10-K 1 vlgea2018728-10xk.htm 10-K Document


UNITED STATES
SECURITIES & EXCHANGE COMMISSION
WASHINGTON, D. C. 20549 
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d) of the Securities and Exchange Act of 1934.
 
For the fiscal year ended: July 28, 2018
 
COMMISSION FILE NUMBER:   0-33360
VILLAGE SUPER MARKET, INC.
(Exact name of registrant as specified in its charter) 
NEW JERSEY
22-1576170
(State or other jurisdiction of incorporation or organization)
(I. R. S. Employer Identification No.)
 
 
733 MOUNTAIN AVENUE, SPRINGFIELD, NEW JERSEY
07081
(Address of principal executive offices)
(Zip Code)
 
 
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (973) 467-2200
 
 
Securities registered pursuant to Section 12(b) of the Act:
 
 
Class A common stock, no par value
The NASDAQ Stock Market
(Title of Class)
(Name of exchange on which registered)
 
 
Securities registered pursuant to Section 12(g) of the Act:  NONE
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes  o   No  ý
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No  ý
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes  ý   No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes  ý   No  o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§299.405 of this chapter) is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ý
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company.  See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and " emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer o
 
Accelerated filer x
 
 
 
Non-accelerated filer o
(Do not check if a smaller reporting company)
 
Smaller reporting company x
 
 
Emerging growth company o
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes  o   No  ý
The aggregate market value of the Class A common stock of Village Super Market, Inc. held by non-affiliates was approximately $189.7 million and the aggregate market value of the Class B common stock held by non-affiliates was approximately $0.3 million based upon the closing price of the Class A shares on the NASDAQ on January 27, 2018, the last business day of the second fiscal quarter.  There are no other classes of voting stock outstanding.
Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of latest practicable date.




 
Outstanding at
Class
October 10, 2018
 
 
Class A common stock, no par value
10,078,896 Shares
Class B common stock, no par value
4,303,748 Shares
DOCUMENTS INCORPORATED BY REFERENCE
Information contained in the 2018 definitive Proxy Statement to be filed with the Commission and delivered to security holders in connection with the Annual Meeting scheduled to be held on December 14, 2018 are incorporated by reference into this Form 10-K at Part II, Item 5 and Part III.
PART I
(All dollar amounts are in thousands, except per share and per square foot data).

ITEM I.   BUSINESS
 
GENERAL
 
Village Super Market, Inc. (the “Company” or “Village”) was founded in 1937.   For almost all of fiscal 2018, Village operated a chain of 29 ShopRite supermarkets, eighteen of which are located in northern New Jersey, eight in southern New Jersey, two in Maryland and one in northeastern Pennsylvania. In addition, on June 28, 2018 Village opened a 53,000 sq. ft. (31,000 selling sq. ft.) store in the Bronx, 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.
 
Village competes by using low pricing, providing a superior customer experience and a broad range of consistently available quality products, including ShopRite private labeled products. The ShopRite Price Plus preferred customer program enables Village to offer continuity programs, focus on target marketing initiatives and to offer discounts and attach digital coupons directly to a customer's Price Plus card. 

During fiscal 2018, sales per store were $55,450 and sales per average square foot of selling space were $1,188, excluding the Bronx store.  The Company gives ongoing attention to the décor and format of its stores and tailors each store's product mix to the preferences of the local community.  

Below is a summary of the range of store sizes at July 28, 2018:
 
Total Square Feet
Number of Stores
 
 
Greater than 60,000
15
50,001 to 60,000
8
40,000 to 50,000
5
Less than 40,000
2
Total
30
 
These larger store sizes enable the Company’s stores to provide a “one-stop” shopping experience and to feature expanded higher margin specialty departments such as an on-site bakery, an expanded delicatessen, a variety of natural and organic foods, ethnic and international foods, prepared foods and pharmacies.  Our stores emphasize a Power Alley, which features high margin, fresh, convenience offerings in an area within the store that provides quick customer entry and exit. Certain of our stores include a Village Food Garden, featuring a restaurant style kitchen and a wide variety of store prepared specialty foods for both take-home and in-store dining.
 
Village also has on-site registered dieticians in nineteen stores that provide customers with free, private consultations on healthy meals and proper nutrition, as well as leading health related events both in store and in the community as part of the Well Everyday program.  Expanded services such as a culinary classroom, fitness studio and a learning and childcare center have been incorporated into certain new and expanded stores.
 
We have thirteen stores that offer ShopRite from Home covering most of the communities served by our stores.  ShopRite from Home is an online ordering system that provides for in-store pickup or home delivery.  Customers can browse our circular, create




and edit shopping lists and use ShopRite from Home through shoprite.com or on their smart phones or tablets through the ShopRite app.  

The following table shows the percentage of the Company's sales allocable to various product categories during each of the periods indicated:
 
Product Categories
 
 
2018
 
2017
 
2016
Groceries
36.3
%
 
36.3
%
 
36.1
%
Dairy and Frozen
16.9

 
16.8

 
17.0

Produce
12.1

 
12.1

 
12.1

Meats
9.9

 
10.0

 
10.2

Non-Foods
8.3

 
8.4

 
8.4

Deli and Prepared Food
7.2

 
7.0

 
6.8

Pharmacy
4.3

 
4.5

 
4.5

Seafood
2.5

 
2.4

 
2.4

Bakery
2.1

 
2.1

 
2.1

Liquor
0.4

 
0.4

 
0.4

 
100
%
 
100
%
 
100
%
 
A variety of factors affect the profitability of each of the Company's stores, including competition, size, access and parking, lease terms, management supervision, and the strength of the ShopRite trademark in the local community.  Village continually evaluates individual stores to determine if they should be closed, remodeled or replaced.
 
DEVELOPMENT AND EXPANSION
 
The Company has an ongoing program to upgrade and expand its supermarket chain.  This program has included store remodels as well as the opening or acquisition of additional stores.  When remodeling, Village has sought, whenever possible, to increase the amount of selling space in its stores.
 
Village has budgeted $40 million for capital expenditures for fiscal 2019.  Planned expenditures include the construction of a replacement store in Stroudsburg, Pennsylvania, three minor remodels, expansion of self-checkout across most stores and other various technology, equipment and facility upgrades.
 
In fiscal 2018, Village completed construction of the Bronx, New York store, several minor remodels and various technology, equipment and facility upgrades.

In fiscal 2017, Village completed a substantial portion of the remodel of the Chester, New Jersey store, several smaller remodels and energy efficient lighting projects in multiple stores.

In fiscal 2016, Village completed the expansion and remodel of the Stirling, New Jersey store, substantially completed one major remodel and completed several smaller remodels.

Additional store remodels and sites for new stores are in various stages of development.  Village will also consider additional acquisitions should appropriate opportunities arise.
 
WAKEFERN FOOD CORPORATION
 
The Company is the second largest member of Wakefern and owns 12.8% of Wakefern’s outstanding stock as of July 28, 2018.  Wakefern, which was organized in 1946, is the nation’s largest retailer-owned food cooperative.  Wakefern and its 49 shareholder members operate 350 supermarkets and other retail formats, including 98 stores operated by Wakefern.  Only Wakefern and its members are entitled to use the ShopRite name and trademark, and to participate in ShopRite advertising and promotional programs.

The principal benefits to the Company from its relationship with Wakefern are the use of the ShopRite name and trademark, volume purchasing, ShopRite private label products, distribution and warehousing economies of scale, ShopRite advertising and

3



promotional programs (including the ShopRite Price Plus card) and the development of advanced retail technology.  The Company believes that the ShopRite name is widely recognized by its customers and is a factor in their decisions about where to shop. ShopRite private label products accounted for approximately 11.7% of sales in fiscal 2018.
 
Wakefern distributes as a "patronage dividend" to each of its stockholders a share of substantially all of its earnings in proportion to the dollar volume of purchases by the stockholder from Wakefern during each fiscal year.
 
While Wakefern has a substantial professional staff, it operates as a member owned cooperative.  Executives of most members make contributions of time to the business of Wakefern.  Executives of the Company spend a significant amount of their time working on various Wakefern committees, which oversee and direct Wakefern purchasing, merchandising and other programs.  In addition, Nicholas Sumas, the Company’s Chief Marketing Officer, is a member of the Wakefern Board of Directors.
 
Most of the Company's advertising is developed and placed by Wakefern's professional advertising staff.  Wakefern is responsible for all television, radio and major newspaper advertisements. Wakefern bills its members using various formulas which allocate advertising costs in accordance with the estimated proportional benefits to each member from such advertising.  The Company also places Wakefern developed materials with local newspapers.  In addition, Wakefern and its affiliates provide the Company with other services including liability and property insurance, supplies, certain equipment purchasing, coupon processing, certain financial accounting applications, retail technology support, including shoprite.com and ShopRite smart phone apps, and other store services.
 
Wakefern operates warehouses and distribution facilities in Elizabeth, Keasbey, Whitehouse, Dayton, Newark and Jamesburg, New Jersey and Gouldsboro and Breinigsville, Pennsylvania.  The Company and all other members of Wakefern are parties to the Wakefern Stockholders' Agreement which provides for certain commitments by, and restrictions on, all shareholders of Wakefern.  This agreement extends until ten years from the date that stockholders representing 75% of Wakefern sales notify Wakefern that those stockholders request the Wakefern Stockholders' Agreement be terminated.  Each member is obligated to purchase from Wakefern a minimum of 85% of its requirements for products offered by Wakefern.  If this purchase obligation is not met, the member is required to pay Wakefern's profit contribution shortfall attributable to this failure.  The Company fulfilled this obligation in fiscal 2018 and 2017.  This agreement also requires that in the event of unapproved changes in control of the Company or a sale of the Company or of individual Company stores, except to a qualified successor, the Company in such cases must pay Wakefern an amount equal to the annual profit contribution shortfall attributable to the sale of a store or change in control.  No payments are required if the volume lost by a shareholder as a result of the sale of a store is replaced by such shareholder by increased volume in existing or new stores.  A "qualified successor" must be, or agree to become, a member of Wakefern, and may not own or operate any supermarkets, other than ShopRite, PriceRite, The Fresh Grocer or Dearborn Market supermarkets, in the states of New York, New Jersey, Pennsylvania, Delaware, Maryland, Virginia, Connecticut, Massachusetts, Rhode Island, Vermont, New Hampshire, Maine or the District of Columbia, or own or operate more than 25 non-ShopRite supermarkets in any other locations in the United States.
 
Wakefern, under circumstances specified in its bylaws, may refuse to sell merchandise to, and may repurchase the Wakefern stock of, any member.  Such circumstances include a member's bankruptcy filing, certain unapproved transfers by a member of its supermarket business or its capital stock in Wakefern, unapproved acquisition by a member of certain supermarket or grocery wholesale supply businesses, the material breach by a member of any provision of the bylaws of Wakefern or any agreement with Wakefern, or a failure to fulfill financial obligations to Wakefern.
 
Any material change in Wakefern's method of operation or a termination or material modification of the Company's relationship with Wakefern following termination of the above agreements, or otherwise, might have an adverse impact on the conduct of the Company's business and could involve additional expense for the Company.  The failure of any Wakefern member to fulfill its obligations under these agreements or a member's insolvency or withdrawal from Wakefern could result in increased costs to remaining members.
 
Wakefern does not prescribe geographical franchise areas to its members.  The specific locations at which the Company, other members of Wakefern, or Wakefern itself, may open new units under the ShopRite, PriceRite, The Fresh Grocer or Dearborn Market names are, however, subject to the approval of Wakefern's Site Development Committee.  This committee is composed of persons who are not employees or members of Wakefern.  Committee decisions to deny a site application may be appealed to the Wakefern Board of Directors.  Wakefern assists its members in their site selection by providing appropriate demographic data, volume projections and estimates of the impact of the proposed store on existing member supermarkets in the area.
 
Each of Wakefern's members is required to make capital contributions to Wakefern based on the number of stores operated by that member and the purchases from Wakefern generated by those stores.  As additional stores are opened or acquired by a member, additional capital must be contributed by it to Wakefern.  The Company’s investment in Wakefern and affiliates was $27,093 at

4



July 28, 2018.  The total amount of debt outstanding from all capital pledges to Wakefern is $114 at July 28, 2018.  The maximum per store capital contribution was $925 in both fiscal 2018 and 2017.

As required by the Wakefern bylaws, the Company’s investment in Wakefern is pledged to Wakefern to secure the Company’s obligations to Wakefern.  In addition, five members of the Sumas family have guaranteed the Company’s obligations to Wakefern.  These personal guarantees are required of any 5% shareholder of the Company who is active in the operation of the Company.  Wakefern does not own any securities of the Company or its subsidiaries.  The Company’s investment in Wakefern entitles the Company to enough votes to elect one member to the Wakefern Board of Directors due to cumulative voting rights.

LABOR
 
As of July 28, 2018, the Company employed approximately 6,742 persons with approximately 74% working part-time.  Approximately 89% of the Company’s employees are covered by collective bargaining agreements. Contracts with the Company’s seven unions have expiration dates between March 2019 and October 2023.  Approximately 19% of our associates are represented by unions whose contracts have expired or will expire within one year.  Many of the Company’s competitors are similarly unionized.
 
SEASONALITY
 
The majority of our revenues are generally not seasonal in nature. However, revenues tend to be higher during the major holidays throughout the year.

REGULATORY ENVIRONMENT
 
The Company’s business requires various licenses and the registration of facilities with state and federal health and drug regulatory agencies.  These licenses and registration requirements obligate the Company to observe certain rules and regulations, and a violation of these rules and regulations could result in a suspension or revocation of licenses or registrations and fines or penalties.  In addition, most licenses require periodic renewals.  The Company has not experienced material difficulties with respect to obtaining or retaining licenses and registrations. 

COMPETITION
 
The supermarket business is highly competitive and characterized by narrow profit margins.  Village competes directly with multiple retail formats both in-store and online, including national, regional and local supermarket chains as well as warehouse clubs, supercenters, drug stores, discount general merchandise stores, fast food chains, restaurants, dollar stores and convenience stores. Some of the Company's principal competitors include Acme, Aldi, Amazon, BJs, Costco, Foodtown, Giant, Kings, Lidl, Safeway, Stop & Shop, Target, Wal-Mart, Wegmans, Weis and Whole Foods. Competition with these outlets is based on price, store location, convenience, 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.

AVAILABLE INFORMATION
 
As a member of the Wakefern cooperative, Village relies upon our customer focused website, shoprite.com, for interaction with customers and prospective employees.  This website is maintained by Wakefern for the benefit of all ShopRite supermarkets, and therefore does not contain any financial information related to the Company.
 
The Company will provide paper copies of the annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and press releases free of charge upon request to any shareholder.  In addition, electronic copies of these filings can be obtained at sec.gov.
 

ITEM 1A.   RISK FACTORS
 
Not applicable.
 
ITEM 1B.   UNRESOLVED STAFF COMMENTS
 
Not applicable.
 

5



ITEM 2.   PROPERTIES

As of July 28, 2018, Village owns the sites of six of its supermarkets (containing 412,000 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 24 supermarkets (containing 1,358,000 square feet of total space) and the corporate headquarters are leased, with initial lease terms generally ranging from 20 to 30 years, usually with renewal options.  Sixteen of these leased stores are located in shopping centers and the remaining eight are freestanding stores.  
 
The annual rent, including capitalized leases, for all of the Company's leased facilities for the year ended July 28, 2018 was approximately $17,670.
 
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.   LEGAL PROCEEDINGS

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.

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.

ITEM 4. MINE SAFETY DISCLOSURES
 
Not applicable.


6



PART II
 
ITEM 5.   MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
 
(All dollar amounts are in thousands, except per share data).
 
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.

2018
High
 
Low
4th Quarter
$
31.28

 
$
27.19

3rd Quarter
27.79

 
22.50

2nd Quarter
25.92

 
22.67

1st Quarter
25.80

 
22.90

2017
High
 
Low
4th Quarter
$
27.05

 
$
23.96

3rd Quarter
31.03

 
25.98

2nd Quarter
36.39

 
29.90

1st Quarter
32.84

 
30.02

 
As of October 1, 2018, there were approximately 790 holders of Class A common stock.
 
During fiscal 2018, Village paid cash dividends of $12,878.  Dividends in fiscal 2018 consist of $1.00 per Class A common share and $.65 per Class B common share.

During fiscal 2017, Village paid cash dividends of $12,788.  Dividends in fiscal 2017 consist of $1.00 per Class A common share and $.65 per Class B common share.



7



ITEM 6.   SELECTED FINANCIAL DATA
 
Selected Financial Data
(Dollars in thousands, except per share data and per square foot data).
 
Fiscal 2016 contains 53 weeks, with the additional week included in the fourth quarter. All other fiscal years contain 52 weeks.
 
For year
July 28, 2018
 
July 29, 2017
 
July 30,
2016
 
July 25,
2015
 
July 26,
2014
 
Sales
$
1,612,015

 
$
1,604,574

 
$
1,634,904

 
$
1,583,789

 
$
1,518,636

 
Net income
25,080

(1)
22,921

 
25,044

(2
)
30,620

(3
)
5,045

(4
)
Net income as a % of sales
1.56
%
 
1.43
%
 
1.53
%
 
1.93
%
 
0.33
%
 
Net income per share:
 

 
 

 
 

 
 

 
 

 
Class A common stock:
 

 
 

 
 

 
 

 
 

 
Basic
$
1.95

 
$
1.80

 
$
1.98

 
$
2.44

 
$
0.41

 
Diluted
1.74

 
1.60

 
1.77

 
2.16

 
0.36

 
Class B common stock:
 

 
 

 
 

 
 

 
 

 
Basic
1.27

 
1.16

 
1.29

 
1.58

 
0.26

 
Diluted
1.27

 
1.16

 
1.29

 
1.58

 
0.26

 
Cash dividends per share:
 

 
 

 
 

 
 

 
 

 
Class A
1.00

 
1.00

 
1.00

 
1.00

 
1.00

 
Class B
0.65

 
0.65

 
0.65

 
0.65

 
0.65

 
 
 
 
 
 
 
 
 
 
 
 
At year-end
 

 
 

 
 

 
 

 
 

 
Total assets
$
481,590

 
$
455,225

 
$
450,254

 
$
431,889

 
$
457,412

 
Long-term debt
48,186

 
42,646

 
43,561

 
44,425

 
45,242

 
Working capital
89,201

 
85,279

 
60,538

 
41,760

 
16,782

 
Shareholders’ equity
303,145

 
286,820

 
271,735

 
252,767

 
233,136

 
Book value per share
21.08

 
19.93

 
19.20

 
17.84

 
16.59

 
 
 
 
 
 
 
 
 
 
 
 
Other data
 

 
 

 
 

 
 

 
 

 
Same store sales trend (5)
0.2
%
 
0.0
%
 
1.4
%
 
2.1
%
 
0.2
%
 
Total square feet
1,770,000

 
1,717,000

 
1,717,000

 
1,717,000

 
1,700,000

 
Average total sq. ft. per store
59,000

 
59,000

 
59,000

 
59,000

 
59,000

 
Selling square feet
1,384,000

 
1,353,000

 
1,353,000

 
1,353,000

 
1,339,000

 
Sales per average square foot of selling space (6)
$
1,188

 
$
1,186

 
$
1,208

 
$
1,177

 
$
1,153

 
Number of stores
30

 
29

 
29

 
29

 
29

 
Sales per average number of stores (6)
$
55,450

 
$
55,330

 
$
56,376

 
$
54,613

 
$
52,367

 
Capital expenditures and acquisitions
35,464

 
27,726

 
19,971

 
23,517

 
50,322

 
 
(1) Includes a $3,300 reduction in deferred tax expense as a result of the Tax Cuts and Jobs Act, an $822 (net of tax non-recurring credit accrued related to multi-employer pension benefits, $877 (net of tax) in non-recurring assessments from Wakefern and $695 (net of tax) in pre-opening costs related to the Bronx, New York City store.
(2) Includes estimated net income of $280 due to the fiscal year including a 53rd week and a $545 (net of tax) gain due to the recovery of insurance receivables related to Superstorm Sandy.
(3) Includes a charge to write-off insurance receivables related to Superstorm Sandy of $1,340 (net of tax), a $316 (net of tax) impairment charge related to the property of a closed store and a tax benefit of $6,452 related to settlement of a dispute with the New Jersey Division of Taxation, net of interest and penalties accrued prior to settlement.

8



(4) Includes a $10,052 charge related to tax positions taken in prior years due to an unfavorable ruling by the New Jersey Tax Court, a higher tax rate due to $1,557 of accrued interest and penalties related to the New Jersey tax dispute, a charge for future lease obligations due to the closure of the Morris Plains and Union stores of $2,551 (net of tax) and pre-opening costs for the replacement stores in greater Morristown and Union of $1,141 (net of tax). 
(5) 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 and expansions are included in same store sales immediately. The change in same store sales in fiscal 2017 and 2016 excludes the impact of the 53rd week in fiscal 2016.
(6) Amounts for the year ended July 28, 2018 exclude results of the store opened in the Bronx, New York on June 28, 2018.

Unaudited Quarterly Financial Data
(Dollars in thousands except per share amounts).
 
 
First
Quarter
 
Second
Quarter
 
Third
Quarter
 
Fourth
Quarter
 
Fiscal
Year
2018
 
 
 
 
 
 
 
 
 
Sales
$
386,474

 
$
417,382

 
$
394,608

 
$
413,551

 
$
1,612,015

Gross profit
103,879

 
112,285

 
108,877

 
113,961

 
439,002

Net income
3,016

 
9,511

 
6,542

 
6,011

 
25,080

Net income per share:
 

 
 

 
 

 
 

 
 

Class A common stock:
 

 
 

 
 

 
 

 
 

Basic
0.23

 
0.74

 
0.51

 
0.47

 
1.95

Diluted
0.21

 
0.66

 
0.45

 
0.42

 
1.74

Class B common stock:
 

 
 

 
 

 
 

 
 

Basic
0.15

 
0.48

 
0.33

 
0.30

 
1.27

Diluted
0.15

 
0.48

 
0.33

 
0.30

 
1.27

 
 
 
 
 
 
 
 
 
 
2017
 

 
 

 
 

 
 

 
 

Sales
$
389,692

 
$
412,215

 
$
391,984

 
$
410,683

 
$
1,604,574

Gross profit
104,648

 
111,238

 
108,336

 
112,489

 
436,711

Net income
4,109

 
5,992

 
6,015

 
6,805

 
22,921

Net income per share:
 

 
 

 
 

 
 

 
 

Class A common stock:
 

 
 

 
 

 
 

 
 

Basic
0.32

 
0.47

 
0.47

 
0.53

 
1.80

Diluted
0.29

 
0.42

 
0.42

 
0.47

 
1.60

Class B common stock:
 

 
 

 
 

 
 

 
 

Basic
0.21

 
0.31

 
0.30

 
0.34

 
1.16

Diluted
0.21

 
0.31

 
0.30

 
0.34

 
1.16




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 30 ShopRite supermarkets in New Jersey, Maryland, northeastern Pennsylvania and New York City. On June 28, 2018 Village opened a 53,000 sq. ft. (31,000 selling sq. ft.) store in the Bronx, New York City.  Village is the second largest member of Wakefern Food Corporation (“Wakefern”), the nation’s largest retailer-owned food cooperative and owner of the ShopRite name. This ownership interest in Wakefern provides Village with many of the economies of scale in purchasing, distribution, advanced retail technology, marketing and advertising associated with larger chains.
 

9



The supermarket industry is highly competitive and characterized by narrow profit margins.  The Company competes directly with multiple retail formats, both in-store and online, including national, regional and local supermarket chains as well as warehouse clubs, supercenters, drug stores, discount general merchandise stores, fast food chains, restaurants, dollar stores and convenience stores. Village competes by using low pricing, providing a superior customer experience and a broad range of consistently available quality products, including ShopRite private labeled products. The ShopRite Price Plus preferred customer program enables Village to offer continuity programs, focus on target marketing initiatives and to offer discounts and attach digital coupons directly to a customer's Price Plus card. 

The Company’s stores, six of which are owned, average 59,000 total square feet. These larger store sizes enable the Company’s stores to provide a “one-stop” shopping experience and to feature expanded higher margin specialty departments such as an on-site bakery, an expanded delicatessen, a variety of natural and organic foods, ethnic and international foods, prepared foods and pharmacies.  

Many of our stores emphasize a Power Alley, which features high margin, fresh, convenience offerings in an area within the store that provides quick customer entry and exit for those customers shopping for today's lunch or dinner. Certain of our stores include the Village Food Garden concept featuring a restaurant style kitchen, and several kiosks offering a wide variety of store prepared specialty foods for both take-home and in-store dining.

Village also has on-site registered dieticians in nineteen stores that provide customers with free, private consultations on healthy meals and proper nutrition, as well as leading health related events both in store and in the community as part of the Well Everyday program.  We have thirteen stores that offer ShopRite from Home covering most of the communities served by our stores.  ShopRite from Home is an online ordering system that provides for in-store pickup or home delivery.  Customers can browse our circular, create and edit shopping lists and use ShopRite from Home through shoprite.com or on their smart phones or tablets through the ShopRite app. 

We consider a variety of indicators to evaluate our performance, such as same store sales; percentage of total sales by department (mix); shrink; departmental gross profit percentage; sales per labor hour; units per labor hour; and hourly labor rates.

 The Company utilizes a 52 - 53 week fiscal year, ending on the last Saturday in the month of July. Fiscal 2018 and 2017 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:
 
 
July 28, 2018
 
July 29, 2017
Sales
100.00
 %
 
100.00
 %
Cost of sales
72.77
 %
 
72.78
 %
Gross profit
27.23
 %
 
27.22
 %
Operating and administrative expense
23.61
 %
 
23.15
 %
Depreciation and amortization
1.55
 %
 
1.53
 %
Operating income
2.07
 %
 
2.54
 %
Interest expense
(0.28
)%
 
(0.28
)%
Interest income
0.24
 %
 
0.18
 %
Income before income taxes
2.03
 %
 
2.44
 %
Income taxes
0.48
 %
 
1.01
 %
Net income
1.55
 %
 
1.43
 %
 
SALES
 
Sales were $1,612,015 in fiscal 2018, an increase of $7,441, or 0.5% from fiscal 2017. Sales increased due to the opening of the Bronx, New York City store on June 28, 2018 and a same store sales increase of 0.2%. Same store sales increased due primarily to continued growth in recently remodeled and expanded stores, inflation and increased promotional spending. These increases were offset primarily by two competitor store openings. New stores and replacement stores are included in same store sales in

10



the quarter after the store has been in operation for four full quarters.  Store renovations and expansions are included in same store sales immediately.
 
GROSS PROFIT
 
Gross profit as a percentage of sales increased .01% in fiscal 2018 compared to fiscal 2017. Increased departmental gross margin percentages (.07%) and more favorable product mix (.09%) were offset by decreased patronage dividends (.04%) and higher promotional spending (.10%).

OPERATING AND ADMINISTRATIVE EXPENSE
 
Operating and administrative expense as a percentage of sales increased .46% in fiscal 2018 compared to fiscal 2017. Operating and administrative expense as a percentage of sales increased due primarily to payroll investments in service departments and training (.19%), internal payroll (.04%) and non-recurring external consulting fees (.09%) related to a launch of operational proficiency initiatives, pre-opening costs for the Bronx, New York store (.06%), non-recurring assessments from Wakefern (.08%) and increased occupancy costs including snow removal (.05%). These increases were partially offset by a non-recurring credit accrued related to multi-employer pension benefits (.08%).

DEPRECIATION AND AMORTIZATION
 
Depreciation and amortization expense was $24,999 and $24,482 in fiscal 2018 and 2017, respectively. Depreciation and amortization expense increased in fiscal 2018 compared to the prior year due to depreciation related to capital expenditures.
 
INTEREST EXPENSE
 
Interest expense was $4,460 and $4,452, in fiscal 2018 and 2017, respectively. Interest expense was flat in fiscal 2018 compared to fiscal 2017.
 
INTEREST INCOME
 
Interest income was $3,845 and $2,841 in fiscal 2018 and 2017, respectively. Interest income increased in fiscal 2018 compared to fiscal 2017 due primarily to higher amounts invested and higher interest rates earned on notes receivable from Wakefern.
 
INCOME TAXES
 
The Company’s effective income tax rate was 23.6% and 41.4% in fiscal 2018 and 2017, respectively.

The effective tax rate was impacted by the Tax Cuts and Jobs Act (the "Tax Act") enacted on December 22, 2017.  The Tax Act made significant changes to the U.S tax code that affected our fiscal year ended July 28, 2018, including, but not limited to, reducing the U.S. federal statutory tax rate from 35% to 21% effective January 1, 2018 and bonus depreciation that allows for full expensing of qualified property.

For the fiscal year ended July 28, 2018 the Company had a blended federal corporate tax rate of 26.9% based on the effective date of the tax rate reduction.  As a result of the decrease in the federal tax rate, the Company recognized a decrease in its net deferred tax liabilities of $3,300 in fiscal 2018, with a corresponding reduction to deferred income tax expense. Excluding the impact of these adjustments to deferred tax expense, the effective income tax rate was 33.7% in fiscal 2018. 

NET INCOME
 
Net income was $25,080 in fiscal 2018 compared to $22,921 in fiscal 2017.  Fiscal 2018 includes a $3,300 reduction in deferred tax expense as a result of the Tax Act, an $822 (net of tax) non-recurring credit accrued related to multi-employer pension benefits, $877 (net of tax) in non-recurring assessments from Wakefern and $695 (net of tax) in pre-opening costs related to the Bronx, New York City store. Excluding these items, net income decreased 2% in fiscal 2018 compared to the prior year primarily due to higher operating and administrative expenses partially offset by the favorable impact of a reduction in the fiscal 2018 effective tax rate to 33.7% as a result of the Tax Act.





11



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 net cash flows from asset groups at the store level to determine if the carrying value of such assets are recoverable from their respective cash flows. If impairment is indicated, it is measured by comparing the fair value of the long-lived asset groups, which include long-term leases, 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 28, 2018. 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.” This dividend is based on a distribution of substantially all of Wakefern’s operating profits for its fiscal year (which ends on or about 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 patronage dividend receivable based on these estimates was $11,937 and $12,655 at July 28, 2018 and July 29, 2017, 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 to the Consolidated Financial Statements 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 28, 2018 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 3.99% at July 28, 2018 compared to 3.60% at July 29, 2017. Changes in the discount rate and the mortality table utilized decreased the projected benefit obligation by approximately $1,878 at July 28, 2018. Village evaluated the expected increase in compensation costs of 4.50% and concluded no changes in this assumptions was necessary in estimating pension plan obligations and expense. 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.  Based on the Company’s transition to an LDI strategy, the Company assumed a 6.50% long-term rate of return on plan assets for fiscal 2018.

12




Sensitivity to changes in the major assumptions used in the calculation of the Company’s pension plans is as follows:
 
 
Percentage
 point change
 
Projected benefit
 obligation
decrease
 (increase)
 
Expense
decrease
 (increase)
Discount rate
+ / - 1.0 %
 
$
8,714

$
(10,926
)
 
$
466

$
(744
)
Expected return on assets
+ / - 1.0 %
 
$


 
$
592

$
(592
)

Village contributed $6,510 and $3,000 in fiscal 2018 and 2017, respectively, to these Company-sponsored pension plans. Village expects to contribute $3,000 in fiscal 2019 to these plans. Substantially all contributions in 2018 and 2017 are voluntary contributions.

RECENTLY ISSUED ACCOUNTING STANDARDS

For the disclosure related to recently issued accounting standards, see Note 1 to the Consolidated Financial Statements.

LIQUIDITY and CAPITAL RESOURCES
 
CASH FLOWS
 
Net cash provided by operating activities was $58,884 in fiscal 2018 compared to $46,153 in fiscal 2017. Net cash provided by operating activities was generated primarily by changes in working capital and net income adjusted for non-cash items including depreciation and amortization, share-based compensation, deferred taxes and the provision to value inventories at LIFO.

Working capital changes, including Other assets and Other liabilities, increased net cash provided by operating activities in fiscal 2018 by $6,466 and decreased net cash provided by operating activities in fiscal 2017 by $6,551. This change is due primarily to changes in income taxes receivable/payable as a result of the timing of estimated tax payments, lower merchandise inventories and increased accounts payable due primarily to timing of payments. These increases were partially offset by a decrease in pension liabilities due to the Company's $6,510 contribution to its pension plans in fiscal 2018 compared to a $3,000 contribution in fiscal 2017.

During fiscal 2018, Village used cash to fund capital expenditures of $35,464, dividends of $12,878, investments in notes receivable related to New Market Tax Credit financing of $4,835, treasury stock purchases of $632 and additional investments of $2,401 in notes receivable from Wakefern, net of proceeds received on matured notes. See further discussion on the New Markets Tax Credit program in note 4 to the consolidated financial statements. Capital expenditures primarily includes costs associated with the construction of the Bronx, New York store, several minor remodels and various technology, equipment and facility upgrades.

During fiscal 2017, Village used cash to fund capital expenditures of $27,726, dividends of $12,788, treasury stock purchases of $4,081 and invested an additional $1,945 in notes receivable from Wakefern. Capital expenditures primarily includes costs associated with the completion for the remodel of the Chester, New Jersey store, several smaller remodels of other existing stores and certain energy efficient lighting projects.
  
LIQUIDITY and DEBT
 
Working capital was $89,201 and $85,279 at July 28, 2018 and July 29, 2017, respectively. Working capital ratios at the same dates were 1.88 and 1.89 to one, respectively. The Company’s working capital needs are reduced, since inventories are generally sold by the time payments to Wakefern and other suppliers are due.
 
Village has budgeted $40 million for capital expenditures for fiscal 2019.  Planned expenditures include the construction of a replacement store in Stroudsburg, Pennsylvania, three minor remodels, expansion of self-checkout across most stores and other various technology, equipment and facility upgrades. The Company’s primary sources of liquidity in fiscal 2019 are expected to be cash and cash equivalents on hand at July 28, 2018 and operating cash flow generated in fiscal 2019.
 

13



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, Village had demand deposits invested at Wakefern in the amount of $63,413. These deposits earn overnight money market rates.

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, 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. There were no amounts outstanding at July 28, 2018 or July 29, 2017 under the new or superseded facility, respectively.

During fiscal 2018, Village paid cash dividends of $12,878.  Dividends in fiscal 2018 consist of $1.00 per Class A common share and $.65 per Class B common share.

During fiscal 2017, Village paid cash dividends of $12,788.  Dividends in fiscal 2017 consist of $1.00 per Class A common share and $.65 per Class B common share.
 
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 the same store sales increase to range from .5% to 2.5% in fiscal 2019.
We have budgeted $40,000 for capital expenditures in fiscal 2019.  Planned expenditures include the construction of a replacement store in Stroudsburg, Pennsylvania, three minor remodels, expansion of self-checkout across most stores and other various technology, equipment and facility upgrades.
The Board’s current intention is to continue to pay quarterly dividends in 2019 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 2019 to be in the range of 30% - 31%. The reduction in the expected effective income tax rate is due primarily to realizing the full impact of the 21% federal corporate tax rate as a result of the Tax Cuts and Jobs Act, partially offset by New Jersey Assembly Bill 4202 which will temporarily increase the New Jersey corporate tax rate to 11.5% for fiscal 2019.
We expect operating expenses will be affected by spends on operational proficiency initiatives and increased costs in certain areas, such as medical and other fringe benefit costs.

14



We expect approximately $1,300 of net periodic pension costs in fiscal 2019 related to the four Company sponsored defined benefit pension plans. The Company expects to contribute $3,000 in cash to all defined benefit pension plans in fiscal 2019.
Various uncertainties and other factors could cause actual results to differ from the forward-looking statements contained in this report. These include:

The supermarket business is highly competitive and characterized by narrow profit margins.  Results of operations may be materially adversely impacted by competitive pricing and promotional programs, industry consolidation and competitor store openings.  Village competes directly with multiple retail formats both in-store and online, including national, regional and local supermarket chains as well as warehouse clubs, supercenters, drug stores, discount general merchandise stores, fast food chains, restaurants, dollar stores and convenience stores. Some of these competitors have greater financial resources, lower merchandise acquisition costs and lower operating expenses than we do.  
The Company’s stores are concentrated in New Jersey, with two stores in Maryland, one in northeastern Pennsylvania and one in New York City. 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 rate fluctuations, movements in energy costs, social programs, minimum wage legislation, unemployment rates and changing demographics may adversely affect our sales and profits. 
Village purchases substantially all of its merchandise from Wakefern.  In addition, Wakefern provides the Company with support services in numerous areas including advertising, liability and property insurance, supplies, certain equipment purchasing, coupon processing, certain financial accounting applications, retail technology support, and other store services.  Further, Village receives patronage dividends and other product incentives from Wakefern.
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 89% of our employees are covered by collective bargaining agreements. Any work stoppages could have an adverse impact on our financial results. If we are unable to control health care and pension costs provided for in the collective bargaining agreements, we may experience increased operating costs.
The Company could be adversely affected if consumers lose confidence in the safety and quality of the food supply chain.  The real or perceived sale of contaminated food products by us could result in a loss of consumer confidence and product liability claims, which could have a material adverse effect on our sales and operations.
Certain of the multi-employer plans to which we contribute are underfunded. As a result, we expect that contributions to these plans may increase. Additionally, the benefit levels and related items will be issues in the negotiation of our collective bargaining agreements. Under current law, an employer that withdraws or partially withdraws from a multi-employer pension plan may incur a withdrawal liability to the plan, which represents the portion of the plan’s underfunding that is allocable to the withdrawing employer under very complex actuarial and allocation rules. The failure of a withdrawing employer to fund these obligations can impact remaining employers. The amount of any increase or decrease in our required contributions to these multi-employer pension plans will depend upon the outcome of collective bargaining, actions taken by trustees who manage the plans, government regulations, withdrawals by other participating employers and the actual return on assets held in the plans, among other factors.
The Company uses a combination of insurance and self-insurance to provide for potential liability for workers’ compensation, automobile and general liability, property, director and officers’ liability, and certain employee health care benefits. Any projection of losses is subject to a high degree of variability. Changes in legal claims, trends and interpretations, variability in inflation rates, changes in the nature and method of claims settlement, benefit level changes due to changes in applicable laws, and insolvency of insurance carriers could all affect our financial condition, results of operations, or cash flows.
Our long-lived assets, primarily store property, equipment and fixtures, are subject to periodic testing for impairment. Failure of our asset groups to achieve sufficient levels of cash flow could result in impairment charges on long-lived assets.

15



Our effective tax rate may be impacted by the results of tax examinations and changes in tax laws.
Wakefern provides all members of the cooperative with information system support that enables us to effectively manage our business data, customer transactions, ordering, communications and other business processes.  These information systems are subject to damage or interruption from power outages, computer or telecommunications failures, computer viruses and related malicious software, catastrophic weather events, or human error.  Any material interruption of our or Wakefern’s information systems could have a material adverse impact on our results of operations.
Due to the nature of our business, personal information about our customers, vendors and associates is received and stored in these information systems. In addition, confidential information is transmitted through our ShopRite from Home online business at shoprite.com and through the ShopRite app. Unauthorized parties may attempt to access information stored in or to sabotage or disrupt these systems. Wakefern and the Company maintain substantial security measures to prevent and detect unauthorized access to such information, including utilizing third-party service providers for monitoring our networks, security reviews, and other functions. It is possible that computer hackers, cyber terrorists and others may be able to defeat the security measures in place at the Company, Wakefern or those of third-party service providers.
Any breach of these security measures and loss of confidential information, which could be undetected for a period of time, could damage our reputation with customers, vendors and associates, cause Wakefern and Village to incur significant costs to protect any customers, vendors and associates whose personal data was compromised, cause us to make changes to our information systems and could result in government enforcement actions and litigation against Wakefern and/or Village from outside parties. Any such breach could have a material adverse impact on our operations, consolidated financial condition, results of operations, and liquidity if the related costs to Wakefern and Village are not covered or are in excess of carried insurance policies. In addition, a security breach could require Wakefern and Village to devote significant management resources to address problems created by the security breach and restore our reputation.
RELATED PARTY TRANSACTIONS
 
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 28, 2018, the Company’s indebtedness to Wakefern for the outstanding amount of this stock subscription was $114. The maximum per store investment, which is currently $925, increased by $25 in fiscal 2017, resulting in an additional investment of $626. 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 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, Village had demand deposits invested at Wakefern in the amount of $63,413. These deposits earn overnight money market rates.
 
The Company subleases the Galloway and Vineland stores from Wakefern at combined current annual rents of $1,322. Both leases contain normal periodic rent increases and options to extend the lease.
 
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 rents.
 
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.
 



16





ITEM 8.   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

17



VILLAGE SUPER MARKET, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
 
July 28,
2018
 
July 29,
2017
ASSETS
 
 
 
Current Assets
 
 
 
Cash and cash equivalents
$
96,108

 
$
87,435

Merchandise inventories
39,413

 
41,852

Patronage dividend receivable
11,937

 
12,655

Notes receivable from Wakefern
23,952

 
22,118

Income taxes receivable
87

 
1,742

Other current assets
19,401

 
15,670

 
 
 
 
Total current assets
190,898

 
181,472

 
 
 
 
Notes receivable from Wakefern
23,129

 
22,562

Property, equipment and fixtures, net
214,566

 
204,440

Investment in Wakefern
27,093

 
27,093

Goodwill
12,057

 
12,057

Other assets
13,847

 
7,601

 
 
 
 
Total assets
$
481,590

 
$
455,225

 
 
 
 
LIABILITIES and SHAREHOLDERS’ EQUITY
 

 
 

Current Liabilities
 

 
 

Capital and financing lease obligations
$
764

 
$
652

Notes payable to Wakefern
114

 
292

Accounts payable to Wakefern
61,798

 
59,556

Accounts payable and accrued expenses
19,080

 
17,279

Accrued wages and benefits
18,620

 
17,810

Income taxes payable
1,321

 
604

 
 
 
 
Total current liabilities
101,697

 
96,193

 
 
 
 
Long-term debt
 

 
 

Capital and financing lease obligations
41,768

 
42,532

Notes payable to Wakefern

 
114

Notes payable related to New Markets Tax Credit
6,418

 

 
 
 
 
Total long-term debt
48,186

 
42,646

 
 
 
 
Pension liabilities
8,482

 
15,194

Other liabilities
20,080

 
14,372

 
 
 
 
Commitments and Contingencies (Notes 3, 4, 5, 6, 8 and 9) 


 


 
 
 
 
Shareholders' Equity
 

 
 

Preferred stock, no par value: Authorized 10,000 shares, none issued

 

Class A common stock, no par value: Authorized 20,000 shares; issued 10,575 shares at July 28, 2018 and 10,562 shares at July 29, 2017
61,678

 
57,852

Class B common stock, no par value: Authorized 20,000 shares; issued and outstanding 4,304 shares at July 28, 2018 and July 29, 2017
699

 
699

Retained earnings
258,104

 
244,308

Accumulated other comprehensive loss
(8,185
)
 
(7,406
)
Less treasury stock, Class A, at cost: 496 shares at July 28, 2018 and 477 shares at July 29, 2017
(9,151
)
 
(8,633
)
 
 
 
 
Total shareholders’ equity
303,145

 
286,820

 
 
 
 
Total liabilities and shareholders' equity
$
481,590

 
$
455,225

 See notes to consolidated financial statements.

18



VILLAGE SUPER MARKET, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
 
Years ended
July 28,
2018
 
July 29,
2017
 
 
 
 
Sales
$
1,612,015

 
$
1,604,574

Cost of sales
1,173,013

 
1,167,863

 
 
 
 
Gross profit
439,002

 
436,711

 
 
 
 
Operating and administrative expense
380,550

 
371,495

Depreciation and amortization
24,999

 
24,482

 
 
 
 
Operating income
33,453

 
40,734

 
 
 
 
Interest expense
(4,460
)
 
(4,452
)
Interest income
3,845

 
2,841

 
 
 
 
Income before income taxes
32,838

 
39,123

Income taxes
7,758

 
16,202

 
 
 
 
Net income
$
25,080

 
$
22,921

 
 
 
 
Net income per share:
 

 
 

Class A common stock:
 

 
 

Basic
$
1.95

 
$
1.80

Diluted
$
1.74

 
$
1.60

 
 
 
 
Class B common stock:
 

 
 

Basic
$
1.27

 
$
1.16

Diluted
$
1.27

 
$
1.16

 
See notes to consolidated financial statements.


19



VILLAGE SUPER MARKET, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
 
Years ended
 
July 28,
2018
 
July 29,
2017
 
 
 
 
Net income
$
25,080

 
$
22,921

 
 
 
 
Other comprehensive income (loss):
 

 
 

Amortization of pension actuarial loss, net of tax (1)
409

 
794

Pension remeasurement, net of tax (2)
(218
)
 
4,568

Pension settlement loss, net of tax (3)
624

 
571

Reclassification due to the adoption of ASU 2018-02
(1,594
)
 

Total other comprehensive (loss) income
(779
)
 
5,933

 
 
 
 
Comprehensive income
$
24,301

 
$
28,854


(1)
Amounts are net of tax of $160 and $549 for 2018 and 2017, respectively. All amounts are reclassified from accumulated other comprehensive loss to operating and administrative expense.
(2)
Amounts are net of tax of $86 and $3,106 for 2018 and 2017, respectively.
(3)
Amounts are net of tax of $242 and $394 for 2018 and 2017, respectively. All amounts are reclassified from accumulated other comprehensive loss to operating and administrative expense.
 
See notes to consolidated financial statements.


20



VILLAGE SUPER MARKET, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(In thousands)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Years ended July 28, 2018 and July 29, 2017
 
 
 
 
 
 
 
 
 
 
 
Accumulated
Other
Comprehensive
Income (Loss)
 
 
 
 
 
Total
Shareholders'
Equity
 
Class A
Common Stock
 
Class B
Common Stock
 
 
 
 
Treasury Stock
Class A
 
Shares Issued
 
Amount
 
Shares Issued
 
Amount
 
Retained Earnings
 
Shares
 
Amount
Balance, July 30, 2016
10,190

 
55,196

 
4,319

 
701

 
234,175

 
(13,339
)
 
353

 
(4,998
)
 
271,735

Net income

 

 

 

 
22,921

 

 

 

 
22,921

Other comprehensive income, net of tax of $4,049

 

 

 

 

 
5,933

 

 

 
5,933

Dividends

 

 

 

 
(12,788
)
 

 

 

 
(12,788
)
Exercise of stock options

 
366

 

 

 

 

 
(31
)
 
446

 
812

Treasury stock purchases

 

 

 

 

 

 
155

 
(4,081
)
 
(4,081
)
Restricted shares forfeited
(5
)
 
(102
)
 

 

 

 

 

 

 
(102
)
Share-based compensation expense
362

 
3,236

 

 

 

 

 

 

 
3,236

Net tax deficit from exercise of stock options and restricted share vesting

 
(846
)
 

 

 

 

 

 

 
(846
)
Conversion of Class B shares to Class A shares
15

 
2

 
(15
)
 
(2
)
 

 

 

 

 

Balance, July 29, 2017
10,562

 
57,852

 
4,304

 
699

 
244,308

 
(7,406
)
 
477

 
(8,633
)
 
286,820

Net income

 

 

 

 
25,080

 

 

 

 
25,080

Other comprehensive income, net of tax of $316

 

 

 

 
1,594

 
(779
)
 

 

 
815

Dividends

 

 

 

 
(12,878
)
 

 

 

 
(12,878
)
Exercise of stock options

 
111

 

 

 

 

 
(8
)
 
114

 
225

Treasury stock purchases

 

 

 

 

 

 
27

 
(632
)
 
(632
)
Restricted shares forfeited
(8
)
 
(59
)
 

 

 

 

 

 

 
(59
)
Share-based compensation expense
21

 
3,774

 

 

 

 

 

 

 
3,774

Balance, July 28, 2018
10,575

 
$
61,678

 
4,304

 
$
699

 
$
258,104

 
$
(8,185
)
 
496

 
$
(9,151
)
 
$
303,145

 
See notes to consolidated financial statements.

21



VILLAGE SUPER MARKET, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
 
Years ended
 
July 28, 2018
 
July 29, 2017
CASH FLOWS FROM OPERATING ACTIVITIES
 
 
 
Net income
$
25,080

 
$
22,921

Adjustments to reconcile net income to net cash provided by operating activities:
 

 
 

Depreciation and amortization
24,999

 
24,482

Non-cash share-based compensation
3,715

 
3,134

Deferred taxes
(1,050
)
 
2,279

Provision to value inventories at LIFO
(176
)
 
(112
)
Gain on sale of property, equipment and fixtures
(150
)
 

 
 
 
 
Changes in assets and liabilities:
 

 
 

Merchandise inventories
2,615

 
271

Patronage dividend receivable
718

 
530

Accounts payable to Wakefern
2,242

 
370

Accounts payable and accrued expenses
2,139

 
111

Accrued wages and benefits
810

 
1,497

Income taxes receivable / payable
2,377

 
(7,957
)
Other assets and liabilities
(4,435
)
 
(1,373
)
 
 
 
 
Net cash provided by operating activities
58,884

 
46,153

 
 
 
 
CASH FLOWS FROM INVESTING ACTIVITIES
 

 
 

Capital expenditures
(35,464
)
 
(27,726
)
Proceeds from the sale of assets
150

 

Investment in notes receivable from Wakefern
(24,573
)
 
(1,945
)
Maturity of notes receivable from Wakefern
22,172

 

Investment in notes receivable related to New Markets Tax Credit financing
(4,835
)
 

Net cash used in investing activities
(42,550
)
 
(29,671
)
 
 
 
 
CASH FLOWS FROM FINANCING ACTIVITIES
 

 
 

Proceeds from exercise of stock options
225

 
812

Excess tax benefit related to share-based compensation
5

 
83

Proceeds from New Markets Tax Credit financing
6,860

 

Debt issuance costs
(297
)
 

Principal payments of long-term debt
(944
)
 
(1,452
)
Dividends
(12,878
)
 
(12,788
)
Treasury stock purchases, including shares surrendered for withholding taxes
(632
)
 
(4,081
)
 
 
 
 
Net cash used in financing activities
(7,661
)
 
(17,426
)
 
 
 
 
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
8,673

 
(944
)
 
 
 
 
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR
87,435

 
88,379

 
 
 
 
CASH AND CASH EQUIVALENTS, END OF YEAR
$
96,108

 
$
87,435

 
 
 
 
SUPPLEMENTAL DISCLOSURES OF CASH PAYMENTS MADE FOR:
 

 
 

Interest
$
4,460

 
$
4,452

Income taxes
6,420

 
21,590

 
See notes to consolidated financial statements.

22



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.

23




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.


24



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.


25



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

26



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.

27




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

28




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.

29




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.

30




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:

31



 
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

32



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


33




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
$