-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, TMQQUJ207vOhF8M0nEVn6b4+4QZgdx4cKSJjZVKt2G4vPVxhJi8+LrRPPGgxw36a xcsIZdVn9SedNVGb8bnzmQ== /in/edgar/work/0000043300-00-000018/0000043300-00-000018.txt : 20001025 0000043300-00-000018.hdr.sgml : 20001025 ACCESSION NUMBER: 0000043300-00-000018 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20000909 FILED AS OF DATE: 20001024 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-Q SEC ACT: SEC FILE NUMBER: 001-04141 FILM NUMBER: 744807 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-Q 1 0001.txt Conformed Copy SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For Quarter Ended September 9, 2000 Commission File Number 1-4141 THE GREAT ATLANTIC & PACIFIC TEA COMPANY, INC. ---------------------------------------------- (Exact name of registrant as specified in charter) Maryland 13-1890974 -------- ---------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 2 Paragon Drive, Montvale, New Jersey 07645 - ------------------------------------- ----- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code 201-573-9700 ------------ - ------------------------------------------------------------------------- Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES XXX NO --------- --------- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Class Outstanding at September 9, 2000 ----- -------------------------------- Common stock - $1 par value 38,347,216 shares THE GREAT ATLANTIC & PACIFIC TEA COMPANY, INC. PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS STATEMENTS OF CONSOLIDATED OPERATIONS (Dollars in thousands, except share and per share amounts) (Unaudited) 12 Weeks Ended 28 Weeks Ended Sept. 9, Sept. 11, Sept. 9, Sept. 11, 2000 1999 2000 1999 ----------- ----------- ----------- ----------- Sales $2,439,534 $2,284,380 $5,639,354 $5,398,102 Cost of merchandise sold (1,735,281) (1,623,079) (4,015,756) (3,865,212) ---------- ---------- ---------- ---------- Gross margin 704,253 661,301 1,623,598 1,532,890 Store operating, general and administrative expense (691,844) (634,933) (1,573,376) (1,516,232) ---------- ---------- ---------- ---------- Income from operations 12,409 26,368 50,222 16,658 Interest expense (22,132) (17,910) (51,068) (42,304) Interest income 1,426 1,561 3,290 3,339 ---------- ---------- ---------- ---------- (Loss) income before income taxes (8,297) 10,019 2,444 (22,307) Benefit (provision) for income taxes 2,923 (4,641) (2,234) 8,139 ---------- ---------- ---------- ---------- Net (loss) income $ (5,374) $ 5,378 $ 210 $ (14,168) ========== ========== ========== ========== (Loss) earnings per share: Net (loss) income per share - basic and diluted $ (.14) $ .14 $ .01 $ (.37) ========== ========== ========== ========== Weighted average number of common shares outstanding 38,347,216 38,358,284 38,347,216 38,335,948 Common stock equivalents - 221,806 - 137,615 ---------- ---------- ---------- ---------- Weighted average number of common and common equivalent shares outstanding 38,347,216 38,580,090 38,347,216 38,473,563 ========== ========== ========== ========== See Notes to Quarterly Report. -1- THE GREAT ATLANTIC & PACIFIC TEA COMPANY, INC. STATEMENTS OF CONSOLIDATED SHAREHOLDERS' EQUITY AND --------------------------------------------------- COMPREHENSIVE (LOSS) INCOME --------------------------- (Dollars in thousands, except share and per share amounts) (Unaudited) Una- Accumu- mortized lated Value Other Addi- of Re- Compre- Total tional stricted hensive Share- Common Paid-in Stock Retained Income holders' Stock Capital Grant Earnings (Loss) Equity ------ ------- ------ -------- ------- ------- FY 2000 - 28 Week Period - ------------------------ Balance at beginning of period 38,367,216 shares $38,367 $457,101 $(441) $411,861 $(60,696)$846,192 Net income 210 210 Other comprehensive income: Foreign currency translation adjustment (2,500) (2,500) Minimum pension liability adjustment 2,682 2,682 Forfeiture of restricted stock grants (20) (631) 441 (210) Cash dividends ($.10 per share) (7,670) (7,670) ------- -------- ----- -------- -------- ------- Balance at end of period $38,347 $456,470 $ - $404,401 $(60,514) $838,704 ======= ======== ===== ======== ======== ======== See Notes to Quarterly Report. -2- FY 1999 - 28 Week Period - ------------------------ Balance at beginning of period 38,290,716 shares $38,291 $454,971 $ - $413,034 $(69,039) $837,257 Net loss (14,168) (14,168) Other comprehensive income: Foreign currency translation adjustment 2,478 2,478 Issuance of 20,000 shares of common stock 20 631 (651) - Exercise of stock options, 56,500 shares 56 1,499 1,555 Amortization of restricted stock grant 150 150 Cash dividends ($.10 per share) (7,663) (7,663) ------- -------- ------- -------- -------- -------- Balance at end of period $38,367 $457,101 $ (501) $391,203 $(66,561)$819,609 ======= ======== ====== ======== ======== ======== Comprehensive (Loss) Income - --------------------------- 12 Weeks Ended 28 Weeks Ended Sept. 9, Sept. 11, Sept. 9, Sept. 11, 2000 1999 2000 1999 --------- --------- --------- --------- Net (loss) income $(5,374) $5,378 $ 210 $(14,168) Foreign currency translation adjustment (1,221) (1,306) (2,500) 2,478 Minimum pension liability adjustment - - 2,682 - --------- ------- -------- --------- Total comprehensive (loss) income $(6,595) $4,072 $ 392 $(11,690) ======== ======= ======== ========= See Notes to Quarterly Report. -3- THE GREAT ATLANTIC & PACIFIC TEA COMPANY, INC. CONSOLIDATED BALANCE SHEETS --------------------------- (Dollars in thousands except share amounts) Sept. 9, 2000 Feb. 26, 2000 ------------- ------------- (Unaudited) ASSETS - ------ Current assets: Cash and short-term investments $ 96,394 $ 124,603 Accounts receivable 191,032 227,078 Inventories 801,034 791,150 Prepaid expenses and other assets 77,817 80,052 ---------- ---------- Total current assets 1,166,277 1,222,883 ---------- ---------- Property: Property owned 1,883,836 1,789,662 Property leased 92,164 94,146 ---------- ---------- Property-net 1,976,000 1,883,808 Other assets 220,749 228,834 ---------- ---------- Total assets $3,363,026 $3,335,525 ========== ========== See Notes to Quarterly Report. -4- THE GREAT ATLANTIC & PACIFIC TEA COMPANY, INC. CONSOLIDATED BALANCE SHEETS --------------------------- (Dollars in thousands except share amounts) Sept. 9, 2000 Feb. 26, 2000 ------------- ------------- (Unaudited) LIABILITIES & SHAREHOLDERS' EQUITY - ---------------------------------- Current liabilities: Current portion of long-term debt $ 7,042 $ 2,382 Current portion of obligations under capital leases 11,644 11,327 Accounts payable 566,891 583,142 Book overdrafts 125,034 112,465 Accrued salaries, wages and benefits 158,968 155,649 Accrued taxes 61,763 51,611 Other accruals 202,473 208,002 ---------- ---------- Total current liabilities 1,133,815 1,124,578 ---------- ---------- Long-term debt 941,383 865,675 ---------- ---------- Obligations under capital leases 114,178 117,870 ---------- ---------- Other non-current liabilities 334,946 381,210 ---------- ---------- Commitments and contingencies 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 and outstanding 38,347,216 and 38,367,216 shares, respectively 38,347 38,367 Additional paid-in capital 456,470 457,101 Unamortized value of restricted stock grant - (441) Accumulated other comprehensive loss (60,514) (60,696) Retained earnings 404,401 411,861 ---------- ---------- Total shareholders' equity 838,704 846,192 ---------- ---------- Total liabilities and shareholders' equity $3,363,026 $3,335,525 ========== ========== See Notes to Quarterly Report. -5- THE GREAT ATLANTIC & PACIFIC TEA COMPANY, INC. STATEMENTS OF CONSOLIDATED CASH FLOWS (Dollars in thousands) (Unaudited) 28 Weeks Ended Sept. 9, 2000 Sept. 11, 1999 ------------- -------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $ 210 $(14,168) Adjustments to reconcile net income (loss) to cash provided by operating activities: Store/Facilities exit charge (reversal) and asset write-off (3,061) 31,347 Environmental charge 3,029 - Depreciation and amortization 135,451 122,302 Deferred income tax provision (benefit) 376 (24,019) Gain on disposal of owned property (1,648) (1,240) Decrease in receivables 33,289 20,839 (Increase) decrease in inventories (12,344) 64,157 (Increase) in prepaid expenses and other current assets (2,413) (393) (Increase) decrease in other assets (2,075) 926 (Decrease) in accounts payable (13,450) (57,852) Increase (decrease) in accrued salaries, wages and benefits 6,165 (1,428) Increase in accrued taxes 7,974 12,424 (Decrease) increase in other accruals and other liabilities (33,450) 6,669 Other operating activities, net 80 (2,410) --------- --------- Net cash provided by operating activities 118,133 157,154 --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Expenditures for property (241,643) (256,766) Proceeds from disposal of property 16,538 68,116 --------- --------- Net cash used in investing activities (225,105) (188,650) --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Changes in short-term debt 18,000 (23,100) Proceeds under revolving lines of credit 90,000 85,000 Payments on revolving lines of credit (45,000) (215,000) Proceeds from long-term borrowings 19,454 200,110 Payments on long-term borrowings (2,086) (2,834) Principal payments on capital leases (5,973) (6,227) Deferred financing fees - (6,298) Increase in book overdrafts 12,913 12,549 Proceeds from stock options exercised - 1,555 Cash dividends (7,670) (7,663) --------- --------- Net cash provided by financing activities 79,638 38,092 Effect of exchange rate changes on cash and short-term investments (875) 989 --------- --------- NET (DECREASE) INCREASE IN CASH AND SHORT-TERM INVESTMENTS (28,209) 7,585 CASH AND SHORT-TERM INVESTMENTS AT BEGINNING OF PERIOD 124,603 136,810 --------- --------- CASH AND SHORT-TERM INVESTMENTS AT END OF PERIOD $ 96,394 $ 144,395 ========= ========= See Notes to Quarterly Report. -6- THE GREAT ATLANTIC & PACIFIC TEA COMPANY, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ---------------------------------------------- 1) BASIS OF PRESENTATION The consolidated financial statements for the 12 and 28 week periods ended September 9, 2000 and September 11, 1999 are unaudited, and in the opinion of Management, all adjustments necessary for a fair presentation of such financial statements have been included. Such adjustments consisted only of normal recurring items, except for the store and facilities exit costs discussed herein. Interim results are not necessarily indicative of results for a full year. The consolidated financial statements include the accounts of the Company and all majority-owned subsidiaries. This Form 10-Q should be read in conjunction with the Company's consolidated financial statements and notes incorporated by reference in the 1999 Annual Report on Form 10-K. Certain reclassifications have been made to the prior periods' financial statements in order to conform to the current period presentation. 2) INCOME TAXES The income tax provision/benefit recorded for the 28 week period of fiscal years 2000 and 1999 reflects the Company's estimated expected annual tax rates applied to its respective domestic and foreign financial results. 3) WHOLESALE FRANCHISE BUSINESS As of September 9, 2000, the Company served 67 franchised stores. These franchisees are required to purchase inventory exclusively from the Company which acts as a wholesaler to the franchisees. The Company had sales to these franchised stores of $146 million and $116 million for the second quarters of fiscal 2000 and 1999, respectively, and $334 million and $259 million for the 28 week period ended in fiscal years 2000 and 1999, respectively. In addition, the Company subleases the stores and leases the equipment in the stores to the franchisees. The Company also provides merchandising, advertising, accounting and other consultative services to the franchisees for which it receives a fee which primarily represents the reimbursement of costs incurred to provide such services. The Company holds as assets inventory notes collateralized by the inventory in the stores and equipment lease receivables collateralized by the equipment in the stores. The current portion of the inventory notes and equipment leases, net of allowance for doubtful accounts, amounting -7- to approximately $4.5 million and $4.1 million are included in accounts receivable at September 9, 2000 and February 26, 2000, respectively. The long-term portion of the inventory notes and equipment leases, net of allowance for doubtful accounts, amounting to approximately $56.5 million and $53.4 million are included in other assets at September 9, 2000 and February 26, 2000, respectively. The repayment of the inventory notes and equipment leases are dependent upon positive operating results of the stores. To the extent that the franchisees incur operating losses, the Company establishes an allowance for doubtful accounts. The Company continually assesses the sufficiency of the allowance on a store by store basis based upon the operating results and the related collateral underlying the amounts due from the franchisees. In the event of default by a franchisee, the Company reserves the option to reacquire the inventory and equipment at the store and operate the franchise as a corporate owned store. 4) NEW ACCOUNTING PRONOUNCEMENTS NOT YET ADOPTED In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133"). This Statement requires that all derivative instruments be measured at fair value and recognized in the Consolidated Balance Sheets as either assets or liabilities. In addition, the accounting for changes in the fair value of a derivative (gains and losses) depends on the intended use of the derivative and the resulting designation. For a derivative designated as a hedge, the change in fair value will be recognized as a component of other comprehensive income; for a derivative not designated as a hedge, the change in the fair value will be recognized in the Statements of Consolidated Operations. In June 1999, the FASB issued SFAS No. 137, "Accounting For Derivative Instruments And Hedging Activities - Deferral Of The Effective Date of FASB Statement No. 133" which delays the adoption of SFAS 133 for one year, to fiscal years beginning after June 15, 2000. In June 2000, the FASB issued SFAS No. 138, "Accounting for Certain Derivative Financial Instruments and Certain Hedging Activities - An Amendment of FASB Statement No. 133". This Statement amends the accounting and reporting standards of SFAS 133 for certain derivative instruments, for certain hedging activities and for decisions made by the FASB relating to the Derivatives Implementation Group ("DIG") process. Certain decisions arising from the DIG process that required specific amendments to SFAS 133 were incorporated into this Statement. The Company plans to adopt SFAS 133 and SFAS 138 in the first quarter of fiscal 2001. The Company is currently evaluating the impact this pronouncement will have on the Consolidated Financial Statements. In December 1999, the Securities and Exchange Commission ("SEC") issued Staff Accounting Bulletin No. 101 "Revenue Recognition in Financial Statements" ("SAB 101"). SAB 101 was issued to provide guidance in -8- applying generally accepted accounting principles to the large number of revenue recognition issues that registrants encounter, including nonrefundable, up-front fees and the disclosure of judgements as to the appropriateness of the principles relating to revenue recognition accounting policies. Since the issuance of SAB 101, the Staff has received requests from a number of groups asking for additional time to determine the effects, if any, on registrants' revenue recognition practices and as such, the SEC has delayed the implementation date of SAB 101 until no later than the fourth quarter of fiscal years beginning after December 15, 1999. The Company has evaluated the impact of this Staff Accounting Bulletin and has concluded that it will have no effect on the Consolidated Financial Statements. Revenue is recognized at the point of sale for retail sales. Vendor allowances and credits that relate to the Company's buying and merchandising activities are recognized as earned. In May 2000, the Emerging Issues Task Force ("Task Force") issued No. 00-14 "Accounting for Certain Sales Incentives". The Task Force reached a consensus on several issues involving the accounting and income statement classification of rebates, coupons and other discounts. The Company has evaluated the impact of this issue and has concluded that it will have no effect on the accounting or classification of sales incentives since coupons are recorded upon redemption as a reduction of sales. 5) STORE AND FACILITIES EXIT COSTS - GREAT RENEWAL - PHASE I In May 1998, the Company initiated a vigorous assessment of all aspects of its business operations in order to identify the factors that were impacting the performance of the Company. As a result of the above assessment, in the third quarter of fiscal 1998, the Company decided to exit two warehouse facilities and a coffee plant in the U.S. and a bakery plant in Canada. In connection with the exit plan, the Company recorded a charge of approximately $11 million which was comprised of $7 million of severance, $3 million of facilities occupancy costs for the period subsequent to closure and $1 million to write-down the facilities to their estimated fair value. As of February 27, 1999, the Company had closed and terminated operations with respect to the two warehouses and the coffee plant. The volume associated with the warehouses has been transferred to other warehouses in close geographic proximity. Further, the manufacturing processes of the coffee plant have been transferred to the Company's remaining coffee processing facility. The processing associated with the Canadian bakery has been outsourced effective January 1999. In addition, on December 8, 1998, the Company's Board of Directors approved a plan which included the exit of 127 underperforming stores throughout the United States and Canada and the disposal of two other -9- properties. Included in the 127 stores are 31 stores representing the entire Richmond, Virginia market. Further on January 28, 1999, the Board of Directors approved the closure of five additional underperforming stores. In connection with the Company's plan to exit these 132 stores and the write-down of two properties, the Company recorded a charge in the fourth quarter of fiscal 1998 of approximately $215 million. This $215 million charge consisted of $8 million of severance (including pension withdrawal obligations), $1 million of facilities occupancy costs, $114 million of store occupancy costs, which principally relates to the present value of future lease obligations, net of anticipated sublease recoveries, which extend through fiscal 2028, an $83 million write-down of store fixed assets and a $9 million write-down to estimated fair value of the two properties which are held for sale. To the extent fixed assets included in those stores identified for closure could be utilized in other continuing stores, the Company transferred those assets to continuing stores. The Company plans to scrap fixed assets that could not be transferred, and accordingly, the write-down was calculated based upon an estimated scrap value. This fourth quarter charge of $215 million was reduced by approximately $2 million in fiscal 1998 due to changes in estimates of pension withdrawal liabilities and fixed asset write-downs from the time the original charge was recorded. In addition to the charges recorded in 1998, there were other charges related to the plan which could not be accrued at February 27, 1999 because they did not meet the criteria for accrual under EITF 94-3. Such costs have been expensed as incurred as the plan was being executed. During fiscal 1999, the Company recorded an additional pretax charge of $11 million for severance related to the 132 stores of which $9 million was recorded in the first half of fiscal 1999. No additional charges were recorded during the 28 week period of fiscal 2000. On April 26, 1999, the Company announced that it had reached definitive agreements to sell 14 stores in the Atlanta, Georgia market, two of which were previously included in the Company's store exit program. In conjunction with the sale, the Company decided to exit the entire Atlanta market and close the remaining 22 stores, as well as the distribution center and administrative office. Accordingly, at the time of the announcement, the Company recorded a fiscal 1999 first quarter net pretax charge of approximately $5 million. This charge is comprised of severance of $6 million, future lease commitments of $11 million, partially offset by a $12 million gain related to the disposition of fixed and intangible assets. The net charge was included in "Store operating, general and administrative expense". -10- The Company paid $27 million of the total net severance charges from the time of the original charges through the second quarter of fiscal 2000 which resulted from the termination of approximately 3,400 employees. The remaining individual severance payments will be made by the end of fiscal 2000. The following reconciliation summarizes the activity related to the aforementioned charges since the beginning of fiscal 1999: Severance Store Fixed and Facilities (Dollars in thousands)Occupancy Assets Benefits Occupancy Total - --------------------- --------- -------- -------- ---------- --------- Reserve Balance at Feb. 27, 1999 $114,532 $ - $10,066 $ 4,038 $128,636 Addition (1) 15,730 - 17,060 3,188 35,978 Utilization (4,614)(2) (295) (19,626) (3,659) (28,194) Adjustment (3) (22,195) 295 - - (21,900) Reserve Balance at --------- -------- ------- ------- -------- Feb. 26, 2000 103,453 - 7,500 3,567 114,520 Addition (4) 2,873 - - - 2,873 Utilization (5) (18,409) - (3,663) (463) (22,535) Adjustment (3) - - - (3,061) (3,061) --------- -------- ------- ------- -------- Reserve Balance at Sept. 9, 2000 $ 87,917 $ - $ 3,837 $ 43 $ 91,797 ========= ======== ======= ======= ======== (1) The fiscal 1999 addition represents an increase to the store occupancy reserve for the present value interest accrued ($7.4 million), the additional severance cost ($11.5 million) and the cost of exiting the Atlanta market (including store occupancy of $8.3 million, severance of $5.6 million and facilities costs of $3.2 million). (2) Store occupancy utilization for fiscal 1999 is comprised of $29.6 million of lease and other occupancy payments for the period, net of $25.0 million of net proceeds on the assignment of leases which was considered in the original charge recorded during fiscal 1998. (3) At each balance sheet date, Management assesses the adequacy of the reserve balance to determine if any adjustments are required as a result of changes in circumstances and/or estimates. As a result, in the third quarter of fiscal 1999, the Company recorded a net reduction in "Store operating, general and administrative expense" -11- of $21.9 million to reverse a portion of the $215 million restructuring charge recorded in fiscal 1998. This amount represents a $22.2 million reduction in "Store operating, general and administrative expense" for lower store occupancy costs resulting primarily from earlier than anticipated lease terminations and subleases. The credit is partially offset by $0.3 million of additional fixed asset write-downs resulting from lower than anticipated proceeds from the sale of fixed assets. Additionally, in the first quarter of fiscal 2000, the Company recorded a net reduction in "Store operating, general and administrative expense" of $3.1 million to reverse a portion of the $215 million restructuring charge recorded in fiscal 1998. The reversal is a result of a change in estimate resulting from the sale of one of the Company's warehouses sold during the first quarter of fiscal 2000. (4) The addition of $2.9 million to store occupancy during the first two quarters of fiscal 2000 represents the present value of accrued interest related to lease obligations. (5) Store occupancy utilization of $18.4 million and facilities occupancy of $0.5 million represent lease and other occupancy payments made during the 28 week period ended September 9, 2000. Based upon current available information, Management evaluated the reserve balance of $91.8 million as of September 9, 2000 and has concluded that it is adequate. The Company will continue to monitor the status of the vacant properties and further adjustments to the reserve balance may be recorded in the future, if necessary. As of September 9, 2000, the Company has closed 165 stores, including 34 stores in the Atlanta, Georgia market and 31 stores in the Richmond, Virginia market. At September 9, 2000, approximately $28 million of the reserve is included in "Other accruals" and the remaining amount is included in "Other non-current liabilities" in the Consolidated Balance Sheets. Included in the Statements of Consolidated Operations are the operating results of the 132 underperforming stores (including 31 stores in the Richmond, Virginia market) and the 34 Atlanta stores which the Company has exited. The operating results of these stores are as follows: -12- (In thousands) 12 Weeks Ended 28 Weeks Ended -------------- ----------------------- ---------------------- Sept. 9, Sept. 11, Sept. 9, Sept. 11, 2000 1999 2000 1999 -------- --------- -------- ---------- Sales $ 163 $21,027 $ 377 $185,022 ======== ======== ======== ======== Operating Loss $ (4) $(4,672) $ (71) $(26,131) ======== ======== ========= ======== 6) DEFINED BENEFIT PLAN TRANSFER During the year ended February 25, 1995, the Company's Canadian subsidiary and the United Food & Commercial Workers International Union, Locals 175 and 633, entered into an agreement resulting in the amalgamation of three of the Company's Canadian defined benefit pension plans with the Canadian Commercial Workers Industry Pension Plan ("CCWIPP"), retroactive to July 1, 1994. The agreement was subject to the approval of the CCWIPP trustees and the appropriate regulatory bodies. During the first quarter of fiscal 2000, the Company received final approval of the agreement. Under the terms of this agreement, CCWIPP assumed the assets and defined benefit liabilities of the three pension plans and the Company is required to make defined contributions to CCWIPP based upon hours worked by employees who are members of CCWIPP. As a result of this transfer, during the first quarter of fiscal 2000, the Company recorded a $0.4 million net expense and a $2.7 million adjustment to the minimum pension liability. 7) OPERATING SEGMENTS Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance. The Company's chief operating decision maker is the Chief Executive Officer. The Company currently operates in three reportable segments: United States Retail, Canada Retail and Wholesale. The retail segments are comprised of retail supermarkets in the United States and Canada, while the wholesale segment is comprised of the Company's Canadian operation that serves as the exclusive wholesaler to the Company's franchised stores and serves as wholesaler to certain third party retailers. The accounting policies for the segments are the same as those described in the summary of significant accounting policies included in the Company's Fiscal 1999 Annual Report. The Company measures segment performance based upon operating profit. -13- Interim information on segments is as follows: (Dollars in thousands) 12 Weeks Ended 28 Weeks Ended ---------------------- ---------------------- Sept. 9, Sept. 11, Sept. 9, Sept. 11, 2000 1999 2000 1999 --------- ----------- ---------- ----------- Sales U.S. Retail $1,899,170 $1,806,056 $4,385,014 $4,292,967 Canada Retail 394,362 362,772 920,078 845,873 Canada Wholesale 146,002 115,552 334,262 259,262 ---------- ---------- ---------- ---------- Total Company $2,439,534 $2,284,380 $5,639,354 $5,398,102 ========== ========== ========== ========== Depreciation and amortization U.S. Retail $ 51,281 $ 46,114 $ 118,387 $ 108,021 Canada Retail 7,522 6,222 17,064 14,281 Canada Wholesale - - - - ----------- --------- ---------- ---------- Total Company $ 58,803 $ 52,336 $ 135,451 $ 122,302 =========== ========= ========== ========== Income from operations U.S. Retail $ 2,268 $ 14,989 $ 23,472 $ (3,485) Canada Retail 5,812 7,772 16,127 12,614 Canada Wholesale 4,329 3,607 10,623 7,529 ----------- --------- ---------- ---------- Total Company $ 12,409 $ 26,368 $ 50,222 $ 16,658 =========== ========= ========== ========== (Loss) income before income taxes U.S. Retail $ (16,441) $ 411 $ (19,647) $ (38,295) Canada Retail 3,500 5,758 10,838 7,851 Canada Wholesale 4,644 3,850 11,253 8,137 ----------- -------- ---------- ---------- Total Company $ (8,297) $ 10,019 $ 2,444 $ (22,307) =========== ======== ========== ========== Capital expenditures U.S. Retail $ 82,211 $ 139,972 $ 202,889 $ 228,061 Canada Retail 17,969 13,785 38,754 28,705 Canada Wholesale - - - - ----------- --------- ---------- ---------- Total Company $ 100,180 $ 153,757 $ 241,643 $ 256,766 =========== ========= ========== ========== -14- Sept. 9, Feb. 26, 2000 2000 ---------- ---------- Total assets U.S. Retail $ 2,729,587 $2,684,624 Canada Retail 547,346 567,573 Canada Wholesale 86,093 83,328 ----------- ---------- Total Company $ 3,363,026 $3,335,525 =========== ========== 8) ENVIRONMENTAL LIABILITY During the first quarter of fiscal 2000, the Company became aware of environmental issues at one of its non-retail real estate locations. The Company obtained an environmental remediation report to enable it to assess the potential environmental liability related to this property. Factors considered in determining the liability included, among others, the following: whether the Company had been designated as a potentially responsible party, the number of potentially responsible parties designated at the site, the stage of the proceedings and the available environmental technology. The Company has assessed the likelihood that a loss has been incurred at this site as probable and based on findings included in remediation reports and discussion with legal counsel, estimate a potential loss at September 9, 2000 to be approximately $3 million on an undiscounted basis. During the first quarter of fiscal 2000, $3 million was accrued and is currently included in "Other non-current liabilities" in the Consolidated Balance Sheets. 9 PROJECT FINANCING AGREEMENT During the 28 weeks ended September 9, 2000, the Company entered into an agreement with IBM Credit Corporation ("IBM Credit") whereby IBM Credit will provide financing for software purchases and hardware leases primarily relating to the Company's Great Renewal - Phase II supply chain and business process initiative. Under this agreement, IBM Credit will finance software purchases and hardware leases in the aggregate up to $71 million at an effective rate of 8.49% per annum. The purchases and leases will occur from time to time over the next four years. The Company is committed to make equal monthly payments of $1.4 million through May 2005. Such payments are subject to change based upon the timing and amount of funding from IBM Credit. As of September 9, 2000, IBM Credit has funded $19.2 million for software purchases and has leased hardware to the Company with a total fair market value of $5.8 million. The leasing of the hardware under this agreement is being accounted for as an operating lease in accordance with SFAS No. 13, "Accounting for Leases." -15- THE GREAT ATLANTIC & PACIFIC TEA COMPANY, INC. ITEM 2 - ------- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ------------------------------------------------ MANAGEMENT'S DISCUSSION AND ANALYSIS 12 WEEKS ENDED SEPTEMBER 9, 2000 -------------------------------- OPERATING RESULTS Sales for the second quarter ended September 9, 2000 of $2.4 billion increased $155 million or 6.8% from the prior year second quarter amount. The increase is detailed in the following table: Increase/ Increase/ (Decrease) (Decrease) $ % ---------- ---------- New stores (45) $152 6.7% Same store sales 35 1.5 Wholesale sales 29 1.3 Canadian exchange rate 2 0.1 Closed stores (59) (63) (2.8) ---- ----- Total $155 6.8% ==== ===== Average weekly sales per supermarket were approximately $262,400 in the second quarter of fiscal 2000 versus $246,700 for the corresponding period of the prior year, an increase of 6.4%. Same store sales for Canadian operations increased 3.4% from the prior year and same store sales for U.S. operations increased 1.4% from the prior year. Gross margin as a percent of sales decreased 8 basis points to 28.87% in the second quarter of fiscal 2000 from 28.95% for the second quarter of fiscal 1999. The gross margin dollar increase of $43 million resulted from an increase in sales volume which impacted gross margin by $44 million as well as an increase of $1 million in the Canadian exchange rate offset by a decrease in the gross margin rate which impacted gross margin by $2 million. The U.S. operations gross margin increase of $34 million resulted from an increase of $28 million due to higher sales volume and an increase of $6 million due to a higher gross margin rate. The Canadian operations gross margin increase of $9 million resulted from an increase of $13 million due to higher sales volume and an increase of $1 million in the Canadian exchange rate partially offset by a decrease of $5 million due to a lower gross margin rate. Store operating, general and administrative ("SG&A") expense was $692 million for the second quarter of fiscal 2000 compared to $635 million for the corresponding period in the prior year. As a percentage of sales, SG&A expense increased from 27.79% in the second quarter of fiscal 1999 to 28.36% -16- in the second quarter of fiscal 2000. The SG&A expense for the second quarter of fiscal 1999 included approximately $23 million relating the Company's Great Renewal - Phase I store closure initiatives ("GR I") as described in Footnote 5 of the Company's Consolidated Financial Statements for the 12 and 28 week periods ended September 9, 2000. These expenses consisted of approximately $12 million of non-recurring charges and approximately $11 million of store operating, general and administrative expense of the stores identified for closure. The SG&A expense for the second quarter of fiscal 2000 included approximately $17 million relating to the Company's Great Renewal - Phase II supply chain and business process initiative ("GR II"). Such costs consisted primarily of professional consulting fees and salaries including related benefits of employees working full-time on the initiative. Excluding the GR I and GR II charges noted above, as a percentage of sales, SG&A expense increased from 27.03% in the second quarter of fiscal 1999 to 27.66% in the second quarter of fiscal 2000. The increase of 63 basis points is primarily due to special litigation and severance charges as well as higher labor and occupancy costs in fiscal 2000. Interest expense increased $4.2 million or 23.57% from the corresponding period of the prior year, primarily due to the issuance of $200 million 9.375% Senior Quarterly Interest Bonds on August 6, 1999 and increased borrowings from banks. The loss before income taxes for the second quarter ended September 9, 2000 was $8 million compared to income before income taxes of $10 million for the comparable period in the prior year for a decrease of $18 million. The loss was attributable principally to higher store operating, general and administrative expense and increased interest expense. The income tax provision/benefit recorded in the second quarter of fiscal years 2000 and 1999 reflect the Company's estimated expected annual tax rates applied to its respective domestic and foreign financial results. The effective tax rate for the second quarter of fiscal 2000 was 35.2%. -17- MANAGEMENT'S DISCUSSION AND ANALYSIS 28 WEEKS ENDED SEPTEMBER 9, 2000 -------------------------------- OPERATING RESULTS Sales for the 28 weeks ended September 9, 2000 of $5.6 billion increased $241 million or 4.5% from the prior year. The increase is detailed in the following table: Increase/ Increase/ (Decrease) (Decrease) $ % ---------- ---------- New stores (53) $337 6.2% Same store sales 101 1.9 Wholesale sales 73 1.4 Canadian exchange rate 8 0.1 Closed stores (147) (278) (5.1) ---- ----- Total $241 4.5% ==== ===== Average weekly sales per supermarket were approximately $259,700 for the 28 week period of fiscal 2000 versus $238,600 for the corresponding period of the prior year, an increase of 8.8%. Same store sales for Canadian operations increased 3.9% from the prior year and same store sales for U.S. operations increased 1.8% from the prior year. Gross margin as a percent of sales increased 39 basis points to 28.79% for the 28 week period of fiscal 2000 from 28.40% for the 28 week period of fiscal 1999. Margins were negatively impacted during the 28 week period of fiscal 1999 due to accelerated inventory markdowns in stores that were identified for closure under GR I recorded in the first quarter of fiscal 1999. The gross margin dollar increase of $91 million resulted from an increase in the gross margin rate which impacted gross margin by $23 million, an increase in sales volume which impacted gross margin by $66 million as well as an increase of $2 million in the Canadian exchange rate. The U.S. operations gross margin increase of $67 million resulted from an increase of $39 million due to a higher gross margin rate and $28 million due to higher sales volume. The Canadian operations gross margin increase of $24 million resulted from an increase of $32 million due to higher sales volume and an increase of $2 million in the Canadian exchange rate partially offset by a decrease of $10 million due to a lower gross margin rate. SG&A expense was $1.6 billion for the 28 weeks ended September 9, 2000 compared to $1.5 billion for the corresponding period in the prior year. As a percentage of sales, SG&A expense decreased from 28.09% in fiscal 1999 to 27.90% in fiscal 2000. -18- The SG&A expense for the 28 week period of fiscal 1999 included approximately $106 million relating to GR I, including approximately $45 million of non-recurring charges and approximately $61 million of store operating, general and administrative expense of the stores identified for closure. The SG&A expense for the 28 week period of fiscal 2000 included approximately $34 million relating to GR II. Such costs included primarily professional consulting fees and salaries including related benefits of employees working full-time on the initiative. Also included in the fiscal 2000 expense was approximately $3 million of estimated environmental clean up costs for a non-retail property. Partially offsetting the fiscal 2000 expense was a reversal of approximately $3.1 million of GR I charges originally recorded in fiscal 1998 resulting from a change in estimate related to the sale of one of the Company's warehouses sold during the first quarter of fiscal 2000. Excluding the charges noted above, as a percentage of sales, SG&A expense increased from 26.84% for the 28 week period of fiscal 1999 to 27.30% for the 28 week period of fiscal 2000. The increase of 46 basis points is primarily due to special litigation and severance charges as well as higher labor and occupancy costs in fiscal 2000. Interest expense increased $8.8 million or 20.7% from the corresponding period of the prior year, primarily due to the issuance of $200 million 9.375% Senior Quarterly Interest Bonds on August 6, 1999. Income before income taxes for the 28 week period ended September 9, 2000 was $2 million compared to a loss before income taxes of $22 million for the comparable period in the prior year, an increase of $24 million. The income is attributable principally to a higher gross margin rate, partially offset by the increases in store operating, general and administrative expense and interest expense. LIQUIDITY AND CAPITAL RESOURCES The Company ended the second quarter with working capital of $32 million compared to $98 million at the beginning of the fiscal year. The Company had cash and short-term investments aggregating $96 million at the end of the second quarter of fiscal 2000 compared to $125 million as of fiscal 1999 year end. There were no short-term investments at September 9, 2000. Short- term investments were approximately $27 million at February 26, 2000. The decrease in working capital is attributable primarily to decreases in cash and short-term investments and accounts receivable. On August 6, 1999, the Company issued $200 million aggregate principal amount 9.375% Senior Quarterly Interest Bonds due August 1, 2039. The Company used the net proceeds from the issuance of the bonds to repay borrowings under its revolving credit facility, to finance the purchase of 16 stores, (6 in the United States and 10 in Canada) and for working capital and general corporate purposes. -19- The Company has an unsecured five year $499 million revolving credit agreement (the "Credit Agreement") expiring June 10, 2002, with a syndicate of banks, enabling it to borrow funds on a revolving basis sufficient to refinance short-term borrowings. As of September 9, 2000, the Credit Agreement was comprised of the U.S. credit agreement amounting to $465 million and the Canadian credit agreement amounting to C$50 million (U.S. $34 million). As of September 9, 2000, the Company had $105 million of borrowings under the Credit Agreement. Accordingly, as of September 9, 2000, the Company had $394 million available under the Credit Agreement. Borrowings under the agreement bears interest at the weighted average rate of 7.13% as of September 9, 2000 based on the variable LIBOR pricing. In addition to the Credit Agreement, the Company also has various uncommitted lines of credit with numerous banks totaling $160 million. As of September 9, 2000, the Company had $45 million outstanding and $115 million available in uncommitted lines of credit. As described in Footnote 9 of the Company's Consolidated Financial Statements for the 12 and 28 week periods ended September 9, 2000, the Company entered into an agreement with IBM Credit Corporation ("IBM Credit") whereby IBM Credit will provide financing for software purchases and hardware leases primarily related to GR II. Under this agreement, IBM Credit will finance software purchases and hardware leases in the aggregate up to $71 million at an effective rate of 8.49% per annum. As of September 9, 2000, IBM Credit has funded $19.2 million for software purchases and has leased hardware to the Company with a total fair market value of $5.8 million. The Company's Canadian subsidiary, The Great Atlantic & Pacific Company of Canada, Limited, has outstanding $75 million of 5 year Notes denominated in U.S. dollars that are due on November 1, 2000. These Notes, along with borrowings under the credit agreement and uncommitted lines of credit have been classified as long-term debt based on Management's intent and ability, through the use of the Credit Agreement, to refinance such Notes and bank borrowings on a long-term basis. The Company has filed two Shelf Registration Statements dated January 23, 1998 and June 23, 1999, allowing it to offer up to $350 million of debt and/or equity securities as of September 9, 2000 at terms determined by market conditions at the time of sale. The Company's loan agreements and certain of its notes contain various financial covenants which require, among other things, minimum net worth and maximum levels of indebtedness and lease commitments. The Company is in compliance with all such covenants as of September 9, 2000. The Company's existing senior debt rating was Ba1 with negative implications with Moody's Investors Service and BB stable with Standard & Poor's Ratings Group as of September 9, 2000. On September 7, 2000, Standard & Poor's Ratings Group lowered its rating on the Company's debt to BB stable. This rating change raises the cost of borrowing under the Credit Agreement by 20 basis points on the borrowed amount and 5 basis points on the entire -20- commitment. This change as well as future rating changes could affect the availability and cost of financing to the Company. For the 28 weeks ended September 9, 2000, capital expenditures totaled $242 million, which included 25 new stores and 35 remodels and enlargements. Capital expenditures are expected to continue at a similar rate over the remainder of the year. The Company believes that its anticipated cash resources will be sufficient for GR II and other capital expenditure programs, as well as mandatory scheduled debt repayments throughout fiscal 2000. The Company is also considering real estate lease financing to supplement its cash resources. MARKET RISK Market risk represents the risk of loss from adverse market changes that may impact the consolidated financial position, results of operations or cash flows of the Company. Among other possible market risks, the Company is exposed to such risk in the areas of interest rates and foreign currency exchange rates. Interest rates The Company's exposure to market risk for changes in interest rates relates primarily to the Company's debt obligations. The Company has no cash flow exposure due to rate changes on its $775 million in notes as of September 9, 2000 because they are at fixed interest rates. However, the Company does have cash flow exposure on its committed and uncommitted bank lines of credit due to its variable LIBOR pricing. Accordingly, as of September 9, 2000, a 1% change in LIBOR would result in interest expense fluctuating approximately $1.5 million per year. Foreign Exchange Risk The Company is exposed to foreign exchange risk to the extent of adverse fluctuations in the Canadian dollar. For the 12 and 28 week periods ended September 9, 2000, a change in the Canadian currency of 10% would have resulted in a fluctuation in net income of $0.4 million and $1.2 million, respectively. The Company does not believe that a change in the Canadian currency of 10% will have a material effect on the financial position or cash flows of the Company. The Company entered into a five year cross-currency swap agreement to hedge five year notes in Canada that are denominated in U.S. dollars. The Company does not have any currency risk regarding the Canadian five year notes. The Company is exposed to currency risk in the event of default by the counterparty. Such default is remote, as the counterparty is a widely recognized investment banker. The fair value of the cross-currency swap agreement was favorable to the Company by approximately $6.9 million and $4.6 -21- million as of September 9, 2000 and February 26, 2000, respectively. A 10% change in Canadian exchange rates would have resulted in the fair value fluctuating approximately $6.8 million at September 9, 2000. CAUTIONARY NOTE This report contains certain forward-looking statements about the future performance of the Company which are based on Management's assumptions and beliefs in light of the information currently available to it. The Company assumes no obligation to update the information contained herein. These forward-looking statements are subject to uncertainties and other factors that could cause actual results to differ materially from such statements including, but not limited to: competitive practices and pricing in the food industry generally and particularly in the Company's principal markets; the Company's relationships with its employees and the terms of future collective bargaining agreements; the costs and other effects of legal and administrative cases and proceedings; the nature and extent of continued consolidation in the food industry; changes in the financial markets which may affect the Company's cost of capital and the ability of the Company to access the public debt and equity markets to refinance indebtedness and fund the Company's capital expenditure programs on satisfactory terms; supply or quality control problems with the Company's vendors and changes in economic conditions which affect the buying patterns of the Company's customers. -22- THE GREAT ATLANTIC & PACIFIC TEA COMPANY, INC. PART II. OTHER INFORMATION --------------------------- Item 1. Legal Proceedings ----------------- A Georgia appellate court ruled against the Company's appeal of a $4 million verdict in the Capital Graphics Advertising Agency, Inc. case. Subsequent thereto, the Company has satisfied the judgement in full. The United States Circuit Court of Appeals for the Seventh Circuit ruled in the Shirley A. Lang case, in favor of the Company, which had previously won a unanimous jury verdict. The plaintiffs' petition to the Court for rehearing has been denied. Item 2. Changes in Securities --------------------- None Item 3. Defaults Upon Senior Securities ------------------------------- None Item 4. Submission of Matters to a Vote of Security Holders --------------------------------------------------- None - Matters were previously reported in the first quarter ended June 17, 2000, Form 10-Q report filed with the Commission. Item 5. Other Information ----------------- Effective August 26, 2000, Mr. George Graham, Executive Vice President and Chief Merchandising Officer, was no longer employed by the Company. Effective July 14, 2000, Mr. Michael J. Larkin, Senior Executive Vice President and Chief Operating Officer, was no longer employed by the Company. Item 6. Exhibits and Reports on Form 8-K -------------------------------- (a) Exhibits required by Item 601 of Regulation S-K Management Termination Agreement - Exhibit 10 (b) Reports on Form 8-K None -23- THE GREAT ATLANTIC & PACIFIC TEA COMPANY, INC. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. THE GREAT ATLANTIC & PACIFIC TEA COMPANY, INC. Date: October 24, 2000 By: /s/ Kenneth A. Uhl --------------------------------------- Kenneth A. Uhl, Vice President and Controller (Chief Accounting Officer) -24- EX-27 2 0002.txt
5 THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE GREAT ATLANTIC & PACIFIC TEA COMPANY, INC. 10-Q FOR THE 12 AND 28 WEEKS ENDED SEPTEMBER 9, 2000 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1000 3-MOS FEB-24-2001 SEP-09-2000 96394 0 191032 0 801034 1166277 1976000 0 3363026 1133815 1055561 0 0 38347 800357 3363026 2439534 2439534 1735281 1735281 691844 0 22132 (8297) 2923 (5374) 0 0 0 (5374) (.14) (.14)
EX-10 3 0003.txt Exhibit 10 Separation and Release Agreement, dated as July 14, 2000, by and between Michael Larkin and The Great Atlantic & Pacific Tea Company, Inc. (the "Agreement") This will confirm our understandings with respect to your resignation from employment with The Great Atlantic & Pacific Tea Company, Inc., which is effective July 14, 2000. As of that date, all rights, privileges and entitlements as an active employee cease, subject only to the provisions hereinafter set forth. Your resignation from employment includes your resignation as an officer and director of the Company and all of its subsidiaries, effective the same date, and is an integral part of this Agreement. In consideration of your general release which is set forth below, the Company agrees to provide you with salary continuation at your current salary through January 13, 2002, and to provide to you and covered members of your family Company Executive Medical Health benefits currently enjoyed by you (including the non-executive prescription drug coverage) through the earlier of January 13, 2002 or the date you obtain employment; provided, however, that such salary continuation, medical benefit coverage continuation and all other enhanced benefits provided to you in this Agreement shall cease immediately should you: breach your fiduciary duty as a present and soon to be former member of senior management of the Company to hold all non-public Company information confidential; and/or obtain employment with a company that owns or operates supermarkets in any geographic area in which the Company operates, or if you take actions or provide services which reasonably and proximately may become to the competitive detriment of the Company. The time period during which all vested options (including but not limited to stock appreciation rights, non- qualified stock options and incentive stock options, collectively, "Options") currently held by you can be exercised is hereby extended for the period of 21 months immediately following the date of this Agreement at the end of which period all of your Options shall terminate. Except as otherwise amended herein, all other terms governing the grant and exercise of your Options shall remain in full force and effect. Your participation in the Company's Management Incentive Plan shall cease immediately as of the date of this Agreement, provided, however, should the Board of Directors of the Company award any bonuses under that Plan for fiscal 2000, you will be paid a bonus pro rated to the date of this Agreement. The Company agrees to pay to you when due, as per the terms of that certain letter agreement between the Company and you dated May 7, 1997, the SERP benefit contained in paragraph 5 of that letter agreement. The provisions of this Agreement contain the entire agreement between the parties hereto as to the subject matters discussed herein. The foregoing consideration, together with the further release from the Company recited herein, is given in return for your discharge and release of all claims, obligations, and demands which you have, ever had, or in the future may have against The Great Atlantic & Pacific Tea Company, Inc., any of its parents, subsidiaries or affiliated entities and any of its or their officers, directors, employees, agents, predecessors or successors (collectively, the "Company") arising out of or related to your employment with and separation from the Company, including, but not limited to, any and all claims under Title VII of the Civil Rights Act of 1964, the Civil Rights Act of 1991, the Age Discrimination in Employment Act ("ADEA"), the Older Workers Benefit Protection Act, the Americans with Disabilities Act, the Employment Retirement Income Security Act of 1974, the Family and Medical Leave Act, the Equal Pay Act, the Fair Labor Standards Act, each and every state or local variation of these federal laws including without limitation the New York State Human Rights Law, the New York Whistleblower Protection Law, the New York City Human Rights Law, the New Jersey Law Against Discrimination, the New Jersey Family Leave Act, the New Jersey Conscientious Employee Protection Act, and any and all other applicable federal, state, and local fair employment practices laws, individual or constitutional rights, wage or discrimination laws, and any and all claims for breach of contract or implied contract, constructive or wrongful discharge, or for negligence, retaliation and all torts, and any and all claims for attorneys' fees. As to any claims against you for matters arising out of and within the scope of your employment, the Company will release, defend, indemnify and hold you harmless from and against any loss, cost, claim, damage, judgment and expense; provided, however, that you provide reasonable cooperation in the defense thereof and give prompt notice to the Company of any such claims brought by a third party. The foregoing releases shall not affect any subsequent acts giving rise to claims thereafter. Excluded from the foregoing releases are any claims which by law cannot be waived; provided, however, while you cannot waive your right to file a charge with or participate in an investigation conducted by certain government agencies, you are waiving and releasing your claim or right to any monetary recovery should any agency (such as the Equal Employment Opportunity Commission) pursue any claims on your behalf. This Agreement contains and constitutes the full and complete understanding and agreement between you and the Company. The Company and you each understand and agree that by entering into this Agreement, neither the Company nor you admit violating any legal right, duty or entitlement. This Agreement shall not be amended or modified except by a writing subscribed by the parties hereto. This Agreement will be governed by and interpreted in accordance with the laws of the State of New Jersey. The Company advises you to consult with an attorney prior to executing this Agreement. By executing this Agreement, you acknowledge that (a) you have been provided an opportunity to consult with an attorney or other advisor of your choice regarding the terms of this Agreement, (b) this is a final offer and you have been given twenty-one (21) days in which to consider whether you wish to enter into this Agreement, (c) you have elected to enter this Agreement knowingly and voluntarily and (d) if you do so within fewer than 21 days from receipt of the final document you have knowingly and voluntarily waived the remaining time. The Company reserves the right reasonably to change or revoke this Agreement prior to your execution hereof. This Separation and Release Agreement shall be fully effective and binding upon all parties hereto immediately upon execution by you and the Company; provided, however, you have seven (7) days following your execution of this Agreement to change your mind. You may revoke the Agreement during those seven days by mailing or delivering a letter of revocation to the Law Department, attention William P. Costantini, Esq., The Great Atlantic & Pacific Tea Company, Inc., 2 Paragon Drive, Montvale, New Jersey 07645. Such a letter must be signed and received, or postmarked, no later than the seventh day after the date on which you signed the Separation and Release Agreement. You further covenant not to contest the validity of this release after the expiration of the revocation period. Therefore, you agree that if you nonetheless should pursue litigation against the Company involving any matter covered and/or released hereby, you first will restore to the Company the full value of all consideration you have received and waive any to which you are still entitled hereunder and you shall be liable for the Company's costs and attorneys' fees incidental to defending such legal action. Finally, should any provision of this Agreement be found by a court of competent jurisdiction to be unenforceable in whole or in part, the remainder of this Agreement shall not be affected thereby and shall remain in full force and effect. If this is in accordance with our understanding and agreement, please sign, have notarized and return to my attention the enclosed copy, which shall evidence our binding agreement. THE GREAT ATLANTIC & PACIFIC Agreed and Accepted: TEA COMPANY, INC. By: ________________________ ________________________ LAURANE MAGLIARI MICHAEL LARKIN Sr. Vice President, People Resources & Services Sworn to before me this _____ day of _____________, 2000. Dated: ___________________ __________________ Notary Public -----END PRIVACY-ENHANCED MESSAGE-----