Note 1 - Summary of Significant Accounting Policies | 12 Months Ended |
Jul. 27, 2013 |
Notes | |
Note 1 - Summary of Significant Accounting Policies | NOTE 1 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
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Nature of operations |
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Village Super Market, Inc. (the “Company” or “Village”) operates a chain of 29 ShopRite supermarkets in New Jersey, eastern Pennsylvania and Maryland. On January 29, 2012, Village acquired store fixtures, leasehold interests and other assets of the ShopRite in Old Bridge, NJ for $3,250 plus inventory and other working capital for $1,116. In July 2011, Village acquired the store fixtures, leases and other assets of two locations in Maryland for $6,595 from SuperFresh. These stores opened as ShopRites on July 28, 2011 after remodeling. The Company is a member of Wakefern Food Corporation (“Wakefern”), the largest retailer-owned food cooperative in the United States. |
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Principles of consolidation |
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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. |
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Fiscal year |
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The Company and its subsidiaries utilize a 52-53 week fiscal year ending on the last Saturday in the month of July. Fiscal 2013, 2012 and 2011 contain 52 weeks. |
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Industry segment |
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The Company consists of one operating segment, the retail sale of food and nonfood products. |
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Revenue recognition |
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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. |
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Cash and cash equivalents |
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The Company considers all highly liquid investments purchased with a maturity of three months or less and proceeds due from credit and debit card transactions with settlement terms of less than five days to be cash equivalents. Included in cash and cash equivalents at July 27, 2013 and July 28, 2012 are $85,222 and $82,294, respectively, of demand deposits invested at Wakefern at overnight money market rates. |
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Merchandise inventories |
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Approximately 65% of merchandise inventories are stated at the lower of LIFO (last-in, first-out) cost or market. If the FIFO (first-in, first-out) method had been used, inventories would have been $14,786 and $14,842 higher than reported in fiscal 2013 and 2012, respectively. All other inventories are stated at the lower of FIFO cost or market. |
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Vendor allowances and rebates |
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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. |
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Property, equipment and fixtures |
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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. |
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Depreciation is provided on a straight-line basis over estimated useful lives of thirty years for buildings, ten years for store fixtures and equipment, and three years for vehicles. Leasehold improvements are amortized over the shorter of the related lease terms or the estimated useful lives of the related assets. |
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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. |
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Investments |
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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. |
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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). |
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Store opening and closing costs |
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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. |
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Leases |
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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. |
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For leases in which the Company is involved with the construction of the store, if Village concludes that it has substantively all of the risks of ownership during construction of the leased property and therefore is deemed the owner of the project for accounting purposes, an asset and related financing obligation are recorded for the costs paid by the landlord. Once construction is complete, the Company considers the requirements for sale-leaseback treatment. If the arrangement does not qualify for sale-leaseback treatment, the Company amortizes the financing obligation and depreciates the building over the lease term. |
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Advertising |
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Advertising costs are expensed as incurred. Advertising expense was $11,018, $10,952 and $9,294 in fiscal 2013, 2012 and 2011, respectively. |
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Income taxes |
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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. |
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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. |
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Use of estimates |
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In conformity with U.S. generally accepted accounting principles, management of the Company has made a number of estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Some of the more significant estimates are patronage dividends, pension accounting assumptions, share-based compensation assumptions, accounting for uncertain tax positions, accounting for contingencies and the impairment of long-lived assets and goodwill. Actual results could differ from those estimates. |
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Fair value |
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Fair value is defined as the exit price that would be received to sell an asset or paid to transfer a liability. Fair value is a market-based measurement that should be determined using assumptions that market participants would use in pricing an asset or liability. The fair value guidance establishes a three-level hierarchy to prioritize the inputs used in measuring fair value. The levels within the hierarchy range from Level 1 having the highest priority to Level 3 having the lowest. |
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Cash and cash equivalents, patronage dividends receivable, accounts payable and accrued expenses are reflected in the consolidated financial statements at carrying value, which approximates fair value because of the short-term maturity of these instruments. The carrying values of the Company’s notes receivable from Wakefern and short and long-term notes payable approximate their fair value based on the short duration of these instruments. As the Company’s investments in Wakefern can only be sold to Wakefern at amounts that approximate the Company’s cost, it is not practicable to estimate the fair value of such investments. |
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Long-lived assets |
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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. |
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Goodwill |
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Goodwill is tested at the end of each fiscal year, or more frequently if circumstances dictate, for impairment. An impairment loss is recognized to the extent that the carrying amount of goodwill exceeds its implied fair value. Village operates as a single reporting unit for purposes of evaluating goodwill for impairment and primarily considers earnings multiples and other valuation techniques to measure fair value, in addition to the value of the Company’s stock. |
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During fiscal 2012, the Company recorded additional goodwill related to the acquisition of the ShopRite in Old Bridge, NJ of $1,452, all of which is deductible for tax purposes. |
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Net income per share |
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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. |
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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. |
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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. |
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The tables below reconcile the numerators and denominators of basic and diluted net income per share for all periods presented. |
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| | 2013 | | 2012 | | 2011 |
| | Class A | | Class B | | Class A | | Class B | | Class A | | Class B |
Numerator: | | | | | | | | | | | | |
Net income allocated, basic | | $ 18,089 | | $ 7,053 | | $ 19,314 | | $ 11,317 | | $ 12,752 | | $ 7,741 |
Conversion of Class B to Class A shares | | 7,053 | | - | | 11,317 | | - | | 7,741 | | - |
Effect of share-based compensation on allocated net income | | 6 | | (5) | | 94 | | (54) | | 8 | | (6) |
Net income allocated, diluted | | $ 25,148 | | $ 7,048 | | $ 30,725 | | $ 11,263 | | $ 20,501 | | $ 7,735 |
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Denominator: | | | | | | | | | | | | |
Weighted average shares outstanding, basic | | 8,297 | | 5,197 | | 7,045 | | 6,358 | | 6,873 | | 6,376 |
Conversion of Class B to Class A shares | | 5,197 | | - | | 6,358 | | - | | 6,376 | | - |
Dilutive effect of share-based compensation | | 112 | | - | | 81 | | - | | 106 | | - |
Weighted average shares outstanding, diluted | | 13,606 | | 5,197 | | 13,484 | | 6,358 | | 13,355 | | 6,376 |
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Net income per share is as follows: |
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| | 2013 | | 2012 | | 2011 |
| | Class A | | Class B | | Class A | | Class B | | Class A | | Class B |
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Basic | | $ 2.18 | | $ 1.36 | | $ 2.74 | | $ 1.78 | | $ 1.86 | | $ 1.21 |
Diluted | | $ 1.85 | | $ 1.36 | | $ 2.28 | | $ 1.77 | | $ 1.54 | | $ 1.21 |
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Outstanding stock options to purchase Class A shares of 5, 222 and 246 were excluded from the calculation of diluted net income per share at July 27, 2013, July 28, 2012 and July 30, 2011, respectively, as a result of their anti-dilutive effect. In addition, 299, 299 and 292 non-vested restricted Class A shares, which are considered participating securities, and their allocated net income were excluded from the diluted net income per share calculation at July 27, 2013, July 28, 2012 and July 30, 2011, respectively, due to their anti-dilutive effect. |
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Share-based compensation |
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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. |
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Benefit plans |
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The Company recognizes the funded status of its Company sponsored retirement plans on the consolidated balance sheet. Actuarial gains or losses, prior service costs or credits and transition obligations not previously recognized are recorded as a component of Accumulated Other Comprehensive Income (Loss). |
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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. |
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