<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 December 31, 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
----------------------
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.[X]
Aggregate market value of voting stock held by non-
affiliates of the registrant as of February 23, 1996: Common
Stock, par value $.10 per share - $788,551,290.
The number of shares of Common Stock outstanding as of
February 23, 1996 - 43,564,457.
DOCUMENTS INCORPORATED BY REFERENCE: Portions of the Annual
Report to Shareholders for fiscal year ended December 31, 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 8, 1996, are incorporated by
reference into Part III, to be filed no later than May 5, 1996.
<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 December 31, 1995, Vons operated 328 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. Consistent
with the Vons Value Program, the 1995 marketing campaign
incorporated the slogan "Vons Is Value." These programs
emphasize the Vons Value formula which combines competitive
prices with customer service and high quality products. Newly
reduced prices, advertised weekly specials, free membership club
savings and double coupons are integral parts of the Vons
offering. Another important component of the Vons Value Program
is an increase in the amount of labor allocated for customer
service and check-out which the Company believes has increased
customer satisfaction.
The cost containment and strategic restructuring program,
undertaken in 1993, included the accelerated closure of
underperforming facilities, a reduction in administrative and
support staff positions and the closure of a distribution
facility. With the closure of the San Diego distribution
facility in 1995, substantially all of the cost containment and
strategic restructuring initiatives have been executed.
The Company's programs are long-term strategies. In
aggregate, these programs are initially intended to benefit sales
by funding lower prices and promotions, 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 centralized functions
for marketing, advertising, buying, real estate development,
management information systems, distribution, manufacturing,
accounting and administration to maximize operating leverage and
profitability.
Both store formats, Vons and Pavilions, offer extensive
assortments of food products, including departments for dry
groceries, produce, meat, seafood, dairy, wine and liquor. The
majority of stores offer such service departments as hot
bakeries, service floral, delicatessens, service meat departments
and banking facilities. While most Vons stores offer limited
assortments of general merchandise, including greeting cards and
health and beauty care items, many Pavilions stores offer a
larger health and beauty care department including cosmetics.
Selected stores offer a party shop, sausage and smoke shop, bagel
shop, sushi bar and high quality prepared Chinese food.
Approximately one-third of the stores offer full-service
pharmacies.
New Store Openings and Store Remodel Projects
The Company will continue to augment sales growth through
the continuation of its new store opening program and ongoing
chainwide remodel program. The Company plans to open 16 new
stores, including ten replacement stores, in 1996. In 1995, the
Company maintained its goal of having 80% of its stores either
newly opened or remodeled within the preceding five years.
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 37, 14 and 59 store remodel projects in 1995, 1994 and
1993, respectively.
Vons capital expenditures for store projects were $130.5
million and $120.0 million in 1995 and 1994, respectively. It is
anticipated that 1996 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>
1993:
Beginning store count...... 304 32 9 - 345
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 -
------ --------- -------- ------ ------
Ending store count......... 293 33 0 8 334
------ --------- -------- ------ ------
1995:
Stores opened.............. 13 - - - 13
Stores closed or sold...... (11) - - (8) (19)
------ --------- -------- ------ ------
Ending store count......... 295 33 0 - 328
------ --------- -------- ------ ------
------ --------- -------- ------ ------
Average gross square
feet per store at
December 31, 1995........ 35,100 43,100 - - 35,900
------ --------- -------- ------ ------
------ --------- -------- ------ ------
- -------------------
/TABLE
<PAGE>
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.
Additionally, the Company closes stores based on replacement
strategies or lease renewals. Management expects to continue
these types of store closures in the future.
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, San Bernardino, San Diego, San Luis Obispo,
Santa Barbara, 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.
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. This trend is expected to continue.
The merger of two of the Company's major competitors, Food 4
Less Supermarkets, Inc. and Ralphs Grocery Company (the "Ralphs
Merger") was completed on June 14, 1995. This merger has
resulted in a change in the composition of the Company's
competitors as certain trade names were eliminated and store
format conversions occurred. In addition in February 1996,
certain of the Smith's Food and Drug Centers in Southern
California were sold to other supermarket operators including
the Company and others were closed awaiting sale for
supermarket or other use (the "Smith's Southern
California Disposition"). The Company does not believe
that the effects of the Ralphs Merger or the Smith's
Southern California Disposition on the already competitive
marketplace will have a material impact on the Company's
sales and earnings prospects.
Both of the Company's 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. This club 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 direct mail, newspaper, television and radio.
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 in 1994. Vons believes that its strength is its ability to
deliver a high value shopping experience through a blend of high
quality products, superior customer service and product
assortments at competitive prices combined with VonsClub, double
coupons and advertised weekly specials.
Merchandising and Store Operations
An average store offers approximately 30,000 to 40,000
merchandise items. Vons has historically emphasized brand-name
grocery products and quality and freshness in its produce, meat
and seafood selections. 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.
The private brand "Select" was introduced in 1994. This upscale
private brand offers additional opportunities for sales and
profits. In 1994, the Company set a goal of increasing private
brand sales to 16% of sales. In 1995, the Company surpassed this
goal with private brand sales accounting for 17% of sales. The
Company intends to increase this percentage over time through
marketing its branded items and introducing 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 continue to decrease its operating
costs through aggressive buying, introduction and maintenance
of various merchandising and technological innovations and
stringent cost controls.
The Company is actively pursuing productivity and cost
reduction initiatives as part of an industry-wide effort known as
Efficient Consumer Response ("ECR"). As part of this effort, an
information-driven support system which tracks scanned purchases,
advertising and promotions on a store-specific basis is being
installed to provide information for efficient ordering. This
system also assists category managers to achieve their goal of
efficient assortment which reduces the number of products
offered without compromising customer satisfaction. A
neighborhood-specific product assortment with efficient space
management improves in-stock conditions and reduces inventory.
Vons has developed systems to give store managers more
control over store merchandising needs. The Company improves the
consistency of store operations through its policy to develop
store managers internally. All store managers participate in a
bonus program which is based primarily upon their individual
store sales and profit as well and are included in the Company's
stock option program.
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.
Support and Other Services
In 1995, the Company operated a fluid milk processing
facility, an ice cream plant and a central bakery.
Vons operates distribution facilities in California, located
in El Monte and Santa Fe Springs. The Company closed its San
Diego facility in third quarter 1995, eliminating redundant
distribution capacity. The Company utilizes computerized
inventory and labor management systems throughout its
distribution network. As of December 31, 1995, Vons operated
a fleet of 441 tractors and 1,160 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
1995 represented inventories supplied by these distribution
facilities, 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 December 31, 1995, Vons employed approximately 10,800
full-time and 18,800 part-time employees as follows:
<TABLE>
<CAPTION>
Non-
Union Union Total
------ ------ -------
<S> <C> <C> <C>
Hourly.................. 27,700 600 28,300
Salaried................ - 1,300 1,300
------ ------ -------
Total Employees......... 27,700 1,900 29,600
------ ------ -------
------ ------ -------
</TABLE>
In the fall of 1994, the Company negotiated a four-year
contract with the International Brotherhood of Teamsters'
Union.
In the fall of 1995, the Company negotiated a four-year
contract with the United Food and Commercial Workers'
International 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 62 Chairman of the Board
and Chief Executive Officer
Richard E. Goodspeed 59 President and Chief
Operating Officer
Phillip E. Hawkins 44 Senior Vice President
Stores
Susan M. Klug 36 Senior Vice President
Marketing
Pamela K. Knous 41 Executive Vice President,
Chief Financial Officer and
Treasurer
Terry R. Peets 51 Executive Vice President
Harold E. Rudnick 47 Senior Vice President
Retail Purchasing
Terrence J. Wallock 51 Executive Vice President,
General Counsel and
Secretary
</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 Chairman of the Board in May
1995. He served as Director and Vice Chairman of the Board from
April 1994 to May 1995. Mr. Del Santo continues to serve as
Chief Executive Officer of the Company, a position he has held
since 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 elected a Director of the Company on
February 21, 1996. Mr. Goodspeed also continues in the position
of President and Chief Operating Officer of the Company, to
which he was appointed 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. Hawkins was appointed Senior Vice President, Stores of
the Company in June 1995. Mr. Hawkins served as Senior Vice
President, Vons from April 1994 to June 1995 and as Group Vice
President, Perishables from August 1992 to April 1994. Mr.
Hawkins had been Vice President & General Manager, Pavilions from
April 1991 to August 1992 and Vice President, Sales and Marketing
of the Company from November 1989 to April 1991.
Ms. Klug was appointed Senior Vice President, Marketing of
the Company in October 1994. Prior to joining the Company, Ms.
Klug had been with Catalina Marketing in various positions since
1989, rising to the position of Vice President of Western United
States.
Ms. Knous was appointed Treasurer of the Company in December
1995 and continues in the position of Executive Vice President
and Chief Financial Officer of the Company, which she has held
since May 1995. Ms. Knous served as Senior Vice President and
Chief Financial Officer from July 1994 to May 1995. 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.
Mr. Peets was appointed Executive Vice President of the
Company in September 1995. Prior to joining the Company, Mr.
Peets had been with Ralphs Grocery Company in various positions
since 1977, rising to the position of Executive Vice President.
Mr. Rudnick was appointed Senior Vice President, Retail
Purchasing of the Company in May 1995. Mr. Rudnick served as
Senior Vice President, Procurement of the Company from April 1994
to May 1995. Mr. Rudnick was Group Vice President, National
Accounts of the Company from June 1992 to April 1994. From
October 1985 to June 1992, Mr. Rudnick was Vice President,
Grocery/Frozen Food Service of the Company.
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.
ITEM 2: PROPERTIES
As of December 31, 1995, the Company leased 239 of its
stores and owned 89 of its stores. At December 31, 1995, 204 of
the Company's 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 2019. 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>
1996-2000.......... 6
2001-2005.......... 16
2006-2010.......... 22
2011-2015.......... 23
2016-2020.......... 27
2021 and thereafter 145
</TABLE>
The Company has a $113.0 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
totaling $13.5 million due in varying monthly installments with
maturity dates from 1997 to 2009.
The Company's 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.
The Company 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.
The Company leases a distribution facility located in Santa
Fe Springs, California. This distribution facility includes
several warehouses and a maintenance operation. The facility
covers approximately 1,040,000 square feet located on
approximately 78 acres of land. The lease expires in 2001 with
two five-year and one one-year options to extend.
The Company operates a 450,000-square-foot forward buy
warehouse located in the City of Industry, California under a
lease expiring in 1996 with two three-year options to extend.
The Company also leases a 95,000-square-foot frozen food
distribution facility in Ontario, California under a lease
expiring in 1996 with three six-month options to extend. The
Company closed its distribution facility in San Diego, California
in third quarter 1995. The lease on the San Diego
facility is scheduled to expire in 2002, and the Company is in
the process of disposing of this property.
The Company 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 December 31,
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 January 31, 1996, there were
approximately 6,858 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
December 31, January 1,
1995 1995
----------------- -----------------
High Low High Low
---- --- ---- ---
<S> <C> <C> <C> <C>
First quarter..... $20 3/4 $17 5/8 $18 5/8 $16 1/8
Second quarter.... 21 7/8 19 1/4 18 3/8 16
Third quarter..... 24 3/8 20 1/4 18 5/8 15 1/8
Fourth quarter.... 28 1/4 22 7/8 21 1/2 17 3/4
</TABLE>
The Company paid no dividends on its common stock in fiscal
years 1995, 1994, and 1993. 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 $83.0 million
available for dividends and distributions at December 31, 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
December 31, 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
December 31, 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
December 31, 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 8, 1996, 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 8, 1996, 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 8, 1996, 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 8, 1996, where it
appears under the captions "Executive Compensation - Compensation
Committee Interlocks and Insider Participation" and "Certain
Transactions."
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 December 31, 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 December 31, 1995,
January 1, 1995 and
January 2, 1994.............. 21
Consolidated Balance Sheets as
of December 31, 1995 and
January 1, 1995.............. 22
Consolidated Statements of Cash
Flows for the fiscal years
ended December 31, 1995,
January 1, 1995 and
January 2, 1994.............. 23
Consolidated Statements of
Shareholders' Equity for the
fiscal years ended December 31,
1995, January 1, 1995 and
January 2, 1994.............. 24
Notes to the Consolidated
Financial Statements......... 25-35
Independent Auditors' Report..... 36
(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 December 31, 1995.
<PAGE>
<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
Chairman of the Board and
Chief Executive Officer
Date: March 4, 1996
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
--------- ----- ----
/S/ LAWRENCE A. DEL SANTO Chairman March 4, 1996
- --------------------------------- of the Board
Lawrence A. Del Santo and Chief
Executive
Officer
/S/ PAMELA K. KNOUS Executive Vice March 4, 1996
- --------------------------------- President,
Pamela K. Knous Chief Financial
Officer (Chief
Accounting
Officer) and
Treasurer
/S/ STEVEN A. BURD Member-Board March 4, 1996
- --------------------------------- of Directors
Steven A. Burd
/S/ WILLIAM S. DAVILA Member-Board March 4, 1996
- --------------------------------- of Directors
William S. Davila
/S/ FRITZ L. DUDA Member-Board March 4, 1996
- --------------------------------- of Directors
Fritz L. Duda
/S/ JAMES H. GREENE, JR. Member-Board March 4, 1996
- --------------------------------- of Directors
James H. Greene, Jr.
/S/ JOHN M. LILLIE Member-Board March 4, 1996
- --------------------------------- of Directors
John M. Lillie
Member-Board March __, 1996
- --------------------------------- of Directors
Robert I. MacDonnell
/S/ PETER A. MAGOWAN Member-Board March 4, 1996
- --------------------------------- of Directors
Peter A. Magowan
/S/ CHARLES E. RICKERSHAUSER, JR. Member-Board March 4, 1996
- --------------------------------- of Directors
Charles E. Rickershauser, Jr.
/S/ ROGER E. STANGELAND Member-Board March 4, 1996
- --------------------------------- of Directors
Roger E. Stangeland
Member-Board March __, 1996
- --------------------------------- of Directors
William Y. Tauscher
Member-Board March __, 1996
- --------------------------------- of Directors
Richard E. Goodspeed
<PAGE>
<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
- ------- ---------------------- --------------------------
13 Portions of the Annual Report
to Shareholders for the
fiscal year ended December 31,
1995.
24 Independent Auditors' Consent.
27 Financial Data Schedule.
Management Contracts or
Compensatory Plans or
Arrangements:
10.11.1 Amendment 1994-1 dated
December 23, 1994 to The
Vons Companies, Inc.
401(k) Wrap-Around Plan
effective October 18, 1993.
10.17 The Vons Companies, Inc. 1996
Officer and Administrative
Bonus Plan.
<PAGE>
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.
10.1 Revolving Loan Agreement Exhibit 10.1.6 to Registrant's
dated February 17, 1995 Quarterly Report on Form 10-Q
by and among the Registrant, for quarter ended March 26, 1995.
the banks named therein, and
Bank of America NT & SA
and The Chase Manhattan Bank,
N.A. as managing agents.
10.1.1 Amendment to Revolving Loan Exhibit 10.1.7 to Registrant's
Agreement dated February 17, Quarterly Report on Form 10-Q
1995 by and among the for quarter ended October 8,
Registrant, the banks named 1995.
therein, and Bank of America
NT & SA and The Chase
Manhattan Bank, N.A. as
managing agents.
10.2 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.
10.3 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.
10.3.1 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.
10.3.2 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.
10.4 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.
10.5 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.
Management Contracts or
Compensatory Plans or Arrangements:
10.6 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.
10.7 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.
10.7.1 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.
10.8 Directors' Stock Option Plan Appendix A to Registrant's
dated September 17, 1991. Proxy Statement for Annual
Meeting of Shareholders on
May 13, 1992.
10.9 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."
10.10 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.
10.11 The Vons Companies, Inc. Exhibit 10.27 to Registrant's
401(k) Wrap-Around Plan Annual Report on Form 10-K
effective October 18, 1993. for fiscal year ended
January 2, 1994.
10.12 Employment Agreement between Exhibit 10.28 to Registrant's
the Registrant and Lawrence A. Quarterly Report on Form 10-Q
Del Santo dated April 26, 1994. for quarter ended June 19, 1994.
10.13 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.
10.14 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.
10.15 Employment Arrangement Exhibit 10.24 to Registrant's
between the Registrant Quarterly Report on Form 10-Q
and Terry R. Peets for quarter ended October 8,
dated September 6, 1995. 1995.
10.16 Severance Agreement Exhibit 10.25 to Registrant's
between the Registrant Quarterly Report on Form 10-Q
and Terry R. Peets for quarter ended October 8,
dated September 6, 1995. 1995.
<PAGE>
Exhibit 13
THE VONS COMPANIES, INC. AND SUBSIDIARIES
- -----------------------------------------
Five-Year Selected Financial Data
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 As of and
for the 53 for the 52
As of and for the 52 Weeks Ended Weeks Ended Weeks Ended
(in millions of ---------------------------------------- ------------ ------------
dollars except December 31, January 1, January 2, January 3, December 29,
share data) 1995 1995 1994 1993 1991
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Summary of
Operations:
Sales $ 5,070.7 $ 4,996.6 $ 5,074.5 $ 5,595.5 $ 5,350.2
Restructuring
charges - 33.0 56.9 - -
Operating
income 194.1 125.8 135.8 219.1 197.1
Interest
expense, net 67.3 70.8 66.0 71.5 86.4
Income before
income tax
provision 126.8 55.0 69.8 147.6 110.7
Income before
extraordinary
item and
cumulative
effect of
change in
accounting
for retiree
medical
benefits 68.1 26.6 33.0 82.1 66.4
Income before
cumulative
effect of
change in
accounting
for retiree
medical
benefits 68.1 26.6 31.6 69.3 60.1
Net income 68.1 26.6 31.6 53.8 60.1
Income
applicable to
common
shareholders 68.1 26.6 31.6 53.8 60.1
Income per
common and
common equivalent
share before
extraordinary
item and
cumulative
effect of
change in
accounting
for retiree
medical
benefits 1.55 .61 .76 1.89 1.60
Income per
common and
common equivalent
share before
cumulative
effect of
change in
accounting
for retiree
medical
benefits 1.55 .61 .73 1.60 1.45
Net income per
common and
common equivalent
share 1.55 .61 .73 1.24 1.45
Dividends paid
on common
stock - - - - -
Financial
Position:
Working capital
(deficit) (141.1) (96.1) (69.3) (74.9) (64.2)
Total assets 2,186.5 2,222.0 2,249.5 2,066.0 1,863.2
Long-term debt:
Capital lease
obligations 53.4 58.0 62.7 56.4 42.3
Senior debt 298.8 426.2 497.2 389.2 272.2
Subordinated
debt, net 305.7 319.6 322.1 342.5 376.8
Common
shareholders'
equity 623.3 552.4 524.9 493.2 437.7
Shareholders'
equity per
common share 14.32 12.73 12.11 11.38 10.12
Other Data:
Weighted
average
common
shares during
year,
including
common share
equivalents 43,948,000 43,560,000 43,501,000 43,512,000 41,583,000
Outstanding
common
shares at
year end 43,533,000 43,383,000 43,342,000 43,335,000 43,246,000
/TABLE
<PAGE>
<PAGE>
THE VONS COMPANIES, INC. AND SUBSIDIARIES
- -----------------------------------------
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Results of Operations
<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 Ended
---------------------
December 31, 1995 January 1, 1995 January 2, 1994
----------------- ----------------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Sales $5,070.7 100.0% $4,996.6 100.0% $5,074.5 100.0%
Costs and expenses:
Cost of sales, buying
and occupancy 3,790.2 74.8 3,767.2 75.4 3,801.4 74.9
Selling and
administrative
expenses 1,071.4 21.1 1,055.5 21.1 1,065.4 21.0
Amortization of excess
cost over net assets
acquired 15.0 .3 15.1 .3 15.0 .3
Restructuring charges - - 33.0 .7 56.9 1.1
Operating income 194.1 3.8 125.8 2.5 135.8 2.7
Interest expense, net 67.3 1.3 70.8 1.4 66.0 1.3
Income before income
tax provision 126.8 2.5 55.0 1.1 69.8 1.4
Income tax provision 58.7 1.2 28.4 .6 36.8 .7
Income before
extraordinary item 68.1 1.3 26.6 .5 33.0 .7
Extraordinary item - - - - (1.4) (.1)
Net income 68.1 1.3 26.6 .5 31.6 .6
Income per common and
common equivalent
share:
Income before
extraordinary item 1.55 .61 .76
Extraordinary item - - (.03)
Net income 1.55 .61 .73
</TABLE>
<PAGE>
<PAGE>
In late 1993, Vons began a company-wide cost containment and
strategic restructuring program to improve sales and
profitability. The program generated cost savings which were
reinvested in shelf pricing, promotions and customer service.
The most significant savings were generated from the accelerated
closure of 26 underperforming stores, the elimination of 700
administrative and support staff positions and the closing of a
distribution facility (see Note 14 to the Consolidated Financial
Statements included elsewhere herein). With the closing of the
Company's San Diego distribution facility in third quarter of
1995, substantially all of the cost containment and strategic
restructuring initiatives have been executed. However, key to
the Company's ongoing strategy is its commitment to cost
containment, productivity and efficiency in order to maintain its
competitive position.
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 1995 merger of two of the Company's major
competitors, Food 4 Less Supermarkets, Inc. and Ralphs
Grocery Company, resulted in a change in the composition
of the Company's competitors as certain trade names were
eliminated and store format conversions occurred. 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 December 31, 1995 with
Fifty-Two Weeks Ended January 1, 1995
Sales. Sales for 1995 were $5,070.7 million, an increase
of $74.1 million, or 1.5%, over 1994. Same store sales
increased 3.5% over 1994 sales. The increase in sales
reflects the favorable consumer response to improved
customer service, the "Vons Is Value" marketing campaign
and the slowly improving economic environment in Southern
California offset by competitive new store, remodel and
conversion activity. In 1995, the Company opened 13 new
stores, closed 19 stores and completed 37 store remodel
projects.
Costs and Expenses. Costs and expenses for 1995
were $4,876.6 million, an increase of $5.8 million, or
0.1%, over the comparable 1994 period.
Cost of sales and buying and occupancy expenses
as a percentage of sales for 1995 were 74.8%, a decrease
of 0.6 percentage point from 1994. The impact of lower
prices has been more than 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 21.1% in 1995, comparable to 1994, which
included a $5.0 million insurance deductible charge related
to the Northridge earthquake. This reflects higher
service levels in the stores as well as negotiated union
wage rate increases which were offset by a more efficient
mix of store labor.
The Company recorded restructuring charges of $33.0
million, or $.45 per share, in 1994 (see Note 14 to
the Consolidated Financial Statements included elsewhere
herein).
Operating Income. Operating income for 1995 was
$194.1 million, an increase of $68.3 million, or 54.3%,
over 1994. Operating margin increased to 3.8% in 1995
versus 2.5% in 1994. Excluding the 1994 restructuring
charges, results for 1994 were $158.8 million, or 3.2%
of sales. These increases primarily reflect an increase
in gross margin. Operating income before depreciation
and amortization of property, amortization of goodwill
and other assets, LIFO charge, earthquake deductible
and restructuring charges ("FIFO EBITDA") was $315.0
million, or 6.2% of sales, in 1995 compared with $284.3
million, or 5.7% of sales, in 1994.
Interest Expense. Net interest expense for 1995 was
$67.3 million, a decrease of $3.5 million, or 4.9%, from
1994. This decrease was due to lower average revolving
debt borrowings partially offset by higher weighted
average interest cost on revolving debt. The ratio of
FIFO EBITDA to net interest expense increased to 4.7 times
in 1995 versus 4.0 times in 1994.
Income Tax Provision. The income tax provision in 1995
was $58.7 million, or a 46.3% effective tax rate. The income
tax provision in 1994 was $28.4 million, or a 51.6% effective
tax rate. Excluding the restructuring charge, the effective
tax rate for 1994 was 48%. The decrease in the 1995 effective
tax rate reflects the increase in income before income
tax provision. The effective tax rate is impacted by
amortization of excess of cost over net assets acquired, the
majority of which is not deductible for tax purposes.
Income. Net income for 1995 was $68.1 million, or $1.55
per share, compared with net income of $26.6 million, or $.61
per share, for 1994. In addition to improved operating results,
this increase reflects the impact of the 1994 restructuring
charges of $33.0 million, or $.45 per share.
New Pronouncements by Financial Accounting Standards
Board. The Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 123
("SFAS No. 123") "Accounting for Stock Based Compensation"
in October 1995 which is effective for fiscal years
beginning after December 15, 1995. SFAS No. 123
encourages companies to adopt the fair value method of
accounting for employee stock compensation plans. SFAS
No. 123 allows companies to retain the current method of
accounting for stock compensation as set forth in
Accounting Principles Board Opinion 25, "Accounting for
Stock Issued to Employees." SFAS No. 123 requires expanded
footnote disclosure for both methods of accounting. The
Company expects to retain the current method of accounting.
Accordingly, the expected impact of SFAS No. 123 on the
Company's consolidated financial statements is expanded
footnote disclosure.
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. 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 and buying and occupancy expenses as a
percentage of sales for 1994 were 75.4%, an increase of 0.5
percentage point 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
point 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 (see Note 14 to the
Consolidated Financial Statements included elsewhere herein).
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. 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.
Labor Contract Status
In the fall of 1994, the Company negotiated a four-year
contract with the International Brotherhood of Teamsters Union.
In the fall of 1995, the Company negotiated a four-year
contract with the Southern California United Food and
Commercial Workers International Unions.
Liquidity and Capital Resources
The Company's primary sources of liquidity are cash flows
from operations and available credit under its Revolving Loan.
Management believes that these sources adequately provide for
its working capital, capital expenditure and debt service
needs.
Net cash provided by operating activities was $239.4
million in 1995 compared with $179.8 million in 1994. This
change primarily reflects 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 0.76 to 1 at
December 31, 1995 compared with 0.83 to 1 at January 1, 1995.
The decrease in the ratio of current assets to current
liabilities reflects the maturity of $15.6 million of the
6-5/8% Senior Subordinated Debentures in May 1996.
Net cash used for investing activities was $91.2 million
in 1995 compared with $117.5 million in 1994. This decrease
reflects lower than anticipated 1995 capital expenditures
since certain store projects were delayed until 1996. Total
capital expenditures in 1995, including the present value
of commitments under operating leases, were $142.6 million.
The Company anticipates that total 1996 capital expenditures
will be approximately $225 million, of which approximately
$160 million will be cash capital expenditures and approximately
$65 million will represent the present value of commitments
under operating leases. This capital expenditure level
contemplates the opening of approximately 16 new stores,
including ten replacement stores, and the completion of
approximately 30 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 1996 cash capital expenditures
will be funded out of cash provided by operations, the
Revolving Loan, 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 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 $147.8 million
in 1995 compared with $61.8 million in 1994. The level of
borrowings under the Company's revolving debt is
dependent primarily upon cash flows from operations and
capital expenditure requirements.
At December 31, 1995, the Company's revolving debt
borrowings totaled $177.8 million and the Company had
available unused credit of $446.4 million. The weighted
average interest cost for 1995 on the Company's revolving
debt was 7.5%. At December 31, 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
revolving debt.
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.
Cautionary Statement for Purposes of "Safe Harbor
Provisions" of the Private Securities Litigation Reform
Act of 1995
Except for historical facts, all matters discussed in
this report which are forwarded looking involve risks and
uncertainties. 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>
<TABLE>
THE VONS COMPANIES, INC. AND SUBSIDIARIES
- -----------------------------------------
Consolidated Statements of Operations
<CAPTION>
Fiscal Year Ended
-----------------------------------------
All amounts except share data December 31, January 1, January 2,
in millions of dollars 1995 1995 1994
------------- ------------ ------------
<S> <C> <C> <C>
Sales $ 5,070.7 $ 4,996.6 $ 5,074.5
------------- ------------ ------------
Costs and expenses:
Cost of sales, buying and
occupancy 3,790.2 3,767.2 3,801.4
Selling and administrative
expenses 1,071.4 1,055.5 1,065.4
Amortization of excess cost
over net assets acquired 15.0 15.1 15.0
Restructuring charges - 33.0 56.9
------------- ------------ ------------
4,876.6 4,870.8 4,938.7
------------- ------------ ------------
Operating income 194.1 125.8 135.8
Interest expense, net 67.3 70.8 66.0
------------- ------------ ------------
Income before income tax provision 126.8 55.0 69.8
Income tax provision 58.7 28.4 36.8
------------- ------------ ------------
Income before extraordinary item 68.1 26.6 33.0
Extraordinary item - debt
refinancing, net of tax benefit
of $1.0 million - - (1.4)
------------- ------------ ------------
Net income $ 68.1 $ 26.6 $ 31.6
------------- ------------ ------------
------------- ------------ ------------
Income per common and common
equivalent share:
Income before extraordinary item $ 1.55 $ .61 $ .76
Extraordinary item - - (.03)
------------- ------------ ------------
Net income $ 1.55 $ .61 $ .73
------------- ------------ ------------
------------- ------------ ------------
Weighted average common and
common equivalent shares 43,948,000 43,560,000 43,501,000
------------- ------------ ------------
------------- ------------ ------------
Dividends paid on common stock None None None
------------- ------------ ------------
------------- ------------ ------------
<FN>
See accompanying notes to these consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
THE VONS COMPANIES, INC. AND SUBSIDIARIES
- -----------------------------------------
Consolidated Balance Sheets
<CAPTION>
December 31, January 1,
All amounts except share data in millions of dollars 1995 1995
------------ ------------
<S> <C> <C>
Assets
Current assets:
Cash $ 9.4 $ 9.0
Accounts receivable 31.7 45.4
Inventories 350.7 359.3
Deferred taxes 30.9 35.4
Other 29.6 18.7
------------ ------------
Total current assets 452.3 467.8
Property and equipment, net 1,192.5 1,203.0
Excess of cost over net assets acquired,
net of accumulated amortization of $118.7
million and $103.7 million, respectively 482.8 497.8
Other 58.9 53.4
------------ ------------
Total Assets $ 2,186.5 $ 2,222.0
------------ ------------
------------ ------------
Liabilities and Shareholders' Equity
Current liabilities:
Current maturities of capital lease
obligations and long-term debt $ 25.7 $ 8.7
Accounts payable 304.2 308.4
Accrued liabilities 263.5 246.8
------------ ------------
Total current liabilities 593.4 563.9
Accrued self-insurance 128.0 110.9
Deferred income taxes 118.9 121.9
Other noncurrent liabilities 65.0 69.1
Capital lease obligations 53.4 58.0
Senior debt 298.8 426.2
Subordinated debt, net 305.7 319.6
------------ ------------
Total liabilities 1,563.2 1,669.6
------------ ------------
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 - December 31, 1995:
43,533,000 shares; January 1, 1995:
43,383,000 shares 4.3 4.3
Paid-in capital 343.2 340.4
Retained earnings 275.9 207.8
Notes receivable for stock (.1) (.1)
------------ ------------
Total shareholders' equity 623.3 552.4
------------ ------------
Total Liabilities and Shareholders' Equity $ 2,186.5 $ 2,222.0
------------ ------------
------------ ------------
<FN>
See accompanying notes to these consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
THE VONS COMPANIES, INC. AND SUBSIDIARIES
- -----------------------------------------
Consolidated Statements of Cash Flows
<CAPTION>
Fiscal Year Ended
--------------------------------------------------
December 31, January 1, January 2,
All amounts in millions of dollars 1995 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating
activities:
Net income $ 68.1 $ 26.6 $ 31.6
Adjustments to reconcile net
income to net cash provided by
operating activities:
Debt refinancing - - 1.4
Restructuring charges - 33.0 56.9
Depreciation and
amortization of property
and capital leases 100.0 102.1 90.9
Amortization of excess cost
over net assets acquired
and other assets 16.0 16.1 18.6
Amortization of debt
discount and deferred
financing costs 6.8 6.2 6.2
LIFO charge 4.9 2.3 3.6
Deferred income taxes 1.5 (1.5) 15.9
Change in assets and
liabilities:
(Increase) decrease in
accounts receivable 13.7 (9.1) 5.4
(Increase) decrease in
inventories at FIFO
costs 3.7 21.9 (15.4)
(Increase) decrease in
other current assets (10.9) 3.2 (.1)
(Increase) decrease in
noncurrent assets (7.5) (9.3) (11.5)
Increase (decrease) in
accounts payable 11.7 (25.5) 14.3
Increase (decrease) in
accrued liabilities 16.7 23.3 (31.8)
Increase (decrease) in
noncurrent liabilities 14.7 (9.5) (.4)
------------ ------------ ------------
Net cash provided by operating
activities 239.4 179.8 185.6
------------ ------------ ------------
Cash flows from investing
activities:
Addition of property, plant
and equipment (110.2) (128.0) (268.9)
Disposal of property, plant
and equipment 19.0 10.5 6.7
------------ ------------ ------------
Net cash used by investing
activities (91.2) (117.5) (262.2)
------------ ------------ ------------
Cash flows from financing
activities:
Net payments on revolving
debt (122.1) (67.9) (37.0)
Proceeds from Term Loan
Facility - - 150.0
Repurchases of senior
subordinated and
subordinated debentures (2.4) (6.2) (27.1)
Increase (decrease) in net
outstanding drafts (15.9) 19.4 .5
Payments on other debt and
capital lease obligations (8.2) (8.0) (9.3)
Other .8 .9 (.3)
------------ ------------ ------------
Net cash provided (used) by
financing activities (147.8) (61.8) 76.8
------------ ------------ ------------
Net cash increase .4 .5 .2
Cash at beginning of year 9.0 8.5 8.3
------------ ------------ ------------
Cash at end of year $ 9.4 $ 9.0 $ 8.5
------------ ------------ ------------
------------ ------------ ------------
Supplemental disclosures of
cash flow information:
Cash paid during the year for:
Interest $ 59.8 $ 64.9 $ 60.0
------------ ------------ ------------
------------ ------------ ------------
Income taxes $ 56.0 $ 33.7 $ 26.1
------------ ------------ ------------
------------ ------------ ------------
Supplemental disclosure of
non-cash investing and
financing activity:
Capital leases $ - $ .3 $ 13.3
------------ ------------ ------------
------------ ------------ ------------
<FN>
See accompanying notes to these consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
THE VONS COMPANIES, INC. AND SUBSIDIARIES
- -----------------------------------------
Consolidated Statements of Shareholders' Equity
<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 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
Net income - - - 68.1 - 68.1
Stock options exercised .1 - 2.8 - - 2.8
------ ------ ------- --------- ------ ------
Balance at December 31,
1995 43.5 $ 4.3 $ 343.2 $ 275.9 $ (.1) $623.3
------ ------ ------- --------- ------ ------
------ ------ ------- --------- ------ ------
<FN>
See accompanying notes to these consolidated financial statements.
</TABLE>
<PAGE>
<PAGE>
THE VONS COMPANIES, INC. AND SUBSIDIARIES
- -----------------------------------------
Notes to the Consolidated Financial Statements
Note 1. Basis of Presentation
At December 31, 1995, the Company operated 328
supermarkets and food and drug combination retail stores
under the names Vons and Pavilions. The Company's
marketing territory includes Southern and Central California
and Clark County, Nevada. 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.
The Company's fiscal year is based on a 52-53 week
fiscal year ending on the Sunday closest to December 31.
Fiscal years 1995, 1994 and 1993 included 52 weeks which
ended on December 31, 1995, January 1, 1995 and
January 2, 1994, respectively.
Note 2. Summary of Significant Accounting Policies
The preparation of financial statements in conformity
with Generally Accepted Accounting Principles requires
management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and the disclosure
of contingent assets and liabilities as of December 31, 1995
and the reported amounts of income and expenses for the fiscal
year ended December 31, 1995. Actual results could differ
from those estimates.
The Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 121 ("SFAS No. 121")
"Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of" in March 1995 which
is effective for fiscal years beginning after December 15, 1995.
SFAS No. 121 establishes accounting standards for the impairment
of long-lived assets, certain identifiable intangibles and
goodwill related to those assets to be held and used and
for long-lived assets and certain identifiable intangibles
to be disposed of. The Company adopted the provisions of
SFAS No. 121 in fiscal 1995 and experienced no financial
impact on the consolidated financial statements.
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 forecasted operating income. Other
noncurrent assets include an agreement not to compete acquired
in connection with the 1992 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 and Common Equivalent Share. Income
per common and common equivalent share is based on the weighted
average number of common shares outstanding during each year and
common equivalent shares 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 $32.3 million and $27.4 million
at December 31, 1995 and January 1, 1995, respectively.
Application of the LIFO method resulted in a charge to
cost of sales, buying and occupancy of $4.9 million,
$2.3 million and $3.6 million for 1995, 1994 and 1993,
respectively.
Note 4. Property and Equipment
The components of property and equipment at
December 31, 1995 and January 1, 1995 were as follows
(in millions of dollars):
<TABLE>
<CAPTION>
December 31, January 1,
1995 1995
------------ ------------
<S> <C> <C>
Land $ 225.3 $ 233.7
Buildings 386.6 357.0
Leasehold improvements 319.1 302.2
Fixtures and equipment 714.6 682.3
------------ ------------
1,645.6 1,575.2
Less: accumulated depreciation
and amortization (496.6) (421.5)
------------ ------------
Net property owned 1,149.0 1,153.7
------------ ------------
Capital leases 69.4 75.1
Less: accumulated amortization (25.9) (25.8)
------------ ------------
Net capital leases 43.5 49.3
------------ ------------
Property and equipment, net $ 1,192.5 $ 1,203.0
------------ ------------
------------ ------------
</TABLE>
Note 5. Accrued Current Liabilities
The components of accrued current liabilities at
December 31, 1995 and January 1, 1995 were as follows
(in millions of dollars):
<TABLE>
<CAPTION>
December 31, January 1,
1995 1995
------------ ------------
<S> <C> <C>
Accrued payroll, benefits and
related taxes $ 134.6 $ 118.1
Accrued self-insurance 37.2 42.2
Other 91.7 86.5
------------ ------------
Accrued current liabilities $ 263.5 $ 246.8
------------ ------------
------------ ------------
</TABLE>
Note 6. Senior and Subordinated Debt
Senior and subordinated debt as of December 31, 1995
and January 1, 1995 were as follows (in millions of dollars):
<TABLE>
<CAPTION>
December 31, January 1,
1995 1995
------------ ------------
<S> <C> <C>
Senior debt:
Revolving Loan, interest at
prime or Eurodollar rate plus
designated amounts, due 2000 $ 177.8 $ -
Revolving Credit Facility,
interest at prime,
certificate of deposit
or Eurodollar rate plus
designated amounts,
replaced in 1995 - 149.8
Term Loan Facility, interest at
prime, certificate of deposit
or Eurodollar rate plus
designated amounts,
replaced in 1995 - 150.0
Mortgage, 9.25%, secured by
real property, due in monthly
installments of $1.0 million
including interest, due 1997 113.0 115.0
Mortgages, 6.00% to 12.25%,
secured by real property, due
in varying monthly
installments with maturity
dates from 1997 to 2009 13.5 14.6
------------ ------------
Total 304.3 429.4
Less: current portion 5.5 3.2
------------ ------------
Long-term portion $ 298.8 $ 426.2
------------ ------------
------------ ------------
Subordinated debt:
Senior subordinated
debentures, 6-5/8%, less
unamortized discount of
$7.2 million and $11.1
million at December 31, 1995
and January 1, 1995,
respectively, based on an
effective interest rate of
12.5%, interest due in
semiannual installments $ 70.9 $ 69.6
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 320.9 319.6
Less: current portion 15.2 -
------------ ------------
Long-term portion $ 305.7 $ 319.6
------------ ------------
------------ ------------
</TABLE>
On February 17, 1995, the Company entered into an agreement
with a group of banks for a $625 million Revolving Loan Agreement
(the "Revolving Loan"). The Revolving Loan replaces the
Company's $475 million revolving credit facility (the "Revolving
Credit Facility") and $150 million Senior Unsecured Term Loan
Facility (the "Term Loan Facility"). The Revolving Loan 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 revolving debt is at prime or Eurodollar rate plus
designated amounts. At the Company's option, the revolving debt
may be used to support commercial paper borrowings, other
unsecured bank borrowings and standby letters of credit
outside the revolving debt. At December 31, 1995, borrowings
under the Revolving Loan were $177.8 million and available
unused credit under the Revolving Loan was $446.4 million.
Weighted average interest costs for 1995, including commitment
fees, for the Revolving Loan, Revolving Credit Facility and for
the Term Loan Facility were 7.5%. At December 31, 1995, the
corresponding bank prime rate was 8.5%. Commitment fees under
the Revolving Loan and Revolving Credit and Term Loan Facilities
were $1.2 million, $1.5 million and $1.5 million for 1995, 1994
and 1993, respectively.
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
revolving debt. The contracts hedge principal amounts of
$250 million for 1994, $200 million for 1995, and
$100 million for 1996 and 1997 of interest rate exposure
in excess of an approximate 8.375% effective borrowing rate
under the revolving debt. The Company records interest
expense or interest income related to interest rate cap
contracts on a monthly basis.
The Company's $113.0 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 December 31, 1995, $15.6
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 April 1 and October 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 December 31, 1995 and January 1, 1995, the carrying
value of all financial instruments approximated fair value.
During 1995, 1994 and 1993, the Company early retired
through repurchase and/or redemption $2.6 million, $6.8 million
and $27.1 million, respectively, of subordinated debt.
These repurchases resulted in an extraordinary after tax
charge of $1.4 million in 1993.
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 December 31, 1995.
Under its most restrictive debt agreement, the Company had
$83.0 million available for dividends and distributions at
December 31, 1995.
Principal payments required in future years are as
follows (in millions of dollars):
<TABLE>
<CAPTION>
Principal
Payments
----------
<S> <C>
1996 $ 21.1
1997 137.0
1998 38.6
1999 101.1
2000 1.2
2001-2005 332.4
2006-2009 1.0
----------
Total principal payments 632.4
Less: current portion 21.1
----------
Long-term portion $ 611.3
----------
----------
</TABLE>
Standby letters of credit, primarily for self-insurance
purposes, not reflected in the accompanying consolidated
financial statements, were approximately $73.3 million at
December 31, 1995.
Note 7. Leases
The Company currently leases certain of its stores,
distribution facilities, vehicles and equipment for periods
up to 50 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
------------------------------------------
December 31, January 1, January 2,
1995 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Minimum rentals $ 55.7 $ 60.9 $ 76.9
Contingent rentals 7.3 7.5 8.3
Sublease rentals
received (6.4) (4.7) (4.2)
------------ ------------ ------------
Rental expense,
net $ 56.6 $ 63.7 $ 81.0
------------ ------------ ------------
------------ ------------ ------------
</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 $1.5
million, $1.4 million and $2.0 million for 1995, 1994 and 1993,
respectively.
Future minimum lease payments under noncancellable operating
and capital leases, together with the present value of the
net minimum lease payments, at December 31, 1995 were as
follows (in millions of dollars):
<TABLE>
<CAPTION>
Operating Capital
Leases Leases
--------- -------
<S> <C> <C>
1996 $ 68.8 $ 9.3
1997 65.0 8.6
1998 62.3 6.6
1999 59.6 5.9
2000 58.2 5.9
2001-2005 252.4 28.3
2006-2010 162.6 22.3
2011-2015 64.4 9.7
2016-2020 10.8 5.7
2021-2025 1.4 .2
Thereafter .6 -
--------- -------
Total minimum lease commitments $ 806.1 102.5
---------
---------
Less: interest portion 44.1
-------
Present value of net minimum lease
commitments 58.4
Less: current portion 5.0
-------
Long-term portion $ 53.4
-------
-------
</TABLE>
Minimum sublease rentals to be received in the future
under noncancellable operating and capital leases
totaled $77.3 million at December 31, 1995.
Effective September 1993, the Company became a partner
of a California general partnership. This partnership has
obligations for 16 retail leases for periods up to 21 years
with various renewal options. It is the partnership's intent
to assign or sublease its leasehold interest in all of these
sites. Future minimum lease payments of the partnership
under noncancellable operating leases at December 31, 1995
were as follows (in millions of dollars):
<TABLE>
<CAPTION>
December 31,
1995
------------
<S> <C>
1996 $ 3.5
1997 3.4
1998 3.4
1999 3.4
2000 3.2
2001-2005 13.8
2006-2010 9.2
2011-2015 3.3
Thereafter .4
------------
Total minimum lease commitments $ 43.6
------------
------------
</TABLE>
Minimum sublease rentals to be received by the partnership
under noncancellable operating leases totaled $7.4 million at
December 31, 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 December 31, 1995
and January 1, 1995 (in millions of dollars):
<TABLE>
<CAPTION>
December 31, January 1,
1995 1995
------------ ------------
<S> <C> <C>
Actuarial present value of
benefit obligation:
Accumulated benefit obligation,
including vested benefit of
$44.1 million at December 31,
1995 and $35.5 million at
January 1, 1995 $ 46.2 $ 37.8
------------ ------------
------------ ------------
Projected benefit obligation for
service rendered to date $ (63.6) $ (49.7)
Plan assets at fair value,
primarily listed stocks and
U.S. bonds 56.4 46.2
------------ ------------
Projected benefit obligation
in excess of plan assets (7.2) (3.5)
Unrecognized net (gain) loss from
past experience different from
that assumed, unrecognized
prior service cost and effects
of changes in assumptions 15.0 12.6
------------ ------------
Pension asset included in other
noncurrent assets $ 7.8 $ 9.1
------------ ------------
------------ ------------
</TABLE>
The discount rate used in determining the actuarial present
value of the projected benefit obligation was 7.25% at
December 31, 1995 and 8.5% at January 1, 1995. The expected
long-term rate of return on assets and rate of increase in
compensation levels were 9.0% and 4.5%, respectively, at
December 31, 1995 and January 1, 1995. Net pension cost under
the defined benefit pension plan for 1995, 1994 and 1993
included the following components (in millions of dollars):
<TABLE>
<CAPTION>
Fiscal Year Ended
--------------------------------------------
December 31, January 1, January 2,
1995 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Service cost $ 2.3 $ 3.4 $ 2.5
Interest cost on
projected
benefit
obligation 4.0 4.0 3.6
Actual return on
plan assets (10.6) .9 (3.0)
Net amortization
and deferral 6.9 (4.4) (.7)
------------ ------------ ------------
Net pension
cost $ 2.6 $ 3.9 $ 2.4
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
The Company's supplemental executive retirement plan
provides supplemental income payments for certain officers
during retirement. Total pension expense for all plans was
$3.4 million, $5.1 million and $3.6 million for 1995, 1994
and 1993, respectively.
The Company's contributory profit sharing plan for
nonunion employees qualifies under Section 401(k) of the
Internal Revenue Code. For 1995, the Company's contribution
to the profit sharing plan was equal to six percent of
each eligible employee's pay. In future years, the
Company's contribution will be five percent of each
eligible employee's pay plus a one percent matching
contribution for each eligible employee who elects to
contribute at least one percent of their pay. For 1995,
1994, and 1993 total expense related to the Company's
profit sharing plan was $7.6 million, $5.3 million and
$4.3 million, 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 determined by the Company
at the time of retirement. Effective January 1, 1995, the
Company adopted modifications in its retiree medical plan
which reduced the net retiree medical plan cost. Unused
benefits 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 accumulated postretirement benefit obligation for
the retiree medical plan as of December 31, 1995 and
January 1, 1995 was as follows (in millions of dollars):
<TABLE>
<CAPTION>
December 31, January 1,
1995 1995
------------ ------------
<S> <C> <C>
Accumulated retiree medical benefit
obligation:
Retirees $ 10.4 $ 9.9
Fully eligible active plan
participants 1.7 3.5
Other active plan participants 5.9 12.0
Unrecognized net gain from
unrecognized prior service
cost and changes in assumptions 13.5 6.9
------------ ------------
Accrued retiree medical benefit
obligation $ 31.5 $ 32.3
------------ ------------
------------ ------------
</TABLE>
For measurement purposes, a 7.0% increase in the cost
of covered retiree medical benefits was assumed for 1995.
The rate declined to 6.0% in 1996, and remained at that
level thereafter. A 1.0% increase in the retiree medical
cost trend rate would increase the retiree medical benefit
obligation at December 31, 1995 by $.6 million and the
1995 annual expense by $.1 million. The weighted
average discount rate used in determining the accumulated
retiree medical benefit obligation was 7.25% and 8.5% at
December 31, 1995 and January 1, 1995, respectively. The
net retiree medical plan cost for 1995, 1994 and 1993
included the following components (in millions of dollars):
<TABLE>
<CAPTION>
Fiscal Year Ended
------------------------------------------
December 31, January 1, January 2,
1995 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Service cost $ .3 $ 1.2 $ .8
Interest cost 1.3 2.1 2.4
Net amortization
and deferral (.9) - -
------------ ------------ ------------
Net retiree
medical plan
costs $ .7 $ 3.3 $ 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 December 31, 1995 is not
available. Total pension expense for the union plans was
$19.8 million, $22.3 million and $30.3 million for 1995, 1994
and 1993, 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 $108.6 million, $125.9 million and $107.1
million for 1995, 1994 and 1993, respectively.<PAGE>
Note 9. Income Taxes
<TABLE>
The provision for income taxes for 1995, 1994 and 1993 was comprised of the following
amounts (in millions of dollars):
<CAPTION>
Fiscal Year Ended
--------------------------------------------
December 31, January 1, January 2,
1995 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Current:
Federal $ 44.5 $ 24.7 $ 13.3
State 12.7 5.2 7.6
------------ ------------ ------------
Total current income tax
provision 57.2 29.9 20.9
------------ ------------ ------------
Deferred:
Federal .7 (.7) 15.7
State .8 (.8) .2
------------ ------------ ------------
Total deferred income tax
provision 1.5 (1.5) 15.9
------------ ------------ ------------
Total income tax provision $ 58.7 $ 28.4 $ 36.8
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
<TABLE>
Reconciliation of the Federal statutory rate and effective rate for 1995, 1994 and
1993 was as follows (in millions of dollars):
<CAPTION>
Fiscal Year Ended
------------------------------------------
December 31, January 1, January 2,
1995 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Federal statutory expected provision $ 44.4 $ 19.3 $ 24.4
Amortization of excess of cost over net
assets acquired 5.0 5.0 5.1
State income taxes, net of Federal income
tax benefit 8.1 3.1 5.1
Effect to beginning of year deferred income
tax balance for increase in Federal
statutory tax rate - - 2.0
Other 1.2 1.0 .2
------------ ------------ ------------
Total income tax provision $ 58.7 $ 28.4 $ 36.8
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
<PAGE>
<TABLE>
Deferred income taxes consisted of future tax liabilities (assets) attributable to
the following (in millions of dollars):
<CAPTION>
December 31, January 1,
1995 1995
------------ ------------
<S> <C> <C>
Deferred tax liabilities:
Excess of book over tax bases $ 143.8 $ 141.2
Excess of tax over book depreciation 92.8 84.1
------------ ------------
Deferred tax liabilities 236.6 225.3
------------ ------------
Deferred tax assets:
Cash versus accrual basis (144.0) (136.6)
Other, net (4.6) (2.2)
------------ ------------
Deferred tax assets (148.6) (138.8)
------------ ------------
Deferred income taxes, net $ 88.0 $ 86.5
------------ ------------
------------ ------------
/TABLE
<PAGE>
The Federal 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"). 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 1995, 1994 and 1993, the
Company paid rent of $1.9 million per year from which the
partnership distributed $250,000, $70,000 and $160,000 to
the Texas general partnership in such years, respectively.
This warehouse was closed in third quarter 1995 although
rental obligations continue through 2002.
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 1995, 1994 and 1993
of approximately $27.0 million, $21.3 million and $2.5 million,
respectively. The Company sold certain inventory items to
Safeway and its affiliates for an aggregate amount during 1995,
1994 and 1993 of approximately $6.4 million, $6.6 million and
$2.4 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 $.6 million, $.7 million and $.7 million in 1995,
1994 and 1993, respectively. In addition, the Company is
secondarily liable to this partnership under four leases for
which the annual minimum rental is $.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 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 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.
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, options granted in
May 1995 vest 15% per year beginning one year from the date
of grant and 15% per year thereafter until the options are
100% vested. Additionally, 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.
<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 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 - 431,063 20,144
------------ ------------ ------------
Outstanding at January 1, 1995 41,519 2,742,103 130,927
Granted - 500,040 47,140
Exercised 22,801 130,783 -
Forfeited - 338,046 -
------------ ------------ ------------
Outstanding at December 31, 1995 18,718 2,773,314 178,067
------------ ------------ ------------
------------ ------------ ------------
Range of option prices per
share:
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
At December 31, 1995 $ 9.28 $ 2.50-27.55 $14.23-27.55
Options exercisable:
At January 2, 1994 48,519 765,054 37,022
At January 1, 1995 41,519 1,031,428 62,864
At December 31, 1995 18,718 1,276,002 109,288
Average price of options
exercised:
Year ended January 2, 1994 $ 9.28 $ 21.35 $ -
Year ended January 1, 1995 $ 9.28 $ 2.50 $ -
Year ended December 31, 1995 $ 9.28 $ 8.29 $ -
</TABLE>
<PAGE>
The Company's Employee 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.
The Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123 ("SFAS No. 123")
"Accounting for Stock Based Compensation" in October 1995
which is effective for fiscal years beginning after
December 15, 1995. SFAS No. 123 encourages the fair value
based method of accounting for employee stock compensation
plans. SFAS No. 123 allows companies to retain the
current method of accounting for stock compensation as set
forth in Accounting Principles Board Opinion 25 "Accounting
for Stock Issued to Employees." SFAS No. 123 requires
expanded footnote disclosure for both methods of accounting.
The Company expects to retain the current method of
accounting. Accordingly, the expected impact of
SFAS No. 123 on the Company's consolidated financial
statements is expanded footnote disclosure.
Note 13. Advertising Expense
The Company expenses the costs of advertising as
incurred. Total advertising expense was $44.1 million,
$42.8 million and $43.3 million in 1995, 1994 and 1993,
respectively.
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,
including 16 stores and the San Diego distribution center.
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.
As of December 31, 1995, substantially all of the
cost containment and strategic restructuring initiatives
have been executed. Of the total $89.9 million
restructuring reserve, $72.1 million of costs and payments
have been charged against the reserve as of December 31, 1995,
representing asset write-offs and lease obligations for
closed facilities of $52.3 million and severance and other
related expenses of $19.8 million.
<PAGE>
Note 15. Quarterly Financial Data (Unaudited)
<TABLE>
The results of operations for 1995 and 1994 were as follows (in millions of
dollars except share data):
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
Fiscal Year 1995 (12 Weeks) (12 Weeks) (16 Weeks) (12 Weeks)
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Sales $ 1,142.5 $ 1,139.5 $ 1,565.3 $ 1,223.4
Gross profit (1) 291.5 289.6 390.7 308.7
Amortization of excess
cost over net assets
acquired 3.4 3.5 4.7 3.4
Operating income 42.2 42.8 54.4 54.7
Interest expense, net 16.1 15.7 20.1 15.4
Net income 14.0 14.5 18.5 21.1
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Income per common
and common equivalent
share:
Net income $ .32 $ .33 $ .42 $ .48
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Weighted average
common and common
equivalent shares 43,753,000 43,817,000 43,971,000 44,251,000
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
<TABLE>
<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
Net income $ 9.0 $ 4.5 $ 4.0 $ 9.1
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Income per common
and common
equivalent share:
Net income $ .21 $ .10 $ .09 $ .21
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Weighted average
common and common
equivalent shares 43,475,000 43,516,000 43,533,000 43,717,000
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
<FN>
(1) Gross profit represents sales net of cost of sales, buying and occupancy
costs.
</TABLE> <PAGE>
<PAGE>
THE VONS COMPANIES, INC. AND SUBSIDIARIES
- -----------------------------------------
Independent Auditors' Report
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 December 31,
1995 and January 1, 1995, and the related consolidated statements
of operations, shareholders' equity and cash flows for the
fifty-two week periods ended December 31, 1995, January 1, 1995
and January 2, 1994. 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 December 31, 1995 and January 1, 1995 and the results of their
operations and cash flows for the fifty-two week periods ended
December 31, 1995, January 1, 1995 and January 2, 1994,
in conformity with generally accepted accounting principles.
/S/ KPMG Peat Marwick LLP
Los Angeles, California
February 20, 1996
<PAGE>
Exhibit 24
[This page appears on KPMG Peat Marwick 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, 1996, relating to the consolidated
balance sheets of The Vons Companies, Inc. and subsidiaries as of
December 31, 1995 and January 1, 1995, and the related consolidated
statements of operations, shareholders' equity, cash flows and
for the fifty-two week periods ended December 31, 1995, January 1, 1995
and January 2, 1994 which report appears in the Annual Report
to Shareholders and is incorporated by reference in the
December 31, 1995 annual report on Form 10-K of The Vons Companies, Inc.
/s/ KPMG Peat Marwick
Los Angeles, California
March 6, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Company's Consolidated Statement of Operations for the fifty-two weeks
ended December 31, 1995, the Consolidated Balance Sheet as of December 31, 1995
and the accompanying notes thereto and is qualified in its
entirety by reference to such financial statments.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 9,400
<SECURITIES> 0
<RECEIVABLES> 31,700
<ALLOWANCES> 0
<INVENTORY> 350,700
<CURRENT-ASSETS> 452,300
<PP&E> 1,715,000
<DEPRECIATION> 522,500
<TOTAL-ASSETS> 2,186,500
<CURRENT-LIABILITIES> 593,400
<BONDS> 657,900
<COMMON> 4,300
0
0
<OTHER-SE> 619,000
<TOTAL-LIABILITY-AND-EQUITY> 2,186,500
<SALES> 5,070,700
<TOTAL-REVENUES> 5,070,700
<CGS> 3,790,200
<TOTAL-COSTS> 4,876,600
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 67,300
<INCOME-PRETAX> 126,800
<INCOME-TAX> 58,700
<INCOME-CONTINUING> 68,100
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 68,100
<EPS-PRIMARY> 1.55
<EPS-DILUTED> 1.55
</TABLE>
EXHIBIT 10.11.1
AMENDMENT 1994-1
THE VONS COMPANIES,INC.
401(k) WRAPAROUND PLAN
WHEREAS, The Vons Companies, Inc. ("Company") maintains
The Vons Companies, Inc, 401(k) Wraparound Plan ("Plan"); and
WHEREAS, the Compensation Committee has the right to
amend the Plan; and
WHEREAS, the Compensation Committee now desires to
amend the Plan to provide that the Investment Equivalents for
deferrals, Company Match and Discretionary Company Match made on
or after January 1, 1995 shall be determined on an annual basis,
and that future changes to the Investment Equivalents shall apply
to such amounts, except that such changes shall not apply to
amounts credited prior to January 1, 1995; and
WHEREAS, the Compensation Committee also desires to
amend the Plan to allow certain Participants the right to elect
installment payments and to allow Participants the ability to
withdraw funds by forfeiting certain amounts;
NOW, THEREFORE, this Amendment 1994-1 is hereby adopted
effective December 31, 1994:
1. The following is hereby added after the first
paragraph of Section 5.4:
"Effective for the deferrals, Company Match and
Discretionary Company Match made on or after January 1,
1995, the new rate of return established by the Compensation
Committee as an Investment Equivalent shall apply both to
the deferrals, Company Match and Discretionary Company Match
made for the Plan Year for which the new rate of return is
established, as well as the deferrals, Company Match and
Discretionary Match previously credited for previous
Plan Years. The preceding sentence shall not apply,
however, to the deferrals, Company Match and Discretionary
Company Match made for Plan Years ending on or before
December 31, 1994."
2. The following is hereby added to the end of
Section 7.2:
"Notwithstanding the foregoing, if a Participant who
satisfies the criteria specified below so elects, the
Participant shall receive his benefits in the form of five
annual installments, calculated as described below. In
order to make such election, the Participant must satisfy
all of the following requirements:
2
(a) The election must be made at least two years
prior to the date benefit payments commence according
to Section 7.1;
(b) As of the date benefit payments commence, the
Participant must have completed at least ten "years of
vesting service," as such term is defined in the Vons
Personal Choice Profit Sharing Plan; and
(c) The amount of benefit which would, absent the
election, be paid to the Participant as a lump sum,
must exceed $25,000.
The annual installments shall be paid in level annual
installments, amortized at the rate set forth as a
Investment Equivalent for the year in which the first
installment payment is made (notwithstanding subsequent
changes in the Installment Equivalent).
3. The following new section 7.5 is hereby added to
the Plan.
"7.5 Forfeiture Distribution. The Plan Committee shall,
-----------------------
upon written request of a Participant, make a lump sum
payment to the Participant of up to 85% of the amount the
Participant is entitled to receive under the Plan, but only
if the Participant agrees to the following conditions:
3
(a) The Participant shall immediately and
irrevocably forfeit 15% of the amount withdrawn. The
forfeiture shall reduce the Participant's remaining
balance in the Plan;
(b) The Participant shall not be entitled to make
a deferral election under Article IV for the following
Plan Year, and his deferrals shall be suspended for the
remainder of the Plan Year; and
(c) The amount withdrawn shall not be credited
with an Investment Equivalent for any Valuation Date
following the Date the amount is withdrawn.
The remaining portion of such Participant's Account, if any,
shall be distributed in accordance with Sections 7.1 and
7.2. This Section shall not be construed to allow
distribution under the Plan of amounts greater than those
the Participant would otherwise have received if no
distribution under this Section had been made."
IN WITNESS WHEREOF, this Amendment 1994-1 is hereby
adopted this 23d day of December 1994.
---
THE VONS COMPANIES, INC.
By /s/ Dick W. Gonzales
--------------------------------------
Dick W. Gonzales
Its Group Vice President, Human Resources
-------------------------------------
4
Exhibit 10.17
1996 Officer and Administrative Bonus Plan
------------------------------------------
Objective
- ---------
To reward Officers and Administrative participants for Total
Company and Individual Performance Objectives.
Target Bonus Award
- ------------------
A Target Bonus Award is set for each participant varying from 5%
to 50% of their Annual Base Salary depending upon the scope of
their responsibilities.
The actual bonus paid can range from 0% to 200% of the Target
Award based upon attainment of Total Company and Individual
performance objectives.
The bonus will be paid from the Total Company Performance pool.
Funding
- -------
The Total Company Performance Pool will be funded through
attainment by the Company of Same Store Sales and Operating
Income Goals.
Payouts will range form 0% to 200% of the total Target Bonus
Awards of all participants.
Payment
- -------
The performance of each participant, including achievement of
Individual Objectives, will be assessed at year end under the
review of Senior Management.
Bonuses will be awarded at, above, or below the individual's
Target Bonus Award level depending on such assessment and funds
available in the Total Company Performance Pool.
