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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
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<TABLE>
<S> <C>
FOR THE FISCAL YEAR ENDED COMMISSION FILE NUMBER
FEBRUARY 3, 1996 0-16404
</TABLE>
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SUPERMARKETS GENERAL HOLDINGS CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 13-3408704
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
301 BLAIR ROAD, P. O. BOX 5301 07095-0915
WOODBRIDGE, NJ (Zip Code)
(Address of principal executive office)
</TABLE>
908-499-3000
(Registrant's telephone number, including area code)
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SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
$3.52 CUMULATIVE EXCHANGEABLE REDEEMABLE PREFERRED STOCK
(Title of Class)
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES X NO __
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
As of April 1, 1996 there were outstanding 650,675 shares of $0.01 par value
Class A Common Stock (voting) and 320,000 shares of $0.01 par value Class B
Common Stock (non-voting), all of which are privately owned and not traded on a
public market.
Documents Incorporated by Reference: None
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<PAGE>
PART I
ITEM 1. BUSINESS*
GENERAL
Registrant was incorporated in the State of Delaware in April 1987 as SMG
Holdings Corporation. Subsequently, registrant's name was changed to
Supermarkets General Holdings Corporation (the "Company"). The Company acquired
Supermarkets General Corporation ("Old Supermarkets"), in October 1987 (the
"Acquisition"). References to the Company in this Report refer to the Company
and its subsidiaries on a consolidated basis, except where the context requires
otherwise.
In October 1989, Old Supermarkets adopted an amended and restated Plan of
Liquidation pursuant to which it was liquidated into three wholly owned
subsidiaries of the Company. In November 1989, pursuant to such Plan, Old
Supermarkets transferred substantially all of the assets of its Purity Supreme
division to two of the three above mentioned wholly owned subsidiaries of the
Company, Purity Supreme, Inc. ("Purity") and Li'l Peach Corp. ("Li'l Peach", and
together with Purity, the "Purity Operations"), and said subsidiaries assumed
substantially all of the liabilities of Old Supermarkets related to such
division. Old Supermarkets completed the liquidation just prior to the year
ended February 3, 1990 by merging with the third of the above mentioned wholly
owned subsidiaries of the Company, which retained the name Supermarkets General
Corporation. In connection with the Recapitalization referred to below,
Supermarkets General Corporation changed its name to Pathmark Stores, Inc.
("Pathmark").
On December 17, 1991, the Company completed the sale of the Purity
Operations for approximately $257.0 million (as adjusted), including the
assumption of certain indebtedness of Purity and Li'l Peach. The Company
retained a 10% common equity interest in Purity Supreme and a new issue of
Purity Supreme exchangeable preferred stock. During the fiscal year ended
February 3, 1996 ("Fiscal 1995"), the Company sold its investment in Purity for
$16.4 million in connection with the sale of Purity to Stop & Shop Companies,
Inc. and used the proceeds of the sale to repay a portion of the PTK Holdings,
Inc. Exchangeable Guaranteed Debentures due 2003 (the "PTK DIB's"), including
accrued interest and debt premiums. PTK Holdings, Inc. ("PTK") is a wholly-owned
subsidiary of the Company, formed in 1993.
The Company consummated a recapitalization plan (the "Recapitalization") on
October 26, 1993. In connection with the Recapitalization, the Company,
transferred all of the capital stock of Pathmark to PTK. Pathmark distributed
the capital stock of Plainbridge, Inc. ("Plainbridge") to PTK in the Plainbridge
Spin-Off (as defined below).
In connection with the Recapitalization, Pathmark contributed its Rickel
home centers segment, the warehouse, distribution and transportation operations
and the inventory therein that service the Pathmark supermarkets and drug stores
and certain other assets to Plainbridge and distributed the shares of
Plainbridge to PTK (the "Plainbridge Spin-Off"). In addition, Pathmark
contributed to Chefmark, Inc., a newly formed Delaware corporation ("Chefmark"),
the Chefmark deli food preparation operations and a related warehouse and a
leased banana ripening warehouse and distributed the shares of Chefmark to
Holdings (the "Chefmark Spin-Off", and, together with the Plainbridge Spin-Off,
the "Spin-Offs"). In connection with the Plainbridge Spin-Off, Pathmark entered
into a logistical services agreement with Plainbridge (the "Logistical Services
Agreement") that provided for the continuing supply of merchandise to Pathmark
supermarkets and for the provision of warehousing, distribution and logistical
services relating to the supply of such merchandise.
On November 4, 1994, the Company completed the sale of its home centers
segment for approximately $88.7 million, plus the assumption of certain
indebtedness. The Company used
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* Except as otherwise indicated, information contained in this Item is given as
of February 3, 1996.
1
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approximately $66.6 million before January 28, 1995 and $4.7 million during
Fiscal 1995 of its net proceeds to pay down the PTK DIB's, including accrued
interest and debt premium.
During Fiscal 1995, Pathmark sold 30 of its 36 freestanding drug stores,
including inventory, to the Rite Aid Corporation for $59.9 million. During
Fiscal 1995, the Company closed five freestanding drug stores and the sixth is
projected to close in Fiscal 1996 (as hereinafter defined).
Subsequent to February 3, 1996, PTK contributed 100% of the capital stock of
Plainbridge to Pathmark, making Plainbridge a wholly-owned subsidiary of
Pathmark. In connection therewith, Pathmark amended its existing Credit
Agreement by prospectively modifying certain of its financial covenants
(interest coverage, leverage and consolidated adjusted earnings before interest,
taxes, depreciation and amortization) to account for the effects of
Plainbridge's operations and by increasing its working capital facility under
the Credit Agreement by $25 million to $200 million. In addition, Pathmark and
Plainbridge have terminated the Logistical Services Agreement.
BUSINESS OF THE COMPANY
The Company's primary business activity is the management of its interests
in Pathmark and Chefmark. The Company holds all of the capital stock of PTK and
all of the capital stock of Chefmark. Through PTK, the Company owns all of the
capital stock of Pathmark. Chefmark's primary business is to supply Pathmark
with deli food preparation services and merchandise from the banana ripening
facility.
BUSINESS
Pathmark is the leading supermarket retailer based on volume, operating
under a single trade name, in the Middle Atlantic States and the fifteenth
largest in the nation. At February 3, 1996, Pathmark operated 144 supermarkets
(including 137 in-store pharmacy departments) primarily in the New York--New
Jersey and Philadelphia metropolitan areas. These metropolitan areas contain
over 10% of the population and grocery sales in the United States.
The following table presents the market area, number of stores and selling
and total square footage for Pathmark's supermarkets.
SELLING
MARKET NUMBER OF SQ. FT. TOTAL SQ. FT.
AREA STORES (000'S) (000'S)
- ------------ --------- ------- -------------
NJ, NY, PA, 144 5,392 7,373
CT, DE
BUSINESS STRATEGY
Pathmark's business strategy is to increase profitability and market
penetration in its existing markets (i) by providing superior value to its
customers through its marketing and merchandising programs, (ii) through store
openings, enlargements and renovations and (iii) through increased operating
efficiencies. In implementing this strategy, Pathmark has used and will continue
to use a large-store format to increase operating efficiencies and to expand its
offering of higher margin merchandise and services, most notably, perishable
products.
Marketing and Merchandising
. Super Center Format. The average Pathmark Super Center is approximately 50%
larger than the average size supermarket in the United States and offers
greater convenience by providing one-stop shopping and a wider assortment of
foods and general merchandise than is offered by conventional supermarkets.
Pathmark expects that its new stores opened during the current and next two
fiscal years will average approximately 60,000 square feet.
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. Pathmark 2000. Pathmark 2000 is a new, larger Super Center format designed to
provide Pathmark customers with a substantially greater selection of
perishable products, particularly produce. Pathmark 2000 stores are also
designed to be more "customer friendly", with wider aisles, more accessible
customer service and information departments, improved signs and graphics, and
increased availability of Pathmark associates. Implementation of elements of
this format in certain stores has significantly enhanced sales and operating
margins in these stores. All of Pathmark's new supermarkets and enlargements
completed in Fiscal 1995 employed the Pathmark 2000 concept, and Pathmark
expects that virtually all new stores and enlargements thereafter will employ
the same concept. At February 3, 1996, 44 of Pathmark's supermarkets were
Pathmark 2000s.
. Flexible Merchandising. Pathmark believes that its large-store format gives it
considerable flexibility to respond to changing consumer demands and
competition by varying and enhancing its merchandise selection. Pathmark's
"Big Deals" program, currently consisting of over 500 merchandise items offers
large-sized merchandise at prices which Pathmark believes are competitive with
those available in "warehouse" and "club" stores. Pathmark emphasizes
competitive pricing plus weekly sales and promotions supported by extensive
advertising, primarily in print media. Merchandising flexibility and
effectiveness is enhanced through the increased utilization of a category
management approach.
. Pathmark Label. Pathmark believes that it is one of the leading supermarket
retailers of private label merchandise in the United States offering for sale
over 3,300 items through its private label program. Pathmark's private label
brands are called Pathmark, No Frills and its newest brand, Pathmark
Preferred.
. Pharmacy. Pathmark provides full pharmacy services in virtually all of its
stores. Pathmark's broad market coverage within its marketing area has enabled
it to become a leading filler of third-party prescriptions in this area.
Pathmark believes that its well-established pharmacy operations provide a
competitive advantage in attracting and retaining customers.
Store Expansion and Renovation Program
. New Stores, Enlargements and Renovations. During Fiscal 1995, Pathmark opened
five new Pathmark 2000s, closed four smaller stores, and completed 18 major
renovations and enlargements. During the fiscal year ending February 1, 1997
("Fiscal 1996"), Pathmark plans to open an aggregate of up to six new Pathmark
2000s, two of which will replace smaller Pathmark stores, and to complete up
to an aggregate of 22 major renovations and enlargements.
Pathmark recognizes the importance of keeping its stores looking fresh and
up-to-date; thus, each store typically receives a major renovation or
enlargement every five years. At the end of Fiscal 1995, Pathmark derived
approximately 80% of its supermarket sales from stores that were opened or
enlarged or underwent major renovations during the last five years.
. Core Market Focus. Pathmark has identified approximately 65 potential
locations for new supermarkets within its current marketing areas and expects
that all new stores opened during the current and next two fiscal years will
be located in these areas. Pathmark believes that, by opening stores in its
current marketing areas, it can achieve additional operating economies and
other benefits from its store expansion program without the risks and costs
associated with opening stores in new marketing areas.
Operating Efficiencies
. Technology. Pathmark has made a significant and continuing investment in
information technology and believes it is a leader in the supermarket industry
in this area. All Pathmark supermarket checkout terminals have
third-generation "state of the art" IBM 4680 scanner systems supported by a
RISC 6000 application processor in each store. These systems allow consumer
credit and electronic fund transfer ("EFT") transactions, greatly facilitate
system-wide promotion and merchandising
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programs, and improve the speed and control of customer transactions. In
addition, all Pathmark supermarkets utilize radio frequency technology for
direct vendor receivings and shelf labels.
. Geographic Concentration. All Pathmark supermarkets are located within 100
miles of the Pathmark headquarters and principal warehousing facilities that
service them. This allows for more efficient management supervision, increased
speed of delivery and reduced transportation costs. All of the stores which
Pathmark expects to open in the current fiscal year will be within this 100
mile radius.
PATHMARK SUPERMARKETS
Pathmark operated 144 supermarkets at February 3, 1996. Supermarkets
accounted for approximately 97% of Pathmark's sales for Fiscal 1995. The
following table presents selected data respecting supermarket sales and stores
for the last five fiscal years.
<TABLE>
<CAPTION>
FISCAL YEARS
----------------------------------------------
1995(A) 1994 1993 1992 1991
------ ------ ------ ------ ------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Supermarket sales................................. $4,063 $4,006 $4,057 $4,143 $4,137
Average sales per Supermarket..................... 28.5(b) 28.7 28.7 29.0 28.6
Number of Supermarkets:
Major Renovations(c)............................ 14 14 12 8 13
Enlargements(d)................................. 4 11 5 10 15
Opened.......................................... 5 4 4 3 1
Closed.......................................... 4 6 5 3 1
Type of Supermarket(e):
Pathmark 2000................................... 44 29 10 2 --
Super Center.................................... 95 108 126 137 139
Conventional Supermarket........................ 5 6 7 7 7
Total Supermarkets Open at Year End......... 144 143 143 146 146
</TABLE>
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(a) Fiscal 1995 was a 53-week year.
(b) Computed on the basis of aggregate sales of stores open for the full year,
based on a 52-week period.
(c) Major renovations involve an investment of $350,000 or more and average
nearly $1.8 million per store.
(d) Enlargements involve the addition of selling space and average an investment
in excess of $2.5 million.
(e) Includes two stores not wholly owned. The sales figures for these stores are
not included above.
By industry standards, Pathmark stores are large and productive, averaging
approximately 51,200 square feet in size and generating high average sales
volume of approximately $28.5 million per store ($765 per selling square foot)
for stores open for all of Fiscal 1995 based on a 52-week period. Pathmark's 144
supermarkets at February 3, 1996 ranged from 26,000 to 66,000 square feet in
size and included 133 supermarkets that are 40,000 square feet or larger in
size. All Pathmark stores carry a broad variety of food and drug store products,
including an extensive variety of the Pathmark, No Frills and Pathmark Preferred
brands.
Pathmark pioneered the development of the large "superstore" in the Middle
Atlantic States, opening the first "Pathmark Super Center" in 1977, and
currently operates 139 such stores, including 44 "Pathmark 2000" stores. The
average weekly sales for Pathmark 2000 stores in Fiscal 1995 was $634,000
compared to $509,000 for the balance of the chain. The majority of Super Centers
were created through the enlargement or renovation of existing stores. Super
Centers average approximately 52,000 square feet in size. In addition to the
broad variety of food and non-food items carried in conventional Pathmark
stores, a typical Super Center includes a customer service center, pharmacy,
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additional food selections (including expanded perishables departments, cheese
shops, bakeries, fresh fish-on-ice and service delicatessen departments),
videotape rentals, book departments and expanded health and beauty care
departments. All Super Centers have EFT and credit transaction capability at
their checkout terminals and 127 supermarkets also featured in-store automated
teller machines.
Pathmark has developed a new, larger Super Center format called "Pathmark
2000" designed to provide Pathmark customers with a substantially greater
selection of perishable products, particularly produce. Pathmark 2000 stores are
also designed to be more "customer friendly", with wider aisles, more accessible
customer service and information departments, improved signs and graphics, and
increased availability of Pathmark associates. Implementation of elements of
this format in certain stores has significantly enhanced sales and operating
margins in these stores. All of Pathmark's new supermarkets and a majority of
supermarket enlargements completed in Fiscal 1995 employed the Pathmark 2000
concept and Pathmark expects that virtually all new stores and enlargements will
employ the same concept.
Pathmark's supermarket business is generally not seasonal, although sales in
the second and fourth quarters tend to be slightly higher than those in the
first and third quarters.
STORE EXPANSION AND RENOVATION PROGRAM
A key feature of Pathmark's business strategy has been and will continue to
be the expansion of the total selling square footage of its operations. Pathmark
believes that by adding new stores and increasing the selling area of existing
stores, it can improve its competitive position and widen operating margins by
achieving economies of scale in merchandising, advertising, distribution and
supervision. During the five years ending with Fiscal 1995, Pathmark completed
106 major renovations and enlargements and opened 17 new supermarkets. At the
close of Fiscal 1995, sales in these stores accounted for approximately 80% of
its total supermarket sales.
In Fiscal 1995, Pathmark opened five new Pathmark 2000 super centers and
completed 14 major renovations and four enlargements of its existing
supermarkets. Pathmark currently expects to open up to six new Pathmark "2000"
Super Centers during Fiscal 1996, two of which will replace smaller stores, and
to complete up to 22 major renovations and enlargements.
ADVERTISING AND PROMOTION
As part of its marketing strategy, Pathmark emphasizes its competitive
pricing through weekly sales and promotions supported by extensive advertising.
Additional savings are offered each week through Pathmark "super coupons" in
newspapers and circulars. Pathmark's advertising expenditures are concentrated
on print advertising, including advertisements and circulars in local and area
newspapers and advertising flyers distributed by shopping malls. Most of the
remaining advertising expenses are for radio advertisements. During the year
ended January 28, 1995 ("Fiscal 1994"), Pathmark introduced "Smart Coupons" in
its advertisements. With "Smart Coupons", customers no longer are required to
actually cut out Pathmark coupons from its advertisement and physically present
them at the cash registers. Rather, when a coupon item is scanned during the
check-out process, the coupon savings is automatically deducted from the price.
Pathmark believes that its "Smart Coupons" greatly convenience its customers and
improve customer service at the checkout.
CONSUMER RESEARCH
Pathmark conducts numerous ongoing and special consumer research projects.
These typically involve customer surveys (both in-store and by telephone) as
well as focus groups. The information derived from these projects is used to
evaluate consumers' attitudes and purchasing patterns and helps shape Pathmark's
marketing programs.
5
<PAGE>
TECHNOLOGY
Pathmark has made a significant and continuing investment in information
technology and believes it is a leader in the supermarket industry in this area.
All Pathmark supermarket checkout terminals have third-generation "state of the
art" IBM 4680 scanner systems supported by a RlSC 6000 application processor in
each store. These systems allow consumer credit and EFT transactions, greatly
facilitate system-wide promotion and merchandising programs, and improve the
speed and control of customer transactions. This technology and the data
generated by scanning not only have led to lower labor costs, improved price
control and shelf allocation and quicker customer check-out, but also have
assisted in the analysis of product movement, profit contribution and
demographic merchandising. Pathmark also has a computer-assisted ordering system
which enables it to replenish inventory to avoid "out of stocks" at store level
while maintaining optimum overall inventory levels. In addition, all Pathmark
supermarkets utilize radio frequency technology for direct vendor receivings and
shelf labels.
All of the pharmacies are equipped with pharmacy computers. In addition to
improving customer service, these computers aid pharmacists in detecting drug
interactions, improve the collection of third-party receivables and help to
attract third-party businesses such as health maintenance organizations and
union welfare plans.
In August 1991, Pathmark entered into a long-term facilities management and
systems integration agreement with Integrated Systems Solutions Corporation
("ISSC"), a subsidiary of IBM. Under the agreement, ISSC has taken over
Pathmark's data center operations and mainframe processing and information
system functions (formerly performed by approximately 150 employees) and is
providing business applications and "state of the art" systems designed to
enhance Pathmark's customer service and efficiency. Additionally, over the next
several years, ISSC has contracted to develop an integrated purchasing
application, a new financial system, and electronic data interchange
capabilities that will streamline communications between Pathmark and its
primary suppliers.
SUPPLY AND DISTRIBUTION
Most of the merchandise sold in Pathmark's supermarkets is supplied through
its distribution facilities located in New Jersey. In addition, pursuant to a
supply agreement between Chefmark and Pathmark (the "Chefmark Supply
Agreement"), Chefmark supplies Pathmark with merchandise from its banana
ripening and deli food preparation operations. The Chefmark Supply Agreement
provides that, for a period of seven years, such services are to be performed by
Chefmark in substantially the same manner as they have been performed by
Pathmark's banana ripening and deli food preparation operations prior to the
Chefmark Spin-Off.
All of Pathmark's stores are located within 100 miles of the principal
Pathmark and Chefmark distribution centers. The following table presents
information concerning the distribution and processing facilities through which
Pathmark is supplied, and the product lines relevant to each.
DISTRIBUTION FACILITIES (1)
<TABLE>
<CAPTION>
SQUARE YEAR
LOCATION PRODUCT LINE FOOTAGE OPENED
- ----------------------------- --------------------------- ------- ------
<S> <C> <C> <C>
Woodbridge, NJ(2)............ Dry Grocery 475,000 1968
Edison, NJ(3)................ General Merchandise, Health 266,000 1980
and Beauty Care Products,
Pharmaceuticals, Tobacco
Woodbridge, NJ(2)............ Meat, Dairy, Deli, Produce 255,000 1970
Dayton, NJ(3)................ Frozen Food Distribution 112,000 1994
Center
</TABLE>
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PROCESSING FACILITIES
<TABLE>
<CAPTION>
SQUARE YEAR
LOCATION PRODUCTS PROCESSED FOOTAGE OPENED
- ----------------------------- --------------------------- ------- ------
<S> <C> <C> <C>
Somerset, NJ(4).............. Delicatessen Products 16,000 1976
Avenel, NJ(5)................ Banana Ripening 30,000 1984
</TABLE>
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(1) Pathmark also stores and ships certain products from independent warehouses,
including a dry grocery storage facility in North Brunswick, New Jersey.
(2) Owned by Pathmark.
(3) Leased by Pathmark.
(4) Owned by Chefmark.
(5) Leased by Chefmark.
COMPETITION
The supermarket business is highly competitive and is characterized by high
asset turnover and narrow profit margins. Pathmark's earnings are primarily
dependent on the maintenance of relatively high sales volume per supermarket,
efficient product purchasing and distribution and cost-effective store operating
techniques. Pathmark's main competitors are national and regional supermarkets,
drug stores, convenience stores, discount merchandisers, "warehouse" and "club"
stores and other local retailers in the areas served. Principal competitive
factors include price, store location, advertising and promotion, product mix,
quality and service.
TRADE NAMES, SERVICE MARKS AND TRADEMARKS
Pathmark has registered a variety of trade names, service marks and
trademarks with the United States Patent and Trademark Office, each for an
initial period of 20 years, renewable for as long as the use thereof continues.
Pathmark considers its Pathmark service marks to be of material importance to
its business and actively defends and enforces such service marks.
REGULATION
Pathmark's food and drug business requires it to hold various licenses and
to register certain of its facilities with state and federal health, drug and
alcoholic beverage regulatory agencies. By virtue of these licenses and
registration requirements, Pathmark is obligated to observe certain rules and
regulations, and a violation of such rules and regulations could result in a
suspension or revocation of the licenses or registrations. In addition, most of
Pathmark's licenses require periodic renewals. Pathmark has experienced no
material difficulties with respect to obtaining, effecting or retaining its
licenses and registrations.
EMPLOYEES
At February 3, 1996, the Company employed approximately 31,000 people, of
whom approximately 20,000 were employed on a part-time basis.
Approximately 83% of the Company's employees are covered by 29 collective
bargaining agreements (typically having three or four year terms) negotiated
with approximately 18 different local unions. During Fiscal 1996, one contract
covering approximately 1,100 Pathmark associates in 36 stores will expire. The
Company does not anticipate any difficulty in renegotiating this contract.
The Company believes that its relationship with its employees is generally
satisfactory.
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ITEM 2. PROPERTIES**
Reference is made to the answer to Item 1, "Business" of this report for
information concerning the states in which the Company's supermarkets and
distribution and processing facilities are located. See "Business of
Pathmark--Supply and Distribution" in Item 1 of this Report for Information
concerning the Company's distribution and processing facilities.
Pathmark's 144 supermarkets have an aggregate selling area of approximately
5.4 million square feet. Twenty-three of the supermarkets are owned by Pathmark
and the remaining 121 are leased. These supermarkets either are freestanding
stores or are located in shopping centers. Twenty-five leases expire during the
current and next four calendar years and Pathmark has options to renew all of
them.
Pathmark owns its corporate headquarters in Woodbridge, NJ and maintains
administrative and accounting offices in Carteret, New Jersey in leased premises
totalling approximately 150,000 square feet in size.
Most of the facilities owned by Pathmark are owned subject to mortgages.
Pathmark plans to acquire leasehold or fee interests in any property on which
new stores or other facilities are opened and will consider entering into
sale/leaseback or mortgage transactions with respect to owned properties if
Pathmark believes such transactions are financially advantageous.
ITEM 3. LEGAL PROCEEDINGS
The Company is a party to a number of legal proceedings in the ordinary
course of business. Management believes that the ultimate resolution of these
proceedings will not in the aggregate have a material adverse impact on the
financial condition, results of operations or business of the Company.
- ------------
** Except as otherwise indicated, information contained in this Item is given as
of February 3, 1996.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
(AS OF APRIL 1, 1996)
Neither the Company's Class A Common Stock nor its Class B Common Stock,
each $0.01 par value, is publicly traded on any market. All of registrant's
outstanding Common Stock is held by SMG-II Holdings Corporation ("SMG-II").
The authorized preferred stock of the Company consists of 9,000,000 shares
of Exchangeable Preferred Stock (the "Holdings Preferred Stock"), of which
4,890,671 shares were issued and outstanding at April 1, 1996. The Exchangeable
Preferred Stock has a liquidation preference of $25 per share and its terms
provide for cumulative quarterly dividends at an annual rate of $3.52 per share,
when, as, and if declared by the Board of Directors of the Company. No active
public trading market currently exists for the Company's Exchangeable Preferred
Stock.
The Exchangeable Preferred Stock is non-voting, except that if an amount
equal to six quarterly dividends is in arrears in whole or in part, the holders
thereof, voting as a class are entitled to elect an additional two members of
the board of directors of the Company. The Company is currently in arrears on
payment of more than six quarterly dividends on the Exchangeable Preferred Stock
and does not expect to receive cash flow sufficient to permit payments of
dividends on the Exchangeable Preferred Stock in the forseeable future. The
holders of the Exchangeable Preferred Stock elected two persons to the Company's
board of directors at its 1995 annual meeting.
The payment of dividends to holders of the Company's Common Stock is subject
to restrictions by the Certificate of Designation of Rights, Preferences and
Privileges under which its Exchangeable Preferred Stock was issued. The Company
has not paid any dividends on its Common Stock and does not anticipate paying
cash dividends on its Common Stock during Fiscal 1996.
The authorized capital stock of SMG-II consists of 3,000,000 shares of
SMG-II Class A Common Stock, 3,000,000 shares of SMG-II Class B Common Stock, of
which 652,625 and 320,000 shares, respectively, were issued and outstanding at
April 1, 1996, and 4,000,000 shares of SMG-II Preferred Stock, of which
1,500,000 shares are SMG-II Series A Preferred Stock and 1,500,000 shares are
SMG-II Series B Preferred Stock and of which 236,731 and 180,769 shares,
respectively, were issued and outstanding at April 1, 1996.
SMG-II's capital stock is held beneficially as follows: (i) SMG-II Class A
Common Stock by approximately 65 holders, including six affiliates of ML&Co.
(The "ML Common Investors"), CBC Capital Partners, Inc. ("CBC"), an affiliate of
Chase Manhattan Corp., and 58 current and former members of the Company's
management (the "Management Investors"); (ii) SMG-II Series A Preferred Stock by
five holders, all affiliates of ML&Co., (the "Merrill Lynch Investors"); (iii)
SMG-II Class B Common Stock held by four holders, including CBC, The Equitable
Life Assurance Society of the United States ("Equitable") and the Equitable
Affiliates (collectively, the "Equitable Investors"); and (iv) SMG-II Series B
Preferred Stock held by four holders, including CBC and the Equitable Investors.
Holders of shares of SMG-II Class A Common Stock are entitled to one vote per
share on all matters to be voted on by stockholders. Holders of shares of SMG-II
Class B Common Stock are not entitled to any voting rights, except as required
by law or as otherwise provided in the Restated Certificate of Incorporation of
SMG-II. Subject to compliance with certain procedures, holders of shares of
SMG-II Class B Common Stock may exchange their shares for shares of SMG-II Class
A Common Stock and holders of shares of SMG-II Class A Common Stock may exchange
their shares for shares of SMG-II Class B Common Stock, in each case on a
share-for-shares basis.
SMG-II Preferred Stock has a stated value and liquidation preference of $200
per share and bears dividends at the rate of 10% of the stated value per annum,
payable annually. At the option of SMG-II
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<PAGE>
dividends are payable in cash or may accumulate (and the amount thereof shall
compound annually at a rate of 10% of the stated value per annum, payable
annually).
Holders of shares of SMG-II Series A Preferred Stock are entitled to one
vote per share of SMG-II Class A Common Stock into which such SMG-II Series A
Preferred Stock is convertible on all matters to be voted on by SMG-II
stockholders, subject to increase to 1.11 votes per share upon the occurrence of
certain events. Holders of shares of SMG-II Series B Preferred Stock are
entitled to one vote per share of SMG-II Class B Common Stock into which such
SMG-II Series B Preferred Stock is convertible for the purpose of voting on any
consolidation or merger, any sale, lease or exchange of substantially all of the
assets or any liquidation, dissolution or winding up, of SMG-II. Additionally,
holders of SMG-II Preferred Stock have separate voting rights with respect to
alteration in the voting powers, rights and preferences and certain other terms
affecting the SMG-II Preferred Stock. Subject to compliance with certain
procedures, holders of SMG-II Series B Preferred Stock may exchange their shares
for shares of SMG-II Series A Preferred Stock and holders of SMG-II Series A
Preferred Stock may exchange their shares for shares of SMG-II Series B
Preferred Stock, on a share-for-share basis.
At the option of the holder, SMG-II Preferred Stock is convertible into
SMG-II Common Stock at any time on or prior to the occurrence of certain events,
including an initial public offering of in excess of 25% of the number of
outstanding shares of common stock of SMG-II, at a conversion ratio of one share
of the corresponding class of SMG-II Common Stock for each share of SMG-II
Preferred Stock, subject to adjustment upon the occurrence of certain events.
Holders of SMG-II Preferred Stock are party with the holders of SMG-II
Common Stock to the SMG-II Stockholders Agreement which, among other things,
restricts the transferability of SMG-II capital stock and relates to the
corporate governance of SMG-II. None of SMG-II's capital stock is publicly
traded on any market. See Item 12, "Security Ownership of Certain Beneficial
Owners and Management" for additional information.
10
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The following table represents selected financial data for the last five
fiscal years and should be read in conjunction with the Company's Consolidated
Financial Statements in Item 8 of this report.
SUPERMARKETS GENERAL HOLDINGS CORPORATION
SUMMARY OF OPERATIONS AND FINANCIAL HIGHLIGHTS
(IN MILLIONS)
<TABLE>
<CAPTION>
FISCAL YEARS(A)
----------------------------------------------------------
1995 1994 1993 1992 1991(B)
-------- -------- -------- ------- -------
<S> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Sales
Pathmark and other......................................... $4,182 $4,189 $4,240 $4,311 $4,299
Purity..................................................... -- -- -- -- 997
-------- -------- -------- ------- -------
Total sales................................................. 4,182 4,189 4,240 4,311 5,296
Cost of sales (exclusive of depreciation and amortization
shown separately below).................................... 2,966 3,002 3,081 3,155 3,941
-------- -------- -------- ------- -------
Gross profit................................................ 1,216 1,187 1,159 1,156 1,355
Selling, general and administrative expenses................ 951 935 926 894 1,067
Depreciation and amortization............................... 81 76 70 69 93
Recapitalization expenses(c)................................ -- -- 17 -- --
Provision for store closings(d)............................. -- -- 6 -- --
Amortization of goodwill.................................... -- -- -- 18 23
Goodwill write-off.......................................... -- -- -- 601 --
-------- -------- -------- ------- -------
Operating earnings (loss)................................... 184 176 140 (426 ) 172
Gain on disposition of freestanding drug stores(e).......... 16 -- -- -- --
Gain (loss) on disposal of Purity(f)........................ 20 -- -- 2 (228 )
Interest expense, net(g).................................... (171) (160) (177) (185 ) (204 )
Gain on sale of photofinishing plant(h)..................... -- -- -- -- 4
-------- -------- -------- ------- -------
Earnings (loss) from continuing operations before income
taxes, gain on disposal of home centers segment,
extraordinary items and cumulative effect of accounting
changes.................................................... 49 16 (37) (609 ) (256 )
Income tax benefit (provision).............................. 30 (4) 21 (7 ) 30
-------- -------- -------- ------- -------
Earnings (loss) from continuing operations before gain on
disposal of home centers segment, extraordinary items and
cumulative effect of accounting changes.................... 79 12 (16) (616 ) (226 )
Loss from discontinued operations........................... -- (2) (1) (1 ) (191 )(i)
-------- -------- -------- ------- -------
Earnings (loss) before gain on disposal of home centers
segment, extraordinary items and cumulative effect of
accounting changes......................................... 79 10 (17) (617 ) (417 )
Gain on disposal of home centers segment, net of tax(j)..... -- 17 -- -- --
Extraordinary items, net.................................... (2)(k) (4)(k) (106)(l) (5 )(m) 15 (n)
-------- -------- -------- ------- -------
Earnings (loss) before cumulative effect of accounting
changes.................................................... 77 23 (123) (622 ) (402 )
Cumulative effect of accounting changes, net of tax(o)...... -- -- (40) -- --
-------- -------- -------- ------- -------
Net earnings (loss)......................................... 77 23 (163) (622 ) (402 )
Less: non-cash preferred stock accretion and
dividend requirements...................................... (19) (19) (19) (18 ) (14 )
-------- -------- -------- ------- -------
Net earnings (loss) attributable to common stockholder(p)... $ 58 $ 4 $ (182) $ (640 ) $ (416 )
-------- -------- -------- ------- -------
-------- -------- -------- ------- -------
Ratio of earnings to fixed charges(q)....................... 1.26x 1.09x -- -- --
-------- -------- -------- ------- -------
-------- -------- -------- ------- -------
Deficiency in earnings available to cover fixed
charges(r)................................................. $ -- $ -- $ 37 $ 609 $ 256
-------- -------- -------- ------- -------
-------- -------- -------- ------- -------
</TABLE>
<TABLE><CAPTION>
AS OF
----------------------------------------------------------
FEB. 3 JAN. 28, JAN. 29, JAN. 30, FEB. 1,
1996 1995 1994 1993 1992
-------- -------- -------- ------- -------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total assets.................................... $1,009 $1,029 $1,138 $1,114 $1,736
Working capital deficiency...................... 169 124 108 83 97
Obligations under capital leases, long-term..... 140 127 132 127 136
Other long-term debt, net of current
maturities..................................... 1,242 1,353 1,415 1,278 1,248
Cumulative exchangeable redeemable preferred
stock.......................................... 104 102 100 99 85
Stockholder's deficit........................... 1,222 1,280 1,285 1,103 467
</TABLE>
(footnotes on following page)
11
<PAGE>
SUPERMARKETS GENERAL HOLDINGS CORPORATION
NOTES TO SUMMARY OF OPERATIONS AND FINANCIAL HIGHLIGHTS
<TABLE>
<C> <S>
(a) The Company's fiscal year ends on the Saturday nearest to January 31 of the following
calendar year. Fiscal years consist of 52 weeks, except for 53 weeks in Fiscal 1995.
(b) Results for Fiscal 1991 include the Purity Operations through its December 17, 1991 sale
date.
(c) In connection with the Recapitalization in Fiscal 1993, the Company recorded a pretax charge
of $17 million related to reorganization and restructuring costs. See Note 25 to the
Company's Consolidated Financial Statements in Item 8 of this report.
(d) During Fiscal 1993, the Company decided to close or dispose of five stores and recorded a
pretax charge of $6 million. See Note 26 to the Company's Consolidated Financial Statements
in Item 8 of this report.
(e) During the second quarter of Fiscal 1995, the Company decided to dispose of its 36
freestanding drug stores. On July 28, 1995, the Company completed the sale of 30 of its drug
stores to Rite Aid Corporation. Five of the remaining six drug stores were closed during
Fiscal 1995 and the sixth store is projected to be closed in Fiscal 1996. The pretax gain on
the disposition of drug stores includes the sale of the 30 drug stores, net of the cost
related to the disposal of the six drug stores. See Note 3 to the Company's Financial
Statements in Item 8 of this report.
(f) During Fiscal 1995, the Company sold its remaining investment in Purity for a gain of $16.4
million in connection with the sale of Purity to the Stop & Shop Companies, Inc. and
recorded a gain of $3.4 million on the sale of a former warehouse facility of Purity. See
Note 4 to the Company's Consolidated Financial Statements in Item 8 of the report. During
Fiscal 1992, the Company recorded a gain of $2 million related to the disposal of the Purity
Operations. During Fiscal 1991, the Company completed the sale of the Purity Operations for
approximately $257 million (as adjusted) including the assumption of certain indebtedness of
Purity and Li'l Peach, to a company organized by Freeman Spogli & Co. The Company recorded a
loss of $228 million on the disposal of the Purity Operations. Included in this loss is a
write-off of approximately $214 million of goodwill related to the Purity Operations.
(g) Prior to Fiscal 1995, interest expense was net of interest charged to discontinued
operations. See Note 13 to the Company's Consolidated Financial Statements in Item 8 of this
report.
(h) During Fiscal 1991, the Company sold its Coastal Photo photofinishing plant to Quality Photo
Systems (East), Inc. (a subsidiary of Konica Corporation) which resulted in a pretax gain on
sale of $4 million.
(i) Includes a pretax loss of $24 million in connection with the disposition of certain home
centers segment stores and a charge of $170 million accelerating the remaining amortization
of the goodwill related to the home centers segment.
(j) During Fiscal 1994, the Company sold its home centers segment, which resulted in a gain on
sale of $17 million, net of $2.3 million of income taxes. See Note 23 to the Company's
Consolidated Financial Statements in Item 8 of this report.
(k) During Fiscal 1995 and Fiscal 1994, the Company recorded an extraordinary charge of $2
million and $4 million respectively, net of an income tax benefit, related to the early
extinguishment of debt. See Note 19 to the Company's Consolidated Financial Statements in
Item 8 of this report.
(l) During Fiscal 1993, in connection with the Recapitalization, the Company recorded an
extraordinary charge of $106 million, net of an income tax benefit of $9 million, related to
the early extinguishment of debt. See Notes 19 and 25 to the Company's Consolidated
Financial Statements in Item 8 of this report.
(m) During Fiscal 1992, the Company recorded an extraordinary charge of $5 million, net of an
income tax benefit of $3 million, related to the early extinguishment of debt.
(n) During Fiscal 1991, the Company recorded an extraordinary gain of $15 million, net of an
income tax provision of $10 million, related to the early extinguishment of debt.
</TABLE>
(footnotes continued on following page)
12
<PAGE>
SUPERMARKETS GENERAL HOLDINGS CORPORATION
NOTES TO SUMMARY OF OPERATIONS AND FINANCIAL HIGHLIGHTS
<TABLE>
<C> <S>
(o) The cumulative effect of accounting changes in Fiscal 1993 of $40 million, net of an income
tax benefit of $29 million, reflects the adoption of Statement of Financial Accounting
Standards No. 106, "Employers' Accounting for Postretirement Benefits other than Pensions";
the adoption of Statement of Financial Accounting Standards No. 112, "Employers' Accounting
for Postemployment Benefits"; the change in the method utilized to calculate last-in,
first-out (LIFO) inventories; and the change in the determination of the discount rate
utilized to record the present value of certain noncurrent liabilities. All of the
accounting changes were made as of the beginning of Fiscal 1993. See Note 28 to the
Company's Consolidated Financial Statements in Item 8 of this report.
(p) On February 4, 1991, the Company became a wholly owned subsidiary of SMG-II through the
consummation of an exchange offer whereby the then existing stockholders exchanged on a
one-for-one basis shares of the Company's common stock for shares of common stock of SMG-II.
Since the Company is a wholly owned subsidiary, earnings (loss) per share information is not
presented.
(q) For the purpose of this calculation, earnings before fixed charges consist of earnings from
continuing operations before income taxes plus fixed charges. Fixed charges consist of
interest expense on all indebtedness (including amortization of deferred debt issuance
costs) and the portion of operating lease rental expense that is representative of the
interest factor (deemed to be one-third of operating lease rentals). In addition, for Fiscal
1995, the inclusion of preferred stock dividend requirements results in a ratio of earnings
to fixed charges and preferred stocks dividends of 1.09x. For Fiscal 1994, the inclusion of
preferred stock dividend requirements results in a deficiency in earnings available to cover
fixed charges and preferred stock dividends of approximately $7 million.
(r) For purposes of determining the deficiency in earnings available to cover fixed charges,
earnings are defined as earnings (loss) from continuing operations before income taxes plus
fixed charges. Fixed charges consist of interest expense on all indebtedness (including
amortization of deferred debt issuance costs) and the portion of operating lease rental
expense that is representative of the interest factor (deemed to be one-third of operating
lease rentals).
</TABLE>
13
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following is a discussion and analysis of the Company's financial
condition and results from continuing operations. The results from discontinued
operations for all periods presented represent the operations of the Company's
home centers segment which was sold during Fiscal 1994.
RESULTS OF OPERATIONS
Fiscal 1995 v. Fiscal 1994
Sales: Sales for Fiscal 1995 were $4.18 billion compared to $4.19 billion in
Fiscal 1994. The decrease in sales in Fiscal 1995 compared to Fiscal 1994 was
primarily due to the sale of the freestanding drug stores on July 28, 1995,
partially offset by sales for the 53rd week in Fiscal 1995. Sales from
supermarkets opened in both years including replacement stores, decreased 0.3%.
During Fiscal 1995, the Company opened five supermarkets, of which three
replaced older, smaller stores and completed 18 renovations and enlargements.
One store was closed and not replaced during the year. At Fiscal 1995 year end,
the Company operated 144 supermarkets, including 44 Pathmark 2000 format stores
compared with the end of Fiscal 1994 when the Company operated 143 supermarkets,
including 29 Pathmark 2000 format stores. The Company operated one freestanding
drug store at Fiscal 1995 year end compared to 36 freestanding drug stores at
the end of Fiscal 1994 (see "Disposition of Freestanding Drug Stores"). In order
to improve sales and profitability, the Company is continuing to focus on its
supermarket enlargement and renovation program.
Gross Profit: Gross profit for Fiscal 1995 was $1.22 billion or 29.1% of
sales compared with $1.19 billion or 28.3% of sales for Fiscal 1994. The
improvement in gross profit as a percentage of sales for Fiscal 1995 compared to
Fiscal 1994 was primarily due to increased focus on merchandising programs as
well as to the Company's continuing emphasis on the Pathmark 2000 format stores
which allow expanded variety in all departments, particularly higher margin
perishables and lower inventory shrink. The cost of goods sold comparisons were
affected by a pretax LIFO charge of $1.1 million and a pretax LIFO credit of
$0.7 million for Fiscal 1995 and Fiscal 1994, respectively.
Selling, General and Administrative Expenses ("SG&A"): SG&A for Fiscal 1995
increased $15.5 million or 1.7% compared to Fiscal 1994. SG&A on a proforma
basis eliminating the SG&A impact of the freestanding drug stores in last year's
third and fourth quarter, increased 3.7% for Fiscal 1995 compared to Fiscal
1994. As a percentage of sales, SG&A were 22.7% for Fiscal 1995, up from 22.3%
in Fiscal 1994. The increase as a percentage of sales for Fiscal 1995 compared
to Fiscal 1994 was due to higher claims expenses, occupancy costs and supplies,
partially offset by lower promotional costs and labor and labor related expenses
along with weather related expenses that adversely affected last year's first
quarter.
Depreciation and Amortization: Depreciation and amortization of $80.5
million for Fiscal 1995 was $4.9 million higher than the $75.6 million in Fiscal
1994. The increase in depreciation and amortization expense for Fiscal 1995 was
primarily due to capital expenditures. Depreciation and amortization excludes
video tape amortization, which is recorded in cost of goods sold, of $2.8
million and $2.6 million in Fiscal 1995 and Fiscal 1994, respectively.
Operating Earnings: Operating earnings for Fiscal 1995 were $184.6 million
compared with the $175.9 million in Fiscal 1994. The increase in operating
earnings in Fiscal 1995 compared to Fiscal 1994 was due to higher gross profit,
partially offset by higher SG&A and depreciation and amortization expenses.
Disposition of Freestanding Drug Stores: During the second quarter of Fiscal
1995, the Company made a decision to dispose of its 36 freestanding drug stores.
On July 28, 1995, the Company, through its Pathmark subsidiary, completed the
sale of 30 of its freestanding drug stores to Rite Aid Corporation, including
merchandise inventory, for $59.9 million. The Company recorded a pretax gain on
the disposition of its freestanding drug stores of $15.5 million, net of a $19.0
million charge related to the
14
<PAGE>
estimated exit costs of the remaining six freestanding drug stores. Five of the
remaining six freestanding drug stores were closed during Fiscal 1995 and the
sixth store is projected to be closed in Fiscal 1996.
Disposition of Purity Supreme, Inc: During Fiscal 1995, in connection with
the sale of Purity to the Stop & Shop Companies, Inc., the Company sold its
remaining investment in Purity for $16.4 million, the proceeds of which were
used to repay a portion of its PTK DIBs. In addition, the Company sold a former
warehouse of Purity for a gain of $3.4 million. Both transactions resulted in a
gain of $19.8 million.
Interest Expense: Interest expense was $171.0 million for Fiscal 1995
compared to $170.8 million in Fiscal 1994 due to the higher interest rates on
the Company's floating rate bank debt and higher interest related to the
Pathmark Deferred Coupon Notes and obligations under capital leases, partially
offset by the reduction in the amortization of PTK DIBs original issue discount
as a result of the paydown of such debt. During Fiscal 1994, the Company
allocated $11.0 million of interest expense to discontinued operations.
Income Taxes: The income tax benefit of $29.8 million for Fiscal 1995 is net
of reversals through July 29, 1995 of the deferred income tax valuation
allowance totalling $26.8 million related to the Company's deferred income tax
assets. The reversal was recorded in conjunction with the Company's continuing
evaluation of its deferred income tax assets. In the opinion of management,
sufficient evidence exists, such as the positive trend in earnings which
indicates that it is more likely than not that the Company will be able to
realize its deferred income tax assets. The income tax provision was $4.1
million for Fiscal 1994.
As a result of the sale of the Company's investment in Purity (see Note 4),
the Company generated a capital loss of approximately $69.5 million, due to a
stock basis differential of its investment. During Fiscal 1995, the Company
utilized $42.9 million of these capital losses, primarily from the sale of the
freestanding drug stores, resulting in a capital loss carryforward at February
3, 1996 of $26.6 million (a $9.3 million tax benefit). The Company has reserved
a valuation allowance of $8.3 million related to the deferred tax capital loss
carryforward of $9.3 million after giving effect to certain tax planning
strategies expected to be implemented in Fiscal 1996.
During Fiscal 1995, the Company made income tax payments of $3.9 million and
received income tax refunds of $10.3 million. During Fiscal 1994, the Company
made income tax payments of $6.5 million and received income tax refunds of
$25.9 million.
Summary of Continuing Operations: Earnings from continuing operations before
extraordinary item were $78.7 million compared to $12.0 million for Fiscal 1994.
The increase in earnings from continuing operations for Fiscal 1995 was
primarily due to the gain on disposition of freestanding drug stores, the gain
on the sale of Purity Supreme, Inc, higher operating earnings and the tax
benefit due to the reversal of the valuation allowance related to the Company's
net deferred income tax assets.
Extraordinary Items: During Fiscal 1995, in connection with the proceeds
from the sale of the remaining Purity investment, the sale of the freestanding
drug stores and the sale of the home centers segment, the Company was required
to make a paydown of PTK DIB's. The premium paid, including original issue
discount, resulted in a net loss on early extinguishment of debt of $2.2
million.
Net Earnings: Net earnings were $76.5 million in Fiscal 1995 compared to
$23.2 million in Fiscal 1994. Fiscal 1995 and Fiscal 1994 included an
extraordinary item related to the net loss on early extinguishment of debt of
$2.2 million and $3.7 million, respectively. Fiscal 1994 included the gain on
disposal of home centers segment of $17.0 million and a loss from discontinued
operations of $2.1 million. Refer to notes 19 and 23 of the Notes to
Consolidated Financial Statements at Item 8, Part II of the Form 10-K for more
details.
15
<PAGE>
Fiscal 1994 v. Fiscal 1993
Sales: Sales for Fiscal 1994 were $4.19 billion compared to $4.24 billion in
Fiscal 1993. Sales for stores opened in both years, including replacement
stores, decreased 0.4%. During Fiscal 1994, the Company opened four
supermarkets, enlarged 11 supermarkets and completed major renovations in 14
supermarkets. At Fiscal 1994 year end, the Company operated 143 supermarkets,
including 137 Pathmark Super Centers compared with the end of Fiscal 1993 when
the Company operated 143 supermarkets, including 136 Pathmark Super Centers. The
Company also operated 30 freestanding Pathmark drug stores and six "deep
discount" drug stores at Fiscal 1994 year end compared with the end of Fiscal
1993 when the Company operated 31 freestanding Pathmark drug stores and two
"deep discount" drug stores. In order to improve sales while continuing to
improve profitability, the Company is continuing its focus on its store
enlargement and renovation program.
Gross Profit: Gross profit for Fiscal 1994 was $1.19 billion or 28.3% of
sales compared with $1.16 billion or 27.3% of sales in Fiscal 1993. This
improvement in gross profit as a percentage of sales for Fiscal 1994 is
attributable primarily to the Company's increased focus on merchandising
programs as well as continuing emphasis on large super stores allowing expanded
variety in all departments, particularly higher margin perishables. The cost of
goods comparisons were affected by a pretax LIFO credit of $0.7 million and $2.4
million for Fiscal 1994 and Fiscal 1993, respectively.
Selling, General and Administrative Expenses: SG&A for Fiscal 1994 increased
$9.3 million or 1.0% compared to Fiscal 1993. As a percentage of sales, SG&A
were 22.3% for Fiscal 1994, up from 21.8% for Fiscal 1993. The increase as a
percentage of sales during Fiscal 1994 was due to higher computer development
costs, labor and labor related expenses and occupancy expenses and weather-
related expenses, partially offset by lower promotional costs in Fiscal 1994
compared to the additional promotional programs implemented in Fiscal 1993 to
regain sales level subsequent to the strike and lockouts and lower claims
expense related to customer accidents, medical and workers compensation.
Depreciation and Amortization: Depreciation and amortization expense of
$75.6 million for Fiscal 1994 was $5.5 million more than the $70.1 million in
Fiscal 1993. The increase in depreciation and amortization expense is primarily
due to the impact of increased capital spending levels. Depreciation and
amortization excludes video tape amortization of $2.6 million in both Fiscal
1994 and Fiscal 1993 recorded in cost of goods sold (see Note 2).
Operating Earnings: Operating earnings for Fiscal 1994 were $175.9 million
compared to $140.2 million in Fiscal 1993. The increase in operating earnings
was primarily due to improved gross profit in Fiscal 1994, the impact of the
strike and lockouts in Fiscal 1993, the recapitalization expenses of $16.6
million in Fiscal 1993 and the provision for store closings of $6.0 million in
Fiscal 1993 partially offset by higher SG&A and depreciation and amortization
expense in Fiscal 1994.
Interest Expense: Interest expense for Fiscal 1994 was $170.8 million, a
decrease of $19.3 million from the $190.1 million in Fiscal 1993. Interest
charged to discontinued operations in Fiscal 1994 was $11.0 million compared to
$13.1 million in Fiscal 1993. The lower interest expense, net of interest
charged to discontinued operations, was primarily due to the benefit of lower
interest rates on the debt incurred in connection with the Recapitalization.
Income Taxes: The income tax provision was $4.1 million in Fiscal 1994
compared to an income tax benefit of $20.8 million in Fiscal 1993. At January
28, 1995, the Company has a net deferred income tax asset of approximately $32.8
million. Although the Company generated pretax earnings in Fiscal 1994, the
Company was unable to conclude that realization of such deferred income tax
assets was more likely than not due to pretax losses experienced in prior years.
Accordingly, the Company provided a valuation allowance of $26.8 million at
January 28, 1995 to fully reserve its net deferred income tax assets, except for
its alternative minimum tax credit carryforwards which do not expire.
Summary of Continuing Operations: Earnings from continuing operations before
gain on disposal of home centers segment, extraordinary item and cumulative
effect of accounting changes were
16
<PAGE>
$12.0 million in Fiscal 1994 compared to a $16.1 million loss in Fiscal 1993.
The increase in earnings for Fiscal 1994 was primarily due to higher operating
earnings and lower interest expense partially offset by an income tax benefit of
$20.8 million in Fiscal 1993 compared to an income tax provision of $4.1 million
in Fiscal 1994.
Extraordinary Items: During Fiscal 1994, in connection with the disposal of
the home centers segment, the Company was required to pay down $62.9 million of
PTK DIBs. The premium paid, including original issue discount, resulted in a net
loss on early extinguishment of indebtedness of $3.7 million.
Net Earnings (Loss): Net earnings were $23.2 in Fiscal 1994 compared to a
net loss of $163.2 million in Fiscal 1993. During Fiscal 1994, the Company
completed the sale of its home centers segment, recognizing a gain of $17.0
million. Fiscal 1994 and Fiscal 1993 included an extraordinary item related to
the net loss on early extinguishment of debt of $3.7 million and $106.2 million,
respectively, and Fiscal 1993 included the cumulative effect of accounting
changes of $40.4 million. Fiscal 1994 and Fiscal 1993 included losses from
discontinued operations of the home centers segment of $2.1 million and $0.6
million, respectively. Refer to Notes 19, 23, and 28 of the Notes to
Consolidated Financial Statements at Item 8, Part II of this Form 10-K for more
details.
FINANCIAL CONDITION
Debt Service: During Fiscal 1995, total debt decreased $117.8 million from
Fiscal 1994 year end primarily due to the scheduled Term Loan repayments, a
required Term Loan repayment in conjunction with the disposition of the
freestanding drug stores, a decrease in borrowings under the Working Capital
Facilities as well as the paydown of the PTK DIB's with the proceeds from the
sale of the remaining Purity investment, the disposition of freestanding drug
stores and the disposal of home centers segment, partially offset by debt
accretion on Pathmark Deferred Coupon Notes and PTK DIBs. Borrowings under the
Working Capital Facilities were $46.0 million at February 3, 1996.
In conjunction with the reacquisition of the Plainbridge capital stock, the
outstanding obligations of Plainbridge under its Credit Agreement were satisfied
by the Company and the Credit Agreement was terminated. The Company
simultaneously entered into an amendment to its Credit Agreement with its
existing lenders increasing the Company's Working Capital Facility from $175
million to $200 million (of which the maximum of $125.0 million can be in
letters of credit) to satisfy any additional liquidity needs and prospectively
modifying certain of its financial covenants to take into account the operations
of Plainbridge. The Working Capital Facility is subject to an annual cleandown
provision. Under the terms of the cleandown provision, in each fiscal year loans
cannot exceed $60.0 million (formerly $50.0 million) under the Working Capital
Facility for a period of 30 consecutive days. The Company satisfied the terms of
the cleandown provision through Fiscal 1996. Borrowings under the Working
Capital Facility were $36.0 million at April 30, 1996.
The Company is required to repay a portion of its borrowings under the
Pathmark Term Loan each year, so as to retire such indebtedness in its entirety
by Fiscal 1999. The Company is also required to make sinking fund payments on
the Subordinated Notes in the amount of 25% of the original aggregate principal
amount of the Subordinated Notes on each of June 15, 2000 and June 15, 2001. The
Subordinated Debentures and the remaining Subordinated Notes mature on June 15,
2002. The Senior Subordinated Notes and the Deferred Coupon Notes mature in
Fiscal 2003.
The indebtedness under the Working Capital Facilities and the Pathmark Term
Loan bear interest at floating rates and cash interest payments on such
indebtedness may vary in future years. The Company does not currently maintain
any interest rate hedging arrangements due to the reasonable risk that near term
interest rates will not rise significantly. The Company is continuously
evaluating this risk and will implement interest rate hedging arrangements if
deemed appropriate.
The majority of the cash interest payments are scheduled in the second and
fourth quarters.
17
<PAGE>
The amounts of principal payments required each year on outstanding
long-term debt (excluding the original issue discount with respect to the
Pathmark Deferred Coupon Notes and the PTK DIBs) are as follows (dollars in
thousands):
PRINCIPAL
FISCAL YEARS PAYMENTS
- ------------ ------------------
1996.................................................... $ 51,753
1997.................................................... 53,645
1998.................................................... 147,240
1999.................................................... 128,058
2000.................................................... 50,210
2001.................................................... 50,000
2002.................................................... 194,767
2003.................................................... 618,404
Liquidity: The consolidated financial statements of the Company indicates
that at February 3, 1996, current liabilities exceeded its current assets by
$168.8 million and the Company's stockholder's deficit was $1.22 billion.
Management believes that cash flows generated from operations, supplemented by
the unused borrowing capacity under the Pathmark and Plainbridge Working Capital
Facilities (refer to Note 11 of the Notes to the Consolidated Financial
Statements at Item 8, Part II of this Form 10-K) and the availability of capital
lease financing will be sufficient to pay the Company's debts as they come due,
provide for its capital expenditure program and meet its seasonal cash
requirements. Further, the Company believes it will continue to be in compliance
with its various debt covenants, which includes certain levels of operating cash
flow (as defined), minimum interest coverage and a maximum leverage ratio.
Holdings believes that it will be able to make the scheduled payments or
refinance its obligations with respect to its indebtedness through a combination
of operating funds and the Company's borrowing facilities. Future refinancing
will be necessary if cash flow from operations is not sufficient to meet its
debt service requirements related to the maturity of the Pathmark Working
Capital Facility and certain mortgages in Fiscal 1998, the amortization and
subsequent maturity of the Pathmark Term Loan in Fiscal 1999 and the maturity of
the Pathmark Subordinated Notes and Pathmark Subordinated Debentures in Fiscal
2002. The Company expects that it will be necessary to refinance all or a
portion of the Pathmark Senior Subordinated Notes, the Pathmark Deferred Coupon
Notes due in Fiscal 2003 and the PTK DIBs due in Fiscal 2003. The Company may
undertake a refinancing of some or all of such indebtedness sometime prior to
its maturity. The Company's ability to make scheduled payments or to refinance
its obligations with respect to its indebtedness depends on its financial and
operating performance, which, in turn, is subject to prevailing economic
conditions and to financial, business and other factors beyond its control.
Although the Company's cash flow from its operations and borrowings has been
sufficient to meet its debt service obligations, there can be no assurance that
the Company's operating results will continue to be sufficient or that future
borrowing facilities will be available for payment or refinancing of Pathmark's
and PTK's indebtedness or that future borrowing facilities will be available.
While it is the Company's intention to enter into refinancings that it considers
advantageous, there can be no assurances that the prevailing market conditions
will be favorable to the Company. In the event the Company obtains any future
refinancing on less than favorable terms, the holders of outstanding
indebtedness could experience increased credit risk and could experience a
decrease in the market value of their investment, because the Company might be
forced to operate under terms that would restrict its operations and might find
its cash flow reduced.
Preferred Stock Dividends: The terms of the Exchangeable Preferred Stock
provide for cumulative quarterly dividends at an annual rate of $3.52 per share
when, and if declared by the Board of Directors of Holdings. Dividends for the
first 20 quarterly dividend periods (through October 15, 1992) were paid at the
Company's option in additional shares of Exchangeable Preferred Stock. Since
18
<PAGE>
January 15, 1993 dividends not paid in cash will cumulate at the rate of $3.52
per share per annum, without interest, until declared and paid. As of February
3, 1996, unpaid dividends of $55.9 million were accrued and included in other
noncurrent liabilities.
Capital Expenditures: Capital expenditures for Fiscal 1995, including
property acquired under capital leases, were approximately $110.7 million
compared to approximately $105.3 million for Fiscal 1994 and $96.5 million for
Fiscal 1993. During Fiscal 1995, the Company opened five Pathmark 2000 format
stores, three of which replaced smaller stores, and completed 18 major
renovations and enlargements.
Cash Flows: Cash provided by operating activities amounted to $136.6 million
in Fiscal 1995 compared to $111.1 million in Fiscal 1994. The increase in net
cash provided by operating activities was primarily due to an increase in net
earnings, partially offset by a decrease in cash provided by operating assets
and liabilities. Cash provided by investing activities in Fiscal 1995 was $15.6
million, primarily due to the net proceeds from the disposition of the
freestanding drug stores of $59.9 million, the net proceeds from the disposal of
the Purity Operations of $19.8 million and the proceeds of $4.7 million related
to the disposal of the home centers segment, partially offset by expenditures of
property and equipment of $69.6 million, compared to cash used for investing
activities of $1.6 million in Fiscal 1994, primarily reflecting the expenditures
for property and equipment of $84.0 million, net of the proceeds of the home
centers segment of $81.1 million. Cash used for financing activities in Fiscal
1995 was $162.9 million compared to $92.5 million in the prior-year period. The
increase in cash used for financing activities is primarily due to a decrease in
borrowings under the Working Capital Facilities and a paydown of $25.0 million
on the Pathmark Term Loan.
Net cash provided by operating activities amounted to $111.1 million in
Fiscal 1994 compared to $70.6 million in Fiscal 1993. The increase in net cash
provided by operating activities in Fiscal 1994 compared to Fiscal 1993 is
primarily due to the increased earnings in Fiscal 1994. Cash used for investing
activities in Fiscal 1994 was $1.6 million, primarily due to expenditures of
property and equipment of $84.0 million, partially offset by the disposal of the
home centers segment of $81.1 million, compared to $69.4 million in Fiscal 1993,
primarily reflecting the expenditures for property and equipment. Cash used for
financing activities in Fiscal 1994 was $92.5 million, primarily due to the
repayment of the PTK DIBs, the scheduled reductions in the Pathmark Term Loan
and reductions in capital lease obligations, partially offset by the increase in
Working Capital Facilities borrowings, compared to $1.1 million cash provided by
financing activities in Fiscal 1993 primarily due to the net impact of the
Recapitalization.
NEW ACCOUNTING STANDARDS
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" ("SFAS No. 121").
SFAS No. 121 establishes accounting standards for the measurement of the
impairment of long-lived assets, certain identifiable intangibles and goodwill
related to those assets to be held and used and for long-lived assets and
certain identifiable intangibles to be disposed of. SFAS No. 121 requires that
(i) long-lived assets and certain identifiable intangibles to be held and used
by an entity be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable and (ii) long-lived assets and certain identifiable intangibles, to
be disposed of generally be reported at the lower of carrying amounts or fair
value less cost to sell. SFAS No. 121 is effective for financial statements for
fiscal years beginning after December 15, 1995. The adoption of the SFAS No. 121
measurement standards is not expected to materially effect the financial
position or results of operations of the Company.
19
<PAGE>
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS.
SUPERMARKETS GENERAL HOLDINGS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
53 WEEKS
ENDED 52 WEEKS ENDED
-------------------------
FEBRUARY 3, JANUARY 28, JANUARY 29,
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Sales.................................................... $ 4,182,099 $ 4,189,199 $ 4,239,526
Cost of sales (exclusive of depreciation and amortization
shown separately below).................................. 2,965,950 3,002,147 3,080,565
----------- ----------- -----------
Gross profit............................................. 1,216,149 1,187,052 1,158,961
Selling, general and administrative expenses............. 950,988 935,486 926,164
Depreciation and amortization............................ 80,535 75,632 70,055
Recapitalization expenses................................ -- -- 16,612
Provision for store closings............................. -- -- 5,975
----------- ----------- -----------
Operating earnings....................................... 184,626 175,934 140,155
Gain on disposition of freestanding drug stores.......... 15,535 -- --
Gain on disposal of Purity............................... 19,752 -- --
Interest expense......................................... (170,969) (170,848) (190,110)
Interest charged to discontinued operations.............. -- 11,035 13,136
----------- ----------- -----------
Earnings (loss) from continuing operations before income
taxes, gain on disposal of home centers segment,
extraordinary items and cumulative effect of accounting
changes.................................................. 48,944 16,121 (36,819)
Income tax benefit (provision)........................... 29,763 (4,146) 20,752
----------- ----------- -----------
Earnings (loss) from continuing operations before gain on
disposal of home centers segment, extraordinary items
and cumulative effect of accounting changes.............. 78,707 11,975 (16,067)
Loss from discontinued operations........................ -- (2,099) (647)
----------- ----------- -----------
Earnings (loss) before gain on disposal of home centers
segment, extraordinary items and cumulative effect of
accounting changes....................................... 78,707 9,876 (16,714)
Gain on disposal of home centers segment, net of an
income tax provision of $2,324......................... -- 17,044 --
Extraordinary items, net of an income benefit of $1,506
in Fiscal 1995, $-- in Fiscal 1994 and $9,354 in Fiscal
1993..................................................... (2,180) (3,687) (106,155)
----------- ----------- -----------
Earnings (loss) before cumulative effect of accounting
changes.................................................. 76,527 23,233 (122,869)
Cumulative effect of accounting changes
Postretirement benefits other than pensions, net of
an income tax benefit of $11,289..................... -- -- (15,636)
Postemployment benefits, net of an income tax
benefit of $1,813.................................... -- -- (2,488)
Change in the determination of the discount rate
utilized to record the present value of certain
noncurrent liabilities, net of an income tax benefit
of $8,430................................................ -- -- (11,570)
Change in the method utilized to calculate last-in,
first-out (LIFO) inventories, net of an income tax
benefit of $7,770.................................... -- -- (10,664)
----------- ----------- -----------
Net earnings (loss)...................................... 76,527 23,233 (163,227)
Less: non-cash preferred stock accretion and
dividend requirements.................................. (18,889) (18,828) (18,771)
----------- ----------- -----------
Net earnings (loss) attributable to common stockholder... $ 57,638 $ 4,405 $ (181,998)
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
See notes to consolidated financial statements.
20
<PAGE>
SUPERMARKETS GENERAL HOLDINGS CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
FEBRUARY 3, JANUARY 28,
1996 1995
----------- -----------
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents.......................................... $ 12,526 $ 23,247
Accounts receivable, net........................................... 10,840 13,380
Merchandise inventories............................................ 225,780 255,631
Income taxes receivable............................................ 1,163 7,756
Deferred income taxes.............................................. 8,254 --
Prepaid expenses................................................... 25,211 26,580
Due from suppliers................................................. 13,178 18,256
Other current assets............................................... 5,868 16,936
----------- -----------
Total Current Assets........................................... 302,820 361,786
Property and Equipment, Net......................................... 603,832 585,172
Deferred Financing Costs, Net....................................... 33,685 40,446
Deferred Income Taxes............................................... 26,805 5,969
Other Assets........................................................ 41,628 35,555
----------- -----------
$ 1,008,770 $ 1,028,928
----------- -----------
----------- -----------
LIABILITIES AND STOCKHOLDER'S DEFICIT
Current Liabilities
Accounts payable................................................... $ 185,328 $ 194,366
Book overdrafts.................................................... 43,989 45,386
Current maturities of long-term debt............................... 51,753 59,310
Accrued payroll and payroll taxes.................................. 54,427 53,638
Current portion of obligations under capital leases................ 20,684 18,298
Accrued interest payable........................................... 19,309 19,672
Accrued expenses and other current liabilities..................... 96,084 94,630
----------- -----------
Total Current Liabilities...................................... 471,574 485,300
----------- -----------
Long-Term Debt...................................................... 1,242,324 1,352,571
----------- -----------
Obligations Under Capital Leases, Long-Term......................... 140,166 127,122
----------- -----------
Other Noncurrent Liabilities........................................ 273,530 242,281
----------- -----------
Redeemable Securities
Exchangeable Preferred Stock, $.01 par value....................... 103,633 101,959
Authorized: 9,000,000 shares
Issued and outstanding: 4,890,671 shares at February 3, 1996 and
January 28, 1995
Liquidation preference, $25 per share: $122,267 at February 3,
1996 and
January 28, 1995
----------- -----------
Total Redeemable Securities.................................... 103,633 101,959
----------- -----------
Commitments and Contingencies (Notes 14 and 24)
Stockholder's Deficit
Class A Common Stock, $.01 par value............................... 7 7
Authorized: 1,075,000 shares
Issued and outstanding: 650,675 shares at February 3, 1996 and
January 28, 1995
Class B Common Stock, $.01 par value............................... 3 3
Authorized: 1,000,000 shares
Issued and outstanding: 320,000 shares at February 3, 1996 and
January 28, 1995
Paid-in Capital.................................................... 197,671 199,135
Accumulated Deficit................................................ (1,420,138) (1,479,450)
----------- -----------
Total Stockholder's Deficit.................................... (1,222,457) (1,280,305)
----------- -----------
$ 1,008,770 $ 1,028,928
----------- -----------
----------- -----------
</TABLE>
See notes to consolidated financial statements.
21
<PAGE>
SUPERMARKETS GENERAL HOLDINGS CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S DEFICIT
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
CLASS A CLASS B TOTAL
COMMON COMMON PAID-IN ACCUMULATED STOCKHOLDER'S
STOCK STOCK CAPITAL DEFICIT DEFICIT
------- ------- -------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Balance, January 30, 1993................... $ 7 $ 3 $202,303 $(1,305,025) $ (1,102,712)
Net loss.................................. -- -- -- (163,227) (163,227)
Accrued dividends on preferred stock
($.88 per share)........................ -- -- -- (17,216) (17,216)
Accretion on preferred stock.............. -- -- (1,555) -- (1,555)
------- ------- -------- ----------- -------------
Balance, January 29, 1994................... 7 3 200,748 (1,485,468) (1,284,710)
Net earnings.............................. -- -- -- 23,233 23,233
Accrued dividends on preferred stock
($.88 per share)........................ -- -- -- (17,215) (17,215)
Accretion on preferred stock.............. -- -- (1,613) -- (1,613)
------- ------- -------- ----------- -------------
Balance, January 28, 1995................... 7 3 199,135 (1,479,450) (1,280,305)
Net earnings.............................. -- -- -- 76,527 76,527
Accrued dividends on preferred stock
($.88 per share)........................ -- -- -- (17,215) (17,215)
Accretion on preferred stock.............. -- -- (1,674) -- (1,674)
Capital contribution from SMG-II Holdings
Corporation................................. -- -- 210 -- 210
------- ------- -------- ----------- -------------
Balance, February 3, 1996................... $ 7 $ 3 $197,671 $(1,420,138) $ (1,222,457)
------- ------- -------- ----------- -------------
------- ------- -------- ----------- -------------
</TABLE>
See notes to consolidated financial statements.
22
<PAGE>
SUPERMARKETS GENERAL HOLDINGS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
53 WEEKS
ENDED 52 WEEKS ENDED
--------------------------
FEBRUARY 3, JANUARY 28, JANUARY 29,
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Operating Activities
Net earnings (loss)............................................... $ 76,527 $ 23,233 $(163,227)
Adjustments to reconcile net earnings (loss) to net cash provided
by
operating activities:
Extraordinary loss on early extinguishment of debt............ 2,180 3,687 106,155
Depreciation and amortization................................. 83,390 78,220 72,650
Deferred income tax benefit................................... (30,726) (3,815) (28,895)
Interest accruable but not payable............................ 15,028 13,541 3,312
Amortization of original issue discount....................... 6,646 12,855 4,593
Amortization of debt issuance costs........................... 7,140 7,028 4,870
(Gain) loss on disposal of property and equipment............. 200 (252) (93)
Gain on disposition of freestanding drug stores............... (15,535) -- --
Gain on disposal of Purity.................................... (19,752) -- --
Gain on disposal of home centers segment...................... -- (17,044) --
Loss from discontinued operations............................. -- 2,099 647
Cumulative effect of accounting changes....................... -- -- 40,358
Cash provided by (used for) operating assets and liabilities:
Accounts receivable, net..................................... 2,540 1,627 (3,246)
Merchandise inventories...................................... 15,671 2,551 14,355
Income taxes................................................. 8,099 14,666 (19,898)
Prepaid expenses............................................. (1,630) (10,724) 2,078
Due from suppliers........................................... 5,078 482 4,702
Other current assets......................................... 6,362 (9,778) (635)
Other assets................................................. (4,535) (2,554) (6,015)
Accounts payable............................................. (9,038) (21,985) 22,995
Accrued payroll and payroll taxes............................ 789 (944) (348)
Accrued interest payable..................................... (363) 3,039 (24,041)
Other current liabilities.................................... (6,972) 1,595 7,305
Other noncurrent liabilities................................. (4,487) 13,598 33,014
----------- ----------- -----------
Cash provided by operating activities...................... 136,612 111,125 70,636
----------- ----------- -----------
Investing Activities
Net proceeds from disposal of home centers segment................ 4,706 81,147 --
Property and equipment expenditures............................... (69,615) (83,981) (70,853)
Proceeds from disposition of property and equipment............... 896 1,262 1,486
Net proceeds from disposition of freestanding drug stores......... 59,876 -- --
Net proceeds from disposal of Purity.............................. 19,752 -- --
----------- ----------- -----------
Cash provided by (used for) investing activities........... 15,615 (1,572) (69,367)
----------- ----------- -----------
Financing Activities
Borrowings from Pathmark Term Loan................................ -- -- 400,000
Increase (decrease) in Working Capital Facilities borrowings...... (17,000) 25,500 (16,000)
Decrease in Pathmark Term Loan.................................... (60,295) (36,750) (15,000)
Increase (decrease) in book overdrafts............................ (1,397) 5,458 (3,704)
Increase in other borrowings...................................... 895 3,676 2,581
Repayment of other long-term borrowings........................... (5,207) (5,527) (9,768)
Reduction in obligations under capital leases..................... (18,224) (17,275) (15,031)
Deferred financing fees........................................... (374) (977) (47,538)
Repayment of PTK Exchangeable Guaranteed Debentures............... (57,870) (62,892) --
Premiums incurred in redemption of PTK Exchangeable Guaranteed
Debentures......................................................... (3,686) (3,687) --
Capital contribution from SMG II Holdings Corporation............. 210 -- --
Proceeds from issuance of Pathmark Senior Subordinated Notes...... -- -- 436,625
Proceeds from issuance of Pathmark Deferred Coupon Notes.......... -- -- 120,000
Proceeds from issuance of PTK Exchangeable Guaranteed
Debentures......................................................... -- -- 126,100
Proceeds from Working Capital Facilities borrowings in connection
with the Recapitalization....................................... -- -- 53,500
Purchase of Holdings Senior Subordinated Notes.................... -- -- (388,192)
Purchase of Holdings Subordinated Debentures...................... -- -- (319,229)
Purchase of Holdings Discount Debentures.......................... -- -- (184,752)
Repayment of Old Working Capital Facility in connection with the
Recapitalization................................................... -- -- (80,000)
Premiums and other fees in connection with the Recapitalization... -- -- (98,499)
Increase (decrease) in Old Working Capital Facilities borrowings
prior to the Recapitalization................................... -- -- 40,000
----------- ----------- -----------
Cash provided by (used for) financing activities........... (162,948) (92,474) 1,093
----------- ----------- -----------
Increase (decrease) in cash and cash equivalents................... (10,721) 17,079 2,362
Cash and cash equivalents at beginning of period................... 23,247 6,168 3,806
----------- ----------- -----------
Cash and cash equivalents at end of period......................... $ 12,526 $ 23,247 $ 6,168
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
See notes to consolidated financial statements.
23
<PAGE>
SUPERMARKETS GENERAL HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1--ORGANIZATION AND BASIS OF PRESENTATION
Supermarkets General Holdings Corporation ("Holdings" or "Company") and its
wholly owned subsidiary SMG Acquisition Corporation ("SMG") were formed by
Merrill Lynch Capital Partners, Inc., a wholly owned subsidiary of Merrill Lynch
& Co., Inc., ("ML & Co."), to effect the acquisition (the "Acquisition") of
Supermarkets General Corporation ("Old Supermarkets"). On June 15, 1987,
Holdings completed the first step in the Acquisition when it acquired 32,800,000
shares (approximately 85%) of Old Supermarkets' common stock through a tender
offer by SMG. The remaining outstanding common stock of Old Supermarkets was
acquired by Holdings on October 5, 1987 when SMG was merged with and into Old
Supermarkets pursuant to a Merger Agreement dated April 22, 1987, as amended.
The Acquisition was accounted for as a purchase, and accordingly, Holdings
recorded the assets and liabilities of Old Supermarkets at their fair values at
the date of the Acquisition. The tax basis for the assets and liabilities
acquired was retained.
In October 1989, Old Supermarkets adopted a plan of liquidation pursuant to
which it was liquidated into three wholly owned subsidiaries of Holdings. In
November 1989, pursuant to such plan, Old Supermarkets transferred substantially
all of the assets of its Purity Supreme division to two of the three
above-mentioned wholly owned subsidiaries, Purity Supreme, Inc. and Li'l Peach
Corp., and said subsidiaries assumed substantially all of the liabilities of Old
Supermarkets related to such division. Old Supermarkets completed the
liquidation just prior to the year ended February 3, 1990, by merging with the
third of the above-mentioned wholly owned subsidiaries which retained the name
Supermarkets General Corporation ("Supermarkets"). On December 17, 1991, Purity
Supreme, Inc. and Li'l Peach Corp. (collectively, "Purity") were sold. The
Company retained a 10% common equity in Purity and a new issue of Purity
exchangeable preferred stock, and such securities were sold in Fiscal 1995 (see
Note 4).
On November 15, 1990, SMG-II Holdings Corporation, a then newly incorporated
Delaware corporation ("SMG-II"), commenced offers to purchase for cash up to
$155.5 million principal amount of the Company's Junior Subordinated Discount
Debentures (the "Discount Debenture Offer") and up to 1.7 million shares of the
Company's Cumulative Exchangeable Redeemable Preferred Stock (the "Exchangeable
Preferred Stock Offer"). Concurrently with the Discount Debenture Offer and the
Exchangeable Preferred Stock Offer, SMG-II commenced an exchange offer (the
"Exchange Offer", together with the Discount Debenture Offer and the
Exchangeable Preferred Stock Offer, the "Offers") pursuant to which the then
existing common stockholders of the Company could exchange, on a one-for-one
basis, shares of the Company's common stock for shares of SMG-II's common stock.
The Offers were subsequently amended to provide for offers to purchase up to
$110.0 million principal amount of the Company's Junior Subordinated Discount
Debentures (the "Discount Debentures") and up to 3.4 million shares of the
Company's Cumulative Exchangeable Redeemable Preferred Stock (the "Exchangeable
Preferred Stock").
In February 1991, SMG-II purchased approximately $74.1 million principal
amount of the Discount Debentures at 33% of their principal amount and 2.7
million shares of Exchangeable Preferred Stock at $7.00 net per share, pursuant
to the Discount Debenture Offer and the Exchangeable Preferred Stock Offer,
respectively. In addition, all outstanding shares of the Company's common stock
were exchanged pursuant to the Exchange Offer. As a result of the Exchange
Offer, SMG-II owns all of the Company's common stock and is effectively a
holding company for the operations of the Company. SMG-II financed these
purchases by selling 417,500 shares of its Cumulative Convertible Preferred
Stock (the "SMG-II Preferred Stock") for an aggregate purchase price of $83.5
million to various
24
<PAGE>
SUPERMARKETS GENERAL HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 1--ORGANIZATION AND BASIS OF PRESENTATION--(CONTINUED)
institutional investors. The holders of SMG-II's voting and non-voting common
stock and SMG-II Preferred Stock include certain limited partnerships controlled
directly or indirectly by Merrill Lynch Capital Partners, Inc. and certain
indirectly wholly owned subsidiaries of ML & Co. ML & Co. beneficially owns
approximately 88.6% of the outstanding stock of SMG-II, and accordingly,
controls SMG-II and, indirectly, the Company.
Subsequent to the completion of the Offers in Fiscal 1991, SMG-II acquired
through open market transactions approximately $21.3 million principal amount of
Discount Debentures, $9.8 million principal amount of the Company's 14.5% Senior
Subordinated Notes due 1997 (the "Senior Subordinated Notes") and 94,900 shares
of Exchangeable Preferred Stock and made a capital contribution to the Company
of such securities together with the amounts of the Discount Debentures and the
Exchangeable Preferred Stock purchased pursuant to the Discount Debenture Offer
and the Exchangeable Preferred Stock Offer, respectively, as well as cash
sufficient to pay associated taxes. The Company has retired the Senior
Subordinated Notes, the Discount Debentures and the Exchangeable Preferred Stock
contributed by SMG-II (see Note 20).
During Fiscal 1993, the Board of Directors of Holdings authorized management
of Holdings to proceed with a recapitalization plan (the "Recapitalization"),
which included a refinancing of Holdings' debt. In conjunction with the
recapitalization, the assets, liabilities and related operations of the home
centers segment as well as certain assets and liabilities of the warehouse,
distribution and processing facilities which service the Pathmark supermarkets
and drug stores and certain inventories and real property, were contributed to
Plainbridge, Inc. ("Plainbridge"), a then newly formed indirect wholly owned
subsidiary of Holdings and the shares of Plainbridge were then distributed to
PTK Holdings, Inc. ("PTK"), a then newly formed wholly owned subsidiary of
Holdings (the "Plainbridge Spin-Off"). Following the Plainbridge Spin-Off, PTK
held 100% of the capital stock of both Plainbridge and Pathmark. On March 1,
1996, Pathmark reacquired all of the outstanding capital stock of Plainbridge by
means of a capital contribution from PTK.
On November 4, 1994, the Company completed the sale of its home centers
segment for approximately $88.7 million in cash, plus the assumption of certain
indebtedness. The Company used the net proceeds to pay down PTK debt, including
accrued interest and debt premium (see Note 23).
The accompanying consolidated financial statements of the Company indicate
that, at February 3, 1996, current liabilities exceeded current assets by $168.8
million and stockholder's deficit was $1.22 billion. Management believes that
cash flows generated from operations, supplemented by the unused borrowing
capacity under the Working Capital Facility (see Note 11) and the availability
of capital lease financing will be sufficient to pay the Company's debts as they
come due, provide for its capital expenditure program and meet its seasonal cash
requirements. Further, the Company believes it will be in compliance throughout
the upcoming fiscal year with its various debt covenants (see Note 11).
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation:
The consolidated financial statements include the accounts of the Company
and its subsidiaries, all of whom are wholly owned. All intercompany
transactions have been eliminated in consolidation. The accompanying
consolidated statements of operations for all periods presented include the
operating results of the Company's home centers segment as discontinued
operations through the date of disposal.
25
<PAGE>
SUPERMARKETS GENERAL HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
Use of Estimates:
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions. These estimates affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
The accompanying consolidated balance sheets include reserves for
self-insured claims relating to customer, employee and vehicle accidents and
covered employee medical benefits. The liabilities for customer and employee
accident claims are recorded at present value, utilizing a risk free discount
rate, due to the long-term payout of these claims (see Note 10). While the
Company believes that the amounts provided are adequate to cover its
self-insured liabilities, it is reasonably possible that the final resolution of
these claims may differ from the amounts provided.
Fiscal Year:
The Company's fiscal year ends on the Saturday nearest to January 31 of the
following calendar year. Normally each fiscal year consists of 52 weeks, but
every five or six years the fiscal year consists of 53 weeks. Fiscal 1995
consists of 53 weeks.
Statements of Cash Flows:
All investments and marketable securities with a maturity of three months or
less are considered to be cash equivalents. The Company had $0.4 million of cash
equivalent investments as of February 3, 1996 and $14.8 million of cash
equivalent investments as of January 28, 1995.
Merchandise Inventories:
Merchandise inventories are valued at the lower of cost or market. Cost for
substantially all merchandise inventories is determined on a last-in, first-out
("LIFO") basis.
Rental Video Tapes:
Video tapes purchased for rental purposes are capitalized and amortized over
their estimated useful life as part of cost of goods sold. The amortization of
video tapes included in cost of goods sold approximate $2.8 million, $2.6
million and $2.6 million in Fiscal 1995, Fiscal 1994 and Fiscal 1993,
respectively.
Software:
Externally purchased software is capitalized and amortized as part of
selling, general and administrative expenses over a three year period.
Internally developed software, including software developed by Integrated
Systems Solutions Corporation ("ISSC") (see Note 24), is expensed as incurred.
Property and Equipment:
Property and equipment are stated at cost. Depreciation and amortization
expense on owned property and equipment is computed on the straight-line method
over their estimated useful lives. Capital leases are recorded at the present
value of minimum lease payments or fair market value of the
26
<PAGE>
SUPERMARKETS GENERAL HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
related property, whichever is less. Amortization of property under capital
leases is computed on the straight-line method over the term of the lease or the
leased property's estimated useful life, whichever is shorter.
Depreciable lives of owned property and equipment are as follows:
Buildings............................. 40 years
Building/leasehold improvements:
Structural.......................... Remaining life of building or lease
term, whichever is shorter
Other improvements.................. 8 to 15 years
Fixtures and equipment................ 3 to 10 years
Transportation equipment.............. 3 to 8 years
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" ("SFAS No. 121").
SFAS No. 121 establishes accounting standards for the measurement of the
impairment of long-lived assets, certain identifiable intangibles and goodwill
related to those assets to be held and used and for long-lived assets and
certain identifiable intangibles to be disposed of. SFAS No. 121 requires that
(i) long-lived assets and certain identifiable intangibles to be held and used
by an entity be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable and (ii) long-lived assets and certain identifiable intangibles, to
be disposed of generally be reported at the lower of carrying amounts or fair
value less cost to sell. SFAS No. 121 is effective for financial statements for
fiscal years beginning after December 15, 1995. The adoption of the SFAS No. 121
measurement standards is not expected to materially effect the financial
position or results of operations of the Company.
Deferred Financing Costs:
Deferred financing costs are amortized on the interest method over the life
of the related indebtedness.
Book Overdrafts:
Under the Company's cash management system, checks issued but not presented
to banks result in overdraft balances for accounting purposes and are classified
as book overdrafts.
Earnings (Loss) Per Common Share:
Since the Company is a wholly owned subsidiary, earnings (loss) per share
information is not presented.
Store Preopening and Closing Costs:
Store preopening costs are expensed as incurred. Store closing costs, such
as future rent and real estate taxes subsequent to the actual store closing, net
of expected sublease recovery, are recorded at present value, utilizing a risk
free discount rate, when management makes such decision to close a store.
27
<PAGE>
SUPERMARKETS GENERAL HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
Income Taxes:
The Company's income taxes are computed based on a tax sharing agreement
with its ultimate parent, SMG-II, in which the Company computes a hypothetical
tax return as if the Company was not joined in a consolidated or combined return
with SMG-II. The Company must pay SMG-II the positive amount of any such
hypothetical tax. If the hypothetical tax return shows entitlement to a refund,
including any refund attributable to a carryback, then SMG-II will pay to the
Company the amount of such refund.
Reclassifications:
Certain reclassifications have been made to the prior years' consolidated
financial statements to conform to the Fiscal 1995 presentation.
NOTE 3--DISPOSITION OF FREESTANDING DRUG STORES
During the second quarter of Fiscal 1995, the Company made a decision to
dispose of its 36 freestanding drug stores. On July 28, 1995, the Company,
through its Pathmark subsidiary, completed the sale of 30 of its freestanding
drug stores, including merchandise inventory, to Rite Aid Corporation for $59.9
million. The Company used $25.0 million of the proceeds to repay a portion of
its existing Pathmark Term Loan and $21.8 million of the proceeds to repay a
portion of its PTK DIBs.
The Company recorded a pretax gain on the disposition of its freestanding
drug stores of $15.5 million, net of a $19.0 million charge related to the
estimated exit costs of the remaining six freestanding drug stores. During
Fiscal 1995, Pathmark closed five freestanding drug stores and the sixth is
projected to be closed in Fiscal 1996.
NOTE 4--DISPOSAL OF PURITY
During Fiscal 1995, in connection with the sale of Purity to the Stop & Shop
Companies, Inc., the Company sold its remaining investment in Purity for $16.4
million, the proceeds of which were used to repay a portion of its PTK DIBs. As
a result of the sale, a capital tax loss of approximately $69.5 million was
generated (see Note 18). In addition, the Company sold real estate for $3.4
million, representing a former warehouse facility of Purity. These transactions
resulted in a pretax gain of $19.8 million.
28
<PAGE>
SUPERMARKETS GENERAL HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
NOTE 5--ACCOUNTS RECEIVABLE
Accounts receivable are comprised of the following (dollars in thousands):
<TABLE>
<CAPTION>
FEBRUARY 3, JANUARY 28,
1996 1995
----------- -----------
<S> <C> <C>
Prescription plans.................................................. $ 9,250 $11,623
Other............................................................... 2,527 2,669
----------- -----------
Accounts receivable................................................. 11,777 14,292
Less: allowance for doubtful accounts(a)............................ 937 912
----------- -----------
Accounts receivable, net............................................ $10,840 $13,380
----------- -----------
----------- -----------
</TABLE>
- ------------
(a) The allowance for doubtful accounts reflects a provision of $1.3 million and
$2.2 million, as well as a write off of $1.3 million and $3.1 million in
Fiscal 1995 and Fiscal 1994, respectively.
NOTE 6--MERCHANDISE INVENTORIES
Merchandise inventories are comprised of the following (dollars in
thousands):
<TABLE>
<CAPTION>
FEBRUARY 3, JANUARY 28,
1996 1995
------------ -----------
<S> <C> <C>
Merchandise inventories at FIFO cost.............................. $268,544 $ 298,812
Less: LIFO reserve................................................ 42,764 43,181
------------ -----------
Merchandise inventories at LIFO cost.............................. $225,780 $ 255,631
------------ -----------
------------ -----------
</TABLE>
Liquidation of LIFO layers in the periods reported did not have a
significant effect on the results of continuing operations. The decrease in the
LIFO reserve was primarily due to the disposition of the freestanding drug store
segment (see Note 3).
NOTE 7--OTHER CURRENT ASSETS
Other current assets decreased to $5.9 million at February 3, 1996 from
$16.9 million at January 28, 1995 principally due to a decrease in assets held
for sale and the collection of a receivable related to the sale of the home
centers segment.
NOTE 8--PROPERTY AND EQUIPMENT
Property and equipment are comprised of the following (dollars in
thousands):
<TABLE>
<CAPTION>
FEBRUARY 3, JANUARY 28,
1996 1995
----------- -----------
<S> <C> <C>
Land.................................................................. $ 62,847 $ 62,695
Buildings and building improvements................................... 200,039 187,414
Fixtures and equipment................................................ 203,020 200,015
Leasehold costs and improvements...................................... 279,473 268,165
Transportation equipment.............................................. 18,448 19,828
----------- -----------
Property and equipment, owned......................................... 763,827 738,117
Property and equipment under capital leases........................... 188,596 173,175
----------- -----------
Property and equipment, at cost....................................... 952,423 911,292
Less: accumulated depreciation and amortization....................... 348,591 326,120
----------- -----------
Property and equipment, net........................................... $ 603,832 $ 585,172
----------- -----------
----------- -----------
</TABLE>
29
<PAGE>
SUPERMARKETS GENERAL HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 9--DEFERRED FINANCING COSTS, NET
Deferred financing costs, primarily related to the Recapitalization, are
comprised of the following (dollars in thousands):
FEBRUARY 3, JANUARY 28,
1996 1995
------------ -----------
Deferred financing costs......... $ 50,377 $50,063
Less: accumulated amortization... 16,692 9,617
------------ -----------
Deferred financing costs, net.... $ 33,685 $40,446
------------ -----------
------------ -----------
NOTE 10--OTHER NONCURRENT LIABILITIES
Other noncurrent liabilities are comprised of the following (dollars in
thousands):
<TABLE>
<CAPTION>
FEBRUARY 3, JANUARY 28,
1996 1995
------------ -----------
<S> <C> <C>
Self-insured liabilities........................... $ 65,183 $ 70,736
Pension and deferred compensation.................. 17,003 15,001
Other postretirement and postemployment benefits... 41,025 40,600
Accrued dividends.................................. 55,949 38,734
Reserve for closed stores.......................... 23,871 6,021
Other.............................................. 70,499 71,189
------------ -----------
Other noncurrent liabilities....................... $273,530 $ 242,281
------------ -----------
------------ -----------
</TABLE>
Certain noncurrent liabilities, such as self-insured liabilities for
incurred but unpaid claims relating to customer, employee and vehicle accidents
and closed store liabilities, are recorded at present value, utilizing a 4%
discount rate based on the projected payout of these claims.
NOTE 11--LONG-TERM DEBT
Long-term debt is comprised of the following (dollars in thousands):
<TABLE>
<CAPTION>
FEBRUARY 3, JANUARY 29,
1996 1995
------------ -----------
<S> <C> <C>
Pathmark Term Loan ("Term Loan")................................... $ 287,955 $ 348,250
Working Capital Facilities ("Working Capital Facilities").......... 46,000 63,000
10.25% PTK Exchangeable Guaranteed Debentures due 2003
("PTK DIBs")..................................................... 27,679 79,257
9.625% Pathmark Senior Subordinated Notes due 2003
("Pathmark Senior Subordinated Notes")........................... 437,426 437,072
10.75% Pathmark Deferred Coupon Notes due 2003
("Pathmark Deferred Coupon Notes")............................... 151,881 136,853
12.625% Pathmark Subordinated Debentures due 2002
("Pathmark Subordinated Debentures")............................. 95,750 95,750
11.625% Pathmark Subordinated Notes due 2002
("Pathmark Subordinated Notes").................................. 199,017 199,017
11.625% Holdings Subordinated Notes due 2002
("Holdings Subordinated Notes").................................. 983 983
Industrial revenue bonds........................................... 6,375 6,375
Other debt (primarily mortgages)................................... 41,011 45,324
------------ -----------
Total debt......................................................... 1,294,077 1,411,881
Less: current maturities........................................... 51,753 59,310
------------ -----------
Long-term portion.................................................. $ 1,242,324 $ 1,352,571
------------ -----------
------------ -----------
</TABLE>
30
<PAGE>
SUPERMARKETS GENERAL HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 11--LONG-TERM DEBT--(CONTINUED)
Scheduled Maturities of Debt:
Long-term debt principal payments are as follows (dollars in thousands):
PRINCIPAL
FISCAL YEARS PAYMENTS
- ------------- ----------
1996................................................ $ 51,753
1997................................................ 53,645
1998................................................ 147,240
1999................................................ 128,058
2000................................................ 50,210
Thereafter.......................................... 863,171
----------
$1,294,077
----------
----------
Bank Credit Agreements:
Under the bank credit agreements ("Bank Credit Agreement"), the Pathmark and
the Plainbridge Working Capital Facilities and the Pathmark Term Loan bear
interest at floating rates. At February 3, 1996, the interest rates for the
Pathmark Term Loan and Pathmark Working Capital Facility were 8.4% and 9.0%,
respectively, and the interest rate on the Plainbridge Working Capital Facility
was 10.3%. At January 28, 1995, the interest rates for the Pathmark Term Loan
and Pathmark Working Capital Facility were 8.9% and 9.5%, respectively. At
January 28, 1995, Plainbridge had no borrowings under its Working Capital
Facility. Pathmark is required to repay a portion of its borrowings under the
Pathmark Term Loan each year, so as to retire such indebtedness in its entirety
by October 31, 1999. In conjunction with the Pathmark reacquisition of the
Plainbridge capital stock by the Company, the outstanding obligations of
Plainbridge under its credit agreement were satisfied by Pathmark and the credit
agreement, which allowed for $40.0 million of availability, was terminated. The
Company, through its Pathmark subsidiary, simultaneously entered into an
amendment to its Bank Credit Agreement with its existing lenders increasing the
Company's Working Capital Facility ("Working Capital Facility") from $175
million to $200 million (of which the maximum of $125.0 million can be in
letters of credit) to satisfy any additional liquidity needs and prospectively
modifying certain of its financial covenants to take into account the operations
of Plainbridge. The Working Capital Facility is subject to an annual cleandown
provision. Under the terms of the cleandown provision, in each fiscal year loans
cannot exceed $60.0 million (formerly $50.0 million) under the Working Capital
Facility for a period of 30 consecutive days. The Company satisfied the terms of
the cleandown provision through Fiscal 1996. The Company believes it has
sufficient unused borrowing capacity under the Working Capital Facility, which
can be utilized for unforeseen or for seasonal cash requirements. At February 3,
1996, the Company had approximately $74.1 million in outstanding letters of
credit and approximately $94.9 million in unused borrowing capacity under its
Working Capital Facilities.
At February 3, 1996, the Company was in compliance with all of its debt
covenants, as amended. Based upon projected results for the upcoming fiscal
year, the Company believes it will be in compliance with its debt covenants,
which includes certain levels of operating cash flow (as defined), minimum
interest coverage and a maximum leverage ratio, throughout the upcoming fiscal
year. The Pathmark Term Loan, the Pathmark and Plainbridge Working Capital
Facilities and the indentures for certain debt also contain covenants,
including, but not limited to, covenants with respect to the following matters:
(i) limitation on indebtedness; (ii) limitation on restricted payments; (iii)
limitation on transactions with affiliates; (iv) limitation on liens; (v)
limitation on the issuance of preferred stock by
31
<PAGE>
SUPERMARKETS GENERAL HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 11--LONG-TERM DEBT--(CONTINUED)
subsidiaries; (vi) limitation on issuances of guarantees of indebtedness by
subsidiaries; (vii) limitation on transfer of assets to subsidiaries; (viii)
limitation on dividends and other payment restrictions affecting subsidiaries;
and (ix) restriction on mergers and transfers of assets.
PTK DIBs:
The PTK DIBs were originally formulated to accrete to a maturity value of
$218.3 million in Fiscal 2003. The Company used the net cash proceeds of $56.5
million in Fiscal 1995 and $66.6 million in Fiscal 1994 to paydown PTK DIBs,
including accrued interest and debt premium. The PTK DIBs begin paying cash
interest on a semiannual basis on June 30, 1999 and have no sinking fund
requirements. At February 3, 1996 the maturity value of the outstanding
debentures is $38.2 million.
Pathmark Senior Subordinated Notes:
The Pathmark Senior Subordinated Notes accrete to a maturity value of $440.0
million in Fiscal 2003. These notes pay cash interest on a semiannual basis and
have no sinking fund requirements.
Pathmark Deferred Coupon Notes:
The Pathmark Deferred Coupon Notes accrete to a maturity value of $225.3
million in Fiscal 2003. These notes begin paying cash interest on a semiannual
basis on May 1, 2000 and have no sinking fund requirements.
Pathmark Subordinated Debentures:
The Pathmark Subordinated Debentures mature in Fiscal 2002. These debentures
pay cash interest on a semiannual basis and have no sinking fund requirements.
Pathmark Subordinated Notes:
The Pathmark Subordinated Notes mature in Fiscal 2002 and pay cash interest
on a semiannual basis. These notes contain a sinking fund provision that
requires Pathmark to deposit $49.8 million (25% of the original aggregate
principal amount) with the trustee of the Pathmark Subordinated Notes on June 15
in each of Fiscal 2000 and Fiscal 2001 for the redemption of the Pathmark
Subordinated Notes, at a redemption price equal to 100% of the principal amount
thereof, plus accrued interest to the redemption date and providing for the
redemption of 50% of the original aggregate principal amount of such notes prior
to maturity.
Holdings Subordinated Notes:
As a result of the Recapitalization, $199.0 million principal amount of the
Holdings Subordinated Notes have been exchanged for $199.0 million principal
amount of Pathmark Subordinated Notes. Approximately $1.0 million principal
amount of the Holdings Subordinated Notes remain outstanding. Interest on the
Holdings Subordinated Notes is payable semi-annually.
Industrial Revenue Bonds:
Interest rates for the industrial revenue bonds range from 10.5%-10.9%. The
industrial revenue bonds are payable in Fiscal 2003.
Other Debt:
Other debt includes mortgage notes which are secured by property and
equipment having a net book value of $65.4 million at February 3, 1996 and $64.5
million at January 28, 1995. These borrowings, whose interest rates averaged
10.5%, are payable in installments ending in Fiscal 2000.
32
<PAGE>
SUPERMARKETS GENERAL HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 12--FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount and fair values of the Company's financial instruments
are as follows (dollars in thousands):
<TABLE>
<CAPTION>
FEBRUARY 3, 1996 JANUARY 28, 1995
------------------------ ------------------------
<S> <C> <C> <C> <C>
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
---------- ---------- ---------- ----------
Debt:
Pathmark Term Loan......................... $ 287,955 $ 287,955 $ 348,250 $ 348,250
Working Capital Facilities................. 46,000 46,000 63,000 63,000
PTK DIBs................................... 27,679 27,679 79,257 79,257
Pathmark Senior Subordinated Notes......... 437,426 419,929 437,072 393,103
Pathmark Deferred Coupon Notes............. 151,881 135,578 136,853 123,077
Pathmark Subordinated Debentures........... 95,750 100,959 95,750 97,119
Pathmark Subordinated Notes................ 199,017 206,220 199,017 195,335
Holdings Subordinated Notes................ 983 1,017 983 963
Industrial revenue bonds................... 6,375 6,375 6,375 6,375
Other debt (primarily mortgages)........... 41,011 41,011 45,324 45,324
---------- ---------- ---------- ----------
Total debt........................... $1,294,077 $1,272,723 $1,411,881 $1,351,803
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Redeemable Preferred Stock:
Cumulative Exchangeable Redeemable
Preferred Stock............................ $ 103,633 $ 113,708 $ 101,959 $ 122,267
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
The fair value of the Pathmark Term Loan and Working Capital Facilities at
February 3, 1996 and January 28, 1995 approximated their carrying value due to
their floating interest rates. The fair value of the notes, debentures and
Exchangeable Preferred Stock are based on the quoted market prices at February
3, 1996 and January 28, 1995, since such instruments are publicly traded. The
Company has evaluated its PTK DIBs, other debt (primarily mortgages) and
industrial revenue bonds, and believes based on interest rates, related terms
and maturities that the fair value of such instruments approximates their
respective carrying amounts. As of February 3, 1996 and January 28, 1995, the
carrying values of cash and cash equivalents, accounts receivable and accounts
payable approximates fair values due to the short-term maturities of these
instruments.
33
<PAGE>
SUPERMARKETS GENERAL HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 13--INTEREST EXPENSE
Interest expense is comprised of the following (dollars in thousands):
<TABLE>
<CAPTION>
FISCAL YEARS
--------------------------------
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Pathmark Term Loan.......................................... $ 29,067 $ 27,281 $ 6,471
Pathmark Working Capital Facilities......................... 5,601 4,996 1,096
Pathmark Senior Subordinated Notes
Amortization of original issue discount................... 354 354 93
Currently payable......................................... 42,350 42,350 11,176
Pathmark Deferred Coupon Notes, accruable but not payable... 15,028 13,541 3,312
Pathmark Subordinated Debentures............................ 12,088 12,088 3,156
Pathmark Subordinated Notes................................. 23,136 23,136 6,068
Amortization of PTK DIBs original issue discount............ 6,292 12,501 3,549
Amortization of debt issuance costs......................... 7,140 7,028 4,870
Obligations under capital leases............................ 16,647 15,694 14,957
Mortgages payable........................................... 4,210 4,398 4,579
Holdings Subordinated Notes................................. 114 149 17,253
Other, net.................................................. 8,942 7,332 7,164
Old bank credit agreement................................... -- -- 4,337
Holdings Senior Subordinated Notes.......................... -- -- 41,573
Holdings Subordinated Debentures............................ -- -- 38,711
Holdings Discount Debentures................................ -- -- 20,794
Amortization of Holdings original issue discount............ -- -- 951
-------- -------- --------
Interest expense............................................ $170,969 $170,848 $190,110
-------- -------- --------
-------- -------- --------
</TABLE>
The Company made cash interest payments of $135.2 million in Fiscal 1995,
$129.6 million in Fiscal 1994 and $196.5 million in Fiscal 1993.
NOTE 14--LEASES
At February 3, 1996, the Company was liable under terms of noncancellable
leases for the following minimum lease commitments (dollars in thousands):
<TABLE>
<CAPTION>
CAPITAL OPERATING
FISCAL YEARS LEASES LEASES
- ------------ -------- ---------
<S> <C> <C>
1996...................................................................... $ 36,667 $ 23,409
1997...................................................................... 33,999 23,587
1998...................................................................... 31,677 21,940
1999...................................................................... 24,880 21,221
2000...................................................................... 23,957 20,880
Later years............................................................... 161,904 238,696
-------- ---------
Total minimum lease payments(a)......................................... 313,084 $ 349,733
---------
---------
Less: executory costs (such as taxes, maintenance and insurance)....... (2,430)
--------
Net minimum lease payments............................................. 310,654
Less: amounts representing interest.................................... (149,804)
--------
Present value of net minimum lease payments (including current
installments of $20,684)............................................... $160,850
--------
--------
</TABLE>
- ------------
(a) Net of sublease income of $10,961 and $171,524 for capital and operating
leases, respectively.
34
<PAGE>
SUPERMARKETS GENERAL HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 14--LEASES--(CONTINUED)
During Fiscal 1995, Fiscal 1994 and Fiscal 1993, the Company incurred
capital lease obligations of $41.1 million, $21.3 million and $25.7 million,
respectively, in connection with property and equipment lease agreements. The
capital lease amounts are non-cash and, accordingly, have been excluded from the
consolidated statements of cash flows.
Rent expense included in continuing operations under all operating leases
having noncancellable terms of more than one year is summarized as follows
(dollars in thousands):
<TABLE>
<CAPTION>
FISCAL YEARS
--------------------------------
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Minimum rentals.............................................. $ 47,589 $ 49,694 $ 45,586
Contingent rentals(b)........................................ -- 318 193
Less: rentals from subleases................................. (15,802) (13,092) (5,725)
-------- -------- --------
Rent expense................................................. $ 31,787 $ 36,920 $ 40,054
-------- -------- --------
-------- -------- --------
</TABLE>
- ------------
(b) Primarily based on sales.
NOTE 15--RELATED PARTY TRANSACTIONS
As discussed in Note 21, certain Management Investors issued Recourse Notes
to the Company related to the purchase of the Company's Class A common stock.
These Management Investors have pledged shares of SMG-II Class A common stock to
secure the repayment of the Recourse Notes. Recourse Notes in the amount of $1.7
million were outstanding at February 3, 1996 and January 28, 1995.
During Fiscal 1995, the Company paid ML & Co. fees of approximately $0.6
million related to the sale of the freestanding drug stores. During Fiscal 1994,
the Company paid ML & Co. fees of approximately $1.0 million related to the
disposal of the home centers segment. During Fiscal 1993, the Company paid ML &
Co. fees of approximately $12.8 million in conjunction with the
Recapitalization.
NOTE 16--RETIREMENT AND BENEFIT PLANS
The Company has several noncontributory defined benefit pension plans, the
most significant of which is the SGC Pension Plan, which covers substantially
all nonunion and certain union associates. Pension benefits to retired and to
terminated vested associates are primarily based upon their length of service
and upon a percentage of qualifying compensation. The Company's funding policy,
which is consistent with federal funding requirements, is intended to provide
not only for benefits attributed to service to date but also for those benefits
expected to be earned in the future. Due to the overfunding status of the SGC
Pension Plan, no contributions were required during the last three fiscal years.
35
<PAGE>
SUPERMARKETS GENERAL HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 16--RETIREMENT AND BENEFIT PLANS--(CONTINUED)
The following table sets forth the funded status of the pension plans and
the amounts recognized in the Company's financial statements (dollars in
thousands):
<TABLE>
<CAPTION>
FEBRUARY 3, 1996 JANUARY 28, 1995
-------------------------- --------------------------
ASSETS ACCUMULATED ASSETS ACCUMULATED
EXCEED BENEFITS EXCEED BENEFITS
ACCUMULATED EXCEED ACCUMULATED EXCEED
BENEFITS ASSETS BENEFITS ASSETS
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Actuarial present value of accumulated
benefit obligation:
Vested................................... $ (94,802) $ (17,929) $ (80,405) $ (16,131)
Unvested................................. (5,779) (250) (4,050) (349)
----------- ----------- ----------- -----------
Total.................................... (100,581) (18,179) (84,455) (16,480)
Plan assets at fair value.................... 164,684 265 130,552 251
----------- ----------- ----------- -----------
Plan assets higher (lower) than accumulated
benefit obligation........................... $ 64,103 $ (17,914) $ 46,097 $ (16,229)
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Actuarial present value of projected
benefit obligation......................... $(119,152) $ (20,894) $ (97,064) $ (17,991)
Plan assets at fair value.................... 164,684 265 130,552 251
----------- ----------- ----------- -----------
Plan assets higher (lower) than projected
benefit obligation......................... 45,532 (20,629) 33,488 (17,740)
Unrecognized net gain from past experience
different from that assumed and effects of
changes in assumptions....................... (33,250) (90) (22,345) (883)
Unrecognized prior service cost.............. 1,215 1,671 (83) 2,051
----------- ----------- ----------- -----------
Prepaid (accrued) pension cost............... $ 13,497 $ (19,048) $ 11,060 $ (16,572)
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
Assets of the Company's pension plans are invested in marketable securities,
comprised, primarily of equities of domestic corporations, U.S. Government
instruments and money market investments.
The following table provides the assumptions used in determining the
actuarial present value of the projected benefit obligation:
<TABLE>
<CAPTION>
FEBRUARY 3, JANUARY 28,
1996 1995
------------ -----------
<S> <C> <C>
Weighted average discount rate....................................... 7.25% 8.5%
Rate of increase in future compensation levels....................... 4.25 5.5
Expected long-term rate of return on plan assets..................... 9.5 9.5
</TABLE>
The change in the weighted average discount rate, which is used in
determining the actuarial present value of the projected benefit obligation,
will not have a material impact on the Company's net pension cost for Fiscal
1996.
36
<PAGE>
SUPERMARKETS GENERAL HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 16--RETIREMENT AND BENEFIT PLANS--(CONTINUED)
The net periodic pension cost (income) included in continuing operations is
comprised of the following components (dollars in thousands):
<TABLE>
<CAPTION>
FISCAL YEARS
--------------------------------
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Service cost of benefits earned during the year............. $ 3,416 $ 4,425 $ 3,915
Interest cost on projected benefit obligation............... 9,551 9,103 8,530
Actual gain on plans' assets................................ (40,622) (61) (10,352)
Net amortization and deferral............................... 27,811 (10,884) 55
-------- -------- --------
Net periodic pension cost................................... $ 156 $ 2,583 $ 2,148
-------- -------- --------
-------- -------- --------
</TABLE>
The Company also contributes to many multi-employer plans which provide
defined benefits to certain union associates. The Company's contributions to
these multi-employer plans were $18.9 million in Fiscal 1995, $18.0 million in
Fiscal 1994 and $17.9 million in Fiscal 1993.
The Company sponsors a savings plan for eligible nonunion associates.
Contributions under the plan are based on specified percentages of associate
contributions. The Company's contributions to the savings plan were $3.7 million
in Fiscal 1995, $3.5 million in Fiscal 1994 and $4.0 million in Fiscal 1993.
NOTE 17--OTHER POSTRETIREMENT AND POSTEMPLOYMENT BENEFITS
The Company provides its associates other postretirement benefits,
principally health care and life insurance benefits. The accumulated
postretirement benefit obligation was determined utilizing an assumed discount
rate of 7.25% at February 3, 1996 and 8.5% at January 28, 1995 and by applying
the provisions of the Company's medical plans, the established maximums and
sharing of costs, the relevant actuarial assumptions and the health-care cost
trend rates which are projected at 10.0% and which grade down to 5.75% in Fiscal
1999. The effect of a 1% change in the assumed cost trend rate would change the
accumulated postretirement benefit obligation by approximately $2.5 million as
of February 3, 1996 and would change the net periodic postretirement benefit
cost by $0.2 million for Fiscal 1995.
The net postretirement benefit costs related to continuing operations
consisted of the following components (dollars in thousands):
<TABLE>
<CAPTION>
FISCAL YEARS
--------------------------
1995 1994 1993
------ ------ ------
<S> <C> <C> <C>
Service cost of benefits earned during the year................... $ 614 $ 700 $1,004
Interest cost on accumulated postretirement benefit obligation.... 1,808 1,870 2,257
------ ------ ------
Net postretirement benefit cost................................... $2,422 $2,570 $3,261
------ ------ ------
------ ------ ------
</TABLE>
37
<PAGE>
SUPERMARKETS GENERAL HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 17--OTHER POSTRETIREMENT AND POSTEMPLOYMENT BENEFITS--(CONTINUED)
The following table provides information on the status of the postretirement
plans (dollars in thousands):
<TABLE>
<CAPTION>
FEBRUARY 3, JANUARY 28,
1996 1995
----------- -----------
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees............................................................ $14,276 $13,610
Other active plan participants...................................... 13,874 12,590
----------- -----------
Total............................................................... 28,150 26,200
Unrecognized net gain from past experience different from that assumed
and effects of changes in assumptions................................. 4,675 6,143
----------- -----------
Accrued postretirement cost........................................... $32,825 $32,343
----------- -----------
----------- -----------
</TABLE>
The Company also provides its associates postemployment benefits, primarily
long-term disability and salary continuation. The obligation for these benefits
was determined by application of the provisions of the Company's long-term
disability plan and includes the age of active claimants at disability and at
valuation, the length of time on disability and the probability of the claimant
remaining on disability to maximum duration. These liabilities are recorded at
their present value utilizing a discount rate of 4%.
The accumulated postemployment benefit obligation as of February 3, 1996 and
January 28, 1995 was $8.3 million. The net postemployment benefit cost for
continuing operations consisted of the following components (dollars in
thousands):
<TABLE>
<CAPTION>
FISCAL YEARS
--------------------------
1995 1994 1993
------ ------ ------
<S> <C> <C> <C>
Service cost of benefits earned during the year................... $ 997 $1,644 $1,292
Interest cost on accumulated postemployment obligation............ 296 304 295
------ ------ ------
Net postemployment benefit cost................................... $1,293 $1,948 $1,587
------ ------ ------
------ ------ ------
</TABLE>
NOTE 18--INCOME TAXES
The income tax benefit (provision) from continuing operations is comprised
of the following (dollars in thousands):
<TABLE>
<CAPTION>
FISCAL YEARS
-------------------------------
1995 1994 1993
-------- -------- -------
<S> <C> <C> <C>
Current
Federal..................................................... $ 4,018 $ (3,079) $(1,098)
State....................................................... (4,981) (4,882) (7,045)
Deferred
Federal..................................................... (1,233) (2,534) 14,539
State....................................................... 1,238 (1,613) 5,406
Change in valuation allowance................................. 30,721 7,962 8,950
-------- -------- -------
Income tax benefit (provision)................................ $ 29,763 $ (4,146) $20,752
-------- -------- -------
-------- -------- -------
</TABLE>
38
<PAGE>
SUPERMARKETS GENERAL HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 18--INCOME TAXES--(CONTINUED)
The effective tax rate applicable to continuing operations for the income
tax benefit (provision) differs from the federal statutory tax rate as follows:
<TABLE>
<CAPTION>
FISCAL YEARS
---------------------------
1995 1994 1993
----- ----- -----
<S> <C> <C> <C>
Federal statutory tax rate...................................... (35.0)% (35.0)% 35.0%
State income taxes.............................................. (5.0) (40.3) (4.5)
Tax credits..................................................... 1.2 6.3 2.0
Change in valuation allowance................................... 62.8 49.4 21.8
Utilization of capital loss..................................... 32.8 -- --
Other........................................................... 4.0 (6.1) 2.9
Effect of loss carryback at 34% rate............................ -- -- (1.0)
----- ----- -----
Effective tax rate.............................................. 60.8% (25.7)% 56.2%
----- ----- -----
----- ----- -----
</TABLE>
Deferred income tax assets and liabilities consist of the following (dollars
in thousands):
<TABLE>
<CAPTION>
FEBRUARY 3, 1996 JANUARY 28, 1995
------------------------ ------------------------
ASSETS LIABILITIES ASSETS LIABILITIES
--------- ----------- --------- -----------
<S> <C> <C> <C> <C>
Depreciation and amortization................... $ -- $ 71,794 $ -- $ 80,301
Merchandise inventory and gross profit.......... -- 19,571 -- 19,059
Prepaid expenses................................ -- 5,988 -- 6,914
Self-insured liabilities........................ 43,399 -- 46,020 --
Benefit plans................................... 9,128 -- 9,034 --
Lease capitalization............................ 16,990 -- 17,284 --
Closed store reserves........................... 12,386 -- 10,520 --
Alternative minimum taxes....................... 8,212 -- 5,969 --
General business credits........................ 8,821 -- 10,600 --
Net operating loss carryforwards................ 11,193 -- 12,179 --
Other postretirement and postemployment
benefits........................................ 18,480 -- 17,359 --
Capital loss carryforward....................... 9,293 -- -- --
Other........................................... 8,808 6,005 13,191 3,130
--------- ----------- --------- -----------
Subtotal........................................ 146,710 103,358 142,156 109,404
Less: valuation allowance....................... 8,293 -- 26,783 --
--------- ----------- --------- -----------
Total........................................... $ 138,417 $ 103,358 $ 115,373 $ 109,404
--------- ----------- --------- -----------
--------- ----------- --------- -----------
</TABLE>
The balance sheet classification of the deferred income tax assets and
liabilities is as follows (dollars in thousands):
<TABLE>
<CAPTION>
FEBRUARY 3, 1996 JANUARY 28, 1995
---------------------- ----------------------
CURRENT NONCURRENT CURRENT NONCURRENT
-------- ---------- -------- ----------
<S> <C> <C> <C> <C>
Assets............................................ $ 34,513 $ 112,197 $ 32,944 $ 109,212
Liabilities....................................... (26,259) (77,099) (27,603) (81,801)
-------- ---------- -------- ----------
Subtotal.......................................... 8,254 35,098 5,341 27,411
Less: valuation allowance......................... -- 8,293 5,341 21,442
-------- ---------- -------- ----------
Total............................................. $ 8,254 $ 26,805 $ -- $ 5,969
-------- ---------- -------- ----------
-------- ---------- -------- ----------
</TABLE>
39
<PAGE>
SUPERMARKETS GENERAL HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 18--INCOME TAXES--(CONTINUED)
The Company has a net deferred income tax asset of approximately $43.4 and
$32.8 million at February 3, 1996 and January 28, 1995, respectively. At January
28, 1995, although the Company generated pretax earnings in Fiscal 1994, the
Company was unable to conclude that realization of such deferred income tax
assets was more likely than not due to pretax losses experienced in prior years.
Accordingly, the Company provided a valuation allowance of $26.8 million at
January 28, 1995, to fully reserve its net deferred income tax assets, except
for the alternative minimum tax credit carryforwards which do not expire. At
July 29, 1995, the Company reversed the valuation allowance related to its net
deferred income tax assets. Reversals of the existing valuation allowance for
Fiscal 1995 have been included as a component of the income tax benefit. The
reversals were recorded in conjunction with the Company's continuing evaluation
of its deferred income tax assets. In the opinion of management, sufficient
evidence exists, such as the positive trend in earnings which indicates that it
is more likely than not that the Company will be able to realize its deferred
income tax assets.
As a result of the sale of the Company's investment in Purity (see Note 4),
the Company generated a capital loss of approximately $69.5 million, due to a
stock basis differential of its investment. During Fiscal 1995, the Company
utilized $42.9 million of these capital losses, primarily from the sale of the
freestanding drug stores, resulting in a capital loss carryforward at February
3, 1996 of $26.6 million (a $9.3 million tax benefit). The Company has reserved
a valuation allowance of $8.3 million related to the deferred tax capital loss
carryforward of $9.3 million after giving effect to certain tax planning
strategies expected to be implemented in Fiscal 1996. Further reduction to the
valuation allowance will occur when and if, the Company is able to generate
capital gains.
The Fiscal 1994 state income tax provision includes the recording of state
taxes for certain issues related to prior years. The Fiscal 1993 state income
tax provision resulted primarily from taxable income generated in New Jersey due
to the nondeductibility of a significant portion of intercompany interest
expense.
In Fiscal 1995, Fiscal 1994, and Fiscal 1993, the Company made income tax
payments of $3.9 million, $6.5 million and $31.1 million, respectively, and
received income tax refunds of $10.3 million, $25.9 million and $10.1 million,
respectively.
The net operating loss carryforwards, including state net operating loss
carryforwards, expire from Fiscal 1998 to Fiscal 2009.
NOTE 19--EXTRAORDINARY ITEMS
The extraordinary items, representing the loss on early extinguishment of
indebtedness, consist of the following (dollars in thousands):
<TABLE>
<CAPTION>
FISCAL YEARS
-------------------------------
1995 1994 1993
------- ------- ---------
<S> <C> <C> <C>
Loss before income taxes...................................... $(3,686) $(3,687) $(115,509)
Income tax benefit............................................ 1,506 -- 9,354
------- ------- ---------
Extraordinary items, net of a tax benefit..................... $(2,180) $(3,687) $(106,155)
------- ------- ---------
------- ------- ---------
</TABLE>
40
<PAGE>
SUPERMARKETS GENERAL HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 19--EXTRAORDINARY ITEMS--(CONTINUED)
During the fourth quarter of Fiscal 1995, in connection with the proceeds
received from the sale of the Purity investment and the sale of 30 of its
freestanding drug stores, the Company was required to paydown $30.0 million of
PTK DIBS; the premium paid, including original issue discount, resulted in a net
loss on early extinguishment of debt of $1.3 million. During the second quarter
of Fiscal 1995, in connection with the proceeds received related to the sale of
30 of its freestanding drug stores, the Company was required to paydown $21.8
million of PTK DIBs; the premium paid, including original issue discount,
resulted in a net loss on early extinguishment of debt of $0.7 million. During
the first quarter of Fiscal 1995, in connection with the final proceeds received
related to the disposition of the home centers segment, the Company was required
to paydown $4.7 million of PTK DIBs; the premium paid, including original issue
discount, resulted in a net loss on early extinguishment of debt of $0.2
million.
During Fiscal 1994, in connection with the disposal of the home centers
segment, the Company was required to pay down $62.9 million of PTK DIBs. The
premium paid, including original issue discount, resulted in a net loss on early
extinguishment of indebtedness of $3.7 million.
During Fiscal 1993, in connection with the Recapitalization, the Company
repaid or exchanged $1.3 billion of indebtedness through the issuance of new
Pathmark and PTK indebtedness. This repayment of outstanding indebtedness and
this origination of new indebtedness included premiums and other expenses and
included the write off of existing deferred financing fees associated with
indebtedness which was extinguished. This resulted in a net loss on early
extinguishment of indebtedness which totalled $106.0 million. The Company also
repaid $2.5 million principal amount of indebtedness, which was secured by
mortgages on two retail properties which were transferred to Plainbridge. This
repayment resulted in a net loss on early extinguishment of indebtedness of
$0.06 million. In addition, the Company repaid $5.7 million aggregate principal
amount of indebtedness, which was secured by a mortgage on the distribution
center of the home centers segment transferred to Plainbridge. This repayment
resulted in a net loss on early extinguishment of indebtedness of $0.1 million.
NOTE 20--CUMULATIVE EXCHANGEABLE REDEEMABLE PREFERRED STOCK
The Company's Exchangeable Preferred Stock, which has a maturity date of
December 31, 2007, consists of 9,000,000 authorized shares of which 4,890,671
shares are issued and outstanding at February 3, 1996. The fair market value of
the Exchangeable Preferred Stock at date of original issuance of October 5, 1987
was $20 per share and the liquidation preference is $25 per share. Due to its
mandatory redemption requirements, the Exchangeable Preferred Stock has been
stated on the balance sheet as redeemable securities. The difference between
fair market value at date of issue and liquidation preference is being accreted
quarterly.
In the event of any liquidation, dissolution or winding up of the Company,
holders of the Exchangeable Preferred Stock will be entitled to receive their
full liquidation preference per share, together with accrued and unpaid
dividends, before the distribution of any assets of the Company to the holders
of shares of the Company's common stock or other shares which would rank junior
to the Exchangeable Preferred Stock.
The Exchangeable Preferred Stock may be redeemed, at the option of the
Company, in whole or in part, at liquidation preference, together with all
accrued and unpaid dividends to the redemption date. Optional redemption of the
Exchangeable Preferred Stock will be subject to restricted payments and other
similar provisions of the Company's debt instruments.
41
<PAGE>
SUPERMARKETS GENERAL HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 20--CUMULATIVE EXCHANGEABLE REDEEMABLE PREFERRED STOCK--(CONTINUED)
Commencing December 31, 2004, the Company is required to redeem in each year
20% of the highest amount at any time outstanding of the Exchangeable Preferred
Stock. The redemption process is calculated to retire 60% of the issue prior to
final maturity with the remaining amount of the issue to be redeemed at
maturity.
The Company has the option to require holders to exchange the Exchangeable
Preferred Stock on any dividend payment date, in whole or in part, for exchange
debentures (the "Exchange Debentures") of the Company. Such option is available
at any time if (a) no event of default exists under any of the
Company's loan agreements and (b) the exchange is allowed under the provisions
of the limitation on the Company's indebtedness and other applicable provisions
of the Company's loan agreements. Any such exchange will result in the issuance
of Exchange Debentures in an amount equal to the aggregate liquidation
preference of all shares of Exchangeable Preferred Stock being exchanged into
Exchange Debentures and in an amount equal to all accrued but unpaid dividends.
Exchangeable Preferred Stock activity for the three years ended February 3,
1996 was as follows (dollars in thousands):
NUMBER OF
SHARES AMOUNT
---------- --------
Balance, January 30, 1993.............. 4,890,671 $ 98,791
Accretion............................ -- 1,555
---------- --------
Balance, January 29, 1994.............. 4,890,671 100,346
Accretion............................ -- 1,613
---------- --------
Balance, January 28, 1995.............. 4,890,671 101,959
Accretion............................ -- 1,674
---------- --------
Balance, February 3, 1996.............. 4,890,671 $103,633
---------- --------
---------- --------
The terms of the Exchangeable Preferred Stock provide for cumulative
quarterly dividends at an annual rate of $3.52 per share when, as, and if
declared by the Board of Directors of the Company. Dividends for the first 20
quarterly dividend periods (through October 15, 1992) were paid at the Company's
option in additional shares of Exchangeable Preferred Stock. Prior to the
Recapitalization, the Old Bank Credit Agreement and the terms of the indentures
governing the Company's public debt restricted the payment of cash dividends on
the Exchangeable Preferred Stock unless certain conditions were met, including
tests relating to earnings and to cash flow ratios of the Company. Prior to the
Recapitalization, the Company had not met the conditions permitting cash
dividend payments on the Exchangeable Preferred Stock. Subsequent to the
Recapitalization, Holdings does not expect to receive cash flow sufficient to
permit payments of dividends on the Exchangeable Preferred Stock in the
foreseeable future. All dividends not paid in cash will cumulate at the rate of
$3.52 per share per annum, without interest, until declared and paid. As such,
at February 3, 1996, the unpaid dividends of $55.9 million were accrued and
included in other noncurrent liabilities.
Pursuant to the Certificate of Stock Designation for the Exchangeable
Preferred Stock (the "Certificate of Designation"), the Company was required to
pay cash dividends to the Exchangeable Preferred Stockholders at an annual rate
of $3.52 per share beginning on January 15, 1993. The Certificate of Designation
provides that the Exchangeable Preferred Stock is non-voting except that if an
amount equal to six quarterly dividends is in arrears in whole, or in part, the
Exchangeable Preferred Stockholders voting as a class are entitled to elect an
additional two members to the Board of Directors
42
<PAGE>
SUPERMARKETS GENERAL HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 20--CUMULATIVE EXCHANGEABLE REDEEMABLE PREFERRED STOCK--(CONTINUED)
of the Company. The Company is currently in arrears on the payment of eleven
quarterly dividends. Accordingly, the exchangeable Preferred Stockholders at a
stockholders' meeting held on June 8, 1995, elected two members of the Company's
Board of Directors.
Dividends on the Exchangeable Preferred Stock must be paid in full for all
prior periods as of the most recent dividend payment date before any dividends,
other than dividends payable in shares of the Company's common stock or in any
other class of the Company's capital stock ranking junior to the Exchangeable
Preferred Stock, can be paid or can be set apart for payment to holders of
common stock or to holders of any other shares which would rank junior to the
Exchangeable Preferred Stock. In addition, dividends on the Exchangeable
Preferred Stock must be paid in full for all prior periods before the redemption
or purchase by the Company of shares of common stock or any other shares which
would rank junior to the Exchangeable Preferred Stock.
NOTE 21--COMMON STOCK
The Company's authorized common stock, par value $.01 per share, consists of
1,075,000 shares of Class A common stock and 1,000,000 shares of Class B common
stock, of which 650,675 shares and 320,000 shares, respectively, were issued and
outstanding at February 3, 1996 and at January 28, 1995.
Holders of shares of Class A common stock are entitled to one vote per share
on all matters to be voted on by stockholders. Holders of shares of Class B
common stock are not entitled to any voting rights, except as required by law or
as otherwise provided in the Restated Certificate of Incorporation of the
Company. Subject to compliance with certain procedures, holders of Class B
common stock may exchange their shares for shares of Class A common stock and
holders of Class A common stock may exchange their shares for shares of Class B
common stock on a share-for-share basis. Upon liquidation or dissolution of the
Company, holders of the Company's common stock are entitled to share ratably in
all assets available for distribution to stockholders. Payment of all prior
claims, including liquidation rights of any Exchangeable Preferred Stock
outstanding, must be made before the holders of the Company's common stock are
entitled to any distribution. Holders of the Company's common stock have no
preemptive or subscription rights.
On February 4, 1991, as a result of the consummation of the Exchange Offer,
all shares of the Company's Class A common stock and Class B common stock were
owned directly by SMG-II. SMG-II is effectively a holding company for the
operations of the Company (see Note 1).
The Company and certain executives of Supermarkets (collectively,
"Management Investors") entered into a management subscription agreement under
which, on October 5, 1987, the Management Investors purchased an aggregate of
100,000 shares of Class A common stock for consideration of $100 per share. In
connection with the Exchange Offer, the Management Investors entered into an
agreement (the "Management Investors Exchange Agreement") with respect to the
SMG-II common stock which was received in exchange for the Company's Class A
common stock. Prior to the Exchange Offer, all of the Class A common stock held
by Management Investors was classified as Redeemable Securities.
Certain Management Investors, who purchased shares of Class A common stock,
borrowed a portion of the purchase price from the Company and were required to
deliver a note to the Company ("Recourse Note") in the principal amount of the
loan (see Note 15). Interest on the Recourse Note is to be paid annually and the
principal is to be paid on the tenth anniversary of the date of issue. Each
Management Investor who issued a Recourse Note was required to enter into a
stock pledge agreement
43
<PAGE>
SUPERMARKETS GENERAL HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 21--COMMON STOCK--(CONTINUED)
("Stock Pledge Agreement") with the Company, pursuant to which the Management
Investor pledged shares of Class A common stock to secure the repayment of the
Recourse Note. In connection with the Exchange Offer, each Management Investor
who issued a Recourse Note was required to execute an amendment to the Stock
Pledge Agreement which provided for the substitution of the SMG-II common stock
received in the Exchange Offer for the Company Class A common stock, in order,
to secure the repayment of the Recourse Note. Recourse Notes in the amount of
approximately $1.7 million were outstanding at February 3, 1996 and January 28,
1995. The Recourse Notes were included in other assets at February 3, 1996 and
January 28, 1995.
NOTE 22--STOCK OPTION PLANS
The Management Investors 1987 Stock Option Plan (the "Management Plan") and
the 1987 Employee Stock Option Plan (the "Employee Plan") were approved by the
Board of Directors of the Company on November 24, 1987 and by the Stockholders
on December 21, 1987. Under the terms of the Management and the Employee Plans,
associates receive either incentive stock options or nonqualified stock options,
the duration of which may not exceed ten years from the date of grant, to
purchase shares of the Company's Class A common stock. In connection with the
Exchange Offer, adjustments to outstanding options under the Management and the
Employee Plans were made. As a result of these adjustments, each option under
the Management and the Employee Plans, which were outstanding on February 4,
1991, became an option for the purchase of an equal number of shares of SMG-II
Class A common stock.
NOTE 23--GAIN ON DISPOSAL OF HOME CENTERS SEGMENT AND DISCONTINUED OPERATIONS
On November 4, 1994, the Company's Plainbridge subsidiary completed the sale
of its home centers segment to Rickel Home Centers, Inc. ("Rickel") for
approximately $88.7 million in cash, plus the assumption of certain
indebtedness. During Fiscal 1994, the Company recognized a gain of $17.0 million
on the sale of the home centers segment, net of an income tax provision of $2.3
million. Such gain included a pension plan curtailment gain of $6.2 million and
a reduction in the deferred tax valuation allowance of $5.1 million, resulting
from the utilization of tax loss carryforwards for which reserves had previously
been provided. The Company used net cash proceeds of $66.6 million in Fiscal
1994 and $4.7 million in Fiscal 1995 to pay down the PTK DIBs, including accrued
interest and debt premium.
44
<PAGE>
SUPERMARKETS GENERAL HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 23--GAIN ON DISPOSAL OF HOME CENTERS SEGMENT AND DISCONTINUED
OPERATIONS--(CONTINUED)
Through the date of the sale, the Company reported the home centers segment
as discontinued operations. Operating results of such discontinued operations
were as follows (dollars in thousands):
FISCAL YEARS
--------------------
1994(A) 1993
-------- --------
Sales...................................... $271,989 $343,643
-------- --------
-------- --------
Loss before income taxes(b)................ $ (2,383) $ (1,169)
Income tax benefit......................... 284 522
-------- --------
Loss from discontinued operations.......... $ (2,099) $ (647)
-------- --------
-------- --------
- ------------
<TABLE>
<C> <S>
(a) Represents the results of operations related to the home centers segment from January
30, 1994 through November 3, 1994.
(b) The Company charged the home centers segment interest expense, which related to a
proportionate share of certain borrowings. These charges amounted to $11.0 million and
$13.1 million in Fiscal 1994 and Fiscal 1993 respectively, and are included in the
results of the discontinued operations.
</TABLE>
NOTE 24--COMMITMENTS AND CONTINGENCIES
In connection with the sale of its home centers segment the Company has, as
lessor, entered into leases for certain real property with Rickel, as tenant
(the "Leases"), pursuant to which the Company is entitled to receive annual
aggregate rentals of approximately $7.2 million. In addition, as part of the
sale, the company assigned to Rickel, and Rickel assumed, various liabilities of
the home centers segment, primarily third party leases (the "Assumed
Liabilities"). As of February 3, 1996, the estimated present value of
obligations under the Assumed Liabilities is approximately $33.0 million. In
January 1996, Rickel filed for bankruptcy protection under Chapter 11 of the
United States Bankruptcy Code. The bankruptcy is in its early stages and it is
too early to determine whether Rickel will reject any of the Leases or the
extent to which the Company may become liable with respect to the Assumed
Liabilities in the event of Rickel's nonpayment thereof.
In August 1991, the Company entered into a long-term agreement with ISSC, a
subsidiary of IBM, to provide a wide range of information systems services.
Under the agreement, ISSC has taken over the Company's data center operations
and mainframe processing and information system functions and is providing
business applications and systems designed to enhance the Company's customer
service and efficiency. The charges under this agreement are based upon the
services requested at predetermined rates. The Company may terminate the
agreement upon 90 days notice with payment of a specified termination charge.
The amounts expensed under this agreement in the accompanying consolidated
statements of operations were $21.0 million, $16.0 million and $12.6 million
during Fiscal 1995, Fiscal 1994 and Fiscal 1993, respectively. Further, in
Fiscal 1993, the Company expensed an additional $8.1 million of technical
information costs in connection with the Plainbridge Spin-Off which is included
in recapitalization expenses (see Note 25).
The Company is also a party to a number of legal proceedings in the ordinary
course of business. Management believes that the ultimate resolution of these
proceedings will not, in the aggregate, have a material adverse impact on the
financial condition, the results of operations or the business of the Company.
45
<PAGE>
SUPERMARKETS GENERAL HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 25--RECAPITALIZATION EXPENSES
In connection with the Plainbridge Spin-Off and the Recapitalization, the
Company recorded a pretax charge of approximately $23.7 million in the third
quarter of Fiscal 1993 to record estimated reorganization and restructuring
costs, including an early retirement program offered to certain Company
associates. During the fourth quarter of Fiscal 1993, the Company determined
that the estimated costs related to the reorganization and restructuring were
less than originally estimated and recorded a pretax credit of approximately
$7.1 million. Of the total net pretax charge of $16.6 million for Fiscal 1993,
$6.4 million related to the early retirement program and to the severance costs
incurred to reduce the Company's workforce, $8.1 million related to the
additional technical information systems costs incurred in order to accomplish
the Plainbridge Spin-Off (see Note 24) and $2.1 million related to the warehouse
and consulting costs associated therewith.
NOTE 26--PROVISION FOR STORE CLOSINGS
In the second quarter of Fiscal 1993, the Company made a decision to close
or to dispose of five stores which the Company believed would continue to be
unprofitable. As a result, the Company recorded a pretax charge in the second
quarter of Fiscal 1993 of approximately $6.0 million. The Company decided on
December 31, 1994 that two of the five stores would continue to be operated and,
therefore, the operating results for these two stores have been included in the
consolidated statements of operations. The remaining three stores were closed
during the fourth quarter of Fiscal 1994 and the related leases have been
assigned or sublet.
NOTE 27--LABOR DISPUTE
The Company's pretax earnings in the second quarter of Fiscal 1993 were
adversely impacted by a labor dispute and by the related promotional programs
implemented subsequent to such labor dispute. The related promotional programs
were implemented in order to regain sales levels. The Company, with three other
major supermarket companies (ShopRite, Foodtown and Grand Union), conducted
separate but simultaneous negotiations with respect to an expired labor
contract. The major issues of the contract concerned health care and related
benefits. On May 7, 1993, the union began selective strikes against one of the
Company's competitors. Over the course of the next three weeks, the labor
dispute expanded until, on May 28, 1993, union members at over 250 supermarkets,
including 53 Pathmark supermarkets, were either on strike or locked out. On May
29, 1993, the labor dispute was settled and, in June, the union membership
ratified a four-year contract and the membership returned to work.
NOTE 28--CUMULATIVE EFFECT OF FISCAL 1993 ACCOUNTING CHANGES
The Company made the following accounting changes in Fiscal 1993:
Inventory:
Effective January 31, 1993, the Company changed its method utilized to
calculate LIFO inventories. Prior to Fiscal 1993, the Company utilized a retail
approach to determine current cost and a general warehouse purchase index to
measure inflation in the cost of its merchandise inventories in its stores. The
Company's change arose from the development and utilization in Fiscal 1993 of
internal cost indices based on the specific identification of merchandise in its
stores to measure inflation in the prices, thereby eliminating the averaging and
estimation inherent in the retail and general warehouse purchase
46
<PAGE>
SUPERMARKETS GENERAL HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 28--CUMULATIVE EFFECT OF FISCAL 1993 ACCOUNTING CHANGES--(CONTINUED)
index methods. The Company believes the use of such specific costs and internal
indices results in a more accurate measurement of the impact of inflation in the
costs of its store merchandise. The effect of this change resulted in a charge
to income of $10.7 million, net of an income tax benefit of $7.8 million, and
has been presented as a cumulative effect of a change in accounting method in
the accompanying Fiscal 1993 consolidated statement of operations.
Postretirement Benefits other than Pensions:
Effective January 31, 1993, the Company adopted Statement of Financial
Accounting Standards No. 106, "Employers' Accounting for Postretirement Benefits
other than Pensions" which resulted in a charge to income of $15.6 million, net
of an income tax benefit of $11.3 million, immediately upon adoption.
Postemployment Benefits:
Effective January 31, 1993, the Company adopted Statement of Financial
Accounting Standards No. 112, "Employers' Accounting for Postemployment
Benefits" which resulted in a charge to income of $2.5 million, net of an income
tax benefit of $1.8 million, immediately upon adoption.
Income Taxes:
Effective January 31, 1993, the Company adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes", which had no effect
on the consolidated statements of operations, but resulted in a reclassification
of the current and noncurrent deferred taxes.
Present Value Discount Rate Determination:
Effective January 31, 1993, the Company made a change in the determination
of the discount rate utilized to record the present value of certain noncurrent
liabilities (self-insured liabilities and closed store liabilities) and reduced
such rate from 12%, representing the Company's effective interest rate, to a
risk free rate, estimated at 4%. The cumulative effect of this accounting change
as of January 31, 1993 totalled $11.6 million, net of an income tax benefit of
$8.4 million.
47
<PAGE>
SUPERMARKETS GENERAL HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 29--QUARTERLY FINANCIAL DATA (UNAUDITED)
Financial data for the interim periods of Fiscal 1995 and Fiscal 1994 is as
follows (dollars in thousands):
<TABLE>
<CAPTION>
13 WEEKS ENDED 14 WEEKS
------------------------------------- ENDED
APRIL 29, JULY 29, OCTOBER 28, FEBRUARY 3, FISCAL
1995 1995 1995 1996 1995
---------- ---------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C>
53 WEEKS ENDED FEBRUARY 3, 1996
Sales...................................... $1,033,185 $1,020,788 $ 992,039 $ 1,136,087 $4,182,099
Gross profit(a)............................ 297,323 294,455 282,542 341,829 1,216,149
Selling, general and administrative
expenses.................................. 233,493 233,342 229,469 254,684 950,988
Depreciation and amortization.............. 19,979 20,117 20,134 20,305 80,535
Operating Earnings......................... 43,851 40,996 32,939 66,840 184,626
Gain on disposition of freestanding drug
stores.................................... -- 15,535 -- -- 15,535
Gain on disposal of Purity................. -- -- -- 19,752 19,752
Interest expense........................... (43,170) (43,750) (41,879) (42,170) (170,969)
Earnings (loss) from operations before
income taxes and extraordinary items...... 681 12,781 (8,940) 44,422 48,944
Income tax benefit (provision)............. (101) 19,941 4,294 5,629 29,763
Earnings (loss) from operations before
extraordinary items....................... 580 32,722 (4,646) 50,051 78,707
Extraordinary items, net of an income tax
benefit................................... (252) (675) -- (1,253) (2,180)
Net earnings (loss)........................ $ 328 $ 32,047 $ (4,646) $ 48,798 $ 76,527
</TABLE>
<TABLE>
<CAPTION>
13 WEEKS ENDED
---------------------------------------------------
APRIL 30, JULY 30, OCTOBER 29, JANUARY 28, FISCAL
1994 1994 1994 1995 1994
---------- ---------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C>
52 WEEKS ENDED JANUARY 28, 1995
Sales...................................... $1,030,262 $1,036,061 $ 1,030,527 $ 1,092,349 $4,189,199
Gross profit(a)............................ 287,736 292,057 287,868 319,391 1,187,052
Selling, general and administrative
expenses.................................. 235,391 228,683 228,672 242,740 935,486
Depreciation and amortization.............. 18,303 18,499 18,714 20,116 75,632
Operating earnings......................... 34,042 44,875 40,482 56,535 175,934
Interest expense, net...................... (37,643) (39,291) (39,491) (43,388) (159,813)
Earnings (loss) from continuing operations
before income taxes, gain on disposal of
home centers segment and extraordinary
item...................................... (3,601) 5,584 991 13,147 16,121
Income tax provision....................... (42) (1,450) (920) (1,734) (4,146)
Earnings (loss) from continuing operations
before gain on disposal of home centers
segment and extraordinary item............ (3,643) 4,134 71 11,413 11,975
Earnings (loss) from discontinued
operations................................ (4,705) 2,802 (480) 284 (2,099)
Earnings (loss) before gain on disposal of
home centers segment and extraordinary
item...................................... (8,348) 6,936 (409) 11,697 9,876
Gain on disposal of home centers segment,
net....................................... -- -- -- 17,044 17,044
Extraordinary item, net of an income tax
benefit................................... -- -- -- (3,687) (3,687)
Net earnings (loss)........................ $ (8,348) $ 6,936 $ (409) $ 25,054 $ 23,233
</TABLE>
- ------------
(a) The pretax LIFO provision for Fiscal 1995 was $0.8 million in the first
quarter, $0.5 million in the second quarter and $0.8 million in the third
quarter. The annual provision was $1.1 million, resulting in a $1.0 million
credit in the fourth quarter.
(b) The pretax LIFO inventory provision for Fiscal 1994 was estimated to be a
$0.825 million provision in each of the first three fiscal quarters. The
annual credit was $0.7 million, and resulted in a $3.2 million credit in the
fourth quarter.
48
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholder
SUPERMARKETS GENERAL HOLDINGS CORPORATION
Woodbridge, New Jersey
We have audited the accompanying consolidated balance sheets of Supermarkets
General Holdings Corporation and its subsidiaries (the "Company") as of February
3, 1996 and January 28, 1995, and the related consolidated statements of
operations, stockholder's deficit and cash flows for each of the three years in
the period ended February 3, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on the financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Supermarkets General Holdings
Corporation and its subsidiaries as of February 3, 1996 and January 28, 1995,
and the results of their operations and their cash flows for each of the three
years in the period ended February 3, 1996 in conformity with generally accepted
accounting principles.
As discussed in Note 28 to the consolidated financial statements, the
Company changed its method of accounting for postretirement benefits other than
pensions, postemployment benefits, income taxes, LIFO inventories and the
determination of the discount rate utilized to record certain noncurrent
liabilities as of January 31, 1993.
DELOITTE & TOUCHE LLP
Parsippany, New Jersey
April 12, 1996
49
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY (AS OF APRIL 19, 1996)
(A) DIRECTORS OF THE COMPANY
The following table sets forth the name, principal occupation or employment
at the present time and during the last five years, and the name and principal
business of any corporation or other organization in which such occupation or
employment is or was conducted, of the directors of the Company, all of whom are
citizens of the United States unless otherwise indicated. Each individual named
below is a director of both the Company and Pathmark, except for Messrs.
Upchurch and Volla.
<TABLE>
<CAPTION>
DIRECTOR OF THE
COMPANY
NAME, AGE, PRINCIPAL OCCUPATION AND OTHER DIRECTORSHIPS SINCE(1)
- ------------------------------------------------------------------------------ ---------------
<S> <C>
JOHN W. BOYLE, 67, Chairman and Chief Executive Officer of the Company. Vice 1996
Chairman (retired), Eckerd Corporation, a drug store chain, between 1983 and
1995. Mr. Boyle is also a Director of Eckerd Corporation.(2)
JAMES J. BURKE, JR., 44, Partner and a Director of Stonington Partners, Inc. 1988
("SPI"), a private investment firm, since 1993, and a Director of Merrill
Lynch Capital Partners, Inc. ("MLCP") since 1987; Partner of MLCP from 1993
to 1994; President and Chief Executive Officer of MLCP from 1987 to 1993.
Mr. Burke was also a Managing Director of Merrill Lynch & Co. ("ML & Co.")
until 1994. Mr. Burke is also a Director of Ann Taylor Stores Corp.,
Borg-Warner Security Corp., Education Management Corp., United Artists
Theatre Circuit, Inc. and Wherehouse Entertainment, Inc.
ANTHONY J. CUTI, 50, Chairman and Chief Executive Officer of Duane Reade, 1993
Inc., a drug store chain (since April 1996); President of the Company from
August 1993 to April 1996, and Chief Financial Officer from October 1990 to
September 1994; Executive Vice President from October 1990 to August 1993.
U. PETER C. GUMMESON, 37, Managing Director of Alliance Corporate Finance 1996
Group, Incorporated, an investment firm affiliated with the Equitable Life
Assurance Society of the United States (the "Equitable") and an investment
officer of the Equitable. Mr. Gummeson is also a director of U.S.
Foodservice, Inc., RI Holdings Corp., and Sports Holdings Corp.
SUNIL C. KHANNA, 39, Principal of SPI since 1993; Principal of MLCP from 1993 1987
to 1994; Vice President of MLCP from 1989 to 1993; a Director of the
Investment Banking Division of ML & Co. from 1993 to 1994, and a Vice
President thereof prior thereto. Mr. Khanna is also a Director of Ithaca
Holdings, Inc.
STEPHEN M. McLEAN, 38, Partner and a Director of SPI since 1993; Partner of 1987
MLCP from 1993 to 1994; Senior Vice President of MLCP from 1987 to 1993;
Director of MLCP since 1987; Managing Director of the Investment Banking
Division of ML & Co. until 1994. Mr. McLean is also a Director of CMI
Industries, Inc., Dictaphone Corporation and Ithaca Holdings, Inc.
ALEXIS P. MICHAS, 38, Partner and a Director of SPI since 1993, and a Director 1994
of MLCP since 1989; Partner of MLCP from 1993 to 1994; Senior Vice President
of MLCP from 1989 to 1993; Managing Director of Investment Banking Division
of ML & Co. from 1991 to 1994; Director in the Investment Banking Division
of ML & Co. from 1990 to 1991. Mr. Michas is also a Director of Blue Bird
Corporation, Borg-Warner Automotive, Inc., Borg-Warner Security Corp.,
Dictaphone Corporation and Eckerd Corporation.
</TABLE>
50
<PAGE>
<TABLE>
<CAPTION>
DIRECTOR OF THE
COMPANY
NAME, AGE, PRINCIPAL OCCUPATION AND OTHER DIRECTORSHIPS SINCE(1)
- ------------------------------------------------------------------------------ ---------------
<S> <C>
JERRY G. RUBENSTEIN, 66, Managing Partner, Omni Management Associates; 1988
Consultant to MLCP since 1988.
JAMES B. UPCHURCH, 37, President and Chief Operating Officer of Libra 1995
Investments, Inc., an NASD licensed broker/dealer since June 1991;
President, Upchurch & Company, Inc. from February 1991 to May 1991; Senior
Vice President, Investments, Columbia Savings & Loan Association, prior
thereto.
STEVEN L. VOLLA, 49, Chairman and Chief Executive Officer of Primary Health 1995
Systems, L.P., a hospital management company, since June 1994; Chairman,
President and Chief Executive Officer of American Health Care Management,
Inc., prior thereto.
</TABLE>
- ------------
(1) Includes service with Pathmark's predecessor.
(2) Mr. Boyle was retained on March 20, 1996 to act as the Company's interim
Chairman and Chief Executive Officer until a successor is chosen. He
replaces Jack Futterman who retired on March 20, 1996.
Pursuant to the SMG-II Stockholders Agreement, the Merrill Lynch Investors
(as defined under "Principal Stockholders") are entitled to designate seven
directors, the Management Investors are entitled to designate three directors
and The Equitable Investors are entitled to designate one director to Holdings'
Board of Directors. By having the ability to designate a majority of Holdings'
Board of Directors, the Merrill Lynch Investors will have the ability to control
the Company. Currently, seven of the persons serving as directors were
designated by the Merrill Lynch Investors (Messrs. Boyle, Burke, Cuti, Khanna,
Michas, McLean and Rubenstein), none was designated by the Management Investors
and one was designated by the Equitable Investors (Mr. Gummeson). No family
relationship exists between any director and any other director or executive
officer of the Company.
(B) EXECUTIVE OFFICERS
The following table sets forth the name, principal occupation or employment
at the present time and during the last five years, and the name of any
corporation or other organization in which such occupation or employment is or
was conducted, of the executive officers of the Company, all of whom are
citizens of the United States unless otherwise indicated and serve at the
discretion of the Board of Directors of the Company. The executive officers of
the Company listed below were elected to office for an indefinite period of
time. No family relationship exists between any executive officer and any other
executive officer or director of the Company.
<TABLE>
<CAPTION>
OFFICER OF THE
COMPANY
NAME AGE POSITIONS AND OFFICE SINCE(1)
- -------------------- --- --------------------------------------------- --------------
<S> <C> <C> <C>
<CAPTION>
JOHN W. BOYLE 67 Chairman and Chief Executive Officer (since 1996
March 1996).(2)
NEILL CROWLEY 53 Executive Vice President--Distribution since 1994
May 1995; Executive Vice President--
Marketing from May 1994 to May 1995;
Executive Vice President--Marketing and
Store Support, The Vons Companies, Inc. (a
supermarket chain) prior thereto.
</TABLE>
51
<PAGE>
<TABLE>
<CAPTION>
OFFICER OF THE
COMPANY
NAME AGE POSITIONS AND OFFICE SINCE(1)
- -------------------- --- --------------------------------------------- --------------
<S> <C> <C> <C>
RON MARSHALL 42 Executive Vice President and Chief Financial 1994
Officer since October 1994. Senior Vice
President and Chief Financial Officer of
Dart Group Corporation (a diversified
retailer) from 1991 to September 1994. Vice
President and Chief Financial Officer of
Barnes and Noble Bookstores, Inc., prior
thereto.
ROBERT JOYCE 50 Executive Vice President--Operations (since 1989
January 1996; Senior Vice President--
Operations--from March 1995 to January 1996;
March 1995); Senior Vice President--
Administration prior thereto. Mr. Joyce
joined the Company in 1963.
RONALD RALLO 58 Executive Vice President--Merchandising 1993
(since May 1995; Senior Vice President--
Merchandising from July 1993 to May 1995);
Senior Vice President--Merchandising
Pathmark division (from September 1992 to
July 1993); Senior Vice
President--Perishable Merchandising,
Pathmark division prior thereto. Mr. Rallo
joined the Company in 1962.
JOSEPH W. ADELHARDT 49 Senior Vice President and Controller since 1987
January 1996; Vice President and Controller
prior thereto. Mr. Adelhardt joined the
Company in 1976.
HARVEY M. GUTMAN 50 Senior Vice President--Retail Development of 1990
the Company (since December 1991); Vice
President--Retail Development of the Company
(from October 1990 to December 1991); Vice
President--Grocery/Frozen Sales &
Merchandising, Pathmark division (from
January 1990 to September 1990); Vice
President--Non-Foods/Pharmacy Sales &
Merchandising, Pathmark division prior
thereto. Mr. Gutman joined the Company in
1976.
MAUREEN MCGURL 48 Vice President--Human Resources. Ms. McGurl 1984
joined the Company in 1973.
MARC A. STRASSLER 47 Vice President, Secretary and General Counsel 1987
(since December 1991); Secretary and General
Counsel prior thereto. Mr. Strassler joined
the Company in 1974.
MYRON D. WAXBERG 62 Vice President and General Counsel--Real 1991
Estate (since December 1991); General
Counsel--Real Estate prior thereto. Mr.
Waxberg joined the Company in 1976.
</TABLE>
- ------------
(1) Includes service with Pathmark's predecessor.
(2) Member of the Company's Board of Directors.
52
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
------------
ANNUAL COMPENSATION AWARDS
----------------------------------- ------------
SECURITIES
OTHER ANNUAL UNDERLYING ALL OTHER
COMPENSATION OPTIONS/ COMPENSATION
NAME AND PRINCIPAL POSITION FY SALARY ($) BONUS ($) ($)(1) SARS (2) ($)(3)
- ------------------------------------- ------ ---------- --------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Jack Futterman(4).................... 1995 526,442 332,658 -- -- 5,250
Chairman and Chief Executive 1994 491,346 92,127 -- -- 5,250
Officer 1993 462,539 138,762 -- -- 8,254
Anthony J. Cuti(5)................... 1995 325,500 205,396 -- -- 5,250
President 1994 306,750 57,516 -- -- 5,250
1993 280,250 76,260 -- 3,000 8,254
Neill Crowley........................ 1995 247,212 112,241 -- -- 4,341
Executive Vice President--Logistics 1994 168,712 21,089 -- 1,000 --
Ron Marshall......................... 1995 280,289 168,173 -- -- --
Executive Vice President and Chief 1994 89,904 53,942 -- 2,000 --
Financial Officer
Ronald Rallo......................... 1995 227,500 113,585 4,399 -- 5,250
Executive Vice President-- 1994 200,385 21,141 4,265 -- 5,250
Merchandising 1993 177,500 42,600 4,311 750 8,098
</TABLE>
- ------------
(1) Represents payments as reimbursement for interest paid to Holdings for a
loan of less than $60,000 from Holdings in connection with the purchase of
SMG-II Class A Common Stock and includes an amount sufficient to pay any
income taxes resulting therefrom after taking into account the value of any
deduction available as a result of the payment of such interest and taxes.
(2) Stock options shown were granted pursuant to the Management Investors 1987
Stock Option Plan of SMG-II (the "Plan") and relate to shares of Class A
Common Stock of SMG-II.
(3) Represents Pathmark's matching contribution to the SGC Savings Plan (the
"Savings Plan").
(4) Mr. Futterman, 62, retired on March 20, 1996.
(5) Mr. Cuti resigned as President on April 10, 1996.
None of the executive officers named in the above Compensation table were
granted stock options in the fiscal year ended February 3, 1996.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION/SAR VALUES(1)
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES
UNDERLYING
UNEXERCISED
OPTIONS/SARS
AT FY-END(#)
EXERCISABLE/
NAME UNEXERCISABLE
- ----------- ------------
<S> <C>
Jack Futterman.............................................................. 13,000/0
Anthony J. Cuti............................................................. 5,800/0
Neill Crowley............................................................... 666/334
Ron Marshall................................................................ 1,350/650
Ronald Rallo................................................................ 2,850/0
</TABLE>
- ------------
(1) Options shown were granted pursuant to the Plan and relate to shares of
Class A Common Stock of SMG-II. No options were exercised in Fiscal 1995 by
any of the above named executives.
53
<PAGE>
PENSION PLAN TABLE(1)
<TABLE>
<CAPTION>
YEARS OF SERVICE
-------------------------------------------------------------------
FINAL AVERAGE PAY 10 15 20 25 30 35
- ----------------------------- ------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
$150,000..................... $20,000 $ 30,000 $ 40,000 $ 50,000 $ 60,000 $ 60,000
200,000..................... 26,667 40,000 53,333 66,667 80,000 80,000
225,000..................... 30,000 45,000 60,000 75,000 90,000 90,000
250,000..................... 33,333 50,000 66,667 83,333 100,000 100,000
300,000..................... 40,000 60,000 80,000 100,000 120,000 120,000
350,000..................... 46,667 70,000 93,333 116,667 140,000 140,000
400,000..................... 53,333 80,000 106,667 133,333 160,000 160,000
450,000..................... 60,000 90,000 120,000 150,000 180,000 180,000
500,000..................... 66,667 100,000 133,333 166,667 200,000 200,000
550,000..................... 73,333 110,000 146,667 183,333 220,000 220,000
600,000..................... 80,000 120,000 160,000 200,000 240,000 240,000
650,000..................... 86,667 130,000 173,333 216,667 260,000 260,000
700,000..................... 93,333 140,000 186,667 233,333 280,000 280,000
750,000..................... 100,000 150,000 200,000 250,000 300,000 300,000
</TABLE>
- ------------
(1) The table above illustrates the aggregate annual pension benefits payable
under the SGC Pension Plan and Excess Benefit Plan (collectively, the
"Pension Plans"). The retirement benefit for individuals with 30 years of
credited service is 40% of the individual's average compensation during his
or her highest five compensation years in the last ten years before
retirement, less one-half of the social security benefit received. The
retirement benefit is reduced by 3.33% for every year of credited service
less than 30. Covered compensation under the Pension Plans includes all cash
compensation subject to withholding plus amounts deferred under the Savings
Plan pursuant to Section 401(k) of the Internal Revenue Code of 1986, as
amended, and as to individuals identified in the Summary Compensation Table,
would be the amount set forth in that table under the headings "Salary" and
"Bonus". The table shows the estimated annual benefits an individual would
be entitled to receive if normal retirement at age 65 occurred in January
1996 after the indicated number of years of covered employment and if the
average of the participant's covered compensation for the five years out of
the last ten years of such employment yielding the highest such average
equalled the amounts indicated. The estimated annual benefits are based on
the assumption that the individual will receive retirement benefits in the
form of a single life annuity (married participants may elect a joint
survivorship option) and are before applicable deductions for social
security benefits in effect as of January 1996. As of December 31, 1995, the
following individuals had the number of years of credited service indicated
after their names: Mr. Futterman, 22.6; Mr. Cuti, 4.0; Mr. Crowley, 0.5; Mr.
Rallo, 30 and Mr. Marshall, 0.0. As described below in "Compensation Plans
and Arrangements--Supplemental Retirement Agreements", each of the named
executives is party to a Supplemental Retirement Agreement with Pathmark.
COMPENSATION PLANS AND ARRANGEMENTS
Supplemental Retirement Agreements. The Company has entered into
supplemental retirement agreements with certain key executives, including the
executive officers named in the Summary Compensation Table, which provide that
the executive will be paid upon termination of employment after attainment of
age 60 a supplemental pension benefit in such an amount as to assure him or her
an annual amount of pension benefits payable under the supplemental retirement
agreement, the Company's qualified pension plans and certain other plans of the
Company, including Savings Plan balances as of March 31, 1983, (a) in the case
of Mr. Futterman, equal to $525,000, (b) in the case of Mr. Cuti equal to 30% of
his final average Compensation (as hereinafter defined) based on ten years of
service with the Company and increasing 1% per year for each year of service
thereafter to a maximum of 40% of his final average Compensation based on 20
years of service, (c) in the case of Mr. Rallo equal to (i) 30% of his final
average Compensation based on ten years of service with the Company and
increasing 1% per year for each year of service thereafter, to a maximum of 40%
of his final average Compensation based on 20 years of service, or (ii)
$150,000, whichever is less, and (d) in the case of Messrs. Crowley and
Marshall, equal to 12.5% of his final average Compensation based on five years
of
54
<PAGE>
service with the Company and increasing 2.5% per year for each year of service
thereafter to a maximum of 35% of his final average Compensation based on 14
years of service. "Compensation" includes base salary and payments under the
Executive Incentive Plan, but excludes Company matching contributions under the
Savings Plan and cash awards under Old Supermarkets' former Long-Term Incentive
Plan. If the executive leaves the Company prior to completing 20 years of
service (other than for disability), the supplemental benefit would be reduced
proportionately. Should the executive die, the surviving spouse then receiving
or, if he or she was not then receiving a supplemental pension benefit, the
spouse would be entitled to a benefit equal to two-thirds of the benefit to
which the executive would have been entitled, provided the executive has
attained at least ten years of service with the Company. Pursuant to the
Termination Agreement (as hereinafter defined), Mr. Cuti shall be credited with
20 years of Vesting Service for purposes of his Supplemental Retirement
Agreement.
Employment Agreements: As of May 23, 1994, the Company entered into an
employment agreement with Mr. Crowley. As of September 9, 1994, the Company
entered into an employment agreement with Mr. Marshall. As of June 1, 1995, the
Company entered into an employment agreement with Mr. Rallo. The three above
mentioned employment agreements are hereinafter referred to collectively as the
"Employment Agreements". Each of the Employment Agreements is for an initial
term of 26 months, 28 months and two years for Messrs. Crowley, Marshall and
Rallo, respectively. The term of each Employment Agreement is automatically
extended for an additional year on (a) August 1, 1996 for Mr. Crowley and on
each successive August 1st thereafter; (b) February 1, 1997 for Mr. Marshall and
on each successive February 1st thereafter, and (c) June 1, 1996 for Mr. Rallo
and on each successive June 1st thereafter. Under the terms of his respective
Employment Agreement, each executive is entitled to a minimum annual base salary
of (a) $245,000 for Mr. Crowley; (b) $300,000 for Mr. Marshall, and (c) $245,000
for Mr. Rallo, which salary is subject to upward adjustment by the Company. The
Employment Agreements also provide that each executive shall be entitled to
receive an annual bonus of up to 60% of his annual base salary and shall be
provided the opportunity to participate in pension and welfare plans, programs
and arrangements that are generally made available to executives of Pathmark or
as may be deemed appropriate by the Compensation Committee of the Board of
Directors of SMG-II.
In the event one of the three above named executives' employment is
terminated by the Company without Cause (as defined in the Employment
Agreements), or by the executive for Good Reason (as defined in the Employment
Agreements) prior to the termination of the applicable Employment Agreement,
such executive will be entitled to continue to receive his base salary and
continued coverage under health and insurance plans for the period commencing on
the date of such termination or resignation through the date the applicable
Employment Agreement would have expired had it not been automatically renewed
but for said termination or resignation, reduced by any compensation or benefits
which the executive is entitled to receive in connection with his employment by
another employer during said period.
The Employment Agreements contain agreements by the executives not to
compete with the Company as long as they are receiving payments under an
employment agreement and an agreement by the executives not to disclose
confidential information.
On March 20, 1996 (the "Effective Date"), Mr. Futterman retired as Chairman
and Chief Executive Officer of the Company. Pursuant to an agreement entered
into as of said date (the "Retirement Agreement"), Mr. Futterman will be
entitled to receive his base salary at the annual rate of $525,000 per year
during the period, commencing on the day following the Effective Date and ending
on July 31, 1998, or the date of his death, if earlier (the "Benefit Period"),
plus the bonus or bonuses attributable to the financial targets set forth for
the Company under its Executive Incentive Plan ("EIP") that he would have earned
(a maximum of 75% of base salary) had his employment continued through the
Benefit Period, subject to the Company reaching the applicable financial targets
set under the EIP or any other bonus plan; provided however, that the minimum
bonus paid for each fiscal year of the Company ending during the Benefit Period
shall not be less than 25% of the 75% target amount. Additionally, Mr. Futterman
will be entitled to receive continued health coverage through the Benefit
55
<PAGE>
Period under the Company's health and insurance plans applicable to him
immediately prior to the Effective Date. Each of the above described payments
and benefits shall be reduced by any compensation or benefits he is entitled to
receive in connection with any employment by another employer during the Benefit
Period; provided, however, that such reduction shall not apply to the first
$100,000 of compensation and benefits earned by Mr. Futterman for any calendar
year during the Benefit Period. The Retirement Agreement also provides that Mr.
Futterman shall be entitled to be reimbursed by the Company for secretarial and
office expenses incurred by him during the two year period beginning September
1, 1996, up to $30,000 per year (or an aggregate reimbursement of $60,000).
Additionally, pursuant to the terms of the Retirement Agreement, the Company
made a cash lump sum payment to Mr. Futterman of $1.5 million on April 1, 1996.
Mr. Futterman has agreed to be available to consult with the Company through
December 31, 1996 and not to compete with the Company during the period
commencing with the Effective Date and ending December 31, 1996.
On April 10, 1996 (the "Termination Date"), Mr. Cuti resigned as President
of the Company. Pursuant to an agreement entered into as of said date (the
"Resignation Agreement"), Mr. Cuti will be entitled to receive his base salary
at the annual rate of $325,000 per year during the period commencing on the day
following the Termination Date and ending on the second anniversary of the
Termination Date, or the date of his death, if earlier (the "Severance Period"),
plus the bonus or bonuses attributable to the financial targets set forth for
the Company under the EIP that he would have earned (a maximum of 75% of base
salary) had his employment continued through the Severance Period, subject to
the Company reaching the applicable financial targets set under the EIP or any
other bonus plan; provided, however, that the minimum bonus paid for each fiscal
year of the Company ending during the Severance Period shall not be less than
25% of the 75% target amount. Additionally, Mr. Cuti will be entitled to receive
continued health coverage through the Severance Period under the Company's
health and insurance plans applicable to him immediately prior to the
Termination Date. Each of the above described payments shall be reduced by any
compensation or benefits he is entitled to receive in connection with any
employment by another employer during the Severance Period; provided, however,
that such reduction shall not apply to the first $100,000 of compensation earned
by Mr. Cuti during the twelve-month period following the Termination Date and
the first $100,000 of compensation earned during the twelve-month period
following the first anniversary of the Termination Date. Additionally, pursuant
to the terms of the Resignation Agreement, the Company shall make a cash lump
sum payment to Mr. Cuti of $0.5 million on or before April 30, 1996 and shall
credit him with 20 years of vesting service for purposes of determining his
benefit under his Supplemental Retirement Agreement. Mr. Cuti has agreed not to
compete with the Company during the period commencing with the Termination Date
and ending December 31, 1996, except for his employment with Duane Reade, Inc.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Messrs. Burke, Khanna and McLean comprise the compensation committee of the
Board of Directors of SMG-II, and were responsible for decisions concerning
compensation of the executive officers of the Company. Messrs. Burke and McLean
are directors of MLCP and they, along with Mr. Khanna, have been retained by
MLCP as consultants. MLCP is an indirect wholly-owned subsidiary of ML & Co. See
"Security Ownership of Certain Beneficial Ownership and Management."
COMPENSATION OF DIRECTORS
Each director who is not employed by the Company or one of its subsidiaries,
SPI or the Equitable Investors or its affiliates receives an annual retainer of
$20,000 per year, plus travel expenses.
56
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
As of April 15, 1996, all shares of the Company's capital stock is held by
PTK. All of PTK's capital stock is held by Holdings. Since February 4, 1991, all
shares of the Holdings Common Stock are held by SMG-II. As of April 15, 1996,
the number of shares of SMG-II (i) Class A Common Stock, (ii) Class B Common
Stock, (iii) Series A Preferred Stock, and (iv) Series B Preferred Stock
beneficially owned by the persons known by management of the Company to be the
beneficial owners of more than 5% of the outstanding shares of any class as
"beneficial ownership" has been defined under Rule 13d-3, as amended, under the
Securities Exchange Act of 1934, are set forth in the following table:
<TABLE>
<CAPTION>
NUMBER % OF
NAME OF SHARES CLASS
---------- --------- --------
<S> <C> <C>
SMG-II Class A Common Stock
Merrill Lynch Capital Appreciation Partnership No. IX, L.P.(2)..... 488,704.8 67.7
ML Offshore LBO Partnership No. IX(2).............................. 12,424.7 1.7
Barfield House
St. Julians Avenue
St. Peter Port
Guernsey
Channel Islands
ML Employees LBO Partnership No. I, L.P.(2)........................ 12,148.6 1.7
ML IBK Positions, Inc.(3).......................................... 21,258.9 2.9
Merchant Banking L.P. No. 1(3)..................................... 8,119 1.1
Merrill Lynch KECALP L.P. 1987(3).................................. 7,344 1.0
CBC Capital Partners, Inc.(4)...................................... 30,000 4.2
270 Park Avenue
New York, NY 10017
Management and other employees (including former employees of
Pathmark)............................................................ 146,884 (1) 20.2
301 Blair Road
Woodbridge, NJ 07095
SMG-II Class B Common Stock
The Equitable Life Assurance Society of the United States(5)....... 114,000 35.6
c/o Alliance Corporate Finance Group Incorporated
1345 Avenue of the Americas, 39th Floor
New York, NY 10005
Equitable Deal Flow Fund, L.P.(5).................................. 150,000 46.9
c/o Alliance Corporate Finance Group Incorporated
1345 Avenue of the Americas, 39th Floor
New York, NY 10005
Equitable Variable Life Insurance Company(5)....................... 36,000 11.3
c/o Alliance Corporate Finance Group Incorporated
1345 Avenue of the Americas, 39th Floor
New York, NY 10005
CBC Capital Partners, Inc.(4)...................................... 20,000 6.2
SMG-II Series A Preferred Stock(6)
Merrill Lynch Capital Appreciation Partnership No. B-X, L.P.(2).... 133,043 56.2
ML Offshore LBO Partnership No. B-X(2)............................. 40,950 17.3
MLCP Associates, L.P. No. II(2).................................... 1,740 .7
ML IBK Positions, Inc.(3).......................................... 46,344.5 19.6
Merchant Banking L.P. No. IV(3).................................... 3,779 1.6
Merrill Lynch KECALP L.P. 1989(3).................................. 7,000 3.0
Merrill Lynch KECALP L.P. 1991(3).................................. 3,874.5 1.6
SMG-II Series B Preferred Stock(6)
CBC Capital Partners, Inc.(4)...................................... 12,500 6.9
Equitable Variable Life Insurance Company(5)....................... 20,192 11.2
The Equitable Life Assurance Society of the United States(5)....... 63,942 35.4
Equitable Deal Flow Fund, L.P.(5).................................. 84,135 46.5
</TABLE>
(footnotes on following page)
57
<PAGE>
(footnotes for preceding page)
- ------------
(1) Includes presently exercisable options granted under the Plan for 73,759
shares of SMG-II Class A Common Stock held by Management Investors and 250
shares of SMG-II Class A Common Stock that SMG-II has agreed to sell to a
former employee of the Company and 250 shares to Mr. Cuti. Does not include
39,187 options to purchase shares of SMG-II Class A Common Stock granted to
non-management employees of the Company, which options are not exercisable
until a public offering of SMG-II Common Stock occurs.
(2) MLCP and its affiliates are the direct or indirect managing partners of ML
Offshore LBO Partnership No. IX, Merrill Lynch Capital Appreciation
Partnership No. IX, L.P., ML Employees LBO Partnership No. 1, L.P., Merrill
Lynch Capital Appreciation Partnership No. B-X, L.P., ML Offshore LBO
Partnership No. B-X and MLCP Associates, L.P. No. II. Such entities and
those disclosed in footnote (3) below, are referred to herein as the
"Merrill Lynch Investors" or ML Investors. The address of such entities is
c/o Merrill Lynch Capital Partners, Inc., in care of Stonington Partners,
Inc., 767 Fifth Avenue, New York, New York 10153. MLCP is an indirect wholly
owned subsidiary of ML&Co. The partners and principals of SPI (including
Messrs. Burke, Michas, McLean and Khanna) are consultants to MLCP.
(3) Merchant Banking L.P. No. 1, Merchant Banking L.P. No. IV, Merrill Lynch
KECALP L.P. 1987, Merrill Lynch KECALP L.P. 1989, Merrill Lynch KECALP L.P.
1991 and ML IBK Positions, Inc. are indirectly controlled by ML&Co. The
address of such entities is c/o James Caruso, Merrill Lynch & Co., Inc.,
World Financial Center, South Tower, New York, New York 10080-6123.
(4) CBC Capital Partners, Inc. is an affiliate of Chase Manhattan Corp.
(5) The Equitable Investors are separate purchasers who are affiliates of each
other.
(6) SMG-II Preferred stock may be converted into an equivalent number of shares
of common stock of SMG-II in accordance with its terms.
No officer or director claims beneficial ownership of any share of Holdings
Common Stock or of SMG-II stock other than SMG-II Class A Common Stock. The
number of shares of SMG-II Class A Common Stock and Holdings Preferred Stock
beneficially owned by each director, by each nominee for director, by each of
the five highest compensated executive officers and by all directors and all
current and executive officers as a group is as follows:
<TABLE>
<CAPTION>
SMG-II CLASS A
COMMON STOCK HOLDINGS PREFERRED
NAME NUMBER OF SHARES % OF CLASS NUMBER OF SHARES % OF CLASS
---------- ---------------- ---------- ------------------ ----------
<S> <C> <C> <C> <C>
John W. Boyle....................... -- -- -- --
James J. Burke, Jr.(1) ............. -- -- -- --
Anthony J. Cuti(2).................. 6,050 * -- --
Jack Futterman(2)................... 23,000 3.1 -- --
Neill Crowley(2).................... 666 * -- --
U. Peter C. Gummeson................ -- -- -- --
Sunil C. Khanna..................... 700 * -- --
Stephen M. McLean(1)................ -- -- -- --
Alexis P. Michas(1)................. -- -- -- --
Ron Marshall(2)..................... 1,350 * -- --
Ronald Rallo(2)..................... 3,250 * 966 *
Jerry G. Rubenstein(2).............. 2,500 * -- --
James B. Upchurch................... -- -- -- --
Steven L. Volla..................... -- -- -- --
Directors and Executive Officers as
a group(1)(2)..................... 50,751 6.9 966 *
</TABLE>
(footnotes on following page)
58
<PAGE>
(footnotes for preceding page)
- ------------
* Less than 1%
(1) Does not include 550,000 shares of SMG-II Class A Common Stock or 236,731.5
shares of SMG-II Series A Preferred Stock owned beneficially by a group of
which MLCP is a part. Messrs. Burke, McLean and Michas, directors of MLCP,
disclaim beneficial ownership in all such shares.
(2) Includes 250 shares of SMG-II Class A Common Stock that SMG-II has agreed to
sell to Mr. Cuti and presently exercisable options granted under the Plan to
purchase shares of SMG-II Class A Common Stock, as follows: Mr. Cuti, 5,800;
Mr. Futterman, 13,000; Mr. Crowley, 666; Mr. Marshall, 1,350; Mr. Rallo,
2,850 and Mr. Rubenstein, 1,000, and all directors and officers as a group,
33,951.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During Fiscal 1995, the Company retained ML & Co. to advise it in connection
with its sale of its drug stores. The Company believes that the terms of the
transactions referred to under this paragraph are no less favorable than those
obtainable in transactions with unrelated persons. See "Security Ownership of
Certain Beneficial Owners and Management".
In connection with the sale of its drug store business, PTK, the Company's
parent, used approximately $21.8 million of the sale proceeds to partially
prepay certain indebtedness, including accrued interest and debt premium, held
by the Equitable Investors. Mr. Gummeson, a director of the Company, is an
executive officer of a subsidiary of the Equitable Life Assurance Society of the
United States. See Item 12 "Security Ownership of Certain Beneficial Owners and
Management".
The holders of SMG-II Preferred Stock are a party with the holders of SMG-II
Common Stock to a stockholders agreement (the "SMG-II Stockholders Agreement"),
which, among other things, restricts the transferability of SMG-II capital stock
and relates to the corporate governance of SMG-II and Holdings. Among other
provisions, the SMG-II Stockholders Agreement requires a vote of at least 80% of
the members of the Board of Directors to cause the Company to conduct any
business other than that engaged in by the Company in February of 1991 and the
approval of stockholders representing 66 2/3% of the number of shares of SMG-II
voting capital stock voting together as a single class for SMG-II to enter into
any Significant Transaction (as defined), including certain mergers, sales of
assets, acquisitions, sales or redemptions of stock, the amendment of the
certificate of incorporation or by-laws or the liquidation of SMG-II. The SMG-II
Stockholders Agreement also provides that SMG-II must obtain the prior written
consent of the Equitable Investors with respect to certain of these transactions
and that the Equitable Investors have certain preemptive rights with respect to
the sale of capital stock of Holdings or the Company.
The SMG-II Stockholders Agreement also contains an agreement of the
stockholders of SMG-II with respect to the composition of SMG-II's and Holdings'
Boards of Directors. Under this agreement, the Merrill Lynch Investors will be
entitled to designate up to seven directors, the Management Investors will be
entitled to designate up to three directors and the Equitable Investors will be
entitled to designate one director to both of SMG-II's and Holdings' Boards of
Directors. Such agreement furthermore entitles the Merrill Lynch Investors to
designate a majority of Holdings' Board of Directors at all times. Since
Holdings (through PTK) owns all of the outstanding shares of the Company's
Common Stock, by having the ability to designate a majority of Holdings' Board
of Directors, the Merrill Lynch Investors will have the ability to control the
Company. The Merrill Lynch Investors are controlled by ML&Co.
In addition to the foregoing, the SMG-II Stockholders Agreement contains
terms restricting the transfer of SMG-II Common Stock and SMG-II Preferred Stock
(collectively, the "SMG-II Stock") by the stockholders of SMG-II, and providing
to the stockholders of SMG-II rights of first offer with respect to resales of
SMG-II Stock, rights of first refusal with respect to certain issuances of
shares of
59
<PAGE>
SMG-II Stock, certain rights to demand or participate in registrations of shares
of SMG-II Stock under the Securities Act and certain "tag-along" rights.
The Company retained John W. Boyle, a Director of the Company, to act as its
interim Chairman and Chief Executive Officer for the period of March 20, 1996
through June 30, 1996 (the "Transition Period"). Under the terms of the
consulting arrangement between the Company and Mr. Boyle, the Company shall pay
Mr. Boyle a consulting fee of $41,667 per month plus living and travel expenses
during the Transition Period. In addition, Mr. Boyle will be entitled to a
completion bonus of $100,000 if he is still serving in the above capacities when
a new Chief Executive Officer is hired.
In March 1990, Jerry G. Rubenstein, a Director, borrowed from Holdings
$100,000 in order to help finance his purchase of Holdings' Class A Common
Stock. Subsequently, such shares of Holdings' Class A Common Stock were
exchanged for shares of SMG-II Class A Common Stock. The foregoing indebtedness
to Holdings is evidenced by a full recourse promissory note (the "Recourse
Note"). The Recourse Note is for a term of ten years and bears interest at the
rate of 8.02% per annum, payable annually. Except as otherwise provided in the
Recourse Note, no principal on such recourse loan shall be due and payable until
the tenth anniversary of the date of issue of such Recourse Note. Under the
terms of the agreement pursuant to which the shares of Holdings' Class A Common
Stock were exchanged for shares of SMG-II Class A Common Stock, the Company is
obligated to pay to each Management Investor who pays interest on his Recourse
Note (except under certain circumstances) an amount equal to such interest, plus
an amount sufficient to pay any income taxes resulting from the above described
payment after taking into account the value of any deduction available to him as
a result of the payment of such interest or taxes. As of April 1, 1996, Mr.
Rubenstein remained indebted to Holdings in the amount of $100,000.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) Documents filed as part of this Report.
1. Financial Statements Schedules: None required
2. Exhibits:
Incorporated herein by reference is a list of the Exhibits
contained in the Exhibit Index on Pages 62 through 65 of this
Report.
(b) Reports on Form 8-K.
(c) Exhibits required by Item 601 of Regulation S-K.
See item 14(a) 3 above.
60
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Dated: May 2, 1996 SUPERMARKETS GENERAL HOLDINGS
CORPORATION
By: /s/ Ron Marshall
..................................
Ron Marshall
Executive Vice President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- -------------------------------------- -------------------------------------- ------------
<S> <C> <C>
/s/ John W. Boyle
...................................... Director, Chairman and Chief May 2, 1996
(John W. Boyle) Executive Officer
(Principal Executive Officer)
/s/ Ron Marshall
...................................... Executive Vice President and Chief May 2, 1996
(Ron Marshall) Financial Officer (Principal
Financial Officer)
/s/ Joseph Adelhardt
...................................... Senior Vice President and Controller May 2, 1996
(Joseph Adelhardt) (Principal Accounting Officer)
JAMES J. BURKE, JR. Director* May 2, 1996
......................................
(James J. Burke, Jr.)
ANTHONY J. CUTI Director* May 2, 1996
......................................
(Anthony J. Cuti)
SUNIL C. KHANNA Director* May 2, 1996
......................................
(Sunil C. Khanna)
STEPHEN M. MCLEAN Director* May 2, 1996
......................................
(Stephen M. McLean)
U. PETER C. GUMMESON Director* May 2, 1996
......................................
(U. Peter C. Gummeson)
ALEXIS P. MICHAS Director* May 2, 1996
......................................
(Alexis P. Michas)
JERRY G. RUBENSTEIN Director* May 2, 1996
......................................
(Jerry G. Rubenstein)
JAMES B. UPCHURCH Director* May 2, 1996
......................................
(James B. Upchurch)
STEVEN L. VOLLA Director* May 2, 1996
......................................
(Steven L. Volla)
</TABLE>
*By: /s/ Marc A. Strassler
...........................................................................
Marc A. Strassler
Attorney-in-Fact
61
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT PAGE
NO. EXHIBIT NO.
- -------- ----------- ----
<C> <S> <C>
2.1 --Distribution and Transfer Agreement among Pathmark, PTK and
Plainbridge (incorporated by reference from the Annual Report on
Form 10-K of the Company for the year ended January 29, 1994.).....
2.2 --Distribution and Transfer Agreement dated as of May 3, 1993 among
Pathmark, the Company and Chefmark. (incorporated by reference from
Exhibit 2.2 to the Registration Statement on Form S-1 of the
Company and Pathmark, File No. 33-59616 the "1993 Registration
Statement") (incorporated by reference from the Annual Report on
Form 10-K of the Company for the year ended January 29, 1994.).....
2.3 --Agreement and Plan of Merger dated as of April 22, 1987 by and
among Old Supermarkets, SMG Acquisition Corporation and Holdings,
as amended and restated (incorporated by reference from Exhibit 2
to the Registration Statement on Form S-1 of the Company, File No.
33-16963)..........................................................
2.4 --Agreement and Plan of Merger dated as of July 29, 1991 among
Holdings, Purity Supreme, Inc. and PSLP Holding Corporation
(incorporated by reference from Exhibit 10.55 to the Registration
Statement on Form S-1 of the Company, No. 33-16963)................
2.5 --Amendment No. 1 dated as of October 23, 1991 to the Agreement and
Plan of Merger dated as of July 29, 1991 among the Company, Purity
Supreme, Inc. and PSLP Holding Corporation (incorporated by
reference from Exhibit 2.2 to the Current Report on Form 8-K of the
Company dated December 17, 1991)...................................
3.1 --Restated Certificate of Incorporation of the Company, as amended.
(incorporated by reference from Exhibit 3.3 to the Registration
Statement on Form S-1 of Pathmark, File No. 33-59612, the "October
1993 Registration Statement")......................................
3.2 --Amendment to the Restated Certificate of Incorporation of the
Company, as amended. (incorporated by reference from Exhibit 3.2 to
the October Registration Statement)................................
3.3 --By-Laws of the Company, as amended. (incorporated by reference from
Exhibit 3.6 to the 1993 Registration Statement)....................
3.4 --Restated Certificate of Incorporation of the Company, as amended.
(incorporated by reference from Exhibit 3.4 to the 1993
Registration Statement)............................................
3.5 --Certificate of Designation of the $3.52 Cumulative Exchangeable
Redeemable Preferred Stock of Holdings. (incorporated by reference
from Exhibit 3.5 to the 1993 "Registration Statement").............
4.1 --Indenture dated as of May 1, 1992 between the Company and
Wilmington Trust Company, Trustee, relating to the 11 5/8%
Subordinated Notes due 2002 of Holdings (incorporated by reference
from the Annual Report on Form 10-K of the Company for the year
ended January 29, 1994.)...........................................
4.2 --Supplemental Indenture between the Company and Wilmington Trust
Company, Trustee, to the Indenture dated as of May 1, 1992 between
Holdings and Wilmington Trust Company, Trustee, relating to the 11
5/8% Subordinated Notes dues 2002 of Holdings (incorporated by
reference from the Annual Report on Form 10-K of the Company for
the year ended January 29, 1994.)..................................
4.3 --Commitment Letter dated March 12, 1993 between the Company and
Bankers Trust Company. (incorporated by reference from Exhibit 4.4B
to the 1993 Registration Statement)................................
</TABLE>
62
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT PAGE
NO. EXHIBIT NO.
- -------- --------- ----
<C> <S> <C>
4.4 --Credit Agreement among Pathmark, the Lenders, listed therein, and
Banker's Trust Company as Agent (incorporated by reference from the
Annual Report on Form 10-K of the Company for the year ended
January 29, 1994.).................................................
4.4A --First Amendment to the Credit Agreement (incorporated by reference
from Pathmark Stores, Inc. Form 8-K dated March 15, 1996 (the
"March 1996 8-K")).................................................
4.4B --Second Amendment to the Credit Agreement (incorporated by reference
from the March 1996 8-K)...........................................
4.4C --Third Amendment to the Credit Agreement (incorporated by reference
from the March 1996 8-K)...........................................
4.4D --Fourth Amendment to the Credit Agreement (incorporated by reference
from the March 1996 8-K)...........................................
4.4E --Fifth Amendment to the Credit Agreement (incorporated by reference
from the March 1996 8-K)...........................................
4.6 --Indenture between Pathmark and United States Trust Company of New
York, Trustee, relating to the Senior Subordinated Notes due 2003
of Pathmark (incorporated by reference from the Annual Report on
Form 10-K of the Company for the year ended January 29, 1994.).....
4.7 --Indenture between Pathmark and NationsBank of Georgia, National
Association, Trustee, relating to the Junior Subordinated Deferred
Coupon Notes due 2003 of Pathmark (incorporated by reference from
the Annual Report on Form 10-K of the Company for the year ended
January 29, 1994.).................................................
4.8 --Indenture between Pathmark and Wilmington Trust Company, Trustee,
relating to the 11 5/8% Subordinated Notes due 2002 of Pathmark
(incorporated by reference from the Annual Report on Form 10-K of
the Company for the year ended January 29, 1994.)..................
4.9 --Indenture between Pathmark and Wilmington Trust Company, Trustee,
relating to the 12 5/8% Subordinated Debentures due 2002 of
Pathmark (incorporated by reference from the Annual Report on Form
10-K of the Company for the year ended January 29, 1994.)..........
10.1 --Services Agreement dated as of May 3, 1993 between the Company and
Chefmark (incorporated by reference from Exhibit 10.4 to the 1993
Registration Statement)............................................
10.2 --Chefmark Supply Agreement, dated May 3, 1993, between the Company
and Chefmark (incorporated by reference from Exhibit 10.5 to the
1993 Registration Statement).......................................
10.3 --Tax Sharing Agreement between the Company and SMG-II (incorporated
by reference from the Annual Report on Form 10-K of the Company for
the year ended January 29, 1994....................................
10.4 --Tax Indemnity Agreement between the Company and Plainbridge
(incorporated by reference from the Annual Report on Form 10-K of
the Company for the year ended January 29, 1994....................
10.5 --Supermarkets General Corporation Pension Plan (as Amended and
Restated effective January 1, 1979) as amended through May 29, 1987
(incorporated by reference from Exhibit 10.21 to the Registration
Statement on Form S-1 of Holdings, File No. 33-16963)..............
</TABLE>
63
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT PAGE
NO. EXHIBIT NO.
- -------- ---------- ----
<C> <S> <C>
10.6 --Supermarkets General Corporation Savings Plan (as Amended and
Restated effective April 1, 1983) as amended through January 1,
1987 (incorporated by reference from Exhibit 10.22 to the
Registration Statement on Form S-1 of Holdings, File No.
33-16963)..........................................................
10.7 --Supermarkets General Corporation Management Incentive Plan
effective June 17, 1971 (incorporated by reference from Exhibit
10.23 to the Registration Statement on Form S-1 of Holdings, File
No. 33-16963)......................................................
10.11 --Supplemental Retirement Agreements dated as of March 9, 1987
between Old Supermarkets and Jack Futterman (incorporated by
reference from Exhibit 10.25 to the Registration Statement on Form
S-1 of Holdings, File No. 33-16963)................................
10.12 --Excess Benefit Plan of Supermarkets General Corporation, effective
as of March 9, 1987................................................
10.13 --Recourse Secured Promissory Note, dated October 5, 1987, given to
Holdings from each Management Investor listed therein (incorporated
by reference from Exhibit 10.43 to Post-Effective Amendment No. 1
to the Registration Statement on Form S-1 of Holdings, File No.
33-16963)..........................................................
10.14 --Stock Pledge Agreement dated October 5, 1987, between Holdings and
each Management Investor listed therein (incorporated by reference
from Exhibit 10.44 to Post-Effective Amendment No. 1 to the
Registration Statement on Form S-1 of Holdings, File No.
33-16963)..........................................................
10.15 --SMG-II Holdings Corporation Management Investors Stock Option Plan,
as amended May 17, 1991 (the "Option Plan")........................
10.16 --Form of Stock Option Agreement under the Option Plan...............
10.17 --SMG-II Holdings Corporation Employees 1987 Stock Option Plan, as
amended May 17, 1991...............................................
10.18 --Agreement dated as of March 20, 1996 among Registrant, Jack
Futterman, Holdings and SMG-II (incorporated by reference from
Exhibit 10.18 to the Annual Report on Form 10-K of Pathmark Stores,
Inc. for the year ended February 3, 1996) (the PSI 1995 10-K)......
10.20 --Agreement dated as of April 10, 1996 between the Registrant,
Anthony Cuti and SMG-II (incorporated by reference from Exhibit
10.30 to the PSI 1995 10-K)........................................
10.21 --Management Investors Exchange Agreement dated as of February 4,
1991 among SMG-II Holdings Corporation, Holdings and each of the
Management Investors party thereto (incorporated by reference from
Exhibit 10.53 to the Registration Statement on Form S-1 of
Holdings, No. 33-16963)............................................
10.22 --Supplemental Retirement Agreement dated as of March 12, 1993
between the Registrant and Anthony Cuti (incorporated by reference
from Exhibit 10.24 to the Registration Statement on Form S-1 of the
Registrant and Holdings, File No. 33-59616)........................
10.23 --Supplemental Retirement Agreement dated June 1, 1994 between the
Registrant and Ronald Rallo (incorporated by reference from the
Registrant's Annual Report on Form 10-K for the year ended January
28, 1995)..........................................................
10.24 --Supplemental Retirement Agreement dated June 1, 1994, between the
Registrant and Neill Crowley (incorporated by reference to Exhibit
10.24 to the PSI 1995 10-K)........................................
10.25 --Supplemental Retirement Agreement dated October 3, 1994 between the
Registrant and Ron Marshall (incorporated by reference to Exhibit
10.25 to the PSI 1995 10-K)........................................
</TABLE>
64
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT PAGE
NO. EXHIBIT NO.
- -------- ---------- ----
<C> <S> <C>
10.26 --Interim Agreement dated March 20, 1996 between the Registrant and
John W. Boyle (incorporated by reference to Exhibit 10.26 to the
PSI 1995 10-K).....................................................
10.27 --Employment Agreement dated as of May 23, 1994 between Registrant
and Neill Crowley (incorporated by reference to Exhibit 10.27 to
the PSI 1995 10-K).................................................
10.28 --Employment Agreement dated as of September 9, 1994 between
Registrant and Ron Marshall (incorporated by reference to Exhibit
10.28 to the PSI 1995 10-K)........................................
10.29 --Employment Agreement dated as of June 1, 1995 between Registrant
and Ron Rallo (incorporated by reference to Exhibit 10.29 to the
PSI 1995 10-K).....................................................
12.1 --Statements Regarding Computation of Ratio of Earnings to Fixed
Charges............................................................
21.1* --List of Subsidiaries of the Registrant.............................
24A.* --Power of Attorney of U. Peter C. Gummeson..........................
24B.* --Power of Attorney of Anthony J. Cuti...............................
24C.* --Power of Attorney of James B. Upchurch.............................
24D.* --Power of Attorney of Steven L. Volla...............................
</TABLE>
- ------------
*Filed herewith.
65
EXHIBIT 12.1
SUPERMARKETS GENERAL HOLDINGS CORPORATION
STATEMENTS REGARDING COMPUTATION OF RATIO
OF EARNINGS TO FIXED CHARGES
(DOLLARS IN THOUSANDS EXCEPT RATIO)
<TABLE>
<CAPTION>
FISCAL YEARS
----------------------------------------------------------
1995 1994 1993 1992 1991
-------- -------- --------- --------- --------
<S> <C> <C> <C> <C> <C>
Income (loss) from continuing
operations before taxes......... $ 48,944 $ 16,121 $ (36,819) $(608,614) $(255,618)
-------- -------- --------- --------- --------
Fixed charges:
Interest expense.............. 170,969 170,848 190,110 197,773 216,508
Interest portion of rental
expense(1)...................... 15,861 16,563 15,194 12,630 15,911
-------- -------- --------- --------- --------
Total fixed charges..... 186,830 187,411 205,304 210,403 232,419
-------- -------- --------- --------- --------
Adjusted income (loss) before
fixed charges................... $235,774 $203,532 $ 168,845 $(398,211) $(23,199)
-------- -------- --------- --------- --------
-------- -------- --------- --------- --------
Ratio of earnings to fixed
charges(2)...................... 1.26x 1.09x -- -- --
-------- -------- --------- --------- --------
-------- -------- --------- --------- --------
Deficiency in earnings available
to cover fixed charges........ $ -- $ -- $ 36,819 $ 608,614 $255,618
-------- -------- --------- --------- --------
-------- -------- --------- --------- --------
</TABLE>
- ------------
(1) Represents the portion of rentals deemed representative of the interest
included therein.
(2) For Fiscal 1995, the inclusion of preferred stock dividend requirements
results in a ratio of earnings to fixed charges and preferred stocks
dividends of 1.09x. For Fiscal 1994, the inclusion of preferred stock
dividend requirements results in a deficiency in earnings available to cover
fixed charges and preferred stock dividends of approximately $7.0 million.
EXHIBIT 21.1
SUPERMARKETS GENERAL HOLDINGS CORPORATION
LIST OF SUBSIDIARIES
<TABLE>
<CAPTION>
STATE OF
NAME INCORPORATION
- ---------- --------------
<S> <C>
Bridge Stuart, Inc. ............................................ New York
Pennsylvania Stuart, Inc. ...................................... Pennsylvania
Jersey Stuart, Inc. ............................................ New Jersey
Bucks Stuart, Inc. ............................................. Pennsylvania
Madison Stuart Corporation...................................... New Jersey
Brick Stuart, Inc. ............................................. New Jersey
AAL Realty Corp. ............................................... New York
GAW Properties Corp. ........................................... New Jersey
Pathmark Stores, Inc. .......................................... Delaware
Plainbridge, Inc. .............................................. Delaware
Pauls Trucking Corp. ........................................... New Jersey
PTK Holdings, Inc. ............................................. Delaware
Chefmark, Inc. ................................................. Delaware
</TABLE>
EXHIBIT 24A
SUPERMARKETS GENERAL HOLDINGS CORPORATION
POWER OF ATTORNEY
The undersigned, a director of Supermarkets General Holdings Corporation
(the "Company,") a Delaware corporation, which intends to file with the United
States Securities and Exchange Commission, under the provisions of the
Securities Exchange Act of 1934 (the "34 Act"), as amended, each year an Annual
Report on Form 10-K, or such other form appropriate for the purpose, pursuant to
Section 13 or 15(d) of the 34 Act, together with possible amendments thereto,
constitutes and appoints JOSEPH W. ADELHARDT and MARC A. STRASSLER, and each of
them, severally, as true and lawful attorney or attorneys, with full power of
substitution and resubstitution, for him and in his name, place and stead, to
sign in any and all capacities and file or cause to be filed said Annual Report
on Form 10-K, and any and all amendments thereto, and all instruments necessary
or incidental in connection therewith, and hereby grants to the said attorneys,
and each of them, severally, full power and authority to do and perform in the
name and on behalf of the undersigned, and in any and all capacities, any and
all acts and things whatsoever necessary or appropriate to be done in the
premises, as fully and to all intents and purposes as the undersigned might or
could do in person, hereby ratifying and confirming the acts of said attorneys
and each of them.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal this
19th day of April, 1996.
/s/ U. PETER C. GUMMESON
......................................
U. Peter C. Gummeson
EXHIBIT 24B
SUPERMARKETS GENERAL HOLDINGS CORPORATION
POWER OF ATTORNEY
The undersigned, a director of Supermarkets General Holdings Corporation
(the "Company,") a Delaware corporation, which intends to file with the United
States Securities and Exchange Commission, under the provisions of the
Securities Exchange Act of 1934 (the "34 Act"), as amended, each year an Annual
Report on Form 10-K, or such other form appropriate for the purpose, pursuant to
Section 13 or 15(d) of the '34 Act, together with possible amendments thereto,
constitutes and appoints JOSEPH W. ADELHARDT and MARC A. STRASSLER, and each of
them, severally, as true and lawful attorney or attorneys, with full power of
substitution and resubstitution, for him and in his name, place and stead, to
sign in any and all capacities and file or cause to be filed said Annual Report
on Form 10-K, and any and all amendments thereto, and all instruments necessary
or incidental in connection therewith, and hereby grants to the said attorneys,
and each of them, severally, full power and authority to do and perform in the
name and on behalf of the undersigned, and in any and all capacities, any and
all acts and things whatsoever necessary or appropriate to be done in the
premises, as fully and to all intents and purposes as the undersigned might or
could do in person, hereby ratifying and confirming the acts of said attorneys
and each of them.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal this
12th day of April, 1996.
/s/ ANTHONY J. CUTI
......................................
Anthony J. Cuti
EXHIBIT 24C
SUPERMARKETS GENERAL HOLDINGS CORPORATION
POWER OF ATTORNEY
The undersigned, a director of Supermarkets General Holdings Corporation
(the "Company"), a Delaware corporation, which intends to file with the United
States Securities and Exchange Commission, under the provisions of the
Securities Exchange Act of 1934 (the " '34 Act"), as amended, each year an
Annual Report on Form 10-K, or such other form appropriate for the purpose,
pursuant to Section 13 or 15(d) of the '34 Act, together with possible
amendments thereto, constitutes and appoints JOSEPH W. ADELHARDT and MARC A.
STRASSLER, and each of them, severally, as true and lawful attorney or
attorneys, with full power of substitution and resubstitution, for him and in
his name, place and stead, to sign in any and all capacities and file or cause
to be filed said Annual Report on Form 10-K, and any and all amendments thereto,
and all instruments necessary or incidental in connection therewith, and hereby
grants to the said attorneys, and each of them, severally, full power and
authority to do and perform in the name and on behalf of the undersigned, and in
any and all capacities, any and all acts and things whatsoever necessary or
appropriate to be done in the premises, as fully and to all intents and purposes
as the undersigned might or could do in person, hereby ratifying and confirming
the acts of said attorneys and each of them.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal this
29th day of April, 1996.
/s/ JAMES B. UPCHURCH
......................................
James B. Upchurch
EXHIBIT 24D
SUPERMARKETS GENERAL HOLDINGS CORPORATION
POWER OF ATTORNEY
The undersigned, a director of Supermarkets General Holdings Corporation
(the "Company"), a Delaware corporation, which intends to file with the United
States Securities and Exchange Commission, under the provisions of the
Securities Exchange Act of 1934 (the " '34 Act"), as amended, each year an
Annual Report on Form 10-K, or such other form appropriate for the purpose,
pursuant to Section 13 or 15(d) of the '34 Act, together with possible
amendments thereto, constitutes and appoints JOSEPH W. ADELHARDT and MARC A.
STRASSLER, and each of them, severally, as true and lawful attorney or
attorneys, with full power of substitution and resubstitution, for him and in
his name, place and stead, to sign in any and all capacities and file or cause
to be filed said Annual Report on Form 10-K, and any and all amendments thereto,
and all instruments necessary or incidental in connection therewith, and hereby
grants to the said attorneys, and each of them, severally, full power and
authority to do and perform in the name and on behalf of the undersigned, and in
any and all capacities, any and all acts and things whatsoever necessary or
appropriate to be done in the premises, as fully and to all intents and purposes
as the undersigned might or could do in person, hereby ratifying and confirming
the acts of said attorneys and each of them.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal this
29th day of April, 1996.
/s/ STEVEN L. VOLLA
......................................
Steven L. Volla
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Supermarkets
General Holdings Corporation's Consolidated Statement of Operations for the 53
weeks ended February 3, 1996 and Consolidated Balance Sheet as of February 3,
1996 and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<MULTIPLIER> 1,000
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> FEB-03-1996
<PERIOD-END> FEB-03-1996
<CASH> 12,171
<SECURITIES> 355
<RECEIVABLES> 11,777
<ALLOWANCES> (937)
<INVENTORY> 225,780
<CURRENT-ASSETS> 302,820
<PP&E> 952,423
<DEPRECIATION> (348,591)
<TOTAL-ASSETS> 1,008,770
<CURRENT-LIABILITIES> 471,574
<BONDS> 1,242,324
0
103,633
<COMMON> 10
<OTHER-SE> (1,222,457)
<TOTAL-LIABILITY-AND-EQUITY> 1,008,770
<SALES> 4,182,099
<TOTAL-REVENUES> 4,182,099
<CGS> 2,965,950
<TOTAL-COSTS> 2,965,950
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 1,300
<INTEREST-EXPENSE> (170,969)
<INCOME-PRETAX> 48,944
<INCOME-TAX> 29,763
<INCOME-CONTINUING> 78,707
<DISCONTINUED> 0
<EXTRAORDINARY> (2,180)
<CHANGES> 0
<NET-INCOME> 76,527
<EPS-PRIMARY> 0.0
<EPS-DILUTED> 0.0
</TABLE>
