UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~September~~December 103, 2011

[ ] 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 OTC Markets, Inc.

9.375% Notes, due August 1, 2039 OTC Markets, Inc.

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 whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 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 [ x ] No [ ]

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.

Large accelerated filer ________ Accelerated filer ________ Non-accelerated filer x 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 ]

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by section 12, 13, or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes [ ] No [ ]

The number of shares of common stock outstanding as of the close of business on ~~October~~January 216, ~~2011~~2012 was 53,852,470.

PART I – FINANCIAL INFORMATION

ITEM 1 – Financial Statements

The Great Atlantic & Pacific Tea Company, Inc.

(Debtors-in-Possession)

Consolidated Statements of Operations

(Dollars in thousands, except share and per share amounts)

(Unaudited)

	12 Weeks Ended						2840 Weeks Ended
	Sept. 10, 2011			Sept. 11, 2010			Sept. 10, 2011			Sept. 11, 2010
	Dec. 3, 2011			Dec. 4, 2010			Dec. 3, 2011			Dec. 4, 2010
Sales	$	1,~~638~~571,~~694~~342		$	1,~~918~~793,~~279~~805		$	35,~~869~~440,~~340~~682		$	46,~~483~~277,~~209~~014
Cost of merchandise sold		(1,~~183~~126,~~264~~059	)		(1,~~354~~258,~~931~~926	)		(23,~~790~~916,~~591~~650	)		(34,~~155~~414,~~193~~119	)
Gross margin		~~455~~445,~~430~~283			~~563~~534,~~348~~879			1,~~078~~524,~~749~~032			1,~~328~~862,~~016~~895
Store operating, general and administrative expense		(~~506~~499,~~902~~610	)		(~~631~~635,~~224~~586	)		(1,~~295~~795,~~629~~239	)		(12,~~452~~087,~~240~~826	)
Goodwill, trademark and long-lived asset impairment		(2425,~~124~~138	)		(3042,~~250~~036	)		(79104,~~542~~680	)		(3577,~~648~~684	)
Loss from continuing operations before		(79,465	)		(142,743	)		(375,887	)		(302,615	)
nonoperating income, interest expense, net and
nonoperating income (loss), interest expense, net and
reorganization items, net		~~(75,596~~	)		~~(98,126~~	)		~~(296,422~~	)		~~(159,872~~	)
Nonoperating income		8			2,177			91			10,454
Nonoperating income (loss)		61			(213	)		152			10,241
Interest expense, net		(3734,~~829~~499	)		(4640,~~126~~038	)		(86120,~~283~~782	)		(~~107~~147,~~268~~306	)
Reorganization items, net		17(10,~~148~~510	)		-			9584,~~026~~516			-
Loss from continuing operations before income taxes		(96124,~~269~~413	)		(~~142~~182,~~075~~994	)		(~~287~~412,~~588~~001	)		(~~256~~439,~~686~~680	)
(Provision for) benefit from income taxes		(1,562	)		(105	)		13,088			(245	)
Benefit from income taxes		1,182			2,953			14,270			2,708
Loss from continuing operations		(97123,~~831~~231	)		(~~142,~~180,041	)		(~~274~~397,~~500~~731	)		(~~256~~436,~~931~~972	)
Discontinued operations:
Loss from operations of discontinued businesses, net of income tax benefit of $1,464 and $2,606 for the 12 and 28 weeks ended September 10, 2011, respectively, and $0 for the 12 and 28 weeks ended September 11, 2010, respectively		(2,022	)		(10,853	)		(1,225	)		(17,968	)
Loss from operations of discontinued businesses, net of income tax benefit of $243 and $2,849 for the 12 and 40 weeks ended December 3, 2011, respectively, and $0 for the 12 and 40 weeks ended December 4, 2010, respectively		(335	)		(18,687	)		(1,560	)		(36,655	)
Gain on disposal of discontinued operations, net of income tax provision of $0 for the 12 and 28 weeks ended September 10, 2011 and September 11, 2010, respectively		-			-			-			79
Gain on disposal of discontinued operations, net of income tax provision of $0 for the 12 and 40 weeks ended December 3, 2011 and December 4, 2010, respectively		-			-			-			79
Reorganization items, net of income tax provision of $7 and $14,368 for the 12 and 28 weeks ended September 10, 2011, respectively, and $0 for the 12 weeks and 28 weeks ended September 11, 2010, respectively		8			-			19,841			-
Reorganization items, net of income tax provision of $0 and $14,368 for the 12 and 40 weeks ended December 3, 2011, respectively		-			-			19,841			-
(Loss) income from discontinued operations		(~~2,014~~335	)		(1018,~~853~~687	)		18,~~616~~281			(1736,~~889~~576	)
Net loss	$	(99123,~~845~~566	)	$	(~~153~~198,~~033~~728	)	$	(~~255~~379,~~884~~450	)	$	(~~274~~473,~~820~~548	)
Net (loss) income per share – basic:
Continuing operations	$	(12.8431	)	$	(23.7242	)	$	(57.1545	)	$	(48.9841	)
Discontinued operations		(0.0401	)		(0.2134	)		0.3534			(0.3368	)
Net loss per share – basic	$	(12.8832	)	$	(23.9376	)	$	(47.8011	)	$	(59.3109	)
Net (loss) income per share – diluted:
Continuing operations	$	(12.8431	)	$	(23.7542	)	$	(57.1545	)	$	(1431.6494	)
Discontinued operations		(0.0401	)		(0.1934	)		0.3534			(02.9453	)
Net loss per share – diluted	$	(12.8832	)	$	(23.9476	)	$	(47.8011	)	$	(1534.5847	)
Weighted average common shares outstanding:
Basic		53,852,470			53,~~778~~852,~~502~~470			53,852,470			53,~~618~~688,~~284~~540
Diluted		53,852,470			5653,~~970~~852,~~721~~470			53,852,470			1814,~~949~~448,~~997~~398

See Notes to Consolidated Financial Statements.

The Great Atlantic & Pacific Tea Company, Inc.

(Debtors-in-Possession)

Consolidated Statements of Stockholders’ Deficit and Comprehensive Loss

(Dollars in thousands, except share amounts)

(Unaudited)

								Accumulated
					Additional			Other						Total
	Common Stock				Paid-in			Comprehensive			Accumulated			Stockholders’
28 Weeks Ended September 10, 2011	Shares		Amount		Capital			Loss			Deficit			Deficit
40 Weeks Ended December 3, 2011	Shares		Amount		Capital			Loss			Deficit			Deficit
Balance at 2/26/2011, as previously reported		53,852,470	$	53,852	$	511,157		$	(75,309	)	$	(1,630,664	)	$	(1,140,964	)
Retrospective change in accounting
principle for inventory valuation		-		-		-			-			11,329			11,329
Balance at 2/26/2011, as adjusted		53,852,470		53,852		511,157			(75,309	)		(1,619,335	)		(1,129,635	)
Net loss		-		-		-			-			(~~255~~379,~~884~~450	)		(~~255~~379,~~884~~450	)
Beneficial conversion feature accretion
on preferred stock		-		-		(23,~~591~~703	)		-			-			(23,~~591~~703	)
Preferred stock financing fees amortization		-		-		(~~936~~1,338	)		-			-			(~~936~~1,338	)
Other share based awards		-		-		12,~~991~~925			-			-			12,~~991~~925
Other comprehensive loss		-		-		-			(~~875~~513	)		-			(~~875~~513	)
Balance at 09/10/2011		53,852,470	$	53,852	$	509,621		$	(76,184	)	$	(1,875,219	)	$	(1,387,930	)
Balance at 12/3/2011		53,852,470	$	53,852	$	509,041		$	(75,822	)	$	(1,998,785	)	$	(1,511,714	)
28 Weeks Ended September 11, 2010
40 Weeks Ended December 4, 2010
Balance at 2/27/2010, as previously reported		55,868,129	$	55,868	$	526,421		$	(79,403	)	$	(1,032,089	)	$	(529,203	)
Retrospective change in accounting
principle for inventory valuation		-		-		-			-			9,285			9,285
Balance at 2/27/2010, as adjusted		55,868,129		55,868		526,421			(79,403	)		(1,022,804	)		(519,918	)
Net loss		-		-		-			-			(~~274~~473,~~820~~548	)		(~~274~~473,~~820~~548	)
Beneficial conversion feature accretion
on preferred stock		-		-		(23,~~591~~703	)		-			-			(23,~~591~~703	)
Dividends on preferred stock		-		-		(710,~~400~~631	)		-			-			(710,~~400~~631	)
Preferred stock financing fees amortization		-		-		(~~936~~1,338	)		-			-			(~~936~~1,338	)
Stock options exercised		4,834		5		23			-			-			28
Other share based awards		407,451		407		~~(581~~541	)		-			-			~~(174~~948	)
Other comprehensive income		-		-		-			~~380~~543			-			~~380~~543
Balance at 09/11/2010		56,280,414	$	56,280	$	514,936		$	(79,023	)	$	(1,297,624	)	$	(805,431	)
Balance at 12/4/2010		56,280,414	$	56,280	$	511,313		$	(78,860	)	$	(1,496,352	)	$	(1,007,619	)

Comprehensive Loss	~~12 Weeks Ended~~	12 Weeks Ended			~~28 Weeks Ended~~				40 Weeks Ended
	Sept. 10, 2011		Sept. 11, 2010		Sept. 10, 2011		Sept. 11, 2010
		Dec. 3, 2011				Dec. 4, 2010			Dec. 3, 2011			Dec. 4, 2010
Net loss	~~$(99,845)~~	$	$(~~153~~123,~~033)~~566	)	~~$(255,844)~~	$	$(~~274~~198,~~820)~~728	)	$	(379,450	)	$	(473,548	)
Pension and other postretirement benefits, net of tax of $0 and $1,719
Pension and other postretirement benefits (expense), net of
for the 12 and 28 weeks ended September 10, 2011, respectively,
tax of $0 and $1,719 for the 12 and 40 weeks ended,
and $0 for the 12 and 28 weeks ended September 11, 2010,
December 3, 2011, respectively, and $0 for the 12 and
respectively	361		128		(875)		380
40 weeks ended December 4, 2010, respectively			362				163			(513	)		543
Other comprehensive income (loss), net of tax	~~361~~		~~128~~362		~~(875)~~		~~380~~163			(513	)		543
Total comprehensive loss	~~$(99,484)~~	$	$(~~152~~123,~~905)~~204	)	~~$(256,759)~~	$	$(~~274~~198,~~440)~~565	)	$	(379,963	)	$	(473,005	)
See Notes to Consolidated Financial Statements.

The Great Atlantic & Pacific Tea Company, Inc.

(Debtors-in-Possession)

Consolidated Balance Sheets

(Dollars in thousands, except share and per share amounts)

(Unaudited)

ASSETS	~~Sept.~~December 103, 2011			February 26, 2011
Current assets:
Cash and cash equivalents	$	~~301~~196,~~569~~806		$	352,607
Restricted cash		45,~~180~~015			1,731
Accounts receivable, net of allowance for doubtful accounts of $5,371 and
Accounts receivable, net of allowance for doubtful accounts of $6,107 and
$5,554 at September 10, 2011 and February 26, 2011, respectively		167,241			209,966
$5,554 at December 3, 2011 and February 26, 2011, respectively		159,151			209,966
Inventories, net		~~398~~417,~~586~~568			452,289
Prepaid expenses and other current assets		4245,~~989~~945			36,329
Total current assets		~~914~~824,~~565~~485			1,052,922
Non-current assets:
Property:
Property owned, net		~~982~~939,~~994~~978			1,163,853
Property under capital leases, net		5755,~~470~~276			63,346
Property, net		1995,~~040,464~~254			1,227,199
Goodwill		110,412			110,412
Intangible assets, net		~~118~~116,~~513~~038			124,288
Other assets		~~156~~91,~~351~~299			141,357
Total assets	$	2,~~340~~137,~~305~~488		$	2,656,178
LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current liabilities:
Current portion of long-term debt	$	350,000		$	-
Current portion of obligations under capital leases		45,~~031~~379			-
Current portion of real estate liabilities		~~607~~447			-
Accounts payable		~~152~~143,~~893~~892			119,245
Book overdrafts		1635,~~841~~399			23,722
Accrued salaries, wages and benefits		9990,~~570~~757			109,428
Accrued taxes		3533,~~896~~129			26,175
Other accruals		7963,~~753~~865			65,048
Total current liabilities		~~739~~722,~~591~~868			343,618
Non-current liabilities:
Long-term debt		-			350,000
Long-term obligations under capital leases		4752,~~288~~710			-
Long-term real estate liabilities		~~184~~224,~~837~~118			-
Deferred real estate income		1619,~~758~~019			-
Other non-current liabilities		~~123~~88,~~557~~760			74,162
Total liabilities not subject to compromise		1,~~112~~107,~~031~~475			767,780
Liabilities subject to compromise		2,~~469~~393,~~399~~417			2,874,734
Total liabilities		3,~~581~~500,~~430~~892			3,642,514
Series A redeemable preferred stock – no par value, $1,000 redemption value; authorized – 700,000
shares; issued - 179,020 shares at September 10, 2011 and February 26, 2011, respectively		146,805			143,299
shares; issued - 179,020 shares at December 3, 2011 and February 26, 2011, respectively		148,310			143,299
Commitments and contingencies (Refer to Note 20)
Commitments and contingencies (Refer to Note 22)
Stockholders’ deficit:
Common stock – $1 par value; authorized – 260,000,000 shares; issued and outstanding
– 53,852,470 shares at September 10, 2011 and February 26, 2011, respectively		53,852			53,852
– 53,852,470 shares at December 3, 2011 and February 26, 2011, respectively		53,852			53,852
Additional paid-in capital		509,~~621~~041			511,157
Accumulated other comprehensive loss		(7675,~~184~~822	)		(75,309	)
Accumulated deficit		(1,~~875~~998,~~219~~785	)		(1,619,335	)
Total stockholders’ deficit		(1,~~387~~511,~~930~~714	)		(1,129,635	)
Total liabilities and stockholders’ deficit	$	2,~~340~~137,~~305~~488		$	2,656,178
See Notes to Consolidated Financial Statements.

The Great Atlantic & Pacific Tea Company, Inc.

(Debtors-in-Possession)

Consolidated Statements of Cash Flows

(Dollars in thousands)

(Unaudited)

	28 Weeks Ended
	40 Weeks Ended
	Sept. 10, 2011			Sept. 11, 2010
	Dec. 3, 2011			Dec. 4, 2010
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(~~255~~379,~~884~~450	)	$	(~~274~~473,~~820~~548	)
Adjustments to reconcile net loss to net cash used in
operating activities (see next page)		~~151~~230,~~393~~817			~~195~~318,~~938~~952
Other changes in assets and liabilities:
Decrease in receivables		5456,~~646~~236			17,~~534~~803
Decrease (increase) in inventories		37,590			(7,209	)
Decrease in inventories		17,862			10,467
Increase in prepaid expenses and other current assets		(1117,~~960~~028	)		(712,~~560~~968	)
Increase in other assets		(14,549	)		(2,799	)
(Increase) decrease in other assets		(32,346	)		2,567
(Decrease) increase in accounts payable		(9,662	)		13,319
Decrease in accounts payable		(27,123	)		(29,201	)
(Decrease) increase in accrued salaries, wages and benefits, and taxes		(2,238	)		2,308
Decrease in accrued salaries, wages and benefits, and taxes		(13,259	)		(28,977	)
Increase in other accruals		8088,~~169~~748			540,~~917~~817
Decrease in other non-current liabilities		(7467,~~003~~780	)		(3625,~~952~~156	)
Other operating activities, net		~~129~~282			(991,020	)
Payments for reorganization items		(2335,~~984~~744	)		-
Net cash used in operating activities		(68178,~~353~~785	)		(94180,~~423~~264	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for property		(1733,~~282~~076	)		(4362,~~447~~854	)
Proceeds from disposal of property		89,~~789~~723			816,~~739~~111
Proceeds from flood insurance		-6,500			46,~~910~~410
Proceeds from sale of assets held for sale		38,302			-22,075
(Increase) decrease in restricted cash		(23,~~449~~284	)		~~302~~303
Proceeds from sale of pharmacy assets		4,785			-
Net cash provided by (used in) investing activities		3222,~~145~~950			(2917,~~496~~955	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt		-			800
Principal payments on long-term debt		(99142	)		(~~134~~201	)
Proceeds under revolving lines of credit		-			~~201~~619,~~600~~500
Principal payments on revolving lines of credit		-			(~~200~~636,~~700~~384	)
Principal payments on long-term real estate liabilities		(~~616~~802	)		(~~631~~980	)
Principal payments on capital leases		(5,610	)		(6,317	)
Proceeds from sale-leaseback transaction		-			89,830
Decrease in book overdrafts		(6,881	)		(21,804	)
Proceeds from long-term real estate liabilities		2,035			-
Payments of financing fees for debtor-in-possession financing		(1,624	)		-
Principal payments on capital leases		(8,213	)		(9,140	)
Deferred financing fees		-			(6	)
Increase (decrease) in book overdrafts		11,677			(9,543	)
Dividends paid on preferred stock		-			(7,000	)
Payments of financing fees for debtor-in-possession financing		(4,521	)		-
Payments of financing fees for revolving line of credit		-			(2,995	)
Deferred financing fees		-			(2,211	)
Dividends paid on preferred stock		-			(10,500	)
Proceeds from exercises of stock options		-			28
Net cash used in financing activities		(14,830	)		(34,164	)
Net cash provided by financing activities		34			38,204
Net decrease in cash and cash equivalents		(51155,~~038~~801	)		(~~158~~160,~~083~~015	)
Cash and cash equivalents at beginning of year		352,607			252,426
Cash and cash equivalents at end of period	$	~~301~~196,~~569~~806		$	9492,~~343~~411
See Notes to Consolidated Financial Statements.

The Great Atlantic & Pacific Tea Company, Inc.

(Debtors-in-Possession)

Consolidated Statements of Cash Flows - Continued

(Dollars in thousands)

(Unaudited)

ADJUSTMENTS TO RECONCILE NET LOSS TO NET CASH USED IN OPERATING ACTIVITIES:
	28 Weeks Ended
	40 Weeks Ended
	Sept. 10, 2011			Sept. 11, 2010
	Dec. 3, 2011			Dec. 4, 2010
Depreciation and amortization	$	~~101~~141,~~588~~944		$	~~121~~171,~~897~~841
Goodwill, trademark and long-lived asset impairment		79104,~~542~~680			3577,~~648~~684
Impairment of long-lived assets in the normal course of business		15,~~465~~132			1,144
Self-insurance reserve		3,127			21,661
Nonoperating income		(152	)		(10,241	)
Nonoperating income		(91	)		(10,454	)
Non-cash interest expense		10,104			27,658
Non-cash interest expense		10,104			23,258
Stock compensation expense		2,440			1,246
Stock compensation expense (income)		1,509			(101	)
Pension withdrawal costs		13,923			-
Employee benefit related costs		21,~~111~~561			613,~~713~~728
Asset disposition initiatives relating to discontinued operations		-			4(117	)
Non-cash occupancy charges for locations closed in the normal course of business		1,~~580~~800			~~466~~7,024
Adjustment to occupancy reserves		92,~~773~~775			-52,357
Losses relating to Hurricane Irene		1,000			-
Gain on disposal of owned property and write-down of property, net		(499	)		(1,807	)
Gain from surrender of Company Owned Life Insurance Policies		(917	)		-
Gain on disposal of owned property and write-down of property, net		(65	)		(4,031	)
Gain on disposal of discontinued operations		-			(79	)
Gain on sale of pharmacy assets		(4,785	)		-
Gain on sale of assets held for sale		(29,120	)		-(12,770	)
Amortization of deferred real estate income		(1,777	)		(2,412	)
Recognition of deferred real estate income		(2,599	)		(3,434	)
C&S contract effect		9,~~184~~930			-
Provision for deferred income taxes		(1,719	)		-
Benefit from deferred income taxes		(1,719	)		(3,058	)
Reorganization items, net relating to continuing operations		(9584,~~026~~516	)		-
Reorganization items, net relating to discontinued operations		(34,209	)		-
Financing fees		~~713~~3,610			-
Total adjustments to net loss	$	~~151~~230,~~393~~817		$	~~195~~318,~~938~~952
See Notes to Consolidated Financial Statements.

The Great Atlantic & Pacific Tea Company, Inc.

Notes to Consolidated Financial Statements

(Dollars in thousands, except share and per share amounts)

(Unaudited)

1. Basis of Presentation

The accompanying Consolidated Statements of Operations, Consolidated Statements of Stockholders’ Deficit and Comprehensive Loss, and Consolidated Statements of Cash Flows for the 12 and 2840 weeks ended ~~September~~December 103, 2011 and ~~September~~December 114, 2010, and the Consolidated Balance Sheets at ~~September~~December 103, 2011 and February 26, 2011 of The Great Atlantic & Pacific Tea Company, Inc. (“we”, “our”, “us” or “our Company”) are unaudited and, in the opinion of management, contain all adjustments that are of a normal and recurring nature necessary for a fair statement of financial position and results of operations for such periods. The Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements and related notes contained in our Fiscal 2010 Annual Report on Form 10-K. Interim results are not necessarily indicative of results for a full year.

The Consolidated Financial Statements include the accounts of our Company and all subsidiaries. All intercompany accounts and transactions have been eliminated. Certain reclassifications have been made to prior year amounts to conform to current year presentation.

Bankruptcy Filing

On December 12, 2010, our Company and all of our U.S. subsidiaries (the “Debtors”) filed voluntary petitions for relief (the “Bankruptcy Filing”) under chapter 11 of title 11 of the United States Bankruptcy Code (the “Bankruptcy Code”) in the United States Bankruptcy Court for the Southern District of New York in White Plains (the “Bankruptcy Court”), which are being jointly administered under case number 10-24549. Management’s decision to initiate the Bankruptcy Filing was in response to, among other things, our Company’s deteriorating liquidity and management’s conclusion that the challenges of successfully implementing additional financing initiatives and of obtaining necessary cost concessions from our Company’s business and labor partners, was negatively impacting our Company’s ability to implement our previously announced turnaround strategy. Our Company’s non-U.S. subsidiaries, which are immaterial on a consolidated basis and have no retail operations, were not part of the Bankruptcy Filing.

We are currently operating as debtors-in-possession pursuant to the Bankruptcy Filing and continuation of our Company as a going-concern is contingent upon, among other things, the Debtors’ ability (i) to comply with the terms and conditions of the DIP Credit Agreement described in Note 9 – Indebtedness and Other Financial Liabilities; (ii) to develop a plan of reorganization and obtain confirmation of that plan under the Bankruptcy Code; (iii) to reduce debt and other liabilities through the bankruptcy process; (iv) to return to profitability, including by ~~securing~~realizing necessary near-term cost concessions from our business and labor partners; (v) to generate sufficient cash flow from operations; and (vi) to obtain financing sources to meet our future obligations. The uncertainty regarding these matters raises substantial doubt about our ability to continue as a going concern.

Our Company was required to apply the FASB’s provisions of Reorganizations effective on December 12, 2010, which is applicable to companies in chapter 11, which generally does not change the manner in which financial statements are prepared. However, it does require that the financial statements for periods subsequent to the filing of the Bankruptcy Filing petition distinguish transactions and events that are directly associated with the reorganization from the ongoing operations of the business. Revenues, expenses, realized gains and losses, and provisions for losses that can be directly associated with the reorganization and restructuring of the business must be reported separately as reorganization items in the Consolidated Statements of Operations beginning in the year ended February 26, 2011. The balance sheet must distinguish pre-Bankruptcy Filing liabilities subject to compromise from both those pre-Bankruptcy Filing liabilities that are not subject to compromise and from post-Bankruptcy Filing liabilities. As discussed in Note 9 - Indebtedness and Other Financial Liabilities, currently the Senior Secured Notes totaling $260.0 million have priority over the unsecured creditors of our Company. Based upon the uncertainty surrounding the ultimate treatment of the Notes in our reorganization plan, including the potential that these Notes may be impaired, these Notes are classified as “Liabilities subject to compromise” in our Consolidated Balance Sheets. Our Company continues to evaluate creditors’ claims for other claims that may also have priority over unsecured creditors. Liabilities that may be affected by a plan of reorganization must be reported at the amounts expected to be approved by the Bankruptcy Court, even if they may be settled for lesser amounts as a result of the plan of reorganization. In addition, cash used in reorganization items must be disclosed separately in our Consolidated Statements of Cash Flows.

The Great Atlantic & Pacific Tea Company, Inc.

Notes to Consolidated Financial Statements - Continued

(Dollars in thousands, except share and per share amounts)

(Unaudited)

directly associated with the reorganization from the ongoing operations of the business. Revenues, expenses, realized gains and losses, and provisions for losses that can be directly associated with the reorganization and restructuring of the business must be reported separately as reorganization items in the Consolidated Statements of Operations beginning in the year ended February 26, 2011. The balance sheet must distinguish pre-Bankruptcy Filing liabilities subject to compromise from both those pre-Bankruptcy Filing liabilities that are not subject to compromise and from post-Bankruptcy Filing liabilities. As discussed in Note 9 - Indebtedness and Other Financial Liabilities, currently the Senior Secured Notes totaling $260.0 million have priority over the unsecured creditors of our Company. Based upon the uncertainty surrounding the ultimate treatment of the Notes in our reorganization plan, including the potential that these Notes may be impaired, these Notes are classified as “Liabilities subject to compromise” in our Consolidated Balance Sheets. Our Company continues to evaluate creditors’ claims for other claims that may also have priority over unsecured creditors. Liabilities that may be affected by a plan of reorganization must be reported at the amounts expected to be approved by the Bankruptcy Court, even if they may be settled for lesser amounts as a result of the plan of reorganization. In addition, cash used in reorganization items must be disclosed separately in our Consolidated Statements of Cash Flows.

Amended and Restated Securities and Purchase Agreements

On November 3, 2011, our Company entered into Amended and Restated Securities and Purchase Agreements (“Amended and Restated SPAs”) to infuse our Company with $490.0 million new debt and equity investments from private investors comprised of (a) certain holders of our Company’s prepetition 5.125% unsecured convertible notes due in 2011, 6.75% unsecured convertible notes due in 2012 and 9.375% senior quarterly interest bonds due August 1, 2039 (such holders, the “Convertible Noteholders”), and (b) certain affiliates of The Yucaipa Companies LLC, holders of our Company’s “Series A-Y” convertible preferred stock and “Series A-T” convertible preferred stock (such holders, collectively, “Yucaipa,” and with the Convertible Noteholders, the “Investors”). On December 6, 2011, the Bankruptcy Court authorized our Company to execute and deliver to the Investors the Amended and Restated SPAs. The Amended and Restated SPAs serve as the foundation to allow our Company to complete the restructuring of our balance sheet and emerge successfully from chapter 11 as a private entity in early 2012.

Pursuant to the Amended and Restated SPAs, the Investors are providing a total new money cash investment of $490.0 million (the “New Money Commitment”) in the form of (i) new privately placed $210.0 million face value second lien notes due November 2017 (the “New Second Lien Notes”), to be purchased by the Investors at an aggregate purchase price equal to 95% of the face value, (ii) new privately placed $210.0 million face value convertible third lien notes due 2018 (the “New Convertible Third Lien Notes”), to be purchased by the Investors at the face value and (iii) a new privately placed $80.0 million investment in an aggregate of 800,000 shares of our Company’s new common stock (the “New Equity”).

Upon the Plan effective date, our Company’s existing debtor-in-possession financing facility is required to be refinanced with a similar facility that will be raised on market terms that are in form and substance reasonably satisfactory to the Investors (the “Exit Facility”). The proceeds of the Exit Facility and the New Money Commitment, combined with our Company’s then existing cash on hand will provide the funding for the reorganization, including paying certain secured creditors in full in cash, and will provide a cash pool of $40.0 million, less the amount distributed pursuant to a substantive consolidation settlement cash pool, for distributions to general unsecured creditors.

The Great Atlantic & Pacific Tea Company, Inc.

Notes to Consolidated Financial Statements - Continued

(Dollars in thousands, except share and per share amounts)

(Unaudited)

The consummation of the transactions (the “Closing”) contemplated thereunder is subject to the fulfillment of the conditions precedent set forth in the Amended and Restated SPAs, which include the following:

An Exit Facility with availability (when combined with the New Money Commitment Amount) sufficient to satisfy all allowed DIP Facility Claims, with a commitment of not less than $750.0 million and excess availability in an amount not less than $100.0 million as of the date of the Closing (provided, however, that up to $30.0 million of such excess availability can be drawn at the Closing), and the closing and initial funding under the Exit Facility shall occur substantially concurrently with the Closing, subject to downward adjustments for each store closed after the Execution Date;

On the date of the Closing, (i) the aggregate amount of the Company’s unrestricted cash and cash equivalents, minus the amount of any revolving loans to be outstanding under the Exit Facility immediately after the Closing, shall be at least $70.0 million, calculated giving effect to the transactions occurring as of the date of the Closing (subject to mutually-agreeable downward adjustments for store closures and asset sales); and (ii) the aggregate amount of the Company’s unrestricted cash and cash equivalents, plus excess availability under the Exit Facility, shall be at least $170.0 million, calculated giving effect to the transactions occurring as of the date of the Closing (subject to mutually-agreeable downward adjustments for store closures and asset sales);

The Company’s total revenue (as defined thereunder) for the period running from (and including) the four week financial reporting period ending November 5, 2011 through the week ending immediately prior to the Plan effective date shall be at least equal to 90% of the total revenue projections set forth within the Amended and Restated SPAs, subject to mutually-agreeable downward adjustments for store closures;

The Company’s total gross profit (as defined thereunder) for the period running from (and including) the four week financial reporting period ending November 5, 2011 through the closed financial reporting period ending immediately prior to the Plan effective date shall be at least equal to 90% of the total gross profit projections set forth within the Amended and Restated SPAs, subject to mutually-agreeable downward adjustments for store closures;

The Investors or our Company shall have secured term sheets evidencing the minimum aggregate labor savings of an agreed-upon amount (excluding employee buy-out savings) over the term of the contract not to exceed five years. Such term sheets should have been filed with the Bankruptcy Court for approval on the day before the hearing on our Company’s motion to approve the Amended and Restated SPA. The Union locals shall have ratified the term sheet and the effective date of which shall be no later than December 4, 2011.

If the Closing occurs, our Company will pay the Convertible Noteholders a commitment fee in the aggregate amount of $40.0 million, payable in the form of the New Convertible Third Lien Note. As a result, the aggregate outstanding balance of the New Convertible Third Lien Note after the transaction will be $250.0 million, which amount includes the $210.0 million initial cash investment to be purchased by the Investors as part of the New Money Commitment (see discussion above). As of December 3, 2011, we are in compliance with the conditions precedent related to our Company’s total revenue and gross profit.

We are in the process of negotiating our Exit Facility and we are currently in compliance with all other conditions precedent to the extent applicable prior to the closing of the transaction.

The Great Atlantic & Pacific Tea Company, Inc.

Notes to Consolidated Financial Statements - Continued

(Dollars in thousands, except share and per share amounts)

(Unaudited)

Plan of Reorganization

On November 14, 2011, our Company filed with the Bankruptcy Court the Debtors’ Joint Plan of Reorganization (the “Plan”) pursuant to chapter 11 of the Bankruptcy Code and a related Disclosure Statement for the Debtors’ Plan (the "Disclosure Statement") pursuant to chapter 11 of the United States Bankruptcy Code. On November 30, 2011, our Company filed revised versions of the Plan and related Disclosure Statement and a motion for entry of an order approving: (a) the adequacy of the Debtors’ Disclosure Statement; (b) the solicitation and notice procedures with respect to the confirmation of the Debtors proposed reorganization plan; (c) the form of various ballots and notices in connection therewith; and (d) the scheduling of certain dates with respect thereto.

The Disclosure Statement contains detailed information about the Plan, our five-year financial projections and events leading up to our Company’s chapter 11 cases. On December 20, 2011, the Bankruptcy Court approved the adequacy of information in the Disclosure Statement and authorized our Company to send the Disclosure Statement, the Plan and ballots to creditors entitled to vote on the Plan. The deadline for voting on the Plan is January 24, 2012. A hearing before the Bankruptcy Court on the confirmation of the Plan is scheduled for February 6, 2012. The information contained in the Disclosure Statement is subject to change, whether as a result of amendments to the Plan, actions of third parties or otherwise.

The Plan will become effective only if it is confirmed by the Bankruptcy Court and upon the fulfillment of certain other conditions contained in the Plan. These conditions precedent include, but are not limited to, the following:

·	the Bankruptcy Court shall have entered the confirmation order and such confirmation order shall have become a final order;

·	the conditions precedent to the Exit Facility shall have been satisfied and/or waived;

·	all conditions to the effectiveness of the Amended and Restated SPAs shall have been satisfied or waived in accordance with the terms thereof; and

·	the commitment fee shall be paid concurrently with the Plan effective date to the new Investors, as provided in the Amended and Restated SPAs.

Pursuant to the terms of the Amended and Restated SPAs, the Debtors (in consultation with the Creditors’ Committee and the DIP Facility Administrative Agent) and the Investors may jointly waive any of the conditions to the Plan effective date, except with respect to certain conditions, which waiver requires the consent of consenting noteholders in accordance with the plan support agreement. Our Company cannot make any assurances as to when, or ultimately if, the Plan will become effective

The summary of the provisions of the Plan contained herein highlights certain substantive provisions of the Plan and is not a complete description of the Plan or its provisions. The summary is qualified in its entirety by reference to the full text of the Plan, which is available at www.kccllc.net/APTea.com link.

The Great Atlantic & Pacific Tea Company, Inc.

Notes to Consolidated Financial Statements - Continued

(Dollars in thousands, except share and per share amounts)

(Unaudited)

Overall Structure of the Plan

The Plan contemplates the reorganization of our Company and the discharge of all claims against and interests in our Company. As part of the Plan, the Debtors and the Investors entered into Amended and Restated SPAs (see detailed discussion separately), which will serve as the backbone of the Plan. In connection with the Investor’s purchase of the New Equity and New Convertible Third Lien Notes, Yucaipa will acquire warrants to purchase New Equity representing 7% of the fully diluted common equity in the new company at the time of the Plan effective date.

Unless otherwise provided in the Plan or the Amended and Restated SPAs, our Company, shall use the proceeds received from the New Money Commitment, together with proceeds from the Exit Facility and other funds held by the Debtors on the Plan effective date, (i) to make cash distributions required by the Plan, (ii) to pay Transaction Expenses (as defined in the Amended and Restated SPAs) not previously paid, (iii) to pay other expenses of the chapter 11 cases, to the extent so ordered by the Bankruptcy Court, and (iv) for general corporate purposes.

The Plan may also provide for an incremental recovery to trade creditors designated by our Company and the Investors that enter into a post-effective date trade agreement acceptable to our Company and the Plan Sponsors.

Substantive Consolidation Settlement

The Plan provides for a settlement and compromise of the issues relating to whether the liabilities and assets of the Debtors should be substantively consolidated for purposes of distributions under the Plan. Pursuant to the Substantive Consolidation Settlement set forth within the Plan, holders of allowed unsecured claims will receive their pro rata shares of unsecured creditor cash pool. The holders of allowed pension withdrawal claims, allowed guaranteed landlord claims and other allowed unsecured claims will receive the recoveries set forth within the Plan.

Treatment of Claims

The Plan shall provide, unless a holder of an allowed claim agrees to a different treatment, for the following treatment of allowed claims:

·	DIP facility claims will be satisfied in full in cash;

·	Administrative and priority claims will be satisfied in full in cash;

Second Lien Notes Claims that are allowed by the Bankruptcy Court will be satisfied in full in cash, provided that upon agreement of the Investors and our Company, the Plan may provide for the cramdown of the Second Lien Notes Claims to the extent permitted by 11 U.S.C. 1129(b)(2), and the funding of the New Money Commitment may be adjusted accordingly in such instance so that the New Second Lien Notes would not be purchased by the Investors; and

·	Unsecured Claims that are allowed by the Bankruptcy Court will receive cash distributions from the unsecured credit cash pool.

The Great Atlantic & Pacific Tea Company, Inc.

Notes to Consolidated Financial Statements - Continued

(Dollars in thousands, except share and per share amounts)

(Unaudited)

New Equity

The issuance of the New Equity by the new company to the Investors on the Plan effective date in consideration for the New Equity investment is authorized without the need for any further corporate action or without any further action by the new company, as applicable. On the Plan effective date, each of the new company shall be a private company. As such, the new company will not list the New Equity on a national securities exchange as of the Plan effective date.

Certificate of Incorporation and Bylaws

The certificates of incorporation and bylaws (or other formation documents relating to limited liability companies, limited partnerships, or other forms of Entity) of the Debtors (other than our Company) shall be amended in a form as may be required to be consistent with the provisions of the Plan, the Amended and Restated SPAs and the Bankruptcy Code, and shall be in form and substance acceptable to the Investors. The new company’s Charter will, among other things, (1) authorize the issuance of the shares of New Equity; and (2) pursuant to and only to the extent required by section 1123(a)(6) of the Bankruptcy Code, include a provision prohibiting the issuance of non-voting Equity Securities (as defined in section 101(16) of the Bankruptcy Code).

Directors and Officers of Reorganized A&P

On the Plan effective date, the term of the current members of the board of directors of our Company shall expire, and the New Board shall be appointed pursuant to the Amended and Restated SPAs. The New Board shall have been reconstituted to consist of seven directors, of whom at least five directors shall be persons designated by the Investors, one director shall be designated by the Union, and one person shall be the Chief Executive Officer of the new company. On and after the Plan effective date, each director or officer of new company shall serve pursuant to the terms of the new company Charter, the new company Bylaws, or other constituent documents, the Management Services Agreement, as applicable, and applicable state corporation law.

Management Equity Incentive Plan

The Management Equity Incentive Program (the “MEIP”) for the new company shall become effective on the Plan effective date without need for further corporate action as contemplated by the Amended and Restated SPAs. The MEIP’s terms and conditions shall be set forth in a Plan Supplement which will be filed with the Bankruptcy Court prior to the commencement of the Bankruptcy Court’s hearing to consider confirmation of the Plan.

Pension

As of the Plan effective date, the new company shall continue our Company’s defined benefit plans in accordance with, and subject to, their terms, ERISA, and the Internal Revenue Code, and shall preserve all of their rights thereunder. The pension claims and all proofs of claims filed on account thereof shall be deemed withdrawn as of the Plan effective date without any further action of the Debtors, the new company or the PBGC, and without any further action, order, or approval of the Bankruptcy Court.

The Great Atlantic & Pacific Tea Company, Inc.

Notes to Consolidated Financial Statements - Continued

(Dollars in thousands, except share and per share amounts)

(Unaudited)

Supply Agreement

On June 2, 2011, our Company entered into a definitive supply agreement with C&S Wholesale Grocers, Inc. (“C&S”) effective May 29, 2011, whereby C&S will provide warehousing, transportation, procurement, purchasing and ancillary services (the “Services”) in support of a substantial portion of our Company’s supply chain. This agreement replaced the warehousing, logistics, procurement and purchasing agreement under which the parties had been operating since 2008.

The term of the agreement is through the effective date of our Company’s plan of reorganization in its Bankruptcy Filing but may be extended by either party for a term concurrent with a fixed volume commitment based upon wholesale purchases of merchandise resulting in a term of approximately seven years. The cost structure of the agreement is a combination of a fixed cost and variable upcharge pricing model. The charges are subject to adjustment due to volume change or other material changes to the operating assumptions of the agreement.

Our Company expects it will realize a run-rate of more than $5060.0 million in annual savings commencing with our Company’s emergence from the Bankruptcy Filing pursuant to a plan of reorganization. The agreement provides our Company with important service enhancements, including detailed service specifications and key performance measures. The agreement also permits our Company to maintain product standards and specifications for all merchandise purchased for resale in our Company’s stores.

Assumed Leases

During the 12 and 40 weeks ended ~~September~~December 103, 2011, our Company assumed ~~330~~63 and 393 real estate leases, respectively, including leases for shopping center tenants as well as leases for subleased locations. In connection with the assumption of the leases, the related liability balances previously classified as “Liabilities subject to compromise” were reclassified to the respective balance sheet captions in our Consolidated Balance Sheets. In addition, all undisputed cure amounts related to these leases in the amount of $6.8.4 million have been paid to the landlords.

Corporate Owned Life Insurance Policies

On September 9, 2011, our Company, together with the Security Life of Denver Life Insurance Company (the “Insurer”), filed a Stipulation and Order permitting the Insurer relief from the automatic stay to enforce certain rights and remedies (“Stipulation”) against our Company’s pre-petition Corporate Owned Life Insurance Policies (“COLI”). The Stipulation was approved by the Bankruptcy Court on September 29, 2011, which permitted the Insurer to enforce their rights and remedies to COLI under the “Paid-Up Insurance” non-forfeiture option. This option resulted in no cash outlay by our Company. In connection with the cancellation of COLI, we wrote-off the related loans on COLI of $61.9 million, accrued interest of $4.8 million, with an offsetting write-off of other assets of $65.8 million, resulting in a net gain of $0.9 million, which was recorded in “Store operating, general and administrative expense” in our Consolidated Statements of Operations during the 12 and 40 weeks ended December 3, 2011.

Significant Accounting Policies

A summary of our significant accounting policies may be found in our Annual Report on Form 10-K for the year ended February 26, 2011. Except for as described below, there have been no changes in these policies during the 2840 weeks ended ~~September~~December 103, 2011.

The Great Atlantic & Pacific Tea Company, Inc.

Notes to Consolidated Financial Statements - Continued

(Dollars in thousands, except share and per share amounts)

(Unaudited)

Change in Accounting Policy

Effective June 19, 2011, our Company changed its method of valuing inventories held at our Pathmark stores from the last-in first-out (“LIFO”) method to the first-in first-out (“FIFO”) method. As previously noted, our Company entered into a definitive supply agreement with C&S effective May 29, 2011 to provide Services in support of a substantial portion of our Company’s supply chain. As a result of the agreement with C&S, our Company began transitioning our inventory to different warehouses such that, beginning in our second fiscal quarter of 2011, the Pathmark inventory is no longer separately segregated and managed. Our Company believes that the FIFO method of inventory valuation is preferable under GAAP and improves financial reporting because it conforms all of our Company’s inventories to a consistent inventory method and the use of FIFO better aligns costing with our Company’s forecasting and procurement decisions. As described in the accounting guidance for accounting changes and error corrections, the comparative Consolidated Financial Statements of prior periods presented have been adjusted to apply the new accounting method retrospectively.

The following line items within the Consolidated Statements of Operations were affected by the change in accounting policy ~~(in thousands, except for per share data)~~:

	For the 12 Weeks Ended September 10, 2011									For the 12 Weeks Ended September 11, 2010
	For the 12 Weeks Ended December 4, 2010
	As Computed under LIFO			As Reported under FIFO			Change: (Decrease) / Increase			As Originally Reported			As Adjusted			Change: (Decrease) / Increase
	As Originally Reported			As Adjusted			Change: (Decrease) / Increase
Cost of merchandise sold	$	(1,~~184~~259,~~105~~568	)	$	(1,~~183~~258,~~264~~926	)	$	(~~841~~642	)	$	~~(1,355,572~~	)	$	~~(1,354,931~~	)	$	~~(641~~	)
Gross margin		~~454~~534,~~589~~237			~~455~~534,~~430~~879			~~841~~642			~~562,707~~			~~563,348~~			~~641~~
Loss from continuing operations before provision for income taxes		(97,110	)		(96,269	)		841			(142,716	)		(142,075	)		641
Loss from continuing operations before benefit from income taxes		(183,636	)		(182,994	)		642
Provision for income taxes		(1,562	)		(1,562	)		-			(105	)		(105	)		-
Benefit from income taxes		2,953			2,953			-
Loss from continuing operations		(98180,~~672~~683	)		(97180,~~831~~041	)		~~841~~642			~~(142,821~~	)		~~(142,180~~	)		~~641~~
Loss from discontinued operations		(218,~~014~~687	)		(218,~~014~~687	)		-			~~(10,853~~	)		~~(10,853~~	)		-
Net loss		(~~100~~199,~~686~~370	)		(99198,~~845~~728	)		~~841~~642			~~(153,674~~	)		~~(153,033~~	)		~~641~~
Net (loss) income per share – basic:
Net loss per share – basic:
Continuing operations	$	(13.8544	)	$	(13.8442	)	$	0.0102		$	~~(2.73~~	)	$	~~(2.72~~	)	$	~~0.01~~
Discontinued operations		(0.0434	)		(0.0434	)		-			~~(0.21~~	)		~~(0.21~~	)		-
Net loss per share - basic	$	(13.8978	)	$	(13.8876	)	$	0.0102		$	~~(2.94~~	)	$	~~(2.93~~	)	$	~~0.01~~
Net (loss) income per share – diluted:
Net loss per share – diluted:
Continuing operations	$	(13.8544	)	$	(13.8442	)	$	0.0102		$	~~(2.76~~	)	$	~~(2.75~~	)	$	~~0.01~~
Discontinued operations		(0.0434	)		(0.0434	)		-			~~(0.19~~	)		~~(0.19~~	)		-
Net loss per share - diluted	$	(13.8978	)	$	(13.8876	)	$	0.0102		$	~~(2.95~~	)	$	~~(2.94~~	)	$	~~0.01~~

	For the 28 Weeks Ended September 10, 2011									For the 28 Weeks Ended September 11, 2010
	As Computed under LIFO			As Reported under FIFO			Change: (Decrease) / Increase			As Originally Reported			As Adjusted			Change: (Decrease) / Increase
Cost of merchandise sold	$	(2,792,554	)	$	(2,790,591	)	$	(1,963	)	$	(3,156,690	)	$	(3,155,193	)	$	(1,497	)
Gross margin		1,076,786			1,078,749			1,963			1,326,519			1,328,016			1,497
Loss from continuing operations before benefit from (provision for) income taxes		(289,551	)		(287,588	)		1,963			(258,183	)		(256,686	)		1,497
Benefit from (provision for) income taxes		13,088			13,088			-			(245	)		(245	)		-
Loss from continuing operations		(276,463	)		(274,500	)		1,963			(258,428	)		(256,931	)		1,497
Income (loss) from discontinued operations		18,616			18,616			-			(17,889	)		(17,889	)		-
Net loss		(257,847	)		(255,884	)		1,963			(276,317	)		(274,820	)		1,497
Net (loss) income per share – basic:
Continuing operations	$	(5.18	)	$	(5.15	)	$	0.03		$	(5.01	)	$	(4.98	)	$	0.03
Discontinued operations		0.35			0.35			-			(0.33	)		(0.33	)		-
Net loss per share - basic	$	(4.83	)	$	(4.80	)	$	0.03		$	(5.34	)	$	(5.31	)	$	0.03
Net (loss) income per share – diluted:
Continuing operations	$	(5.18	)	$	(5.15	)	$	0.03		$	(14.72	)	$	(14.64	)	$	0.08
Discontinued operations		0.35			0.35			-			(0.94	)		(0.94	)		-
Net loss per share - diluted	$	(4.83	)	$	(4.80	)	$	0.03		$	(15.66	)	$	(15.58	)	$	0.08

The Great Atlantic & Pacific Tea Company, Inc.

~~The~~Notes ~~following~~to ~~line items within the~~ Consolidated ~~Balance~~Financial ~~Sheets~~Statements ~~were~~- ~~affected by the change in accounting policy (in thousands):~~Continued

	As of September 10, 2011
	As Computed under LIFO			As Reported under FIFO			Change
Inventories, net	$	385,294		$	398,586		$	13,292
Accumulated deficit		(1,888,511	)		(1,875,219	)		13,292

(Dollars in thousands, except share and per share amounts)

(Unaudited)

	For the 40 Weeks Ended December 3, 2011									For the 40 Weeks Ended December 4, 2010
	As Computed under LIFO			As Reported under FIFO			Change: (Decrease) / Increase			As Originally Reported			As Adjusted			Change: (Decrease) / Increase
Cost of merchandise sold	$	(3,918,613	)	$	(3,916,650	)	$	(1,963	)	$	(4,416,258	)	$	(4,414,119	)	$	(2,139	)
Gross margin		1,522,069			1,524,032			1,963			1,860,756			1,862,895			2,139
Loss from continuing operations before benefit from income taxes		(413,964	)		(412,001	)		1,963			(441,819	)		(439,680	)		2,139
Benefit from income taxes		14,270			14,270			-			2,708			2,708			-
Loss from continuing operations		(399,694	)		(397,731	)		1,963			(439,111	)		(436,972	)		2,139
Income (loss) from discontinued operations		18,281			18,281			-			(36,576	)		(36,576	)		-
Net loss		(381,413	)		(379,450	)		1,963			(475,687	)		(473,548	)		2,139

Net (loss) income per share – basic:
Continuing operations	$	(7.49	)	$	(7.45	)	$	0.04		$	(8.45	)	$	(8.41	)	$	0.04
Discontinued operations		0.34			0.34			-			(0.68	)		(0.68	)		-
Net loss per share - basic	$	(7.15	)	$	(7.11	)	$	0.04		$	(9.13	)	$	(9.09	)	$	0.04

Net (loss) income per share – diluted:
Continuing operations	$	(7.49	)	$	(7.45	)	$	0.04		$	(32.09	)	$	(31.94	)	$	0.15
Discontinued operations		0.34			0.34			-			(2.53	)		(2.53	)		-
Net loss per share - diluted	$	(7.15	)	$	(7.11	)	$	0.04		$	(34.62	)	$	(34.47	)	$	0.15

The following line items within the Consolidated Balance Sheets were affected by the change in accounting policy:

	As of February 26, 2011
	As Originally Reported			As Adjusted			Change
Inventories, net	$	440,960		$	452,289		$	11,329
Accumulated deficit		(1,630,664	)		(1,619,335	)		11,329

There was no impact on net cash provided by operating activities as a result of this change in accounting policy.

The Great Atlantic & Pacific Tea Company, Inc.

Notes to Consolidated Financial Statements - Continued

(Dollars in thousands, except share and per share amounts)

(Unaudited)

2. Recently Issued Accounting Pronouncements

Comprehensive Income. In June 2011, the FASB issued updated guidance on the presentation of comprehensive income, eliminating the option to present components of other comprehensive income as part of the statement of changes in stockholders’ equity. All changes in our Company’s stockholders’ deficit will be presented in either a single continuous statement of comprehensive loss or in two separate but consecutive statements. In December 2011, the FASB amended the updated guidance issued in June 2011 to defer certain presentation requirements. The amended updated guidance is to be applied retrospectively and is effective for public entities for fiscal years, and interim periods within those years, ending after December 15, 2011 with early adoption permitted. The impact of this update is expected to be immaterial.

Intangibles — Goodwill and Other. In September 2011, the FASB issued updated guidance allowing the use of a qualitative approach to test goodwill for impairment. The updated guidance would permit our Company to first perform a qualitative assessment to determine whether it is more likely than not that the fair value of one of our reporting units is less than its carrying value. If we conclude that this is the case, it is then necessary for us to perform the currently prescribed two-step goodwill impairment test. Otherwise, the two-step goodwill impairment test is not required. The updated guidance is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011 with early adoption permitted. We are currently evaluating the impact of our pending adoption of this update.

Multi-employer Pension Plan. In September 2011, the FASB issued updated guidance to require employers who participate in multi-employer pension plans to provide additional quantitative and qualitative disclosures. Such disclosures include, but are not limited to, the significant plans in which the employer participates within, the level of participation and financial health within such plans and the nature of the employer commitments to such plans. The updated guidance for public entities is effective for annual periods for fiscal years ending after December 15, 2011. The adoption of this guidance is expected to impact related disclosures to our Consolidated Financial Statements only.

3. Goodwill and Other Intangible Assets

The carrying values of our finite-lived intangible assets are reviewed for possible impairment whenever events or changes in circumstances indicate that the carrying amount of assets may not be recoverable. Our intangible assets that have finite useful lives are amortized over their estimated useful lives. Goodwill and other intangibles with indefinite useful lives that are not subject to amortization are tested for impairment in the fourth quarter of each fiscal year, or more frequently whenever events or changes in circumstances indicate that impairment may have occurred. The latest impairment assessment of goodwill and indefinite lived intangible assets was completed in the fourth quarter of fiscal 2010 for all of our reporting units in our reportable segments. This assessment concluded that there was no impairment.

Goodwill

AsWe ~~part~~considered ~~of our consideration of~~ whether ~~goodwill~~there ~~is recoverable, we~~ have ~~noted~~been aany ~~decline~~triggering inevents ~~revenues~~requiring ~~and~~an ~~cash~~interim ~~flows~~impairment ~~during~~test in the ~~first~~third ~~half~~quarter of fiscal 2011 ~~from~~and ~~the~~concluded ~~projections~~that ~~used~~an inimpairment ~~the~~analysis ~~fourth~~was ~~quarter~~not ~~fiscal 2010 to evaluate the goodwill for the Waldbaum’s reporting units~~required. We ~~determined we do not have a triggering event, as we~~ continue to anticipate that expected savings from the recently negotiated C&S supply agreement and ~~from~~ the ~~ongoing~~recently ~~labor~~Modified ~~negotiations~~Collective ~~will~~Bargaining ~~improve~~Agreements ~~future~~(“Modified ~~cash flows at the Waldbaum's reporting units to a level that will exceed the related carrying value of the assets. However~~CBAs”, ~~the~~refer most recent decline in cash flows does indicate that the estimated fair value of this reporting unit may not exceed the carrying value of the assets by as much as previously anticipated during our fourth quarter of fiscal 2010. It should be noted that the expected savings from the ongoing labor negotiations are not assured and if such savings are not realized, then the cash flow projections of this reporting unit would be lowered to ~~such~~Note a22 ~~level~~– ~~that~~Commitment ~~it is likely the goodwill at this reporting unit would be impaired.~~and

The ~~carrying~~Great ~~amount~~Atlantic of& ~~our~~Pacific ~~goodwill~~Tea ~~was $110.4 million at September 10~~Company, ~~2011 and February 26, 2011, respectively~~Inc. ~~Our goodwill allocation by segment at September 10, 2011 and February 26, 2011 was as follows (in thousands):~~

	Fresh			Gourmet		Other		Total
Goodwill	$	116,032		$	12,110	$	5,974	$	134,116
Accumulated impairment losses		(23,704	)		-		-		(23,704	)
Goodwill at February 26, 2011	$	92,328		$	12,110	$	5,974	$	110,412
Goodwill	$	116,032		$	12,110	$	5,974	$	134,116
Accumulated impairment losses		(23,704	)		-		-		(23,704	)
Goodwill at September 10, 2011	$	92,328		$	12,110	$	5,974	$	110,412

Notes to Consolidated Financial Statements - Continued

(Dollars in thousands, except share and per share amounts)

(Unaudited)

Contingencies for additional information) will improve future cash flows at the reporting units to a level that will exceed the related carrying value of the assets. We will continue to monitor actual results against our expectations from these events, and if we experience negative results, we will assess the related impact as part of our annual impairment assessment in the fourth quarter of fiscal 2011.

We believe that our estimates are appropriate based on our current trends and recently negotiated contracts. However, we can provide no assurance that we will not be required to make adjustment to goodwill in the future due to market conditions or other factors related to our performance, including a decline in our forecasted results resulting from changes in projected on-going profitability, our capital investment budgets or change in our interest rates.

The carrying amount of our goodwill was $110.4 million at December 3, 2011 and February 26, 2011, respectively. Our goodwill allocation by segment at December 3, 2011 and February 26, 2011 was as follows:

	Fresh			Gourmet		Other		Total
Goodwill	$	116,032		$	12,110	$	5,974	$	134,116
Accumulated impairment losses		(23,704	)		-		-		(23,704	)
Goodwill at February 26, 2011 and December 3, 2011	$	92,328		$	12,110	$	5,974	$	110,412

Intangible Assets, net

AsWe ~~part~~considered offor ~~our consideration of whether~~ the ~~definite~~Pathmark ~~lived~~ intangible assets ~~are~~whether ~~recoverable,~~there we have ~~noted~~been aany ~~decline~~triggering inevents ~~revenues~~requiring ~~and~~an ~~cash~~interim ~~flows~~impairment ~~during~~test in the ~~first~~third ~~half~~quarter of fiscal 2011 ~~from~~and ~~the~~concluded ~~projections~~that ~~used~~an inimpairment ~~the~~analysis ~~fourth~~was ~~quarter~~not ~~fiscal 2010 to evaluate the definite lived intangible assets for the Pathmark reporting unit~~required. We ~~determined we do not have a triggering event, as we~~ continue to anticipate that expected savings from the recently negotiated C&S supply agreement and ~~from~~ the ~~ongoing~~recently ~~labor~~Modified ~~negotiations~~CBAs will improve future cash flows at the Pathmark reporting unit to a level that will exceed the related carrying value of the assets. ~~However,~~ ~~the~~We ~~most~~will ~~recent~~continue ~~decline~~to inmonitor ~~cash~~actual ~~flows~~results ~~does~~against ~~indicate that the estimated fair value of this reporting unit may not exceed the carrying value of the assets by as much as previously anticipated during~~ our ~~fourth~~expectations ~~quarter of fiscal 2010. It should be noted that the expected savings~~ from ~~the~~these ~~ongoing~~events, ~~labor negotiations are not assured~~ and if ~~such~~we ~~savings~~experience ~~are~~negative ~~not realized~~results, ~~then~~we ~~the~~will ~~cash~~assess ~~flow~~the ~~projections~~related ofimpact ~~this~~as ~~reporting~~part ~~unit~~of ~~would~~our beannual ~~lowered~~impairment toassessment ~~such~~in ~~a level that it is likely~~ the ~~definite~~fourth ~~lived~~quarter ~~intangible~~of ~~assets~~fiscal ~~at this reporting unit would be impaired~~2011.

AsWe ~~part~~believe ofthat our ~~consideration~~estimates ofare ~~whether~~appropriate ~~the~~based ~~indefinite~~on ~~lived~~our ~~intangible~~current ~~assets~~trends ~~are~~and ~~recoverable,~~recently wenegotiated ~~have~~contracts. ~~noted~~However, awe ~~decline~~can inprovide ~~revenues~~no ~~and~~assurance ~~cash~~that ~~flows~~we ~~during~~will ~~the~~not ~~first~~be ~~half~~required ofto ~~fiscal~~make ~~2011~~adjustment ~~from~~to ~~the~~intangible ~~projections~~assets ~~used~~ in the ~~fourth~~future ~~quarter~~due ~~fiscal 2010~~ to ~~evaluate~~market ~~the~~conditions ~~indefinite~~or ~~lived~~other ~~intangible~~factors ~~assets~~related ~~for~~to ~~the~~our ~~Pathmark~~performance, ~~reporting~~including ~~unit. We~~a ~~determined~~decline wein doour ~~not~~forecasted ~~have~~results aresulting ~~triggering~~from ~~event. Further, any~~ changes in ~~sensitivity~~projected toon-going ~~changes~~profitability, inour ~~revenues~~capital orinvestment ~~market~~budgets ~~royalty~~or ~~rates~~change ~~have~~in ~~not~~our ~~been~~interest ~~significant~~rates.

~~Intangible~~During ~~assets~~the ~~acquired~~third asquarter ~~part~~of fiscal 2010, we determined that there was an interim impairment triggering event requiring us to evaluate the intangible assets of ~~our~~the ~~acquisition~~Pathmark reporting unit for possible impairment. We evaluated the fair value of the Pathmark intrademark ~~December~~using ~~2007~~the ~~consisted~~relief-from-royalty method. As a result of lowered revenue expectations, the ~~following~~carrying ~~(in~~value ~~thousands):~~exceeded the indicated fair value of the Pathmark

	Weighted Average		Gross		Accumulated		Accumulated
	Amortization		Carrying		Amortization at		Amortization at
	Period (Years)		Amount		Sept. 10, 2011		Feb. 26, 2011
Loyalty card customer relationships		5	$	19,200	$	14,088	$	11,815
In-store advertiser relationships		20		14,720		2,774		2,378
Pharmacy payor relationships		13		75,000		21,745		18,639
Pathmark trademark	Indefinite			48,200		-		-
Total			$	157,120	$	38,607	$	32,832

The Great Atlantic & Pacific Tea Company, Inc.

~~Amortization~~Notes ~~expense relating~~ to ~~our~~Consolidated ~~intangible~~Financial ~~assets~~Statements ~~for~~- the 12 weeks ended September 10, 2011 and September 11, 2010 was $2.5 million during each period. Amortization expense relating to our intangible assets for the 28 weeks ended September 10, 2011 and September 11, 2010 was $5.8 million during each period.Continued

~~The~~(Dollars ~~following~~in ~~table~~thousands, ~~summarizes~~except ~~the~~share ~~estimated~~and ~~future~~per ~~amortization~~share ~~expense for our finite-lived intangible assets (in thousands~~amounts):

2011		$4,950
2012		9,670
2013		6,505
2014		6,505
2015		6,505
Thereafter		36,178

(Unaudited)

trademark, resulting in an impairment of $12.7 million during the third quarter of fiscal 2010, which we recorded within “Goodwill, trademark, and long-lived asset impairment” in our Consolidated Statements of Operations. During the third quarter of fiscal 2010, we also determined that we had a triggering event requiring us to evaluate the recoverability of our amortizable intangible assets for possible impairment. We evaluated the expected undiscounted cash flows of the Pathmark reporting unit compared to the book value of all long-lived assets, including intangible assets other than goodwill, noting no impairment of our amortizable intangible assets.

Intangible assets acquired as part of our acquisition of Pathmark in December 2007 consisted of the following:

	Weighted Average		Gross		Accumulated		Accumulated
	Amortization		Carrying		Amortization at		Amortization at
	Period (Years)		Amount		December 3, 2011		Feb. 26, 2011
Loyalty card customer relationships		5	$	19,200	$	15,061	$	11,815
In-store advertiser relationships		20		14,720		2,944		2,378
Pharmacy payor relationships		13		75,000		23,077		18,639
Pathmark trademark, net of impairment of $12.7 million	Indefinite			48,200		-		-
Total			$	157,120	$	41,082	$	32,832

Amortization expense relating to our intangible assets for the 12 weeks ended December 3, 2011 and December 4, 2010 was $2.5 million during each period. Amortization expense relating to our intangible assets for the 40 weeks ended December 3, 2011 and December 4, 2010 was $8.3 million during each period.

The following table summarizes the estimated future amortization expense for our finite-lived intangible assets:

2011		$ 2,475
2012		9,670
2013		6,505
2014		6,505
2015		6,505
Thereafter		36,178

4. Fair Value Measurements

The accounting guidance for fair value measurement defines and establishes a framework for measuring fair value. Inputs used to measure fair value are classified based on the following three-tier fair value hierarchy:

Level 1 – Quoted prices in active markets for identical assets or liabilities.

Level 2 – Directly or indirectly observable inputs other than Level 1 quoted prices in active markets. Our Level 2 liabilities include warrants, which are valued using the Black-Scholes pricing model with inputs that are observable or can be derived from or corroborated by observable market data. In addition, our ~~investments in money market funds, which are considered cash equivalents, are classified as Level 2, as they are valued based on their reported Net Asset Value (NAV).~~

The Great Atlantic & Pacific Tea Company, Inc.

Notes to Consolidated Financial Statements - Continued

(Dollars in thousands, except share and per share amounts)

(Unaudited)

investments in money market funds, which are considered cash equivalents, are classified as Level 2, as they are valued based on their reported Net Asset Value (NAV).

Level 3 – Unobservable inputs that are supported by little or no market activity whose value is determined using pricing models, discounted cash flows, or similar methodologies, as well as instruments for which the determination of fair value requires significant judgment or estimation.

A financial asset or liability’s classification within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement.

The following table provides the assets and liabilities carried at fair value measured on a recurring basis as of ~~September~~December 103, 2011 and February 26, 2011 ~~(in thousands)~~:

Fair Value Measurements at September 10, 2011 Using

Fair Value Measurements at December 3, 2011 Using

Quoted Prices

Significant Other

Significant

Total Carrying

in Active

Observable

Unobservable

Value at

Markets

Inputs

September 10, 2011

(Level 1)

(Level 2)

(Level 3)

December 3, 2011

(Level 1)

(Level 2)

(Level 3)

Assets:

Cash equivalents

1,552

Liabilities:

Series B warrant

7918

			Fair Value Measurements at Feb. 26, 2011 Using
			Quoted Prices		Significant Other		Significant
	Total Carrying		in Active		Observable		Unobservable
	Value at		Markets		Inputs		Inputs
	Feb. 26, 2011		(Level 1)		(Level 2)		(Level 3)
Assets:
Cash equivalents	$	1,553	$	-	$	1,553	$	-

Liabilities:
Series B warrant	$	170	$	-	$	170	$	-

There were no transfers in and out of Level 1 and Level 2 fair value measurements during the 12 and 2840 weeks ended ~~September~~December 103, 2011.

Level 3 Valuations

We did not have any financial assets or liabilities classified as Level 3 within the fair value hierarchy as of ~~September~~December 103, 2011 and February 26, 2011.

Nonfinancial Assets and Liabilities Measured on a Nonrecurring Basis. Fair value measurements of our nonfinancial assets and nonfinancial liabilities on a nonrecurring basis using Level 3 inputs are primarily used in the impairment analyses of our goodwill and other indefinite-lived intangible assets, our long-lived assets and closed locations occupancy costs. Long-lived assets and closed locations occupancy costs were measured at fair value on a nonrecurring basis using Level 3 inputs, as unobservable inputs were used to measure their fair value. Refer to Note 5 – Valuation of Long-Lived Assets, Note 17 – Discontinued Operations and Note 18 – Asset Disposition Initiatives for more information relating to the valuation of these assets and liabilities.

The Great Atlantic & Pacific Tea Company, Inc.

Notes to Consolidated Financial Statements - Continued

(Dollars in thousands, except share and per share amounts)

(Unaudited)

measured at fair value on a nonrecurring basis using Level 3 inputs, as unobservable inputs were used to measure their fair value. Refer to Note 5 – Valuation of Long-Lived Assets, Note 17 – Discontinued Operations and Note 18 – Asset Disposition Initiatives for more information relating to the valuation of these assets and liabilities.

Long-Term Debt

The following table provides the carrying values recorded in our Consolidated Balance Sheets and the estimated fair values of financial instruments as of ~~September~~December 103, 2011 and February 26, 2011 ~~(in thousands)~~:

At September 10, 2011

At February 26, 2011

At December 3, 2011

At February 26, 2011

Carrying

Fair

Carrying

Fair

Amount

Value

Amount

Value

Current portion of long-term debt

350,000

159

Long-term debt – subject to compromise

905,~~235~~191

~~399~~315,~~612~~417

1,255,225

765,577

Our DIP Credit Agreement is classified as a current liability as of the balance sheet date. Our long-term debt includes borrowings under a related party promissory note and our unsecured debt securities. The fair value of our debt securities are determined based on quoted market prices for such notes in non-active markets.

5. Valuation of 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.

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

We review assets in stores planned for closure or conversion for impairment upon determination that such assets will not be used for their intended useful life. During the 12 and 2840 weeks ended ~~September~~December 103, 2011, we recorded impairment charges on long-lived assets of $13.56 million ~~for~~and ~~both~~$5.1 ~~periods~~million, respectively, related to locations that were closed or converted in the normal course of business, as compared to ~~$0.6~~nil ~~million~~ and $1.1 million in impairment losses recorded during the 12 and 2840 weeks ended ~~September~~December 114, 2010, respectively. These amounts were recorded within “Store operating, general and administrative expense” in our Consolidated Statements of Operations.

Impairments due to store closures

In ~~February~~January ~~2011~~2012, our Company ~~obtained~~filed ~~authority~~a ~~from~~motion with the Bankruptcy Court seeking approval to close 3214 stores in ~~six~~four states as weour ~~continue~~Company prepares to ~~fully~~emerge ~~implement~~from ~~our~~chapter ~~comprehensive financial and operational restructuring~~11. AsThese astore ~~result,~~closures weare ~~recorded~~expected anto ~~impairment~~be ~~charge~~completed ofin ~~$31.4~~our ~~million~~Company’s ~~during~~first ~~fiscal~~quarter ~~2010,~~ of ~~which~~fiscal ~~$19~~2012.4 In ~~million,~~connection ~~$9.0~~with ~~million and $3.0 million related to~~ our ~~Fresh,~~review ~~Pathmark,~~of ~~and~~long-lived ~~Other~~assets ~~reporting~~at ~~segments,~~these ~~respectively. These store closures were completed on April 16~~stores, ~~2011. We~~we recorded an ~~additional~~ impairment charge of $06.48 million during the ~~first~~12 ~~quarter~~weeks ofended ~~fiscal~~December 3, 2011, of which $04.31 million and $02.17 million ~~were~~related ~~attributed~~ to our ~~Pathmark~~Fresh and ~~Fresh~~Pathmark reporting segments, respectively. ~~These amounts were recorded within “Goodwill, trademark, and long-lived asset impairment” in our Consolidated Statements of Operations.~~

In April and May 2011, our Company obtained approval from the Bankruptcy Court to sell, or alternatively, to close, an additional 25 stores located in Maryland, Delaware and the District of Columbia (the “Southern Stores”). During the first quarter of fiscal 2011, our Company held an auction whereby we agreed to sell our interests in 12 of our existing stores based in Maryland and the District of Columbia, all of which were a part of our Fresh reportable segment, for $38.3 million in cash which relates to fixed assets. The transactions closed during June and July 2011 resulting in a gain of $29.1 million, which was recorded within “Store operating, general and administrative expense” in our Consolidated Statements of Operations. During the 12 and 28 weeks ended September 10, 2011, we recorded an impairment charge of $0.1 million and $3.0 million, respectively, all of which pertained to our Fresh reporting segment. These amounts were recorded within “Goodwill, trademark, and long-lived asset impairment” in our Consolidated Statements of Operations. These store closures and sales were completed by July 9, 2011.

InThe ~~the~~Great ~~second~~Atlantic ~~quarter~~& ofPacific ~~fiscal~~Tea ~~2010, our~~ Company ~~announced the closure of 25 stores in five states as we began the implementation and execution phase of our comprehensive financial and operational restructuring. As a result~~, ~~we recorded an impairment charge of $23~~Inc.~~7 million during the 12 weeks ended September 11, 2010. This amount was recorded within “Goodwill, trademark, and long-lived asset impairment” in our Consolidated Statements of Operations.~~

Notes to Consolidated Financial Statements - Continued

(Dollars in thousands, except share and per share amounts)

(Unaudited)

a part of our Fresh reportable segment, for $38.3 million in cash which relates to fixed assets. The transactions closed during June and July 2011 resulting in a gain of $29.1 million, which was recorded within “Store operating, general and administrative expense” in our Consolidated Statements of Operations in the second quarter of fiscal 2011. In connection with our review of long-lived assets at these stores, we recorded an impairment charge of $3.0 million during the 40 weeks ended December 3, 2011, all of which pertained to our Fresh reporting segment. These store closures and sales were completed by July 9, 2011.

In February 2011, our Company obtained authority from the Bankruptcy Court to close 32 stores in six states as we continue to fully implement our comprehensive financial and operational restructuring. As a result, we recorded an impairment charge of $31.4 million during fiscal 2010, of which $19.4 million, $9.0 million and $3.0 million related to our Fresh, Pathmark, and Other reporting segments, respectively. These store closures were completed on April 16, 2011. We recorded an additional impairment charge of $0.4 million during the first quarter of fiscal 2011, of which $0.3 million and $0.1 million were attributed to our Pathmark and Fresh reporting segments, respectively.

In the second quarter of fiscal 2010, our Company announced the closure of 25 stores in five states as we began the implementation and execution phase of our comprehensive financial and operational restructuring. These store closures were completed in the third quarter of fiscal 2010. We recorded an impairment charge of $1.1 million and $24.8 million during the 12 and 40 weeks ended December 4, 2010.

These impairment amounts noted above were recorded within “Goodwill, trademark and long-lived asset impairment” in our Consolidated Statements of Operations.

Impairments due to unrecoverable assets

As part of the ongoing development of our Plan of Reorganization, during our ~~second~~third quarter of fiscal 2011, we refined our projected cash flows of baseline operations, before any potential cash flows that might result from capital improvements, for all locations. For those locations where the projected undiscounted cash flows did not exceed the net carrying value of the long-lived assets, we determined the fair value of the long-lived assets and recorded an impairment charge of $2418.03 million and $7694.14 million during the 12 and 2840 weeks ended ~~September~~December 103, 2011, respectively, which related ~~primarily~~ to favorable leases ~~and which also included capital leases and land and buildings,~~ with a carrying amount of $9932.53 million to their fair value of $7514.50 million for the 12 weeks ended ~~September~~December 103, 2011. The impairment charge of $2418.03 million and $7694.14 million recorded during the 12 weeks and 2840 weeks ended ~~September~~December 103, 2011, respectively, all related to our Pathmark reportable segment. ~~These amounts were recorded within “Goodwill, trademark, and long-lived asset impairment” in our Consolidated Statements of Operations.~~

We recorded an impairment charge of $628.62 million and $1240.02 million during the 12 and 2840 weeks ended ~~September~~December 114, 2010, respectively, to partially write down stores’ long-lived assets, which primarily consist of favorable leases and which also included capital leases and land and buildings, with a carrying amount of $2263.0 million to their fair value of $1534.48 million for the 12 weeks ended ~~September~~December 114, 2010. The impairment charge of $628.62 million during the 12 weeks ended ~~September~~December 114, 2010 all related to Pathmark. The impairment charge of $1240.02 million recorded during the 2840 weeks ended ~~September~~December 114, 2010 all related to Pathmark, with the exception of $0.9 million which related to SuperFresh. ~~These amounts were recorded within “Goodwill, trademark, and long-lived asset impairment” in our Consolidated Statements of Operations.~~

The ~~effects~~Great ofAtlantic changes in estimates of useful lives were not material to ongoing depreciation expense. Our projected cash flows of baseline operations include an estimate for expected savings from the recently negotiated C&S ~~supply~~Pacific ~~agreement~~Tea ~~and from the ongoing labor negotiations. If current operating levels do not improve or the expected cost savings from ongoing labor negotiations do not occur~~Company, ~~there may be a need to take further actions which may result in additional future impairments on long-lived assets, including the potential for impairment of assets that are held and used~~Inc.

Notes to Consolidated Financial Statements - Continued

(Dollars in thousands, except share and per share amounts)

(Unaudited)

These impairment amounts noted above were recorded within “Goodwill, trademark, and long-lived asset impairment” in our Consolidated Statements of Operations.

The effects of changes in estimates of useful lives were not material to ongoing depreciation expense. Our projected cash flows of baseline operations include an estimate for expected savings from the recently negotiated C&S supply agreement and the recently Modified CBAs. If current operating levels do not improve or the expected cost savings from Modified CBAs are not realized, there may be a need to take further actions which may result in additional future impairments on long-lived assets, including the potential for impairment of assets that are held and used.

6. Hurricane Irene and Impact on our Company Stores

In August 2011, Hurricane Irene had a major effect on certain portions of the Northeast region and resulted in the significant interruption of business for eleven of our Company stores. As of ~~September~~December 103, 2011, ~~nine~~ten of these stores had fully resumed operations. Webut ~~are currently working to re-open~~ one ~~other~~remains ~~store and the remaining impacted store is currently providing limited sales of merchandise~~closed.

We maintain insurance coverage for this type of loss which provides for reimbursement from losses resulting from property damage, loss of product as well as business interruption coverage. AsDuring of the ~~balance~~second ~~sheet~~quarter ~~date,~~of wefiscal ~~were~~2011, ~~able to determine that~~ we ~~incurred~~recorded an impairment ~~losses~~loss of $5.3 million for property, plant and equipment that was damaged as a result of ~~Hurricane~~the hurricane, ~~as well as~~ an inventory loss of $6.9 million. Weand ~~also determined that we incurred~~ $0.8 million in other related hurricane costs~~, which has been recorded in “Store operating, general and administrative expense” in our Consolidated Statements of Operations~~.

Our Company is currently assessing the remaining extent of our losses in the Northeast region and we expect to recover the losses caused by Hurricane Irene in excess of our estimated insurance deductible of approximately $1.0 million, which was recorded in "“Store operating, general and administrative expense"” in our Consolidated Statements of Operations ~~for~~during the 12second ~~and~~quarter 28of ~~weeks~~fiscal ~~ended September 10,~~ 2011. We also recorded ~~approximately~~ $12.0 million in receivable related to the amount we expect to recover for impairment and out-of-pocket expenses in excess of our estimated insurance deductible.

During the 12 weeks ended December 3, 2011, we recorded an additional $1.9 million in other related hurricane costs. We also received cash payments of $15.0 million, representing a portion of our losses that we expect to recover. As part of the $15.0 million cash payments, $8.0 million related to recoveries for inventory losses, $6.5 million related to fixed assets and $0.5 million related to out-of-pocket expenses.

7. Other Accruals

Other accruals at ~~September~~December 103, 2011 and February 26, 2011 were comprised of the following ~~(in thousands)~~:

	At Sept. 10, 2011							At Feb. 26, 2011
	Other							Other
	Accruals							Accruals
	Prior to		Amounts					Prior to		Amounts
	Financial		Classified as					Financial		Classified as
	Statement		Subject to			Other		Statement		Subject to			Other
	Classification		Compromise(1)			Accruals		Classification		Compromise(1)			Accruals
Self-insurance reserves	$	48,925	$	(42,136	)	$	6,789	$	47,792	$	(45,466	)	$	2,326
Deferred taxes		31,539		-			31,539		28,335		-			28,335
Closed locations reserves		1,210		(1,210	)		-		11,358		(11,358	)		-
Damages claim for rejected leases		186,751		(186,751	)		-		106,642		(106,642	)		-
Pension withdrawal liabilities		10,461		(10,461	)		-		10,461		(10,461	)		-
GHI liability for employee benefits		8,095		(8,095	)		-		7,776		(7,776	)		-
Accrued occupancy-related costs
for open stores		41,988		(22,766	)		19,222		48,742		(24,523	)		24,219
Deferred income		22,616		(12,026	)		10,590		23,299		(21,363	)		1,936
Deferred real estate income		1,670		(824	)		846		2,508		(2,508	)		-
Accrued audit, legal and other		12,047		(6,875	)		5,172		11,777		(8,118	)		3,659
Accrued interest		52,991		(49,845	)		3,146		35,600		(33,921	)		1,679
Other postretirement and
postemployment benefits		2,931		(2,931	)		-		2,918		(2,918	)		-
Accrued advertising		404		-			404		718		-			718
Other accruals		5,026		(2,981	)		2,045		10,181		(8,005	)		2,176
Total	$	426,654	$	(346,901	)	$	79,753	$	348,107	$	(283,059	)	$	65,048

The Great Atlantic & Pacific Tea Company, Inc.

Notes to Consolidated Financial Statements - Continued

(Dollars in thousands, except share and per share amounts)

(Unaudited)

	At December 3, 2011							At February 26, 2011
	Other							Other
	Accruals							Accruals
	Prior to		Amounts					Prior to		Amounts
	Financial		Classified as					Financial		Classified as
	Statement		Subject to			Other		Statement		Subject to			Other
	Classification		Compromise(1)			Accruals		Classification		Compromise(1)			Accruals
Self-insurance reserves	$	51,696	$	(43,393	)	$	8,303	$	47,792	$	(45,466	)	$	2,326
Deferred taxes		15,239		-			15,239		28,335		-			28,335
Closed locations reserves		1,064		-			1,064		11,358		(11,358	)		-
Damages claim for rejected leases		186,632		(186,632	)		-		106,642		(106,642	)		-
Pension withdrawal liabilities		10,461		(10,461	)		-		10,461		(10,461	)		-
GHI liability for employee benefits		8,163		(8,163	)		-		7,776		(7,776	)		-
Accrued occupancy-related costs
for open stores		40,321		(21,708	)		18,613		48,742		(24,523	)		24,219
Deferred income		23,033		(11,776	)		11,257		23,299		(21,363	)		1,936
Deferred real estate income		1,670		(824	)		846		2,508		(2,508	)		-
Accrued audit, legal and other		11,464		(6,840	)		4,624		11,777		(8,118	)		3,659
Accrued interest		57,855		(56,669	)		1,186		35,600		(33,921	)		1,679
Other postretirement and
postemployment benefits		2,944		(2,944	)		-		2,918		(2,918	)		-
Accrued advertising		509		-			509		718		-			718
Other accruals		4,079		(1,855	)		2,224		10,181		(8,005	)		2,176
Total	$	415,130	$	(351,265	)	$	63,865	$	348,107	$	(283,059	)	$	65,048

(1) Refer to Note 10 – Liabilities subject to compromise for additional information.

8. Other Non-Current Liabilities

Other non-current liabilities at ~~September~~December 103, 2011 and February 26, 2011 were comprised of the following ~~(in thousands)~~:

	At Sept. 10, 2011							At Feb. 26, 2011
	Non-Current							Non-Current
	Liabilities							Liabilities
	Prior to		Amounts			Other		Prior to		Amounts			Other
	Financial		Classified as			Non-		Financial		Classified as			Non-
	Statement		Subject to			Current		Statement		Subject to			Current
	Classification		Compromise(1)			Liabilities		Classification		Compromise(1)			Liabilities
Self-insurance reserves	$	383,565	$	(347,133	)	$	36,432	$	366,891	$	(354,704	)	$	12,187
Closed locations reserves		1,801		(1,801	)		-		39,192		(39,192	)		-
Pension withdrawal liabilities		103,461		(103,461	)		-		86,735		(86,735	)		-
GHI liability for employee benefits		93,751		(93,751	)		-		86,505		(86,505	)		-
Pension plan benefits		130,085		(130,085	)		-		125,000		(125,000	)		-
Other postretirement and
postemployment benefits		38,956		(38,956	)		-		38,737		(38,737	)		-
Loans on life insurance policies		61,943		-			61,943		61,943		-			61,943
Step rent liabilities		48,335		(24,214	)		24,121		56,287		(56,287	)		-
Deferred income		22,402		(21,915	)		487		53,031		(53,031	)		-
Deferred real estate income		14,094		(14,094	)		-		86,801		(86,801	)		-
Unfavorable lease liabilities		795		(795	)		-		4,201		(4,201	)		-
Other non-current liabilities		10,697		(10,123	)		574		11,348		(11,316	)		32
Total	$	909,885	$	(786,328	)	$	123,557	$	1,016,671	$	(942,509	)	$	74,162

The Great Atlantic & Pacific Tea Company, Inc.

Notes to Consolidated Financial Statements - Continued

(Dollars in thousands, except share and per share amounts)

(Unaudited)

	At December 3, 2011							At February 26, 2011
	Non-Current							Non-Current
	Liabilities							Liabilities
	Prior to		Amounts			Other		Prior to		Amounts			Other
	Financial		Classified as			Non-		Financial		Classified as			Non-
	Statement		Subject to			Current		Statement		Subject to			Current
	Classification		Compromise(1)			Liabilities		Classification		Compromise(1)			Liabilities
Self-insurance reserves	$	386,359	$	(336,008	)	$	50,351	$	366,891	$	(354,704	)	$	12,187
Closed locations reserves		1,455		-			1,455		39,192		(39,192	)		-
Pension withdrawal liabilities		104,750		(104,750	)		-		86,735		(86,735	)		-
GHI liability for employee benefits		93,164		(93,164	)		-		86,505		(86,505	)		-
Pension plan benefits		132,217		(132,217	)		-		125,000		(125,000	)		-
Other postretirement and
postemployment benefits		39,014		(39,014	)		-		38,737		(38,737	)		-
Loans on life insurance policies		-		-			-		61,943		-			61,943
Step rent liabilities		48,262		(13,314	)		34,948		56,287		(56,287	)		-
Deferred income		22,130		(21,720	)		410		53,031		(53,031	)		-
Deferred real estate income		13,046		(13,046	)		-		86,801		(86,801	)		-
Unfavorable lease liabilities		766		-			766		4,201		(4,201	)		-
Other non-current liabilities		10,621		(9,791	)		830		11,348		(11,316	)		32
Total	$	851,784	$	(763,024	)	$	88,760	$	1,016,671	$	(942,509	)	$	74,162

(1) Refer to Note 10 – Liabilities subject to compromise for additional information.

The Great Atlantic & Pacific Tea Company, Inc.

Notes to Consolidated Financial Statements - Continued

(Dollars in thousands, except share and per share amounts)

(Unaudited)

9. Indebtedness and Other Financial Liabilities

Our indebtedness at ~~September~~December 103, 2011 and February 26, 2011 consisted of the following debt obligations ~~(in thousands)~~:

	At									At
	September 10, 2011									February 26, 2011
	December 3, 2011									February 26, 2011
	Indebtedness									Indebtedness
	Prior to			Amounts						Prior to			Amounts
	Financial			Classified as						Financial			Classified as
	Statement			Subject to						Statement			Subject to
	Classification			Compromise(1)			Indebtedness			Classification			Compromise(1)			Indebtedness
Debtor-in-Possession Credit Agreement, due June 14, 2012	$	350,000		$	-		$	350,000		$	350,000		$	-		$	350,000
Related Party Promissory Note, due August 18, 2011		10,000			(10,000	)		-			10,000			(10,000	)		-
5.125% Convertible Senior Notes, due June 15, 2011		165,000			(165,000	)		-			165,000			(165,000	)		-
9.125% Senior Notes, due December 15, 2011		12,840			(12,840	)		-			12,840			(12,840	)		-
6.750% Convertible Senior Notes, due December 15, 2012		255,000			(255,000	)		-			255,000			(255,000	)		-
11.375% Senior Secured Notes, due August 1, 2015		260,000			(260,000	)		-			260,000			(260,000	)		-
9.375% Notes, due August 1, 2039		200,000			(200,000	)		-			200,000			(200,000	)		-
Other		2,~~395~~351			(2,~~395~~351	)		-			2,544			(2,544	)		-
Subtotal		1,255,~~235~~191			(905,~~235~~191	)		350,000			1,255,384			(905,384	)		350,000
Less current portion of long-term debt		(350,000	)		-			(350,000	)		(159	)		159			-
Long-term debt	$	905,~~235~~191		$	(905,~~235~~191	)	$	-		$	1,255,225		$	(905,225	)	$	350,000

(1) Refer to Note 10 – Liabilities subject to compromise for additional information.

~~DEBTOR~~Debtor-INIn-~~POSSESSION~~Possession ~~CREDIT~~Credit ~~AGREEMENT~~Agreement

In connection with the Bankruptcy Filing, on December 13, 2010, the Bankruptcy Court entered its interim financing order, among other things, permitting us to enter into a Superpriority Debtor-in-Possession Credit Agreement as amended and restated in its entirety by that certain Amended and Restated Superpriority Debtor-in-Possession Credit Agreement dated as of December 21, 2010, further amended and restated in its entirety by that certain Second Amended and Restated Superpriority Debtor-in-Possession Credit Agreement dated as of January 10, 2011, further amended and restated in its entirety by that certain Third Amended and Restated Superpriority Debtor-in-Possession Credit Agreement dated as of January 13, 2011, further amended by that certain First Amendment to the Third Amended and Restated Superpriority Debtor-in-Possession Credit Agreement dated as of July 8, 2011, further amended ~~(subsequent to the reporting period)~~ by that certain Second Amendment to the Third Amended and Restated Superpriority Debtor-in-Possession Credit Agreement dated as of September 21, 2011 (the “Second Amendment to the DIP Credit Agreement”), as may be further amended, amended and restated, supplemented or otherwise modified from time to time (the “DIP Credit Agreement”) with JPMorgan Chase Bank, N.A., as administrative agent and as collateral agent (in such capacity, the “Agent”), the lenders from time to time party thereto (collectively, the “DIP Lenders”) and our Company and certain subsidiaries as borrowers thereunder. On December 14, 2010, we satisfied all of the conditions to the effectiveness of the DIP Credit Agreement and to the initial closing thereunder and consummated the transactions contemplated thereunder including the refinancing in full of our Company’s and its applicable subsidiaries’ obligations under the pre-existing first lien credit facility. The Bankruptcy Court entered a final order approving the DIP Credit Agreement on January 11, 2011. Pursuant to the terms of the DIP Credit Agreement:

The Great Atlantic & Pacific Tea Company, Inc.

Notes to Consolidated Financial Statements - Continued

(Dollars in thousands, except share and per share amounts)

(Unaudited)

conditions to the effectiveness of the DIP Credit Agreement and to the initial closing thereunder and consummated the transactions contemplated thereunder including the refinancing in full of our Company’s and its applicable subsidiaries’ obligations under the pre-existing first lien credit facility. The Bankruptcy Court entered a final order approving the DIP Credit Agreement on January 11, 2011. Pursuant to the terms of the DIP Credit Agreement:

•

the DIP Lenders agreed to lend up to $800.0 million in the form of a $350.0 million term loan and a $450.0 million revolving credit facility with a $250.0 million sublimit for letters of credit, in each case subject to the terms and conditions therein;

•

our Company’s and the Subsidiary Borrower’s obligations under the DIP Credit Agreement and the other specified loan documents are guaranteed by our Company’s certain other subsidiaries that are Debtors (“Subsidiary Guarantors” and, together with our Company and the Subsidiary Borrowers, the “Loan Parties”); and

•

the Loan Parties’ obligations under the DIP Credit Agreement and such other specified loan documents are secured by a security interest in, and lien upon, substantially all of the Loan Parties’ existing and after-acquired personal and real property, having the priority and subject to the terms therein and in the order(s) entered into by the Bankruptcy Court, as applicable.

Our Company will have the option to have interest on the revolving loans under the revolving credit facility provided under the DIP Credit Agreement accrue at an alternate base rate plus 200 basis points or at adjusted LIBOR plus 300 basis points. Our Company will have the option to have interest on the term loan provided under the DIP Credit Agreement accrue at an alternate base rate plus 600 basis points or at adjusted LIBOR (with a floor of 175 basis points) plus 700 basis points. The DIP Credit Agreement limits, among other things, our Company’s and the other Loan Parties’ ability to (i) incur indebtedness, (ii) incur or create liens, (iii) dispose of assets, (iv) prepay certain indebtedness and make other restricted payments, (v) enter into sale and leaseback transactions and (vi) modify the terms of certain indebtedness and certain material contracts. Notably, however, the DIP Credit Agreement permits our Company to use the proceeds generated from the sale of the Southern Stores in the operation of our business rather than requiring us to use those proceeds to reduce the Loan Parties’ outstanding indebtedness under the DIP Credit Agreement.

The DIP Credit Agreement also contains certain financial covenants. The Second Amendment to the DIP Credit Agreement amended the covenants regarding minimum excess availability and minimum cumulative EBITDA. The Second Amendment to the DIP Credit Agreement changed the measurement intervals for minimum excess availability requirements and reduced the minimum cumulative EBITDA requirements to have them measured beginning with respect to the period ending December 31, 2011 rather than prior to such time as required by the DIP Credit Agreement, provided that if the Company has filed a Plan of Reorganization reasonably satisfactory to the DIP Lenders prior to December 31, 2011, the measurement period for the minimum cumulative EBITDA covenant will be measured beginning on February 25, 2012. The financial covenants, as amended by the Second Amendment to the DIP Credit Agreement, include a minimum excess availability covenant of $100.0 million (or $75.0 million at any time after the delivery of financial statements to the DIP Lenders for the period ended December 31, 2011 but prior to the delivery of financial statements to the DIP Lenders for the period ended February 25, 2012, or $50.0 million at any time thereafter), minimum liquidity covenant of $100.0 million and minimum cumulative EBITDA covenant as defined in the DIP Credit Agreement. Minimum cumulative EBITDA measured beginning on September 11, 2011 to and including the applicable date set forth in the table below is as follows (in millions):

The Great Atlantic & Pacific Tea Company, Inc.

Notes to Consolidated Financial Statements - Continued

(Dollars in thousands, except share and per share amounts)

(Unaudited)

defined in the DIP Credit Agreement. Minimum cumulative EBITDA measured beginning on September 11, 2011 to and including the applicable date set forth in the table below is as follows (in millions):

Date	Minimum Cumulative EBITDA
December 31, 2011	10.0
January 28, 2012	25.0
February 25, 2012	40.0
March 24, 2012	55.0
April 21, 2012	70.0
May 19, 2012	85.0
June 16, 2012	100.0

IfThe weAdministrative ~~file~~Agent afor the DIP Lenders has confirmed that it is reasonably satisfied with our Company’s Plan of Reorganization ~~with~~and, as such, the ~~Bankruptcy~~minimum ~~Court~~EBITDA ~~prior~~covenants tofor the respective periods ended December 31, 2011 and January 3028, 2012 have been waived. If the treatment of the DIP Lenders’ claims under the Plan of Reorganization is subsequently modified, the minimum cumulative EBITDA covenants for the respective periods ended December 31, 2011 and January 28, 2012 ~~are~~may ~~waived~~revert. There is no guarantee that we will continue to receive such waiver for future periods from our DIP Lenders if we continue not to be in compliance with the required covenant.

Meeting our EBITDA covenant requires increasing levels of performance throughout the ~~year~~years, including the successful implementation of our business improvement initiatives. WeAs ~~previously~~part of these initiatives, we entered into a definitive supply agreement with C&S to provide Services and ason ofDecember ~~the~~5, 2011, subsequent to our balance sheet date, we ~~are~~negotiated ~~in the process of negotiating~~ with union locals to obtain consensual modifications to collective bargaining agreements necessary for our successful reorganization. WeWhen ~~may~~establishing the EBITDA covenants, we anticipated entering these agreements earlier in the fiscal year. Due to the timing of the recently negotiated agreements, these savings did not ~~achieve~~start ~~our~~to be realized until the fourth quarter of 2011 but were included in EBITDA covenant requirement outlined above. As a result, as of December 3, 2011, we are currently expecting EBITDA to be below the minimum cumulative EBITDA covenant level above for December 31, 2011 although, as noted above, that covenant has been waived. A financial covenant violation could result in termination of the DIP Credit Agreement and/or termination of our access to funding thereunder. If either (or both) of those were to occur, our Company could be without sufficient cash availability to meet our operating needs or satisfy our obligations as they fall due, in which instance we may be unable to successfully reorganize.

The DIP Credit Agreement matures upon the earliest to occur of (a) June 14, 2012, (b) the acceleration of the loans and the termination of the commitment thereunder, and (c) the substantial consummation (as defined in Section 1101(2) of the Bankruptcy Code, which for purposes hereof shall be no later than the effective date thereof) of a Plan of Reorganization that is confirmed pursuant to an order entered by the Bankruptcy Court.

The Great Atlantic & Pacific Tea Company, Inc.

Notes to Consolidated Financial Statements - Continued

(Dollars in thousands, except share and per share amounts)

(Unaudited)

Amended and Restated Securities and Purchase Agreements

On November 3, 2011, our Company entered Amended and Restated SPAs to infuse our Company with $490.0 million new debt and equity investments from private investors comprised of (a) certain holders of our Company’s prepetition 5.125% unsecured convertible notes due in 2011, 6.75% unsecured convertible notes due in 2012 and 9.375% senior quarterly interest bonds due August 1, 2039 and (b) certain affiliates of The Yucaipa Companies LLC, holders of our Company’s “Series A-Y” convertible preferred stock and “Series A-T” convertible preferred. On December 6, 2011, the Bankruptcy Court authorized our Company to execute and deliver to the Investors the Amended and Restated SPAs. The Amended and Restated SPAs serve as the foundation to allow our Company to complete the restructuring of our balance sheet and emerge successfully from chapter 11 as a private entity in early 2012.

Pursuant to the Amended and Restated SPAs, the Investors are providing a total new money cash investment of $490.0 million in the form of (i) new privately placed $210.0 million face value second lien notes due November 2017, to be purchased by the Investors at an aggregate purchase price equal to 95% of the face value, (ii) new privately placed $210.0 million face value convertible third lien notes due 2018, to be purchased by the Investors at the face value and (iii) a new privately placed $80.0 million investment in an aggregate of 800,000 shares of our Company’s new common stock.

Upon the plan effective date, our Company’s existing debtor-in-possession financing facility is required to be refinanced with a similar facility that will be raised on market terms that are in form and substance reasonably satisfactory to the Investors. The proceeds of the Exit Facility and the New Money Commitment, combined with our Company’s then existing cash on hand will provide the funding for the reorganization, including paying certain secured creditors in full in cash, and will provide a cash pool of $40.0 million, less the amount distributed pursuant to a substantive consolidation settlement cash pool, for distributions to general unsecured creditors.

The Closing contemplated thereunder is subject to the fulfillment of the conditions precedent set forth in the Amended and Restated SPAs refer to Note 1 – Basis of Presentation for additional information.

Warrants

Our Series B warrants issued as part of the acquisition of Pathmark on December 3, 2007, are exercisable at $32.40 and expire on June 9, 2015. Tengelmann Warenhandelsgesellschaft KG (“Tengelmann”) has the right to approve any issuance of common stock under these warrants upon exercise (assuming Tengelmann’s outstanding interest is at least 25% and subject to liquidity impairments defined within the Tengelmann Stockholder Agreement). In addition, Tengelmann has the ability to exercise a “Put Right” whereby it has the ability to require our Company to purchase our common stock held by Tengelmann to settle these warrants. Based on the rights provided to Tengelmann, our Company does not have sole discretion to determine whether the payment upon exercise of these warrants will be settled in cash or through issuance of an equivalent portion of our shares. Therefore, these warrants are recorded as liabilities and marked-to-market each reporting period based on our Company’s current stock price.

The ~~value~~Great ofAtlantic ~~the~~& ~~Series~~Pacific BTea ~~warrants as of September 10~~Company, ~~2011 and February 26, 2011 was $0~~Inc.1 million and $0.2 million, respectively, and is included in “Liabilities subject to compromise” in our Consolidated Balance Sheets. Our “Nonoperating income” for the 12 and 28 weeks ended September 10, 2011 was comprised of gains of approximately $8,000 and $90,800, respectively, relating to market value adjustments for Series B warrants. Market value adjustments for Series B warrants recorded during the 12 and 28 weeks ended September 11, 2010 was consisted of gains of $2.2 million and $10.5 million, respectively. The following assumptions and estimates were used in the Black-Scholes model used to value the Series B warrants:

	At	At
	September 10, 2011	February 26, 2011
Expected life	3.75 Years	4.29 Years
Volatility	121.2%	111.3%
Dividend yield range	0%	0%
Risk-free interest rate	0.31%	2.16%

Notes to Consolidated Financial Statements - Continued

(Dollars in thousands, except share and per share amounts)

(Unaudited)

The value of the Series B warrants as of December 3, 2011 and February 26, 2011 was deminimus and $0.2 million, respectively, and is included in “Liabilities subject to compromise” in our Consolidated Balance Sheets. Our “Nonoperating income” for the 12 and 40 weeks ended December 3, 2011 was comprised of gains of approximately $0.1 and $0.2 million, respectively, relating to market value adjustments for Series B warrants. Market value adjustments for Series B warrants recorded during the 12 and 40 weeks ended December 4, 2010 was consisted of a loss of $0.2 million and a gain of $10.2 million, respectively. The following assumptions and estimates were used in the Black-Scholes model used to value the Series B warrants:

	At	At
	December 3, 2011	February 26, 2011
Expected life	3.52 Years	4.29 Years
Volatility	133.3%	111.3%
Dividend yield range	0%	0%
Risk-free interest rate	0.39%	2.16%

Call Option and Financing Warrants

On or about October 3, 2008, Lehman Brothers OTC Derivatives, Inc. or “LBOTC”, which accounts for 50% of our call option and financing warrant transactions, filed for bankruptcy protection, which is an event of default under such transactions. We are monitoring the developments affecting LBOTC, noting the impact of the LBOTC bankruptcy effectively reduced conversion prices for 50% of our convertible senior notes to their stated prices of $36.40 for the 5.125% Notes and $37.80 for the 6.750% Notes.

In the event we terminate these transactions, or they are canceled in the LBOTC bankruptcy, or LBOTC otherwise fails to perform its obligations under such transactions, we would have the right to monetary damages in the form of an unsecured claim against LBOTC in an amount equal to the present value of our cost to replace these transactions with another party for the same period and on the same terms.

10.	Liabilities Subject to Compromise

As a result of the Bankruptcy Filing, the payment of pre-petition indebtedness is subject to compromise or other treatment under a Plan of Reorganization. Generally, actions to enforce or otherwise effect payment of pre-Bankruptcy Filing liabilities are stayed. Although payment of pre-petition claims generally is not permitted, the Bankruptcy Court granted the Debtor authority to pay certain pre-petition claims in designated categories and subject to certain terms and conditions. This relief generally was designed to preserve the value of our Company’s businesses and assets. Among other things, the Bankruptcy Court authorized us to pay certain pre-petition claims relating to employee wages and benefits, customers, vendors, and suppliers.

We have been paying and intend to continue to pay undisputed post-petition claims in the normal course of business. In addition, we may reject pre-petition executory contracts and unexpired leases with respect to our operations, with the approval of the Bankruptcy Court. Any damages resulting from rejection of executory contracts and unexpired leases are treated as general unsecured claims and will be classified as “Liabilities subject to compromise” in our Consolidated Balance Sheets. We previously notified all known claimants subject to the bar date of their need to file a proof of claim with the Bankruptcy Court. A bar date is the date by which claims against our Company must be filed if the claimants disagree with the amounts included in our schedule of assets and liabilities filed with the Bankruptcy Court and wish to receive any distribution in the Bankruptcy Filing. The bar date of June 17, 2011 set by the Bankruptcy Court has passed. Thus far, claimants filed over nine thousand claims against our Company, asserting approximately $27.9 billion worth of liabilities. Our Company and our retained professionals are continuing to review and analyze the proofs of claim submitted by claimants and will investigate any material differences between these claims and liability amounts estimated by our Company. If necessary, in the event of a claims dispute, the Bankruptcy Court will make a final determination whether such claims should be allowed and, if so, the appropriate amount of such allowed claims. The ultimate amount of such liabilities is not determinable at this time.

The Great Atlantic & Pacific Tea Company, Inc.

Notes to Consolidated Financial Statements - Continued

(Dollars in thousands, except share and per share amounts)

(Unaudited)

is the date by which claims against our Company must be filed if the claimants disagree with the amounts included in our schedule of assets and liabilities filed with the Bankruptcy Court and wish to receive any distribution in the Bankruptcy Filing. The bar date of June 17, 2011 set by the Bankruptcy Court has passed. Thus far, claimants filed over nine thousand claims against our Company, asserting approximately $28.0 billion worth of liabilities. Our Company and our retained professionals are continuing to review and analyze the proofs of claim submitted by claimants and will investigate any material differences between these claims and liability amounts estimated by our Company. If necessary, in the event of a claims dispute, the Bankruptcy Court will make a final determination whether such claims should be allowed and, if so, the appropriate amount of such allowed claims. The ultimate amount of such liabilities is not determinable at this time.

Pre-petition liabilities that are subject to compromise are required to be reported at the amounts expected to be allowed, even if they may be settled for lesser amounts. The amounts currently classified as “Liabilities subject to compromise” may be subject to future adjustments depending on Bankruptcy Court actions, further developments with respect to disputed claims, determinations of the secured status of certain claims, the values of any collateral securing such claims, or other events. We expect that certain amounts currently classified as “Liabilities subject to compromise” may in fact be paid in the normal course of business as they come due. Any resulting changes in classification will be reflected in subsequent financial statements.

Liabilities subject to compromise consist of the following ~~(in thousands)~~:

	At		At
	September 10, 2011		February 26, 2011
Accounts payable	$	176,927	$	212,135
Accrued salaries, wages, and benefits		10,949		10,939
Self-insurance reserves		389,269		400,170
Closed locations reserves		3,011		50,550
Damages claim for rejected leases		186,751		106,642
Pension withdrawal liabilities		113,922		97,196
GHI liability for employee benefits		101,846		94,281
Accrued occupancy-related costs for open stores		22,766		24,523
Deferred income		33,941		74,394
Deferred real estate income		14,918		89,309
Accrued audit, legal and other		6,875		8,118
Accrued interest		49,845		33,921
Other postretirement and postemployment benefits		41,887		41,655
Other accruals		2,981		8,005
Pension plan benefits		130,085		125,000
Step rent liabilities		24,214		56,287
Unfavorable lease liabilities		795		4,201
Other noncurrent liabilities		10,123		11,316
5.125% Convertible Senior Notes, due June 15, 2011		165,000		165,000
Related Party Promissory Note, due August 18, 2011		10,000		10,000
9.125% Senior Notes, due December 15, 2011		12,840		12,840
6.750% Convertible Senior Notes, due December 15, 2012		255,000		255,000
11.375% Senior Secured Notes, due August 1, 2015		260,000		260,000
9.375% Notes, due August 1, 2039		200,000		200,000
Other debt		2,473		2,714
Obligations under capital leases		53,649		121,058
Real estate liabilities		189,332		399,480
Total liabilities subject to compromise	$	2,469,399	$	2,874,734

The Great Atlantic & Pacific Tea Company, Inc.

Notes to Consolidated Financial Statements - Continued

(Dollars in thousands, except share and per share amounts)

(Unaudited)

	At		At
	December 3, 2011		February 26, 2011
Accounts payable	$	168,678	$	212,135
Accrued salaries, wages, and benefits		10,958		10,939
Self-insurance reserves		379,401		400,170
Closed locations reserves		-		50,550
Damages claim for rejected leases		186,632		106,642
Pension withdrawal liabilities		115,211		97,196
GHI liability for employee benefits		101,327		94,281
Accrued occupancy-related costs for open stores		21,708		24,523
Deferred income		33,496		74,394
Deferred real estate income		13,870		89,309
Accrued audit, legal and other		6,840		8,118
Accrued interest		56,669		33,921
Other postretirement and postemployment benefits		41,958		41,655
Other accruals		1,855		8,005
Pension plan benefits		132,217		125,000
Step rent liabilities		13,314		56,287
Unfavorable lease liabilities		-		4,201
Other noncurrent liabilities		9,791		11,316
5.125% Convertible Senior Notes, due June 15, 2011		165,000		165,000
Related Party Promissory Note, due August 18, 2011		10,000		10,000
9.125% Senior Notes, due December 15, 2011		12,840		12,840
6.750% Convertible Senior Notes, due December 15, 2012		255,000		255,000
11.375% Senior Secured Notes, due August 1, 2015		260,000		260,000
9.375% Notes, due August 1, 2039		200,000		200,000
Other debt		2,369		2,714
Obligations under capital leases		44,254		121,058
Real estate liabilities		150,029		399,480
Total liabilities subject to compromise	$	2,393,417	$	2,874,734

Rejected Leases

During the 1240 ~~and 28~~ weeks ended ~~September~~December 103, 2011, we rejected ~~19 and~~ 63 of our leases, ~~respectively,~~ through the bankruptcy process, reducing the closed locations reserves balance associated with these leases by $~~13.5 million and $~~52.6 million, ~~respectively,~~ net to the allowable claim for damages of $186.86 million as of ~~September~~December 103, 2011. ~~The remaining closed locations reserves balance of $3.0 million pertains to locations for which the leases have not been rejected.~~ In connection with the rejected leases during the 1240 ~~and 28~~ weeks ended ~~September~~December 103, 2011, the related deferred real estate income, unfavorable lease liabilities, obligations under capital leases and real estate liabilities were written off, all which were recorded to “Reorganization items, net” in our Consolidated Statements of Operations. Refer to Note 15 – Reorganization Items, Net, for further discussion of our rejected leases.

Assumed Leases

The Great Atlantic & Pacific Tea Company, Inc.

Notes to Consolidated Financial Statements - Continued

(Dollars in thousands, except share and per share amounts)

(Unaudited)

Non-debtor Financing Agreements

Intercompany financing agreements with foreign non-Debtor subsidiaries of $94.1 million are not reflected in the above liabilities subject to compromise table as these amounts were eliminated on a consolidated basis.

11. Redeemable Preferred Stock

On August 4, 2009, our Company issued 60,000 shares of 8.0% Cumulative Convertible Preferred Stock, Series A-T, without par value, to affiliates of Tengelmann and 115,000 shares of 8.0% Cumulative Convertible Preferred Stock, Series A-Y, without par value, to affiliates of Yucaipa Companies LLC, together referred to as the “Preferred Stock”, for approximately $162.8 million, after deducting approximately $12.2 million in closing and issuance costs. Each share of the Preferred Stock has an initial liquidation preference of one thousand dollars, subject to adjustment.

The Preferred Stock issuance was classified within temporary stockholders’ equity in our Consolidated Balance Sheets as of ~~September~~December 103, 2011 and February 26, 2011. The holders of the Preferred Stock are entitled under a pre-bankruptcy agreement to an 8.0% dividend, payable quarterly in arrears in cash or in additional shares of Preferred Stock if our Company does not meet the liquidity levels required to pay the dividends. We are currently not accruing for the 8% dividend and no dividends have been paid during the pendency of our bankruptcy case.

On November 24, 2010 our Company’s Board of Directors authorized a payment-in-kind (“PIK”) dividend on our Preferred Stock, payable on December 15, 2010 to holders of record on November 15, 2010 (“Record Date”). Dividends are required to be PIK in the event our Company does not have the ability to pay the dividends in cash. As of the Record Date, we did not have the ability to pay the dividends in cash. The calculation of PIK dividends on our Preferred Stock is based upon the rate defined by the original terms of the Preferred Stock at 9.5% per annum. The PIK dividends of approximately $4.0 million are included in “Series A redeemable preferred stock” in our Consolidated Balance Sheets. The PIK dividend due on December 15, 2010 was not paid by our Company due to the Bankruptcy Filing.

During the 12 and 2840 weeks ended ~~September~~December 103, 2011, we recorded deferred financing fees amortization of $0.4 million and $01.93 million, respectively, and embedded beneficial conversion features accretion of $1.1 million and $23.67 million, respectively, within “Additional paid-in capital”. During the 12 and 2840 weeks ended ~~September~~December 114, 2010, we recorded deferred financing fees amortization of $0.4 million and $01.93 million, respectively, and embedded beneficial conversion features accretion of $1.1 million and $23.67 million, respectively, within “Additional paid-in capital”. During the 12 and 2840 weeks ended ~~September~~December 114, 2010, we accrued Preferred Stock dividends of $3.12 million and $710.46 million, respectively, within “Additional paid-in capital” and paid Preferred Stock cash dividends of ~~nil~~$3.5 million and $710.05 million, respectively.

The Great Atlantic & Pacific Tea Company, Inc.

Notes to Consolidated Financial Statements - Continued

(Dollars in thousands, except share and per share amounts)

(Unaudited)

12. Stock Based Compensation

At ~~September~~December 103, 2011, we had two stock-based compensation plans, the 2008 Long Term Incentive and Share Award Plan and the 2004 Non-Employee Director Compensation Plan. The general terms of each plan are reported in our Fiscal 2010 Annual Report on Form 10-K.

The components of our compensation expense (income) related to stock-based incentive plans were as follows ~~(in thousands)~~:

	For the 12 Weeks Ended				For the 2840 Weeks Ended
	Sept. 10, 2011		Sept. 11, 2010		Sept. 10, 2011			Sept. 11, 2010
	Dec. 3, 2011		Dec. 4, 2010		Dec. 3, 2011			Dec. 4, 2010
Stock options	$	~~566~~686	$	~~122~~911	$	12,~~322~~008		$	~~(246~~665	)
Restricted stock units		~~452~~245		~~451~~249		~~651~~896			(~~291~~42	)
Common stock granted to Directors		-		187		(464	)		~~436~~623
Total stock-based compensation expense (income)	$	1,018	$	760	$	1,509		$	(101	)
Total stock-based compensation expense	$	931	$	1,347	$	2,440		$	1,246

There were no stock-based grants during the 2840 weeks ended ~~September~~December 103, 2011.

Stock options

As of ~~September~~December 103, 2011, approximately $54.89 million, net of tax, of total unrecognized compensation expense related to unvested stock option awards will be recognized over a weighted average period of 21.07 years.

Restricted Stock

None of the previously granted restricted stock units vested during the 12 and 2840 weeks ended ~~September~~December 103, 2011. As of ~~September~~December 103, 2011, approximately $1.31 million, net of tax, of total unrecognized compensation expense relating to restricted stock units granted during fiscal 2010 and fiscal 2009 is expected to be recognized through fiscal 2013.

2004 Non-Employee Director Compensation Plan

Although the 2004 Non-Employee Director Compensation Plan (“Director Plan”) is still in effect, at this time our Company does not anticipate issuing an annual grant of common stock or common stock equivalent in fiscal 2011. As a result, our Company reversed previously recognized stock compensation expense expected to be issued at the fiscal 2011 annual meeting during the first quarter of fiscal 2011. Such stock compensation expense will not be recognized in our Consolidated Statements of Operations until formal changes are made to the Director Plan.

13. Retirement Plans and Benefits

Defined Benefit Plans

The components of our net pension cost were as follows ~~(in thousands)~~:

	For the 12 Weeks Ended						For the 28 Weeks Ended
	Sept. 10, 2011			Sept. 11, 2010			Sept. 10, 2011			Sept. 11, 2010
Service cost	$	1,498		$	1,407		$	3,496		$	3,565
Interest cost		6,628			6,662			15,465			15,591
Expected return on plan assets		(6,950	)		(6,640	)		(16,745	)		(15,493	)
Amortization of:
Net prior service cost		21			-			49			81
Actuarial loss		404			439			943			1,024
Special termination benefits		-			350			-			400
Net pension cost	$	1,601		$	2,218		$	3,208		$	5,168

The Great Atlantic & Pacific Tea Company, Inc.

WeNotes ~~did not contribute~~ to ~~our~~Consolidated ~~two~~Financial ~~defined~~Statements ~~benefit~~- plans during the 28 weeks ended September 10, 2011. As a result of the Bankruptcy Filing, we do not plan to make any contributions to our two defined benefit plans during the remainder of fiscal 2011. Our minimum contribution payment required for the plans’ fiscal 2010 plan year is approximately $11.1 million, which was due on September 15, 2011 and remains unpaid. In addition, quarterly contributions for the plans’ 2011 plan year total approximately $2.5 million per quarter, which were due on April 15, 2011 and July 15, 2011, and remain unpaid. In the event that we successfully reorganize under chapter 11 and we emerge from bankruptcy prior to the end of fiscal 2011, our Company may be required to make the $11.1 million required contributions to our two defined benefit plans, as well as other missed contributions, during fiscal 2011.Continued

(Dollars in thousands, except share and per share amounts)

(Unaudited)

	For the 12 Weeks Ended						For the 40 Weeks Ended
	Dec. 3, 2011			Dec. 4, 2010			Dec. 3, 2011			Dec, 4, 2010
Service cost	$	1,498		$	1,528		$	4,994		$	5,093
Interest cost		6,628			6,682			22,093			22,273
Expected return on plan assets		(7,176	)		(6,640	)		(23,921	)		(22,133	)
Amortization of:
Net prior service cost		21			34			70			115
Actuarial loss		404			439			1,347			1,463
Special termination benefits		-			200			-			600
Net pension cost	$	1,375		$	2,243		$	4,583		$	7,411

We did not contribute to our two defined benefit plans during the 40 weeks ended December 3, 2011. As a result of the Bankruptcy Filing, we do not plan to make any contributions to our two defined benefit plans during the remainder of fiscal 2011. Our minimum contribution payment required for the plans’ fiscal 2010 plan year is approximately $11.1 million, which was due on September 15, 2011 and remains unpaid. In addition, quarterly contributions for the plans’ 2011 plan year total approximately $2.5 million per quarter, which were due on April 15, 2011, July 15, 2011 and October 15, 2011 remain unpaid. In the event that we successfully reorganize under chapter 11 and we emerge from bankruptcy prior to the end of fiscal 2011, our Company may be required to make the $11.1 million required contributions to our two defined benefit plans, as well as other missed contributions, during fiscal 2011.

Postretirement Plans

The components of our net postretirement benefits cost were as follows ~~(in thousands)~~:

	For the 12 Weeks Ended						For the 2840 Weeks Ended
	Sept. 10, 2011			Sept. 11, 2010			Sept. 10, 2011			Sept. 11, 2010
	Dec. 3, 2011			Dec. 4, 2010			Dec. 3, 2011			Dec. 4, 2010
Service cost	$	175		$	151		$	~~408~~583		$	~~352~~503
Interest cost		431			428			1,~~006~~437			~~999~~1,427
Amortization of:
Net prior service credit		-			(198	)		-			(~~462~~660	)
Actuarial gain		(63	)		(112	)		(~~148~~211	)		(~~262~~374	)
Net postretirement benefits cost	$	543		$	269		$	1,~~266~~809		$	~~627~~896

Our current estimates are subject to change due to changes in actuarial assumptions and further clarifications provided by regulatory guidance expected to be released in future years.

GHI Employee Obligation

As of ~~September~~December 103, 2011 and February 26, 2011, the fair value of our contractual obligation to Grocery Hauler Inc.’s (“GHI”) employees was $101.83 million and $94.3 million, respectively, using discount rates of 4.75% and 5.50%, respectively, which were derived from the published zero-coupon AA corporate bond yields. Additions to our GHI employee obligation for current service costs is recorded within “Cost of merchandise sold” in our Consolidated Statements of Operations at its current value. Accretion of the obligation to present value and impact of discount rates used to value the obligation are recorded within “Interest expense, net” in our Consolidated Statements of Operations. As a result of the rejection of the GHI Trucking Agreement (discussed further in Note 2022 – Commitments and Contingencies), accruals for future services for participant benefits were suspended during the first quarter of fiscal 2011 upon termination of the remaining GHI employees. During the 12 and 28 weeks ended September 10, 2011, we recognized service costs of nil and $5,700, respectively, and interest expense of $6.7 million and $10.9 million, respectively, representing interest accretion on this obligation, as well as the impact of the lower discount rates used to value this obligation, resulting from declines in the published zero-coupon AA corporate bond yields during each period. During the 12 and 28 weeks ended September 11, 2010, we recognized service costs of $0.2 million and $0.4 million, respectively, and interest expense of $4.1 million and $8.5 million, respectively, representing interest accretion on this obligation, as well as the impact of the lower discount rates used to value this obligation, resulting from declines in the published zero-coupon AA corporate bond yields during each period. During the 28 weeks ended September 10, 2011 and September 11, 2010, benefit payments of $3.4 million and $7.7 million, respectively, were made by the Pathmark Pension Plan.

~~Our~~The ~~employee~~Great ~~obligation~~Atlantic ~~relating~~& toPacific ~~pension~~Tea ~~benefits for GHI’s employees are considered subject to compromise and are included within “Liabilities subject to compromise” in our Consolidated Balance Sheets as of September 10~~Company, ~~2011 and February 26, 2011~~Inc.

Notes to Consolidated Financial Statements - Continued

(Dollars in thousands, except share and per share amounts)

(Unaudited)

future services for participant benefits were suspended during the first quarter of fiscal 2011 upon termination of the remaining GHI employees. During the 12 and 40 weeks ended December 3, 2011, we recognized service costs of nil and deminimus, respectively, and interest expense of $1.1 million and $12.0 million, respectively, representing interest accretion on this obligation, as well as the impact of the lower discount rates used to value this obligation, resulting from declines in the published zero-coupon AA corporate bond yields during each period. During the 12 and 40 weeks ended December 4, 2010, we recognized service costs of $0.2 million and $0.6 million, respectively, and interest (income) expense of ($1.7) million and $6.8 million, respectively, representing interest accretion on this obligation, as well as the impact of the lower discount rates used to value this obligation, resulting from declines in the published zero-coupon AA corporate bond yields during each period. During the 40 weeks ended December 3, 2011 and December 4, 2010, benefit payments of $5.0 million and $9.2 million, respectively, were made by the Pathmark Pension Plan.

Our employee obligation relating to pension benefits for GHI’s employees are considered subject to compromise and are included within “Liabilities subject to compromise” in our Consolidated Balance Sheets as of December 3, 2011 and February 26, 2011.

Multi-employer Union Pension Plans

We participate in various multi-employer pension plans which are administered jointly by management and union representatives. During the fourth quarter of fiscal 2008, we made a standard withdrawal from one of our multi-employer pension plans, to limit our pension benefit obligation to our employees, as we believed that this plan was likely to have funding challenges and would require higher contributions in the future, and recorded standard withdrawal liability of $28.9 million. During the second quarter of fiscal 2010, we received notification that the trustees of the multi-employer pension plan have voted to go into a mass withdrawal. The impact of the mass withdrawal to our Company is not currently estimable, therefore no adjustment has been recorded in our Consolidated Financial Statements. We may have a potential additional withdrawal obligation of up to $50.0 million payable over a period of up to 25 years in the future. This preliminary estimate is subject to change due to the uncertainty as to the number of participants that will be subject to mass withdrawal and the finalization of asset values and calculations by the multi-employer pension plan.

During the first quarter of fiscal 2011, we received notification from the trustees of a multi-employer union pension plan for payment of a partial withdrawal resulting from the closure of certain Pathmark stores in fiscal 2009. The impact of the partial withdrawal is a liability of approximately $14.13 million, which is included within “Liabilities subject to compromise” in our Consolidated Balance Sheets as of ~~September~~December 103, 2011. We could, under certain circumstances, be liable for unfunded vested benefits or other expenses of jointly administered union/management plans, which benefits could be significant and material for our Company.

The Great Atlantic & Pacific Tea Company, Inc.

Notes to Consolidated Financial Statements - Continued

(Dollars in thousands, except share and per share amounts)

(Unaudited)

14. Interest Expense, Net

Interest expense, net is comprised of the following ~~(in thousands)~~:

For the 12 Weeks Ended

For the 2840 Weeks Ended

Sept. 10, 2011

Sept. 11, 2010

Sept. 10, 2011

Sept. 11, 2010

Dec. 3, 2011

Dec. 4, 2010

Dec. 3, 2011

Dec. 4, 2010

$800 million Debtor-in-Possession Credit Agreement

8,~~585~~630

2028,~~053~~683

$655 million Credit Agreement

~~341~~95

3,~~104~~161

1,~~052~~147

710,~~109~~270

Related Party Promissory Note, due Aug. 18, 2011

~~138~~142

~~325~~467

11.375% Senior Secured Notes, due Aug. 1, 2015

6,825

6,~~808~~751

1522,~~925~~750

1522,~~958~~709

9.125% Senior Notes, due Dec. 15, 2011

269

~~629~~898

5.125% Convertible Senior Notes, due June 15, 2011

1,941

46,~~542~~483

6.750% Convertible Senior Notes, due Dec. 15, 2012

3,~~950~~951

913,~~245~~196

9.375% Notes, due August 1, 2039

4,280

1014,~~095~~375

Obligations under capital leases and real estate liabilities

11,~~056~~268

11,~~293~~227

2738,~~318~~586

2637,~~735~~753

Self-insurance and GHI interest

4,~~466~~686

34,~~752~~130

1116,~~399~~085

813,~~871~~001

GHI discount rate adjustment and COLI non-cash interest

~~6,380~~-

3(2,~~759~~090

)

10,021

75,~~648~~559

Amortization of deferred financing fees and discounts

~~159~~2,972

6,~~647~~118

~~491~~3,463

1521,~~381~~499

Other

1723

~~194~~159

2447

~~769~~1,136

Subtotal

3734,~~829~~499

4640,~~135~~039

86120,~~283~~782

~~107~~147,~~307~~346

Interest income

(91

)

(3940

)

Interest expense, net

3734,~~829~~499

4640,~~126~~038

86120,~~283~~782

~~107~~147,~~268~~306

We recorded $8.6 million and $2028.17 million in contractual interest for the DIP Credit Agreement during the 12 and 2840 weeks ended ~~September~~December 103, 2011, respectively. We continued to record contractual interest for our $260 million 11.375% Senior Secured Notes due August 1, 2015 that were issued in August 2009. We did not record contractual interest expense of approximately $8.6 million and $2231.62 million for the 12 and 2840 weeks ended ~~September~~December 103, 2011, respectively, for our Related Party Promissory Note, due August 18, 2011, 9.125% Senior Notes, due December 15, 2011, 5.125% Convertible Senior Notes, due June 15, 2011, 6.750% Convertible Senior Notes, due December 15, 2012, and 9.375% Notes, due August 1, 2039, all of which are unsecured obligations for which we ceased accruing interest during the fourth quarter 2010 as a result of the Bankruptcy Filing. Debt discounts and deferred financing fees for all debt which is subject to compromise were reclassified into the carrying value of the respective indebtedness upon the Bankruptcy Filing and the balances were then adjusted to the face value of the debt. As a result of this reclassification, we ceased amortization of deferred financing fees and discounts effective as of the Bankruptcy Filing date. Although we have recorded interest accretion expense on obligations under capital leases and real estate liabilities, self-insurance reserves, ~~GHI~~ and ~~corporate~~GHI ~~owned life insurance~~ obligations, we have not made a final determination as to the value of any underlying assets or the rejection/assumption of any of the obligations that we have not assumed. Once a determination is made, the accretion of the interest expense may change.

The Great Atlantic & Pacific Tea Company, Inc.

Notes to Consolidated Financial Statements - Continued

(Dollars in thousands, except share and per share amounts)

(Unaudited)

15.	Reorganization Items, Net

Reorganization items, net represent amounts incurred and recovered as a direct result of the Bankruptcy Filing and were comprised of the following ~~(in thousands)~~:

	For the 12 Weeks			For the 2840 Weeks
	Ended			Ended
	Sept. 10, 2011			Sept. 10, 2011
	Dec. 3, 2011			Dec. 3, 2011
Professional fees, net	$	(1210,~~668~~200	)	$	(2940,~~836~~036	)
US Trustee fees		(~~257~~254	)		(~~512~~766	)
Write-off of balance sheet items related to rejected contracts, net - continuing operations		~~16,644~~(56	)		47,~~157~~101
C&S contract effect		-			34,139
Reduction of closed locations reserve - continuing operations		~~13,429~~-			44,078
Reorganization items, net - continuing operations		17(10,~~148~~510	)		9584,~~026~~516
Write-off of balance sheet items related to rejected contracts, net - discontinued operations		~~(64~~-	)		25,735
Reduction of closed locations reserve - discontinued operations		79-			8,474
Provision for income taxes for reorganization items, net - discontinued operations		(7-	)		(14,368	)
Total reorganization items, net	$	17(10,~~156~~510	)	$	~~114~~104,~~867~~357

For the 12 and 2840 weeks ended ~~September~~December 103, 2011, professional fees of $1210.72 million and $2940.80 million, respectively, were accrued, ~~respectively,~~ and $1211.4 million and $2334.59 million ~~were paid~~, respectively, were paid related to our Bankruptcy Filing. U.S. Trustee fees of approximately $0.23 million and $0.58 million, respectively, were incurred and paid during the 12 and 2840 weeks ended ~~September~~December 103, 2011~~, respectively~~.

On June 2, 2011, our Company rejected its prior contract with C&S and entered into a new definitive supply agreement effective May 29, 2011. As a result of our renegotiated contract, in the first quarter of fiscal 2011 we eliminated $34.1 million of previously recorded unfavorable contract liability.

During the 1240 ~~and 28~~ weeks ended ~~September~~December 103, 2011, we rejected ~~19 and~~ 63 of our leases, ~~respectively,~~ through the bankruptcy process and reduced the closed locations reserves balance associated with these leases by $~~13.5 million and $~~52.6 million, ~~respectively,~~ $~~13.4 million and $~~44.1 million of which was attributed to continuing operations, ~~respectively,~~ and $~~0.1 million and $~~8.5 million was attributed to discontinued operations, ~~respectively,~~ net to the allowable claim for damages ofamounted ~~$17.4~~to ~~million and~~ $55.3 million for the ~~respective~~period ended December ~~periods~~3, ~~then ended~~2011. Our ~~total~~ closed locations ~~reserves~~reserve balance of $189.82 million relates to damage claims of $186.86 million and $32.05 million pertains to locations for which ~~the~~ leases have ~~not~~ been ~~rejected~~assumed as of ~~September~~December 103, 2011. In connection with the rejection of the ~~19 and~~ 63 leases during the 1240 ~~and 28~~ weeks ended ~~September~~December 103, 2011, ~~respectively,~~ we also wrote off the related obligations under capital leases of $~~2.5 million and $~~9.8 million, ~~respectively,~~ unfavorable lease liabilities of ~~nil and~~ $3.2 million, ~~respectively,~~ real estate liabilities of $~~13.7 million and $~~22.6 million, ~~respectively,~~ deferred real estate income of ~~nil and~~ $9.4 million, ~~respectively,~~ other liabilities of $0.~~5 million and $0.~~6 million ~~respectively~~, with an offsetting write-off of other assets of $~~0.2 million and $~~1.0 million, ~~respectively,~~ totaling $~~16.5 million, net and $~~44.6 million, net~~, respectively~~. Of these amounts, $~~16.6 million and $~~43.0 million ~~relate~~relates to continuing operations, ~~respectively,~~ and $~~(0.~~1~~) million and $1~~.6 million ~~relate~~relates to discontinued operations~~, respectively~~.

During the 2840 weeks ended ~~September~~December 103, 2011, we rejected 9 of our assigned leases through the bankruptcy process and wrote-off the related property, net of $13.5 million with an offsetting write-off of deferred real estate income of $41.8 million, totaling $28.3 million. Of this amount, $4.2 million relates to continuing operations and $24.1 million relates to discontinued operations~~, respectively~~.

The Great Atlantic & Pacific Tea Company, Inc.

Notes to Consolidated Financial Statements - Continued

(Dollars in thousands, except share and per share amounts)

(Unaudited)

16. Income Taxes

During the 12 and 2840 weeks ended ~~September~~December 103, 2011, our valuation allowance increased by $3443.46 million and $95139.62 million, respectively, to reflect generation of additional operating losses and increases to other deferred tax assets. In future periods, we will continue to record a valuation allowance against net deferred tax assets until such time as the certainty of the realization of future tax benefits can be reasonably assured.

Our Company is subject to U.S. federal income tax, as well as income tax in multiple state and foreign jurisdictions. As of ~~September~~December 103, 2011, with a few exceptions, we remain subject to examination by federal, state and local tax authorities for tax years 2005 through ~~2009~~2010. With a few exceptions, we are no longer subject to federal, state or local examinations by tax authorities for tax years 2004 and prior. At ~~September~~December 103, 2011 and February 26, 2011, we had unrecognized tax benefits of $0.6 million, which were recorded within deferred tax liabilities in “Other accruals” in our Consolidated Balance Sheets. We do not expect that the amount of our gross unrecognized tax positions will change significantly in the next 12 months. Any future decrease in our Company's gross unrecognized tax positions is not expected to affect our effective tax rate. Our Company classifies interest and penalty expense related to unrecognized tax benefits within “~~(Provision~~Benefit ~~for) benefit~~ from income taxes” in our Consolidated Statements of Operations. For the 12 and 2840 weeks ended ~~September~~December 103, 2011 and ~~September~~December 114, 2010, respectively, no amounts were recorded for interest and penalties within “~~(Provision~~Benefit ~~for) benefit~~ from income taxes” in our Consolidated Statements of Operations.

The effective tax rate on continuing operations of (31.1%) and 43.5% for the 12 and 2840 weeks ended ~~September~~December 103, 2011, respectively, and (01.076%) and (0.106%) for the 12 and 2840 weeks ended ~~September~~December 114, 2010 respectively, varied from the statutory rate of 35%, primarily due to state and local income taxes, and the increase in our valuation allowance. The rate for the 12 and 2840 weeks ended ~~September~~December 114, 2010 was also impacted by the mark to market of the Series B warrants issued in the acquisition of Pathmark. During the 12 weeks ended December 3, 2011, $1.5 million of the benefit from income taxes related to a refund of the Alternative Minimum Tax credit.

At ~~September~~December 103, 2011, we had federal Net Operating Loss (“NOL”) carry forwards of approximately $1.0 billion, which will expire between fiscal 2024 and 2031, some of which are subject to an annual limitation. The federal NOL carry forwards include $7.4 million related to the excess tax deductions for stock option plans that have yet to reduce income taxes payable. Upon utilization of these carry forwards, the associated tax benefits of approximately $2.6 million will be recorded in “Additional paid-in capital” in our Consolidated Balance Sheets. In addition, we had state loss carry forwards of $1.0 billion that will expire between fiscal 2011 and fiscal 2031. Our Company’s general business credits consist of federal and state work incentive credits, which will expire between fiscal 2011 and fiscal 2030, some of which are subject to an annual limitation. Our Company currently has substantial NOL carry forwards and certain other tax attributes that are potentially available to offset taxable income. However, Section 382 of the Internal Revenue Code of 1986, as amended provides that, if a corporation undergoes an ownership change, its ability to use its NOL carry forwards and certain other tax attributes could be limited. We are currently examining methods to maximize the utilization of these NOL carryforwards when we implement our Plan of Reorganization.

At ~~September~~December 103, 2011 and February 26, 2011, we had net current deferred tax liabilities of $3115.52 million and $28.3 million, respectively, which were included in “Other accruals” in our Consolidated Balance Sheets ~~and non-current deferred tax assets of $19.9 million and $16.7 million, respectively, which were recorded in “Other assets” in our Consolidated Balance Sheets.~~

The Great Atlantic & Pacific Tea Company, Inc.

Notes to Consolidated Financial Statements - Continued

(Dollars in thousands, except share and per share amounts)

(Unaudited)

and non-current deferred tax assets of $3.6 million and $16.7 million, respectively, which were recorded in “Other assets” in our Consolidated Balance Sheets.

Revision of Prior Period Financial Statements

During the first quarter of fiscal 2011, our Company identified that the amount of income tax benefit and income tax expense allocated to continuing operations and discontinued operations, respectively, for the fiscal year ended February 26, 2011 was improperly presented in our Consolidated Statements of Operations. The impact of this improper presentation, which results from the improper intraperiod allocation of income taxes, was an understatement of the “Benefit from income taxes” related to “Loss from continuing operations” and an understatement of the “Provision for income taxes” related to “Income from discontinued operations” of $33.1 million in our Consolidated Statements of Operations during the fiscal year ended February 26, 2011. The effect of this revision had no impact on our “Net loss” in our Consolidated Statements of Operations or “Net cash used in operating activities” in our Consolidated Statements of Cash Flows for the fiscal year ended February 26, 2011.

The following table presents the impact of this revision in our Company's Consolidated Statements of Operations for the fiscal year ended February 26, 2011 ~~(in thousands)~~:

	As Reported			Adjustment			As Revised
Benefit from (provision for) income taxes	$	3,798		$	33,146		$36,944
Loss from continuing operations		(673,400	)		33,146		(640,254)	)
Income (loss) from discontinued operations		74,825			(33,146	)	41,679
Net (loss) income per share - basic		(11.45	)		0.01		(11.44)	)

The revisions described above will be reflected in our Company's Consolidated Financial Statements for the fiscal year ended February 25, 2012~~, which will be included in our Company's Annual Report on Form 10-K for the fiscal year ended February 25, 2012~~.

17. Discontinued Operations

We have had multiple transactions throughout the years which met the criteria for discontinued operations. These events are described based on the year the transaction was initiated.

Summarized below is a reconciliation of the liabilities related to restructuring obligations resulting from these activities ~~(in thousands)~~:

	For the 28 weeks Ended September 10, 2011
	Balance at		Interest								Balance at
	2/26/2011		Accretion(1)		Adjustments(2)			Utilization(3)			9/10/2011
2007 Events
Occupancy	$	49,317	$	80	$	(6,818	)	$	-		$	42,579
Pension withdrawal		57,581		1,880		-			-			59,461
2007 events total		106,898		1,960		(6,818	)					102,040
2005 Event
Occupancy		21,390		-		-			-			21,390
2003 Events
Occupancy		8,451		12		(1,641	)		(39	)		6,783
Total	$	136,739	$	1,972	$	(8,459	)	$	(39	)	$	130,213

The Great Atlantic & Pacific Tea Company, Inc.

Notes to Consolidated Financial Statements - Continued

(Dollars in thousands, except share and per share amounts)

(Unaudited)

	For the 40 weeks Ended December 3, 2011
	Balance at		Interest								Balance at
	2/26/2011		Accretion(1)		Adjustments(2)			Utilization(3)			12/3/2011
2007 Events
Occupancy	$	49,317	$	80	$	(6,857	)	$	-		$	42,540
Pension withdrawal		57,581		2,674		-			-			60,255
2007 events total		106,898		2,754		(6,857	)		-			102,795

2005 Event
Occupancy		21,390		-		-			-			21,390

2003 Events
Occupancy		8,451		12		(1,641	)		(39	)		6,783
Total	$	136,739	$	2,766	$	(8,498	)	$	(39	)	$	130,968

(1)

The additions to occupancy and severance represent the interest accretion on future occupancy costs and future obligations for early withdrawal from multi-employer union pension plans which were recorded at present value at the time of the original charge. Interest accretion is recorded as a component of “Loss from operations of discontinued businesses” in our Consolidated Statements of Operations.

(2)

At each balance sheet date, we assess the adequacy of the balance of the remaining liability to determine if any adjustments are required as a result of changes in circumstances and/or estimates. These adjustments are recorded as a component of “Loss from operations of discontinued businesses” in our Consolidated Statements of Operations.

For the 2840 weeks Ended ~~September~~December 103, 2011

During the 2840 weeks ended ~~September~~December 103, 2011, we recorded adjustments for the 2007 and 2003 events to reduce occupancy liabilities by $6.89 million and $1.6 million, respectively, due to an estimated allowable claim amount for property leases that were rejected in Bankruptcy Court during the fiscal year.

(3)	Occupancy utilization represents payments made during those periods for rent, common area maintenance and real estate taxes. Pension withdrawal utilization represents payments made to the union pension fund during the period.

~~Summarized~~The ~~below~~Great ~~are~~Atlantic ~~the~~& ~~payments~~Pacific ~~made~~Tea toCompany, ~~date from the time of the original charge and expected future payments related to these events (in thousands):~~Inc.

	2007 Events		2005 Event		2003 Events		Total
Total severance payments made to date	$	37,089	$	2,650	$	22,528	$	62,267
Expected future pension withdrawal payments		59,461		-		-		59,461
Total severance and pension withdrawal payments expected to be incurred		96,550		2,650		22,528		121,728
Total occupancy payments made to date		92,140		60,866		34,123		187,129
Expected future occupancy payments,
excluding interest accretion		42,579		21,390		6,783		70,752
Total occupancy payments expected to be incurred,
excluding interest accretion	$	134,719	$	82,256	$	40,906	$	257,881
Total severance and occupancy payments made to date	$	129,229	$	63,516	$	56,651	$	249,396
Expected future pension withdrawal and occupancy payments
expected to be incurred, excluding interest accretion		102,040		21,390		6,783		130,213
Total severance, pension withdrawal and occupancy payments expected to be incurred, excluding interest accretion	$	231,269	$	84,906	$	63,434	$	379,609

Notes to Consolidated Financial Statements - Continued

(Dollars in thousands, except share and per share amounts)

(Unaudited)

Summarized below are the payments made to date from the time of the original charge and expected future payments related to these events:

	2007 Events		2005 Event		2003 Events		Total
Total severance payments made to date	$	37,089	$	2,650	$	22,528	$	62,267
Expected future pension withdrawal payments		60,255		-		-		60,255
Total severance and pension withdrawal payments expected to be incurred		97,344		2,650		22,528		122,522
Total occupancy payments made to date		92,140		60,866		34,123		187,129
Expected future occupancy payments,
excluding interest accretion		42,540		21,390		6,783		70,713
Total occupancy payments expected to be incurred,
excluding interest accretion	$	134,680	$	82,256	$	40,906	$	257,842

Total severance and occupancy payments made to date	$	129,229	$	63,516	$	56,651	$	249,396
Expected future pension withdrawal and occupancy payments
expected to be incurred, excluding interest accretion		102,795		21,390		6,783		130,968

Total severance, pension withdrawal and occupancy payments expected to be incurred, excluding interest accretion	$	232,024	$	84,906	$	63,434	$	380,364

Payments to date were primarily for occupancy related costs such as rent, common area maintenance, real estate taxes, lease termination costs, severance, and benefits. The remaining obligation relates to expected future payments under long term leases and expected future payments for early withdrawal from multi-employer union pension plans. The expected completion dates for the 2007, 2005 and 2003 events are 2028, 2012 and 2012, respectively.

Summarized below are the amounts included in our balance sheet captions in our Company’s Consolidated Balance Sheets related to these events ~~(in thousands)~~:

	September 10, 2011
	December 3, 2011
	2007 Events		2005 Event		2003 Events		Total
Other accruals	$	-	$	-	$	-	$	-
Other non-current liabilities	$	-	$	-	$	-	$	-
Liabilities subject to compromise	$	102,~~040~~795	$	21,390	$	6,783	$	130,~~213~~968
	February 26, 2011
	2007 Events		2005 Event		2003 Events		Total
Other accruals	$	-	$	-	$	-	$	-
Other non-current liabilities	$	-	$	-	$	-	$	-
Liabilities subject to compromise	$	106,898	$	21,390	$	8,451	$	136,739

We evaluated the closed locations reserves balances as of ~~September~~December 103, 2011 based on current information and have concluded that they are adequate to cover future costs. We will continue to monitor the status of the vacant and subsidized properties, severance and benefits, and pension withdrawal liabilities, and adjustments to the closed locations reserves balances may be recorded in the future, if necessary.

The Great Atlantic & Pacific Tea Company, Inc.

Notes to Consolidated Financial Statements - Continued

(Dollars in thousands, except share and per share amounts)

(Unaudited)

18. Asset Disposition Initiatives

In addition to the events described in Note 17 – Discontinued Operations, there were restructuring transactions which were not primarily related to our discontinued operations businesses. These events are referred to based on the year the transaction was initiated~~, as described below~~.

Summarized below is a reconciliation of the liabilities related to restructuring obligations resulting from these activities ~~(in thousands)~~:

	For the 28 Weeks Ended September 10, 2011
	For the 40 Weeks Ended December 3, 2011
	Balance at		Interest							Balance at
	2/26/2011		Accretion(1)		Adjustments(2)			Utilization(3)		912/103/2011
2011 Event
Continuing Operations
Occupancy	$	-	$	-	$	47,409		$	(12,~~630~~022)	$	45,~~779~~387
Severance and health benefits		2,738		-		~~1,154~~472			(23,~~646~~139)		~~1,246~~71
2011 event total		2,738		-		4847,~~563~~881			(45,~~276~~161)		4745,~~025~~458
2010 Event
Continuing Operations
Occupancy		29,353		-		-			(93109)		29,~~260~~244
Severance and health benefits		239		-		~~159~~69			(69)		~~329~~239
2010 event total		29,592		-		~~159~~69			(~~162~~178)		29,~~589~~483
2005 Event
Continuing Operations
Health benefits		445		-		-			(~~102~~130)		~~343~~315
2005 event total		445		-		-			(~~102~~130)		~~343~~315
2001 Event
Continuing Operations
Occupancy		2,127		-		166			-		2,293
Discontinued Operations
Occupancy		1,774		-		-			-		1,774
2001 event total		3,901		-		166			-		4,067
1998 Event
Continuing Operations
Occupancy		3,400		8		(109)	)		(~~254~~291)		3,~~045~~008
Pension withdrawals and health benefits		524		-		-			-		524
1998 event total		3,924		8		(109)	)		(~~254~~291)		3,~~569~~532
Total	$	40,600	$	8	$	48,~~779~~007		$	(45,~~794~~760)	$	8482,~~593~~855

(1)

The additions to occupancy represent the interest accretion on future occupancy costs which were recorded at present value at the time of the original charge. These adjustments are recorded to “Store operating, general and administrative expense” for continuing operations and “Loss from operations of discontinued businesses” for discontinued operations in our Consolidated Statements of Operations.

The Great Atlantic & Pacific Tea Company, Inc.

Notes to Consolidated Financial Statements - Continued

(Dollars in thousands, except share and per share amounts)

(Unaudited)

(2)

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. These adjustments are recorded to “Store operating, general and administrative expense” and “Reorganization items, net” for continuing operations and “Loss from operations of discontinued businesses” for discontinued operations in our Consolidated Statements of Operations.

For the 2840 weeks Ended ~~September~~December 103, 2011

~~For~~We ~~the 28 weeks ended September 10, 2011, we~~ recorded an initial occupancy charge for the 2011 event related to the April store closings and the Southern store closings of $63.3 million and $26.2 million, respectively, partially offset by an adjustment of $27.8 million and $14.5 million, respectively, to reduce the occupancy liabilities to an estimated allowable claim amount due to property leases that were rejected in Bankruptcy Court during the 2840 weeks of fiscal 2011. We also recorded an adjustment for the Southern stores of $0.2 million due to balance sheet reclassifications for real estate accounts. The initial occupancy charge of $63.3 million and the related adjustment of $27.8 million for the April store closings impacted the Fresh, Pathmark and Other segments by $33.2 million, $27.6 million and $2.5 million, respectively, and $13.3 million, $14.3 million and $0.2 million, respectively. The Southern store closings all related to the Fresh segment. In addition, we recorded an initial severance charge for the 2011 Event related to the southern store closings of $2.8 million and adjustments of ($0.24) million and ($1.89) million for the 2011 Event related to the April and Southern store closings, respectively. The Southern store closures were completed by July 9, 2011 and 12 of these stores were sold at auction, resulting in a gain of $29.1 million. For the 2010 Event, we recorded an adjustment of $0.2 million for additional severance and health benefits owed to severed employees. For the 2001 Event, we recorded an adjustment of $0.2 million to increase the occupancy liabilities to an estimated allowable claim amount due to property leases that were rejected in Bankruptcy Court during the 28 weeks of fiscal 2011. For the 1998 Event, we recorded an adjustment of $0.1 million to reduce the occupancy liabilities to an estimated allowable claim amount due to property leases that were rejected in Bankruptcy Court during the 28 weeks of fiscal 2011.

For the 2010 Event, we recorded an adjustment of $0.1 million for additional severance and health benefits owed to severed employees. For the 2001 Event, we recorded an adjustment of $0.2 million to increase the occupancy liabilities to an estimated allowable claim amount due to property leases that were rejected in Bankruptcy Court during the 40 weeks of fiscal 2011. For the 1998 Event, we recorded an adjustment of $0.1 million to reduce the occupancy liabilities to an estimated allowable claim amount due to property leases that were rejected in Bankruptcy Court during the 40 weeks of fiscal 2011.

(3)	Occupancy utilization represents payments made during those periods for rent. Severance and benefits utilization represents payments made to terminated employees during the period.

Summarized below are the payments made to date from the time of the original charge and expected future payments related to these events ~~(in thousands)~~:

	2011		2010		2005		2001		1998
	Event		Event		Event		Event		Event		Total
Total severance payments made to date	$	2,646	$	602	$	49,339	$	28,205	$	30,940	$	111,732
Expected future severance payments		1,246		329		343		-		524		2,442
Total severance payments expected
to be incurred	$	3,892	$	931	$	49,682	$	28,205	$	31,464	$	114,174
Total occupancy payments made to date	$	1,630	$	882	$	13,856	$	67,283	$	120,226	$	203,877
Expected future occupancy payments, excluding interest
accretion		45,779		29,260		-		4,067		3,045		82,151
Total occupancy payments expected
to be incurred, excluding interest
accretion	$	47,409	$	30,142	$	13,856	$	71,350	$	123,271	$	286,028
Total severance and occupancy
payments made to date	$	4,276	$	1,484	$	63,195	$	95,488	$	151,166	$	315,609
Expected future severance and
occupancy payments, excluding
interest accretion		47,025		29,589		343		4,067		3,569		84,593
Total severance and occupancy payments expected to be
excluding interest accretion	$	51,301	$	31,073	$	63,538	$	99,555	$	154,735	$	400,202

The Great Atlantic & Pacific Tea Company, Inc.

~~Payments~~Notes to ~~date~~Consolidated ~~were~~Financial ~~primarily~~Statements for occupancy related costs such as rent, common area maintenance, real estate taxes, lease termination costs, severance, and benefits. The remaining obligation relates to expected future payments under long-~~term~~ leases and expected future payments for early withdrawal from multi-employer union pension plans. The expected completion dates for the 2011, 2010, 2005, 2001 and 1998 events are 2012, 2012, 2015, 2012 and 2013, respectively.Continued

~~Summarized~~(Dollars ~~below are the amounts included~~ in ~~our~~thousands, ~~balance~~except ~~sheet~~share ~~captions~~and inper ~~our~~share ~~Company’s Consolidated Balance Sheets related to these events (in thousands~~amounts):

					September 10, 2011
	2011		2010		2005		2001		1998
	Event		Event		Event		Event		Event		Total
Other accruals	$	1,246	$	-	$	-	$	-	$	-	$	1,246
Other non-current liabilities	$	-	$	-	$	-	$	-	$	-	$	-
Liabilities subject to compromise	$	45,779	$	29,589	$	343	$	4,067	$	3,569	$	83,347
					February 26, 2011
			2010		2005		2001		1998
			Event		Event		Event		Event		Total
Other accruals			$	-	$	-	$	-	$	-	$	-
Other non-current liabilities			$	-	$	-	$	-	$	-	$	-
Liabilities subject to compromise			$	29,592	$	445	$	3,901	$	3,924	$	37,862

(Unaudited)

We evaluated the closed locations reserves balances as of September 10, 2011 based on current information and have concluded that they are adequate to cover future costs. We will continue to monitor the status of the vacant and subsidized properties, severance and benefits, and pension withdrawal liabilities, and adjustments to the closed locations reserves balances may be recorded in the future, if necessary.

	2011		2010		2005		2001		1998
	Event		Event		Event		Event		Event		Total

Total severance payments made to date	$	3,139	$	602	$	49,367	$	28,205	$	30,940	$	112,253
Expected future severance payments		71		239		315		-		524		1,149
Total severance payments expected
to be incurred	$	3,210	$	841	$	49,682	$	28,205	$	31,464	$	113,402

Total occupancy payments made to date	$	2,022	$	898	$	13,856	$	67,283	$	120,263	$	204,322
Expected future occupancy payments, excluding interest
accretion		45,387		29,244		-		4,067		3,008		81,706
Total occupancy payments expected
to be incurred, excluding interest
accretion	$	47,409	$	30,142	$	13,856	$	71,350	$	123,271	$	286,028

Total severance and occupancy
payments made to date	$	5,161	$	1,500	$	63,223	$	95,488	$	151,203	$	316,575
Expected future severance and
occupancy payments, excluding
interest accretion		45,458		29,483		315		4,067		3,532		82,855
Total severance and occupancy payments expected to be
excluding interest accretion	$	50,619	$	30,983	$	63,538	$	99,555	$	154,735	$	399,430

19Payments to date were primarily for occupancy related costs such as rent, common area maintenance, real estate taxes, lease termination costs, severance, and benefits. ~~Loss~~ The ~~Per~~remaining ~~Share~~obligation relates to expected future payments under long-term leases and expected future payments for early withdrawal from multi-employer union pension plans. The expected completion dates for the 2011, 2010, 2005, 2001 and 1998 events are 2012, 2012, 2015, 2012 and 2012, respectively.

Summarized below are the amounts included in our balance sheet captions in our Company’s Consolidated Balance Sheets related to these events:

The Great Atlantic & Pacific Tea Company, Inc.

Notes to Consolidated Financial Statements - Continued

(Dollars in thousands, except share and per share amounts)

(Unaudited)

					December 3, 2011
	2011		2010		2005		2001		1998
	Event		Event		Event		Event		Event		Total
Other accruals	$	71	$	-	$	-	$	-	$	-	$	71
Other non-current liabilities	$	-	$	-	$	-	$	-	$	-	$	-
Liabilities subject to compromise	$	45,387	$	29,483	$	315	$	4,067	$	3,532	$	82,784


					February 26, 2011
			2010		2005		2001		1998
			Event		Event		Event		Event		Total
Other accruals			$	-	$	-	$	-	$	-	$	-
Other non-current liabilities			$	-	$	-	$	-	$	-	$	-
Liabilities subject to compromise			$	29,592	$	445	$	3,901	$	3,924	$	37,862

We evaluated the closed locations reserves balances as of December 3, 2011 based on current information and have concluded that they are adequate to cover future costs. We will continue to monitor the status of the vacant and subsidized properties, severance and benefits, and pension withdrawal liabilities, and adjustments to the closed locations reserves balances may be recorded in the future, if necessary.

19. Sale-Leaseback Transactions

During the third quarter of fiscal 2010, we sold six properties for $89.8 million and simultaneously leased them back from the purchaser. However, due to our continuing involvement with these properties, including that all six leases contain fixed-price renewal options that extend beyond the economic useful life of the property, the sales did not qualify for sale-leaseback accounting treatment. The carrying value of these properties of approximately $68.3 million remained on our Consolidated Balance Sheets at December 4, 2010 and no sale was recognized. Instead, the sales price of these properties of $89.8 million was recorded as a long-term real estate liability with a maturity of 20 years, within ”Long-term real estate liabilities” on our Consolidated Balance Sheets at December 4, 2010. In addition, all lease payments are being charged to “Interest expense” in our Consolidated Statements of Operations. Five properties were sold for a gain of $19.8 million after expenses which are being deferred until the end of the lease terms when our continuing involvement ceases. One property was sold at a loss of $0.8 million which was recognized immediately.

20. Disposition of Assets

On November 2, 2010, our Company sold seven store locations in Northern Connecticut for $24.6 million in cash, which included fixed assets and inventory. We recorded a gain of approximately $5.7 million in connection with the sale within “Store operating, general and administrative expense” in our Consolidated Statements of Operations for the 12 and 40 weeks ended December 4, 2010.

The Great Atlantic & Pacific Tea Company, Inc.

Notes to Consolidated Financial Statements - Continued

(Dollars in thousands, except share and per share amounts)

(Unaudited)

21. Loss Per Share

Basic loss per share is computed by dividing loss available to common shareholders by the weighted average shares outstanding for the reporting period. Diluted loss per share reflects all potential dilution, using either the treasury stock method or the “if-converted” method, and assumes that the convertible debt, stock options, restricted stock, performance restricted stock, warrants, preferred stock, and other potentially dilutive financial instruments were converted into common stock on the first day of the period. If the conversion of a potentially dilutive security yields an antidilutive result, such potential dilutive security is excluded from the diluted earnings per share calculation.

The following table contains common share equivalents, which were not included in the historical loss per share calculations as their effect would be antidilutive:

	12 Weeks Ended		2840 Weeks Ended
	Sept. 10, 2011	Sept. 11, 2010	Sept. 10, 2011	Sept. 11, 2010
	Dec. 3, 2011	Dec. 4, 2010	Dec. 3, 2011	Dec. 4, 2010
Stock options	4,~~164~~058,~~109~~323	37,~~123~~625,~~723~~333	4,~~564~~396,~~145~~618	24,~~475~~202,~~006~~947
Warrants	6,965,858	7,652,135	6,965,858	686,277
Performance restricted stock units	-	~~154~~110,~~499~~668	-	~~190~~166,~~689~~683
Restricted stock units	~~666~~662,~~420~~607	~~926~~972,~~387~~587	~~696~~686,~~750~~507	1,~~015~~002,~~039~~303
Financing warrant	11,278,988	11,278,988	11,278,988	11,278,988
Preferred stock	35,804,000	35,000,000	35,804,000	35,000,000
Convertible debt	11,278,988	811,~~086~~278,~~769~~988	11,278,988	11,278,988

The following table sets forth the calculation of basic and diluted loss per share ~~(in thousands)~~:

	12 Weeks Ended						2840 Weeks Ended
	Sept. 10, 2011			Sept. 11, 2010			Sept. 10, 2011			Sept. 11, 2010
	Dec. 3, 2011			Dec. 4, 2010			Dec. 3, 2011			Dec. 4, 2010
Loss from continuing operations	$	(97123,~~831~~231	)	$	(~~142,~~180,041	)	$	(~~274~~397,~~500~~731	)	$	(~~256~~436,~~931~~972	)
Preferred stock dividends		-			(3,~~093~~231	)		-			(710,~~400~~631	)
Beneficial conversion feature amortization		(1,~~110~~111	)		(1,~~110~~111	)		(23,~~591~~703	)		(23,~~591~~703	)
Loss from continuing operations - basic		(98124,~~941~~342	)		(~~146~~184,383	)		(~~277~~401,~~091~~434	)		(~~266~~451,~~922~~306	)
Adjustments for convertible debt (1)		-			~~(10,270~~-	)		-			-
Adjustments on Other financial liabilities (2)		-			-			-			(10,~~454~~241	)
Loss from continuing operations–diluted	$	(98124,~~941~~342	)	$	(~~156~~184,~~653~~383	)	$	(~~277~~401,~~091~~434	)	$	(~~277~~461,~~376~~547	)
Weighted average common shares outstanding		53,852,470			56,~~206~~280,~~446~~414			53,852,470			56,~~046~~116,~~228~~484
Share lending agreement(3)		-			(2,427,944	)		-			(2,427,944	)
Common shares outstanding–basic		53,852,470			53,~~778~~852,~~502~~470			53,852,470			53,~~618~~688,~~284~~540
Effect of dilutive securities:
Convertible debt (1)		-			~~3,192,219~~-			-			-
Convertible financial liabilities (2)		-			-			-			(3439,~~668~~240,~~287~~142	)
Common shares outstanding–diluted		53,852,470			5653,~~970~~852,~~721~~470			53,852,470			1814,~~949~~448,~~997~~398

The Great Atlantic & Pacific Tea Company, Inc.

Notes to Consolidated Financial Statements - Continued

(Dollars in thousands, except share and per share amounts)

(Unaudited)

(1) We have debt instruments with a bifurcated conversion feature that were recorded at a significant discount. (Refer to Note 9 – Indebtedness and Other Financial Liabilities). For purposes of determining if an application of the “if-converted” method to these convertible instruments produces a dilutive result, we consider the combined impact of the numerator and denominator adjustments, including a numerator adjustment for gains and losses, which would have been incurred had the instruments been converted on the first day of the period presented.

(2) Our Series B Warrants are classified as a liability because a third party has the right to determine their cash or share settlement. (Refer to Note 9 – Indebtedness and Other Financial Liabilities). These warrants are marked-to-market in our Consolidated Statements of Operations. For example, in periods when the market price of our common stock decreases, our income from continuing operations is increased. For purposes of determining if an application of the treasury stock method produces a dilutive result, we assume proceeds are used to repurchase common stock and we adjust the numerator similar to the adjustments required under the “if-converted” method. We consider the combined impact of the numerator and denominator adjustments, including a denominator adjustment to reduce shares, even when the average market price of our common stock for the period is below the warrant’s strike price.

(3) As of ~~September~~December 114, 2010, we had 5,634,002 of loaned shares under our share lending agreements, which were considered issued and outstanding. The obligation of the financial institutions to return the borrowed shares has been accounted for as prepaid forward contract and, accordingly, shares underlying this contract are removed from the computation of basic and diluted earnings per share, unless the borrower defaults on returning the related shares. On September 15, 2008, Lehman Europe, who is a party to a 3,206,058 share lending agreement with our Company filed under chapter 11 of the U.S. Bankruptcy Code with the United States Bankruptcy Court and/or commenced equivalent proceedings in jurisdictions outside of the United States (collectively, the “Lehman Bankruptcy”). As such, we have included these loaned shares as issued and outstanding effective September 15, 2008 for purposes of computing our basic and diluted weighted average shares and (loss) income per share. During fiscal 2009, Bank of America, N.A., who is a party to our share lending agreement, returned 2,500,000 shares, eliminating our obligation to lend additional shares to them in the future. The returned shares were immediately retired, reducing our issued and outstanding shares. For the 12 and 2840 weeks ended ~~September~~December 114, 2010, weighted average common shares relating to share lending agreements of 2,427,944 were excluded from the computation of earnings per share, respectively. As of ~~September~~December 103, 2011, there were no shares outstanding with Bank of America, N.A.

2022. Commitments and Contingencies

Amended and Restated Securities and Purchase Agreements

The Great Atlantic & Pacific Tea Company, Inc.

Notes to Consolidated Financial Statements - Continued

(Dollars in thousands, except share and per share amounts)

(Unaudited)

the face value, (ii) new privately placed $210.0 million face value convertible third lien notes due 2018, to be purchased by the Investors at the face value and (iii) a new privately placed $80.0 million investment in an aggregate of 800,000 shares of our Company’s new common stock.

The Closing contemplated thereunder is subject to the fulfillment of the conditions precedent set forth in the Amended and Restated SPAs, (refer to Note 1 – Basis of Presentation) for additional information.

Modified Collective Bargaining Agreements

Subsequent to our balance sheet date, on December 5, 2011, our Company obtained approval from the Bankruptcy Court to enter into Modified CBAs with the United Food and Commercial Workers, International and 13 Local UFCW Affiliates in support of our Company’s restructuring initiatives. The Modified CBAs will be in effect for a period of five years beginning on January 1, 2012.

The Modified CBA enables our Company to materially reduce the cost associated with our unionized workforce and ensure labor cost stability. It will also permit our Company to survive in the competitive grocery business while still permitting our Company to retain and attract high-quality associates. Our Company expects it will realize a minimum aggregate labor savings of an agreed upon amount (excluding employee buy-out savings) over the term of the Modified CBAs.

Supply Agreement

On June 2, 2011, our Company entered into a definitive supply agreement with C&S effective May 29, 2011, whereby C&S will provide Services in support of a substantial portion of our Company’s supply chain. This agreement replaced the warehousing, logistics, procurement and purchasing agreement under which the parties had been operating since 2008.

The term of the agreement is through the effective date of our Company’s Plan of Reorganization in its Bankruptcy Filing but may be extended by either party for a term concurrent with a fixed volume commitment based upon wholesale purchases of merchandise resulting in a term of approximately seven years. The cost structure of the agreement is a combination of a fixed cost and variable upcharge pricing model. The charges are subject to adjustment due to volume change or other material changes to the operating assumptions of the agreement.

~~Our Company expects it will realize a run-rate of more than $50 million in annual savings commencing with our Company's emergence from the Bankruptcy Filing pursuant to a Plan of Reorganization.~~ The ~~agreement~~Great ~~provides~~Atlantic ~~our~~& ~~Company~~Pacific ~~with~~Tea ~~important service enhancements~~Company, ~~including detailed service specifications and key performance measures~~Inc. ~~The agreement also permits our Company to maintain product standards and specifications for all merchandise purchased for resale in our Company’s stores.~~

Notes to Consolidated Financial Statements - Continued

(Dollars in thousands, except share and per share amounts)

(Unaudited)

Our Company expects it will realize a run-rate of more than $60.0 million in annual savings commencing with our Company's emergence from the Bankruptcy Filing pursuant to a Plan of Reorganization. The agreement provides our Company with important service enhancements, including detailed service specifications and key performance measures. The agreement also permits our Company to maintain product standards and specifications for all merchandise purchased for resale in our Company’s stores.

Lease Assignment

On August 14, 2007, Pathmark entered into a leasehold assignment contract for the sale of its leasehold interests in one of its stores to CPS Operating Company LLC, a Delaware limited liability company ("CPS"). Pursuant to the terms of the agreement, Pathmark was to receive $87.0 million for assigning and transferring to CPS all of Pathmark's interest in the lease and CPS was to have assumed all of the duties and obligations of Pathmark under the lease. CPS deposited $6.0 million in escrow as a deposit against the purchase price for the lease, which is non-refundable to CPS, except as otherwise expressly provided in the agreement. The assignment of the lease was scheduled to close on December 28, 2007. On December 27, 2007, CPS issued a notice terminating the agreement for reason of a purported breach of the agreement, which, if proven, would require the return of the escrow. We are disputing the validity of CPS’s notice of termination as we believe CPS's position is without merit. Because we are challenging the validity of CPS’s December 27, 2007 notice of termination, we issued our own notice to CPS on December 31, 2007, asserting CPS's breach of the agreement as a result of their failure to close on December 28, 2007. CPS’s breach, if proven, would entitle us to keep the escrow. Both parties have taken legal action in New York state court to obtain the $6.0 million deposit held in escrow. In May 2011, the Bankruptcy Court entered an order authorizing Pathmark and CPS to proceed with their New York state litigation notwithstanding the automatic stay.

Rejection of GHI Trucking Agreement

On February 4, 2011, the Bankruptcy Court entered an order authorizing Pathmark to reject a burdensome trucking agreement with GHI and enter into an interim replacement trucking arrangement with C&S. Because Pathmark was GHI’s largest customer, its rejection of the trucking agreement negatively impacted GHI’s business, prompting GHI to layoff a significant number of its employees. The local union representing GHI’s employees subsequently brought suit against GHI in New Jersey federal court alleging that GHI’s termination of its employees violated New Jersey state and federal WARN statutes and constituted a breach of GHI’s collective bargaining agreement with the union. On March 31, 2011, GHI filed a motion with the Bankruptcy Court seeking leave to file a third party complaint in the New Jersey action seeking in excess of $100 million in damages against our Company alleging, among other things, that our conduct in connection with rejecting the trucking agreement was tortious and that we were responsible for any WARN Act liability of GHI to its former employees. The Bankruptcy Court denied GHI’s motion, and GHI appealed the Bankruptcy Court’s decision to the district court, which appeal is pending.

The Great Atlantic & Pacific Tea Company, Inc.

Notes to Consolidated Financial Statements - Continued

(Dollars in thousands, except share and per share amounts)

(Unaudited)

LaMarca et al v. The Great Atlantic & Pacific Tea Company, Inc (“Defendants”)

On June 24, 2004, a class action complaint was filed in the Supreme Court of the State of New York against The Great Atlantic & Pacific Tea Company, Inc., d/b/a A&P, The Food Emporium, and Waldbaum’s alleging violations of the overtime provisions of the New York Labor Law. Three named plaintiffs, Benedetto LaMarca, Dolores Guiddy, and Stephen Tedesco, alleged on behalf of a class that our Company failed to pay overtime wages to full-time hourly employees who were either required or permitted to work more than 40 hours per week. This matter has been stayed by our Bankruptcy Filing and is a claim that is subject to compromise.

Other

We are subject to various legal proceedings and claims, either asserted or unasserted, which arise in the ordinary course of business. We are also subject to certain environmental claims. While the outcome of these claims cannot be predicted with certainty, Management does not believe that the outcome of any of these legal matters will have a material adverse effect in our consolidated results of operations, financial position or cash flows.

Dudley v. Haub, Claus, Galgano et al. United States District Court – District of New Jersey

This matter is a securities class action lawsuit that alleges on behalf of purchasers of our Company’s securities during the period between July 23, 2009 and December 10, 2010, that certain of our Company's former and current executives violated the securities laws by making fraudulent or misleading statements with respect to material adverse facts about our Company's financial condition, business and prospects. Our Company is not named as a defendant in this lawsuit. However, our Company’s current CEO and two members of the Board of Directors are individually named defendants. Our Company views this lawsuit as lacking merit, as the statements and disclosures forming the basis for the allegations are forward-looking statements subject to “safe harbor” protections, or are otherwise not actionable.

~~21. Reportable Segments~~Other

The Company believes it may have been the subject of fraud involving the misappropriation of Company monies that may exceed the sum of $1.0 million. The precise scope, magnitude, nature and quality of the possible fraud cannot be determined at this time and is the subject of an ongoing investigation by the Company. The matter has also been reported to governmental authorities as well as those charged with governance. However, based on the facts known to date, the Company currently does not believe this event will require the restatement of any of the Company’s previous financial statements, nor is it expected to have a material effect on the Company's financial position.

23. Reportable Segments

Reportable segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance. Our chief operating decision maker is our President and Chief Executive Officer.

We have four reportable segments: Fresh, Pathmark, Gourmet and Other. The Other segment includes our Discount and Wine, Beer & Spirits businesses.

The accounting policies for these segments are the same as those described in the summary of significant accounting policies included in our Fiscal 2010 Annual Report. Assets and capital expenditures are not allocated to segments for internal reporting presentations.

Interim information on segments is as follows ~~(in thousands)~~:

	Sales by Category
	12 Weeks Ended				28 Weeks Ended
	Sept. 10, 2011		Sept. 11, 2010		Sept. 10, 2011		Sept. 11, 2010
Grocery (1)	$	1,129,790	$	1,310,388	$	2,667,075	$	3,069,232
Meat (2)		315,746		375,868		744,457		867,350
Produce (3)		193,158		232,023		457,808		546,627
Total	$	1,638,694	$	1,918,279	$	3,869,340	$	4,483,209

The Great Atlantic & Pacific Tea Company, Inc.

Notes to Consolidated Financial Statements - Continued

(Dollars in thousands, except share and per share amounts)

(Unaudited)

	Sales by Category
	12 Weeks Ended				40 Weeks Ended
	Dec. 3, 2011		Dec. 4, 2010		Dec. 3, 2011		Dec. 4, 2010
Grocery (1)	$	1,105,019	$	1,254,386	$	3,772,094	$	4,323,618
Meat (2)		296,090		342,308		1,040,547		1,209,657
Produce (3)		170,233		197,111		628,041		743,739
Total	$	1,571,342	$	1,793,805	$	5,440,682	$	6,277,014

(1)	The grocery category includes grocery, frozen foods, dairy, general merchandise/health and beauty aids, wine, beer & spirits, and pharmacy.

(2)	The meat category includes meat, deli, bakery and seafood.

(3)	The produce category includes produce and floral.

12 Weeks Ended

2840 Weeks Ended

Sept. 10, 2011

Sept. 11, 2010

Sept. 10, 2011

Sept. 11, 2010

Dec. 3, 2011

Dec. 4, 2010

Dec. 3, 2011

Dec. 4, 2010

Sales

Fresh

~~815~~752,~~520~~825

~~976~~902,~~952~~753

12,~~943~~695,~~092~~917

23,~~255~~158,~~521~~274

Pathmark

~~698~~691,~~733~~027

~~816~~759,~~304~~946

12,~~629~~320,~~795~~822

12,~~927~~687,~~705~~650

Gourmet

5561,~~714~~486

5563,~~122~~307

~~138~~199,~~508~~994

~~137~~201,~~994~~301

Other

6866,~~727~~004

6967,~~901~~799

~~157~~223,~~945~~949

~~161~~229,~~989~~789

Total sales

1,~~638~~571,~~694~~342

1,~~918~~793,~~279~~805

35,~~869~~440,~~340~~682

46,~~483~~277,~~209~~014

Segment (loss) income

Fresh

~~434~~4,818

104,~~255~~891

(1814,~~956~~138

)

2328,~~727~~618

Pathmark

(3230,~~385~~449

)

(2720,~~771~~992

)

(86117,~~665~~114

)

(5273,~~579~~572

)

Gourmet

14,~~415~~652

25,~~371~~411

712,~~866~~518

814,~~882~~294

Other

~~1,036~~361

~~254~~595

~~759~~1,120

~~991~~1,586

Total segment loss

(2920,~~500~~618

)

(1410,~~891~~095

)

(96117,~~996~~614

)

(1829,~~979~~074

)

Corporate (4)

(2421,~~501~~825

)

(2829,~~955~~468

)

(4062,~~977~~802

)

(76105,~~197~~664

)

Reconciling items (5)

(2137,~~595~~022

)

(54103,~~280~~180

)

(~~158~~195,~~449~~471

)

(64167,~~696~~877

)

Loss from operations

(7579,~~596~~465

)

(98142,~~126~~743

)

(~~296~~375,~~442~~887

)

(~~159~~302,~~872~~615

)

Nonoperating income

2,177

10,454

Nonoperating income (loss)

(213

)

152

10,241

Interest expense, net

(3734,~~829~~499

)

(4640,~~126~~038

)

(86120,~~283~~782

)

(~~107~~147,~~268~~306

)

Reorganization items, net

17(10,~~148~~510

)

9584,~~026~~516

Loss from continuing operations before income taxes

(96124,~~269~~413

)

(~~142~~182,~~075~~994

)

(~~287~~412,~~588~~001

)

(~~256~~439,~~686~~680

)

	12 Weeks Ended				28 Weeks Ended
	Sept. 10, 2011		Sept. 11, 2010		Sept. 10, 2011		Sept. 11, 2010
Segment depreciation and amortization – continuing operations
Fresh	$	13,900	$	17,329	$	34,318	$	40,721
Pathmark		15,564		19,761		37,764		46,532
Gourmet		1,554		1,951		3,724		4,702
Other		1,179		1,241		2,834		2,904
Total segment depreciation and amortization – continuing operations		32,197		40,282		78,640		94,859
Corporate		9,949		11,236		22,948		27,038
Total depreciation and amortization – continuing operations		42,146		51,518		101,588		121,897
Discontinued operations		-		-		-		-
Total company depreciation and amortization	$	42,146	$	51,518	$	101,588	$	121,897

The following table presents our segment depreciation and amortization:

~~(4)~~The ~~Represents~~Great aAtlantic ~~$4.1~~& ~~million~~Pacific ~~and~~Tea ~~$25.4 million decrease in corporate costs attributable to store-related activities~~Company, ~~primarily benefits and occupancy costs which are not allocated to segments, for the 12 and 28 weeks ended September 10, 2011, respectively, and a $0~~Inc.~~4 million and $9.8 million decline in corporate and administrative costs for the respective periods ended.~~

Notes to Consolidated Financial Statements - Continued

(Dollars in thousands, except share and per share amounts)

(Unaudited)

	12 Weeks Ended				40 Weeks Ended
	Dec. 3, 2011		Dec. 4, 2010		Dec. 3, 2011		Dec. 4, 2010

Segment depreciation and amortization – continuing operations
Fresh	$	13,500	$	16,486	$	47,818	$	57,206
Pathmark		14,293		19,077		52,057		65,610
Gourmet		1,532		1,883		5,256		6,585
Other		1,174		1,271		4,008		4,175
Total segment depreciation and amortization – continuing operations		30,499		38,717		109,139		133,576
Corporate		9,857		11,228		32,805		38,265
Total depreciation and amortization – continuing operations		40,356		49,945		141,944		171,841
Discontinued operations		-		-		-		-
Total company depreciation and amortization	$	40,356	$	49,945	$	141,944	$	171,841

(4)

Represents a $4.4 million and $29.9 million decrease in corporate costs attributable to store-related activities, primarily benefits and occupancy costs which are not allocated to segments, for the 12 and 40 weeks ended December 3, 2011, respectively, and a $3.2 million and $13.0 million decline in corporate and administrative costs for the respective periods ended.

(5)	Reconciling items, which are not included in segment loss, consist of the following:

	12 Weeks Ended						2840 Weeks Ended
	Sept. 10, 2011			Sept. 11, 2010			Sept. 10, 2011			Sept. 11, 2010
	Dec. 3, 2011			Dec. 4, 2010			Dec. 3, 2011			Dec. 4, 2010
Goodwill, trademark and long-lived asset impairment	$	(24,124	)	$	(30,250	)	$	(79,542	)	$	(35,648	)
Long-lived asset impairment	$	(25,138	)	$	(29,336	)	$	(104,680	)	$	(64,984	)
Net restructuring and other		688			(9,297	)		(2,801	)		(13,229	)
Intangible asset impairment		-			(12,700	)		-			(12,700	)
Net real estate related activity		7,119			2,179			(49,428	)		232
Net restructuring and other		(64	)		(11,684	)		(2,865	)		(24,914	)
Stock-based compensation (expense) income		(1,018	)		(760	)		(1,509	)		101
Net real estate related activity		(4,469	)		(48,114	)		(53,897	)		(47,881	)
Stock-based compensation expense		(931	)		(1,346	)		(2,440	)		(1,246	)
Pension withdrawal costs		-			-			(13,923	)		-
Self-insurance adjustment		~~(699~~-	)		~~(16,152~~-	)		(699	)		(16,152	)
Losses relating to Hurricane Irene		~~(1,000~~-	)		-			(1,000	)		-
Inventory-related		(363	)		-			(363	)		-
Other insurance deductible		(500	)		-			(500	)		-
C&S contract effect		(2,198	)		-			(9,184	)		-
Inventory-related		(43	)		-			(406	)		-
Total reconciling items	$	(21,595	)	$	(54,280	)	$	(158,449	)	$	(64,696	)
C&S contract effect		(746	)		-			(9,930	)		-
Other		(5,131	)		-			(5,131	)		-
Total reconciling items	$	(37,022	)	$	(103,180	)	$	(195,471	)	$	(167,877	)

22. Subsequent Events

On September 21, 2011, our Company and certain of its U.S. subsidiaries, each as a borrower, entered into the Second Amendment to the DIP Credit Agreement with the Agent and the DIP Lenders. The Second Amendment to the DIP Credit Agreement changes the measurement intervals for Minimum Excess Availability (as defined in the DIP Credit Agreement) requirements and reduces its Minimum Cumulative EBITDA (as defined in the DIP Credit Agreement) requirements to have them measured beginning with respect to the period ending December 31, 2011 rather than prior to such time as required by the DIP Credit Agreement, provided that if our Company has filed a Plan of Reorganization reasonably satisfactory to the DIP Lenders prior to December 31, 2011, then the measurement period for the Minimum Cumulative EBITDA covenant will be measured beginning on February 25, 2012.

The above summary of material terms of the Second Amendment to the DIP Credit Agreement does not purport to be complete and is subject to, and qualified in its entirety, by the complete text of the Second Amendment to the DIP Credit Agreement.

On September 26, 2011, our company assumed an additional 52 real estate leases, including leases for sub-leased locations. Any resulting changes in the classification of related liability balances will be reflected in our subsequent financial statements.

The Great Atlantic & Pacific Tea Company, Inc.

Notes to Consolidated Financial Statements - Continued

(Dollars in thousands, except share and per share amounts)

(Unaudited)

24. Subsequent Events

Modified Collective Bargaining Agreements

Assumed Leases

On December 22, 2011, our Company assumed an additional 140 real estate leases, including leases for sub-leased locations. Any resulting changes in the classification of related liability balances will be reflected in our subsequent financial statements.

Store Closures

In January 2012, our Company filed a motion with the Bankruptcy Court seeking approval to close 14 stores in four states as our Company prepares to emerge from chapter 11. These store closures are expected to be completed in our Company’s first quarter of fiscal 2012. In connection with our review of the long-lived assets, we recorded an impairment charge relating to these stores. This impairment charge amounted to $6.8 million during the 12 weeks ended December 3, 2011, of which $4.1 million and $2.7 million related to our Fresh and Pathmark reporting segments, respectively. An occupancy charge for these stores will be recorded when the stores close.

The Great Atlantic & Pacific Tea Company, Inc.

Management’s Discussion and Analysis

ITEM 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations

INTRODUCTION

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations is intended to help the reader understand the financial position, operating results, and cash flows of The Great Atlantic & Pacific Tea Company, Inc. (“we,” “our,” “us” or “our Company”) . It should be read in conjunction with our Consolidated Financial Statements and the accompanying notes (“Notes”). It discusses matters that Management considers relevant to understanding the business environment, financial position, results of operations and our Company’s liquidity and capital resources. These items are presented as follows:

·	Overview – a general description of our business and segment structure.

·	Operating Results – a discussion of the value drivers of our business; measurements; opportunities; challenges and risks; and initiatives.

·	Outlook – a discussion of certain trends or business initiatives for the remainder of fiscal 2011 to assist in understanding the business.

· Results of Operations and Liquidity and Capital Resources – a discussion of results for the 12 weeks ended ~~September~~December 103, 2011 compared to the 12 weeks ended ~~September~~December 114, 2010; results for the 2840 weeks ended ~~September~~December 103, 2011 compared to the 2840 weeks ended ~~September~~December 114, 2010 and current and expected future liquidity.

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

·	Market Risk – a discussion of the impact of market changes in our Consolidated Financial Statements.

OVERVIEW

Our Company is based in Montvale, New Jersey, operates conventional supermarkets, combination food and drug stores and discount food stores in 6 U.S. states. Our Company’s business consists strictly of our retail operations, which totaled ~~336~~335 stores as of ~~September~~December 103, 2011.

We operate in four reportable segments: Fresh, Pathmark, Gourmet and Other. The Other segment includes our Discount and Wine, Beer & Spirits businesses.

The Great Atlantic & Pacific Tea Company, Inc.

Management’s Discussion and Analysis - Continued

OPERATING RESULTS

Our comparable store sales, which include stores that have been in operation for at least one full year and replacement stores, declined 0.68% and 2.72% this quarter and year-to-date as compared to the same period in fiscal 2010, respectively. ~~Although~~ As a result, our results of operations were below those of the prior year, ~~second~~and ~~quarter~~our ~~2011~~expectations ~~comparable~~primarily ~~store~~attributable ~~sales~~to ~~improved~~a ~~from~~decreasing ~~the~~customer ~~first~~count ~~quarter~~as ~~2011~~well ~~decline~~as ofreduced 4customer spending.~~2%.~~

Our Fresh and Pathmark segments continued to have lower ~~revenue~~comparable store sales and operating income for the 12 and 2840 weeks ended ~~September~~December 103, 2011 as compared to the 12 and 2840 weeks ended ~~September~~December 114, 2010, which were partially offset by reduced occupancy expenses. Our management team continues to address these challenges that we have been experiencing since the early part of fiscal 2011. During the first quarter of fiscal 2011, we closed 18 underperforming stores in our Fresh segment and 13 underperforming stores in our Pathmark segment. During our second quarter of fiscal 2011 we completed an auction of 25 stores located in Maryland, Delaware and the District of Columbia (“Southern Stores”) that resulted in the sale of 12 stores and the closure of 13 stores. In August 2011, we opened a new 51,000 square foot store, our Company’s first new store in approximately one year, under our SuperFresh banner in Philadelphia, PA.

Our Gourmet stores located in Manhattan, New York ~~continued~~experienced toa ~~deliver~~decrease ~~strong~~in ~~results~~operating ~~during~~income ~~the second quarter 2011~~ as compared to the ~~second~~third quarter of 2010, ~~despite a decline in gross margin and increase in labor and occupancy costs,~~ which ~~were~~was partially offset by decreases in administrative and supply and logistics expenses.

Our Discount business experienced an increase in ~~revenue~~comparable store sales during the ~~second~~third quarter of 2011 as compared to the ~~second~~third quarter of 2010 along with improved labor, occupancy and supply and logistics expenses, which were partially offset by a decline in gross margin.

Our Wine, Beer & Spirits businesses experienced an increase in ~~revenue~~comparable store sales during the ~~second~~ third quarter 2011 as compared to the ~~second~~third quarter 2010 along with improved labor, occupancy, supply and logistics and administrative expenses which were partially offset by a reduction in gross margin. ~~During~~We ~~the second quarter fiscal 2011, we~~ closed one underperforming store in our Wine, Beer & ~~Spirits~~Spirit business during the third quarter of fiscal 2011.

CAUTIONARY NOTE REGARDING FORWARD LOOKING STATEMENTS

This discussion 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: the ability of the Debtors to continue as going concerns; the ability of the Debtors to obtain Bankruptcy Court approval with respect to motions in the chapter 11 cases; the ability of the Debtors to prosecute, develop and consummate one or more plans of reorganization with respect to the chapter 11 cases; the effects of the Bankruptcy Filing on the Debtors and the interests of various creditors, equity holders and other constituents; Bankruptcy Court rulings in the chapter 11 cases and the outcome of the cases in general; the length of time the Debtors will operate under the chapter 11 cases; risks associated with third-party motions in the chapter 11 cases, which may interfere with the ability of the Debtors to develop and consummate one or more plans of reorganization once such plans are developed; the potential adverse effects of the chapter 11 proceedings on the Debtors’ liquidity or results of operations; the ability to execute Debtors’ business and restructuring plan and to timely and effectively implement the turnaround strategy; increased legal costs related to the Bankruptcy Filing and other litigation; the Debtors’ ability to maintain contracts that are critical to its operation, to obtain and maintain normal terms with customers, suppliers and service providers and to retain key executives, managers and employees; various operating factors and general economic conditions, competitive practices and pricing in the food industry generally and particularly in our principal geographic 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 capital markets which may affect our cost of capital or the ability to access capital; supply or quality control problems with our vendors; regulatory compliance; and changes in economic conditions, which may affect the buying patterns of our customers. Refer to Risk Factors included in this quarterly report.

The Great Atlantic & Pacific Tea Company, Inc.

Management’s Discussion and Analysis - Continued

suppliers and service providers and to retain key executives, managers and employees; various operating factors and general economic conditions, competitive practices and pricing in the food industry generally and particularly in our principal geographic 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 capital markets which may affect our cost of capital or the ability to access capital; supply or quality control problems with our vendors; regulatory compliance; and changes in economic conditions, which may affect the buying patterns of our customers. Refer to Risk Factors included in this quarterly report.

OUTLOOK

Amended and Restated Securities and Purchase Agreements

Upon the plan effective date, our Company’s existing debtor-in-possession financing facility is required to be refinanced with a similar facility that will be raised on market terms that are in form and substance reasonably satisfactory to the Investors (the “Exit Facility”). The proceeds of the Exit Facility and the New Money Commitment, combined with our Company’s then existing cash on hand will provide the funding for the reorganization, including paying certain secured creditors in full in cash, and will provide a cash pool of $40.0 million, less the amount distributed pursuant to a substantive consolidation settlement cash pool, for distributions to general unsecured creditors. The consummation of the transactions contemplated thereunder is subject to the fulfillment of the conditions precedent set forth in the Amended and Restated SPAs, refer to Note 1 – Basis of Presentation for additional information.

Modified Collective Bargaining Agreements

Subsequent to our balance sheet date, on December 5, 2011, our Company obtained approval from the Bankruptcy Court to enter into modifications to certain Collective Bargaining Agreements (the “Modified CBAs”) with the United Food and Commercial Workers, International and 13 Local UFCW Affiliates in

The Great Atlantic & Pacific Tea Company, Inc.

Management’s Discussion and Analysis - Continued

support of our Company’s restructuring initiatives. The Modified CBAs will be in effect for a period of five years beginning on January 1, 2012.

Supply Agreement

Our Company expects that it will realize a run-rate of more than $5060.0 million in annual savings commencing with our Company's emergence from the Bankruptcy Filing pursuant to a Plan of Reorganization. The agreement provides our Company with important service enhancements, including detailed service specifications and key performance measures. The agreement also permits our Company to maintain product standards and specifications for all merchandise purchased for resale in our Company’s stores.

Labor Negotiations

We believe that we have good relationships with our union partners. To reorganize as a viable business, our Company believes it needs to secure cost savings in multiple areas, including obligations arising under our collective bargaining agreements. Our Company is in the process of negotiating with its 13 union locals of the UFCW and SEIU to obtain consensual modifications to its collective bargaining agreements necessary for our successful reorganization. We have exchanged proposals for substantial cost reductions and received a counter proposal from our union partners, which we continue to discuss. Although we believe that we will successfully achieve new collective bargaining agreements with the necessary amount of labor savings, there can be no assurances that our Company will succeed in obtaining necessary labor cost savings.

Assumption of leases

Other Bankruptcy Matters

The Bankruptcy Filing provides our Company with the breathing room and the tools available under the Bankruptcy Code to implement our comprehensive financial and operational restructuring. We remain committed to implementing our turnaround strategy while operating our business during the chapter 11 restructuring process. However, there can be no assurance regarding these matters. We have noted that the improvements originally anticipated from our turnaround strategy are taking longer to realize than originally anticipated, which has negatively impacted our profitability and cash flows from operations. While reversing negative consumer trends is a very difficult process and the timing and success of these measures cannot be assured, we anticipate that our initiatives to improve our customers’ shopping experience will reverse the decreasing customer count and comparable store sales decline that we have been experiencing. There can be no assurance that our operational and financial turnaround strategy will be successful or that the DIP Lenders or the Bankruptcy Court will approve the plan ultimately proposed by our Company and under such circumstances we could be forced to consider other alternatives to maximize potential recovery for our various creditor constituencies. The uncertainty regarding these matters raises substantial doubt about our Company’s ability to continue as a going concern.

The Great Atlantic & Pacific Tea Company, Inc.

Management’s Discussion and Analysis - Continued

restructuring process. However, there can be no assurance regarding these matters. We have noted that the improvements originally anticipated from our turnaround strategy are taking longer to realize than originally anticipated, which has negatively impacted our profitability and cash flows from operations. While reversing negative consumer trends is a very difficult process and the timing and success of these measures cannot be assured, we anticipate that our initiatives to improve our customers’ shopping experience will reverse the decreasing customer count and comparable store sales decline that we have been experiencing. There can be no assurance that our operational and financial turnaround strategy will be successful or that the DIP Lenders or the Bankruptcy Court will approve the plan ultimately proposed by our Company and under such circumstances we could be forced to consider other alternatives to maximize potential recovery for our various creditor constituencies. The uncertainty regarding these matters raises substantial doubt about our Company’s ability to continue as a going concern.

Our future performance is subject to uncertainties and other risk factors that could have a negative impact on our business and cause actual results to differ materially from our expectations. Refer to Part II. - Item 1A for a description of our Risk Factors.

RESULTS OF CONTINUING OPERATIONS AND LIQUIDITY AND CAPITAL RESOURCES

Our consolidated financial information presents the results related to our operations of discontinued businesses separate from the results of our continuing operations. The discussion and analysis that follows focuses on continuing operations. All amounts are in millions, except share, per share amounts and where noted.

12 WEEKS ENDED ~~SEPTEMBER~~DECEMBER 103, 2011 COMPARED TO THE 12 WEEKS ENDED ~~SEPTEMBER~~DECEMBER 114, 2010

OVERALL

The following table summarizes our results of operations for the 12 weeks ended ~~September~~December 103, 2011 compared to the 12 weeks ended ~~September~~December 114, 2010:

	12 Weeks Ended			12 Weeks Ended			Favorable
	September 10, 2011			September 11, 2010			(unfavorable)			% Change
	December 3, 2011			December 4, 2010			(unfavorable)			% Change
	(in millions, except percentages and per share data)
Sales	$	1,~~638~~571.73		$	1,~~918~~793.38		$	(~~279~~222.65	)		(1412.64	)%
Decrease in comparable store sales		(0.68	)%		(64.69	)%	N/A			N/A
Loss from continuing operations	$	(97123.82	)	$	(~~142~~180.20	)	$	4456.48			31.26	%
Loss from discontinued operations	$	(2.0.3	)	$	(1018.97	)	$	818.94		8198.74		%
Net loss	$	(99123.86	)	$	(~~153~~198.07	)	$	5375.21			3437.8	%
Net loss per share - basic	$	(12.8832	)	$	(23.9376	)	$	1.0544			3538.83	%
Net loss per share - diluted	$	(12.8832	)	$	(23.9476	)	$	1.0644			3638.13	%

Average weekly sales per supermarket were approximately $~~420~~411,000 for the ~~second~~third quarter of fiscal 2011 versus $~~391~~382,~~500~~800 for the corresponding period of the prior year, an increase of 7.34% primarily due to the closing of underperforming supermarkets.

The Great Atlantic & Pacific Tea Company, Inc.

Management’s Discussion and Analysis - Continued

SALES

	For the 12 Weeks Ended
	September 10, 2011		September 11, 2010
	December 3, 2011		December 4, 2010
	(in thousands)
Fresh	$	~~815~~752,~~520~~825	$	~~976~~902,~~952~~753
Pathmark		~~698~~691,~~733~~027		~~816~~759,~~304~~946
Gourmet		5561,~~714~~486		5563,~~122~~307
Other		6866,~~727~~004		6967,~~901~~799
Total sales	$	1,~~638~~571,~~694~~342	$	1,~~918~~793,~~279~~805

Sales decreased from $1,~~918~~793.38 million for the 12 weeks ended ~~September~~December 114, 2010 to $1,~~638~~571.73 million for the 12 weeks ended ~~September~~December 103, 2011, primarily due to a decrease in comparable store sales of $1714.75 million and the absence of sales due to store closures of $~~269~~213.25 million, partially offset by sales from ~~two~~one new ~~stores~~store of $75.35 million. The decrease in sales in our Fresh segment of $~~161~~149.49 million was primarily related to the ~~absence~~decrease ofin ~~sales~~comparable ~~due to~~ store ~~closures~~sales of $~~169.~~7.3 million, ~~partially~~and ~~offset~~the byabsence anof ~~increase~~sales indue ~~the~~to ~~comparable~~ store ~~sales~~closures of $1148.01 million, ~~and~~partially offset by sales from ~~two~~one new ~~stores~~store of $75.35 million. The decrease in sales in our Pathmark segment of $~~117~~68.69 million was primarily due to a decline in comparable store sales of $227.47 million and the absence of sales due to store closures of $9561.2 million. The decline in comparable store sales in our Fresh and Pathmark segments were attributed to the decreasing customer counts that we have been experiencing since the early part of fiscal 2011. Sales generated by our Gourmet segment ~~increased~~decreased by $01.68 million. The sales decrease of $1.28 million in our Other segment, representing Discount and Wine, Beer & Spirits, was primarily attributable to the absence of sales due to one store closure within Discount of $3.32 million and ~~four~~five store closures within Wine, Beer & Spirits of $1.0.9 million, partially offset by an increase in comparable store sales of $32.13 million.

GROSS MARGIN

Gross margin of $~~455~~445.43 million decreased ~~158~~148 basis points as a percentage of sales to 2728.7934% for the ~~second~~third quarter of fiscal 2011 from gross margin of $~~563~~534.39 million or 29.3782% for the ~~second~~third quarter of fiscal 2010 reflecting lower margins across all of our operating segments primarily due to an increase in spending to support discounts offered in our circulars mainly in our Pathmark segment as well as a reduction in vendor allowances that we have experienced during the bankruptcy.

The following table details the dollar impact of items affecting the gross margin dollar decrease ~~from~~in the ~~second~~third quarter of fiscal ~~2010~~2011 as compared to the ~~second~~third quarter of fiscal ~~2011~~2010 (in millions):

		Sales Volume				Gross Margin Rate				Total
Total company		$	(8266.24	)		$	(2523.72	)		$	(~~107~~89.96	)

STORE OPERATING, GENERAL AND ADMINISTRATIVE EXPENSE

Our Store operating, general and administrative (“SG&A”) expense was $~~506~~499.96 million or 3031.9380% as a percentage of sales for the ~~second~~third quarter of fiscal 2011, as compared to $~~631~~635.26 million or 3235.9143% as a percentage of sales for the ~~second~~third quarter of fiscal 2010.

SG&A expenses for the ~~second~~third quarter of fiscal 2011 included (i) net real estate related costs of $~~30.~~4.5 million, or ~~185~~28 basis points, ~~of which $26.2 million was primarily attributed to an occupancy reserve adjustment related to the closing and sale of 25 Southern stores during the 12 weeks ended September 10, 2011~~ (ii) ~~losses~~net ~~related~~restructuring toand ~~Hurricane~~other ~~Irene~~costs of $15.02 million, or 633 basis points (iii) ~~net~~other ~~stock-based~~insurance ~~compensation~~deductible ~~related expenses~~ of $1.0.5 million, or 64 basis points and (iv) ~~self-insurance reserve adjustments of $0.1 million, or 1 basis point. These costs were partially offset by (v)~~ net ~~real~~stock-based ~~estate~~compensation ~~gains of $37.5 million or 228 basis points, of which $29.1 million~~ related toexpenses ~~a gain from the sale~~ of ~~Southern stores and (vi) net restructuring and other income of~~ $0.79 million, or 46 basis points.

~~SG&A~~The ~~expenses~~Great ~~for~~Atlantic ~~the~~& ~~second~~Pacific ~~quarter~~Tea ~~of fiscal 2010 included (i) net restructuring and other costs of $9.3 million~~Company, ~~or 49 basis points (ii) self-insurance reserve adjustments of $17~~Inc.8 million, or 93 basis points and (iii) stock-based compensation expense of $0.8 million, or 4 basis points. These costs were partially offset by net real estate gains of $2.2 million, or 11 basis points.

~~Excluding~~Management’s ~~the~~Discussion ~~items listed above, SG&A as a percentage of sales decreased by 29 basis points during the second quarter of fiscal 2011 as compared to the second quarter of fiscal 2010. Labor~~ and ~~occupancy~~Analysis ~~costs~~- decreased $51.4 million and $33.5 million, respectively, primarily attributable to a reduction in the number of open stores. The corresponding rates as a percentage of sales decreased 25 basis points and 52 basis points, respectively, due to the closing of underperforming stores with higher costs relative to sales from our remaining open store base. Despite decreases in advertising and other operating expenditures of $6.7 million, the corresponding rate as a percentage of sales increased 19 basis points. In addition, other miscellaneous expenses decreased $1.3 million, or an increase of 29 basis points as a percentage of sales.Continued

~~During~~SG&A expenses for the 12third ~~weeks~~quarter ~~ended~~of ~~September~~fiscal ~~10,~~2010 ~~2011~~included ~~and~~(i) ~~September~~net ~~11,~~real ~~2010~~estate related costs of $49.8 million, weor ~~recorded~~278 ~~impairment~~basis ~~losses~~points, onof ~~long-lived~~which ~~assets~~$48.3 ~~due~~million towas ~~closure~~primarily orattributed ~~conversion~~to the closing of 25 stores induring the ~~normal~~12 ~~course~~weeks ofended ~~business~~December 4, 2010 (ii) net restructuring and other costs of $1

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