In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments (consisting of normal and recurring accruals) necessary to present fairly the consolidated financial position as of January 27, 2018April 25, 2020 and the consolidated statements of operations, comprehensive income and cash flows for the 13 and 26 week periods39 weeks ended JanuaryApril 25, 2020 and April 27, 2018 and January 28, 20172019 of Village Super Market, Inc. (“Village” or the “Company”).

The significant accounting policies followed by the Company, except as updated for the adoption of new lease guidance, are set forth in Note 1 to the Company's consolidated financial statements in the July 29, 201727, 2019 Village Super Market, Inc. Annual Report on Form 10-K, which should be read in conjunction with these financial statements.  The results of operations for the periods ended January 27, 2018April 25, 2020 are not necessarily indicative of the results to be expected for the full year.

At both January 27, 2018April 25, 2020 and July 29, 2017,27, 2019, approximately 65%64% of merchandise inventories are valued by the LIFO method while the balance is valued by FIFO.  If the FIFO method had been used for the entire inventory, inventories would have been $14,410$14,912 and $14,512 higher than reported at both January 27, 2018April 25, 2020 and July 29, 2017.27, 2019, respectively.

The Company has two classes of common stock. Class A common stock is entitled to cash dividends as declared 54% greater than those paid on Class B common stock. Shares of Class B common stock are convertible on a share-for-share basis for Class A common stock at any time.

The Company utilizes the two-class method of computing and presenting net income per share. The two-class method is an earnings allocation formula that calculates basic and diluted net income per share for each class of common stock separately based on dividends declared and participation rights in undistributed earnings. Under the two-class method, Class A common stock is assumed to receive a 54% greater participation in undistributed earnings than Class B common stock, in accordance with the classes' respective dividend rights. Unvested share-based payment awards that contain nonforfeitable rights to dividends are treated as participating securities and therefore included in computing net income per share using the two-class method.

Diluted net income per share for Class A common stock is calculated utilizing the if-converted method, which assumes the conversion of all shares of Class B common stock to Class A common stock on a share-for-share basis, as this method is more dilutive than the two-class method. Diluted net income per share for Class B common stock does not assume conversion of Class B common stock to shares of Class A common stock.

The tables below reconcile the numerators and denominators of basic and diluted net income per share for all periods presented.

Outstanding stock options to purchase Class A shares of 384159 and 52163 were excluded from the calculation of diluted net income per share at JanuaryApril 25, 2020 and April 27, 2018 and January 28, 2017,2019, respectively, as a result of their anti-dilutive effect. In addition, 369397 and 246314 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 JanuaryApril 25, 2020 and April 27, 2018 and January 28, 2017,2019, respectively, due to their anti-dilutive effect.

The Company sponsorssponsored four defined benefit pension plans.plans in fiscal 2020 and 2019.  Net periodic pension cost for the four plans includes the following components:

On December 23, 2019, the Company terminated the Village Super Market, Inc. Retail Clerks Employees’ Retirement Plan. All participants of the plan were former employees of a store previously closed in 1994. An annuity contract totaling $1,302 was purchased with an insurance company for all participants who did not elect a lump sum distribution. Additionally, lump sum distributions related to the termination totaled $451. The plan had sufficient assets to satisfy all termination transaction obligations, and no benefit obligation or plan assets related to the Village Super Market, Inc. Retail Clerks Employees’ Retirement Plan remain as of April 25, 2020. As a result of this termination, the Company recognized a non-cash pre-tax settlement charge totaling $669 during fiscal 2018 to fund itsthe 13 weeks ended January 25, 2020. This settlement charge represents the plan’s remaining unrecognized losses within accumulated other comprehensive loss as of the termination date.

Additionally, the Company recognized a settlement loss of $116 and $693 in the 13 and 39 weeks ended April 25, 2020 and $431 in both the 13 and 39 weeks ended April 27, 2019 for a plan where benefits paid exceeded the sum of the service cost and interest cost components of net periodic pension plans.cost. Assumptions used in the related remeasurement include a discount rate of 2.85% and long term expected rate of return on plan assets of 5.00%.

A description of the Company’s transactions with Wakefern, its principal supplier, and with other related parties is included in the Company’s Annual Report on Form 10-K for the year ended July 29, 2017.  27, 2019.  

There have been no other significant changes in the Company’s relationships or nature of transactions with related parties during the first 2639 weeks of fiscal 2018 except for the maturity of $22,172 in notes receivable from Wakefern that earned interest at the prime rate plus .25% on August 15, 2017. The Company invested $22,000 of the proceeds received in variable rate notes receivable from Wakefern that earn interest at the prime rate plus 1.25% and 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.

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.

Village Super Market, Inc. (the “Company” or “Village”) operates a chain of 2930 ShopRite supermarkets in New Jersey, eastern Pennsylvania, Maryland and northeastern Pennsylvania. New York City and three Gourmet Garage specialty markets in Manhattan, New York City. On November 1, 2019, Village opened a 82,000 sq. ft. (52,000 selling sq. ft.) store in Stroudsburg, Pennsylvania and replaced our existing 53,000 sq. ft. store. On June 24, 2019, Village acquired the assets and certain liabilities of Gourmet Garage for $5,203. Gourmet Garage operates three specialty markets averaging 11,000 sq. ft. (5,800 selling sq. ft.) in Manhattan, New York City. On June 28, 2018, Village opened a 53,000 sq. ft. (31,000 selling sq. ft.) ShopRite 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.and Gourmet Garage names.  As further described in the Company’s Form 10-K, this ownership interest in Wakefern provides Village many of the economies of scale in purchasing, distribution, private label products,store brands, advanced retail technology, marketing and advertising associated with chains of greater size and geographic coverage.

The supermarket industry is highly competitive and characterized by narrow profit margins.  The Company competes directly with multiple retail formats, both in-store and online, including national, regional and local supermarket chains as well as warehouse clubs, supercenters, drug stores, discount general merchandise stores, fast food chains, restaurants, dollar stores and convenience stores. Village competes by using low pricing, providing a superior customer service experience and a broad range of consistently available quality products, (includingincluding our own brands portfolio. In October 2019, ShopRite private labeled products).introduced the Right Price Promise pricing strategy, a commitment to everyday low prices on the items customers purchase most frequently. 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 59,00056,000 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.

Village also has on-site registered dieticians in seventeen 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 also offer online purchasing through various third party digital platforms.

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 following table sets forth the major components of the Consolidated Statements of Operations as a percentage of sales:

Sales were $1,303,116 in Chesterthe 39 weeks ended April 25, 2020, an increase of 6.4% from the 39 weeks ended April 27, 2019. Sales increased due to the opening of the Stroudsburg replacement store on November 1, 2019, the acquisition of Gourmet Garage on June 24, 2019 and Stirling, inflationa same store sales increase of 4.5%. Same store sales increased due primarily to the impact of the COVID-19 outbreak and related stay-at-home measures. Same store sales also increased promotional spending.due to continued sales growth in the Bronx, New York City store opened on June 28, 2018 and digital sales growth of 28.1%. These increases were partially offset by the impact of two competitor store openings. The Company expects same store salesopenings and decreased promotional spending in fiscal 2018 to range from a 0.5% decrease to a 0.5% increase.  Maryland.

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.

Gross profit as a percentage of sales decreased .03%.06% in the six-month period of fiscal 201839 weeks ended April 25, 2020 compared to the six-month period39 weeks ended April 27, 2019. Excluding the impact of the prior yearaddition of Gourmet Garage, gross profit as a percentage of sales decreased

Departmental gross profits decreased in both the 13 and 39 week periods ended April 25, 2020 compared to the 13 and 39 weeks ended April 27, 2019 due primarily to limitations in service departments and product availability as a favorable changeresult of the COVID-19 outbreak, price investments, including the ShopRite's Right Price Promise pricing strategy, a commitment to everyday

 

Net income was $12,528$15,724 in the six-month period of fiscal 201839 weeks ended April 25, 2020 compared to $10,101$18,810 in the six-month period of the prior year. Fiscal 201839 weeks ended April 27, 2019. The 39 weeks ended April 25, 2020 includes a $2,726gain on the sale of pharmacy prescription lists related to three store pharmacies closed in March 2020 of $854 (net of tax), a non-cash reduction in deferred tax expense aspension charge related to the termination of a resultcompany-sponsored pension plan and other pension settlement charges of $954 (net of tax), pre-opening costs related to the Tax Act.Stroudsburg, Pennsylvania replacement store of $891 (net of tax) and store closure costs and charges to write off the lease asset and related obligations for the old Stroudsburg store of $557 (net of tax). The 39 weeks ended April 27, 2019 includes a $290 (net of tax) gain for Superstorm Sandy insurance proceeds received and pension settlement charges of $302 (net of tax). Excluding this item,these items from both periods, net income decreased 3%8% in the six-month period of fiscal 201839 weeks ended April 25, 2020 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 estimated effective tax rate to 33.5% as a result of the Tax Act.year.

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.

 

At January 27, 2018,April 25, 2020, the Company had $45,731 inheld variable rate notes receivable due from Wakefern of $25,839 that earn interest at the prime rate plus $1.25% with $23,265 that mature on February 15, 20191.25% and $22,466 that mature on August 15, 2022. On August 15, 2017, notes receivable due from Wakefern of $22,1422022 and $26,612 that earnedearn 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.75% and mature on AugustFebruary 15, 2022.2024. 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.

Effective November 9, 2017,Village had an unsecured revolving credit agreement providing a maximum amount available for borrowing of $25,000. The credit agreement provided for up to $3,000 of letters of credit, which secured obligations for construction performance guarantees to municipalities. There were no amounts outstanding at April 25, 2020 or July 27, 2019 under the Companyfacility.

On May 6, 2020, Village entered into a credit agreement (the “Credit Facility”) with Wells Fargo Bank, National Association (“Wells Fargo”) that amends, restates and supersedes in its entirety the prior $25,000 credit agreement with Wells Fargo dated November 9, 2017. The principal purpose of the Credit Facility is to finance general corporate and working capital requirements and Village’s acquisition of certain Fairway assets which closed on May 14, 2020. Among other things, the Credit Facility provides for a maximum loan agreement dated September 16, 1999 and all amendments to that agreement. The agreement maintains Village'samount of $150,500, as further set forth below:

The Credit Facility also provides for up to $3,000$25,000 of letters of credit, which secure obligations for construction performance guarantees to municipalities. The credit agreement continues to containand contains covenants that, among other conditions, require a maximum liabilities tominimum tangible net worth, ratio, a minimum fixed charge coverage ratio and a positive net income. There were no amounts outstanding at January 27, 2018 or July 29, 2017 undermaximum adjusted debt to EBITDAR ratio.

The $73,200 purchase price for the new or superseded facility, respectively.Fairway acquisition was funded by borrowing against the Company’s unsecured revolving line of credit and an unsecured term loan pursuant to the Company's Credit Facility. Additionally, as required by the APA, Village had made a $7,600 deposit into escrow which is included in Other assets in the Company's Consolidated Balance Sheet as of April 25, 2020.

There have been no other substantial changes as of January 27, 2018April 25, 2020 to the contractual obligations and commitments discussed in the Company’s Annual Report on Form 10-K for the year ended July 29, 2017.27, 2019.