-----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, cprJ8izWLl/sjHrqrmwbjFVUOxoXCwSdWNS0jvuWasfNJcT0AByNOL/+/PM9p3sC ae5bK09nHH2AcDD3x1MHpg== 0000043300-94-000004.txt : 19940803 0000043300-94-000004.hdr.sgml : 19940803 ACCESSION NUMBER: 0000043300-94-000004 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19931204 FILED AS OF DATE: 19940118 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: 1934 Act SEC FILE NUMBER: 001-04141 FILM NUMBER: 94501669 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 FORM 10-Q Executed Copy FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Quarterly Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934 For Quarter Ended December 4, 1993 Commission File Number 1-4141 THE GREAT ATLANTIC & PACIFIC TEA COMPANY, INC. ---------------------------------------------- (Exact name of registrant as specified in charter) Maryland 13-1890974 -------- ---------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 2 Paragon Drive, Montvale, New Jersey 07645 - - ------------------------------------- ----- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code 201-573-9700 ------------ - - ------------------------------------------------------------------------- Former name, former address and former fiscal year, if changed since last report. Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES XXX NO --------- --------- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Class Outstanding at Dec. 4, 1993 ----- ---------------------------- Common stock - $1 par value 38,220,333 shares THE GREAT ATLANTIC & PACIFIC TEA COMPANY, INC. PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS STATEMENTS OF CONSOLIDATED OPERATIONS & RETAINED EARNINGS (Dollars in thousands, except per share figures) (Unaudited) 12 Weeks Ended 40 Weeks Ended Dec. 4, Dec. 5, Dec. 4, Dec. 5, 1993 1992 1993 1992 ---------- ---------- ---------- ---------- Sales $2,342,935 $2,375,809 $8,021,567 $8,123,885 Cost of merchandise sold (1,677,356) (1,708,036) (5,724,341) (5,811,699) ---------- ---------- ---------- ---------- Gross margin 665,579 667,773 2,297,226 2,312,186 Store operating, general and administrative expense (652,193) (657,248) (2,212,057) (2,213,755) ---------- ---------- ---------- ---------- Income from operations 13,386 10,525 85,169 98,431 Interest expense (12,754) (14,903) (46,230) (50,264) Provision for potential loss on Isosceles investment - - - (151,238) ---------- ---------- ---------- ---------- Income (loss) before income taxes and cumulative effect 632 (4,378) 38,939 (103,071) Benefit (provision) for income taxes (253) 4,800 (15,553) 44,700 ---------- ---------- ---------- ---------- Income (loss) before cumulative effect 379 422 23,386 (58,371) Cum. effect on prior years of changes in acctg. principles Income taxes - - - (64,500) Postretirement benefits - - - (26,500) ---------- ---------- ---------- ---------- Net income (loss) 379 422 23,386 (149,371) Retained earnings at beginning of period 563,515 610,792 555,796 775,873 Cash dividends (7,644) (7,644) (22,932) (22,932) ---------- ---------- ---------- ---------- Retained earnings at end of period $ 556,250 $ 603,570 $ 556,250 $ 603,570 ========== ========== ========== ========== Earnings (loss) per share: Income (loss) before cumulative effect $ .01 $ .01 $ .61 $ (1.53) Cum. effect on prior years of changes in acctg. principles Income taxes - - - (1.69) Postretirement benefits - - - (.69) ---------- ---------- ---------- ---------- Net income (loss) $ .01 $ .01 $ .61 $ (3.91) ========== ========== ========== ========== Cash dividends $ .20 $ .20 $ .60 $ .60 ========== ========== ========== ========== Weighted average number of shares outstanding 38,220,000 38,220,000 38,220,000 38,219,000 ========== ========== ========== ========== See Notes to Quarterly Report on Pages 5 and 6. -1- THE GREAT ATLANTIC & PACIFIC TEA COMPANY, INC. CONSOLIDATED BALANCE SHEETS --------------------------- (Dollars in thousands) Dec. 4, 1993 Feb. 27, 1993 ------------- ------------- (Unaudited) ASSETS - - ------ Current assets: Cash and short-term investments $ 129,332 $ 110,120 Accounts receivable 200,744 194,557 Inventories 881,138 856,319 Prepaid expenses and other assets 67,846 60,496 ---------- ---------- Total current assets 1,279,060 1,221,492 ---------- ---------- Property: Property owned 1,599,578 1,562,805 Property leased 126,030 141,339 ---------- --------- Property-net 1,725,608 1,704,144 Other assets 166,321 165,294 ---------- ---------- Total Assets $3,170,989 $3,090,930 ========== ========== See Notes to Quarterly Report on Pages 5 and 6. -2- THE GREAT ATLANTIC & PACIFIC TEA COMPANY, INC. CONSOLIDATED BALANCE SHEETS --------------------------- (Dollars in thousands) Dec. 4, 1993 Feb. 27, 1993 -------------- ------------- (Unaudited) LIABILITIES & SHAREHOLDERS' EQUITY - - ---------------------------------- Current liabilities: Current portion of long-term debt $ 152,380 $ 104,660 Current portion of obligations under capital leases 16,824 18,021 Accounts payable 498,811 512,604 Book overdrafts 181,102 161,851 Accrued salaries, wages and benefits 154,674 157,405 Accrued taxes 37,287 11,953 Other accruals 188,794 198,229 ---------- ---------- Total current liabilities 1,229,872 1,164,723 ---------- ---------- Long-term debt 501,262 414,301 ---------- ---------- Obligations under capital leases 164,972 182,066 ---------- ---------- Deferred income taxes 118,559 141,184 ---------- ---------- Other non-current liabilities 133,719 154,326 ---------- ---------- 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 (24,986) (12,809) Retained earnings 556,250 555,796 Treasury stock, at cost, 9,157 and 9,098 shares, respectively (363) (361) ---------- ---------- Total shareholders' equity 1,022,605 1,034,330 ---------- ---------- Total liabilities and shareholders' equity $3,170,989 $3,090,930 ========== ========== See Notes to Quarterly Report on Pages 5 and 6. -3- THE GREAT ATLANTIC & PACIFIC TEA COMPANY, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in thousands) (Unaudited) 40 Weeks Ended Dec. 4, 1993 Dec. 5, 1992 -------------- -------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $ 23,386 $ (149,371) Adjustments to reconcile net income (loss) to cash provided by operating activities: Provision for potential loss on Isosceles investment - 151,238 Cumulative effect on prior years of changes in accounting principles: Income taxes - 64,500 Postretirement benefits - 26,500 Depreciation and amortization 180,948 176,127 Decrease in deferred income taxes before cumulative effect (5,187) (61,098) (Gain) loss on disposal of owned property 82 (3,608) Increase in receivables (7,649) (10,450) (Increase)decrease in inventories (16,382) 1,354 Increase in other current assets (10,590) (874) Decrease in accounts payable (9,610) (32,777) Increase (decrease) in accrued salaries, wages and benefits (167) 549 Increase (decrease) in accrued taxes 24,472 (21,390) Decrease in store closing reserves (36,254) (1,014) Decrease in other accruals (9,945) (5,141) Other (2,058) 15,782 --------- --------- Net cash provided by operating activities 131,046 150,327 --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Expenditures for property (201,741) (143,332) Proceeds from disposal of property 13,278 11,057 Acquisition of business net of cash acquired (42,948) - --------- --------- Net cash used in investing activities (231,411) (132,275) --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from long-term debt 140,103 21,467 Payment of long-term debt (5,132) (33,778) Increase in book overdrafts 22,752 17,091 Principal payments on capital leases (13,630) (14,289) Cash dividends (22,932) (22,932) Proceeds from stock options exercised - 27 Purchase of treasury stock (2) (3) --------- --------- Net cash provided by (used in) financing activities 121,159 (32,417) --------- --------- Effect of exchange rate changes on cash and short-term investments (1,582) (2,146) --------- --------- NET INCREASE (DECREASE) IN CASH AND SHORT-TERM INVESTMENTS 19,212 (16,511) Cash and Short-Term Investments at Beginning of Period 110,120 136,166 --------- --------- CASH AND SHORT-TERM INVESTMENTS AT END OF PERIOD $ 129,332 $ 119,655 ========= ========= See Notes to Quarterly Report on Pages 5 and 6. -4- THE GREAT ATLANTIC & PACIFIC TEA COMPANY, INC. NOTES TO QUARTERLY REPORT ------------------------- 1) BASIS OF PRESENTATION The consolidated financial statements for the 40 weeks ended December 4, 1993 and December 5, 1992 are unaudited, and in the opinion of management, all adjustments necessary for a fair presentation of such financial statements have been included. Such adjustments consisted only of normal recurring items, except for the cumulative effect adjustments associated with the adoption of Statement of Financial Accounting Standards ("SFAS") No. 109 and No. 106 and the provision for potential loss on Isosceles investment. 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 1992 Annual Report on Form 10-K and Form 10-K/A. Certain reclassifications have been made to the prior years' financial statements in order to conform to the current year presentation. 2) ACQUISITIONS On March 29, 1993, the Company acquired certain assets, including inventory, of 48 Big Star stores in the Atlanta, Georgia area for approximately $43 million. The acquisition has been accounted for as a purchase and, accordingly, the results of operations are included in the Statements of Consolidated Operations from the date of acquisition. The Company is in the process of finalizing the fair value of assets acquired and liabilities assumed based on current appraisals and assessments. 3) INCOME TAXES The provision for income taxes for the 40 weeks ended December 4, 1993 reflects the increase in the corporate tax rate since the beginning of the fiscal year, offset by retroactive targeted jobs tax credits as prescribed in the Omnibus Budget Reconciliation Act of 1993. 4) INDEBTEDNESS On January 7, 1994, subsequent to the end of the third quarter, the Company issued $200 million of unsecured, non-callable 7.70% Senior Notes due 2004. The net proceeds from the issuance of these Notes will be used for general corporate purposes including the repayment of certain debt, the construction of new stores, the remodeling of existing stores and the closure of small outmoded stores. -5- 5) LABOR UNIONS, CANADIAN STRIKE The Company has been in negotiations with Local Nos. 175 and 633, United Food & Commercial Workers, regarding a collective bargaining agreement involving approximately 6,500 employees in 63 "Miracle Mart", "Ultra Mart" and other stores in Ontario, Canada. The Union struck 63 stores on November 19, 1993. Because the Company has no ability to hire replacement workers under Ontario law, the stores are closed for business. The Company made an offer to settle the dispute which was rejected by the union members on December 11, 1993. The Company cannot predict the outcome of negotiations. Revenues of the 63 stores approximate 25% of the total Canadian operations with gross margin rates approximating the overall gross margin rates of the total Canadian operations. Since the date of the strike, the Company has incurred one time costs of $1.3 million mainly due to inventory losses on perishable products which could not be removed from the stores due to picketing activities. The Company estimates that its profitability and cash flow may be negatively impacted by approximately $1 million per week in the near term. There are twenty-two significant union contracts expiring in 1993 and 1994 which have not yet been extended. These contracts affect approximately 31,000 employees. These union contracts are either in the early stages of negotiation or negotiations have not begun. Included in the balance sheet caption "Other assets" is C$70 million (U.S. $52 million) of goodwill related to the Miracle Food Mart acquisition. Management periodically reassesses the appropriateness of its goodwill balance based on forecasts of operating cash flow less significant anticipated cash requirements. While cash flows have been negatively impacted by the Canadian work stoppage described above, the Company believes that the stoppage is temporary and that the cash flows projected to be generated on an undiscounted basis should be sufficient to recover the goodwill balance over its remaining life. 6) ADOPTION OF SFAS NO. 112 DURING FISCAL 1994 Statement of Financial Accounting Standards No. 112 "Employers Accounting for Postemployment Benefits", will be effective for fiscal years beginning 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 intends to adopt the statement effective February 27, 1994. -6- ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ------------------------------------------------ MANAGEMENT'S DISCUSSION AND ANALYSIS 12 WEEKS ENDED DECEMBER 4, 1993 --------------------------------- OPERATING RESULTS Sales for the third quarter ended December 4, 1993 of $2.3 billion decreased $33 million or 1.4% from last year. A lower Canadian exchange rate adversely affected sales by $24 million or 1.0%. Excluding the effects of the change in exchange rates, sales decreased by $9 million or 0.4%. Contributing factors were the closing of 81 outmoded stores principally in the Company's major markets of the Northeast, Michigan and Canada (2.6%), a strike in Canada's Miracle Food Mart chain (1.4%) and a reduced same store sales rate of 1.0% in the U.S. and 0.8% in Canada (excluding the Miracle Food Mart strike) offset by the acquisition of Big Star stores (2.5%) and the opening of 21 new stores principally in the Northeast (2.0%). Same store sales declines reflect the difficult sales climate and lack of inflation both in the U.S and Canada. Average weekly sales per store were approximately $164,400 versus $163,500 for the corresponding period of the prior year for a 0.6% increase. Gross margin as a percent of sales increased 0.3% to 28.4% in the third quarter of 1993 from 28.1% for the third quarter of the prior year resulting primarily from the continued benefits derived from the Company's centralized purchasing function, changes in product mix and increased buying allowances partly offset by increased special price reductions. Total gross margin decreased $2 million mainly as a result of the negative effect of the Canadian exchange rate of $6 million and $2 million decreased volume offset by a net increase in rates of $6 million. In the United States, gross margin as a percentage of sales increased 0.2% to 28.3%, resulting in an increase in gross margin dollars of $4 million while sales volume gains increased gross margin by $10 million. In Canada, gross margin declined 11.5%, reflecting volume declines of $12 million due to the loss of sales volume in closed stores, the effect of the Miracle Food Mart strike and a $6 million decline due to the negative effects of the Canadian exchange rate offset by an improved gross margin rate of 0.6%, increasing margins by $2 million. Store operating, general and administrative expense as a percent of sales increased to 27.8% from 27.7% for the corresponding period in the prior year resulting primarily from increased costs and expenses associated with store labor and occupancy partly offset by decreased customer/employee accident costs. U.S. expenses increased $7 million principally due to the addition of Big Star stores in 1993 offset by reduced expenses from store closures. Canadian expenses were $12 million below the corresponding period in the prior year as a result of reduced expenses from store closures coupled with the decrease in the exchange rate and the effect of the Miracle Food Mart strike. Interest expense decreased from the previous year primarily due to reduced capital lease obligations partially offset by higher outstanding borrowings. Income before income taxes for the third quarter ended December 4, 1993 is $0.6 million compared to a loss of $4.4 million for the comparable period in the prior year. -7- MANAGEMENT'S DISCUSSION AND ANALYSIS 40 WEEKS ENDED DECEMBER 4, 1993 --------------------------------- OPERATING RESULTS Sales for the 40 weeks ended December 4, 1993 of $8.0 billion decreased $102 million or 1.3% from the 40 weeks ended December 5, 1992. A lower Canadian exchange rate adversely affected sales by $102 million or 1.3%. Other factors were the closing of 110 outmoded stores principally in the Company's major markets of the Northeast, Michigan and Canada (2.6%), reduced same store sales (1.1%) and a strike in Canada's Miracle Food Mart chain (0.4%) largely offset by the acquisition of Big Star stores (2.3%) and the opening of 21 new stores principally in the Northeast (1.8%). U.S. same store sales decline of 1.7% reflects last year's impact of the Kroger strike in the Michigan region, the difficult sales climate and lack of inflation, largely offset by improved same store sales in Canada of 1.1% (excluding the effects of the Miracle Food Mart strike). Average weekly sales per store of approximately $166,100 remained unchanged from the corresponding period of the prior year. Gross margin as a percent of sales increased to 28.6% for the current year from 28.5% for the comparable period in the prior year resulting primarily from the continued benefits derived from the Company's centralized purchasing function and changes in product mix partly offset by decreased buying allowances and increased special price reductions. Total gross margin decreased $15 million primarily as a result of the negative effect of the Canadian exchange rate of $29 million offset by a $14 million increase in gross margin rates. In the United States, gross margin as a percentage of sales decreased 0.1% to 28.4%, decreasing margins by $9 million while sales volume increased gross margin by $15 million. In Canada, gross margin rate increased 1.4% resulting in increased gross margin dollars of $23 million, offset by a $29 million decline due to Canadian exchange rate declines and a decrease in sales volume of $15 million due to the loss of sales in closed stores and the effects of the Miracle Food Mart strike. Store operating, general and administrative expense as a percent of sales increased to 27.6% from 27.2% for the comparable period in the prior year resulting primarily from increased costs and expenses associated with store occupancy and store labor partly offset by decreased customer/employee accident costs. U.S. expenses increased $29 million mainly due to the addition of the Big Star stores in 1993 offset by reduced expenses from store closures. Canadian expenses decreased $31 million as a result of reduced expenses from store closures coupled with the decrease in the exchange rate and the effects of the Miracle Food Mart strike. Interest expense decreased from the previous year primarily due to reduced capital lease obligations and lower interest rates on short-term borrowings partially offset by higher outstanding borrowings. Income before taxes for the 40 weeks ended December 4, 1993 is $38.9 million compared to a loss of $103.1 million for the comparable period in the prior year. The prior year loss reflects a $151.2 million provision for potential loss on the Company's total investment in Isosceles PLC. Pretax income before this provision was $48.2 million. -8- The provision for income taxes for the 40 weeks ended December 4, 1993 reflects the increase in the corporate tax rate since the beginning of the fiscal year, offset by retroactive targeted jobs tax credits as prescribed in the Omnibus Budget Reconciliation Act of 1993. During the first quarter of fiscal 1992, the Company adopted SFAS Statement No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions" and SFAS Statement No. 109, "Accounting for Income Taxes". As a result, the Company reported non-recurring charges of $26.5 million and $64.5 million, respectively, as the cumulative effect of these changes on prior years. Income before the cumulative effect of the changes in accounting principles and the provision to write-off the investment in Isosceles was $30.9 million or $.81 per share. LIQUIDITY AND CAPITAL RESOURCES The Company ended the third quarter with working capital of $49.2 million compared to $56.8 million at the beginning of the fiscal year, primarily as a result of a $47.7 million increase in the current portion of long-term debt. The Company's cash and short-term investments increased $19.2 million to $129.3 million during this period. The Company also has in excess of $200 million in various available credit facilities. Proceeds from long- term debt in the 40 weeks ended December 4, 1993 were primarily utilized to fund the acquisition of Big Star of approximately $43 million. On January 7, 1994, subsequent to the end of the third quarter, the Company issued $200 million of unsecured, non-callable 7.70% Senior Notes due 2004. The net proceeds from the issuance of these Notes will be used for general corporate purposes including the repayment of certain debt, the construction of new stores, the remodeling of existing stores and the closure of small outmoded stores. These available cash resources, together with income from operations, are sufficient for the Company's capital expenditure program, mandatory scheduled debt repayments and dividend payments for fiscal 1993. -9- THE GREAT ATLANTIC & PACIFIC TEA COMPANY, INC. PART II. OTHER INFORMATION --------------------------- Item 1. Legal Proceedings ----------------- None Item 2. Changes in Securities --------------------- None Item 3. Defaults Upon Senior Securities ------------------------------- None Item 4. Submission of Matters to a Vote of Security Holders --------------------------------------------------- None Item 5. Other Information ----------------- None Item 6. Exhibits and Reports on Form 8-K -------------------------------- None -10- 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: January , 1994 By: /s/ Kenneth A. Uhl --------------------------------------- Kenneth A. Uhl, Vice President and Controller (Chief Accounting Officer) -11- -----END PRIVACY-ENHANCED MESSAGE-----