ITEM 1. Business
General
The Great Atlantic & Pacific Tea Company, Inc. ("A&P" or the "Company") is engaged in the retail food business. The Company operated 839 stores averaging approximately 35,247 square feet per store as of February 27, 1999. In addition, the Company began franchising its Canadian Food Basics stores in fiscal 1995. As of February 27, 1999, the Company had 55 Food Basics Franchise stores in Canada averaging approximately 27,953 square feet per store. On the basis of reported sales for fiscal 1998, the Company believes that it is one of the ten largest retail food chains in the United States and that it had the largest market share in metropolitan New York and Detroit, and the second largest market share in the Province of Ontario, the Company's largest single markets in the United States and Canada.
Operating under the trade names A&P, Super Fresh, Sav-A-Center, Farmer Jack, Kohl's, Food Emporium, Waldbaum's, Super Food Mart, Ultra Mart, Dominion, and Food Basics, the Company sells groceries, meats, fresh produce and other items commonly offered in supermarkets. In addition, many stores have bakery, delicatessen, pharmacy, floral, fresh fish and cheese departments, and on-site banking. National, regional and local brands are sold as well as private label merchandise. In support of its retail operations, the Company also operates one coffee roasting plant in the United States. Through its Compass Foods Division, the Company manufactures and distributes a line of whole bean coffees under the Eight O'Clock, Bokar and Royale labels, for sale through its own stores as well as other food and convenience retailers. The other private label products sold in the Company's stores are sold under the Company's own brand names which include America's Choice, Master Choice, Health Pride, Savings Plus and The Farm.
Building upon a broad base of A&P supermarkets, the Company has expanded and diversified within the retail food business through the acquisition of other supermarket chains and the development of several alternative store types. The Company now operates its stores with merchandise, pricing and identities tailored to appeal to different segments of the market, including buyers seeking gourmet and ethnic foods, unusual produce, a wide variety of premium quality private label goods and health and beauty aids along with the array of traditional grocery products.
Modernization of Facilities
The Company is engaged in a continuing program of modernizing its operations and retail stores. During fiscal 1998, the Company expended approximately $438 million for capital projects which included 46 new supermarkets, 3 new Food Basics franchised stores and 69 remodels or enlargements. The Company's plans for fiscal 1999 anticipate capital expenditures of approximately $500 million, which include the opening of 55 new supermarkets and the remodeling or expansion of 75 stores. In addition, the Company is developing plans to open approximately 65 new supermarkets in fiscal 2000 and approximately 70 to 80 new supermarkets per year thereafter for several years. Further, the Company expects to remodel or enlarge an average of 75 stores per year for the next several years.
Sources of Supply
The Company obtains the merchandise sold in its stores from a variety of suppliers located primarily in the United States and Canada. The Company has long-standing and satisfactory relationships with its suppliers.
The Company maintains 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 27, 1999, the Company had approximately 83,400 employees, of which 70% were employed on a part-time basis. Approximately 88% of the Company's employees are covered by union contracts.
Competition
The supermarket business is highly competitive throughout the marketing areas served by the Company and is generally characterized by low profit margins on sales with earnings primarily dependent upon rapid inventory turnover, effective cost controls and the ability to achieve high sales volume. The Company competes for sales and store locations with a number of national and regional chains as well as with many independent and cooperative stores and markets.
Foreign Operations
The information required is contained in the 1998 Annual Report to Shareholders on pages 30, 31, 33, 34, 36, 39 and 40 and is herein incorporated by reference. ITEM 2.
ITEM 2. Properties
At February 27, 1999, the Company operated 839 retail stores and serviced 55 franchised stores. Approximately 7% of the Company's stores are owned, while the remainder are leased. These stores are geographically located as follows:
The Great Atlantic & Pacific Tea Company, Inc. ("A&P" or the "Company") is engaged in the retail food business. The Company operated 839 stores averaging approximately 35,247 square feet per store as of February 27, 1999. In addition, the Company began franchising its Canadian Food Basics stores in fiscal 1995. As of February 27, 1999, the Company had 55 Food Basics Franchise stores in Canada averaging approximately 27,953 square feet per store. On the basis of reported sales for fiscal 1998, the Company believes that it is one of the ten largest retail food chains in the United States and that it had the largest market share in metropolitan New York and Detroit, and the second largest market share in the Province of Ontario, the Company's largest single markets in the United States and Canada.
Operating under the trade names A&P, Super Fresh, Sav-A-Center, Farmer Jack, Kohl's, Food Emporium, Waldbaum's, Super Food Mart, Ultra Mart, Dominion, and Food Basics, the Company sells groceries, meats, fresh produce and other items commonly offered in supermarkets. In addition, many stores have bakery, delicatessen, pharmacy, floral, fresh fish and cheese departments, and on-site banking. National, regional and local brands are sold as well as private label merchandise. In support of its retail operations, the Company also operates one coffee roasting plant in the United States. Through its Compass Foods Division, the Company manufactures and distributes a line of whole bean coffees under the Eight O'Clock, Bokar and Royale labels, for sale through its own stores as well as other food and convenience retailers. The other private label products sold in the Company's stores are sold under the Company's own brand names which include America's Choice, Master Choice, Health Pride, Savings Plus and The Farm.
Building upon a broad base of A&P supermarkets, the Company has expanded and diversified within the retail food business through the acquisition of other supermarket chains and the development of several alternative store types. The Company now operates its stores with merchandise, pricing and identities tailored to appeal to different segments of the market, including buyers seeking gourmet and ethnic foods, unusual produce, a wide variety of premium quality private label goods and health and beauty aids along with the array of traditional grocery products.
Modernization of Facilities
The Company is engaged in a continuing program of modernizing its operations and retail stores. During fiscal 1998, the Company expended approximately $438 million for capital projects which included 46 new supermarkets, 3 new Food Basics franchised stores and 69 remodels or enlargements. The Company's plans for fiscal 1999 anticipate capital expenditures of approximately $500 million, which include the opening of 55 new supermarkets and the remodeling or expansion of 75 stores. In addition, the Company is developing plans to open approximately 65 new supermarkets in fiscal 2000 and approximately 70 to 80 new supermarkets per year thereafter for several years. Further, the Company expects to remodel or enlarge an average of 75 stores per year for the next several years.
Sources of Supply
The Company obtains the merchandise sold in its stores from a variety of suppliers located primarily in the United States and Canada. The Company has long-standing and satisfactory relationships with its suppliers.
The Company maintains 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 27, 1999, the Company had approximately 83,400 employees, of which 70% were employed on a part-time basis. Approximately 88% of the Company's employees are covered by union contracts.
Competition
The supermarket business is highly competitive throughout the marketing areas served by the Company and is generally characterized by low profit margins on sales with earnings primarily dependent upon rapid inventory turnover, effective cost controls and the ability to achieve high sales volume. The Company competes for sales and store locations with a number of national and regional chains as well as with many independent and cooperative stores and markets.
Foreign Operations
The information required is contained in the 1998 Annual Report to Shareholders on pages 30, 31, 33, 34, 36, 39 and 40 and is herein incorporated by reference.
ITEM 2. Properties
At February 27, 1999, the Company operated 839 retail stores and serviced 55 franchised stores. Approximately 7% of the Company's stores are owned, while the remainder are leased. These stores are geographically located as follows:
Company Stores: New England States: Connecticut 43 Massachusetts 19 New Hampshire 1 Vermont 2 ---- Total 65 Middle Atlantic States: District of Columbia 1 Delaware 8 Maryland 48 New Jersey 105 New York 167 Pennsylvania 41 ---- Total 370 Mid-Western States: Michigan 100 Wisconsin 43 ---- Total 143 Southern States: Alabama 2 Georgia 36 Louisiana 20 Mississippi 5 North Carolina 3 South Carolina 2 Virginia 11 ---- Total 79 ---- Total United States 657 ---- Ontario, Canada 182 ---- Total Stores 839 ====
Franchised Stores: Ontario, Canada 55 ---- Total Franchised Stores 55 ====
The total area of all retail stores is approximately 28.7 million square feet averaging approximately 34,250 square feet per store. Excluding liquor stores and Food Emporium stores the average store size is approximately 35,247. The total area of all franchised stores is approximately 1.5 million square feet averaging approximately 27,953 square feet per store. The 46 new supermarkets opened in fiscal 1998 had a range in size from 25,037 to 65,078 square feet, with an average size of approximately 49,389 square feet. The stores built by the Company over the past several years and those planned for fiscal 1999, generally range in size from 45,000 to 65,000 square feet with an average of approximately 55,000 square feet. The selling area of the store is approximately 74% of the total square footage.
The Company operates one coffee roasting plant in the United States. In addition, the Company maintains 14 warehouses that service its store network. These warehouses are geographically located as follows:
Company Warehouses: Georgia 1 Indiana 1 Louisiana 1 Maryland 1 Michigan 2 New Jersey 2 New York 2 Pennsylvania 1 Wisconsin 1 ---- Total United States 12 ---- Ontario, Canada 2 ---- Total Warehouses 14 ====
The net book value of real estate pledged as collateral for all mortgage loans amounted to approximately $9 million as of February 27, 1999.
ITEM 3.
ITEM 3. Legal Proceedings
The information required is contained in the 1998 Annual Report to Shareholders on page 39 and is herein incorporated by reference.
ITEM 4.
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 1998.
PART II
ITEM 5.
ITEM 5. Market for the Registrant's Common Stock and Related Security Holder Matters
The information required is contained in the 1998 Annual Report to Shareholders on pages 41 and 43 and is herein incorporated by reference.
ITEM 6.
ITEM 6. Selected Financial Data
The information required is contained on page 43 of the 1998 Annual Report to Shareholders and is herein incorporated by reference.
ITEM 7.
ITEM 7. Management's Discussion and Analysis
The information required is contained in the 1998 Annual Report to Shareholders on pages 15 through 22 and is herein incorporated by reference.
ITEM 7A.
ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk
The information required is contained in the 1998 Annual Report to Shareholders on page 21 and is herein incorporated by reference.
ITEM 8.
ITEM 8. Financial Statements and Supplementary Data
(a) Financial Statements: The financial statements required to be filed herein are described in Part IV, Item 14 of this report. Except for the pages included herein by reference, the Company's 1998 Annual Report to Shareholders is not deemed to be filed as part of this report.
(b) Selected Quarterly Financial Data: The information required is contained on page 41 of the 1998 Annual Report to Shareholders and is herein incorporated by reference.
ITEM 9.
ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure Not applicable.
PART III
ITEMS 10 and 11. Directors and Executive Officers of the Registrant and Executive Compensation
Executive Officers of the Company
Name Age Current Position
Christian W.E. Haub 34 President and Chief Executive Officer Fred Corrado 59 Vice Chairman of the Board and Chief Financial Officer Michael J. Larkin 57 Senior Executive Vice President - Chief Operating Officer Aaron Malinsky 50 Vice Chairman - Development and Strategic Planning George Graham 49 Executive Vice President - Chief Merchandising Officer Peter J. O'Gorman 60 Executive Vice President - International Store and Product Development Laurane S. Magliari 48 Senior Vice President - People Resources and Services Cheryl M. Palmer 41 Senior Vice President - Strategic Marketing John Dunne 60 Chairman and Co-Chief Executive Officer - The Great Atlantic & Pacific Company of Canada, Limited Brian Piwek 52 Vice Chairman and Co-Chief Executive Officer - The Great Atlantic & Pacific Company of Canada Limited Craig C. Sturken 55 Chairman and Chief Executive Officer - Mid-West Operations Robert G. Ulrich 64 Senior Vice President - General Counsel and Secretary
Executive officers of the Company are chosen annually and serve at the pleasure of the Chief Executive Officer with the consent of the Board of Directors.
Mr. Haub was elected President and Chief Executive Officer on May 1, 1998. Prior to assuming his present position he was President and Co-Chief Executive Officer from April 2, 1997 to April 30, 1998. Prior thereto he was President and Chief Operating Officer of the Company since December 7, 1993 and served as Corporate Vice President, Development and Strategic Planning, since joining the Company in 1991. Mr. Haub has been a member of the Board of Directors of the Company since December 3, 1991 and an ex officio member of the Executive, Finance and Retirement Benefits Committees.
Mr. Corrado was elected Vice Chairman of the Board on October 6, 1992. He also serves as Chief Financial Officer since joining the Company in January 1987. Mr. Corrado also served as Treasurer of the Company in 1987 and from April 18, 1989 through December 5, 1995. Mr. Corrado has been a member of the Board of Directors of the Company since December 4, 1990, and is currently the Vice Chairman of the Executive Committee and a member of the Finance and Retirement Benefits Committees.
Mr. Larkin was elected Senior Executive Vice President - Chief Operating Officer on June 30, 1997. Prior to rejoining the Company, Mr. Larkin owned and operated two supermarkets in the Pennsylvania area from April 1995 through June 1997. Prior thereto and for the past five years, Mr. Larkin was Executive Vice President - Operations with the Company.
Mr. Malinsky was appointed Vice Chairman of the Company on July 28, 1998. Upon rejoining the Company on August 1, 1996, he was elected Executive Vice President, Development and Strategic Planning. For the five years prior thereto, Mr. Malinsky was Chairman and President of Victory Markets, Inc. and New Almacs, Inc.
Mr. Graham was elected Executive Vice President - Chief Merchandising Officer on August 1, 1997. Prior to assuming his present position and for the past five years, he was successively Executive Vice President - U.S. Operations, and Senior Vice President - Chief Merchandising Officer.
Mr. O'Gorman was elected Executive Vice President - International Store and Product Development on June 26, 1995. During the past five years he was Executive Vice President - Development and Strategic Planning, and Executive Vice President - Development.
Ms. Magliari was elected Senior Vice President, People Resources and Services on February 16, 1999. Prior to joining the Company and for the past five years, Ms. Magliari was Vice President, Human Resources - Publishers Clearing House and Vice President, Global Marketing - The Chase Manhattan Bank.
Ms. Palmer was appointed Senior Vice President, Strategic Marketing May 3, 1999. Prior to joining the Company and for the past five years, Ms. Palmer was Group Vice President/General Manager for Allied Domecq Spirits & Wines and held various management positions for Cadbury Beverages, Inc.
Mr. Dunne was elected by The Great Atlantic & Pacific Company of Canada, Limited as Chairman and Co-Chief Executive Officer on October 5, 1997. Prior thereto and for the past five years, Mr. Dunne was successively Chairman and Chief Executive Officer, President and Chief Operating Officer, and Vice Chairman and Chief Merchandising Officer of The Great Atlantic & Pacific Company of Canada, Limited. Mr. Dunne also served as Chairman and Chief Executive Officer of Food Basics Limited from December 1995 through September 1996.
Mr. Piwek was elected by The Great Atlantic & Pacific Company of Canada, Limited as Vice Chairman and Co-Chief Executive Officer on October 2, 1997. Prior thereto and for the past five years, Mr. Piwek was President of Overwaitea Food Group, a retailer and franchisor in British Columbia and Alberta, Canada.
Mr. Sturken was appointed Chairman and Chief Executive Officer - Mid-West Operations on April 7, 1997. Prior thereto and for the past five years Mr. Sturken was successively Group Vice President Michigan and Chairman and Chief Executive Officer - The Great Atlantic & Pacific Company of Canada, Limited.
Mr. Ulrich was elected Senior Vice President and General Counsel and Secretary on March 26, 1999. Prior thereto he served as Senior Vice President and General Counsel since April 1981.
Mr. James Wood was elected Chairman of the Board and Chief Executive Officer on April 29, 1980. On April 2, 1997 he was elected Co-Chief Executive Officer and retired from that office on April 30, 1998. He is Chairman of the Executive Committee of the Board of Directors.
Mr. William Louttit was appointed Chairman and Chief Executive Officer - Greater Metro New York Operations on April 7, 1997. Prior thereto and for the past five years Mr. Louttit was Executive Vice President and Chief Operating Officer of the Grand Union Company. Mr. Louttit resigned from the Company effective May 17, 1999.
Mr. Joseph McCaig was appointed Executive Assistant to the Chief Executive Officer on September 8, 1997. Prior thereto and for the past five years he was President and Chief Executive Officer of the Grand Union Company. Mr. McCaig resigned from the Company effective March 12, 1999.
Dr. Ivan Szathmary was elected Executive Vice President and Chief Services Officer on July 11, 1996. Prior thereto, he was Senior Vice President and Chief Services Officer since July 1986. Effective April 11, 1998 Dr. Szathmary resigned from the Company.
The Company has filed with the Commission since the close of its fiscal year ended February 27, 1999 a definitive proxy statement pursuant to Regulation 14A, involving the election of directors. Accordingly, the information required in Items 10 and 11, except as provided above, appears on pages 1 through 12 and is incorporated by reference from the proxy statement.
ITEM 12.
ITEM 12. Security Ownership of Certain Beneficial Owners and Management
The information required is contained in the Company's fiscal 1998 definitive proxy statement on pages 1 and 5 and is herein incorporated by reference.
ITEM 13.
ITEM 13. Certain Relationships and Related Transactions
The information required is contained in the Company's fiscal 1998 definitive proxy statement on pages 1, 6 and 7 and is herein incorporated by reference.
PART IV ITEM 14.
ITEM 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) Documents filed as part of this report
1) Financial Statements: The financial statements required by Item 8, are included in the fiscal 1998 Annual Report to Shareholders. The following required items, appearing on pages 23 through 42 of the 1998 Annual Report to Shareholders, are herein incorporated by reference:
Statements of Consolidated Operations Statements of Consolidated Shareholders' Equity and Comprehensive (Loss) Income Consolidated Balance Sheets Statements of Consolidated Cash Flows Notes to Consolidated Financial Statements Independent Auditors' Report
2) Financial Statement Schedules are omitted because they are not required or do not apply, or the information is included elsewhere in the financial statements or notes thereto.
3) Exhibits:
Exhibit Incorporation by reference Numbers Description (If applicable)
2) Not Applicable 3) Articles of Incorporation and By-Laws a) Articles of Incorporation Exhibit 3)a) to Form 10-K as amended through for fiscal year ended July 1987 February 27, 1988 b) By-Laws as amended through Exhibit 3)b) to Form 10-K March 1989 for fiscal year ended February 25, 1989
4) Instruments defining the Exhibit A to Form 10-Q rights of security holders, for the quarter ended including indentures August 27, 1977; and Registration Statement No. 33-14624 on Form S-3 filed May 29, 1987
9) Not Applicable
10) Material Contracts a) Management Compensation Exhibit 10)b) to Form 10-K Agreements for the fiscal years ended February 25, 1989, February 24, 1990, and Exhibit 10)a) for the fiscal years ended February 26, 1994, February 25, 1995, February 22, 1997, February 28, 1998 and attached
b) Supplemental Executive Exhibit 10)b) to Form 10-K Retirement Plan, amended for the fiscal year ended and restated February 27, 1993
c) 1975 Stock Option Plan, Exhibit 10) to Form 10-K for as amended the fiscal year ended February 23, 1985 Incorporated by reference (If applicable)
10)d) 1984 Stock Option Plan, Exhibit 10)e) to Form 10-K as amended for the fiscal year ended February 23, 1991
e) 1994 Stock Option Plan Exhibit 10)e) to Form 10-K for the fiscal year ended February 25, 1995
f) 1994 Stock Option Plan Exhibit 10)f) to Form 10-K for Non-Employee Directors for the fiscal year ended February 25, 1995
g) Competitive Advance and Exhibit 10) to Form 10-Q Revolving Credit Facilities for the quarter ended Agreement dated as of December 2, 1995, filed on December 12, 1995. Form SE. h) Directors' Deferred Exhibit 10)h) to Form 10-K Payment Plan for the fiscal year ended February 22, 1997.
i) Competitive Advance and Exhibit 10) to Form 8-K Revolving Credit Facilities filed on June 12, 1997; Agreement dated as of and attached June 10, 1997 and amendment dated February 17, 1999.
j) Project Great Renewal Exhibit 99.1) to Form 8-K dated as of December 8, 1998 filed December 9, 1998
k) 1998 Long Term Incentive Attached and Share Award plan
Exhibit Incorporation by reference Numbers Description (If applicable)
11) Not Applicable
12) Not Applicable
13) 1998 Annual Report to Shareholders
18) Not Applicable
21) Subsidiaries of Registrant
22) Not Applicable
23) Independent Auditors' Consent
24) Not Applicable
27) Financial Data Schedule
28) Not Applicable
(b) Reports on Form 8-K
Report on Form 8-K with respect to the Company's "Project Great Renewal" was filed on December 9, 1998. The project was embarked upon as of December 8, 1998, and encompasses a program of strategic initiatives designed for growth, improved shareholder value and to position the Company as a leader in North America food retailing.
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 11, 1999 By: /s/ Fred Corrado (Signature) Fred Corrado Vice Chairman of the Board and Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant in the capacities and as of the date indicated.
/s/ James Wood Chairman of the Board and Director James Wood
/s/ Christian W.E. Haub President, Chief Executive Officer and Christian W.E. Haub Director
/s/ Fred Corrado Vice Chairman of the Board, Fred Corrado Chief Financial Officer and Director
/s/ John D. Barline Director John D. Barline
/s/ Rosemarie Baumeister Director Rosemarie Baumeister
/s/ Christopher F. Edley Director Christopher F. Edley
/s/ Helga Haub Director Helga Haub
/s/ Barbara Barnes Hauptfuhrer Director Barbara Barnes Hauptfuhrer
/s/ William A. Liffers Director William A. Liffers
/s/ Fritz Teelen Director Fritz Teelen
/s/ R.L. "Sam" Wetzel Director R.L. "Sam" Wetzel
The above-named persons signed this report on behalf of the registrant on May 11, 1999.
/s/ Kenneth A. Uhl Vice President, Controller May 18, 1999 Kenneth A. Uhl Date