<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 16, 1996
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 22, 1996 - 43,822,951.
<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 16, 1996 June 18, 1995 June 16, 1996 June 18, 1995
------------------ ------------------ ------------------ ------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Sales.............. $ 1,261.0 100.0% $ 1,139.5 100.0% $ 2,466.6 100.0% $ 2,282.0 100.0%
----------- ----- ----------- ----- ----------- ----- ----------- -----
Costs and expenses:
Cost of sales,
buying and
occupancy...... 937.4 74.3 849.9 74.5 1,835.7 74.4 1,700.9 74.6
Selling and
administrative
expenses....... 267.1 21.2 243.3 21.4 525.6 21.3 489.2 21.4
Amortization of
excess cost
over net assets
acquired....... 3.4 .3 3.5 .3 6.9 .3 6.9 .3
----------- ----- ----------- ----- ----------- ----- ----------- -----
1,207.9 95.8 1,096.7 96.2 2,368.2 96.0 2,197.0 96.3
----------- ----- ----------- ----- ----------- ----- ----------- -----
Operating income... 53.1 4.2 42.8 3.8 98.4 4.0 85.0 3.7
Interest expense,
net.............. 13.3 1.0 15.7 1.4 26.8 1.1 31.8 1.4
----------- ----- ----------- ----- ----------- ----- ----------- -----
Income before
income tax
provision........ 39.8 3.2 27.1 2.4 71.6 2.9 53.2 2.3
Income tax
provision........ 17.1 1.4 12.6 1.1 31.4 1.3 24.7 1.1
----------- ----- ----------- ----- ----------- ----- ----------- -----
Net income......... 22.7 1.8 14.5 1.3 40.2 1.6 28.5 1.2
----- ----- ----- -----
----- ----- ----- -----
Retained earnings -
beginning of
period........... 293.4 221.8 275.9 207.8
----------- ----------- ----------- -----------
Retained earnings -
end of period.... $ 316.1 $ 236.3 $ 316.1 $ 236.3
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Income per common
and common
equivalent share:
Net income....... $ .51 $ .33 $ .90 $ .65
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Weighted average
common and common
equivalent shares 44,884,000 43,817,000 44,694,000 43,785,000
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
<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 16, December 31,
1996 1995
---------- ------------
<S> <C> <C>
ASSETS
Current assets:
Cash...................................... $ 6.8 $ 9.4
Accounts receivable....................... 40.3 31.7
Inventories............................... 313.0 350.7
Other..................................... 57.2 60.5
---------- ------------
Total current assets.................... 417.3 452.3
Property and equipment, net................. 1,188.7 1,192.5
Excess of cost over net assets acquired..... 475.9 482.8
Other....................................... 60.2 58.9
---------- ------------
TOTAL ASSETS................................ $ 2,142.1 $ 2,186.5
---------- ------------
---------- ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt and
capital lease obligations .............. $ 32.6 $ 25.7
Accounts payable.......................... 269.9 304.2
Accrued liabilities....................... 300.6 263.5
---------- ------------
Total current liabilities............... 603.1 593.4
Accrued self-insurance ..................... 135.0 128.0
Deferred income taxes....................... 119.0 118.9
Other noncurrent liabilities................ 61.4 65.0
Senior debt and capital lease obligations... 270.4 352.2
Subordinated debt, net...................... 283.5 305.7
---------- ------------
Total liabilities....................... 1,472.4 1,563.2
---------- ------------
Shareholders' equity:
Common stock.............................. 4.4 4.3
Paid-in capital........................... 349.3 343.2
Retained earnings......................... 316.1 275.9
Notes receivable for stock................ (.1) (.1)
---------- ------------
Total shareholders' equity.............. 669.7 623.3
---------- ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY.. $ 2,142.1 $ 2,186.5
---------- ------------
---------- ------------
<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 16, June 18, June 16, June 18,
1996 1995 1996 1995
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income......................... $ 22.7 $ 14.5 $ 40.2 $ 28.5
Adjustments to reconcile net income
to cash provided by operating
activities:
Depreciation and amortization
of property and capital
leases....................... 23.1 22.8 46.0 45.9
Amortization of excess cost
over net assets acquired and
other assets................. 3.7 3.8 7.4 7.4
Amortization of debt discount
and deferred financing costs. 1.5 1.6 3.0 3.1
LIFO charge ................... 1.4 .8 3.0 1.6
Deferred income taxes.......... - 6.4 2.3 13.1
Change in assets and
liabilities:
(Increase) decrease in
accounts receivable...... (3.5) (.9) (8.6) 8.5
(Increase) decrease in
inventories at FIFO costs 26.8 16.6 34.7 35.4
(Increase) decrease in
other current assets..... 1.1 3.8 1.1 (4.3)
(Increase) decrease in
noncurrent assets........ (1.5) (2.3) (3.0) (4.0)
Increase (decrease) in
accounts payable......... (10.0) 22.5 (15.5) 6.2
Increase (decrease) in
accrued liabilities...... 9.1 (22.3) 37.1 (9.0)
Increase (decrease) in
noncurrent liabilities... 1.0 1.4 3.4 5.8
--------- --------- --------- ---------
Net cash provided by operating
activities......................... 75.4 68.7 151.1 138.2
--------- --------- --------- ---------
Cash flows from investing activities:
Addition of property and equipment. (17.1) (24.3) (44.2) (41.0)
Disposal of property and equipment. 2.6 1.4 4.5 3.4
--------- --------- --------- ---------
Net cash used for investing
activities......................... (14.5) (22.9) (39.7) (37.6)
--------- --------- --------- ---------
Cash flows from financing activities:
Net borrowings (payments) on
revolving debt................... (29.1) (19.0) (79.9) (56.9)
Decrease in net outstanding drafts. (17.7) (27.3) (18.8) (41.7)
Redemptions and repurchases of
senior subordinated debentures... (15.6) - (15.6) (1.4)
Payments on other debt and capital
lease obligations and other...... 1.3 (.2) .3 (3.8)
--------- --------- --------- ---------
Net cash used by financing
activities......................... (61.1) (46.5) (114.0) (103.8)
--------- --------- --------- ---------
Net cash decrease.................... (.2) (.7) (2.6) (3.2)
Cash at beginning of period.......... 7.0 6.5 9.4 9.0
--------- --------- --------- ---------
Cash at end of period................ $ 6.8 $ 5.8 $ 6.8 $ 5.8
--------- --------- --------- ---------
--------- --------- --------- ---------
Supplemental disclosures of cash
flow information:
Cash paid during the period for:
Interest......................... $ 19.7 $ 21.7 $ 26.7 $ 29.9
--------- --------- --------- ---------
--------- --------- --------- ---------
Income taxes..................... $ 9.1 $ 14.9 $ 11.2 $ 15.6
--------- --------- --------- ---------
--------- --------- --------- ---------
Supplemental disclosures of non-cash
investing and financing activity:
Capital leases................... $ 1.9 $ - $ 7.6 $ -
--------- --------- --------- ---------
--------- --------- --------- ---------
<FN>
See accompanying notes to these condensed consolidated financial statements.
/TABLE
<PAGE>
<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 16, 1996
and January 1, 1996 and the consolidated results of operations and
cash flows for the twelve and twenty-four weeks ended June 16, 1996
and June 18, 1995 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 week period ended June 16, 1996 should
not be considered as indicative of the results to be expected for a
full year.
At June 16, 1996, the Company operated 325 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 to support the store network.
Item 2: Management's Discussion and Analysis of Financial
Condition and Results of Operations (Unaudited)
Results of Operations
Sales. Second quarter 1996 sales were $1,261.0 million, an
increase of $121.5 million, or 10.7%, over second quarter 1995 sales.
Same store sales for second quarter 1996 increased 7.1% over second
quarter 1995 sales. Sales for the twenty-four weeks ended
June 16, 1996 were $2,466.6 million, an increase of $184.6 million,
or 8.1%, over the twenty-four weeks ended June 18, 1995. The 1996
year-to-date same store sales increased 5.7% over the 1995
year-to-date sales. The increase in sales reflects favorable
response to improved customer service, the "Vons Is Value"
marketing campaign, a strengthening economy in Southern California
and an unusual number of competitor closings. For the remainder
of 1996, management does not expect same store sales comparisons
to be of the magnitude experienced in second quarter 1996 due
to the strong same store sales performance of the Company during
the second half of 1995. Since June 18, 1995, the Company has
opened 14 stores, closed 15 stores and completed 34 store
remodel projects.
Costs and Expenses. Costs and expenses were $1,207.9 million
for second quarter 1996, an increase of $111.2 million, or 10.1%, over
second quarter 1995. Year-to-date 1996 costs and expenses were $2,368.2
million, an increase of $171.2 million, or 7.8%, over year-to-date 1995.
Cost of sales and buying and occupancy expenses as a percentage
of sales were 74.3% in second quarter 1996, a decrease of 0.2 percentage
point compared with second quarter 1995. For the twenty-four weeks ended
June 16, 1996, cost of sales and buying and occupancy expenses as a
percentage of sales were 74.4%, a decrease of 0.2 percentage point
compared with the comparable 1995 period. The cost of increased
promotional activities in 1996 was offset by benefits achieved from
category management and increased private brand sales. The
improvement in cost of sales and buying and occupancy expenses
as a percentage of sales reflects decreased occupancy costs as a
percentage of sales.
Selling and administrative expenses as a percentage of sales
were 21.2% in second quarter 1996 a decrease of 0.2 percentage
point compared with second quarter 1995. Year-to-date 1996 selling
and administrative expenses as a percentage of sales were 21.3%, a
decrease of 0.1 percentage point compared with year-to-date 1995.
The cost of maintaining store service levels in 1996 has been more
than offset by the utilization of a more efficient mix of store
labor and improved sales per labor hour.
Operating Income. Second quarter 1996 operating income was
$53.1 million, an increase of $10.3 million over second quarter
1995. Operating margin increased to 4.2% in second quarter 1996
versus 3.8% in second quarter 1995. Operating income for the
twenty-four weeks ended June 16, 1996 was $98.4 million, an increase
of $13.4 million over the twenty-four weeks ended June 18, 1995.
Operating margin increased to 4.0% for the twenty-four weeks ended
June 16, 1996 versus 3.7% for the twenty-four weeks ended
June 18, 1995. Operating income before depreciation and
amortization of property, amortization of goodwill and other assets
and LIFO charge ("FIFO EBITDA") was $81.3 million, or 6.4% of sales,
in second quarter 1996 compared with $70.2 million, or 6.2% of
sales, in second quarter 1995. FIFO EBITDA was $154.8 million,
or 6.3% of sales, for the twenty-four weeks ended June 16, 1996
compared with $139.9 million, or 6.1% of sales, for the twenty-four
weeks ended June 18, 1995.
Interest Expense. Second quarter 1996 net interest expense was
$13.3 million, a decrease from second quarter 1995 net interest
expense of $15.7 million. Year-to-date 1996 net interest expense
was $26.8 million, a decrease of $5.0 million from the comparable
1995 period. The decrease in 1996 interest expense primarily reflects
lower weighted average revolving debt borrowings.
Income Tax Provision. Second quarter 1996 income tax provision was
$17.1 million, or a 43.0% effective tax rate. Second quarter 1995
income tax provision was $12.6 million, or a 46.5% effective tax rate.
The income tax provision for the twenty-four weeks ended June 16, 1996
was $31.4 million, or a 43.9% effective tax rate. 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 decrease in the 1996
effective tax rate reflects the increase in income before income
tax provision. The effective tax rate is impacted by amortization
of excess cost over net assets acquired, the majority of which is
not deductible for tax purposes.
Income. Second quarter 1996 net income was $22.7 million, or
$.51 per share, compared with $14.5 million, or $.33 per share,
in second quarter 1995. Net income for the twenty-four weeks ended
June 16, 1996 was $40.2 million, or $.90 per share, compared with
$28.5 million, or $.65 per share, for the twenty-four weeks ended
June 18, 1995.
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 $75.4 million in
second quarter 1996 compared with $68.7 million in second quarter
1995 and $151.1 million for the twenty-four weeks ended June 16, 1996
compared with $138.2 million for the twenty-four weeks ended
June 18, 1995. The ratio of current assets to current liabilities was
0.69 to 1 at June 16, 1996 compared with 0.76 to 1 at December 31, 1995.
Net cash used for investing activities was $14.5 million in
second quarter 1996 compared with $22.9 million in second quarter
1995 and $39.7 million for the twenty-four weeks ended June 16, 1996
compared with $37.6 million for the twenty-four weeks ended
June 18, 1995. The Company opened five stores, closed eight stores
and completed 14 store remodel projects during the twenty-four weeks
ended June 16, 1996. The Company anticipates that total 1996 capital
expenditures will be approximately $200 million of which approximately
$145 million will be cash capital expenditures. Capital expenditures
in 1996 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 $61.1 million in
second quarter 1996 compared with $46.5 million in second quarter
1995. Net cash used by financing activities was $114.0 million
for the twenty-four weeks ended June 16, 1996 compared with $103.8
million for the twenty-four weeks ended June 18, 1995. These changes
reflect the mandatory redemption of $15.6 million of the Company's
6-5/8% Senior Subordinated Debentures. 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 16, 1996, the Company's revolving debt borrowings
totaled $97.9 million compared with the December 31, 1995 revolving
debt borrowings of $177.8 million. This decrease primarily reflects
the excess of cash provided from operating activities of $151.1
million over capital expenditures of $44.2 million. At June 16, 1996,
the Company had available unused credit of $527.0 million under its
Revolving Loan. For the twenty-four weeks ended June 16, 1996, the
weighted average interest cost on revolving debt was 7.2%; the
corresponding bank prime rate at June 16, 1996 was 8.25%.
Cautionary Statement for Purposes of "Safe Harbor Provisions" of
the Private Securities Litigation Reform Act of 1995
Certain statements contained in this filing are "forward-looking
statements" within the meaning of the Private Securities Litigation
Reform Act of 1995 and are thus prospective. Such forward-looking
statements are subject to risks, uncertainties and other factors which
could cause actual results to differ materially from future results
expressed or implied by such forward- looking statements. Potential
risks and uncertainties include, but are not limited to, competitive
pressures from other major supermarket operators, economic conditions
in the Company's primary markets and the other uncertainties detailed
from time to time in the Company's Securities and Exchange Commission
filings.
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The Company has been served as a defendant in two actions,
Tropin et al. v. Thenen et al. and Walco Investments, Inc.
------------------------------ -----------------------
et al. v. Thenen et al., which have been pending since
-----------------------
December 21, 1993 in the United States District Court for
The Southern District of Florida. In each case, the
plaintiffs seek unspecified damages, alleging that
certain defendants, a group of individuals and
companies not including the Company, acted together to
illegally and fraudulently obtain money through the use of
entities in the diverting business, which involves the
purchase of goods at a discount for resale to others.
The Company and certain other defendants are alleged
to be responsible for employees or agents who
provided false information to lenders and other persons
which induced them to extend credit to or to invest
in the fraudulent enterprises. In addition, the Company
and other defendants are alleged to have benefited
from the enterprises' fraudulent activities because the
defendants purchased goods from the enterprises at a price
lower than would have been available but for the fraudulent
activities. The claims brought against the Company and other
defendants include fraud, violation of state and federal
anti-racketeering laws, conversion and aiding and abetting
fraud and conspiracy. The Company was served as a party
to the actions in November 1995. While answers to the
actions have not yet been filed because of jurisdictional
defenses raised by the Company, extensive discovery involving
the Company recently commenced, and the Company is defending
the lawsuits vigorously. Trial is set to commence in
October, 1996.
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 8, 1996, 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>
William S. Davila 40,454,089 - 690,527
James H. Greene, Jr. 40,452,079 - 692,537
John M. Lillie 40,796,006 - 348,610
Charles E. Rickershauser, Jr. 40,453,862 - 690,754
</TABLE>
The other directors whose term of office as a director
continued after the meeting are as follows:
Steven A. Burd
Lawrence A. Del Santo
Fritz L. Duda
Richard E. Goodspeed
Robert I. MacDonnell
Peter A. Magowan
Roger E. Stangeland
William Y. Tauscher
The shareholders also approved an amendment to The Vons
Companies, Inc. 1990 Stock Option and Restricted Stock Plan to
increase the authorized number of shares to be issued thereunder
from 4,000,000 to 6,000,000 shares and to implement a per employee
share limitation of 500,000 shares per year. The number of votes
cast for the amendment were 34,467,256, against were 6,597,611 and
votes abstained were 79,749.
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 16, 1996.
<PAGE>
<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 22, 1996 /s/ LAWRENCE A. DEL SANTO
----------------------------------
Lawrence A. Del Santo
Chairman and
Chief Executive Officer
Date: July 22, 1996 /s/ PAMELA K. KNOUS
----------------------------------
Pamela K. Knous
Executive Vice President,
Chief Financial Officer and
Treasurer
<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 16,1996, the Consolidated Balance Sheet as of June 16, 1996
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> DEC-31-1995
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-16-1996
<CASH> 6800
<SECURITIES> 0
<RECEIVABLES> 40300
<ALLOWANCES> 0
<INVENTORY> 313000
<CURRENT-ASSETS> 417300
<PP&E> 1740100
<DEPRECIATION> 551400
<TOTAL-ASSETS> 2142100
<CURRENT-LIABILITIES> 603100
<BONDS> 553900
0
0
<COMMON> 4400
<OTHER-SE> 665300
<TOTAL-LIABILITY-AND-EQUITY> 2142100
<SALES> 2466600
<TOTAL-REVENUES> 2466600
<CGS> 1835700
<TOTAL-COSTS> 1835700
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 26800
<INCOME-PRETAX> 71600
<INCOME-TAX> 31400
<INCOME-CONTINUING> 40200
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 40200
<EPS-PRIMARY> 0.90
<EPS-DILUTED> 0.90
</TABLE>
