<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
-----------------------
FORM 10-Q
(Mark one)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 27, 1994
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number 1-8452
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THE VONS COMPANIES, INC.
(Exact name of registrant as specified in its charter)
Michigan 38-1623900
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
618 Michillinda Avenue, Arcadia, California 91007
(Address of principal executive offices and zip code)
Registrant's Telephone Number, Including Area Code (818)821-7000
Not Applicable
(Former name, former address and former fiscal year,
if changed since last report)
-----------------------
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
---- ----
Shares of common stock outstanding at May 2, 1994 - 43,344,801.
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<TABLE>
PART 1. FINANCIAL INFORMATION
Item 1: Financial Statements
THE VONS COMPANIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
AND RETAINED EARNINGS
All amounts except share data in millions of dollars
and as a percentage of sales
(Unaudited)
<CAPTION>
Twelve Weeks Ended
-----------------------------------------------
March 27, 1994 March 28, 1993
-------------------- --------------------
<S> <C> <C> <C> <C>
Sales................................. $ 1,144.0 100.0% $ 1,194.2 100.0%
----------- ------ ----------- ------
Costs and expenses:
Cost of sales, buying and occupancy. 857.2 74.9 891.8 74.7
Selling and administrative expenses. 250.6 21.9 255.4 21.4
Amortization of excess cost over
net assets acquired............... 3.5 .3 3.5 .3
----------- ------ ----------- ------
1,111.3 97.1 1,150.7 96.4
----------- ------ ----------- ------
Operating income...................... 32.7 2.9 43.5 3.6
Interest expense, net................. 15.7 1.4 14.9 1.2
----------- ------ ----------- ------
Income before income tax provision.... 17.0 1.5 28.6 2.4
Income tax provision.................. 8.0 .7 12.7 1.1
----------- ------ ----------- ------
Net income............................ 9.0 .8 15.9 1.3
------ ------
------ ------
Retained earnings - beginning of
period.............................. 181.2 149.6
----------- -----------
Retained earnings - end of period..... $ 190.2 $ 165.5
----------- -----------
----------- -----------
Income per common share:
Net income.......................... $ .21 $ .37
----------- -----------
----------- -----------
Weighted average common shares and
common share equivalents............ 43,475,000 43,549,000
----------- -----------
----------- -----------
<FN>
See accompanying notes to these condensed consolidated financial statements.
</TABLE>
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<TABLE>
THE VONS COMPANIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
All amounts in millions of dollars
(Unaudited)
ASSETS
<CAPTION>
March 27, January 2,
1994 1994
--------- ----------
<S> <C> <C>
Current assets:
Cash...................................... $ 6.1 $ 8.5
Accounts receivable....................... 55.1 36.3
Inventories............................... 369.6 383.5
Other..................................... 49.3 45.1
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Total current assets.................... 480.1 473.4
Property and equipment, net................. 1,223.0 1,215.6
Excess of cost over net assets acquired..... 509.4 512.9
Other....................................... 51.7 47.6
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TOTAL ASSETS................................ $ 2,264.2 $ 2,249.5
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities of capital lease
obligations and long-term debt.......... $ 8.7 $ 8.6
Accounts payable.......................... 272.5 314.5
Accrued liabilities....................... 244.9 219.6
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Total current liabilities............... 526.1 542.7
Accrued self-insurance...................... 104.4 102.3
Deferred income taxes....................... 111.4 111.2
Other noncurrent liabilities................ 83.1 86.4
Senior debt and capital lease obligations... 582.4 559.9
Subordinated debt, net...................... 322.9 322.1
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Total liabilities......................... 1,730.3 1,724.6
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Shareholders' equity:
Common stock.............................. 4.3 4.3
Paid-in capital........................... 339.5 339.5
Retained earnings......................... 190.2 181.2
Notes receivable for stock................ (.1) (.1)
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Total shareholders' equity.............. 533.9 524.9
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TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY.. $ 2,264.2 $ 2,249.5
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<FN>
See accompanying notes to these condensed consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
THE VONS COMPANIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
All amounts in millions of dollars
(Unaudited)
<CAPTION>
Twelve Weeks Ended
-----------------------
March 27, March 28,
1994 1993
--------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net income.................................................. $ 9.0 $ 15.9
Adjustments to reconcile net income to cash provided
by operating activities:
Depreciation and amortization of property and capital
leases................................................ 23.3 19.2
Amortization of excess cost over net assets acquired
and other assets...................................... 3.7 4.6
Amortization of debt discount and deferred financing
costs................................................. 1.4 1.5
LIFO charge............................................. 1.3 1.8
Deferred income taxes................................... .2 1.7
Change in assets and liabilities:
(Increase) decrease in accounts receivable.......... (18.8) 2.6
(Increase) decrease in inventories at FIFO costs.... 12.6 (.8)
(Increase) decrease in other current assets......... (4.2) (3.6)
(Increase) decrease in noncurrent assets............ (4.9) (7.6)
Increase (decrease) in accounts payable............. (48.1) (60.4)
Increase (decrease) in accrued liabilities.......... 25.3 3.1
Increase (decrease) in noncurrent liabilities....... (1.2) 2.1
--------- ----------
Net cash used by operating activities......................... (.4) (19.9)
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Cash flows from investing activities:
Addition of property and equipment.......................... (31.5) (30.9)
Disposal of property and equipment.......................... 1.1 .3
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Net cash used by investing activities......................... (30.4) (30.6)
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Cash flows from financing activities:
Net borrowings on revolving debt............................ 24.0 40.8
Increase in net outstanding drafts.......................... 6.1 11.7
Payments on other debt and capital lease obligations and
other..................................................... (1.7) (3.6)
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Net cash provided by financing activities..................... 28.4 48.9
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Net cash decrease............................................. (2.4) (1.6)
Cash at beginning of period................................... 8.5 8.3
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Cash at end of period......................................... $ 6.1 $ 6.7
--------- ----------
--------- ----------
<FN>
See accompanying notes to these condensed consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
VONS COMPANIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(continued)
All amounts in millions of dollars
(Unaudited)
<CAPTION>
Twelve Weeks Ended
------------------------
March 27, March 28,
1994 1993
--------- ---------
<S> <C> <C>
Supplemental disclosures of cash
flow information:
Cash paid during the period for:
Interest...................... $ 7.7 $ 6.3
--------- ---------
--------- ---------
Income taxes.................. $ 3.6 $ 6.1
--------- ---------
--------- ---------
Supplemental disclosures of non-cash
investing and financing activity:
Capital leases.................. $ .3 $ 7.7
--------- ---------
--------- ---------
<FN>
See accompanying notes to these condensed consolidated financial
statements.
</TABLE>
<PAGE>
THE VONS COMPANIES,INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation
The financial data included herein have been prepared by the
Company without audit. In the opinion of management, all
adjustments of a normal recurring nature necessary to present
fairly the Company's consolidated financial position at March 27,
1994 and January 2, 1994 and the consolidated results of
operations and cash flows for the twelve weeks ended March 27,
1994 and March 28, 1993 have been made. Certain
reclassifications were made to prior period's balances for
comparative purposes. This interim information should be read in
conjunction with the consolidated financial statements and notes
thereto included in the Company's latest annual report filed on
Form 10-K. Due to seasonality and other market conditions, the
results for the twelve weeks ended March 27, 1994, should not be
considered as indicative of the results to be expected for a full
year.
At March 27, 1994, the Company operated 346 supermarket and
food and drug combination stores, primarily in Southern
California, under the names Vons, Vons Food and Drug, Pavilions,
Tianguis, and EXPO. The Company also operates a fluid milk
processing facility, an ice cream plant, a bakery, a delicatessen
kitchen, and distribution facilities for meat, grocery, produce
and general merchandise.
2. Earthquake Loss
On January 17, 1994, Southern California was struck by a
major earthquake which resulted in the temporary closure of 45 of
the Company's stores. All of the closed stores reopened within
approximately one week of the earthquake. The Company carries
insurance to protect against earthquake loss. The estimated
total cost due to the earthquake is approximately $25 million
which, after insurance recoveries, results in a pre-tax
nonrecurring charge of approximately $5 million, or $.07 per
share. The accompanying condensed consolidated financial
statements include a $20 million receivable for insurance
recoveries and a $5 million selling and administrative charge for
the earthquake insurance deductible.
Item 2: Management's Discussion and Analysis of Financial
Condition and Results of Operations (Unaudited)
Results of Operations
Twelve Weeks Ended March 27, 1994 Compared with the Twelve Weeks
Ended March 28, 1993
On January 13, 1994, the Company introduced the "Vons Value
Program." This program emphasizes low prices every day and
improved customer service, and it represents a strategic
repositioning of the Company's market focus. The Company plans
to substantially offset the cost of the program over time
through aggressive cost reductions designed to permanently lower
the Company's expense structure. The new marketing and cost
reduction programs are long-term strategies, the implementation
of which will extend beyond 1994.
During first quarter 1994, the Company reduced the prices of
over 6,800 items, increased the allocation of store labor for
customer checkout, and increased broadcast media advertising to
better inform customers as to the many ways to save money at
Vons, including newly reduced prices, weekly advertised specials
and free membership club savings.
The Northridge earthquake occurred four days following the
introduction of the Vons Value Program. This event substantially
disrupted the initial phase of the new program as both the
Company and the communities it serves were focused on recovering
from this tragic event. As a result, the Company undertook a
costly relaunch of the new program late in first quarter 1994
which continues into second quarter 1994. By accelerating price
reductions planned for later in the year and incurring additional
promotional costs to reintroduce the program to consumers, the
Company believes it can achieve the desired sales momentum of the
new program. The effect of the accelerated price reductions and
promotions will be reflected in reduced gross margin and
operating income in second quarter 1994. Disregarding the
earthquake insurance deductible, the Company's expectation for
1994 full year operating results has not changed materially.
However, there can be no assurance that, if the Company is
unsuccessful at improving its sales performance and achieving
anticipated cost reductions, the ability of the Company to
maintain its financial performance would not be adversely
impacted.
In aggregate, the Company's programs are intended to
initially benefit sales, which in turn will improve the Company's
ability to achieve strong, sustainable earnings growth over the
long run.
Sales. First quarter 1994 sales were $1,144.0 million, a
decrease of $50.2 million, or 4.2%, from first quarter 1993
sales. Same store sales decreased 5.5% from first quarter 1993
sales. Sales reflect reduced prices as a result of the Vons
Value Program, the ongoing impact of the weak economy and
competitive new store and remodel activity. Since March 28,
1993, the Company has opened 13 new stores, closed 13 stores and
completed 43 store remodel projects.
Costs and Expenses. First quarter 1994 costs and expenses
were $1,111.3 million, a decrease of $39.4 million, or 3.4%, from
first quarter 1993. Cost of sales, buying and occupancy expenses
as a percentage of sales increased by 0.2 percentage points to
74.9% in first quarter 1994. This increase reflects lower prices
and higher occupancy costs as a percentage of sales partially
offset by cost savings initiatives. Selling and administrative
expenses as a percentage of sales increased by 0.5 percentage
points to 21.9% in first quarter 1994. This increase reflects a
$5.0 million charge related to the insurance deductible for the
Northridge earthquake. Increased advertising and store labor
expenses during first quarter 1994, related to the Vons Value
Program, were offset by a decrease in administrative expenses as
result of the reduction in work force implemented during fourth
quarter 1993. Certain cost and expense reductions resulted from
the Company's cost containment and strategic restructuring
program which was implemented in fourth quarter 1993.
Operating Income. First quarter 1994 operating income was
$32.7 million, a decrease of $10.8 million from first quarter
1993. Operating margin decreased to 2.9% in first quarter 1994
versus 3.6% in first quarter 1993, primarily due to the decline
in sales and gross margin and the earthquake insurance
deductible. Operating income before depreciation and
amortization of property, amortization of goodwill and other
assets, LIFO and earthquake insurance deductible ("FIFO EBITDA")
was $66.0 million, or 5.8% of sales, in first quarter 1994
compared with $69.1 million, or 5.8%, of sales in first quarter
1993.
Interest Expense. First quarter 1994 net interest expense
was $15.7 million, an increase of $.8 million, or 5.4%, over
first quarter 1993. This increase was due to the cost associated
with higher average debt borrowings largely offset by a lower
average interest rate.
Income Tax Provision. First quarter 1994 income tax
provision was $8.0 million, or a 47.1% effective tax rate. First
quarter 1993 income tax provision was $12.7 million, or a 44.4%
effective tax rate. The increase in the first quarter 1994
effective tax rate reflects the 1% increase in the Federal
Statutory tax rate and the decrease in income before income tax
provision which was not offset by a comparable decrease in
amortization of excess cost over net assets acquired, the
majority of which is not deductible for tax purposes.
Income. First quarter 1994 net income was $9.0 million, or
$.21 per share, compared with $15.9 million, or $.37 per share,
in first quarter 1993.
Liquidity and Capital Resources
The Company's primary sources of liquidity are cash flows
from operations and available credit under its Revolving Credit
Facility. Management believes that these sources adequately
provide for its working capital, capital expenditure and debt
service needs.
Net cash used by operating activities was $.4 million in
first quarter 1994 compared with $19.9 million in first quarter
1993. This decrease was due primarily to changes in assets and
liabilities generally reflecting the timing of receipts and
disbursements. The ratio of current assets to current
liabilities was 0.91 to 1 at March 27, 1994 compared with 0.87 to
1 at January 2, 1994.
Net cash used by investing activities was $30.4 million in
first quarter 1994 which compares with $30.6 million in first
quarter 1993. The Company opened two, closed one and completed
one store remodel project during the twelve weeks ended March 27,
1994. Capital expenditures in 1994 have been and will continue
to be funded out of cash provided by operations, the Revolving
Credit Facility and/or through operating leases, although no
assurance can be given that such sources will be sufficient. The
capital expenditure program has substantial flexibility and is
subject to revision based on various factors; including, but not
limited to, business conditions, changing time constraints, cash
flow requirements and competitive factors. In the near term, if
the Company were to reduce substantially or postpone these
programs, there would be no substantial impact on current
operations and it is likely that more cash would be available for
debt servicing. In the long term, if these programs were
substantially reduced, in the Company's opinion, its operating
business and ultimately its cash flow would be adversely
impacted.
Net cash provided by financing activities was $28.4 million
in first quarter 1994 compared with $48.9 million in first
quarter 1993. The level of borrowings under the Company's
revolving debt is dependent primarily upon cash flows from
operations and capital requirements.
At March 27, 1994, the Company's revolving debt borrowings
totaled $241.7 million compared to $295.5 million at March 28,
1993 reflecting the impact of the $150 million Term Loan Facility
entered into in fourth quarter 1993 offset by increased
borrowings relating to capital expenditures. At March 27, 1994,
the Company had available unused credit of $151.2 million under
its Revolving Credit Facility.
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Not applicable.
Item 2. Changes in Securities
Not applicable.
Item 3. Defaults upon Senior Securities
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
Item 5. Other Information
Subsequent to first quarter 1994, Lawrence A. Del Santo
became Vice Chairman and Chief Executive Officer and a
member of the Board of Directors of the Company.
Additionally, Richard E. Goodspeed became President and
Chief Operating Officer of the Company.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
None.
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the
quarter ended March 27, 1994.
<PAGE>
SIGNATURES
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.
THE VONS COMPANIES, INC.
Date: May 10, 1994 /s/ Michael F. Henn
-- -----------------------------------
Michael F. Henn
Executive Vice President,
Chief Financial Officer and
Chief Administrative Officer
Date: May 10, 1994 /s/ Pamela K. Knous
-- -----------------------------------
Pamela K. Knous
Group Vice President - Finance
Chief Accounting Officer
