<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
----------------------
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
(Mark One)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended January 1, 1995
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
------- -------
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
----------------------
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
-------------------- -----------------------------------------
Common Stock, $.10
par value per share New York Stock Exchange
----------------------
Securities registered pursuant to section 12(g) of the Act:
None
(Title of class)
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
--- ---
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of registrant's knowledge,
in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this
Form 10-K.[ ]
Aggregate market value of voting stock held by non-
affiliates of the registrant as of February 28, 1995: Common
Stock, par value $.10 per share - $517,597,848.
The number of shares of Common Stock outstanding as of
February 28, 1995 - 43,383,166.
DOCUMENTS INCORPORATED BY REFERENCE: Portions of the Annual
Report to Shareholders for fiscal year ended January 1, 1995 are
incorporated by reference into Parts II and IV.
Portions of the Proxy Statement for the Annual Meeting of
Shareholders to be held on May 3, 1995, are incorporated by
reference into Part III, to be filed no later than April 30,
1995.
<PAGE>
<PAGE>
PART I
ITEM 1: BUSINESS
General
The Vons Companies, Inc. ("Vons" or the "Company") is one of
the largest supermarket chains in Southern California based on
sales. As of January 1, 1995, Vons operated 334 supermarkets and
food and drug retail stores. Vons also operates a fluid milk
processing facility, an ice cream plant, a bakery and
distribution facilities for meat, grocery, produce and general
merchandise. Stores operate under the "Vons" and "Pavilions"
names. The Company's marketing platform is built on offering the
customer greater value than found elsewhere by combining
competitive pricing with superior selection, quality, service and
convenience.
Vons grocery business was founded in 1906. From 1969
until December 1985, it was owned, along with certain other
merchandising businesses, by Household International, Inc. In
1985, these merchandising businesses were acquired in a leveraged
buyout by a newly formed corporation which kept the grocery
business and sold all of the other merchandising businesses. The
newly formed corporation was subsequently merged in 1987 with and
into Allied Supermarkets, Inc., a Michigan corporation
("Allied"), and the surviving corporation was renamed The Vons
Companies, Inc., a Michigan corporation. Simultaneously with the
merger, substantially all of the business previously operated by
Allied was sold to a company organized by the former management
of Allied, leaving the Company with operations located only
in Southern California, as they existed prior to the merger.
On August 29, 1988, the Company purchased substantially all
of the operations of Safeway, Inc. ("Safeway") in Southern
California. At the time of the acquisition (the "Safeway
Acquisition"), these operations included 162 supermarkets and
manufacturing and distribution facilities. As a result of the
Safeway Acquisition and other purchases of Vons common stock,
Safeway, through a wholly-owned subsidiary, is Vons largest
shareholder, with approximately 35% of the outstanding shares of
Vons common stock. Safeway is an affiliate of Kohlberg Kravis
Roberts & Co.
Strategic Repositioning and Restructuring
In response to the weak economic environment in the regions
it serves and other factors having a negative impact on sales,
the Company commenced, in third quarter 1993, a strategic
repositioning program which emphasized lower everyday shelf
prices and improved customer service. In addition, the Company
implemented a cost containment and strategic restructuring
program to partially offset the costs of the strategic
repositioning program.
As part of the strategic repositioning program, the Company
introduced the "Vons Value Program" in January 1994. This
program emphasizes lower everyday shelf prices, improved customer
service 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. Double coupons remain an integral
part of the Vons offering. Another important component of the
Vons Value Program is an increase in the amount of labor
allocated for check-out. The Company believes that customer
satisfaction will increase by improving the speed of check-out.
Overall store conditions have also improved as personnel from
peripheral departments spend less time supporting check-out.
Consistent with the Vons Value Program, the 1995 marketing
campaign incorporates the slogan "Vons Is Value." This marketing
campaign emphasizes the Vons Value formula which combines
competitive prices with high quality products and customer
service.
The cost containment and strategic restructuring program,
undertaken in third quarter 1993, included the accelerated
closure of underperforming facilities and a reduction in
administrative staff. In late 1994, the Company determined that
the facility closures and reductions in workforce undertaken in
1993 would not achieve the Company's cost reduction goals. The
Company undertook additional restructuring initiatives resulting
in further facility closures and reductions in workforce in
1994. Importantly, the decision was made to exit the Company's
warehouse store format. This decision resulted in the January
1995 closure of all eight EXPO stores, which will allow the
Company to concentrate its resources on its proven store formats.
Also, the Company will eliminate redundant warehousing capacity
by closing its San Diego distribution facility in 1995.
The new marketing and cost reduction programs are long-term
strategies, the implementation of which will extend beyond 1994.
In aggregate, the Company's programs are initially intended to
benefit sales by funding lower prices, which in turn will improve
the Company's ability to achieve strong, sustainable earnings
growth.
Store Formats
The Company operates under the Vons and Pavilions formats.
Each format is designed for a different customer segment as
evidenced by the store location, appearance and product
offerings. A key strategy of the Company is to tailor its store
and merchandise offerings to reflect its diverse customer base.
The Company supports its stores with centrally controlled
marketing, advertising, buying, real estate development,
management information systems, distribution, manufacturing,
accounting and administration to maximize operating leverage and
profitability.
The vast majority of the Company's stores operate under the
name "Vons." These stores offer extensive assortments of food
products, including departments for dry groceries, produce, meat,
seafood, dairy, wine and liquor as well as limited assortments of
general merchandise, including greeting cards and health and
beauty care items. Most Vons stores have in-store bakeries,
service floral, service delicatessens with fresh and prepared
foods and service seafood departments. Approximately one-third
of the Vons stores offer full-service pharmacies and an expanded
health and beauty care section.
Targeted to consumers interested in contemporary food
selections, "Pavilions" stores are designed for a clientele
conscious of food trends who typically spend more discretionary
income on food and food-related items. Pavilions stores offer
expanded selections of food products and a variety of service
departments. These stores generally offer selections of prepared
foods, produce, wines and such service departments as hot
bakeries, service floral, delicatessens, service meat
departments and service seafood departments. Many Pavilions
stores offer extensive general merchandise emphasizing food-
related products of department store quality, a larger health and
beauty care department, a cosmetics department, and a complete
pharmacy. Selected stores offer a party shop, sausage and smoke
shop, bagel shop, sushi bar, and high quality prepared Chinese
food. The Company intends to increase the Pavilions chain by
approximately 15 stores over the next three years.
New Store Openings and Store Remodel Projects
Another key strategy of the Company is to augment sales
growth through the continuation of its new store opening program
and ongoing chainwide remodel program. In 1994, the Company
maintained its goal of having 80% of its stores either newly
opened or remodeled within the preceding five years.
The Company plans to open ten to 12 new stores in 1995. The
Company's new store opening program does not include the effect
of any possible store acquisition opportunities which might arise
in the future.
Store remodel projects enable Vons to present a store
appearance consistent with Vons evolving store formats and to
continuously update the store base through the introduction,
where possible, of service departments and new merchandising
modules, which are intended to generate higher gross margins and
build store traffic. Vons remodel program includes
remerchandising to reflect a contemporary design and decor
package including selected fixture replacements. The Company
completed 14, 59 and 68 store remodel projects in 1994, 1993 and
1992, respectively.
Vons cash capital expenditures for store projects were
$106.6 million and $253.7 million in 1994 and 1993, respectively.
It is anticipated that 1995 capital expenditures for Vons store
projects will be funded out of cash provided by operations,
revolving debt and/or through operating leases. 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.
The following table shows, by store format, the number of
Vons stores in operation at the end of each of the years
indicated and the number of stores opened, closed or converted
during each year:<PAGE>
<TABLE>
<CAPTION>
VONS PAVILIONS TIANGUIS EXPO TOTAL
------ --------- -------- ------ ------
<S> <C> <C> <C> <C> <C>
1992:
Beginning Store Count...... 283 28 9 - 320
Stores opened.............. 4 4 - - 8
Stores acquired............ 18* - - - 18
Stores closed or sold...... (1) - - - (1)
------ --------- -------- ------ ------
Ending store count......... 304 32 9 - 345
------ --------- -------- ------ ------
1993:
Stores opened.............. 8 - - 4 12
Stores closed or sold...... (12) - - - (12)
Store format conversions... 5 - (6) 1 -
------ --------- -------- ------ ------
Ending store count......... 305 32 3 5 345
------ --------- -------- ------ ------
1994:
Stores opened.............. 6 - - - 6
Stores closed or sold...... (17) - - - (17)
Store format conversions... (1) 1 (3) 3 0
------ --------- -------- ------ ------
Ending store count......... 293 33 0 8** 334
------ --------- -------- ------ ------
------ --------- -------- ------ ------
Average gross square
feet per store at
January 1, 1995.......... 33,900 43,000 - 65,900 35,600
------ --------- -------- ------ ------
------ --------- -------- ------ ------
-------------------
<FN>
* Represents the Williams Bros. acquisition.
** Closed January, 1995.
/TABLE
<PAGE>
Historically, the Company has closed an average of six
stores per year, typically based on replacement strategies or
lease renewals. Management expects this level of store closure
to continue in the future. In response to negative sales trends,
the Company critically assessed the performance of its entire
store network in 1993 and 1994 and identified 27 underperforming
stores for closure which included the Tianguis and EXPO store
formats. Underperforming stores are stores which do not satisfy
the Company's strategic requirements for growth, profitability,
customer satisfaction, market area penetration and/or other
factors. Management believed that these stores would not meet
these requirements at any time in the foreseeable future, even
with a significant commitment of management and financial
resources. In consideration of the Company's leaner management
structure as a result of its restructuring efforts and its
commitment to its new store capital program, the Company
determined that its available resources would be better utilized
on the remaining store base.
Marketing and Competition
Southern California is one of the largest and most
competitive markets for retail grocery sales in the United
States. Vons store network ranges from Fresno on the north to
the Mexican border on the south and from the Pacific Ocean on the
west to Clark County, Nevada on the east. This market area
includes Fresno, Imperial, Inyo, Kern, Los Angeles, Madera, Mono,
Orange, Riverside, Santa Barbara, San Bernardino, San Diego, San
Luis Obispo, Tulare and Ventura counties in California as well as
Clark County, Nevada.
Vons faces a number of major as well as smaller competitors in
its market. The Company believes that in recent years the
increase in the number of competitors' stores and the entrance of
new competitors in its market area have intensified competition,
and this trend is expected to continue. In addition, convenience
stores, drug stores, mass merchandisers, specialty stores,
warehouse stores, membership stores as well as discount stores
and fast food and other restaurants compete for the same
customers.
Both store formats utilize promotional buying opportunities
to pass along special values to their customers. Also, stores
offer customers additional savings through the use of double
coupons, advertised weekly specials and a free membership club
which offers customers special values and programs and enables
the Company and its vendors to target specific customer segments
and better understand household buying behavior. Vons is the
only operator in its market area to offer this free membership
club to its customers. Vons marketing and communication strategy
is based on a combination of newspaper, direct mail, television,
radio and outdoor advertising.
The principal competitive factors in the retail supermarket
business include price, fast friendly service, quality of
products, breadth of product assortment, store condition, and
store location. Customers, in response to recessionary
conditions in Southern California, are placing greater emphasis
on price. Vons has responded to this trend through the Vons
Value Program which entailed lowering prices on over 12,000
items. Vons believes that its strengths are its reputation for
offering good values through a blend of high quality products,
customer service and product selection at competitive prices
combined with VonsClub, double coupons and weekly advertised
specials.
Merchandising and Store Operations
An average store offers approximately 35,000 to 45,000
merchandise items. Vons has historically emphasized brand-name
grocery products and quality and freshness in its produce, meat
and seafood selections. In 1994, the Company set a goal of
increasing private brand sales. Vons carries private brand
products as well as its proprietary Jerseymaid dairy products in
the grocery, delicatessen, frozen food, bakery, health and beauty
care, and general merchandise departments of its stores. Vons
Select was introduced in 1994. This upscale private brand offers
additional opportunities for sales and profits. Vons private
brand items accounted for approximately 14% of sales in 1994.
The Company achieved its goal of private brand sales accounting
for 16% of sales during the last four weeks of 1994. The
Company intends to increase this percentage over time through
marketing its branded items and the introduction of additional
private brand items including those under the "Select" label.
In conjunction with its restructuring program, Vons is
committed to being the low cost operator in the market areas it
serves. Vons strategy is to decrease over time its operating
costs through: aggressive buying, introduction and maintenance
of various merchandising and technological innovations and
stringent cost controls.
Through technological innovation, Vons has experienced
improved operational efficiency. All Vons stores are equipped
with an electronic receiving system for products delivered
directly to stores by vendors, electronic time and attendance
reporting, and computerized labor scheduling. Vons central
buying office monitors warehouse inventory levels and product
movement daily for buyer analysis and action. Vons utilizes a
category management system which combines the buying and
merchandising functions. The Company has upgraded these systems
to enable category managers to more effectively analyze data.
Vons has enhanced its pricing accuracy at store level by
implementing an in-store shelf tag printing system and by
connecting scales in the meat, delicatessen, and other service
departments to the in-store database. In addition, price changes
are electronically transmitted to an in-store database which
controls pricing throughout each store.
Vons provides detailed operational procedures to guide store
management while still allowing a store manager to focus on the
merchandise needs of the store. The Company improves the
consistency of store operations through its policy to develop
store managers internally. All store managers participate in a
bonus program based upon individual store performance and are
included in the Company's stock option program.
Support and Other Services
In 1994, the Company operated a fluid milk processing
facility, an ice cream plant and a central bakery.
Vons operates four distribution complexes in California,
located in El Monte, San Diego, Ontario and Santa Fe Springs.
The Company has announced the 1995 closure of its San Diego
facility, eliminating redundant distribution capacity. The
Company utilizes advanced computerized inventory and labor
management systems throughout its distribution network. As of
January 1, 1995, Vons operated a fleet of 427 tractors and 1,221
trailers, of which 105 and 182, respectively, were leased and the
remainder were owned. The Company's transportation department
utilizes on-board electronic trip recorders to monitor travel
times and a sophisticated computerized routing system.
Approximately 77% of store sales in 1994 represented inventories
supplied by these distribution centers, and the balance was
delivered directly to the stores by vendors.
Governmental Regulation
Vons is subject to regulation by a variety of governmental
agencies, including the California Department of Alcoholic
Beverage Control, the California State Board of Pharmacy, the
California Department of Agriculture, the U.S. Food and Drug
Administration, the U.S. Department of Agriculture and state and
local health departments and weights and measures agencies.
In connection with the Safeway Acquisition, Vons, Safeway
and certain other parties entered into a consent order (the
"Consent Order") with the Federal Trade Commission (the "FTC")
whereby Vons divested three retail grocery stores and Safeway
divested nine retail grocery stores to competitors in Southern
California. The Consent Order, among other things, also limits
for ten years the acquisition by Vons of existing supermarkets
from any other party in certain trade areas where both Vons and
Safeway operated stores prior to the Safeway Acquisition,
allowing a specified number of such acquisitions within any 12-
month period in some areas and prohibiting acquisitions in
others.
In connection with the Williams Bros. acquisition, the
Company entered into a consent order with the FTC whereby the
Company divested one of the Williams Bros. store locations and
among other things, agreed to seek FTC approval before acquiring
any supermarket, or any interest in any company owning a
supermarket, in San Luis Obispo County for ten years.
Employees
At January 1, 1995, Vons employed approximately 11,100 full
time and 16,900 part-time employees as follows:
<TABLE>
<CAPTION>
Non-
Union Union Total
------ ------ -------
<S> <C> <C> <C>
Hourly.................. 26,000 600 26,600
Salaried................ - 1,400 1,400
------ ------ -------
Total Employees......... 26,000 2,000 28,000
------ ------ -------
------ ------ -------
</TABLE>
In the fall of 1993, the Company renegotiated three-year
contracts with the United Food and Commercial Workers' and Meat
Cutters' unions.
In the fall of 1994, the Company renegotiated four-year
contracts with the International Brotherhood of Teamsters'
unions.
Like its major competitors, pursuant to its various
collective bargaining agreements, Vons contributes to Taft-
Hartley multi-employer, joint pension plans. Under pertinent
law, a participating employer which totally or partially
withdraws from such a pension plan could be liable for unfunded
vested benefits, which could be substantial.
Insurance
Vons carries insurance customary in the supermarket industry
to protect the Company against catastrophic loss, including
earthquake insurance. The Company is approved in both California
and Nevada to self-insure workers' compensation and general
liability exposures and maintains third-party insurance for loss
exposures in excess of self-insured retentions and deductibles.
Executive Officers of the Registrant
Set forth below is certain information concerning the
executive officers of the Company:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Lawrence A. Del Santo 61 Vice Chairman of the Board
and Chief Executive Officer
Richard E. Goodspeed 58 President and Chief
Operating Officer
Roger E. Stangeland 65 Chairman of the Board
Robert J. Kelly 50 Executive Vice President,
Retailing
Terrence J. Wallock 50 Executive Vice President,
General Counsel and
Secretary
Pamela K. Knous 40 Senior Vice President and
Chief Financial Officer
</TABLE>
Officers are elected annually and are subject to removal at
any time, with or without cause, by the Company's Board of
Directors, subject to all rights under employment contracts, if
any.
Mr. Del Santo was appointed Director, Vice Chairman of the
Board and Chief Executive Officer of the Company in April 1994.
Prior to joining the Company, Mr. Del Santo was Senior Executive
Vice President and Chief Operating Officer - Food of American
Stores Company from March 1993 to April 1994. From April 1989 to
March 1993, Mr. Del Santo was Chairman of Lucky Stores, Inc.
Mr. Goodspeed was appointed President and Chief Operating
Officer of the Company in April 1994. Prior to joining the
Company, Mr. Goodspeed was Executive Vice President - Food of
American Stores Company and President and Chief Operating Officer
of Lucky Stores, Inc. a position he held since September 1988.
Mr. Stangeland is Chairman of the Board. Prior to April
1994 he served as Chairman of the Board and Chief Executive
Officer of the Company for more than the last five years.
Mr. Kelly was appointed Executive Vice President, Retailing
of the Company in April 1994. Mr. Kelly had been Executive Vice
President, Procurement and Marketing of the Company since
November 1993 and prior to that Executive Vice President, Buying
and Merchandising of the Company from May 1991 to November 1993.
Mr. Kelly was Senior Vice President, Procurement of the Company
from 1989 to May 1991.
Mr. Wallock was appointed Executive Vice President and
General Counsel of the Company in November 1993 and continues in
the position of Secretary of the Company which he has held since
March 1991. Mr. Wallock was Senior Vice President, Chief Legal
and Security Officer of the Company from August 1991 to November
1993. From March 1991 to August 1991, Mr. Wallock was Senior
Vice President and General Counsel of the Company. From 1977 to
1991, Mr. Wallock served as counsel to Denny's Inc. rising to the
position of Vice President, General Counsel and Secretary.
Ms. Knous was appointed Senior Vice President and Chief
Financial Officer of the Company in July 1994. Ms. Knous was
Group Vice President, Finance of the Company from November 1993
to July 1994. From April 1991 to November 1993, Ms. Knous was
Vice President, Finance of the Company. From 1989 to 1991, Ms.
Knous served as partner at KPMG Peat Marwick LLP.
ITEM 2: PROPERTIES
As of January 1, 1995, Vons leased 248 of its stores and
owned 86 of its stores. At January 1, 1995, 213 of Vons leases
provided for contingent rental based on a percentage of sales
over specified amounts, which typically range from 1.0% to 1.5%
of total gross sales, less amounts expended for common area
maintenance, real estate taxes and insurance; the balance had no
percentage rent clauses. Store leases have various expiration
dates through 2018. Renewal options range up to 40 years. The
following table lists the number of such store leases for open
stores that are due to expire (assuming exercise of all renewal
options) in each of the specified periods:
<TABLE>
<CAPTION>
Number of
Calendar Years Expiring Leases
-------------- ---------------
<S> <C>
1995-1999.......... 7
2000-2004.......... 17
2005-2009.......... 23
2010-2014.......... 25
2015-2019.......... 26
2020 and thereafter 150
</TABLE>
The Company has a $115.0 million mortgage loan on 51
properties requiring monthly principal and interest payments
of approximately $1.0 million with a one-time payment of
approximately $111.0 million in July 1997. The Company has other
real estate notes and mortgages covering seven properties
totalling $14.6 million due in varying monthly installments with
maturity dates from 1997 to 2009.
Vons stores are usually located in active shopping centers
and generally have several co-tenants, which typically include a
drugstore; although the newer stores, which are usually food and
drug combination stores, tend to be in shopping centers without
drugstores.
Vons owns distribution and manufacturing facilities in El
Monte, California, which are located on approximately 63 acres of
land. The El Monte facilities include two warehouses with an
aggregate of 764,000 square feet, and a meat cooking facility,
including a warehouse with an aggregate of 256,000 square feet.
Vons leases distribution operations located in Santa Fe
Springs, California. These distribution operations include
several warehouses and a transportation center. The operations
cover approximately 1,040,000 square feet located on
approximately 78 acres of land. The lease expires in 1995 with
three five-year and one one-year options to extend.
Vons leases a 450,000-square-foot forward buy warehouse
located in the City of Industry. The lease expires in 1996 with
two three-year options to extend. A 95,000-square-foot frozen
food distribution facility is leased in Ontario, California. The
lease expires in 1996 with four six-month options to extend.
Vons leases one distribution facility and a forward buy warehouse
in San Diego, California. The distribution facility is
approximately 365,000 square feet and the lease expires in 2002.
Vons has an operating agreement to use up to an aggregate of
231,000 square feet in the forward buy warehouse. Vons will
close its San Diego facility in 1995 and terminate or otherwise
dispose of its leasehold interest.
Vons owns a 244,000-square-foot building in Arcadia,
California, used for its corporate administrative offices.
The manufacturing operations consist of a fluid milk
processing facility, an ice cream plant and a bakery, all leased
and located in the City of Commerce, California. The leases for
the fluid milk processing facility and ice cream plant expire in
1996 with two five-year options to extend. The lease for the
bakery expires in 1997 with three five-year options to extend.
ITEM 3: LEGAL PROCEEDINGS
In addition to routine litigation incidental to the conduct
of its business, the Company has been named in a number of
lawsuits in state and Federal courts in Washington, Nevada, Idaho
and California arising from claims of food-borne illness that
allegedly was contracted from the consumption of hamburgers at
certain Jack-In-The-Box restaurants in early 1993. The
restaurants involved were either directly operated by Jack-In
-The-Box, a division of Foodmaker, Inc. ("Foodmaker"), or through
franchisees. The suits allege that the hamburger patties in
question were processed by the Company before being cooked and
served by a Jack-In-The-Box outlet. The plaintiffs in these
actions seek unspecified damages for illnesses ranging from minor
diarrhea to serious kidney and intestinal infection. Several
deaths are alleged to have resulted from the incidents and, in
those cases, the plaintiffs seek damages for wrongful death. The
Company is insured against various losses, including those for
bodily injury.
The Company also has been named as a defendant in a suit
filed on July 2, 1993, in the Superior Court of the State of
California for the County of San Diego, by franchisees of
Foodmaker who operate Jack-In-The-Box outlets in various states.
Also named as defendants were Foodmaker and a number of meat
suppliers and slaughterhouses. The complaint seeks an estimated
$100 million for lost profits and compensation for an alleged
reduction in the value of the franchisees' businesses, as well as
unspecified damages for alleged emotional distress. On July 19,
1993, Foodmaker filed a cross-complaint against the Company and
subsequently voluntarily dismissed a separate action which it had
previously brought. The cross-complaint asserts various tort and
contract theories and seeks, among other things, indemnity as
well as lost profits and compensation for a reduction in
Foodmaker's stock price. Foodmaker's cross-complaint seeks
unspecified damages, although the Company has been advised that
Foodmaker may potentially claim damages of approximately $400
million, including the aforesaid claims of the franchisees.
The Company is vigorously contesting the lawsuits against it
and has filed its own cross-complaint against Foodmaker and
certain of its franchisees seeking damages in an amount
substantially higher than the amount of damages claimed by
Foodmaker.
In addition to the cases discussed above, the Company, along
with the other major supermarket chains in Southern California,
has been named as a defendant in three nearly identical class
action lawsuits filed in late November and early December 1992 in
the Superior Court of the State of California for the County of
Los Angeles. In these cases the plaintiffs alleged claims for
antitrust violations, restraint of trade and false advertising in
connection with the pricing of fluid milk in Los Angeles County,
seeking unspecified damages and injunctive relief. While
admitting no liability, the Company has entered into a proposed
settlement agreement with respect to these cases, subject to the
approval of the court.
The Company believes that the above-described lawsuits are
unlikely to result in liability which would be material to the
consolidated financial position of the Company.
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to the security holders of
the Company for a vote during the quarter ended January 1, 1995.
<PAGE>
PART II
ITEM 5: MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
SHAREHOLDER MATTERS
Vons common stock is listed on the New York Stock Exchange
("NYSE") (Symbol-VON). The shares have been listed on the NYSE
since March 20, 1986. As of February 28, 1995, there were
approximately 7,156 shareholders of record. The table below sets
forth the high and low sales prices for Vons common stock as
reported on the NYSE Composite Tape during the fiscal periods
specified:
<TABLE>
<CAPTION>
52 Weeks Ended 52 Weeks Ended
January 1, January 2,
1995 1994
----------------- -----------------
High Low High Low
---- --- ---- ---
<S> <C> <C> <C> <C>
First quarter..... $18 5/8 $16 1/8 $26 3/8 $22 1/2
Second quarter.... 18 3/8 16 24 1/2 21
Third quarter..... 18 5/8 15 1/8 23 3/8 16 1/4
Fourth quarter.... 21 1/2 17 3/4 18 7/8 15 3/8
</TABLE>
The Company paid no dividends on its common stock in fiscal
years 1994, 1993, and 1992. Management of the Company does not
expect to pay cash dividends in the foreseeable future. Certain
Company debt agreements restrict the Company from paying cash
dividends or making other distributions on stock under certain
circumstances. Under its most restrictive debt agreement, the
Company had $74.0 million available for dividends and
distributions at January 1, 1995. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations -
Liquidity and Capital Resources" and Note 6 to the Consolidated
Financial Statements contained in the Company's Annual Report to
Shareholders for the fiscal year ended January 1, 1995
incorporated herein by reference.
ITEM 6: SELECTED FINANCIAL DATA
See "Five-Year Selected Financial Data" contained in the
Company's Annual Report to Shareholders for the fiscal year ended
January 1, 1995 incorporated herein by reference.
ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" contained in the Company's
Annual Report to Shareholders for the fiscal year ended
January 1, 1995 incorporated herein by reference.
ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Financial statements and supplementary data as set forth in
Item 14(a) of Part IV of this document are incorporated herein by
reference.
ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURES
None.
<PAGE>
PART III
ITEM 10: DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this Item is incorporated by
reference from the Company's definitive Proxy Statement for the
Annual Meeting of Shareholders to be held May 3, 1995, where it
appears under the caption "Election of Directors." The
information set forth under Item 1 of this Form 10-K under the
caption "Executive Officers of the Registrant" is also
incorporated herein by reference.
ITEM 11: EXECUTIVE COMPENSATION
The information required by this Item is incorporated by
reference from the Company's definitive Proxy Statement for the
Annual Meeting of Shareholders to be held May 3, 1995, where it
appears under the caption "Executive Compensation."
ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The information required by this Item is incorporated by
reference from the Company's definitive Proxy Statement for the
Annual Meeting of Shareholders to be held May 3, 1995, where it
appears under the caption "Principal and Management
Shareholders."
ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is incorporated by
reference from the Company's definitive Proxy Statement for the
Annual Meeting of Shareholders to be held May 3, 1995, where it
appears under the captions "Executive Compensation - Compensation
Committee Interlocks and Insider Participation" and "Certain
Transactions."
<PAGE>
PART IV
ITEM 14: EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
(a) Exhibits and Financial Statements and Schedules
(1) Financial Statements
The following items contained in the Company's
Annual Report to Shareholders for the fiscal
year ended January 1, 1995 are incorporated by
reference into Part II of this report.
Pages in
Annual
Report to
Shareholders
------------
Financial Statements:
Consolidated Statements of
Operations for the fiscal
years ended January 1, 1995,
January 2, 1994 and
January 3, 1993.............. 22
Consolidated Balance Sheets as
of January 1, 1995 and
January 2, 1994.............. 23
Consolidated Statements of Cash
Flows for the fiscal years
ended January 1, 1995,
January 2, 1994 and
January 3, 1993.............. 24
Consolidated Statements of
Shareholders' Equity for the
fiscal years ended January 1,
1995, January 2, 1994 and
January 3, 1993............ 25
Notes to the Consolidated
Financial Statements......... 26 - 37
Independent Auditors' Report..... 38
(2) Schedules
Schedules are omitted because of the absence
of the conditions under which they are
required.
(3) Exhibits
See index to exhibits immediately following
Signatures.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter
ended January 1, 1995.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
/S/ LAWRENCE A. DEL SANTO
By: --------------------------------
Lawrence A. Del Santo
Vice Chairman of the Board and
Chief Executive Officer
Date: March 29, 1995
Pursuant to the requirements of the Securities Exchange Act
of 1934, this report has been signed below by the following
persons on behalf of the registrant in the capacities and on the
dates indicated.
Signature Title Date
--------- ----- ----
Chairman of March , 1995
--------------------------------- the Board
Roger E. Stangeland
/S/ LAWRENCE A. DEL SANTO Vice Chairman March 29, 1995
--------------------------------- of the Board
Lawrence A. Del Santo and Chief
Executive
Officer
/S/ PAMELA K. KNOUS Senior Vice March 29, 1995
--------------------------------- President and
Pamela K. Knous Chief Financial
Officer (Chief
Accounting
Officer)
/S/ STEVEN A. BURD Member-Board March 29, 1995
--------------------------------- of Directors
Steven A. Burd
/S/ WILLIAM S. DAVILA Member-Board March 29, 1995
--------------------------------- of Directors
William S. Davila
Member-Board March , 1995
--------------------------------- of Directors
Fritz L. Duda
/S/ JAMES H. GREENE, JR. Member-Board March 29, 1995
--------------------------------- of Directors
James H. Greene, Jr.
/S/ JOHN M. LILLIE Member-Board March 29, 1995
--------------------------------- of Directors
John M. Lillie
/S/ ROBERT I. MACDONNELL Member-Board March 29, 1995
--------------------------------- of Directors
Robert I. MacDonnell
/S/ PETER A. MAGOWAN Member-Board March 29, 1995
--------------------------------- of Directors
Peter A. Magowan
/S/ CHARLES E. RICKERSHAUSER, JR. Member-Board March 29, 1995
--------------------------------- of Directors
Charles E. Rickershauser, Jr.
Member-Board March , 1995
--------------------------------- of Directors
William Y. Tauscher
<PAGE>
THE VONS COMPANIES, INC. AND SUBSIDIARIES
INDEX TO EXHIBITS
The following exhibits are filed as a separate section of this report:
Exhibit
No. Description of Exhibit Sequentially Numbered Page
------- ---------------------- --------------------------
10.1.5 Amendment to Loan Agreement
dated October 18, 1991 by and
among the Registrant, the banks
named therein, and Bank of
America, as Agent dated
December 5, 1994.
13 Portions of the Annual Report
to Shareholders for the
fiscal year ended January 1,
1995.
24 Independent Auditors' Consent.
27 Financial Data Schedule.
THE VONS COMPANIES, INC. AND SUBSIDIARIES
INDEX TO EXHIBITS
The following exhibits are incorporated herein by reference:
Exhibit
No. Description of Exhibit Incorporated By Reference From
------- ---------------------- ------------------------------
3.1 Amended Restated Articles of Exhibit 3.1 to Registrant's
Incorporation of the Registrant Annual Report on Form 10-K for
as amended on May 13, 1992. fiscal year ended January 3,
1993.
3.2 By-Laws of the Registrant as Exhibit 3.2 to Registrant's
amended on November 28, 1990. Annual Report on Form 10-K for
fiscal year ended December 30,
1990.
4.1 Indenture by and among the Exhibit 4.2 to Registrant's
Registrant and Chemical Bank, Statement No. 33-45430 on Form
as Trustee, dated February 15, S-3.
1992.
4.1.1 Officers' Certificate and Note Exhibits 4.1 and 4.2 to
regarding the 9-5/8% Senior Registrant's Report on Form
Subordinated Notes due April 1, 8-K dated March 17, 1992.
2002.
4.1.2 Officers' Certificate and Note Exhibits 4.1 and 4.3
regarding the 8-3/8% Senior to Registrant's Report on Form
Subordinated Notes due 8-K dated September 24, 1992.
October 1, 1999.
4.2 Indenture between Registrant Exhibit 2 to Registrant's
and National Bank of Detroit, Report on Form 8-K dated
as Trustee, dated May 15, 1986, May 15, 1986.
including form of 6-5/8% Senior
Subordinated Debentures due
1998 attached as Exhibit A
thereto.
THE VONS COMPANIES, INC. AND SUBSIDIARIES
INDEX TO EXHIBITS
Exhibit
No. Description of Exhibit Incorporated By Reference From
------- ---------------------- ------------------------------
10.1 Loan Agreement by and among the Exhibit 10.1 to Registrant's
Registrant, the banks named Annual Report on Form 10-K for
therein, and Security Pacific fiscal year ended December 29,
National Bank, as Agent, dated 1991.
October 18, 1991.
10.1.1 Amendment to Loan Agreement Exhibit 10.1.1 to Registrant's
dated October 18, 1991, by and Annual Report on Form 10-K for
among the Registrant, the banks fiscal year ended January 3,
named therein, and Bank of 1993.
America, as Agent dated
June 24, 1992.
10.1.2 Amendment to Loan Agreement Exhibit 10.1.2 to Registrant's
dated October 18, 1991, by and Annual Report on Form 10-K for
among the Registrant, the banks fiscal year ended January 3,
named therein, and Bank of 1993.
America, as Agent, dated
December 16, 1992.
10.1.3 Amendment to Loan Agreement Exhibit 10.1.3 to Registrant's
dated October 18, 1991, by Annual Report on Form 10-K
and among the Registrant, the for fiscal year ended
banks named therein, and Bank January 2, 1994.
of America, as Agent, dated
March 11, 1993.
10.1.4 Amendment to Loan Agreement Exhibit 10.1.4 to Registrant's
dated October 18, 1991 by and Annual Report on Form 10-K
among the Registrant, the banks for fiscal year ended
named therein, and Bank of January 2, 1994.
America, as Agent, dated
December 7, 1993.
10.2 Term Loan Agreement by and Exhibit 10.2 to Registrant's
among the Registrant, the Annual Report on Form 10-K
banks named therein, and for fiscal year ended
Bank of America, as Agent, January 2, 1994.
dated December 13, 1993.
THE VONS COMPANIES, INC. AND SUBSIDIARIES
INDEX TO EXHIBITS
Exhibit
No. Description of Exhibit Incorporated By Reference From
------- ---------------------- ------------------------------
10.3 Metropolitan Life Insurance Exhibit 10.13 to Registrant's
Company loan to the Registrant Annual Report on Form 10-K for
represented by Deed of Trust fiscal year ended January 3,
and Security Agreement 1988.
Assignment of Rents and
Fixture Filing dated July 22,
1987 by and among the
Registrant, as Trustor,
Ticor Title Insurance
Company, as Trustee and
Metropolitan Life Insurance
Company, as Beneficiary.
10.4 Standstill Agreement dated Exhibit 10.20 to Registrant's
December 3, 1987 by and among Annual Report on Form 10-K for
the Registrant, Safeway fiscal year ended January 3,
Southern California, Inc., 1988.
Safeway Stores, Incorporated,
Kohlberg Kravis Roberts &
Co., Safeway U.S. Holdings,
Inc., and KKR Associates.
10.4.1 Amendment to Standstill Exhibit 28.7 to Registrant's
Agreement dated December 3, Quarterly Report on Form 10-Q
1987 by and among the for quarter ended June 18,
Registrant, Safeway Stores, 1989.
Incorporated and other parties
thereto, dated April 5, 1989.
10.4.2 Amendment to Standstill Exhibit 10.13.2 to Registrant's
Agreement dated December 3, Annual Report on Form 10-K for
1987 by and among the fiscal year ended December 30,
Registrant, Safeway Inc., 1990.
and other parties thereto,
dated December 21, 1990.
10.5 Asset Purchase Agreement dated Exhibit 2.2 to Registration
March 20, 1987 between Allied Statement No. 33-12886 on Form
Supermarkets, Inc., and S-4.
Meadowdale Foods, Inc., as
amended (without exhibits).
THE VONS COMPANIES, INC. AND SUBSIDIARIES
INDEX TO EXHIBITS
Exhibit
No. Description of Exhibit Incorporated By Reference From
------- ---------------------- ------------------------------
10.6 Amended and Restated Exhibit B to Registrant's Proxy
Acquisition Agreement and Plan Statement for Annual Meeting of
of Merger and Reorganization Shareholders on November 10,
dated December 3, 1987 by and 1988.
among the Registrant, Safeway
Southern California, Inc.,
Safeway Stores, Incorporated,
Safeway Stores 23, Inc.,
Safeway Stores 27, Inc.,
Safeway Stores 29, Inc.,
Safeway Stores 30, Inc., Vons
Merger Sub 1, Inc., Vons Merger
Sub 2, Inc., Vons Merger Sub 3,
Inc., and Vons Merger Sub 4,
Inc., (without exhibits or
schedules).
10.7 Registration Rights Agreement Exhibit 28.8 to Registrant's
with Roger Stangeland dated Quarterly Report on Form 10-Q
April 7, 1989. for quarter ended March 26,
1989.
10.8 Registration Rights Agreement Exhibit 28.9 to Registrant's
with Fritz Duda dated Quarterly Report on Form 10-Q
April 7, 1989. for quarter ended March 26,
1989.
10.9 Registration Rights Agreement Exhibit 28.10 to Registrant's
with William Tauscher dated Quarterly Report on Form 10-Q
April 7, 1989. for quarter ended March 26,
1989.
10.10 Amendment 1994-1 to The Vons Exhibit 10.12 to Registrant's
Companies, Inc. Pension Plan, Annual Report on Form 10-K
dated March 23, 1994. for fiscal year ended
January 2, 1994.
THE VONS COMPANIES, INC. AND SUBSIDIARIES
INDEX TO EXHIBITS
Exhibit
No. Description of Exhibit Incorporated By Reference From
------- ---------------------- ------------------------------
Management Contracts or
Compensatory Plans or Arrangements:
10.11 Management Stock Option Plan Exhibit 10.3 to Registrant's
of the Registrant dated Annual Report on Form 10-K for
July 22, 1987. fiscal year ended January 3,
1988.
10.12 1987 Deferred Income Plan Exhibit 10.17 to Registrant's
adopted April 1, 1987 on Annual Report on Form 10-K for
behalf of Registrant, fiscal year ended January 3,
including forms of 1988.
Participation Agreements for
Base Salary and Bonus Award.
10.13 1990 Stock Option and Appendix A to Registrant's
Restricted Stock Plan dated Proxy Statement for Annual
January 24, 1990. Meeting of Shareholders on
May 17, 1990.
10.13.1 Amendment dated February 17, Exhibit 10.13.1 to Registrant's
1993 to 1990 Stock Option Quarterly Report on Form 10-Q
and Restricted, Stock Plan for the quarter ended March 28,
dated January 24, 1990. 1993.
10.14 Directors' Stock Option Plan Appendix A to Registrant's
dated September 17, 1991. Proxy Statement for Annual
Meeting of Shareholders on
May 13, 1992.
10.15 Severance Agreement between The Registrant's Proxy
the Registrant and Senior Statement for Annual Meeting of
Management and Key Employees Shareholders on May 13, 1992,
dated February 19, 1992. where it appears under the
caption "Compensation through
Plans - Severance Agreements."
THE VONS COMPANIES, INC. AND SUBSIDIARIES
INDEX TO EXHIBITS
Exhibit
No. Description of Exhibit Incorporated By Reference From
------- ---------------------- ------------------------------
10.16 Letter dated April 25, 1991 Exhibit 10.25 to Registrant's
confirming employment Annual Report on Form 10-K for
arrangements between the fiscal year ended December 29,
Registrant and Neill Crowley, 1991.
as amended by a Letter
Agreement dated March 17,
1992 between the Registrant
and Mr. Crowley.
10.17 1992 Supplemental Executive Exhibit 10.19 to Registrant's
Retirement Plan by and among Annual Report on Form 10-K for
the Registrant and certain fiscal year ended January 3,
officers effective April 30, 1993.
1992.
10.18 The Vons Companies, Inc. Exhibit 10.20 to Registrant's
Officer Short-Term Incentive Annual Report on Form 10-K for
Compensation Plan by and fiscal year ended January 3,
among the Registrant and 1993.
certain officers.
10.19 The Vons Companies, Inc. Exhibit 10.27 to Registrant's
401(k) Wrap-Around Plan Annual Report on Form-K
effective October 18, 1993. for fiscal year ended
January 2, 1994.
10.20 Employment Agreement between Exhibit 10.28 to Registrant's
the Registrant and Lawrence A. Quarterly Report on Form-Q
Del Santo dated April 26, 1994. for Quarter ended June 19, 1994.
10.21 Employment Agreement between Exhibit 10.29 to Registrant's
the Registrant and Richard E. Quarterly Report on Form-10-Q
Goodspeed dated April 26, 1994. for quarter ended June 19, 1994.
10.22 Letter Agreement confirming Exhibit 10.30 to Registrant's
employment and separation Quarterly Report on Form 10-Q
agreements between the for quarter ended October 9,
Registrant and Peter M. Horn, 1994.
III dated July 21, 1994.
THE VONS COMPANIES, INC. AND SUBSIDIARIES
INDEX TO EXHIBITS
Exhibit
No. Description of Exhibit Incorporated By Reference From
------- ---------------------- ------------------------------
10.23 Retirement Agreement Exhibit 10.31 to Registrant's
confirming employment and Quarterly Report on Form 10-Q
retirement agreements for quarter ended October 9,
between the Registrant and 1994.
Roger E. Stangeland, dated
July 28, 1994.
<PAGE>
Exhibit 10.1.5
AMENDMENT NO. 5
---------------
Reference is made to that certain Loan Agreement
dated as of October 18, 1991, as amended (the "Loan Agreement")
among The Vons Companies, Inc., Bank of America National Trust
and Savings Association (as successor by merger to Security
Pacific National Bank), as Agent, and the Banks party thereto.
Terms defined in the Loan Agreement are used herein with the
same meanings.
RECITALS
--------
A. Borrower has requested the Banks to agree to an
amendment of Section 6.1(b) of the Loan Agreement in order to
purchase up to $25 Million face value of Borrower's 6 5/8%
Senior Subordinated Debentures due May 15, 1998 representing
the May 15, 1996 sinking fund requirement for the Restricted
Subordinated Debt.
B. Borrower has also requested the Banks to agree
to an amendment of the definition of "Qualified Sale/Leaseback
Property" in the Loan Agreement in order to complete a sale and
leaseback transaction of Borrower's Store #29, located at 403
West Avenue L, Lancaster, California, which has been open for
more than one year.
AGREEMENT
---------
Borrower, the Agent and the Banks hereby agree as
follows:
1. Section 6.1(b). Section 6.1(b) of the Loan
-------------- ------
Agreement is amended to read as follows:
"(b) (i) mandatory redemption and sinking fund
payments under the Restricted Subordinated Debt and
(ii) the early purchase of up to $25,000,000 face
value of the Restricted Subordinated Debt
representing the May 15, 1996 sinking fund
requirement for the Restricted Subordinated Debt;
provided that i) the amount expended by Borrower
shall not exceed the amount required thereunder and
(ii) if, giving effect to any such redemption or
payment, the aggregate amount so expended, when added
to the amount expended for the Unrestricted
Subordinated Debt, exceeds $250,000,000, Borrower
shall have received Cash proceeds in an amount at
least equal to such excess amount either from the
issuance of Common Stock or the incurrence of
Refinancing Indebtedness;"
2. "Qualified Sale/Leaseback Property". The terms
-----------------------------------
"Qualified Sale/Leaseback Property" defined in Section 1.1 of
---
the Loan Agreement is amended to read as follows:
"Qualified Sale/Leaseback Property" means, with
----------------------------------
respect to any sale and leaseback transaction, real
Property acquired, whether directly or as a result of
an Acquisition, by Borrower or any of its
Subsidiaries subsequent to the Closing Date that
consists of (a) unimproved real Property or (b)
improved real Property and related personal Property,
provided that such sale and leaseback transaction
occurs within the one year period immediately
following the date such improved real Property is
first placed in service in the business of Borrower
or its Subsidiary or (c) Borrower's Store #29,
located at 403 West Avenue L, Lancaster, California."
3. Confirmation. In all other respects, the Loan
------------
Agreement is hereby confirmed.
4. Counterparts. This Amendment may be executed in
------------
counterparts in accordance with Section 11.7 of the Loan
----
Agreement.
Dated as of December 5, 1994.
THE VONS COMPANIES, INC.
By /s/ V. L. MILLER
-------------------------------------------
VIRGINIA L. MILLER
Vice President and Treasurer
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION,
as Agent
By /s/ D. M. TERRANCE
-------------------------------------------
David M. Terrance
Vice President
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION,
as a Bank
/s/ MARK F. MILNER
By Mark F. Milner
-------------------------------------------
Its Managing Director
----------------------------------------
[Printed Name and Title]
BANK OF AMERICA ILLINOIS,
as a Bank
/s/ MARK F. MILNER
By Mark F. Milner
-------------------------------------------
Its Managing Director
----------------------------------------
[Printed Name and Title]
NATIONSBANK OF TEXAS, N.A.,
as a Bank
/s/ M. M. SHAFROTH
By Michele M. Shafroth
-------------------------------------------
Its Senior Vice President
----------------------------------------
[Printed Name and Title]
THE BANK OF NOVA SCOTIA,
as a Bank
By /s/ M. VAN OTTERLOO
-------------------------------------------
Its Senior Relationship Manger
----------------------------------------
[Printed Name and Title]
CIBC, INC.,
as a Bank
By
-------------------------------------------
Its
----------------------------------------
[Printed Name and Title]
UNION BANK,
as a Bank
By /s/ CECILIA M. VALENTE
-------------------------------------------
Its
----------------------------------------
[Printed Name and Title]
Cecilia M. Valente, Vice President
CITICORP USA, INC.,
as a Bank
By /s/ W. P. STENGEL
-------------------------------------------
W. P. Stengel
Its Vice President
----------------------------------------
[Printed Name and Title]
SOCIETE GENERALE,
as a Bank
By /s/ MAUREEN KELLY
-------------------------------------------
Its Vice President
----------------------------------------
[Printed Name and Title]
THE FIRST NATIONAL BANK OF CHICAGO,
as a Bank
By /s/ L. GENE BEUBE
-------------------------------------------
Its L. Gene Beube, Senior Vice President
----------------------------------------
[Printed Name and Title]
ABN AMRO BANK, N.V., Los Angeles
International Branch,
as a Bank
By /s/ELLEN M. COLEMAN /s/J.A. MILLER
-------------------------------------------
Ellen M. Coleman John A. Miller
Its Assistant Vice President Vice President
---------------------------------------
[Printed Name and Title]
THE CHASE MANHATTAN BANK, N.A.,
as a Bank
By /s/ JOHN J. COYLE
-------------------------------------------
Its Vice President
----------------------------------------
[Printed Name and Title]
FIRST INTERSTATE BANK OF CALIFORNIA,
as a Bank
By /s/ W.J. BAIRD
-------------------------------------------
WILLIAM J. BAIRD
Its Vice President
----------------------------------------
[Printed Name and Title]
BANK OF HAWAII,
as a Bank
/s/ PETER S. HO
By Peter S. Ho
-------------------------------------------
Its Vice President
----------------------------------------
[Printed Name and Title]
THE TOKAI BANK, LTD.
LOS ANGELES AGENCY,
as a Bank
By /s/ M. SAITO
-----------------------------------------
Its Masahiko Saito, Asst. General Manager
----------------------------------------
[Printed Name and Title]
<PAGE>
Exhibit 13
Five-Year Selected Financial Data
---------------------------------
The Vons Companies, Inc. and Subsidiaries
-----------------------------------------
The following five-year selected financial data should be
read in conjunction with the Consolidated Financial Statements.
The operations acquired from Williams Bros. are included in
operating results from January 28, 1992. During 1992, the
Company changed its method of accounting for income taxes to
comply with the provisions of Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes." The change in
accounting method has been applied retroactively to June 28, 1987
by restating prior years' consolidated financial statements.
During 1992, the Company implemented the provisions of Statement
of Financial Accounting Standards No. 106, "Employers' Accounting
for Postretirement Benefits Other Than Pensions," effective
January 3, 1993.<PAGE>
<PAGE>
<TABLE>
<CAPTION>
As of and for the As of and As of and for
52 Weeks Ended for the 53 the 52 Weeks Ended
(in millions of -------------------------- Weeks Ended --------------------------
dollars except January 1, January 2, January 3, December 29, December 30,
share data) 1995 1994 1993 1991 1990
------------ ------------ ------------ ------------ ------------
<S> <S> <S> <S> <S> <S>
Summary of
Operations:
Sales $ 4,996.6 $ 5,074.5 $ 5,595.5 $ 5,350.2 $ 5,333.9
Restructuring
charges 33.0 56.9 - - -
Operating
income 125.8 135.8 219.1 197.1 181.0
Interest
expense, net 70.8 66.0 71.5 86.4 97.6
Income before
income tax
provision 55.0 69.8 147.6 110.7 83.4
Income before
extraordinary
item and
cumulative
effect of
change in
accounting
for retiree
medical
benefits 26.6 33.0 82.1 66.4 42.6
Income before
cumulative
effect of
change in
accounting
for retiree
medical
benefits 26.6 31.6 69.3 60.1 42.6
Net income 26.6 31.6 53.8 60.1 42.6
Income
applicable to
common
shareholders 26.6 31.6 53.8 60.1 42.6
Income per
common share
before
extraordinary
item and
cumulative
effect of
change in
accounting
for retiree
medical
benefits .61 .76 1.89 1.60 1.10
Income per
common share
before
cumulative
effect of
change in
accounting
for retiree
medical
benefits .61 .73 1.60 1.45 1.10
Net income per
common share .61 .73 1.24 1.45 1.10
Dividends paid
on common
stock - - - - -
Financial
Position:
Working capital
(deficit) (96.1) (69.3) (74.9) (64.2) (91.4)
Total assets 2,222.0 2,249.5 2,066.0 1,863.2 1,799.5
Long-term debt:
Capital lease
obligations 58.0 62.7 56.4 42.3 46.1
Senior debt 426.2 497.2 389.2 272.2 290.6
Subordinated
debt, net 319.6 322.1 342.5 376.8 437.9
Common
shareholders'
equity 552.4 524.9 493.2 437.7 255.7
Shareholders'
equity per
common share 12.73 12.11 11.38 10.12 6.60
Other Data:
Weighted
average
common
shares during
year,
including
common share
equivalents 43,560,000 43,501,000 43,512,000 41,583,000 38,819,000
Outstanding
common
shares at
year end 43,383,000 43,342,000 43,335,000 43,246,000 38,748,000
/TABLE
<PAGE>
<PAGE>
Management's Discussion and Analysis of Financial Condition and
---------------------------------------------------------------
Results of Operations
---------------------
The Vons Companies, Inc. and Subsidiaries
-----------------------------------------
Results of Operations
During 1992, the Company implemented the provisions of Statement
of Financial Accounting Standards No. 106, "Employers' Accounting
for Postretirement Benefits Other Than Pensions," effective
January 3, 1993.
<PAGE>
<PAGE>
<TABLE>
The following table sets forth the consolidated statements of operations data (in
millions of dollars and as a percentage of sales except share data):
<CAPTION>
Fifty-Two Weeks Fifty-Two Weeks Fifty-Three Weeks
Ended Ended Ended
January 1, 1995 January 2, 1994 January 3, 1993
----------------- ----------------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Sales $4,996.6 100.0% $5,074.5 100.0% $5,595.5 100.0%
Costs and expenses:
Cost of sales, buying
and occupancy 3,767.2 75.4 3,801.4 74.9 4,200.3 75.1
Selling and
administrative
expenses 1,055.5 21.1 1,065.4 21.0 1,161.2 20.8
Amortization of excess
cost over net assets
acquired 15.1 .3 15.0 .3 14.9 .2
Restructuring charges 33.0 .7 56.9 1.1 - -
Operating income 125.8 2.5 135.8 2.7 219.1 3.9
Interest expense, net 70.8 1.4 66.0 1.3 71.5 1.3
Income before income
tax provision 55.0 1.1 69.8 1.4 147.6 2.6
Income tax provision 28.4 .6 36.8 .7 65.5 1.1
Income before
extraordinary item
and cumulative effect
of change in
accounting for retiree
medical benefits 26.6 .5 33.0 .7 82.1 1.5
Extraordinary item - - (1.4) (.1) (12.8) (.2)
Cumulative effect of
change in accounting
for retiree medical
benefits - - - - (15.5) (.3)
Net income 26.6 .5 31.6 .6 53.8 1.0
Income per common share:
Income before
extraordinary item
and cumulative
effect of change in
accounting for
retiree medical
benefits .61 .76 1.89
Extraordinary item - (.03) (.29)
Cumulative effect of
change in accounting
for retiree medical
benefits - - (.36)
Net income .61 .73 1.24
</TABLE>
<PAGE>
<PAGE>
On January 13, 1994, the Company introduced the "Vons Value
Program." This program emphasizes lower everyday shelf prices,
improved customer service 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. This
program 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 and expense
reductions designed to permanently lower the Company's expense
structure and enhance competitiveness. This cost containment and
strategic restructuring program commenced in 1993 and included
the accelerated closure of underperforming facilities, the
elimination of administrative and support positions, the
reorganization of store district operations and other cost
reduction programs. The closure of the Tianguis store format
was part of the restructuring program.
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 continued through second quarter 1994. In total, prices
were reduced on over 12,000 items. By accelerating price
reductions planned for later in the program and offering
attractive promotions and advertised specials to reintroduce the
program to consumers, gross margin and operating income were
significantly reduced in second quarter 1994.
In late 1994, the Company determined that the facility
closures and reductions in work force undertaken in 1993 would
not achieve the Company's cost reduction goals. The Company
undertook additional restructuring initiatives resulting in
further facility closures and reductions in work force in 1994.
Importantly, the decision was made to exit the warehouse store
format and eliminate redundant warehouse capacity. This decision
resulted in the January 1995 closure of the eight EXPO stores,
which will allow the Company to concentrate its resources on
proven store formats. The San Diego distribution facility will
close in 1995.
The new marketing and cost and expense reduction programs
are long-term strategies, the implementation of which will extend
beyond 1994. The Company believes that its results for the last
half of 1994, before restructuring charges, reflect the benefits
of the new programs as improving sales trends, better inventory
management, more effective purchasing and continued expense
reductions offset the effects of the price reductions and
increased store labor expenses. In aggregate, the Company's
programs are initially intended to benefit sales and reduce its
overall cost structure, which in turn will improve the Company's
ability to achieve strong, sustainable earnings growth.
The proposed 1995 merger of two of the Company's major
competitors, Food 4 Less and Ralphs, will result in a change in
the composition of the Company's competitors as certain trade
names are eliminated and store format conversions occur.
However, the Company does not believe that the merger or its
effect on the already competitive marketplace will have a
material impact on the Company's sales and earnings prospects.
Comparison of Fifty-Two Weeks Ended January 1, 1995 with Fifty-
Two Weeks Ended January 2, 1994
Sales
Sales for 1994 were $5.0 billion, a decrease of $77.9 million, or
1.5%, from 1993. Same store sales decreased 2.4% from 1993
sales. Although same stores sales were negative for 1994, the
Company has experienced five consecutive quarters of improving
same store sales trends with a fourth quarter 1994 increase in
same store sales of 0.4%. Sales reflect reduced prices as a
result of the Vons Value Program, deflation in perishables, the
continuing weak overall economic environment in Southern
California, competitive new store and remodel activity and the
diminished customer base in neighborhoods impacted by the
Northridge earthquake. In 1994, the Company opened six new
stores, closed 17 stores and completed 14 store remodel projects.
Costs and Expenses
Costs and expenses for 1994 were $4.9 billion, a decrease of
$67.9 million, or 1.4%, from 1993.
Cost of sales, buying and occupancy expenses as a percentage
of sales for 1994 were 75.4%, an increase of 0.5 percentage
points over 1993. The increase reflects the impact of lower
prices, increased promotional activities, and higher occupancy
costs, primarily depreciation expense related to the capital
expenditure program. The impact of price reductions in 1994 was
partially offset by better inventory management and more
effective purchasing initiatives undertaken in connection with
the strategic restructuring program.
Selling and administrative expenses as a percentage of sales
were 21.1% in 1994, an increase of 0.1 percentage points over
1993. This increase reflects a $5.0 million insurance deductible
charge related to the Northridge earthquake. Increased store
labor expenses, related to the Vons Value Program, were
substantially offset by a decrease in administrative expenses as
a result of the reductions in work force and other cost savings
initiatives in connection with the strategic restructuring
program.
The Company recorded restructuring charges of $33.0 million,
or $.45 per share, and $56.9 million, or $.77 per share, in 1994
and 1993, respectively. As of year end 1994, approximately 700
administrative and support positions had been eliminated;
underperforming facilities, including 20 of the 27 identified
stores, had been closed; and the San Diego distribution facility
had been designated for closure in connection with the strategic
restructuring program.
Operating Income
Operating income for 1994 was $125.8 million, a decrease of $10.0
million, or 7.4%, from 1993. Operating margin decreased to
2.5% in 1994 versus 2.7% in 1993. Excluding restructuring
charges, results for 1994 were $158.8 million, or 3.2% of sales,
compared with $192.7 million, or 3.8% of sales for 1993. These
decreases were due primarily to lower sales and lower gross
margin as a result of price reductions and increased promotional
activity. Operating income before depreciation and amortization
of property, amortization of goodwill and other assets,
LIFO charge, earthquake deductible and restructuring charges
("FIFO EBITDA") was $284.3 million, or 5.7% of sales, in 1994
compared with $305.8 million, or 6.0% of sales, in 1993.
Interest Expense
Net interest expense for 1994 was $70.8 million, an increase of
$4.8 million, or 7.3%, over 1993. This increase was due to
higher weighted average interest cost on revolving debt and
higher average debt borrowings partially offset by repurchases of
higher interest cost subordinated debt. The ratio of FIFO EBITDA
to net interest expense decreased to 4.0 times in 1994 versus 4.6
times in 1993.
Income Tax Provision
The income tax provision in 1994 was $28.4 million, or a 51.6%
effective tax rate. The income tax provision in 1993 was $36.8
million, or a 52.7% effective tax rate. The effective tax rate
in both years was impacted by a decrease in earnings before
restructuring charges, 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. The
1993 effective tax rate was also impacted by a $2.0 million
deferred tax provision which increased the prior year deferred
income tax balance to the new Federal statutory tax rate.
Income
Net income for 1994 was $26.6 million, or $.61 per share,
compared with net income of $31.6 million, or $.73 per share, for
1993. Net income includes restructuring charges of $33.0
million, or $.45 per share, and $56.9 million, or $.77 per share,
in 1994 and 1993, respectively. The decrease in net income
excluding restructuring charges was caused by the decline in
sales and gross margin, primarily due to price decreases and
increased promotional activity. Net income for 1993 included an
extraordinary after tax charge of $1.4 million, or $.03 per
share, arising from debt refinancing.
Comparison of Fifty-Two Weeks Ended January 2, 1994 with Fifty-
Three Weeks Ended January 3, 1993
Sales
Sales for 1993 were $5.1 billion, a decrease of $521.0 million,
or 9.3%, from 1992. Sales in 1992 reflected an additional week.
On a comparable 52-week basis, same store sales decreased 9.0%
from 1992 sales. Same store sales have been adversely impacted
by the continuing weak overall economic environment in Southern
California, ongoing competitive new store and remodel activity,
pricing and promotional changes by certain competitors and
adverse publicity associated with the Foodmaker food poisoning
epidemic and related events. In 1993, the Company opened 12 new
stores, closed 12 stores and completed 59 store remodel projects.
Costs and Expenses
Costs and expenses for 1993 were $4.9 billion, a decrease of
$437.7 million, or 8.1%, from 1992.
Cost of sales, buying and occupancy expenses as a percentage
of sales declined by 0.2 percentage points to 74.9% in 1993.
Cost of sales, buying and occupancy expenses benefited from the
Company's favorable purchasing opportunities, the pass through of
market-wide cost increases in the form of higher prices, and
other improvements in margins where allowed by competitive
conditions. In addition, this improvement reflected the benefits
of the Company's ongoing remodel and new store programs, which
incorporate a larger number of higher margin departments in
affected stores, as well as the benefits of capital spending for
other merchandising projects designed to enhance gross margin.
This improvement was offset by increased occupancy costs,
primarily higher depreciation expense related to the capital
expenditure program.
Selling and administrative expenses as a percentage of sales
increased by 0.2 percentage points to 21.0% in 1993. This
increase was due primarily to market-wide negotiated union wage
increases and higher blended wage rates and costs associated with
a soft sales environment, offset by increased sales per labor
hour.
The $56.9 million, or $.77 per share, restructuring charge
primarily reflects expenses relating to the accelerated closure
of underperforming facilities, including 11 stores, and a
reduction of approximately 300 administrative and support
positions.
Operating Income
Operating income was $135.8 million, a decrease of $83.3 million,
or 38.0%, from 1992. FIFO EBITDA was $305.8 million, or 6.0% of
sales, in 1993 compared with $321.1 million, or 5.7% of sales, in
1992.
Interest Expense
Net interest expense for 1993 was $66.0 million, a decrease of
$5.5 million, or 7.7%, from 1992. In spite of higher average
revolving debt borrowings, interest expense decreased due to
lower weighted average interest cost on revolving debt and
repurchases of higher interest cost subordinated debt. The ratio
of FIFO EBITDA to total interest expense increased to 4.6 times
in 1993 versus 4.5 times in 1992.
Income Tax Provision
The income tax provision in 1993 was $36.8 million, or a 52.7%
effective tax rate. The income tax provision in 1992 was $65.5
million, or a 44.4% effective tax rate. The 1993 increase in the
effective tax rate was due to a decrease in earnings before
restructuring charges, 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. The
1993 effective tax rate was also impacted by an increase in the
Federal statutory tax rate from 34% to 35% and a $2.0 million, or
$.05 per share, deferred tax provision which increased the
prior year deferred income tax balance to the new Federal
statutory tax rate.
Income
Income before extraordinary item and cumulative effect of change
in accounting for 1993 was $33.0 million, a decrease of $49.1
million, or 59.8%, from 1992. Income before extraordinary item
and cumulative effect of change in accounting in 1993 was $.76
per share compared with $1.89 per share in 1992. These decreases
were due to the $56.9 million charge associated with the
Company's restructuring program and a decline in sales.
Net income for 1993 reflected an extraordinary after tax
charge of $1.4 million, or $.03 per share, arising from debt
refinancing. Net income for 1992 included an extraordinary after
tax charge of $12.8 million, or $.29 per share, arising from debt
refinancing and an after tax charge of $15.5 million, or $.36 per
share, reflecting the cumulative effect of the change in
accounting for retiree medical benefits.
Net income for 1993 was $31.6 million, or $.73 per share,
compared with net income of $53.8 million, or $1.24 per share, in
1992.
Labor Contract Status
In the fall of 1993, the Company renegotiated three-year
contracts with the United Food and Commercial Workers' and Meat
Cutters' Unions, and in the fall of 1994, the Company
renegotiated a four-year contract with the International
Brotherhood of Teamsters Union.
The Food Employers Council of Southern California, which had
formerly negotiated contracts on behalf of a multi-employer
bargaining unit comprised of most major supermarket chains in the
area, has substantially reduced its scope and no longer will
provide multi-employer bargaining services. Consequently, future
contracts will not be negotiated on a multi-employer basis. The
Company does not believe that the change in bargaining process
will have a material impact on its ability to achieve its labor
goals.
Liquidity and Capital Resources
The Company's primary sources of liquidity are cash flows from
operations and available credit under its Revolving Credit
Facility. As of February 17, 1995, the Company entered into a
new loan agreement with a group of banks for a $625 million
revolving credit facility to replace its $475 million Revolving
Credit Facility and related $150 million Term Loan Facility.
Management believes that these sources adequately provide for its
working capital, capital expenditure and debt service needs.
Net cash provided by operating activities was $179.8 million
in 1994 compared with $185.6 million in 1993. This change
primarily reflects a decrease in earnings before restructuring
charges. The ratio of current assets to current liabilities was
0.83 to 1 at January 1, 1995, compared with 0.87 to 1 at
January 2, 1994.
Net cash used by investing activities was $117.5 million in
1994 compared with $262.2 million in 1993. This decrease
reflects a reduction in the Company's capital expenditure
program. Cash capital expenditures for 1994 totaled $128.0
million. Total capital expenditures in 1994, including the
present value of commitments under operating leases, were $143.9
million.
The Company anticipates that total 1995 capital expenditures
will be approximately $175 million, of which approximately $155
million will be cash capital expenditures and approximately $20
million will represent the present value of commitments under
operating leases. This capital expenditure level contemplates
the opening of approximately ten new stores, including five
replacement stores, and the completion of approximately 65 store
remodel projects. 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.
It is anticipated that 1995 cash capital expenditures will
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. In
the near term, if Vons were to reduce substantially or postpone
its capital expenditure program, 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 this
program were substantially reduced, in the Company's opinion, its
operating business and ultimately its cash flow would be
adversely impacted.
Net cash used by financing activities was $61.8 million in
1994 compared with net cash provided by financing activities of
$76.8 million in 1993. The level of borrowings under the
Company's revolving debt is dependent primarily upon cash flows
from operations, the timing of disbursements, long-term borrowing
activity and capital expenditure requirements. In 1994 and 1993,
the Company repurchased and/or redeemed $6.8 million and $27.1
million, respectively, of subordinated debt.
At January 1, 1995, revolving debt borrowings totaled $149.8
million and the Company had available unused credit of $251.2
million. The weighted average interest cost for 1994 on the
Company's revolving debt was 5.5%. At January 1, 1995, the
corresponding bank prime rate was 8.5%.
The Company's involvement with derivative financial
instruments has been limited to interest rate cap contracts to
reduce the impact of increases in interest rates on the revolving
credit facility.
Impact of Changing Prices
Vons primary costs, inventory and labor, are affected by a number
of factors that are beyond the Company's control including
availability and price of merchandise, the competitive climate
and regional economic conditions. As is typical of the
supermarket industry, the Company has generally been able to
maintain margins by adjusting its retail prices, but competitive
conditions may from time to time render it unable to do so while
maintaining its market share.
<PAGE>
<PAGE>
<TABLE>
Consolidated Statements of Operations
-------------------------------------
The Vons Companies, Inc. and Subsidiaries
-----------------------------------------
<CAPTION>
Fiscal Year Ended
-----------------------------------------
All amounts except share data January 1, January 2, January 3,
in millions of dollars 1995 1994 1993
------------- ------------ ------------
<S> <C> <C> <C>
Sales $ 4,996.6 $ 5,074.5 $ 5,595.5
------------- ------------ ------------
Costs and expenses:
Cost of sales, buying and
occupancy 3,767.2 3,801.4 4,200.3
Selling and administrative
expenses 1,055.5 1,065.4 1,161.2
Amortization of excess cost
over net assets acquired 15.1 15.0 14.9
Restructuring charges 33.0 56.9 -
------------- ------------ ------------
4,870.8 4,938.7 5,376.4
------------- ------------ ------------
Operating income 125.8 135.8 219.1
Interest expense, net 70.8 66.0 71.5
------------- ------------ ------------
Income before income tax provision 55.0 69.8 147.6
Income tax provision 28.4 36.8 65.5
------------- ------------ ------------
Income before extraordinary item
and cumulative effect of change
in accounting for retiree
medical benefits 26.6 33.0 82.1
Extraordinary item - debt
refinancing, net of tax benefit
of $1.0 million and $8.6 million,
respectively - (1.4) (12.8)
------------- ------------ ------------
Income before cumulative effect
of change in accounting for
retiree medical benefits 26.6 31.6 69.3
Cumulative effect of change in
accounting for retiree medical
benefits, net of tax benefit of
$10.2 million - - (15.5)
------------- ------------ ------------
Net income $ 26.6 $ 31.6 $ 53.8
------------- ------------ ------------
------------- ------------ ------------
Income per common share:
Income before extraordinary item
and cumulative effect of
change in accounting for
retiree medical benefits $ .61 $ .76 $ 1.89
Extraordinary item - (.03) (.29)
Cumulative effect of change in
accounting for retiree medical
benefits - - (.36)
------------- ------------ ------------
Net income $ .61 $ .73 $ 1.24
------------- ------------ ------------
------------- ------------ ------------
Weighted average common shares
and common share equivalents 43,560,000 43,501,000 43,512,000
------------- ------------ ------------
------------- ------------ ------------
Dividends paid on common stock None None None
------------- ------------ ------------
------------- ------------ ------------
<FN>
See accompanying notes to these consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
Consolidated Balance Sheets
---------------------------
The Vons Companies, Inc. and Subsidiaries
-----------------------------------------
<CAPTION>
January 1, January 2,
All amounts except share data in millions of dollars 1995 1994
------------ ------------
<S> <C> <C>
Assets
Current assets:
Cash $ 9.0 $ 8.5
Accounts receivable 45.4 36.3
Inventories 359.3 383.5
Deferred taxes 35.4 23.2
Other 18.7 21.9
------------ ------------
Total current assets 467.8 473.4
Property and equipment, net 1,203.0 1,215.6
Excess of cost over net assets acquired,
net of accumulated amortization of $103.7
million and $88.6 million, respectively 497.8 512.9
Other 53.4 47.6
------------ ------------
Total Assets $ 2,222.0 $ 2,249.5
------------ ------------
------------ ------------
Liabilities and Shareholders' Equity
Current liabilities:
Current maturities of capital lease
obligations and long-term debt $ 8.7 $ 8.6
Accounts payable 308.4 314.5
Accrued liabilities 246.8 219.6
------------ ------------
Total current liabilities 563.9 542.7
Accrued self-insurance 110.9 102.3
Deferred income taxes 121.9 111.2
Other noncurrent liabilities 69.1 86.4
Capital lease obligations 58.0 62.7
Senior debt 426.2 497.2
Subordinated debt, net 319.6 322.1
------------ ------------
Total liabilities 1,669.6 1,724.6
------------ ------------
Shareholders' equity:
Preferred stock - $.01 par value;
authorized 20,000,000 shares;
issued and outstanding - none - -
Common stock - $.10 par value; authorized
100,000,000 shares; issued and
outstanding - January 1, 1995:
43,383,000 shares; January 2, 1994:
43,342,000 shares 4.3 4.3
Paid-in capital 340.4 339.5
Retained earnings 207.8 181.2
Notes receivable for stock (.1) (.1)
------------ ------------
Total shareholders' equity 552.4 524.9
------------ ------------
Total Liabilities and Shareholders' Equity $ 2,222.0 $ 2,249.5
------------ ------------
------------ ------------
<FN>
See accompanying notes to these consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
Consolidated Statements of Cash Flows
-------------------------------------
The Vons Companies, Inc. and Subsidiaries
-----------------------------------------
<CAPTION>
Fiscal Year Ended
--------------------------------------------------
January 1, January 2, January 3,
All amounts in millions of dollars 1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating
activities:
Net income $ 26.6 $ 31.6 $ 53.8
Adjustments to reconcile net
income to net cash provided by
operating activities:
Debt refinancing - 1.4 12.8
Cumulative effect of change
in accounting for retiree
medical benefits - - 15.5
Restructuring charges 33.0 56.9 -
Depreciation and
amortization of property
and capital leases 102.1 90.9 75.7
Amortization of excess cost
over net assets acquired
and other assets 16.1 18.6 19.8
Amortization of debt
discount and deferred
financing costs 6.2 6.2 6.4
LIFO charge 2.3 3.6 6.5
Deferred income taxes (1.5) 15.9 (.3)
Change in assets and
liabilities, net of effect
of acquisition:
(Increase) decrease in
accounts receivable (9.1) 5.4 (5.2)
(Increase) decrease in
inventories at FIFO
costs 21.9 (15.4) 10.2
(Increase) decrease in
other current assets 3.2 (.1) (2.4)
(Increase) decrease in
noncurrent assets (9.3) (11.5) 2.1
Increase (decrease) in
accounts payable (25.5) 14.3 25.0
Increase (decrease) in
accrued liabilities 23.3 (31.8) 36.0
Increase (decrease) in
noncurrent liabilities (9.5) (.4) 12.8
------------ ------------ ------------
Net cash provided by operating
activities 179.8 185.6 268.7
------------ ------------ ------------
Cash flows from investing
activities:
Addition of property, plant
and equipment (128.0) (268.9) (217.6)
Disposal of property, plant
and equipment 10.5 6.7 .2
Acquisition of Williams
Bros. Markets, Inc.
supermarket business - - (49.1)
------------ ------------ ------------
Net cash used by investing
activities (117.5) (262.2) (266.5)
------------ ------------ ------------
Cash flows from financing
activities:
Net borrowings (payments) on
revolving debt (67.9) (37.0) 114.0
Proceeds from issuance of
senior subordinated notes - - 250.0
Proceeds from Term Loan
Facility - 150.0 -
Repurchases of senior
subordinated and
subordinated debentures (6.2) (27.1) (304.0)
Increase (decrease) in net
outstanding drafts 19.4 .5 (43.5)
Payments on other debt and
capital lease obligations (8.0) (9.3) (9.2)
Other .9 (.3) (7.9)
------------ ------------ ------------
Net cash provided (used) by
financing activities (61.8) 76.8 (.6)
------------ ------------ ------------
Net cash increase .5 .2 1.6
Cash at beginning of year 8.5 8.3 6.7
------------ ------------ ------------
Cash at end of year $ 9.0 $ 8.5 $ 8.3
------------ ------------ ------------
------------ ------------ ------------
Supplemental disclosures of
cash flow information:
Cash paid during the year for:
Interest $ 64.9 $ 60.0 $ 73.3
------------ ------------ ------------
------------ ------------ ------------
Income taxes $ 33.7 $ 26.1 $ 49.9
------------ ------------ ------------
------------ ------------ ------------
Supplemental disclosure of
non-cash investing and
financing activity:
Capital leases $ .3 $ 13.3 $ 18.1
------------ ------------ ------------
------------ ------------ ------------
<FN>
See accompanying notes to these consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
Consolidated Statements of Shareholders' Equity
-----------------------------------------------
The Vons Companies, Inc. and Subsidiaries
-----------------------------------------
<CAPTION>
Number
of Common Paid-In Retained
All amounts in millions Shares Stock Capital Earnings Notes Total
------ ------ ------- --------- ------ ------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 29,
1991 43.2 $ 4.3 $ 337.6 $ 95.8 $ - $437.7
Net income - - - 53.8 - 53.8
Stock options exercised .1 - 1.8 - - 1.8
Issuance of notes
receivable - - - - (.1) (.1)
------ ------ ------- --------- ------ ------
Balance at January 3,
1993 43.3 4.3 339.4 149.6 (.1) 493.2
Net income - - - 31.6 - 31.6
Stock options exercised - - .1 - - .1
------ ------ ------- --------- ------ ------
Balance at January 2,
1994 43.3 4.3 339.5 181.2 (.1) 524.9
Net income - - - 26.6 - 26.6
Stock options exercised .1 - .9 - - .9
------ ------ ------- --------- ------ ------
Balance at January 1,
1995 43.4 $ 4.3 $ 340.4 $ 207.8 $ (.1) $552.4
------ ------ ------- --------- ------ ------
------ ------ ------- --------- ------ ------
<FN>
See accompanying notes to these consolidated financial statements.
</TABLE>
<PAGE>
<PAGE>
Notes to the Consolidated Financial Statements
----------------------------------------------
The Vons Companies, Inc. and Subsidiaries
-----------------------------------------
Note 1. Basis of Presentation
At January 1, 1995, the Company operated 334 supermarkets and
food and drug combination retail stores under the names Vons,
Pavilions and EXPO. The Company also operates a fluid milk
processing facility, an ice cream plant, a bakery, and
distribution facilities for meat, grocery, produce and general
merchandise.
On January 28, 1992, the Company acquired the supermarket
business of Williams Bros. Markets, Inc. which included 18
supermarkets, five of which were subsequently closed.
The Company's fiscal year is based on a 52-53 week fiscal
year ending on the Sunday closest to December 31. Fiscal years
1994 and 1993 included 52 weeks which ended on January 1, 1995
and January 2, 1994, respectively. Fiscal year 1992 included 53
weeks which ended on January 3, 1993.
Note 2. Summary of Significant Accounting Policies
Basis of Consolidation
The consolidated financial statements include the accounts of the
Company and its subsidiaries. All significant intercompany
accounts and transactions are eliminated in consolidation.
Inventories
Inventories are stated at the lower of cost or market. The cost
of substantially all inventories is determined using the last-in,
first-out (LIFO) method.
Property and Depreciation
Property and equipment, including assets under capital leases,
are recorded at cost and depreciated or amortized over forty
years for buildings, up to ten years for fixtures and equipment
and generally between fifteen and twenty-five years, but not to
exceed the lease term, for leasehold improvements using
principally the straight-line method for financial reporting
purposes and accelerated methods for tax purposes. Major
renewals and improvements are capitalized. Maintenance and
repairs which do not improve or extend the life of the respective
assets are charged to expense.
Amortization of Intangible Assets
The excess of cost over net assets acquired is amortized on a
straight-line basis over forty years. The Company assesses the
recoverability of the excess of cost over net assets acquired
based on projected future operating results. Other noncurrent
assets include an agreement not to compete acquired in connection
with the acquisition of the Williams Bros. Markets, Inc.
supermarket business. The agreement not to compete is amortized
on a straight-line basis over five years.
Income Tax Provision
The income tax provision includes amounts related to current
taxable income and deferred income taxes. A deferred income tax
asset or liability is determined by applying currently enacted
tax laws and rates to the expected reversals of the cumulative
temporary differences between the carrying value of assets and
liabilities for financial statement and income tax purposes. The
deferred income tax provision is measured by the change in the
net deferred income tax asset or liability during the year. The
Company accounts for general business tax credits using the
flow-through method.
Income per Common Share
Income per common share is based on the weighted average number
of common shares outstanding during each year and includes common
stock equivalents arising from stock options when the effect is
dilutive.
Disclosure About Fair Value of Financial Instruments
The fair value of the Company's financial instruments is based on
the quoted market prices for the same or similar issues or on the
current rates offered to the Company for financial instruments of
the same remaining maturities.
Derivatives
Premiums paid for purchased interest rate cap contracts are
amortized to interest expense over the terms of the contracts.
Unamortized premiums are included in other assets in the
accompanying consolidated balance sheets. Amounts earned under
the interest rate cap contracts are reflected as a reduction of
interest expense.
Note 3. Inventories
The excess of estimated current cost over LIFO carrying value of
inventories was $27.4 million and $25.1 million at January 1,
1995 and January 2, 1994, respectively. Application of the LIFO
method resulted in a charge to cost of sales, buying and
occupancy of $2.3 million, $3.6 million and $6.5 million for
1994, 1993 and 1992, respectively.
Note 4. Property and Equipment
The components of property and equipment at January 1, 1995 and
January 2, 1994 were as follows (in millions of dollars):
<TABLE>
<CAPTION>
January 1, January 2,
1995 1994
------------ ------------
<S> <C> <C>
Land $ 233.7 $ 220.0
Buildings 357.0 325.7
Leasehold improvements 302.2 302.3
Fixtures and equipment 682.3 658.2
------------ ------------
1,575.2 1,506.2
Less: accumulated depreciation
and amortization (421.5) (345.5)
------------ ------------
Net property owned 1,153.7 1,160.7
------------ ------------
Capital leases 75.1 76.4
Less: accumulated amortization (25.8) (21.5)
------------ ------------
Net capital leases 49.3 54.9
------------ ------------
Property and equipment, net $ 1,203.0 $ 1,215.6
------------ ------------
------------ ------------
</TABLE>
Note 5. Accrued Current Liabilities
The components of accrued current liabilities at January 1, 1995
and January 2, 1994 were as follows (in millions of dollars):
<TABLE>
<CAPTION>
January 1, January 2,
1995 1994
------------ ------------
<S> <C> <C>
Accrued payroll, benefits and
related taxes $ 118.1 $ 85.7
Accrued self-insurance 42.2 47.2
Other 86.5 86.7
------------ ------------
Accrued current liabilities $ 246.8 $ 219.6
------------ ------------
------------ ------------
</TABLE>
Note 6. Senior and Subordinated Debt
Senior and subordinated debt as of January 1, 1995 and January 2,
1994 were as follows (in millions of dollars):
<TABLE>
<CAPTION>
January 1, January 2,
1995 1994
------------ ------------
<S> <C> <C>
Senior debt:
Revolving Credit Facility,
interest at prime,
certificate of deposit
or Eurodollar rate plus
designated amounts,
due 1996 $ 149.8 $ 217.7
Term Loan Facility, interest at
prime, certificate of deposit
or Eurodollar rate plus
designated amounts, due 1996 150.0 150.0
Mortgage, 9.25%, secured by
real property, due in monthly
installments of $1.0 million
including interest, due 1997 115.0 116.7
Mortgages, 6.00% to 12.25%,
secured by real property, due
in varying monthly
installments with maturity
dates from 1997 to 2009 14.6 16.1
------------ ------------
Total 429.4 500.5
Less: current portion 3.2 3.3
------------ ------------
Long-term portion $ 426.2 $ 497.2
------------ ------------
------------ ------------
Subordinated debt:
Senior subordinated
debentures, 6-5/8%, less
unamortized discount of
$11.1 million and $15.4
million at January 1, 1995
and January 2, 1994,
respectively, based on an
effective interest rate of
12.5%, interest due in
semiannual installments $ 69.6 $ 72.1
Senior subordinated notes,
9-5/8%, interest due in
semiannual installments 150.0 150.0
Senior subordinated notes,
8-3/8%, interest due in
semiannual installments 100.0 100.0
------------ ------------
Total $ 319.6 $ 322.1
------------ ------------
------------ ------------
</TABLE>
In October 1991, the Company entered into a loan agreement
with a group of banks for a $475 million revolving credit
facility (the "Revolving Credit Facility"). The Revolving Credit
Facility was to mature on January 31, 1996 and was comprised of
two separate lines: Line A - a $300 million revolving line; and
Line B - a $175 million standby and commercial letters of credit
line. At January 1, 1995, borrowings under Line A were $149.8
million and standby letters of credit under Line B were $74.0
million. Available unused credit under the Revolving Credit
Facility was $251.2 million at January 1, 1995.
In December 1993, the Company entered into a loan agreement
with a group of banks for a $150 million Senior Unsecured Term
Loan Facility (the "Term Loan Facility"). The Term Loan Facility
was to mature on January 31, 1996.
On February 17, 1995, the Company entered into an agreement
with a group of banks for a $625 million revolving credit
facility, replacing the Revolving Credit Facility and Term Loan
Facility. The facility expires on February 17, 2000; however, it
provides that the Company may request that the banks extend the
maturity date by one year beginning in September 1997 and each
year thereafter. Interest for the facility is at prime or
Eurodollar rate plus designated amounts. At the Company's
option, the facility may be used to support commercial paper
borrowings, other unsecured bank borrowings and standby letters
of credit outside the facility.
The Company's involvement with derivative financial
instruments has been limited to interest rate cap contracts to
reduce the impact of increases in interest rates on the revolving
credit facility. During 1992, the Company purchased three
interest rate cap contracts with two, three and five year
maturity dates. All of the interest rate cap contracts became
effective on January 1, 1993. The contracts hedge principal
amounts of $250 million for 1993 and 1994, $200 million for 1995,
and $100 million for 1996 and 1997 of interest rate exposure in
excess of an approximate 8.5% effective borrowing rate under the
revolving credit facility. The Company records interest expense
or interest income related to interest rate cap contracts on a
monthly basis. Weighted average interest costs, including
commitment fees, for the Revolving Credit Facility and for the
Term Loan Facility for 1994 were 5.4%. At January 1, 1995, the
corresponding bank prime rate was 8.5%. Commitment fees under
the Revolving Credit and Term Loan Facilities were $1.5 million
per year for 1994, 1993 and 1992.
The Company's $115.0 million mortgage loan requires monthly
principal and interest payments of approximately $1 million with
a one-time payment of approximately $111 million in July 1997.
The indenture related to the 6-5/8% Senior Subordinated
Debentures (the "6-5/8% Debt") provides for mandatory
redemptions. As of January 1, 1995, $18.2 million, $25.0 million
and $37.5 million are due on May 15, 1996, May 15, 1997 and
May 15, 1998, respectively. Interest on the 6-5/8% Debt is
payable semiannually on May 15 and November 15. The 6-5/8% Debt
may be redeemed at any time at 100% of the principal amount plus
accrued interest. The 6-5/8% Debt was issued at a discount which
is being amortized over the related term of the indebtedness.
The indenture related to the 9-5/8% Senior Subordinated
Notes (the "9-5/8% Debt") due April 1, 2002 provides for
principal repayment at maturity. Interest on the 9-5/8% Debt is
payable semiannually on April 1 and October 1. The 9-5/8% Debt
may be redeemed at the Company's option any time on or after
April 1, 1997, at varying percentages above par of the principal
amount plus accrued interest. The Company is not required to
make mandatory redemption or sinking fund payments with respect
to the 9-5/8% Debt prior to maturity.
The indenture related to the 8-3/8% Senior Subordinated
Notes (the "8-3/8% Debt") due October 1, 1999 provides for
principal repayment at maturity. Interest on the 8-3/8% Debt is
payable semiannually on October 1 and April 1. The 8-3/8% Debt
may be redeemed at the Company's option any time on or after
October 1, 1997, at 100% of the principal amount plus accrued
interest. The Company is not required to make mandatory
redemption or sinking fund payments with respect to the 8-3/8%
Debt prior to maturity.
At January 1, 1995 and January 2, 1994, the carrying value of
financial instruments approximated fair value.
During 1994, 1993 and 1992, the Company early retired
through repurchase and/or redemption $6.8 million, $27.1 million
and $289.7 million, respectively, of subordinated debt. These
repurchases resulted in an extraordinary after tax charge of $1.4
million and $12.8 million in 1993 and 1992, respectively.
The Company's debt agreements contain various restrictions
on the incurrence of additional indebtedness, payment or
prepayment of senior subordinated and subordinated debt,
investments, acquisitions, capital expenditures, dividends,
common stock redemptions and purchases and dispositions of
assets. The covenants also require the Company to meet certain
shareholders' equity levels, debt leverage levels and fixed
charge coverage ratios which can vary each fiscal year. The
Company is in compliance with these covenants as of January 1,
1995. Under its most restrictive debt agreement, the Company had
$74.0 million available for dividends and distributions at
January 1, 1995. Management of the Company does not expect to
pay cash dividends in the foreseeable future.
Principal payments required in future years are as follows
(in millions of dollars):
<TABLE>
<CAPTION>
Principal
Payments
----------
<S> <C>
1995 $ 3.2
1996 21.6
1997 137.0
1998 38.6
1999 101.1
2000-2004 457.3
2005-2009 1.3
----------
Total principal payments 760.1
Less: current portion 3.2
----------
Long-term portion $ 756.9
----------
----------
</TABLE>
Note 7. Leases
The Company currently leases certain of its stores, distribution
facilities, vehicles and equipment for periods up to 45 years
with various renewal options. The majority of such leases are
noncancellable operating leases. Certain operating and capital
leases require contingent rentals based upon a percentage of
sales over a specified amount. Rental expense under operating
leases was as follows (in millions of dollars):
<TABLE>
<CAPTION>
Fiscal Year Ended
------------------------------------------
January 1, January 2, January 3,
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
Minimum rentals $ 60.9 $ 76.9 $ 73.2
Contingent rentals 7.5 8.3 10.2
Sublease rentals
received (4.7) (4.2) (3.7)
------------ ------------ ------------
Rental expense,
net $ 63.7 $ 81.0 $ 79.7
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
Capital lease obligations, relating primarily to buildings,
vary in amounts with interest rates ranging from 6.7% to 12.5%.
Contingent rentals associated with capital leases were $1.4
million, $2.0 million and $2.7 million for 1994, 1993 and 1992,
respectively.
Future minimum lease payments under noncancellable operating
and capital leases, together with the present value of the net
minimum lease payments, at January 1, 1995 were as follows (in
millions of dollars):
<TABLE>
<CAPTION>
Operating Capital
Leases Leases
--------- -------
<S> <C> <C>
1995 $ 61.1 $ 10.7
1996 56.9 9.8
1997 53.4 9.2
1998 51.9 7.1
1999 50.4 6.5
2000-2004 223.7 31.6
2005-2009 146.9 29.0
2010-2014 51.9 10.8
2015-2019 7.1 6.4
2020-2024 .9 -
Thereafter .7 -
--------- -------
Total minimum lease commitments $ 704.9 121.1
---------
---------
Less: interest portion 57.6
-------
Present value of net minimum lease
commitments 63.5
Less: current portion 5.5
-------
Long-term portion $ 58.0
-------
-------
</TABLE>
Minimum sublease rentals to be received in the future under
noncancellable operating and capital leases totaled $33.4 million
at January 1, 1995.
Effective September 1993, the Company became a partner of a
California general partnership. This partnership has obligations
for 21 retail leases for periods up to 20 years with various
renewal options. It is the partnership's intent to dispose of
its leasehold interest in all of these sites. Future minimum
lease payments of the partnership under noncancellable operating
leases at January 1, 1995 were as follows (in millions of
dollars):
<TABLE>
<CAPTION>
January 1,
1995
----------
<S> <C>
1995 $ 4.2
1996 4.2
1997 4.1
1998 3.9
1999 3.9
2000-2004 16.4
2005-2009 10.0
2010-2013 3.0
----------
Total minimum lease commitments $ 49.7
----------
----------
</TABLE>
Minimum sublease rentals to be received by the partnership
under noncancellable operating leases totaled $5.7 million at
January 1, 1995.
Note 8. Employee Benefit Plans
The Company sponsors a defined benefit pension plan for all
nonunion employees. An employee's benefit is based on years of
credited service and the employee's final average pay calculated
on the highest five years of compensation during the last ten
years of employment. The Company's funding policy is to
contribute at least the minimum annual contribution required by
Internal Revenue Service regulations.
The following table sets forth the defined benefit pension
plan's funded status and amounts recognized in the Company's
consolidated balance sheets at January 1, 1995 and January 2,
1994 (in millions of dollars):
<TABLE>
<CAPTION>
January 1, January 2,
1995 1994
------------ ------------
<S> <C> <C>
Actuarial present value of
benefit obligation:
Accumulated benefit obligation,
including vested benefit of
$35.5 million at January 1,
1995 and $32.7 million at
January 2, 1994 $ 37.8 $ 35.0
------------ ------------
------------ ------------
Projected benefit obligation for
service rendered to date $ (49.7) $ (52.9)
Plan assets at fair value,
primarily listed stocks and
U.S. bonds 46.2 44.9
------------ ------------
Projected benefit obligation
in excess of plan assets (3.5) (8.0)
Unrecognized net loss from past
experience different from that
assumed, unrecognized prior
service cost and effects of
changes in assumptions 12.6 17.7
------------ ------------
Pension asset included in other
noncurrent assets $ 9.1 $ 9.7
------------ ------------
------------ ------------
</TABLE>
The discount rate used in determining the actuarial present
value of the projected benefit obligation was 8.5% at January 1,
1995 and 7.5% at January 2, 1994. The expected long-term rate of
return on assets and rate of increase in compensation levels were
9.0% and 4.5%, respectively, at January 1, 1995 and 10.0% and
4.5%, respectively, at January 2, 1994. Net pension cost under
the defined benefit pension plan for 1994, 1993 and 1992 included
the following components (in millions of dollars):
<TABLE>
<CAPTION>
Fiscal Year Ended
--------------------------------------------
January 1, January 2, January 3,
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
Service cost $ 3.4 $ 2.5 $ 2.2
Interest cost on
projected
benefit
obligation 4.0 3.6 3.0
Actual return on
plan assets .9 (3.0) (1.9)
Net amortization
and deferral (4.4) (.7) (1.6)
------------ ------------ ------------
Net pension
cost $ 3.9 $ 2.4 $ 1.7
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
During 1992, the Company adopted a supplemental executive
retirement plan which provides supplemental income payments for
certain officers during retirement. Total pension expense for
all plans was $5.1 million, $3.6 million and $2.8 million for
1994, 1993 and 1992, respectively.
The Company's contributory profit sharing plan for nonunion
employees qualifies under Section 401(k) of the Internal Revenue
Code. Under the profit sharing plan, the Company's contribution
is determined annually by the Chairman of the Board of Directors.
Total expense related to the Company's profit sharing plan was
$5.3 million, $4.3 million and $7.9 million for the 1994, 1993
and 1992 plan years, respectively.
The Company sponsors a retiree medical plan covering
substantially all nonunion employees who retire under certain age
and service requirements. The retiree medical plan provides
outpatient, inpatient and various other covered services.
Participants in the retiree medical plan who retire after
June 30, 1990 receive a benefit based upon years of service and a
benefit value at the time of retirement. Each retiree's benefit
account may be indexed each year to the social security cost of
living, up to a maximum of 4.0%. Such benefits are funded from
the Company's general assets. The Company has the right to
modify or terminate the plan.
The Company adopted Statement of Financial Accounting
Standards No. 106 ("SFAS No. 106"), "Employers' Accounting for
Postretirement Benefits Other Than Pensions," effective
January 3, 1993. SFAS No. 106 requires that the cost of these
benefits be recognized in the consolidated financial statements
over an employee's service period. The Company elected to
immediately recognize in the first quarter of 1992 a transition
obligation of $15.5 million, net of a deferred income tax benefit
of $10.2 million in accordance with the provisions of SFAS No.
106.
The accumulated benefit obligation for the retiree medical
plan as of January 1, 1995 and January 2, 1994 was as follows (in
millions of dollars):
<TABLE>
<CAPTION>
January 1, January 2,
1995 1994
------------ ------------
<S> <C> <C>
Accumulated retiree medical benefit
obligation:
Retirees $ 9.9 $ 16.4
Fully eligible active plan
participants 3.5 4.0
Other active plan participants 12.0 12.5
Unrecognized net gain (loss) 6.9 (3.0)
------------ ------------
Accrued retiree medical benefit
obligation $ 32.3 $ 29.9
------------ ------------
------------ ------------
</TABLE>
For measurement purposes, an 8.0% increase in the cost of
covered retiree medical benefits was assumed for 1994. The rate
was assumed to decline gradually to 6.0% in 1996, and remain at
that level thereafter. A 1.0% increase in the retiree medical
cost trend rate would increase the retiree medical benefit
obligation at January 1, 1995 by $0.6 million and the 1994 annual
expense by $0.1 million. The weighted average discount rate used
in determining the accumulated retiree medical benefit obligation
was 8.5% and 7.5% at January 1, 1995 and January 2, 1994,
respectively. The net retiree medical plan cost for 1994, 1993
and 1992 included the following components (in millions of
dollars):
<TABLE>
<CAPTION>
Fiscal Year Ended
------------------------------------------
January 1, January 2, January 3,
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
Service cost $ 1.2 $ .8 $ .8
Interest cost 2.1 2.4 2.4
------------ ------------ ------------
Net retiree
medical plan
costs $ 3.3 $ 3.2 $ 3.2
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
The Company contributes to multi-employer joint pension
plans and health and welfare plans administered by various
trustees. Contributions to these plans are based upon negotiated
labor contracts. The pension plans may be deemed to be defined
benefit plans. Information relating to accumulated benefits and
fund assets as they may be allocable to the Company at January 1,
1995 is not available. Total pension expense for the union plans
was $22.3 million, $30.3 million and $12.1 million for 1994, 1993
and 1992, respectively. The health and welfare plans provide
medical, dental and other benefits to certain employees covered
by union contracts. Total health and welfare expense for these
plans was $125.9 million, $107.1 million and $153.9 million for
1994, 1993 and 1992, respectively.
Note 9. Income Taxes
During 1992, the Company changed its method of accounting for
income taxes to comply with the provisions of Statement of
Financial Accounting Standards No. 109, "Accounting for Income
Taxes." This standard requires, among other things, recognition
of future tax consequences, measured by enacted tax rates,
attributable to temporary differences between financial statement
and income tax bases of assets and liabilities. The change in
accounting method has been applied retroactively to June 28, 1987
by restating prior years' consolidated financial statements.
<PAGE>
<TABLE>
The provision for income taxes for 1994, 1993 and 1992 was comprised of the following
amounts (in millions of dollars):
<CAPTION>
Fiscal Year Ended
--------------------------------------------
January 1, January 2, January 3,
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
Current:
Federal $ 24.7 $ 13.3 $ 49.3
State 5.2 7.6 16.5
------------ ------------ ------------
Total current income tax
provision 29.9 20.9 65.8
------------ ------------ ------------
Deferred:
Federal (.7) 15.7 1.1
State (.8) .2 (1.4)
------------ ------------ ------------
Total deferred income tax
provision (1.5) 15.9 (.3)
------------ ------------ ------------
Total income tax provision $ 28.4 $ 36.8 $ 65.5
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
<TABLE>
Reconciliation of the Federal statutory rate and effective rate for 1994, 1993 and
1992 was as follows (in millions of dollars):
<CAPTION>
Fiscal Year Ended
------------------------------------------
January 1, January 2, January 3,
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
Federal statutory expected provision $ 19.3 $ 24.4 $ 50.2
Amortization of excess of cost over net
assets acquired 5.0 5.1 5.1
State income taxes, net of Federal income
tax benefit 3.1 5.1 10.0
Effect to beginning of year deferred income
tax balance for increase in Federal
statutory tax rate - 2.0 -
Other 1.0 .2 .2
------------ ------------ ------------
Total income tax provision $ 28.4 $ 36.8 $ 65.5
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
<PAGE>
<TABLE>
Deferred income taxes consisted of future tax liabilities (assets) attributable to
the following (in millions of dollars):
<CAPTION>
January 1, January 2,
1995 1994
------------ ------------
<S> <C> <C>
Deferred tax liabilities:
Excess of book over tax bases $ 141.2 $ 140.0
Excess of tax over book depreciation 84.1 72.3
------------ ------------
Deferred tax liabilities 225.3 212.3
------------ ------------
Deferred tax assets:
Cash versus accrual basis (136.6) (113.8)
Other, net (2.2) (10.5)
------------ ------------
Deferred tax assets (138.8) (124.3)
------------ ------------
Deferred income taxes, net $ 86.5 $ 88.0
------------ ------------
------------ ------------
/TABLE
<PAGE>
The tax returns for all of the Company's fiscal periods
ended subsequent to and including December 31, 1989 are open for
examination by the Internal Revenue Service (the "IRS") and/or
various state tax authorities. Additionally, certain tax returns
of entities acquired by the Company for earlier tax years are
open for examination by the IRS. Management believes that any
adjustments arising out of the examinations for which the Company
would be liable would not have a material effect on the Company's
consolidated financial position.
Note 10. Related Party Transactions
The Company leases a distribution facility from a California
general partnership whose general partners are Vons and a Texas
general partnership, of which a director of the Company is a
general partner. Vons and the Texas general partnership each
have a 50% interest in the California general partnership.
During 1994, 1993 and 1992, the Company paid rent of $1.9
million per year from which the partnership distributed $70,000,
$160,000 and $188,000 to the Texas general partnership in such
years, respectively.
A wholly owned subsidiary of Safeway owns approximately 35%
of the outstanding voting stock of the Company. Safeway and its
affiliates sold certain inventory and other items to the Company
for an aggregate amount during 1994, 1993 and 1992 of
approximately $21.3 million, $2.5 million and $5.7 million,
respectively. The Company sold certain inventory items to
Safeway and its affiliates for an aggregate amount during 1994,
1993 and 1992 of approximately $6.6 million, $2.4 million and
$6.7 million, respectively. Three directors of the Company are
also directors of Safeway and a fourth director of the Company is
both a director and an officer of Safeway.
The Company leases eight properties from a partnership that
is 80% owned by a subsidiary of Safeway and 20% owned by the
principal stockholder of Safeway. The rentals under the leases
were $0.7 million, $0.7 million and $0.6 million in 1994, 1993
and 1992, respectively. In addition, the Company is secondarily
liable to this partnership under four leases for which the annual
minimum rental is $0.2 million, all of which is currently being
paid by assignees.
Another California general partnership whose general
partners include directors and management of the Company had the
right to purchase several leaseholds of the Company. The Company
paid the California general partnership $2.2 million in 1993 to
cancel this purchase right.
A director of the Company is affiliated with an entity which
was engaged to provide buying services. These buying services
were terminated in June 1992. During 1992, the entity was paid
$324,000 for buying services rendered.
A director of the Company borrowed a total of $118,000 from
the Company for the purchase of 5,000 shares of the Company's
common stock by notes dated January 3, 1992 and July 22, 1992.
The notes are secured by a pledge of the 5,000 shares of common
stock. The notes accrue interest at the Federal mid term rate in
effect under Internal Revenue Code Section 1274(d), compounded
semiannually. All payments of principal and interest are due and
payable on December 31, 1997.
Note 11. Contingencies
The Company is a party to several pending legal proceedings and
claims. Although the outcome of such proceedings and claims
cannot be determined with certainty, management believes that
their final outcome should not have a material adverse effect on
the Company's consolidated financial position.
As a result of the disposal of certain assets and leasehold
interests by the Company and by a partnership of which the
Company is a general partner, the Company is contingently liable
to certain landlords and pension funds.
Note 12. Shareholders' Equity
The Company has various stock option plans. Options under the
1987 Stock Option Plan are fully vested. Options under the 1990
Stock Option Plan vest as determined by the Compensation
Committee of the Board of Directors. Generally, options vest 25%
one year from the date of grant and 25% per year thereafter.
However, a limited number of options vest 20% at the date of
grant and 20% per year thereafter and others vest 33-1/3% per
year beginning one year after grant. Options under the
Directors' Stock Option Plan vest 25% six months from the date of
grant and 25% on the anniversary of the date of grant thereafter.
For all plans, the options expire ten years from the date of
grant. <PAGE>
<TABLE>
Information regarding the Company's stock option plans is summarized below:
<CAPTION>
1987 1990 Directors'
Stock Option Stock Option Stock Option
Plan Plan Plan
------------ ------------ ------------
<S> <C> <C> <C>
Shares authorized 175,227 4,000,000 225,000
------------ ------------ ------------
------------ ------------ ------------
Shares under option:
Outstanding at December 29,
1991 80,394 1,184,500 -
Granted - 575,015 71,693
Exercised 26,125 62,875 -
Forfeited - 17,900 -
------------ ------------ ------------
Outstanding at January 3, 1993 54,269 1,678,740 71,693
Granted - 584,642 44,192
Exercised 5,750 1,000 -
Forfeited - 218,985 16,842
------------ ------------ ------------
Outstanding at January 2, 1994 48,519 2,043,397 99,043
Granted - 1,164,009 52,028
Exercised 7,000 34,240 -
Forfeited 11,250 484,152 20,144
------------ ------------ ------------
Outstanding at January 1, 1995 30,269 2,689,014 130,927
------------ ------------ ------------
------------ ------------ ------------
Range of option prices per
share:
At January 3, 1993 $ 9.28 $ 2.50-27.55 $22.04-27.55
At January 2, 1994 $ 9.28 $ 2.50-27.55 $17.51-27.55
At January 1, 1995 $ 9.28 $ 2.50-27.55 $14.23-27.55
Options exercisable:
At January 3, 1993 54,269 401,751 17,923
At January 2, 1994 48,519 765,054 37,022
At January 1, 1995 30,269 991,426 69,241
Average price of options
exercised:
Year ended January 3, 1993 $ 9.28 $ 3.36 $ -
Year ended January 2, 1994 $ 9.28 $ 21.35 $ -
Year ended January 1, 1995 $ 9.28 $ 2.50 $ -
</TABLE>
<PAGE>
Effective January 1, 1991, the Company adopted the Employee
Stock Purchase Plan (the "Stock Purchase Plan"). The Stock
Purchase Plan allows employees to purchase the Company's stock
through payroll deductions. The source of stock is weekly open
market purchases by a third party administrator. Administrative
and purchase commission costs associated with the Stock Purchase
Plan are borne and paid by the Company according to the agreement
with the third party administrator.
Note 13. 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 loss is approximately $25.0 million which, after insurance
recoveries, resulted in a first quarter 1994 pre-tax nonrecurring
selling and administrative charge of $5.0 million, or $.07 per
share. As of January 1, 1995, the accompanying consolidated
financial statements include a $10.0 million receivable for
insurance recoveries.
Note 14. Restructuring Charges
During 1993, the Company recorded a restructuring charge of $56.9
million, or $.77 per share. The 1993 charge reflected
anticipated costs associated with a program to accelerate the
closing of underperforming facilities, including 11 stores, and
to eliminate approximately 300 administrative and support
positions, which included 18 officers. The 1993 restructuring
charge included $42.7 million for expenses relating to facility
closures and $14.2 million for severance and other related
expenses.
In late 1994, the Company determined that the facility
closures and reductions in work force undertaken in 1993 would
not achieve the Company's cost reduction goals. The Company
undertook additional restructuring initiatives resulting in
further facility closures and reductions in work force. During
1994, the Company recorded restructuring charges of $33.0
million, or $.45 per share. The 1994 restructuring charges
included $27.4 million for expenses related to facility
closures. These facility closures include 16 stores, the
majority of which were closed by year end 1994, and the San Diego
distribution facility, to be closed in 1995. The remaining $5.6
million of the charges relates to severance and other costs
associated with the elimination of approximately 400
administrative and support positions, the majority of which were
eliminated during third quarter 1994.
Of the total $89.9 million restructuring reserve, $55.9
million of costs and payments have been charged against the
reserve as of January 1, 1995, representing asset write offs and
lease obligations for closed facilities of $39.4 million and
severance and other related expenses of $16.5 million.
<PAGE>
Note 15. Quarterly Financial Data (Unaudited)
<TABLE>
The results of operations for 1994 and 1993 were as follows (in millions of dollars except
share data):
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
Fiscal Year 1994 (12 Weeks) (12 Weeks) (16 Weeks) (12 Weeks)
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Sales $ 1,144.0 $ 1,160.2 $ 1,516.2 $ 1,176.2
Gross profit (1) 286.8 267.5 373.3 301.8
Amortization of excess
cost over net assets
acquired 3.5 3.5 4.6 3.5
Restructuring charges - - 19.0 14.0
Operating income 32.7 25.3 32.1 35.7
Interest expense, net 15.7 16.8 21.7 16.6
Income before
extraordinary item 9.0 4.5 4.0 9.1
Extraordinary item - - - -
Net income $ 9.0 $ 4.5 $ 4.0 $ 9.1
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Income per common
share:
Income before
extraordinary item $ .21 $ .10 $ .09 $ .21
Extraordinary item - - - -
----------- ----------- ----------- -----------
Net income $ .21 $ .10 $ .09 $ .21
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Weighted average
common shares and
common share
equivalents 43,475,000 43,516,000 43,533,000 43,717,000
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
Fiscal Year 1993 (12 Weeks) (12 Weeks) (16 Weeks) (12 Weeks)
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Sales $ 1,194.2 $ 1,175.3 $ 1,534.5 $ 1,170.5
Gross profit (1) 302.4 297.2 376.5 297.0
Amortization of excess
cost over net assets
acquired 3.5 3.5 4.6 3.4
Restructuring charge - - 56.9 -
Operating income
(loss) 43.5 47.1 (4.4) 49.6
Interest expense, net 14.9 15.2 20.6 15.3
Income (loss) before
extraordinary item 15.9 17.7 (19.5) 18.9
Extraordinary item - - (1.4) -
Net income (loss) $ 15.9 $ 17.7 $ (20.9) $ 18.9
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Income (loss) per
common share:
Income (loss) before
extraordinary item $ .37 $ .40 $ (.45) $ .44
Extraordinary item - - (.03) -
----------- ----------- ----------- -----------
Net income (loss) $ .37 $ .40 $ (.48) $ .44
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Weighted average
common shares and
common share
equivalents 43,549,000 43,512,000 43,474,000 43,469,000
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
<FN>
(1) Gross profit represents sales net of cost of sales, buying and occupancy
costs.
</TABLE>
<PAGE>
<PAGE>
Independent Auditors' Report
----------------------------
The Vons Companies, Inc. and Subsidiaries
-----------------------------------------
The Board of Directors
The Vons Companies, Inc.:
We have audited the accompanying consolidated balance sheets of
The Vons Companies, Inc. and subsidiaries as of January 1, 1995
and January 2, 1994, and the related consolidated statements of
operations, shareholders' equity and cash flows for the fifty-two
week periods ended January 1, 1995 and January 2, 1994 and the
fifty-three week period ended January 3, 1993. These
consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with generally
accepted auditing standards. Those standards require that we
plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements
referred to above present fairly, in all material respects, the
financial position of The Vons Companies, Inc. and subsidiaries
at January 1, 1995 and January 2, 1994 and the results of their
operations and cash flows for the fifty-two week periods ended
January 1, 1995 and January 2, 1994 and the fifty-three week
period ended January 3, 1993, in conformity with generally
accepted accounting principles.
As discussed in Note 8 to the consolidated financial
statements, the Company adopted the provisions of the Financial
Accounting Standards Board's Statement of Financial Accounting
Standards No. 106, "Employers' Accounting for Postretirement
Benefits Other Than Pensions" in the fifty-three week period
ended January 3, 1993.
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Los Angeles, California
February 20, 1995
<PAGE>
Exhibit 24
[This page appears on KPMG Peat Marwick LLP letterhead]
INDEPENDENT AUDITORS' CONSENT
-----------------------------
The Board of Directors
The Vons Companies, Inc.:
We consent to incorporation by reference in the Registration
Statements (No. 33-42913, No. 33-39246, No. 33-41539, No. 33-
55744 and No. 33-50957) on Form S-8 of The Vons Companies, Inc.
of our report dated February 20, 1995, relating to the
consolidated balance sheets of The Vons Companies, Inc. and
subsidiaries as of January 1, 1995 and January 2, 1994, and the
related consolidated statements of operations, shareholders'
equity and cash flows for the fifty-two week periods ended
January 1, 1995 and January 2, 1994 and the fifty-three week
period ended January 3, 1993, which report appears in the Annual
Report to Shareholders and is incorporated by reference in the
January 1, 1995 annual report on Form 10-K of The Vons Companies,
Inc.
Our report refers to the Company's adoption of the
provisions of the Financial Accounting Standards Board's
Statement of Financial Accounting Standards No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions" in
the fifty-three week period ended January 3, 1993, as discussed
in Note 8 to the consolidated financial statements.
/s/ KPMG PEAT MARWICK LLP
Los Angeles, California
March 29, 1995
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Company's Consolidated Statements of Operations for the fifty-two weeks
ended January 1, 1995, the Consolidated Balance Sheets as of January 1,
1995 and the accompanying notes thereto and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-01-1995
<PERIOD-START> JAN-03-1994
<PERIOD-END> JAN-01-1995
<CASH> 9,000
<SECURITIES> 0
<RECEIVABLES> 45,400
<ALLOWANCES> 0
<INVENTORY> 359,300
<CURRENT-ASSETS> 467,800
<PP&E> 1,650,300
<DEPRECIATION> 447,300
<TOTAL-ASSETS> 2,222,000
<CURRENT-LIABILITIES> 563,900
<BONDS> 803,800
<COMMON> 4,300
0
0
<OTHER-SE> 548,100
<TOTAL-LIABILITY-AND-EQUITY> 2,222,000
<SALES> 4,996,600
<TOTAL-REVENUES> 4,996,600
<CGS> 3,767,200
<TOTAL-COSTS> 4,870,800
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 70,800
<INCOME-PRETAX> 55,000
<INCOME-TAX> 28,400
<INCOME-CONTINUING> 26,600
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 26,600
<EPS-PRIMARY> 0.61
<EPS-DILUTED> 0.61
</TABLE>
