-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, AzIF7uXaNFQTFoJQm2AVoFArdQ9FEv0Ii5/KGmOSFz2ylSsPUMpqX4AQSQAvZPl0 6qsDSM40CkPTJXXGnHiqMA== 0000715633-96-000003.txt : 19960307 0000715633-96-000003.hdr.sgml : 19960307 ACCESSION NUMBER: 0000715633-96-000003 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960306 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: VONS COMPANIES INC CENTRAL INDEX KEY: 0000715633 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-GROCERY STORES [5411] IRS NUMBER: 381623900 STATE OF INCORPORATION: MI FISCAL YEAR END: 1230 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 001-08452 FILM NUMBER: 96531658 BUSINESS ADDRESS: STREET 1: 618 MICHILLINDA AVE CITY: ARCADIA STATE: CA ZIP: 91007 BUSINESS PHONE: 8188217000 MAIL ADDRESS: STREET 1: 618 MICHILLINDA AVENUE CITY: ARCADIA STATE: CA ZIP: 91007 FORMER COMPANY: FORMER CONFORMED NAME: ALLIED SUPERMARKETS INC /MI//NEW/ DATE OF NAME CHANGE: 19870805 10-K405 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 ---------------------- FORM 10-K FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTIONS 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 (Mark One) /X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1995 OR / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to ------- ------- Commission File Number 1-8452 ---------------------- THE VONS COMPANIES, INC. (Exact name of registrant as specified in its charter) Michigan 38-1623900 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 618 Michillinda Avenue, Arcadia, California 91007 (Address of principal executive offices and zip code) Registrant's telephone number, including area code (818) 821- 7000 ---------------------- Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of each exchange on which registered - -------------------- ----------------------------------------- Common Stock, $.10 par value per share New York Stock Exchange ---------------------- Securities registered pursuant to section 12(g) of the Act: None (Title of class) Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.[X] Aggregate market value of voting stock held by non- affiliates of the registrant as of February 23, 1996: Common Stock, par value $.10 per share - $788,551,290. The number of shares of Common Stock outstanding as of February 23, 1996 - 43,564,457. DOCUMENTS INCORPORATED BY REFERENCE: Portions of the Annual Report to Shareholders for fiscal year ended December 31, 1995 are incorporated by reference into Parts II and IV. Portions of the Proxy Statement for the Annual Meeting of Shareholders to be held on May 8, 1996, are incorporated by reference into Part III, to be filed no later than May 5, 1996. PART I ITEM 1: BUSINESS General The Vons Companies, Inc. ("Vons" or the "Company") is one of the largest supermarket chains in Southern California based on sales. As of December 31, 1995, Vons operated 328 supermarkets and food and drug retail stores. Vons also operates a fluid milk processing facility, an ice cream plant, a bakery and distribution facilities for meat, grocery, produce and general merchandise. Stores operate under the "Vons" and "Pavilions" names. The Company's marketing platform is built on offering the customer greater value than found elsewhere by combining competitive pricing with superior selection, quality, service and convenience. Vons grocery business was founded in 1906. From 1969 until December 1985, it was owned, along with certain other merchandising businesses, by Household International, Inc. In 1985, these merchandising businesses were acquired in a leveraged buyout by a newly formed corporation which kept the grocery business and sold all of the other merchandising businesses. The newly formed corporation was subsequently merged in 1987 with and into Allied Supermarkets, Inc., a Michigan corporation ("Allied"), and the surviving corporation was renamed The Vons Companies, Inc., a Michigan corporation. Simultaneously with the merger, substantially all of the business previously operated by Allied was sold to a company organized by the former management of Allied, leaving the Company with operations located only in Southern California, as they existed prior to the merger. On August 29, 1988, the Company purchased substantially all of the operations of Safeway, Inc. ("Safeway") in Southern California. At the time of the acquisition (the "Safeway Acquisition"), these operations included 162 supermarkets and manufacturing and distribution facilities. As a result of the Safeway Acquisition and other purchases of Vons common stock, Safeway, through a wholly-owned subsidiary, is Vons largest shareholder, with approximately 35% of the outstanding shares of Vons common stock. Safeway is an affiliate of Kohlberg Kravis Roberts & Co. Strategic Repositioning and Restructuring In response to the weak economic environment in the regions it serves and other factors having a negative impact on sales, the Company commenced, in third quarter 1993, a strategic repositioning program which emphasized lower everyday shelf prices and improved customer service. In addition, the Company implemented a cost containment and strategic restructuring program to partially offset the costs of the strategic repositioning program. As part of the strategic repositioning program, the Company introduced the "Vons Value Program" in January 1994. Consistent with the Vons Value Program, the 1995 marketing campaign incorporated the slogan "Vons Is Value." These programs emphasize the Vons Value formula which combines competitive prices with customer service and high quality products. Newly reduced prices, advertised weekly specials, free membership club savings and double coupons are integral parts of the Vons offering. Another important component of the Vons Value Program is an increase in the amount of labor allocated for customer service and check-out which the Company believes has increased customer satisfaction. The cost containment and strategic restructuring program, undertaken in 1993, included the accelerated closure of underperforming facilities, a reduction in administrative and support staff positions and the closure of a distribution facility. With the closure of the San Diego distribution facility in 1995, substantially all of the cost containment and strategic restructuring initiatives have been executed. The Company's programs are long-term strategies. In aggregate, these programs are initially intended to benefit sales by funding lower prices and promotions, which in turn will improve the Company's ability to achieve strong, sustainable earnings growth. Store Formats The Company operates under the Vons and Pavilions formats. Each format is designed for a different customer segment as evidenced by the store location, appearance and product offerings. A key strategy of the Company is to tailor its store and merchandise offerings to reflect its diverse customer base. The Company supports its stores with centralized functions for marketing, advertising, buying, real estate development, management information systems, distribution, manufacturing, accounting and administration to maximize operating leverage and profitability. Both store formats, Vons and Pavilions, offer extensive assortments of food products, including departments for dry groceries, produce, meat, seafood, dairy, wine and liquor. The majority of stores offer such service departments as hot bakeries, service floral, delicatessens, service meat departments and banking facilities. While most Vons stores offer limited assortments of general merchandise, including greeting cards and health and beauty care items, many Pavilions stores offer a larger health and beauty care department including cosmetics. Selected stores offer a party shop, sausage and smoke shop, bagel shop, sushi bar and high quality prepared Chinese food. Approximately one-third of the stores offer full-service pharmacies. New Store Openings and Store Remodel Projects The Company will continue to augment sales growth through the continuation of its new store opening program and ongoing chainwide remodel program. The Company plans to open 16 new stores, including ten replacement stores, in 1996. In 1995, the Company maintained its goal of having 80% of its stores either newly opened or remodeled within the preceding five years. The Company's new store opening program does not include the effect of any possible store acquisition opportunities which might arise in the future. Store remodel projects enable Vons to present a store appearance consistent with Vons evolving store formats and to continuously update the store base through the introduction, where possible, of service departments and new merchandising modules, which are intended to generate higher gross margins and build store traffic. Vons remodel program includes remerchandising to reflect a contemporary design and decor package including selected fixture replacements. The Company completed 37, 14 and 59 store remodel projects in 1995, 1994 and 1993, respectively. Vons capital expenditures for store projects were $130.5 million and $120.0 million in 1995 and 1994, respectively. It is anticipated that 1996 capital expenditures for Vons store projects will be funded out of cash provided by operations, revolving debt and/or through operating leases. The capital expenditure program has substantial flexibility and is subject to revision based on various factors, including but not limited to business conditions, changing time constraints, cash flow requirements and competitive factors. The following table shows, by store format, the number of Vons stores in operation at the end of each of the years indicated and the number of stores opened, closed or converted during each year:
VONS PAVILIONS TIANGUIS EXPO TOTAL ------ --------- -------- ------ ------ 1993: Beginning store count...... 304 32 9 - 345 Stores opened.............. 8 - - 4 12 Stores closed or sold...... (12) - - - (12) Store format conversions... 5 - (6) 1 - ------ --------- -------- ------ ------ Ending store count......... 305 32 3 5 345 ------ --------- -------- ------ ------ 1994: Stores opened.............. 6 - - - 6 Stores closed or sold...... (17) - - - (17) Store format conversions... (1) 1 (3) 3 - ------ --------- -------- ------ ------ Ending store count......... 293 33 0 8 334 ------ --------- -------- ------ ------ 1995: Stores opened.............. 13 - - - 13 Stores closed or sold...... (11) - - (8) (19) ------ --------- -------- ------ ------ Ending store count......... 295 33 0 - 328 ------ --------- -------- ------ ------ ------ --------- -------- ------ ------ Average gross square feet per store at December 31, 1995........ 35,100 43,100 - - 35,900 ------ --------- -------- ------ ------ ------ --------- -------- ------ ------ - ------------------- /TABLE In response to negative sales trends, the Company critically assessed the performance of its entire store network in 1993 and 1994 and identified 27 underperforming stores for closure, which included the Tianguis and EXPO store formats. Underperforming stores are stores which do not satisfy the Company's strategic requirements for growth, profitability, customer satisfaction, market area penetration and/or other factors. Management believed that these stores would not meet these requirements at any time in the foreseeable future, even with a significant commitment of management and financial resources. In consideration of the Company's leaner management structure as a result of its restructuring efforts and its commitment to its new store capital program, the Company determined that its available resources would be better utilized on the remaining store base. Additionally, the Company closes stores based on replacement strategies or lease renewals. Management expects to continue these types of store closures in the future. Marketing and Competition Southern California is one of the largest and most competitive markets for retail grocery sales in the United States. Vons store network ranges from Fresno on the north to the Mexican border on the south and from the Pacific Ocean on the west to Clark County, Nevada on the east. This market area includes Fresno, Imperial, Inyo, Kern, Los Angeles, Madera, Mono, Orange, Riverside, San Bernardino, San Diego, San Luis Obispo, Santa Barbara, Tulare and Ventura counties in California as well as Clark County, Nevada. Vons faces a number of major as well as smaller competitors in its market. The Company believes that in recent years the increase in the number of competitors' stores and the entrance of new competitors in its market area have intensified competition. In addition, convenience stores, drug stores, mass merchandisers, specialty stores, warehouse stores, membership stores as well as discount stores and fast food and other restaurants compete for the same customers. This trend is expected to continue. The merger of two of the Company's major competitors, Food 4 Less Supermarkets, Inc. and Ralphs Grocery Company (the "Ralphs Merger") was completed on June 14, 1995. This merger has resulted in a change in the composition of the Company's competitors as certain trade names were eliminated and store format conversions occurred. In addition in February 1996, certain of the Smith's Food and Drug Centers in Southern California were sold to other supermarket operators including the Company and others were closed awaiting sale for supermarket or other use (the "Smith's Southern California Disposition"). The Company does not believe that the effects of the Ralphs Merger or the Smith's Southern California Disposition on the already competitive marketplace will have a material impact on the Company's sales and earnings prospects. Both of the Company's store formats utilize promotional buying opportunities to pass along special values to their customers. Also, stores offer customers additional savings through the use of double coupons, advertised weekly specials and a free membership club. This club offers customers special values and programs and enables the Company and its vendors to target specific customer segments and better understand household buying behavior. Vons is the only operator in its market area to offer this free membership club to its customers. Vons marketing and communication strategy is based on a combination of direct mail, newspaper, television and radio. The principal competitive factors in the retail supermarket business include price, fast friendly service, quality of products, breadth of product assortment, store condition and store location. Customers, in response to recessionary conditions in Southern California, are placing greater emphasis on price. Vons has responded to this trend through the Vons Value Program which entailed lowering prices on over 12,000 items in 1994. Vons believes that its strength is its ability to deliver a high value shopping experience through a blend of high quality products, superior customer service and product assortments at competitive prices combined with VonsClub, double coupons and advertised weekly specials. Merchandising and Store Operations An average store offers approximately 30,000 to 40,000 merchandise items. Vons has historically emphasized brand-name grocery products and quality and freshness in its produce, meat and seafood selections. Vons carries private brand products as well as its proprietary Jerseymaid dairy products in the grocery, delicatessen, frozen food, bakery, health and beauty care and general merchandise departments of its stores. The private brand "Select" was introduced in 1994. This upscale private brand offers additional opportunities for sales and profits. In 1994, the Company set a goal of increasing private brand sales to 16% of sales. In 1995, the Company surpassed this goal with private brand sales accounting for 17% of sales. The Company intends to increase this percentage over time through marketing its branded items and introducing additional private brand items including those under the "Select" label. In conjunction with its restructuring program, Vons is committed to being the low cost operator in the market areas it serves. Vons strategy is to continue to decrease its operating costs through aggressive buying, introduction and maintenance of various merchandising and technological innovations and stringent cost controls. The Company is actively pursuing productivity and cost reduction initiatives as part of an industry-wide effort known as Efficient Consumer Response ("ECR"). As part of this effort, an information-driven support system which tracks scanned purchases, advertising and promotions on a store-specific basis is being installed to provide information for efficient ordering. This system also assists category managers to achieve their goal of efficient assortment which reduces the number of products offered without compromising customer satisfaction. A neighborhood-specific product assortment with efficient space management improves in-stock conditions and reduces inventory. Vons has developed systems to give store managers more control over store merchandising needs. The Company improves the consistency of store operations through its policy to develop store managers internally. All store managers participate in a bonus program which is based primarily upon their individual store sales and profit as well and are included in the Company's stock option program. Through technological innovation, Vons has experienced improved operational efficiency. All Vons stores are equipped with an electronic receiving system for products delivered directly to stores by vendors, electronic time and attendance reporting and computerized labor scheduling. Vons central buying office monitors warehouse inventory levels and product movement daily for buyer analysis and action. Vons utilizes a category management system which combines the buying and merchandising functions. The Company has upgraded these systems to enable category managers to more effectively analyze data. Support and Other Services In 1995, the Company operated a fluid milk processing facility, an ice cream plant and a central bakery. Vons operates distribution facilities in California, located in El Monte and Santa Fe Springs. The Company closed its San Diego facility in third quarter 1995, eliminating redundant distribution capacity. The Company utilizes computerized inventory and labor management systems throughout its distribution network. As of December 31, 1995, Vons operated a fleet of 441 tractors and 1,160 trailers, of which 105 and 182, respectively, were leased and the remainder were owned. The Company's transportation department utilizes on-board electronic trip recorders to monitor travel times and a sophisticated computerized routing system. Approximately 77% of store sales in 1995 represented inventories supplied by these distribution facilities, and the balance was delivered directly to the stores by vendors. Governmental Regulation Vons is subject to regulation by a variety of governmental agencies, including the California Department of Alcoholic Beverage Control, the California State Board of Pharmacy, the California Department of Agriculture, the U.S. Food and Drug Administration, the U.S. Department of Agriculture and state and local health departments and weights and measures agencies. In connection with the Safeway Acquisition, Vons, Safeway and certain other parties entered into a consent order (the "Consent Order") with the Federal Trade Commission (the "FTC") whereby Vons divested three retail grocery stores and Safeway divested nine retail grocery stores to competitors in Southern California. The Consent Order, among other things, also limits for ten years the acquisition by Vons of existing supermarkets from any other party in certain trade areas where both Vons and Safeway operated stores prior to the Safeway Acquisition, allowing a specified number of such acquisitions within any 12- month period in some areas and prohibiting acquisitions in others. In connection with the Williams Bros. acquisition, the Company entered into a consent order with the FTC whereby the Company divested one of the Williams Bros. store locations and among other things, agreed to seek FTC approval before acquiring any supermarket, or any interest in any company owning a supermarket, in San Luis Obispo County for ten years. Employees At December 31, 1995, Vons employed approximately 10,800 full-time and 18,800 part-time employees as follows:
Non- Union Union Total ------ ------ ------- Hourly.................. 27,700 600 28,300 Salaried................ - 1,300 1,300 ------ ------ ------- Total Employees......... 27,700 1,900 29,600 ------ ------ ------- ------ ------ -------
In the fall of 1994, the Company negotiated a four-year contract with the International Brotherhood of Teamsters' Union. In the fall of 1995, the Company negotiated a four-year contract with the United Food and Commercial Workers' International Unions. Like its major competitors, pursuant to its various collective bargaining agreements, Vons contributes to Taft- Hartley multi-employer, joint pension plans. Under pertinent law, a participating employer which totally or partially withdraws from such a pension plan could be liable for unfunded vested benefits, which could be substantial. Insurance Vons carries insurance customary in the supermarket industry to protect the Company against catastrophic loss, including earthquake insurance. The Company is approved in both California and Nevada to self-insure workers' compensation and general liability exposures and maintains third-party insurance for loss exposures in excess of self-insured retentions and deductibles. Executive Officers of the Registrant Set forth below is certain information concerning the executive officers of the Company:
Name Age Position - ---- --- -------- Lawrence A. Del Santo 62 Chairman of the Board and Chief Executive Officer Richard E. Goodspeed 59 President and Chief Operating Officer Phillip E. Hawkins 44 Senior Vice President Stores Susan M. Klug 36 Senior Vice President Marketing Pamela K. Knous 41 Executive Vice President, Chief Financial Officer and Treasurer Terry R. Peets 51 Executive Vice President Harold E. Rudnick 47 Senior Vice President Retail Purchasing Terrence J. Wallock 51 Executive Vice President, General Counsel and Secretary
Officers are elected annually and are subject to removal at any time, with or without cause, by the Company's Board of Directors, subject to all rights under employment contracts, if any. Mr. Del Santo was appointed Chairman of the Board in May 1995. He served as Director and Vice Chairman of the Board from April 1994 to May 1995. Mr. Del Santo continues to serve as Chief Executive Officer of the Company, a position he has held since April 1994. Prior to joining the Company, Mr. Del Santo was Senior Executive Vice President and Chief Operating Officer - Food of American Stores Company from March 1993 to April 1994. From April 1989 to March 1993, Mr. Del Santo was Chairman of Lucky Stores, Inc. Mr. Goodspeed was elected a Director of the Company on February 21, 1996. Mr. Goodspeed also continues in the position of President and Chief Operating Officer of the Company, to which he was appointed in April 1994. Prior to joining the Company, Mr. Goodspeed was Executive Vice President - Food of American Stores Company and President and Chief Operating Officer of Lucky Stores, Inc. a position he held since September 1988. Mr. Hawkins was appointed Senior Vice President, Stores of the Company in June 1995. Mr. Hawkins served as Senior Vice President, Vons from April 1994 to June 1995 and as Group Vice President, Perishables from August 1992 to April 1994. Mr. Hawkins had been Vice President & General Manager, Pavilions from April 1991 to August 1992 and Vice President, Sales and Marketing of the Company from November 1989 to April 1991. Ms. Klug was appointed Senior Vice President, Marketing of the Company in October 1994. Prior to joining the Company, Ms. Klug had been with Catalina Marketing in various positions since 1989, rising to the position of Vice President of Western United States. Ms. Knous was appointed Treasurer of the Company in December 1995 and continues in the position of Executive Vice President and Chief Financial Officer of the Company, which she has held since May 1995. Ms. Knous served as Senior Vice President and Chief Financial Officer from July 1994 to May 1995. Ms. Knous was Group Vice President, Finance of the Company from November 1993 to July 1994. From April 1991 to November 1993, Ms. Knous was Vice President, Finance of the Company. From 1989 to 1991, Ms. Knous served as partner at KPMG Peat Marwick LLP. Mr. Peets was appointed Executive Vice President of the Company in September 1995. Prior to joining the Company, Mr. Peets had been with Ralphs Grocery Company in various positions since 1977, rising to the position of Executive Vice President. Mr. Rudnick was appointed Senior Vice President, Retail Purchasing of the Company in May 1995. Mr. Rudnick served as Senior Vice President, Procurement of the Company from April 1994 to May 1995. Mr. Rudnick was Group Vice President, National Accounts of the Company from June 1992 to April 1994. From October 1985 to June 1992, Mr. Rudnick was Vice President, Grocery/Frozen Food Service of the Company. Mr. Wallock was appointed Executive Vice President and General Counsel of the Company in November 1993 and continues in the position of Secretary of the Company which he has held since March 1991. Mr. Wallock was Senior Vice President, Chief Legal and Security Officer of the Company from August 1991 to November 1993. From March 1991 to August 1991, Mr. Wallock was Senior Vice President and General Counsel of the Company. From 1977 to 1991, Mr. Wallock served as counsel to Denny's Inc., rising to the position of Vice President, General Counsel and Secretary. ITEM 2: PROPERTIES As of December 31, 1995, the Company leased 239 of its stores and owned 89 of its stores. At December 31, 1995, 204 of the Company's leases provided for contingent rental based on a percentage of sales over specified amounts, which typically range from 1.0% to 1.5% of total gross sales, less amounts expended for common area maintenance, real estate taxes and insurance; the balance had no percentage rent clauses. Store leases have various expiration dates through 2019. Renewal options range up to 40 years. The following table lists the number of such store leases for open stores that are due to expire (assuming exercise of all renewal options) in each of the specified periods:
Number of Calendar Years Expiring Leases -------------- --------------- 1996-2000.......... 6 2001-2005.......... 16 2006-2010.......... 22 2011-2015.......... 23 2016-2020.......... 27 2021 and thereafter 145
The Company has a $113.0 million mortgage loan on 51 properties requiring monthly principal and interest payments of approximately $1.0 million with a one-time payment of approximately $111.0 million in July 1997. The Company has other real estate notes and mortgages covering seven properties totaling $13.5 million due in varying monthly installments with maturity dates from 1997 to 2009. The Company's stores are usually located in active shopping centers and generally have several co-tenants, which typically include a drugstore; although the newer stores, which are usually food and drug combination stores, tend to be in shopping centers without drugstores. The Company owns distribution and manufacturing facilities in El Monte, California, which are located on approximately 63 acres of land. The El Monte facilities include two warehouses with an aggregate of 764,000 square feet and a meat cooking facility, including a warehouse with an aggregate of 256,000 square feet. The Company leases a distribution facility located in Santa Fe Springs, California. This distribution facility includes several warehouses and a maintenance operation. The facility covers approximately 1,040,000 square feet located on approximately 78 acres of land. The lease expires in 2001 with two five-year and one one-year options to extend. The Company operates a 450,000-square-foot forward buy warehouse located in the City of Industry, California under a lease expiring in 1996 with two three-year options to extend. The Company also leases a 95,000-square-foot frozen food distribution facility in Ontario, California under a lease expiring in 1996 with three six-month options to extend. The Company closed its distribution facility in San Diego, California in third quarter 1995. The lease on the San Diego facility is scheduled to expire in 2002, and the Company is in the process of disposing of this property. The Company owns a 244,000-square-foot building in Arcadia, California, used for its corporate administrative offices. The manufacturing operations consist of a fluid milk processing facility, an ice cream plant and a bakery, all leased and located in the City of Commerce, California. The leases for the fluid milk processing facility and ice cream plant expire in 1996 with two five-year options to extend. The lease for the bakery expires in 1997 with three five-year options to extend. ITEM 3: LEGAL PROCEEDINGS In addition to routine litigation incidental to the conduct of its business, the Company has been named in a number of lawsuits in state and Federal courts in Washington, Nevada, Idaho and California arising from claims of food-borne illness that allegedly was contracted from the consumption of hamburgers at certain Jack-In-The-Box restaurants in early 1993. The restaurants involved were either directly operated by Jack-In- The-Box, a division of Foodmaker, Inc. ("Foodmaker"), or through franchisees. The suits allege that the hamburger patties in question were processed by the Company before being cooked and served by a Jack-In-The-Box outlet. The plaintiffs in these actions seek unspecified damages for illnesses ranging from minor diarrhea to serious kidney and intestinal infection. Several deaths are alleged to have resulted from the incidents and, in those cases, the plaintiffs seek damages for wrongful death. The Company is insured against various losses, including those for bodily injury. The Company also has been named as a defendant in a suit filed on July 2, 1993, in the Superior Court of the State of California for the County of San Diego, by franchisees of Foodmaker who operate Jack-In-The-Box outlets in various states. Also named as defendants were Foodmaker and a number of meat suppliers and slaughterhouses. The complaint seeks an estimated $100 million for lost profits and compensation for an alleged reduction in the value of the franchisees' businesses, as well as unspecified damages for alleged emotional distress. On July 19, 1993, Foodmaker filed a cross-complaint against the Company and subsequently voluntarily dismissed a separate action which it had previously brought. The cross-complaint asserts various tort and contract theories and seeks, among other things, indemnity as well as lost profits and compensation for a reduction in Foodmaker's stock price. Foodmaker's cross-complaint seeks unspecified damages, although the Company has been advised that Foodmaker may potentially claim damages of approximately $400 million, including the aforesaid claims of the franchisees. The Company is vigorously contesting the lawsuits against it and has filed its own cross-complaint against Foodmaker and certain of its franchisees seeking damages in an amount substantially higher than the amount of damages claimed by Foodmaker. In addition to the cases discussed above, the Company, along with the other major supermarket chains in Southern California, has been named as a defendant in three nearly identical class action lawsuits filed in late November and early December 1992 in the Superior Court of the State of California for the County of Los Angeles. In these cases the plaintiffs alleged claims for antitrust violations, restraint of trade and false advertising in connection with the pricing of fluid milk in Los Angeles County, seeking unspecified damages and injunctive relief. While admitting no liability, the Company has entered into a proposed settlement agreement with respect to these cases, subject to the approval of the court. The Company believes that the above-described lawsuits are unlikely to result in liability which would be material to the consolidated financial position of the Company. ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS There were no matters submitted to the security holders of the Company for a vote during the quarter ended December 31, 1995. PART II ITEM 5: MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS Vons common stock is listed on the New York Stock Exchange ("NYSE") (Symbol-VON). The shares have been listed on the NYSE since March 20, 1986. As of January 31, 1996, there were approximately 6,858 shareholders of record. The table below sets forth the high and low sales prices for Vons common stock as reported on the NYSE Composite Tape during the fiscal periods specified:
52 Weeks Ended 52 Weeks Ended December 31, January 1, 1995 1995 ----------------- ----------------- High Low High Low ---- --- ---- --- First quarter..... $20 3/4 $17 5/8 $18 5/8 $16 1/8 Second quarter.... 21 7/8 19 1/4 18 3/8 16 Third quarter..... 24 3/8 20 1/4 18 5/8 15 1/8 Fourth quarter.... 28 1/4 22 7/8 21 1/2 17 3/4
The Company paid no dividends on its common stock in fiscal years 1995, 1994, and 1993. Certain Company debt agreements restrict the Company from paying cash dividends or making other distributions on stock under certain circumstances. Under its most restrictive debt agreement, the Company had $83.0 million available for dividends and distributions at December 31, 1995. See "Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources" and Note 6 to the Consolidated Financial Statements contained in the Company's Annual Report to Shareholders for the fiscal year ended December 31, 1995 incorporated herein by reference. ITEM 6: SELECTED FINANCIAL DATA See "Five-Year Selected Financial Data" contained in the Company's Annual Report to Shareholders for the fiscal year ended December 31, 1995 incorporated herein by reference. ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS See "Management's Discussion and Analysis of Financial Condition and Results of Operations" contained in the Company's Annual Report to Shareholders for the fiscal year ended December 31, 1995 incorporated herein by reference. ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Financial statements and supplementary data as set forth in Item 14(a) of Part IV of this document are incorporated herein by reference. ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES None. PART III ITEM 10: DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information required by this Item is incorporated by reference from the Company's definitive Proxy Statement for the Annual Meeting of Shareholders to be held May 8, 1996, where it appears under the caption "Election of Directors." The information set forth under Item 1 of this Form 10-K under the caption "Executive Officers of the Registrant" is also incorporated herein by reference. ITEM 11: EXECUTIVE COMPENSATION The information required by this Item is incorporated by reference from the Company's definitive Proxy Statement for the Annual Meeting of Shareholders to be held May 8, 1996, where it appears under the caption "Executive Compensation." ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by this Item is incorporated by reference from the Company's definitive Proxy Statement for the Annual Meeting of Shareholders to be held May 8, 1996, where it appears under the caption "Principal and Management Shareholders." ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required by this Item is incorporated by reference from the Company's definitive Proxy Statement for the Annual Meeting of Shareholders to be held May 8, 1996, where it appears under the captions "Executive Compensation - Compensation Committee Interlocks and Insider Participation" and "Certain Transactions." PART IV ITEM 14: EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) Exhibits and Financial Statements and Schedules (1) Financial Statements The following items contained in the Company's Annual Report to Shareholders for the fiscal year ended December 31, 1995 are incorporated by reference into Part II of this report. Pages in Annual Report to Shareholders ------------ Financial Statements: Consolidated Statements of Operations for the fiscal years ended December 31, 1995, January 1, 1995 and January 2, 1994.............. 21 Consolidated Balance Sheets as of December 31, 1995 and January 1, 1995.............. 22 Consolidated Statements of Cash Flows for the fiscal years ended December 31, 1995, January 1, 1995 and January 2, 1994.............. 23 Consolidated Statements of Shareholders' Equity for the fiscal years ended December 31, 1995, January 1, 1995 and January 2, 1994.............. 24 Notes to the Consolidated Financial Statements......... 25-35 Independent Auditors' Report..... 36 (2) Schedules Schedules are omitted because of the absence of the conditions under which they are required. (3) Exhibits See index to exhibits immediately following Signatures. (b) Reports on Form 8-K No reports on Form 8-K were filed during the quarter ended December 31, 1995. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. THE VONS COMPANIES, INC. /S/ LAWRENCE A. DEL SANTO By: -------------------------------- Lawrence A. Del Santo Chairman of the Board and Chief Executive Officer Date: March 4, 1996 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant in the capacities and on the dates indicated. Signature Title Date --------- ----- ---- /S/ LAWRENCE A. DEL SANTO Chairman March 4, 1996 - --------------------------------- of the Board Lawrence A. Del Santo and Chief Executive Officer /S/ PAMELA K. KNOUS Executive Vice March 4, 1996 - --------------------------------- President, Pamela K. Knous Chief Financial Officer (Chief Accounting Officer) and Treasurer /S/ STEVEN A. BURD Member-Board March 4, 1996 - --------------------------------- of Directors Steven A. Burd /S/ WILLIAM S. DAVILA Member-Board March 4, 1996 - --------------------------------- of Directors William S. Davila /S/ FRITZ L. DUDA Member-Board March 4, 1996 - --------------------------------- of Directors Fritz L. Duda /S/ JAMES H. GREENE, JR. Member-Board March 4, 1996 - --------------------------------- of Directors James H. Greene, Jr. /S/ JOHN M. LILLIE Member-Board March 4, 1996 - --------------------------------- of Directors John M. Lillie Member-Board March __, 1996 - --------------------------------- of Directors Robert I. MacDonnell /S/ PETER A. MAGOWAN Member-Board March 4, 1996 - --------------------------------- of Directors Peter A. Magowan /S/ CHARLES E. RICKERSHAUSER, JR. Member-Board March 4, 1996 - --------------------------------- of Directors Charles E. Rickershauser, Jr. /S/ ROGER E. STANGELAND Member-Board March 4, 1996 - --------------------------------- of Directors Roger E. Stangeland Member-Board March __, 1996 - --------------------------------- of Directors William Y. Tauscher Member-Board March __, 1996 - --------------------------------- of Directors Richard E. Goodspeed THE VONS COMPANIES, INC. AND SUBSIDIARIES INDEX TO EXHIBITS The following exhibits are filed as a separate section of this report: Exhibit No. Description of Exhibit Sequentially Numbered Page - ------- ---------------------- -------------------------- 13 Portions of the Annual Report to Shareholders for the fiscal year ended December 31, 1995. 24 Independent Auditors' Consent. 27 Financial Data Schedule. Management Contracts or Compensatory Plans or Arrangements: 10.11.1 Amendment 1994-1 dated December 23, 1994 to The Vons Companies, Inc. 401(k) Wrap-Around Plan effective October 18, 1993. 10.17 The Vons Companies, Inc. 1996 Officer and Administrative Bonus Plan. THE VONS COMPANIES, INC. AND SUBSIDIARIES INDEX TO EXHIBITS The following exhibits are incorporated herein by reference: Exhibit No. Description of Exhibit Incorporated By Reference From - ------- ---------------------- ------------------------------ 3.1 Amended Restated Articles of Exhibit 3.1 to Registrant's Incorporation of the Registrant Annual Report on Form 10-K for as amended on May 13, 1992. fiscal year ended January 3, 1993. 3.2 By-Laws of the Registrant as Exhibit 3.2 to Registrant's amended on November 28, 1990. Annual Report on Form 10-K for fiscal year ended December 30, 1990. 4.1 Indenture by and among the Exhibit 4.2 to Registrant's Registrant and Chemical Bank, Statement No. 33-45430 on Form as Trustee, dated February 15, S-3. 1992. 4.1.1 Officers' Certificate and Note Exhibits 4.1 and 4.2 to regarding the 9-5/8% Senior Registrant's Report on Form Subordinated Notes due April 1, 8-K dated March 17, 1992. 2002. 4.1.2 Officers' Certificate and Note Exhibits 4.1 and 4.3 regarding the 8-3/8% Senior to Registrant's Report on Form Subordinated Notes due 8-K dated September 24, 1992. October 1, 1999. 4.2 Indenture between Registrant Exhibit 2 to Registrant's and National Bank of Detroit, Report on Form 8-K dated as Trustee, dated May 15, 1986, May 15, 1986. including form of 6-5/8% Senior Subordinated Debentures due 1998 attached as Exhibit A thereto. 10.1 Revolving Loan Agreement Exhibit 10.1.6 to Registrant's dated February 17, 1995 Quarterly Report on Form 10-Q by and among the Registrant, for quarter ended March 26, 1995. the banks named therein, and Bank of America NT & SA and The Chase Manhattan Bank, N.A. as managing agents. 10.1.1 Amendment to Revolving Loan Exhibit 10.1.7 to Registrant's Agreement dated February 17, Quarterly Report on Form 10-Q 1995 by and among the for quarter ended October 8, Registrant, the banks named 1995. therein, and Bank of America NT & SA and The Chase Manhattan Bank, N.A. as managing agents. 10.2 Metropolitan Life Insurance Exhibit 10.13 to Registrant's Company loan to the Registrant Annual Report on Form 10-K for represented by Deed of Trust fiscal year ended January 3, and Security Agreement 1988. Assignment of Rents and Fixture Filing dated July 22, 1987 by and among the Registrant, as Trustor, Ticor Title Insurance Company, as Trustee and Metropolitan Life Insurance Company, as Beneficiary. 10.3 Standstill Agreement dated Exhibit 10.20 to Registrant's December 3, 1987 by and among Annual Report on Form 10-K for the Registrant, Safeway fiscal year ended January 3, Southern California, Inc., 1988. Safeway Stores, Incorporated, Kohlberg Kravis Roberts & Co., Safeway U.S. Holdings, Inc., and KKR Associates. 10.3.1 Amendment to Standstill Exhibit 28.7 to Registrant's Agreement dated December 3, Quarterly Report on Form 10-Q 1987 by and among the for quarter ended June 18, Registrant, Safeway Stores, 1989. Incorporated and other parties thereto, dated April 5, 1989. 10.3.2 Amendment to Standstill Exhibit 10.13.2 to Registrant's Agreement dated December 3, Annual Report on Form 10-K for 1987 by and among the fiscal year ended December 30, Registrant, Safeway Inc., 1990. and other parties thereto, dated December 21, 1990. 10.4 Registration Rights Agreement Exhibit 28.8 to Registrant's with Roger Stangeland dated Quarterly Report on Form 10-Q April 7, 1989. for quarter ended March 26, 1989. 10.5 Registration Rights Agreement Exhibit 28.9 to Registrant's with Fritz Duda dated Quarterly Report on Form 10-Q April 7, 1989. for quarter ended March 26, 1989. Management Contracts or Compensatory Plans or Arrangements: 10.6 Management Stock Option Plan Exhibit 10.3 to Registrant's of the Registrant dated Annual Report on Form 10-K for July 22, 1987. fiscal year ended January 3, 1988. 10.7 1990 Stock Option and Appendix A to Registrant's Restricted Stock Plan dated Proxy Statement for Annual January 24, 1990. Meeting of Shareholders on May 17, 1990. 10.7.1 Amendment dated February 17, Exhibit 10.13.1 to Registrant's 1993 to 1990 Stock Option Quarterly Report on Form 10-Q and Restricted, Stock Plan for the quarter ended March 28, dated January 24, 1990. 1993. 10.8 Directors' Stock Option Plan Appendix A to Registrant's dated September 17, 1991. Proxy Statement for Annual Meeting of Shareholders on May 13, 1992. 10.9 Severance Agreement between The Registrant's Proxy the Registrant and Senior Statement for Annual Meeting of Management and Key Employees Shareholders on May 13, 1992, dated February 19, 1992. where it appears under the caption "Compensation through Plans - Severance Agreements." 10.10 1992 Supplemental Executive Exhibit 10.19 to Registrant's Retirement Plan by and among Annual Report on Form 10-K for the Registrant and certain fiscal year ended January 3, officers effective April 30, 1993. 1992. 10.11 The Vons Companies, Inc. Exhibit 10.27 to Registrant's 401(k) Wrap-Around Plan Annual Report on Form 10-K effective October 18, 1993. for fiscal year ended January 2, 1994. 10.12 Employment Agreement between Exhibit 10.28 to Registrant's the Registrant and Lawrence A. Quarterly Report on Form 10-Q Del Santo dated April 26, 1994. for quarter ended June 19, 1994. 10.13 Employment Agreement between Exhibit 10.29 to Registrant's the Registrant and Richard E. Quarterly Report on Form 10-Q Goodspeed dated April 26, 1994. for quarter ended June 19, 1994. 10.14 Retirement Agreement Exhibit 10.31 to Registrant's confirming employment and Quarterly Report on Form 10-Q retirement agreements for quarter ended October 9, between the Registrant and 1994. Roger E. Stangeland, dated July 28, 1994. 10.15 Employment Arrangement Exhibit 10.24 to Registrant's between the Registrant Quarterly Report on Form 10-Q and Terry R. Peets for quarter ended October 8, dated September 6, 1995. 1995. 10.16 Severance Agreement Exhibit 10.25 to Registrant's between the Registrant Quarterly Report on Form 10-Q and Terry R. Peets for quarter ended October 8, dated September 6, 1995. 1995. EX-13 2 Exhibit 13 THE VONS COMPANIES, INC. AND SUBSIDIARIES - ----------------------------------------- Five-Year Selected Financial Data The following five-year selected financial data should be read in conjunction with the Consolidated Financial Statements. The operations acquired from Williams Bros. are included in operating results from January 28, 1992. During 1992, the Company changed its method of accounting for income taxes to comply with the provisions of Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes." The change in accounting method has been applied retroactively to June 28, 1987 by restating prior years' consolidated financial statements. During 1992, the Company implemented the provisions of Statement of Financial Accounting Standards No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions," effective January 3, 1993.
As of and As of and for the 53 for the 52 As of and for the 52 Weeks Ended Weeks Ended Weeks Ended (in millions of ---------------------------------------- ------------ ------------ dollars except December 31, January 1, January 2, January 3, December 29, share data) 1995 1995 1994 1993 1991 ------------ ------------ ------------ ------------ ------------ Summary of Operations: Sales $ 5,070.7 $ 4,996.6 $ 5,074.5 $ 5,595.5 $ 5,350.2 Restructuring charges - 33.0 56.9 - - Operating income 194.1 125.8 135.8 219.1 197.1 Interest expense, net 67.3 70.8 66.0 71.5 86.4 Income before income tax provision 126.8 55.0 69.8 147.6 110.7 Income before extraordinary item and cumulative effect of change in accounting for retiree medical benefits 68.1 26.6 33.0 82.1 66.4 Income before cumulative effect of change in accounting for retiree medical benefits 68.1 26.6 31.6 69.3 60.1 Net income 68.1 26.6 31.6 53.8 60.1 Income applicable to common shareholders 68.1 26.6 31.6 53.8 60.1 Income per common and common equivalent share before extraordinary item and cumulative effect of change in accounting for retiree medical benefits 1.55 .61 .76 1.89 1.60 Income per common and common equivalent share before cumulative effect of change in accounting for retiree medical benefits 1.55 .61 .73 1.60 1.45 Net income per common and common equivalent share 1.55 .61 .73 1.24 1.45 Dividends paid on common stock - - - - - Financial Position: Working capital (deficit) (141.1) (96.1) (69.3) (74.9) (64.2) Total assets 2,186.5 2,222.0 2,249.5 2,066.0 1,863.2 Long-term debt: Capital lease obligations 53.4 58.0 62.7 56.4 42.3 Senior debt 298.8 426.2 497.2 389.2 272.2 Subordinated debt, net 305.7 319.6 322.1 342.5 376.8 Common shareholders' equity 623.3 552.4 524.9 493.2 437.7 Shareholders' equity per common share 14.32 12.73 12.11 11.38 10.12 Other Data: Weighted average common shares during year, including common share equivalents 43,948,000 43,560,000 43,501,000 43,512,000 41,583,000 Outstanding common shares at year end 43,533,000 43,383,000 43,342,000 43,335,000 43,246,000 /TABLE THE VONS COMPANIES, INC. AND SUBSIDIARIES - ----------------------------------------- Management's Discussion and Analysis of Financial Condition and Results of Operations Results of Operations The following table sets forth the consolidated statements of operations data (in millions of dollars and as a percentage of sales except share data):
Fifty-Two Weeks Ended --------------------- December 31, 1995 January 1, 1995 January 2, 1994 ----------------- ----------------- ----------------- Sales $5,070.7 100.0% $4,996.6 100.0% $5,074.5 100.0% Costs and expenses: Cost of sales, buying and occupancy 3,790.2 74.8 3,767.2 75.4 3,801.4 74.9 Selling and administrative expenses 1,071.4 21.1 1,055.5 21.1 1,065.4 21.0 Amortization of excess cost over net assets acquired 15.0 .3 15.1 .3 15.0 .3 Restructuring charges - - 33.0 .7 56.9 1.1 Operating income 194.1 3.8 125.8 2.5 135.8 2.7 Interest expense, net 67.3 1.3 70.8 1.4 66.0 1.3 Income before income tax provision 126.8 2.5 55.0 1.1 69.8 1.4 Income tax provision 58.7 1.2 28.4 .6 36.8 .7 Income before extraordinary item 68.1 1.3 26.6 .5 33.0 .7 Extraordinary item - - - - (1.4) (.1) Net income 68.1 1.3 26.6 .5 31.6 .6 Income per common and common equivalent share: Income before extraordinary item 1.55 .61 .76 Extraordinary item - - (.03) Net income 1.55 .61 .73
In late 1993, Vons began a company-wide cost containment and strategic restructuring program to improve sales and profitability. The program generated cost savings which were reinvested in shelf pricing, promotions and customer service. The most significant savings were generated from the accelerated closure of 26 underperforming stores, the elimination of 700 administrative and support staff positions and the closing of a distribution facility (see Note 14 to the Consolidated Financial Statements included elsewhere herein). With the closing of the Company's San Diego distribution facility in third quarter of 1995, substantially all of the cost containment and strategic restructuring initiatives have been executed. However, key to the Company's ongoing strategy is its commitment to cost containment, productivity and efficiency in order to maintain its competitive position. The Company's marketing focus and its commitment to a low cost structure are long-term strategies, which are initially intended to benefit sales by funding lower prices, which in turn will improve the Company's ability to achieve strong, sustainable earnings growth. The 1995 merger of two of the Company's major competitors, Food 4 Less Supermarkets, Inc. and Ralphs Grocery Company, resulted in a change in the composition of the Company's competitors as certain trade names were eliminated and store format conversions occurred. The Company does not believe that the merger or its effect on the already competitive marketplace will have a material impact on the Company's sales and earnings prospects. Comparison of Fifty-Two Weeks Ended December 31, 1995 with Fifty-Two Weeks Ended January 1, 1995 Sales. Sales for 1995 were $5,070.7 million, an increase of $74.1 million, or 1.5%, over 1994. Same store sales increased 3.5% over 1994 sales. The increase in sales reflects the favorable consumer response to improved customer service, the "Vons Is Value" marketing campaign and the slowly improving economic environment in Southern California offset by competitive new store, remodel and conversion activity. In 1995, the Company opened 13 new stores, closed 19 stores and completed 37 store remodel projects. Costs and Expenses. Costs and expenses for 1995 were $4,876.6 million, an increase of $5.8 million, or 0.1%, over the comparable 1994 period. Cost of sales and buying and occupancy expenses as a percentage of sales for 1995 were 74.8%, a decrease of 0.6 percentage point from 1994. The impact of lower prices has been more than offset by decreased product costs achieved through better utilization of category management, more effective promotional offerings and increased private brand sales. Selling and administrative expenses as a percentage of sales were 21.1% in 1995, comparable to 1994, which included a $5.0 million insurance deductible charge related to the Northridge earthquake. This reflects higher service levels in the stores as well as negotiated union wage rate increases which were offset by a more efficient mix of store labor. The Company recorded restructuring charges of $33.0 million, or $.45 per share, in 1994 (see Note 14 to the Consolidated Financial Statements included elsewhere herein). Operating Income. Operating income for 1995 was $194.1 million, an increase of $68.3 million, or 54.3%, over 1994. Operating margin increased to 3.8% in 1995 versus 2.5% in 1994. Excluding the 1994 restructuring charges, results for 1994 were $158.8 million, or 3.2% of sales. These increases primarily reflect an increase in gross margin. Operating income before depreciation and amortization of property, amortization of goodwill and other assets, LIFO charge, earthquake deductible and restructuring charges ("FIFO EBITDA") was $315.0 million, or 6.2% of sales, in 1995 compared with $284.3 million, or 5.7% of sales, in 1994. Interest Expense. Net interest expense for 1995 was $67.3 million, a decrease of $3.5 million, or 4.9%, from 1994. This decrease was due to lower average revolving debt borrowings partially offset by higher weighted average interest cost on revolving debt. The ratio of FIFO EBITDA to net interest expense increased to 4.7 times in 1995 versus 4.0 times in 1994. Income Tax Provision. The income tax provision in 1995 was $58.7 million, or a 46.3% effective tax rate. The income tax provision in 1994 was $28.4 million, or a 51.6% effective tax rate. Excluding the restructuring charge, the effective tax rate for 1994 was 48%. The decrease in the 1995 effective tax rate reflects the increase in income before income tax provision. The effective tax rate is impacted by amortization of excess of cost over net assets acquired, the majority of which is not deductible for tax purposes. Income. Net income for 1995 was $68.1 million, or $1.55 per share, compared with net income of $26.6 million, or $.61 per share, for 1994. In addition to improved operating results, this increase reflects the impact of the 1994 restructuring charges of $33.0 million, or $.45 per share. New Pronouncements by Financial Accounting Standards Board. The Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 123 ("SFAS No. 123") "Accounting for Stock Based Compensation" in October 1995 which is effective for fiscal years beginning after December 15, 1995. SFAS No. 123 encourages companies to adopt the fair value method of accounting for employee stock compensation plans. SFAS No. 123 allows companies to retain the current method of accounting for stock compensation as set forth in Accounting Principles Board Opinion 25, "Accounting for Stock Issued to Employees." SFAS No. 123 requires expanded footnote disclosure for both methods of accounting. The Company expects to retain the current method of accounting. Accordingly, the expected impact of SFAS No. 123 on the Company's consolidated financial statements is expanded footnote disclosure. Comparison of Fifty-Two Weeks Ended January 1, 1995 with Fifty-Two Weeks Ended January 2, 1994 Sales. Sales for 1994 were $5.0 billion, a decrease of $77.9 million, or 1.5%, from 1993. Same store sales decreased 2.4% from 1993 sales. Sales reflect reduced prices as a result of the Vons Value Program, deflation in perishables, the continuing weak overall economic environment in Southern California, competitive new store and remodel activity and the diminished customer base in neighborhoods impacted by the Northridge earthquake. In 1994, the Company opened six new stores, closed 17 stores and completed 14 store remodel projects. Costs and Expenses. Costs and expenses for 1994 were $4.9 billion, a decrease of $67.9 million, or 1.4%, from 1993. Cost of sales and buying and occupancy expenses as a percentage of sales for 1994 were 75.4%, an increase of 0.5 percentage point over 1993. The increase reflects the impact of lower prices, increased promotional activities, and higher occupancy costs, primarily depreciation expense related to the capital expenditure program. The impact of price reductions in 1994 was partially offset by better inventory management and more effective purchasing initiatives undertaken in connection with the strategic restructuring program. Selling and administrative expenses as a percentage of sales were 21.1% in 1994, an increase of 0.1 percentage point over 1993. This increase reflects a $5.0 million insurance deductible charge related to the Northridge earthquake. Increased store labor expenses, related to the Vons Value Program, were substantially offset by a decrease in administrative expenses as a result of the reductions in work force and other cost savings initiatives in connection with the strategic restructuring program. The Company recorded restructuring charges of $33.0 million, or $.45 per share, and $56.9 million, or $.77 per share, in 1994 and 1993, respectively (see Note 14 to the Consolidated Financial Statements included elsewhere herein). Operating Income. Operating income for 1994 was $125.8 million, a decrease of $10.0 million, or 7.4%, from 1993. Operating margin decreased to 2.5% in 1994 versus 2.7% in 1993. Excluding restructuring charges, results for 1994 were $158.8 million, or 3.2% of sales, compared with $192.7 million, or 3.8% of sales for 1993. These decreases were due primarily to lower sales and lower gross margin as a result of price reductions and increased promotional activity. FIFO EBITDA was $284.3 million, or 5.7% of sales, in 1994 compared with $305.8 million, or 6.0% of sales, in 1993. Interest Expense. Net interest expense for 1994 was $70.8 million, an increase of $4.8 million, or 7.3%, over 1993. This increase was due to higher weighted average interest cost on revolving debt and higher average debt borrowings partially offset by repurchases of higher interest cost subordinated debt. The ratio of FIFO EBITDA to net interest expense decreased to 4.0 times in 1994 versus 4.6 times in 1993. Income Tax Provision. The income tax provision in 1994 was $28.4 million, or a 51.6% effective tax rate. The income tax provision in 1993 was $36.8 million, or a 52.7% effective tax rate. The effective tax rate in both years was impacted by a decrease in earnings before restructuring charges, which was not offset by a comparable decrease in amortization of excess cost over net assets acquired, the majority of which is not deductible for tax purposes. The 1993 effective tax rate was also impacted by a $2.0 million deferred tax provision which increased the prior year deferred income tax balance to the new Federal statutory tax rate. Income. Net income for 1994 was $26.6 million, or $.61 per share, compared with net income of $31.6 million, or $.73 per share, for 1993. Net income includes restructuring charges of $33.0 million, or $.45 per share, and $56.9 million, or $.77 per share, in 1994 and 1993, respectively. The decrease in net income excluding restructuring charges was caused by the decline in sales and gross margin, primarily due to price decreases and increased promotional activity. Net income for 1993 included an extraordinary after tax charge of $1.4 million, or $.03 per share, arising from debt refinancing. Labor Contract Status In the fall of 1994, the Company negotiated a four-year contract with the International Brotherhood of Teamsters Union. In the fall of 1995, the Company negotiated a four-year contract with the Southern California United Food and Commercial Workers International Unions. Liquidity and Capital Resources The Company's primary sources of liquidity are cash flows from operations and available credit under its Revolving Loan. Management believes that these sources adequately provide for its working capital, capital expenditure and debt service needs. Net cash provided by operating activities was $239.4 million in 1995 compared with $179.8 million in 1994. This change primarily reflects an increase in net income and changes in assets and liabilities generally reflecting the timing of receipts and disbursements. The ratio of current assets to current liabilities was 0.76 to 1 at December 31, 1995 compared with 0.83 to 1 at January 1, 1995. The decrease in the ratio of current assets to current liabilities reflects the maturity of $15.6 million of the 6-5/8% Senior Subordinated Debentures in May 1996. Net cash used for investing activities was $91.2 million in 1995 compared with $117.5 million in 1994. This decrease reflects lower than anticipated 1995 capital expenditures since certain store projects were delayed until 1996. Total capital expenditures in 1995, including the present value of commitments under operating leases, were $142.6 million. The Company anticipates that total 1996 capital expenditures will be approximately $225 million, of which approximately $160 million will be cash capital expenditures and approximately $65 million will represent the present value of commitments under operating leases. This capital expenditure level contemplates the opening of approximately 16 new stores, including ten replacement stores, and the completion of approximately 30 store remodel projects. The capital expenditure program has substantial flexibility and is subject to revision based on various factors; including, but not limited to, business conditions, changing time constraints, cash flow requirements and competitive factors. It is anticipated that 1996 cash capital expenditures will be funded out of cash provided by operations, the Revolving Loan, and/or through operating leases, although no assurance can be given that such sources will be sufficient. In the near term, if Vons were to reduce substantially or postpone its capital expenditure program, there would be no substantial impact on current operations and it is likely that more cash would be available for debt servicing. In the long-term, if these programs were substantially reduced, in the Company's opinion, its operating business and ultimately its cash flow would be adversely impacted. Net cash used by financing activities was $147.8 million in 1995 compared with $61.8 million in 1994. The level of borrowings under the Company's revolving debt is dependent primarily upon cash flows from operations and capital expenditure requirements. At December 31, 1995, the Company's revolving debt borrowings totaled $177.8 million and the Company had available unused credit of $446.4 million. The weighted average interest cost for 1995 on the Company's revolving debt was 7.5%. At December 31, 1995, the corresponding bank prime rate was 8.5%. The Company's involvement with derivative financial instruments has been limited to interest rate cap contracts to reduce the impact of increases in interest rates on revolving debt. Impact of Changing Prices Vons primary costs, inventory and labor, are affected by a number of factors that are beyond the Company's control, including availability and price of merchandise, the competitive climate and regional economic conditions. As is typical of the supermarket industry, the Company has generally been able to maintain margins by adjusting its retail prices, but competitive conditions may from time to time render it unable to do so while maintaining its market share. Cautionary Statement for Purposes of "Safe Harbor Provisions" of the Private Securities Litigation Reform Act of 1995 Except for historical facts, all matters discussed in this report which are forwarded looking involve risks and uncertainties. Potential risks and uncertainties include, but are not limited to, competitive pressures from other major supermarket operators, economic conditions in the Company's primary markets and the other uncertainties detailed from time to time in the Company's Securities and Exchange Commission filings. THE VONS COMPANIES, INC. AND SUBSIDIARIES - ----------------------------------------- Consolidated Statements of Operations
Fiscal Year Ended ----------------------------------------- All amounts except share data December 31, January 1, January 2, in millions of dollars 1995 1995 1994 ------------- ------------ ------------ Sales $ 5,070.7 $ 4,996.6 $ 5,074.5 ------------- ------------ ------------ Costs and expenses: Cost of sales, buying and occupancy 3,790.2 3,767.2 3,801.4 Selling and administrative expenses 1,071.4 1,055.5 1,065.4 Amortization of excess cost over net assets acquired 15.0 15.1 15.0 Restructuring charges - 33.0 56.9 ------------- ------------ ------------ 4,876.6 4,870.8 4,938.7 ------------- ------------ ------------ Operating income 194.1 125.8 135.8 Interest expense, net 67.3 70.8 66.0 ------------- ------------ ------------ Income before income tax provision 126.8 55.0 69.8 Income tax provision 58.7 28.4 36.8 ------------- ------------ ------------ Income before extraordinary item 68.1 26.6 33.0 Extraordinary item - debt refinancing, net of tax benefit of $1.0 million - - (1.4) ------------- ------------ ------------ Net income $ 68.1 $ 26.6 $ 31.6 ------------- ------------ ------------ ------------- ------------ ------------ Income per common and common equivalent share: Income before extraordinary item $ 1.55 $ .61 $ .76 Extraordinary item - - (.03) ------------- ------------ ------------ Net income $ 1.55 $ .61 $ .73 ------------- ------------ ------------ ------------- ------------ ------------ Weighted average common and common equivalent shares 43,948,000 43,560,000 43,501,000 ------------- ------------ ------------ ------------- ------------ ------------ Dividends paid on common stock None None None ------------- ------------ ------------ ------------- ------------ ------------ See accompanying notes to these consolidated financial statements.
THE VONS COMPANIES, INC. AND SUBSIDIARIES - ----------------------------------------- Consolidated Balance Sheets
December 31, January 1, All amounts except share data in millions of dollars 1995 1995 ------------ ------------ Assets Current assets: Cash $ 9.4 $ 9.0 Accounts receivable 31.7 45.4 Inventories 350.7 359.3 Deferred taxes 30.9 35.4 Other 29.6 18.7 ------------ ------------ Total current assets 452.3 467.8 Property and equipment, net 1,192.5 1,203.0 Excess of cost over net assets acquired, net of accumulated amortization of $118.7 million and $103.7 million, respectively 482.8 497.8 Other 58.9 53.4 ------------ ------------ Total Assets $ 2,186.5 $ 2,222.0 ------------ ------------ ------------ ------------ Liabilities and Shareholders' Equity Current liabilities: Current maturities of capital lease obligations and long-term debt $ 25.7 $ 8.7 Accounts payable 304.2 308.4 Accrued liabilities 263.5 246.8 ------------ ------------ Total current liabilities 593.4 563.9 Accrued self-insurance 128.0 110.9 Deferred income taxes 118.9 121.9 Other noncurrent liabilities 65.0 69.1 Capital lease obligations 53.4 58.0 Senior debt 298.8 426.2 Subordinated debt, net 305.7 319.6 ------------ ------------ Total liabilities 1,563.2 1,669.6 ------------ ------------ Shareholders' equity: Preferred stock - $.01 par value; authorized 20,000,000 shares; issued and outstanding - none - - Common stock - $.10 par value; authorized 100,000,000 shares; issued and outstanding - December 31, 1995: 43,533,000 shares; January 1, 1995: 43,383,000 shares 4.3 4.3 Paid-in capital 343.2 340.4 Retained earnings 275.9 207.8 Notes receivable for stock (.1) (.1) ------------ ------------ Total shareholders' equity 623.3 552.4 ------------ ------------ Total Liabilities and Shareholders' Equity $ 2,186.5 $ 2,222.0 ------------ ------------ ------------ ------------ See accompanying notes to these consolidated financial statements.
THE VONS COMPANIES, INC. AND SUBSIDIARIES - ----------------------------------------- Consolidated Statements of Cash Flows
Fiscal Year Ended -------------------------------------------------- December 31, January 1, January 2, All amounts in millions of dollars 1995 1995 1994 ------------ ------------ ------------ Cash flows from operating activities: Net income $ 68.1 $ 26.6 $ 31.6 Adjustments to reconcile net income to net cash provided by operating activities: Debt refinancing - - 1.4 Restructuring charges - 33.0 56.9 Depreciation and amortization of property and capital leases 100.0 102.1 90.9 Amortization of excess cost over net assets acquired and other assets 16.0 16.1 18.6 Amortization of debt discount and deferred financing costs 6.8 6.2 6.2 LIFO charge 4.9 2.3 3.6 Deferred income taxes 1.5 (1.5) 15.9 Change in assets and liabilities: (Increase) decrease in accounts receivable 13.7 (9.1) 5.4 (Increase) decrease in inventories at FIFO costs 3.7 21.9 (15.4) (Increase) decrease in other current assets (10.9) 3.2 (.1) (Increase) decrease in noncurrent assets (7.5) (9.3) (11.5) Increase (decrease) in accounts payable 11.7 (25.5) 14.3 Increase (decrease) in accrued liabilities 16.7 23.3 (31.8) Increase (decrease) in noncurrent liabilities 14.7 (9.5) (.4) ------------ ------------ ------------ Net cash provided by operating activities 239.4 179.8 185.6 ------------ ------------ ------------ Cash flows from investing activities: Addition of property, plant and equipment (110.2) (128.0) (268.9) Disposal of property, plant and equipment 19.0 10.5 6.7 ------------ ------------ ------------ Net cash used by investing activities (91.2) (117.5) (262.2) ------------ ------------ ------------ Cash flows from financing activities: Net payments on revolving debt (122.1) (67.9) (37.0) Proceeds from Term Loan Facility - - 150.0 Repurchases of senior subordinated and subordinated debentures (2.4) (6.2) (27.1) Increase (decrease) in net outstanding drafts (15.9) 19.4 .5 Payments on other debt and capital lease obligations (8.2) (8.0) (9.3) Other .8 .9 (.3) ------------ ------------ ------------ Net cash provided (used) by financing activities (147.8) (61.8) 76.8 ------------ ------------ ------------ Net cash increase .4 .5 .2 Cash at beginning of year 9.0 8.5 8.3 ------------ ------------ ------------ Cash at end of year $ 9.4 $ 9.0 $ 8.5 ------------ ------------ ------------ ------------ ------------ ------------ Supplemental disclosures of cash flow information: Cash paid during the year for: Interest $ 59.8 $ 64.9 $ 60.0 ------------ ------------ ------------ ------------ ------------ ------------ Income taxes $ 56.0 $ 33.7 $ 26.1 ------------ ------------ ------------ ------------ ------------ ------------ Supplemental disclosure of non-cash investing and financing activity: Capital leases $ - $ .3 $ 13.3 ------------ ------------ ------------ ------------ ------------ ------------ See accompanying notes to these consolidated financial statements.
THE VONS COMPANIES, INC. AND SUBSIDIARIES - ----------------------------------------- Consolidated Statements of Shareholders' Equity
Number of Common Paid-In Retained All amounts in millions Shares Stock Capital Earnings Notes Total ------ ------ ------- --------- ------ ------ Balance at January 3, 1993 43.3 $ 4.3 $ 339.4 $ 149.6 $ (.1) $493.2 Net income - - - 31.6 - 31.6 Stock options exercised - - .1 - - .1 ------ ------ ------- --------- ------ ------ Balance at January 2, 1994 43.3 4.3 339.5 181.2 (.1) 524.9 Net income - - - 26.6 - 26.6 Stock options exercised .1 - .9 - - .9 ------ ------ ------- --------- ------ ------ Balance at January 1, 1995 43.4 4.3 340.4 207.8 (.1) 552.4 Net income - - - 68.1 - 68.1 Stock options exercised .1 - 2.8 - - 2.8 ------ ------ ------- --------- ------ ------ Balance at December 31, 1995 43.5 $ 4.3 $ 343.2 $ 275.9 $ (.1) $623.3 ------ ------ ------- --------- ------ ------ ------ ------ ------- --------- ------ ------ See accompanying notes to these consolidated financial statements.
THE VONS COMPANIES, INC. AND SUBSIDIARIES - ----------------------------------------- Notes to the Consolidated Financial Statements Note 1. Basis of Presentation At December 31, 1995, the Company operated 328 supermarkets and food and drug combination retail stores under the names Vons and Pavilions. The Company's marketing territory includes Southern and Central California and Clark County, Nevada. The Company also operates a fluid milk processing facility, an ice cream plant, a bakery, and distribution facilities for meat, grocery, produce and general merchandise to support the store network. The Company's fiscal year is based on a 52-53 week fiscal year ending on the Sunday closest to December 31. Fiscal years 1995, 1994 and 1993 included 52 weeks which ended on December 31, 1995, January 1, 1995 and January 2, 1994, respectively. Note 2. Summary of Significant Accounting Policies The preparation of financial statements in conformity with Generally Accepted Accounting Principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities as of December 31, 1995 and the reported amounts of income and expenses for the fiscal year ended December 31, 1995. Actual results could differ from those estimates. The Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 121 ("SFAS No. 121") "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" in March 1995 which is effective for fiscal years beginning after December 15, 1995. SFAS No. 121 establishes accounting standards for the impairment of long-lived assets, certain identifiable intangibles and goodwill related to those assets to be held and used and for long-lived assets and certain identifiable intangibles to be disposed of. The Company adopted the provisions of SFAS No. 121 in fiscal 1995 and experienced no financial impact on the consolidated financial statements. Basis of Consolidation. The consolidated financial statements include the accounts of the Company and its subsidiaries. All significant intercompany accounts and transactions are eliminated in consolidation. Inventories. Inventories are stated at the lower of cost or market. The cost of substantially all inventories is determined using the last-in, first-out (LIFO) method. Property and Depreciation. Property and equipment, including assets under capital leases, are recorded at cost and depreciated or amortized over forty years for buildings, up to ten years for fixtures and equipment and generally between fifteen and twenty-five years, but not to exceed the lease term, for leasehold improvements using principally the straight-line method for financial reporting purposes and accelerated methods for tax purposes. Major renewals and improvements are capitalized. Maintenance and repairs which do not improve or extend the life of the respective assets are charged to expense. Amortization of Intangible Assets. The excess of cost over net assets acquired is amortized on a straight-line basis over forty years. The Company assesses the recoverability of the excess of cost over net assets acquired based on forecasted operating income. Other noncurrent assets include an agreement not to compete acquired in connection with the 1992 acquisition of the Williams Bros. Markets, Inc. supermarket business. The agreement not to compete is amortized on a straight-line basis over five years. Income Tax Provision. The income tax provision includes amounts related to current taxable income and deferred income taxes. A deferred income tax asset or liability is determined by applying currently enacted tax laws and rates to the expected reversals of the cumulative temporary differences between the carrying value of assets and liabilities for financial statement and income tax purposes. The deferred income tax provision is measured by the change in the net deferred income tax asset or liability during the year. The Company accounts for general business tax credits using the flow-through method. Income per Common and Common Equivalent Share. Income per common and common equivalent share is based on the weighted average number of common shares outstanding during each year and common equivalent shares arising from stock options when the effect is dilutive. Disclosure About Fair Value of Financial Instruments. The fair value of the Company's financial instruments is based on the quoted market prices for the same or similar issues or on the current rates offered to the Company for financial instruments of the same remaining maturities. Derivatives. Premiums paid for purchased interest rate cap contracts are amortized to interest expense over the terms of the contracts. Unamortized premiums are included in other assets in the accompanying consolidated balance sheets. Amounts earned under the interest rate cap contracts are reflected as a reduction of interest expense. Note 3. Inventories The excess of estimated current cost over LIFO carrying value of inventories was $32.3 million and $27.4 million at December 31, 1995 and January 1, 1995, respectively. Application of the LIFO method resulted in a charge to cost of sales, buying and occupancy of $4.9 million, $2.3 million and $3.6 million for 1995, 1994 and 1993, respectively. Note 4. Property and Equipment The components of property and equipment at December 31, 1995 and January 1, 1995 were as follows (in millions of dollars):
December 31, January 1, 1995 1995 ------------ ------------ Land $ 225.3 $ 233.7 Buildings 386.6 357.0 Leasehold improvements 319.1 302.2 Fixtures and equipment 714.6 682.3 ------------ ------------ 1,645.6 1,575.2 Less: accumulated depreciation and amortization (496.6) (421.5) ------------ ------------ Net property owned 1,149.0 1,153.7 ------------ ------------ Capital leases 69.4 75.1 Less: accumulated amortization (25.9) (25.8) ------------ ------------ Net capital leases 43.5 49.3 ------------ ------------ Property and equipment, net $ 1,192.5 $ 1,203.0 ------------ ------------ ------------ ------------
Note 5. Accrued Current Liabilities The components of accrued current liabilities at December 31, 1995 and January 1, 1995 were as follows (in millions of dollars):
December 31, January 1, 1995 1995 ------------ ------------ Accrued payroll, benefits and related taxes $ 134.6 $ 118.1 Accrued self-insurance 37.2 42.2 Other 91.7 86.5 ------------ ------------ Accrued current liabilities $ 263.5 $ 246.8 ------------ ------------ ------------ ------------
Note 6. Senior and Subordinated Debt Senior and subordinated debt as of December 31, 1995 and January 1, 1995 were as follows (in millions of dollars):
December 31, January 1, 1995 1995 ------------ ------------ Senior debt: Revolving Loan, interest at prime or Eurodollar rate plus designated amounts, due 2000 $ 177.8 $ - Revolving Credit Facility, interest at prime, certificate of deposit or Eurodollar rate plus designated amounts, replaced in 1995 - 149.8 Term Loan Facility, interest at prime, certificate of deposit or Eurodollar rate plus designated amounts, replaced in 1995 - 150.0 Mortgage, 9.25%, secured by real property, due in monthly installments of $1.0 million including interest, due 1997 113.0 115.0 Mortgages, 6.00% to 12.25%, secured by real property, due in varying monthly installments with maturity dates from 1997 to 2009 13.5 14.6 ------------ ------------ Total 304.3 429.4 Less: current portion 5.5 3.2 ------------ ------------ Long-term portion $ 298.8 $ 426.2 ------------ ------------ ------------ ------------ Subordinated debt: Senior subordinated debentures, 6-5/8%, less unamortized discount of $7.2 million and $11.1 million at December 31, 1995 and January 1, 1995, respectively, based on an effective interest rate of 12.5%, interest due in semiannual installments $ 70.9 $ 69.6 Senior subordinated notes, 9-5/8%, interest due in semiannual installments 150.0 150.0 Senior subordinated notes, 8-3/8%, interest due in semiannual installments 100.0 100.0 ------------ ------------ Total 320.9 319.6 Less: current portion 15.2 - ------------ ------------ Long-term portion $ 305.7 $ 319.6 ------------ ------------ ------------ ------------
On February 17, 1995, the Company entered into an agreement with a group of banks for a $625 million Revolving Loan Agreement (the "Revolving Loan"). The Revolving Loan replaces the Company's $475 million revolving credit facility (the "Revolving Credit Facility") and $150 million Senior Unsecured Term Loan Facility (the "Term Loan Facility"). The Revolving Loan expires on February 17, 2000; however, it provides that the Company may request that the banks extend the maturity date by one year beginning in September 1997 and each year thereafter. Interest for the revolving debt is at prime or Eurodollar rate plus designated amounts. At the Company's option, the revolving debt may be used to support commercial paper borrowings, other unsecured bank borrowings and standby letters of credit outside the revolving debt. At December 31, 1995, borrowings under the Revolving Loan were $177.8 million and available unused credit under the Revolving Loan was $446.4 million. Weighted average interest costs for 1995, including commitment fees, for the Revolving Loan, Revolving Credit Facility and for the Term Loan Facility were 7.5%. At December 31, 1995, the corresponding bank prime rate was 8.5%. Commitment fees under the Revolving Loan and Revolving Credit and Term Loan Facilities were $1.2 million, $1.5 million and $1.5 million for 1995, 1994 and 1993, respectively. The Company's involvement with derivative financial instruments has been limited to interest rate cap contracts to reduce the impact of increases in interest rates on revolving debt. The contracts hedge principal amounts of $250 million for 1994, $200 million for 1995, and $100 million for 1996 and 1997 of interest rate exposure in excess of an approximate 8.375% effective borrowing rate under the revolving debt. The Company records interest expense or interest income related to interest rate cap contracts on a monthly basis. The Company's $113.0 million mortgage loan requires monthly principal and interest payments of approximately $1 million with a one-time payment of approximately $111 million in July 1997. The indenture related to the 6-5/8% Senior Subordinated Debentures (the "6-5/8% Debt") provides for mandatory redemptions. As of December 31, 1995, $15.6 million, $25.0 million and $37.5 million are due on May 15, 1996, May 15, 1997 and May 15, 1998, respectively. Interest on the 6-5/8% Debt is payable semiannually on May 15 and November 15. The 6-5/8% Debt may be redeemed at any time at 100% of the principal amount plus accrued interest. The 6-5/8% Debt was issued at a discount which is being amortized over the related term of the indebtedness. The indenture related to the 9-5/8% Senior Subordinated Notes (the "9-5/8% Debt") due April 1, 2002 provides for principal repayment at maturity. Interest on the 9-5/8% Debt is payable semiannually on April 1 and October 1. The 9-5/8% Debt may be redeemed at the Company's option any time on or after April 1, 1997, at varying percentages above par of the principal amount plus accrued interest. The Company is not required to make mandatory redemption or sinking fund payments with respect to the 9-5/8% Debt prior to maturity. The indenture related to the 8-3/8% Senior Subordinated Notes (the "8-3/8% Debt") due October 1, 1999 provides for principal repayment at maturity. Interest on the 8-3/8% Debt is payable semiannually on April 1 and October 1. The 8-3/8% Debt may be redeemed at the Company's option any time on or after October 1, 1997, at 100% of the principal amount plus accrued interest. The Company is not required to make mandatory redemption or sinking fund payments with respect to the 8-3/8% Debt prior to maturity. At December 31, 1995 and January 1, 1995, the carrying value of all financial instruments approximated fair value. During 1995, 1994 and 1993, the Company early retired through repurchase and/or redemption $2.6 million, $6.8 million and $27.1 million, respectively, of subordinated debt. These repurchases resulted in an extraordinary after tax charge of $1.4 million in 1993. The Company's debt agreements contain various restrictions on the incurrence of additional indebtedness, payment or prepayment of senior subordinated and subordinated debt, investments, acquisitions, capital expenditures, dividends, common stock redemptions and purchases and dispositions of assets. The covenants also require the Company to meet certain shareholders' equity levels, debt leverage levels and fixed charge coverage ratios which can vary each fiscal year. The Company is in compliance with these covenants as of December 31, 1995. Under its most restrictive debt agreement, the Company had $83.0 million available for dividends and distributions at December 31, 1995. Principal payments required in future years are as follows (in millions of dollars):
Principal Payments ---------- 1996 $ 21.1 1997 137.0 1998 38.6 1999 101.1 2000 1.2 2001-2005 332.4 2006-2009 1.0 ---------- Total principal payments 632.4 Less: current portion 21.1 ---------- Long-term portion $ 611.3 ---------- ----------
Standby letters of credit, primarily for self-insurance purposes, not reflected in the accompanying consolidated financial statements, were approximately $73.3 million at December 31, 1995. Note 7. Leases The Company currently leases certain of its stores, distribution facilities, vehicles and equipment for periods up to 50 years with various renewal options. The majority of such leases are noncancellable operating leases. Certain operating and capital leases require contingent rentals based upon a percentage of sales over a specified amount. Rental expense under operating leases was as follows (in millions of dollars):
Fiscal Year Ended ------------------------------------------ December 31, January 1, January 2, 1995 1995 1994 ------------ ------------ ------------ Minimum rentals $ 55.7 $ 60.9 $ 76.9 Contingent rentals 7.3 7.5 8.3 Sublease rentals received (6.4) (4.7) (4.2) ------------ ------------ ------------ Rental expense, net $ 56.6 $ 63.7 $ 81.0 ------------ ------------ ------------ ------------ ------------ ------------
Capital lease obligations, relating primarily to buildings, vary in amounts with interest rates ranging from 6.7% to 12.5%. Contingent rentals associated with capital leases were $1.5 million, $1.4 million and $2.0 million for 1995, 1994 and 1993, respectively. Future minimum lease payments under noncancellable operating and capital leases, together with the present value of the net minimum lease payments, at December 31, 1995 were as follows (in millions of dollars):
Operating Capital Leases Leases --------- ------- 1996 $ 68.8 $ 9.3 1997 65.0 8.6 1998 62.3 6.6 1999 59.6 5.9 2000 58.2 5.9 2001-2005 252.4 28.3 2006-2010 162.6 22.3 2011-2015 64.4 9.7 2016-2020 10.8 5.7 2021-2025 1.4 .2 Thereafter .6 - --------- ------- Total minimum lease commitments $ 806.1 102.5 --------- --------- Less: interest portion 44.1 ------- Present value of net minimum lease commitments 58.4 Less: current portion 5.0 ------- Long-term portion $ 53.4 ------- -------
Minimum sublease rentals to be received in the future under noncancellable operating and capital leases totaled $77.3 million at December 31, 1995. Effective September 1993, the Company became a partner of a California general partnership. This partnership has obligations for 16 retail leases for periods up to 21 years with various renewal options. It is the partnership's intent to assign or sublease its leasehold interest in all of these sites. Future minimum lease payments of the partnership under noncancellable operating leases at December 31, 1995 were as follows (in millions of dollars):
December 31, 1995 ------------ 1996 $ 3.5 1997 3.4 1998 3.4 1999 3.4 2000 3.2 2001-2005 13.8 2006-2010 9.2 2011-2015 3.3 Thereafter .4 ------------ Total minimum lease commitments $ 43.6 ------------ ------------
Minimum sublease rentals to be received by the partnership under noncancellable operating leases totaled $7.4 million at December 31, 1995. Note 8. Employee Benefit Plans The Company sponsors a defined benefit pension plan for all nonunion employees. An employee's benefit is based on years of credited service and the employee's final average pay calculated on the highest five years of compensation during the last ten years of employment. The Company's funding policy is to contribute at least the minimum annual contribution required by Internal Revenue Service regulations. The following table sets forth the defined benefit pension plan's funded status and amounts recognized in the Company's consolidated balance sheets at December 31, 1995 and January 1, 1995 (in millions of dollars):
December 31, January 1, 1995 1995 ------------ ------------ Actuarial present value of benefit obligation: Accumulated benefit obligation, including vested benefit of $44.1 million at December 31, 1995 and $35.5 million at January 1, 1995 $ 46.2 $ 37.8 ------------ ------------ ------------ ------------ Projected benefit obligation for service rendered to date $ (63.6) $ (49.7) Plan assets at fair value, primarily listed stocks and U.S. bonds 56.4 46.2 ------------ ------------ Projected benefit obligation in excess of plan assets (7.2) (3.5) Unrecognized net (gain) loss from past experience different from that assumed, unrecognized prior service cost and effects of changes in assumptions 15.0 12.6 ------------ ------------ Pension asset included in other noncurrent assets $ 7.8 $ 9.1 ------------ ------------ ------------ ------------
The discount rate used in determining the actuarial present value of the projected benefit obligation was 7.25% at December 31, 1995 and 8.5% at January 1, 1995. The expected long-term rate of return on assets and rate of increase in compensation levels were 9.0% and 4.5%, respectively, at December 31, 1995 and January 1, 1995. Net pension cost under the defined benefit pension plan for 1995, 1994 and 1993 included the following components (in millions of dollars):
Fiscal Year Ended -------------------------------------------- December 31, January 1, January 2, 1995 1995 1994 ------------ ------------ ------------ Service cost $ 2.3 $ 3.4 $ 2.5 Interest cost on projected benefit obligation 4.0 4.0 3.6 Actual return on plan assets (10.6) .9 (3.0) Net amortization and deferral 6.9 (4.4) (.7) ------------ ------------ ------------ Net pension cost $ 2.6 $ 3.9 $ 2.4 ------------ ------------ ------------ ------------ ------------ ------------
The Company's supplemental executive retirement plan provides supplemental income payments for certain officers during retirement. Total pension expense for all plans was $3.4 million, $5.1 million and $3.6 million for 1995, 1994 and 1993, respectively. The Company's contributory profit sharing plan for nonunion employees qualifies under Section 401(k) of the Internal Revenue Code. For 1995, the Company's contribution to the profit sharing plan was equal to six percent of each eligible employee's pay. In future years, the Company's contribution will be five percent of each eligible employee's pay plus a one percent matching contribution for each eligible employee who elects to contribute at least one percent of their pay. For 1995, 1994, and 1993 total expense related to the Company's profit sharing plan was $7.6 million, $5.3 million and $4.3 million, respectively. The Company sponsors a retiree medical plan covering substantially all nonunion employees who retire under certain age and service requirements. The retiree medical plan provides outpatient, inpatient and various other covered services. Participants in the retiree medical plan who retire after June 30, 1990 receive a benefit based upon years of service and a benefit value determined by the Company at the time of retirement. Effective January 1, 1995, the Company adopted modifications in its retiree medical plan which reduced the net retiree medical plan cost. Unused benefits may be indexed each year to the social security cost of living, up to a maximum of 4.0%. Such benefits are funded from the Company's general assets. The Company has the right to modify or terminate the plan. The accumulated postretirement benefit obligation for the retiree medical plan as of December 31, 1995 and January 1, 1995 was as follows (in millions of dollars):
December 31, January 1, 1995 1995 ------------ ------------ Accumulated retiree medical benefit obligation: Retirees $ 10.4 $ 9.9 Fully eligible active plan participants 1.7 3.5 Other active plan participants 5.9 12.0 Unrecognized net gain from unrecognized prior service cost and changes in assumptions 13.5 6.9 ------------ ------------ Accrued retiree medical benefit obligation $ 31.5 $ 32.3 ------------ ------------ ------------ ------------
For measurement purposes, a 7.0% increase in the cost of covered retiree medical benefits was assumed for 1995. The rate declined to 6.0% in 1996, and remained at that level thereafter. A 1.0% increase in the retiree medical cost trend rate would increase the retiree medical benefit obligation at December 31, 1995 by $.6 million and the 1995 annual expense by $.1 million. The weighted average discount rate used in determining the accumulated retiree medical benefit obligation was 7.25% and 8.5% at December 31, 1995 and January 1, 1995, respectively. The net retiree medical plan cost for 1995, 1994 and 1993 included the following components (in millions of dollars):
Fiscal Year Ended ------------------------------------------ December 31, January 1, January 2, 1995 1995 1994 ------------ ------------ ------------ Service cost $ .3 $ 1.2 $ .8 Interest cost 1.3 2.1 2.4 Net amortization and deferral (.9) - - ------------ ------------ ------------ Net retiree medical plan costs $ .7 $ 3.3 $ 3.2 ------------ ------------ ------------ ------------ ------------ ------------
The Company contributes to multi-employer joint pension plans and health and welfare plans administered by various trustees. Contributions to these plans are based upon negotiated labor contracts. The pension plans may be deemed to be defined benefit plans. Information relating to accumulated benefits and fund assets as they may be allocable to the Company at December 31, 1995 is not available. Total pension expense for the union plans was $19.8 million, $22.3 million and $30.3 million for 1995, 1994 and 1993, respectively. The health and welfare plans provide medical, dental and other benefits to certain employees covered by union contracts. Total health and welfare expense for these plans was $108.6 million, $125.9 million and $107.1 million for 1995, 1994 and 1993, respectively. Note 9. Income Taxes The provision for income taxes for 1995, 1994 and 1993 was comprised of the following amounts (in millions of dollars):
Fiscal Year Ended -------------------------------------------- December 31, January 1, January 2, 1995 1995 1994 ------------ ------------ ------------ Current: Federal $ 44.5 $ 24.7 $ 13.3 State 12.7 5.2 7.6 ------------ ------------ ------------ Total current income tax provision 57.2 29.9 20.9 ------------ ------------ ------------ Deferred: Federal .7 (.7) 15.7 State .8 (.8) .2 ------------ ------------ ------------ Total deferred income tax provision 1.5 (1.5) 15.9 ------------ ------------ ------------ Total income tax provision $ 58.7 $ 28.4 $ 36.8 ------------ ------------ ------------ ------------ ------------ ------------
Reconciliation of the Federal statutory rate and effective rate for 1995, 1994 and 1993 was as follows (in millions of dollars):
Fiscal Year Ended ------------------------------------------ December 31, January 1, January 2, 1995 1995 1994 ------------ ------------ ------------ Federal statutory expected provision $ 44.4 $ 19.3 $ 24.4 Amortization of excess of cost over net assets acquired 5.0 5.0 5.1 State income taxes, net of Federal income tax benefit 8.1 3.1 5.1 Effect to beginning of year deferred income tax balance for increase in Federal statutory tax rate - - 2.0 Other 1.2 1.0 .2 ------------ ------------ ------------ Total income tax provision $ 58.7 $ 28.4 $ 36.8 ------------ ------------ ------------ ------------ ------------ ------------
Deferred income taxes consisted of future tax liabilities (assets) attributable to the following (in millions of dollars):
December 31, January 1, 1995 1995 ------------ ------------ Deferred tax liabilities: Excess of book over tax bases $ 143.8 $ 141.2 Excess of tax over book depreciation 92.8 84.1 ------------ ------------ Deferred tax liabilities 236.6 225.3 ------------ ------------ Deferred tax assets: Cash versus accrual basis (144.0) (136.6) Other, net (4.6) (2.2) ------------ ------------ Deferred tax assets (148.6) (138.8) ------------ ------------ Deferred income taxes, net $ 88.0 $ 86.5 ------------ ------------ ------------ ------------ /TABLE The Federal tax returns for all of the Company's fiscal periods ended subsequent to and including December 31, 1989 are open for examination by the Internal Revenue Service (the "IRS"). Additionally, certain tax returns of entities acquired by the Company for earlier tax years are open for examination by the IRS. Management believes that any adjustments arising out of the examinations for which the Company would be liable would not have a material effect on the Company's consolidated financial position. Note 10. Related Party Transactions The Company leases a distribution facility from a California general partnership whose general partners are Vons and a Texas general partnership, of which a director of the Company is a general partner. Vons and the Texas general partnership each have a 50% interest in the California general partnership. During 1995, 1994 and 1993, the Company paid rent of $1.9 million per year from which the partnership distributed $250,000, $70,000 and $160,000 to the Texas general partnership in such years, respectively. This warehouse was closed in third quarter 1995 although rental obligations continue through 2002. A wholly owned subsidiary of Safeway owns approximately 35% of the outstanding voting stock of the Company. Safeway and its affiliates sold certain inventory and other items to the Company for an aggregate amount during 1995, 1994 and 1993 of approximately $27.0 million, $21.3 million and $2.5 million, respectively. The Company sold certain inventory items to Safeway and its affiliates for an aggregate amount during 1995, 1994 and 1993 of approximately $6.4 million, $6.6 million and $2.4 million, respectively. Three directors of the Company are also directors of Safeway and a fourth director of the Company is both a director and an officer of Safeway. The Company leases eight properties from a partnership that is 80% owned by a subsidiary of Safeway and 20% owned by the principal stockholder of Safeway. The rentals under the leases were $.6 million, $.7 million and $.7 million in 1995, 1994 and 1993, respectively. In addition, the Company is secondarily liable to this partnership under four leases for which the annual minimum rental is $.2 million, all of which is currently being paid by assignees. Another California general partnership whose general partners include directors and management of the Company had the right to purchase several leaseholds of the Company. The Company paid the California general partnership $2.2 million in 1993 to cancel this purchase right. A director of the Company borrowed a total of $118,000 from the Company for the purchase of 5,000 shares of the Company's common stock by notes dated January 3, 1992 and July 22, 1992. The notes are secured by a pledge of the 5,000 shares of common stock. The notes accrue interest at the Federal mid term rate in effect under Internal Revenue Code Section 1274(d), compounded semiannually. All payments of principal and interest are due and payable on December 31, 1997. Note 11. Contingencies The Company is a party to several pending legal proceedings and claims. Although the outcome of such proceedings and claims cannot be determined with certainty, management believes that their final outcome should not have a material adverse effect on the Company's consolidated financial position. As a result of the disposal of certain leasehold interests by the Company and by a partnership of which the Company is a general partner, the Company is contingently liable to certain landlords. Note 12. Shareholders' Equity The Company has various stock option plans. Options under the 1987 Stock Option Plan are fully vested. Options under the 1990 Stock Option Plan vest as determined by the Compensation Committee of the Board of Directors. Generally, options vest 25% one year from the date of grant and 25% per year thereafter. However, options granted in May 1995 vest 15% per year beginning one year from the date of grant and 15% per year thereafter until the options are 100% vested. Additionally, a limited number of options vest 20% at the date of grant and 20% per year thereafter and others vest 33-1/3% per year beginning one year after grant. Options under the Directors' Stock Option Plan vest 25% six months from the date of grant and 25% on the anniversary of the date of grant thereafter. For all plans, the options expire ten years from the date of grant. Information regarding the Company's stock option plans is summarized below:
1987 1990 Directors' Stock Option Stock Option Stock Option Plan Plan Plan ------------ ------------ ------------ Shares authorized 175,227 4,000,000 225,000 ------------ ------------ ------------ ------------ ------------ ------------ Shares under option: Outstanding at January 3, 1993 54,269 1,678,740 71,693 Granted - 584,642 44,192 Exercised 5,750 1,000 - Forfeited - 218,985 16,842 ------------ ------------ ------------ Outstanding at January 2, 1994 48,519 2,043,397 99,043 Granted - 1,164,009 52,028 Exercised 7,000 34,240 - Forfeited - 431,063 20,144 ------------ ------------ ------------ Outstanding at January 1, 1995 41,519 2,742,103 130,927 Granted - 500,040 47,140 Exercised 22,801 130,783 - Forfeited - 338,046 - ------------ ------------ ------------ Outstanding at December 31, 1995 18,718 2,773,314 178,067 ------------ ------------ ------------ ------------ ------------ ------------ Range of option prices per share: At January 2, 1994 $ 9.28 $ 2.50-27.55 $17.51-27.55 At January 1, 1995 $ 9.28 $ 2.50-27.55 $14.23-27.55 At December 31, 1995 $ 9.28 $ 2.50-27.55 $14.23-27.55 Options exercisable: At January 2, 1994 48,519 765,054 37,022 At January 1, 1995 41,519 1,031,428 62,864 At December 31, 1995 18,718 1,276,002 109,288 Average price of options exercised: Year ended January 2, 1994 $ 9.28 $ 21.35 $ - Year ended January 1, 1995 $ 9.28 $ 2.50 $ - Year ended December 31, 1995 $ 9.28 $ 8.29 $ -
The Company's Employee Stock Purchase Plan (the "Stock Purchase Plan") allows employees to purchase the Company's stock through payroll deductions. The source of stock is weekly open market purchases by a third party administrator. Administrative and purchase commission costs associated with the Stock Purchase Plan are borne and paid by the Company according to the agreement with the third party administrator. The Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 123 ("SFAS No. 123") "Accounting for Stock Based Compensation" in October 1995 which is effective for fiscal years beginning after December 15, 1995. SFAS No. 123 encourages the fair value based method of accounting for employee stock compensation plans. SFAS No. 123 allows companies to retain the current method of accounting for stock compensation as set forth in Accounting Principles Board Opinion 25 "Accounting for Stock Issued to Employees." SFAS No. 123 requires expanded footnote disclosure for both methods of accounting. The Company expects to retain the current method of accounting. Accordingly, the expected impact of SFAS No. 123 on the Company's consolidated financial statements is expanded footnote disclosure. Note 13. Advertising Expense The Company expenses the costs of advertising as incurred. Total advertising expense was $44.1 million, $42.8 million and $43.3 million in 1995, 1994 and 1993, respectively. Note 14. Restructuring Charges During 1993, the Company recorded a restructuring charge of $56.9 million, or $.77 per share. The 1993 charge reflected anticipated costs associated with a program to accelerate the closing of underperforming facilities, including 11 stores, and to eliminate approximately 300 administrative and support positions, which included 18 officers. The 1993 restructuring charge included $42.7 million for expenses relating to facility closures and $14.2 million for severance and other related expenses. In late 1994, the Company determined that the facility closures and reductions in work force undertaken in 1993 would not achieve the Company's cost reduction goals. The Company undertook additional restructuring initiatives resulting in further facility closures and reductions in work force. During 1994, the Company recorded restructuring charges of $33.0 million, or $.45 per share. The 1994 restructuring charges included $27.4 million for expenses related to facility closures, including 16 stores and the San Diego distribution center. The remaining $5.6 million of the charges relates to severance and other costs associated with the elimination of approximately 400 administrative and support positions. As of December 31, 1995, substantially all of the cost containment and strategic restructuring initiatives have been executed. Of the total $89.9 million restructuring reserve, $72.1 million of costs and payments have been charged against the reserve as of December 31, 1995, representing asset write-offs and lease obligations for closed facilities of $52.3 million and severance and other related expenses of $19.8 million. Note 15. Quarterly Financial Data (Unaudited) The results of operations for 1995 and 1994 were as follows (in millions of dollars except share data):
First Second Third Fourth Quarter Quarter Quarter Quarter Fiscal Year 1995 (12 Weeks) (12 Weeks) (16 Weeks) (12 Weeks) ----------- ----------- ----------- ----------- Sales $ 1,142.5 $ 1,139.5 $ 1,565.3 $ 1,223.4 Gross profit (1) 291.5 289.6 390.7 308.7 Amortization of excess cost over net assets acquired 3.4 3.5 4.7 3.4 Operating income 42.2 42.8 54.4 54.7 Interest expense, net 16.1 15.7 20.1 15.4 Net income 14.0 14.5 18.5 21.1 ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- Income per common and common equivalent share: Net income $ .32 $ .33 $ .42 $ .48 ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- Weighted average common and common equivalent shares 43,753,000 43,817,000 43,971,000 44,251,000 ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
First Second Third Fourth Quarter Quarter Quarter Quarter Fiscal Year 1994 (12 Weeks) (12 Weeks) (16 Weeks) (12 Weeks) ----------- ----------- ----------- ----------- Sales $ 1,144.0 $ 1,160.2 $ 1,516.2 $ 1,176.2 Gross profit (1) 286.8 267.5 373.3 301.8 Amortization of excess cost over net assets acquired 3.5 3.5 4.6 3.5 Restructuring charges - - 19.0 14.0 Operating income 32.7 25.3 32.1 35.7 Interest expense, net 15.7 16.8 21.7 16.6 Net income $ 9.0 $ 4.5 $ 4.0 $ 9.1 ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- Income per common and common equivalent share: Net income $ .21 $ .10 $ .09 $ .21 ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- Weighted average common and common equivalent shares 43,475,000 43,516,000 43,533,000 43,717,000 ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- (1) Gross profit represents sales net of cost of sales, buying and occupancy costs.
THE VONS COMPANIES, INC. AND SUBSIDIARIES - ----------------------------------------- Independent Auditors' Report The Board of Directors The Vons Companies, Inc.: We have audited the accompanying consolidated balance sheets of The Vons Companies, Inc. and subsidiaries as of December 31, 1995 and January 1, 1995, and the related consolidated statements of operations, shareholders' equity and cash flows for the fifty-two week periods ended December 31, 1995, January 1, 1995 and January 2, 1994. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of The Vons Companies, Inc. and subsidiaries at December 31, 1995 and January 1, 1995 and the results of their operations and cash flows for the fifty-two week periods ended December 31, 1995, January 1, 1995 and January 2, 1994, in conformity with generally accepted accounting principles. /S/ KPMG Peat Marwick LLP Los Angeles, California February 20, 1996 EX-24 3 Exhibit 24 [This page appears on KPMG Peat Marwick letterhead] INDEPENDENT AUDITORS' CONSENT ----------------------------- The Board of Directors The Vons Companies, Inc: We consent to incorporation by reference in the Registration Statements (No. 33-42913, No. 33-39246, No. 33-41539, No. 33-55744 and No. 33-50957) on Form S-8 of The Vons Companies, Inc. of our report dated February 20, 1996, relating to the consolidated balance sheets of The Vons Companies, Inc. and subsidiaries as of December 31, 1995 and January 1, 1995, and the related consolidated statements of operations, shareholders' equity, cash flows and for the fifty-two week periods ended December 31, 1995, January 1, 1995 and January 2, 1994 which report appears in the Annual Report to Shareholders and is incorporated by reference in the December 31, 1995 annual report on Form 10-K of The Vons Companies, Inc. /s/ KPMG Peat Marwick Los Angeles, California March 6, 1996 EX-27 4
5 This schedule contains summary financial information extracted from the Company's Consolidated Statement of Operations for the fifty-two weeks ended December 31, 1995, the Consolidated Balance Sheet as of December 31, 1995 and the accompanying notes thereto and is qualified in its entirety by reference to such financial statments. 1,000 YEAR JAN-01-1995 DEC-31-1995 9,400 0 31,700 0 350,700 452,300 1,715,000 522,500 2,186,500 593,400 657,900 4,300 0 0 619,000 2,186,500 5,070,700 5,070,700 3,790,200 4,876,600 0 0 67,300 126,800 58,700 68,100 0 0 0 68,100 1.55 1.55
EX-10.11.1 5 EXHIBIT 10.11.1 AMENDMENT 1994-1 THE VONS COMPANIES,INC. 401(k) WRAPAROUND PLAN WHEREAS, The Vons Companies, Inc. ("Company") maintains The Vons Companies, Inc, 401(k) Wraparound Plan ("Plan"); and WHEREAS, the Compensation Committee has the right to amend the Plan; and WHEREAS, the Compensation Committee now desires to amend the Plan to provide that the Investment Equivalents for deferrals, Company Match and Discretionary Company Match made on or after January 1, 1995 shall be determined on an annual basis, and that future changes to the Investment Equivalents shall apply to such amounts, except that such changes shall not apply to amounts credited prior to January 1, 1995; and WHEREAS, the Compensation Committee also desires to amend the Plan to allow certain Participants the right to elect installment payments and to allow Participants the ability to withdraw funds by forfeiting certain amounts; NOW, THEREFORE, this Amendment 1994-1 is hereby adopted effective December 31, 1994: 1. The following is hereby added after the first paragraph of Section 5.4: "Effective for the deferrals, Company Match and Discretionary Company Match made on or after January 1, 1995, the new rate of return established by the Compensation Committee as an Investment Equivalent shall apply both to the deferrals, Company Match and Discretionary Company Match made for the Plan Year for which the new rate of return is established, as well as the deferrals, Company Match and Discretionary Match previously credited for previous Plan Years. The preceding sentence shall not apply, however, to the deferrals, Company Match and Discretionary Company Match made for Plan Years ending on or before December 31, 1994." 2. The following is hereby added to the end of Section 7.2: "Notwithstanding the foregoing, if a Participant who satisfies the criteria specified below so elects, the Participant shall receive his benefits in the form of five annual installments, calculated as described below. In order to make such election, the Participant must satisfy all of the following requirements: 2 (a) The election must be made at least two years prior to the date benefit payments commence according to Section 7.1; (b) As of the date benefit payments commence, the Participant must have completed at least ten "years of vesting service," as such term is defined in the Vons Personal Choice Profit Sharing Plan; and (c) The amount of benefit which would, absent the election, be paid to the Participant as a lump sum, must exceed $25,000. The annual installments shall be paid in level annual installments, amortized at the rate set forth as a Investment Equivalent for the year in which the first installment payment is made (notwithstanding subsequent changes in the Installment Equivalent). 3. The following new section 7.5 is hereby added to the Plan. "7.5 Forfeiture Distribution. The Plan Committee shall, ----------------------- upon written request of a Participant, make a lump sum payment to the Participant of up to 85% of the amount the Participant is entitled to receive under the Plan, but only if the Participant agrees to the following conditions: 3 (a) The Participant shall immediately and irrevocably forfeit 15% of the amount withdrawn. The forfeiture shall reduce the Participant's remaining balance in the Plan; (b) The Participant shall not be entitled to make a deferral election under Article IV for the following Plan Year, and his deferrals shall be suspended for the remainder of the Plan Year; and (c) The amount withdrawn shall not be credited with an Investment Equivalent for any Valuation Date following the Date the amount is withdrawn. The remaining portion of such Participant's Account, if any, shall be distributed in accordance with Sections 7.1 and 7.2. This Section shall not be construed to allow distribution under the Plan of amounts greater than those the Participant would otherwise have received if no distribution under this Section had been made." IN WITNESS WHEREOF, this Amendment 1994-1 is hereby adopted this 23d day of December 1994. --- THE VONS COMPANIES, INC. By /s/ Dick W. Gonzales -------------------------------------- Dick W. Gonzales Its Group Vice President, Human Resources ------------------------------------- 4 EX-10.17 6 Exhibit 10.17 1996 Officer and Administrative Bonus Plan ------------------------------------------ Objective - --------- To reward Officers and Administrative participants for Total Company and Individual Performance Objectives. Target Bonus Award - ------------------ A Target Bonus Award is set for each participant varying from 5% to 50% of their Annual Base Salary depending upon the scope of their responsibilities. The actual bonus paid can range from 0% to 200% of the Target Award based upon attainment of Total Company and Individual performance objectives. The bonus will be paid from the Total Company Performance pool. Funding - ------- The Total Company Performance Pool will be funded through attainment by the Company of Same Store Sales and Operating Income Goals. Payouts will range form 0% to 200% of the total Target Bonus Awards of all participants. Payment - ------- The performance of each participant, including achievement of Individual Objectives, will be assessed at year end under the review of Senior Management. Bonuses will be awarded at, above, or below the individual's Target Bonus Award level depending on such assessment and funds available in the Total Company Performance Pool. -----END PRIVACY-ENHANCED MESSAGE-----