Conformed Copy
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Quarter Ended June 15, 1996 Commission File Number 1-4141
THE GREAT ATLANTIC & PACIFIC TEA COMPANY, INC.
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(Exact name of registrant as specified in charter)
Maryland 13-1890974
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2 Paragon Drive, Montvale, New Jersey 07645
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 201-573-9700
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Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
YES XXX NO
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Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at June 15, 1996
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Common stock - $1 par value 38,220,333 shares
THE GREAT ATLANTIC & PACIFIC TEA COMPANY, INC.
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
STATEMENTS OF CONSOLIDATED OPERATIONS & RETAINED EARNINGS
(Dollars in thousands, except per share amounts)
(Unaudited)
16 Weeks Ended
June 15, June 17,
1996 1995
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Sales $3,092,554 $3,135,514
Cost of merchandise sold (2,195,774) (2,225,702)
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Gross margin 896,780 909,812
Store operating, general and
administrative expense (844,037) (862,928)
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Income from operations 52,743 46,884
Interest expense, net (20,771) (22,346)
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Income before income
taxes 31,972 24,538
Provision for income taxes (10,093) (9,988)
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Net income 21,879 14,550
Retained earnings at
beginning of period 382,380 332,800
Cash dividends (1,911) (1,911)
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Retained earnings at
end of period $ 402,348 $ 345,439
========== ==========
Earnings per share:
Net income $ .57 $ .38
========== ==========
Cash dividends $ .05 $ .05
========== ==========
Weighted average number of
common and common equivalent
shares outstanding 38,295,144 38,220,333
========== ==========
See Notes to Quarterly Report on Page 5.
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THE GREAT ATLANTIC & PACIFIC TEA COMPANY, INC.
CONSOLIDATED BALANCE SHEETS
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(Dollars in thousands)
June 15, 1996 Feb. 24, 1996
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(Unaudited)
ASSETS
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Current assets:
Cash and short-term investments $ 123,400 $ 99,772
Accounts receivable 193,797 205,133
Inventories 846,164 826,510
Prepaid expenses and other assets 48,914 43,520
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Total current assets 1,212,275 1,174,935
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Property:
Property owned 1,478,239 1,461,165
Property leased 90,341 93,379
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Property-net 1,568,580 1,554,544
Other assets 143,220 131,368
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Total Assets $2,924,075 $2,860,847
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See Notes to Quarterly Report on Page 5.
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THE GREAT ATLANTIC & PACIFIC TEA COMPANY, INC.
CONSOLIDATED BALANCE SHEETS
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(Dollars in thousands)
June 15, 1996 Feb. 24, 1996
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(Unaudited)
LIABILITIES & SHAREHOLDERS' EQUITY
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Current liabilities:
Current portion of long-term debt $ 4,548 $ 13,040
Current portion of obligations under
capital leases 13,018 13,125
Accounts payable 495,257 452,257
Book overdrafts 161,511 157,022
Accrued salaries, wages and benefits 125,481 127,133
Accrued taxes 62,732 59,407
Other accruals 161,416 161,984
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Total current liabilities 1,023,963 983,968
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Long-term debt 653,430 650,169
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Obligations under capital leases 126,479 129,887
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Deferred income taxes 125,562 120,904
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Other non-current liabilities 151,308 153,134
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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 (50,356) (50,936)
Retained earnings 402,348 382,380
Treasury stock, at cost, 9,157 shares (363) (363)
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Total shareholders' equity 843,333 822,785
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Total liabilities and shareholders'
equity $2,924,075 $2,860,847
========== ==========
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 15, 1996 June 17, 1995
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 21,879 $ 14,550
Adjustments to reconcile net income
to cash provided by operating activities:
Depreciation and amortization 69,558 70,400
Deferred income tax provision 5,989 10,905
(Gain) loss on disposal of owned property 52 (441)
Decrease in receivables 11,610 16,952
(Increase) decrease in inventories (18,579) 9,317
Increase in prepaid expenses and
other current assets (7,417) (9,643)
Increase in accounts payable 42,402 39,369
Decrease in accrued salaries,
wages and benefits (1,873) (8,050)
Increase in accrued taxes 4,156 1,917
Decrease in store closing reserves (5,099) (405)
Increase in other accruals
and other liabilities 2,241 4,971
Other (8,837) (4,636)
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Net cash provided by operating activities 116,082 145,206
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CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for property (93,233) (67,737)
Proceeds from disposal of property 8,815 19,255
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Net cash used in investing activities (84,418) (48,482)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Changes in short-term debt 10,577 992
Proceeds under revolving lines of
credit and long-term borrowings 6,646 56,915
Payments on revolving lines of
credit and long-term borrowings (23,575) (155,774)
Increase in book overdrafts 4,117 1,097
Principal payments on capital leases (4,034) (4,367)
Cash dividends (1,911) (1,911)
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Net cash used in financing activities (8,180) (103,048)
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Effect of exchange rate changes on
cash and short-term investments 144 179
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NET INCREASE (DECREASE) IN CASH AND
SHORT-TERM INVESTMENTS 23,628 (6,145)
Cash and Short-Term Investments
at Beginning of Period 99,772 128,930
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CASH AND SHORT-TERM INVESTMENTS
AT END OF PERIOD $123,400 $ 122,785
========= =========
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 15,
1996 and June 17, 1995 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. 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 1995 Annual Report on Form 10-K.
Certain reclassifications have been made to the prior periods' financial
statements in order to conform to the current period presentation.
2) INCOME TAXES
The income tax provisions recorded in the first quarter of fiscal years
1996 and 1995 reflect the Company's estimated expected annual tax rates
applied to their respective domestic and foreign financial results. The
first quarter 1996 and 1995 income tax provisions mainly reflect the
taxes on U.S. income, as the Canadian income tax expense is principally
offset by the reversal of its valuation allowance.
As of June 15, 1996, a valuation allowance existed for the entire amount
of the net deferred tax assets relating to the Canadian operations.
During the first quarter of fiscal 1996 the Canadian operations generated
pretax earnings and reversed a portion of the valuation allowance.
Although Canada generated pretax earnings, the Company was unable to
conclude that the Canadian deferred tax assets was more likely than not
to be realized due to the pretax losses experienced by Canada in fiscal
years 1992 through 1994.
3) OTHER ASSETS
Other assets include notes receivable and equipment leases relating to
Food Basics franchising.
4) NEW ACCOUNTING STANDARD
Effective February 25, 1996 the Company adopted the disclosure provisions
of Statement of Financial Accounting Standards No. 123 "Accounting for
Stock-Based Compensation" ("SFAS 123"). The Company will continue to
apply the methods prescribed by Accounting Principles Board Opinion No.
25 "Accounting for Stock Issued to Employees" with proforma disclosure of
net income and earnings per share as if the fair value based method of
SFAS 123 had been applied.
-5-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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MANAGEMENT'S DISCUSSION AND ANALYSIS
16 WEEKS ENDED JUNE 15, 1996
---------------------------------
OPERATING RESULTS
Sales for the first quarter ended June 15, 1996 of $3.1 billion decreased
$43 million or 1.4% from the prior year first quarter. Contributing to this
decrease is the Company's continuing program to eliminate obsolete,
unproductive stores, and the consequent closing of 34 stores during the
first quarter of fiscal 1996, which includes 5 replacement stores. Of the
34 store closings, 6 have already re-opened as Food Basics Franchise stores
in Canada and 6 are scheduled to re-open later in the year as Food Basics
Franchise stores. The closure of 141 stores since the beginning of fiscal
1995, of which 24 have been converted to Food Basics Franchise stores in
Canada and 6 which will be converted to Food Basics Franchise stores later
in the year, and 8 which were sold in the Rhode Island market, reduced
comparative sales by approximately $165 million or 5.3%. The opening of 25
stores in new market areas since the beginning of fiscal 1995 added
approximately $96 million or 3.1% to sales in the first quarter of fiscal
1996. As of June 15, 1996, the Company serviced 24 Food Basics Franchise
stores to which the Company had wholesale sales of $34 million. Same store
sales for the first quarter, including replacement stores, decreased 0.4%
from the prior year. Average weekly sales per store were approximately
$187,600 versus $176,300 for the corresponding period of the prior year for
a 6.4% increase.
Same store sales for U.S. operations, which include replacement stores,
declined 0.5% from the prior year as the Company continued its new store
development program in the U.S. In Canada, same store sales, which include
replacement stores, increased 0.2% from the prior year.
Gross margin as a percent of sales decreased .02% to 29.00% in the first
quarter of fiscal 1996 from 29.02% for the first quarter of fiscal 1995,
resulting primarily from decreased gross margin rates in Canada and
increased promotional price reductions in the U.S. The gross margin dollar
decrease of $13 million is primarily the result of a decrease in sales
volume which had an impact of decreasing margin by $24 million, partially
offset by an increase in gross margin rates of $11 million. In Canada,
gross margin decreased $13 million, primarily resulting from the effect of a
decrease in sales volume which had an impact of decreasing margin by $12
million and a decrease in gross margin rates of $1 million. The U.S. gross
margin remained flat with volume declines which impacted margins by $12
million being offset by an increase in gross margin rates of $12 million.
Store operating, general, and administrative expense as a percent of sales
decreased to 27.3% from 27.5% for the corresponding period in the prior year
resulting primarily from reduced advertising costs in both the U.S. and
Canada and reduced store labor costs and occupancy costs in Canada.
Interest expense decreased $1.6 million from the previous year, primarily
due to decreased average borrowings and a decrease in average interest rates
in both the U.S. and Canada.
-6-
Income before income taxes for the first quarter ended June 15, 1996 was $32
million compared to $24.5 million for the comparable period in the prior
year for an increase of approximately $7.5 million or 30%. The increase is
mainly the result of lower store operating, general and administrative
expenses of $18.9 million, and lower interest expense of $1.6 million,
partially offset by lower gross margin of $13 million.
The income tax provisions recorded in the first quarter of fiscal years 1996
and 1995 reflects the Company's estimated expected annual tax rates applied
to their respective domestic and foreign financial results. The first
quarter 1996 and 1995 provisions mainly reflect the taxes on U.S. income, as
the Canadian income tax expense is principally offset by the reversal of its
income tax valuation allowance. As of June 15, 1996, the Company is
continuing to fully reserve for all Canadian deferred tax assets.
LIQUIDITY AND CAPITAL RESOURCES
The Company ended the first quarter with working capital of $188 million
compared to $191 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 1996 compared to $100 million at the end of
fiscal 1995.
The Company has a U.S. $400 million and a Canadian $75 million unsecured,
five year revolving credit agreement which expires in December, 2000. In
addition, the Company also has various uncommitted lines of credit with
numerous banks. As of June 15, 1996, the Company had approximately $378
million available in credit facilities of which $370 million were committed
facilities.
The Company's loan agreements and certain of its notes contain various
financial covenants which require among other things, minimum net worth and
maximum levels of indebtedness and lease commitments. The Company was in
compliance with all such covenants as of June 15, 1996.
For the 16 weeks ended June 15, 1996, capital expenditures totaled $93
million, which included 13 new stores and 21 remodels and enlargements. The
Company expects to have capital expenditures of approximately $217 million
throughout the remainder of fiscal 1996.
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 1996.
-7-
THE GREAT ATLANTIC & PACIFIC TEA COMPANY, INC.
PART II. OTHER INFORMATION
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Item 1. Legal Proceedings
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None
Item 2. Changes in Securities
---------------------
None
Item 3. Defaults Upon Senior Securities
-------------------------------
None
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
At its annual meeting of Shareholders, held on July 9, 1996, there
were 35,692,568 shares, or 93.4% of the 38,220,333 shares
outstanding and entitled to vote represented either in person or by
proxy.
The 11 Board of Directors nominated to serve for a one-year term
were all elected, with each receiving an affirmative vote of at
least 99.2% of the shares present. Deloitte & Touche LLP was re-
elected as the Company's independent auditor by at least 99.8% of
the shares present.
A shareholder proposal on a non-employee director retirement plan
was rejected, with 5,421,129 votes representing 16.2% of the shares
voting in favor of the proposal and 27,959,364 shares voting
against. A second shareholder proposal, on director compensation,
was rejected, with 1,372,480 shares representing 4.1% voting in
favor of the proposal and 31,999,000 shares voting against.
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 29, 1996 By: /s/ Kenneth A. Uhl
---------------------------------------
Kenneth A. Uhl, Vice President and
Controller (Chief Accounting Officer)
-9-
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THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE GREAT
ATLANTIC AND PACIFIC TEA COMPANY, INC. 10-Q FOR THE FIRST QUARTER ENDED JUNE 15,
1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
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