SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
Current Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): December 8, 1998
THE GREAT ATLANTIC & PACIFIC TEA COMPANY, INC.
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(Exact name of registrant as specified in its charter)
Maryland 1-4141 13-1890974
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(State or other jurisdiction (Commission (I.R.S. Employer
of incorporation) File Number) 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
None
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(Former name or former address, if changed since last report.)
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Item 5. Other Events.
On December 8, 1998, the registrant embarked on a program of strategic
initiatives. The major elements of these initiatives include plans to accelerate
its store modernization program over the next three years, opening between 175
to 200 new superstores; to exit 127 non-strategic stores; to realign and
consolidate distribution and manufacturing facilities and administrative
functions; to reduce working capital and to dispose of other non-strategic
assets.
For additional information, reference is made to a press release made on
December 8, 1998, a copy of which is attached hereto as Exhibit 99.1 and is
incorporated herein by reference.
Item 7. Financial Statements and Exhibits.
(c) Exhibits. The following exhibits are filed herewith and incorporated
herein by reference:
Exhibit No. Description
99.1 Press Release dated December 8, 1998
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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: December 9, 1998 By: /s/ Robert G. Ulrich
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Name: Robert G. Ulrich
Title: Senior Vice Preisdent
and General Counsel
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EXHIBIT INDEX
Number Description
99.1 Press Release dated December 8, 1998
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Exhibit 99.1
For financial questions, contact
Terry Galvin
Vice President, Finance and Treasurer
201/930-8192
For nonfinancial questions, contact
Andy Carrano
Vice President, Marketing & Corporate Affairs
201/930-4236
FOR IMMEDIATE RELEASE
The Great Atlantic & Pacific Tea Company, Inc.
A&P ANNOUNCES STRATEGIC INITIATIVES FOR GROWTH
Program to Include Acceleration of its Store Modernization Program, Opening
of New Superstores; and Exiting of Non-Strategic, Underperforming Locations
MONTVALE. N.J.--Dec. 8, 1998--The Great Atlantic & Pacific Tea Company,
Inc. (NYSE:GAP) ("A&P") announced today that it has embarked on a program of
strategic initiatives to improve its overall profitability and its long-term
position as a leader in North American food retailing. The major elements of
this initiative include plans to accelerate its store modernization program over
the next three years, opening between 175 to 200 new superstores; exit 127
non-strategic stores; realign and consolidate distribution and manufacturing
facilities and administrative functions; reduce working capital and dispose of
other non-strategic assets. It is expected that this program will greatly
enhance the Company's strategic position, allow it to grow more effectively in
its core markets and provide further growth opportunities for its employees.
STORE EXPANSION AND MODERNIZATION PROGRAM
As part of the plan to accelerate the store expansion and modernization
program, the Company plans to open between 175 to 200 new superstores over the
next three years. During the first three quarters of this year the Company has
already opened 30 new stores and will have 16 more opening in the fourth quarter
for a total of 46 new stores for fiscal 1998.
In fiscal 1999, the Company plans to invest in excess of $400 million on
capital improvements, including at least 50 new stores with plans for an
additional 125 to 150 stores for the following two years.
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In addition to the 50 stores that were remodeled or enlarged in 1998, the
Company plans to remodel or enlarge approximately 75 stores per year for the
next three years.
STORE EXIT PROGRAM
The closing of 127 non-strategic, underperforming stores is expected to
generate between $50 and $80 million in cash from asset sales and working
capital liquidation. The non-strategic stores identified for closing are
underperforming locations throughout the U.S. and Canada, which the Company has
concluded do not complement its long-term goals. Included in this decision is
the expected sale of the Company's Richmond, Virginia division. It is expected
that the store exit program will be completed over the next twelve months.
PRODUCTIVITY IMPROVEMENT PROGRAMS
Other strategic initiatives include the realignment and consolidation of
distribution and manufacturing facilities and administrative functions;
reduction of working capital and disposal of other non-strategic assets. Actions
already accomplished include the consolidation of its Northeast distribution
network, resulting in the elimination of two distribution centers. In addition,
the Company has already closed a coffee plant and a bakery, and further
consolidated administrative functions in the Northeast. The Company has also
integrated the management of its two Super Fresh operating divisions in order to
compete more effectively and efficiently in the Mid-Atlantic markets.
IMPACT ON THIRD AND FOURTH QUARTER RESULTS
Results for the third quarter, which ended December 5, 1998, will include
charges of approximately $22 million after-tax, or $.57 per share for the
initiatives related to the productivity improvement programs as well as
professional fees incurred relating to the overall strategic program and the
write-down of a property no longer held for a potential store site. Third
quarter results are expected to be announced on or about December 22.
As a result of the store exit program, in the fourth quarter ending
February 27, 1999, the Company expects to record an after-tax charge in the
range of $120 to $160 million associated with the lease obligations and
write-down of fixed assets related to the stores identified in the Company's
exit program. Approximately 40% of the aforementioned after-tax charge will be
non-cash, and the remainder of the charge represents the present value of future
lease commitments, most of which will be paid over the next seven years.
In addition, over the next four quarters, the Company will incur other
costs related to these initiatives which are currently not accruable. Such costs
include inventory markdowns, severance, reorganization and other costs as well
as temporarily higher than
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normal operating costs in the continuing stores. The Company estimates that the
after-tax impact of the programs over the next four quarters will be in the
range of $30 to $40 million.
CANADIAN TAX BENEFIT
In light of the performance improvements in its Canadian operations and in
conjunction with the actions to be taken as a part of this strategic initiative,
the Company has concluded that it is more likely than not that the Canadian
deferred tax assets will be realized. Accordingly, in the fourth quarter of
fiscal 1998, the Company will record a tax benefit of approximately $60 million,
reversing the deferred tax asset valuation allowance originally recorded in
fiscal 1993. Following the reversal, the Company anticipates that its overall
effective income tax rate for the fourth quarter of fiscal 1998 and beyond will
approximate 43%.
OUTLOOK
Christian Haub, President and Chief Executive Officer, said: "When I first
became CEO in May of 1998, I challenged this organization to formulate and
implement an aggressive strategic program of modernization. Since that time, we
thoroughly evaluated our strategic objectives by market, our current and
potential performance by store and our infrastructure requirements. The program
that came from that analysis, which we are announcing today, encompasses every
element of our business, including store operations, merchandising and marketing
practices, employee involvement and development, customer service and managerial
excellence.
"We believe these strategic initiatives will continue to heighten our focus
and improve our efficiency, which should lead to faster growth in our core
markets, higher return on capital, and significantly improved earnings levels.
This will result in a solid foundation upon which to build a great future for
A&P. I am very pleased that comparable store sales will be more than 2% positive
in the third quarter, expanding on the trend established earlier this year.
Excluding the 127 stores that we are exiting, comparable store sales would have
been more than 3% positive in the third quarter. We believe the improved sales
results are an early indication of the benefits of our comprehensive strategic
program.
"With the accelerated new store openings there will be many chances for
people to advance as we aggressively increase our sales in the next five years.
In many markets we will be adding a significant number of jobs. These
initiatives make us more enthusiastic than ever about the future at A&P as we
strive to become the 'Supermarket of Choice' for our employees to work, for our
customers to shop and for our shareholders to invest."
THE GREAT ATLANTIC & PACIFIC TEA COMPANY
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A&P, based in Montvale, New Jersey, operates one of the top ten supermarket
companies in North America, operating in 18 U.S. states, the District of
Columbia and Ontario, Canada, under the A&P, Waldbaum's, Food Emporium, Super
Foodmart, Super Fresh, Farmer Jack, Kohl's, Sav-A-Center, Dominion, and Food
Basics trade names. As of the end of the third quarter, December 5, 1998, the
Company operated a total of 907 stores. In addition, the Company also services
55 franchised stores in Canada.
FORWARD LOOKING STATEMENTS
This release includes forward-looking statements regarding strategic plans
and future performance. These forward-looking statements are based on current
plans and expectations, and on currently available information and assumptions
that the Company believes to be reasonable. However, forward-looking statements
necessarily involve risk and uncertainties, and actual results may differ
materially from those suggested. Certain factors that could cause actual results
to differ materially include, but are not limited to: economic conditions,
competitive activity, the completion of the sale of assets on favorable terms
and conditions at appropriate times and the cost estimates to complete the
strategic initiatives outlined.
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