THE GREAT ATLANTIC & PACIFIC TEA COMPANY, INC.
FORM 10-Q
2ND QUARTER ENDED SEPTEMBER 9, 1995
Conformed 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 September 9 , 1995 Commission File Number 1-4141
THE GREAT ATLANTIC & PACIFIC TEA COMPANY, INC.
-----------------------------------------
(Exact name of registrant as specified in charter)
Maryland 13-1890974
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2 Paragon Drive, Montvale, New Jersey 07645
- ------------------------------------- -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 201-573-9700
------------
- -------------------------------------------------------------------------
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
--------- ---------
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 September 9, 1995
----- -------------------------------
Common stock - $1 par value 38,220,333 shares
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 September 9, 1995 Commission File Number 1-4141
THE GREAT ATLANTIC & PACIFIC TEA COMPANY, INC.
------------------------------------
(Exact name of registrant as specified in charter)
Maryland 13-1890974
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2 Paragon Drive, Montvale, New Jersey 07645
- ------------------------------------- -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 201-573-9700
------------
- -------------------------------------------------------------------------
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
--------- ---------
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 September 9, 1995
----- -------------------------------
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)
12 Weeks Ended 28 Weeks Ended
Sept. 9, Sept. 10, Sept. 9, Sept. 10,
1995 1994 1995 1994
----------- ----------- ----------- ------------
Sales $2,341,171 $2,390,914 $5,476,685 $5,616,273
Cost of merchandise sold (1,672,068) (1,710,003) (3,897,770)(4,022,718)
---------- ---------- ---------- --------
Gross margin 669,103 680,911 1,578,915 1,593,555
Store operating, general and
administrative expense (639,242) (655,043) (1,502,170) (1,535,909)
---------- ---------- ---------- ----------
Income from operations 29,861 25,868 76,745 57,646
Interest expense (16,006) (16,418) (38,352) (36,894)
---------- ---------- ---------- ----------
Income before income
taxes and cumulative effect
of accounting change 13,855 9,450 38,393 20,752
Provision for income taxes (4,471) (3,393) (14,459) (7,450)
---------- ---------- ---------- ----------
Income before cumulative
effect of accounting change 9,384 6,057 23,934 13,302
Cumulative effect on prior years of
change in accounting principle:
Postemployment benefits - - - (4,950)
---------- ---------- ---------- ----------
Net income 9,384 6,057 23,934 8,352
Retained earnings at
beginning of period 345,439 523,830 332,800 529,179
Cash dividends (1,911) (7,644) (3,822) (15,288)
---------- ---------- ---------- ----------
Retained earnings at
end of period $352,912 $ 522,243 $ 352,912 $ 522,243
========== ========== ========== ==========
Earnings per share:
Income before
cumulative effect
of accounting change $ .25 $ .16 $ .63 $ .35
Cumulative effect on prior years of
change in accounting principle:
Postemployment benefits - - - (.13)
---------- ---------- ---------- ----------
Net income $ .25 $ .16 $ .63 $ .22
========== ========== ========== ==========
Cash dividends $ .05 $ .20 $ .10 $ .40
========== ========== ========== ==========
Weighted average number of
shares outstanding 38,220,333 38,220,333 38,220,333 38,220,333
========== ========== ========== ==========
See Notes to Quarterly Report on Page 5.
- 1 -
THE GREAT ATLANTIC & PACIFIC TEA COMPANY, INC.
CONSOLIDATED BALANCE SHEETS
----------------------
(Dollars in thousands)
September 9, 1995 February 25,1995
------------------ -----------
(Unaudited)
ASSETS
- ------
Current assets:
Cash and short-term investments $ 132,481 $ 128,930
Accounts receivable 176,481 205,619
Inventories 823,769 811,964
Prepaid expenses and other assets 59,430 47,218
---------- ----------
Total current assets 1,192,161 1,193,731
---------- ----------
Property:
Property owned 1,445,882 1,466,243
Property leased 102,037 107,494
---------- ---------
Property-net 1,547,919 1,573,737
Other assets 130,960 127,320
---------- ----------
Total Assets $2,871,040 $2,894,788
========== ==========
See Notes to Quarterly Report on Page 5.
-2-
THE GREAT ATLANTIC & PACIFIC TEA COMPANY, INC.
CONSOLIDATED BALANCE SHEETS
---------------------------
(Dollars in thousands)
September 9, 1995 February 25, 1995
------------------ -----------------
(Unaudited)
LIABILITIES & SHAREHOLDERS' EQUITY
- ----------------------------------
Current liabilities:
Current portion of long-term debt $ 78,911 $112,821
Current portion of obligations under
capital leases 14,107 14,492
Accounts payable 494,362 447,081
Book overdrafts 166,357 157,521
Accrued salaries, wages and benefits 147,942 158,109
Accrued taxes 53,493 51,345
Other accruals 164,060 155,085
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Total current liabilities 1,119,232 1,096,454
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Long-term debt 559,283 612,473
---------- --------
Obligations under capital leases 140,791 146,400
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Deferred income taxes 126,030 118,579
---------- --------
Other non-current liabilities 129,728 145,968
---------- --------
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 (48,277) (49,227)
Retained earnings 352,912 332,800
Treasury stock, at cost, 9,157 shares (363) (363)
---------- --------
Total shareholders' equity 795,976 774,914
---------- --------
Total liabilities and shareholders'
equity $2,871,040 $2,894,788
========== ==========
See Notes to Quarterly Report on Page 5.
-3-
THE GREAT ATLANTIC & PACIFIC TEA COMPANY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
28 Weeks Ended
September 9, September 10,
1995 1994
------------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 23,934 $ 8,352
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 122,740 132,082
Deferred income tax provision
on income before cumulative effect 5,837 6,511
Gain on disposal of owned property (1,970) (1,815)
(Increase) Decrease in receivables 29,743 (6,894)
Increase in inventories (6,770) (1,509)
Increase in other current assets (10,098) (11,851)
Increase in accounts payable 42,702 10,166
Decrease in accrued salaries,
wages and benefits (11,368) (23,397)
Increase in accrued taxes 2,363 2,608
Decrease in store closing reserves (7,126) (9,128)
Decrease in other accruals and other
liabilities (2,644) (30,238)
Other (3,047) (3,454)
--------- ---------
Net cash provided by operating activities 184,296 76,383
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for property (109,004) (117,009)
Proceeds from disposal of property 23,689 6,253
--------- ---------
Net cash used in investing activities (85,315) (110,756)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Changes in short-term debt 47,507 96,776
Proceeds under revolving lines
of credit and long-term borrowings 299,620 2,338
Payments on revolving lines of credit
and long-term borrowings (438,986) (4,042)
Increase (Decrease) in book overdrafts 7,102 (28,108)
Principal payments on capital leases (7,885) (8,468)
Cash dividends (3,822) (15,288)
--------- ---------
Net cash provided by (used in) financing
activities (96,464) 43,208
--------- ---------
Effect of exchange rate changes on
cash and short-term investments 1,034 (388)
--------- ---------
NET INCREASE IN CASH AND
SHORT-TERM INVESTMENTS 3,551 8,447
Cash and Short-Term Investments
at Beginning of Period 128,930 124,236
--------- ---------
CASH AND SHORT-TERM INVESTMENTS
AT END OF PERIOD $132,481 $132,683
========= =========
See Notes to Quarterly Report on Page 5.
-4-
THE GREAT ATLANTIC & PACIFIC TEA COMPANY, INC.
NOTES TO QUARTERLY REPORT
-------------------------
1) BASIS OF PRESENTATION
The consolidated financial statements for the 28 weeks ended September
9, 1995 and September 10, 1994 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
"Employers' Accounting for Postemployment Benefits". 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 1994 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 principal 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 had
an immaterial effect on the financial results before the cumulative
effect of accounting change for the fiscal year.
-5-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS
12 WEEKS ENDED SEPTEMBER 9, 1995
---------------------------------
OPERATING RESULTS
Sales for the second quarter ended September 9, 1995 of $2.3
billion decreased $50 million or 2.1% from the prior year second
quarter. Contributing to this decrease is the Company's continuing program
to eliminate obsolete, unproductive stores, closing 58 stores during the
first half of fiscal 1995. The closure of 110 stores, excluding replacement
stores, since the beginning of the second quarter of fiscal 1994
reduced comparative sales by $99 million or 4.1% in the second quarter
of fiscal 1995. The opening of 22 new stores, excluding replacement stores,
since the beginning of the second quarter of fiscal 1994 added approximately
$53 million or 2.2% to sales in the second quarter of fiscal 1995. Same
store sales for the second quarter, including replacement stores, decreased
slightly by 0.5% from the prior year. Average weekly sales per store were
approximately $181,500 versus $174,700 for the corresponding period of the
prior year for a 3.9% increase.
Second quarter sales for U.S. operations have declined, with same store
sales, which include replacement stores, down 0.7% from the prior year as
a result of sluggish consumer spending and low levels of retail food
inflation. In Canada, second quarter same store sales, including replacement
stores, have increased 0.6% from the prior year.
Gross margin as a percent of sales increased 0.1% to 28.6% in the
second quarter of 1995 from 28.5% for the second quarter of the
prior year resulting primarily from increased gross margin rates
partly offset by increased promotional price reductions in the U.S. The
gross margin dollar decrease of $12 million is a result of a decrease
in volume of $16 million, partly offset by an increase in gross margin
rates of $2 million and an increase of $2 million resulting from a
higher Canadian exchange rate. The U.S. gross margin decreased $17
million principally as a result of decreased volume of $15 million.
In Canada, gross margin increased $5 million principally as a result
of increased gross margin rates.
Store operating, general and administrative expense as a percent of
sales decreased to 27.3% from 27.4% for the corresponding period in the
prior year resulting primarily from reduced labor and advertising costs,
partly offset by increased costs and expenses associated with
customer and employee accidents in the U.S.
Interest expense decreased $0.4 million from the previous year,
principally in the U.S. on reduced borrowings. Canada interest expense
was up due to increased borrowings and an increase in interest rates,
partly offset by a decrease in interest expense on capital leases.
-6-
The income tax provision recorded in the second quarter of fiscal years
1995 and 1994 reflects the Company's estimated expected annual tax rates
applied to their respective domestic and foreign financial results. In
the second quarter of fiscal year 1994, the income tax provision
included a deferred tax benefit relating to the Canadian operating
results. Subsequently, in the third quarter of fiscal year 1994,
management reassessed the likelihood of realizing the Canadian net
deferred income tax asset and based on all available evidence,
concluded that is not likely that such asset would be realized.
Accordingly, a valuation allowance was recorded against the Company's
Canadian deferred tax assets. As of September 9, 1995 the Company is
continuing to fully reserve for all Canadian deferred tax assets.
MANAGEMENT'S DISCUSSION AND ANALYSIS
28 WEEKS ENDED SEPTEMBER 9, 1995
-------------------------------------
OPERATING RESULTS
Sales for the 28 weeks ended September 9, 1995 of $5.5 billion
decreased $140 million or 2.5% from last year. Contributing to this
decrease is that the Company closed 136 stores since the beginning of
fiscal 1994, of which 8 were sold to Edwards Super Food Stores in the
first quarter of fiscal 1995. The store closures, excluding replacement
stores, since the beginning of fiscal 1994 reduced comparative sales by
approximately $218 million or 3.9% in the first two quarters of fiscal 1995.
The opening of 27 stores, excluding replacement stores, since the beginning
of fiscal 1994 added approximately $111 million or 2.0% to sales in the
first two quarters of fiscal 1995. The sale of the eight New England A&P
Supermarkets sold to Edwards Super Food Stores on June 16, 1995 did not have
a material effect on the operating results for the 28 weeks ended
September 9, 1995. Same store sales, including replacement stores, for
the 28 weeks decreased 0.7% from the prior year. Average weekly sales per
store were approximately $179,600 versus $173,700 for the same period of
the prior year for a 3.4% increase.
Year to date sales for U.S. operations have declined, with same store sales,
which include replacement stores, down 0.4% from the prior year.
In Canada, year to date sales have decreased, with same store sales, including
replacement stores, down 2.2% from the prior year.
Gross margin as a percent of sales increased 0.4% to 28.8% from 28.4%
for the prior year resulting primarily from increased gross margin rates in
both the U.S. and Canada partly offset by increased promotional price
reductions in the U.S. The gross margin dollar decrease of $15 million is
a result of a decrease in volume of $41 million partly offset by an
increase in gross margin rates of $26 million. The U.S. gross margin
decreased $29 million principally as a result of decreased volume of $32
million partly offset by an increase in gross margin rates of $3
million. In Canada, gross margin increased $14 million, consisting of
an increase in gross margin rates of $23 million and volume declines of
$9 million.
Store operating, general and administrative expense as a percent of
sales increased to 27.4% from 27.3% for the prior year primarily
resulting from increased customer and employee accidents in the U.S.
partly offset by decreased labor and advertising costs in both the U.S.
and Canada.
-7-
Interest expense increased $1.5 million from the previous year,
principally in Canada on increased borrowings and rates, partly offset
by decreased borrowings in the U.S.
The income tax provision for the first 28 weeks of fiscal years 1995
and 1994 reflects the Company's estimated expected annual tax rates
applied to their respective domestic and foreign financial results. In
the first and second quarters of fiscal year 1994, the income tax
provision included a deferred tax benefit relating to the
Canadian operating results.
Subsequently, in the third quarter of fiscal year 1994,
management reassessed the likelihood of realizing the Canadian net
deferred income tax asset and based on all available evidence, concluded
that it is not likely that such asset would be realized. Accordingly, a
valuation allowance was recorded against the Company's Canadian net
deferred tax assets. As of September 9, 1995 the Company is
continuing to fully reserve for all Canadian deferred tax assets.
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 $0.13 per share (net of
tax) as the cumulative effect of this change on prior years.
LIQUIDITY AND CAPITAL RESOURCES
The Company ended the second quarter with working capital of $73
million compared to $97 million at the beginning of the fiscal year.
The Company had cash and short-term investments aggregating $132 million
at the end of the second quarter of fiscal 1995 compared to $129
million at the end of fiscal 1994. The Company has in excess of
$300 million in various available credit facilities.
On October 17, 1995, subsequent to the end of the second quarter, the
Company's Canadian subsidiary, The Great Atlantic & Pacific Company of Canada,
Ltd., issued U.S. $75 million of unsecured, non-callable 7.78% Notes due 2000.
The net proceeds from the issuance of these Notes will be used to repay
indebtedness under the Canadian subsidiary's revolving credit facility.
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 1995.
-8-
THE GREAT ATLANTIC & PACIFIC TEA COMPANY,INC.
PART II. OTHER INFORMATION
----------------------------
Item 1. Legal Proceedings
-----------------
None
Item 2. Changes in Securities
---------------------
None
Item 3. Defaults Upon Senior
Securities
------------------
None
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
At its Annual Meeting of Shareholders, held July 11, 1995,
a shareholder proposal on a non-employee director retirement plan
was rejected, with 2,860,879 votes representing 8.6% of the
shares voting in favor of the proposal and 30,109,423
shares voting against. Another shareholder proposal on director
compensation was rejected, with 713,302 votes representing 2.2%
of the shares voting in favor of the proposal and 32,256,135
shares voting against. A third shareholder proposal for
cumulative voting was rejected, with 7,863,807 votes representing
23.7% of the shares voting in favor of the proposal and
25,135,529 shares voting against.
Item 5. Other Information
-----------------
None
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
None
-9-
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: October 23, 1995 By: /s/ Kenneth A. Uhl
--------------------------------------
Kenneth A. Uhl, Vice President and
Controller (Chief Accounting Officer)
-10-
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: October 23, 1995 By:
--------------------------------------
Kenneth A. Uhl, Vice President and
Controller (Chief Accounting Officer)
- -10-
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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The schedule contains summary financial information extracted from The Great
Atlantic & Pacific Tea Company, Inc. 10-Q for the second quarter ended September
9, 1995 and is qualified in its entirety by reference to such financial
statements.
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