Village Super Market, Inc.
733 Mountain Avenue
Springfield, New Jersey 07081
November 23, 2004
Mr. George Ohsiek
Branch Chief
Securities and Exchange Commission
Division of Corporate Finance
Washington, DC 20549
Re: Village Super Market, Inc.
Form 10-K for Year Ended July 31, 2004
Filed October 21, 2004
File Number: 0-02633
Dear Mr. Ohsiek:
Thank you for your comments regarding the above referenced filing. We
appreciate your assistance in ensuring our filings comply with the applicable
disclosure requirements. The following sets forth the comments made in your
letter dated November 10, 2004 and our responses thereto:
1. Comment: In the Wakefern Food Corporation Section you state that
each member of the cooperative 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 2004." This section and the 2003 10-K
are silent as to the obligation fulfillment in 2002 and 2003. In future
filings, please disclose the status of the obligation fulfillment for each
income statement period presented and disclose the required shortfall
payment, if any.
Response: The Company fulfilled the above obligation in fiscal
2004, 2003 and 2002. In future filings on Form 10-K, the Company will disclose
the status of this obligation for each income statement period presented,
including the disclosure of any required shortfall payment.
2. Comment: In future filings, please disclose how you calculate same
store sales including reference to how you treat store renovations, new stores
and relocations in the calculation.
Response: Disclosure of the method of calculating same store sales
will be included in all future filings, beginning with the Form 10-Q for the
quarter ended October 30, 2004.
3. Comment: You discuss the business reasons for changes in the
various line items of your statements of operations. However, in circumstances
where there is more than one business reason for the change, you should
quantify the incremental impact of each individual business reason discussed
on the overall change in the line item. For example, you disclose that
"gross profit as a percentage of sales increased .54% in fiscal 2004 due to
lower promotional spending, reduced warehousing and related charges from
Wakefern, a higher estimate of patronage dividends and improved product mix.
These improvements were partially offset by increased LIFO charges in fiscal
2004." While this information is helpful, you do not quantify the extent to
which gross margin was affected by each of these reasons. In future filings,
whenever possible, please quantify the business reasons attributed to material
line item changes. Please refer to Item 303(a)(3) of Regulation S-K, Financial
Reporting Codification 501.04, and SEC Release No. 33-8350.
Response: In future filings, where more than one business reason
is described as contributing to a material change in a financial statement
line item, the Company will quantify, to the extent practicable, the extent to
which each change contributed to the overall change in that line item. This
disclosure will begin with the filing of the Form 10-Q for the quarter ended
October 30, 2004.
4. Comment: The related party transaction section discusses the
construction of a replacement store by the REIT. Please provide additional
detail on this transaction and comment on your consideration of EITF 97-10
when determining accounting treatment of this transaction.
Response: The Company sold the land and building occupied by the
old Somers Point store on April 2, 2003 to the REIT (an unrelated party). The
REIT is constructing a 130,000 square foot retail center on an adjacent piece
of property, as well as redeveloping the property occupied by the old Somers
Point store. Subsequent to our fiscal 2004 year end, the replacement store in
Somers Point opened as part of this 130,000 square foot retail center. This
was not a sale-lease back transaction, as the Company sold a 50,000 square foot
store in one location and is leasing an 80,000 square foot store to be
constructed by the REIT in an adjacent location. The Company has considered
the provisions of EITF 97-10 in determining the accounting treatment of this
transaction. As the Company as lessee is not involved with the construction
of the store, the Company has determined it should not be considered the owner
of the store during the construction period. The Company has concluded it is
not involved with the construction of the store under the provisions of EITF
97-10 as: (1) the Company is not obligated to make lease payments regardless
of when or whether the project is complete, (2) the Company has not guaranteed
construction financing, (3) the Company has not made any equity investments
in the owner/lessor, (4) the Company has made no loans or advances to the
owner/lessor, (5) the Company has made no payments as lessee in the capacity
of a developer, a general contractor, or a construction manager, (6) the
Company is not primarily or secondarily obligated to pay project costs under
construction contracts, (7) the Company is not obligated for any obligations
that could arise from being the developer or general contractor, (8) the
Company has no obligation to purchase the real estate project under any
circumstances, (9) the Company has not funded any construction cost overruns,
(10) the Company has not paid any rent or fees of any kind on behalf of the
lessor during the construction period, and (11) the Company has not made any
payments with respect to providing indemnities or guarantees to the
owner/lessor. In addition, this transaction did not involve a special-purpose
entity that is the owner/lessor of the shopping center.
5. Comment: In future filings, please include a note to the
contractual obligations table to specify that the operating lease obligations
figure does not include insurance, taxes and other operating expenses to which
the company is obligated. If you believe that such costs are not material to
an understanding of your contractual obligations, please tell us why. If
material, provide a context for the reader to understand the impact of such
costs on your total operating lease obligations. See Item 303(s)(5) of
Regulation S-K.
Response: In future filings, beginning with next years Form 10-K,
the Company will include a note to the contractual obligations table specifying
that both the capital lease and operating lease obligation figures do not
include common area maintenance charges, real estate taxes and insurance
charges for which the Company is obligated. The note will also include the
amount expended on these obligations in the most recent fiscal year in order to
provide a context for the reader of the impact of such costs.
6. Comment: In future filings, please include in the table or notes
thereto, the annual interest expense for each time period presented in the
table. For debt that is variable by its terms, or through swap arrangements,
disclose the assumptions used to estimate interest expense for each period
presented in the table. Based on interest expense recognized in recent
periods, we assume that interest payments will be material to annual
contractual obligations. See Section IV.A and footnote 46 to the
Interpretation: Commission Guidance Regarding Management's Discussion and
Analysis of Financial Condition and results of Operations (Commissions' MD&A
Guidance) issued on December 19, 2003.
Response: In future filings, beginning with next year's Form 10-K,
the Company will include a note to the contractual obligations table indicating
interest expense, including the assumptions used to determine interest expense
on variable rate debt. This disclosure will exclude interest expense
associated with capital leases, as that amount is already included in the
contractual obligations table under the capital leases caption.
7. Comment: The Goodwill section states that you operate as a single
reporting unit for purposes of evaluating goodwill for impairment. SFAS 142
paragraph 30 defines a reporting unit as an operating segment or one level
below an operating segment. Based on review of previous filings including the
year ended July 1999 10-K, it appears that goodwill was created as a result of
purchasing stores. For example, in 1999 goodwill increased by approximately
$1,500,000 as a result of the purchase of the Vineland store. Given that it
appears that goodwill relates to specific stores and we assume that each store
represents an operating segment under paragraph 10 of SFAS 131, please explain
why it is appropriate to evaluate impairment on the basis of the company as a
single reporting unit rather than evaluating impairment at the store level.
Provide reference to applicable authoritative literature.
Response: The Company has determined that its operations consist
of one reportable operating segment, the retail sale of food and non-food
products. This conclusion is based on the aggregation criteria contained in
paragraph 17 of SFAS 131. Each of our stores: (1) has similar economic
characteristics, such as gross margins, and operate in similar economic areas,
(2) contain substantially the same selling departments (for example, grocery,
meat, non-food, etc.) and sell substantially the same products within those
departments, (3) sell to similar classes of customers using similar advertising
and promotional programs, (4) buy and distribute products in a similar fashion
from Wakefern and other venders using the same retail technology systems, and
(5) operate in a similar regulatory environment and in a limited geographic
area . Based on the above criteria and paragraph 30 of SFAS 142 ("two or more
components of an operating segment shall be aggregated and deemed a single
reporting unit if the components have similar economic characteristics"), the
Company has determined that it operates as a single reporting unit for
purposes of evaluating goodwill impairment.
8. Comment: In future filings, please specifically disclose the
amount and type of "securities that could potentially dilute basic EPS in the
future that were not included in the computation of diluted EPS because to do
so would have been antidilutive for the period(s) presented." Refer to
paragraph 40(c) of SFAS 128.
Response: In future filings, we will include disclosure of the
amount and type of securities that could potentially dilute basic EPS in the
future that were not included in the computation of diluted EPS because to do
so would have been antidilutive for the periods presented.
9. Comment: The Wakefern Food Corporation section of Item I and
note 3 of the financial statements state that Wakefern provides insurance
among other support services. Clarify for us the nature of the insurance
provided by Wakefern. If it is solely limited to liability and property
insurance provided through Insure-Rite Ltd., in future filings please clarify.
If the insurance relates to postretirement and postemployment benefits such as
postretirement health insurance, please provide an explanation of your
consideration of SFAS 106, Employers' Accounting for Postretirement Benefits
Other Than Pensions, and SFAS 112, Employers' Accounting for Postemployment
Benefits.
Response: The insurance provided by Wakefern is limited to
liability and property insurance provided through Insure-Rite Ltd. In future
filings on Form 10-K we will clarify this.
10. Comment: In future filings, please disclose your voting rights.
Response: In future filings on Form 10-K the Company will disclose
the voting rights related to its investment in Wakefern.
11. Comment: Wakefern provides support services in numerous
administrative functions. In future filings, please disclose:
- Whether these services are paid for separately or reflected as
a reduction of the patronage dividend,
- where these costs are reflected in the financial statements, and
- the amounts of administrative costs Wakefern charged you for all
periods presented.
Response: In future filings on Form 10-K the Company will provide
the requested information.
12. Comment: The Wakefern Food Corporation section of Item I states
that in July 2002, Wakefern purchased substantially all of Big V's assets,
including 27 stores, for $185 million in cash and assumed liabilities. In
2000, Big V filed for reorganization under Chapter 11 of the U.S. Bankruptcy
Code. We assume that Wakefern's performance may be adversely impacted by the
inclusion of Big V. Please explain how your cost method investment in Wakefern
is evaluated for impairment and revise the investments section of note 1 in
future filings to describe how you assess investments for impairment.
Response: The Company considers the following factors in
evaluating the investment in Wakefern for impairment: (1) the current level of
profits of Wakefern, (2) previous levels of profits of Wakefern, (3) projected
levels of profits of Wakefern. As Wakefern's profits, and the Company's share
of Wakefern's profits distributed as a patronage dividend, have increased in
recent years, the Company has concluded the investment in Wakefern is not
impaired. In future filings on Form 10-K, we will revise the investment
section of Note 1 to reflect the Company's method of evaluating the investment
for impairment.
13. Comment: The results of operations section of Management's
Discussion and Analysis of Financial Condition and Results of Operations states
that "income before income taxes includes $1,639,000 of distributions received
from two partnerships in which the Company is a limited partner." It later
states that "the Company's accounting for these partnerships under the equity
method had previously resulted in a zero investment balance in the consolidated
financial statements." It appears that the two partnerships represent related
parties. In future filings, please disclose the related party to whom the
rents are paid and the amount of rents for all periods presented. Refer to
SFAS 57 for guidance.
Response: In future filings on Form 10-K the Company will include
the requested disclosure
14. Comment: You state that all options granted are exercisable up to
10 years from the date of the grant. It is unclear whether the options vest
immediately at the date of grant or over a defined service period. Please
clarify and update disclosure in future filings.
Response: All options granted to date have vested over a one-year
service period. Future filings on Form 10-K will reflect the vesting schedule
of options granted.
15. Comment: Paragraph 5(k) of SFAS 132(R) requires the disclosure of
"the measurement date(s) used to determine pension and other postretirement
benefit measurements for the pension plans and other postretirement benefit
plans that make up at least the majority of plan assets and benefit
obligations." Please disclose in future filings.
Response: The disclosure required by paragraph 5(k) of SFAS 132(R)
is included as the last sentence of the first paragraph of footnote 8, "The
Company uses its fiscal year-end date as the measurement date for these plans."
The Company acknowledges that:
- The Company is responsible for the adequacy and accuracy of the
disclosure in Company filings;
- Staff comments or changes to disclosure in response to staff
comments do not foreclose the Commission from taking any action
with respect to the filing; and
- The Company may not assert staff comments as a defense in any
proceeding initiated by the Commission or any person under the
federal securities laws of the United States.
We appreciate your assistance in ensuring that the Company provides
appropriate disclosures in its public filings. Should you have any questions
about the above responses, please feel free to contact the undersigned at
(973) 467-2200.
Very truly yours,
/s/ KEVIN BEGLEY
Kevin Begley
Chief Financial Officer
KB/ldf