<PAGE>
Friday, December 08, 2000
4:50:35 PM
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
--------------
FOR THE QUARTER ENDED COMMISSION FILE NUMBER
OCTOBER 28, 2000 1-5287
PATHMARK STORES, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 22-2879612
(State of other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
200 MILIK STREET 07008
CARTERET, NEW JERSEY (Zip Code)
(Address of principal executive offices)
(732) 499-3000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
---- -----
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
Yes X No
---- -----
ON DECEMBER 1, 2000, 30,098,510 SHARES OF COMMON STOCK ($0.01 PAR VALUE) WERE
ISSUED AND OUTSTANDING.
================================================================================
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
PATHMARK STORES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SUCCESSOR
COMPANY PREDECESSOR COMPANY
----------- -------------------------------------------------------------------
6 WEEKS | 7 WEEKS 13 WEEKS 33 WEEKS 39 WEEKS
ENDED | ENDED ENDED ENDED ENDED
OCTOBER 28, | SEPTEMBER 16, OCTOBER 30, SEPTEMBER 16, OCTOBER 30,
2000 | 2000 1999 2000 1999
----------- | ------------- ----------- ----------- -----------
<S> <C> | <C> <C> <C> <C>
Sales ......................... $ 437,727 | $ 499,393 $ 924,854 $ 2,348,186 $ 2,742,039
|
Cost of sales (exclusive of |
depreciation and |
amortization shown separately |
below) ..................... 315,050 | 359,734 663,794 1,688,506 1,961,191
----------- | ----------- ----------- ----------- -----------
Gross profit .................. 122,677 | 139,659 261,060 659,680 780,848
|
Selling, general and |
administrative expenses .... 99,582 | 121,593 214,813 550,059 633,575
|
Reorganization expenses ....... -- | 9,189 -- 19,076 --
|
Depreciation and amortization . 8,743 | 9,049 19,111 47,603 55,720
|
Amortization of excess |
reorganization value ....... 32,069 | -- -- -- --
----------- | ----------- ----------- ----------- -----------
Operating earnings (loss) ..... (17,717) | (172) 27,136 42,942 91,553
|
Interest expense .............. (8,817) | (11,298) (41,026) (99,131) (120,865)
----------- | ----------- ----------- ----------- -----------
|
Loss before income taxes and |
extraordinary items ........ (26,534) | (11,470) (13,890) (56,189) (29,312)
|
Income tax provision .......... (2,466) | (23) (34) (88) (102)
----------- | ----------- ----------- ----------- -----------
Loss before extraordinary items (29,000) | (11,493) (13,924) (56,277) (29,414)
|
Extraordinary items, net of |
tax provision of |
$46,557 .................... -- | 331,928 -- 331,928 --
----------- | ----------- ----------- ----------- -----------
Net earnings (loss) ........... (29,000) | 320,435 (13,924) 275,651 (29,414)
|
Less: non-cash preferred stock |
accretion and dividend |
requirements ............... -- | -- (9,490) (5,321) (28,453)
----------- | ----------- ----------- ----------- -----------
|
Net earnings (loss) |
attributable to common |
stock ...................... $ (29,000) | $ 320,435 $ (23,414) $ 270,330 $ (57,867)
=========== | =========== =========== =========== ===========
|
Weighted average number of |
shares outstanding ......... 30,000 |
=========== |
|
Net loss per common share |
- basic and diluted ........ $ (0.97) |
=========== |
</TABLE>
See notes to consolidated financial statements (unaudited).
<PAGE>
PATHMARK STORES, INC.
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
SUCCESSOR | PREDECESSOR
COMPANY | COMPANY
----------- | -----------
OCTOBER 28, | JANUARY 29,
2000 | 2000
----------- | -----------
<S> <C> | <C>
ASSETS |
Current assets |
Cash and marketable securities ..................... $ 59,561 | $ 16,196
Accounts receivable, net ........................... 18,260 | 15,787
Merchandise inventories ............................ 198,704 | 141,559
Prepaid expenses ................................... 20,309 | 21,183
Due from suppliers ................................. 53,647 | 53,975
Other current assets ............................... 21,192 | 21,485
----------- | -----------
Total current assets ............................ 371,673 | 270,185
Property and equipment, net .......................... 481,522 | 472,157
Deferred financing costs, net ........................ 14,324 | 11,805
Deferred income taxes ................................ -- | 45,190
Excess reorganization value, net ..................... 801,717 | --
Other noncurrent assets .............................. 113,034 | 43,854
----------- | -----------
$ 1,782,270 | $ 843,191
=========== | ===========
|
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY) |
Current liabilities |
Accounts payable and book overdrafts ............... $ 100,061 | $ 89,434
Current maturities of long-term debt ............... 9,545 | 78,982
Accrued payroll and payroll taxes .................. 44,981 | 50,766
Current portion of lease obligations ............... 21,510 | 25,192
Accrued interest payable ........................... 5,497 | 26,850
Accrued expenses and other current liabilities ..... 91,846 | 80,058
----------- | -----------
Total current liabilities ....................... 273,440 | 351,282
----------- | -----------
Long-term debt ....................................... 444,638 | 1,264,103
----------- | -----------
Long-term lease obligations .......................... 181,220 | 173,289
----------- | -----------
Deferred income taxes ................................ 45,987 | --
----------- | -----------
Other noncurrent liabilities ......................... 199,824 | 377,852
----------- | -----------
Redeemable securities |
Exchangeable preferred stock (Predecessor Company).. -- | 111,038
----------- | -----------
Commitments and contingencies |
Stockholders' equity (deficiency) |
Common stock (Successor Company) $0.01 par value ... 301 | --
Authorized: 100,000,000 shares; issued and |
outstanding: 30,098,510 shares |
Common stock (Predecessor Company) ................. -- | 11
Preferred stock (Successor Company) ................ -- | --
Authorized: 5,000,000 shares; issued and |
outstanding: none issued |
Convertible preferred stock (Predecessor Company) .. -- | 4
Paid-in capital .................................... 666,969 | 193,677
Accumulated deficit ................................ (29,000) | (1,625,617)
Unamortized value of restricted stock grants ....... (1,109) | (2,448)
----------- | -----------
Total stockholders' equity (deficiency) ......... 637,161 | (1,434,373)
----------- | -----------
$ 1,782,270 | $ 843,191
=========== | ===========
</TABLE>
See notes to consolidated financial statements (unaudited).
<PAGE>
PATHMARK STORES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
SUCCESSOR |
COMPANY | PREDECESSOR COMPANY
----------- | -------------------------
6 WEEKS | 33 WEEKS 39 WEEKS
ENDED | ENDED ENDED
OCTOBER 28, | SEPTEMBER 16, OCTOBER 30,
2000 | 2000 1999
----------- | ------------- ----------
<S> <C> | <C> <C>
Operating Activities |
Net earnings (loss) ................................... $ (29,000) | $ 275,651 $ (29,414)
Adjustments to reconcile net earnings (loss) |
to net cash provided by (used for) operating |
activities: |
Depreciation and amortization ....................... 9,086 | 49,975 58,599
Amortization of excess reorganization value ......... 32,069 | -- --
Amortization of deferred financing costs ............ 241 | 2,500 3,283
Gain on sale or disposal of property and equipment .. -- | (1,926) (426)
Extraordinary gain .................................. -- | (331,928) --
Cash provided by (used for) operating assets and |
liabilities: |
Accounts receivable, net .......................... (412) | (2,061) (1,710)
Merchandise inventories ........................... (19,908) | (5,716) (23,636)
Due from suppliers ................................ 50 | 278 (2,133)
Other current assets .............................. (205) | (1,131) (8,430)
Noncurrent assets ................................. (2,923) | (16,076) (3,655)
Accounts payable .................................. (1,605) | 12,232 6,102
Accrued interest payable .......................... 1,578 | 51,932 34,882
Accrued expenses and other current liabilities .... 3,988 | 4,440 (4,842)
Noncurrent liabilities ............................ (1,365) | (12,796) (24,014)
--------- | --------- ---------
Cash provided by (used for) operating |
activities ..................................... (8,406) | 25,374 4,606
--------- | --------- ---------
Investing Activities |
Property and equipment expenditures ................... (5,125) | (24,555) (37,259)
Proceeds from sale or disposal of property and |
equipment ........................................... 2,718 | 9,800 888
--------- | --------- ---------
Cash used for investing activities ............... (2,407) | (14,755) (36,371)
--------- | --------- ---------
Financing Activities |
Borrowings under the new term loan .................... -- | 425,000 --
Repayment of the new term loan ........................ (1,862) | -- (9,012)
Expenses related to common stock issuance ............. -- | (822) --
Repayments of the former term loan .................... -- | (241,442) --
Repayments of the former DIP facility ................. -- | (10,300) --
Borrowings (repayments) under the former working |
capital facility .................................... -- | (99,500) 62,700
Repayments of other debt .............................. (165) | (905) (969)
Decrease in book overdrafts ........................... -- | -- (4,541)
Decrease in lease obligations ......................... (2,107) | (11,591) (14,991)
Deferred financing costs .............................. -- | (12,747) (431)
--------- | --------- ---------
Cash provided by (used for) financing |
activities ..................................... (4,134) | 47,693 32,756
--------- | --------- ---------
Increase (decrease) in cash and marketable securities ... (14,947) | 58,312 991
Cash and marketable securities at beginning of period ... 74,508 | 16,196 7,931
========= | ========= =========
Cash and marketable securities at end of period ......... $ 59,561 | $ 74,508 $ 8,922
========= | ========= =========
Supplemental Disclosures of Cash Flow Information |
Interest paid ......................................... $ 8,205 | $ 40,910 $ 82,525
========= | ========= =========
Income taxes paid ..................................... $ -- | $ 155 $ 501
========= | ========= =========
Noncash Investing and Financing Activities |
Capital lease obligations ............................. $ -- | $ 19,181 $ 34,981
========= | ========= =========
Cancellation of bond indebtedness ..................... $ -- | $1,034,629 $ --
========= | ========= =========
Issuance of common stock and warrants ................. $ -- | $ 666,882 $ --
========= | ========= =========
Issuance of restricted common stock ................... $ -- | $ 1,210 $ --
========= | ========= =========
</TABLE>
<PAGE>
PATHMARK STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1. REORGANIZATION
On July 12, 2000 (the "Petition Date"), Pathmark Stores, Inc. (the
"Company"), along with its direct and indirect parent companies and certain
of its subsidiaries, filed a voluntary petition (the "Petition") under
Chapter 11 of Title 11 of the United States Code (the "Bankruptcy Code"). The
Petition was filed in the United States Bankruptcy Court for the District of
Delaware (the "Court") under case numbers 00-02963 through 00-2968. On
September 7, 2000, the Court entered an order confirming the Company's plan
of reorganization (the "Plan of Reorganization") and on September 19, 2000
(the "Effective Date") the Company formally exited Chapter 11.
Consummation of the Plan of Reorganization resulted in former holders of the
Company's bond indebtedness receiving 30,000,000 shares, representing 100% of
the opening common stock of the reorganized Company (the "New Common Stock"). In
addition to New Common Stock, former holders of the Company's 11.625%
Subordinated Notes due 2002 (the "Subordinated Notes"), the Company's 12.625%
Subordinated Debentures due 2002 (the "Subordinated Debentures") and the
Company's 10.75% Junior Subordinated Deferred Coupon Notes (the "Junior
Subordinated Notes") received ten-year warrants to purchase up to 5,294,118
shares of New Common Stock of the reorganized Company (the "New Warrants"). The
New Warrants are exercisable at $22.31 per share. Additionally, 98,510 shares of
restricted New Common Stock were issued to the Chief Executive Officer on
October 3, 2000. Shares of New Common Stock issued pursuant to the Plan of
Reorganization are subject to dilution from (1) the exercise of the New
Warrants, and (2) the exercise of any options to purchase New Common Stock
issued pursuant to the Company's Employee Plan and Directors' Plan (as
defined in Note 11).
Pursuant to the Plan of Reorganization and in full satisfaction of their
claims, (1) former holders of the Company's 9.625% Senior Subordinated Notes
(the "Senior Subordinated Notes") received 78.24% of the New Common Stock, (2)
former holders of the Subordinated Notes and the Subordinated Debentures
received their ratable share of 18.71% of the New Common Stock and 75% of the
New Warrants, (3) former holders of the Junior Subordinated Notes received 2.88%
of the New Common Stock and 25% of the New Warrants, and (4) former holders of
the 11.625% Supermarkets General Holdings Corporation ("Holdings") Subordinated
Notes due 2002 received 0.17% of the New Common Stock, subject to dilution as
described herein. In addition, former holders of Holdings' Cumulative
Exchangeable Redeemable Preferred Stock (the "Exchangeable Preferred Stock")
received their ratable portions of $0.5 million in cash payable upon the
Effective Date. The Company's New Common Stock and New Warrants trade on the
Nasdaq Stock Market under the ticker symbols "PTMK" and "PTMKW", respectively.
On the Effective Date, in connection with the consummation of the Plan of
Reorganization, the Company entered into a $600 million senior secured credit
facility (the "Exit Facility") with a group of lenders led by The Chase
Manhattan Bank. The Exit Facility includes a $425 million term loan (the "New
Term Loan") and a $175 million working capital facility (the "New Working
Capital Facility"). Proceeds from the Exit Facility were used to repay in full
the former bank credit agreement and the revolving credit agreement the Company
had entered into in support of the Plan of Reorganization (the "DIP Facility")
and will be used to provide liquidity for ongoing operations. In addition, the
Company's direct and indirect parent companies merged with the Company, which
became the surviving entity.
NOTE 2. BUSINESS AND BASIS OF PRESENTATION
BUSINESS:
The Company operated 138 supermarkets as of October 28, 2000, primarily in
the New York, New Jersey and Philadelphia metropolitan areas.
BASIS OF PRESENTATION:
Pursuant to the Plan of Reorganization, which became effective September 19,
2000, the Company's direct and indirect parent companies merged with the
Company, which became the surviving entity. Such mergers are
<PAGE>
PATHMARK STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--(CONTINUED)
being accounted for in the historical financial statements at historical cost in
a manner similar to pooling-of-interests accounting. Accordingly, the historical
financial information of the Predecessor Company are presented at historical
cost and reflects the assets and liabilities and related results of operations
of the combined entity.
<PAGE>
PATHMARK STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--(CONTINUED)
NOTE 2. BUSINESS AND BASIS OF PRESENTATION--(CONTINUED)
The unaudited consolidated financial statements included herein have been
prepared by the Company pursuant to the rules and regulations of the Securities
and Exchange Commission (the "SEC"). In the opinion of management, the
consolidated financial statements included herein reflect all adjustments which
are of a normal and recurring nature and are necessary to present fairly the
results of operations and financial position of the Company. This report should
be read in conjunction with the financial statements and notes thereto included
in the Company's Amendment No. 1 to Form S-1 as filed with the SEC on October
19, 2000.
FRESH-START REPORTING:
Upon the Effective Date, the Company adopted fresh-start reporting in
accordance with American Institute of Certified Public Accountants Statement of
Position 90-7, "Financial Reporting By Entities in Reorganization Under the
Bankruptcy Code" ("Fresh-Start Reporting"). Fresh-Start Reporting is adopted
because holders of existing voting shares immediately before filing and
confirmation of the Plan of Reorganization received less than 50% of the voting
shares of the emerging entity, thereby resulting in a new control group, and the
reorganization value of the emerging entity is less than its prepetition
liabilities and allowed claims. In connection with the adoption of Fresh-Start
Reporting, a new entity has been deemed created for financial reporting
purposes. The periods presented prior to the Effective Date have been designated
"Predecessor Company" and the period subsequent to the Effective Date has been
designated "Successor Company". September 16, 2000, the Saturday nearest the
Effective Date, was utilized for the accounting closing date related to the
Predecessor Company financial statements. As a result of the implementation
of Fresh-Start Reporting and the substantial debt reduction resulting from
the completion of the Company's Plan of Reorganization, the financial
position and results of operations of the Predecessor and Successor Company
are not comparable.
In accordance with Fresh-Start Reporting, the Company and its advisors,
along with representatives of the bondholders, determined the reorganization
value of the reorganized company. This value has been allocated, based on
estimated fair market value, to the Company's assets and liabilities, resulting
in an intangible asset equal to the reorganization value in excess of amounts
allocable to identifiable net assets. Such excess is classified as "excess
reorganization value, net" in the accompanying consolidated balance sheet and is
being amortized on a straight-line basis over a three-year period. The
adjustments related to Fresh-Start Reporting are preliminary and may differ from
the amounts ultimately determined.
The reorganization value at the Effective Date related to the Plan of
Reorganization is as follows (in thousands):
<TABLE>
<S> <C>
Debt and capital leases, net of cash................... $ 633,118
Stockholders' equity, on the Effective Date............ 666,882
----------
Reorganization value................................... $1,300,000
==========
</TABLE>
The preliminary Fresh-Start Reporting adjustments are as follows (in
thousands):
<TABLE>
<S> <C>
Stockholders' deficiency, pre-Fresh-Start Reporting......... $(256,208)
Adjustments to assets and liabilities to reflect estimated
fair values:
Increase (decrease) in assets:
Current assets and property and equipment (a)........... 57,438
Other noncurrent assets (b)............................. 50,525
Deferred income taxes (c)............................... (44,979)
Decrease in liabilities:
Accrued expenses and other noncurrent liabilities (d)... 26,320
Excess reorganization value (e).......................... 833,786
---------
Stockholders' equity, on the Effective Date................. $ 666,882
=========
</TABLE>
(a) Primarily related to merchandise inventories and property and equipment,
including capital leases.
(b) Primarily related to the excess of pension plan assets over projected
benefit obligations.
<PAGE>
PATHMARK STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--(CONTINUED)
(c) Primarily related to the tax effects of the Fresh-Start Reporting
adjustments.
(d) Primarily related to the liability for postretirement benefits.
(e) The excess reorganization value is being amortized over three years.
NOTE 2. BUSINESS AND BASIS OF PRESENTATION--(CONTINUED)
NET LOSS PER SHARE:
The net loss per share is computed in accordance with Statement of Financial
Accounting Standards No. 128, "Earnings Per Share" ("SFAS No. 128"). SFAS No.
128 requires that entities present, on the face of the income statement for all
periods reflected, basic and diluted per share amounts. Basic earnings per share
is computed using the weighted average number of common shares outstanding for
the period. Diluted earnings per share is computed using the weighted average
number of common shares outstanding for the period adjusted for dilutive
potential common shares. Weighted average outstanding shares, for both basic and
diluted loss per share, was 30,000,000 shares for the 6 weeks ended October 28,
2000. The 98,510 shares of restricted stock issued on October 3, 2000 (see Note
10) were excluded from the calculations of basic loss per share as such
shares do not vest until the first anniversary of the Effective Date. All stock
options, warrants and restricted stock were excluded from the computation of the
Company's diluted loss per share because their effect would have been
anti-dilutive. Net loss per share data is not meaningful for periods prior to
September 16, 2000 due to the significant change in the Company's capital
structure.
NOTE 3. REORGANIZATION EXPENSES
Reorganization expenses of $19.1 million consisted primarily of professional
fees related to legal, accounting and consulting services directly attributable
to the Plan of Reorganization and employee retention bonuses.
NOTE 4. INCOME TAXES
PREDECESSOR COMPANY:
The Company has recorded a valuation allowance related to the income tax
benefit for the 7 weeks and 33 weeks ended September 16, 2000 and for the 13
weeks and 39 weeks ended October 30, 1999; therefore, no income tax benefit has
been recognized for such periods.
SUCCESSOR COMPANY:
The tax provision for the 6 weeks ended October 28, 2000 is based on
statutory rates, excluding the non-deductible amortization of excess
reorganization value.
As a result of the exchange of the former bond indebtedness for common stock
and warrants, the amount of the Company's aggregate indebtedness was reduced,
generating income from the cancellation of debt for tax purposes of
approximately $350.0 million. Since the realization of such income occurred
under the Bankruptcy Code, the Company will not recognize income from
cancellation of debt for tax purposes, but instead will reduce certain tax
attributes after the end of the current fiscal year. The Company anticipates
that it will first elect to reduce the basis of its depreciable property and,
with the remaining income from the cancellation of debt, reduce its net
operating loss tax carryforwards. Accordingly, the Company will reduce the tax
benefits attributable to depreciation that would have otherwise been claimed in
future years. The Company's net operating loss tax carryforwards for federal
income tax purposes, after such attribute reduction, is estimated to be $77.0
million. Such net operating loss tax carryforwards expire from fiscal 2008
through fiscal 2020 and are subject to an annual limitation of approximately
$36.0 million.
The Company's deferred income tax liability at October 28, 2000 was
$46.0 million and included a valuation allowance of approximately $25.0 million,
primarily related to capital loss carryforwards which expire in fiscal 2001 and
certain state net operating loss tax carryforwards.
<PAGE>
PATHMARK STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--(CONTINUED)
NOTE 5. EXTRAORDINARY ITEMS
The extraordinary items of $331.9 million, net of a tax provision of $46.6
million, for the 7 and 33 weeks ended September 16, 2000 are comprised of income
from the cancellation of debt in connection with the exchange of bond
indebtedness and accrued interest for common stock and warrants, as well as
income from the reduction of lease liabilities, net of estimated landlord
claims, attributable to the rejection of certain leases in connection with the
Plan
<PAGE>
PATHMARK STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--(CONTINUED)
NOTE 5. EXTRAORDINARY ITEMS(CONTINUED)
of Reorganization; such income is reduced by the write-off of deferred financing
costs related to the former debt. The tax provision of such cancellation of
debt income is based on the deferred tax impact of the tax attribute
reductions, net of the valuation allowance reversal related to certain deferred
tax assets.
NOTE 6. CASH AND MARKETABLE SECURITIES
Cash and marketable securities are comprised of the following (in thousands):
<TABLE>
<CAPTION>
SUCCESSOR | PREDECESSOR
COMPANY | COMPANY
-------- | -----------
OCTOBER 28, | JANUARY 29,
2000 | 2000
-------- | -----------
<S> <C> | <C>
Cash...................................................... $ 13,114 | $ 16,196
Marketable securities..................................... 46,447 | --
-------- | ---------
Cash and marketable securities............................ $ 59,561 | $ 16,196
======== | =========
</TABLE>
NOTE 7. INVENTORIES
Merchandise inventories are comprised of the following (in thousands):
<TABLE>
<CAPTION>
SUCCESSOR | PREDECESSOR
COMPANY | COMPANY
-------- | -----------
OCTOBER 28, | JANUARY 29,
2000 | 2000
-------- | -----------
<S> <C> | <C>
Merchandise inventories at FIFO cost ..................... $199,220 | $ 180,996
Less: LIFO reserve ....................................... 516 | 39,437
-------- | ---------
|
Merchandise inventories at LIFO cost ..................... $198,704 | $ 141,559
======== | =========
</TABLE>
In connection with the implementation of Fresh-Start Reporting, the Company
adjusted its merchandise inventories to reflect fair value on the Effective
Date.
NOTE 8. LONG-TERM DEBT
Long-term debt is comprised of the following (in thousands):
<TABLE>
<CAPTION>
SUCCESSOR | PREDECESSOR
COMPANY | COMPANY
-------- | -----------
OCTOBER 28, | JANUARY 29,
2000 | 2000
-------- | -----------
<S> <C> | <C>
New Term Loan ............................................ $423,138 | $ --
Former Term Loan ......................................... -- | 241,442
Former Working Capital Facility .......................... -- | 109,800
Industrial revenue bonds ................................. 8,150 | 8,217
Other debt (primarily mortgages) ......................... 22,895 | 23,899
-------- | ----------
Subtotal ............................................. 454,183 | 383,358
Senior Subordinated Notes ................................ -- | 438,844
Subordinated Notes ....................................... -- | 200,000
Subordinated Debentures .................................. -- | 95,750
Junior Subordinated Notes ................................ -- | 225,133
-------- | ----------
|
Total debt ............................................... 454,183 | 1,343,085
Less: current maturities ................................. 9,545 | 78,982
-------- | ----------
Long-term portion ........................................ $444,638 | $1,264,103
======== | ==========
</TABLE>
<PAGE>
PATHMARK STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--(CONTINUED)
NOTE 8. LONG-TERM DEBT--(CONTINUED)
On September 19, 2000, the Company entered into the Exit Facility, which
includes the New Term Loan and the New Working Capital Facility. The Exit
Facility bears interest at floating rates, ranging from LIBOR plus 3% to LIBOR
plus 4%. The Company is required to repay a portion of its borrowings under the
New Term Loan each year, so as to retire such indebtedness in its entirety by
July 15, 2007. Under the New Working Capital Facility, which expires on July 15,
2005, the Company can borrow an amount up to $175 million, including a maximum
of $125 million in letters of credit. At October 28, 2000, no borrowings were
made under the New Working Capital Facility and $36.1 million in letters of
credit were outstanding.
NOTE 9. INTEREST EXPENSE
Interest expense is comprised of the following (in thousands):
<TABLE>
<CAPTION>
SUCCESSOR |
COMPANY | PREDECESSOR COMPANY
-----------| ---------------------------------------------------
6 WEEKS | 7 WEEKS 13 WEEKS 33 WEEKS 39 WEEKS
ENDED | ENDED ENDED ENDED ENDED
OCTOBER 28,| SEPTEMBER 16, OCTOBER 30, SEPTEMBER 16, OCTOBER 30,
2000 | 2000 1999 2000 1999
-----------| ------------ ----------- ------------ ------------
<S> <C> | <C> <C> <C> <C>
Term Loan ..................... $ 4,925 | $ 3,314 $ 4,932 $ 14,012 $ 14,538
Working Capital Facility ...... -- | 1,155 1,778 6,062 4,567
DIP Facility .................. -- | 2,183 -- 2,539 --
Senior Subordinated Notes ..... -- | -- 10,677 27,117 32,029
Subordinated Notes ............ -- | -- 5,812 10,419 17,437
Subordinated Debentures ....... -- | -- 3,022 5,444 9,066
Junior Subordinated Notes ..... -- | -- 5,902 10,811 17,246
Amortization of deferred |
financing costs ............. 241 | 336 1,097 2,500 3,283
Other, net .................... 3,651 | 4,310 7,806 20,227 22,699
-------- | -------- -------- -------- --------
Interest expense .............. $ 8,817 | $ 11,298 $ 41,026 $ 99,131 $120,865
======== | ======== ======== ======== ========
</TABLE>
NOTE 10. CHIEF EXECUTIVE OFFICER EMPLOYMENT AGREEMENT
Pursuant to the Plan of Reorganization, the Company's employment agreement
with its Chief Executive Officer (the "CEO") has been extended until October
8, 2005 (the "Employment Agreement"). In addition to the Employment
Agreement, the Company and the CEO entered into an agreement in fiscal 2000
which provides that, under the circumstances described below, the CEO shall
receive a retention bonus and a sale bonus. The retention bonus is intended
to encourage the CEO to remain employed by the Company for at least one year
subsequent to the Effective Date. Pursuant to said retention and sale bonus
agreement, the CEO received a payment of $2.0 million in August 2000 and
received 98,510 shares of restricted New Common Stock of the Company on
October 3, 2000. The restricted stock will vest on the first anniversary of
the Effective Date, if the CEO is employed on that date. The restricted stock
award was valued at $1.2 million and is being amortized as compensation
expense in the Company's consolidated statement of operations over the
vesting period.
In addition to the retention bonus, under certain circumstances, the CEO will
become entitled to receive a sale bonus. This will occur in the event that a
triggering event occurs during the term of the agreement and a change in
control contemplated by such event occurs thereafter. The amount of the sale
bonus shall be equal to 0.0043 multiplied by an amount equal to the sum of the
aggregate fair market value of any securities issued and any other non-cash
consideration delivered, and any cash consideration paid to the Company or their
security holders in connection with such change of control, plus the amount of
all indebtedness of the Company which is assumed or acquired by any purchaser in
connection with a change in control or retired or defeased in connection with
such change in control.
<PAGE>
PATHMARK STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--(CONTINUED)
NOTE 11. COMMON STOCK, OPTIONS, WARRANTS AND PREFERRED STOCK OUTSTANDING
On the Effective Date, pursuant to the Plan of Reorganization, the Company
issued 30,000,000 shares of New Common Stock and ten-year warrants to purchase
5,294,118 shares of New Common Stock at an exercise price of $22.31 per share in
exchange for approximately $1.0 billion in bond indebtedness. The Company also
issued 98,510 shares of restricted New Common Stock to the CEO on October 3,
2000, in accordance with his retention bonus and sale bonus agreement. As of
October 28, 2000, 30,098,510 shares of New Common Stock were outstanding.
The 2000 Employee Equity Plan (the "Employee Plan") was also implemented as
of the Effective Date. The Employee Plan makes available the granting of options
aggregating 5,164,118 shares of New Common Stock. All of the Company's officers
and certain employees are eligible to receive options under the Employee Plan.
On October 25, 2000, options aggregating 2,080,200 shares were granted to
certain officers and employees of the Company. Options for additional shares may
be granted by the Board of Directors' Compensation Committee.
The Company also implemented the 2000 Non-Employee Directors' Plan (the
"Directors' Plan") as of the Effective Date. The Directors' Plan makes available
to the Company's directors, who are not officers of the Company, options to
acquire up to 130,000 shares of New Common Stock. On October 25, 2000, options
aggregating 15,000 shares were granted under the Directors' Plan.
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" ("SFAS No. 123") defines a fair value based method of
accounting for an employee stock option by which compensation cost is measured
at the grant date based on the fair value of the award and is recognized over
the service period. A Company may elect to adopt SFAS No. 123 or elect to
account for its stock option or similar equity awards using the method of
accounting prescribed by Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees" ("APB No. 25"), by which compensation cost is
measured at the date of grant based on the excess of the market value of the
underlying stock over the exercise price. No compensation expense has been
recognized in the accompanying consolidated financial statements relative to the
Company's Employee and Directors' Plan because the options were granted at
fair value.
The Company is also authorized to issue 5,000,000 shares of preferred stock.
No such shares have been issued.
NOTE 12. COMMITMENTS AND CONTINGENCIES
INFORMATION SERVICES OUTSOURCING:
In August 1991, the Company entered into a ten-year agreement with IBM to
provide a wide range of information systems services. Under the agreement, IBM
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 Company is in discussions with IBM for an
extension of the agreement.
OTHER:
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, cash flows or business of the
Company.
NOTE 13. SUBSEQUENT EVENT
On December 5, 2000, the Company announced the signing of a letter of intent
to acquire six Grand Union supermarkets from C&S Wholesale Grocers, Inc. ("C&S")
which, in turn, is buying the stores from the Grand Union Company, subject to
Bankruptcy Court approval. The Company's acquisition of these stores is subject
to the
<PAGE>
PATHMARK STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--(CONTINUED)
signing of a definitive agreement with C&S, C&S' consummation of its purchase
from Grand Union and various governmental approvals. The six stores are all
located in New York and New Jersey. These six stores average 40,000 square feet
in space and generated annual sales of approximately $120 million. The Company
expects to close the transaction with C&S in the first quarter of fiscal 2001.
<PAGE>
PATHMARK STORES, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
As discussed in Note 1 to the accompanying consolidated financial statements,
the Company formally exited from Chapter 11 effective September 19, 2000. For
financial reporting purposes, the Company accounted for the consummation of the
Plan of Reorganization effective September 16, 2000. Fresh-Start Reporting has
resulted in significant changes to the valuation of certain of the Company's
assets and liabilities, and to its stockholders' equity. With the adoption of
Fresh-Start Reporting, a new entity has been deemed created for financial
reporting purposes. The periods prior to the Effective Date have been designated
"Predecessor Company" and the period subsequent to the Effective Date has been
designated "Successor Company". For purposes of the discussion of Results of
Operations for the 13 weeks and the 39 weeks ended October 28, 2000, the results
of the Predecessor Company and Successor Company have been combined.
RESULTS OF OPERATIONS
The following table sets forth selected consolidated statements of operations
data (in millions):
<TABLE>
<CAPTION>
SUCCESSOR PREDECESSOR COMBINED PREDECESSOR | SUCCESSOR PREDECESSOR COMBINED PREDECESSOR
COMPANY COMPANY RESULTS COMPANY | COMPANY COMPANY RESULTS COMPANY
------ ---------- -------- -------- | -------- ---------- ---------- ---------
6 WEEKS 7 WEEKS 13 WEEKS 13 WEEKS | 6 WEEKS 33 WEEKS 39 WEEKS 39 WEEKS
ENDED ENDED ENDED ENDED | ENDED ENDED ENDED ENDED
OCTOBER SEPTEMBER OCTOBER OCTOBER 30,| OCTOBER 28, SEPTEMBER OCTOBER 28, OCTOBER 30,
28, 2000 16, 2000 28, 2000 1999 | 2000 16, 2000 2000 1999
-------- --------- -------- ---------- | ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> | <C> <C> <C> <C>
Sales ....................... $ 437.7 $ 499.4 $ 937.1 $ 924.8 | $ 437.7 $ 2,348.2 $ 2,785.9 $ 2,742.0
Gross profit ................ 122.6 139.7 262.3 261.0 | 122.6 659.7 782.3 780.8
Selling, general and |
administrative expenses ... 99.5 121.6 221.1 214.8 | 99.5 550.1 649.6 633.6
Reorganization expenses ..... -- 9.2 9.2 -- | -- 19.1 19.1 --
Depreciation and amortization 8.7 9.1 17.8 19.1 | 8.7 47.6 56.3 55.7
Amortization of excess |
reorganization value ...... 32.1 -- 32.1 -- | 32.1 -- 32.1 --
Operating earnings (loss) ... (17.7) (0.2) (17.9) 27.1 | (17.7) 42.9 25.2 91.5
Interest expense ............ (8.8) (11.3) (20.1) (41.0) | (8.8) (99.1) (107.9) (120.9)
Income tax provision ........ (2.5) -- (2.5) -- | (2.5) (0.1) (2.6) --
Extraordinary items ......... -- 331.9 331.9 -- | -- 331.9 331.9 --
Net earnings (loss).......... (29.0) 320.4 291.4 (13.9) | (29.0) 275.6 246.6 (29.4)
</TABLE>
SALES:
Sales in the third quarter of fiscal 2000 were $937.1 million compared to
$924.8 million in the prior year, an increase of 1.3%. For the nine-month period
of fiscal 2000, sales were $2.8 billion compared to $2.7 billion in the prior
year, an increase of 1.6%. The sales increase was primarily due to new stores
opened in fiscal 2000. Same store sales decreased 0.5% in the third quarter of
fiscal 2000 and were flat for the nine-month period of fiscal 2000. The Company
operated 138 and 134 supermarkets at the end of the third quarters of fiscal
2000 and fiscal 1999, respectively.
GROSS PROFIT:
Gross profit in the third quarter of fiscal 2000 was $262.3 million or 28.0%
of sales compared with $261.0 million or 28.2% of sales in the prior year. For
the nine-month period of fiscal 2000, gross profit was $782.3 million or 28.1%
of sales compared to $780.8 million or 28.5% for the prior year. The increase in
gross profit of $1.3 million for the third quarter of fiscal 2000 compared to
the prior year and $1.5 million for the nine-month period of fiscal 2000
compared to the prior year was primarily due to higher sales, offset by higher
shrink and promotional expenses. The cost of goods sold comparisons were
affected by a pretax LIFO charge of $0.6 million in the third quarter of fiscal
2000 compared to $0.4 million in the prior year and a pretax LIFO charge of $1.4
million in the nine-month period of fiscal 2000 compared to $1.2 million in the
prior year.
<PAGE>
PATHMARK STORES, INC.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES ("SG&A"):
SG&A in the third quarter of fiscal 2000 increased $6.3 million or 3.0%
compared to $214.8 million in the prior year and $16.0 million or 2.5% in the
nine-month period of fiscal 2000 compared to $633.6 million in the prior year.
The increase in SG&A in the third quarter and the nine-month period of fiscal
2000 compared to the prior year was primarily due to higher expenses related to
store labor and related benefits. Included in the nine-month periods were gains
on the sale of certain real estate of $1.8 million and $0.4 million in fiscal
2000 and fiscal 1999, respectively. As a percentage of sales, SG&A was 23.6% in
the third quarter and 23.3% in the nine-month period of fiscal 2000, compared to
23.2% in the third quarter and 23.1% in the nine-month period of fiscal 1999.
REORGANIZATION EXPENSES:
Reorganization expenses in the third quarter and the nine-month period of
fiscal 2000 were $9.2 million and $19.1 million, respectively. Such items
primarily consist of professional fees related to legal, accounting and
consulting services directly attributable to the Plan of Reorganization and
employee retention bonuses.
DEPRECIATION AND AMORTIZATION:
Depreciation and amortization of $17.8 million in the third quarter of
fiscal 2000 was $1.3 million lower than the $19.1 million in the prior year
primarily due to the impact of lower capital expenditures in fiscal 2000. For
the nine-month period of fiscal 2000, depreciation and amortization was $56.3
million compared to $55.7 million in the prior year. Depreciation and
amortization excludes video tape amortization, which is recorded in cost of
goods sold, of $0.1 million and $1.0 million in the third quarters of fiscal
2000 and fiscal 1999, respectively, and $2.2 million and $2.6 million in the
nine-month periods of fiscal 2000 and fiscal 1999, respectively.
AMORTIZATION OF EXCESS REORGANIZATION VALUE:
Excess reorganization value of $833.8 million is being amortized over three
years. Amortization expense for the 6 weeks ended October 28, 2000 was $32.1
million.
OPERATING EARNINGS (LOSS):
The operating loss in the third quarter of fiscal 2000 was $17.9 million
compared to operating earnings in the prior year of $27.1 million. For the
nine-month period of fiscal 2000, operating earnings were $25.2 million compared
to $91.5 million in the prior year. The decrease in operating earnings in the
third quarter and the nine-month period of fiscal 2000 compared to the prior
year was due to the amortization of the excess reorganization value and
reorganization expenses.
INTEREST EXPENSE:
Interest expense was $20.1 million in the third quarter of fiscal 2000
compared to $41.0 million in the prior year and $107.9 million for the
nine-month period of fiscal 2000 compared to $120.9 million in the prior year.
The decrease in interest expense in the third quarter and the nine-month period
of fiscal 2000 compared to the prior year was primarily due to the cancellation
of bond indebtedness under the Plan of Reorganization. Interest expense on bond
indebtedness, as of July 29, 2000, was accrued through the Petition Date, except
for the Senior Subordinated Notes, which was accrued through September 19, 2000;
such interest accrual was in accordance with the allocations set forth in the
Plan of Reorganization.
INCOME TAX PROVISION:
Refer to Note 4 of the consolidated financial statements for information
related to the Company's income taxes. During the nine-month period of fiscal
2000, the Company made income tax payments of $0.2 million and received income
tax refunds of $0.4 million. During the nine-month period of fiscal 1999, the
Company made income tax payments of $0.5 million and received income tax refunds
of $0.09 million.
EXTRAORDINARY ITEMS:
The extraordinary items of $331.9 million, net of a tax provision of $46.6
million, for the 7 and 33 weeks
<PAGE>
PATHMARK STORES, INC.
ended September 16, 2000 are comprised of income from the cancellation of debt
in connection with the exchange of bond indebtedness and accrued interest for
common stock and warrants, as well as income from the reduction of lease
liabilities, net of estimated landlord claims, attributable to the rejection of
certain leases in connection with the Plan of Reorganization; such income is
reduced by the write-off of deferred financing costs related to the former
debt. The tax provision of such cancellation of debt income is based on the
deferred tax impact of the tax attribute reductions, net of the valuation
allowance reversal related to certain deferred tax assets.
SUMMARY OF OPERATIONS:
The Company's net earnings in the third quarter of fiscal 2000 were $291.4
million compared to a net loss of $13.9 million for the prior year. For the
nine-month period of fiscal 2000, the Company's net earnings were $246.6 million
compared to a net loss of $29.4 million in the prior year. The increase in net
earnings in the third quarter and nine-month period of fiscal 2000 compared to
the prior year was primarily due to the extraordinary items.
COMPREHENSIVE INCOME (LOSS):
The Company has no items of comprehensive income (loss) other than net
earnings (loss) and, accordingly, the total comprehensive income (loss) is the
same as the reported net earnings (loss) for all periods presented.
EBITDA-FIFO:
EBITDA-FIFO was $42.0 million and $47.8 million in the third quarters of
fiscal 2000 and fiscal 1999, respectively and $135.0 million and $150.9 million
for the nine-month period of fiscal 2000 and fiscal 1999, respectively.
EBITDA-FIFO represents net earnings before interest, income taxes, depreciation,
amortization, reorganization expenses, the gain on sale of real estate and the
LIFO charge. While EBITDA-FIFO is a widely accepted financial indicator of a
company's ability to service and/or incur debt, it should not be construed as an
alternative to, or a better indicator of, operating earnings or of cash flows
from operating activities, as determined in accordance with generally accepted
accounting principles. EBITDA-FIFO may not be comparable to similarly titled
measures reported by other companies.
FINANCIAL CONDITION
DEBT SERVICE AND LIQUIDITY:
As a result of the substantial debt reduction resulting from the
completion of the Plan of Reorganization on September 19, 2000, the Company's
debt service and liquidity have improved significantly compared to the
Predecessor Company's financial condition.
In connection with its financial restructuring plan, the Company received a
commitment from The Chase Manhattan Bank for a $75 million DIP Facility in
support of the Plan of Reorganization and a $600 million Exit Facility. The DIP
Facility enabled the Company to continue normal business operations during the
restructuring proceedings. The Exit Facility, which closed on September 19,
2000, was used to repay in full the former credit agreement and the DIP
Facility, pay expenses of the Plan of Reorganization and provide liquidity for
post-reorganization operations.
The Exit Facility includes a New Term Loan of $425 million and a New
Working Capital Facility of $175 million and bears interest at floating
rates, ranging from LIBOR plus 3% to LIBOR plus 4%. The Company is required
to repay a portion of its borrowings under the New Term Loan each year, so as
to retire such indebtedness in its entirety by July 15, 2007. Under the New
Working Capital Facility, which expires on July 15, 2005, the Company can
borrow an amount up to $175 million, including a maximum of $125 million in
letters of credit. At October 28, 2000 and December 6, 2000, no borrowings
have been made under the New Working Capital Facility. Letters of credit of
$36.1 million and $35.4 million were outstanding at October 28, 2000 and
December 6, 2000, respectively. The Company's liquidity also included
marketable securities of $46.4 million and $54.0 million at October 28, 2000
and December 6, 2000, respectively.
<PAGE>
PATHMARK STORES, INC.
The Exit Facility restricts, among other things, the payment of cash
dividends and the redemption of common stock. Other provisions of the Exit
Facility limit the amount of obligations under leases and capital expenditures
in excess of specified amounts. The Company is also required to meet certain
financial covenants including maximum leverage, minimum interest coverage and
minimum cash flow. The Company was in compliance with all covenants under the
Exit Facility at October 28, 2000.
The principal payments of the New Term Loan are as follows (in millions):
<TABLE>
<CAPTION>
Fiscal Years Principal Payments
------------ ------------------
<S> <C>
2000...................... $ 3.6
2001...................... 10.4
2002...................... 16.6
2003...................... 26.0
2004...................... 44.8
2005...................... 102.4
2006...................... 147.5
2007...................... 73.7
------
Total..................... $425.0
======
</TABLE>
CAPITAL EXPENDITURES:
Capital expenditures in the third quarter of fiscal 2000, including property
acquired under capital leases, were $11.1 million compared to $24.5 million in
the prior year and in the nine-month period of fiscal 2000 were $48.9 million
compared to $72.2 million in the prior year. During the nine-month period of
fiscal 2000, the Company opened four new stores, including one replacement store
and renovated nine stores. During the remainder of fiscal 2000, the Company
expects to complete an additional 12 renovations. Capital expenditures for
fiscal 2000, including property to be acquired under capital leases, are
estimated to be $70 million. Management believes that cash flows generated from
operations, supplemented by the unused borrowing capacity under the New Working
Capital Facility, its marketable securities and the availability of capital
lease financing, will be sufficient to provide for the Company's capital
expenditure program.
CASH FLOWS:
The following table sets forth certain consolidated statements of cash flows
data (in thousands):
<TABLE>
<CAPTION>
SUCCESSOR PREDECESSOR COMBINED | PREDECESSOR
COMPANY COMPANY RESULTS | COMPANY
----------- --------- ----------- | -----------
6 WEEKS 33 WEEKS 39 WEEKS | 39 WEEKS
ENDED ENDED ENDED | ENDED
OCTOBER 28, SEPTEMBER 16, OCTOBER 28, | OCTOBER 30,
2000 2000 2000 | 1999
----------- --------- ----------- | -----------
<S> <C> <C> <C> | <C>
Cash provided by (used for) operating |
activities.......................... $(8,406) $25,374 $16,968 | $ 4,606
Cash (used for) investing activities.. (2,407) (14,755) (17,162) | (36,371)
Cash provided by (used for) financing |
activities.......................... (4,134) 47,693 43,559 | 32,756
</TABLE>
Cash provided by operating activities was $17.0 million in the nine-month
period of fiscal 2000 compared to $4.6 million in the prior year. The increase
in cash flow from operating activities was primarily due to the reduction in
cash interest paid due to the Plan of Reorganization, partially offset by the
decrease in cash used for other operating assets and liabilities. Cash used for
investing activities was $17.2 million in the nine-month period of fiscal 2000
compared to $36.4 million in the prior year. The decrease in cash flow from
investing activities was primarily due to a decrease in expenditures for
property and equipment and an increase in proceeds from property sales or
disposals. Cash provided by financing activities was $43.6 million in the
nine-month period of fiscal 2000 compared to $32.8 million in the prior year.
The increase in cash flow from financing activities was primarily due to the
impact of the Plan of Reorganization.
<PAGE>
PATHMARK STORES, INC.
NEW ACCOUNTING STANDARDS NOT YET ADOPTED
In June 1998, the Financial Accounting Standards Board (the "FASB") issued
Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities" ("SFAS No. 133"). SFAS No. 133
represents a comprehensive framework of accounting rules that standardizes
the accounting for all derivatives. SFAS No. 133 applies to all entities and
to all types of derivatives. In June 1999, the FASB issued Statement of
Financial Accounting Standards No. 137, "Accounting for Derivative
Instruments and Hedging Activities - Deferral of the Effective Date of FASB
Statement No. 133", which delayed the effective date of SFAS No. 133 for all
fiscal quarters of fiscal years beginning after June 15, 2000. In June 2000,
the FASB issued Statement of Financial Accounting Standards No. 138,
"Accounting for Certain Derivative Instruments and Certain Hedging
Activities" ("SFAS No. 138"), an amendment of SFAS No. 133. The Company has
determined that the adoption of SFAS No. 133 and SFAS No. 138 will not affect
its financial position or results of operations.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements" ("SAB
No. 101"). SAB No. 101 provides guidance on the recognition, presentation and
disclosure of revenue, and is effective for the Company in its quarter ending
February 3, 2001. The Company believes that SAB No. 101 will not affect its
financial position or results of operations.
FORWARD-LOOKING INFORMATION
This report contains certain "forward-looking statements" (within the
meaning of the Private Securities Litigation Reform Act of 1995) about the
future performance of the Company which are based on management's assumptions
and beliefs in light of the information currently available to it. The
Company assumes no obligation to update the information contained herein.
These forward-looking statements are subject to uncertainties and other
factors that could cause actual results to differ materially from such
statements including, but not limited to, competitive practices, including
store openings and remodels, and pricing and promotional activity in the food
industry generally and particularly in the Company's principal markets; the
Company's relationships with its employees and the terms of future collective
bargaining agreements; the costs of other legal and administrative cases and
proceedings; the nature and extent of continued consolidation in the food
industry; availability and terms of financing; supply or quality control
problems with the Company's vendors and changes in economic conditions which
affect the spending patterns of the Company's customers.
For additional information about the Company and its various risk factors,
see the Company's Amendment No. 1 to Form S-1 as filed with the SEC on October
19, 2000 and other documents as filed with the SEC.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk represents the risk of loss that may impact the financial
position, results of operations or cash flows of the Company due to adverse
changes in financial rates. The Company is exposed to market risk in the area of
interest rates. This exposure is directly related to its New Term Loan and
borrowing activities under the New Working Capital Facility. 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 when deemed appropriate.
<PAGE>
PATHMARK STORES, INC.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
As previously disclosed in the Company's Annual Report on Form 10-K for the
year ended January 29, 2000, on December 16, 1999, Koninklijke Ahold, N.V.
("Ahold") terminated the Merger Agreement dated March 9, 1999 by and among
Ahold, an affiliate of Ahold, and the Company (the "Merger Agreement"), claiming
that despite its best efforts, it could not obtain necessary antitrust clearance
from government regulators. That same day, Ahold filed a complaint in the
Supreme Court, State of New York, County of New York (the "Court"), against the
Company seeking a declaratory judgment that Ahold had used its "best efforts"
under the Merger Agreement. On January 18, 2000, the Company filed its Answer
and Counterclaims, denying Ahold's assertion that it used its best efforts to
consummate the Merger Agreement. Additionally, the Company asserted
counterclaims against Ahold for (i) breach of contract by failure to use best
efforts; (ii) breach of the covenant of good faith and fair dealing; and (iii)
unfair competition. The Company has requested compensatory damages in an
unspecified amount.
On February 7, 2000, Ahold answered the Company's counterclaims and denied
the allegations contained therein and filed an Amended Complaint seeking
declarations that (i) the "best efforts" clause in the Merger Agreement is
unenforceable; (ii) the "best efforts" clause is enforceable and Ahold did not
breach that clause; and (iii) Ahold properly terminated the Company's Merger
Agreement. Additionally, Ahold alleged that the Company breached the "best
efforts" clause of the Company's Merger Agreement and has requested compensatory
damages in an unspecified amount. The Company filed its amended answer and the
amended complaint and amended counterclaims on February 27, 2000.
In April 2000, the Company filed a motion seeking partial summary judgment
in its favor on Ahold's claim for a declaratory judgment that the "best
efforts" provisions in the Merger Agreement are unenforceable. Ahold opposed the
motion and cross moved for summary judgment on the same claim. On December 6,
2000, the Court indicated that it intended to enter an order granting Ahold's
motion for partial summary judgment regarding the Company's counterclaim
alleging that Ahold had failed to comply with the "best efforts" provision of
the Merger Agreement. If such an order is entered, the Company intends to take
all appropriate action to have that order vacated through either a motion for
reconsideration filed with the Court or an appeal to the New York State Supreme
Court, Appellate Division. Notwithstanding the Court's order, the Company has
two viable counterclaims against Ahold that it intends to pursue.
ITEM 2. CHANGE IN SECURITIES
On September 19, 2000, the Company consummated its plan of reorganization
(the "Plan of Reorganization"). In connection with the Plan of Reorganization,
the Company canceled its former bond indebtedness, common stock and preferred
stock. There are 100,000,000 shares of common stock authorized under the
Company's Certificate of Incorporation. Of such authorized shares, 30,000,000
shares have been distributed to the holders of the former bond indebtedness and
98,510 shares have been issued to the Chief Executive Officer. In addition, the
Company also issued warrants to purchase 5,294,118 shares of common stock, with
an exercise price of $22.31 per share.
ITEM 5. OTHER INFORMATION
The Company's common stock and warrants are currently trading on the Nasdaq
Stock Market under the ticker symbols "PTMK" AND "PTMKW", respectively.
<PAGE>
PATHMARK STORES, INC.
ITEM 6. EXHIBITS AND REPORT ON FORM 8-K
(a) EXHIBITS:
Exhibit 27-1 Financial Data Schedule, for the 6 weeks ended October
28, 2000.
Exhibit 27-2 Financial Data Schedule, for the 33 weeks ended
September 16, 2000.
(b) REPORT ON FORM 8-K: A current report on Form 8-K, dated September
22, 2000, relating to the confirmation of the Company's Plan of
Reorganization, was filed during the quarter ended October 28, 2000.
<PAGE>
PATHMARK STORES, INC.
SIGNATURES
Pursuant to the requirements 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.
PATHMARK STORES, INC.
BY /s/ FRANK VITRANO
---------------------------------------
(FRANK VITRANO)
EXECUTIVE VICE PRESIDENT AND
CHIEF FINANCIAL OFFICER
BY /s/ JOSEPH ADELHARDT
---------------------------------------
(JOSEPH ADELHARDT)
SENIOR VICE PRESIDENT AND CONTROLLER,
CHIEF ACCOUNTING OFFICER
DATE: December 12, 2000
