-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, BKaUSo58MS9CBBTkWYTt2271sdd3CNA81IQ2vDLMkQpzd5WDZ67vuMsWrj1txhjW /WCYKVXJf3WOBJEafxTyFA== 0000043300-96-000015.txt : 19960525 0000043300-96-000015.hdr.sgml : 19960525 ACCESSION NUMBER: 0000043300-96-000015 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19960224 FILED AS OF DATE: 19960524 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: GREAT ATLANTIC & PACIFIC TEA CO INC CENTRAL INDEX KEY: 0000043300 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-GROCERY STORES [5411] IRS NUMBER: 131890974 STATE OF INCORPORATION: MD FISCAL YEAR END: 0228 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-04141 FILM NUMBER: 96572453 BUSINESS ADDRESS: STREET 1: 2 PARAGON DR CITY: MONTVALE STATE: NJ ZIP: 07645 BUSINESS PHONE: 2015739700 MAIL ADDRESS: STREET 1: 2 PARAGON DRIVE CITY: MONTVALE STATE: NJ ZIP: 07645 10-K 1 Conformed 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 24, 1996 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 No X Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] The aggregate market value of the voting stock held by non-affiliates of the Registrant at May 7, 1996 was $ 595,535,908. The number of shares of common stock outstanding at May 7, 1996 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 1995 Annual Report to Shareholders. The Registrant has filed with the S.E.C. since the close of its last fiscal year ended February 24, 1996, 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 operated 1,014 stores averaging 34,200 square feet per store as of February 24, 1996. In addition, the Company began franchising its Canadian Food Basics stores in fiscal 1995. As of February 24, 1996, the Company had 7 Food Basics Franchisee stores in Canada averaging 25,400 square feet per store. On the basis of reported sales for fiscal 1995, the Company believes that it is one of the ten largest retail food chains in the United States and that it had 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, Farmer Jack, Kohl's, Food Emporium, Waldbaum's, Food Mart, Food Bazaar, Miracle Food Mart, Ultra Mart, Futurestore, Dominion, Food Basics and Compass Foods, the Company sells groceries, meats, fresh produce and other items commonly offered in supermarkets. In addition, many stores have bakery, delicatessen, pharmacy, floral, fresh fish and cheese departments. National, regional and local brands are sold as well as private label merchandise and generic (non- branded) products. In support of its retail operations, the Company also operates two coffee roasting plants, two bakeries, one delicatessen food kitchen, and an ice cream plant. 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 1995, the Company expended approximately $236 million for capital projects. The Company's plans for fiscal 1996 anticipate capital expenditures of approximately $310 million which include the opening of 39 new supermarkets and 1 new liquor store, the remodeling or expansion of 94 stores and converting the format of 40 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. -1- Employees As of the close of fiscal 1995, the Company had approximately 89,000 employees, of which 70% 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 1995 Annual Report to Shareholders on pages 24 and 28 and is herein incorporated by reference. - 2 - ITEM 2. Properties At February 24, 1996, the Company operated 1,014 retail stores. Approximately 7% of the Company's stores are owned, while the remainder are leased. These stores are geographically located as follows: New England States: Connecticut............. 56 Massachusetts........... 22 New Hampshire........... 1 Vermont................. 2 ----- Total................. 81 Middle Atlantic States: District of Columbia.... 1 Delaware................ 8 Maryland................ 50 New Jersey.............. 111 New York................ 186 Pennsylvania............ 44 ----- Total................. 400 Mid-Western States: Michigan................ 97 Wisconsin............... 51 ----- Total................. 148 Southern States: Alabama................. 4 Georgia................. 45 Kentucky................ 2 Louisiana............... 26 Mississippi............. 7 North Carolina.......... 23 South Carolina.......... 8 Virginia................ 51 West Virginia........... 6 ----- Total................. 172 Total United States... 801 Ontario, Canada........... 213 ----- Total Stores.......... 1,014 ===== -3- The total area of all retail stores is approximately 34.7 million square feet averaging 34,200 square feet per store. The stores built by the Company over the past several years and those planned for fiscal 1996, 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, two bakeries, one delicatessen food kitchen, and an ice cream plant 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 $49 million as of February 24, 1996. ITEM 3. Legal Proceedings The information required is contained in the 1995 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 1995. PART II ITEM 5. Market for the Registrant's Common Stock and Related Security Holder Matters The information required is contained in the 1995 Annual Report to Shareholders on pages 29, 30 and 31 and is herein incorporated by reference. ITEM 6. Selected Financial Data The information required is contained on page 31 of the 1995 Annual Report to Shareholders and is herein incorporated by reference. ITEM 7. Management's Discussion and Analysis The information required is contained in the 1995 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 1995 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 1995 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. -4- 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.......... 66 Chairman of the Board and Chief Executive Officer Fred Corrado........ 56 Vice Chairman of the Board and Chief Financial Officer Christian W.E. Haub. 31 President and Chief Operating Officer Peter J. O'Gorman... 57 Executive Vice President - International Store and Product Development Gerald L. Good...... 53 Executive Vice President - Marketing and Merchandising J. Wayne Harris..... 57 Executive Vice President - Canadian Operations George Graham....... 46 Senior Vice President - Chief Merchandising Officer John D. Moffatt..... 48 Chairman and Chief Executive Officer - The Great Atlantic & Pacific Company of Canada, Limited Ivan K. Szathmary... 59 Senior Vice President - Chief Services Officer Robert G. Ulrich.... 61 Senior Vice President - 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 as Vice Chairman of the Board on October 6, 1992. He has also served as Chief Financial Officer since joining the Company in January 1987. Mr. Corrado also served as Treasurer of the Company in 1987 and from April 18, 1989 through December 5, 1995. Mr. Corrado has been a member of the Board of Directors of the Company since December 4, 1990, and is currently the Vice Chairman of the Executive Committee and a member of the Finance and Retirement Benefits Committees. Mr. Haub was elected President and Chief Operating Officer of the Company on December 7, 1993. Prior to assuming his present position he served as Corporate Vice President, Development and Strategic Planning, since joining the Company in 1991. Prior thereto and during the past five years, 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. Mr. Haub has been a member of the Board of Directors of the Company since December 3, 1991 and is a member of the Finance Committee. Mr. O'Gorman was elected Executive Vice President - International Store and Product Development on June 26, 1995. During the past five years he was Executive Vice President - Development and Strategic Planning, and Executive Vice President - Development. Mr. Good was elected Executive Vice President - Marketing and Merchandising on October 3, 1994. 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, Senior Vice President - Field Administration, and as Vice President - Chief Administrative Officer. -5- Mr. Harris was elected Executive Vice President - Canadian Operations on December 12, 1995. Prior thereto, he had been successively Executive Vice President, Chairman Waldbaum's, Inc. and Chief Operating Officer - U.S. Operations. In 1993 Mr. Harris was Senior Vice President - Northeast Operations, and prior thereto Vice President - Operations Greater New York Metropolitan area. 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. Graham was elected Senior Vice President - Chief Merchandising Officer in March 1990. Prior to assuming his present position he was President, Metro Group of the 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 past 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. The Company has filed with the Commission since the close of its fiscal year ended February 24, 1996 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 14 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 1995 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 1995 definitive proxy statement on pages 1 and 7 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 1995 Annual Report to Shareholders. The following required items, appearing on pages 19 through 30 of the 1995 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 -6- 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 Exhibit 10)a) for the fiscal years ended February 26, 1994, and February 25, 1995 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 for as amended 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 Exhibit 10)e) to Form 10-K for the fiscal year ended February 25, 1995 f) 1994 Stock Option Plan Exhibit 10)f) to Form 10-K for Non-Employee Directors for the fiscal year ended February 25, 1995 g) Competitive Advance and Exhibit 10) to Form 10-Q Revolving Credit Facilities for the quarter ended Agreement dated as of December 2, 1995, filed on December 12, 1995. Form SE. -7- Exhibit Incorporation by reference Numbers Description (If applicable) 11) Not Applicable 12) Not Applicable 13) 1995 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 24, 1996. -8- 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 14, 1996 By: /s/ Fred Corrado Fred Corrado Vice Chairman of the Board and Chief Financial Officer 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 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 -9- The above-named persons signed this report on behalf of the registrant on May 14, 1996. /s/ Kenneth A. Uhl Vice President, Controller May, 14, 1996 Kenneth A. Uhl Date -10- EX-13 2 COMPARATIVE HIGHLIGHTS The Great Atlantic & Pacific Tea Company, Inc. (Dollars in thousands, except per share figures) - ----------------------------------------------- Fiscal 1995 Fiscal 1994 Fiscal 1993 ----------- ----------- ----------- Sales $10,101,356 $10,331,950 $10,384,077 Income (loss) from operations 151,734 (57,530) 68,280 Income (loss) before cumulative effect of accounting change 57,224 (166,586) 3,959 Net income (loss) 57,224 (171,536) 3,959 Income (loss) per share before cumulative effect of accounting change 1.50 (4.36) .10 Net income (loss) per share 1.50 (4.49) .10 Cash dividends per share .20 .65 .80 Expenditures for property 236,139 214,886 267,329 Depreciation and amortization 225,449 235,444 235,910 Working capital 178,307 97,277 79,207 Shareholders' equity 822,785 774,914 994,417 Debt to total capitalization .49 .53 .45 Book value per share 21.53 20.27 26.02 New store openings 30 22 16 Number of stores at year end 1,014 1,108 1,173 MANAGEMENT'S DISCUSSION AND ANALYSIS OPERATING RESULTS Fiscal 1995 Compared with 1994 Sales for fiscal 1995 were $10.1 billion, a net decrease of $231 million or 2.2% when compared to fiscal 1994 sales of $10.3 billion. U.S. sales decreased $176 million or 2.1% compared to fiscal 1994. U.S. same store sales, which include replacement stores, were down 0.2% from the prior year. In Canada, sales of $1.7 billion were $55 million or 3.1% below fiscal 1994. Canada same store sales, which include replacement stores, were down 1.6% from the prior year. During fiscal 1995, the Company opened 27 new supermarkets and 3 new liquor stores, remodeled or expanded 76 stores, and closed 124 stores, of which 6 were converted to Food Basics Franchisee stores in Canada, and 8 in the Rhode Island market which were sold to Edwards Super Food Stores in the first quarter of fiscal 1995. The Company recorded sales to the Food Basics Franchisees of $6 million in fiscal 1995. The Company closed 190 stores, excluding replacement stores, since the beginning of fiscal 1994. The store closures, excluding replacement stores, since the beginning of fiscal 1994 reduced comparative sales by approximately $422 million or 4.1% in fiscal 1995. The opening of 33 new stores, excluding 19 stores that replaced 21 older, outmoded stores, since the beginning of fiscal 1994 added approximately $219 million or 2.1% to sales in fiscal 1995. Same store sales, including replacement stores, for fiscal 1995 decreased 0.5% from the prior year. Average weekly sales per store were approximately $179,600 in fiscal 1995 versus $173,000 in fiscal 1994 for a 3.8% increase. Gross margin as a percent of sales increased 0.6% to 29.1% for the current year from 28.5% for the prior year resulting primarily from increased gross margin rates in both the U.S. and Canada partially offset by increased promotional price reductions in the U.S. The gross margin dollar decrease of $8 million is primarily the result of a decrease in sales volume which had an impact of decreasing margin by approximately $69 million, partially offset by an increase in gross margin rates of $58 million and an increase in the Canadian exchange rate of $3 million. The U.S. gross margin decreased $17 million principally as a result of decreased sales volume which resulted in margins decreasing $50 million partially offset by an increase in gross margin rates of $33 million. In Canada, gross margin increased $9 million, primarily resulting from the effect of an increase in gross margin rates of $25 million and a higher Canadian exchange rate resulting in an increase of $3 million, offset by sales volume declines which impacted margins by $19 million. Store operating, general and administrative expense of $2.8 billion in fiscal 1995 declined by approximately $90 million from fiscal 1994. The fiscal 1994 store operating, general and administrative expense includes charges of $27 million for employee buy-out costs incurred as a result of new labor agreements entered into in Canada and $17 million to cover the cost of closing 13 non-Miracle stores in Canada. As a percent of sales, store operating, general and administrative expense for fiscal 1995 decreased to 27.6% from 27.8% for the prior year. U.S. expenses decreased $4 million, principally as a result of lower store labor costs on reduced sales volume and reduced advertising costs. Canadian expenses decreased $86 million, as a result of the charges noted above of $27 million and $17 million recorded in fiscal 1994, coupled with reduced store labor costs, reduced occupancy costs, and a decrease in advertising costs. Included under the Company's 1995 year-end balance sheet captions "Other accruals" and "Other non-current liabilities" are amounts totaling approximately $23 million associated with store closing liabilities. During fiscal 1995 approximately $20 million was charged against the store closing reserve. During 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 Food Mart ("Miracle") stores which were expected to continue to generate operating losses. As of February 24, 1996, based on current information, the Company has no reasonable basis to believe that there has been any further impairment of its existing goodwill. There is currently no goodwill recorded relating to the Canadian operations. Interest expense increased $0.2 million from the previous year, primarily due to increased Canadian borrowings and an increase in average interest rates. U.S. interest expense decreased from the previous year, as a result of decreased borrowings and a decrease in average interest rates on short-term borrowings. Income before taxes and cumulative effect of accounting change for fiscal 1995 was $81 million as compared to a loss of $129 million in fiscal 1994. 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. Income before taxes and cumulative effect of accounting change for U.S. operations for fiscal 1995 was $73 million as compared to $81 million for fiscal 1994, or an 8.9% decrease. For Canadian operations, income before taxes and cumulative effect of accounting change for fiscal 1995 was $8 million as compared to a loss of $210 million for fiscal 1994, resulting in an increase of $218 million. 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. During fiscal 1995, since the Canadian operations generated pretax earnings, the Company reversed approximately $3.4 million of the valuation allowance. Although Canada generated pretax earnings in fiscal 1995, the Company was unable to conclude that realization of such deferred tax assets was more likely than not due to pretax losses experienced by Canada in prior years. Accordingly, at February 24, 1996 the Company is continuing to fully reserve its Canadian net deferred tax assets. 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. In addition, during fiscal 1995 the Company recorded a $6.5 million credit relating to a refund of previously paid taxes in Canada. Effective February 27, 1994, the Company adopted Statement of Financial Accounting Standards No. 112, "Employers' Accounting for Postemployment Benefits" ("SFAS 112"). As a result, in fiscal 1994 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 income for fiscal 1995 was $57 million or $1.50 per share as compared to a net loss for fiscal 1994 of $172 million or $4.49 per share. Fiscal 1995 net income included the $6.5 million Canadian tax refund. 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. Excluding the U.S. reversal of the deferred tax liabilities associated with undistributed earnings of $27 million recorded in fiscal 1994, net income from U.S. operations decreased from $50 million or $1.31 per share in fiscal 1994 to $44 million or $1.15 per share in fiscal 1995. Excluding the above fiscal 1994 Canadian charges and the fiscal 1995 Canadian tax refund, fiscal 1994 would have resulted in a net loss from Canadian operations of $45 million or $1.17 per share and fiscal 1995 would have resulted in net income of $7 million or $.18 per share for a $52 million increase. 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, 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 sales decline. Canada's fiscal 1994 sales increased approximately $122 million due to a labor strike in fiscal 1993 in 63 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, excluding replacement 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, excluding replacement stores, since the beginning of fiscal 1993 reduced comparative sales by approximately 3.1%. Average weekly sales per store were approximately $173,000 in fiscal 1994 versus $167,000 in fiscal 1993 for a 3.6% 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 shopper program which began late in fiscal 1993. As a result, sales for the Metro Atlanta area 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 partially 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 was 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 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 despite 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. 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 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. LIQUIDITY AND CAPITAL RESOURCES The Company ended the 1995 fiscal year with working capital of $178 million compared to $97 million and $79 million at February 25, 1995, and February 26, 1994, respectively. The Company had cash and short-term investments aggregating $100 million at the end of fiscal 1995 compared to $129 million and $124 million at the end of fiscal 1994 and 1993, respectively. In December 1995, the Company executed an unsecured five year $400 million U.S. credit agreement and a five year C$100 million Canadian credit agreement with a syndicate of banks, enabling it to borrow funds on a revolving basis. At the end of fiscal 1995, the Company had in excess of $375 million available in credit facilities, of which approximately $360 million are committed facilities. See "Indebtedness" footnote for further discussion. On October 17, 1995, the Company's Canadian subsidiary, The Great Atlantic & Pacific Company of Canada, Ltd. ("A&P Canada"), issued U.S. $75 million of unsecured, non-callable 7.78% Notes due November 1, 2000 guaranteed by the Company. The net proceeds from the issuance of these Notes were used to repay indebtedness under the Canadian subsidiary's revolving credit facility. In conjunction with the issuance of the U.S. $75 million Notes, A&P Canada entered into a five year cross-currency swap agreement expiring November 1, 2000. The cross-currency swap agreement requires A&P Canada to make net payments to the counterparty based on a fixed interest differential on a semi- annual basis. The interest differential to be paid under the swap agreement is accrued over the life of the agreement as an adjustment to the yield of the 7.78% Notes and is recorded as interest expense. The Company is exposed to credit losses in the event of nonperformance by the counterparty to its currency swap. The Company anticipates, however, the counterparty will be able to fully satisfy their obligations under the contracts. The Company's loan agreements and certain of its notes contain various financial covenants which require, among other things, minimum net worth and maximum levels of indebtedness and lease commitments. The Company was in compliance with all such financial covenants as of February 24, 1996. During fiscal 1995, 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 $95 million at February 24, 1996, as compared to $168 million at February 25, 1995. U.S. bank borrowings during fiscal 1995 were at an average interest rate of 6.4% compared to 5.4% in fiscal 1994. Canadian bank and commercial paper borrowings were $54 million and $115 million at February 24, 1996, and February 25, 1995, respectively. Canadian bank and commercial paper borrowings during fiscal 1995 were at an average interest rate of 8.4% compared to 7.0% in fiscal 1994. For fiscal 1995, capital expenditures totaled $236 million, which included 27 new supermarkets, 3 new liquor stores, 76 remodels and enlargements and 7 stores which were converted to Food Basics Franchisee stores in Canada, of which 6 were closed in fiscal 1995 and 1 was closed in fiscal 1994. The Company had originally planned capital expenditures of approximately $205 million including 25 new supermarkets and 2 new liquor stores, and approximately 51 remodels and expansions. For fiscal 1996, the Company has planned capital expenditures of approximately $310 million and plans to open 39 new supermarkets and 1 new liquor store, remodel and expand 94 stores and convert approximately 40 stores to Food Basics Franchisee stores in Canada. 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 recoup its opening costs and become profitable thereafter. Risks inherent in retail real estate investments are primarily associated with competitive pressures in the marketplace. From fiscal 1996 through fiscal 2000, the Company intends to improve the use of technology through scanning and other technological advances to improve customer service, store operations and merchandising and to intensify advertising and promotions. The Company currently expects to close approximately 70 stores in fiscal year 1996, of which approximately 20 will be converted to Food Basics Franchisee stores in Canada. The Company plans to open approximately 50 new supermarkets in fiscal 1997 and approximately 50 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 $3.8 million for a new store and $1 million 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 Baa3 with Moody's Investors Service and BB+ with Standard & Poor's Ratings Group. A 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 1996 capital expenditure program, mandatory scheduled debt repayments and dividend payments throughout fiscal 1996. IMPACT OF NEW ACCOUNTING PRONOUNCEMENTS In March 1995, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of" ("SFAS 121"). SFAS 121 establishes accounting standards for the impairment of long-lived assets, certain identifiable intangibles and goodwill related to those assets to be held and used and for long-lived assets and certain identifiable intangibles to be disposed of. SFAS 121 requires that (i) long- lived assets and certain identifiable intangibles to be held and used by an entity be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable and (ii) long-lived assets and certain identifiable intangibles to be disposed of generally be reported at the lower of carrying amounts or fair value less cost to sell. The Company adopted the provisions of SFAS 121 during the fourth quarter of fiscal 1995. The adoption of SFAS 121 did not have an effect on the financial position or results of operations of the Company. In October 1995, the FASB issued Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"). SFAS 123 establishes financial accounting and reporting standards for stock-based employee compensation plans. SFAS 123 encourages all entities to adopt a fair value based method of accounting for stock-based compensation plans in which compensation cost is measured at the date the award is granted based on the value of the award and is recognized over the employees' service period. However, SFAS 123 allows an entity to continue to use the intrinsic value based method prescribed by Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25"), with proforma disclosures of net income and earnings per share as if the fair value based method had been applied. APB 25 requires compensation expense to be recognized over the employees' service period based on the excess, if any, of the quoted market price of the stock at the date the award is granted or other measurement date, as applicable, over an amount an employee must pay to acquire the stock. SFAS 123 is effective for financial statements for fiscal years beginning after December 15, 1995. The Company plans to adopt SFAS 123 during fiscal 1996 and to continue to apply the methods prescribed by APB 25. STATEMENTS OF CONSOLIDATED OPERATIONS The Great Atlantic & Pacific Tea Company, Inc. (Dollars in thousands, except per share figures) - ----------------------------------------------- Fiscal 1995 Fiscal 1994 Fiscal 1993 ----------- ------------ ----------- Sales $10,101,356 $10,331,950 $10,384,077 Cost of merchandise sold (7,166,119) (7,388,495) (7,425,578) ----------- ----------- ----------- Gross margin 2,935,237 2,943,455 2,958,499 Store operating, general and administrative expense (2,783,503) (2,873,985) (2,890,219) Write-off of goodwill and long-lived assets - (127,000) - ----------- ----------- ---------- Income (loss) from operations 151,734 (57,530) 68,280 Interest expense (73,143) (72,972) (63,318) Interest income 2,501 1,054 1,599 ----------- ----------- ---------- Income (loss) before income taxes and cumulative effect of accounting change 81,092 (129,448) 6,561 Provision for income taxes (23,868) (37,138) (2,602) ----------- ----------- ---------- Income (loss) before cumulative effect of accounting change 57,224 (166,586) 3,959 Cumulative effect on prior years of change in accounting principle: Postemployment benefits - (4,950) - ----------- ---------- ---------- Net income (loss) $ 57,224 $ (171,536) $ 3,959 =========== ========== ========== Earnings (loss) per share: Income (loss) before cumulative effect of accounting change $ 1.50 $ (4.36) $ .10 Cumulative effect on prior years of change in accounting principle: Postemployment benefits - (.13) - ----------- ---------- ---------- Net income (loss) per share $ 1.50 $ (4.49) $ .10 =========== ========== ========== See Notes to Consolidated Financial Statements. STATEMENTS OF CONSOLIDATED SHAREHOLDERS' EQUITY The Great Atlantic & Pacific Tea Company, Inc. (Dollars in thousands) - ---------------------- Fiscal 1995 Fiscal 1994 Fiscal 1993 ----------- ----------- ----------- Common stock: Balance at beginning of year $ 38,229 $ 38,229 $ 38,229 -------- -------- -------- Balance at end of year $ 38,229 $ 38,229 $ 38,229 ======== ======== ======== Capital surplus: Balance at beginning of year $453,475 $453,475 $453,475 -------- -------- -------- Balance at end of year $453,475 $453,475 $453,475 ======== ======== ======== Cumulative translation adjustment: Balance at beginning of year $(49,227) $(26,103) $(12,809) Exchange adjustment, (net of tax for fiscal 1993) (1,709) (3,317) (13,294) Elimination of deferred income tax asset (see "Income Taxes" footnote) - (19,807) - -------- -------- -------- Balance at end of year $(50,936) $(49,227) $(26,103) ======== ======== ======== Retained earnings: Balance at beginning of year $332,800 $529,179 $555,796 Net income (loss) 57,224 (171,536) 3,959 Cash dividends (7,644) (24,843) (30,576) -------- -------- -------- Balance at end of year $382,380 $332,800 $529,179 ======== ======== ======== Treasury stock, at cost: Balance at beginning of year $ (363) $ (363) $ (361) Purchase of Treasury stock - - (2) -------- -------- -------- Balance at end of year $ (363) $ (363) $ (363) ======== ======== ======== See Notes to Consolidated Financial Statements. CONSOLIDATED BALANCE SHEETS The Great Atlantic & Pacific Tea Company, Inc. February 24, February 25, (Dollars in thousands) 1996 1995 - --------------------- ------------ ----------- Assets Current assets: Cash and short-term investments $ 99,772 $ 128,930 Accounts receivable 205,133 205,619 Inventories 826,510 811,964 Prepaid expenses and other assets 52,687 47,218 ---------- ---------- Total current assets 1,184,102 1,193,731 ---------- ---------- Property: Land 129,567 117,508 Buildings 321,830 287,340 Equipment and leasehold improvements 2,084,609 2,080,103 ---------- ---------- Total-at cost 2,536,006 2,484,951 Less accumulated depreciation and amortization (1,074,841) (1,018,708) ---------- ---------- 1,461,165 1,466,243 Property leased under capital leases 93,379 107,494 ---------- ---------- Property-net 1,554,544 1,573,737 Other assets 138,195 127,320 ---------- ---------- $2,876,841 $2,894,788 ========== ========== Liabilities and Shareholders' Equity Current liabilities: Current portion of long-term debt $ 13,040 $ 112,821 Current portion of obligations under capital leases 13,125 14,492 Accounts payable 452,257 447,081 Book overdrafts 157,022 157,521 Accrued salaries, wages and benefits 148,960 158,109 Accrued taxes 59,407 51,345 Other accruals 161,984 155,085 ---------- ---------- Total current liabilities 1,005,795 1,096,454 ---------- ---------- Long-term debt 650,169 612,473 Obligations under capital leases 129,887 146,400 Deferred income taxes 130,071 118,579 Other non-current liabilities 138,134 145,968 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 (50,936) (49,227) Retained earnings 382,380 332,800 Treasury stock, at cost, 9,157 shares (363) (363) ---------- ---------- Total shareholders' equity 822,785 774,914 ---------- ---------- $2,876,841 $2,894,788 ========== ========== See Notes to Consolidated Financial Statements. STATEMENTS OF CONSOLIDATED CASH FLOWS The Great Atlantic & Pacific Tea Company, Inc. (Dollars in thousands) Fiscal 1995 Fiscal 1994 Fiscal 1993 - --------------------- ----------- ----------- ----------- Cash Flows From Operating Activities: Net income (loss) $ 57,224 $(171,536) $ 3,959 Adjustments to reconcile net income (loss) to cash provided by operating activities: Write-off of goodwill and long-lived assets - 127,000 - Cumulative effect on prior years of change in accounting principle: Postemployment benefits - 4,950 - Depreciation and amortization 225,449 235,444 235,910 Deferred income tax provision (benefit) on income (loss) before cumulative effect of accounting change 9,496 20,836 (19,568) (Gain) loss on disposal of owned property (3,177) (816) 1,032 (Increase) decrease in receivables 556 (15,197) 1,936 (Increase) decrease in inventories (13,103) 34,048 12,928 Increase in prepaid expenses and other current assets (573) (1,341) (7,981) Increase (decrease) in accounts payable 3,944 (9,996) (1,557) Increase (decrease) in accrued expenses (4,251) 1,295 46,292 Increase (decrease) in store closing reserves (18,240) 2,012 (34,522) Increase (decrease) in other accruals and other liabilities 16,518 (43,603) (19,438) Other operating activities, net (11,873) (1,756) (5,385) --------- --------- --------- Net cash provided by operating activities 261,970 181,340 213,606 --------- --------- --------- Cash Flows From Investing Activities: Expenditures for property (236,139) (214,886) (267,329) Proceeds from disposal of property 34,576 12,113 19,464 Acquisition of business, net of cash acquired - - (42,948) --------- --------- --------- Net cash used in investing activities (201,563) (202,773) (290,813) --------- --------- --------- Cash Flows From Financing Activities: Changes in short-term debt 25,598 (30,912) 12,410 Proceeds under revolving lines of credit and long-term borrowings 594,613 229,447 237,340 Payments on revolving lines of credit and long-term borrowings (683,442) (93,085) (146,052) Principal payments on capital leases (17,953) (15,923) (18,876) Increase (decrease) in book overdrafts (1,075) (37,720) 39,192 Cash dividends (7,644) (24,843) (30,576) Purchase of Treasury stock - - (2) --------- --------- ---------- Net cash provided by (used in) financing activities (89,903) 26,964 93,436 --------- --------- --------- Effect of exchange rate changes on cash and short-term investments 338 (837) (2,113) --------- --------- --------- Net Increase (Decrease) in Cash and Short-term Investments (29,158) 4,694 14,116 Cash and Short-term Investments at Beginning of Year 128,930 124,236 110,120 --------- --------- --------- Cash and Short-term Investments at End of Year $ 99,772 $ 128,930 $ 124,236 ========= ========= ========= See Notes to Consolidated Financial Statements. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation The consolidated financial statements include the accounts of the Company and all majority-owned subsidiaries. The Company operates retail supermarkets in the United States and Canada. The U.S. operations are mainly in the Eastern part of the U.S. and certain parts of the Midwest. See the following footnotes for additional information on the Canadian Operations: Operations in Geographic Areas, Write-off of Goodwill and Long- Lived Assets, Income Taxes and Retirement Plans and Benefits. Fiscal Year The Company's fiscal year ends on the last Saturday in February. Fiscal 1995 ended February 24, 1996, fiscal 1994 ended February 25, 1995 and fiscal 1993 ended February 26, 1994. Fiscal 1995, fiscal 1994 and fiscal 1993 were each comprised of 52 weeks. Common Stock The principal shareholder of the Company, Tengelmann Warenhandelsgesellschaft, owned 53.98% of the Company's common stock as of February 24, 1996. 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. Warehouse and 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 and dilutive common equivalent shares outstanding during the fiscal year which was 38,221,707 in fiscal 1995 and 38,220,333 in both fiscal 1994 and 1993. Stock options outstanding were considered common stock equivalents to the extent that they were dilutive. 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 24, 1996, 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). Long-Lived Assets Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of" ("SFAS 121") was issued by the Financial Accounting Standards Board in March 1995. The Company adopted the provisions of SFAS 121 during the fourth quarter of fiscal 1995. SFAS 121 establishes accounting standards for the impairment of long-lived assets, certain identifiable intangibles, and goodwill related to those assets to be held and used and for long-lived assets and certain identifiable intangibles to be disposed of. The Company reviews the carrying values of its long-lived and identifiable intangible assets for possible impairment whenever events or changes in circumstances indicate that the carrying amount of assets may not be recoverable. The Company has performed a review based upon groups of assets and the undiscounted estimated future cash flows from such assets and determined that the carrying value of such assets were recoverable from the respective cash flows. The adoption of SFAS 121 did not have an effect on the financial position or results of operations of the Company. 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 $80 million and $81 million at February 24, 1996 and February 25, 1995, respectively, are included in the balance sheet caption "Accrued salaries, wages and benefits." Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The accompanying balance sheets include liabilities with respect to self- insured workers' compensation and general liability claims. The Company determines the required liability of such claims based upon various assumptions which include, but are not limited to, the Company's historical loss experience, industry loss standards, projected loss development factors, projected payroll, employee headcount and other internal data. It is reasonably possible that the final resolution of some of these claims may require significant expenditures by the Company in excess of its existing reserves, over an extended period of time and in a range of amounts that cannot be reasonably estimated. Reclassifications Certain reclassifications have been made to the prior years' financial statements in order to conform to the current year presentation. INVENTORY Approximately 28.0% of the Company's inventories are valued using the last- in, first-out ("LIFO") method. Such inventories would have been $14 million and $15 million higher at February 24, 1996 and February 25, 1995, respectively, if the retail and first-in, first-out methods were used. During fiscal 1995, the Company recorded a LIFO charge of approximately $2 million. During fiscal 1994 and 1993, the Company recorded a LIFO credit of approximately $2 million and $3 million, respectively. 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 were 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 24, February 25, (Dollars in thousands) 1996 1995 - --------------------- ----------- ----------- 9 1/8% Notes, due January 15, 1998 $200,000 $200,000 7.70% Senior Notes, due January 15, 2004 200,000 200,000 7.78% Notes due November 1, 2000 75,000 - Mortgages and Other Notes, due 1996 through 2014 (average interest rates at year end of 9.77% and 9.70%, respectively) 39,279 42,249 U.S. Bank Borrowings at 5.73% and 6.60%, respectively 95,000 168,000 Canadian Commercial Paper at 6.20% and 7.30%, respectively 7,977 21,085 Canadian Bank Borrowings at 6.03% and 8.70%, respectively 46,223 94,373 Less unamortized discount on 9 1/8% Notes (270) (413) -------- -------- 663,209 725,294 -------- -------- Less current portion (13,040) (112,821) -------- -------- Long-term debt $650,169 $612,473 ======== ======== As of February 24, 1996, 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 January 15, 1998, and $200 million 7.70% Notes due January 15, 2004. On October 17, 1995, the Company's Canadian subsidiary, The Great Atlantic & Pacific Company of Canada, Ltd.("A&P Canada"), issued U.S. $75 million of unsecured, non-callable 7.78% Notes due November 1, 2000 guaranteed by the Company. The net proceeds from the issuance of these Notes were used to repay indebtedness under the Canadian subsidiary's revolving credit facility. In conjunction with the issuance of the U.S. $75 million Notes, A&P Canada entered into a five year cross-currency swap agreement expiring November 1, 2000. The cross-currency swap agreement requires A&P Canada to make net payments to the counterparty based on a fixed interest differential on a semi- annual basis. The interest differential to be paid under the swap agreement is accrued over the life of the agreement as an adjustment to the yield of the 7.78% Notes and is recorded as interest expense. The Company is exposed to credit losses in the event of nonperformance by the counterparty to its currency swap. The Company anticipates, however, the counterparty will be able to fully satisfy its obligations under the contracts. In December 1995, the Company executed an unsecured five year $400 million U.S. credit agreement and a five year C$100 million Canadian credit agreement with a syndicate of 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 amounting to $50 million. Borrowings under these U.S. credit agreements were $95 million and $168 million at February 24, 1996, and February 25, 1995, respectively. The Company pays a facility fee ranging from 3/16% to 1/2% per annum on the Company's revolving credit facility. A&P Canada has a C$100 million loan facility with outstanding borrowings of C$74 million at February 24, 1996. In fiscal 1994, A&P Canada had a C$200 million loan facility with outstanding borrowings of C$161 million at February 25, 1995. The Company's loan agreements and certain of its notes contain various financial covenants which require, among other things, minimum net worth and maximum levels of indebtedness and lease commitments. The Company was in compliance with all such financial covenants as of February 24, 1996. The net book value of real estate pledged as collateral for all mortgage loans amounted to approximately $49 million as of February 24, 1996. Combined U.S. bank and Canadian bank and commercial paper borrowings of $139 million as of February 24, 1996 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: 1996-$13 million; 1997-$242 million; 1998-$44 million; 1999-$48 million; 2000-$78 million. Interest payments on indebtedness were approximately $54 million for fiscal 1995, $52 million for fiscal 1994 and $41 million for fiscal 1993. FAIR VALUE OF FINANCIAL INSTRUMENTS The estimated fair values of the Company's financial instruments are as follows: (Dollars in thousands) February 24, 1996 February 25, 1995 - --------------------- ----------------- ----------------- Carrying Fair Carrying Fair Liabilities: Amount Value Amount Value -------- -------- -------- -------- 9 1/8% Notes, due January 15, 1998 $199,730 $209,440 $199,587 $202,000 -------- -------- -------- -------- 7.70% Senior Notes, due January 15, 2004 $200,000 $198,360 $200,000 $174,000 -------- -------- -------- -------- 7.78% Notes due November 1, 2000 $ 75,000 $ 75,713 $ - $ - -------- -------- -------- -------- Total Indebtedness $663,209 $671,992 $725,294 $701,707 ======== ======== ======== ======== 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 24, 1996, and February 25, 1995. As of February 24, 1996, and February 25, 1995, 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. At February 24, 1996, the fair value of the cross-currency swap agreement was approximately $0.9 million. The fair value was determined by the counterparty which is a widely recognized investment banker. As of the end of fiscal 1995, 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. 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 also leases some store equipment and trucks. The consolidated balance sheets include the following: February 24, February 25, (Dollars in thousands) 1996 1995 - --------------------- ------------ ------------ Real property leased under capital leases $206,543 $238,906 Equipment leased under capital leases - 663 -------- -------- 206,543 239,569 Accumulated amortization (113,164) (132,075) -------- -------- $ 93,379 $107,494 ======== ======== The Company did not enter into any new capital leases during fiscal 1995 and 1994. The Company entered into $2 million of new capital leases during fiscal 1993. Interest paid as part of capital lease obligations was approximately $18, $20 and $22 million in fiscal 1995, 1994 and 1993, respectively. Rent expense for operating leases consists of: (Dollars in thousands) Fiscal 1995 Fiscal 1994 Fiscal 1993 - --------------------- ----------- ----------- ----------- Minimum rentals $154,439 $154,488 $151,289 Contingent rentals 5,890 6,619 6,883 -------- -------- -------- $160,329 $161,107 $158,172 ======== ======== ======== Future minimum annual lease payments for capital leases and noncancelable operating leases in effect at February 24, 1996 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 Property Leases - ------ -------- --------- 1996 $ 29,685 $ 153,329 1997 27,740 145,958 1998 26,384 137,857 1999 24,237 129,399 2000 23,065 121,499 2001 and thereafter 130,532 1,072,075 -------- ---------- 261,643 $1,760,117 ========== Less executory costs (2,485) -------- Net minimum rentals 259,158 Less interest portion (116,146) -------- Present value of net minimum rentals $143,012 ======== INCOME TAXES The components of income (loss) before income taxes and cumulative effect of accounting change are as follows: (Dollars in thousands) Fiscal 1995 Fiscal 1994 Fiscal 1993 - ---------------------- ----------- ----------- ----------- United States $73,364 $ 80,509 $ 52,280 Canadian 7,728 (209,957) (45,719) ------- --------- -------- Total $81,092 $(129,448) $ 6,561 ======= ========= ======== The provision for income taxes before cumulative effect of accounting change consists of the following: (Dollars in thousands) Fiscal 1995 Fiscal 1994 Fiscal 1993 - --------------------- ----------- ----------- ----------- Current: Federal $15,129 $ 8,577 $ 13,500 Canadian (5,622) 2,687 5,744 State and local 4,865 5,038 2,926 ------- -------- -------- 14,372 16,302 22,170 ------- -------- -------- Deferred: Federal 9,387 (9,922) 2,723 Canadian 3,448 (88,948) (22,486) State and local 109 114 195 Canadian valuation allowance (3,448) 119,592 - ------- -------- -------- 9,496 20,836 (19,568) ------- -------- -------- $23,868 $ 37,138 $ 2,602 ======= ======== ======== The deferred income tax provision (benefit) 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 continued through the remainder of fiscal 1994 to provide a valuation allowance against its deferred income tax benefits. At February 25, 1995, a valuation allowance existed for the entire amount of net deferred income tax assets related to Canada. During fiscal 1995, since the Canadian operations generated pretax earnings, the Company reversed approximately $3.4 million of the valuation allowance. Although Canada generated pretax earnings in fiscal 1995, the Company was unable to conclude that realization of such deferred tax assets was more likely than not due to pretax losses experienced by Canada in prior years. Accordingly, at February 24, 1996, the Company is continuing to fully reserve its Canadian net deferred tax assets. 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 $192 million will expire between February 1999 and February 2003. 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. A reconciliation of income taxes at the 35% federal statutory income tax rate for fiscal 1995, 1994 and 1993 to income taxes as reported is as follows: (Dollars in thousands) Fiscal 1995 Fiscal 1994Fiscal 1993 - --------------------- ----------- ---------------------- Income taxes computed at federal statutory income tax rate $28,382 $(45,307) $ 2,296 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 3,233 3,348 2,031 Tax rate differential relating to Canadian operations (4,879) (12,775) (3,261) Canadian valuation allowance (3,448) 119,592 - Goodwill 580 580 673 Reduction of tax liabilities associated with undistributed earnings - (27,000) - ------- -------- ------- Income taxes, as reported $23,868 $ 37,138 $ 2,602 ======= ======== ======= The tax rate differential relating to Canadian operations in the above table includes a $6.5 million benefit related to a refund of previously paid Canadian taxes. Income tax payments for fiscal 1995, 1994 and 1993 were approximately $19, $12 and $15 million, respectively. The components of net deferred tax assets (liabilities) are as follows: February 24, February 25, (Dollars in thousands) 1996 1995 - --------------------- ------------ ------------ Current assets: Insurance reserves $ 27,372 $ 22,976 Other reserves 8,172 11,240 Lease obligations 1,994 2,090 Pension obligations 11,137 9,331 Miscellaneous 4,968 5,033 -------- -------- 53,643 50,670 -------- -------- Current liabilities: Inventories (15,172) (15,382) Health and Welfare (10,007) (10,071) Miscellaneous (2,678) (2,165) -------- -------- (27,857) (27,618) -------- -------- Valuation allowance (2,660) (4,706) -------- -------- Deferred income taxes included in prepaid expenses and other assets $ 23,126 $ 18,346 ======== ======== Non-current assets: Alternative minimum tax credits $ - $ 23,500 Isosceles investment 42,617 42,617 Fixed assets 10,129 14,504 Other reserves 7,191 14,038 Lease obligations 20,519 21,228 Canadian loss carryforwards 85,494 78,709 Insurance reserves 8,820 8,400 Accrued postretirement and postemployment benefits 28,569 27,798 Miscellaneous 17,727 17,365 --------- --------- 221,066 248,159 --------- --------- Non-current liabilities: Fixed assets (193,432) (204,674) Pension obligations (20,619) (17,552) Miscellaneous (25,800) (29,626) --------- --------- (239,851) (251,852) --------- --------- Valuation allowance (111,286) (114,886) --------- --------- Deferred income taxes $(130,071) $(118,579) ========= ========= 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 are as follows: (Dollars in thousands) Fiscal 1995 Fiscal 1994 Fiscal 1993 - --------------------- ----------- ----------- ----------- Service cost $ 9,340 $ 11,182 $ 10,665 Interest cost 23,976 22,858 22,997 Actual return on plan assets (42,724) (17,448) (61,730) Net amortization and deferral 16,362 (9,246) 35,816 -------- -------- -------- Net pension cost $ 6,954 $ 7,346 $ 7,748 ======== ======== ======== 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: 1995 1994 ---------------------- ---------------------- Assets Accumulated Assets Accumulated Exceed Benefits Exceed Benefits Accumulated Exceed Accumulated Exceed (Dollars in thousands) Benefits Assets Benefits Assets - --------------------- ----------- ---------- ----------- ---------- Accumulated benefit obligation: Vested $267,391 $ 36,396 $212,257 $ 41,243 Nonvested 3,393 1,776 3,218 1,119 -------- -------- -------- -------- $270,784 $ 38,172 $215,475 $ 42,362 ======== ======== ======== ======== Projected benefit obligation $279,667 $ 40,324 $224,720 $ 44,012 Plan assets at fair value 333,100 16,752 270,939 25,368 -------- -------- -------- -------- Excess (deficiency) of assets over projected benefit obligation 53,433 (23,572) 46,219 (18,644) Unrecognized net transition (asset) obligation (8,097) (78) (7,248) 218 Unrecognized net (gain) loss from experience differences (9,271) 2,649 (9,232) (252) Unrecognized prior service cost 3,357 4,115 3,609 3,808 Additional minimum liability - (4,614) - (2,522) -------- -------- -------- -------- Prepaid pension asset (pension liability) $ 39,422 $(21,500) $ 33,348 $(17,392) ======== ======== ======== ======== 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 the necessary approvals will be received by June 1996. At February 24, 1996, prepaid pension assets of approximately $13 million related to the aforementioned plans are included in the above table. Actuarial assumptions used to determine year-end plan status are as follows: 1995 1994 ---------------- --------------- U.S. Canada U.S. Canada ---- ------ ---- ------ Discount rate 7.00% 8.50% 8.50% 9.50% Weighted average rate of compensation increase 4.00% 4.00% 5.50% 4.00% Expected long-term rate of return on plan assets 8.00% 8.80% 8.50% 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 1996. 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 each of the three fiscal years in the period ended February 24, 1996. The Company participates in various multi-employer union pension plans which are administered jointly by management and union representatives and which sponsor most full-time and certain part-time union employees who are not covered by the Company's other pension plans. The pension expense for these plans approximated $38 million in both fiscal 1995 and 1993 and $39 million in fiscal 1994. 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. The Company recognizes the cost of providing postretirement benefits during employees' active service period. The components of net postretirement benefits cost are as follows: (Dollars in millions) Fiscal 1995 Fiscal 1994 Fiscal 1993 - -------------------- ----------- ----------- ----------- Service cost $0.6 $0.6 $0.6 Interest cost 2.9 3.6 3.9 Net amortization and deferral (0.8) - - ---- ---- ---- Net postretirement benefits cost $2.7 $4.2 $4.5 ==== ==== ==== The unfunded status of the plans is as follows: (Dollars in millions) Fiscal 1995 Fiscal 1994 - --------------------- ----------- ----------- Unfunded accumulated benefit obligation: Retirees $19.1 $24.0 Fully eligible active plan participants 3.5 3.6 Other active plan participants 13.2 8.2 ------ ------ 35.8 35.8 ------ ------ Unrecognized net gain from experience differences 15.6 15.0 ------ ------ Accrued postretirement costs $51.4 $50.8 ====== ====== Assumed discount rate 7.0% 8.5% ====== ====== The assumed rate of future increase in health care benefit cost was 10.0% in fiscal 1995 and is expected to decline to 5.0% by the year 2025 and remain at that level thereafter. The effect of a one-percentage-point increase in the assumed health care cost trend rate for each future year on the net postretirement health care cost and the accumulated postretirement benefit obligation would be $0.4 million and $3.3 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 fiscal 1994. 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 669,000 options and 10,000 SAR's were granted in fiscal 1995. On March 18, 1994, the Board of Directors approved a 1994 Stock Option Plan for Directors of the Company. 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. Options granted under this plan in fiscal 1995 totaled 1,800. 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 SAR transactions is as follows: Officers and Key Employees - -------------------------- Price Range Shares Per Share --------- --------------- Outstanding February 27, 1993 1,179,125 $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 2,414,125 $21.50 - $65.13 Cancelled or expired (26,500) 39.75 - 59.00 Exercised (2,500) 23.38 --------- --------------- Outstanding February 25, 1995 2,385,125 $21.50 - $65.13 Granted 10,000 21.88 Cancelled or expired (166,750) 23.38 - 46.38 Exercised (75,625) 21.50 - 24.75 --------- --------------- Outstanding February 24, 1996 2,152,750 $21.50 - $65.13 ========= =============== Exercisable at: February 25, 1995 1,575,625 $21.50 - $65.13 February 24, 1996 1,666,500 $21.50 - $65.13 ========= =============== A summary of option transactions is as follows: Officers, Key Employees and Board of Directors - --------------------------- Price Range Shares Per Share ------ ---------------- Outstanding February 27, 1993 15,000 $27.63 ------- --------------- Outstanding February 26, 1994 15,000 $27.63 Granted 69,800 21.50 - 26.50 ------- --------------- Outstanding February 25, 1995 84,800 $21.50 - $27.63 Granted 670,800 21.88 - 27.88 Cancelled or expired (10,000) 27.88 ------- --------------- Outstanding February 24, 1996 745,600 $21.50 - $27.88 ======= =============== Exercisable at: February 25, 1995 11,250 $27.63 February 24, 1996 34,100 $21.50 -$27.63 ======= ============== In October 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"). SFAS 123 establishes financial accounting and reporting standards for stock-based employee compensation plans. SFAS 123 encourages all entities to adopt a fair value based method of accounting for stock-based compensation plans in which compensation cost is measured at the date the award is granted based on the value of the award and is recognized over the employees' service period. However, SFAS 123 allows an entity to continue to use the intrinsic value based method prescribed by Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25"), with proforma disclosures of net income and earnings per share as if the fair value based method had been applied APB 25 requires compensation expense to be recognized over the employees' service period based on the excess, if any, of the quoted market price of the stock at the date the award is granted or other measurement date, as applicable, over an amount an employee must pay to acquire the stock. SFAS 123 is effective for financial statements for fiscal years beginning after December 15, 1995. The Company plans to adopt SFAS 123 during fiscal 1996 and to continue to apply the methods prescribed by APB 25. 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, Sav-A-Center, Dominion, Miracle Food Mart and Food Basics. Sales in the table below reflect sales to unaffiliated customers in the United States and Canada. (Dollars in thousands) Fiscal 1995 Fiscal 1994 Fiscal 1993 - --------------------- ----------- ----------- ----------- Sales: United States $ 8,365,327 $ 8,540,871 $ 8,466,338 Foreign 1,736,029 1,791,079 1,917,739 ----------- ----------- ----------- Total $10,101,356 $10,331,950 $10,384,077 =========== =========== =========== Income (Loss) From Operations: United States $ 125,118 $ 137,804 $ 101,305 Foreign 26,616 (195,334) (33,025) ----------- ----------- ----------- Total $ 151,734 $ (57,530) $ 68,280 =========== =========== =========== Assets: United States $2,454,347 $ 2,482,108 $ 2,528,239 Foreign 422,494 412,680 570,456 ---------- ----------- ----------- Total $2,876,841 $ 2,894,788 $ 3,098,695 ========== =========== =========== 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, was 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. These costs, which only included costs subsequent to the actual store closings, were paid principally over four years. During fiscal 1995 and fiscal 1994, store closing costs of approximately $2 million and $14 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. As of February 24, 1996, the Company had utilized the total amount of this reserve. 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. The Company utilized $13 million of this reserve in fiscal 1995 and expects to utilize the remaining portion of this reserve during fiscal 1996. As of February 24, 1996, all of the stores were closed. SUMMARY OF QUARTERLY RESULTS (unaudited) The table below summarizes the Company's results of operations by quarter for fiscal 1995 and 1994. 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 - ------------------------ ------- ------- ------- ------- ----- 1995 Sales $3,135,514$2,341,171$2,293,597$2,331,074$10,101,356 Gross margin 909,812 669,103 666,121 690,201 2,935,237 Depreciation and amortization 70,400 52,340 51,957 50,752 225,449 Income from operations 46,884 29,861 29,235 45,754 151,734 Interest expense 22,873 16,197 17,159 16,914 73,143 Net income 14,550 9,384 7,735 25,555 57,224 Per share data: Net income .38 .25 .20 .67 1.50 Cash dividends .05 .05 .05 .05 .20 Market price: High 26.250 28.625 28.875 24.875 Low 19.000 23.875 20.000 19.500 Number of stores at end of period 1,082 1,063 1,043 1,014 - ---------------------------------------------------------------------------- 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 Depreciation and amortization 75,019 57,063 53,522 49,840 235,444 Income (loss) from operations 31,778 25,868 (144,568) 29,392 (57,530) Interest expense 20,809 16,807 17,446 17,910 72,972 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 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 reasonable 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 and Chief Executive Officer Chief Financial Officer 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 24, 1996 and February 25, 1995 and the related consolidated statements of operations, shareholders' equity and cash flows for each of the three fiscal years in the period ended February 24, 1996. 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 24, 1996 and February 25, 1995 and the results of their operations and their cash flows for each of the three fiscal years in the period ended February 24, 1996 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 No. 112. /s/Deloitte & Touche LLP Parsippany, New Jersey April 25, 1996 FIVE-YEAR SUMMARY OF SELECTED FINANCIAL DATA The Great Atlantic & Pacific Tea Company, Inc. (Dollars in thousands, except per share figures) - ------------------------ Fiscal 1995 Fiscal 1994 Fiscal 1993 Fiscal 1992Fiscal 1991 (52 weeks) (52 weeks) (52 weeks) (52 weeks) (53 weeks) ----------- ----------- ----------- ---------------------- Operating Results Sales $10,101,356 $10,331,950 $10,384,077 $10,499,465 $11,590,991 Income (loss) from operations 151,734 (57,530) 68,280 44,306 203,854 Depreciation and amortization 225,449 235,444 235,910 228,976 224,641 Interest expense 73,143 72,972 63,318 66,436 81,416 Income (loss) before cumulative effect of accounting changes 57,224 (166,586) 3,959 (98,501) 70,664 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) 57,224 (171,536) 3,959 (189,501) 70,664 Per Share Data Income (loss) before cumulative effect of accounting changes 1.50 (4.36) .10 (2.58) 1.85 Cumulative effect on prior years of changes in accounting principles: Postemployment benefits - (.13) - - - Income taxes - - - (1.69) - Postretirement benefits - - - (.69) - Net income (loss) 1.50 (4.49) .10 (4.96) 1.85 Cash dividends .20 .65 .80 .80 .80 Book value per share 21.53 20.27 26.02 27.06 32.79 Financial Position Current assets 1,184,102 1,193,731 1,230,339 1,221,492 1,255,908 Current liabilities1,005,795 1,096,454 1,151,132 1,164,723 1,082,042 Working capital 178,307 97,277 79,207 56,769 173,866 Current ratio 1.18 1.09 1.07 1.05 1.16 Expenditures for property 236,139 214,886 267,329 204,870 161,902 Total assets 2,876,841 2,894,788 3,098,695 3,090,930 3,293,267 Current portion of long-term debt 13,040 112,821 77,755 104,660 55,953 Current portion of capital lease obligations 13,125 14,492 16,097 18,021 18,604 Long-term debt 650,169 612,473 544,399 414,301 486,129 Long -term portion of capital lease obligations 129,887 146,400 162,866 182,066 206,003 Total debt 806,221 886,186 801,117 719,048 766,689 Debt to total capitalization .49 .53 .45 .41 .38 Equity Shareholders' equity 822,785 774,914 994,417 1,034,330 1,253,106 Weighted average shares outstanding 38,220,000 38,220,000 38,220,000 38,219,000 38,211,000 Number of registered shareholders 10,010 10,867 11,831 12,309 12,871 Other Number of employees 89,000 92,000 94,000 90,000 94,600 New store openings 30 22 16 11 18 Number of stores at year end 1,014 1,108 1,173 1,193 1,238 Total store area (square feet) 34,669,000 36,441,000 37,908,000 37,741,000 38,742,000 Number of franchised stores at year end 7 - - - - Total franchised stores area (square feet) 177,936 - - - - 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 and Chief Financial Officer Gerald L. Good Executive Vice President, Marketing and Merchandising J. Wayne Harris Executive Vice President, Canadian Operations Peter J. O'Gorman Executive Vice President, International Store and Product Development George Graham Senior Vice President, Chief Merchandising Officer Veronica Hackett Senior Vice President, Real Estate 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 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 R. Terrence Galvin Vice President, Treasurer 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 Brian Pall Vice President, Real Estate Development 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 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 and Chief Financial Officer 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 9, 1996 at the Marriott Waterfront Hotel , 80 Compromise St., Annapolis, Maryland. 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 3 Exhibit 21 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. COMPANIES STATE INCORPORATED A&P Wine and Spirits, Inc. Massachusetts ANP Properties I Corp. Delaware ANP Sales Corp. Maryland APG V, 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 Food Basics, Limited Ontario 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 Tea Development Co., 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 4 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 25, 1996, contained in the Company's 1995 Annual Report to Shareholders 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 24, 1996. /s/Deloitte & Touche LLP Parsippany, New Jersey May 22, 1996 EX-27 5
5 THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE GREAT ATLANTIC & PACIFIC TEA COMPANY, INC. FORM 10-K FOR THE YEAR ENDED FEBRUARY 24, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1000 YEAR FEB-24-1996 FEB-24-1996 99772 0 205133 0 826510 1184102 2742549 (1188005) 2876841 1005795 780056 0 0 38229 784556 2876841 10101356 10101356 7166119 7166119 2783503 0 70642 81092 (23868) 57224 0 0 0 57224 1.50 1.50
-----END PRIVACY-ENHANCED MESSAGE-----