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 29, 1996
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
------- -------
Commission File Number 1-8452
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THE VONS COMPANIES, INC.
(Exact name of registrant as specified in its charter)
Michigan 38-1623900
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
618 Michillinda Avenue, Arcadia, California 91007
(Address of principal executive offices and zip code)
Registrant's telephone number, including area code (818) 821-
7000
----------------------
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
- -------------------- -----------------------------------------
Common Stock, $.10
par value per share New York Stock Exchange
----------------------
Securities registered pursuant to section 12(g) of the Act:
6-5/8% Senior Subordinated Debentures
9-5/8% Senior Subordinated Notes
8-3/8% Senior Subordinated Notes
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 March 10, 1997: Common
Stock, par value $.10 per share - $1,972,545,355.
The number of shares of Common Stock outstanding as of
March 10, 1997 - 44,174,285.
Documents incorporated by reference: To the extent
required to be filed, the registrant will file an amendment to
this Form 10-K within 120 days of the end of its fiscal year to
provide the information required by Part III of this Form 10-K.
<PAGE>
<PAGE>
PART I
ITEM 1: BUSINESS
General
The Vons Companies, Inc. ("Vons" or the "Company")
is the second largest supermarket chain in Southern
California based on sales. As of December 29, 1996,
Vons operated 320 supermarket and food and drug combination
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. The
Company's 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 service, quality, selection
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 Southern California operations of Safeway, Inc.
("Safeway"). 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 34.3% of the outstanding
shares of Vons common stock. Safeway is currently an
affiliate of Kohlberg Kravis Roberts & Co.
The Proposed Merger
On December 15, 1996, Vons entered into an Agreement
and Plan of Merger, as amended (the "Merger Agreement"),
with Safeway for a business combination in which, among
other things, Safeway will issue 1.425 shares of Safeway
common stock for each share of Vons common stock that
Safeway does not currently own and Vons will be merged
with and into a wholly owned subsidiary of Safeway (the
"Merger"). The transaction, which was unanimously approved
by a special committee of the Vons Board of Directors,
comprised of directors who are not affiliated with Safeway,
is subject to approval by a majority of the outstanding
Vons common shares not held by Safeway and its affiliates,
and certain other conditions. The combined company will be
the second largest grocery chain in North America, with
1,377 stores and sales in excess of $22 billion. The
proposed merger is expected to close early in the second
quarter of 1997. Safeway, Inc. is one of the world's
largest food retailers, operating 1,052 stores in the
United States and Canada at the end of fiscal 1996.
Store Formats
The Company operates its stores 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 also offer service
departments such as hot bakeries, service floral,
delicatessens, service meat departments and banking
facilities. Selected Pavilions stores offer an expanded
greeting card department, a health and beauty care
department including cosmetics, a sausage and smoke shop,
bagel shop, sushi bar and high quality prepared Chinese
food. Approximately one-third of the Company's stores
offer full-service pharmacies.
New Store Openings and Store Remodel Projects
The Company expects to continue to augment sales
growth through the continuation of its new store opening
program and ongoing chainwide remodel program. The
Company currently plans to open 13 new stores, including
5 replacement stores, in 1997, subject to changes by
Safeway following the proposed Merger. In 1996, the
Company maintained its goal of having 80% of its stores
either newly opened or remodeled within the preceding five
years.
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
remodeling program includes remerchandising to reflect
a contemporary design and decor package including
selected fixture replacements. The Company completed 68,
37 and 14 store remodeling projects in fiscal 1996, 1995
and 1994, respectively.
Vons capital expenditures for store projects were
$185.4 million and $130.5 million in fiscal 1996 and 1995,
respectively. It is anticipated that 1997 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>
<PAGE>
<TABLE>
<CAPTION>
VONS PAVILIONS TIANGUIS EXPO TOTAL
------ --------- -------- ------ ------
<S> <C> <C> <C> <C> <C>
1994:
Beginning store count...... 305 32 3 5 345
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 0 328
------ --------- -------- ------ ------
1996:
Stores opened.............. 10 - - - 10
Stores closed or sold...... (17) (1) - - (18)
------ --------- -------- ------ ------
Ending store count......... 288 32 0 0 320
------ --------- -------- ------ ------
------ --------- -------- ------ ------
Average gross square
feet per store at
December 29, 1996........ 36,200 43,300 - - 36,900
------ --------- -------- ------ ------
------ --------- -------- ------ ------
</TABLE>
<PAGE>
The Company closes stores based on replacement strategies
or lease renewals. Following completion of the Merger,
Vons 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 addition of convenience stores, drug stores,
mass merchandisers, specialty stores, warehouse stores,
membership stores as well as discount stores and fast
food and other restaurants which compete for the same
customers has resulted in intensified competition. This
trend is expected to continue.
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 loyalty
club known as VonsClub. 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 with an established
free membership loyalty club offered 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. Vons
believes that customers are placing greater emphasis on
price and overall value. The Company's marketing campaign
has incorporated the slogan "Vons Is Value" since 1994.
These campaigns emphasize the Vons Value formula which
combines competitive prices with customer service and
high quality products. Low 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 offering is the
amount of labor allocated for customer service and
check-out which the Company believes has increased customer
satisfaction. 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 carries a full assortment
of brand-name grocery products and emphasizes quality and
freshness in its produce, meat and seafood selections.
Brand name items are complimented by an extensive line of
private brand products in all categories. In addition to
its proprietary Jerseymaid line of dairy products, the
Company carries the private brand "SELECT." This upscale
private brand was first introduced in 1994. The Company
intends to increase its private brand penetration as a
percent of sales by marketing its branded items and
introducing additional private brand items, including
those under the "SELECT" label. In 1996, private brand
sales accounted for approximately 19% of sales.
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.
As part of its effort to improve efficiency and
reduce operating costs, the Company is actively pursuing
an industry-wide effort known as Efficient Consumer
Response ("ECR"). This effort includes a review of the
Company's products by category to achieve an 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. The Company
has also implemented systems to allow for more efficient
replenishment of inventory such as continuous replenishment
systems and electronic ordering and invoicing.
In addition, the Company is committed to neighborhood
marketing and merchandising to serve the diverse needs of
its customer base. Over the past few years, 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 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
The Company operates a fluid milk processing facility,
an ice cream plant and a central bakery.
Vons operates two distribution facilities in Southern
California. The Company utilizes computerized inventory
and labor management systems throughout its distribution
network. As of December 29, 1996, Vons operated a fleet
of 414 tractors and 1,162 trailers, of which 105 and 322,
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
75% of store sales in 1996 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 1988 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 1992, 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 29, 1996, Vons employed approximately
11,100 full-time and 19,300 part-time employees as follows:
<TABLE>
<CAPTION>
Non-
Union Union Total
------ ------ -------
<S> <C> <C> <C>
Hourly.................. 28,600 500 29,100
Salaried................ - 1,300 1,300
------ ------ -------
Total Employees......... 28,600 1,800 30,400
------ ------ -------
------ ------ -------
</TABLE>
In the fall of 1994, the Company negotiated a four-year
contract with the International Brotherhood of Teamsters'
Union which will expire on September 13, 1998.
In the fall of 1995, the Company negotiated a four-year
contract with the United Food and Commercial Workers'
International Unions which will expire on October 3, 1999.
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 which it believes to be
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 as of March 27, 1997:
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
Lawrence A. Del Santo 63 Chairman of the Board
and Chief Executive Officer
Richard E. Goodspeed 60 President and Chief
Operating Officer
Susan M. Klug 37 Senior Vice President
Marketing
Pamela K. Knous 42 Executive Vice President,
Chief Financial Officer and
Treasurer
Terry R. Peets 52 Executive Vice President
Harold E. Rudnick 48 Senior Vice President
Retail Purchasing
Terrence J. Wallock 52 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 in
February 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.
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.
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.
ITEM 2: PROPERTIES
As of December 29, 1996, the Company leased 228 of its
stores and owned 92 of its stores. At December 29, 1996, 195 of
the Company's leases provided for contingent rental payments
based on a percentage of such rental property's 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 2021. 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>
1997-2001.......... 7
2002-2006.......... 13
2007-2011.......... 20
2012-2016.......... 21
2017-2021.......... 29
2022 and thereafter 138
</TABLE>
The Company has a $110.8 million mortgage loan on
51 properties requiring monthly principal and interest
payments of approximately $1.0 million with a one-time
principal and interest payment of $110.7 million in
July 1997. The Company has other real estate notes and
mortgages covering seven properties totaling $23.8 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 for
such facility expires in 2000 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 which expires in 1999, with one three-year option
to extend. The Company also leases a 95,000-square-foot
frozen food distribution facility in Ontario, California
under a lease which expires in March 1998. The Company
closed its owned distribution facility in San Diego,
California in third quarter 1995. The Company is in the
process of disposing of this property. See Note 15 to
the Consolidated Financial Statements included elsewhere
herein.
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 2001, with one five-year option
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. Trial is currently
scheduled to commence in July of 1997.
On September 13, 1996, a class action lawsuit titled
McCampbell, et al. v. Ralphs Grocery Company, et al. was
- ----------------------------------------------------
filed in the Superior Court of the State of California,
County of San Diego, against the Company and two other
grocery store chains operating in the Southern California
area. The complaint alleges, among other things, that
the Company and others conspired to fix the retail price
of eggs in Southern California. The plaintiffs claim
that the defendants' actions violate provisions of the
California Cartwright Act and constitute unfair
competition. Plaintiffs seek damages they purport to
have sustained as a result of the defendants' alleged
actions, which damages may be trebled under the
applicable statute, and an injunction from future acts
in restraint of trade and unfair competition. Because
the case was recently filed, discovery has just
commenced. Management of the Company intends to defend
this action vigorously and the Company has filed an
answer to the complaint denying the plaintiffs'
allegations and setting forth several defenses.
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 29,
1996.
<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, Inc. ("NYSE") (Symbol-VON). The shares have
been listed on the NYSE since March 20, 1986. As of
February 20, 1997, there were approximately 6,311
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 29, December 31,
1996 1995
----------------- -----------------
High Low High Low
---- --- ---- ---
<S> <C> <C> <C> <C>
First quarter..... $33 $25 $20 3/4 $17 5/8
Second quarter.... 38 3/4 29 7/8 21 7/8 19 1/4
Third quarter..... 44 3/8 34 24 3/8 20 1/4
Fourth quarter.... 57 7/8 40 1/8 28 1/4 22 7/8
</TABLE>
The Company paid no dividends on its common stock in
fiscal years 1996, 1995, and 1994. 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 $119.0 million available for dividends
and distributions at December 29, 1996. See "Management's
Discussion and Analysis of Financial Condition and
Results of Operations - Liquidity and Capital Resources"
and Note 7 to the Consolidated Financial Statements
contained in the Company's Annual Report to Shareholders
for the fiscal year ended December 29, 1996 included
elsewhere herein.
ITEM 6: SELECTED FINANCIAL DATA
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 implemented the provisions of
Statement of Financial Accounting Standards No. 106,
"Employers' Accounting for Postretirement Benefits Other
Than Pensions," effective January 3, 1993.
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
As of and
for the 53
As of and for the 52 Weeks Ended Weeks Ended
(in millions of ----------------------------------------------------- ------------
dollars except December 29, December 31, January 1, January 2, January 3,
share data) 1996 1995 1995 1994 1993
------------ ------------ ------------ ----------- ------------
<S> <C> <C> <C> <C> <C>
Summary of
Operations:
Sales $ 5,407.4 $ 5,070.7 $ 4,996.6 $ 5,074.5 $ 5,595.5
Restructuring
charges - - 33.0 56.9 -
Operating
income 241.1 194.1 125.8 135.8 219.1
Interest
expense, net 55.6 67.3 70.8 66.0 71.5
Income before
income tax
provision 185.5 126.8 55.0 69.8 147.6
Income before
extraordinary
item and
cumulative
effect of
change in
accounting
for retiree
medical
benefits 104.7 68.1 26.6 33.0 82.1
Income before
cumulative
effect of
change in
accounting
for retiree
medical
benefits 104.7 68.1 26.6 31.6 69.3
Net income 104.7 68.1 26.6 31.6 53.8
Income
applicable to
common
shareholders 104.7 68.1 26.6 31.6 53.8
Income per
common and
common equivalent
share before
extraordinary
item and
cumulative
effect of
change in
accounting
for retiree
medical
benefits 2.34 1.55 .61 .76 1.89
Income per
common and
common equivalent
share before
cumulative
effect of
change in
accounting
for retiree
medical
benefits 2.34 1.55 .61 .73 1.60
Net income per
common and
common equivalent
share 2.34 1.55 .61 .73 1.24
Dividends paid
on common
stock - - - - -
Financial
Position:
Working capital
(deficit) (294.9) (141.1) (96.1) (69.3) (74.9)
Total assets 2,185.4 2,186.5 2,222.0 2,249.5 2,066.0
Long-term debt:
Capital lease
obligations 50.3 53.4 58.0 62.7 56.4
Senior debt 15.0 298.8 426.2 497.2 389.2
Subordinated
debt, net 284.5 305.7 319.6 322.1 342.5
Common
shareholders'
equity 738.4 623.3 552.4 524.9 493.2
Shareholders'
equity per
common share 16.79 14.32 12.73 12.11 11.38
Other Data:
Weighted
average
common
shares during
year,
including
common share
equivalents 44,800,000 43,900,000 43,600,000 43,500,000 43,500,000
Outstanding
common
shares at
year end 43,987,000 43,533,000 43,383,000 43,342,000 43,335,000
</TABLE>
ITEM 7: 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 29, 1996 December 31, 1995 January 1, 1995
----------------- ----------------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Sales $5,407.4 100.0% $5,070.7 100.0% $4,996.6 100.0%
Costs and expenses:
Cost of sales, buying
and occupancy 4,032.7 74.5 3,790.2 74.8 3,767.2 75.4
Selling and
administrative
expenses 1,118.6 20.7 1,071.4 21.1 1,055.5 21.1
Amortization of excess
cost over net assets
acquired 15.0 .3 15.0 .3 15.1 .3
Restructuring charges - - 33.0 .7
Operating income 241.1 4.5 194.1 3.8 125.8 2.5
Interest expense, net 55.6 1.1 67.3 1.3 70.8 1.4
Income before income
tax provision 185.5 3.4 126.8 2.5 55.0 1.1
Income tax provision 80.8 1.5 58.7 1.2 28.4 .6
Net income 104.7 1.9 68.1 1.3 26.6 .5
Income per common and
common equivalent
share:
Net income 2.34 1.55 .61
/TABLE
<PAGE>
<PAGE>
Overview
On December 15, 1996, Vons entered into a Merger
Agreement with Safeway for a business combination in which,
among other things, Safeway will issue 1.425 shares of
Safeway common stock for each share of Vons common stock
that Safeway does not currently own and Vons will be merged
with and into a wholly owned subsidiary of Safeway (the
"Merger"). The transaction, which was unanimously approved
by a special committee of the Vons Board of Directors,
comprised of directors who are not affiliated with
Safeway, is subject to approval by a majority of the
outstanding Vons common shares not held by Safeway and
its affiliates, and certain other conditions. The
combined company will be the second largest grocery chain
in North America based on sales, with 1,377 stores and
revenues in excess of $22 billion. The proposed merger
is expected to close early in the second quarter of 1997.
Safeway, Inc. is one of the world's largest food
retailers, operating 1,052 stores in the United States
and Canada at the end of fiscal 1996.
Cautionary Statement for Purposes of "Safe Harbor
Provisions" of the Private Securities Litigation Reform
Act of 1995
Certain statements contained in the following discussion
and elsewhere in this Form 10-K are "forward-looking
statements" within the meaning of the Private Securities
Litigation Reform Act of 1995 and are thus prospective.
Such forward-looking statements are subject to risks,
uncertainties and other factors which could cause actual
results to differ materially from future results expressed
or implied in such forward-looking statements. Potential
risks and uncertainties include, but are not limited to,
competitive pressures from other major supermarket
operators and economic conditions in the Company's
primary markets, the risks associated with the proposed
merger involving Safeway and the other uncertainties
detailed from time-to-time in the Company's filings
with the Securities and Exchange Commission.
Comparison of Fifty-Two Weeks Ended December 29, 1996 with
Fifty-Two Weeks Ended December 31, 1995
Sales. Sales for 1996 were $5,407.4 million, an
increase of $336.7 million, or 6.6%, over 1995. Same store
sales increased 4.9% over 1995 sales. The increase in
sales reflects the favorable consumer response to superior
customer service, the "Vons Is Value" marketing campaign and
a strengthening economy in Southern California. In 1996,
the Company opened ten new stores, closed 18 stores and
completed 68 store remodel projects.
Costs and Expenses. Costs and expenses for 1996 were
$5,166.3 million, an increase of $289.7 million, or 5.9%,
over the comparable 1995 period.
Cost of sales and buying and occupancy expenses as a
percentage of sales for 1996 were 74.5%, a decrease of 0.3
of a percentage point from 1995. The cost of increased
promotional activities in 1996 was offset by benefits
achieved from category management and increased private
brand sales. The improvement in cost of sales and
buying and occupancy expenses as a percentage of sales
also reflects decreased occupancy costs.
Selling and administrative expenses as a percentage
of sales were 20.7% in 1996, compared with 21.1% in 1995.
The cost of maintaining store service levels was more than
offset by a more efficient mix of store labor and improved
sales per labor hour. The improvement in selling and
administrative expenses also reflects the success of
continued efforts to control expenses as a percentage of
sales.
Operating Income. Operating income for 1996 was
$241.1 million, an increase of $47.0 million, or 24.2%,
over 1995. Operating margin increased to 4.5% in 1996
versus 3.8% in 1995. These increases primarily reflect
an increase in gross margin and a reduction in selling
administrative expenses as a percentage of sales.
Operating income before depreciation and amortization
of property, amortization of goodwill and other assets,
LIFO charge, earthquake deductible and restructuring
charges ("FIFO EBITDA") was $361.9 million, or 6.7% of
sales, in 1996 compared with $315.0 million, or 6.2% of
sales, in 1995.
Interest Expense. Net interest expense for 1996 was
$55.6 million, a decrease of $11.7 million, or 17.4%, from
1995. This decrease was due to lower average revolving
debt borrowings. The ratio of FIFO EBITDA to net interest
expense increased to 6.5 times in 1996 versus 4.7 times
in 1995.
Income Tax Provision. The income tax provision in
1996 was $80.8 million, or a 43.6% effective tax rate.
The income tax provision in 1995 was $58.7 million, or a
46.3% effective tax rate. The decrease in the 1996
effective tax rate reflects the increase in income before
income tax provision. The effective tax rate is impacted
by amortization of excess of cost over net assets acquired,
the majority of which is not deductible for tax purposes.
Income. Net income for 1996 was $104.7 million, or
$2.34 per share, compared with net income of $68.1 million,
or $1.55 per share, for 1995. Net income increased due to
the factors described above.
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 of a 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 15 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. 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.
Liquidity and Capital Resources
The Company's primary sources of liquidity are cash
flows from operations and available credit under its
revolving debt. Management believes that these sources
adequately provide for its working capital, capital
expenditure and debt service needs.
Net cash provided by operating activities was $260.4
million in 1996 compared with $239.4 million in 1995.
This change primarily reflects an increase in net income.
The ratio of current assets to current liabilities was
0.61 to 1 at December 29, 1996 compared with 0.76 to 1
at December 31, 1995. The decrease in the ratio of current
assets to current liabilities reflects the maturity of the
Company's $110.8 million mortgage in July 1997.
Net cash used for investing activities was $99.3
million in 1996 compared with $91.2 million in 1995.
Total capital expenditures in 1996, including the present
value of commitments under operating leases, were $193.5
million.
Subject to completion of the proposed Merger with
Safeway, the Company currently anticipates that total
1997 capital expenditures will be approximately $215
million, of which approximately $150 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 13 new
stores, including five replacement stores, and the
completion of approximately 24 store remodeling 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, as well as Safeway's plans following
the Merger.
Subject to completion of the proposed Merger with
Safeway, the Company currently anticipates that 1997 cash
capital expenditures will be funded out of cash provided
by operations, the Revolving Loan, and/or through operating
leases. In the near term, if Vons were to reduce
substantially or postpone its capital expenditure program,
Vons believes that there would be no substantial impact
on current operations. 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 $161.2
million in 1996 compared with $147.8 million in 1995.
The level of borrowings under the Company's revolving
debt is dependent primarily upon cash flows from operations
and capital expenditure requirements.
At December 29, 1996, the Company's revolving
debt borrowings totaled $6.0 million and the Company
had available unused credit of $616.8 million. The
weighted average interest cost for 1996 on the
Company's revolving debt was 7.0% excluding commitment
fees on unused borrowings. At December 29, 1996, the
corresponding bank prime rate was 8.25%.
The Company's involvement with derivative financial
instruments has been limited to interest rate cap
contracts to reduce the potential impact of increases in
interest rates on revolving debt.
On March 24, 1997, the Company requested the
redemption of all outstanding 9-5/8% Senior Subordinated
Notes effective April 28, 1997. The Company's liquidity
and capital resources are likely to change significantly
following completion of the proposed Merger.
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.
ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Financial statements and supplementary data are as set
forth in the Index to Consolidated Financial Statements
beginning immediately following signatures.
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
To the extent required to be filed, the registrant will
file an amendment to this Form 10-K within 120 days of the
end of its fiscal year to provide the information required
by Part III of this Form 10-K.
ITEM 11: EXECUTIVE COMPENSATION
To the extent required to be filed, the registrant
will file an amendment to this Form 10-K within 120 days
of the end of its fiscal year to provide the information
required by Part III of this Form 10-K.
ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
To the extent required to be filed, the registrant
will file an amendment to this Form 10-K within 120 days
of the end of its fiscal year to provide the information
required by Part III of this Form 10-K.
ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
To the extent required to be filed, the registrant
will file an amendment to this Form 10-K within 120 days
of the end of its fiscal year to provide the information
required by Part III of this Form 10-K.
PART IV
ITEM 14: EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS
ON FORM 8-K
(a) Exhibits and Financial Statements and Schedules
(1) Financial Statements
See Index to Consolidated Financial Statements.
(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
Notes to Consolidated financial Statements.
(b) Reports on Form 8-K
A report on Form 8-K dated December 15, 1996 was
filed by the Registrant to disclose that the Registrant
had entered into an Agreement and Plan of Merger, dated
as of December 15, 1996 by and among the Registrant, Safeway
Inc. and SSCI Merger Sub., Inc.<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 28, 1997
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 28, 1997
- --------------------------------- of the Board
Lawrence A. Del Santo and Chief
Executive
Officer
/S/ PAMELA K. KNOUS Executive Vice March 28, 1997
- --------------------------------- President,
Pamela K. Knous Chief Financial
Officer (Chief
Accounting
Officer) and
Treasurer
/S/ STEVEN A. BURD Member-Board March 28, 1997
- --------------------------------- of Directors
Steven A. Burd
/S/ WILLIAM S. DAVILA Member-Board March 28, 1997
- --------------------------------- of Directors
William S. Davila
/S/ FRITZ L. DUDA Member-Board March 28, 1997
- --------------------------------- of Directors
Fritz L. Duda
/S/ RICHARD E. GOODSPEED Member-Board March 28, 1997
- --------------------------------- of Directors
Richard E. Goodspeed
/S/ JAMES H. GREENE, JR. Member-Board March 28, 1997
- --------------------------------- of Directors
James H. Greene, Jr.
/S/ JOHN M. LILLIE Member-Board March 28, 1997
- --------------------------------- of Directors
John M. Lillie
/s/ ROBERT I. MACDONNELL Member-Board March 28, 1997
- --------------------------------- of Directors
Robert I. MacDonnell
/S/ PETER A. MAGOWAN Member-Board March 28, 1997
- --------------------------------- of Directors
Peter A. Magowan
/S/ CHARLES E. RICKERSHAUSER, JR. Member-Board March 28, 1997
- --------------------------------- of Directors
Charles E. Rickershauser, Jr.
/S/ ROGER E. STANGELAND Member-Board March 28, 1997
- --------------------------------- of Directors
Roger E. Stangeland
Member-Board March , 1997
- --------------------------------- of Directors
William Y. Tauscher
<PAGE>
THE VONS COMPANIES, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Independent Auditors' Report................................ F-1
Financial Statements:
Consolidated Statements of Operations for
the fiscal years ended December 29, 1996,
December 31, 1995, and January 1, 1995.................. F-2
Consolidated Balance Sheets as of
December 29, 1996 and December 31, 1995 ................ F-3
Consolidated Statements of Shareholders' Equity for the
fiscal years ended December 29, 1996,
December 31, 1995 and January 1, 1995 .................. F-4
Consolidated Statements of Cash Flows for the fiscal
years ended December 29, 1996, December 31, 1995 and
January 1, 1995 ........................................ F-5
Notes to the Consolidated Financial Statements............ 1
<PAGE>
[This page appears on KPMG Peat Marwick letterhead.]
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 29, 1996 and December 31, 1995, and the related
consolidated statements of operations, shareholders'
equity and cash flows for the fifty-two week periods
ended December 29, 1996, December 31, 1995 and January 1,
1995. 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 29, 1996 and December 31, 1995
and the results of their operations and cash flows
for the fifty-two week periods ended December 29, 1996,
December 31, 1995 and January 1, 1995, in conformity
with generally accepted accounting principles.
As described in note 13 to the consolidated financial
statements, the Company adopted the provisions of Financial
Accounting Standards Board Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation."
/S/ KPMG Peat Marwick LLP
January 17, 1997, except for the
penultimate sentence in paragraph
five of note 7 which is
as of March 27, 1997
F-1<PAGE>
<PAGE>
<TABLE>
THE VONS COMPANIES, INC. AND SUBSIDIARIES
- -----------------------------------------
Consolidated Statements of Operations
<CAPTION>
Fiscal Year Ended
-----------------------------------------
All amounts except per share data December 29, December 31, January 1,
in millions of dollars 1996 1995 1995
------------- ------------ ------------
<S> <C> <C> <C>
Sales $ 5,407.4 $ 5,070.7 $ 4,996.6
------------- ------------ ------------
Costs and expenses:
Cost of sales, buying and
occupancy 4,032.7 3,790.2 3,767.2
Selling and administrative
expenses 1,118.6 1,071.4 1,055.5
Amortization of excess cost
over net assets acquired 15.0 15.0 15.1
Restructuring charges - - 33.0
------------- ------------ ------------
5,166.3 4,876.6 4,870.8
------------- ------------ ------------
Operating income 241.1 194.1 125.8
Interest expense, net 55.6 67.3 70.8
------------- ------------ ------------
Income before income tax provision 185.5 126.8 55.0
Income tax provision 80.8 58.7 28.4
------------- ------------ ------------
Net income $ 104.7 $ 68.1 $ 26.6
------------- ------------ ------------
------------- ------------ ------------
Income per common and common
equivalent share:
Net income $ 2.34 $ 1.55 $ .61
------------- ------------ ------------
------------- ------------ ------------
Weighted average common and
common equivalent shares 44.8 43.9 43.6
------------- ------------ ------------
------------- ------------ ------------
Dividends paid on common stock None None None
------------- ------------ ------------
------------- ------------ ------------
<FN>
See accompanying notes to these consolidated financial statements.
</TABLE>
F-2
<PAGE>
<TABLE>
THE VONS COMPANIES, INC. AND SUBSIDIARIES
- -----------------------------------------
Consolidated Balance Sheets
<CAPTION>
December 29, December 31,
All amounts except share data in millions of dollars 1996 1995
------------ ------------
<S> <C> <C>
Assets
Current assets:
Cash $ 9.3 $ 9.4
Accounts receivable 45.0 31.7
Inventories 335.3 350.7
Deferred taxes 32.5 30.9
Other 42.8 29.6
------------ ------------
Total current assets 464.9 452.3
Property and equipment, net 1,194.2 1,192.5
Excess of cost over net assets acquired,
net of accumulated amortization of $133.7
million and $118.7 million, respectively 467.8 482.8
Other 58.5 58.9
------------ ------------
Total Assets $ 2,185.4 $ 2,186.5
------------ ------------
------------ ------------
Liabilities and Shareholders' Equity
Current liabilities:
Current maturities of capital lease
obligations and long-term debt $ 154.9 $ 25.7
Accounts payable 339.2 304.2
Accrued liabilities 265.7 263.5
------------ ------------
Total current liabilities 759.8 593.4
Accrued self-insurance 143.4 128.0
Deferred income taxes 131.7 118.9
Other noncurrent liabilities 62.3 65.0
Capital lease obligations 50.3 53.4
Senior debt 15.0 298.8
Subordinated debt, net 284.5 305.7
------------ ------------
Total liabilities 1,447.0 1,563.2
------------ ------------
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 29, 1996:
43,987,000 shares; December 31, 1995:
43,533,000 shares 4.4 4.3
Paid-in capital 353.5 343.2
Retained earnings 380.6 275.9
Notes receivable for stock (.1) (.1)
------------ ------------
Total shareholders' equity 738.4 623.3
------------ ------------
Total Liabilities and Shareholders' Equity $ 2,185.4 $ 2,186.5
------------ ------------
------------ ------------
<FN>
See accompanying notes to these consolidated financial statements.
</TABLE>
F-3
<PAGE>
<TABLE>
THE VONS COMPANIES, INC. AND SUBSIDIARIES
- -----------------------------------------
Consolidated Statements of Cash Flows
<CAPTION>
Fiscal Year Ended
--------------------------------------------------
December 29, December 31, January 1,
All amounts in millions of dollars 1996 1995 1995
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating
activities:
Net income $ 104.7 $ 68.1 $ 26.6
Adjustments to reconcile net
income to net cash provided by
operating activities:
Restructuring charges - - 33.0
Depreciation and
amortization of property
and capital leases 99.6 100.0 102.1
Amortization of excess cost
over net assets acquired
and other assets 16.4 16.0 16.1
Amortization of debt
discount and deferred
financing costs 6.2 6.8 6.2
LIFO charge 4.8 4.9 2.3
Deferred income taxes 11.2 1.5 (1.5)
Change in assets and
liabilities:
(Increase) decrease in
accounts receivable (13.3) 13.7 (9.1)
(Increase) decrease in
inventories at FIFO
costs 10.6 3.7 21.9
(Increase) decrease in
other current assets 1.7 (10.9) 3.2
(Increase) decrease in
noncurrent assets (3.6) (7.5) (9.3)
Increase (decrease) in
accounts payable 7.2 11.7 (25.5)
Increase (decrease) in
accrued liabilities 2.2 16.7 23.3
Increase (decrease) in
noncurrent liabilities 12.7 14.7 (9.5)
------------ ------------ ------------
Net cash provided by operating
activities 260.4 239.4 179.8
------------ ------------ ------------
Cash flows from investing
activities:
Addition of property, plant
and equipment (117.8) (110.2) (128.0)
Disposal of property, plant
and equipment 18.5 19.0 10.5
------------ ------------ ------------
Net cash used by investing
activities (99.3) (91.2) (117.5)
------------ ------------ ------------
Cash flows from financing
activities:
Net payments on revolving
debt (171.8) (122.1) (67.9)
Redemption and repurchases
of senior subordinated
debentures (15.6) (2.4) (6.2)
Increase (decrease) in net
outstanding drafts 27.8 (15.9) 19.4
Payments on other debt and
capital lease obligations (12.0) (8.2) (8.0)
Other 10.4 .8 .9
------------ ------------ ------------
Net cash used by
financing activities (161.2) (147.8) (61.8)
------------ ------------ ------------
Net cash increase (decrease) (0.1) .4 .5
Cash at beginning of year 9.4 9.0 8.5
------------ ------------ ------------
Cash at end of year $ 9.3 $ 9.4 $ 9.0
------------ ------------ ------------
------------ ------------ ------------
Supplemental disclosures of
cash flow information:
Cash paid during the year for:
Interest $ 51.3 $ 59.8 $ 64.9
------------ ------------ ------------
------------ ------------ ------------
Income taxes $ 72.0 $ 56.0 $ 33.7
------------ ------------ ------------
------------ ------------ ------------
<FN>
See accompanying notes to these consolidated financial statements.
</TABLE>
F-4
<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 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
Net income - - - 104.7 - 104.7
Stock options exercised .5 0.1 10.3 - - 10.4
------ ------ ------- --------- ------ ------
Balance at December 29,
1996 44.0 $ 4.4 $ 353.5 $ 380.6 $ (.1) $738.4
------ ------ ------- --------- ------ ------
------ ------ ------- --------- ------ ------
<FN>
See accompanying notes to these consolidated financial statements.
</TABLE>
F-5<PAGE>
<PAGE>
THE VONS COMPANIES, INC. AND SUBSIDIARIES
- -----------------------------------------
Notes to the Consolidated Financial Statements
Note 1. Basis of Presentation
At December 29, 1996, the Company operated 320
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 1996, 1995 and 1994 included 52 weeks which
ended on December 29, 1996, December 31, 1995 and
January 1, 1995, 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 29, 1996 and the reported
amounts of income and expenses for the fiscal year ended
December 29, 1996. Actual results could differ from
those estimates.
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.
Revenue Recognition. Sales are recorded when
payment is tendered at check-out.
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. Proposed Merger
On December 15, 1996, Vons entered into an Agreement
and Plan of Merger, as amended (the "Merger Agreement"),
with Safeway for a business combination in which, among
other things, Safeway will issue 1.425 shares of Safeway
common stock for each share of Vons common stock that
Safeway does not currently own and Vons will be merged
with and into a wholly owned subsidiary of Safeway
(the "Merger"). The transaction, which was unanimously
approved by a special committee of the Vons Board of
Directors, comprised of directors who are not affiliated
with Safeway, is subject to approval by a majority of
the outstanding Vons common shares not held by Safeway
and its affiliates, and certain other conditions. The
combined company will be the second largest grocery
chain in North America, with 1,377 stores and sales in
excess of $22 billion. The proposed merger is expected
to close early in the second quarter of 1997.
Note 4. Inventories
The excess of estimated current cost over LIFO
carrying value of inventories was $37.1 million and
$32.3 million at December 29, 1996 and December 31,
1995, respectively. Application of the LIFO method
resulted in a charge to cost of sales, buying and
occupancy of $4.8 million, $4.9 million and $2.3
million for 1996, 1995 and 1994, respectively.
Note 5. Property and Equipment
The components of property and equipment at
December 29, 1996 and December 31, 1995 were as
follows (in millions of dollars):
<TABLE>
<CAPTION>
December 29, December 31,
1996 1995
------------ ------------
<S> <C> <C>
Land $ 237.5 $ 225.3
Buildings 412.1 386.6
Leasehold improvements 329.6 319.1
Fixtures and equipment 738.6 714.6
------------ ------------
1,717.8 1,645.6
Less: accumulated depreciation
and amortization (563.4) (496.6)
------------ ------------
Net property owned 1,154.4 1,149.0
------------ ------------
Capital leases 68.9 69.4
Less: accumulated amortization (29.1) (25.9)
------------ ------------
Net capital leases 39.8 43.5
------------ ------------
Property and equipment, net $ 1,194.2 $ 1,192.5
------------ ------------
------------ ------------
</TABLE>
Note 6. Accrued Current Liabilities
The components of accrued current liabilities at
December 29, 1996 and December 31, 1995 were as follows
(in millions of dollars):
<TABLE>
<CAPTION>
December 29, December 31,
1996 1995
------------ ------------
<S> <C> <C>
Accrued payroll, benefits and
related taxes $ 147.8 $ 134.6
Accrued self-insurance 33.2 37.2
Other 84.7 91.7
------------ ------------
Accrued current liabilities $ 265.7 $ 263.5
------------ ------------
------------ ------------
</TABLE>
Note 7. Senior and Subordinated Debt
Senior and subordinated debt as of December 29, 1996
and December 31, 1995 were as follows (in millions of dollars):
<TABLE>
<CAPTION>
December 29, December 31,
1996 1995
------------ ------------
<S> <C> <C>
Senior debt:
Revolving Loan, interest at
prime or Eurodollar rate plus
designated amounts, due 2000 $ 6.0 $ 177.8
Mortgage, 9.25%, secured by
real property, due in monthly
installments of $1.0 million
including interest, due 1997 110.8 113.0
Mortgages, 6.00% to 11.50%,
secured by real property, due
in varying monthly
installments with maturity
dates from 1997 to 2009 23.8 13.5
------------ ------------
Total 140.6 304.3
Less: current portion 125.6 5.5
------------ ------------
Long-term portion $ 15.0 $ 298.8
------------ ------------
------------ ------------
Subordinated debt:
Senior subordinated
debentures, 6-5/8%, less
unamortized discount of
$3.6 million and $7.2
million at December 29, 1996
and December 31, 1995,
respectively, based on an
effective interest rate of
12.5%, interest due in
semiannual installments $ 58.9 $ 70.9
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 308.9 320.9
Less: current portion 24.4 15.2
------------ ------------
Long-term portion $ 284.5 $ 305.7
------------ ------------
------------ ------------
</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 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 29, 1996, borrowings under the
Revolving Loan were $6.0 million and available unused
credit under the Revolving Loan was $616.8 million.
Weighted average interest costs for 1996, for the
Revolving Loan were 7.0% excluding commitment
fees on unused borrowings. At December 29, 1996,
the corresponding bank prime rate was 8.25%. Commitment
fees under the Revolving Loan and Revolving Credit and
Term Loan Facilities were $.8 million, $1.2 million and
$1.5 million for 1996, 1995 and 1994, 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 were purchased in 1992 to
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 8.225%
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 $110.8 million mortgage loan requires
monthly principal and interest payments of approximately
$1 million with a one-time principal and interest
payment of $110.7 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 29, 1996,
$25.0 million and $37.5 million are due on 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. On March 24, 1997, the
Company requested the redemption of all outstanding
9-5/8% Debt effective April 28, 1997. 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 29, 1996, and December 31, 1995,
the carrying value of all financial instruments
approximated fair value.
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 29, 1996. Under its
most restrictive debt agreement, the Company had
$119.0 million available for dividends and distributions
at December 29, 1996.
Principal payments required in future years are as
follows (in millions of dollars):
<TABLE>
<CAPTION>
Principal
Payments
----------
<S> <C>
1997 $ 150.6
1998 38.5
1999 101.1
2000 7.2
2001 1.3
2002-2006 153.7
2007-2011 .7
----------
Total principal payments 453.1
Less: current portion 150.6
----------
Long-term portion $ 302.5
----------
----------
</TABLE>
Standby letters of credit, primarily for
self-insurance purposes, not reflected in the
accompanying consolidated financial statements,
were approximately $72.2 million and $73.3 million
at December 29, 1996 and December 31, 1995 respectively.
Note 8. 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 29, December 31, January 1,
1996 1995 1995
------------ ------------ ------------
<S> <C> <C> <C>
Minimum rentals $ 57.1 $ 55.7 $ 60.9
Contingent rentals 7.8 7.3 7.5
Sublease rentals
received (7.8) (6.4) (4.7)
------------ ------------ ------------
Rental expense,
net $ 57.1 $ 56.6 $ 63.7
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
Capital lease obligations, relating primarily to
buildings, vary in amounts with interest rates ranging
from 7.5% to 12.5%. Contingent rentals associated with
capital leases were $1.6 million, $1.5 million
and $1.4 million for 1996, 1995 and 1994, respectively.
Future minimum lease payments under noncancellable
operating and capital leases, together with the present
value of the net minimum lease payments, at December 29,
1996 were as follows (in millions of dollars):
<TABLE>
<CAPTION>
Operating Capital
Leases Leases
--------- -------
<S> <C> <C>
1997 $ 62.1 $ 9.8
1998 61.7 7.9
1999 60.1 7.3
2000 57.6 7.2
2001 54.3 6.0
2002-2006 247.6 29.8
2007-2011 158.2 20.2
2012-2016 81.5 11.2
2017-2021 9.6 5.4
Thereafter 1.5 -
--------- -------
Total minimum lease
commitments $ 794.2 104.8
---------
---------
Less: interest portion 49.6
-------
Present value of net minimum
lease commitments 55.2
Less: current portion 4.9
-------
Long-term portion $ 50.3
-------
-------
</TABLE>
Minimum sublease rentals to be received in the future
under noncancellable operating and capital leases totaled
$76.6 million at December 29, 1996.
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 29, 1996 were as follows
(in millions of dollars):
<TABLE>
<CAPTION>
December 29,
1996
------------
<S> <C>
1997 $ 3.4
1998 3.5
1999 3.4
2000 3.1
2001 2.9
2002-2006 12.8
2007-2011 7.7
2012-2016 2.8
------------
Total minimum lease commitments $ 39.6
------------
------------
</TABLE>
Minimum sublease rentals to be received by the
partnership under noncancellable operating leases totaled
$25.2 million at December 29, 1996.
Note 9. 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 29, 1996
and December 31, 1995 (in millions of dollars):
<TABLE>
<CAPTION>
December 29, December 31,
1996 1995
------------ ------------
<S> <C> <C>
Actuarial present value of
benefit obligation:
Accumulated benefit obligation,
including vested benefit of
$47.9 million at December 29,
1996 and $44.1 million at
December 31, 1995 $ 50.0 $ 46.2
------------ ------------
------------ ------------
Projected benefit obligation for
service rendered to date $ (68.0) $ (63.6)
Plan assets at fair value,
primarily listed stocks and
U.S. bonds 64.2 56.4
------------ ------------
Projected benefit obligation
in excess of plan assets (3.8) (7.2)
Unrecognized net (gain) loss from
past experience different from
that assumed, unrecognized
prior service cost and effects
of changes in assumptions 10.2 15.0
------------ ------------
Pension asset included in other
noncurrent assets $ 6.4 $ 7.8
------------ ------------
------------ ------------
</TABLE>
The discount rate used in determining the actuarial
present value of the projected benefit obligation was
7.25% at December 29, 1996 and December 31, 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 29, 1996 and December 31, 1995.
Net pension cost under the defined benefit pension plan
for 1996, 1995 and 1994 included the following components
(in millions of dollars):
<TABLE>
<CAPTION>
Fiscal Year Ended
--------------------------------------------
December 29, December 31, January 1,
1996 1995 1995
------------ ------------ ------------
<S> <C> <C> <C>
Service cost $ 2.9 $ 2.3 $ 3.4
Interest cost on
projected
benefit
obligation 4.5 4.0 4.0
Actual return on
plan assets (8.3) (10.6) .9
Net amortization
and deferral 3.9 6.9 (4.4)
------------ ------------ ------------
Net pension
cost $ 3.0 $ 2.6 $ 3.9
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
The Company's supplemental executive retirement plan
provides supplemental income payments for certain officers
during retirement. Total pension expense for all plans was
$4.3 million, $3.4 million and $5.1 million for 1996, 1995
and 1994, respectively.
The Company's contributory profit sharing plan for
nonunion employees qualifies under Section 401(k) of the
Internal Revenue Code. In 1996, the Company's contribution
was five percent of each eligible employee's pay plus a
one percent matching contribution for each eligible employee
who elected to contribute at least one percent of their pay.
For 1996, 1995, and 1994 total expense related to the
Company's profit sharing plan was $6.3 million, $7.6 million
and $5.3 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
December 31, 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 29, 1996
and December 31, 1995 was as follows (in millions
of dollars):
<TABLE>
<CAPTION>
December 29, December 31,
1996 1995
------------ ------------
<S> <C> <C>
Accumulated retiree medical benefit
obligation:
Retirees $ 10.7 $ 10.4
Fully eligible active plan
participants 1.5 1.7
Other active plan participants 5.7 5.9
Unrecognized net gain from
unrecognized prior service
cost and changes in assumptions 13.3 13.5
------------ ------------
Accrued retiree medical benefit
obligation $ 31.2 $ 31.5
------------ ------------
------------ ------------
</TABLE>
For measurement purposes, a 6.0% annual increase
in the cost of covered retiree medical benefits was
assumed. A 1.0% increase in the retiree medical cost
trend rate would increase the retiree medical benefit
obligation at December 29, 1996 by $.6 million and the
1996 annual expense by $.1 million. The weighted
average discount rate used in determining the accumulated
retiree medical benefit obligation was 7.25% at December 29,
1996 and December 31, 1995. The net retiree medical plan
cost for 1996, 1995 and 1994 included the following
components (in millions of dollars):
<TABLE>
<CAPTION>
Fiscal Year Ended
------------------------------------------
December 29, December 31, January 1,
1996 1995 1995
------------ ------------ ------------
<S> <C> <C> <C>
Service cost $ .3 $ .3 $ 1.2
Interest cost 1.2 1.3 2.1
Net amortization
and deferral (.7) (.9) -
------------ ------------ ------------
Net retiree
medical plan
costs $ .8 $ .7 $ 3.3
------------ ------------ ------------
------------ ------------ ------------
</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 29, 1996
is not available. Total pension expense for the union
plans was $42.0 million, $19.8 million and $22.3 million
for 1996, 1995 and 1994, 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 $108.7
million, $108.6 million and $125.9 million for 1996,
1995 and 1994, respectively.<PAGE>
Note 10. Income Taxes
<TABLE>
The provision for income taxes for 1996, 1995 and 1994 was comprised
of the following amounts (in millions of dollars):
<CAPTION>
Fiscal Year Ended
--------------------------------------------
December 29, December 31, January 1,
1996 1995 1995
------------ ------------ ------------
<S> <C> <C> <C>
Current:
Federal $ 55.5 $ 44.5 $ 24.7
State 14.1 12.7 5.2
------------ ------------ ------------
Total current income tax
provision 69.6 57.2 29.9
------------ ------------ ------------
Deferred:
Federal 8.1 .7 (.7)
State 3.1 .8 (.8)
------------ ------------ ------------
Total deferred income tax
provision 11.2 1.5 (1.5)
------------ ------------ ------------
Total income tax provision $ 80.8 $ 58.7 $ 28.4
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
<TABLE>
Reconciliation of the Federal statutory rate and effective rate for 1996, 1995 and
1994 was as follows (in millions of dollars):
<CAPTION>
Fiscal Year Ended
------------------------------------------
December 29, December 31, January 1,
1996 1995 1995
------------ ------------ ------------
<S> <C> <C> <C>
Federal statutory expected provision $ 64.9 $ 44.4 $ 19.3
Amortization of excess of cost over net
assets acquired 5.2 5.0 5.0
State income taxes, net of Federal income
tax benefit 10.3 8.1 3.1
Other .4 1.2 1.0
------------ ------------ ------------
Total income tax provision $ 80.8 $ 58.7 $ 28.4
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
<PAGE>
<TABLE>
Deferred income taxes consisted of future tax liabilities (assets) attributable to
the following (in millions of dollars):
<CAPTION>
December 29, December 31,
1996 1995
------------ ------------
<S> <C> <C>
Deferred tax liabilities:
Excess of book over tax bases $ 146.9 $ 143.8
Excess of tax over book depreciation 95.2 92.8
------------ ------------
Deferred tax liabilities 242.1 236.6
------------ ------------
Deferred tax assets:
Cash versus accrual basis (138.7) (144.0)
Other, net (4.2) (4.6)
------------ ------------
Deferred tax assets (142.9) (148.6)
------------ ------------
Deferred income taxes, net $ 99.2 $ 88.0
------------ ------------
------------ ------------
/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 11. Related Party Transactions
Prior to July 1996, the Company leased 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 had a 50%
interest in the California general partnership. In
June 1996, the Company paid the Texas general partnership
$2.9 million to acquire the Texas general partnership's
interest in the assets of the California general
partnership and the California general partnership
was dissolved. During 1996, 1995 and 1994, the Company
paid rent of $.8 million, $1.9 million and $1.9 million,
respectively from which the partnership distributed
$80,000, $250,000 and $70,000 to the Texas general
partnership in such years, respectively. This distribution
facility was closed in third quarter 1995. See Note 15
to the Consolidated Financial Statements.
A wholly owned subsidiary of Safeway owns approximately
34.3% 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 1996,
1995 and 1994 of approximately $25.5 million, $27.0 million
and $21.3 million, respectively. During 1995 and 1994, the
Company sold certain inventory items to Safeway and its
affiliates for an aggregate amount of approximately $6.4
million and $6.6 million, respectively. In 1996, the
Company entered into a purchasing joint venture with
Safeway and purchased $28.4 million of certain inventory
and other items from the joint venture. 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 $.5 million, $.6 million and $.7 million
in 1996, 1995 and 1994, 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.
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 midterm 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 12. 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 13. 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. Options granted in
May 1996 vest 15% per year beginning two years from the
date of grant and 15% per year through the sixth year
and 25% in the seventh year. 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.
The Company has elected to follow Accounting
Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees" ("APB25") and related Interpretations
in accounting for its employee stock options. Under
APB25, if the exercise price of the Company's employee
stock options equals the market price of the underlying
stock on the date of grant no compensation expense
is recognized. In 1996, the Company issued employee
stock options with an exercise price below the market
price of the underlying stock on the date of grant.
In accordance with APB25, $1.3 million, $1.4 million
and $1.5 million has been charged against income in 1996,
1995 and 1994, respectively.
Pro forma information regarding net income and earnings per
share is required by Statement of Financial Accounting Standards
"Accounting for Stock-Based Compensation", ("SFAS No. 123"), and
has been determined as if the Company had accounted for its
employee stock options under the fair value method of that
Statement. The fair value for these options was estimated
at the date of grant using a Black-Scholes option pricing
model with the following weighted average assumptions
for 1996 and 1995, respectively: risk-free interest
rates of 6.54% and 6.69%; dividend yields of 0% and 0%;
volatility factors of the expected market price of the
Company's common stock of 28.0% and 31.1% and a
weighted-average expected life of the option of 6 years
and 6 years.
For purposes of pro forma disclosures, the estimated
fair value of the options is amortized to expense over
the option vesting period. The Company's pro forma
information follows (in millions except for earnings
per share information):
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Net Income As reported $ 104.7 $ 68.1
Pro forma $ 104.3 $ 67.8
Primary earnings per share As reported $ 2.34 $ 1.55
Pro forma $ 2.33 $ 1.54
The effects of applying SFAS No. 123 for pro forma
disclosure purposes are not likely to be representative
of the effects on future years disclosure due to the
timing of option vesting.
/TABLE
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
Information regarding the Company's stock option plans is
summarized below:
1987 Weighted Weighted Weighted
Stock Average 1990 Average Directors' Average
Option Exercise Stock Option Exercise Stock Option Exercise
Plan Price Plan Price Plan Price
-------- -------- ------------ -------- ------------ --------
<S> <C> <C> <C> <C> <C> <C>
Shares authorized 175,227 4,000,000 225,000
-------- ------------ ------------
-------- ------------ ------------
Shares under option:
Outstanding at
January 2, 1994 48,519 $ 9.28 1,991,229 $ 23.34 99,043 $ 23.81
Granted - - 1,164,009 13.77 52,028 15.83
Exercised 7,000 9.28 34,240 2.50 -
Forfeited - - 416,142 23.11 20,144 25.32
-------- -------- ------------ -------- ------------ --------
Outstanding at
January 1, 1995 41,519 $ 9.28 2,704,856 $ 19.53 130,927 $ 20.41
Granted - - 500,040 20.16 47,140 17.64
Exercised 22,801 9.28 130,666 8.28 -
Forfeited - - 273,922 23.33 -
-------- -------- ------------ -------- ------------ --------
Outstanding at
December 31, 1995 18,718 $ 9.28 2,800,308 $ 19.79 178,067 $ 19.68
Granted - - 515,030 31.55 22,458 28.83
Exercised 15,843 9.28 434,945 23.75 - -
Forfeited - - 50,135 20.99 - -
-------- -------- ------------ -------- ------------ --------
Outstanding at
December 29, 1996 2,875 $ 9.28 2,830,258 $ 21.30 200,525 $ 20.70
-------- -------- ------------ -------- ------------ --------
-------- -------- ------------ -------- ------------ --------
Weighted-average fair
value of options
granted during the
year:
1995 $ - $ 8.96 $ 9.83
1996 $ - $ 20.18 $ 14.64
Options exercisable:
At January 1, 1995 40,394 1,143,966 62,864
At December 31, 1995 17,593 1,372,726 109,290
At December 29, 1996 2,875 1,439,816 147,678
</TABLE>
The following table summarizes information about stock options
outstanding at December 29, 1996:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
--------------------------------- -----------------------
Number Number
Outstanding Weighted Weighted Exercisable Weighted
At Average Average At Average
December 29, Remaining Exercise- December 29, Exercise
Range of Exercise Prices 1996 Life Price 1996 Price
- ------------------------ ------------ --------- --------- ------------ --------
<S> <C> <C> <C> <C> <C>
$ 4.00 - 6.00 272,500 7.3 years $ 4.15 181,666 $ 4.15
9.00 - 13.50 2,875 .6 9.28 2,875 9.28
14.23 - 21.35 1,390,115 7.2 18.13 675,565 17.97
$21.89 - 33.00 1,368,168 7.1 27.85 730,263 25.92
------------ ------------
3,033,658 7.2 21.25 1,590,369 20.03
------------ ------------
------------ ------------
/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.
Note 14. Advertising Expense
The Company expenses the costs of advertising as
incurred. Total advertising expense was $40.3 million,
$44.1 million and $42.8 million in 1996, 1995 and 1994,
respectively.
Note 15. 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 facility. 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.
All of the cost containment and strategic
restructuring initiatives have been executed. Of the
total $89.9 million restructuring reserve, $83.9 million
of costs and payments have been charged against the
reserve as of December 29, 1996, representing asset
write-offs and lease obligations for closed facilities
of $64.1 million and severance and other related
expenses of $19.8 million.<PAGE>
<PAGE>
Note 16. Quarterly Financial Data (Unaudited)
<TABLE>
The results of operations for 1996 and 1995 were as follows
(in millions except per share data):
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
Fiscal Year 1996 (12 Weeks) (12 Weeks) (16 Weeks) (12 Weeks)
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Sales $ 1,205.6 $ 1,261.0 $ 1,676.6 $ 1,264.2
Gross profit (1) 307.3 323.6 419.9 323.9
Amortization of excess
cost over net assets
acquired 3.5 3.4 4.7 3.4
Operating income 45.3 53.1 68.2 74.5
Interest expense, net 13.5 13.3 16.6 12.2
Net income $ 17.5 $ 22.7 $ 29.4 $ 35.1
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Income per common
and common
equivalent share:
Net income $ .39 $ .51 $ .66 $ .78
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Weighted average
common and common
equivalent shares 44.5 44.6 44.7 45.0
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
<TABLE>
<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 43.8 43.8 44.0 44.3
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
<FN>
(1) Gross profit represents sales net of cost of sales, buying and occupancy costs.
</TABLE> <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
- ------- ---------------------- --------------------------
24 Independent Auditors' Consent.
27 Financial Data Schedule.
Management Contracts or
Compensatory Plans or
Arrangements:
10.7.2 Amendment dated
December 13, 1996
to 1990 Stock Option
and Restricted Stock
Plan dated January 24,
1990.
<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
- ------- ---------------------- ------------------------------
2.1 Agreement and Plan of Merger Exhibit 2.1 to Registrant's
dated as of December 15, 1996 Report on Form 8-K dated
by and among Safeway, Inc., December 15, 1996.
SSCI Merger Sub, Inc. and
The Vons Companies, Inc.
2.1.1 Amendment to Agreement and Exhibit 2.1 to Safeway, Inc.
Plan of merger dated as of Report on Form 8-K dated
December 15, 1996 by and January 8, 1997.
among Safeway, Inc.,
SSCI Merger Sub, Inc. and
The Vons Companies, Inc.
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."
10.9.1 The Vons Companies, Inc. Exhibit 10.9.1 to Registrant's
Amended and Restated Severance Quarterly Report on Form 10-Q
Plan for Senior Management and for quarter ended October 6,
Key Employees dated July 15, 1996.
1996.
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.
10.11.1 Amendment 1994-1 dated Exhibit 10.11.1 to Registrant's
December 23, 1994 to The Annual Report on Form 10-K for
Vons Companies, Inc. 401(k) fiscal year ended December 31,
Wrap-Around Plan effective 1995.
October 18, 1993.
10.11.2 Amendment 1996-1 dated Exhibit 10.11.2 to Registrant's
February 20, 1996 to The Quarterly Report on Form 10-Q
Vons Companies, Inc., 401(k) for quarter ended March 24, 1996.
Wrap-Around Plan effective
January 1, 1996.
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.
10.17 The Vons Companies, Inc. 1996 Exhibit 10.17 to Registrant's
Officer and Administrative Annual Report on Form 10-K for
Bonus Plan. fiscal year ended December 31,
1995.
<PAGE>
Exhibit 24
[This page appears on KPMG Peat Marwick LLP letterhead]
ACCOUNTANTS' 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 January 17, 1997, except for the penultimate sentence
of paragraph five of note 7 which is as of March 27, 1997, relating
to the consolidated balance sheets of The Vons Companies and
subsidiaries as of December 29, 1996 and December 31, 1995, and
the related consolidated statements of operations, shareholders'
equity and cash flows for each of the years in the fifty-two week
periods ended December 29, 1996, December 31, 1995 and
January 1, 1995 which report appears in the December 29, 1996 annual
report on Form 10-K of The Vons Companies, Inc.
/s/ KPMG Peat Marwick LLP
March 27, 1997
<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 29, 1996, the Consolidated Balance Sheet as of December 29,
1996 and the accompanying notes thereto and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-29-1996
<PERIOD-END> DEC-29-1996
<CASH> 9,300
<SECURITIES> 0
<RECEIVABLES> 45,000
<ALLOWANCES> 0
<INVENTORY> 335,300
<CURRENT-ASSETS> 464,900
<PP&E> 1,786,700
<DEPRECIATION> 592,500
<TOTAL-ASSETS> 2,185,400
<CURRENT-LIABILITIES> 759,800
<BONDS> 349,800
0
0
<COMMON> 4,400
<OTHER-SE> 734,000
<TOTAL-LIABILITY-AND-EQUITY> 2,185,400
<SALES> 5,407,400
<TOTAL-REVENUES> 5,407,400
<CGS> 4,032,700
<TOTAL-COSTS> 4,032,700
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 55,600
<INCOME-PRETAX> 185,500
<INCOME-TAX> 80,800
<INCOME-CONTINUING> 104,700
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 104,700
<EPS-PRIMARY> 2.34
<EPS-DILUTED> 2.34
</TABLE>
Exhibit 10.7.2
The Vons Companies, Inc.
Amendment to 1990 Stock Option and Restricted Stock Plan
The Vons Companies, Inc. 1990 Stock Option and Restricted Stock
Plan (the "Plan") is hereby amended, effective as of December 13, 1996,
as set forth below.
1. There is hereby inserted in Article I of the Plan, after
Section 1.8 and before Section 1.9 thereof, a Section 1.8A, reading
in its entirety as follows:
Section 1.8A Involuntary Termination:
"Involuntary Termination" of an Optionee's employment shall
mean (a) in the case of an Optionee who is, at the time of
such termination of employment, a "Designated Employee"
covered by the Company's Amended and Restated Severance
Plan for Senior Management and Key Employees, any termination
of employment that gives rise to an entitlement to severance
compensation pursuant to Section 4 of such plan; and (b) in
the case of all other Optionees, a termination of the
Optionee's employment by the Company or one of its
Subsidiaries (as applicable) other than (x) for Cause where
"Cause" is defined as the Optionee (i) commission of acts
constituting a crime of moral turpitude (other then driving
under the influence of alcohol), (ii) conduct which is
malicious or known or intended to be contrary to the best
interest of the Company or any of its subsidiaries and
which causes material harm to the Company or such Subsidiary
(as applicable), (iii) habitual neglect of duty if the
Optionee shall have been given five (5) business days'
written notice by the Company or such Subsidiary (as
applicable) of such habitual neglect and such habitual
neglect shall not have been cured prior to the expiration
of such five (5) business day period; provided however,
that a termination of employment shall not be considered
to be for Cause unless the Optionee shall have been
advised in writing at the time of his or her termination
that the termination is for Cause, with a reasonable
specification in such writing of the facts constituting
Cause, or (iv) nonperformance which results in a
termination of employment in accordance with the
Company's written policies and practices and in effect in
the period preceding a Change of Control, or (y) as a result
of a Scheduled Store Closing where "Scheduled Store Closing"
is defined as the closing by the Company of a store during
the two-year period following a Change of Control when
such store was scheduled to be closed in the Company's
Key Budget as in existence at least three months prior to
the Change of Control and is reflected in the Company's
schedules to a definitive merger agreement relating to
the Change of Control.
2. Section 4.3(d) is amended by replacing the phase
"Notwithstanding any other provision of this Plan" at the beginning
thereof with the phrase "Except as otherwise provided in Section 4.3(e)
and Section 4.7 hereof".
<PAGE>
3. Section 4.3 is hereby amended by inserting at the end thereof
a new subsection (e), reading in its entirety as follows:
(e) Notwithstanding any other provision of this Plan,
upon the Involuntary Termination of an Optionee's employment
during the two-year period after the occurrence of a Change
of Control by reason of the acquisition of the Company by
Safeway, Inc., all Options held by such Optionee shall
become immediately vested and exercisable to the extent not
therefore exercised, whether or not they are then exercisable
in the ordinary course of business (notwithstanding
any contrary restrictions the may be contained elsewhere in
this Plan, in the written Stock Option Agreement or otherwise),
and shall remain exercisable until the close of business on
the 30th day following such Involuntary Termination, but in
any case no later than the original expiration date of such
Option.
4. The foregoing amendments shall apply to, and shall be
deemed to amend, as of the date hereof, all Options that are
outstanding as of the date hereof.
5. Except as otherwise specified herein, the Plan is
hereby ratified without amendment.
6. Nothing in this Amendment is intended to or shall
compromise the right of the Company and its subsidiaries to
terminate the Optionee's employment at any time with or without
notice or with or without cause.
lelra\056
