OVERVIEW

Village Super Market, Inc. (the "Company" or "Village") operates a chain of 29 ShopRite supermarkets in New Jersey, Maryland and northeastern Pennsylvania. On January 29, 2012, Village acquired the store fixtures, lease and other assets of the ShopRite in Old Bridge, New Jersey (40,000 sq. ft.) for $3,250 plus inventory and other working capital for $1,116. On July 7, 2011, Village acquired the store fixtures, leases and pharmacy lists of locations in Silver Spring, Maryland (64,000 sq.ft.) and Timonium, Maryland (57,000 sq.ft.) for $6,595 from Super Fresh. In addition, Village purchased pharmacy inventories at cost. Village began operating pharmacies at these locations on July 7, 2011. These stores opened as ShopRites on July 28, 2011 after remodeling. Village opened a replacement store in Washington, NJ on February 21, 2010.

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 many of the economies of scale in purchasing, distribution, advanced retail technology, marketing and advertising associated with larger chains.

The Company's stores, five of which are owned, average 57,000 total square feet. Larger store sizes enable Village to offer the specialty departments that customers desire for one-stop shopping, including pharmacies, natural and organic departments, ethnic and international foods, and home meal replacement. During fiscal 2012, sales per store were $49,903 and sales per square foot of selling space were $1,112. Management believes these figures are among the highest in the supermarket industry.

The supermarket industry is highly competitive. The Company competes directly with multiple retail formats, 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, superior customer service, and a broad range of consistently available quality products, including ShopRite private labeled products. The ShopRite Price Plus card also strengthens customer loyalty.

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; and hourly labor rates.

During fiscal 2012 and 2011, the supermarket industry was impacted by changing consumer behavior due to the weak economy and high unemployment. Consumers are increasingly cooking meals at home, but spending cautiously by trading down to lower priced items, including private label, and concentrating their buying on sale items. Also, the Company estimates that product prices overall experienced inflation in fiscal 2012 and in the second half of fiscal 2011.

The Company utilizes a 52 - 53 week fiscal year, ending on the last Saturday in the month of July. Fiscal 2010 contains 53 weeks. The inclusion of the 53rd week in fiscal 2010 had an estimated positive impact on net income of $1,200. Fiscal 2012 and 2011 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, 2012       July 30, 2011       July 31, 2010
Sales                                           100.00 %            100.00 %            100.00 %
Cost of sales                                    72.66               73.04               72.82
Gross profit                                     27.34               26.96               27.18
Operating and administrative expense             22.04               22.57               22.25
Depreciation and amortization                     1.39                1.43                1.34
Operating income                                  3.91                2.96                3.59
Interest expense                                 (0.31 )             (0.33 )             (0.29 )
Interest income                                   0.18                0.17                0.16
Income before income taxes                        3.78                2.80                3.46
Income taxes                                      1.57                1.18                1.45
Net income                                        2.21 %              1.62 %              2.01 %

SALES

Sales were $1,422,243 in fiscal 2012, an increase of $123,315, or 9.5% from the prior year. Sales increased due to the opening of two new stores in Maryland on July 28, 2011, the acquisition of a store in Old Bridge, NJ on January 29, 2012 and a same store sales increase of 4.9%. Same stores sales increased due to higher sales in seven stores due to store closings by competitors, inflation, increased customer counts, and improved sales in the Washington and Marmora stores, which opened in recent fiscal years. Although Village experienced inflation in fiscal 2012, there was minimal change in the average transaction size during the year. As expected, the impact of the competitive store closures that began in the second half of fiscal 2011 and inflation both moderated beginning in the third quarter of fiscal 2012, resulting in a fourth quarter same store sales increase of 1.8%. Sales continue to be impacted by economic weakness, high gas prices and high unemployment, which has resulted in increased sale item penetration and trading down. The Company expects same store sales in fiscal 2013 to increase from 2.0% to 4.0%, including the positive impact from the inclusion of the Maryland stores in same stores sales beginning in the first quarter of fiscal 2013. 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.

Sales were $1,298,928 in fiscal 2011, an increase of $37,103, or 2.9% from the prior year. The prior year included $21,000 of sales attributable to a 53rd week. Excluding the 53rd week from the prior year, fiscal 2011 sales increased $58,103, or 4.7%. Sales increased due to the opening of the Washington, NJ replacement store on February 21, 2010 and a same store sales increase, excluding the 53rd week in the prior year, of 4.0%. Same store sales increased due to improved sales in the Marmora store, which opened in 2009, higher sales in five stores due to store closings by competitors during fiscal 2011, and a substantial increase in transaction counts. Although Village experienced inflation in the second half of fiscal 2011, there was minimal change in the average transaction size during the year. Sales continued to be impacted by changing consumer behavior, which has resulted in increased sale item penetration and trading down. Same store sales in the fourth quarter of fiscal 2011, excluding the impact of the 53rd week in the prior year, accelerated to an increase of 7.7% as this was the first complete quarter to include all the store closings by competitors.

GROSS PROFIT

Gross profit as a percentage of sales increased .38% in fiscal 2012 compared to the prior year primarily due to increased departmental gross margin percentages (.15%), decreased warehouse assessment charges from Wakefern (.16%) and higher patronage dividends (.11%). These improvements were partially offset by higher promotional spending (.06%).

Gross profit as a percentage of sales decreased .22% in fiscal 2011 compared to the prior year primarily due to decreased departmental gross margin percentages (.29%), higher promotional spending (.08%), and a LIFO charge in fiscal 2011 compared to a LIFO benefit in the prior year (.06%). These declines were partially offset by decreased warehouse assessment charges from Wakefern (.23%).

OPERATING AND ADMINISTRATIVE EXPENSE

Operating and administrative expense as percentage of sales decreased .53% compared to the prior year due to the prior year including a $7,028 charge for the withdrawal liability from a multi-employer defined benefit plan (.54%). In addition, fiscal 2012 benefitted from operating leverage from the 4.9% same store sales increase, partially offset by higher operating costs as a percentage of sales for the two new Maryland stores, including store opening costs.

Operating and administrative expense increased .32% as a percentage of sales in fiscal 2011 compared to the prior year primarily due to a $7,028 charge for the withdrawal liability from a multi-employer defined benefit plan (.54%) and pre-opening costs for the Maryland stores (.06%). These increases were partially offset by lower payroll costs (.16%) and operating leverage from the 4.0% same store sales increase.

DEPRECIATION AND AMORTIZATION

Depreciation and amortization expense was $19,759, $18,621, and $16,900 in fiscal 2012, 2011, and 2010, respectively. Depreciation and amortization expense increased in fiscal 2012 and 2011 compared to the prior years due to depreciation related to fixed asset additions, including the new stores in Maryland and Old Bridge.

INTEREST EXPENSE

Interest expense was $4,415, $4,280, and $3,660 in fiscal 2012, 2011, and 2010, respectively. Interest expense increased in 2011 compared to the prior year due to an amendment of a store lease near the end of fiscal 2010 being treated as a capital lease.

INTEREST INCOME

Interest income was $2,571, $2,207, and $2,020 in fiscal 2012, 2011, and 2010, respectively. Interest income increased in fiscal 2012 and 2011 compared to the prior years due to higher amounts invested.

INCOME TAXES

The Company's effective income tax rate was 41.5%, 42.1%, and 41.8% in fiscal 2012, 2011, and 2010, respectively.

NET INCOME

Net income was $31,445 in fiscal 2012 compared to $20,982 in the prior year. Excluding a $4,241 (net of tax) charge for the withdrawal liability from a multi-employer pension plan in the prior year, net income increased 25%. Net income increased primarily due to improved same store sales and increased gross profit percentages. Net income increased despite losses in the two new Maryland stores as sales in Maryland are lower than expected and we continue to build market share and brand awareness.

Net income in fiscal 2011 was $20,982, a decrease of 17% from the prior year. Net income decreased primarily due to a $4,241 (net of tax) charge for a withdrawal liability from a multi-employer pension plan in fiscal 2011 and the prior year including a $1,200 estimated positive impact of the 53rd week. Excluding these two items, net income increased 4%, due to improved same store sales.

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 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 held for use to their carrying value.

Goodwill is tested for impairment at the end of each fiscal year, or more frequently if circumstances dictate. Since the Company's stock is not widely traded, management 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, 2012. 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" (see Note 3). This dividend is based on a distribution of substantially all of Wakefern's operating profits for its fiscal year (which ends 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 amount of patronage dividends receivable based on these estimates were $10,774 and $9,018 at July 28, 2012 and July 30, 2011, 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 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, 2012 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 3.59% at July 28, 2012 compared to 4.99% at July 30, 2011. The 1.40% decrease in the discount rate, and a change in the mortality table utilized, increased the projected benefit obligation at July 28, 2012 by approximately $8,302. Village evaluated the expected long-term rate of return on plan assets of 7.5% and the expected increase in compensation costs of 4 to 4.5% and concluded no changes in these assumptions were necessary in estimating pension plan obligations and expense.

Sensitivity to changes in the major assumptions used in the calculation of the Company's pension plans is as follows:

                                                                 Projected benfit
                                        Percentage point            obligation                  Expense
                                             change             decrease (increase)       decrease (increase)

Village contributed $3,227 and $3,115 in fiscal 2012 and 2011, respectively, to these Company-sponsored pension plans. Village expects to contribute $3,000 in fiscal 2013 to these plans. The 2012, 2011 and expected 2013 contributions are substantially all voluntary contributions.

The Company also contributes to several multi-employer pension plans based on obligations arising from collective bargaining agreements. These plans provide retirement benefits to participants based on their service to contributing employers. We recognize expense in connection with these plans as contributions are funded.

On April 15, 2011, Village, along with all of the other individual employers trading as ShopRite, permanently withdrew from participating in the United Food and Commercial Workers Local 152 Retail Meat Pension Fund ("the Fund"), effective the end of April 2011. The Fund is a multi- employer defined benefit plan that includes other supermarket operators. Village, along with the other affiliated ShopRite operators, determined to withdraw from the Fund due to exposures to market risks associated with all defined benefit plans and the inability to partition ShopRite's liabilities from those of the other participating supermarket operators. Village now provides affected associates with a defined contribution plan for future service, which eliminates market risks and the exposure to shared liabilities of other operators, and is estimated to be less costly than the defined benefit plan in the future, while ensuring that our associates are provided a secure benefit.

The Company recorded a pre-tax charge of $7,028 in fiscal 2011 for this withdrawal liability, which represented our estimate of the liability based on calculations provided by the Fund actuary. The Company settled this obligation in January 2012, resulting in a pre-tax benefit of $646 in fiscal 2012. Village remains liable for potential additional withdrawal liabilities to the Fund in the event a mass withdrawal, as defined by statute, occurs within two plan years after the plan year of Village's withdrawal. Such liabilities could be material to the Company's consolidated financial statements.

SHARE-BASED EMPLOYEE COMPENSATION

All share-based payments to employees are recognized in the financial statements as compensation expense based on the fair market value on the date of grant. Village determines the fair market value of stock option awards using the Black-Scholes option pricing model. This option pricing model incorporates certain assumptions, such as a risk-free interest rate, expected volatility, expected dividend yield and expected life of options, in order to arrive at a fair value estimate.

UNCERTAIN TAX POSITIONS

The Company is subject to periodic audits by various taxing authorities. These audits may challenge certain of the Company's tax positions such as the timing and amount of deductions and the allocation of income to various tax jurisdictions. Accounting for these uncertain tax positions requires significant management judgment. Actual results could materially differ from these estimates and could significantly affect the effective tax rate and cash flows in future years.

LIQUIDITY and CAPITAL RESOURCES

CASH FLOWS

Net cash provided by operating activities was $43,432 in fiscal 2012 compared to $64,144 in the corresponding period of the prior year. This decrease is primarily attributable to settlement of a $7,028 pension withdrawal liability in fiscal 2012, a decrease in payables in the current fiscal year as compared to an increase in the prior fiscal year, and the prior year including a refund of cash the Company had placed in escrow to fund a property acquisition. These decreases were partially offset by higher net income in the current fiscal year.

During fiscal 2012, Village used cash to fund capital expenditures of $16,729, the acquisition of the Old Bridge ShopRite of $4,123 and dividends of $9,758. Capital expenditures include remodeling and equipment for the acquired Maryland stores, the installation of solar panels in one store and several small remodels.

Net cash provided by operating activities was $64,144 in fiscal 2011 compared to $35,313 in fiscal 2010. This increase is primarily attributable to an increase in payables in the current fiscal year compared to a decrease in payables in the prior fiscal year. The changes in payable balances outstanding were due to the $7,028 pension withdrawal liability and differences in the timing of payments.

During fiscal 2011, Village used cash to fund capital expenditures of $13,346, dividends of $19,086, the acquisition of the Maryland stores for $6,595 and treasury stock purchases of $2,171. Capital expenditures include the purchase of land for future development, several small remodels, and remodeling and equipment for the acquired Maryland stores.

LIQUIDITY and DEBT

Working capital was $71,672, $44,448, and $41,201 at July 28, 2012, July 30, 2011, and July 31, 2010, respectively. Working capital ratios at the same dates were 1.72, 1.41, and 1.49 to one, respectively. The Company's working capital needs are reduced since inventory is generally sold before payments to Wakefern and other suppliers are due.

Village has budgeted approximately $20,000 for capital expenditures in fiscal 2013. Planned expenditures include the beginning of construction of two replacement stores and three major remodels. The Company's primary sources of liquidity in fiscal 2013 are expected to be cash and cash equivalents on hand at July 28, 2012 and operating cash flow generated in fiscal 2013.

At July 28, 2012, the Company had a $20,918 15-month note receivable due from Wakefern earning a fixed rate of 7%. This note is automatically extended for additional, recurring 90-day periods, unless, not later than one year prior to the due date, the Company notifies Wakefern requesting payment on the due date. This note currently is scheduled to mature on August ญญ19, 2013.

Village has an unsecured revolving credit agreement providing a maximum amount available for borrowing of $25,000. This loan agreement expires on December 31, 2014. The revolving credit line can be used for general corporate purposes. Indebtedness under this agreement bears interest at the prime rate, or at the Eurodollar rate, at the Company's option, plus applicable margins based on the Company's fixed charge coverage ratio. There were no amounts outstanding at July 28, 2012 or July 30, 2011 under this facility.

The revolving loan agreement contains 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. At July 28, 2012, the Company was in compliance with all terms and covenants of the revolving loan agreement. Under the above covenants, Village had approximately $124,534 of net worth available at July 28, 2012 for the payment of dividends.

During fiscal 2012, Village paid cash dividends of $9,758. Dividends in fiscal 2012 consist of $.85 per Class A common share and $.5525 per Class B common share.

During fiscal 2011, Village paid cash dividends of $19,086. Dividends in fiscal 2011 consist of $1.70 per Class A common share and $1.105 per Class B common share. These amounts include $14,005 of special dividends paid in December 2010, comprised of $1.25 per Class A common share and $.8125 per Class B common share.

CONTRACTUAL OBLIGATIONS AND COMMITMENTS

The table below presents significant contractual obligations of the Company at
July 28, 2012:

                                                 Payments due by fiscal period
                 2013          2014          2015          2016          2017         Thereafter        Total

Capital and
financing
leases (2)     $   4,026     $   4,045     $   4,284     $   4,491     $   4,491      $    83,963     $ 105,300
Operating
leases (2)        10,956        10,416        10,117         8,823         6,141           48,689        95,142
Notes
payable to
Related
Party                473           615           667           518           446              111         2,830
               $  15,455     $  15,076     $  15,068     $  13,832     $  11,078      $   132,763     $ 203,272

(1) In addition, the Company is obligated to purchase 85% of its primary merchandise requirements from Wakefern (see Note 3).
(2) The above amounts for capital, financing and operating leases include interest, but do not include certain obligations under these leases for other charges. These charges consisted of the following in fiscal 2012: Real estate taxes - $4,431; common area maintenance - $1,994; insurance - $271; and contingent rentals - $882.
(3) Pension plan funding requirements are excluded from the above table as estimated contribution amounts for future years are uncertain. Required future contributions will be determined by, among other factors, actual investment performance of plan assets, interest rates required to be used to calculate pension obligations, and changes in legislation. The Company expects to contribute $3,000 in fiscal 2013 to fund Company-sponsored defined benefit pension plans compared to actual contributions of $3,227 in fiscal 2012. The table also excludes contributions under various multi-employer pension plans, which totaled $5,428 in fiscal 2012. As more fully described previously herein, during 2011 Village permanently withdrew from participating in one multi-employer defined benefit plan. The Company recorded a pre-tax charge of $7,028 in fiscal 2011 for this withdrawal liability. The Company settled this obligation in January 2012, resulting in a pre-tax benefit of $646 in fiscal 2012.
(4) The amount of unrecognized tax benefits of $9,682 at July 28, 2012 has been excluded from this table because a reasonable estimate of the timing of future tax settlements cannot be determined.

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; 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.

? We expect same store sales to increase from 2.0% to 4.0% in fiscal 2013, including the positive impact from the inclusion of the Maryland stores in same stores sales.
? During fiscal 2012 and 2011, the supermarket industry was impacted by changing consumer behavior due to the weak economy and high . . .