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<SEC-DOCUMENT>0000043300-03-000020.txt : 20030509
<SEC-HEADER>0000043300-03-000020.hdr.sgml : 20030509
<ACCEPTANCE-DATETIME>20030508184002
ACCESSION NUMBER: 0000043300-03-000020
CONFORMED SUBMISSION TYPE: 10-K
PUBLIC DOCUMENT COUNT: 6
CONFORMED PERIOD OF REPORT: 20030222
FILED AS OF DATE: 20030509
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: GREAT ATLANTIC & PACIFIC TEA CO INC
CENTRAL INDEX KEY: 0000043300
STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-GROCERY STORES [5411]
IRS NUMBER: 131890974
STATE OF INCORPORATION: MD
FISCAL YEAR END: 0228
FILING VALUES:
FORM TYPE: 10-K
SEC ACT: 1934 Act
SEC FILE NUMBER: 001-04141
FILM NUMBER: 03688914
BUSINESS ADDRESS:
STREET 1: 2 PARAGON DR
CITY: MONTVALE
STATE: NJ
ZIP: 07645
BUSINESS PHONE: 2015739700
MAIL ADDRESS:
STREET 1: 2 PARAGON DRIVE
CITY: MONTVALE
STATE: NJ
ZIP: 07645
</SEC-HEADER>
<DOCUMENT>
<TYPE>10-K
<SEQUENCE>1
<FILENAME>f10k.txt
<DESCRIPTION>FORM 10K FOR FY 2002 ENDED FEBRUARY 22, 2003
<TEXT>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended February 22, 2003
OR
[ ] 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 (I.R.S. Employer
incorporation or organization) 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
Securities registered pursuant to Section 12 (g) of the Act: None
---------------------------------
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [ X ] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates
of the Registrant at May 7, 2003 was approximately $252,663,687. The number of
shares of common stock outstanding at May 7, 2003 was 38,515,806.
DOCUMENTS INCORPORATED BY REFERENCE
The information required by Part I, Items 1 and 3, and Part II, Items
5, 6, 7, 7A, 8, 9, 14 and 15 are incorporated by reference from the Registrant's
Fiscal 2002 Annual Report to Stockholders.
<PAGE>
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 695
stores averaging approximately 38,500 square feet per store as of February 22,
2003. In addition, we served as wholesaler to 65 franchise stores in Canada
averaging approximately 31,800 square feet per store as of February 22, 2003. On
the basis of reported sales for fiscal 2002, we believe that we are among North
America's largest retail food chains.
Operating under the trade names A&P(R), Super Fresh(R),
Sav-A-Center(R), Farmer Jack(R), Kohl's, Waldbaum's(TM), Super Foodmart, Ultra
Food & Drug, Dominion(R), Food Basics(TM), The Barn Markets and The Food
Emporium(TM), 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 also operate one coffee
roasting plant in the United States. Through our Compass Foods Division, we
manufacture and distribute a line of whole bean coffees under the Eight
O'Clock(R), Bokar(R) and Royale(R) labels, for sale through our own stores as
well as other retail channels. We sell other private label products in our
stores under other brand names of our Company which include without limitation,
America's Choice(R), Master Choice(R), Health Pride(R), Savings Plus and The
Farm.
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.
Modernization of Facilities
- ---------------------------
We are engaged in a continuing program of modernizing our operations
including retail stores, warehousing and distribution facilities, supply and
logistics and processes. In support of our modernizing program, on March 13,
2000, we announced our business process initiative, a plan to develop a state of
the art supply chain and business management infrastructure over four years.
This initiative was completed in fiscal 2002.
During fiscal 2002, we expended approximately $220 million for capital
projects, which included 31 new supermarkets and 38 major remodels or
enlargements. Our Company has planned capital expenditures of approximately $175
million in fiscal 2003. These expenditures relate primarily to opening 20 new
supermarkets and enlarging or remodeling 30 - 35 supermarkets. In addition, we
plan to continue with at least similar levels of capital expenditures in fiscal
2004 and several years thereafter.
Sources of Supply
- -----------------
Our Company obtains the merchandise sold in our stores from a variety
of suppliers located primarily in the United States and Canada. Our Company has
long-standing and satisfactory relationships with our suppliers.
We maintain a processing facility that produces coffee products. The
main ingredients for coffee products are purchased principally from Brazilian
and Central American sources. Other ingredients are obtained from domestic
suppliers.
Employees
- ---------
As of February 22, 2003, we had approximately 79,000 employees, of
which 68% were employed on a part-time basis. Approximately 89% of our employees
are covered by union contracts.
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
- -------------------
The segment information required is contained under the caption "Note
13 - Operating Segments" in the Fiscal 2002 Annual Report to Stockholders and
is herein incorporated by reference.
Foreign Operations
- ------------------
The information required is contained under the captions "Management's
Discussion and Analysis", "Note 5 - Wholesale Franchise Business", "Note 6 -
Indebtedness", "Note 9 - Income Taxes", "Note 10 - Retirement Plans and
Benefits", "Note 12 - Commitments and Contingencies" and "Note 13 - Operating
Segments" in the Fiscal 2002 Annual Report to Stockholders and is herein
incorporated by reference.
ITEM 2 - Properties
At February 22, 2003, we owned 117 properties consisting of the
following:
Stores, Not Including Stores in Owned Shopping Centers
------------------------------------------------------
Land and building owned 29
Building owned and land leased 17
Land owned and building leased 1
----
Total stores 47
Shopping Centers
----------------
Land and building owned 12
Building owned and land leased 7
----
Total shopping centers 19
Warehouses
----------
Land and building owned 7
Administrative and Other Properties
-----------------------------------
Land and building owned 12
Building owned and land leased 3
Property under development building owned
and land leased 4
Property under development land
and building owned 2
Property under development land only 1
Undeveloped land 22
----
Total other properties 44
----
Total Properties 117
====
At February 22, 2003, we operated 695 retail stores and serviced 65
franchised stores. These stores are geographically located as follows:
Company Stores:
--------------
New England States:
------------------
Connecticut 37
Massachusetts 15
New Hampshire 1
----
Total 53
Middle Atlantic States:
----------------------
District of Columbia 1
Delaware 9
Maryland 31
New Jersey 96
New York 141
Pennsylvania 23
----
Total 301
Midwestern States:
-----------------
Michigan 103
Ohio 6
Wisconsin 31
----
Total 140
Southern States:
---------------
Louisiana 20
Mississippi 4
North Carolina 1
----
Total 25
----
Total United States 519
Ontario, Canada 176
----
Total Stores 695
====
Franchised Stores:
Ontario, Canada 65
----
Total Franchised Stores 65
====
The total area of all of our operated retail stores is 26.8 million
square feet averaging approximately 38,500 square feet per store. Excluding
liquor and The Food Emporium(TM) stores, which are generally smaller in size,
the average store size is approximately 41,100 square feet. The total area of
all franchised stores is 2.1 million square feet averaging approximately 31,800
square feet per store. The 31 new stores opened in fiscal 2002 consisted of 30
supermarkets and 1 gas station in Canada. Excluding the gas station, the
supermarkets opened in fiscal 2002 had a range in size from 21,400 to 61,100
square feet, with an average size of approximately 44,800 square feet. The
stores built over the past several years and those planned for fiscal 2003 and
thereafter, generally range in size from 40,000 to 60,000 square feet. The
selling area of new stores is approximately 73% of the total square footage.
As of the end of fiscal 2002, we operated one coffee roasting plant in
the United States. In addition, we operated 13 warehouses to service our store
network. These warehouses are geographically located as follows:
Louisiana 1
Maryland 1
Michigan 2
New Jersey 1
New York 2
Pennsylvania 1
Wisconsin 1
----
Total United States 9
Ontario, Canada 4
----
Total Warehouses 13
====
The net book value of real estate pledged as collateral for all
mortgage loans amounted to $3.2 million as of February 22, 2003. The net book
value of real estate pledged as collateral for the Company's $425 million
Secured Revolving Credit Agreement amounted to $82.9 million as of February 22,
2003.
ITEM 3 - Legal Proceedings
The information required is contained under the caption "Note 12 -
Commitments and Contingencies" in the Fiscal 2002 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 2002.
PART II
ITEM 5 - Market for the Registrant's Common Stock and Related
Security Holder Matters
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 2002 Annual Report to Stockholders and
is herein incorporated by reference.
ITEM 6 - Selected Financial Data
The information required is contained under the caption "Five Year
Summary of Selected Financial Data" in the Fiscal 2002 Annual Report to
Stockholders and is herein incorporated by reference.
ITEM 7 - Management's Discussion and Analysis
The information required is contained under the caption "Management's
Discussion and Analysis" in the Fiscal 2002 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 2002
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. Except for
the sections included herein by reference, our Fiscal 2002 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 2002 Annual
Report to Stockholders and is herein incorporated by reference.
ITEM 9 - Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
The information required is contained in our Forms 8-K filed on
September 18, 2002 and September 24, 2002, and our Form 8-K/A filed on
September 24, 2002, and is herein incorporated by reference.
PART III
ITEMS 10 and 11 - Directors and Executive Officers of the Registrant and
Executive Compensation
The executive officers of our Company are as follows:
Name Age Current Position
- ----------------------- ---- -----------------------------------------------
Christian W. E. Haub 38 Chairman of the Board, President and
Chief Executive Officer
Eric Claus 46 President and Chief Executive Officer, A&P Canada
William P. Costantini 55 Senior Vice President, General Counsel
& Secretary
Brenda M. Galgano 34 Vice President and Corporate Controller
Mitchell P. Goldstein 42 Senior Vice President, Chief Financial Officer
Peter Johannes Jueptner 40 Executive Vice President, A&P U.S.
John E. Metzger 48 Senior Vice President, Chief Information Officer
William Moss 55 Vice President and Treasurer
Brian Piwek 56 President and Chief Executive Officer, A&P U.S.
The executive officers of our Company are chosen annually and serve
under the direction of the Chief Executive Officer ("CEO") with the consent of
the Board of Directors.
Mr. Haub currently serves as Chairman of the Board, President and Chief
Executive Officer of our Company. He was elected a director on December 3, 1991,
and is Chair of the Executive Committee and a member of the Finance Committee.
Mr. Haub served as Chief Operating Officer of our Company from December 7, 1993,
becoming Co-Chief Executive Officer on April 2, 1997, sole CEO on May 1, 1998
and Chairman of the Board on May 1, 2001. In addition to his other positions,
with the exception of the period between February 2002 through October 2002,
Mr. Haub has served as President of our Company since December 7, 1993. Mr.
Haub, son of Helga 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 the Food Marketing Institute and on the Board of Trustees of St.
Joseph's University.
Mr. Claus was appointed President & Chief Executive Officer, A&P Canada
on November 11, 2002. Prior to joining our Company, Mr. Claus served as Chief
Executive Officer of Co-Op Atlantic, between February 1997 and November 2002.
Mr. Costantini was elected Senior Vice President, General Counsel &
Secretary effective April 24, 2000. Prior to joining our Company, Mr. Costantini
served as Executive Vice President & General Counsel and Senior Vice President &
General Counsel of Olsten Corporation, between June 1992 and March 2000.
Ms. Galgano was appointed Vice President, Corporate Controller on
February 24, 2002. Ms. Galgano served as 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 from July 1997 to July 1999 as Senior Manager and
Manager of the Audit and Business Advisory Services Group, respectively.
Mr. Goldstein was elected Senior Vice President & Chief Financial
Officer on February 24, 2002. From January 2000 to February 24, 2002, Mr.
Goldstein was Senior Vice President, Finance & Treasurer of our Company. Prior
to joining our Company, Mr. Goldstein was Chief Financial Officer from October
1998 to January 2000 and Vice President of Strategic Planning and Corporate
Development from September 1997 to October 1998 at Vlasic Foods International.
Before that, he was Director of Strategic Planning at the Campbell Soup Company.
Vlasic Foods International filed a petition under the Federal bankruptcy laws in
January 2001. Mr. Goldstein is on the Board of Advisers of the Rutgers
Business School.
Mr. Jueptner was appointed Executive Vice President, A&P U.S. on
November 15, 2002. Prior to that, Mr. Jueptner served as Senior Vice President,
Chief Strategy Officer from October 1, 2002 to November 15, 2002. Prior to
joining our Company, Mr. Jueptner was Chief Commercial Officer of The Worldwide
Retail Exchange from December 2000 through July 2002. From 1997 through 2000,
Mr. Jueptner held various positions with Campbell Soup Company, lastly, General
Manager, Beverages & Latin America.
Mr. Metzger was appointed Senior Vice President, Chief Information
Officer on February 11, 2002. Prior to that, he was Senior Vice President and
Business Process Initiative Business Leader from May 2001 to February 2002, and
Vice President, Supply & Logistics from October 1999 to May 2001. Prior to
joining our Company, Mr. Metzger was Senior Vice President of CS Integrated LLC
from January 1998 to October 1999 and before that, Vice President, Distribution
& Procurement for General Mills Restaurants, Inc. from October 1993 to November
1998. Mr. Metzger is a director of the Institute for Standards & Collaboration
Commerce, Inc.
Mr. Moss was appointed Vice President, Treasurer on February 24, 2002.
Prior to that Mr. Moss was Vice President, Treasury Services and Risk Management
from 1992 to February 2002.
Mr. Piwek was appointed President and Chief Executive Officer, A&P U.S.
on October 28, 2002. Prior to that, he was Chairman, President and Chief
Executive Officer of The Great Atlantic & Pacific Company of Canada, Limited
from April 1, 2002 and was Vice Chairman, President and Chief Executive Officer
of The Great Atlantic & Pacific Company of Canada, Limited from February 2000.
Before that, Mr. Piwek was Vice Chairman and Co-Chief Executive Officer of The
Great Atlantic & Pacific Company of Canada, Limited from October 1997. Prior to
joining the Company, he was President of Overwaitea Food Group, a retailer and
franchisor in British Columbia and Alberta, Canada.
The information required regarding our directors, executive
compensation and our beneficial ownership reporting compliance is contained
under the captions "Election of Directors", "Executive Compensation" and
"Section 16(a) Beneficial Ownership Reporting Compliance", respectively, in the
Proxy Statement for our 2003 Annual Meeting of Stockholders, to be filed on or
about May 24, 2003 ("Proxy Statement"), and is herein incorporated by reference.
ITEM 12 - Security Ownership of Certain Beneficial Owners and Management
Beneficial Ownership of More than 5% of the Company's Common Stock
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
The information required is contained in our Proxy Statement under the
heading "Certain Relationships and Transactions", and is herein incorporated by
reference.
ITEM 14 - Controls and Procedures
The information required is contained under the caption "Management's
Report on Financial Statements" in the Fiscal 2002 Annual Report to
Stockholders and is herein incorporated by reference.
PART IV
ITEM 15 - Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) Documents filed as part of this report.
1) Financial Statements: The financial statements required by Item 8 are
included in the Fiscal 2002 Annual Report to Stockholders. The
following required items are herein incorporated by reference:
Consolidated Statements of Operations
Consolidated Statements of Stockholders' Equity and
Comprehensive (Loss) Income
Consolidated Balance Sheets
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Independent Auditors' Report
2) Financial Statement Schedules are omitted because they are not
required or do not apply, or the 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
---------- -----------
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 through July 2, 2002
(incorporated herein by reference to Exhibit 3.2
to Form 10-K filed on July 5, 2002)
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)
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
10.1 Employment Agreement, made and entered into as of
the 11th day of November, 2002, by and between
our Company and Eric Claus, and Offer Letter
dated the 22nd day of October, 2002
(incorporated herein by reference to Exhibit 10.1
to Form 10-Q filed on January 10, 2003)
10.2 Employment Agreement, made and entered into as
of the 1st day of November, 2000, by and between
our Company and William P. Costantini
(incorporated herein by reference to Exhibit 10
to Form 10-Q filed on January 16, 2001)
("Costantini Agreement")
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 Employment Agreement, made and entered into as
of the 8th day of January, 2001, by and between
our Company and Elizabeth R. Culligan
(incorporated herein by reference to Exhibit 10
to Form 10-Q filed on January 16, 2001)
("Culligan Agreement")
10.5 Amendment to Culligan Agreement dated April 8,
2002 (incorporated herein by reference to
Exhibit 10.3 to Form 10-K filed on July 5, 2002)
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 Employment Agreement, made and entered into as
of the 2nd day of October, 2002, by and between
our Company and Peter Jueptner (incorporated
herein by reference to Exhibit 10.26 to Form
10-Q filed on October 22, 2002)
10.8 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)
10.9 Employment Agreement, made and entered into as
of the 1st day of November, 2000, by and between
our Company and Laurane Magliari (incorporated
herein by reference to Exhibit 10 to Form 10-Q
filed on January 16, 2001) ("Magliari Agreement")
10.10 Amendment to Magliari Agreement dated April 30,
2002 (incorporated herein by reference to Exhibit
10.12 to Form 10-K filed on July 5, 2002)
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 (incorporated herein by reference to
Exhibit 10.13 to Form 10-K filed on July 5, 2002)
10.12 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 (incorporated
herein by reference to Exhibit 10.14 to Form
10-Q filed on January 10, 2003)
10.13 Employment Agreement, made and entered into as of
the 25th day of February, 2002 by and between our
Company and David A. Smithies (incorporated
herein by reference to Exhibit 10.14 to Form 10-K
filed on July 5, 2002)
10.14 Supplemental Executive Retirement Plan effective
as of September 30, 1991 (incorporated herein by
reference to Exhibit 10.B to Form 10-K filed on
May 28, 1993)
10.15 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)
10.16 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)
10.17 1994 Stock Option Plan (incorporated herein by
reference to Exhibit 10(e) to Form 10-K filed on
May 24, 1995)
10.18 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)
10.19 Directors' Deferred Payment Plan adopted May 1,
1996 (incorporated herein by reference to
Exhibit 10(h) to Form 10-K filed on May 16, 1997)
10.20 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)
10.21 Credit Agreement dated as of February 23, 2001,
among our Company, The Great Atlantic & Pacific
Company of Canada, Limited and the other
Borrowers party hereto and the Lenders party
hereto, The Chase Manhattan Bank, as U.S.
Administrative Agent, and The Chase Manhattan
Bank of Canada, as Canadian Administrative Agent
("Credit Agreement") (incorporated herein by
reference to Exhibit 10 to Form 10-K filed on May
23, 2001)
10.22 Amendment No. 1 and Waiver, dated as of November
16, 2001 to Credit Agreement (incorporated
herein by reference to Exhibit 10.23 to Form
10-K filed on July 5, 2002)
10.23 Amendment No. 2 dated as of March 21, 2002 to
Credit Agreement (incorporated herein by
reference to Exhibit 10.24 to Form 10-K filed on
July 5, 2002)
10.24 Amendment No. 3 dated as of April 23, 2002 to
Credit Agreement (incorporated herein by
reference to Exhibit 10.25 to Form 10-K filed on
July 5, 2002)
10.25 Waiver dated as of June 14, 2002 to Credit
Agreement (incorporated herein by reference to
Exhibit 10.26 to Form 10-K filed on July 5, 2002)
10.26 Amendment No. 4 dated as of October 10, 2002 to
Credit Agreement (incorporated herein by
reference to Exhibit 10.27 to Form 10-Q filed on
October 22, 2002)
10.27 Amendment No. 5 dated as of February 21, 2003 to
Credit Agreement (incorporated herein by
reference to Exhibit 10.1 to Form 8-K filed on
March 7, 2003)
10.28* Amendment No. 6 dated as of March 25, 2003 to
Credit Agreement
13* Fiscal 2002 Annual Report to Stockholders
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)
21* Subsidiaries of Registrant
23.1* Consent of Independent Accountants from
PricewaterhouseCoopers LLP
23.2* Independent Auditors' Consent from Deloitte &
Touche LLP
* Filed with this 10-K
(b) Reports on Form 8-K
On February 21, 2003, our Company filed a Form 8-K disclosing that
it had executed Amendment No. 5, dated as of February 21, 2003, to its existing
Credit Agreement dated as of February 23, 2001, as amended, with JPMorgan Chase
Bank and the lenders signatory thereto.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
The Great Atlantic & Pacific Tea Company, Inc.
(registrant)
Date: May 8, 2003 By: /s/ Mitchell P. Goldstein
------------------------------------------------
Mitchell P. Goldstein, Senior Vice President and
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant in the capacities and as of the date indicated.
/s/ Christian W. E. Haub Chairman of the Board, President and
- --------------------------- Chief Executive Officer
Christian W. E. Haub
/s/ John D. Barline Director
- ---------------------------
John D. Barline
/s/ Rosemarie Baumeister Director
- ---------------------------
Rosemarie Baumeister
/s/ Bobbie Gaunt Director
- ---------------------------
Bobbie Gaunt
/s/ Helga Haub Director
- ---------------------------
Helga Haub
/s/ Dan P. Kourkoumelis Director
- ---------------------------
Dan P. Kourkoumelis
/s/ Edward Lewis Director
- ---------------------------
Edward Lewis
/s/ Richard L. Nolan Director
- ---------------------------
Richard L. Nolan
/s/ Maureen B. Tart-Bezer Director
- ---------------------------
Maureen B. Tart-Bezer
The above-named persons signed this report on behalf of the registrant on May 8,
2003.
/s/ Brenda M. Galgano Vice President, Corporate Controller
- ---------------------------
Brenda M. Galgano May 8, 2003
<PAGE>
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
Section 302 Certification
I, Christian W.E. Haub, 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 officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures 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) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of
the Evaluation Date
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
/s/ Christian W. E. Haub Date: May 8, 2003
- ------------------------
Christian W. E. Haub
Chairman of the Board,
President and
Chief Executive Officer
<PAGE>
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
Section 302 Certification
I, Mitchell P. Goldstein, 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 officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures 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) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of
the Evaluation Date
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
/s/ Mitchell P. Goldstein Date: May 8, 2003
- -------------------------
Mitchell P. Goldstein
Senior Vice President,
Chief Financial Officer
<PAGE>
Certification Accompanying Periodic Report
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(18 U.S.C. ss. 1350)
The undersigned, Christian W. E. Haub, Chairman of the Board, President and
Chief Executive Officer of The Great Atlantic & Pacific Tea Company, Inc.
("Company"), and Mitchell P. Goldstein, Senior Vice President and 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 22, 2003 fully
complies with the requirements of Section 13(a) 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: May 8, 2003 /s/ Christian W. E. Haub
------------------------
Christian W. E. Haub
Chairman of the Board,
President and
Chief Executive Officer
Dated: May 8, 2003 /s/ Mitchell P. Goldstein
-------------------------
Mitchell P. Goldstein
Senior Vice President,
Chief Financial Officer
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10
<SEQUENCE>3
<FILENAME>amendment.txt
<DESCRIPTION>EX. 10.28-AMENDMENT NO. 6 TO CREDIT AGREEMENT
<TEXT>
Exhibit 10.28
AMENDMENT No. 6 dated as of March 25, 2003, to the Credit Agreement dated
as of February 23, 2001, as amended (the "Credit Agreement"), among THE
GREAT ATLANTIC & PACIFIC TEA COMPANY, INC. (the "Company"), THE GREAT
ATLANTIC & PACIFIC COMPANY OF CANADA, LIMITED (the "Canadian Borrower"),
COMPASS FOODS, INC., BORMAN'S, INC., KOHL's FOOD STORES, INC., SHOPWELL,
INC., WALDBAUM, INC., SUPER FRESH FOOD MARKETS, INC. and SUPER MARKET
SERVICE CORP. (together with the Company, the "U.S. Borrowers", and the
U.S. Borrowers together with the Canadian Borrower, the "Borrowers"), the
LENDERS party thereto (the "Lenders"), JPMORGAN CHASE BANK (successor to
THE CHASE MANHATTAN BANK), as agent for the U.S. Lenders (in such capacity,
the "U.S. Administrative Agent"), and J. P. MORGAN BANK CANADA, (successor
to THE CHASE MANHATTAN BANK OF CANADA), as agent for the Canadian Lenders
(in such capacity, the "Canadian Administrative Agent", and together with
the U.S. Administrative Agent, the "Administrative Agents").
A. Pursuant to the Credit Agreement, the Lenders have extended
credit to the Borrowers, and have agreed to extend credit to the Borrowers, in
each case pursuant to the terms and subject to the conditions set forth therein.
B. The Borrowers have requested that the Lenders agree to
amend the Credit Agreement as set forth herein.
C. The undersigned Lenders are willing to so amend the Credit
Agreement pursuant to the terms and subject to the
conditions set forth herein.
D. Capitalized terms used and not otherwise defined herein
shall have the meanings assigned thereto in the Credit Agreement.
Accordingly, in consideration of the mutual agreements,
provisions and covenants herein contained and other good and valuable
consideration, the sufficiency and receipt of which are hereby acknowledged, and
subject to the conditions, the parties hereto hereby agree as follows:
SECTION 1. Appointment. The parties hereto hereby agree that
JPMorgan Chase Bank, an authorized foreign bank under the Bank Act (Canada)
carrying on business through its Canadian branch (in such capacity, "JPMorgan
Chase Bank, Toronto Branch"), is appointed Canadian Administrative Agent and
Canadian Collateral Agent, replacing J. P. Morgan Bank Canada, and JPMorgan
Chase Bank, Toronto Branch, hereby accepts such appointment. All fees payable to
J. P. Morgan Bank Canada under the Loan Documents shall be payable to JPMorgan
Chase Bank, Toronto Branch, as successor to J. P. Morgan Bank Canada.
SECTION 2. Amendments. Section 6.07 of the Credit Agreement is
hereby amended by inserting immediately after the text "any Hedging Agreement"
the text ", other than Hedging Agreements entered into in the ordinary course of
business and consistent with past practices of the Company to hedge or mitigate
currency or energy exposure risks to which the Company or any Subsidiary is
exposed in the conduct of its business".
SECTION 3. Representations and Warranties. Each of the
Borrowers and other Loan Parties represents and warrants to
the Administrative Agents and the Lenders that:
(a) This Amendment has been duly executed and delivered by it
and constitutes its legal, valid and binding obligation enforceable
against it in accordance with its terms, except as enforceability may
be limited by bankruptcy, insolvency, moratorium, reorganization or
other similar laws affecting creditors' rights generally and except as
enforceability may be limited by general principles of equity
(regardless of whether such enforceability is considered in a
proceeding in equity or at law).
(b) After giving effect to this Amendment, the representations
and warranties set forth in Article III of the Credit Agreement are
true and correct in all material respects with the same effect as if
made on the date hereof, except to the extent such representations and
warranties expressly relate to an earlier date.
(c) After giving effect to this Amendment, no Event of
Default, or event that with notice or lapse of time or both would
constitute an Event of Default, has occurred and is continuing.
SECTION 4. Conditions to Effectiveness. This Amendment shall
become effective (as of the date first written above) on the date (the
"Amendment Effective Date") when (i) the Administrative Agents (or their
counsel) shall have received counterparts of this Amendment that, when taken
together, bear the signatures of the Borrowers and the Required Lenders and (ii)
the Administrative Agents shall have received payment of any out-of-pocket
expenses of the Administrative Agents payable by the Borrowers that have been
invoiced before the Amendment Effective Date.
SECTION 5. Expenses. The Borrowers shall reimburse the
Administrative Agents for their reasonable out-of-pocket expenses incurred in
connection with this Amendment, including the reasonable fees and expenses of
Cravath, Swaine & Moore, counsel for the Administrative Agents, and McMillan
Binch, Canadian counsel for the Administrative Agents.
SECTION 6. Effect of Amendment. Except as expressly set forth
herein, this Amendment shall not by implication or otherwise limit, impair,
constitute a waiver of, or otherwise affect the rights and remedies of the
Administrative Agents or the Lenders under the Credit Agreement, and shall not
alter, modify, amend or in any way affect the terms, conditions, obligations,
covenants or agreements contained in the Credit Agreement, which is ratified and
affirmed in all respects and shall continue in full force and effect. Nothing
herein shall be deemed to entitle the Borrowers to a consent to, or a waiver,
amendment, modification or other change of, any terms, conditions, obligations,
covenants or agreements contained in the Credit Agreement in similar or
different circumstances. This Amendment shall apply and be effective only with
respect to the provision of the Credit Agreement specifically referred to
herein.
SECTION 7. Credit Agreement. Except as specifically amended
hereby, the Credit Agreement shall continue in full force and effect in
accordance with the provisions thereof as in existence on the date hereof. After
the date hereof, any reference to the Credit Agreement shall mean the Credit
Agreement as amended hereby. This Amendment shall constitute a Loan Document for
all purposes under the Credit Agreement.
SECTION 8. Applicable Law. THIS AMENDMENT SHALL BE GOVERNED
BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
SECTION 9. Counterparts. This Amendment may be executed in two
or more counterparts, each of which shall constitute an original but all of
which when taken together shall constitute but one contract. Delivery of an
executed signature page of this Amendment by facsimile transmission shall be
effective as delivery of a manually executed counterpart hereof.
SECTION 10. Headings. The Section headings used herein are for
convenience of reference only, are not part of this Amendment and are not to
affect the construction of, or to be taken into consideration in interpreting,
this Amendment.
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be duly executed by their respective authorized officers as of the
day and year first written above.
THE GREAT ATLANTIC & PACIFIC
TEA COMPANY, INC.,
by
Name:
Title:
<PAGE>
THE GREAT ATLANTIC & PACIFIC
COMPANY OF CANADA, LIMITED,
by
Name:
Title:
by
Name:
Title:
JPMORGAN CHASE BANK,
individually and as U.S.
Administrative Agent,
by
Name:
Title:
J.P. MORGAN BANK CANADA, as
resigning Canadian Administrative
Agent and Canadian
Collateral Agent,
by
Name:
Title:
JPMORGAN CHASE BANK, TORONTO BRANCH,
as a Lender and successor Canadian
Administrative Agent and Canadian
Collateral Agent,
by
Name:
Title:
<PAGE>
COMPASS FOODS, INC.,
by
Name:
Title:
BORMAN'S, INC.,
by
Name:
Title:
KOHL'S FOOD STORES, INC.,
by
Name:
Title:
SHOPWELL, INC.,
by
Name:
Title:
WALDBAUM, INC.,
by
Name:
Title:
SUPER FRESH FOOD MARKETS, INC.,
by
Name:
Title:
<PAGE>
SUPER MARKET SERVICE CORP.,
by
Name:
Title:
<PAGE>
SIGNATURE PAGE TO AMENDMENT NO. 6
DATED AS OF MARCH 25, 2003, TO THE
CREDIT AGREEMENT DATED AS OF
FEBRUARY 23, 2001, as amended, among
THE GREAT ATLANTIC & PACIFIC TEA
COMPANY, INC., THE GREAT ATLANTIC &
PACIFIC COMPANY OF CANADA, LIMITED,
THE OTHER BORROWERS PARTY THERETO,
THE LENDERS PARTY THERETO, JPMORGAN
CHASE BANK, as U.S. Administrative
Agent, and J. P. MORGAN BANK CANADA,
as Canadian Administrative Agent.
Name of Institution:
by
Name:
Title:
by
Name:
Title:
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-13
<SEQUENCE>4
<FILENAME>ex13fy2002.txt
<TEXT>
The Great Atlantic & Pacific Tea Company, Inc.
Fiscal 2002
Annual Report to Stockholders
Table of Contents
- -----------------
CEO Letter to Stockholders............................................. 3
Management's Discussion and Analysis................................... 6
Consolidated Statements of Operations.................................. 24
Consolidated Statements of Stockholders' Equity
And Comprehensive (Loss) Income................................. 25
Consolidated Balance Sheets............................................ 26
Consolidated Statements of Cash Flows.................................. 27
Notes to Consolidated Financial Statements............................. 28
Management's Report on Consolidated Financial Statements............... 64
Report of Independent Accountants ..................................... 65
Independent Auditors' Report .......................................... 66
Five Year Summary of Selected Financial Data........................... 67
Executive Officers..................................................... 69
Board of Directors..................................................... 69
Stockholder Information................................................ 70
Company Profile
- ---------------
The Great Atlantic & Pacific Tea Company, Inc. ("We," "Our," "Us" or "our
Company"), based in Montvale, New Jersey, operates combination food and drug
stores, conventional supermarkets and limited assortment food stores in 14 U.S.
states, the District of Columbia and Ontario, Canada, under the A&P(R),
Waldbaum's(TM), Super Foodmart, The Food Emporium(TM), Super Fresh(R), Farmer
Jack(R), Kohl's, Sav-A-Center(R), Dominion(R), Ultra Food & Drug, Food
Basics(TM) and The Barn Markets trade names. Through our Compass Foods Division,
we also manufacture and distribute a line of whole bean coffees under the Eight
O'Clock(R), Bokar(R) and Royale(R) labels, both for sale through our own stores
as well as other retail channels.
CEO Letter to Stockholders
- --------------------------
To Our Stockholders,
Fiscal 2002 was a challenging year for A&P, the supermarket industry,
and most retail sectors. Our performance reflected the general business
environment in the United States, as well as internal issues that impacted our
results. A positive result was the excellent performance of our Canadian
operation, which again achieved strong sales and earnings growth.
The impact and effects of September 11, 2001 continued to weigh
on the Nation's mood and outlook throughout fiscal 2002. Homeland security
issues, the military involvement in Afghanistan, and apprehension about the
eventual war in Iraq fostered ongoing concern that stifled business performance,
personal investments, employment growth and overall consumer spending throughout
our domestic markets.
Across our industry, shoppers emphasized economy. They bought less
overall, traded down to lower-priced alternatives, and for the first time in
many years, spent additional time to save money. This included shopping sale
items across competing supermarkets, as well as discounters, drugstores,
warehouse clubs and other non-traditional food retailers using consumables to
drive traffic in their stores.
Those conditions induced most U.S. food retailers, including our own
retail banners, to invest significant gross margin dollars in more aggressive
promotion and pricing to maintain market share. Although we were successful in
protecting our market share, the cost of doing so was high, making our Company
unprofitable overall.
By the latter part of the year, it became clear that significant
changes were required to halt the decline of our U.S. business, maintain our
momentum in Canada, and ensure our long term financial health. This resulted in
the following actions:
o We created two strategic and structurally independent business units,
A&P U.S. and A&P Canada, each with its own chief executive reporting
directly to me. Brian Piwek, a veteran supermarket industry executive
who had directed the turnaround and development of A&P Canada over the
past five years, was named chief executive of A&P U.S. Eric Claus,
likewise an experienced and successful supermarket industry executive
in Canada, was recruited to succeed Mr. Piwek there.
o Key functions directly supporting retail store operations were moved
out of our Corporate organization and redeployed within the new
business units.
o We reduced administrative overheads by eliminating redundancy, removing
operating layers and consolidating field management in the U.S.
business, and eliminating non-essential Corporate functions without
impacting our ability to govern a public company.
o We implemented a general administrative salary and hiring freeze in our
Corporate office and U.S. business unit, which remains in force.
o We decided to divest non-strategic assets in order to lower debt,
reduce ongoing expenses and devote Company resources to those
businesses with the best potential for profitable growth in our system.
We have completed the sale of our A&P stores in northern New England
and our Kohl's stores in Madison, Wisconsin. We are pursuing the sale
of the Kohl's stores in Milwaukee and our Eight O'Clock Coffee
business. Our target is to realize about $300 million in proceeds when
these divestitures are completed.
These decisive actions will improve our financial position, the quality
and experience of our operating leadership, and our ability to compete in a more
cost-driven environment. In addition, we anticipate benefits from key
infrastructure and operating improvements that progressed in fiscal 2002.
Our supply chain and business process initiative was completed last
year within budget and ahead of schedule. We now have in place the critical
information platform that will enable us to manage our entire grocery supply
chain with advanced supply and logistics, category management, merchandising and
store operations tools and systems. We are now positioned to leverage our scale,
lower operating costs and enhance store product assortments throughout our U.S.
and Canadian operations.
An early benefit of this initiative was our ability to reduce warehouse
and store inventory by approximately $100 million in the two years since we
implemented the supply and logistics component of the total infrastructure. We
anticipate additional improvement as we move forward with the integration of
online ordering capability in all of our stores, a more recently deployed
element of the completed supply chain initiative.
We are also pleased with the progress of our strategic sourcing
initiative. This purchasing approach has helped us to leverage our Company's
scale to produce multi-million dollar savings through the chain-wide procurement
of supplies, equipment and services needed to operate our business. We are
expanding the scope of this initiative, and in addition, integrating it with our
category management efforts to lower the cost of consumer merchandise as well.
I am very pleased with the continued excellent performance of A&P
Canada, which achieved record sales and earnings in fiscal 2002. Although the
more favorable Canadian economy has been a factor in our success, A&P Canada was
well positioned to capitalize by virtue of its leadership, marketing strategies
and operating execution.
Our Canadian Company's mainstream A&P, Dominion and The Barn banners
are establishing a growing reputation for superior fresh foods and customer
service. We also benefited from the ongoing growth of our low cost, low priced,
limited assortment Food Basics concept. We have earmarked significant capital
for our Canadian operations in fiscal 2003, to accelerate our progress in
Canada.
Anticipating no improvement in the economic, consumer or competitive
environment in the U.S., we remain conservative in our overall outlook for sales
and earnings improvement in fiscal 2003. We have prepared for the continuing
challenge by taking steps to lower debt and expenses, securing necessary
financing, and installing experienced retail management in both the U.S. and
Canadian business units.
Our management changes and other decisive actions have begun
stabilizing our U.S. business while driving continued success in Canada, and
will position our Company as a whole to capitalize when conditions improve and
opportunities materialize. Our long term goal remains the growth of our entire
North American business through two equally successful business units, A&P U.S.
and A&P Canada. I am confident that in time, this goal will be achieved.
I want to extend my personal thanks to all of our associates,
customers, suppliers and investors for their continued support in fiscal 2002.
Christian Haub
Chairman of the Board,
President and Chief Executive Officer
<PAGE>
The Great Atlantic & Pacific Tea Company, Inc.
Management's Discussion and Analysis
INTRODUCTION
- ------------
This Management's Discussion and Analysis describes matters considered by
Management to be significant to understanding the financial position, results of
operations and liquidity of our Company, including a discussion of the results
of operations as well as liquidity and capital resources. These items are
presented as follows:
o Basis of Presentation - a discussion of our Company's fiscal year-end
o Operating Results and Liquidity and Capital Resources - a discussion of
results for fiscal 2002 and 2001, significant business initiatives,
current and expected future liquidity and the impact of various market
risks on our Company
o Market Risk - a discussion of the impact of market changes on our
consolidated financial statements
o Critical Accounting Estimates - a discussion of significant estimates
made by Management
o 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 2002 ended
February 22, 2003, fiscal 2001 ended February 23, 2002 and fiscal 2000 ended
February 24, 2001. Fiscal 2002, fiscal 2001 and fiscal 2000 were each comprised
of 52 weeks. Except where noted, all net income (loss) per share data presented
is both basic and diluted.
OPERATING RESULTS AND LIQUIDITY AND CAPITAL RESOURCES
- -----------------------------------------------------
Fiscal 2002 Compared with 2001
- ------------------------------
OVERALL
- -------
Sales for fiscal 2002 were $10.79 billion, compared with $10.97 billion
for fiscal 2001; comparable store sales, which includes stores that have been in
operation for two full fiscal years and replacement stores, increased 0.4%. Net
loss per share for fiscal 2002 was $5.03 compared to a net loss per share of
$1.88 for fiscal 2001. Included in our results for fiscal 2002 was a $134
million provision for income taxes related to our U.S. net deferred tax asset
valuation allowance ($3.48 per share; see Note 9 of our Consolidated Financial
Statements), an extraordinary gain of $12.2 million or $0.31 per share
for the cost of repurchasing $50.7 million of our 7.75% Notes due April 15, 2007
and $44.5 million of our 9.125% Notes due December 15, 2011, a $6.4 million gain
($9.6 million after tax or $0.25 per share) relating to our asset disposition
initiative (see Note 2 of our Consolidated Financial Statements), and a
nonrecurring pretax gain of $1.7 million ($1.0 million after tax or $0.03 per
share) from proceeds received as a result of the sale of securities received as
part of the demutualization of The Prudential Insurance Company (see Note 15 of
our Consolidated Financial Statements).
SALES
- -----
Sales for fiscal 2002 of $10.79 billion decreased $179 million or 1.6%
from sales of $10.97 billion for fiscal 2001. The lower sales were due to a
decrease in retail sales of $215 million partially offset by an increase in
wholesale sales of $36 million. The decrease in retail sales was attributable to
the closure of 114 stores since the beginning of fiscal 2001, of which 42 were
closed in fiscal 2002, which decreased sales by $436 million. Included in the
114 stores closed since the beginning of fiscal 2001 were 37 stores closed as
part of the asset disposition initiative. This decrease was partially
offset by the opening of 52 new stores since the beginning of fiscal 2001, of
which 31 were opened in fiscal 2002, increasing sales by $163 million. This was
additionally offset by increased comparable store sales for fiscal 2002 of 0.4%
(down 1.0% in the U.S. and up 6.6% in Canada) when compared to fiscal 2001 and
the favorable effect of the Canadian exchange rate, which increased sales by $2
million. The increase in wholesale sales was attributable to higher sales volume
of $35 million and the favorable effect of the Canadian exchange rate of
$1 million.
Sales in the U.S. for fiscal 2002 decreased by $366 million or 4.3%
compared to fiscal 2001. Sales in Canada for fiscal 2002 increased by $187
million or 7.5% from fiscal 2001.
Average weekly sales per supermarket were approximately $284,500 for
fiscal 2002 versus $275,100 for the corresponding period of the prior year, an
increase of 3.4%. This increase was primarily due to:
o Closure of smaller stores with lower average weekly sales;
o Closure of underperforming stores; and
o Opening and remodeling of larger stores.
GROSS MARGIN
- ------------
Gross margin as a percentage of sales decreased 40 basis points to 28.31%
for fiscal 2002 from 28.71% for fiscal 2001. The gross margin dollar decrease of
$95 million resulted from decreases in sales volume and the gross margin rate
partially offset by the favorable Canadian exchange rate. The U.S. operations
gross margin decrease of $121 million resulted from decreases of $112 million
due to lower sales volume and $9 million due to a lower gross margin rate. The
Canadian operations gross margin increase of $26 million resulted from increases
of $41 million due to higher sales volume and $1 million from fluctuations in
the Canadian exchange rate partially offset by a decrease of $16 million due to
a lower gross margin rate.
This 40 basis point decrease was caused primarily by the following:
o More aggressive promotional activity during the current period in order to
drive sales volume and protect market share; and
o Increased inventory shrink losses during the current year period compared
to the prior year period.
Included in gross margin for fiscal 2002 and 2001 were costs related to
our asset disposition initiative of $1.2 million and $3.9 million, respectively,
which were incurred to mark down inventory in stores announced for closure.
Gross margin for fiscal 2001 also included costs of $6.3 million incurred
as part of our business process initiative. These costs were incurred to mark
down inventory to be discontinued as a result of detailed category management
studies.
STORE OPERATING, GENERAL AND ADMINISTRATIVE EXPENSE
- ---------------------------------------------------
Store operating, general and administrative expense ("SG&A") was $3.05
billion for fiscal 2002 compared to $3.23 billion for fiscal 2001. As a
percentage of sales, SG&A was 28.24% for fiscal 2002 compared to 29.48% for
fiscal 2001. Included in SG&A for fiscal 2002 and 2001 were net gains of $7.7
million and net costs of $189.6 million, respectively, relating to our asset
disposition initiative as described in Note 2 of our Consolidated Financial
Statements. Also included in SG&A for fiscal 2002 was a gain of $1.7 million
related to the sale of securities received as part of the demutualization of The
Prudential Insurance Company as described in Note 15 of our Consolidated
Financial Statements. Excluding these items, SG&A as a percentage of sales for
fiscal 2002 would have increased 9 basis points compared to decreasing SG&A as
a percentage of sales by 173 basis points for fiscal 2001.
The major items impacting this increase include:
o Higher severance costs in the U.S.;
o Increased labor costs as a percentage of sales in the U.S.;
o Higher consulting costs due to a non-merchandise product and service
sourcing initiative; and
o Higher closed store expenses for stores closed during the
normal course of business.
Partially offset by the following:
o Lower costs related to our business process initiative;
o Higher gains on the sale of property and equipment during fiscal 2002;
o Lower management incentive bonus expenses; and
o A $7 million reduction of accruals for occupancy costs primarily related
to a change in estimate.
Included in SG&A for fiscal 2002 and 2001 were $60.5 million and $91.6
million, respectively, relating to our business process initiative. Such costs
primarily included professional consulting fees and salaries, including related
benefits, of employees working full-time on the initiative.
Also included in SG&A for fiscal 2002 were $18.9 million in impairment
losses related to stores that were or will be closed in the normal course of
business. In fiscal 2001, there was $96.4 million in impairment losses, of which
$80.9 million relates to the asset disposition initiative as discussed in Note 2
of our Consolidated Financial Statements.
INTEREST EXPENSE
- ----------------
Interest expense of $85 million for fiscal 2002 decreased from the prior
year amount of $92 million due primarily to the following:
o Lower interest expense on our Secured Credit Agreement during fiscal
2002 compared to fiscal 2001 due to decreased rates and borrowings; and
o The impact of interest rate swaps which commenced in the fourth quarter
of fiscal 2001.
Partially offset by the following:
o Higher interest expense on the $275 million 9.125% Senior Notes due
December 15, 2011 which were issued to refinance $178 million of the $200
million 7.70% Senior Notes due January 15, 2004.
The decreased borrowing requirement on our Secured Credit Agreement was
primarily caused by the following:
o Cash generated from operating activities;
o Proceeds received from the refinancing of $178 million of the $200
million 7.70% Senior Notes due January 15, 2004 with the issuance of $275
million 9.125% Senior Notes due December 15, 2011; and
o Proceeds received as a result of the demutualization of The Prudential
Insurance Company as described in Note 15 of our Consolidated Financial
Statements.
INCOME TAXES
- ------------
The provision for income taxes for fiscal 2002 was $136.2 million
compared to a benefit from income taxes of $43.6 million in fiscal 2001. The
change in the provision for income taxes relates to the absence of the tax
benefits of U.S. losses that would have been recorded had a valuation allowance
of $133.7 million not been recorded and offset against our net U.S. deferred tax
asset during the second quarter of fiscal 2002. During the remainder of fiscal
2002, the valuation allowance was increased by $32.9 million. Statement of
Financial Accounting Standards ("SFAS") No. 109 "Accounting for Income Taxes"
requires that a valuation allowance be 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 net deferred tax asset will not
be realized (see Note 9 of our Consolidated Financial Statements).
Fiscal 2001 Compared with 2000
- ------------------------------
OVERALL
- -------
Sales for fiscal 2001 were $10.97 billion, compared with $10.62 billion in
fiscal 2000; comparable store sales, which includes stores that have been in
operation for two full fiscal years and replacement stores, increased 2.6%. Net
loss per share for fiscal 2001 was $1.88 compared to a net loss of $0.51 for
fiscal 2000. Included in our results for fiscal 2001 was an extraordinary after
tax loss of $7 million or $0.19 per share for the cost of repurchasing $178
million of our 7.70% Senior Notes due January 15, 2004 and $20 million of our
7.75% Notes due April 15, 2007, a $193 million charge ($112 million after tax or
$2.88 per share - diluted) relating to our asset disposition initiative (see
Note 2 of our Consolidated Financial Statements), and a nonrecurring pretax gain
of $61 million ($35 million after tax or $0.90 per share - diluted) from
proceeds received as a result of the demutualization of The Prudential Insurance
Company.
SALES
- -----
Sales for fiscal 2001 of $10.97 billion increased $350 million or 3.3%
from sales of $10.62 billion for fiscal 2000. The higher sales were due to
increases in retail sales of $304 million and wholesale sales of $46 million.
The increase in retail sales was attributable to the opening of 68 new stores
since the beginning of fiscal 2000, of which 21 were opened in fiscal 2001,
increasing sales by $535 million. This increase was partially offset by the
closure of 121 stores since the beginning of fiscal 2000, of which 72 were
closed in fiscal 2001, which decreased sales by $437 million. Included in the 72
stores closed in fiscal 2001 were 31 stores closed as part of the asset
disposition initiative. Additionally, the unfavorable effect of the Canadian
exchange rate decreased sales by $81 million. The remainder of the increase in
sales was caused primarily by increased comparable store sales, for fiscal 2001
of 2.6% (1.5% in the U.S. and 7.8% in Canada) when compared to fiscal 2000. The
increase in wholesale sales was attributable to higher sales volume of $76
million partially offset by the unfavorable effect of the Canadian exchange
rate, which decreased sales by $30 million.
Sales in the U.S. increased by $243 million or 2.9% compared to fiscal
2000. Sales in Canada increased by $107 million or 4.5% from fiscal 2000.
Average weekly sales per supermarket were approximately $275,100 for
fiscal 2001 versus $263,000 for the corresponding period of the prior year, an
increase of 4.6%.
GROSS MARGIN
- ------------
Gross margin as a percentage of sales increased 8 basis points to 28.71%
for fiscal 2001 from 28.63% for fiscal 2000. The gross margin dollar increase of
$109 million resulted from increases in sales volume and the gross margin rate
partially offset by a decrease in the Canadian exchange rate. The U.S.
operations gross margin increase of $80 million resulted from increases of $74
million due to higher sales volume and $6 million due to a higher gross margin
rate. The Canadian operations gross margin increase of $28 million resulted from
increases of $48 million due to higher sales volume and $5 million due to higher
gross margin rate partially offset by a decrease of $25 million from
fluctuations in the Canadian exchange rate.
Included in gross margin for fiscal 2001 were costs related to our asset
disposition initiative of $3.9 million which were incurred to mark down
inventory in stores announced for closure.
STORE OPERATING, GENERAL AND ADMINISTRATIVE EXPENSE
- ---------------------------------------------------
SG&A was $3.23 billion for fiscal 2001 compared to $2.98 billion for
fiscal 2000. As a percentage of sales, SG&A was 29.48% for fiscal 2001 compared
to 28.01% for fiscal 2000.
Included in SG&A for fiscal 2001 were costs relating to our asset
disposition initiative of $189.6 million as described in Note 2 of our
Consolidated Financial Statements. Excluding this charge, SG&A as a percentage
of sales would have decreased 173 basis points for fiscal 2001. Also included in
SG&A for fiscal 2001 and fiscal 2000 were costs relating to our business process
initiative of $91.6 million and $68.4 million, respectively. These costs
primarily included professional consulting fees and salaries, including related
benefits, of employees working full-time on the initiative. Excluding these
charges, SG&A would have been 256 basis points lower for fiscal 2001 compared to
64 basis points lower for fiscal 2000. In addition, excluding these charges, the
decrease in SG&A as a percentage of sales from fiscal 2000 to fiscal 2001 of 45
basis points was primarily due to lower store advertising costs, lower store
opening and closing costs and lower litigation expense.
GAIN ON PROCEEDS FROM THE DEMUTUALIZATION OF A MUTUAL INSURANCE COMPANY
- -----------------------------------------------------------------------
During fiscal 2001, we received cash and common stock totaling $61 million
from the demutualization of The Prudential Insurance Company. This amount was
recorded as a nonrecurring gain and included in the determination of pretax
income for fiscal 2001.
INTEREST EXPENSE
- ----------------
Interest expense of $92 million for fiscal 2001 decreased from the prior
year amount of $102 million. This was due to decreased borrowing requirements
during fiscal 2001 compared to fiscal 2000 as a result of lower capital
expenditures, a reduction in working capital and the proceeds received on the
sale leaseback transactions described in Note 14 of our Consolidated Financial
Statements. The reduction was also partially due to a decrease in interest
rates.
ASSET DISPOSITION INITIATIVE
- ----------------------------
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 including the exit of the Richmond, Virginia and Atlanta, Georgia
markets.
As of February 23, 2002, we closed all stores and facilities related to
this phase of the initiative. We paid $29 million of the total net severance
charges from the time of the original charges through February 22, 2003, which
resulted from the termination of approximately 3,400 employees. The remaining
severance liability primarily relates to future obligations for early
withdrawals from multi-employer union pension plans.
The following table summarizes the activity related to the aforementioned
charges over the last three fiscal years:
<TABLE>
<CAPTION>
Severance
and
Occupancy Benefits Total
----------- --------- -----
<S> <C> <C> <C>
Balance at
Feb. 24, 2001 $ 82,861 $ 2,721 $ 85,582
Addition 3,818 (1) - 3,818
Utilization (23,302)(2) (544) (23,846)
---------- -------- --------
Balance at
Feb. 23, 2002 63,377 2,177 65,554
Addition 3,159 (1) - 3,159
Utilization (13,616)(2) (370) (13,986)
Adjustment (3) (3,645) 639 (3,006)
---------- ---------- ----------
Balance at
Feb. 22, 2003 $ 49,275 $ 2,446 $ 51,721
========== ========== =========
(1) The additions to occupancy of $3.8 million and $3.2 million during
fiscal 2001 and 2002 represent the present value of accrued interest
related to lease obligations.
(2) Occupancy utilization of $23.3 million and $13.6 million during
fiscal 2001 and 2002 represent lease and other occupancy payments made
during those periods.
(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 2002, we recorded a reduction of $3.6 million in SG&A
expense related to this phase of the initiative. Further, we increased
our reserve for future minimum pension liabilities by $0.6 million to
better reflect expected future payouts under certain collective
bargaining agreements.
</TABLE>
At February 22, 2003, approximately $8.6 million of the reserve was
included in "Other accruals" and the remaining amount was included in "Other
non-current liabilities" in our Consolidated Balance Sheets.
Included in our Consolidated Statements of Operations are the operating
results of the 166 underperforming stores that we have exited. The operating
results of these stores are as follows:
<TABLE>
<CAPTION>
Fiscal 2002 Fiscal 2001 Fiscal 2000
------------- ------------- -------------
<S> <C> <C> <C>
Sales $ - $ 197 $ 678
======== ======= ==========
Operating loss $ - $ (108) $ (139)
======== ======= ==========
</TABLE>
During the third quarter of fiscal 2001, our Board of Directors approved
a plan resulting from our review of the performance and potential of each of our
businesses and individual stores. At the conclusion of this review, we
determined that certain underperforming operations, including 39 stores (30 in
the United States and 9 in Canada) and 3 warehouses should be closed and/or
sold and certain administrative streamlining should take place. As a result of
these decisions, we announced on November 14, 2001 that we would incur costs of
approximately $200 - $215 million pretax through fiscal 2002. The following
table details the amounts charged to our Consolidated Statements of Operations
since the announcement of this phase of the initiative:
<TABLE>
<CAPTION>
Fiscal 2002 Fiscal 2001
---------------------- ------------------
<S> <C> <C>
Cost of merchandise sold $ (1,263) (a) $ (3,888) (a)
Store operating, general and
administrative expense 4,651 (b) (189,580) (c)
-------------- -----------
Pretax credit (charge) $ 3,388 $ (193,468)
============== ===========
</TABLE>
(a) The amounts included in "Cost of merchandise sold" in our Consolidated
Statements of Operations were comprised solely of inventory markdowns that
were expensed as incurred.
(b) The pretax credit of $4.7 million included in "Store operating, general
and administrative expense" in our Consolidated Statements of Operations
for fiscal 2002 consisted of $10.7 million of net adjustments primarily
related to reversals of previously accrued amounts for vacancy related
costs and the recognition of a gain on the disposal of fixed assets in the
amount of $1.7 million partially offset by $4.1 million related to closing
costs that were expensed as incurred and $3.6 million related to
severance.
(c) Of the pretax charges of $189.6 million net included in "Store operating,
general and administrative expense" in our Consolidated Statements of
Operations for fiscal 2001, $80.8 million related to future vacancy costs,
$24.3 million related to net severance charges, $81.5 million related to
fixed asset and goodwill write-downs and $3.0 million related to closing
costs that were expensed as incurred.
To the extent fixed assets included in the items noted above could be
used in other continuing operations, we have or will transfer those assets as
needed. Fixed assets that we cannot transfer to other operations will be
scrapped. Accordingly, the write-down recorded during fiscal 2001 was based on
expected transfers.
Included in the $3.4 million net credit and $193.5 million net charge
recorded during fiscal 2002 and 2001, respectively, were other charges related
to the plan that were not accounted for in the reserve recorded on our
Consolidated Balance Sheets because they were expensed as incurred. Such costs
have been expensed as incurred while the asset disposition was being executed.
During fiscal 2002 and 2001, these costs amounted to $5.3 million and $8.7
million, respectively, which were primarily related to non-accruable closing
costs and inventory markdowns. Also included in the $193.5 million net charge
recorded during fiscal 2001 was a reversal of previously accrued severance and
benefits of $0.6 million related to a reduction in the severance payments
required to be made to certain store employees in Canada in accordance with
Ontario provincial law. During fiscal 2002, we recorded net adjustments of $10.7
million primarily related to reversals of previously accrued vacancy related
costs. Refer to note (3) in the table below. These costs for both years are
excluded from the table below, which represents only the reserve recorded on
our Consolidated Balance Sheets as well as the goodwill/fixed asset writedowns.
The following table summarizes the activity related to the aforementioned
reserve recorded on our Consolidated Balance Sheets since the announcement of
the charge in November 2001:
<TABLE>
<CAPTION>
Severance
and Goodwill/
Occupancy Benefits Fixed Assets Total
--------- --------- ------------ ------------
<S> <C> <C> <C> <C>
Original Charge $ 80,456 $ 23,435 $ 81,519 $ 185,410
Addition (1) 1,673 - - 1,673
Utilization (2) (1,806) (2,891) (81,519) (86,216)
Adjustment (3) - (584) - (584)
--------- --------- --------- -----------
Balance at
February 23, 2002 80,323 19,960 - 100,283
Addition (1) 4,090 3,544 - 7,634
Utilization (2) (20,387) (19,460) 776 (39,071)
Adjustment (3) (10,180) 250 (776) (10,706)
---------- --------- ---------- -----------
Balance at
February 22, 2003 $ 53,846 $ 4,294 $ - $ 58,140
========= ========= ========= ===========
</TABLE>
(1) The additions to occupancy of $1.7 million and $4.1 million during
fiscal 2001 and fiscal 2002 represent the present value of accrued
interest related to lease obligations. The addition to severance of
$3.5 million during fiscal 2002 related to retention and productivity
incentives that were accrued as earned.
(2) Occupancy utilization of $1.8 million and $20.4 million during fiscal
2001 and fiscal 2002 represents vacancy related payments for closed
locations. Severance utilization of $2.9 million and $19.5 million
during fiscal 2001 and fiscal 2002 represents payments made to
terminated employees during the period. Goodwill/fixed asset
utilization of $81.5 million during fiscal 2001 represents the
write-off of fixed assets of the operations to be discontinued and the
write-off of goodwill related to the Barn warehouse in Canada that was
deemed to be impaired.
(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. As a result, during fiscal 2001, we
recorded an adjustment to severance and benefits of $0.6 million
related to a reduction in the severance payments required to be made
to certain store employees in Canada. Under Ontario provincial law,
employees to be terminated as part of a mass termination are entitled
to receive compensation, either worked or paid as severance, for a set
period of time after the official notice date. Since such closures
took place later than originally expected, less time remained in the
aforementioned guarantee period. Further, during fiscal 2002, we
recorded net adjustments of $10.7 million primarily related to
reversals of previously accrued vacancy related costs due to the
following:
o Favorable results of assigning leases at certain locations of
$3.6 million;
o The decision to continue to operate one of the stores previously
identified for closure due to changes in the competitive
environment in the market in which that store is located of $3.3
million; and
o The decision to proceed with development at a site that we had
chosen to abandon at the time of the original charge due to
changes in the competitive environment in the market in which that
site is located of $3.3 million.
As of February 22, 2003, we paid approximately $22 million of the total
severance charge recorded, which resulted from the termination of approximately
1,100 employees. The remaining individual severance payments will be paid by the
end of fiscal 2003.
At February 22, 2003, approximately $10.7 million of the reserve was
included in "Other accruals" and the remaining amount was included in "Other
non-current liabilities" on our Consolidated Balance Sheets.
Included in our Consolidated Statements of Operations for fiscal 2002,
2001 and 2000 are the sales and operating results of the aforementioned stores
while they were open during the periods presented. The operating results of
these stores were as follows:
<TABLE>
<CAPTION>
Fiscal 2002 Fiscal 2001 Fiscal 2000
------------- ------------- -------------
<S> <C> <C> <C>
Sales $23,367 $266,802 $319,812
======= ======== ========
Operating loss $ (746) $(24,376) $(24,332)
========= ======== ========
</TABLE>
As of February 22, 2003, we had closed all of the aforementioned stores
except the one location in the United States at which we have decided to
continue operations and one location in Canada where the closing was
dependent upon the opening of another store in close proximity. This store
subsequently closed in March 2003.
Based upon current available information, we evaluated the reserve
balances as of February 22, 2003 of $51.7 million for the 1998 phase of the
asset disposition initiative and $58.1 million for the 2001 phase of the asset
disposition initiative and have concluded that they are adequate. We will
continue to monitor the status of the vacant properties and adjustments to the
reserve balances will be recorded in the future, if necessary.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
We had working capital of $9 million at February 22, 2003 compared to
working capital of $28 million at February 23, 2002. We had cash and cash
equivalents aggregating $199 million at February 22, 2003 compared to $169
million at the end of fiscal 2001. The decrease in working capital was
attributable primarily to the following:
o A decrease in the current portion of the net deferred tax asset due to the
recording of a valuation allowance for the entire U.S. net deferred tax
asset during fiscal 2002 (see Note 9 of our Consolidated Financial
Statements);
o A decrease in inventories due to improved inventory management; and
o An increase in current maturities of our debt obligations and capital
leases.
Partially offset by the following:
o An increase in cash and cash equivalents as detailed in the Consolidated
Statements of Cash Flows;
o A decrease in accounts payable (inclusive of book overdrafts); and
o A decrease in other accruals.
At February 22, 2003, we had a $425 million secured revolving credit
agreement (as amended, the "Secured Credit Agreement") with a syndicate of
lenders enabling us to borrow funds on a revolving basis sufficient to refinance
short-term borrowings and provide working capital as needed. This agreement is
comprised of a U.S. credit agreement amounting to $340 million and a Canadian
credit agreement amounting to $85 million (C$128 million at February 22, 2003)
and is collateralized primarily by inventory and company-owned real estate.
Borrowings under the Secured Credit Agreement bear interest based on LIBOR and
Prime interest rate pricing. Under the Secured Credit Agreement, $40 million of
the loan commitments expire in December 2003 and $385 million of the loan
commitments expire in June 2005.
As of February 22, 2003, we had $135 million of borrowings under the
Secured Credit Agreement. Accordingly, as of February 22, 2003, after reducing
availability for outstanding letters of credit and inventory requirements, we
had $130 million available under the Secured Credit Agreement.
Our loan agreements and certain notes contain various financial
covenants, which require among other things, minimum fixed charge coverage
(compares EBITDA plus rent and interest plus rents) and levels of leverage
(compares EBITDA with outstanding indebtedness under the agreement) and capital
expenditures. On February 21, 2003, we amended the Secured Credit Agreement in
order to allow for greater flexibility for fiscal year 2003. The amendment is
effective through and including the first quarter of fiscal year 2004 and
includes, among other things, a change to the fixed coverage ratio from 1.4 to
1.15, a senior secured leverage ratio of 1.80, a waiver of the total leverage
ratio, a minimum EBITDA level, and a limitation on capital expenditures. Certain
of the covenants are impacted by the amount of proceeds we receive from asset
sales. At February 22, 2003, we were in compliance with all of our covenants.
During fiscal 2002, we repurchased in the open market $51 million of our
7.75% Notes due April 15, 2007 and $45 million of our 9.125% Notes due December
15, 2011. The cost of these open market repurchases resulted in a net
extraordinary gain due to the early extinguishment of debt of $12.2 million.
Under the recently amended Secured Credit Agreement, we are restricted from
entering into additional bond repurchases.
We currently have active Registration Statements dated January 23, 1998
and June 23, 1999, allowing us to offer up to $75 million of debt and/or equity
securities as of February 22, 2003 at terms determined by market conditions at
the time of sale.
During fiscal 2002, our capital expenditures and debt repayments were
funded through internally generated funds combined with proceeds from disposals
of property. Capital expenditures totaled $220 million during fiscal 2002, which
included 31 new supermarkets, 38 major remodels or enlargements and capital
expenditures related to the business process initiative.
For fiscal 2003, we have planned capital expenditures of approximately
$175 million. These expenditures relate primarily to opening 20 new supermarkets
and enlarging or remodeling 30 - 35 supermarkets. We currently expect to close a
total of 20 - 25 stores in fiscal 2003; the long-lived assets of which have
been evaluated for impairment in fiscal 2002.
We do not expect to pay dividends during fiscal 2003.
As of February 22, 2003, we have the following contractual obligations
and commitments:
<TABLE>
<CAPTION>
Payments Due by Period (in millions)
-----------------------------------------------------------------------------------
Contractual Fiscal 2004 Fiscal 2006
Obligations Total Fiscal 2003 and 2005 and 2007 Thereafter
---------------------- ------------- ------------- ----------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Debt $ 829.1 $ 25.8 $ 139.5 $ 231.9 $ 431.9
Capital Leases 190.5 23.2 36.5 23.6 107.2
Operating Leases 3,488.7 265.5 499.6 471.2 2,252.4
Technology-Related 11.8 9.0 2.8 - -
Severance 16.0 14.4 1.6 - -
---------- --------- --------- --------- ----------
Total $ 4,536.1 $ 337.9 $ 680.0 $ 726.7 $ 2,791.5
========== ========= ========= ========= ==========
Expiration of Commitments (in millions)
-----------------------------------------------------------------------------------
Other Fiscal 2004 Fiscal 2006
Commitments Total Fiscal 2003 and 2005 and 2007 Thereafter
---------------------- ------------- -------------- ------------- ------------- -------------
Guarantees $ 2.4 $ 0.2 $ 0.4 $ 0.5 $ 1.3
========== ========= ========= ========= ==========
</TABLE>
We are the guarantor of a loan of $2.4 million related to a shopping
center, which will expire in 2011.
Our existing senior debt rating was B3 with negative implications with
Moody's Investors Service ("Moody's") and B+ on credit watch with negative
implications with Standard & Poor's Ratings Group ("S&P") as of February 22,
2003. Future rating changes could affect the availability and cost of financing
to the Company.
We believe that our cash from operations and asset sales will be sufficient
for our capital expenditure programs and mandatory scheduled debt repayments for
the next twelve months. However, certain external factors such as unfavorable
economic conditions, competition, labor relations and fuel and utility costs
could have a significant impact on cash generation. We are exploring several
actions, including the sale of specific non-core assets, to mitigate the
potential risk, however, there can be no assurance that such actions will be
successful.
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 $681 million in notes as of February 22, 2003 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 2002, a presumed 1% change in the variable floating rate would
have impacted interest expense by $1.5 million.
During fiscal 2002, we had three interest rate swaps with commercial
banks with an aggregate notional amount of $150 million maturing on April 15,
2007, designated as fair value hedging instruments, to effectively convert a
portion of our 7.75% Notes due April 15, 2007 from fixed rate debt to floating
rate debt. In January 2003, these hedging instruments were terminated, resulting
in a gain of $10.2 million. This gain has been deferred and is being amortized
as an offset to interest expense over the life of the underlying debt
instrument. Such amount is classified as "Long term debt" in our Consolidated
Balance Sheets.
Foreign Exchange Risk
- ---------------------
We are exposed to foreign exchange risk to the extent of adverse
fluctuations in the Canadian dollar. During fiscal 2002, a change in the
Canadian currency of 10% would have resulted in a fluctuation in net income of
$4.0 million. We do not believe that a change in the Canadian currency of 10%
will have a material effect on our financial position or cash flows.
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 22, 2003 related to our U.S. Retail
segment was $92 million. As of February 22, 2003, the self-insurance reserves
relating to our Canada Retail and Canada Wholesale segments were not
significant. The discount rate used at February 22, 2003 was 3.4% and was based
on 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 $1.9
million. Conversely, a 1% decrease in the discount rate would increase the
required liability by $2.1 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).
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 are 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 risk free rate.
We also review individual assets for impairment upon determination that
such assets will not be used for their intended useful life. During fiscal 2002,
we recorded impairment losses on property, plant and equipment of $18.9 million
($15.7 million in our U.S. Retail segment and $3.2 million in our Canada Retail
segment) related to stores that were or will be closed in the normal course of
business.
Closed Store Reserves
For stores closed that are under long-term leases, we record a discounted
liability using a risk adjusted 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 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 Company's estimates. As of
February 22, 2003, we had liabilities for future minimum lease payments of $131
million which related to 84 dark stores and 40 subleased or assigned stores. Of
this amount, $28 million relates to stores closed in the normal course of
business and $103 million relates to stores closed as part of the asset
disposition initiative (see Note 2 of our Consolidated Financial Statements).
Employee Benefit Plans
The determination of our obligation and expense for pension and other
post-retirement 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 10 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 post-retirement obligations and our
future expense.
An example of how changes in these assumptions can affect our
financial statements occurred in fiscal 2002. Based on our review of market
interest rates, actual return on plan assets and other factors, we lowered our
discount rate for U.S. plans to 6.50% at year-end 2002 from 7.00% at year-end
2001. We also lowered our expected return on plan assets for U.S. plans to 7.50%
at year-end 2002 from 8.00% at year-end 2001. 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 $11.2 million or decrease the benefit obligation by $9.3 million, and a 1%
change in expected return on plan assets alone would either increase or
decrease 2002 U.S. pension expense by $1.4 million.
When not considering other changes in assumptions for our post-retirement
benefits, a 1% change in the discount rate alone would either increase or
decrease 2003 service and interest cost by $0.05 million, while the accumulated
post-retirement benefit obligation would either increase by $2.0 million or
decrease by $1.7 million. The effect of a 1% change in the assumed
health care cost trend rate for each future year on the sum of 2003 service and
interest cost would either increase or decrease by $0.1 million, while the
accumulated post-retirement benefit obligaton would either increase by $1.5
million or decrease by $1.3 million.
Inventories
Store inventories are valued principally at the lower of cost or market
with cost determined under the retail method on a first-in, first-out basis.
Warehouse and other inventories are valued primarily at the lower of cost or
market with cost determined on a first-in, first-out basis. Inventories of
certain acquired companies are valued using the last-in, first-out method, which
was their practice prior to acquisition. We evaluate inventory shrinkage
throughout the year based on actual physical counts in our stores and
distribution centers 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.
IMPACT OF NEW ACCOUNTING PRONOUNCEMENTS
- ---------------------------------------
In June 2001, the Financial Accounting Standards Board ("FASB") issued
SFAS 143, "Accounting For Asset Retirement Obligations" ("SFAS 143"). This
Statement addresses financial accounting and reporting for obligations
associated with the retirement of tangible long-lived assets and the associated
asset retirement costs. We are required to adopt the provisions of SFAS 143 at
the beginning of fiscal 2003. We have determined that the adoption of this
Statement will not have a material impact on our financial position or results
of operations.
In April 2002, the FASB issued SFAS 145, "Rescission of FASB Statements
4, 44 and 64, Amendment of FASB Statement 13, and Technical Corrections" ("SFAS
145"). SFAS 145 rescinds the provisions of SFAS 4 that requires companies to
classify certain gains and losses from debt extinguishments as extraordinary
items, eliminates the provisions of SFAS 44 regarding transition to the Motor
Carrier Act of 1980 and amends the provisions of SFAS 13 to require that certain
lease modifications be treated as sale leaseback transactions. The provisions of
SFAS 145 related to classification of debt extinguishment are effective for
fiscal years beginning after May 15, 2002. In future periods, we will classify
debt extinguishment costs within income from operations and will reclassify
previously reported debt extinguishments as such. The provisions of SFAS 145
related to lease modification are effective for transactions occurring after May
15, 2002. We do not expect the provisions of SFAS 145 related to lease
modification to have a material impact on our financial position or results of
operations.
In July 2002, the FASB issued SFAS 146, "Accounting for Costs Associated
with Exit or Disposal Activities" ("SFAS 146"). SFAS 146 will supersede Emerging
Issues Task Force ("EITF") Issue No. 94-3, "Liability Recognition for Certain
Employee Termination Benefits and Other Costs to Exit an Activity (including
Certain Costs Incurred in a Restructuring)". SFAS 146 requires that costs
associated with an exit or disposal plan be recognized when incurred rather than
at the date of a commitment to an exit or disposal plan. SFAS 146 is to be
applied prospectively to exit or disposal activities initiated after December
31, 2002. This Statement impacted the timing of recognition of costs associated
with our store closures subsequent to December 31, 2002.
In November 2002, the EITF reached consensus on several issues related
to EITF 02-16, "Accounting by a Customer (including a Reseller) for Certain
Consideration Received from a Vendor". The Task Force reached a consensus that
in most cases, cash consideration received by a customer from a vendor is
presumed to be a reduction of the prices of the vendor's products or services
and should, therefore, be characterized as a reduction of cost of sales when
recognized in the customer's income statement. The Task Force also reached a
consensus that a rebate or refund of a specified amount of cash consideration
that is payable pursuant to a binding arrangement only if the customer completes
a specified cumulative level of purchases or remains a customer for a specified
time period should be recognized as a reduction of the cost of sales based on a
systematic and rational allocation of the cash consideration offered to each of
the underlying transactions that results in progress by the customer toward
earning the rebate or refund, provided the amounts are probable and reasonably
estimable. If the rebate or refund is not probable and reasonably estimable, it
should be recognized as the milestones are achieved. Prior to adopting this new
policy, we recognized advertising allowances against cost of goods sold when the
advertising was performed. This new EITF Issue requires that advertising
allowances be recognized when the advertising is performed and the inventory is
sold. As a result of this accounting change, pretax income was reduced by
$2.2 million in fiscal 2002 to record, as a reduction of inventory, advertising
allowances received attributable to products not yet sold.
In November 2002, the FASB issued FASB Interpretation ("FIN") 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". FIN 45 clarifies the requirements of FASB Statement No.
5, "Accounting for Contingencies", relating to the guarantor's accounting for,
and disclosure of, the issuance of certain types of guarantees and requires that
upon issuance of a guarantee, the entity (i.e. the guarantor) must recognize a
liability for the fair value of the obligation it assumes under that guarantee.
The provisions for initial recognition and measurement are effective on a
prospective basis for guarantees that are issued or modified after December 31,
2002, irrespective of a guarantor's year end. The disclosure provisions of the
Interpretation are effective for financial statements of interim and annual
periods that end after December 15, 2002. This Interpretation impacted the
accounting for, and disclosure of, our guarantees beginning in the fourth
quarter of 2002 (see Liquidity and Capital Resources in our Management's
Discussion and Analysis and Note 12 of our Consolidated Financial Statements).
In December 2002, the FASB issued SFAS 148, "Accounting for Stock-Based
Compensation -- Transition and Disclosure" ("SFAS 148"), which amends SFAS
123, "Accounting for Stock-Based Compensation" ("SFAS 123"). In response to a
growing number of companies announcing plans to record expenses for the fair
value of stock options, SFAS 148 provides alternative methods of transition for
a voluntary change to the fair value based method of accounting for stock-based
employee compensation. In addition, SFAS 148 amends the disclosure requirements
of SFAS 123 to require more prominent and more frequent disclosures in financial
statements about the effects of stock-based compensation. The amendments to SFAS
123 in paragraphs 2(a)-2(e) of this Statement shall be effective for financial
statements for fiscal years ending after December 15, 2002. The disclosure
requirements set forth in this statement have been adopted and did not have a
significant impact on the financial statements.
In January 2003, FIN 46, "Consolidation of Variable Interest Entities", was
issued. This interpretation requires a company to consolidate variable interest
entities ("VIE") if the enterprise is a primary beneficiary (holds a majority of
the variable interest) of the VIE and the VIE possess specific characteristics.
It also requires additional disclosure for parties involved with VIEs. The
provisions of this interpretation are effective in 2003. As we do not have VIE,
adoption of this interpretation will not have an effect on our financial
statements.
In April 2003, the FASB issued SFAS 149, "Amendment of Statement 133 on
Derivative Instruments and Hedging Activities" ("SFAS 149"). SFAS 149 amends and
clarifies accounting for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities under SFAS
133. The new guidance amends SFAS 133 for decisions made: (a) as part of the
Derivatives Implementation Group process that effectively required amendments to
SFAS 133, (b) in connection with other Board projects dealing with financial
instruments, and (c) regarding implementation issues raised in relation to the
application of the definition of a derivative, particularly regarding the
meaning of an "underlying" and the characteristics of a derivative that contains
financing components. The amendments set forth in SFAS 149 improve financial
reporting by requiring that contracts with comparable characteristics be
accounted for similarly. SFAS 149 is generally effective for contracts entered
into or modified after June 30, 2003 (with a few exceptions) and for hedging
relationships designated after June 30, 2003. The guidance is to be applied
prospectively. We do not expect the provisions of SFAS 149 to have a material
impact on our financial position or results of operations.
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.
<PAGE>
The Great Atlantic & Pacific Tea Company, Inc.
Consolidated Statements of Operations
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
Fiscal 2002 Fiscal 2001 Fiscal 2000
---------------------- --------------------- ----------------------
<S> <C> <C> <C>
Sales $ 10,794,370 $ 10,973,315 $ 10,622,866
Cost of merchandise sold (7,738,337) (7,822,649) (7,581,090)
-------------- -------------- ---------------
Gross margin 3,056,033 3,150,666 3,041,776
Store operating, general
and administrative expense (3,048,775) (3,234,796) (2,975,746)
Gain on proceeds from the
demutualization of a mutual
insurance company - 60,606 -
-------------- -------------- ---------------
Income (loss) from operations 7,258 (23,524) 66,030
Interest expense (84,679) (91,722) (102,488)
Interest income 7,897 6,972 6,222
-------------- -------------- ---------------
Loss before income taxes
and extraordinary item (69,524) (108,274) (30,236)
(Provision for) benefit from
income taxes (136,166) 43,590 10,736
-------------- -------------- ---------------
Loss before extraordinary item (205,690) (64,684) (19,500)
Extraordinary gain (loss) on early
extinguishment of debt, net of
income tax benefit of nil and $5,230 12,181 (7,222) -
-------------- -------------- ---------------
Net loss $ (193,509) $ (71,906) $ (19,500)
============== ============== ===============
Net loss per share - basic and diluted:
Loss before extraordinary
item $ (5.34) $ (1.69) $ (0.51)
Extraordinary gain (loss) on early
extinguishment of debt 0.31 (0.19) -
--------------- --------------- ---------------
Net loss per share - basic and
diluted $ (5.03) $ (1.88) $ (0.51)
============== ============== ==============
Weighted average common shares outstanding:
Basic 38,494,812 38,350,616 38,347,216
============== ============== ===============
Diluted 38,494,812 38,350,616 38,347,216
============== ============== ===============
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
The Great Atlantic & Pacific Tea Company, Inc.
Consolidated Statements of Stockholders' Equity and Comprehensive (Loss) Income
(Dollars in thousands, except share amounts)
<TABLE>
<CAPTION>
Unamortized Accumulated
Common stock Additional value of other Total
-------------------------- paid-in restricted comprehensive Retained Stockholders'
Shares Amount capital stock grant loss earnings equity
-------------- ----------- ----------- ------------- --------------------- --------- ---------------
Balance at 2/26/00 38,367,216 $38,367 $457,101 $ (441) $ (60,696) $357,807 $ 792,138
Net loss (19,500) (19,500)
Forfeiture of restricted
stock grant (20,000) (20) (631) 441 (210)
Other comprehensive loss (12,112) (12,112)
Cash dividends (11,505) (11,505)
-------------- ----------- ----------- ------------ ----------------- -------- -------------
Balance at 2/24/01 38,347,216 38,347 456,470 - (72,808) 326,802 748,811
Net loss (71,906) (71,906)
Stock options exercised 20,412 21 283 304
Other comprehensive loss (4,221) (4,221)
-------------- ----------- ----------- ------------- ----------------- ----------- --------------
Balance at 2/23/02 38,367,628 38,368 456,753 - (77,029) 254,896 672,988
Net loss (193,509) (193,509)
Stock options exercised 148,178 148 2,658 2,806
Other comprehensive income 15,906 15,906
-------------- ----------- ----------- ------------- ----------------- ----------- --------------
Balance at 2/22/03 38,515,806 $ 38,516 $ 459,411 $ - $ (61,123) $ 61,387 $ 498,191
============== =========== =========== ============= ================ =========== ==============
Fiscal 2002 Fiscal 2001 Fiscal 2000
-------------------- -------------------- --------------------
<S> <C> <C> <C>
Comprehensive (loss) income
- ---------------------------
Net loss $ (193,509) $ (71,906) $ (19,500)
----------- ----------- -------------
Foreign currency translation adjustment 15,363 (5,089) (14,802)
Net unrealized gain on available for sale
securities, net of tax - 933 -
Reclassification adjustment for gains included in
net loss, net of tax (933) - -
Minimum pension liability adjustment, net of tax (1,539) (65) 2,690
Net unrealized gain on derivatives, net of tax 3,015 - -
----------- ----------- ------------
Other comprehensive income (loss) 15,906 (4,221) (12,112)
----------- ----------- -------------
Total comprehensive loss $ (177,603) $ (76,127) $ (31,612)
=========== =========== =============
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
The Great Atlantic & Pacific Tea Company, Inc.
Consolidated Balance Sheets
(Dollars in thousands, except share amounts)
<TABLE>
<CAPTION>
February 22, 2003 February 23, 2002
----------------- -----------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 199,014 $ 168,620
Accounts receivable, net of allowance for doubtful
accounts of $9,799 and $9,198 at February 22, 2003
and February 23, 2002, respectively 185,411 206,188
Inventories 682,734 722,755
Prepaid expenses and other current assets 32,429 114,511
------------ ------------
Total current assets 1,099,588 1,212,074
------------ ------------
Property:
Land 74,643 88,154
Buildings 297,217 303,581
Equipment and leasehold improvements 2,324,021 2,293,655
------------ ------------
Total - at cost 2,695,881 2,685,390
Less accumulated depreciation and amortization (1,157,764) (1,053,850)
------------ ------------
Property owned 1,538,117 1,631,540
Property under capital leases, net 71,806 76,800
------------ ------------
Property - net 1,609,923 1,708,340
Other assets 175,726 273,850
------------ ------------
Total assets $ 2,885,237 $ 3,194,264
============ ============
Liabilities and Stockholders' Equity
Current liabilities:
Current portion of long-term debt $ 25,820 $ 526
Current portion of obligations under capital leases 13,787 10,691
Accounts payable 511,634 547,113
Book overdrafts 101,817 127,079
Accrued salaries, wages and benefits 180,812 167,724
Accrued taxes 53,774 69,559
Other accruals 202,968 261,771
------------ ------------
Total current liabilities 1,090,612 1,184,463
------------ ------------
Long-term debt 803,277 779,440
Long-term obligations under capital leases 83,485 93,587
Other non-current liabilities 409,672 463,786
------------ ------------
Total liabilities 2,387,046 2,521,276
------------ ------------
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 - 38,515,806 and
38,367,628 shares at February 22, 2003 and
February 23, 2002, respectively 38,516 38,368
Additional paid-in capital 459,411 456,753
Accumulated other comprehensive loss (61,123) (77,029)
Retained earnings 61,387 254,896
------------ ------------
Total stockholders' equity 498,191 672,988
------------ ------------
Total liabilities and stockholders' equity $ 2,885,237 $ 3,194,264
============ ============
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
The Great Atlantic & Pacific Tea Company, Inc.
Consolidated Statements of Cash Flows
(Dollars in thousands)
<TABLE>
<CAPTION>
Fiscal 2002 Fiscal 2001 Fiscal 2000
--------------- --------------- ----------------
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Net loss $ (193,509) $ (71,906) $ (19,500)
Adjustments to reconcile net loss to cash
provided by operating activities:
Asset disposition initiative (6,394) 201,067 (3,104)
Extraordinary (gain) loss on early
extinguishment of debt (12,181) 7,222 -
Realized gain on sale of securities (1,717) -
Environmental charge - 1,964 4,329
Depreciation and amortization 263,585 262,552 255,771
Deferred income tax provision (benefit) 157,566 (47,298) (14,267)
(Gain) loss on disposal of owned property and
write-down of property, net (1,140) 348 4,263
Decrease (increase) in receivables 47,583 (22,151) 40,479
Decrease in inventories 46,705 58,288 156
Decrease (increase) in prepaid expenses and other
current assets 44,631 (39,511) 4,832
Decrease (increase) in other assets 19,274 988 (7,648)
(Decrease) increase in accounts payable (54,575) (12,446) 5,443
(Decrease) increase in accrued salaries, wages and benefits, and taxes (28,511) 18,027 13,104
Decrease in other accruals (63,051) (17,051) (31,661)
Decrease in other non-current liabilities (52,650) (7,684) (882)
Other, net 11,289 4,448 2,446
------------ ------------ ------------
Net cash provided by operating activities 176,905 336,857 253,761
------------ ------------ ------------
Cash Flows From Investing Activities:
Expenditures for property (219,530) (246,182) (415,842)
Proceeds from disposal of property 56,731 105,808 150,255
------------ ------------ ------------
Net cash used in investing activities (162,799) (140,374) (265,587)
------------ ------------ ------------
Cash Flows From Financing Activities:
Changes in short-term debt - (5,000) (22,000)
Proceeds under revolving lines of credit 313,253 1,098,675 817,447
Payments on revolving lines of credit (178,253) (1,288,282) (602,307)
Proceeds from long-term borrowings 153 276,964 26,981
Payments on long-term borrowings (80,898) (234,866) (166,670)
Principal payments on capital leases (12,167) (11,710) (11,252)
(Decrease) increase in book overdrafts (25,617) 18,824 (3,298)
Deferred financing fees (5,744) (13,485) (6,428)
Proceeds from stock options exercised 2,806 304 -
Cash dividends - - (11,505)
------------ ------------ ------------
Net cash provided by (used in) financing activities 13,533 (158,576) 20,968
------------ ------------- ------------
Effect of exchange rate changes on cash and
cash equivalents 2,755 (837) (2,195)
------------ ------------ -------------
Net increase in cash and cash equivalents 30,394 37,070 6,947
Cash and cash equivalents at beginning of year 168,620 131,550 124,603
------------ ------------ ------------
Cash and cash equivalents at end of year $ 199,014 $ 168,620 $ 131,550
============ ============ ============
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
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 our Company
and all majority-owned subsidiaries. Significant intercompany accounts and
transactions have been eliminated.
We operate retail supermarkets in the United States and Canada. The U.S.
operations are mainly in the Eastern part of the U.S. and certain parts of the
Midwest. See the following footnotes for additional information on our Canadian
Operations: Note 5 - Wholesale Franchise Business, Note 6 - Indebtedness, Note 9
- - Income Taxes, Note 10 - Retirement Plans and Benefits, Note 12 - Commitments
and Contingencies and Note 13 - Operating Segments. Our principal stockholder,
Tengelmann Warenhandelsgesellschaft ("Tengelmann"), owned 56.4% of our common
stock as of February 22, 2003.
Fiscal Year
- -----------
Our fiscal year ends on the last Saturday in February. Fiscal 2002 ended
February 22, 2003, fiscal 2001 ended February 23, 2002 and fiscal 2000 ended
February 24, 2001. Fiscal 2002, fiscal 2001 and fiscal 2000 were each comprised
of 52 weeks.
Revenue Recognition
- -------------------
Retail revenue is recognized at point-of-sale. Wholesale revenue is
recognized, in accordance with its terms, when goods are shipped and title to
products and risk of loss are transferred to customers. Discounts that
we provide to customers are accounted for as a reduction to sales upon sale.
Use of Estimates
- ----------------
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States 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.
Cash and Cash Equivalents
- -------------------------
Short-term investments that are highly liquid with an original maturity
of three months or less are deemed to be cash equivalents and are included in
"Cash and cash equivalents" on our Consolidated Balance Sheets.
Inventories
- -----------
Store inventories are valued principally at the lower of cost or market
with cost determined under the retail method on a first-in, first-out basis.
Warehouse and other inventories are valued primarily at the lower of cost or
market with cost determined on a first-in, first-out basis. Inventories of
certain acquired companies are valued using the last-in, first-out method, which
was their practice prior to acquisition. See Note 4 - Inventory for additional
information regarding our use of the last-in, first-out method.
We evaluate 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.
Vendor Allowances
- -----------------
Vendor allowances that relate to our Company's buying and merchandising
activities consist primarily of advertising and promotional allowances. With the
exception of allowances described below, allowances are recognized as a
reduction of cost of goods sold when the related performance is completed and
the inventory is sold. Lump-sum payments received for multi-year contracts are
generally amortized 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 cash consideration 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. See New
Accounting Pronouncements further in this Note for discussion of newly adopted
Emerging Issues Task Force ("EITF") 02-16, "Accounting by a Customer (including
a Reseller) for Certain Consideration Received from a Vendor".
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.
Advertising Costs
- -----------------
Advertising costs incurred to produce media advertising are expensed in
the period the advertisement is first shown. Other advertising costs, primarily
costs to produce circulars, place advertisements and pay advertising agency
fees, are expensed when incurred. We recorded advertising expense of $136.5
million, $136.0 million and $146.5 million for fiscal 2002, 2001 and 2000,
respectively.
Pre-opening Costs
- -----------------
Non-capital expenditures incurred in opening new stores or remodeling
existing stores are expensed as incurred.
Software Costs
- --------------
We capitalize externally purchased software and amortize it over three to
five years. Amortization expense related to software costs for fiscal 2002, 2001
and 2000 was $7.5 million, $3.3 million and $1.4 million, respectively.
We apply the provisions of the American Institute of Certified Public
Accountants' Statement of Position 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use" ("SOP 98-1"). SOP 98-1 requires
the capitalization of certain internally generated software costs. In fiscal
2002, 2001 and 2000, we capitalized $26.7 million, $24.1 million and $3.7
million, respectively, of such software costs. Such software is amortized over
three to five years and for fiscal 2002, 2001 and 2000, we recorded related
amortization expense of $7.6 million, $2.7 million and $0.7 million,
respectively.
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 38,494,812 for fiscal 2002, 38,350,616 for fiscal 2001 and
38,347,216 for fiscal 2000. The additional common stock equivalents for fiscal
2002, 2001 and 2000 would have been 387,040, 588,603 and 14,478, respectively;
however, such shares were antidilutive and thus excluded from the diluted EPS
calculation.
Excess of Cost over Net Assets Acquired
- ---------------------------------------
In accordance with SFAS 142 "Goodwill and Other Intangible Assets" ("SFAS
142"), the excess of cost over fair value of net assets acquired is no
longer required to be amortized, but tested for impairment annually. At each
balance sheet date, we reassess the appropriateness of the goodwill balance
based on 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, we determine the implied fair
market value of the goodwill using a purchase price allocation approach and
compare this value to the balance sheet 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 value. The recoverability of goodwill is at risk to the
extent we are unable to achieve our forecast assumptions regarding cash flows
from operating results. At February 22, 2003, we estimate that the cash flows
projected to be generated by the respective businesses on a discounted basis
should be sufficient to recover the existing goodwill balance.
The book value of excess of cost over net assets acquired at
February 22, 2003 and February 23, 2002 was $32.0 million, net of accumulated
amortization of $14.0 million. We recorded amortization expense of nil for
fiscal 2002, $1.4 million for fiscal 2001 and $1.5 million for fiscal 2000.
Our adoption of SFAS 142 eliminated the amortization of goodwill
beginning in the first quarter of fiscal 2002. The following table adjusts net
loss and net loss per share for the adoption of SFAS 142:
<TABLE>
<CAPTION>
Fiscal 2002 Fiscal 2001 Fiscal 2000
------------ ----------- -----------
<S> <C> <C> <C>
Reported net loss $ (193,509) $(71,906) $ (19,500)
Add back:
Goodwill amortization, net of tax - 833 850
----------- ---------- ----------
Adjusted net loss $ (193,509) $(71,073) $ (18,650)
========== ========= ===========
Net loss per share - basic and diluted:
Reported net loss per share $ (5.03) $ (1.88) $ (0.51)
Add back:
Goodwill amortization - 0.02 0.02
---------- --------- -----------
Adjusted net loss per share $ (5.03) $ (1.86) $ (0.49)
========= ======== ===========
</TABLE>
Self Insurance Reserves
- -----------------------
Our Consolidated Balance Sheets include liabilities with respect to
self-insured workers' compensation and general liability claims. 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).
Closed Store Reserves
- ---------------------
For stores 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 projected from
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.
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 are recoverable from
their respective cash flows. If such review indicates an impairment exists, we
measure such impairment on a discounted basis.
We also review individual assets for impairment upon determination that
such assets will not be used for their intended useful life. During fiscal 2002,
we recorded impairment losses on property, plant and equipment of $18.9 million
($15.7 million in our U.S. Retail segment and $3.2 million in our Canada Retail
segment) related to stores that were or will be closed in the normal course of
business. Such amounts are included in "Store operating, general and
administrative expense" in our Consolidated Statements of Operations.
We also recorded impairment losses during the year ended February 24,
2001 related to the sale-leaseback transactions (see Note 14 - Sale-Leaseback
Transactions for further details).
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 fifty years and equipment based on lives varying
from three to ten years. Leasehold improvements are amortized over the lesser of
their estimated useful lives and 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 2002, 2001
and 2000, in addition to the impairment losses discussed above, we disposed of
and/or wrote down certain assets which resulted in a pretax net gain of $1.1
million, a pretax net loss of $0.3 million and a pretax net loss of $4.3
million, respectively.
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.
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.
We accrue for vested vacation pay earned by our employees. Liabilities for
compensated absences of $84.5 million and $81.5 million at February 22, 2003 and
February 23, 2002, respectively, are included in "Accrued salaries, wages and
benefits" on our Consolidated Balance Sheets.
Stock-Based Compensation
- ------------------------
We apply the intrinsic value-based method of accounting prescribed by
Accounting Principles Board Opinion No. 25 "Accounting for Stock Issued to
Employees" ("APB 25") with pro forma disclosure of compensation expense, net
income or loss and earnings per share as if the fair value based method
prescribed by SFAS 123, "Accounting for Stock-Based Compensation" ("SFAS
123") and SFAS 148, "Accounting for Stock-Based Compensation - Transition
and Disclosure" ("SFAS 148") 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 123 and SFAS 148, our net loss and net
loss per share would have been reduced to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
Fiscal 2002 Fiscal 2001 Fiscal 2000
---------------- --------------- ---------------
<S> <C> <C> <C>
Net loss, as reported $ (193,509) $ (71,906) $ (19,500)
Deduct/(Add): Stock-based employee
compensation income (expense)
included in reported net loss, net
of related tax effects 449 (449) -
Deduct: Total stock-based employee
compensation expense determined
under fair value based method
for all awards, net of related
tax effects (8,016) (5,408) (4,143)
------------ --------- ----------
Pro forma net loss $ (201,974) $ (76,865) $ (23,643)
============ ========= ==========
Net loss per share - basic and diluted:
As reported $ (5.03) $ (1.88) $ (0.51)
Pro forma $ (5.25) $ (2.00) $ (0.62)
</TABLE>
The pro forma effect on net loss and net loss per share may not be
representative of the pro forma effect in future years because it includes
compensation cost on a straight-line basis over the vesting periods of the
grants.
The fair value of the fiscal 2002, 2001 and 2000 option grants was
estimated on the date of grant using the Black-Scholes option-pricing model with
the following assumptions:
<TABLE>
<CAPTION>
Fiscal 2002 Fiscal 2001 Fiscal 2000
------------------ ------------------ ------------------
<S> <C> <C> <C>
Expected life 7 years 7 years 7 years
Volatility 47% 55% 60%
Dividend yield range 0% 0% 0%-4.60%
Risk-free interest rate range 3.33%-5.18% 4.07%-5.40% 4.94%-6.69%
</TABLE>
Comprehensive Loss
- ------------------
We have other comprehensive loss relating to changes in foreign
currency translation, minimum pension liability and unrealized gains or losses
on derivatives and securities held for sale.
Other comprehensive loss as of February 22, 2003, February 23, 2002 and
February 24, 2001 included:
<TABLE>
<CAPTION>
Deferred Tax
Gross (Provision) Benefit Net
------------------ ------------------- ------------------
<S> <C> <C> <C>
Foreign currency translation adjustment $ 15,363 $ - $ 15,363
Reclassification adjustment for gains
included in net loss (1,609) 676 (933)
Minimum pension liability adjustment (1,613) 74 (1,539)
Unrealized gain on derivatives 4,917 (1,902) 3,015
------------------ ------------------ ------------------
Balance at 2/22/03 $ 17,058 $ (1,152) $ 15,906
================== ================== ==================
Foreign currency translation adjustment $ (5,089) $ - $ (5,089)
Minimum pension liability adjustment (112) 47 (65)
Unrealized gain on securities held for sale 1,609 (676) 933
------------------ ------------------ ------------------
Balance at 2/23/02 $ (3,592) $ (629) $ (4,221)
================== ================== ==================
Foreign currency translation adjustment $ (14,802) $ - $ (14,802)
Minimum pension liability adjustment 4,856 (2,166) 2,690
------------------ ------------------ ------------------
Balance at 2/24/01 $ (9,946) $ (2,166) $ (12,112)
================== ================== ==================
</TABLE>
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.
New Accounting Pronouncements
- -----------------------------
In June 2001, the Financial Accounting Standards Board ("FASB") issued
SFAS 143, "Accounting For Asset Retirement Obligations" ("SFAS 143"). This
Statement addresses financial accounting and reporting for obligations
associated with the retirement of tangible long-lived assets and the associated
asset retirement costs. We are required to adopt the provisions of SFAS 143 at
the beginning of fiscal 2003. We have determined that the adoption of this
Statement will not have a material impact on our financial position or results
of operations.
In April 2002, the FASB issued SFAS 145, "Rescission of FASB Statements
4, 44 and 64, Amendment of FASB Statement 13, and Technical Corrections". SFAS
145 rescinds the provisions of SFAS 4 that requires companies to classify
certain gains and losses from debt extinguishments as extraordinary items,
eliminates the provisions of SFAS 44 regarding transition to the Motor Carrier
Act of 1980 and amends the provisions of SFAS 13 to require that certain lease
modifications be treated as sale leaseback transactions. The provisions of SFAS
145 related to classification of debt extinguishment are effective for fiscal
years beginning after May 15, 2002. In future periods, we will classify debt
extinguishment costs within income from operations and will reclassify
previously reported debt extinguishments as such. The provisions of SFAS 145
related to lease modification are effective for transactions occurring after May
15, 2002. We do not expect the provisions of SFAS 145 related to lease
modification to have a material impact on our financial position or results of
operations.
In November 2002, the EITF reached consensus on several issues related to
EITF 02-16, "Accounting by a Customer (including a Reseller) for Certain
Consideration Received from a Vendor". The Task Force reached a consensus that
in most cases, cash consideration received by a customer from a vendor is
presumed to be a reduction of the prices of the vendor's products or services
and should, therefore, be characterized as a reduction of cost of sales when
recognized in the customer's income statement. The Task Force also reached a
consensus that a rebate or refund of a specified amount of cash consideration
that is payable pursuant to a binding arrangement only if the customer completes
a specified cumulative level of purchases or remains a customer for a specified
time period should be recognized as a reduction of the cost of sales based on a
systematic and rational allocation of the cash consideration offered to each of
the underlying transactions that results in progress by the customer toward
earning the rebate or refund, provided the amounts are probable and reasonably
estimable. If the rebate or refund is not probable and reasonably estimable, it
should be recognized as the milestones are achieved. Prior to adopting this new
policy, we recognized advertising allowances against cost of goods sold when the
advertising was performed. This new EITF Issue requires that advertising
allowances be recognized when the advertising is performed and the inventory is
sold. As a result of this accounting change, pre-tax income was reduced by
$2.2 million in fiscal 2002 to record, as a reduction of inventory, advertising
allowances received attributable to products not yet sold.
In April 2003, the FASB issued SFAS 149, "Amendment of Statement 133 on
Derivative Instruments and Hedging Activities" ("SFAS 149"). SFAS 149 amends and
clarifies accounting for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities under SFAS
133. The new guidance amends SFAS 133 for decisions made: (a) as part of the
Derivatives Implementation Group process that effectively required amendments to
SFAS 133, (b) in connection with other Board projects dealing with financial
instruments, and (c) regarding implementation issues raised in relation to the
application of the definition of a derivative, particularly regarding the
meaning of an "underlying" and the characteristics of a derivative that contains
financing components. The amendments set forth in SFAS 149 improve financial
reporting by requiring that contracts with comparable characteristics be
accounted for similarly. SFAS 149 is generally effective for contracts entered
into or modified after June 30, 2003 (with a few exceptions) and for hedging
relationships designated after June 30, 2003. The guidance is to be applied
prospectively. We do not expect the provisions of SFAS 149 to have a material
impact on our financial position or results of operations.
Reclassifications
- -----------------
Certain reclassifications have been made to prior year amounts to conform
to current year presentation.
Note 2 -- Asset Disposition Initiative
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 including the exit of the Richmond, Virginia and Atlanta, Georgia
markets.
As of February 23, 2002, we closed all stores and facilities related to
this phase of the initiative. We paid $29 million of the total net severance
charges from the time of the original charges through February 22, 2003, which
resulted from the termination of approximately 3,400 employees. The remaining
severance liability primarily relates to future obligations for early
withdrawals from multi-employer union pension plans.
The following table summarizes the activity related to the aforementioned
charges over the last three fiscal years:
<TABLE>
<CAPTION>
Severance
and
Occupancy Benefits Total
----------- --------- -----
<S> <C> <C> <C>
Balance at
Feb. 24, 2001 $ 82,861 $ 2,721 $ 85,582
Addition 3,818 (1) - 3,818
Utilization (23,302) (2) (544) (23,846)
---------- -------- --------
Balance at
Feb. 23, 2002 63,377 2,177 65,554
Addition 3,159 (1) - 3,159
Utilization (13,616) (2) (370) (13,986)
Adjustment (3) (3,645) 639 (3,006)
---------- ---------- ----------
Balance at
Feb. 22, 2003 $ 49,275 $ 2,446 $ 51,721
========== ========== =========
(1) The additions to occupancy of $3.8 million and $3.2 million during
fiscal 2001 and 2002 represent the present value of accrued interest
related to lease obligations.
(2) Occupancy utilization of $23.3 million and $13.6 million during
fiscal 2001 and 2002 represent lease and other occupancy payments made
during those periods.
(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 2002, we recorded a reduction of $3.6 million in SG&A
expense related to this phase of the initiative. Further, we increased
our reserve for future minimum pension liabilities by $0.6 million to
better reflect expected future payouts under certain collective
bargaining agreements.
</TABLE>
At February 22, 2003, approximately $8.6 million of the reserve was
included in "Other accruals" and the remaining amount was included in "Other
non-current liabilities" in our Consolidated Balance Sheets.
Included in our Consolidated Statements of Operations are the operating
results of the 166 underperforming stores that we have exited. The operating
results of these stores are as follows:
<TABLE>
<CAPTION>
Fiscal 2002 Fiscal 2001 Fiscal 2000
------------- ------------- -------------
<S> <C> <C> <C>
Sales $ - $ 197 $ 678
======== ======= ==========
Operating loss $ - $ (108) $ (139)
======== ======= ==========
</TABLE>
During the third quarter of fiscal 2001, our Board of Directors approved
a plan resulting from our review of the performance and potential of each of our
businesses and individual stores. At the conclusion of this review, we
determined that certain underperforming operations, including 39 stores (30 in
the United States and 9 in Canada) and 3 warehouses should be closed and/or
sold and certain administrative streamlining should take place. As a result of
these decisions, we announced on November 14, 2001 that we would incur costs of
approximately $200 - $215 million pretax through fiscal 2002. The following
table details the amounts charged to our Consolidated Statements of Operations
since the announcement of this phase of the initiative:
<TABLE>
<CAPTION>
Fiscal 2002 Fiscal 2001
---------------------- ------------------
<S> <C> <C>
Cost of merchandise sold $ (1,263) (a) $ (3,888) (a)
Store operating, general and
administrative expense 4,651 (b) (189,580) (c)
-------------- -----------
Pretax credit (charge) $ 3,388 $ (193,468)
============== ===========
</TABLE>
(a) The amounts included in "Cost of merchandise sold" in our Consolidated
Statements of Operations were comprised solely of inventory markdowns that
were expensed as incurred.
(b) The pretax credit of $4.7 million included in "Store operating, general
and administrative expense" in our Consolidated Statements of Operations
for fiscal 2002 consisted of $10.7 million of net adjustments primarily
related to reversals of previously accrued amounts for vacancy related
costs and the recognition of a gain on the disposal of fixed assets in the
amount of $1.7 million partially offset by $4.1 million related to closing
costs that were expensed as incurred and $3.6 million related to
severance.
(c) Of the pretax charges of $189.6 million net included in "Store operating,
general and administrative expense" in our Consolidated Statements of
Operations for fiscal 2001, $80.8 million related to future vacancy costs,
$24.3 million related to net severance charges, $81.5 million related to
fixed asset and goodwill write-downs and $3.0 million related to closing
costs that were expensed as incurred.
To the extent fixed assets included in the items noted above could be
used in other continuing operations, we have or will transfer those assets as
needed. Fixed assets that we cannot transfer to other operations will be
scrapped. Accordingly, the write-down recorded during fiscal 2001 was based on
expected transfers.
Included in the $3.4 million net credit and $193.5 million net charge
recorded during fiscal 2002 and 2001, respectively, were other charges related
to the plan that were not accounted for in the reserve recorded on our
Consolidated Balance Sheets because they were expensed as incurred. Such costs
have been expensed as incurred while the asset disposition was being executed.
During fiscal 2002 and 2001, these costs amounted to $5.3 million and $8.7
million, respectively, which were primarily related to non-accruable closing
costs and inventory markdowns. Also included in the $193.5 million net charge
recorded during fiscal 2001 was a reversal of previously accrued severance and
benefits of $0.6 million related to a reduction in the severance payments
required to be made to certain store employees in Canada in accordance with
Ontario provincial law. During fiscal 2002, we recorded net adjustments of $10.7
million primarily related to reversals of previously accrued vacancy related
costs. Refer to note (3) in the table below. These costs for both years are
excluded from the table below, which represents only the reserve recorded on
our Consolidated Balance Sheets as well as the goodwill/fixed asset writedowns.
The following table summarizes the activity related to the aforementioned
reserve recorded on our Consolidated Balance Sheets since the announcement of
the charge in November 2001:
<TABLE>
<CAPTION>
Severance
and Goodwill/
Occupancy Benefits Fixed Assets Total
--------- --------- ------------ ------------
<S> <C> <C> <C> <C>
Original Charge $ 80,456 $ 23,435 $ 81,519 $ 185,410
Addition (1) 1,673 - - 1,673
Utilization (2) (1,806) (2,891) (81,519) (86,216)
Adjustment (3) - (584) - (584)
--------- --------- --------- -----------
Balance at
February 23, 2002 80,323 19,960 - 100,283
Addition (1) 4,090 3,544 - 7,634
Utilization (2) (20,387) (19,460) 776 (39,071)
Adjustment (3) (10,180) 250 (776) (10,706)
---------- --------- ---------- -----------
Balance at
February 22, 2003 $ 53,846 $ 4,294 $ - $ 58,140
========= ========= ========= ===========
</TABLE>
(1) The additions to occupancy of $1.7 million and $4.1 million during
fiscal 2001 and fiscal 2002 represent the present value of accrued
interest related to lease obligations. The addition to severance of
$3.5 million during fiscal 2002 related to retention and productivity
incentives that were accrued as earned.
(2) Occupancy utilization of $1.8 million and $20.4 million during fiscal
2001 and fiscal 2002 represents vacancy related payments for closed
locations. Severance utilization of $2.9 million and $19.5 million
during fiscal 2001 and fiscal 2002 represents payments made to
terminated employees during the period. Goodwill/fixed asset
utilization of $81.5 million during fiscal 2001 represents the
write-off of fixed assets of the operations to be discontinued and the
write-off of goodwill related to the Barn warehouse in Canada that was
deemed to be impaired.
(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. As a result, during fiscal 2001, we
recorded an adjustment to severance and benefits of $0.6 million
related to a reduction in the severance payments required to be made
to certain store employees in Canada. Under Ontario provincial law,
employees to be terminated as part of a mass termination are entitled
to receive compensation, either worked or paid as severance, for a set
period of time after the official notice date. Since such closures
took place later than originally expected, less time remained in the
aforementioned guarantee period. Further, during fiscal 2002, we
recorded net adjustments of $10.7 million primarily related to
reversals of previously accrued vacancy related costs due to the
following:
o Favorable results of assigning leases at certain locations of
$3.6 million;
o The decision to continue to operate one of the stores previously
identified for closure due to changes in the competitive
environment in the market in which that store is located of $3.3
million; and
o The decision to proceed with development at a site that we had
chosen to abandon at the time of the original charge due to
changes in the competitive environment in the market in which that
site is located of $3.3 million.
As of February 22, 2003, we paid approximately $22 million of the total
severance charge recorded, which resulted from the termination of approximately
1,100 employees. The remaining individual severance payments will be paid by the
end of fiscal 2003.
At February 22, 2003, approximately $10.7 million of the reserve was
included in "Other accruals" and the remaining amount was included in "Other
non-current liabilities" on our Consolidated Balance Sheets.
Included in our Consolidated Statements of Operations for fiscal 2002,
2001 and 2000 are the sales and operating results of the aforementioned stores
while they were open during the periods presented. The operating results of
these stores were as follows:
<TABLE>
<CAPTION>
Fiscal 2002 Fiscal 2001 Fiscal 2000
------------- ------------- -------------
<S> <C> <C> <C>
Sales $23,367 $266,802 $319,812
======= ======== ========
Operating loss $ (746) $(24,376) $(24,332)
========= ======== ========
</TABLE>
As of February 22, 2003, we had closed all of the aforementioned stores
except the one location in the United States at which we have decided to
continue operations and one location in Canada where the closing was
dependent upon the opening of another store in close proximity. This store
subsequently closed in March 2003.
Based upon current available information, we evaluated the reserve
balances as of February 22, 2003 of $51.7 million for the 1998 phase of the
asset disposition initiative and $58.1 million for the 2001 phase of the asset
disposition initiative and have concluded that they are adequate. We will
continue to monitor the status of the vacant properties and adjustments to the
reserve balances will be recorded in the future, if necessary.
Note 3 - Properties Held for Sale
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. Upon the announcement of the sale of these stores, we
applied the provisions of SFAS 144 "Accounting for the Impairment or Disposal of
Long-Lived Assets" ("SFAS 144") to these properties held for sale. SFAS 144
requires properties held for sale to be classified as a current asset and valued
on an asset-by-asset basis at the lower of carrying amount or fair value less
costs to sell. In applying those provisions, we considered the binding sale
agreements related to these properties as an estimate of the assets' fair value.
As a result, $22.1 million in net property, plant and equipment were
reclassified as of February 22, 2003, and included in "Prepaid expenses and
other current assets" on our Consolidated Balance Sheets. As of April 2003,
these stores were sold. Refer to Note 18 of our Consolidated Financial
Statements.
In accordance with the provisions of SFAS 144, the properties held
for sale included in "Prepaid expenses and other current assets" will no longer
be depreciated.
Note 4 - Inventory
Approximately 13% and 12% of our inventories are valued using the
last-in, first-out ("LIFO") method at February 22, 2003 and February 23, 2002.
Such inventories would have been $17.5 million and $18.6 million higher at
February 22, 2003 and February 23, 2002, respectively, if the retail and
first-in, first-out methods were used. We recorded LIFO credits of $1.1 million
in fiscal 2002 and $1.5 million in fiscal 2000 as compared to a LIFO charge of
$0.5 million in fiscal 2001. Liquidation of LIFO layers in the periods reported
did not have a significant effect on the results of operations.
Note 5 - Wholesale Franchise Business
We serviced 65 franchised stores as of February 22, 2003 and 67
franchised stores as of February 23, 2002 in Canada. These franchisees are
required to purchase inventory exclusively from the Company, which acts as a
wholesaler to the franchisees. During fiscal 2002, 2001 and 2000, we had
wholesale sales to these franchised stores of $713 million, $677 million and
$631 million, respectively. A majority of the franchised stores were converted
from our operated supermarkets. In addition, we sublease the stores and lease
the equipment in the stores to the franchisees. We also provide merchandising,
advertising, accounting and other consultative services to the franchisees for
which we receive a fee, which mainly represents the reimbursement of costs
incurred to provide such services.
Our Company holds as assets inventory notes collateralized by the
inventory in the stores and equipment lease receivables collateralized by the
equipment in the stores. The current portion of the inventory notes and
equipment leases, net of allowance for doubtful accounts, amounting to
approximately $3.6 million and $2.8 million, were included in "Accounts
receivable" on our Consolidated Balance Sheets at February 22, 2003 and February
23, 2002, respectively. The long-term portion of the inventory notes and
equipment leases totaling approximately $41.1 million and $44.8 million, were
included in "Other assets" on our Consolidated Balance Sheets at February 22,
2003 and February 23, 2002, respectively.
The repayment of the inventory notes and equipment leases are dependent
upon positive operating results of the stores. To the extent that the
franchisees incur operating losses, we establish an allowance for doubtful
accounts. We continually assess the sufficiency of the allowance on a store by
store basis based upon the operating results and the related collateral
underlying the amounts due from the franchisees. In the event of default by a
franchisee, we reserve the option to reacquire the inventory and equipment at
the store and operate the franchise as a corporate owned store.
Included below are the amounts due to our Company for the next five years
and thereafter from the franchised stores for equipment leases and inventory
notes. The current portion of such amounts is included in "Accounts receivable"
and the non-current portion is included in "Other assets" on our Consolidated
Balance Sheets.
<TABLE>
<CAPTION>
Equipment Inventory Allowance for
Leases Notes Doubtful Accounts Total
-------- --------- ------------------ ---------
<S> <C> <C> <C> <C>
Fiscal
------
2003 $ 8,475 $ 2,482 $(4,120) $ 6,837
2004 8,102 1,993 10,095
2005 8,823 1,595 10,418
2006 8,416 1,329 9,745
2007 5,465 1,329 6,794
2008 and thereafter 14,134 1,706 15,840
------- ------- ------- -------
53,415 10,434 (4,120) 59,729
Less interest portion (15,003) - - (15,003)
------- ------- ------- -------
Due from franchise business $38,412 $10,434 ($4,120) $44,726
======= ======= ======= =======
</TABLE>
For fiscal 2002, 2001 and 2000, approximately $2 million, $1 million and
$15 million, respectively, of the amounts due from franchisees relate to
equipment leases which were non-cash transactions and, accordingly, have been
excluded from our Consolidated Statements of Cash Flows.
Refer to Note 12 - Commitments and Contingencies regarding our pending
class action lawsuit relating to our Canadian franchise business.
Note 6 - Indebtedness
Debt consists of the following:
<TABLE>
<CAPTION>
February 22, February 23,
2003 2002
--------------- ----------------
<S> <C> <C>
9.375% Notes, due August 1, 2039 $ 200,000 $ 200,000
9.125% Senior Notes, due December 15, 2011 230,500 275,000
7.75% Notes, due April 15, 2007 229,265 280,000
7.70% Senior Notes, due January 15, 2004 22,100 22,100
Deferred gain from termination of interest rate swaps 10,008 -
Fair value adjustment of hedged debt - 992
Mortgages and Other Notes, due 2003 through 2018
(average interest rates at year end of 7.58% and
7.62%, respectively) 3,204 3,387
U.S. Bank borrowings at 4.125% 135,000 -
Less unamortized discount on 7.75% Notes (980) (1,513)
----------- -----------
829,097 779,966
Less current portion of long-term debt (25,820) (526)
----------- -----------
Long-term debt $ 803,277 $ 779,440
=========== ===========
</TABLE>
At February 22, 2003, we had a $425 million secured revolving credit
agreement (as amended, the "Secured Credit Agreement") with a syndicate of
lenders enabling us to borrow funds on a revolving basis sufficient to refinance
short-term borrowings and provide working capital as needed. This agreement is
comprised of a U.S. credit agreement amounting to $340 million and a Canadian
credit agreement amounting to $85 million (C$128 million at February 22, 2003)
and is collateralized primarily by inventory and company-owned real estate.
Under the Secured Credit Agreement, $40 million of the loan commitments expire
in December 2003 and $385 million of the loan commitments expire in June 2005.
As of February 22, 2003, we had $135 million of borrowings under the
Secured Credit Agreement which are classified as non-current as we have the
ability to refinance these borrowings on a long-term basis. Accordingly, as of
February 22, 2003, after reducing availability for outstanding letters of credit
and inventory requirements, we had $130 million available under the Secured
Credit Agreement. Borrowings under the agreement bear interest based on LIBOR
and Prime interest rate pricing.
Our loan agreements and certain notes contain various financial
covenants, which require among other things, minimum fixed charge coverage
(compares EBITDA plus rent with interest plus rents) and levels of leverage
(compares EBITDA with outstanding indebtedness under the agreement) and capital
expenditures. On February 21, 2003, we amended the Secured Credit Agreement in
order to allow for greater flexibility for fiscal year 2003. The amendment is
effective through and including the first quarter of fiscal year 2004 and
includes, among other things, a change to the fixed coverage ratio from 1.4 to
1.15, a senior secured leverage ratio of 1.80, a waiver of the total leverage
ratio, a minimum EBITDA level, and a limitation on capital expenditures. Certain
of the covenants are impacted by the amount of proceeds we receive from asset
sales. At February 22, 2003, we were in compliance with all of our covenants.
During fiscal 2002, we repurchased in the open market $51 million of our
7.75% Notes due April 15, 2007 and $45 million of our 9.125% Notes due December
15, 2011. The cost of these open market repurchases resulted in a net
extraordinary gain due to the early extinguishment of debt of $12.2 million.
Under the recently amended Secured Credit Agreement, we are restricted from
entering into additional bond repurchases.
On December 14, 2001, we issued $275 million 9.125% Senior Notes due
December 15, 2011. These notes pay interest semi-annually on June 15 and
December 15 and are callable beginning December 15, 2006. We used the proceeds
from the issuance of these notes to repay approximately $178 million of the
total $200 million 7.70% Senior Notes due January 15, 2004 and for general
corporate purposes including repayment of borrowings under our secured revolving
credit agreement. The repayment of approximately $178 million of the 7.70%
Senior Notes due January 15, 2004 took place in the form of a tender offer
whereby we paid a 6.25% premium to par. In addition, we repurchased in the open
market $20 million of our 7.75% Notes due April 15, 2007. The net cost of this
tender and open market repurchase resulted in an extraordinary loss due to the
early extinguishment of debt of $7.2 million after tax ($12.5 million pretax).
During fiscal 2001, we entered into an interest rate hedging agreement
with a commercial bank with a notional amount of $50 million maturing on April
15, 2007. This hedging agreement was designated as a fair value hedging
instrument and effectively converted a portion of our 7.75% Notes due April 15,
2007 from fixed rate debt to floating rate debt. There were no ineffective
changes in fair value of this hedging agreement. For the fiscal year ended
February 23, 2002, this hedging agreement reduced borrowing costs by $0.2
million and had a fair value of $1.0 million at February 23, 2002. During fiscal
2002, we entered into additional interest rate hedging agreements with notional
amounts totaling $100 million maturing on April 15, 2007. These hedging
agreements effectively converted an additional portion of the Company's 7.75%
Notes due April 15, 2007 from fixed rate debt to floating rate debt which
averaged 4.0%. There were no ineffective changes in fair value of these hedging
agreements. In January 2003, these hedging instruments were terminated,
resulting in a gain of $10.2 million. This gain has been deferred and is being
amortized as an offset to interest expense over the life of the underlying debt
instrument. Such amount is classified as "Long-term debt" on our Consolidated
Balance Sheets.
As of February 22, 2003 and February 23, 2002, we had no borrowings under
uncommitted lines of credit.
The net book value of real estate pledged as collateral for all mortgage
loans amounted to $3.2 million and $1.0 million at February 22, 2003 and
February 23, 2002, respectively. The net book value of real estate pledged as
collateral for our $425 million Secured Credit Agreement amounted to $82.9
million and $85.7 million at February 22, 2003 and February 23, 2002,
respectively.
We currently have active Registration Statements dated January 23, 1998 and
June 23, 1999, allowing us to offer up to $75 million of debt and/or equity
securities as of February 22, 2003 at terms determined by market conditions at
the time of sale.
Maturities for the next five fiscal years and thereafter are: 2003 -
$25.8 million; 2004 - $2.3 million; 2005 - $137.2 million; 2006 - $2.2 million;
2007 - $229.7 million; 2008 and thereafter - . $431.9 million. Interest payments
on indebtedness were approximately $68 million for fiscal 2002, $60 million for
fiscal 2001 and $80 million for fiscal 2000.
Note 7 - Fair Value of Financial Instruments
The estimated fair values of our financial instruments are as follows:
<TABLE>
<CAPTION>
February 22, 2003 February 23, 2002
------------------------------ ------------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Interest Rate Swap $ - $ - $ 992 $ 992
9.375% Notes, due August 1, 2039 (200,000) (135,600) (200,000) (190,800)
9.125% Senior Notes, due December 15, 2011 (230,500) (186,705) (275,000) (283,250)
7.75% Notes, due April 15, 2007 (228,285) (182,628) (279,479) (272,492)
7.70% Senior Notes, due January 15, 2004 (22,100) (21,216) (22,100) (22,874)
Mortgages and Other Notes, due 2003
through 2018 (3,204) (3,204) (3,387) (3,387)
U.S. Bank borrowings at 4.125% (135,000) (135,000) - -
</TABLE>
Fair value for the public debt securities is based on quoted market
prices. As of February 22, 2003 and February 23, 2002, 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.
Note 8 - 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.
The Consolidated Balance Sheets include the following:
<TABLE>
<CAPTION>
February 22, February 23,
2003 2002
--------------- ----------------
<S> <C> <C>
Property under capital leases $ 178,491 $193,568
Accumulated amortization (106,685) (116,768)
----------- ---------
Net property under capital leases $ 71,806 $ 76,800
=========== ========
</TABLE>
During fiscal 2002 and fiscal 2000, we entered into new capital leases
totaling $9 million and $7 million, respectively. During fiscal 2001, we did not
enter into any new capital leases. These capital lease amounts are non-cash
transactions and, accordingly, have been excluded from the Consolidated
Statements of Cash Flows. Interest paid as part of capital lease obligations was
approximately $11 million in fiscal 2002, $13 million in fiscal 2001 and $14
million in fiscal 2000.
Rent expense for operating leases during the last three fiscal years
consisted of the following:
<TABLE>
<CAPTION>
Fiscal 2002 Fiscal 2001 Fiscal 2000
---------------- --------------- ---------------
<S> <C> <C> <C>
Minimum rentals $ 273,396 $ 249,509 $ 219,113
Contingent rentals 4,551 4,126 3,777
----------- ----------- -----------
Total rent expense $ 277,947 $ 253,635 $ 222,890
=========== =========== ===========
</TABLE>
Future minimum annual lease payments for capital leases and noncancelable
operating leases in effect at February 22, 2003 are shown in the table below.
All amounts are exclusive of lease obligations and sublease rentals applicable
to facilities for which reserves have previously been established. In addition,
we sublease 65 stores to the franchise business. Included in the operating lease
column in the table below are the rental payments to be made by our Company
partially offset by the rental income to be received from the franchised stores.
<TABLE>
<CAPTION>
Capital Operating
Fiscal Leases Leases
------ ------------- -------------
<S> <C> <C> <C>
2003 $ 23,196 $ 265,511
2004 22,337 253,736
2005 14,104 245,905
2006 12,599 239,429
2007 11,008 231,721
2008 and thereafter 107,222 2,252,444
------------ -------------
190,466 $ 3,488,746
=============
Less executory costs (443)
------------
Net minimum rentals 190,023
Less interest portion (92,751)
------------
Present value of net minimum rentals $ 97,272
============
</TABLE>
During fiscal 2000 an agreement was entered into which provided financing
for software purchases and hardware leases up to $71 million in the aggregate
primarily relating to the business process initiative. At that time, software
purchases and hardware leases were to be financed at an effective rate of 8.49%
per annum, were to occur from time to time through 2004 and were to have equal
monthly payments of $1.4 million. In May 2001, the agreement was amended to
include only hardware leases. The amounts previously funded relating to software
purchases of approximately $29 million were to be repaid over the next several
months. Accordingly, as of February 23, 2002, substantially all of this balance
had been repaid. Additionally, the monthly payment amount was amended to reflect
expected utilization related to hardware leases. As of February 23, 2002,
approximately $30 million had been funded related to hardware leases. Future
payments related to these leases are included in the future minimum annual lease
payments table. There will be no further funding under this agreement. The
leasing of the hardware under this agreement is being accounted for as an
operating lease in accordance with SFAS 13, "Accounting for Leases".
Note 9 - Income Taxes
The components of (loss) income before income taxes and extraordinary
item are as follows:
<TABLE>
<CAPTION>
Fiscal 2002 Fiscal 2001 Fiscal 2000
---------------- --------------- ---------------
<S> <C> <C> <C>
United States $ (135,737) $ (151,556) $ (66,035)
Canada 66,213 43,282 35,799
----------- ------------ -----------
Total $ (69,524) $ (108,274) $ (30,236)
============ ============ ============
</TABLE>
The (provision for) benefit from income taxes before extraordinary item
consists of the following:
<TABLE>
<CAPTION>
Fiscal 2002 Fiscal 2001 Fiscal 2000
---------------- --------------- ---------------
<S> <C> <C> <C>
Current:
Federal $ 24,166 $ - $ -
Canadian (1,162) (708) (531)
State and local (3,104) (3,000) (3,000)
----------- ---------- ----------
19,900 (3,708) (3,531)
----------- ---------- ----------
Deferred:
Federal 18,102 47,654 21,565
Canadian (24,852) (19,336) (16,372)
State and local 17,273 18,980 9,074
U.S. valuation allowance (166,589) - -
------------ ---------- ----------
(156,066) 47,298 14,267
------------ ---------- ----------
(Provision for) benefit from income taxes $ (136,166) $ 43,590 $ 10,736
============ ========== ==========
</TABLE>
The deferred income tax (provision) benefit 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 2002, the
U.S. valuation allowance.
The deferred tax provision recorded in fiscal 2002 for our Canadian
operations of approximately $24.9 million reflects the utilization of $12.0
million of NOL carryforwards and other temporary differences.
The deferred tax provision recorded in fiscal 2002 for our U.S. operations
of approximately $131.2 million, net mainly relates to NOL carryforwards and the
U.S. related valuation allowance. In accordance with SFAS 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. Based upon our continued assessment of the realization of our U.S. net
deferred tax asset and historic cumulative losses, and in particular, the
significant increase in U.S. operating losses during the second quarter of
fiscal 2002, we concluded that it was appropriate to establish a full valuation
allowance for our U.S. net deferred tax asset in the amount of $133.7 million
during the second quarter of fiscal 2002. During the remainder of fiscal 2002,
the valuation allowance was increased by $32.9 million, totaling $166.6 million
for the fiscal year. In future periods, U.S. losses will not be tax effected
until such time as the certainty of future tax benefits can be reasonably
assured. 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.
As of February 22, 2003, we had NOL carryforwards of approximately $439
million from our U.S. operations, which will expire between February 2019 and
February 2023.
We have not recorded deferred income taxes on the undistributed earnings of
our foreign subsidiaries because of our intent to indefinitely reinvest such
earnings. At February 22, 2003, the undistributed earnings of the foreign
subsidiaries amounted to approximately $183.2 million. Upon distribution of
these earnings in the form of dividends or otherwise, we may be subject to U.S.
income taxes and foreign withholding taxes. It is not practical, however, to
estimate the amount of taxes that might be payable on the eventual remittance of
these earnings.
A reconciliation of income taxes before extraordinary item at the 35%
federal statutory income tax rate for fiscal 2002, 2001 and 2000 to income taxes
as reported is as follows:
<TABLE>
<CAPTION>
Fiscal 2002 Fiscal 2001 Fiscal 2000
---------------- --------------- ---------------
<S> <C> <C> <C>
Income tax benefit computed
at federal statutory income tax rate $ 24,333 $ 37,899 $ 10,583
State and local income taxes, net of
federal tax benefit 9,210 10,532 3,948
Tax rate differential relating
to Canadian operations (2,836) (4,896) (4,373)
Goodwill and other permanent differences (284) 55 578
U.S. valuation allowance (166,589) - -
------------ ---------- ----------
Income tax (provision) benefit, as reported $ (136,166) $ 43,590 $ 10,736
============ ========== ==========
</TABLE>
Income tax refunds, net of income tax payments for fiscal 2002, were
approximately $10.0 million. Income tax payments, net of income tax refunds, for
fiscal 2001 and 2000 were approximately $0.2 million and $2.2 million,
respectively.
The components of net deferred tax assets (liabilities) are as follows:
<TABLE>
<CAPTION>
February 22, February 23,
2003 2002
------------- -------------
<S> <C> <C>
Current assets:
Insurance reserves $ 25,533 $ 26,481
Other reserves and accrued benefits 43,813 47,299
Accrued postretirement and postemployment benefits 756 756
Lease obligations 775 899
Pension obligations 3,188 2,030
Miscellaneous 5,181 4,290
------------- -------------
79,246 81,755
------------- -------------
Current liabilities:
Inventories (8,736) (8,815)
Health and welfare (8,267) (8,840)
Miscellaneous (2,304) (2,677)
-------------- -------------
(19,307) (20,332)
-------------- -------------
Valuation allowance (58,312) -
-------------- -------------
Deferred income taxes included in prepaid expenses and
other current assets $ 1,627 $ 61,423
============= =============
Non-current assets:
Alternative minimum tax credits $ 31,984 $ 7,500
Other reserves including asset disposition charges 75,828 113,880
Lease obligations 8,387 9,473
NOL carryforwards 181,938 168,345
Insurance reserves 16,800 15,539
Accrued postretirement and postemployment benefits 23,535 25,938
Pension obligations 11,293 9,494
Step rents 24,066 22,095
Miscellaneous 2,736 4,742
------------- -------------
376,567 377,006
------------- -------------
Non-current liabilities:
Depreciation (255,683) (266,159)
Pension obligations (19,927) (16,747)
Unrealized gain on derivatives (1,902) -
Miscellaneous (2,375) (2,430)
-------------- -------------
(279,887) (285,336)
-------------- -------------
Valuation allowance (103,182) -
-------------- -------------
Net non-current deferred income tax (liability) asset $ (6,502) $ 91,670
============== =============
The net non-current deferred tax asset and liability is recorded on the Consolidated Balance Sheets as follows:
February 22, February 23,
2003 2002
------------- -------------
Other assets $ - $ 91,670
Non-current liability (6,502) -
-------------- -------------
Net non-current deferred income tax (liability) asset $ (6,502) $ 91,670
============== =============
</TABLE>
Note 10 - Retirement Plans and Benefits
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.
The components of net pension (income) cost were as follows:
<TABLE>
<CAPTION>
2002 2001 2000
------------------------ --------------------- ---------------------
U.S. Canada U.S. Canada U.S. Canada
----------- ---------- -------- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Service cost $ 3,344 $ 5,416 $ 4,023 $ 4,656 $ 3,818 $ 4,199
Interest cost 9,372 9,753 9,659 9,386 9,236 9,956
Expected return on plan assets (12,057) (14,827) (12,627) (14,489) (11,243) (14,186)
Amortization of unrecognized net asset (13) (665) (13) (749) (454) (801)
Amortization of unrecognized net prior
service cost 292 294 291 293 604 306
Amortization of unrecognized net
actuarial gain (1,473) (47) (1,865) (135) (1,333) (99)
Curtailments and settlements - - - - - 668
Administrative expenses and other - 215 - 569 - -
--------- ---------- -------- -------- --------- ---------
Net pension (income) cost $ (535) $ 139 $ (532) $ (469) $ 628 $ 43
========= ========== ========= ========= ========= =========
</TABLE>
Our U.S. defined benefit pension plans are accounted for on a fiscal year
basis, while our Canadian defined benefit pension plans are accounted for on a
calendar year basis. The majority of plan assets is invested in stocks and
bonds. The following tables set forth the change in benefit obligations and
change in plan assets for fiscal 2002 and 2001 for our defined benefit plans:
<TABLE>
<CAPTION>
2002 2001
--------------------------- ---------------------------
Change in Benefit Obligation U.S. Canada U.S. Canada
---------------------------- ----------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Benefit obligation - beginning of year $ 139,985 $ 150,895 $ 134,071 $ 140,548
Service cost 3,344 5,416 4,023 4,656
Interest cost 9,372 9,753 9,659 9,386
Actuarial loss 6,409 2,737 4,362 10,287
Benefits paid (13,194) (9,214) (12,924) (8,788)
Amendments - - 794 -
Termination benefits - - - 361
Effect of exchange rate - 9,497 - (5,555)
---------- --------- ----------- -----------
Benefit obligation - end of year $ 145,916 $ 169,084 $ 139,985 $ 150,895
========== ========= =========== ===========
Change in Plan Assets
---------------------
Plan assets at fair value - beginning of year $ 157,974 $ 176,396 $ 155,657 $ 191,123
Actual return on plan assets (2,230) (6,852) 13,436 (115)
Company contributions 2,007 6,059 1,805 1,086
Benefits paid (13,194) (9,214) (12,924) (8,788)
Effect of exchange rate - 10,362 - (6,910)
---------- --------- ----------- -----------
Plan assets at fair value - end of year $ 144,557 $ 176,751 $ 157,974 $ 176,396
========== ========= =========== ===========
Amounts recognized on our Consolidated Balance Sheets consisted of the following:
2002 2001
--------------------------- ---------------------------
U.S. Canada U.S. Canada
----------- ---------- ----------- -----------
Plan assets in excess of projected benefit obligation $ (1,359) $ 7,667 $ 17,989 $ 25,501
Unrecognized net transition asset (26) (401) (39) (1,029)
Unrecognized prior service cost 554 1,518 840 1,718
Unrecognized net actuarial (gain) loss (13,296) 35,207 (35,459) 9,492
---------- --------- ----------- -----------
Total recognized on the Consolidated Balance Sheets $ (14,127) $ 43,991 $ (16,669) $ 35,682
========== ========= =========== ===========
2002 2001
--------------------------- ---------------------------
U.S. Canada U.S. Canada
----------- ---------- ----------- -----------
Prepaid benefit cost $ 16,028 $ 43,991 $ 12,123 $ 35,682
Accrued benefit liability (32,548) - (29,963) -
Intangible asset 752 - 995 -
Accumulated other comprehensive income 1,641 - 176 -
---------- --------- ----------- -----------
Total recognized on the Consolidated
Balance Sheets $ (14,127) $ 43,991 $ (16,669) $ 35,682
========== ========= =========== ===========
</TABLE>
Plans with accumulated benefit obligation in excess of plan assets
consisted of the following and only relate to U.S. plans:
<TABLE>
<CAPTION>
2002 2001
------------- -------------
<S> <C> <C>
Accumulated benefit obligation $ 26,237 $ 45,192
Projected benefit obligation $ 26,289 $ 45,894
Plan assets at fair value $ 335 $ 19,709
</TABLE>
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".
At February 22, 2003 and February 23, 2002, 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 reduced by $1.5 million and $0.1 million, respectively.
During the year ended February 25, 1995, our Canadian subsidiary and the
United Food & Commercial Workers International Union, Locals 175 and 633,
entered into an agreement that resulted in the amalgamation of three of our
Canadian defined benefit pension plans with the Canadian Commercial Workers
Industry Pension Plan ("CCWIPP"), retroactive to July 1, 1994. The agreement was
subject to the approval of the CCWIPP trustees and the appropriate regulatory
bodies. During fiscal 2000, the Company received final approval of the
agreement. Under the terms of this agreement, for the year ended February 24,
2001, CCWIPP assumed the assets and defined benefit liabilities of the three
pension plans. Further, we are required to make defined contributions to CCWIPP
based upon hours worked by employees who are members of CCWIPP and to the extent
assets transferred exceeded liabilities assumed, we received a funding holiday
from CCWIPP for such defined contributions. As a result of this transfer, during
fiscal 2000, we recorded a $0.4 million net expense and a $2.7 million
adjustment to the minimum pension liability.
Actuarial assumptions used to determine year-end plan status are as
follows:
<TABLE>
<CAPTION>
2002 2001
----------------------- -----------------------
U.S. Canada U.S. Canada
-------- ------ ------- ------
<S> <C> <C> <C> <C>
Weighted average discount rate 6.50% 6.50% 7.00% 6.50%
Weighted average rate of compensation increase 3.50% 4.00% 4.00% 4.00%
Expected long-term rate of return on plan assets 7.50% 8.50% 8.00% 8.50%
</TABLE>
The expected long-term rate of return on plan assets for fiscal 2003 is 7.50%.
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 approximately $12.6 million, $12.3 million and $11.3 million
in fiscal years 2002, 2001 and 2000, 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 $40.3
million, $37.5 million and $35.3 million in fiscal 2002, 2001 and 2000,
respectively. We could, under certain circumstances, be liable for unfunded
vested benefits or other expenses of jointly administered union/management
plans. At this time, we have not established any liabilities for future
withdrawals because such withdrawals from these plans are not probable and the
amount cannot be estimated.
Postretirement Benefits
We provide postretirement health care and life benefits to certain union
and non-union employees. We recognize the cost of providing postretirement
benefits during employees' active service period. These benefits are accounted
for on a calendar year basis.
The components of net postretirement benefits cost (income) are as
follows:
<TABLE>
<CAPTION>
52 Weeks Ended
----------------------------------------------------
December 31, December 31, December 31,
U.S. Plans 2002 2001 2000
---------- ----------------- ---------------- -----------------
<S> <C> <C> <C>
Service cost $ 351 $ 284 $ 258
Interest cost 1,419 1,481 1,308
Prior service cost (1,347) (1,347) (1,347)
Amortization of gain (322) (445) (848)
----------- ----------- -----------
Net postretirement benefits cost (income) $ 101 $ (27) $ (629)
========== =========== ===========
52 Weeks Ended
----------------------------------------------------
December 31, December 31, December 31,
Canadian Plans 2002 2001 2000
-------------- ----------------- ---------------- ---------------
Service cost $ 302 $ 281 $ 229
Interest cost 885 884 752
Prior service cost (33) (33) -
Amortization of loss 292 322 156
---------- ----------- -----------
Net postretirement benefits cost $ 1,446 $ 1,454 $ 1,137
========== =========== ===========
</TABLE>
The unfunded status of the plans is as follows:
<TABLE>
<CAPTION>
December 31, 2002 December 31, 2001
--------------------------- ----------------------------
U.S. Canada U.S. Canada
----------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Unfunded accumulated benefit obligation
at beginning of year $ 21,975 $ 13,164 $ 20,624 $ 13,089
Service cost 351 302 284 281
Interest cost 1,419 885 1,481 884
Benefits paid (1,912) (737) (1,747) (501)
Actuarial (gain) loss (841) 310 1,333 (93)
Foreign exchange - 829 - (496)
----------- ------------- ------------- --------------
Accumulated benefit obligation at end
of year 20,992 14,753 21,975 13,164
Unrecognized net loss (gain) from
experience differences 7,746 (5,693) 7,227 (5,706)
Unrecognized prior service cost 10,511 453 11,858 459
----------- ------------- ------------- -------------
Accrued postretirement benefit costs at
end of year $ 39,249 $ 9,513 $ 41,060 $ 7,917
=========== ============= ============= =============
Assumed discount rate 6.5% 6.5% 6.75% 6.75%
=========== ============= ============= =============
</TABLE>
The assumed rate of future increase in health care benefit cost for fiscal
2003 was 12.0% - 14.0% and is expected to decline to 5.5% by the year 2020 and
remain at that level thereafter. 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 increase by $0.2 million or decrease by $0.1 million, while
the accumulated postretirement benefit obligation would either increase by $1.4
million or decrease by $1.2 million.
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 in the period ended February 22, 2003. As of February 22, 2003
and February 23, 2002, we had a liability reflected on the Consolidated Balance
Sheets of $22.8 million and $24.7 million, respectively, related to such
benefits.
Note 11 - Stock Options
At February 22, 2003, we had four stock-based compensation plans. We apply
the principles of APB 25 for stock options and FASB Interpretation No. 28 for
Stock Appreciation Rights ("SAR's"). SAR's allow the holder, in lieu of
purchasing stock, to receive cash in an amount equal to the excess of the fair
market value of common stock on the date of exercise over the option price.
Effective July 13, 1999, the Board of Directors and stockholders approved
the 1998 Long Term Incentive and Share Award Plan (the "1998 Plan") for our
Company's officers and key employees. The 1998 Plan provides for the granting of
5,000,000 shares as options, SAR's or stock awards.
Our 1994 Stock Option Plan (the "1994 Plan") for officers and key
employees provided for the granting of 1,500,000 shares as either options or
SAR's. The 1984 Stock Option Plan for officers and key employees, which expired
on February 1, 1994, provided for the granting of 1,500,000 shares and was
amended as of July 10, 1990 to increase the number of options available for
grant by 1,500,000 as either options or SAR's.
The 1994 Stock Option Plan for Board of Directors (the "1994 Board of
Directors' Plan") provides for the granting of 100,000 stock options at the fair
market value of our common stock at the date of grant. Options granted under
this plan totaled 4,000 in fiscal 2002, and 8,000 in both fiscal 2001 and fiscal
2000. At February 22, 2003, there were 66,767 options available for grants under
this plan.
Options and SAR's issued under all of our plans are granted at the fair
market value of our common stock at the date of grant. Options and SAR's
issued under the 1994 Plan and the 1998 Plan vest over a four year period on
the anniversary date of issuance, while options issued under the 1994 Board of
Directors' Plan vest over a three year period on the anniversary date of
issuance. In fiscal 2002, options granted under the 1998 Plan and the 1994 Plan
totaled 1,562,065 and 512,400, respectively. There were no SAR's granted during
fiscal 2002. At February 22, 2003, there were 1,206,227 options available for
granting under the 1998 Plan. There were no options available for granting under
the 1994 Plan.
With respect to SAR's, for fiscal 2002 we recognized a $0.5 million
credit to reverse previously accrued SAR compensation charges due to the decline
in our stock price. For fiscal 2001, we recognized compensation expense of $0.5
million due to a rise in our stock price. For fiscal 2000, no expense was
recorded due to the decline in our stock price. There was no compensation
expense recognized for the other plans since the exercise price of the stock
options equaled the fair market value of our common stock on the date of grant.
A summary of option transactions is as follows:
Officers, Key Employees and Directors
-------------------------------------
<TABLE>
<CAPTION>
Weighted
Average
Shares Price
------------- ---------
<S> <C> <C>
Outstanding February 26, 2000 2,023,950 $ 30.30
Granted 1,498,550 16.11
Cancelled or expired (277,836) 26.88
------------- ---------
Outstanding February 24, 2001 3,244,664 $ 24.04
Granted 1,506,513 9.48
Cancelled or expired (419,780) 25.61
Exercised (20,412) 14.85
------------- ---------
Outstanding February 23, 2002 4,310,985 $ 18.84
Granted 2,078,465 13.17
Cancelled or expired (1,240,769) 17.75
Exercised (148,178) 18.94
-------------- ---------
Outstanding February 22, 2003 5,000,503 $ 16.75
============= =========
Exercisable at:
February 23, 2002 1,393,561 $ 26.97
February 22, 2003 1,665,327 $ 23.99
</TABLE>
The weighted average fair values of options granted during the last three
fiscal years are as follows:
Fiscal 2000 $ 8.80
Fiscal 2001 $ 5.77
Fiscal 2002 $ 7.18
A summary of stock options outstanding and exercisable at February 22,
2003 is as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Weighted
Options Average Weighted Options Weighted
Average Range Outstanding Remaining Average Exercisable Average
of Grant at Contractual Grant at Grant
Prices 2/22/03 Life Price 2/22/03 Price
------------------------ ------------- ------------- -------------- ------------- -------------
$ 4.89 - $ 8.94 1,029,400 9.8 years $ 5.45 39,125 $ 7.78
$ 9.06 - $10.66 1,046,104 8.1 years $ 9.09 216,731 $ 9.11
$11.63 - $16.31 64,500 8.7 years $ 14.26 13,334 $ 14.25
$17.38 - $19.80 1,476,724 8.2 years $ 17.72 393,693 $ 17.96
$21.50 - $30.00 600,350 5.6 years $ 27.62 358,350 $ 27.59
$30.25 - $31.75 448,149 5.8 years $ 31.38 383,147 $ 31.35
$32.31 - $37.00 335,276 6.3 years $ 32.61 260,947 $ 32.64
------------ ------ ---------- --------
5,000,503 $ 16.75 1,665,327 $23.99
============ ======= ========== ========
</TABLE>
A summary of SAR transactions is as follows:
Officers and Key Employees
- --------------------------
<TABLE>
<CAPTION>
Price Range
Shares Per Share
------------ -------------------
<S> <C> <C>
Outstanding February 26, 2000 882,762 $ 21.88 - $52.38
Cancelled or expired (375,000) 24.75 - 52.38
------------ -------------------
Outstanding February 24, 2001 507,762 $ 21.88 - $45.38
Cancelled or expired (265,625) 23.38 - 24.75
Exercised (9,375) 23.38 - 45.38
------------ -------------------
Outstanding February 23, 2002 232,762 $ 21.88 - $31.63
Cancelled or expired (84,000) 23.38 - 27.25
Exercised (16,887) 21.88 - 24.75
------------ -------------------
Outstanding February 22, 2003 131,875 $ 23.38 - $31.63
============ ===================
Exercisable at:
February 23, 2002 232,762 $ 21.88 - $31.63
February 22, 2003 131,875 $ 23.38 - $31.63
</TABLE>
Note 12 - Commitments and Contingencies
In May of 1999, four present and former employees of The Food Emporium
filed suit against the Company in federal court in New York for unpaid wages and
overtime. In April 2000, the judge certified the case as a class action status
for this case covering approximately 82 stores in 9 counties in the New York
metropolitan area. Approximately 840 current and former full and part-time
employees of The Food Emporium and A&P opted into the class. In April 2003, the
Company filed a Motion to Decertify the Collective Action under the Fair Labor
Standards Act.
On January 13, 2000, the Attorney General of the State of New York filed
an action in New York Supreme Court, County of New York, alleging that we and
our subsidiary Shopwell, Inc., together with our outside delivery service
Chelsea Trucking, Inc., violated New York law by failing to pay minimum and
overtime wages to individuals who deliver groceries at one of the Food
Emporium's stores in New York City. The complaint sought a determination of
violation of law, an unspecified amount of restitution, an injunction and costs.
A purported class action lawsuit was filed on January 13, 2000 in the federal
district court for the Southern District of New York against our Company,
Shopwell, Inc. and others by Faty Ansoumana and others. The federal court action
made similar minimum wage and overtime pay allegations under both federal and
state law and extends the allegations to various stores operated by our Company.
In May 2001, the federal court granted plaintiffs' motion for certification of a
class action. On September 18, 2002, the plaintiffs, the Attorney General and
our Company entered into a Stipulation and Agreement of Settlement pursuant to
which we would pay approximately $3.3 million in full settlement of the actions
and would receive releases from the class and the Attorney General and the
actions would be dismissed with prejudice. On January 23, 2003, the federal
district court entered an order and final judgment approving the settlement and
dismissing the action against our Company. On March 17, 2003, the Attorney
General and our Company filed a Stipulation of Discontinuance in New York
Supreme Court, dismissing with prejudice the Attorney General's action against
our Company. We have made the full payment required by the settlement
agreement.
In April 2002, three Canadian Food Basics franchisees commenced a
breach of contract action in a Canadian court against The Great Atlantic &
Pacific Company of Canada, Limited ("A&P Canada") as representative plaintiffs
for a purported class of approximately 70 current and former Canadian Food
Basics franchisees. The lawsuit seeks unspecified damages in connection with A&P
Canada's alleged failure to distribute to the franchisees the full amount of
vendor allowances and/or rebates to which the franchisees claim they are
entitled under the operative franchise agreements. A&P Canada disputes the
plaintiff-franchisees' claim and has filed a counterclaim seeking to recover
subsidies made by it to the plaintiffs. The lawsuit was certified as a class
action in December 2002. The majority of the potential class members have opted
out of this class proceeding. A&P Canada has obtained leave to appeal the class
certification order and is proceeding with the appeal.
On June 5, 2002, a purported securities class action Complaint was filed
in the United States District Court for the District of New Jersey against our
Company and certain of our officers and directors in an action captioned Brody
v. The Great Atlantic & Pacific Tea Co., Inc., No. 02 CV 2674 (FSH) . The Brody
lawsuit and four subsequently-filed related lawsuits were consolidated into a
single lawsuit captioned In re The Great Atlantic & Pacific Tea Company, Inc.
Securities Litigation, No. 02 CV 2674 (FSH) (the "Class Action Lawsuit"). On
December 2, 2002, plaintiffs filed their Consolidated Amended Class Action
Complaint (the "Complaint"), which alleges claims under Sections 10(b) (and Rule
10b-5 promulgated thereunder) and 20(a) of the Securities Exchange Act of 1934
arising out of our Company's July 5, 2002 filing of restated financial
statements for fiscal 1999, fiscal 2000 and the first three quarters of fiscal
2001. The Complaint in the Class Action Lawsuit seeks unspecified money damages,
costs and expenses. On January 17, 2003, defendants filed a motion seeking to
dismiss the Complaint. On February 28, 2003, plaintiffs filed their brief in
opposition to defendants' motion. Defendants' reply brief in support of their
dismissal motion was filed on March 28, 2003.
On May 31, 2002, a stockholder's derivative Complaint was filed in the
Superior Court of New Jersey in Bergen County against our Company's directors
(some of whom are also executive officers) in an action captioned Osher v.
Barline, Civ. Action No. BER L-4673-02 (N.J. Super. Ct.) (the "Derivative
Lawsuit"). The Complaint, which arises out of the events at issue in the Class
Action Lawsuit, alleges that the defendants violated their fiduciary obligations
to our Company and our stockholders by failing to establish and maintain
adequate accounting controls and mismanaging the assets and business of our
Company. Plaintiff seeks unspecified money damages, costs and expenses. In or
about December 2002, after the parties had agreed to and submitted for the
Court's consideration a stipulation and proposed Order staying the Derivative
Lawsuit pending the outcome of defendants' motion to dismiss the Complaint in
the Class Action Lawsuit, the Court dismissed the Derivative Lawsuit without
prejudice.
We are subject to various other 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.
As part of our business process initiative, contracts have been entered
committing the Company to purchase hardware, software and consulting services
from various vendors. At February 22, 2003, these commitments totaled $11.8
million. These purchases will be made, in accordance with the terms of their
contracts, over the next two fiscal years.
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 $2.4
million related to a shopping center, which will expire in 2011.
Note 13 - 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 Chairman of the
Board, President and Chief Executive Officer.
We currently operate in three reportable segments: United States Retail,
Canada Retail and Canada Wholesale. The retail segments are comprised of retail
supermarkets in the United States and Canada, while the wholesale segment is
comprised of our Canadian operation that serves as exclusive wholesaler to our
franchised stores.
The accounting policies for the segments are the same as those described
in the summary of significant accounting policies. We measure segment
performance based upon income (loss) from operations.
Information on segments is as follows:
<TABLE>
<CAPTION>
OPERATING DATA Fiscal 2002 Fiscal 2001 Fiscal 2000
- -------------- ----------------- ------------------ ------------------
<S> <C> <C> <C>
Sales
U.S. Retail $ 8,124,627 $ 8,490,104 $ 8,247,224
Canada Retail 1,957,257 1,806,705 1,745,129
Canada Wholesale 712,486 676,506 630,513
--------------- --------------- ----------------
Total Company $ 10,794,370 $ 10,973,315 $ 10,622,866
=============== =============== ================
Depreciation and amortization
U.S. Retail $ 223,612 $ 227,257 $ 223,550
Canada Retail 39,973 35,295 32,221
Canada Wholesale - - -
--------------- --------------- ----------------
Total Company $ 263,585 $ 262,552 $ 255,771
=============== =============== ================
Income (loss) from operations
U.S. Retail $ (62,187) $ (71,359) $ 21,999
Canada Retail 39,056 21,301 20,380
Canada Wholesale 30,389 26,534 23,651
--------------- --------------- ----------------
Total Company $ 7,258 $ (23,524) $ 66,030
=============== ================ ================
Interest expense
U.S. Retail $ (75,919) $ (81,574) $ (88,084)
Canada Retail (6,013) (7,557) (11,436)
Canada Wholesale (2,747) (2,591) (2,968)
--------------- --------------- ----------------
Total Company $ (84,679) $ (91,722) $ (102,488)
=============== =============== ================
Interest income
U.S. Retail $ 2,369 $ 1,377 $ 50
Canada Retail 2,083 1,970 2,099
Canada Wholesale 3,445 3,625 4,073
--------------- --------------- ----------------
Total Company $ 7,897 $ 6,972 $ 6,222
=============== =============== ================
(Loss) income before income taxes and extraordinary item
U.S. Retail $ (135,737) $ (151,556) $ (66,035)
Canada Retail 35,126 15,714 11,043
Canada Wholesale 31,087 27,568 24,756
--------------- --------------- ----------------
Total Company $ (69,524) $ (108,274) $ (30,236)
=============== =============== =================
February 22, February 23, February 24,
FINANCIAL POSITION DATA 2003 2002 2001
- ----------------------- ----------------- ------------------ ------------------
Capital expenditures
U.S. Retail $ 164,586 $ 192,705 $ 356,850
Canada Retail 54,944 53,477 58,992
Canada Wholesale - - -
--------------- --------------- ----------------
Total Company $ 219,530 $ 246,182 $ 415,842
=============== =============== ================
Total assets
U.S. Retail $ 2,216,455 $ 2,599,628 $ 2,688,190
Canada Retail 597,634 521,278 549,182
Canada Wholesale 71,148 73,358 81,785
--------------- --------------- ----------------
Total Company $ 2,885,237 $ 3,194,264 $ 3,319,157
=============== =============== ================
Long-lived assets
United States $ 1,318,238 $ 1,451,235 $ 1,637,036
Canada 323,973 289,088 287,211
--------------- --------------- ----------------
Total Company $ 1,642,211 $ 1,740,323 $ 1,924,247
=============== =============== ================
</TABLE>
Note 14 - Sale-Leaseback Transactions
During fiscal 2000, we sold 12 properties and simultaneously leased them
back from the purchaser. The properties subject to this sale had a carrying
value of approximately $68.4 million. Net proceeds received related to these
transactions amounted to approximately $113.7 million. Of the 12 properties
sold, 11 were sold for a profit resulting in a gain after deducting expenses of
$44.0 million. One property in the aforementioned transaction was sold at a loss
of $2.6 million after expenses. Since the fair value of this property was less
than its carrying value, we recognized this loss in full during fiscal 2000.
During fiscal 2001, we sold 9 additional properties and simultaneously
leased them back from the purchaser. The properties subject to this sale had a
carrying value of approximately $52.1 million. Net proceeds received related to
these transactions amounted to approximately $65.2 million. Of the 9 properties
sold, 6 were sold for a profit resulting in a gain after deducting expenses of
$15.4 million. Three properties in the aforementioned transaction were sold at a
loss of $4.5 million after expenses. The majority of this loss was related to
one of these properties, which was anticipated at the end of fiscal 2000, and,
accordingly, was recognized in full at that time since the carrying value of
such property exceeded its fair value less the cost of disposal.
The aforementioned sales resulted in a combined gain of $59.5 million,
which has been deferred and is included in "Other non-current liabilities" in
our Consolidated Balance Sheets and is being amortized over the lives of the
respective leases as a reduction of rental expense. During fiscal 2002 and 2001,
we recognized $3.0 million and $2.8 million of this gain, respectively, leaving
$53.6 million as a deferred gain at February 22, 2003.
We did not enter into any sale-leaseback transactions during fiscal 2002;
however, we expect to enter into similar transactions for other owned
properties from time to time in the future.
The resulting leases of the 21 properties sold in fiscal 2000 and 2001
have terms ranging from 20 to 25 years, with options to renew for additional
periods, and are being accounted for as operating leases in accordance with SFAS
13, "Accounting for Leases". Future minimum lease payments for these
operating leases, which have been included in the future minimum lease payments
table in Note 8 - Lease Obligations, are as follows:
Fiscal
------
2003 $ 20,612
2004 20,612
2005 20,612
2006 20,612
2007 20,612
2008 and thereafter 299,312
-----------
Total $ 402,372
===========
Note 15 - Gain On Proceeds From The Demutualization Of A Mutual Insurance
Company
During fiscal 2001, we received $60.6 million from the demutualization of
The Prudential Insurance Company. This consisted of cash of $35.2 million, and
common stock of $25.4 million, which is included in "Prepaid expenses and other
current assets", in our Consolidated Balance Sheets at February 23, 2002. This
amount was recorded as a nonrecurring gain and included in the determination of
income (loss) from operations and net cash provided by operating activities in
fiscal 2001. At February 23, 2002, we had an unrealized gain of $0.9 million,
net of tax related to the common stock held as available for sale securities
that was recorded as a separate component of Stockholders' Equity.
During fiscal 2002, we sold our remaining holdings in this common stock
and recognized a gain of $1.7 million. This gain was included in "Store
operating, general and administrative expense" on our Consolidated Statements of
Operations for fiscal 2002.
Note 16 - Related Party Transactions
A & P Properties Limited, a subsidiary of our Company, leases 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
Chairman of the Board, President and Chief Executive Officer, and is a general
partner, together with Tengelmann Verwaltungs- und Beteiligungs GmbH, Karl
Erivan Warder 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 and is a member of our Board of Directors. The lease, which commenced
in 1983 and expires on October 31, 2013, includes four 5-year renewal options.
The base annual rental is C$0.5 million (U.S. $0.3 million) until October 31,
2003, when it decreases to C$0.4 million.
We are a party to agreements granting Tengelmann and its affiliates the
exclusive right to use the "A&P(R)" and "Master Choice(R)" trademarks in Germany
and other European countries pursuant to which we received $0.1 million during
each of fiscal 2002, 2001 and 2000, which is the maximum annual royalty fee
under such agreements. We are also a party to agreements under which we
purchased from Wissoll, which is an affiliate of Tengelmann, approximately $0.7
million, $0.6 million and $0.7 million worth of the Black Forest line and Master
Choice(R) candy during fiscal 2002, 2001 and 2000, respectively.
We own a jet aircraft, which Tengelmann leases under a full cost
reimbursement lease. During fiscal 2002, 2001 and 2000, Tengelmann was obligated
to reimburse us $2.8 million, $2.5 million and $3.2 million, respectively, for
their use of the aircraft.
Note 17 - Environmental Liability
We own a non-retail real estate location that was subjected to
environmental contamination. We obtained an environmental remediation report to
enable us to assess the potential environmental liability related to this
property. Factors considered in determining the liability included, among
others, whether we had been designated as a potentially responsible party, the
number of potentially responsible parties designated at the site, the stage of
the proceedings and the available environmental technology.
During fiscal 2000, we assessed the likelihood that a loss had been
incurred at this site as probable and based on findings included in remediation
reports and discussion with legal counsel, estimated the potential loss to be
$3.0 million on an undiscounted basis. Accordingly, such amount was accrued at
that time. At each balance sheet date, we assess our exposure with respect to
this environmental remediation based on current available information.
Subsequently, during fiscal 2000, with respect to such review, we determined
that additional costs amounting to $1.3 million would be incurred to remedy
these environmental issues and, accordingly, this additional amount was accrued.
During fiscal 2001, due to an unfavorable ruling by the local municipality,
which was subsequently upheld by the New Jersey Superior Court, denying our
proposed development plan, we determined that a decrease in the value of the
property had occurred and recorded an additional charge of $2.0 million.
The total liability, net of costs incurred to date, of $3.9 million was
included in "Other non-current liabilities" in our Consolidated Balance Sheets
at February 22, 2003.
Note 18 - Subsequent Events
On March 14, 2003 we entered into an agreement to sell an additional
eight stores in northern New England. As of April 2003, this asset sale and the
asset sales described in Note 3 to our Consolidated Financial Statements were
completed, generating proceeds of approximately $140 million and resulting in
a gain of approximately $70 to $80 million.
<PAGE>
Note 19 - Summary of Quarterly Results (Unaudited)
<TABLE>
<CAPTION>
The following table summarizes our results of operations by quarter for fiscal 2002 and 2001. The first quarter of each
fiscal year contains sixteen weeks, while the other quarters each contain twelve weeks.
First Second Third Fourth Total
Quarter Quarter Quarter Quarter Year
--------------- ---------------- --------------- ---------------- ---------------
2002 (unaudited) (Dollars in thousands, except per share amounts)
- ----------------
<S> <C> <C> <C> <C> <C>
Sales $3,307,238 $2,500,478 $2,466,475 $2,520,179 $10,794,370
Gross margin 947,555 709,571 692,130 706,777 3,056,033
Depreciation and amortization 76,906 61,844 61,131 63,704 263,585
Income (loss) from operations (a) (d) 27,771 (3,165) (7,603) (9,745) 7,258
Interest expense (26,752) (19,640) (19,816) (18,471) (84,679)
Income (loss) before income
taxes and extraordinary item 2,978 (19,700) (26,188) (26,614) (69,524)
Extraordinary (loss) gain on early
extinguishment of debt, net of tax (397) (287) - 12,865 12,181
Net income (loss) (b) 1,875 (144,684) (29,732) (20,968) (193,509)
Per share data:
Income (loss) before extraordinary
item - basic and diluted (c) 0.06 (3.76) (0.77) (0.88) (5.34)
Extraordinary (loss) gain on early
extinguishment of debt - basic
and diluted (c) (0.01) - - 0.34 0.31
Net income (loss) - basic and
diluted (c) 0.05 (3.76) (0.77) (0.54) (5.03)
Market price:
High 28.44 20.00 10.85 8.25
Low 18.55 9.75 5.34 4.70
Number of stores served at end of period 692 692 692 695
Number of franchised stores
served at end of period 68 66 65 65
- -----------------------------------------------------------------------------------------------------------------------------
Such amounts are comprised of the following; item (b) is net of applicable income taxes:
(a) Asset disposition initiative $ (6,963) $ (1,303) $ 11,128 $ 3,532 $ 6,394
Gain on proceeds from insurance
company demutualization 1,717 - - - 1,717
All other earnings (losses) from
operations 33,017 (1,862) (18,731) (13,277) (853)
-------- ---------- ---------- ---------- ----------
Income (loss) from operations $ 27,771 $ (3,165) $ (7,603) $ (9,745) $ 7,258
======== ========== ========= ========= =========
(b) Asset disposition initiative $ (4,094) $ (776) $ 11,132 $ 3,331 $ 9,593
Gain on proceeds from insurance
company demutualization 996 - - - 996
Extraordinary (loss) gain on early
extinguishment of debt (397) (287) - 12,865 12,181
Deferred tax asset valuation allowance - (133,675) - - (133,675)
All other earnings (losses) 5,370 (9,946) (40,864) (37,164) (82,604)
-------- --------- ---------- --------- ----------
Net income (loss) $ 1,875 $(144,684) $ (29,732) $ (20,968) $(193,509)
======== ========== ========= ========== =========
(c) The sum of quarterly basic income per share differs from full year amounts because the number of weighted average common
shares outstanding has increased each quarter.
(d) Income (loss) from operations for the fourth quarter of fiscal 2002 includes severance of approximately $10 million and
a charge relating to the adoption of EITF 02-16 "Accounting By a Customer (including a Reseller) for Certain Consideration
Received From a Vendor" of approximately $2 million. These charges are offset by a $7 million reduction of accruals for
occupancy costs primarily related to a change in estimate.
First Second Third Fourth Total
Quarter Quarter Quarter Quarter Year
--------------- ---------------- --------------- ---------------- ---------------
2001 (unaudited) (Dollars in thousands, except per share amounts)
- ----------------
Sales $3,388,294 $2,547,590 $2,525,388 $2,512,043 $10,973,315
Gross margin 970,434 737,376 726,912 715,944 3,150,666
Depreciation and amortization 82,205 61,051 61,697 57,599 262,552
Income (loss) from operations (a) 29,625 16,276 (135,284) 65,859 (23,524)
Interest expense (30,505) (20,969) (20,495) (19,753) (91,722)
Income (loss) before income
taxes and extraordinary item 962 (2,801) (154,329) 47,894 (108,274)
Extraordinary loss on early
extinguishment of debt, net of tax - - - (7,222) (7,222)
Net (loss) income (b) (969) (1,743) (89,636) 20,442 (71,906)
Per share data:
(Loss) income before extraordinary
item - basic (c) (0.03) (0.05) (2.34) 0.72 (1.69)
Extraordinary loss on early
extinguishment of debt - basic - - - (0.19) (0.19)
Net (loss) income - basic (0.03) (0.05) (2.34) 0.53 (1.88)
(Loss) income before extraordinary
item - diluted (d) (0.03) (0.05) (2.34) 0.70 (1.69)
Extraordinary loss on early
extinguishment of debt - diluted (d) - - - (0.18) (0.19)
Net (loss) income - diluted (d) (0.03) (0.05) (2.34) 0.52 (1.88)
Market price:
High 14.00 20.30 23.95 27.20
Low 8.13 12.51 13.18 20.66
Number of stores at end of period 747 743 740 702
Number of franchised stores served
at end of period 67 67 67 67
- -------------------------------------------------------------------------------------------------------------------------
Such amounts are comprised of the following; item (b) is net of applicable income taxes:
(a) Asset disposition initiative $ - $ (217) $(164,658) $(28,593) $(193,468)
Gain on proceeds from insurance
company demutualization - - - 60,606 60,606
All other earnings from operations 29,625 16,493 29,374 33,846 109,338
-------- -------- --------- -------- ---------
Income (loss) from operations $ 29,625 $ 16,276 $(135,284) $ 65,859 $ (23,524)
======== ======== ========= ======== =========
(b) Asset disposition initiative $ - $ (126) $ (95,529) $(16,613) $(112,268)
Gain on proceeds from insurance
company demutualization - - - 35,151 35,151
Extraordinary loss on early extinguishment
of debt - - - (7,222) (7,222)
All other (losses) earnings (969) (1,617) 5,893 9,126 12,433
-------- --------- --------- -------- ---------
Net (loss) income $ (969) $ (1,743) $ (89,636) $ 20,442 $ (71,906)
======== ========= ========= ======== =========
(c) The sum of quarterly basic income per share differs from full year amounts
because the number of weighted average common shares outstanding has
increased each quarter.
(d) The sum of quarterly diluted income per share differs from the full year
amounts because securities that are dilutive in the fourth quarter are
antidilutive on a full-year basis.
</TABLE>
<PAGE>
Management's Report on Consolidated Financial Statements
The Management of The Great Atlantic & Pacific Tea Company, Inc. has
prepared the consolidated financial statements and related financial data
contained in this Annual Report. The financial statements were prepared in
accordance with accounting principles generally accepted in the United States of
America appropriate to the business and, by necessity and circumstance, include
some amounts, which were determined using Management's best judgments and
estimates with appropriate consideration to materiality.
Management is responsible for the objectivity of the consolidated
financial statements and other financial data included in this report. To meet
this responsibility, Management maintains a system of internal accounting
controls to provide reasonable assurance that assets are safeguarded and that
accounting records are reliable. Management supports a program of internal
audits and internal accounting control reviews to provide reasonable assurance
that the system is operating effectively.
Within 90 days prior to the date of this report, we completed an
evaluation of our disclosure controls and procedures (as defined in Rule
13a-14(c) to the Securities and Exchange Act of 1934). Based on this evaluation,
we believe that the disclosure controls and procedures are effective with
respect to timely communicating to us all material information required to be
disclosed in this report as it relates to our Company and our consolidated
subsidiaries.
This evaluation consisted of a year-end control review that was
subsequently updated in April 2003. The following paragraphs detail our
significant areas of focus to further enhance internal controls:
o We have implemented certain enhancements and are in the process of
enhancing internal controls relating to vendor allowance transactions. The
actions related to vendor allowances include, among others, revising the
vendor allowance transaction reporting form, providing additional training
to employees concerning financial reporting obligations with an emphasis on
vendor allowance transactions, establishing additional internal resources
to account for and review on a regular basis vendor allowance transactions
and providing additional management and internal audit oversight of vendor
allowances.
o During the third quarter of fiscal 2002, we implemented an enterprise
resource planning system encompassing the finance function and are in the
process of implementing this platform for the human resources function.
This new system provides a common platform for certain of our operations,
including the improvement of approval and authorization processes and
information flow across the organization. This system will serve as the
record keeping tool for, among others, general ledger, accounts payable,
accounts receivable, fixed assets and payroll.
Other than the above, there were no significant changes in our internal controls
or in other factors that could significantly affect internal controls subsequent
to the date of the most recently completed evaluation. We also intend to refine
and enhance our internal control procedures on an ongoing basis as deemed
appropriate.
The Board of Directors pursues its responsibility for reported financial
information through its Audit Committee. The Audit Committee meets periodically
and, when appropriate, separately with Management, internal auditors and the
independent accountants, PricewaterhouseCoopers LLP, to review each of their
respective activities.
Christian W. E. Haub Mitchell P. Goldstein
Chairman of the Board, President and Senior Vice President,
Chief Executive Officer Chief Financial Officer
<PAGE>
Report of Independent Accountants
To the Stockholders and Board of Directors of The Great Atlantic & Pacific
Tea Company, Inc.:
In our opinion, the accompanying consolidated balance sheet 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 22, 2003, and the results of their operations and their
cash flows for the year in the period ended February 22, 2003 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 audit. We conducted our audit of these statements in accordance with
auditing standards generally accepted in the United States of America, which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
PricewaterhouseCoopers LLP
Florham Park, New Jersey
April 30, 2003
<PAGE>
Independent Auditors' Report
To the Stockholders and Board of Directors of The Great Atlantic & Pacific
Tea Company, Inc.:
We have audited the accompanying consolidated balance sheet of The
Great Atlantic & Pacific Tea Company, Inc. and its subsidiary companies as of
February 23, 2002, and the related consolidated statements of operations,
stockholders' equity and comprehensive (loss) income, and cash flows for each
of the two fiscal years in the period ended February 23, 2002. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly,
in all material respects, the financial position of The Great Atlantic & Pacific
Tea Company, Inc. and its subsidiary companies at February 23, 2002, and the
results of their operations and their cash flows for each of the two fiscal
years in the period ended February 23, 2002, in conformity with accounting
principles generally accepted in the United States of America.
Deloitte & Touche LLP
Parsippany, New Jersey
August 19, 2002
<PAGE>
Five Year Summary of Selected Financial Data
- --------------------------------------------
<TABLE>
<CAPTION>
Fiscal 2002 Fiscal 2001 Fiscal 2000 Fiscal 1999 Fiscal 1998
(52 Weeks)(d) (52 Weeks)(d) (52 Weeks)(d) (52 Weeks)(d) (52 Weeks)(c)(d)
-------------- --------------- -------------- ---------------- ----------------
(unaudited)
(Dollars in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
Operating Results
Sales $10,794,370 $10,973,315 $10,622,866 $10,151,334 $10,179,358
Income (loss) from
operations (a) 7,258 (23,524) 66,030 147,082 (149,337)
Depreciation and
amortization (263,585) (262,552) (255,771) (232,712) (233,663)
Interest expense (84,679) (91,722) (102,488) (90,445) (71,497)
Net (loss) income before
extraordinary item (205,690) (64,684) (19,500) 35,313 (58,282)
Extraordinary gain (loss) on
early extinguishment of debt,
net of tax 12,181 (7,222) - - -
Net (loss) income (b) (193,509) (71,906) (19,500) 35,313 (58,282)
Per Share Data
(Loss) income before extraordinary item -
basic and diluted (5.34) (1.69) (0.51) 0.92 (1.52)
Extraordinary gain (loss) on early
extinguishment of debt - basic
and diluted 0.31 (0.19) - - -
Net (loss) income - basic and diluted (5.03) (1.88) (0.51) 0.92 (1.52)
Cash dividends - - 0.30 0.40 0.40
Book value per share 12.93 17.54 19.53 20.65 20.76
Financial Position
Current assets $1,099,588 $1,212,074 $1,197,873 $1,218,717 $1,243,110
Current liabilities 1,090,612 1,184,463 1,130,062 1,153,173 1,134,063
Working capital 8,976 27,611 67,811 65,544 109,047
Current ratio 1.01 1.02 1.06 1.06 1.10
Expenditures for property 219,530 246,182 415,842 479,572 438,345
Total assets 2,885,237 3,194,264 3,319,157 3,331,359 3,160,814
Current portion of
long-term debt 25,820 526 6,195 2,382 4,956
Current portion of
capital lease obligations 13,787 10,691 11,634 11,327 11,483
Long-term debt 803,277 779,440 915,321 865,675 728,390
Long-term portion of
capital lease obligations 83,485 93,587 106,797 117,870 115,863
Total debt 926,369 884,244 1,039,947 997,254 860,692
Debt to total capitalization 65% 57% 58% 56% 52%
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Fiscal 2002 Fiscal 2001 Fiscal 2000 Fiscal 1999 Fiscal 1998
(52 Weeks)(d) (52 Weeks)(d) (52 Weeks)(d) (52 Weeks)(d) (52 Weeks)(c)(d)
-------------- --------------- -------------- ---------------- ----------------
(unaudited)
(Dollars in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
Equity
Stockholders' equity 498,191 672,988 748,811 792,138 794,783
Weighted average shares
outstanding 38,494,812 38,350,616 38,347,216 38,330,379 38,273,859
Number of registered
stockholders 5,751 6,087 6,281 6,890 7,419
Other
Number of employees 78,710 78,995 83,000 80,900 83,400
New store openings 31 21 47 54 46
Number of stores at
year end 695 702 752 750 839
Total store area
(square feet) 26,817,650 26,664,312 27,931,729 26,904,331 28,736,319
Number of franchised
stores served at year end 65 67 68 65 55
Total franchised store
area (square feet) 2,066,401 2,108,969 2,021,206 1,908,271 1,537,388
- --------------------------------------------------------------------------------------------------------------------------
Such amounts are comprised of the following; item (b) is net of applicable income taxes:
(a) Asset disposition initiative $ 6,394 $(193,468) $ - $ (59,886) $(279,415)
Gain on proceeds from insurance
company demutualization 1,717 60,606 - - -
All other (losses) earnings from
operations (853) 109,338 66,030 206,968 130,078
--------- --------- --------- --------- ---------
Income (loss) from operations $ 7,258 $ (23,524) $ 66,030 $ 147,082 $(149,337)
========= ========= ========= ========= =========
(b) Asset disposition initiative $ 9,593 $(112,268) $ - $ (34,836) $(166,517)
Gain on proceeds from insurance
company demutualization 996 35,151 - - -
Extraordinary gain (loss) on early
extinguishment of debt 12,181 (7,222) - - -
Deferred tax asset valuation
allowance (133,675) - - - -
Reversal of deferred tax asset
valuation allowance - - - - 60,300
All other (losses) earnings (82,604) 12,433 (19,500) 70,149 47,935
---------- --------- ---------- --------- ---------
Net (loss) income $(193,509) $ (71,906) $ (19,500) $ 35,313 $ (58,282)
========= ========= ========== ========= =========
(c) Fiscal 1998 includes adjustments consisting of a $14,900 credit to
self-insurance expense and a credit of $154 to closed store subleases.
However, we are unable to determine the adjustments to the vendor allowance
amounts for fiscal 1998 since sufficient documentation related to this item
is not available. While the adjustments required for fiscal 1998 related to
vendor allowances cannot be determined with accuracy, we do not believe
that the financial data presented herein is no longer indicative of
the results for these periods.
(d) Not derived from audited financial information.
</TABLE>
<PAGE>
Executive Officers
- ------------------
Christian W. E. Haub
Chairman of the Board,
President and Chief Executive Officer
Brian C. Piwek
President and
Chief Executive Officer, A&P U.S.
Eric Claus
President and
Chief Executive Officer, A&P Canada
William P. Costantini
Senior Vice President,
General Counsel and Secretary
Mitchell P. Goldstein
Senior Vice President,
Chief Financial Officer
John E. Metzger
Senior Vice President,
Chief Information Officer
Board Of Directors
- ------------------
Christian W. E. Haub (c)(d)
Chairman of the Board,
President and Chief Executive Officer
John D. Barline, Esq. (b)(c)
Williams, Kastner & Gibbs LLP,
Tacoma, Washington
Rosemarie Baumeister (b)
Senior Vice President,
Tengelmann Warenhandelsgesellschaft,
Muelheim, Germany
Bobbie Gaunt (a)(b)(e)
Former President and CEO,
Ford Motor Company of Canada
Helga Haub (c)(d)
Dan P. Kourkoumelis (a)(c)(e)
Former President and CEO,
Quality Food Centers, Inc.
Edward Lewis (c)(d)(e)
Chairman and Chief Executive Officer,
Essence Communications Partners
Richard L. Nolan (a)(c)(e)
William Barclay Harding Professor of Management Technology
at the Harvard Business School
Maureen B. Tart-Bezer (a)(d)
Senior Financial Advisor,
Wireless MVNO Ventures
(a) Member of Audit Committee Richard L. Nolan, Chair
(b) Member of Compensation Committee Bobbie Gaunt, Chair
(c) Member of Executive Committee Christian W. E. Haub, Chair
(d) Member of Finance Committee Edward Lewis, Chair
(e) Member of Governance Committee Dan P. Kourkoumelis, Chair
Stockholder Information
- -----------------------
Executive Offices
Box 418
2 Paragon Drive
Montvale, NJ 07645
Telephone 201-573-9700
Independent 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
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.
Annual Meeting
The Annual Meeting of Stockholders will be held at 9:00 a.m. (EDT) on Wednesday,
July 16, 2003 at
The Valhalla Inn
1 Valhalla Inn Road
Thunder Bay, Ontario, Canada
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) 2003 The Great Atlantic & Pacific Tea Co., Inc. All rights reserved.
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-4
<SEQUENCE>5
<FILENAME>ex4fy2002.txt
<DESCRIPTION>SUCCESSOR BOND TRUSTEE
<TEXT>
Exhibit 4.4
SUCCESSOR BOND TRUSTEE
INSTRUMENT OF RESIGNATION, APPOINTMENT AND ACCEPTANCE, dated as of May 7,
2003 (this "Instrument"), among THE GREAT ATLANTIC & PACIFIC TEA COMPANY,
INC., a corporation duly organized and existing under the laws of the State of
Maryland, having its principal office at 2 Paragon Drive, Montvale, New Jersey
07645 (the "Company"), JPMORGAN CHASE BANK (successor in interest to
Manufacturers Hanover Trust Company), a corporation duly organized and existing
under the laws of the State of New York, having its corporate trust office at 4
New York Plaza, 15th Floor, New York, New York 10004, as resigning Trustee (the
"Resigning Trustee"), and Wilmington trust company, a corporation duly organized
and existing under the laws of the State of Delaware, having its corporate trust
office at Rodney Square North, 1100 North Market Street, Wilmington, Delaware
19890, as successor Trustee (the "Successor Trustee").
RECITALS
There are presently outstanding under an Indenture, dated as of January 1,
1991, as supplemented by a First Supplemental Indenture (the "First Supplemental
Indenture"), dated as of December 4, 2001 and a Second Supplemental Indenture
(the "Second Supplemental Indenture"), dated as of December 20, 2001 (as so
supplemented, the "Indenture"), between the Company and the Resigning Trustee:
(i) $22,100,000 in aggregate principal amount of the Company's 7.70% Senior
Notes due 2004; (ii) $229,265,000 in aggregate principal amount of the Company's
7.75% Senior Notes due 2007; (iii) $230,500,000 in aggregate principal amount of
the Company's 9.125% Senior Notes due 2011; and (iv) $200,000,000 in aggregate
principal amount of the Company's 9.375% Senior Notes due 2039 (the securities
described in clauses (i) through (iv), above, are hereinafter referred to as the
"Securities").
The Resigning Trustee wishes to resign as Trustee, Security Registrar,
Paying Agent and the office or agency where notices and demands to or upon the
Company in respect of the Securities and the Indenture (the "Agent") may be
served under the Indenture; the Company wishes to appoint the Successor Trustee
to succeed the Resigning Trustee as Trustee, Security Registrar, Paying Agent
and Agent under the Indenture; and the Successor Trustee wishes to accept
appointment as Trustee, Security Registrar, Paying Agent and Agent under the
Indenture.
NOW, THEREFORE, in consideration of the mutual covenants and promises
herein, the receipt and sufficiency of which are hereby acknowledged, the
Company, the Resigning Trustee and the Successor Trustee agree as follows:
ARTICLE ONE
THE RESIGNING TRUSTEE
Section 101. Pursuant to Section 610(b) of the Indenture, the Resigning
Trustee hereby notifies the Company that the Resigning Trustee is hereby
resigning as Trustee under the Indenture.
Section 102. The Resigning Trustee hereby represents and warrants to the
Successor Trustee and the Company that:
(a) No covenant or condition contained in the Indenture has been
waived by the Resigning Trustee.
<PAGE>
(b) There is no action, suit or proceeding pending or, to the best of
the knowledge of the Responsible Officers of the Resigning Trustee assigned
to its corporate trust department, threatened against the Resigning Trustee
before any court or governmental authority arising out of any action or
omission by the Resigning Trustee as Trustee under the Indenture.
(c) This Instrument has been duly authorized, executed and delivered
on behalf of the Resigning Trustee and constitutes its legal, valid and
binding obligation.
(d) (i) $22,100,000 in aggregate principal amount of the Company's
7.70% Senior Notes due 2004 is outstanding as of the date hereof and
interest has been paid through January 15, 2003;
(ii) $229,265,000 in aggregate principal amount of the Company's 7.75%
Senior Notes due 2007 is outstanding as of the date hereof and interest has
been paid through April 15, 2003;
(iii) $230,500,000 in aggregate principal amount of the Company's
9.125% Senior Notes due 2011 is outstanding as of the date hereof and
interest has been paid through December 15, 2002; and
(iv) $200,000,000 in aggregate principal amount of the Company's
9.375% Senior Notes due 2039 is outstanding as of the date hereof and
interest has been paid through May 1, 2003.
(e) The Resigning Trustee has made, or promptly will make, available
to the Successor Trustee originals, if available, or copies in its
possession, of all documents relating to the trusts created by the
Indenture (the "Trusts") and all information in the possession of its
corporate trust department relating to the administration and status of the
Trusts.
Section 103. The Resigning Trustee hereby assigns, transfers, delivers and
confirms to the Successor Trustee all right, title and interest of the Resigning
Trustee in and to the Trusts, all rights, powers and trusts of the Trustee under
the Indenture and all property and money held by such Resigning Trustee under
the Indenture. The Resigning Trustee shall execute and deliver such further
instruments and shall do such other things as the Successor Trustee may
reasonably require so as to more fully and certainly vest and confirm in the
Successor Trustee all such rights, powers and trusts hereby assigned,
transferred, delivered and confirmed to the Successor Trustee.
Section 104. The Resigning Trustee hereby resigns as Security Registrar,
Paying Agent and Agent under the Indenture.
Section 105. The Resigning Trustee agrees to pay or indemnify the Successor
Trustee and save the Successor Trustee harmless from and against any and all
costs, claims, liabilities, losses or damages whatsoever (including the
reasonable fees, expenses and disbursements of the Successor Trustee's counsel
and other advisors), that the Successor Trustee
2
<PAGE>
suffers or incurs without gross negligence or bad faith on its part arising out
of actions or omissions of the Resigning Trustee. The Successor Trustee will
furnish to the Resigning Trustee, promptly after receipt, all papers with
respect to any action the outcome of which would make operative the indemnity
provided for in this Section. The Successor Trustee shall notify the Resigning
Trustee promptly in writing (and, in any event, within no later than 10 days) of
any claim for which it may seek indemnity. The Resigning Trustee shall have the
option to defend the claim and the Successor Trustee shall cooperate fully in
the defense. If the Resigning Trustee shall assume the defense, then the
Resigning Trustee shall not pay for separate counsel of the Successor Trustee.
The Resigning Trustee shall not be obligated to pay for any settlement made
without its consent.
ARTICLE TWO
THE COMPANY
Section 201. The Company hereby certifies that Exhibit A annexed hereto is
a copy of the resolutions which were duly adopted by the Board of Directors of
the Company, which are in full force and effect on the date hereof, and which
authorize certain officers of the Company to: (a) accept the Resigning Trustee's
resignation as Trustee, Security Registrar, Paying Agent and Agent under the
Indenture; (b) appoint the Successor Trustee as Trustee, Security Registrar,
Paying Agent and Agent under the Indenture; and (c) execute and deliver such
agreements and other instruments as may be necessary or desirable to effectuate
the succession of the Successor Trustee as Trustee, Security Registrar, Paying
Agent and Agent under the Indenture.
Section 202. The Company hereby accepts the resignation of the Resigning
Trustee as Trustee, Security Registrar, Paying Agent and Agent under the
Indenture. Pursuant to Section 610(e) of the Indenture, the Company hereby
appoints the Successor Trustee as Trustee under the Indenture and confirms to
the Successor Trustee all the rights, powers and trusts of the Trustee under the
Indenture and with respect to all property and money held or to be held under
the Indenture. The Company shall execute and deliver such further instruments
and shall do such other things as the Successor Trustee may reasonably require
so as to more fully and certainly vest and confirm in the Successor Trustee all
such rights, powers and trusts hereby assigned, transferred, delivered and
confirmed to the Successor Trustee.
Section 203. The Company hereby represents and warrants to the Successor
Trustee and the Resigning Trustee that:
(a) The Company is a corporation duly and validly organized and
existing pursuant to the laws of the State of Maryland.
(b) The Indenture was validly and lawfully executed and delivered by
the Company, has not been amended or modified except as set forth herein
and is in full force and effect.
(c) The Securities are validly issued securities of the Company.
3
<PAGE>
(d) No event has occurred and is continuing which is, or after notice
or lapse of time would become, an Event of Default under the Indenture.
(e) No covenant or condition contained in the Indenture has been
waived by the Company or by the Holders of the percentage in aggregate
principal amount of the Securities required by the Indenture to effect any
such waiver, except as set forth in the First Supplemental Indenture.
(f) There is no action, suit or proceeding pending or, to the best of
the Company's knowledge, threatened against the Company before any court or
any governmental authority arising out of any action or omission by the
Company under the Indenture.
(g) This Instrument has been duly authorized, executed and delivered
on behalf of the Company and constitutes its legal, valid and binding
obligation.
(h) All conditions precedent relating to the appointment of Wilmington
Trust Company as successor Trustee, Security Registrar, Paying Agent and
Agent under the Indenture have been complied with by the Company.
Section 204. The Company hereby appoints the Successor Trustee as Security
Registrar, Paying Agent and Agent under the Indenture.
Section 205. Promptly after the execution and delivery of this Instrument,
the Company shall cause a notice, which shall include the language contained in
the notice annexed hereto marked Exhibit B, to be sent to each Holder of the
Securities in accordance with Section 610(f) of the Indenture.
ARTICLE THREE
THE SUCCESSOR TRUSTEE
Section 301. The Successor Trustee hereby represents and warrants to the
Resigning Trustee and the Company that:
(a) The Successor Trustee is qualified and eligible under the
provisions of Sections 608 and 609 of the Indenture to act as Trustee under
the Indenture.
(b) This Instrument has been duly authorized, executed and delivered
on behalf of the Successor Trustee and constitutes its legal, valid and
binding obligation.
Section 302. Pursuant to Section 611(a) of the Indenture, the Successor
Trustee hereby accepts its appointment as Trustee under the Indenture and shall
hereby be vested with all rights, powers and trusts of the Trustee under the
Indenture and with respect to all property and money held or to be held under
the Indenture.
Section 303. The Successor Trustee hereby accepts its appointment as
Security Registrar, Paying Agent and Agent under the Indenture.
4
<PAGE>
ARTICLE FOUR
MISCELLANEOUS
Section 401. Except as otherwise expressly provided or unless the context
otherwise requires, all capitalized terms used herein which are defined in the
Indenture shall have the meanings assigned to them in the Indenture.
Section 402. This Instrument and the resignation, appointment and
acceptance effected hereby shall be effective as of the close of business on the
date first above written; provided, however, that the resignation of the
Resigning Trustee and the appointment of the Successor Trustee as Security
Registrar, Paying Agent and Agent under the Indenture shall be effective 10
business days after the date first above written.
Section 403. Notwithstanding the resignation of the Resigning Trustee
effected hereby, the Company shall remain obligated under Section 607 of the
Indenture to compensate, reimburse and indemnify the Resigning Trustee in
connection with its prior trusteeship under the Indenture. The Company also
acknowledges and reaffirms its obligations to the Successor Trustee as set forth
in Section 607 of the Indenture, including payments to be made in accordance
with the fee schedules annexed hereto as Exhibit C, D, E and F, which
obligations shall survive the execution hereof.
Section 404. This Instrument shall be governed by and construed in
accordance with the laws of the jurisdiction which govern the Indenture and its
construction.
Section 405. This Instrument may be executed in any number of counterparts,
each of which shall be an original, but such counterparts shall together
constitute but one and the same instrument.
Section 406. All notices, whether faxed or mailed, will be deemed received
when sent pursuant to the following instructions:
TO THE RESIGNING TRUSTEE:
Mr. James R. Lewis
Vice President
JPMorgan Chase Bank
4 New York Plaza, 15th Floor
New York, New York 10004
Fax: (212) 623-6165
Tel.: (212) 623-6759
TO THE SUCCESSOR TRUSTEE:
Wilmington Trust Company
Rodney Square North
1100 North Market Street
Wilmington, Delaware 19890
Attention: Corporate Trust Administration
Fax: (302) 636-4140
5
<PAGE>
Tel.: (302) 636-6056
TO THE COMPANY:
Mr. William J. Moss
Vice President, Treasurer
The Great Atlantic & Pacific Tea Company, Inc.
2 Paragon Drive
Montvale, New Jersey 07645
Fax: (201) 571-8036
Tel: (201) 571-4019
[Remainder of Page Intentionally Left Blank]
6
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Instrument of
Resignation, Appointment and Acceptance to be duly executed as of the day and
year first above written.
THE GREAT ATLANTIC & PACIFIC TEA COMPANY, INC.
By: /s/ William J.Moss
-----------------------------------------
Name:
Title:Vice President Treasurer
JPMORGAN CHASE BANK, as Resigning Trustee
By: /s/ James R. Lewis
-----------------------------------------
Name:
Title:Vice President
Wilmington Trust Company, as Successor Trustee
By: /s/ Sandra R. Ortiz
-----------------------------------------
Name:
Title:Financial Services Officer
<PAGE>
EXHIBIT A
CERTIFIED COPY OF RESOLUTIONS
OF THE BOARD OF DIRECTORS OF
THE GREAT ATLANTIC & PACIFIC TEA COMPANY, INC.
[See Next Page]
<PAGE>
EXHIBIT B
Notice to Holders of The Great Atlantic & Pacific Tea Company, Inc.'s (the
"Company"): (i) 7.70% Senior Notes due 2004; (ii) 7.75% Senior Notes due 2007;
(iii) 9.125% Senior Notes due 2011; and (iv) 9.375% Senior Notes due 2039
(collectively, the "Securities"):
We hereby notify you of the resignation of JPMorgan Chase Bank (successor
in interest to Manufacturers Hanover Trust Company) as Trustee under the
Indenture, dated as of January 1, 1991 (as supplemented, the "Indenture"),
pursuant to which your Securities were issued and are outstanding.
The Company has appointed Wilmington Trust Company ("Wilmington"), whose
Corporate Trust Office is located at Rodney Square North, 1100 North Market
Street, Wilmington, Delaware 19890, as successor Trustee under the Indenture,
which appointment has been accepted and has become effective. Wilmington has
also been appointed as the Security Registrar, Paying Agent and the office or
agency where notices and demands to or upon the Company in respect of the
Securities and the Indenture may be served under the Indenture.
THE GREAT ATLANTIC & PACIFIC TEA COMPANY, INC.
Date: ___________, 2003
<PAGE>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-21
<SEQUENCE>6
<FILENAME>ex21fy2002.txt
<TEXT>
THE GREAT ATLANTIC & PACIFIC TEA COMPANY, INC.
AND
SUBSIDIARIES
State of Incorporation - Maryland
Date of Incorporation - May 29, 1925
Name Changed - 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 shares of any subsidiary's stock are subject to options.
COMPANIES STATE INCORPORATED
- --------- ------------------
A&P Wine and Spirits, Inc. Massachusetts
ANP Properties I Corp. Delaware
ANP Sales Corp. Maryland
APW Produce Company, Inc. New York
APW Supermarket Corporation Delaware
APW Supermarkets, Inc. New York
Big Star, Inc. Georgia
The Great Atlantic and Pacific Tea Company, Limited (NR Canada
The Great Atlantic & Pacific Company of Canada, Limited
d/b/a A&P and New Dominion Canada
A&P Drug Mart Limited Ontario
A&P Properties Limited Ontario
3399486 Canada Inc. Canada
G. A. Love Foods Inc. Ontario
Love's York Properties Inc. Ontario
1282891 Ontario Inc.
3328155 Canada Inc.
New Dominion Stores (1986), Inc.
3467210 Canada Inc.
3499031 Canada Inc.
3557588 Canada Inc.
3714683 Canada Inc.
3864715 Canada Inc.
Borman's, Inc. d/b/a Farmer Jack Delaware
Compass Foods, Inc. Delaware
Family Center, Inc. d/b/a Family Mart Delaware
Food Basics, Inc. Delaware
Futurestore Food Markets, Inc. Delaware
Gerard Avenue, Inc. Delaware
The Great Atlantic & Pacific Tea Company of Vermont, Inc. Vermont
Hamilton Property I, Inc. Delaware
Hopelawn Property I, Inc. Delaware
Kohl's Food Stores, Inc. Wisconsin
Kwik Save Inc. Pennsylvania
Limited Foods, Inc. Delaware
LO-LO Discount Stores, Inc. Texas
Montvale Holdings, Inc. New Jersey
Richmond, Incorporated
d/b/a Pantry Pride & Sun, Inc. Delaware
St. Pancras Too, Limited Bermuda
Shopwell, Inc. d/b/a Food Emporium Delaware
Southern Acquisition Corporation Delaware
Southern Development, Inc. of Delaware Delaware
Super Fresh Food Markets, Inc. Delaware
Super Fresh Food Markets of Maryland, Inc. Maryland
Super Fresh/Sav-A-Center, Inc. Delaware
Super Fresh Food Markets of Virginia, Inc. Delaware
Super Market Service Corp. Pennsylvania
Super Plus Food Warehouse, Inc. Delaware
Supermarket Distribution Service Corp. New Jersey
Supermarket Distribution Service - Florence, Inc. New Jersey
Supermarket Distribution Services, Inc. Delaware
Supermarket Systems, Inc. Delaware
Tea Development Co., Inc. Delaware
The South Dakota Great Atlantic & Pacific Tea Company, Inc. South Dakota
Transco Service-Milwaukee, Inc. New Jersey
Waldbaum, Inc. d/b/a Waldbaum, Inc. and Food Mart New York
W.S.L. Corporation New Jersey
2008 Broadway, Inc. New York
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-23
<SEQUENCE>7
<FILENAME>ex23fy2002.txt
<DESCRIPTION>CONSENT OF INDEPENDENT AUDITORS-PWC
<TEXT>
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statement No. 2-92428 on Form S-8, Post Effective Amendment No. 7 to
Registration Statement No. 2-59290 on Form S-8 and Post Effective Amendment No.
3 to Registration Statement No. 2-73205 on Form S-8 of The Great Atlantic &
Pacific Tea Company, Inc. of our report dated April 30, 2003, relating to the
financial statements, which appears in the Annual Report to Shareholders, which
is incorporated in this Annual Report on Form 10-K.
/s/ PricewaterhouseCoopers LLP
- ------------------------------
PricewaterhouseCoopers LLP
Florham Park, NJ
May 7, 2003
<PAGE>
Exhibit 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement No.
2-92428 on Form S-8, Post Effective Amendment No. 7 to Registration Statement
No. 2-59290 on Form S-8 and Post Effective Amendment No. 3 to Registration
Statement No. 2-73205 on Form S-8 of our report dated August 19, 2002,
appearing in the Fiscal 2002 Annual Report to Stockholders and incorporated by
reference in the Annual Report on Form 10-K of The Great Atlantic & Pacific
Tea Company, Inc. for the year ended February 22, 2003.
/s/ Deloitte & Touche LLP
- --------------------------
Deloitte & Touche LLP
Parsippany, New Jersey
May 7, 2003
</TEXT>
</DOCUMENT>
</SEC-DOCUMENT>
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