DRAFT, JULY 25, 1995
W:10Q195.DOC
THE GREAT ATLANTIC & PACIFIC TEA COMPANY, INC.
FORM 10-Q
1ST QUARTER ENDED JUNE 17, 1995
Conformed Copy
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Quarterly Report Under Section 13 or 15(d) of the
Securities Exchange Act of 1934
For Quarter Ended June 17, 1995 Commission File Number 1-4141
THE GREAT ATLANTIC & PACIFIC TEA COMPANY, INC.
----------------------------------------------
(Exact name of registrant as specified in charter)
Maryland 13-1890974
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2 Paragon Drive, Montvale, New Jersey 07645
- ------------------------------------- -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 201-573-9700
------------
- -------------------------------------------------------------------------
Former name, former address and former fiscal year, if changed since
last report.
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the Registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
YES XXX NO
--------- ---------
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Class Outstanding at June 17, 1995
----- -----------------------------
Common stock - $1 par value 38,220,333 shares
Executed Copy
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Quarterly Report Under Section 13 or 15(d) of the
Securities Exchange Act of 1934
For Quarter Ended June 17, 1995 Commission File Number 1-4141
THE GREAT ATLANTIC & PACIFIC TEA COMPANY, INC.
----------------------------------------------
(Exact name of registrant as specified in charter)
Maryland 13-1890974
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2 Paragon Drive, Montvale, New Jersey 07645
- ------------------------------------- -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 201-573-9700
------------
- -------------------------------------------------------------------------
Former name, former address and former fiscal year, if changed since
last report.
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the Registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
YES XXX NO
--------- ---------
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Class Outstanding at June 17, 1995
----- -----------------------------
Common stock - $1 par value 38,220,333 shares
THE GREAT ATLANTIC & PACIFIC TEA COMPANY, INC.
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
STATEMENTS OF CONSOLIDATED OPERATIONS & RETAINED
EARNINGS (Dollars in thousands, except per share
figures)
(Unaudited)
16 Weeks Ended
June 17, June 18,
1995 1994
---------- ----------
Sales $3,135,514 $3,225,359
Cost of merchandise sold (2,225,702) (2,312,715)
---------- ----------
Gross margin 909,812 912,644
Store operating, general and
administrative expense (862,928) (880,866)
---------- ----------
Income from operations 46,884 31,778
Interest expense (22,346) (20,476)
---------- ----------
Income before income
taxes and cumulative effect
of accounting changes 24,538 11,302
Provision for income taxes (9,988) (4,057)
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Income before cumulative effect
of accounting changes 14,550 7,245
Cumulative effect on prior years of
change in accounting principle:
Postemployment benefits - (4,950)
---------- ----------
Net income 14,550 2,295
Retained earnings at
beginning of period 332,800 529,179
Cash dividends (1,911) (7,644)
---------- ----------
Retained earnings at
end of period $ 345,439 $ 523,830
========== ==========
Earnings per share:
Income before cumulative
effect of accounting changes $ .38 $ .19
Cumulative effect on prior years of
change in accounting principle:
Postemployment benefits - (.13)
---------- ----------
Net income $ .38 $ .06
========== ==========
Cash dividends $ .05 $ .20
========== ==========
Weighted average number of
shares outstanding 38,220,333 38,220,333
========== ==========
See Notes to Quarterly Report on Page 5.
- 1 -
THE GREAT ATLANTIC & PACIFIC TEA COMPANY, INC.
CONSOLIDATED BALANCE SHEETS
---------------------------
(Dollars in thousands)
June 17, 1995 Feb. 25,1995
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(Unaudited)
ASSETS
- ------
Current assets:
Cash and short-term investments $ 122,785 $ 128,930
Accounts receivable 188,786 205,619
Inventories 803,553 811,964
Prepaid expenses and other assets 56,936 47,218
---------- ----------
Total current assets 1,172,060 1,193,731
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Property:
Property owned 1,451,140 1,466,243
Property leased 103,633 107,494
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Property-net 1,554,773 1,573,737
Other assets 130,317 127,320
---------- ----------
Total Assets $2,857,150 $2,894,788
========== ==========
See Notes to Quarterly Report on Page 5.
-2-
THE GREAT ATLANTIC & PACIFIC TEA COMPANY, INC.
CONSOLIDATED BALANCE SHEETS
---------------------------
(Dollars in thousands)
June 17, 1995 Feb. 25,1995
-------------- ------------
(Unaudited)
LIABILITIES & SHAREHOLDERS' EQUITY
- ----------------------------------
Current liabilities:
Current portion of long-term debt $ 32,865 $ 112,821
Current portion of obligations under
capital leases 14,186 14,492
Accounts payable 487,410 447,081
Book overdrafts 158,965 157,521
Accrued salaries, wages and benefits 150,315 158,109
Accrued taxes 53,219 51,345
Other accruals 162,139 155,085
---------- ----------
Total current liabilities 1,059,099 1,096,454
---------- ----------
Long-term debt 595,367 612,473
---------- ----------
Obligations under capital leases 142,139 146,400
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Deferred income taxes 129,484 118,579
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Other non-current liabilities 143,932 145,968
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Shareholders' equity:
Preferred stock--no par value;
authorized--3,000,000 shares;
issued--none - -
Common stock--$1 par value; authorized--
80,000,000 shares;
issued--38,229,490 shares 38,229 38,229
Capital surplus 453,475 453,475
Cumulative translation adjustment (49,651) (49,227)
Retained earnings 345,439 332,800
Treasury stock, at cost, 9,157 shares (363) (363)
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Total shareholders' equity 787,129 774,914
---------- ----------
Total liabilities and shareholders'
equity $2,857,150 $2,894,788
========== ==========
See Notes to Quarterly Report on Page 5.
-3-
THE GREAT ATLANTIC & PACIFIC TEA COMPANY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
16 Weeks Ended
June 17, 1995 June 18, 1994
-------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 14,550 $ 2,295
Adjustments to reconcile net income
to cash provided by operating activities:
Cumulative effect on prior years of change
in accounting principle:
Postemployment benefits - 4,950
Depreciation and amortization 70,400 75,019
Deferred income tax provision (benefit)
on income before cumulative effect 10,905 (529)
Gain on disposal of owned property (441) (992)
(Increase) decrease in receivables 16,952 (9,683)
(Increase)decrease in inventories 9,317 (14,593)
Increase in other current assets (9,643) (13,450)
Increase in accounts payable 39,369 33,670
Decrease in accrued salaries,
wages and benefits (8,050) (14,137)
Increase in accrued taxes 1,917 11,400
Decrease in store closing reserves (405) (4,444)
Increase (decrease) in other accruals
and other liabilities 4,971 (7,458)
Other (4,636) (8,822)
--------- ---------
Net cash provided by operating activities 145,206 53,226
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for property (67,737) (65,395)
Proceeds from disposal of property 19,255 3,438
--------- ---------
Net cash used in investing activities (48,482) (61,957)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Changes in short-term debt 23,418 40,928
Proceeds under revolving lines of
credit and long-term borrowings 143,340 2,338
Payments on revolving lines of
credit and long-term borrowings (264,625) (3,330)
Increase (decrease)in book overdrafts 1,097 (21,373)
Principal payments on capital leases (4,367) (4,664)
Cash dividends (1,911) (7,644)
--------- ---------
Net cash provided by (used in) financing
activities (103,048) 6,255
--------- ---------
Effect of exchange rate changes on
cash and short-term investments 179 (819)
--------- ---------
NET DECREASE IN CASH AND
SHORT-TERM INVESTMENTS (6,145) (3,295)
Cash and Short-Term Investments
at Beginning of Period 128,930 124,236
--------- ---------
CASH AND SHORT-TERM INVESTMENTS
AT END OF PERIOD $ 122,785 $ 120,941
========= =========
See Notes to Quarterly Report on Page 5.
-4-
THE GREAT ATLANTIC & PACIFIC TEA COMPANY, INC.
NOTES TO QUARTERLY REPORT
-------------------------
1) BASIS OF PRESENTATION
The consolidated financial statements for the 16 weeks ended June
17, 1995 and June 18, 1994 are unaudited, and in the opinion of
management, all adjustments necessary for a fair presentation of
such financial statements have been included. Such adjustments
consisted only of normal recurring items, except for the cumulative
effect adjustment associated with the adoption of Statement of
Financial Accounting Standards ("SFAS") No. 112. Interim results are
not necessarily indicative of results for a full year.
The consolidated financial statements include the accounts of the Company
and all majority-owned subsidiaries.
This Form 10-Q should be read in conjunction with the
Company's consolidated financial statements and notes incorporated by
reference in the 1994 Annual Report on Form 10-K.
Certain reclassifications have been made to the prior interim
periods' financial statements in order to conform to the
current period
presentation.
2) ACCOUNTING CHANGE
Effective February 27, 1994, the Company adopted SFAS No. 112
"Employers' Accounting for Postemployment Benefits". SFAS No. 112
requires the accrual of costs for preretirement postemployment
benefits provided to former or inactive employees and the
recognition of an obligation for these benefits.
The Company's previous accounting policy had been to accrue for
workers' compensation and a principal portion of long-term disability
benefits and to expense other postemployment benefits, such as short-
term disability, as incurred. As a result, the Company recorded a
charge of $5.0 million, net of applicable income taxes of $3.9
million, as the cumulative effect of recording the obligation as of
the beginning of the year. The effect of adopting the Statement had
an immaterial effect on the financial results before the cumulative
effect of accounting change for the fiscal year.
-5-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
-----------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS
16 WEEKS ENDED JUNE 17, 1995
---------------------------------
OPERATING RESULTS
Sales for the first quarter ended June 17, 1995 of $3.1 billion
decreased $90 million or 2.8% from the prior year first quarter.
Contributing to this decrease is that the Company, in its continuing
program to eliminate obsolete, unproductive stores, closed 38 stores
during the first quarter of fiscal 1995, of which 8 were sold to Edwards
Super Food Stores. The closure of 125 stores since the beginning of
fiscal 1994 reduced comparative sales by approximately $118 million or
3.7%. The opening of 34 new stores since the beginning of fiscal 1994
added approximately $96 million or 3% to sales in the first quarter of
fiscal 1995. The sale of the eight New England A&P supermarkets sold to
Edwards Super Food Stores on June 16, 1995 did not have a material
effect on the first quarter operating results. Average weekly
sales per store were approximately $178,200 versus $172,900 for
the corresponding period of the prior year for a 3% increase.
Same store sales for U.S. operations declined 1.3% from the prior year as
a result of competitive pricing. In Canada, same store sales declined
4.7%, due primarily to last year's aggressive sales promotions to regain
market share as a result of the Miracle Food Mart labor strike which was
settled on the last day of fiscal 1993.
Gross margin as a percent of sales increased .72% to 29.02% in the
first quarter of fiscal 1995 from 28.3% for the first quarter of fiscal
1994. The gross margin dollar decrease of $3 million is a result of a
decrease in volume of $25 million and an increase in gross margin rates
of $22 million.
The U.S. gross margin decreased $12 million principally as a result
of decreased volume of $17 million. In Canada, gross margin
increased $9 million, consisting of an increase in gross margin rates of
$17 million and volume declines of $8 million.
Store operating, general, and administrative expense as a percent of
sales increased to 27.5% from 27.3% for the corresponding period in the
prior year resulting primarily from increased costs and expenses
associated with customer and employee accidents in both the U.S. and
Canada. The store operating, general and administrative expense dollar
decrease of $18 million is a result of a decrease in labor and occupancy
costs in both the U.S. and Canada.
Interest expense increased $1.9 million from the previous year,
principally in Canada on higher borrowings and rates. U.S. interest
expense was up slightly due to higher rates, partly offset by reduced
borrowings.
Income before income taxes and cumulative effect of accounting changes for
the first quarter ended June 17, 1995 was $24.5 million compared to $11.3
million for the comparable period in the prior year.
-6-
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
------------------------------------------------
The income tax provision recorded in the first quarter of fiscal years'
1995 and 1994 reflects the Company's estimated expected annual tax rates
applied to their respective domestic and foreign financial results. In
the first quarter of fiscal year 1994, the income tax provision included a
deferred tax benefit relating to the Canadian operating results.
Subsequently, in the third quarter of fiscal year 1994, management
reassessed the likelihood of realizing the Canadian net deferred income
tax asset and based on all available evidence, concluded that it was not
likely that such assets would be realized. Accordingly, a valuation
allowance was recorded against the Company's Canadian net deferred tax
assets. As of June 17, 1995 the Company is continuing to fully reserve
for all Canadian deferred tax assets.
Effective February 27, 1994, the Company adopted SFAS No. 112
"Employers' Accounting for Postemployment Benefits". As a result, the
Company recorded a charge of $5.0 million or $.13 per share (net-of-
tax) as the cumulative effect of this change on prior years.
LIQUIDITY AND CAPITAL RESOURCES
The Company ended the first quarter with working capital of $113
million compared to $97 million at the beginning of the fiscal year.
The Company had cash and short-term investments aggregating $123 million
at the end of the first quarter of fiscal 1995 compared to $129 million
at the end of fiscal 1994. The Company has in excess of $300 million
in various available credit facilities.
These available cash resources, together with income from operations,
are sufficient for the Company's capital expenditure program,
mandatory scheduled debt repayments and dividend payments for fiscal 1995.
-7-
THE GREAT ATLANTIC & PACIFIC TEA COMPANY,
INC.
PART II. OTHER INFORMATION ------
---------------------
Item 1. Legal Proceedings
-----------------
None
Item 2. Changes in Securities
---------------------
None
Item 3. Defaults Upon Senior Securities
-------------------------------
None
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
None
Item 5. Other Information
-----------------
None
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
None
-8-
THE GREAT ATLANTIC & PACIFIC TEA COMPANY, INC.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
THE GREAT ATLANTIC & PACIFIC TEA COMPANY, INC.
Date: July 26,1995 By: /s/ Kenneth A. Uhl
--------------------------------------Kenneth
A. Uhl, Vice President and
Controller (Chief Accounting Officer)
-9-
THE GREAT ATLANTIC & PACIFIC TEA COMPANY, INC.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
THE GREAT ATLANTIC & PACIFIC TEA COMPANY, INC.
Date: July 26, 1995 By:
--------------------------------------Kenneth
A. Uhl, Vice President and
Controller (Chief Accounting Officer)
-9-
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