10-K 1 Executed Copy SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year Commission file number 1-4141 ended February 25, 1995 THE GREAT ATLANTIC & PACIFIC TEA COMPANY, INC. (Exact name of registrant as specified in its charter) MARYLAND 13-1890974 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 2 Paragon Drive, Montvale, New Jersey 07645 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code 201-573-9700 Securities registered pursuant to Section 12 (b) of the Act: Name of each exchange on Title of each class which registered Common Stock - $1 par value New York Stock Exchange Securities registered pursuant to Section 12 (g) of the Act: None (Title of Class) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ X ] The aggregate market value of the voting stock held by non-affiliates of the Registrant at May 11, 1995 was $960,285,867. The number of shares of common stock outstanding at May 11, 1995 was 38,220,333. Documents Incorporated by Reference The information required by Part I, Items 1 (d) and 3, and Part II, Items 5, 6, 7 and 8 are incorporated by reference from the Registrant's 1994 Annual Report to Shareholders. The Registrant has filed with the S.E.C. since the close of its last fiscal year ended February 25, 1995, a definitive proxy statement. Certain information required by Part III, Items 10, 11, 12 and 13 is incorporated by reference from the proxy statement in this Form 10-K. PART I ITEM 1. Business General The Great Atlantic & Pacific Tea Company, Inc. ("A&P" or the "Company") is engaged in the retail food business. The Company operates approximately 1,108 stores averaging 32,900 square feet per store. On the basis of reported sales for fiscal 1994, the Company believes that it had the eighth largest sales volume of any retail food chain in the United States and the largest market share in metropolitan New York and Detroit and in the Province of Ontario, the Company's largest single markets in the United States and Canada. Operating under the trade names A&P, Super Fresh, Sav-A-Center, Family Mart, Farmer Jack, Kohl's, Food Emporium, Waldbaum's, Food Mart, Food Bazaar, Miracle Food Mart, Ultra Mart, Futurestore, Dominion and Compass Foods, the Company sells groceries, meats, fresh produce and other items commonly offered in supermarkets. In addition, many stores have bakery, delicatessen, fresh fish and cheese departments. National, regional and local brands are sold as well as private label merchandise and generic (nonbranded) products. In support of its retail operations, the Company also operates two coffee roasting plants, three bakeries, one delicatessen food kitchen, an ice cream plant and (until April 16, 1995 through a joint venture) a dairy. The products processed in these facilities are sold under the Company's own brand names which include America's Choice, Master Choice, Health Pride, Eight O'Clock, Bokar, Royale, Savings Plus, Jane Parker, and Wesley's Quaker Maid. All products produced by A&P's food processing operations are sold in Company stores. A&P also sells its coffee and ice cream products to unaffiliated retail outlets outside of its marketing areas. Building upon a broad base of A&P supermarkets, the Company has expanded and diversified within the retail food business through the acquisition of other supermarket chains and the development of several alternative store types. The Company now operates its stores with merchandise, pricing and identities tailored to appeal to different segments of the market, including buyers seeking gourmet and ethnic foods, unusual produce, a wide variety of premium quality private label goods and health and beauty aids along with the array of traditional grocery products. Modernization of Facilities The Company is engaged in a continuing program of modernizing its corporate operations and retail stores. During fiscal 1994, the Company expended approximately $215 million for capital projects. The Company's plans for fiscal 1995 anticipate capital expenditures of approximately $205 million which include the opening of 25 new supermarkets and 2 new liquor stores, the remodeling or expansion of 51 stores and converting the format of 41 Canadian stores. As usual, the Company is currently developing plans for additional stores to be opened in the following fiscal year. Sources of Supply The Company obtains the merchandise sold in its stores from a variety of suppliers located primarily in the United States and Canada. The Company has long-standing and satisfactory relationships with its suppliers. The Company maintains processing facilities which produce coffee, dairy and deli products and certain baked goods. The ingredients for coffee products are purchased principally from Brazilian and Central American sources. Other ingredients are obtained from domestic suppliers. Employees As of the close of fiscal 1994, the Company had approximately 92,000 employees, of which 69% were employed on a part-time basis. Approximately 88% of the Company's employees are covered by union contracts. Competition The supermarket business is highly competitive throughout the marketing areas served by the Company and is generally characterized by low profit margins on sales with earnings primarily dependent upon rapid inventory turnover, effective cost controls and the ability to achieve high sales volume. The Company competes for sales and store locations with a number of national and regional chains as well as with many independent and cooperative stores and markets. Foreign Operations The information required is contained in the 1994 Annual Report to Shareholders on pages 24 and 28 and is herein incorporated by reference. ITEM 2. Properties At February 25, 1995, the Company operated 1,108 retail stores. Approximately 8% of the Company's stores are owned, while the remainder are leased. These stores are geographically located as follows: New England States: Connecticut............. 62 Maine................... 2 Massachusetts........... 28 New Hampshire........... 1 Rhode Island............ 5 Vermont................. 3 --- Total............... 101 Middle Atlantic States: District of Columbia.... 1 Delaware................ 9 Maryland.............. 51 New Jersey.............. 115 New York................ 196 Pennsylvania............ 48 --- Total............... 420 Mid-Western States: Michigan................ 100 Wisconsin............... 56 --- Total................. 156 Southern States: Alabama................. 7 Georgia................. 46 Kentucky................ 2 Louisiana............... 32 Mississippi............. 6 North Carolina.......... 29 South Carolina.......... 13 Virginia................ 53 West Virginia........... 8 --- Total................. 196 Total United States... 873 Ontario, Canada........... 235 ----- Total Stores.......... 1,108 ===== The total area of all retail stores is approximately 36.4 million square feet averaging 32,900 square feet per store. The stores built by the Company over the past several years and those planned for fiscal 1995, generally range in size from 50,000 to 65,000 square feet, of which approximately 65% to 70% is utilized as selling area. The Company operates two coffee roasting plants, three bakeries, one delicatessen food kitchen, an ice cream plant and (until April 16, 1995 through a joint venture) a dairy in the United States and Canada. In addition, the Company maintains warehouses which service its store network. The net book value of real estate pledged as collateral for all mortgage loans amounted to approximately $43 million as of February 25, 1995. ITEM 3. Legal Proceedings The information required is contained in the 1994 Annual Report to Shareholders on page 28 and is herein incorporated by reference. ITEM 4. Submission of Matters to a Vote of Security Holders There were no matters submitted to a vote of security holders during the fourth quarter of fiscal 1994. PART II ITEM 5. Market for the Registrant's Common Stock and Related Security Holder Matters The information required is contained in the 1994 Annual Report to Shareholders on pages 29, 31 and 33 and is herein incorporated by reference. ITEM 6. Selected Financial Data The information required is contained on page 31 of the 1994 Annual Report to Shareholders and is herein incorporated by reference. ITEM 7. Management's Discussion and Analysis The information required is contained in the 1994 Annual Report to Shareholders on pages 15 through 18 and is herein incorporated by reference. ITEM 8. Financial Statements and Supplementary Data (a) Financial Statements: The financial statements required to be filed hereunder are described in Part IV, Item 14 of this report. Except for the pages included herein by reference, the Company's 1994 Annual Report to Shareholders is not deemed to be filed as part of this report. (b) Selected Quarterly Financial Data: The information required is contained on page 29 of the 1994 Annual Report to Shareholders and is herein incorporated by reference. ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure Not applicable. PART III ITEMS 10 and 11. Directors and Executive Officers of the Registrant and Executive Compensation Executive Officers of the Company Name Age Current Position James Wood.......... 65 Chairman of the Board and Chief Executive Officer Fred Corrado........ 55 Vice Chairman of the Board, Chief Financial Officer and Treasurer Christian W.E. Haub. 30 President and Chief Operating Officer Peter J. O'Gorman... 56 Executive Vice President - Development and Strategic Planning Gerald L. Good...... 52 Executive Vice President - Marketing and Merchandising George Graham....... 45 Senior Vice President - Chief Merchandising Officer J. Wayne Harris..... 56 Senior Vice President and Chief Operating Officer, U.S. Operations John D. Moffatt 47 Chairman and Chief Executive Officer - The Great Atlantic & Pacific Company of Canada, Limited Ivan K. Szathmary... 58 Senior Vice President and Chief Services Officer Robert G. Ulrich.... 60 Senior Vice President and General Counsel Corporate officers of the Company are elected annually and serve at the pleasure of the Board of Directors; each of the executive officers, with the exception of Mr. Moffatt, is a corporate officer. Mr. Wood was elected Chairman of the Board and Chief Executive Officer on April 29, 1980. From December 1988 to December 1993 and at other prior times he also served as President. He is Chairman of the Executive Committee and is an ex officio member of the Finance and Retirement Benefits Committees of the Board. Mr. Corrado was elected to the Board of Directors of the Company on December 4, 1990 and as Vice Chairman of the Board on October 6, 1992. Prior to becoming Vice Chairman, he was Executive Vice President. He has served as Chief Financial Officer since joining the Company in January 1987. He also served as Treasurer of the Company in 1987 and was re- elected Treasurer on April 18, 1989. Mr. Haub was elected President of the Company on December 7, 1993. He has served as a director since December 3, 1991 and is a member of the Finance Committee. During the past 5 years and prior to assuming his present position he served as Corporate Vice President, Development and Strategic Planning, and prior to joining the Company in 1991, Mr. Haub was a partner in the investment banking firm. Global Reach, which he had joined from the investment banking firm of Dillon Read & Co., Inc. in New York City. Prior thereto, in 1989 he received his MBA from the University of Economics in Vienna, Austria and between 1985 and 1989 he was a member of the Supervisory Board of LOWA Warenhandel Gesellschaft mbH, an affiliate of Tengelmann. Mr. O'Gorman was elected Executive Vice President - Development and Strategic Planning in 1991. During the past five years and prior to assuming his present position, he was successively Senior Vice President Development and Marketing and Executive Vice President - Development. Mr. Good was elected Senior Vice President in March 1992. During the past five years and prior to assuming his present position he served as Senior Vice President and Chairman, The Great Atlantic & Pacific Company of Canada, Limited and as Senior Vice President - Field Administration and as Vice President - Chief Administrative Officer. Prior to returning to the Company in October 1990, he had been President, International Business Interiors, Inc. Mr. Graham was elected Senior Vice President - Chief Merchandising Officer in March 1990. During the past five years and prior to assuming his present position he was President, Metro Group. Mr. Harris, Chairman, Waldbaum's Inc., was appointed Chief Operating Officer, U.S. Operations in May 1995. Prior, thereto, he was Senior Vice President - Northeast Operations and Corporate Vice President - Operations. During the past five years and prior to joining the Company in September 1992, he was Group President, Cincinnati/Dayton marketing area of the Kroger Company. Mr. Moffatt was elected Chairman and Chief Executive Officer of The Great Atlantic & Pacific Company of Canada, Limited effective upon his hire on September 1, 1994. Prior thereto and during the last five years he was president of Cott Corporation's Control Brands Division in Ontario, and from January 1989 to November 1992 he was President, Eastern Division, First National Supermarkets in Windsor Locks, Connecticut. Dr. Szathmary was elected Senior Vice President and Chief Services Officer in July 1986. Mr. Ulrich was elected Senior Vice President and General Counsel of the Company in April 1981. In addition to the listed officers, Messrs. Ernest H. Berthold, age 64, and Michael J. Larkin, age 53, were executive officers during fiscal year 1994. Mr. Berthold was elected Vice President and Assistant to the Chief Executive Officer on July 12, 1988 and served in that capacity until his retirement on March 1, 1995. Mr. Larkin was elected Executive Vice President - Operations in March 1990. Prior thereto, he served as Executive Vice President and Chief Operating Officer. He resigned from the Company to pursue other opportunities on April 21, 1995. The Company has filed with the Commission since the close of its fiscal year ended February 25, 1995 a definitive proxy statement pursuant to Regulation 14A, involving the election of directors. Accordingly, the information required in Items 10 and 11, except as provided above, appears on pages 1 through 12 and is incorporated by reference from the proxy statement. ITEM 12. Security Ownership of Certain Beneficial Owners and Management The information required is contained in the Company's 1994 definitive proxy statement on pages 1 and 5 and is herein incorporated by reference. ITEM 13. Certain Relationships and Related Transactions The information required is contained in the Company's 1994 definitive proxy statement on pages 1 and 6 and is herein incorporated by reference. PART IV ITEM 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K (a) Documents filed as part of this report 1) Financial Statements: The financial statements required by Item 8 are included in the fiscal 1994 Annual Report to Shareholders. The following required items, appearing on pages 19 through 30 of the 1994 Annual Report to Shareholders, are herein incorporated by reference: Statements of Consolidated Operations Statements of Consolidated Shareholders' Equity Consolidated Balance Sheets Statements of Consolidated Cash Flows Notes to Consolidated Financial Statements Independent Auditors' Report 2) Financial Statement Schedules are omitted because they are not required or do not apply, or the information is included elsewhere in the financial statements or notes thereto. 3) Exhibits: Exhibit Incorporation by reference Numbers Description (If applicable) 2) Not Applicable 3) Articles of Incorporation and By-Laws a) Articles of Incorporation Exhibit 3)a) to Form 10-K as amended through for fiscal year ended July 1987 February 27, 1988 b) By-Laws as amended through Exhibit 3)b) to Form 10-K March 1989 for fiscal year ended February 25, 1989 4) Instruments defining the Exhibit A to Form 10-Q rights of security holders, for the quarter ended including indentures August 27, 1977; and Registration Statement No. 33-14624 on Form S-3 filed May 29, 1987 9) Not Applicable 10) Material Contracts a) Management Compensation Exhibit 10)b) to Form 10-K Agreements for the fiscal years ended February 25, 1989, February 24, 1990 and February 29, 1992,and Exhibit 10)a) for the fiscal year ended February 26, 1994 and attached b) Supplemental Executive Exhibit 10)b) to Form 10-K Retirement Plan, amended for the fiscal year ended and restated February 27, 1993 c) 1975 Stock Option Plan, Exhibit 10) to Form 10-K as amended for the fiscal year ended February 23, 1985 d) 1984 Stock Option Plan, Exhibit 10)e) to Form 10-K as amended for the fiscal year ended February 23, 1991 e) 1994 Stock Option Plan f) 1994 Stock Option Plan for Non-Employee Directors 11) Not Applicable 12) Not Applicable 13) 1994 Annual Report to Shareholders 18) Not Applicable 21) Subsidiaries of Registrant 22) Not Applicable 23) Independent Auditors' Consent 24) Not Applicable 27) Financial Data Schedule 28) Not Applicable (b) Reports on Form 8-K No reports on Form 8-K were filed for the fiscal year ended February 25, 1995. SIGNATURES Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. The Great Atlantic & Pacific Tea Company, Inc. (registrant) Date May 9, 1995 By: /s/ Fred Corrado (Signature) Fred Corrado Vice Chairman of the Board, Chief Financial Officer and Treasurer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant in the capacities and as of the date indicated. /s/ James Wood Chairman of the Board, James Wood Chief Executive Officer and Director /s/ Fred Corrado Vice Chairman of the Board, Fred Corrado Chief Financial Officer, Treasurer and Director /s/ Rosemarie Baumeister Director Rosemarie Baumeister /s/ Christopher F. Edley Director Christopher F. Edley /s/ Christian W.E. Haub Director Christian W.E. Haub /s/ Helga Haub Director Helga Haub /s/Barbara Barnes Hauptfuhrer Director Barbara Barnes Hauptfuhrer /s/ Paul C. Nagel, Jr. Director Paul C. Nagel, Jr. /s/ Eckart C. Siess Director Eckart C. Siess /s/ Fritz Teelen Director Fritz Teelen /s/ Henry W. Van Baalen Director Henry W. Van Baalen /s/ R.L. "Sam" Wetzel Director R.L. "Sam" Wetzel The above-named persons signed this report on behalf of the registrant on May 9, 1995. /s/Kenneth A. Uhl Vice President, Controller May 9, 1995 Kenneth A. Uhl Date EXHIBIT INDEX 3) Incorporated by reference 4) Incorporated by reference 10) Incorporated by reference and attached 13) Attached 21) Attached 23) Attached 27) Attached EX-10 2 EXHIBIT 10 (A) EMPLOYMENT AGREEMENT AGREEMENT DATED December 6, 1994, between THE GREAT ATLANTIC & PACIFIC TEA COMPANY, INC., a Maryland corporation (hereinafter called "Company" or "Employer"), and FRED CORRADO (hereinafter called "Employee"). 1. Employment. Employer and Employee agree that the terms and conditions of Employee's employment with the Company are as set forth in this Agreement. 2. Term. Subject to the within provisions for termination, the term of this Agreement shall begin on December 6, 1994, and shall continue in full force and effect until May 20, 2002 unless terminated prior to such date by either party giving three (3) years advance written notice of termination to the other, which notice may be given at any time. 3. Compensation. For services rendered by Employee under this Agreement, Employer shall pay a basic minimum salary of $451,000 per year, payable in equal four (4) week accounting period or other installments. During the term of this Agreement, Employee shall also be entitled to participate in the Company's Management Bonus Program pursuant to its terms, the annual base to be $125,000 at the 100% participation level. It is understood and agreed that Employee shall also receive an annual salary review as an officer of the Company and other Company benefits, such as stock options; pensions; vacations; health, accident and disability insurance and similar programs generally available to other executives of Employer. 4. SERP. It is further understood that Employee will participate in the Company's Supplemental Executive Retirement Plan ("SERP") and will remain a Member of SERP during the term of this Agreement. Employee will be entitled to immediate vesting in his SERP benefit (i.e., shall not be required to complete five or more years of service or attain the age of 55) and shall be vested with 100% of such benefit monthly so that, at the conclusion of each calendar month, Employee will be entitled to one-twelfth of his annual SERP benefit. In addition, Employee shall earn credits during the term of this Agreement at the rate of 3% of Average Annual Compensation per year, irrespective of the SERP provision reducing credits to 1-1/2% of Average Annual Compensation after ten (10) years of service. Notwithstanding anything to the contrary contained in this Agreement, upon the attainment of age 62, while employed by the Company, Employee shall be credited with twenty (20) years of service under SERP and shall be entitled to retire without reduction in his SERP benefit for retirement prior to age 65 5. Other Benefits. (a) Life Insurance. Company will provide employee with life insurance coverage equal to three times Employee's salary as in effect from time to time during the term of this Agreement. (b) Membership Dues, Tax Consultation. Company will reimburse Employee for membership dues applicable to the country club of which he is presently a member. Company will also provide tax consulting services to Employee through the accounting firm of Deloitte Haskins & Sells or through a similar professional organization. 6. Duties. Employee is engaged to perform services as Vice Chairman, Chief Financial Officer and Treasurer of the Company, or in such other senior executive capacity as may be directed by the Board of Directors or the Chairman of the Board of the Company. Employee agrees for the term to render full time and exclusive services to the Company as a senior executive employee, subject to the direction and control of the Chairman of the Board of the Company and the Board of Directors of the Company and, in connection therewith, to perform such duties as he shall reasonably be directed by the Chairman of the Board of the Company or by the Board of Directors of the Company. 7. Non disclosure of Confidential Information. (a) The Employee understands, agrees and acknowledges that the business of the Company and the Company Affiliates, their expertise, their methods of operations and their procedures and techniques [including, without limitation, all of the Company's and the Company Affiliates' equipment, apparatus, devices, designs, operations, procedures, processes, inventions, operating principles, methods of pricing, customer lists and records of volume of business, marketing plans, lists of prospective customers, lists of suppliers, records, data, plans and products (collectively, "Business Information")] are highly confidential and constitute a unique business asset of the Company which is entitled to any protection the law may afford as trade or business secrets or otherwise as proprietary or confidential information of the Company or the Company Affiliates. The Employee will, to the best of his ability, affirmatively and continuously protect, in accordance with this Employment Agreement, such Business Information. (b) The Employee shall disclose fully and promptly to the Company, its successors or assigns, any and all inventions, ideas, designs, devices, equipment, literary or artistic creations, discoveries and improvements of any sort, whether protectible by patent or not, which he has heretofore conceived, developed, made or perfected, or may hereafter conceive, develop, make or perfect, either alone or jointly with another or others, during the term of this Employment Agreement, and either during or outside normal business hours, which pertain to any activities, business, products or fields in which the Company or any Company Affiliate is engaged or will be subsequently engaged during the term of this Employment Agreement, or in which the Company or any Company Affiliate has any direct or indirect interest whatsoever. Any of the foregoing is hereinafter referred to as an "Invention". (c) The Employee hereby assigns and agrees to assign during the term of this Employment Agreement to the Company, its successors or assigns, all his right, title and interest in and to any and all Inventions, and the Employee further agrees, without charge to the Company but at its expense, to execute, acknowledge and deliver all applications or other papers and documents as may be necessary to obtain patents, trademarks, copyrights or any other form of protection for said Inventions and to vest title thereto in the Company, its successors and assigns or nominees, and to give testimony or furnish other data as the Company may reasonably deem necessary to assist the Company in securing or defending such inventions, trademarks or copyrights. (d) The Employee agrees to keep current and adequate written records of all Inventions, which records shall be and remain the property of, and be available to, the Company at all times. (e) The Employee agrees that he will not at any time, and will use his best efforts to ensure that none of his agents or entities under his control or in which he has a direct beneficial interest will at any time, except in the ordinary course of the Employee's performance of his services hereunder, without the prior written consent of the Company, voluntarily reveal, divulge or make known to any person, firm or corporation (other than the Company and Company Affiliates) any Business Information or Invention, or anything concerned therewith, and all such information shall be kept confidential and shall not in any manner be revealed by him to anyone except as provided herein; and all documents, business records, supplier and customer lists, prospective supplier and customer lists, reports and any other documents, or any copies of any of the foregoing, kept or made by him relating to any Business Information, Invention or the business of the Company or any Company Affiliate shall be and remain the property of the Company and shall be surrendered to the Company upon termination of this Employment Agreement. (f) The Employee's obligations under this Paragraph 7 and under Paragraph 8 hereof shall require, among other things, his full cooperation in the prosecution of any litigation the Company or any Company Affiliate may initiate and pursue against any person who may be deemed by the Company or any Company Affiliate to have caused a violation of this Paragraph 7 or of Paragraph 8 hereof, but shall not require the Employee to initiate or pursue such remedies at his own expense. (g) As used in this Employment Agreement, a "Company Affiliate" shall mean Company and any corporation or other entity in which Company shall own or hold, either directly or indirectly through one or more majority owned subsidiaries or partnerships, at least a majority of the equity interest. 8. Competition, etc. During the term of this Employment Agreement and for a period of one year thereafter, except with the prior written consent of the Company: (a) The Employee will not, and will use his best efforts to ensure that none of his agents or entities under his control or in which he has a direct or indirect beneficial interest will, directly or indirectly (as director, officer, partner, employee, manager, consultant, independent contractor, advisor, stockholder or otherwise) engage in areas of competition with, or own any interest in, or provide any financing for, or perform any services for, any business or organization which directly or indirectly engages in areas of competition with any business conducted by the Company or any Company Affiliate in any area where such business of the Company or any Company Affiliate is carried on; provided, however, that the provisions of this Paragraph 8(a) shall not prohibit the Employee's ownership of not more than one percent of the total shares of all classes of stock outstanding of any publicly-held corporation. (b) The Employee will not directly or indirectly employ, solicit for employment, or advise or recommend to any other person that they employ or solicit for employment, any person whom he knows to be an employee of the Company or any Company Affiliate, if such action by him would have an adverse effect on the business, assets or financial condition of the Company or any Company Affiliate. (c) The provisions of this Paragraph 8 shall apply during the term of this Employment Agreement and for one year thereafter, provided, that if the Company shall terminate the employment of the Employee other than pursuant to the provisions of Paragraph 9 hereof, the provisions of this Paragraph 8 shall not apply after the date of termination, and provided further that, notwithstanding the immediately-foregoing proviso and without limiting the generality thereof, if the Company shall relieve the Employee of all of his responsibilities hereunder but shall continue to pay Employee his compensation due hereunder, the provisions of this Paragraph 8 shall continue to apply for so long as the Company shall continue to pay the Employee such compensation. (d) In connection with the foregoing provisions of this Paragraph 8, the Employee represents that his economic means and circumstances are such that such provisions will not prevent him from providing for himself and his family on a basis satisfactory to him. It is understood and agreed that the covenants made by the Employee in this Paragraph 8 and in Paragraph 7 hereof are material to, and are being relied upon by, the Company in entering into this Employment Agreement. 9. Termination. (a) Disability or Death. Notwithstanding any provision of this Employment Agreement to the contrary, the Employee's employment hereunder and the Employee's right to receive compensation therefor shall terminate prior to the date of termination specified herein, upon the occurrence of any of the following: (i) Upon notice rendered to the Employee in good faith by the Company, effective six months from the date of such notice, in the event the Employee shall become disabled and thereby rendered unable to perform the duties set forth herein, provided such notice shall not be effective before such condition has persisted for at least six months. In the event of any disagreement as to the nature, extent or duration of the Employee's disability, such matter shall be determined by a licensed physician mutually satisfactory to the Company and the Employee; provided, however, that the Employee shall be regarded as disabled as specified in this subparagraph in the event he shall refuse to submit to or fail a medical examination by such physician or if such physician is not agreed upon, by a licensed physician selected by the Company. (ii) Upon the death of the Employee, effective as to compensation, thirty (30) days after the date of his death. (b) For Cause. Employer may terminate this Agreement and the employment relationship with Employee at any time without any severance allowance whatsoever if any of the following situations has been found to exist: (i) Employee has been convicted in a court of law of any crime involving the funds or assets of the Company, such as embezzlement or larceny. (ii) Employee has willfully divulged Company trade or business secrets to a competitor of the Company to the Company's substantial detriment and such disloyalty has been fully documented under oath, affirmation or sworn affidavit and copies of all such documentation have been given to Employee. (iii) Employee has engaged in other civil or criminal conduct or personal misbehavior, which is substantially detrimental to the welfare or security of the Company, and such conduct has been fully documented under oath, affirmation or sworn affidavit and copies of all such documentation have been given to Employee. In connection with the foregoing provisions of this Paragraph 9 the Company's right of termination shall be in addition to its right to seek damages for violation of, or an injunction to restrain Employee from violating, any of the covenants contained herein or any other relief under this Employment Agreement, or otherwise, and such rights shall survive termination of this Employment Agreement under this Paragraph 9. 10. Other Relief. Notwithstanding any other provisions herein contained, in the event of a violation of the provisions of Paragraph 7 or 8 hereof, the Company may, in addition to pursuing such other remedies as it may have at law or in equity, obtain a temporary and/or permanent injunction in an action in equity; the Employee hereby acknowledges that the Company's remedy at law in such event would be inadequate. 11. Return of Books, etc. Upon the expiration of the term or termination in accordance herewith, the Employee will promptly deliver to the Company all books, memoranda, plans, records and written data of every kind relating to any aspect of the business and affairs of the Company (or of any Company Affiliate) which are then in his possession. 12. Severability. If for any reason any provision of this Employment Agreement shall be held invalid, such invalidity shall not affect any other provision of this Employment Agreement not so held invalid, and all other such provisions shall, to the full extent consistent with the law, continue in full force and effect. If any such provision shall be held invalid in part, such invalidity shall in no way affect the rest of such provision, which, together with all other provisions of this Employment Agreement, shall likewise, to the full extent consistent with law, continue in full force and effect. 13. Binding Agreement. This Employment Agreement shall be binding upon, inure to the benefit of, and be enforceable by the respective heirs, beneficiaries, representatives, successors and assigns of the parties hereto. 14. Entire Agreement. This Employment Agreement embodies the entire agreements and understandings of the parties hereto in respect of the subject matter contained herein. There are no restrictions, promises, representations, warranties, covenants or undertakings other than those expressly set forth or referred to herein. This Employment Agreement supersedes all prior agreements and understandings between the parties with respect to such subject matter. This Employment Agreement may be modified, amended, waived or discharged only by a written instrument duly executed by both of the parties hereto. 15. Notice. All notices, claims, requests, demands and other communications hereunder shall be in writing and shall be deemed given if delivered personally or mailed by registered or certified mail (return receipt requested) to the parties at the following addresses (or at such other address for a party as shall be specified by like notice): (a) If to the Company, to: The Great Atlantic & Pacific Tea Company, Inc. 2 Paragon Drive Montvale, New Jersey 07645 Attention: Robert G. Ulrich, Esquire Senior Vice President and General Counsel (b) If to the Employee, to: 9 Coventry Court Croton-on-Hudson, New York 10520 16. Governing Law. This Employment Agreement shall be governed by the laws of the State of New Jersey, without regard to the conflicts of law rules thereof. 17. Waiver of Breach. Any waiver by one party to this Employment Agreement of a breach of any provision of this Employment Agreement by the other party shall not operate or be construed as a waiver of any subsequent breach by the other party. 18. Headings. The paragraph headings contained in this Employment Agreement are solely for the purpose of reference, are not part of the agreement of the parties, and shall not affect in any way the meaning or interpretation of this Employment Agreement. IN WITNESS WHEREOF, this Employment Agreement has been duly executed and delivered by the duly authorized officers of the Company and by the Employee as of the date first above written. THE GREAT ATLANTIC & PACIFIC TEA COMPANY, INC. By: ------------------------ ------------------------------------ Fred Corrado James Wood, Chairman and Chief Executive Officer CONFIDENTIAL December 16, 1994 To: Mr. Michael J. Larkin Dear Mike: In view of recent discussions, I thought it worth conveying your severance terms in the event of involuntary termination. If such an event were to occur, you would be entitled to salary continuation of 18 months. Coincidental with this, the Board of Directors at the December meeting, granted you an unreduced pension at the age of 62 rather than 65, contingent on your receiving consent to work for a competitor. Yours sincerely, James Wood, Chairman and Chief Executive Officer cc: Mr. Fred Corrado CONFIDENTIAL March 16, 1995 TO: Peter J. O'Gorman FROM: James Wood Peter: The Board of Directors at its meeting in January granted you, alongside two other senior officers, retirement at 62 without penalty for early retirement. In other words, the 5% per year normally deducted for early retirement be waived. Yours sincerely, cc: Peter R. Brooker April 24, 1995 Mr. James Wood 292 Barnstable Drive Wyckoff, New Jersey 07481 Dear Mr. Wood: This confirms our discussion regarding your Supplemental Pension Plan as provided for under your Employment Agreement dated December 1, 1988 (whose term has been extended to April 30, 1998). We agree that payment of your Supplemental Pension Benefit will begin as of May 1, 1995, the date on which annuity benefits begin under the terms of the Metropolitan Life Insurance Company annuity purchased for you by the Company. Per the attachment, we also agree with the manner in which Kwasha Lipton has calculated your Supplemental Pension Benefit as $80,103.13 per month, beginning May 1, 1995, subject to the cost of living adjustment provided for under the Supplemental Pension Plan. We confirm that you have agreed to waive any claim for Supplemental Pension Benefits under the Supplemental Pension Plan with respect to any period prior to May 1, 1995. Except as this letter may state, we have not changed the terms of the Trust Agreement dated as of December 29, 1988, your Annuity Contract No. 9417-2 and the other agreements we have with you with regard to the Trust Agreement and the Annuity Contract. Very truly yours, Fred Corrado Vice Chairman, Chief Financial Officer and Treasurer AGREED: ------------------------------ James Wood March 28, 1995 Robert G. Ulrich, Esq. Re: Senior Vice President & General Counsel Pension Benefits from A&P The Great Atlantic & Pacific Tea Company, Inc. Employment Agreement 2 Paragon Drive for Mr. James Wood Montvale, NJ 07645 Dear Bob: As requested, we have determined the benefits payable under Mr. Wood's A&P Pension Agreement if he starts his pension on May 1, 1995. An exhibit showing the calculation of the benefits payable at May 1, 1995 is enclosed. We also determined the additional funding required for Mr. Wood's Pension Agreement, assuming the residual assets in his secular trust earn 8% per year. Based on the benefit amount on the enclosed exhibit and 4.5% per year cost of living increases, the additional funding requirement is $307,000 plus a tax gross-up of $237,000. The funding of the trust will need to be periodically reviewed on an ongoing basis because (a) actual cost- of-living adjustments to the pension under Mr. Wood's Pension Agreement will differ from the 4.5% adjustments we have assumed for funding purposes, (b) actual investment returns on the residual trust assets will vary, and (c) funding requirements are based on standard assumptions regarding life expectancy. Please note the following about our estimates of Mr. Wood's benefits and the required funding: 1. We assumed that Mr. Wood's pension will not be increased for increases in final average compensation after May 1, 1995. 2. Mr. Wood's Pension Agreement provides for cost-of-living increases. In order to calculate the additional funding required, we assumed 4.5% per year cost of living increases. 3. We used an estimated exclusion ratio under the annuity contract that was purchased for Mr. Wood of 17.6%. Because we have from time to time estimated the benefits and funding requirements for various pension commencement dates under his Pension Agreement, we had been using a 20% exclusion ratio for purposes of illustration. However, the exclusion ratio varies based on the actual date of commencement, and we have estimated the actual exclusion ratio at May 1, 1995 to be 17.6% However, please note that the regulations regarding the calculation of exclusion ratios do not provide complete guidance for annuity contracts with complicated features (Mr. Wood's annuity contract provides 4.5% annual increases, a 10-year payment guarantee, a 50% survivor benefit to Mr. Wood's wife, and a refund of premium upon his death before benefit commencement). As a result, we recommend that A&P and Mr. Wood review the exclusion ratio we have calculated with your respective tax advisors. Also, the IRS will calculate exclusion ratios upon request. Note that the lower exclusion ratio results in slightly higher net benefits under Mr. Wood's Pension Agreement, and thus greater required funding of the residual trust. The funding required in the residual trust is very sensitive to relatively small changes in the tax-adjusted pension benefit under his Pension Agreement. 4. We assumed that the applicable Federal marginal income tax rate is 39.6%, the applicable New Jersey marginal income tax rate is 6.58%, and the New Jersey income tax is fully deductible for Federal Income tax purposes. This assumption results in an assumed net tax rate of 43.57432% [6.58% + 39.6% * (100% - 6.58%)]. Note that these calculations may be adjusted if Mr. Wood and A&P should agree that the appropriate adjustment for taxes reflects the actual deductibility of the New Jersey income tax for Federal income tax purposes. Because itemized deductions are up to 80% disallowed for higher income tax payers, Mr. Wood's actual effective tax rate may be higher [up to 45.65886%, or (6.58% + 39.6% * (100% - 20% * 6.58%)]. A higher effective tax rate results in a lower net pension under his Pension Agreement. Similarly, the gross-ups for taxes on the residual trust contributions shown above may be slightly understated to the extent that the actual deductibility of New Jersey state income taxes for Federal tax purposes is to be reflected. 5. As required by Mr. Wood's Pension Agreement, we have offset his gross benefit by $1,218 per month, which is his expected Social Security benefit effective May 1, 1995. Because he will continue to work, his Social Security benefit will not actually be payable. If you have any questions or need additional information, please call. Sincerely, Maria M. Sarli, F.S.A. Partner Copy to: J. Brickman The Great Atlantic & Pacific Tea Company, Inc. Estimated Monthly Benefits for Mr. James Wood Under his Pension Agreement -Assumed Benefit Commencement on May 1, 1995 1. Final Average Pay at 4/30/95 $ 1,528,589.74(1) 2. Target monthly benefit under employment agreement: [65% of (1) / 12] $ 82,798.61 3. Monthly offsets(2) at 5/1/95: (a) Estimated Social Security benefit $ 1,218.00 (b) Annuity equivalent of RSP balance $ 1,460.20 (c) Qualified plan benefit $ 17.28 (d) Total offsets $ 2,695.48 4. Net monthly pre-tax benefit at 5/1/95(3): $ 80,103.13 5. Benefit payable under annuity contract: (a) Dollar amount of benefit $ 65,898.17 (b) Pre-tax equivalent(4) $ 74,854.70 6. Benefit payable by trust if it earns 8% per year(5): (a) Dollar amount of benefit $ 5,206.99 (b) Pre-tax equivalent $ 5,248.43 7. Total Benefits (if trust earns 8% per year)(6): (a) Dollar amount of benefit $ 71,105.16 (b) Pre-tax equivalent $ 80,103.13 ------------------------------------ (1)Based on (a) annual base payrates of $1,095,000 and $1,160,500 effective 4/25/92 and 11/6/93 respectively, and (b) $400,000 bonuses for three years. (2)We understand that A&P had previously agreed to waive all offsets mentioned in the original Pension Agreement, except for the A&P RSP, the A&P terminated qualified plan, and Social Security benefits. The offsets mentioned in the Pension Agreement but not reflected here are the A&P SERP benefit (Mr. Wood does not participate in the SERP), the Pension Plan (UK) of Cavenham Ltd., and the Employees' Retirement Plan of Grand Union. (3)Benefits under the employment agreement are adjusted for cost-of-living increases each January 1, beginning on January 1, 1996 if benefits commence on May 1, 1995. Assumed cost-of-living increases are 4.5% per year. (4)Assumes an exclusion ratio of 17.6%. (5)Assumes a marginal Federal income tax rate of 39.6% and a fully deductible marginal New Jersey state income tax rate of 6.58%. (6)Assumes trust is fully funded. EMPLOYMENT AGREEMENT AGREEMENT DATED as of August 1, 1994, between THE GREAT ATLANTIC & PACIFIC TEA COMPANY, INC., a Maryland corporation (hereinafter called "Parent") and THE GREAT ATLANTIC & PACIFIC COMPANY OF CANADA, LIMITED, a Canadian corporation (hereinafter called "Limited") (collectively the "Company" or the "Employer"), and JOHN DOUGLAS MOFFATT (hereinafter called the "Employee"). 1. Employment. The Employer and the Employee agree that the terms and conditions of the Employee's employment with the Company are as set forth in this Agreement. 2. Term. Subject to the within provisions for termination, the term of this Agreement shall be for five (5) years beginning on September 1, 1994, and terminating on August 31, 1999. 3. Compensation. (a) For services rendered by the Employee under this Agreement, the Employer shall pay a basic minimum salary of CAN. $550,000 per year, payable in equal monthly or other installments. It is understood and agreed that the Employee shall also receive an annual salary review as an officer of the Company. (b) During the term of this Agreement, the Employee shall also be entitled to participate in the Company's Management Bonus Program pursuant to its terms. Notwithstanding the provisions of the Management Bonus Program, the Employee shall be entitled to a minimum bonus of CAN. $200,000 (pro-rated) for fiscal year 1994 and CAN. $200,000 for fiscal year 1995. The minimum bonus for fiscal year 1994 shall be pro-rated by multiplying CAN. $200,000 by a fraction, of which the numerator shall be the number of days of fiscal year 1994 during which the Employee was employed and the denominator shall be 365. 4. Special Bonus Opportunity. The Employee shall be entitled to a special bonus opportunity in accordance with the terms of Exhibit A attached hereto. 5. Employee Benefit Programs. During the period of the Employee's employment hereunder, the Employee shall be entitled to participate in all employee pension and welfare benefit plans and programs made available to the Company's senior level executives or to its employees generally, as such plans or programs may be in effect from time to time, including, without limitation, pension, profit sharing, savings and other retirement plans or programs, medical, dental, hospitalization, short-term and long-term disability and life insurance plans, accidental death and dismemberment protection and travel accident insurance. It is further understood that the Employee will be a Member of Parent's Supplemental Executive Retirement Plan ("SERP") during the period of his employment hereunder. It is further understood that the Company shall provide the Employee with an automobile as approved for the Chairman and Chief Executive Officer of Limited. 6. Option. As soon as practicable after commencement of the Employee's employment, Parent shall grant the Employee an option to purchase 50,000 shares of Parent's common stock under Parent's 1994 Stock Option Plan with an exercise price equal to the fair market value of the common stock on the date of grant. Thereafter the Employee shall be eligible to participate in the stock option or other long term incentive programs on the same basis as other senior level executives of the Company. 7. Duties. The Employee is engaged to perform services as Chairman and Chief Executive Officer of Limited. The Employee agrees for the term to provide his full business time and exclusive services to the Company as an executive employee subject to the direction and control of the Chief Executive Officer of Parent or his designee and, in connection therewith, to perform such duties as he shall reasonably be directed to perform by the Chief Executive Officer of Parent or his designee. 8. Nondisclosure of Confidential Information. (a) The Employee understands, agrees and acknowledges that the business of the Company and the Company Affiliates, their expertise, their methods of operations and their procedures and techniques [including, without limitation, all of the Company's and the Company Affiliates' equipment, apparatus, devices, designs, operations, procedures, processes, inventions, operating principles, methods of pricing, customer lists and records of volume of business, marketing plans, lists of prospective customers, list of suppliers, records, data, plans and products (but excluding any such items or information that are in the public domain) (collectively, "Business Information")] are highly confidential and constitute a unique business asset of the Company which is entitled to any protection the law may afford as trade or business secrets or otherwise as proprietary or confidential information of the Company or the Company Affiliates. The Employee will, to the best of his ability, affirmatively and continuously protect, in accordance with this Agreement, such Business Information. (b) The Employee shall disclose fully and promptly to the Company, its successors or assigns, any and all inventions, ideas, designs, devices, equipment, literary or artistic creations, discoveries and improvements of any sort, whether protectible by patent or not, which he may hereafter conceive, develop, make or perfect, either alone or jointly with another or others, during the term of this Agreement, and either during or outside normal business hours, which pertains to any activities, business, products or fields in which the Company or any Company Affiliate is engaged or will be subsequently engaged during the term of this Agreement, or in which the Company or any Company Affiliate has any material direct or indirect interest whatsoever. Any of the foregoing is hereinafter referred to as an "Invention." (c) The Employee hereby assigns and agrees to assign during the term of this Agreement to the Company, its successors or assigns, all his right, title and interest in and to any and all Inventions, and the Employee further agrees, without charge to the Company but at its expense, to execute, acknowledge and deliver all applications or other papers and documents as may be necessary to obtain patents, trademarks, copyrights or any other form of protection for said Inventions and to vest title thereto in the Company, its successors and assigns or nominees, and to give testimony or furnish other data as the Company may reasonably deem necessary to assist the Company in securing or defending such Inventions, patents, trademarks or copyrights. (d) The Employee agrees to keep current and adequate written records of all Inventions, which records shall be and remain the property of, and be available to, the Company at all times. (e) The Employee agrees that he will not at any time, and will use his best efforts to ensure that none of his agents or entities under his control or in which he has a direct or indirect beneficial interest will at any time, except in the ordinary course of the Employee's performance of his services hereunder, without the prior written consent of the Company, voluntarily reveal, divulge or make known to any person, firm or corporation (other than the Company and Company Affiliates) any Business Information or Invention, or anything concerned therewith, and all such information shall be kept confidential and shall not in any manner be revealed by him to anyone except as provided herein; and all documents, business records, supplier and customer lists, prospective supplier and customer lists, reports and any other documents, or any copies of any of the foregoing, kept or made by him relating to any Business Information, Invention or the business of the Company or any Company Affiliate shall be and remain the property of the Company and shall be surrendered to the Company upon termination of this Agreement. Notwithstanding the above, (i) the Employee cannot be held responsible for the confidentiality of Business Information which is, of necessity, shared with approved suppliers or consultants to the Company in the ordinary course of business and (ii) the Employee may disclose any of the foregoing when required to do so by a court of law, by any governmental agency having supervisory authority over the business of the Company or by any administrative or legislative body (including a committee thereof) with apparent jurisdiction to order him to disclose such information. (f) The Employee's obligations under this Paragraph 8 and under Paragraph 9 hereof shall require, among other things, his full cooperation in the prosecution of any litigation the Company or any Company Affiliate may initiate and pursue against any person who may be deemed by the Company or any Company Affiliate to have caused a violation of this Paragraph 8 or of Paragraph 9 hereof, but shall not require the Employee to initiate or pursue such remedies at his own expense. (g) As used in this Agreement, a "Company Affiliate" shall mean Parent and any corporation or other entity in which Parent shall own or hold, either directly or indirectly through one or more majority owned subsidiaries or partnerships, at least a majority of the equity interest. 9. Competition, etc. During the term of this Agreement and, provided the Company (and, if applicable, Parent) continue during such period to compensate him on the same basis as applicable during the term of this Agreement pursuant to Paragraphs 3(a) and 5 hereof (other than with respect to the Company's retirement programs), for a period of one year thereafter, except with the prior written consent of the Company: (a) The Employee will not, and will use his best efforts to ensure that none of his agents or entities under his control or in which he has a direct or indirect beneficial interest will, directly or indirectly (as director, officer, partner, employee, manager, consultant, independent contractor, advisor, stockholder or otherwise) engage in areas of competition with, or own any interest in, or provide any financing for, or perform any services for, any business or organization which directly or indirectly engages in areas of competition (which competition must be substantial in nature if it occurs following the termination of employment) with any business conducted by the Company or any Company Affiliate in any area where such business of the Company or any Company Affiliate is carried on; provided, however, that the provisions of this Paragraph 9(a) shall not prohibit the Employee's ownership of not more than one percent of the total shares of all classes of stock outstanding of any publicly held corporation. (b) The Employee will not directly or indirectly employ, solicit for employment, or advise or recommend to any other person that such other person employ or solicit for employment, any person whom he knows to be an employee of the Company or any Company Affiliate, if such action by him would have an adverse effect on the business, assets or financial condition of the Company or any Company Affiliate. (c) The provisions of this Paragraph 9 shall apply during the term of this Agreement and for one year thereafter, provided that if the Company shall terminate the employment of the Employee other than pursuant to the provisions of Paragraph 10(b) or (c) hereof, the provisions of this Paragraph 9 shall not apply after the date of termination, and provided further that, notwithstanding the immediately- foregoing proviso and without limiting the generality thereof, if the Company shall relieve the Employee of all of his responsibilities hereunder but shall continue to pay the Employee his compensation due hereunder, the provisions of this Paragraph 9 shall continue to apply for so long as the Company shall continue to pay the Employee such compensation. (d) In connection with the foregoing provisions of this Paragraph 9, the Employee represents that his economic means and circumstances are such that such provisions will not prevent him from providing for himself and his family on a basis satisfactory to him. It is understood and agreed that the covenants made by the Employee in this Paragraph 9 and in Paragraph 10 hereof are material to, and are being relied upon by the Company in entering into this Agreement. 10. Termination. Notwithstanding any provision of this Agreement to the contrary, the Employee's employment hereunder and the Employee's right to receive compensation therefor shall terminate prior to August 31, 1999, upon the occurrence of any of the following: (a) Upon notice rendered to the Employee in good faith by the Company, effective six months from the date of such notice, in the event the Employee shall become disabled and thereby rendered unable to perform the duties set forth herein, provided such notice shall not be effective before such condition has persisted for at least six months. In the event of any disagreement as to the nature, extent or duration of the Employee's disability, such matter shall be determined by a licensed physician mutually satisfactory to the Company and the Employee; provided, however, that the Employee shall be regarded as disabled as specified in this subparagraph in the event he shall refuse to submit to or fail a medical examination by such physician or if such physician is not agreed upon, by a licensed physician selected by the physicians selected, respectively, by the Company and the Employee. (b) Upon the death of the Employee, effective as to compensation, twelve months after the date of his death. (c) Upon notice rendered to the Employee by the Company, effective as of the date of such notice, in the event of any material breach of the provisions of this Agreement by the Employee, conviction of a serious crime, dishonesty of the Employee in carrying out his duties under this Agreement, willful disregard of the interest of the Company or any Company Affiliate or other civil or criminal conduct which is clearly detrimental to the welfare or security of the Company, provided that the Employee's failure to perform his duties under this Agreement satisfactorily shall not in itself, even if detrimental to the welfare or security of the Company, permit termination of his employment pursuant to this Paragraph 10(c). In connection with the foregoing provisions of this Paragraph 10, the Company's right of termination shall be in addition to its right to seek damages for, or an injunction to restrain the Employee from, any act or other circumstance described in Paragraph 10(c), and such rights shall survive termination of this Agreement under this Paragraph 10. 11. Other Relief. Notwithstanding any other provisions herein contained, in the event of a violation of the provisions of Paragraph 8 or 9 hereof, the Company may, in addition to pursuing such other remedies as it may have at law or in equity, seek a temporary and/or permanent injunction in an action in equity. 12. Return of Books, etc. Upon the expiration of the term or termination in accordance herewith, the Employee will promptly deliver to the Company all books, memoranda, plans, records and written data of every kind relating to any aspect of the business and affairs of the Company (or of any Company Affiliate) which are then in his possession, except personal notes or diaries, such information as is in the public domain or financial data normally afforded or provided on request to a shareholder of the Company. 13. Severability. If for any reason any provision of this Agreement shall be held invalid, such invalidity shall not affect any other provision of this Agreement not so held invalid, and all other such provisions shall, to the full extent consistent with the law, continue in full force and effect. If any such provision shall be held invalid in part, such invalidity shall in no way affect the rest of such provision, which, together with all other provisions of this Agreement, shall likewise, to the fullest extent consistent with law, continue in full force and effect. 14. Binding Agreement. This Agreement shall be binding upon, inure to the benefit of, and be enforceable by the respective heirs, beneficiaries, representatives, successors and assigns of the parties hereto. 15. Entire Agreement. This Agreement embodies the entire agreements and understandings of the parties hereto in respect of the subject matter contained herein. There are no restrictions, promises, representations, warranties, covenants or undertakings other than those expressly set forth or referred to herein. This Agreement supersedes all prior agreements and understandings between the parties with respect to such subject matter. This Agreement may be modified, amended or discharged only by a written instrument duly executed by both of the parties hereto. 16. Notice. All notices, claims, requests, demands and other communications hereunder shall be in writing and shall be deemed given if delivered personally or mailed by registered or certified mail (return receipt requested) to the parties at the following addresses (or at such other address for a party as shall be specified by like notice): (a) If to the Company, to: The Great Atlantic & Pacific Tea Company, Inc. 2 Paragon Drive Montvale, New Jersey 07645 Attention: Robert G. Ulrich, Esquire Senior Vice President and General Counsel with a copy to: The Great Atlantic & Pacific Company of Canada, Limited 5559 Dundas Street West Islington, Ontario M9B 1B9 Attention: Fred Torrie Corporate Secretary (b) If to the Employee, to: John Douglas Moffatt 360 Bloor Street East, No. 108 Toronto, Ontario M4W 3M3 Canada 17. Governing Law. This Agreement shall be governed by the laws of the State of New Jersey, without regard to the conflicts of law rules thereof. 18. Waiver of Breach. Any waiver by one party to this Agreement of a breach of any provision of this Agreement by the other party shall not operate or be construed as a waiver of any subsequent breach by the other party. Any waiver must be in writing and signed by the Employee or authorized officers of Parent and Limited, as the case may be. 19. Headings. The paragraph headings contained in this Agreement are solely for the purpose of reference, are not part of the agreement of the parties, and shall not affect in any way the meaning or interpretation of this Agreement. IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by the duly authorized officers of the Company and by the Employee as of the date first above written. THE GREAT ATLANTIC & PACIFIC TEA COMPANY, INC. By: --------------------------------------- THE GREAT ATLANTIC & PACIFIC COMPANY OF CANADA, LIMITED By: --------------------------------------- --------------------------------------- John Douglas Moffatt Exhibit A Special Bonus Opportunity During the period of his employment under this Agreement, the Employee shall be entitled to the following special bonus: 1. For each fiscal year, the Employee's special bonus shall be equal to the greater of: (a) one percent of the pre-tax profits of Limited as reported in Limited's consolidated financial statements for such fiscal year, as certified by Limited's auditors; or (b) one-half of one percent of Limited's "Group Contribution" as reported in the internal financial statements of Parent and Limited for such fiscal year. 2. Notwithstanding the foregoing, the special bonus for fiscal year 1994 shall be pro-rated for the portion of such fiscal year during which the Employee was employed by multiplying the amount of the special bonus by a fraction, the numerator of which shall be the number of days of such fiscal year during which the Employee was employed and the denominator of which shall be 365. 3. The amount of the special bonus shall be reduced by the amount of the bonus paid to the Employee under the Management Bonus Program, including the minimum bonus paid pursuant to Paragraph 3 of this Agreement. 4. The special bonus shall be paid promptly after the completion of Limited's consolidated financial statement, but in no event prior to the payment of the bonuses under the Management Bonus Program. Personal & Confidential September 7, 1994 Mr. John Douglas Moffatt 360 Bloor Street East Number 108 Toronto, Ontario M4W 3M3 Canada Dear Jack: Subject: Supplemental Executive Retirement Plan (SERP) I am pleased to inform you that effective September 1, 1994, you have been enrolled as a member of the Company's Supplemental Executive Retirement Plan (SERP). I enclose a copy of the Plan document. Detailed below is a brief description of the Plan, but for further information, please refer to the Plan document. 1. Credited service commences from your date of employment. 2. The rate of benefits is 3% of "Average Final Compensation" for each year up to 10 years of service, plus 1 1/2% of such compensation for up to ten additional years of service. 3. "Average Final Compensation" is based on earnings, exclusive of bonuses, for any five consecutive years within the last ten years prior to retirement. 4. The Plan provides for a maximum benefit of 45% of "Average Final Compensation" with offsets of: a) One-half of the benefits under the Canada Pension Plan; b) Employees' Retirement Plan Benefit. 5. Surviving spouse benefit of 40% of the pension. Please acknowledge receipt of this material by signing a copy of this letter and returning it to Mr. Peter R. Brooker. Congratulations on becoming a member of the Plan. Sincerely, Fred Corrado Vice Chairman, Chief Financial Officer and Treasurer Acknowledged: -------------------------------- John Douglas Moffatt EXHIBIT 10E THE GREAT ATLANTIC & PACIFIC TEA COMPANY, INC. 1994 Stock Option Plan 1. Purpose of the Plan. This Plan is intended to provide a method whereby key employees of The Great Atlantic & Pacific Tea Company, Inc. (the "Company") and its subsidiaries who are largely responsible for the management, growth and protection of the business, and who are making and can continue to make substantial contributions to the success of the business, may be encouraged to acquire a larger stock ownership in the Company, thus increasing their proprietary interest in the business, providing them with greater incentive, encouraging their continuance in the service and promoting the interests of the Company and all its shareholders. Accordingly, the Company will, from time to time during the effective period of this Plan, grant to such employees as may be selected in the manner provided below, options to purchase shares of Common Stock, Par Value $1, of the Company and stock appreciation rights subject to the conditions specified in this Plan. 2. Administration of the Plan. The Plan will be administered by a Committee of at least two directors of the Company who shall be selected from time to time by the Board of Directors of the Company (the "Committee"), provided that the Committee shall not include any individual who is not both (a) a "disinterested person" within the meaning of Rule 16b-3 promulgated by the Securities and Exchange Commission and (b) an "outside director" within the meaning of Section 162(m)(4)(c) of the Internal Revenue Code of 1986, as amended (the "Code"). A majority of the Committee shall constitute a quorum, and the acts of a majority of the members present at any meeting at which a quorum is present, or acts approved in writing by all of the members, shall be the acts of the Committee. Subject to the provisions of this Plan, the Committee shall have full and final authority in its discretion (a) to determine the employees to be granted options and stock appreciation rights ("SARs") and, in the case of each option granted, to determine whether the same shall be an incentive stock option ("ISO") pursuant to the Code, or an option which does not qualify under such Section 422 ("non-qualified option"), (b) to determine the number of shares subject to each option and SAR, (c) to determine the time or times at which options and SARs will be granted, (d) to determine the option price of the shares subject to each option, which price shall be not less than the minimum specified in Section 6 of this Plan, (e) to determine the time or times when each option and SAR becomes exercisable and the duration of the exercise period, (f) to determine the form of payment in settlement of the exercise of SAR's; (g) to prescribe the form or forms of the instruments evidencing any options and SARs granted under this Plan (which forms shall be consistent with this Plan but need not be identical), (h) to adopt, amend and rescind such rules and regulations as, in its opinion, may be advisable in the administration of this Plan and (i) to construe and interpret this Plan, the rules and regulations and the instruments evidencing options and SARs granted under this Plan and to make all other determinations deemed necessary or advisable for the administration of this Plan. The Committee may consult with counsel, who may be counsel to the Company, and shall not incur any liability for any action taken in good faith in reliance upon the advice of counsel. 3. Shares Available for Options. Subject to the provisions of Section 9 of this Plan, the aggregate number of shares of Capital Stock for which options and SARs may be granted under this Plan shall not exceed 1,500,000 shares. The shares to be delivered upon exercise of options or SARs under this Plan shall be made available, at the discretion of the Board of Directors of the Company (the "Board of Directors"), either from the authorized but unissued shares of Capital Stock of the Company or from shares of Capital Stock held by the Company as treasury shares, including shares purchased in the open market. If an option or SAR granted under this Plan shall expire or terminate unexercised as to any shares covered thereby, such shares shall thereafter be available for the granting of other options and SARs under this Plan. 4. Eligibility. Options and SARs will be granted only to persons who are employees of the Company or of a subsidiary of the Company (as the term "subsidiary corporation" is defined by Section 424 of the Code). The term "employees" shall include officers as well as all other employees of the Company and its subsidiaries and shall include directors who are also employees of the Company or of a subsidiary of the Company. Neither the members of the Committee nor any member of the Board of Directors who is not an employee of the Company (or of a subsidiary of the Company) shall be eligible to receive an option or SAR under this Plan. In selecting the individuals to whom options and SARs shall be granted, as well as in determining the number of shares subject to and the type and terms and provisions of each option and SAR, the Committee shall weigh such factors as it shall deem relevant to accomplish the purpose of this Plan. An individual who has been granted an option or SAR may be granted an additional option or options or SAR(s) if the Committee shall so determine. No employee shall be eligible for the grant of any ISO under this Plan if, at the time the ISO is granted, such employee owns, or is considered under Section 424(d) of the Code, to own stock possessing more than 10% of the total combined voting power of all classes of stock either of the Company or of any parent or subsidiary thereof. The maximum number of shares with respect to which options and SAR's may be granted to any individual under this Plan in the aggregate during the term of this Plan shall be 500,000 shares. The aggregate fair market value (determined at the time an ISO is granted) of the stock with respect to which incentive stock options are exercisable for the first time by any employee during any calendar year (under all such plans of the employee's employer corporation and its parent and subsidiary corporations) shall not exceed that permitted by Section 422(d) of the Code. 5. Term of Options and SARs. The full term of each option and SAR granted hereunder shall be for such period as the Committee shall determine, but for not more than ten years from the date of granting thereof. Each option and SAR shall be subject to earlier termination as provided in Paragraphs (d) and (e) of Section 8. 6. Option Price. The option price of each option shall not be less than 100% of the fair market value of the shares covered thereby at the time the option is granted and in no event less than the par value of the shares covered thereby. 7. Non-transferability of Options and SARs. No option or SAR granted under this Plan shall be transferable by the grantee otherwise than by will or the laws of descent and distribution, and such option or SAR may be exercised during his lifetime only by him. 8. Exercise of Options and SARs. (a) Each option and SAR granted under this Plan shall be exercisable on such date or dates and during such period within the full term thereof and with respect to such number of shares as shall be determined pursuant to the provisions of the instrument evidencing such option or SAR. (b) If the Committee grants ISOs, the instruments evidencing such ISOs shall contain terms and provisions relating to exercise and otherwise which are designed to render them ISOs pursuant to Section 422 of the Code and the Income Tax Regulations thereunder, as the same or any successor statute or regulations may at the time be in effect. (c) A person electing to exercise an option shall give written notice to the Company of such election and of the number of shares he has elected to purchase, and shall at the time of exercise tender the full purchase price of the shares he has elected to purchase. Until such person has been issued a certificate or certificates for the shares so purchased, he shall possess no rights of a record holder with respect to any of such shares. (d) No option or SAR shall be affected by a change of duties or position of the optionee (including transfer to or from a subsidiary) so long as he continues to be an employee of the Company or one of its subsidiaries. If an optionee shall cease to be such an employee for any reason other than death, such option or SAR shall thereafter be exercisable only to the extent of the exercise rights, if any, which had accrued as of the date of such cessation, provided that (i) the Committee may provide in the instrument evidencing any option or SAR that the Committee may in its absolute discretion, upon any such cessation of employment, determine (but be under no obligation to determine) that such accrued exercise rights shall be deemed to include additional shares covered by such option or SAR and (ii) upon any such cessation of employment, such remaining right to exercise shall in any event terminate upon the earlier of (A) the expiration of the full term of the option of SAR and (B) the expiration of three months from the date of such cessation of employment or such later expiration date, if any, as the Committee may in its sole discretion, either at the time of grant or at any time prior to exercise, establish (but not beyond the expiration date determined in (A)). The instruments evidencing options and SARs granted under this Plan may contain such provisions as the Committee shall approve with reference to the effect of approved leaves of absence. Nothing in this Plan or in any option or SAR granted hereunder shall confer upon any optionee any right to continue in the employ of the Company or any of its subsidiaries, or to interfere in any way with the right of the Company or its subsidiaries to terminate his employment at any time. (e) Should an optionee die while in the employ of the Company or one of its subsidiaries, or after cessation of such employment, but prior to the termination of any option or SAR, such persons as shall have acquired, by will or by the laws of descent and distribution, the right to exercise such option or SAR theretofore granted such optionee may, in either case, exercise such option or SAR at any time prior to expiration of its full term or of one year from the date of death of the optionee, whichever is earlier, provided that any such exercise shall be limited to the exercise rights which had accrued as of the date when the optionee ceased to be such an employee, whether by death or otherwise; provided further, however, that the Committee may provide in the instrument evidencing any option or SAR that such option or SAR shall become exercisable immediately upon the death of the optionee with respect to all shares covered thereby. 9. Adjustment Upon Changes In Capitalization. The instruments evidencing options and SARs granted hereunder shall contain such provisions as the Committee shall determine for adjustment of the number and classes of shares covered thereby, or of the option prices or Base Amounts (as defined in Section 10 of this Plan), or both, in the event of changes in the outstanding Capital Stock of the Company by reason of stock dividends, stock split-ups, recapitalizations, reorganizations, mergers, consolidations, combinations or exchanges of shares or the like, of or by the Company. In the event of any such change, the aggregate number and classes of shares for which options and SARs may thereafter be granted under this Plan may be appropriately adjusted as determined by the Board of Directors so as to reflect such change. 10. Stock Appreciation Rights. (a) General. SARs may be granted to such eligible employees under this Plan as may be selected by the Committee. The Committee shall determine whether a particular stock appreciation right granted under this Plan shall (i) relate to a previously granted non-qualified option, (ii) relate to a new non-qualified option or new ISO, or (iii) be independent of any option; provided, however, that a stock appreciation right may be granted in conjunction with an ISO only at the time the related ISO is granted and only to the extent that such stock appreciation right meets the requirements of Section 422 of the Code and the regulations thereunder. An SAR is the right to receive, upon exercise and without any payment to the Company, a number of shares of Common Stock of the Company and/or cash in an amount determined pursuant to paragraph (c) below. An SAR granted to an optionee may, but need not, relate to a specific stock option granted to that optionee under this Plan ("related option"). If the SAR relates to an option, it shall cover the same number of shares as are covered by the related option, or such lesser number as the Committee shall determine. Each SAR shall be adjusted to reflect any adjustments by reason of any stock splits, stock dividends, or other changes in capitalization in the manner described in Section 9 hereof occurring after the effective date of the grant of such SAR. The decision of the Committee administering the Plan as to the method, amount and timing of any such adjustments shall be conclusive. In the case of an SAR which relates to an option, expiration or exercise of the related option shall automatically terminate the SAR to the extent of the number of shares covered by the SAR with respect to which the related option expired or was exercised (disregarding any shares covered by the related option in excess of those covered by the SAR). Exercise of an SAR which relates to an option shall automatically terminate the related option to the extent of the number of shares covered by the related option with respect to which the SAR was exercised. (b) Transferability and Exercise. An SAR granted to an optionee shall not be transferable and shall be exercisable only by the optionee to whom granted. An SAR which relates to an option shall be exercised, if at all, only during the period specified in Section 8 hereof applicable to the exercise of the related option. An SAR may be exercised only if the amount payable upon exercise of the SAR is greater than zero. (c) Payment. Upon exercise of an SAR, an optionee shall be entitled to payment in an amount equal to the excess of the fair market value of one share of Common Stock of the Company on the date of exercise over the "Base Amount", multiplied by the number of shares in respect of which the SAR shall have been exercised. For this purpose, the "Base Amount" shall mean (i) in the case of an SAR which relates to an option, the option price per share under the related option, and (ii) in the case of any other SAR, the amount specified by the Committee for this purpose at the time of grant, which amount shall not be less than 100% of the fair market value of a share of Common Stock of the Company on the date of grant nor less than the par value of such a share. Payment may be made in the discretion of the Committee in the form of (i) shares of Common Stock of the Company having a fair market value on the date of exercise equal to the amount payable, (ii) cash or (iii) a combination of shares and cash. The Committee shall determine the fair market value of the Company's stock on the date of exercise of an SAR, which determination shall be conclusive. In the case of an SAR which is related to an ISO, such determination shall be made in a manner consistent with Section 422 of the Internal Revenue Code of 1986, as amended, and the regulations thereunder. However, payments upon exercise of an SAR may be made in cash to an optionee subject to Section 16(b) of the Securities Exchange Act of 1934 only if such optionee exercises such SAR during a period beginning on the third business day following the date of release of the quarterly or annual summary statements of sales and earnings and ending on the twelfth business day following such date. Such payments shall be made within 20 days following the exercise of the SAR; provided, however, that the payment may be deferred by the Committee in its discretion to such date and under such terms and conditions as the Committee may determine. (d) Agreements. All grants of SARs under the Plan shall be evidenced by written agreements which, in the case of an SAR which relates to an option, may be appurtenant to or included in the related stock option agreement between the Company and the optionee. Such agreements shall contain such further terms and conditions on the grant, exercise and payment of SARs as the Committee shall prescribe and as are not inconsistent with the provisions of this Plan. 11. Withholding. The Company and each subsidiary shall have the right to deduct from all amounts paid in cash upon exercise of an SAR any taxes required by law to be withheld therefrom. In the case of payments of SARs in the form of shares, or upon exercise of an option, the person exercising such option or SAR shall be required to pay the Company or its subsidiary the amount of any taxes required to be withheld with respect to such shares; in lieu thereof, the Company and each subsidiary shall have the right to retain, or sell without notice, a sufficient number of shares to cover the amount required to be withheld. The Committee may from time to time establish procedures permitting optionees to elect stock withholding consistent with applicable requirements of Rule 16b-3 promulgated by the Securities and Exchange Commission. 12. Amendment, Suspension or Termination of Plan. The Board of Directors may at any time terminate or from time to time amend or suspend this Plan, provided, however, that no such amendment shall, without approval of the shareholders of the Company, except as provided in Section 9 hereof: (a) increase the aggregate number of shares as to which options and SARs may be granted under this Plan; (b) change the method of determining the minimum option exercise price; (c) increase the maximum period during which options or SARs may be exercised; (d) extend the effective period of this Plan, (e) materially increase the benefits accruing to optionees under this Plan, (f) permit the granting of options or SARs to members of the Committee, or (g) materially modify the requirements as to eligibility for participation in this Plan. No option or SAR may be granted during any suspension of this Plan or after this Plan has been terminated and no amendment, suspension or termination shall, without the optionee's consent, alter or impair any of the rights or obligations under any option or SAR theretofore granted to him under this Plan. 13. Listing and Registration. The Company, in its discretion, may postpone the issuance and delivery of shares upon any exercise of an option or SAR until completion of such stock exchange listing, or registration or other qualification of such shares under any state or federal law, rule or regulation as the Company may consider appropriate. On exercise of the option or SAR the optionee shall be required to make such representations and furnish such information as may in the opinion of counsel for the Company be appropriate to permit the Company, in the light of the then existence or nonexistence of an effective Registration Statement under the Securities Act of 1933 with respect to such shares, to issue or transfer the shares in compliance with the provisions of that Act. In case of the non-existence of an effective Registration Statement under the Securities Act of 1933 with respect to such shares, restrictions may, in the discretion of the Company, be imposed on the transfer of shares and certificates therefor may be marked or stamped with a reference to such restrictions. Upon registration of the optioned shares of Common Stock with the Securities and Exchange Commission, such restrictions shall be inoperative and an optionee who was required pursuant to this subsection to make investment representations on shares optioned hereunder shall be released from such investment representations. 14. Consideration for Grant of Options. Each participant, in consideration of the granting of an option hereunder, shall agree in writing to remain in the employ of the Company, or a subsidiary corporation, for a period of not less than one year. 15. Effectiveness of the Plan. The Plan shall be subject to approval and ratification by the vote of the holders of a majority of the shares of stock of the Company present or represented at the meeting to which the Plan is submitted. Subject to such approval and ratification, the Plan is effective as of March 18, 1994. Options and SARs may be granted under the Plan prior to such approval and ratification, but each such option and SAR granted shall be subject to the approval and ratification of the Plan by the stockholders, and if the Plan shall not be so approved and ratified, all options and SARs granted shall be of no effect. The date of the grant of any option or SAR granted prior to such approval and ratification by the stockholders shall be determined for all purposes as if the option or SAR had not been subject to such approval and ratification. No option or SAR granted may be exercised prior to such approval and ratification. No options or SARs may be granted under this Plan subsequent to March 17, 2004. EXHIBIT 10F THE GREAT ATLANTIC & PACIFIC TEA COMPANY, INC. 1994 STOCK OPTION PLAN FOR NON-EMPLOYEE DIRECTORS ARTICLE I. Purposes The purposes of The Great Atlantic & Pacific Tea Company, Inc. 1994 Stock Option Plan for Non-Employee Directors (the "Plan") are to attract and retain the services of knowledgeable non-employee Directors of The Great Atlantic & Pacific Tea Company, Inc. (the "Company") and to provide an incentive for such Directors to increase their proprietary interests in the Company's long-term success and progress. ARTICLE II. Shares Subject To The Plan Subject to adjustment in accordance with Article VI hereof, the total number of shares of the company's common stock, par value $1.00 per share (the "Common Stock"), for which options may be granted under the Plan is 100,000 (the "Shares"). The Shares shall be presently authorized but unissued or subsequently acquired by the Company and shall include shares representing the unexercised portion of any option granted under the Plan which expires or terminates without being exercised in full. ARTICLE III. Administration Of The Plan The administrator of the Plan (the "Plan Administrator") shall be a committee appointed by the Board of Directors of the Company (the "Board"). Subject to the terms of the Plan, the Plan Administrator shall have the power to construe the provisions of the Plan, to determine all questions arising thereunder and to adopt and amend such rules and regulations for the administration of the Plan as it may deem desirable. ARTICLE IV. Participation In The Plan Each member of the Board elected or appointed who is not otherwise an employee of the Company or any subsidiary (an "Eligible Director") shall receive the following option grants under the Plan: 1. Initial Grants. An initial grant (an "Initial Grant") of an option to purchase two thousand (2,000) Shares shall automatically be granted to: (a) Each Eligible Director immediately following adoption of the Plan by the Company's Board of Directors; and (b) Each person, if any, who first becomes an Eligible Director on or after July 12, 1994 on the date such person first becomes an Eligible Director. Each Initial Grant is subject to the approval of the Plan by the Company's stockholders. 2. Additional Grants. Commencing with the Annual Meeting of Stockholders of the Company as specified in the company's By-Laws (the "Annual Meeting") in 1994, each Eligible Director shall automatically receive an additional grant (an "Additional Grant") of an option to purchase Shares on the day immediately following the date of each year's Annual Meeting. Each Additional Grant shall consist of an option to purchase two hundred (200) Shares. ARTICLE V. Option Grants Each option granted to an Eligible Director under the Plan and the issuance of Shares thereunder shall be subject to the following terms: 1. Option Agreement. Each option granted under the Plan shall be evidenced by an option agreement (an "Agreement") duly executed on behalf of the Company. Each Agreement shall comply with and be subject to the terms and conditions of the Plan. Any Agreement may contain such other terms, provisions and conditions not inconsistent with the Plan as may be determined by the Plan Administrator. 2. Vesting and Exercisability. An option shall become exercisable in accordance with the following schedule and vested portions may be exercised in full at one time or in part from time to time: Portion of Grant Period of Time From the Date the That is Option is Granted Exercisable ----------------------------------------------- ------------------ -Until first subsequent annual meeting of shareholders after grant 0% Until second subsequent annual meeting of shareholders after grant 33-1/3% Until third subsequent annual meeting of shareholders after grant 66-2/3% Thereafter 100% For the purposes of options granted at the time this Plan is adopted by the Board of Directors, the first subsequent annual meeting of shareholders shall be the meeting held in 1994. 3. Option Exercise Price. The option exercise price for an option granted under the Plan shall be the fair market value of the Shares covered by the option at the time the option is granted. For purposes of the Plan, "fair market value" shall be the closing price of the Common Stock on such date as reported in the NYSEComposite Transactions or, if no Common Stock was traded on such date, on the next preceding date on which the Common Stock was so traded. 4. Manner of Exercise of Option. Any option may be exercised by giving written notice, signed by the person exercising the option, to the Company stating the number of Shares with respect to which the option is being exercised, accompanied by payment in full for such Shares, which payment may be in whole or in part (i) in cash or by check, or (ii) in shares of Common Stock already owned for at least six (6) months by the person exercising the option, valued at fair market value at the time of such exercise. 5. Terms of Options. Each option shall expire ten (10) years from the date of the granting thereof, but shall be subject to earlier termination as follows: (a) In the event of the death of an optionee during the optionee's service as a Director or within twelve (12) months of cessation of service as a Director, the options granted to the optionee shall be exercisable, and such options shall expire unless exercised within twelve (12) months after the date of the optionee's death, by the legal representatives or the estate of such optionee, by any person or persons whom the optionee shall have designated in writing on forms prescribed by and filed with the Company, or if no such designation has been made, by the person or persons to whom the optionee's rights have passed by will or the laws of descent and distribution. (b) In the event an optionee shall cease to be a director as a result of resignation, declining to stand for re-election or removal without cause, each unexercised option held by such optionee shall automatically terminate twelve (12) months after the optionee ceases being a director; provided, however, in the event an optionee ceases being a director because the optionee was removed for cause, all options granted hereunder shall terminate immediately. 6. Transferability. During an optionee's lifetime, an option may be exercised only by the optionee. Options granted under the Plan and the rights and privileges conferred thereby shall not be subject to execution, attachment or similar process and may not be transferred, assigned, pledged or hypothecated in any manner (whether by operation of law or otherwise) other than by will or the applicable laws of descent and distribution or pursuant to a qualified domestic relations order as defined by the Internal Revenue Code of 1986, as amended, or Title I of the Employee Retirement Income Security Act, as amended, or the rules thereunder, except that, to the extent permitted by applicable law and Rule 16b-3 promulgated under Section 16(b) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), the Plan Administrator may permit a recipient of an option to designate in writing during the optionee's lifetime a beneficiary to receive and exercise options in the event of the optionee's death (as provided in Section 5(a) hereof). Any attempt to transfer, assign, pledge, hypothecate or otherwise dispose of any option under the Plan or of any right or privilege conferred thereby, contrary to the provisions of the Plan, or the sale or levy or any attachment or similar process upon the rights and privileges conferred thereby, shall be null and void. 7. Holding Period. Shares of Common Stock obtained upon the exercise of any option granted under the Plan may not be sold by persons subject to Section 16 of the Exchange Act until six months after the later of (i) the date the option was granted or (ii) the date on which the Plan was approved by the Company's Stockholders. 8. Participant's or Successor's Rights as Stockholder. Neither the recipient of an option under the Plan nor the optionee's successor(s) in interest shall have any rights as a stockholder of the Company with respect to any Shares subject to an option granted to such person until such person becomes a holder of record of such Shares. 9. Limitation as to Directorship. Neither the Plan nor the granting of an option nor any other action taken pursuant to the Plan shall constitute or be evidence of any agreement or understanding, express or implied, that an optionee has a right to continue as a Director for any period of time or at any particular rate of compensation. 10. Regulatory approval and Compliance. The Company shall not be required to issue any certificate or certificates for Shares upon the exercise of any option granted under the Plan, or record as a holder of record of Shares the name of the individual exercising an option under the Plan, without obtaining to the complete satisfaction of the Plan Administrator the approval of all regulatory bodies deemed necessary by the Plan Administrator, and without complying, to the Plan Administrator's complete satisfaction, with all rules and regulations under federal, state or local law deemed applicable by the Plan Administrator. ARTICLE VI. Capital Adjustments The aggregate number and class of Shares for which options may be granted under the Plan, the number and class of Shares covered by each outstanding option and the exercise price per Share thereof (but not the total price) shall all be proportionately adjusted for any increase or decrease in the number of issued Shares resulting from a recapitalization, stock split, stock dividend, exchange of shares, merger, reorganization, change in corporate structure or shares of the Company or similar events. In the event of any adjustment in the number of Shares covered by any option, any fractional Shares resulting from such adjustment shall be disregarded and each such option shall cover only the number of full Shares resulting from such adjustment. ARTICLE VII. Expenses Of The Plan All cost and expenses of the adoption and administration of the Plan shall be borne by the Company; none of such expenses shall be charged to any optionee. ARTICLE VIII. Effective Date And Duration Of The Plan The Plan shall be dated as of March 18, 1994 and shall be effective upon adoption by the Board so long as the Plan receives the approval of holders of a majority of the Company's Shares present and entitled to vote at the 1994 Annual Meeting of the Stockholders. The Plan shall continue in effect until it is terminated by action of the Board or the Company's stockholders, but such termination shall not affect the then outstanding terms of any options. ARTICLE IX. Termination And Amendment Of The Plan The Board may amend, terminate or suspend the Plan at any time, in its sole and absolute discretion; provided, however, that no amendment may be made more than once every six (6) months that would change the amount, price, timing or vesting of the options, other than to comport with changes in the Internal Revenue Code of 1986, as amended, or the Employee Retirement Income Security Act, as amended or the rules and regulations promulgated thereunder, and provided, further, that if required to qualify the Plan under rule 16b-3, no amendment that would (a) materially increase the number of Shares that may be issued under the Plan, (b) materially modify the requirements as to eligibility for participation in the Plan, or (c) otherwise materially increase the benefits accruing to participants under the plan shall be made without the approval of the Company's stockholders. ARTICLE X. Compliance With Rule 16b-3 It is the intention of the Company that the Plan comply in all respects with Rule 16b-3 promulgated under Section 16(b) of the Exchange Act and that Plan participants remain disinterested persons for purposes of (i) administering other employee benefits plans of the Company and (ii) having such other plans be exempt from Section 16(b) of the Exchange Act. Therefore, if any Plan provision is later found not to be in compliance with Rule 16b-3 or if any Plan provision would disqualify Plan participants from remaining disinterested persons, that provision shall be deemed null and void, and in all events the Plan shall be construed in favor of its meeting the requirements of rule 16b-3. EX-13 3 44 COMPARATIVE HIGHLIGHTS The Great Atlantic & Pacific Tea Company, Inc. (Dollars in thousands, except per share figures) Fiscal 1994 Fiscal 1993 Fiscal 1992 ----------- ----------- ----------- Sales $10,331,950 $10,384,077 $10,499,465 Income (loss) before cumulative effect of accounting changes (166,586) 3,959 (98,501) Net income (loss) (171,536) 3,959 (189,501) Income (loss) per share before cumulative effect of accounting changes (4.36) .10 (2.58) Net income (loss) per share (4.49) .10 (4.96) Cash dividends per share .65 .80 .80 Expenditures for property 214,886 267,329 204,870 Working capital 97,277 79,207 56,769 Current ratio 1.09 1.07 1.05 Shareholders' equity 774,914 994,417 1,034,330 Book value per share 20.27 26.02 27.06 Number of stores at year end 1,108 1,173 1,193 1 MANAGEMENT'S DISCUSSION AND ANALYSIS OPERATING RESULTS Fiscal 1994 Compared with 1993 Sales for fiscal 1994 were $10.3 billion, a net decrease of $52 million or 0.5% when compared to fiscal 1993 sales of $10.4 billion. U.S. sales increased $75 million or 0.9% compared to fiscal 1993 despite the estimated impact of a fiscal 1993 competitors' strike in the New York metropolitan market which had a favorable effect on fiscal 1993 sales of approximately 0.3%. In the U.S., same store sales for fiscal 1994 were 0.8% ahead of fiscal 1993 and comparable store sales, which include replacement stores, were up 1.4% excluding the estimated effect of last year's competitors' strike. Canadian sales were $127 million or 6.6% below fiscal 1993. A lower fiscal 1994 Canadian exchange rate accounted for $110 million of this year's sales decline. Canada's fiscal 1994 sales increased approximately $122 million due to a labor strike in fiscal 1993 in 63 Miracle Food Mart ("Miracle") stores which caused the stores to be closed for the last 14 weeks of the prior fiscal year. Excluding the impact of a lower Canadian exchange rate and the strike closure of 63 Miracle stores for 14 weeks of fiscal 1993, Canadian same store sales were down 7.0% mainly due to the slow sales recovery of the Miracle stores following the settlement of the labor strike on the last day of fiscal 1993. The Company opened 16 new supermarkets and 6 new liquor stores, remodeled and enlarged 55 stores and closed 87 stores during fiscal 1994. The opening of 38 new stores since the beginning of fiscal 1993 and the acquisition of Big Star stores in fiscal 1993 added approximately 3.1% to comparable sales in fiscal 1994. The closure of 171 stores since the beginning of fiscal 1993 reduced comparative sales by approximately 3.1%. Average weekly sales per store were approximately $174,800 in fiscal 1994 versus $168,100 in fiscal 1993 for a 4.0% increase. During fiscal 1994, in an effort to combat the competitive situation in the Metro Atlanta area, the Company closed 21 Atlanta stores and completed the launching of its frequent shoppers program which began late in fiscal 1993. As a result, sales for the Metro Atlanta area have improved, with same store sales for the remaining stores up 7.0% over the prior year. However, in Atlanta, the Company is still experiencing the influx of new competitors, and the expected continuing high level of competitive openings and pricing activity pose a threat to the sales and profitability of the Company's Atlanta operations. Gross margin as a percent of sales for both fiscal 1994 and 1993 approximated 28.5%. The gross margin dollars decrease of $15 million is a result of a decline in the Canadian exchange rate of $29 million and a decrease in gross margin rates, principally in Canada, of $3 million partly offset by an increase in gross margin volume, principally in the U.S., of $17 million. The U.S. gross margin dollars increased $51 million, as a result of an increase in gross margin rates from 28.3% to 28.7% and the impact of the aforementioned volume increase. The Canadian gross margin dollars decreased $66 million, resulting from a decrease in gross margin rates from 29.3% to 27.7%, the impact of the exchange rate decline and a volume decline. Store operating, general and administrative expense of $2.9 billion in fiscal 1994 declined slightly from fiscal 1993. As a percent of sales, such costs approximated 27.8% in both fiscal 1994 and 1993. U.S. expenses increased $15 million, principally related to depreciation, outside services, store pre- opening and labor costs. Canadian expenses decreased $31 million primarily due to lower store labor costs on reduced sales volume, reduced occupancy costs, a decrease in expenses related to prior year's Miracle strike and the favorable impact of the decline in the Canadian exchange rate. The Canadian decrease was partially offset by the cost of the termination/reassignment program which was $27 million in fiscal 1994, compared to an early retirement program charge of $17 million in fiscal 1993. The termination/reassignment program was implemented in conjunction with the Company's decision to convert a significant number of its Ontario-based stores to a low-cost format. In addition, the Company recorded a $17 million charge in fiscal 1994 to cover the cost of closing 13 non-Miracle stores in fiscal 1995. Included under the Company's 1994 year-end balance sheet captions "Other accruals" and "Other non-current liabilities" are amounts totaling approximately $43 million associated with store closing liabilities, which includes the $17 million recorded in fiscal 1994 for Canada as discussed above. During fiscal 1994 approximately $15 million were charged against these reserves, of which approximately $14 million related to the realignment of store operations reserve established in fiscal 1992. See "Realignment of Store Operations" footnote for further discussion. During the third quarter of fiscal 1994 the Company recorded a charge of $127 million representing the write-off of $50 million of goodwill and the write-down of $77 million of fixed assets relating to Miracle stores which continue to generate operating losses. In November of 1993, the Miracle store employees went on strike for a 14- week period. Since Canadian labor laws preclude the replacement of striking workers, the strike resulted in a complete shutdown of all of the Miracle stores. The strike was resolved on February 20, 1994 and the Company paid $17 million in labor settlement costs. These stores were re-opened for business commencing February 25, 1994. Following the strike, Management instituted extensive and costly promotional campaigns designed to assist in its goal of re-establishing pre-strike sales levels. When the Miracle strike ended, Management determined that the goodwill balance associated with Miracle stores would be recoverable over its remaining life. This conclusion was based upon operating projections which comprehended (i) the historical performance and market shares of the Miracle stores in pre-strike periods, (ii) the labor savings projected to be realized as a result of the favorable terms of the settlement (principally wage and benefit concessions and the ability to use newly hired part-time employees after a certain level of full and part-time union employment had been realized), and (iii) the regaining of pre-strike sales and operating margins which was anticipated to occur because of the implementation of extensive promotional programs in the Miracle stores. Management continued to assess the performance of the Miracle stores during the post-strike period. The anticipated recovery of Miracle sales and operating margins was not yet realized through June 18, 1994, the end of the Company's first fiscal quarter or September 10, 1994, the end of the Company's second fiscal quarter. Through the second quarter same store sales and margins had declined significantly when compared to the prior year pre-strike levels. At that time, Management concluded that the following factors were the principal reasons why the recovery had not yet been realized: (i) increased price competition from Miracle competitors in response to the promotional activities implemented by Miracle, (ii) the inability to yet utilize part-time employees (a key element of the strike settlement which required increased sales levels to be effective) and (iii) the continuing effects of the complete shutdown during the strike. Management continued to believe that these negative trends were temporary and that more time was required to determine the effectiveness of the promotional programs and the changed competitive environment. Management continued to closely monitor the operating performance and sales levels during the third quarter. Despite the extensive promotional programs, in the period through December 3, 1994, the operating performance of Miracle did not improve and the negative sales trends and deteriorating margin levels continued. Management believed that the negative results which occurred subsequent to the strike were no longer temporary and, accordingly, prior operating cash flow projections of Miracle were revised. These revised projections indicated that the Miracle goodwill balance would not be recovered over its remaining life and the full amount thereof should be written-off. Further, the levels of sales and operating cash flow achieved through the first nine months of fiscal 1994, coupled with the reduced expectations of future Miracle operations, indicated that Miracle's operating results would not be sufficient to absorb the depreciation and amortization of certain of its operating fixed assets. In order to measure this impairment, the Company analyzed the projected operating performance of each store comprising the Miracle division and reflected the impairment of the fixed assets attributable to those stores which the Company believes will continue to generate an operating loss before taking into account depreciation and amortization expenses. The Company has no current plans to close Miracle stores in spite of their negative performance and believes that the total Canadian operations will be able to absorb their projected fixed costs. The Company also believes that the fixed assets related to the Canadian operations exclusive of Miracle are recoverable from operations over their remaining useful lives. As of February 25, 1995, based on current information, the Company has no reasonable basis to believe that any existing goodwill on the books of the Company is required to be written-off. After giving effect to the Miracle goodwill write-off, there is currently no goodwill recorded on the books of the Canadian operations. Interest expense increased in fiscal 1994 when compared to fiscal 1993 primarily due to increased U.S. borrowings of $100 million in long-term Notes issued in January, 1994 and an increase in average interest rates on short- term borrowings. Income (loss) before taxes and cumulative effect of accounting change for fiscal 1994 was a loss of $129 million as compared to income of $7 million in fiscal 1993. The fiscal 1994 loss included Canadian charges for the write- off of goodwill and long-lived assets of $127 million, the employee termination/reassignment program of $27 million and the provision for store closings of $17 million. The fiscal 1993 income included a Canadian charge of $17 million for an employee early retirement program and an estimated $23 million cost impact of the Canadian labor strike. Income before taxes and cumulative effect of accounting change for U.S. operations for fiscal 1994 was $81 million as compared to $52 million for fiscal 1993, or a 54% increase. Excluding the above Canadian charges, loss before taxes and cumulative effect of accounting change for Canadian operations would have been $39 million for fiscal 1994 as compared to $5 million for fiscal 1993. During fiscal 1994, the Company recorded a valuation allowance of $119.6 million against Canadian deferred tax assets, which, based upon current available evidence, are not likely to be realized. These deferred tax assets result from tax loss carryforwards, fiscal 1994 operating losses and deductible temporary differences arising from the Canadian write-off of goodwill and long-lived assets. The Company historically provided U.S. deferred taxes on the undistributed earnings of the Canadian operations. During fiscal 1994, the Company made an election to permanently reinvest prior years' earnings and, accordingly, reversed deferred tax liabilities of $27 million associated with the undistributed earnings of the Canadian operations. Further, this decision also resulted in a direct charge to equity of approximately $20 million to eliminate the deferred tax asset related to the Cumulative Translation Adjustment. Effective February 27, 1994, the Company adopted Statement of Financial Accounting Standards No. 112 "Employers' Accounting for Postemployment Benefits" ("SFAS 112"). As a result, the Company recorded an after-tax charge of $5 million or $.13 per share as the cumulative effect of this change on prior years. Net loss for fiscal 1994 was $172 million or $4.49 per share as compared to net income for fiscal 1993 of $4 million or $.10 per share. The fiscal 1994 net loss included after-tax Canadian charges for the write-off of goodwill and long-lived assets of $127 million, the employee termination/reassignment program of $27 million, the provision for store closings of $17 million, a reduction of deferred tax benefits previously recorded of $28 million and the cumulative effect of adopting SFAS 112 of $5 million, offset by the reversal of deferred tax liabilities of $27 million in the U.S. associated with the undistributed earnings of the Canadian operations. The fiscal 1993 net income included an unfavorable after-tax effect of $14 million for the Miracle strike and a $10 million charge for the Miracle employee early retirement program. Excluding the U.S. reversal of the deferred tax liabilities associated with undistributed earnings of $27 million, net income of U.S. operations increased over 50% from $33 million or $.86 per share in fiscal 1993 to $50 million or $1.31 per share in fiscal 1994. Excluding the above Canadian charges, fiscal 1994 would have resulted in a net loss from Canadian operations of $45 million or $1.17 per share as compared to $5 million or $.13 per share for fiscal 1993. Fiscal 1993 Compared with 1992 Sales for fiscal 1993 were $10.4 billion, a net decrease of $115 million or 1.1% when compared to fiscal 1992 sales of $10.5 billion. A lower Canadian exchange rate accounted for $119 million of the sales decline. In addition, a labor strike, causing a 14-week closure of 63 Miracle Food Mart and Ultra Mart stores in Ontario, Canada, negatively impacted sales by an estimated $166 million or 1.6%. Under Ontario law, the Company could not hire replacement workers and, therefore, the stores were closed for business. The strike was resolved and the stores were re-opened on February 25, 1994. The new Miracle Food Mart labor agreement ended a competitive cost disadvantage that the Miracle Food Mart stores have labored under since their acquisition. The Company has recently instituted promotional campaigns to assist in regaining sales. Assuming that Miracle Food Mart re-establishes its historical sales levels, the Company anticipates that the new labor agreement will have a positive impact on operating results. After adjusting for the effects of the strike and the decline in the Canadian exchange rate, sales were ahead of the prior year by $170 million or 1.6%. Contributing to this increase were the acquisition of 48 Big Star stores in the Atlanta, Georgia area on March 29, 1993, the opening of 16 new stores and the remodeling of 111 stores during fiscal 1993. The acquisition of Big Star stores and new store openings since the beginning of fiscal 1992 added approximately $451 million or 4.3% to sales for the 1993 fiscal year. The Company, in its continuing program to eliminate obsolete, unproductive stores, closed 84 stores during fiscal 1993. The closure of stores since the beginning of fiscal 1992 reduced comparative sales by approximately $274 million or 2.6%. Same store sales were 0.1% lower or approximately $7 million. Average weekly sales per store were approximately $168,100 in fiscal 1993 versus $165,900 in fiscal 1992 for a 1.3% increase. Same store sales for U.S. operations declined 0.5%. A competitor's 10-week strike in fiscal 1992 in the Michigan region as well as the highly competitive sales climate and overall lack of inflation had a significant negative impact on this comparison. However, U.S. same store sales have shown steady improvement which began in the third quarter of fiscal 1992, culminating with a fourth quarter of fiscal 1993 comparative increase of 3.7%. In Canada, same store sales for the year, excluding the 63 stores closed during the period affected by the strike, improved 1.7%, while same store sales for the fourth quarter were 4.5% ahead of last year. Gross margin as a percent of sales for both fiscal 1993 and 1992 approximated 28.5%. The gross margin dollar decrease of $29 million is primarily the result of the unfavorable effect of the Canadian exchange rate of $32 million. The U.S. gross margin increased $38 million principally as a result of increased volume of $52 million. A challenge in fiscal 1993 was the progress in turning around the Big Star stores in Metro Atlanta, which were acquired in March 1993. Atlanta has become an extremely competitive situation, and the Company is experiencing significant pressure on margins while launching a strong new marketing and merchandising program. In Canada, gross margin declined $67 million, of which $52 million was caused by volume declines primarily as a result of the aforementioned labor strike and $32 million due to the aforementioned Canadian exchange rate decline. Offsetting this decline was an increase of 0.9% or $17 million in the gross margin rate. Store operating, general and administrative expense of $2.9 billion in fiscal 1993 remained relatively unchanged from prior year, with increased store occupancy and store promotion costs offsetting decreased customer and employee accident costs. As a percent of sales, such costs were 27.8% in fiscal 1993 as compared to 27.6% in fiscal 1992. U.S. expenses increased $38 million, principally store labor related to the improved sales volume and increased store occupancy costs. Canadian expenses decreased $48 million primarily due to the decline in the Canadian exchange rate and reduced expenses from store closures during the 14-week labor strike partially offset by a $17 million charge for an early retirement program in the Miracle labor settlement. Included under the Company's 1993 year-end balance sheet captions "Other accruals" and "Other non-current liabilities" are amounts totaling approximately $41 million associated with store closing liabilities. During fiscal 1993 approximately $35 million were charged against these reserves, which included approximately $27 million relating to the realignment of store operations reserve established in the prior year. See "Realignment of Store Operations" footnote for further discussion. Interest expense decreased from the previous year primarily due to reduced capital lease obligations and lower interest rates on bonds and short-term borrowings partially offset by higher outstanding borrowings. Income before income taxes and cumulative effect of accounting changes for fiscal 1993 was $7 million compared to a net loss of $172 million in fiscal 1992. The pre-tax income for fiscal 1993 reflects income from U.S. operations of $52 million offset by a loss in Canada of $45 million. The Canadian loss is primarily attributable to the aforementioned labor strike, which adversely impacted pre-tax income by an estimated $40 million. Excluding the $40 million impact from the Canadian strike in fiscal 1993, the $151 million provision for the Isosceles investment and the $43 million charge for realignment of store operations in fiscal 1992, income before income taxes and cumulative effect for fiscal 1993 increased $25 million or $.39 per share from fiscal 1992. The income tax provision recorded in fiscal 1993 reflects the 1% increase in the corporate tax rate, partially offset by retroactive targeted jobs tax credits as prescribed in the Omnibus Budget Reconciliation Act of 1993. The tax benefit recorded in fiscal 1992 resulted primarily from the provision for the potential loss on Isosceles investment and the charge for realignment of store operations, both recorded in fiscal 1992. LIQUIDITY AND CAPITAL RESOURCES The Company ended the 1994 fiscal year with working capital of $97 million compared to $79 million and $57 million at February 26, 1994 and February 27, 1993, respectively. The Company had cash and short-term investments aggregating $129 million at the end of fiscal 1994 compared to $124 million and $110 million at the end of fiscal 1993 and 1992, respectively. The Company also has in excess of $200 million in various available credit facilities. See "Indebtedness" footnote for further discussion. As a result of the charges previously discussed, certain financial covenants in the Company's U.S. and Canadian bank credit agreements were required to be amended. The amendments provide for certain financial covenants which require, among other things, minimum net worth and maximum levels of indebtedness. The Company was in compliance with all such financial covenants at February 25, 1995, the end of its current fiscal year. During the fourth quarter of fiscal 1994, the Company reduced its regular quarterly dividend to five cents per share from 20 cents per share. During fiscal 1994, the Company funded its capital expenditures, debt repayments and cash dividends through internally generated funds combined with proceeds from bank borrowings. U.S. bank borrowings were $168 million at February 25, 1995 as compared to $116 million at February 26, 1994. U.S. bank borrowings during fiscal 1994 were at an average interest rate of 5.4% compared to 3.4% in fiscal 1993. Canadian bank and commercial paper borrowings were $115 million and $55 million at February 25, 1995 and February 26, 1994, respectively. Canadian bank and commercial paper borrowings during fiscal 1994 were at an average interest rate of 7.0% compared to 5.5% in fiscal 1993. For fiscal 1994, capital expenditures totaled $215 million, which included 16 new supermarkets, 6 new liquor stores and 55 remodels and enlargements. The Company had originally planned capital expenditures of approximately $340 million including 35 new stores and approximately 120 remodels and expansions. However, certain store openings and remodels and expansions have been canceled or delayed mainly due to permit compliance with applicable regulatory requirements and, accordingly, the Company reduced its planned expenditures during the year. For fiscal 1995, the Company has planned capital expenditures of approximately $205 million and plans to open 25 new supermarkets and 2 new liquor stores, remodel and expand 51 stores and convert the format of 41 Canadian stores. It has been the Company's experience over the past several years that it typically takes 12 to 18 months after opening for a new store to begin generating operating profits. Risks inherent in retail real estate investments are primarily associated with competitive pressures in the marketplace. From fiscal 1995 through fiscal 1999, the Company intends to improve the use of technology through scanning and other technological advances to improve customer service and store operations and merchandising and to intensify advertising and promotions. The Company currently expects to close approximately 50 to 60 stores per year over fiscal years 1995 and 1996. The Company plans to open 35 new supermarkets in fiscal 1996 and approximately 30 new supermarkets per year thereafter for several years, with an attendant increase in square footage of approximately 3% per year, and to remodel an average of 50 stores per year. The Company's concentration will be on larger stores in the 50,000 to 65,000 square foot range. Costs of each project will vary significantly based upon size, marketing format, geographic area and development involvement required from the Company. The planned costs of these projects average $3,800,000 for a new store and $1,000,000 for a remodel or enlargement. Traditionally, the Company leases real estate and expends capital on leasehold improvements and store fixtures and fittings. Consistent with the Company's history, most new store activity will be directed into those areas where the Company achieves its best profitability. Remodeling and enlargement programs are normally undertaken based upon competitive opportunities and usually involve updating a store to a more modern and competitive format. At fiscal year end, the Company's existing senior debt rating was BBB- with Standard & Poor's Ratings Group and Baa3 with Moody's Investors Service. On May 8, 1995 Standard & Poor's reduced the Company's rating to BB+. The rating change is not expected to have a material effect on the Company's profitability or availability of credit. A further change in either of these ratings could affect the availability and cost of financing. The Company's current cash resources, together with cash generated from operations, will be sufficient for the Company's 1995 capital expenditure program, mandatory scheduled debt repayments and dividend payments throughout fiscal 1995. STATEMENTS OF CONSOLIDATED OPERATIONS The Great Atlantic & Pacific Tea Company, Inc. (Dollars in thousands, except per share figures) Fiscal 1994 Fiscal 1993 Fiscal 1992 ----------- ----------- ----------- Sales $10,331,950 $10,384,077 $10,499,465 Cost of merchandise sold (7,388,495) (7,425,578) (7,511,910) ----------- ----------- ----------- Gross margin 2,943,455 2,958,499 2,987,555 Store operating, general and administrative expense (2,873,985) (2,890,219) (2,900,249) Write-off of goodwill and long-lived assets (127,000) - - Realignment of store operations - - (43,000) ---------- ---------- ---------- Income (loss) from operations (57,530) 68,280 44,306 Interest expense (72,972) (63,318) (66,436) Interest income 1,054 1,599 1,267 Provision for potential loss on Isosceles investment - - (151,238) ---------- ---------- ---------- Income (loss) before income taxes and cumulative effect of accounting changes (129,448) 6,561 (172,101) Benefit (provision) for income taxes (37,138) (2,602) 73,600 ---------- ---------- ---------- Income (loss) before cumulative effect of accounting changes (166,586) 3,959 (98,501) Cumulative effect on prior years of changes in accounting principles: Postemployment benefits (4,950) - - Income taxes - - (64,500) Postretirement benefits - - (26,500) ---------- ---------- ---------- Net income (loss) $(171,536) $ 3,959 $(189,501) ========== ========== ========== Earnings (loss) per share: Income (loss) before cumulative effect of accounting changes $(4.36) $.10 $(2.58) Cumulative effect on prior years of changes in accounting principles: Postemployment benefits (.13) - - Income taxes - - (1.69) Postretirement benefits - - (.69) ---------- ---------- ---------- Net income (loss) per share $(4.49) $.10 $(4.96) ========== ========== ========== See Notes to Consolidated Financial Statements. STATEMENTS OF CONSOLIDATED SHAREHOLDERS' EQUITY The Great Atlantic & Pacific Tea Company, Inc. (Dollars in thousands) Fiscal 1994Fiscal 1993 Fiscal 1992 ----------- ----------- ----------- Common stock: Balance at beginning of year $38,229 $38,229 $38,224 Exercise of options - - 5 -------- -------- -------- Balance at end of year $38,229 $38,229 $38,229 ======== ======== ======== Capital surplus: Balance at beginning of year $453,475 $453,475 $437,972 Exercise of options and cumulative tax effect of phantom share agreement - - 15,503 -------- -------- -------- Balance at end of year $453,475 $453,475 $453,475 ======== ======== ======== Cumulative translation adjustment: Balance at beginning of year $(26,103) $(12,809) $1,395 Exchange adjustment, net of tax (3,317) (13,294) (14,204) Elimination of deferred income tax asset (see "Income Taxes" footnote) (19,807) - - -------- -------- -------- Balance at end of year $(49,227) $(26,103) $(12,809) ======== ======== ======== Retained earnings: Balance at beginning of year $529,179 $555,796 $775,873 Net income (loss) (171,536) 3,959 (189,501) Cash dividends (24,843) (30,576) (30,576) -------- -------- -------- Balance at end of year $332,800 $529,179 $555,796 ======== ======== ======== Treasury stock, at cost: Balance at beginning of year $(363) $(361) $(358) Purchase of Treasury stock - (2) (3) -------- -------- -------- Balance at end of year $(363) $(363) $(361) ======== ======== ======== See Notes to Consolidated Financial Statements. CONSOLIDATED BALANCE SHEETS The Great Atlantic & Pacific Tea Company, Inc. February 25, February 26, (Dollars in thousands) 1995 1994 ------------ ------------ Assets Current assets: Cash and short-term investments $128,930 $124,236 Accounts receivable 205,619 190,954 Inventories 811,964 850,077 Prepaid expenses and other assets 47,218 65,072 ---------- ---------- Total current assets 1,193,731 1,230,339 ---------- ---------- Property: Land 117,508 106,904 Buildings 287,340 257,313 Equipment and leasehold improvements 2,080,103 2,185,280 ---------- ---------- Total-at cost 2,484,951 2,549,497 Less accumulated depreciation and amortization (1,018,708) (984,752) ---------- ---------- 1,466,243 1,564,745 Property leased under capital leases 107,494 122,788 ---------- ---------- Property-net 1,573,737 1,687,533 Other assets 127,320 180,823 ---------- ---------- $2,894,788 $3,098,695 ========== ========== Liabilities and Shareholders' Equity Current liabilities: Current portion of long-term debt $112,821 $77,755 Current portion of obligations under capital leases 14,492 16,097 Accounts payable 447,081 458,875 Book overdrafts 157,521 196,818 Accrued salaries, wages and benefits 158,109 173,366 Accrued taxes 51,345 35,879 Other accruals 155,085 192,342 ---------- ---------- Total current liabilities 1,096,454 1,151,132 ---------- ---------- Long-term debt 612,473 544,399 ---------- ---------- Obligations under capital leases 146,400 162,866 ---------- ---------- Deferred income taxes 118,579 100,405 ---------- ---------- Other non-current liabilities 145,968 145,476 ---------- ---------- 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 (49,227) (26,103) Retained earnings 332,800 529,179 Treasury stock, at cost, 9,157 shares (363) (363) ---------- ---------- Total shareholders' equity 774,914 994,417 ---------- ---------- $2,894,788 $3,098,695 ========== ========== See Notes to Consolidated Financial Statements. STATEMENTS OF CONSOLIDATED CASH FLOWS The Great Atlantic & Pacific Tea Company, Inc. (Dollars in thousands) Fiscal 1994 Fiscal 1993 Fiscal 1992 ----------- ----------- ----------- Cash Flows From Operating Activities: Net income (loss) $(171,536) $3,959 $(189,501) Adjustments to reconcile net income (loss) to cash provided by operating activities: Write-off of goodwill and long-lived assets 127,000 - - Provision for potential loss on Isosceles investment - - 151,238 Realignment of store operations - - 43,000 Cumulative effect on prior years of changes in accounting principles: Postemployment benefits 4,950 - - Income taxes - - 64,500 Postretirement benefits - - 26,500 Depreciation and amortization 235,444 235,910 228,976 Deferred income tax provision (benefit) on income (loss) before cumulative effect of accounting changes 20,836 (19,568) (87,800) (Gain) loss on disposal of owned property (816) 1,032 (2,472) (Increase) decrease in receivables (15,197) 1,936 (18,538) Decrease in inventories 34,048 12,928 45,367 (Increase) decrease in other current assets (1,341) (7,981) 1,906 Decrease in accounts payable (9,996) (1,557) (50,761) Increase (decrease) in accrued expenses 1,295 46,292 (10,081) Increase (decrease) in store closing reserves 2,012 (34,522) (7,944) Increase (decrease) in other accruals and other liabilities (43,603) (19,438) 23,302 Other operating activities, net (1,756) (5,385) (6,358) -------- -------- -------- Net cash provided by operating activities 181,340 213,606 211,334 -------- -------- -------- Cash Flows From Investing Activities: Expenditures for property (214,886) (267,329) (204,870) Proceeds from disposal of property 12,113 19,464 12,573 Acquisition of business, net of cash acquired - (42,948) - -------- -------- -------- Net cash used in investing activities (202,773) (290,813) (192,297) -------- -------- -------- Cash Flows From Financing Activities: Proceeds from debt 116,887 218,524 8,839 Payment of debt (11,437) (114,826) (32,788) Principal payments on capital leases (15,923) (18,876) (18,565) Increase (decrease) in book overdrafts (37,720) 39,192 29,767 Cash dividends (24,843) (30,576) (30,576) Proceeds from stock options exercised - - 27 Purchase of Treasury stock - (2) (3) Net cash provided by (used in) -------- -------- -------- financing activities 26,964 93,436 (43,299) -------- -------- -------- Effect of exchange rate changes on cash and short-term investments (837) (2,113) (1,784) -------- -------- -------- Net Increase (Decrease) in Cash and Short-term Investments 4,694 14,116 (26,046) Cash and Short-term Investments at Beginning of Year 124,236 110,120 136,166 -------- -------- -------- Cash and Short-term Investments at End of Year $128,930 $124,236 $110,120 ======== ======== ======== See Notes to Consolidated Financial Statements. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Fiscal Year The Company's fiscal year ends on the last Saturday in February. Fiscal 1994 ended February 25, 1995, fiscal 1993 ended February 26, 1994 and fiscal 1992 ended February 27, 1993. Fiscal 1994, fiscal 1993 and fiscal 1992 were each comprised of 52 weeks. Common Stock The principal shareholder of the Company, Tengelmann Warenhandelsgesellschaft, owned 54.0% of the Company's common stock as of February 25, 1995. Principles of Consolidation The consolidated financial statements include the accounts of the Company and all majority-owned subsidiaries. Cash and Short-term Investments Short-term investments that are highly liquid with an original maturity of three months or less are included in cash and short-term investments and are deemed to be cash equivalents. Inventories Store inventories are valued principally at the lower of cost or market with cost determined under the retail method. Other inventories are valued primarily at the lower of cost or market with cost determined on a first-in, first-out basis. Inventories of certain acquired companies are valued using the last-in, first-out method, which was their practice prior to acquisition. Properties Depreciation and amortization are provided on the straight-line basis over the estimated useful lives of the assets. Buildings are depreciated based on lives varying from twenty to fifty years and equipment based on lives varying from three to ten years. Equipment and real property leased under capital leases are amortized over the lives of the respective leases or over their economic useful lives, whichever is less. Properties designated for sale are classified as current assets. Pre-opening Costs The costs of opening new stores are expensed in the year incurred. Earnings (Loss) Per Share Earnings (loss) per share is based on the weighted average number of common shares outstanding during the fiscal year which was 38,220,000 in both fiscal 1994 and 1993 and 38,219,000 in fiscal 1992. Stock options outstanding had no material effect on the computation of earnings (loss) per share and, accordingly, were excluded from the calculation. Excess of Cost over Net Assets Acquired The excess of cost over fair value of net assets acquired is amortized on a straight-line basis over forty years. At each balance sheet date, management reassesses the appropriateness of the goodwill balance based on forecasts of cash flows from operating results on an undiscounted basis. If the results of such comparison indicate that an impairment may be more likely than not, the Company will recognize a charge to operations at that time based upon the difference between the present value of the expected cash flows from future operating results (utilizing a discount rate equal to the Company's average cost of funds at that time) and the balance sheet value. The recoverability of goodwill is at risk to the extent the Company is unable to achieve its forecast assumptions regarding cash flows from operating results. At February 25, 1995, the Company estimates that the cash flows projected to be generated by the respective businesses on an undiscounted basis should be sufficient to recover the existing goodwill balance over its remaining life (see "Write-off of Goodwill and Long-Lived Assets" footnote). Income Taxes The Company provides deferred income taxes on temporary differences between amounts of assets and liabilities for financial reporting purposes and such amounts as measured by tax laws. Current Liabilities Under the Company's cash management system, checks issued but not presented to banks frequently result in overdraft balances for accounting purposes and are classified as "Book overdrafts" in the balance sheet. The Company accrues for vested and non-vested vacation pay. Liabilities for compensated absences of $81 million and $84 million at February 25, 1995 and February 26, 1994, respectively, are included in the balance sheet caption "Accrued salaries, wages and benefits." Reclassifications Certain reclassifications have been made to the prior years' financial statements in order to conform to the current year presentation. INVENTORY Approximately 26% of the Company's inventories are valued using the last-in, first-out ("LIFO") method. Such inventories would have been $15 million and $17 million higher at February 25, 1995 and February 26, 1994, respectively, if the retail and first-in, first-out methods were used. During fiscal 1994 and 1993, the Company recorded a LIFO credit of approximately $2 million and $3 million, respectively. During fiscal 1992, the Company recorded a LIFO charge of approximately $1 million. Liquidation of LIFO layers in the periods reported did not have a significant effect on the results of operations. WRITE-OFF OF GOODWILL AND LONG-LIVED ASSETS During the third quarter of fiscal 1994, the Company recorded a non-cash charge of $127 million reflecting $50 million for the write-off of goodwill related to the acquisition of Miracle Food Mart ("Miracle") stores in Canada and $77 million for the write-down of certain Miracle fixed assets. Miracle experienced a work stoppage for a 14-week period at the end of fiscal 1993. Under Canadian labor laws the stores were closed during this time period. The labor dispute was settled and the stores re-opened for business on February 25, 1994. The Company anticipated that the new labor agreement would have a positive impact on operating results assuming historical sales levels could be attained. Through the first half of fiscal 1994, the Company expended significant promotional efforts in order to regain its pre- strike sales levels. The sales performance through the first half of fiscal 1994 was disappointing and the Company continued to monitor Miracle's performance through the third quarter. Sales performance in the third quarter of fiscal 1994 continued to be negative when compared to pre-strike sales levels. The Company, no longer believing that Miracle's negative operating performance was temporary, revised its future expected cash flow projections. These revised projections indicated that the goodwill balance would not be recoverable over its remaining life. Further, these projections indicated that the operating results of Miracle would not be sufficient to absorb the depreciation and amortization of certain of its operating fixed assets. Accordingly, Miracle's goodwill balance was written- off and fixed assets relating to Miracle stores which are expected to continue to generate operating losses were written-down as of the end of the third quarter of fiscal 1994. INDEBTEDNESS Debt consists of: February 25, February 26, (Dollars in thousands) 1995 1994 ------------ ------------ 9 1/8% Notes, due January 15, 1998 $200,000 $200,000 7.70% Senior Notes, due January 15, 2004 200,000 200,000 Mortgages and Other Notes, due 1995 through 2014 (average interest rates at year end of 9.7% and 9.1%, respectively) 42,249 52,032 U.S. Bank Borrowings at 6.6% and 3.6%, respectively 168,000 116,000 Canadian Commercial Paper at 7.3% and 4.0%, respectively 21,085 32,421 Canadian Bank Borrowings at 8.7% and 4.8%, respectively 94,373 22,260 Less unamortized discount on 9 1/8% Notes (413) (559) -------- -------- 725,294 622,154 Less current portion (112,821) (77,755) -------- -------- Long-term debt $612,473 $544,399 ======== ======== As of February 25, 1995, the Company has outstanding a total of $400 million of unsecured, non-callable public debt securities in the form of $200 million 9 1/8% Notes due 1998 and $200 million 7.70% Notes due 2004. The Company has a $250 million U.S. credit agreement with banks enabling it to borrow funds on a revolving basis sufficient to refinance any outstanding short-term borrowings. In addition, the U.S. has lines of credit with banks in excess of $95 million. Borrowings under these U.S. credit agreements were $168 million and $116 million at February 25, 1995 and February 26, 1994, respectively. The Company pays a facility fee ranging from 3/16% to 1/2% per annum on the Company's revolving credit facility. The Company's Canadian subsidiary has a C$200 million Loan Facility and a C$100 million commercial paper program. Borrowings under these programs cannot exceed C$200 million. Canadian borrowings under those programs were C$161 million and C$74 million at February 25, 1995 and February 26, 1994, respectively. The Company's loan agreements contain certain financial covenants including the maintenance of minimum levels of shareholders' equity and limitations on the incurrence of additional indebtedness and lease commitments. The Company was in compliance with such covenants as of February 25, 1995, as amended. The net book value of real estate pledged as collateral for all mortgage loans amounted to approximately $43 million as of February 25, 1995. Combined U.S. bank and Canadian bank and commercial paper borrowings of $173 million as of February 25, 1995 are classified as non-current as the Company has the ability and intent to refinance these borrowings on a long-term basis. Maturities for the next five fiscal years are: 1995-$113 million; 1996-$83 million; 1997-$275 million; 1998-$34 million; 1999-$3 million. Interest payments on indebtedness were approximately $52 million for fiscal 1994, $41 million for fiscal 1993 and $39 million for fiscal 1992. FAIR VALUE OF FINANCIAL INSTRUMENTS The estimated fair values of the Company's financial instruments are as follows: (Dollars in thousands) February 25, 1995 February 26, 1994 ----------------- ----------------- Liabilities: Carrying Fair Carrying Fair ----------- Amount Value Amount Value -------- ------- -------- ------- 9 1/8% Notes, due January 15, 1998 $199,587 $202,000 $199,441 $214,000 7.70% Senior Notes, due January 15, 2004 $200,000 $174,000 $200,000 $194,000 Total Indebtedness $725,294 $701,707 $622,154 $630,713 Fair value for the public debt securities is based on quoted market prices. With respect to all other indebtedness, Company management has evaluated such debt instruments and has determined, based on interest rates and terms, that the fair value of such indebtedness approximates carrying value at February 25, 1995 and February 26, 1994. As of February 25, 1995 and February 26, 1994, the carrying values of cash and short-term investments, accounts receivable and accounts payable approximated fair values due to the short-term maturities of these instruments. As of the end of fiscal 1994, the Company holds equity securities of both common and cumulative preferred stock in Isosceles PLC which were written- off in their entirety during fiscal 1992 (see "Investment in Isosceles" footnote). There are no quoted market prices for these securities and it is not practicable, considering the materiality of these securities to the Company, to obtain an estimate of their fair value. The Company believes that the fair value for these securities is zero based upon Isosceles' current and prior year results. LEASE OBLIGATIONS The Company operates primarily in leased facilities. Lease terms generally range up to twenty-five years for store leases and thirty years for other leased facilities, with options to renew for additional periods. The majority of the leases contain escalation clauses relating to real estate tax increases and certain store leases provide for increases in rentals when sales exceed specified levels. In addition, the Company leases some store equipment and trucks. The consolidated balance sheets include the following: February 25, February 26, (Dollars in thousands) 1995 1994 ------------- ------------ Real property leased under capital leases $238,906 $256,156 Equipment leased under capital leases 663 3,361 -------- -------- 239,569 259,517 Accumulated amortization (132,075) (136,729) -------- -------- $107,494 $122,788 ======== ======== The Company did not enter into any new capital leases during fiscal 1994 and 1992. The Company entered into $2 million of new capital leases during fiscal 1993. Interest paid as part of capital lease obligations was approximately $20, $22 and $24 million in fiscal 1994, 1993 and 1992, respectively. Rent expense for operating leases consists of: (Dollars in thousands) Fiscal 1994 Fiscal 1993 Fiscal 1992 ----------- ----------- ----------- Minimum rentals $154,488 $151,289 $151,150 Contingent rentals 6,619 6,883 7,957 -------- -------- -------- $161,107 $158,172 $159,107 ======== ======== ======== Future minimum annual lease payments for capital leases and noncancelable operating leases in effect at February 25, 1995 are shown in the table below. All amounts are exclusive of lease obligations and sublease rentals applicable to facilities for which reserves have previously been established. (Dollars in thousands) Capital Leases Real Operating Fiscal Equipment Property Leases --------- -------- --------- 1995 $15 $32,823 $137,900 1996 - 30,506 130,607 1997 - 28,539 121,690 1998 - 26,908 116,011 1999 - 24,762 110,501 2000 and thereafter - 158,755 1,055,910 --- -------- ---------- 15 302,293 $1,672,619 ========== Less executory costs - (2,869) --- -------- Net minimum rentals 15 299,424 Less interest portion - (138,547) --- -------- Present value of net minimum rentals $15 $160,877 === ======== INCOME TAXES The components of income (loss) before income taxes and cumulative effect of accounting changes are as follows: (Dollars in thousands) Fiscal 1994 Fiscal 1993 Fiscal 1992 ----------- ----------- ----------- United States $80,509 $52,280 $(133,378) Canadian (209,957) (45,719) (38,723) --------- ------- --------- Total $(129,448) $6,561 $(172,101) ========= ======= ========= The provision (benefit) for income taxes before cumulative effect of accounting changes consists of the following: (Dollars in thousands) Fiscal 1994 Fiscal 1993 Fiscal 1992 ----------- ----------- ----------- Current: Federal $8,577 $13,500 $21,800 Canadian 2,687 5,744 (12,800) State and local 5,038 2,926 5,200 ------- ------- -------- 16,302 22,170 14,200 ------- ------- -------- Deferred: Federal (9,922) 2,723 (62,500) Canadian (88,948) (22,486) (5,400) State and local 114 195 (19,900) Canadian valuation allowance 119,592 - - ------- ------- -------- 20,836 (19,568) (87,800) ------- ------- -------- $37,138 $2,602 $(73,600) ======= ======== ======== The deferred income tax provision results primarily from the impact of temporary differences between amounts of assets and liabilities for financial reporting purposes and such amounts as measured by tax laws, Canadian net operating tax loss carryforwards and the Canadian valuation allowance. The Canadian deferred income tax benefit for fiscal 1994 relates primarily to net operating tax loss carryforwards, the write-off of goodwill and certain long-lived assets and other temporary differences associated with the Company's operations in Canada. Management has assessed the likelihood of realizing the Canadian net deferred income tax assets and, based on all available evidence, expects it is not likely that such assets will be realized. Accordingly, during the third quarter of fiscal 1994, the Company recorded a valuation allowance to reserve for previously recognized deferred tax benefits and has continued through the remainder of fiscal 1994 to provide a valuation allowance against its deferred income tax benefits. As such, at February 25, 1995, a valuation allowance for the entire amount of net deferred income tax assets related to Canada has been established. The valuation allowance will be adjusted when and if, in the opinion of Management, significant positive evidence exists which indicates that it is more likely than not that the Company will be able to realize the Canadian deferred tax assets. The Company historically provided U.S. deferred taxes on the undistributed earnings of the Canadian operations. During fiscal 1994, the Company made an election to permanently reinvest prior years' earnings and, accordingly, reversed deferred tax liabilities of $27 million associated with the undistributed earnings of the Canadian operations. Further, in conjunction with this decision, the Company recorded a direct charge to equity of approximately $20 million to eliminate the deferred tax asset related to the Cumulative Translation Adjustment. The Company's Canadian net operating tax loss carryforwards of approximately $178 million expire between fiscal 1997 and 2001. The income tax provision recorded in fiscal 1993 reflects the increase in the corporate tax rate of 1%, partially offset by retroactive targeted jobs tax credits as prescribed by the Omnibus Budget Reconciliation Act of 1993. The income tax benefit recorded in fiscal 1992 resulted primarily from the provision for the potential loss on the Company's total investment in Isosceles and the charge for realignment of store operations. The provision for income taxes includes amortization of investment tax credits of approximately $1 million in fiscal 1992. A reconciliation of income taxes at the 35% federal statutory income tax rate for 1994 and 1993, and 34% for 1992 to income taxes as reported is as follows: (Dollars in thousands) Fiscal 1994 Fiscal 1993Fiscal 1992 ----------- ---------------------- Income taxes computed at federal statutory income tax rate $(45,307) $2,296 $(58,514) Effect of 1% statutory rate change - 2,519 - Targeted jobs tax credits (1,300) (1,656) - State and local income taxes, net of federal tax benefit 3,348 2,031 (9,729) Tax rate differential relating to Canadian operations (12,775) (3,261) (4,969) Canadian valuation allowance 119,592 - - Goodwill 580 673 612 Investment tax credits - - (1,000) Reduction of tax on liabilities associated with undistributed earnings (27,000) - - ------- ------ -------- Income taxes, as reported $37,138 $2,602 $(73,600) ======= ====== ======== As of the beginning of fiscal 1992, the Company adopted Statement of Financial Accounting Standards No. 109 "Accounting for Income Taxes" ("SFAS 109"). As a result, the Company reflected the cumulative effect on prior years of the change in accounting principle by recording a charge of $64.5 million ($1.69 per share). In conjunction with the adoption of SFAS 109, the Company remeasured prior acquisitions which resulted in an increase in liabilities assumed of $22 million. In addition, the Company recorded a $15.5 million tax benefit resulting from payments from the Company's principal shareholder to the Company's Chief Executive Officer under a phantom stock agreement. This amount has been recorded as a credit to the Capital Surplus of the Company in fiscal 1992. Income tax payments for fiscal 1994, 1993 and 1992 were approximately $12, $15 and $34 million, respectively. The components of net deferred tax assets (liabilities) are as follows: February 25, February 26, (Dollars in thousands) 1995 1994 ------------ ------------- Current assets: Insurance reserves $12,905 $22,536 Other reserves 11,240 16,969 Lease obligations 2,090 2,210 Pension obligations 9,331 8,299 Miscellaneous 5,033 4,791 -------- ------- 40,599 54,805 -------- ------- Current liabilities: Inventories (15,382) (15,802) Miscellaneous (2,165) (1,799) --------- --------- (17,547) (17,601) --------- --------- Valuation allowance (4,706) - --------- --------- Deferred income taxes included in prepaid expenses and other assets $18,346 $37,204 ========= ========= Non-current assets: Alternative minimum tax credits $23,500 $39,600 Isosceles investment 42,617 42,617 Fixed assets 14,504 - Other reserves 14,038 20,087 Lease obligations 21,228 22,280 Canadian loss carryforwards 78,709 43,075 Insurance reserves 8,400 9,446 Accrued postretirement and postemployment benefits 27,798 17,884 Cumulative translation adjustment - 19,189 Miscellaneous 17,365 8,591 --------- --------- 248,159 222,769 --------- --------- Non-current liabilities: Fixed assets (204,674) (247,039) Pension obligations (17,552) (17,530) Undistributed earnings of Canadian subsidiaries - (24,922) Miscellaneous (29,626) (33,683) --------- --------- (251,852) (323,174) --------- --------- Valuation allowance (114,886) - --------- --------- Deferred income taxes $(118,579) $(100,405) ========= ========= RETIREMENT PLANS AND BENEFITS Defined Benefit Plans The Company provides retirement benefits to certain non-union and some union employees under various defined benefit plans. The Company's defined benefit pension plans are non-contributory and benefits under these plans are generally determined based upon years of service and, for salaried employees, compensation. The Company funds these plans in amounts consistent with the statutory funding requirements. The components of net pension cost (income) are as follows: (Dollars in thousands) Fiscal 1994 Fiscal 1993 Fiscal 1992 ----------- ----------- ----------- Service cost $11,182 $10,665 $10,630 Interest cost 22,858 22,997 21,842 Actual return on plan assets (17,448) (61,730) (16,685) Net amortization and deferral (9,246) 35,816 (9,621) -------- -------- -------- Net pension cost $7,346 $7,748 $6,166 ======== ======== ======== The Company's U.S. defined benefit pension plans are accounted for on a calendar year basis while the Company's Canadian defined benefit pension plans are accounted for on a fiscal year basis. The majority of plan assets is invested in listed stocks and bonds. The funded status of the plans is as follows: 1994 1993 Assets Accumulated Assets Accumulated Exceed Benefits Exceed Benefits Accumulated Exceed Accumulated Exceed (Dollars in thousands) Benefits Assets Benefits Assets --------- -------- --------- -------- Accumulated benefit obligation: Vested $212,257 $ 41,243 $244,706 $36,351 Nonvested 3,218 1,119 3,360 1,335 -------- -------- -------- ------- $215,475 $ 42,362 $248,066 $37,686 ======== ======== ======== ======= Projected benefit obligation $224,720 $ 44,012 $264,500 $40,713 Plan assets at fair value 270,939 25,368 312,900 17,679 ------- ------- -------- ------- Excess (deficiency) of assets over projected benefit obligation 46,219 (18,644) 48,400 (23,034) Unrecognized net transition (asset) obligation (7,248) 218 (10,974) 1,089 Unrecognized net (gain) loss from experience differences (9,232) (252) (8,787) 2,590 Unrecognized prior service cost 3,609 3,808 4,247 4,500 Additional minimum liability - (2,522) - (5,184) -------- -------- ------- -------- Prepaid pension asset (pension liability) $ 33,348 $(17,392) $32,886 $(20,039) ======== ======== ======= ======== 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 which will result in the amalgamation of three of the Company's Canadian defined benefit pension plans with the Canadian Commercial Workers Industry Pension Plan ("CCWIPP"), effective July 1, 1994, subject to the approval of the CCWIPP trustees and the appropriate regulatory bodies. Under the terms of this agreement, CCWIPP will assume the assets and defined benefit liabilities of the three pension plans and the Company will be required to make defined contributions to CCWIPP based upon hours worked by its employees who are members of CCWIPP. The Company expects that they will receive such approval prior to the end of fiscal 1995. At February 25, 1995, prepaid pension assets of approximately $10 million related to the aforementioned plans are included in the above table. Actuarial assumptions used to determine year-end plan status are as follows: 1994 1993 ---- ---- U.S. Canada U.S. Canada ---- ------ ---- ------ Discount rate 8.50% 9.50% 7.50% 8.25% Weighted average rate of compensation increase 5.50% 4.00% 4.50% 5.00% Expected long-term rate of return on plan assets 8.50% 9.25% 9.00% 9.25% The impact of the changes in the actuarial assumptions has been reflected in the funded status of the pension plans and the Company believes that such changes will not have a material effect on net pension cost for fiscal 1995. Defined Contribution Plans The Company maintains a defined contribution retirement plan to which the Company contributes 4% of eligible participants' salaries and a savings plan to which eligible participants may contribute a percentage of eligible salary. The Company contributes to the savings plan based on specified percentages of the participants' eligible contributions. Participants become fully vested in the Company's contributions after 5 years of service. The Company's contributions charged to operations for both plans were approximately $11 million in both fiscal 1994 and 1993 and $10 million in fiscal 1992. The Company participates in various multi-employer union pension plans which are administered jointly by management and union representatives and which sponsor most full-time and certain part-time union employees who are not covered by the Company's other pension plans. The pension expense for these plans approximated $39, $38 and $39 million in fiscal 1994, 1993 and 1992, respectively. The Company could, under certain circumstances, be liable for unfunded vested benefits or other expenses of jointly administered union/management plans. At this time, the Company has not established any liabilities because such withdrawal from these plans is not probable. Postretirement Benefits The Company and its wholly-owned subsidiaries provide postretirement health care and life benefits to certain union and non-union employees. As of the beginning of fiscal 1992, the Company adopted Statement of Financial Accounting Standards No. 106 "Employers' Accounting for Postretirement Benefits Other Than Pensions" ("SFAS 106"). In accordance with SFAS 106, the Company is required to recognize the cost of providing postretirement benefits during employees' active service period. The Company's previous accounting policy had been to expense such benefit costs as incurred. As a result of adopting SFAS 106, the Company recorded a cumulative charge of $26.5 million ($.69 per share) as the after-tax effect (federal and state) of recording the transition obligation as of the beginning of fiscal 1992. The components of net postretirement benefits cost are as follows: (Dollars in millions) Fiscal 1994 Fiscal 1993 Fiscal 1992 ----------- ----------- ----------- Service Cost $0.6 $0.6 $0.6 Interet cost 3.6 3.9 3.7 ---- ---- ---- Net postretirement benefits cost $4.2 $4.5 $4.3 ==== ==== ==== The unfunded status of the plans is as follows: (Dollars in millions) Fiscal 1994 Fiscal 1993 ----------- ----------- Unfunded accumulated benefit obligation: Retirees $24.0 $28.2 Fully eligible active plan participants 3.6 4.9 Other active plan participants 8.2 13.8 ----- ----- 35.8 46.9 Unrecognized net gain from experience differences 15.0 2.0 ----- ----- Accrued postretirement costs $50.8 $48.9 ===== ===== Assumed discount rate 8.5% 7.5% ===== ====== The assumed rate of future increase in health care benefit cost was 12.25% in fiscal 1994 and is expected to decline to 4.75% by the year 2024 and remain at that level thereafter. The effect of a one-percentage-point increase in the assumed health care cost trend rate for each future year on the net postretirement health care cost and the accumulated postretirement benefit obligation would be $0.3 million and $2.9 million, respectively. Postemployment Benefits Effective February 27, 1994, the Company adopted Statement of Financial Accounting Standards No. 112 "Employers' Accounting for Postemployment Benefits" ("SFAS 112"). SFAS 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 of adopting SFAS 112, 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 SFAS 112 had an immaterial effect on the financial results before the cumulative effect of accounting change for fiscal 1994. STOCK OPTIONS On March 18, 1994, the Board of Directors approved the 1994 Stock Option Plan for its officers and key employees. The 1994 Stock Option Plan provides for the granting of 1,500,000 shares as either options or Stock Appreciation Rights ("SAR's"). Options and SAR's issued under this plan are granted at the fair market value of the Company's common stock at the date of grant. SAR's allow the optionee, in lieu of purchasing stock, to receive cash in an amount equal to the excess of the fair market value of common stock on the date of exercise over the option price. A total of 50,000 SAR's was granted in fiscal 1994. On March 18, 1994, the Board of Directors approved a 1994 Stock Option Plan for Non-Employee Directors. This plan provides for the granting of up to 100,000 stock options, which are granted at the fair market value of the Company's common stock at the date of grant. A total of 19,800 options was granted in fiscal 1994. The Company had a 1984 Stock Option Plan for its officers and key employees which expired on February 1, 1994. The 1984 Stock Option Plan, which provided for the granting of 1,500,000 shares was amended as of July 10, 1990 to increase by 1,500,000 the number of options available for grant as either options or SAR's. Each option was available for grant at the fair market value of the Company's common stock on the date the option was granted. A summary of option transactions is as follows: Officers and Key Employees Price Range -------------------------- Shares Per Share --------- ---------------- Outstanding February 29, 1992 1,190,875 $ 5.50 -$65.13 Granted 15,000 23.00 - 24.38 Cancelled or expired (2,500) 39.75 Options exercised (5,000) 5.50 SAR's exercised (4,250) 21.50 ------------------------- Outstanding February 27, 1993 1,194,125 $21.50 -$65.13 Granted 1,270,000 23.38 - 26.00 Cancelled or expired (35,000) 23.38 - 52.38 --------- -------------- Outstanding February 26, 1994 2,429,125 $21.50 -$65.13 Granted 50,000 23.50 Cancelled or expired (26,500) 39.75 - 59.00 SAR's exercised (2,500) 23.38 --------- --------------- Outstanding February 25, 1995 2,450,125 $21.50 - $65.13 ========= =============== Exercisable at: February 26, 1994 1,252,125 $21.50 - $65.13 February 25, 1995 1,586,875 $21.50 - $65.13 ========= =============== Non-Employee Directors ---------------------- Outstanding February 26, 1994 - - Granted 19,800 $21.50 - $26.50 --------- --------------- Outstanding February 25, 1995, none of which are exercisable 19,800 $21.50 - $26.50 ========= =============== LITIGATION The Company is involved in various claims, administrative agency proceedings and lawsuits arising out of the normal conduct of its business. Although the ultimate outcome of these legal proceedings cannot be predicted with certainty, the management of the Company believes that the resulting liability, if any, will not have a material effect upon the Company's consolidated financial statements or liquidity. OPERATIONS IN GEOGRAPHIC AREAS The Company has been engaged in the retail food business since 1859 and currently does business principally under the names A&P, Waldbaum's, Food Emporium, Super Fresh, Farmer Jack, Kohl's, Dominion and Miracle Food Mart. Sales in the table below reflect sales to unaffiliated customers in the United States and Canada. (Dollars in thousands) Fiscal 1994 Fiscal 1993 Fiscal 1992 ----------- ----------- ----------- Sales: United States $8,540,871 $8,466,338 $8,286,270 Foreign 1,791,079 1,917,739 2,213,195 ----------- ----------- ----------- Total $10,331,950 $10,384,077 $10,499,465 =========== =========== =========== Income (Loss) From Operations: United States $137,804 $101,305 $68,987 Foreign (195,334) (33,025) (24,681) ----------- ----------- ----------- Total $(57,530) $68,280 $44,306 =========== =========== =========== Assets: United States $ 2,482,108 $2,528,239 $2,425,291 Foreign 412,680 570,456 665,639 ----------- ----------- ----------- Total $2,894,788 $3,098,695 $3,090,930 =========== =========== =========== ACQUISITIONS In March 1993, the Company acquired certain assets, including inventory, of 48 Big Star stores in the Atlanta, Georgia area for approximately $43 million. As of the acquisition date, the fair value of assets recorded was $72 million and liabilities assumed were $48 million. The acquisition has been accounted for as a purchase and, accordingly, the excess of cost over the fair market value of net assets acquired of approximately $19 million has been included in the balance sheet caption "Other assets." REALIGNMENT OF STORE OPERATIONS During fiscal 1992, the Company reassessed store operations in its markets and closed certain stores and identified certain other stores to be closed in the future as part of its realignment of certain operating divisions in the United States and Canada. This program, which included 72 stores, is expected to be substantially completed by the end of fiscal 1995. The Company recorded a charge of $43 million in fiscal 1992 to cover the cost of these closings, including future rent, property taxes, common area maintenance costs and equipment disposition costs. The Company anticipates that these costs, which only include costs subsequent to the actual store closing, will be paid principally over four years. During fiscal 1994 and fiscal 1993, store closing costs of approximately $14 million and $27 million, respectively, were charged to this reserve, which did not include the costs associated with closing older and outmoded stores which close in the ordinary course of business and tend to be insignificant as these stores are generally near the end of their lease term and have low net asset values. The Company believes that, within a three to five year period from the date of realignment, this program will have a positive effect on future operations and cash flows. In the third quarter of fiscal 1994, the Company recorded a charge in Store operating, general and administrative expense of $17 million to cover the cost of closing 13 non-Miracle stores in Canada during fiscal 1995. INVESTMENT IN ISOSCELES During fiscal 1992, the Company recorded a non-recurring pre-tax charge of $151.2 million for the potential loss on its investment in Isosceles PLC ("Isosceles"). The Company's decision to record a provision for the potential loss of its investment in Isosceles occurred in July 1992. The Company monitored its investment in Isosceles through the analysis of Isosceles' prepared business plans and cash flow projections. In September of 1990 the Company chose not to participate in a recapitalization of Isosceles resulting in a significant decline in its percentage ownership position. Late in 1991, new management was appointed at Isosceles and in June 1992 the Company was informed by new management that a significantly different operating strategy would be implemented. The Company was further informed by new Isosceles management that this new strategy would result in substantially reduced operating results and that Isosceles shareholders had suffered a significant diminution in the value of their holdings. Shortly thereafter, the Company concluded that the recovery of any of its investment in Isosceles had become remote and that it was appropriate to write-off its entire investment. SUMMARY OF QUARTERLY RESULTS (unaudited) The table below summarizes the Company's results of operations by quarter for fiscal 1994 and 1993. The first quarter of each fiscal year contains sixteen weeks while the other quarters each contain twelve weeks. (Dollars in thousands, First Second Third Fourth Total except per share figures)Quarter Quarter Quarter Quarter Year ------- ------- ------- ------- ----- 1994 Sales $3,225,359$2,390,914$2,345,597$2,370,080 $10,331,950 Gross margin 912,644 680,911 670,572 679,328 2,943,455 Income (loss) from operations 31,778 25,868 (144,568) 29,392 (57,530) Income (loss) before cumulative effect of accounting change 7,245 6,057 (185,665) 5,777 (166,586) Cumulative effect on prior years of change in accounting principle: Postemployment benefits(4,950) - - - (4,950) Net income (loss) 2,295 6,057 (185,665) 5,777 (171,536) Per share data: Income (loss) before cumulative effect of accounting change .19 .16 (4.86) .15 (4.36) Cumulative effect on prior years of change in accounting principle: Postemployment benefits (.13) - - - (.13) Net income (loss) .06 .16 (4.86) .15 (4.49) Cash dividends .20 .20 .20 .05 .65 Market price: High 27.375 24.500 27.125 23.000 Low 22.625 19.875 21.625 17.375 Number of stores at end of period 1,152 1,123 1,111 1,108 1993 Sales $3,279,264$2,399,368$2,342,935$2,362,510 $10,384,077 Gross margin 941,154 690,493 665,579 661,273 2,958,499 Income (loss) from operations 48,005 23,778 13,386 (16,889) 68,280 Net income (loss) 17,050 5,957 379 (19,427) 3,959 Per share data: Net income (loss) .45 .15 .01 (.51) .10 Cash dividends .20 .20 .20 .20 .80 Market price: High 35.000 34.000 30.000 29.000 Low 23.125 27.875 24.875 23.750 Number of stores at end of period 1,210 1,203 1,191 1,173 MANAGEMENT'S REPORT ON FINANCIAL STATEMENTS The management of The Great Atlantic & Pacific Tea Company, Inc. has prepared the consolidated financial statements and related financial data contained in this Annual Report. The financial statements were prepared in accordance with generally accepted accounting principles appropriate to our business and, by necessity and circumstance, include some amounts which were determined using management's best judgments and estimates with appropriate consideration to materiality. Management is responsible for the integrity and objectivity of the financial statements and other financial data included in this report. To meet this responsibility, management maintains a system of internal accounting controls to provide reasonable assurance that assets are safeguarded and that accounting records are reliable. Management supports a program of internal audits and internal accounting control reviews to provide assurance that the system is operating effectively. The Board of Directors pursues its responsibility for reported financial information through its Audit Review Committee. The Audit Review Committee meets periodically and, when appropriate, separately with management, internal auditors and the independent auditors, Deloitte & Touche LLP, to review each of their respective activities. /s/James Wood /s/Fred Corrado James Wood Fred Corrado Chairman of the Board Vice Chairman of the Board, and Chief Executive Officer Chief Financial Officer and Treasurer INDEPENDENT AUDITORS' REPORT To the Shareholders and Board of Directors of The Great Atlantic & Pacific Tea Company, Inc.: We have audited the accompanying consolidated balance sheets of The Great Atlantic & Pacific Tea Company, Inc. and its subsidiary companies as of February 25, 1995 and February 26, 1994 and the related consolidated statements of operations, shareholders' equity and cash flows for each of the three fiscal years in the period ended February 25, 1995. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of The Great Atlantic & Pacific Tea Company, Inc. and its subsidiary companies at February 25, 1995 and February 26, 1994 and the results of their operations and their cash flows for each of the three fiscal years in the period ended February 25, 1995 in conformity with generally accepted accounting principles. As discussed in Notes to Consolidated Financial Statements, in fiscal 1994 the Company changed its method of accounting for postemployment benefits to conform with Statement of Financial Accounting Standards ("SFAS") No. 112 and in fiscal 1992 the Company changed both its method of accounting for income taxes to conform with SFAS No. 109 and its method of accounting for postretirement benefits other than pensions to conform with SFAS No. 106. /s/Deloitte & Touche LLP Parsippany, New Jersey April 27, 1995 FIVE-YEAR SUMMARY OF SELECTED FINANCIAL DATA The Great Atlantic & Pacific Tea Company, Inc. (Dollars in thousands, except per share figures) Fiscal 1994 Fiscal 1993 Fiscal 1992 Fiscal 1991Fiscal 1990 (52 weeks) (52 weeks) (52 weeks) (53 weeks) (52 weeks) Operating Results Sales $10,331,950 $10,384,077 $10,499,465 $11,590,991 $11,390,943 Income (loss) before cumulative effect of accounting changes (166,586) 3,959 (98,501) 70,664 150,954 Cumulative effect on prior years of changes in accounting principles: Postemployment benefits (4,950) - - - - Income taxes - - (64,500) - - Postretirement benefits - - (26,500) - - Net income (loss) (171,536) 3,959 (189,501) 70,664 150,954 Per Share Data Income (loss) before cumulative effect of accounting changes (4.36) .10 (2.58) 1.85 3.95 Cumulative effect on prior years of changes in accounting principles: Postemployment benefits (.13) - - - - Income taxes - - (1.69) - - Postretirement benefits - - (.69) - - Net income (loss) (4.49) .10 (4.96) 1.85 3.95 Cash dividends .65 .80 .80 .80 .775 Book value per share 20.27 26.02 27.06 32.79 31.96 Financial Position Current assets 1,193,731 1,230,339 1,221,492 1,255,908 1,319,894 Current liabilities1,096,454 1,151,132 1,164,723 1,082,042 1,203,643 Working capital 97,277 79,207 56,769 173,866 116,251 Current ratio 1.09 1.07 1.05 1.16 1.10 Total assets 2,894,788 3,098,695 3,090,930 3,293,267 3,415,045 Long-term debt 612,473 544,399 414,301 486,129 532,510 Capital lease obligations 146,400 162,866 182,066 206,003 220,892 Equity Shareholders' equity 774,914 994,417 1,034,330 1,253,106 1,221,270 Weighted average shares outstanding 38,220,000 38,220,000 38,219,000 38,211,000 38,206,000 Number of registered shareholders 10,867 11,831 12,309 12,871 14,210 Other Number of employees 92,000 94,000 90,000 94,600 99,300 Number of stores at year end 1,108 1,173 1,193 1,238 1,275 Total store area (square feet) 36,441,000 37,908,000 37,741,000 38,742,000 39,353,000 CORPORATE OFFICERS James Wood Chairman of the Board and Chief Executive Officer Christian W.E. Haub President and Chief Operating Officer Fred Corrado Vice Chairman of the Board, Chief Financial Officer and Treasurer Gerald L. Good Executive Vice President, Marketing and Merchandising Peter J. O'Gorman Executive Vice President, Development & Strategic Planning George Graham Senior Vice President, Chief Merchandising Officer J. Wayne Harris Senior Vice President, Chief Operating Officer, U.S. Operations Clifford J. Horler Senior Vice President, Development H. Nelson Lewis Senior Vice President, Human Resources Michael J. Rourke Senior Vice President, Communications and Corporate Affairs Ivan K. Szathmary Senior Vice President, Chief Services Officer Robert G. Ulrich Senior Vice President, General Counsel Patricia Asta Vice President, Personnel Peter R. Brooker Vice President, Planning and Corporate Secretary Stephen T. Brown Vice President, Labor Relations Timothy J. Courtney Vice President, Taxation Donald B. Dobson Vice President, Southeast and Southern Operations R. Paul Gallant President, Compass Foods Kenneth W. Green Vice President, Produce Merchandising and Procurement Robert A. Keenan Vice President, Chief Internal Auditor Peter R. Lavoy Vice President, Grocery Merchandising and Procurement Francis X. Leonard Vice President, Real Estate Administration Mary Ellen Offer Vice President, Assistant Corporate Secretary and Senior Counsel R. Donald O'Leary Vice President, Marketing Brian Pall Vice President, Real Estate Development Karl Petersen Vice President, Retail Services Peter E. Rolandelli Vice President, Management Information Systems Richard J. Scola Vice President, Assistant General Counsel J. Paul Stillwell President, Supermarket Service Corp. Craig C. Sturken Group Vice President, Michigan Group Kenneth A. Uhl Vice President, Controller William T. Wolverton Vice President, Warehousing and Transportation Canadian Subsidiary ------------------- John D. Moffat The Great Atlantic & Pacific Company of Canada, Limited Chairman and Chief Executive Officer DIRECTORS James Wood (c)(d)(e) Chairman of the Board and Chief Executive Officer Rosemarie Baumeister (b) Executive Vice President, Tengelmann Warenhandelsgesellschaft, Germany Fred Corrado (c)(d)(e) Vice Chairman of the Board, Chief Financial Officer and Treasurer Christopher F. Edley (a)(b)(c)(e) President Emeritus and former President and Chief Executive Officer of the United Negro College Fund, Inc. Christian W.E. Haub (d) President and Chief Operating Officer Helga Haub (c)(d) Barbara Barnes Hauptfuhrer (a)(c)(d)(e) Director of various corporations Paul C. Nagel, Jr. (a)(c)(d) Director of various corporations Eckart C. Siess (e) Former Vice Chairman of the Board Fritz Teelen (d) President, Plus Subsidiary Tengelmann Warenhandelsgesellschaft, Germany Henry W. Van Baalen (d) Business Consultant R.L. "Sam" Wetzel (a)(b)(d)(e) President and Chief Executive Officer of Wetzel International, Inc. (a) Member of Audit Review Committee, Paul C. Nagel, Jr., Chairman (b) Member of Compensation Policy Committee, Christopher F. Edley, Chairman (c) Member of Executive Committee, James Wood, Chairman (d) Member of Finance Committee R.L. "Sam" Wetzel, Chairman (e) Member of Retirement Benefits Committee, Barbara Barnes Hauptfuhrer, Chairman SHAREHOLDER INFORMATION Executive Offices Box 418 2 Paragon Drive Montvale, NJ 07645 Telephone 201-573-9700 Transfer Agent and Registrar American Stock Transfer and Trust Company 40 Wall Street New York, NY 10005 Telephone 212-936-5100 Independent Auditors Deloitte & Touche LLP Two Hilton Court Parsippany, NJ 07054 Shareholder Inquiries, Publications and Address Changes Shareholders, security analysts, members of the media and others interested in further information about the Company are invited to contact the Corporate Affairs Department at the Executive Offices in Montvale, New Jersey. Correspondence concerning address changes should be directed to: American Stock Transfer and Trust Company 40 Wall Street New York, NY 10005 Telephone 212-936-5100 Form 10-K Copies of Form 10-K filed with the Securities and Exchange Commission will be provided to shareholders upon written request to the Secretary at the Executive Offices in Montvale, New Jersey. Annual Meeting The Annual meeting of Shareholders will be held at 10:00 a.m. on Tuesday, July 11, 1995 at the Ritz Carlton Hotel, 300 Town Center Drive, Dearborn, Michigan. Shareholders are cordially invited to attend. Common Stock Common stock of the Company is listed and traded on the New York Stock Exchange under the ticker symbol "GAP" and has unlisted trading privileges on the Boston, Midwest, Philadelphia, Cincinnati, and Pacific Stock Exchanges. The stock is reported in newspapers and periodical tables as "GtAtPc." EX-21 4 THE GREAT ATLANTIC & PACIFIC TEA COMPANY, INC. AND SUBSIDIARIES The Stock of all subsidiaries is 100% owned or controlled by the parent company except as denoted below and in the case of a few subsidiaries where nominal qualifying shares are held in the names of subsidiary officers and/or directors in trust. No shares of any subsidiary's stock are subject to options. STATE COMPANIES INCORPORATED A&P Wine and Spirits, Inc. Massachusetts ANP Properties I Corp. Delaware ANP Sales Corp. Maryland APG IV, Inc. South Dakota APW Produce Company, Inc. New York APW Supermarket Corporation Delaware APW Supermarkets, Inc. New York Big Star, Inc. Georgia 175946 Canada Inc. (NRO) Canada The Great Atlantic and Pacific Tea Company, Limited (NRO) Canada The Great Atlantic & Pacific Company of Canada, Limited d/b/a A&P and New Dominion Canada A&P Drug Mart Limited Ontario A&P Properties Limited Ontario New Miracle Food Mart, Inc. Canada Borman's, Inc. d/b/a Farmer Jack Delaware Compass Foods, Inc. Delaware Family Center, Inc. d/b/a Family Mart Delaware Futurestore Food Markets, Inc. Delaware The Great Atlantic & Pacific Tea Company of Vermont, Inc. Vermont Kohl's Food Stores, Inc. Wisconsin Kwik Save Inc. Pennsylvania Limited Foods, Inc. Delaware LO-LO Discount Stores, Inc. Texas Richmond, Incorporated d/b/a Pantry Pride & Sun, Inc. Delaware St. Pancras Company Limited Bermuda St. Pancras Too, Limited Bermuda Shopwell, Inc. d/b/a Food Emporium Delaware Southern Acquisition Corporation Delaware Southern Development, Inc. of Delaware Delaware Super Fresh Food Markets, Inc. Delaware Super Fresh Food Markets of Maryland, Inc. Maryland Super Fresh/Sav-A-Center, Inc. Delaware Super Fresh Food Markets of Virginia, Inc. Delaware Super Market Service Corp. Pennsylvania Super Plus Food Warehouse, Inc. Delaware Supermarket Distribution Service Corp. New Jersey Supermarket Distribution Service - Florence, Inc. New Jersey Supermarket Distribution Services, Inc. Delaware Supermarket Systems, Inc. Delaware The South Dakota Great Atlantic & Pacific Tea Company, Inc. South Dakota Transco Service-Milwaukee, Inc. New Jersey Waldbaum, Inc. d/b/a Waldbaum, Inc. and Food Mart New York W.S.L. Corporation New Jersey 2008 Broadway, Inc. New York EX-23 5 EXHIBIT 23 INDEPENDENT AUDITORS' CONSENT THE GREAT ATLANTIC & PACIFIC TEA COMPANY, INC.: We consent to the incorporation by reference in Registration Statement No. 2-92428 on Form S-8, Post Effective Amendment No. 7 to Registration Statement No. 2-59290 on Form S-8 and Post Effective Amendment No. 3 to Registration Statement No. 2-73205 on Form S-8 of our report dated April 27, 1995, appearing in and incorporated by reference in this Annual Report on Form 10-K of The Great Atlantic & Pacific Tea Company, Inc. for the year ended February 25, 1995. \s\Deloitte & Touche LLP May 22, 1995 EX-27 6
5 THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE GREAT ATLANTIC & PACIFIC TEA COMPANY, INC. FORM 10-K FOR THE YEAR ENDED FEBRUARY 25, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1000 YEAR FEB-25-1995 FEB-25-1995 128930 0 205619 0 811964 1193731 2724520 (1150783) 2894788 1096454 758873 38229 0 0 736685 2894788 10331950 10331950 7388495 7388495 3000985 0 71918 (129448) (37138) (166586) 0 0 (4950) (171536) (4.49) (4.49)