Village Super Market - 10-Q quarterly report FY2014 Q2

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

(Mark One)

OR

Commission File No. 0-2633

(Exact name of registrant as specified in its charter)

(Registrant's telephone number, including area code)

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 the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  X      No __

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 during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).        Yes X      No __

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12-b2 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 ___    No   X   

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date:

 

                                                                                     

VILLAGE SUPER MARKET, INC.

(in Thousands) (Unaudited)

The significant accounting policies followed by the Company are set forth in Note 1 to the Company's consolidated financial statements in the July 27, 2013 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 25, 2014 are not necessarily indicative of the results to be expected for the full year.

At both January 25, 2014 and July 27, 2013, approximately 65% 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 $14,936 and $14,786 higher than reported at January 25, 2014 and July 27, 2013, respectively.

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 shares of Class A common stock on a share-for-share basis, as this method is more dilutive than the two-class method.   Diluted net loss per share for Class A common stock is calculated utilizing the two-class method and does not assume conversion of Class B common stock to shares of Class A common stock as a result of its anti-dilutive effect.  Diluted net income (loss) 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 (loss) per share for all periods presented.

The Company sponsors four defined benefit pension plans.  Net periodic pension costs for the four plans includes the following components:

In prior years, the state of New Jersey issued two separate tax assessments related to nexus beginning in fiscal 2000 and the deductibility of certain payments between subsidiaries beginning in fiscal 2002.  Village contested both of these assessments through the state’s conference and appeals process and was subsequently denied. The Company then filed two complaints in Tax Court against the New Jersey Division of Taxation contesting these assessments and a trial limited to the nexus dispute was conducted in June 2013. On October 23, 2013, the Tax Court issued their opinion on the matter in favor of the New Jersey Division of Taxation.  The Company is currently in the process of appealing the court’s decision.  No payments with respect to these matters are required until the dispute is definitively resolved.

The Company recorded a $10,052 charge to income tax expense in the fiscal quarter ended October 26, 2013, which includes a $4,933 (net of federal benefit of $2,656) increase in  unrecognized tax benefits and $5,119 (net of federal benefit of $2,078) of related interest and penalties for tax positions taken in prior years.  This charge increased our accrued tax liability to reflect the estimated total tax due if the Company is unable to overturn the Court’s decision upon appeal.

A reconciliation of the beginning and ending amount of gross unrecognized tax benefits is as follows:

Unrecognized tax benefits at January 25, 2014 and July 27, 2013 include tax positions of $17,061 and $11,466 (net of federal benefit), respectively, that would reduce the Company’s effective income tax rate, if recognized in future periods.

The Company recognizes interest and penalties on income taxes in income tax expense.  The Company recognized $586 and $8,973 related to interest and penalties on income taxes in the fiscal quarter and six-month period ended January 25, 2014, respectively.  The amount of accrued interest and penalties included in the consolidated balance sheet was $14,793 and $5,820 at January 25, 2014 and July 27, 2013, respectively.

Superstorm Sandy devastated our area on October 29, 2012 and resulted in the closure of almost all of our stores for periods of time ranging from a few hours to eight days. Village disposed of substantial amounts of perishable product 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 the second quarter of fiscal 2013, Wakefern began the process of working with our insurers to recover the damages and Village has recorded estimated insurance recoveries.  In October 2013, Wakefern, as the policy holder, filed suit against the carrier seeking payment of claims due for all Wakefern members.  Final resolution of our insurance claim related to the storm could have a material impact on our results of operations.

ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

(Dollars in Thousands)

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

Sales.  Sales were $392,241 in the second quarter of fiscal 2014, an increase of 2.6% compared to the second quarter of the prior year.  Sales increased due to the opening of the greater Morristown replacement store on November 6, 2013.  Same store sales were flat.  Sales increased in both Maryland stores and in stores that were closed for periods up to eight days in the second quarter of the prior year due to superstorm Sandy.  These increases were offset by decreased sales due to three store openings by competitors and reduced sales in stores that reopened quickly after Sandy in the prior year.  Sales were also negatively impacted by a lack of inflation, reductions in overall SNAP benefits and the prior year including disaster SNAP benefits following Sandy.  Sales continue to be impacted by economic weakness and high unemployment, as consumers continue to spend cautiously by trading down to lower priced items, including private label, and concentrating their buying on sale items.  The Company expects same store sales in fiscal 2014 to range from a decrease of .5% to an increase of 1.0%.  New stores and replacement stores are included in same store sales in the quarter after the store has been in operation for four full quarters.  Store renovations are included in same store sales immediately.

Critical accounting policies are those accounting policies that management believes are important to the portrayal of the Company’s financial condition and results of operations.  These policies require management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain.  The Company’s critical accounting policies relating to the impairment of long-lived assets and goodwill, accounting for patronage dividends earned as a stockholder of Wakefern,  accounting for pension plans, accounting for share-based compensation, and accounting for uncertain tax positions, are described in the Company’s Annual Report on Form 10-K for the year ended July 27, 2013.  As of January 25, 2014, there have been no changes to any of the critical accounting policies contained therein.

Net cash provided by operating activities was $31,088 in the six-month period of fiscal 2014 compared to $30,756 in the corresponding period of the prior year. The slight increase is due to increases in payables and other liabilities offset by a decrease in net income and a larger increase in merchandise inventories compared to the prior fiscal year.  During the first six-months of fiscal 2014, Village used cash to fund capital expenditures of $29,238 and dividends of $6,164.  Capital expenditures include the construction of two replacement stores.

Village has budgeted approximately $45,000 for capital expenditures in fiscal 2014.   Planned expenditures include the construction of two replacement stores, one of which began in fiscal 2013.  The Company’s primary sources of liquidity in fiscal 2014 are expected to be cash and cash equivalents on hand at January 25, 2014 and operating cash flow generated in fiscal 2014.

Working capital was $71,224 at January 25, 2014 compared to $94,299 at July 27, 2013. The working capital ratio was 1.5 to 1 at January 25, 2014 compared to 1.8 to 1 at July 27, 2013. The Company’s working capital needs are reduced, since inventories are generally sold by the time payments to Wakefern and other suppliers are due.

There have been no substantial changes as of January 25, 2014 to the contractual obligations and commitments discussed in the Company’s Annual Report on Form 10-K for the year ended July 27, 2013, except for an additional $657 required investment in Wakefern stock and the additional unrecognized tax benefits as a result of the unfavorable ruling by the New Jersey Tax Court.

This Form 10-Q contains certain forward-looking statements about Village’s future performance. These statements are based on management’s assumptions and beliefs in light of information currently available.  Such statements relate to, for example:  economic conditions; uninsured losses; expected pension plan contributions; projected capital expenditures; cash flow requirements; inflation expectations; and legal matters; and are indicated by words such as “will,” “expect,”  “should,” “intend,” “anticipates,” “believes” and similar words or phrases.  The Company cautions the reader that there is no assurance that actual results or business conditions will not differ materially from the results expressed, suggested or implied by such forward-looking statements.  The Company undertakes no obligation to update forward-looking statements to reflect developments or information obtained after the date hereof.

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 27, 2013.  There have been no significant changes in the Company’s relationship or nature of transactions with related parties during the first six months of fiscal 2014 except for an additional required investment in Wakefern common stock of $657 and the investment in notes receivable described in note 8 to the consolidated condensed financial statements.

At January 25, 2014, the Company had demand deposits of $80,800 at Wakefern earning interest at overnight money market rates, which are exposed to the impact of interest rate changes.

As required by Rule 13a-15 under the Exchange Act, the Company carried out an evaluation of the effectiveness of the design and operation of the Company’s disclosure controls and procedures at the end of the period.  This evaluation was carried out under the supervision, and with the participation, of the Company’s management, including the Company’s Chief Executive Officer along with the Company’s Chief Financial Officer.  Based upon that evaluation, the Company’s Chief Executive Officer, along with the Company’s Chief Financial Officer, concluded that the Company’s disclosure controls and procedures are effective.

Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in Company reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms.  Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in Company reports filed under the Exchange Act is accumulated and communicated to management, including the Company’s Chief Executive Officer and Chief Financial Officer as appropriate, to allow timely decisions regarding required disclosure.

Item 6.                      Exhibits

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.