-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, GnssPoiTm+obhaxrf10993ke0m7y/wDcQ7n3546NsBhyH9dWTQsIeq+1wVKtYC9G sYPiKImmi/M/EFU6ZLCyWg== 0000043300-94-000011.txt : 19940601 0000043300-94-000011.hdr.sgml : 19940601 ACCESSION NUMBER: 0000043300-94-000011 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19940226 FILED AS OF DATE: 19940526 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GREAT ATLANTIC & PACIFIC TEA CO INC CENTRAL INDEX KEY: 0000043300 STANDARD INDUSTRIAL CLASSIFICATION: 5411 IRS NUMBER: 131890974 STATE OF INCORPORATION: MD FISCAL YEAR END: 0228 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-04141 FILM NUMBER: 94530797 BUSINESS ADDRESS: STREET 1: 2 PARAGON DR CITY: MONTVALE STATE: NJ ZIP: 07645 BUSINESS PHONE: 2015739700 MAIL ADDRESS: STREET 1: 2 PARAGON DRIVE CITY: MONTVALE STATE: NJ ZIP: 07645 10-K 1 FORM 10-K 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 26, 1994 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. [ ] The aggregate market value of the voting stock held by non-affiliates of the Registrant at May 23, 1994 was $912,510,450. The number of shares of common stock outstanding at May 23, 1994 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 1993 Annual Report to Shareholders. The Registrant has filed with the S.E.C. since the close of its last fiscal year ended February 26, 1994, 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 1,173 stores averaging 32,300 square feet per store. On the basis of reported sales for fiscal 1993, the Company believes that it had the seventh 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, Family Mart, Farmer Jack, Kohl's, Waldbaum's, Food Emporium, Food Mart, Food Bazaar, Miracle Food Mart, Sav-A-Center, 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 (non- branded) products. In support of its retail operations, the Company also operates two coffee roasting plants, two bakeries, one delicatessen food kitchen, an ice cream plant and (through a joint venture) a dairy. The products processed in these facilities are sold under the Company's own brand names which include A&P, Eight O'Clock, Bokar, Royale, Jane Parker, Wesley's Quaker Maid, Master Choice, and America's Choice. 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 A&P is engaged in a continuing program of modernizing its corporate operations and retail stores. During fiscal 1993, the Company expended approximately $267 million for capital projects. The Company's plans for fiscal 1994 anticipate capital expenditures of approximately $340 million which include the opening of 35 new stores and the remodeling or expansion of 120 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 relations with its suppliers. The Company maintains processing facilities which produce coffee, 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 1993, the Company had approximately 94,000 employees, of which 68% were employed on a part-time basis. Approximately 89% of the Company's employees are covered by union contracts. During fiscal year 1993, a labor strike caused a 14-week closure of 63 Miracle Food Mart and Ultra Mart stores in Ontario, Canada. Under Ontario law, the Company could not hire replacement workers and, therefore, the stores were closed for business. The strike was resolved and stores 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. 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, careful 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 1993 Annual Report to Shareholders on pages 24 and 25 and is herein incorporated by reference. ITEM 2. Properties At February 26, 1994, the Company operated 1,173 retail stores. Approximately 7% of the Company's stores are owned, while the remainder are leased. The stores are geographically located as follows: New England States: Connecticut............. 64 Maine................... 2 Massachusetts........... 31 New Hampshire........... 1 Rhode Island............ 4 Vermont................. 3 --- Total................. 105 Middle Atlantic States: District of Columbia.... 1 Delaware................ 9 Maryland................ 52 New Jersey.............. 120 New York................ 203 Pennsylvania............ 51 --- Total................. 436 Mid-Western States: Michigan................ 105 Wisconsin............... 58 --- Total................. 163 Southern States: Alabama................. 10 Florida................. 3 Georgia................. 63 Kentucky................ 3 Louisiana............... 36 Mississippi............. 7 North Carolina.......... 34 South Carolina.......... 13 Virginia................ 54 West Virginia........... 8 --- Total................. 231 Total United States... 935 Ontario, Canada........... 238 ----- Total Stores.......... 1,173 ===== The total area of all retail stores is approximately 38 million square feet averaging 32,300 square feet per store. The stores built by the Company over the past several years and those planned for fiscal 1994, generally range in size from 30,000 to 65,000 square feet, of which approximately 68% is utilized as selling area. The Company operates two coffee roasting plants, two bakeries, one delicatessen food kitchen, an ice cream plant and (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 $82 million as of February 26, 1994. ITEM 3. Legal Proceedings The information required is contained in the 1993 Annual Report to Shareholders on page 24 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 1993. PART II ITEM 5. Market for the Registrant's Common Stock and Related Security Holder Matters The information required is contained in the 1993 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 1993 Annual Report to Shareholders and is herein incorporated by reference. ITEM 7. Management's Discussion and Analysis The information required is contained in the 1993 Annual Report to Shareholders on pages 17, 18 and 19 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 1993 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 1993 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.......... 64 Chairman of the Board and Chief Executive Officer Fred Corrado........ 54 Vice Chairman of the Board, Chief Financial Officer and Treasurer Christian W.E. Haub 29 President and Chief Operating Officer Michael J. Larkin... 52 Executive Vice President - Operations Peter J. O'Gorman... 55 Executive Vice President - Development and Strategic Planning Gerald L. Good...... 51 Senior Vice President - Chairman, The Great Atlantic and Pacific Tea Company, Limited, Canada George Graham....... 44 Senior Vice President, Chief Merchandising Officer J. Wayne Harris..... 55 Senior Vice President - Northeast Operations Ivan K. Szathmary... 57 Senior Vice President and Chief Services Officer Robert G. Ulrich.... 59 Senior Vice President and General Counsel Ernest H. Berthold.. 63 Vice President and Assistant to the Chief Executive Officer Corporate officers of the Company are elected annually and serve at the pleasure of the Board of Directors; each of the executive officers 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 and Assistant to the Executive 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, to which he had come 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. Larkin was elected Executive Vice President - Operations in March 1990. Prior thereto, he was Senior Vice President - East Coast Operations, and subsequently, he has also served as Executive Vice President and Chief Operating Officer. 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 as Chairman, The Great Atlantic and Pacific Tea Company, Limited, Canada in the Fall of 1992, he served 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 successively Vice President Merchandising, Metro Group and President, Metro Group. Mr. Harris was elected Senior Vice President - Northeast Operations in October 1993. Prior to assuming his present position, he was 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. 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. Mr. Berthold was elected Vice President and Assistant to the Chief Executive Officer on July 12, 1988. In addition to the listed officers, Messrs. James W. Rowe, age 69, and James L. Madden, age 65, were executive officers during fiscal year 1993. Mr. Rowe retired from the Board of Directors effective July 13, 1993, where he last served as Vice Chairman of the Executive Committee of the Board. During the past five years, Mr. Rowe also had served as Vice Chairman of the Board and Assistant to the Chief Executive Officer. Mr. Madden was elected Senior Vice President - Operations in March 1990. Immediately prior thereto, he was Senior Vice President - Canadian, Midwest and Southern Operations. He retired at the end of fiscal year 1993. The Company has filed with the Commission since the close of its fiscal year ended February 26, 1994 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 1993 Annual Report to Shareholders. The following required items, appearing on pages 20 through 30 of the 1993 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: Page I) Marketable Securities - Other Investments 9 V) Property, Plant and Equipment 10-11 VI) Accumulated Depreciation, Depletion and Amortization of Property, Plant and Equipment 12-13 IX) Short-Term Borrowings 14 X) Supplementary Income Statement Information 15 Independent Auditors' Report 16 All other 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) Compensation Agreements Exhibit 10)b) to Form 10-K for the Five Named for the fiscal years ended Executive Officers February 25, 1989, February 24, 1990 and February 29, 1992 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 Exhibit Incorporation by reference Numbers Description (If applicable) 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 11) Not Applicable 12) Not Applicable 13) 1993 Annual Report to Shareholders 18) Not Applicable 21) Subsidiaries of Registrant 22) Not Applicable 23) Independent Auditors' Consent 24) Not Applicable 27) Not Applicable 28) Not Applicable (b) Reports on Form 8-K No reports on Form 8-K were filed for the fiscal year ended February 26, 1994. SCHEDULE I THE GREAT ATLANTIC & PACIFIC TEA COMPANY, INC. AND SUBSIDIARY COMPANIES MARKETABLE SECURITIES - OTHER INVESTMENTS FOR THE FISCAL YEAR ENDED FEBRUARY 26, 1994 Amount at which each portfolio of equity security issues and each Number of other security shares or Market value of issue carried Name of issuer units-principal Cost of each issue at in the and title of amount of bonds issue balance balance sheet each issue and notes ($000) sheet date ($000) Isosceles PLC units 1,364,102 units -0- (1) -0- (1) -0- (1) - - ---------------------------------------------------------------------------- FOR THE FISCAL YEAR ENDED FEBRUARY 27, 1993 Isosceles PLC units 1,364,102 units -0- (1) -0- (1) -0- (1) Notes: (1) During fiscal 1992, the Company recorded a provision for potential loss on its total investment in Isosceles PLC. SCHEDULE V THE GREAT ATLANTIC & PACIFIC TEA COMPANY, INC. AND SUBSIDIARY COMPANIES PROPERTY, PLANT & EQUIPMENT (Dollars in thousands) BALANCE AT OTHER BALANCE BEGINNING ADDITIONS RETIREMENTS CHARGES/ AT END OF PERIOD AT COST OR SALES (DEDUCTIONS) OF PERIOD For The Fiscal Year Ended February 26, 1994: Land $96,491 $11,779 $(738) $(628)(2) $106,904 Buildings 229,658 24,828 (608) 3,435(1,2,3) 257,313 Equipment and leasehold improvements 2,117,898 222,786 (80,232) (75,172)(1,2,3) 2,185,280 --------- ------- ------- ------- --------- Subtotal 2,444,047 259,393 (81,578) (72,365) 2,549,497 Capitalized leased property: Equipment 7,865 - (4,504) - 3,361 Real property 288,954 2,037 (27,590) (7,245)(2) 256,156 ---------- -------- -------- -------- --------- Total $2,740,866 $261,430$(113,672) $(79,610) $2,809,014 ========== ======== ========= ======== ========== For The Fiscal Year Ended February 27, 1993: Land $88,718 $8,808 $(355) $(680) (2) $96,491 Buildings 226,734 8,463 (2,160) (3,379) (1,2) 229,658 Equipment and leasehold improvements 1,999,908 234,867 (56,620) (60,257) (1,2) 2,117,898 --------- ------- ------- ------- --------- Subtotal 2,315,360 252,138 (59,135) (64,316) 2,444,047 Capitalized leased property: Equipment 15,288 - (7,423) - 7,865 Real property 303,848 - (9,090) (5,804) (2) 288,954 ---------- -------- -------- -------- ---------- Total $2,634,496 $252,138 $(75,648) $(70,120) $2,740,866 ========== ======== ======== ======== ========== Notes: (1) Includes write-off of fully depreciated assets. (2) Includes effect of foreign currency translation. (3) Includes reclassification of beginning balance from equipment to buildings. SCHEDULE V (continued) THE GREAT ATLANTIC & PACIFIC TEA COMPANY, INC. AND SUBSIDIARY COMPANIES PROPERTY, PLANT & EQUIPMENT (Dollars in thousands) BALANCE AT ADDITIONS OTHER BALANCE BEGINNING AT RETIREMENTS CHARGES/ AT END OF PERIOD COST OR SALES (DEDUCTIONS) OF PERIOD For The Fiscal Year Ended February 29, 1992: Land $89,289 $1,330 $(1,565) $(336)(2) $88,718 Buildings 220,087 11,061 (523) (3,891)(1,2) 226,734 Equipment and leasehold improvements 1,928,040 144,727 (27,016) (45,843)(1,2) 1,999,908 --------- ------- ------- ------- --------- Subtotal 2,237,416 157,118 (29,104) (50,070) 2,315,360 Capitalized leased property: Equipment 17,033 - (1,745) - 15,288 Real property 302,574 11,091 (7,119) (2,698)(2) 303,848 ---------- -------- -------- ------- ---------- Total $2,557,023 $168,209 $(37,968) $(52,768) $2,634,496 ========== ======== ======== ======== ========== Notes: (1) Includes write-off of fully depreciated assets. (2) Includes effect of foreign currency translation. SCHEDULE VI THE GREAT ATLANTIC & PACIFIC TEA COMPANY, INC. AND SUBSIDIARY COMPANIES ACCUMULATED DEPRECIATION, DEPLETION AND AMORTIZATION OF PROPERTY, PLANT & EQUIPMENT (Dollars in thousands) BALANCE ADDITIONS AT CHARGED OTHER BALANCE BEGINNING TO RETIREMENTS CHARGES/ AT END OF PERIOD EXPENSE OR SALES (DEDUCTIONS) OF PERIOD For The Fiscal Year Ended February 26, 1994: Buildings $56,757 $8,985 $(428) $(1,363)(1,2) $63,951 Equipment and leasehold improvements 824,485 204,960 (58,560) (50,084)(1,2) 920,801 ---------- ------- ------- ------- --------- Subtotal 881,242 213,945 (58,988) (51,447) 984,752 Capitalized leased property: Equipment 6,295 945 (4,504) - 2,736 Real property 149,185 14,724 (27,021) (2,895)(2) 133,993 ---------- -------- -------- -------- ---------- Total $1,036,722 $229,614 $(90,513) $(54,342) $1,121,481 ========== ======== ======== ======== ========== For The Fiscal Year Ended February 27, 1993: Buildings $49,945 $8,367 $(431) $(1,124)(1,2) $56,757 Equipment and leasehold improvements 703,929 197,638 (31,674) (45,408)(1,2) 824,485 ------- ------- ------- ------- --------- Subtotal 753,874 206,005 (32,105) (46,532) 881,242 Capitalized leased property: Equipment 11,869 1,849 (7,423) - 6,295 Real property 143,973 15,669 (8,313) (2,144)(2) 149,185 -------- ------- ------- ------- --------- Total $909,716 $223,523 $(47,841) $(48,676) $1,036,722 ======== ======== ======== ======== ========== Notes: (1) Includes write-off of fully depreciated assets. (2) Includes effect of foreign currency translation. SCHEDULE VI (continued) THE GREAT ATLANTIC & PACIFIC TEA COMPANY, INC. AND SUBSIDIARY COMPANIES ACCUMULATED DEPRECIATION, DEPLETION AND AMORTIZATION OF PROPERTY, PLANT & EQUIPMENT (Dollars in thousands) BALANCE ADDITIONS AT CHARGED OTHER BALANCE BEGINNING TO RETIREMENTS CHARGES/ AT END OF PERIOD EXPENSE OR SALES (DEDUCTIONS) OF PERIOD For The Fiscal Year Ended February 29, 1992: Buildings $43,476 $8,307 $(470) $(1,368)(1,2) $49,945 Equipment and leasehold improvements 569,417 193,754 (19,659) (39,583)(1,2) 703,929 -------- ------- ------- ------- --------- Subtotal 612,893 202,061 (20,129) (40,951) 753,874 Capitalized leased property: Equipment 10,287 3,327 (1,745) - 11,869 Real property 135,594 16,374 (7,092) (903)(2) 143,973 -------- -------- -------- -------- -------- Total $758,774 $221,762 $(28,966) $(41,854) $909,716 ======== ======== ======== ======== ======== Notes: (1) Includes write-off of fully depreciated assets. (2) Includes effect of foreign currency translation. SCHEDULE IX THE GREAT ATLANTIC & PACIFIC TEA COMPANY, INC. AND SUBSIDIARY COMPANIES SHORT-TERM BORROWINGS (Dollars in thousands) MAXIMUM AVERAGE WEIGHTED CATEGORY OF WEIGHTED AMOUNT AMOUNT AVERAGE AGGREGATE BALANCE AVERAGE OUTSTANDING OUTSTANDING INTEREST SHORT-TERM AT END INTEREST DURING DURING RATE DURING BORROWINGS OF PERIOD RATE THE PERIOD THE PERIOD THE PERIOD For The Fiscal Year Ended Feb. 26, 1994: Bank Borrowings $70,681 3.6% $110,000 $10,000 3.4% For the Fiscal Year Ended Feb. 27, 1993: Bank Borrowings $ - - $74,000 $18,000 3.5% For The Fiscal Year Ended Feb. 29, 1992: Bank Borrowings $50,000 4.2% $83,786 $36,965 5.5% SCHEDULE X THE GREAT ATLANTIC & PACIFIC TEA COMPANY, INC. AND SUBSIDIARY COMPANIES SUPPLEMENTARY INCOME STATEMENT INFORMATION (Dollars in thousands) CHARGED TO COSTS AND EXPENSES (1) FISCAL YEARS ENDED FEBRUARY FEBRUARY FEBRUARY 26, 1994 27, 1993 29, 1992 Advertising ......................... $163,105 $156,741 $185,654 Depreciation and amortization........ $235,910 $228,976 $224,641 (1) Items other than those shown are omitted because they do not exceed one percent of total sales and revenues. INDEPENDENT AUDITORS' REPORT THE GREAT ATLANTIC & PACIFIC TEA COMPANY, INC.: We have audited the consolidated financial statements of The Great Atlantic & Pacific Tea Company, Inc. and its subsidiary companies as of February 26, 1994 and February 27, 1993, and for each of the three fiscal years in the period ended February 26, 1994, and have issued our report thereon dated April 28, 1994; such financial statements and report are included in your 1993 Annual Report to Shareholders and are incorporated herein by reference. Our audits also included the financial statement schedules of The Great Atlantic & Pacific Tea Company, Inc. and its subsidiary companies, listed in Item 14(a)(2). These financial statement schedules are the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits. In our opinion, such financial statement schedules, when considered in relation to the basic financial statements taken as a whole, present fairly in all material respects the information set forth therein. /s/ Deloitte & Touche April 28, 1994 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 17, 1994 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/ R.L. "Sam" Wetzel Director R.L. "Sam" Wetzel The above-named persons signed this report on behalf of the registrant on May 17, 1994. /s/Kenneth A. Uhl Vice President, Controller May 17, 1994 Kenneth A. Uhl Date EXHIBIT INDEX 3) Incorporated by reference 4) Incorporated by reference 10)a) Incorporated by reference and attached 13) Attached 21) Attached 23) Attached EX-10 2 EXHIBIT 10(A) Exhibit 10)a) February 3, 1994 Mr. James Wood Chairman and Chief Executive Officer The Great Atlantic & Pacific Tea Company, Inc. 2 Paragon Drive Montvale, NJ 07645 Dear Jim: This letter is to confirm our understanding that, effective as of this date, the phantom stock agreement dated as of December 1, 1988 is amended in the following respects: 1. The references to "1995" in the first unnumbered paragraph on page 1 and in paragraph 7 are changed to "1998." 2. The referenced to "1995" in paragraphs 4, 10 and 11 (b) are changed to "2000" in each case. 3. In the third sentence of paragraph 8 the reference to "20" is changed to "10". We also confirm our understanding that a termination of your employment on or after the expiration of the term of employment as set forth in Section 1 of the employment agreement between The Great Atlantic & p[Pacific Tea Company, Inc. ("A&P") and you, dated December 1, 1988, will not be deemed a termination of employment for purposes of paragraph 6,7 or 10 of the phantom stock agreement. as presently agreed between A&P and you, the term of employment is to expire April 30, 1998. Will you please indicate your agreement with the above by signing in the space provided below. Very truly yours, Tengelmann Warenhandelsgesellschaft By: /s/ Erivan Karl Haub 2/15/94 Agreed: /s/ James Wood Exhibit 10)a) AGREEMENT THIS AGREEMENT is dated as of July 11, 1989 between THE GREAT ATLANTIC & PACIFIC TEA COMPANY, INC., a Maryland corporation (hereinafter referred to as "Company") and GEORGE GRAHAM (hereinafter referred to as "Employee"). W I T N E S S E T H: WHEREAS, Company desires to provide Employee, who is Vice President of Company, with a bonus opportunity in an amount equal to the increase in value of the shares of common stock, $1 par value, of the Company (the "Common Stock") in order to further the objectives of the Company. NOW, THEREFORE, in consideration of the mutual covenants hereinafter set forth, and for other good and valuable consideration, the parties hereto agree as follows: 1. The following terms shall have the following respective meanings for all purposes of this Agreement: (a) "Cause" shall have the same meaning as in the Employment Agreement. (b) "Closing Price" shall mean the average of the last sale prices, regular way, of the Common Stock as reported on the Consolidated Transaction Reporting System for New York Stock Exchange issues on the date specified (or, if the Common Stock is not traded on such date, on the first preceding date on which the Common Stock was so traded) and for the 29 consecutive New York Stock Exchange trading days on which the Common Stock was so traded first preceding such date; if the Common Stock is not so reported, then such average shall be based on the last sale prices, regular way, reported on the principal national securities exchange on which the Common Stock is listed or admitted to trading; or, if the Common Stock is not so listed or admitted on any exchange, then such average shall be based upon the averages of the highest reported bid and lowest reported offer prices as furnished by the National Quotation Bureau Incorporated; or, if the Common Stock is not traded, then the Closing Price shall be the fair market value of one share of the Common Stock determined by the Evaluator as provided in Paragraph 10. (c) "Disability" shall have the same meaning as in the Employment Agreement. (d) "Employment Agreement" shall mean the Employment Agreement dated July 11, 1989 between Company and Employee. (e) "Spread" shall mean an amount equal to the excess of the Closing Price over the base value of one Unit as set forth in Paragraph 3 (and adjusted pursuant to Paragraph 8). 2. Company hereby grants to Employee phantom share units ("Units") with respect to 25,000 shares of the Common Stock. 3. Each Unit shall have a base value of $50. 4. As soon as practicable on or after July 10, 1994, except as provided in Paragraphs 6, 7 and 9, Company shall pay Employee, by Company check, the value of the Units, which shall be an amount equal to the spread on the first business day preceding July 10, 1994 multiplied by the number of Units credited to Employee pursuant to this Agreement on such date. Employee shall have none of the rights of a stockholder with respect to the Units. All taxes on the payment to Employee or his legal representative shall be paid by such person, and Company may withhold from such payment such amount as is required of it by applicable federal and state laws. 5. The Units shall not be transferable by Employee otherwise than by will or the laws of descent and distribution. More particularly (but without limiting the generality of the foregoing), the Units and Employee's rights under this Agreement may not be pledged or hypothecated in any way and shall not be subject to execution, attachment or similar process. Any attempted transfer, pledge, hypothecation or other disposition of the Units or of any rights hereunder contrary to the provisions hereof, or the levy of any execution, attachment or similar process upon the Units or such rights, shall be null and void and without effect. 6. Notwithstanding the provisions of Paragraph 4, if the employment of Employee shall be terminated (i) by Company other than for Cause, (ii) by Employee's death or (iii) by Employee's Disability, payment of the value of all the Units then credited to him pursuant to this Agreement shall be made by Company to Employee or, in the event of Employee's Disability, either to Employee or his legal representative or, in the event of Employee's death, to Employee's surviving spouse or, in the absence of a surviving spouse, to his legatee or legatees under his last will or to his legal or personal representative or distributees, on the twentieth business day following the date of such termination, all as provided in Paragraph 4 but using such date of termination as the date to compute the value of the Units. 7. If the employment of Employee shall be terminated (i) by Company for Cause or (ii) voluntarily by Employee prior to July 10, 1994, this Agreement shall forthwith terminate and no payment shall thereafter be made to Employee with respect to the Units. 8. In the event of any stock dividend, split-up, spin-off, recapitalization, combination or exchange of shares, merger, consolidation, separation, reorganization, liquidation or distribution of securities or assets (other than cash dividends) occurring after the date hereof as a result of which shares of any class shall be issued in respect of the outstanding shares of the Common Stock, or shares of the Common Stock shall be changed into the same or a different number of shares of the same or a different class or classes of securities, or assets are received with respect to the Common Stock, then the Units credited to Employee pursuant to this Agreement shall be appropriately adjusted so that the value of the Units thereafter shall be deemed to consist of the class and aggregate number of shares, other securities or assets which, if a number of shares of Common Stock (as authorized at the date hereof) equal to the initial number of Units had been held by Employee and not idsposed of, he would be holding, at the time of payment of the value of the Units, as a result of any and all such stock dividends, split-ups, spin-offs, recapitalizations, combinations or exchanges of shares, mergers, consolidations, separations, reorganizations or liquidations or distributions, and the base value of a Unit shall also be appropriately adjusted. 9. Notwithstanding the provisions of Paragraphs 4, 6 and 10, payment of the value of any Units pursuant to this Agreement may be made, at the option of the Company, in approximately equal annual installments over a period of up to five years. Company shall notify Employee (or his legal representative) at least ten business days prior to the date of payment that it will make payment in installments, specifying the number of installments. Unpaid amounts shall bear interest at the prime lending rate publicly announced by Citibank, N.A. at the beginning of each annual installment period, such interest to be paid with each installment payment. 10. (a) If the Common Stock is not publicly traded, the payment to be made to Employee or his legal representative, as the case may be, pursuant to this Agreement shall be based upon the fair market value of one share of the Common Stock as determined by an independent appraiser (the "Evaluator") jointly selected by Company and Employee or his legal representative. The Evaluator shall be a nationally-recognized United States investment banking firm which has not, during the two years preceding the date of its selection, acted in any way on behalf of Company. (b) For all purposes of this Agreement, if the amount of any payment hereunder is to be determined by the Evaluator, the value of one share of the Common Stock shall be determined by the Evaluator, in the case of Paragraph 4, as of the last day of the full fiscal quarter of Company immediately preceding July 10, 1994 or, in the case of Paragraph 6, as of the date of termination of Employee's employment or, if that date is not the last day of a fiscal quarter of Company, as of the last day of the immediately- preceding full fiscal quarter of Company. (c) Company shall make available to the Evaluator all financial and other records, books and information concerning Company as the Evaluator may reasonably request in order to determine the fair market value of one share of the Common Stock. The Evaluator shall determine such fair market value on the assumption that Company is, and will continue to be, a privately-held corporation without any public market for the Common Stock. The determination by the Evaluator of such fair market value shall be final and binding on the parties hereto and their respective successors and legal representatives for all purposes whatsoever. (d) If the amount of any payment hereunder is to be determined by the Evaluator, payment of that price shall be made at such place and time as shall be designated by Company by notice to Employee (or his legal representative) given not later than ten business days after the date on which Company and Employee (or his legal representative) receive the fair market value appraisal from the Evaluator. The date so designated shall not be later than ten business days after the delivery of such notice by Company. 11. All notices and requests hereunder shall be in writing and delivered personally or sent by registered mail, return receipt requested, postage prepaid, addressed as follows: To Company at: 2 Paragon Drive Montvale, New Jersey 07645 Attention: Mr. James Wood, Chairman With a Copy to: Robert G. Ulrich, Esquire Senior Vice President and General Counsel To Employee at: 86 South Colonial Dive Harrington Park, New Jersey 07640 or such other address as may be stated in notice given as hereinbefore provided. 12. This Agreement and the Employment Agreement contain the entire agreement between the parties hereto with respect to the matters contemplated herein and supersede all prior agreements or understandings among the parties hereto relating to such matters. No modification of this Agreement shall be effective unless in writing and signed by the party against which it is sought to be enforced. 13. This Agreement shall be governed by and construed in accordance with the laws of the State of New Jersey without reference to the principles of conflict of laws. IN WITNESS WHEREOF, Company has caused this Agreement to be executed by a duly authorized officer, and Employee has hereunto set his hand, all on the day and year first above written. THE GREAT ATLANTIC & PACIFIC TEA COMPANY, INC. By: /s/ Robert G. Ulrich Title: Sr. Vice President /s/ George M. Graham Exhibit 10)a) EMPLOYMENT AGREEMENT AGREEMENT DATED July 11, 1989, between THE GREAT ATLANTIC & PACIFIC TEA COMPANY, INC., a Maryland corporation (hereinafter called "Company" or "Employer"), and GEORGE GRAHAM (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 be for five (5) years beginning on July 11, 1989, and terminating on July 10, 1994. 3. Compensation. For services rendered by Employee under this Agreement, Employer shall pay a basic minimum salary of $180,000 per year, payable in equal monthly 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 $55,000 at the 100% participation level. 4. 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; life, health, accident and disability insurance; death benefits and similar programs generally available to other executives of Employer. 5. A special bonus opportunity pursuant to the Agreement dated as of the date hereof by and between the Company and the Employee which is attached hereto as Exhibit A. 6. Duties. Employee is engaged to perform services as a Vice President of the Company with the title of President, Metro New York Group, or such other title as may be designated by the Board of Directors or the Chief Executive Officer of the Company. Employee agrees for the term to render full time and exclusive services to the Company as an executive employee, subject to the direction and control of the Chief Executive Officer of the Company or his designee and the Board of Directors of the Company and, in connection therewith, to perform such duties as he shall reasonably be directed by the Chief Executive Officer of the Company or his designee 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 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 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. 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 July 10, 1994, 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 Company. (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 Employment Agreement by the Employee, or for other cause, including conviction of a serious crime, dishonesty of the Employee or 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. 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: 86 South Colonial Drive Harrington Park, New Jersey 07640 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: /s/ George Graham By: /s/ Robert G. Ulrich EXHIBIT A. AGREEMENT THIS AGREEMENT is dated as of July 11, 1989 between THE GREAT ATLANTIC & PACIFIC TEA COMPANY, INC., a Maryland corporation (hereinafter referred to as "Company") and GEORGE GRAHAM (hereinafter referred to as "Employee"). W I T N E S S E T H: WHEREAS, Company desires to provide Employee, who is Vice President of Company, with a bonus opportunity in an amount equal to the increase in value of the shares of common stock, $1 par value, of the Company (the "Common Stock") in order to further the objectives of the Company. NOW, THEREFORE, in consideration of the mutual covenants hereinafter set forth, and for other good and valuable consideration, the parties hereto agree as follows: 1. The following terms shall have the following respective meanings for all purposes of this Agreement: (a) "Cause" shall have the same meaning as in the Employment Agreement. (b) "Closing Price" shall mean the average of the last sale prices, regular way, of the Common Stock as reported on the Consolidated Transaction Reporting System for New York Stock Exchange issues on the date specified (or, if the Common Stock is not traded on such date, on the first preceding date on which the Common Stock was so traded) and for the 29 consecutive New York Stock Exchange trading days on which the Common Stock was so traded first preceding such date; if the Common Stock is not so reported, then such average shall be based on the last sale prices, regular way, reported on the principal national securities exchange on which the Common Stock is listed or admitted to trading; or, if the Common Stock is not so listed or admitted on any exchange, then such average shall be based upon the averages of the highest reported bid and lowest reported offer prices as furnished by the National Quotation Bureau Incorporated; or, if the Common Stock is not traded, then the Closing Price shall be the fair market value of one share of the Common Stock determined by the Evaluator as provided in Paragraph 10. (c) "Disability" shall have the same meaning as in the Employment Agreement. (d) "Employment Agreement" shall mean the Employment Agreement dated July 11, 1989 between Company and Employee. (e) "Spread" shall mean an amount equal to the excess of the Closing Price over the base value of one Unit as set forth in Paragraph 3 (and adjusted pursuant to Paragraph 8). 2. Company hereby grants to Employee phantom share units ("Units") with respect to 25,000 shares of the Common Stock. 3. Each Unit shall have a base value of $50. 4. As soon as practicable on or after July 10, 1994, except as provided in Paragraphs 6, 7 and 9, Company shall pay Employee, by Company check, the value of the Units, which shall be an amount equal to the spread on the first business day preceding July 10, 1994 multiplied by the number of Units credited to Employee pursuant to this Agreement on such date. Employee shall have none of the rights of a stockholder with respect to the Units. All taxes on the payment to Employee or his legal representative shall be paid by such person, and Company may withhold from such payment such amount as is required of it by applicable federal and state laws. 5. The Units shall not be transferable by Employee otherwise than by will or the laws of descent and distribution. More particularly (but without limiting the generality of the foregoing), the Units and Employee's rights under this Agreement may not be pledged or hypothecated in any way and shall not be subject to execution, attachment or similar process. Any attempted transfer, pledge, hypothecation or other disposition of the Units or of any rights hereunder contrary to the provisions hereof, or the levy of any execution, attachment or similar process upon the Units or such rights, shall be null and void and without effect. 6. Notwithstanding the provisions of Paragraph 4, if the employment of Employee shall be terminated (i) by Company other than for Cause, (ii) by Employee's death or (iii) by Employee's Disability, payment of the value of all the Units then credited to him pursuant to this Agreement shall be made by Company to Employee or, in the event of Employee's Disability, either to Employee or his legal representative or, in the event of Employee's death, to Employee's surviving spouse or, in the absence of a surviving spouse, to his legatee or legatees under his last will or to his legal or personal representative or distributees, on the twentieth business day following the date of such termination, all as provided in Paragraph 4 but using such date of termination as the date to compute the value of the Units. 7. If the employment of Employee shall be terminated (i) by Company for Cause or (ii) voluntarily by Employee prior to July 10, 1994, this Agreement shall forthwith terminate and no payment shall thereafter be made to Employee with respect to the Units. 8. In the event of any stock dividend, split-up, spin-off, recapitalization, combination or exchange of shares, merger, consolidation, separation, reorganization, liquidation or distribution of securities or assets (other than cash dividends) occurring after the date hereof as a result of which shares of any class shall be issued in respect of the outstanding shares of the Common Stock, or shares of the Common Stock shall be changed into the same or a different number of shares of the same or a different class or classes of securities, or assets are received with respect to the Common Stock, then the Units credited to Employee pursuant to this Agreement shall be appropriately adjusted so that the value of the Units thereafter shall be deemed to consist of the class and aggregate number of shares, other securities or assets which, if a number of shares of Common Stock (as authorized at the date hereof) equal to the initial number of Units had been held by Employee and not idsposed of, he would be holding, at the time of payment of the value of the Units, as a result of any and all such stock dividends, split-ups, spin-offs, recapitalizations, combinations or exchanges of shares, mergers, consolidations, separations, reorganizations or liquidations or distributions, and the base value of a Unit shall also be appropriately adjusted. 9. Notwithstanding the provisions of Paragraphs 4, 6 and 10, payment of the value of any Units pursuant to this Agreement may be made, at the option of the Company, in approximately equal annual installments over a period of up to five years. Company shall notify Employee (or his legal representative) at least ten business days prior to the date of payment that it will make payment in installments, specifying the number of installments. Unpaid amounts shall bear interest at the prime lending rate publicly announced by Citibank, N.A. at the beginning of each annual installment period, such interest to be paid with each installment payment. 10. (a) If the Common Stock is not publicly traded, the payment to be made to Employee or his legal representative, as the case may be, pursuant to this Agreement shall be based upon the fair market value of one share of the Common Stock as determined by an independent appraiser (the "Evaluator") jointly selected by Company and Employee or his legal representative. The Evaluator shall be a nationally-recognized United States investment banking firm which has not, during the two years preceding the date of its selection, acted in any way on behalf of Company. (b) For all purposes of this Agreement, if the amount of any payment hereunder is to be determined by the Evaluator, the value of one share of the Common Stock shall be determined by the Evaluator, in the case of Paragraph 4, as of the last day of the full fiscal quarter of Company immediately preceding July 10, 1994 or, in the case of Paragraph 6, as of the date of termination of Employee's employment or, if that date is not the last day of a fiscal quarter of Company, as of the last day of the immediately- preceding full fiscal quarter of Company. (c) Company shall make available to the Evaluator all financial and other records, books and information concerning Company as the Evaluator may reasonably request in order to determine the fair market value of one share of the Common Stock. The Evaluator shall determine such fair market value on the assumption that Company is, and will continue to be, a privately-held corporation without any public market for the Common Stock. The determination by the Evaluator of such fair market value shall be final and binding on the parties hereto and their respective successors and legal representatives for all purposes whatsoever. (d) If the amount of any payment hereunder is to be determined by the Evaluator, payment of that price shall be made at such place and time as shall be designated by Company by notice to Employee (or his legal representative) given not later than ten business days after the date on which Company and Employee (or his legal representative) receive the fair market value appraisal from the Evaluator. The date so designated shall not be later than ten business days after the delivery of such notice by Company. 11. All notices and requests hereunder shall be in writing and delivered personally or sent by registered mail, return receipt requested, postage prepaid, addressed as follows: To Company at: 2 Paragon Drive Montvale, New Jersey 07645 Attention: Mr. James Wood, Chairman With a Copy to: Robert G. Ulrich, Esquire Senior Vice President and General Counsel To Employee at: 86 South Colonial Dive Harrington Park, New Jersey 07640 or such other address as may be stated in notice given as hereinbefore provided. 12. This Agreement and the Employment Agreement contain the entire agreement between the parties hereto with respect to the matters contemplated herein and supersede all prior agreements or understandings among the parties hereto relating to such matters. No modification of this Agreement shall be effective unless in writing and signed by the party against which it is sought to be enforced. 13. This Agreement shall be governed by and construed in accordance with the laws of the State of New Jersey without reference to the principles of conflict of laws. IN WITNESS WHEREOF, Company has caused this Agreement to be executed by a duly authorized officer, and Employee has hereunto set his hand, all on the day and year first above written. THE GREAT ATLANTIC & PACIFIC TEA COMPANY, INC. By: /s/ Robert G. Ulrich Title: Sr. Vice President /s/ George M. Graham Exhibit 10)a) January 18, 1994 Mr. James Wood Chairman and Chief Executive Officer The Great Atlantic & Pacific Tea Company, Inc. 2 Paragon Drive Montvale, New Jersey 07645 Dear Jim: This letter is to confirm our agreement that the term of employment purusant to Section 1 of the employment agreement between the Company and you shall be extended for the period to and including April 30, 1988, such extension to take effect on, but not before, May 1, 1995. Will you please indicate your agreement with such extension by signing in the space below. Very truly yours, THE GREAT ATLANTIC & PACIFIC TEA COMPANY, INC. /s/ Robert G. Ulrich Robert G. Ulrich Senior Vice President and General Consel Agreed: /s/ J. Wood James Wood 19 EX-13 3 ANNUAL REPORT Exhibit 13 COMPARATIVE HIGHLIGHTS The Great Atlantic & Pacific Tea Company, Inc. (Dollars in thousands, except per share figures) Fiscal 1993 Fiscal 1992 Fiscal 1991 Sales $10,384,077 $10,499,465 $11,590,991 Income (loss) before cumulative effect 3,959 (98,501) 70,664 Net income (loss) 3,959 (189,501) 70,664 Income (loss) per share before cumulative effect .10 (2.58) 1.85 Net income (loss) per share .10 (4.96) 1.85 Cash dividends per share .80 .80 .80 Expenditures for property 267,329 204,870 161,902 Working capital 79,207 56,769 173,866 Current ratio 1.07 1.05 1.16 Shareholders' equity 994,417 1,034,330 1,253,106 Book value per share 26.02 27.06 32.79 Number of stores at year end 1,173 1,193 1,238 MANAGEMENT'S DISCUSSION AND ANALYSIS OPERATING RESULTS 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 Food Mart 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 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. Fiscal 1992 Compared with 1991 Sales for fiscal 1992 were $10.5 billion, a 9.4% decrease when compared to fiscal 1991 (a 53-week year) sales of $11.6 billion. The extra week in fiscal 1991 and the decline in the Canadian exchange rate accounted for approximately one-third of the reported sales decline. The remainder of the sales decrease was attributable to the continued general slowdown of the economy in our major markets (New York, Michigan and Ontario, Canada) and the closing of 56 stores since the end of fiscal 1991. Sales by the Company's United States small store sector, excluding Food Emporiums, in general have lagged behind sales by the Company's other store formats. The Company has been reducing the overall number of small stores in the United States and intends to continue to do so over the next five years. See "Liquidity and Capital Resources". The performance of the Company's Canadian operations has had the greatest negative impact on the Company's overall sales during the past two years. Canadian sales for fiscal 1992 were $2.2 billion as compared to $2.6 billion in 1991. During fiscal 1992, the Company opened 11 new stores and remodeled 102 existing stores. Same store sales declined 5.9% when comparing fiscal 1992 performance with that of 1991. However, same store sales during the fourth quarter of fiscal 1992 showed improvement, declining only 3.1% when compared to the fourth quarter of fiscal 1991. Gross margin as a percent of sales for fiscal 1992 was 28.5% as compared to 27.7% in fiscal 1991. The increase in margin is primarily attributable to the continued benefits derived from the Company's centralized purchasing function and change in product mix, partially offset by special price reductions and promotions. Store operating, general and administrative expense declined slightly from $3.0 billion in fiscal 1991 to $2.9 billion in fiscal 1992. As a percent of sales, such costs were 27.6% in fiscal 1992 as compared to 26.0% in fiscal 1991. The increased percentage is a function of lower sales levels experienced during fiscal 1992. In fiscal 1992, the Company reassessed store operations in its markets and closed certain stores and has identified certain other stores to be closed in the future as part of its realignment of certain geographical areas in the U.S. and Canada. Accordingly, the Company recorded a charge of $43 million to cover the cost of these closings. This program, which included 72 stores, is expected to be substantially completed by the end of fiscal 1995. Charges related to this realignment include 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. This realignment program is an integral part of the Company's long-term strategic and profit plans. Included under the Company's 1992 year-end balance sheet captions "Other accruals" and "Other non-current liabilities" are amounts totaling approximately $60 million associated with store closing liabilities. See "Realignment of Store Operations" footnote for further discussion. Canada's pre-tax loss was $38.7 million in fiscal 1992, which included a charge of $10 million associated with the aforementioned realignment of store operations. In fiscal 1991, the Canadian operations posted a pre-tax profit of $5.4 million. The fall off in pre-tax profit is attributable to the decline in sales volume and the previously mentioned realignment charge. Interest expense decreased when compared to the prior fiscal year primarily as a result of lower interest rates. During fiscal 1992, the Company recorded a provision for potential loss on its total investment in Isosceles PLC of $151.2 million ($89.2 million after giving effect for applicable income tax benefits associated with this charge). See "Investment in Isosceles" footnote for further discussion. Effective March 1, 1992, the Company adopted Statement of Financial Accounting Standards No. 106 "Employers' Accounting for Postretirement Benefits Other Than Pensions" ("SFAS 106") and Statement of Financial Accounting Standards No. 109 "Accounting for Income Taxes" ("SFAS 109"). As a result, the Company recorded charges of $26.5 million (net of applicable income tax benefits) and $64.5 million for SFAS 106 and SFAS 109, respectively, as the cumulative effect of these changes on prior years. The income tax benefit recorded is principally attributable to the provision for the potential loss on Isosceles investment and the charge for realignment of store operations. LIQUIDITY AND CAPITAL RESOURCES The Company ended the fiscal year with working capital of $79 million compared to $57 million and $174 million at February 27, 1993 and February 29, 1992, respectively. The Company had cash and short-term investments aggregating $124 million at the end of fiscal 1993 compared to $110 million and $136 million at the end of fiscal 1992 and 1991, respectively. The Company also has in excess of $300 million in various available credit facilities. See "Indebtedness" footnote for further discussion. During fiscal 1993, the Company financed its capital expenditures, debt repayments, cash dividends and the acquisition of Big Star through internally generated funds and with proceeds of the $200 million Senior Notes at 7.70% issued in January 1994 and due in 2004. U.S. bank borrowings were $116 million at February 26, 1994 as compared to $120 million at February 27, 1993. U.S. bank borrowings during fiscal 1993 were at an average interest rate of 3.4% compared to 3.5% in fiscal 1992. For fiscal 1994, the Company has planned capital expenditures of approximately $340 million for 35 new stores and approximately 120 remodels and expansions as compared to 16 new stores and 111 remodels and expansions in fiscal 1993. The Company plans to maintain at least this level of expenditure each year through fiscal 1997. Eleven new stores, with a cost approximating $40 million, which were included in the fiscal 1993 original plan, have been delayed mainly to permit compliance with applicable regulatory requirements. 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 profit. Risks inherent in retail real estate investments are primarily associated with competitive pressures in the marketplace. From fiscal 1994 through fiscal 1998, the Company intends to improve the use of technology through scanning and other technological advances to improve customer service and store operations and merchandising, to intensify advertising and promotion and to enhance purchasing and merchandising. The Company expects to close approximately 50 stores per year over fiscal years 1994 and 1995. The Company's Five-Year Development Plan includes 175 new stores over the next five years, with an attendant increase in net square footage of 3% per year, and the remodeling of approximately 125 stores per year. The Company's concentration will be on larger stores in the 50,000 to 60,000 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 $3,000,000 for a new store and $900,000 for a remodel or enlargement. Traditionally, the Company leases real estate and expends capital on leasehold improvements and store fixtures and fittings. Based upon current business conditions, the Company anticipates that it may be required to increase its purchase and development of real estate. 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. Capital expenditures are expected to increase each fiscal year through 1997. 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. A change in either of these ratings could affect the availability and cost of financing. The Company's current cash resources, together with income from operations, are sufficient for the Company's 1994 capital expenditure program, scheduled debt repayments and dividend payments in fiscal 1994. IMPACT OF NEW ACCOUNTING STANDARD During November 1992, Statement of Financial Accounting Standards No. 112 "Employers' Accounting for Postemployment Benefits" ("SFAS 112") was issued. SFAS 112 requires the accrual of postemployment benefits provided to former or inactive employees after employment but before retirement. The Company will adopt this statement effective February 27, 1994. The Company's current accounting policy is to accrue for workers' compensation and other long-term disability-related benefits and to expense other postemployment benefits, such as severance and short-term disability, as incurred. Based upon the Company's estimates, the impact of adopting SFAS 112 will not have a material effect on the Company's consolidated financial statements. STATEMENTS OF CONSOLIDATED OPERATIONS The Great Atlantic & Pacific Tea Company, Inc. (Dollars in thousands, except per share figures) Fiscal 1993 Fiscal 1992 Fiscal 1991 Sales $10,384,077 $10,499,465 $11,590,991 Cost of merchandise sold (7,425,578) (7,511,910) (8,377,710) Gross margin 2,958,499 2,987,555 3,213,281 Store operating, general and administrative expense (2,890,219) (2,900,249) (3,009,427) Realignment of store operations - (43,000) - Income from operations 68,280 44,306 203,854 Interest expense (63,318) (66,436) (81,416) Interest income 1,599 1,267 1,526 Provision for potential loss on Isosceles investment - (151,238) - Income (loss) before income taxes and cumulative effect 6,561 (172,101) 123,964 Benefit (provision) for income taxes (2,602) 73,600 (53,300) Income (loss) before cumulative effect3,959 (98,501) 70,664 Cumulative effect on prior years of changes in accounting principles: Income taxes - (64,500) - Postretirement benefits - (26,500) - Net income (loss) $ 3,959 $(189,501) $70,664 Earnings (loss) per share: Income (loss) before cumulative effect $.10 $(2.58) $1.85 Cumulative effect on prior years of changes in accounting principles: Income taxes - (1.69) - Postretirement benefits - (.69) - Net income (loss) per share $.10 $(4.96) $1.85 See Notes to Consolidated Financial Statements. STATEMENTS OF CONSOLIDATED SHAREHOLDERS' EQUITY The Great Atlantic & Pacific Tea Company, Inc. (Dollars in thousands) Fiscal 1993 Fiscal 1992 Fiscal 1991 Common stock: Balance beginning of year $38,229 $38,224 $38,219 Exercise of options - 5 5 $38,229 $38,229 $38,224 Capital surplus: Balance beginning of year $453,475 $437,972 $437,949 Exercise of options and cumulative tax effect of phantom share agreement - 15,503 23 $453,475 $453,475 $437,972 Cumulative translation adjustment: Balance beginning of year $(12,809) $1,395 $9,679 Exchange adjustment (13,294) (14,204) (8,284) $(26,103) $(12,809) $1,395 Retained earnings: Balance beginning of year $555,796 $775,873 $735,778 Net income (loss) 3,959 (189,501) 70,664 Cash dividends (30,576) (30,576) (30,569) $529,179 $555,796 $775,873 Treasury stock, at cost: Balance beginning of year $(361) $(358) $(355) Purchase of Treasury stock (2) (3) (3) $(363) $(361) $(358) See Notes to Consolidated Financial Statements. CONSOLIDATED BALANCE SHEETS The Great Atlantic & Pacific Tea Company, Inc. February 26, February 27, (Dollars in thousands) 1994 1993 Assets Current assets: Cash and short-term investments $124,236 $110,120 Accounts receivable 190,954 194,557 Inventories 850,077 856,319 Prepaid expenses and other assets 65,072 60,496 Total current assets 1,230,339 1,221,492 Property: Land 106,904 96,491 Buildings 257,313 229,658 Equipment and leasehold improvements 2,185,280 2,117,898 Total-at cost 2,549,497 2,444,047 Less accumulated depreciation and amortization (984,752) (881,242) 1,564,745 1,562,805 Property leased under capital leases 122,788 141,339 Property-net 1,687,533 1,704,144 Other assets 180,823 165,294 $3,098,695 $3,090,930 Liabilities and Shareholders' Equity Current liabilities: Current portion of long-term debt $77,755 $104,660 Current portion of obligations under capital leases 16,097 18,021 Accounts payable 458,875 512,604 Book overdrafts 196,818 161,851 Accrued salaries, wages and benefits 173,366 157,405 Accrued taxes 35,879 11,953 Other accruals 192,342 198,229 Total current liabilities 1,151,132 1,164,723 Long-term debt 544,399 414,301 Obligations under capital leases 162,866 182,066 Deferred income taxes 100,405 141,184 Other non-current liabilities 145,476 154,326 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 (26,103) (12,809) Retained earnings 529,179 555,796 Treasury stock, at cost, 9,157 and 9,098 shares, respectively (363) (361) Total shareholders' equity 994,417 1,034,330 $3,098,695 $3,090,930 See Notes to Consolidated Financial Statements. STATEMENTS OF CONSOLIDATED CASH FLOWS The Great Atlantic & Pacific Tea Company, Inc. (Dollars in thousands) Fiscal 1993 Fiscal 1992 Fiscal 1991 Cash Flows From Operating Activities: Net income (loss) $3,959 $(189,501) $70,664 Adjustments to reconcile net income (loss) to cash provided by operating activities: 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: Income taxes - 64,500 - Postretirement benefits - 26,500 - Depreciation and amortization 235,910 228,976 224,641 Deferred income tax provision (benefit) on income (loss) before cumulative effect(19,568) (87,800) 16,700 (Gain) loss on disposal of owned property 1,032 (2,472) 1,912 (Increase) decrease in receivables 1,936 (18,538) 13,074 Decrease in inventories 12,928 45,367 24,773 (Increase) decrease in other current assets(7,981) 1,906 (12,042) Decrease in accounts payable (1,557) (50,761) (99,506) Increase (decrease) in accrued expenses 46,292 (10,081) (37,657) Decrease in store closing reserves (34,522) (7,944) (11,003) Increase (decrease) in other accruals (23,586) 23,621 21,359 Other (1,237) (6,677) 5,303 Net cash provided by operating activities 213,606 211,334 218,218 Cash Flows From Investing Activities: Expenditures for property (267,329) (204,870) (161,902) Proceeds from disposal of property 19,464 12,573 7,090 Acquisition of business, net of cash acquired (42,948) - - Net cash used in investing activities (290,813) (192,297) (154,812) Cash Flows From Financing Activities: Proceeds from debt 218,524 8,839 13,257 Payment of debt (114,826) (32,788) (44,097) Principal payments on capital leases (18,876) (18,565) (25,527) Increase in book overdrafts 39,192 29,767 24,535 Cash dividends (30,576) (30,576) (30,569) Proceeds from stock options exercised - 27 28 Purchase of Treasury stock (2) (3) (3) Net cash provided by (used in) financing activities 93,436 (43,299) (62,376) Effect of exchange rate changes on cash and short-term investments (2,113) (1,784) (954) Net Increase (Decrease) in Cash and Short-term Investments 14,116 (26,046) 76 Cash and Short-term Investments at Beginning of Year 110,120 136,166 136,090 Cash and Short-term Investments at End of Year $124,236 $110,120 $136,166 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 1993 ended February 26, 1994, fiscal 1992 ended February 27, 1993 and fiscal 1991 ended February 29, 1992. Fiscal 1993 and 1992 were each comprised of 52 weeks while fiscal 1991 was comprised of 53 weeks. Common Stock The principal shareholder of the Company, Tengelmann Warenhandelsgesellschaft, owned 53.7% of the Company's common stock as of February 26, 1994. 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. The carrying amount approximates fair value. 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. 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 fiscal 1993, 38,219,000 in fiscal 1992 and 38,211,000 in fiscal 1991. Stock options outstanding had no material effect on the computation of earnings (loss) per share. 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 likely, 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 the time) and the then 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. The Company estimates that the cash flows projected to be generated on an undiscounted basis should be sufficient to recover the goodwill balance over its remaining life. 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. Investment tax credits are amortized over the estimated useful lives of the related assets. As of the beginning of fiscal 1992, the Company adopted Statement of Financial Accounting Standards No. 109 "Accounting for Income Taxes" ("SFAS 109"). 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 $84 million and $87 million at February 26, 1994 and February 27, 1993, 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. 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 has closed certain stores and has 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 1993, store closing costs of approximately $27 million 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, this program will have a positive effect on future operations and cash flows. 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. INVENTORY Approximately 24% of the Company's inventories are valued using the last-in, first-out ("LIFO") method. Such inventories would have been $17 million and $20 million higher at February 26, 1994 and February 27, 1993, respectively, if the retail and first-in, first-out methods were used. During fiscal 1993, a LIFO credit was generated from reduced inventory quantities and a lower internally generated price index. The effect of these reductions was to decrease cost of goods sold by approximately $3 million and to increase net earnings by $1.8 million or $.05 per share. The LIFO charge to earnings per share for fiscal years 1992 and 1991 was $.01 and $.05, respectively. 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 1993 Fiscal 1992 Fiscal 1991 Sales: United States $8,466,338 $8,286,270 $8,994,405 Foreign 1,917,739 2,213,195 2,596,586 Total $10,384,077 $10,499,465 $11,590,991 Income (Loss) From Operations: United States $101,305 $68,987 $183,724 Foreign (33,025) (24,681) 20,130 Total $68,280 $44,306 $203,854 Assets: United States $2,528,239 $2,425,291 $2,403,201 Foreign 570,456 665,639 890,066 Total $3,098,695 $3,090,930 $3,293,267 INDEBTEDNESS Debt consists of: February 26, February 27, (Dollars in thousands) 1994 1993 9 1/8% Notes, due January 15, 1998 $200,000 $200,000 8 1/8% Notes, due January 15, 1994 - 100,000 7.70% Senior Notes, due January 15, 2004 200,000 - Mortgages and Other Notes, due 1994 through 2014 (average interest rates at year end of 9.1% and 9.0%, respectively) 52,032 60,976 U.S. Bank Borrowings at 3.6% and 3.3%, respectively 116,000 120,000 Canadian Commercial Paper at 4.5% and 6.8%, respectively 54,681 38,775 Less unamortized discount on Notes (559) (790) 622,154 518,961 Less current portion (77,755) (104,660) Long-term debt $544,399 $414,301 As of February 26, 1994, 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. As of February 26, 1994, the fair values of these securities, based on quoted market prices, were $214 million and $194 million, respectively. 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 26, 1994. 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 $230 million. Borrowings under U.S. lines of credit were $116 million and $120 million at February 26, 1994 and February 27, 1993, respectively. The Company pays a commitment fee ranging from 3/16% to 3/8% per annum on the unused portion of the Company's revolving credit facility. The Company's Canadian subsidiary has a C$100 million commercial paper program. Canadian commercial paper borrowings were C$74 million and C$48 million at February 26, 1994 and February 27, 1993, 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 26, 1994. The net book value of real estate pledged as collateral for all mortgage loans amounted to approximately $82 million as of February 26, 1994. Combined U.S. bank and Canadian commercial paper borrowings of $100 million as of February 26, 1994 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: 1994-$78 million; 1995-$28 million; 1996-$78 million; 1997-$205 million; 1998-$10 million. Interest payments on indebtedness were approximately $41 million for fiscal 1993, $39 million for fiscal 1992 and $49 million for fiscal 1991. 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 26, February 27, (Dollars in thousands) 1994 1993 Real property leased under capital leases $256,156 $288,954 Equipment leased under capital leases 3,361 7,865 259,517 296,819 Accumulated amortization (136,729) (155,480) $122,788 $141,339 The Company entered into $2 million of new capital leases during fiscal 1993 and $11 million during fiscal 1991. The Company did not enter into any new capital leases in fiscal 1992. Interest paid as part of capital lease obligations was approximately $22, $24 and $27 million in fiscal 1993, 1992 and 1991, respectively. Rent expense for operating leases consists of: (Dollars in thousands) Fiscal 1993 Fiscal 1992 Fiscal 1991 Minimum rentals $153,914 $154,099 $156,981 Contingent rentals 6,883 7,957 9,146 $160,797 $162,056 $166,127 Minimum annual rentals for leases in effect at February 26, 1994 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 1994 $737 $35,698 $141,487 1995 16 33,227 137,245 1996 - 30,878 130,580 1997 - 28,897 125,090 1998 - 27,258 118,419 1999 and thereafter - 184,380 1,052,473 753 340,338 $1,705,294 Less executory costs - (3,309) Net minimum rentals 753 337,029 Less interest portion (34) (158,785) Present value of net minimum rentals $719 $178,244 INCOME TAXES The components of income (loss) before income taxes and cumulative effect are as follows: (Dollars in thousands) Fiscal 1993 Fiscal 1992 Fiscal 1991 United States $52,280 $(133,378) $118,612 Foreign (45,719) (38,723) 5,352 Total $6,561 $(172,101) $123,964 The provision (benefit) for income taxes consists of the following: (Dollars in thousands) Fiscal 1993 Fiscal 1992 Fiscal 1991 Current: Federal $13,500 $21,800 $29,800 Canadian 5,744 (12,800) 2,100 State and local 2,926 5,200 4,700 22,170 14,200 36,600 Deferred: Federal 2,723 (62,500) 11,300 Canadian (22,486) (5,400) (600) State and local 195 (19,900) 6,000 (19,568) (87,800) 16,700 $2,602 $(73,600) $53,300 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. 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. During fiscal 1991, the deferred income tax provision resulted primarily from accelerated tax depreciation, insurance, leasing, employee benefits and tax on undistributed earnings of Canadian subsidiaries. The provision for income taxes includes amortization of investment tax credits of approximately $1 and $2 million in fiscal 1992 and 1991, respectively. For tax purposes, the Company has Canadian operating loss carryforwards of approximately $107 million which expire between fiscal 1997 and fiscal 2000. Deferred income taxes of approximately $6.7 million have not been provided on approximately $15 million of undistributed earnings of the Canadian subsidiaries which are considered to be permanently invested. A reconciliation of income taxes at the 35% federal statutory income tax rate for 1993, and 34% for both 1992 and 1991 to income taxes as reported is as follows: (Dollars in thousands) Fiscal 1993 Fiscal 1992Fiscal 1991 Income taxes computed at federal statutory income tax rate $2,296 $(58,514) $42,148 Effect of 1% statutory rate change 2,519 - - Targeted jobs tax credits (1,656) - - State and local income taxes, net of federal tax benefit 2,031 (9,729) 7,066 Tax differential relating to foreign operations (3,261) (4,969) (524) Depreciation/amortization attributable to excess cost over tax basis of certain assets 673 612 6,436 Amortization of investment tax credits - (1,000) (1,826) Income taxes as reported $2,602 $(73,600) $53,300 As of the beginning of fiscal 1992, the Company adopted 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 has remeasured prior acquisitions which has 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. Income tax payments for fiscal 1993, 1992 and 1991 were approximately $15, $34 and $41 million, respectively. The components of net deferred tax assets (liabilities) are as follows: February 26, February 27, (Dollars in thousands) 1994 1993 Current assets: Insurance reserves $22,536 $38,136 Other reserves 16,969 15,077 Lease obligations 2,210 2,299 Pension obligations 8,299 - Miscellaneous 4,791 3,695 54,805 59,207 Current liabilities: Inventories (15,802) (15,476) Pension obligations - (2,699) Miscellaneous (1,799) (1,212) (17,601) (19,387) Deferred income taxes included in prepaid expenses and other assets $37,204 $39,820 Non-current assets: Alternative minimum tax credits $39,600 $44,000 Provision for potential loss on Isosceles investment 42,617 41,603 Other reserves 20,087 24,654 Lease obligations 22,280 22,382 Canadian loss carryforward 43,075 13,653 Insurance reserves 9,446 9,221 Other retiree benefits 17,884 17,311 Cumulative translation adjustment 19,189 8,902 Miscellaneous 8,591 3,377 222,769 185,103 Non-current liabilities: Depreciation of fixed assets (247,039) (249,154) Pension obligations (17,530) (16,309) Undistributed earnings of Canadian subsidiaries (24,922) (27,000) Miscellaneous (33,683) (33,824) (323,174) (326,287) Deferred income taxes $(100,405) $(141,184) 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 costs (income) are as follows: (Dollars in thousands) Fiscal 1993 Fiscal 1992 Fiscal 1991 Service cost $10,665 $10,630 $10,922 Interest cost 22,997 21,842 21,204 Actual return on plan assets (61,730) (16,685) (39,905) Net amortization and deferral 35,816 (9,621) 12,642 Net pension cost $7,748 $6,166 $4,863 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 funding for these plans is based on an evaluation of the assets and liabilities of each plan. The majority of plan assets is invested in listed stocks and bonds. The funded status of the plans is as follows: 1993 1992 Assets Accum. Assets Accum. Exceed Benefits Exceed Benefits Accum. Exceed Accum. Exceed (Dollars in thousands) Benefits Assets Benefits Assets Accumulated benefit obligation: Vested $244,706 $36,351 $212,492 $31,934 Nonvested 3,360 1,335 6,497 1,204 $248,066 $37,686 $218,989 $33,138 Projected benefit obligation $264,500 $40,713 $235,858 $35,883 Plan assets at fair value 312,900 17,679 271,554 16,109 Excess (deficiency) of assets over projected benefit obligation 48,400 (23,034) 35,696 (19,774) Unrecognized net transition (asset) obligation (10,974) 1,089 (12,729) 1,608 Unrecognized net (gain) loss from experience differences (8,787) 2,590 (300) 806 Unrecognized prior service cost 4,247 4,500 5,463 4,798 Additional minimum liability - (5,184) - (4,552) Prepaid pension asset (pension liability) $32,886 $(20,039) $28,130 $(17,114) Actuarial assumptions used to determine year-end plan status were as follows: 1993 1992 U.S. Canada U.S. Canada Discount rate 7.5% 8.25% 8% 9.25% Weighted average rate of compensation increase 4.5% 5% 5% 6% Expected long-term rate of return on plan assets 9% 9.25% 9% 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 1994. 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 fiscal 1993 and approximately $10 million in both fiscal 1992 and 1991. 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 $38, $39 and $40 million in fiscal 1993, 1992 and 1991, 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 or reasonably possible. Other Retiree 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 benefit costs as incurred. As a result, 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 the year. The unfunded status of the plans was as follows: (Dollars in millions) Fiscal 1993 Fiscal 1992 Unfunded accumulated benefit obligation: Retirees $28.2 $28.6 Fully eligible active plan participants 4.9 5.0 Other active plan participants 13.8 14.0 46.9 47.6 Unrecognized net gain from experience differences 2.0 - Accrued postretirement costs $48.9 $47.6 Assumed discount rate 7.5% 8.0% Service cost benefits earned and interest cost on the projected benefit obligation were $0.6 million and $3.9 million, respectively, in fiscal 1993. The assumed rate of future increase in health care benefit cost was 12.75% in fiscal 1993 and is expected to decline to 4.75% by the year 2023 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 $0.4 million and $4.1 million, respectively. Postemployment Benefits During November 1992, Statement of Financial Accounting Standards No. 112 "Employers' Accounting for Postemployment Benefits" ("SFAS 112") was issued. SFAS 112 is effective for fiscal years which began after December 15, 1993 and will require 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 will adopt this statement effective February 27, 1994, and, based upon the Company's estimate, it will not have a material effect on its financial statements. STOCK OPTIONS 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 Stock Appreciation Rights ("SAR's"). Each option was available for grant at the fair value of the Company's common stock on the date the option was granted. 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 1,270,000 SAR's was granted in fiscal 1993. A summary of option transactions is as follows: 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 Exercisable at: February 27, 1993 967,375 $21.50 -$65.13 February 26, 1994 1,252,125 $21.50 -$65.13 On March 18, 1994, the Board of Directors approved (subject to shareholder approval) 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/SAR's. Options/SAR's issued under this plan will be granted at the fair market value of the Company's common stock at the date of grant. Also on March 18, 1994, the Board of Directors approved (subject to shareholder approval) the 1994 Stock Option Plan for Non-Employee Directors. This plan provides for the grant of up to 100,000 stock options. Options issued under this plan will be granted at the fair market value of the Company's common stock at the date of grant. Pursuant to this plan, options for 18,000 shares were granted to nine (9) directors as of March 18, 1994. SUMMARY OF QUARTERLY RESULTS (unaudited) The table below summarizes the Company's results of operations by quarter for fiscal 1993 and 1992. 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 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 1992 Sales $3,316,249$2,431,827$2,375,809$2,375,580 $10,499,465 Gross margin 946,664 697,749 667,773 675,369 2,987,555 Income (loss) from operations 60,069 27,837 10,525 (54,125) 44,306 Income (loss) before cumulative effect (66,434) 7,641 422 (40,130) (98,501) Cumulative effect on prior years of changes in accounting principles: Income taxes (64,500) - - - (64,500) Postretirement benefits (26,500) - - - (26,500) Net income (loss) (157,434) 7,641 422 (40,130) (189,501) Per share data: Income (loss) before cumulative effect (1.74) .20 .01 (1.05) (2.58) Cumulative effect on prior years of changes in accounting principles: Income taxes (1.69) - - - (1.69) Postretirement benefits (.69) - - - (.69) Net income (loss) (4.12) .20 .01 (1.05) (4.96) Cash dividends .20 .20 .20 .20 .80 Market price: High 34.375 29.125 28.000 27.000 Low 29.375 25.625 21.625 22.625 Number of stores at end of period 1,224 1,214 1,204 1,193 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, 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 26, 1994 and February 27, 1993 and the related consolidated statements of operations, shareholders' equity and cash flows for each of the three fiscal years in the period ended February 26, 1994. 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 26, 1994 and February 27, 1993 and the results of their operations and their cash flows for each of the three fiscal years in the period ended February 26, 1994 in conformity with generally accepted accounting principles. /s/Deloitte & Touche Parsippany, New Jersey April 28, 1994 FIVE-YEAR SUMMARY OF SELECTED FINANCIAL DATA The Great Atlantic & Pacific Tea Company, Inc. (Dollars in thousands, except per share figures) Fiscal 1993 Fiscal 1992 Fiscal 1991 Fiscal 1990Fiscal 1989 (52 weeks) (52 weeks) (53 weeks) (52 weeks) (52 weeks) Operating Results Sales $10,384,077 $10,499,465 $11,590,991 $11,390,943 $11,147,997 Income (loss) before cumulative effect 3,959 (98,501) 70,664 150,954 146,698 Cumulative effect on prior years of changes in acctg. principles: Income taxes - (64,500) - - - Postretirement benefits - (26,500) - - - Net income (loss) 3,959 (189,501) 70,664 150,954 146,698 Per Share Data Income (loss) before cumulative effect .10 (2.58) 1.85 3.95 3.84 Cumulative effect on prior years of changes in acctg. principles: Income taxes - (1.69) - - - Postretirement benefits - (.69) - - - Net income (loss) .10 (4.96) 1.85 3.95 3.84 Cash dividends .80 .80 .80 .775 .675 Financial Position Current assets 1,230,339 1,221,492 1,255,908 1,319,894 1,211,592 Current liabilities 1,151,132 1,164,723 1,082,042 1,203,643 1,131,411 Working capital 79,207 56,769 173,866 116,251 80,181 Current ratio 1.07 1.05 1.16 1.10 1.07 Total assets 3,098,695 3,090,930 3,293,267 3,415,045 2,967,297 Long-term deb t 544,399 414,301 486,129 532,510 329,286 Capital lease obligations 162,866 182,066 206,003 220,892 233,564 Equity Shareholders' equity 994,417 1,034,330 1,253,106 1,221,270 1,092,164 Book value per share 26.02 27.06 32.79 31.96 28.59 Weighted average shares outstanding 38,220,000 38,219,000 38,211,000 38,206,000 38,198,000 Number of registered shareholders 11,831 12,309 12,871 14,210 15,045 Other Number of employees 94,000 90,000 94,600 99,300 91,000 Number of stores at year end 1,173 1,193 1,238 1,275 1,215 Total store area (square feet) 37,908,000 37,741,000 38,742,000 39,353,000 36,369,000 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 Two Hilton Court Parsippany, New Jersey 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 12, 1994 at the Park Ridge Marriott Hotel, Park Ridge, New Jersey. 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." EX-21 4 LIST OF SUBSIDIARIES Exhibit 21 SUBSIDIARIES STATE COMPANIES INCORPORATED A&P Wine and Spirits, Inc. Massachusetts ANP Properties I Corp. Delaware ANP Sales Corp. Maryland APG III, 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 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 EX-23 5 AUDITORS' CONSENT Exhibit 23 INDEPENDENT AUDITORS' CONSENT 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 reports dated April 28, 1994, appearing in and/or incorporated by reference in this Annual Report on Form 10-K of The Great Atlantic & Pacific Tea Company, Inc. for the year ended February 26, 1994. /s/ Deloitte & Touche May 23, 1994 -----END PRIVACY-ENHANCED MESSAGE-----