10-K

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

þ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended February 24, 2007

OR

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                     

Commission file number 1-4141

THE GREAT ATLANTIC & PACIFIC TEA COMPANY, INC.

(Exact name of registrant as specified in its charter)

Maryland	13-1890974
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

2 Paragon Drive
Montvale, New Jersey 07645
(Address of principal executive offices)

Registrant’s telephone number, including area code: 201-573-9700

Securities registered pursuant to Section 12 (b) of the Act:

Title of each class	Name of each exchange on which registered
Common Stock — $1 par value	New York Stock Exchange
7.75% Notes, due April 15, 2007	New York Stock Exchange
9.125% Senior Notes, due December 15, 2011	New York Stock Exchange
9.375% Notes, due August 1, 2039	New York Stock Exchange

Securities registered pursuant to Section 12 (g) of the Act: None

     Indicate by check mark if the registrant is a well-known seasoned issuer, as defined by Rule 405 of the Securities Act. Yes þ No o

     Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 of Section 15(d) of the Act. Yes o No þ

     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 þ No o

     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. o

     Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o               Accelerated filer þ               Non-accelerated filer o

     Indicate by check mark whether the registrant is a shell company (as defined in Exchange Act Rule 12b-2). Yes o No þ

     The aggregate market value of the voting stock held by non-affiliates of the Registrant as of the close of business on September 9, 2006, the registrant’s most recently completed second fiscal quarter, was $446,258,519.

     The number of shares of common stock outstanding as of the close of business on April 23, 2007 was 41,796,066.

DOCUMENTS INCORPORATED BY REFERENCE

     The information required by Part I, Items 1 and 3, and Part II, Items 5, 6, 7, 7A, 8 and 9A are incorporated by reference from the Registrant’s Fiscal 2006 Annual Report to Stockholders. The information required by Part III, Items 10, 11, 12, 13, and 14 are incorporated by reference from the Registrant’s Proxy Statement for the 2007 Annual Meeting of Stockholders.

TABLE OF CONTENTS

	PART I
	ITEM 1 — Business
	ITEM 1A — Risk Factors
	ITEM 1B — Unresolved Staff Comments
	ITEM 2 — Properties
	ITEM 3 — Legal Proceedings
	ITEM 4 — Submission of Matters to a Vote of Security Holders
	PART II
	ITEM 5 — Market for the Registrant’s Equity and Related Stockholder Matters and Issuer Purchases of Equity Securities
	ITEM 6 — Selected Financial Data
	ITEM 7 — Management’s Discussion and Analysis of Financial Condition and Results of Operations
	ITEM 7A — Quantitative and Qualitative Disclosures About Market Risk
	ITEM 8 — Financial Statements and Supplementary Data
	ITEM 9 — Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
	ITEM 9A — Controls and Procedures
	ITEM 9B — Other Information
	PART III
	ITEM 10 — Directors and Executive Officers and Corporate Governance
	ITEM 11 — Executive Compensation
	ITEM 12 — Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
	ITEM 13 — Certain Relationships and Related Transactions and Director Independence
	ITEM 14 — Principal Accounting Fees and Services
	PART IV
	ITEM 15 — Exhibits and Financial Statement Schedules
SIGNATURES
EX-4.8: FIRST AMENDMENT TO CREDIT AGREEMENT
EX-4.9: SECOND AMENDMENT TO CREDIT AGREEMENT
EX-10.15: EMPLOYMENT AGREEMENT
EX-10.39: FIRST AMENDMENT TO LETTER OF CREDIT AGREEMENT
EX-10.40: SECOND AMENDMENT TO LETTER OF CREDIT AGREEMENT
EX-13: FISCAL 2006 ANNUAL REPORT TO STOCKHOLDERS
EX-14: CODE OF BUSINESS CONDUCT AND ETHICS
EX-21: SUBSIDIARIES OF THE REGISTRANT
EX-23.1: CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FROM PRICEWATERHOUSECOOPERS LLP
EX-23.2: CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FROM ERNST & YOUNG LLP
EX-31.1: CERTIFICATION
EX-31.2: CERTIFICATION
EX-32: CERTIFICATION
EX-99.2: METRO INC. CONSOLIDATED FINANCIAL STATEMENTS

PART I

ITEM 1 — Business

General

     The Great Atlantic & Pacific Tea Company, Inc. (“A&P”, “we”, “our”, “us” or “our Company”) is engaged in the retail food business. We operated 406 stores averaging approximately 40,700 square feet per store as of February 24, 2007.

     Operating under the trade names A&P^â, Super Fresh^â, Sav-A-Center^â, Farmer Jack^â, Waldbaum’s^ä, Super Foodmart, Food Basics^â, and The Food Emporium^â, we sell 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 and on-site banking. National, regional and local brands are sold as well as private label merchandise. In support of our retail operations, we sell other private label products in our stores under other brand names of our Company which include without limitation, America’s Choice^â, Master Choice^â, and Health Pride^â.

     Building upon a broad base of A&P supermarkets, our Company has historically expanded and diversified within the retail food business through the acquisition of other supermarket chains and the development of several alternative store types. We now operate our stores with merchandise, pricing and identities tailored to appeal to different segments of the market, including buyers seeking gourmet and ethnic foods, a wide variety of premium quality private label goods and health and beauty aids along with the array of traditional grocery products.

     On March 5, 2007, our Company announced that we have reached a definitive merger agreement with Pathmark Stores, Inc. in which we will acquire Pathmark Stores, Inc., (“Pathmark”) for $1.5 billion in cash, stock, and debt assumption or retirement. This transaction is expected to be completed during the second half of our fiscal year 2007 and is subject to the completion of shareholder and regulatory approvals, as well as other customary closing conditions. For further details surrounding the Pathmark transaction, refer to our Company’s Form 8-K and the accompanying exhibits filed with the U.S. Securities and Exchange Commission on March 6, 2007.

     Under the terms of the transaction, The Tengelmann Group (“Tengelmann”), currently A&P’s majority shareholder, will remain the largest single shareholder of the combined entity. Christian Haub, Executive Chairman of A&P, will continue as Executive Chairman of the combined company; Eric Claus, President and CEO of A&P, will also maintain the same position in the combined company.

     Pathmark shareholders will receive $9.00 in cash and 0.12963 shares of A&P stock for each Pathmark share. As a result, Pathmark shareholders, including its largest investor, The Yucaipa Companies LLC (“Yucaipa Companies”), will receive a stake in the combined companies.

     The boards of both A&P and Pathmark have unanimously approved the transaction. Both Yucaipa Companies and Tengelmann have entered into voting agreements to support the transaction.

     On April 24, 2007, based upon unsatisfactory operating trends and the need to devote resources to our expanding Northeast core business, our Company announced that we are in negotiations for the potential sale of groups of non-core

2

stores within our Midwest operations. No definitive sale agreements have been signed at this time; however, based upon submitted bids received to date, it is possible that an impairment on long-lived assets that are currently held and used in our Midwest operations may be likely in the near term. In addition, in connection with this potential sale, it is possible that liabilities for closed stores and warehouses as well as pension withdrawal from our multi-employer union pension plans may be recorded in the near term.

     The Company’s Securities and Exchange Commission (“SEC”) filings are promptly posted to its website at www.aptea.com after they are filed with the SEC and can be accessed free of charge through a link on the “Investors” page.

Modernization of Facilities

     During fiscal 2006, we expended approximately $208 million for capital projects, which included 4 new supermarkets and 30 major remodels or enlargements. With our announced acquisition of Pathmark, our Company is reducing capital expenditures to approximately $150 million in fiscal 2007. These expenditures relate primarily to opening new supermarkets and/or liquor stores, converting stores to the new Gourmet format, and enlarging or remodeling supermarkets. We plan to increase our levels of capital expenditures in fiscal 2008 and beyond once the integration of the Pathmark business is completed.

Sources of Supply

     Our Company currently acquires a significant amount of our saleable inventory from one supplier, C&S Wholesale Grocers, Inc. Although there are a limited number of distributors that can supply our stores, we believe that other suppliers could provide similar product on comparable terms.

Licenses and Trademarks

     Our stores require a variety of licenses and permits that are renewed on an annual basis. Payment of a fee is generally the only condition to maintaining such licenses and permits. We maintain registered trademarks for nearly all of our store banner trade names and private label brand names. Trademarks are generally renewable on a 10 year cycle. We consider trademarks an important way to establish and protect our Company brands in a competitive environment.

Employees

     As of February 24, 2007, we had approximately 38,000 employees, of which 66% were employed on a part-time basis. Approximately 88% of our employees are covered by union contracts. Our Company considers its present relations with employees to be satisfactory.

Competition

     The supermarket business is highly competitive throughout the marketing areas served by our 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. We compete for sales and store locations with a number of national and regional chains, as well as with many independent and cooperative stores and markets.

Segment Information

3

     The segment information required is contained under the caption “Note 15 — Operating Segments” in the Fiscal 2006 Annual Report to Stockholders (“Annual Report”) and is herein incorporated by reference.

Foreign Operations

     The information required is contained under the captions “Management’s Discussion and Analysis”, “Note 1 — Summary of Significant Accounting Policies”, “Note 4 — Equity Investment in Metro, Inc.”, “Note 6 — Valuation of Long-Lived Assets”, “Note 8 — Asset Disposition Initiatives”, “Note 9 — Indebtedness”, “Note 12 — Income Taxes”, “Note 13 — Retirement Plans and Benefits”, “Note 14 — Stock Based Compensation”, “Note 15 — Operating Segments”, “Note 17 — Related Party Transactions”, “Note 18 — Hedge of Net Investment in Foreign Operations”, “Note 20 — Subsequent Events” in addition to further information concerning our business and foreign operations in the Annual Report and is herein incorporated by reference.

ITEM 1A — Risk Factors

Set forth below is a summary of the material risks to an investment in our securities.

     Various factors could cause us to fail to achieve these goals. These include, among others, the following:

• Actions of competitors could adversely affect our sales and future profits. The grocery retailing industry continues to experience fierce competition from other food retailers, super-centers, mass merchandisers, warehouse clubs, drug stores, dollar stores and restaurants. Our continued success is dependent upon our ability to effectively compete in this industry and to reduce operating expenses, including managing health care and pension costs contained in our collective bargaining agreements. The competitive practices and pricing in the food industry generally and particularly in our principal markets may cause us to reduce our prices in order to gain or maintain our market share of sales, thus reducing margins.

• Changes in the general business and economic conditions in our operating regions, including the rate of inflation, population growth, the rising prices of oil and gas, the nature and extent of continued consolidation in the food industry and employment and job growth in the markets in which we operate, may affect our ability to hire and train qualified employees to operate our stores. This would negatively affect earnings and sales growth. General economic changes may also affect the shopping habits and buying patterns of our customers, which could affect sales and earnings. We have assumed economic and competitive situations will not worsen in fiscal 2007. However, we cannot fully foresee the effects of changes in economic conditions, inflation, population growth, the rising prices of oil and gas, customer shopping habits and the consolidation of the food industry on our business.

• Our capital expenditures could differ from our estimate if development and remodel costs vary from those budgeted, or if performance varies significantly from expectations or if we are unsuccessful in acquiring suitable sites for new stores.

• Our ability to achieve our profit goals will be affected by (i.) our success in executing category management and purchasing programs that we have underway, which are designed to improve

4

our gross margins and reduce product costs while making our product selection more attractive to consumers, (ii.) our ability to achieve productivity improvements and reduce shrink in our stores, (iii.) our success in generating efficiencies in our supporting activities, and (iv.) our ability to eliminate or maintain a minimum level of supply and/or quality control problems with our vendors.

• The vast majority of our employees are members of labor unions. While we believe that our relationships with union leaderships and our employees are satisfactory, we operate under collective bargaining agreements which periodically must be renegotiated. In the coming year, we have several contracts expiring and under negotiation. In each of these negotiations, rising health care and pension costs will be an important issue, as will the nature and structure of work rules. We are hopeful, but cannot be certain, that we can reach satisfactory agreements without work stoppages in these markets. However, the actual terms of the renegotiated collective bargaining agreements, our future relationships with our employees and/or a prolonged work stoppage affecting a substantial number of stores could have a material effect on our results.

• The amount of contributions made to our pension and multi-employer plans will be affected by the performance of investments made by the plans and the extent to which trustees of the plans reduce the costs of future service benefits.

• Our Company is currently required to acquire a significant amount of our saleable inventory from one supplier, C&S Wholesale Grocers, Inc. Although there are a limited number of distributors that can supply our stores, we believe that other suppliers could provide similar product on reasonable terms. However, a change in suppliers could cause a delay in distribution and a possible loss of sales, which would affect operating results adversely.

• We have estimated our exposure to claims, administrative proceedings and litigation and believe we have made adequate provisions for them, where appropriate. Unexpected outcomes in both the costs and effects of these matters could result in an adverse effect on our earnings.

• Completion of the acquisition of Pathmark is conditioned upon the receipt of certain governmental authorizations, consents, orders and approvals, including the expiration or termination of the applicable waiting period (and any extension of the waiting period) under the Hart-Scott-Rodino Act. The success of the acquisition will depend, in part, on our Company’s ability to realize the anticipated benefits from combining the business of A&P and Pathmark. If our Company is not able to achieve these objectives, the anticipated benefits of the acquisition may not be realized fully or at all or may take longer to realize than expected. Our Company will take on substantial additional indebtedness to finance this acquisition, which will decrease our business flexibility and increase our borrowing costs.

     Other factors and assumptions not identified above could also cause actual results to differ materially from those set forth in the forward-looking information. Accordingly, actual events and results may vary significantly from those included in or contemplated or implied by forward-looking statements made by us or our representatives.

CAUTIONARY NOTE

5

     This presentation may contain forward-looking statements about the future performance of our Company, and is based on our assumptions and beliefs in light of information currently available. We assume no obligation to update this information. These forward-looking statements are subject to uncertainties and other factors that could cause actual results to differ materially from such statements including but not limited to: competitive practices and pricing in the food industry generally and particularly in our principal markets; our relationships with our employees; the terms of future collective bargaining agreements; the costs and other effects of lawsuits and administrative proceedings; the nature and extent of continued consolidation in the food industry; changes in the financial markets which may affect our cost of capital or the ability to access capital; supply or quality control problems with our vendors; and changes in economic conditions, which may affect the buying patterns of our customers.

ITEM 1B — Unresolved Staff Comments

     None.

ITEM 2 — Properties

     At February 24, 2007, we owned 34 properties consisting of the following:

Stores, Not Including Stores in Owned Shopping Centers
Land owned	1
Land and building owned	6
Building owned and land leased	18
Total stores	25
Shopping Centers
Building owned and land leased	1
Administrative and Other Properties
Land and building owned	3
Undeveloped land	5
Total other properties	8
Total Properties	34

     None of the properties listed above are subject to material encumbrances.

     At February 24, 2007, we operated 406 retail stores. These stores are geographically located as follows:

 Company Stores:

New England States:
Connecticut	26
Total	26
Middle Atlantic States:
District of Columbia	1

6

Delaware	9
Maryland	30
New Jersey	92
New York	128
Pennsylvania	31
Total	291
Midwestern States:
Michigan	66
Total	66
Southern States:
Louisiana	21
Mississippi	2
Total	23
Total Stores	406

     The total area of all of our operated retail stores is 16.5 million square feet averaging approximately 40,700 square feet per store. Excluding liquor and The Food Emporium^â stores, which are generally smaller in size, the average store size is approximately 43,400 square feet. The 10 new stores opened in fiscal 2006 consisted of 4 new supermarkets and range in size from 11,700 to 59,800 square feet, with an average size of approximately 40,200 square feet. The remaining 6 stores consisted of Clemens Markets stores that were purchased from C&S Wholesale Grocers, Inc. and range in size from 19,900 to 50,000 square feet, with an average size of approximately 39,500 square feet. The stores built over the past several years and those planned for fiscal 2007 and thereafter, generally range in size from 40,000 to 60,000 square feet. The selling area of new stores is approximately 75% of the total square footage.

     As of the end of fiscal 2006, we operated 2 warehouses to service our store network located in Michigan. Our store network is also serviced by C&S Wholesale Grocers, Inc.

     Our Company considers our stores, warehouses, and other facilities adequate for our operations.

ITEM 3 — Legal Proceedings

     The information required is contained under the caption “Note 19 — Commitments and Contingencies” in the Fiscal 2006 Annual Report to Stockholders 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 2006.

PART II

7

ITEM 5 — Market for the Registrant’s Equity and Related Stockholder Matters and Issuer Purchases of Equity Securities

     The information required is contained under the captions “Summary of Quarterly Results”, “Five Year Summary of Selected Financial Data”, and “Stockholder Information” in the Fiscal 2006 Annual Report to Stockholders and is herein incorporated by reference.

     Although our Company declared and paid a special one-time dividend to our shareholders of record on April 17, 2006 equal to $7.25 per share in April 2006, our Company’s policy is to not pay dividends. As such, we have not made dividend payments in the previous three years and do not intend to pay dividends in the normal course of business in fiscal 2007. However, our Company is permitted, under the terms of our Revolving Credit Agreement, to pay cash dividends on common shares.

     There have been no repurchases of our Company stock in fiscal 2006.

Stock Performance Graph

     The following performance graph compares the five-year cumulative total stockholder return (assuming reinvestment of dividends) of the Company’s Common Stock to the Standard & Poor’s 500 Index and the Company’s Peer Group which consists of the Company, Supervalu Inc., Safeway, Inc. and The Kroger Co. The “Peer Group” for the purposes of the Stock Performance Graph is a subset of, and should not be confused for, the peer group list of companies used to benchmark executive compensation as discussed in the Proxy Statement for the Company’s 2007 Annual Meeting of Shareholders (“Proxy Statement”). The performance graph assumes $100 is invested in the Company’s Common Stock, the Standard & Poor’s 500 Index and the Company’s Peer Group on February 24, 2001, and that dividends paid during the period were reinvested to purchase additional shares.

8

     (Company fiscal year ends the last Saturday in February)

Fiscal Year Ending	S&P 500		A&P		Peer Group
	$		$		$
02/22/02		100		100		100
02/21/03		79		19		49
02/27/04		107		29		74
02/25/05		113		42		77
02/24/06		120		119		103
02/23/07		136		141		130

     The performance graph above is being furnished solely to accompany this annual report on Form 10-K pursuant to Item 201(e) of Regulation S-K, and is not being filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and is not to be incorporated by reference into any filing of our Company, whether made before or after the date hereof, regardless of any general incorporation language in such filing.

9

ITEM 6 — Selected Financial Data

     The information required is contained under the caption “Five Year Summary of Selected Financial Data” in the Fiscal 2006 Annual Report to Stockholders and is herein incorporated by reference.

ITEM 7 — Management’s Discussion and Analysis of Financial Condition and Results of Operations

     The information required is contained under the caption “Management’s Discussion and Analysis” in the Fiscal 2006 Annual Report to Stockholders and is herein incorporated by reference.

ITEM 7A — Quantitative and Qualitative Disclosures About Market Risk

     The information required is contained in the section “Market Risk” under the caption “Management’s Discussion and Analysis” in the Fiscal 2006 Annual Report to Stockholders and is herein incorporated by reference.

ITEM 8 — Financial Statements and Supplementary Data

(a)	Financial Statements: The financial statements required to be filed herein are described in Part IV, Item 15 of this report and are incorporated herein by reference to the Annual Report. Except for the sections included herein by reference, our Fiscal 2006 Annual Report to Stockholders is not deemed to be filed as part of this report.
(b)	Supplementary Data: The information required is contained under the caption “Summary of Quarterly Results” in the Fiscal 2006 Annual Report to Stockholders and is herein incorporated by reference.

ITEM 9 — Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

     There were no changes in or disagreements with accountants on accounting and financial disclosure during the fiscal year ended February 24, 2007.

ITEM 9A — Controls and Procedures

Evaluation of Disclosure Controls and Procedures

     We have established and maintain disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) that are designed to ensure that information required to be disclosed in our Company’s Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is

10

accumulated and communicated to our Company’s management, including our President and Chief Executive Officer and Senior Vice President, Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

     We carried out an evaluation, under the supervision and with the participation of our Company’s management, including our Company’s President and Chief Executive Officer along with our Company’s Senior Vice President, Chief Financial Officer, of the effectiveness of the design and operation of our Company’s disclosure controls and procedures pursuant to Exchange Act Rule 13a-15(b). Based upon the foregoing, as of the end of the period covered by this report, our Company’s President and Chief Executive Officer along with our Company’s Senior Vice President, Chief Financial Officer, concluded that our Company’s disclosure controls and procedures were effective at the reasonable assurance level.

     The Company’s management does not expect that its disclosure controls and procedures or its internal control over financial reporting will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and breakdowns can occur because of simple errors or mistakes. Additionally, controls can be circumvented by the individual acts of some person or by collusion of two or more people. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected. Accordingly, the Company’s disclosure controls and procedures are designed to provide reasonable, not absolute, assurance that the objectives of our disclosure control system are met and, as set forth above, the Company’s management has concluded, based on their evaluation as of the end of the period, that our disclosure controls and procedures were sufficiently effective to provide reasonable assurance that the objectives of our disclosure control system were met.

Incorporation by reference of Management’s Annual Report on Internal Control over Financial Reporting

     Management of The Great Atlantic and Pacific Tea Company, Inc. has prepared an annual report on internal control over financial reporting (as such item is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act). Management’s report, together with the attestation report of the independent registered public accounting firm, is included in our Company’s Fiscal 2006 Annual Report to Stockholders and is herein incorporated by reference in this Annual Report on Form 10-K.

Changes in Internal Control over Financial Reporting

     There has been no change during our Company’s fiscal quarter ended February 24, 2007 in our Company’s internal control over financial reporting (as such item is defined in Rules 13a-15(f) and

11

15d-15(f) under the Exchange Act) that has materially affected, or is reasonably likely to materially affect, our Company’s internal control over financial reporting.

ITEM 9B — Other Information

None

PART III

ITEM 10 — Directors and Executive Officers and Corporate Governance

     Disclosures of delinquent filers pursuant to Item 405 of Regulation S-K are incorporated herein by reference to the Proxy Statement.

     The executive officers of our Company are as follows:

Name	Age		Current Position
Christian W.E. Haub		43	Executive Chairman
Eric Claus		50	President and Chief Executive Officer
Brenda M. Galgano		38	Senior Vice President and Chief Financial Officer
Jennifer MacLeod		46	Senior Vice President, Marketing and Communications
Rebecca Philbert		45	Senior Vice President, Merchandising & Supply and Logistics
Allan Richards		43	Senior Vice President, Human Resources, Labor Relations, Legal Services & Secretary
Paul Wiseman		46	Senior Vice President, Store Operations
William Moss		59	Vice President and Treasurer
Melissa Sungela		41	Vice President and Corporate Controller

     The executive officers of our Company are chosen annually and, with the exception of the Executive Chairman, serve under the direction of the Chief Executive Officer (“CEO”) with the consent of the Board of Directors.

     Mr. Haub was appointed Executive Chairman in August 2005. He was elected a director in December 1991, and is Chair of the Executive Committee. Mr. Haub previously served as Chairman of the Board and Chief Executive Officer; and as Chief Operating Officer of our Company from December 1993, becoming Co-Chief Executive Officer in April 1997, sole CEO in May 1998 and Chairman of the Board in May 2001. Mr. Haub also served as President of the Company from December 1993 through February 2002, and from November 2002 through November 2004. Mr. Haub is a partner and Co-Chief Executive Officer of Tengelmann Warenhandelsgesellschaft KG, a partnership organized under the laws of the Federal Republic of Germany (“Tengelmann”). Mr. Haub is on the Board of Directors of Metro, Inc., the Food Marketing Institute and on the Board of Trustees of St. Joseph’s University in Philadelphia, Pennsylvania.

     Mr. Claus was appointed President & Chief Executive Officer in August 2005. Mr. Claus previously served as President & Chief Executive Officer, Canadian Company from November 2002 to August 2005. Prior to joining our Company, Mr. Claus served as Chief Executive Officer of Co-Op Atlantic, an integrated wholesale agri-food operator, between February 1997 and November 2002.

12

     Ms. Galgano, CPA, was appointed Senior Vice President and Chief Financial Officer in November 2005. Ms. Galgano served as Senior Vice President and Corporate Controller from November 2004 to November 2005; Vice President, Corporate Controller from February 2002 to November 2004; Assistant Corporate Controller of our Company from July 2000 to February 2002 and Director of Corporate Accounting from October 1999 to July 2000. Prior to joining our Company, Ms. Galgano was with PricewaterhouseCoopers as Senior Manager, Assurance and Business Advisory Services.

     Ms. MacLeod was appointed Senior Vice President, Marketing and Communications in November 2005. Prior to joining our Company, Ms. MacLeod served as Vice President of Marketing and Public Relations from 1998 to November 2005 for Co-Op Atlantic, an integrated wholesale agri-food operator, based in New Brunswick, Canada.

     Ms. Philbert was appointed Senior Vice President, Merchandising & Supply and Logistics, in January 2007. Prior to joining our Company, she was with Safeway, Inc. from 1981 to 2007, where she most recently served as Corporate Vice President and Senior Lead, Lifestyle Store development. Prior to that she served as Vice President Deli and Foodservice merchandising and prior to that Vice President of Marketing.

     Mr. Richards was appointed Senior Vice President, Human Resources, Labor Relations & Legal Services in September 2005 and in October 2005 was additionally appointed the Company’s Secretary. Prior to that Mr. Richards served as Senior Vice President, Labor Relations & Human Resources from July 2004 to September 2005 and as Senior Vice President, Labor Relations from March 2004 to July 2004. Prior to joining our Company Mr. Richards served as a consultant with MGS Consulting, Inc., a consulting firm, from July 2003 to July 2004; and prior to that as Director of Labor Relations and Employment Law for Fleming Companies, Inc., a full-service contracting company, from June 2000 to July 2003.

     Mr. Wiseman was appointed Senior Vice President, Store Operations in September 2005. Prior to that Mr. Wiseman was Senior Vice President, Discount Operations, A&P Canada from 2004 to September 2005 and prior to that served as District Manager/Vice President Retail Operations from 1999 to 2004 for Co-Op Atlantic, an integrated wholesale agri-food operator, based in New Brunswick, Canada.

     Mr. Moss was appointed Vice President and Treasurer in February 2002. Prior to that Mr. Moss was Vice President, Treasury Services and Risk Management from 1992 to February 2002.

     Ms. Sungela, CPA, was appointed Vice President and Corporate Controller in November 2005. Ms. Sungela served as Vice President and Assistant Corporate Controller from June 2004 to November 2005. Prior to joining our Company, Ms. Sungela was North American Controller for Amersham Biosciences, a provider of products and services used in gene, protein and cell research, drug discovery and development, and biopharmaceutical manufacturing, a part of GE Healthcare, from April 2002 to June 2004. Previously, she served as Director of Accounting Policy for Honeywell, from June 1998 to January 2002.

ITEM 11 — Executive Compensation

     The information required regarding our directors, executive compensation and our beneficial ownership reporting compliance is contained under the captions, “Executive Compensation” and

13

“Section 16(a) Beneficial Ownership Reporting Compliance”, respectively, in the Proxy Statement, to be filed on or about May 10, 2007, and is herein incorporated by reference.

Audit Committee Financial Expert

     The Board has determined that each member of the Audit Committee is independent in accordance with the New York Stock Exchange (“NYSE”) listing rules, the Company’s Standards of Independence and Rule 10A-3 of the Exchange Act. In addition, the Board has determined that each member of the Audit Committee qualifies as an “audit committee financial expert,” as defined by the SEC.

Code of Business Conduct and Ethics

     Our Company has adopted a Code of Business Conduct and Ethics applicable to all employees. This Code is applicable to Senior Financial Executives including the chief executive officer, chief financial officer and chief accounting officer of our Company. A&P’s Code of Business Conduct and Ethics is available on the Company’s Web site at www.aptea.com under “Corporate Governance.” Our Company intends to post on its web site any amendments to, or waivers from, its Code of Business Conduct and Ethics applicable to Senior Financial Executives.

     Additional information required by our directors is contained under the caption “Election of Directors” in the Proxy Statement and is incorporated herein by reference.

ITEM 12 — Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

     The information required is contained in our Proxy Statement under the heading “Security Ownership of Certain Beneficial Owners and Management”, and is herein incorporated by reference.

ITEM 13 — Certain Relationships and Related Transactions and Director Independence

     The information required is contained in our Proxy Statement under the heading “Certain Relationships and Transactions”, and is herein incorporated by reference.

ITEM 14 — Principal Accounting Fees and Services

     The information required is contained in our Proxy Statement under the heading “Independent Registered Public Accounting Firm”, and is herein incorporated by reference.

PART IV

ITEM 15 — Exhibits and Financial Statement Schedules

14

(a) Documents filed as part of this report:

1) Financial Statements: The following Consolidated Financial Statements, related Notes and Report of Independent Registered Public Accounting Firm are included in the Annual Report and are incorporated by reference into Item 8 of Part II of this Annual Report on Form 10-K.

Consolidated Statements of Operations
Consolidated Statements of Stockholders’ Equity and Comprehensive Income (Loss)
Consolidated Balance Sheets
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm

2) Financial Statement Schedule:

Schedule II            Valuation and Qualifying Accounts and Reserves

All other schedules are omitted because they are not required or do not apply, or the required information is included elsewhere in the Consolidated Financial Statements or Notes thereto.

3) Exhibits:

The following are filed as Exhibits to this Report:

EXHIBIT NO.	DESCRIPTION
2.1	Stock Purchase Agreement, dated as of July 19, 2005, by and among the Company, A&P Luxembourg S.a.r.l., Metro Inc. and 4296711 Canada Inc. (incorporated herein by reference to Exhibit 2.1 to Form 8-K filed on July 22, 2005)
3.1	Articles of Incorporation of The Great Atlantic & Pacific Tea Company, Inc., as amended through July 1987 (incorporated herein by reference to Exhibit 3(a) to Form 10-K filed on May 27, 1988)
3.2	By-Laws of The Great Atlantic & Pacific Tea Company, Inc., as amended and restated through October 6, 2005 (incorporated herein by reference to Exhibit 3.1 to Form 8-K filed on October 11, 2005)
4.1	Indenture, dated as of January 1, 1991 between the Company and JPMorgan Chase Bank (formerly The Chase Manhattan Bank as successor by merger to Manufacturers Hanover Trust Company), as trustee (the “Indenture”) (incorporated herein by reference to Exhibit 4.1 to Form 8-K)
4.2	First Supplemental Indenture, dated as of December 4, 2001, to the Indenture, dated as of January 1, 1991 between our Company and JPMorgan Chase Bank, relating to the 7.70% Senior Notes due 2004 (incorporated herein by reference to Exhibit 4.1 to Form 8-K filed on December 4, 2001)

15

EXHIBIT NO.	DESCRIPTION
4.3	Second Supplemental Indenture, dated as of December 20, 2001, to the Indenture between our Company and JPMorgan Chase Bank, relating to the 9 1/8% Senior Notes due 2011 (incorporated herein by reference to Exhibit 4.1 to Form 8-K filed on December 20, 2001)
4.4	Successor Bond Trustee (incorporated herein by reference to Exhibit 4.4 to Form 10-K filed on May 9, 2003)
4.5	Third Supplemental Indenture, dated as of August 23, 2005, to the Indenture between the Company and Wilmington Trust Company (as successor to JPMorgan Chase Bank) (incorporated herein by reference to Exhibit 4.1 to Form 8-K filed on August 23, 2005)
4.6	Fourth Supplemental Indenture, dated as of August 23, 2005, to the Indenture between the Company and Wilmington Trust Company (as successor to JPMorgan Chase Bank) (incorporated herein by reference to Exhibit 4.2 to Form 8-K filed on August 23, 2005)
4.7	Credit Agreement dated as of November 15, 2005 between the Company and Bank of America, N.A. as Administrative Agent and Collateral Agent, JPMorgan Chase Bank, N.A. as Syndication Agent, Wachovia Bank, National Association as Documentation Agent and Banc of America Securities LLC as Lead Arranger (“Credit Agreement”) (incorporated herein by reference to Exhibit 4.1 to Form 8-K filed on November 18, 2005 and Item 8.01 to Form 8-K filed April 10, 2006)
4.8*	First amendment to Credit Agreement dated March 13, 2006, as filed herein
4.9*	Second amendment to Credit Agreement dated November 10, 2006, as filed herein
10.1	Executive Employment Agreement, made and entered into as of the 15th day of August, 2005, by and between the Company and Mr. Eric Claus (incorporated herein by reference to Exhibit 10.1 to Form 8-K filed on September 9, 2005) and a technical amendment (incorporated herein by reference to Exhibit 10.1 to Form 10-K filed on May 9, 2006)
10.2	Employment Agreement, made and entered into as of the 1st day of November, 2000, by and between the Company and William P. Costantini (“Costantini Agreement”) (incorporated herein by reference to Exhibit 10 to Form 10-Q filed on January 16, 2001)
10.3	Amendment to Costantini Agreement dated April 30, 2002 (incorporated herein by reference to Exhibit 10.7 to Form 10-K filed on July 5, 2002)
10.4	Confidential Separation and Release Agreement by and between William P. Costantini and The Great Atlantic & Pacific Tea Company, Inc. dated

16

EXHIBIT NO.	DESCRIPTION
	November 4, 2004 (incorporated herein by reference to Exhibit 10.4 to Form 10-Q filed on January 7, 2005)
10.5	Employment Agreement, made and entered into as of the 16th day of June, 2003, by and between our Company and Brenda Galgano (incorporated herein by reference to Exhibit 10.9 to Form 10-Q filed on October 17, 2003)
10.6	Employment Agreement, made and entered into as of the 24th day of February, 2002, by and between our Company and Mitchell P. Goldstein (incorporated herein by reference to Exhibit 10.8 to Form 10-K filed on July 5, 2002)
10.7	Letter Agreement dated September 6, 2005, between Mitchell P. Goldstein and our Company (incorporated herein by reference to Exhibit 10.2 to Form 8-K filed on September 9, 2005)
10.8	Employment Agreement, made and entered into as of the 2nd day of October, 2002, by and between our Company and Peter Jueptner (“Jueptner Agreement”) (incorporated herein by reference to Exhibit 10.26 to Form 10-Q filed on October 22, 2002)
10.9	Amendment to Jueptner Agreement dated November 10, 2004 (incorporated herein by reference to Exhibit 10.8 to Form 10-K filed on May 10, 2005)
10.10	Offer Letter dated the 18th day of September 2002, by and between our Company and Peter Jueptner (incorporated herein by reference to Exhibit 10.10 to Form 10-Q filed on January 10, 2003)
10.11	Employment Agreement, made and entered into as of the 14th day of May, 2001, by and between our Company and John E. Metzger, as amended February 14, 2002 (“Metzger Agreement”) (incorporated herein by reference to Exhibit 10.13 to Form 10-K filed on July 5, 2002)
10.12	Amendment to John E. Metzger Agreement dated October 25, 2004 (incorporated herein by reference to Exhibit 10.12 to Form 10-K filed on May 10, 2005)
10.13	Employment Agreement, made and entered into as of the 25th day of January, 2006, by and between our Company and Jennifer MacLeod (incorporated herein by reference to Exhibit 10.13 to Form 10-K filed on May 9, 2006)
10.14	Employment Agreement, made and entered into as of the 1st day of March 2005, by and between our Company and William J. Moss (incorporated herein by reference to Exhibit 10.13 to Form 10-K filed on May 10, 2005)

17

EXHIBIT NO.	DESCRIPTION
10.15*	Employment Agreement, made and entered into as of the 11th day of December, 2006, by and between our Company and Rebecca Philbert, and Offer Letter dated the 11th day of December, 2006, as filed herein
10.16	Employment Agreement, made and entered into as of the 28th day of October, 2002, by and between our Company and Brian Piwek, and Offer Letter dated the 23rd day of October, 2002 (“Piwek Agreement”) (incorporated herein by reference to Exhibit 10.14 to Form 10-Q filed on January 10, 2003)
10.17	Amendment to Brian Piwek Agreement dated February 4, 2005 (incorporated herein by reference to Exhibit 10.15 to Form 10-K filed on May 10, 2005)
10.18	Employment Agreement, made and entered into as of the 4th day of January 2006, by and between our Company and Melissa E. Sungela (incorporated herein by reference to Exhibit 10.17 to Form 10-Q filed on January 6, 2006)
10.19	Employment Agreement, made and entered into as of the 12th day of September 2005, by and between our Company and Paul Wiseman (incorporated herein by reference to Exhibit 10.17 to Form 10-Q filed on October 18, 2005)
10.20	Employment Agreement, made and entered into as of the 2nd day of December 2004, by and between our Company and Allan Richards (incorporated herein by reference to Exhibit 10.18 to Form 10-Q filed on October 18, 2005)
10.21	Employment Agreement, made and entered into as of the 2nd day of December 2004, by and between our Company and Stephen Slade (incorporated herein by reference to Exhibit 10.19 to Form 10-Q filed on October 18, 2005)
10.22	Supplemental Executive Retirement Plan effective as of September 1, 1997 (incorporated herein by reference to Exhibit 10.B to Form 10-K filed on May 27, 1998)
10.23	Supplemental Retirement and Benefit Restoration Plan effective as of January 1, 2001 (incorporated herein by reference to Exhibit 10(j) to Form 10-K filed on May 23, 2001)
10.24	1994 Stock Option Plan (incorporated herein by reference to Exhibit 10(e) to Form 10-K filed on May 24, 1995)
10.25	1998 Long Term Incentive and Share Award Plan (incorporated herein by reference to Exhibit 10(k) to Form 10-K filed on May 19, 1999, to Appendix B to the Proxy Statement dated May 27, 2005 and to Appendix B to the Proxy Statement dated May 25, 2006)
10.26	Form of Stock Option Grant (incorporated herein by reference to Exhibit 10.20 to Form 10-K filed on May 10, 2005)

18

EXHIBIT NO.	DESCRIPTION
10.27	Description of 2005 Turnaround Incentive Compensation Program (incorporated herein by reference to Exhibit 10.21 to Form 10-K filed on May 10, 2005)
10.28	Form of Restricted Share Unit Award Agreement (incorporated herein by reference to Exhibit 10.22 to Form 10-K filed on May 10, 2005)
10.29	Description of 2006 Long Term Incentive Plan (incorporated herein by reference to Exhibit 10.28 to Form 10-Q filed on July 21, 2006)
10.30	Form of 2006 Restricted Share Unit Award Agreement (incorporated herein by reference to Exhibit 10.29 to Form 10-Q filed on July 21, 2006)
10.31	1994 Stock Option Plan for Non-Employee Directors (incorporated herein by reference to Exhibit 10(f) to Form 10-K filed on May 24, 1995)
10.32	2004 Non-Employee Director Compensation effective as of July 14, 2004 (incorporated herein by reference to Exhibit 10.15 to Form 10-Q filed on July 29, 2004 and to Appendix C to the Proxy Statement dated May 25, 2006)
10.33	Description of Management Incentive Plan (incorporated herein by reference to Exhibit 10.30 to Form 10-K filed on May 9, 2006)
10.34	Asset Purchase Agreement, dated as of June 27, 2005, by and between the Company, Ocean Logistics LLC and C&S Wholesale Grocers, Inc. (incorporated herein by reference to Exhibit 10.38 to Form 10-Q filed on October 18, 2005)
10.35	Supply Agreement, dated as of June 27, 2005, by and between the Company and C&S Wholesale Grocers, Inc. (incorporated herein by reference to Exhibit 10.39 to Form 10-Q filed on October 18, 2005)
10.36	Information Technology Transition Services Agreement by and between The Great Atlantic and Pacific Tea Company, Limited (“A&P Canada”) and Metro, Inc. entered into on August 15, 2005 (incorporated herein by reference to Exhibit 10.40 to Form 10-Q filed on October 18, 2005)
10.37	Investor Agreement by and between A&P Luxembourg S.a.r.l., a wholly owned subsidiary of the Company, and Metro, Inc. entered into on August 15, 2005 (incorporated herein by reference to Exhibit 10.41 to Form 10-Q filed on October 18, 2005)
10.38	Letter of Credit Agreement, dated as of October 14, 2005 between the Company and Bank of America, N.A., as Issuing Bank, (“Letter of Credit Agreement”) (incorporated herein by reference to Exhibit 10.42 to Form 10-Q filed on October 18, 2005)

19

EXHIBIT NO.	DESCRIPTION
10.39*	First amendment to Letter of Credit Agreement, dated October 13, 2006, as filed herein
10.40*	Second amendment to Letter of Credit Agreement, dated November 10, 2006, as filed herein
10.41	Entry into a Material Definitive Agreement, dated as of March 4, 2007, by and between the Company and Pathmark Stores, Inc. (incorporated herein by reference to Form 8-K and the accompanying exhibits filed on March 6, 2007)
13*	Fiscal 2006 Annual Report to Stockholders
14*	Code of Business Conduct and Ethics
16	Letter on Change in Certifying Accountant (incorporated herein by reference to Forms 8-K filed on September 18, 2002 and September 24, 2002, and Form 8-K/A filed on September 24, 2002)
18	Preferability Letter Issued by PricewaterhouseCoopers LLP (incorporated herein by reference to Exhibit 18 to Form 10-Q filed on July 29, 2004)
21*	Subsidiaries of Registrant
23.1*	Consent of Independent Registered Public Accounting Firm from PricewaterhouseCoopers LLP
23.2*	Consent of Independent Auditors from Ernst & Young LLP
31.1*	Certification of the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2*	Certification of the Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32*	Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
99.2*	Metro, Inc. September 30, 2006 Consolidated Financial Statements, as filed herein

* Filed with this 10-K

20

Report of Independent Registered Public Accounting Firm on
Financial Statement Schedule

To the Stockholders and Board of Directors
of The Great Atlantic & Pacific Tea Company, Inc.:

Our audits of the consolidated financial statements, of management’s assessment of the effectiveness of internal control over financial reporting and of the effectiveness of internal control over financial reporting referred to in our report dated April 24, 2007 appearing in the Fiscal 2006 Annual Report to Stockholders of The Great Atlantic & Pacific Tea Company, Inc. (which report, consolidated financial statements and assessment are incorporated by reference in this Annual Report on Form 10-K) also included an audit of the financial statement schedule listed in Item 15(a)(2) of this Form 10-K. In our opinion, this financial statement schedule presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements.

Florham Park, New Jersey
April 24, 2007

21

Schedule II

The Great Atlantic & Pacific Tea Company, Inc.

Valuation and Qualifying Accounts and Reserves
Years Ended February 26, 2005, February 25, 2006, and February 24, 2007
(in thousands)

			Additions			Additions
Allowance for			Charged to			Charged to
Bad Debts for	Beginning		Costs &			Other								Foreign		Ending
Year Ended	Balance		Expenses			Accounts		Deductions (1)			Adjustments (2)			Exchange		Balance
Feb. 26, 2005		6,316		(1,745	)		—		1,072			—			70		5,713
Feb. 25, 2006		5,713		3,913			—		(159	)		(2,461	)		36		7,042
Feb. 24, 2007		7,042		(1,072	)		—		(1,456	)		—			—		4,514

			Additions			Additions
Stock Loss			Charged to			Charged to
Reserve for	Beginning		Costs &			Other							Foreign		Ending
Year Ended	Balance		Expenses			Accounts		Deductions		Adjustments (2)			Exchange		Balance
Feb. 26, 2005		6,792		3,016			—		—		—			81		9,889
Feb. 25, 2006		9,889		5,437			—		—		(1,441	)		48		13,933
Feb. 24, 2007		13,933		(1,171	)		—		—		—			—		12,762

Deferred Tax			Additions		Additions
Valuation			Charged to		Charged to
Allowance for	Beginning		Costs &		Other					Foreign		Ending
Year Ended	Balance		Expenses		Accounts		Deductions (3)			Exchange		Balance
Feb. 26, 2005		229,177		89,632		—		—			—		318,809
Feb. 25, 2006		318,809		18,652		—		(260,441	)		—		77,020
Feb. 24, 2007		77,020		19,130		—		(21,795	)		—		74,355

(1)	Deductions to Allowance for Bad Debts represent write-offs of accounts receivable balances.
(2)	We sold our Canadian operations on August 13, 2005 and as a result, the Canadian balances are no longer consolidated in our Consolidated Balance Sheet at February 25, 2006.
(3)	For the year ended February 25, 2006, deductions to the Deferred Tax Valuation Allowance represent utilization of net operating loss carryforwards as a result of the sale of our Canadian operations. For the year ended February 24, 2007, deductions to the Deferred Tax Valuation Allowance represent several reclassifications to various balance sheet items.

22

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: April 25, 2007	By:	/s/ Brenda M. Galgano
		Brenda M. Galgano, Senior Vice President,
		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/ Christian W.E. Haub Christian W.E. Haub	Executive Chairman	Date: April 25, 2007
/s/ Eric Claus Eric Claus	President and Chief Executive Officer	Date: April 25, 2007
/s/ Brenda M. Galgano Brenda M. Galgano	Senior Vice President, Chief Financial Officer	Date: April 25, 2007
/s/ Melissa E. Sungela Melissa E. Sungela	Vice President, Corporate Controller	Date: April 25, 2007
/s/ John D. Barline John D. Barline	Director	Date: April 25, 2007
/s/ Jens-Jürgen Böckel Jens-Jürgen Böckel	Director	Date: April 25, 2007
/s/ Bobbie A. Gaunt Bobbie A. Gaunt	Director	Date: April 25, 2007
/s/ Dan P. Kourkoumelis Dan P. Kourkoumelis	Director	Date: April 25, 2007
/s/ Edward Lewis Edward Lewis	Director	Date: April 25, 2007
/s/ Maureen B. Tart-Bezer Maureen B. Tart-Bezer	Director	Date: April 25, 2007

23

EX-4.8

                                                                     Exhibit 4.8

                               FIRST AMENDMENT TO
                                CREDIT AGREEMENT

     This First Amendment to Credit Agreement (the "First Amendment") is made as
of the 13th day of March, 2006 by and among:

     THE GREAT ATLANTIC & PACIFIC TEA COMPANY, INC., a Maryland corporation, as
Lead Borrower (in such capacity, the "Lead Borrower") for the Borrowers;

     the Borrowers party hereto;

     the Lenders party hereto; and

     BANK OF AMERICA, N.A., as Administrative Agent and as Collateral Agent (in
such capacities, the "Agent").

In consideration of the mutual covenants herein contained and benefits to be
derived herefrom, the parties hereto agree as follows:

                                   WITNESSETH

     WHEREAS, the Lead Borrower, the Borrowers, the Lenders, and the Agent are
parties to a Credit Agreement dated as of November 15, 2005 (the "Credit
Agreement"); and

     WHEREAS, the Lead Borrower has advised the Agent and the Lenders that the
Borrowers desire to amend the Credit Agreement as provided herein.

     NOW THEREFORE, it is hereby agreed as follows:

1.   Definitions: All capitalized terms used herein and not otherwise defined
     shall have the same meaning herein as in the Credit Agreement.

2.   Amendment of the Credit Agreement. The Credit Agreement is hereby amended
     as follows:

a.   Section 6.08 (a) of the Credit Agreement is deleted in its entirety and the
     following is substituted in its stead:

     "(a) The Company will not, nor will it permit any Subsidiary to, declare or
     make, or agree to pay or make, directly or indirectly, any Restricted
     Payment, or incur any obligation (contingent or otherwise) to do so, except
     (i) the Company may make any Restricted Payment provided that immediately
     before and after giving effect to any such Restricted Payment (1) each of
     the Loan Parties is Solvent, (2) Borrowing Base Availability on the date of
     any such dividend and projected on a pro forma basis for the following
     twelve months shall be in an amount greater than twenty percent (20%) of
     the Borrowing Base, and (3) no Default or Event of Default has occurred and
     is continuing, (ii) the Company may declare and pay dividends with respect
     to its capital stock payable solely in additional shares of its common
     stock and (iii) Subsidiaries may declare and pay dividends ratably with
     respect to their capital stock; provided, however, that in the event that
     the source of the payment of any Restricted Payment referred to in the
     foregoing 6.08(a)(i) is or will be proceeds of any Borrowing(s) hereunder
     in an amount in the aggregate in excess of $50,000,000 in any Fiscal Year,
     then, as a condition precedent to the making of such Restricted Payment (in
     addition to the conditions set forth in Section



     6.08(a)(i)), the Company shall deliver to the Agent either (i) an opinion
     as to solvency of the Loan Parties before and after giving effect to such
     Restricted Payment, which opinion shall be in form and substance acceptable
     to the Agent and rendered by a Person acceptable to the Agent or (ii)
     evidence that (a) Borrowing Base Availability on the date of any such
     Restricted Payment is in an amount greater than twenty percent (20%) of the
     Borrowing Base and (b) average monthly Borrowing Base Availability
     projected on a pro forma basis for the twelve months following the date of
     any such Restricted Payment is greater than twenty percent (20%) of the
     Borrowing Base and (c) the market value (as reflected on the Toronto Stock
     Exchange at the close of trading on the Business Day immediately preceding
     the date of such Restricted Payment) of the Equity Interests of Metro Inc.,
     a Quebec corporation, owned beneficially and of record by the Loan Parties
     and subject to no Liens is equal to or greater than $250,000,000.00."

3.   Conditions to Effectiveness. This First Amendment shall not be effective
     until each of the following conditions precedent have been fulfilled to the
     satisfaction of the Agent:

a.   This First Amendment shall have been duly executed and delivered by the
     Lead Borrower, the other Borrowers, the Agent and the Required Lenders.

b.   All action on the part of the Lead Borrower and the other Borrowers
     necessary for the valid execution, delivery and performance by such Persons
     of this First Amendment shall have been duly and effectively taken. The
     Agent shall have received from the Lead Borrower and the other Borrowers
     true copies of their respective certificate of the resolutions authorizing
     the transactions described herein, each certified by their secretary or
     other appropriate officer to be true and complete.

c.   The Borrowers shall pay to the Agent for the account of the Lenders an
     amendment fee (the "Amendment Fee") in an amount equal to .05% of the
     aggregate outstanding Commitments Increase (i.e. $150,000,000 x .0005 =
     $75,000.00). The Amendment Fee shall be fully earned and paid by the
     Borrowers in full on the date of the First Amendment. The Amendment Fee
     shall not be subject to refund or rebate under any circumstances. The Agent
     shall allocate and pay the Amendment Fee to the Lenders in accordance with
     the Applicable Percentages.

d.   The Borrowers shall reimburse the Agent and the Lenders for all expenses
     incurred in connection with the First Amendment, including, without
     limitation, reasonable attorneys' fees, costs and expenses.

e.   No Default or Event of Default shall have occurred and be continuing.

f.   The Borrowers shall have provided such additional instruments, documents,
     and opinions of counsel to the Agent as the Agent and their counsel may
     have reasonably requested.



4.   Miscellaneous.

a.   Except as provided herein, all terms and conditions of the Credit Agreement
     and the other Loan Documents remain in full force and effect. The Lead
     Borrower and the other Borrowers hereby ratify, confirm, and reaffirm all
     of the representations, warranties and covenants therein contained.

b.   This First Amendment may be executed in several counterparts and by each
     party on a separate counterpart, each of which when so executed and
     delivered, each shall be an original, and all of which together shall
     constitute one instrument. Delivery of an executed counterpart of a
     signature page hereto by telecopy shall be effective as delivery of a
     manually executed counterpart hereof.

c.   This First Amendment expresses the entire understanding of the parties with
     respect to the matters set forth herein and supersedes all prior
     discussions or negotiations hereon. Any determination that any provision of
     this First Amendment or any application hereof is invalid, illegal or
     unenforceable in any respect and in any instance shall not effect the
     validity, legality, or enforceability of such provision in any other
     instance, or the validity, legality or enforceability of any other
     provisions of this First Amendment.



     IN WITNESS WHEREOF, the parties hereto have caused this First Amendment to
be executed and their seals to be hereto affixed as the date first above
written.

                            [SIGNATURE PAGES FOLLOW]



                                        BANK OF AMERICA, N.A., as Administrative
                                        Agent and Collateral Agent


                                        By: /s/ James Ward
                                            ------------------------------------
                                        Name: James Ward
                                        Title: Managing Director



                                        THE CIT GROUP/BUSINESS CREDIT, INC.


                                        By: /s/ Matthew DeFranco
                                            ------------------------------------
                                        Name: Matthew DeFranco
                                        Title: Assistant Vice President



                                        WACHOVIA BANK, NATIONAL ASSOCIATION


                                        By: /s/ Thomas Grabosky
                                            ------------------------------------
                                        Name: Thomas Grabosky
                                        Title: Director



                                        JPMORGAN CHASE BANK, N.A.


                                        By: /s/ James L. Sloan
                                            ------------------------------------
                                        Name: James L. Sloan
                                        Title: Vice President



                                        THE GREAT ATLANTIC & PACIFIC TEA
                                        COMPANY, INC.


                                        By: /s/ William J. Moss
                                            ------------------------------------
                                        Name: William J. Moss
                                        Title: Vice President Treasurer



                                        COMPASS FOODS, INC.


                                        By: /s/ William J. Moss
                                            ------------------------------------
                                        Name: William J. Moss
                                        Title: Vice President



                                        BORMAN'S, INC.


                                        By: /s/ William J. Moss
                                            ------------------------------------
                                        Name: William J. Moss
                                        Title: Vice President



                                        SHOPWELL, INC.


                                        By: /s/ William J. Moss
                                            ------------------------------------
                                        Name: William J. Moss
                                        Title: Vice President



                                        WALDBAUM, INC.


                                        By: /s/ William J. Moss
                                            ------------------------------------
                                        Name: William J. Moss
                                        Title: Vice President



                                        SUPER FRESH FOOD MARKETS, INC.


                                        By: /s/ William J. Moss
                                            ------------------------------------
                                        Name: William J. Moss
                                        Title: Vice President



                                        SUPER MARKET SERVICE CORP.


                                        By: /s/ William J. Moss
                                            ------------------------------------
                                        Name: William J. Moss
                                        Title: Vice President



                                        SUPER FRESH/SAV-A-CENTER, INC.


                                        By: /s/ William J. Moss
                                            ------------------------------------
                                        Name: William J. Moss
                                        Title: Vice President



                                        FOOD BASICS, INC.


                                        By: /s/ William J. Moss
                                            ------------------------------------
                                        Name: William J. Moss
                                        Title: Vice President



                                        HOPELAWN PROPERTY I, INC.


                                        By: /s/ William J. Moss
                                            ------------------------------------
                                        Name: William J. Moss
                                        Title: Vice President



                                        LO-LO DISCOUNT STORES, INC.


                                        By: /s/ William J. Moss
                                            ------------------------------------
                                        Name: William J. Moss
                                        Title: Vice President

EX-4.9

                                                                     Exhibit 4.9

                               SECOND AMENDMENT TO
                                CREDIT AGREEMENT

          This Second Amendment to Credit Agreement (this "Amendment") is made
as of the 10th day of November, 2006 by and among:

          THE GREAT ATLANTIC & PACIFIC TEA COMPANY, INC., a Maryland corporation
(the "Company");

          the other Borrowers party hereto;

          the Lenders party hereto; and

          BANK OF AMERICA, N.A., as Administrative Agent and as Collateral Agent
(in such capacities, the "Agent").

In consideration of the mutual covenants herein contained and benefits to be
derived herefrom, the parties hereto agree as follows:

                                   WITNESSETH

          WHEREAS, the Company, the Borrowers, the Lenders, and the Agent are
parties to a Credit Agreement dated as of November 15, 2005, as amended by a
First Amendment to Credit Agreement dated as of March 13, 2006 (the "Credit
Agreement"); and

          WHEREAS, the Company has advised the Agent and the Lenders that the
Borrowers desire to amend the Credit Agreement as provided herein.

          NOW THEREFORE, it is hereby agreed as follows:

1.   Definitions: All capitalized terms used herein and not otherwise defined
     shall have the same meaning herein as in the Credit Agreement.

2.   Amendment of the Credit Agreement. The Credit Agreement is hereby amended
     as follows:

a.   The Definition of "Permitted Investments" in Section 1.01 of the Credit
     Agreement is hereby amended by (i) the deletion of the word "and" at the
     end of clause (a) therein, (ii) the addition of word "and" at the end of
     clause (b) therein and (iii) the addition of a new clause (c) at the end
     thereof reading as follows:

     "(c) Investments in Equity Interests of Metro Inc., a Quebec corporation,
     held by the Company on the date hereof."

b.   Section 6.02 of the Credit Agreement is hereby amended by (i) the deletion
     of the word "and" at the end of clause (h) therein, (ii) the addition of
     word "and" at the end of clause (i) therein and (iii) the addition of a new
     clause (j) at the end thereof reading as follows:

     "(j) Liens granted pursuant to the Amended and Restated Pledge and Security
     Agreement, dated as of November 10, 2006 by and between the Company and
     Bank of America, N.A., as Issuing Bank (the "Letter of Credit Issuing
     Bank"), as such Amended and Restated Pledge Agreement may be hereafter
     amended, modified, supplemented or restated (the



     "Letter of Credit Pledge and Security Agreement"); provided, however, that
     the Liens in favor of the Letter of Credit Issuing Bank on Non-Primary
     Collateral (as defined in the Letter of Credit Pledge and Security
     Agreement) granted pursuant to the Letter of Credit Pledge and Security
     Agreement shall be expressly subordinate to the Liens on such assets in
     favor of the Collateral Agent and the other Secured Parties as evidenced by
     a subordination agreement in the form of Exhibit P hereto."

c.   The Credit Agreement is hereby amended by the addition of an Exhibit P
     thereto, which Exhibit P shall be in the form of Exhibit A to this
     Amendment.

3.   Conditions to Effectiveness. This Amendment shall not be effective until
     each of the following conditions precedent have been fulfilled to the
     satisfaction of the Agent:

a.   This Amendment shall have been duly executed and delivered by the Company,
     the other Borrowers, the Agent and the Required Lenders.

b.   All action on the part of the Company and the other Borrowers necessary for
     the valid execution, delivery and performance by such Persons of this
     Amendment shall have been duly and effectively taken. The Agent shall have
     received from the Company and the other Borrowers true copies of their
     respective certificate of the resolutions authorizing the transactions
     described herein, each certified by their secretary or other appropriate
     officer to be true and complete.

c.   The Borrowers shall reimburse the Agent and the Lenders for all expenses
     incurred in connection with this Amendment, including, without limitation,
     reasonable attorneys' fees, costs and expenses.

d.   No Default or Event of Default shall have occurred and be continuing.

e.   The Borrowers shall have provided to the Agent such additional instruments,
     documents, and opinions of counsel as the Agent and its counsel may have
     reasonably requested.

4.   Miscellaneous.

a.   Except as provided herein, all terms and conditions of the Credit Agreement
     and the other Loan Documents remain in full force and effect. The Company
     and the other Borrowers hereby ratify, confirm, and reaffirm all of the
     representations, warranties and covenants therein contained.

b.   This Amendment may be executed in several counterparts and by each party on
     a separate counterpart, each of which when so executed and delivered, each
     shall be an original, and all of which together shall constitute one
     instrument. Delivery of an executed counterpart of a signature page hereto
     by telecopy shall be effective as delivery of a manually executed
     counterpart hereof.



c.   This Amendment expresses the entire understanding of the parties with
     respect to the matters set forth herein and supersedes all prior
     discussions or negotiations hereon. Any determination that any provision of
     this Amendment or any application hereof is invalid, illegal or
     unenforceable in any respect and in any instance shall not effect the
     validity, legality, or enforceability of such provision in any other
     instance, or the validity, legality or enforceability of any other
     provisions of this Amendment.

          IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be executed and their seals to be hereto affixed as the date first above
written.

                            [SIGNATURE PAGES FOLLOW]



                                        BANK OF AMERICA, N.A., as Administrative
                                        Agent and Collateral Agent


                                        By: /s/ Alexis MacElhiney
                                            ------------------------------------
                                        Name: Alexis MacElhiney
                                        Title: Director



                                        THE CIT GROUP/BUSINESS CREDIT, INC.


                                        By: /s/ Steven Schuit
                                            ------------------------------------
                                        Name: Steven Schuit
                                        Title: Vice President



                                        WACHOVIA BANK, NATIONAL ASSOCIATION


                                        By: /s/ Thomas Grabosky
                                            ------------------------------------
                                        Name: Thomas Grabosky
                                        Title: Director



                                        JPMORGAN CHASE BANK, N.A.


                                        By: /s/ James L. Sloan
                                            ------------------------------------
                                        Name: James L. Sloan
                                        Title: Vice President



                                        GENERAL ELECTRIC CAPITAL CORPORATION


                                        By: /s/ Rebecca A. Ford
                                            ------------------------------------
                                        Name: Rebecca A. Ford
                                        Title: Duly Authorized Signatory



                                        WELLS FARGO RETAIL FINANCE, LLC


                                        By: /s/ Emily Abrahamson
                                            ------------------------------------
                                        Name: Emily Abrahamson
                                        Title: Assistant Vice President



                                        THE GREAT ATLANTIC & PACIFIC TEA
                                        COMPANY, INC.


                                        By: /s/ William J. Moss
                                            ------------------------------------
                                        Name: William J. Moss
                                        Title: Vice President, Treasurer



                                        COMPASS FOODS, INC.


                                        By: /s/ William J. Moss
                                            ------------------------------------
                                        Name: William J. Moss
                                        Title: Vice President



                                        BORMAN'S, INC.


                                        By: /s/ William J. Moss
                                            ------------------------------------
                                        Name: William J. Moss
                                        Title: Vice President



                                        SHOPWELL, INC.


                                        By: /s/ William J. Moss
                                            ------------------------------------
                                        Name: William J. Moss
                                        Title: Vice President



                                        WALDBAUM, INC.


                                        By: /s/ William J. Moss
                                            ------------------------------------
                                        Name: William J. Moss
                                        Title: Vice President



                                        SUPER FRESH FOOD MARKETS, INC.


                                        By: /s/ William J. Moss
                                            ------------------------------------
                                        Name: William J. Moss
                                        Title: Vice President



                                        SUPER MARKET SERVICE CORP.


                                        By: /s/ William J. Moss
                                            ------------------------------------
                                        Name: William J. Moss
                                        Title: Vice President



                                        SUPER FRESH/SAV-A-CENTER, INC.


                                        By: /s/ William J. Moss
                                            ------------------------------------
                                        Name: William J. Moss
                                        Title: Vice President



                                        FOOD BASICS, INC.


                                        By: /s/ William J. Moss
                                            ------------------------------------
                                        Name: William J. Moss
                                        Title: Vice President



                                        HOPELAWN PROPERTY I, INC.


                                        By: /s/ William J. Moss
                                            ------------------------------------
                                        Name: William J. Moss
                                        Title: Vice President



                                        LO-LO DISCOUNT STORES, INC.


                                        By: /s/ William J. Moss
                                            ------------------------------------
                                        Name: William J. Moss
                                        Title: Vice President

EX-10.15

                                                                   Exhibit 10.15

                              EMPLOYMENT AGREEMENT

     AGREEMENT, made and entered into by and between THE GREAT A TLANTIC &
PACIFIC TEA COMPANY, INC. (the "Company"), and REBECCA PHILBERT (the
"Employee").

                                   WITNESSETH

     WHEREAS, the Company and the Employee (the "Parties") have agreed to enter
into this agreement (the "Agreement") relating to the employment of the Employee
by the Company,

     NOW, THEREFORE, in consideration of the promises and mutual covenants
contained herein and for other good and valuable consideration, the Parties,
intending to be legally bound, agree as follows:

1. Term of Employment.

(a) The Company agrees to continue to employ the Employee, and the Employee
agrees to remain in the employment of the Company, in accordance with the terms
and provisions of this Agreement, for the period set forth below (the
"Employment Period").

(b) The Employment Period under this Agreement shall commence as of December 11,
2006 and, subject only to the provisions of Sections 7, 8 and 9 below relating
to termination of employment, shall continue until (i) the close of business on
December 10, 2009 or (ii) such later date as shall result from the operation of
subparagraph (c) below (the "Terminal Date").

(c) Commencing on June 11, 2008, and on the first business day of each month
thereafter (such date and each such first business day, the "Renewal Date") the
Terminal Date set forth in subparagraph (b) above shall be extended so as to
occur eighteen months from the Renewal Date unless either the Company or the
Employee shall have given written notice to the other Party on or before such
Renewal Date that the Terminal Date is not to be extended.

2. Duties.

     It is the intention of the Parties that during the term of her employment
under this Agreement, the Employee will serve as the Senior Vice President of
Merchandising. The Employee will devote her full business time and attention to
the affairs of the Company and her duties as the Senior Vice President of
Merchandising. The Employee will have such duties as are appropriate to her
position, and will have such authority as required to enable her to perform
these duties.

3. Salary and Bonus.

3.1 Salary. The Company will pay the Employee a base salary at an initial annual
rate of not less than $415,000.00, which base salary as in effect from time to
time will not be reduced and will be reviewed periodically (at intervals of not
more than twelve (12) months) by the Compensation Committee of the Board of
Directors (the "Board") for the purpose of considering increases thereof. In
evaluating increases in the Employee's base salary, the Compensation Committee
of the Board will take into account such factors as corporate performance,
individual merit, and such other considerations as it deems appropriate. The
Employee's base salary will be paid in accordance with the standard practices
for other corporate executives of the Company.



3.2 Bonuses. The Employee will be eligible to receive annually or otherwise any
bonus awards, whether payable in cash, shares of common stock of the Company or
otherwise, which the Company, the Compensation Committee of the Board or such
other authorized committee of the Board determines to award or grant.

4. Benefit Programs.

     The Employee will receive such benefits and awards, including without
limitation stock options and restricted share awards, as the Compensation
Committee of the Board shall determine and will be eligible to participate in
all employee benefit plans and programs of the Company from time to time in
effect for the benefit of senior executives of the Company, including, but not
limited to, pension and other retirement plans, group life insurance,
hospitalization and surgical and major medical coverage, sick leave, salary
continuation arrangements, vacations and holidays, long-term disability, and
such other benefits as are or may be made available from time to time to senior
executives of the Company.

5. Business Expenses and Perquisites.

     The Employee will be reimbursed for all reasonable expenses incurred by her
in connection with the conduct of the business of the Company, provided she
properly accounts therefor in accordance with the Company's policies. She will
also be entitled to such other perquisites as are customary for senior
executives of the Company.

6. Office and Services Furnished. The Company shall furnish the Employee with
office space, secretarial assistance and such other facilities and services as
shall be suitable to the Employee's position and adequate for the performance of
her duties hereunder.

7. Termination of Employment by the Company.

7.1 Involuntary Termination by the Company Other Than For Permanent and Total
Disability or For Cause. The Company may terminate the Employee's employment at
any time and for any reason (other than for Permanent and Total Disability as
provided in Section 7.2 below, for Performance as provided in Section 7.3 below
or for Cause as provided in Section 7.4 below) by giving her a written notice of
termination to that effect at least 14 days before the date of termination. In
the event the Company terminates the Employee's employment for any reason (other
than for Permanent and Total Disability as provided in Section 7.2, below, for
Performance as provided in Section 7.3 below or for Cause as provided in Section
7.4 below), the Employee shall be entitled to the benefits described in Section
10 or Section 11, whichever is applicable.

7.2 Termination Due to Permanent and Total Disability. If the Employee incurs a
Permanent and Total Disability, as defined below, the Company may terminate the
Employee's employment by giving her written notice of termination at least 14
days before the date of such termination. In the event of such termination of
the Employee's employment because of Permanent and Total Disability, the
Employee shall be entitled to receive (i) her base salary pursuant to Section
3.1 and any other compensation and benefits to the extent actually earned by the
Employee pursuant to this Agreement or any benefit plan or program of the
Company as of the date of such termination of employment at the normal time for
payment of such salary, compensation or benefits, and (ii) any reimbursement
amounts owing under Section 5. For purposes of this Agreement, the Employee
shall be considered to have incurred a Permanent and Total Disability if she is
unable to substantially carry out her duties under this Agreement by reason of
any medically determinable physical or mental impairment which can be expected
to result in death or which has lasted or can be expected to last for a
continuous period of not less than 12 months. The existence of such Permanent



and Total Disability shall be determined by the Compensation Committee of the
Board of Directors of the Company and shall be evidenced by such medical
certification as the Secretary of the Company shall require.

7.3 Termination for Performance. The Company may terminate the Employee's
employment for Performance if the Employee fails to meet satisfactorily the
performance goals established for the Employee. The determination as to whether
the Employee has met satisfactorily such performance goals shall be determined
by the Company in its sole discretion. The Company shall exercise its right to
terminate the Employee's employment for Performance by giving her written notice
of termination on or before the date of such termination specifying the
performance goal or goals that the Employee failed to meet. In the event of such
termination of the Employee's employment for Performance, the Employee shall be
entitled to the following:

(a) The Company shall pay to the Employee her base salary pursuant to Section
3.1 and any other compensation and benefits to the extent actually earned by the
Employee under this Agreement or any benefit plan or program of the Company as
of the date of such termination at the normal time for payment of such salary,
compensation or benefits.

(b) The Company shall pay the Employee any reimbursement amounts owing under
Section 5.

(c) The Company shall pay to the Employee as a severance benefit a total of
fifty-two (52) weeks of base salary continuation. Such salary continuation
payments will be made to the Employee on the Company's normal and routine
bi-weekly pay dates. In the event that the Employee dies before the end of such
52-week period, the payments for the remainder of such period shall be paid to
the Employee's estate.

(d) During the period of 12 months beginning on the date of the Employee's
termination of employment, the Employee shall remain covered by the medical
plans of the Company that covered her immediately prior to her termination of
employment as if she had remained in employment for such period. In the event
that the Employee's participation in any such plan is barred, the Company shall
arrange to provide the Employee with substantially similar benefits. Any medical
insurance coverage for such 12-month period pursuant to this subsection (d)
shall become secondary upon the earlier of (i) the date on which the Employee
begins to be covered by comparable medical coverage provided by a new employer,
or (ii) the earliest date upon which the Employee becomes eligible for Medicare
or a comparable Government insurance program. The Employee's COBRA entitlements
shall become effective at the end of the extended benefit coverage provided
pursuant to this subsection (d).

(e) Any outstanding stock options with respect to the common stock of the
Company held by the Employee on the date of termination of the Employee's
employment, to the extent then exercisable, shall remain exercisable for a
period of three months following such termination of employment (but in no event
beyond the expiration date of the applicable option).

7.4 Termination for Cause. The Company may terminate the Employee's employment
for Cause if (i) the Employee willfully, substantially, and continually fails to
perform the duties for which she is employed by the Company, (ii) the Employee
willfully fails to comply with reasonable instructions, (iii) the Employee
willfully engages in conduct which is or would reasonably be expected to be
materially and demonstrably injurious to the Company, (iv) the Employee
willfully engages in an act or acts of dishonesty resulting in material personal
gain to the Employee at the expense of the Company, (v) the Employee is
convicted of a felony, (vi) the Employee engages in an act or acts of gross
malfeasance in connection with her employment hereunder, (vii) the Employee
commits a material breach of the confidentiality provision set forth in Section
15, or (viii) the Employee exhibits demonstrable evidence of alcohol or drug



abuse having a substantial adverse effect on her job performance hereunder. The
Company shall exercise its right to terminate the Employee's employment for
Cause by giving her written notice of termination at least 14 days before the
date of such termination specifying in reasonable detail the circumstances
constituting such Cause. In the event of such termination of the Employee's
employment for Cause, the Employee shall be entitled to receive (i) her base
salary pursuant to Section 3.1 and any other compensation and benefits to the
extent actually earned pursuant to this Agreement or any benefit plan or program
of the Company as of the date of such termination at the normal time for payment
of such salary, compensation or benefits and (ii) any amounts owed under the
reimbursement policy of Section 5.

8. Termination of Employment by the Employee.

(a) Good Reason. The Employee may terminate her employment for Good Reason by
giving the Company a written notice of termination at least 14 days before the
date of such termination specifying in reasonable detail the circumstances
constituting such Good Reason. In the event of the Employee's termination of her
employment for Good Reason, the Employee shall be entitled to the benefits
described in Section 10 or Section 11, whichever is applicable. For purposes of
this Agreement, Good Reason shall mean (i) a significant reduction in the scope
of the Employee's authority, functions, duties or responsibilities from that
which is contemplated by this Agreement, (ii) any reduction in the Employee's
base salary, or (iii) a significant reduction in the employee benefits provided
to the Employee other than in connection with an across-the-board reduction
similarly affecting substantially all senior executives of the Company. If an
event constituting a ground for termination of employment for Good Reason
occurs, and the Employee fails to give notice of termination within 3 months
after the occurrence of such event, the Employee shall be deemed to have waived
her right to terminate employment for Good Reason in connection with such event
(but not for any other event for which the 3-month period has not expired).

(b) Other. The Employee may terminate her employment at any time and for any
reason, other than pursuant to subsection (a) above, by giving the Company a
written notice of termination to that effect at least 14 days before the date of
termination. In the event of the Employee's termination of her employment
pursuant to this subsection (b), the Employee shall be entitled to receive (i)
her base salary pursuant to Section 3.1 and any other compensation and benefits
to the extent actually earned by the Employee pursuant to this Agreement or any
benefit plan or program of the Company as of the date of such termination at the
normal time for payment of such salary, compensation or benefits, and (ii) any
reimbursement amounts owing under Section 5.

9. Termination of Employment By Death. In the event of the death of the Employee
during the course of her employment hereunder, the Employee's estate shall be
entitled to receive (i) her base salary pursuant to Section 3.1 and any other
compensation and benefits to the extent actually earned by the Employee pursuant
to this Agreement or any other benefit plan or program of the Company as of the
date of such termination at the normal time for payment of such salary,
compensation or benefits, and (ii) any reimbursement amounts owing under Section
5. In addition, in the event of such death, the Employee's beneficiaries shall
receive any death benefits owed to them under the Company's employee benefit
plans.

10. Benefits Upon Termination Without Cause or For Good Reason (No Change of
Control). If (a) the Employee's employment with the Company shall terminate (i)
because of termination by the Company pursuant to Section 7.1 other than for
Cause or Performance or Permanent and Total Disability, or (ii) because of
termination by the Employee for Good Reason pursuant to Section 8(a), and (b)
such termination of employment does not occur within 13 months following a
"Change of Control" of the Company (as defined in Section 12), the Employee,
upon execution of a Confidential Separation and Release Agreement, shall be
entitled to the following:



(a) The Company shall pay to the Employee her base salary pursuant to Section
3.1 and any other compensation and benefits to the extent actually earned by the
Employee under this Agreement or any benefit plan or program of the Company as
of the date of such termination at the normal time for payment of such salary,
compensation or benefits.

(b) The Company shall pay the Employee any reimbursement amounts owing under
Section 5.

(c) The Company shall pay to the Employee as a severance benefit for each month
during the 18-month period beginning with the month next following the date of
termination of the Employee's employment, an amount equal to one-twelfth of the
sum of (i) her annual rate of base salary immediately preceding her termination
of employment, and (ii) the average of her three highest annual bonuses awarded
under the Company's annual management incentive bonus plan for any of the five
fiscal years immediately preceding the fiscal year of her termination of
employment, (or, if she was not eligible for a bonus for at least three fiscal
years in such five-year period, then the average of such bonuses for all of the
fiscal years in such five-year period for which she was eligible, and if she was
not eligible for such a bonus in any previous fiscal year, then 100% of her
target annual bonus for the fiscal year in which the termination occurred), with
any deferred bonuses counting for the fiscal year in which it was earned rather
than the year in which it was paid. Each such monthly benefit shall be paid to
the Employee on the Company's normal and routine bi-weekly pay dates. In the
event that the Employee dies before the end of such 18-month period, the
payments for the remainder of such period shall be made to the Employee's
estate.

(d) The Company shall pay to the Employee as a bonus for the fiscal year in
which the termination occurred an amount equal to a portion (determined as
provided in the next sentence) of the bonus that the Employee would actually
have received under the Company's annual management incentive bonus plan for the
fiscal year of termination of the Employee's employment if her employment had
not terminated (determined on the basis of her actual bonus opportunity and the
actual degree of achievement of the applicable performance goals) or, if no
bonus opportunity for that year had been established for the Employee at the
time of such termination of employment, such portion of the bonus awarded to her
under the Company's annual management incentive bonus plan for the fiscal year
immediately preceding the fiscal year of the termination of her employment, with
deferred bonuses counting for the fiscal year in which it was earned rather than
the year in which it was paid. Such portion shall be determined by dividing the
number of days of the Employee's employment during such fiscal year up to her
termination of employment by 365 (366 if a leap year). Such payment shall be
made on or about the date on which bonuses for the applicable fiscal year are
paid to executives of the Company generally under the Company's annual
management incentive bonus plan.

(e) During the period of 18 months beginning on the date of the Employee's
termination of employment, the Employee shall remain covered by the medical,
dental, vision, life insurance, and, if reasonably commercially available
through nationally reputable insurance carriers, long-term disability plans of
the Company that covered her immediately prior to her termination of employment
as ifshe had remained in employment for such period. In the event that the
Employee's participation in any such plan is barred, the Company shall arrange
to provide the Employee with substantially similar benefits (but, in the case of
long-term disability benefits, only if reasonably commercially available). Any
medical insurance coverage for such 18-month period pursuant to this subsection
(e) shall become secondary upon the earlier of (i) the date on which the
Employee begins to be covered by comparable medical coverage provided by a new
employer, or (ii) the earliest date upon which the Employee becomes eligible for
Medicare or a comparable Government insurance program.



11. Benefits Upon Termination Without Cause or For Good Reason (Change of
Control). If (a) the Employee's employment with the Company shall terminate (i)
because of termination by the Company pursuant to Section 7.1 other than for
Cause or Performance or Permanent and Total Disability, (ii) because of
termination by the Employee for Good Reason pursuant to Section 8(a), or (iii)
for any reason during the 30 days beginning on the first anniversary of a Change
of Control, and (b) such termination of employment occurs within 13 months
following a "Change of Control" of the Company (as defined in Section 12), the
Employee, upon execution of a Confidential Separation and Release Agreement,
shall be entitled to the following:

(a) The Company shall pay to the Employee her base salary pursuant to Section
3.1 and any other compensation and benefits to the extent actually earned by the
Employee under this Agreement or any benefit plan or program of the Company as
of the date of such termination at the normal time for payment of such salary,
compensation or benefits.

(b) The Company shall pay the Employee any reimbursement amounts owing under
Section 5.

(c) The Company shall pay to the Employee as a severance benefit an amount equal
to three (3) times the sum of (i) her annual rate of base salary immediately
preceding her termination of employment, and (ii) the average of her three
highest annual bonuses awarded under the Company's annual management incentive
bonus plan for any of the five fiscal years immediately preceding the fiscal
year of her termination of employment (or, if she was not eligible for a bonus
for at least three fiscal years in such five-year period, then the average of
such bonuses for all of the fiscal years in such five-year period for which she
was eligible, and if she was not eligible for such a bonus in any previous
fiscal year, then 100% of her target annual bonus for the fiscal year in which
the termination occurred, with any deferred bonuses counting for the fiscal year
in which it was earned rather than the year in which it was paid. Such severance
benefit shall be paid in a lump sum within 45 days after the date of such
termination of employment.

(d) The Company shall pay to the Employee as a bonus for the fiscal year in
which the termination occurred an amount equal to a portion (determined as
provided in the next sentence) of the bonus that the Employee would actually
have received under the Company's annual management incentive bonus plan for the
fiscal year of termination of the Employee's employment if her employment had
not terminated (determined on the basis of her actual bonus opportunity and the
actual degree of achievement of the applicable performance goals) or, if no
bonus opportunity for that year had been established for the Employee at the
time of such termination of employment, such portion of the bonus awarded to her
under the Company's annual management incentive bonus plan for the fiscal year
immediately preceding the fiscal year of the termination of her employment, with
deferred bonuses counting for the fiscal year in which it was earned rather than
the year in which it was paid. Such portion shall be determined by dividing the
number of days of the Employee's employment during such fiscal year up to her
termination of employment by 365 (366 if a leap year). Such payment shall be
made on or about the date on which bonuses for the applicable fiscal year are
paid to executives of the Company generally under the Company's annual
management incentive bonus plan.

(e) During the period of 36 months beginning on the date of the Employee's
termination of employment, the Employee shall remain covered by the medical,
dental, vision, life insurance, and, if reasonably commercially available
through nationally reputable insurance carriers, long-term disability plans of
the Company that covered her immediately prior to her termination of employment
as if she had remained in employment for such period. In the event that the
Employee's participation in any such plan is barred, the Company shall arrange
to provide the Employee with substantially similar benefits (but, in the case of
long-term disability benefits, only if reasonably commercially available). Any



medical insurance coverage for such 36-month period pursuant to this subsection
(e) shall become secondary upon the earlier of (i) the date on which the
Employee begins to be covered by comparable medical coverage provided by a new
employer, or (ii) the earliest date upon which the Employee becomes eligible for
Medicare or a comparable Government insurance program.

12. Change of Control. For the purposes of this Agreement, a "Change of Control"
shall be deemed to have occurred if (a) any person or persons acting together
which would constitute a "group" for purposes of Section 13(d) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), (other than the Company,
any subsidiary of the Company, and Tengelmann Warenhandelsgesellschaft KG (a
partnership organized under the laws of the Federal Republic of Germany or any
successor to such partnership, hereinafter "Tengelmann")) shall beneficially own
(as defined in Rule 13d-3 of the Exchange Act), directly or indirectly, at least
30% of the total voting power of all classes of capital stock of the Company
entitled to vote generally in the election of the Board and such voting power
exceeds the then current voting power of Tengelmann; (b) control of Tengelmann
is acquired by any person or persons other than family members or entities
controlled by family members of Erivan Haub; (c) Current Directors (as herein
defined) shall cease for any reason to constitute at least a majority of the
members of the Board (for this purpose, a "Current Director" shall mean any
member of the Board as of the date hereof and any successor of a Current
Director whose election, or nomination for election by the Company's
shareholders, was approved by at least two-thirds of the Current Directors then
on the Board); (d) the shareholders of the Company approve (i) a plan of
complete liquidation of the Company or (ii) an agreement providing for the
merger or consolidation of the Company other than a merger or consolidation in
which (x) the holders of the common stock of the Company immediately prior to
the consolidation or merger have, directly or indirectly, at least a majority of
the common stock of the continuing or surviving corporation immediately after
such consolidation or merger or (y) the Board immediately prior to the merger or
consolidation would, immediately after the merger or consolidation, constitute a
majority of the board of directors of the continuing or surviving corporation;
or (e) the shareholders of the Company approve an agreement (or agreements)
providing for the sale or other disposition (in one transaction or a series of
transactions) of all or substantially all of the assets of the Company.

13. Entitlement to Other Benefits. Except as otherwise provided in this
Agreement, this Agreement shall not be construed as limiting in any way any
rights or benefits that the Employee or her spouse, dependents or beneficiaries
may have pursuant to any other plan or program of the Company.

14. Non-Competition.

     The Employee agrees that during the term of this Agreement and for a period
of eighteen months following termination of her employment, the Employee will
not, within any of the geographical areas of the United States in which the
Company is then conducting business (either directly or through franchisees),
directly or indirectly, own, manage, operate, control, be employed by,
participate in, provide consulting services to, or be connected in any manner
with the ownership, management, operation or control of any business similar to
any of the types of businesses conducted by the Company to any significant
extent during her employment or on the date of termination of her employment,
except the Employee may own for investment purposes up to 1% of the capital
stock of any company whose stock is publicly traded, and during such eighteen
month period following termination of her employment the Employee will not
contact or solicit employees of the Company for the purpose of inducing such
employees to leave the employ of the Company. Notwithstanding any other
provision of this Agreement, if the Employee breaches this non-competition
provision, then the Company may, in addition to any other rights and remedies
available to it at law or under this Agreement, discontinue paying to the
Employee any of the severance benefits described in Sections 7, 10 and 11.



15. Confidential Information and Trade Secrets.

     The Employee hereby acknowledges that she will have access to and become
acquainted with various trade secrets and proprietary information of the Company
and other confidential information relating to the Company. The Employee
covenants that she will not, directly or indirectly, disclose or use such
information except as is necessary and appropriate in connection with her
employment by the Company and that she will otherwise adhere in all respects to
the Company's policies against the use or disclosure of such information.

16. Arbitration; Injunctive Relief.

     Any controversy or claim arising out of or relating to this Agreement,
directly or indirectly, or the performance or breach thereof, will be settled by
arbitration in accordance with the rules of the American Arbitration
Association, and judgment upon the award rendered by the arbitrators may be
entered in any court having jurisdiction thereof. The arbitration will be held
in New York, New York, or such other place as may be agreed upon at the time by
the parties to the arbitration. The parties shall bear their own expenses in
connection with any arbitration or proceeding arising out of or relating to this
Agreement, directly or indirectly, or the performance or breach thereof;
provided, however, that in the event that the Employee substantially prevails,
the Company agrees promptly to reimburse the Employee for all expenses
(including costs and fees of witnesses, evidence and attorneys fees and
expenses) reasonably incurred by her in investigating, prosecuting, defending,
or preparing to prosecute or defend any action, proceeding or claim arising out
of or relating to this Agreement, directly or indirectly, or the performance or
breach thereof. The parties acknowledge and agree that a breach of Employee's
obligations under Sections 14 or 15 could cause irreparable harm to Company for
which Company would have no adequate remedy at law, and further agree that,
notwithstanding the agreement of the parties to arbitrate controversies or
claims as set forth above, the Company may apply to a court of competent
jurisdiction to seek to enjoin preliminarily or permanently any breach or
threatened breach of the Employee's obligations under Sections 14 and 15.

17. Indemnification.

     The Company shall indemnify and hold the Employee harmless to the fullest
extent legally permissible under the laws of the State of Maryland, against any
and all expenses, liabilities and losses (including attorney's fees, judgments,
fines and amounts paid in settlement) reasonably incurred or suffered by her by
reason of any claim or cause of action asserted against her because of her
service at any time as a director or officer of the Company. The Company shall
advance to the Employee the amount of her expenses incurred in connection with
any proceeding relating to such service to the fullest extent legally
permissible under the laws of the State of Maryland. Notwithstanding the
foregoing, the Company's obligations pursuant to this Section 17 shall not apply
in the case of any claim or cause of action by or in the right of the Company or
any subsidiary thereof.

18. Liability Insurance.

     To the extent that Company maintains a directors and officers liability
insurance policy in effect, the Company will take all steps necessary to ensure
that the Employee is covered under such policy for her service as a director or
officer of the Company or any subsidiary of the Company with respect to claims
made at any time with respect to such service.

19. Certain Additional Payments by the Company.

     (a) Anything in this Agreement to the contrary notwithstanding, in the
event it shall be determined that any payment or distribution made, or benefit
provided (including, without limitation, the



acceleration of any payment, distribution or benefit and the accelerated
exercisability of any stock option), to or for the benefit of the Employee
(whether paid or payable or distributed or distributable pursuant to the terms
of this Agreement or otherwise, but determined without regard to any additional
payments required under this Section 19) (a "Payment") would be subject to the
excise tax imposed by Section 4999 of the Internal Revenue Code of 1986, as
amended (or any similar excise tax) or any interest or penalties are incurred by
the Employee with respect to such excise tax (such excise tax, together with any
such interest and penalties, are hereinafter collectively referred to as the
"Excise Tax"), then the Employee shall be entitled to receive from the Company
an additional payment (a "Gross-Up Payment") in an amount such that after
payment by the Employee of all taxes (including any Excise Tax, income tax or
employment tax and taking into account any lost or reduced tax deductions on
account of such Gross-Up Payment) imposed upon the Gross-Up Payment and any
interest or penalties imposed with respect to such taxes, the Employee retains
from the Gross-Up Payment an amount equal to the Excise Tax imposed upon the
Payments.

     (b) Subject to the provisions of Section 19(c), all determinations required
to be made under this Section 19, including determination of whether a Gross-Up
Payment is required and of the amount of any such Gross-up Payment, shall be
made by Price Waterhouse Coopers or the Company's then current accounting firm
(the "Accounting Firm"), which shall provide detailed supporting calculations
both to the Company and the Employee within 15 business days of the date of
termination of the Employee's employment, if applicable, or such earlier time as
is requested by the Company, provided that any determination that an Excise Tax
is payable by the Employee shall be made on the basis of substantial authority.
The initial Gross-Up Payment, if any, as determined pursuant to this Section
19(b), shall be paid to the Employee within five business days of the receipt of
the Accounting Firm's determination. If the Accounting Firm determines that no
Excise Tax is payable by the Employee, it shall furnish the Employee with a
written opinion that she has substantial authority not to report any Excise Tax
on her Federal income tax return. Any determination by the Accounting Firm
meeting the requirements of this Section 19(b) shall be binding upon the Company
and the Employee; subject only to payments pursuant to the following sentence
based on a determination that additional Gross-Up Payments should have been
made, consistent with the calculations required to be made hereunder (the amount
of such additional payments is referred to herein as the "Gross-Up
Underpayment"). In the event that the Company exhausts its remedies pursuant to
Section 19(c) and the Employee thereafter is required to make a payment of any
Excise Tax, the Accounting Firm shall determine the amount of the Gross-Up
Underpayment that has occurred and any such Gross-Up Underpayment shall be
promptly paid by the Company to or for the benefit of the Employee. The fees and
disbursements of the Accounting Firm shall be paid by the Company.

     (c) The Employee shall notify the Company in writing of any claim by the
Internal Revenue Service that, if successful, would require the payment by the
Company of a Gross-Up Payment. Such notification shall be given as soon as
practicable but not later than ten business days after the Employee receives
written notice of such claim and shall apprise the Company of the nature of such
claim and the date on which such Claim is requested to be paid. The Employee
shall not pay such claim prior to the expiration of the 30-day period following
the date on which it gives such notice to the Company (or such shorter period
ending on the date that any payment of taxes with respect to such claim is due).
If the Company notifies the Employee in writing prior to the expiration of such
period that it desires to contest such claim and that it will bear the costs and
provide the indemnification as required by this sentence, the Employee shall:

     (i) give the Company any information reasonably requested by the Company
relating to such claim,



     (ii) take such action in connection with contesting such claim as the
Company shall reasonably request in writing from time to time, including,
without limitation, accepting legal representation with respect to such claim by
an attorney reasonably selected by the Company,

     (iii) cooperate with the Company in good faith in order effectively to
contest such claim, and

     (iv) permit the Company to participate in any proceedings relating to such
claim;

provided, however, that the Company shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in connection
with such contest and shall indemnify and hold the Employee harmless, on an
after-tax basis, for any Excise Tax, income tax or employment tax (taking into
account any lost or reduced tax deductions on account of such payments),
including interest and penalties with respect thereto, imposed as a result of
such representation and payment of costs and expenses. Without limitation on the
foregoing provisions of this Section 19(c), the Company shall control all
proceedings taken in connection with such contest and, at its sole option, may
pursue or forgo any and all administrative appeals, proceedings, hearings and
conferences with the taxing authority in respect of such claim and may, at its
sole option, either direct the Employee to pay the tax claimed and sue for a
refund or contest the claim in any permissible manner, and the Employee agrees
to prosecute such contest to a determination before any administrative tribunal,
in a court of initial jurisdiction and in one or more appellate courts, as the
Company shall determine; provided, however, that if the Company directs the
Employee to pay such claim and sue for a refund, the Company shall advance the
amount of such payment to the Employee on an interest-free basis and shall
indemnify and hold the Employee harmless, on an after-tax basis, from any Excise
Tax, income tax or employment tax (taking into account any lost or reduced tax
deductions on account of such advance), including interest or penalties with
respect thereto, imposed with respect to such advance or with respect to any
imputed income with respect to such advance; and further provided that any
extension of the statute of limitations relating to the payment of taxes for the
taxable year of the Employee with respect to which such contested amount is
claimed to be due is limited solely to such contested amount. Furthermore, the
Company's control of the contest shall be limited to issues with respect to
which a Gross-Up Payment would be payable hereunder and the Employee shall be
entitled to settle or contest, as the case may be, any other issue raised by the
Internal Revenue Service or any other taxing authority.

     (d) If, after the receipt by the Employee of an amount advanced by the
Company pursuant to Section 19(c), the Employee becomes entitled to receive any
refund with respect to such claim, the Employee shall (subject to the Company's
complying with the requirements of Section 19(c)) promptly pay to the Company
the amount of such refund (together with any interest paid or credited thereon
after taxes applicable thereto). If, after the receipt by the Employee of an
amount advanced by the Company pursuant to Section 19(c), a determination is
made that the Employee shall not be entitled to any refund with respect to such
claim and the Company does not notify the Employee in writing of its intent to
contest such denial of refund prior to the expiration of 30 days after such
determination, then any obligation of the Employee to repay such advance shall
be forgiven and the amount of such advance shall offset, to the extent thereof,
the amount of Gross-Up Payment required to be paid.

20. No Duty to Seek Employment. The Employee shall not be under any duty or
obligation to seek or accept other employment following termination of
employment, and, except as otherwise provided in paragraph 14, no amount,
payment or benefits due to the Employee hereunder shall be reduced or suspended
if the Employee accepts subsequent employment.

21. Deductions and Withholding.



     All amounts payable or which become payable under any provision of this
Agreement shall be subject to any deductions authorized by the Employee and any
deductions and withholdings required by law.

22. Modifications to Comply with IRC Section 409A.

     If any payments under this Agreement would not comply with the requirements
of Section 409A of Internal Revenue Code of 1986, as amended, and the
regulations and Internal Revenue Service guidance thereunder, the Parties hereto
agree to use their best efforts to modify the terms of such payments in a manner
mutually agreeable to both Parties so that such requirements are satisfied.

23. Governing Law.

     The validity, interpretation and performance of this Agreement will be
governed by the laws of the State of New Jersey without regard to the conflict
of law provisions.

24. Severability.

     If any one or more of the provisions contained in this Agreement is held to
be invalid, illegal or unenforceable in any respect, such invalidity, illegality
or unenforceability will not affect any other provision hereof.

25. Successors and Assigns.

     This Agreement will be binding upon and inure to the benefit of the Parties
hereto and their personal representatives, and, in the case of the Company, its
successors and assigns. To the extent the Company's obligations under this
Agreement are transferred to any successor or assign, such successor or assign
shall be treated as the "Company" for purposes of this Agreement. Other than as
contemplated by this Agreement, the Employee may not assign her rights or duties
under this Agreement.

26. Continuing Effect.

     Wherever appropriate to the intention of the Parties hereto, the respective
rights and obligations of the Parties, including but not limited to the
obligations referred to in Sections 7, 10, 11, 14, 15, 16 and 19, hereof, will
survive any termination or expiration of the term of this Agreement.

27. Entire Agreement.

     This Agreement constitutes the entire agreement between the Parties and
supersedes any and all other agreements and understandings between the Parties
in respect of the matters addressed in this Agreement.

28. Amendment and Waiver.

     No amendment or waiver of any provision of this Agreement shall be
effective, unless the same shall be in writing and signed by the Parties, and
then such amendment, waiver or consent shall be effective only in the specific
instance or for the specific purpose for which such amendment, waiver or consent
was given.



29. Counterparts. This Agreement may be executed in any number
of counterparts, each of which when so executed shall be deemed an original but
all of which together shall constitute one and the same instrument.

     IN WITNESS WHEREOF, the Company has caused this Agreement to be executed by
its duly authorized officer and the Employee has hereunto set her hand as of the
day and year first above written.

THE GREAT ATLANTIC & PACIFIC
TEA COMPANY, INC.


BY:
    ---------------------------------

ITS:
     --------------------------------

DATE:
      -------------------------------


- -------------------------------------   --------------------------------
REBECCA PHILBERT                        DATE

EX-10.39

                                                                   Exhibit 10.39

                               FIRST AMENDMENT TO
                           LETTER OF CREDIT AGREEMENT

     This First Amendment to Letter of Credit Agreement (the "First Amendment")
is made as of the 13 day of October, 2006 by and among

     THE GREAT ATLANTIC & PACIFIC TEA COMPANY, INC., a Maryland corporation (the
"Company"); and

     BANK OF AMERICA, N.A., as Issuing Bank (the "Issuing Bank").

In consideration of the mutual covenants herein contained and benefits to be
derived herefrom, the parties hereto agree as follows:

                                   WITNESSETH

     WHEREAS, the Company and the Issuing Bank are parties to a Letter of Credit
Agreement dated as of October 14, 2005 (the "Letter of Credit Agreement"); and

     WHEREAS, the Company has advised the Issuing Bank that the Company desires
to amend the Letter of Credit Agreement as provided herein.

     NOW THEREFORE, it is hereby agreed as follows:

1.   Definitions: All capitalized terms used herein and not otherwise defined
     shall have the same meaning herein as in the Letter of Credit Agreement.

2.   Amendment of the Letter of Credit Agreement. The Letter of Credit Agreement
     is hereby amended as follows:

a.   Clause (i) of the definition of "Termination Date" in Section 1.01 of the
     Letter of Credit Agreement is hereby amended by deleting the reference to
     "October 14, 2006" therein and substituting in its stead "October 14,
     2007".

b.   Clause (ii) of Section 2.01(b) of the Letter of Credit Agreement is hereby
     amended by deleting the reference to "October 14, 2006" therein and
     substituting in its stead "October 14, 2007".

3.   Conditions to Effectiveness. This First Amendment shall not be effective
     until each of the following conditions precedent have been fulfilled to the
     satisfaction of the Issuing Bank:

a.   This First Amendment shall have been duly executed and delivered by the
     Company and the Issuing Bank.

b.   All action on the part of the Company necessary for the valid execution,
     delivery and performance by the Company of this First Amendment shall have
     been duly and effectively taken.

c.   No Default or Event of Default shall have occurred and be continuing.

d.   The Company shall have provided such additional instruments and documents
     as the Issuing Bank and their counsel may have reasonably requested.



4.   Miscellaneous.

a.   Except as provided herein, all terms and conditions of the Letter of Credit
     Agreement remain in full force and effect. The Company hereby ratifies,
     confirms, and reaffirms all of the representations, warranties and
     covenants therein contained.

b.   This First Amendment may be executed in several counterparts and by each
     party on a separate counterpart, each of which when so executed and
     delivered, each shall be an original, and all of which together shall
     constitute one instrument. Delivery of an executed counterpart of a
     signature page hereto by telecopy shall be effective as delivery of a
     manually executed counterpart hereof.

c.   The Company shall reimburse the Issuing Bank for all expenses incurred in
     connection with this First Amendment, including, without limitation,
     reasonable attorneys' fees, costs and expenses.

d.   This First Amendment expresses the entire understanding of the parties with
     respect to the matters set forth herein and supersedes all prior
     discussions or negotiations hereon. Any determination that any provision of
     this First Amendment or any application hereof is invalid, illegal or
     unenforceable in any respect and in any instance shall not effect the
     validity, legality, or enforceability of such provision in any other
     instance, or the validity, legality or enforceability of any other
     provisions of this First Amendment.

     IN WITNESS WHEREOF, the parties hereto have caused this First Amendment to
     be executed as the date first above written.

[SIGNATURE PAGES FOLLOW]



                                        BANK OF AMERICA, N.A., as Issuing Bank


                                        By: /s/ Alexis MacElhiney
                                            ------------------------------------
                                        Name: Alexis MacElhiney
                                        Title: Director



                                        THE GREAT ATLANTIC & PACIFIC TEA
                                        COMPANY, INC.


                                        By: /s/ William J. Moss
                                            ------------------------------------
                                        Name: William J. Moss
                                        Title: Vice President and Treasurer

EX-10.40

                                                                   Exhibit 10.40

                               SECOND AMENDMENT TO
                           LETTER OF CREDIT AGREEMENT

     This Second Amendment to Letter of Credit Agreement (the "Amendment") is
made as of the 10th day of November, 2006 by and between:

     THE GREAT ATLANTIC & PACIFIC TEA COMPANY, INC., a Maryland corporation (the
"Company"); and

     BANK OF AMERICA, N.A., as Issuing Bank (the "Issuing Bank").

In consideration of the mutual covenants herein contained and benefits to be
derived herefrom, the parties hereto agree as follows:

                                   WITNESSETH

     WHEREAS, the Company and the Issuing Bank are parties to a Letter of Credit
Agreement dated as of October 14, 2005, as amended by the First Amendment to
Letter of Credit Agreement dated as of October 13, 2006 (the "Letter of Credit
Agreement"); and

     WHEREAS, the Company has advised the Issuing Bank that the Company desires
to amend the Letter of Credit Agreement as provided herein.

     NOW THEREFORE, it is hereby agreed as follows:

1.   Definitions: All capitalized terms used herein and not otherwise defined
     shall have the same meaning herein as in the Letter of Credit Agreement.

2.   Amendment of the Letter of Credit Agreement. The Letter of Credit Agreement
     is hereby amended as follows:

a.   Section 1.01 of the Letter of Credit Agreement is hereby amended by the
     addition of the following new definitions, inserted in appropriate
     alphabetical order:

     "L/C Fee Rate" shall mean, as of any date of determination, the per annum
     rate, determined by reference to the average daily percentage of
     Availability attributable to the Collateral consisting of Cash and Cash
     Equivalents and Additional Collateral during the immediately preceding
     calendar quarter, as set forth in the following grid:



Collateral consisting of Cash and Cash Equivalents and
Additional Collateral                                    L/C Fee Rate
- ------------------------------------------------------   ------------
                                                      
< 60%                                                    62.5 bps
> 60% and < 100%                                         37.5 bps
100%                                                     15.0 bps




     "Metro Inc. Securities Availability Cap" means $75,000,000.

     "Metro Inc. Securities Collateral" means the shares of capital stock of
     Metro Inc., a Quebec corporation, specified on Schedule 2 hereto.

     "Metro Inc. Securities Collateral Account" means that certain account now
     or hereafter established by the Company with Bank of America, N.A. or any
     of its Affiliates under the sole and exclusive dominion and control of the
     Issuing Bank designated as the "A&P Letter of Credit Metro Inc. Securities
     Collateral Account" containing investments constituting the Metro Inc.
     Securities Collateral, and in which account the Issuing Bank has been
     granted a Lien pursuant to the Pledge and Security Agreement.

     "Revolving Credit Facility" means the revolving credit facility maintained
     by the Company pursuant to the Credit Agreement, dated as of November 15,
     2005, by and among the Company, the other borrowers thereto, Bank of
     America, N.A., as Administrative Agent and Collateral Agent, and the other
     Lenders party thereto.

b.   The definition of "Account" in Section 1.01 of the Letter of Credit
     Agreement is hereby is deleted in its entirety and the following is
     substituted in its stead:

     ""Account" means each of the Cash Collateral Account, the Additional
     Collateral Account and the Metro Inc. Securities Collateral Account."

c.   The definition of "Availability" in Section 1.01 of the Letter of Credit
     Agreement is hereby is deleted in its entirety and the following is
     substituted in its stead:

     ""Availability" means, at any time of determination, the lesser of (i)
     $150,000,000, and (ii) an amount equal to the difference between (a) the
     sum of (1) 100% of the Cash and Cash Equivalents on deposit in the Cash
     Collateral Account and (2) as to the Metro Inc. Securities Collateral on
     deposit in the Metro Inc. Securities Collateral Account, the lesser of (A)
     50% of the market value of such Metro Inc. Securities Collateral (as
     determined by reference to the price of Metro Inc. stock as listed on the
     Toronto Stock Exchange) and (B) the Metro Inc. Securities Availability Cap
     and (3) as to each item of Additional Collateral on deposit in the
     Additional Collateral Account, the amount of such Additional Collateral
     multiplied by the Applicable Advance Rate applicable to such Additional
     Collateral and (b) the aggregate Letter of Credit Outstandings. In
     determining Availability, the Metro Inc. Securities Collateral shall be
     valued daily at the US Dollar equivalent of the value of such Metro Inc.
     Securities Collateral in Canadian Dollars."



d.   The definition of "Commitment" in Section 1.01 of the Letter of Credit
     Agreement is hereby deleted in its entirety and the following is
     substituted in its stead:

     ""Commitment" means $150,000,000 or such lesser amount on account of a
     reduction thereof in accordance with the provisions of Section 2.09
     hereof."

e.   The definition of "Pledge and Security Agreement" in Section 1.01 of the
     Letter of Credit Agreement is hereby deleted in its entirety and the
     following is substituted in its stead:

     ""Pledge and Security Agreement" means the Amended and Restated Pledge and
     Security Agreement, dated as of November 10, 2006, between the Company and
     the Issuing Bank, as amended and in effect from time to time."

f.   Section 2.07(a) of the Letter of Credit Agreement is hereby amended in its
     entirety to read as follows:

     "(a) The Company and the Subsidiary Credit Parties shall pay the Issuing
     Bank promptly after the commencement of each calendar quarter (but in no
     event later than the tenth day of each calendar quarter), in arrears, a fee
     (each, a "Letter of Credit Fee") equal to the L/C Fee Rate (on the basis of
     actual number of days elapsed in a year of 360 days) of the average daily
     face amount of the Letters of Credit outstanding during the immediately
     preceding calendar quarter."

g.   Section 5.05 of the Letter of Credit Agreement is hereby amended in its
     entirety to read as follows:

     "Collateralization of Letter of Credit Outstandings. The Company shall
     cause the sum of (i) 100% of the Cash and Cash Equivalents on deposit in
     the Cash Collateral Account, (ii) as to the Metro Inc. Securities
     Collateral on deposit in the Metro Inc. Securities Collateral Account, the
     lesser of (a) 50% of the market value of such Metro Inc. Securities
     Collateral (as determined by reference to the price of Metro Inc. stock as
     listed on the Toronto Stock Exchange) and (b) the Metro Inc. Securities
     Availability Cap, and (iii) as to each item of Additional Collateral on
     deposit in the Additional Collateral Account, the amount of such Additional
     Collateral multiplied by the Applicable Advance Rate, to be at least equal
     to the Letter of Credit Outstandings. If at any time Letter of Credit
     Outstandings exceed Availability, the Borrower shall deposit with the
     Issuing Bank Cash and Cash Equivalents and/or Additional Collateral in an
     amount sufficient to eliminate such excess and/or cause the Letter of
     Credit Outstandings to be reduced by an amount sufficient to eliminate such
     excess.



h.   The Letter of Credit Agreement is hereby amended by the addition of
     Schedule 2 attached hereto as "Schedule 2" to the Letter of Credit
     Agreement.

i.   Section 6.01 of the Letter of Credit Agreement is hereby amended in its
     entirety to read as follows:

     "6.01 Liens, Collateral Dispositions. The Company and the Subsidiary Credit
     Parties will not create, incur, assume or permit to exist any Lien on any
     Collateral (as defined in the Pledge and Security Agreement) or, except as
     expressly permitted by the Pledge and Security Agreement, sell, transfer,
     assign or otherwise dispose of any Collateral (as defined in the Pledge and
     Security Agreement); provided that the Company may grant Liens on
     Non-Primary Collateral (as defined in the Pledge and Security Agreement) to
     the Revolving Agent (as defined in the Pledge and Security Agreement), to
     secure the Company's obligations under the Revolving Credit Facility and
     sell, transfer assign or otherwise dispose of Non-Primary Collateral to the
     extent permitted by the Revolving Credit Agreement (as defined in the
     Pledge and Security Agreement) or in connection with the Revolving Agent's
     exercise of its remedies pursuant to the Revolving Credit Agreement."

j.   Section 6 of the Letter of Credit Agreement is hereby amended by the
     addition of a new Section 6.03 reading as follows:

     "6.03 Minimum Availability. The Company shall cause "Borrowing Base
     Availability" (as defined in the Revolving Credit Facility) to be at least
     $25,000,000 at all times."

k.   Section 7.01(j) of the Letter of Credit Agreement is hereby amended in its
     entirety to read as follows:

     "(j) The occurrence of an event of default on the part of the Company or
     any Subsidiary Credit Party under the Revolving Credit Facility or any
     other Material Indebtedness to which the Company or any Subsidiary Credit
     Party is a party or any indenture or other agreement relating to the
     Revolving Credit Facility or any other Material Indebtedness of the Company
     or any Subsidiary Credit Party."

l.   Exhibit A to the Letter of Credit Agreement is hereby amended in its
     entirety to read as set forth in Exhibit A attached hereto.

3.   Conditions to Effectiveness. This Amendment shall not be effective until
     each of the following conditions precedent have been fulfilled to the
     satisfaction of the Issuing Bank:

a.   This Amendment shall have been duly executed and delivered by the Company
     and the Issuing Bank.



b.   The Company shall have established the Metro Inc. Securities Collateral
     Account with the Issuing Bank and the Issuing Bank shall have a perfected
     first priority security interest in such Metro Inc. Securities Collateral
     Account and all Metro Inc. Securities Collateral on deposit therein.

c.   The Company shall have executed any and all further documents, financing
     statements, agreements and instruments and taken any other action that may
     be required under Applicable Law or which the Issuing Bank may reasonably
     request to grant, preserve, protect or perfect Liens on the Collateral for
     the benefit of the Issuing Bank (including, without limitation, the
     execution and delivery of an amended and restated the Pledge and Security
     Agreement), or the validity or priority of any such Lien, all at the
     expense of the Company.

d.   All action on the part of the Company necessary for the valid execution,
     delivery and performance by the Company of this Amendment shall have been
     duly and effectively taken. The Issuing Bank shall have received from the
     Company true copies of the resolutions authorizing the transactions
     described herein, certified by its secretary or other appropriate officer
     to be true and complete.

e.   The Company shall reimburse the Issuing Bank for all expenses incurred in
     connection with this Amendment, including, without limitation, reasonable
     attorneys' fees, costs and expenses.

f.   The Company shall have paid the Issuing Bank all fees due in connection
     with this Amendment as set forth in the Fee Letter between the Company and
     the Issuing Bank dated September 19, 2006.

g.   No Default or Event of Default shall have occurred and be continuing.

h.   The Company shall have provided such additional instruments, documents, and
     opinions of counsel as the Issuing Bank and their counsel may have
     reasonably requested.

4.   Miscellaneous.

a.   Except as provided herein, all terms and conditions of the Letter of Credit
     Agreement remain in full force and effect. The Company hereby ratifies,
     confirms, and reaffirms all of the representations, warranties and
     covenants therein contained.

b.   This Amendment may be executed in several counterparts and by each party on
     a separate counterpart, each of which when so executed and delivered, each
     shall be an original, and all of which together shall constitute one
     instrument. Delivery of an executed counterpart of a signature page hereto
     by telecopy shall be effective as delivery of a manually executed
     counterpart hereof.

c.   This Amendment expresses the entire understanding of the parties with
     respect to the matters set forth herein and supersedes all prior
     discussions or negotiations hereon. Any determination that any provision of
     this Amendment or any application hereof is invalid, illegal or
     unenforceable in any respect and in any instance shall not effect the
     validity, legality, or enforceability of such provision in any other
     instance, or the validity, legality or enforceability of any other
     provisions of this Amendment.



     IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed as the date first above written.

                                        BANK OF AMERICA, N.A., as Issuing Bank


                                        By: /s/ Alexis MacElhiney
                                            ------------------------------------
                                        Name: Alexis MacElhiney
                                        Title: Director



                                        THE GREAT ATLANTIC & PACIFIC TEA
                                        COMPANY, INC.


                                        By: /s/ William J. Moss
                                            ------------------------------------
                                        Name: William J. Moss
                                        Title: Vice President, Treasurer

EX-13

                                                                      EXHIBIT 13

                 THE GREAT ATLANTIC & PACIFIC TEA COMPANY, INC.

                                   FISCAL 2006
                          ANNUAL REPORT TO STOCKHOLDERS


                                        1





TABLE OF CONTENTS

                                                                          
Executive Chairman Letter to Stockholders.................................     3
President and Chief Executive Officer Letter to Stockholders..............     5
Management's Discussion and Analysis......................................     9
Consolidated Statements of Operations.....................................    39
Consolidated Statements of Stockholders' Equity
   and Comprehensive Income (Loss)........................................    40
Consolidated Balance Sheets...............................................    41
Consolidated Statements of Cash Flows.....................................    42
Notes to Consolidated Financial Statements................................    43
Management's Annual Report on Internal Control over Financial Reporting...   108
Report of Independent Registered Public Accounting Firm...................   109
Five Year Summary of Selected Financial Data..............................   111
Executive Officers........................................................   113
Board of Directors........................................................   113
Stockholder Information...................................................   114



COMPANY PROFILE

The Great Atlantic & Pacific Tea Company, Inc. ("We," "Our," "Us," "A&P," or
"our Company"), based in Montvale, New Jersey, operates conventional
supermarkets, combination food and drug stores, and limited assortment food
stores in 9 U.S. states and the District of Columbia under the A&P(R),
Waldbaum's(TM), The Food Emporium(R), Super Foodmart, Super Fresh(R), Farmer
Jack(R), Sav-A-Center(R) and Food Basics(R) trade names.




                                        2



EXECUTIVE CHAIRMAN LETTER TO STOCKHOLDERS

To Our Stockholders:

     A&P made significant progress in 2006 improving operating performance and
continuing its strategic transformation. Following our successful divestiture of
A&P Canada, executive leadership changes, and the reengineering of our
administration and support functions during 2005, we entered this year with a
stronger balance sheet, reduced overhead and a more efficient and responsive
organization.

     This improved financial and operating platform enabled us to deliver the
following positive developments in fiscal 2006 which in turn generated increased
shareholder value for the year:

- -    Our new retail leadership headed by President and Chief Executive Officer
     Eric Claus improved our operating results in line with our turnaround
     timetable, while also creating and launching consumer oriented retail
     formats to position our stores to effectively compete in our core markets.

- -    The balance sheet impact of our better-than-expected proceeds from the A&P
     Canada sale enabled us to reward our shareholders through the payment of a
     $300 million special dividend.

- -    The growth in value of our original investment position in Metro, Inc. as
     part of the Canada divestiture also exceeded expectations, due to greater
     than anticipated merger synergies and the strong ongoing results of our
     former A&P operations.

- -    In early March, after several months of negotiations, we announced an
     agreement to acquire Pathmark for cash and stock, which marks the next
     major step in our strategic transformation. This combination will enable
     A&P to achieve sustainable profitability on an accelerated basis and enable
     us to compete more effectively in the highly competitive Northeast food
     retail industry.

     Those major developments highlighted a year of many positives for our
Company, and fulfilled the strategic objectives that our Board of Directors
determined necessary and implemented. While difficult and challenging for our
organization, they enabled us in less than two years to produce favorable
operating trends, move substantially closer to overall profitability, ensure
long-term investment in the business, reward our shareholders, and take a
leadership role in our industry's consolidation in the Northeast.

     Augmenting management's ongoing focus on the key retail strategies already
improving our existing business, the anticipated completion of the Pathmark
acquisition will accelerate the transformation of our Company, through:

- -    Formation of a 460-store, $10 billion chain with improved ability to serve
     consumers in Metro New York and New Jersey and greater Philadelphia.

- -    Annual integration synergies of approximately $150 million within two
     years, through cost reductions in overhead, greater efficiencies, increased
     utilization of support facilities and mutual best practices between the two
     companies.

- -    Retention of the Pathmark banner, format, customer appeal and sales
     productivity - benefiting the consumer through the breadth of offerings
     available from the combined companies, and the continuation of community
     outreach efforts.


                                        3




- -    Consolidation of A&P and Pathmark management and administrative employees
     in Montvale, New Jersey, and combined information systems integration into
     A&P's modern technology platform.

- -    Establishment of a platform for investment in existing and new stores to
     better compete in the Northeast retail food industry.

     As part of this transaction, Tengelmann will retain its ownership stake and
remain the Company's largest shareholder.

     Other significant achievements included comprehensive real estate and tax
management strategies resulting in substantial cash proceeds and extraordinary
income benefits throughout the year - augmenting our operating improvements in
the drive toward overall profitability.

     Another important element to A&P's performance was the strengthening of
annual and longer-range incentive plans for Company management and employees,
linked to A&P's performance. These programs ensure the correlation of executive
management and shareholder interests, and in turn tie corporate strategic goals
to the activities and priorities of all levels of Company management. These
comprehensive performance incentive plans are designed to keep A&P's immediate
operating performance on the forward track while at the same time encouraging
strategies to create longer-term growth in revenue, earnings and shareholder
value.

     Although we were clearly focused on strategies to accelerate both A&P's
turnaround and future growth, we also addressed our efforts and commitments in
terms of corporate and community citizenship.

     In fiscal 2006, we were proud to enter into a new alliance with the New
York-based Children's Health Fund, in addition to our continuing efforts on
behalf of the Muscular Dystrophy research, St. Jude's Hospital and other equally
worthy organizations, and ongoing support of breast cancer research through the
Waldbaum's Foundation. We hope these corporate efforts, and stores'
participation in their local communities, will continue to grow along with our
business success in the months and years to come.

     Overall we are pleased with our progress and increasingly confident in our
future. With the acquisition of Pathmark in sight we are now positioned to
achieve substantial and sustainable profitability and consequently able to
determine our own destiny in the future of the food retail industry.

     Looking back on our progress, and forward to an exciting future, my thanks
go to our shareholders, our Board of Directors, our many customers, our
management team, our union leaders and most of all to our valued associates for
their support, leadership and efforts on behalf of A&P. In return, our goal in
fiscal 2007 and beyond is to further improve - as merchants and retailers, as
value-creators for investors, as employers, and as corporate and community
citizens.

Sincerely,

Christian Haub
Executive Chairman


                                        4



PRESIDENT AND CHIEF EXECUTIVE OFFICER LETTER TO STOCKHOLDERS

To Our Stockholders:

    Fiscal 2006 was my first full year as your Chief Executive Officer, and a
challenging transition year for A&P, but I am pleased to report that we
generated positive momentum in most key performance measures.

    Fortified by the lower cost structure produced by our reorganization in the
latter part of 2005, we entered 2006 focused on the following strategies to
return A&P to sustainable profitability:

- -  Profitable sales improvement through improved buying, merchandising and
   operating practices.
- -  The commencement of a long-range capital plan to convert conventional stores
   to our new fresh, discount and gourmet/fine food prototypes.
- -  The ongoing elimination of costs that do not contribute to the improvement
   of our business and results, and,
- -  The decision to strengthen our presence in core markets by pursuing viable
   acquisition opportunities.

    We moved forward on all counts in fiscal 2006, as noted by these key
accomplishments:

- -  Improved sales trends in core Northeast banners.
- -  Positive EBITDA performance, with improving contribution from our core market
   operations.
- -  The conversion of 24 conventional stores to our innovative and
   successful fresh format.
- -  Successful launch of the reformatted Food Basics
   discount concept.
- -  Introduction of the new generation Food Emporium Fine
   Foods concept in New York City.
- -  Continued bottom line benefits from previous cost reduction initiatives, and
   the ongoing cost conservation mandate embedded in all Company activities.

    As noted by Christian Haub in his foregoing message, our financial and
operating improvements enabled us to pursue an exciting expansion opportunity in
the form of our announced Pathmark Stores Inc. acquisition.


Driving Profitable Sales

     Our goal of driving profitable sales development reflected a total
commitment from end to end of our supply chain in fiscal 2006.

     We worked closely with C&S Wholesale  Grocers and directly with our product
vendors to improve variety and service levels and lower the delivered cost of
goods to our stores and customers. Internally, we increased both the creativity
and discipline of our merchandising and promotion, to maximize impact and
return, and eliminate throwaway spending.

     This was evidenced by more powerful and targeted weekly promotions reaching
existing consumers and attracting new ones to our stores - while we refrained
from some traditional industry tactics, including certain holiday giveaways that
have proven ultimately unproductive.


                                     5


     We also began addressing the pricing issues that have impeded past
development, implementing longer-range price reduction programs in our
mainstream banners. This aspect is a key work in progress, and will be aligned
with increasing cost of goods and operating efficiencies.

     In terms of variety, we generally reduced the overpopulation of certain
center store assortments, while expanding and improving higher-margin fresh,
organic and specialty food offers, sharing selected elements of our larger fresh
store prototype development across the board. This included the introduction of
enticing signature products in produce, gourmet selections from cheeses to
chocolates, artisan breads and other baked specialties, and a range of hot and
cold prepared entrees and desserts - offering convenient mealtime and
entertainment solutions that customers are proud to serve.

     Another popular improvement was the significant change in our general and
seasonal merchandise approach, upgrading the quality level and customer appeal
of these in-and-out categories that create in-store excitement and incremental
sales and profit.

     The volume, profit and image-enhancing measures underway are not quick
fixes, but focused, ongoing strategies to establish our banners as marketing
leaders, with the support of continuously improving logistics and store-level
execution.

     Midway  through the year, we enhanced our leadership of this important area
by appointing Rebecca Philbert as Senior Vice President,  Merchandising & Supply
and  Logistics  and  a  member  of  my  Executive   Management  Team.   Recently
instrumental  in  the  development  of  Safeway  Stores'   lifestyle   marketing
initiative,  Rebecca's  experience  and  achievements  mesh  perfectly  with our
multifaceted  sales agenda,  and I look forward to working  together to build on
the solid progress established in fiscal 2006.

Store Formats

     A&P's departure from the marketing "middle ground " was demonstrated by the
aggressive rollout of our mainstream fresh store concept, the very successful
launch of our improved Food Basics discount format, and the debut in New York
City of the new generation Food Emporium Fine Foods concept for upscale,
cosmopolitan markets.

     Based on our well-received Midland Park, N.J. store opened just over a year
ago, we accelerated our Fresh store development in fiscal 2006. We're very
pleased with their performance, and continue to learn from each project and
build from this successful model. These stores have consistently generated
returns exceeding our cost of capital - based on strong sales and the
distribution shift from center store to fresh department merchandise, which has
improved margins.

     The vast  majority  of the 24 fresh  stores  launched  in fiscal  2006 were
existing store conversions under our A&P, Waldbaum's and Super Fresh banners in
the Northeast. We continue to seek new ways to enhance their appeal and
performance, and will be introducing exciting nuances to the concept as we move
forward in the current year.

     On the discount side, our Food Basics operations are emerging as strong
performers within our corporate portfolio. Having adjusted the original and
successful A&P Canada discount formula to better appeal to American markets, we
believe Food Basics is poised for takeoff, based on results at our most recent
openings, and the overall sales and profit improvement of the current store
group.

                                   6


     The  viability  of a discount  alternative  that  doesn't  feel like one to
shoppers in terms of quality and atmosphere is borne out by Food Basics' current
trend. Like the larger and more upscale fresh stores, we see considerable
opportunity to expand Food Basics through conversion of existing or closed
conventional stores going forward.

     Appealing to yet a third profitable  consumer segment is The Food Emporium,
whose new gourmet/fine foods concept debuted last December at our historic
BridgeMarket location in Manhattan.

The Food Emporium is being transformed into a true destination for fine
food lovers with a distinctly global appeal. Having first elevated its high end
and specialty assortment, we are currently adjusting the center store product
complement, to enhance The Food Emporium's appeal as a true neighborhood market
serving basic needs, with an unequaled gourmet flair.

     With respect to the existing A&P store  network,  these three  concepts are
the basis of our projected capital development plan established in 2005. Beyond
that, the potential acquisition of Pathmark Stores, with its big-box price and
value appeal, will provide a powerful fourth concept with which to build
customer satisfaction and profitable growth.

Cost Reduction

     Our reorganization of A&P in fiscal 2005 lowered overhead by $50 million
by reducing administrative and certain operating positions and other expenses.
At that time, we also projected additional cost savings of approximately $25
million to be realized in fiscal 2006, which in fact was achieved.

     While we believe our administrative and support organization was
essentially right-sized in fiscal 2006, we continued to emphasize the review of
all expense lines on a continuous basis, further lowering costs wherever
possible.

Store Operations

     As a crucial contributor to both sales and profit performance, we continued
to emphasize fundamental best practices, including cleanliness standards,
display and signage execution, courteous and professional associates, and store
managers who are visible to employees and customers on the sales floor.

     To support our operational effectiveness, we carried out comprehensive
training of our approximately 38,000 store associates during fiscal 2006, as we
rolled out our "Make It Personal" customer care initiative across our Company.
As with other aspects of our business, consistent adherence to operating and
customer service standards is not a fixed destination, but an ongoing pursuit -
and as such it will receive consistent management emphasis going forward.

     In addition to the basics of operations and service, we continued the
development of online shopping service as an added customer convenience.

     Initially introduced at The Food Emporium in Manhattan, we expanded the
service to Waldbaum's on Long Island in fiscal 2006, and based on overall usage
and increasing cost effectiveness, we plan to extend it to our A&P operations in
the current year.


                                      7



Fiscal 2007

     With our fiscal 2006 results delivered as projected, our agenda for fiscal
2007 is essentially two-fold: to remain focused on the same strategies that
generated our improved trend last year, complete the acquisition of Pathmark
Stores Inc. and successfully integrate its operations.

     I am excited to lead the operations of this iconic Company as we embark on
a year in which we believe we can return to sustained profitability and growth.
I want to express my appreciation to Christian Haub, the Tengelmann organization
and our Board of Directors for their ongoing confidence and dynamic actions to
grow our Company; to my leadership team for their tireless efforts in effecting
positive change; and to all of our associates for their patience, efforts and
loyalty.

     It is my belief that our customers, our shareholders and our employees will
be rewarded as A&P continues to make important strides forward in fiscal 2007.


Sincerely,

Eric Claus
President and Chief Executive Officer


















                                      8




                 THE GREAT ATLANTIC & PACIFIC TEA COMPANY, INC.
                      MANAGEMENT'S DISCUSSION AND ANALYSIS

INTRODUCTION

     The following Management's Discussion and Analysis is intended to help the
reader understand the financial position, operating results, and cash flows of
The Great Atlantic and Pacific Tea Company, Inc. It should be read in
conjunction with our financial statements and the accompanying notes ("Notes").
It discusses matters that Management considers relevant to understanding the
business environment, financial position, results of operations and our
Company's liquidity and capital resources. These items are presented as follows:

- -    Basis of Presentation - a discussion of our Company's fiscal year-end.

- -    Overview - a general description of our business; the value drivers of our
     business; measurements; opportunities; challenges and risks; and
     initiatives.

- -    2007 Outlook - a discussion of certain trends or business initiatives for
     the upcoming year that Management wishes to share with the reader to assist
     in understanding the business.

- -    Review of Continuing Operations and Liquidity and Capital Resources - a
     discussion of results for fiscal 2006 and 2005, significant business
     initiatives, current and expected future liquidity and the impact of
     various market risks on our Company.

- -    Market Risk - a discussion of the impact of market changes on our
     consolidated financial statements.

- -    Critical Accounting Estimates - a discussion of significant estimates made
     by Management.

- -    Impact of New Accounting Pronouncements - a discussion of authoritative
     pronouncements that have been or will be adopted by our Company.

BASIS OF PRESENTATION

     Our fiscal year ends on the last Saturday in February. Fiscal 2006 ended
February 24, 2007, fiscal 2005 ended February 25, 2006, and fiscal 2004 ended
February 26, 2005. Fiscal 2006, fiscal 2005 and fiscal 2004 were each comprised
of 52 weeks. Except where noted, all amounts are presented in millions, and all
net income (loss) per share data presented is both basic and diluted.

OVERVIEW

     THE GREAT ATLANTIC & PACIFIC TEA COMPANY, INC., based in Montvale, New
Jersey, operates conventional supermarkets, combination food and drug stores and
discount food stores in 9 U.S. states and the District of Columbia. Our
Company's business consists strictly of our retail operations, which totaled 406
stores as of February 24, 2007.

     Our UNITED STATES retail operations are organized in three regions: North
Region, operating A&P supermarkets in New York and Northern New Jersey, The Food
Emporium in Westchester County, N.Y, A&P/Super Foodmart stores in Connecticut,
and all Food Basics discount stores;

Central Region, operating all Waldbaum's supermarkets, The Food Emporium in
Manhattan, and the Farmer Jack supermarkets in Michigan; and South Region,
operating Super Fresh supermarkets in Baltimore and Philadelphia, A&P
supermarkets in Central New Jersey and Sav-A-Center supermarkets in the greater
New Orleans market.

     On March 5, 2007, our Company announced that we have reached a definitive
merger agreement with Pathmark Stores, Inc. in which we will acquire Pathmark
Stores, Inc., ("Pathmark") for $1.5 billion in cash, stock, and debt assumption
or retirement. This transaction is expected to be completed during the second
half of our fiscal year 2007 and is subject to the completion of shareholder and
regulatory approvals, as well as other customary closing conditions. For further
details surrounding the Pathmark transaction, refer to our Company's Form 8-K
and the accompanying exhibits filed with the U.S. Securities and Exchange
Commission on March 6, 2007.

     Under the terms of the transaction, The Tengelmann Group ("Tengelmann"),
currently A&P's majority shareholder, will remain the largest single shareholder
of the combined entity. Christian Haub, Executive Chairman of A&P, will continue
as Executive Chairman of the combined company; Eric Claus, President and CEO of
A&P, will also maintain the same position in the combined company.

                                     9


                 THE GREAT ATLANTIC & PACIFIC TEA COMPANY, INC.
                MANAGEMENT'S DISCUSSION AND ANALYSIS - CONTINUED


     Pathmark shareholders will receive $9.00 in cash and 0.12963 shares of A&P
stock for each Pathmark share. As a result, Pathmark shareholders, including its
largest investor, The Yucaipa Companies LLC ("Yucaipa Companies"), will receive
a stake in the combined companies.

     The boards of both A&P and Pathmark have unanimously approved the
transaction. Both Yucaipa Companies and Tengelmann have entered into voting
agreements to support the transaction.

     On April 24, 2007, based upon unsatisfactory operating trends and the need
to devote resources to our expanding Northeast core business, our Company
announced that we are in negotiations for the potential sale of groups of
non-core stores within our Midwest operations. No definitive sale agreements
have been signed at this time; however, based upon submitted bids received to
date, it is possible that an impairment on long-lived assets that are currently
held and used in our Midwest operations may be likely in the near term. In
addition, in connection with this potential sale, it is possible that
liabilities for closed stores and warehouses as well as pension withdrawal from
our multi-employer union pension plans may be recorded in the near term.

     A&P continued on course in the fourth quarter with respect to ongoing
operating, merchandising, store development and cost control strategies.

     Sales development was in line with industry peers despite competitive
responses to our sales and promotion strategies in our improving Northeastern
operations; temporary disruption caused by our increased store renovation
activity in those regions; cycling against 2005 sales in New Orleans when we led
the industry in restoring operations post Hurricane Katrina, and the continued
difficult economic environment in Michigan.

     Performance was driven by the improvement of core operations, consistent
operating discipline and cost controls; and margin improvement associated with
our ongoing fresh store development, among other factors.

     In addition to ongoing fundamental operating improvements, our Company
continued its conversion of suitable locations to the successful fresh format,
completing 4 conversions during the fourth quarter. Beyond immediate sales
increases, the emphasis on fresh category distribution in those stores
translates to a more profitable business model with excellent growth potential
on both the top and bottom lines.

     The evolution and expansion of our discount Food Basics operations
continued, providing customers in certain markets with an excellent value
alternative. In concert with the fresh stores and the new gourmet, Fine Food
concept being implemented by The Food Emporium in New York, this fulfills the
multi-tier marketing strategy initiated by the new executive management team in
2005.

     Strategic accomplishments for the full fiscal 2006 year included the
following:

- -    Improvement of prior sales trends in core operating markets;

- -    Positive earnings momentum in core Northeastern operations;

- -    Approximately 24 conversions to the new fresh store concept, generating
     double-digit sales increases upon completion for those stores;

- -    Successful launch of the reformatted Food Basics discount concept;

- -    Introduction of the new generation Food Emporium Fine Foods concept in New
     York City;

- -    Cash and earnings flow from comprehensive real estate and tax management
     strategies; and

- -    Continued financial benefits from previous cost reduction measures and
     ongoing controls.

2007 OUTLOOK

     A&P's key objectives for fiscal 2007 are to sustain and enhance execution
of the guiding strategies in place, to further accelerate performance
improvement of our core Northeast operations, complete the recently announced
acquisition of Pathmark Stores Inc., and begin integrating that business into
our Company.

                                  10



                 THE GREAT ATLANTIC & PACIFIC TEA COMPANY, INC.
                MANAGEMENT'S DISCUSSION AND ANALYSIS - CONTINUED

     Chief among the pre-existing strategies in place are the ongoing
improvement of merchandising and operating performance, the execution of capital
improvement projects for maximum return, and general adherence to cost control
disciplines. Key elements are:

- -    Continued development of merchandising, promotion and pricing strategies to
     drive profitable sales growth;

- -    Execute core market capital plan for conversion of conventional locations
     to fresh or discount formats, fine-tune and monitor gourmet format
     development; and convert or dispose closed store leaseholds; and

- -    Pursue operating/strategic solutions to challenged operations in Midwest
     and New Orleans.

     In preparation for the anticipated acquisition of Pathmark, management is
assembling a comprehensive plan for the integration of its operations upon
completion of the transaction. Primary initial objectives are to ensure:

- -    Continuity of all core retail operations during integration process;

- -    Divesture of non-core stores in the Midwest and New Orleans;

- -    Efficient consolidation of headquarters personnel and support functions at
     present A&P headquarters in Montvale;

- -    Timely achievement of significant synergies identified as result of merging
     the two businesses;

- -    Communication to both organizations regarding process, timetable for
     integration-related changes; and

- -    Consumer communication regarding the continuation of both the A&P-operated
     and Pathmark banners and store formats, and related marketing and
     promotional efforts.

     Overall, fiscal 2007 will be a year of both continuity and momentous
change, as management focuses on both sustaining the improvement already
achieved, and completing and implementing the addition of Pathmark's operations
- - thus creating a profitable and growing 460-store, $10 billion chain with
critical mass in our core Northeast region, and improved positions in Metro New
York/New Jersey and greater Philadelphia.

     Various factors could cause us to fail to achieve these goals. These
include, among others, the following:

- -    Actions of competitors could adversely affect our sales and future profits.
     The grocery retailing industry continues to experience fierce competition
     from other food retailers, super-centers, mass merchandisers, warehouse
     clubs, drug stores, dollar stores and restaurants. Our continued success is
     dependent upon our ability to effectively compete in this industry and to
     reduce operating expenses, including managing health care and pension costs
     contained in our collective bargaining agreements. The competitive
     practices and pricing in the food industry generally and particularly in
     our principal markets may cause us to reduce our prices in order to gain or
     maintain our market share of sales, thus reducing margins.

- -    Changes in the general business and economic conditions in our operating
     regions, including the rate of inflation, population growth, the rising
     prices of oil and gas, the nature and extent of continued consolidation in
     the food industry and employment and job growth in the markets in which we
     operate, may affect our ability to hire and train qualified employees to
     operate our stores. This would negatively affect earnings and sales growth.
     General economic changes may also affect the shopping habits and buying
     patterns of our customers, which could affect sales and earnings. We have
     assumed economic and competitive situations will not worsen in fiscal 2007.
     However, we cannot fully foresee the effects of changes in economic
     conditions, inflation, population growth, the rising prices of oil and gas,
     customer shopping habits and the consolidation of the food industry on our
     business.

- -    Our capital expenditures could differ from our estimate if development and
     remodel costs vary from those budgeted, or if performance varies
     significantly from expectations or if we are unsuccessful in acquiring
     suitable sites for new stores.

- -    Our ability to achieve our profit goals will be affected by (i.) our
     success in executing category management and purchasing programs that we
     have underway, which are designed to improve our gross margins and reduce
     product costs while making our product selection more attractive to
     consumers, (ii.) our ability to achieve productivity improvements and
     reduce shrink in our stores, (iii.) our success in generating efficiencies
     in our supporting activities, and (iv.) our ability to eliminate or
     maintain a minimum level of supply and/or quality control problems with our
     vendors.
                                    11


                 THE GREAT ATLANTIC & PACIFIC TEA COMPANY, INC.
                MANAGEMENT'S DISCUSSION AND ANALYSIS - CONTINUED


- -    The vast majority of our employees are members of labor unions. While we
     believe that our relationships with union leaderships and our employees are
     satisfactory, we operate under collective bargaining agreements which
     periodically must be renegotiated. In the coming year, we have several
     contracts expiring and under negotiation. In each of these negotiations,
     rising health care and pension costs will be an important issue, as will
     the nature and structure of work rules. We are hopeful, but cannot be
     certain, that we can reach satisfactory agreements without work stoppages
     in these markets. However, the actual terms of the renegotiated collective
     bargaining agreements, our future relationships with our employees and/or a
     prolonged work stoppage affecting a substantial number of stores could have
     a material effect on our results.

- -    The amount of contributions made to our pension and multi-employer plans
     will be affected by the performance of investments made by the plans and
     the extent to which trustees of the plans reduce the costs of future
     service benefits.

- -    Our Company is currently required to acquire a significant amount of our
     saleable inventory from one supplier, C&S Wholesale Grocers, Inc. Although
     there are a limited number of distributors that can supply our stores, we
     believe that other suppliers could provide similar product on reasonable
     terms. However, a change in suppliers could cause a delay in distribution
     and a possible loss of sales, which would affect operating results
     adversely.

- -    We have estimated our exposure to claims, administrative proceedings and
     litigation and believe we have made adequate provisions for them, where
     appropriate. Unexpected outcomes in both the costs and effects of these
     matters could result in an adverse effect on our earnings.

- -    Completion of the acquisition of Pathmark is conditioned upon the receipt
     of certain governmental authorizations, consents, orders and approvals,
     including the expiration or termination of the applicable waiting period
     (and any extension of the waiting period) under the Hart-Scott-Rodino Act.
     The success of the acquisition will depend, in part, on our Company's
     ability to realize the anticipated benefits from combining the business
     of A&P and Pathmark.  If our Company is not able to achieve these
     objectives, the anticipated benefits of the acquisition may not be
     realized fully or at all or may take longer to realize than expected.  Our
     Company will take on substantial indebtedness to finance this acquisition,
     which will decrease our business flexibility and increase our borrowing
     costs.

     Other factors and assumptions not identified above could also cause actual
results to differ materially from those set forth in the forward-looking
information. Accordingly, actual events and results may vary significantly from
those included in or contemplated or implied by forward-looking statements made
by us or our representatives.

REVIEW OF CONTINUING OPERATIONS AND LIQUIDITY AND CAPITAL RESOURCES

     Our consolidated financial information presents the results related to our
operations of discontinued businesses separate from the results of our
continuing operations. Both the discussion and analysis that follows focus on
continuing operations.

     We sold our Canadian operations to Metro, Inc. at the close of business on
August 13, 2005. Therefore, comparative information relating to our Canadian
business that follows was comprised of zero weeks, 24 weeks, and 52 weeks during
fiscal years 2006, 2005 and 2004, respectively.

FISCAL 2006 COMPARED WITH FISCAL 2005

     Sales for fiscal 2006 were $6.9 billion compared with $8.7 billion for
fiscal 2005; comparable store sales, which includes stores that have been in
operation for two full fiscal years and replacement stores, decreased 0.5%.
Income from continuing operations of $26.5 million in fiscal 2006 decreased from
$390.4 million for fiscal 2005 primarily due to the absence of the gain on sale
of our Canadian operations of $912.1 million. Net income per share - basic and
diluted for fiscal 2006 was $0.65 and $0.64, respectively, compared to net
income per share - basic and diluted of $9.74 and $9.64, respectively, for
fiscal 2005.
                                    12


                 THE GREAT ATLANTIC & PACIFIC TEA COMPANY, INC.
                MANAGEMENT'S DISCUSSION AND ANALYSIS - CONTINUED





                                           Fiscal 2006   Fiscal 2005   Unfavorable   % Change
                                           -----------   -----------   -----------   --------
                                                                         
Sales                                       $6,850.3      $8,740.3      $(1,890.0)    (21.6%)
(Decrease) increase in
   comparable store sales                       (0.5%)         0.5%            NA        NA
(Loss) gain on sale of
   Canadian operations                          (1.3)        912.1         (913.4)   (100.1%)
Income from continuing operations               26.5         390.4         (363.9)    (93.2%)
Income from discontinued operations              0.4           2.2           (1.8)    (81.8%)
Net income                                      26.9         392.6         (365.7)    (93.1%)
Net income per share - basic                    0.65          9.74          (9.09)    (93.3%)
Net income per share - diluted                  0.64          9.64          (9.00)    (93.4%)


SALES

     Sales for fiscal 2006 of $6,850.3 million decreased $1,890.0 million or
21.6% from sales of $8,740.3 million for fiscal 2005. The lower sales were due
to a decrease in U.S. sales of $166.1 million and a decrease in Canadian sales
of $1,723.9 million. The following table presents sales for each of our
reportable operating segments for fiscal 2006 and fiscal 2005:



                                           Fiscal 2006   Fiscal 2005    Decrease   % Change
                                           -----------   -----------   ---------   --------
                                                                       
United States                                $6,850.3      $7,016.4    $  (166.1)    (2.4%)
Canada                                             --       1,723.9     (1,723.9)  (100.0)
                                             --------      --------    ---------   ------
  Total                                      $6,850.3      $8,740.3    $(1,890.0)   (21.6%)
                                             ========      ========    =========   ======



     The following details the dollar impact of several items affecting the
decrease in sales by reportable operating segment from fiscal 2005 to fiscal
2006:



                                           Impact     Impact    Comparable   Impact of
                                           of New   of Closed      Store     Hurricane
                                           Stores     Stores       Sales      Katrina      Other       Total
                                           ------   ---------   ----------   ---------   ---------   ---------
                                                                                   
United States                               $40.7    $(232.9)     $(36.0)      $53.6     $     8.5   $  (166.1)
Canada                                         --         --          --          --      (1,723.9)   (1,723.9)
                                            -----    -------      ------       -----     ---------   ---------
   Total                                    $40.7    $(232.9)     $(36.0)      $53.6     $(1,715.4)  $(1,890.0)
                                            =====    =======      ======       =====     =========   =========


     The decrease in U.S. sales was primarily attributable to the closing of 58
stores since the beginning of fiscal 2005, of which 9 were closed in fiscal 2006
decreasing sales by $232.9 million, the decrease in comparable store sales for
fiscal 2006 of $36.0 million or 0.5% as compared with fiscal 2005 driven mainly
by a decrease in comparable store sales of 5.6% for the Midwest. These decreases
were partially offset by the opening or re-opening of 12 new stores since the
beginning of fiscal 2005, of which 10 were opened or re-opened in fiscal 2006,
increasing sales by $40.7 million, the increase in sales for our New Orleans
stores that were temporarily closed as a result of Hurricane Katrina of $53.6
million and the increase in sales relating to an information technology services
agreement with Metro, Inc. of $8.5 million. Included in the 58 stores closed
since the beginning of fiscal 2005 were 35 stores closed as part of the asset
disposition initiative as discussed in Note 8 of our Consolidated Financial
Statements. Included in the 12 stores opened since the beginning of fiscal 2005
was 6 Clemens Markets stores we purchased from C&S Wholesale Grocers, Inc.
during fiscal 2006.

     The decrease in Canadian sales of $1,723.9 million was due to the sale of
our Canadian operations during the second quarter of fiscal 2005 which resulted
in the inclusion of zero weeks of sales for fiscal 2006 as compared to the
inclusion of 24 weeks for fiscal 2005.

     Average weekly sales per supermarket for the U.S. were approximately
$337,000 for fiscal 2006 versus $330,000 for the corresponding period of the
prior year, an increase of 2.1% primarily due to the impact of closing smaller
stores offset by the negative comparable store sales.

                                  13


                 THE GREAT ATLANTIC & PACIFIC TEA COMPANY, INC.
                MANAGEMENT'S DISCUSSION AND ANALYSIS - CONTINUED


GROSS MARGIN

     The following table presents gross margin dollar results and gross margin
as a percentage of sales by reportable operating segment for fiscal 2006 as
compared to fiscal 2005. Gross margin as a percentage of sales increased 147
basis points to 30.14% for fiscal 2006 from 28.67% for fiscal 2005 primarily
caused by the sale of our Canadian operations which had a lower gross margin
rate. We believe the impact on margin for changes in costs and special
reductions was not significant.



                                               Fiscal 2006          Fiscal 2005
                                           ------------------   ------------------
                                             Gross    Rate to     Gross    Rate to
                                            Margin     Sales%    Margin     Sales%
                                           --------   -------   --------   -------
                                                               
United States                              $2,064.4    30.14%   $2,084.4    29.71%
Canada                                           --       --       420.7    24.40
                                           --------    -----    --------    -----
   Total                                   $2,064.4    30.14%   $2,505.1    28.67%
                                           ========    =====    ========    =====



     The following table details the dollar impact of several items affecting
the gross margin dollar decrease from fiscal 2005 to fiscal 2006:



                                            Sales
                                           Volume    Rate    Other     Total
                                           ------   -----   -------   -------
                                                          
United States                              $(49.4)  $29.4   $    --   $ (20.0)
Canada                                         --      --    (420.7)   (420.7)
                                           ------   -----   -------   -------
  Total                                    $(49.4)  $29.4   $(420.7)  $(440.7)
                                           ======   =====   =======   =======


STORE OPERATING, GENERAL AND ADMINISTRATIVE EXPENSE

     The following table presents store operating, general and administrative
expense ("SG&A") by reportable operating segment, in dollars and as a percentage
of sales for fiscal 2006 compared with fiscal 2005. SG&A expense was $2,074.5
million or 30.28% for fiscal 2006 as compared $2,825.7 million or 32.33% for
fiscal 2005.



                                               Fiscal 2006          Fiscal 2005
                                           ------------------   ------------------
                                                      Rate to              Rate to
                                             SG&A      Sales%     SG&A      Sales%
                                           --------   -------   --------   -------
                                                               
United States                              $2,074.5    30.28%   $2,462.2    35.09%
Canada                                           --       --       363.5    21.09
                                           --------    -----    --------    -----
   Total                                   $2,074.5    30.28%   $2,825.7    32.33%
                                           ========    =====    ========    =====


Included in SG&A in the U.S. for fiscal 2006 were certain charges as follows:

- -    costs relating to the closing of our owned warehouses in Edison, New Jersey
     and Bronx, New York of $5.5 million (8 basis points) that were not sold as
     part of the sale of our U.S. distribution operations and some warehouse
     facilities and related assets to C&S Wholesale Grocers as discussed in Note
     8 - Asset Disposition Initiatives;

- -    costs relating to the closure of stores in the Midwest as discussed in Note
     8 - Asset Disposition Initiatives of $3.9 million (6 basis points);

- -    costs relating to the consolidation of our operating offices in line with
     our smaller operations in the U.S. of $3.8 million (5 basis points); and

- -    costs relating to a voluntary labor buyout program in the South region of
     $4.5 million (7 basis points).

                                   14


                 THE GREAT ATLANTIC & PACIFIC TEA COMPANY, INC.
                MANAGEMENT'S DISCUSSION AND ANALYSIS - CONTINUED


Partially offset by:

- -    net gains on real estate activity of $21.9 million (32 basis points) during
     fiscal 2006; and

- -    gain from proceeds of insurance settlement of $9.2 million (13 basis
     points) received during fiscal 2006 for a portion of our losses caused by
     Hurricane Katrina as discussed in Note 16 - Hurricane Katrina and Impact on
     U.S. Business.


SG&A in the U.S. for fiscal 2005 also included certain charges as follows:

- -    costs relating to the closing of our owned warehouses in Edison, New Jersey
     and Bronx, New York of $83.2 million (119 basis points) that were not sold
     as part of the sale of our U.S.

     distribution operations and some warehouse facilities and related assets to
     C&S Wholesale Grocers as discussed in Note 8 - Asset Disposition
     Initiatives;

- -    costs relating to the closure of stores in the Midwest as discussed in Note
     8 - Asset Disposition Initiatives of $114.0 million (163 basis points);

- -    costs relating to future occupancy costs for four stores closed in
     connection with Hurricane Katrina, the write-off of an asset for a
     favorable lease that was recorded for one of these stores that is now
     closed, our insurance deductible, and other related hurricane costs as
     discussed in Note 16 - Hurricane Katrina and Impact on U.S. Business of
     $19.0 million (27 basis points);

- -    costs relating to the impairment of unrecoverable assets of $17.7 million
     (25 basis points) as discussed in Note 6 - Valuation of Long-Lived Assets;

- -    costs relating to an administrative reorganization during fiscal 2005 of
     $17.6 million (25 basis points);

- -    costs relating to the consolidation of our operating offices in line with
     our smaller operations in the U.S. of $14.8 million (21 basis points);

- -    costs relating to the cash tender offer completed during fiscal 2005 as
     discussed in Note 9 - Indebtedness of $32.6 million (46 basis points);

- -    costs relating to the settlement of our net investment hedge as discussed
     in Note 18 - Hedge of Net Investment in Foreign Operations of $15.4 million
     (22 basis points); and

- -    costs relating to workers compensation state assessment charges as
     discussed in Note 1 - Summary of Significant Accounting Policies of $9.7
     million (14 basis points).

Partially offset by:

- -    recoveries from our VISA/Mastercard antitrust class action litigation as
     discussed in Note 19 - Commitments and Contingencies of $1.5 million (2
     basis points); and

- -    net gains on real estate activity of $14.9 million (21 basis points) during
     fiscal 2005.

     Excluding the items listed above, SG&A within our core U.S. operations, as
a percentage of sales, decreased by 23 basis points during fiscal 2006 as
compared to fiscal 2005 primarily due to the continued focus on discretionary
spend, particularly within the administrative departments of $23.8 million (29
basis points).

     The decrease in SG&A in Canada of $363.5 million was due to the sale of our
Canadian operations during the second quarter of fiscal 2005 which resulted in
the inclusion of zero weeks of costs in fiscal 2006 as compared to 24 weeks in
fiscal 2005.


                                       15



                 THE GREAT ATLANTIC & PACIFIC TEA COMPANY, INC.
                MANAGEMENT'S DISCUSSION AND ANALYSIS - CONTINUED

     During fiscal 2006 and fiscal 2005, we recorded impairment losses on
long-lived assets as follows:



                                                  Fiscal 2006                 Fiscal 2005
                                           ------------------------   --------------------------
                                            U.S.    Canada    Total     U.S.    Canada    Total
                                           ------   ------   ------   -------   ------   -------
                                                                       
Impairments due to closure or conversion
   in the normal course of business        $4,836     $--    $4,836   $ 9,851    $506    $10,357
Impairments due to unrecoverable assets        --      --        --    17,728      --     17,728
Impairments due to closure of stores
   impacted by Hurricane Katrina (1)           --      --        --     6,090      --      6,090
Impairments related to the our asset
   disposition initiatives (2)              1,049      --     1,049    15,463      --     15,463
                                           ------     ---    ------   -------    ----    -------
   Total impairments                       $5,885     $--    $5,885   $49,132    $506    $49,638
                                           ======     ===    ======   =======    ====    =======


(1)  Refer to Note 16 - Hurricane Katrina and Impact on U.S. Business

(2)  Refer to Note 8 - Asset Disposition Initiatives

     The effects of changes in estimates of useful lives were not material to
ongoing depreciation expense.

     If current operating levels do not improve, there may be additional future
impairments on long-lived assets, including the potential for impairment of
assets that are held and used, particularly in our Midwest operations.

                                  16




                 THE GREAT ATLANTIC & PACIFIC TEA COMPANY, INC.
                MANAGEMENT'S DISCUSSION AND ANALYSIS - CONTINUED



(LOSS) GAIN ON SALE OF CANADIAN OPERATIONS

     We sold our Canadian operations to Metro, Inc. at the close of business on
August 13, 2005. As a result of this sale, we recorded a pretax gain of $912.1
million (gain of $805.3 million after tax) during fiscal 2005. In fiscal 2006,
we recorded a charge of $1.3 million as a result of a post-closing working
capital adjustment as provided in the Stock Purchase Agreement.

INTEREST EXPENSE

     Interest expense of $73.8 million for fiscal 2006 decreased from the prior
year amount of $92.2 million due primarily to (i.) the repurchase of the
majority of our 7.75% Notes due April 15, 2007 and our 9.125% Senior Notes due
December 15, 2011 resulting in a reduction in interest expense of $17.2 million,
and (ii.) the absence of interest expense of $8.4 million relating to our
Canadian operations that was recorded during fiscal 2005 but not recorded during
fiscal 2006 as a result of its sale, partially offset by (iii.) an increase in
interest expense of $5.4 million due to our increased borrowings on our
revolving line of credit.

EQUITY IN EARNINGS OF METRO, INC.

     We use the equity method of accounting to account for our investment in
Metro, Inc. on the basis that we have significant influence over substantive
operating decisions made by Metro, Inc. through our membership on Metro, Inc.'s
Board of Directors and its committees and through an information technology
services agreement with Metro, Inc. During fiscal 2006 and fiscal 2005, we
recorded $40.0 million and $7.8 million, respectively, in equity earnings
relating to our equity


                                       17



                 THE GREAT ATLANTIC & PACIFIC TEA COMPANY, INC.
                MANAGEMENT'S DISCUSSION AND ANALYSIS - CONTINUED

investment in Metro, Inc. Refer to Note 20 - Subsequent Events for further
discussion regarding our equity investment in Metro, Inc. subsequent to February
24, 2007.

INCOME TAXES

     The benefit from income taxes from continuing operations for fiscal 2006
was $62.1 million compared to a provision for income taxes from continuing
operations for fiscal 2005 of $128.9 million (a $110.4 million provision for our
U.S. operations and an $18.5 million provision for our Canadian operations).
Consistent with the prior year, we continue to record a valuation allowance
against our U.S. net deferred tax assets.

     For fiscal 2006, our effective income tax rate of 174.5% changed from the
effective income tax rate of 24.8% for fiscal 2005 as follows:



                                               Fiscal 2006            Fiscal 2005
                                           -------------------   ---------------------
                                             Tax     Effective      Tax      Effective
                                           Benefit    Tax Rate   Provision    Tax Rate
                                           -------   ---------   ---------   ---------
                                                                 
United States                              $62,088    (174.5%)   $(110,388)    21.3%
Canada                                          --        --       (18,539)     3.5
                                           -------    ------     ---------     ----
                                           $62,088    (174.5%)   $(128,927)    24.8%
                                           =======    ======     =========     ====


     The change in our effective tax rate was primarily due to (i.) the
recognition of tax benefits during fiscal 2006 as we continue to experience
operating losses and these operating losses decrease the overall tax provision
previously recorded during fiscal 2005 in connection with our Company's Domestic
Reinvestment Plan and events surrounding the sale of our Canadian operations in
fiscal 2005, (ii) the recognition of foreign tax credits, (iii) the increase in
our valuation allowance that was recorded through the current year tax benefit,
(iv) the tax benefit from not providing deferred taxes on the undistributed
earnings of our investment in Metro, Inc., and (v.) the absence of a tax
provision that was recorded for our Canadian operations during fiscal 2005 that
was not recorded during fiscal 2006 due to the sale of our Canadian operations
during the second quarter of fiscal 2005.

                                   18




                 THE GREAT ATLANTIC & PACIFIC TEA COMPANY, INC.
                MANAGEMENT'S DISCUSSION AND ANALYSIS - CONTINUED


DISCONTINUED OPERATIONS

     Beginning in the fourth quarter of fiscal year 2002 and in the early part
of the first quarter of fiscal 2003, we decided to sell our operations located
in Northern New England and Wisconsin, as well as our Eight O'Clock Coffee
business. These asset sales are now complete.

     Although the Canadian operations have been sold as of February 25, 2006,
the criteria necessary to classify the Canadian operations as discontinued have
not been satisfied as our Company has retained significant continuing
involvement in the operations of this business upon its sale.

     Income from operations of discontinued businesses, net of tax, for fiscal
2006 was $0.4 million as compared to $1.6 million for fiscal 2005, which was
primarily due to adjustments as a result of changes in estimates partially
offset by interest accretion on future occupancy payments that were recorded at
present value at the time of the original charge.

     The gain on disposal of discontinued operations, net of tax, was $0.6
million for fiscal 2005, which was related to the sale of a Kohl's warehouse in
fiscal 2005. There were no similar gains for fiscal 2006.


                                       19



                 THE GREAT ATLANTIC & PACIFIC TEA COMPANY, INC.
                MANAGEMENT'S DISCUSSION AND ANALYSIS - CONTINUED

FISCAL 2005 COMPARED WITH FISCAL 2004

     Sales for fiscal 2005 were $8.7 billion, compared with $10.9 billion for
fiscal 2004; comparable store sales, which includes stores that have been in
operation for two full fiscal years and replacement stores, increased 0.5%. Loss
from continuing operations reversed from $184.0 million for fiscal 2004 to
income from continuing operations of $390.4 million for fiscal 2005 primarily
due to the gain on sale of our Canadian operations of $912.1 million. Net income
per share - basic and diluted for fiscal 2005 was $9.74 and $9.64, respectively,
compared to a net loss per share - basic and diluted of $4.88 for fiscal 2004.



                                                                         (Unfavorable)
                                             Fiscal 2005   Fiscal 2004    Favorable /    % Change
                                             -----------   -----------   -------------   --------
                                                                             
Sales                                         $8,740.3      $10,854.9      $(2,114.6)     (19.5%)
Increase in comparable store sales                 0.5%           0.1%            NA         NA
Gain on sale of Canadian operations              912.1             --          912.1      100.0
Income (loss) from continuing operations         390.4         (184.0)         574.4     >100.0
Income (loss) from discontinued operations         2.2           (4.1)           6.3     >100.0
Net income (loss)                                392.6         (188.1)         580.7     >100.0
Net income (loss) per share - basic               9.74          (4.88)         14.62     >100.0
Net income (loss) per share - diluted             9.64          (4.88)         14.52     >100.0



SALES

     Sales for fiscal 2005 of $8,740.3 million decreased $2,114.6 million or
19.5% from sales of $10,854.9 million for fiscal 2004. The lower sales were due
to a decrease in U.S. sales of $301.2 million and a decrease in Canadian sales
of $1,813.4 million. The following table presents sales for each of our
reportable operating segments for fiscal 2005 and fiscal 2004:



                 Fiscal      Fiscal
                  2005        2004      Decrease   % Change
                --------   ---------   ---------   --------
                                       
United States   $7,016.4   $ 7,317.6   $  (301.2)    (4.1%)
Canada           1,723.9     3,537.3    (1,813.4)   (51.3)
                --------   ---------   ---------    -----
   Total        $8,740.3   $10,854.9   $(2,114.6)   (19.5%)
                ========   =========   =========    =====


     The following details the dollar impact of several items affecting the
decrease in sales by reportable operating segment from fiscal 2004 to fiscal
2005:



                Impact     Impact     Foreign   Comparable   Impact of
                of New   of Closed   Exchange      Store     Hurricane
                Stores     Stores      Rate        Sales      Katrina      Other       Total
                ------   ---------   --------   ----------   ---------   ---------   ---------
                                                                
United States    $25.2    $(330.0)    $   --       $30.7      $(36.3)    $     9.2   $  (301.2)
Canada            47.6      (65.1)     162.0         1.6          --      (1,959.5)   (1,813.4)
                 -----    -------     ------       -----      ------     ---------   ---------
   Total         $72.8    $(395.1)    $162.0       $32.3      $(36.3)    $(1,950.3)  $(2,114.6)
                 =====    =======     ======       =====      ======     =========   =========


     The decrease in U.S. sales was primarily attributable to the closing of 67
stores since the beginning of fiscal 2004, of which 49 were closed in fiscal
2005 primarily in the Midwest, decreasing sales by $330.0 million, and the
decrease in sales caused by the overall impact of


                                       20



                 THE GREAT ATLANTIC & PACIFIC TEA COMPANY, INC.
                MANAGEMENT'S DISCUSSION AND ANALYSIS - CONTINUED

Hurricane Katrina of $36.3 million. These decreases were partially offset by the
opening or re-opening of 18 new stores since the beginning of fiscal 2004, of
which 2 were opened or re-opened in fiscal 2005, increasing sales by $25.2
million, the increase in comparable store sales for fiscal 2005 of $30.7 million
or 0.5% as compared with fiscal 2004, and the increase in sales relating to an
information technology services agreement with Metro, Inc. of $9.2 million.

     The decrease in Canadian sales was primarily attributable to the sale of
our Canadian operations that resulted in the inclusion of 24 weeks of sales
during fiscal 2005 as compared to 52 weeks during fiscal 2004, decreasing sales
by $1,959.5 million, and the closure of 14 stores since the beginning of fiscal
2004, of which 1 was closed in fiscal 2005, decreasing sales by $65.1 million.
These decreases were partially offset by the opening or re-opening of 9 stores
since the beginning of fiscal 2004, of which 1 was opened or re-opened in fiscal
2005, increasing sales by $47.6 million, the favorable effect of the Canadian
exchange rate, which increased sales by $162.0 million, and the increase in
comparable store sales for fiscal 2005 of $1.6 million or 0.1% for
Company-operated stores and franchised stores combined, as compared to fiscal
2004.

     Average weekly sales per supermarket for the U.S. were approximately
$330,000 for fiscal 2005 versus $323,100 for the corresponding period of the
prior year, an increase of 2.1% primarily due to the impact of closing smaller
stores and positive comparable store sales. Average weekly sales per supermarket
for Canada were approximately $298,600 for fiscal 2005 versus $285,900 for the
corresponding period of the prior year, an increase of 4.4%. This increase was
primarily due to the increase in the Canadian exchange rate and higher
comparable store sales.

                                  21




                 THE GREAT ATLANTIC & PACIFIC TEA COMPANY, INC.
                MANAGEMENT'S DISCUSSION AND ANALYSIS - CONTINUED

GROSS MARGIN

     The following table presents gross margin dollar results and gross margin
as a percentage of sales by reportable operating segment for fiscal 2005 as
compared to fiscal 2004. Gross margin as a percentage of sales increased 65
basis points to 28.67% for fiscal 2005 from 28.02% for fiscal 2004 primarily
caused by the sale of our Canadian operations which had a lower gross margin
rate. We believe the impact on margin for changes in costs and special
reductions was not significant.



                   Fiscal 2005          Fiscal 2004
                ------------------   ------------------
                  Gross    Rate to     Gross    Rate to
                 Margin    Sales %    Margin    Sales %
                --------   -------   --------   -------
                                     
United States   $2,084.4    29.71%   $2,177.9    29.76%
Canada             420.7    24.40       863.2    24.40
                --------    -----    --------    -----
   Total        $2,505.1    28.67%   $3,041.1    28.02%
                ========    =====    ========    =====


     The following table details the dollar impact of several items affecting
the gross margin dollar decrease from fiscal 2004 to fiscal 2005:



                                        Gross Margin
                Sales Volume    Rate   Exchange Rate    Other     Total
                ------------   -----   -------------   -------   -------
                                                  
United States     $ (89.6)     $(3.9)      $  --       $    --   $ (93.5)
Canada              (58.8)       4.5        32.9        (421.1)   (442.5)
                  -------      -----       -----       -------   -------
   Total          $(148.4)     $ 0.6       $32.9       $(421.1)  $(536.0)
                  =======      =====       =====       =======   =======



                                       22


                 THE GREAT ATLANTIC & PACIFIC TEA COMPANY, INC.
                MANAGEMENT'S DISCUSSION AND ANALYSIS - CONTINUED

STORE OPERATING, GENERAL AND ADMINISTRATIVE EXPENSE

     The following table presents store operating, general and administrative
expense ("SG&A") by reportable operating segment, in dollars and as a percentage
of sales for fiscal 2005 compared with fiscal 2004. SG&A expense was $2,825.7
million or 32.33% for fiscal 2005 as compared to $3,114.1 million or 28.69% for
fiscal 2004.



                       Fiscal 2005                 Fiscal 2004
                -------------------------   -------------------------
                  SG&A     Rate to Sales%     SG&A     Rate to Sales%
                --------   --------------   --------   --------------
                                           
United States   $2,462.2       35.09%       $2,307.2       31.53%
Canada             363.5       21.09           806.9       22.81
                --------       -----        --------       -----
   Total        $2,825.7       32.33%       $3,114.1       28.69%
                ========       =====        ========       =====


Included in SG&A in the U.S. for fiscal 2005 were certain charges as follows:

- -    costs relating to the closing of our owned warehouses in Edison, New Jersey
     and Bronx, New York of $83.2 million (119 basis points) that were not sold
     as part of the sale of our U.S. distribution operations and some warehouse
     facilities and related assets to C&S Wholesale Grocers as discussed in Note
     8 - Asset Disposition Initiatives;

- -    costs relating to the closure of stores in the Midwest as discussed in Note
     8 - Asset Disposition Initiatives of $114.0 million (163 basis points);

- -    costs relating to future occupancy costs for four stores closed in
     connection with Hurricane Katrina, the write-off of an asset for a
     favorable lease that was recorded for one of these stores that is now
     closed, our insurance deductible, and other related hurricane costs as
     discussed in Note 16 - Hurricane Katrina and Impact on U.S. Business of
     $19.0 million (27 basis points);

- -    costs relating to the impairment of unrecoverable assets of $17.7 million
     (25 basis points) as discussed in Note 6 - Valuation of Long-Lived Assets;

- -    costs relating to an administrative reorganization during fiscal 2005 of
     $17.6 million (25 basis points);

- -    costs relating to the consolidation of our operating offices in line with
     our smaller operations in the U.S. of $14.8 million (21 basis points);

- -    costs relating to the cash tender offer completed during fiscal 2005 as
     discussed in Note 9 - Indebtedness of $32.6 million (46 basis points);

- -    costs relating to the settlement of our net investment hedge as discussed
     in Note 18 - Hedge of Net Investment in Foreign Operations of $15.4 million
     (22 basis points); and

- -    costs relating to workers compensation state assessment charges as
     discussed in Note 1 - Summary of Significant Accounting Policies of $9.7
     million (14 basis points).

Partially offset by:

- -    recoveries from our VISA/Mastercard antitrust class action litigation as
     discussed in Note 19 - Commitments and Contingencies of $1.5 million (2
     basis points); and

- -    net gains on real estate activity of $14.9 million (21 basis points) during
     fiscal 2005.


                                       23



                 THE GREAT ATLANTIC & PACIFIC TEA COMPANY, INC.
                MANAGEMENT'S DISCUSSION AND ANALYSIS - CONTINUED

SG&A in the U.S. for fiscal 2004 also included certain charges as follows:

- -    costs relating to the impairment of unrecoverable assets of $34.7 million
     (47 basis points);

- -    costs relating to severance and other charges of $10.7 million (15 basis
     points) relating to an administrative reorganization; and

- -    costs relating to an increase in our workers' compensation and general
     liability reserves of $27.2 million (37 basis points) in response to both
     adverse development of prior years' costs and other developments including
     a continuing trend of rising costs.

Partially offset by:

- -    a reduction in the vacation accrual of $8.6 million (12 basis points) due
     to a change in the vacation entitlement practice. Prior to the change in
     the vacation operating policy, non-union employees were fully vested on the
     first day of the calendar year. As such under SFAS No. 43, "Compensated
     Absences", our Company accrued vacation as it was earned by non-union
     employees (earned in the calendar year immediately preceding the January 1
     vesting date). Under the new vacation operating policy, non-union employees
     vest over the year that vacation is earned, and accordingly, our Company
     recorded a one-time adjustment to reduce the liability; and

- -    net gains on real estate activity of $22.5 million (31 basis points) during
     fiscal 2005.

     Excluding the items listed above, SG&A within our core U.S. operations, as
a percentage of sales, decreased by 25 basis points during fiscal 2005 as
compared to fiscal 2004 primarily due to a reduction in administrative expenses
of $49.5 million, a reduction in advertising costs of $9.9 million, and a
reduction in depreciation expense of $9.9 million partially offset by an
increase in utilities expense of $15.9 million due to rising costs of oil and
gas.

     The decrease in SG&A in Canada of $443.4 million (172 basis points) is
primarily due to the inclusion of 24 weeks of costs during fiscal 2005 as
compared to 52 weeks of costs during fiscal 2004, in addition to (i.) lower
depreciation expense of $21.6 million as the Canadian assets were sold during
fiscal 2005, and (ii.) the absence of costs relating to the settlement of the
Canadian lawsuit of $24.9 million which were included in fiscal 2004.

     During fiscal 2005 and fiscal 2004, we recorded impairment losses on
long-lived assets as follows:



                                                   Fiscal 2005                  Fiscal 2004
                                           --------------------------   --------------------------
                                             U.S.    Canada    Total      U.S.    Canada   Total
                                           -------   ------   -------   -------   ------   -------
                                                                         
Impairments due to closure or conversion
   in the normal course of business        $ 9,851    $506    $10,357   $ 6,000    $709    $ 6,709
Impairments due to unrecoverable assets     17,728      --     17,728    34,688      --     34,688
Impairments due to closure of stores
   impacted by Hurricane Katrina (1)         6,090      --      6,090        --      --         --
Impairments related to our asset
   disposition initiatives (2)              15,463      --     15,463     2,749      --      2,749
                                           -------    ----    -------   -------    ----    -------
   Total impairments                       $49,132    $506    $49,638   $43,437    $709    $44,146
                                           =======    ====    =======   =======    ====    =======



                                       24


                 THE GREAT ATLANTIC & PACIFIC TEA COMPANY, INC.
                MANAGEMENT'S DISCUSSION AND ANALYSIS - CONTINUED

     (1)  Refer to Note 16 - Hurricane Katrina and Impact on U.S. Business

     (2)  Refer to Note 8 - Asset Disposition Initiatives

     The effects of changes in estimates of useful lives were not material to
ongoing depreciation expense.

     If current operating levels do not improve, there may be additional future
impairments on long-lived assets, including the potential for impairment of
assets that are held and used.

GAIN ON SALE OF CANADIAN OPERATIONS

     We sold our Canadian operations to Metro, Inc. at the close of business on
August 13, 2005. As a result of this sale, we recorded a pretax gain of $912.1
million (gain of $805.3 million after tax) during fiscal 2005.

INTEREST EXPENSE

     Interest expense of $92.2 million for fiscal 2005 decreased from the prior
year amount of $114.1 million due primarily to (i.) the repurchase of the
majority of our 7.75% Notes due April 15, 2007 and our 9.125% Senior Notes due
December 15, 2011 resulting in a reduction in interest expense of $15.8 million,
(ii.) a decrease in capitalized interest expense of $1.0 million due mainly to a
reduction in new store builds, and (iii.) lower interest expense of $8.8 million
relating to our Canadian operations due to the inclusion of its operating
results for 24 weeks for fiscal 2005 as compared to 52 weeks for fiscal 2004 as
a result of its sale, partially offset by higher interest expense resulting from
our on-balance sheet long-term real estate liabilities, which includes
sale-leaseback of Company-owned properties entered into in the fourth quarter of
fiscal 2003, of approximately $1.4 million and sale-leaseback of locations for
which we received landlord allowances of $0.5 million.

INCOME TAXES

     The provision for income taxes from continuing operations for fiscal 2005
was $128.9 million (a $110.4 million provision for our U.S. operations and a
$18.5 million provision for our Canadian operations) compared to a provision for
income taxes from continuing operations for fiscal 2004 of $0.5 million (a $4.5
million provision for our U.S. operations and a $4.0 million benefit for our
Canadian operations). Consistent with prior year, we continue to record a
valuation allowance against our U.S. net deferred tax assets.

     For fiscal 2005, our effective income tax rate of 24.8% changed from the
effective income tax rate of 0.3% for fiscal 2004 as follows:



                     Fiscal 2005                Fiscal 2004
                ---------------------   ---------------------------
                   Tax      Effective   Tax (Provision)   Effective
                Provision    Tax Rate       Benefit        Tax Rate
                ---------   ---------   ---------------   ---------
                                              
United States   $(110,388)    21.3%         $(4,500)         2.5%
Canada            (18,539)     3.5%           3,972         (2.2%)
                ---------     ----          -------         ----
                $(128,927)    24.8%         $  (528)         0.3%
                =========     ====          =======         ====



                                       25


                 THE GREAT ATLANTIC & PACIFIC TEA COMPANY, INC.
                MANAGEMENT'S DISCUSSION AND ANALYSIS - CONTINUED

     The change in our effective tax rate was primarily due to the tax
provisions we recorded in the U.S. in connection with (i.) our Company's
Domestic Reinvestment Plan as discussed in Note 12 - Income Taxes and (ii.) the
sale of our Canadian operations that occurred during fiscal 2005.

DISCONTINUED OPERATIONS

     Beginning in the fourth quarter of fiscal year 2002 and in the early part
of the first quarter of fiscal 2003, we decided to sell our operations located
in Northern New England and Wisconsin, as well as our Eight O'Clock Coffee
business. These asset sales are now complete.

     Although the Canadian operations have been sold as of February 25, 2006,
the criteria necessary to classify the Canadian operations as discontinued have
not been satisfied as our Company has retained significant continuing
involvement in the operations of this business upon its sale.

     Income from operations of discontinued businesses, net of tax, for fiscal
2005 was $1.6 million, which was primarily related to adjustments as a result of
changes in estimates partially offset by interest accretion on future occupancy
payments that were recorded at present value at the time of the original charge.
Loss from operations of discontinued businesses, net of tax, was $1.4 million
for fiscal 2004, which was primarily related to interest accretion on future
occupancy payments that were recorded at present value at the time of the
original charge and additional closing costs related to these businesses.

     The gain on disposal of discontinued operations, net of tax, was $0.6
million for fiscal 2005, which was related to the sale of a Kohl's warehouse.
The loss on disposal of discontinued operations, net of tax, of $2.7 million for
fiscal 2004 related to a post-sale working capital settlement between the buyer
and our Company for which the amount was not determinable at the time of the
sale of our Eight O'Clock Coffee business.


                                       26


                 THE GREAT ATLANTIC & PACIFIC TEA COMPANY, INC.
                MANAGEMENT'S DISCUSSION AND ANALYSIS - CONTINUED

LIQUIDITY AND CAPITAL RESOURCES

CASH FLOWS

     The following table presents excerpts from our Consolidated Statements of
Cash Flows:



                                                      Fiscal 2006   Fiscal 2005   Fiscal 2004
                                                      -----------   -----------   -----------
                                                                         
Net cash provided by (used in) operating activities    $  36,722     $ (76,007)    $ 114,458
                                                       ---------     ---------     ---------
Net cash provided by (used in) investing activities    $  48,755     $ 459,297     $(162,501)
                                                       ---------     ---------     ---------
Net cash (used in) provided by financing activities    $(228,937)    $(411,566)    $   4,164
                                                       ---------     ---------     ---------


     Net cash flow provided by operating activities of $36.7 million for fiscal
2006 primarily reflected our net income of $26.9 million, adjusted for non-cash
charges for (i.) depreciation and amortization of $177.8 million, (ii.) asset
disposition initiatives of $2.3 million, (iii.) proceeds from dividends from
Metro, Inc. of $6.9 million partially offset by (iv.) gains on the disposal of
owned property of $28.1 million, (v.) income tax benefit of $66.4 million, and
(vi.) our equity in earnings of Metro, Inc of $40.0 million, a decrease in
receivables of $62.7 million partially offset by a decrease in other accruals of
$61.4 million primarily due to timing and a decrease in non-current liabilities
of $37.6 million due mainly to closed store accruals. Refer to Working Capital
below for discussion of changes in working capital items. Net cash flow used in
operating activities of $76.0 million for fiscal 2005 primarily reflected our
net income of $392.6 million, adjusted for non-cash charges for (i.)
depreciation and amortization of $207.3 million, (ii.) asset disposition
initiatives of $185.1 million, (iii.) income tax provision of $98.1 million, and
(iv.) other property impairments of $28.1 million, a decrease in inventories of
$109.5 million and an increase in other accruals of $48.9 million partially
offset by the gain on sale of Canadian operations of $912.1 million, an increase
in receivables of $56.1 million, a decrease in accounts payable of $101.3
million, and a decrease in other non-current liabilities of $76.3 million
primarily due to the sale of our Canadian operations. Net cash provided by
operating activities of $114.5 million for fiscal 2004 primarily reflected our
net loss of $188.1 million, adjusted for non-cash charges of $268.1 million for
depreciation and amortization and $34.7 million for the Midwest long lived
assets / goodwill impairment partially offset by a gain on disposal of owned
property and write-down of property, net of $28.7 million, a decrease in
accounts receivable of $29.2 million, and an increase in accounts payable of
$46.3 million partially offset by an increase in inventories of $12.6 million,
an increase in prepaid assets and other current assets of $6.0 million, an
increase in other assets of $19.0 million, and a decrease in other accruals of
$34.1 million.

     Net cash flow provided by investing activities of $48.8 million for fiscal
2006 primarily reflected proceeds received from the sale of certain of our
assets of $41.9 million, an increase in restricted cash of $95.1 million and net
proceeds from maturities of marketable securities of $145.8 million partially
offset by the purchase of 6 Clemens Markets stores from C&S Wholesale Grocers,
Inc. of $24.6 million and property expenditures totaling $208.2 million, which
included 4 new supermarkets and 30 major remodels and 35 minor remodels. Net
cash flow provided by investing activities of $459.3 million for fiscal 2005
primarily reflected proceeds from the sale of our Canadian operations of $960.7
million, proceeds received from the sale of certain of our assets of $72.3


                                       27


                 THE GREAT ATLANTIC & PACIFIC TEA COMPANY, INC.
                MANAGEMENT'S DISCUSSION AND ANALYSIS - CONTINUED

million partially offset by property expenditures totaling $191.1 million, which
included 3 new supermarkets and 41 major remodels, disposal related expenditures
for sale of the Canadian operations of $53.9 million, payments for derivatives
of $15.4 million, the increase in restricted cash of $146.3 million, and the net
purchases of marketable securities of $167.0 million. Net cash used in investing
activities of $162.5 million for fiscal 2004 primarily reflected property
expenditures totaling $216.1 million, which included 24 new supermarkets and 18
major remodels partially offset by cash received from the sale of certain of our
assets of $53.6 million.

     On March 5, 2007, our Company announced that we have reached a definitive
merger agreement with Pathmark Stores, Inc. in which we will acquire Pathmark
Stores, Inc., ("Pathmark") for $1.5 billion in cash, stock, and debt assumption
or retirement. This transaction is expected to be completed during the second
half of our fiscal year 2007 and is subject to the completion of shareholder and
regulatory approvals, as well as other customary closing conditions. For further
details surrounding the Pathmark transaction, refer to our Company's Form 8-K
and the accompanying exhibits filed with the U.S. Securities and Exchange
Commission on March 6, 2007.

     Based on our announced acquisition of Pathmark, for fiscal 2007, we have
reduced our planned capital expenditures to $150.0 million, which relate
primarily to opening new supermarkets under the Fresh format, opening
new liquor stores, enlarging or remodeling  supermarkets to the new
Fresh format, and converting supermarkets to the new Gourmet format.

     Net cash flow used in financing activities of $228.9 million for fiscal
2006 primarily reflected principal payments on revolving lines of credit of
$1,687.1 million, principal payments on capital leases of $5.3 million, and
dividends paid of $299.1 million partially offset by proceeds under revolving
lines of credit of $1,757.1 million and proceeds from the exercise of stock
options of $6.0 million. Net cash flow used in financing activities of $411.6
million for fiscal 2005 primarily reflected principal payments on long term
borrowings of $414.0 million and principal payments on capital leases of $11.0
million partially offset by proceeds from the exercise of stock options of $26.1
million. Net cash provided by financing activities of $4.2 million for fiscal
2004 primarily reflected net proceeds from long term real estate liabilities of
$37.1 million partially offset by principal payments on capital leases of $13.5
million, a decrease in book overdrafts of $13.7 million and principal payments
on long term borrowings of $6.1 million.

     We operate under an annual operating plan which is reviewed and approved by
our Board of Directors and incorporates the specific operating initiatives we
expect to pursue and the anticipated financial results of our Company. Our plan
for fiscal 2007 at this time has been approved and we believe that our present
cash resources, including invested cash on hand as well as our marketable
securities, available borrowings from our Revolving Credit Agreement
("Revolver") and other sources, are sufficient to meet our needs.

     Profitability, cash flow, asset sale proceeds and timing can be impacted by
certain external factors such as unfavorable economic conditions, competition,
labor relations and fuel and utility costs which could have a significant impact
on cash generation. If our profitability and cash flow do not improve in line
with our plans or if the taxing authorities do not affirm the adequacy of our
Company's Domestic Reinvestment Plan, we anticipate that we would be able to
liquidate our investment in Metro, Inc. and or modify the operating plan in
order to ensure that we have appropriate resources.


                                       28



                 THE GREAT ATLANTIC & PACIFIC TEA COMPANY, INC.
                MANAGEMENT'S DISCUSSION AND ANALYSIS - CONTINUED

     On April 25, 2006, our Company paid a special one-time dividend to our
shareholders of record on April 17, 2006 equal to $7.25 per share. This dividend
payout totaling $299.1 million was recorded as a reduction of "Additional paid
in capital" in our Consolidated Balance Sheets at February 24, 2007. The
transaction was funded primarily by cash available on the balance sheet
resulting from the strategic restructuring of the Company during fiscal 2005.

     Our planned acquisition of Pathmark requires approximately $1.5 billion of
cash proceeds to finance the equity purchase and pay down debt obligations. Our
Company has adequate funding to meet these needs including fully committed
financing from Bank of America and Lehman Brothers.

WORKING CAPITAL

     We had working capital of $190.5 million at February 24, 2007 compared to
working capital of $599.7 million at February 25, 2006. We had cash and cash
equivalents aggregating $86.2 million at February 24, 2007 compared to $229.6
million at February 25, 2006. The decrease in working capital was attributable
primarily to the following:

- -    A decrease in cash and cash equivalents as detailed in the Consolidated
     Statements of Cash Flows;

- -    A decrease in restricted cash and marketable securities due primarily to
     the payment of a one-time special dividend as discussed in Note 3 - Special
     One-time Dividend;

- -    A decrease in accounts receivable mainly due to special initiatives to
     reduce receivables;

- -    A decrease in prepaid expenses and other current assets mainly due to the
     timing of payments; and

- -    An increase in the current portion of our long-term debt primarily due to
     our 7.75% Notes becoming due on April 15, 2007.

Partially offset by the following:

- -    A decrease in accounts payable (inclusive of book overdrafts) due to the
     timing of payments;

- -    A decrease in accrued salaries, wages and benefits, and taxes due primarily
     to the timing of payments; and

- -    A decrease in other accruals due to timing.

LETTER OF CREDIT AGREEMENT

     During fiscal 2005, we entered into a cash collateralized, Letter of Credit
Agreement that enabled us to issue letters of credit up to $200 million. During
the third quarter of fiscal 2006, our Company transferred 6,000,000 of our Class
A subordinate shares of Metro, Inc. from our foreign subsidiary to the United
States. These transferred shares were being used as collateral for the Letter of
Credit Agreement and have allowed us to reduce the amount of restricted cash
and/or marketable securities we were previously required to maintain as
collateral. As a result of this transfer, the Letter of Credit Agreement was
amended to enable us to issue letters of credit up to


                                       29


                 THE GREAT ATLANTIC & PACIFIC TEA COMPANY, INC.
                MANAGEMENT'S DISCUSSION AND ANALYSIS - CONTINUED

$150 million. At February 24, 2007 and February 25, 2006, there were $138.3
million and $144.7 million, respectively, in letters of credit outstanding under
this agreement.

     On March 13, 2007, in connection with our agreement to acquire Pathmark
Stores, Inc., our Company sold 6,350,000 shares of its holdings in Metro, Inc.
for proceeds of approximately $203.5 million resulting in a net gain of $71.6
million. Of the total proceeds received, $190.0 million are being held as
restricted cash to collateralize our outstanding letters of credit. After the
sale, our Company continues to hold 11,726,645 Class A subordinate shares of
Metro, Inc, representing approximately 10.21% of the outstanding shares of
Metro, Inc. as of its first quarter ended December 23, 2006.

     In March 2007, our Letter of Credit Agreement and Revolver were amended to
allow for the sale of such shares provided that the net proceeds from such sales
are deposited in a restricted cash account.

REVOLVING CREDIT AGREEMENT

     During fiscal 2005, we also secured a $150 million Revolver with four
lenders enabling us to borrow funds on a revolving basis for working capital
loans and letters of credit. The Revolver includes a $100 million accordion
feature which gives us the ability to increase commitments from $150 million to
$250 million. Effective April 4, 2006, we exercised the accordion option and
increased our commitments to $250 million. Under the terms of this agreement,
should availability fall below $25.0 million and should cash on hand fall below
$50.0 million, a borrowing block will be implemented which provides that no
additional loans be made unless we are able to maintain a minimum consolidated
EBITDA covenant on a trailing twelve month basis. In the event that availability
falls below $25.0 million, cash on hand falls below $50.0 million, and we do not
maintain the required minimum EBITDA covenant, unless otherwise waived or
amended, the lenders may, at their discretion, declare, in whole or in part, all
outstanding obligations immediately due and payable.

     The Revolver is collateralized by inventory, certain accounts receivable
and pharmacy scripts. Borrowings under the Revolver bear interest based on LIBOR
or Prime interest rate pricing. This agreement expires in November 2010. At
February 24, 2007, there were no letters of credit outstanding under this
agreement and there were $70.0 million in outstanding borrowings under the
Revolver. As of February 24, 2007, after reducing availability for borrowing
base requirements, we had $180.0 million available under the Revolver. Combined
with cash we held in short-term investments and restricted marketable securities
of $25.4 million, we had total cash availability of $205.4 million at February
24, 2007.

     Under the Revolver, we are permitted to pay cumulative cash dividends on
common shares as well as make bond repurchases.

PUBLIC DEBT OBLIGATIONS

     Outstanding notes totaling $244.7 million at February 24, 2007 consisted of
$31.9 million of 7.75% Notes due April 15, 2007, $12.8 million of 9.125% Senior
Notes due December 15, 2011


                                       30


                 THE GREAT ATLANTIC & PACIFIC TEA COMPANY, INC.
                MANAGEMENT'S DISCUSSION AND ANALYSIS - CONTINUED

and $200 million of 9.375% Notes due August 1, 2039. Interest is payable
quarterly on the 9.375% Notes and semi-annually on the 9.125% and 7.75% Notes.
The 7.75% Notes are not redeemable prior to their maturity. The 9.375% Notes are
now callable at par ($25 per bond) and the 9.125% Notes are now callable at a
premium to par (104.563%). The 9.375% Notes are unsecured obligations and were
issued under the terms of our senior debt securities indenture, which contains
among other provisions, covenants restricting the incurrence of secured debt.
The 9.375% Notes are effectively subordinate to the Revolver and do not contain
cross default provisions. All covenants and restrictions for the 7.75% Notes and
the 9.125% Senior Notes have been eliminated in connection with the cash tender
offer as discussed in Note 9 - Indebtedness in the Notes to the Consolidated
Financial Statements. Our notes are not guaranteed by any of our subsidiaries.
During fiscal 2006, there were no repurchases of our public debt obligations.

     During fiscal 2005, we repurchased in the open market $14.9 million of our
7.75% Notes due April 15, 2007. The cost of this open market repurchase resulted
in a pretax loss due to the early extinguishment of debt of $0.6 million. In
accordance with SFAS No. 145, "Rescission of FASB Statements 4, 44 and 64,
Amendment of FASB 13, and Technical Corrections" ("SFAS 145"), this loss has
been classified within loss from operations.

     Also during fiscal 2005, we repurchased in the open market $166.7 million
of our 7.75% Notes due April 15, 2007 and $203.7 million of our 9.125% Senior
Notes due December 15, 2011 through a cash tender offer. The cost of this open
market repurchase resulted in a pretax loss due to the early extinguishment of
debt of $29.4 million. In accordance with SFAS No. 145, this loss has been
classified within loss from operations. Refer to Note 9 - Indebtedness in the
Notes to the Consolidated Financial Statements for further discussion of the
cash tender offer.

OTHER

     During fiscal 2006 and fiscal 2005, we sold 1 and 5 properties,
respectively, and simultaneously leased them back from the purchaser. However,
due to our Company's continuing involvement with 1 of these properties in fiscal
2005, as (i.) we receive sublease income that is more than 10% of the fair
market value of this property, (ii.) lease contains renewal options that extend
beyond the economic useful life of the property, and (iii.) we are obligated to
repurchase the property if certain circumstances occur, the sale did not qualify
for sale-leaseback accounting in accordance with SFAS 98, "Accounting for
Leases" but rather as a long-term real estate liability under the provisions of
SFAS 66, "Accounting for Sales of Real Estate" ("SFAS 66"). In accordance with
SFAS 66, the carrying value of this property of approximately $9.0 million
remained on our Consolidated Balance Sheets at February 26, 2005, and no sale
was recognized. Instead the sales price of this property of $20.8 million was
recorded as a long-term real estate liability with a maturity of 20 years within
"Long-term real estate liabilities" on our Consolidated Balance Sheets at
February 25, 2006. In addition, the lease payments are being charged to
"Interest expense" in our Consolidated Statements of Operations. This property
was sold for a profit resulting in a gain, after deducting expenses, which has
been deferred and will not be recognized until the end of the lease when our
continuing involvement ceases.

     "Long-term real estate liabilities" on our Consolidated Balance Sheets also
include various leases in which our Company received landlord allowances to
offset the costs of structural improvements we made to the leased space. As we
had paid directly for a substantial portion of


                                       31



                 THE GREAT ATLANTIC & PACIFIC TEA COMPANY, INC.
                MANAGEMENT'S DISCUSSION AND ANALYSIS - CONTINUED

the structural improvement costs, we were considered the owner of the building
during the construction period. In all situations upon completion of the
construction, we were unable to meet the requirements under SFAS 98, "Accounting
for Leases" to qualify for sale-leaseback treatment; thus, the landlord
allowances have been recorded as long-term real estate liabilities on our
Consolidated Balance Sheets and have been amortized over the lease term based on
rent payments designated in the lease agreements. These leases have terms
ranging between 12 and 25 years and effective annual percentage rates between
4.74% and 44.78%. The effective annual percentage rates were implicitly
calculated based upon technical accounting guidance.

     The remaining 1 and 4 properties sold and simultaneously leased back from
the purchaser during fiscal 2006 and fiscal 2005, respectively, had a carrying
value of approximately $2.5 million and $16.1 million, respectively. Net
proceeds received related to these transactions amounted to approximately $9.2
million and $32.6 million, respectively. These properties were sold for a profit
resulting in (i.) a gain that was immediately recognized of $1.3 million and
$5.1 million, respectively, as we are leasing back more than a minor part but
less than substantially all of the property sold in accordance with SFAS 28,
"Accounting for Sales with Leasebacks," and (ii.) a deferred gain after
deducting expenses of $5.4 million and $11.1 million, respectively, which will
be recognized as an offset to rent expense over the remaining life of the
leases.

     During fiscal 2006, fiscal 2005, and fiscal 2004, we recognized gains
related to all of our sale-leaseback transactions of $5.3 million, of which $1.3
million related to recognition of a portion of the gain on sale in the current
year as we are leasing back more than a minor part but less than substantially
all of the property as discussed above, $8.8 million, of which $5.1 million
related to recognition of a portion of the gain on sale in the current year as
we are leasing back more than a minor part but less than substantially all of
the property sold as discussed above, and $2.6 million, respectively. The
remaining deferred gain at February 24, 2007 and February 25, 2006 amounted to
$64.7 million and $63.5 million, respectively.

     We may enter into similar transactions for other owned properties from time
to time in the future.

     We currently have effective Registration Statements filed with the
Securities and Exchange Commission dated January 23, 1998 and June 23, 1999,
allowing us to offer up to $75 million of debt and/or equity securities at terms
contingent upon market conditions at the time of sale.

     Although our Company paid a special one-time dividend to our shareholders
of record on April 17, 2006 equal to $7.25 per share, our Company's policy is to
not pay dividends. As such, we have not made dividend payments in the previous
three years and do not intend to pay dividends in the normal course of business
in fiscal 2007. However, our Company is permitted, under the terms of our
Revolver, to pay cash dividends on common shares.


                                       32



                 THE GREAT ATLANTIC & PACIFIC TEA COMPANY, INC.
                MANAGEMENT'S DISCUSSION AND ANALYSIS - CONTINUED

     As of February 24, 2007, we have the following contractual obligations and
commitments:



                                           Payments Due by Period (in millions)
                              --------------------------------------------------------------
                                          Less than
Contractual Obligations         Total       1 Year    1 - 3 Years   4 - 5 Years   Thereafter
- -----------------------       ---------   ---------   -----------   -----------   ----------
                                                                   
Debt (1)                      $   316.3    $   32.1     $    0.2     $    83.1     $   200.9
Capital Leases (2)                 68.1         4.6          8.9           8.1          46.5
Operating Leases (2)            2,063.0       182.7        354.5         323.6       1,202.2
Long-term Real Estate
   Liabilities (2)                639.3        36.4         73.2          73.8         455.9
Pension Obligations (3)            40.7         4.3          8.5           8.4          19.5
Postretirement
   Obligations (4)                 18.6         1.0          2.2           2.4          13.0
Occupancy Payments (5)            390.5        42.7         76.3          65.9         205.6
Severance and other
   related items (6)                7.5         5.0          1.1           0.3           1.1
Interest (7)                      614.4        20.3         40.0          39.8         514.3
Environmental Liability (8)         2.7         0.9          0.8           0.6           0.4
Postemployment
   Obligations (9)                  9.5         1.3          2.6           2.6           3.0
Defined Contribution
   Plans (10)                       9.0         9.0           --            --            --
Multi-employer Pension
   Plans (10)                      32.1        32.1           --            --            --
Purchase Commitments (11)
   Equipment Purchases              2.7         2.7           --            --            --
   Equipment Rentals                2.9         0.7          1.7           0.5            --
   Suppliers                   27,346.9     2,671.9      4,657.8       3,875.6      16,141.6
   Manufacturers/Vendors           12.8         8.5          1.5           1.1           1.7
   Service Contracts               44.9        22.0         22.9            --            --
   Consulting                       7.3         6.8          0.5            --            --
                              ---------    --------     --------     ---------     ---------
Total                         $31,629.2    $3,085.0     $5,252.7     $ 4,485.8     $18,805.7
                              =========    ========     ========     =========     =========


(1)  Amounts represent contractual amounts due. Refer to Note 9 of our
     Consolidated Financial Statements for information regarding long-term debt.
     We expect to settle such long-term debt by several methods, including cash
     flows from operations.

(2)  Amounts represent contractual amounts due. Refer to Note 11 of our
     Consolidated Financial Statements for information regarding capital leases,
     operating leases and long-term real estate liabilities.


                                       33



                 THE GREAT ATLANTIC & PACIFIC TEA COMPANY, INC.
                MANAGEMENT'S DISCUSSION AND ANALYSIS - CONTINUED

(3)  Amounts represent future contributions to our defined benefit pension
     plans. Refer to Note 13 of our Consolidated Financial Statements for
     information regarding our defined benefit pension plans.

(4)  Amounts represent future benefit payments that were actuarially determined
     for our postretirement benefit obligation. Refer to Note 13 of our
     Consolidated Financial Statements for information regarding our
     postretirement benefits.

(5)  Amounts represent our future occupancy payments primarily relating to our
     asset disposition initiatives (refer to Note 8 of our Consolidated
     Financial Statements), discontinued operations (refer to Note 7 of our
     Consolidated Financial Statements) and store closures made during the
     normal course of business.

(6)  Amounts represent our future severance obligations and other related items
     primarily relating to our normal course of business, asset disposition
     initiatives, and discontinued operations.

(7)  Amounts represent contractual amounts due. Refer to Note 9 of our
     Consolidated Financial Statements for information regarding our interest
     payments. Note that amounts presented exclude estimates on current and
     future variable interest rate payments as these amounts cannot be estimated
     as of the balance sheet date due to the variability in our expected
     borrowings.

(8)  Amounts represent our future contractual amounts payable.

(9)  Amounts represent our future benefit payments that were actuarially
     determined for our short and long term disability programs. Refer to Note
     13 of our Consolidated Financial Statements for information regarding our
     postemployment obligations.

(10) Amounts represent our best estimate of our immediate funding requirements
     of our defined contribution and multiemployer plans in which we
     participate. Refer to Note 13 of our Consolidated Financial Statements for
     information regarding these obligations.

(11) The purchase commitments include agreements to purchase goods or services
     that are enforceable and legally binding and that specify all significant
     terms, including open purchase orders. We expect to fund these commitments
     with cash flows from operations.



                              Expiration of Commitments (in millions)
                    ----------------------------------------------------------
                            Less than
Other Commitments   Total     1 Year    1 - 3 Years   4 - 5 Years   Thereafter
- -----------------   -----   ---------   -----------   -----------   ----------
                                                     
Guarantees           $1.5      $0.2         $0.5          $0.8          $--
                     ====      ====         ====          ====          ===


     We are the guarantor of a loan of $1.5 million related to a shopping
center, which will expire in 2011.

     In the normal course of business, we have assigned to third parties various
leases related to former operating stores (the "Assigned Leases"). When the
Assigned Leases were assigned, we generally remained secondarily liable with
respect to these lease obligations. As such, if any of the assignees were to
become unable to continue making payments under the Assigned Leases, we could be
required to assume the lease obligation. As of February 24, 2007, 110 Assigned
Leases remain in place. Assuming that each respective assignee became unable to
continue to make payments under an Assigned Lease, an event we believe to be
remote, we estimate our maximum potential obligation with respect to the
Assigned Leases to be approximately $323.2 million, which could be partially or
totally offset by reassigning or subletting such leases.

     Our existing senior debt rating was Caa1 with negative outlook with Moody's
Investors Service ("Moody's") and B- with stable outlook with Standard & Poor's
Ratings Group ("S&P") as of February 24, 2007. Our liquidity rating was SGL3
with Moody's as of February 24, 2007. Our recovery rating was 1 with S&P as of
February 24, 2007 indicating a high expectation of 100% recovery of our senior
debt to our lenders. On March 5, 2007, Moody's placed our long term ratings
under review for possible downgrade and affirmed the Speculative Grade Liquidity
Rating of SGL-3 in connection with our agreement to acquire Pathmark Stores,
Inc. On February 28, 2007, S&P changed our existing senior debt rating from B-
with stable outlook to B- with negative implications in connection with our
agreement to acquire Pathmark Stores, Inc.


                                       34



                 THE GREAT ATLANTIC & PACIFIC TEA COMPANY, INC.
                MANAGEMENT'S DISCUSSION AND ANALYSIS - CONTINUED

MARKET RISK

     Market risk represents the risk of loss from adverse market changes that
may impact our consolidated financial position, results of operations or cash
flows. Among other possible market risks, we are exposed to such risk in the
areas of interest rates and foreign currency exchange rates.

     From time to time, we may enter hedging agreements in order to manage risks
incurred in the normal course of business including forward exchange contracts
to manage our exposure to fluctuations in foreign exchange rates.

INTEREST RATES

     Our exposure to market risk for changes in interest rates relates primarily
to our debt obligations. We do not have cash flow exposure due to rate changes
on our $246.3 million in total indebtedness as of February 24, 2007 because they
are at fixed interest rates. However, we do have cash flow exposure on our
committed bank lines of credit due to our variable floating rate pricing.
Accordingly, during fiscal 2006, a presumed 1% change in the variable floating
rate would have impacted interest expense by $0.8 million. During fiscal 2005
and fiscal 2004, a presumed 1% change in the variable floating rate would not
have impacted interest expense as there were minimal or no borrowings under our
committed bank lines of credit.

FOREIGN EXCHANGE RISK

     We are exposed to foreign exchange risk to the extent of adverse
fluctuations in the Canadian dollar. A change in the Canadian currency of 10%
would have resulted in a fluctuation in our investment in Metro, Inc. of $30.2
million and $33.9 million at February 24, 2007 and February 25, 2006,
respectively. We do not believe that a change in the Canadian currency of 10%
will have a material effect on our statements of operations or cash flows.

     During fiscal 2005, we entered into a six month currency exchange forward
contract totaling $900 million Canadian dollar notional value to hedge our net
investment in our Canadian foreign operation against adverse movements in
exchange rates. Also during fiscal 2005 and upon completion of the sale of our
Canadian operations as discussed in Note 18 - Hedge of Net Investment in Foreign
Operations, this forward contract was terminated prior to its expiration.

CRITICAL ACCOUNTING ESTIMATES

     Critical accounting estimates are those accounting estimates that we
believe are important to the portrayal of our financial condition and results of
operations and require our most difficult, subjective or complex judgments,
often as a result of the need to make estimates about the effect of matters that
are inherently uncertain.

     The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America ("U.S. GAAP")
requires us 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.

SELF-INSURANCE RESERVES

     Our Consolidated Balance Sheets include liabilities with respect to
self-insured workers' compensation and general liability claims. We estimate the
required liability of such claims on a discounted basis, utilizing an actuarial
method, which is based upon various assumptions, which include, but are not
limited to, our historical loss experience, projected loss development factors,
actual payroll and other data. The total current and non-current liability for
self-insurance reserves recorded at February 24, 2007 was $133.0 million. The
discount rate used at February 24, 2007 was 4.75% and was based on the timing of
the projected cash flows of future payments to be made for claims. A 1% increase
in the discount rate would decrease the required liability by $3.7 million.
Conversely, a 1% decrease in the discount rate would increase the required
liability by $4.0 million. The required liability is also subject to adjustment
in the future based upon the changes in claims experience, including changes in
the number of incidents (frequency) and changes in the ultimate cost per
incident (severity).



                                  35



                 THE GREAT ATLANTIC & PACIFIC TEA COMPANY, INC.
                MANAGEMENT'S DISCUSSION AND ANALYSIS - CONTINUED



LONG-LIVED ASSETS

     We review the carrying values of our long-lived assets for possible
impairment whenever events or changes in circumstances indicate that the
carrying amount of assets may not be recoverable. Such review is based upon
groups of assets and the undiscounted estimated future cash flows from such
assets to determine if the carrying value of such assets is recoverable from
their respective cash flows. If such review indicates an impairment exists, we
measure such impairment on a discounted basis using a probability weighted
approach and a 7 year U.S. Treasury risk free rate.

     We also review assets in stores planned for closure or conversion for
impairment upon determination that such assets will not be used for their
intended useful life. During fiscal 2006, we recorded property impairment losses
of $5.9 million as follows:



                                                                Fiscal 2006
                                                                -----------
                                                             
Impairments due to closure or conversion in the normal course
   of business                                                     $4,836
Impairments related our asset disposition initiatives (1)           1,049
                                                                   ------
Total impairments                                                  $5,885
                                                                   ======


(1)  Refer to Note 8 - Asset Disposition Initiatives.

     All of these amounts are included in SG&A in our Consolidated Statements of
Operations. The effects of changes in estimates of useful lives were not
material to ongoing depreciation expense.

     If current operating levels do not improve, there may be additional future
impairments on long-lived assets, including the potential for impairment of
assets that are held and used, particularly in our Midwest operations.

CLOSED STORE AND CLOSED WAREHOUSE RESERVES

     For closed stores and warehouses that are under long-term leases, we record
a discounted liability using a risk free rate for the future minimum lease
payments and related costs, such as utilities and taxes, from the date of
closure to the end of the remaining lease term, net of estimated probable
recoveries from projected sublease rentals. If estimated cost recoveries exceed
our liability for future minimum lease payments, the excess is recognized as
income over the term of the sublease. We estimate future net cash flows based on
our experience in and our knowledge of the market in which the closed store and
warehouse is located. However, these estimates project net cash flow several
years into the future and are affected by variable factors such as inflation,
real estate markets and economic conditions. While these factors have been
relatively stable in recent years, variation in these factors could cause
changes to our estimates. As of February 24, 2007, we had recorded liabilities
for estimated probable obligations of $160 million. Of this amount, $17 million
relates to stores closed in the normal course of business, $135 million relates
to stores closed as part of the asset disposition initiatives (see Note 8 of our
Consolidated Financial Statements), and $8 million relates to stores closed as
part of our exit of the northern New England and Kohl's businesses (see Note 7
of our Consolidated Financial Statements).


                                  36


                 THE GREAT ATLANTIC & PACIFIC TEA COMPANY, INC.
                MANAGEMENT'S DISCUSSION AND ANALYSIS - CONTINUED


EMPLOYEE BENEFIT PLANS

     The determination of our obligation and expense for pension and other
postretirement benefits is dependent, in part, on our selection of certain
assumptions used by our actuaries in calculating these amounts. These
assumptions are disclosed in Note 13 of our Consolidated Financial Statements
and include, among other things, the discount rate, the expected long-term rate
of return on plan assets and the rates of increase in compensation and health
care costs. In accordance with U.S. GAAP, actual results that differ from our
Company's assumptions are accumulated and amortized over future periods and,
therefore, affect our recognized expense and recorded obligation in such future
periods. While we believe that our assumptions are appropriate, significant
differences in our actual experience or significant changes in our assumptions
may materially affect our pension and other postretirement obligations and our
future expense.

     An example of how changes in these assumptions can affect our financial
statements occurred in fiscal 2006. Based on our review of market interest
rates, actual return on plan assets and other factors, we raised our discount
rate for U.S. plans to 5.75% at year-end 2006 from 5.50% at year-end 2005. We
also raised our expected return on plan assets for U.S. plans to 6.75% at
year-end 2006 from 6.50% at year-end 2005. These rates are applied to the
calculated value of plan assets and liabilities, which results in an amount that
is included in pension expense or income in the following years. When not
considering other changes in assumptions or actual return on plan assets, a 1%
change in the discount rate alone would either increase the benefit obligation
by $22.9 million or decrease the benefit obligation by $19.3 million, and a 1%
change in expected return on plan assets alone would either increase or decrease
2006 U.S. pension expense by $1.8 million.

     When not considering other changes in assumptions for our postretirement
benefits, a 1% change in the U. S. discount rate for each future year on the sum
of U.S. 2006 service and interest cost would either increase by $0.03 million or
decrease by $0.04 million, while the accumulated postretirement benefit
obligation would either increase by $1.9 million or decrease by $1.6 million.
The effect of a 1% change in the assumed health care cost trend rate for each
future year on the sum of U.S. 2006 service and interest cost would either be an
increase or decrease of $0.1 million, while accumulated postretirement benefit
obligation would either increase by $1.1 million or decrease by $1.0 million.

     Refer to Note 13 - Retirement Plans and Benefits in the Notes to
Consolidated Financial Statements for a full discussion of our Company's
employee benefit plans.

INVENTORIES

     We evaluate inventory shrinkage throughout the year based on actual
physical counts and record reserves based on the results of these counts to
provide for estimated shrinkage between the store's last inventory and the
balance sheet date.

INCOME TAXES

     As discussed in Note 12 of the Consolidated Financial Statements, our
Company recorded a valuation allowance for the entire U.S. net deferred tax
asset since, in accordance with SFAS 109, it was more likely than not that the
net deferred tax asset would not be utilized based on historical cumulative
losses. Under SFAS 109, this valuation allowance could be reversed in future
periods if our Company experiences improvement in our U.S. operations.

IMPACT OF NEW ACCOUNTING PRONOUNCEMENTS

     In October 2005, the Financial Accounting Standards Board ("FASB") issued
FASB Staff Position FAS 13-1 ("FSP FAS 13-1"), which requires companies to
expense rental costs associated with ground or building operating leases that
are incurred during a construction period. As a result, companies that are
currently capitalizing these rental costs are required to expense them beginning
in its first reporting period beginning after December 15, 2005. FSP FAS 13-1
was effective for our Company as of the first quarter of fiscal 2006. We
evaluated the provisions of FSP FAS 13-1 and have adopted the guidance. This
adoption did not have a material impact on our Company's financial position or
results of operations.

     In July 2006, the FASB issued FASB Interpretation No. 48, Accounting for
Uncertainty in Income Taxes--an Interpretation of FASB Statement 109 ("FIN 48"),
which clarifies the accounting for uncertainty in tax positions. This
Interpretation provides that the tax effects from an uncertain tax position can
be recognized in our financial statements, only if the position is more likely
than not of being sustained on audit, based on the technical merits of the
position. The provisions of FIN 48 are effective as of the beginning of fiscal
2007, with the cumulative effect of the change in accounting principle recorded
as an adjustment to opening retained earnings. We are currently evaluating the
impact of adopting FIN 48 on our financial statements.

                                       37



                 THE GREAT ATLANTIC & PACIFIC TEA COMPANY, INC.
                MANAGEMENT'S DISCUSSION AND ANALYSIS - CONTINUED

     In September 2006, the FASB issued Statement of Financial Accounting
Standards No. 157, "Fair Value Measurements" ("SFAS 157"). SFAS 157 defines fair
value, establishes a framework for measuring fair value in accordance with
generally accepted accounting principles, and expands disclosures about fair
value measurements. The provisions of SFAS 157 are effective for fiscal years
beginning after November 15, 2007 (our year ended February 28, 2009). Our
Company is currently evaluating the impact, if any, of the provisions of SFAS
157.

     In September 2006, the FASB issued SFAS 158, "Employers' Accounting for
Defined Benefit Pension and Other Postretirement Plans, an amendment of FASB
Statements No. 87, 88, 106 and 132(R)" ("SFAS 158") and is effective for our
fiscal year ended February 24, 2007. SFAS 158 was issued to improve the overall
financial statement presentation of pension and other postretirement plans and
does not impact the determination of net periodic benefit cost or the
measurement of plan assets or obligations. This standard requires companies to
recognize the funded status of their defined benefit pension and other
postretirement benefit plans as a net liability or asset on their balance sheets
and requires any unrecognized prior service costs and actuarial gains or losses
to be recognized as a component of accumulated other comprehensive income or
loss. We adopted these requirements of SFAS 158 as of February 24, 2007.
Additionally, SFAS 158 no longer allows companies to measure their plans as of
any date other than the end of their fiscal year; however, this provision is not
effective for companies until fiscal years ending after December 15, 2008 (our
year ended February 28, 2009). We currently measure our plan assets and
obligations using a December 31 measurement date. We are currently evaluating
which of the two transition methods to use and when we will adopt the change in
measurement date. Refer to Note 13 - Retirement Plans and Benefits for the
disclosures required by SFAS 158 and the impact of its adoption.

     In September 2006, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin No. 108, "Considering the Effects of Prior Year
Misstatements When Quantifying Misstatements in Current Year Financial
Statements" ("SAB 108"). This bulletin provides guidance on the consideration of
the effects of prior year misstatements in quantifying current year
misstatements for the purpose of materiality assessment. SAB 108 is effective
for our fiscal year ending February 24, 2007. The cumulative effect, if any, of
applying the provisions of SAB 108 will be reported as an adjustment to
beginning-of-year retained earnings. We have evaluated the provisions of SAB 108
and the guidance did not have an impact on our Company's financial condition or
results of operations.

     In February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for
Financial Assets and Financial Liabilities--including an amendment of FASB
Statement No. 115." SFAS No. 159 permits entities to choose to measure many
financial instruments and certain other items at fair value. Unrealized gains
and losses on items for which the fair value option has been elected will be
recognized in earnings at each subsequent reporting date. The provisions of SFAS
159 are effective for fiscal years beginning after November 15, 2007 (our year
ended February 28, 2009). Our Company is currently evaluating the impact, if
any, of the provisions of SFAS 159.

CAUTIONARY NOTE

     This presentation may contain forward-looking statements about the future
performance of our Company, and is based on our assumptions and beliefs in light
of information currently available. We assume no obligation to update this
information. These forward-looking statements are subject to uncertainties and
other factors that could cause actual results to differ materially from such
statements including but not limited to: competitive practices and pricing in
the food industry generally and particularly in our principal markets; our
relationships with our employees; the terms of future collective bargaining
agreements; the costs and other effects of lawsuits and administrative
proceedings; the nature and extent of continued consolidation in the food
industry; changes in the financial markets which may affect our cost of capital
or the ability to access capital; supply or quality control problems with our
vendors; and changes in economic conditions, which may affect the buying
patterns of our customers.

                                       38



                 THE GREAT ATLANTIC & PACIFIC TEA COMPANY, INC.
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                (Dollars in thousands, except per share amounts)



                                                  Fiscal 2006   Fiscal 2005   Fiscal 2004
                                                  -----------   -----------   -----------
                                                                     
Sales                                             $ 6,850,268   $ 8,740,347   $10,854,911
Cost of merchandise sold                           (4,785,821)   (6,235,275)   (7,813,771)
                                                  -----------   -----------   -----------
Gross margin                                        2,064,447     2,505,072     3,041,140
Store operating, general and
   administrative expense                          (2,074,522)   (2,825,730)   (3,114,062)
                                                  -----------   -----------   -----------
Loss from operations                                  (10,075)     (320,658)      (72,922)
(Loss) gain on sale of Canadian operations             (1,299)      912,129            --
Interest expense                                      (73,814)      (92,248)     (114,107)
Interest income                                         9,613        13,457         2,776
Minority interest in earnings of consolidated
   franchisees                                             --        (1,131)          772
Equity in earnings of Metro, Inc.                      40,003         7,801            --
                                                  -----------   -----------   -----------
(Loss) income from continuing operations
   before income taxes                                (35,572)      519,350      (183,481)
Benefit from (provision for) income taxes              62,088      (128,927)         (528)
                                                  -----------   -----------   -----------
Income (loss) from continuing operations               26,516       390,423      (184,009)
Discontinued operations:
   Income (loss) from operations of
      discontinued businesses, net of
      tax provision of $274, $1,178 and $0 for
      the years ended February 24, 2007,
      February 25, 2006, and February 26, 2005,
      respectively                                        377         1,626        (1,387)
   Gain (loss) on disposal of discontinued
      operations, net of tax provision
      of $0, $421 and $0 for the years ended
      February 24, 2007, February 25, 2006,
      February 26, 2005, respectively                      --           581        (2,702)
                                                  -----------   -----------   -----------
   Income (loss) from discontinued operations             377         2,207        (4,089)
                                                  -----------   -----------   -----------
Net income (loss)                                 $    26,893   $   392,630   $  (188,098)
                                                  ===========   ===========   ===========
Net income (loss) per share - basic:
   Continuing operations                          $      0.64   $      9.69   $     (4.77)
   Discontinued operations                               0.01          0.05         (0.11)
                                                  -----------   -----------   -----------
Net income (loss) per share - basic               $      0.65   $      9.74   $     (4.88)
                                                  ===========   ===========   ===========
Net income (loss) per share - diluted:
   Continuing operations                          $      0.63   $      9.59   $     (4.77)
   Discontinued operations                               0.01          0.05         (0.11)
                                                  -----------   -----------   -----------
Net income (loss) per share - diluted             $      0.64   $      9.64   $     (4.88)
                                                  ===========   ===========   ===========
Weighted average common shares outstanding:
      Basic                                        41,430,600    40,301,132    38,558,598
                                                  ===========   ===========   ===========
      Diluted                                      41,902,358    40,725,942    38,558,598
                                                  ===========   ===========   ===========


                 See Notes to Consolidated Financial Statements.


                                       39

                 THE GREAT ATLANTIC & PACIFIC TEA COMPANY, INC.
 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME (LOSS)
                  (Dollars in thousands, except share amounts)


                                                                                       (Accumu-
                                                                       Accumulated      lated
                                       Common stock      Additional       other        deficit)       Total
                                  --------------------     paid-in    comprehensive   retained    stockholders'
                                    Shares      Amount     capital    (loss) income    earnings       equity
                                  ----------   -------   ----------   -------------   ---------   -------------
                                                                                
BALANCE AT 2/28/04                38,518,905    38,519     459,579       (27,239)       (78,100)      392,759
Net loss                                                                               (188,098)     (188,098)
Stock options exercised              246,094       246       1,380                                      1,626
Other share based awards                                     3,584                                      3,584
Other comprehensive income                                                23,931                       23,931
                                  ----------   -------   ---------      --------      ---------     ---------
BALANCE AT 2/26/05                38,764,999    38,765   $ 464,543        (3,308)      (266,198)      233,802
Net income                                                                              392,630       392,630
Stock options exercised            2,378,685     2,379      23,677                                     26,056
Other share based awards               5,303         5       8,973                                      8,978
Other comprehensive income                                                10,261                       10,261
                                  ----------   -------   ---------      --------      ---------     ---------
BALANCE AT 2/25/06                41,148,987   $41,149   $ 497,193      $  6,953      $ 126,432     $ 671,727
Net income                                                                               26,893        26,893
Cash dividends on common stock-
   $7.25 per share                                        (299,089)                                  (299,089)
Stock options exercised              414,104       414       5,580                                      5,994
Other share based awards              26,104        26       8,108                                      8,134
Tax benefit of stock options                                 1,076                                      1,076
Initial adoption of SFAS 158                                              19,196                       19,196
Other comprehensive loss                                                  (3,261)                      (3,261)
                                  ----------   -------   ---------      --------      ---------     ---------
BALANCE AT 2/24/07                41,589,195   $41,589   $ 212,868      $ 22,888      $ 153,325     $ 430,670
                                  ==========   =======   =========      ========      =========     =========




COMPREHENSIVE INCOME (LOSS)                                          Fiscal 2006   Fiscal 2005   Fiscal 2004
- ---------------------------                                          -----------   -----------   -----------
                                                                                        
Net income (loss)                                                      $26,893      $392,630      $(188,098)
                                                                       -------      --------      ---------
   Foreign currency translation adjustment                              (3,164)        9,839         26,927
   Net unrealized gain (loss) on marketable securities, net of tax         993        (1,015)            --
   Net unrealized (loss) gain on derivatives, net of tax                    --           (57)           215
   Minimum pension liability adjustment, prior to adoption of
      SFAS 158, net of tax                                              (1,090)        1,494         (3,211)
                                                                       -------      --------      ---------
Other comprehensive (loss) income, net of tax                           (3,261)       10,261         23,931
                                                                       -------      --------      ---------
Total comprehensive income (loss)                                      $23,632      $402,891      $(164,167)
                                                                       =======      ========      =========


ACCUMULATED OTHER COMPREHENSIVE (LOSS) INCOME BALANCES



                                                                                 Pension
                                             Net Unrealized                      & Other     Accumulated
                                 Foreign      (Loss) / Gain   Net Unrealized      Post-         Other
                                 Currency     on Marketable    (Loss) / Gain   retirement   Comprehensive
                               Translation     Securities     on Derivatives    Benefits    (Loss) Income
                               -----------   --------------   --------------   ----------   -------------
                                                                             
Balance at
   February 28, 2004            $(23,892)        $    --          $(158)        $ (3,189)     $(27,239)
Current period change             26,927              --            215           (3,211)       23,931
                                --------         -------          -----         --------      --------
Balance at
   February 26, 2005            $  3,035              --             57           (6,400)       (3,308)
Current period change              9,839          (1,015)           (57)           1,494        10,261
                                --------         -------          -----         --------      --------
Balance at
   February 25, 2006              12,874          (1,015)            --           (4,906)        6,953
Current period change             (3,164)            993             --           (1,090)
                                                                                                (3,261)
Initial adoption of SFAS 158          --              --             --           19,196        19,196
                                --------         -------          -----         --------      --------
Balance at
   February 24, 2007            $  9,710         $   (22)         $  --         $ 13,200      $ 22,888
                                ========         =======          =====         ========      ========


                 See Notes to Consolidated Financial Statements.

                                       40



                 THE GREAT ATLANTIC & PACIFIC TEA COMPANY, INC.
                           CONSOLIDATED BALANCE SHEETS
                  (Dollars in thousands, except share amounts)



                                                              February      February
                                                              24, 2007      25, 2006
                                                            -----------   -----------
                                                                    
ASSETS
Current assets:
   Cash and cash equivalents                                $    86,194   $   229,589
   Restricted cash                                               51,176       146,309
   Restricted marketable securities                              20,335            --
   Marketable securities                                             --       167,405
   Accounts receivable, net of allowance for doubtful
      accounts of $4,514 and $7,042 at February 24, 2007
      and February 25, 2006, respectively                       117,082       175,939
   Inventories                                                  411,370       405,310
   Prepaid expenses and other current assets                     62,751        85,462
                                                            -----------   -----------
      Total current assets                                      748,908     1,210,014
                                                            -----------   -----------
Property:
   Land                                                          44,878        51,899
   Buildings                                                    200,404       213,639
   Equipment                                                  1,299,468     1,304,053
   Leasehold improvements                                       916,115     1,114,989
                                                            -----------   -----------
      Total - at cost                                         2,460,865     2,684,580
   Less accumulated depreciation and amortization            (1,541,543)   (1,809,440)
                                                            -----------   -----------
   Property owned, net                                          919,322       875,140
   Property under capital leases, net                            20,676        23,094
                                                            -----------   -----------
Property - net                                                  939,998       898,234
Equity investment in Metro, Inc.                                368,871       338,756
Other assets                                                     53,846        51,861
                                                            -----------   -----------
   Total assets                                             $ 2,111,623   $ 2,498,865
                                                            ===========   ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
   Current portion of long-term debt                        $    32,069   $       569
   Current portion of obligations under capital leases            1,554         2,274
   Accounts payable                                             197,500       209,774
   Book overdrafts                                               31,833        35,447
   Accrued salaries, wages and benefits                         115,719       121,734
   Accrued taxes                                                 34,452        34,215
   Other accruals                                               145,264       206,260
                                                            -----------   -----------
      Total current liabilities                                 558,391       610,273
                                                            -----------   -----------
Long-term debt                                                  284,214       246,282
Long-term obligations under capital leases                       29,938        32,270
Long-term real estate liabilities                               300,832       297,453
Other non-current liabilities                                   507,578       640,860
                                                            -----------   -----------
   Total liabilities                                          1,680,953     1,827,138
                                                            -----------   -----------
Commitments and contingencies

Stockholders' equity:
   Preferred stock - no par value; authorized - 3,000,000
      shares; issued - none                                          --            --
   Common stock - $1 par value; authorized - 80,000,000
      shares; issued and outstanding - 41,589,195 and
      41,148,987 shares at February 24, 2007 and
      February 25, 2006, respectively                            41,589        41,149
   Additional paid-in capital                                   212,868       497,193
   Accumulated other comprehensive income                        22,888         6,953
   Retained earnings                                            153,325       126,432
                                                            -----------   -----------
      Total stockholders' equity                                430,670       671,727
                                                            -----------   -----------
   Total liabilities and stockholders' equity               $ 2,111,623   $ 2,498,865
                                                            ===========   ===========


                 See Notes to Consolidated Financial Statements.


                                       41

                 THE GREAT ATLANTIC & PACIFIC TEA COMPANY, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                             (Dollars in thousands)



                                                            Fiscal 2006   Fiscal 2005   Fiscal 2004
                                                            -----------   -----------   -----------
                                                                               
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)                                           $    26,893    $ 392,630     $(188,098)
Adjustments to reconcile net income (loss) to net cash
   provided by (used in) operating activities:
   Asset disposition initiatives                                  2,296      185,122        (1,448)
   Depreciation and amortization                                177,754      207,329       268,105
   Income tax (benefit) provision                               (66,435)      98,079        (1,370)
   Gains on disposal of owned property and write-down of
      property, net                                             (28,135)     (24,787)      (28,704)
   Impairment loss relating to Hurricane Katrina                     --        6,090            --
   Midwest long-lived asset / goodwill impairment charge             --           --        34,688
   Other property impairments                                     4,668       28,085         8,629
   (Gain) loss on disposal of discontinued operations                --       (1,002)        2,702
   Loss (gain) on sale of Canadian operations                     1,299     (912,129)           --
   Loss on derivatives                                               --       15,446            --
   Loss on early extinguishment of debt                              --       28,623            --
   Non-cash impact of early extinguishment of debt                   --          809            --
   Other share based awards                                       8,134        8,978            --
   Equity in earnings of Metro, Inc.                            (40,003)      (7,801)           --
   Proceeds from dividends from Metro, Inc.                       6,858        4,708            --
Other changes in assets and liabilities:
   Decrease (increase) in receivables                            62,741      (56,130)       29,223
   (Increase) decrease in inventories                            (1,264)     109,521       (12,614)
   Decrease (increase) in prepaid expenses and other
      current assets                                              3,062          585        (6,024)
   Decrease (increase) in other assets                            3,044       (7,344)      (19,041)
   (Decrease) increase in accounts payable                      (19,199)    (101,342)       46,295
   Decrease in accrued salaries, wages and benefits, and
      taxes                                                      (9,202)     (31,414)      (24,170)
   (Decrease) increase in other accruals                        (61,395)      48,931       (34,121)
   Increase (decrease) in minority interest                          --        1,806        (3,542)
   (Decrease) increase in other non-current liabilities         (37,641)     (76,309)       42,591
   Other, net                                                     3,247        5,509         1,357
                                                            -----------    ---------     ---------
Net cash provided by (used in) operating activities              36,722      (76,007)      114,458
                                                            -----------    ---------     ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
   Expenditures for property                                   (208,159)    (191,050)     (216,142)
   Proceeds from disposal of property                            41,880       72,293        53,641
   Purchase of business                                         (24,619)          --            --
   Proceeds from sale of Canadian operations, net of cash
      disposed                                                       --      960,689            --
   Disposal related expenditures for sale of Canadian
      operations                                                 (1,299)     (53,882)           --
   Payments for derivatives                                          --      (15,446)           --
   Increase (decrease) in restricted cash                        95,133     (146,309)           --
   Purchases of marketable securities                          (148,700)    (667,808)           --
   Proceeds from maturities of marketable securities            294,519      500,810            --
                                                            -----------    ---------     ---------
Net cash provided by (used in) investing activities              48,755      459,297      (162,501)
                                                            -----------    ---------     ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
   Proceeds under revolving lines of credit                   1,757,100           --            --
   Principal payments on revolving lines of credit           (1,687,100)          --            --
   Proceeds from short-term borrowings                               --           --         3,000
   Principal payments on short-term borrowings                       --           --        (3,000)
   Principal payments on long-term borrowings                       (80)    (413,961)       (6,068)
   Long-term real estate liabilities                              3,379       22,122        37,086
   Principal payments on capital leases                          (5,278)     (11,033)      (13,454)
   Proceeds from capital leases                                      --       10,000            --
   Decrease in book overdrafts                                   (3,614)     (42,957)      (13,665)
   Deferred financing fees                                         (249)      (1,793)       (1,334)
   Dividends paid                                              (299,089)          --            --
   Proceeds from exercises of stock options                       5,994       26,056         1,599
                                                            -----------    ---------     ---------
Net cash (used in) provided by financing activities            (228,937)    (411,566)        4,164
                                                            -----------    ---------     ---------
   Effect of exchange rate changes on cash and
      cash equivalents                                               65          117         4,619
                                                            -----------    ---------     ---------
Net decrease in cash and cash equivalents                      (143,395)     (28,159)      (39,260)
Cash and cash equivalents at beginning of year                  229,589      257,748       297,008
                                                            -----------    ---------     ---------
Cash and cash equivalents at end of year                    $    86,194    $ 229,589     $ 257,748
                                                            ===========    =========     =========


                 See Notes to Consolidated Financial Statements.

                                       42

                 THE GREAT ATLANTIC & PACIFIC TEA COMPANY, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
          (Dollars in thousands, except share amounts, and where noted)

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation and Consolidation

     The consolidated financial statements include the accounts of The Great
Atlantic & Pacific Tea Company, Inc. ("We," "Our," "Us" or "our Company") and
all subsidiaries. Significant intercompany accounts and transactions have been
eliminated. Our Company uses the equity method of accounting for our investment
in Metro, Inc. as we exert significant influence over substantive operating
decisions made by Metro, Inc. through our membership on Metro, Inc.'s Board of
Directors and its committees and through an information technology services
agreement with Metro, Inc.

     At February 24, 2007, we operated retail supermarkets in the United States.
The operations are mainly in the Eastern part of the U.S. and certain parts of
the Midwest. Our principal stockholder, Tengelmann Warenhandelsgesellschaft KG
("Tengelmann"), owned 52.9% of our common stock as of February 24, 2007.

     As further discussed in Note 3 - Equity Investment in Metro, Inc., we sold
our Canadian business at the close of business on August 13, 2005 to Metro,
Inc., a supermarket and pharmacy operator in the Provinces of Quebec and
Ontario, Canada. Although the Canadian operations have been sold, our Company
retained significant continuing involvement in the operations of this business
due to our ongoing equity interests and through an information technology
services agreement.

Fiscal Year

     Our fiscal year ends on the last Saturday in February. Fiscal 2006 ended
February 24, 2007, fiscal 2005 ended February 25, 2006, and fiscal 2004 ended
February 26, 2005. Fiscal 2006, 2005 and fiscal 2004 were each comprised of 52
weeks.

Use of Estimates

     The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires us 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 can differ from those estimates.

Revenue Recognition

     Retail revenue is recognized at point-of-sale. Discounts and allowances
that we provide to our customers are accounted for as a reduction to sales and
are recorded at point-of-sale.

Cost of Merchandise Sold

     Cost of merchandise sold includes cost of inventory sold during the period,
including purchasing and distribution costs. These costs include inbound freight
charges, purchasing and receiving costs, warehouse inspection costs, warehousing
costs, internal transfer costs and other distribution costs through C&S
Wholesale Grocers, Inc.

Vendor Allowances

     Vendor allowances that relate to our Company's buying and merchandising
activities consist primarily of advertising, promotional and slotting
allowances. With the exception of allowances described below, all allowances are
recognized as a reduction of cost of goods sold when the related performance is
completed and the related inventory is sold. Lump-sum payments received for
multi-year contracts are generally amortized on a straight line basis over the
life of the contracts. Vendor rebates or refunds that are contingent upon our
Company completing a specified level of purchases or remaining a reseller for a
specified time period are recognized as a reduction of cost of goods sold based
on a systematic and rational allocation of the rebate or refund to each of the
underlying transactions that results in progress toward earning that rebate or
refund, assuming that we can reasonably estimate the rebate or refund and it is
probable that the specified target will be obtained. If we believe attaining the
milestone is not probable, the rebate or refund is recognized as the milestone
is achieved. Vendor reimbursement for coupons that can only be redeemed at a
Company retail store are recorded as a reduction of cost of sales.

Advertising Costs

     Advertising costs incurred to communicate media advertising are expensed in
the period the advertisement is first shown. Other advertising costs, primarily
costs to produce circulars and pay advertising agency fees, are expensed when
incurred. We recorded advertising expense of $76.2 million for fiscal 2006,
$93.0 million for fiscal 2005 and $120.2 million for fiscal 2004.

                                 43



                 THE GREAT ATLANTIC & PACIFIC TEA COMPANY, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED


Pre-opening Costs

     Non-capital expenditures incurred in opening new stores or remodeling
existing stores are expensed as incurred. Rent incurred during the construction
period is expensed in accordance with FASB Staff Position FAS 13-1, which
requires companies to expense rental costs associated with ground or building
operating leases that are incurred during a construction period.

Software Costs

     We capitalize externally purchased software and amortize it over five
years. Amortization expense related to software costs for fiscal 2006, 2005 and
2004 was $7.6 million, $8.4 million, and $6.4 million; respectively.

     In accordance with Statement of Position 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use", we capitalize certain
internally generated software costs after feasibility is reached which is
concurrent (i.) with the completion of the preliminary project stage, (ii.) when
management authorizes and commits to funding a software project, and (iii.) when
it is probable that the project will be completed and the software will be used
to perform the function intended. In fiscal 2006, 2005 and 2004, we capitalized
$1.4 million, $2.7 million and $8.6 million, respectively, of such software
costs. These costs are amortized over 5 years. For fiscal 2006, 2005 and 2004,
we recorded related amortization expense of $14.6 million, $16.7 million and
$14.6 million, respectively.

     Externally purchased and internally developed software are classified in
"Property - Equipment" on our Consolidated Balance Sheets.

Earnings Per Share

     We calculate earnings per share in accordance with Statement of Financial
Accounting Standards ("SFAS") 128, "Earnings Per Share" ("SFAS 128"). SFAS 128
requires dual presentation of basic and diluted earnings per share ("EPS") on
the face of the Consolidated Statements of Operations and requires a
reconciliation of the numerators and denominators of the basic and diluted EPS
calculations. Basic EPS is computed by dividing net income (loss) by the
weighted average shares outstanding for the period. Diluted EPS reflects the
potential dilution that could occur if options to issue common stock were
exercised and converted to common stock.

     The weighted average shares outstanding utilized in the basic EPS
calculation were 41,430,600 for fiscal 2006, 40,301,132 for fiscal 2005 and
38,558,598 for fiscal 2004. The additional common stock equivalents for fiscal
2006, fiscal 2005 and fiscal 2004 were 471,758, 424,810 and 294,884,
respectively. However, such shares for fiscal 2004 were antidilutive and thus
excluded from the diluted EPS calculation.

     Common shares of 186,218, 651,650 and 2,953,022 for fiscal 2006, fiscal
2005 and fiscal 2004, respectively, related to options outstanding under our
Company's stock option plans which were excluded from the computation of
diluted earnings per share as the effect would be antidilutive.

Translation of Canadian Currency

     Assets and liabilities denominated in Canadian currency are translated at
year-end rates of exchange, and revenues and expenses are translated at average
rates of exchange during the year. Gains and losses resulting from translation
adjustments are accumulated as a separate component of accumulated other
comprehensive loss within Stockholders' Equity.

Cash and Cash Equivalents

     Short-term investments that are highly liquid with maturities of ninety
days or less when purchased are deemed to be cash equivalents. These balances as
well as credit card receivables of $29.5 million and $32.6 million at February
24, 2007 and February 25, 2006, respectively, are included in "Cash and cash
equivalents" on our Consolidated Balance Sheets.

Restricted Cash

     In fiscal 2006, our restricted cash was primarily held in a money market
fund and could only be used as collateral for our new Letter of Credit Agreement
that we entered into during fiscal 2005. The remaining monies are held in escrow
for services which our Company is required to perform in connection with the
sale of our real estate properties. In fiscal 2005, restricted cash represented
monies held in a money market fund and could only be used as collateral for our
new Letter of Credit Agreement that we entered into during fiscal 2005. Refer to
Note 9 - Indebtedness for further discussion of our new Letter of Credit
Agreement and Revolving Credit Agreement.

                                  44

                 THE GREAT ATLANTIC & PACIFIC TEA COMPANY, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

Restricted Marketable Securities and Marketable Securities

     Investments with maturities greater than ninety days when purchased are
considered marketable securities. Our marketable securities are principally
comprised of commercial paper, corporate bonds, securities of the U.S.
government and its agencies, and auction rate securities. Our Company's
investments are considered to be available-for-sale and are reported at fair
value, with unrealized gains and losses, net of tax, reported as a separate
component of stockholder's equity. Our Company records other than temporary
declines in fair value to earnings as realized losses. In fiscal 2006, our
restricted marketable securities were held by Bank of America and could

only be used as collateral for our new Letter of Credit Agreement that we
entered into during fiscal 2005. Refer to Note 9 - Indebtedness for further
discussion of our new Letter of Credit Agreement and Revolving Credit Agreement.

Inventories

     Store inventories are stated principally at the lower of cost or market
with cost determined under the retail method on a first-in, first-out basis.
Under the retail method, the valuation of inventories at cost and resulting
gross margins are determined by applying a cost-to-retail ratio for various
groupings of similar items to the retail value of inventories. Inherent in the
retail inventory method calculations are certain management judgments and
estimates, including shrinkage, which could impact the ending inventory
valuation at cost as well as the resulting gross margins. Perishables and
pharmacy inventories are stated at the lower of cost or market with cost
determined under the gross profit method. Distribution center and other
inventories are stated primarily at the lower of cost or market with cost
determined on a first-in, first-out basis.

     We estimate inventory shrinkage throughout the year based on the results of
our periodic physical counts in our stores and distribution centers and record
reserves based on the results of these counts to provide for estimated shrinkage
as of the balance sheet date.

Properties Held for Sale

     Properties held for sale include those properties, which have been
identified for sale by our Company and are recorded at the lower of their
carrying value or fair value less cost to sell. Once properties are identified
as held for sale, they are no longer depreciated and are reclassified to
"Prepaid expenses and other current assets" on our Consolidated Balance Sheets.
At February 24, 2007 and February 25, 2006, our properties held for sale were
nil and $1.3 million, respectively.

Long-Lived Assets

     We review the carrying values of our long-lived assets for possible
impairment whenever events or changes in circumstances indicate that the
carrying amount of assets may not be recoverable. Such review is primarily based
upon groups of assets and the undiscounted estimated future cash flows from such
assets to determine if the carrying value of such assets is recoverable from
their respective cash flows. If such review indicates an impairment exists, we
measure such impairment on a discounted basis using a probability weighted
approach and a 7 year U.S. Treasury risk free rate.

                                   45



                 THE GREAT ATLANTIC & PACIFIC TEA COMPANY, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED


     During fiscal 2006, fiscal 2005, and fiscal 2004, we recorded property
impairment losses as follows:


                                     Fiscal 2006                 Fiscal 2005                  Fiscal 2004
                              ------------------------   --------------------------   --------------------------
                               U.S.    Canada    Total     U.S.    Canada    Total      U.S.    Canada    Total
                              ------   ------   ------   -------   ------   -------   -------   ------   -------
                                                                              
Impairments due to
   closure or conversion
   in the normal course
   of business (1)            $4,836     $--    $4,836   $ 9,851    $506    $10,357   $ 6,000    $709    $ 6,709
Impairments due to
   unrecoverable assets (1)       --      --        --    17,728      --     17,728    34,688      --     34,688
Impairments due to
   Closure of stores
   Impacted by Hurricane
   Katrina (1) (2)                --      --        --     6,090      --      6,090        --      --         --
Impairments related to
   our Asset Disposition
   Initiatives (1) (3)         1,049      --     1,049    15,463      --     15,463     2,749      --      2,749
Impairments related to
   our exit of the northern
   New England and
   Kohl's markets (1) (4)     --          --        --        --      --         --       602      --        602
                              ------     ---    ------   -------    ----    -------   -------    ----    -------
Total impairments             $5,885     $--    $5,885   $49,132    $506    $49,638   $44,039    $709    $44,748
                              ======     ===    ======   =======    ====    =======   =======    ====    =======


(1)  Refer to Note 6 - Valuation of Long-Lived Assets.

(2)  Refer to Note 16 - Hurricane Katrina and Impact on U.S. Business.

(3)  Refer to Note 8 - Asset Disposition Initiatives.

(4)  Refer to Note 7 - Discontinued Operations.

     All of these amounts with the exception of the impairments related to our
exit of the northern New England and Kohl's markets are included in "Store
operating, general and administrative expense" in our Consolidated Statements of
Operations. The impairments related to our exit of the northern New England and
Kohl's markets are included in "Gain (loss) on disposal of discontinued
operations, net of tax" on our Consolidated Statements of Operations.

     The effects of changes in estimates of useful lives were not material to
ongoing depreciation expense.

Property

     Depreciation and amortization are calculated on the straight-line basis
over the estimated useful lives of the assets. Buildings are depreciated based
on lives varying from twenty to forty years and equipment is depreciated based
on lives varying from three to twelve years. Leasehold improvements are
amortized over the lesser of their estimated useful lives or the remaining
available lease terms. Property leased under capital leases is amortized over
the lives of the respective leases or over their economic useful lives,
whichever is less. During fiscal 2006, 2005 and 2004, in addition to the
impairment losses discussed above, we disposed of and/or wrote down certain
assets, which resulted in pretax net gains of $28.1 million, $24.8 million, and
$28.7 million, respectively.

Goodwill and Other Intangible Assets

     In accordance with SFAS 142 "Goodwill and Other Intangible Assets,"
goodwill is no longer required to be amortized, but tested for impairment at
least annually by reassessing the appropriateness of the goodwill balance based
on a comparison of the fair value of a reporting unit (determined through
forecasts of cash flows from operating results on a discounted basis in
comparison) to the carrying value of such operations. If the results of such
comparison indicate that an impairment may exist, that is the carrying value
exceeds fair market value, we determine the implied fair market value of the
goodwill using a purchase price allocation approach and compare this value to
the carrying value. If such comparison indicates that an impairment exists, we
will recognize a charge to operations at that time based upon the difference
between the implied fair market value of the goodwill and the balance sheet
amount.

     During fiscal 2006, we completed the purchase of 6 Clemens Markets stores
from C&S Wholesale Grocers, Inc. In connection with the purchase, we recorded
goodwill in the amount of $5.8 million and is included in "Other assets" on our
Consolidated Balance Sheets at February 24, 2007.

                                  46


                 THE GREAT ATLANTIC & PACIFIC TEA COMPANY, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED


     The book value of goodwill and other intangible assets acquired at February
26, 2005 relating to our Canadian operations was $6.1 million, net of
accumulated amortization of $1.4 million. As further discussed in Note 4 -
Equity Investment in Metro, Inc., we sold our Canadian business at the close of
business on August 13, 2005 to Metro, Inc.; thus, we no longer consolidate this
balance at February 25, 2006.

     Through the date of sale of the Canadian operations in fiscal 2005 and
during fiscal 2004, we determined that a portion of the remaining goodwill and
other intangible assets relating to our Canadian goodwill and other intangible
assets had a definite life and recorded amortization expense of $0.1 million and
$0.3 million, respectively.

Current Liabilities

     Certain accounts payable checks issued but not presented to banks
frequently result in negative book balances for accounting purposes. Such
amounts are classified as "Book overdrafts" on our Consolidated Balance Sheets.

     Liabilities for compensated absences of $44.0 million and $50.7 million at
February 24, 2007 and February 25, 2006, respectively, are included in "Accrued
salaries, wages and benefits" on our Consolidated Balance Sheets.

     We accrue for vested vacation pay earned by our employees.

Long-Term Real Estate Liabilities

     Long-term real estate liabilities include the sales price of several
sale-leaseback transactions that did not qualify for sale-leaseback accounting
in accordance with SFAS 98, "Accounting for Leases" ("SFAS 98"). The proceeds
received are recorded as long-term real estate liabilities under the provisions
of SFAS 66, "Accounting for Sales of Real Estate" on our Consolidated Balance
Sheets with a maturity of 20 years, and will not be recognized until the end of
the respective leases when our continuing involvement ceases.

     Long-term real estate liabilities also include various leases in which our
Company received landlord allowances to offset the costs of structural
improvements we made to the leased space. As we had paid directly for a
substantial portion of the structural improvement costs, we were considered the
owner of the building during the construction period. In all situations upon
completion of the construction, we were unable to meet the requirements under
SFAS 98 to qualify for sale-leaseback treatment; thus, the landlord allowances
have been recorded as long-term real estate liabilities on our Consolidated
Balance Sheets and have been amortized over the lease term based on rent
payments designated in the lease agreements. These leases have terms ranging
between 12 and 25 years and effective annual percentage rates between 4.74% and
44.78%. The effective annual percentage rates were implicitly calculated based
upon technical accounting guidance.

Self Insurance Reserves

     Our Consolidated Balance Sheets include liabilities with respect to
self-insured workers' compensation and general liability claims. The total
current and non-current liability for self-insurance reserves recorded at
February 24, 2007 was $133.0 million. The current portion of these liabilities
is included in "Other accruals" and the non-current portion is included in
"Other non-current liabilities" on our Consolidated Balance Sheets. We estimate
the required liability of such claims on a discounted basis, utilizing an
actuarial method, which is based upon various assumptions, which include, but
are not limited to, our historical loss experience, projected loss development
factors, actual payroll and other data. The required liability is also subject
to adjustment in the future based upon the changes in claims experience,
including changes in the number of incidents (frequency) and changes in the
ultimate cost per incident (severity).

     During fiscal 2005, we changed our method of accruing estimated workers
compensation state assessment charges for future years from an accrual basis to
an actuarial basis as required by Statement of Position 97-3, "Accounting by
Insurance and Other Enterprises for Insurance-Related Assessments" ("SOP 97-3").
The difference between actual workers compensation state assessment expense
recognized in our Consolidated Statement of Operations and workers compensation
state assessment expense that should have been recorded per SOP 97-3 was not
significant. An adjustment of $8.5 million was recorded for expected future
workers compensation state assessment charges relating to prior year claims that
will be paid related to the incurred workers compensation claims on our
Consolidated Balance Sheet at February 25, 2006. This amount was recorded in
"Store operating, general and administrative expense" in our Consolidated
Statement of Operations for the year ended February 25, 2006.

                                     47



                 THE GREAT ATLANTIC & PACIFIC TEA COMPANY, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

     During fiscal 2006, the increase in our workers' compensation and general
liability reserves was not significant. However, during fiscal 2005, we
recorded a $8.6 million increase in our workers' compensation and general
liability reserves, primarily relating to the $8.5 million adjustment for
workers compensation state assessment charges we recorded as discussed above.
During fiscal 2004, we recorded a $20.9 million increase in our workers'
compensation and general liability reserves in response to both adverse
development of prior years' costs and other developments including a continuing
trend of rising costs. These amounts were recorded within "Store operating,
general and administrative expense" in our Consolidated Statements of
Operations.

Closed Store and Warehouse Reserves

     For stores and warehouses closed that are under long-term leases, we record
a discounted liability using a risk free rate for future minimum lease payments
and related costs, such as utilities and taxes, from the date of closure to the
end of the remaining lease term, net of estimated probable recoveries from
projected sublease rentals. If estimated cost recoveries exceed our liability
for future minimum lease payments, the excess is recognized as income over the
term of the sublease. We estimate net future cash flows based on our experience
in and knowledge of the market in which the closed store is located. However,
these estimates project net cash flow several years into the future and are
affected by variable factors such as inflation, real estate markets and economic
conditions. While these factors have been relatively stable in recent years,
variation in these factors could cause changes to our estimates.

Income Taxes

     We provide deferred income taxes on temporary differences between amounts
of assets and liabilities for financial reporting purposes and such amounts as
measured by tax regulations. A valuation allowance is recorded to reduce a
deferred tax asset to the amount expected to be realized.

     In accordance with Emerging Issues Task Force ("EITF") EITF 06-3, "How
Taxes Collected from Customers and remitted to Governmental Authorities Should
Be Presented in the Income Statement (That Is, Gross versus Net Presentation)"
("EITF 06-3"), our Company records sales and use tax on a net basis (excluded
from "Sales" and included in "Store operating, general and administrative
expense" in our Statement of Consolidated Operations).

Comprehensive (Loss) Income

     Our Company's other comprehensive (loss) income relates to changes in
foreign currency translation, pension and other postretirement benefits and
unrealized gains or losses on derivatives and marketable securities available
for sale.

     Changes in other comprehensive (loss) income for the years ended February
24, 2007, February 25, 2006 and February 26, 2005 related to:



                                                     Deferred Tax
                                            Gross       Benefit       Net
                                           -------   ------------   -------
                                                           
Foreign currency translation adjustment    $(3,164)       $--       $(3,164)
Minimum pension liability adjustment,
   prior to the adoption of SFAS 158        (1,090)        --        (1,090)
Unrealized gain on marketable securities       993         --           993
                                           -------        ---       -------
   For the year ended 2/24/07              $(3,261)       $--       $(3,261)
                                           =======        ===       =======
Foreign currency translation adjustment    $ 9,839        $--       $ 9,839
Minimum pension liability adjustment         1,494         --         1,494
Unrealized loss on marketable securities    (1,015)        --        (1,015)
Unrealized loss on derivatives                (133)        76           (57)
                                           -------        ---       -------
   For the year ended 2/25/06              $10,185        $76       $10,261
                                           =======        ===       =======
Foreign currency translation adjustment    $26,927        $--       $26,927
Minimum pension liability adjustment        (3,211)        --        (3,211)
Unrealized gain on derivatives                 189         26           215
                                           -------        ---       -------
   For the year ended 2/26/05              $23,905        $26       $23,931
                                           =======        ===       =======

                                  48


                 THE GREAT ATLANTIC & PACIFIC TEA COMPANY, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

Stock-Based Compensation

     Beginning in fiscal 2005, we adopted and applied the fair value based
method of accounting prescribed by SFAS 123R, "Share-Based Payment" ("SFAS
123R") for all share-based payment transactions with employees. Refer to Note 14
- - Stock Based Compensation for further discussion regarding our Company's
adoption of SFAS 123R.

     During fiscal 2004, we applied the intrinsic value-based method of
accounting prescribed by Accounting Principles Board Opinion No. 25 "Accounting
for Stock Issued to Employees" with pro forma disclosure of compensation
expense, net income or loss and earnings or loss per share as if the fair value
based method prescribed by SFAS 123R had been applied. Had compensation cost for
our stock options been determined based on the fair value at the grant dates for
awards under those plans consistent with the fair value methods prescribed by
SFAS 123R, our net loss and net loss per share would have been increased to the
pro forma amounts indicated below:



                                                            Fiscal 2004
                                                            -----------
                                                         
   Net loss, as reported:                                    $(188,098)
      Deduct/(Add): Stock-based employee compensation
         income (expense) included in reported net loss,
         net of related tax effects                             (1,617)
      Deduct: Total stock-based employee compensation
         expense determined under fair value based method
         for all awards, net of related tax effects             (4,180)
                                                             ---------
   Pro forma net loss                                        $(190,661)
                                                             =========
Net loss per share - basic and diluted:
      As reported                                            $   (4.88)
      Pro forma                                              $   (4.94)


     There were no stock options granted during fiscal 2005. The fair value of
the fiscal 2006 and fiscal 2004 option grants was estimated on the date of grant
using the Black-Scholes option-pricing model with the following assumptions:



                                Fiscal 2006   Fiscal 2004
                                -----------   -----------
                                        
Expected life                     7 years       7 years
Volatility                           56%          54%
Dividend yield range                  0%           0%
Risk-free interest rate range      4.96%      3.17%-4.51%



New Accounting Pronouncements

     In October 2005, the Financial Accounting Standards Board ("FASB") issued
FASB Staff Position FAS 13-1 ("FSP FAS 13-1"), which requires companies to
expense rental costs associated with ground or building operating leases that
are incurred during a construction period. As a result, companies that are
currently capitalizing these rental costs are required to expense them beginning
in its first reporting period beginning after December 15, 2005. FSP FAS 13-1
was effective for our Company as of the first quarter of fiscal 2006. We
evaluated the provisions of FSP FAS 13-1 and have adopted the guidance. This
adoption did not have a material impact on our Company's financial position or
results of operations.

     In July 2006, the FASB issued FASB Interpretation No. 48, Accounting for
Uncertainty in Income Taxes--an Interpretation of FASB Statement 109 ("FIN 48"),
which clarifies the accounting for uncertainty in tax positions. This
Interpretation provides that the tax effects from an uncertain tax position can
be recognized in our financial statements, only if the position is more likely
than not of being sustained on audit, based on the technical merits of the
position. The provisions of FIN 48 are effective as of the beginning of fiscal
2007, with the cumulative effect of the change in accounting principle recorded
as an adjustment to opening retained earnings. We are currently evaluating the
impact of adopting FIN 48 on our financial statements.

     In September 2006, the FASB issued Statement of Financial Accounting
Standards No. 157, "Fair Value Measurements" ("SFAS 157"). SFAS 157 defines fair
value, establishes a framework for measuring fair value in accordance with
generally accepted accounting principles, and expands disclosures about fair
value measurements. The provisions of SFAS 157 are effective for fiscal years
beginning after November 15, 2007 (our year ended February 28, 2009). Our
Company is currently evaluating the impact, if any, of the provisions of SFAS
157.
                                   49



                 THE GREAT ATLANTIC & PACIFIC TEA COMPANY, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

     In September 2006, the FASB issued SFAS 158, "Employers' Accounting for
Defined Benefit Pension and Other Postretirement Plans, an amendment of FASB
Statements No. 87, 88, 106 and 132(R)" ("SFAS 158") and is effective for our
fiscal year ended February 24, 2007. SFAS 158 was issued to improve the overall
financial statement presentation of pension and other postretirement plans and
does not impact the determination of net periodic benefit cost or the
measurement of plan assets or obligations. This standard requires companies to
recognize the funded status of their defined benefit pension and other
postretirement benefit plans as a net liability or asset on their balance sheets
and requires any unrecognized prior service costs and actuarial gains or losses
to be recognized as a component of accumulated other comprehensive income or
loss. We adopted these requirements of SFAS 158 as of February 24, 2007.
Additionally, SFAS 158 no longer allows companies to measure their plans as of
any date other than the end of their fiscal year; however, this provision is not
effective for companies until fiscal years ending after December 15, 2008 (our
year ended February 28, 2009). We currently measure our plan assets and
obligations using a December 31 measurement date. We are currently evaluating
which of the two transition methods to use and when we will adopt the change in
measurement date. Refer to Note 13 - Retirement Plans and Benefits for the
disclosures required by SFAS 158 and the impact of its adoption.

     In September 2006, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin No. 108, "Considering the Effects of Prior Year
Misstatements When Quantifying Misstatements in Current Year Financial
Statements" ("SAB 108"). This bulletin provides guidance on the consideration of
the effects of prior year misstatements in quantifying current year
misstatements for the purpose of materiality assessment. SAB 108 is effective
for our fiscal year ending February 24, 2007. The cumulative effect, if any, of
applying the provisions of SAB 108 will be reported as an adjustment to
beginning-of-year retained earnings. We have evaluated the provisions of SAB 108
and the guidance did not have an impact on our Company's financial condition or
results of operations.

     In February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for
Financial Assets and Financial Liabilities--including an amendment of FASB
Statement No. 115." SFAS No. 159 permits entities to choose to measure many
financial instruments and certain other items at fair value. Unrealized gains
and losses on items for which the fair value option has been elected will be
recognized in earnings at each subsequent reporting date. The provisions of SFAS
159 are effective for fiscal years beginning after November 15, 2007 (our year
ended February 28, 2009). Our Company is currently evaluating the impact, if
any, of the provisions of SFAS 159.

Reclassifications

     Certain reclassifications have been made to prior year amounts to conform
to current year presentation.


NOTE 2 - REVISION OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS

     During fiscal 2006, our Company's management discovered that property at
cost and accumulated depreciation and amortization were each understated in the
fiscal 2005 financial statements. There was no impact to the Consolidated
Statements of Operations, Consolidated Statements of Stockholders' Equity and
Comprehensive Income (Loss), or Consolidated Statements of Cash Flows as a
result of this revision. The effects to the Consolidated Balance Sheet as of
February 25, 2006 are as follows:



                                      Consolidated
                                         A&P at
                                   February 25, 2006      Consolidated
                                        prior to             A&P at
                                        revision       February 25, 2006
                                   -----------------   -----------------
                                                 
Property:
   Land                               $   51,899          $    51,899
   Buildings                             183,572              213,639
   Equipment                             245,161            1,304,053
   Leasehold improvements                662,410            1,114,989
                                      ----------          -----------
      Total - at cost                  1,143,042            2,684,580
   Less accumulated depreciation
      and amortization                  (267,902)          (1,809,440)
                                      ----------          -----------
   Property owned, net                $  875,140          $   875,140
                                      ==========          ===========


                                  50



                 THE GREAT ATLANTIC & PACIFIC TEA COMPANY, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED


NOTE 3 - SPECIAL ONE-TIME DIVIDEND

     On April 25, 2006, our Company paid a special one-time dividend to our
shareholders of record on April 17, 2006 equal to $7.25 per share. This dividend
payout totaling $299.1 million was recorded as a reduction of "Additional paid
in capital" in our Consolidated Balance Sheets at February 24, 2007. The
transaction was funded primarily by cash available on the balance sheet
resulting from the strategic restructuring of the Company during fiscal 2005.
Refer to Note 4 - Equity Investment in Metro, Inc. for further discussion and
disclosure.

     Although we paid this one-time special dividend, our Company's practice is
to not pay dividends. As such, we have not made dividend payments in the
previous three years and do not intend to pay dividends in the normal course of
business in fiscal 2006. However, our Company is permitted, under the terms of
our Revolver, to pay cash dividends on common shares.

     In connection with the payment of the special one-time dividend discussed
above, our Company also adjusted the number and/or price of all unexercised
stock options and nonvested performance restricted stock units as of April 12,
2006, to ensure that an individual's right to purchase stock at an aggregate
value remained the same both before and after the special one-time dividend
payment. These adjustments did not have an impact on stock compensation expense
for fiscal 2006. Refer to Note 14 - Stock Based Compensation for adjustments
made to stock options outstanding and nonvested performance restricted stock
units as a result of the dividend.

NOTE 4 - EQUITY INVESTMENT IN METRO, INC.

     At the close of business on August 13, 2005, our Company completed the sale
of our Canadian business to Metro, Inc., a supermarket and pharmacy operator in
the Provinces of Quebec and Ontario, Canada, for $1.5 billion in cash, stock and
certain debt that was assumed by Metro, Inc. The stock received consisted of
18,076,645 Class A subordinate shares of Metro, Inc., representing approximately
15.83% of the outstanding shares of that class after issuance.

     We use the equity method of accounting to account for our investment in
Metro, Inc. on the basis that we have significant influence over substantive
operating decisions made by Metro, Inc. through our membership on Metro, Inc.'s
Board of Directors and its committees and through an information technology
services agreement. The value of our equity investment in Metro, Inc. based upon
Metro, Inc.'s quoted market price is $623.0 million at February 24, 2007.

     The following table summarizes the status and results of our Company's
equity investment in Metro, Inc. from the date of ownership through February 24,
2007:

                                         
Beginning investment at August 13, 2005     $ 494,578
Deferred portion of gain on sale of
   A&P Canada                                (171,650)
Dividends and distributions received           (4,708)
Equity earnings in Metro, Inc.                  7,801
Foreign currency translation                   12,735
                                            ---------
   Equity investment at February 25, 2006     338,756
Dividends and distributions received           (6,858)
Equity earnings in Metro, Inc.                 40,003
Foreign currency translation                   (3,030)
                                            ---------
   Equity investment at February 24, 2007   $ 368,871
                                            =========




     In accordance with Emerging Issues Task Force ("EITF") 01-2,
"Interpretations of APB Opinion No. 29," we have deferred $171.7 million of the
gain resulting from the sale of our Canadian operations that directly related to
the economic interest we retained in Metro, Inc. We will record our equity
earnings or losses relating to our equity investment in Metro, Inc. on about a
three-month lag period as permitted by APB 18, "The Equity Method of Accounting
for Investments in Common Stock." Thus, during fiscal 2006 and fiscal 2005, we
recorded $40.0 million and $7.8 million, respectively, in equity earnings
relating to our equity investment in Metro, Inc. and included this amount in
"Equity in earnings of Metro, Inc." on our Consolidated Statements of
Operations.

     The difference between the carrying value of our investment of $368.9
million and the amount of our underlying equity in Metro, Inc.'s net assets of
$239.8 million is $129.1 million.

                                  51



                 THE GREAT ATLANTIC & PACIFIC TEA COMPANY, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED


     Metro, Inc.'s summarized financial information, derived from its 12 month
period ended December 23, 2006, first quarter ended December 17, 2005, and year
ended September 24, 2005 financial statements, is as follows (in millions):



                                         12 Month Period  First Quarter        Year
                                              Ended           Ended            Ended
                                          Dec. 23, 2006   Dec. 17, 2005   Sept. 24, 2005
                                          -------------   -------------   --------------
                                                                 
Balance sheet:
   Current assets                            $  955.3        $  912.9        $  833.9
   Noncurrent assets                          2,800.1         2,584.1         2,637.6
                                             --------        --------        --------
      Total assets                           $3,755.4        $3,497.0        $3,471.5
                                             ========        ========        ========
   Current liabilities                       $  971.0        $  906.3        $  905.8
   Noncurrent liabilities *                   1,260.8         1,259.4         1,262.7
                                             --------        --------        --------
      Total liabilities                      $2,231.8        $2,165.7        $2,168.5
                                             ========        ========        ========
Income statement:
   Net sales                                 $9,624.9        $2,180.2        $5,545.8
                                             ========        ========        ========
   Cost of sales and operating expenses      $9,019.5        $2,071.3        $5,236.0
                                             ========        ========        ========
   Net income                                $  251.8        $   27.7        $  159.4
                                             ========        ========        ========


*    Includes minority interests of $11.1 for the year ended December 23, 2006
     and $5.5 million for both the first quarter ended December 17, 2005 and the
     year ended September 24, 2005.

     During fiscal 2005, we recorded a pretax gain of $912.1 million (gain of
$805.3 million after tax), which is included in "Gain on sale of Canadian
operations" in our Consolidated Statements of Operations. Although the Canadian
operations have been sold at February 25, 2006, the criteria necessary to
classify the Canadian operations as discontinued have not been satisfied as our
Company retained significant continuing involvement in the operations of this
business upon its sale through our equity investment in Metro, Inc.

     In fiscal 2006, we recorded a charge of $1.3 million as a result of a
post-closing working capital adjustment as provided in the Stock Purchase
Agreement, which is included in "(Loss) gain on sale of Canadian operations" in
our Consolidated Statements of Operations.

     Subsequent to fiscal 2006 and in connection with our Company's agreement to
acquire Pathmark Stores, Inc., we sold 6,350,000 shares of Metro, Inc. on March
13, 2007. Refer to Note 20 - Subsequent Events for further discussion.

NOTE 5 - CASH, CASH EQUIVALENTS, RESTRICTED CASH AND MARKETABLE SECURITIES

     At February 24, 2007, we had $51.2 million in restricted cash of which
$47.6 million was held in a money market fund, and can only be used as
collateral for our new Letter of Credit Agreement that we entered into during
fiscal 2005. The remaining $3.6 million represented monies held in escrow for
services which our Company is required to perform in connection with the sale of
our real estate properties.

     During the third quarter of fiscal 2006, our Company transferred 6,000,000
of our Class A subordinate shares of Metro, Inc. from our foreign subsidiary to
the United States. These transferred shares are being used as collateral for our
new Letter of Credit Agreement that we entered into during fiscal 2005 and have
allowed us to reduce the amount of restricted cash and/or marketable securities
we were required to maintain as collateral previously.

     At February 25, 2006, we had $146.3 million in restricted cash, which was
held in a money market fund, and can only be used as collateral for our new
Letter of Credit Agreement that we entered into during fiscal 2005. In addition,
our restricted marketable securities of $20.3 million at February 24, 2007, held
by Bank of America, could only be used as collateral for our new Letter of
Credit Agreement that we entered into during fiscal 2005. Refer to Note 9 -
Indebtedness for further discussion of our new Letter of Credit Agreement and
Credit Agreement.

                                   52


                 THE GREAT ATLANTIC & PACIFIC TEA COMPANY, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED


     The following is a summary of cash, cash equivalents, restricted cash, and
marketable securities as of February 24, 2007 and February 25, 2006:



                                                At February 24, 2007
                                  -----------------------------------------------
                                                 Gross        Gross     Estimated
                                  Amortized   Unrealized   Unrealized      Fair
                                    Costs        Gains       Losses       Value
                                  ---------   ----------   ----------   ---------
                                                            
CLASSIFIED AS:
Cash                               $ 81,137       $--         $ --       $ 81,137
Cash equivalents:
   Money market funds                 5,057        --           --          5,057
                                   --------       ---         ----       --------
Total cash and cash equivalents      86,194        --           --         86,194
                                   --------       ---         ----       --------
Restricted cash                      51,176        --           --         51,176
Marketable securities:
   Corporate bonds                   20,357        --          (22)        20,335
                                   --------       ---         ----       --------




                                                            
Total cash, cash equivalents,
   restricted cash and
   marketable securities           $157,727       $--         $(22)      $157,705
                                   ========       ===         ====       ========
SECURITIES AVAILABLE-FOR-SALE:
   Maturing within one year        $ 20,357                              $ 20,335
                                   ========                              ========
   Maturing greater than one
      year                         $     --                              $     --
                                   ========                              ========







                                                  At February 25, 2006
                                    -----------------------------------------------
                                                   Gross        Gross     Estimated
                                    Amortized   Unrealized   Unrealized      Fair
                                      Costs        Gains       Losses       Value
                                    ---------   ----------   ----------   ---------
                                                              
CLASSIFIED AS:
Cash                                 $ 78,414       $--       $    --      $ 78,414
Cash equivalents:
   Money market funds                 151,175        --            --       151,175
                                     --------       ---       -------      --------
Total cash and cash equivalents       229,589        --            --       229,589
                                     --------       ---       -------      --------
Restricted cash                       146,309        --            --       146,309
Marketable securities:
   Corporate bonds                     51,456        --          (457)       50,999
   Securities of the U.S.
      government and its agencies      45,943        --          (558)       45,385
   Auction rate securities             71,021        --            --        71,021
                                     --------       ---       -------      --------
Total marketable securities           168,420        --        (1,015)      167,405
                                     --------       ---       -------      --------
Total cash, cash equivalents,
   restricted cash and marketable
   securities                        $544,318       $--       $(1,015)     $543,303
                                     ========       ===       =======      ========
SECURITIES AVAILABLE-FOR-SALE:
   Maturing within one year          $233,921                              $233,879
                                     ========                              ========
   Maturing greater than one year    $ 85,674                              $ 84,701
                                     ========                              ========


                                  53


                 THE GREAT ATLANTIC & PACIFIC TEA COMPANY, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED


     The following table provides the breakdown of the investments with
unrealized losses at February 24, 2007 and February 25, 2006.



                                                 February 24, 2007
                         -----------------------------------------------------------------
                          Less than 12 Months   12 Months or Longer           Total
                         --------------------   -------------------   --------------------
                                      Gross                 Gross                  Gross
                           Fair    Unrealized     Fair   Unrealized     Fair    Unrealized
                          Value      Losses      Value     Losses      Value      Losses
                         -------   ----------    -----   ----------   -------   ----------
                                                              
Corporate bonds          $20,335      $(22)       $--        $--      $20,335      $(22)




                                                  February 25, 2006
                         ------------------------------------------------------------------
                          Less than 12 Months    12 Months or Longer          Total
                         --------------------   --------------------   --------------------
                                      Gross                  Gross                  Gross
                           Fair    Unrealized     Fair    Unrealized     Fair    Unrealized
                          Value      Losses      Value      Losses      Value      Losses
                         -------   ----------   -------   ----------   -------   ----------
                                                               
Corporate bonds          $11,683      $(41)     $39,316     $(416)     $50,999    $  (457)
Securities of the U.S.
   government and its
   agencies                   --        --       45,385      (558)      45,385       (558)
                         -------      ----      -------     -----      -------    -------
   Total                 $11,683      $(41)     $84,701     $(974)     $96,384    $(1,015)
                         =======      ====      =======     =====      =======    =======


     Corporate bonds: Our unrealized losses on investments in corporate bonds
were caused by interest rate increases by the Federal  Reserve.  The contractual
terms of those  investments do not permit the issuer to settle the security at a
price less than the amortized  cost of the  investment.  We do not believe it is
probable  that we will be unable to collect  all amounts  due  according  to the
contractual  terms of these  investments.  Therefore,  it is  expected  that the
debentures  would not be settled at a price less than the amortized  cost of the
investment.  Because we have the  ability  and intent to hold those  investments
until a recovery of fair value, which may be maturity,  we do not consider those
investments  to be  other-than-temporarily  impaired  at  February  24, 2007 and
February 25, 2006, respectively.
                                      54


                 THE GREAT ATLANTIC & PACIFIC TEA COMPANY, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

     Securities of the U.S. government and its agencies: Our unrealized losses
on our investments in securities of the U.S. government and its agencies were
caused by interest rate increases by the Federal Reserve. The contractual terms
of those investments do not permit the issuer to settle the securities at a
price less than the amortized cost of the investment. Because we have the
ability and intent to hold those investments until a recovery of fair value,
which may be maturity, we do not consider those investments to be
other-than-temporarily impaired at February 24, 2007 and February 25, 2006,
respectively.

     Gross realized losses on sales of investments were $0.4 million during
fiscal 2006. There were no gross realized gains or losses on sales of
investments during fiscal 2005.

NOTE 6 - VALUATION OF LONG-LIVED ASSETS

LONG-LIVED ASSETS

     In accordance with SFAS 144, we review the carrying values of our
long-lived assets for possible impairment whenever events or changes in
circumstances indicate that the carrying amount of assets may not be
recoverable. Such review is primarily based upon groups of assets and the
undiscounted estimated future cash flows from such assets to determine if the
carrying value of such assets is recoverable from their respective cash flows.
If such review indicates an impairment exists, we measure such impairment on a
discounted basis using a probability weighted approach and a 7 year U.S.
Treasury risk free rate.

      During fiscal 2006, fiscal 2005 and fiscal 2004, we recorded property
impairment losses as follows:



                                     Fiscal 2006                 Fiscal 2005                  Fiscal 2004
                              ------------------------   --------------------------   --------------------------
                               U.S.    Canada    Total    U.S.     Canada    Total      U.S.    Canada    Total
                              ------   ------   ------   -------   ------   -------   -------   ------   -------
                                                                              
Impairments due to
   closure or conversion
   in the normal course
   of business                $4,836     $--    $4,836   $ 9,851    $506    $10,357   $ 6,000    $709    $ 6,709
Impairments due to
   unrecoverable
   assets                         --      --        --    17,728      --     17,728    34,688      --     34,688
Impairments due to
   Closure of stores
   Impacted by Hurricane
   Katrina (1)                    --      --        --     6,090      --      6,090        --      --         --
Impairments related to
   our Asset Disposition
   Initiatives (2)             1,049      --     1,049    15,463      --     15,463     2,749      --      2,749
Impairments related to
   our exit of the northern
   New England and
   Kohl's markets (3)             --      --        --        --      --         --       602      --        602
                              ------     ---    ------   -------    ----    -------   -------    ----    -------
Total impairments             $5,885     $--    $5,885   $49,132    $506    $49,638   $44,039    $709    $44,748
                              ======     ===    ======   =======    ====    =======   =======    ====    =======


(1)  Refer to Note 16 - Hurricane Katrina and Impact on U.S. Business.

(2)  Refer to Note 8 - Asset Disposition Initiatives.

(3)  Refer to Note 7 - Discontinued Operations.


Impairments due to closure or conversion in the normal course of business

     We review assets in stores planned for closure or conversion for impairment
upon determination that such assets will not be used for their intended useful
life. During fiscal 2006, fiscal 2005, and fiscal 2004, we recorded impairment
losses on property and equipment of $4.8 million, $10.4 million, and $5.8
million, respectively, related to stores that were or will be closed in the
normal course of business.

     Our impairment reviews may also be triggered by appraisals of or offers for
our long-lived assets we receive in the normal course of business. During fiscal
2004, we recorded an impairment loss of $0.9 million in the U.S. related to
certain idle property that, based upon new information received about such
assets, including an appraisal and an offer, was impaired and written down to
its net realizable value. There were no such amounts recorded during fiscal 2006
and fiscal 2005.

                                  55


                 THE GREAT ATLANTIC & PACIFIC TEA COMPANY, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED


All of these amounts were included in "Store operating, general and
administrative expense" in our Consolidated Statements of Operations.

Impairments due to unrecoverable assets

     During the third quarter of fiscal 2004, we updated our review of the
carrying value of several of the Midwest's long-lived assets for potential
impairment under SFAS 144 as we experienced operating losses for the past two
years for several of our Midwest asset groups. We estimated the Midwest's future
cash flows from their long-lived assets, primarily equipment and leasehold
improvements, based on internal analysis and valuations performed by an
independent third party appraiser. For those asset groups for which the carrying
value was not recoverable from their future cash flows, we determined the fair
value of the related assets based on the same analysis, primarily using the
discounted cash flow approach. As a result of this review, we recorded
impairment charges for the Midwest's long-lived assets of $34.7 million, which
was recorded as a component of operating loss in "Store operating, general and
administrative expense" in our Consolidated Statements of Operations for the
year ended February 26, 2005.

     During fiscal 2005, we experienced operating losses for two of the past
three years for two of our United States' asset groups, located in the
Northeast, which we believe was a triggering event under SFAS 144 for potential
impairment of the asset group's long-lived assets. Thus, we reviewed the
carrying value of these asset groups for potential impairment, and based upon
internal analysis, we estimated the asset groups' future cash flows from their
long-lived assets, which primarily consisted of equipment and leasehold
improvements. As these asset groups' carrying value was not recoverable from
their future cash flows, we determined the fair value of the related assets
based on the same analysis, primarily using the discounted cash flow approach.
As a result of this review, we recorded an impairment charge for these asset
groups' long-lived assets of $17.7 million, as a component of operating loss in
"Store operating, general and administrative expense" in our Consolidated
Statements of Operations for the year ended February 25, 2006.

     There were no such amounts recorded during fiscal 2006.

Impairments related to closure of stores impacted by Hurricane Katrina

     During fiscal 2005, we recorded impairment losses on property and equipment
that was not covered by insurance of $6.1 million as discussed in Note 16 -
Hurricane Katrina and Impact on U.S. Business. This amount was included in
"Store operating, general and administrative expense" in our Consolidated
Statements of Operations for the year ended February 25, 2006. There were no
such amounts recorded during fiscal 2006 and fiscal 2004.

Impairments related to our Asset Disposition Initiatives

     During fiscal 2006, 2005, and 2004, we recorded impairment losses on
property of $1.1 million, $15.5 million and $2.8 million, respectively, related
to property write-downs as a result of our asset disposition initiatives as
discussed in Note 8 - Asset Disposition Initiatives. These amounts were included
in "Store operating, general and administrative expense" in our Consolidated
Statements of Operations.

Impairments related to our exit of the northern New England and Kohl's markets

     During fiscal 2004, we recorded impairment losses of $0.6 million related
to stores closed as a result of our exit of the northern New England and Kohl's
markets. This amount was included in our Consolidated Statements of Operations
under the caption "Loss on disposal of discontinued operations, net of tax" as
discussed in Note 7 - Discontinued Operations. There were no such amounts
recorded during fiscal 2006 or fiscal 2005.

     The effects of changes in estimates of useful lives were not material to
ongoing depreciation expense.

NOTE 7 -- DISCONTINUED OPERATIONS

     In February 2003, we announced the sale of a portion of our non-core
assets, including nine of our stores in northern New England and seven stores in
Madison, Wisconsin. In March 2003, we entered into an agreement to sell an
additional eight stores in northern New England.

     During fiscal 2003, we adopted a formal plan to exit the New England and
Milwaukee, Wisconsin market, as well as our Eight O'Clock Coffee business,
through the sale and/or disposal of these assets.

     Summarized below are the operating results for these discontinued
businesses, which are included in our Consolidated Statements of Operations,
under the caption "Income (loss) from operations of discontinued businesses, net
of tax" for fiscal 2006, fiscal 2005, and fiscal 2004, and


                                       56



                 THE GREAT ATLANTIC & PACIFIC TEA COMPANY, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

the results of disposing these businesses which are included in "Gain (loss) on
disposal of discontinued operations, net of tax" on our Consolidated Statements
of Operations for fiscal 2006, fiscal 2005 and fiscal 2004.



                                                    Fiscal 2006
                                      --------------------------------------
                                                              Eight
                                        Northern             O'Clock
                                      New England   Kohl's    Coffee   Total
                                      -----------   ------   -------   -----
                                                           
INCOME (LOSS) FROM OPERATIONS OF
   DISCONTINUED BUSINESSES
Sales                                     $--       $  --     $ --     $  --
Operating expenses                         --         722      (71)      651
                                          ---       -----     ----     -----
Income (loss) from operations of
   discontinued businesses, before
   tax                                     --         722      (71)      651
Tax (provision) benefit                    --        (304)      30      (274)
                                          ---       -----     ----     -----
Income (loss) from operations of
   discontinued businesses, net of
   tax                                    $--       $ 418     $(41)    $ 377
                                          ===       =====     ====     =====

Disposal related costs included in operating expenses above:

Non-accruable closing costs               $--       $ 155     $(71)    $  84
Severance and benefits                     --         146       --       146
Vacancy                                    --         416       --       416
Proceeds from lease assignment             --         394       --       394
Interest accretion on present value
   of future occupancy costs               --        (389)      --      (389)
                                          ---       -----     ----     -----
Total disposal related costs              $--       $ 722     $(71)    $ 651
                                          ---       -----     ----     -----




                                       57



                 THE GREAT ATLANTIC & PACIFIC TEA COMPANY, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED



                                                     Fiscal 2005
                                      -----------------------------------------
                                                               Eight
                                        Northern              O'Clock
                                      New England    Kohl's    Coffee    Total
                                      -----------   -------   -------   -------
                                                            
(LOSS) INCOME FROM OPERATIONS OF
   DISCONTINUED BUSINESSES
Sales                                    $ --       $    --    $  --    $    --
Operating expenses                        (58)        3,049     (187)     2,804
                                         ----       -------    -----    -------
(Loss) income from operations of
   discontinued businesses, before
   tax                                    (58)        3,049     (187)     2,804
Tax benefit (provision)                    24        (1,281)      79     (1,178)
                                         ----       -------    -----    -------
(Loss) income from operations of
   discontinued businesses, net
   of tax                                $(34)      $ 1,768    $(108)   $ 1,626
                                         ====       =======    =====    =======


Disposal related costs included in operating expenses above:

Non-accruable closing costs              $(58)      $   (62)   $(187)   $  (307)
Vacancy                                    --         3,717       --      3,717
Interest accretion on present value
   of future occupancy and
   severance costs                         --          (606)      --       (606)
                                         ----       -------    -----    -------
Total disposal related costs             $(58)      $ 3,049    $(187)   $ 2,804
                                         ----       -------    -----    -------
GAIN ON DISPOSAL OF DISCONTINUED
   BUSINESSES
Gain on sale of property                 $ --       $ 1,002    $  --    $ 1,002
                                         ----       -------    -----    -------
Gain on disposal of discontinued
   businesses, before tax                  --         1,002       --      1,002
Tax provision                              --          (421)      --       (421)
                                         ----       -------    -----    -------
Gain on disposal of discontinued
   businesses, net of tax                $ --       $   581    $  --    $   581
                                         ====       =======    =====    =======




                                       58

                 THE GREAT ATLANTIC & PACIFIC TEA COMPANY, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

Disposal related costs included in operating expenses above:


                                                     Fiscal 2004
                                      ----------------------------------------
                                                              Eight
                                        Northern             O'Clock
                                      New England   Kohl's   Coffee     Total
                                      -----------   ------   -------   -------
                                                           
INCOME (LOSS) FROM OPERATIONS OF
   DISCONTINUED BUSINESSES
Sales                                    $  --      $  --    $    --   $    --
Operating expenses                         292       (981)      (698)   (1,387)
                                         -----      -----    -------   -------
Income (loss) from operations of
   discontinued businesses, before tax     292       (981)      (698)   (1,387)
Tax provision                               --         --         --        --
                                         -----      -----    -------   -------
Income (loss) from operations of
   discontinued businesses, net of tax   $ 292      $(981)   $  (698)  $(1,387)
                                         =====      =====    =======   =======
Severance and benefits                   $(326)     $  --    $    --   $  (326)
Vacancy                                     --        354         --       354
Non-accruable closing costs                626       (595)      (698)     (667)
Interest accretion on present value
   of future occupancy costs                (8)      (740)        --      (748)
                                         -----      -----    -------   -------
Total disposal related costs             $ 292      $(981)   $  (698)  $(1,387)
                                         -----      -----    -------   -------
LOSS ON DISPOSAL OF DISCONTINUED
   BUSINESSES
Property impairments                     $  --      $(602)   $    --   $  (602)
Loss on sale of business                    --         --     (2,100)   (2,100)
                                         -----      -----    -------   -------
Loss on disposal of discontinued
   businesses, before tax                   --       (602)    (2,100)   (2,702)
Tax provision                               --         --         --        --
                                         -----      -----    -------   -------
Loss on disposal of discontinued
   businesses, net of tax                $  --      $(602)   $(2,100)  $(2,702)
                                         =====      =====    =======   =======


Northern New England

     As part of our strategic plan we decided, in February 2003, to exit the
northern New England market by closing and/or selling 21 stores in that region
in order to focus on our core geographic markets. At February 24, 2007, we have
closed all locations in the northern New England market.

     During fiscal 2004, we recorded gains of $0.3 million primarily due to
favorable results of winding down this business. This amount is included in
"Income (loss) from operations of discontinued businesses, net of tax" in our
Consolidated Statements of Operations for fiscal 2004. During fiscal 2005, we
incurred additional pretax costs to wind down our operations in this region
subsequent to the sale of these stores of $0.06 million ($0.03 million after
tax), primarily related to non-accruable closing costs. These amounts were
included in "Income (loss) from operations of discontinued businesses, net of
tax" on our Consolidated Statements of Operations for fiscal 2005. There were no
such charges for fiscal 2006.

     The following table summarizes the reserve activity related to the exit of
the northern New England market over the last three fiscal years:


                                           Severance
                                              and
                               Occupancy    Benefits   Total
                               ---------   ---------   -----
                                              
Balance at February 28, 2004     $ 452       $  58     $ 510
   Additions (1)                     8         326       334
   Utilization (2)                (460)       (384)     (844)
                                 -----       -----     -----
Balance at February 26, 2005     $  --       $  --     $  --
   Additions (1)                    --          --        --
   Utilization (2)                  --          --        --
                                 -----       -----     -----
Balance at February 25, 2006     $  --       $  --     $  --
   Additions (1)                    --          --        --
   Utilization (2)                  --          --        --
                                 -----       -----     -----
Balance at February 24, 2007     $  --       $  --     $  --
                                 =====       =====     =====

                                       59


                 THE GREAT ATLANTIC & PACIFIC TEA COMPANY, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(1)  The additions to occupancy presented represent the interest accretion on
     future occupancy costs which were recorded at present value at the time of
     the original charge. The fiscal 2004 charge to severance and benefits of
     $0.3 million related to additional severance required to be paid to
     employees terminated in accordance with a union contract as a result of our
     exit from the northern New England market.

(2)  Occupancy utilization represents vacancy related payments for closed
     locations. Severance and benefits utilization represents payments made to
     terminated employees during the period.

     As of February 24, 2007, we had paid approximately $3.0 million in
severance and benefits costs, which resulted from the termination of
approximately 300 employees.

Kohl's Market

     As part of our strategic plan we decided to exit the Madison and Milwaukee,
Wisconsin markets, which comprised our Kohl's banner.

     During fiscal 2004, we recorded impairment losses of $0.6 million as a
result of not achieving originally estimated proceeds on the disposal of
property and equipment at the Kohl's locations. This loss is included in "Gain
(loss) on disposal of discontinued operations, net of tax" on our Consolidated
Statements of Operations.

     During fiscal 2005, we recorded a pretax gain on the sale of property of
$1.0 million, which is included in "Gain (loss) on disposal of discontinued
operations, net of tax" on our Consolidated Statements of Operations.

     There were no such amounts recorded during fiscal 2006.

     During fiscal 2004, we recorded charges of $1.0 million primarily due to
the costs of winding down this business. During fiscal 2005, we recorded a
pretax gain of $3.0 million primarily due to the reversal of previously accrued
occupancy related costs offset by the costs of winding down this business.
During fiscal 2006, we recorded a pretax gain of $0.7 million primarily due to
the proceeds received from the favorable termination of a lease agreement and
the reversal of previously accrued occupancy and severance and benefits related
costs offset by the costs of winding down this business. These amounts are
detailed in the tables above and included in "Income (loss) from operations of
discontinued businesses, net of tax" in our Consolidated Statements of
Operations for fiscal 2004, fiscal 2005 and fiscal 2006.

     The following table summarizes the reserve activity over the last three
fiscal years:



                                           Severance
                                              and       Fixed
                               Occupancy    Benefits   Assets     Total
                               ---------   ---------   ------   --------
                                                    
Balance at February 28, 2004    $19,039     $ 4,834     $  --    $23,873
   Additions (1)                    688          52       602      1,342
   Utilization (2)               (1,918)     (2,201)     (602)    (4,721)
   Adjustments (3)                 (354)         --        --       (354)
                                -------     -------     -----    -------
Balance at February 26, 2005    $17,455     $ 2,685     $  --    $20,140
   Additions (1)                    562          44        --        606
   Utilization (2)               (3,235)     (2,128)       --     (5,363)
   Adjustments (3)               (4,299)        582        --     (3,717)
                                -------     -------     -----    -------
Balance at February 25, 2006    $10,483     $ 1,183     $  --    $11,666
   Additions (1)                    385           4        --        389
   Utilization (2)               (2,504)     (1,041)       --     (3,545)
   Adjustments (3)                 (416)       (146)       --       (562)
                                -------     -------     -----    -------
Balance at February 24, 2007    $ 7,948     $    --     $  --    $ 7,948
                                =======     =======     =====    =======


                                       60


                 THE GREAT ATLANTIC & PACIFIC TEA COMPANY, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED


(1)  The fiscal 2004, fiscal 2005 and fiscal 2006 additions to occupancy and
     severance and benefits represent the interest accretion on future occupancy
     costs and future obligations for early withdrawal from multi-employer union
     pension plans which were recorded at present value at the time of the
     original charge. The addition to fixed assets represents additional
     impairment losses recorded as a result of originally estimated proceeds on
     the disposal of these assets not being achieved.

(2)  Occupancy utilization represents vacancy related payments for closed
     locations such as rent, common area maintenance, real estate taxes and
     lease termination payments. Severance and benefits utilization represents
     payments made to terminated employees during the period and payments for
     pension withdrawal.

(3)  At each balance sheet date, we assess the adequacy of the balance to
     determine if any adjustments are required as a result of changes in
     circumstances and/or estimates. During fiscal 2004, we recorded a reversal
     of previously accrued occupancy related costs due to favorable results of
     terminating leases. During fiscal 2005, we recorded adjustments relating to
     (i.) a reversal of previously accrued occupancy related costs of $3.7
     million due to favorable results of terminating the Kohl's warehouse lease
     and (ii.) the reclassification of $0.6 million between the liabilities for
     occupancy and severance and benefits to properly state their respective
     ending balances at February 25, 2006. During fiscal 2006, we recorded
     adjustments for (i.) a reduction in vacancy related costs for our
     properties due to favorable results of terminating leases at certain
     locations of $0.7 million partially offset by changes in our estimation of
     such future costs of $0.3 million and (ii.) a reversal of previously
     accrued pension withdrawal payments of $0.1 million that were no longer
     required to be paid.

     As of February 24, 2007, we paid $13.0 million of the total occupancy
charges from the time of the original charge which was primarily for occupancy
related costs such as rent, common area maintenance, real estate taxes and lease
termination costs. The remaining occupancy liability of $7.9 million relates to
expected future payments under long term leases and is expected to be paid out
in full by 2020.

     As of February 24, 2007, we had paid approximately $13.6 million of the
total severance and benefits charge from the time of the original charge which
resulted from the termination of approximately 2,000 employees. At February 24,
2007, there are no future obligations for severance and benefits.

     At February 24, 2007, and February 25, 2006, $2.3 million and $3.7 million,
respectively, of the Kohl's exit reserves were included in "Other accruals" and
$5.6 million and $8.0 million, respectively, were included in "Other non-current
liabilities" on our Consolidated Balance Sheets. We have evaluated the liability
balance of $7.9 million as of February 24, 2007 based upon current available
information and have concluded that it is adequate. We will continue to monitor
the status of the vacant properties and adjustments to the reserve balance may
be recorded in the future, if necessary.

Eight O'Clock Coffee

     During fiscal 2003, we completed the sale of our Eight O'Clock Coffee
business, generating gross proceeds of $107.5 million and a net gain after
transaction related costs of $85.0 million ($49.3 million after tax). The sale
of the coffee business also included a contingent note for up to $20.0 million,
the value and payment of which is based upon certain elements of the future
performance of the Eight O'Clock Coffee business and therefore is not included
in the gain.


                                       61


                 THE GREAT ATLANTIC & PACIFIC TEA COMPANY, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

     During fiscal 2004, we incurred costs of $2.1 million which consisted of a
post-sale working capital settlement between the buyer and our Company for which
the amount was not determinable at the time of the sale. This amount is included
in "Gain (loss) on disposal of discontinued operations, net of tax" in our
Consolidated Statements of Operations.

     Further, during fiscal 2004 and fiscal 2005, we incurred costs of $0.7
million and $0.2 million, respectively, related to winding down our operations
in this business subsequent to its sale. During fiscal 2006, we incurred costs
of $0.1 million related to legal fees incurred. These amounts are included in
"Gain (loss) from operations of discontinued operations, net of tax" in our
Consolidated Statements of Operations for fiscal 2004, fiscal 2005 and fiscal
2006.

NOTE 8 - ASSET DISPOSITION INITIATIVES

OVERVIEW

     In fiscal 1998 and fiscal 1999, we announced a plan to close two warehouse
facilities and a coffee plant in the U.S., a bakery plant in Canada and 166
stores including the exit of the Richmond, Virginia and Atlanta, Georgia markets
(Project Great Renewal). In addition, during fiscal 2001, we announced that
certain underperforming operations, including 39 stores (30 in the United States
and 9 in Canada) and 3 warehouses (2 in the United States and 1 in Canada) would
be closed and/or sold, and certain administrative streamlining would take place
(2001 Asset Disposition). During fiscal 2003, we announced an initiative to
close 6 stores and convert 13 stores to our Food Basics banner in the Detroit,
Michigan and Toledo, Ohio markets (Farmer Jack Restructuring). In fiscal 2005,
we closed 35 stores in the Midwest (Closure of Stores in the Midwest). Also in
fiscal 2005, we sold our U.S. distribution operations and some warehouse
facilities to C&S Wholesale Grocers, Inc and subsequently closed those
warehouses that were not included in the sale (U.S. Distribution Operations and
Warehouses).


                                     62

                THE GREAT ATLANTIC & PACIFIC TEA COMPANY, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED


     Presented below is a reconciliation of the activities recorded on our
Consolidated Balance Sheets, Consolidated Statements of Operations and
Consolidated Statements of Cash Flows for fiscal 2006, fiscal 2005, and fiscal
2004. Present value ("PV") interest represents interest accretion on future
occupancy costs which were recorded at present value at the time of the original
charge. Non-accruable items represent charges related to the restructuring that
are required to be expensed as incurred in accordance with SFAS 146 "Accounting
for Costs Associated with Exit or Disposal Activities".




                                                                Fiscal 2006
                            ------------------------------------------------------------------------------
                                                                                       U.S.
                            Project      2001           Farmer       Closure of    Distribution
                             Great       Asset           Jack        Stores in    Operations and
                            Renewal   Disposition   Restructuring   the Midwest     Warehouses      Total
                            -------   -----------   -------------   -----------   --------------   -------
                                                                                 
BALANCE SHEET ACCRUALS
Vacancy                     $(5,429)    $ 4,299       $(3,021)        $ 3,969        $ 2,198       $ 2,016
PV interest                     894       1,444           741           3,567            244         6,890
Severance                       (95)         --            --             (16)            33           (78)
Total accrued to
                            -------     -------       -------         -------        -------       -------
   balance sheet             (4,630)      5,743        (2,280)          7,520          2,475         8,828
                            -------     -------       -------         -------        -------       -------
NON-ACCRUABLE ITEMS
   RECORDED ON STATEMENTS
   OF OPERATIONS
Gain on capital lease
   termination                   --          --            --             (55)            --           (55)
Property writeoffs               --          --            --              --          1,049         1,049
Inventory related costs          --          --            --              --           (571)         (571)
(Gain) loss on sale of
   property                      --          --            --             (85)            20           (65)
Closing costs                    (5)         --            --              93          2,170         2,258
                            -------     -------       -------         -------        -------       -------
Total non-accruable items        (5)         --            --             (47)         2,668         2,616
                            -------     -------       -------         -------        -------       -------
      Less PV interest         (894)     (1,444)         (741)         (3,567)          (244)       (6,890)
                            -------     -------       -------         -------        -------       -------
TOTAL AMOUNT RECORDED
   ON STATEMENTS OF
   OPERATIONS EXCLUDING
   PV INTEREST               (5,529)      4,299        (3,021)          3,906          4,899         4,554
                            -------     -------       -------         -------        -------       -------
   Less closing costs             5          --            --             (93)        (2,170)       (2,258)
                            -------     -------       -------         -------        -------       -------
   TOTAL AMOUNT RECORDED
      ON STATEMENTS OF
      CASH FLOWS            $(5,524)    $ 4,299       $(3,021)        $ 3,813        $ 2,729       $ 2,296
                            =======     =======       =======         =======        =======       =======



                                       63



                 THE GREAT ATLANTIC & PACIFIC TEA COMPANY, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED



                                                                               Fiscal 2005
                                             -------------------------------------------------------------------------------
                                                                                                        U.S.
                                             Project      2001          Farmer        Closure of    Distribution
                                              Great       Asset          Jack         Stores in    Operations and
                                             Renewal   Disposition   Restructuring   the Midwest     Warehouses       Total
                                             -------   -----------   -------------   -----------   --------------   --------
                                                                                                  
BALANCE SHEET ACCRUALS
Vacancy                                      $(3,648)    $(2,089)        $4,376        $ 97,596       $ 15,420      $111,655
PV interest                                    1,548       2,170            710           1,582             --         6,010
Severance and benefits                            --          --             --           2,666         47,220        49,886
                                             -------     -------         ------        --------       --------      --------
Total accrued to balance sheet                (2,100)         81          5,086         101,844         62,640       167,551
                                             -------     -------         ------        --------       --------      --------
NON-ACCRUABLE ITEMS RECORDED ON STATEMENTS
   OF OPERATIONS
Capital lease termination                         --          --             --            (588)            --          (588)
Property writeoffs                                --          --             --           6,873          9,947        16,820
Inventory related costs                           --          --             --           1,242          4,467         5,709
Loss on sale of property                          --          --             --           1,640             --         1,640
Gain on sale of pharmacy scripts                  --          --             --            (870)            --          (870)
Closing costs                                     --          --             --           5,131         10,656        15,787
                                             -------     -------         ------        --------       --------      --------
Total non-accruable items                         --          --             --          13,428         25,070        38,498
                                             -------     -------         ------        --------       --------      --------
      Less PV interest                        (1,548)     (2,170)          (710)         (1,582)            --        (6,010)
                                             -------     -------         ------        --------       --------      --------
TOTAL AMOUNT RECORDED ON STATEMENTS OF
   OPERATIONS EXCLUDING PV INTEREST           (3,648)     (2,089)         4,376         113,690         87,710       200,039
                                             -------     -------         ------        --------       --------      --------
   Less gain on sale of pharmacy scripts          --          --             --             870             --           870
   Less closing costs                             --          --             --          (5,131)       (10,656)      (15,787)
                                             -------     -------         ------        --------       --------      --------
   TOTAL AMOUNT RECORDED ON STATEMENTS OF
      CASH FLOWS                             $(3,648)    $(2,089)        $4,376        $109,429       $ 77,054      $185,122
                                             =======     =======         ======        ========       ========      ========




                                                               Fiscal 2004
                                             -----------------------------------------------
                                             Project      2001          Farmer
                                              Great       Asset          Jack
                                             Renewal   Disposition   Restructuring    Total
                                             -------   -----------   -------------   -------
                                                                         
BALANCE SHEET ACCRUALS
PV interest                                  $ 1,922     $ 2,456         $  687      $ 5,065
                                             -------     -------         ------      -------
Total accrued to balance sheets                1,922       2,456            687        5,065
                                             -------     -------         ------      -------
Occupancy reversals                               --      (4,488)            --       (4,488)
                                             -------     -------         ------      -------
Adjustments to balance sheets                     --      (4,488)            --       (4,488)
                                             -------     -------         ------      -------
NON-ACCRUABLE ITEMS RECORDED ON STATEMENTS
   OF OPERATIONS
Property writeoffs                                --       2,659             90        2,749
Inventory related costs                           --          --            291          291
Closing costs                                     --          --            689          689
                                             -------     -------         ------      -------
Total non-accruable items                         --       2,659          1,070        3,729
                                             -------     -------         ------      -------
      Less PV interest                        (1,922)     (2,456)          (687)      (5,065)
                                             -------     -------         ------      -------
TOTAL AMOUNT RECORDED ON STATEMENTS OF
   OPERATIONS EXCLUDING PV INTEREST               --      (1,829)         1,070         (759)
                                             -------     -------         ------      -------
      Less closing costs                          --          --           (689)        (689)
                                             -------     -------         ------      -------
   TOTAL AMOUNT RECORDED ON STATEMENTS OF
      CASH FLOWS                             $    --     $(1,829)        $  381      $(1,448)
                                             =======     =======         ======      =======



                                       64



                 THE GREAT ATLANTIC & PACIFIC TEA COMPANY, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

PROJECT GREAT RENEWAL

     In May 1998, we initiated an assessment of our business operations in order
to identify the factors that were impacting our performance. As a result of this
assessment, in fiscal 1998 and 1999, we announced a plan to close two warehouse
facilities and a coffee plant in the U.S., a bakery plant in Canada and 166
stores (156 in the United States and 10 in Canada) including the exit of the
Richmond, Virginia and Atlanta, Georgia markets.

     The following table summarizes the activity related to this phase of the
initiative over the last three fiscal years:



                                       Occupancy             Severance and Benefits               Total
                               --------------------------   ------------------------   --------------------------
                                 U.S.    Canada    Total     U.S.    Canada    Total     U.S.    Canada    Total
                               -------   ------   -------   ------   ------   ------   -------   ------   -------
                                                                               
Balance at February 28, 2004   $31,472   $ 452    $31,924   $2,157     $--    $2,157   $33,629   $ 452    $34,081
Addition (1)                     1,902      20      1,922       --      --        --     1,902      20      1,922
Utilization (2)                 (5,410)   (222)    (5,632)    (497)     --      (497)   (5,907)   (222)    (6,129)
                               -------   -----    -------   ------     ---    ------   -------   -----    -------
Balance at February 26, 2005   $27,964   $ 250    $28,214   $1,660     $--    $1,660   $29,624   $ 250    $29,874
Addition (1)                     1,541       7      1,548       --      --        --     1,541       7      1,548
Utilization (2)                 (5,858)   (167)    (6,025)    (223)     --      (223)   (6,081)   (167)    (6,248)
Adjustments (3)                 (3,648)    (90)    (3,738)      --      --        --    (3,648)    (90)    (3,738)
                               -------   -----    -------   ------     ---    ------   -------   -----    -------
Balance at February 25, 2006   $19,999   $  --    $19,999   $1,437     $--    $1,437   $21,436   $  --    $21,436
Addition (1)                       894      --        894       --      --        --       894      --        894
Utilization (2)                 (4,428)     --     (4,428)    (132)     --      (132)   (4,560)     --     (4,560)
Adjustments (3)                 (5,429)     --     (5,429)     (95)     --       (95)   (5,524)     --     (5,524)
                               -------   -----    -------   ------     ---    ------   -------   -----    -------
Balance at February 24, 2007   $11,036   $  --    $11,036   $1,210     $--    $1,210   $12,246   $  --    $12,246
                               =======   =====    =======   ======     ===    ======   =======   =====    =======


(1)  The additions to store occupancy of $1.9 million, $1.5 million, and $0.9
     million during fiscal 2004, 2005 and 2006, respectively, represent the
     interest accretion on future occupancy costs which were recorded at present
     value at the time of the original charge.

(2)  Occupancy utilization of $5.6 million, $6.0 million, and $4.4 million for
     fiscal 2004, 2005 and 2006, respectively, represents payments made during
     those periods for costs such as rent, common area maintenance, real estate
     taxes and lease termination costs. Severance utilization of $0.5 million,
     $0.2 million, and $0.1 million for fiscal 2004, 2005 and 2006,
     respectively, represents payments to individuals for severance and
     benefits, as well as payments to pension funds for early withdrawal from
     multi-employer union pension plans.

(3)  At each balance sheet date, we assess the adequacy of the balance to
     determine if any adjustments are required as a result of changes in
     circumstances and/or estimates. We have continued to make favorable
     progress in marketing and subleasing the closed stores. As a result, during
     fiscal 2005, we recorded an additional reduction of $3.6 million in
     occupancy accruals due to subleasing additional closed stores and
     converting a previously closed store to a store that was opened in fiscal
     2006. As discussed in Note 4, Equity Investment in Metro Inc., we sold our
     Canadian business and as a result, the Canadian occupancy accruals of $0.1
     million are no longer consolidated in our Consolidated Balance Sheet at
     February 25, 2006. During fiscal 2006, we recorded adjustments for a
     reduction in vacancy related costs for our properties of $5.4 million due
     to lease terminations for two properties, assignment of one property and
     changes in our estimation of such future costs. We also recorded a decrease
     of $0.1 million for the reversal of previously accrued severance and
     benefits due to changes in individual severings and associated benefit
     costs.

     We paid $108.8 million of the total occupancy charges from the time of the
original charges through February 24, 2007 which was primarily for occupancy
related costs such as rent, common area maintenance, real estate taxes and lease
termination costs. We paid $30.3 million of the total net severance charges from
the time of the original charges through February 24, 2007, which resulted from
the termination of approximately 3,400 employees. The remaining occupancy
liability of $11.0 million relates to expected future payments under long term
leases and is


                                       65



                 THE GREAT ATLANTIC & PACIFIC TEA COMPANY, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

expected to be paid in full by 2013. The remaining severance liability of $1.2
million primarily relates to expected future payments for early withdrawals from
multi-employer union pension plans and will be fully paid out in 2020.

     None of these stores were open during fiscal 2004, fiscal 2005 or fiscal
2006. As such, there was no impact from store operations on the Statements of
Consolidated Operations from the 166 stores included in this phase of the
initiative.

     At February 24, 2007 and February 25, 2006, approximately $3.0 million and
$5.1 million, respectively, of the reserve was included in "Other accruals" and
the remaining amount was included in "Other non-current liabilities" on the
Company's Consolidated Balance Sheets.

     We have evaluated the reserve balances as of February 24, 2007 of $12.2
million based on current information and have concluded that they are adequate
to cover expected future costs. We will continue to monitor the status of the
vacant properties and adjustments to the reserve balances may be recorded in the
future, if necessary.

2001 ASSET DISPOSITION

     During the third quarter of fiscal 2001, our Company determined that
certain underperforming operations, including 39 stores (30 in the United States
and 9 in Canada) and 3 warehouses (2 in the United States and 1 in Canada)
should be closed and/or sold, and certain administrative streamlining should
take place.

     The following table summarizes the activity related to this phase of the
initiative recorded on the Consolidated Balance Sheets over the last three
fiscal years:



                                        Occupancy               Severance and Benefits                 Total
                               ----------------------------   --------------------------   ---------------------------
                                  U.S.    Canada     Total      U.S.    Canada    Total      U.S.     Canada     Total
                               --------   ------   --------   -------   ------   -------   --------   ------   --------
                                                                                    
Balance at February 28, 2004   $ 39,584    $ 375   $ 39,959   $ 2,311    $ 58    $ 2,369   $ 41,895    $ 433   $ 42,328
Addition (1)                      2,449       --      2,449        --      --         --      2,449       --      2,449
Utilization (2)                  (5,646)    (375)    (6,021)   (2,197)    (58)    (2,255)    (7,843)    (433)    (8,276)
Adjustments (3)                  (4,488)      --     (4,488)       --      --         --     (4,488)      --     (4,488)
                               --------    -----   --------   -------    ----    -------   --------    -----   --------
Balance at February 26, 2005   $ 31,899    $  --   $ 31,899   $   114    $ --    $   114   $ 32,013    $  --   $ 32,013
Addition (1)                      2,170       --      2,170        --      --         --      2,170       --      2,170
Utilization (2)                  (5,262)      --     (5,262)      (97)     --        (97)    (5,359)      --     (5,359)
Adjustments (3)                  (2,089)      --     (2,089)       --      --         --     (2,089)      --     (2,089)
                               --------    -----   --------   -------    ----    -------   --------    -----   --------
Balance at February 25, 2006   $ 26,718    $  --   $ 26,718   $    17    $ --    $    17   $ 26,735    $  --   $ 26,735
Addition (1)                      1,444       --      1,444        --      --         --      1,444       --      1,444
Utilization (2)                 (11,875)      --    (11,875)      (17)     --        (17)   (11,892)      --    (11,892)
Adjustments (3)                   4,299       --      4,299        --      --         --      4,299       --      4,299
                               --------    -----   --------   -------    ----    -------   --------    -----   --------
Balance at February 24, 2007   $ 20,586    $  --   $ 20,586   $    --    $ --    $    --   $ 20,586    $  --   $ 20,586
                               ========    =====   ========   =======    ====    =======   ========    =====   ========


(1)  The additions to store occupancy of $2.4 million, $2.1 million, and $1.4
     million during fiscal 2004, 2005 and 2006, respectively, represent the
     interest accretion on future occupancy costs which were recorded at present
     value at the time of the original charge.

(2)  Occupancy utilization of $6.0 million, $5.3 million, and $11.9 million
     during fiscal 2004, 2005 and 2006, respectively, represent payments made
     during those periods for costs such as rent, common area maintenance, real
     estate taxes and lease termination costs. Severance utilization of $2.3
     million, $0.1 million, and $0.02 million during fiscal 2004, 2005 and 2006,
     respectively, represent payments made to terminated employees during the
     period.


                                       66


                 THE GREAT ATLANTIC & PACIFIC TEA COMPANY, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(3)  At each balance sheet date, we assess the adequacy of the reserve balance
     to determine if any adjustments are required as a result of changes in
     circumstances and/or estimates. During fiscal 2004, we recorded adjustments
     of $4.5 million related to the reversals of previously accrued occupancy
     costs due to the disposals and subleases of locations at more favorable
     terms than originally anticipated at the time of the original charge.
     During fiscal 2005, we recorded adjustments of $2.1 million related to the
     reversals of previously accrued occupancy costs due to the favorable result
     of subleasing one of the closed properties and changes in our original
     estimate of our future vacancy obligations for closed stores. Finally,
     during fiscal 2006, we recorded adjustments for additional vacancy related
     costs of $4.3 million due to changes in our estimate to terminate certain
     leases and changes in our estimation of future costs.

     We paid $56.3 million ($53.3 million in the U.S. and $3.0 million in
Canada) of the total occupancy charges from the time of the original charges
through February 24, 2007 which was primarily for occupancy related costs such
as rent, common area maintenance, real estate taxes and lease termination costs.
We paid $28.2 million ($19.2 million in the U.S. and $9.0 million in Canada) of
the total net severance charges from the time of the original charges through
February 24, 2007, which resulted from the termination of approximately 1,100
employees. The remaining occupancy liability of $20.6 million primarily relates
to expected future payments under long term leases through 2022. The severance
liability has been fully utilized as of February 24, 2007 and no additional
future payments for severance and benefits to individual employees will be paid
out.

     At February 24, 2007 and February 25, 2006, approximately $3.0 million and
$6.6 million of the reserve, respectively, was included in "Other accruals" and
the remaining amount was included in "Other non-current liabilities" on the
Company's Consolidated Balance Sheets.

     None of these stores were open during fiscal 2004, fiscal 2005 or fiscal
2006. As such, there was no impact from store operations on the Statements of
Consolidated Operations from the 39 stores included in this phase of the
initiative.

     We have evaluated the reserve balance as of February 24, 2007 of $20.6
million based on current information and have concluded that it is adequate to
cover expected future costs. We will continue to monitor the status of the
vacant properties and adjustments to the reserve balance may be recorded in the
future, if necessary.


                                       67



                 THE GREAT ATLANTIC & PACIFIC TEA COMPANY, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

FARMER JACK RESTRUCTURING

     In the fourth quarter of fiscal 2003, we announced an initiative to close 6
stores and convert 13 stores to our Food Basics banner in the Detroit, Michigan
and Toledo, Ohio markets.

     The following table summarizes the activity related to this phase of the
initiative recorded on the Consolidated Balance Sheets over the last three
fiscal years:



                                           Severance
                                              and
                               Occupancy   Benefits     Total
                               ---------   ---------   -------
                                              
Balance at February 28, 2004    $19,962     $ 4,819    $24,781
Addition (1)                        687          --        687
Utilization (2)                  (4,747)     (4,813)    (9,560)
                                -------     -------    -------
Balance at February 26, 2005    $15,902     $     6    $15,908
Addition (1)                        710          --        710
Utilization (2)                  (2,738)         (6)    (2,744)
Adjustment (3)                    4,376          --      4,376
                                -------     -------    -------
Balance at February 25, 2006    $18,250     $    --    $18,250
Addition (1)                        741          --        741
Utilization (2)                  (1,656)         --     (1,656)
Adjustment (3)                   (3,021)         --     (3,021)
                                -------     -------    -------
Balance at February 24, 2007    $14,314     $    --    $14,314
                                =======     =======    =======


(1)  The additions to occupancy during fiscal 2004, fiscal 2005 and fiscal 2006
     represent interest accretion on future occupancy costs which were recorded
     at present value at the time of the original charge.

(2)  Occupancy utilization of $4.7 million, $2.7 million and $1.7 million during
     fiscal 2004, fiscal 2005 and fiscal 2006, respectively, represents payments
     made for costs such as rent, common area maintenance, real estate taxes and
     lease termination costs. Severance utilization of $4.8 million and $0.01
     million during fiscal 2003 and fiscal 2004, respectively, represent
     payments made to terminated employees during the period.

(3)  At each balance sheet date, we assess the adequacy of the balance to
     determine if any adjustments are required as a result of changes in
     circumstances and/or estimates. During fiscal 2005, we recorded an increase
     of $4.4 million in occupancy accruals due to changes in our original
     estimate of when we would terminate certain leases, obtain sublease rental
     income related to such leases and changes in our original estimate of our
     future vacancy obligations for closed stores. During fiscal 2006, we
     recorded adjustments for a reduction in vacancy related costs for our
     properties of $3.0 million due to changes in our estimation of such future
     costs.

     We paid $10.2 million of the total occupancy charges from the time of the
original charge through February 24, 2007 which was primarily for occupancy
related costs such as rent, common area maintenance, real estate taxes and lease
termination costs. The remaining occupancy liability of $14.3 million relates to
expected future payments under long term leases and is expected to be paid out
in full by 2022. We paid $8.9 million of the total net severance charges from
the time of the original charges through February 24, 2007, which resulted from
the termination of approximately 300 employees. The severance liability has been
fully utilized as of


                                       68



                 THE GREAT ATLANTIC & PACIFIC TEA COMPANY, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

February 24, 2007 and no additional future payments for severance and benefits
to individual employees will be paid out.

     Included in the Statements of Consolidated Operations for fiscal 2004 are
the sales and operating results of the 6 stores that were identified for closure
as part of this phase of the initiative. The results of these operations are as
follows:



                 Fiscal 2006   Fiscal 2005   Fiscal 2004
                 -----------   -----------   -----------
                                    
Sales                $--           $--         $2,433
                     ===           ===         ======
Operating loss       $--           $--         $  (46)
                     ===           ===         ======


     At February 24, 2007 and February 25, 2006, approximately $1.3 million and
$1.6 million, respectively, of the liability was included in "Other accruals"
and the remaining amount was included in "Other non-current liabilities" on our
Consolidated Balance Sheets.

     We have evaluated the liability balance of $14.3 million as of February 24,
2007 based upon current available information and have concluded that it is
adequate. We will continue to monitor the status of the vacant properties and
adjustments to the reserve balance may be recorded in the future, if necessary.

CLOSURE OF STORES IN THE MIDWEST

     During the first quarter of fiscal 2005, we announced plans for a major
strategic restructuring that would focus future effort and investment on our
core operations in the Northeastern United States. Thus, we initiated efforts to
close stores in the Midwest. This planned store closure included the closing of
a total of 35 stores, all of which have been closed as of February 24, 2007. The
remaining business located in the Midwestern United States will continue to
operate as part of our core business going forward.

     The following table summarizes the activity to date related to the charges
recorded for these store closures:



                                           Severance
                                              and
                               Occupancy    Benefits     Total
                               ---------   ---------   --------
                                              
Original charge (1)            $ 14,766     $ 1,337    $ 16,103
   Additions (2)                 75,259       1,373      76,632
   Utilization (3)               (9,538)     (2,439)    (11,977)
   Adjustment (4)                 9,153         (44)      9,109
                               --------     -------    --------
Balance at February 25, 2006   $ 89,640     $   227    $ 89,867
   Additions (2)                  3,567          --       3,567
   Utilization (3)              (14,065)       (211)    (14,276)
   Adjustment (4)                 3,969         (16)      3,953
                               --------     -------    --------
Balance at February 24, 2007   $ 83,111     $    --    $ 83,111
                               ========     =======    ========


(1)  The original charge to occupancy during fiscal 2005 represents charges
     related to closures of the first 8 stores in conjunction with our decision
     to close stores in the Midwest of $14.8 million. The original charge to
     severance during fiscal 2005 of $1.3 million related to individual
     severings as a result of these store closures.

(2)  The additions to occupancy during fiscal 2005 represent charges related to
     the closures of an additional 27 stores in the amount of $73.7 million and
     interest accretion on future occupancy costs which were recorded


                                       69



                 THE GREAT ATLANTIC & PACIFIC TEA COMPANY, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

     at present value at the time of the original charge in the amount of $1.6
     million. The additions to occupancy during fiscal 2006 represent interest
     accretion on future occupancy costs which were recorded at present value at
     the time of the original charge in the amount of $3.6 million. The
     additional charge to severance during fiscal 2005 of $1.3 million related
     to individual severings as a result of these store closures.

(3)  Occupancy utilization of $9.5 million and $14.1 million for fiscal 2005 and
     fiscal 2006, respectively, represents payments made for costs such as rent,
     common area maintenance, real estate taxes and lease termination costs.
     Severance utilization of $2.4 million and $0.2 million for fiscal 2005 and
     2006, respectively, represents payments made to terminated employees during
     the period.

(4)  At each balance sheet date, we assess the adequacy of the balance to
     determine if any adjustments are required as a result of changes in
     circumstances and/or estimates. During fiscal 2005, we recorded an increase
     of $9.2 million in occupancy accruals due to changes in our original
     estimate of our future vacancy obligations for closed stores. We also
     recorded a decrease of $0.05 million for the reversal of previously accrued
     severance and benefits due to changes in individual severings and
     associated benefit costs. During fiscal 2006, we recorded adjustments for
     additional vacancy related costs for our properties of $4.0 million due to
     changes in our estimation of such future costs and changes to our estimate
     to terminate certain leases, partially offset by the favorable result of
     terminating a lease on one property. We also recorded a decrease of $0.02
     million for the reversal of previously accrued severance and benefits due
     to changes in individual severings and associated benefit costs.

     We paid $23.6 million of the total occupancy charges from the time of the
original charge through February 24, 2007 which was primarily for occupancy
related costs such as rent, common area maintenance, real estate taxes and lease
termination costs. The remaining occupancy liability of $83.1 million relates to
expected future payments under long term leases and is expected to be paid out
in full by 2025. We paid $2.6 million of the total net severance charges from
the time of the original charges through February 24, 2007, which resulted from
the termination of approximately 125 employees. The severance liability has been
fully utilized as of February 24, 2007 and no additional future payments for
severance and benefits to individual employees will be paid out.

     Included in the Statements of Consolidated Operations for fiscal 2005 and
fiscal 2004 are the sales and operating results of the 35 stores that were
closed in the Midwest. The results of these operations are as follows:



                 Fiscal 2006   Fiscal 2005   Fiscal 2004
                 -----------   -----------   -----------
                                    
Sales                $--        $110,882      $339,879
                     ===        ========      ========
Operating loss       $--        $(31,506)     $(39,884)
                     ===        ========      ========


     At February 24, 2007 and February 25, 2006, approximately $22.4 million and
$22.5 million, respectively, of the liability was included in "Other accruals"
and the remaining amount was included in "Other non-current liabilities" on our
Consolidated Balance Sheets.

     We have evaluated the liability balance of $83.1 million as of February 24,
2007 based upon current available information and have concluded that it is
adequate. We will continue to monitor the status of the vacant properties and
adjustments to the reserve balance may be recorded in the future, if necessary.

U.S. DISTRIBUTION OPERATIONS AND WAREHOUSES

     During fiscal 2005, our Company sold our U.S. distribution operations and
some warehouse facilities and related assets to C&S Wholesale Grocers, Inc. On
June 27, 2005, the definitive agreements, including an Asset Purchase Agreement
and a 15 year Supply Agreement,


                                       70



                 THE GREAT ATLANTIC & PACIFIC TEA COMPANY, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

were finalized and signed. The Asset Purchase Agreement included the assignment
of our leases in Central Islip, New York and Baltimore, Maryland, and a warranty
deed for our owned facilities in Dunmore, Pennsylvania. In the Supply Agreement,
C&S Wholesale Grocers, Inc. will supply our Company with all of our requirements
for groceries, perishables, frozen food and other merchandise in the product
categories carried by C&S Wholesale Grocers, Inc. The transition of our owned
warehouses and operations began in the second quarter of fiscal 2005 and was
completed during the fourth quarter of fiscal 2005.

     The following table summarizes the activity to date related to the charges
recorded for the closing of these facilities.



                                           Severance
                                              and
                               Occupancy    Benefits     Total
                               ---------   ---------   --------
                                              
Original charge (1)            $     --    $ 40,417    $ 40,417
   Additions (2)                 15,420       7,296      22,716
   Utilization (3)                 (337)    (43,597)    (43,934)
   Adjustments (4)                   --        (493)       (493)
                               --------    --------    --------
Balance at February 25, 2006   $ 15,083    $  3,623    $ 18,706
   Additions (2)                    244          32         276
   Utilization (3)              (12,075)     (2,780)    (14,855)
   Adjustments (4)                2,198           1       2,199
                               --------    --------    --------
Balance at February 24, 2007   $  5,450    $    876    $  6,326
                               ========    ========    ========


(1)  The original charge to severance and benefits during the first quarter of
     fiscal 2005 of $40.4 million related to (i.) individual severings as well
     as retention and productivity incentives that were accrued as earned of
     $7.6 million and (ii.) costs for future obligations for early withdrawal
     from multi-employer union pension plans of $32.8 million.

(2)  The additions to occupancy during fiscal 2005 related to future occupancy
     costs such as rent, common area maintenance and real estate taxes, and
     future obligations for the warehouses sold to C&S Wholesale Grocers, Inc.
     The additions to occupancy during fiscal 2006 represent interest accretion
     on future occupancy costs which were recorded at present value at the time
     of the original charge in the amount of $0.2 million. The additions to
     severance and benefits during fiscal 2005 represented charges related to
     additional individual severings as well as retention and productivity
     incentives that were accrued as earned.

(3)  Occupancy utilization of $0.3 million and $12.1 million for fiscal 2005 and
     fiscal 2006, respectively, represents payments associated with the closure
     of certain warehouses. Severance and benefits utilization of $43.6 million
     and $2.8 million for fiscal 2005 and fiscal 2006, respectively, represents
     payments made to terminated employees during the period as well as payments
     made to pension funds for early withdrawal from multi-employer union
     pension plans.

(4)  At each balance sheet date, we assess the adequacy of the balance to
     determine if any adjustments are required as a result of changes in
     circumstances and/or estimates. During the fiscal 2005, we recorded
     adjustments of $0.5 million primarily related to reversals of previously
     accrued severance and benefits due to changes in individual severings and
     associated benefit costs. During fiscal 2006, we recorded adjustments for
     additional vacancy related costs for our properties of $2.2 million due to
     changes in our estimation of such future costs.

     We paid $12.4 million of the total occupancy charges from the time of the
original charge through February 24, 2007 which was primarily for occupancy
related costs such as rent, common area maintenance, real estate taxes and lease
termination costs. The remaining occupancy liability of $5.4 million relates to
expected future payments under long term leases and is expected to be paid out
in full by 2021. We paid $46.4 million of the total net severance charges from
the


                                       71


                 THE GREAT ATLANTIC & PACIFIC TEA COMPANY, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

time of the original charges through February 24, 2007. The remaining severance
liability of $0.9 million relates to expected future payments for early
withdrawals from multi-employer union pension plans and expected future payments
for severance and benefits payments to individual employees and will be fully
paid out by 2009.

     As of February 24, 2007 and February 25, 2006, approximately nil and $1.4
million, respectively, of the liability was included in "Accrued salaries, wages
and benefits," $1.7 million and $11.3 million, respectively, of the liability
was included in "Other Accruals" and the remaining amount was included in "Other
non-current liabilities" on our Consolidated Balance Sheets.

     We have evaluated the liability balance of $6.3 million as of February 24,
2007 based upon current available information and have concluded that it is
adequate. We will continue to monitor the status of the warehouses and
adjustments to the reserve balance may be recorded in the future, if necessary.

     Our Company currently acquires a significant amount of our saleable
inventory from one supplier, C&S Wholesale Grocers, Inc. Although there are a
limited number of distributors that can supply our stores, we believe that other
suppliers could provide similar product on comparable terms. However, a change
in suppliers could cause a delay in distribution and a possible loss of sales,
which would affect operating results adversely.

NOTE 9 - INDEBTEDNESS

     Debt consists of the following:



                                                        February 24,   February 25,
                                                            2007           2006
                                                        ------------   ------------
                                                                 
Revolver borrowings, due November 2010                    $ 70,000       $     --
9.375% Notes, due August 1, 2039                           200,000        200,000
9.125% Senior Notes, due December 15, 2011                  12,840         12,840
7.75% Notes, due April 15, 2007                             31,905         31,905
Deferred gain from termination of interest rate swaps           80            599
Mortgages and Other Notes, due 2006 through 2018
   (average interest rates at each year end of 8.00%)        1,460          1,540
Less unamortized discount on 7.75% Notes                        (2)           (33)
                                                          --------       --------
                                                           316,283        246,851
Less current portion of long-term debt                     (32,069)          (569)
                                                          --------       --------
Long-term debt                                            $284,214       $246,282
                                                          ========       ========


LETTER OF CREDIT AGREEMENT

     During fiscal 2005, we entered into a cash collateralized, Letter of Credit
Agreement that enabled us to issue letters of credit up to $200 million. During
the third quarter of fiscal 2006, our Company transferred 6,000,000 of our Class
A subordinate shares of Metro, Inc. from our foreign subsidiary to the United
States. These transferred shares were being used as collateral for the Letter of
Credit Agreement and have allowed us to reduce the amount of restricted cash
and/or marketable securities we were previously required to maintain as
collateral. As a result of this


                                       72



                 THE GREAT ATLANTIC & PACIFIC TEA COMPANY, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

transfer, the Letter of Credit Agreement was amended to enable us to issue
letters of credit up to $150 million. At February 24, 2007 and February 25,
2006, there were $138.3 million and $144.7 million, respectively, in letters of
credit outstanding under this agreement.

     Refer to Note 20 - Subsequent Events for further discussion regarding the
sale of these Metro, Inc. shares subsequent to February 24, 2007.

REVOLVING CREDIT AGREEMENT

     During fiscal 2005, we also secured a $150 million Revolver with four
lenders enabling us to borrow funds on a revolving basis for working capital
loans and letters of credit. The Revolver includes a $100 million accordion
feature which gives us the ability to increase commitments from $150 million to
$250 million. Effective April 4, 2006, we exercised the accordion option and
increased our commitments to $250 million. Under the terms of this agreement,
should availability fall below $25.0 million and should cash on hand fall below
$50.0 million, a borrowing block will be implemented which provides that no
additional loans be made unless we are able to maintain a minimum consolidated
EBITDA covenant on a trailing twelve month basis. In the event that availability
falls below $25.0 million, cash on hand falls below $50.0 million, and we do not
maintain the required minimum EBITDA covenant, unless otherwise waived or
amended, the lenders may, at their discretion, declare, in whole or in part, all
outstanding obligations immediately due and payable.

     The Revolver is collateralized by inventory, certain accounts receivable
and pharmacy scripts. Borrowings under the Revolver bear interest based on LIBOR
or Prime interest rate pricing. This agreement expires in November 2010. At
February 24, 2007, there were no letters of credit outstanding under this
agreement and there were $70.0 million in outstanding borrowings under the
Revolver. As of February 24, 2007, after reducing availability for borrowing
base requirements, we had $180.0 million available under the Revolver. Combined
with cash we held in short-term investments and restricted marketable securities
of $25.4 million, we had total cash availability of $205.4 million at February
24, 2007.

     Under the Revolver, we are permitted to pay cumulative cash dividends on
common shares as well as make bond repurchases.

PUBLIC DEBT OBLIGATIONS

     Outstanding notes totaling $244.7 million at February 24, 2007 consisted of
$31.9 million of 7.75% Notes due April 15, 2007, $12.8 million of 9.125% Senior
Notes due December 15, 2011 and $200 million of 9.375% Notes due August 1, 2039.
Interest is payable quarterly on the 9.375% Notes and semi-annually on the
9.125% and 7.75% Notes. The 7.75% Notes are not redeemable prior to their
maturity. The 9.375% Notes are now callable at par ($25 per bond) and the 9.125%
Notes are now callable at a premium to par (104.563%). The 9.375% Notes are
unsecured obligations and were issued under the terms of our senior debt
securities indenture, which contains among other provisions, covenants
restricting the incurrence of secured debt. The 9.375% Notes are effectively
subordinate to the Revolver and do not contain cross default provisions. All
covenants and restrictions for the 7.75% Notes and the 9.125% Senior Notes have
been eliminated in connection with the cash tender offer as discussed below. Our
notes are not


                                       73



                 THE GREAT ATLANTIC & PACIFIC TEA COMPANY, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

guaranteed by any of our subsidiaries. During fiscal 2006, there were no
repurchases of our public debt obligations.

     During fiscal 2005, we repurchased in the open market $14.9 million of our
7.75% Notes due April 15, 2007. The cost of this open market repurchase resulted
in a pretax loss due to the early extinguishment of debt of $0.6 million. In
accordance with SFAS No. 145, "Rescission of FASB Statements 4, 44 and 64,
Amendment of FASB 13, and Technical Corrections" ("SFAS 145"), this loss has
been classified within loss from operations.

     Also in August 2005, our Company commenced a cash tender offer for all of
the outstanding principal amount of our 7.75% Notes due April 15, 2007 and
9.125% Senior Notes due December 15, 2011. The tender offer expired on September
7, 2005. On September 8, 2005, our Company purchased pursuant to the tender
offer $166.7 million of our $199 million 7.75% Notes due April 15, 2007 and
$203.7 million of our $216.5 million 9.125% Senior Notes due December 15, 2011
using $370.4 million of the gross proceeds from the sale of our Canadian
operations. Our Company also paid $28.6 million in tender premiums and other
fees and expenses and wrote off approximately $3.9 million of unamortized debt
discount and issuance costs related to this tender offer.

     In addition, due to the early extinguishment of a significant portion of
the 7.75% Notes due April 15, 2007, we recognized $3.1 million of the deferred
gain that resulted from the termination of three interest rate swaps we entered
into during fiscal 2002 to effectively convert a portion of our 7.75% Notes due
April 15, 2007 from fixed rate debt to floating rate debt. The portion of the
deferred gain that was recognized related to the underlying debt instrument that
was early extinguished. The remaining portion of the deferred gain will continue
to be amortized as an offset to interest expense over the life of the remaining
underlying debt instrument and is classified as "Long term debt" in our
Consolidated Balance Sheets.

     In accordance with SFAS No. 145, both the tender premiums and other fees
and expenses are classified within loss from operations and are included in
"Store operating, general and administrative expense" in our Consolidated
Statements of Operations for fiscal 2005. The recognition of the deferred gain
is classified within "Interest expense" in our Consolidated Statements of
Operations for fiscal 2005.

     During fiscal 2004, we repurchased in the open market $6.0 million of our
7.75% Notes due April 15, 2007. The cost of this open market repurchase resulted
in a pretax gain due to the early extinguishment of debt of $0.8 million. In
accordance with SFAS No. 145, this gain has been classified within loss from
operations.

     Although our Company declared and paid a special one-time dividend to our
shareholders of record on April 17, 2006 equal to $7.25 per share in April 2006,
our Company's policy is to not pay dividends. As such, we have not made dividend
payments in the previous three years and do not intend to pay dividends in the
normal course of business in fiscal 2007. However, our Company is permitted,
under the terms of our Revolver, to pay cash dividends on common shares.

     Maturities for the next five fiscal years and thereafter are: 2007 - $32.1
million; 2008 - $0.1


                                       74



                 THE GREAT ATLANTIC & PACIFIC TEA COMPANY, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

million; 2009 - $0.1 million; 2010 - $70.1 million; 2011 - $13.0 million; 2012
and thereafter - $200.9 million. Interest payments on indebtedness were
approximately $28 million for fiscal 2006, $48 million for fiscal 2005 and $56
million for fiscal 2004.

NOTE 10 - FAIR VALUE OF FINANCIAL INSTRUMENTS

     The estimated fair values of our financial instruments are as follows:



                                                         February 24, 2007     February 25, 2006
                                                        -------------------   -------------------
                                                        Carrying     Fair     Carrying     Fair
                                                         Amount      Value     Amount      Value
                                                        --------   --------   --------   --------
                                                                             
Revolver borrowings, due November 2010                  $ 70,000   $ 70,000   $     --   $     --
9.375% Notes, due August 1, 2039                         200,000    204,800    200,000    200,000
9.125% Senior Notes, due December 15, 2011                12,840     13,033     12,840     13,723
7.75% Notes, due April 15, 2007                           31,982     31,506     32,471     32,065
Mortgages and Other Notes, due 2006 through 2018           1,460      1,460      1,540      1,540


     The fair value of our Revolver borrowings approximates the carrying value
at February 24, 2007. The fair value for the public debt securities is based on
quoted market prices for such notes. As of February 24, 2007 and February 25,
2006, the carrying values of cash and cash equivalents, accounts receivable and
accounts payable approximated fair values due to the short-term maturities of
these instruments. Marketable securities are recorded at fair value at February
24, 2007 and February 25, 2006. Refer to Note 1 - Summary of Significant
Accounting Policies for discussion of SFAS 157 and SFAS 159 and the impact of
its adoption.

NOTE 11 - LEASE OBLIGATIONS

     We operate 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. In addition, we also
lease some store equipment and trucks. 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.

     Depending on the specific terms of the leases, our obligations are in three
forms: capital leases, operating leases and long-term real estate liabilities.


                                       75



                 THE GREAT ATLANTIC & PACIFIC TEA COMPANY, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

     The Consolidated Balance Sheets include the following capital leases:



                                                        February 24,   February 25,
                                                            2007           2006
                                                        ------------   ------------
                                                                 
Property under capital leases                             $ 41,135       $ 52,454
Accumulated amortization                                   (20,459)       (29,360)
                                                          --------       --------
   Net property under capital leases                      $ 20,676       $ 23,094
                                                          ========       ========


     During fiscal 2005, we entered into a new capital lease totaling $10
million. This capital lease amount is a non-cash transaction and, accordingly,
has been excluded from the Consolidated Statements of Cash Flows. During fiscal
2006 and fiscal 2004, we did not enter into any new capital leases. Interest
paid as part of our capital lease obligations was approximately $3.5 million in
fiscal 2006, $6.3 million in fiscal 2005 and $7.5 million in fiscal 2004.

     Rent expense for operating leases during the last three fiscal years
consisted of the following:



                                                        Fiscal 2006   Fiscal 2005   Fiscal 2004
                                                        -----------   -----------   -----------
                                                                           
Minimum rentals                                           $174,151      $211,779      $245,503
Contingent rentals                                           2,486         3,732         5,324
                                                          --------      --------      --------
   Total rent expense                                     $176,637      $215,511      $250,827
                                                          ========      ========      ========


     Future minimum annual lease payments for capital leases and noncancelable
operating leases in effect at February 24, 2007 are shown in the table below.



                                                                                        Operating Leases
                                                                   ----------------------------------------------------------
                                                                     Future Minimum Rental Payments      Future    Net Future
                                                                   ----------------------------------    Minimum     Minimum
                                                         Capital      Open       Closed                 Sublease     Rental
Fiscal                                                   Leases      Stores       Sites       Total      Rentals    Payments
- ------                                                  --------   ----------   --------   ----------   --------   ----------
                                                                                                 
2007                                                    $  4,592   $  182,707   $ 42,701   $  225,408   $ 25,671   $  199,737
2008                                                       4,543      179,294     38,848      218,142     22,370      195,772
2009                                                       4,331      175,216     37,465      212,681     20,770      191,911
2010                                                       4,041      166,733     34,249      200,982     18,294      182,688
2011                                                       4,064      156,876     31,709      188,585     15,045      173,540
2012 and thereafter                                       46,525    1,202,195    205,577    1,407,772     92,778    1,314,994
                                                        --------   ----------   --------   ----------   --------   ----------
Net minimum rentals                                       68,096   $2,063,021   $390,549   $2,453,570   $194,928   $2,258,642
                                                                   ==========   ========   ==========   ========   ==========
Less interest portion                                    (36,886)
                                                        --------
Present value of future minimum rentals                 $ 31,210
                                                        ========


     In the future minimum rental payments of closed sites of $390.5 million are
amounts that are included in current and non-current liabilities on our
Consolidated Balance Sheets. The amounts included in our Consolidated Balance
Sheets are estimated net cash flows based on our experience and knowledge of the
market in which the closed store is located. Refer to our discussion of Closed
Store Reserves in Note 1 - Summary of Significant Accounting Policies.

     During fiscal 2006 and fiscal 2005, we sold 1 and 5 properties,
respectively, and simultaneously leased them back from the purchaser. However,
due to our Company's continuing


                                       76



                 THE GREAT ATLANTIC & PACIFIC TEA COMPANY, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

involvement with 1 of these properties in fiscal 2005, as (i.) we receive
sublease income that is more than 10% of the fair market value of this property,
(ii.) lease contains renewal options that extend beyond the economic useful life
of the property, and (iii.) we are obligated to repurchase the property if
certain circumstances occur, the sale did not qualify for sale-leaseback
accounting in accordance with SFAS 98, "Accounting for Leases" but rather as a
long-term real estate liability under the provisions of SFAS 66, "Accounting for
Sales of Real Estate" ("SFAS 66"). In accordance with SFAS 66, the carrying
value of this property of approximately $9.0 million remained on our
Consolidated Balance Sheets at February 26, 2005, and no sale was recognized.
Instead the sales price of this property of $20.8 million was recorded as a
long-term real estate liability with a maturity of 20 years within "Long-term
real estate liabilities" on our Consolidated Balance Sheets at February 25,
2006. In addition, the lease payments are being charged to "Interest expense" in
our Consolidated Statements of Operations. This property was sold for a profit
resulting in a gain, after deducting expenses, which has been deferred and will
not be recognized until the end of the lease when our continuing involvement
ceases.

     "Long-term real estate liabilities" on our Consolidated Balance Sheets also
include various leases in which our Company received landlord allowances to
offset the costs of structural improvements we made to the leased space. As we
had directly paid for a substantial portion of the structural improvement costs,
we were considered the owner of the building during the construction period. In
all situations upon completion of the construction, we were unable to meet the
requirements under SFAS 98, "Accounting for Leases" to qualify for
sale-leaseback treatment; thus, the landlord allowances have been recorded as
long-term real estate liabilities on our Consolidated Balance Sheets and have
been amortized over the lease term based on rent payments designated in the
lease agreements. These leases have terms ranging between 12 and 25 years and
effective annual percentage rates between 4.74% and 44.78%. The effective annual
percentage rates were implicitly calculated based upon technical accounting
guidance.

     The future minimum annual lease payments relating to these leases as well
as those leases for properties that we previously owned but did not qualify for
sale-leaseback treatment have been included in the table below.



                                  Long-term Real Estate Liabilities
                                  ---------------------------------
                                                            Net
                                    Future     Future      Future
                                   Minimum     Minimum    Minimum
                                    Rental    Sublease     Rental
Fiscal                            Payments    Rentals    Payments
- ------                            ---------   --------   ---------
                                                
2007                              $  36,356    $ 4,565   $  31,791
2008                                 36,498      4,354      32,144
2009                                 36,714      3,980      32,734
2010                                 36,830      3,077      33,753
2011                                 37,023      2,162      34,861
2012 and thereafter                 455,903      6,711     449,192
                                  ---------    -------   ---------
                                    639,324     24,849     614,475
Less interest portion              (338,492)        --    (338,492)
                                  ---------    -------   ---------
Present value of future minimum
   rental payments                $ 300,832    $24,849   $ 275,983
                                  =========    =======   =========



                                       77



                 THE GREAT ATLANTIC & PACIFIC TEA COMPANY, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

     The remaining 1 and 4 properties sold and simultaneously leased back from
the purchaser during fiscal 2006 and fiscal 2005, respectively, had a carrying
value of approximately $2.5 million and $16.1 million, respectively. Net
proceeds received related to these transactions amounted to approximately $9.2
million and $32.6 million, respectively. These properties were sold for a profit
resulting in (i.) a gain that was immediately recognized of $1.3 million and
$5.1 million, respectively, as we are leasing back more than a minor part but
less than substantially all of the property sold in accordance with SFAS 28,
"Accounting for Sales with Leasebacks," and (ii.) a deferred gain after
deducting expenses of $5.4 million and $11.1 million, respectively, which will
be recognized as an offset to rent expense over the remaining life of the
leases.

     During fiscal 2006, fiscal 2005, and fiscal 2004, we recognized gains
related to all of our sale-leaseback transactions of $5.3 million, of which $1.3
million related to recognition of a portion of the gain on sale in the current
year as we are leasing back more than a minor part but less than substantially
all of the property as discussed above, $8.8 million, of which $5.1 million
related to recognition of a portion of the gain on sale in the current year as
we are leasing back more than a minor part but less than substantially all of
the property sold as discussed above, and $2.6 million, respectively. The
remaining deferred gain at February 24, 2007 and February 25, 2006 amounted to
$64.7 million and $63.5 million, respectively.

NOTE 12 - INCOME TAXES

     The components of (loss) income from continuing operations before income
taxes were as follows:



                Fiscal 2006   Fiscal 2005   Fiscal 2004
                -----------   -----------   -----------
                                   
United States    $(35,572)      $471,149     $(224,498)
Canada                 --         48,201        41,017
                 --------       --------     ---------
   Total         $(35,572)      $519,350     $(183,481)
                 ========       ========     =========


     The benefit from (provision for) income taxes from continuing operations
consisted of the following:



                                            Fiscal 2006   Fiscal 2005   Fiscal 2004
                                            -----------   -----------   -----------
                                                               
Current:
Federal                                       $65,430      $ (90,448)     $    --
Canadian                                           --        (18,539)       2,603
State and local                                (3,494)       (19,238)      (4,500)
Canadian tax on dividends                         152           (702)          --
                                              -------      ---------      -------
                                               62,088       (128,927)      (1,897)
                                              -------      ---------      -------
Deferred:
Federal                                            --             --           --
Canadian                                           --             --        1,369
State and local                                    --             --           --
                                              -------      ---------      -------
                                                   --             --        1,369
                                              -------      ---------      -------
Benefit from (provision for) income taxes     $62,088      $(128,927)     $  (528)
                                              =======      =========      =======


     The deferred income tax benefit (provision) resulted primarily from the
annual change in temporary differences between amounts of assets and liabilities
for financial reporting purposes and such amounts as measured by tax
regulations, net operating loss ("NOL") carryforwards and, in fiscal 2006,
fiscal 2005 and fiscal 2004, the U.S. valuation allowance. In accordance with
SFAS


                                       78



                 THE GREAT ATLANTIC & PACIFIC TEA COMPANY, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

109 "Accounting for Income Taxes", a valuation allowance is created and offset
against the net deferred tax asset if, based on existing facts and
circumstances, it is more likely than not that some portion or all of the
deferred tax asset will not be realized. In future periods, we will continue to
record a valuation allowance against net deferred tax assets that are created by
U.S. losses. The valuation allowance will be adjusted when and if, in our
opinion, significant positive evidence exists which indicates that it is more
likely than not that we will be able to realize the U.S. deferred tax asset.

     During fiscal 2006, the U.S. valuation allowance was decreased by $2.7
million resulting from an increase of $19.1 million that was recorded through
the current year tax benefit in our Consolidated Statement of Operations offset
by a decrease of $21.8 million relating to several reclassifications to various
balance sheet items in our Consolidated Balance Sheet at February 24, 2007.

     During fiscal 2005 the U.S. valuation allowance was decreased by $241.8
million.

     In October 2004, the U.S. government passed the "Homeland Investment Act"
which allows companies to repatriate cash balances from their controlled foreign
subsidiaries at a reduced tax rate. This is achieved by permitting a one time
85% dividends received deduction. As discussed in Note 3 - Equity Investment in
Metro, Inc., our Company completed the sale of our Canadian subsidiary to Metro,
Inc. during fiscal 2005. As a result of this transaction, our Company
repatriated $949.0 million from our foreign subsidiaries, of which $500.0
million is intended to qualify for the 85% dividends received deduction. Until
such time as the taxing authorities have affirmed the adequacy of our Company's
Domestic Reinvestment Plan, we recorded a tax provision of $98.1 million, in
fiscal 2005, for the potential disallowance of the 85% dividend received
deduction. This amount was recorded in "(Provision for) benefit from income
taxes" in our Consolidated Statements of Operations for fiscal 2005 and in
"Other non-current liabilities" in our Consolidated Balance Sheet at February
25, 2006. During fiscal 2006, this tax provision was reduced by $66.2 million,
principally due to the recognition of foreign tax credits of $39.8 million and a
tax benefit of $34.8 million from current year operating losses, offset by
interest of $1.8 million and an increase to our valuation allowance of $6.0
million. This reduction was recorded in "Benefit from (provision for) income
taxes" in our Statements of Consolidated Operations for fiscal 2006. In
addition, as a result of the completion of our tax return during the third
quarter, the provision was reduced by $4.9 million along with a corresponding
increase in current taxes payable of $4.9 million. Finally, the provision was
also reduced for adjustments impacting state taxes currently payable and
additional paid in capital of $2.6 million for fiscal 2006. The balance in the
provision of $24.4 million is included in "Other non-current liabilities" in our
Consolidated Balance Sheet at February 24, 2007.

     The deferred tax benefit recorded in fiscal 2004 for our Canadian
operations of approximately $1.4 million reflects temporary differences. During
fiscal 2004, the U.S. valuation allowance was increased by $89.6 million.

     At February 26, 2005, the undistributed earnings of our foreign
subsidiaries amounted to approximately $178.1 million. We had not recorded
deferred income taxes on the undistributed earnings of our foreign subsidiaries
since at such time our intent was to indefinitely reinvest such earnings. Upon
distribution of these earnings in the form of dividends or otherwise, we may be
subject to U.S. income taxes and foreign withholding


                                       79



                 THE GREAT ATLANTIC & PACIFIC TEA COMPANY, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

taxes. As a result of the sale of our Canadian operations, our undistributed
earnings of our foreign subsidiaries were reduced to $36.2 million and $3.1
million at February 24, 2007 and February 25, 2006, respectively.

     The components of net deferred tax assets (liabilities) are as follows:



                                                        February 24,   February 25,
                                                            2007           2006
                                                        ------------   ------------
                                                                 
CURRENT ASSETS:
   Insurance reserves                                     $  17,583     $  23,096
   Other reserves and accrued benefits                       33,845        53,196
   Accrued postretirement and postemployment benefits           603           756
   Lease obligations                                            526           522
   Pension obligations                                       15,374        17,868
   Miscellaneous                                              2,993         3,397
                                                          ---------     ---------
                                                             70,924        98,835
                                                          ---------     ---------
CURRENT LIABILITIES:
   Inventories                                               (7,839)       (9,422)
   Health and welfare                                        (1,596)         (405)
   Miscellaneous                                             (1,917)       (1,657)
                                                          ---------     ---------
                                                            (11,352)      (11,484)
                                                          ---------     ---------
Valuation allowance                                         (19,360)      (27,318)
                                                          ---------     ---------
Deferred income taxes included in prepaid expenses
   and other current assets                               $  40,212     $  60,033
                                                          =========     =========




                                                        February 24,   February 25,
                                                            2007           2006
                                                        ------------   ------------
                                                                 
NON-CURRENT ASSETS:
   Alternative minimum tax credits                        $  38,048     $  32,035
   Other reserves including asset disposition charges        55,751        63,123
   Lease obligations                                          4,318         4,287
   Equity investment in Metro, Inc.                          21,627            --
   Insurance reserves                                        39,122        34,319
   Accrued postretirement and postemployment benefits        10,843        17,445
   Pension obligations                                          756         1,307
   Step rents                                                24,702        24,877
   State tax                                                  5,582         2,082
   Miscellaneous                                                723           349
                                                          ---------     ---------
                                                            201,472       179,824
                                                          ---------     ---------
NON-CURRENT LIABILITIES:
   Depreciation                                            (177,888)     (178,920)
   Pension obligations                                       (7,892)       (9,933)
   Miscellaneous                                               (908)       (1,302)
                                                          ---------     ---------
                                                           (186,688)     (190,155)
                                                          ---------     ---------
Valuation allowance                                         (54,996)      (49,702)
                                                          ---------     ---------
Net non-current deferred income tax liability
   included in Other non-current liabilities              $ (40,212)    $ (60,033)
                                                          =========     =========


     As of February 24, 2007 and February 25, 2006, we had no NOL carryforwards
or carrybacks from our U.S. operations available for financial reporting under
U.S. generally accepted accounting principles.

     Income tax payments, net of income tax refunds for fiscal 2006, 2005 and
2004 were


                                       80



                 THE GREAT ATLANTIC & PACIFIC TEA COMPANY, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

approximately $4.4 million, $23.8 million and $12.3 million, respectively.

     A reconciliation of income taxes from continuing operations at the 35%
federal statutory income tax rate for fiscal 2006, 2005 and 2004 to income taxes
as reported is as follows:



                                                 Fiscal 2006   Fiscal 2005   Fiscal 2004
                                                 -----------   -----------   -----------
                                                                    
Income tax benefit from (provision) continuing
   operations computed at federal
   statutory income tax rate                      $ 12,450      $(181,773)    $ 64,218
State and local income taxes, net of
   federal tax benefit                              (2,271)       (12,505)      (2,925)
Tax rate differential relating to Canadian
   operations                                           --         (2,271)       2,358
Permanent difference relating to the sale of
   Canadian assets                                  66,357       (129,096)          --
Permanent difference relating to purchase
   of Canadian franchisees                              --             --       (8,590)
Other permanent differences                           (418)          (399)        (527)
Change in estimate of balance sheet items               --             --       16,265
U.S. valuation allowance                           (14,030)       197,117      (71,327)
                                                  --------      ---------     --------
   Income tax benefit (provision), as reported    $ 62,088      $(128,927)    $   (528)
                                                  ========      =========     ========


     For fiscal 2006, our effective income tax rate of 174.5% changed from the
effective income tax rate of 24.8% for fiscal 2005. For fiscal 2005, our
effective income tax rate of 24.8% changed from the effective income tax rate of
0.3% for fiscal 2004. Refer to table below:



                      Fiscal 2006                Fiscal 2005                  Fiscal 2004
                -----------------------   -------------------------   ---------------------------
                              Effective                   Effective   Tax (Provision)   Effective
                Tax Benefit    Tax Rate   Tax Provision    Tax Rate       Benefit        Tax Rate
                -----------   ---------   -------------   ---------   ---------------   ---------
                                                                      
United States     $62,088      (174.5%)     $(110,388)       21.3%        $(4,500)         2.5%
Canada                 --          --         (18,539)        3.5%          3,972         (2.2%)
                  -------      ------       ---------        ----         -------         ----
                  $62,088      (174.5%)     $(128,927)       24.8%        $  (528)         0.3%
                  =======      ======       =========        ====         =======         ====


Fiscal 2006 as compared to Fiscal 2005

     The change in our effective tax rate was primarily due to (i.) the
recognition of tax benefits as we continue to experience operating losses and
these operating losses decrease the overall tax provision previously recorded
during fiscal 2005 in connection with our Company's Domestic Reinvestment Plan
as discussed above and events surrounding the sale of our Canadian operations in
fiscal 2005, (ii) the recognition of foreign tax credits, (iii) the increase in
our valuation allowance that was recorded through the current year tax benefit
as discussed above, (iv) the tax benefit from not providing deferred taxes on
the undistributed earnings of our investment in Metro, Inc., and (v.) the
absence of a tax provision that was recorded for our Canadian operations during
fiscal 2005 that was not recorded during fiscal 2006 due to the sale of our
Canadian operations during the second quarter of fiscal 2005.


                                       81


                 THE GREAT ATLANTIC & PACIFIC TEA COMPANY, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

Fiscal 2005 as compared to Fiscal 2004

     The change in our effective tax rate was primarily due to the tax
provisions we recorded in the U.S. in connection with (i.) our Company's
Domestic Reinvestment Plan as discussed above and (ii.) the sale of our Canadian
operations that occurred during fiscal 2005.

NOTE 13 - RETIREMENT PLANS AND BENEFITS

     On February 24, 2007, we adopted SFAS 158 which requires that we recognize
the funded status of our defined benefit pension and other postretirement
benefit plans as a net liability or asset on our balance sheets and requires any
unrecognized prior service costs and actuarial gains or losses to be recognized
as a component of accumulated other comprehensive income or loss. Minimum
pension liabilities and related intangible assets are derecognized upon
adoption. SFAS 158 also requires that beginning in our fiscal 2008, our
assumptions used to measure our annual expenses be determined as of the balance
sheet date (February 28, 2009), and all plan assets and liabilities to be
reported as of that date. Retroactive application of this accounting rule is
prohibited; therefore, fiscal 2006 is presented as required under SFAS 158 and
fiscal 2005 is presented as required under the accounting rules prior to SFAS
158. The adoption in fiscal 2006 had no effect on the computation of net
periodic benefit expense for pensions and postretirement benefits.

     The incremental effects of applying SFAS 158 on individual lines in the
Consolidated Balance Sheet are as follows:



                                              Balances                    Balances
                                               Before                      After
                                            Adoption of                 Adoption of
                                              SFAS 158    Adjustments     SFAS 158
                                            -----------   -----------   -----------
                                                               
Prepaid expenses and other current assets    $   60,853    $  1,898     $   62,751
Other assets                                 $   47,200    $  6,646     $   53,846
Accrued salaries, wages and benefits         $  117,580    $ (1,861)    $  115,719
Other non-current liabilities                $  516,369    $ (8,791)    $  507,578
Accumulated other comprehensive income       $    3,692    $ 19,196     $   22,888
Total assets                                 $2,103,079    $  8,544     $2,111,623
Total liabilities                            $1,691,605    $(10,652)    $1,680,953
Total stockholders' equity                   $  411,474    $ 19,196     $  430,670


DEFINED BENEFIT PLANS

     We provide retirement benefits to certain non-union and union employees
under various defined benefit plans. Our 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. We fund these
plans in amounts consistent with the statutory funding requirements. We use
December 31 as their measurement date.

     The following tables set forth the change in benefit obligations, the
change in plan assets, the funded status, and the accumulated benefit obligation
for fiscal 2006 and 2005 for our defined benefit plans:


                                       82



                 THE GREAT ATLANTIC & PACIFIC TEA COMPANY, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED



                                                  2006       2005
                                                --------   --------
                                                     
CHANGE IN BENEFIT OBLIGATION
Benefit obligation - beginning of year          $212,231   $213,051
Service cost                                       5,609      5,998
Interest cost                                     11,368     11,887
Actuarial loss (gain)                              3,656     (3,746)
Benefits paid                                    (15,984)   (17,055)
Amendments                                         1,141      1,160
Special termination benefits                          --        936
                                                --------   --------
Benefit obligation - end of year                $218,021   $212,231
                                                ========   ========
CHANGE IN PLAN ASSETS
Plan assets at fair value - beginning of year   $197,107   $205,644
Actual return on plan assets                      16,758      4,160
Company contributions                              4,304      4,358
Benefits paid                                    (15,984)   (17,055)
                                                --------   --------
   Plan assets at fair value - end of year      $202,185   $197,107
                                                ========   ========

RECONCILIATION OF FUNDED STATUS
Funded status                                   $(15,836)  $(15,124)
Unrecognized actuarial gain                           --     (1,635)
Unrecognized prior service cost                       --      1,689
                                                 --------   --------
   Net liability recognized                      (15,836)   (15,070)
                                                 --------   --------
Prepaid benefit cost                              18,790     23,668
Current accrued benefit liability                 (2,503)    (4,000)
Accrued benefit liability                        (32,123)   (40,518)
Intangible asset                                      --        874
Minimum pension liability                             --      4,906
                                                 --------   --------
   Net liability recognized                     $(15,836)  $(15,070)
                                                ========   ========
ACCUMULATED BENEFIT OBLIGATION                  $214,866   $209,793
                                                ========   ========


     Our Company expects approximately $0.1 million of the net actuarial loss
and $0.3 million of the prior service cost to be recognized as a component of
net periodic benefit cost in fiscal 2007.

     The prepaid pension asset is included in "Other assets" on the Consolidated
Balance Sheets while the pension liability is included in "Accrued salaries,
wages and benefits" and "Other non-current liabilities".



                                       83




                 THE GREAT ATLANTIC & PACIFIC TEA COMPANY, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

Amounts recognized in accumulated other comprehensive income (loss) at
February 24, 2007 are as follows:


                           
Net actuarial gain            $ 2,548
Prior service (cost) credit    (2,959)
Net transition obligation          --
                              -------
   Total                      $  (411)
                              =======



     Plans with accumulated benefit obligation in excess of plan assets
consisted of the following and only relate to U.S. plans:



                                   2006      2005
                                 -------   -------
                                     
Accumulated benefit obligation   $97,719   $93,401
Projected benefit obligation     $98,780   $93,529
Plan assets at fair value        $64,154   $61,507


     At February 25, 2006, our additional minimum pension liability for our
defined benefit plans exceeded the aggregate of the unrecognized prior service
costs and the net transition obligation. Accordingly, stockholders' equity was
increased by $1.5 million.

     The components of net pension cost (income) were as follows:



                                                           2005                  2004
                                           2006     ------------------   -------------------
                                           U.S.       U.S.      Canada     U.S.      Canada
                                         --------   --------   -------   --------   --------
                                                                     
Service cost                             $  5,609   $  5,998   $ 4,576   $  5,671   $  8,861
Interest cost                              11,368     11,887     6,519     12,016     13,192
Expected return on plan assets            (12,350)   (13,423)   (8,369)   (13,861)   (16,996)
Amortization of unrecognized net asset         --         --        --        (12)        --
Amortization of unrecognized net prior
   service (credit) cost                     (128)      (294)      286         95        560
Amortization of unrecognized net
   actuarial loss (gain)                      162         58       900       (131)     1,928
Curtailments and settlements                   --         --        --         70         --
Special termination benefits                   --        936        --         --         --
Administrative expenses and other              --         --       138      2,373        278
                                         --------   --------   -------   --------   --------
   Net pension cost (income)             $  4,661   $  5,162   $ 4,050      6,221   $  7,823
                                         ========   ========   =======   ========   ========


     The weighted average assumptions in the following table represent the rates
used to develop the actuarial present value of projected benefit obligation for
the year listed and also the net periodic benefit cost for the following year:


                                       84



                 THE GREAT ATLANTIC & PACIFIC TEA COMPANY, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED



                                                    2004            2003
                                 2006   2005    -------------   -------------
                                 U.S.   U.S.   U.S.   Canada   U.S.   Canada
                                 ----   ----   ----   ------   ----   ------
                                                    
Weighted average discount rate   5.75%  5.50%  5.75%   5.75%   6.00%   6.00%
Weighted average rate of
   compensation increase         2.75%  2.50%  2.75%   3.50%   3.00%   3.50%
Expected long-term rate of
   return on plan assets         6.75%  6.50%  6.50%   7.50%   7.00%   7.50%


     The expected long-term rate of return on plan assets for fiscal 2007 is
6.75% for the U.S. and represents the weighted average of expected returns for
each asset category. We determine our expected long-term rate of return based on
historical performance, adjusted for current trends.

     Our defined benefit pension plan weighted average asset allocations by
asset category were as follows:



                        Actual Allocation
                         at December 31,
                        -----------------
             Target        2006   2005
           Allocation      U.S.   U.S.
           ----------      ----   ----
                         
Equities    50 - 60%        65%    61%
Bonds       30 - 40%        33%    28%
Cash         5 - 10%         2%    11%
                           ---    ---
   Total                   100%   100%
                           ===    ===






                                  85



                 THE GREAT ATLANTIC & PACIFIC TEA COMPANY, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

     Our defined benefit pension plan has target asset allocation ranges of 30%
- - 60% for equity and fixed income securities. The Plan's assets are held in
trust funds and are actively managed by external fund managers. Equity security
investments consist of a broad range of publicly traded securities, ranging from
small to large capitalization stocks and are diversified in both growth and
value orientated strategies as well as diverse industry sectors. Fixed income
securities consist of a broad range of investments including U.S. government
securities, corporate debt securities, mortgages and other asset backed
obligations. The Plan does not allow for direct investments in the publicly
traded securities of our Company and investments in derivatives for speculative
purposes.

     Estimated future defined benefit payments expected to be paid from the U.S.
plan is as follows:

                 
2007                $13,984
2008                 14,398
2009                 13,836
2010                 14,251
2011                 14,262
Years 2012 - 2016    75,046



     We also expect to contribute $5.6 million in cash to our defined benefit
pension plans in fiscal 2007.

DEFINED CONTRIBUTION PLANS

     We maintain a defined contribution retirement plan to which we contribute
an amount equal to 4% of eligible participants' salaries and a savings plan to
which eligible participants may contribute a percentage of eligible salary. We
contribute to the savings plan based on specified percentages of the
participants' eligible contributions. Participants become fully vested in our
contributions after 5 years of service. Our contributions charged to operations
for both plans were


                                       86


                 THE GREAT ATLANTIC & PACIFIC TEA COMPANY, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

approximately $9.0 million, $9.3 million and $10.5 million in fiscal years 2006,
2005 and 2004, respectively.

MULTI-EMPLOYER UNION PENSION PLANS

     We participate 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 our
other pension plans. The pension expense for these plans approximated $32.1
million, $37.8 million and $44.4 million in fiscal 2006, 2005 and 2004,
respectively. We could, under certain circumstances, be liable for unfunded
vested benefits or other expenses of jointly administered union/management
plans, which benefits could be significant and material for our Company. As of
the balance sheet date, we have not established any liabilities for future
withdrawals because such withdrawals from these plans are not probable and the
amount cannot be estimated.


                                    87



                 THE GREAT ATLANTIC & PACIFIC TEA COMPANY, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED


POSTRETIREMENT BENEFITS

     We provide postretirement health care and life insurance benefits to
certain union and non-union employees. We recognize the cost of providing
postretirement benefits during employees' active service periods. We use a
December 31 measurement date for both our U.S. and Canadian postretirement
benefits.

     The following tables set forth the change in benefit obligations, the
change in plan assets, and the reconciliation of funded status for fiscal 2006
and 2005 for our postretirement benefit plans:



                                                   2006       2005
                                                 --------   --------
                                                      
CHANGE IN BENEFIT OBLIGATION
Benefit obligation - beginning of year           $22,052    $21,668
Service cost                                         375        338
Interest cost                                      1,172      1,198
Benefits paid                                     (1,499)    (1,655)
Actuarial (gain) loss                             (3,286)       503
                                                 -------    -------
   Benefit obligation - end of year              $18,814    $22,052
                                                 =======    =======

CHANGE IN PLAN ASSETS
Plan assets at fair value - beginning of year   $     --   $     --
Actual return on plan assets                          --         --
Company contributions                              1,499      1,655
Benefits paid                                     (1,499)    (1,655)
                                                --------   --------
   Plan assets at fair value - end of year      $     --   $     --
                                                ========   ========
RECONCILIATION OF FUNDED STATUS
Funded status                                   $(18,814)  $(22,052)
Unrecognized actuarial gain                           --     (5,424)
Unrecognized prior service benefit                    --     (6,470)
Contributions                                        173         --
                                                --------   --------
   Net liability recognized                      (18,641)   (33,946)
                                                --------   --------
Current liability                                 (1,036)    (1,400)
Noncurrent liability                             (17,605)   (32,546)
                                                --------   --------
   Net liability recognized                     $(18,641)  $(33,946)
                                                ========   ========
Assumed discount rate                               5.75%      5.50%
                                                ========   ========



                                       88



                 THE GREAT ATLANTIC & PACIFIC TEA COMPANY, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

     Our Company expects approximately $0.4 million of the net actuarial gain
and $1.3 million of the prior service cost credit to be recognized as a
component of net periodic benefit cost in fiscal 2007.

     The pension liability is included in "Accrued salaries, wages and benefits"
and "Other non-current liabilities".

     Amounts recognized in accumulated other comprehensive income (loss) at
February 24, 2007 are as follows:

                                                             
Net actuarial gain                                          $ 8,488
Prior service (cost) credit                                   5,123
Net transition obligation                                        --
                                                            -------
   Total                                                    $13,611
                                                            =======



     The components of net postretirement benefits cost (income) are as follows:



                                                      52 Weeks Ended
                                        ------------------------------------------
                                        December 31,   December 31,   December 31,
                                            2006           2005           2004
                                        ------------   ------------   ------------
                                                             
U.S. PLANS
Service cost                              $   375        $   338        $   286
Interest cost                               1,172          1,198          1,194
Prior service cost                         (1,347)        (1,347)        (1,347)
Amortization of gain                         (222)          (278)          (413)
                                          -------        -------        -------
   Net postretirement benefits income     $   (22)       $   (89)       $  (280)
                                          =======        =======        =======
Discount rate                                5.50%          5.75%          6.00%
                                          =======        =======        =======




                                                      52 Weeks Ended
                                        ------------------------------------------
                                        December 31,   December 31,   December 31,
                                            2006           2005           2004
                                        ------------   ------------   ------------
                                                             
CANADIAN PLANS
Service cost                                 $--          $  75         $   152
Interest cost                                 --            270             529
Prior service cost                            --           (148)         (3,714)
Amortization of loss                          --            118             216
                                             ---          -----         -------
   Net postretirement benefits cost
      (income)                               $--          $ 315         $(2,817)
                                             ===          =====         =======
Discount rate                                 --           5.75%           6.00%
                                             ===          =====         =======


     The assumed rate of future increase in health care benefit cost for fiscal
2007 was 9.70% - 10.50% and is expected to decline to 5.0% by the year 2018 and
remain at that level thereafter. For the U.S. plan, the effect of a 1% change in
the assumed health care cost trend rate for each future year on the sum of
service and interest cost would either be an increase or decrease of $0.1


                                       89



                 THE GREAT ATLANTIC & PACIFIC TEA COMPANY, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

million, while the accumulated postretirement benefit obligation would either
increase by $1.1 million or decrease by $1.0 million.

     Estimated future postretirement benefit payments expected to be paid in the
U.S. are as follows:

                                                    
2007                                                   $1,036
2008                                                    1,061
2009                                                    1,151
2010                                                    1,174
2011                                                    1,225
Years 2012 - 2016                                       6,511



POSTEMPLOYMENT BENEFITS

     We accrue costs for pre-retirement, postemployment benefits provided to
former or inactive employees and recognize an obligation for these benefits. The
costs of these benefits have been included in operations for each of the three
fiscal years ending February 24, 2007. As of February 24, 2007 and February 25,
2006, we had a liability reflected on the Consolidated Balance Sheets of $15.2
million and $22.4 million, respectively, related to such benefits.

                                    90



                 THE GREAT ATLANTIC & PACIFIC TEA COMPANY, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED


NOTE 14 - STOCK BASED COMPENSATION

     In December 2004, the FASB issued FAS 123R (revised 2004), "Share-Based
Payment" ("FAS 123R"). FAS 123R is a revision of FAS No. 123, as amended,
"Accounting for Stock-Based Compensation" ("FAS 123") and supersedes Accounting
Principles Board Opinion ("APB") No. 25, "Accounting for Stock Issued to
Employees." FAS 123R eliminates the alternative to use the intrinsic value
method of accounting that was provided in FAS 123, which generally resulted in
no compensation expense recorded in the financial statements related to the
issuance of equity awards to employees. FAS 123R requires that the cost
resulting from all share-based payment transactions be recognized in the
financial statements. FAS 123R establishes fair value as the measurement
objective in accounting for share-based payment arrangements and requires all
companies to apply a fair-value-based measurement method in accounting for
generally all share-based payment transactions with employees.

     On February 27, 2005 (the first day of our 2005 fiscal year), our Company
adopted FAS 123R. FAS 123R is a revision of FAS No. 123, as amended, "Accounting
for Stock-Based Compensation" ("FAS 123") and supersedes Accounting Principles
Board Opinion ("APB") No. 25, "Accounting for Stock Issued to Employees." Our
Company adopted FAS 123R using a modified prospective application, as permitted
under FAS 123R. Accordingly, prior period amounts have not been restated. Under
this application, we are required to record compensation expense for all awards
granted after the date of adoption and for the unvested portion of previously
granted awards that remain outstanding at the date of adoption.

     Prior to the adoption of FAS 123R, we applied APB 25 to account for our
stock-based awards. Under APB 25, we generally only recorded stock-based
compensation expense for our performance stock options issued under our 1998
Long Term Incentive and Share Award Plan and common stock issued under our 2004
Non-Employee Director Compensation Plan. Under


                                       91



                 THE GREAT ATLANTIC & PACIFIC TEA COMPANY, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

the provisions of APB 25, we were not required to recognize compensation expense
for the cost of stock options. Beginning with our fiscal 2005 year, with the
adoption of FAS 123R, we recorded stock-based compensation expense for the cost
of stock options.

     During fiscal 2006 and fiscal 2005, compensation expense related to
share-based incentive plans was $8.2 million and $9.0 million, after tax,
respectively. Included in share-based compensation expense recorded during
fiscal 2006 and fiscal 2005, was $1.1 million and $2.5 million, respectively,
related to expensing of stock options, $6.0 million and $4.8 million,
respectively, relating to expensing of restricted stock, nil and $1.1 million
relating to the immediate vesting of certain stock options, and $1.1 million and
$0.6 million, respectively, relating to expensing of common stock to be granted
to our Board of Directors at the Annual Meeting of Stockholders.

     At February 24, 2007, we had two stock-based compensation plans. The
general terms of each plan, the method of estimating fair value for each plan
and fiscal 2005 and 2006 activity is reported below.

I.   The 1998 Long Term Incentive and Share Award Plan: This plan provides for
     the grant of awards in the form of options, SAR's, restricted shares,
     restricted share units, performance shares, performance units, dividend
     equivalent, or other share based awards to our Company's officers and key
     employees. The total number of shares available for issuance under this
     plan is 8,000,000 subject to anti-dilution provisions. Options and SAR's
     issued under this plan vest 25% on each anniversary date of issuance over a
     four year period.

     Performance restricted stock units issued under this plan during fiscal
     2005 are earned based on our Company achieving in Fiscal 2007 a profit
     after taxes, after adjusting for specific matters which our Company
     considers to be of a non-operating nature, with an outlook for continued,
     sustainable profitability on the same basis. The units will vest 50% based
     on achievement of a net profit in fiscal 2007 and 50% based on achievement
     of a net profit in fiscal 2008.

     Performance restricted stock units issued under this plan during fiscal
     2006 are earned based on our Company achieving certain operating targets in
     Fiscal 2008 and are 100% vested in Fiscal 2008 upon achievement of those
     targets.

                                      92



                 THE GREAT ATLANTIC & PACIFIC TEA COMPANY, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED


     The stock option awards under The 1998 Long Term Incentive and Share Award
     Plan are granted at the fair market value of the Company's common stock at
     the date of grant. Fair value calculated under SFAS 123, as amended,
     "Accounting for Stock-Based Compensation" is used to recognize expense upon
     adoption of SFAS 123R. Fair values for each grant were estimated using a
     Black-Scholes valuation model which utilized assumptions as detailed in the
     following table for expected life based upon historical option exercise
     patterns, historical volatility for a period equal to the stock option's
     expected life, and risk-free rate based on the U.S. Treasury constant
     maturities in effect at the time of grant. During fiscal 2005, our Company
     did not grant any stock options under this plan. The following assumptions
     were in place during fiscal 2006 and fiscal 2004:



                                Fiscal 2006    Fiscal 2004
                                -----------   -------------
                                        
Expected life                     7 years        7 years
Volatility                          56%            54%
Risk-free interest rate range      4.96%      3.17% - 4.51%



The SAR awards under The 1998 Long Term Incentive and Share Award Plan were
granted at the fair market value of the Company's common stock at the date of
the grant.

Performance restricted stock units issued under The 1998 Long Term Incentive and
Share Award Plan are granted at the fair market value of the Company's common
stock at the date of grant, adjusted by an estimated forfeiture rate.

                                    93


                 THE GREAT ATLANTIC & PACIFIC TEA COMPANY, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED



Stock options

The following is a summary of the stock option activity during fiscal 2004,
fiscal 2005, and fiscal 2006:



                                                             Weighted
                                                Weighted      Average
                                                 Average     Remaining    Aggregate
                                                Exercise    Contractual   Intrinsic
                                     Shares       Price    Term (years)     Value
                                   ----------   --------   ------------   ---------
                                                              
Outstanding at February 28, 2004    5,358,824     14.24
   Granted                             74,000      7.67
   Canceled or expired               (750,372)    13.83
   Exercised                         (218,318)     7.32
                                   ----------    ------
Outstanding at February 26, 2005    4,464,134     14.53
   Granted                                 --        --
   Canceled or expired               (551,064)    17.04
   Exercised                       (2,378,685)    10.92
                                   ----------    ------
Outstanding at February 25, 2006    1,534,385    $19.24
   Adjustment for dividend*           371,995        --
   Granted                             86,430     27.71
   Canceled or expired               (253,726)    21.44
   Exercised                         (414,104)    14.35
                                   ----------    ------
Outstanding at February 24, 2007    1,324,980    $15.50         3.9        $20,633
                                   ==========    ======         ===        =======
Exercisable at:
   February 24, 2007                1,186,586    $15.22         3.4        $18,810
                                                                ===        =======
Nonvested at:
   February 24, 2007                  138,394    $17.90         8.0        $ 1,823
                                                                ===        =======


     The total intrinsic value of options exercised during fiscal 2006 and
fiscal 2005 was $5.9 million and $51.0 million, respectively.

     As of February 24, 2007, approximately $0.7 million, after tax, of total
unrecognized compensation expense related to unvested stock option awards will
be recognized over a weighted average period of 0.8 year.

     The amount of cash received from the exercise of stock options in fiscal
2006 was approximately $6.0 million.


                                       94


                 THE GREAT ATLANTIC & PACIFIC TEA COMPANY, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED


SAR's

The following is a summary of the SAR's activity during fiscal 2004, fiscal
2005, and fiscal 2006:



                                             Weighted
                                              Average
                                             Exercise
                                    Shares     Price
                                   -------   --------
                                       
Outstanding at February 28, 2004    12,500     31.63
   Granted                              --        --
   Canceled or expired                  --        --
   Exercised                            --        --
                                   -------    ------
Outstanding at February 26, 2005    12,500    $31.63
   Granted                              --        --
   Canceled or expired             (12,500)    31.63
   Exercised                            --        --
                                   -------    ------
Outstanding at February 25, 2006        --    $   --
   Granted                              --        --
   Canceled or expired                  --        --
   Exercised                            --        --
                                   -------    ------
Outstanding at February 24, 2007        --    $   --
                                   =======    ======


Performance Restricted Stock Units

During fiscal 2006 and fiscal 2005, our Company granted 393,162 shares and
1,905,000 shares of performance restricted stock units to selected employees,
respectively, for a total grant date fair value of $10.8 million and $25.4
million, respectively. Approximately $12.6 million of unrecognized fair value
compensation expense relating to these performance restricted stock units and
those issued in the previous year are expected to be recognized through fiscal
2009 based on estimates of attaining vesting criteria.

                                      95




                THE GREAT ATLANTIC & PACIFIC TEA COMPANY, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED


The following is a summary of the performance restricted stock units activity
during fiscal 2005 and fiscal 2006:



                                               Weighted
                                                Average
                                              Grant Date
                                   Shares     Fair Value
                                 ----------   ----------
                                        
Nonvested at February 26, 2005           --     $   --
   Granted                        1,905,000      13.34
   Canceled or expired             (620,000)     11.12
   Exercised                             --         --
                                 ----------     ------
Nonvested at February 25, 2006    1,285,000     $14.42
   Adjustment for dividend*         339,369         --
   Granted                          393,162      27.59
   Canceled or expired             (250,080)     13.38
   Exercised                             --         --
                                 ----------     ------
Nonvested at February 24, 2007    1,767,451     $14.73
                                 ==========     ======


*    As discussed in Note 3 - Special One-Time Dividend, our Company adjusted
     the number and/or price of all unexercised stock options and nonvested
     performance restricted stock units as of April 12, 2006, to ensure that an
     individual's right to purchase stock at an aggregate value remained the
     same both before and after the special one-time dividend payment. These
     adjustments had no impact on stock compensation expense for fiscal 2006.

II.  2004 Non-Employee Director Compensation Plan: This plan provides for the
     annual grant of Company common stock equivalent of $90 to members of our
     Board of Directors. The $90 grant of common stock shall be made on the
     first business day following the Annual Meeting of Stockholders. The number
     of shares of our Company's $1.00 common stock granted annually to each
     non-employee Director will be based on the closing price of the common
     stock on the New York Stock Exchange, as reported in the Wall Street
     Journal on the date of grant. Only whole shares will be granted; any
     remaining amounts will be paid in cash as promptly as practicable following
     the date of grant.


                                       96



                 THE GREAT ATLANTIC & PACIFIC TEA COMPANY, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

NOTE 15 - OPERATING SEGMENTS

     Operating segments are defined as components of an enterprise about which
separate financial information is available that is evaluated regularly by the
chief operating decision maker in deciding how to allocate resources and in
assessing performance. Our chief operating decision maker is our President and
Chief Executive Officer.

     During fiscal 2006, we operated in two reportable segments: United States
and our investment in Metro, Inc. During fiscal 2005, we operated in three
reportable segments: United States, Canada, and our investment in Metro, Inc.
During fiscal 2004, we operated in two reportable segments: United States and
Canada. Our United States and Canadian segments are comprised of retail
supermarkets. Our equity investment represents our economic interest in Metro,
Inc. and is required to be reported as an operating segment in accordance with
SFAS 131, "Disclosure about Segments of an Enterprise and Related Information"
as our investment is greater than 10% of our Company's combined assets of all
operating segments and we have significant influence over substantive operating
decisions through our membership on Metro, Inc.'s Board of Directors and its
committees and information technology services agreement. The accounting
policies for these segments are the same as those described in the summary of
significant accounting policies included in our Fiscal 2006 Annual Report. We
measure segment performance based upon (loss) income from operations.


                                   97



                 THE GREAT ATLANTIC & PACIFIC TEA COMPANY, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED



     Information on segments is as follows:



OPERATING DATA                     Fiscal 2006   Fiscal 2005   Fiscal 2004
- --------------                     -----------   -----------   -----------
                                                      
Sales
   United States                    $6,850,268    $7,016,468   $ 7,317,591
   Canada *                                 --     1,723,879     3,537,320
                                    ----------    ----------   -----------
      Total Company                 $6,850,268    $8,740,347   $10,854,911
                                    ==========    ==========   ===========
Sales by category
   Grocery (1)                      $4,643,735    $5,803,118   $ 7,154,136
   Meat (2)                          1,347,293     1,771,511     2,266,776
   Produce (3)                         841,568     1,156,537     1,433,999
   Other (4)                            17,672         9,181            --
                                    ----------    ----------   -----------
      Total Company                 $6,850,268    $8,740,347   $10,854,911
                                    ==========    ==========   ===========


(1)  The grocery category includes grocery, frozen foods, dairy, general
     merchandise/health and beauty aids, liquor, pharmacy and fuel.

(2)  The meat category includes meat, deli, bakery and seafood.

(3)  The produce category includes produce and floral.

(4)  Other includes sales from an information technology services agreement with
     Metro, Inc. Refer to Note 17 - Related Party Transactions for further
     discussion.

                                                      
Depreciation and amortization
   United States                    $ 177,754     $ 196,387    $   201,987
   Canada *                                --        10,942         66,118
                                    ---------     ---------    -----------
      Total Company                   177,754       207,329        268,105
                                    =========     =========    ===========
Loss (income) from operations **
   United States                    $ (10,075)    $(377,882)   $  (129,243)
   Canada *                                --        57,224         56,321
                                    ---------     ---------    -----------
      Total Company                 $ (10,075)    $(320,658)   $   (72,922)
                                    =========     =========    ===========




                                       98



                 THE GREAT ATLANTIC & PACIFIC TEA COMPANY, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED



OPERATING DATA                             Fiscal 2006   Fiscal 2005   Fiscal 2004
- --------------                             -----------   -----------   -----------
                                                              
Interest expense
   United States                            $(73,814)     $(83,886)     $ (96,986)
   Canada *                                       --        (8,362)       (17,121)
                                            --------      --------      ---------
      Total Company                         $(73,814)     $(92,248)     $(114,107)
                                            ========      ========      =========
Interest income
   United States                            $  9,613      $ 12,987      $   1,731
   Canada *                                       --           470          1,045
                                            --------      --------      ---------
      Total Company                         $  9,613      $ 13,457      $   2,776
                                            ========      ========      =========
(Loss) income from continuing operations
   before income taxes **
   United States                            $(75,575)     $463,348      $(224,498)
   Canada *                                       --        48,201         41,017
   Equity investment in Metro, Inc.           40,003         7,801             --
                                            --------      --------      ---------
      Total Company                         $(35,572)     $519,350      $(183,481)
                                            ========      ========      =========


*    We sold our Canadian operations during fiscal 2005; thus, we have included
     the operating results of our Canadian subsidiary through the date of the
     sale.

**   (Loss) income from operations and (loss) income from continuing operations
     before income taxes for fiscal 2004 exclude U.S. charges to Canada of $70.7
     million, which are not considered for management reporting.



                                       99



                 THE GREAT ATLANTIC & PACIFIC TEA COMPANY, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED




                                         February 24,   February 25,   February 26,
FINANCIAL POSITION DATA                      2007           2006           2005
- -----------------------                  ------------   ------------   ------------
                                                              
Capital expenditures
   United States                          $  208,159     $  143,849     $  125,755
   Canada                                         --         47,201         90,387
                                          ----------     ----------     ----------
      Total Company                       $  208,159     $  191,050     $  216,142
                                          ==========     ==========     ==========
Total assets
   United States                          $1,742,752     $2,160,109     $1,958,566
   Canada                                         --             --        843,402
   Equity investment in Metro, Inc.          368,871        338,756             --
                                          ----------     ----------     ----------
      Total Company                       $2,111,623     $2,498,865     $2,801,968
                                          ==========     ==========     ==========
Long-lived assets
   United States                          $  925,132     $  875,140     $1,016,434
   Canada                                         --             --        466,273
                                          ----------     ----------     ----------
      Total Segments                      $  925,132     $  875,140     $1,482,707
         Less: Goodwill and other
            intangible assets included
            in "Other assets"                 (5,810)            --         (6,133)
                                          ----------     ----------     ----------
            Property owned - net          $  919,322     $  875,140     $1,476,574
                                          ==========     ==========     ==========



                                      100



                 THE GREAT ATLANTIC & PACIFIC TEA COMPANY, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

NOTE 16 - HURRICANE KATRINA AND IMPACT ON U.S. BUSINESS

     During the second quarter of fiscal 2005, Hurricane Katrina had a major
effect on certain portions of the Gulf Coast region and resulted in the closure
of our 28 stores and warehouse facilities. As of February 24, 2007, 23 of these
stores were open and operating and the remaining 5 stores were closed in fiscal
2005.

     During fiscal 2005, we recorded a charge for future occupancy costs of $7.1
million for our 5 closed stores, which has been included in "Store operating,
general and administrative expense" in our Statement of Consolidated Operations
for fiscal 2005.

     As of the balance sheet date, February 25, 2006, we were able to determine
that we incurred impairment losses of $6.1 million for property, plant &
equipment that were not covered by insurance. This amount has been included in
"Store operating, general and administrative expense" in our Statements of
Consolidated Operations and in "Impairment loss relating to Hurricane Katrina"
in our Consolidated Statement of Cash Flows for fiscal 2005.

     We maintain property insurance coverage which provides for reimbursement
from losses resulting from property damage, loss of product as well as business
interruption coverage. We have recovered and expect to recover the remaining
losses caused by Hurricane Katrina in excess of our estimated insurance
deductible of approximately $5.0 million, which was recorded in "Store
operating, general and administrative expense" in our Consolidated Statements of
Operations for fiscal 2005. During fiscal 2006, we recorded a gain of $9.2
million representing an insurance settlement for a portion of our losses caused
by Hurricane Katrina, which has been included as a reduction to "Store
operating, general and administrative expense" in our Statement of Consolidated
Operations for fiscal 2006.

NOTE 17 - RELATED PARTY TRANSACTIONS

     At the close of business on August 13, 2005, our Company completed the sale
of our Canadian business to Metro, Inc., a supermarket and pharmacy operator in
the Provinces of Quebec and Ontario, Canada, for $1.5 billion in cash, stock and
certain debt that was assumed by Metro, Inc. We use the equity method of
accounting to account for our investment in Metro, Inc. on the basis that we
have significant influence over substantive operating decisions made by Metro,
Inc. through our membership on Metro, Inc.'s Board of Directors and its
committees and information technology services agreement. Refer to Note 4 -
Equity Investment in Metro, Inc. for further discussion.

     Simultaneously with the sale, we entered into an Information Technology
Transition Services Agreement with Metro, Inc., where our Company will provide
certain information technology and other services, to Metro, Inc. for a period
of 2 years from the date of sale with the potential to extend the agreement for
two additional six month renewal periods. This agreement provides for Metro,
Inc. to pay our Company a fee of C$20 million (U.S. $17.6 million) per year.
Accordingly, we have recorded $17.7 million and $9.2 million in "Sales" in our
Consolidated Statements of Operations for fiscal 2006 and fiscal 2005,
respectively.


                                      101



                 THE GREAT ATLANTIC & PACIFIC TEA COMPANY, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

     Metro, Inc. also leased a shopping center in Toronto, Ontario, Canada from
our Company. The lease commenced at the time of the sale and expires on October
4, 2015. It included four 5 year renewal options. The base annual rent was C$0.8
million (U.S. $0.7 million). During the third quarter of fiscal 2006, our
Company sold this shopping center to Metro, Inc. generating proceeds of C$10.3
million (U.S. $9.1 million) and a net gain, after transaction related costs, of
$4.5 million which was recorded in "Store operating, general and administrative
expense" in our Consolidated Statements of Operations in fiscal 2006.

     A&P Properties Limited, a former subsidiary of our Company, leased a store
in Windsor, Ontario, Canada from Tenga Capital Corporation, which is owned by
Erivan and Helga Haub. Erivan Haub is the father of Christian W. E. Haub, our
Executive Chairman, and is a general partner, together with Tengelmann
Verwaltungs- und Beteiligungs GmbH, Karl-Erivan W. Haub and Christian W. E. Haub
of Tengelmann, which owns a controlling interest of our common stock. Helga Haub
is the mother of Christian W. E. Haub. The lease, which commenced in 1983 and
expires on October 31, 2013, includes four 5-year renewal options. The base
annual rental was C$0.5 million (U.S. $0.4 million) until October 31, 2003, when
it decreased to C$0.4 million (U.S. $0.3 million). As a result of the sale of
our Canadian operations as discussed above, we no longer lease this store from
Tenga Capital Corporation. Through the date of its sale, we paid $0.2 million to
Tenga Capital Corporation for this lease during fiscal 2005.

     During fiscal 2003, we entered into a three year agreement with OBI
International Development and Service GMBH ("OBI International"), a subsidiary
of Tengelmann, to purchase seasonal merchandise to be sold in our stores. Our
purchases from OBI International totaled $0.7 million, $2.1 million and $4.7
million in fiscal 2006, fiscal 2005 and fiscal 2004, respectively.

                                  102


                 THE GREAT ATLANTIC & PACIFIC TEA COMPANY, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED


     We own a jet aircraft, which Tengelmann leases under a full cost
reimbursement lease. During fiscal 2006, fiscal 2005 and fiscal 2004, Tengelmann
was obligated to and has reimbursed us $4.1 million, $3.1 million and $3.5
million, respectively, for their use of the aircraft.

NOTE 18 - HEDGE OF NET INVESTMENT IN FOREIGN OPERATIONS

     From time to time, we may enter hedging agreements in order to manage risks
incurred in the normal course of business including forward exchange contracts
to manage our exposure to fluctuations in foreign exchange rates.

     During the first quarter of fiscal 2005, we entered into a six month
currency exchange forward contract totaling $900 million Canadian dollar
notional value to hedge our net investment in our Canadian foreign operation
against adverse movements in exchange rates. Our Company measures
ineffectiveness based upon the change in forward exchange rates. In the second
quarter of fiscal 2005 and upon completion of the sale of our Canadian
operations, this forward contract was terminated prior to its expiration.

     Upon settlement, the effective portion of this net investment hedge
contract resulted in a loss, after tax, of approximately $21.1 million during
fiscal 2005 and was recognized as an offset to the gain recorded in connection
with the sale of our Canadian subsidiary. The gain was


                                      103



                 THE GREAT ATLANTIC & PACIFIC TEA COMPANY, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

recorded in "Gain on sale of Canadian operations" in our Consolidated Statements
of Operations for fiscal 2005.

     In addition, the amount excluded from the measure of effectiveness on this
net investment hedge amounted to $15.4 million, before income taxes, and was
recorded as "Store operating, general and administrative expense" in our
Consolidated Statements of Operations for fiscal 2005.

NOTE 19 - COMMITMENTS AND CONTINGENCIES

Antitrust Class Action Litigation

     In connection with a settlement reached in the VISA/Mastercard antitrust
class action litigation, our Company is entitled to a portion of the settlement
fund that will be distributed to class members. Pursuant to our initial review
of our historical records as well as estimates provided by the Claims
Administrator, we recorded an estimated pretax recovery of $1.5 million as a
credit to "Selling, general and administrative expense" in our Consolidated
Statements of Operations during fiscal 2005.

     During fiscal 2006, our Company received a cash payment of $1.6 million for
our portion of the settlement funds for this class action litigation. During
fiscal 2007, we will continue to work with the Claims Administrator to ensure
that any additional monies owed to our Company in connection with this
litigation are received. This process may result in additional recoveries being
recorded in future periods.

Other

     We are subject to various legal proceedings and claims, either asserted or
unasserted, which arise in the ordinary course of business. We are also subject
to certain environmental claims. While the outcome of these claims cannot be
predicted with certainty, Management does not believe that the outcome of any of
these legal matters will have a material adverse effect on our consolidated
results of operations, financial position or cash flows.

     We adopted the accounting and disclosure requirements of FASB
Interpretation 45 ("FIN 45" or the "Interpretation"), "Guarantor's Accounting
and Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others, an Interpretation of FASB Statements No. 5, 57, and 107
and Rescission of FASB Interpretation No. 34" during fiscal 2002. As required to
be disclosed by this Interpretation, we are the guarantor of a loan of $1.5
million related to a shopping center, which will expire in 2013.

     In the normal course of business, we have assigned to third parties various
leases related to former operating stores (the "Assigned Leases"). When the
Assigned Leases were assigned, we generally remained secondarily liable with
respect to these lease obligations. As such, if any of the assignees were to
become unable to continue making payments under the Assigned Leases, we could be
required to assume the lease obligation. As of February 24, 2007, 110 Assigned
Leases remain in place. Assuming that each respective assignee became unable to
continue to make payments under an Assigned Lease, an event we believe to be
remote, we estimate our maximum potential obligation with respect to the
Assigned Leases to be approximately $323.2 million, which could be partially or
totally offset by reassigning or subletting such leases.


                                      104





                 THE GREAT ATLANTIC & PACIFIC TEA COMPANY, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

NOTE 20 - SUBSEQUENT EVENTS

     On March 5, 2007, our Company announced that we have reached a definitive
merger agreement with Pathmark Stores, Inc. in which we will acquire Pathmark
Stores, Inc., ("Pathmark") for $1.5 billion in cash, stock, and debt assumption
or retirement. This transaction is expected to be completed during the second
half of our fiscal year 2007 and is subject to the completion of shareholder and
regulatory approvals, as well as other customary closing conditions. For further
details surrounding the Pathmark transaction, refer to our Company's Form 8-K
and the accompanying exhibits filed with the U.S. Securities and Exchange
Commission on March 6, 2007.

     Under the terms of the transaction, The Tengelmann Group, currently A&P's
majority shareholder, will remain the largest single shareholder of the combined
entity. Christian Haub, Executive Chairman of A&P, will continue as Executive
Chairman of the combined company; Eric Claus, President and CEO of A&P, will
also maintain the same position in the combined company.

     Pathmark shareholders will receive $9.00 in cash and 0.12963 shares of A&P
stock for each Pathmark share. As a result, Pathmark shareholders, including its
largest investor, The Yucaipa Companies LLC ("Yucaipa Companies"), will receive
a stake in the combined companies.

     The boards of both A&P and Pathmark have unanimously approved the
transaction. Both Yucaipa Companies and Tengelmann have entered into voting
agreements to support the transaction.

     On March 13, 2007, in connection with our agreement to acquire Pathmark
Stores, Inc., our Company sold 6,350,000 shares of its holdings in Metro, Inc.
for proceeds of approximately $203.5 million resulting in a net gain of $71.6
million. Of the total proceeds received, $190.0 million are being held as
restricted cash to collateralize our outstanding letters of credit. After the
sale, our Company continues to hold 11,726,645 Class A subordinate shares of
Metro, Inc, representing approximately 10.21% of the outstanding shares of
Metro, Inc. as of its first quarter ended December 23, 2006.

     In March 2007, our Letter of Credit Agreement and Revolving Credit
Agreement were amended to allow for the sale of such shares provided that the
net proceeds from such sales are deposited in a restricted cash account.

     Beginning March 13, 2007, as a result of the sale of 6,350,000 shares of
Metro, Inc. our Company uses the cost method of accounting to account for our
investment in Metro, Inc. on the basis that we no longer have significant
influence over substantive operating decisions made by Metro, Inc. through our
membership on Metro, Inc.'s Board of Directors and its committees.


                                      105



                 THE GREAT ATLANTIC & PACIFIC TEA COMPANY, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

NOTE 21 - SUMMARY OF QUARTERLY RESULTS (UNAUDITED)

     The following table summarizes our results of operations by quarter for
fiscal 2006 and fiscal 2005. The first quarter of each fiscal year contains
sixteen weeks, while the second, third and fourth quarters each contain twelve
weeks.



                                        First       Second        Third       Fourth        Total
2006 (unaudited)                       Quarter      Quarter      Quarter      Quarter       Year
- ----------------                     ----------   ----------   ----------   ----------   ----------
                                            (Dollars in thousands, except per share amounts)
                                                                          
Sales                                $2,126,895   $1,572,250   $1,543,004   $1,608,119   $6,850,268
Gross margin                            638,151      481,391      464,565      480,340    2,064,447
Depreciation and amortization            54,947       40,272       40,556       41,979      177,754
(Loss) income from operations            (5,053)      (3,154)       1,152       (3,020)     (10,075)
(Loss) gain on sale of Canadian
   operations                              (326)          35         (599)        (409)      (1,299)
Interest expense                        (22,156)     (16,894)     (17,171)     (17,593)     (73,814)
Equity in earnings of Metro, Inc.         7,947       11,870       11,023        9,163       40,003
(Loss) income from
   continuing operations                 (5,713)        (509)      39,952       (7,214)      26,516
(Loss) income from discontinued
   operations                              (396)          (2)         755           20          377
Net (loss) income                        (6,109)        (511)      40,707       (7,194)      26,893
Per share data:
   (Loss) income from continuing
      operations - basic                  (0.14)       (0.01)        0.96        (0.17)        0.64
   (Loss) income from discontinued
      operations - basic                  (0.01)       (0.00)        0.02           --         0.01
   Net (loss) income - basic              (0.15)       (0.01)        0.98        (0.17)        0.65
   (Loss) income from continuing
      operations - diluted                (0.14)       (0.01)        0.95        (0.17)        0.63
   (Loss) income from discontinued
      operations - diluted                (0.01)       (0.00)        0.02           --         0.01
   Net (loss) income - diluted            (0.15)       (0.01)        0.97        (0.17)        0.64
Market price:  (b)
   High                                   28.30        24.10        28.04        31.44
   Low                                    21.25        20.97        22.60        25.51
Number of stores at end of period           405          403          410          406



                                      106



                 THE GREAT ATLANTIC & PACIFIC TEA COMPANY, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED



                                        First       Second        Third       Fourth        Total
2005 (unaudited)                       Quarter      Quarter      Quarter      Quarter       Year
- ----------------                     ----------   ----------   ----------   ----------   ----------
                                            (Dollars in thousands, except per share amounts)
                                                                          
Sales                                $3,383,633   $2,168,249   $1,580,942   $1,607,523   $8,740,347
Gross margin                            937,958      616,664      464,543      485,907    2,505,072
Depreciation and amortization            71,875       45,893       46,274       43,287      207,329
Loss from operations                    (38,140)    (145,066)     (81,557)     (55,895)    (320,658)
(Loss) gain on sale of Canadian
   operations                              (589)     919,140       (6,083)        (339)     912,129
Interest expense                        (36,123)     (25,262)     (15,398)     (15,465)     (92,248)
(Loss) income from continuing
   operations                           (89,138)     592,146      (73,559)     (39,026)     390,423
(Loss) income from discontinued
   operations                               (97)        (171)       2,549          (74)       2,207
Net (loss) income                       (89,235)     591,975      (71,010)     (39,100)     392,630
Per share data:
   (Loss) income from continuing
      operations - basic (a)              (2.27)       14.65        (1.80)       (0.95)        9.69
   (Loss) income from discontinued
      operations - basic (a)              (0.01)       (0.01)        0.06           --         0.05
   Net (loss) income - basic (a)          (2.28)       14.64        (1.74)       (0.95)        9.74
   (Loss) income from continuing
      operations - diluted (a)            (2.27)       14.41        (1.80)       (0.95)        9.59
   (Loss) income from discontinued
      operations - diluted (a)            (0.01)       (0.01)        0.06           --         0.05
   Net (loss) income - diluted (a)        (2.28)       14.40        (1.74)       (0.95)        9.64
Market price:  (b)
   High                                   27.52        32.58        31.17        32.39
   Low                                    11.12        23.96        25.29        28.41
Number of stores at end of period           637          417          407          405
Number of franchised stores served
   at end of period                          42           --           --           --


- ----------
(a)  The sum of quarterly basic and diluted (loss) income per share differs from
     full year amounts because the number of weighted average common shares
     outstanding has increased each quarter.

(b)  Our Company stock is listed on the New York Stock Exchange; refer to the
     Five Year Summary of Selected Financial data for the number of registered
     shareholders at the end of the fiscal year.


                                      107



MANAGEMENT'S ANNUAL REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

     Management of our Company, including the President and Chief Executive
Officer and the Senior Vice President, Chief Financial Officer, is responsible
for establishing and maintaining adequate internal control over financial
reporting, as defined in Rules 13a - 15(f) and 15d - 15(f) of the Securities
Exchange Act of 1934, as amended. Our Company's internal control over financial
reporting was designed to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of the consolidated financial
statements for external purposes in accordance with generally accepted
accounting principles and includes those policies and procedures that: (i.)
pertain to the maintenance of records that in reasonable detail accurately and
fairly reflect the transactions and dispositions of the assets of our Company;
(ii.) provide reasonable assurance that transactions are recorded as necessary
to permit preparation of financial statements in accordance with generally
accepted accounting principles, and that receipts and expenditures of our
Company are being made only in accordance with authorizations of management and
directors of our Company; and (iii.) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use or disposition
of our Company's assets that could have a material effect on the financial
statements.

     Our management conducted an evaluation of the effectiveness of the
Company's internal control over financial reporting based on the framework in
Internal Control - Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission. This evaluation included review of the
documentation of controls, evaluation of the design effectiveness of controls,
testing of the operating effectiveness of controls and a conclusion on this
evaluation. Based on the evaluation, management has concluded our Company's
internal control over financial reporting was effective as of February 24, 2007.

     Our management's assessment of the effectiveness of the Company's internal
control over financial reporting as of February 24, 2007 has been audited by
PricewaterhouseCoopers LLP, an independent registered public accounting firm, as
stated in their report which appears herein.

Eric Claus                Brenda M. Galgano
President and             Senior Vice President,
Chief Executive Officer   Chief Financial Officer


                                      108





             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Stockholders and the Board of Directors of
The Great Atlantic & Pacific Tea Company, Inc.:

We have completed integrated audits of The Great Atlantic & Pacific Tea Company,
Inc.'s consolidated financial statements and of its internal control over
financial reporting as of February 24, 2007, in accordance with the standards of
the Public Company Accounting Oversight Board (United States). Our opinions,
based on our audits, are presented below.

Consolidated financial statements

In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, stockholders' equity and comprehensive
(loss) income and cash flows present fairly, in all material respects, the
financial position of The Great Atlantic & Pacific Tea Company, Inc. and its
subsidiaries at February 24, 2007 and February 25, 2006, and the results of
their operations and their cash flows for each of the three years in the period
ended February 24, 2007 in conformity with accounting principles generally
accepted in the United States of America. 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 of these statements in accordance with the standards of the Public
Company Accounting Oversight Board (United States). 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 of financial
statements includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

As discussed in Note 1 to the consolidated financial statements, the Company
changed the manner in which it accounts for defined pension and other
postretirement plans.

Internal control over financial reporting

Also, in our opinion, management's assessment, included in the accompanying
"Management's Annual Report on Internal Control over Financial Reporting", that
the Company maintained effective internal control over financial reporting as of
February 24, 2007 based on criteria established in Internal Control - Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO), is fairly stated, in all material respects, based on those
criteria. Furthermore, in our opinion, the Company maintained, in all material
respects, effective internal control over financial reporting as of February 24,
2007, based on criteria established in Internal Control - Integrated Framework
issued by the COSO. The Company's management is responsible for maintaining
effective internal control over financial reporting and for its assessment of
the effectiveness of internal control over financial reporting. Our
responsibility is to express opinions on management's assessment and on the
effectiveness of the Company's internal control over financial reporting based
on our audit. We conducted our audit of internal control over financial
reporting in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and


                                      109





perform the audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all material
respects. An audit of internal control over financial reporting includes
obtaining an understanding of internal control over financial reporting,
evaluating management's assessment, testing and evaluating the design and
operating effectiveness of internal control, and performing such other
procedures as we consider necessary in the circumstances. We believe that our
audit provides a reasonable basis for our opinions.

A company's internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company's internal control over
financial reporting includes those policies and procedures that (i) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (ii)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (iii) provide reasonable assurance regarding prevention or
timely detection of unauthorized acquisition, use, or disposition of the
company's assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting
may not prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.

PricewaterhouseCoopers LLP
Florham Park, New Jersey
April 24, 2007


                                      110





FIVE YEAR SUMMARY OF SELECTED FINANCIAL DATA



                                         Fiscal 2006(a)(b)   Fiscal 2005(a)(b)   Fiscal 2004   Fiscal 2003   Fiscal 2002
                                             (52 Weeks)          (52 Weeks)       (52 Weeks)    (53 Weeks)    (52 Weeks)
                                         -----------------   -----------------   -----------   -----------   -----------
                                                         (Dollars in thousands, except per share amounts)
                                                                                              
OPERATING RESULTS
Sales                                       $6,850,268          $8,740,347       $10,854,911   $10,899,308   $10,096,781
(Loss) income from operations                  (10,075)           (320,658)          (72,922)     (142,841)       20,307
Depreciation and amortization                 (177,754)           (207,329)         (268,105)     (274,935)     (251,069)
(Loss) gain on sale of Canadian
   operations                                   (1,299)            912,129                --            --            --
Interest expense(c)                            (73,814)            (92,248)         (114,107)     (103,098)      (99,863)
Income (loss) from continuing
   operations                                   26,516             390,423          (184,009)     (213,225)     (202,289)
Income (loss) from discontinued
   operations                                      377               2,207            (4,089)       64,323         7,645
Income (loss) before cumulative effect
   of change in accounting principle            26,893             392,630          (188,098)     (148,902)     (194,644)
Cumulative effect of a change in
   accounting principle - FIN 46-R(d)               --                  --                --        (8,047)           --
Net income (loss)                               26,893             392,630          (188,098)     (156,949)     (194,644)
PER SHARE DATA
Income (loss) from continuing
   operations - basic                             0.64                9.69             (4.77)        (5.54)        (5.25)
Income (loss) from discontinued
   operations - basic                             0.01                0.05             (0.11)         1.67          0.20
Cumulative effect of a change in
   accounting principle - FIN 46-R(d)               --                  --                --         (0.21)           --
Net income (loss) - basic                         0.65                9.74             (4.88)        (4.08)        (5.05)
Income (loss) from continuing
   operations - diluted                           0.63                9.59             (4.77)        (5.54)        (5.25)
Income (loss) from discontinued
   operations - diluted                           0.01                0.05             (0.11)         1.67          0.20
Cumulative effect of a change in
   accounting principle - FIN 46-R(d)               --                  --                --         (0.21)           --
Net income (loss) - diluted                       0.64                9.64             (4.88)        (4.08)        (5.05)
Cash dividends (e)                                7.25                  --                --            --            --
Book value per share (e)                         10.36               16.32              6.03         10.20         13.39



                                      111





FIVE YEAR SUMMARY OF SELECTED FINANCIAL DATA - CONTINUED



                                   Fiscal 2006(a)(b)   Fiscal 2005(a)(b)   Fiscal 2004   Fiscal 2003   Fiscal 2002
                                      (52 Weeks)          (52 Weeks)       (52 Weeks)    (53 Weeks)    (52 Weeks)
                                   -----------------   -----------------   -----------   -----------   -----------
                                                   (Dollars in thousands, except per share amounts)
                                                                                        
FINANCIAL POSITION
Current assets                        $   748,908         $ 1,210,014      $ 1,164,681   $ 1,198,950   $ 1,121,388
Current liabilities                       558,391             610,273        1,078,202     1,083,235     1,090,612
Working capital (e)                       190,517             599,741           86,479       115,715        30,776
Current ratio (e)                            1.34                1.98             1.08          1.11          1.03
Expenditures for property                 208,159             191,050          216,142       160,951       242,409
Total assets                            2,111,623           2,498,865        2,801,968     2,902,846     2,996,228
Current portion of
   long-term debt (f)                      32,069                 569            2,278         2,271        25,820
Current portion of
   capital lease obligations                1,554               2,274            8,331        15,901        13,787
Long-term debt (c)                        284,214             246,282          634,028       642,296       803,277
Long-term portion of
   capital lease obligations               29,938              32,270           52,184        55,243        66,071
Total debt                                347,775             281,395          696,821       715,711       908,955
Debt to total capitalization (e)               45%                 30%              75%           65%           64%
EQUITY
Stockholders' equity (g)                  430,670             671,727          233,802       392,759       515,653
Weighted average shares
   outstanding - basic                 41,430,600          40,301,132       38,558,598    38,516,750    38,494,812
Weighted average shares
   outstanding - diluted               41,902,358          40,725,942       38,558,598    38,516,750    38,494,812
Number of registered
   stockholders (e)                         4,649               4,916            5,289         5,469         5,751
OTHER (e)
Number of employees                        38,000              38,000           73,000        74,185        78,710
New store openings                             10                   3               24            19            31
Number of stores at year end                  406                 405              647           633           695
Total store area
   (square feet)                       16,538,410          16,508,969       25,583,138    24,724,168    26,817,650
Number of franchised
   stores served at year end                   --                  --               42            63            65
Total franchised store
   area (square feet)                          --                  --        1,375,611     2,048,016     2,066,401


- ----------
(a)  At the close of business on August 13, 2005, our Company completed the sale
     of our Canadian business to Metro, Inc.

(b)  On February 27, 2005 (the first day of our 2005 fiscal year), our Company
     adopted FAS 123R and recorded share-based compensation expense of $8.2
     million and $9.0 million in fiscal 2006 and fiscal 2005, respectively.

(c)  In fiscal 2005, we repurchased the majority of our 7.75% Notes due April
     15, 2007 and our 9.125% Senior Notes due December 15, 2011.

(d)  In fiscal 2003, the Financial Accounting Standards Board issued revised
     Interpretation No. 46, "Consolidation of Variable Interest Entities - an
     interpretation of 'Accounting Research Bulletin No. 51' ". As of February
     23, 2003 we adopted its guidance as we were deemed the primary beneficiary
     and included the franchisee operations in our consolidated financial
     statements for fiscal 2003, fiscal 2004 and fiscal 2005.

(e)  Not derived from audited financial information.

(f)  In April 2007, our 7.75% Notes become due and payable in full.

(g)  On April 25, 2006, our Company paid a special one-time dividend to our
     shareholders of record on April 17, 2006 equal to $7.25 per share. This
     dividend payout totaling $299.1 million was recorded as a reduction of
     "Additional paid in capital" in our Consolidated Balance Sheets at February
     24, 2007.


                                      112





EXECUTIVE OFFICERS

CHRISTIAN W. E. HAUB
Executive Chairman

ERIC CLAUS
President and
Chief Executive Officer

BRENDA M. GALGANO
Senior Vice President,
Chief Financial Officer

JENNIFER MAC LEOD
Senior Vice President,
Marketing and Communications

ALLAN RICHARDS
Senior Vice President,
Human Resources, Labor Relations,
Legal Services & Secretary

REBECCA PHILBERT
Senior Vice President,
Merchandising & Supply and Logistics

PAUL WISEMAN
Senior Vice President,
Store Operations

WILLIAM MOSS
Vice President and Treasurer

MELISSA E. SUNGELA
Vice President and Corporate Controller

BOARD OF DIRECTORS

CHRISTIAN W. E. HAUB (C)
Executive Chairman

JOHN D. BARLINE, ESQ. (B)(C)
Williams, Kastner & Gibbs LLP,
Tacoma, Washington

JENS-JURGEN BOCKEL (C)
Chief Financial Officer and
Member of the Managing Board
Tengelmann Warenhandelsgesellschaft KG
Mulheim, Germany

BOBBIE A. GAUNT (A)(B)(C)(D)
Former President and CEO,
Ford Motor Company of Canada

DAN P. KOURKOUMELIS (A)(C)(D)
Former President and CEO,
Quality Food Centers, Inc.

EDWARD LEWIS (A)(B)(D)
Chairman and Founder,
Essence Communications Inc.

MAUREEN B. TART-BEZER (A)(B)(D)
Former Chief Financial Officer
Virgin Mobile USA, LLC

(a)  Member of Audit/Finance Committee (Maureen B. Tart-Bezer, Chair)

(b)  Member of Compensation Committee (Bobbie A. Gaunt, Chair)

(c)  Member of Executive Committee (Christian W. E. Haub, Chair)

(d)  Member of Governance Committee (Dan P. Kourkoumelis, Chair)



                                      113


STOCKHOLDER INFORMATION

EXECUTIVE OFFICES

Box 418
2 Paragon Drive
Montvale, NJ 07645
Telephone 201-573-9700

INDEPENDENT REGISTERED PUBLIC ACCOUNTANTS

PricewaterhouseCoopers LLP
400 Campus Drive
PO Box 988
Florham Park, NJ 07932

STOCKHOLDER INQUIRIES AND PUBLICATIONS

Stockholders, security analysts, members of the media and others interested in
further information about our Company are invited to contact the Investor
Relations Help Line at 201-571-4537.

Internet users can access information on A&P at: www.aptea.com

CORRESPONDENCE CONCERNING STOCKHOLDER ADDRESS CHANGES OR OTHER STOCK ACCOUNT
MATTERS SHOULD BE DIRECTED TO OUR COMPANY'S TRANSFER AGENT & REGISTRAR

American Stock Transfer and Trust Company
59 Maiden Lane
New York, NY 10038
Telephone 800-937-5449
www.amstock.com

COMMUNICATIONS WITH THE BOARD OF DIRECTORS

Stockholders who would like to contact our Company's Board of Directors,
including a committee thereof or a specific Director, can send an e-mail to
bdofdirectors@aptea.com or write to the following address:

c/o The Great Atlantic & Pacific Tea Company, Inc., Senior Vice President, Human
Resources, Labor Relations, Legal Services & Secretary, 2 Paragon Drive,
Montvale, NJ 07645

FORM 10-K

Copies of Form 10-K filed with the Securities and Exchange Commission will be
provided to stockholders upon written request to the Secretary at the Executive
Offices in Montvale, New Jersey.  Exhibits to the Form 10-K include the most
recent certifications by A&P's Chief Executive Officer and Chief Financial
Officer.

ANNUAL MEETING

The Annual Meeting of Stockholders will be held at 9:00 a.m. (EDT) on Thursday,
July 19, 2007 at The Woodcliff Lake Hilton 200 Tice Boulevard Woodcliff Lake,
New Jersey, USA

COMMON STOCK

Common stock of our 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
generally reported in newspapers and periodical tables as "GtAtPc".

(C) 2007 The Great Atlantic & Pacific Tea Co., Inc. All rights reserved.


                                      114

EX-14

                                      CODE
                                       of
                                BUSINESS CONDUCT
                                       and
                                     ETHICS



                                   THE GREAT
                               ATLANTIC & PACIFIC
                               TEA COMPANY, INC.




To my fellow directors, officers and employees:


                  As our Company continues to move along into the third
millennium, it is important that we work to maintain our reputation for quality,
fairness and honesty. That reputation has been built over many years, and is one
we believe must be preserved at all costs.

                  We reinforced our commitment to our fine reputation by
articulating and publishing our core values. Our core values reflect and guide
the way we do business. Very simply, our core values include integrity, respect
for all and the pursuit of excellence in everything we do.

                  The ethical conduct of companies continues to receive great
attention from the government, the press and the public. We must continue to
conduct our business in an ethical manner and welcome such scrutiny.

                  To assist you in this effort we have set down some guidelines
in this Code of Business Conduct and Ethics. These guidelines apply to many of
our everyday activities, including buying practices, record keeping, safety
practices and the like.

                  Fair and honest behavior is a matter of spirit and attitude,
and no written code of conduct can anticipate every situation that may arise in
a vigorous business environment. We need to put our core values into practice
every day, and the best way to do that is through personal example and by
reporting events which are not in the spirit of our core values.



                               Eric Claus
                               President and Chief Executive Officer
                               The Great Atlantic & Pacific Tea Company, Inc.

















                                TABLE OF CONTENTS
   

                                                                                                               Page

      GENERAL STATEMENT.......................................................................................4

      HOW TO REPORT YOUR CONCERNS.............................................................................5

      CONFLICTS OF INTEREST...................................................................................6
         Financial & Business Interests.......................................................................6
         Investments..........................................................................................6
         Corporate Opportunities..............................................................................6
         Protection and Proper Use of Company's Assets .......................................................6
         Company Loans .......................................................................................6
         Relationships with Suppliers.........................................................................7
         Fair Dealing.........................................................................................7
         Premiums and Prizes..................................................................................7
         Samples..............................................................................................7
         Gifts, Gratuities and Entertainment..................................................................7

      REPORTING, RELEASE OF INFORMATION AND CONFIDENTIALITY...................................................8
         Record Keeping.......................................................................................8
         Public Company Reporting.............................................................................8
         Confidentiality......................................................................................8

      RELATIONSHIPS WITH OUTSIDE OFFICIALS....................................................................9
         Political Contributions and Involvement..............................................................9
         Bribes and Undue Influence...........................................................................9

      COMPLIANCE WITH LAWS, RULES AND REGULATIONS.............................................................9
         Antitrust Laws.......................................................................................9
         Accounting Requirements..............................................................................9
         EEO and Discrimination Laws.........................................................................10
         Securities Laws.....................................................................................10
         Intellectual Property...............................................................................10

      PROTECTING OUR ENVIRONMENT.............................................................................10

      SAFETY.................................................................................................10

      AMENDMENT, MODIFICATION AND WAIVER....................................................................11









GENERAL STATEMENT

                  The Great Atlantic & Pacific Tea Company, Inc. ("A&P") and its
family of companies (collectively "the Company") is committed to integrity in
the conduct of its business and requires that all directors, officers and
employees (collectively, "representatives" and each, a "representative") perform
their duties in a manner which is legally, ethically and morally unreproachable.
Reflecting our core values, the Company's standards are high: simply complying
with laws or following widespread business practices may be insufficient. It is
therefore crucial that each director, officer and employee read and understand
the information herein presented.

                  It is the responsibility of each director, officer and
employee of the Company to conduct himself or herself in a manner that will
reflect our core values and support and maintain the Company's reputation. As
representatives of the Company, it is essential that the actions of Company
representatives comply with applicable legal requirements and ethical standards.
It is likewise important that no actions taken by Company representatives appear
to others to be inconsistent with that standard. In every case, each director,
officer or employee should ask himself or herself if the conduct being
contemplated would comply with our core values and with Company policies and
would withstand public disclosure and scrutiny. By doing business in this
manner, we can insure the respect of our customers, suppliers, stockholders,
neighbors and government.

                  This Code of Business Conduct and Ethics (the "Code of
Conduct") describes certain ethical principles the Company has set for the
conduct of its business, and outlines certain key legal requirements of which
all Company representatives should be generally aware and with which all must
comply. The principles set forth herein apply to all directors, officers and
employees of the Company and are designed to deter wrongdoing and to promote
honest and ethical conduct. Adherence to the principles set forth herein is a
condition of employment. It is important to note that a violation of the Code of
Conduct may, under certain circumstances, also constitute a criminal act.

                  To assist directors, officers and employees in complying, more
detailed policy statements are available on many of the topics addressed below.
If there is uncertainty as to the applicability of any principle or policy to a
particular situation or the propriety of any contemplated course of action, the
Legal Compliance Officer should be contacted (as noted below) for assistance and
guidance.






HOW TO REPORT YOUR CONCERNS

                  The Company has established monitoring and auditing systems,
which are designed to ensure compliance with applicable laws, rules, regulations
and the Code of Conduct. The cooperation of each director, officer and employee
is a key element to the successful administration of this Code of Conduct. It is
the duty of each director, officer and employee to report any conduct which he
or she believes violates applicable laws, rules, regulations or the Code of
Conduct, including any transaction or relationship that reasonably could be
expected to give rise to a conflict of interest. Company representatives are
encouraged to talk to the Legal Compliance Officer when in doubt about the best
course of action in a particular situation.

                  IF YOU HAVE INFORMATION OR CONCERNS ABOUT ANY ILLEGAL OR
UNETHICAL CONDUCT OR ANY VIOLATION OF APPLICABLE LAWS, RULES, REGULATIONS OR THE
CODE OF CONDUCT BY (a) ANY DIRECTOR, OFFICER OR EMPLOYEE OF THE COMPANY OR (b)
ANY COMPANY SUPPLIER OR VENDOR OR ANY OTHER PERSON DOING BUSINESS WITH THE
COMPANY, PLEASE PROMPTLY REPORT THE MATTER IN SUFFICIENT DETAIL TO PERMIT
APPROPRIATE INVESTIGATION AND RESPONSE. IF YOU SUSPECT UNETHICAL, IMPROPER OR
ILLEGAL CONDUCT OR PRACTICES, NOTABLY INVOLVING ACCOUNTING PRACTICES, INTERNAL
ACCOUNTING CONTROLS OR FRAUD, YOU MUST PROMPTLY REPORT YOUR CONCERNS TO:

* The Legal Compliance Officer at (201) 571-4401 in Montvale; and/or


* The Chief Internal Auditor of the Company at (201) 571-4148 in Montvale;
  and/or

* The NETWORK HOT LINE AT 1-888-277-3258.

                  Information received will be treated confidentially to the
extent practicable and in no event will any retributive action be taken against
any person who, in good faith, discloses information or reports a violation of
applicable laws, rules, regulations or the Code of Conduct.










CONFLICTS OF INTEREST

                  Conflicts of interest are to be scrupulously avoided, and if
unavoidable, must be disclosed at the earliest opportunity. A "conflict of
interest" exists when an individual's private interests interfere or conflict in
any way (or even appear to or could interfere or conflict) with the interests of
the Company. A conflict situation can arise when a director, officer or employee
takes actions or has interests that may make it difficult to perform his or her
Company work objectively and effectively. Conflicts of interest also arise when
a director, officer or employee, or member of his or her family, receives or
could receive improper personal benefits as a result of his or her position in
the Company and when a director, officer or employee is, or could reasonably
appear to be, influenced, directly or indirectly, by personal considerations. If
you have any uncertainty, contact the Legal Compliance Officer for guidance.

To prevent conflicts of interest:

                  Financial & Business Interests. Directors, officers and
employees of the Company may not (i) serve as officers, directors, associates or
consultants of any company which either does business or wants to do business or
competes or seeks to compete with the Company, (ii) compete with the Company
when buying or selling property, (iii) work for another company if it is a
customer or competitor of, or if it interferes with such representative's job(s)
with, the Company, or (iv) maintain outside interests which materially interfere
with the time and attention such director, officer or employee should devote to
the Company.

                  Investments. No director, officer or employee of the Company
may invest in, own stock or other securities of, or have any other financial
interest in, any organization doing business with the Company, unless the
securities of such organization are listed on a public exchange, the
representative's interests in the organization are less than 1% and the
Company's purchases or services obtained from that organization are less than 5%
of the organization's total sales.

                  Corporate Opportunities. Directors, officers and employees are
prohibited from (a) taking for themselves personally opportunities that are
discovered through the use of corporate property, information or position, (b)
using corporate property, information (whether or not confidential) or position
for personal purposes or gain, and (c) competing with the Company.

                  Protection and Proper Use of Company's Assets. All Company
assets shall be used for legitimate business purposes. Theft, carelessness and
waste have a direct impact on the Company's profitability. Every director,
officer and employee shall protect the Company's assets and ensure their
efficient use.

                  Company Loans. The Company may not, directly or indirectly,
extend or maintain credit, arrange for the extension of credit or renew an
extension of credit, in the form of a personal loan, to or for any director or
executive officer. Loans to directors or executive officers in furtherance of
the business of the Company are not prohibited but must have the prior approval
of the Legal Compliance Officer.

                  Relationships with Suppliers. The Company encourages good
supplier relations. However, Company representatives may not benefit personally,
whether directly or indirectly, from any purchase of goods or services for or
from the Company. Individuals whose responsibilities include purchasing (be it
merchandise, fixtures, services, real estate or other), or who have contact with
suppliers, must not exploit their position for personal gain. Under no
circumstances may any Company representative receive cash or cash equivalents
from any supplier whether directly or indirectly.

                  Fair Dealing. Each director, officer and employee should
endeavor to deal fairly with the Company's customers, suppliers, competitors and
employees.

                  Premiums and Prizes. Premiums and prizes are occasionally
offered by manufacturers for the sale or purchase of certain quantities of
merchandise. The Company's buying program is not to be influenced by any
premium, prize or cash award to the buyer. Merchandise is to be purchased only
when needed to replenish inventory or when an impartial business decision has
been made to purchase a new item.

                  Samples. It is accepted business practice for vendors to
distribute samples to potential purchasers. Company policy is that, to the
extent necessary to make a reasoned appraisal of products, samples of such
products may be accepted in quantities and by Company representatives as
necessary to the business purpose.

                  Gifts, Gratuities and Entertainment. Gifts of no more than
nominal value are to be accepted by any Company representative or member of
his/her family from existing sources, prospective sources or persons, firms or
corporations with whom the Company does or might do business. Gifts and
entertainment that are acceptable are only those that reflect common courtesies
and responsible business practice. Gifts and entertainment that give the
appearance that the individual's business judgment could be affected must be
avoided and refused. We must always act in a way that reflects our core values
and will withstand close scrutiny by anyone.

See the Code of Vendor Ethics for more detailed information regarding
Relationships with Suppliers; Premiums and Prizes; Samples; and Gifts,
Gratuities and Entertainment.








REPORTING, RELEASE OF INFORMATION AND CONFIDENTIALITY

                  Record Keeping. All record keeping and reporting of
information must be accurate, complete, honest and timely. The knowing or
deliberate falsification of any documents or data will be the basis for
immediate discharge and may subject such director, officer or employee to civil
and criminal sanctions as well.

                  Public Company Reporting. Dishonest reporting of information
to organizations and people inside or outside the Company, including false or
artificial entries in books and records, is strictly prohibited. It could lead
to civil or criminal liability for the applicable director, officer or employee
of the Company and for the Company itself. This includes not on1y inaccurate
reporting but also organizing or reporting information in a way that is intended
to mislead or misinform.

                  Established Company procedures for the release of information
about the Company must be followed strictly. In personal as well as business
conversation, Company representatives should limit comments about the Company to
information that has been publicly disclosed by the Company in accordance with
Company procedures.

                  Confidentiality. Information is key to our Company's success.
Every director, officer and employee must protect and maintain the
confidentiality of information that is confidential, while working at the
Company and after leaving the Company. Confidential information includes all
information entrusted to directors, officers and employees by the Company or its
customers or suppliers, except when disclosure is authorized or legally
mandated, and all non-public information that might be of use to competitors, or
harmful to the Company or its customers or suppliers, if disclosed. More
specifically, confidential information includes, but is not limited to,
financial documents, earnings estimates, pending sales or acquisitions, pricing
or vendor information, plans for future store locations, corporate developments,
the cost of goods, personnel files, manuals and procedures, computer software,
design documents, videos, memos and all other significant business information
or developments. Information which has been made public by the Company, such as
by press release, advertisement or publicly filed documents, is not considered
confidential information.

                  If a director, officer or employee is unsure whether certain
information is confidential, presume that it is. Therefore, it is important to
be careful about what is said to friends, business associates and family
members, even spouses. Finally, no representative of the Company should attempt
to obtain confidential information which does not relate to his or her
employment duties and responsibilities.

RELATIONSHIPS WITH OUTSIDE OFFICIALS

                  When dealing with public, union or other outside officials,
directors, officers and employees must avoid any activity which is, or is likely
to be perceived as, illegal or unethical, or which reflects a favoritism not
accorded to all. The appearance of impropriety may be as damaging to our Company
as an actual misdeed. Company representatives must exercise caution to prevent
relationships and dealings with public, union or other outside officials from
becoming subject to question.

                  Political Contributions and Involvement. Company
representatives are encouraged to vote and participate fully in the political
process. Such participation shall be entirely personal. The Company, from time
to time, may approve the establishment of a political action committee (PAC)
filed and operated under the laws and rules of the U.S. Federal Election
Commission or the appropriate governmental entity. Participation by Company
personnel representatives in any PAC is entirely voluntary, and any coercion to
contribute is prohibited.

                  Bribes and Undue Influence. Company policy prohibits offering
bribes, payments or gifts in any form, directly or indirectly, to any public,
union or other outside official, government employee or union official.

COMPLIANCE WITH LAWS, RULES AND REGULATIONS

                  Strict compliance with all laws, rules and regulations
affecting the conduct of the Company's business is required. Any questions as to
the applicability of any law, legal requirement or the appropriate manner of
compliance should be directed to the Legal Compliance Officer (See How to Report
Your Concerns on page 5).

                  Antitrust Laws. All directors, officers and employees must
comply with state and federal antitrust laws. The broad purpose of antitrust
laws is to promote fair and honest competition. Antitrust laws prohibit
anti-competitive behavior such as price-fixing, agreements or understandings
among competitors, and discriminatory pricing.

                  Accounting Requirements. The Company follows the accepted
accounting rules and controls as set forth by the Securities and Exchange
Commission and the Financial Accounting Standards Board. All account books,
budgets, project evaluations, expense accounts and other papers utilized in
maintaining business records of the Company must accurately reflect the matters
to which they relate. All assets of the Company must be carefully and properly
accounted for. No payment of funds of the Company shall be approved or made with
the understanding that any part of the funds will be used in a manner contrary
to this principle.

                  The Company's certified public accountants should be given
access to all information necessary for them to conduct audits properly.

                  EEO and Discrimination Laws. The Company requires strict
adherence to its policies and the laws regarding Equal Employment Opportunity
and discrimination in the workplace. Severe penalties may be imposed for
violation. All forms of unlawful harassment are similarly prohibited, including
harassment by vendors or contractors. The term "harassment" includes sexual,
racial, ethnic and other forms of harassment, including, harassment based upon a
disability. Specific Company policies, which are available on the Company's
Intranet and on GAPCOM, set forth the means through which directors, officers
and employees who have witnessed or experienced harassment may report it and
seek appropriate relief.

                  Securities Laws. It is the policy of the Company to comply
with all applicable securities laws, including insider trading laws. No
director, officer or employee may disclose "insider" information (i.e.,
material, non-public information acquired about the Company) to any outside
person or to other Company representatives except on a strict need-to-learn
basis, and no director, officer or employee may take any economic or personal
advantage of insider information, such as buying or selling stock or other
securities of the Company or of any other company to which the insider
information pertains. In addition, directors, officers and other employees of
the Company may not at any time sell Company securities short or buy or sell
"derivatives", such as options, stock appreciation rights, exchange traded
options, put and calls or other securities that relate to or derive their value
from the Company's securities.

                  Intellectual Property. The Company's intellectual property is
a very valuable asset. Intellectual property includes Company trademarks and
service marks, copyright or copyrightable materials, patents and trade secrets.

                  Intellectual property rights of the Company, as well as those
of others, must be respected. It is vital that these are protected and any
infringements reported to the Legal Compliance Officer. The Company owns all
inventions, discoveries, ideas, concepts, written material and trade secrets,
which are created during employment or are produced at the Company's direction
or using Company time or materials. Everyone is urged to cooperate in
documenting Company ownership of all intellectual property.

PROTECTING OUR ENVIRONMENT

                  Our Company is committed to protecting and improving the
environment in all areas of its operations, thereby preserving and enhancing the
quality of life of our representatives, customers and neighbors. This commitment
is a responsibility shared with all by all directors, officers and employees.

SAFETY

                  The Company strives and is committed to provide healthy and
safe workplace environments. The U.S. Occupational Safety and Health Act
regulates both physical safety and exposure to conditions in the workplace that
could harm employees. The place of employment is to be free of recognized
hazards that might cause injury or death as well as be in compliance with
applicable federal, state or provincial safety and health standards.

                  All representatives of the Company have the responsibility to
carry on their duties in a safe and efficient manner. Safety consciousness must
be a key part of each representative's thinking and planning.

                  Company representatives must report any unsafe conditions
immediately.



AMENDMENT, MODIFICATION AND WAIVER

                  Any amendment or modification of this Code of Conduct must be
in writing and approved by the Governance Committee of the Board of Directors.
Any waiver of this Code of Conduct for non-executive officers or employees may
be granted by the Legal Compliance Officer. Any waiver of this Code of Conduct
for directors or executive officers may be granted only by the Governance
Committee of the Board of Directors, subject to the disclosure and other
provisions of the Securities Exchange Act of 1934, the rules promulgated
thereunder and the applicable rules of the New York Stock Exchange.





- -------------------------------------------------------------------------------
This booklet describes broadly the ethical standards by which we conduct our
business. If there is any uncertainty as to the applicability of any of these
standards to a particular situation or the propriety of any contemplated course
of action, the Legal Compliance Officer in Montvale, NJ should be contacted for
assistance and guidance. If you have information or concerns about any illegal
or unethical conduct, promptly make a report to the Legal Compliance Officer at
(201) 571-4401, the Chief Internal Auditor at (201) 571-4148 or the NETWORK
HOTLINE at 1-888-277-3258.
- -------------------------------------------------------------------------------

EX-21

                                                                Exhibit 21



                         THE GREAT ATLANTIC & PACIFIC TEA COMPANY, INC.
                                        AND SUBSIDIARIES
                                State of Incorporation: Maryland
                              Date of Incorporation: May 29, 1925
                                   Name Change: July 30, 1958

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 share of any subsidiary's stock are subject to options.





                                                                                                State/Jurisdiction of
                                                                                                    Incorporation
                                                                                             

COMMON PARENT
- -------------
THE GREAT ATLANTIC & PACIFIC TEA COMPANY,  INC.                                                        Maryland
SUBSIDIARIES
- ------------
A & P TEA CO. SERVICES, INC.                                                                          New Jersey
A & P WINE & SPIRITS, INC.                                                                          Massachusetts
ANP PROPERTIES  I CORP.                                                                                Delaware
ANP SALES CORP.                                                                                        Maryland
BIG STAR, INC.  (F/K/A SUPERSAVER, INC.)                                                               Georgia
COMPASS FOODS, INC.                                                                                    Delaware
DLCH ACQUISITION CORPORATION                                                                           Delaware
FAMILY CENTER, INC.                                                                                    Delaware
FELICITY HISTORICAL DEVELOPMENT CORPORATION                                                           Louisiana
FOOD BASICS, INC                                                                                       Delaware
FUTURESTORE FOOD MARKETS, INC.                                                                         Delaware
GERARD AVENUE, INC.                                                                                    New York
HAMILTON PROPERTY I, INC.                                                                              Delaware
HOPELAWN PROPERTY I, INC.                                                                              Delaware
KOHL'S FOOD STORES, INC.                                                                              Wisconsin
   KOHL'S APPLETON,  INC.                                                                             Wisconsin
   KOHL'S BELOIT,  INC.                                                                               Wisconsin
   KOHL'S BEVERAGE MART - GRANT PARK, INC.                                                            Wisconsin
   KOHL'S BROOKFIELD,  INC.                                                                           Wisconsin
   KOHL'S COUNTY FAIR LIQUORS, INC.                                                                   Wisconsin
   KOHL'S CUDAHY, INC.                                                                                Wisconsin
   KOHL'S DOUGLAS,  INC.                                                                              Wisconsin
   KOHL'S DURAND, INC.                                                                                Wisconsin
   KOHL'S FOND DU LAC, INC.                                                                           Wisconsin
   KOHL'S FOREST HOME, INC.                                                                           Wisconsin
   KOHL'S FOX POINT, INC.                                                                             Wisconsin
   KOHL'S GRANGE, INC.                                                                                Wisconsin
   KOHL'S LOMBARDI, INC.                                                                              Wisconsin
   KOHL'S MONONA, INC.                                                                                Wisconsin
   KOHL'S NEENAH, INC.                                                                                Wisconsin
   KOHL'S OSH KOSH, INC.                                                                              Wisconsin
   KOHL'S PARK, INC.                                                                                  Wisconsin
   KOHL'S RUBY ISLE, INC.                                                                             Wisconsin
   KOHL'S SHOREWOOD, INC.                                                                             Wisconsin
   KOHL'S UNIVERSITY, INC.                                                                            Wisconsin
   KOHL'S WASHINGTON, INC.                                                                            Wisconsin
   KOHL'S WAUKESHA, INC.                                                                              Wisconsin
   RIDGE LIQUORS, INC.                                                                                Wisconsin
  THE SOUTH DAKOTA GREAT ATLANTIC & PACIFIC TEA CO., INC.                                            South Dakota
KWIK SAVE INC.                                                                                       Pennsylvania
LIMITED FOODS, INC.                                                                                    Delaware
LO-LO DISCOUNT STORES, INC.                                                                             Texas
MONTVALE HOLDINGS, INC.                                                                               New Jersey
  SUPER FRESH FOOD MARKETS, INC.                                                                       Delaware
SARATOGA STREET LIQUORS, INC.                                                                          Maryland
NORTH JERSEY PROPERTIES, INC. I                                                                        Delaware
NORTH JERSEY PROPERTIES, INC. II                                                                       Delaware
NORTH JERSEY PROPERTIES, INC. IV                                                                       Delaware
NORTH JERSEY PROPERTIES, INC. V                                                                        Delaware
NORTH JERSEY PROPERTIES, INC. VI                                                                       Delaware
RICHMOND TWICE INCORPORATED  (D/B/A PANTRY PRIDE & SUN)                                                Delaware
SOUTHERN ACQUISITION CORPORATION                                                                       Delaware
SOUTHERN DEVELOPMENT, INC.  OF DELAWARE                                                                Delaware
SUPER FRESH FOOD MARKETS OF MARYLAND, INC.                                                             Maryland
SUPER FRESH FOOD MARKETS OF VIRGINIA, INC.                                                             Delaware
SUPER FRESH / SAV - A - CENTER, INC.                                                                   Delaware
SUPER MARKET SERVICE CORP.                                                                           Pennsylvania
SUPER PLUS FOOD WAREHOUSE, INC.                                                                        Delaware
SUPERMARKET DISTRIBUTION SERVICE - FLORENCE, INC.                                                     New Jersey
SUPERMARKET DISTRIBUTION SERVICE CORP.                                                                New Jersey
SUPERMARKET DISTRIBUTION SERVICES, INC.                                                                Delaware
SUPERMARKET SYSTEMS, INC.                                                                              Delaware
TEA DEVELOPMENT CO., INC.                                                                              Delaware
THE GREAT ATLANTIC & PACIFIC TEA CO. OF VERMONT, INC.                                                  Vermont
TRANSCO SERVICE - MILWAUKEE, INC.                                                                     New Jersey
W.S.L. CORPORATION  (F/K/A A & P TEA CO., INC. (NEW JERSEY)                                           New Jersey
 2008 BROADWAY, INC.                                                                                   New York
BORMAN'S,  INC. (DBA FARMER JACK)                                                                      Delaware
     BEV  LTD.                                                                                         Delaware
     DETROIT PURE MILK COMPANY                                                                         Michigan
     FARMER JACK PHARMACIES, INC.                                                                      Michigan
     FARMER JACK'S OF OHIO, INC.                                                                         Ohio
     SEG STORES, INC.                                                                                  Delaware
     WESLEY'S QUAKER MAID, INC.                                                                        Michigan
SHOPWELL, INC. (DBA FOOD EMPORIUM)                                                                     Delaware
     1046 YONKERS AVE. CORP.                                                                           New York
     111 NORTH AVE. REALTY CORP.                                                                       New York
     CLAY-PARK REALTY CO., INC.                                                                        New York
     DAITCH CRYSTAL DAIRIES, INC.                                                                      New York
     DELAWARE COUNTY DAIRIES, INC.                                                                     New York
     FOUR ONE LEASING CORP.                                                                            New York
     GRAMATAN FOODTOWN CORP.                                                                           New York
     SHOPWELL, INC.   (ORG IN CONN)                                                                  Connecticut
     SHOPWELL,  INC.  (ORG IN MASS)                                                                 Massachusetts
     SHOPWELL, INC.   (NEW JERSEY)                                                                    New Jersey
     THE FOOD EMPORIUM, INC.                                                                           New York
     THE FOOD EMPORIUM, INC.   (CONN)                                                                Connecticut
     THE FOOD EMPORIUM, INC.   (DELAWARE)                                                              Delaware
     THE FOOD EMPORIUM, INC.   (NJ)                                                                   New Jersey
     THE WINE EMPORIUM, INC.                                                                         Connecticut
     TRADEWELL FOODS OF CONNECTICUT, INC.                                                            Connecticut
APW SUPERMARKET CORPORATION                                                                            Delaware
     APW SUPERMARKETS, INC.                                                                            New York
     WALDBAUM, INC. (DBA WALDBAUM, INC. AND FOOD MART)                                                 New York
               AMBOY ROAD DEVELOPMENT CORP.                                                            New York
               APW PRODUCE COMPANY, INC. (F/K/A GEORGE TIEFER, INC.)                                   New York
               BARMAT CONSTRUCTION CORP.                                                               New York
               GREENLAWN LAND DEVELOPMENT CORP.                                                        New York
               HEMPSTEAD MARKETPLACE, INC.                                                             New York
               LAKE GROVE REALTY CORP.                                                                 New York
               LBRO REALTY, INC.                                                                       New York
               McLEAN AVENUE PLAZA CORP.                                                               New York
               SPRING LANE PRODUCE CORP.                                                               New York
               WALDBAUM-COLLEGE POINT CENTER, INC.                                                     New York
               THE MEADOWS PLAZA DEVELOPMENT CORP.                                                     New York
FOREIGN SUBSIDIARIES
A & P BERMUDA LIMITED                                                                                  Bermuda
     A & P LUXEMBOURG S.a.r.l.                                                                        Luxembourg
ST. PANCRAS TOO, LIMITED Bermuda

EX-23.1

                                                             Exhibit 23.1




               CONSENT OF INDEPENDENT REGISTERED ACCOUNTING FIRM


We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (Nos. 333-119045, 333-78805 and 033-54863) of The Great
Atlantic & Pacific Tea Company, Inc. of our report dated April 24, 2007,
relating to the financial statements, management's assessment of the
effectiveness of internal control over financial reporting and the effectiveness
of internal control over financial reporting, which appears in the Annual Report
to Shareholders, which is incorporated in this Annual Report on Form 10-K. We
also consent to the incorporation by reference of our report dated April 24,
2007 relating to the financial statement schedule which appears in this Form
10-K.



Florham Park, New Jersey
April 24, 2007

EX-23.2

                                                                    Exhibit 23.2





CONSENT OF INDEPENDENT AUDITORS


We consent to the use of our report dated November 3, 2006, except as to note 22
which is dated March 23, 2007, relating to the consolidated financial statements
of METRO Inc. as at September 30, 2006 and for the year then ended, included in
The Great Atlantic and Pacific Tea Company, Inc. Annual Report on Form 10-K for
the year ended February 24, 2007.


Ernst & Young LLP
Chartered Accountant


Montreal, Canada
April 24, 2007

EX-31.1

Exhibit 31.1

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
Section 302 Certification

I, Eric Claus, certify that:

1. I have reviewed this annual report on Form 10-K of The Great Atlantic & Pacific Tea Company, Inc.;

2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;

3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a)	designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;
b)	designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)	evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this annual report; and
d)	disclosed in this annual report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

a)	all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b)	any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

/s/ Eric Claus	Date: April 25, 2007
Eric Claus
President and Chief Executive Officer

24

EX-31.2

Exhibit 31.2

CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
Section 302 Certification

I, Brenda M. Galgano, certify that:

1. I have reviewed this annual report on Form 10-K of The Great Atlantic & Pacific Tea Company, Inc.;

2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;

3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and we have:

a)	designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;
b)	designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)	evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this annual report; and
d)	disclosed in this annual report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

a)	all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b)	any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

/s/ Brenda M. Galgano	Date: April 25, 2007
Brenda M. Galgano
Senior Vice President, Chief Financial Officer

25

EX-32

Exhibit 32

Certification Accompanying Periodic Report
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(18 U.S.C. ss. 1350)

The undersigned, Eric Claus, President and Chief Executive Officer of The Great Atlantic & Pacific Tea Company, Inc. (''Company’’), and Brenda M. Galgano, Senior Vice President, Chief Financial Officer of the Company, each hereby certifies that (1) the Annual Report of the Company on Form 10-K for the period ended February 24, 2007 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and (2) the information contained in the Report fairly presents, in all material respects, the financial condition and the results of operations of the Company.

Dated: April 25, 2007	/s/ Eric Claus
	Eric Claus
	President and Chief Executive Officer
Dated: April 25, 2007	/s/ Brenda M. Galgano
	Brenda M. Galgano
	Senior Vice President, Chief Financial Officer

26

EX-99.2

                                                                Exhibit 99.2




Consolidated Financial Statements

METRO INC.
September 30, 2006









                                AUDITOR'S REPORT



To the board of directors of METRO INC.

We have audited the accompanying consolidated balance sheet of METRO INC. [the
"Company"] as at September 30, 2006, the related consolidated statements of
earnings, retained earnings and cash flows for the year then ended. 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 audit.

We conducted our audit in accordance with Canadian generally accepted auditing
standards and the standards of the American Institute of Certified Public
Accountants. Those standards require that we plan and perform an audit to obtain
reasonable assurance whether the financial statements are free of material
misstatement. We were not engaged to perform an audit of the Company's internal
control over financial reporting. Our audit included consideration of internal
control over financial reporting as a basis for designing audit procedures that
are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company's internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by Management, and evaluating the overall financial
statement presentation. We believe that our audit provide a reasonable basis for
our opinion.

In our opinion, consolidated financial statements referred to above present
fairly, in all material respects, the financial position of METRO INC. as at
September 30, 2006 and the related consolidated results of its operations and
its cash flows for the year then ended, in conformity with Canadian generally
accepted accounting principles.




Montreal, Canada,
November 3, 2006                                          Chartered Accountants
(except as to note 22 which is as of March 23, 2007)









METRO INC.


                       CONSOLIDATED STATEMENTS OF EARNINGS


Years ended September 30, 2006 and September 24, 2005 [Millions of Canadian
dollars, except for earnings per share]




                                                                              

                                                                              2006            2005
                                                                              $               $
                                                                                    [Restated-Note 3]
                                                                         [53 weeks]     [52 weeks]
 ---------------------------------------------------------------------------------------------------

 Sales [notes 19 and 20]                                                    10,944.0        6,646.5
 Cost of sales and operating expenses [note 17]                             10,305.5        6,281.5
 Integration and rationalization costs [note 5]                                 28.0            --
 ---------------------------------------------------------------------------------------------------
 ---------------------------------------------------------------------------------------------------
 Earnings before interest, taxes, depreciation and amortization                610.5          365.0
 Depreciation and amortization [note 6]                                        177.9           87.2
 ---------------------------------------------------------------------------------------------------
 ---------------------------------------------------------------------------------------------------
 Operating income                                                              432.6          277.8

 Interest
 Short term                                                                     (1.9)           1.3
 Long term                                                                      70.6            6.1
 ---------------------------------------------------------------------------------------------------
 ---------------------------------------------------------------------------------------------------
                                                                                68.7            7.4
 ---------------------------------------------------------------------------------------------------
 ---------------------------------------------------------------------------------------------------
 Earnings before income taxes                                                  363.9          270.4
 Income taxes [note 7]                                                         107.0           81.0
 ---------------------------------------------------------------------------------------------------
 Earnings before minority interest                                             256.9          189.4
 Minority interest                                                               3.9           (1.0)
 ---------------------------------------------------------------------------------------------------
 ---------------------------------------------------------------------------------------------------
 Net earnings                                                                  253.0          190.4
 ---------------------------------------------------------------------------------------------------
 ---------------------------------------------------------------------------------------------------

 Earnings per share [note 8]
 Basic                                                                           2.21           1.94
 Fully diluted                                                                   2.18           1.92
 ---------------------------------------------------------------------------------------------------

See accompanying notes







METRO INC.


                           CONSOLIDATED STATEMENTS OF
                                RETAINED EARNINGS


Years ended September 30, 2006 and September 24, 2005
[Millions of Canadian dollars]



                                                                                 


                                                                             2006            2005
                                                                              $                $
                                                                       [53 weeks]      [52 weeks]
- ---------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------


Balance - beginning of year                                                 807.7           690.6
Net earnings                                                                253.0           190.4
Dividends                                                                   (47.5)          (38.9)
Share redemption premium                                                      --            (34.4)
- ---------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------
Balance - end of year                                                     1,013.2           807.7
- ---------------------------------------------------------------------------------------------------





See accompanying notes






METRO INC.


                           CONSOLIDATED BALANCE SHEETS


As at September 30, 2006 and September 24, 2005
[Millions of Canadian dollars]





                                                                                      

                                                                             2006            2005
                                                                                $            $
 --------------------------------------------------------------------------------------------------
 --------------------------------------------------------------------------------------------------
 ASSETS
 Current assets
 Cash and cash equivalents                                                  165.7            93.8
 Accounts receivable [notes 9 and 19]                                       302.1           287.7
 Inventories                                                                565.5           551.9
 Prepaid expenses                                                            11.3            15.1
 Future income taxes [note 7]                                                16.7            12.4
 --------------------------------------------------------------------------------------------------
 --------------------------------------------------------------------------------------------------
                                                                          1,061.3           960.9
 Investments and other assets [note 9]                                      117.9           100.6
 Fixed assets [note 10]                                                   1,129.9         1,106.4
 Intangible assets [note 11]                                                331.7           194.8
 Goodwill [note 4]                                                        1,490.1         1,543.7
 Accrued benefit assets  [note 16]                                           33.0            20.9
 --------------------------------------------------------------------------------------------------
 --------------------------------------------------------------------------------------------------
                                                                          4,163.9         3,927.3
 --------------------------------------------------------------------------------------------------
 --------------------------------------------------------------------------------------------------

 LIABILITIES AND SHAREHOLDERS' EQUITY
 Current liabilities
 Bank loans [note 12]                                                         0.3             0.3
 Accounts payable                                                         1,049.5         1,022.0
 Income taxes payable                                                        36.8            13.8
 Current portion of long-term debt [note 13]                                  7.3             7.7
 --------------------------------------------------------------------------------------------------
 --------------------------------------------------------------------------------------------------
                                                                          1,093.9         1,043.8
 Long-term debt [note 13]                                                 1,116.6         1,205.0
 Accrued benefit obligations [note 16]                                       60.6            66.6
 Future income taxes [note 7]                                               115.0            82.1
 Other long-term liabilities [note 14]                                       44.2            10.2
 Minority interest                                                            9.8             6.3
 --------------------------------------------------------------------------------------------------
 --------------------------------------------------------------------------------------------------
                                                                          2,440.1         2,414.0
 --------------------------------------------------------------------------------------------------

 Shareholders' equity
 Capital stock [note 15]                                                    709.0           703.8
 Contributed surplus                                                          1.6             1.8
 Retained earnings                                                        1,013.2           807.7
 --------------------------------------------------------------------------------------------------
 --------------------------------------------------------------------------------------------------
                                                                          1,723.8         1,513.3
 --------------------------------------------------------------------------------------------------
 --------------------------------------------------------------------------------------------------
                                                                          4,163.9         3,927.3
 --------------------------------------------------------------------------------------------------




Commitments and contingencies [notes 17 and 18]

See accompanying notes

On behalf of the Board:

                                    Director                      Director



METRO INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended September 30, 2006 and September 24, 2005
[Millions of Canadian dollars]



                                                                                

                                                                             2006             2005
                                                                              $                $
                                                                     [53 weeks]       [52 weeks]
 --------------------------------------------------------------------------------------------------
 --------------------------------------------------------------------------------------------------

 OPERATING ACTIVITIES
 Net earnings                                                               253.0           190.4
 Non cash items
    Integration and rationalization costs [note 5]                            8.9             --
    Share of earnings in a public company subject to significant
      influence                                                             (22.3)          (20.6)
    Depreciation and amortization                                           177.9            87.2
    Amortization of deferred financing costs                                  2.8             --
    Losses on disposal and write-off of fixed and intangible                 12.0             3.2
      assets
    Gain on disposal of investment [note 9]                                 (10.5)            --
    Future income taxes                                                      (4.6)           12.9
    Stock-based compensation cost                                             1.7             1.0
    Excess of amounts paid for employee future benefits over
      current period cost                                                   (20.2)           (0.5)
    Minority interest                                                         3.9            (1.0)
 --------------------------------------------------------------------------------------------------
 --------------------------------------------------------------------------------------------------
                                                                            402.6           272.6
 Net change in non-cash working capital related to operations               (10.6)            9.3
 --------------------------------------------------------------------------------------------------
 --------------------------------------------------------------------------------------------------
                                                                            392.0           281.9
 --------------------------------------------------------------------------------------------------
 --------------------------------------------------------------------------------------------------

 INVESTING ACTIVITIES
 Business acquisition net of cash acquired totalling
    $49.3 in 2005 [note 4]                                                    --         (1,162.8)
 Net change in investments                                                   14.5            (4.9)
 Dividends from public company subject to significant influence               2.1             --
 Acquisition of fixed assets                                               (170.7)         (125.8)
 Disposal of fixed assets                                                    12.8             9.6
 Acquisition of intangible assets                                           (40.6)          (35.7)
 --------------------------------------------------------------------------------------------------
 --------------------------------------------------------------------------------------------------
                                                                           (181.9)       (1,319.6)
 --------------------------------------------------------------------------------------------------
 --------------------------------------------------------------------------------------------------

 FINANCING ACTIVITIES
 Net change in bank loans                                                     --              (1.2)
 Issuance of shares                                                           5.4             16.9
 Redemption of shares                                                         --             (37.0)
 Acquisition of treasury shares [note 15]                                    (2.1)            --
 Disposal of treasury shares [note 15]                                        --               2.0
 Increase of long-term debt                                                 601.5          1,251.5
 Repayment of long-term debt                                               (692.0)          (104.8)
 Net change in other long-term liabilities                                   (3.1)            --
 Dividends paid                                                             (47.5)           (38.9)
 Distribution to minority interest                                           (0.4)            --
 --------------------------------------------------------------------------------------------------
 --------------------------------------------------------------------------------------------------

                                                                           (138.2)         1,088.5
 --------------------------------------------------------------------------------------------------
 --------------------------------------------------------------------------------------------------

 Net change in cash and cash equivalents                                     71.9            50.8
 Cash and cash equivalents - beginning of year                               93.8            43.0
 --------------------------------------------------------------------------------------------------
 --------------------------------------------------------------------------------------------------
 Cash and cash equivalents - end of year                                    165.7            93.8
 --------------------------------------------------------------------------------------------------
 --------------------------------------------------------------------------------------------------

 Other information
 Interest paid                                                               52.8             4.1
 Income taxes paid                                                           88.6           110.3
 --------------------------------------------------------------------------------------------------



See accompanying notes




METRO INC.


                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


September 30, 2006 and September 24, 2005 [Millions of Canadian dollars, except
for data per share]


1.      DESCRIPTION OF BUSINESS

METRO INC. (the "Company") is one of the leading Canadian food retailers and
distributors. The Company operates a network in Quebec and Ontario of stores in
the conventional and discount food distribution and pharmacy sectors. The
regions within which the Company's operations are concentrated have been grouped
together in a single operating segment in light of their similar economic
characteristics.



2.      SIGNIFICANT ACCOUNTING POLICIES

The consolidated financial statements of the Company have been prepared by
management in accordance with Canadian generally accepted accounting principles
(GAAP) which require management to make estimates and assumptions that affect
the amounts recorded in the consolidated financial statements and presented in
the accompanying notes. Actual results could differ from these estimates. The
Company's consolidated financial statements have been properly prepared within
the reasonable limits of materiality and in conformity with the accounting
policies summarized below:

Consolidation

The consolidated financial statements include the accounts of the Company and
its wholly owned subsidiaries, as well as those of variable interest entities
(VIEs) for which the Company is the primary beneficiary. All intercompany
transactions and balances were eliminated on consolidation.

Cash and cash equivalents

Cash and cash equivalents consist of cash on hand, bank balances, highly liquid
investments (with an initial term of three months or less that are stated at
cost, which approximates market value), restricted bank balances of VIEs [$23.8
as at September 30, 2006 and $27.2 as at September 24, 2005], outstanding
deposits and cheques in transit.

Inventory valuation

Wholesale inventories are valued at the lower of cost, determined by the average
cost method net of considerations received from certain vendors, and net
realizable value. Retail inventories are valued at the retail price less the
gross margin and considerations received from certain vendors.

Investments

The investment in a public company subject to significant influence is accounted
for using the equity method. The Company's share of earnings in that company is
included in "Cost of sales and operating expenses" in the consolidated statement
of earnings. Other investments are recorded at cost.



METRO INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



2.      SIGNIFICANT ACCOUNTING POLICIES [Cont'd]

Fixed assets

Fixed assets are recorded at cost. Buildings and equipment are depreciated on a
straight-line basis over their useful lives. Leasehold improvements are
depreciated on a straight-line basis over the shorter of their useful lives or
the remaining lease term. The depreciation method and estimate of the useful
life of fixed assets are reviewed annually.

- ------------------------------------------------------------------------------

Buildings                                                        40 years
Equipment                                                   3 to 20 years
Leasehold improvements                                      5 to 20 years
- ------------------------------------------------------------------------------

Leases

The Company accounts for capital leases in instances when it has acquired
substantially all the benefits and risks incident to ownership of the leased
property. The cost of assets under capital leases represents the present value
of minimum lease payments and is amortized on a straight-line basis over the
lease term. Assets under capital leases are presented under "Fixed assets" in
the consolidated balance sheet.

Leases that do not transfer substantially all the benefits and risks incident to
ownership of the property are accounted for as operating leases.

Intangible assets

Intangible assets with definite useful lives are recorded at cost and are
amortized on a straight-line basis over their useful lives. The amortization
method and estimate of the useful life of an intangible asset are reviewed
annually.

- ------------------------------------------------------------------------------

Leasehold rights                                               20 to 40 years
Software                                                        3 to 10 years
Improvements and development of retail network loyalty          5 to 20 years
Prescription files                                                   10 years
- ------------------------------------------------------------------------------

Intangible assets with indefinite lives, such as banners and private labels and
some agreements, are recorded at cost and are not subject to amortization.
Intangible assets not subject to amortization are tested for impairment annually
or more often if events or changes in circumstances indicate that the asset
might be impaired. When the impairment test indicates that carrying amount of
the intangible asset exceeds its fair value, an impairment loss is recognized in
an amount equal to the excess.





METRO INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



2.     SIGNIFICANT ACCOUNTING POLICIES [Cont'd]

Goodwill

Goodwill represents the excess of the purchase price over the fair value of net
assets acquired. Goodwill is tested for impairment annually or more often if
events or changes in circumstances indicate that it might be impaired. The
impairment test first consists of a comparison of the fair value of the
reporting unit to which goodwill is assigned with its carrying amount. When the
carrying amount of a reporting unit exceeds its fair value, the fair value of
the reporting unit's goodwill is compared with its carrying amount to measure
the amount of the impairment loss, if any. Any impairment loss is charged to
earnings in the period in which the loss is incurred. The Company uses the
discounted cash flows method to determine the fair value of reporting units.

Impairment of long-lived assets

Long-lived assets, excluding goodwill and intangible assets with indefinite
useful lives, are assessed for impairment whenever events or changes in
circumstances indicate that this carrying amount may not be recoverable by
comparing their carrying amount with their expected net undiscounted future cash
flows from use together with their residual value. The impairment loss, the
amount by which the carrying amount of the assets exceeds their fair value, if
any, is charged to earnings.

Deferred financing costs

Financing costs related to long-term credit facilities are deferred and
amortized using the effective interest rate method over the term of the
corresponding loans. When long-term credit facilities are repaid, the
corresponding financing costs are charged to earnings. Deferred financing costs
are presented under "Intangible assets" in the consolidated balance sheet and
the related amortization under "Long-term interest" in the consolidated
statement of earnings.

Employee future benefits

The Company accounts for employee future benefit plans assets and obligations
and related costs of defined benefit pension plans and other retirement benefit
and other post-employment benefit plans under the following accounting policies:

o The accrued benefit obligations and the cost of pension and other retirement
  benefits earned by participants are determined
  from actuarial calculations according to the projected benefit method
  prorated on services based on management's best estimate assumptions
  relating to return on the plan assets, salary escalation, retirement age of
  participants and estimated health-care costs.

o For the purpose of  calculating  the  estimated  rate of return on the plan
  assets,  assets are  assessed  at fair  value.

o Pension  obligations  are discounted  based on current market  interest
  rates.
o Actuarial  gains or losses  arise from the  difference  between  the actual
  long-term  rate of  return on plan  assets  for a period  and the  expected
  long-term rate of return on plan assets for that period, or from changes in
  actuarial assumptions used to determine the accrued benefit obligations.





METRO INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



2.     SIGNIFICANT ACCOUNTING POLICIES [Cont'd]

o The excess of the net actuarial gain or loss over 10% of accrued benefit
  obligations, or over 10% of the fair value of the plan assets where such
  amount is higher, is amortized over the average remaining service period of
  active participants. The average remaining service period of active
  participants covered by the pension plans is 14 years and the average
  remaining service period of active participants covered by the other post
  employment benefit plans is 15 years.

o Past service costs arising from plan amendments are deferred and amortized
  on a straight-line basis over the average remaining service period of the
  active participants at the date of amendment.

The cost of defined contribution pension plans, which includes multi-employer
pension plans, is expensed as contributions are due.

Sales recognition

Retail sales made by corporate stores and stores in which the Company has
variable interests are recognized at the time of sale to the customer and, for
affiliated stores and other customers, when the goods are delivered.

Recognition of considerations received from a vendor

Certain cash considerations received from a vendor are to be considered as an
adjustment of the prices of the vendor's products and are therefore
characterized as a reduction of cost of sales and related inventories when
recognized in the consolidated statements of earnings and balance sheets.
Certain exceptions apply if the consideration is a payment for assets or
services delivered to the vendor or for reimbursement of selling costs incurred
to promote the vendor's products. These other considerations received from a
vendor are accounted for, according to their nature, under sales or as a
reduction of cost of sales and operating expenses.

Foreign currency translation

Monetary items on the balance sheet are translated at the exchange rate in
effect at year-end, while non-monetary items are translated at the historical
exchange rates. Revenues and expenses are translated at the rates of exchange in
effect on the transaction date or at the average exchange rate for the period.
Gains or losses resulting from the translation are included in current period
earnings.






METRO INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


2.     SIGNIFICANT ACCOUNTING POLICIES [Cont'd]

Income taxes

The Company follows the liability method of accounting for income taxes. Under
this method, future income tax assets and liabilities are accounted for based on
estimated taxes recoverable or payable that would result from the recovery or
settlement of the carrying amount of assets and liabilities. Future tax assets
and liabilities are measured using substantively enacted tax rates expected to
be in effect when the temporary differences are expected to reverse. Changes in
these amounts are included in current period earnings.

Stock-based compensation and other stock-based payments

The Company recognizes stock-based compensation expense and other stock-based
payments in earnings based on the fair value method for stock options granted
since September 29, 2002. The Black & Scholes model is used to determine the
fair value on the award date of stock options. Compensation expense is
recognized over the expected term of the award.

Performance share unit plan

The Company establishes the value of the compensation related to the performance
share unit plan based on the market value of the Company's Class A Subordinate
Shares at grant date. The compensation expense is recognized over the vesting
period. The impact of changes in the number of performance share units resulting
from the achievement of certain financial performance indicators is recorded in
the period where the estimate is revised. The grant qualifies as an equity
instrument.


Earnings per share

Earnings per share are calculated based on the weighted average number of Class
A Subordinate Shares and Class B Shares outstanding during the year. Fully
diluted earnings per share are calculated using the treasury stock method and
take into account all the elements that have a dilutive effect.

Financial instruments

In accordance with its risk management strategy, the Company uses derivative
financial instruments. Designation as a hedge is only allowed if, both at the
inception of the hedge and throughout the hedge period, the changes in the fair
value or cash flows of the derivative financial instrument are expected to
substantially offset the changes in the fair value or cash flows of the hedged
item attributable to the hedged risks. The Company does not enter into
derivative financial instruments for speculative purposes.





METRO INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


2.     SIGNIFICANT ACCOUNTING POLICIES [Cont'd]

The Company formally documents all relationships between hedging instruments and
hedged items, as well as its risk management objectives and strategy for
undertaking various hedge transactions. This process includes linking all
derivatives to forecasted foreign currency cash flows or to specific assets and
liabilities. The Company also formally documents and assesses, both at the
hedge's inception and on an ongoing basis, whether the derivative financial
instruments that are used in hedging transactions are highly effective in
offsetting changes in fair values or cash flows of hedged items.

The financial instruments used by the Company primarily consist of interest rate
swaps that enable the Company to substitute the variable rate interest payments
with fixed rate interest payments. Unrealized gains or losses are not
recognized. When gains or losses are realized, the amount is recorded as an
adjustment to the interest expense over the term of the debt issued.

Fiscal year

The Company's fiscal year ends on the last Saturday of September. The fiscal
years ended September 30, 2006 and September 24, 2005 include 53 and 52 weeks of
operations, respectively.




METRO INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



3.     NEW ACCOUNTING POLICIES

In 2006
Accounting by a Vendor for Consideration Given to a Customer
(Including a Reseller of the Vendor Products)

The Company adopted, in the third quarter of fiscal 2006, EIC-156 "Accounting by
a Vendor for Consideration Given to a Customer (including a Reseller of the
Vendor's Products)". Under this new standard, certain rebates granted by the
Company to its retailers have to be reclassified as a reduction in sales rather
than as cost of sales. The new standard must be applied retroactively with
restatement of prior interim financial statements. The reclassification from
cost of sales and operating expenses to sales following the new standard's
application and certain adjustments to A&P Canada's different accounting
practices on previously stated results totalled $49.4 for the year ended
September 24, 2005 .

Disclosures by Entities Subject to Rate Regulation

At the end of fiscal 2006, the Company adopted accounting guideline AcG-19,
"Disclosures by Entities Subject to Rate Regulation". This new guideline
requires that entities which provide products subject to rate regulation present
additional information explaining the nature of the rate regulation, its
economic impact and its effect on the financial statements.

In 2005
Asset retirement obligations

At the beginning of the first quarter of fiscal 2005, the Company adopted the
recommendations in Section 3110 "Asset retirement obligations" issued by the
Canadian Institute of Chartered Accountants (CICA). This section establishes
standards for the recognition, measurement and disclosure of liabilities for
asset retirement obligations and the associated asset retirement costs. The
adoption of this new standard did not have a material effect on the Company's
results, financial position or cash flows.

Accounting for certain consideration received from vendors

The Company adopted the amendment to EIC-144 "Accounting by a Customer
(Including a Reseller) for Certain Consideration Received from a Vendor" issued
on January 20, 2005 by the CICA. The amendment requires disclosure in all
financial statements of the amount of any vendor rebate that has been recognized
in earnings but for which the full requirements for entitlement have not yet
been met. This amendment has been applied retroactively and the amendment's
application did not have a material effect on the Company's results, financial
position or cash flows.





METRO INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



4.      BUSINESS ACQUISITION

On August 13, 2005, the Company acquired all of the issued and outstanding
shares of The Great Atlantic and Pacific Tea Company, previously known as The
Great Atlantic and Pacific Tea Company, Limited ("A&P Canada"), an indirect
subsidiary of The Great Atlantic & Pacific Tea Company, Inc. ("A&P US"), for a
total amount of $1,700 consisting of $1,200 in cash and $500 in the form of
Class A Subordinate Shares (18,076,645 shares) of the Company. The cash
component of the purchase price was subject to an adjustment related to the
working capital of A&P Canada, which amounted to $4.2. Moreover, under GAAP, the
fair value of the shares issued by the Company has been adjusted based on the
average quoted market price of the shares observed during a five-day period
preceding and following July 19, 2005, the date on which the final agreement
with A&P US was announced. With this adjustment the net consideration is $526.8,
net of issue costs of $0.1 charged to share capital.
 A&P Canada is a food retailer operating, at the date of acquisition, 234 retail
stores in Ontario. Within its stores, A&P Canada corporately operated 74
full-service pharmacies. A&P Canada also managed 5 distribution centres.

The acquisition was accounted for using the purchase method. The results of A&P
Canada have been consolidated as of the acquisition date. The final purchase
price allocation is as follows:




                                                                                      

                                                                                               $
- ----------------------------------------------------------------------------------------------------------------------------------

Cash                                                                                         49.3
Other current assets                                                                        286.7
Fixed assets                                                                                589.6
Intangible assets
  Favorable leases (amortized over the term of the leases)                                   15.4
  Private labels and agreements (not amortized)                                              55.2
  Prescription files (amortized over 10 years)                                                7.4
  Banners (not amortized)                                                                    53.3
Goodwill                                                                                  1,299.3
Current liabilities                                                                        (429.5)
Leases liabilities                                                                          (25.9)
Long-term debt                                                                              (46.6)
Integration and rationalization plan-related liabilities                                    (30.1)
Assets and liabilities for employee future benefits                                         (48.2)
Future tax assets and liabilities                                                           (23.5)
Minority interest                                                                            (6.9)
- ----------------------------------------------------------------------------------------------------------------------------------
Net assets acquired                                                                       1,745.5
- ----------------------------------------------------------------------------------------------------------------------------------

Cash                                                                                      1,200.0
Class A Subordinate Shares                                                                  526.8
Working capital adjustment                                                                    4.2
Acquisition costs                                                                            14.5
- ----------------------------------------------------------------------------------------------------------------------------------
Consideration and acquisition costs                                                       1,745.5
- ----------------------------------------------------------------------------------------------------------------------------------







METRO INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


5.       INTEGRATION AND RATIONALIZATION COSTS

During the fiscal year, the Company has continued the implementation of its
integration and rationalization plan following the acquisition of A&P Canada.
The plan, centred on three key areas--namely store network, operations, and
implementation of the information systems at A&P Canada, progressed
significantly during the 2006 fiscal year.

The Company finished converting the Ontario Super C discount stores to the Food
Basics banner. The Company established new organizational structures, such as a
national procurement group for grocery and private-label products to provide the
various banners with the best products at the best possible prices, that
optimize Ontario divisions operations as well as the Quebec divisions. The SAP
finance modules went into operation at A&P Canada at the end of the third
quarter, while the SAP and EXE purchasing and distribution modules went into
operation at the main Ontario grocery warehouse in early fall of 2006.

Plan costs stemming from A&P Canada operations are included in the purchase
price allocation and costs stemming from the acquiring entity's operations are
recorded in the statement of earnings at the time they are incurred and are
described as follows:




                                                                         


By Nature of Project
                                               Incurred           Anticipated           Total
                                                   $                   $                  $
- ----------------------------------------- -------------------- ------------------ ------------------
Stores                                           11.9                 2.1                14.0
Integration of operations                        13.9                 7.1                21.0
Implementation of information systems             2.2                17.8                20.0
- ----------------------------------------- -------------------- ------------------ ------------------
- ----------------------------------------- -------------------- ------------------ ------------------
                                                 28.0                27.0                55.0
- ----------------------------------------- -------------------- ------------------ ------------------



                                                                                  


By Nature of Costs
                                Beginning     Incurred      Paid       Ending      Anticipated      Total
                                liability                             liability
                                    $            $           $            $             $             $
Retention bonuses and
   termination benefits             --          17.6        15.5        2.1           6.4            24.0
Training and IT
   implementation                   --           2.2         2.2         --          17.8            20.0
Vacant premises                     --           2.4         0.9        1.5           0.8             3,2
Others                              --           0.5         0.5         --           0.9             1.4
- ----------------------------- -------------- ----------- ----------- ------------ -------------- ------------
- ----------------------------- -------------- ----------- ----------- ------------ -------------- ------------
                                    --          22.7        19.1        3.6          25.9            48.6
Asset write-offs                                 5.3                                  1.1             6.4
- ----------------------------- -------------- ----------- ----------- ------------ -------------- ------------
- ----------------------------- -------------- ----------- ----------- ------------ -------------- ------------
                                                28.0                                 27.0            55.0
- ----------------------------- -------------- ----------- ----------- ------------ -------------- ------------








METRO INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS





                                                                                       


6.      DEPRECIATION AND AMORTIZATION


                                                                             2006            2005
                                                                              $               $
 -------------------------------------------------------------------------------------------------
 -------------------------------------------------------------------------------------------------

 Fixed assets                                                               148.0             60.3
 Intangible assets                                                           29.9             26.9
 -------------------------------------------------------------------------------------------------
 -------------------------------------------------------------------------------------------------
                                                                            177.9             87.2
 -------------------------------------------------------------------------------------------------




7.       INCOME TAXES

The main components of the provision for income taxes were as follows:



                                                                                        


                                                                              2006            2005
                                                                               $               $
 --------------------------------------------------------------------------------------------------
 --------------------------------------------------------------------------------------------------

 Payable                                                                      111.6            68.1
 Future                                                                        (4.6)           12.9
 --------------------------------------------------------------------------------------------------
 --------------------------------------------------------------------------------------------------
                                                                              107.0            81.0
 --------------------------------------------------------------------------------------------------

The effective income tax rates were as follows:

                                                                              2006            2005
                                                                               %               %
 --------------------------------------------------------------------------------------------------
 --------------------------------------------------------------------------------------------------

 Combined statutory income tax rate                                           31.8            31.2
 Changes
    Impact of federal tax rate decrease of 3.12% on
       future taxes [$10.8 in 2006]                                           (3.0)            --
    Impact of Quebec tax rate increase of 3% on
       future taxes [$5.3 in 2006]                                             1.5             --
    Share of earnings of a public company subject to
       significant influence                                                  (0.8)           (1.0)
    Gain on disposal of investment                                            (0.4)            --
    Other                                                                      0.3            (0.2)
 --------------------------------------------------------------------------------------------------
 --------------------------------------------------------------------------------------------------
                                                                              29.4            30.0
 --------------------------------------------------------------------------------------------------







METRO INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


7.       INCOME TAXES [Cont'd]

Future taxes reflect the net tax impact of timing differences between the value
of assets and liabilities for accounting and tax purposes. The main components
of the Company's future tax assets and liabilities were as follows:



                                                                                       


                                                                              2006            2005
                                                                               $               $
- ---------------------------------------------------------------------------------------------------

Future tax assets
Accrued expenses, provisions and other reserves that are
   tax-deductible only at the time of disbursement                            23.8            11.5
Deferred tax losses                                                           10.1             2.1
Excess of tax value over net book value of assets under
   capital leases                                                             11.0             6.5
Employee future benefits                                                      20.4            23.8
- ---------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------
                                                                              65.3            43.9
Current portion                                                               16.7            12.4
- ---------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------
Long-term future tax assets                                                   48.6            31.5
- ---------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------

Future tax liabilities
Accumulated equity earnings from a public company subject
   to significant influence                                                  (14.7)          (11.8)
Employee future benefits                                                     (10.7)          (10.6)
Excess of net book value over tax value
  Fixed assets                                                               (29.0)          (43.9)
  Intangible assets                                                          (94.3)          (35.5)
  Goodwill                                                                   (14.9)          (11.8)
- ---------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------
Long-term future tax liabilities                                            (163.6)         (113.6)
Long-term future tax assets                                                   48.6            31.5
- ---------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------
Long-term future tax liabilities, net                                       (115.0)          (82.1)
- ---------------------------------------------------------------------------------------------------









METRO INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


8.      EARNINGS PER SHARE

Basic earnings per share and fully diluted earnings per share were calculated
based on the following number of shares:




                                                                                        


                                                                               2006           2005

 --------------------------------------------------------------------------------------------------

 Weighted average number of shares outstanding - Basic                         114.6           98.1
 Dilutive effect under stock option plan and performance share units             1.3            1.3
 --------------------------------------------------------------------------------------------------
 --------------------------------------------------------------------------------------------------
 Weighted average number of shares outstanding - Diluted                       115.9           99.4
 --------------------------------------------------------------------------------------------------







9.      INVESTMENTS AND OTHER ASSETS




                                                                                         

                                                                               2006            2005
                                                                                $               $
 ---------------------------------------------------------------------------------------------------
 ---------------------------------------------------------------------------------------------------

 Investment at equity in a public company including results until July 23, 2006
    [July 17, 2005] [quoted market value: as at September 30, 2006 - $498.2;
    as at September 24, 2005 - $462.4]                                        110.3             90.2
 Investments in companies, at cost                                              0.1              2.4
 Loans to certain customers bearing interest at floating rates,
    repayable in monthly instalments, maturing through 2013                     8.6              9.5
 Assets held for sale                                                           5.8              6.5
 ---------------------------------------------------------------------------------------------------
 ---------------------------------------------------------------------------------------------------
                                                                              124.8            108.6
 Current portion included in receivables                                        6.9              8.0
 ---------------------------------------------------------------------------------------------------
 ---------------------------------------------------------------------------------------------------
                                                                              117.9            100.6
 ---------------------------------------------------------------------------------------------------




During fiscal 2006, the Company sold its interest in a company accounted for
under the cost method, realizing a pre-tax gain on disposal of $10.5.






METRO INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


10.     FIXED ASSETS



                                                                         


                                            2006                                2005
                               --------------------------------   ---------------------------------

                                         Accumulated    Net book             Accumulated  Net book
                                Cost     depreciation    value      Cost    depreciation   Value
                                 $            $           $         $           $           $
 --------------------------------------------------------------------------------------------------

 Land                           158.9          --        158.9     123.8          --       123.8
 Buildings                      331.2        76.7        254.5     307.2        70.1       237.1
 Equipment                      717.3       286.5        430.8     635.6       236.2       399.4
 Leasehold improvements         310.9        55.1        255.8     390.6        79.6       311.0
 Assets under capital leases     36.1         6.2         29.9      35.5         0.4        35.1
 --------------------------------------------------------------------------------------------------
                              1,554.4       424.5      1,129.9   1,492.7       386.3      1,106.4
 --------------------------------------------------------------------------------------------------


- ----------------------------------------------------------------------------------------------------
Net acquisitions under capital leases and other acquisitions of assets excluded
from the consolidated statement of cash flows amounted to $0.2 in 2006 [2005 - $0.2].




11.     INTANGIBLE ASSETS



                                                                       


                                            2006                                2005
                                ------------------------------     --------------------------------
                                        Accumulated   Net book              Accumulated  Net book
                                Cost    depreciation    value      Cost    depreciation   Value
                                 $            $           $         $           $           $
 --------------------------------------------------------------------------------------------------
 --------------------------------------------------------------------------------------------------
 Intangible assets with
    definite lives
 Leasehold rights                75.8        25.8         50.0      60.5        23.3        37.2
 Software                       106.7        52.0         54.7      87.6        42.0        45.6
 Improvements and
    development of retail
    network loyalty             188.8        89.4         99.4     185.7        86.1        99.6
 Prescription files               7.4         0.4          7.0       --           --          --
 Deferred financing costs        15.7         3.6         12.1       9.4         0.8         8.6
 --------------------------------------------------------------------------------------------------
 --------------------------------------------------------------------------------------------------
                                394.4       171.2        223.2     343.2       152.2       191.0
 --------------------------------------------------------------------------------------------------
 --------------------------------------------------------------------------------------------------
 Intangible assets with
    indefinite lives
 Banners                         53.3         --          53.3       3.8         --          3.8
 Private labels and agreements   55.2         --          55.2       --          --           --
 --------------------------------------------------------------------------------------------------
 --------------------------------------------------------------------------------------------------
                                108.5         --         108.5       3.8         --          3.8
 --------------------------------------------------------------------------------------------------
 --------------------------------------------------------------------------------------------------
                                502.9       171.2        331.7     347.0       152.2       194.8
 --------------------------------------------------------------------------------------------------





Net acquisitions of intangible assets excluded from the consolidated statement
of cash flows amounted to $1.5 in 2006 [2005 - $1.0].



METRO INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


12.     BANK LOANS

On August 12 2005, the Company entered into a credit agreement with a banking
syndicate, which includes a line of credit of $400. This agreement was amended
on December 22 2005. The line of credit bears interest at rates which fluctuate
with changes in bankers' acceptance rates, is not secured and expires on August
15, 2010. As at September 30, 2006 and September 24, 2005, the line of credit
was undrawn. The VIEs have demand revolving credit facilities totalling $6.1
[$6.2 in 2005] bearing interest at prime, unsecured and expiring on various
dates up to 2007. As at September 30, 2006, $0.3 [$0.3 as at September 24, 2005]
of the demand revolving credit facilities had been drawn at a rate of 6.0 % [4.5
% as at September 24, 2005].

13.     LONG-TERM DEBT

The credit agreement described under note 12 also includes a Credit Facility A
amounting to $750 and a Credit Facility B amounting to $500. The A and B Credit
Facilities bear interest at rates which fluctuate with changes in bankers'
acceptance rates. In 2006, the Company issued $200 worth of Series A 10-year
medium-term notes and $400 worth of Series B 30-year notes. The amounts received
from these offerings were used to repay the balance of Credit Facility B and
$100 of the $750 Credit Facility A. The Credit Facility A is repayable on August
15, 2010 or earlier.




                                                                                       

                                                                               2006           2005
                                                                                $              $
 --------------------------------------------------------------------------------------------------

 Credit Facility A, at a rate of 4.45% [2005 - 3.54%]                          469.3         749.8
 Credit Facility B, at a rate of 3.54% [2005 - 3.54%]                            --          400.0
 Series A notes bearing interest at a nominal rate of
    4.98%, maturing on October 15, 2015 and                                                    __
    retractable at any time prior to maturity                                  200.0
 Series B notes bearing interest at a nominal rate of
    5.97%, maturing on October 15, 2035 and                                                    __
    retractable at any time prior to maturity                                  400.0
 Loans, maturing on various dates through 2011,
    bearing interest at a rate of 5.6% [2005 - 4.2%]                            10.4          11.0
 Obligations under capital leases, bearing interest at
    an effective rate of 10.9% [2005 - 11.0%]                                   44.2          51.9
 --------------------------------------------------------------------------------------------------
 --------------------------------------------------------------------------------------------------
                                                                             1,123.9       1,212.7
 Current portion                                                                 7.3           7.7
 --------------------------------------------------------------------------------------------------
 --------------------------------------------------------------------------------------------------
                                                                             1,116.6       1,205.0
 --------------------------------------------------------------------------------------------------








METRO INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

13.     LONG-TERM DEBT [Cont'd]


Minimum payments required on long-term debt over the next fiscal years were as
follows:



                                                                             


                                      Loans        Medium-term     Obligations under      Total
                                                      notes         capital leases
                                      $                 $                $                $
 -----------------------------------------------------------------------------------------------

 2007                                   2.2               --               10.0           12.2
 2008                                   1.6               --                7.9            9.5
 2009                                   1.2               --                7.2            8.4
 2010                                 470.1               --                6.4          476.5
 2011                                   0.3               --                5.2            5.5
 2012 and thereafter                    4.3            600.0               39.9          644.2
 -----------------------------------------------------------------------------------------------
 ----------------------------------------------------------------------------------------------
                                      479.7            600.0               76.6        1,156.3
 ----------------------------------------------------------------------------------------------




The minimum payments in respect of the obligations under capital leases included
interest amounting to $32.4 on these obligations [2005 - $38.3].


14.     OTHER LONG-TERM LIABILITIES




                                                                                       


                                                                          2006               2005
                                                                            $                  $
- ------------------------------------------------------------------------------------------------------

Lease liabilities                                                         27.2               10.2
Integration and rationalization plan-related liabilities                  17.0                 --
- ------------------------------------------------------------------------------------------------------
                                                                          44.2               10.2
- ------------------------------------------------------------------------------------------------------





15.     CAPITAL STOCK

Authorized

Unlimited number of First Preferred Shares, non-voting, without par value,
issuable in series.

Unlimited number of Class A Subordinate Shares, bearing one voting right per
share, participating, convertible into Class B Shares in the event of a takeover
bid involving Class B Shares, without par value.

Unlimited number of Class B Shares, bearing 16 voting rights per share,
participating, convertible in the event of disqualification into an equal number
of Class A Subordinate Shares on the basis of one Class A Subordinate Share for
each Class B Share held, without par value.





METRO INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


15.      CAPITAL STOCK [Cont'd]

Outstanding



                                                                                   


                                          Class A                  Class B
                                    Subordinate Shares              Shares                  Total
                                    ------------------         ------------------------
                                         Number         $         Number         $          $

 --------------------------------------------------------------------------------------------------
                                           [in                [in thousands]
                                       thousands]

 Balance as at September 25, 2004          95,622      158.8         977         2.0         160.8
 Share issued for cash                      1,152       17.0         --         --            17.0
 Share issued as consideration for a
    business acquisition (note 4)          18,077      526.7         --         --           526.7
 Share redeemed for cash, excluding
    premium of $34.4                      (1,509)       (2.6)        --         --            (2.6)
 Disposal of treasury shares                 108         1.9         --         --             1.9
 Conversion of Class B Shares into
    Class A Subordinate Shares                54         0.1         (54)       (0.1)         --
- --------------------------------------------------------------------------------------------------
 Balance as at September 24, 2005        113,504       701.9         923         1.9         703.8
 Share issued for cash                       377         5.4         --         --             5.4
 Acquisition of treasury shares             (72)        (0.4)        --         --            (0.4)
 Transfer from  contributed  surplus -
    options exercised                        --          0.2         --         --             0.2
 Conversion of Class B Shares into
    Class A Subordinate Shares                43         0.2         (43)       (0.2)          --
 --------------------------------------------------------------------------------------------------

 Balance as at September 30, 2006        113,852       707.3         880         1.7         709.0
 --------------------------------------------------------------------------------------------------



Stock option plan

The Company has a stock option plan for certain employees with options to
purchase up to 10,000,000 Class A Subordinate Shares. The subscription price of
each Class A Subordinate Share issuable upon exercise of options under the plan
is equal to the market price of the shares on the day prior to the day the
option was granted and must be paid in full at the time the option is exercised.
While the Board of Directors determines other terms and conditions for the
exercise of options, options may not extend beyond a five-year period from the
date the option may initially be exercised, in whole or in part, and the total
period may never exceed ten years from the date the option was granted. Options
may generally be exercised two years after they were granted and vest at the
rate of 20% per year.






METRO INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

15.      CAPITAL STOCK [Cont'd]


The options outstanding and the changes during the year are summarized as
follows:



                                                                        


                                                                              Weighted average
                                                        Number of options      exercise price
                                                           [thousands]               $
 -------------------------------------------------------------------------------------------------
 -------------------------------------------------------------------------------------------------

 Balance as at September 25, 2004                              5,072                 17.91
 Granted                                                         453                 26.67
 Exercised                                                    (1,104)                14.41
 Cancelled                                                       (47)                16.01
 -------------------------------------------------------------------------------------------------
 -------------------------------------------------------------------------------------------------
 Balance as at September 24, 2005                              4,374                 19.72
 Granted                                                         265                 30.41
 Exercised                                                      (373)                14.09
 Cancelled                                                       (33)                23.56
 -------------------------------------------------------------------------------------------------
 -------------------------------------------------------------------------------------------------
 Balance as at September 30, 2006                              4,233                 20.85
 -------------------------------------------------------------------------------------------------

The table below summarizes information regarding the stock options outstanding
and exercisable as at September 30, 2006:



                                                                     

                       Options outstanding                             Exercisable options
                    --------------------------                    ---------------------------------
                                     Weighted       Weighted                        Weighted
                                     average         average                         average
    Range of         Number         remaining       exercise         Number          exercise
 exercise prices   of options         period          price       of options         price
        $          [Thousands]       [Months]           $         [Thousands]           $
 --------------------------------------------------------------------------------------------------
 --------------------------------------------------------------------------------------------------

  8.73 to 15.50        562              16.7          11.56             408           11.40
 17.01 to 21.75      2,989              33.5          20.93           2,474           21.12
 23.34 to 33.87        682              70.9          28.17              --              --
 --------------------------------------------------------------------------------------------------
 --------------------------------------------------------------------------------------------------
                     4,233              37.3          20.85           2,882           19.74
 --------------------------------------------------------------------------------------------------






METRO INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



15.     CAPITAL STOCK [Cont'd]

The weighted average fair value of $9.65 [2005 - $8.18] for stock options
granted during the year was established at the time of grant using the Black &
Scholes model and based on the following weighted average assumptions: risk-free
interest rate of 4.23% [2005 - 3.76%], expected six-year term [2005 - six-year
term], anticipated volatility of 30% [2005 - 30%] and an anticipated 1.5%
dividend yield [2005 - 1.5%]. Compensation expense for these options amounted to
$1.3 for the fiscal year ended September 30, 2006 [$1.0 for fiscal year ended
September 24, 2005].

Performance Share Unit Plan

In fiscal 2006, the Company's Board of Directors approved a new
performance share unit (PSU) plan. Under this program, senior executives and
other key employees (participants) periodically receive a given number of PSUs
which may increase if the Company meets certain financial performance
indicators. The PSUs entitle the participant to Class A Subordinate Shares of
the Company, or at the latter's discretion, the cash equivalent. PSUs vest over
a period of three years.

The Company awarded 50,032 PSUs to participants. The number of PSUs could reach
80,087 if certain performance conditions were reached. The Company instructed a
trustee to purchase Class A Subordinate Shares of the Company on the stock
market. The trustee purchased 72,000 Class A Subordinate Shares of the Company
for a consideration of $2.1. These shares are held in trust for participants
until the PSUs shall have vested or been cancelled. The trust, considered a
variable interest entity, is consolidated in the Company's financial statements
with the value of the acquired shares presented as treasury shares reducing
capital stock.

A compensation expense of $0.4 was recorded during fiscal 2006 and 48,448 PSUs
were outstanding as at September 30, 2006 under this plan.







METRO INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

16.     EMPLOYEE FUTURE BENEFITS

The Company offers several defined benefit and defined contribution plans that
provide most participants with pension, other retirement and other
post-employment benefits. Defined benefit pension plans are funded by
contributions made by the Company and certain plans are also funded by
participants' contributions.

The Company's defined benefit and defined contribution plan expenses were as
follows as at September 30, 2006 and September 24, 2005, measurement dates:



                                                                          


                                                    2006                         2005
                                       -----------------------------  ---------------------------
                                        Pension plans    Other plans  Pension plans   Other plans
                                              $               $              $             $
 --------------------------------------------------------------------------------------------------

 Defined contribution plans                  22.1            0.3            8.7           0.3
 --------------------------------------------------------------------------------------------------
 Defined benefit plans
 Current service cost and plan's
 administration fees                         23.1            1.0            6.3           0.7
 Interest cost                               25.6            2.0            7.5           0.4
 Actual return on plan assets               (39.4)            --          (18.7)          --
 Actuarial loss                               4.1            4.8           14.1           0.6
 Plan amendments                              0.2             --            1.7           --
 --------------------------------------------------------------------------------------------------
 --------------------------------------------------------------------------------------------------
                                             13.6            7.8           10.9           1.7
 Difference between established cost
    and reported cost for fiscal year with
    respect to the following items:
 Difference between established return
    and actual return on plan assets          4.7            --            10.7           --
    Actuarial (loss) gain                    (2.9)          (4.6)         (14.0)          0.2
    Plan amendments                           0.1            --            (1.4)          --
 --------------------------------------------------------------------------------------------------
 --------------------------------------------------------------------------------------------------
                                             15.5            3.2            6.2           1.9
 --------------------------------------------------------------------------------------------------
 --------------------------------------------------------------------------------------------------
    Total                                    37.6            3.5           14.9           2.2
 --------------------------------------------------------------------------------------------------







METRO INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

16.    EMPLOYEE FUTURE BENEFITS [Cont'd]

The information on defined benefit plans was as follows:




                                                                           

                                                     2006                           2005
                                         ---------------------------   ---------------------------
                                         Pension plans   Other plans   Pension plans   Other plans
                                               $               $             $              $
 --------------------------------------------------------------------------------------------------
 --------------------------------------------------------------------------------------------------

 Accrued benefit obligations
 Balance at beginning of year                483.9           39.9           86.1           4.7
 Business acquisition                          2.1             --          369.0          34.3
 Current service cost                         22.6            1.0            6.3           0.7
 Interest cost                                25.6            2.0            7.5           0.4
 Participant contributions                     3.1             --            3.1            --
 Plan amendments                               0.2             --            1.7            --
 Benefits paid                               (21.2)          (4.6)          (3.9)         (0.8)
 Actuarial loss                                4.1            4.8           14.1           0.6
 --------------------------------------------------------------------------------------------------
 --------------------------------------------------------------------------------------------------
 Balance at end of year                      520.4           43.1          483.9          39.9
 --------------------------------------------------------------------------------------------------
 --------------------------------------------------------------------------------------------------

 Plan assets
 Fair value at beginning of year             461.6             --           80.2            --
 Business acquisition                          --              --          356.5            --
 Actual return on plan assets                 39.4             --           18.7            --
 Employer contributions                       34.3            4.6            7.0           0.8
 Participant contributions                     3.1             --            3.1            --
 Benefits paid                               (21.2)          (4.6)          (3.9)         (0.8)
 Plan's administration fees                   (0.5)            --            --             --
 --------------------------------------------------------------------------------------------------
 --------------------------------------------------------------------------------------------------
 Fair value at end of year                   516.7             --          461.6            --
 --------------------------------------------------------------------------------------------------
 --------------------------------------------------------------------------------------------------

 Funded status - deficit                      (3.7)         (43.1)         (22.3)        (39.9)
 Unamortized past service costs                2.2             --            2.4            --
 Unamortized net actuarial loss               12.0            6.0           12.7           1.4
 Valuation allowance on accrued
    benefits assets                           (1.0)            --             --            --

 --------------------------------------------------------------------------------------------------
 --------------------------------------------------------------------------------------------------
 Accrued benefit assets (obligations)          9.5          (37.1)          (7.2)        (38.5)
 --------------------------------------------------------------------------------------------------
 --------------------------------------------------------------------------------------------------
 Accrued benefit assets                       33.0            --            20.9            --
 --------------------------------------------------------------------------------------------------
 --------------------------------------------------------------------------------------------------
 Accrued benefit obligations                 (23.5)         (37.1)         (28.1)        (38.5)
 --------------------------------------------------------------------------------------------------







METRO INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

16.    EMPLOYEE FUTURE BENEFITS [Cont'd]

The pension plans are allocated as follow:



                                                                        

                                                     2006                         2005
                                         ---------------------------  -----------------------------
                                           Accrued     Fair value of    Accrued     Fair value of
                                           benefit        assets        benefit        assets
                                         obligations                  obligations
                                              $              $             $              $
 --------------------------------------------------------------------------------------------------
 --------------------------------------------------------------------------------------------------

 Accrued benefit obligations exceeding
    fair value of assets                     272.7          215.8          382.6         300.6
 Faire value of assets exceeding
    accrued benefit obligations              290.8          300.9          141.2         161.0
- ---------------------------------------------------------------------------------------------------

- ---------------------------------------------------------------------------------------------------




Defined benefit plans other than retirement plans were not funded.

The most recent actuarial valuations with respect to the capitalization of the
Company's pension plans were prepared on various dates ranging from July 2004 to
September 2006. The next valuations will be on various dates ranging from July
2007 to September 2009.

The plan assets are held in trust and their weighted average distributions as of
the measurement dates, September 30, 2006, and September 24, 2005, were as
follows:




                                                                                     

                                                                              2006          2005
Assets classes                                                                  %             %
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------

Stocks                                                                        61             60
Bonds                                                                         36             36
Other                                                                          3              4
- -------------------------------------------------------------------------------------------------







METRO INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

16.    EMPLOYEE FUTURE BENEFITS [Cont'd]

The principal actuarial assumptions used by the Company were as follows:



                                                                       


                                                 2006                           2005
                                         --------------------------  ----------------------------
                                         Pension plans  Other plans  Pension plans Other plans
                                             %               %              %              %
- --------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------

Accrued benefit obligations
Discount rate                               5.25            5.25          5.25           5.25
 Compensation growth rate                   3.5             3.5           3.5            3.5

Cost of benefits
Discount rate                               6.5             6.5           6.5            6.5
 Projected long-term return on plan
   assets                                   7.5              --           7.5             --
 Compensation growth rate                   3.5             3.5           3.5            3.5
- --------------------------------------------------------------------------------------------------





For valuation purposes, the annual hypothetical growth rate of covered health
care costs per participant was estimated at 9.6% in 2006 [2005 - 7.1%].
According to the assumptions retained, this rate should diminish gradually
before stabilizing at 4.9% in 2016. A one-percentage-point increase or decrease
in the hypothetical growth rate would have the following effects:



                                                                             


                                                                   1% increase     1% decrease
                                                                        $               $
- --------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------

Effect on the cost of recorded benefits                                 0.2             (0.2)
Effect on accrued benefit obligations                                   2.8             (2.3)
- --------------------------------------------------------------------------------------------------






METRO INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

17.    COMMITMENTS

Obligations under leases and service agreements

The Company has operating lease commitments, with varying terms through 2027, to
lease premises and equipment used for business purposes. The minimum payment
balance amounted to $1,212.8 as at September 30, 2006 [$1,195.8 as at September
24, 2005]. The minimum payments over the next fiscal years are as follows:
$142.2 in 2007; $134.1 in 2008; $120.8 in 2009, $109.2 in 2010; $93.9 in 2011
and $612.6 for 2012 and thereafter.

In addition, the Company has leases with varying terms through 2029, to lease
premises which it sublets to clients, generally under the same terms and
conditions. The minimum payment balance under these leases was $318.0 as at
September 30, 2006 [$299.2 as at September 24, 2005] and the average annual
payments for the next five years are $28.0.

The Company also has commitments under service contracts staggered over various
periods through 2011. The minimum payment balance amounted to $239.8 as at
September 30, 2006 [$351 as at September 24, 2005]. The minimum payments over
the next fiscal years are as follows: $70.3 in 2007; $69.1 in 2008; $70.2 in
2009; $30.2 in 2010.

Obligations arising from information system services

As an integral part of the purchase for A&P Canada in 2005 an information system
service agreement was entered into with A&P U.S to provide information system
services to A&P Canada. The agreement covers a two-year period expiring on
August 12, 2007. The costs related to information system services were
established at approximately $20 per year, including $22.4 for the year ended
September 30, 2006 [2005 - $2.3].



18.    CONTINGENCIES

Endorsements

For certain of its customers with whom business relationships are established,
the Company assumes a contingent liability as guarantor of lease agreements with
varying terms through 2019 for which the average annual lease payments for the
next five years are $1.2. The maximum contingent liability under these
endorsements as at September 30, 2006 was $10.4. Also, the Company has endorsed
loans granted to certain customers by financial institutions, with varying terms
through 2012, for a maximum amount of $29.5. The balance of these loans as at
September 30, 2006 was $29.5. In return, the Company holds a movable hypothec on
the shares of the Company held by its customers, as well as second hypothecs on
the inventories, movable goods, intangible goods and accounts receivable. The
guarantees and hypothecs sufficiently cover the balance of these loans. No
liability has been recorded in respect of these endorsements for the years ended
September 30, 2006 and September 24, 2005.




METRO INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

18.    CONTINGENCIES [Cont'd]

Claims

In the normal course of business, various proceedings and claims are instituted
against the Company. The Company contests the validity of these claims and
proceedings and management believes that any forthcoming settlement in respect
of these claims will not have a material effect on the financial position or on
the consolidated earnings of the Company.

19.      RELATED PARTY TRANSACTIONS

During the year, sales to companies controlled by members of the Board of
Directors totalled $38.9 [2005 - $81.2] and sales to an affiliated company
amounted to $3.5 [2005 - $5.5]. These transactions were conducted in the normal
course of business and were accounted for at the exchange amount. As at
September 30, 2006, accounts receivable include a balance of $0.7 [$5.5 as at
September 24, 2005] resulting from these transactions.

20.     PRODUCTS SUBJECT TO PRICE REGULATION

As a food distributor and retailer and a distributor of pharmaceutical goods,
the Company sells certain products subject to price regulation.

Drugs
In Quebec, the Minister of Health and Social Services establishes, by
regulation, the list of drugs whose cost is covered by the basic prescription
drug insurance plan and regulates the selling price of such drugs. The list of
drugs is established pursuant to the Act respecting prescription drug insurance.
A profit margin may be added to the set price within the range determined by the
government, pursuant to the Regulation respecting the conditions on which
manufacturers and wholesalers of medications shall be recognized.

In Ontario, the Ministry of Health and Long-Term Care establishes, by
regulation, the list of drugs whose cost is covered by the Ontario Drug Benefit
Act and regulates the selling price of such drugs.

Milk
Milk prices are regulated by the Act respecting the marketing of agricultural,
food and fish products and the Reglement sur les prix du lait aux consommateurs.
The Regie des marches agricoles et alimentaires du Quebec sets milk prices by
determining the minimum and maximum prices based on the three regions covering
the territory of the Province of Quebec.

Beer
Beer prices are regulated by the Act respecting liquor permits and the
Regulation respecting promotion, advertising and educational programs relating
to alcoholic beverages. The Regie des alcools, des courses et des jeux du Quebec
sets beer prices based on the percentage of alcohol content.





METRO INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


20.     PRODUCTS SUBJECT TO PRICE REGULATION [Cont'd]



Wine
Wine prices are regulated by the Act respecting the Societe des alcools du
Quebec and the Regulation respecting the terms of sale of alcoholic beverages by
holders of a grocery permit. The retail price of permitted alcoholic beverages
may not be less than the retail price set by the Societe des alcools du Quebec.



The product price lists mentioned above are periodically updated. Sales of
products subject to price regulation totalled $873.3 in 2006. Sales accounting
is the same whether the price is regulated or not.


21.     FINANCIAL INSTRUMENTS

In the normal course of business, the Company is exposed primarily to interest
rate fluctuation risks. The Company manages these risks through the use of
derivative financial instruments, that is, bond rate locks to lock in interest
rates and interest rate swaps. The Company's management is responsible for
determining acceptable levels of risk and uses the derivative financial
instruments solely to hedge its existing liabilities or obligations, and not to
generate a profit from trading transactions.


In 2006


Interest rate swaps were contracted for a total notional amount of $ 150 of
Credit Facility A. Those derivative financial instruments are used as hedges.
Unrealized fair market gains or losses are not recognized. These contracts
enable the Company to substitute the variable rate interest payments with fixed
rate interest payments under the following conditions:




                                                                   


- ----------------------------- ------------------------- ------------------- -----------------------
         Objective                   Fixed Rate          Notional amount           Maturity
                                         %                      $
- ----------------------------- ------------------------- ------------------- -----------------------
- ----------------------------- ------------------------- ------------------- -----------------------
Fixing debt cost                       4.6480                  $ 50           November 23, 2008
Fixing debt cost                       4.6820                  $ 50           December 16, 2009
Fixing debt cost                       4.7425                  $ 50           December 16, 2010
- ----------------------------- ------------------------- ------------------- -----------------------
- ----------------------------- ------------------------- ------------------- -----------------------








METRO INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

21.  FINANCIAL INSTRUMENTS [Cont'd]

In 2005

The Company entered into bond rate locks to lock in the interest rate so as to
hedge against a change in interest rates between the time the instruments are
purchased and the issue of notes carried out on October 12, 2005. At the date of
issue of the medium-term notes on October 12, 2005, these agreements expired,
and the Company made payment of $2.4 that will be amortized as an adjustment to
the interest expense on the notes over their term.

Bond rate locks were as follows as at September 24, 2005:



                                                                      


- ----------------------------------------- ------------------ ----------------- --------------------
               Objective                     Rate under       Covered amount         Expiry
                                              agreement             $
                                                  %
- ----------------------------------------- ------------------ ----------------- --------------------
- ----------------------------------------- ------------------ ----------------- --------------------
Lock in the interest rate - 10 years            5.03               $150         October 21, 2005
Lock in the interest rate - 30 years            6.03               $125         October 21, 2005
- ----------------------------------------- ------------------ ----------------- --------------------
- ----------------------------------------- ------------------ ----------------- --------------------




Fair value

The fair value of cash and cash equivalents, accounts receivable, bank loans and
accounts payable approximates their carrying value because of the short-term
maturity of these instruments.

The fair value of loans to certain customers included in investments and of the
items included in long-term debt is equivalent to their carrying value since
they are at floating interest rates or at interest rates that are comparable to
market rates.

The fair value of notes is approximately $610.1, which represents the
obligations that the Company would have to face in the event of the negotiation
of similar notes under current market conditions.

The fair value of the obligations under capital leases, including the current
portion, is approximately $53.7, which represents the obligations that the
Company would have to face in the event of the negotiation of similar leases
under current market conditions.

The fair value of the derivative financial instruments generally reflects the
estimates of the amounts the Company would receive by way of settlement of
favourable contracts or that it would pay to terminate unfavourable contracts at
the balance sheet date. These fair values are estimated using the prices
obtained from major financial institutions. The fair values of the interest rate
swaps amounted to $0.6 as at September 30, 2006 and the fair values of bond rate
locks to lock in interest rates amounted to $1.9 as at September 24, 2005.



METRO INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


21.  FINANCIAL INSTRUMENTS [Cont'd]

Credit risk

The Company sells its products to numerous customers in Canada. The Company
performs ongoing credit evaluations of its customers. As at September 30, 2006
and September 24, 2005, no customer accounted for over 10% of total accounts
receivable.

The company is subject to risk related to the off-balance-sheet nature of
derivative financial instruments, whereby counterparty failure would result in
economic losses or favorable contracts. However, as the counterparties to these
derivative financial instruments are major financial institutions, the Company
expects that they will satisfy their obligations under the contracts.



22.   RECONCILIATION OF CANADIAN GAAP TO UNITED STATES GAAP

The consolidated financial statements have been prepared in accordance with
Canadian generally accepted accounting principles (Canadian GAAP), which differ
in certain respects from accounting principles generally accepted in the United
States (US GAAP). The following tables and disclosures represent the principal
reconciling items between US GAAP and Canadian GAAP affecting the consolidated
statement of earnings and retained earnings and the consolidated balance sheet.

The reconciliation of net earnings in accordance with Canadian GAAP to conform
to US GAAP is as follows:



                                                                                


                                                                                2006          2005
                                                                                $             $
                                                                Notes      [53 weeks]    [52 weeks]
 ---------------------------------------------------------------------------------------------------
 ---------------------------------------------------------------------------------------------------

 Net earnings in accordance with Canadian GAAP                                   253.0         190.4

 Leases, net of income taxes of $0.5 ($0.1 in 2005)              5                (1.3)         (0.5)
 Post employment benefits, net of income taxes of $1.1 (($0.5)   4
 in 2005)                                                                         (2.5)          1.1
 ---------------------------------------------------------------------------------------------------
                                                                                  (3.8)          0.6
 ---------------------------------------------------------------------------------------------------
 ---------------------------------------------------------------------------------------------------
 Net earnings in accordance with US GAAP                                         249.2         191.0
 ---------------------------------------------------------------------------------------------------






METRO INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


22. RECONCILIATION OF CANADIAN GAAP TO UNITED STATES GAAP [Cont'd]


The reconciliation of retained earnings in accordance with Canadian GAAP to
conform to US GAAP is as follows:



                                                                                


                                                                              2006          2005
                                                                                $             $
                                                                 Notes     [53 weeks]    [52 weeks]
 ---------------------------------------------------------------------------------------------------
 ---------------------------------------------------------------------------------------------------

 Retained earnings at beginning of year in accordance with
 Canadian GAAP                                                                   807.7         690.6

 Leases, net of income taxes of $0.4 ($0.1 in 2005)               5               (0.9)         (0.4)
 Post employment benefits, net of income taxes of $3.4 ($3.9 in   4
 2005)                                                                            (7.6)         (8.7)
 ---------------------------------------------------------------------------------------------------
 ---------------------------------------------------------------------------------------------------

 Retained earnings at beginning of year in accordance with US
 GAAP                                                                            799.2         681.5
 Net earnings in accordance with US GAAP                                         249.2         191.0
 Dividends                                                                       (47.5)        (38.9)
 Share redemption premium                                                          --           (34.4)
 ---------------------------------------------------------------------------------------------------
 ---------------------------------------------------------------------------------------------------
 Retained earnings at the end of year in accordance with US GAAP
                                                                               1,000.9         799.2
 ---------------------------------------------------------------------------------------------------



The comprehensive income under US GAAP is as follows:

                                                                                  2006          2005
                                                                                  $             $
                                                                  Notes      [53 weeks]    [52 weeks]
 -----------------------------------------------------------------------------------------------------
 -----------------------------------------------------------------------------------------------------

 Net earnings in accordance with US GAAP                                           249.2       191.0

 Other comprehensive income
     Derivative financial instruments, net of income taxes of
     $0.2 ($0.8 in 2005)                                          1 and 2            2.2        (1.8)
     Minimum pension liability, net of income taxes of $0.7          3               --         (1.4)
     in 2005
 -----------------------------------------------------------------------------------------------------
 Comprehensive income in accordance with US GAAP                                   251.4       187.8
 -----------------------------------------------------------------------------------------------------






METRO INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

22. RECONCILIATION OF CANADIAN GAAP TO UNITED STATES GAAP [Cont'd]


The reconciliation of cash flows under Canadian GAAP to conform to US GAAP is as
follows:




                                                                                 

                                                                              2006          2005
                                                                                $             $
                                                                 Notes     [53 weeks]    [52 weeks]
 ---------------------------------------------------------------------------------------------------
 ---------------------------------------------------------------------------------------------------

 Operating activities under Canadian GAAP                                        392.0         281.9
 Net earnings                                                                     (3.8)          0.6
 Depreciation and amortization                                                     2.4           0.7
 Future income taxes                                                              (6.0)         (6.9)
 ---------------------------------------------------------------------------------------------------
 ---------------------------------------------------------------------------------------------------
 Operating activities under US GAAP                                              384.6         276.3
 ---------------------------------------------------------------------------------------------------
 ---------------------------------------------------------------------------------------------------

 Investing activities under Canadian GAAP                                       (181.9)     (1,319.6)
 Acquisition of fixed assets                                                     (98.6)        (77.2)
 ---------------------------------------------------------------------------------------------------
 ---------------------------------------------------------------------------------------------------
 Investing activities under US GAAP                                             (280.5)     (1,396.8)
 ---------------------------------------------------------------------------------------------------
 ---------------------------------------------------------------------------------------------------

 Financing activities under Canadian GAAP                                       (138.2)      1,088.5
 Increase of other long-term liabilities                                         106.0          82.8
 ---------------------------------------------------------------------------------------------------
 ---------------------------------------------------------------------------------------------------
 Financing activities under US GAAP                                              (32.2)      1,171.3
 ---------------------------------------------------------------------------------------------------






METRO INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

22. RECONCILIATION OF CANADIAN GAAP TO UNITED STATES GAAP [Cont'd]




                                                                             

                                                               2006                     2005
                                                                 $                       $
                                                           [53 weeks]               [52 weeks]
                                                    --------------------------------------------------
                                           Notes      Canadian       US        Canadian       US
                                                        GAAP        GAAP         GAAP        GAAP
 -----------------------------------------------------------------------------------------------------
 -----------------------------------------------------------------------------------------------------

 Sales                                                10,944.0     10,944.0     6,646.5     6,646.5
 Cost of sales and operating expenses      4 and 5    10,305.5     10,293.0     6,281.5     6,275.2
 Integration and rationalization costs                    28.0         28.0         --          --
 -----------------------------------------------------------------------------------------------------
 -----------------------------------------------------------------------------------------------------
 Earnings before interest, taxes,
 depreciation and amortization                           610.5        623.0       365.0       371.3
 Depreciation and amortization                5          177.9        180.3        87.2        87.9
 -----------------------------------------------------------------------------------------------------
 -----------------------------------------------------------------------------------------------------
 Operating income                                        432.6        442.7       277.8       283.4

 Interest
 Short term                                              (1.9)        (1.9)         1.3         1.3
 Long term                                    5           70.6         86.1         6.1        10.7
 -----------------------------------------------------------------------------------------------------
 -----------------------------------------------------------------------------------------------------
                                                          68.7         84.2         7.4        12.0
 -----------------------------------------------------------------------------------------------------
 -----------------------------------------------------------------------------------------------------
 Earnings before income taxes                            363.9        358.5       270.4       271.4
 Income taxes                              4 and 5       107.0        105.4        81.0        81.4
 -----------------------------------------------------------------------------------------------------
 Earnings before minority interest                       256.9        253.1       189.4       190.0
 Minority interest                                         3.9          3.9       (1.0)       (1.0)
 -----------------------------------------------------------------------------------------------------
 -----------------------------------------------------------------------------------------------------
 Net earnings                                            253.0        249.2       190.4       191.0
 -----------------------------------------------------------------------------------------------------
 -----------------------------------------------------------------------------------------------------

 Earnings per share
 Basic                                                    2.21         2.17        1.94        1.95
 Fully diluted                                            2.18         2.15        1.92        1.92






METRO INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

22. RECONCILIATION OF CANADIAN GAAP TO UNITED STATES GAAP [Cont'd]



                                                                             

                                                                 2006                  2005
                                                                  $                      $
                                             Notes      Canadian       US      Canadian      US
                                                          GAAP        GAAP       GAAP       GAAP
 ---------------------------------------------------------------------------------------------------
 ---------------------------------------------------------------------------------------------------
 ASSETS
 Current assets
 Cash and cash equivalents                                  165.7       165.7       93.8      93.8
 Accounts receivable                                        302.1       302.1      287.7     287.7
 Inventories                                                565.5       565.5      551.9     551.9
 Prepaid expenses                                            11.3        11.3       15.1      15.1
 Future income taxes                                         16.7        16.7       12.4      12.4
 ---------------------------------------------------------------------------------------------------
 ---------------------------------------------------------------------------------------------------
                                                          1,061.3     1,061.3      960.9     960.9
 Investments and other assets                   1           117.9       118.5      100.6      98.0
 Fixed assets                                   5         1,129.9     1,228.5    1,106.4   1,183.6
 Intangible assets                                          331.7       331.7      194.8     194.8
 Goodwill                                       5         1,490.1     1,493.0    1,543.7   1,546.6
 Accrued benefit assets                         4            33.0        25.0       20.9      16.5
 ---------------------------------------------------------------------------------------------------
 ---------------------------------------------------------------------------------------------------
                                                          4,163.9     4,258.0    3,927.3   4,000.4
 ---------------------------------------------------------------------------------------------------
 ---------------------------------------------------------------------------------------------------

 LIABILITIES AND SHAREHOLDERS' EQUITY
 Current liabilities
 Bank loans                                                   0.3         0.3        0.3       0.3
 Accounts payable                                         1,049.5     1,049.5    1,022.0   1,022.0
 Income taxes payable                                        36.8        36.8       13.8      13.8
 Current portion of long-term debt                            7.3         7.3        7.7       7.7
 ---------------------------------------------------------------------------------------------------
 ---------------------------------------------------------------------------------------------------
                                                          1,093.9     1,093.9    1,043.8   1,043.8
 Long-term debt                                           1,116.6     1,116.6    1,205.0   1,205.0
 Accrued benefit obligations                 3 and 4         60.6        69.3       66.6      75.3
 Future income taxes                        1, 3, 4         115.0       107.7       82.1      75.4
                                              and 5
 Other long-term liabilities                    5            44.2       150.2       10.2      93.0
 Minority interest                                            9.8         9.8        6.3       6.3
 ---------------------------------------------------------------------------------------------------
 ---------------------------------------------------------------------------------------------------
                                                          2,440.1     2,547.5    2,414.0   2,498.8
 ---------------------------------------------------------------------------------------------------

 Shareholders' equity
 Capital stock                                              709.0       709.0      703.8     703.8
 Contributed surplus                                          1.6         1.6        1.8       1.8
 Retained earnings                           4 and 5      1,013.2     1,000.9      807.7     799.2
 Accumulated other comprehensive income     1, 2 and 3          --       (1.0)          --     (3.2)
 ---------------------------------------------------------------------------------------------------
 ---------------------------------------------------------------------------------------------------
                                                          1,723.8     1,710.5    1,513.3   1,501.6
 ---------------------------------------------------------------------------------------------------
 ---------------------------------------------------------------------------------------------------
                                                          4,163.9     4,258.0    3,927.3   4,000.4
 ---------------------------------------------------------------------------------------------------



22. RECONCILIATION OF CANADIAN GAAP TO UNITED STATES GAAP [Cont'd]

Reconciling items

1) Interest rate swaps and forward contracts

The Company has outstanding interest rate swaps and forward contracts,
designated as cash flow hedges. Under US GAAP, the Company adopted the FASB
statement of Financial Accounting Standards ("SFAS") 133, "Accounting for
Derivatives Instruments and Hedging Activities" as amended by SFAS 138,
"Accounting for certain Derivative Instruments and Certain Hedging Activities".
In accordance with these statements, the Company has recorded in its balance
sheets the fair value of interest rate swaps and forward contracts. Changes in
the fair value of these instruments are recorded in Other Comprehensive Income,
a separate component of shareholders' equity until the underlying transaction is
recorded in earnings.

Under Canadian GAAP, derivates financial instruments qualifying for hedge
accounting were not recognized on balance sheet. Upon the adoption of sections
3855 and 3865, Canadian GAAP will be substantially harmonized with US GAAP, for
the Company, on October 1, 2006.

2) Comprehensive income

US GAAP requires disclosure of comprehensive income, which comprises income and
other component of comprehensive income. Other comprehensive income includes
items that cause changes in shareholders' equity but are not related to share
capital or net earnings. Under Canadian GAAP, the requirement to report
comprehensive income has started in the quarter ended December 23, 2006, with
the adoption of Section 1530 "Comprehensive Income".

3) Minimum pension liability

Under US GAAP, if the accumulated benefit obligation exceeds the market value of
plan assets, a minimum pension liability for the excess is recognized to the
extent that the liability recorded in the balance sheet is less than the minimum
liability. Any portion of the additional liability that relates to unrecognized
past service costs is recognized as an intangible asset while the reminder is
charged to other comprehensive income. The concept of additional minimum
liability does not currently exist under Canadian GAAP.




METRO INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

22.      RECONCILIATION OF CANADIAN GAAP TO UNITED STATES GAAP [Cont'd]

4)  Post employment benefits

Under US GAAP, SFAS 112 "Employer's Accounting for Post employment Benefits",
specifies that post-employment benefits, such as disability-related benefits,
that do not vest or accumulate are recognized immediately when the event that
gives rise to the benefits occurs because all the conditions to accrue a
liability have been rendered. Similarly, gains or losses are recognized in the
year of their occurence. Under Canadian GAAP, Section 3461 allows the entity to
recognize gains or losses related to post-employment benefits either immediately
in the period in which they arise or over a period linked to the type of
benefit. Under Canadian GAAP, METRO recognizes post-employment benefits gains or
losses over a period linked to the type of benefit.


5) Lessee involvement in Asset Construction

Under US GAAP, the Emerging Issue task Force ("EITF") 97-10 "The effect of
lessee involvement in Asset Construction" establish criteria to use to determine
whether a company is deemed the owner of the construction projects during the
construction period. As a result, the Company is deemed the owner of certain of
its current lease during the construction period. Therefore, landlord
reimbursements are recorded as long-term real estate liability and the
construction costs included in fixed assets.

In all these situations, upon completion of the construction, the Company was
unable to meet the requirements under SFAS 98 "Accounting for Leases to qualify
for sale-leaseback". Therefore, the asset is amortized in accordance with the
Company's Accounting policy, and the real estate liability is amortized as
interest expense based on technical accounting guidance.

Under Canadian GAAP, rules related to lessee involvement in asset construction
does not currently exist and therefore these transactions are accounted as
operating lease, in accordance with Section 3865 "Leases".

As a result, the purchase equation has been modified to include the impact of
the revaluation of the fixed assets and long term real estate liability.



23.   COMPARATIVE FIGURES

Certain comparative figures have been reclassified to conform with the
presentation adopted in the current year.