<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
---------------------
FORM 10-Q
(Mark one)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 18, 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
-----------------------
THE VONS COMPANIES, INC.
(Exact name of registrant as specified in its charter)
Michigan 38-1623900
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
618 Michillinda Avenue, Arcadia, California 91007
(Address of principal executive offices and zip code)
Registrant's telephone number, Including area code (818) 821-7000
Not Applicable
(Former name, former address and former fiscal year,
if changed since last report)
------------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
--- ---
Shares of common stock outstanding at July 24, 1995 - 43,501,031.
<PAGE>
<TABLE>
PART I. FINANCIAL INFORMATION
Item 1: Financial Statements
THE VONS COMPANIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
AND RETAINED EARNINGS
All amounts except share data in millions of dollars and as a percentage of sales
(Unaudited)
<CAPTION>
Twelve Weeks Ended Twenty-Four Weeks Ended
--------------------------------------- ---------------------------------------
June 18, 1995 June 19, 1994 June 18, 1995 June 19, 1994
------------------ ------------------ ------------------ ------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Sales.............. $ 1,139.5 100.0% $ 1,160.2 100.0% $ 2,282.0 100.0% $ 2,304.2 100.0%
----------- ----- ----------- ----- ----------- ----- ----------- -----
Costs and expenses:
Cost of sales,
buying and
occupancy...... 849.9 74.5 892.7 76.9 1,700.9 74.6 1,749.9 75.9
Selling and
administrative
expenses....... 243.3 21.4 238.7 20.6 489.2 21.4 489.3 21.3
Amortization of
excess cost
over net assets
acquired....... 3.5 .3 3.5 .3 6.9 .3 7.0 .3
----------- ----- ----------- ----- ----------- ----- ----------- -----
1,096.7 96.2 1,134.9 97.8 2,197.0 96.3 2,246.2 97.5
----------- ----- ----------- ----- ----------- ----- ----------- -----
Operating income... 42.8 3.8 25.3 2.2 85.0 3.7 58.0 2.5
Interest expense,
net.............. 15.7 1.4 16.8 1.5 31.8 1.4 32.5 1.4
----------- ----- ----------- ----- ----------- ----- ----------- -----
Income before
income tax
provision........ 27.1 2.4 8.5 .7 53.2 2.3 25.5 1.1
Income tax
provision........ 12.6 1.1 4.0 .3 24.7 1.1 12.0 .5
----------- ----- ----------- ----- ----------- ----- ----------- -----
Net income......... 14.5 1.3 4.5 .4 28.5 1.2 13.5 .6
----- ----- ----- -----
----- ----- ----- -----
Retained earnings -
beginning of
period........... 221.8 190.2 207.8 181.2
----------- ----------- ----------- -----------
Retained earnings -
end of period.... $ 236.3 $ 194.7 $ 236.3 $ 194.7
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Income per common
share:
Net income....... $ .33 $ .10 $ .65 $ .31
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Weighted average
common shares and
common share
equivalents...... 43,817,000 43,516,000 43,785,000 43,496,000
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
<FN>
See accompanying notes to these condensed consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
THE VONS COMPANIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
All amounts in millions of dollars
(Unaudited)
<CAPTION>
June 18, January 1,
1995 1995
---------- ----------
<S> <C> <C>
ASSETS
Current assets:
Cash...................................... $ 5.8 $ 9.0
Accounts receivable....................... 36.9 45.4
Inventories............................... 322.3 359.3
Other..................................... 48.0 54.1
---------- ----------
Total current assets.................... 413.0 467.8
Property and equipment, net................. 1,194.7 1,203.0
Excess of cost over net assets acquired..... 490.9 497.8
Other....................................... 57.5 53.4
---------- ----------
TOTAL ASSETS................................ $ 2,156.1 $ 2,222.0
---------- ----------
---------- ----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities of capital lease
obligations and long-term debt.......... $ 8.8 $ 8.7
Accounts payable.......................... 272.9 308.4
Accrued liabilities....................... 237.8 246.8
---------- ----------
Total current liabilities............... 519.5 563.9
Accrued self-insurance ..................... 117.0 110.9
Deferred income taxes....................... 124.6 121.9
Other noncurrent liabilities................ 68.8 69.1
Senior debt and capital lease obligations... 423.5 484.2
Subordinated debt, net...................... 319.9 319.6
---------- ----------
Total liabilities....................... 1,573.3 1,669.6
---------- ----------
Shareholders' equity:
Common stock.............................. 4.3 4.3
Paid-in capital........................... 342.3 340.4
Retained earnings......................... 236.3 207.8
Notes receivable for stock................ (.1) (.1)
---------- ----------
Total shareholders' equity.............. 582.8 552.4
---------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY.. $ 2,156.1 $ 2,222.0
---------- ----------
---------- ----------
<FN>
See accompanying notes to these condensed consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
THE VONS COMPANIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
All amounts in millions of dollars
(Unaudited)
<CAPTION>
Twelve Weeks Ended Twenty-Four Weeks Ended
---------------------- -----------------------
June 18, June 19, June 18, June 19,
1995 1994 1995 1994
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income......................... $ 14.5 $ 4.5 $ 28.5 $ 13.5
Adjustments to reconcile net income
to cash provided by operating
activities:
Depreciation and amortization
of property and capital
leases....................... 22.8 23.6 45.9 46.9
Amortization of excess cost
over net assets acquired and
other assets................. 3.8 3.7 7.4 7.4
Amortization of debt discount
and deferred financing costs. 1.6 1.5 3.1 2.9
LIFO charge (credit)........... .8 (.5) 1.6 .8
Deferred income taxes.......... 6.4 2.3 13.1 2.5
Change in assets and
liabilities:
(Increase) decrease in
accounts receivable...... (.9) 8.2 8.5 (10.6)
(Increase) decrease in
inventories at FIFO costs 16.6 27.3 35.4 39.9
(Increase) decrease in
other current assets..... 3.8 8.4 (4.3) 4.2
(Increase) decrease in
noncurrent assets........ (2.3) (10.8) (4.0) (15.7)
Increase (decrease) in
accounts payable......... 22.5 (10.2) 6.2 (58.3)
Increase (decrease) in
accrued liabilities...... (22.3) (12.6) (9.0) 12.7
Increase (decrease) in
noncurrent liabilities... 1.4 2.7 5.8 1.5
--------- --------- --------- ---------
Net cash provided by operating
activities......................... 68.7 48.1 138.2 47.7
--------- --------- --------- ---------
Cash flows from investing activities:
Addition of property and equipment. (24.3) (24.9) (41.0) (56.4)
Disposal of property and equipment. 1.4 1.1 3.4 2.2
--------- --------- --------- ---------
Net cash used for investing
activities......................... (22.9) (23.8) (37.6) (54.2)
--------- --------- --------- ---------
Cash flows from financing activities:
Net borrowings (payments) on
revolving debt................... (19.0) (13.5) (56.9) 10.5
Decrease in net outstanding drafts. (27.3) (8.8) (41.7) (2.7)
Repurchases of senior
subordinated debentures.......... - - (1.4) -
Payments on other debt and capital
lease obligations and other...... (.2) (2.0) (3.8) (3.7)
--------- --------- --------- ---------
Net cash provided (used) by financing
activities......................... (46.5) (24.3) (103.8) 4.1
--------- --------- --------- ---------
Net cash decrease.................... (.7) - (3.2) (2.4)
Cash at beginning of period.......... 6.5 6.1 9.0 8.5
--------- --------- --------- ---------
Cash at end of period................ $ 5.8 $ 6.1 $ 5.8 $ 6.1
--------- --------- --------- ---------
--------- --------- --------- ---------
Supplemental disclosures of cash
flow information:
Cash paid during the period for:
Interest......................... $ 21.7 $ 23.1 $ 29.9 $ 30.8
--------- --------- --------- ---------
--------- --------- --------- ---------
Income taxes..................... $ 14.9 $ 10.9 $ 15.6 $ 14.5
--------- --------- --------- ---------
--------- --------- --------- ---------
Supplemental disclosures of non-cash
investing and financing activity:
Capital leases................... $ - $ - $ - $ .3
--------- --------- --------- ---------
--------- --------- --------- ---------
<FN>
See accompanying notes to these condensed consolidated financial statements.
</TABLE>
<PAGE>
THE VONS COMPANIES,INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation
The financial data included herein have been prepared by the
Company without audit. In the opinion of management, all
adjustments of a normal recurring nature necessary to present fairly
the Company's consolidated financial position at June 18, 1995 and
January 1, 1995 and the consolidated results of operations and cash
flows for the twelve and twenty-four weeks ended June 18, 1995 and
June 19, 1994 have been made. This interim information should be
read in conjunction with the consolidated financial statements
and notes thereto included in the Company's latest annual report
filed on Form 10-K. Due to seasonality and other market conditions,
the results for the twenty-four weeks ended June 18, 1995 should
not be considered as indicative of the results to be expected for
a full year.
At June 18, 1995, the Company operated 326 supermarket and food
and drug combination stores, primarily in Southern California, under
the names Vons and Pavilions. 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.
Item 2: Management's Discussion and Analysis of Financial
Condition and Results of Operations (Unaudited)
Results of Operations
For the majority of 1994, the focus of the Company's marketing
efforts was communicating the lowering of shelf prices on more than
12,000 items. In 1995, the marketing focus is being placed on Vons
entire customer offering, which combines high quality products and
customer service with competitive prices. This "Vons Is Value"
campaign was introduced in January 1995.
Substantially all of the cost containment and strategic
restructuring initiatives have been executed which included the
closing of 26 stores and the elimination of 700 administrative and
support positions. With the closure of the San Diego distribution
facility in the third quarter of 1995, the cost containment and
strategic restructuring program will be complete.
The Company's marketing focus and its commitment to a low cost
structure are long-term strategies, which 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.
The merger of two of the Company's major competitors, Food 4 Less
and Ralphs, was completed on June 14, 1995. This merger 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.
Twelve Weeks Ended June 18, 1995 Compared with the Twelve Weeks
Ended June 19, 1994
Sales. Second quarter 1995 sales were $1,139.5 million, a
decrease of $20.7 million, or 1.8%, from second quarter 1994 sales
reflecting the operation of 18 fewer stores. Same store sales increased
1.8% over second quarter 1994 sales. This represents the seventh
consecutive quarter of an improving same store sales trend. Sales for
second quarter 1995 were impacted by the "Vons Is Value" marketing
campaign and the slowly improving economic environment in Southern
California offset by competitive new store and remodel activity.
Since June 19, 1994, the Company has opened seven stores, closed 25
stores and completed 26 store remodel projects.
Costs and Expenses. Costs and expenses were $1,096.7 million
for second quarter 1995, a decrease of $38.2 million, or 3.4%, from
second quarter 1994.
Cost of sales, buying and occupancy expenses as a percentage of
sales decreased by 2.4 percentage points to 74.5% in second quarter
1995. The impact of lower prices has been offset by decreased product
costs achieved through better utilization of category management,
more effective promotional offerings and increased private brand sales.
Selling and administrative expenses as a percentage of sales
increased by 0.8 percentage points to 21.4% in second quarter 1995.
This primarily reflects increased store labor expenses due to negotiated
union wage rate increases effective October 1994 which were partially
offset by improvements in sales per labor hour.
Operating Income. Second quarter 1995 operating income was
$42.8 million, an increase of $17.5 million over second quarter 1994.
Operating margin increased to 3.8% in second quarter 1995 versus 2.2%
in second quarter 1994. These increases primarily reflect improvements
in gross margin partially offset by increased selling and administrative
expenses. Operating income before depreciation and amortization of
property, amortization of goodwill and other assets and LIFO charge,
FIFO EBITDA, was $70.2 million, or 6.2% of sales, in second quarter 1995
compared with $52.1 million, or 4.5% of sales, in second quarter 1994.
Interest Expense. Second quarter 1995 net interest expense was
$15.7 million, a decrease from second quarter 1994 net interest expense
of $16.8 million.
Income Tax Provision. Second quarter 1995 income tax provision was
$12.6 million, or a 46.5% effective tax rate. Second quarter 1994 income
tax provision was $4.0 million, or a 47.1% effective tax rate. The
decrease in the second quarter 1995 effective tax rate reflects the
increase in income before income tax provision.
Income. Second quarter 1995 net income was $14.5 million, or $.33
per share, compared with $4.5 million, or $.10 per share, in second
quarter 1994.
Twenty-Four Weeks Ended June 18, 1995 Compared with the Twenty-Four Weeks
June 19, 1994
Sales. Sales for the twenty-four weeks ended June 18, 1995 were
$2,282.0 million, a decrease of $22.2 million, or 1.0%, from the
twenty-four weeks ended June 19, 1994 reflecting the operation of
fewer stores. The 1995 year-to-date same store sales increased 1.7% over
the 1994 year-to-date sales. Sales were impacted by the "Vons Is Value"
marketing campaign and the slowly improving economic environment in
Southern California offset by competitive new store and remodel activity.
Costs and Expenses. Costs and expenses for the twenty-four weeks
ended June 18, 1995 were $2,197.0 million, a decrease of $49.2 million,
or 2.2%, from the comparable 1994 period.
Cost of sales, buying and occupancy expenses as a percentage of
sales were 74.6% for the twenty-four weeks ended June 18, 1995 a
decrease of 1.3 percentage points compared with the twenty-four weeks
ended June 19, 1994. The impact of lower prices has been offset by
decreased product costs achieved through better utilization of
category management, more effective promotional offerings and
increased private brand sales.
Selling and administrative expenses as a percentage of sales
were 21.4% for the twenty-four weeks ended June 18, 1995, an increase
of 0.1 percentage point over the comparable 1994 period which included
a $5.0 million insurance deductible charge related to the Northridge
earthquake. The increase in the year-to-date 1995 selling and
administrative expenses over the comparable 1994 period primarily
reflects increased store labor expenses due to negotiated union wage
rate increases partially offset by improvements in sales per labor hour.
Operating Income. Operating income for the twenty-four weeks
ended June 18, 1995 was $85.0 million, an increase of $27.0 million
over the comparable 1994 period. Operating margin increased to 3.7%
in the twenty-four weeks ended June 18, 1995 versus 2.5% in the
twenty-four weeks ended June 19, 1994. These increases primarily
reflect the increase in gross margin. Operating income before
depreciation and amortization of property, amortization of goodwill and
other assets, LIFO charge and earthquake insurance deductible, FIFO
EBITDA, was $139.9 million, or 6.1% of sales, for the twenty-four weeks
ended June 18, 1995 compared with $118.1 million, or 5.1% of sales, for
the twenty-four weeks ended June 19, 1994.
Interest Expense. Net interest expense for the twenty-four weeks
ended June 18, 1995 was $31.8 million, a decrease of $.7 million, from
the twenty-four weeks ended June 19, 1994.
Income Tax Provision. The income tax provision for the twenty-four
weeks ended June 18, 1995 was $24.7 million, or a 46.4% effective tax rate.
The income tax provision for the twenty-four weeks ended June 19, 1994
was $12.0 million, or a 47.1% effective tax rate. The decrease in the
year-to-date 1995 effective tax rate reflects the increase in income
before income tax provision.
Income. Net income for the twenty-four weeks ended June 18, 1995
was $28.5 million, or $.65 per share, compared with $13.5 million, or
$.31 per share, for the twenty-four weeks ended June 19, 1994. Net
income for year-to-date 1994 includes a $5.0 million, or $.07 per share,
insurance deductible charge related to the Northridge earthquake.
Liquidity and Capital Resources
The Company's primary sources of liquidity are cash flows from
operations and available credit under its revolving debt. Management
believes that these sources adequately provide for its working
capital, capital expenditure and debt service needs.
Net cash provided by operating activities was $68.7 million in
second quarter 1995 compared with $48.1 million in second quarter 1994
and $138.2 million for the twenty-four weeks ended June 18, 1995
compared with $47.7 million for the twenty-four weeks ended June 19, 1994.
These increases were due primarily to an increase in net income and changes
in assets and liabilities generally reflecting the timing of receipts and
disbursements. The ratio of current assets to current liabilities was
0.79 to 1 at June 18, 1995 compared with 0.83 to 1 at January 1, 1995.
Net cash used for investing activities was $22.9 million in second
quarter 1995 compared with $23.8 million in second quarter 1994 and
$37.6 million for the twenty-four weeks ended June 18, 1995 compared
with $54.2 million for the twenty-four weeks ended June 19, 1994. The
Company opened four stores, closed 12 stores and completed 17 store
remodel projects during the twenty-four weeks ended June 18, 1995.
The Company anticipates that total 1995 capital expenditures will
be approximately $175 million of which approximately $155 million
will be cash capital expenditures. Capital expenditures in 1995
have been and will continue to 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. In the near term, if
the Company were to reduce substantially or postpone these programs,
there would be no substantial impact on current operations and it is
likely that more cash would be available for debt servicing. In
the long term, if these programs were substantially reduced, in the
Company's opinion, its operating business and ultimately its cash flow
would be adversely impacted.
Net cash used by financing activities was $46.5 million in second
quarter 1995 compared with $24.3 million in second quarter 1994. Net
cash used by financing activities was $103.8 million for the twenty-four
weeks ended June 18, 1995 compared with net cash provided by financing
activities of $4.1 million for the twenty-four weeks ended June 19, 1994.
The level of borrowings under the Company's revolving debt is dependent
primarily upon net cash provided by operating activities, long-term
borrowing activity and capital expenditure requirements.
At June 18, 1995, the Company's revolving debt borrowings totaled
$242.8 million compared with the June 19, 1994 revolving debt borrowings
of $228.3 million. This change reflects the replacement of the $150
million Term Loan Facility with revolving debt borrowings and borrowings
relating to the capital expenditure program offset by increased income
from operations and net payments on debt. At June 18, 1995, the Company
had available unused credit of $381.6 million under its Revolving Loan,
an increase of $130.4 million since January 1, 1995. This increase is
due to decreased total borrowings as well as the issuance, outside of
the Revolving Loan, of a $70.4 million letter of credit which previously
had been issued under the Revolving Loan. For the twenty-four weeks
ended June 18, 1995, the weighted average interest cost on revolving
debt was 7.5%; the corresponding bank prime rate at June 18, 1995
was 9.0%.
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Not applicable.
Item 2. Changes in Securities
Not applicable.
Item 3. Defaults upon Senior Securities
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
On May 3, 1995, the Company held its Annual Meeting of
Shareholders in Arcadia, California. At that meeting, the
shareholders elected all four directors nominated by the Board of
Directors. The number of votes cast for, against or withheld for
each elected director were as follows:
<TABLE>
<CAPTION>
Number of Votes Cast
---------------------------------
For Against Withheld
---------- -------- ---------
<S> <C> <C> <C>
Lawrence A. Del Santo 40,711,391 - 323,731
Robert I. MacDonnell 40,575,320 - 459,802
Peter A. Magowan 40,668,645 - 366,477
William Y. Tauscher 40,698,634 - 336,488
</TABLE>
The other directors whose term of office as a director
continued after the meeting are as follows:
Steven A. Burd
William S. Davila
Fritz L. Duda
James H. Greene, Jr.
John M. Lillie
Charles E. Rickershauser, Jr.
Roger E. Stangeland
There was no other business brought to the meeting.
Item 5. Other Information
Not applicable.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
27 Financial Data Schedule
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the
quarter ended June 18, 1995.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
THE VONS COMPANIES, INC.
Date: July 25, 1995 /s/ LAWRENCE A. DEL SANTO
----------------------------------
Lawrence A. Del Santo
Chairman and
Chief Executive Officer
Date: July 25, 1995 /s/ PAMELA K. KNOUS
----------------------------------
Pamela K. Knous
Executive Vice President and
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Company's consolidated Statement of Operations for the twenty-four weeks
ended June 18, 1995, the Consolidated Balance Sheet as of June 18, 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> 6-MOS
<FISCAL-YEAR-END> JAN-01-1995
<PERIOD-END> JUN-18-1995
<CASH> 5,800
<SECURITIES> 0
<RECEIVABLES> 36,900
<ALLOWANCES> 0
<INVENTORY> 322,300
<CURRENT-ASSETS> 413,000
<PP&E> 1,682,100
<DEPRECIATION> 487,400
<TOTAL-ASSETS> 2,156,100
<CURRENT-LIABILITIES> 519,500
<BONDS> 743,400
<COMMON> 4,300
0
0
<OTHER-SE> 578,500
<TOTAL-LIABILITY-AND-EQUITY> 2,156,100
<SALES> 2,282,000
<TOTAL-REVENUES> 2,282,000
<CGS> 1,700,900
<TOTAL-COSTS> 2,197,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 31,800
<INCOME-PRETAX> 53,200
<INCOME-TAX> 24,700
<INCOME-CONTINUING> 28,500
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 28,500
<EPS-PRIMARY> 0.65
<EPS-DILUTED> 0.65
</TABLE>
