Executed Copy
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Quarter Ended June 18, 1994 Commission File Number 1-4141
THE GREAT ATLANTIC & PACIFIC TEA COMPANY, INC.
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(Exact name of registrant as specified in charter)
Maryland 13-1890974
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2 Paragon Drive, Montvale, New Jersey 07645
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 201-573-9700
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Former name, former address and former fiscal year, if changed since last
report.
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
YES XXX NO
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Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at June 18, 1994
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Common stock - $1 par value 38,220,333 shares
THE GREAT ATLANTIC & PACIFIC TEA COMPANY, INC.
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
STATEMENTS OF CONSOLIDATED OPERATIONS & RETAINED EARNINGS
(Dollars in thousands, except per share figures)
(Unaudited)
16 Weeks Ended
June 18, June 19,
1994 1993
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Sales $3,225,359 $3,279,264
Cost of merchandise sold (2,312,715) (2,338,110)
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Gross margin 912,644 941,154
Store operating, general and
administrative expense (880,866) (893,149)
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Income from operations 31,778 48,005
Interest expense (20,476) (19,105)
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Income before income
taxes and cumulative effect 11,302 28,900
Provision for income taxes (4,057) (11,850)
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Income before
cumulative effect 7,245 17,050
Cumulative effect on prior years of
change in accounting principle:
Postemployment benefits (4,950) -
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Net income 2,295 17,050
Retained earnings at
beginning of period 529,179 555,796
Cash dividends (7,644) (7,644)
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Retained earnings at
end of period $ 523,830 $ 565,202
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Earnings per share:
Income before
cumulative effect $ .19 $ .45
Cumulative effect on prior years of
change in accounting principle:
Postemployment benefits (.13) -
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Net income $ .06 $ .45
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Cash dividends $ .20 $ .20
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Weighted average number of
shares outstanding 38,220,333 38,220,376
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See Notes to Quarterly Report on Page 5.
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THE GREAT ATLANTIC & PACIFIC TEA COMPANY, INC.
CONSOLIDATED BALANCE SHEETS
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(Dollars in thousands)
June 18, 1994 Feb. 26, 1994
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(Unaudited)
ASSETS
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Current assets:
Cash and short-term investments $ 120,941 $ 124,236
Accounts receivable 200,072 190,954
Inventories 860,597 850,077
Prepaid expenses and other assets 71,213 65,072
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Total current assets 1,252,823 1,230,339
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Property:
Property owned 1,551,234 1,564,745
Property leased 117,220 122,788
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Property-net 1,668,454 1,687,533
Other assets 181,461 180,823
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Total Assets $3,102,738 $3,098,695
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See Notes to Quarterly Report on Page 5.
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THE GREAT ATLANTIC & PACIFIC TEA COMPANY, INC.
CONSOLIDATED BALANCE SHEETS
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(Dollars in thousands)
June 18, 1994 Feb. 26, 1994
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(Unaudited)
LIABILITIES & SHAREHOLDERS' EQUITY
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Current liabilities:
Current portion of long-term debt $ 79,170 $ 77,755
Current portion of obligations under
capital leases 15,578 16,097
Accounts payable 490,443 458,875
Book overdrafts 173,962 196,818
Accrued salaries, wages and benefits 157,642 173,366
Accrued taxes 47,844 35,879
Other accruals 186,936 192,342
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Total current liabilities 1,151,575 1,151,132
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Long-term debt 581,925 544,399
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Obligations under capital leases 156,547 162,866
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Deferred income taxes 85,348 100,405
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Other non-current liabilities 143,331 145,476
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Shareholders' equity:
Preferred stock--no par value;
authorized--3,000,000 shares;
issued--none - -
Common stock--$1 par value; authorized--
80,000,000 shares;
issued--38,229,490 shares 38,229 38,229
Capital surplus 453,475 453,475
Cumulative translation adjustment (31,159) (26,103)
Retained earnings 523,830 529,179
Treasury stock, at cost, 9,157 shares (363) (363)
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Total shareholders' equity 984,012 994,417
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Total liabilities and shareholders'
equity $3,102,738 $3,098,695
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See Notes to Quarterly Report on Page 5.
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THE GREAT ATLANTIC & PACIFIC TEA COMPANY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
16 Weeks Ended
June 18, 1994 June 19, 1993
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 2,295 $ 17,050
Adjustments to reconcile net income
to cash provided by operating activities:
Cumulative effect on prior years of change
in accounting principle:
Postemployment benefits 4,950 -
Depreciation and amortization 75,019 73,899
Deferred income tax provision (benefit)
on income before cumulative effect (529) 2,781
(Gain) loss on disposal of owned property (992) 1,463
(Increase) decrease in receivables (9,683) 4,402
(Increase)decrease in inventories (14,593) 490
Increase in other current assets (13,450) (9,535)
Increase in accounts payable 33,670 29,797
Increase (decrease) in accrued salaries,
wages and benefits (14,137) 4,878
Increase in accrued taxes 11,400 5,772
Decrease in store closing reserves (4,444) (16,133)
Decrease in other accruals (7,458) (261)
Other (8,822) 4,126
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Net cash provided by operating activities 53,226 118,729
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CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for property (65,395) (87,851)
Proceeds from disposal of property 3,438 4,994
Acquisition of business, net of
cash acquired - (42,948)
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Net cash used in investing activities (61,957) (125,805)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt 42,705 47,690
Payment of long-term debt (2,769) (8,676)
Increase (decrease)in book overdrafts (21,373) 7,537
Principal payments on capital leases (4,664) (5,827)
Cash dividends (7,644) (7,644)
Purchase of treasury stock - (1)
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Net cash provided by financing
activities 6,255 33,079
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Effect of exchange rate changes on
cash and short-term investments (819) (504)
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NET INCREASE (DECREASE) IN CASH AND
SHORT-TERM INVESTMENTS (3,295) 25,499
Cash and Short-Term Investments
at Beginning of Period 124,236 110,120
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CASH AND SHORT-TERM INVESTMENTS
AT END OF PERIOD $ 120,941 $ 135,619
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See Notes to Quarterly Report on Page 5.
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THE GREAT ATLANTIC & PACIFIC TEA COMPANY, INC.
NOTES TO QUARTERLY REPORT
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1) BASIS OF PRESENTATION
The consolidated financial statements for the 16 weeks ended June 18,
1994 and June 19, 1993 are unaudited, and in the opinion of management,
all adjustments necessary for a fair presentation of such financial
statements have been included. Such adjustments consisted only of normal
recurring items, except for the cumulative effect adjustment associated
with the adoption of Statement of Financial Accounting Standards ("SFAS")
No. 112. Interim results are not necessarily indicative of results for a
full year.
The consolidated financial statements include the accounts of the Company
and all majority-owned subsidiaries.
This Form 10-Q should be read in conjunction with the Company's
consolidated financial statements and notes incorporated by reference in
the 1993 Annual Report on Form 10-K.
Certain reclassifications have been made to the prior interim periods'
financial statements in order to conform to the current period
presentation.
2) ACCOUNTING CHANGE
Effective February 27, 1994, the Company adopted SFAS No. 112 "Employers'
Accounting for Postemployment Benefits". SFAS No. 112 requires the
accrual of costs for preretirement postemployment benefits provided to
former or inactive employees and the recognition of an obligation for
these benefits.
The Company's previous accounting policy had been to accrue for workers'
compensation and a principle portion of long-term disability benefits and
to expense other postemployment benefits, such as short-term disability,
as incurred. As a result, the Company recorded a charge of $5.0 million,
net of applicable income taxes of $3.9 million, as the cumulative effect
of recording the obligation as of the beginning of the year. The effect
of adopting the Statement will have an immaterial effect on the financial
results before the cumulative effect of accounting change for the fiscal
year.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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MANAGEMENT'S DISCUSSION AND ANALYSIS
16 WEEKS ENDED JUNE 18, 1994
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OPERATING RESULTS
Sales for the first quarter ended June 18, 1994 of $3.2 billion decreased
$54 million or 1.6% from last year. A lower Canadian exchange rate
adversely affected sales by $51 million or 1.5%. In addition, a
competitors' strike in the Northeast last year resulted in a current year
sales decline of $29 million or 0.9%. Excluding the effects of the change
in exchange rates and the effect of last year's competitor's strike, sales
increased by $26 million or 0.8%. Contributing to this increase were the
opening of 7 new stores during the first quarter of fiscal 1994. New store
openings since the beginning of fiscal 1993 and the acquisition of Big Star
stores during the prior year first quarter added approximately $115 million
or 3.5% to sales in the first quarter of fiscal 1994. The Company, in its
continuing program to eliminate obsolete, unproductive stores, closed 28
stores during the first quarter of fiscal 1994. The closure of stores since
the beginning of fiscal 1993 reduced comparative sales by approximately $80
million or 2.4%. Same store sales, excluding the effect of last year's
competitors' strike, were down $9 million or 0.3%. Average weekly sales per
store were approximately $172,900 versus $168,100 for the corresponding
period of the prior year for a 2.9% increase.
Same store sales for U.S. operations were 1.1% ahead of prior year, after
excluding last year's effect of the competitors' strike. In Canada, same
store sales declined 5.6%, largely reflecting the slow return of sales for
the Miracle Food Mart stores since the settlement of the Canadian labor
strike on the last day of fiscal 1993.
Gross margin as a percent of sales decreased 0.4% to 28.3% in the first
quarter of 1994 from 28.7% for the first quarter of the prior year resulting
primarily from increased special price reductions and reduced margins partly
offset by increased buying allowances. The gross margin dollar decrease of
$29 million is a result of a lower Canadian exchange rate ($13 million), a
decrease in rates of $15 million and a decrease in volume of $1 million.
The U.S. gross margin increased $16 million principally as a result of
increased volume of $10 million. In Canada, gross margin declined $45
million, consisting of a decrease in rates of $20 million, a decrease due to
the exchange rate decline of $13 million and volume declines of $12 million.
Store operating, general and administrative expense as a percent of sales
increased to 27.3% from 27.2% for the corresponding period in the prior year
resulting primarily from increased costs and expenses associated with store
occupancy and customer and employee accidents in both the U.S. and Canada
partly offset by reduced labor costs in Canada.
Interest expense increased from the previous year primarily due to increased
U.S. borrowings of $100 million in Notes and an increase in interest rates
on short-term borrowings partly offset by a decrease in the interest rate on
long-term Notes from 8.12% to 7.70%.
Income before income taxes and cumulative effect for the first quarter ended
June 18, 1994 is $11.3 million compared to $28.9 million for the comparable
period in the prior year.
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MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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The income tax provision recorded in the first quarter of fiscal years 1994
and 1993 reflects the Company's estimated expected annual tax rates applied
to their respective domestic and foreign financial results.
Effective February 27, 1994, the Company adopted SFAS No. 112 "Employers'
Accounting for Postemployment Benefits". As a result, the Company recorded
a charge of $5.0 million or $.13 per share (net-of-tax) as the cumulative
effect of this change on prior years.
LIQUIDITY AND CAPITAL RESOURCES
The Company ended the first quarter with working capital of $101 million
compared to $79 million at the beginning of the fiscal year. The Company
had cash and short-term investments aggregating $121 million at the end of
the first quarter of fiscal 1994 compared to $124 million at the end of
fiscal 1993. The Company has in excess of $300 million in various available
credit facilities.
These available cash resources, together with income from operations, are
sufficient for the Company's capital expenditure program, mandatory
scheduled debt repayments and dividend payments for fiscal 1994.
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THE GREAT ATLANTIC & PACIFIC TEA COMPANY, INC.
PART II. OTHER INFORMATION
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Item 1. Legal Proceedings
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None
Item 2. Changes in Securities
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None
Item 3. Defaults Upon Senior Securities
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None
Item 4. Submission of Matters to a Vote of Security Holders
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None
Item 5. Other Information
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None
Item 6. Exhibits and Reports on Form 8-K
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None
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THE GREAT ATLANTIC & PACIFIC TEA COMPANY, INC.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE GREAT ATLANTIC & PACIFIC TEA COMPANY, INC.
Date: July 29, 1994 By: /s/ Kenneth A. Uhl
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Kenneth A. Uhl, Vice President and
Controller (Chief Accounting Officer)
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