Great Atlantic & Pacific Tea Company 10-K 2009
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
For the fiscal year ended February 28, 2009
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)
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined by Rule 405 of the Securities Act. Yes [X] No [ ]
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 of Section 15(d) of the Act. Yes [ ] No [X]
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 whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-K (§229.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files.
Yes [ ] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrants 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. [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer Accelerated filer X Non-accelerated filer Smaller reporting company
Indicate by check mark whether the registrant is a shell company (as defined in Exchange Act Rule 12b-2). Yes [ ] No [X]
The aggregate market value of the voting stock held by non-affiliates of the Registrant as of the close of business on September 6, 2008, the registrants most recently completed second fiscal quarter, was $451,554,924.
The number of shares of common stock outstanding as of the close of business on May 8, 2009 was 57,771,720.
DOCUMENTS INCORPORATED BY REFERENCE
The information required by Part I, Items 1 and 3, and Part II, Items 5, 6, 7, 7A, 8 and 9A are incorporated by reference from the Registrants Fiscal 2008 Annual Report to Stockholders. The information required by Part III, Items 10, 11, 12, 13, and 14 are incorporated by reference from the Registrants Proxy Statement for the 2008 Annual Meeting of Stockholders.
ITEM 1 Business
The Great Atlantic & Pacific Tea Company, Inc. (A&P, we, our, us or our Company) is engaged in the retail food business. We operated 436 stores averaging approximately 42,200 square feet per store as of February 28, 2009.
Operating under the trade names A&P®, Super Fresh®, Waldbaums, Super Foodmart, Food Basics®, The Food Emporium®, Best Cellars®, Pathmark® and Pathmark Sav-a-Center®, we sell groceries, meats, fresh produce and other items commonly offered in supermarkets. In addition, many stores have bakery, delicatessen, pharmacy, floral, fresh fish and cheese departments and on-site banking. National, regional and local brands are sold as well as private label merchandise. In support of our retail operations, we sell other private label products in our stores under other brand names of our Company which include without limitation, Americas Choice®, Master Choice®, and Health Pride®.
Building upon a broad base of 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.
Our Internet address is www.aptea.com. We make available free of charge through our Internet website our annual reports and the proxy statement for our annual meeting of stockholders as soon as reasonably practicable after we electronically file such material with, or furnish them to, the Securities and Exchange Commission. All of such materials are located at the Investors page. We also provide through our Internet website a hyperlink to the Securities and Exchange Commission website, where the Companys quarterly reports on Form 10-Q, current reports on Form 8-K, and Forms 3, 4 and 5 filed with respect to our equity securities under Section 16(a) of the Securities and Exchange Act of 1934 may be accessed electronically. The information found on our website shall not be deemed incorporated by reference by any general statement incorporating by reference this report into any filing under the Securities Act of 1933, as amended, or under the Securities Exchange Act of 1934, as amended, and shall not otherwise be deemed filed under the Acts.
Modernization of Facilities
During fiscal 2008, we expended approximately $116.0 million for capital projects, which included 1 new liquor store, 2 liquor store remodels, 1 Gourmet store remodel, 16 major remodels, 1 major enlargement, 2 conversions, 7 Pathmark Price-Impact remodels and 3 Starbucks remodels. Our planned capital expenditures for fiscal 2009 are approximately $100 million, which relate primarily to enlarging or remodeling supermarkets, and converting supermarkets to more optimal formats.
Sources of Supply
Our Company currently acquires a majority of our saleable inventory from one supplier, C&S Wholesale Grocers, Inc. Although there are a limited number of distributors that can supply our stores, we believe that other suppliers could provide similar product on comparable terms.
On March 7, 2008, our Company entered into a definitive agreement with C&S Wholesale Grocers, Inc. (C&S) whereby C&S will provide warehousing, logistics, procurement and purchasing services (the Services) in support of the Companys entire supply chain. This agreement replaces and supersedes three (3) separate wholesale supply agreements under which the parties have been operating. The term of the agreement is ten and one-half (10-1/2) years, which included a six-month ramp-up period during which the parties transitioned to the new contractual terms and conditions. The agreement provides that the actual costs of performing the services shall be reimbursed to C&S on an open-book or cost-plus basis, whereby the parties will negotiate annual budgets that will be reconciled against actual costs on a periodic basis. The parties will also annually negotiate services specifications and performance standards that will govern warehouse operations. The agreement defines the parties respective responsibilities for the procurement and purchase of merchandise intended for use or resale at the Companys stores, as well as the parties respective remuneration for warehousing and procurement/purchasing activities. In consideration for the services it provides under the agreement, C&S will be paid an annual fee and will have incentive income opportunities based upon A&Ps cost savings and increases in retail sales volume.
On September 27, 2008, our Company agreed to sell C&S all general merchandise, health beauty and cosmetics, seasonal grocery and other such merchandise warehoused at our distribution center located in Edison, New Jersey. The cost of this inventory was approximately $29.9 million and we have repurchased all of the inventory at the end of our third quarter of fiscal 2008.
Licenses and Trademarks
Our stores require a variety of licenses and permits that are renewed on an annual basis. Payment of a fee is generally the only condition to maintaining such licenses and permits. We maintain registered trademarks for nearly all of our store banner trade names and private label brand names. Trademarks are generally renewable on a 10 year cycle. We consider trademarks an important way to establish and protect our Company brands in a competitive environment.
As of February 28, 2009, we had approximately 48,000 employees, of which 68% were employed on a part-time basis. Approximately 92% of our employees are covered by union contracts. Our Company considers its present relations with employees to be satisfactory.
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.
The segment information required is contained under the caption Note 18 Segments in the Fiscal 2008 Annual Report to Stockholders (Annual Report) and is herein incorporated by reference.
ITEM 1A Risk Factors
The Risk Factors required are disclosed in the Fiscal 2008 Annual Report to Stockholders and are herein incorporated by reference.
ITEM 1B Unresolved Staff Comments
ITEM 2 Properties
At February 28, 2009, we owned 57 properties consisting of the following:
None of the properties listed above are subject to material encumbrances.
At February 28, 2009, we operated 436 retail stores. These stores are geographically located as follows:
The total area of all of our operated retail stores is 18.4 million square feet averaging approximately 42,200 square feet per store. Excluding liquor and The Food Emporium® stores, which are generally smaller in size, the average store size is approximately 45,300 square feet. We opened a 6,000 square foot liquor store during fiscal 2008 with a selling area of approximately 42% of the total square footage. The stores built over the past several years and those planned for fiscal 2009 and thereafter, generally range in size from 40,000 to 60,000 square feet. The selling area of new stores is normally approximately 75% of the total square footage.
Our Company considers our stores, warehouses, and other facilities adequate for our operations.
ITEM 3 Legal Proceedings
The information required is contained under the caption Note 21 Commitments and Contingencies in the Fiscal 2008 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 2008.
ITEM 4A Executive Officers of the Registrant
The executive officers of our Company are as follows:
Mr. Haub was appointed Executive Chairman in August 2005. He was elected a director in December 1991, and is Chair of the Executive Committee. Mr. Haub previously served as Chairman of the Board and Chief Executive Officer; and as Chief Operating Officer of our Company from December 1993, becoming Co-Chief Executive Officer in April 1997, sole CEO in May 1998 and Chairman of the Board in May 2001. Mr. Haub also served as President of the Company from December 1993 through February 2002, and from November 2002 through November 2004. Mr. Haub is a partner and Co-Chief Executive Officer of Tengelmann Warenhandelsgesellschaft KG, a partnership organized under the laws of the Federal Republic of Germany (Tengelmann). Mr. Haub is on the Board of Directors of Metro, Inc., the Food Marketing Institute and on the Board of Trustees of St. Josephs University in Philadelphia, Pennsylvania.
Mr. Claus was appointed President & Chief Executive Officer in August 2005. Mr. Claus previously served as President & Chief Executive Officer, Canadian Company from November 2002 to August 2005. Prior to joining our Company, Mr. Claus served as Chief Executive Officer of Co-Op Atlantic, between February 1997 and November 2002.
Ms. Galgano, CPA, was appointed Senior Vice President, Chief Financial Officer in November 2005. Ms. Galgano served as Senior Vice President and Corporate Controller, from November 2004 to November 2005; Vice President, Corporate Controller from February 2002 to November 2004, Assistant Corporate Controller of our Company from July 2000 to February 2002 and Director of Corporate Accounting from October 1999 to July 2000. Prior to joining our Company, Ms. Galgano was with PricewaterhouseCoopers LLP as Senior Manager, Assurance and Business Advisory Services.
Mr. Guldin was appointed Executive Managing Director, Strategy & Development on May 1, 2007 and was elected to the Board of Directors effective May 1, 2007. Prior to that he was Senior Executive Vice President (Corporate Finance) and Co-CFO of Tengelmann Warenhandelsgesellschaft KG. Prior to joining Tengelmann, Mr. Guldin served as a member of the Executive Management Team and Chief Financial Officer at E. Breuninger GmbH & Co. (Germany), the most prestigious department store and fashion retailer in Germany. Before that he worked for several years as a business and strategy consultant as a Senior Consultant and Project Leader at PA Consulting and CSC Index, Germany.
Ms. MacLeod was appointed Senior Vice President of Marketing and Communications in November 2005. Prior to joining our Company, Ms. MacLeod served as Vice President of Marketing and Public Relations from 1998 to November 2005 for Co-op Atlantic, an operator based in New Brunswick, Canada.
Ms. Philbert was appointed Senior Vice President, Merchandising, in December 2006 and in February 2007 was additionally appointed over Supply & Logistics. Prior to joining our Company, she was with Safeway, Inc. from 1981 to 2006, where she most recently served as Corporate Vice President and Senior Lead, Lifestyle Store development. Prior to that she served as Corporate Vice President Deli and Foodservice & Starbucks and prior to that Corporate Vice President of Marketing.
Mr. Richards was appointed Senior Vice President, Human Resources, Labor Relations & Legal Services in September 2005 and in October 2005 was additionally appointed the Companys Secretary. Prior to that Mr. Richards served as Senior Vice President, Labor Relations & Human Resources from July 2004 to September 2005 and as Senior Vice President, Labor Relations from March 2004 to July 2004. Prior to joining our Company Mr. Richards served as a consultant with MGS Consulting, Inc. from July 2003 to July 2004; and prior to that as Director of Labor Relations and Employment Law for Fleming Companies, Inc. from June 2000 to July 2003.
Mr. Wiseman was appointed Senior Vice President, Store Operations in September 2005. Prior to that Mr. Wiseman was Senior Vice President, Discount Operations, A&P Canada from 2004 to September 2005 and prior to that served as District Manager/Vice President Retail Operations from 1999 to 2004 for Co-op Atlantic, an operator based in New Brunswick, Canada.
Mr. Moss was appointed Vice President and Treasurer in February 2002. Prior to that Mr. Moss was Vice President, Treasury Services and Risk Management from 1992 to February 2002.
Ms. Sungela, CPA, was appointed Vice President and Corporate Controller in November 2005. Ms. Sungela served as Vice President and Assistant Corporate Controller from June 2004 to November 2005. Prior to joining our Company, Ms. Sungela was North American Controller for Amersham Biosciences, a part of GE Healthcare, from April 2002 to June 2004. Previously, she served as Director of Accounting Policy for Honeywell, from June 1998 to January 2002.
ITEM 5 Market for the Registrants Equity and Related Stockholder Matters and Issuer Purchases of Equity Securities
The information required is contained under the captions Summary of Quarterly Results, Five Year Summary of Selected Financial Data, and Stockholder Information in the Fiscal 2008 Annual Report to Stockholders and is herein incorporated by reference.
Although our Company declared and paid a special one-time dividend to our shareholders of record on April 17, 2006 equal to $7.25 per share in April 2006, our Companys policy is to not pay dividends. As such, we have not made dividend payments in the previous three years and do not intend to pay dividends in the normal course of business in fiscal 2008. The terms of our Revolving Credit Agreement restrict the Companys ability to pay cash dividends on common shares.
There have been no repurchases of our Company stock in fiscal 2008.
As of May 8, 2009, there were approximately 5,667 stockholders of record of our common stock.
Securities authorized for issuance under equity compensation plans are summarized below:
Stock Performance Graph
The following performance graph compares the five-year cumulative total stockholder return (assuming reinvestment of dividends) of the Companys Common Stock to the Standard & Poors 500 Index and the Companys Peer Group which consists of the Company, Supervalu Inc., Safeway, Inc. and The Kroger Co. The Peer Group for the purposes of the Stock Performance Graph is a subset of, and should not be confused for, the peer group list of companies used to benchmark executive compensation as discussed in the Proxy Statement for the Companys 2008 Annual Meeting of Shareholders (Proxy Statement). The performance graph assumes $100 is invested in the Companys Common Stock, the Standard & Poors 500 Index and the Companys Peer Group on February 27, 2004, and that dividends paid during the period were reinvested to purchase additional shares.
(Company fiscal year ends the last Saturday in February)
The performance graph above is being furnished solely to accompany this annual report on Form 10-K pursuant to Item 201(e) of Regulation S-K, and is not being filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and is not to be incorporated by reference into any filing of our Company, whether made before or after the date hereof, regardless of any general incorporation language in such filing.
ITEM 6 Selected Financial Data
The information required is contained under the caption Five Year Summary of Selected Financial Data in the Fiscal 2008 Annual Report to Stockholders and is herein incorporated by reference.
ITEM 7 Managements Discussion and Analysis of Financial Condition and Results of Operations
The information required is contained under the caption Managements Discussion and Analysis in the Fiscal 2008 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 Managements Discussion and Analysis in the Fiscal 2008 Annual Report to Stockholders and is herein incorporated by reference.
ITEM 8 Financial Statements and Supplementary Data
ITEM 9 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
There were no changes in or disagreements with accountants on accounting and financial disclosure during the fiscal year ended February 28, 2009.
ITEM 9A Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We have established and maintain disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) that are designed to ensure that information required to be disclosed in our Companys Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SECs rules and forms, and that such information is accumulated and communicated to our Companys management, including our President and Chief Executive Officer, and Senior Vice President, Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
We carried out an evaluation, under the supervision and with the participation of our Companys management, including our Companys President and Chief Executive Officer along with our Companys Senior Vice President, Chief Financial Officer, of the effectiveness of the design and operation of our Companys disclosure controls and procedures pursuant to Exchange Act Rule 13a-15(b). Based upon the foregoing, as of the end of the period covered by this report, our Companys President and Chief Executive Officer along with our Companys Senior Vice President, Chief Financial Officer, concluded that our Companys disclosure controls and procedures were effective at the reasonable assurance level.
The Companys management does not expect that its disclosure controls and procedures or its internal control over financial reporting will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and breakdowns can occur because of simple errors or mistakes. Additionally, controls can be circumvented by the individual acts of some person or by collusion of two or more people. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected. Accordingly, the Companys disclosure controls and procedures are designed to provide reasonable, not absolute, assurance that the objectives of our disclosure control system are met and, as set forth above, the Companys management has concluded, based on their evaluation as of the end of the period, that our disclosure controls and procedures were sufficiently effective to provide reasonable assurance that the objectives of our disclosure control system were met.
Incorporation by reference of Managements Annual Report on Internal Control over Financial Reporting
Management of The Great Atlantic and Pacific Tea Company, Inc. has prepared an annual report on internal control over financial reporting (as such item is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act). Managements report is included in our Companys Fiscal 2008 Annual Report to Stockholders and is herein incorporated by reference in this Annual Report on Form 10-K.
Changes in Internal Control over Financial Reporting
There has been no change during our Companys fiscal quarter ended February 28, 2009 in our Companys internal control over financial reporting (as such item is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that has materially affected, or is reasonably likely to materially affect, our Companys internal control over financial reporting.
ITEM 9B Other Information
ITEM 10 Directors, Executive Officers and Corporate Governance
Disclosures of delinquent filers pursuant to Item 405 of Regulation S-K are incorporated herein by reference to the Proxy Statement.
Code of Business Conduct and Ethics
Our Company has adopted a Code of Business Conduct and Ethics applicable to all employees. This Code is applicable to Senior Financial Executives including the Chief Executive Officer, Chief Financial Officer and Chief Accounting Officer of our Company. A&Ps Code of Business Conduct and Ethics is available on the Companys Web site at www.aptea.com under Corporate Governance. Our Company intends to post on its web site any amendments to, or waivers from, its Code of Business Conduct and Ethics applicable to Senior Financial Executives. The Code of Business Conduct and Ethics is available in print to any shareholder or other interested party upon written request to the Legal Compliance Officer, 2 Paragon Drive, Montvale, New Jersey 07645 or by calling (201) 571-4355.
Additional information required by our directors is contained under the caption Election of Directors in the Proxy Statement and is incorporated herein by reference.
ITEM 11 Executive Compensation
The information required regarding our directors, executive compensation and our beneficial ownership reporting compliance is contained under the captions, Executive Compensation and Section 16(a) Beneficial Ownership Reporting Compliance, respectively, in the Proxy Statement, to be filed on or before May 30, 2009, and is herein incorporated by reference.
ITEM 12 Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information required is contained in our Proxy Statement under the heading Security Ownership of Certain Beneficial Owners and Management, and is herein incorporated by reference.
ITEM 13 Certain Relationships and Related Transactions and Director Independence
The information required is contained in our Proxy Statement under the heading Certain Relationships and Transactions and The Board of Directors of the Company, and is herein incorporated by reference.
ITEM 14 Principal Accounting Fees and Services
The information required is contained in our Proxy Statement under the heading Independent Registered Public Accounting Firm, and is herein incorporated by reference.
ITEM 15 Exhibits and Financial Statement Schedules
(a) Documents filed as part of this report:
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
Report of Independent Registered Public Accounting Firm
Schedule II Valuation and Qualifying Accounts and Reserves
All other schedules are omitted because they are not required or do not apply, or the required information is included elsewhere in the Consolidated Financial Statements or Notes thereto.
The following are filed as Exhibits to this Report:
Report of Independent Registered Public Accounting Firm on
Financial Statement Schedule
To the Stockholders and Board of Directors of
The Great Atlantic & Pacific Tea Company, Inc.:
Our audits of the consolidated financial statements and of the effectiveness of internal control over financial reporting referred to in our report dated May 12, 2009 appearing in the Fiscal 2008 Annual Report to Shareholders of The Great Atlantic & Pacific Tea Company, Inc. (which report and consolidated financial statements are incorporated by reference in this Annual Report on Form 10-K) also included an audit of the financial statement schedule listed in Item 15(a)(2) of this Form 10-K. In our opinion, this financial statement schedule presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements.
/s/ PricewaterhouseCoopers LLP
Florham Park, New Jersey
May 12, 2009
The Great Atlantic & Pacific Tea Company, Inc.
Valuation and Qualifying Accounts and Reserves
Years Ended February 24, 2007, February 23, 2008, and February 28, 2009
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.
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.