Significant Accounting Policies (Policies)

6 Months Ended

Mar. 31, 2020

Consolidation, Policy [Policy Text Block]

Consolidated Financial Statements

The accompanying unaudited consolidated financial statements of the Company have been prepared in accordance with U.S. generally accepted accounting principles (GAAP) for interim financial statements and are in the form prescribed by Article

of Regulation S-

Accordingly, they do

not

include all of the information and footnotes required by GAAP for annual financial statements. The information included in this Form

-Q should be read in conjunction with Item

– “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements and notes thereto included in the Form

-K. The accompanying unaudited consolidated financial statements reflect all adjustments, consisting of normal recurring adjustments, considered necessary for a fair presentation of the Company’s financial results. Interim results are

not

necessarily indicative of results for any other interim period or for a full fiscal year. The Company reports its results of operations on a fiscal year ending

September 30.

The accompanying unaudited consolidated financial statements include all the accounts of the holding company’s wholly owned subsidiaries, Vitamin Cottage Natural Food Markets, Inc. (the operating company) and Vitamin Cottage Two Ltd. Liability Company (

VC2

). All significant intercompany balances and transactions have been eliminated in consolidation.

The Company has

one

reporting segment: natural and organic retail stores. Sales from the Company’s natural and organic retail stores are derived from sales of the following product categories, which are presented as a percentage of sales for the

three

and

six

months ended

March 31, 2020

and

2019,

as follows:

	Three months ended March 31,					Six months ended March 31,
	2020			2019		2020		2019
Grocery		67	%		68		68		68
Dietary supplements		23			22		22		21
Other		10			10		10		11
		100	%		100		100		100

Use of Estimates, Policy [Policy Text Block]

Use of

Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities (including the fair value of assets acquired and liabilities assumed in a business combination), the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Management reviews its estimates on an ongoing basis, including those related to: allowances for self-insurance reserves; valuation of inventories; useful lives of property and equipment for depreciation and amortization; impairment of finite-lived intangible assets, long-lived assets, and goodwill; lease assumptions; and litigation based on currently available information. Changes in facts and circumstances

may

result in revised estimates and actual results could differ from those estimates.

New Accounting Pronouncements, Policy [Policy Text Block]

Recently Adopted Accounting Pronouncements

The Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU)

2016

02,

“Leases (Topic

842

)” in

February 2016

and subsequently issued related ASUs in

2018

and

2019

(collectively, “ASC

842”

). ASC

842

requires lessees to recognize a right-of-use asset and corresponding lease liability for all leases with terms greater than

months. Under ASC

842,

recognition, measurement and presentation of lease expenses depend on whether the lease is classified as a finance or operating lease.

The Company adopted ASC

842

October 1, 2019,

the

first

day of fiscal year

2020,

using the modified retrospective transition approach. In addition, the Company elected the package of practical expedients permitted under the transition guidance within the new standard, which, among other things, permits companies

not

to reassess prior conclusions on lease identification, lease classification and initial direct costs. The Company did

not

elect the hindsight practical expedient.

The adoption of ASC

842

resulted in the recognition of operating lease assets and operating lease liabilities of

$359.6

million and

$377.8

million, respectively, as of

October 1, 2019.

Included in the measurement of the new lease assets is the reclassification of certain balances, including those historically recorded as deferred rent and leasehold incentives.

Additionally, the Company recognized a cumulative effect adjustment, which increased retained earnings by

$1.7

million for the

three

and

six

months ended

March 31, 2020.

These adjustments were primarily driven by the derecognition of

$41.9

million of lease obligations and

$40.2

million of net assets related to leases that had been classified as capital financing lease obligations under the former failed-sale leaseback guidance. These leases were reclassified as operating or finance leases as of

October 1, 2019,

the transition date. See Note

for additional information related to the Company’s lease accounting policy.

June 2018,

the FASB issued ASU

2018

07,

“Compensation-Stock Compensation,” Topic

718,

“Improvements to Nonemployee Share-Based Payment Accounting” (ASU

2018

) as part of its Simplification Initiative to reduce complexity when accounting for share-based payments to non-employees. ASU

2018

expands the scope of Topic

718

to more closely align share-based payment transactions for acquiring goods and services from non-employees with the accounting for share-based payments to employees, with certain exceptions. The provisions of ASU

2018

are effective for the Company’s

first

quarter of the fiscal year ending

September 30, 2020,

with early adoption permitted. This ASU did

not

have an impact on the Company’s consolidated financial statements for the

three

six

months ended

March 31, 2020.

Recent Accounting Pronouncements

June 2016,

the FASB issued ASU

2016

13,

“Financial Instruments - Credit Losses,” Topic

326,

“Measurement of Credit Losses on Financial Instruments” (ASU

2016

), subsequently amended by various standard updates. ASU

2016

replaces the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information when determining credit loss estimates. ASU

2016

also requires financial assets to be measured net of expected credit losses at the time of initial recognition. ASU

2019

10,

issued in

November 2019,

delayed the effective date of ASU

2016

for smaller reporting companies such as the Company. The provisions of ASU

2016

will be effective for the Company’s

first

quarter of the fiscal year ending

September 30, 2024.

Early adoption is permitted. The Company is currently evaluating the impact that the adoption of these provisions will have on its consolidated financial statements.

January 2017,

the FASB issued ASU

2017

04,

“Simplifying the Test for Goodwill Impairment,” Topic

350,

“Intangibles – Goodwill and Other” (ASU

2017

). The amendments in ASU

2017

simplify the accounting for goodwill impairment for all entities by requiring impairment charges to be based on the

first

step in the current

two

-step impairment test. An impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value should be recognized; however, the loss recognized should

not

exceed the total amount of goodwill allocated to that reporting unit. The amendments should be applied on a prospective basis. ASU

2019

delayed the effective date of this ASU to align with the effective date of ASU

2016

(referred to above). Because the Company is a smaller reporting company, the provisions of ASU

2017

will be effective for the Company’s

first

quarter of the fiscal year ending

September 30, 2024.

Early adoption is permitted. The Company is currently evaluating the impact that the adoption of these provisions will have on its consolidated financial statements.

March 2020,

the FASB issued ASU

2020

04,

“Reference Rate Reform,” Topic

848,

“Facilitation of the Effects of Reference Rate Reform on Financial Reporting” (ASU

2020

). The new guidance provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships and other transactions affected by reference rate reform if certain criteria are met. The guidance applies only to contracts, hedging relationships and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. The interest rate currently payable under the Company’s credit facility is based on LIBOR, but recent amendments have incorporated alternative reference rates. As such, the Company does

not

anticipate that the adoption of these provisions will have a material impact on its consolidated financial statements.