The Great Atlantic & Pacific Tea Company, Inc.
2 Paragon Drive, Montvale, New Jersey 07645
Phone: 201-571-8714 Fax: 201-571-8715
e-mail: Goldsteinm@aptea.com
Mitchell P. Goldstein
Senior Vice President
Chief Financial Officer
May 17, 2002
Mr. Jonathan G. Katz
Secretary, Securities and Exchange Commission
450 Fifth Street, NW
Washington, DC 20549
Dear Mr. Katz,
After analyzing and reviewing the implications of the Securities and Exchange Commission's File No. S7-08-02 "Acceleration of Periodic Report Filing Dates and Disclosure Concerning Website Access to Reports," The Great Atlantic & Pacific Tea Company ("A&P") feels compelled to respond with its concerns. A&P believes that it will be extremely difficult to meet accelerated reporting deadlines in the timeframe proposed by the Commission.
We are all well aware of the failure of Enron and its causes. We also realize the pressure put on the Commission to ensure a failure of this magnitude never again occurs. A&P views some of the proposals and discussions as progressive and some as regressive. It is plausible, for example, that requiring auditor independence by limiting the ability of external auditors to perform non-audit services for an audit client would be a safeguard to the investing community. However, decreasing the amount of time a registrant has to file its Form 10-K and Form 10-Q would be detrimental for several reasons:
As accounting and reporting requirements have evolved over the years, continual changes in those requirements have lengthened the typical filing and the time required to prepare, review and file it through EDGAR. In fact, new accounting pronouncements and disclosure requirements have significantly increased A&P's annual report over the past five years. Preparation of the ever-increasing disclosures require time; time to prepare, time for management review, time for auditor sign-off, and time for Board of Directors approval. Therefore, even though it may appear to the Commission that financial statements are final at the earnings release date, the audit and review process is far from complete.
The following is the timeline A&P is currently experiencing:
| Reporting period end | Day 1 | Feb. 23 |
| Close of books | Day 12 | Mar. 7 |
| External audit of financial statements | Days 13-38 | Mar. 8 - Apr. 2 |
| Auditor sign-off on press release | Day 39 | Apr. 3 |
| Earnings release | Day 40 | Apr. 4 |
| Draft of annual report to management | Day 47 | Apr. 11 |
| Incorporate management comments and redistribute | Day 52 | Apr. 16 |
| Incorporate additional comments and distribute to Audit Committee | Day 54 | Apr. 18 |
| Audit Committee comments and approval | Day 61 | Apr. 25 |
| Incorporate Audit Committee comments and distribute to management along with draft of Form 10-K | Day 63 | Apr. 27 |
| Incorporate final comments to annual report and Form 10-K | Day 72 | May 6 |
| Distribute annual report and 10-K to Board of Directors for comments and approval | Day 74 | May 8 |
| EDGARized documents available for proof reading | Day 79 | May 13 |
| Receive comments and approval from Board of Directors, estimated | Day 86 | May 20 |
| Proof and edit EDGARized annual report and 10-K, release annual report to printer for mass printing and file EDGARized 10-K with all exhibits with S.E.C., estimated | Day 88 | May 22 |
As can be seen above, extensive preparation and review is involved in preparing the annual filing on Form 10-K. Similar (though shorter) time is required for quarterly filings on Form 10-Q. Reducing the time available for these activities would severely impede A&P's ability to perform the level of review required to provide accurate and complete filings for our current and potential creditors and stockholders.
Currently, external auditors are under tremendous time pressure to complete their audits in the timeframe provided between the registrant's balance sheet date and the earnings release date. This requires their staff to work expeditiously for a three to five week period, where long daily hours and weekends are the mainstay, in order to sufficiently audit and sign off on the registrant's financial statements. In general, this process works. Reducing the filing deadline would reduce the amount of time available to auditors to perform their reviews, thereby decreasing their ability to perform their main function, to detect material misstatements. This would ultimately inhibit the auditors' ability to provide an adequate level of assurance to the investing community. If anything, this raises the likelihood of more negative headlines.
The supermarket industry is highly competitive throughout the marketing areas served by A&P 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. While A&P has retained competent individuals to perform the various functions required to operate adequately, all business functions are operated as leanly as possible in order to attain profitability due to the low profit margin nature of the supermarket business. A&P's accounting and reporting functions are no exception. Decreasing the filing deadlines would require A&P to invest significantly in human capital. Additionally, significant technology investments may also be required. All of these costs, human and technological, would be passed on to A&P's stockholders in the form of lower earnings.
While A&P strongly supports the Commission's motivation to improve financial reporting, it believes decreasing filing deadlines would not accomplish that goal and would ultimately increase costs, reduce external auditor accuracy and decrease earnings for its stockholders.
The following are excerpts from the official proposal by the Commission that A&P believes carry tremendous weight...
"In establishing the appropriate timeframes for filing periodic reports, however, we must balance the market's need for information with the time companies need to prepare that information without undue burden."
"...benefits derived from technological advances over the past 30 years have been offset by additional and more complex reporting requirements."
Please be mindful of the additional financial burden and increasing complexity of reporting requirements that stand in the way of all registrants.
Sincerely,
Mitchell P. Goldstein
Senior Vice President
Chief Financial Officer
Brenda M. Galgano
Vice President
Corporate Controller