-----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, J04ZypGw6wpLY1XKy0LpkANenFFv/JizAU5z9nQngjHkbI/Pio26wteF0+iTNP3e 2glGdD7BoAIIdLKk5T1oOw== 0000043300-94-000019.txt : 19941026 0000043300-94-000019.hdr.sgml : 19941026 ACCESSION NUMBER: 0000043300-94-000019 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19940910 FILED AS OF DATE: 19941024 SROS: NONE 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: 94554782 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 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 September 10, 1994 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 September 10, 1994 ----- --------------------------------- 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 28 Weeks Ended September 10, September 11, September 10, September 11, 1994 1993 1994 1993 ----------- ----------- ----------- ----------- Sales $2,390,914 $2,399,368 $5,616,273 $5,678,632 Cost of merchandise sold (1,710,003) (1,708,875) (4,022,718) (4,046,985) ---------- ---------- ---------- ---------- Gross margin 680,911 690,493 1,593,555 1,631,647 Store operating, general and administrative expense (655,043) (666,715) (1,535,909) (1,559,864) ---------- ---------- ---------- ---------- Income from operations 25,868 23,778 57,646 71,783 Interest expense (16,418) (14,371) (36,894) (33,476) ---------- ---------- ---------- ---------- Income before income taxes and cumulative effect 9,450 9,407 20,752 38,307 Provision for income taxes (3,393) (3,450) (7,450) (15,300) ---------- ---------- ---------- ---------- Income before cumulative effect 6,057 5,957 13,302 23,007 Cumulative effect on prior years of change in accounting principle- Postemployment benefits - - (4,950) - ---------- ---------- ---------- ---------- Net income 6,057 5,957 8,352 23,007 Retained earnings at beginning of period 523,830 565,202 529,179 555,796 Cash dividends (7,644) (7,644) (15,288) (15,288) ---------- ---------- ---------- ---------- Retained earnings at end of period $ 522,243 $ 563,515 $ 522,243 $ 563,515 ========== ========== ========== ========== Earnings per share: Income before cumulative effect $ .16 $ .15 $ .35 $ .60 Cumulative effect on prior years of change in accounting principle- Postemployment benefits - - (.13) - ---------- ---------- ---------- ---------- Net income $ .16 $ .15 $ .22 $ .60 ========== ========== ========== ========== Cash dividends $ .20 $ .20 $ .40 $ .40 ========== ========== ========== ========== Weighted average number of shares outstanding 38,220,000 38,220,000 38,220,000 38,220,000 ========== ========== ========== ========== See Notes to Quarterly Report on Page 5. - 1 - THE GREAT ATLANTIC & PACIFIC TEA COMPANY, INC. CONSOLIDATED BALANCE SHEETS --------------------------- (Dollars in thousands) September 10, 1994 February 26, 1994 ------------------ ------------------ (Unaudited) ASSETS - - ------ Current assets: Cash and short-term investments $ 132,683 $ 124,236 Accounts receivable 197,616 190,954 Inventories 849,769 850,077 Prepaid expenses and other assets 63,869 65,072 ---------- ---------- Total current assets 1,243,937 1,230,339 ---------- ---------- Property: Property owned 1,553,270 1,564,745 Property leased 114,728 122,788 ---------- --------- Property-net 1,667,998 1,687,533 Other assets 177,540 180,823 ---------- ---------- Total Assets $3,089,475 $3,098,695 ========== ========== See Notes to Quarterly Report on Page 5. -2- THE GREAT ATLANTIC & PACIFIC TEA COMPANY, INC. CONSOLIDATED BALANCE SHEETS --------------------------- (Dollars in thousands) September 10, 1994 February 26, 1994 ------------------ ------------------ (Unaudited) LIABILITIES & SHAREHOLDERS' EQUITY - - ---------------------------------- Current liabilities: Current portion of long-term debt $ 56,746 $ 77,755 Current portion of obligations under capital leases 15,277 16,097 Accounts payable 468,352 458,875 Book overdrafts 167,947 196,818 Accrued salaries, wages and benefits 148,936 173,366 Accrued taxes 38,882 35,879 Other accruals 165,293 192,342 ---------- ---------- Total current liabilities 1,061,433 1,151,132 ---------- ---------- Long-term debt 662,340 544,399 ---------- ---------- Obligations under capital leases 154,206 162,866 ---------- ---------- Deferred income taxes 89,009 100,405 ---------- ---------- Other non-current liabilities 137,516 145,476 ---------- ---------- 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 (28,613) (26,103) Retained earnings 522,243 529,179 Treasury stock, at cost, 9,157 shares (363) (363) ---------- ---------- Total shareholders' equity 984,971 994,417 ---------- ---------- Total liabilities and shareholders' equity $3,089,475 $3,098,695 ========== ========== See Notes to Quarterly Report on Page 5. -3- THE GREAT ATLANTIC & PACIFIC TEA COMPANY, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in thousands) (Unaudited) 28 Weeks Ended September 10, September 11, 1994 1993 ------------- ------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 8,352 $ 23,007 Adjustments to reconcile net income to cash provided by operating activities: Cumulative effect on prior years of change in accounting principle: Postemployment benefits 4,950 - Depreciation and amortization 132,082 129,503 Deferred income tax provision on income before cumulative effect 6,511 1,837 (Gain) loss on disposal of owned property (1,815) 1,589 Increase in receivables (6,894) (4,741) (Increase)decrease in inventories (1,509) 13,835 Increase in other current assets (11,851) (11,810) Increase in accounts payable 10,166 27,765 Increase (decrease) in accrued salaries, wages and benefits (23,397) 3,475 Increase in accrued taxes 2,608 13,417 Decrease in store closing reserves (9,128) (22,069) Decrease in acquisition reserves (13,901) (10,787) Decrease in insurance reserves (17,371) (12,363) Other (2,420) 5,579 --------- --------- Net cash provided by operating activities 76,383 158,237 --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Expenditures for property (117,009) (138,139) Proceeds from disposal of property 6,253 7,584 Acquisition of business, net of cash acquired - (42,948) --------- --------- Net cash used in investing activities (110,756) (173,503) --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from long-term debt 98,651 77,294 Payment of long-term debt (3,579) (2,999) Decrease in book overdrafts (28,108) (22,461) Principal payments on capital leases (8,468) (9,629) Cash dividends (15,288) (15,288) Purchase of treasury stock - (2) --------- --------- Net cash provided by financing activities 43,208 26,915 --------- --------- Effect of exchange rate changes on cash and short-term investments (388) (1,313) --------- --------- NET INCREASE IN CASH AND SHORT-TERM INVESTMENTS 8,447 10,336 Cash and Short-Term Investments at Beginning of Period 124,236 110,120 --------- --------- CASH AND SHORT-TERM INVESTMENTS AT END OF PERIOD $ 132,683 $ 120,456 ========= ========= See Notes to Quarterly Report on Page 5. -4- THE GREAT ATLANTIC & PACIFIC TEA COMPANY, INC. NOTES TO QUARTERLY REPORT ------------------------- 1) BASIS OF PRESENTATION The consolidated financial statements for the 28 weeks ended September 10, 1994 and September 11, 1993 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 adjustment associated with the adoption of Statement of Financial Accounting Standards ("SFAS") No. 112 "Employers' Accounting for Postemployment Benefits". 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 1993 Annual Report on Form 10-K. Certain reclassifications have been made to the prior interim periods' financial statements in order to conform to the current period presentation. 2) ACCOUNTING CHANGE Effective February 27, 1994, the Company adopted SFAS No. 112 "Employers' Accounting for Postemployment Benefits". SFAS No. 112 requires 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's previous accounting policy had been to accrue for workers' compensation and a principal portion of long-term disability benefits and to expense other postemployment benefits, such as short-term disability, as incurred. As a result, the Company recorded a charge of $5.0 million, net of applicable income taxes of $3.9 million, as the cumulative effect of recording the obligation as of the beginning of the year. The effect of adopting the Statement will have an immaterial effect on the financial results before the cumulative effect of accounting change for the fiscal year. 3) CONTINGENCY During the second quarter of fiscal 1994, the Company entered into certain labor agreements in Canada which allow the union employees the option of participating in a termination/reassignment program affecting current A&P store employees. While the cost of the program could be substantial, until implementation occurs or is at least substantially underway (which is anticipated to be by the end of the Company's third quarter) no reasonably accurate estimate of the cost of this program can be determined. -5- ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ------------------------------------------------ MANAGEMENT'S DISCUSSION AND ANALYSIS 12 WEEKS ENDED SEPTEMBER 10, 1994 --------------------------------- OPERATING RESULTS Sales for the second quarter ended September 10, 1994 of $2.4 billion decreased $8 million or 0.4% from last year. A lower Canadian exchange rate adversely affected sales by $26 million or 1.1%. Excluding the effect of the change in exchange rates, sales increased 0.7%. Contributing to this increase were the opening of 8 new stores during the first two quarters of fiscal 1994. New store openings since the beginning of fiscal 1993 added approximately 3.1% to sales in the second quarter of fiscal 1994. The Company, in its continuing program to eliminate unproductive stores, closed 58 stores during the first two quarters of fiscal 1994. The closure of stores since the beginning of fiscal 1993 reduced comparative sales by 3.3%. Same store sales for the second quarter were 0.7% ahead of prior year. Average weekly sales per store were approximately $174,700 versus $165,200 for the corresponding period of the prior year for a 5.8% increase. Second quarter sales for U.S. operations have improved, with same store sales up 2.6% and comparable store sales, which include replacement stores, up 3.4% over the prior year. In Canada, same store sales declined 7.0%, largely reflecting the slow return of sales for the Miracle Food Mart stores since the settlement of a 14-week labor strike in 70 Miracle Food Mart stores which ended February 25, 1994. Gross margin as a percent of sales decreased 0.3% to 28.5% in the second quarter of 1994 from 28.8% for the second quarter of the prior year resulting primarily from increased special price reductions partly offset by increased margins in the U.S.. The gross margin dollar decrease of $10 million is a result of a lower Canadian exchange rate ($7 million) and a decrease in gross margin rates of $8 million, partly offset by an increase in volume of $5 million. The U.S. gross margin increased $18 million principally as a result of increased volume of $15 million. In Canada, gross margin declined $28 million, consisting of volume declines of $11 million, a decrease in gross margin rates of $10 million and the exchange rate decline of $7 million. Store operating, general and administrative expense as a percent of sales decreased to 27.4% from 27.8% for the corresponding period in the prior year resulting primarily from reduced labor costs and decreased general liability and workmen's compensation costs, principally in the U.S., partly offset by increased advertising and store occupancy costs. Interest expense increased from the previous year primarily due to increased U.S. borrowings of $100 million in Long-term Notes and an increase in interest rates on short-term borrowings partly offset by a decrease in the interest rate on Long-term Notes. -6- Income before income taxes for the second quarter ended September 10, 1994 is $9.5 million compared to $9.4 million for the comparable period in the prior year. As a result of the Canadian sales decline mentioned above, the Company has not been able to fully realize the benefits of the labor settlement. The Company continues to believe that the benefits of the promotional programs and the labor settlement will have a positive impact on the future Canadian operating results. The future profitability of the Canadian business has a direct impact on the Company's ability to recover the goodwill associated with such operations and realize deferred tax assets previously recorded. The Company continues to evaluate the recoverability of the goodwill associated with its Canadian operations and the likelihood of realizing its deferred tax assets. The income tax provision recorded in the second quarter of fiscal years 1994 and 1993 reflects the Company's estimated expected annual tax rates applied to their respective domestic and foreign financial results. MANAGEMENT'S DISCUSSION AND ANALYSIS 28 WEEKS ENDED SEPTEMBER 10, 1994 ------------------------------------- OPERATING RESULTS Sales for the 28 weeks ended September 10, 1994 of $5.6 billion decreased $62 million or 1.1% from last year. A lower Canadian exchange rate adversely affected sales by $77 million or 1.4%. In addition, a competitors' strike in the New York metropolitan market last year resulted in an estimated current year comparable sales decline of 0.5%. Excluding the effects of the change in exchange rates and the effect of last year's competitors' strike, sales increased 0.8%. New store openings since the beginning of fiscal 1993 and the acquisition of Big Star stores in the prior year first quarter added approximately 3.3% to sales in the first two quarters of fiscal 1994. The closure of stores since the beginning of fiscal 1993 reduced comparative sales by approximately 2.7%. Same store sales for the first 28 weeks of fiscal 1994 increased 0.1% over prior year. Average weekly sales per store were approximately $173,700 versus $166,900 for the same period of the prior year for a 4.1% increase. Same store sales for U.S. operations were 1.7% ahead of prior year, after excluding the effect of last year's competitors' strike. Canadian same store sales were down 6.2% mainly due to the slow recovery of sales for the Miracle Food Mart stores since the settlement of the Canadian labor strike on the last day of fiscal 1993. Gross margin as a percent of sales decreased 0.3% to 28.4% for the current year from 28.7% for the prior year resulting primarily from increased special price reductions partly offset by increased buying allowances in the U.S.. The gross margin dollar decrease of $38 million is a result of the decline in the Canadian exchange rate of $20 million and a decrease in gross margin rates of $22 million, principally Canadian, partly offset by an increase in volume of $4 million. The U.S. gross margin increased $35 million of which $25 million is attributable to volume increases. In Canada, gross margin decreased $73 million, consisting of a decrease in gross margin rates of $31 million, a volume decline of $22 million and the exchange rate decline of $20 million. -7- Store operating, general and administrative expense as a percent of sales decreased to 27.3% from 27.5% for the prior year primarily resulting from decreased store labor partly offset by increased advertising and store occupancy costs. Interest expense increased from the previous year mainly as a result of increased US. borrowings of $100 million in Long-term Notes and an increase in interest rates on short-term borrowings partly offset by a decrease in the interest rate on Long-term Notes. Income before income taxes and cumulative effect for the 28 weeks ended September 10, 1994 is $20.8 million compared to $38.3 million for the same period of the prior year. As a result of the Canadian sales decline mentioned above, the Company has not been able to fully realize the benefits of the labor settlement. The Company continues to believe that the benefits of the promotional programs and the labor settlement will have a positive impact on the future Canadian operating results. The future profitability of the Canadian business has a direct impact on the Company's ability to recover the goodwill associated with such operations and realize deferred tax assets previously recorded. The Company continues to evaluate the recoverability of the goodwill associated with its Canadian operations and the likelihood of realizing its deferred tax assets. The income tax provision for the first 28 weeks of fiscal years 1994 and 1993 reflects the Company's estimated expected annual tax rates applied to their respective domestic and foreign financial results. Effective February 27, 1994, the Company adopted SFAS No. 112 "Employers' Accounting for Postemployment Benefits". As a result, the Company recorded a charge of $5.0 million or $0.13 per share (net of tax) as the cumulative effect of this change on prior years. LIQUIDITY AND CAPITAL RESOURCES The Company ended the second quarter with working capital of $183 million compared to $79 million at the beginning of the fiscal year. The Company had cash and short-term investments aggregating $133 million at the end of the second quarter of fiscal 1994 compared to $124 million at the end of fiscal 1993. The Company has in excess of $300 million in various available credit facilities. 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 1994. For fiscal 1994, the Company had planned capital expenditures of approximately $340 million for 35 new stores and approximately 120 remodels and expansions. Certain store openings and remodels and expansions have been delayed mainly to permit compliance with applicable regulatory requirements. Accordingly, the Company has adjusted its planned 1994 capital expenditures to approximately $250 million including 20 new stores and approximately 75 remodels and expansions. For the 28 weeks ended September 10, 1994, capital expenditures totaled $117 million, which included 8 new stores and 33 remodels and enlargements. -8- 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 --------------------------------------------------- At its Annual Meeting of Shareholders, held July 12, 1994, its proposals for the 1994 Stock Option Plan and the 1994 Stock Option Plan for Non-Employee Directors were approved, with 33,778,996 affirmative votes and 833,290 negative votes cast on the former, and 33,551,403 affirmative votes and 1,025,179 negative votes cast on the latter. Item 5. Other Information ----------------- None Item 6. Exhibits and Reports on Form 8-K -------------------------------- None -9- 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, 1994 By: /s/ Kenneth A. Uhl --------------------------------------- Kenneth A. Uhl, Vice President and Controller (Chief Accounting Officer) -10- EX-27 2
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