Executed
Copy
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
ANNUAL REPORT PURSUANT TO SECTION 13
OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year Commission file number 1-4141
ended February 25, 1995
THE GREAT ATLANTIC & PACIFIC TEA COMPANY, INC.
(Exact name of registrant as specified in its 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
Securities registered pursuant to Section 12 (b) of the Act:
Name of each exchange on
Title of each class which registered
Common Stock - $1 par value 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 ]
The aggregate market value of the voting stock held by non-affiliates of
the Registrant at May 11, 1995 was $960,285,867.
The number of shares of common stock outstanding at May 11, 1995 was
38,220,333.
Documents Incorporated by Reference
The information required by Part I, Items 1 (d) and 3, and Part II, Items
5, 6, 7 and 8 are incorporated by reference from the Registrant's 1994
Annual Report to Shareholders. The Registrant has filed with the S.E.C.
since the close of its last fiscal year ended February 25, 1995, a
definitive proxy statement. Certain information required by Part III,
Items 10, 11, 12 and 13
is incorporated by reference from the proxy statement in this Form 10-K.
PART I
ITEM 1. Business
General
The Great Atlantic & Pacific Tea Company, Inc. ("A&P" or the "Company") is
engaged in the retail food business. The Company operates approximately
1,108 stores averaging 32,900 square feet per store. On the basis of
reported sales for fiscal 1994, the Company believes that it had the
eighth largest sales volume of any retail food chain in the United States
and the largest market share in metropolitan New York and Detroit and in
the Province of Ontario, the Company's largest single markets in the
United States and Canada.
Operating under the trade names A&P, Super Fresh, Sav-A-Center, Family
Mart, Farmer Jack, Kohl's, Food Emporium, Waldbaum's, Food Mart, Food
Bazaar, Miracle Food Mart, Ultra Mart, Futurestore, Dominion and Compass
Foods, the Company sells groceries, meats, fresh produce and other items
commonly offered in supermarkets. In addition, many stores have bakery,
delicatessen, fresh fish and cheese departments. National, regional and
local brands are sold as well as private label merchandise and generic
(nonbranded) products. In support of its retail operations, the Company
also operates two coffee roasting plants, three bakeries, one delicatessen
food kitchen, an ice cream plant and (until April 16, 1995 through a joint
venture) a dairy. The products processed in these facilities are sold
under the Company's own brand names which include America's Choice, Master
Choice, Health Pride, Eight O'Clock, Bokar, Royale, Savings Plus, Jane
Parker, and Wesley's Quaker Maid. All products produced by A&P's food
processing operations are sold in Company stores. A&P also sells its
coffee and ice cream products to unaffiliated retail outlets outside of
its marketing areas.
Building upon a broad base of A&P supermarkets, the Company has expanded
and diversified within the retail food business through the acquisition of
other supermarket chains and the development of several alternative store
types. The Company now operates its stores with merchandise, pricing and
identities tailored to appeal to different segments of the market,
including buyers seeking gourmet and ethnic foods, unusual produce, a wide
variety of premium quality private label goods and health and beauty aids
along with the array of traditional grocery products.
Modernization of Facilities
The Company is engaged in a continuing program of modernizing its
corporate operations and retail stores. During fiscal 1994, the Company
expended approximately $215 million for capital projects. The Company's
plans for fiscal 1995 anticipate capital expenditures of approximately
$205 million which include the opening of 25 new supermarkets and 2 new
liquor stores, the remodeling or expansion of 51 stores and converting the
format of 41 Canadian stores. As usual, the Company is currently
developing plans for additional stores to be opened in the following
fiscal year.
Sources of Supply
The Company obtains the merchandise sold in its stores from a variety of
suppliers located primarily in the United States and Canada. The Company
has long-standing and satisfactory relationships with its suppliers.
The Company maintains processing facilities which produce coffee, dairy
and deli products and certain baked goods. The ingredients for coffee
products
are purchased principally from Brazilian and Central American sources.
Other ingredients are obtained from domestic suppliers.
Employees
As of the close of fiscal 1994, the Company had approximately 92,000
employees, of which 69% were employed on a part-time basis. Approximately
88% of the Company's employees are covered by union contracts.
Competition
The supermarket business is highly competitive throughout the marketing
areas served by the Company and is generally characterized by low profit
margins on sales with earnings primarily dependent upon rapid inventory
turnover, effective cost controls and the ability to achieve high sales
volume. The Company competes for sales and store locations with a number
of national and regional chains as well as with many independent and
cooperative stores and markets.
Foreign Operations
The information required is contained in the 1994 Annual Report to
Shareholders on pages 24 and 28 and is herein incorporated by reference.
ITEM 2. Properties
At February 25, 1995, the Company operated 1,108 retail stores.
Approximately 8% of the Company's stores are owned, while the remainder
are leased. These stores are geographically located as follows:
New England States:
Connecticut............. 62
Maine................... 2
Massachusetts........... 28
New Hampshire........... 1
Rhode Island............ 5
Vermont................. 3
---
Total............... 101
Middle Atlantic States:
District of Columbia.... 1
Delaware................ 9
Maryland.............. 51
New Jersey.............. 115
New York................ 196
Pennsylvania............ 48
---
Total............... 420
Mid-Western States:
Michigan................ 100
Wisconsin............... 56
---
Total................. 156
Southern States:
Alabama................. 7
Georgia................. 46
Kentucky................ 2
Louisiana............... 32
Mississippi............. 6
North Carolina.......... 29
South Carolina.......... 13
Virginia................ 53
West Virginia........... 8
---
Total................. 196
Total United States... 873
Ontario, Canada........... 235
-----
Total Stores.......... 1,108
=====
The total area of all retail stores is approximately 36.4 million square
feet averaging 32,900 square feet per store. The stores built by the
Company over the past several years and those planned for fiscal 1995,
generally range in size from 50,000 to 65,000 square feet, of which
approximately 65% to 70% is utilized as selling area.
The Company operates two coffee roasting plants, three bakeries, one
delicatessen food kitchen, an ice cream plant and (until April 16, 1995
through a joint venture) a dairy in the United States and Canada. In
addition, the Company maintains warehouses which service its store
network.
The net book value of real estate pledged as collateral for all mortgage
loans amounted to approximately $43 million as of February 25, 1995.
ITEM 3. Legal Proceedings
The information required is contained in the 1994 Annual Report to
Shareholders on page 28 and is herein incorporated by reference.
ITEM 4. Submission of Matters to a Vote of Security Holders
There were no matters submitted to a vote of security holders during the
fourth quarter of fiscal 1994.
PART II
ITEM 5. Market for the Registrant's Common Stock and Related
Security Holder Matters
The information required is contained in the 1994 Annual Report to
Shareholders on pages 29, 31 and 33 and is herein incorporated by
reference.
ITEM 6. Selected Financial Data
The information required is contained on page 31 of the 1994 Annual Report
to Shareholders and is herein incorporated by reference.
ITEM 7. Management's Discussion and Analysis
The information required is contained in the 1994 Annual Report to
Shareholders on pages 15 through 18 and is herein incorporated by
reference.
ITEM 8. Financial Statements and Supplementary Data
(a) Financial Statements: The financial statements required to be filed
hereunder are described in Part IV, Item 14 of this report. Except for
the
pages included herein by reference, the Company's 1994 Annual Report to
Shareholders is not deemed to be filed as part of this report.
(b) Selected Quarterly Financial Data: The information required is
contained on page 29 of the 1994 Annual Report to Shareholders and is
herein incorporated by reference.
ITEM 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure
Not applicable.
PART III
ITEMS 10 and 11. Directors and Executive Officers of the Registrant and
Executive Compensation
Executive Officers of the Company
Name Age Current Position
James Wood.......... 65 Chairman of the Board
and Chief Executive Officer
Fred Corrado........ 55 Vice Chairman of the Board,
Chief Financial Officer and Treasurer
Christian W.E. Haub. 30 President and Chief Operating Officer
Peter J. O'Gorman... 56 Executive Vice President -
Development and Strategic Planning
Gerald L. Good...... 52 Executive Vice President - Marketing and
Merchandising
George Graham....... 45 Senior Vice President -
Chief Merchandising Officer
J. Wayne Harris..... 56 Senior Vice President and
Chief Operating Officer,
U.S. Operations
John D. Moffatt 47 Chairman and Chief Executive Officer -
The Great Atlantic & Pacific Company
of Canada, Limited
Ivan K. Szathmary... 58 Senior Vice President and
Chief Services Officer
Robert G. Ulrich.... 60 Senior Vice President and General Counsel
Corporate officers of the Company are elected annually and serve at the
pleasure of the Board of Directors; each of the executive officers, with
the exception of Mr. Moffatt, is a corporate officer.
Mr. Wood was elected Chairman of the Board and Chief Executive Officer on
April 29, 1980. From December 1988 to December 1993 and at other prior
times he also served as President. He is Chairman of the Executive
Committee and is an ex officio member of the Finance and Retirement
Benefits Committees of the Board.
Mr. Corrado was elected to the Board of Directors of the Company on
December 4, 1990 and as Vice Chairman of the Board on October 6, 1992.
Prior to becoming Vice Chairman, he was Executive Vice President. He has
served as Chief Financial Officer since joining the Company in January
1987. He also served as Treasurer of the Company in 1987 and was re-
elected Treasurer on April 18, 1989.
Mr. Haub was elected President of the Company on December 7, 1993. He has
served as a director since December 3, 1991 and is a member of the Finance
Committee. During the past 5 years and prior to assuming his present
position he served as Corporate Vice President, Development and Strategic
Planning, and prior to joining the Company in 1991, Mr. Haub was a partner
in the investment banking firm. Global Reach, which he had joined from the
investment banking firm of Dillon Read & Co., Inc. in New York City.
Prior thereto, in 1989 he received his MBA from the University of
Economics in Vienna, Austria and between 1985 and 1989 he was a member of
the Supervisory Board of LOWA Warenhandel Gesellschaft mbH, an affiliate
of Tengelmann.
Mr. O'Gorman was elected Executive Vice President - Development and
Strategic Planning in 1991. During the past five years and prior to
assuming his present position, he was successively Senior Vice President
Development and Marketing and Executive Vice President - Development.
Mr. Good was elected Senior Vice President in March 1992. During the past
five years and prior to assuming his present position he served as Senior
Vice President and Chairman, The Great Atlantic & Pacific Company of
Canada, Limited and as Senior Vice President - Field Administration and as
Vice President - Chief Administrative Officer. Prior to returning to the
Company in October 1990, he had been President, International Business
Interiors, Inc.
Mr. Graham was elected Senior Vice President - Chief Merchandising Officer
in March 1990. During the past five years and prior to assuming his
present position he was President, Metro Group.
Mr. Harris, Chairman, Waldbaum's Inc., was appointed Chief Operating
Officer, U.S. Operations in May 1995. Prior, thereto, he was Senior Vice
President - Northeast Operations and Corporate Vice President -
Operations. During the past five years and prior to joining the Company
in September 1992, he was Group President, Cincinnati/Dayton marketing
area of the Kroger Company.
Mr. Moffatt was elected Chairman and Chief Executive Officer of The Great
Atlantic & Pacific Company of Canada, Limited effective upon his hire on
September 1, 1994. Prior thereto and during the last five years he was
president of Cott Corporation's Control Brands Division in Ontario, and
from January 1989 to November 1992 he was President, Eastern Division,
First National Supermarkets in Windsor Locks, Connecticut.
Dr. Szathmary was elected Senior Vice President and Chief Services Officer
in July 1986.
Mr. Ulrich was elected Senior Vice President and General Counsel of the
Company in April 1981.
In addition to the listed officers, Messrs. Ernest H. Berthold, age 64,
and Michael J. Larkin, age 53, were executive officers during fiscal year
1994.
Mr. Berthold was elected Vice President and Assistant to the Chief
Executive Officer on July 12, 1988 and served in that capacity until his
retirement on March 1, 1995.
Mr. Larkin was elected Executive Vice President - Operations in March
1990. Prior thereto, he served as Executive Vice President and Chief
Operating Officer. He resigned from the Company to pursue other
opportunities on April 21, 1995.
The Company has filed with the Commission since the close of its fiscal
year ended February 25, 1995 a definitive proxy statement pursuant to
Regulation 14A, involving the election of directors. Accordingly, the
information required in Items 10 and 11, except as provided above, appears
on pages 1 through 12 and is incorporated by reference from the proxy
statement.
ITEM 12. Security Ownership of Certain Beneficial Owners and Management
The information required is contained in the Company's 1994 definitive
proxy statement on pages 1 and 5 and is herein incorporated by reference.
ITEM 13. Certain Relationships and Related Transactions
The information required is contained in the Company's 1994 definitive
proxy statement on pages 1 and 6 and is herein incorporated by reference.
PART IV
ITEM 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) Documents filed as part of this report
1) Financial Statements: The financial statements required by Item 8
are included in the fiscal 1994 Annual Report to Shareholders.
The following required items, appearing on pages 19 through 30 of
the 1994 Annual Report to Shareholders, are herein incorporated by
reference:
Statements of Consolidated Operations
Statements of Consolidated Shareholders'
Equity Consolidated Balance Sheets
Statements of Consolidated Cash Flows
Notes to Consolidated Financial
Statements Independent Auditors' Report
2) Financial Statement Schedules are omitted because they are not
required or do not apply, or the information is included elsewhere
in the financial statements or notes thereto.
3) Exhibits:
Exhibit Incorporation by
reference
Numbers Description (If applicable)
2) Not Applicable
3) Articles of Incorporation
and By-Laws
a) Articles of Incorporation Exhibit 3)a) to Form 10-K
as amended through for fiscal year ended
July 1987 February 27, 1988
b) By-Laws as amended through Exhibit 3)b) to Form 10-K
March 1989 for fiscal year ended
February 25, 1989
4) Instruments defining the Exhibit A to Form 10-Q
rights of security holders, for the quarter ended
including indentures August 27, 1977; and
Registration Statement
No. 33-14624 on Form S-3
filed May 29, 1987
9) Not Applicable
10) Material Contracts
a) Management Compensation Exhibit 10)b) to Form 10-K
Agreements for the fiscal years ended
February 25, 1989,
February 24, 1990 and
February 29, 1992,and
Exhibit 10)a) for the
fiscal year ended
February 26, 1994 and
attached
b) Supplemental Executive Exhibit 10)b) to Form 10-K
Retirement Plan, amended for the fiscal year ended
and restated February 27, 1993
c) 1975 Stock Option Plan, Exhibit 10) to Form 10-K
as amended for the fiscal year ended
February 23, 1985
d) 1984 Stock Option Plan, Exhibit 10)e) to Form 10-K
as amended for the fiscal year ended
February 23, 1991
e) 1994 Stock Option Plan
f) 1994 Stock Option Plan
for Non-Employee Directors
11) Not Applicable
12) Not Applicable
13) 1994 Annual Report to Shareholders
18) Not Applicable
21) Subsidiaries of Registrant
22) Not Applicable
23) Independent Auditors' Consent
24) Not Applicable
27) Financial Data Schedule
28) Not Applicable
(b) Reports on Form 8-K
No reports on Form 8-K were filed for the fiscal year ended February
25, 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 Great Atlantic & Pacific Tea Company,
Inc. (registrant)
Date May 9, 1995 By: /s/ Fred Corrado
(Signature)
Fred Corrado
Vice Chairman of the Board,
Chief Financial Officer and
Treasurer
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 as of the date indicated.
/s/ James Wood Chairman of the Board,
James Wood Chief Executive Officer and Director
/s/ Fred Corrado Vice Chairman of the Board,
Fred Corrado Chief Financial Officer, Treasurer
and Director
/s/ Rosemarie Baumeister Director
Rosemarie Baumeister
/s/ Christopher F. Edley Director
Christopher F. Edley
/s/ Christian W.E. Haub Director
Christian W.E. Haub
/s/ Helga Haub Director
Helga Haub
/s/Barbara Barnes Hauptfuhrer Director
Barbara Barnes Hauptfuhrer
/s/ Paul C. Nagel, Jr. Director
Paul C. Nagel, Jr.
/s/ Eckart C. Siess Director
Eckart C. Siess
/s/ Fritz Teelen Director
Fritz Teelen
/s/ Henry W. Van Baalen Director
Henry W. Van Baalen
/s/ R.L. "Sam" Wetzel Director
R.L. "Sam" Wetzel
The above-named persons signed this report on behalf of the registrant
on May 9, 1995.
/s/Kenneth A. Uhl Vice President, Controller May 9, 1995
Kenneth A. Uhl Date
EXHIBIT INDEX
3) Incorporated by reference
4) Incorporated by reference
10) Incorporated by reference and attached
13) Attached
21) Attached
23) Attached
27) Attached
EXHIBIT 10
(A) EMPLOYMENT AGREEMENT
AGREEMENT DATED December 6, 1994, between THE GREAT ATLANTIC &
PACIFIC TEA COMPANY, INC., a Maryland corporation (hereinafter called
"Company" or "Employer"), and FRED CORRADO (hereinafter called
"Employee").
1. Employment. Employer and Employee agree that the terms
and
conditions of Employee's employment with the Company are as set forth in
this Agreement.
2. Term. Subject to the within provisions for termination, the
term
of this Agreement shall begin on December 6, 1994, and shall continue in
full force and effect until May 20, 2002 unless terminated prior to such
date by either party giving three (3) years advance written notice of
termination to the other, which notice may be given at any time.
3. Compensation. For services rendered by Employee under
this
Agreement, Employer shall pay a basic minimum salary of $451,000 per
year, payable in equal four (4) week accounting period or other
installments. During the term of this Agreement, Employee shall also
be entitled to participate in the Company's Management Bonus Program
pursuant to its terms, the annual base to be $125,000 at the 100%
participation level.
It is understood and agreed that Employee shall also receive
an annual salary review as an officer of the Company and other Company
benefits, such as stock options; pensions; vacations; health, accident
and disability insurance and similar programs generally available to
other executives of Employer.
4. SERP. It is further understood that Employee will participate
in the Company's Supplemental Executive Retirement Plan ("SERP") and will
remain a Member of SERP during the term of this Agreement.
Employee will be entitled to immediate vesting in his SERP benefit
(i.e., shall not be
required to complete five or more years of service or attain
the age of 55) and shall be vested with 100% of such benefit
monthly so that, at the conclusion of each calendar month, Employee
will be entitled to one-twelfth of his annual SERP benefit. In
addition, Employee shall earn credits during the term of this Agreement
at the rate of 3% of Average Annual Compensation per year, irrespective
of the SERP provision reducing credits to 1-1/2% of Average Annual
Compensation after ten (10) years of service. Notwithstanding anything
to the contrary contained in this Agreement, upon the attainment of age
62, while employed by the Company, Employee shall be credited with twenty
(20) years of service under SERP and shall be entitled to retire
without reduction in his SERP benefit for retirement prior to age 65
5. Other Benefits.
(a) Life Insurance. Company will provide employee with life
insurance coverage equal to three times Employee's salary as in effect
from time to time during the term of this Agreement.
(b) Membership Dues, Tax Consultation. Company will reimburse
Employee for membership dues applicable to the country club of which he
is presently a member. Company will also provide tax consulting
services to Employee through the accounting firm of Deloitte Haskins &
Sells or through a similar professional organization.
6. Duties. Employee is engaged to perform services as Vice
Chairman,
Chief Financial Officer and Treasurer of the Company, or in such other
senior executive capacity as may be directed by the Board of
Directors or the Chairman of the Board of the Company. Employee agrees
for the term to render full time and exclusive services to the
Company as a senior executive employee, subject to the direction and
control of the Chairman of the Board
of the Company and the Board of Directors of the Company and, in
connection therewith, to perform such duties as he shall reasonably be
directed by the Chairman of the Board of the Company or by the Board
of Directors of the Company.
7. Non disclosure of Confidential Information.
(a) The Employee understands, agrees and acknowledges that
the business of the Company and the Company Affiliates, their
expertise, their methods of operations and their procedures and
techniques [including, without limitation, all of the Company's and
the Company Affiliates' equipment, apparatus,
devices, designs, operations, procedures, processes, inventions,
operating principles, methods of pricing, customer lists and records
of volume of business, marketing plans, lists of prospective customers,
lists of suppliers,
records, data, plans and products (collectively, "Business
Information")] are highly confidential and constitute a unique business
asset of the Company which is entitled to any protection the law may
afford as trade or business secrets or otherwise as proprietary
or confidential information of the Company or the Company Affiliates.
The Employee will, to the best of his ability, affirmatively and
continuously protect,
in
accordance with this Employment Agreement, such Business Information.
(b) The Employee shall disclose fully and promptly to the Company,
its successors
or assigns, any and all inventions, ideas, designs, devices,
equipment, literary or artistic creations, discoveries and improvements
of
any sort, whether protectible by patent or not, which he has
heretofore
conceived, developed, made or perfected, or may hereafter conceive,
develop, make or perfect, either alone or jointly with another or
others, during the term of this Employment Agreement, and either
during or outside normal business hours, which pertain to any
activities, business, products or fields in which the Company or any
Company Affiliate is engaged or will be subsequently engaged during
the term of this Employment Agreement, or in which the
Company or any Company Affiliate has any direct or indirect
interest whatsoever. Any of the foregoing is hereinafter referred to as
an "Invention".
(c) The Employee hereby assigns and agrees to assign during the
term of this Employment Agreement to the Company, its successors or
assigns, all his right, title and interest in and to any and all
Inventions, and the Employee further agrees, without charge to the
Company but at its expense, to execute, acknowledge and deliver all
applications or other papers and documents as may be necessary to obtain
patents, trademarks, copyrights or any other form of protection for said
Inventions and to vest title thereto in the Company, its successors
and assigns or nominees, and to give testimony or furnish other
data as the Company may reasonably deem necessary to assist the Company
in securing or defending such inventions, trademarks or copyrights.
(d) The Employee agrees to keep current and adequate written
records of all Inventions, which records shall be and remain the
property of, and be available to, the Company at all times.
(e) The Employee agrees that he will not at any time, and will use
his best efforts to ensure that none of his agents or entities under his
control or in which he has a direct beneficial interest will at any
time,
except in the ordinary course of the Employee's performance of his
services hereunder, without the prior written consent of the Company,
voluntarily reveal, divulge or make known to any person, firm or
corporation (other than the Company and Company Affiliates) any
Business Information or Invention, or anything concerned therewith,
and all such information shall be kept confidential and shall not
in any manner be revealed by him to anyone except as provided
herein; and all documents, business records, supplier and customer
lists, prospective supplier and customer lists, reports and any other
documents, or any copies of any of the foregoing, kept or made by him
relating to any Business Information, Invention or the business of the
Company or any Company Affiliate shall be and remain the property of
the Company and shall be surrendered to the Company upon termination
of this Employment Agreement.
(f) The Employee's obligations under this Paragraph 7 and
under Paragraph 8 hereof shall require, among other things, his full
cooperation in the prosecution of any litigation the Company or any
Company Affiliate may initiate and pursue against any person who may
be deemed by the Company or any Company Affiliate to have caused a
violation of this Paragraph 7 or of Paragraph 8 hereof, but shall not
require the Employee to initiate or pursue such remedies at his own
expense.
(g) As used in this Employment Agreement, a "Company Affiliate"
shall mean Company and any corporation or other entity in which Company
shall own or hold, either directly or indirectly through one or more
majority owned subsidiaries or partnerships, at least a majority of the
equity interest.
8. Competition, etc. During the term of this Employment Agreement
and
for a period of one year thereafter, except with the prior written
consent of the Company:
(a) The Employee will not, and will use his best efforts to ensure
that none of his agents or entities under his control or in which he has
a direct or indirect beneficial interest will, directly or indirectly
(as director, officer, partner, employee, manager, consultant,
independent contractor, advisor, stockholder or otherwise) engage in
areas of competition with, or own any interest in, or provide any
financing for, or perform any services for, any business or
organization which directly or indirectly engages in areas of
competition with any business conducted by the Company or any
Company Affiliate in any area where such business of the Company or
any Company Affiliate is carried on; provided, however, that the
provisions of this Paragraph 8(a) shall not prohibit the Employee's
ownership of not more than one percent of the total shares of all
classes of stock outstanding of any publicly-held corporation.
(b) The Employee will not directly or indirectly employ, solicit
for employment, or advise or recommend to any other person that they
employ or solicit for employment, any person whom he knows to be an
employee of the Company or any Company Affiliate, if such action by him
would have an adverse effect on the business, assets or financial
condition of the Company or any Company Affiliate.
(c) The provisions of this Paragraph 8 shall apply during the term
of this Employment Agreement and for one year thereafter, provided, that
if the Company shall terminate the employment of the Employee other than
pursuant to the provisions of Paragraph 9 hereof, the provisions of
this Paragraph 8 shall not apply after the date of termination, and
provided further that, notwithstanding the immediately-foregoing
proviso and without limiting the generality thereof, if the Company
shall relieve the Employee of all of his responsibilities hereunder
but shall continue to pay Employee
his
compensation due hereunder, the provisions of this Paragraph 8 shall
continue to apply for so long as the Company shall continue to pay the
Employee such compensation.
(d) In connection with the foregoing provisions of this Paragraph
8, the Employee represents that his economic means and circumstances
are such that such provisions will not prevent him from providing for
himself and his family on a basis satisfactory to him. It is understood
and agreed that the covenants made by the Employee in this Paragraph 8
and in Paragraph 7 hereof are material to, and are being relied upon
by, the Company in entering into this Employment Agreement.
9. Termination.
(a) Disability or Death. Notwithstanding any provision of
this Employment Agreement to the contrary, the Employee's employment
hereunder and the Employee's right to receive compensation therefor
shall terminate prior to the date of termination specified herein,
upon the occurrence of any of the following:
(i) Upon notice rendered to the Employee in good faith by
the Company, effective six months from the date of such notice, in
the event the Employee shall become disabled and thereby
rendered unable to perform the duties set forth herein, provided
such notice shall not be effective before such condition has
persisted for at least six months. In the event of any disagreement
as to the nature, extent or duration of the Employee's disability,
such matter shall be determined by a licensed physician mutually
satisfactory to the Company and the Employee; provided,
however, that the Employee shall be regarded as disabled as
specified in this subparagraph in the event he shall refuse to
submit to or fail a medical examination by such physician or if
such physician is not agreed upon, by a licensed physician selected
by the Company.
(ii) Upon the death of the Employee, effective as to
compensation, thirty (30) days after the date of his death.
(b) For Cause. Employer may terminate this Agreement and
the employment relationship with Employee at any time without any
severance allowance whatsoever if any of the following situations has
been found to exist:
(i) Employee has been convicted in a court of law of any
crime involving the funds or assets of the Company, such as
embezzlement or larceny.
(ii) Employee has willfully divulged Company trade or
business secrets to a competitor of the Company to the Company's
substantial detriment and such disloyalty has been fully
documented under oath, affirmation or sworn affidavit and copies of
all such documentation have been given to Employee.
(iii) Employee has engaged in other civil or criminal
conduct or personal misbehavior, which is substantially
detrimental to the welfare or security of the Company, and such
conduct has been fully documented under oath, affirmation or
sworn affidavit and copies of all such documentation have been
given to Employee.
In connection with the foregoing provisions of this Paragraph 9
the Company's right of termination shall be in addition to its right
to seek damages for violation of, or an injunction to restrain
Employee from violating, any of the covenants contained herein or any
other relief under this Employment Agreement, or otherwise, and
such rights shall survive termination of this Employment Agreement
under this Paragraph 9.
10. Other Relief. Notwithstanding any other provisions
herein contained, in the event of a violation of the provisions of
Paragraph 7 or 8 hereof, the Company may, in addition to pursuing such
other remedies as it may have at law or in equity, obtain a temporary
and/or permanent injunction in an action in equity; the Employee hereby
acknowledges that the Company's remedy at law in such event would be
inadequate.
11. Return of Books, etc. Upon the expiration of the term
or termination in accordance herewith, the Employee will promptly deliver
to the Company all books, memoranda, plans, records and written data of
every kind relating to any aspect of the business and affairs of the
Company (or of any Company Affiliate) which are then in his possession.
12. Severability. If for any reason any provision of this
Employment Agreement shall be held invalid, such invalidity shall not
affect any other provision of this Employment Agreement not so held
invalid, and all other such provisions shall, to the full extent
consistent with the law, continue in full force and effect. If any
such provision shall be held invalid in part, such invalidity shall
in no way affect the rest of such provision, which, together with all
other provisions of this Employment Agreement, shall likewise, to the
full extent consistent with law, continue in full force and
effect.
13. Binding Agreement. This Employment Agreement shall be
binding upon, inure to the benefit of, and be enforceable by the
respective heirs, beneficiaries, representatives, successors and assigns
of the parties hereto.
14. Entire Agreement. This Employment Agreement embodies the
entire agreements and understandings of the parties hereto in respect of
the subject matter contained herein. There are no
restrictions, promises,
representations, warranties, covenants or undertakings other than
those expressly set forth or referred to herein. This Employment
Agreement supersedes all prior agreements and understandings between the
parties with respect to such subject matter. This Employment Agreement
may be modified, amended, waived or discharged only by a written
instrument duly executed by both of the parties hereto.
15. Notice. All notices, claims, requests, demands and
other communications hereunder shall be in writing and shall be deemed
given if delivered personally or mailed by registered or certified
mail (return receipt requested) to the parties at the following
addresses (or at such other address for a party as shall be specified
by like notice):
(a) If to the Company, to:
The Great Atlantic & Pacific Tea Company, Inc.
2 Paragon Drive
Montvale, New Jersey 07645
Attention: Robert G. Ulrich, Esquire
Senior Vice President and General Counsel
(b) If to the Employee, to:
9 Coventry Court
Croton-on-Hudson, New York 10520
16. Governing Law. This Employment Agreement shall be governed by
the laws of the State of New Jersey, without regard to the conflicts of
law rules thereof.
17. Waiver of Breach. Any waiver by one party to this
Employment Agreement of a breach of any provision of this Employment
Agreement by the other party shall not operate or be construed as a
waiver of any subsequent breach by the other party.
18. Headings. The paragraph headings contained in this
Employment Agreement are solely for the purpose of reference, are not
part of the agreement of the parties, and shall not affect in any way
the meaning or interpretation of this Employment Agreement.
IN WITNESS WHEREOF, this Employment Agreement has been duly executed
and delivered by the duly authorized officers of the Company and by the
Employee as of the date first above written.
THE GREAT ATLANTIC & PACIFIC
TEA COMPANY, INC.
By:
------------------------ ------------------------------------
Fred Corrado James Wood,
Chairman and Chief Executive Officer
CONFIDENTIAL
December 16, 1994
To: Mr. Michael J. Larkin
Dear Mike:
In view of recent discussions, I thought it worth conveying your
severance terms in the event of involuntary termination.
If such an event were to occur, you would be entitled to salary
continuation of 18 months.
Coincidental with this, the Board of Directors at the December
meeting, granted you an unreduced pension at the age of 62 rather than
65, contingent on your receiving consent to work for a competitor.
Yours sincerely,
James Wood,
Chairman and Chief Executive Officer
cc: Mr. Fred Corrado
CONFIDENTIAL
March 16, 1995
TO: Peter J. O'Gorman
FROM: James Wood
Peter:
The Board of Directors at its meeting in January granted you,
alongside two other senior officers, retirement at 62 without penalty
for early retirement.
In other words, the 5% per year normally deducted for early
retirement be waived.
Yours sincerely,
cc: Peter R. Brooker
April 24, 1995
Mr. James Wood
292 Barnstable Drive
Wyckoff, New Jersey 07481
Dear Mr. Wood:
This confirms our discussion regarding your Supplemental Pension Plan
as provided for under your Employment Agreement dated December 1, 1988
(whose term has been extended to April 30, 1998).
We agree that payment of your Supplemental Pension Benefit will begin as
of May 1, 1995, the date on which annuity benefits begin under the terms
of the Metropolitan Life Insurance Company annuity purchased for you
by the Company.
Per the attachment, we also agree with the manner in which Kwasha Lipton
has calculated your Supplemental Pension Benefit as $80,103.13 per
month, beginning May 1, 1995, subject to the cost of living adjustment
provided for under the Supplemental Pension Plan.
We confirm that you have agreed to waive any claim for Supplemental
Pension Benefits under the Supplemental Pension Plan with respect to
any period prior to May 1, 1995.
Except as this letter may state, we have not changed the terms of
the Trust Agreement dated as of December 29, 1988, your Annuity Contract
No. 9417-2 and the other agreements we have with you with regard to
the Trust Agreement and the Annuity Contract.
Very truly yours,
Fred Corrado
Vice Chairman,
Chief Financial Officer and Treasurer
AGREED:
------------------------------
James Wood
March 28, 1995
Robert G. Ulrich, Esq. Re:
Senior Vice President & General Counsel Pension Benefits from A&P
The Great Atlantic & Pacific Tea Company, Inc. Employment Agreement
2 Paragon Drive for Mr. James Wood
Montvale, NJ 07645
Dear Bob:
As requested, we have determined the benefits payable under Mr. Wood's
A&P Pension Agreement if he starts his pension on May 1, 1995. An
exhibit showing the calculation of the benefits payable at May 1, 1995
is enclosed.
We also determined the additional funding required for Mr. Wood's
Pension Agreement, assuming the residual assets in his secular trust
earn 8% per year. Based on the benefit amount on the enclosed exhibit
and 4.5% per year cost of living increases, the additional funding
requirement is $307,000 plus a
tax gross-up of $237,000. The funding of the trust will need to
be periodically reviewed on an ongoing basis because (a) actual cost-
of-living adjustments to the pension under Mr. Wood's Pension Agreement
will differ from the 4.5% adjustments we have assumed for funding
purposes, (b) actual investment returns on the residual trust assets
will vary, and (c) funding requirements are based on standard
assumptions regarding life expectancy.
Please note the following about our estimates of Mr. Wood's benefits and
the required funding:
1. We assumed that Mr. Wood's pension will not be increased for
increases in final average compensation after May 1, 1995.
2. Mr. Wood's Pension Agreement provides for cost-of-living increases.
In order to calculate the additional funding required, we assumed
4.5% per year cost of living increases.
3. We used an estimated exclusion ratio under the annuity contract that
was purchased for Mr. Wood of 17.6%. Because we have from time
to time estimated the benefits and funding requirements for
various pension commencement dates under his Pension Agreement, we had
been using a 20% exclusion ratio for purposes of illustration.
However, the exclusion ratio varies based on the actual date
of commencement, and we have estimated the actual exclusion ratio at
May 1, 1995 to be 17.6%
However, please note that the regulations regarding the calculation
of exclusion ratios do not provide complete guidance for annuity
contracts with complicated features (Mr. Wood's annuity contract
provides 4.5%
annual increases, a 10-year payment guarantee, a 50% survivor
benefit to Mr. Wood's wife, and a refund of premium upon his death
before benefit commencement). As a result, we recommend that A&P
and Mr. Wood review the exclusion ratio we have calculated with
your respective tax advisors. Also, the IRS will calculate exclusion
ratios upon request.
Note that the lower exclusion ratio results in slightly higher
net benefits under Mr. Wood's Pension Agreement, and thus greater
required funding of the residual trust. The funding required in
the residual trust is very sensitive to relatively small changes
in the tax-adjusted
pension benefit under his Pension Agreement.
4. We assumed that the applicable Federal marginal income tax rate is
39.6%, the applicable New Jersey marginal income tax rate is 6.58%, and
the New Jersey income tax is fully deductible for Federal Income tax
purposes. This assumption results in an assumed net tax rate of
43.57432% [6.58% + 39.6% * (100% - 6.58%)]. Note that these
calculations may be adjusted if Mr. Wood and A&P should agree that the
appropriate adjustment for taxes reflects the actual deductibility of
the New Jersey income tax for Federal income tax purposes. Because
itemized deductions are up to 80% disallowed for higher income tax
payers, Mr. Wood's actual effective tax rate may be higher [up to
45.65886%, or (6.58% + 39.6% * (100% - 20% * 6.58%)]. A higher
effective tax rate results in a lower net pension under his Pension
Agreement.
Similarly, the gross-ups for taxes on the residual trust
contributions shown above may be slightly understated to the extent
that the actual deductibility of New Jersey state income taxes for
Federal tax purposes is to be reflected.
5. As required by Mr. Wood's Pension Agreement, we have offset his
gross benefit by $1,218 per month, which is his expected Social
Security benefit effective May 1, 1995. Because he will continue
to work, his Social Security benefit will not actually be payable.
If you have any questions or need additional information, please call.
Sincerely,
Maria M. Sarli, F.S.A.
Partner
Copy to: J. Brickman
The Great Atlantic & Pacific Tea Company, Inc.
Estimated Monthly Benefits for Mr. James Wood Under
his Pension Agreement -Assumed Benefit Commencement on
May 1, 1995
1. Final Average Pay at 4/30/95 $ 1,528,589.74(1)
2. Target monthly benefit under employment agreement:
[65% of (1) / 12] $ 82,798.61
3. Monthly offsets(2) at 5/1/95:
(a) Estimated Social Security benefit $ 1,218.00
(b) Annuity equivalent of RSP balance $ 1,460.20
(c) Qualified plan benefit $ 17.28
(d) Total offsets $ 2,695.48
4. Net monthly pre-tax benefit at 5/1/95(3): $ 80,103.13
5. Benefit payable under annuity contract:
(a) Dollar amount of benefit $ 65,898.17
(b) Pre-tax equivalent(4) $ 74,854.70
6. Benefit payable by trust if it earns 8% per year(5):
(a) Dollar amount of benefit $ 5,206.99
(b) Pre-tax equivalent $ 5,248.43
7. Total Benefits (if trust earns 8% per year)(6):
(a) Dollar amount of benefit $ 71,105.16
(b) Pre-tax equivalent $ 80,103.13
------------------------------------
(1)Based on (a) annual base payrates of $1,095,000 and $1,160,500
effective 4/25/92 and 11/6/93 respectively, and (b) $400,000 bonuses for
three years. (2)We understand that A&P had previously agreed to waive all
offsets mentioned in the original Pension Agreement, except for the A&P
RSP, the A&P terminated qualified plan, and Social Security benefits.
The offsets mentioned in the Pension Agreement but not reflected here are
the A&P SERP benefit (Mr. Wood does not participate in the SERP), the
Pension Plan (UK) of Cavenham Ltd., and the Employees' Retirement Plan of
Grand Union. (3)Benefits under the employment agreement are adjusted for
cost-of-living increases each January 1, beginning on January 1, 1996 if
benefits commence on May 1, 1995. Assumed cost-of-living increases are
4.5% per year. (4)Assumes an exclusion ratio of 17.6%.
(5)Assumes a marginal Federal income tax rate of 39.6% and a fully
deductible marginal New Jersey state income tax rate of 6.58%.
(6)Assumes trust is fully funded.
EMPLOYMENT AGREEMENT
AGREEMENT DATED as of August 1, 1994, between THE GREAT ATLANTIC &
PACIFIC TEA COMPANY, INC., a Maryland corporation (hereinafter called
"Parent") and THE GREAT ATLANTIC & PACIFIC COMPANY OF CANADA, LIMITED, a
Canadian corporation (hereinafter called "Limited") (collectively the
"Company" or the "Employer"), and JOHN DOUGLAS MOFFATT (hereinafter
called the "Employee").
1. Employment. The Employer and the Employee agree that the terms
and
conditions of the Employee's employment with the Company are as set forth
in this Agreement.
2. Term. Subject to the within provisions for termination, the
term of this Agreement shall be for five (5) years beginning on September
1, 1994, and terminating on August 31, 1999.
3. Compensation.
(a) For services rendered by the Employee under this
Agreement, the Employer shall pay a basic minimum salary of CAN. $550,000
per year, payable in equal monthly or other installments. It is
understood and agreed that the Employee shall also receive an annual
salary review as an officer of the Company.
(b) During the term of this Agreement, the Employee shall also
be entitled to participate in the Company's Management Bonus Program
pursuant to its terms. Notwithstanding the provisions of the Management
Bonus Program, the Employee shall be entitled to a minimum bonus of CAN.
$200,000 (pro-rated) for fiscal year 1994 and CAN. $200,000 for fiscal
year 1995. The minimum bonus for fiscal year 1994 shall be pro-rated by
multiplying
CAN. $200,000 by a fraction, of which the numerator shall be the number
of days of fiscal year 1994 during which the Employee was employed and
the denominator shall be 365.
4. Special Bonus Opportunity. The Employee shall be entitled to a
special bonus opportunity in accordance with the terms of Exhibit A
attached hereto.
5. Employee Benefit Programs. During the period of the Employee's
employment hereunder, the Employee shall be entitled to participate in
all employee pension and welfare benefit plans and programs made
available to the Company's senior level executives or to its employees
generally, as such plans or programs may be in effect from time to time,
including, without
limitation, pension, profit sharing, savings and other retirement plans
or programs, medical, dental, hospitalization, short-term and long-term
disability and life insurance plans, accidental death and dismemberment
protection and travel accident insurance. It is further understood that
the Employee will be a Member of Parent's Supplemental Executive
Retirement Plan ("SERP") during the period of his employment hereunder.
It is further understood that the Company shall provide the Employee with
an automobile as approved for the Chairman and Chief Executive Officer of
Limited.
6. Option. As soon as practicable after commencement of the
Employee's employment, Parent shall grant the Employee an option to
purchase 50,000 shares of Parent's common stock under Parent's 1994 Stock
Option Plan with an exercise price equal to the fair market value of the
common stock on the date of grant. Thereafter the Employee shall be
eligible to participate in the stock option or other long term incentive
programs on the same basis as other senior level executives of the
Company.
7. Duties. The Employee is engaged to perform services as
Chairman
and Chief Executive Officer of Limited. The Employee agrees for the term
to provide his full business time and exclusive services to the Company
as an executive employee subject to the direction and control of the
Chief Executive Officer of Parent or his designee and, in connection
therewith, to perform such duties as he shall reasonably be directed to
perform by the Chief Executive Officer of Parent or his designee.
8. Nondisclosure of Confidential Information.
(a) The Employee understands, agrees and acknowledges that the
business of the Company and the Company Affiliates, their expertise,
their methods of operations and their procedures and techniques
[including, without limitation, all of the Company's and the Company
Affiliates' equipment, apparatus, devices, designs, operations,
procedures, processes, inventions, operating principles, methods of
pricing, customer lists and records of volume of business, marketing
plans, lists of prospective customers, list of suppliers, records, data,
plans and products (but excluding any such items or information that are
in the public domain) (collectively, "Business Information")] are highly
confidential and constitute a unique business asset of the Company which
is entitled to any protection the law may afford as trade or business
secrets or otherwise as proprietary or confidential information of the
Company or the Company
Affiliates. The Employee will, to the best of his ability, affirmatively
and continuously protect, in accordance with this Agreement, such
Business Information.
(b) The Employee shall disclose fully and promptly to the
Company, its successors or assigns, any and all inventions, ideas,
designs, devices, equipment, literary or artistic creations, discoveries
and improvements of any sort, whether protectible by patent or not, which
he may hereafter conceive, develop, make or perfect, either alone or
jointly with another or others, during the term of this Agreement, and
either during or outside normal business hours, which pertains to any
activities, business, products or fields in which the Company or any
Company Affiliate is engaged or will be subsequently engaged during the
term of this Agreement, or in which the Company or any Company Affiliate
has any material direct or indirect interest whatsoever. Any of the
foregoing is hereinafter referred to as an "Invention."
(c) The Employee hereby assigns and agrees to assign during
the term of this Agreement to the Company, its successors or assigns, all
his right, title and interest in and to any and all Inventions, and the
Employee further agrees, without charge to the Company but at its
expense, to execute, acknowledge and deliver all applications or other
papers and documents as may be necessary to obtain patents, trademarks,
copyrights or any other form of protection for said Inventions and to
vest title thereto in the Company, its successors and assigns or
nominees, and to give testimony or furnish other data as the Company may
reasonably deem necessary to assist the Company in securing or defending
such Inventions, patents, trademarks or copyrights.
(d) The Employee agrees to keep current and adequate written
records of all Inventions, which records shall be and remain the property
of, and be available to, the Company at all times.
(e) The Employee agrees that he will not at any time, and will
use his best efforts to ensure that none of his agents or entities under
his control or in which he has a direct or indirect beneficial interest
will at any time, except in the ordinary course of the Employee's
performance of his services hereunder, without the prior written consent
of the Company, voluntarily reveal, divulge or make known to any person,
firm or corporation (other than the Company and Company Affiliates) any
Business Information or Invention, or anything concerned therewith, and
all such information shall be kept confidential and shall not in any
manner be revealed by him to anyone except as provided herein; and all
documents, business records, supplier and customer lists, prospective
supplier and customer lists, reports and any other documents, or any
copies of any of the foregoing, kept or made by him relating to any
Business Information, Invention or the business of the Company or any
Company Affiliate shall be and remain the property of the Company and
shall be surrendered to the Company upon termination of this Agreement.
Notwithstanding the above, (i) the Employee cannot be held responsible
for the confidentiality of Business Information which is, of necessity,
shared with approved suppliers or consultants to the Company in the
ordinary course of business and (ii) the Employee may disclose any of the
foregoing when required to do so by a court of law, by any governmental
agency having supervisory authority over the business of the Company or
by any administrative or legislative body (including a committee thereof)
with apparent jurisdiction to order him to disclose such information.
(f) The Employee's obligations under this Paragraph 8 and
under Paragraph 9 hereof shall require, among other things, his full
cooperation in the prosecution of any litigation the Company or any
Company Affiliate may initiate and pursue against any person who may be
deemed by the Company or any Company Affiliate to have caused a violation
of this Paragraph 8 or of Paragraph 9 hereof, but shall not require the
Employee to initiate or pursue such remedies at his own expense.
(g) As used in this Agreement, a "Company Affiliate" shall
mean Parent and any corporation or other entity in which Parent shall own
or hold, either directly or indirectly through one or more majority owned
subsidiaries or partnerships, at least a majority of the equity interest.
9. Competition, etc. During the term of this Agreement and,
provided
the Company (and, if applicable, Parent) continue during such period to
compensate him on the same basis as applicable during the term of this
Agreement pursuant to Paragraphs 3(a) and 5 hereof (other than with
respect to the Company's retirement programs), for a period of one year
thereafter, except with the prior written consent of the Company:
(a) The Employee will not, and will use his best efforts to
ensure that none of his agents or entities under his control or in which
he has a direct or indirect beneficial interest will, directly or
indirectly (as director, officer, partner, employee, manager, consultant,
independent contractor, advisor, stockholder or otherwise) engage in
areas of competition with, or own any interest in, or provide any
financing for, or perform any services for, any business or organization
which directly or indirectly engages in areas of competition (which
competition must be substantial in nature if it occurs following the
termination of employment) with any business conducted by the Company or
any Company Affiliate in any area where such business of the Company or
any Company Affiliate is carried on; provided, however, that the
provisions of this Paragraph 9(a) shall not prohibit the Employee's
ownership of not more than one percent of the total shares of all classes
of stock outstanding of any publicly held corporation.
(b) The Employee will not directly or indirectly employ,
solicit for employment, or advise or recommend to any other person that
such other person employ or solicit for employment, any person whom he
knows to be an employee of the Company or any Company Affiliate, if such
action by him would have an adverse effect on the business, assets or
financial condition of the Company or any Company Affiliate.
(c) The provisions of this Paragraph 9 shall apply during the
term of this Agreement and for one year thereafter, provided that if the
Company shall terminate the employment of the Employee other than
pursuant to the provisions of Paragraph 10(b) or (c) hereof, the
provisions of this Paragraph 9 shall not apply after the date of
termination, and provided further that, notwithstanding the immediately-
foregoing proviso and without limiting the generality thereof, if the
Company shall relieve the Employee of all of his responsibilities
hereunder but shall continue to pay the Employee his compensation due
hereunder, the provisions of this Paragraph 9 shall continue to apply for
so long as the Company shall continue to pay the Employee such
compensation.
(d) In connection with the foregoing provisions of this
Paragraph 9, the Employee represents that his economic means and
circumstances are such that such provisions will not prevent him from
providing for himself and his family on a basis satisfactory to him. It
is understood and agreed that the covenants made by the Employee in this
Paragraph 9 and in Paragraph 10 hereof are material to, and are being
relied upon by the Company in entering into this Agreement.
10. Termination. Notwithstanding any provision of this Agreement
to
the contrary, the Employee's employment hereunder and the Employee's
right to receive compensation therefor shall terminate prior to August
31, 1999, upon the occurrence of any of the following:
(a) Upon notice rendered to the Employee in good faith by the
Company, effective six months from the date of such notice, in the event
the Employee shall become disabled and thereby rendered unable to perform
the duties set forth herein, provided such notice shall not be effective
before such condition has persisted for at least six months. In the
event
of any disagreement as to the nature, extent or duration of the
Employee's disability, such matter shall be determined by a licensed
physician mutually satisfactory to the Company and the Employee;
provided, however, that the Employee shall be regarded as disabled as
specified in this subparagraph in the event he shall refuse to submit to
or fail a medical examination by such physician or if such physician is
not agreed upon, by a licensed physician selected by the physicians
selected, respectively, by the Company and the Employee.
(b) Upon the death of the Employee, effective as to
compensation, twelve months after the date of his death.
(c) Upon notice rendered to the Employee by the Company,
effective as of the date of such notice, in the event of any material
breach of the provisions of this Agreement by the Employee, conviction of
a serious crime, dishonesty of the Employee in carrying out his duties
under this Agreement, willful disregard of the interest of the Company or
any Company Affiliate or other civil or criminal conduct which is clearly
detrimental to the welfare or security of the Company, provided that the
Employee's failure to perform his duties under this Agreement
satisfactorily shall not in itself, even if detrimental to the welfare or
security of the Company, permit termination of his employment pursuant to
this Paragraph 10(c).
In connection with the foregoing provisions of this Paragraph
10, the Company's right of termination shall be in addition to its right
to seek damages for, or an injunction to restrain the Employee from, any
act or other circumstance described in Paragraph 10(c), and such rights
shall survive termination of this Agreement under this Paragraph 10.
11. Other Relief. Notwithstanding any other provisions herein
contained, in the event of a violation of the provisions of Paragraph 8
or 9 hereof, the Company may, in addition to pursuing such other remedies
as it
may have at law or in equity, seek a temporary and/or permanent
injunction in an action in equity.
12. Return of Books, etc. Upon the expiration of the term or
termination in accordance herewith, the Employee will promptly deliver to
the Company all books, memoranda, plans, records and written data of
every kind relating to any aspect of the business and affairs of the
Company (or of any Company Affiliate) which are then in his possession,
except personal notes or diaries, such information as is in the public
domain or financial data normally afforded or provided on request to a
shareholder of the Company.
13. Severability. If for any reason any provision of this
Agreement
shall be held invalid, such invalidity shall not affect any other
provision of this Agreement not so held invalid, and all other such
provisions shall, to the full extent consistent with the law, continue in
full force and effect. If any such provision shall be held invalid in
part, such invalidity shall in no way affect the rest of such provision,
which, together with all other provisions of this Agreement, shall
likewise, to the fullest extent consistent with law, continue in full
force and effect.
14. Binding Agreement. This Agreement shall be binding upon, inure
to
the benefit of, and be enforceable by the respective heirs,
beneficiaries, representatives, successors and assigns of the parties
hereto.
15. Entire Agreement. This Agreement embodies the entire
agreements
and understandings of the parties hereto in respect of the subject matter
contained herein. There are no restrictions, promises, representations,
warranties, covenants or undertakings other than those expressly set
forth or referred to herein. This Agreement supersedes all prior
agreements and understandings between the parties with respect to such
subject matter. This Agreement may be modified, amended or discharged
only by a written
instrument duly executed by both of the parties hereto.
16. Notice. All notices, claims, requests, demands and other
communications hereunder shall be in writing and shall be deemed given
if delivered personally or mailed by registered or certified mail
(return receipt requested) to the parties at the following addresses
(or at such other address for a party as shall be specified by like
notice):
(a) If to the Company, to:
The Great Atlantic & Pacific Tea Company, Inc.
2 Paragon Drive
Montvale, New Jersey 07645
Attention: Robert G. Ulrich, Esquire
Senior Vice President and General Counsel
with a copy to:
The Great Atlantic & Pacific Company of Canada, Limited
5559 Dundas Street West
Islington, Ontario M9B 1B9
Attention: Fred Torrie
Corporate Secretary
(b) If to the Employee, to:
John Douglas Moffatt
360 Bloor Street East, No.
108 Toronto, Ontario M4W
3M3 Canada
17. Governing Law. This Agreement shall be governed by the laws of
the
State of New Jersey, without regard to the conflicts of law rules
thereof.
18. Waiver of Breach. Any waiver by one party to this Agreement of
a breach of any provision of this Agreement by the other party shall not
operate or be construed as a waiver of any subsequent breach by the other
party. Any waiver must be in writing and signed by the Employee or
authorized officers of Parent and Limited, as the case may be.
19. Headings. The paragraph headings contained in this Agreement
are
solely for the purpose of reference, are not part of the agreement of
the parties, and shall not affect in any way the meaning or
interpretation of this Agreement.
IN WITNESS WHEREOF, this Agreement has been duly executed and
delivered by the duly authorized officers of the Company and by the
Employee as of the date first above written.
THE GREAT ATLANTIC & PACIFIC
TEA COMPANY, INC.
By:
---------------------------------------
THE GREAT ATLANTIC & PACIFIC
COMPANY OF CANADA, LIMITED
By:
---------------------------------------
---------------------------------------
John Douglas Moffatt
Exhibit A
Special Bonus Opportunity
During the period of his employment under this Agreement, the Employee
shall be entitled to the following special bonus:
1. For each fiscal year, the Employee's special bonus shall be
equal
to the greater of:
(a) one percent of the pre-tax profits of Limited as reported
in Limited's consolidated financial statements for such fiscal year, as
certified by Limited's auditors; or
(b) one-half of one percent of Limited's "Group Contribution"
as reported in the internal financial statements of Parent and Limited
for such fiscal year.
2. Notwithstanding the foregoing, the special bonus for fiscal
year
1994 shall be pro-rated for the portion of such fiscal year during which
the Employee was employed by multiplying the amount of the special bonus
by a fraction, the numerator of which shall be the number of days of such
fiscal year during which the Employee was employed and the denominator of
which shall be 365.
3. The amount of the special bonus shall be reduced by the amount of
the bonus paid to the Employee under the Management Bonus Program,
including the minimum bonus paid pursuant to Paragraph 3 of this
Agreement.
4. The special bonus shall be paid promptly after the completion of
Limited's consolidated financial statement, but in no event prior to the
payment of the bonuses under the Management Bonus Program.
Personal & Confidential
September 7, 1994
Mr. John Douglas Moffatt
360 Bloor Street East
Number 108
Toronto, Ontario M4W 3M3
Canada
Dear Jack:
Subject: Supplemental Executive Retirement Plan (SERP)
I am pleased to inform you that effective September 1, 1994, you have
been enrolled as a member of the Company's Supplemental Executive
Retirement Plan (SERP). I enclose a copy of the Plan document.
Detailed below is a brief description of the Plan, but for further
information, please refer to the Plan document.
1. Credited service commences from your date of employment.
2. The rate of benefits is 3% of "Average Final Compensation" for each
year up to 10 years of service, plus 1 1/2% of such compensation for
up to ten additional years of service.
3. "Average Final Compensation" is based on earnings, exclusive of
bonuses, for any five consecutive years within the last ten years
prior to retirement.
4. The Plan provides for a maximum benefit of 45% of "Average Final
Compensation" with offsets of:
a) One-half of the benefits under the Canada Pension Plan;
b) Employees' Retirement Plan Benefit.
5. Surviving spouse benefit of 40% of the pension.
Please acknowledge receipt of this material by signing a copy of this
letter and returning it to Mr. Peter R. Brooker.
Congratulations on becoming a member of the Plan.
Sincerely,
Fred Corrado
Vice Chairman, Chief Financial Officer
and Treasurer
Acknowledged:
--------------------------------
John Douglas Moffatt
EXHIBIT 10E
THE GREAT ATLANTIC & PACIFIC TEA COMPANY, INC.
1994 Stock Option Plan
1. Purpose of the Plan. This Plan is intended to provide a
method whereby key employees of The Great Atlantic & Pacific Tea Company,
Inc. (the "Company") and its subsidiaries who are largely
responsible for the management, growth and protection of the business,
and who are making and can continue to make substantial contributions
to
the success of the business, may be encouraged to acquire a larger
stock ownership in the Company, thus increasing their proprietary
interest in the business, providing them with greater incentive,
encouraging their continuance in the service and promoting the interests
of the Company and all its shareholders. Accordingly, the Company
will, from time to time during the effective period of this Plan,
grant to such employees as may be selected in the manner provided
below, options to purchase shares of Common Stock, Par Value $1, of the
Company and stock appreciation rights subject to the conditions
specified in this Plan.
2. Administration of the Plan. The Plan will be administered
by a Committee of at least two directors of the Company who shall be
selected from time to time by the Board of Directors of the Company
(the "Committee"), provided that the Committee shall not include any
individual who is not both (a) a "disinterested person" within the
meaning of Rule 16b-3 promulgated by the Securities and Exchange
Commission and (b) an "outside director" within the meaning of Section
162(m)(4)(c) of the Internal Revenue Code of 1986, as amended (the
"Code"). A majority of the Committee shall constitute a quorum, and the
acts of a majority of the members present at any meeting at which a
quorum is present, or acts approved in writing by all of the members,
shall be the acts of the Committee.
Subject to the provisions of this Plan, the Committee shall have
full and final authority in its discretion (a) to determine the
employees to be granted options and stock appreciation rights ("SARs")
and, in the case of each option granted, to determine whether the same
shall be an incentive stock option ("ISO") pursuant to the Code, or
an option which does not
qualify under such Section 422 ("non-qualified option"), (b) to determine
the number of shares subject to each option and SAR, (c) to determine the
time or times
at which options and SARs will be granted, (d) to determine the option
price of the shares subject to each option, which price shall be not
less
than the minimum specified in Section 6 of this Plan, (e) to determine
the time or times when each option and SAR becomes exercisable and the
duration of the exercise period, (f) to determine the form of payment in
settlement of the exercise of SAR's; (g) to prescribe the form or forms
of the instruments evidencing any options and SARs granted under this
Plan (which forms shall be consistent with this Plan but need not be
identical), (h) to adopt, amend and rescind such rules and regulations
as, in its opinion, may be advisable in the administration of this Plan
and (i) to construe and interpret this Plan, the rules and regulations
and the instruments evidencing options and SARs granted under this Plan
and to make all other determinations deemed necessary or advisable for
the administration of this Plan.
The Committee may consult with counsel, who may be counsel to
the Company, and shall not incur any liability for any action taken in
good faith in reliance upon the advice of counsel.
3. Shares Available for Options. Subject to the provisions of
Section
9 of this Plan, the aggregate number of shares of Capital Stock for
which
options and SARs may be granted under this Plan shall not exceed
1,500,000 shares.
The shares to be delivered upon exercise of options or SARs under
this Plan shall be made available, at the discretion of the Board of
Directors of the Company (the "Board of Directors"), either from
the authorized but unissued shares of Capital Stock of the Company or
from shares of Capital Stock
held by the Company as treasury shares, including shares purchased in
the open market.
If an option or SAR granted under this Plan shall expire or
terminate unexercised as to any shares covered thereby, such shares
shall thereafter be available for the granting of other options and SARs
under this Plan.
4. Eligibility. Options and SARs will be granted only to
persons who
are employees of the Company or of a subsidiary of the Company (as the
term "subsidiary corporation" is defined by Section 424 of the Code).
The term "employees" shall include officers as well as all other
employees of the Company and its subsidiaries and shall include
directors who are also employees of the Company or of a subsidiary
of the Company. Neither the members of the Committee nor any member of
the Board of Directors who is not an employee of the Company (or of a
subsidiary of the Company) shall be eligible to receive an option or
SAR under this Plan.
In selecting the individuals to whom options and SARs shall be
granted, as well as in determining the number of shares subject to and
the type and terms
and provisions of each option and SAR, the Committee shall weigh such
factors as it shall deem relevant to accomplish the purpose of this Plan.
An individual who has been granted an option or SAR may be granted
an additional option or options or SAR(s) if the Committee shall so
determine.
No employee shall be eligible for the grant of any ISO under this
Plan if, at the time the ISO is granted, such employee owns, or is
considered under
Section 424(d) of the Code, to own stock possessing more than 10% of
the total combined voting power of all classes of stock either of the
Company or of any parent or subsidiary thereof.
The maximum number of shares with respect to which options and SAR's
may be granted to any individual under this Plan in the aggregate during
the term of this Plan shall be 500,000 shares. The aggregate fair
market value (determined at the time an ISO is granted) of the stock
with respect to which incentive stock options are exercisable for the
first time by any employee during any calendar year (under all such
plans of the employee's employer
corporation and its parent and subsidiary corporations) shall not exceed
that permitted by Section 422(d) of the Code.
5. Term of Options and SARs. The full term of each option and
SAR
granted hereunder shall be for such period as the Committee shall
determine, but for not more than ten years from the date of granting
thereof. Each option and SAR shall be subject to earlier
termination as provided in Paragraphs (d) and (e) of Section 8.
6. Option Price. The option price of each option shall not be
less
than 100% of the fair market value of the shares covered thereby at the
time the option is granted and in no event less than the par value of
the shares covered thereby.
7. Non-transferability of Options and SARs. No option or SAR
granted under
this Plan shall be transferable by the grantee otherwise than by will
or the laws of descent and distribution, and such option or SAR may
be exercised during his lifetime only by him.
8. Exercise of Options and SARs. (a) Each option and SAR granted
under this Plan shall be exercisable on such date or dates and during
such
period within the full term thereof and with respect to such number of
shares as shall
be determined pursuant to the provisions of the instrument evidencing
such option or SAR.
(b) If the Committee grants ISOs, the instruments evidencing such
ISOs shall contain terms and provisions relating to exercise and
otherwise which
are designed to render them ISOs pursuant to Section 422 of the Code and
the Income Tax Regulations thereunder, as the same or any successor
statute or regulations may at the time be in effect.
(c) A person electing to exercise an option shall give written
notice
to the Company of such election and of the number of shares he has
elected to purchase, and shall at the time of exercise tender the full
purchase price of the shares he has elected to purchase. Until such
person has been issued a certificate or certificates for the shares so
purchased, he shall possess no rights of a record holder with respect to
any of such shares.
(d) No option or SAR shall be affected by a change of duties
or
position of the optionee (including transfer to or from a subsidiary) so
long as he continues to be an employee of the Company or one of its
subsidiaries. If an optionee shall cease to be such an employee for any
reason other than death, such option or SAR shall thereafter be
exercisable only to the extent of the exercise rights, if any, which
had accrued as of the date of such cessation, provided that (i) the
Committee may provide in the instrument evidencing any option or
SAR that the Committee may in its absolute discretion, upon any such
cessation of employment, determine (but be under no obligation to
determine) that such accrued exercise rights shall be deemed to include
additional shares covered by such option or SAR and (ii) upon any such
cessation of employment, such remaining right to exercise shall in any
event terminate upon the earlier of (A) the expiration of the full term
of
the option of SAR and (B) the expiration of three months from the date
of such cessation of employment or such later expiration date, if any,
as the Committee may in its sole discretion, either at the time of grant
or at any time prior to exercise, establish (but not beyond the
expiration date determined in (A)). The instruments evidencing
options and SARs granted under
this Plan may contain such provisions as the Committee shall approve
with reference to the effect of approved leaves of absence. Nothing in
this Plan or in any option or SAR granted hereunder shall confer upon any
optionee any right to continue in the employ of the Company or
any of its subsidiaries, or to interfere in any way with the right of
the Company or its subsidiaries to terminate his employment at any time.
(e) Should an optionee die while in the employ of the Company or
one of its subsidiaries, or after cessation of such employment, but
prior to the termination of any option or SAR, such persons as shall
have acquired, by
will or by the laws of descent and distribution, the right to exercise
such
option or SAR theretofore granted such optionee may, in either case,
exercise such option or SAR at any time prior to expiration of its full
term or of one year
from the date of death of the optionee, whichever is earlier, provided
that any such exercise shall be limited to the exercise rights which
had
accrued as of the date when the optionee ceased to be such an
employee, whether by death or otherwise; provided further, however, that
the Committee may provide in the instrument evidencing any option or SAR
that such option or SAR shall become exercisable immediately upon the
death of the optionee with respect to all shares covered thereby.
9. Adjustment Upon Changes In Capitalization. The
instruments evidencing options and SARs granted hereunder shall contain
such provisions as the Committee shall determine for adjustment of the
number and classes of shares covered thereby, or of the option prices or
Base Amounts (as defined in Section 10 of this Plan), or both, in
the event of changes in the outstanding Capital Stock of the Company
by reason of stock dividends, stock split-ups, recapitalizations,
reorganizations, mergers, consolidations, combinations or exchanges
of shares or the like, of or by the Company.
In the event of any such change, the aggregate number and classes of
shares for which options and SARs may thereafter be granted under this
Plan may be appropriately adjusted as determined by the Board of
Directors so as to reflect such change.
10. Stock Appreciation Rights.
(a) General. SARs may be granted to such eligible employees under
this Plan
as may be selected by the Committee. The Committee shall determine
whether a particular stock appreciation right granted under this Plan
shall (i) relate to a previously granted non-qualified option, (ii)
relate to a new non-qualified option or new ISO, or (iii) be
independent of any option; provided, however, that a stock
appreciation right may be granted in conjunction with an ISO only at
the time the related ISO is granted and only to the extent that such
stock appreciation right meets the requirements of Section 422 of the
Code and the regulations thereunder. An SAR is the right to receive,
upon exercise and without any payment to the Company, a number of shares
of Common Stock of the Company and/or cash in an amount determined
pursuant to paragraph (c) below. An SAR granted to an optionee may, but
need not,
relate to a specific stock option granted to that optionee under this
Plan ("related option"). If the SAR relates to an option, it shall cover
the same
number of shares as are covered by the related option, or such lesser
number as the Committee shall determine. Each SAR shall be adjusted
to reflect any adjustments by reason of any stock splits, stock
dividends, or other changes in capitalization in the manner described
in Section 9 hereof occurring after the effective date of the grant of
such SAR. The decision of the Committee administering the Plan as to
the method, amount and timing of any such adjustments shall be
conclusive. In the case of an SAR which relates to an option,
expiration or exercise of the related option shall automatically
terminate the SAR to the extent of the number of shares covered by the
SAR with respect to which the related option expired or was exercised
(disregarding any shares covered by the related option in excess of
those covered by the SAR). Exercise of an SAR which relates to an
option shall automatically terminate the related option to the extent of
the number of shares covered by the related option with respect to
which the SAR was exercised.
(b) Transferability and Exercise. An SAR granted to an optionee
shall not be transferable and shall be exercisable only by the optionee
to whom granted. An SAR which relates to an option shall be exercised,
if at all, only
during the period specified in Section 8 hereof applicable to the
exercise of the related option. An SAR may be exercised only if the
amount payable upon exercise of the SAR is greater than zero.
(c) Payment. Upon exercise of an SAR, an optionee shall be
entitled to payment in an amount equal to the excess of the fair market
value of one share of Common Stock of the Company on the date of
exercise over the "Base
Amount", multiplied by the number of shares in respect of which the SAR
shall have been exercised. For this purpose, the "Base Amount" shall
mean
(i) in the case of an SAR which relates to an option, the option price
per share under the related option, and (ii) in the case of any other
SAR, the amount specified by the Committee for this purpose at the
time of grant, which amount shall not be less than 100% of the fair
market value of a share of Common Stock of the Company on the date of
grant nor less than the par value of such a share. Payment may be made
in the discretion of the Committee in the form of (i) shares of Common
Stock of the Company having a fair market value on the date of exercise
equal to the amount payable, (ii) cash or (iii) a combination of shares
and cash. The Committee shall determine the fair market value of the
Company's stock on the date of exercise of an SAR, which determination
shall be conclusive. In the case of an SAR which is related to an ISO,
such determination shall be made in a manner consistent with Section 422
of the Internal Revenue Code of 1986, as amended, and the regulations
thereunder. However, payments upon exercise of an SAR may be made in
cash to an optionee subject to Section 16(b) of the Securities Exchange
Act of 1934 only if such optionee exercises such SAR during a period
beginning on the third business day following the date of release of
the quarterly or annual summary statements of sales and earnings and
ending on the twelfth business day following such date. Such
payments shall be made within 20 days following the exercise of the
SAR; provided, however, that the payment may be deferred by the Committee
in its discretion to such date and under such terms and conditions as the
Committee may determine.
(d) Agreements. All grants of SARs under the Plan shall be
evidenced
by written agreements which, in the case of an SAR which relates to
an option, may be appurtenant to or included in the related stock
option agreement between the Company and the optionee. Such
agreements shall contain such further terms and conditions on the
grant, exercise and payment of SARs as the Committee shall prescribe and
as are not inconsistent with the provisions of this Plan.
11. Withholding. The Company and each subsidiary shall have the
right to deduct from all amounts paid in cash upon exercise of an SAR
any taxes required by law to be withheld therefrom. In the case of
payments of SARs in the form of shares, or upon exercise of an option,
the person exercising such option or SAR shall be required to pay the
Company or its subsidiary the amount of any taxes required to be
withheld with respect to such shares; in lieu thereof, the Company and
each subsidiary shall have the right to retain, or sell without notice,
a sufficient number of shares to cover the amount required to be
withheld. The Committee may from time to time establish procedures
permitting optionees to elect stock withholding consistent with
applicable requirements of Rule 16b-3 promulgated by the Securities
and Exchange Commission.
12. Amendment, Suspension or Termination of Plan. The Board
of
Directors may at any time terminate or from time to time amend or
suspend this Plan, provided, however, that no such amendment shall,
without approval of the shareholders of the Company, except as provided
in Section 9 hereof: (a) increase the aggregate number of shares as to
which options and SARs may be granted under this Plan; (b) change the
method of determining the minimum option exercise price; (c) increase
the maximum period during which options or SARs may be exercised; (d)
extend the effective period of this Plan, (e) materially increase the
benefits accruing to optionees under this Plan, (f) permit the
granting of options or SARs to members of the Committee, or (g)
materially modify the requirements as to eligibility for participation
in this Plan. No option or SAR may be granted during any suspension
of this Plan or after this Plan has been terminated and no amendment,
suspension or termination shall, without the optionee's consent, alter
or impair any of the rights or obligations under any option or SAR
theretofore granted to him under this Plan.
13. Listing and Registration. The Company, in its discretion,
may
postpone the issuance and delivery of shares upon any exercise of an
option or SAR until completion of such stock exchange listing, or
registration or
other qualification of such shares under any state or federal law, rule
or regulation as the Company may consider appropriate. On exercise
of the option or SAR the optionee shall be required to make such
representations and furnish such information as may in the opinion of
counsel for the Company be appropriate to permit the Company, in the
light of the then existence or nonexistence of an effective Registration
Statement under the Securities Act of 1933 with respect to such
shares, to issue or transfer the shares in compliance with the
provisions of that Act. In case of the non-existence of an effective
Registration Statement under the Securities Act of 1933 with respect
to such shares, restrictions may, in the discretion of the Company, be
imposed on the transfer of shares and certificates therefor may be marked
or stamped with a reference to such restrictions. Upon registration of
the optioned shares of Common Stock with the Securities and Exchange
Commission, such restrictions shall be inoperative and an optionee
who was required pursuant to this subsection to make investment
representations on shares optioned hereunder shall be released from
such investment representations.
14. Consideration for Grant of Options. Each participant,
in consideration of the granting of an option hereunder, shall agree in
writing to remain in the employ of the Company, or a subsidiary
corporation, for a period of not less than one year.
15. Effectiveness of the Plan. The Plan shall be subject
to
approval and ratification by the vote of the holders of a majority of
the shares of stock of the Company present or represented at the meeting
to which the Plan is submitted. Subject to such approval and
ratification, the Plan is effective as of March 18, 1994. Options and
SARs may be granted under the Plan prior to such approval and
ratification, but each such option and SAR granted shall be subject to
the approval and ratification of the Plan by the stockholders, and if
the Plan shall not be so approved and ratified, all options and SARs
granted shall be of no effect. The date of the grant of any option or
SAR granted prior to such approval and ratification by the
stockholders shall be determined for all purposes as if the option or SAR
had not been subject to such approval and ratification. No option or SAR
granted may be exercised prior to such approval and ratification. No
options or SARs may be granted under this Plan subsequent to March 17,
2004.
EXHIBIT 10F
THE GREAT ATLANTIC & PACIFIC TEA COMPANY, INC.
1994 STOCK OPTION PLAN FOR NON-EMPLOYEE DIRECTORS
ARTICLE I. Purposes
The purposes of The Great Atlantic & Pacific Tea Company, Inc.
1994 Stock Option Plan for Non-Employee Directors (the "Plan") are to
attract and retain the services of knowledgeable non-employee
Directors of The Great Atlantic & Pacific Tea Company, Inc. (the
"Company") and to provide an incentive for such Directors to increase
their proprietary interests in the Company's long-term success and
progress.
ARTICLE II. Shares Subject To The Plan
Subject to adjustment in accordance with Article VI hereof, the
total number of shares of the company's common stock, par value $1.00
per share (the "Common Stock"), for which options may be granted under
the Plan is 100,000 (the "Shares"). The
Shares shall be presently authorized but
unissued or subsequently acquired by the Company and shall include
shares representing the unexercised portion of any option granted under
the Plan which expires or terminates without being exercised in full.
ARTICLE III. Administration Of The Plan
The administrator of the Plan (the "Plan Administrator") shall
be a committee appointed by the Board of Directors of the Company (the
"Board"). Subject to the terms of the Plan, the Plan Administrator shall
have the power
to construe the provisions of the Plan, to determine all questions
arising thereunder and to adopt and amend such rules and
regulations for the administration of the Plan as it may deem desirable.
ARTICLE IV. Participation In The Plan
Each member of the Board elected or appointed who is not otherwise
an employee of the Company or any subsidiary (an "Eligible Director")
shall receive the following option grants under the Plan:
1. Initial Grants.
An initial grant (an "Initial Grant") of an option to purchase
two thousand (2,000) Shares shall automatically be granted to:
(a) Each Eligible Director immediately following adoption of the Plan by
the Company's Board of Directors; and
(b) Each person, if any, who first becomes an Eligible Director on or
after July 12, 1994 on the date such person first becomes an
Eligible Director.
Each Initial Grant is subject to the approval of the Plan by
the Company's stockholders.
2. Additional Grants.
Commencing with the Annual Meeting of Stockholders of the Company
as specified in the company's By-Laws (the "Annual Meeting") in
1994, each Eligible Director shall automatically receive an
additional grant (an "Additional Grant") of an option to purchase
Shares on the day immediately following the date of each year's Annual
Meeting.
Each Additional Grant shall consist of an option to purchase two
hundred (200) Shares.
ARTICLE V. Option Grants
Each option granted to an Eligible Director under the Plan and
the issuance of Shares thereunder shall be subject to the following
terms:
1. Option Agreement.
Each option granted under the Plan shall be evidenced by an
option agreement (an "Agreement") duly executed on behalf of the
Company. Each Agreement shall comply with and be subject to the terms
and conditions of the Plan. Any Agreement
may
contain such other terms, provisions and conditions
not inconsistent with the Plan as may be determined by the
Plan
Administrator.
2. Vesting and Exercisability.
An option shall become exercisable in accordance with the
following schedule and vested portions may be exercised in full at one
time or in part from time to time:
Portion of Grant
Period of Time From the Date the That is
Option is Granted Exercisable
----------------------------------------------- ------------------
-Until first subsequent annual meeting of
shareholders after grant 0%
Until second subsequent annual meeting of
shareholders after grant 33-1/3%
Until third subsequent annual meeting of
shareholders after grant 66-2/3%
Thereafter 100%
For the purposes of options granted at the time this Plan is
adopted by the Board of Directors, the first subsequent annual meeting
of shareholders shall be the meeting held in 1994.
3. Option Exercise Price.
The option exercise price for an option granted under the Plan
shall be the fair market value of the Shares covered by the option at
the time the option is granted. For purposes of the Plan, "fair market
value" shall be the closing price of the Common Stock on such date as
reported in the NYSEComposite Transactions or, if no Common Stock was
traded on such date, on the next preceding date on which the Common Stock
was so traded.
4. Manner of Exercise of Option.
Any option may be exercised by giving written notice, signed by
the person exercising the option, to the Company stating the number of
Shares with respect to which the option is being exercised, accompanied
by payment in full for such Shares, which payment may be in whole or in
part (i) in cash or by check, or (ii) in shares of Common Stock already
owned for at least six (6) months by the person exercising the option,
valued at fair market value at the time of such exercise.
5. Terms of Options.
Each option shall expire ten (10) years from the date of the
granting thereof, but shall be subject to earlier termination as follows:
(a) In the event of the death of an optionee during the optionee's
service as a Director or within twelve (12) months of cessation of
service as a Director, the options granted to the optionee shall be
exercisable, and such options shall expire unless exercised
within twelve (12) months after the date of the optionee's death,
by the legal representatives or the estate of such optionee, by
any person or persons whom the optionee shall have designated in
writing on forms prescribed by and filed with the Company, or if
no such designation has been made, by the person or persons to whom
the optionee's rights have passed by will or the laws of descent and
distribution.
(b) In the event an optionee shall cease to be a director as a result
of resignation, declining to stand for re-election or removal
without cause, each unexercised option held by such optionee shall
automatically terminate twelve (12) months after the optionee ceases
being a director; provided, however, in the event an optionee
ceases being a director because the optionee was removed for
cause, all options granted hereunder shall terminate immediately.
6. Transferability.
During an optionee's lifetime, an option may be exercised only by
the optionee.
Options granted under the Plan and the rights and privileges
conferred thereby shall not be subject to execution, attachment or
similar process and may not be transferred, assigned, pledged or
hypothecated in any manner (whether by operation of law or otherwise)
other than by will or the applicable laws of descent and distribution
or pursuant to a qualified domestic relations order as defined by the
Internal Revenue Code of 1986, as amended, or Title I of the
Employee Retirement Income Security Act, as amended, or the rules
thereunder, except that, to the extent permitted by applicable law
and Rule 16b-3 promulgated under Section 16(b) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), the Plan
Administrator may permit a recipient of an option to designate in
writing
during the optionee's lifetime a beneficiary to receive and exercise
options in the event of the optionee's death (as provided in Section
5(a)
hereof). Any attempt to transfer, assign, pledge, hypothecate or
otherwise dispose of any option under the Plan or of any right or
privilege conferred thereby, contrary to the provisions of the Plan, or
the sale or levy or any attachment or similar process upon the rights
and privileges conferred thereby, shall be null and void.
7. Holding Period.
Shares of Common Stock obtained upon the exercise of any option
granted under the Plan may not be sold by persons subject to Section
16 of the Exchange Act until six months after the later of (i) the
date the option was granted or (ii) the date on which the Plan was
approved by the Company's Stockholders.
8. Participant's or Successor's Rights as Stockholder.
Neither the recipient of an option under the Plan nor the
optionee's successor(s) in interest shall have any rights as a
stockholder of the Company with respect to any Shares subject to an
option granted to such person until such person becomes a holder of
record of such Shares.
9. Limitation as to Directorship.
Neither the Plan nor the granting of an option nor any other
action taken pursuant to the Plan shall constitute or be evidence of
any agreement or understanding, express or implied, that an optionee
has a right to continue as a Director for any period of time or at
any particular rate of compensation.
10. Regulatory approval and Compliance.
The Company shall not be required to issue any certificate or
certificates for Shares upon the exercise of any option granted under
the Plan, or record as a holder of record of Shares the name of the
individual exercising an option under the Plan, without obtaining to the
complete satisfaction of the Plan Administrator the approval of all
regulatory bodies deemed necessary by the Plan Administrator, and
without complying, to the Plan Administrator's complete satisfaction,
with all rules and
regulations under federal, state or local law deemed applicable by the
Plan Administrator.
ARTICLE VI. Capital Adjustments
The aggregate number and class of Shares for which options may
be granted under the Plan, the number and class of Shares covered
by each outstanding option and the exercise price per Share thereof
(but not the total price) shall all be proportionately adjusted for
any increase or decrease in the number of issued Shares resulting
from a recapitalization, stock split, stock dividend, exchange of
shares, merger, reorganization, change in corporate structure or shares
of the Company or similar events.
In the event of any adjustment in the number of Shares covered by
any option, any fractional Shares resulting from such adjustment
shall be disregarded and each such option shall cover only the number
of full Shares resulting from such adjustment.
ARTICLE VII. Expenses Of The Plan
All cost and expenses of the adoption and administration of the
Plan shall be borne by the Company; none of such expenses shall be
charged to any optionee.
ARTICLE VIII. Effective Date And Duration Of The Plan
The Plan shall be dated as of March 18, 1994 and shall be effective
upon adoption by the Board so long as the Plan receives the approval of
holders of a majority of the Company's Shares present and entitled to
vote at the 1994 Annual Meeting of the Stockholders. The Plan shall
continue in effect until it is terminated by action of the Board or
the Company's stockholders, but such termination shall not affect the
then outstanding terms of any options.
ARTICLE IX. Termination And Amendment Of The Plan
The Board may amend, terminate or suspend the Plan at any time, in
its sole and absolute discretion; provided, however, that no amendment
may be made more than once every six (6) months that would change the
amount, price, timing or vesting of the options, other than to comport
with changes in the Internal Revenue Code of 1986, as amended, or the
Employee Retirement Income Security Act, as amended or the rules and
regulations promulgated thereunder, and provided, further, that if
required to qualify the Plan under rule 16b-3, no amendment that would
(a) materially increase the number of Shares that may be issued under
the
Plan,
(b) materially modify the requirements as to eligibility for
participation
in the Plan, or
(c) otherwise materially increase the benefits accruing to
participants
under the plan
shall be made without the approval of the Company's stockholders.
ARTICLE X. Compliance With Rule 16b-3
It is the intention of the Company that the Plan comply in all
respects with Rule 16b-3 promulgated under Section 16(b) of the Exchange
Act and that Plan participants remain disinterested persons for
purposes of (i)
administering other employee benefits plans of the Company and (ii)
having such other plans be exempt from Section 16(b) of the
Exchange Act. Therefore, if any Plan provision is later found not to be
in compliance with Rule 16b-3 or if any Plan provision would disqualify
Plan participants from remaining disinterested persons, that provision
shall be deemed null and void, and in all events the Plan shall be
construed in favor of its meeting the requirements of rule 16b-3.
44
COMPARATIVE HIGHLIGHTS
The Great Atlantic & Pacific Tea Company, Inc.
(Dollars in thousands, except per share figures)
Fiscal 1994 Fiscal 1993 Fiscal 1992
----------- ----------- -----------
Sales $10,331,950 $10,384,077 $10,499,465
Income (loss) before cumulative
effect of accounting changes (166,586) 3,959 (98,501)
Net income (loss) (171,536) 3,959 (189,501)
Income (loss) per share before
cumulative effect of
accounting changes (4.36) .10 (2.58)
Net income (loss) per share (4.49) .10 (4.96)
Cash dividends per share .65 .80 .80
Expenditures for property 214,886 267,329 204,870
Working capital 97,277 79,207 56,769
Current ratio 1.09 1.07 1.05
Shareholders' equity 774,914 994,417 1,034,330
Book value per share 20.27 26.02 27.06
Number of stores at year end 1,108 1,173 1,193
1
MANAGEMENT'S DISCUSSION AND ANALYSIS
OPERATING RESULTS
Fiscal 1994 Compared with 1993
Sales for fiscal 1994 were $10.3 billion, a net decrease of $52 million or
0.5% when compared to fiscal 1993 sales of $10.4 billion. U.S. sales
increased $75 million or 0.9% compared to fiscal 1993 despite the estimated
impact of a fiscal 1993 competitors' strike in the New York metropolitan
market which had a favorable effect on fiscal 1993 sales of approximately
0.3%. In the U.S., same store sales for fiscal 1994 were 0.8% ahead of
fiscal 1993 and comparable store sales, which include replacement stores,
were up 1.4% excluding the estimated effect of last year's competitors'
strike.
Canadian sales were $127 million or 6.6% below fiscal 1993. A lower fiscal
1994 Canadian exchange rate accounted for $110 million of this year's sales
decline. Canada's fiscal 1994 sales increased approximately $122 million due
to a labor strike in fiscal 1993 in 63 Miracle Food Mart ("Miracle") stores
which caused the stores to be closed for the last 14 weeks of the prior
fiscal year. Excluding the impact of a lower Canadian exchange rate and the
strike closure of 63 Miracle stores for 14 weeks of fiscal 1993, Canadian
same store sales were down 7.0% mainly due to the slow sales recovery of the
Miracle stores following the settlement of the labor strike on the last day
of fiscal 1993.
The Company opened 16 new supermarkets and 6 new liquor stores, remodeled and
enlarged 55 stores and closed 87 stores during fiscal 1994. The opening of
38 new stores since the beginning of fiscal 1993 and the acquisition of Big
Star stores in fiscal 1993 added approximately 3.1% to comparable sales in
fiscal 1994. The closure of 171 stores since the beginning of fiscal 1993
reduced comparative sales by approximately 3.1%. Average weekly sales per
store were approximately $174,800 in fiscal 1994 versus $168,100 in fiscal
1993 for a 4.0% increase.
During fiscal 1994, in an effort to combat the competitive situation in the
Metro Atlanta area, the Company closed 21 Atlanta stores and completed the
launching of its frequent shoppers program which began late in fiscal 1993.
As a result, sales for the Metro Atlanta area have improved, with same store
sales for the remaining stores up 7.0% over the prior year. However, in
Atlanta, the Company is still experiencing the influx of new competitors, and
the expected continuing high level of competitive openings and pricing
activity pose a threat to the sales and profitability of the Company's
Atlanta operations.
Gross margin as a percent of sales for both fiscal 1994 and 1993 approximated
28.5%. The gross margin dollars decrease of $15 million is a result of a
decline in the Canadian exchange rate of $29 million and a decrease in gross
margin rates, principally in Canada, of $3 million partly offset by an
increase in gross margin volume, principally in the U.S., of $17 million.
The U.S. gross margin dollars increased $51 million, as a result of an
increase in gross margin rates from 28.3% to 28.7% and the impact of the
aforementioned volume increase. The Canadian gross margin dollars decreased
$66 million, resulting from a decrease in gross margin rates from 29.3% to
27.7%, the impact of the exchange rate decline and a volume decline.
Store operating, general and administrative expense of $2.9 billion in fiscal
1994 declined slightly from fiscal 1993. As a percent of sales, such costs
approximated 27.8% in both fiscal 1994 and 1993. U.S. expenses increased $15
million, principally related to depreciation, outside services, store pre-
opening and labor costs. Canadian expenses decreased $31 million primarily
due to lower store labor costs on reduced sales volume, reduced occupancy
costs, a decrease in expenses related to prior year's Miracle strike and the
favorable impact of the decline in the Canadian exchange rate. The Canadian
decrease was partially offset by the cost of the termination/reassignment
program which was $27 million in fiscal 1994, compared to an early retirement
program charge of $17 million in fiscal 1993. The termination/reassignment
program was implemented in conjunction with the Company's decision to convert
a significant number of its Ontario-based stores to a low-cost format. In
addition, the Company recorded a $17 million charge in fiscal 1994 to cover
the cost of closing 13 non-Miracle stores in fiscal 1995.
Included under the Company's 1994 year-end balance sheet captions "Other
accruals" and "Other non-current liabilities" are amounts totaling
approximately $43 million associated with store closing liabilities, which
includes the $17 million recorded in fiscal 1994 for Canada as discussed
above. During fiscal 1994 approximately $15 million were charged against
these reserves, of which approximately $14 million related to the realignment
of store operations reserve established in fiscal 1992. See "Realignment of
Store Operations" footnote for further discussion.
During the third quarter of fiscal 1994 the Company recorded a charge of
$127 million representing the write-off of $50 million of goodwill and the
write-down of $77 million of fixed assets relating to Miracle stores which
continue to generate operating losses.
In November of 1993, the Miracle store employees went on strike for a 14-
week period. Since Canadian labor laws preclude the replacement of striking
workers, the strike resulted in a complete shutdown of all of the Miracle
stores. The strike was resolved on February 20, 1994 and the Company paid
$17 million in labor settlement costs. These stores were re-opened for
business commencing February 25, 1994. Following the strike, Management
instituted extensive and costly promotional campaigns designed to assist in
its goal of re-establishing pre-strike sales levels. When the Miracle
strike ended, Management determined that the goodwill balance associated
with Miracle stores would be recoverable over its remaining life. This
conclusion was based upon operating projections which comprehended (i) the
historical performance and market shares of the Miracle stores in pre-strike
periods, (ii) the labor savings projected to be realized as a result of the
favorable terms of the settlement (principally wage and benefit concessions
and the ability to use newly hired part-time employees after a certain level
of full and part-time union employment had been realized), and (iii) the
regaining of pre-strike sales and operating margins which was anticipated to
occur because of the implementation of extensive promotional programs in the
Miracle stores.
Management continued to assess the performance of the Miracle stores during
the post-strike period. The anticipated recovery of Miracle sales and
operating margins was not yet realized through June 18, 1994, the end of the
Company's first fiscal quarter or September 10, 1994, the end of the
Company's second fiscal quarter. Through the second quarter same store
sales and margins had declined significantly when compared to the prior year
pre-strike levels. At that time, Management concluded that the following
factors were the principal reasons why the recovery had not yet been
realized: (i) increased price competition from Miracle competitors in
response to the promotional activities implemented by Miracle, (ii) the
inability to yet utilize part-time employees (a key element of the strike
settlement which required increased sales levels to be effective) and (iii)
the continuing effects of the complete shutdown during the strike.
Management continued to believe that these negative trends were temporary
and that more time was required to determine the effectiveness of the
promotional programs and the changed competitive environment. Management
continued to closely monitor the operating performance and sales levels
during the third quarter.
Despite the extensive promotional programs, in the period through December
3, 1994, the operating performance of Miracle did not improve and the
negative sales trends and deteriorating margin levels continued. Management
believed that the negative results which occurred subsequent to the strike
were no longer temporary and, accordingly, prior operating cash flow
projections of Miracle were revised. These revised projections indicated
that the Miracle goodwill balance would not be recovered over its remaining
life and the full amount thereof should be written-off.
Further, the levels of sales and operating cash flow achieved through the
first nine months of fiscal 1994, coupled with the reduced expectations of
future Miracle operations, indicated that Miracle's operating results would
not be sufficient to absorb the depreciation and amortization of certain of
its operating fixed assets. In order to measure this impairment, the
Company analyzed the projected operating performance of each store
comprising the Miracle division and reflected the impairment of the fixed
assets attributable to those stores which the Company believes will continue
to generate an operating loss before taking into account depreciation and
amortization expenses. The Company has no current plans to close Miracle
stores in spite of their negative performance and believes that the total
Canadian operations will be able to absorb their projected fixed costs. The
Company also believes that the fixed assets related to the Canadian
operations exclusive of Miracle are recoverable from operations over their
remaining useful lives.
As of February 25, 1995, based on current information, the Company has no
reasonable basis to believe that any existing goodwill on the books of the
Company is required to be written-off. After giving effect to the Miracle
goodwill write-off, there is currently no goodwill recorded on the books of
the Canadian operations.
Interest expense increased in fiscal 1994 when compared to fiscal 1993
primarily due to increased U.S. borrowings of $100 million in long-term Notes
issued in January, 1994 and an increase in average interest rates on short-
term borrowings.
Income (loss) before taxes and cumulative effect of accounting change for
fiscal 1994 was a loss of $129 million as compared to income of $7 million in
fiscal 1993. The fiscal 1994 loss included Canadian charges for the write-
off of goodwill and long-lived assets of $127 million, the employee
termination/reassignment program of $27 million and the provision for store
closings of $17 million. The fiscal 1993 income included a Canadian charge
of $17 million for an employee early retirement program and an estimated $23
million cost impact of the Canadian labor strike.
Income before taxes and cumulative effect of accounting change for U.S.
operations for fiscal 1994 was $81 million as compared to $52 million for
fiscal 1993, or a 54% increase. Excluding the above Canadian charges, loss
before taxes and cumulative effect of accounting change for Canadian
operations would have been $39 million for fiscal 1994 as compared to $5
million for fiscal 1993.
During fiscal 1994, the Company recorded a valuation allowance of $119.6
million against Canadian deferred tax assets, which, based upon current
available evidence, are not likely to be realized. These deferred tax assets
result from tax loss carryforwards, fiscal 1994 operating losses and
deductible temporary differences arising from the Canadian write-off of
goodwill and long-lived assets.
The Company historically provided U.S. deferred taxes on the undistributed
earnings of the Canadian operations. During fiscal 1994, the Company made an
election to permanently reinvest prior years' earnings and, accordingly,
reversed deferred tax liabilities of $27 million associated with the
undistributed earnings of the Canadian operations. Further, this decision
also resulted in a direct charge to equity of approximately $20 million to
eliminate the deferred tax asset related to the Cumulative Translation
Adjustment.
Effective February 27, 1994, the Company adopted Statement of Financial
Accounting Standards No. 112 "Employers' Accounting for Postemployment
Benefits" ("SFAS 112"). As a result, the Company recorded an after-tax
charge of $5 million or $.13 per share as the cumulative effect of this
change on prior years.
Net loss for fiscal 1994 was $172 million or $4.49 per share as compared to
net income for fiscal 1993 of $4 million or $.10 per share. The fiscal 1994
net loss included after-tax Canadian charges for the write-off of goodwill
and long-lived assets of $127 million, the employee termination/reassignment
program of $27 million, the provision for store closings of $17 million, a
reduction of deferred tax benefits previously recorded of $28 million and the
cumulative effect of adopting SFAS 112 of $5 million, offset by the reversal
of deferred tax liabilities of $27 million in the U.S. associated with the
undistributed earnings of the Canadian operations. The fiscal 1993 net
income included an unfavorable after-tax effect of $14 million for the
Miracle strike and a $10 million charge for the Miracle employee early
retirement program.
Excluding the U.S. reversal of the deferred tax liabilities associated with
undistributed earnings of $27 million, net income of U.S. operations
increased over 50% from $33 million or $.86 per share in fiscal 1993 to $50
million or $1.31 per share in fiscal 1994. Excluding the above Canadian
charges, fiscal 1994 would have resulted in a net loss from Canadian
operations of $45 million or $1.17 per share as compared to $5 million or
$.13 per share for fiscal 1993.
Fiscal 1993 Compared with 1992
Sales for fiscal 1993 were $10.4 billion, a net decrease of $115 million or
1.1% when compared to fiscal 1992 sales of $10.5 billion. A lower Canadian
exchange rate accounted for $119 million of the sales decline. In addition,
a labor strike, causing a 14-week closure of 63 Miracle Food Mart and Ultra
Mart stores in Ontario, Canada, negatively impacted sales by an estimated
$166 million or 1.6%. Under Ontario law, the Company could not hire
replacement workers and, therefore, the stores were closed for business. The
strike was resolved and the stores were re-opened on February 25, 1994.
The new Miracle Food Mart labor agreement ended a competitive cost
disadvantage that the Miracle Food Mart stores have labored under since their
acquisition. The Company has recently instituted promotional campaigns to
assist in regaining sales. Assuming that Miracle Food Mart re-establishes
its historical sales levels, the Company anticipates that the new labor
agreement will have a positive impact on operating results.
After adjusting for the effects of the strike and the decline in the Canadian
exchange rate, sales were ahead of the prior year by $170 million or 1.6%.
Contributing to this increase were the acquisition of 48 Big Star stores in
the Atlanta, Georgia area on March 29, 1993, the opening of 16 new stores and
the remodeling of 111 stores during fiscal 1993. The acquisition of Big Star
stores and new store openings since the beginning of fiscal 1992 added
approximately $451 million or 4.3% to sales for the 1993 fiscal year. The
Company, in its continuing program to eliminate obsolete, unproductive
stores, closed 84 stores during fiscal 1993. The closure of stores since the
beginning of fiscal 1992 reduced comparative sales by approximately $274
million or 2.6%. Same store sales were 0.1% lower or approximately $7
million. Average weekly sales per store were approximately $168,100 in
fiscal 1993 versus $165,900 in fiscal 1992 for a 1.3% increase.
Same store sales for U.S. operations declined 0.5%. A competitor's 10-week
strike in fiscal 1992 in the Michigan region as well as the highly
competitive sales climate and overall lack of inflation had a significant
negative impact on this comparison. However, U.S. same store sales have
shown steady improvement which began in the third quarter of fiscal 1992,
culminating with a fourth quarter of fiscal 1993 comparative increase of
3.7%. In Canada, same store sales for the year, excluding the 63 stores
closed during the period affected by the strike, improved 1.7%, while same
store sales for the fourth quarter were 4.5% ahead of last year.
Gross margin as a percent of sales for both fiscal 1993 and 1992 approximated
28.5%. The gross margin dollar decrease of $29 million is primarily the
result of the unfavorable effect of the Canadian exchange rate of $32
million. The U.S. gross margin increased $38 million principally as a
result of increased volume of $52 million. A challenge in fiscal 1993 was
the progress in turning around the Big Star stores in Metro Atlanta, which
were acquired in March 1993. Atlanta has become an extremely competitive
situation, and the Company is experiencing significant pressure on margins
while launching a strong new marketing and merchandising program. In Canada,
gross margin declined $67 million, of which $52 million was caused by volume
declines primarily as a result of the aforementioned labor strike and $32
million due to the aforementioned Canadian exchange rate decline. Offsetting
this decline was an increase of 0.9% or $17 million in the gross margin rate.
Store operating, general and administrative expense of $2.9 billion in fiscal
1993 remained relatively unchanged from prior year, with increased store
occupancy and store promotion costs offsetting decreased customer and
employee accident costs. As a percent of sales, such costs were 27.8% in
fiscal 1993 as compared to 27.6% in fiscal 1992. U.S. expenses increased $38
million, principally store labor related to the improved sales volume and
increased store occupancy costs. Canadian expenses decreased $48 million
primarily due to the decline in the Canadian exchange rate and reduced
expenses from store closures during the 14-week labor strike partially offset
by a $17 million charge for an early retirement program in the Miracle labor
settlement.
Included under the Company's 1993 year-end balance sheet captions "Other
accruals" and "Other non-current liabilities" are amounts totaling
approximately $41 million associated with store closing liabilities. During
fiscal 1993 approximately $35 million were charged against these reserves,
which included approximately $27 million relating to the realignment of
store operations reserve established in the prior year. See "Realignment of
Store Operations" footnote for further discussion.
Interest expense decreased from the previous year primarily due to reduced
capital lease obligations and lower interest rates on bonds and short-term
borrowings partially offset by higher outstanding borrowings.
Income before income taxes and cumulative effect of accounting changes for
fiscal 1993 was $7 million compared to a net loss of $172 million in fiscal
1992. The pre-tax income for fiscal 1993 reflects income from U.S.
operations of $52 million offset by a loss in Canada of $45 million. The
Canadian loss is primarily attributable to the aforementioned labor strike,
which adversely impacted pre-tax income by an estimated $40 million.
Excluding the $40 million impact from the Canadian strike in fiscal 1993, the
$151 million provision for the Isosceles investment and the $43 million
charge for realignment of store operations in fiscal 1992, income before
income taxes and cumulative effect for fiscal 1993 increased $25 million or
$.39 per share from fiscal 1992.
The income tax provision recorded in fiscal 1993 reflects the 1% increase in
the corporate tax rate, partially offset by retroactive targeted jobs tax
credits as prescribed in the Omnibus Budget Reconciliation Act of 1993. The
tax benefit recorded in fiscal 1992 resulted primarily from the provision for
the potential loss on Isosceles investment and the charge for realignment of
store operations, both recorded in fiscal 1992.
LIQUIDITY AND CAPITAL RESOURCES
The Company ended the 1994 fiscal year with working capital of $97 million
compared to $79 million and $57 million at February 26, 1994 and February 27,
1993, respectively. The Company had cash and short-term investments
aggregating $129 million at the end of fiscal 1994 compared to $124 million
and $110 million at the end of fiscal 1993 and 1992, respectively. The
Company also has in excess of $200 million in various available credit
facilities. See "Indebtedness" footnote for further discussion.
As a result of the charges previously discussed, certain financial covenants
in the Company's U.S. and Canadian bank credit agreements were required to be
amended. The amendments provide for certain financial covenants which
require, among other things, minimum net worth and maximum levels of
indebtedness. The Company was in compliance with all such financial
covenants at February 25, 1995, the end of its current fiscal year.
During the fourth quarter of fiscal 1994, the Company reduced its regular
quarterly dividend to five cents per share from 20 cents per share.
During fiscal 1994, the Company funded its capital expenditures, debt
repayments and cash dividends through internally generated funds combined
with proceeds from bank borrowings.
U.S. bank borrowings were $168 million at February 25, 1995 as compared to
$116 million at February 26, 1994. U.S. bank borrowings during fiscal 1994
were at an average interest rate of 5.4% compared to 3.4% in fiscal 1993.
Canadian bank and commercial paper borrowings were $115 million and $55
million at February 25, 1995 and February 26, 1994, respectively. Canadian
bank and commercial paper borrowings during fiscal 1994 were at an average
interest rate of 7.0% compared to 5.5% in fiscal 1993.
For fiscal 1994, capital expenditures totaled $215 million, which included 16
new supermarkets, 6 new liquor stores and 55 remodels and enlargements. The
Company had originally planned capital expenditures of approximately $340
million including 35 new stores and approximately 120 remodels and
expansions. However, certain store openings and remodels and expansions have
been canceled or delayed mainly due to permit compliance with applicable
regulatory requirements and, accordingly, the Company reduced its planned
expenditures during the year.
For fiscal 1995, the Company has planned capital expenditures of
approximately $205 million and plans to open 25 new supermarkets and 2 new
liquor stores, remodel and expand 51 stores and convert the format of 41
Canadian stores. It has been the Company's experience over the past several
years that it typically takes 12 to 18 months after opening for a new store
to begin generating operating profits. Risks inherent in retail real estate
investments are primarily associated with competitive pressures in the
marketplace. From fiscal 1995 through fiscal 1999, the Company intends to
improve the use of technology through scanning and other technological
advances to improve customer service and store operations and merchandising
and to intensify advertising and promotions. The Company currently expects
to close approximately 50 to 60 stores per year over fiscal years 1995 and
1996.
The Company plans to open 35 new supermarkets in fiscal 1996 and
approximately 30 new supermarkets per year thereafter for several years, with
an attendant increase in square footage of approximately 3% per year, and to
remodel an average of 50 stores per year. The Company's concentration will
be on larger stores in the 50,000 to 65,000 square foot range. Costs of each
project will vary significantly based upon size, marketing format, geographic
area and development involvement required from the Company. The planned
costs of these projects average $3,800,000 for a new store and $1,000,000 for
a remodel or enlargement. Traditionally, the Company leases real estate and
expends capital on leasehold improvements and store fixtures and fittings.
Consistent with the Company's history, most new store activity will be
directed into those areas where the Company achieves its best profitability.
Remodeling and enlargement programs are normally undertaken based upon
competitive opportunities and usually involve updating a store to a more
modern and competitive format.
At fiscal year end, the Company's existing senior debt rating was BBB- with
Standard & Poor's Ratings Group and Baa3 with Moody's Investors Service. On
May 8, 1995 Standard & Poor's reduced the Company's rating to BB+. The
rating change is not expected to have a material effect on the Company's
profitability or availability of credit. A further change in either of these
ratings could affect the availability and cost of financing.
The Company's current cash resources, together with cash generated from
operations, will be sufficient for the Company's 1995 capital expenditure
program, mandatory scheduled debt repayments and dividend payments throughout
fiscal 1995.
STATEMENTS OF CONSOLIDATED OPERATIONS
The Great Atlantic & Pacific Tea Company, Inc.
(Dollars in thousands, except per share figures)
Fiscal 1994 Fiscal 1993 Fiscal 1992
----------- ----------- -----------
Sales $10,331,950 $10,384,077 $10,499,465
Cost of merchandise sold (7,388,495) (7,425,578) (7,511,910)
----------- ----------- -----------
Gross margin 2,943,455 2,958,499 2,987,555
Store operating, general
and administrative expense (2,873,985) (2,890,219) (2,900,249)
Write-off of goodwill and
long-lived assets (127,000) - -
Realignment of store operations - - (43,000)
---------- ---------- ----------
Income (loss) from operations (57,530) 68,280 44,306
Interest expense (72,972) (63,318) (66,436)
Interest income 1,054 1,599 1,267
Provision for potential loss
on Isosceles investment - - (151,238)
---------- ---------- ----------
Income (loss) before income taxes
and cumulative effect of
accounting changes (129,448) 6,561 (172,101)
Benefit (provision) for income taxes (37,138) (2,602) 73,600
---------- ---------- ----------
Income (loss) before cumulative
effect of accounting changes (166,586) 3,959 (98,501)
Cumulative effect on prior years of
changes in accounting principles:
Postemployment benefits (4,950) - -
Income taxes - - (64,500)
Postretirement benefits - - (26,500)
---------- ---------- ----------
Net income (loss) $(171,536) $ 3,959 $(189,501)
========== ========== ==========
Earnings (loss) per share:
Income (loss) before
cumulative effect of
accounting changes $(4.36) $.10
$(2.58)
Cumulative effect on prior years of
changes in accounting principles:
Postemployment benefits (.13) - -
Income taxes - -
(1.69)
Postretirement benefits - -
(.69)
---------- ---------- ----------
Net income (loss) per share $(4.49) $.10
$(4.96)
========== ========== ==========
See Notes to Consolidated Financial Statements.
STATEMENTS OF CONSOLIDATED SHAREHOLDERS' EQUITY
The Great Atlantic & Pacific Tea Company, Inc.
(Dollars in thousands)
Fiscal 1994Fiscal 1993 Fiscal 1992
----------- ----------- -----------
Common stock:
Balance at beginning of year $38,229 $38,229 $38,224
Exercise of options - - 5
-------- -------- --------
Balance at end of year $38,229 $38,229 $38,229
======== ======== ========
Capital surplus:
Balance at beginning of year $453,475 $453,475 $437,972
Exercise of options and cumulative tax
effect of phantom share agreement - - 15,503
-------- -------- --------
Balance at end of year $453,475 $453,475 $453,475
======== ======== ========
Cumulative translation adjustment:
Balance at beginning of year $(26,103) $(12,809) $1,395
Exchange adjustment, net of tax (3,317) (13,294) (14,204)
Elimination of deferred income tax asset
(see "Income Taxes" footnote) (19,807) - -
-------- -------- --------
Balance at end of year $(49,227) $(26,103) $(12,809)
======== ======== ========
Retained earnings:
Balance at beginning of year $529,179 $555,796 $775,873
Net income (loss) (171,536) 3,959 (189,501)
Cash dividends (24,843) (30,576) (30,576)
-------- -------- --------
Balance at end of year $332,800 $529,179 $555,796
======== ======== ========
Treasury stock, at cost:
Balance at beginning of year $(363) $(361) $(358)
Purchase of Treasury stock - (2) (3)
-------- -------- --------
Balance at end of year $(363) $(363) $(361)
======== ======== ========
See Notes to Consolidated Financial Statements.
CONSOLIDATED BALANCE SHEETS
The Great Atlantic & Pacific Tea Company, Inc.
February 25, February 26,
(Dollars in thousands) 1995 1994
------------ ------------
Assets
Current assets:
Cash and short-term investments $128,930 $124,236
Accounts receivable 205,619 190,954
Inventories 811,964 850,077
Prepaid expenses and other assets 47,218 65,072
---------- ----------
Total current assets 1,193,731 1,230,339
---------- ----------
Property:
Land 117,508 106,904
Buildings 287,340 257,313
Equipment and leasehold improvements 2,080,103 2,185,280
---------- ----------
Total-at cost 2,484,951 2,549,497
Less accumulated depreciation
and amortization (1,018,708) (984,752)
---------- ----------
1,466,243 1,564,745
Property leased under capital leases 107,494 122,788
---------- ----------
Property-net 1,573,737 1,687,533
Other assets 127,320 180,823
---------- ----------
$2,894,788 $3,098,695
========== ==========
Liabilities and Shareholders' Equity
Current liabilities:
Current portion of long-term debt $112,821 $77,755
Current portion of obligations
under capital leases 14,492 16,097
Accounts payable 447,081 458,875
Book overdrafts 157,521 196,818
Accrued salaries, wages and benefits 158,109 173,366
Accrued taxes 51,345 35,879
Other accruals 155,085 192,342
---------- ----------
Total current liabilities 1,096,454 1,151,132
---------- ----------
Long-term debt 612,473 544,399
---------- ----------
Obligations under capital leases 146,400 162,866
---------- ----------
Deferred income taxes 118,579 100,405
---------- ----------
Other non-current liabilities 145,968 145,476
---------- ----------
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 (49,227) (26,103)
Retained earnings 332,800 529,179
Treasury stock, at cost, 9,157 shares (363) (363)
---------- ----------
Total shareholders' equity 774,914 994,417
---------- ----------
$2,894,788 $3,098,695
========== ==========
See Notes to Consolidated Financial Statements.
STATEMENTS OF CONSOLIDATED CASH FLOWS
The Great Atlantic & Pacific Tea Company, Inc.
(Dollars in thousands) Fiscal 1994 Fiscal 1993 Fiscal 1992
----------- ----------- -----------
Cash Flows From Operating Activities:
Net income (loss) $(171,536) $3,959 $(189,501)
Adjustments to reconcile net income (loss)
to cash provided by operating activities:
Write-off of goodwill and
long-lived assets 127,000 - -
Provision for potential loss on Isosceles
investment - - 151,238
Realignment of store operations - - 43,000
Cumulative effect on prior years of changes
in accounting principles:
Postemployment benefits 4,950 - -
Income taxes - - 64,500
Postretirement benefits - - 26,500
Depreciation and amortization 235,444 235,910 228,976
Deferred income tax provision (benefit) on
income (loss) before cumulative effect
of accounting changes 20,836 (19,568) (87,800)
(Gain) loss on disposal of owned property (816) 1,032 (2,472)
(Increase) decrease in receivables (15,197) 1,936 (18,538)
Decrease in inventories 34,048 12,928 45,367
(Increase) decrease in other current assets (1,341) (7,981) 1,906
Decrease in accounts payable (9,996) (1,557) (50,761)
Increase (decrease) in accrued expenses 1,295 46,292 (10,081)
Increase (decrease) in store closing
reserves 2,012 (34,522) (7,944)
Increase (decrease) in other accruals
and other liabilities (43,603) (19,438) 23,302
Other operating activities, net (1,756) (5,385) (6,358)
-------- -------- --------
Net cash provided by operating activities 181,340 213,606 211,334
-------- -------- --------
Cash Flows From Investing Activities:
Expenditures for property (214,886) (267,329) (204,870)
Proceeds from disposal of property 12,113 19,464 12,573
Acquisition of business,
net of cash acquired - (42,948) -
-------- -------- --------
Net cash used in investing activities (202,773) (290,813) (192,297)
-------- -------- --------
Cash Flows From Financing Activities:
Proceeds from debt 116,887 218,524 8,839
Payment of debt (11,437) (114,826) (32,788)
Principal payments on capital leases (15,923) (18,876) (18,565)
Increase (decrease) in book overdrafts (37,720) 39,192 29,767
Cash dividends (24,843) (30,576) (30,576)
Proceeds from stock options exercised - - 27
Purchase of Treasury stock - (2) (3)
Net cash provided by (used in) -------- -------- --------
financing activities 26,964 93,436 (43,299)
-------- -------- --------
Effect of exchange rate changes on cash and
short-term investments (837) (2,113) (1,784)
-------- -------- --------
Net Increase (Decrease) in Cash and
Short-term Investments 4,694 14,116 (26,046)
Cash and Short-term Investments
at Beginning of Year 124,236 110,120 136,166
-------- -------- --------
Cash and Short-term Investments
at End of Year $128,930 $124,236 $110,120
======== ======== ========
See Notes to Consolidated Financial Statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Fiscal Year
The Company's fiscal year ends on the last Saturday in February. Fiscal
1994 ended February 25, 1995, fiscal 1993 ended February 26, 1994 and fiscal
1992 ended February 27, 1993. Fiscal 1994, fiscal 1993 and fiscal 1992 were
each comprised of 52 weeks.
Common Stock
The principal shareholder of the Company, Tengelmann
Warenhandelsgesellschaft, owned 54.0% of the Company's common stock as of
February 25, 1995.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and all majority-owned subsidiaries.
Cash and Short-term Investments
Short-term investments that are highly liquid with an original maturity of
three months or less are included in cash and short-term investments and are
deemed to be cash equivalents.
Inventories
Store inventories are valued principally at the lower of cost or market with
cost determined under the retail method. Other inventories are valued
primarily at the lower of cost or market with cost determined on a first-in,
first-out basis. Inventories of certain acquired companies are valued using
the last-in, first-out method, which was their practice prior to
acquisition.
Properties
Depreciation and amortization are provided on the straight-line basis over
the estimated useful lives of the assets. Buildings are depreciated based
on lives varying from twenty to fifty years and equipment based on lives
varying from three to ten years. Equipment and real property leased under
capital leases are amortized over the lives of the respective leases or over
their economic useful lives, whichever is less. Properties designated for
sale are classified as current assets.
Pre-opening Costs
The costs of opening new stores are expensed in the year incurred.
Earnings (Loss) Per Share
Earnings (loss) per share is based on the weighted average number of common
shares outstanding during the fiscal year which was 38,220,000 in both
fiscal 1994 and 1993 and 38,219,000 in fiscal 1992. Stock options
outstanding had no material effect on the computation of earnings (loss) per
share and, accordingly, were excluded from the calculation.
Excess of Cost over Net Assets Acquired
The excess of cost over fair value of net assets acquired is amortized on a
straight-line basis over forty years. At each balance sheet date,
management reassesses the appropriateness of the goodwill balance based on
forecasts of cash flows from operating results on an undiscounted basis. If
the results of such comparison indicate that an impairment may be more
likely than not, the Company will recognize a charge to operations at that
time based upon the difference between the present value of the expected
cash flows from future operating results (utilizing a discount rate equal to
the Company's average cost of funds at that time) and the balance sheet
value. The recoverability of goodwill is at risk to the extent the Company
is unable to achieve its forecast assumptions regarding cash flows from
operating results. At February 25, 1995, the Company estimates that the
cash flows projected to be generated by the respective businesses on an
undiscounted basis should be sufficient to recover the existing goodwill
balance over its remaining life (see "Write-off of Goodwill and Long-Lived
Assets" footnote).
Income Taxes
The Company provides deferred income taxes on temporary differences between
amounts of assets and liabilities for financial reporting purposes and such
amounts as measured by tax laws.
Current Liabilities
Under the Company's cash management system, checks issued but not presented
to banks frequently result in overdraft balances for accounting purposes and
are classified as "Book overdrafts" in the balance sheet.
The Company accrues for vested and non-vested vacation pay. Liabilities for
compensated absences of $81 million and $84 million at February 25, 1995 and
February 26, 1994, respectively, are included in the balance sheet caption
"Accrued salaries, wages and benefits."
Reclassifications
Certain reclassifications have been made to the prior years' financial
statements in order to conform to the current year presentation.
INVENTORY
Approximately 26% of the Company's inventories are valued using the last-in,
first-out ("LIFO") method. Such inventories would have been $15 million and
$17 million higher at February 25, 1995 and February 26, 1994, respectively,
if the retail and first-in, first-out methods were used. During fiscal 1994
and 1993, the Company recorded a LIFO credit of approximately $2 million and
$3 million, respectively. During fiscal 1992, the Company recorded a LIFO
charge of approximately $1 million. Liquidation of LIFO layers in the
periods reported did not have a significant effect on the results of
operations.
WRITE-OFF OF GOODWILL AND LONG-LIVED ASSETS
During the third quarter of fiscal 1994, the Company recorded a non-cash
charge of $127 million reflecting $50 million for the write-off of goodwill
related to the acquisition of Miracle Food Mart ("Miracle") stores in Canada
and $77 million for the write-down of certain Miracle fixed assets. Miracle
experienced a work stoppage for a 14-week period at the end of fiscal 1993.
Under Canadian labor laws the stores were closed during this time period.
The labor dispute was settled and the stores re-opened for business on
February 25, 1994. The Company anticipated that the new labor agreement
would have a positive impact on operating results assuming historical sales
levels could be attained. Through the first half of fiscal 1994, the
Company expended significant promotional efforts in order to regain its pre-
strike sales levels. The sales performance through the first half of fiscal
1994 was disappointing and the Company continued to monitor Miracle's
performance through the third quarter. Sales performance in the third
quarter of fiscal 1994 continued to be negative when compared to pre-strike
sales levels. The Company, no longer believing that Miracle's negative
operating performance was temporary, revised its future expected cash flow
projections. These revised projections indicated that the goodwill balance
would not be recoverable over its remaining life. Further, these
projections indicated that the operating results of Miracle would not be
sufficient to absorb the depreciation and amortization of certain of its
operating fixed assets. Accordingly, Miracle's goodwill balance was written-
off and fixed assets relating to Miracle stores which are expected to
continue to generate operating losses were written-down as of the end of the
third quarter of fiscal 1994.
INDEBTEDNESS
Debt consists of:
February 25, February 26,
(Dollars in thousands) 1995 1994
------------ ------------
9 1/8% Notes, due January 15, 1998 $200,000 $200,000
7.70% Senior Notes, due January 15, 2004 200,000 200,000
Mortgages and Other Notes, due
1995 through 2014 (average interest
rates at year end of 9.7% and
9.1%, respectively) 42,249 52,032
U.S. Bank Borrowings at 6.6%
and 3.6%, respectively 168,000 116,000
Canadian Commercial Paper at 7.3%
and 4.0%, respectively 21,085 32,421
Canadian Bank Borrowings at 8.7%
and 4.8%, respectively 94,373 22,260
Less unamortized discount on 9 1/8% Notes (413) (559)
-------- --------
725,294 622,154
Less current portion (112,821) (77,755)
-------- --------
Long-term debt $612,473 $544,399
======== ========
As of February 25, 1995, the Company has outstanding a total of $400 million
of unsecured, non-callable public debt securities in the form of $200
million 9 1/8% Notes due 1998 and $200 million 7.70% Notes due 2004.
The Company has a $250 million U.S. credit agreement with banks enabling it
to borrow funds on a revolving basis sufficient to refinance any outstanding
short-term borrowings. In addition, the U.S. has lines of credit with banks
in excess of $95 million. Borrowings under these U.S. credit agreements
were $168 million and $116 million at February 25, 1995 and February 26,
1994, respectively. The Company pays a facility fee ranging from 3/16% to
1/2% per annum on the Company's revolving credit facility. The Company's
Canadian subsidiary has a C$200 million Loan Facility and a C$100 million
commercial paper program. Borrowings under these programs cannot exceed
C$200 million. Canadian borrowings under those programs were C$161 million
and C$74 million at February 25, 1995 and February 26, 1994, respectively.
The Company's loan agreements contain certain financial covenants including
the maintenance of minimum levels of shareholders' equity and limitations on
the incurrence of additional indebtedness and lease commitments. The
Company was in compliance with such covenants as of February 25, 1995, as
amended.
The net book value of real estate pledged as collateral for all mortgage
loans amounted to approximately $43 million as of February 25, 1995.
Combined U.S. bank and Canadian bank and commercial paper borrowings of $173
million as of February 25, 1995 are classified as non-current as the Company
has the ability and intent to refinance these borrowings on a long-term
basis.
Maturities for the next five fiscal years are: 1995-$113 million; 1996-$83
million; 1997-$275 million; 1998-$34 million; 1999-$3 million. Interest
payments on indebtedness were approximately $52 million for fiscal 1994, $41
million for fiscal 1993 and $39 million for fiscal 1992.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair values of the Company's financial instruments are as
follows:
(Dollars in thousands) February 25, 1995 February 26, 1994
----------------- -----------------
Liabilities: Carrying Fair Carrying Fair
----------- Amount Value Amount Value
-------- ------- -------- -------
9 1/8% Notes, due
January 15, 1998 $199,587 $202,000 $199,441 $214,000
7.70% Senior Notes, due
January 15, 2004 $200,000 $174,000 $200,000 $194,000
Total Indebtedness $725,294 $701,707 $622,154 $630,713
Fair value for the public debt securities is based on quoted market prices.
With respect to all other indebtedness, Company management has evaluated
such debt instruments and has determined, based on interest rates and terms,
that the fair value of such indebtedness approximates carrying value at
February 25, 1995 and February 26, 1994. As of February 25, 1995 and
February 26, 1994, the carrying values of cash and short-term investments,
accounts receivable and accounts payable approximated fair values due to the
short-term maturities of these instruments.
As of the end of fiscal 1994, the Company holds equity securities of both
common and cumulative preferred stock in Isosceles PLC which were written-
off in their entirety during fiscal 1992 (see "Investment in Isosceles"
footnote). There are no quoted market prices for these securities and it is
not practicable, considering the materiality of these securities to the
Company, to obtain an estimate of their fair value. The Company believes
that the fair value for these securities is zero based upon Isosceles'
current and prior year results.
LEASE OBLIGATIONS
The Company operates primarily in leased facilities. Lease terms generally
range up to twenty-five years for store leases and thirty years for other
leased facilities, with options to renew for additional periods. The
majority of the leases contain escalation clauses relating to real estate
tax increases and certain store leases provide for increases in rentals when
sales exceed specified levels. In addition, the Company leases some store
equipment and trucks.
The consolidated balance sheets include the following:
February 25, February 26,
(Dollars in thousands) 1995 1994
------------- ------------
Real property leased under capital leases $238,906 $256,156
Equipment leased under capital leases 663 3,361
-------- --------
239,569 259,517
Accumulated amortization (132,075) (136,729)
-------- --------
$107,494 $122,788
======== ========
The Company did not enter into any new capital
leases during fiscal 1994 and 1992. The Company entered into $2 million of
new capital leases during fiscal 1993. Interest paid as part of capital
lease obligations was approximately $20, $22 and $24 million in fiscal 1994,
1993 and 1992, respectively.
Rent expense for operating leases consists of:
(Dollars in thousands) Fiscal 1994 Fiscal 1993 Fiscal 1992
----------- ----------- -----------
Minimum rentals $154,488 $151,289 $151,150
Contingent rentals 6,619 6,883 7,957
-------- -------- --------
$161,107 $158,172 $159,107
======== ======== ========
Future minimum annual lease payments for capital leases and noncancelable
operating leases in effect at February 25, 1995 are shown in the table
below. All amounts are exclusive of lease obligations and sublease rentals
applicable to facilities for which reserves have previously been
established.
(Dollars in thousands) Capital Leases
Real Operating
Fiscal Equipment Property Leases
--------- -------- ---------
1995 $15 $32,823 $137,900
1996 - 30,506 130,607
1997 - 28,539 121,690
1998 - 26,908 116,011
1999 - 24,762 110,501
2000 and thereafter - 158,755 1,055,910
--- -------- ----------
15 302,293 $1,672,619
==========
Less executory costs - (2,869)
--- --------
Net minimum rentals 15 299,424
Less interest portion - (138,547)
--- --------
Present value of net minimum rentals $15 $160,877
=== ========
INCOME TAXES
The components of income (loss) before income taxes and cumulative effect of
accounting changes are as follows:
(Dollars in thousands) Fiscal 1994 Fiscal 1993 Fiscal 1992
----------- ----------- -----------
United States $80,509 $52,280 $(133,378)
Canadian (209,957) (45,719) (38,723)
--------- ------- ---------
Total $(129,448) $6,561 $(172,101)
========= ======= =========
The provision (benefit) for income taxes before cumulative effect of
accounting changes consists of the following:
(Dollars in thousands) Fiscal 1994 Fiscal 1993 Fiscal 1992
----------- ----------- -----------
Current:
Federal $8,577 $13,500 $21,800
Canadian 2,687 5,744 (12,800)
State and local 5,038 2,926 5,200
------- ------- --------
16,302 22,170 14,200
------- ------- --------
Deferred:
Federal (9,922) 2,723 (62,500)
Canadian (88,948) (22,486) (5,400)
State and local 114 195 (19,900)
Canadian valuation
allowance 119,592 - -
------- ------- --------
20,836 (19,568) (87,800)
------- ------- --------
$37,138 $2,602 $(73,600)
======= ======== ========
The deferred income tax provision results primarily from the impact of
temporary differences between amounts of assets and liabilities for
financial reporting purposes and such amounts as measured by tax laws,
Canadian net operating tax loss carryforwards and the Canadian valuation
allowance.
The Canadian deferred income tax benefit for fiscal 1994 relates primarily
to net operating tax loss carryforwards, the write-off of goodwill and
certain long-lived assets and other temporary differences associated with
the Company's operations in Canada. Management has assessed the likelihood
of realizing the Canadian net deferred income tax assets and, based on all
available evidence, expects it is not likely that such assets will be
realized. Accordingly, during the third quarter of fiscal 1994, the Company
recorded a valuation allowance to reserve for previously recognized deferred
tax benefits and has continued through the remainder of fiscal 1994 to
provide a valuation allowance against its deferred income tax benefits. As
such, at February 25, 1995, a valuation allowance for the entire amount of
net deferred income tax assets related to Canada has been established. The
valuation allowance will be adjusted when and if, in the opinion of
Management, significant positive evidence exists which indicates that it is
more likely than not that the Company will be able to realize the Canadian
deferred tax assets.
The Company historically provided U.S. deferred taxes on the undistributed
earnings of the Canadian operations. During fiscal 1994, the Company made
an election to permanently reinvest prior years' earnings and, accordingly,
reversed deferred tax liabilities of $27 million associated with the
undistributed earnings of the Canadian operations. Further, in conjunction
with this decision, the Company recorded a direct charge to equity of
approximately $20 million to eliminate the deferred tax asset related to the
Cumulative Translation Adjustment.
The Company's Canadian net operating tax loss carryforwards of approximately
$178 million expire between fiscal 1997 and 2001.
The income tax provision recorded in fiscal 1993 reflects the increase in
the corporate tax rate of 1%, partially offset by retroactive targeted jobs
tax credits as prescribed by the Omnibus Budget Reconciliation Act of 1993.
The income tax benefit recorded in fiscal 1992 resulted primarily from the
provision for the potential loss on the Company's total investment in
Isosceles and the charge for realignment of store operations.
The provision for income taxes includes amortization of investment tax
credits of approximately $1 million in fiscal 1992.
A reconciliation of income taxes at the 35% federal statutory income tax
rate for 1994 and 1993, and 34% for 1992 to income taxes as reported is as
follows:
(Dollars in thousands) Fiscal 1994 Fiscal 1993Fiscal 1992
----------- ----------------------
Income taxes computed at federal
statutory income tax rate $(45,307) $2,296 $(58,514)
Effect of 1% statutory rate change - 2,519 -
Targeted jobs tax credits (1,300) (1,656) -
State and local income taxes, net of
federal tax benefit 3,348 2,031 (9,729)
Tax rate differential relating
to Canadian operations (12,775) (3,261) (4,969)
Canadian valuation allowance 119,592 - -
Goodwill 580 673 612
Investment tax credits - - (1,000)
Reduction of tax on liabilities
associated with undistributed
earnings (27,000) - -
------- ------ --------
Income taxes, as reported $37,138 $2,602 $(73,600)
======= ====== ========
As of the beginning of fiscal 1992, the Company adopted Statement of
Financial Accounting Standards No. 109 "Accounting for Income Taxes" ("SFAS
109"). As a result, the Company reflected the cumulative effect on prior
years of the change in accounting principle by recording a charge of $64.5
million ($1.69 per share). In conjunction with the adoption of SFAS 109,
the Company remeasured prior acquisitions which resulted in an increase in
liabilities assumed of $22 million. In addition, the Company recorded a
$15.5 million tax benefit resulting from payments from the Company's
principal shareholder to the Company's Chief Executive Officer under a
phantom stock agreement. This amount has been recorded as a credit to the
Capital Surplus of the Company in fiscal 1992.
Income tax payments for fiscal 1994, 1993 and 1992 were approximately $12,
$15 and $34 million, respectively.
The components of net deferred tax assets (liabilities) are as follows:
February 25, February 26,
(Dollars in thousands) 1995 1994
------------ -------------
Current assets:
Insurance reserves $12,905 $22,536
Other reserves 11,240 16,969
Lease obligations 2,090 2,210
Pension obligations 9,331 8,299
Miscellaneous 5,033 4,791
-------- -------
40,599 54,805
-------- -------
Current liabilities:
Inventories (15,382) (15,802)
Miscellaneous (2,165) (1,799)
--------- ---------
(17,547) (17,601)
--------- ---------
Valuation allowance (4,706) -
--------- ---------
Deferred income taxes included in
prepaid expenses and other assets $18,346 $37,204
========= =========
Non-current assets:
Alternative minimum tax credits $23,500 $39,600
Isosceles investment 42,617 42,617
Fixed assets 14,504 -
Other reserves 14,038 20,087
Lease obligations 21,228 22,280
Canadian loss carryforwards 78,709 43,075
Insurance reserves 8,400 9,446
Accrued postretirement and
postemployment benefits 27,798 17,884
Cumulative translation adjustment - 19,189
Miscellaneous 17,365 8,591
--------- ---------
248,159 222,769
--------- ---------
Non-current liabilities:
Fixed assets (204,674) (247,039)
Pension obligations (17,552) (17,530)
Undistributed earnings of
Canadian subsidiaries - (24,922)
Miscellaneous (29,626) (33,683)
--------- ---------
(251,852) (323,174)
--------- ---------
Valuation allowance (114,886) -
--------- ---------
Deferred income taxes $(118,579) $(100,405)
========= =========
RETIREMENT PLANS AND BENEFITS
Defined Benefit Plans
The Company provides retirement benefits to certain non-union and some union
employees under various defined benefit plans. The Company's defined
benefit pension plans are non-contributory and benefits under these plans
are generally determined based upon years of service and, for salaried
employees, compensation. The Company funds these plans in amounts
consistent with the statutory funding requirements.
The components of net pension cost (income) are as follows:
(Dollars in thousands) Fiscal 1994 Fiscal 1993 Fiscal 1992
----------- ----------- -----------
Service cost $11,182 $10,665 $10,630
Interest cost 22,858 22,997 21,842
Actual return on plan assets (17,448) (61,730) (16,685)
Net amortization and deferral (9,246) 35,816 (9,621)
-------- -------- --------
Net pension cost $7,346 $7,748 $6,166
======== ======== ========
The Company's U.S. defined benefit pension plans are accounted for on a
calendar year basis while the Company's Canadian defined benefit pension
plans are accounted for on a fiscal year basis. The majority of plan assets
is invested in listed stocks and bonds. The funded status of the plans is
as follows:
1994 1993
Assets Accumulated Assets Accumulated
Exceed Benefits Exceed Benefits
Accumulated Exceed Accumulated Exceed
(Dollars in thousands) Benefits Assets Benefits Assets
--------- -------- --------- --------
Accumulated benefit obligation:
Vested $212,257 $ 41,243 $244,706 $36,351
Nonvested 3,218 1,119 3,360 1,335
-------- -------- -------- -------
$215,475 $ 42,362 $248,066 $37,686
======== ======== ======== =======
Projected benefit obligation $224,720 $ 44,012 $264,500 $40,713
Plan assets at fair value 270,939 25,368 312,900 17,679
------- ------- -------- -------
Excess (deficiency) of assets
over projected benefit obligation 46,219 (18,644) 48,400 (23,034)
Unrecognized net transition
(asset) obligation (7,248) 218 (10,974) 1,089
Unrecognized net (gain) loss
from experience differences (9,232) (252) (8,787) 2,590
Unrecognized prior service cost 3,609 3,808 4,247 4,500
Additional minimum liability - (2,522) - (5,184)
-------- -------- ------- --------
Prepaid pension asset
(pension liability) $ 33,348 $(17,392) $32,886 $(20,039)
======== ======== ======= ========
During the year ended February 25, 1995, the Company's Canadian subsidiary
and the United Food & Commercial Workers International Union, Locals 175 and
633 entered into an agreement which will result in the amalgamation of three
of the Company's Canadian defined benefit pension plans with the Canadian
Commercial Workers Industry Pension Plan ("CCWIPP"), effective July 1, 1994,
subject to the approval of the CCWIPP trustees and the appropriate
regulatory bodies. Under the terms of this agreement, CCWIPP will assume
the assets and defined benefit liabilities of the three pension plans and
the Company will be required to make defined contributions to CCWIPP based
upon hours worked by its employees who are members of CCWIPP. The Company
expects that they will receive such approval prior to the end of fiscal
1995. At February 25, 1995, prepaid pension assets of approximately $10
million related to the aforementioned plans are included in the above table.
Actuarial assumptions used to determine year-end plan status are as follows:
1994 1993
---- ----
U.S. Canada U.S. Canada
---- ------ ---- ------
Discount rate 8.50% 9.50% 7.50% 8.25%
Weighted average rate of
compensation increase 5.50% 4.00% 4.50% 5.00%
Expected long-term rate of
return on plan assets 8.50% 9.25% 9.00% 9.25%
The impact of the changes in the actuarial assumptions has been reflected in
the funded status of the pension plans and the Company believes that such
changes will not have a material effect on net pension cost for fiscal 1995.
Defined Contribution Plans
The Company maintains a defined contribution retirement plan to which the
Company contributes 4% of eligible participants' salaries and a savings plan
to which eligible participants may contribute a percentage of eligible
salary. The Company contributes to the savings plan based on specified
percentages of the participants' eligible contributions. Participants
become fully vested in the Company's contributions after 5 years of service.
The Company's contributions charged to operations for both plans were
approximately $11 million in both fiscal 1994 and 1993 and $10 million in
fiscal 1992.
The Company participates in various multi-employer union pension plans which
are administered jointly by management and union representatives and which
sponsor most full-time and certain part-time union employees who are not
covered by the Company's other pension plans. The pension expense for these
plans approximated $39, $38 and $39 million in fiscal 1994, 1993 and 1992,
respectively. The Company could, under certain circumstances, be liable for
unfunded vested benefits or other expenses of jointly administered
union/management plans. At this time, the Company has not established any
liabilities because such withdrawal from these plans is not probable.
Postretirement Benefits
The Company and its wholly-owned subsidiaries provide postretirement health
care and life benefits to certain union and non-union employees. As of the
beginning of fiscal 1992, the Company adopted Statement of Financial
Accounting Standards No. 106 "Employers' Accounting for Postretirement
Benefits Other Than Pensions" ("SFAS 106"). In accordance with SFAS 106,
the Company is required to recognize the cost of providing postretirement
benefits during employees' active service period. The Company's previous
accounting policy had been to expense such benefit costs as incurred. As a
result of adopting SFAS 106, the Company recorded a cumulative charge of
$26.5 million ($.69 per share) as the after-tax effect (federal and state)
of recording the transition obligation as of the beginning of fiscal 1992.
The components of net postretirement benefits cost are as follows:
(Dollars in millions) Fiscal 1994 Fiscal 1993 Fiscal 1992
----------- ----------- -----------
Service Cost $0.6 $0.6 $0.6
Interet cost 3.6 3.9 3.7
---- ---- ----
Net postretirement
benefits cost $4.2 $4.5 $4.3
==== ==== ====
The unfunded status of the plans is as follows:
(Dollars in millions) Fiscal 1994 Fiscal 1993
----------- -----------
Unfunded accumulated benefit obligation:
Retirees $24.0 $28.2
Fully eligible active plan participants 3.6 4.9
Other active plan participants 8.2 13.8
----- -----
35.8 46.9
Unrecognized net gain from
experience differences 15.0 2.0
----- -----
Accrued postretirement costs $50.8 $48.9
===== =====
Assumed discount rate 8.5% 7.5%
===== ======
The assumed rate of future increase in health care benefit cost was 12.25%
in fiscal 1994 and is expected to decline to 4.75% by the year 2024 and
remain at that level thereafter. The effect of a one-percentage-point
increase in the assumed health care cost trend rate for each future year on
the net postretirement health care cost and the accumulated postretirement
benefit obligation would be $0.3 million and $2.9 million, respectively.
Postemployment Benefits
Effective February 27, 1994, the Company adopted Statement of Financial
Accounting Standards No. 112 "Employers' Accounting for Postemployment
Benefits" ("SFAS 112"). SFAS 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 of adopting SFAS 112, 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 SFAS 112 had an immaterial effect on the
financial results before the cumulative effect of accounting change for
fiscal 1994.
STOCK OPTIONS
On March 18, 1994, the Board of Directors approved the 1994 Stock Option
Plan for its officers and key employees. The 1994 Stock Option Plan
provides for the granting of 1,500,000 shares as either options or Stock
Appreciation Rights ("SAR's"). Options and SAR's issued under this plan are
granted at the fair market value of the Company's common stock at the date
of grant. SAR's allow the optionee, in lieu of purchasing stock, to receive
cash in an amount equal to the excess of the fair market value of common
stock on the date of exercise over the option price. A total of 50,000
SAR's was granted in fiscal 1994.
On March 18, 1994, the Board of Directors approved a 1994 Stock Option Plan
for Non-Employee Directors. This plan provides for the granting of up to
100,000 stock options, which are granted at the fair market value of the
Company's common stock at the date of grant. A total of 19,800 options was
granted in fiscal 1994.
The Company had a 1984 Stock Option Plan for its officers and key employees
which expired on February 1, 1994. The 1984 Stock Option Plan, which
provided for the granting of 1,500,000 shares was amended as of July 10,
1990 to increase by 1,500,000 the number of options available for grant as
either options or SAR's. Each option was available for grant at the fair
market value of the Company's common stock on the date the option was
granted.
A summary of option transactions is as follows:
Officers and Key Employees
Price Range
-------------------------- Shares Per Share
--------- ----------------
Outstanding February 29, 1992 1,190,875 $ 5.50 -$65.13
Granted 15,000 23.00 - 24.38
Cancelled or expired (2,500) 39.75
Options exercised (5,000) 5.50
SAR's exercised (4,250) 21.50
-------------------------
Outstanding February 27, 1993 1,194,125 $21.50 -$65.13
Granted 1,270,000 23.38 - 26.00
Cancelled or expired (35,000) 23.38 - 52.38
--------- --------------
Outstanding February 26, 1994 2,429,125 $21.50 -$65.13
Granted 50,000 23.50
Cancelled or expired (26,500) 39.75 - 59.00
SAR's exercised (2,500) 23.38
--------- ---------------
Outstanding February 25, 1995 2,450,125 $21.50 - $65.13
========= ===============
Exercisable at:
February 26, 1994 1,252,125 $21.50 - $65.13
February 25, 1995 1,586,875 $21.50 - $65.13
========= ===============
Non-Employee Directors
----------------------
Outstanding February 26, 1994 - -
Granted 19,800 $21.50 - $26.50
--------- ---------------
Outstanding February 25, 1995,
none of which are exercisable 19,800 $21.50 - $26.50
========= ===============
LITIGATION
The Company is involved in various claims, administrative agency proceedings
and lawsuits arising out of the normal conduct of its business. Although
the ultimate outcome of these legal proceedings cannot be predicted with
certainty, the management of the Company believes that the resulting
liability, if any, will not have a material effect upon the Company's
consolidated financial statements or liquidity.
OPERATIONS IN GEOGRAPHIC AREAS
The Company has been engaged in the retail food business since 1859 and
currently does business principally under the names A&P, Waldbaum's, Food
Emporium, Super Fresh, Farmer Jack, Kohl's, Dominion and Miracle Food Mart.
Sales in the table below reflect sales to unaffiliated customers in the
United States and Canada.
(Dollars in thousands) Fiscal 1994 Fiscal 1993 Fiscal 1992
----------- ----------- -----------
Sales:
United States $8,540,871 $8,466,338 $8,286,270
Foreign 1,791,079 1,917,739 2,213,195
----------- ----------- -----------
Total $10,331,950 $10,384,077 $10,499,465
=========== =========== ===========
Income (Loss) From Operations:
United States $137,804 $101,305 $68,987
Foreign (195,334) (33,025) (24,681)
----------- ----------- -----------
Total $(57,530) $68,280 $44,306
=========== =========== ===========
Assets:
United States $ 2,482,108 $2,528,239 $2,425,291
Foreign 412,680 570,456 665,639
----------- ----------- -----------
Total $2,894,788 $3,098,695 $3,090,930
=========== =========== ===========
ACQUISITIONS
In March 1993, the Company acquired certain assets, including inventory, of
48 Big Star stores in the Atlanta, Georgia area for approximately $43
million. As of the acquisition date, the fair value of assets recorded was
$72 million and liabilities assumed were $48 million. The acquisition has
been accounted for as a purchase and, accordingly, the excess of cost over
the fair market value of net assets acquired of approximately $19 million
has been included in the balance sheet caption "Other assets."
REALIGNMENT OF STORE OPERATIONS
During fiscal 1992, the Company reassessed store operations in its markets
and closed certain stores and identified certain other stores to be closed
in the future as part of its realignment of certain operating divisions in
the United States and Canada. This program, which included 72 stores, is
expected to be substantially completed by the end of fiscal 1995. The
Company recorded a charge of $43 million in fiscal 1992 to cover the cost of
these closings, including future rent, property taxes, common area
maintenance costs and equipment disposition costs. The Company anticipates
that these costs, which only include costs subsequent to the actual store
closing, will be paid principally over four years. During fiscal 1994 and
fiscal 1993, store closing costs of approximately $14 million and $27
million, respectively, were charged to this reserve, which did not include
the costs associated with closing older and outmoded stores which close in
the ordinary course of business and tend to be insignificant as these stores
are generally near the end of their lease term and have low net asset
values. The Company believes that, within a three to five year period from
the date of realignment, this program will have a positive effect on future
operations and cash flows. In the third quarter of fiscal 1994, the Company
recorded a charge in Store operating, general and administrative expense of
$17 million to cover the cost of closing 13 non-Miracle stores in Canada
during fiscal 1995.
INVESTMENT IN ISOSCELES
During fiscal 1992, the Company recorded a non-recurring pre-tax charge of
$151.2 million for the potential loss on its investment in Isosceles PLC
("Isosceles"). The Company's decision to record a provision for the
potential loss of its investment in Isosceles occurred in July 1992. The
Company monitored its investment in Isosceles through the analysis of
Isosceles' prepared business plans and cash flow projections. In September
of 1990 the Company chose not to participate in a recapitalization of
Isosceles resulting in a significant decline in its percentage ownership
position. Late in 1991, new management was appointed at Isosceles and in
June 1992 the Company was informed by new management that a significantly
different operating strategy would be implemented. The Company was further
informed by new Isosceles management that this new strategy would result in
substantially reduced operating results and that Isosceles shareholders had
suffered a significant diminution in the value of their holdings. Shortly
thereafter, the Company concluded that the recovery of any of its investment
in Isosceles had become remote and that it was appropriate to write-off its
entire investment.
SUMMARY OF QUARTERLY RESULTS
(unaudited)
The table below summarizes the Company's results of operations by quarter
for fiscal 1994 and 1993. The first quarter of each fiscal year contains
sixteen weeks while the other quarters each contain twelve weeks.
(Dollars in thousands, First Second Third Fourth Total
except per share figures)Quarter Quarter Quarter Quarter Year
------- ------- ------- ------- -----
1994
Sales $3,225,359$2,390,914$2,345,597$2,370,080 $10,331,950
Gross margin 912,644 680,911 670,572 679,328 2,943,455
Income (loss) from
operations 31,778 25,868 (144,568) 29,392 (57,530)
Income (loss) before
cumulative effect
of accounting change 7,245 6,057 (185,665) 5,777 (166,586)
Cumulative effect on prior
years of change in
accounting principle:
Postemployment benefits(4,950) - - - (4,950)
Net income (loss) 2,295 6,057 (185,665) 5,777 (171,536)
Per share data:
Income (loss) before
cumulative effect
of accounting change .19 .16 (4.86) .15 (4.36)
Cumulative effect on prior
years of change in
accounting principle:
Postemployment benefits (.13) - - -
(.13)
Net income (loss) .06 .16 (4.86) .15 (4.49)
Cash dividends .20 .20 .20 .05 .65
Market price:
High 27.375 24.500 27.125 23.000
Low 22.625 19.875 21.625 17.375
Number of stores at
end of period 1,152 1,123 1,111 1,108
1993
Sales $3,279,264$2,399,368$2,342,935$2,362,510 $10,384,077
Gross margin 941,154 690,493 665,579 661,273 2,958,499
Income (loss) from
operations 48,005 23,778 13,386 (16,889) 68,280
Net income (loss) 17,050 5,957 379 (19,427) 3,959
Per share data:
Net income (loss) .45 .15 .01 (.51) .10
Cash dividends .20 .20 .20 .20 .80
Market price:
High 35.000 34.000 30.000 29.000
Low 23.125 27.875 24.875 23.750
Number of stores at
end of period 1,210 1,203 1,191 1,173
MANAGEMENT'S REPORT ON FINANCIAL STATEMENTS
The management of The Great Atlantic & Pacific Tea Company, Inc. has
prepared the consolidated financial statements and related financial data
contained in this Annual Report. The financial statements were prepared in
accordance with generally accepted accounting principles appropriate to our
business and, by necessity and circumstance, include some amounts which were
determined using management's best judgments and estimates with appropriate
consideration to materiality. Management is responsible for the integrity
and objectivity of the financial statements and other financial data
included in this report. To meet this responsibility, management maintains
a system of internal accounting controls to provide reasonable assurance
that assets are safeguarded and that accounting records are reliable.
Management supports a program of internal audits and internal accounting
control reviews to provide assurance that the system is operating
effectively.
The Board of Directors pursues its responsibility for reported financial
information through its Audit Review Committee. The Audit Review Committee
meets periodically and, when appropriate, separately with management,
internal auditors and the independent auditors, Deloitte & Touche LLP, to
review each of their respective activities.
/s/James Wood /s/Fred Corrado
James Wood Fred Corrado
Chairman of the Board Vice Chairman of the Board,
and Chief Executive Officer Chief Financial Officer and
Treasurer
INDEPENDENT AUDITORS' REPORT
To the Shareholders and Board of Directors of The Great Atlantic & Pacific
Tea Company, Inc.:
We have audited the accompanying consolidated balance sheets of The Great
Atlantic & Pacific Tea Company, Inc. and its subsidiary companies as of
February 25, 1995 and February 26, 1994 and the related consolidated
statements of operations, shareholders' equity and cash flows for each of
the three fiscal years in the period ended February 25, 1995. These
financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these 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, such consolidated financial statements present fairly, in
all material respects, the financial position of The Great Atlantic &
Pacific Tea Company, Inc. and its subsidiary companies at February 25, 1995
and February 26, 1994 and the results of their operations and their cash
flows for each of the three fiscal years in the period ended February 25,
1995 in conformity with generally accepted accounting principles.
As discussed in Notes to Consolidated Financial Statements, in fiscal 1994
the Company changed its method of accounting for postemployment benefits to
conform with Statement of Financial Accounting Standards ("SFAS") No. 112
and in fiscal 1992 the Company changed both its method of accounting for
income taxes to conform with SFAS No. 109 and its method of accounting for
postretirement benefits other than pensions to conform with SFAS No. 106.
/s/Deloitte & Touche LLP
Parsippany, New Jersey
April 27, 1995
FIVE-YEAR SUMMARY OF SELECTED FINANCIAL DATA
The Great Atlantic & Pacific Tea Company, Inc.
(Dollars in thousands, except per share figures)
Fiscal 1994 Fiscal 1993 Fiscal 1992 Fiscal 1991Fiscal 1990
(52 weeks) (52 weeks) (52 weeks) (53 weeks) (52 weeks)
Operating Results
Sales $10,331,950 $10,384,077 $10,499,465 $11,590,991 $11,390,943
Income (loss) before
cumulative effect
of accounting
changes (166,586) 3,959 (98,501) 70,664 150,954
Cumulative effect on
prior years of
changes in
accounting principles:
Postemployment
benefits (4,950) - - - -
Income taxes - - (64,500) -
-
Postretirement
benefits - - (26,500) - -
Net income (loss) (171,536) 3,959 (189,501) 70,664 150,954
Per Share Data
Income (loss) before
cumulative effect
of accounting
changes (4.36) .10 (2.58) 1.85 3.95
Cumulative effect on
prior years of
changes in
accounting principles:
Postemployment benefits (.13) - - - -
Income taxes - - (1.69) - -
Postretirement benefits - - (.69) - -
Net income (loss) (4.49) .10 (4.96) 1.85 3.95
Cash dividends .65 .80 .80 .80 .775
Book value per share 20.27 26.02 27.06 32.79 31.96
Financial Position
Current assets 1,193,731 1,230,339 1,221,492 1,255,908 1,319,894
Current liabilities1,096,454 1,151,132 1,164,723 1,082,042 1,203,643
Working capital 97,277 79,207 56,769 173,866 116,251
Current ratio 1.09 1.07 1.05 1.16 1.10
Total assets 2,894,788 3,098,695 3,090,930 3,293,267 3,415,045
Long-term debt 612,473 544,399 414,301 486,129 532,510
Capital lease
obligations 146,400 162,866 182,066 206,003 220,892
Equity
Shareholders' equity 774,914 994,417 1,034,330 1,253,106 1,221,270
Weighted average shares
outstanding 38,220,000 38,220,000 38,219,000 38,211,000 38,206,000
Number of registered
shareholders 10,867 11,831 12,309 12,871 14,210
Other
Number of employees 92,000 94,000 90,000 94,600 99,300
Number of stores at
year end 1,108 1,173 1,193 1,238 1,275
Total store area
(square feet) 36,441,000 37,908,000 37,741,000 38,742,000 39,353,000
CORPORATE OFFICERS
James Wood
Chairman of the Board
and Chief Executive Officer
Christian W.E. Haub
President and
Chief Operating Officer
Fred Corrado
Vice Chairman of the Board,
Chief Financial Officer
and Treasurer
Gerald L. Good
Executive Vice President,
Marketing and Merchandising
Peter J. O'Gorman
Executive Vice President,
Development & Strategic
Planning
George Graham
Senior Vice President,
Chief Merchandising Officer
J. Wayne Harris
Senior Vice President,
Chief Operating Officer,
U.S. Operations
Clifford J. Horler
Senior Vice President,
Development
H. Nelson Lewis
Senior Vice President,
Human Resources
Michael J. Rourke
Senior Vice President,
Communications and
Corporate Affairs
Ivan K. Szathmary
Senior Vice President,
Chief Services Officer
Robert G. Ulrich
Senior Vice President,
General Counsel
Patricia Asta
Vice President,
Personnel
Peter R. Brooker
Vice President, Planning
and Corporate Secretary
Stephen T. Brown
Vice President, Labor
Relations
Timothy J. Courtney
Vice President, Taxation
Donald B. Dobson
Vice President, Southeast
and Southern Operations
R. Paul Gallant
President, Compass Foods
Kenneth W. Green
Vice President,
Produce Merchandising
and Procurement
Robert A. Keenan
Vice President,
Chief Internal Auditor
Peter R. Lavoy
Vice President,
Grocery Merchandising
and Procurement
Francis X. Leonard
Vice President,
Real Estate Administration
Mary Ellen Offer
Vice President,
Assistant Corporate Secretary
and Senior Counsel
R. Donald O'Leary
Vice President,
Marketing
Brian Pall
Vice President,
Real Estate Development
Karl Petersen
Vice President,
Retail Services
Peter E. Rolandelli
Vice President,
Management Information Systems
Richard J. Scola
Vice President,
Assistant General Counsel
J. Paul Stillwell
President, Supermarket
Service Corp.
Craig C. Sturken
Group Vice President,
Michigan Group
Kenneth A. Uhl
Vice President, Controller
William T. Wolverton
Vice President, Warehousing
and Transportation
Canadian Subsidiary
-------------------
John D. Moffat
The Great Atlantic & Pacific
Company of Canada, Limited
Chairman and Chief
Executive Officer
DIRECTORS
James Wood (c)(d)(e)
Chairman of the Board
and Chief Executive Officer
Rosemarie Baumeister (b)
Executive Vice President,
Tengelmann
Warenhandelsgesellschaft,
Germany
Fred Corrado (c)(d)(e)
Vice Chairman of the Board,
Chief Financial Officer
and Treasurer
Christopher F. Edley (a)(b)(c)(e)
President Emeritus and former
President and Chief Executive
Officer of the United Negro
College Fund, Inc.
Christian W.E. Haub (d)
President and
Chief Operating Officer
Helga Haub (c)(d)
Barbara Barnes Hauptfuhrer (a)(c)(d)(e)
Director of various corporations
Paul C. Nagel, Jr. (a)(c)(d)
Director of various corporations
Eckart C. Siess (e)
Former Vice Chairman
of the Board
Fritz Teelen (d)
President, Plus Subsidiary
Tengelmann
Warenhandelsgesellschaft,
Germany
Henry W. Van Baalen (d)
Business Consultant
R.L. "Sam" Wetzel
(a)(b)(d)(e)
President and Chief
Executive Officer of Wetzel
International, Inc.
(a) Member of
Audit Review Committee,
Paul C. Nagel, Jr., Chairman
(b) Member of
Compensation Policy Committee,
Christopher F. Edley,
Chairman
(c) Member of Executive Committee,
James Wood, Chairman
(d) Member of Finance Committee
R.L. "Sam" Wetzel, Chairman
(e) Member of Retirement
Benefits Committee,
Barbara Barnes Hauptfuhrer,
Chairman
SHAREHOLDER INFORMATION
Executive Offices
Box 418
2 Paragon Drive
Montvale, NJ 07645
Telephone 201-573-9700
Transfer Agent and Registrar
American Stock Transfer and Trust Company
40 Wall Street
New York, NY 10005
Telephone 212-936-5100
Independent Auditors
Deloitte & Touche LLP
Two Hilton Court
Parsippany, NJ 07054
Shareholder Inquiries, Publications and Address Changes
Shareholders, security analysts, members of the media and others interested
in further information about the Company are invited to contact the
Corporate Affairs Department at the Executive Offices in Montvale, New
Jersey.
Correspondence concerning address changes should be directed to:
American Stock Transfer and Trust Company
40 Wall Street
New York, NY 10005
Telephone 212-936-5100
Form 10-K
Copies of Form 10-K filed with the Securities and Exchange Commission will
be provided to shareholders upon written request to the Secretary at the
Executive Offices in Montvale, New Jersey.
Annual Meeting
The Annual meeting of Shareholders will be held at 10:00 a.m. on Tuesday,
July 11, 1995 at the Ritz Carlton Hotel, 300 Town Center Drive, Dearborn,
Michigan. Shareholders are cordially invited to attend.
Common Stock
Common stock of the Company is listed and traded on the New York Stock
Exchange under the ticker symbol "GAP" and has unlisted trading privileges
on the Boston, Midwest, Philadelphia, Cincinnati, and Pacific Stock
Exchanges. The stock is reported in newspapers and periodical tables as
"GtAtPc."
THE GREAT ATLANTIC & PACIFIC TEA COMPANY, INC.
AND
SUBSIDIARIES
The Stock of all subsidiaries is 100% owned or controlled by
the parent company except as denoted below and in the case
of a few subsidiaries where nominal qualifying shares are
held in the names of subsidiary officers and/or directors in
trust. No shares of any subsidiary's stock are subject to
options.
STATE
COMPANIES INCORPORATED
A&P Wine and Spirits, Inc. Massachusetts
ANP Properties I Corp. Delaware
ANP Sales Corp. Maryland
APG IV, Inc. South Dakota
APW Produce Company, Inc. New York
APW Supermarket Corporation Delaware
APW Supermarkets, Inc. New York
Big Star, Inc. Georgia
175946 Canada Inc. (NRO) Canada
The Great Atlantic and
Pacific Tea Company, Limited (NRO) Canada
The Great Atlantic & Pacific
Company of Canada, Limited
d/b/a A&P and New Dominion Canada
A&P Drug Mart Limited Ontario
A&P Properties Limited Ontario
New Miracle Food Mart, Inc. Canada
Borman's, Inc. d/b/a Farmer Jack Delaware
Compass Foods, Inc. Delaware
Family Center, Inc. d/b/a Family Mart Delaware
Futurestore Food Markets, Inc. Delaware
The Great Atlantic & Pacific Tea
Company of Vermont, Inc. Vermont
Kohl's Food Stores, Inc. Wisconsin
Kwik Save Inc. Pennsylvania
Limited Foods, Inc. Delaware
LO-LO Discount Stores, Inc. Texas
Richmond, Incorporated
d/b/a Pantry Pride & Sun, Inc. Delaware
St. Pancras Company Limited Bermuda
St. Pancras Too, Limited Bermuda
Shopwell, Inc. d/b/a Food Emporium Delaware
Southern Acquisition Corporation Delaware
Southern Development, Inc. of Delaware Delaware
Super Fresh Food Markets, Inc. Delaware
Super Fresh Food Markets of Maryland, Inc. Maryland
Super Fresh/Sav-A-Center, Inc. Delaware
Super Fresh Food Markets of Virginia, Inc. Delaware
Super Market Service Corp. Pennsylvania
Super Plus Food Warehouse, Inc. Delaware
Supermarket Distribution Service Corp. New Jersey
Supermarket Distribution Service - Florence, Inc. New Jersey
Supermarket Distribution Services, Inc. Delaware
Supermarket Systems, Inc. Delaware
The South Dakota Great Atlantic & Pacific
Tea Company, Inc. South Dakota
Transco Service-Milwaukee, Inc. New Jersey
Waldbaum, Inc. d/b/a Waldbaum, Inc. and Food Mart New York
W.S.L. Corporation New Jersey
2008 Broadway, Inc. New York
EXHIBIT 23
INDEPENDENT AUDITORS' CONSENT
THE GREAT ATLANTIC & PACIFIC TEA COMPANY, INC.:
We consent to the incorporation by reference in Registration
Statement No. 2-92428 on Form S-8, Post Effective Amendment
No. 7 to Registration Statement No. 2-59290 on Form S-8 and
Post Effective Amendment No. 3 to Registration Statement No.
2-73205 on Form S-8 of our report dated April 27, 1995,
appearing in and incorporated by reference in this Annual
Report on Form 10-K of The Great Atlantic & Pacific Tea
Company, Inc. for the year ended February 25, 1995.
\s\Deloitte & Touche LLP
May 22, 1995
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THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE GREAT
ATLANTIC & PACIFIC TEA COMPANY, INC. FORM 10-K FOR THE YEAR ENDED FEBRUARY 25,
1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
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