. The Company will adopt the new standard using the full retrospective approach in the first quarter of fiscal 2019. The
standard will not affect consolidated net income, the Consolidated Balance Sheets or the Consolidated Statements of Cash Flows. Upon adoption of the standard in the first quarter of fiscal 2019, certain other income streams, including ShopRite from Home service fees and gift card and lottery commissions, that are currently presented as a reduction in operating expenses will be reclassified to Sales. We expect the impact of this reclassification to be immaterial to the Consolidated Statements of Operations.
In February 2016, the FASB issued ASU 2016-02, "Leases." This guidance requires lessees to recognize lease liabilities and a right-of-use asset for all leases with terms of more than 12 months on the balance sheet. This guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2018, with earlier adoption permitted. The Company expects to adopt the new standard in the first quarter of its fiscal year ending July 25, 2020. ASU 2016-02 requires a modified retrospective approach for all leases existing at, or entered into after the date of initial adoption. The adoption of ASU 2016-02 will result in a significant increase to the Company’s Consolidated Balance Sheets for lease liabilities and right-of-use assets, and the Company is currently evaluating the other effects of adoption of this standard on its consolidated financial statements and related disclosures.
In February 2018, the FASB issued ASU 2018-02, "Income Statement - Reporting Comprehensive Income." This guidance allows a reclassification from accumulated other comprehensive loss to retained earnings for stranded tax effects resulting from the Tax Act. The amount of the reclassification is calculated based on the effect of the change in the U.S. federal corporate income tax rate on the gross deferred tax amounts at the date of the enactment of the Tax Act related to items that remained in accumulated other comprehensive loss at that time. This ASU is effective for fiscal years and interim periods within those years beginning after December 15, 2018 and early adoption is permitted. The Company early adopted this ASU in the fourth quarter of fiscal 2018 and reclassified
$1,594
of stranded deferred tax benefits from accumulated other comprehensive loss to retained earnings.
In August 2018, the FASB issued ASU 2018-14, "Compensation-Retirement Benefits-Defined Benefit Plans-General (Subtopic 715-20): Disclosure Framework-Changes to the Disclosure Requirements for Defined Benefit Plans." The guidance modifies disclosure requirements for defined benefit plans. This guidance is effective for fiscal years ending after December 15, 2020, and early adoption is permitted. The Company is currently assessing the potential impact of ASU 2018-14 on its consolidated financial statement disclosures.
NOTE 2 — PROPERTY, EQUIPMENT and FIXTURES
Property, equipment and fixtures are comprised as follows:
|
|
|
|
|
|
|
|
|
|
July 28,
2018
|
|
July 29,
2017
|
Land and buildings
|
$
|
106,614
|
|
|
$
|
105,211
|
|
Store fixtures and equipment
|
273,345
|
|
|
253,227
|
|
Leasehold improvements
|
116,699
|
|
|
104,946
|
|
Leased property under capital leases
|
25,211
|
|
|
25,211
|
|
Construction in progress
|
2,641
|
|
|
2,288
|
|
Vehicles
|
4,138
|
|
|
3,240
|
|
|
|
|
|
Total property, equipment and fixtures
|
528,648
|
|
|
494,123
|
|
Accumulated depreciation
|
(304,593
|
)
|
|
(281,216
|
)
|
Accumulated amortization of property under capital and financing leases
|
(9,489
|
)
|
|
(8,467
|
)
|
|
|
|
|
Property, equipment and fixtures, net
|
$
|
214,566
|
|
|
$
|
204,440
|
|
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
12.8%
of the outstanding shares of Wakefern at
July 28, 2018
. The investment is stated at cost and is pledged as collateral for any obligations to Wakefern. In addition, all obligations to Wakefern are personally guaranteed by certain shareholders of Village.
The Company is obligated to purchase
85%
of its primary merchandise requirements from Wakefern until
ten years
from the date that stockholders representing
75%
of Wakefern sales notify Wakefern that those stockholders request that the Wakefern Stockholder Agreement be terminated. If this purchase obligation is not met, Village is required to pay Wakefern’s profit contribution shortfall attributable to this failure. Similar payments are due if Wakefern loses volume by reason of the sale of Company stores or a merger with another entity. Village fulfilled the above obligation in fiscal
2018
and
2017
. The Company also has an investment of approximately
7.8%
in Insure-Rite, Ltd., a Wakefern affiliated company, which provides Village with liability and property insurance coverage.
Wakefern has increased from time to time the required investment in its common stock for each supermarket owned by a member, with the exact amount per store computed based on the amount of each store’s purchases from Wakefern. At
July 28, 2018
, the Company’s indebtedness to Wakefern for the outstanding amount of these stock subscriptions was
$114
, all of which is due in fiscal 2019. Village receives additional shares of common stock to the extent paid for at the end of each fiscal year (which ends on or about September 30) of Wakefern calculated at the then book value per share. The payments, together with any stock issued thereunder, at the option of Wakefern, may be null and void and all payments on this subscription shall become the property of Wakefern in the event the Company does not complete the payment of this subscription in a timely manner.
Village purchases substantially all of its merchandise from Wakefern. As a stockholder of Wakefern, Village earns a share of Wakefern’s earnings, which are distributed as a “patronage dividend.” This dividend is based on a distribution of substantially all of Wakefern’s operating profits for its fiscal year in proportion to the dollar volume of purchases by each member from Wakefern during that fiscal year. Patronage dividends are recorded as a reduction of cost of sales as merchandise is sold. Village accrues estimated patronage dividends due from Wakefern quarterly based on an estimate of the annual Wakefern patronage dividend and an estimate of Village’s share of this annual dividend based on Village’s estimated proportional share of the dollar volume of business transacted with Wakefern that year. Patronage dividends and other vendor allowances and rebates amounted to
$28,536
and
$30,048
in fiscal
2018
and
2017
, respectively.
Wakefern provides the Company with support services in numerous areas including advertising, liability and property insurance, supplies, certain equipment purchasing, coupon processing, certain financial accounting applications, retail technology support, and other store services. Village incurred charges of
$33,037
and
$32,135
from Wakefern in fiscal
2018
and
2017
, 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 28, 2018
, the Company had
$47,081
in variable rate notes receivable due from Wakefern that earn interest at the prime rate plus
1.25%
with $
23,952
that mature on February 15, 2019 and $
23,129
that mature on August 15, 2022. On August 15, 2017, notes receivable due from Wakefern of
$22,142
that earned interest at the prime rate plus
.25%
matured. The Company invested $
22,000
of the proceeds received in variable rate notes receivable from Wakefern that mature on August 15, 2022. Wakefern has the right to prepay these notes at any time. Under certain conditions, the Company can require Wakefern to prepay the notes, although interest earned since inception would be reduced as if it was earned based on overnight money market rates as paid by Wakefern on demand deposits.
At
July 28, 2018
, the Company had demand deposits invested at Wakefern in the amount of
$63,413
. These deposits earn overnight money market rates.
Interest income earned on investments with Wakefern was
$3,806
and
$2,841
in fiscal
2018
and
2017
, respectively.
NOTE 4 — DEBT
Effective November 9, 2017, the Company entered into a credit agreement that amends, restates and supersedes in its entirety the loan agreement dated September 16, 1999 and all amendments to that agreement. The agreement maintains Village's unsecured revolving line of credit providing a maximum amount available for borrowing of
$25,000
, and extends the credit agreement to December 31, 2020. The revolving credit line can be used for general corporate purposes. Indebtedness under this agreement bears interest at the applicable LIBOR rate plus
1.25%
. The credit agreement continues to provide for up to
$3,000
of letters of credit (
$129
outstanding at July 28, 2018), which secure obligations for construction performance guarantees to municipalities. The credit agreement continues to contain 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. The Company was in compliance with all covenants of the credit agreement at July 28, 2018. There were
no
amounts outstanding at
July 28, 2018
or
July 29, 2017
under the new or superseded facility.
New Markets Tax Credit
On December 29, 2017, the Company entered into a financing transaction with Wells Fargo Community Investment Holdings, LLC (“Wells Fargo”) under a qualified New Markets Tax Credit (“NMTC”) program related to the construction of a new store in the Bronx, New York. The NMTC program was provided for in the Community Renewal Tax Relief Act of 2000 (the “Act”) and is intended to induce capital investment in qualified lower income communities. The Act permits taxpayers to claim credits against their Federal income taxes for up to 39% of qualified investments in the equity of community development entities (“CDEs”). CDEs are privately managed investment institutions that are certified to make qualified low-income community investments.
In connection with the financing, the Company loaned $
4,835
to VSM Investment Fund, LLC (the "Investment Fund") at an interest rate of
1.403%
per year and with a maturity date of December 31, 2044. Repayments on the loan commence in March 2025. Wells Fargo contributed $
2,375
to the Investment Fund and, by virtue of such contribution, is entitled to substantially all of the tax benefits derived from the NMTC. The Investment Fund is a wholly owned subsidiary of Wells Fargo. The loan to the Investment Fund is recorded in Other assets in the consolidated balance sheets.
The Investment Fund then contributed the proceeds to a CDE, which, in turn, loaned combined funds of $
6,563
, net of debt issuance costs, to Village Super Market of NY, LLC, a wholly-owned subsidiary of the Company, at an interest rate of
1.000%
per year with a maturity date of December 31, 2051. These loans are secured by the leasehold improvements and equipment related to the construction of the Bronx store. Repayment of the loans commences in March 2025. The proceeds of the loans from the CDE were used to partially fund the construction of the Bronx store. The Notes payable related to New Markets Tax Credit, net of debt issuance costs, are recorded in Long-term debt in the consolidated balance sheets.
The NMTC is subject to 100% recapture for a period of seven years. The Company is required to be in compliance with various regulations and contractual provisions that apply to the New Markets Tax Credit arrangement. Noncompliance could result in Wells Fargo's projected tax benefits not being realized and, therefore, require the Company to indemnify Wells Fargo for any loss or recapture of NMTCs. The Company does not anticipate any credit recapture will be required in connection with this financing arrangement. The transaction includes a put/call provision whereby the Company may be obligated or entitled to repurchase Wells Fargo's interest in the Investment Fund. The value attributed to the put/call is de minimis. We believe that Wells Fargo will exercise the put option in December 2024, at the end of the recapture period, that will result in a net benefit to the Company of $
1,728
. The Company is recognizing the net benefit over the seven-year compliance period in Operating and administrative expense.
NOTE 5 — INCOME TAXES
On December 22, 2017 the Tax Cuts and Jobs Act (the “Tax Act”) was enacted by the U.S. Government. The Tax Act made significant changes to the U.S. tax code that affected the Company's fiscal year ending July 28, 2018, including, but not limited to, reducing the U.S. federal corporate statutory income tax rate from
35.0%
to
21.0%
effective January 1, 2018, and introducing bonus depreciation that allows for full expensing of qualified property.
As the Company’s fiscal year ended on July 28, 2018, the Company’s U.S. federal corporate statutory income tax rate is subject to a full year blended tax rate of
26.9%
for fiscal 2018, and
21.0%
for subsequent fiscal years. As a result of the decrease in the U.S. federal corporate statutory rate, deferred tax balances were remeasured based on the rates at which they are expected to reverse in the future. In the
52
weeks ended
July 28, 2018
, a benefit of $
3,300
was recognized related to the remeasurement of the Company’s deferred tax balances, which is included in Income taxes on the consolidated statements of operations.
On December 22, 2017, the Securities Exchange Commission ("SEC") issued guidance under Staff Accounting Bulletin No. 118, "Income Tax Accounting Implications of the Tax Cuts and Jobs Act," allowing taxpayers to record provisional amounts for reasonable estimates when they do not have the necessary information available, prepared or analyzed (including computations) in reasonable detail to complete their accounting for certain income tax effects of the Tax Act. The SEC has issued rules that would allow for a measurement period of up to one year after the enactment date of the Tax Act to finalize the related tax impacts. The Company has completed recording the impacts of the change in tax rate. Estimates on the other impacts of the Tax Act were based on information currently available. The final impacts of the Tax Act may differ from the Company’s estimates due to changes in interpretations of the Tax Act or further legislation related to the Tax Act. Any changes could affect the measurement of deferred tax balances or potentially give rise to new deferred tax amounts.
The components of the provision for income taxes are:
|
|
|
|
|
|
|
|
|
|
2018
|
|
2017
|
Federal:
|
|
|
|
Current
|
$
|
5,546
|
|
|
$
|
10,018
|
|
Deferred
|
(915
|
)
|
|
2,167
|
|
|
|
|
|
State:
|
|
|
|
|
|
Current
|
3,262
|
|
|
3,906
|
|
Deferred
|
(135
|
)
|
|
111
|
|
|
|
|
|
|
$
|
7,758
|
|
|
$
|
16,202
|
|
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company’s deferred tax assets and liabilities are as follows:
|
|
|
|
|
|
|
|
|
|
July 28,
2018
|
|
July 29,
2017
|
Deferred tax assets:
|
|
|
|
|
Leasing activities
|
$
|
7,396
|
|
|
$
|
8,115
|
|
Federal benefit of uncertain tax positions
|
182
|
|
|
304
|
|
Compensation related costs
|
2,795
|
|
|
2,543
|
|
Pension costs
|
1,673
|
|
|
6,410
|
|
Other
|
456
|
|
|
729
|
|
|
|
|
|
Total deferred tax assets
|
12,502
|
|
|
18,101
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
Tax over book depreciation
|
13,557
|
|
|
17,603
|
|
Patronage dividend receivable
|
3,281
|
|
|
5,164
|
|
Investment in partnerships
|
1,030
|
|
|
1,479
|
|
Other
|
47
|
|
|
—
|
|
|
|
|
|
Total deferred tax liabilities
|
17,915
|
|
|
24,246
|
|
|
|
|
|
Net deferred tax liability
|
$
|
(5,413
|
)
|
|
$
|
(6,145
|
)
|
Deferred income tax assets (liabilities) are included in the following captions on the consolidated balance sheets at
July 28, 2018
and
July 29, 2017
:
|
|
|
|
|
|
|
|
2018
|
|
2017
|
Other assets
|
646
|
|
|
611
|
|
Other liabilities
|
(6,059
|
)
|
|
(6,756
|
)
|
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 28, 2018
and
July 29, 2017
.
The effective income tax rate differs from the statutory federal income tax rate as follows:
|
|
|
|
|
|
|
|
2018
|
|
2017
|
Statutory federal income tax rate
|
26.9
|
%
|
|
35.0
|
%
|
State income taxes, net of federal tax benefit
|
7.0
|
%
|
|
6.2
|
%
|
Deferred tax revaluation due to Tax Act
|
(10.0
|
)%
|
|
—
|
%
|
Other
|
(0.3
|
)%
|
|
0.2
|
%
|
|
|
|
|
Effective income tax rate
|
23.6
|
%
|
|
41.4
|
%
|
The New Jersey Division of Taxation is currently auditing tax years 2011 through 2015 for all applicable entities and tax years 2000 through 2014 related to a settlement agreement reached in February 2015 regarding nexus of certain subsidiaries. Additionally, the Company's fiscal 2014 through 2016 federal tax returns are currently under audit. The Company is open to examination by the remaining relevant tax authorities with varying statutes of limitations, generally ranging from three to four years.
A reconciliation of the beginning and ending amount of gross unrecognized tax benefits is as follows:
|
|
|
|
|
|
|
|
|
|
2018
|
|
2017
|
Balance at beginning of year
|
$
|
648
|
|
|
$
|
631
|
|
Additions based on tax positions related to prior periods
|
—
|
|
|
17
|
|
|
|
|
|
Balance at end of year
|
$
|
648
|
|
|
$
|
648
|
|
Unrecognized tax benefits at
July 28, 2018
and
July 29, 2017
include tax positions of
$585
and
$585
(net of federal benefit), respectively, that would reduce the Company’s effective income tax rate, if recognized in future periods.
Although the outcome and timing are uncertain, the Company anticipates that the balance of gross unrecognized tax benefits will reverse during the next twelve months.
The Company recognizes interest and penalties on income taxes in income tax expense. The Company recognized expense of
$50
in fiscal
2017
related to interest and penalties on income taxes. The amount of accrued interest and penalties included in the consolidated balance sheet was
$242
at
July 28, 2018
and
July 29, 2017
, respectively.
NOTE 6 — LEASES
Description of leasing arrangements
The Company leased
23
stores at
July 28, 2018
, 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 28, 2018
:
|
|
|
|
|
|
|
|
|
|
Capital and
financing leases
|
|
Operating
leases
|
2019
|
$
|
5,001
|
|
|
$
|
12,514
|
|
2020
|
5,173
|
|
|
12,405
|
|
2021
|
5,240
|
|
|
10,927
|
|
2022
|
5,240
|
|
|
8,771
|
|
2023
|
5,305
|
|
|
8,463
|
|
Thereafter
|
49,050
|
|
|
61,727
|
|
Minimum lease payments
|
75,009
|
|
|
$
|
114,807
|
|
Less amount representing interest
|
32,477
|
|
|
|
|
|
|
|
|
Present value of minimum lease payments
|
42,532
|
|
|
|
|
|
|
|
|
Less current portion
|
764
|
|
|
|
|
|
$
|
41,768
|
|
|
|
|
The following schedule shows the composition of total rental expense for the following years:
|
|
|
|
|
|
|
|
|
|
2018
|
|
2017
|
Minimum rentals
|
$
|
11,985
|
|
|
$
|
11,153
|
|
Contingent rentals
|
726
|
|
|
668
|
|
|
|
|
|
|
$
|
12,711
|
|
|
$
|
11,821
|
|
On November 6, 2013, the Company closed the Morris Plains, New Jersey store and opened a
77,000
sq. ft. replacement store in Hanover Township, New Jersey. The Company recorded a
$3,481
charge to Operating and administrative expense in fiscal 2014 for the remaining lease obligations, net of estimated sublease rentals, on the Morris Plains store. The Company paid
$0
and
$788
of these costs in fiscal
2018
and
2017
, respectively, with no remaining liability as of
July 28, 2018
.
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
$688
in both fiscal
2018
and
2017
. This lease expires in fiscal 2021 with options to extend at increasing annual rent.
The Company has ownership interests in
three
real estate partnerships. Village paid aggregate rents to
two
of these partnerships for leased stores of
$1,455
in both fiscal
2018
and
2017
.
One
of these partnerships is a variable interest entity, which is not consolidated as Village is not the primary beneficiary. This partnership owns
one
property, a stand-alone supermarket leased to the Company since 1974. Village is a general partner entitled to
33%
of the partnership's profits and losses.
The Company subleases the Galloway and Vineland stores from Wakefern under sublease agreements which provided for combined annual rents of
$1,322
and
$1,316
in fiscal
2018
and
2017
, respectively. 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.
During fiscal 2015 the Company’s Board of Directors authorized a share repurchase program of up to
$5,000
of its Class A Common Stock. Repurchases may be made from time to time through a variety of methods, including open market purchases and other negotiated transactions, including through plans designed to comply with Rule 10b5-1 under the Securities Exchange Act of 1934. The Company made open market purchases totaling $
632
and $
1,859
under this repurchase program in fiscal
2018
and
2017
, respectively, and an additional $
2,222
in shares of Class A Common Stock were surrendered in satisfaction of withholding taxes in connection with the vesting of restricted shares in fiscal 2017.
Village has
three
share-based compensation plans, which are described below. The compensation cost charged against income for these plans was
$3,715
and
$3,134
in fiscal
2018
and
2017
, respectively. Total income tax benefit recognized in the consolidated statements of operations for share-based compensation arrangements was
$1,005
and
$802
in fiscal
2018
and
2017
, respectively.
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 shareholders 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's 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. There are
120
shares remaining for future grants under the 2010 Plan.
On December 16, 2016, the shareholders of the Company approved the Village Super Market, Inc. 2016 Stock Plan (the “2016 Plan”) under which awards of incentive and non-qualified stock options and restricted stock may be made. There are
1,200
shares of Class A common stock authorized for issuance to employees and directors under the 2016 Plan. Terms and conditions of awards are determined by the Board of Directors. There have been no awards granted to date under the 2016 Plan.
The following table summarizes option activity under all plans for the following years:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
2017
|
|
Shares
|
|
Weighted-average
exercise price
|
|
Shares
|
|
Weighted-average
exercise price
|
Outstanding at beginning of year
|
384
|
|
|
$
|
27.91
|
|
|
424
|
|
|
$
|
27.77
|
|
Granted
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Exercised
|
(8
|
)
|
|
28.17
|
|
|
(31
|
)
|
|
25.75
|
|
Forfeited
|
(30
|
)
|
|
28.13
|
|
|
(9
|
)
|
|
26.46
|
|
Expired
|
(57
|
)
|
|
$
|
25.38
|
|
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
Outstanding at end of year
|
289
|
|
|
$
|
28.38
|
|
|
384
|
|
|
$
|
27.91
|
|
|
|
|
|
|
|
|
|
Options exercisable at end of year
|
289
|
|
|
$
|
28.38
|
|
|
371
|
|
|
$
|
27.88
|
|
As of
July 28, 2018
, the weighted-average remaining contractual term of options outstanding and options exercisable was
4.6 years
. As of
July 28, 2018
, the aggregate intrinsic value was
$241
for both options outstanding and options exercisable. The total intrinsic value of options exercised was
$17
and
$204
in fiscal
2018
and
2017
, 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 all plans for the following years:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
2017
|
|
Shares
|
|
Weighted-average
grant date
fair value
|
|
Shares
|
|
Weighted-average
grant date
fair value
|
Nonvested at beginning of year
|
361
|
|
|
$
|
27.22
|
|
|
250
|
|
|
$
|
28.77
|
|
Granted
|
21
|
|
|
24.61
|
|
|
362
|
|
|
27.22
|
|
Vested
|
(18
|
)
|
|
27.22
|
|
|
(246
|
)
|
|
28.77
|
|
Forfeited
|
(8
|
)
|
|
26.73
|
|
|
(5
|
)
|
|
28.51
|
|
|
|
|
|
|
|
|
|
Nonvested at end of year
|
356
|
|
|
$
|
27.08
|
|
|
361
|
|
|
$
|
27.22
|
|
The total fair value of restricted shares vested during fiscal
2018
and
2017
was
$458
and
$6,649
, respectively.
As of
July 28, 2018
, there was
$5,274
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
1.6 years
.
Cash received from option exercises under all share-based compensation arrangements was
$225
and
$812
in fiscal
2018
and
2017
, respectively. The actual tax benefit realized for tax deductions from option exercises under share-based compensation arrangements was
$5
and
$83
in fiscal
2018
and
2017
, respectively.
The Company declared and paid cash dividends on common stock as follows:
|
|
|
|
|
|
|
|
|
|
2018
|
|
2017
|
Per share:
|
|
|
|
Class A common stock
|
$
|
1.00
|
|
|
$
|
1.00
|
|
Class B common stock
|
0.65
|
|
|
0.65
|
|
|
|
|
|
Aggregate:
|
|
|
|
|
|
Class A common stock
|
$
|
10,080
|
|
|
$
|
9,983
|
|
Class B common stock
|
2,798
|
|
|
2,805
|
|
|
|
|
|
|
$
|
12,878
|
|
|
$
|
12,788
|
|
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.
On November 29, 2016, the Company amended the Village Super Market Local 72 Retail Clerks Employees’ Retirement Plan, which covers union employees in the Stroudsburg store, to freeze all benefits effective January 31, 2017. As a result of this amendment, the Company recognized a pre-tax remeasurement gain totaling $
629
in accumulated other comprehensive loss during fiscal 2017. The remeasurement had no impact on the consolidated statements of operations.
Net periodic pension cost for the
four
plans include the following components:
|
|
|
|
|
|
|
|
|
|
2018
|
|
2017
|
Service cost
|
$
|
259
|
|
|
$
|
388
|
|
Interest cost on projected benefit obligation
|
2,515
|
|
|
2,424
|
|
Expected return on plan assets
|
(3,280
|
)
|
|
(3,684
|
)
|
Loss on settlement
|
866
|
|
|
965
|
|
Amortization of gains and losses
|
569
|
|
|
1,343
|
|
Net periodic pension cost
|
$
|
929
|
|
|
$
|
1,436
|
|
The Company recognized a settlement loss of $
866
and $
965
in fiscal
2018
and
2017
, respectively, for plans where benefits paid exceeded the sum of the service cost and interest cost components of net periodic pension cost during the year.
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:
|
|
|
|
|
|
|
|
|
|
2018
|
|
2017
|
Changes in Benefit Obligation:
|
|
|
|
|
|
Benefit obligation at beginning of year
|
$
|
71,701
|
|
|
$
|
80,021
|
|
Service cost
|
259
|
|
|
388
|
|
Interest cost
|
2,515
|
|
|
2,424
|
|
Benefits paid
|
(643
|
)
|
|
(549
|
)
|
Settlement
|
(4,317
|
)
|
|
(4,487
|
)
|
Actuarial loss (gain)
|
38
|
|
|
(6,096
|
)
|
Benefit obligation at end of year
|
$
|
69,553
|
|
|
$
|
71,701
|
|
|
|
|
|
Changes in Plan Assets:
|
|
|
|
|
|
Fair value of plan assets at beginning of year
|
$
|
56,507
|
|
|
$
|
53,281
|
|
Actual return on plan assets
|
3,014
|
|
|
5,262
|
|
Employer contributions
|
6,510
|
|
|
3,000
|
|
Benefits paid
|
(643
|
)
|
|
(549
|
)
|
Settlements paid
|
(4,317
|
)
|
|
(4,487
|
)
|
Fair value of plan assets at end of year
|
61,071
|
|
|
56,507
|
|
|
|
|
|
Funded status at end of year
|
$
|
8,482
|
|
|
$
|
15,194
|
|
|
|
|
|
Amounts recognized in the consolidated balance sheets:
|
|
|
|
|
|
Pension liabilities
|
8,482
|
|
|
15,194
|
|
Accumulated other comprehensive loss, net of income taxes
|
8,185
|
|
|
7,406
|
|
|
|
|
|
Amounts included in Accumulated other comprehensive loss (pre-tax):
|
|
|
|
|
|
Net actuarial loss
|
$
|
11,388
|
|
|
$
|
12,521
|
|
The Company expects approximately
$583
of the net actuarial loss to be recognized as a component of net periodic benefit costs in fiscal
2019
.
The accumulated benefit obligations of the
four
plans were
$69,553
and
$71,701
at
July 28, 2018
and
July 29, 2017
, respectively. The following information is presented for those plans with an accumulated benefit obligation in excess of plan assets:
|
|
|
|
|
|
|
|
|
|
2018
|
|
2017
|
Projected benefit obligation
|
$
|
67,861
|
|
|
$
|
70,019
|
|
Accumulated benefit obligation
|
67,861
|
|
|
70,019
|
|
Fair value of plan assets
|
59,283
|
|
|
54,557
|
|
Weighted average assumptions used to determine benefit obligations and net periodic pension cost for the Company’s defined benefit plans were as follows:
|
|
|
|
|
|
|
|
2018
|
|
2017
|
Assumed discount rate — net periodic pension cost
|
3.60
|
%
|
|
3.08
|
%
|
Assumed discount rate — benefit obligation
|
3.99
|
%
|
|
3.60
|
%
|
Assumed rate of increase in compensation levels
|
4.5
|
%
|
|
4.5
|
%
|
Expected rate of return on plan assets
|
6.50
|
%
|
|
7.50
|
%
|
Investments in the pension trusts are overseen by the trustees of the plans, who are officers of Village. In fiscal 2018, the Company transitioned to a liability-driven investment ("LDI") strategy. A LDI strategy focuses on maintaining a close to fully-funded status over the long-term with minimal funded status risk. This is achieved by investing more of the plan assets in fixed income instruments to more closely match the duration of the plan liability. The investment allocation to fixed income instruments will increase as each plans funded status increases. The target allocations for plan assets are
25
-
35%
equity securities,
65
-
75%
fixed income securities and
0
-
10%
cash. Asset allocations are reviewed periodically and appropriate rebalancing is performed.
Equity securities include investments in large-cap, small-cap and mid-cap companies located both in and outside the United States. Fixed income securities include U.S. treasuries, mortgage-backed securities and corporate bonds of companies from diversified industries. Investments in securities are made through mutual funds. In addition,
one
plan held Class A common stock of Village in the amount of
$611
and
$636
at
July 28, 2018
and
July 29, 2017
, respectively.
Risk management is accomplished through diversification across asset classes and fund strategies, multiple investment portfolios and investment guidelines. The plans do not allow for investments in derivative instruments.
The fair value of the pension assets were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July 28, 2018
|
|
July 29, 2017
|
Asset Category
|
|
Level 1
|
|
Assets Measured at NAV
|
|
Total
|
|
Level 1
|
|
Level 2
|
|
Total
|
Cash
|
|
$
|
17
|
|
|
$
|
—
|
|
|
$
|
17
|
|
|
$
|
166
|
|
|
$
|
610
|
|
|
$
|
776
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company stock
|
|
611
|
|
|
—
|
|
|
611
|
|
|
636
|
|
|
—
|
|
|
636
|
|
Mutual/Collective Trust Funds -
U.S. (1)
|
|
—
|
|
|
10,213
|
|
|
10,213
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Mutual/Collective Trust Funds - International (1)
|
|
—
|
|
|
8,337
|
|
|
8,337
|
|
|
—
|
|
|
—
|
|
|
—
|
|
U.S. large cap (2)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
19,696
|
|
|
1,197
|
|
|
20,893
|
|
U.S. small/mid cap (3)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
6,644
|
|
|
179
|
|
|
6,823
|
|
International (4)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
7,187
|
|
|
421
|
|
|
7,608
|
|
Emerging markets (5)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,277
|
|
|
—
|
|
|
1,277
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed income securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mutual/Collective Trust Funds - Fixed Income (1)
|
|
—
|
|
|
41,893
|
|
|
41,893
|
|
|
—
|
|
|
—
|
|
|
—
|
|
U.S. treasuries (6)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
9,520
|
|
|
356
|
|
|
9,876
|
|
Mortgage-backed (6)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,783
|
|
|
106
|
|
|
1,889
|
|
Corporate bonds (6)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2,931
|
|
|
3,179
|
|
|
6,110
|
|
International (7)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
619
|
|
|
—
|
|
|
619
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
628
|
|
|
$
|
60,443
|
|
|
$
|
61,071
|
|
|
$
|
50,459
|
|
|
$
|
6,048
|
|
|
$
|
56,507
|
|
|
|
(1)
|
Includes pools of investments that are measured at fair value using the Net Asset Value (NAV) per share (or its equivalent) practical expedient. The NAV is based on the underlying net assets owned by the fund and the relative interest of each participating investor in the fair value of the underlying assets. The underlying investments are classified as either level 1 or 2 of the fair value hierarchy.
|
|
|
(2)
|
Includes directly owned securities and mutual funds, primarily low-cost equity index funds not actively managed that track the S&P 500.
|
|
|
(3)
|
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.
|
|
|
(4)
|
Includes directly owned securities and mutual funds, which invest in diversified portfolios of publicly traded common stocks of large, non-U.S. companies.
|
|
|
(5)
|
Consists of mutual and exchange traded funds which invest in non-U.S. stocks in emerging markets.
|
|
|
(6)
|
Includes directly owned securities, mutual funds and exchange traded funds.
|
|
|
(7)
|
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:
|
|
|
|
|
Fiscal Year
|
|
2019
|
$
|
7,336
|
|
2020
|
2,980
|
|
2021
|
2,950
|
|
2022
|
3,000
|
|
2023
|
11,446
|
|
2024 - 2028
|
17,300
|
|
The Company expects to contribute
$3,000
in cash to all defined benefit pension plans in fiscal
2019
.
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
2017
and
2016
is for the plan’s year-end at December 31,
2017
and December 31,
2016
, respectively, unless otherwise noted. Among other factors, generally, plans in the red zone are less than 65 percent funded, plans in the yellow zone are between 65 and 80 percent funded and plans in the green zone are at least 80 percent funded. The “FIP/RP Status Pending / Implemented” column indicates plans for which a funding improvement plan (“FIP”) or a rehabilitation plan (“RP”) is either pending or has been implemented.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Protection Act Zone Status
|
FIP/RP Status
Pending
/ Implemented
|
Contributions for the
year ended (5)
|
|
Expiration
date of
Collective-
Bargaining
Agreement
|
Pension Fund
|
EIN / Pension Plan Number
|
2017
|
2016
|
July 28,
2018
|
July 29,
2017
|
Surcharge
Imposed (6)
|
Pension Plan of Local 464A (1)
|
22-6051600-001
|
Green
|
Green
|
N/A
|
$
|
779
|
|
$
|
762
|
|
N/A
|
October 2020
|
UFCW Local 1262 & Employers Pension Fund (2), (4)
|
22-6074414-001
|
Red
|
Red
|
Implemented
|
3,481
|
|
3,498
|
|
No
|
October 2023
|
UFCW Regional Pension Plan (3), (4)
|
16-6062287-074
|
Red
|
Red
|
Implemented
|
$
|
1,373
|
|
$
|
1,314
|
|
No
|
March 2019
|
Total Contributions
|
|
|
|
|
$
|
5,633
|
|
$
|
5,574
|
|
|
|
|
|
(1)
|
The information for this fund was obtained from the Form 5500 filed for the plan’s year-end at December 31,
2017
and December 31,
2016
.
|
|
|
(2)
|
The information for this fund was obtained from the Form 5500 filed for the plan’s year-end at December 31,
2016
and December 31,
2015
.
|
|
|
(3)
|
The information for this fund was obtained from the Form 5500 filed for the plan’s year-end at September 30,
2017
and September 30,
2016
.
|
|
|
(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 28, 2018
, the collective bargaining agreements under which the Company was making contributions were in compliance with rehabilitation plans adopted by each applicable pension fund.
|
Other Multi-Employer Benefit Plans
The Company also contributes to various other multi-employer benefit plans that provide health and welfare benefits to active and retired participants. Total contributions made by the Company to these other multi-employer benefit plans were
$27,713
and
$28,137
in fiscal
2018
and
2017
, respectively.
Defined Contribution Plans
The Company sponsors a 401(k) savings plan for certain eligible associates. Company contributions under that plan, which are based on specified percentages of associate contributions, were
$1,260
and
$1,132
in fiscal
2018
and
2017
, respectively. The Company also contributes to union sponsored defined contribution plans for certain eligible associates. Company contributions under these plans were
$820
and
$783
in fiscal
2018
and
2017
, respectively.
NOTE 9 — COMMITMENTS and CONTINGENCIES
Superstorm Sandy devastated the area on October 29, 2012 and resulted in the closure of almost all of our stores for periods of time ranging from a few hours to eight days. Village disposed of substantial amounts of perishable product and also incurred repair, labor and other costs as a result of the storm. The Company has property, casualty and business interruption insurance, subject to deductibles and coverage limits. During fiscal 2013, Wakefern began the process of working with our insurers to recover the damages and Village recorded estimated insurance recoveries of $
4,913
. In October 2013, Wakefern, as the policy holder, filed suit against the carrier seeking payment of the remaining claims due for all Wakefern members. The suit was the result of different interpretations of policy terms, including whether the policy's named storm deductible applied. On October 29, 2014, the Court issued their opinion on the matter in favor of the carrier. Based on this decision and its related impact, the Company concluded that recovery of further proceeds was not probable and recorded a $
2,270
charge to operating and administrative expense in the first quarter of fiscal 2015 to write-off the remaining insurance receivable. Wakefern continues to pursue further recovery of uncollected amounts from the carrier and other sources. As a result, the Company received an additional $
940
in insurance proceeds
in February 2016 which was recognized as a reduction in Operating and administrative expense in fiscal 2016. Any further proceeds recovered will be recognized as they are received. As of
July 28, 2018
, Village has collected $
3,583
.
Approximately
89%
of our employees are covered by collective bargaining agreements. Contracts with the Company’s
seven
unions expire between
March 2019
and
October 2023
. Approximately
19%
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 other litigation incidental to the normal course of business. Company management is of the opinion that the ultimate resolution of these legal proceedings should not have a material adverse effect on the consolidated financial position, results of operations or liquidity of the Company.